<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------------------
FORM 10-KSB
<TABLE>
<S> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996].
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NO. 0-26174
FIRST BANKSHARES, INC.
(Exact Name of Registrant as specified in its Charter)
<TABLE>
<C> <C>
GEORGIA 58-2094754
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
600 SOUTH CENTRAL AVENUE
HAPEVILLE, GEORGIA 30354
(Address of principal executive offices) (ZIP Code)
</TABLE>
Registrant's telephone number, including area code: (404) 763-6720
Securities registered under to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<C> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Registrant's revenues for its most recent fiscal year were $11,066,093.
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant on March 14, 1997, was $13,340,720. There is a very limited
trading market for the Common Stock, and this calculation is based upon a price
of $18.50, the average of the bid and asked prices on March 14, 1997.
On March 14, 1996, 1,052,462 shares of the Registrant's Common Stock were
issued and outstanding.
Transitional small business issuer format (check one) Yes [ ] No [X]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. DESCRIPTION OF BUSINESS..................................... 1
ITEM 2. DESCRIPTION OF PROPERTIES................................... 2
ITEM 3. LEGAL PROCEEDINGS........................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 8
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.... 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS.................................................. 9
ITEM 7. FINANCIAL STATEMENTS........................................ 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 39
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE
ACT......................................................... 40
ITEM 10. EXECUTIVE COMPENSATION...................................... 43
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 46
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 47
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................ 47
</TABLE>
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
First Bankshares, Inc. (the "Company"), Hapeville, Georgia, was
incorporated as a Georgia business corporation on December 1, 1989, for the
purpose of becoming a bank holding company by acquiring all of the common stock
of First Bank of Georgia, East Point, Georgia (the "Bank"). The Bank was
incorporated under the laws of Georgia on September 29, 1987, for the purpose of
conducting a commercial banking operation. The Company filed applications with
the Board of Governors of the Federal Reserve System (the "Federal Reserve") and
the Georgia Department of Banking and Finance (the "DBF") for prior approval to
become a bank holding company. The Company received Federal Reserve approval on
August 12, 1994, and the DBF approval on August 25, 1994. The Company became a
bank holding company within the meaning of the federal Bank Holding Company Act
of 1956 (the "BHCA") and the Georgia Bank Holding Company Law (the "Georgia
Act") upon the acquisition of all of the common stock of the Bank on October 3,
1994.
The Bank currently is the sole operating subsidiary of the Company. On
October 6, 1987, the Bank received the approval of its Articles of Incorporation
from the DBF and its permit to begin business was issued by the DBF on March 24,
1988. The Bank opened for business on March 25, 1988. The deposits at the Bank
are insured by the Federal Deposit Insurance Corporation (the "FDIC").
RECENT DEVELOPMENTS
On December 13, 1996, the Company entered into an Agreement and Plan of
Merger with Regions Financial Corporation ("Regions"). The Agreement provides
for the merger (the "Merger") of the Company into Regions. Upon consummation of
the Merger, the Bank will initially be operated as a separate subsidiary of
Regions, but ultimately the offices of the Bank will be operated as branches of
Regions Bank.
DESCRIPTION OF BUSINESS
The Bank conducts a general commercial banking business in its primary
service area, emphasizing the banking needs of individuals and small- to
medium-sized businesses. The Bank conducts business from the main office located
at 2833 Main Street, East Point, Georgia 30344 and two branches located in
Hapeville and Fairburn, Georgia. The Company's main office is located at 600
South Central Avenue, Hapeville, Georgia 30354.
The Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable Federal regulatory restrictions on the
activities of bank holding companies. The Company was formed for the purpose of
becoming a holding company to own 100% of the stock of the Bank. The holding
company structure provides the Company with greater flexibility than the Bank.
While the Company has no present definitive plans to engage actively in any
nonbanking business activities during the next quarter, if the Regions merger
should not be consummated, management anticipates studying the feasibility of
establishing or acquiring subsidiaries to engage in other business activities to
the extent permitted by law.
The principal business of the Bank is to accept deposits from the public
and to make loans and other investments in and around Fulton County, Georgia,
and metropolitan Atlanta, its primary service area. The principal sources of
income for the Bank are interest and fees collected on loans, interest and
dividends collected on other investments, and service charges on deposit
accounts. The principal expenses of the Bank are interest paid on deposits,
employee compensation, office expenses, and other overhead expenses.
The Bank offers a full range of deposit services that are typically
available for financial institutions, including NOW accounts, demand, savings,
and other time deposits. In addition, retirement accounts such as Individual
Retirement Accounts are available. All deposit accounts are insured by the FDIC
up to the maximum amount currently permitted by law, which is generally $100,000
per depositor subject to certain aggregation rules.
1
<PAGE> 4
The Bank also provides loans to businesses, including both secured and
unsecured short-term loans for working capital purposes, term loans for fixed
asset and expansion needs such as real estate acquisition and improvements, real
estate construction loans, and other commercial loans suitable to the needs of
its business customers. Loans to individuals which are offered by the Bank
include short-term mortgage loans and installment loans for personal use such as
education and personal investment, or for the purchase of automobiles or other
consumer items.
The Bank formed a mortgage division which began operations in October 1995.
The mortgage division, which has 16 full-time employees, plus nine full-time
loan originators, originates both conventional agency quality, through a retail
bank presence, and non-agency quality first and second mortgage loans through a
wholesale broker network in its production operations. In addition to its
production operation, the mortgage division also serves as a wholesaler by
providing temporary funding for mortgage loans originated by other lenders,
under the name ProFund. The mortgage division does not provide mortgage
servicing at this time. The Bank opened a second office for the mortgage
division at 6520 Powers Ferry Road, Suite 110A, Atlanta, Ga 30339. The Bank also
retained its mortgage office in Hapeville, Georgia primarily to serve the Bank's
retail customers. As of December 31, 1996, the Bank had $38.8 million in
mortgage loans in process of settlement. Management expects to continue to
develop both its ProFund and production volume in 1997.
In 1995, the Bank also substantially increased its construction lending
activities and opened a two-person office in Henry County to service its
construction lending operations in that county. In 1996, the Bank applied for
permission to establish a branch at its Henry County location, and in early
1997, the Bank received approval to establish the branch. The branch is expected
to open during the fourth quarter of 1997.
The Bank's loan portfolio at December 31, 1996 (excluding loans in process
of settlement), consisted of approximately 24% real estate construction loans,
51% commercial and residential real estate mortgage loans (based on the
underlying collateral), 19% commercial, financial, and agricultural loans, and
7% consumer loans. The Bank's average loan to average deposit ratio at December
31, 1996, was approximately 80.3%, as compared to 65.1% at year end 1995.
The Bank's marketing plan relies heavily upon local advertising and
promotional activity and upon personal contacts by its directors, officers,
employees, and shareholders to attract business and to acquaint potential
customers with the Bank's personalized services. The Bank emphasizes a high
degree of personalized client service to provide for each customer's banking
needs. The Bank's marketing approach emphasizes the advantages of dealing with
an independent, locally owned and managed state chartered bank to meet the
particular needs of individuals, professionals, and small- to medium-size
businesses in the community. All banking services are reviewed periodically with
regard to their profitability and their position relative to the Bank's
competition. At the present time, the Bank does not currently offer trust or
permissible securities services.
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on, and provide
for general regulatory oversight with respect to, virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with FDICIA, which
was enacted in 1991, numerous additional regulatory requirements have been
placed on the banking industry in the past five years, and additional changes
have been proposed. The operations of the Company and the Bank may be affected
by legislative changes and the policies of various regulatory authorities. The
Company is unable to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control, or new
federal or state legislation may have in the future.
2
<PAGE> 5
Federal Banking Holding Company Regulation
The Company is a bank holding company within the meaning of the BHCA. Under
the BHCA, the Company is subject to periodic examination by the Federal Reserve
and is required to file periodic reports of its operations and such additional
information as the Federal Reserve may require. The Company's and the Bank's
activities are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries, or engaging in any
other activity that the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of a bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank holding company, such as the
Company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of the bank holding
company. Because the Company's class of Common Stock has been registered under
the Securities Exchange Act of 1934, under Federal Reserve regulations control
is rebuttably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of the Company's voting securities. The
regulations provide a procedure for challenge of the rebuttable control
presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in, nonbanking activities, unless the Federal Reserve, by order
or regulation, has found those activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include making or servicing loans and
certain types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning savings
associations, and making investments in certain corporations or projects
designed primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances in which the
Company might not otherwise do so. Under the BHCA, the Federal Reserve may
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition. The Bank may be required to indemnify, or cross-guarantee, the FDIC
against losses it incurs with respect to any other bank controlled by the
Company, which in effect makes the Company's equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank
subsidiary of the Company.
The Bank
General. The Bank is a Georgia banking corporation and state non-member
bank. The Georgia Department of Banking and Finance (the "Department") and the
Federal Deposit Insurance Corporation are the primary regulators for the Bank.
These regulatory authorities regulate or monitor all areas of the Bank's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates
3
<PAGE> 6
payable on deposits, interest rates or fees chargeable on loans, establishment
of branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices. The Bank must maintain certain capital ratios and is subject to
limitations on aggregate investments in real estate, bank premises, and
furniture and fixtures. The Bank is also a member of the Federal Home Loan Bank.
Transactions With Affiliates and Insiders. The Bank is subject to Section
23A of the Federal Reserve Act, which places limits on the amount of loans or
extensions of credit to, or investments in, or certain other transactions with,
affiliates and on the amount of advances to third parties collateralized by the
securities or obligations of affiliates. In addition, most of these loans and
certain other transactions must be secured in prescribed amounts. The Bank is
also subject to Section 23B of the Federal Reserve Act which, among other
things, prohibits an institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliate companies.
The Bank is subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal shareholders, and their related
interests. Such extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.
Branching. Effective July 1, 1996, a bank located in Georgia is permitted
to branch into three additional counties besides the county in which its
principal office is located with approval of the Department (for a bank which is
part of a bank holding company, all affiliates are treated as one and the
holding company would be limited to three counties). Effective July 1, 1998,
statewide branching with approval of the Department will be permitted.
Apart from its Henry County branch, the Bank currently has no definitive
plans for opening any other branch offices. Depending on profitability and
community needs, however, other branches may be considered. The Company, with
prior regulatory approval, will be permitted to acquire interest in and operate
banks throughout the State; under Georgia law, any bank acquired by the Company
could be merged into the Bank and its offices could then be operated as branches
of the Bank. There are currently no plans for the Company to make any such
acquisition, but if the Regions Merger should not be consummated, the Company
will remain open to such acquisitions as part of its strategic growth plan.
Community Reinvestment Act. The Community Reinvestment Act requires that,
each insured depository institution shall be evaluated by its primary federal
regulator with respect to its record in meeting the credit needs of its local
community, including low and moderate income neighborhoods, consistent with the
safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. The Bank received a satisfactory rating in its most recent
evaluation.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-in-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves, the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit, the Fair Credit Reporting Act of 1978 governing the
use and provision of information to credit reporting agencies, the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board to implement that act, which
governs automatic deposits to and withdrawals from deposit accounts and
4
<PAGE> 7
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Deposit Insurance
The deposits of the Bank are currently insured to a maximum of $100,000 per
depositor, subject to certain aggregation rules. The FDIC establishes rates for
the payment of premiums by federally insured banks and thrifts for deposit
insurance. Separate insurance funds (BIF and SAIF) are maintained for commercial
banks and thrifts, with insurance premiums from the industry used to offset
losses from insurance payouts when banks and thrifts fail. Since 1993, insured
depository institutions like the Bank have paid for deposit insurance under a
risk-based premium system. Under this system, until mid-1995 depositor
institutions paid to BIF or SAIF from $0.23 to $0.31 per $100 of insured
deposits depending on its capital levels and risk profile, as determined by its
primary federal regulator on a semiannual basis. Once the BIF reached its
legally mandated reserve ratio in mid-1995, the FDIC lowered premiums for
well-capitalized banks to $.04 per $100. Subsequently, the FDIC revised the
range of premiums from $.00 to $.31 per $100.
The assessment rate per $100 of insured deposits is currently $.013 for the
Bank. This assessment is subject to change. Any increase in deposit insurance
premiums for the Bank will increase its cost of funds, and there can be no
assurance that such cost can be passed on to the Bank's customers.
Dividends
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank to
the Company depends on the Bank's earnings and capital position and is limited
by federal and state law, regulations, and policies. In addition, the Federal
Reserve has stated that bank holding companies should refrain from or limit
dividend increases or reduce or eliminate dividends under circumstances in which
the bank holding company fails to meet minimum capital requirements or in which
its earnings are impaired.
Cash dividends on the Bank's common stock may be declared and paid only out
of its retained earnings, and dividends may not be declared at any time at which
the Bank's paid-in capital and appropriated retained earnings do not, in
combination, equal at least 20% of its capital stock account. In addition, the
Department's current rules and regulations require prior Department approval
before cash dividends may be declared and paid if: (i) the Bank's ratio of
equity capital to adjusted total assets is less than 6%; (ii) the aggregate
amount of dividends declared or anticipated to be declared in that calendar year
exceeds 50% of the Bank's net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the Bank's assets classified
as adverse as to repayment or recovery by the Department at the most recent
examination of the Bank exceeds 80% of the Bank's equity capital as reflected at
such examination. Under FDICIA, the Bank may not pay a dividend if, after paying
the dividend, the Bank would be undercapitalized. See "Capital Regulations"
below. See Item 5 below for a discussion of dividends paid by the Bank in the
past two years.
Capital Regulations
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimums. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. Tier 1 capital includes common stockholders'
equity, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not
5
<PAGE> 8
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Under the guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. As of December 31, 1996, the
Company and the Bank were qualified as "well-capitalized." See "Item 6.
Management's Discussion and Analysis or Plan of Operations -- Liquidity and
Sources of Capital -- Capital."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
These capital guidelines can affect the Company in several ways. Rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Company's capital position in a
relatively short period of time, making an additional capital infusion
necessary.
FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk, and the risks of non-traditional activities. It is
uncertain what affect these regulations, when implemented, would have on the
Company and the Bank.
Both the Company and the Bank exceeded their respective regulatory capital
requirements at December 31, 1996. See "Management Discussion and Analysis or
Plan of Operations -- Liquidity and Sources of Capital -- Capital."
6
<PAGE> 9
Recent Legislative Developments
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
passed by Congress in 1994, allows unrestricted interstate bank mergers and
interstate acquisition of banks by bank holding companies, and ultimately will
permit interstate de novo branching by banks. The states, however, may opt in or
opt out of several of such Act's provisions. The Georgia legislature has adopted
legislation which would opt in to permit interstate bank branching by merger or
acquisition with Department approval, but which would opt out and not allow de
novo bank branching. Further, the new Georgia branch banking bill also makes it
easier for banks to establish branches in additional counties. As a result of
these new laws, the number of competitors in the Company's market may increase.
However, the Company believes it can compete effectively in the market and that
the legislation will not have a material adverse impact on the Company or the
Bank. From time to time, various bills are introduced in the United States
Congress and at the state legislative level with respect to the regulation of
financial institutions. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. The Company cannot predict whether any of these proposals will be
adopted or, if adopted, how these proposals would affect the Company.
COMPETITION
The banking business is highly competitive. The Bank competes with other
commercial banks in its primary service area.
Banks generally compete with other financial institutions through the
banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and the personal manner in which services are offered. The Bank
encounters strong competition from most of the financial institutions in the
Bank's primary service area. In the conduct of certain areas of its banking
business, the Bank also competes with credit unions, consumer finance companies,
insurance companies, money market mutual funds, and other financial
institutions, some of which are not subject to the same degree of regulation and
restrictions imposed upon the Bank. Many of these competitors have substantially
greater resources and lending limits than the Bank has and offer certain
services, such as trust services, that the Bank does not currently provide.
EMPLOYEES
As of December 31, 1996, the Bank had 41 employees, and the Company had two
employees (who are also employees of the Bank). Neither the Company nor the Bank
is a party to any collective bargaining agreement, and management believes the
Bank enjoys satisfactory relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Bank's headquarters are located at 2833 Main Street, East Point,
Georgia. The two-story building consists of approximately 7,460 square feet of
space. The building was purchased in April 1987 for $375,000 and was
subsequently occupied on March 25, 1988. The building is equipped with an
alarm-equipped vault for safe deposit boxes and cash storage, and an
alarm-equipped safe for night depository service. The building also has a vault
used for record retention, two drive-in systems, one commercial drawer, and one
pneumatic tube system. The building is owned by the Bank and is carried as an
asset on the Bank's balance sheet.
The Bank has two branch offices, one located at 27 Smith Street, Fairburn,
Georgia and the other located at 600 South Central Avenue, Hapeville, Georgia.
The Fairburn location is a one-story building consisting of approximately 7,000
square feet of space. The building was purchased in October 1990 for $100,000.
An independent third party rents the Bank's excess space. The building is
equipped with an alarm-equipped vault for safe deposit boxes and cash storage
and an alarm-equipped night depository service. The building has a drive-in
system. The Hapeville location is a four-story building consisting of
approximately 20,000 square feet of space. The Bank leases to independent third
parties (or has available for lease) its excess office space on the top two
floors of the building. The building was purchased in October 1990 for $500,000.
The building is equipped with an alarm-equipped vault for safe deposit boxes and
cash storage and an alarm-equipped night
7
<PAGE> 10
depository service. The building has a drive-in system. Both buildings are
carried as assets on the Bank's balance sheet.
The Company's main office is located at the Bank's Hapeville location.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal
proceedings which would have a material adverse effect upon the operations or
financial condition of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1996.
8
<PAGE> 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of common stock, par value $1.00 per share (the "Common
Stock"), of which 1,052,462 were issued and outstanding as of March 14, 1997.
As of March 14, 1997, there were approximately 412 shareholders of record
of the Common Stock. Although the Common Stock has been listed on the NASDAQ
SmallCap Market since July 1995, there is very little trading activity for the
Common Stock. The following table sets forth the reported high and low closing
bid and asked prices for the Common Stock as reported on the Nasdaq SmallCap
Market and the cash dividends declared for the quarters indicated.
<TABLE>
<CAPTION>
PRICE RANGE
----------------------------- CASH
BID ASKED DIVIDENDS
------------- ------------- DECLARED
HIGH LOW HIGH LOW PER SHARE
----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
1995
First Quarter...................................... -- -- -- -- 0.06
Second Quarter..................................... -- -- -- -- 0.06
Third Quarter...................................... 8.25 6.00 10.50 9.00 0.06
Fourth Quarter..................................... 9.00 8.00 12.00 10.25 0.06
1996
First Quarter...................................... 9.00 8.50 11.00 9.50 0.07
Second Quarter..................................... 13.00 8.50 15.50 10.25 0.07
Third Quarter...................................... 13.00 9.75 15.50 12.50 0.08
Fourth Quarter..................................... 15.75 10.50 18.50 13.50 0.08
</TABLE>
Prior to July 1995 there was no established trading market for the Common
Stock.
The primary source of funds for the Company to pay dividends is dividends
the Company receives from the Bank, and payment of dividends by the Bank to the
Company is subject to certain regulatory restrictions. See Item 1.
Business -- Supervision and Regulation -- Dividends.
The Company did not have any unregistered sales of equity securities during
1996, 1995 and 1994.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE INFORMATION AND FINANCIAL RATIOS)
<S> <C> <C> <C>
Statement of Operations data:
Interest income...................................... $ 8,947 $ 6,211 $ 4,713
Interest expense..................................... 3,251 2,469 1,590
---------- ---------- ----------
Net interest income............................... 5,696 3,742 3,123
Provision for possible loan losses................... 84 41 172
---------- ---------- ----------
Net interest income after provision............... 5,612 3,701 2,951
Other operating income............................... 2,119 989 549
Other operating expenses............................. 4,800 3,036 2,317
Income tax expense................................... 1,084 520 365
---------- ---------- ----------
Net income........................................ $ 1,847 $ 1,134 $ 818
========== ========== ==========
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE INFORMATION AND FINANCIAL RATIOS)
<S> <C> <C> <C>
Net income per share:
Primary........................................... $ 1.76 $ 1.08 $ .78
Fully diluted..................................... 1.71 1.06 .78
Weighted average shares outstanding:
Primary........................................... 1,049,746 1,048,840 1,044,139
Fully diluted..................................... 1,084,740 1,070,655 1,044,139
Balance sheet data:
Mortgage loans in process of settlement.............. $ 38,849 $ 14,400 $ --
Loans, net........................................... 42,005 43,691 42,358
Deposits............................................. 91,565 78,734 58,219
Total assets......................................... 121,379 92,251 65,896
Average stockholder's equity......................... 8,482 7,156 6,497
Average assets....................................... 99,363 76,160 65,697
Book value per share................................. 8.91 7.54 6.41
Financial ratios:
Return on average assets............................. 1.86% 1.49% 1.25%
Return on average stockholders' equity............... 21.78% 15.85% 12.59%
Dividend payout ratio................................ 16.49% 22.21% 32.05%
Average equity capital to average assets............. 8.54% 9.40% 9.89%
Average loans to average deposits.................... 80.30% 65.06% 66.91%
Loans to deposit ratio (period-end).................. 89.54% 75.08% 74.44%
Stockholders' equity to assets (period end).......... 7.70% 8.57% 10.20%
</TABLE>
The summary financial information for First Bankshares, Inc. and Subsidiary
should be read in conjunction with the consolidated financial statements and
related notes thereto included in another section of this Annual Report on Form
10-KSB.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased 52.2% to $5,696,727 for the year ended
December 31, 1996 (1996) from $3,741,974 for the year ended December 31, 1995
(1995). The increase was primarily due to the full year of operations of the
Company's mortgage operations which generate larger fee volumes on lower amounts
of capital investments as compared to other traditional loan operations and to
the Company's ability to maintain stable and favorable interest rate margins for
all of 1996. Total interest income, including fees on loans, increased 44.1% to
$8,947,299 for 1996 from $6,210,896 for 1995. This increase corresponds to the
increase in total net loans of 39.2% from $58,090,869 at December 31, 1995 to
$80,854,126 at December 31, 1996. The increase is also due to a lesser extent to
the overall increase in total average yield on invested assets to 9.97% in 1996
from 9.3% in 1995. Total interest expense increased 31.7% to $3,251,577 in 1996
from $2,468,922 in 1995 as a result of an increase in average interest bearing
liabilities of 29.6%.
Net interest income increased 19.8% to $3,741,974 for 1995 from $3,123,205
for the year ended December 31, 1994 (1994). The increase was primarily due to
the formation of a new mortgage operation during the third quarter of 1995 which
generated a larger amount of fees on a correspondingly lower amount of
investment in assets and to a lesser extent to increases in market interest
rates and the ability of the Company to reprice its asset base more favorably
than its cost of funds. Total interest income increased to $6,210,896 in 1995
from $4,712,954 in 1994, an increase of 31.8%. The increase resulted from an
increase in the total net loan portfolio from $42,357,863 at December 31, 1994
to $58,090,869 (including $14,399,922 of mortgage loans in process of
settlement) at December 31, 1995 and the increase in investment securities from
$14,618,280 at December 31, 1994 to $23,966,501 at December 31, 1995. Overall,
total loans and investment
10
<PAGE> 13
securities increased 44.0%. The increase was also due to a lesser extent to an
increase in the overall yield on average earning assets from 8.18% in 1994 to
9.30% in 1995 characterized by increases in the yield on average loans from
9.54% in 1994 to 10.97% in 1995 and in the yield on average investments from
5.48% in 1994 to 5.95% in 1995. Total interest expense increased to $2,468,922
in 1995 from $1,589,749 in 1994, an increase of 55.3%. The increase was the
result of an increase in total interest bearing deposits from $44,854,912 at
December 31, 1994 to $55,977,037 at December 31, 1995, an increase of 24.8%, and
an overall increase in the average yield paid on interest bearing liabilities of
4.64% in 1995 from 3.46% in 1994 as a result of market re-pricing of many of the
Company's certificates of deposits.
11
<PAGE> 14
The following table presents the average balance sheets, yields and
interest earned on interest bearing assets and rates and interest paid on
interest bearing liabilities of the Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995
--------------------------- ---------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCES EXPENSE RATE BALANCES EXPENSE RATE
-------- ------- ------ -------- ------- ------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Interest earning deposits................... $ -- $ -- --% $ -- $ -- --%
Federal funds sold.......................... 1,601 73 4.56 2,889 185 6.40
Investment securities:
Nontaxable................................ 5,152 280 5.43 4,851 271 5.59
Taxable................................... 16,989 1,077 6.34 14,805 899 6.07
Total loans, net(1)......................... 66,038 7,517 11.38 44,253 4,856 10.97
------- ------ ------- ------
Total interest earning assets..... 89,780 8,947 9.97 66,798 6,211 9.30
Noninterest earning assets:
Cash and due from banks..................... 3,433 3,561
Premises and equipment, net................. 1,877 1,797
Other assets................................ 4,273 4,004
------- -------
Total noninterest earning
assets.......................... 9,583 9,362
------- -------
Total assets...................... $99,363 $76,160
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing deposits................... $18,570 417 2.25 $17,682 489 2.77
Savings accounts............................ 2,509 54 2.15 2,836 66 2.33
Certificates of deposit..................... 37,899 2,162 5.70 29,566 1,738 5.88
Individual retirement accounts.............. 2,845 173 6.08 2,735 156 5.70
Federal funds purchased..................... 3,395 179 5.27 332 11 3.31
Note payable to FHLB........................ 3,789 266 7.02 99 9 9.09
------- ------ ------- ------
Total interest bearing
liabilities..................... 69,007 3,251 4.71 53,250 2,469 4.64
------ ------
Noninterest bearing liabilities and
stockholders' equity:
Noninterest bearing demand deposits......... 20,417 15,203
Other liabilities........................... 1,457 551
Stockholders' equity........................ 8,482 7,156
------- -------
Total noninterest bearings
liabilities and stockholders'
equity.......................... 30,356 22,910
------- -------
Total liabilities and
stockholders' equity............ $99,363 $76,160
======= =======
Interest rate differential(2)............... 5.26% 4.66%
===== =====
Net interest income......................... $5,696 $3,742
====== ======
Net interest margin(3)...................... 5.73% 5.60%
====== ======
Average interest earning assets to average
total assets.............................. 90.36% 87.71%
===== =====
Average loans to average deposits........... 80.30% 65.06%
===== =====
</TABLE>
- ---------------
(1) Average total loans are reflected net of unearned income and the allowance
for possible loan losses. Nonperforming loans, if any, are included.
Interest income includes loan fees of $1,057,870 in 1996 and $316,709 in
1995.
(2) Interest rate differential is the average yield earned on interest earning
assets less the average rate paid on interest bearing liabilities.
(3) Net interest margin is net interest income divided by average interest
earning assets.
12
<PAGE> 15
The following table presents the changes in the Company's net interest
income as a result of changes in the volume and rate of its interest earning
assets and interest bearing liabilities:
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
----------------------- ----------------------
(1) (1) NET (1) (1) NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ----- ------ ------ ---- ------
(AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest earning deposits.............. $ -- $ -- $ -- $ (7) $ -- $ (7)
Federal funds sold..................... (82) (30) (112) 15 84 99
Investment securities.................. 150 37 187 197 95 292
Loans, net............................. 2,390 271 2,661 478 636 1,114
------ ----- ------ ---- ---- ------
Total interest income.......... 2,458 278 2,736 683 815 1,498
Interest expense:
Interest bearing demand deposits....... 25 (97) (72) 57 19 76
Savings accounts....................... (8) (4) (12) (30) (3) (33)
Certificates of deposit................ 490 (66) 424 258 500 758
Individual retirement accounts......... 6 11 17 23 48 71
Federal funds purchased and repurchase
agreements.......................... 101 67 168 7 (9) (2)
Note payable to FHLB................... 335 (78) 257 9 -- 9
------ ----- ------ ---- ---- ------
Total interest expense......... 949 (167) 782 324 555 879
------ ----- ------ ---- ---- ------
Net interest income............ $1,509 $ 111 $1,954 $359 $260 $ 619
====== ===== ====== ==== ==== ======
</TABLE>
- ---------------
(1) The change in interest due to both rate and volume has been allocated to the
volume and rate components in proportion to the relationship of the dollar
amounts of the change in each.
Allowance for Possible Loan Losses
Additions to the allowance for possible loans losses are made periodically
to maintain the allowance at an appropriate level based on management's analysis
of potential risk in the loan portfolio. The amount of the provision for
possible loan losses is determined by an evaluation of the amount of loans
outstanding, the amount of non-performing loans, historical loan loss
experience, delinquency trends, the amount of losses actually charged to the
allowance in a given period, and an assessment of present and anticipated
economic conditions that might possibly impact the Company's market. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for possible loan losses. Such
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
A substantial portion of the Company's loans is collateralized by real
estate, including real estate and other collateral located in Fulton County,
Clayton County and the metropolitan Atlanta area and Tennessee. Accordingly, the
ultimate collectability of a substantial portion of the Company's loan portfolio
is susceptible to changes in economic conditions in these market areas.
