<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
THE COLONIAL BANCGROUP, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 6711 63-0661573
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
ONE COMMERCE STREET, SUITE 800 (334) 240-5000
MONTGOMERY, ALABAMA 36104 (Telephone No.)
(Address of principal executive offices)
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---------------------------
W. FLAKE OAKLEY, IV
SECRETARY
POST OFFICE BOX 1108
MONTGOMERY, ALABAMA 36102
(Name and address of agent for service)
Copies to:
MICHAEL D. WATERS, ESQUIRE DAVID M. CALHOUN, ESQ.
MILLER, HAMILTON, SNIDER & ODOM, L.L.C. LONG, ALDRIDGE & NORMAN
ONE COMMERCE STREET, SUITE 802 ONE PEACHTREE CENTER, SUITE 5300
P. O. BOX 19 303 PEACHTREE STREET
MONTGOMERY, ALABAMA 36101-0019 ATLANTA, GEORGIA 30308
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE (1)
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==================================================================================================================
Title of Each Amount to be Proposed Maximum Proposed Maximum Amount of
Class of Registered Offering Price Per Aggregate Offering Registration Fee
Securities to be Unit Price
Registered
- ------------------------------------------------------------------------------------------------------------------
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Common Stock, par
value $2.50 per
share 3,055,232(2) Not Applicable $19,978,000 $6,888.97
==================================================================================================================
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(1) Calculated pursuant to Rule 457(f)(2) based upon book value of company
acquired at December 31, 1995.
(2) Represents an estimated maximum. The actual number of shares to be
issued will vary based upon the market price of registrant's
securities at closing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
<PAGE> 2
THE COLONIAL BANCGROUP, INC.
CROSS REFERENCE SHEET
TO ITEMS IN FORM S-4
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CAPTION IN PROSPECTUS OR OTHER
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN REGISTRATION STATEMENT
- -------------------------------- ----------------------------------
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Item 1. Forepart of Registration Statement Facing page,
and Outside Front Cover Page of Cross Reference Sheet,
Prospectus Outside front cover page of
Prospectus
Item 2. Inside Front and Outside Back "AVAILABLE INFORMATION,"
Cover Pages of Prospectus Inside front cover page of Pros-
pectus, "DOCUMENTS INCOR-
PORATED BY REFERENCE,"
"TABLE OF CONTENTS"
Item 3. Risk Factors, Ratio of Earnings "SUMMARY," Cover Page of Pros-
to Fixed Charges and Other pectus, "PER SHARE
Information DATA," "APPROVAL OF THE
MERGER," "PRO FORMA
FINANCIAL INFORMATION"
AND "SELECTED FINANCIAL DATA"
Item 4. Terms of the Transaction "APPROVAL OF THE
MERGER," "DOCUMENTS
INCORPORATED BY
REFERENCE"
Item 5. Pro Forma Financial Information "PER SHARE DATA,"
"CONDENSED PRO FORMA
STATEMENTS OF CONDITION,"
AND "CONDENSED PRO FORMA
STATEMENTS OF INCOME"
Item 6. Material Contacts with the Company "APPROVAL OF THE MERGER
-- Background of the Merger,"
"Reasons for the Merger," and
"Interests of Certain Persons in the
Merger"
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Item 7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
Item 8. Interests of Named Experts and "LEGAL MATTERS"
Counsel
Item 9. Disclosure of Commission Position Not Applicable; See Items
on Indemnification for Securities 20 and 22 below
Act Liabilities
Item 10. Information with Respect to S-3 "DOCUMENTS INCORPORAT-
Registrants ED BY REFERENCE," "BUSI-
NESS OF BANCGROUP -
Proposed Affiliate Banks" and
-" Management Information"
Item 11. Incorporation of Certain Information "DOCUMENTS INCORPORATED
by Reference BY REFERENCE"
Item 12. Information with Respect to S-2 or Not Applicable
S-3 Registrants -- Item 12(b)
Item 13. Incorporation of Certain Information Not Applicable
by Reference
Item 14. Information with Respect to Not Applicable
Registrants Other Than S-3 or S-2
Registrants
Item 15. Information with Respect to S-3 Not Applicable
Companies
Item 16. Information with Respect to S-2 or Not Applicable
S-3 Companies
Item 17. Information with Respect to "BUSINESS OF CBG"
Companies Other than S-3 or S-2 "FINANCIAL STATEMENTS"
Companies
Item 18. Information if Proxies, Consents or "INTRODUCTION," "BUSINESS
Authorizations are to be Solicited OF BANCGROUP - Voting
Securities and Principal
Stockholders," "Security Ownership
of Management," "Management
Information"
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Item 19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be
Solicited or in an Exchange Offer
Item 20. Indemnification of Directors and PART II, Item 20
Officers
Item 21. Exhibits and Financial Statement PART II, Item 21
Schedules
Item 22. Undertakings PART II, Item 22
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COMMERCIAL BANCORP OF GEORGIA, INC.
390 CROGAN STREET
LAWRENCEVILLE, GEORGIA 30245
, 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
p.m., local time, on , , 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 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 MERGER 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.
<PAGE> 6
We look forward to seeing you at the Special Meeting.
Sincerely,
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> 7
COMMERCIAL BANCORP OF GEORGIA, INC.
390 CROGAN STREET
LAWRENCEVILLE, GEORGIA 30245
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT P.M. ON , 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
, 1996, at 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
, 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
RICHARD SIKES
Chairman of the Board, President
and Chief Executive Officer
Lawrenceville, Georgia
, 1996
<PAGE> 8
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 Shares." 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 February 23, 1996, was $31 7/8.
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 described
herein 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 36192 (telephone 334-240-5000).
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 9
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, 1994;
(2) BancGroup's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995;
(3) BancGroup's Current Report on Form 8-K dated February 21, 1995;
(4) BancGroup's Current Report on Form 8-K/A dated April 21, 1995;
(5) BancGroup's Current Report on Form 8-K dated July 10, 1995; and
(6) 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
(ii)
<PAGE> 10
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 at Appendix A.
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> 11
TABLE OF CONTENTS
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CAPTION PAGE
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SUMMARY...............................................................................
INTRODUCTION..........................................................................
General...............................................................................
Record Date; Shares Entitled to Vote; Vote Required for the Merger....................
Solicitation, Voting and Revocation of Proxies........................................
Voting Effect of Merger...............................................................
APPROVAL OF THE MERGER................................................................
General...............................................................................
Background of the Merger..............................................................
Reasons for the Merger................................................................
Opinion of Financial Advisor..........................................................
Interests of Certain Persons in the Merger............................................
Conversion of CBG Common Stock........................................................
Certain Federal Income Tax Consequences...............................................
Other Possible Consequences...........................................................
Conditions of Consummation of the Merger..............................................
Conduct of Business Pending the Merger................................................
Rights of Dissenting Stockholders.....................................................
Resale of BancGroup Common Stock......................................................
Accounting Treatment..................................................................
COMPARATIVE MARKET PRICES AND DIVIDENDS...............................................
BancGroup.............................................................................
CBG...................................................................................
BANCGROUP CAPITAL STOCK AND DEBENTURES................................................
Common Stock..........................................................................
Preference Stock......................................................................
1986 Debentures.......................................................................
Changes in Control....................................................................
COMPARATIVE RIGHTS OF STOCKHOLDERS....................................................
Director Elections....................................................................
Removal of Directors..................................................................
Authorized Capital Stock..............................................................
Voting................................................................................
Preemptive Rights.....................................................................
Directors' Liability..................................................................
Indemnification.......................................................................
Special Meeting of Stockholders; Action Without a Meeting.............................
Mergers, Share Exchanges and Sales of Assets..........................................
Amendment of Certificate of Incorporation and Bylaws..................................
Rights of Dissenting Stockholders.....................................................
Antitakeover Statutes.................................................................
Preferred Stock.......................................................................
Dividends.............................................................................
Effect of the Merger on Financial Stockholders........................................
PRO FORMA INFORMATION.................................................................
Condensed Pro Forma Statements of Condition (Unaudited)...............................
Condensed Pro Forma Statements of Income (Unaudited)..................................
</TABLE>
(iv)
<PAGE> 12
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CAPTION PAGE
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RECENT DEVELOPMENTS -- BANCGROUP, COMMERCIAL BANCORP OF GEORGIA, INC., DOTHAN FEDERAL
SAVINGS BANK, AND SOUTHERN BANKING CORPORATION......................................
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES.........................................
Selected Interim Financial Data (Unaudited)...........................................
Selected Financial Data (as restated).................................................
Selected Quarterly Financial Data 1994-1993 (as restated).............................
COMMERCIAL BANCORP OF GEORGIA, INC AND SUBSIDIARY.....................................
Selected Consolidated Financial Data..................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations..........................................................................
BUSINESS OF BANCGROUP.................................................................
General...............................................................................
Lending Activities....................................................................
Proposed Affiliate Bank...............................................................
Voting Securities and Principal Stockholders..........................................
Security Ownership of Management......................................................
Management Information................................................................
Certain Regulatory Considerations.....................................................
BUSINESS OF CBG.......................................................................
General...............................................................................
Lending Activities....................................................................
Loan Origination......................................................................
Loan Fee Income.......................................................................
Non-Performing Assets and Allowance for Loan Losses...................................
Investment Securities and Federal Funds Sold..........................................
Deposits..............................................................................
Borrowings............................................................................
Asset and Liability Management........................................................
Data Processing.......................................................................
Supervision and Regulation............................................................
Market Area...........................................................................
Competition...........................................................................
Employees.............................................................................
Properties............................................................................
Legal Proceedings.....................................................................
CBG Common Stock Owned by Management and Principal Stockholders.......................
ADJOURNMENT OF SPECIAL MEETING........................................................
OTHER MATTERS.........................................................................
DATE FOR SUBMISSION OF BANCGROUP'S STOCKHOLDER PROPOSAL...............................
INDEPENDENT ACCOUNTANTS...............................................................
LEGAL MATTERS.........................................................................
INDEX TO FINANCIAL STATEMENTS.........................................................
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>
(v)
<PAGE> 13
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.
(vi)
<PAGE> 14
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 or to merge Commercial Bank with
BancGroup's existing subsidiary federal savings bank located in Georgia,
Colonial Bank, which is referred to herein as Colonial Bank -- Georgia.
BancGroup has not made a decision as to whether Commercial Bank will continue to
be operated as a separate commercial bank or will be merged with Colonial
Bank -- Georgia and a decision may not be made until on or about the time of
consummation of the Merger. 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 , , 1996, at 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 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 $30, then the Exchange Ratio will be
.7023, and each share of CBG Common Stock will be converted on the Effective
Date into .7023 of a share of BancGroup Common Stock (i.e., $21.07 divided by
$30). As a result, a stockholder of CBG holding 100 shares of CBG Common Stock
would receive in the aggregate 70.23 shares of BancGroup Common Stock (100
multiplied by .7023) with the .23 of a share of BancGroup Common Stock converted
to cash equal to $6.90 ($30 multiplied by .23). The closing sales price on the
NYSE of the BancGroup Common Stock on February 23, 1996, was $31 7/8 per share.
See "COMPARATIVE MARKET PRICES AND DIVIDENDS."
Holders of options and warrants (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 348,351 shares of CBG Common
Stock subject to issue upon the exercise of CBG Options.
1
<PAGE> 15
BancGroup will also assume certain stock appreciation rights and deferred
compensation rights held by certain directors, officers and employees 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 Shares" 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 Shares."
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 in 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> 16
INTEREST OF CERTAIN PERSONS IN THE MERGER
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 "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 shares are
outstanding. Only those stockholders of CBG who were stockholders of record at
the close of business on , 1996 are entitled to notice of and to
vote at the Special Meeting. CBG's directors and executive officers own in the
aggregate approximately % 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 2,103,478 shares representing 15.35% 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) does not vote
in favor of the Merger. 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 Shares";
"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."
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
3
<PAGE> 17
Department of Banking and Finance (the "Georgia Department") and the Board of
Governors of the Federal Reserve System (the "Federal Reserve"). Applications
are expected to be filed with these agencies within the next two weeks, and the
regulatory approval process is expected to take approximately five months. If
Commercial Bank is merged with Colonial Bank -- Georgia, an application with the
Office of Thrift Supervision ("OTS") and written notification to the Federal
Reserve will also be required. 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., a Georgia corporation and the bank holding
company for Commercial Bank of Georgia. At the effective time of this
transaction, CBG changed its name to "Commercial Bancorp of Georgia, Inc." On
September 30, 1995, Commercial Bank of Georgia 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 year ended December 31, 1994, CBG reported consolidated net income
of $698,000 after giving retroactive effect to the merger of CBG and Commercial
Bancorp of Georgia. For the nine months ended September 30, 1995, CBG reported
consolidated net income of $1.7 million. As of September 30, 1995, CBG had total
assets of $226.8 million, total deposits of $202.9 million and stockholders'
equity of $20.6 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 98, 4, and 4 banking offices, respectively.
Colonial Mortgage Company, a subsidiary of BancGroup's Alabama bank subsidiary,
Colonial Bank, is a mortgage company that has $9 billion of residential loan
servicing and 13 offices in 12 states. As of September 30, 1995, BancGroup had
consolidated assets of $3.4 billion and consolidated shareholders' equity of
$223.2 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> 18
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 March , 1996, CBG had shares of its Common
Stock outstanding and 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 January 31, 1996, 13,491,691 shares were issued and outstanding.
Further, up to 345,321 shares of Common Stock are issuable upon conversion of
certain debentures of BancGroup and 214,957 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 at 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. 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> 19
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 (through February 23, 1996)........................... 32 1/2 30 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) $10.50(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 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 consider non-economic and other factors
in evaluating a "business combination," (4) inability of stockholders
6
<PAGE> 20
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>
NINE MONTHS
ENDED YEAR YEAR YEAR
SEPTEMBER 30, ENDED ENDED ENDED
1995 1994(A) 1993(A) 1992(A)
------------- ------ ------ ------
<S> <C> <C> <C> <C>
BANCGROUP-HISTORICAL (RESTATED):(1)
Net Income
Primary..................................................................... $2.35 $ 2.28 $ 2.30 $ 1.72
Fully diluted............................................................... 2.27 2.23 2.21 1.71
Book value at end of period................................................... 18.22 16.08 14.64 11.27
Dividends per share:
Common Stock................................................................ 0.675
Common A.................................................................... 0.80 0.71 0.67
Common B.................................................................... 0.40 0.31 0.27
COMMERCIAL BANCORP OF GEORGIA, INC.:
Net Income
Historical:(d)
Primary................................................................... 0.94 0.38 0.70 (0.08)
Fully diluted............................................................. 0.94 0.38 0.70 (0.08)
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc. only(b):
Primary................................................................... 1.54 1.44 1.46 1.02
Fully diluted............................................................. 1.49 1.41 1.42 1.03
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc, Southern Banking Corporation and Dothan Federal Savings Bank(b):
Primary................................................................... 1.45 1.36 1.33 0.92
Fully diluted............................................................. 1.42 1.35 1.31 0.92
Book value at end of period
Historical.................................................................. 11.10 10.09 9.79 9.11
Pro forma equivalent assuming acquisition of Commercial Bancorp of
Georgia, Inc............................................................ 12.29 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)................................................................. 11.76 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....................................................................... 0.46 0.54 0.48 0.46
Pro forma equivalent assuming acquisition of Commercial Bancorp of Georgia,
Inc., Southern Banking Corporation and Dothan Federal Savings Bank(c)..... 0.46 0.54 0.48 0.46
BANCGROUP -- PRO FORMA COMBINED (COMMERCIAL BANCORP OF GEORGIA, INC. ONLY):
Net Income:
Primary..................................................................... 2.26 2.12 2.15 1.50
Fully diluted............................................................... 2.19 2.08 2.09 1.51
Book value at end of period................................................... 18.08 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
Primary..................................................................... 2.14 2.00 1.96 1.35
Fully diluted............................................................... 2.09 1.98 1.92 1.35
Book value at end of period................................................... 17.30 N/A N/A N/A
</TABLE>
- ---------------
(1) As restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company.
N/A Not applicable due to pro forma balance sheet being presented only at
September 30, 1995 which assumes the transaction was consummated on the
latest balance sheet date in accordance with Rule 11.02(b) of Regulation
S-X.
7
<PAGE> 21
(a) Per share data of BancGroup (restated) is for the years ended December 31,
1994, 1993 and 1992. Per share data of CBG is for the years ended December
31, 1994, 1993 and 1992.
(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 by the conversion ratio so that the per share
amounts are equated to the respective values for one share of Commercial
Bancorp of Georgia, Inc. For the purposes of these pro forma equivalent per
share amounts, a .67986 BancGroup Common Stock share conversion ratio is
utilized. The ratio is based on the 30-day average market price of Colonial
BancGroup, Inc. Common Stock of $30.9917 at January 9, 1996
($21.07 / 30.9917 = .67986).
(c) Pro forma equivalent dividends per share are shown at BancGroup's Class A
Common Stock dividend per share rate multiplied by the .67986 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.
(d) At December 31, 1995 CBG reported a net loss of $852,000 or ($.47) per share
for the three months ended December 31, 1995 and net income of $857,000 or
$.47 per share for the year ended December 31, 1995. The fourth quarter net
loss is primarily attributable to the accrual of additional expenses
regarding the Merger and an additional provision to the allowance for loan
losses. See "Recent Developments -- Commercial Bancorp of Georgia, Inc."
8
<PAGE> 22
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 , 1996, at 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 , 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 record holders of CBG Common
Stock as of such date. On that date, there were shares of CBG Common Stock
outstanding, each entitled to one vote per share. An additional 348,351 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> 23
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.
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 $30 on the Effective Date, 1,282,958 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 8.7% 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 either as a commercial bank subsidiary of BancGroup
or to merge Commercial Bank with BancGroup's subsidiary federal savings bank in
Georgia. BancGroup has not made a decision regarding Commercial Bank and a
decision may not be made until on or about the Effective Date.
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
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Special Meeting. Any such adjournment will require the affirmative vote of a
majority of shares present at the 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 Commercial Bancorp of Georgia, Inc. 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, Commercial
Bancorp of Georgia, Inc., received indications of possible interest from several
financial institutions regarding business combinations, including a written
indication of interest from BancGroup. 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 numerous factors, including the
competitive and economic conditions in its market areas, the recent
consolidations in the banking industry and the affect of recent legislation and
proposed legislation on CBG and its competitors. As a result of this analysis,
in July 1995, the Board of Directors determined that it would be in the best
interests of CBG and its stockholders to solicit from other financial
institutions indications of interest in connection with the possible sale of
CBG. 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
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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 the Board believed to
be particularly important 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 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.
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<PAGE> 26
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
is believed to include 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.
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 in Appendix C of
this Prospectus and should be read in its entirety by stockholders of CBG.
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
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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.
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-
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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 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.
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
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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 $30, then the Exchange Ratio will be
.7023, and each share of CBG Common Stock will be converted on the Effective
Date into .7023 of a share of BancGroup Common Stock (i.e., $21.07 divided by
$30). As a result, a stockholder of CBG holding 100 shares of CBG Common Stock
would receive in the aggregate 70.23 shares of BancGroup Common Stock (100
multiplied by .7023) with the .23 of a share of BancGroup Common Stock converted
to cash equal to $6.90 ($30 multiplied by .23). The closing sales price on the
NYSE of the BancGroup Common Stock on February 23, 1996, was $31 7/8 per share.
Holders of 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 CBG Options shall be adjusted by dividing the
per share exercise price for each CBG Option by the Exchange Ratio. There are
348,351 shares of CBG Common Stock subject to issue upon the exercise of CBG
Options.
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. Trust Company 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.
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., 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 at Appendix D.
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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 (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.
Assuming 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) 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
(v) 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.
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
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<PAGE> 31
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 ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER 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 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 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 are expected to be filed with these agencies
within the next two weeks, and the regulatory approval process is expected to
take approximately five months. The merger of Commercial Bank with Colonial
Bank -- Georgia, should BancGroup decide to proceed with that merger, must also
be approved by the Office of Thrift Supervision ("OTS"). 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.
With respect to the merger of Commercial Bank with Colonial Bank -- Georgia, The
Bank Merger Act imposes a waiting period which prohibits consummation of such
merger, in ordinary circumstances, for a period ranging from 15-30 days
following OTS approval of such merger. During such period, the United States
Department of Justice, should it object to such merger for antitrust reasons,
may challenge the consummation of the merger.
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<PAGE> 32
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 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 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
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<PAGE> 33
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;
(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
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<PAGE> 34
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)
does not vote in favor of the Merger. The notice must be delivered to Commercial
Bancorp of Georgia, Inc., attention Corporate Secretary, 390 Crogan Street,
Lawrenceville, Georgia 30245. 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 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
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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 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 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 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.
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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.
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
(through February 23, 1996)............................... 32 1/2 30 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, 1994, 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. 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 January 31, 1996, there were issued and
outstanding a total of 13,491,691 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 $9,964,000 are currently
outstanding and are convertible at any time into 345,321 shares of Common Stock,
subject to adjustment. There are 214,957 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."
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The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law 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 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
Trust Company 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 345,321 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
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<PAGE> 38
in the 1986 Indenture, to the prior payment when due of all Senior Indebtedness
of BancGroup. "Senior Indebtedness" is defined as any indebtedness of BancGroup
for money borrowed, or any indebtedness incurred in connection with an
acquisition or with a merger or consolidation, outstanding on the date of
execution of the 1986 Indenture as originally executed, or thereafter created,
incurred or assumed, and any renewal, extension, modification or refunding
thereof, for the payment of which BancGroup (which term does not include
BancGroup's consolidated or unconsolidated subsidiaries) is at the time of
determination responsible or liable as obligor, guarantor or otherwise. Senior
Indebtedness does not include (i) indebtedness as to which, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such indebtedness is subordinate in right of payment to any
other indebtedness of BancGroup, and (ii) indebtedness which by its terms states
that such indebtedness is subordinate to or equally subordinate with the 1986
Debentures.
At September 30, 1995, BancGroup's Senior Indebtedness as defined in the
1986 Indenture aggregated approximately $543.8 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
25
<PAGE> 39
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 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.
26
<PAGE> 40
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.
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 ,
1996, 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 13,491,691 shares were issued and
outstanding as of January 31, 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.
27
<PAGE> 41
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.
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
28
<PAGE> 42
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.
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.
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
29
<PAGE> 43
surviving corporation after the effective date of the merger; and (iii) either
no shares of common stock of the surviving corporation and no shares, securities
or obligations convertible into such stock are to be issued or delivered under
the plan of merger, or the authorized unissued shares or the treasury shares of
common stock of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed 20% of the shares of common stock of such corporation outstanding
immediately prior to the effective date of the merger. See also "BANCGROUP
CAPITAL STOCK AND DEBENTURES -- Changes in Control" for a description of the
statutory provisions and the provisions of the BancGroup Certificate relating to
changes of control of BancGroup. See "Antitakeover Statutes" for a description
of additional restrictions on business combination transactions.
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.
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<PAGE> 44
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.
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 earn 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 March , 1996, the number of stockholders of record of CBG was
and the number of shares of CBG Common Stock outstanding was .
As of January 31, 1996, BancGroup had 13,491,691 shares of BancGroup Common
Stock outstanding with 5,388 stockholders of record.
Assuming at the Effective Date a Market Value per share of the BancGroup
Common Stock of $30, and no exercises of CBG Options or dissenters' rights,
1,282,958 shares of BancGroup Common Stock would be distributed to the
stockholders of CBG pursuant to the Merger. These shares would represent 8.7% 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 244,659 shares of BancGroup Common Stock after the Effective Date.
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<PAGE> 45
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 14.2% 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> 46
THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
(IN THOUSANDS)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of September 30, 1995, (ii) the
condensed consolidated statement of condition of Commercial Bancorp of Georgia,
Inc. and subsidiaries ("CBG") as of September 30, 1995, (iii) the condensed
consolidated statement of condition of Southern Banking Corporation and
subsidiary ("SBC") as of September 30, 1995, (iv) the condensed statement of
condition of Dothan Federal Savings Bank ("Dothan Federal") as of September 30,
1995, (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 September 30, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of condition of
BancGroup and subsidiaries (as restated), 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. The pro forma statements provided do not reflect two immaterial
completed acquisitions: Mt. Vernon Financial Corporation and Farmers and
Merchants Bank.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------------------------------------------------------------------
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................. $ 100,485 $ 12,682 $ 113,167 $ 14,832
Interest-bearing deposits............... 3,737 3,737 1,044
Federal funds sold...................... 1,250 25,900 27,150 9,500
Securities available for sale........... 114,057 17,004 131,061 18,386
Investment securities................... 305,407 17,873 323,280 15,959
Mortgage loans held for sale............ 140,437 140,437
Loans, net of unearned income........... 2,562,386 142,940 2,705,326 142,130
Less: Allowance for possible loan
losses................................ (35,691) (1,926) (37,617) (1,715)
---------- ------------- ------------ ---------- ----------- ------------
Loans, net.............................. 2,526,695 141,014 2,667,709 140,415
Premises and equipment, net............. 47,841 5,671 53,512 4,957
Excess of cost over tangible and
intangible assets acquired, net....... 18,145 18,145 2,438
Purchased mortgage servicing rights..... 74,489 74,489
Other real estate owned................. 8,807 1,446 10,253 156
Accrued interest and other assets....... 59,227 5,256 64,483 3,038
---------- ------------- ------------ ---------- ----------- ------------
Total Assets.................... $3,400,577 $ 226,846 $ 0 $3,627,423 $ 210,725 $ 0
========= ========== ========== ========= ========= ==========
<CAPTION>
SEPTEMBER 30, 1995
--------------------------------------------------------
PRO FORMA
DOTHAN FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
---------- -------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks................. $ 127,999 $ 2,643 $ (2,600)(5) $ 128,042
Interest-bearing deposits............... 4,781 4,781
Federal funds sold...................... 36,650 36,650
Securities available for sale........... 149,447 5,195 154,642
Investment securities................... 339,239 3,248 $ (13)(5) 342,474
Mortgage loans held for sale............ 140,437 140,437
Loans, net of unearned income........... 2,847,456 35,457 2,882,913
Less: Allowance for possible loan
losses................................ (39,332) (14) (39,346)
---------- ------- ------------ ----------
Loans, net.............................. 2,808,124 35,443 2,843,567
Premises and equipment, net............. 58,469 1,051 59,520
Excess of cost over tangible and
intangible assets acquired, net....... 20,583 1,574(5) 22,157
Purchased mortgage servicing rights..... 74,489 74,489
Other real estate owned................. 10,409 10,409
Accrued interest and other assets....... 67,521 504 (22)(5) 68,170
(29)(5)
196(5)
---------- ------- ------------ ----------
Total Assets.................... $3,838,148 $ 48,084 $ (894) $3,885,338
========= ============ ========== =========
</TABLE>
33
<PAGE> 47
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------------------------------------------------------------------
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................................ $2,539,762 $ 202,907 $2,742,669 $ 193,056
FHLB short-term borrowings.............. 420,000 420,000
Other short-term borrowings............. 106,418 106,418
Subordinated debt....................... 17,418 17,418
Other long-term debt.................... 24,005 24,005 1,476
Other liabilities....................... 69,746 3,321 73,067
---------- ------------- ------------ ---------- ----------- ------------
Total liabilities............... 3,177,349 206,228 3,383,577 194,532
Common Stock............................ 30,622 1,857 $ (1,857)(2) 33,727 3,362 $ (3,362)(4)
3,105(1) 4,013(3)
Additional paid in capital.............. 116,211 16,090 (16,090)(2) 130,753 7,405 (7,405)(4)
14,542(1) 6,754(3)
Treasury Stock.......................... (300) 300(2)
Retained earnings....................... 76,176 2,946 79,122 5,543
Unrealized loss on securities........... 219 25 244 (117)
---------- ------------- ------------ ---------- ----------- ------------
Total equity.................... 223,228 20,618 0 243,846 16,193 0
Total liabilities and equity............ $3,400,577 $ 226,846 $ 0 $3,627,423 $ 210,725 $ 0
========= ========== ========== ========= ========= ==========
<CAPTION>
SEPTEMBER 30, 1995
-------------------------------------------------------
PRO FORMA
DOTHAN FEDERAL ADJUSTMENTS/ COMBINED
SUBTOTAL SAVINGS BANK (DEDUCTIONS) TOTAL
---------- -------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits................................ $2,935,725 $ 41,042 $2,976,767
FHLB short-term borrowings.............. 420,000 420,000
Other short-term borrowings............. 106,418 106,418
Subordinated debt....................... 17,418 17,418
Other long-term debt.................... 25,481 2,500 27,981
Other liabilities....................... 73,067 588 $ 460(5) 74,115
---------- ------- ------------ ----------
Total liabilities............... 3,578,109 44,130 460 3,622,699
Common Stock............................ 37,740 4 (4)(5) 37,944
204(5)
Additional paid in capital.............. 137,507 3,329 (3,329)(5) 139,903
2,396(5)
Treasury Stock..........................
Retained earnings....................... 84,665 636 (636)(5) 84,665
Unrealized loss on securities........... 127 (15) 15(5) 127
---------- ------- ------------ ----------
Total equity.................... 260,039 3,954 (1,354) 262,639
Total liabilities and equity............ $3,838,148 $ 48,084 ($ 894) $3,885,338
========= ============ ========== =========
</TABLE>
34
<PAGE> 48
Pro Forma Adjustments (In Thousands):
COMMERCIAL BANCORP OF GEORGIA, INC.
(pooling of interest)
(1) To record the issuance of 1,241,908 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of CBG:
<TABLE>
<S> <C> <C>
Commercial Bancorp outstanding shares......................... 1,826,711
Conversion ratio, determined as follows: $21.07 / $30.9917 per
share, the 30-day average market value of BancGroup Common
Stock at January 9, 1996; see "Conversion of CBG Common
Stock"...................................................... 0.67986
---------
Colonial BancGroup shares to be issued........................ 1,241,908
=========
Par value of 1,241,908 shares issued at $2.50 per share....... $ 3,105
Shares issued at par value.................................... $ 3,105
Total capital stock of CBG.................................... 17,647
---------
Excess recorded as an increase in contributed
capital........................................... 14,542
--------
17,647
</TABLE>
(2) To eliminate CBG's capital stock:
<TABLE>
<S> <C>
Common stock, at par value................................................ (1,857)
Contributed capital....................................................... (16,090)
Treasury Stock............................................................ 300
--------
(17,647)
--------
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................. 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> <C> <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.
35
<PAGE> 49
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 81,729 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.................. $ 3,954
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................................................................ 1,574
---------
Total adjustments......................................................... 1,246
---------
Adjusted equity in carrying value of net assets........................... $ 5,200
========
Allocated as follows:
Par value of 81,729 shares issued for all outstanding shares of Dothan
Federal................................................................. $ 204
Estimated amount in excess of par value of 81,729 shares of BancGroup
Common Stock issued for Dothan Federal outstanding shares at an assumed
market value of $31.8125 per share (10 day average at January 9,
1996)................................................................... 2,396
Cash of approximately $6.51 per share paid to Dothan Federal
shareholders............................................................ 2,600
---------
Total purchase price...................................................... $ 5,200
========
</TABLE>
36
<PAGE> 50
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
nine months ended September 30, 1995 and the years ended December 31, 1994, 1993
and 1992 (as restated), (ii) the condensed consolidated statements of income of
CBG for the nine months ended September 30, 1995 and for the years ended
December 31, 1994, 1993 and 1992, (iii) the condensed consolidated statements of
income of SBC for the nine months ended September 30, 1995 and for the years
ended December 31, 1994, 1993 and 1992, (iv) the condensed statements of income
of Dothan Federal for the nine months ended September 30, 1995 and for the years
ended December 31, 1994, 1993 and 1992 (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, 1992.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries as restated, 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. These pro forma statements do not reflect three immaterial
completed purchase method acquisitions; Brundidge Banking Company, Mt. Vernon
Financial Corporation and Farmers and Merchants Bank.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 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.......................... $ 180,233 $ 13,877 $ 0 $ 194,110 $ 12,569 $ 0
Interest expense......................... 94,048 6,097 100,145 4,431
------------ -------------- ------------ ----------- ----------- ------------
Net interest income before provision for
loan losses............................ 86,185 7,780 0 93,965 8,138 0
Provision for loan losses................ 3,430 633 4,063 245
------------ -------------- ------------ ----------- ----------- ------------
Net interest income after provision for
loan losses............................ 82,755 7,147 0 89,902 7,893 0
------------ -------------- ------------ ----------- ----------- ------------
Noninterest income....................... 36,542 1,859 38,401 1,401
Noninterest expense...................... 74,810 6,183 80,993 6,178
------------ -------------- ------------ ----------- ----------- ------------
Income before income taxes............... 44,487 2,823 0 47,310 3,116 0
Income taxes............................. 15,734 1,114 16,848 1,147
------------ -------------- ------------ ----------- ----------- ------------
Net Income............................... $ 28,753 $ 1,709 $ 0 $ 30,462 $ 1,969 $ 0
------------ -------------- ------------ ----------- ----------- ------------
Average primary shares outstanding....... 12,247,000 1,826,711 1,241,908 13,488,908 3,647,540 1,605,235
(1,826,711) (3,647,540)
Average fully-diluted shares
outstanding............................ 13,017,000 1,826,711 1,241,908 14,258,908 3,647,541 1,605,235
(1,826,711) (3,647,541)
Earnings per share:
Net Income:
Primary.............................. $ 2.35 $ 0.94 $ 2.26 $ 0.54
Fully diluted........................ $ 2.27 $ 0.94 $ 2.19 $ 0.54
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 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.......................... $ 206,679 $ 2,616 $ 2(1) $ 209,185
(112)(1)
Interest expense......................... 104,576 1,628 106,204
----------- -------- ------------ -----------
Net interest income before provision for
loan losses............................ 102,103 988 (110) 102,981
Provision for loan losses................ 4,308 45 4,353
----------- -------- ------------ -----------
Net interest income after provision for
loan losses............................ 97,795 943 (110) 98,628
----------- -------- ------------ -----------
Noninterest income....................... 39,802 53 3(1) 39,858
Noninterest expense...................... 87,171 801 (17)(1) 88,014
59(1)
----------- -------- ------------ -----------
Income before income taxes............... 50,426 195 (149) 50,472
Income taxes............................. 17,995 83 (32)(1) 18,046
----------- -------- ------------ -----------
Net Income............................... $ 32,431 $ 112 $ (117) $ 32,426
----------- -------- ------------ -----------
Average primary shares outstanding....... 15,094,143 399,688 81,729 15,175,872
(399,688)
Average fully-diluted shares
outstanding............................ 15,864,143 399,688 81,729 15,945,872
(399,688)
Earnings per share:
Net Income:
Primary.............................. $ 2.15 $ 0.28 $ 2.14
Fully diluted........................ $ 2.10 $ 0.28 $ 2.09
</TABLE>
37
<PAGE> 51
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------------------------
COLONIAL COMMERCIAL SOUTHERN
BANCGROUP BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
(RESTATED)(1) 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 1,241,908 13,237,908 2,730,623 1,605,235
(1,826,711) (2,730,623)
Average fully-diluted shares
outstanding........................... 12,763,000 1,826,711 1,241,908 14,004,908 2,730,624 1,605,235
(1,826,711) (2,730,624)
Earnings per share:
Net income:
Primary............................. $ 2.28 $ 0.38 $ 2.12 $ 0.63
Fully diluted....................... $ 2.23 $ 0.38 $ 2.08 $ 0.63
<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...... 14,843,143 399,688 81,729 14,924,872
(399,688)
Average fully-diluted shares
outstanding........................... 15,610,143 399,688 81,729 15,691,872
(399,688)
Earnings per share:
Net income:
Primary............................. $ 2.00 $ 0.82 $ 2.00
Fully diluted....................... $ 1.98 $ 0.82 $ 1.98
</TABLE>
- ---------------
(1) Restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company and of its parent.
38
<PAGE> 52
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------------------------------------------------------
COLONIAL COMMERCIAL SOUTHERN
BANCGROUP BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
(RESTATED)(1) 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 1,241,908 10,771,908 1,077,791 1,605,235
(1,826,711) (1,077,791)
Average fully-diluted shares
outstanding........................... 10,623,000 1,826,711 1,241,908 11,864,908 1,077,791 1,605,235
(1,826,711) (1,077,791)
Earnings per share:
Net income:
Primary............................. $ 2.30 $ 0.70 $ 2.15 $ 0.75
Fully diluted....................... $ 2.21 $ 0.70 $ 2.09 $ 0.75
<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)(1)
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...... 12,377,143 399,688 81,729 12,458,872
(399,688)
Average fully-diluted shares
outstanding........................... 13,470,143 399,688 81,729 13,551,872
(399,688)
Earnings per share:
Net income:
Primary............................. $ 1.94 $ 1.97 $ 1.96
Fully diluted....................... $ 1.90 $ 1.93 $ 1.92
</TABLE>
- ---------------
(1) Restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company and of its parent.
39
<PAGE> 53
<TABLE>
<CAPTION>
DECEMBER 31, 1992
----------------------------------------------------------------------------------------
COLONIAL COMMERCIAL SOUTHERN
BANCGROUP BANCORP OF ADJUSTMENTS/ BANKING ADJUSTMENTS/
(RESTATED)(1) GEORGIA, INC. (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS)
------------- -------------- ------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 130,624 $ 10,300 $ 0 $ 140,924 $ 5,562 $ 0
Interest expense........................ 60,576 4,814 65,390 1,999
------------- -------------- ------------ ----------- ----------- ------------
Net interest income before provision for
loan losses........................... 70,048 5,486 0 75,534 3,563 0
Provision for loan losses............... 7,979 652 8,631 325
------------- -------------- ------------ ----------- ----------- ------------
Net interest income after provision for
loan losses........................... 62,069 4,834 0 66,903 3,238 0
------------- -------------- ------------ ----------- ----------- ------------
Noninterest income...................... 34,727 1,663 36,390 636
Noninterest expense..................... 75,529 6,688 82,217 3,419
------------- -------------- ------------ ----------- ----------- ------------
Income before income taxes.............. 21,267 (191) 0 21,076 455 0
Income taxes............................ 5,715 (45) 5,670 71
------------- -------------- ------------ ----------- ----------- ------------
Net Income.............................. $ 15,552 $ (146) $ 0 $ 15,406 $ 384 $ 0
========== ========== =========== ========== ========= ===========
Average primary shares outstanding...... 9,016,000 1,826,711 1,241,908 10,257,908 1,100,000 1,605,235
(1,826,711) (1,100,000)
Average fully-diluted shares
outstanding........................... 10,327,000 1,826,711 1,241,908 11,568,908 1,100,000 1,605,235
(1,826,711) (1,100,000)
Earnings per share:
Net income:
Primary............................. $ 1.72 $ (0.08) $ 1.50 $ 0.35
Fully diluted....................... $ 1.71 $ (0.08) $ 1.51 $ 0.35
<CAPTION>
DECEMBER 31, 1992
-----------------------------------------------------
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......................... $ 146,486 $ 3,022 $ 3(1) $ 149,361
(150)(1)
Interest expense........................ 67,389 1,616 69,005
----------- -------- ------------ -----------
Net interest income before provision for
loan losses........................... 79,097 1,406 (147) 80,356
Provision for loan losses............... 8,956 10 8,968
----------- -------- ------------ -----------
Net interest income after provision for
loan losses........................... 70,141 1,396 (147) 71,390
----------- -------- ------------ -----------
Noninterest income...................... 37,026 74 4(1) 37,104
Noninterest expense..................... 85,636 938 79(1) 86,631
(22)(1)
----------- -------- ------------ -----------
Income before income taxes.............. 21,531 532 (200) 21,863
Income taxes............................ 5,741 (42)(1) 5,699
----------- -------- ------------ -----------
Net Income.............................. $ 15,790 $ 532 $ (158) $ 16,164
========== ======== =========== ==========
Average primary shares outstanding...... 11,863,143 399,688 81,729 11,944,872
(399,688)
Average fully-diluted shares
outstanding........................... 13,174,143 399,688 81,729 13,255,872
(399,688)
Earnings per share:
Net income:
Primary............................. $ 1.33 $ 1.33 $ 1.35
Fully diluted....................... $ 1.36 $ 1.33 $ 1.35
</TABLE>
- ---------------
(1) Restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company and of its parent.
40
<PAGE> 54
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
Pro Forma Adjustments: 1995 1994 1993 1992
------------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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:
Increases in income:
Reversal of amortization of deposit
premium............................. $ 3 $ 4 $ 4 $ 4
Amortization of write-down of
investment securities (5 year
period)............................. 2 3 3 3
Decreases in income:
Earnings forgone on $2,600,000 cash at
an average interest rate of 5.75%... (112) (150) (150) (150)
------------- ------------ ------------ ------------
Total............................... (107) (143) (143) (143)
------------- ------------ ------------ ------------
Decrease in expense:
Reversal of prepaid expenses........... 17 22
Increase in expense:
Amortization of goodwill (20 year
period)............................. (59) (79) (79) (79)
------------- ------------ ------------ ------------
Total............................... (42) (79) (79) (57)
------------- ------------ ------------ ------------
Net decrease in income before tax........ (149) (222) (222) (200)
------------- ------------ ------------ ------------
Tax effect of the pro forma adjustments
(other than goodwill amortization)..... 32 50 50 42
------------- ------------ ------------ ------------
Net decrease in income................... $(117) $ (172) $ (172) $ (158)
========== ========== ========== ==========
</TABLE>
41
<PAGE> 55
RECENT DEVELOPMENTS
COLONIAL BANCGROUP INC., COMMERCIAL BANCORP OF GEORGIA, INC., DOTHAN FEDERAL
SAVINGS BANK, AND SOUTHERN BANKING CORPORATION
COLONIAL BANCGROUP INC. -- RECENT UNAUDITED RESULTS
The following condensed consolidated financial statements present certain
unaudited data for Colonial BancGroup as of and for the period ended December
31, 1995 and comparative data derived from audited financial statements as of
and for the year ended December 31, 1994. Unaudited historical data reflect, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such data. The unaudited
financial information is presented for informational purposes only and is not
necessarily indicative of the financial position or results of operations which
would have actually occurred if the transactions had been consummated in the
past or which may be obtained in the future.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994*
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Cash and due from banks............................................... $ 126,777 $ 129,720
Interest-bearing deposits in banks.................................... 5,384 1,777
Federal funds sold.................................................... -- 500
Securities available for sale......................................... 159,863 78,265
Investment securities................................................. 269,493 326,599
Mortgage loans held for sale.......................................... 110,486 60,536
Loans, net of unearned income......................................... 2,875,581 2,094,028
Less:
Allowance for possible loan losses.................................. (36,912) (33,410)
---------- ----------
Loans, net............................................................ 2,838,669 2,060,618
Premises and equipment................................................ 55,161 45,874
Excess of cost over tangible and identified intangible assets
acquired, net....................................................... 26,262 16,239
Mortgage servicing rights............................................. 80,053 54,796
Other real estate owned............................................... 8,781 8,199
Accrued interest and other assets..................................... 60,288 55,220
---------- ----------
Total....................................................... $3,741,217 $2,838,343
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.............................................................. $2,785,958 $2,171,464
FHLB short-term borrowings............................................ 465,000 210,000
Other short-term borrowings........................................... 132,256 134,550
Subordinated debt..................................................... 17,121 17,459
Other long-term debt.................................................. 29,038 69,042
Other liabilities..................................................... 58,696 44,277
---------- ----------
Total liabilities........................................... 3,488,069 2,646,792
---------- ----------
Shareholders' equity:
Preference Stock $2.50 par value; 1,000,000 shares authorized, none
issued...........................................................
Common Stock, $2.50 par value; 44,000,000 shares authorized,
13,084,721 shares issued and outstanding at December 31, 1995.... 32,712 --
Class A Common Stock, $2.50 par value; 40,000,000 shares authorized,
11,280,031 shares issued and outstanding at December 31,
1994**........................................................... -- 28,200
Class B Common Stock, $2.50 par value; 4,000,000 shares authorized,
635,088 shares issued and outstanding at December 31, 1994**..... 1,588
Additional paid in capital.......................................... 137,107 109,658
Retained earnings................................................... 83,315 55,042
Unearned compensation............................................... (822) --
Unrealized gains (losses) on securities available for sale, net of
taxes............................................................ 836 (2,937)
---------- ----------
Total shareholders' equity.................................. 253,148 191,551
---------- ----------
Total....................................................... $3,741,217 $2,838,343
========= =========
</TABLE>
- ---------------
* As restated
** On February 21, 1995 the Class A and Class B Common Stock were reclassified
into one class.
42
<PAGE> 56
COLONIAL BANCGROUP INC. -- RECENT UNAUDITED RESULTS -- (CONTINUED)
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- -------------------
1995 1994* 1995 1994*
----------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans........................ $ 224,784 $164,649 $ 63,780 $ 44,979
Interest on investments........................... 25,473 22,102 6,582 5,831
Other interest income............................. 643 479 305 60
----------- -------- -------- --------
Total interest income..................... 250,900 187,230 70,667 50,870
----------- -------- -------- --------
Interest expense:
Interest on deposits.............................. 99,490 68,663 29,243 18,443
Interest on short-term borrowings................. 29,231 10,425 8,314 3,941
Interest on long-term debt........................ 3,737 3,461 853 957
----------- -------- -------- --------
Total interest expense.................... 132,458 82,549 38,410 23,341
----------- -------- -------- --------
Net interest income before provision for possible
loan losses....................................... 118,442 104,681 32,257 27,529
Provision for possible loan losses.................. 5,480 6,481 2,050 1,767
----------- -------- -------- --------
Net interest income after provision for possible
loan losses....................................... 112,962 98,200 30,207 25,762
----------- -------- -------- --------
Noninterest income:
Mortgage servicing and origination fees........... 23,429 22,216 6,367 5,951
Service charges on deposit accounts............... 14,203 12,384 3,982 3,223
Other charges, fees and commissions............... 3,545 3,134 889 851
Securities gains, net............................. 5 84 1 --
Other income...................................... 8,993 6,425 2,394 1,403
----------- -------- -------- --------
Total noninterest income.................. 50,175 44,243 13,633 11,428
----------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits.................... $ 39,786 $ 43,355 $ 10,742 $ 11,667
Occupancy expense of bank premises, net........... 9,004 8,610 2,382 2,200
Furniture and equipment expenses.................. 8,504 7,468 2,417 1,950
Amortization of purchased servicing rights........ 9,095 6,078 3,145 2,116
Amortization of intangible assets................. 1,325 1,196 392 288
Other expense..................................... 35,516 34,084 9,342 8,783
----------- -------- -------- --------
Total noninterest expense................. 103,230 100,791 28,420 27,004
----------- -------- -------- --------
Income before income taxes.......................... 59,907 41,652 15,420 10,186
Applicable income taxes............................. 21,113 14,342 5,379 3,542
----------- -------- -------- --------
Net income................................ $ 38,794 $ 27,310 $ 10,041 $ 6,644
========= ======== ======== ========
Earnings per share:
Primary........................................... $ 3.12 $ 2.28 $ 0.78 $ 0.55
Fully diluted..................................... 3.02 2.23 0.75 0.54
Dividends paid:
Common Stock...................................... $ 0.90 N/A $ 0.225 N/A
Class A**......................................... N/A $ 0.80 N/A $ 0.20
Class B**......................................... N/A 0.40 N/A 0.10
</TABLE>
- ---------------
N/A not applicable
* As restated
** On February 21, 1995 BancGroup's Class A and Class B Common Stock were
reclassified into one class of stock called Common Stock.
43
<PAGE> 57
COLONIAL BANCGROUP INC. -- RECENT UNAUDITED RESULTS -- (CONTINUED)
Net income for year ended 1995 was $38,794,000 compared to $27,310,000 for
the previous year, a 42% increase. Earnings per share for the year were $3.02 on
a fully diluted basis, a 35% increase over 1994. The company's return on average
equity was 17.94% compared to 14.94% in 1994. Return on average assets was 1.20%
compared to 1.00% in 1994.
Net income for the fourth quarter of 1995 was $10,041,000 compared to
$6,644,000 in 1994, a 51% increase. Earnings per share for the fourth quarter of
1995 were $.75 compared to $.54 for the same period in 1994, a 39% increase.
The Company's internal loan growth of 25% has been a factor in its
increased earnings. Loans increased from $2.094 billion in 1994 to $2.876
billion in 1995. Loans increased $781.6 million or 37% over 1994. For the year
ended 1995, net charge-offs were $3.1 million, or .13% of average loans,
compared to $1.7 million, or .09% in 1994. The provision for loan losses was
$5.480 million for 1995 versus $6.481 million for 1994. Nonperforming assets at
year-end 1995 were $22.4 million, .78% of loans and other real estate compared
to .90% at year-end 1994. The total reserve for loan losses at year end 1995 was
$36.9 million or 1.28% of loans.
44
<PAGE> 58
COMMERCIAL BANCORP OF GEORGIA, INC. UNAUDITED RESULTS OF OPERATIONS AND
FINANCIAL HIGHLIGHTS FOR YEAR ENDED DECEMBER 31, 1995
The following condensed consolidated financial statements present certain
unaudited data for CBG as of and for the period ended December 31, 1995 and
comparative data derived from audited financial statements as of and for the
year ended December 31, 1994. Unaudited historical data reflect, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such data.
CBG unaudited results for the year ended December 31, 1995 reported net
income of $857,000 or $.47 per share, versus $698,000 or $.38 per share for the
prior year.
For the fourth quarter of 1995, CBG experienced a loss of $852,000 or
($.47) per share, as compared to net income of $121,000 or $.07 per share, for
the same period in 1994. The fourth quarter loss reflected additional provision
for loan losses of $892,000 as a result of $380,000 in normal monthly provision
and a one-time increase of $512,000 due to estimated change in economic
uncertainty as compared to approximately $290,000 for the fourth quarter of
1994. There was also approximately $1,219,000 of proposed acquisition related
expenses incurred in the fourth quarter of 1995.
Net interest income for the year ended December 31, 1995 increased over the
1994 as a result of increased interest income from slightly higher interest
rates and increased construction loan volume. Other income remained consistent
from year end 1994 to 1995.
BancGroup has previously considered the impact of the aforementioned fourth
quarter additional expenses and earnings trends in evaluating the exchange ratio
in the Merger, therefore, BancGroup does not expect the decrease in earnings or
additional expenses to have a material impact on BancGroup's future earnings or
financial condition.
BancGroup has advised CBG that CBG's unaudited 1995 financial results will
not affect the proposed Merger.
Set forth below are selected financial highlights for CBG for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------ -----------------------
1995 1994 1995 1994
------- ------ ----------- -------
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Total interest income..................... $ 5,263 $4,134 $19,140 $14,347
Total interest expense.................... 2,267 1,565 8,364 5,458
------- ------ ----------- -------
Net interest income....................... 2,996 2,569 10,776 8,889
Provision for loan losses................. 892 291 1,525 695
------- ------ ----------- -------
Net interest income after provision for
loan losses............................. 2,104 2,278 9,251 8,194
Total other income........................ 304 584 2,163 2,215
Total other expenses...................... 3,528 2,563 9,711 9,213
------- ------ ----------- -------
Income (loss) before taxes................ (1,120) 299 1,703 1,196
Income tax................................ (268) 178 846 498
------- ------ ----------- -------
Net income (loss)......................... (852) 121 857 698
======= ====== ========= =======
Net income (loss) per share............... (.47) .07 .47 .38
======= ====== ========= =======
Average share outstanding................. 1,827 1,827 1,827 1,827
</TABLE>
45
<PAGE> 59
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- --------
(UNAUDITED)
<S> <C> <C>
Total Assets............................................... $ 229,740 $199,377
Deposits................................................... 206,631 178,264
Loans receivable, net...................................... 142,230 133,736
Allowance for loan losses.................................. 2,670 1,966
Securities................................................. 35,813 26,588
Real estate owned.......................................... 1,247 1,480
Stockholders' equity....................................... 19,978 18,732
Stockholders' equity per share............................. 10.9367 10.2544
</TABLE>
46
<PAGE> 60
DOTHAN FEDERAL SAVINGS BANK UNAUDITED RESULTS OF OPERATIONS AND FINANCIAL
HIGHLIGHTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
The following condensed consolidated financial statements present certain
unaudited data for Dothan Federal as of and for the periods ended December 31,
1995 and 1994. Unaudited historical data reflect, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of such data.
Dothan Federal unaudited results for the six months ended December 31, 1995
reported net income of $71,000 or $.18 per share, versus $137,000 or $.34 per
share for the prior year.
For the second quarter of 1995, Dothan Federal showed net income of $40,000
or $.10 per share, as compared to net income of $70,000 or $.18 per share, for
the same period in 1994. The decrease in net income in the second quarter of
1995 as compared to the same period in 1994 is due to an increase in interest
expense as a result of increased deposit balances of approximately $7,691,000
over the same period in 1994.
Net interest income for the six months ended December 31, 1995 decreased
over 1994, again as a result of increased interest expense from higher deposit
balances. Other income and other expense remained consistent from six months
ended 1994 to 1995.
Set forth below are selected financial highlights for Dothan Federal for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED DECEMBER ENDED DECEMBER
31, 31,
----------------- -----------------
1995 1994 1995 1994
------- ------- ------- -------
(UNAUDITED)
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total interest income........................... $ 911 $ 796 $ 1,792 $ 1,552
Total interest expense.......................... 612 441 1,199 834
------- ------- ------- -------
Net interest income............................. 299 355 593 718
Provision for loan losses....................... 15 15 30 30
------- ------- ------- -------
Net interest income after provision for loan
losses........................................ 284 340 563 688
Total other income.............................. 25 25 55 42
Total other expenses............................ 239 254 493 509
------- ------- ------- -------
Income before taxes............................. 70 111 125 221
Income tax...................................... 30 41 54 84
------- ------- ------- -------
Net income...................................... 40 70 71 137
======= ======= ======= =======
Net income per share............................ .10 .18 .18 .34
Average share outstanding....................... 399,688 399,688 399,688 399,688
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(UNAUDITED)
<S> <C> <C>
Total Assets................................................... $48,620 $44,191
Deposits....................................................... 41,798 34,107
Loans receivable, net.......................................... 35,792 35,423
Allowances for loan losses..................................... 286 227
Securities..................................................... 11,213 7,043
Real estate owned.............................................. -- 5
Stockholders' equity........................................... 4,013 3,614
Stockholders' equity per share................................. 10.0402 9.0426
</TABLE>
47
<PAGE> 61
SOUTHERN BANKING CORPORATION UNAUDITED RESULTS OF OPERATIONS AND FINANCIAL
HIGHLIGHTS FOR YEAR ENDED DECEMBER 31, 1995
The following condensed consolidated financial statements present certain
unaudited data for SBC as of and for the period ended December 31, 1995 and
comparative data derived from audited financial statements as of and for the
year ended December 31, 1994. Unaudited historical data reflect, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such data.
SBC unaudited results for the year ended December 31, 1995 reported net
income of $2,091,000 or $.57 per share, versus $1,734,000 or $.63 per share for
the prior year.
For the fourth quarter of 1995, SBC recorded net income $122,000 or $.03
per share, as compared to net income of $726,000 or $.27 per share, for the same
period in 1994. The decrease in fourth quarter earnings in 1995 as compared to
the same period in 1994 was the result of approximately $893,000 in acquisition
related expenses incurred in the fourth quarter of 1995; as well as
approximately $250,000 in additional loan loss provision as a result of decline
in asset quality in the fourth quarter.
Net interest income for the year ended December 31, 1995 increased over the
1994 as a result of increased interest income from slightly higher interest
rates and increased loan volume. Other income remained consistent from year end
1994 to 1995. Other expense increased from year end 1994 to 1995 as a result of
approximately $893,000 in acquisition related expenses incurred in 1995.
BancGroup has previously considered the impact of the aforementioned fourth
quarter additional expenses and earnings trends in evaluating the exchange ratio
in the Merger, therefore, BancGroup does not expect the decrease in earnings or
additional expenses to have a material impact on BancGroup's future earnings or
financial condition.
BancGroup has advised SBC that SBC's unaudited 1995 financial results will
not affect the proposed Merger.
Set forth below are selected financial highlights for SBC for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
31, YEAR ENDED DECEMBER 31,
----------------- -----------------------
1995 1994 1995 1994
------ ------ ----------- -------
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Total interest income........................ $4,755 $4,243 $17,324 $10,326
Total interest expense....................... 1,702 1,085 6,133 2,895
------ ------ ----------- -------
Net interest income.......................... 3,053 3,158 11,191 7,431
Provision for loan losses.................... 280 60 525 330
------ ------ ----------- -------
Net interest income after provision for loan
losses..................................... 2,773 3,098 10,666 7,101
Total other income........................... 562 (129) 1,926 1,294
Total other expenses......................... 3,079 1,923 9,220 5,672
------ ------ ----------- -------
Income before taxes.......................... 256 1,046 3,372 2,723
Income tax................................... 134 320 1,281 989
------ ------ ----------- -------
Net income................................... 122 726 2,091 1,734
====== ====== ========= =======
Net income per share......................... .03 .27 .57 .63
====== ====== ========= =======
Average share outstanding.................... 3,648 2,731 3,648 2,731
</TABLE>
48
<PAGE> 62
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
----------- --------
(UNAUDITED)
<S> <C> <C>
Total Assets................................................... $ 230,270 $181,362
Deposits....................................................... 211,610 154,734
Loans receivable, net.......................................... 152,347 121,530
Allowances for loan losses..................................... 1,958 1,609
Securities..................................................... 33,663 34,735
Real estate owned.............................................. 129 --
Stockholders' equity........................................... 16,524 13,735
Stockholders' equity per share................................. 4.915 4.1001
</TABLE>
49
<PAGE> 63
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED INTERIM FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994*
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF CONDITION SUMMARY
Total assets...................................................... $ 3,400,577 $ 2,718,072
Loans, net of unearned income..................................... 2,562,386 1,980,201
Total earnings assets............................................. 3,127,274 2,485,042
Deposits.......................................................... 2,539,762 2,123,120
Shareholders' equity.............................................. 223,228 187,173
Book value per share.............................................. $ 18.22 $ 15.72
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994*
------- -------
<S> <C> <C>
EARNINGS SUMMARY
Net interest income (taxable equivalent)................................. $88,080 $78,793
Provision for loan losses................................................ 3,430 4,714
Noninterest income....................................................... 36,542 32,815
Noninterest expense...................................................... 74,810 73,787
Net income............................................................... 28,753 20,666
Average primary shares outstanding....................................... 12,247 11,986
Average fully diluted shares outstanding................................. 13,017 12,759
Per common share:
Fully-diluted earnings:
Net Income.......................................................... $ 2.35 $ 1.72
Dividends:
Common Stock........................................................ 0.675 N/A
Class A............................................................. N/A 0.60
Class B............................................................. N/A 0.30
------- -------
SELECTED RATIOS
Return on average assets................................................. 1.24% 1.02%
Return on average equity................................................. 18.51% 15.31%
Efficiency ratio......................................................... 60.03% 66.11%
Equity to assets......................................................... 6.56% 6.89%
Total capital............................................................ 8.04% 8.62%
Tangible leverage........................................................ 6.16% 6.45%
------- -------
</TABLE>
- ---------------
* As restated
50
<PAGE> 64
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(AS RESTATED)*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income............................. $187,230 $141,572 $130,624 $138,969 $137,343
Interest expense............................ 82,549 59,517 60,576 81,486 88,102
-------- -------- -------- -------- --------
Net interest income......................... 104,681 82,055 70,048 57,483 49,241
Provision for possible loan losses.......... 6,481 7,945 7,979 6,364 6,306
-------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses...................... 98,200 74,110 62,069 51,119 42,935
Noninterest income.......................... 44,243 40,433 34,727 31,271 28,547
Noninterest expense......................... 100,791 86,520 75,529 65,996 61,435
-------- -------- -------- -------- --------
Income before income taxes.................. 41,652 28,023 21,267 16,394 10,047
Applicable income taxes..................... 14,342 8,886 5,715 4,175 1,782
-------- -------- -------- -------- --------
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes............... 27,310 19,137 15,552 12,219 8,265
Extraordinary items, net of income taxes.... -- (463) -- 831 1,385
Cumulative effect of a change in accounting
for income taxes.......................... -- 3,219 -- -- --
-------- -------- -------- -------- --------
Net income.................................. $ 27,310 $ 21,893 $ 15,552 $ 13,050 $ 9,650
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes:
Primary................................... $ 2.28 $ 2.01 $ 1.72 $ 1.37 $ 0.94
Fully-diluted............................. $ 2.23 $ 1.96 $ 1.71 $ 1.37 $ 0.94
Net income:
Primary................................... $ 2.28 $ 2.30 $ 1.72 $ 1.47 $ 1.10
Fully-diluted............................. $ 2.23 $ 2.21 $ 1.71 $ 1.47 $ 1.10
Average shares outstanding:
Primary................................... 11,996 9,530 9,016 8,905 8,792
Fully-diluted............................. 12,763 10,623 10,327 10,247 10,095
Cash dividends per common share:(1)
Class A................................... $ 0.80 $ 0.71 $ 0.67 $ 0.63 $ 0.60
Class B................................... $ 0.40 $ 0.31 $ 0.27 $ 0.23 $ 0.20
======== ======== ======== ======== ========
</TABLE>
- ---------------
* As restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company, an entity under common control, which was accounted for
in a manner similar to a pooling of interests; restated BancGroup financial
statements were filed on July 10, 1995 on Form 8-K and are incorporated by
reference to this prospectus.
(1) On February 21, 1995, the Class A and Class B Common Stock were reclassified
into one class of Common Stock.