The allowance for possible loan losses of $1,129,278 at December 31, 1996
(1.37% of outstanding total loans) increased from $1,026,830 (1.73% of
outstanding total loans) at December 31, 1995 which increased from $980,852
(2.25% of outstanding total loans) at December 31, 1994. The changes in the
provision of $84,000 in 1996, $41,000 in 1995 and $171,500 in 1994 reflects
management's evaluation as discussed above. Management believes that the
allowance for possible loan losses at December 31, 1996 remains adequate under
current economic conditions. However, management's judgment is based upon a
number of assumptions about future events, which are believed to be reasonable,
but which may or may not prove valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for possible loan
13
<PAGE> 16
losses, that additional increases in the allowance will not be required, or that
any particular level of allowance for possible loan losses will be maintained.
The following table summarizes the changes in the allowance for possible
loan losses arising from loans charged off and recoveries on loans previously
charged off:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
(AMOUNTS IN
THOUSANDS, EXCEPT
RATIOS)
<S> <C> <C>
Average loans outstanding, net of unearned income........... $67,201 $45,194
======= =======
Balance at beginning of year................................ $ 1,027 $ 981
Loans charged off:
Commercial, financial and agricultural.................... 14 38
Real estate -- mortgage................................... -- 147
Installment loans to individuals.......................... 36 --
------- -------
50 185
Recoveries of loans previously charged off:
Commercial, financial and agricultural.................... 12 --
Real estate -- mortgage................................... -- 174
Installment loans to individuals.......................... 56 16
------- -------
68 190
------- -------
Net loans recovered......................................... 18 5
Additions to allowance charged to operations................ 84 41
------- -------
Balance at end of year...................................... $ 1,129 $ 1,027
======= =======
Ratio of net loans recovered to average loans outstanding... .03% .01%
======= =======
</TABLE>
The Company has allocated the allowance for possible 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. This allocation is based on management's evaluation of the loan portfolio
under current economic conditions, adequacy and nature of collateral, and such
factors which, in the judgment of management, deserve recognition in estimating
loan losses. Because the allocation is based on estimates and subjective
judgment, it is not necessarily indicative of specific amounts or loan
categories in which charge-offs may occur.
The amount of such components of the allowance for possible loan losses and
the ratio of each loan category to loans outstanding are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
-------------- --------------
AMOUNT %(1) AMOUNT %(1)
------ ---- ------ ----
(AMOUNTS IN THOUSANDS, EXCEPT
RATIOS)
<S> <C> <C> <C> <C>
Real estate(2)........................................ $ 978 86% $ 849 83%
Commercial, financial and agricultural................ 111 10 132 13
Consumer.............................................. 40 4 46 4
------ --- ------ ---
Total....................................... $1,129 100% $1,027 100%
====== === ====== ===
</TABLE>
- ---------------
(1) Loan amount in each category expressed as a percentage of total loans
outstanding.
(2) Includes mortgage loans in process of settlement.
14
<PAGE> 17
Other Operating Income
Noninterest income of $2,118,794 in 1996 increased 114.3% from $988,867 in
1995 which increased from $548,741 in 1994. The increase in 1996 was primarily
the result of gains on sales of loans originated and sold by the Company's
mortgage operations and to a lesser extent due to increased fees associated with
the increase in deposit accounts. The increase in 1995 was primarily a result of
increases in service charges on deposit accounts of $175,923 in 1995 resulting
from the increase in deposit accounts and from the receipt of certain insurance
proceeds of $146,211 in 1995. Additionally, the Company had a gain on sale of
loans of $77,856 in 1995 as compared to a loss on sale of securities of $44,411
in 1994. Noninterest income of $548,741 in 1994 increased from $522,519 in 1993
primarily as a result of an increase in the cash surrender value of certain life
insurance policies. Other gains were offset by the loss on the sale of
securities of $44,411 in 1994 compared to gains of $36,025 in 1993.
Other Operating Expense
Other operating expense increased to $4,799,887 in 1996 from $3,036,182 in
1995 from $2,317,571 in 1994 primarily related to the increase in the number of
full-time employees and normal salary increases and the increased cost of
operations due to overall deposit growth and activity.
Other operating expense increased to $2,317,571 in 1994 from $2,081,973 in
1993 primarily as a result of an increase in the number of full-time employees
and normal salary increases. Additionally, the increase also reflects an
addition of $160,000 in 1994 to the valuation allowance for other real estate
owned as compared to no additions to the valuation allowance for 1993.
See Note 14 to the consolidated financial statements for additional
information regarding the significant components of other operating expenses and
the relative changes during 1996 and 1995.
Net Income
The Company's net income increased 62.9% to $1,846,329 ($1.71 per share,
fully diluted) in 1996 from $1,133,586 ($1.06 per share, fully diluted) in 1995
from $817,840 ($.78 per share, fully diluted) in 1994. Such increases reflect
the increases discussed above in the net interest margin, decreases in the
provisions for possible loan losses, and the increases in other operating income
offset by increases in other operating expenses. Management is not aware of any
additional trends, events or uncertainties not discussed herein that will have
or that are reasonably likely to have a material effect on the Company's
liquidity, capital resources or results of operations. Management is not aware
of any recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on these items.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and Cash Equivalents
The Company had cash and due from banks of $7,581,011 at December 31, 1996
and $3,403,926 at December 31, 1995. The increase in these amounts reflect the
Company's strategy of holding cash available for investment in loans, as well as
the relative stability of the Company's need to respond to short term demand for
funds caused by withdrawals from deposit accounts and loan funding commitments.
Primary sources of liquidity are the scheduled repayments on the Company's
loans and interest on and maturities of its investments. Occasionally, the
Company may sell investment securities in connection with the management of its
interest sensitivity gap or to manage cash availability. The Company may also
utilize its cash and due from banks, interest earning deposits in financial
institutions, security repurchase agreements and federal funds sold to meet
liquidity requirements as needed. The Company also has the ability, on a short-
term basis, to purchase federal funds or sell securities under agreements to
repurchase from other financial institutions. Presently, the Company has made
arrangements with commercial banks for short-term unsecured advances of up to
$24,200,000 and with the Federal Home Loan Bank for borrowings up to
$20,000,000. The Company believes that its liquidity and ability to manage
assets will be sufficient to meet its cash requirements over the near term.
15
<PAGE> 18
The relative interest rate sensitivity of the Company's assets and
liabilities indicates the extent to which the Company's net interest income may
be affected by interest rate movements. The Company's ability to reprice assets
and liabilities in the same dollar amounts and at the same time minimizes
interest rate risk. One method of measuring the impact of interest rate changes
on net interest income is to measure in a number of time frames the interest
sensitivity gap by subtracting interest sensitive liabilities from interest
sensitive assets as reflected in the following table. Such interest sensitivity
gap represents the risk, or opportunity, in repricing. The Company's strategy in
minimizing interest rate risk is to minimize the impact of short-term interest
rate movements on its net interest income while managing its middle and
long-term interest sensitivity gap in light of overall economic trends in
interest rates. The following table reflects the relative sensitivity of the
Company to changing interest rates at December 31, 1996.
<TABLE>
<CAPTION>
CUMULATIVE
-------------------------------------
90 365 FIVE
DAYS DAYS YEARS TOTAL
------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Interest sensitive assets:
Total loans............................................. $60,780 $65,941 $76,626 $81,221
Federal funds sold...................................... 4,680 4,680 4,680 4,680
Investment securities................................... 1,672 6,156 11,145 20,791
------- ------- ------- -------
Total interest sensitive assets................. 67,132 76,777 92,451 106,692
Interest sensitive liabilities:
NOW, money market and savings accounts.................. 19,312 19,312 19,312 19,312
Certificates of deposit and IRAs over $100,000.......... 7,071 15,425 17,384 17,384
Other certificates of deposit and IRAs.................. 11,182 27,700 31,319 31,319
Federal funds purchased................................. 6,000 6,000 6,000 6,000
FHLB borrowing.......................................... 12,400 12,400 12,400 12,400
------- ------- ------- -------
Total interest sensitive liabilities............ 55,965 80,837 86,415 86,415
------- ------- ------- -------
Interest sensitivity gap................................ $11,167 $(4,060) $ 6,036 $20,277
======= ======= ======= =======
Ratio of cumulative gap to total interest sensitive
assets.................................................. 10.5% (3.8)% 5.6%
======= ======= =======
</TABLE>
Investment Securities
The Company's investment securities portfolio provides an opportunity for
the investment of available funds, furnishes liquidity, and supplies collateral
to pledge for certain deposits. Average investment securities increased to
$22,141,049 in 1996 as compared to $19,655,481 in 1995, and comprised 22.3% and
25.8% of average total assets, respectively. These changes reflect management's
investment policies and perceptions of opportunity in the various periods.
The following two tables present the carrying values and composition of
investment securities and the contractual maturities and yields. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
---------------------- ----------------------
CARRYING % OF TOTAL CARRYING % OF TOTAL
VALUE SECURITIES VALUE SECURITIES
-------- ---------- -------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
U. S. Treasury and U.S. Government agencies........ $ 6,688 32.17% $ -- --%
State, county and municipal........................ 5,097 24.51 -- --
Mortgage-backed securities......................... 9,007 43.32 -- --
------- ------ ------- ------
Total investment securities.............. $20,792 100.00% $ -- --%
======= ====== ======= ======
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
---------------------- ----------------------
CARRYING % OF TOTAL CARRYING % OF TOTAL
VALUE SECURITIES VALUE SECURITIES
-------- ---------- -------- ----------
(AMOUNT IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
U. S. Treasury and U.S. Government agencies........ $ 8,512 35.52% $ -- --%
State, county and municipal........................ 5,206 21.72 -- --
Mortgage-backed securities......................... 10,248 42.76 -- --
------- ------ ------- ------
Total investment securities.............. $23,966 100.00% $ -- --%
======= ====== ======= ======
</TABLE>
The Company did not have any investments which exceeded 10% of the
Company's stockholders' equity at December 31, 1996, except for U.S. Treasury
and U.S. Government Agency securities.
Included in securities available for sale at December 31, 1996 are certain
U.S. Government Agency securities (structured notes and regulatory derivative
securities) whose yields are based on various indices, with a floor rate of
3.86%. The amortized cost and unrealized loss on such securities at December 31,
1996 were $2,203,354 and $44,064, respectively. The weighted average yield on
such securities at December 31, 1996 was 4.9%. These securities mature at
various dates through August 1998.
Contractual maturities and yields on the Company's investment securities
(all available for sale) at December 31, 1996 is as follows. Expected maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------
AFTER ONE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS AFTER FIVE YEARS
---------------- ----------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ------ -------- ------ ------- ------
(AMOUNT IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agency...... $ 499 4.22% $ 6,188 5.70% $ -- --%
State, county and municipal(1)................ -- -- 910 5.96 4,187 5.36
Mortgage-backed securities.................... 1,649 7.09 3,553 6.69 3,805 7.19
------ ---- ------- ---- ------ ----
Total investment securities......... $2,148 6.42% $10,651 6.05% $7,993 6.23%
====== ==== ======= ==== ====== ====
</TABLE>
- ---------------
(1) Yields on state, county and municipal securities have not been computed on a
tax equivalent basis.
Loans
The Company continued to increase its outstanding total loans to
$80,854,126 (including $38,848,844 of mortgage loans in process of settlement)
at December 31, 1996 from $58,090,869 (including $14,399,922 of mortgage loans
in process of settlement) at December 31, 1995 from $42,357,863 at December 31,
1994. Average loans also increased to $67,505,290 in 1996 from $44,252,507 in
1995 from $39,239,559 in 1994. The growth in the loan portfolio continues to
reflect the growth in the economy, the growth in the Company's market, and the
opening of a mortgage division during the third quarter of 1995 resulting in a
full year of operations during 1996.
17
<PAGE> 20
The following tables present the composition of the Company's loan
portfolio and the maturities by and interest rate sensitivity of certain
categories of loans at December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996(1) 1995(1)
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 8,070 $ 7,635
Real estate -- construction................................. 10,268 8,079
Real estate -- mortgage..................................... 22,127 26,503
Consumer.................................................... 2,899 2,663
------- -------
43,364 44,880
Less allowance for possible loan losses..................... 1,129 1,027
Less unearned income........................................ 230 162
------- -------
$42,005 $43,691
======= =======
</TABLE>
<TABLE>
<CAPTION>
MATURING(2)
--------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural........... $ 5,381 $ 2,689 $ -- $ 8,070
Real estate -- construction...................... 8,821 1,447 -- 10,268
Real estate -- mortgage.......................... 7,545 11,269 3,313 22,127
Consumer......................................... 98 2,589 212 2,899
------- ------- ------ -------
$21,845 $17,994 $3,525 $43,364
======= ======= ====== =======
Summary of loans:
Total fixed rate due after one year............ $13,945
Total adjustable rate due after one year....... 1,333
-------
Total loans due after one year................. $15,278
=======
</TABLE>
- ---------------
(1) The Company does not have any concentrations of loans exceeding 10% of total
loans of which management is aware and which are not otherwise disclosed as
a category of loans in the table or in another section of this Annual
Report.
(2) Maturities for fixed rate loans are reflected based on the contractual
maturity and variable rate loans are reflected based on their next repricing
date.
Actual repayment of loans may differ from maturities reflected because
borrowers may have the right to prepay obligations with or without prepayment
penalties. Additionally, the refinancing of such loans or the potential
delinquency of such loans could also cause differences between the contractual
maturities reflected above and the actual repayments of such loans.
Nonperforming Loans and Nonperforming Assets
Nonperforming loans include impaired loans (loans placed on nonaccrual
status) and restructured loans. The Company had no restructured loans at
December 31, 1996 and 1995. Nonperforming assets include nonperforming loans,
real estate acquired through foreclosure, and repossessed assets.
Underperforming loans consist of loans which are past due with respect to
principal or interest more than 90 days and still accruing interest. The Company
had $966,000 and $1,078,090 of underperforming loans at December 31, 1996 and
1995, respectively, consisting of other real estate acquired through
foreclosure.
Effective January 1, 1995, the Company adopted SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income recognition and Disclosures". Under
the provisions of this statement, loans are considered impaired and placed on
nonaccrual status when management considers the collection of
18
<PAGE> 21
interest and principal according to the contractual terms of the loan agreement
to be doubtful. The Company's adoption of this accounting standard did not have
a material effect on the financial condition and results of operations of the
Company. Interest income previously accrued, but not collected, is reversed
against current period income when such loans are placed on nonaccrual status as
a result of impairment. Generally, cash payments received on nonaccrual loans
are applied to principal.
There are eight loans totaling $428,639 at December 31, 1996 classified for
regulatory purposes as loss, doubtful, substandard, or special mention that have
not been disclosed as nonperforming which (1) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or (2) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the abilities of such borrower to comply
with the loan repayment terms.
There were no nonperforming loans at December 31, 1996 and 1995. Real
estate acquired through foreclosure decreased to $540,000 at December 31, 1996
from $808,090 at December 31, 1995. Included in such amounts for 1996 and 1995
were valuation allowances of $426,000 and $270,000, respectively. Management
continues to emphasize asset quality and believes that its levels of such loans
compare favorably to industry trends.
A potential problem loan is one in which management has serious doubts
about the borrower's future performance under the terms of the loan contract.
These loans are current as to principal and interest and, accordingly, are not
included in the nonperforming asset categories. Management monitors these loans
closely in order to ensure that the Company's interest are protected. At
December 31, 1996, the Company had three loans with an aggregate principal
balance of $583,671 compared with 12 loans with an aggregate principal balance
outstanding of $1,715,205 at December 31, 1995 considered by management to be
potential problem loans. The level of potential problem loans is considered in
the determination of the adequacy of the allowance for possible loan losses.
Deposits
Average deposits increased to $82,239,743 in 1996 from $68,022,518 in 1995
and from $58,642,104 in 1994. The increase in average deposits represents growth
in the Company's existing market, the economy and reflects the results of the
Company's marketing efforts in attracting new customers from competing local
financial institutions and the national markets. The maturities of certificates
of deposit and individual retirement accounts of $100,000 or more at December
31, 1996 are as follows.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C>
Three months or less........................................ $ 8,748
Over three months through six months........................ 4,900
Over six months through 12 months........................... 5,435
Over twelve months.......................................... 2,424
-------
Total certificates of deposit and individual retirement
accounts of $100,000 or more.............................. $21,507
=======
</TABLE>
The Company has no other time deposits in excess of $100,000. Average
deposits over $100,000 decreased to $16,537,883 in 1996 from $20,483,883 in 1995
comprising 20.1% and 30.1% of total average deposits in 1996 and 1995,
respectively. The decrease in such deposits was offset by growth in time
deposits with balances less than $100,000. The Company has no brokered deposits.
Short Term Borrowings
The Company utilizes short term borrowings consisting of short term
borrowings from the Federal Home Loan Bank, federal funds purchased under
various lines, and securities sold under agreement to repurchase to fund short
term cash and other funding needs. The Company had $18,400,000 (the maximum
outstanding at any monthend during the year) outstanding at December 31, 1996
from such borrowings maturing in varying
19
<PAGE> 22
amounts through February 22, 1997 with interest rates ranging from 5.43% to
7.2%. The average amounts outstanding for 1996 were $7,183,846 at an average
weighted interest rate of 6.2%.
Capital
The Company continues to maintain a level of capital through profitable
operations and effective management of its dividend policy which exceeds all
regulatory requirements and is available to support future growth. The following
reflects the leverage and risk-based regulatory capital ratios at December 31,
1996 and 1995.
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
------------- -------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ----- ------ ----
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Tier 1 risk-based capital.................... $2,807 4.00% $9,102 12.97% $6,295 8.97%
Total risk-based capital..................... 5,614 8.00 9,979 14.22 4,365 6.22
Tier 1 leverage.............................. 3,962 4.00 8,806 9.19 4,844 5.19
December 31, 1995:
Tier 1 risk-based capital.................... $2,245 4.00% $7,644 13.62% $5,399 9.62%
Total risk-based capital..................... 4,490 8.00 8,345 14.87 3,855 6.87
Tier 1 leverage.............................. 2,974 4.00 7,644 10.28 4,670 6.28
</TABLE>
20
<PAGE> 23
ITEM 7. FINANCIAL STATEMENTS
FIRST BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks, including reserve requirements of
$1,034,000 and $744,000................................... $ 7,581,011 $ 3,403,926
Federal funds sold.......................................... 4,680,000 --
Investment securities available for sale.................... 20,791,535 23,966,501
Mortgage loans in process of settlement..................... 38,848,844 14,399,922
Loans, net.................................................. 42,005,282 43,690,947
Premises and equipment...................................... 2,052,269 1,828,648
Other real estate owned, net................................ 540,000 808,090
Cash value of life insurance policies....................... 2,355,423 2,266,781
Other assets................................................ 2,524,229 1,886,208
------------ -----------
$121,378,593 $92,251,023
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $ 23,549,533 $22,756,901
NOW and money-market...................................... 17,049,469 16,739,457
Savings................................................... 2,262,675 2,843,677
Time...................................................... 48,703,176 36,393,903
------------ -----------
Total deposits.................................... 91,564,853 78,733,938
Federal funds purchased and securities sold under agreements
to repurchase............................................. 6,000,000 2,360,000
Note payable to FHLB........................................ 12,400,000 2,000,000
Accrued expenses and other liabilities...................... 2,064,737 1,249,562
------------ -----------
Total liabilities................................. 112,029,590 84,343,500
------------ -----------
Commitments................................................. -- --
Stockholders' equity:
Common stock; $1 par value, 10,000,000 shares authorized;
1,052,462 and 1,048,840 shares issued and
outstanding............................................ 1,052,462 1,048,840
Additional paid-in capital................................ 4,194,813 4,198,435
Retained earnings......................................... 3,938,982 2,397,106
Net unrealized gains (losses) on securities available for
sale, net of tax....................................... 162,746 263,142
------------ -----------
Total stockholders' equity........................ 9,349,003 7,907,523
------------ -----------
$121,378,593 $92,251,023
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
FIRST BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................... $7,517,268 $4,855,667 $3,742,408
Interest on investment securities........................ 1,356,808 1,169,761 878,353
Interest on federal funds sold........................... 73,223 185,468 85,502
Interest on deposits in other financial institutions..... -- -- 6,691
---------- ---------- ----------
Total interest income............................ 8,947,299 6,210,896 4,712,954
---------- ---------- ----------
Interest expense:
Deposits................................................. 2,806,868 2,447,417 1,576,437
Other borrowings......................................... 444,709 21,505 13,312
---------- ---------- ----------
Total interest expense........................... 3,251,577 2,468,922 1,589,749
---------- ---------- ----------
Net interest income.............................. 5,695,727 3,741,974 3,123,205
Provision for possible loan losses......................... 84,000 41,000 171,500
---------- ---------- ----------
Net interest income after provision for possible
loan losses.................................... 5,611,722 3,700,974 2,951,705
---------- ---------- ----------
Other operating income:
Service charges.......................................... 626,835 594,224 418,301
Gain on sales of loans................................... 1,043,507 77,856 --
Securities gains (losses), net........................... 29,024 (171) (44,411)
Other.................................................... 419,428 316,958 174,851
---------- ---------- ----------
Total operating income........................... 2,118,794 988,867 548,741
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits........................... 2,640,920 1,512,119 1,167,346
Occupancy and equipment expense.......................... 394,712 294,867 220,343
Other.................................................... 1,764,255 1,229,196 929,882
---------- ---------- ----------
Total operating expense.......................... 4,799,887 3,036,182 2,317,571
---------- ---------- ----------
Income before taxes........................................ 2,930,659 1,653,659 1,182,875
Income tax expense......................................... 1,084,330 520,073 365,035
---------- ---------- ----------
Net income....................................... $1,846,329 $1,133,586 $ 817,840
========== ========== ==========
Net income per common share:
Primary.................................................. $ 1.76 $ 1.08 $ .78
========== ========== ==========
Fully diluted............................................ $ 1.71 $ 1.06 $ .78
========== ========== ==========
Weighted average of common shares outstanding:
Primary.................................................. 1,049,746 1,048,840 1,044,139
========== ========== ==========
Fully diluted............................................ 1,084,740 1,070,655 1,044,139
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 25
FIRST BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES)
COMMON STOCK ADDITIONAL ON SECURITIES TOTAL
---------------------- PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
--------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993..................... 1,038,740 $1,038,740 $4,158,035 $ 958,054 $ 85,565 $6,240,394
Net income................. -- -- -- 817,840 -- 817,840
Exercise of common stock
options.................. 10,100 10,100 40,400 -- -- 50,500
Cash dividends paid of $.25
per share................ -- -- -- (260,655) -- (260,655)
Change in net unrealized
holding gains (losses) on
securities available for
sale, net of change in
income taxes of
$65,999.................. -- -- -- -- (128,118) (128,118)
--------- ---------- ---------- ---------- --------- ----------
Balance at December 31,
1994..................... 1,048,840 1,048,840 4,198,435 1,515,239 (42,553) 6,719,961
Net income................. -- -- -- 1,133,586 -- 1,133,586
Cash dividends paid of $.24
per share................ -- -- -- (251,719) -- (251,719)
Change in net unrealized
holding gains (losses) on
securities available for
sale, net of change in
income taxes of
$157,479................. -- -- -- -- 305,695 305,695
--------- ---------- ---------- ---------- --------- ----------
Balance at December 31,
1995..................... 1,048,840 1,048,840 4,198,435 2,397,106 263,142 7,907,523
Net income................. -- -- -- 1,846,329 -- 1,846,329
Cash dividends paid of $.29
per share................ -- -- -- (304,453) -- (304,453)
Exercise of common stock
options.................. 7,322 7,322 39,392 -- -- 46,714
Repurchase and retirement
of stock................. (3,700) (3,700) (43,014) -- -- (46,714)
Change in net unrealized
holding gains (losses) on
securities available for
sale, net of change in
income taxes of
$51,719.................. -- -- -- -- (100,396) (100,396)
--------- ---------- ---------- ---------- --------- ----------
Balance at December 31,
1996..................... 1,052,462 $1,052,462 $4,194,813 $3,938,982 $ 162,746 $9,349,003
========= ========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 26
FIRST BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,846,329 $ 1,133,586 $ 817,840
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses...................... 84,000 41,000 171,500
Provision for losses on other real estate owned......... 156,000 113,000 160,000
Depreciation, amortization, and accretion, net.......... 113,224 114,916 162,712
Securities (gains) losses, net.......................... (29,024) 171 44,411
Loss(Gain) on sale of other real estate owned........... 14,119 -- (59,884)
Gain on sale of premises and equipment.................. -- -- (397)
Deferred income tax benefit............................. (93,176) (41,641) (125,038)
Increase in cash value of life insurance policies....... (88,642) (366,573) (35,208)
(Increase) decrease in other assets..................... (797,356) (967,681) 7,288
Increase in other liabilities........................... 815,175 854,252 197,103
------------ ------------ -----------
Net cash provided by operating activities.......... 2,020,649 881,030 1,340,327
------------ ------------ -----------
Cash flows from investing activities:
Decrease (Increase) in loans, net......................... 1,601,665 (1,486,174) (4,981,609)
Proceeds from maturities of interest-earning deposits in
other financial institutions............................ -- -- 200,000
Proceeds from maturities of investment securities held to
maturity................................................ -- -- 260,151
Proceeds from maturities of investment securities
available for sale...................................... 2,909,140 1,995,716 2,492,354
Proceeds from sales of investment securities available for
sale.................................................... 4,871,612 1,994,563 10,962,532
Investment in life insurance policies..................... -- -- (1,865,000)
Purchases of investment securities held to maturity....... -- -- (1,448,029)
Purchases of investment securities available for sale..... (4,390,311) (12,853,466) (6,333,173)
Increase in mortgage loans in process of settlement....... (24,448,922) (14,399,922) --
Purchases of premises and equipment....................... (371,181) (175,336) (150,412)
Proceeds from sales of premises and equipment............. -- -- 14,105
Proceeds from sale of other real estate owned............. 97,971 37,000 273,384
------------ ------------ -----------
Net cash used in investing activities.............. (19,730,026) (24,887,619) (575,697)
------------ ------------ -----------
Cash flows from financing activities:
Increase (decrease) in deposits, net...................... 12,830,915 20,514,720 (4,294,847)
Increase in Federal funds purchased and repurchase
agreements.............................................. 3,640,000 1,780,000 580,000
Proceeds from borrowing from FHLB......................... 10,400,000 2,000,000 --
Issuance of common stock.................................. -- -- 50,500
Cash dividends paid on common stock....................... (304,453) (251,719) (260,655)
------------ ------------ -----------
Net cash (used in) provided by financing activities..... 26,566,462 24,043,001 (3,925,002)
------------ ------------ -----------
Net (decrease) increase in cash and cash equivalents.... 8,857,085 36,412 (3,160,372)
Cash and cash equivalents at beginning of year.............. 3,403,926 3,367,514 6,527,886
------------ ------------ -----------
Cash and equivalents at end of year......................... $ 12,261,011 $ 3,403,926 $ 3,367,514
============ ============ ===========
Supplemental disclosures of cash paid during the year for:
Interest.................................................. $ 2,751,277 $ 2,349,262 $ 1,562,000
============ ============ ===========
Income taxes.............................................. $ 1,213,100 $ 489,986 $ 357,000
============ ============ ===========
Supplemental disclosures of non-cash investing and financing
activities:
Real estate acquired through foreclosures................. $ -- $ 112,090 $ 95,000
============ ============ ===========
Reclassification of investment securities as available for
sale.................................................... $ -- $ 10,415,190 $ --
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 27
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. AGREEMENT AND PLAN OF MERGER
On December 13, 1996, First Bankshares, Inc. (FBI) entered into an
agreement and plan of merger (Agreement) with Regions Financial Corporation
(Regions) to be effective upon the consent of various regulatory authorities.
Among other items, the Agreement provides for the conversion of each common
share of FBI into .32 of a share of Regions common stock, subject to certain
adjustments as defined. Prior to the consummation of this Agreement, each party
must obtain certain consents and approvals. Such Agreement may be terminated
under certain conditions by the Board of Directors of both or either party.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Bankshares, Inc. and
Subsidiary (the Company), and First Bank of Georgia (the Bank) conform to
generally accepted accounting principles and to general practices within the
financial services industry. The following is a description of the more
significant of those policies.
CONSOLIDATION The consolidated financial statements include the accounts
of FBI and the Bank. All significant inter-company accounts and transactions
have been eliminated in consolidation.
BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. In preparing the consolidated 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 income 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 to the determination of the allowance for possible loan
losses and the valuation of real estate acquired through foreclosure. In
connection with the determination of the allowance for possible loan losses and
the valuation of real estate acquired through foreclosure, management obtains
independent appraisals and reviews available market data, such as comparable
sales and recent market trends, through discussions with local real estate
professionals.
CASH AND CASH EQUIVALENTS Cash equivalents, when present, include amounts
due from banks, interest bearing deposits in other banks due within three
months, federal funds sold and overnight investments. Generally, federal funds
are sold for periods less than 90 days.
INVESTMENT SECURITIES The Company accounts for investment securities using
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under SFAS
No. 115, the Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term. Held to
maturity securities are those securities for which the Company has the intent
and the ability to hold the security until maturity. All other securities not
included in trading or held to maturity are classified as available for sale. At
December 31, 1996 and 1995, all of the Company's securities are classified as
available for sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for amortization or accretion of
premiums or discounts. Unrealized holding gains and losses, net of the related
tax effect, on securities available for sale are excluded from earnings and are
reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with transfers
of securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity. A decline in the market value of any
available for sale or held to maturity investment below cost that is deemed
other than temporary is charged to earnings and establishes a new cost basis for
the security.
25
<PAGE> 28
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses for
securities classified as available for sale and held to maturity are included in
earnings and are derived using the specific identification method of determining
the cost of the security sold.
LOANS Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are stated at the principal
amount outstanding, net of unearned interest and the allowance for possible loan
losses. Interest income on loans is recognized on the effective yield method.
Nonrefundable loan fees and certain direct loan origination costs are accounted
for in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases". SFAS No. 91 requires recognition of loan origination fees, net of
direct costs, over the life of the related loan as an adjustment to yield.
Effective January 1, 1995, the Company adopted 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 Disclosures." A
loan is impaired when, based on current information and events, it is probable
that all amounts due according to the contractual terms of the loan will not be
collected. Impaired loans are measured based on the present value of expected
future cash flows, discounted at the loan's effective interest rate, or at the
loan's observable market price, or the fair value of the collateral if the loan
is collateral dependent. The adoption of SFAS No. 114 and No. 118 had no
significant impact on the consolidated financial statements.
Gains or losses on sale of loans are recorded in other operating income,
based on the net proceeds received and the recorded investment in the loans
sold. For sales of the Small Business Administration (SBA) guaranteed portion of
loans, the basis in the portion of the loans sold is based on an allocation of
the relative fair values of the portion sold and the portion retained.
ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses
is established through a provision for possible loan losses charged to expense.
The allowance represents an amount which, in management's judgment, will be
adequate to absorb possible losses on existing loans that may become
uncollectible. Management's judgment in determining the adequacy of the
allowance is based on continuing evaluations of the collectability of loans.
These evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, current economic conditions that may effect
the borrower's ability to pay, overall portfolio quality, and review of specific
problem loans. Loans are charged against the allowance when, in the opinion of
management, such loans are deemed to be uncollectible. Any subsequent recoveries
of loans charged against the allowance is added back to the allowance.
A substantial portion of the Company's loan portfolio is collateralized by
real estate and other collateral in markets in south Fulton County, Clayton
County, and other areas of metropolitan Atlanta and Tennessee. Accordingly, the
ultimate collectability of a substantial portion of the Company's loan portfolio
and the recoverability of the Company's real estate acquired through foreclosure
are susceptible to changes in conditions in these markets.
Management believes that the allowance for possible loan losses is adequate
and the valuation of real estate acquired through foreclosure is appropriate.
While management uses available information to recognize losses on loans and to
value real estate acquired through foreclosure, future additions to the
allowances for possible loan losses and real estate acquired through foreclosure
may be necessary based on changes in economic conditions, particularly in south
Fulton County, Clayton County, and other areas of metropolitan Atlanta and
Tennessee. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for possible
loan losses and the Company's valuation of real estate acquired through
foreclosure. Such agencies may require the Company to recognize additions to the
26
<PAGE> 29
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance for possible loan losses or the allowance for real estate acquired
through foreclosure based on their judgments about information available to them
at the time of their examination.
PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation. Depreciation expense is computed principally on the
straight-line method over the estimated useful lives of the assets ranging from
five to thirty years.
OTHER REAL ESTATE OWNED Real estate acquired through foreclosure is
reported at the lower of cost or fair value, determined on the basis of current
appraisals, comparable sales, and other estimates of value obtained principally
from independent sources, adjusted for estimated selling costs. Any excess of
the loan balance at the time of foreclosure over the fair value of the real
estate held as collateral is treated as a loan loss. A decline in value of such
real estate following foreclosure is recorded as a charge to other operating
expense through a provision charged to the valuation allowance. Gains on the
disposal of other real estate owned is recognized at the time of sale.
INCOME TAXES The Company accounts for income taxes using the asset and
liability method which requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax basis. Additionally, future tax benefits, such as net
operating loss carryforwards, are recognized to the extent that realization of
such benefits is more likely than not.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the assets and
liabilities are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, the standard requires an evaluation
of the probability of being able to realize the future benefits indicated by
such asset. A valuation allowance is provided for the portion of the deferred
tax asset when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of deferred
tax liabilities, projected future taxable income, and tax planning strategies.
RECLASSIFICATIONS Certain 1994 amounts have been reclassified to conform
to the 1996 and 1995 presentation.
NET INCOME PER SHARE Net income per share is based on the weighted average
number of common shares outstanding using the treasury stock method. The effect
of outstanding stock options is not significant to the computation of net income
per share in 1994.
3. INVESTMENT SECURITIES
Investment securities available for sale at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agencies............................ $ 6,703,056 $ 28,849 $(44,495) $ 6,687,410
State, county and municipal........... 4,950,885 179,287 (33,136) 5,097,036
Mortgage-backed securities............ 8,891,009 127,672 (11,592) 9,007,089
----------- -------- -------- -----------
$20,544,950 $335,808 $(89,223) $20,791,535
=========== ======== ======== ===========
</TABLE>
27
<PAGE> 30
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agencies........................... $ 8,527,153 $ 65,782 $ (80,932) $ 8,512,003
State, county and municipal.......... 4,978,018 247,348 (19,260) 5,206,106
Mortgage-backed securities........... 10,062,630 185,762 -- 10,248,392
----------- -------- --------- -----------
$23,567,801 $498,892 $(100,192) $23,966,501
=========== ======== ========= ===========
</TABLE>
At January 1, 1995, investment securities with an amortized cost of
$10,415,190 were transferred from the held to maturity category to available for
sale as a result of the Company's liquidity management strategy. The net
unrealized losses at the transfer date were $494,356.
Included in securities available for sale at December 31, 1996 are certain
U.S. Government Agency securities whose yields are based on various indices,
with a floor rate of 3.86%. The amortized cost and unrealized loss on such
securities at December 31, 1996 were $2,203,354 and $44,064, respectively. The
weighted average yield on such securities at December 31, 1996 was 4.9%. These
securities mature at various dates through August 1998.
The amortized cost and estimated fair value of investment securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Within 1 year............................................... $ 500,000 $ 499,000
1 to 5 years................................................ 7,076,627 7,098,352
5 to 10 years............................................... 2,403,458 2,442,662
After 10 years.............................................. 1,673,856 1,744,432
----------- -----------
11,653,941 11,784,446
Mortgage backed securities.................................. 8,891,009 9,007,089
----------- -----------
$20,544,950 $20,791,535
=========== ===========
</TABLE>
Proceeds from sales of investment securities during 1996, 1995 and 1994
were approximately $4,872,000, $1,995,000, and $10,963,000, respectively.
Securities gains and losses for 1996, 1995 and 1994 include realized gains of
$29,756, $1,963, and $26,614, respectively, and realized losses of $732, $2,134,
and $71,025, respectively.
Securities with a carrying value of approximately $10,660,000 and
$6,804,000 at December 31, 1996 and 1995, respectively, were pledged as
collateral for public funds on deposit and for other purposes as required by
law.
28
<PAGE> 31
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Major classifications of loans at December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural...................... $ 8,070,324 $ 7,634,707
Real estate -- construction................................. 10,267,563 8,078,573
Real estate -- mortgage..................................... 22,126,768 26,503,848
Consumer.................................................... 2,899,461 2,662,625
----------- -----------
43,364,116 44,879,753
Less allowance for possible loan losses..................... 1,129,278 1,026,830
Less unearned income........................................ 229,556 161,976
----------- -----------
$42,005,282 $43,690,947
=========== ===========
</TABLE>
At December 31, 1995, the Company was servicing SBA and loans for others
totaling $1,394,000, and none at December 31, 1996, respectively. At December
31, 1996 and 1995, outstanding commitments included commitments to fund
commercial and real estate construction mortgage loans of approximately,
$3,221,000 and $2,716,000 for 1996 and $2,005,000 and $2,863,000 for 1995,
respectively. The Company uses the same credit policies in making commitments
and conditional obligations as it does for its standard lending arrangements and
its risk of loss is similar to such arrangements.
The following is a summary of activity in the allowance for possible loan
losses for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Balance at beginning of year....................... $1,026,830 $ 980,852 $ 815,967
Provision for possible loan losses................. 84,000 41,000 171,500
Loans charged off.................................. (49,738) (185,035) (113,687)
Recoveries......................................... 68,186 190,013 107,072
---------- ---------- ---------
Balance at end of year............................. $1,129,278 $1,026,830 $ 980,852
========== ========== =========
</TABLE>
There were no impaired or nonaccrual loans at December 31, 1996 and 1995.
The reduction in interest income attributable to nonaccrual loans for the year
ended December 31, 1994 was $2,000.
In the ordinary course of business, the Company has direct and indirect
loans outstanding to certain executive officers, directors and principal
stockholders (including their associates). Management believes such loans are
made substantially on the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
customers. The following is a summary of total loans outstanding and the
activity in these loans for 1996:
<TABLE>
<S> <C>
Balance at beginning of year................................ $1,248,000
New loans originated........................................ 263,000
Principal repayments........................................ (359,000)
----------
Balance at end of year...................................... $1,152,000
==========
</TABLE>
29
<PAGE> 32
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land........................................................ $ 760,910 $ 521,837
Bank buildings and improvements............................. 1,338,732 1,317,946
Furniture and equipment..................................... 873,759 762,437
---------- ----------
2,973,401 2,602,220
Less accumulated depreciation............................... (921,132) (773,572)
---------- ----------
$2,052,269 $1,828,648
========== ==========
</TABLE>
6. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
OTHER VALUATION
REAL ESTATE ALLOWANCE
----------- ---------
<S> <C> <C>
Balance at December 31, 1994................................ $1,006,000 $160,000
Foreclosures -- additions................................... 112,090 --
Sales -- disposals.......................................... (40,000) (3,000)
Provision for losses........................................ -- 113,000
---------- --------
Balance at December 31, 1995................................ 1,078,090 270,000
Foreclosure -- additions.................................... -- --
Sales -- disposals.......................................... (112,090) --
Provision for losses........................................ -- 156,000
---------- --------
Balance at December 31, 1996................................ $ 966,000 $426,000
========== ========
</TABLE>
7. DEPOSITS
The aggregate amounts of certificates of deposit, each with a minimum
denomination of $100,000, were $21,506,514 and $20,261,256 at December 31, 1996
and 1995, respectively. At December 31, 1996, the scheduled maturities of
certificates of deposits are as follows:
<TABLE>
<S> <C>
1997........................................................ $43,139,593
1998........................................................ 2,992,227
1999........................................................ 1,994,818
2000........................................................ 347,374
2001........................................................ 229,164
-----------
$48,703,176
===========
</TABLE>
8. FEDERAL HOME LOAN BANK
During 1995 and 1996, the Bank entered into agreements with the Federal
Home Loan Bank (FHLB) whereby, for the purchase of $1,218,100 of FHLB stock, the
FHLB agreed to provide the Bank credit facilities under the Agreement for
Advances and Security Agreement. Any amounts advanced by the FHLB are
collateralized under a Specific Collateral Agreement covered by certain
investment securities. Based on the availability of existing collateral at
December 31, 1996, the Bank could make draws of approximately $20,000,000. The
Bank has outstanding $12,400,000 under the line due in varying amounts from
January 12, 1997 to February 22, 1997 with interest payable at rates ranging
from 6.89% to 7.2%.
30
<PAGE> 33
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of income tax expense (benefit) for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
Current expense:
Federal........................................ $1,015,493 $483,712 $ 436,294
State.......................................... 162,013 78,002 53,779
---------- -------- ---------
1,177,506 561,714 490,073
Deferred expense (benefit):
Federal........................................ (93,176) (41,641) (112,707)
State.......................................... -- -- (12,331)
---------- -------- ---------
(93,176) (41,641) (125,038)
---------- -------- ---------
$1,084,330 $520,073 $ 365,035
========== ======== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liabilities at December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses........................ $342,600 $310,916
Real estate acquired through foreclosure.................. 202,300 143,430
Retirement plans.......................................... 60,300 53,524
-------- --------
Total gross deferred tax assets................... 605,200 507,870
Deferred tax liabilities:
Unrealized gains on securities available for sale......... 83,839 135,558
Other..................................................... 67,968 63,814
-------- --------
Total gross tax liabilities....................... 151,807 199,372
-------- --------
Net deferred tax asset............................ $453,393 $308,498
======== ========
</TABLE>
There was no valuation allowance for deferred tax assets at December 31,
1996 and 1995. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which the temporary differences resulting in the deferred tax assets
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, available income tax carrybacks, projected future taxable income,
and tax planning strategies in making the assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the related temporary differences are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. The following is a summary of the difference
between income taxes as shown in the consolidated statements of operations and
31
<PAGE> 34
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the income taxes that would result from applying the statutory Federal income
tax rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Income tax expense at statutory Federal income tax
rate............................................ $ 996,424 $562,244 $402,178
Increase (decrease) in income tax expense
resulting from:
Tax-exempt interest............................. (95,117) (91,938) (75,928)
State income taxes, net......................... 106,245 51,481 27,356
Other, net...................................... 76,778 (1,714) 11,429
---------- -------- --------
Actual income tax expense............... $1,084,330 $520,073 $365,035
========== ======== ========
</TABLE>
10. COMMITMENTS
The Bank is a 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 standby letters of credit. Standby letters
of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheet. The contractual amounts of these instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for standby letters of credit is
represented by the contractual amount of each letter. The Bank uses the same
credit policies in making commitments through conditional obligations as it does
on-balance sheet instruments.
In most cases, the Bank does require collateral or other security to
support financial instruments with credit risk. At December 31, 1996 and 1995,
the Bank had outstanding $167,904 and $318,700 in standby letters of credit.
11. RETIREMENT PLANS
The Company has a 401(k) Plan which covers substantially all employees
subject to minimum age and service requirements. Participants may contribute 1%
to 16% of their compensation. The Company provides a matching profit sharing
contribution determined annually by the Company's Board of Directors.
Participants vest evenly over five years in the Company's contribution. The
Company contributed $46,035, $23,288 and $23,178 during the years ended December
31, 1996, 1995 and 1994. During 1994, the Company established a retirement plan
for key employees, officers and directors that provides for periodic payments
which commence at their retirement or death. The benefits are to be paid through
investments in life insurance policies such that the beneficiary of the policies
is the Company and the cash surrender value or death benefit of the policies
should be sufficient to fund the benefits. The cash surrender value of the
policies at December 31, 1996 and 1995 are $2,355,423 and $2,266,781,
respectively. The liability for benefits to be paid has been accrued using the
present value method and the related expense for the years ended December 31,
1996 and 1995 was $106,637 and $224,196, respectively.
12. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, action by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt
32
<PAGE> 35
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital, as defined, to average risk-weighted assets.
As defined and of Tier I capital, as defined, to average assets, as defined.
Management believes, at December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
At December 31, 1996 and 1995, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since the notification that management believes have
changed the institutions's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total risk-weighted capital:
Consolidated................... $9,979,077 14.22% $5,614,108 8.00% $ N/A N/A
First Bank of Georgia.......... 9,683,151 13.80% 5,613,421 8.00% 7,016,776 10.00%
Tier I capital:
Consolidated................... 9,102,060 12.97% 2,807,112 4.00% N/A N/A
First Bank of Georgia.......... 8,806,134 12.55% 2,806,736 4.00% 4,210,104 6.00%
Tier I (Adjusted Total Assets):
Consolidated................... 9,102,060 9.19% 3,961,724 4.00% N/A N/A
First Bank of Georgia.......... 8,806,134 8.90% 3,957,813 4.00% 4,947,266 5.00%
As of December 31, 1995:
Total risk-weighted capital:
Consolidated................... $8,345,501 14.87% $4,489,846 8.00% $ N/A N/A
First Bank of Georgia.......... 8,223,958 14.66% 4,487,835 8.00% 5,609,794 10.00%
Tier I capital:
Consolidated................... 7,644,381 13.62% 2,245,046 4.00% N/A N/A
First Bank of Georgia.......... 7,522,838 13.41% 2,243,949 4.00% 3,362,923 6.00%
Tier I (Adjusted Total Assets):
Consolidated................... 7,644,381 10.28% 2,974,467 4.00% N/A N/A
First Bank of Georgia.......... 7,522,838 10.11% 2,976,395 4.00% 3,720,494 5.00%
</TABLE>
13. STOCKHOLDERS' EQUITY
STOCK OPTIONS The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations in accounting for its employee stock options, because
the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation" requires use of option valuation
models that were not developed for use in valuing employee stock options. The
exercise price of the Company's employee stock options equaled the market price
of the underlying stock on the date of grant and no compensation expense is
recognized.
33
<PAGE> 36
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's incentive stock option plan has authorized the grant of up to
160,000 shares of the Company's common stock. The exercise price of options
issued under the plan is established by the Company's Board of Directors at the
date of grant and expire 10 years after the date of grant. Generally, options
vest evenly over five years.
A summary of stock option transactions under the plan is as follows:
<TABLE>
<CAPTION>
SHARES PRICE
------- --------------
<S> <C> <C>
Options outstanding at December 31, 1993................. 22,700 $ 5.00
Granted................................................ 55,000 6.38
Exercised.............................................. (10,100) 5.00
Canceled or expired.................................... (3,000) 5.00
-------
Options outstanding at December 31, 1994................. 64,600
Granted................................................ 22,500 6.87 to 6.96
Canceled or expired.................................... --
-------
Options outstanding at December 31, 1995................. 87,100 5.00 to 6.96
Granted................................................ 17,600 13.00
Exercised.............................................. (7,322) 6.38
Canceled or expired.................................... (5,700) 5.00 to 6.87
-------
Options outstanding at December 31, 1996................. 91,678 5.00 to 13.00
=======
</TABLE>
Had compensation cost for the plan been determined based upon the fair
value of the options at the grant dates consistent with the methodology from
SFAS No. 123, the Company's net income and net income per share would have been
reduced to the proforma amounts below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C> <C>
Net income.................................... As reported $1,846,329 $1,133,586
Proforma $1,798,341 $1,067,742
Net income per share.......................... As reported $ 1.76 $ 1.08
Proforma $ 1.71 $ 1.02
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
2%, risk free rates of 7%, volatility of .05%, and an expected life of 10 years.
The weighted average fair value calculated under this method was $4.40 for 1996
grants and $4.72 for 1995 grants.
Options to acquire 27,078 shares of common stock of the Company were
exercisable at December 31, 1996.
DIVIDENDS Dividends to be paid by the Bank are the primary source of funds
available to the Company for payment of dividends to its stockholders and for
other working capital needs. Statutes and limitations impose restrictions on the
amount of dividends that may be declared by the Bank. These restrictions are
based on the Bank's level of regulatory capital, retained earnings and the prior
year's net earnings.
34
<PAGE> 37
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. OTHER OPERATING EXPENSES
Components of other operating income and expenses in excess of 1% of total
interest and other income for the respective periods are approximately as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Other operating income:
Gains on sales of real estate acquired through
foreclosure................................... $(14,000) $ -- $ 60,000
Other operating expenses:
Regulatory examinations, consulting, legal and
professional fees............................. 394,000 174,000 128,000
FDIC insurance assessments....................... 2,000 67,000 132,000
Data processing services......................... 177,000 133,000 74,000
Directors and committee fees..................... 60,000 50,000 64,000
Miscellaneous.................................... 216,000 4,000 8,000
</TABLE>
15. FIRST BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash........................................................ $ 360,810 $ 92,834
Investment in the Bank...................................... 8,958,271 7,785,980
Other assets................................................ 29,922 28,709
---------- ----------
$9,349,003 $7,907,523
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity........................................ $9,349,003 $7,907,523
========== ==========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C> <C>
Dividend from the Bank...................................... $ 582,150 $ 368,561
Expenses.................................................... 14,208 31,199
---------- ----------
Income before income taxes and equity in undistributed
earnings of the Bank................................... 567,942 337,362
Income tax benefit.......................................... 5,700 10,607
---------- ----------
Income before equity in undistributed earnings of the
Bank................................................... 573,642 347,969
Equity in undistributed earnings of the Bank................ 1,272,687 785,617
---------- ----------
Net income................................................ $1,846,329 $1,133,586
========== ==========
</TABLE>
35
<PAGE> 38
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,846,329 $1,133,586
Adjustments to reconcile net income to net cash from
operating activities:
Equity in undistributed earnings of the Bank........... (1,272,687) (785,617)
Amortization........................................... 4,487 4,826
Change in other assets and liabilities................. (5,700) (10,607)
----------- ----------
Net cash from operating activities..................... 572,429 342,188
Cash flows from investing activities........................ -- --
Cash flows from financing activities:
Dividends................................................. (304,453) (251,719)
----------- ----------
Net increase in cash...................................... 267,976 90,469
Cash at beginning of year................................... 92,834 2,365
----------- ----------
Cash at end of year......................................... $ 360,810 $ 92,834
=========== ==========
</TABLE>
16. ESTIMATED FAIR VALUES
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996
----------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold........ $12,261,011 $12,261,011
Investment securities available for sale.............. 20,791,535 20,791,535
Loans................................................. 80,854,126 80,946,415
Cash value of life insurance policies................. 2,355,423 2,355,423
Financial liabilities:
Deposits.............................................. 91,564,853 92,137,327
Federal funds purchased............................... 6,000,000 6,000,000
Note payable to FHLB.................................. 12,400,000 12,400,000
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks............................... $ 3,403,926 3,403,926
Investment securities available for sale.............. 23,966,501 23,966,501
Loans................................................. 58,090,869 58,149,176
Cash value of life insurance policies................. 2,266,781 2,266,781
Financial liabilities:
Deposits.............................................. 78,733,938 79,372,565
Federal funds purchased............................... 2,360,000 2,360,000
Note payable to FHLB.................................. 2,000,000 2,000,000
</TABLE>
36
<PAGE> 39
FIRST BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary presents the methods and assumptions used by the
Company to estimate the fair values of financial instruments. The Company
operates as a going concern and except for its investment securities portfolio
and certain residential loans, no active market exists for its financial
instruments. Much of the information used to determine fair values is highly
subjective and judgmental in nature and therefore the results may not be
precise. The subjective factors include, among other things, estimates of cash
flows, risk characteristics, credit quality, and interest rates, all of which
are subject to change. Since the fair value is estimated at December 31, 1996,
the amounts which will actually be realized or paid upon settlement or maturity
of the various instruments could be significantly different.
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD The carrying amounts
approximate their fair value.
INVESTMENT SECURITIES HELD FOR SALE Fair values for securities, excluding
restricted equity securities, are based on quoted market prices.
LOANS For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for certain mortgage loans, credit card loans, and other consumer
loans are based on quoted market prices of similar loans, adjusted for
differences in loan characteristics. Fair values for commercial real estate and
commercial loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans, when present, are
estimated using discounted cash flow analyses or underlying collateral values,
where applicable.
CASH VALUE OF LIFE INSURANCE POLICIES Cash values of life insurance
policies are carried at the value for which such policies may be redeemed for
cash.
DEPOSITS The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date. The carrying
amounts of variable-rate, fixed term money market accounts and certificates of
deposit (CD's) approximate their fair values at the reporting date. Fair values
for fixed-rate CD's are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of
aggregated monthly maturities on time deposits.
FEDERAL FUNDS PURCHASED AND NOTE PAYABLE TO FHLB The carrying amounts of
federal funds purchased and note payable to FHLB approximate their fair values.
37
<PAGE> 40
To the Board of Directors and Stockholders
First Bankshares, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of First
Bankshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements for the year
ended December 31, 1994 were audited by other auditors whose report dated March
10, 1995 expressed an unqualified opinion on those financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Bankshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
PORTER KEADLE MOORE, LLP
/s/ PORTER KEADLE MOORE, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
February 7, 1997
38
<PAGE> 41
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 21, 1995, the Company dismissed KPMG Peat Marwick LLP
("KPMG"), the Company's principal independent accountants. This change in
accountants was first reported to the Commission by the Company on a Current
Report on Form 8-K filed in September 1995. The Company's Board of Directors
authorized the Company to pursue a change in auditors at a meeting held on
September 21, 1995. KPMG's reports on the Company's financial statements for the
three fiscal years in the period ended December 31, 1994, contained no adverse
opinion or disclaimer of opinion, nor were they modified as to uncertainty,
audit scope, or accounting principles, except that their reports included an
explanatory paragraph relating to changing certain accounting methods through
the adoption of new Statements of Financial Accounting Standards as follows:
As discussed in notes 1 and 8 to the consolidated financial
statements, the Company changed its method of accounting for income taxes
in 1993 to adopt the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Also as discussed in note 1
to the consolidated financial statements, the Company changed its method of
accounting for certain investments in debt and equity securities at
December 31, 1993, to adopt the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities.
For the three fiscal years in the period ended December 31, 1994, there
have been no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
During the three fiscal years ended December 31, 1994, no matters occurred which
are required to be described pursuant to Item 304(a)(1)(iv) of Regulation S-K
which, if not resolved to the satisfaction of KPMG, would have caused KPMG to
make reference to the matter in their reports.
The Company requested KPMG to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements, and a copy of
this letter was filed as an exhibit to the Current Report on Form 8-K filed by
the Company in September 1995. The Company has also provided KPMG with a copy of
this filing.
Effective September 21, 1995, the Company engaged Porter Keadle Moore, LLP
(successor to the practice of Evans, Porter, Bryan & Co.) as its new principal
independent accountants to audit the Company's financial statements. For the
three years in the period ended December 31, 1994, there have been no
consultations with Porter Keadle Moore, LLP with regard to either the
application of accounting principles as to any specific transaction, either
completed or proposed, the type of audit opinion that would be rendered on the
Company's financial statements, or any matter of disagreement with the Company's
former accountants.
39
<PAGE> 42
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The table below sets forth certain information about the directors of the
Company, including each person's age at December 31, 1996, position with the
Company, and position with the Bank.
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME AGE THE COMPANY THE BANK
---- --- -------------------------- --------------------------
<S> <C> <C> <C>
Richard W. Cheely......... 45 Director Director
James A. Eidson........... 44 Director Director
Ray E. Hannah............. 60 Director; Chairman Director; Chairman
of the Board of of the Board of
Directors Directors
James L. Lynn............. 56 Director Director
Cannis E. McLain.......... 65 Director Director
R. Elliott Miller......... 47 Director; President and Director and Chief
Chief Executive Officer Executive Officer
Richard G. Stilley........ 46 Director Director
Dr. Hugh Thompson......... 68 Director Director
Conrad Waller............. 59 Director; Vice Chairman Director; Vice
of the Board of Directors Chairman of the
Board of Directors
</TABLE>
40
<PAGE> 43
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK
The following table sets forth certain information with respect to the
directors and officers of the Company. Directors of the Company serve one year
terms until the next annual meeting of shareholders, and until their successors
are duly elected and qualified. Except as otherwise indicated, each person has
been or was engaged in his present position or last principal occupation, in the
same or a similar position, for more than five years.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD AND PRINCIPAL OCCUPATIONS
- ---- --- ---------------------------------------
<S> <C> <C>
Richard W. Cheely......................... 45 Mr. Cheely has been a director of the Bank since
1991 and the Company since its inception. He has
been Vice President of Cheely Motor Co. Inc. and
Compact Credit since 1975. These are automobile and
finance companies. He has served on various councils
and committees for Volkswagen of America and Subaru.
He is also a pilot for Northwest Airlines.
James A. Eidson........................... 44 Mr. Eidson has been a director of the Bank since
1988 and the Company since its inception. He is
President and a principal of the law firm of Eidson
and Associates, P.C. in Hapeville, Georgia. Mr.
Eidson was associated with the Atlanta law firm of
Powell, Goldstein, Frazer & Murphy prior to
resigning to become a partner in the firm of which
he is now president. Mr. Eidson is a member of the
State Bar of Georgia, the American Bar Association,
and the Atlanta Bar Association.
Ray E. Hannah............................. 60 Mr. Hannah has been a director of the Bank since
1988 and the Company since its inception. He
currently serves as Chairman of the Board of
Directors of both the Bank and the Company, and has
served in that capacity with the Bank since 1993. He
is President and Chief Executive Officer of Porex
Technologies Corporation of Georgia, having joined
this company in 1968. He is a director of Porex,
Porex Surgical, Porex Scientific, and Synetic, Inc.
He is a principal in Southern Crescent Mortgage &
Investment Corp. and serves as Chairman of the
Board. He has served as a director of the Health
Industry Manufacturers Association and is director
and former chairman of the Writing Instrument
Manufacturers Association.
James L. Lynn............................. 56 Mr. Lynn has been a director of the Bank since 1988
and the Company since its inception. He currently
serves as Chairman of the Bank's and the Company's
Executive Committee. Mr. Lynn has been the President
and owner of Central Builders Supply Company since
1967. Previously, Mr. Lynn was associated with Lee
Lumber Company.
Cannis E. McLain.......................... 65 Mr. McLain has been a director of the Bank since
1988 and the Company since its inception. He is
owner and president of Mack's Auto Sales & Leasing,
Inc., an automobile brokerage firm which has
marketed new automobiles to authorized dealers
through the United States since 1958. Previously Mr.
McLain had been associated with two major automobile
dealers in the Atlanta area.