51
<PAGE> 65
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA -- (CONTINUED)
(AS RESTATED)*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1993(1) 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets....................... $2,838,343 $2,822,521 $1,796,246 $1,687,177 $1,568,216
Loans, net of unearned income...... 2,093,703 1,771,989 1,172,151 1,093,728 1,062,798
Mortgage loans held for sale....... 60,536 361,496 144,215 105,219 31,069
Deposits........................... 2,171,464 2,190,998 1,493,479 1,452,344 1,339,918
Long-term debt..................... 69,043 57,397 22,979 27,225 29,397
Shareholders' equity............... 191,551 172,764 100,406 88,429 78,412
Average daily balances:
Total assets....................... $2,726,710 $2,119,660 $1,764,397 $1,643,622 $1,532,863
Interest-earning assets............ 2,458,568 1,871,254 1,540,926 1,450,115 1,355,059
Loans, net of unearned income...... 1,906,385 1,315,910 1,136,124 1,094,096 1,016,826
Mortgage loans held for sale....... 131,121 241,683 118,510 65,373 28,525
Deposits........................... 2,158,532 1,644,658 1,476,668 1,403,538 1,309,395
Shareholders' equity............... 182,823 119,790 94,833 84,423 75,371
Book value per share at year-end..... $ 16.08 $ 14.64 $ 11.27 $ 10.00 $ 8.92
Tangible book value per share at
year-end........................... 14.71 13.25 10.60 9.21 8.12
========= ========= ========= ========= =========
SELECTED RATIOS
Income before extraordinary items and
the cumulative effect of a change
in accounting for income taxes to:
Average assets..................... 1.00% 0.90% 0.88% 0.74% 0.54%
Average shareholders' equity....... 14.94 15.98 16.40 14.47 10.97
Net income to:
Average assets..................... 1.00 1.03 0.88 0.79 0.63
Average shareholders' equity....... 14.94 18.28 16.40 15.46 12.80
Efficiency ratio..................... 66.68 69.50 70.64 72.52 76.69
Dividend payout ratio................ 27.21 25.33 26.85 31.60 44.00
Average equity to average total
assets............................. 6.70 5.65 5.37 5.14 4.92
Total nonperforming assets to net
loans, other real estate and
repossessions...................... 0.91 1.31 1.34 1.07 1.49
Net charge-offs to average loans..... 0.09 0.33 0.47 0.51 0.49
Allowance for possible loan losses to
total loans (net of unearned
income)............................ 1.60 1.62 1.60 1.48 1.42
Allowance for possible loan losses to
nonperforming loans................ 314% 347% 246% 246% 132%
========= ========= ========= ========= =========
</TABLE>
- ---------------
* As restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company, an entity under common control, which was accounted for in a
manner similar to a pooling of interests; restated BancGroup financial
statements were filed on July 10, 1995 on Form 8-K and are incorporated by
reference to this prospectus.
52
<PAGE> 66
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA 1994-1993 (UNAUDITED)
(AS RESTATED)*
<TABLE>
<CAPTION>
1994 1993
--------------------------------------- ---------------------------------------
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.......................... $50,870 $47,180 $45,779 $43,401 $38,269 $37,524 $35,361 $30,418
Interest expense......................... 23,341 20,439 19,915 18,854 15,922 15,824 14,855 12,916
------- -------- ------- -------- ------- -------- ------- --------
Net interest income...................... 27,529 26,741 25,864 24,547 22,347 21,700 20,506 17,502
Provision for loan losses................ 1,767 1,818 1,448 1,448 2,333 2,061 2,263 1,288
------- -------- ------- -------- ------- -------- ------- --------
Net interest income after provision for
loan losses............................ 25,762 24,923 24,416 23,099 20,014 19,639 18,243 16,214
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes............ 6,644 7,078 6,740 6,848 4,688 5,223 5,202 4,024
Net income............................... $6,644 $ 7,078 $6,740 $ 6,848 $4,688 $ 4,760 $5,202 $ 7,243 (1)
------- -------- ------- -------- ------- -------- ------- --------
Per common share:
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes
Primary................................ $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.54 $ 0.54 $ 0.44
Fully-diluted.......................... 0.54 0.58 0.55 0.56 0.47 0.53 0.52 0.43
Net income
Primary................................ $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.49 $ 0.54 $ 0.80
Fully-diluted.......................... 0.54 0.58 0.55 0.56 0.47 0.48 0.52 0.74
======= ======= ======= ========= ======= ======= ======= =========
</TABLE>
- ---------------
* As restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company, an entity under common control, which was accounted for
in a manner similar to a pooling of interests; restated BancGroup financial
statements were filed on July 10, 1995 on Form 8-K and are incorporated by
reference to this prospectus.
(1) SFAS 109 was adopted in the first quarter of 1993.
53
<PAGE> 67
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------- ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Total amount of:
Assets......................................... $226,846 $191,150 $199,378 $172,255 $145,906 $105,129 $75,538
Investments.................................... 34,877 28,139 26,788 20,551 22,818 8,454 8,211
Federal funds.................................. 25,900 10,770 14,610 19,187 6,202 14,685 19,450
Loans receivable, net.......................... 141,014 128,360 133,926 113,753 98,938 66,046 38,040
Deposits....................................... 202,907 170,247 178,264 152,055 126,081 86,163 56,806
Stockholder's equity........................... 20,618 18,670 18,732 18,186 16,918 17,063 17,555
Number of full service customer facilities....... 7 7 7 8 7 3 2
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED) YEAR ENDED DECEMBER 31,
------------------- ------------------- --------------------------------------------------
1995 1994 1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Interest income................ $ 13,877 $ 10,213 $ 4,720 $ 3,638 $ 14,347 $ 12,326 $ 10,300 $ 7,605 $ 6,065
Interest expense............... 6,097 3,893 2,323 1,424 5,458 4,792 4,814 4,194 3,198
-------- -------- -------- -------- -------- -------- -------- ------- -------
Net interest income before loan
loss provision............... 7,780 6,320 2,397 2,214 8,889 7,534 5,486 3,411 2,867
Provision for loan loss........ 633 404 189 113 695 439 652 413 261
-------- -------- -------- -------- -------- -------- -------- ------- -------
Net interest income after loan
loss provision............... 7,147 5,916 2,208 2,101 8,194 7,095 4,834 2,998 2,606
Gain/loss sale of
investments.................. -- -- -- -- -- 67 65 223 --
Gain on sale of loans.......... 304 322 231 104 690 1,004 854 404 332
Other income................... 1,555 1,309 620 531 1,525 1,063 744 509 428
Other expense.................. (6,183) (6,650) (1,983) (2,227) (9,213) (7,864) (6,688) (4,604) (3,749)
-------- -------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before tax
expense (benefit)............ 2,823 897 1,076 509 1,196 1,365 (191) (470) (383)
Income tax expense (benefit)... 1,114 320 424 146 498 479 (45) 22 --
-------- -------- -------- -------- -------- -------- -------- ------- -------
Income before cumulative effect
accounting change............ 1,709 577 652 363 698 886 (146) (492) (383)
Cumulative effect accounting
change(1).................... -- -- -- -- -- 384 -- -- --
-------- -------- -------- -------- -------- -------- -------- ------- -------
Net income (loss).............. $ 1,709 $ 577 $ 652 $ 363 $ 698 $ 1,270 $ (146) $ (492) $ (383)
======== ======== ======== ======== ======== ======== ======== ======= =======
SELECTED STATISTICAL DATA
Return on assets............... 0.80% 0.32% 0.31% 0.20% 0.38% 0.78% (0.11)% (0.54)% (0.51)%
Equity-to-asset ratio.......... 9.71% 10.24% 9.71% 10.24% 10.24% 11.17% 12.18% 18.89% 23.24%
Stock dividend per share....... -- -- -- -- -- -- -- -- --
Earnings (loss) per share
before cumulative effect of
change....................... $ 0.94 $ 0.32 $ 0.36 $ 0.20 $ 0.38 $ 0.49 $ (0.08) $ (0.27) $ (0.21)
Cumulative Effect of
Change(1).................. -- -- -- -- -- 0.21 -- -- --
-------- -------- -------- -------- -------- -------- -------- ------- -------
$ 0.94 $ 0.32 $ 0.36 $ 0.20 $ 0.38 $ 0.70 $ (0.08) $ (0.27) $ (0.21)
======== ======== ======== ======== ======== ======== ======== ======= =======
Total Average Assets........... $212,435 $182,237 $212,435 $182,237 $182,882 $162,863 $138,955 $90,334 $75,538
</TABLE>
- ---------------
(1) CBG 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.
54
<PAGE> 68
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 three and nine month periods ended September 30, 1995
and 1994 and the years ended December 31, 1994, 1993 and 1992. The discussion
and analysis is intended to supplement and highlight information contained in
the consolidated and combined financial statements and selected financial data
of CBG presented elsewhere in this Prospectus. The following should be read in
conjunction with the consolidated and combined financial statements of CBG
contained in this Prospectus and other financial information contained herein.
CBG originally was 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 and Commercial Bank 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 the Commercial Bank.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
1994
Net income for the nine months ended September 30, 1995, was $1.7 million
compared to $577,000 for the same period in 1994. Net income for the three
months ended September 30, 1995, was $652,000 compared to $363,000 for the same
period in 1994. The increase of $1.1 million, or 196%, for the nine month period
along with the three months increase of $289,000, or 80%, was substantially due
to increased loan and investment volumes and decreased non-interest expense. Net
interest income increased by $1.5 million for the nine months, or 23%, and
$183,000, or 8%, for the three months ended September 30, 1995. Over the nine
month period ended September 30, 1995, interest rates declined slightly;
however, loan volume increased by $7.1 million or 5%, investment securities by
$8.1 million or 30% and federal funds sold by $11.3 million or 77%. Asset growth
of $27.5 million or 14% in the first nine months of 1995 was funded primarily
with deposit growth of $24.6 million or 14%. The increase in deposits for the
second and third quarters has increased interest expense by $913,000 or 65% from
1994 to $2.3 million in 1995. Loan fee income totaling $1.4 million for 1995 and
1994, respectively, is included in interest income. Cost reduction began in 1994
by decreasing salaries and benefits by $107,000, or 3%, during the nine month
period through staff reductions and continued through the first nine months of
1995 by decreasing occupancy expense, equipment cost and other expense by
$360,000, or 11%.
Total average assets for the nine months ended September 30, 1995 and 1994
were $212.4 million and $181.2 million, respectively. Total average assets
increased $31.2 million, or 17%, for the nine month period ended September 30,
1995 as compared to the same period in 1994.
The ratio of net income to average assets for the nine months ended
September 30, 1995 and 1994 was .80% and .32%, respectively. The ratio of net
income to average stockholders' equity for such periods was 8.69% and 3.13%,
respectively. Earnings per share for the three months ended September 30, 1995
and 1994 were $.36 and $.20 respectively, and for the nine months ended
September 30, 1995 and 1994 were $.94 and $.32, respectively.
55
<PAGE> 69
The following table summarizes the results of operations of CBG on a
consolidated basis for the nine-month period ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
---------------
1995 1994
------ ------
(IN THOUSANDS,
EXCEPT RATIOS
AND PER SHARE
DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income.................................................. $7,780 $6,320
Provision for loan losses............................................ 633 404
Other income......................................................... 1,859 1,631
Other expense........................................................ 6,183 6,650
Income tax expense................................................... 1,114 320
Cumulative effect of a change in accounting principle................ -- --
Net income........................................................... 1,709 577
Return on average assets............................................. .80% .32%
Return on average equity............................................. 8.69% 3.13%
</TABLE>
Earning Assets. Average earning assets were $192.3 million for the first
nine months of 1995, an increase of $32.7 million, or 20%, from $159.6 million
for the first nine months of 1994. Total earning assets increased $26.5 million
or 15% from December 31, 1994, to $201.8 million at September 30, 1995, due to
$7.1 million increase in loans, $8.1 million increase in investments and $11.3
million increase in federal funds sold. At September 30, 1995, the mix of
earning assets was comprised of total loans of 70%, investment securities of 17%
and federal funds sold of 13%. At December 31, 1994, total earning assets
totaled $175.3 million, and the mix of earning assets was comprised of total
loans of 76%, investment securities of 16% and federal funds sold of 8%.
Net interest spread at September 30, 1995 and 1994, was 4.54% and 4.66%,
respectively. Net interest margin at September 30, 1995 and 1994, was 5.48% and
5.32%, respectively.
The composition of CBG's total investment securities portfolio reflects
CGB'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. Prepayments and principal
amortization from CBG's investment portfolio are not a significant source of
liquidity since the investment portfolio primarily consists of nonamortizing
securities.
Investment securities totaled $34.9 million at September 30, 1995, an
increase of $8.1 million from December 31, 1994, and $6.7 million from September
30, 1994. Average investments totaled $27.9 million during the first nine months
of 1995 compared to $25.0 million during fiscal 1994 and $24.4 million during
the first nine months of 1994.
Investment securities classified as held to maturity totaled $17.9 million
at September 30, 1995, compared to $19.8 million at September 30, 1994,
representing a decrease of $1.9 million or 10%. Whereas, investment securities
classified as available for sale totaled $17.0 million at September 30, 1995,
compared to $8.4 million at September 30, 1994, representing an increase of $8.6
million or 102%. The increase in investments classified as available for sale
was primarily due to anticipated liquidity needs.
During the first nine months of 1995 and 1994, no investment securities
were sold. CBG's investment securities at September 30, 1995, had, net of
deferred taxes, net unrealized gains of $25,000 compared to net unrealized
losses of $152,000 at December 31, 1994, and $93,000 at September 30, 1994. The
absence of investment security sales during the first nine months of 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.
56
<PAGE> 70
During 1994 and 1993, CBG classified its investment securities as held to
maturity or available for sale. No securities were held in trading accounts.
During 1993, CBG reported securities available for sale at lower of amortized
cost or fair market value. In 1994, CBG adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, which required that securities available
for sale are 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 1994 and 1993.
Loans outstanding at September 30, 1995, totaled $141.0 million, an
increase of $7.1 million, or 5%, from September 30, 1994 and December 31, 1994,
outstandings of $128.4 million and $133.9 million, respectively. Increases from
December 31, 1994, were primarily in real estate construction loans of $6.8
million, commercial loans secured by real estate of $6.2 million and offset in
part by decreases in commercial loans of $4.9 million and loans to individuals
of $1.5 million. Loan demand in CBG's markets improved in the first nine months
of 1995 compared to the first nine months of 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 the first nine months of 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. Construction loan commitments increased to $91.2
million for the first nine months of 1995 compared to $82.5 million at December
31, 1994, and $82.3 million at September 30, 1994, due to the demand for housing
in CBG's primary market areas from increased population and favorable mortgage
interest rates. Funding of construction loan commitments was $56.8 million or
62% of total commitments as of September 30, 1995, compared to $50.3 million or
61% at December 31, 1994, and $47.6 million or 58% at September 30, 1994.
Unfunded commercial commitments and equity lines of credit to extend credit
totaled $12.3 million, $10.9 million and $8.8 million as of September 30, 1995,
December 31, 1994, and September 30, 1994, respectively. Management believes
that funding of these commitments will come from normal operations.
Average loans totaled $144.2 million during the first nine months of 1995
compared to $119.4 million for the same period of 1994. A $24.8 million, or 21%,
increase in loans is due primarily to construction lending and other loans
secured by real estate. 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 at the indicated dates is shown in
the following table according to type of loans.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by 1 to 4 family residential properties.................... $ 17,296 $ 16,852
Loans secured by multi-family, non-farm, and non-residential
properties............................................................. 25,864 19,441
Other loans secured by real estate....................................... 58,364 48,343
Commercial and industrial loans.......................................... 34,939 37,030
Consumer, installment and other loans.................................... 7,312 9,136
-------- --------
Subtotal....................................................... 143,775 130,802
Less: Unearned income.................................................... 732 737
-------- --------
Total.......................................................... $143,043 $130,065
======== ========
</TABLE>
CBG's loan-to-deposit ratio averaged 75.5% for the nine months ended
September 30, 1995, compared to 75.5% for fiscal 1994 and 78.3% for fiscal 1993.
At September 30, 1995, the loan-to-deposit ratio was 69.5%.
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 the loan is closed. Construction loan participations are sold to other
financial institutions in periods when the growth in loan
57
<PAGE> 71
demand exceeds the growth in deposits. CBG generally sells its residential
mortgage loan originations to investors. CBG did not have any loan sales from
the loan categories of commercial and construction loans in the first nine
months of 1995 compared to $7.1 million in the first nine months of 1994.
Federal funds sold averaged $20.1 million during the first nine months of
1995 compared to $15.8 million during the first nine months of 1994. Total
federal funds sold at September 30, 1995, of $25.9 million represented an
increase of $11.3 million, or 77%, from December 31, 1994, and an increase of
$15.1 million or 140% from September 30, 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 $190.9 million during the first nine months of
1995 compared to $161.9 million during the first nine months of 1994. Total
deposits at September 30, 1995, of $202.9 million represented an increase of
$24.6 million, or 14%, from December 31, 1994. The increase was due primarily to
an increase of $32.2 million in interest-bearing deposits and a decrease of $7.6
million in noninterest-bearing deposits for the first nine months of 1995. Time
deposits in excess of $100,000 increased $6.4 million and other time deposits
increased $23.9 million for the first nine months of 1995 primarily due to a
special promotion during the second quarter of 1995.
Average interest-bearing time deposits increased $25.7 million, or 19%, to
$158.3 million during the first nine months of 1995 compared to $132.6 million
in the first nine months of 1994. Average noninterest-bearing deposits increased
$3.4 million or 12% to $32.7 million during the first nine months of 1995
compared to $29.3 million in the first nine months of 1994.
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 change
in interest rates 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.
At September 30, 1995, $142.5 million, or 70%, of CBG's total earning
assets may reprice during the next twelve months compared to $132.9 million, or
77%, of total interest-bearing liabilities. For the one year and over time
frame, the corresponding relationships are $60.9 million, or 30%, of earning
assets and $39.5 million, or 23%, of interest-bearing liabilities. At December
31, 1994, $128.2 million, or 73%, of earning assets would reprice in the next
twelve months compared to $110.8 million, or 79%, of total interest-bearing
liabilities. For the one year and over period, $48.5 million, or 27%, of earning
assets and $29.4 million, or 21%, of interest-bearing liabilities could reprice.
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. Prevailing interest rates during
the first nine months of 1995 were at significantly lower levels than prevailing
rates in recent years. While CBG is unable to predict future changes in market
rates of interest, an upward trend in interest rates would tend to have a
positive effect on CBG's net interest margin, as CBG's interest-bearing
liabilities are not scheduled to reprice faster than its interest-earning
assets.
58
<PAGE> 72
INTEREST RATE SENSITIVITY ANALYSIS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
0-3 3-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Fixed rate loans.............................. $ 7,460 $ 13,134 $17,993 $12,335 $ 50,922
Variable rate loans........................... 90,876 -- 861 -- 91,737
Federal funds sold............................ 25,900 -- -- -- 25,900
Investment securities -- fixed rate........... 3,085 1,577 16,232 13,483 34,377
Investment securities -- variable rate........ 500 -- -- -- 500
-------- -------- ------- ------- --------
Total earning assets................ $127,821 $ 14,711 $35,086 $25,818 $203,436
======== ======== ======= ======= ========
INTEREST-BEARING LIABILITIES:
Money market.................................. $ 33,533 $ -- $ -- $ -- $ 33,533
NOW........................................... 15,397 -- -- -- 15,397
Savings....................................... 5,086 -- -- -- 5,086
Time, $100,000 and over....................... 7,536 13,067 4,612 -- 25,215
Other time.................................... 17,799 40,537 34,860 -- 93,196
-------- -------- ------- ------- --------
Total interest-bearing
liabilities....................... $ 79,351 $ 53,604 $39,472 $ -- $172,427
======== ======== ======= ======= ========
Interest sensitivity gap...................... $ 48,470 $(38,893) $(4,386) $25,818 $ 31,009
======== ======== ======= ======= ========
Cumulative interest sensitivity gap........... $ 48,470 $ 9,577 $ 5,191 $31,009
======== ======== ======= =======
Ratio of interest sensitive assets to interest
sensitive liabilities....................... 161.08% 27.44% 88.89% 100.00% 117.98%
Cumulative ratio of interest sensitive assets
to interest sensitive liabilities........... 161.08% 107.20% 103.01% 117.98%
Ratio of cumulative interest sensitivity gap
to total earning assets..................... 23.83% 4.71% 2.55% 15.24%
</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 Management. 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, investment securities and deposits in banks scheduled
to mature within one year totaled $31.1 million at September 30, 1995, compared
to $18.4 million at December 31, 1994, and represented the primary source of
CBG's liquidity. In addition, at September 30, 1995, a total of $17.0 million of
investment securities were available for sale as additional liquidity compared
to $7.3 million at December 31, 1994, and $8.4 million at September 30, 1994.
The entire amount was available for liquidity needs.
CBG's loan-to-deposit ratio averaged 75.5% during the first nine months of
1995 compared to 73.7% for the first nine months of 1994. The deposit growth in
the first nine months of 1995 primarily funded loan growth of $7.1 million,
investment growth of $8.1 million and liquidity in the form of $11.3 million in
federal funds sold. The loan-to-deposit ratio at September 30, 1995, was 70%.
The average loan-to-deposit ratio
59
<PAGE> 73
increased during the first nine months of 1995 due to loan payoffs lower than
loan originations and deposit growth not exceeding loan demand. This increase
did not significantly change the liquidity position of CBG during the first nine
months of 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 September
30, 1995. The entire amount was available for liquidity needs.
Capital Resources. Stockholders' equity at September 30, 1995, was $20.6
million, an increase of $1.9 million from December 31, 1994, and $1.9 million
from September 30, 1994. Stockholders' equity at September 30, 1994, was $18.7
million, an increase of $484,000 from December 31, 1993. Retention of earnings
accounted for all of the increase in stockholders' equity during the nine month
periods ending September 30, 1995 and 1994, along with a $118,000 change from a
$93,000 net unrealized loss to $25,000 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.
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 the nine months ended September 30, 1995, was
9.3% compared to 10.1% at December 31, 1994, and 10.1% at September 30, 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 CBG's intangibles are those that
are disallowed, CBG's leverage ratio is the same as its tangible leverage ratio.
This ratio was 7.86% at September 30, 1995, 8.31% at December 31, 1994, and
8.08% at September 30, 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.
CBG's Tier 1 capital, which consists of equity less goodwill, was $17.8 million
at September 30, 1995, $15.9 million at December 31, 1994, and $14.9 million at
September 30, 1994. Tier II capital, equivalent to the allowance for loan losses
amount, was $1.9 million at September 30, 1995, $1.8 million at December 31,
1994, and $1.7 million at September 30, 1994. Tier I capital plus Tier II
capital components are referred to as Total Qualifying Capital and was $19.7
million at September 30, 1995, $17.7 million at December 31, 1994, and $16.6
million at September 30, 1994. The percentage ratios as calculated under the
guidelines, were 11.07% and 12.24% for Tier I and Total Qualifying Capital,
respectively, at September 30, 1995, as compared to 10.71% and 11.97%,
respectively, at December 31, 1994. The risk-based capital ratios increased
during the first nine months of 1995 due primarily to the change in mix of
assets and increase in capital.
The capitalization of Commercial Bank has always exceeded the minimum
ratios required for "well capitalized" banks as defined by federal regulators,
currently 5% leverage capital, 6% Tier I capital and 10% Total Qualifying
Capital. CBG continually monitors these ratios to ensure that Commercial Bank's
ratios exceed the minimum ratios required under applicable regulations.
60
<PAGE> 74
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. The following discussion
of net interest margin, rates and yields is presented on a taxable equivalent
basis. Interest income and expense amounts are not presented on a taxable
equivalent basis.
Net interest income for the nine months ended September 30, 1995, increased
$1.5 million or 23% to $7.8 million from $6.3 million for the nine months ended
September 30, 1994. This increase in net interest income resulted primarily from
growth in investment securities, loans and federal funds sold and from increases
in the general level of interest rates.
Net interest income for the three months ended September 30, 1995,
increased $183,000 or 8% to $2.4 million from $2.2 million for the three months
ended September 30, 1994.
Interest income increased $3.7 million, or 36%, to $13.9 million in the
first nine months of 1995 compared to $10.2 million in the first nine months of
1994. Interest income increased in the first nine months of 1995 due to a 20%
increase in the average volume of earning assets, partially improved by a 114
basis point increase in average yield on earning assets. Average loan volume
increased $24.8 million, or 21%, to $144.2 million in the first nine months of
1995 compared to $119.4 million in the first nine months of 1994, in contrast to
a 136 basis point increase in yield during the same period.
Total interest expense increased $2.2 million, or 57%, to $6.1 million in
the first nine months of 1995 compared to $3.9 million in the first nine months
of 1994 due to a $25.7 million or 19% increase in average volume of
interest-bearing liabilities, along with a 126 basis point increase in rates
paid on interest-bearing liabilities. The increase in rates paid on
interest-bearing liabilities reflects the customer's preference for replacing
longer term instruments with shorter term instruments at higher rates.
The trend in net interest income is commonly evaluated in terms of average
rates using the net yield and the interest rate spread. The net yield on earning
assets is computed by dividing net interest income by annualized average total
earning assets. The net yield increased 16 basis points to 5.48% in the first
nine months of 1995 from 5.32% in the first nine months of 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 4.54% in the first nine months of 1995 from
4.66% in the first nine months of 1994.
61
<PAGE> 75
The following table sets forth certain consolidated statistical information
with respect to average balances, interest income and expense and average
yields/rates for the nine month periods ended September 30, 1995 and 1994:
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
---------------------------- ----------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES BALANCES EXPENSE RATES
-------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
Loans................................... $144,224 $11,938 11.20% $119,413 $ 8,880 9.84%
Investment securities................... 27,903 1,166 5.38 24,377 915 4.89
Federal funds sold...................... 20,069 886 5.89 15,847 453 3.81
Deposits in banks....................... 107 5 6.22 -- 1 6.00
-------- ------- ------- -------- ------- -------
Total earning assets.......... 192,303 13,995 9.69% 159,637 10,249 8.55%
Other assets............................ 20,132 22,600
-------- --------
Total assets.................. $212,435 $182,237
======== ========
AVERAGE LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
NOW accounts.......................... $ 15,116 311 2.75% $ 14,677 262 2.38%
Money market accounts................. 30,814 1,000 4.26 31,984 739 3.08
Savings............................... 5,381 125 3.11 5,756 117 2.71
Time, $100,000 and over............... 22,221 965 5.78 18,960 627 4.41
Other time............................ 84,603 3.686 5.80 61,084 2,125 4.63
Federal funds and other............... 125 9 6.22 125 9 6.22
-------- ------- ------- -------- ------- -------
Total interest-bearing
liabilities................. 158,260 6,096 5.15% 132,586 3,879 3.89%
Noninterest-bearing deposits............ 32,724 29,346
Other liabilities....................... 1,776 1,877
Stockholders' equity.................... 19,675 18,428
-------- --------
Total liabilities and
stockholders' equity........ $212,435 $182,237
======== ========
Spread on interest-bearing funds........ 4.54% 4.66%
===== =====
Net interest income..................... $ 7,899 $ 6,370
======= =======
Net interest margin..................... 5.48% 5.32%
===== =====
</TABLE>
62
<PAGE> 76
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 taxable-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>
NINE MONTHS ENDED
SEPTEMBER 30, 1995 VS. 1994
----------------------------
CHANGES DUE TO
----------------------------
INCREASE
(DECREASE) RATE VOLUME
---------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
Income from earning assets:
Interest and fees on loans....................................... $2,980 $1,191 $1,789
Interest on investment securities................................ 251 103 148
Interest on federal funds sold................................... 433 291 142
---------- ------ ------
Total interest income.................................... 3,664 1,585 2,079
---------- ------ ------
EXPENSE FROM INTEREST-BEARING LIABILITIES:
Demand and money market............................................ 311 337 (26)
Savings............................................................ 8 20 (12)
Time deposits of $100,000 or more.................................. 338 218 120
Other time deposits................................................ 1,561 619 942
---------- ------ ------
Total interest expense................................... 2,218 1,194 1,024
---------- ------ ------
Net interest income...................................... $1,446 $ 391 $1,055
======== ====== ======
</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.
Provision for loan losses in the first nine months of 1995 was $633,000,
compared to $404,000 in the first nine months of 1994. The increase in the loan
loss provision during the first nine months of 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.
Provision for loan losses for the three months ended September 30, 1995,
was $189,000, an increase of $76,000 or 67% over the three months ended
September 30, 1994, total of $113,000. Management provided an additional
$892,000 to the provision for loan losses in the fourth quarter of fiscal 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 $570,000, or .40%, of average loans outstanding
during the first nine months of 1995 compared to $112,000, or .09%, of average
loans outstanding for the first nine months of 1994. Charge-offs totaled
$583,000 in the first nine months of 1995 and $153,000 for the same period in
1994. Recoveries of amounts previously charged-off were $13,000 and $41,000,
respectively, during such periods.
The allowance for loan losses at September 30, 1995, of $2,029,000 was
$63,000, or 3%, higher than the December 31, 1994, allowance for loan losses of
$1,966,000. At September 30, 1995, the allowance for loan losses was 1.42% of
loans outstanding, at December 31, 1994 the allowance was 1.45% of loans
outstanding and at September 30, 1994, the allowance was 1.32% of loans
outstanding.
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<PAGE> 77
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.
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 table below. The amount
of such components of the allowance for loan losses at September 30, 1995 and
1994, and the ratio of loans in each category to the outstanding loan balance
are presented below:
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------- ---------------------------
ALLOWANCE RATIO OF ALLOWANCE RATIO OF
FOR LOANS IN FOR LOANS IN
LOAN LOSSES EACH CATEGORY LOAN LOSSES EACH CATEGORY
----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans...................... $ 1,095 54% $ 784 46%
Real estate construction.............. 528 26 682 40
Installment and other consumer........ 406 20 239 14
----------- --- ----------- ---
Totals...................... $ 2,029 100% $ 1,705 100%
========= ========== ========= ==========
</TABLE>
The following table presents an analysis of CBG's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
---------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average amount of loans outstanding............................ $144,224 $119,413
======== ========
Balance of reserve for possible loan losses at beginning of
period....................................................... $ 1,966 $ 1,413
-------- --------
Charge-offs:
Commercial, financial and agricultural....................... (451) (90)
Real estate -- mortgage...................................... (40) (3)
Consumer..................................................... (92) (60)
-------- --------
(583) (153)
-------- --------
Recoveries:
Commercial, financial and agricultural....................... 3 8
Real estate -- mortgage...................................... -- 2
Consumer..................................................... 10 31
-------- --------
13 41
-------- --------
Net charge-offs...................................... (570) (112)
-------- --------
Additions to reserve charged to operating expenses............. 633 404
-------- --------
Balance of reserve for possible loan losses at period-end...... $ 2,029 $ 1,705
======== ========
Ratio of net loan charge-offs to average loans outstanding
during period................................................ 0.40% 0.09%
======== ========
</TABLE>
Nonperforming Assets. Nonperforming assets are comprised of 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 September 30, 1995,
totaled $2.0 million, a decrease of $82,000 from the December 31, 1994, amount
of $2.3 million compared to $3.0 million at September 30, 1994. Nonaccrual loans
at September 30, 1995, totaled $516,000, a decrease of $254,000 from
64
<PAGE> 78
$770,000 at December 31, 1994. The change in nonaccrual loans during the first
nine months of 1995 was attributable to transfers of loans to other real estate
owned.
Other real estate owned totaled $1.4 million at September 30, 1995,
compared to $1.5 million at December 31, 1994, and $2.3 million at September 30,
1994. The primary 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 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 10 acres would be divided into large tracts and marketed to
individuals and builders. Subsequent to September 30, 1994, management recorded
a $200,000 writedown of this property due to uncertainties in the real estate
market and a recent appraisal of the property. The book value of this property
at September 30, 1995, was $697,000.
Following is a summary of nonperforming and past due loans and foreclosed
assets as of September 30, 1995 and 1994:
<TABLE>
<CAPTION>
AT SEPTEMBER
30,
---------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis.......................... $ 516 $ 571
Installment loans and term loans contractually past due ninety days
or more as to interest or principal payments and still
accruing......................................................... -- --
Loans, the terms of which have been renegotiated to provide a
reduction or deferral of interest or principal balance because of
deterioration in the financial position of the borrower.......... -- --
Loans now current about which there are serious doubts as to the
ability of the borrower to comply with present loan repayment
terms............................................................ -- --
Foreclosed assets in other real estate............................. 1,446 2,343
------ ------
Total.................................................... $1,962 $2,917
====== ======
</TABLE>
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 September 30, 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, gain or sale of loans, and investment securities gains and losses.
Noninterest income increased $228,000 or 14% to $1.9 million for the nine months
ended September 30, 1995, from $1.6 million in the first nine months of 1994.
Mortgage origination fees totaled $76,000 in the first nine months of 1995
compared to $141,000 in the first nine months of 1994, a decrease of $65,000, or
46%. 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 $304,000 decreased 6% or $18,000 in the first
nine months of 1995 compared to $322,000 in the first nine months of 1994. The
sales consisted of the guaranteed portion of loans originated under the SBA's
guaranteed loan program. The lower level of gains reflected a lower volume of
originations coupled with lower fees and a lower percentage of the loan amount
being sold to investors due to changes in the SBA program.
Service charges on deposits were $702,000 in the first nine months of 1995,
an increase of $35,000, or 5%, as compared to $667,000 for the first nine months
of 1994. This increase resulted from a repricing of all service charges
collected by CBG.
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<PAGE> 79
Other operating income increased 55% to $777,000 or $276,000 in the first
nine months of 1995 compared to $501,000 in the first nine months of 1994
primarily due to data processing and loan servicing activities. Income derived
from data processing services related to automated clearing house transactions
increased and loan servicing fees from SBA loans serviced for others are the
primary contributors.
Noninterest Expenses. Operating expenses decreased $467,000, or 7%, to
$6.2 million in the first nine months of 1995 compared to $6.7 million in the
first nine months of 1994. Salaries and related expenses decreased $107,000, or
3%, to $3.2 million in the first nine months of 1995 from $3.3 million in the
first nine months of 1994 primarily due to severance related expenses. A
reduction in staff was implemented in the second and third quarters of 1995 to
reduce operating expenses and, thereby, improve operating results in the future.
Severance expenses related to this reduction in staff have been recognized in
operating expenses for the nine months ended September 30, 1995.
Occupancy expense totaled $464,000 in the first nine months of 1995
compared to $503,000 in 1994. The decrease in occupancy expense of $39,000 was
primarily due to decreased lease costs from property lease renewals and branch
reduction.
Other operating expenses during the first nine months of 1995 totaled $2.1
million compared to $2.3 million in the first nine months of 1994. The decrease
was attributable to merger related expenses and the cost of carrying other real
estate and nonaccrual loans.
CBG has accrued an additional $1.2 million for anticipated merger expenses
in the fourth quarter of 1995. The tax benefit of these additional accruals is
approximately $220,000.
Income Taxes. The effective tax rate as a percentage of pretax income was
39% in the first nine months of 1995 and 36% in the first nine months of 1994.
SFAS No. 109, Accounting for Income Taxes was issued by the Financial
Accounting Standards Board ("FASB") in February 1992. CBG adopted SFAS No. 109
effective January 1, 1993, resulting in a $384,000 increase in earnings on the
fiscal 1994 financial statements. The financial statements for years prior to
fiscal 1994 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 its subsidiary, 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. CBG
has not paid any dividends to CBG stockholders since CBG was formed.
Other Accounting Issues. During the second quarter of 1993, FASB 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. 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.
In 1994, CBG transferred investment securities due to adoption of 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) trade
account securities; (2) held-to-maturity securities; 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.
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
66
<PAGE> 80
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 Georgia Bancorp.
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation.
CBG is required to implement SFAS No. 123 by the earlier of (1) fiscal years
beginning after December 15, 1995, or (2) the year in which the recognition and
measurement provisions of SFAS No. 123 are adopted. The adoption of SFAS No. 123
is not expected to have a significant impact on CBG.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Summary. Net income for 1994 was $698,000, a decrease of $572,000, or 45%,
from $1.3 million for 1993. CBG had a net loss of $146,000 in 1992. Net income
per share was $.38 in 1994 and $.70 in 1993, compared to a per share loss of
$.08 in 1992. The return on average assets was .38% in 1994, .78% in 1993, and
(.11)% in 1992. The return on average equity was 3.78% in 1994, 7.23% in 1993,
and (.86)% in 1992. The 1994 earnings decline from 1993 was the result of an 18%
improvement in net interest income and a 4% improvement in noninterest income
offset by a 58% increase in the provision for loan losses and 17% increase in
other expenses. During 1994, CBG opened a branch facility and loan origination
office which increased operating costs and other costs in 1994. Operating
expenses in 1993 were 16% higher than the previous year due to the full year
expense recognition for branches acquired in 1992. Earnings for 1993 were also
increased by a $384,000 cumulative effect of change in accounting principle for
income taxes. Earnings in 1992 were affected adversely by one-time expenses
related to the acquisition of three branch offices and employee severance
payments.
The equity-to-asset ratio at December 31, 1994, 1993 and 1992 was 10.24%,
11.17% and 12.18%, respectively.
Earning Assets. Average earning assets were $162.5 million in 1994, an
increase of $21.0 million from $141.5 million in 1993. Average earning assets
were $121.3 million in 1992. Average earning assets in 1994 increased 15% over
1993 due to increases in both average loans and investment securities. CBG's
balance sheet increased due to growth in deposits from its retail and commercial
customers. The deposit growth and loan origination funded by this growth
resulted from meeting new and existing customer needs and benefits from branch
acquisitions in 1992 and deposit programs in 1993 and 1994.
Earning asset allocations in 1994 reflected CBG's focused efforts to deploy
funds acquired in branch acquisitions in 1992 into loans. The growth in loans
and the increase in investment securities and federal funds sold reflected this
management strategy. For this reason, the mix of earning assets did not change
significantly in 1994 compared to 1993. During 1994, total loans represented 76%
of earning assets, investment securities including federal funds were 24%, and
deposits in banks were .05%. In 1993, total loans were 78% and investment
securities including federal funds were 22% of earning assets. The percentage of
loans to total earning assets of 71% was unusually low in 1992 because the
acquisition of deposits of three branch offices were converted into loans over
an extended time period. The higher percentage of loans in CBG's earning assets
during 1994 and 1993 contributed to an increase in net interest income over
1992.
Average loans increased $12 million, or 10.9%, to $123.0 million in 1994
from $110.9 million in 1993, with most of the increase concentrated in real
estate construction loans. Average loans were $86.6 million in 1992. Total net
loans outstanding at December 31, 1994, of $133.7 million represented an
increase of $22.8 million, or 21%, from the December 31, 1993, level of $110.9
million. CBG had total net loans outstanding of $98.9 million at December 31,
1992. Loan demand in CBG's markets improved in 1994 and in the second half of
1993 from that of 1992 due to the strength of the Atlanta, Georgia, economy. In
addition, the growth in the portfolio resulted from the CBG's ongoing efforts to
increase the loan portfolio through the
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<PAGE> 81
origination of new loans. Average real estate construction loans increased 77%,
installment and other consumer loans decreased 24% and commercial loans
increased 4% from 1994 to 1995. The increase in real estate construction lending
during 1993 was due to a much higher level of new home construction and
opportunities to increase market share. The housing industry in CBG's market
exhibited a resurgence in 1994 and 1993 due to population growth and the low
level of mortgage rates generally. For these reasons, management allocated
resources to construction lending in 1994 which resulted in loan commitments
increasing from $55.6 million in 1992 to $68.5 million in 1993 and to $82.5
million in 1994. CBG originates the majority of its construction loans in the
metropolitan Atlanta counties of Cobb, Fulton and Gwinnett.
The types and amount of loans outstanding at the indicated dates is shown
in the following table according to type of loans.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by 1 to 4 family residential properties.................. $ 17,187 $ 20,781
Loans secured by multi-family, non-farm, and non-residential
properties........................................................... 19,450 16,099
Other loans secured by real estate..................................... 50,980 36,605
Commercial and industrial loans........................................ 39,885 32,574
Consumer, installment and other loans.................................. 8,901 6,911
-------- --------
Subtotal..................................................... 136,403 112,970
Less: Unearned income.................................................. 700 611
-------- --------
Total.................................................................. $135,703 $112,359
======== ========
</TABLE>
CBG's total loans as of December 31, 1994, are shown in the following table
according to maturity classifications (1) one year or less, (2) after one year
through five years and (3) after five years.
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
<S> <C>
Maturity:
One year or less............................................................. $104,630
After one year through five years............................................ 19,534
After five years............................................................. 11,539
--------------
Total................................................................ $135,703
===========
</TABLE>
Records were not available to present the above information in each
category of loans and could not be reconstructed without undue burden.
CBG's loan-to-deposit ratio averaged 76% in 1994, 78% in 1993 and 72% in
1992. The 1993 increase in this ratio resulted from the CBG's ability to
generate loans at a faster pace than deposit growth.
CBG's loan production efforts are not fully reflected in the total loans
outstanding because of loan sales and participations. CBG generally sells the
guaranteed portion of business loans originated under the auspices of the SBA to
investors as soon as practical after the loan is closed. Proceeds from sales of
SBA loans totaled $7.0 million in 1994, $5.7 million in 1993 and $7.2 million in
1992. CBG generally sells construction loan participations to other financial
institutions whenever the concentration of such loans to total loans outstanding
exceeds 30%. CBG also generally sells its residential mortgage loan originations
to investors.
During 1994 and 1993, CBG classified its investment securities as
held-to-maturity and available-for-sale. No securities were held in trading
accounts. During 1993, CBG reported securities available for sale at the lower
of cost or market with any valuation adjustment reflected in earnings as
required by generally accepted accounting principles at that time. In 1994, CBG
adopted SFAS No. 115 which required that securities available for sale be
reported at their market value, with unrealized gains and losses, net of taxes,
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<PAGE> 82
shown as a separate component of shareholders' equity. Held-to-maturity
securities were reported at amortized cost in both 1992 and 1993. See "Other
Accounting Issues."
The composition of the CBG's total investment securities portfolio reflects
CBG's investment strategy of increasing portfolio yields commensurate with risk
and liquidity considerations. The primary objectives of the CBG's investment
strategy are to maintain an appropriate level of liquidity and provide a source
of interest income with minimal credit risk. Prepayments and principal
amortization from CBG's investment portfolio are not a significant source of
liquidity since the investment portfolio is primarily invested in nonamortizing
securities. During 1994, there were no proceeds from the sale of securities.
During 1993, proceeds from the sale of securities totaled $6.2 million resulting
in a combined net gain of $67,000. During 1992, proceeds from the sale of
securities totaled $5.7 million resulting in a combined net gain of $65,000. The
sale of held-to-maturity securities in 1993 occurred in response to changing
liquidity needs. In January 1994, management transferred all U.S. Government
obligations from the held to maturity category to the available-for-sale
category in conjunction with the adoption of SFAS No. 115. At December 31, 1994,
available-for-sale securities totaled $7.3 million and held-to-maturity
securities totaled $19.1 million. CBG positioned the investment portfolio in
order to help fund anticipated loan demand. Deposit growth in the second half of
1994 and 1993 increased liquidity to satisfactory levels and reduced the need
for additional sales of securities. Net unrealized losses in the CBG's
available-for-sale portfolio were $152,000 in 1994.
The amounts of CBG's investment securities in each category as of December
31, 1994, are shown in the following table according to maturity classifications
(1) one year or less, (2) one year through five years, (3) after five years
through ten years and (4) after ten years.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-------------------------------------------
INVESTMENT INVESTMENT
SECURITIES SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
-------------------- --------------------
CARRYING MARKET AMORTIZED MARKET
VALUE VALUE COST VALUE
-------- ------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................... $ 3,551 $ 3,465 $ 4,988 $4,924
Due after one year through five years................. 14,338 13,655 1,948 1,798
Due after five years through ten years................ 746 669 606 590
Due after ten years................................... 462 437 -- --
-------- ------- --------- ------
$ 19,097 $18,226 $ 7,542 $7,312
======= ======= ======= ======
</TABLE>
Average federal funds sold increased 26% or $3.0 million in 1994 to $14.4
million as compared to $11.4 million in 1993. The average balance of
interest-bearing deposits in other banks decreased 98% or $677,000 to $17,000.
There were no foreign time deposits during 1994 and 1993. The increase in
federal funds sold was primarily due to the deposit growth being faster than
loan funding and CBG's anticipated liquidity needs.
Deposits. Changes in the markets served by the CBG were reflected in the
liability mix during 1994 and 1993. Interest-bearing liabilities consisted
primarily of interest-bearing deposits in 1994 and 1993. Year-end deposit
balances increased 17% or $26.2 million in 1994. Declining interest rates during
1993 and 1992 and the acquisition of three branch facilities and their deposit
base enabled CBG to restructure the mix of deposits toward more
consumer-oriented sources of funds.
Average interest-bearing deposits increased $13.9 million, or 12%, during
1994 to $134.4 million in 1994 from $120.5 million in 1993. Average
noninterest-bearing demand deposits increased $7.3 million, or 34%, to $28.5
million in 1994 from $21.2 million in 1993.
During 1994, the average balance of noninterest-bearing deposits, savings,
NOW and money market accounts increased $10.0 million, or 14%, to $81.0 million
in 1994 from $70.9 million in 1993 compared to an increase in time deposits of
$11.1 million, or 16% to $81.9 million in 1994 from $70.7 million in 1993. The
deposits acquired through branch acquisitions in 1992 were predominately
consumer time deposits of a former thrift institution.
69
<PAGE> 83
Average amounts of deposits and average rates paid thereon, classified as
to noninterest-bearing demand deposits, interest-bearing demand and savings
deposits, and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993
--------------- ----------------
AMOUNT RATE AMOUNT RATE
-------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits......................... $ 28,491 --% $ 21,177 --%
Interest-bearing demand deposits............................ 46,738 3.05 45,223 2.88
Savings deposits............................................ 5,777 2.82 4,567 2.61
Time deposits............................................... 81,864 4.69 70,734 4.72
-------- ---- -------- ----
Total deposits.................................... $162,870 $141,701
======== ========
</TABLE>
The amounts of time certificates of deposit issued in amounts of $100,000
or more at December 31, 1994, are shown below by maturity category, which is
based on time remaining until maturity for the periods indicated from December
31, 1994.
<TABLE>
<CAPTION>
TIME DEPOSITS
OF $100,000 OR MORE
-------------------
(IN THOUSANDS)
<S> <C>
Three months or less........................................................ $ 7,441
Over three through twelve months............................................ 7,318
Over twelve months.......................................................... 4,008
----------
Total $18,767
==============
</TABLE>
CBG offers certificates of deposit ranging in maturities from seven days to
five years and also offers retirement accounts. In addition, CBG offers a wide
variety of checking and savings accounts with competitive interest rates.
Management carefully prices CBG's deposits in order to remain competitive in
light of the then current interest rate environment and competition in its
primary markets of Gwinnett County, Cobb County and Fulton County, Georgia.
Management believes that CBG's success in attracting deposits reflects a
commitment to providing personal service to its customers. CBG does not
advertise for deposits outside its local market area, nor does it utilize the
services of a deposit broker.
Interest Rate Sensitivity Management. Interest rate sensitivity is a
function of the repricing characteristics of the CBG's portfolio of assets and
liabilities. The repricing characteristics are the time frames within which the
interest-bearing assets and liabilities are subject to change in interest rates
either at replacement, repricing or maturity during the life of the instruments.
Interest rate sensitivity management focuses on the maturity structure of assets
and liabilities and their repricing characteristics during periods of changes 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 gaps.
CBG's variable rate loans totaling $87.8 million, or 65% of total loans,
and $55.4, or 50%, million at December 31, 1994 and 1993, respectively, reprice
within one year. For the one to five year time frame, the corresponding
relationships are $48.5 million, or 27% of total loans, and $29.4 million, or
21%, respectively.
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 with 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
70
<PAGE> 84
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. Prevailing interest rates during 1994 were at significantly lower levels
than prevailing rates in recent years. While CBG is unable to predict future
changes in market rates of interest, an upward trend in interest rates would
tend to have a positive effect on CBG's net interest margin, as CBG's
interest-bearing liabilities are not scheduled to reprice faster than its
interest-earning assets.
The objectives of interest rate sensitivity management are to minimize the
effect of interest rate changes on the net interest margin while maintaining net
interest income at acceptable levels. The following table sets forth interest
rate sensitivity using contractual payment schedules at December 31, 1994. The
repricing dates, which may differ from maturity dates for various assets and
liabilities do not take into consideration external factors that might affect
the sensitivity of assets and liabilities.
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
0-3 3-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Fixed rate loans.............................. $ 5,953 $ 10,880 $18,264 $11,539 $ 46,636
Variable rate loans........................... 87,809 -- 1,270 -- 89,079
Federal funds sold............................ 14,610 -- -- -- 14,610
Investment securities -- fixed rate........... 952 7,523 12,862 1,799 23,136
Investment securities -- variable rate........ 500 -- 2,800 -- 3,300
-------- -------- ------- ------- --------
Total earning assets................ $109,824 $ 18,403 $35,196 $13,338 $176,761
======== ======== ======= ======= ========
INTEREST-BEARING LIABILITIES:
Money market.................................. $ 30,965 $ -- $ -- $ -- $ 30,965
NOW........................................... 15,458 -- -- -- 15,458
Savings....................................... 5,745 -- -- -- 5,745
Time, $100,000 and over....................... 7,441 7,858 4,008 -- 19,307
Other time.................................... 12,972 30,331 25,411 -- 68,714
-------- -------- ------- ------- --------
Total interest-bearing
liabilities....................... $ 72,581 $ 38,189 $29,419 $ -- $140,189
======== ======== ======= ======= ========
Interest sensitivity gap...................... $ 37,243 $(19,786) $ 5,777 $13,338 $ 36,572
======== ======== ======= ======= ========
Cumulative interest sensitivity gap........... $ 37,243 $ 17,457 $23,234 $36,572
======== ======== ======= =======
Ratio of interest sensitive assets to interest
sensitive liabilities....................... 151.31% 48.19% 119.64% 100.00% 126.09%
Cumulative ratio of interest sensitive assets
to interest sensitive liabilities........... 151.31 115.76 116.57 126.09
Ratio of cumulative interest sensitivity gap
to total earning assets..................... 21.07 9.88 13.14 20.69
</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 Management. 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
71
<PAGE> 85
manages the levels, types and maturities of earning assets in relation to the
sources of funds available to assure adequate funding will be available at all
times.
Federal funds sold and investments scheduled to mature within one year
totaled $23.3 million in 1994 and $20.4 million in 1993 and represented the
primary sources of CBG's liquidity.
A source of liquidity is CBG's ability to sell loans and loan
participations to other financial institutions and investors. See "Earning
Assets." In addition, the construction loans originated by CBG usually have a
repayment period 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 purchased 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, increased
$546,000, 3%, to $18.7 million at December 31, 1994, from $18.2 million at
December 31, 1993. CBG had stockholders' equity of $16.9 million at December 31,
1992. Net income accounted for all of the increase in stockholders' equity in
1994 and 1993, net of the market valuation adjustment for unrealized losses
totaling $152,000 at December 31, 1994.
A strong capital position, which is vital to the continued profitability of
the CBG, also promotes depositor and investor confidence and provides a solid
foundation for the future growth of the organization. The 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 and 1993 was 10%. Key equity and asset ratios
for CBG for each reporting period are presented in other sections of this
Prospectus.
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 stockholders' equity minus goodwill and other intangibles disallowed
by bank regulators divided by total 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. Since all of CBG's intangibles are those that are disallowed,
the leverage ratio is the same as its tangible leverage ratio. CBG's leverage
ratio and tangible leverage ratio were 8.95% at December 31, 1994, 9.96% at
December 31, 1993 and 10.45% at December 31, 1992. This ratio was 8.31% at
December 31, 1994, 8.15% at December 31, 1993 and 8.64% at December 31, 1992,
for Commercial Bank.
Risk-based capital guidelines take into consideration risk factors, as
defined by CBG'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.
CBG's Tier I capital, which consists of equity less goodwill, amounted to $15.9
million at December 31, 1994. Tier II capital, equivalent to the allowance for
loan losses, was $1.9 million at December 31, 1994. Tier I capital plus the Tier
II capital components are referred to as Total Qualifying Capital and was $17.7
million at year-end 1994. The percentage ratios as calculated under the
risk-based guidelines were 10.71% and 11.96% for Tier I and Total Qualifying
Capital, respectively, at December 31, 1994.
The regulatory capitalization of Commercial Bank exceeds the minimum ratios
of 5% leverage capital, 6% Tier I capital and 10% Total Qualifying Capital
required in 1994 for "well capitalized" banks as defined by the Georgia Bank's
regulators. CBG continually monitors these ratios to assure that the Commercial
Bank exceeds the minimum ratios required under applicable regulations.
72
<PAGE> 86
RISK-BASED CAPITAL
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMERCIAL BANK COMMERCIAL BANK
OF OF
GEORGIA GWINNETT TOTAL
---------------- -------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Risk Bases Capital Ratios
Tier 1 Capital.................... $ 9,685 10.26% $ 6,197 11.50% $ 15,882 10.71%
Tier 1 Capital -- Minimum
Required....................... 3,776 4.00 2,155 4.00 5,932 4.00
-------- ----- -------- -------- -------- -----
Excess.............................. 5,909 6.26% 4,042 7.50% 9,950 6.71
Risk Base Capital (Tier 2).......... 10,871 11.51 6,873 12.76 17,744 11.97
Risk base Capital -- Minimum
Required.......................... 7,553 8.00 4,311 8.00 11,863 8.00
-------- ----- -------- -------- -------- -----
Excess.............................. 3,318 3.51% 2,562 4.76% 5,881 3.97%
Total Risk Weighted
Assets.................. $ 94,409 $ 53,884 $148,293
======== ======== ========
Leverage Ratios
Total Core Capital.................. $ 9,685 7.68% $ 6,197 8.59% $ 15,882 8.01%
Minimum Leverage Requirement........ 3,784 3.00 2,164 3.00 5,948 3.00
-------- ----- -------- -------- -------- -----
Excess.............................. 5,901 4.68% 4,033 5.59% 9,934 5.01%
Adjusted Tangible Assets............ $126,128 $ 72,149 $198,277
======== ======== ========
</TABLE>
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. The following discussion
of net interest margin rates and yield is presented on a taxable equivalent
basis. Interest income and expense amounts are not presented on taxable
equivalent basis.
Net interest income for 1994 increased $1.4 million, or 18%, to $8.9
million from $7.5 million in 1993, which increased $2.0 million, or 37%, from
$5.5 million in 1992. This increase in net interest income resulted from growth
in average earning assets, principally loans, and was offset somewhat by an
increase in interest expense in 1994 but a decline in interest expense from
deposits in 1993. During 1994, the net interest margin on a taxable equivalent
basis was 5.47% on average earning assets of $162.5 million. In 1993, the net
interest margin was 5.32% on average earning assets of $141.5 million. In 1992,
the net interest margin was 4.52% on average earning assets of $121.3 million.
Total interest income increased $2.0 million, or 16%, to $14.3 million in
1994 from $12.3 million in 1993 which increased $2.0 million, or 19% from $10.3
million in 1992. Interest income increased in 1994 due to an 11% increase in the
average volume of loans improved somewhat by a 39 basis point increase in the
average yield. Other categories of earning assets experienced increases in both
volume and rate in 1994 compared to 1993. Total interest expense increased 14%
in 1994 due to a 9 basis point increase in rate paid on interest-bearing
liabilities and a 12% increase in average volume. The time deposits dominated
the trend of increasing interest expense by increasing 16% in average volume and
experiencing a decrease in rate of 1 basis point.
The trend in net interest income is commonly evaluated in terms of average
rates using the net yield and the interest rate spread. The net yield on earning
assets is computed by dividing fully taxable equivalent net interest income by
average total earning assets. The net yield increased 15 basis points to 5.47%
in 1994. The increase in net yield resulted from the substantial increase in the
general level of interest rates in recent years coupled with an increase in the
size of the CBG's loan portfolio which generally consist of higher yielding
assets than investment securities.
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 and from
3.87% in 1992.
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<PAGE> 87
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1994 1993 1992
--------------------------- --------------------------- ---------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ -------- ------- ------ -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
Loans............................. $123,007 $12,518 10.18 % $110,887 $10,853 9.79% $ 86,583 $8,309 9.60%
Investment securities
Taxable......................... 24,562 1,227 5.00 19,702 1,134 5.76 20,836 1,393 6.69
Tax-exempt...................... 466 11 2.36 77 2 2.60 297 9 3.03
Federal funds sold................ 14,414 587 4.07 10,856 337 3.10 9,715 408 4.20
Deposits in banks................. 74 4 5.41 -- -- 0.00 3,853 180 4.67
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total earning assets...... 162,523 14,347 8.83 % 141,522 12,326 8.71% 121,284 10,299 8.49%
Other assets...................... 20,359 21,341 17,671
-------- -------- --------
Total average assets...... $182,882 $162,863 $138,955
======== ======== ========
AVERAGE LIABILITIES AND EQUITY
Interest-bearing deposits
NOW accounts.................... $ 14,618 361 2.47 % $ 12,484 325 2.60% $ 9,486 296 3.12%
Money market accounts........... 32,120 1,066 3.32 32,739 979 2.99 34,632 1,384 4.00
Savings......................... 5,777 163 2.82 4,567 119 2.61 6,156 147 2.39
Time deposits $100,000 and
over.......................... 18,913 858 4.54 15,672 706 4.50 13,036 761 5.84
Other time deposits............. 62,951 2,979 4.73 55,062 2,634 4.78 40,081 2,193 5.47
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities............. 134,379 5,427 4.04 % 120,524 4,763 3.95% 103,391 4,781 4.62%
Noninterest-bearing liabilities... 28,491 21,177 16,681
Other liabilities................. 1,553 31 3,610 29 1,893 32
-------- ------- -------- ------- -------- -------
Total average
liabilities............. 164,423 145,311 121,965
Stockholders' equity.............. 18,459 17,552 16,990
-------- -------- --------
Total average liabilities
and equity.............. $182,882 $162,863 $138,955
======== ======== ========
Net interest income/net
interest spread......... $ 8,889 4.79 % $ 7,534 4.76% $5,486 3.87%
======= ====== ======= ====== ======= ======
Net interest margin....... 5.47 % 5.32% 4.52%
====== ====== ======
</TABLE>
74
<PAGE> 88
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 taxable-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 prorata basis between volume and rate.
RATE AND VOLUME ANALYSIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 VS. 1993 1993 VS. 1992
CHANGES DUE TO CHANGES DUE TO
--------------------------- ---------------------------
INCREASE INCREASE
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ----- ------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN:
Income from earning assets:
Interest and fees on loans....................... $1,664 $ 445 $1,219 $2,544 $ 170 $2,374
Interest on investment securities................ 102 (178) 280 (265) (179) (86)
Interest on federal funds sold................... 250 122 128 (72) (116) 44
Interest on deposits in other banks.............. 4 2 2 (180) (90) (90)
------ ----- ------ ------ ----- ------
Total interest income..................... 2,020 391 1,629 2,027 (215) 2,242
------ ----- ------ ------ ----- ------
EXPENSE FROM INTEREST-BEARING LIABILITIES:
Demand and money market.......................... 123 77 46 (376) (417) 41
Savings.......................................... 44 12 32 (29) 12 (41)
Time deposits of $100,000 or more................ 152 5 147 (55) (193) 138
Other time deposits.............................. 343 (31) 374 443 (326) 769
------ ----- ------ ------ ----- ------
Total interest expense.................... 662 63 599 (17) (924) 907
------ ----- ------ ------ ----- ------
Net interest income....................... $1,358 $ 328 $1,030 $2,044 $ 709 $1,335
====== ===== ====== ====== ===== ======
</TABLE>
Market interest rates for earning assets in 1994 remained relatively stable
compared to 1993 due to prime rate remaining virtually unchanged during 1994. A
majority of CBG's loans have interest rates tied to prime rate. The general
level of interest rates led CBG to shorten the average maturity of its
investment portfolio due to the perceived risk of investing funds in longer term
securities when rates were at low levels. The relatively moderate level of
interest rates enabled the CBG to offer deposit products at comparable levels of
1993. The overall cost of deposits increased 9 basis points in 1994 compared to
1993 because maturing deposits were renewed at higher market rates in 1994
compared to 1993.
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan
Losses. The provision for loan losses is the annual cost of providing an
allowance or reserve for anticipated future losses on loans. The amount of the
provision for each year 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 and $652,000 in 1992. The 58% increase in provision for loan losses during
1994 reflected the higher level of loans, the level of net loan charge-offs and
the desire to increase the ratio of the allowance to total loans outstanding as
well as 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 $216,000 or .20% of average loans in 1993. Recoveries of
amounts previously charged-off were $75,000 in 1994 and $31,000 in 1993.
Although it is the 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.
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<PAGE> 89
The allowance for loan losses increased 39% in 1994 to $2.0 million at
December 31, 1994 from $1.4 million at December 31, 1993, which was an increase
of 17% from $1.2 million at December 31, 1992. At December 31, 1994, the
allowance for loan losses was 1.45% of loans outstanding compared to 1.23% at
December 31, 1993, and 1.20% at December 31, 1992. The increase in the allowance
for loan losses was required to offset the increase in net loan charge-offs and
to increase the ratio of the allowance to total loans outstanding at year-end
1994, which is a long-term objective of the CBG. Approximately 54% of the
allowance for loan losses at December 31, 1994, was related to commercial and
financial loans, 18% was related to installment and other consumer loans, and
25% related to real estate loans.