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C> <C>
R. Elliott Miller......................... 47 Mr. Miller has been a director of the Bank and the
Company since 1994. He presently serves as President
and CEO of the Company, and CEO of the Bank, and has
served in this capacity since joining the Company in
1994. Prior to joining the Company, Mr. Miller
served as Chairman of the Board and CEO of Merchant
Bank Corp. and President of The Merchant Bank of
Atlanta. Mr. Miller is a graduate of Georgia Tech
and the University of Virginia Darden School
Executive Program. He currently serves on the
Advisory Board of Directors of The School of
Management at Georgia Tech, The Atlanta Venture
Forum, and The Advisory Board of Directors of the
DuPree Center for Entrepreneurship and New Venture
Development at Georgia Tech. He is also a director
of Industrial Distribution Group, Inc. and Merchant
Capital Advisors.
Richard G. Stilley........................ 46 Mr. Stilley has been a director of the Bank since
1991 and the Company since its inception. He is the
general manager of Howard L. Carmichael & Sons
Funeral Home in East Point, Georgia, and has been
associated with this business since 1974. Mr.
Stilley is a member of both the Georgia and the
National Funeral Director Associations.
C.T. Segers............................... 52 Mr. Segers has been a director of the Bank since
1994. He currently serves as the President and Chief
Operating Officer of the Bank. He has been employed
by the Bank since 1990, and prior to that time had
been continuously employed in banking at various
regional banks since 1964.
Dr. Hugh Thompson......................... 68 Dr. Thompson has been a director of the Bank since
1992 and the Company since its inception. He is a
retired orthopedic surgeon.
Conrad Waller............................. 59 Mr. Waller has been a director of the Bank since
1988 and the Company since its inception, and
currently serves as the Vice Chairman of both the
Bank and the Company. Mr. Waller is the President
and a principal of Schjonning & Waller Custom
Furniture Company, East Point, Georgia and has been
with this company since it was founded in 1965.
Schjonning & Waller is a manufacturer of custom
furniture and fixtures for bank interiors.
</TABLE>
42
<PAGE> 45
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth for the fiscal years ended December 31,
1996, 1995, and 1994, the cash compensation paid or accrued by the Company and
the Bank, as well as certain other compensation paid or accrued for those years,
for services in all capacities to R. Elliott Miller, the Chief Executive Officer
of the Company and the Bank, and C.T. Segers, who is the President and Chief
Operating Officer of the Bank. No executive officer of the Company or the Bank
other than Mr. Miller and Mr. Segers earned total compensation, including salary
and bonus for the fiscal year ended December 31, 1996, in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
---------- PAYOUTS
ANNUAL COMPENSATION OTHER SECURITIES ---------------
--------------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION(4)
--------------------------- ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Elliott Miller(1) 1996 $125,000 $75,000 (3) -- $19,635
President and Chief 1995 $125,000 $13,000 (3) -- $12,735
Executive Officer 1994 $ 31,250 $ 4,000 (3) 55,000 --
C.T. Segers(2) 1996 $ 90,000 $14,500 $5,400(5) -- $23,599
President and Chief 1995 $ 90,000 $13,000 $5,400(5) -- $21,478
Operating Officer 1994 $ 90,000 $12,000 -- -- $11,239
First Bank of Georgia
</TABLE>
- ---------------
(1) Mr. Miller began his employment with the Company on October 1, 1994, and,
therefore, his compensation for the 1994 period only reflects the last three
months of the fiscal year. Mr. Miller receives his compensation from the
Bank.
(2) Mr. Segers served as the President of the Company during its initial
formation. He received all of his compensation for all of the above periods
from the Bank.
(3) Information with respect to certain perquisites and other personal benefits
has been omitted because the aggregate value of such items does not meet the
minimum amount required for disclosure under SEC regulations.
(4) Reflects payments made by the Company under the officer's Salary
Continuation Agreement. See Salary Continuation Retirement Plan. The amount
of retirement benefits allocated under the Salary Continuation Agreements
was $12,735 in 1996, $12,735 in 1995 and $0 in 1994 for Mr. Miller and
$18,440 in 1996, $18,440 in 1995 and $7,784 in 1994 for Mr. Segers. The
above amounts also reflect matching contributions made by the Company under
its 401(k) plan for (a) Mr. Miller in 1996 totaling $6,900 and (b) for Mr.
Segers in 1996, 1995, and 1994 totalling $5,159, $3,038 and $3,455,
respectively.
(5) Amount represents car allowance.
OPTION EXERCISES AND HOLDINGS
The following table shows the grants of stock options to the named
executive officers under the Company's Stock Option Plan during the fiscal year
ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR BASE PRICE DATE
- ---- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
C.T. Segers....................................... 2,000 11.4% $13.00 8/15/2006
</TABLE>
43
<PAGE> 46
The following table summarizes for each of the named executive officers the
number of stock options, if any, exercised during the year ended December 31,
1996, the aggregate dollar value realized upon exercise, the total number of
unexercised options held at December 31, 1996, and the aggregate dollar value of
in-the-money, unexercised options held at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END
ON VALUE (#) EXERCISABLE/ ($) EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- ----------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
R. Elliott Miller..................... 7,322 $45,725.89 25,678/22,000 $227,764/$195,140
C.T. Segers........................... 0 0 6,500/4,500 $44,175/$43,145
</TABLE>
- ---------------
(1) Based on $15.25 per share, the last reported sales price of the Common Stock
prior to December 31, 1996, on the Nasdaq SmallCap Market. Mr. Miller has
options to acquire 47,678 shares at $6.38 per share, of which options for
25,678 shares are currently exercisable. Mr. Segers has options to acquire
4,000 shares at $5.00 per share, of which options for 3,500 shares are
currently exercisable, and options to acquire 5,000 shares at $6.87 per
share, of which options for 1,000 shares are currently exercisable, and
options to acquire 2,000 shares at $13.00 per share, none of which is
exercisable.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation for their services as
directors. Directors of the Bank, exclusive of executive officers, receive
compensation at the rate of $400 for attendance of each regularly scheduled
board meeting, $250 for attendance of each regularly scheduled loan committee
meeting, and $200 for attendance of each regularly scheduled other committee
meeting. The directors of the Bank and the Company that are also executive
officers and that receive compensation for services provided to the Bank or
Company do not receive compensation as directors.
On January 18, 1996, the Bank's Board of Directors adopted the First Bank
of Georgia Director's Indexed Fee Continuation Program (the "Director Program"),
which replaced the Directors Defined Benefit Plan.
Under the Director Program, each nonemployee member of the Bank's Board of
Directors has entered into an individual agreement with the Bank (individually,
a "Director Agreement"). Pursuant to the terms of each Director Agreement, a
nonemployee director is promised a retirement benefit the amount of which is
measured by the after-tax income generated by one or more identified insurance
policies on the life of the director, reduced by a cost of funds expense. Under
the terms of a Director Agreement, the Bank may, but is not obligated, to
purchase the insurance contract(s) which serve as the model for determining a
director's retirement benefit. The Bank has purchased insurance contract(s) for
the Director Agreements. The retirement benefit becomes payable when the
director retires after attaining age 65. The benefits earned are payable over
ten years and, during the pay-out period, the director continues to receive
benefit credits attributable to after-tax income generated by the life insurance
policy(ies) over that ten-year period. If a director retires before attaining
age 65 other than a termination effected pursuant to a change in control, a
portion of the benefits accrued is payable equal to the product of (i) the full
benefits accrued multiplied by (ii) a percentage which is equal to the
director's years of service multiplied by a factor of 10. If a director is
terminated for cause, the retirement benefits are forfeited.
Each Director Agreement also allows a director to defer all or a portion of
his director fees. Such deferred amounts are credited with interest at an annual
rate equal to the greater of 10% or 200% of the one-year Treasury rate. These
amounts are payable upon a director's termination of employment in ten annual
44
<PAGE> 47
installments with interest on the outstanding unpaid balance during the
installment period credited at a rate of 7% per annum.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In October 1994, R. Elliott Miller and the Bank executed an employment
agreement which continues for a period of three years from October 1, 1994,
unless terminated. After the completion of the initial three-year term, the
agreement will automatically renew for a period of two years unless 60 days'
prior notice is given by either party of intent not to renew. According to the
terms of the employment agreement, Mr. Miller will receive an annual base salary
of $125,000 and benefits, including, but not limited to, individual contributory
health insurance at the same contributory rate as all other employees of the
Company, term life insurance policy, personal disability insurance, an
automobile, initiation fees, and monthly dues at one business club, and monthly
fees at one country club. Pursuant to the agreement, Mr. Miller was granted an
option to purchase 55,000 shares of the Company's common stock pursuant to the
terms of the Company's stock option plan. Mr. Miller shall also be promptly
reimbursed for all authorized expenses properly incurred by him on behalf of the
Company and its affiliates. The employment agreement provides for incentive
bonus compensation if, during each calendar year, the Bank meets certain
performance objectives as determined by the Board of Directors or Compensation
Committee of the Board. In the event of a change of control as defined in the
agreement, Mr. Miller shall be entitled for one year from the date of closing of
such transaction effecting the change in control to give written notice of the
termination of the employment agreement and to receive a lump-sum payment of two
times his annual salary.
In October 1993, C.T. Segers and the Bank executed an employment agreement
which had an initial term of two years from October 1, 1993. After the
completion of the initial two years, the agreement automatically renewed for a
period of two additional years, and will continue to renew automatically for
subsequent two-year periods unless 60 days' prior notice is given by either
party of intent not to renew, provided however, if the agreement is not renewed,
the agreement shall continue on a month-to-month basis terminable by either
party on a 30-day prior notice. According to the terms of the agreement, Mr.
Segers will receive an annual base salary of $90,000, and such other benefits
which are generally offered to other bank personnel. In addition, the Bank shall
also provide an automobile expense allowance not to exceed $450 per month. The
employment agreement provides for incentive bonus compensation if, during each
calendar year, the Bank meets certain performance objectives as determined by
the Board of Directors or Compensation Committee of the Board. In the event of a
change of control as defined in the agreement, Mr. Segers shall be entitled for
one year from the date of closing of such transaction effecting the change in
control to give written notice of the termination of the employment agreement
and to receive a lump-sum payment of two times his annual salary.
SALARY CONTINUATION RETIREMENT PLAN
On May 19, 1994, the Bank's Board of Directors adopted a Salary
Continuation Retirement Plan pursuant to which certain of the Bank's executives
are to receive retirement benefits. The benefits to be provided are governed by
an Executive Salary Continuation Agreement (the "Salary Continuation Agreement")
between the executive and the Bank. Mr. Miller entered into a Salary
Continuation Agreement with the Bank on February 1, 1995. Mr. Segers entered
into a Salary Continuation Agreement with the Bank on May 31, 1994. The Bank has
also entered into Salary Continuation Agreements with other Bank executives. The
following is a summary of the material terms of the Salary Continuation
Agreements.
The Salary Continuation Agreements provide that if an executive remains
continuously employed by the Bank, he will retire on the December 31st nearest
his 65th birthday. Commencing with the following month and continuing for a
period of 180 months, the Bank will pay retirement benefits and a postretirement
death benefit to the executive (or his designated beneficiary) in an annual
amount equal to 50% of the executive's annual salary immediately prior to
retirement. If the executive should die before the expiration of the 180-month
period, the benefit for the remaining portion of the 180-month period would be
paid to his designated beneficiary. The Salary Continuation Agreements also
provide for payments to the executive's designated beneficiary if the executive
dies while actively employed but prior to attaining age 65. The retirement
benefits
45
<PAGE> 48
under these agreements vest (although they do not become payable until the
executive's retirement or death) at the rate of 20% per year commencing at the
date of the executive's original employment with the Bank, except that if there
is a change in control of the Bank or Company (as defined in the Salary
Continuation Agreement), the executive will become fully vested.
If the executive or the Bank terminates the executive's employment from the
Bank (other than for cause, as defined in the Salary Continuation Agreement, in
which case all benefits will be forfeited), the Bank shall pay the executive a
severance benefit equal to the accrued balance of the liability reserve account
established with respect to that executive. The severance benefit is to be paid
over 180 months. The Salary Continuation Agreements also provide that the Bank
will not merge or consolidate with any other company or organization or permit
its business activities to be taken over by any other organization unless the
new entity acknowledges its obligation under the Salary Continuation Agreement
and agrees to abide by its terms.
The Salary Continuation Agreements provide that the Bank reserves the right
to either fund or refrain from funding its obligations thereunder. The Bank has
provided for the funding of the Salary Continuation Agreements through
investments in life insurance policies with the exception of the Salary
Continuation Agreement with Geraldine H. Hall which is not funded. See note 11
to the consolidated financial statements at Item 7 herein. The Salary
Continuation Agreements also provide that the payment of benefits thereunder is
contingent upon the executive not competing with the Bank.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires (i) the
Company's directors and executive officers and (ii) persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission (the "SEC"), within certain specified time
periods, reports of ownership and changes in ownership. Such officers,
directors, and shareholders are required by SEC regulations to furnish the
Company with copies of all such reports that they file.
To the Company's knowledge, based solely upon a review of copies of such
reports furnished to the Company and representations that no other reports were
required with respect to the year ended December 31, 1996, all persons subject
to the reporting requirements of Section 16(a) filed the required reports on a
timely basis with respect to 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Company's common stock
as of March 14, 1997, by each named executive officer, by each director, by
directors and executive officers as a group, and by each person known to the
Company to own beneficially more than 5% of such common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) CLASS OF PERCENT(3)
- --------------------------- --------------------- -------------------
<S> <C> <C>
James L. Lynn.............................................. 75,000(4) 7.13%
Richard W. Cheely.......................................... 16,320(5) 1.55
James A. Eidson............................................ 50,000 4.75
Ray E. Hannah.............................................. 53,100(6) 5.04
Cannis E. McLain........................................... 50,000(7) 4.75
R. Elliott Miller.......................................... 33,000(8) 3.06
Richard G. Stilley......................................... 31,500(9) 2.99
Dr. Hugh Thompson.......................................... 20,000 1.90
Conrad M. Waller........................................... 24,000(10) 2.28
C.T. Segers................................................ 8,600(11) *
All Directors and Executive Officers as a group (10
persons)................................................. 361,520 33.39
</TABLE>
- ---------------
* An asterisk indicates beneficial ownership of less than 1%.
46
<PAGE> 49
(1) The address of each individual named in the table is as follows:
600 South Central Avenue
Hapeville, Georgia 30354
(2) Information relating to beneficial ownership of common stock is based upon
"beneficial ownership" concepts set forth in rules of the SEC under Section
13(d) of the Securities Exchange Act of 1934. Under these rules, person is
deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to dispose or to direct the
voting of such security, or "investment power," which includes the power to
dispose or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any security of which that person has
the right to acquire beneficial ownership within 60 days. Under the rules,
more than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he has no beneficial interest. For instance,
beneficial ownership includes spouse, minor children and other relatives
residing in the same household, and trusts, partnerships, and corporations
or deferred compensation plans which are affiliated with the principal.
(3) Percent is calculated by treating shares subject to options held by the
named individual for whom the percentage is calculated which are
exercisable within the next 60 days as if outstanding, but treating shares
subject to options held by others as not outstanding.
(4) Includes 25,000 shares of common stock held by Reliance Trust Company as
custodian for James L. Lynn IRA.
(5) Includes 3,240 shares of common stock owned by Mr. Cheely's minor child, 40
shares of stock owned by Linda Cheely, Mr. Cheely's wife.
(6) Includes 11,100 shares of common stock owned by Betty Hannah, Mr. Hannah's
wife.
(7) Incudes 30,000 shares of common stock owned jointly with Mr. McLain's wife,
Addie M. McLain, and 20,000 shares of common stock owned jointly with Mr.
McLain's son, Kenneth McLain.
(8) Includes 25,678 shares subject to stock options held by Mr. Miller which
are exercisable within 60 days.
(9) All of the 31,500 shares of common stock of Mr. Stilley are owned jointly
with his wife, Cathy C. Stilley.
(10) Includes 14,000 shares of common stock owned by Schjonning and Waller
Custom Furniture Company of which Mr. Waller is a principal.
(11) Includes 4,100 shares of common stock held by Reliance Trust Company as
custodian for Mr. Seger's individual retirement account and 4,500 shares
subject to stock options held by Mr. Segers which are exercisable within 60
days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no agreements in existence or anticipated between any director or
officer of the Bank or the Company relating to the premises, furnishings,
equipment, fixtures, or any other property or service of the Bank or the
Company. During 1996, certain directors and executive officers were indebted to
the Bank. This indebtedness resulted from loans made in the ordinary course of
business on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable transactions with
unrelated parties and did not involve more than the normal risk of
collectibility or present other unfavorable features.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<C> <S> <C>
2.1 -- Agreement and Plan of Merger, dated December 13, 1996,
between First Bankshares, Inc. and Regions Financial
Corporation
3.1 -- Articles of Incorporation(1)
3.2 -- Bylaws(1)
4.1 -- Provisions from the Company's Articles of Incorporation
defining the rights of the holders of the Company's common
stock(1)
</TABLE>
47
<PAGE> 50
10.1* -- Employment Agreement dated October 1, 1994, between the Bank
and R. Elliott Miller(2)
10.2* -- Employment Agreement dated October 1, 1993, between the Bank
and C.T. Segers(2)
10.3* -- 1989 Employee Stock Option Plan(1)
10.4* -- 1995 Stock Option Plan(2)
10.5* -- Resolution of the Bank's Board of Directors regarding the
Directors Defined Benefit Plan and Form of Directors Defined
Benefit Plan Agreement(2)
10.6* -- Resolution of the Bank's Board of Directors regarding the
Salary Continuation Retirement Plan and Form of Executive
Salary Continuation Agreement(2)
10.7 -- License Agreement dated March 13, 1996 between Riverside
Communications, Inc. and First Bankshares Mortgage and
Investment Corporation(3)
10.8 -- Lease dated November 15, 1995 between Eagle Springs
Properties and First Bank of Georgia(3)
10.9* -- First Bank of Georgia Director's Indexed Fee Continuation
Program and Form of Director Indexed Fee Continuation
Program Director Agreement
21.1 -- Subsidiaries of the Company(3)
23.1 -- Consent of Porter Keadle Moore, LLP
27 -- Financial Data Schedule (for SEC use only)
- ---------------
* Indicates management contract or compensatory plan or arrangement.
(1) Previously filed by the Company as Exhibits (with the same respective
Exhibit numbers as indicated herein) to the Company's Registration Statement
(Commission File Number 33-80598).
(2) Previously filed by the Company as Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994.
(3) Previously filed by the Company as Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of the year ended December 31, 1996.
48
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized March 20, 1997.
FIRST BANKSHARES, INC.
<TABLE>
<C> <C>
By: /s/ R. ELLIOTT MILLER By: /s/ GERALDINE R. HALL
-------------------------------------------------- --------------------------------------------------
R. Elliott Miller Geraldine R. Hall
President and Chief Executive Officer Chief Financial Officer and Treasurer
</TABLE>
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints R. Elliott Miller and Geraldine R. Hall, and each
of them, for him in his name, place and stead, in any and all capacities, to
sign any amendments to this Report on Form 10-KSB, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratifies and confirms all that
each of these attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAY E. HANNAH Director March 20, 1997
- -----------------------------------------------------
Ray E. Hannah
/s/ CONRAD M. WALLER Director March 20, 1997
- -----------------------------------------------------
Conrad M. Waller
/s/ RICHARD W. CHEELY Director March 20, 1997
- -----------------------------------------------------
Richard W. Cheely
/s/ JAMES A. EIDSON Director March 20, 1997
- -----------------------------------------------------
James A. Eidson
/s/ JAMES L. LYNN Director March 20, 1997
- -----------------------------------------------------
James L. Lynn
/s/ CANNIS E. MCLAIN Director March 20, 1997
- -----------------------------------------------------
Cannis E. McLain
/s/ RICHARD G. STILLEY Director March 20, 1997
- -----------------------------------------------------
Richard G. Stilley
/s/ HUGH THOMPSON, M.D. Director March 20, 1997
- -----------------------------------------------------
Hugh Thompson, M.D
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ R. ELLIOTT MILLER President and Chief Executive March 20, 1997
- ----------------------------------------------------- Officer (Principal Executive
R. Elliott Miller Officer)
/s/ GERALDINE R. HALL Chief Financial Officer and March 20, 1997
- ----------------------------------------------------- Treasurer (Principal
Geraldine R. Hall Financial and Accounting
Officer)
</TABLE>
50
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Merger, dated December 13, 1996,
between First Bankshares, Inc. and Regions Financial
Corporation
3.1 -- Articles of Incorporation(1)................................ N/A
3.2 -- Bylaws(1)................................................... N/A
4.1 -- Provisions from the Company's Articles of Incorporation N/A
defining the rights of the holders of the Company's common
stock(1)....................................................
10.1* -- Employment Agreement dated October 1, 1994, between the Bank N/A
and R. Elliott Miller(2)....................................
10.2* -- Employment Agreement dated October 1, 1993, between the Bank N/A
and C.T. Segers(2)..........................................
10.3* -- 1989 Employee Stock Option Plan(1).......................... N/A
10.4* -- 1995 Stock Option Plan(2)................................... N/A
10.5* -- Resolution of the Bank's Board of Directors regarding the N/A
Directors Defined Benefit Plan and Form of Directors Defined
Benefit Plan Agreement(2)...................................
10.6* -- Resolution of the Bank's Board of Directors regarding the N/A
Salary Continuation Retirement Plan and Form of Executive
Salary Continuation Agreement(2)............................
10.7 -- License Agreement dated March 13, 1996 between Riverside N/A
Communications, Inc. and First Bankshares Mortgage and
Investment Corporation(3)...................................
10.8 -- Lease dated November 15, 1995 between Eagle Springs N/A
Properties and First Bank of Georgia(3).....................
10.9* -- First Bank of Georgia Director's Indexed Fee Continuation
Program and Form of Director Indexed Fee Continuation
Program Director Agreement
21.1 -- Subsidiaries of the Company(3).............................. N/A
23.1 -- Consent of Porter Keadle Moore, LLP
27. -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Indicates management contract or compensatory plan or arrangement.
(1) Previously filed by the Company as Exhibits (with the same respective
Exhibit numbers as indicated herein) to the Company's Registration Statement
(Commission File Number 33-80598).
(2) Previously filed by the Company as Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994.
(3) Previously filed by the Company as Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.
<PAGE> 1
EXHIBIT 2.1
FINAL AGREEMENT
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FIRST BANKSHARES, INC.
AND
REGIONS FINANCIAL CORPORATION
DATED AS OF DECEMBER 13, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Parties................................................................ 1
Preamble............................................................... 1
ARTICLE ONE -- TRANSACTIONS AND TERMS OF MERGER........................ 1
1.1 Merger...................................................... 1
1.2 Time and Place of Closing................................... 1
1.3 Effective Time.............................................. 2
ARTICLE TWO -- TERMS OF MERGER......................................... 2
2.1 Certificate of Incorporation................................ 2
2.2 Bylaws...................................................... 2
2.3 Directors and Officers...................................... 2
ARTICLE THREE -- MANNER OF CONVERTING SHARES........................... 2
3.1 Conversion of Shares........................................ 2
3.2 Anti-Dilution Provisions.................................... 2
3.3 Shares Held by FBI or Regions............................... 2
3.4 Dissenting Stockholders..................................... 2
3.5 Fractional Shares........................................... 3
3.6 Conversion of Stock Options; Restricted Stock............... 3
ARTICLE FOUR -- EXCHANGE OF SHARES..................................... 3
4.1 Exchange Procedures......................................... 3
4.2 Rights of Former FBI Stockholders........................... 4
ARTICLE FIVE -- REPRESENTATIONS AND WARRANTIES OF FBI.................. 4
5.1 Organization, Standing...................................... 5
5.2 Authority; No Breach by Agreement........................... 5
5.3 Capital Stock............................................... 5
5.4 FBI Subsidiaries............................................ 5
5.5 Financial Statements........................................ 6
5.6 Absence of Undisclosed Liabilities.......................... 6
5.7 Absence of Certain Changes or Events........................ 6
5.8 Tax Matters................................................. 6
5.9 Assets...................................................... 7
5.10 Environmental Matters....................................... 7
5.11 Compliance With Laws........................................ 8
5.12 Labor Relations............................................. 9
5.13 Employee Benefit Plans...................................... 9
5.14 Material Contracts.......................................... 10
5.15 Legal Proceedings........................................... 11
5.16 Statements True and Correct................................. 11
5.17 Accounting.................................................. 11
5.18 State Takeover Laws......................................... 11
5.19 Articles of Incorporation Provisions........................ 11
5.20 Support Agreements.......................................... 12
5.21 Derivatives Contracts....................................... 12
ARTICLE SIX -- REPRESENTATIONS AND WARRANTIES OF REGIONS............... 12
6.1 Organization Standing and Power............................. 12
6.2 Authority; No Breach by Agreement........................... 12
6.3 Capital Stock............................................... 12
6.4 SEC Filings; Financial Statements........................... 13
6.5 Absence of Undisclosed Liabilities.......................... 13
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.6 Absence of Certain Changes or Events........................ 13
6.7 Compliance With Laws........................................ 13
6.8 Legal Proceedings........................................... 14
6.9 Statements True and Correct................................. 14
6.10 Accounting.................................................. 14
ARTICLE SEVEN -- CONDUCT OF BUSINESS PENDING CONSUMMATION.............. 14
7.1 Covenants of Both Parties................................... 14
7.2 Covenants of FBI............................................ 15
7.3 Covenants of Regions........................................ 16
7.4 Adverse Changes in Condition................................ 16
7.5 Reports..................................................... 16
ARTICLE EIGHT -- ADDITIONAL AGREEMENT.................................. 17
8.1 Registration Statement: Proxy Statement; Stockholder
Approval.................................................... 17
8.2 Nasdaq/NMS Listing.......................................... 17
8.3 Applications................................................ 17
8.4 Agreement as to Efforts to Consummate....................... 17
8.5 Investigation and Confidentiality........................... 17
8.6 Press Releases.............................................. 18
8.7 Certain Actions............................................. 18
8.8 Tax Matters................................................. 18
8.9 Agreement of Affiliates..................................... 18
8.10 Employee Benefits and Contracts............................. 19
8.11 Indemnification............................................. 19
8.12 State Takeover Laws......................................... 20
8.13 Articles of Incorporation Provisions........................ 20
ARTICLE NINE -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE...... 20
9.1 Conditions to Obligations of Each Party..................... 20
9.2 Conditions to Obligations of Regions........................ 21
9.3 Conditions to Obligations of FBI............................ 22
ARTICLE TEN -- TERMINATION............................................. 22
10.1 Termination................................................. 22
10.2 Effect of Termination....................................... 25
10.3 Non-Survival of Representations and Covenants............... 25
ARTICLE ELEVEN -- MISCELLANEOUS........................................ 25
11.1 Definitions................................................. 25
11.2 Expenses.................................................... 29
11.3 Brokers and Finders......................................... 29
11.4 Entire Agreement............................................ 30
11.5 Amendments.................................................. 30
11.6 Waivers..................................................... 30
11.7 Assignment.................................................. 30
11.8 Notices..................................................... 31
11.9 Governing Law............................................... 31
11.10 Counterparts................................................ 31
11.11 Captions.................................................... 31
11.12 Severability................................................ 31
Signatures............................................................. 32
</TABLE>
-ii-
<PAGE> 4
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1. Form of Support Agreement. (sec. 11.1).
2. Form of agreement of affiliates of FBI. (sec. 8.9).
3. Form of Claims Letter. (sec. 9.2).
4. Form of Opinion Letter of FBI's Counsel. (sec. 9.2).
5. Form of Opinion Letter of Regions' Counsel. (sec. 9.3).
</TABLE>
-iii-
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of December 13, 1996, by and between FIRST BANKSHARES, INC. ("FBI"), a
corporation organized and existing under the laws of the State of Georgia, with
its principal office located in East Point, Georgia, and REGIONS FINANCIAL
CORPORATION ("Regions"), a corporation organized and existing under the laws of
the State of Delaware, with its principal office located in Birmingham, Alabama.
PREAMBLE
The Boards of Directors of FBI and Regions are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective stockholders. This Agreement provides for the acquisition of FBI by
Regions pursuant to the merger of FBI into and with Regions. At the effective
time of such merger, the outstanding shares of the capital stock of FBI shall be
converted into shares of the common stock of Regions (except as provided
herein). As a result, stockholders of FBI shall become stockholders of Regions
and each of the subsidiaries of FBI shall continue to conduct its business and
operations as a wholly owned subsidiary of Regions. The transactions described
in this Agreement are subject to the approvals of the stockholders of FBI, the
Board of Governors of the Federal Reserve System, and the appropriate state
regulatory authorities and the satisfaction of certain other conditions
described in this Agreement. It is the intention of the parties to this
Agreement that the merger (i) for federal income tax purposes shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code and (ii) for accounting purposes shall be accounted for as a "pooling of
interests."
As a condition and inducement to Regions' willingness to consummate the
transactions contemplated by this Agreement, prior to the execution of this
Agreement, each of FBI's directors will execute and deliver to Regions an
agreement (a "Support Agreement"), in substantially the form of Exhibit 1 to
this Agreement.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
ARTICLE ONE
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, FBI shall be merged into and with Regions in accordance with the
provisions of Sections 14-2-1103 and 14-2-1107 of the GBCC and with the effect
provided in Section 14-2-1106 of the GBCC and of Section 258 of the DGCL and
with the effect provided in Section 259 of the DGCL (the "Merger"). Regions
shall be the Surviving Corporation of the Merger and shall continue to be
governed by the Laws of the State of Delaware. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
the Boards of Directors of FBI and Regions.