The following table presents an analysis of CBG's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average amount of loans outstanding.................................... $123,876 $112,895
======== ========
Balance of reserve for possible loan losses at beginning of period..... $ 1,413 $ 1,189
-------- --------
Charge-offs:
Commercial, financial and agricultural............................... (104) (166)
Real estate -- mortgage.............................................. (3) --
Consumer............................................................. (110) (81)
-------- --------
(217) (247)
-------- --------
Recoveries:
Commercial, financial and agricultural............................... 40 30
Real estate -- mortgage.............................................. 0 --
Consumer............................................................. 35 2
-------- --------
75 32
-------- --------
Net charge-offs.............................................. (142) (215)
-------- --------
Additions to reserve charged to operating expenses..................... 695 439
-------- --------
Balance of reserve for possible loan losses at period end.............. $ 1,966 $ 1,413
======== ========
Ratio of net loan charge-offs to average loans outstanding during
period............................................................... 0.11% 0.19%
======== ========
</TABLE>
Nonperforming Assets. Nonperforming assets are comprised of 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, a decrease
of $431,000, or 36%, from $1.2 million at December 31, 1993. Nonaccrual loans
decreased primarily due to three loans secured by real estate, which were sold.
Other real estate owned totaled $1.5 million at December 31, 1994, compared
to $1.4 million at year-end 1993. The primary component of other real estate is
a 159 acre single family housing development located in Fulton County, Georgia,
consisting of 34 building lots and 82 acres of undeveloped land 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 of 34 building lots already developed would be sold to builders. In
Phase 2, 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 $697,000 at December 1994 and $1.1 million at December 1993
through the sale of building lots and collection of a partial legal settlement.
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<PAGE> 90
Following is a summary of nonperforming and past due loans and foreclosed
assets as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis............................ $ 770 $1,201
Installment loans and term loans contractually past due ninety days
or more as to interest or principal payments and still accruing.... -- --
Loans, the terms of which have been renegotiated to provide a
reduction or deferral of interest or principal balance because of
deterioration in the financial position of the borrower............ -- --
Loans now current about which there are serious doubts as to the
ability of the borrower to comply with present loan repayment
terms.............................................................. -- --
Foreclosed assets in other real estate............................... 1,500 1,400
------ ------
Total...................................................... $2,270 $2,601
====== ======
</TABLE>
If interest on these loans had been accrued and paid, such interest income
would have approximated $30,000 and $33,000 for 1994 and 1993, respectively.
Proceeds from the sale of other real estate totaled $1.6 million in 1994,
$1.5 million in 1993 and $329,000 in 1992.
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.
Noninterest Income. Noninterest income consists of revenue generated from
a broad range of financial services and activities, including fee-based services
and investment securities gains and losses. Noninterest income increased
$81,000, or 38%, to $2.2 million in 1994 from $2.1 million in 1993 which was an
increase of $471,000, or 28%, from $1.7 million in 1992.
Mortgage origination fees totaled $164,000 in 1994, a decrease of $310,000
or 65% from $474,000 in 1993 and $331,000 in 1992. This increase reflects the
downward trend in mortgage rates during 1994 and 1993, which resulted in an
unusually large number of customers who refinanced their existing mortgage
loans.
Gains on sale of SBA loans decreased $4,000, or 7%, to $526,000 in 1994
from $530,000 in 1993 which was a slight increase from $523,000 in 1992. The
sales consisted of the guaranteed portion of loans originated under the auspices
of the SBA.
Loan servicing fees increased $69,000, or 37%, to $255,000 in 1994 from
$186,000 in 1993. CBG had loan servicing fees of $162,000 in 1992. The increased
SBA loan sales in 1994 and 1993 increased loan servicing fees.
Service charges on deposits were $919,000 in 1994, an increase of $247,000,
or 37%, over the 1993 amount of $672,000. Service charges on deposits were
$519,000 in 1992. The increase in 1994 and 1993 was attributable to a repricing
of service charges assessed to deposit account customers and a reduction in
waived service charges during the years.
Other operating income was $351,000 in 1994 compared to $206,000 in 1993
and $64,000 in 1992. A portion of this increase related to fees received by
CBG's electronic banking department, which was established in 1993 and completed
its first full year of operation in 1994. These fees were $169,000 in 1994 as
compared to $52,000 in 1993.
CBG had no gains on securities transactions in 1994, as compared to $67,000
in 1993 and $65,000 in 1992. The future results of securities sales are
dependent on factors such as movements in interest rates and changes in the
securities markets, both of which cannot be predicted with certainty.
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<PAGE> 91
Noninterest Expense. Operating expenses of $9.2 million increased $1.3
million, or 17%, during 1994 over the 1993 amount of $7.9 million and $6.7
million in 1992. Salaries and related expense of $4.5 million increased $472,000
or 12% from $4.0 million in 1993. These increases reflect additional commissions
paid in connection with mortgage loan originations. In addition, 1994 and 1993
reflected a full year of personnel expense related to branches acquired in 1992
and 1994 compared to 1992 expense for only part of the year for the branches
acquired.
Occupancy and equipment expense of $1.4 million in 1994 increased $167,000,
or 14%, from $1.2 million in 1993 and $1.0 million in 1992. This increase in
1994 and 1993 reflects the full year expenses of branch facilities acquired in
the second quarter of 1992 and additional branches opened in 1994.
Other operating expenses of $2.8 million in 1994 increased $544,000, or
24%, from $2.3 million in 1993 and $2.1 million in 1992. This increase is
primarily due to the full year expenses related to operating branch facilities
acquired in 1992 and additional branches opened and closed in 1994.
Income Taxes. The effective tax rate as a percentage of pretax income was
40% in 1994 and 34% in 1993 and was a (24)% benefit in 1992.
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 on the financial statements. Prior year's
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 its subsidiary, 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. No
dividends have been paid to stockholders since CBG was formed.
Other Accounting Issues. During the second quarter of 1993, FASB 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. 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.
In 1994, CBG transferred investment securities due to adoption of 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) trade
account securities; (2) held-to-maturity securities; 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.
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 Georgia Bancorp.
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<PAGE> 92
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 98 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 four offices in the Atlanta, Georgia area. Colonial Mortgage
Company, a subsidiary of Colonial Bank, is a mortgage banking company with
approximately $9 billion in residential loan servicing and 13 offices in 12
states. BancGroup's commercial banking loan portfolio is comprised primarily of
commercial real estate loans (26%) and residential real estate loans (43%), 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.
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
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<PAGE> 93
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 January
9, 1996, a total of 81,729 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 September 30, 1995, Dothan Federal had assets of $48.1 million,
deposits of $41.0 million and stockholders' equity of $3.9 million. See "THE
COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma Statements of
Condition (Unaudited)."
BancGroup has entered into a definitive agreement dated as of 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. This transaction is subject to,
among other things, approval by the stockholders of Southern and approval by
appropriate regulatory authorities. At September 30, 1995, Southern had assets
of $211 million, deposits of $193 million and stockholders' equity of $16
million. See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro
Forma Statements of Condition (Unaudited)."
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
As of January 31, 1996, BancGroup had issued and outstanding 13,491,691
shares of Common Stock with 5,388 stockholders of record. Each such share is
entitled to one vote. In addition, as of that date, 214,957 shares of Common
Stock were subject to issue upon exercise of options pursuant to BancGroup's
stock option plans and up to 345,321 shares of Common Stock were issuable upon
conversion of BancGroup's 1986 Debentures. There are currently 44,000,000 shares
of Common Stock authorized.
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.
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<PAGE> 94
The following table shows those persons who are known to BancGroup to be
beneficial owners as of January 31, 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 10.49%
Post Office Box 1108
Montgomery, AL 36101
James K. Lowder.................................................... 1,099,649 8.03
Post Office Box 250
Montgomery, AL 36142
Thomas H. Lowder................................................... 1,073,053 7.83
Post Office Box 11687
Birmingham, AL 35202
</TABLE>
- ---------------
(1) Percentages are calculated assuming the issuance of 214,957 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.
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<PAGE> 95
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 January 31, 1996.
<TABLE>
<CAPTION>
SHARES OF BANCGROUP
BENEFICIALLY OWNED
------------------------------
PERCENTAGE
COMMON OF CLASS
NAME STOCK OUTSTANDING(1)
- ----------------------------------------------------------------- --------- --------------
<S> <C> <C>
DIRECTORS
Young J. Boozer.................................................. 7,082(2) *
William Britton.................................................. 6,808 *
Jerry J. Chesser................................................. 73,231 *
Augustus K. Clements, III........................................ 8,976 *
Robert S. Craft.................................................. 5,997 *
Patrick F. Dye................................................... 26,063(3) *
Clinton O. Holdbrooks............................................ 145,932(4) 1.07%
D. B. Jones...................................................... 9,797 *
Harold D. King**................................................. 77,729(4) *
Robert E. Lowder**............................................... 1,437,345(5) 10.49
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................................................. 181,970 1.33
Ed V. Welch...................................................... 29,582 *
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Young J. Boozer, III............................................. 22,914(2)(6) *
W. Flake Oakley, IV.............................................. 11,337(6) *
Michael R. Holley................................................ 6,808 *
Samuel R. Morgan................................................. 5,926(6) *
Michell Conden................................................... 3,207 *
All Executive Officers & Directors as a Group.................... 2,103,478 15.35
</TABLE>
- ---------------
* Represents less than one percent.
** Executive Officer.
(1) Percentages are calculated assuming the issuance of 214,957 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, W. Flake Oakley, IV, and Samuel R.
Morgan, hold options respecting 12,500, 5,000, 3,000, and 500 shares of
Common Stock, respectively, pursuant to BancGroup's stock option plans.
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<PAGE> 96
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, 1994, 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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<PAGE> 97
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 Budge 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 $0.80 to $0.90 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. 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.
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 $797 million. Under the Budget Act certain
of these deposits would be excluded from the special assessment. The total
special assessment that would be due under the Budget Act is estimated to be
approximately $5.4 million.
It should be noted that supervision, regulation, and examination of
BancGroup and the Subsidiary Banks are intended primarily for the protection of
depositors, not stockholders.
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<PAGE> 98
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.
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. Commercial Bancorp of Georgia, Inc. was incorporated
under the laws of the State of Georgia on January 13, 1988, for the purpose of
becoming a bank holding company for Commercial Bank of Georgia. Commercial
Bancorp of Georgia, Inc. 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, Commercial Bancorp of Georgia, Inc. used $8,000,000 of the proceeds
from its public offering to acquire all of the capital stock of Commercial Bank
of Georgia.
At the effective time of the merger transaction in which CBG acquired
Commercial Bancorp of Georgia, Inc., CBG changed its name to "Commercial Bancorp
of Georgia, Inc." On September 30, 1995, Commercial Bank of Georgia 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 for 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 1994, the yield on earning assets was 8.83% and the
rate paid on interest-bearing liabilities was 4.04%. CBG's net interest income
for 1994 was $8.9 million and was equivalent to an interest rate spread of 4.9%.
Net interest margin, defined as net interest income as a percentage of average
earning assets, was 5.47% for 1994. 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, 1994, totaled $133.7
million.
Commercial loans totaled $56.9 million at December 31, 1994, 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 $61.9 million at
December 31, 1994. 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.
Installment and other consumer loans outstanding at December 31, 1994, of
$17.7 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 participation to other financial institutions. Loans are
also sold as participation when the volume of loans exceeds a desired level of
concentration in CBG's portfolio. 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 $7.03 million in 1994.
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
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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 1994. 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. 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. 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, 1994,
the allowance for loan losses was $2.0 million which was 1.45% of total loans
outstanding.
INVESTMENT SECURITIES AND FEDERAL FUNDS SOLD
Investment securities are a major component of earning assets and total
$26.4 million at December 31, 1994. 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.
Federal funds sold totaled $14.6 million at December 31, 1994. Deposits in
excess of lending requirements are invested in federal funds because of the
unattractive level of alternative investments and 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 $178.3 million at December 31, 1994, 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 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-sale its retail
deposit customers with other services.
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BORROWINGS
CBG has unsecured lines of credit for federal funds purchased available
from correspondent banks totaling $8 million at December 31, 1994. The use of
these lines is infrequent and at December 31, 1994, 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 asset sensitive in that its loans,
investment securities and federal funds sold reprice more rapidly than its
interest-sensitive liabilities. This provides additional net interest income
when the general level of interest rate is rising. Conversely, this sensitivity
will result in lower 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 accounting
for on a separate data processing system maintained by CBG.
SUPERVISION AND REGULATIONS
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 regulations by the Georgia Department of
Banking and Finance ("DBF"). CBG files periodic information to keep the DBF
informed that CBG has complied with provisions of Georgia law and the
regulations and orders issued thereunder by the DBF. The DBF may make
examinations of CBG.
Commercial Bank is also subject to supervision, regulations and examination
by the DBF, which monitors all operations of Commercial Bank. This monitoring
includes loan loss reserve, loans, investment securities, establishment of
branches and capital. Commercial Bank is a member of the Bank Insurance Fund of
the Federal Deposit Insurance Corporation ("FDIC") and, as such, its deposits
are insured by the FDIC to the extent provided by law. In addition, Commercial
Bank is a member of the Federal Reserve System and is subject to the regulations
of the Federal Reserve Board.
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.
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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. 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
155 Norcross Street
Alpharetta, GA 30201........................................... 1991 2,500 Owned
1041 Windy Hill Road
Smyrna, GA 30080............................................... 1992 3,100 Leased
Building
3361 Clairmont Road Owned
Atlanta, GA 30329.............................................. 1992 3,115 Land Leased
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
</TABLE>
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 December 31, 1995,
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 the
Company'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 36101, no later
than 120 calendar days in advance of the date of BancGroup's proxy statement
used for BancGroup's 1996 Annual Meeting of Stockholders.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand serves as the independent accountants for BancGroup. The
consolidated financial statements of BancGroup as of December 31, 1994 and 1993
and for each of the three years ended December 31, 1994 are incorporated by
reference in this Prospectus in reliance upon the report of such firm as experts
given on the authority of such firm 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, 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
auditing.
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<PAGE> 106
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. 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.
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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, 1994 and 1993.................................... F-3
Consolidated Statements of Income Years Ended December 31, 1994, 1993 and 1992............. F-4
Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1994,
1993
and 1992................................................................................. F-5
Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992......... F-6
Notes to Consolidated Financial Statements................................................. F-7
Consolidated Balance Sheet, September 30, 1995 and 1994 (Unaudited)........................ F-22
Consolidated Income Statement for the Three Months and Nine Months Ended September 30, 1995
and 1994 (Unaudited)..................................................................... F-23
Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited).................................................. F-24
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995
and 1994 (Unaudited)..................................................................... F-25
Notes to Financial Statements September 30, 1995 and 1994.................................. F-26
SOUTHERN BANKING CORPORATION:
Report of Independent Accountants.......................................................... F-28
Consolidated Balance Sheets, December 31, 1994 and 1993.................................... F-29
Consolidated Statements of Income Years Ended December 31, 1994, 1993 and 1992............. F-30
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1994, 1993
and 1992................................................................................. F-31
Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992......... F-32
Notes to Consolidated Financial Statements................................................. F-34
Consolidated Statements of Financial Condition, September 30, 1995 and 1994 (Unaudited).... F-45
Consolidated Statements of Income for the Nine Months Ended September 30, 1995 and 1994
(Unaudited).............................................................................. F-46
Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 1995
(Unaudited).............................................................................. F-47
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1994
(Unaudited).............................................................................. F-48
DOTHAN FEDERAL SAVINGS BANK:
Report of Independent Public Accountants................................................... F-51
Statements of Financial Condition, June 30, 1995 and 1994.................................. F-52
Statements of Income Years Ended June 30, 1995, 1994 and 1993.............................. F-53
Statements of Stockholders' Equity Years Ended June 30, 1995, 1994 and 1993................ F-54
Statements of Cash Flows Years Ended June 30, 1995, 1994 and 1993.......................... F-55
Notes to Financial Statements.............................................................. F-56
Condensed Statements of Financial Condition, September 30, 1995 and 1994 (Unaudited)....... F-67
Condensed Statements of Income for the Three Months Ended September 30, 1995 and 1994
(Unaudited).............................................................................. F-68
Condensed Statement of Stockholders' Equity for the Three Months Ended September 30, 1995
(Unaudited).............................................................................. F-69
Condensed Statements of Cash Flows for the Three Months Ended September 30, 1995 and 1994
(Unaudited).............................................................................. F-70
Notes to Condensed Financial Statements.................................................... F-71
</TABLE>
F-1
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Commercial Bancorp of Georgia, Inc.
and Subsidiaries
Lawrenceville, Georgia
We have audited the accompanying consolidated balance sheet of Commercial
Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett,
Inc.) and Subsidiaries as of December 31, 1994, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
year 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
audit. 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, 1994 and 1993, and for the three years then ended,
and our reports dated January 19, 1995, except for the information presented in
Note L for which the date is March 2, 1995, and January 25, 1994, expressed an
unqualified opinion on those statements. We audited the consolidated financial
statements of the former Commercial Bancorp of Georgia, Inc. and Subsidiary as
of December 31, 1994, and for the year then ended, and our report dated March
10, 1995, 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 two years 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 1993, and for the three years 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 audits 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 restated 1994 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 Subsidiaries as of December 31, 1994,
and the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles. We previously
audited and reported on the consolidated balance sheet of Commercial Bancorp of
Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) as of
December 31, 1993, and the related consolidated statements of income and cash
flows for the two years then ended, prior to their restatement for the 1995
pooling of interests. Its contribution to total assets, revenues, and net income
represented 33%, 30% and 59% of the respective restated totals. Separate
consolidated financial statements of the former Commercial Bancorp of Georgia,
Inc. included in the 1993 restated consolidated balance sheet and consolidated
statements of income and cash flows for the two years then ended were audited
and reported on separately by other auditors. We also audited the combination of
the accompanying consolidated balance sheets and consolidated statements of
income and cash flows as of and for the two years 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 of the
notes to the consolidated financial statements.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for investment securities in 1994 to
adopt the provisions of Statement of Financial Accounting Standards No. 115.
BRICKER & MELTON, P.A.
January 19, 1995
Duluth, Georgia
F-2
<PAGE> 109
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note C).................................. $ 12,164,453 $ 8,066,046
Federal funds sold................................................ 14,610,000 19,187,000
Interest-bearing deposits in other banks.......................... 200,000 --
Investment securities held to maturity (market value of
$18,226,280 and $8,879,489 for 1994 and 1993, respectively)
(Note D)........................................................ 19,096,399 8,770,920
Investment securities available for sale (Note D)................. 7,311,800 11,600,058
Other investments................................................. 180,000 180,000
Loans, net (Notes E and K)........................................ 133,736,244 110,945,568
Loans held for sale............................................... 189,590 2,807,064
Premises and equipment, net (Note F).............................. 5,995,057 5,665,600
Other real estate (Note G)........................................ 1,480,417 1,377,730
Intangible assets, net............................................ 984,637 1,142,231
Accrued interest receivable....................................... 1,532,366 1,081,299
Other assets (Note I)............................................. 1,896,522 1,431,005
------------ ------------
TOTAL ASSETS............................................ $199,377,485 $172,254,521
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand................................... $ 38,075,216 $ 25,777,835
Interest-bearing demand and money market..................... 46,423,500 45,428,567
Savings...................................................... 5,744,815 5,038,845
Time deposits of $100,000 or more............................ 18,766,716 18,603,150
Other time deposits.......................................... 69,253,881 57,206,396
------------ ------------
Total Deposits.......................................... 178,264,128 152,054,793
------------ ------------
Note payable (Note K)........................................ 50,000 --
Obligation under capital leases (Note F)..................... 160,692 289,190
Accrued interest payable..................................... 1,066,201 844,976
Other liabilities............................................ 1,104,624 879,474
------------ ------------
TOTAL LIABILITIES....................................... 180,645,645 154,068,433
------------ ------------
STOCKHOLDERS' EQUITY (Note L)
Common stock -- $1 par value: 10,000,000 shares authorized,
1,856,711 shares issued...................................... 1,856,711 1,856,711
Surplus........................................................... 16,090,386 16,090,386
Retained earnings................................................. 1,236,769 538,991
Treasury stock, at cost, 30,000 shares............................ (300,000) (300,000)
Market valuation reserve on investment securities available for
sale (Note D)................................................... (152,026) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.............................. 18,731,840 18,186,088
------------ ------------
Commitments and contingent liabilities (Note M)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $199,377,485 $172,254,521
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 110
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees........................................... $12,517,671 $10,853,400 $ 8,309,263
Interest on investment securities............................... 1,238,857 1,136,767 1,402,108
Interest on federal funds sold.................................. 586,398 336,179 408,320
Interest on deposits in other banks............................. 4,295 -- 180,106
----------- ----------- -----------
TOTAL INTEREST INCOME.................................... 14,347,221 12,326,346 10,299,797
----------- ----------- -----------
INTEREST EXPENSE
Interest-bearing demand and money market........................ 1,427,552 1,304,223 1,679,931
Savings......................................................... 162,809 118,444 147,770
Time deposits of $100,000 or more............................... 857,799 705,595 760,608
Other time deposits............................................. 2,978,769 2,635,520 2,192,853
Obligation under capital leases (Note F)........................ 12,171 14,970 22,308
Other (Notes J and K)........................................... 18,906 13,533 10,507
----------- ----------- -----------
TOTAL INTEREST EXPENSE................................... 5,458,006 4,792,285 4,813,977
----------- ----------- -----------
NET INTEREST INCOME...................................... 8,889,215 7,534,061 5,485,820
PROVISION FOR LOAN LOSSES (Note E)................................ 694,967 438,854 652,089
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 8,194,248 7,095,207 4,833,731
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts............................. 918,899 671,802 519,022
Investment securities gains, net (Note D)....................... -- 66,912 64,613
Gains on sales of SBA loan participations....................... 526,400 529,942 522,615
Fees/gains on the origination/sale of mortgage loans............ 164,032 473,574 331,128
Loan servicing fees............................................. 254,723 185,962 162,166
Other income.................................................... 351,193 205,611 63,566
----------- ----------- -----------
TOTAL OTHER INCOME....................................... 2,215,247 2,133,803 1,663,110
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits (Note J)......................... 4,518,188 4,045,739 3,358,945
Net occupancy and equipment expense (Note F).................... 1,403,746 1,237,045 1,004,812
Other real estate expense (Note G).............................. 308,872 142,030 143,007
Amortization expense............................................ 157,594 158,540 95,357
Other expense (Note O).......................................... 2,824,909 2,280,444 2,085,882
----------- ----------- -----------
TOTAL OTHER EXPENSE...................................... 9,213,309 7,863,798 6,688,003
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLES..................... 1,196,186 1,365,212 (191,162)
INCOME TAX EXPENSE (BENEFIT) (Note I)............................. 498,408 479,024 (45,345)
----------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES.................................. 697,778 886,188 (145,817)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR INCOME
TAXES (Note I).................................................. -- 383,691 --
----------- ----------- -----------
NET INCOME (LOSS)........................................ $ 697,778 $ 1,269,879 $ (145,817)
============ ============ ============
EARNINGS PER SHARE
Before cumulative effect of change.............................. $ .38 $ .49 $ (.08)
Cumulative effect of change..................................... -- .21 --
----------- ----------- -----------
$ .38 $ .70 $ (.08)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 111
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---------------------------------------------------------------------------
MARKET
COMMON RETAINED VALUATION TREASURY
STOCK SURPLUS EARNINGS RESERVE STOCK TOTAL
---------- ----------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991....... $1,856,711 $16,090,386 $ (585,071) $ -- $(300,000) $17,062,026
Net loss........................... -- -- (145,817) -- -- (145,817)
---------- ----------- ---------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1992....... 1,856,711 16,090,386 (730,888) -- (300,000) 16,916,209
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 $(152,026) $(300,000) $18,731,840
========== ============ ========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 112
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................................... $ 697,778 $ 1,269,879 $ (145,817)
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................................................ 694,967 438,854 652,089
Net accretion on investment securities................................... 58,068 149,280 190,443
Depreciation and amortization............................................ 656,940 631,128 517,462
Amortization of intangible assets........................................ 157,594 158,540 95,357
Provision for losses on other real estate................................ 231,939 27,751 51,904
Investment securities gains, net......................................... -- (66,912) (64,613)
Deferred income tax benefit.............................................. (441,699) (63,025) (142,608)
Gains on sales of SBA loans.............................................. (526,400) (529,942) (522,615)
(Increase) decrease in interest receivable............................... (451,067) 32,917 (248,677)
Increase in interest payable............................................. 221,225 195,113 123,815
(Increase) decrease in other assets...................................... 54,497 (86,398) (1,077,842)
Increase (decrease) in other liabilities................................. 225,150 592,872 (424,550)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................... 1,578,992 2,366,366 (995,652)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in other banks.......... (200,000) 1,682,000 (1,236,115)
Purchases of investment securities held to maturity...................... (6,590,000) (5,311,044) (17,883,140)
Purchases of investment securities available for sale.................... (7,423,081) (10,305,683) (2,892,409)
Proceeds from sales of investment securities............................. -- 6,150,146 5,677,073
Maturities of investment securities held to maturity..................... 2,956,286 3,496,175 1,986,816
Maturities of investment securities available for sale................... 4,731,165 6,326,704 --
Proceeds from sales of SBA loans......................................... 7,027,300 5,734,588 7,178,117
Loans originated or acquired, net of principal repayments................ (28,929,818) (21,064,155) (39,356,243)
Proceeds from sale of premises and equipment............................. -- 39,241 --
Purchases of premises and equipment...................................... (986,397) (533,742) (1,373,801)
Capital improvements to other real estate................................ (331,898) (97,378) (60,642)
Proceeds from sales of other real estate................................. 1,558,021 1,512,170 328,944
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES.............................. (28,188,422) (12,370,978) (47,631,400)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in federal funds purchased........................... -- (1,500,000) 1,500,000
Net increase in demand, money market and savings accounts................ 13,998,284 8,934,421 16,333,284
Time deposits accepted, net of repayments................................ 12,211,051 17,267,714 23,584,808
Reduction of capital lease obligation.................................... (128,498) (181,085) (195,181)
Proceeds from short-term borrowing....................................... 50,000 -- --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 26,130,837 24,521,050 41,222,911
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (478,593) 14,516,438 (7,404,141)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................. 27,253,046 12,736,608 20,140,749
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 26,774,453 $ 27,253,046 $ 12,736,608
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH PAID
Interest................................................................. $ 5,236,781 $ 4,656,511 $ 4,675,319
=========== =========== ===========
Income taxes............................................................. $ 1,214,700 $ 289,500 $ 38,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES
Real estate acquired in settlement of loans.............................. $ 1,560,749 $ 504,323 $ 843,787
=========== =========== ===========
Transfers of investment securities held to maturity...................... $ 9,286,388 $ -- $ --
=========== =========== ===========
Transfers of investment securities available for sale.................... $ 2,553,851 $ 9,267,563 $ 3,405,571
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 113
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Commercial Bancorp of Georgia,
Inc. and subsidiaries 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 Gwinnett, collectively known as the
Company as of December 31, 1994 and 1993, and for the three years 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
consolidated financial statements include the accounts of both entities and
their wholly-owned subsidiaries, Commercial Bank of Gwinnett and Commercial Bank
of Georgia, collectively know as the Company. 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
In 1992, Georgia segregated its investment securities portfolio into
securities held to maturity and those available for sale. Investments in debt
securities, for which management has both the ability and intent to hold to
maturity, are carried at amortized cost. Investments in debt securities which
management believes may be sold prior to maturity, in connection with changes in
interest rates, prepayment risk, changes in the Company's liquidity or other
similar factors, are classified in 1993 and 1992 as available for sale and are
carried at the lower of aggregate cost or market. All Gwinnett investment
securities in 1993 and 1992 are classified as held to maturity.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115 (SFAS 115) on the accounting and reporting for
investments in all debt securities and equity securities that have readily
determinable fair values. SFAS 115 requires that investments are to be
classified as held to maturity, available for sale or trading securities. Held
to maturity securities are to be reported at amortized cost, while available for
sale and trading securities are to be reported at fair value. The Company has
adopted SFAS 115 in 1994 as required.
F-7
<PAGE> 114
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1994, investment securities held to maturity are reported at amortized
cost. 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.
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.
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 are effective for
the Company beginning in 1995. The adoption is not expected to 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.
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
F-8
<PAGE> 115
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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. 107 (SFAS 107) which requires disclosure of current
market value information related to certain assets and liabilities, both on- and
off-balance sheet, and Statement of Financial Accounting Standards No. 119 (SFAS
119) which requires disclosures about derivative financial instruments. These
pronouncements are not effective for the Company until 1995. The adoption of
SFAS 107 and SFAS 119 is not expected to have a significant adverse effect on
the Company.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares
outstanding during the period (1,826,711 in 1994, 1993 and 1992). Stock options
and warrants, as described in Note K, are considered to be common stock
equivalents for purposes of calculating earnings per share. The effect of
including these common stock equivalents in the earnings per share calculation
for 1994, 1993 and 1992 is anti-dilutive.
F-9
<PAGE> 116
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, 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 1993 and 1992 financial
statements to conform with the 1994 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 for all periods presented have been restated to include the financial
position and results of operations of the former Commercial Bancorp of Georgia,
Inc.
The Company's consolidated financial data have been restated as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS, EXCEPT FOR
PER SHARE DATA)
<S> <C> <C> <C>
Net Interest Income:
Commercial Bancorp of Gwinnett, before merger........... $2,989 $2,264 $1,655
Commercial Bancorp of Georgia........................... 5,901 5,270 3,831
------ ------ ------
Total........................................... $8,890 $7,534 $5,486
====== ====== ======
Net Income:
Commercial Bancorp of Gwinnett, before merger........... $ 341 $ 752(1) $ (29)
Commercial Bancorp of Georgia........................... 357 518 (117)
------ ------ ------
Total........................................... $ 698 $1,270 $ (146)
====== ====== ======
Net Income Per Share:
Commercial Bancorp of Gwinnett, before merger........... $ .55 $ 1.21(1) $ (.05)
Effect of restatement for Commercial Bancorp of
Georgia.............................................. (.17) (.51) (.03)
------ ------ ------
Total........................................... $ .38 $ .70 $ (.08)
====== ====== ======
</TABLE>
- ---------------
(1) Includes a $383,691 ($.62 per share) increase in net income for cumulative
effect of change in accounting principle for income taxes.
F-10
<PAGE> 117
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C. 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 Banks' reserve
requirement at December 31, 1994, was approximately $1,048,000. The Banks
maintained cash balances which were adequate to meet this requirement.
NOTE D. INVESTMENT SECURITIES
The carrying value and estimated market value of investment securities held
to maturity are as follows at December 31:
<TABLE>
<CAPTION>
1994
-------------------------------------------------
CARRYING UNREALIZED UNREALIZED MARKET
VALUE 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>
<TABLE>
<CAPTION>
1993
-------------------------------------------------
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 1,003,955 $ 8,451 $ -- $ 1,012,406
U.S. Government agencies and
corporations........................... 4,284,136 29,719 9,826 4,304,029
Mortgage-backed securities............... 3,482,829 85,104 4,879 3,563,054
----------- ---------- -------- -----------
$ 8,770,920 $ 123,274 $ 14,705 $ 8,879,489
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale are as follows at December 31:
<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>
<TABLE>
<CAPTION>
1993
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 8,059,766 $ -- $ 40,890 $ 8,018,876
Mortgage-backed securities............... 2,941,961 15,164 8,726 2,948,399
Other securities......................... 598,331 5,024 3,394 599,961
----------- ---------- ---------- -----------
$11,600,058 $ 20,188 $ 53,010 $11,567,236
========== ======== ======== ==========
</TABLE>
In conjunction with the adoption of SFAS 115 in 1994, Georgia transferred
investment securities totaling $9,286,388 from available for sale to held to
maturity. Gwinnett adopted SFAS 115 in 1994, and transferred
F-11
<PAGE> 118
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investment securities totaling $2,553,851 to available for sale. 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.
The Government agency securities classified as held to maturity at December
31, 1994, with a market value of approximately $7,191,000, consist of Federal
Home Loan Bank and Federal National Mortgage Association securities.
Approximately $3,196,000 of these securities are derivative securities. These
securities have maturities which range from 1996 through 1999 and have a current
weighted-average net yield of 5.84%. The market value of these securities is
generally affected positively by declining interest rates and negatively by
increasing interest rates. In addition, the market value increases or decreases
based on supply and/or demand for a particular type of security and various
other factors. Presently, the market value of these securities is volatile due
to the above interest and market factors.
The carrying value and estimated market value of investment securities held
to maturity and the amortized cost and estimated market value of investment
securities available for sale at December 31, 1994, 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
------------------------- -----------------------
CARRYING MARKET AMORTIZED MARKET
VALUE VALUE COST VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 3,550,666 $ 3,464,541 $4,988,366 $4,923,950
Due after one year through five years......... 14,337,835 13,655,453 1,947,515 1,797,450
Due after five years through ten years........ 745,723 669,047 606,260 590,400
Due after ten years........................... 462,175 437,239 -- --
----------- ----------- ---------- ----------
$19,096,399 $18,226,280 $7,542,141 $7,311,800
========== ========== ========= =========
</TABLE>
There were no sales of investment securities during 1994. Proceeds from
sales of investment securities during 1993 and 1992 were $6,150,146 and
$5,677,073, respectively, with gross gains of $66,912 and $64,920 and gross
losses of $0 and $307, respectively, realized on those transactions.
Investment securities with carrying values of $1,542,548 and $1,997,551 and
approximate market values of $1,589,798 and $2,028,153 at December 31, 1994 and
1993, respectively, were pledged to secure public funds and certain other
deposits as required by law.
At December 31, 1994, the Company has no outstanding derivative financial
instruments such as swaps, options, futures or forward contracts.
F-12
<PAGE> 119
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E. LOANS
Major classifications of loans are as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Commercial................................................ $ 56,853,272 $ 54,854,919
Real estate -- construction............................... 61,856,941 34,925,005
Consumer.................................................. 17,692,495 23,189,855
------------ ------------
Total loans..................................... 136,402,708 112,969,779
Less: Net deferred loan fees.............................. (700,053) (611,479)
Allowance for loan losses........................... (1,966,411) (1,412,732)
------------ ------------
Loans, net...................................... $133,736,244 $110,945,568
=========== ===========
</TABLE>
Most of the Bank's business activity is with customers located within the
Atlanta metropolitan area. As of December 31, 1994 and 1993, the Bank had a
concentration of credit risk aggregating approximately $73,856,000 and
$63,561,000, respectively, on loans secured by real estate.
At December 31, 1994 and 1993, non-accrual loans totaled approximately
$770,000 and $1,201,000, respectively. If such loans had been on a full-accrual
basis, interest income would have been approximately $30,000 and $33,000 higher,
respectively. At December 31, 1994 and 1993, renegotiated and/or restructured
loans totaled approximately $1,026,000 and $1,308,000, respectively.
The following is a summary of transactions in the allowance for loan losses
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year......................... $1,412,732 $1,189,398 $ 764,334
Provision charged to expense....................... 694,967 438,854 652,089
Loans charged off.................................. (216,922) (247,345) (253,265)
Recoveries of loans charged off.................... 75,634 31,825 26,240
---------- ---------- ----------
Balance, end of year............................... $1,966,411 $1,412,732 $1,189,398
========= ========= =========
</TABLE>
NOTE F. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land.......................................................... $1,453,814 $1,118,914
Buildings..................................................... 3,820,219 3,479,745
Leasehold improvements........................................ 454,641 446,623
Furniture, fixtures and equipment............................. 1,864,321 1,584,075
Capital lease obligations for furniture, fixtures and
equipment................................................... 121,495 244,895
---------- ----------
7,714,490 6,874,252
Less: Accumulated depreciation and amortization............... (1,719,433) (1,208,652)
---------- ----------
$5,995,057 $5,665,600
========= =========
</TABLE>
The charge to operating expense for depreciation and amortization was
$656,940, $631,128 and $517,462 in 1994, 1993 and 1992, respectively.
F-13
<PAGE> 120
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under capital lease obligations and the
present value of the net minimum lease payments at December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1995...................................................................... $133,230
1996...................................................................... 34,698
--------
Total minimum lease payments.................................... 167,928
Less amount representing interest......................................... (7,236)
--------
Present value of net minimum lease payments............................... $160,692
========
</TABLE>
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, 1994,
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1995...................................................................... $296,362
1996...................................................................... 242,249
1997...................................................................... 106,972
1998...................................................................... 44,376
1999...................................................................... 44,376
Thereafter................................................................ 148,704
--------
$883,039
========
</TABLE>
The Company leases certain portions of the main office building to
unrelated tenants under operating leases. Minimum future lease rentals under
noncancelable leases at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1995...................................................................... $ 94,796
1996...................................................................... 14,976
--------
Total minimum rentals........................................... $109,772
========
</TABLE>
Rental expense charged to operations was approximately $326,000, $339,000
and $229,000 in 1994, 1993 and 1992, respectively. Rental income of
approximately $125,000, $123,000 and $107,000 for 1994, 1993 and 1992,
respectively, is included as a reduction of net occupancy expense in the
consolidated statements of income.
NOTE G. OTHER REAL ESTATE
The following is a summary of transactions in the valuation allowance for
losses on other real estate for the year ended December 31:
<TABLE>
<CAPTION>
1994
--------
<S> <C>
Balance, beginning of year................................................ $ 4,000
Provision charged to expense.............................................. 231,939
Losses charged off........................................................ (35,939)
--------
Balance, end of year...................................................... $200,000
========
</TABLE>
Net expenses of other real estate totaled $308,872, $142,030 and $143,007
for the years ended December 31, 1994, 1993 and 1992, respectively.
F-14
<PAGE> 121
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H. SHORT-TERM BORROWINGS
The Banks utilize short-term borrowings as needed for liquidity purposes in
the form of federal funds purchased. The Banks have unsecured lines of credit
for federal funds purchased from other banks totaling $8,000,000 at December 31,
1994.
NOTE I. INCOME TAXES
The following are the components of income tax expense as provided for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Current income tax provision......................... $ 940,107 $542,049 $ 97,263
Deferred income tax benefit.......................... (441,699) (63,025) (142,608)
--------- -------- ---------
$ 498,408 $479,024 $ (45,345)
========= ======== =========
</TABLE>
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>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Pretax income (loss)............................... $1,196,186 $1,365,212 $(191,162)
========= ========= =========
Income tax computed at Federal statutory rate...... $ 406,704 $ 464,172 $ (64,994)
Increase (decrease) resulting from:
Nondeductible expenses........................... 100,132 4,509 4,447
Other, net....................................... (8,428) 10,343 15,202
---------- ---------- ---------
$ 498,408 $ 479,024 $ (45,345)
========= ========= =========
</TABLE>
The following summarizes the tax effects of temporary differences which
comprise the net deferred tax assets at December 31:
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Allowance for loan losses...................................... $ 575,946 $326,958
Net operating loss carryforward................................ -- 64,730
Net deferred loan fees......................................... 275,416 207,876
Accumulated depreciation....................................... 108,268 58,492
Deferred compensation.......................................... 122,366 84,536
Other real estate.............................................. 110,222 1,360
Market valuation reserve....................................... 78,315 --
Other, net..................................................... 84,851 91,417
---------- --------
$1,355,384 $835,369
========= ========
</TABLE>
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 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.
NOTE J. SAVINGS AND DEFERRED COMPENSATION PLANS
Georgia has established the Commercial Bank of Georgia 401(k) Savings Plan
(Plan) for the benefit of eligible employees and their beneficiaries. Employees
may elect to contribute up to 20% of their gross salaries
F-15
<PAGE> 122
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in 1994 and 1993 and 10% in 1992, excluding bonuses, to the Plan. Any matching
contributions are made at the discretion of the Company. The Company made no
contribution to the Plan in 1994, 1993 or 1992.
Gwinnett has established the Commercial Bank of Gwinnett 401(k) Savings
Plan (Plan) for the benefit of eligible employees and their beneficiaries.
Employees may elect to contribute up to 15% of their gross salaries, excluding
bonuses, to the Plan. Gwinnett may make an annual matching contribution equal to
a percentage of the amount contributed by the employee. For the years ended
December 31, 1994, 1993 and 1992, Gwinnett contributed $21,000, $10,000 and $0,
respectively, to the Plan.
The Company has established a deferred compensation plan for directors
which provides for the deferral of fees for outside directors. The 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 $41,600, $27,150 and $31,350 in 1994, 1993 and 1992,
respectively.
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, 1994, 1993 and 1992, the Company recorded total
compensation expense of $17,531, $19,000 and $20,585, respectively, and interest
expense of $8,917, $5,901 and $4,644, respectively, related to this Plan. An
annuity contract was purchased by the Company to fund the Plan. At December 31,
1994, the annuity contract was valued at $132,062 and is included in other
assets in the accompanying consolidated balance sheet.
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, 1994, 1993 and 1992, the
Company recorded compensation expense of $13,891, $15,049 and $16,308,
respectively, and interest expense of $7,061, $7,450 and $5,863, respectively,
related to this Annuity.
NOTE K. RELATED PARTY TRANSACTIONS
As of December 31, 1994 and 1993, the Banks had direct and indirect loans
which aggregated $1,055,055 and $1,507,582, respectively, outstanding to or for
the benefit of certain of the Company's officers, directors, and their related
interests. During 1994, $295,428 of such loans were made and repayments totaled
$747,955. 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.
As of December 31, 1994, the Company had a $50,000 short-term unsecured
note payable to a related party. The note is scheduled to mature in May 1995 and
bears interest at two percentage points above The Wall Street Journal prime rate
(10.5% at December 31, 1994). There were no such borrowings in 1993.
NOTE L. STOCKHOLDERS' EQUITY
The Georgia Board of Directors has approved an aggregate of 63,840 stock
options to be issued to executive officers. No options were granted or exercised
in 1994, 1993 or 1992. A total of 39,840 options with exercise prices ranging
from $9.90 to $10.21 were outstanding at December 31, 1994. These options were
earned based upon criteria relating to the Company's performance and are
exercisable for a period of seven years after 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. In the event of a change of control of the
Company, all outstanding
F-16
<PAGE> 123
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options will be considered earned. These stock options were converted into stock
options for the surviving entity's stock and represent options for 66,074
shares.
The Gwinnett Board of Directors has approved an aggregate of 14,000 stock
options to be issued to key employees. These options are earned based upon
criteria established by a committee of the Company's Board of Directors relating
to the Company's performance and are exercisable for a period of seven years
after 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.
Summarized Gwinnett options data for the year ended December 31, 1994, is
as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------- ---------------------
NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year........ 11,500 $ 10.00 6,000 $ 10.00
Options granted................................. 1,000 10.00 5,500 10.00
Options exercised............................... -- -- -- --
Options canceled................................ -- -- -- --
--------- --------- --------- ---------
Options outstanding at end of year.............. 12,500 $ 10.00 11,500 $ 10.00
======== ======= ======== =======
Options available for grant at end of year...... 1,500 2,500
======== ========
</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 Gwinnett 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, 1994
and 1993, 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 seven
years after the date of grant. At December 31, 1994, all 13,565 units have been
granted and none have been exercised.
Georgia banking laws limit the amount of dividends which the Banks 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. At December 31, 1994, total
stockholder's equity of Georgia was $10,605,463 of which approximately $324,000
was available for dividends without prior approval or violation of regulatory
capital requirements. Gwinnett can pay no dividends until its accumulated
deficit is eliminated. The Banks paid no dividends in 1994 or 1993.
The Banks are required to maintain certain capital ratios as defined by the
regulatory authorities. At December 31, 1994, the Banks are required to have a
minimum total risk-based capital ratio of 8% and a minimum leverage ratio of 4%.
Georgia's total risk-based capital ratio at that date was 11.5%, and its
leverage ratio was 7.7%. Gwinnett's risk-based capital ratio at that date was
12.7%, and its leverage ratio was 8.5%.
F-17
<PAGE> 124
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M. COMMITMENTS AND CONTINGENT LIABILITIES
The Banks are 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 Banks have in particular classes of financial
instruments.
The Banks' 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 Banks use 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, 1994 and 1993, unfunded
commitments to extend credit were approximately $38,317,000 and $35,054,000,
respectively.
Standby letters of credit are conditional commitments issued by the Banks
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 Banks had approximately
$1,184,000 and $1,607,000 in irrevocable standby letters of credit outstanding
at December 31, 1994 and 1993, respectively.
The Banks evaluate each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Banks upon
extension of credit, is based on management's credit evaluation of the
counterparty. 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.
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-18
<PAGE> 125
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N. CONDENSED FINANCIAL INFORMATION OF COMMERCIAL BANCORP OF
GEORGIA, INC.
CONDENSED BALANCE SHEETS
(PARENT ONLY)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiaries................................... $ 355,160 $ 1,154,794
Investment in subsidiaries.......................................... 16,697,895 15,154,701
Loans to related parties............................................ 31,000 125,803
Other real estate................................................... 936,436 1,167,885
Other assets........................................................ 795,584 622,266
----------- -----------
TOTAL ASSETS.............................................. $18,816,075 $18,225,449
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Note payable...................................................... $ 50,000 $ --
Other liabilities................................................. 34,235 39,361
----------- -----------
TOTAL LIABILITIES......................................... 84,235 39,361
----------- -----------
STOCKHOLDERS' EQUITY
Common stock...................................................... 1,856,711 1,856,711
Surplus........................................................... 16,090,386 16,090,386
Retained earnings................................................. 1,236,769 538,991
Treasury stock.................................................... (300,000) (300,000)
Market valuation reserve on investment securities available for
sale........................................................... (152,026) --
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................ 18,731,840 18,186,088
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $18,816,075 $18,225,449
========== ==========
</TABLE>
F-19
<PAGE> 126
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
(PARENT ONLY)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
INCOME
Interest income.......................................... $ 10,558 $ 5,670 $ 9,460
Other income............................................. -- 4,400 --
---------- ---------- ---------
TOTAL INTEREST INCOME............................ 10,558 10,070 9,460
---------- ---------- ---------
EXPENSE
Merger expense........................................... 267,221 14,251 --
Other real estate expense................................ 227,147 91,731 84,232
Other expense............................................ 132,792 132,718 199,368
---------- ---------- ---------
TOTAL EXPENSE.................................... 627,160 238,700 283,600
---------- ---------- ---------
LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES................................. (616,602) (228,630) (274,140)
INCOME TAX BENEFIT............................... 134,678 64,103 55,732
---------- ---------- ---------
LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES............................................. (481,924) (164,527) (218,408)
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES................................... 1,179,702 1,387,121 72,591
---------- ---------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLES....................... 697,778 1,222,594 (145,817)
Cumulative effect of change in accounting principles....... -- 47,285 --
---------- ---------- ---------
NET INCOME (LOSS).......................................... $ 697,778 $1,269,879 $(145,817)
========= ========= =========
</TABLE>
F-20
<PAGE> 127
COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................................... $ 697,778 $ 1,269,879 $ (145,817)
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries.... (1,179,702) (1,387,121) (72,591)
Provision for losses on other real estate........... 200,000 -- --
(Increase) decrease in other assets................. (78,515) (152,352) 50,835
Increase (decrease) in other liabilities............ (5,126) 39,361 --
----------- ----------- ----------
NET CASH USED BY OPERATING
ACTIVITIES................................... (365,565) (230,233) (167,573)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries............................. (515,518) -- 74,535
Proceeds from sales of other real estate............... 363,347 561,909 --
Capital improvements to other real estate.............. (331,898) (97,378) --
----------- ----------- ----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES................................... (484,069) 464,531 74,535
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable............................. 50,000 -- --
----------- ----------- ----------
NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES................................... 50,000 -- --
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH.......................... (799,634) 234,298 (93,038)
CASH AT BEGINNING OF YEAR 1,154,794 920,496 1,013,534
----------- ----------- ----------
CASH AT END OF YEAR...................................... $ 355,160 $ 1,154,794 $ 920,496
========== ========== =========
</TABLE>
NOTE O. SUPPLEMENTAL FINANCIAL DATA
Components of other expense in excess of 1% of total interest income and
other income for the years ended December 31, 1994, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Legal and professional fees (including merger related
expenses)............................................ $641,420 $271,604 $302,649
FDIC assessment........................................ 350,559 302,211 247,591
Data processing fees................................... 214,957 182,988 138,254
Stationary and supplies................................ 196,004 199,658 170,777
Organizational expense................................. 9,888 168,428 105,745
</TABLE>
F-21
<PAGE> 128
COMMERCIAL BANCORP OF GEORGIA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1995 1994 1994 1993
------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks....................... $ 12,682 $ 12,165 $ 11,147 $ 8,066
Federal funds sold............................ 25,900 14,610 10,770 19,187
Investment securities:
Held to maturity............................ 17,873 19,476 19,774 8,951
Available for sale.......................... 17,004 7,312 8,365 11,600
------------- ------------ ------------- ------------
Total securities.............................. 34,877 26,788 28,139 20,551
Loans, net.................................... 141,014 133,926 128,360 113,753
Fixed assets.................................. 5,671 5,995 6,143 5,666
Other real estate owned....................... 1,446 1,481 2,343 1,378
Accrued interest receivable................... 1,707 1,532 1,425 1,081
Other assets.................................. 3,549 2,881 2,823 2,573
------------- ------------ ------------- ------------
Total assets........................ $ 226,846 $199,378 $ 191,150 $172,255
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing demand.................. $ 30,480 $ 38,075 $ 28,962 $ 25,778
Interest bearing demand and money market.... 48,929 46,423 48,405 45,429
Savings..................................... 5,086 5,745 5,875 5,039
Time deposits of $100,000 or more........... 25,215 18,767 19,404 18,603
Other time deposits......................... 93,197 69,254 67,601 57,206
------------- ------------ ------------- ------------
Total deposits...................... 202,907 178,264 170,247 152,055
Obligations under capital leases.............. 57 161 194 289
Accrued interest payable...................... 1,662 1,066 1,032 845
Other liabilities............................. 1,602 1,155 1,007 880
------------- ------------ ------------- ------------
Total liabilities............................. 206,228 180,646 172,480 154,069
------------- ------------ ------------- ------------
STOCKHOLDERS' EQUITY
Common stock- $1.00 par value; 10,000,000
shares authorized, 1,856,711 issued and
1,826,711 outstanding at Sept. 30, 1994 and
1995 and Dec. 31, 1994 and 1995............. 1,857 1,857 1,857 1,857
Surplus....................................... 16,090 16,090 16,090 16,090
Treasury stock, at cost....................... (300) (300) (300) (300)
Market value on securities available for
sale........................................ 25 (152) (93) --
Retained earnings............................. 2,946 1,237 1,116 539
------------- ------------ ------------- ------------
Total stockholders' equity.......... 20,618 18,732 18,670 18,186
------------- ------------ ------------- ------------
Total liabilities and stockholders'
equity............................ $ 226,846 $199,378 $ 191,150 $172,255
========== ========== ========== ==========
</TABLE>
F-22
<PAGE> 129
COMMERCIAL BANCORP OF GEORGIA, INC.
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees......................... $ 3,824 $ 3,118 $ 11,820 $ 8,840
Investment securities......................... 461 351 1,171 920
Federal funds sold............................ 435 169 886 453
---------- ---------- ---------- ----------
Total interest income................. 4,720 3,638 13,877 10,213
Interest expense
Deposits...................................... 2,321 1,408 6,089 3,871
Obligations under capital leases.............. 2 3 7 9
Other......................................... 0 13 1 13
---------- ---------- ---------- ----------
Total interest expense................ 2,323 1,424 6,097 3,893
---------- ---------- ---------- ----------
Net interest income............................. 2,397 2,214 7,780 6,320
Provision for loan losses....................... 189 113 633 404
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses..................... 2,208 2,101 7,147 5,916
Other income
Mortgage origination fees..................... 35 49 76 141
Gain on sale of loans......................... 231 104 304 322
Service charges on deposit accounts........... 220 258 702 667
Other income.................................. 365 224 777 501
---------- ---------- ---------- ----------
Total other income.................... 851 635 1,859 1,631
Other expense
Salary and employee benefits.................. 1,096 1,091 3,231 3,338
Net occupancy expense......................... 107 111 464 503
Furniture, fixtures and equipment expense..... 133 166 437 507
Other expense................................. 647 859 2,051 2,302
---------- ---------- ---------- ----------
Total other expense................... 1,983 2,227 6,183 6,650
Income before income taxes...................... 1,076 509 2,823 897
Provision for income taxes...................... 424 146 1,114 320
---------- ---------- ---------- ----------
Net income...................................... $ 652 $ 363 $ 1,709 $ 577
========= ========= ========= =========
Earnings per share.............................. $ 0.36 $ 0.20 $ 0.94 $ 0.32
========= ========= ========= =========
Weighted average shares outstanding............. 1,826,711 1,826,711 1,826,711 1,826,711
========= ========= ========= =========
</TABLE>
F-23
<PAGE> 130
COMMERCIAL BANCORP OF GEORGIA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------------------------
MARKET
COMMON RETAINED VALUATION TREASURY
STOCK SURPLUS EARNINGS RESERVE STOCK TOTAL
------ ------- -------- --------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. $1,857 $16,090 $1,237 $(152) $ (300) $18,732
Net income................................ -- -- 1,709 -- -- 1,709
Market valuation adjustment............... -- -- -- 177 -- 177
------ ------- -------- --------- -------- -------
Balance at September 30, 1995............. $1,857 $16,090 $2,946 $ 25 $ (300) $20,168
====== ======= ====== ======= ====== =======
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
------------------------------------------------------------
MARKET
COMMON RETAINED VALUATION TREASURY
STOCK SURPLUS EARNINGS RESERVE STOCK TOTAL
------ ------- -------- --------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.............. $1,857 $16,090 $ 539 $ -- $ (300) $18,186
Net income................................ -- -- 577 -- -- 577
Market valuation adjustment............... -- -- -- (93) -- (93)
------ ------- -------- --------- -------- -------
Balance at September 30, 1994............. $1,857 $16,090 $1,116 $ (93) $ (300) $18,670
====== ======= ====== ======= ====== =======
</TABLE>
F-24
<PAGE> 131
COMMERCIAL BANCORP OF GEORGIA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by (used in) operating activities...................... $ 3,093 $ (456)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities...................................... 1,603 --
Maturities of investment securities.................................... (9,892) (6,592)
Sales of investment securities......................................... -- (996)
Loans originated or acquired, net of principal repayments.............. (7,721) (15,011)
Purchases of premises and equipment.................................... (49) (1,003)
Proceeds from sale of real estate...................................... 35 625
-------- --------
Net cash used in investing activities.................................. (16,024) (22,977)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, money market and savings accounts... (5,748) 6,996
Time deposits accepted, net of repayments.............................. 30,391 11,196
Repayment of capital lease obligations................................. (104) (95)
-------- --------
Net Cash Provided by Financing Activities.............................. 24,539 18,097
Net Increase (Decrease) in Cash and Cash Equivalents..................... 11,608 (5,336)
Cash and Cash Equivalents at Beginning of Period......................... 26,974 27,253
-------- --------
Cash and Cash Equivalents at End of Period............................... $ 38,582 $ 21,917
======== ========
Supplemental disclosure:
Cash interest paid on deposits and borrowings.......................... $ 5,501 $ 3,717
-------- --------
Cash paid for income taxes............................................. $ 1,131 $ 904
-------- --------
Real estate acquired through foreclosure............................... $ 703 $ 1,254
-------- --------
</TABLE>
F-25
<PAGE> 132
COMMERCIAL BANCORP OF GEORGIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. 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 considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. Operating results for the nine month period ended
September 30, 1995, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further information, refer to
the audited financial statements and footnotes thereto included in the Bank's
annual report to stockholders.
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
accompanying unaudited financial statements for all periods presented have been
restated to include the financial position and results of operations of the
former Commercial Bancorp of Georgia, Inc.
NOTE C. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expense in excess of one percent of total
interest and other income for the periods ended September 30, 1995 and 1994, are
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Legal and professional fees (including merger related
expenses)...................................................... $244,171 $379,069
FDIC insurance assessment........................................ 204,993 260,759
Data processing fees............................................. 193,976 162,380
Stationery and supplies.......................................... 140,484 139,519
</TABLE>
NOTE D. EARNINGS PER SHARE
Earnings per share has been computed based on the weighted average number
of common shares outstanding during the periods, which totaled 1,826,711 for the
nine months ended September 30, 1995 and 1994.
NOTE E. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
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 No. 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. If it is determined that an impairment loss has occurred
based on expected future cash flows, the loss should be recognized in the income
statement and certain disclosures regarding the impairment should be made in the
financial
F-26
<PAGE> 133
COMMERCIAL BANCORP OF GEORGIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
statements. The Company has not yet had sufficient time to evaluate the impact,
if any, of the provisions of SFAS No. 121.
NOTE F. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
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 cost of mortgage loans sold
should be allocated to the mortgage servicing rights and the loans based on
relative fair values. The adoption of SFAS No. 122 is not expected to have a
significant impact on the Company.
F-27
<PAGE> 134
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Southern Banking Corporation and Subsidiary
Altamonte Springs, Florida
We have audited the accompanying consolidated balance sheets of Southern
Banking Corporation and Subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three 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 1993, and the
results of their operations and their cash flows for each of the three 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 and as discussed in Note 6, the
Company changed its method of accounting for income taxes in the period ended
December 31, 1993.
COOPERS & LYBRAND, LLP
Orlando, Florida
January 13, 1995
F-28
<PAGE> 135
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks..................................... $ 13,590,206 $ 4,681,644
Federal funds sold.......................................... -- 7,430,000
------------ ------------
Total cash and cash equivalents..................... 13,590,206 12,111,644
Interest-bearing deposits in banks............................ 1,305,057 1,581,426
Investment securities......................................... 34,735,130 14,373,579
Loans, net.................................................... 121,530,420 77,319,960
Premises and equipment, net................................... 5,028,758 2,817,884
Accrued interest receivable................................... 1,136,962 540,665
Goodwill...................................................... 2,211,876 --
Other assets.................................................. 1,823,409 888,919
------------ ------------
Total assets........................................ $181,361,818 $109,634,077
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand.................................. $ 36,665,552 $ 28,912,546
Interest-bearing:
Demand................................................... 22,724,259 11,452,508
Savings.................................................. 43,022,947 28,431,252
Time, $100,000 and over.................................. 16,569,300 14,385,784
Other time............................................... 35,751,950 18,182,594
------------ ------------
Total deposits...................................... 154,734,008 101,364,684
Federal funds purchased....................................... 12,000,000 --
Accrued interest payable...................................... 365,886 346,172
Other liabilities............................................. 526,443 484,735
------------ ------------
Total liabilities................................... 167,626,337 102,195,591
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, par value $1.00 per share; 10,000,000 shares
authorized; 3,350,000 and 2,200,000 shares issued and
outstanding in 1994 and 1993, respectively............... 3,350,000 2,200,000
Surplus..................................................... 7,382,042 3,397,677
Retained earnings........................................... 3,574,412 1,840,809
Unrealized loss on investment securities available for sale,
net...................................................... (570,973) --
------------ ------------
Total stockholders' equity.......................... 13,735,481 7,438,486
------------ ------------
Total liabilities and stockholders' equity.......... $181,361,818 $109,634,077
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 136
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Interest and fee income:
Loans................................................ $ 8,793,436 $ 6,045,913 $4,619,947
Investment securities................................ 1,290,968 630,670 663,455
Interest-bearing deposits............................ 84,806 70,377 63,058
Federal funds sold................................... 156,966 184,026 215,255
----------- ----------- ----------
Total interest and fee income................ 10,326,176 6,930,986 5,561,715
----------- ----------- ----------
Interest expense:
Deposits............................................. 2,894,899 2,047,577 1,999,165
----------- ----------- ----------
Total interest expense....................... 2,894,899 2,047,577 1,999,165
----------- ----------- ----------
Net interest income.......................... 7,431,277 4,883,409 3,562,550
Provision for loan losses 330,000 466,425 325,000
----------- ----------- ----------
Net interest income after provision for loan
losses..................................... 7,101,277 4,416,984 3,237,550
----------- ----------- ----------
Other income:
Service charges on deposit accounts.................. 1,061,899 664,047 340,763
Other income......................................... 231,722 214,109 295,966
----------- ----------- ----------
Total other income........................... 1,293,621 878,156 636,729
----------- ----------- ----------
Other expense:
Salaries and wages................................... 2,332,796 1,643,898 1,317,440
Employee benefits.................................... 342,038 250,147 201,626
Net occupancy expense................................ 674,168 515,211 523,522
Equipment expense.................................... 296,650 207,418 176,819
Other noninterest expenses........................... 2,026,742 1,500,022 1,200,013
----------- ----------- ----------
Total other expense.......................... 5,672,394 4,116,696 3,419,420
----------- ----------- ----------
Income before income taxes and cumulative effect of
change in accounting principle....................... 2,722,504 1,178,444 454,859
Income taxes........................................... 988,901 415,250 71,155
----------- ----------- ----------
Income before cumulative effect of change in accounting
principle............................................ 1,733,603 763,194 383,704
Cumulative effect of change in accounting principle.... -- 46,874 --
----------- ----------- ----------
Net Income............................................. $ 1,733,603 $ 810,068 $ 383,704
========== ========== =========
Net Income per common share............................ 0.63 0.37 0.18
========== ========== =========
Weighted average shares outstanding.................... 2,730,623 2,200,000 2,115,739
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 137
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) ON
INVESTMENT
SECURITIES TOTAL
COMMON(1) AVAILABLE RETAINED STOCKHOLDERS'
STOCK SURPLUS FOR SALE EARNINGS EQUITY
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991.......... $2,111,112 $3,186,568 $ -- $ 647,037 $ 5,944,717
Issuance of Common Stock (44,444
shares sold at $6.75 per
share)............................ 88,888 211,109 -- -- 299,997
Net Income.......................... -- -- -- 383,704 383,704
---------- ---------- ---------- ---------- -------------
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
Change in unrealized losses, net of
income taxes of $344,200.......... -- -- (563,337) -- (563,337)
Net income.......................... -- -- -- 1,733,603 1,733,603
---------- ---------- ---------- ---------- -------------
Balance, December 31, 1994.......... $3,350,000 $7,382,042 $ (570,973) $3,574,412 $ 13,735,481
========= ========= ========= ========= ==========
</TABLE>
- ---------------
(1) All common share information has been restated to reflect the two-for-one
stock split effected in June 1994.