1.2 Time and Place of Closing. The Closing will take place at 9:00 A.M. on
the date that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their duly authorized officers, may mutually agree. The place of
Closing shall be at the offices of Regions, or such other place as may be
mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Georgia
Certificate of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Georgia and the Delaware Certificate of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of Delaware (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the duly
authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time
1
<PAGE> 6
to occur on the last day of the month in which occurs the last to occur of (i)
the effective date (including expiration of any applicable waiting period) of
the last required Consent of any Regulatory Authority having authority over and
approving or exempting the Merger, and (ii) the date on which the stockholders
of FBI approve this Agreement to the extent such approval is required by
applicable Law.
ARTICLE TWO
TERMS OF MERGER
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Regions 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.
2.2 Bylaws. The Bylaws of Regions 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.
2.3 Directors and Officers. The directors of Regions in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the directors of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation. The officers of Regions in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of the Surviving Corporation from and after
the Effective Time in accordance with the Bylaws of the Surviving Corporation.
ARTICLE THREE
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of the holders thereof, the shares of the constituent corporations shall be
converted as follows:
(a) Each share of Regions Common 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 FBI Common Stock (excluding shares held by FBI or
any of its Subsidiaries or by Regions or any of its Subsidiaries, in each
case other than in a fiduciary capacity or as a result of debts previously
contracted) issued and outstanding at the Effective Time shall be converted
into .32 of a share of Regions Common Stock, subject to adjustment as
provided in Section 10.1 (h) of this Agreement (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event FBI changes the number of
shares of FBI 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, the Exchange Ratio shall be proportionately adjusted. In
the event Regions changes the number of shares of Regions 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 Exchange
Ratio shall be proportionately adjusted.
3.3 Shares Held by FBI or Regions. Each of the shares of FBI Common Stock
held by any FBI Company or by any Regions Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.4 Dissenting Stockholders. Any holder of shares of FBI Common Stock who
perfects such holder's dissenters' rights of appraisal in accordance with and as
contemplated by Sections 14-2-1301 et seq. of the GBCC shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of
2
<PAGE> 7
Law; provided, however, that no such payment shall be made to any dissenting
stockholder unless and until such dissenting stockholder has complied with the
applicable provisions of the GBCC and surrendered to FBI the certificate or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting stockholder of FBI fails to
perfect, or effectively withdraws or loses, such holder's right to appraisal and
of payment for such holder's shares, Regions shall issue and deliver the
consideration to which such holder of shares of FBI Common Stock is entitled
under this Article Three (without interest) upon surrender by such holder of the
certificate or certificates representing shares of FBI Common Stock held by such
holder. FBI will establish an escrow account with an amount sufficient to
satisfy the maximum aggregate payment that may be required to be paid to
dissenting stockholders. Upon satisfaction of all claims of dissenting
stockholders, the remaining escrowed amount, reduced by payment of the fees and
expenses of the escrow agent, will be returned to FBI.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of FBI Common Stock exchanged pursuant to the
Merger, or of options to purchase shares of FBI Common Stock, who would
otherwise have been entitled to receive a fraction of a share of Regions 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 Regions Common Stock multiplied by the market
value of one share of Regions Common Stock at the Effective Time, in the case of
shares exchanged pursuant to the Merger, or the date of exercise, in the case of
options. The market value of one share of Regions Common Stock at the Effective
Time or the date of exercise, as the case may be, shall be the last sale price
of such common stock on the Nasdaq/NMS (as reported by The Wall Street Journal
or, if not reported thereby, any other authoritative source) on the last trading
day preceding the Effective Time, in the case of shares exchanged pursuant to
the Merger, and the date of exercise, in the case of options. No such holder
will be entitled to dividends, voting rights, or any other rights as a
stockholder in respect of any fractional shares.
3.6 Conversion of Stock Options; Restricted Stock. (a) At the Effective
Time, all rights with respect to FBI Common Stock pursuant to stock options or
stock appreciation rights ("FBI Options") granted by FBI under the FBI Stock
Plans, which are outstanding at the Effective Time, whether or not exercisable,
shall be converted into and become rights with respect to Regions Common Stock,
and Regions shall assume each FBI Option, in accordance with the terms of the
FBI Stock Plan and stock option agreement by which it is evidenced. From and
after the Effective Time, (i) each FBI Option assumed by Regions may be
exercised solely for shares of Regions Common Stock (or cash in the case of
stock appreciation rights), (ii) the number of shares of Regions Common Stock
subject to such FBI Option shall be equal to the number of shares of FBI Common
Stock subject to such FBI Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, and (iii) the per share exercise price under
each such FBI Option shall be adjusted by dividing the per share exercise price
under each such FBI Option by the Exchange Ratio and rounding down to the
nearest cent. It is intended that the foregoing assumption shall be undertaken
in a manner that will not constitute a "modification" as defined in Section 424
of the Internal Revenue Code, as to any stock option which is an "incentive
stock option." FBI agrees to take all necessary steps to effectuate the
foregoing provisions of this Section 3.6.
(b) All restrictions or limitations on transfer with respect to FBI Common
Stock awarded under the FBI Stock Plans or any other plan, program, or
arrangement of any FBI Company, to the extent that such restrictions or
limitations shall not have already lapsed, and except as otherwise expressly
provided in such plan, program, or arrangement, shall remain in full force and
effect with respect to shares of Regions Common Stock into which such restricted
stock is converted pursuant to Section 3.1 of this Agreement.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, Regions shall
cause the exchange agent selected by Regions (the "Exchange Agent") to mail to
the former stockholders of FBI appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of FBI Common Stock shall pass,
only upon proper delivery of such
3
<PAGE> 8
certificates to the Exchange Agent). After the Effective Time, each holder of
shares of FBI Common Stock (other than shares to be canceled pursuant to Section
3.3 of this Agreement) 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 3.1 of this Agreement, together
with all undelivered dividends or distributions in respect of such shares
(without interest thereon) pursuant to Section 4.2 of this Agreement. To the
extent required by Section 3.5 of this Agreement, each holder of shares of FBI
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 Regions Common Stock to which such holder may
be otherwise entitled (without interest). Regions shall not be obligated to
deliver the consideration to which any former holder of FBI Common Stock is
entitled as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of FBI Common Stock for
exchange as provided in this Section 4.1. The certificate or certificates of FBI
Common Stock so surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding, neither Regions,
FBI, nor the Exchange Agent shall be liable to a holder of FBI Common Stock for
any amounts paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property Law.
4.2 Rights of Former FBI Stockholders. At the Effective Time, the stock
transfer books of FBI shall be closed as to holders of FBI Common Stock
immediately prior to the Effective Time, and no transfer of FBI Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1 of this Agreement,
each certificate theretofore representing shares of FBI Common Stock (other than
shares to be canceled pursuant to Section 3.3 of this Agreement or as to which
the holder thereof has perfected dissenters' rights of appraisal as contemplated
by Section 3.4 of this Agreement) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Sections 3.1 and 3.5 of this Agreement in exchange therefor. To the extent
permitted by Law, former stockholders of record of FBI shall be entitled to vote
after the Effective Time at any meeting of Regions stockholders the number of
whole shares of Regions Common Stock into which their respective shares of FBI
Common Stock are converted, regardless of whether such holders have exchanged
their certificates representing FBI Common Stock for certificates representing
Regions Common Stock in accordance with the provisions of this Agreement.
Whenever a dividend or other distribution is declared by Regions on the Regions
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 of
Regions Common Stock issuable pursuant to this Agreement, but no dividend or
other distribution payable to the holders of record of Regions Common Stock as
of any time subsequent to the Effective Time shall be delivered to the holder of
any certificate representing shares of FBI Common Stock issued and outstanding
at the Effective Time until such holder surrenders such certificate for exchange
as provided in Section 4.1 of this Agreement. However, upon surrender of such
FBI Common Stock certificate, both the Regions Common Stock certificate
(together with all such undelivered dividends or other distributions without
interest) and any undelivered 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.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF FBI
FBI hereby represents and warrants to Regions as follows:
5.1 Organization, Standing and Power. FBI is a corporation duly organized,
validly existing, and in good standing under the Laws of the State of Georgia,
and has the corporate power and authority to carry on its business as now
conducted and to own, lease, and operate its Assets. FBI is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FBI.
4
<PAGE> 9
5.2 Authority; No Breach by Agreement. (a) FBI has the corporate power and
authority necessary to execute, deliver, and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby, subject to the
approval of this Agreement by the holders of a majority of the outstanding
shares of FBI Common Stock. The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been or will be duly and validly authorized by all
necessary corporate action in respect thereof on the part of FBI, subject to the
approval of this Agreement by the holders of a majority of the outstanding
shares of FBI Common Stock. Subject to such requisite approval, this Agreement
represents a legal, valid, and binding obligation of FBI, enforceable against
FBI in accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by FBI, nor the
consummation by FBI of the transactions contemplated hereby, nor compliance by
FBI with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of FBI's Articles of Incorporation or Bylaws, or (ii)
except as disclosed in Section 5.2(b) of the FBI Disclosure Memorandum,
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any FBI Company under, any
Contract or Permit of any FBI Company, or (iii) subject to receipt of the
requisite approvals referred to in Section 9.1(b) of this Agreement, violate any
Law or Order applicable to any FBI Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings, or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI, no notice to, filing with, or Consent of, any
public body or authority is necessary for the consummation by FBI of the Merger
and the other transactions contemplated in this Agreement.
5.3 Capital Stock. (a) The authorized capital stock of FBI consists of
10,000,000 shares of FBI Common Stock, of which 1,052,462 shares are issued and
outstanding as of the date of this Agreement and not more than 1,144,140 shares
will be issued and outstanding at the Effective Time. All of the issued and
outstanding shares of FBI Common Stock are duly and validly issued and
outstanding and are fully paid and nonassessable. None of the outstanding shares
of FBI Common Stock has been issued in violation of any preemptive rights of the
current or past stockholders of FBI. FBI has reserved 160,000 shares of FBI
Common Stock for issuance under the FBI Stock Plans, pursuant to which options
to purchase not more than 91,678 shares of FBI Common Stock are outstanding.
(b) Except as set forth in Section 5.3(a) of this Agreement, there are no
shares of capital stock or other equity securities of FBI outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls, or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of FBI or
contracts, commitments, understandings, or arrangements by which FBI is or may
be bound to issue additional shares of FBI capital stock or options, warrants,
or rights to purchase or acquire any additional shares of its capital stock.
5.4 FBI Subsidiaries. FBI has disclosed in Section 5.4 of the FBI
Disclosure Memorandum all of the FBI Subsidiaries as of the date of this
Agreement. Except as disclosed, FBI or one of its Subsidiaries owns all of the
issued and outstanding shares of capital stock of each FBI Subsidiary. No equity
securities of any FBI Subsidiary are or may become required to be issued (other
than to a FBI Company) by reason of any options, warrants, scrip, rights to
subscribe to, calls, or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the capital
stock of any such Subsidiary, and there are no Contracts by which any FBI
Subsidiary is bound to issue (other than to a FBI Company) additional shares of
its capital stock or options, warrants, or rights to purchase or acquire any
additional shares
5
<PAGE> 10
of its capital stock or by which any FBI Company is or may be bound to transfer
any shares of the capital stock of any FBI Subsidiary (other than to a FBI
Company). There are no Contracts relating to the rights of any FBI Company to
vote or to dispose of any shares of the capital stock of any FBI Subsidiary. All
of the shares of capital stock of each FBI Subsidiary held by a FBI Company are
duly authorized, validly issued, and fully paid and nonassessable (except
pursuant to 12 U.S.C. Section 55 in the case of national banks and comparable,
applicable state Law, if any, in the case of state depository institutions)
under the applicable corporation Law of the jurisdiction in which such
Subsidiary is incorporated or organized and are owned by the FBI Company free
and clear of any Lien. Each FBI Subsidiary is a corporation, and is duly
organized, validly existing, and in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease, and operate its Assets and
to carry on its business as now conducted. Each FBI Subsidiary is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FBI. Each FBI Subsidiary that is a
depository institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder, and the deposits in
which are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund, as appropriate.
5.5 Financial Statements. FBI has disclosed in Section 5.5 of the FBI
Disclosure Memorandum, and has delivered to Regions copies of, all FBI Financial
Statements prepared for periods ended prior to the date hereof and will deliver
to Regions copies of all FBI Financial Statements prepared subsequent to the
date hereof. The FBI Financial Statements (as of the dates thereof and for the
periods covered thereby) (i) are or, if dated after the date of this Agreement,
will be in accordance with the books and records of the FBI Companies, which are
or will be, as the case may be, complete and correct and which have been or will
have been, as the case may be, maintained in accordance with good business
practices, and (ii) present or will present, as the case may be, fairly the
consolidated financial position of the FBI Companies as of the dates indicated
and the consolidated results of operations, changes in stockholders' equity, and
cash flows of the FBI Companies for the periods indicated, in accordance with
GAAP (subject to any exceptions as to consistency specified therein or as may be
indicated in the notes thereto or, in the case of interim financial statements,
to normal recurring year-end adjustments that are not material).
5.6 Absence of Undisclosed Liabilities. No FBI Company has any Liabilities
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI, except Liabilities which are accrued or reserved against
in the consolidated balance sheets of FBI as of September 30, 1996 included in
the FBI Financial Statements or reflected in the notes thereto. No FBI Company
has incurred or paid any Liability since September 30, 1996, except for such
Liabilities incurred or paid in the ordinary course of business consistent with
past business practice and which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on FBI.
5.7 Absence of Certain Changes or Events. Since September 30, 1996, except
as disclosed in the FBI Financial Statements, (i) there have been no events,
changes, or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI, and (ii) the
FBI Companies have not taken any action, or failed to take any action, prior to
the date of this Agreement, which action or failure, if taken after the date of
this Agreement, would represent or result in a material breach or violation of
any of the covenants and agreements of FBI provided in Article Seven of this
Agreement.
5.8 Tax Matters. (a) All Tax returns required to be filed by or on behalf
of any of the FBI Companies have been timely filed, or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1995 and on or before the date of the most recent fiscal
year end immediately preceding the Effective Time to the Knowledge of FBI, and
all returns filed are complete and accurate to the Knowledge of FBI. All Taxes
shown on filed returns have been paid. There is no audit examination,
deficiency, or refund Litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have, individually or in the
aggregate, a Material Adverse Effect on FBI, except to the extent reserved
against in the FBI Financial Statements dated prior to the date of this
Agreement. All
6
<PAGE> 11
Taxes and other Liabilities due with respect to completed and settled
examinations or concluded Litigation have been paid.
(b) None of the FBI Companies has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable Taxing authorities) that is currently in
effect.
(c) Adequate provision for any Taxes due or to become due for any of the
FBI Companies for the period or periods through and including the date of the
respective FBI Financial Statements has been made and is reflected on such FBI
Financial Statements.
(d) Deferred Taxes of the FBI Companies have been adequately provided for
in the FBI Financial Statements.
(e) Each of the FBI Companies is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI.
(f) None of the FBI Companies has made any payments, is obligated to make
any payments, or is a party to any contract, agreement, or other arrangement
that could obligate it to make any payments that would be disallowed as a
deduction under Section 280G or 162(m) of the Internal Revenue Code.
(g) There are no Liens with respect to Taxes upon any of the assets of the
FBI Companies.
(h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of the FBI Companies that occurred during or after any
Taxable Period in which the FBI Companies incurred a net operating loss that
carries over to any Taxable Period ending after December 31, 1994.
(i) No FBI Company has filed any consent under Section 341(f) of the
Internal Revenue Code concerning collapsible corporations.
(j) All material elections with respect to Taxes affecting the FBI
Companies as of the date of this Agreement have been or will be timely made as
set forth in Section 5.8 of the FBI Disclosure Memorandum. After the date
hereof, no election with respect to Taxes will be made without the prior written
consent of Regions, which consent will not be unreasonably withheld.
(k) No FBI Company has or has had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
5.9 Assets. Except as disclosed or reserved against in the FBI Financial
Statements, the FBI Companies have good and marketable title, free and clear of
all Liens, to all of their respective Assets that are material to the business
of the FBI Companies. All material tangible properties used in the businesses of
the FBI Companies are in good condition, reasonable wear and tear excepted, and
are usable in the ordinary course of business consistent with FBI's past
practices. All Assets which are material to the business of the FBI Companies,
which are held under leases or subleases by any of the FBI Companies, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect.
5.10 Environmental Matters. (a) To the Knowledge of FBI, each FBI Company,
its Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI.
7
<PAGE> 12
(b) To the Knowledge of FBI, there is no Litigation pending or threatened
before any court, governmental agency, or authority, or other forum in which any
FBI Company or any of its Participation Facilities has been or, with respect to
threatened Litigation, may be named as a defendant (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material (as defined below) or
oil, whether or not occurring at, on, under, or involving a site owned, leased,
or operated by any FBI Company or any of its Participation Facilities, except
for such Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI.
(c) To the Knowledge of FBI, there is no Litigation pending or threatened
before any court, governmental agency, or board, or other forum in which any of
its Loan Properties (or FBI in respect of such Loan Property) has been or, with
respect to threatened Litigation, may be named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any predecessor)
with any Environmental Law or (ii) relating to the release into the environment
of any Hazardous Material or oil, whether or not occurring at, on, under, or
involving a Loan Property, except for such Litigation pending or threatened that
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI.
(d) To the Knowledge of FBI, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI.
(e) To the Knowledge of FBI, during the period of (i) any FBI Company's
ownership or operation of any of their respective current properties, (ii) any
FBI Company's participation in the management of any Participation Facility, or,
(iii) any FBI Company's holding of a security interest in a Loan Property, there
have been no releases of Hazardous Material or oil in, on, under, or affecting
such properties, except such as are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on FBI. Prior to the period of
(i) any FBI Company's ownership or operation of any of their respective current
properties, (ii) any FBI Company's participation in the management of any
Participation Facility, or (iii) any FBI Company's holding of a security
interest in a Loan Property, to the Knowledge of FBI, there were no releases of
Hazardous Material or oil in, on, under, or affecting any such property,
Participation Facility, or Loan Property, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
FBI.
5.11 Compliance With Laws. Each FBI Company has in effect all Permits
necessary for it to own, lease, or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FBI. Except as disclosed in Section 5.11
of the FBI Disclosure Memorandum, none of the FBI Companies:
(a) Is in violation of any Laws, Orders, or Permits applicable to its
business or employees conducting its business, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI; and
(b) Has received any notification or communication from any agency or
department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any FBI Company is not in
compliance with any of the material Laws or material Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FBI, (ii) threatening to revoke any
material Permits the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI, or
(iii) requiring any FBI Company (x) to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or (y) to adopt any Board
resolution or similar undertaking which restricts materially the conduct of
its business, or in any manner relates to its capital adequacy, its
management, or the payment of dividends.
8
<PAGE> 13
5.12 Labor Relations. No FBI Company is the subject of any Litigation
asserting that it or any other FBI Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other FBI Company to bargain with any
labor organization as to wages or conditions of employment, nor is any FBI
Company a party to or bound by any collective bargaining agreement, contract, or
other agreement or understanding with a labor union or labor organization, nor
is there any strike or other labor dispute involving any FBI Company, pending or
threatened, or to its Knowledge, is there any activity involving any FBI
Company's employees seeking to certify a collective bargaining unit or engaging
in any other organization activity.
5.13 Employee Benefit Plans. (a) FBI has disclosed in Section 5.13 of the
FBI Disclosure Memorandum, and has delivered or made available to Regions prior
to the execution of this Agreement correct and complete copies in each case of,
all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs or agreements, all medical, vision,
dental, or other health plans, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including, without limitation, "employee
benefit plans" as that term is defined in Section 3(3) of ERISA maintained by,
sponsored in whole or in part by, or contributed to by any FBI Company for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, the "FBI Benefit Plans"). Any of the
FBI Benefit Plans which is an "employee welfare benefit plan," as that term is
defined in Section 3(1) of ERISA, or an "employee pension benefit plan," as that
term is defined in Section 3(2) of ERISA, is referred to herein as a "FBI ERISA
Plan." Any FBI ERISA Plan which is also a "defined benefit plan" (as defined in
Section 414(j) of the Internal Revenue Code or Section 3(35) of ERISA) is
referred to herein as a "FBI Pension Plan." On or after September 26, 1980,
neither FBI nor any FBI Company has had an "obligation to contribute" (as
defined in ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA
Sections 4001(a)(3) and 3(37)(A)). The only "employee pension benefit plan," as
defined in Section 3(2) of ERISA, ever maintained by any FBI Company that was
intended to qualify under Section 401(a) of the Internal Revenue Code, is the
First Bank of Georgia Section 401(k) Profit Sharing Plan.
(b) FBI has delivered or made available to Regions prior to the execution
of this Agreement correct and complete copies of the following documents: (i)
all trust agreements or other funding arrangements for such FBI Benefit Plans
(including insurance contracts), and all amendments thereto, (ii)with respect to
any such FBI Benefit Plans or amendments, all determination letters, rulings,
opinion letters, information letters, or advisory opinions issued by the
Internal Revenue Service, the United States Department of Labor, or the Pension
Benefit Guaranty Corporation after December 31, 1974, (iii) annual reports or
returns, audited or unaudited financial statements, actuarial valuations and
reports, and summary annual reports prepared for any FBI Benefit Plan with
respect to the most recent three plan years, and (iv) the most recent summary
plan descriptions and any material modifications thereto.
(c) Except as set forth in Section 5.13(c) of the Disclosure Memorandum,
all FBI Benefit Plans are in compliance with the applicable terms of ERISA, the
Internal Revenue Code, and any other applicable Laws the breach or violation of
which are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI. Each FBI ERISA Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and FBI is not
aware of any circumstances which will or could result in revocation of any such
favorable determination letter. Each trust created under any FBI ERISA Plan has
been determined to be exempt from Tax under Section 501(a) of the Internal
Revenue Code and FBI is not aware of any circumstance which will or could result
in revocation of such exemption. With respect to each FBI Benefit Plan, except
as disclosed in Section 5.13(c) of the FBI Disclosure Memorandum, to the
Knowledge of FBI, no event has occurred which will or could give rise to a loss
of any intended Tax consequences under the Internal Revenue Code or to any Tax
under Section 511 of the Internal Revenue Code. There is no material pending or
threatened Litigation relating to any FBI ERISA Plan. No FBI Company has engaged
in a transaction with respect to any FBI Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject
9
<PAGE> 14
any FBI Company to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
FBI.
(d) No FBI Pension Plan has any "unfunded current liability," as that term
is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of the
assets of any such plan exceeds the plan's "benefit liabilities," as that term
is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan terminated in accordance with all
applicable legal requirements. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any FBI Pension Plan, (ii) no change in the actuarial assumptions with respect
to any FBI Pension Plan, and (iii) no increase in benefits under any FBI Pension
Plan as a result of plan amendments or changes in applicable Law which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI or materially adversely affect the funding status of any such
plan. Neither any FBI Pension Plan nor any "single-employer plan," within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any
FBI Company, or the single-employer plan of any entity which is considered one
employer with FBI under Section 4001 of ERISA or Section 414 of the Internal
Revenue Code or Section 302 of ERISA (whether or not waived) (an "ERISA
Affiliate") has an "accumulated funding deficiency" within the meaning of
Section 412 of the Internal Revenue Code or Section 302 of ERISA. No FBI Company
has provided, or is required to provide, security to a FBI Pension Plan or to
any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Code.
(e) No liability under Title IV of ERISA has been or is expected to be
incurred by any FBI Company with respect to any defined benefit plan currently
or formerly maintained by any of them or by any ERISA Affiliate).
(f) Except as set forth in Section 5.13(f) of the Disclosure Memorandum, no
FBI Company has any obligations for retiree health and retiree life benefits
under any of the FBI Benefit Plans.
(g) Except as set forth in Section 5.13(g) of the FBI Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i)result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, or otherwise) becoming due to any director or any employee of
any FBI Company from any FBI Company under any FBI Benefit Plan or otherwise,
(ii) increase any benefits otherwise payable under any FBI Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
(h) No oral or written representation or communication with respect to any
aspect of the FBI Benefit Plans has been made to employees of any of the FBI
Companies prior to the date hereof which is not in accordance with the written
or otherwise preexisting terms and provisions of such plans. All FBI Benefit
Plan documents and annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports, and summary plan
descriptions issued with respect to the FBI Benefit Plans are correct and
complete and there have been no changes in the information set forth therein.
5.14 Material Contracts. Except as disclosed in the Section 5.14 of the
FBI Disclosure Memorandum, none of the FBI Companies, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under (i) any employment, severance,
termination, consulting, or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, (ii) any Contract
relating to the borrowing of money by any FBI Company or the guarantee by any
FBI Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase agreements,
and Federal Home Loan Bank advances, trade payables, and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contracts between or among FBI Companies; and (iv) any other Contract or
amendment thereto that would be required to be filed as an exhibit to a Form
10-K filed by FBI with the Securities and Exchange Commission (the "SEC") as of
the date of this Agreement if FBI were required to file a Form 10-K with the SEC
(together with all Contracts referred to in Sections 5.9 and 5.13(a) of this
Agreement, the "FBI Contracts"). None of the FBI Companies is in Default under
any FBI Contract which, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect on FBI.
10
<PAGE> 15
5.15 Legal Proceedings. Except to the extent specifically reserved against
in the FBI Financial Statements dated prior to the date of this Agreement, there
is no Litigation instituted or pending, or, to the Knowledge of FBI, threatened
(or unasserted but considered probable of assertion and which if asserted would
have at least a reasonable probability of an unfavorable outcome) against any
FBI Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any FBI Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI.
5.16 Statements True and Correct. No statement, certificate, instrument,
or other writing furnished or to be furnished by any FBI Company or any
Affiliate thereof to Regions pursuant to this Agreement or any other document,
agreement, or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
FBI Company or any Affiliate thereof for inclusion in the Registration Statement
to be filed by Regions with the SEC will, when the Registration Statement
becomes effective, be false or misleading with respect to any material fact, or
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated thereunder or necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any FBI Company or any Affiliate thereof for inclusion in the Proxy Statement to
be mailed to FBI's stockholders in connection with the Stockholders' Meeting,
and any other documents to be filed by a FBI Company or any Affiliate thereof
with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
stockholders of FBI, be false or misleading with respect to any material fact,
or contain any misstatement of material fact, or omit to state any material fact
required to be stated thereunder or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Stockholders' Meeting, be false or misleading with respect to
any material fact, or omit to state any material fact required to be stated
thereunder or necessary to correct any material statement in any earlier
communication with respect to the solicitation of any proxy for the
Stockholders' Meeting. All documents that any FBI Company or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
5.17 Accounting, Tax and Regulatory Matters. No FBI Company or any
Affiliate thereof has taken any action, or agreed to take any action, or has any
Knowledge of any fact or circumstance that is reasonably likely to (i) prevent
the transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or treatment as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement. To the Knowledge of FBI, there
exists no fact, circumstance, or reason why the requisite Consents referred to
in Section 9.1(b) of this Agreement cannot be received in a timely manner
without imposition of any condition of the type described in the second sentence
of such Section 9.1(b).
5.18 State Takeover Laws. Each FBI Company has taken all necessary action
to exempt the transactions contemplated by this Agreement from any applicable
"moratorium," "control share," "fair price," "business combination," or other
anti-takeover laws and regulations of the State of Georgia (collectively,
"Takeover Laws"), including Sections 14-2-1111 and 14-2-1132 of the GBCC.
5.19 Articles of Incorporation Provisions. Each FBI Company has taken all
action so that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement do not and will
not result in the grant of any rights to any Person (other than a Regions
Company) under the Articles of Incorporation, Bylaws, or other governing
instruments of any FBI Company or restrict or impair the ability of Regions to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of any FBI Company that may be acquired or controlled by it.
11
<PAGE> 16
5.20 Support Agreements. Each of the directors of FBI has executed and
delivered to Regions an agreement in substantially the form of Exhibit 1 to this
Agreement.
5.21 Derivatives Contracts. Neither FBI nor any of its Subsidiaries is a
party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract, or any
other interest rate or foreign currency protection contract not included on its
balance sheet which is a financial derivative contract (including various
combinations thereof).
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF REGIONS
Regions hereby represents and warrants to FBI as follows:
6.1 Organization Standing and Power. Regions is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease, and operate its Assets. Regions is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Regions.
6.2 Authority; No Breach by Agreement. (a) Regions 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 herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Regions. This Agreement represents a legal, valid, and binding
obligation of Regions, enforceable against Regions in accordance with its terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Regions, nor
the consummation by Regions of the transactions contemplated hereby, nor
compliance by Regions with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of Regions' Certificate of Incorporation
or Bylaws, or (ii) constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
Regions Company under, any Contract or Permit of any Regions Company, or (iii)
subject to receipt of the requisite approvals referred to in Section 9.1(b) of
this Agreement, violate any Law or Order applicable to any Regions Company or
any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans
and other than Consents, filings, or notifications which, if not obtained or
made, is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Regions, no notice to, filing with, or Consent of,
any public body or authority is necessary for the consummation by Regions of the
Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock. The authorized capital stock of Regions consists of
120,000,000 shares of Regions Common Stock, of which 62,810,998 shares were
issued and outstanding and 260,000 shares were held as treasury shares as of
September 30, 1996. All of the issued and outstanding shares of Regions Common
Stock are, and all of the shares of Regions Common Stock to be issued in
exchange for shares of FBI Common Stock upon consummation of the Merger, when
issued in accordance with the terms of this Agreement, will be, duly and validly
issued and outstanding and fully paid and nonassessable under the DGCL. None of
the
12
<PAGE> 17
outstanding shares of Regions Common Stock has been, and none of the shares of
Regions Common Stock to be issued in exchange for shares of FBI Common Stock
upon consummation of the Merger will be, issued in violation of any preemptive
rights of the current or past stockholders of Regions.
6.4 SEC Filings; Financial Statements. (a) Regions has filed all forms,
reports, and documents required to be filed by Regions with the SEC since
December 31, 1992, other than registration statements on Forms S-4 and S-8
(collectively, the "Regions SEC Reports"). The Regions 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 Regions SEC Reports or necessary in order to make the statements
in such Regions SEC Reports, in light of the circumstances under which they were
made, not misleading.
(b) Each of the Regions Financial Statements (including, in each case, any
related notes) contained in the Regions SEC Reports, including any Regions SEC
Reports filed after the date of this Agreement until the Effective Time,
complied or will comply as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was or will be
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC), and fairly presented or will fairly present the consolidated financial
position of Regions 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.
6.5 Absence of Undisclosed Liabilities. No Regions Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Regions, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of Regions as of
September 30, 1996 included in the Regions Financial Statements or reflected in
the notes thereto. No Regions Company has incurred or paid any Liability since
September 30, 1996, except for such Liabilities incurred or paid in the ordinary
course of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Regions.
6.6 Absence of Certain Changes or Events. Since September 30, 1996, except
as disclosed in the Regions Financial Statements filed with the SEC after such
date and prior to the date of this Agreement, there have been no events,
changes, or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Regions.
6.7 Compliance With Laws. Regions is duly registered as a bank holding
company under the BHC Act. Each Regions Company has in effect all Permits
necessary for it to own, lease, or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Regions, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Regions. None of the Regions
Companies:
(a) Is in violation of any Laws, Orders, or Permits applicable to its
business or employees conducting its business, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Regions; and
(b) Has received any notification or communication from any agency or
department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Regions Company is
not in compliance with any of the material Laws or material Orders which
such governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Regions, (ii) threatening to revoke
any Permits, the revocation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Regions, or
(iii) requiring any Regions Company (x) to enter into or consent
13
<PAGE> 18
to the issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or (y) to adopt any Board
resolution or similar undertaking which restricts materially the conduct of
its business, or in any manner relates to its capital adequacy, its
management, or the payment of dividends.
6.8 Legal Proceedings. Except to the extent specifically reserved against
in the Regions Financial Statements dated prior to the date of this Agreement,
there is no Litigation instituted or pending, or, to the Knowledge of Regions,
threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an unfavorable outcome)
against any Regions Company, or against any Asset, interest, or right of any of
them, that is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Regions, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
any Regions Company, that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Regions.
6.9 Statements True and Correct. No statement, certificate, instrument, or
other writing furnished or to be furnished by any Regions Company or any
Affiliate thereof to FBI pursuant to this Agreement or any other document,
agreement, or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
Regions Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by Regions with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or contain any untrue statement of a material fact, or omit to state any
material fact required to be stated thereunder or necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Regions Company or any Affiliate thereof for inclusion in the
Proxy Statement to be mailed to FBI's stockholders in connection with the
Stockholders' Meeting, and any other documents to be filed by any Regions
Company or any Affiliate thereof with the SEC or any other Regulatory Authority
in connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy Statement, when
first mailed to the stockholders of FBI, be false or misleading with respect to
any material fact, or contain any misstatement of material fact, or omit to
state any material fact required to be stated thereunder or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, or, in the case of the Proxy Statement or any amendment
thereof or supplement thereto, at the time of the Stockholders' Meeting, be
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated thereunder or necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that any Regions Company or
any Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
6.10 Accounting, Tax and Regulatory Matters. No Regions Company or any
Affiliate thereof has taken any action, or agreed to take any action, or has any
Knowledge of any fact or circumstance that is reasonably likely to (i) prevent
the transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting or treatment as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 9.1(b) of this Agreement. To the Knowledge of Regions, there exists no
fact, circumstance, or reason why the requisite Consents referred to in Section
9.1(b) of this Agreement cannot be received in a timely manner without
imposition of any condition of the type described in the second sentence of such
Section 9.1(b).
ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of Both Parties. Unless the prior written consent of the
other Party shall have been obtained, and except as otherwise expressly
contemplated herein, each Party shall and shall cause each of its
14
<PAGE> 19
Subsidiaries to (i) operate its business only in the usual, regular, and
ordinary course, (ii) preserve intact its business organizations and Assets and
maintain its rights and franchises, and (iii) take no action which would
materially adversely affect the ability of any Party to (a) obtain any Consents
required for the transactions contemplated hereby, or (b) perform its covenants
and agreements under this Agreement in all material respects and to consummate
the Merger; provided, that the foregoing shall not prevent any Regions Company
from discontinuing or disposing of any of its Assets or business, or from
acquiring or agreeing to acquire any other Person or any Assets thereof, if such
action is, in the judgment of Regions, desirable in the conduct of the business
of Regions and its Subsidiaries.
7.2 Covenants of FBI. Except as specifically contemplated or permitted by
this Agreement, from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, FBI covenants and agrees
that it will not do or agree or commit to do, or permit any of its Subsidiaries
to do or agree or commit to do, any of the following without the prior written
consent of a duly authorized officer of Regions:
(a) amend the Articles of Incorporation, Bylaws, or other governing
instruments of any FBI Company; or
(b) incur, guarantee, or otherwise become responsible for, any
additional debt obligation or other obligation for borrowed money (other
than indebtedness of a FBI Company to another FBI Company) in excess of an
aggregate of $100,000 (for the FBI Companies on a consolidated basis)
except in the ordinary course of the business of FBI Companies consistent
with past practices (which shall include, for FBI, creation of deposit
liabilities, purchases of federal funds, advances from the Federal Home
Loan Bank or the Federal Reserve Bank, and entry into repurchase agreements
fully secured by U.S. government or agency securities), or, except as
disclosed in Section 7 2(b) of the FBI Disclosure Memorandum, forgive any
such indebtedness of any Person to any FBI Company (in excess of an
aggregate of $25,000), or impose, or suffer the imposition, on any share of
stock held by any FBI Company of any Lien or permit any such Lien to exist;
or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any FBI Company, or declare or pay any dividend or
make any other distribution in respect of any FBI Common Stock; provided
that FBI may (to the extent legally able to do so), but shall not be
obligated to, declare and pay regular annual cash dividends on the FBI
Common Stock in the amounts and with the usual and regular record and
payment dates in accordance with past practice as disclosed in Section 7
2(c) of the FBI Disclosure Memorandum; or
(d) except pursuant to the exercise of stock options outstanding as of
the date hereof and pursuant to the terms thereof in existence on the date
hereof, issue, sell, pledge, encumber, authorize the issuance of, enter
into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional
shares of FBI Common Stock or any other capital stock of any FBI Company,
or any stock appreciation rights, or any option, warrant, conversion, or
other right to acquire any such stock, or any security convertible into any
such stock; or
(e) adjust, split, combine, or reclassify any capital stock of any FBI
Company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of FBI Common Stock or sell,
lease, mortgage, or otherwise dispose of or otherwise encumber any shares
of capital stock of any FBI Subsidiary (unless any such shares of stock are
sold or otherwise transferred to another FBI Company) or any Assets having
in the aggregate a book value in excess of $100,000 other than in the
ordinary course of business for reasonable and adequate consideration; or
(f) acquire direct or indirect control over, or invest in equity
securities of, any Person, other than in connection with (i) foreclosures
in the ordinary course of business, or (ii) acquisitions of control by FBI
in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees or
officers of any FBI Company except as disclosed in Section 7.2(g) of the
FBI Disclosure Memorandum or as required by Law; pay any
15
<PAGE> 20
bonus except pursuant to the provisions of any applicable program or plan
adopted by its Board of Directors prior to the date of this Agreement and
disclosed in Section 7.2(g) of the FBI Disclosure Memorandum; enter into or
amend any severance agreements with officers of any FBI Company except as
disclosed in Section 7.2(g) of the FBI Disclosure Memorandum, grant any
increase in fees or other increases in compensation or other benefits to
directors of any FBI Company; or
(h) except as disclosed in Section 7.2(h) of the FBI Disclosure
Memorandum, enter into or amend any employment Contract between any FBI
Company and any Person (unless such amendment is required by Law) that the
FBI Company 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; or
(i) except as disclosed in Section 7.2(i) of the FBI Disclosure
Memorandum, adopt any new employee benefit plan or program of any FBI
Company or make any material change in or to any existing employee benefit
plans or programs of any FBI Company 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
(j) make any significant change in any accounting methods, principles,
or practices or systems of internal accounting controls, except as may be
necessary to conform to changes in regulatory accounting requirements or
GAAP; or
(k) commence or settle any Litigation other than in accordance with
past practice; provided that, except to the extent specifically reserved
against in the FBI Financial Statements dated prior to the date of this
Agreement, no FBI Company shall settle any Litigation involving any
Liability of any FBI Company for money damages in excess of $25,000 or
restrictions upon the operations of any FBI Company; or
(l) except in the ordinary course of business, enter into or terminate
any material Contract or make any change in any material lease or Contract,
other than renewals of leases and Contracts without material adverse
changes of terms or as disclosed pursuant to Sections 7.2(g), (h), or (i)
of the FBI Disclosure Memorandum.
7.3 Covenants of Regions. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Regions
covenants and agrees that it will not, without the prior written consent of a
duly authorized officer of FBI amend the Certificate of Incorporation or Bylaws
of Regions, in each case, in any manner which is adverse to, and discriminates
against, the holders of FBI Common Stock.
7.4 Adverse Changes in Condition. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) is reasonably likely to cause
or constitute a material breach of any of its representations, warranties, or
covenants contained herein, and to use its reasonable efforts to prevent or
promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and FBI shall deliver to Regions copies of all
such reports filed by FBI promptly after the same are filed. If financial
statements are contained in any such reports filed with appropriate Regulatory
Authorities, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in stockholders'
equity, and cash flows for the periods then ended in accordance with GAAP
(subject in the case of interim financial statements to normal recurring year-
end adjustments that are not material). As of their respective dates, such
reports filed with the SEC, will comply in all material respects with the
Securities Laws and will not contain any 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, in light of the circumstances under which
they were made, not misleading. Any financial
16
<PAGE> 21
statements contained in any other reports to a Regulatory Authority shall be
prepared in accordance with Laws applicable to such reports.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 Registration Statement: Proxy Statement; Stockholder Approval. As soon
as reasonably practicable after the execution of this Agreement, Regions shall
file the Registration Statement with the SEC, provided FBI has provided, on a
reasonably timely basis, all information concerning FBI necessary for inclusion
in the Registration Statement, and shall use its reasonable efforts to cause the
Registration Statement to become effective under the 1933 Act as soon as
reasonably practicable after the filing thereof and take any action required to
be taken under the applicable state Blue Sky or securities Laws in connection
with the issuance of the shares of Regions Common Stock upon consummation of the
Merger. FBI shall promptly furnish all information concerning it and the holders
of its capital stock as Regions may reasonably request in connection with such
action. FBI shall call a Stockholders' Meeting, to be held within forty-five
(45) days after the Registration Statement is declared effective by the SEC, for
the purpose of voting upon approval of (i) this Agreement and (ii) such other
related matters as it deems appropriate. In connection with the Stockholders'
Meeting, (i) FBI shall mail the Proxy Statement to all of its stockholders, (ii)
the Parties shall furnish to each other all information concerning them that
they may reasonably request in connection with such Proxy Statement, (iii) the
Board of Directors of FBI shall recommend (subject to compliance with their
fiduciary duties as advised in writing by counsel to such Board) to its
stockholders the approval of this Agreement, and (iv) the Board of Directors and
officers of FBI shall use their reasonable efforts to obtain such stockholders'
approval (subject to compliance with their fiduciary duties as advised in
writing by counsel to such Board).
8.2 Nasdaq/NMS Listing. Regions shall file with the NASD a notification
for the listing on the Nasdaq/NMS relating to the proposed issuance of the
shares of Regions Common Stock to be issued to the holders of FBI Common Stock
pursuant to the Merger.
8.3 Applications. As soon as reasonably practicable after execution of
this Agreement, Regions shall prepare and file, and FBI shall cooperate in the
preparation and, where appropriate, filing of, applications with all Regulatory
Authorities having jurisdiction over the transactions contemplated by this
Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. Regions shall use all reasonable
efforts to obtain the requisite Consents of all Regulatory Authorities as soon
as reasonably practicable after the filing of the appropriate applications.
8.4 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including, without limitation, using its reasonable efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
applicable to such Party referred to in Article Nine of this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use, its reasonable
efforts to obtain all Consents necessary or desirable for the consummation of
the transactions contemplated by this Agreement.
8.5 Investigation and Confidentiality. (a) Prior to the Effective Time,
each Party will keep the other Party advised of all material developments
relevant to its business and to consummation of the Merger and shall permit the
other Party to make or cause to be made such investigation of the business and
properties of it and its Subsidiaries and of their respective financial and
legal conditions as the other Party reasonably requests, provided that such
investigation shall be reasonably related to the transactions contemplated
hereby and, after the 30th day after execution of this Agreement, shall not
interfere unreasonably with normal operations. No investigation by a Party shall
affect the representations and warranties of the other Party.
17
<PAGE> 22
(b) Each Party shall, and shall cause its advisers and agents to, maintain
the confidentiality of all confidential information furnished to it by the other
Party concerning its and its Subsidiaries' businesses, operations, and financial
positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return all documents and copies thereof, and all work papers containing
confidential information received from the other Party.
(c) FBI shall use its reasonable efforts to exercise its rights under
confidentiality agreements entered into with Persons which were considering an
acquisition transaction with FBI to preserve the confidentiality of the
information relating to FBI provided to such parties.
8.6 Press Releases. Prior to the Effective Time, FBI and Regions shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby, provided, however, that nothing in this Section
8.6 shall be deemed to prohibit any Party from making any disclosure which its
counsel advises as necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.7 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no FBI Company nor any Affiliate thereof nor
any investment banker, attorney, accountant, or other representative
(collectively, "Representatives") retained by any FBI Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of FBI's Board of Directors as
advised in writing by counsel to such Board of Directors, no FBI Company or any
Affiliate or Representative thereof shall furnish any non-public information
that it is not legally obligated to furnish, negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal, and shall direct
and use its reasonable efforts to cause all of its Representatives not to engage
in any of the foregoing, but FBI may communicate information about such an
Acquisition Proposal to its stockholders if and to the extent that it is
required to do so in order to comply with its legal obligations. FBI shall
promptly notify Regions orally and in writing in the event that it receives any
inquiry or proposal relating to any such transaction. FBI shall immediately
cease and cause to be terminated as of the date of this Agreement any existing
activities, discussions, or negotiations with any Persons conducted heretofore
with respect to any of the foregoing.
8.8 Tax Matters. The Parties agree to use their reasonable efforts to
obtain written opinions of Alston & Bird to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, (ii) the exchange in the Merger of FBI Common Stock for Regions
Common Stock will not give rise to gain or loss to the stockholders of FBI with
respect to such exchange (except to the extent of any cash received), and (iii)
each of FBI and Regions will be a party to that reorganization within the
meaning of Section 368(b) of the Internal Revenue Code ("Tax Opinions"). In
rendering such Tax Opinions, counsel shall be entitled to rely upon
representations of officers of FBI and Regions reasonably satisfactory in form
and substance to such counsel. Each of the Parties undertakes and agrees to use
its reasonable efforts to cause the Merger, and to take no action which would
cause the Merger not, to qualify for treatment as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code for Federal income tax
purposes.
8.9 Agreement of Affiliates. FBI has disclosed in Section 8.9 of the FBI
Disclosure Memorandum each Person whom it reasonably believes is an "affiliate"
of FBI for purposes of Rule 145 under the 1933 Act. FBI shall use its reasonable
efforts to cause each such Person to deliver to Regions not later than 30 days
prior to the Effective Time a written agreement, substantially in the form of
Exhibit 2, providing that such Person will not sell, pledge, transfer, or
otherwise dispose of the shares of FBI Common Stock held by such Person except
as contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of Regions Common Stock to
be received by such Person upon consummation of the Merger except in compliance
with applicable provisions of the 1933 Act and the rules and regulations
thereunder and until such time as financial results covering at least 30 days of
combined operations of Regions and FBI have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies. Shares
of Regions Common Stock issued to such affiliates of FBI in exchange for shares
of
18
<PAGE> 23
FBI Common Stock shall not be transferable until such time as financial results
covering at least 30 days of combined operations of Regions and FBI have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, regardless of whether each such affiliate has
provided the written agreement referred to in this Section 8.9 (and Regions
shall be entitled to place restrictive legends upon certificates for shares of
Regions Common Stock issued to affiliates of FBI pursuant to this Agreement to
enforce the provisions of this Section 8.9). Regions shall not be required to
maintain the effectiveness of the Registration Statement under the 1933 Act for
the purposes of resale of Regions Common Stock by such affiliates.
8.10 Employee Benefits and Contracts. Following the Effective Time,
Regions shall provide generally to officers and employees of the FBI Companies,
who at or after the Effective Time become employees of a Regions Company,
employee benefits under employee benefit plans (other than stock option or other
plans involving the potential issuance of Regions Common Stock except as set
forth in this Section 8.10), on terms and conditions which when taken as a whole
are substantially similar to those currently provided by the Regions Companies
to their similarly situated officers and employees. For purposes of
participation and vesting (but not accrual of benefits) under such employee
benefit plans, (i) service under any qualified defined benefit plans of FBI
should be treated as service under Regions' qualified defined benefit plans,
(ii) service under any qualified defined contribution plans of FBI shall be
treated as service under Regions' qualified defined contribution plans, and
(iii) service under any other employee benefit plans of FBI shall be treated as
service under any similar employee benefit plans maintained by Regions. Regions
also shall cause FBI and its Subsidiaries to honor all employment, severance,
consulting, and other compensation Contracts disclosed in Section 8.10 of the
FBI Disclosure Memorandum to Regions between any FBI Company and any current or
former director, officer, or employee thereof, and all provisions for vested
benefits or other vested amounts earned or accrued through the Effective Time
under the FBI Benefit Plans.
8.11 Indemnification. (a) Subject to the conditions set forth in paragraph
(b) below, for a period of six (6) years after the Effective Time, Regions
shall, and shall cause FBI to, indemnify, defend, and hold harmless each person
entitled to indemnification from a FBI Company (each, an "Indemnified Party")
against all Liabilities arising out of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) to the full extent permitted by Georgia Law and
FBI's Articles of Incorporation and Bylaws, in each case as in effect on the
date hereof, including provisions relating to advances of expenses incurred in
the defense of any Litigation. Without limiting the foregoing, in any case in
which approval by the FBI is required to effectuate any indemnification, Regions
shall cause the FBI to direct, at the election of the Indemnified Party, that
the determination of any such approval shall be made by independent counsel
mutually agreed upon between Regions and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a), upon learning of any such Liability or Litigation, shall promptly notify
Regions thereof. In the event of any such Litigation (whether arising before or
after the Effective Time), (i) Regions or FBI shall have the right to assume the
defense thereof and Regions shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, except that
if Regions or FBI elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues which raise
conflicts of interest between Regions or FBI and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Regions or FBI
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received, provided, however, that
Regions shall be obligated pursuant to this paragraph (b) to pay for only one
firm of counsel for all Indemnified Parties in any jurisdiction, (ii) the
Indemnified Parties will cooperate in the defense of any such Litigation, and
(iii) Regions shall not be liable for any settlement effected without its prior
written consent; and provided further that FBI shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable Law.
19
<PAGE> 24
8.12 State Takeover Laws. Each FBI Company shall take all necessary steps
to exempt the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Laws,
including Sections 14-2-1111 and 14-2-1132 of the GBCC.
8.13 Articles of Incorporation Provisions. Each FBI Company shall take all
necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do not
and will not result in the grant of any rights to any Person under the Articles
of Incorporation, Bylaws, or other governing instruments of any FBI Company or
restrict or impair the ability of Regions or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares of any
FBI Company that may be directly or indirectly acquired or controlled by it.
ARTICLE NINE
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6 of
this Agreement:
(a) Stockholder Approval. The stockholders of FBI shall have approved
this Agreement and the consummation of the transactions contemplated
hereby, including the Merger, as and to the extent required by Law or by
the provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
with, and notifications to, all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent so obtained which is necessary to consummate the
transactions as contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable good faith judgment of the Board of
Directors of Regions would so materially adversely impact the economic
benefits of the transaction as contemplated by this Agreement so as to
render inadvisable the consummation of the Merger.
(c) Consents and Approvals. Each Party shall have obtained any and
all other Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) of this Agreement) or for the
preventing of any Default under any Contract or Permit of such Party which,
if not obtained or made, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on such Party. No Consent obtained
which is necessary to consummate the transactions contemplated hereby shall
be conditioned or restricted in a manner which in the reasonable judgment
of the Board of Directors of Regions would so materially adversely impact
the economic or business benefits of the transactions contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary, or permanent) or taken any other action which prohibits,
restricts, or makes illegal consummation of the transactions contemplated
by this Agreement.
(e) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under state securities Laws or the 1933 Act or 1934 Act relating
to the issuance or trading of the shares of Regions Common Stock issuable
pursuant to the Merger shall have been received.
(f) Nasdaq/NMS Listing. The shares of Regions Common Stock issuable
pursuant to the Merger shall have been approved for listing on the
Nasdaq/NMS.
20
<PAGE> 25
(g) Tax Matters. Each Party shall have received a copy of the Tax
Opinions referred to in Section 8.8 of this Agreement. Each Party shall
have delivered to the other a Certificate, dated as of the date of the Tax
Opinion, signed by its duly authorized officers, to the effect that, to the
best knowledge and belief of such officers, the statement of facts and
representations made on behalf of the management of such Party, presented
to the legal counsel delivering the Tax Opinions were at the date of such
presentation, true, correct, and complete, and are on the date of such
Certificate, to the extent contemplated by the presentation, true, correct,
and complete, as though such presentation had been made on the date of such
Certificate.
9.2 Conditions to Obligations of Regions. The obligations of Regions to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Regions pursuant to Section 11 .6(a) of this Agreement:
(a) Representations and Warranties. For purposes of this Section
9.2(a), the accuracy of the representations and warranties of FBI set forth
in this Agreement shall be assessed as of the date of this Agreement and as
of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of FBI set forth in Section 5.3 of this Agreement shall be true
and correct (except for inaccuracies which are de minimus in amount). The
representations and warranties of FBI set forth in Sections 5.17, 5.18, and
5.19 of this Agreement shall be true and correct in all material respects.
There shall not exist inaccuracies in the representations and warranties of
FBI set forth in this Agreement (including the representations and
warranties set forth in Sections 5.3, 5.17, 5.18, and 5.19) such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have,
a Material Adverse Effect on FBI; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
references to "material" or "Material Adverse Effect" shall be deemed not
to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of FBI to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
material respects.
(c) Certificates. FBI shall have delivered to Regions (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
duly authorized officers, to the effect that the conditions of its
obligations set forth in Sections 9.2(a) and 9.2(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly adopted by
FBI's Board of Directors and stockholders evidencing the taking of all
corporate action necessary to authorize the execution, delivery, and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Regions and its
counsel shall request.
(d) Claims Letters. Each of the directors and officers of FBI shall
have executed and delivered to Regions letters in substantially the form of
Exhibit 3 to this Agreement.
(e) Legal Opinion. Regions shall have received a written opinion,
dated as of the Effective Time, of counsel to FBI, in substantially the
form of Exhibit 4 to this Agreement.
(f) Affiliate Agreements. Regions shall have received from each
affiliate of FBI the affiliates agreement referred to in Section 8.9 of
this Agreement.
(g) Pooling Letter. Regions shall have received a letter from Ernst &
Young, LLP, dated as of the Effective Time, to the effect that the Merger
will qualify for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 if closed and consummated in accordance
with this Agreement.
21
<PAGE> 26
9.3 Conditions to Obligations of FBI. The obligations of FBI to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by FBI pursuant to Section 11.6(b) of this Agreement:
(a) Representations and Warranties. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of Regions set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of Regions set forth in Section 6.3 of this Agreement shall be
true and correct (except for inaccuracies which are de minimus in amount).
The representations and warranties of Regions set forth in Section 6.10 of
this Agreement shall be true and correct in all material respects. There
shall not exist inaccuracies in the representations and warranties of
Regions set forth in this Agreement (including the representations and
warranties set forth in Sections 6.3 and 6.10) such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a
Material Adverse Effect on Regions; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
references to "material" or "Material Adverse Effect" shall be deemed not
to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Regions to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. Regions shall have delivered to FBI (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
duly authorized officers, to the effect that, to the best knowledge of such
officers, after due inquiry, the conditions of its obligations set forth in
Sections 9.3(a) and 9.3(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by Regions' Board of Directors
and stockholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery, and performance of this Agreement, as
appropriate, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as FBI and its counsel shall request.
(d) Legal Opinion. FBI shall have received a written opinion, dated
as of the Effective Time, of counsel to Regions, in substantially the form
of Exhibit 5 to this Agreement.
ARTICLE TEN
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the stockholders of FBI,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of the Board of Directors of Regions and the
Board of Directors of FBI, or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of FBI and Section 9.3(a) in
the case of Regions or in material breach of any covenant or other
agreement contained in this Agreement) in the event of an inaccuracy of any
representation or warranty of the other Party contained in this Agreement
which cannot be or has not been cured within thirty (30) days after the
giving of written notice to the breaching Party of such inaccuracy and
which inaccuracy would provide the terminating Party the ability to refuse
to consummate the Merger under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of FBI and Section 9.3(a) of this
Agreement in the case of Regions; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of FBI and Section 9.3(a) in
the case of Regions or
22
<PAGE> 27
in material breach of any covenant or other agreement contained in this
Agreement) in the event of a material breach by the other Party of any
covenant or agreement contained in this Agreement which cannot be or has
not been cured within thirty (30) days after the giving of written notice
to the breaching Party of such breach; or
(d) By the Board of Directors of either Party in the event (i) any
Consent of any Regulatory Authority required for consummation of the Merger
and the other transactions contemplated hereby shall have been denied by
final nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
stockholders of FBI fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the Laws of the State of
Georgia at the FBI Stockholders' Meeting where the transactions were
presented to such stockholders for approval and voted upon; or
(e) By the Board of Directors of FBI or by the Board of Directors of
Regions in the event that the Merger shall not have been consummated by
September 30, 1997, in each case only if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by
any breach of this Agreement by the Party electing to terminate pursuant to
this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of FBI and Section 9.3(a) in
the case of Regions or in material breach of any covenant or other
agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Merger (other than as contemplated by Section 10.1(d) of this Agreement)
cannot be satisfied or fulfilled by the date specified in Section 10.1(e)
of this Agreement as the date after which such Party may terminate this
Agreement; or
(g) By the Board of Directors of Regions, at any time prior to the
30th day after execution of this Agreement without any Liability in the
event that the review of the Assets, business, financial condition, results
of operations, and prospects of FBI undertaken by Regions during such time
period or any of the disclosures contained in the FBI Disclosure Memorandum
causes the Board of Directors of Regions to determine, in its reasonable
good faith judgment, that a fact or circumstance exists or is likely to
exist or result which materially and adversely impacts one or more of the
economic benefits to Regions of the transactions contemplated by this
Agreement so as to render inadvisable the consummation of the Merger; or
(h) By the Board of Directors of FBI, if it determines by a vote of a
majority of the members of its entire Board, at any time during the ten-day
period commencing two days after the Determination Date, if both of the
following conditions are satisfied:
(1) the Average Closing Price of shares of Regions Common Stock
shall be less than $45.685; and
(2) (i) the quotient obtained by dividing the Average Closing Price
by $53.747 (such number being referred to herein as the "Regions Ratio")
shall be less than (ii) the quotient obtained by dividing the Index
Price on the Determination Date by the Index Price on the Starting Date
and subtracting 0.20 from the quotient in this clause (2)(ii) (such
number being referred to herein as the "Index Ratio");
subject, however, to the following three sentences. If FBI refuses to
consummate the Merger pursuant to this Section 10.1(h), it shall give
prompt written notice thereof to Regions; provided, that such notice of
election to terminate may be withdrawn at any time within the
aforementioned ten-day period. During the five-day period commencing with
its receipt of such notice, Regions shall have the option to elect to
increase the Exchange Ratio to equal the lesser of (i) the quotient
obtained by dividing (1) the product of $45.685 and the Exchange Ratio (as
then in effect) by (2) the Average Closing Price, and (ii) the quotient
obtained by dividing (1) the product of the Index Ratio and the Exchange
Ratio (as then in effect) by (2) the Regions Ratio. If Regions makes an
election contemplated by the preceding sentence,
23
<PAGE> 28
within such five-day period, it shall give prompt written notice to FBI of
such election and the revised Exchange Ratio, whereupon no termination
shall have occurred pursuant to this Section 10.1(h) and this Agreement
shall remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this Agreement to
"Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio
as adjusted pursuant to this Section 10.1(h).