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 138
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Interest and fees received..................... $ 10,417,993 $ 5,977,885 $ 5,105,314
Service charges received....................... 1,061,899 664,047 346,763
Loan fees collected............................ 321,704 850,631 564,656
Other income received.......................... 136,654 200,359 191,658
Interest paid.................................. (2,992,982) (1,884,709) (2,033,778)
Cash paid to suppliers and employees........... (5,058,693) (3,445,728) (3,059,479)
Income taxes paid.............................. (1,281,284) (485,598) (6,025)
------------ ------------ ------------
Net cash provided by operating
activities........................... 2,605,291 1,876,887 1,109,109
------------ ------------ ------------
Cash Flows from Investing Activities:
Proceeds from sales and maturities of
investment securities....................... 4,173,181 8,114,067 4,171,788
Proceeds from maturities of interest-bearing
deposits in banks........................... 400,000 300,000 500,000
Purchase of investment securities.............. (9,497,570) (13,487,394) (2,765,118)
Purchase of interest-bearing deposits in
banks....................................... -- (996,778) (286,484)
Net increase in loans made to customers........ (20,946,882) (17,994,865) (19,566,510)
Acquisition of Osceola National Bank........... (3,121,275) -- --
Purchase of premises and equipment............. (1,770,970) (1,324,129) (660,330)
------------ ------------ ------------
Net cash used in investing
activities........................... (30,763,516) (25,389,099) (18,606,654)
------------ ------------ ------------
Cash Flows from Financing Activities:
Net increase in demand deposits and savings
accounts.................................... 13,750,315 22,525,126 11,102,615
Net increase (decrease) in time deposits....... (1,247,893) 751,746 3,518,852
Proceeds from (payments on) note payable....... -- (75,000) 75,000
Net increase in federal funds purchased........ 12,000,000 -- --
Net proceeds from the issuance of common
stock....................................... 5,134,365 -- 299,997
------------ ------------ ------------
Net cash provided by financing
activities........................... 29,636,787 23,201,872 14,996,464
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................... 1,478,562 (310,340) (2,501,081)
Cash and Cash Equivalents:
Beginning of year.............................. 12,111,644 12,421,984 14,923,065
------------ ------------ ------------
End of year.................................... $ 13,590,206 $ 12,111,644 $ 12,421,984
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 139
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income............................................ $1,733,603 $ 810,068 $ 383,704
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle...................................... -- (46,874) --
Depreciation and amortization.................... 368,458 225,989 166,921
Losses (gains) on sales of investments........... 5,264 (13,750) (104,308)
Net increase in allowance for loan losses........ 330,000 466,425 262,731
Amortization of premiums and accretion of
discounts on investment securities............. 456,555 (1,321) (15,159)
Increase in deferred loan fees................... 226,636 47,285 134,048
Decrease (increase) in accrued interest
receivable..................................... (364,738) (148,433) 109,255
Decrease (increase) in other assets.............. 241,434 218,143 (76,331)
(Decrease) increase in accrued interest
payable........................................ (98,083) 162,868 (34,613)
(Decrease) increase in other liabilities......... (293,838) 156,487 282,861
---------- ---------- ----------
Total adjustments........................... 871,688 1,066,819 725,405
---------- ---------- ----------
Net Cash Provided by Operating Activities.................. $2,605,291 $1,876,887 $1,109,109
========= ========= =========
</TABLE>
Supplemental Schedule of Noncash Investment and Financing Activities:
In June 1994, the Board approved a two-for-one stock split of the
Company's common stock.
On July 3, 1992, Southern Banking Corporation exchanged 1,055,556
shares of its common stock with the shareholders of Southern Bank of
Central Florida in a two-for-one stock exchange.
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 140
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION
Southern Bank 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, 1994,the bank
operates eight branches: four in Seminole County, two in Osceola County and two
in Orange County. 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 reflected in the accompanying Consolidated Balance
Sheets 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>
The following summary presents the pro forma consolidated results of
operations as if the acquisition of ONB occurred at January 1, 1994 and January
1, 1993. The pro forma results are unaudited and are not necessarily indicative
of what actually would have occurred if the acquisition had been in effect for
the entire periods presented.
<TABLE>
<CAPTION>
1994 1993
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Interest and fee income............................................. $11,893,000 $10,303,000
Interest expense.................................................... 3,728,000 3,383,000
Other income........................................................ 2,221,000 1,511,000
Other expense....................................................... 7,077,000 5,739,000
Net income.......................................................... 1,990,000 1,461,000
Net income per share................................................ $ .59 $ .44
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company are in accordance with
generally accepted accounting principles, and conform to general practices
within the banking industry.
Method of Consolidation. In consolidation, all significant intercompany
accounts and transactions are eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold.
Investment Securities. Investment securities are carried at cost adjusted
for amortization of premium and accretion of discount. Gains and losses on the
sale of securities are computed by specific identification.
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115 (SFAS No. 115), Accounting for Certain
Investments in Debt and Equity Securities, that
F-34
<PAGE> 141
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addresses the accounting and reporting for investments in marketable equity
securities and for all investments in debt securities. SFAS No. 115 requires
investments in debt and marketable equity securities to be classified in three
categories and accounted for as follows: held to maturity (recorded at amortized
cost), available for sale (recorded at fair value with unrealized gains and
losses reported as a separate component of stockholder's equity), and trading
securities (recorded at fair value with unrealized gains and losses included in
earnings).
In accordance with the Statement, prior period financial statements have
not been restated to reflect the change in accounting principle. 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.
Loans and Allowance for Loan Losses. Interest on loans is accrued by the
simple interest method. Loan origination fees and incremental costs are deferred
and amortized over the life of the loans as a yield adjustment. The interest
recognition methods produce relatively constant yields over the terms of the
loans. Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful.
The allowance for loan losses is maintained at a level determined to be
adequate for potential loan losses and considers delinquencies, recent loss
experience and the general condition of the loan portfolio, as well as
prevailing and anticipated economic conditions.
In May 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, which establishes new guidance for all creditors in
determining allowances for credit losses related to certain loans. The standard
requires impaired loans to be recorded using one of the following basis: the
present value of expected future cash flows, the loan's observable market price,
or the fair value of the collateral. This statement is effective for fiscal
years beginning after December 31, 1994. The Company has elected not to
implement SFAS No. 114 for 1994. The effect of this standard is not expected to
be adverse or material.
Premises and Equipment. Depreciable assets are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization is
provided on the straight-line basis over the estimated useful lives of the
assets. Maintenance and repairs are charged to expense as incurred and major
renewals and betterments are capitalized. Gains or losses are credited or
charged to income upon disposition.
Goodwill. The Bank recorded goodwill for the excess of the purchase price
of Osceola National Bank over the estimated fair value of the net assets
acquired. The goodwill is being amortized on a straight-line basis over 20
years. Amortization expense for 1994 was $30,541.
Income Taxes. Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes resulting from temporary differences. Such temporary
differences result from differences in the carrying value of assets and
liabilities for tax and financial reporting purposes. The deferred tax assets
and liabilities represent the future tax consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
Net Income per Common Share. Net Income per common share has been computed
using the weighted average number of shares outstanding during the year.
F-35
<PAGE> 142
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES
The amortized cost and estimated market value of investments in debt
securities at December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Investments Held-to-Maturity:
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
========== ======== ========= ==========
Investments Available-for-Sale:
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>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................... $ 9,650,818 $ 17,190 $ (43,016) $ 9,624,992
Mortgage-backed securities.................... 2,615,552 22,328 (26,204) 2,611,676
Obligations of states and political
subdivisions............................... 1,507,209 17,887 (7,013) 1,518,083
Other debt securities......................... 600,000 5,476 -- 605,476
----------- ---------- ---------- -----------
$14,373,579 $ 62,881 $ (76,233) $14,360,227
========== ======== ========= ==========
</TABLE>
F-36
<PAGE> 143
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of investments in debt
securities at December 31, 1994, 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>
Investments Held-to-Maturity:
Due in one year or less....................................... $ 200,000 $ 198,818
Due after one year through five years......................... 3,994,398 3,861,022
Due after five years through ten years........................ 2,942,448 2,787,890
Due in more than ten years.................................... 108,981 106,316
----------- ------------
7,245,827 6,954,046
Federal Home Loan Bank and Federal Reserve Stock.............. 694,300 694,300
Mortgage-backed securities.................................... 8,690,465 8,402,060
----------- ------------
$16,630,592 $ 16,050,406
========== ==========
Investments Available-For-Sale:
Due in one year or less....................................... $ 2,506,656 $ 2,473,076
Due after one year through five years......................... 11,011,095 10,509,015
----------- ------------
13,517,751 12,982,091
Mortgage-backed securities.................................... 5,506,567 5,122,447
----------- ------------
$19,024,318 $ 18,104,538
========== ==========
</TABLE>
Proceeds from the sales and maturities of investments during 1994 and 1993
were $4,173,181 and $8,114,067, respectively. Net realized gains (losses) on the
sale of investments during 1994, 1993 and 1992 were $(5,264), $13,750 and
$104,308, respectively.
Investment securities with book values of $1,505,226 and $2,019,300 at
December 31, 1994 and 1993, respectively, and with market values of
approximately $1,479,843 and $2,013,800 at December 31, 1994 and 1993,
respectively, were pledged as collateral for public funds and treasury tax and
loan deposits.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loan distribution at December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------ -----------
<S> <C> <C>
Commercial............................................... $ 32,148,230 $25,633,524
Mortgage................................................. 11,211,674 12,622,583
Real estate.............................................. 69,836,655 34,228,496
Installment.............................................. 10,120,846 5,942,271
------------ -----------
123,317,405 78,426,874
Overdrafts............................................... 297,396 42,175
Unearned discount........................................ (33,255) (15,180)
Deferred loan fees....................................... (442,470) (233,909)
------------ -----------
123,139,076 78,219,960
Allowance for loan losses (1,608,656) (900,000)
------------ -----------
$121,530,420 $77,319,960
=========== ==========
</TABLE>
F-37
<PAGE> 144
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1994 1993
---------- --------
<S> <C> <C>
Allowance, beginning of year................................. $ 900,000 $639,860
ONB loan loss reserve at acquisition......................... 473,645 --
Provision charged to expense................................. 330,000 466,425
Recoveries on loans previously charged off................... -- 3,755
Loans charged off............................................ (94,989) (210,040)
---------- --------
Allowance, end of year....................................... $1,608,656 $900,000
========= ========
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced,
amounted to $199,614 and $43,241 at December 31, 1994 and 1993, respectively. If
interest on those loans had been accrued, such income would have approximated
$25,000, $2,500 and $3,798 for 1994, 1993 and 1992, respectively.
5. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Land........................................................ $ 827,004 $ 527,004
Bank premises............................................... 2,433,116 1,449,630
Leasehold improvements...................................... 575,274 266,722
Furniture, fixtures and equipment........................... 2,066,183 1,109,430
---------- ----------
5,901,577 3,352,786
Less accumulated depreciation and amortization.............. (872,819) (534,902)
---------- ----------
$5,028,758 $2,817,884
========= =========
</TABLE>
Depreciation and amortization expense for premises and equipment for the
years ended December 31, 1994, 1993 and 1992 was $337,917, $225,989 and
$166,921, respectively.
6. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the
provisions of SFAS 109, the Company elected not to restate the prior year. The
financial effect of this statement has been reported in the 1993 statement of
income as the cumulative effect of a change in accounting principle. The effect
was a net increase in income of $46,874 and a corresponding increase in the net
deferred tax asset as of December 31, 1993.
The components of the net deferred tax asset recognized in the accompanying
balance sheet at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax asset.......................................... $ 969,684 $ 391,287
Deferred tax liability...................................... (104,046) (64,218)
Valuation allowance......................................... -- --
---------- ----------
$ 865,638 $ 327,069
========= =========
</TABLE>
F-38
<PAGE> 145
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The types of temporary differences between the tax bases of assets and
liabilities and their financial statement reporting amounts are attributable
principally to depreciation methods, loan loss provisions, and deferred loan
fees.
Reconciliations of the effective income tax rate and the statutory federal
income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Statutory federal income tax rate............................. 34.0% 34.0% 34.0%
State taxes................................................... 2.3 1.9 2.9
Net operating loss utilized................................... -- -- (18.4)
Other......................................................... -- (0.7) (2.9)
---- ---- -----
Effective income tax rate..................................... 36.3% 35.2% 15.6%
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ 999,859 $456,679 $220,379
State............................................... 114,010 41,304 22,055
---------- -------- --------
1,113,869 497,983 242,434
---------- -------- --------
Deferred:
Federal............................................. (106,703) (74,752) (171,279)
State............................................... (18,265) (7,981) --
---------- -------- --------
(124,968) (82,733) (171,279)
---------- -------- --------
$ 988,901 $415,250 $ 71,155
========= ======== ========
</TABLE>
The Bank recognized the tax benefit of approximately $247,000 in net
operating loss carryforwards for financial reporting purposes in the year ended
December 31, 1992.
As of December 31, 1992, the Bank had approximately $70,000 in net
operating loss carryforwards and approximately $26,000 in alternative minimum
tax credit carryforwards for financial reporting purposes. As of December 31,
1994 and 1993, the Bank had no income tax carryforwards or alternative minimum
tax carryforward.
7. 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 to
organizing directors and key officers and employees of the Company. Under the
plans, 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 (100%) percent
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
F-39
<PAGE> 146
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, 1991............................... 216,000 $ 2.92
Granted........................................................ -- --
Exercised...................................................... -- --
Cancelled...................................................... -- --
--------- ------
Outstanding at December 31, 1992............................... 216,000 $ 2.92
Granted........................................................ -- --
Exercised...................................................... -- --
Cancelled...................................................... -- --
--------- ------
Outstanding at December 31, 1993............................... 216,000 $ 2.92
Granted........................................................ -- --
Exercised...................................................... -- --
Cancelled...................................................... -- --
--------- ------
Outstanding at December 31, 1994............................... 216,000 $ 2.92
======== =========
</TABLE>
Options exercisable at December 31, 1994, 1993 and 1992 are 216,000.
Information with respect to the Company's employee incentive 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, 1991............................. 104,000 $2.92 - $3.38
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... -- --
--------- -------------
Outstanding at December 31, 1992............................. 104,000 $2.92 - $3.38
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... -- --
--------- -------------
Outstanding at December 31, 1993............................. 104,000 $2.92 - $3.38
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... -- --
--------- -------------
Outstanding at December 31, 1994............................. 104,000 $2.92 - $3.38
======== ===========
</TABLE>
Options exercisable at December 31, 1994, 1993 and 1992 are 104,000.
F-40
<PAGE> 147
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
Granted...................................................... 584,000 $3.04
Exercised.................................................... -- --
Cancelled.................................................... -- --
------- -------------
Outstanding at December 31, 1993............................. 584,000 $3.04
Granted...................................................... 230,000 $4.50
Exercised.................................................... -- --
Cancelled.................................................... -- --
------- -------------
Outstanding at December 31, 1994............................. 814,000 $3.04 - $4.50
======= =============
</TABLE>
Options exercisable at December 31, 1994 and 1993 are 814,000 and 584,000,
respectively.
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 date of grant and the exercise date. Under the plan, 79,000 shares were
granted, none of which were exercised or cancelled as of December 31, 1994.
Compensation expense pursuant to the plan was immaterial in 1994.
8. 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 $26,431
and $13,955 for the years ended December 31, 1994 and 1993, respectively.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments -- The Bank leases several of its facilities under
operating leases which expire at various periods through August, 1998. Future
minimum lease payments, by year and in the aggregate, under all operating leases
as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------------------------------------------------
<S> <C>
1995..................................................................... $ 392,490
1996..................................................................... 410,800
1997..................................................................... 277,355
1998..................................................................... 286,963
Thereafter............................................................... 271,545
----------
$1,639,153
=========
</TABLE>
Rent expense was approximately $385,000, $342,000 and $417,000 for 1994,
1993 and 1992, respectively.
In November 1994, the Bank entered into an option for assignment of lease
and purchase of fixed assets related to the leased property formerly known as
the Orlando branch. As of December 31, 1994, this option has not been exercised
by the sublessee.
Financial Instruments with Off-Balance Sheet Risks. The Bank is a party to
financial instruments with off-balance sheet risk in the normal course of its
business to meet the financing needs of its customers and to
F-41
<PAGE> 148
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reduce its own exposure to fluctuations in interest rates. These financial
instruments include loan commitments and stand-by letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to its financial instrument for loan commitments and stand-by
letters of credit is represented by the contracted amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
At December 31, 1994 and 1993, the Bank has commitments to customers of
approximately $1,877,000 and $928,000 for standby letters of credit and
$33,162,000 and $17,948,000 for unfunded firm loan commitments, respectively.
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
Financial Instruments with Off-Balance Sheet Risks. The Bank has no
significant concentration of credit risk with any individual counterparty to
originate loans. Bank loan customers are principally closely-held businesses and
residents concentrated in the central Florida area and as such, the debtors'
ability to honor their contract is substantially dependent upon the general
economic conditions of the region.
The Bank evaluates each customer's credit worthiness on a case-by-case
basis. It is the Bank's policy to obtain adequate collateral in accordance with
internal lending guidelines on all loans. Unsecured loans are made based upon
the judgment of Company management in accordance with authorized lending limits,
Bank lending policies and credit criteria. Collateral on the Bank's loans depend
on the nature of the loan, and are principally commercial and residential real
property and other commercial tangible assets (inventory and equipment). It is
the Bank's policy to perfect its interest in the collateral through the filing
of mortgage deeds and uniform commercial code (UCC) filings, or taking physical
possession of the collateral, if appropriate. Bank management believes it has
access to collateral in the event of loan default to minimize its credit risk.
Stand-by letters of credit are conditional 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. The collateral varies for those
commitments, but may include a certificate of deposit held by the Bank if
collateral is deemed necessary.
During 1994 and 1993, the Bank has approximately $35,594,000 and
$17,514,000, respectively, in fixed rate loans with interest rates ranging from
5.5% to 18%, and $19,215,000 and $191,000, respectively, in variable rate loans
with interest rate ceilings ranging from 9% to 18%.
The Bank is required to maintain a minimum leverage capital ratio of Tier I
capital, as defined, to total assets based upon the Company's ratings under the
regulatory CAMEL rating system. Banks with CAMEL ratings of one are required to
maintain a minimum leverage capital ratio of 3 percent. An additional 100 to 200
basis points are required for banks with CAMEL ratings other than one.
The Bank must also maintain a ratio of total capital to risk-weighted
assets of 8 percent, and a ratio Tier I capital to risk-weighted assets of 4
percent.
10. RETAINED EARNINGS
The Company's retained earnings account at December 31, 1994 and 1993
includes $1,060,000 of initial paid-in capital.
The payment of dividends by the Bank is subject to certain regulatory
restrictions.
F-42
<PAGE> 149
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. 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 $3,672,000 and $4,006,000 at December 31, 1994 and
1993, respectively.
Deposits. Deposits of principal stockholders directors executive officers
and companies in which they have a 10% or more beneficial interest aggregated
approximately $10,196,000 and $13,324,000 at December 31, 1994 and 1993,
respectively.
12. SOUTHERN BANKING CORPORATION (PARENT COMPANY ONLY):
Presented below are the financial statements of Southern Banking
Corporation.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 31,266 $ 12,312
Investment in subsidiary bank, Southern Bank of Central Florida*..... 13,645,379 7,382,421
Other assets......................................................... 58,836 43,753
----------- ----------
Total assets............................................... $13,735,481 $7,438,486
========== =========
STOCKHOLDERS' EQUITY
Common Stock, par value $1.00 per share; 10,000,000 shares
authorized; 3,350,000 and 2,111,112 shares issued and outstanding
in 1994 and 1993, respectively..................................... $ 3,350,000 $2,200,000
Surplus.............................................................. 7,382,042 3,397,677
Retained earnings.................................................... 3,574,412 1,840,809
Unrealized loss on investments available for sale, net............... (570,973) --
----------- ----------
Total stockholders' equity................................. $13,735,481 $7,438,486
========== =========
</TABLE>
- ---------------
* Eliminated in consolidation.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Equity in subsidiary's undistributed net income........... $ 1,746,870 $ 831,515 $ 401,003
Dividends received........................................ 10,000
Interest income........................................... 4,184 --
Other expense............................................. (41,489) (34,386) (17,299)
Income tax benefits....................................... 14,038 12,939
----------- ---------- ----------
Net income...................................... 1,733,603 810,068 383,704
Retained earnings, beginning of period.................... 1,840,809 1,030,741 647,037
----------- ---------- ----------
Retained earnings, end of year............................ $ 1,817,542 $1,840,809 $1,030,741
========== ========= =========
</TABLE>
F-43
<PAGE> 150
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income............................................... $ 1,733,603 $ 810,068 $ 383,704
Adjustments to reconcile net income to net cash used by
operating activities:
Undistributed earnings of subsidiary.................. (1,746,870) (831,515) (401,003)
Amortization.......................................... 11,894 11,895 3,405
Increase in other assets.............................. (26,977) -- (24,582)
----------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (28,350) (9,552) (38,476)
----------- --------- ---------
Investing activities:
Dividends received from bank............................. -- 94,811
Organizational costs..................................... (34,471)
Investment in bank....................................... (5,087,061) -- (299,997)
----------- --------- ---------
Net cash used in investing activities............ (5,087,061) 94,811 (334,468)
----------- --------- ---------
Financing activities:
Proceeds from the issuance of common stock............... 5,134,365 -- 299,997
Proceeds from note payable............................... 75,780
Retirement of note payable............................... -- (75,780) --
----------- --------- ---------
5,134,365 (75,780) 375,777
----------- --------- ---------
Net cash provided (used in) by financing
activities:
Increase (decrease) in cash and cash equivalents...... 18,954 9,479 2,833
Cash and cash equivalents, beginning of year.......... 12,312 2,833 0
----------- --------- ---------
Cash and cash equivalents, end of year................ $ 31,266 $ 12,312 $ 2,833
========== ========= =========
</TABLE>
F-44
<PAGE> 151
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 14,832,448 $ 18,933,993
Federal funds sold................................................ 9,500,000 2,485,000
Investment securities............................................. 34,844,191 36,132,691
Loans receivable, net............................................. 140,414,731 114,433,739
Loans receivable for sale, approximate market value of............ -- --
Federal Home Loan Bank stock, at cost............................. 544,300 --
Real estate acquired through foreclosure.......................... 155,690 274,890
Office properties and equipment, net.............................. 4,957,333 4,635,615
Accrued interest receivable....................................... 1,360,357 1,001,784
Other assets...................................................... 4,116,250 3,328,205
------------ ------------
Total assets............................................ $210,725,300 $181,225,917
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.......................................................... $193,055,915 $167,083,155
Federal Home Loan Bank advances................................... -- --
Note payable...................................................... -- --
Advance payments by borrowers for property taxes and insurance.... -- --
Accrued expenses and other liabilities............................ 1,475,333 866,883
------------ ------------
Total liabilities....................................... 194,531,248 167,950,038
------------ ------------
Stockholders' Equity:
Common stock, $1.00 par value, authorized 10,000,000 shares;
issued and outstanding shares 3,362,000 at 09/30/95 and
3,350,000 at 09/30/94........................................... $ 3,362,000 $ 3,350,000
Additional paid-in capital........................................ 7,405,082 7,382,042
Net unrealized gain (loss) on AFS Securities...................... (117,075) (305,137)
Retained earnings................................................. 5,544,045 2,848,974
------------ ------------
Total stockholders' equity.............................. 16,194,052 13,275,879
------------ ------------
Total liabilities and stockholders' equity.............. $210,725,300 $181,225,917
=========== ===========
</TABLE>
F-45
<PAGE> 152
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
----------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Loans................................................................ $ 9,719,958 $5,140,565
Other investments.................................................... 2,106,102 942,136
----------- ----------
Total interest income...................................... 11,826,060 6,082,701
----------- ----------
INTEREST EXPENSE:
Deposits............................................................. 4,357,928 1,810,335
Advance and other borrowings......................................... 73,819 --
----------- ----------
Total Interest Expense..................................... 4,431,747 1,810,335
----------- ----------
Net Interest Income........................................ 7,394,313 4,272,366
Provision for possible loan losses................................... 245,000 270,000
----------- ----------
Net interest income after provision for possible loan losses......... 7,149,313 4,002,366
----------- ----------
OTHER INCOME:
Loan fees and service charges........................................ 1,918,009 1,338,395
Mortgage loan servicing fees......................................... 16,989 --
Gain on sale of loans................................................ -- --
Gain (loss) on sale of loan servicing................................ -- --
Gain (loss) on real estate acquired through foreclosure.............. (6,457) --
Gain (loss) on sale of securities.................................... (36,905) 34
Other operating income, net.......................................... 213,313 84,605
----------- ----------
2,104,949 1,423,034
----------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation, payroll taxes, and fringe benefits..................... 2,966,570 1,700,273
Occupancy and equipment expense...................................... 1,023,285 607,136
Other................................................................ 2,147,577 1,441,580
----------- ----------
Total general and administrative expenses.................. 6,137,432 3,748,989
----------- ----------
Income before income taxes................................. 3,116,830 1,676,411
----------- ----------
Income tax expense................................................... 1,147,200 668,515
----------- ----------
Net income...................................................... $ 1,969,630 $1,007,896
========== =========
</TABLE>
F-46
<PAGE> 153
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<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, 1994............ 3,350,000 $3,350,000 $7,382,042 $3,574,415 $ (570,973) $ 13,735,481
Purchase and
retirement of common
stock............... 12,000 12,000 23,040 -- -- 35,040
MVA to AFS
Securities.......... -- -- -- -- 453,898 453,898
Net income............ -- -- -- 1,969,630 -- 1,969,630
------------ ---------- ---------- ---------- -------------- -------------
Balance at September
30, 1995............ 3,362,000 $3,362,000 $7,405,082 $5,544,045 $ (117,075) $ 16,194,052
=========== ========= ========= ========= =========== ==========
</TABLE>
F-47
<PAGE> 154
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net cash provided (used) by operating activities.................. $ 2,989,436 $ (886,641)
------------ ------------
Cash flows from investing activities:
Net (increase) decrease in investment securities................ 1,391,548 (20,655,041)
Net increase in loans made to customers......................... (19,701,208) (37,978,062)
Purchase of premises and equipment.............................. (294,482) (2,025,738)
------------ ------------
Net cash used in investing activities................... (18,604,142) (60,658,841)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts............ 20,037,363 46,178,665
Net increase in time deposits................................... 18,284,545 19,539,806
Net decrease in federal funds purchased......................... (12,000,000) 0
Net proceeds from the issuance of common stock.................. 35,040 5,134,365
------------ ------------
Net cash provided by financing activities............... 26,356,948 70,852,836
------------ ------------
Net increase in cash and cash equivalents......................... 10,742,242 9,307,354
Cash and cash equivalents: beginning of year...................... 13,590,206 12,111,639
------------ ------------
Cash and cash equivalents: September 30, 1995 and 1994............ 24,332,448 $ 21,418,993
------------ ------------
Reconciliation of net income to net cash provided (used) by
operating activities:
Net income...................................................... 1,969,630 1,007,896
------------ ------------
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization................................ 365,907 208,007
(Gains) losses on sales of investments....................... 36,905 (34)
Net increase in allowance for loan losses.................... 106,677 660,048
Amortization of premiums and accretion of discounts on
investment securities....................................... (34,543) 15,060
Increase (decrease) in deferred loan fees.................... (32,083) 204,236
Increase in accrued interest receivable...................... (223,395) (461,119)
(Increase) decrease in other assets.......................... 217,331 (2,543,773)
Increase (decrease) in accrued interest payable.............. 322,927 (20,180)
Increase in other liabilities................................ 260,080 43,218
------------ ------------
Total adjustments....................................... 1,019,806 (1,894,537)
------------ ------------
Net cash provided (used) by operating activities.................. $ 2,989,436 $ (886,641)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest..................................................... $ 4,108,820 $ 1,830,515
------------ ------------
Income taxes................................................. $ 1,005,189 $ 936,600
=========== ===========
Supplemental disclosures of noncash investing activities:
Loans receivable transferred to real estate acquired through
foreclosure.................................................. $ 0 $ 274,890
=========== ===========
Loan originations to finance the sale of real estate acquired
through foreclosure.......................................... $ 0 $ 0
=========== ===========
</TABLE>
F-48
<PAGE> 155
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
Southern Banking Corporation and its Subsidiary ("the Company") have not
changed their accounting and reporting policies from those stated in the 1994
annual report, except for the change in accounting for impairment of loans.
These unaudited interim financial statements should be read in conjunction with
the audited financial statements and footnotes included in the Company's 1994
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 September 30, 1995 and the results of operations and cash flows for the
interim periods ended September 30, 1995 and 1994. All 1995 interim amounts are
subject to year-end audit, and the results of operations for the interim period
herein 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
The Company adopted Statement of Financial Accounting Standards (SFAS) 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. Under the new standards, a loan is considered
impaired, based on current information and events, if it is probable that the
Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement.
Uncollateralized loans are measured for impairment based on the present value of
expected future cash flows discounted at the historical effective interest rate,
while all collateral-dependent loans are measured for impairment based on the
fair value of the collateral. The adoption of SFAS 114 and 118 resulted in no
additional provision for credit losses, at January 1, 1995 or during the nine
months ended September 30, 1995.
NOTE D -- RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, 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. SFAS No. 121 is effective for fiscal years beginning after December 15,
1995. Management believes that the adoption of SFAS No. 121 will not have a
material impact on the Company's financial statements.
In May 1995, 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
F-49
<PAGE> 156
SOUTHERN BANKING CORPORATION AND SUBSIDIARY
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. SFAS No. 122 is effective for fiscal
years beginning after December 15, 1995. Management believes that the adoption
of SFAS No. 122 will not have a material impact on the Company's financial
statements.
In October 1995, the 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. SFAS No.
123 is effective for fiscal years beginning after December 15, 1995. Management
believes that the adoption of SFAS No. 123 will not have a material impact on
the Company's financial statements.
F-50
<PAGE> 157
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-51
<PAGE> 158
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-52
<PAGE> 159
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-53
<PAGE> 160
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-54
<PAGE> 161
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-55
<PAGE> 162
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-56
<PAGE> 163
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-57
<PAGE> 164
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-58
<PAGE> 165
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-59
<PAGE> 166
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-60
<PAGE> 167
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-61
<PAGE> 168
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-62
<PAGE> 169
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-63
<PAGE> 170
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-64
<PAGE> 171
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-65
<PAGE> 172
DOTHAN FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Bank has not been required by the OTS to incorporate an interest rate
risk component to the risk-based capital requirement. This regulation requires a
deduction from risk-based capital based on an institution's exposure to interest
rate risk. Management believes the Bank would continue to exceed its regulatory
minimum requirements if the interest rate risk component is ever required.
Effective December 19, 1992, the Bank became subject to additional capital
standards established by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). These regulations established capital standards in five
categories ranging from "critically undercapitalized" to "well capitalized," and
defined "well capitalized" as at least 5% for core (leverage) capital and at
least 10% for risk-based capital. Institutions with a core capital less than 4%
or risk-based capital less than 8% are considered "undercapitalized," and
subject to increasingly stringent prompt corrective action measures. The Bank's
capital ratios above place it in the "well capitalized" category.
13. INTEREST RATE SENSITIVITY
A portion of the Bank's interest earning assets are long-term fixed rate
mortgage loans and mortgage-backed securities (approximately 79%), while its
principal source of funds are savings deposits with maturities of three years or
less (approximately 99%). Because of the short-term nature of the savings
deposits, their cost generally reflects returns currently available in the
market. Accordingly, the savings deposits have a high degree of interest rate
sensitivity while the mortgage loan portfolio, to the extent of fixed rate
loans, is relatively fixed and has much less sensitivity to changes in current
market rates. Although these conditions are somewhat mitigated by the Bank's
risk management strategies of selling long-term fixed rate loans and reinvesting
in adjustable-rate mortgage-backed securities, changes in market interest rates
tend to directly affect the level of net interest income.
14. SUBSEQUENT EVENT
On January 22, 1996, the Bank entered into a definitive agreement for the
acquisition of the Bank by The Colonial BancGroup, Inc. ("BancGroup"), in which
BancGroup will acquire all of the outstanding stock of the Bank, consideration
consisting of both shares of BancGroup's common stock and cash for an aggregate
purchase price of approximately $5,200,000. This transaction is subject to,
among other things, approval by the stockholders of the Bank and BancGroup and
approval by the appropriate regulatory authorities. In connection with the
pending acquisition, the Bank has entered into agreements with its president and
chief executive officer and its vice president and controller pursuant to which
each could receive cash payments following the merger, should they terminate
employment with the Bank or BancGroup following the merger. Total payments
possible under the agreements, if exercised, would approximate $54,000.
F-66
<PAGE> 173
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................................ $ 2,643,133 $ 1,183,923
Securities available for sale....................................... 5,195,127 5,513,361
Securities held to maturity......................................... 3,247,629 1,503,949
Loans receivable.................................................... 35,442,901 31,962,520
Land, buildings, and equipment...................................... 1,050,925 941,994
Real estate owned................................................... 28,312 101,251
Accrued interest and dividends receivable........................... 334,761 276,592
Other assets........................................................ 140,738 141,503
----------- -----------
$48,083,526 $41,625,093
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................ $41,042,314 $33,115,160
Federal Home Loan Bank advances..................................... 2,500,000 4,416,667
Advance payments by borrowers for taxes and insurance............... 228,118 191,633
Accrued interest payable............................................ 259,727 126,088
Income taxes payable
Current........................................................... 15,465 68,850
Deferred.......................................................... 54,853 0
Accrued expenses and other liabilities.............................. 29,227 83,617
----------- -----------
Total Liabilities......................................... $44,129,704 $38,002,015
----------- -----------
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................................................... 635,548 454,575
Unrealized loss on securities available for sale, net............... (15,062) (164,833)
----------- -----------
Total Stockholders' Equity................................ $ 3,953,822 $ 3,623,078
----------- -----------
$48,083,526 $41,625,093
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE> 174
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Interest Income:
Loans.............................................................. $745,973 $653,140
Other investments.................................................. 135,088 103,080
-------- --------
Total interest income...................................... 881,061 756,220
-------- --------
Interest Expense
Deposits........................................................... 556,372 347,319
Other Borrowings................................................... 30,782 45,747
-------- --------
Total interest expense..................................... 587,154 393,066
-------- --------
Net Interest income........................................ 293,907 363,154
Provision for possible loan losses................................... 15,000 15,000
-------- --------
Net interest income after provision for possible loan losses......... 278,907 348,154
-------- --------
Other Income:
Other loan fees and charges........................................ 9,558 9,265
Demand deposit fees................................................ 8,522 6,949
Other income....................................................... 11,740 913
-------- --------
Total other income......................................... 29,820 17,127
-------- --------
Other Expenses:
Salaries and employee benefits..................................... 110,936 120,538
Office building and equipment...................................... 30,753 37,107
Federal deposit insurance premiums................................. 20,100 18,659
Data processing.................................................... 16,212 18,373
Other expenses..................................................... 76,339 60,658
-------- --------
Total other expenses....................................... 254,340 255,335
-------- --------
Income before provision for income taxes................... 54,387 109,946
-------- --------
Provision for income taxes........................................... 23,938 43,263
-------- --------
Net Income................................................. $ 30,449 $ 66,683
======== ========
Earnings Per Share................................................... $ 0.08 $ 0.17
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE> 175
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
<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 30,449 0 30,449
Change in unrealized loss on securities available
for sale, net.................................. 0 0 0 0 25,463 25,463
--------- ------ --------------- -------- ------------ -------------
Balance at September 30, 1995.................... 399,688 $3,997 $ 3,329,339 $635,548 $(15,062) $ 3,953,822
======== ====== =========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE> 176
DOTHAN FEDERAL SAVINGS BANK
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................................................. $ 30,449 $ 66,683
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization............................................. 19,360 17,479
Accretion of deferred income.............................................. (11,650) (18,991)
Provision for losses on loans and real estate owned....................... 15,000 15,000
Loan fees deferred, net................................................... 13,634 13,982
Loss (gain) net, on sale of Loans......................................... 447 57
Change in assets and liabilities:
(Decrease) Increase in accrued interest and dividends receivable........ (3,069) 16,720
Increase in other assets................................................ (69,573) (65,954)
Increase (decrease) in current income taxes payable..................... 23,938 (129,150)
Increase (decrease) in accrued expenses and other liabilities........... (13,311) 42,757
Increase in accrued interest payable.................................... 80,117 32,670
----------- -----------
Net cash provided by (used in) operating activities.................. 85,342 (8,747)
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity..................... 500,000 1,000,000
Proceeds from sales of loans................................................ 640,548 77,443
Repayments of securities available for sale................................. 122,448 143,136
Purchases of securities held to maturity.................................... (2,249,531) --
Loans originated, net of repayments......................................... (496,159) (1,120,354)
Loans and participations purchased.......................................... (148,296) (1,015,750)
Capital expenditures........................................................ (15,214) (182,027)
----------- -----------
Net cash used in investing activities................................ (1,646,204) (1,097,552)
Cash flows from financing activities:
Increase in deposits, net................................................... 3,415,302 923,676
Advances from Federal Home Loan Bank........................................ -- 4,850,000
Repayments of Federal Home Loan Bank advances............................... (166,667) (4,266,666)
Increase in advance payments by borrowers for taxes and insurance........... 42,024 29,686
Cash dividends paid......................................................... -- (59,953)
----------- -----------
Net cash (used in) provided by financing activities.................. 3,290,659 1,476,743
----------- -----------
Increase in cash and cash equivalents......................................... 1,729,797 370,444
Cash and cash equivalents, beginning of year.................................. 913,336 813,479
----------- -----------
Cash and cash equivalents, end of year........................................ $ 2,643,133 $ 1,183,923
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes.............................................................. $ 0 $ 172,413
============ ============
Interest.................................................................. $ 488,336 $ 360,396
============ ============
Noncash transactions:
Transfers of loans receivable to real estate owned........................ $ 0 $ 6,000
============ ============
Increase/(decrease) in unrealized net loss on securities available for
sale, net of deferred tax provision/(benefit) of $13,088 and $(20,304),
respectively............................................................. $ (25,463) $ 36,972
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE> 177
DOTHAN FEDERAL SAVINGS BANK
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
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 three month periods ended September 30, 1995
and 1994. Results of operations for the interim 1995 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 BancGroup and
approval by the appropriate regulatory authorities. In connection with the
pending acquisition, the Bank has entered into agreements with its president and
chief executive officer and its vice president and controller, pursuant to which
each could receive cash payments following the merger should they terminate
employment with the Bank or BancGroup following the merger. Total payments
possible under the agreements, if exercised, would approximate $54,000.
F-71
<PAGE> 178
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> 179
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> 180
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,
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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). 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 have the right to participate in all
negotiations and proceedings with respect to any Dissenting Stockholder.
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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 defined in
the Federal Deposit Insurance Act and applicable regulations thereunder, and its
deposits are
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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, the
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 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.
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
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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.
6.06 Director Voting. CBG shall on the date of execution of this
Agreement, or as soon as practicable thereafter, obtain an agreement from each
of its directors substantially in the form set forth in Exhibit A.
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 as of the date of this
Agreement. 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 pre-existing condition
limitations. To the extent permitted by applicable law, the period of service
with CBG and
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Commercial Bank of all Retained Employees shall be recognized for vesting and
eligibility purposes under Colonial Bank's benefit plans. 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 on or before February 9, 1995 (or such later
date as is mutually agreed by the parties hereto) 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 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
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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 payment in exchange for the fractional share interest of
Acquiror Common Stock which he would otherwise
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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 restrain or
invalidate the transactions contemplated by this Agreement which, in the
judgment of either
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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.
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.
(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.
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(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;
(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.
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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).
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
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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 & Odem
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 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 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. Notwithstanding the foregoing, nothing in this Section
15.10 relating to fiduciary duties shall preclude an action by Acquiror against
CBG for breach by CBG of any other provision of this Agreement provided that
this sentence shall not confer upon Acquiror any additional rights other than
such rights as it otherwise would have pursuant to such other provisions of this
Agreement.
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.
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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.
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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APPENDIX A
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.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"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.
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"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.
"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
February 16, 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.
D-1
<PAGE> 215
(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.
(3) 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.
(4) 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.
(5) 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).
(6) 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.
(7) 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.
(8) 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 will recognize gain or loss
equal to the difference between the cash received and the basis of such
fractional share interest.
D-2
<PAGE> 216
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.
D-3
<PAGE> 217
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to section 145 of the Delaware General Corporation Law, as
amended, and the Restated Certificate of Incorporation of the Registrant,
officers, directors, employees, and agents of the Registrant are entitled to
indemnification against liabilities incurred while acting in such capacities on
behalf of the Registrant, including reimbursement of certain expenses. In
addition, the Registrant maintains an officers and all of its directors
insurance policy pursuant to which officers and directors of the Registrant are
entitled to indemnification against certain liabilities, including
reimbursement of certain expenses, and the Registrant has indemnity agreements
with certain officers and all of its directors pursuant to which such persons
may be indemnified by the Registrant against certain liabilities, including
expenses.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits that are included in Part
II of the Registration Statement. Such exhibits are
separately indexed elsewhere in the Registration Statement.
DESCRIPTION
Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation
of successor:
Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and Commercial Bancorp of Georgia, Inc., dated as of
December 21, 1995, included in the Prospectus portion of this
Registration Statement at Appendix A and incorporated herein
by reference.
Exhibit 3 Articles of Incorporation and Bylaws:
(A) Restated Certificate of Incorporation of the Registrant, filed
as Exhibit 4.1 to the Registrant's Current Report on Form 8-K,
dated February 21, 1995, and incorporated herein by reference.
(B) Bylaws of the Registrant, filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K, dated February 21,
1995, and incorporated herein by reference.
<PAGE> 218
Exhibit 4 Instruments defining the rights of security holders:
(A) Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.
(B) Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
(C) Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File No.
33-07015), effective July 15, 1986, and incorporated herein by
reference.
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being
registered.
Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.,
included in the Prospectus portion of this Registration
Statement at Appendix D and incorporated herein by reference.
Exhibit 10 Material Contracts:
(A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan
of the Registrant, filed as Exhibit 4-1 to the Registrant's
Registration Statement on Form S-8 (Commission Registration
No. 33-41036), effective June 4, 1991, and incorporated herein
by reference.
(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference).
(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form S-8
(File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.
(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed
as Exhibit 4-2 to Registrant's Registration Statement on Form
S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.
<PAGE> 219
(B)(1) Residential Loan Funding Agreement between Colonial Bank and
Colonial Mortgage Company dated January 18, 1988, included as
Exhibit 10(B)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by
reference.
(B)(2) Loan Agreement between the Registrant and SunBank, National
Association, dated August 25, 1995, filed as Exhibit 10(B)(2)
to the Registrant's Registration Statement on Form S-4,
registration number 33-01163 and incorporated herein by
reference.
(C)(1) The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by
reference.
(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated
herein by reference.
(D) Stock Purchase Agreement dated as of July 20, 1994, by and
among The Colonial BancGroup, Inc., Colonial Bank, The
Colonial Company, Colonial Mortgage Company, and Robert E.,
James K. and Thomas H. Lowder, included as Exhibit 2 in
Registrant's registration statement on Form S-4, Registration
No. 33-83692 and incorporated herein by reference.
(E) Amended and Restated Agreement and Plan of Merger between The
Colonial BancGroup, Inc. and Southern Banking Corporation
dated as of February 15, 1996 included as Exhibit 2 to the
Registrant's Registration Statement on Form S-4, Registration
No. 33-01163 and incorporated herein by reference.
Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995, and September 30, 1995
and incorporated herein by reference.
Exhibit 21 List of subsidiaries of the Registrant.
Exhibit 23 Consents of experts and counsel:
(A) Consent of Coopers & Lybrand, L.L.P.
<PAGE> 220
(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.
(C) Consent of Bricker & Melton, P.A.
(D) Consent of The Robinson-Humphrey Company, Inc.
(E) Consent of Coopers & Lybrand, L.L.P.
(F) Consent and report of Price Waterhouse LLP
(G) Consent of Arthur Andersen LLP
Exhibit 24 Power of Attorney.
Exhibit 99 Additional exhibits:
(A) Form of Proxy of Commercial Bancorp of Georgia, Inc.
(b) Financial Statement Schedules
The financial statement schedules required to be included
pursuant to this Item are not included herein because they are
not applicable or the required information is shown in the
financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned hereby undertakes as follows as required by
Item 512 of Regulation S-K:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus
which is a part of this Registration Statement, by
any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus
will contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately above, or (ii) that
purports to meet the requirements of section 10(a)(3)
of the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement
and will not be used until such amendment is
effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to such securities
offered therein, and the offering of such
<PAGE> 221
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising
under the Act may be permitted to directors,
officers, and controlling persons of the Registrant,
the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding
to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
<PAGE> 222
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (d)(1)(i) and (d)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to section
13 or section 15(d) of the Exchange Act that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration relating to the securities offered
therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(e) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Montgomery, Alabama, on the 28th day of February, 1996.
THE COLONIAL BANCGROUP, INC.
By: /s/ Robert E. Lowder
--------------------------
Robert E. Lowder
Its Chairman of the Board
of Directors, Chief
Executive Officer, and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Robert E. Lowder Chairman of the Board **
- --------------------------- of Directors, President
Robert E. Lowder and Chief Executive
Officer
/s/ W. Flake Oakley, IV Chief Financial **
- --------------------------- Officer, Secretary
W. Flake Oakley, IV and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Director **
- --------------------------
Young J. Boozer
</TABLE>
<PAGE> 224
<TABLE>
<S> <C> <C>
* Director **
- --------------------------
William Britton
* Director **
- --------------------------
Jerry J. Chesser
* Director **
- --------------------------
Augustus K. Clements, III
* Director **
- -------------------------
Robert C. Craft
Director
- -------------------------
Patrick F. Dye
* Director **
- -------------------------
Clinton O. Holdbrooks
* Director **
- -------------------------
D. B. Jones
* Director **
- -------------------------
Harold D. King
</TABLE>
<PAGE> 225
<TABLE>
<S> <C> <C>
* Director **
- -------------------------
John Ed Mathison
* Director **
- -------------------------
Milton E. McGregor
* Director **
- -------------------------
John C. H. Miller, Jr.
* Director **
- -------------------------
Joe D. Mussafer
* Director **
- -------------------------
William E. Powell
* Director **
- -------------------------
Jack H. Rainer
* Director **
- -------------------------
Frances E. Roper
* Director **
- -------------------------
Ed V. Welch
</TABLE>
<PAGE> 226
* The undersigned, acting pursuant to a power of attorney, has signed
this Registration Statement on Form S-4 for and on behalf of the
persons indicated above as such persons' true and lawful
attorney-in-fact and in their names, places and stead, in the
capacities indicated above and on the date indicated below.
/s/ W. Flake Oakley, IV
- --------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: February 28, 1996
<PAGE> 227
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
EXHIBITS TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
THE COLONIAL BANCGROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE> 228
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation of successor:
Agreement and Plan of Merger between The Colonial BancGroup, Inc., and Commercial
Bancorp of Georgia, Inc., dated as of December 21, 1995, included in the Prospectus
portion of this registration statement at Appendix A and incorporated herein by
reference.
Exhibit 3 Articles of Incorporation and Bylaws:
(A) Restated Certificate of Incorporation of the Registrant, filed as Exhibit 4.1 to the
Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.
(B) Bylaws of the Registrant, as amended, filed as Exhibit 4.2 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
(A) Article 4 of the Restated Certificate of Incorporation of the Registrant filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995,
and incorporated herein by reference.
(B) Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by
reference.
(C) Dividend Reinvestment and Class A Common Stock Purchase Plan of the Registrant dated
January 15, 1986, and Amendment No. 1 thereto dated as of June 10, 1986, filed as
Exhibit 4(C) to the Registrant's Registration Statement on Form S-4 (File No. 33-
07015), effective July 15, 1986, and incorporated herein by reference.
</TABLE>
<PAGE> 229
<TABLE>
<S> <C>
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to certain Delaware law issues
of the securities being registered.
Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C., included in the Prospectus portion of this
Registration Statement at Appendix D and incorporated herein by reference.
Exhibit 10 Material Contracts:
(A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan of the Registrant, filed as
Exhibit 4-1 to the Registrant's Registration Statement on Form S-8 (Commission Registration No.
33-41036), effective June 4, 1991, and incorporated herein by reference.
(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock Option Plan of the Registrant filed
as Exhibit 4-2 to the Registrant's Registration Statement on Form S-8 (Commission Registration
No. 33-41036), effective June 4, 1991, and incorporated herein by reference).
(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as Exhibit 4-1 to Registrant's
Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.
(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed as Exhibit 4-2 to Registrant's
Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.
(B)(1) Residential Loan Funding Agreement between Colonial Bank and Colonial Mortgage Company dated
January 18, 1988, included as Exhibit 10(B)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by reference.
(B)(2) Loan Agreement between the Registrant and SunBank, National Association, dated August 29, 1995,
filed as Exhibit 10(B)(2) to the Registrant's Registration Statement on Form S-4, registration
number 33-01163 and incorporated herein by reference.
(C)(1) The Colonial BancGroup, Inc. First Amended and Restated Restricted Stock Plan for Directors, as
amended, included as
</TABLE>
<PAGE> 230
<TABLE>
<S> <C>
Exhibit 10(C)(1) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and
incorporated herein by reference.
(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan, included as Exhibit 10(C)(2) to
the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein
by reference.
(D) Stock Purchase Agreement dated as of July 20, 1994, by and among The Colonial
BancGroup, Inc., Colonial Bank, The Colonial Company, Colonial Mortgage Company, and
Robert E., James K. and Thomas H. Lowder, included as Exhibit 2 in Registrant's
registration statement on Form S-4, Registration No. 33-83692 and incorporated herein
by reference.
(E) Amended and Restated Agreement and Plan of Merger between The Colonial BancGroup, Inc. and Southern Banking
Corporation dated as of February 15, 1996 included a Exhibit 2 to the Registrant's Registraton Statement on
Form S-4, Registration No. 33-01163 and incorporated herein by reference.
Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995, and incorporated herein by reference.
Exhibit 21 List of subsidiaries of the Registrant.
Exhibit 23 Consents of experts and counsel:
(A) Consent of Coopers & Lybrand, L.L.P.
(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.
(C) Consent of Bricker & Melton, P.A.
(D) Consent of The Robinson-Humphrey Company, Inc.
(E) Consent of Coopers & Lybrand, L.L.P.
(F) Consent and report of Price Waterhouse LLC
(G) Consent of Arthur Andersen LLP
Exhibit 24 Power of Attorney.
</TABLE>
<PAGE> 231
<TABLE>
<S> <C>
Exhibit 99 Additional exhibits:
(A) Form of Proxy of Commercial Bancorp of Georgia, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 5
OPINION AS TO CERTAIN DELAWARE LAW ISSUES OF THE SECURITIES
BEING REGISTERED
<PAGE> 2
(On Miller, Hamilton, Snider & Odom, L.L.C. Letterhead)
February 15, 1996
Montgomery Office
The Colonial BancGroup, Inc.
P. O. Box 1108
Montgomery, AL 36101
Re: Registration Statement on Form S-4 relating to the issuance of
shares of Common Stock of The Colonial BancGroup, Inc., in
connection with the acquisition by merger of Commercial
Bancorp of Georgia, Inc. ("Merger")
Gentlemen:
We are familiar with the proceedings taken and proposed to be taken by
The Colonial BancGroup, Inc., a Delaware corporation (the "Company"), in
connection with the proposed issuance by the Company of shares of its Common
Stock, par value of $2.50 per share, in connection with the Merger and in
accordance with an Agreement and Plan of Merger, dated as of December 21, 1995
(the "Agreement"), by and between the Company and Commercial Bancorp of
Georgia, Inc. We have also acted as counsel for the Company in connection with
the preparation and filing with the Securities and Exchange Commission under
the Securities Act of 1933, of the Registration Statement on Form S-4 referred
to in the caption above. In this connection we have reviewed such documents
and matters of law as we have deemed relevant and necessary as a basis for the
opinions expressed herein.
Upon the basis of the foregoing, we are of the opinion that:
(i) The Company is a corporation duly organized and existing under
the laws of the State of Delaware;
<PAGE> 3
The Colonial BancGroup
February 15, 1996
Page 2
(ii) The shares of Common Stock of the Company referred to above,
to the extent actually issued pursuant to the Agreement will, when so issued,
be duly and validly authorized and issued and will be fully paid and
nonassessable shares of Common Stock of the Company;
(iii) Under the laws of the State of Delaware, no personal liability
attaches to the ownership of the shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced registration statement. In consenting to the inclusion of our
opinion in the Registration Statement, we do not thereby admit that we are a
person whose consent is required pursuant to Section 7 of the Securities Act of
1933, as amended.
Sincerely yours,
MILLER, HAMILTON, SNIDER & ODOM,
L.L.C.
By: /s/ Michael D. Waters
-----------------------------
Michael D. Waters
MDW/lwb
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
<PAGE> 2
SUBSIDIARIES OF THE COLONIAL BANCGROUP, INC.
COLONIAL BANK, AN ALABAMA BANKING CORPORATION.
COLONIAL BANK OF TENNESSEE, A TENNESSEE BANK.
COLONIAL BANK, ATLANTA, GEORGIA, A FEDERAL SAVINGS BANK
THE COLONIAL BANCGROUP BUILDING CORPORATION, AN ALABAMA CORPORATION.
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF COOPERS & LYBRAND, L.L.P.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 (File No. ___________________) of our report dated February 24, 1995,
on our audits of the restated consolidated financial statements of The Colonial
Bancgroup, Inc. and subsidiaries as of December 31, 1994 and 1993 and for each
of the three years ended December 31, 1994. We also consent to the reference
to our Firm as "experts" under the caption Independent Accountants.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
February 29, 1996
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
<PAGE> 2
CONSENT OF COUNSEL
The Colonial BancGroup, Inc.
We hereby consent to use in this Form S-4 Registration Statement of
The Colonial BancGroup, Inc., of our name in the Prospectus, which is a part of
such Registration Statement, under the headings "APPROVAL OF THE MERGER -
Certain Federal Income Tax Consequences" and "LEGAL MATTERS," and to the
summarization of our opinions referenced therein.
/s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
February 26, 1996
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF BRICKER & MELTON, P.A.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report dated January 19, 1995,
relating to the consolidated financial statements of Commercial Bancorp of
Georgia, Inc. and subsidiaries (formerly Commercial Bancorp of Gwinnett, Inc.),
our report dated January 19, 1995, except for information presented in Note L,
for which the date is March 2, 1995, and our report dated January 25, 1994,
relating to the consolidated financial statements of Commercial Bancorp of
Gwinnett, Inc. and Subsidiary, and our report dated March 10, 1995, relating to
the consolidated financial statements of the former Commercial Bancorp of
Georgia, Inc. and Subsidiary, included in the Registration Statement on Form
S-4 and Proxy Statement.
/s/Bricker & Melton, P.A.
Duluth, Georgia
Atlanta, Georgia
February 28, 1996
<PAGE> 1
EXHIBIT 23(D)
CONSENT OF THE ROBINSON - HUMPHREY COMPANY, INC.
<PAGE> 2
CONSENT OF THE ROBINSON-HUMPHREY COMPANY, INC.
We consent to the inclusion in this Registration Statement on Form S-4 of our
opinion, dated December 21, 1995, set forth as Appendix C to the Proxy
Statement/Prospectus and to the summarization thereof in the Proxy
Statement/Prospectus under the caption "Approval of the Merger." In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
/s/The Robinson-Humphrey Company, Inc.
Atlanta, Georgia
February 27, 1996
<PAGE> 1
EXHIBIT 23(E)
CONSENT OF COOPERS & LYBRAND, L.L.P.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation in this registration statement on Form S-4
(File No. ______________________) of our report dated January 13, 1995, on our
audits of the financial statements of Southern Banking Corporation and
Subsidiary.
Coopers & Lybrand L.L.P.
Orlando, Florida
February 29, 1996
<PAGE> 1
EXHIBIT 23(F)
CONSENT AND REPORT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement and Prospectus
constituting part of this Registration Statement on Form S-4 of the Colonial
BancGroup, Inc. of our report dated March 2, 1994 relating to the consolidated
financial statements of the former Commercial Bancorp of Georgia, Inc. as of
and for each of the two years in the period ended December 31, 1993, which
appears in such Joint Proxy Statement and Prospectus.
/s/ PRICE WATERHOUSE LLP
Atlanta, Georgia
February 28, 1996
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Commercial Bancorp of Georgia, Inc.
In our opinion, the consolidated statement of condition and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows as of and for each of the two years in the period ended December 31,
1993 of the former Commercial Bancorp of Georgia, Inc. and its subsidiary (not
presented separately herein) present fairly, in all material respects, the
financial position, the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
March 2, 1994
Atlanta, Georgia
<PAGE> 1
EXHIBIT 23(G)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen, L.L.P.
Birmingham, Alabama
February 28, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert E. Lowder, Young J. Boozer, III,
and W. Flake Oakley, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and re-substitution, for him and in his
name, place and stead, to sign any reports or other filings which may be
required to be filed with the Securities and Exchange Commission on behalf of
The Colonial BancGroup, Inc. (the "Registrant"), during the year ending
December 31, 1996; to sign any registration statement and any amendments
thereto of the Registrant for the purpose of registering under the Securities
Act of 1933, as amended, shares to be offered and sold by the Registrant; to
file such other reports or other filings, such registration statements and
amendments thereto, with all exhibits thereto, and any documents in connection
therewith with the Securities and Exchange Commission; and to file such
notices, reports or registration statements (and amendments thereto) with any
such securities authority of any state which may be necessary to register or
qualify for an exemption from registration any securities offered or sold by
BancGroup in such states, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite to
be done in and about the premises as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause
to be done by virtue hereof.
This Power of Attorney supersedes and revokes any previous power of
attorney of the Registrant relating to the foregoing matters and shall
terminate at the conclusion of the regular board meeting of the Registrant in
January 1997.
Done this 17th day of January, 1996, in the City of Montgomery,
Alabama.
<TABLE>
<S> <C>
/s/ Robert E. Lowder Chairman of the Board,
- ------------------------------ President and Chief
Robert E. Lowder Executive Officer
/s/ Young J. Boozer Director
- ------------------------------
Young J. Boozer
/s/ William Britton Director
- ------------------------------
William Britton
/s/ Jerry J. Chesser Director
- ------------------------------
Jerry J. Chesser
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
/s/ Augustus K. Clements, III Director
- -------------------------------
Augustus K. Clements, III
/s/ Robert Craft Director
- ---------------------------------
Robert Craft
Director
- ---------------------------------
Patrick F. Dye
/s/ Clinton Holdbrooks Director
- --------------------------------
Clinton Holdbrooks
/s/ D. B. Jones Director
- ----------------------------------
D. B. Jones
/s/ Harold D. King Director
- --------------------------------
Harold D. King
/s/ John Ed Mathison Director
- --------------------------------
John Ed Mathison
/s/ Milton McGregor Director
- --------------------------------
Milton McGregor
/s/ John C. H. Miller, Jr. Director
- --------------------------------
John C. H. Miller, Jr.
/s/ Joe D. Mussafer Director
- --------------------------------
Joe D. Mussafer
/s/ William E. Powell, III Director
- --------------------------------
William E. Powell, III
/s/ Jack H. Rainer Director
- --------------------------------
Jack H. Rainer
/s/ Frances E. Roper Director
- --------------------------------
Frances E. Roper
/s/ Ed V. Welch Director
- --------------------------------
Ed V. Welch
</TABLE>
<PAGE> 1
EXHIBIT 99(A)
FORM OF PROXY OF COMMERCIAL BANCORP OF GEORGIA, INC.
<PAGE> 2
APPENDIX A
SOLICITED BY
THE BOARD OF
DIRECTORS
PROXY
COMMERCIAL BANCORP OF GEORGIA, INC.
SPECIAL MEETING OF STOCKHOLDERS
_________________, 1996
The undersigned hereby appoints _________________________ and
_________________________, and either of them, or such other persons as the
board of directors of Commercial Bancorp of Georgia, Inc. ("CBG"), may
designate, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote all of the shares of common stock of CBG
at the special meeting of stockholders to be held on __________________, 1996,
and at any and all adjournments thereof.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. To ratify and approve the Agreement and Plan ------------ ------------ ------------
of Merger dated as of December 21, 1995,
pursuant to which CBG will be merged with and ------------ ------------ ------------
into The Colonial BancGroup, Inc.
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS
RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING
BUT WHICH ARE NOT NOW ANTICIPATED, AND TO VOTE UPON MATTERS INCIDENT TO THE
CONDUCT OF THE SPECIAL MEETING.
DATED:__________________________________, 1996
PHONE NO:_____________________________________
______________________________________________
(Signature of Stockholder)
______________________________________________
(Signature of Stockholder, if more than one)
Please sign exactly as your name
appears on the envelope in which
this material was mailed. If shares
are held jointly, each stockholder
must sign. Agents, executors,
administrators, guardians and
trustees must give full title as
such. Corporations should sign by
their president or authorized
officer.