For purposes of this Section 10.1(h), the following terms shall have the
meanings indicated:
"Average Closing Price" shall mean the average of the daily last sales
prices of Regions Common Stock as reported on the Nasdaq NMS (as reported
by The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by Regions) for the ten consecutive full
trading days in which such shares are traded on the Nasdaq NMS ending at
the close of trading on the Determination Date.
"Determination Date" shall mean the date of the FBI Stockholders'
Meeting.
"Index Group" shall mean the 20 bank holding companies listed below,
the common stocks of all of which shall be publicly traded and as to which
there shall not have been, since the Starting Date and before the
Determination Date, any public announcement of a proposal for such company
to be acquired or for such company to acquire another company or companies
in transactions with a value exceeding 25% of the acquiror's market
capitalization. In the event that any such company or companies are removed
from the Index Group, the weights (which shall be determined based upon the
number of outstanding shares of common stock) shall be redistributed
proportionately for purposes of determining the Index Price. The 20 bank
holding companies and the weights attributed to them are as follows:
<TABLE>
<CAPTION>
BANK HOLDING COMPANIES WEIGHTING
- ---------------------- ---------
<S> <C>
AmSouth Bancorporation...................................... 4.73%
Barnett Banks, Inc.......................................... 7.80
Central Fidelity Banks, Inc................................. 3.23
Compass Bancshares, Inc..................................... 3.09
Crestar Financial Corporation............................... 3.05
Deposit Guaranty Corporation................................ 1.52
First American Corporation.................................. 2.06
First Commerce Corporation.................................. 2.35
First Maryland Bancorp...................................... 1.37
First Tennessee National Corporation........................ 2.72
First Union Corporation..................................... 13.91
First Virginia Banks, Inc................................... 2.75
Hibernia Corporation........................................ 9.65
Mercantile Bankshares Corporation........................... 3.84
National Commerce Bancorporation............................ 2.00
SouthTrust Corporation...................................... 6.75
SunTrust Banks, Inc......................................... 9.24
Trustmark Corporation....................................... 2.83
Union Planters Corporation.................................. 3.31
Wachovia Corporation........................................ 13.80
------
TOTAL....................................................... 100.00%
</TABLE>
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing
prices of the companies composing the Index Group.
"Starting Date" shall mean December 13, 1996.
If any company belonging to the Index Group or Regions declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between
24
<PAGE> 29
the Starting Date and the Determination Date, the prices for the common
stock of such company or Regions shall be appropriately adjusted for the
purposes of applying this Section 10.1(h).
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1 of this Agreement, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article Eleven and Section 8.5(b) of this Agreement shall survive any
such termination, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c),
or 10.1(f) of this Agreement shall not relieve the breaching Party from
Liability for an uncured willful breach of a representation, warranty, covenant,
or agreement giving rise to such termination. Each of the Support Agreements
shall be governed by its own terms as to its termination.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles Two, Three, Four, and Eleven and Sections 8.9, and 8.11 of this
Agreement.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 Definitions. Except as otherwise provided herein, the capitalized
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving such Party
or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any
of its Subsidiaries.
"Affiliate" of a Person shall mean (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by,
or under common control with such Person, (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any ten
percent (10%) or greater equity or voting interest of such Person, or (iii)
any other Person for which a Person described in clause (ii) acts in any
such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including
each of the Support Agreements and the other Exhibits delivered pursuant
hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature, character, and
description, whether real, personal, or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"Business Combination" shall mean an acquisition of, merger or
combination with, share exchange involving any class of voting stock of,
sale of more than fifty percent (50%) of the consolidated assets by, or
other business combination involving, or tender offer for or sale or
issuance of any equity securities involving an acquisition by a third-party
of more than fifty percent (50%) of the voting stock of, FBI, other than
the formation of a newly organized holding company for FBI in which the
shares of FBI Common Stock are exchanged for shares of the holding company
on a basis that does not cause the respective beneficial interests of each
stockholder to change or transactions with a Regions Company.
"Closing" shall mean the closing of the transactions contemplated
hereby, as described in Section 1.2 of this Agreement.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
25
<PAGE> 30
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets, or business.
"Default" shall mean (i) any breach or violation of or default under
any Contract, Order, or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order, or Permit.
"DGCL" shall mean the Delaware General Corporation Law.
"Effective Time" shall mean the date and time at which the Merger
becomes effective as defined in Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are administered,
interpreted, or enforced by the United States Environmental Protection
Agency and state and local agencies with jurisdiction over pollution or
protection of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Plan" shall have the meaning provided in Section 5.13 of this
Agreement.
"Exchange Agent" shall have the meaning provided in Section 4.1 of
this Agreement.
"Exchange Ratio" shall have the meaning provided in Section 3.1(c) of
this Agreement.
"Exhibits" 1 through 5, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"FBI Benefit Plans" shall have the meaning set forth in Section 5.13
of this Agreement.
"FBI Common Stock" shall mean the $1.00 par value common stock of FBI.
"FBI Companies" shall mean, collectively, FBI and all FBI
Subsidiaries.
"FBI Disclosure Memorandum" shall mean the written information
entitled "FBI Disclosure Memorandum" delivered by the 14th day following
execution of this Agreement to Regions describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made.
"FBI Financial Statements" shall mean (i)the consolidated balance
sheets (including related notes and schedules, if any) of FBI as of
September 30, 1996, and as of December 31, 1995 and 1994, and the related
statements of income, changes in stockholders' equity, and cash flows
(including related notes and schedules, if any) for the nine months ended
September 30, 1996, and for each of the three fiscal years ended December
31, 1995, 1994, and 1993, included in the FBI Disclosure Memorandum, and
(ii) the consolidated balance sheets of FBI (including related notes and
schedules, if any) and related statements of income, changes in
stockholders' equity, and cash flows (including related notes and
schedules, if any) with respect to periods ended subsequent to September
30, 1996.
"FBI Subsidiaries" shall mean the Subsidiaries of FBI, which shall
include the FBI Subsidiaries described in Section 5.4 of this Agreement and
any corporation, bank, savings association, or other organization acquired
as a Subsidiary of FBI in the future and owned by FBI at the Effective
Time.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
26
<PAGE> 31
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. sec. 9601 et seq., or
any similar federal, state, or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person shall mean the knowledge
after due inquiry of the chairman, president, chief financial officer,
chief accounting officer, chief credit officer, general counsel, any
assistant or deputy general counsel, or any senior or executive vice
president of such Person.
"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, without limitation, those
promulgated, interpreted, or enforced by any of the Regulatory Authorities.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost, or expense (including,
without limitation, costs of investigation, collection, and defense),
claim, 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 of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention, or other security arrangement, or any adverse right or interest,
charge, or claim of 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 institutions, pledges to
secure deposits and other Liens incurred in the ordinary course of the
banking business, and (iii) Liens which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding, or notice (written or oral) by any Person alleging
potential Liability, but shall not include regular, periodic examinations
of depository institutions and their Affiliates by Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in question
or by any of its Subsidiaries or in which such Party or Subsidiary holds a
security interest, and, where required by the context, includes the owner
or operator of such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event, change, or
occurrence which, individually or together with any other event, change, or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of 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 effect" shall not be deemed to include the impact of (a) changes in
banking and similar Laws of general applicability or interpretations
thereof by courts or governmental authorities, (b) changes in GAAP or
regulatory accounting principles generally applicable to banks and their
holding companies, (c) actions and omissions of a Party (or any of its
Subsidiaries) taken with the prior informed consent of the other Party
27
<PAGE> 32
in contemplation of the transactions contemplated hereby, or (d) the Merger
and compliance with the provisions of this Agreement on the operating
performance of the Parties.
"MERGER" shall mean the merger of FBI with and into Regions referred
to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ/NMS" shall mean the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasijudicial decision or award, ruling, or
writ of any federal, state, local, or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility in which the Party in
question or any of its Subsidiaries participates in the management and,
where required by the context, includes the owner or operator or such
property, but only with respect to such property.
"PARTY" shall mean either FBI or Regions and "Parties" shall mean both
FBI and Regions.
"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" shall mean the proxy statement used by FBI to
solicit the approval of its stockholders of the transactions contemplated
by this Agreement and shall include the prospectus of Regions relating to
the shares of Regions Common Stock to be issued to the stockholders of FBI.
"REGIONS COMMON STOCK" shall mean the $.625 par value common stock of
Regions.
"REGIONS COMPANIES" shall mean, collectively, Regions and all Regions
Subsidiaries.
"REGIONS DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Regions Financial Corporation Disclosure Memorandum" delivered
prior to the date of this Agreement to FBI describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"REGIONS FINANCIAL STATEMENTS" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
Regions as of September 30, 1996, and the restated consolidated statements
of condition (including related notes and schedules, if any) of Regions as
of December 31, 1995 and 1994, the related statements of income, changes in
stockholders' equity, and cash flows (including related notes and
schedules, if any) for the nine months ended September 30, 1996 and the
related restated statements of income, changes in stockholders' equity, and
cash flows (including related notes and schedules, if any) for each of the
three years ended December 31, 1995, 1994, and 1993, as filed by Regions in
SEC Documents and reflecting the acquisition of First National Bancorp
accounted for as a pooling of interests and (ii) the consolidated
statements of condition of Regions (including related notes and schedules,
if any) and related statements of income, changes in stockholders' equity,
28
<PAGE> 33
and cash flows (including related notes and schedules, if any) included in
SEC Documents filed with respect to periods ended subsequent to September
30, 1996.
"Regions Subsidiaries" shall mean the Subsidiaries of Regions.
"Registration Statement" shall mean the Registration Statement on Form
S-4, or other appropriate form, filed with the SEC by Regions under the
1933 Act in connection with the transactions contemplated by this
Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the
Governors of the Federal Reserve System, the Office of Thrift Supervision,
the Office of the Comptroller of the Currency, the FDIC, all state
regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, the NASD, and the SEC.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a Party or any of its Subsidiaries with
any Regulatory Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Stockholders' Meeting" shall mean the meeting of the stockholders of
FBI to be held pursuant to Section 8.1 of this Agreement, including any
adjournment or adjournments thereof.
"Subsidiary" or collectively "Subsidiaries" shall mean all those
corporations, banks, associations, or other entities of which the entity in
question owns or controls fifty percent (50%) or more of the outstanding
equity securities either directly or through an unbroken chain of entities
as to each of which fifty percent (50%) 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.
"Support Agreements" shall mean the various Support Agreements, each
in substantially the form of Exhibit 1 to this Agreement.
"Surviving Corporation" shall mean Regions as the surviving
corporation resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local or
foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other taxes,
assessments, charges, fares, or impositions, of any nature whatsoever,
including interest, penalties, and additions imposed thereon or with
respect thereto.
11.2 Expenses. (a) Except as otherwise provided in this Section 11.2, each
of the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that Regions shall bear and pay the filing fees
payable in connection with the Registration Statement and the Proxy Statement
and printing costs incurred in connection with the printing of the Registration
Statement and the Proxy Statement.
(b) Nothing contained in this Section 11.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
11.3 Brokers and Finders. Each of the Parties represents and warrants that
neither it nor any of its officers, directors, employees, or Affiliates has
employed any broker or finder or incurred any Liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions contemplated
hereby except for the fees payable by FBI to Stevens & Co. and Brown, Burke
Capital Partners, Inc. In the event of a claim by any other broker or finder
based upon
29
<PAGE> 34
his or its representing or being retained by or allegedly representing or being
retained by FBI or Regions, each of FBI and Regions, as the case may be, agrees
to indemnify and hold the other Party harmless of and from any Liability in
respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to, or shall, confer upon any Person, other
than the Parties or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, other than as
provided in Sections 8.9 and 8.11 of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
any such approval by the holders of FBI Common Stock, there shall be made no
amendment decreasing the consideration to be received by FBI stockholders
without the further approval of such stockholders.
11.6 Waivers. (a) Prior to or at the Effective Time, Regions, acting
through its Board of Directors, chief executive officer, vice chairman, or other
authorized officer, shall have the right to waive any Default in the performance
of any term of this Agreement by FBI, to waive or extend the time for the
compliance or fulfillment by FBI of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of Regions under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of Regions.
(b) Prior to or at the Effective Time, FBI, acting through its Board of
Directors, chief executive officer, or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Regions, to waive or extend the time for the compliance or fulfillment by
Regions of any and all of their obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of FBI under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of FBI.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the Parties and their respective successors and assigns.
30
<PAGE> 35
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage prepaid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so received:
<TABLE>
<S> <C>
FBI: First Bankshares, Inc.
2833 Main Street
East Point, Georgia 30344
Telecopy Number: (404) 305-1284
Attention: R. Elliott Miller
President and Chief Executive Officer
Copy to Counsel: Powell, Goldstein, Frazer & Murphy
191 Peachtree Street, N.E., Sixteenth Floor
Atlanta, Georgia 30303
Telecopy Number: (404) 572-5958
Attention: Walter G. Moeling IV
Regions: Regions Financial Corporation
417 North 20th Street
Birmingham, Alabama 35203
Telecopy Number: (205) 326-7571
Attention: Richard D. Horsley
Vice Chairman and Executive
Financial Officer
Copy to Counsel: Regions Financial Corporation
417 North 20th Street
Birmingham, Alabama 35203
Telecopy Number: (205) 326-7099
Attention: Samuel E. Upchurch, Jr.
General Counsel and Corporate Secretary
</TABLE>
11.9 Governing Law. Except to the extent the laws of the State of Georgia
apply to the Merger, this Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
11.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
31
<PAGE> 36
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: FIRST BANKSHARES, INC.
By: /s/ Karla Benner By: /s/ R. Elliott Miller
- ----------------------------------------------------- -----------------------------------------------------
Karla Benner R. Elliott Miller
Corporate Secretary President and Chief Executive Officer
[CORPORATE SEAL]
ATTEST: REGIONS FINANCIAL CORPORATION
By: /s/ Samuel E. Upchurch Jr. By: /s/ William E. Jordan
- ----------------------------------------------------- -----------------------------------------------------
Samuel E. Upchurch, Jr. William E. Jordan
Corporate Secretary Regional President
[CORPORATE SEAL]
</TABLE>
32
<PAGE> 37
EXHIBIT 1
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT ("Agreement") is made and entered into as of the
day of , 1996, by and between the undersigned, ,
a resident of , Georgia, and Regions Financial Corporation, a
corporation organized and existing under the laws of the State of Delaware
("Regions").
Regions and First Bankshares, Inc., a corporation organized and existing
under the laws of the State of Georgia ("FBI"), have entered into an Agreement
and Plan of Merger, dated as of December , 1996 (the "Merger Agreement"). The
Merger Agreement generally provides for the merger of FBI into Regions (the
"Merger") and the conversion of the issued and outstanding shares of the
$ par value common stock of FBI ("FBI Common Stock") into shares of the
$.625 par value common stock of Regions. The Merger Agreement is subject to the
affirmative vote of the stockholders of FBI, the receipt of certain regulatory
approvals, and the satisfaction of other conditions.
The undersigned is a member of the Board of Directors of FBI and is the
owner of shares of FBI common stock and has rights by option or
otherwise to acquire additional shares of FBI Common Stock
(collectively, the "Shares"). In order to induce Regions to enter into the
Merger Agreement, the undersigned is entering into this Agreement with Regions
to set forth certain terms and conditions governing the actions to be taken by
the undersigned solely in his capacity as a stockholder of FBI with respect to
the Shares until consummation of the Merger.
NOW, THEREFORE, in consideration of the transactions contemplated by the
Merger Agreement and the mutual promises and covenants contained herein, the
parties agree as follows:
1. Without the prior written consent of Regions, which consent shall not be
unreasonably withheld, the undersigned shall not transfer, sell, assign, convey,
or encumber any of the Shares during the term of this Agreement except for
transfers (i) by operation of law, by will, or pursuant to the laws of descent
and distribution, (ii) in which the transferee shall agree in writing to be
bound by the provisions of paragraphs 1, 2, and 3 of this Agreement as fully as
the undersigned, or (iii) to Regions pursuant to the terms of the Merger
Agreement. Without limiting the generality of the foregoing, the undersigned
shall not grant to any party any option or right to purchase the Shares or any
interest therein. Further, except with respect to the Merger, the undersigned
shall not during the term of this Agreement approve or ratify any agreement or
contract pursuant to which the Shares would be transferred to any other party as
a result of a consolidation, merger, share exchange, or acquisition.
2. The undersigned intends to, and will, vote (or cause to be voted) all of
the Shares over which the undersigned has voting authority (other than in a
fiduciary capacity) in favor of the Merger Agreement and the Merger at any
meeting of stockholders of FBI called to vote on the Merger Agreement or the
Merger or the adjournment thereof or in any other circumstance upon which a
vote, consent, or other approval with respect to the Merger Agreement or the
Merger is sought. Further, the undersigned intends to, and will, surrender the
certificate or certificates representing the Shares over which the undersigned
has dispositive authority to Regions upon consummation of the Merger as
described in the Merger Agreement and hereby waives any rights of appraisal, or
rights to dissent from the Merger, that the undersigned may have.
3. Except as otherwise provided in this Agreement, at any meeting of
stockholders of FBI or at any adjournment thereof or any other circumstances
upon which their vote, consent, or other approval is sought, the undersigned
will vote (or cause to be voted) all of the Shares over which the undersigned
has voting authority (other than in a fiduciary capacity) against (i) any merger
agreement, share exchange, or merger (other than the Merger Agreement and the
Merger), consolidation, combination, sale of substantial assets, merger,
recapitalization, dissolution, liquidation, or winding-up of or by FBI or (ii)
any amendment of FBI's Articles of Incorporation or Bylaws or other proposal or
transaction involving FBI or any of its subsidiaries, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent, or
nullify the Merger, the Merger Agreement, or any of the other transactions
contemplated thereby.
1
<PAGE> 38
4. The undersigned covenants and agrees with Regions that for a period of
two years after the effective time of the Merger, the undersigned shall not,
without the prior written consent of Regions, directly or indirectly serve as a
consultant to, serve as a management official of, or be or become a major
stockholder of any financial institution having an office in any county in which
FBI maintains an office as of the date of this Agreement. It is expressly
understood that the covenants contained in this paragraph 4 do not apply to (i)
"management official" positions which the undersigned holds with financial
institutions other than FBI as of the date of this Agreement, (ii) securities
holdings which cause the undersigned to be deemed a major stockholder of a
financial institution other than FBI as of the date of this Agreement, or (iii)
advisory relationships with a financial institution which the undersigned has as
of the date of this Agreement or may have after the date hereof solely in the
capacity as legal counsel, accountants or investment advisor. For the purposes
of the covenants contained in this paragraph 4, the following terms shall have
the following respective meanings:
(a) The term "management official" shall refer to service of any type
which gives the undersigned the authority to participate, directly or
indirectly, in policy-making functions of the financial institution. This
includes, but is not limited to, service as an organizer, officer,
director, or advisory director of the financial institution. It is
expressly understood that the undersigned may be deemed a management
official of the financial institution whether or not the undersigned holds
any official, elected, or appointed position with such financial
institution.
(b) The term "financial institution" shall refer to any bank, bank
holding company, savings and loan association, savings and loan holding
company, banking-related company, or any other similar financial
institution which engages in the business of accepting deposits or making
loans or which owns or controls a company which engages in the business of
accepting deposits or making loans. It is expressly understood that the
term financial institution shall include any financial institution as
defined herein that after the date of this Agreement makes application to
an appropriate federal or state regulatory authority for approval to
organize.
(c) The term "major stockholder" shall refer to the beneficial
ownership of 5% or more of any class of voting securities of such company
or the ownership of 5% or more of the total equity interest in such
company, however denominated.
The provisions of this paragraph 4 shall be of no further force and effect
if the undersigned is not offered employment as a director or advisory or
honorary director of Regions or any of its subsidiaries at the effective time of
the Merger or, if the undersigned is so employed, the undersigned's employment
is terminated by Regions after the effective time of the Merger.
5. The undersigned acknowledges and agrees that Regions could not be made
whole by monetary damages in the event of any default by the undersigned of the
terms and conditions set forth in this Agreement. It is accordingly agreed and
understood that Regions, in addition to any other remedy which it may have at
law or in equity, shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and specifically to enforce the terms and provisions
hereof in any action instituted in any court of the United States or in any
state having appropriate jurisdiction.
6. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
7. Except with respect to the covenants contained in paragraph 4 of this
Agreement, which shall be governed by the terms set forth therein and shall be
effective only upon consummation of the Merger, the covenants and obligations
set forth in this Agreement shall expire and be of no further force and effect
on the earlier of: (i) September 30, 1997 or such date to which the Merger
Agreement is extended; or (ii) the date on which the Merger Agreement is
terminated under Section 10.1 thereof.
2
<PAGE> 39
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the undersigned as of the day and year first above written.
As to the undersigned,
signed in the presence of:
- ---------------------------------------------
--------------------------------------
Name:
--------------------------------------
(Please print or type)
REGIONS FINANCIAL CORPORATION
By:
--------------------------------------
Samuel E. Upchurch, Jr.
General Counsel and Corporate
Secretary
3
<PAGE> 40
EXHIBIT 2
AFFILIATE AGREEMENT
Regions Financial Corporation
417 North 20th Street
Birmingham, Alabama 35203
Attention: Samuel E. Upchurch, Jr.
General Counsel and Corporate Secretary
Ladies and Gentlemen:
The undersigned is a stockholder of First Bankshares, Inc. ("FBI"), a
corporation organized and existing under the laws of the State of Georgia and
located in East Point, Georgia, and will become a stockholder of Regions
Financial Corporation ("Regions") pursuant to the transactions described in the
Agreement and Plan of Merger, dated as of December 13, 1996, by and between
Regions and FBI (the "Agreement"). Under the terms of the Agreement, FBI will
merge with and into Regions (the "Merger"), and the shares of the $1.00 par
value common stock of FBI ("FBI Common Stock") will be converted into shares of
the $.625 par value common stock of Regions ("Regions Common Stock"). This
Affiliate Agreement represents an agreement between the undersigned and Regions
regarding certain rights and obligations of the undersigned in connection with
the shares of Regions Common Stock to be received by the undersigned as a result
of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and Regions hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to FBI
the undersigned may be deemed to be an "affiliate" under Rule 145(c), as defined
in Rule 405, of the Rules and Regulations of the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended ("1933 Act"),
and the undersigned understands that the undersigned may be deemed to be an
"affiliate" at the time of the Merger.
2. Initial Restriction on Disposition. The undersigned agrees that the
undersigned will not, except by operation of law, by will or under the laws of
descent and distribution, sell, transfer, or otherwise dispose of the
undersigned's interests in, or reduce the undersigned's risk relative to, any of
the shares of Regions Common Stock into which the undersigned's shares of FBI
Common Stock are converted upon consummation of the Merger until such time as
Regions notifies the undersigned that the requirements of SEC Accounting Series
Release Nos. 130 and 135 ("ASR 130 and 135") have been met. The undersigned
understands that ASR 130 and 135 relate to publication of financial results of
post-Merger combined operations of Regions and FBI. Regions agrees that it will
publish such results within 45 days after the end of the first fiscal quarter of
Regions containing the required period of post-Merger combined operations and
that it will notify the undersigned promptly following such publication.
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants, and agrees that:
(a) During the 30 days immediately preceding the effective time of the
Merger, the undersigned will not, except by operation of law, by will, or
under the laws of descent and distribution, sell, transfer, or otherwise
dispose of the undersigned's interests in, or reduce the undersigned's risk
relative to, any of the shares of FBI Common Stock beneficially owned by
the undersigned as of the date of the stockholders' meeting of FBI held to
approve the Merger.
(b) The Regions Common Stock received by the undersigned as a result
of the Merger will be taken for the undersigned's own account and not for
others, directly or indirectly, in whole or in part.
(c) Regions has informed the undersigned that any distribution by the
undersigned of Regions Common Stock has not been registered under the 1933
Act and that shares of Regions Common Stock
4
<PAGE> 41
received pursuant to the Merger can only be sold by the undersigned (1)
following registration under the 1933 Act, or (2) in conformity with the
volume and other requirements of Rule 145(d) promulgated by the SEC as the
same now exists or may hereafter be amended, or (3) to the some extent some
other exemption from registration under the 1933 Act might be available.
The undersigned understands that Regions is under no obligation to file a
registration statement with the SEC covering the disposition of the
undersigned's shares of Regions Common Stock or to take any other action
necessary to make compliance with an exemption from such registration
available.
(d) The undersigned is aware that Regions intends to treat the Merger
as a tax-free reorganization under Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), for federal income tax purposes. The
undersigned agrees to treat the transaction in the same manner as Regions
for federal income tax purposes. The undersigned acknowledges that Section
1.368-1(b) of the Income Tax Regulations requires "continuity of interest"
in order for the Merger to be treated as tax-free under Section 368 of the
Code. This requirement is satisfied if, taking into account those FBI
stockholders who receive cash in exchange for their stock, who receive cash
in lieu of fractional shares, or who dissent from the Merger, there is no
plan or intention on the part of the FBI stockholders to sell or otherwise
dispose of the Regions Common Stock to be received in the Merger that will
reduce such stockholders' ownership to a number of shares having, in the
aggregate, a value at the time of the Merger of less than 50% of the total
fair market value of the FBI Common Stock outstanding immediately prior to
the Merger. The undersigned has no prearrangement, plan, or intention,
either alone or with other stockholders of FBI, to sell or otherwise
dispose of an amount of Regions Common Stock to be received in the Merger
which would, without taking into account any other shares of Regions Common
Stock disposed of by former stockholders of FBI (other than those
stockholders with whom the undersigned has a prearrangement, plan, or
intention to dispose of Regions Common Stock), cause the foregoing
requirement not to be satisfied.
4. Restrictions on Transfer. The undersigned understands and agrees that
stop transfer instructions with respect to the shares of Regions Common Stock
received by the undersigned pursuant to the Merger will be given to Regions'
Transfer Agent and that there will be placed on the certificates for such
shares, or shares issued in substitution thereof, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests" and
may not be sold, nor may the owner thereof reduce his risks relative
thereto in any way, until such time as Regions Financial Corporation
("Regions") has published the financial results covering at least 30 days
of combined operations after the effective date of the merger through which
the business combination was effected. In addition, the shares represented
by this certificate may not be sold, transferred, or otherwise disposed of
except or unless (1) covered by an effective registration statement under
the Securities Act of 1933, as amended, (2) in accordance with (i) Rule
145(d) (in the case of shares issued to an individual who is not an
affiliate of Regions) or (ii) Rule 144 (in the case of shares issued to an
individual who is an affiliate of Regions) of the Rules and Regulations of
such Act, or (3) in accordance with a legal opinion satisfactory to counsel
for Regions that such sale or transfer is otherwise exempt from the
registration requirements of such Act."
Such legend will also be placed on any certificate representing Regions
securities issued subsequent to the original issuance of the Regions Common
Stock pursuant to the Merger as a result of any transfer of such shares or any
stock dividend, stock split, or other recapitalization as long as the Regions
Common Stock issued to the undersigned pursuant to the Merger has not been
transferred in such a manner as to justify the removal of the legend therefrom.
If the provisions of Rules 144 and 145 are amended to eliminate restrictions
applicable to the Regions Common Stock received by the undersigned pursuant to
the Merger, or at the expiration of the restrictive period set forth in Rule
145(d), Regions, upon the request of the undersigned, will cause the
certificates representing the shares of Regions Common Stock issued to the
undersigned in connection with the Merger to be reissued free of any legend
relating to the restrictions set forth in Rules 144 and 145(d) upon receipt by
Regions of an opinion of its counsel to the effect that such legend may be
removed.
5
<PAGE> 42
5. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon the undersigned's ability to sell, transfer, or
otherwise dispose of the shares of Regions Common Stock received by the
undersigned, to the extent the undersigned believes necessary, with the
undersigned's counsel or counsel for FBI.
6. Filing of Reports by Regions. Regions agrees, for a period of three
years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Regions Common Stock issued to the undersigned pursuant to the
Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of Regions Common Stock received by the
undersigned in connection with the Merger at any time during the restrictive
period set forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for Regions Common Stock together
with such additional information as the transfer agent may reasonably request
with a copy to Regions' General Counsel at the address specified in Section 11.8
of the Agreement. Regions' General Counsel will review such information within
24 hours after receipt and no later than 24 hours after such review, if Regions'
General Counsel concludes that such proposed sale or transfer complies with the
requirements of Rule 145(d), Regions shall cause such General Counsel to provide
such opinions as may be necessary to Regions' Transfer Agent so that the
undersigned may complete the proposed sale or transfer. If Regions' General
Counsel is unable to so conclude, he will immediately notify the undersigned of
his reasons and of any action that would enable such General Counsel to conclude
that such proposed sale or transfer complies with the requirements of Rule
145(d).
8. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to all shares of the capital stock of FBI and
Regions that are deemed to be beneficially owned by the undersigned pursuant to
applicable federal securities laws, which the undersigned agrees may include,
without limitation, shares owned or held in the name of (i) the undersigned's
spouse, (ii) any relative of the undersigned or of the undersigned's spouse who
has the same home as the undersigned, (iii) any trust or estate in which the
undersigned, the undersigned's spouse, and any such relative collectively own at
least a 10% beneficial interest or of which any of the foregoing serves as
trustee, executor, or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, the undersigned's spouse, and any such
relative collectively own at least 10% of any class of equity securities or of
the equity interest. The undersigned further recognizes that, in the event that
the undersigned is a director or officer of Regions or becomes a director or
officer of Regions upon consummation of the Merger, among other things, any sale
of Regions Common Stock by the undersigned within a period of less than six
months following the effective time of the Merger may subject the undersigned to
liability pursuant to Section 16(b) of the Securities Exchange Act of 1934, as
amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
between Regions and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties This
Affiliate Agreement shall be governed by the laws of the State of Delaware.
6
<PAGE> 43
This Affiliate Agreement is executed as of the ____ day of _____________, 1996.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
--------------------------------------
--------------------------------------
--------------------------------------
Address
AGREED TO AND ACCEPTED as of
_______________, 1996
REGIONS FINANCIAL CORPORATION
By:
-------------------------------------------------
Samuel E. Upchurch, Jr.
General Counsel and Corporate Secretary
7
<PAGE> 44
EXHIBIT 3
December 13, 1996
Regions Financial Corporation
417 North 20th Street
Birmingham, Alabama 35203
Re: First Bankshares, Inc.
Ladies and Gentlemen:
This letter is delivered pursuant to Section 9.2(d) of the Agreement and
Plan of Merger, dated as of December 13, 1996, by and between Regions Financial
Corporation ("Regions") and First Bankshares, Inc. ("FBI").
In my capacity as an officer or a director, as of the date of this letter,
I do not, to the best of my knowledge, have any claims, and I am not aware of
any facts or circumstances that I believe are likely to give rise to any claim,
for indemnification under FBI's Articles of Incorporation or Bylaws as existing
on ____________, 1996 or as may be afforded by the laws of Georgia.
Sincerely,
--------------------------------------
Signature of Officer or Director
--------------------------------------
Name of Officer or Director
<PAGE> 45
EXHIBIT 4
OPINION OF FBI COUNSEL
This opinion is delivered pursuant to Section 9.2(e) of the Agreement.
Capitalized terms used in this opinion shall have the meaning set forth in the
Agreement.
1. FBI is a corporation validly existing under the Laws of the State of
Georgia with full corporate power and authority to carry on the business in
which it is engaged as described as being carried on by it in the proxy
statement used to solicit the approval by the stockholders of FBI of the
transactions contemplated by the Agreement ("Proxy Statement").
2. The authorized capital stock of FBI consists of shares of
FBI Common Stock, of which shares were issued and outstanding as of
1996.
3. The execution and delivery of the Agreement and compliance with their
its terms, and consummation of the transactions completed thereby, do not and
will not violate or contravene any provision of the Articles of Incorporation or
Bylaws of FBI.
4. In accordance with the Laws of the State of Georgia, the Articles of
Incorporation of FBI, and the Bylaws of FBI and pursuant to resolutions duly
adopted by its Board of Directors and stockholders, the Agreement has been duly
adopted and approved by the Board of Directors of FBI and by the stockholders of
FBI at the Stockholders' Meeting.
5. The Agreement has been duly and validly executed and delivered by FBI
and, assuming valid authorization, execution, and delivery by Regions,
constitutes a valid and binding agreement of FBI enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or similar laws affecting creditors' rights generally, provided,
however, that we express no opinion as to the availability of the equitable
remedy of specific performance.
<PAGE> 46
EXHIBIT 5
OPINION OF REGIONS COUNSEL
This opinion is delivered pursuant to Section 9.3(e) of the Agreement.
Capitalized terms used in this opinion shall have the meaning set forth in the
Agreement.
1. Regions is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware with full corporate power and
authority to carry on the business in which it is engaged as described as being
carried on by it in the proxy statement used to solicit the approval by the
stockholders of FBI of the transactions contemplated by the Agreement ("Proxy
Statement").
2. The execution and delivery of the Agreement and compliance with its
terms, and consummation of the transactions contemplated thereby, do not and
will not violate or contravene any provision of the Certificate of Incorporation
or Bylaws of Regions.
3. In accordance with the laws of Delaware, the Certificate of
Incorporation of Regions and the Bylaws of Regions, and pursuant to resolutions
duly adopted by its Boards of Directors, the Agreement has been duly adopted and
approved by the Boards of Director of Regions.
4. All proceedings required by law or by provisions of the Agreement to be
taken by Regions in connection with the due consummation of the transactions
contemplated by the Agreement have been duly and validly taken.
5. The Agreement has been duly and validly executed and delivered by
Regions, and assuming valid authorization, execution, and delivery by FBI,
constitutes a valid and binding agreement of Regions enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or similar laws affecting creditors' rights
generally, provided, however, that we express no opinion as to the availability
of the equitable remedy of specific performance.
6. The shares of the $.625 par value common stock of Regions to be issued
to the stockholders of FBI as contemplated by the Agreement have been duly and
validly authorized for issuance, have been duly and validly registered under the
Securities Act of 1933, as amended, and when the certificates therefor are duly
countersigned by Regions (or Regions' Transfer Agent) and delivered to the
stockholders of FBI pursuant to the Agreement following consummation of the
Merger will be duly and validly issued, fully paid and non-assessable, free of
any preemptive or other similar rights.
<PAGE> 1
EXHIBIT 10.9
FIRST BANK OF GEORGIA
DIRECTOR'S INDEXED FEE CONTINUATION PROGRAM
I. DEFINITIONS
A. EFFECTIVE DATE:
The Effective Date of the First Bank of Georgia Director's Indexed Fee
Continuation Program (the Plan) shall be January 1, 1996.
B. PLAN YEAR:
Any reference to "the Plan Year" shall mean a calendar year from January 1
to December 31. In the year of implementation, the term "the Plan Year" shall
mean the period from the effective date to December 31 of the year of the
Effective Date.
C. RETIREMENT DATE:
Retirement Date shall mean retirement from service with the Bank which
becomes effective on the first day of the calendar month following the month in
which the Director reaches age sixty-five (65) or such later date as the
Director may actually retire.
D. TERMINATION OF SERVICE:
Termination of Service shall mean voluntary resignation by the Director
from service on the Board or failure of re-election to the Board, prior to the
Retirement Date.
E. PRE-RETIREMENT ACCOUNT:
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of each director in the Plan.
Prior to termination of service or a director's retirement, such liability
reserve account shall be increased or decreased each Plan Year (including the
Plan Year in which the Directors ceases to serve on the Board) by an amount
equal to the annual earnings or loss for that Plan Year determined by the Index
[described in subparagraph I (G) hereinafter], less the Cost of Funds Expense
for that Plan Year [described in subparagraph I (H) hereinafter], divided by the
number of directors in the Plan [as defined in subparagraph I (I) hereinafter]
during that Plan Year.
F. INDEX RETIREMENT BENEFIT:
The Index Retirement Benefit for each director in the Plan shall be equal
to the annual earnings or loss determined by the Index [subparagraph I (G)] less
the Cost of Funds Expense [subparagraph I (H)], divided by the number of
directors in the Plan [subparagraph I (I)], for each Plan Year in which the
Index Retirement Benefit is due.
G. INDEX:
The Index for any Plan Year shall be the aggregate annual after-tax income
from the life insurance contracts described in the attached Exhibit "A" on the
lives of the participating directors [described in subparagraph I (I)], as
defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such
insurance contracts were purchased on the effective date of the Plan.
If such contracts of life insurance are actually purchased by the Bank then
the actual policies as of the dates they were actually purchased shall be used
in calculations under this Agreement. If such contracts of life insurance are
not purchased or are subsequently surrendered or lapsed, then the Bank shall
receive annual
1
<PAGE> 2
policy illustrations from the above named insurance company(ies) on the increase
in value from such policy(ies) as if they had actually been in force which will
be used to calculate the amount of the Index.
In either case, references to the life insurance contract are merely for
purposes of calculating a benefit. The Bank has no obligation to purchase such
life insurance and, if purchased, the Director and his beneficiaries shall have
no ownership interest in such policy and shall always have no greater interest
in the benefits under this Agreement than that of an unsecured creditor of Bank.
H. COST OF FUNDS EXPENSE:
The Cost of Funds Expense for any Plan Year shall be calculated by taking
the sum of the amount of premiums set forth in the Indexed policies described
above (Exhibit "A") plus the amount of any aftertax benefits paid to any
director pursuant to the Plan (Paragraph II hereinafter) plus the amount of all
previous years after-tax Costs of Funds Expense, and multiplying that sum by the
average after-tax cost of funds of the Bank's third quarter Call Report as filed
with the Federal Reserve or other primary Federal Regulator.
I. NUMBER OF PARTICIPATING DIRECTORS:
The Number of Participating Directors for any Plan Year shall be the number
of directors (including those in retirement status) participating in the Plan as
of December 31 of the previous year. Participating directors are those directors
listed on the attached Exhibit B less any of those directors who have died. The
policy of a director who is no longer a participating director shall not be
considered when computing the Index [subparagraph I (G)] in any Plan Year.
J. CHANGE OF CONTROL:
Change of Control shall be deemed to be the cumulative transfer of more
than fifty percent (50%) of the voting stock of the Bank holding company from
the Effective Date of this Agreement. For the purposes of this Agreement,
transfers on account of deaths or gifts, transfers between family members or
transfers to a qualified retirement plan maintained by the Bank shall not be
considered in determining whether there has been a change in control.
K. NORMAL RETIREMENT AGE:
Normal Retirement Age shall mean the date on which the Director attains age
sixty-five (65).
II. INDEX BENEFITS
A. RETIREMENT BENEFITS:
Subject to subparagraph II (C) hereinafter, a director who remains on the
Board of the Bank until his Retirement Date defined in subparagraph I (C), shall
be entitled to receive the balance in his Pre-Retirement Account in ten (10)
equal annual installments commencing thirty days following the Director's Normal
Retirement Date. In addition to these payments, commencing with the Plan Year in
which the Director attains his Retirement Date, the Index Retirement Benefit [as
defined in subparagraph I (F) above] for each Plan Year shall be paid to the
Director until his death.
B. DEATH:
Should the Director die prior to having received the Pre-Retirement
Account, the unpaid balance of the Pre-Retirement Account shall be paid to the
beneficiary selected by the Director and filed with the Bank. In the absence of
or a failure to designate a beneficiary, the unpaid balance shall be paid in a
lump sum to the personal representative of the Director's estate.
2
<PAGE> 3
C. TERMINATION OF SERVICE:
Should a Director suffer a Termination of Service [subparagraph I (D)], he
shall be entitled to receive ten percent (10%), times his full years of service
on the board of the Bank (to a maximum of 100%), times the balance in the
Pre-Retirement Account paid over ten (10) years in equal installments commencing
at the Director's Normal Retirement Age [subparagraph I (K)]. In addition to
these payments, commencing in the Plan Year the Director reaches his Normal
Retirement Age [subparagraph I (K)], ten percent (10%) times full years of
service with the Bank, times the Index Retirement Benefit for each year shall be
paid to the Director until his death.
D. DISCHARGE FOR CAUSE:
Should the Director be discharged for cause at any time prior to his
Retirement Date, all Index Benefits under this Agreement [subparagraphs III (A),
(B) or (C)] shall be forfeited. The term "for cause" shall mean gross negligence
or gross neglect or the commission of a felony or gross-misdemeanor involving
moral turpitude, fraud, dishonesty or willful violation of any law that results
in any adverse effect on the bank. If a dispute arises as to discharge "for
cause", such dispute shall be resolved by arbitration as set forth in this
Agreement.
E. DEATH BENEFIT:
Except as set forth above, there is no death benefit provided under this
Agreement.
III. DEFERRAL BENEFITS
Any director wishing to defer any portion or all of his director fees may
elect to defer any portion or all of his fee each year until his retirement. The
Bank shall establish a Deferred Compensation Account in the name of the
Director, and credit that account with the deferrals. The Bank shall also credit
interest to the Deferred Compensation Account balance on December 31st of each
year. The interest rate credited shall be two hundred percent (200%) of the
one-year treasury rate as of the crediting date to a minimum of ten percent
(10%).
The Director will make his election to defer by filing with the Bank a
written statement setting forth the amount and timing of the deferrals. This
statement must be filed prior to having earned the deferred income.
Upon the Director's Retirement Date or Termination of Service from the
Board [subparagraph I (C) and (D) herein above], the balance of the Director's
Deferred Compensation Account shall be payable to the Director in ten (10) equal
annual installments with interest at ten percent (10%) per annum.
Should the Director die while there is a balance in his Deferred
Compensation Account, such balance shall be paid pursuant to subparagraph II (C)
herein above.
Each Director shall start with a balance in his Deferred Compensation
Account as of the date hereof. This initial balance is in consideration of the
canceled agreement described in Paragraph VI hereof.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The directors,
their beneficiaries or any successor in interest shall be and remain simply a
general creditor of the Bank in the same manner as any other creditor having a
general claim for matured and unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either fund
the obligations undertaken by this Agreement or to refrain from funding the same
and to determine the extent, nature and method of such funding. Should the Bank
elect to fund this Agreement, in whole or in part, through the purchase of life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such funding at any time,
in whole or in part. At no time shall any director be deemed to have any lien
nor right, title or interest in or to any specific funding investment or to any
assets of the Bank.
3
<PAGE> 4
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Director, then the Director shall assist the Bank by
freely submitting to a physical exam and supplying such additional information
necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (J) herein], if the
Director is subsequently terminated then he shall receive the benefits promised
in this Agreement upon attaining Normal Retirement Age, as if he had been
continuously serving the Bank until his Normal Retirement Age. The Director will
also remain eligible for all promised death benefits in this Agreement. In
addition, no sale, merger or consolidation of the Bank shall take place unless
the new or surviving entity expressly acknowledges the obligations under this
Agreement and agrees to abide by its terms.
VI. AGREEMENT CANCELLED
Each of the Directors and the Bank are currently parties to an agreement
dated the 27th day of June, 1994 and entitled Directors Defined Benefit Plan
Agreement. This Directors Indexed Retirement Program is a replacement of the
Directors Defined Benefit Plan and thus all the Directors Defined Benefit Plan
Agreements are hereby canceled.
This Director's Indexed Retirement Program adopted this 18th day of
January, 1996.
FIRST BANK OF GEORGIA
/s/ Ray E. Hannah
--------------------------------------
Chairman of the Board
4
<PAGE> 5
EXHIBIT A
<TABLE>
<S> <C> <C>
1. Assumed Insured: Richard W. Cheely
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC-$aver 2000
Insured's Age: 43
Riders: None
Ratings: None
Option: A
Face Amount: $225,000
Premiums Paid: $70,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
2. Assumed Insured: James A. Eidson
Insurance Company: Alexander Hamilton Life Insurance
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan III
Insured's Age: 41
Riders: None
Ratings: None
Option: A
Face Amount: $207,000
Premiums Paid: $65,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
3. Assumed Insured: Ray E. Hannah
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC-$aver 2000
Insured's Age: 58
Riders: None
Ratings: None
Option: A
Face Amount: $200,000
Premiums Paid: $105,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
4. Assumed Insured: James L. Lynn
Insurance Company: Alexander Hamilton Life Insurance
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan III
Insured's Age: 53
Riders: None
Ratings: None
Option: A
Face Amount: $199,000
Premiums Paid: $90,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
5. Assumed Insured: Richard G. Stilley
Insurance Company: General American Life Insurance
Policy Form: Flexible Premium Adjustable Life
Policy Name: Universal Life
Insured's Age: 44
Riders: None
Ratings: None
Option: A
Face Amount: $704,321
Premiums Paid: $135,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
6. Assumed Insured: Hugh S. Thompson, M.D.
Insurance Company: Alexander Hamilton Life Insurance
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age: 66
Riders: None
Ratings: None
Option: A
Face Amount: $184,000
Premiums Paid: $115,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
7. Assumed Insured: Conrad M. Waller
Insurance Company: General American Life Insurance
Policy Form: Flexible Premium Adjustable Life
Policy Name: Universal Life
Insured's Age: 57
Riders: None
Ratings: None
Option: A
Face Amount: $363,398
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: May 10, 1994
</TABLE>
6
<PAGE> 7
EXHIBIT B
<TABLE>
<S> <C>
Director Name: Richard W. Cheely
Address: 195 Emerald Lake Drive, Fayetteville, GA 30214
Date of Birth: April 19, 1951
Social Security Number: ###-##-####
Director Name: James A. Eidson
Address: 2515 Habersham NW, Atlanta, GA 30305
Date of Birth: June 3, 1952
Social Security Number: ###-##-####
Director Name: Ray E. Hannah
Address: 137 Valley Brook Drive, Fairburn, GA 30213
Date of Birth: January 22, 1936
Social Security Number: ###-##-####
Director Name: James L. Lynn
Address: 118 Crescent Drive, Newnan, GA 30263
Date of Birth: November 23, 1940
Social Security Number: ###-##-####
Director Name: Cannis E. McLain
Address: 2192 Carmen Court, Morrow, GA 30260
Date of Birth: May 5, 1931
Social Security Number: ###-##-####
Director Name: Richard G. Stilley
Address: 515 Autumn Wood Close, Roswell, GA 30075
Date of Birth: April 8, 1950
Social Security Number: ###-##-####
Director Name: Hugh S. Thompson, M.D.
Address: 707 Highway 314, Fayetteville, GA 30214
Date of Birth: April 16, 1928
Social Security Number: ###-##-####
Director Name: Conrad M. Waller
Address: 1307 Winbarn Drive, East Point, GA 30344
Date of Birth: February 23, 1937
Social Security Number: ###-##-####
</TABLE>
7
<PAGE> 8
DIRECTOR INDEXED FEE CONTINUATION PROGRAM
DIRECTOR AGREEMENT
This Agreement, made and entered into this day of ,
1996, by and between First Bank of Georgia, a Bank organized and existing under
the laws of the State of Georgia, hereinafter referred to as "the Bank", and
James A. Eidson a member of the Board of Directors of the Bank, hereinafter
referred to as "the Director".
The Director has been on the Board of the Bank for several years and has
now and for years past faithfully served the Bank. It is the consensus of the
Board of Directors that the Director's services have been of exceptional merit,
in excess of the compensation paid and an invaluable contribution to the profits
and position of the Bank in its field of activity. The Board further believes
that the Director's experience, knowledge of corporate affairs, reputation and
industry contacts are of such value and his continued services so essential to
the Bank's future growth and profits that it would suffer severe financial loss
should the Director terminate his service on the Board.
The Bank and the Director are parties to an agreement dated the 27th day of
June, 1994 entitled Directors Defined Benefit Plan Agreement which they wish to
cancel and replace with a new plan.
Accordingly, the Board of the Bank has adopted the First Bank of Georgia
Director Indexed Fee Continuation Program (the Plan) whereby the Director will
enter into this Agreement under which the Bank agrees to make certain payments
to the Director upon his retirement and to his beneficiaries in the event of his
death pursuant to the Plan.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Director, for purposes of the Employee Retirement Security Act of 1974
(ERISA). The Director is fully advised of the Bank's financial status and has
had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of services the Director has performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Director agree as follows:
I. INDEXED PLAN
The Director is hereby subject to the terms and conditions of the Plan
adopted by the Board of Directors of the Bank to be effective on January 1,
1996; a copy of the terms and conditions of the Plan being attached hereto as
Exhibit I and made a part hereof by reference.
II. AGREEMENT CANCELLED
Each of the Directors and the Bank are currently parties to an agreement
dated the 27th day of June, 1994 and entitled Directors Defined Benefit Plan
Agreement. This Directors Indexed Retirement Program is a replacement of the
Directors Defined Benefit Plan and thus all the Directors Defined Benefit Plan
Agreements are hereby canceled.
III. DEFERRED COMPENSATION
The Director shall have a starting balance in his Deferred Compensation
Account of $16,606.40 (sixteen thousand, six hundred and six dollars and forty
cents only).
IV. MISCELLANEOUS
A. ALIENABILITY AND ASSIGNMENT PROHIBITION:
Neither the Director, his/her surviving spouse nor any other beneficiary
under this Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in
advance any of the benefits payable hereunder nor shall any of said benefits be
subject to seizure
<PAGE> 9
for the payment of any debts, judgments, alimony or separate maintenance owed by
the Director or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Director or any
beneficiary attempts assignment, commutation, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
B. BINDING OBLIGATION OF THE BANK AND ANY SUCCESSOR IN INTEREST:
The Bank shall not merge or consolidate into or with another bank or sell
substantially all of its assets to another bank, firm or person until such bank,
firm or person expressly agrees, in writing, to assume and discharge the duties
and obligations of the Bank under this Agreement. This Agreement shall be
binding upon the parties hereto, their successors, beneficiaries, heirs and
personal representatives.
C. REVOCATION:
It is agreed by and between the parties hereto that, during the lifetime of
the Director, this Agreement may be amended or revoked at any time or times, in
whole or in part, by the mutual written consent of the Director and the Bank.
D. GENDER:
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or neuter
gender, whenever they should so apply.
E. EFFECT ON OTHER BANK BENEFIT PLANS:
Nothing contained in this Agreement shall affect the right of the Director
to participate in or be covered by any qualified or non-qualified pension,
profit-sharing, group, bonus or other supplemental compensation or fringe
benefit plan constituting a part of the Bank's existing or future compensation
structure
F. HEADINGS:
Headings and subheadings in this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this Agreement.
G. APPLICABLE LAW:
The validity and interpretation of this Agreement shall be governed by the
laws of the State of Georgia.
III. ERISA PROVISION
A. NAMED FIDUCIARY AND PLAN ADMINISTRATOR:
The "Named Fiduciary and Plan Administrator" of this Plan shall be First
Bank of Georgia until its resignation or removal by the Board of Directors. As
Named Fiduciary and Plan Administrator, First Bank of Georgia shall be
responsible for the management, control and administration of the Director's
Indexed Fee Continuation Plan as established herein. The Named Fiduciary may
delegate to others certain aspects of the management and operation
responsibilities of the Plan including the employment of advisors and the
delegation of ministerial duties to qualified individuals.
B. CLAIMS PROCEDURE AND ARBITRATION:
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Director (or to his beneficiary in the case of the
Director's death) and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Named Fiduciary and Plan
Administrator named above within sixty (60) days from the date payments are
refused. The Plan Fiduciary and Plan Administrator shall review the written
claim and if the claim is denied, in whole or in part, they shall provide in
writing within sixty (60) days of receipt of such claim their specific reasons
for such denial, reference to the provisions of this
2
<PAGE> 10
Agreement upon which the denial is based and any additional material or
information necessary to perfect the claim. Such written notice shall further
indicate the additional steps to be taken by claimants if a further review of
the claim denial is desired. A claim shall be deemed denied if the Plan
Fiduciary and Plan Administrator fail to take any action within the aforesaid
sixty-day period.
If claimants desire a second review they shall notify the Plan Fiduciary
and Plan Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Agreement or any documents relating thereto
and submit any written issues and comments they may feel appropriate. In their
sole discretion, the Plan Fiduciary and Plan Administrator shall then review the
second claim and provide a written decision within sixty (60) days of receipt of
such claim. This decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of the Plan
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed
performance of this Agreement or the meaning and effect of the terms and
conditions thereof, then claimants may submit the dispute to a Board of
Arbitration for final arbitration. Said Board shall consist of one member
selected by the claimant, one member selected by the Bank and the third member
selected by the first two members. The Board shall operate under any generally
recognized set of arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns shall be bound by
the decision of such Board with respect to any controversy properly submitted to
it for determination.
Where a dispute arises as to the Bank's discharge of the Director "for
cause", such dispute shall likewise be submitted to arbitration as above
described and the parties hereto agree to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the day of
, 1996, and that, upon execution, each has received a conforming
copy.
<TABLE>
<S> <C> <C>
FIRST BANK OF GEORGIA
By:
- ----------------------------------------------------- ----------------------------------------
Witness Title
By:
- ----------------------------------------------------- ----------------------------------------
Witness Director
</TABLE>
3
<PAGE> 11
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
<TABLE>
<S> <C>
Insurer: Alexander Hamilton Life Insurance Company
Policy Number:
Bank: First Bank of Georgia
Insured:
Relationship of Insured to Director
Bank:
</TABLE>
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to the
extent of its interest, exercise the right to borrow or withdraw on the policy
cash values. Where the Bank and the Insured (or assignee, with the consent of
the Insured) mutually agree to exercise the right to increase the coverage under
the subject split dollar policy, then, in such event, the rights, duties and
benefits of the parties to such increased coverage shall continue to be subject
to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds payable upon
the death of the Insured, and to elect and change a payment option for such
beneficiary, subject to any right or interest the Bank may have in such
proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank (or its
administrator) will report to the Employee the amount of imputed income received
each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent (80%)
of the net at risk insurance portion of the proceeds. The net at risk
insurance portion is the total proceeds less the cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
<PAGE> 12
C. The Bank and the Insured (or assignees) shall share in any interest
due on the death proceeds on a pro rata basis as the proceeds due each
respectively bears to the total proceeds, excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's
cash value, as that term is defined in the policy contract, less any policy
loans and unpaid interest or cash withdrawals previously incurred by the Bank
and any applicable surrender charges. Such cash value shall be determined as of
the date of surrender or death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been paid by
the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits, on
expiration of the deferment period, shall be determined under the provisions of
this Agreement by regarding such endowment proceeds or the commuted value of
such annuity benefits as the policy's cash value. Such endowment proceeds or
annuity benefits shall be considered to be like death proceeds for the purposes
of division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Insured upon the happening of any one of the
following:
1. The Insured shall be in violation of the terms and conditions of
that certain Director Indexed Fee Continuation Plan Agreement dated the
of , 1996, or
2. The Insured shall leave the service of the Bank (voluntarily or
involuntarily) prior to five years of service on the board, or
3. The Insured shall be discharged from service with the Bank for
cause. The term "for cause" shall mean gross negligence or gross neglect or
the commission of a felony or gross-misdemeanor involving moral turpitude,
fraud, dishonesty or willful violation of any law that results in any
adverse effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a ninety (90)
day option to receive from the Bank an absolute assignment of the policy in
consideration of a cash payment to the Bank, whereupon this Agreement shall
terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date of
such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior
to the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within the
prescribed ninety (90) day period, the Insured (or assignee) agrees that all of
his rights, interest and claims in the policy shall terminate as of the date of
the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
2
<PAGE> 13
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to any
individual, trust or other organization, any right, title or interest in the
subject policy nor any rights, options, privileges or duties created under this
Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
First Bank of Georgia is hereby designated the "Named Fiduciary" until
resignation or removal by the board of directors. As Named Fiduciary, the bank
shall be responsible for the management, control, and administration of this
Split Dollar Plan as established herein. The Named Fiduciary may allocate to
others certain aspects of the management and operation responsibilities of the
plan, including the employment of advisors and the delegation of any ministerial
duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named
Fiduciary has a claim which may be covered under the provisions described in the
insurance policy, he should contact the office named above, and they will either
complete a claim form and forward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are necessary.
The Insurer will evaluate and make a decision as to payment. If the claim is
payable, a benefit check will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements under
the terms of the policy. If the Named Fiduciary is dissatisfied with the denial
of the claim and wishes to contest such claim denial, he should contact the
office named above and they will assist in making inquiry to the Insurer. All
objections to the Insurer's actions should be in writing and submitted to the
office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or neuter
gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as herein developed upon receiving an executed copy of
this Agreement. Payment or other performance in accordance with the policy
provisions shall fully discharge the Insurer for any and all liability.
3
<PAGE> 14
Executed at East Point, Georgia this day of , 1996.
<TABLE>
<S> <C> <C>
FIRST BANK OF GEORGIA
By:
- ----------------------------------------------------- ----------------------------------------
Witness Title
By:
- ----------------------------------------------------- ----------------------------------------
Witness Insured
</TABLE>
4
<PAGE> 15
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
<TABLE>
<CAPTION>
NAME RELATIONSHIP
---- ------------
<S> <C>
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
CONTINGENT DESIGNATION:
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
Signature of Insured Date
</TABLE>
5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 7, 1997, accompanying the
consolidated financial statements included in the Annual Report of First
Bankshares, Inc. on Form 10-KSB for the year ended December 31, 1996. We hereby
consent to the incorporation by reference of said reports in the Registration
Statements of First Bankshares, Inc. on Form S-8 (File No. 3317385) effective
December 6, 1996.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST BANKSHARES, INC FOR THE YEAR ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,581
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,680
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,792
<INVESTMENTS-CARRYING> 20,792
<INVESTMENTS-MARKET> 20,792
<LOANS> 81,983
<ALLOWANCE> 1,129
<TOTAL-ASSETS> 121,379
<DEPOSITS> 91,565
<SHORT-TERM> 18,400
<LIABILITIES-OTHER> 2,065
<LONG-TERM> 0
0
0
<COMMON> 1,052
<OTHER-SE> 8,297
<TOTAL-LIABILITIES-AND-EQUITY> 121,379
<INTEREST-LOAN> 7,517
<INTEREST-INVEST> 1,357
<INTEREST-OTHER> 73
<INTEREST-TOTAL> 8,947
<INTEREST-DEPOSIT> 2,807
<INTEREST-EXPENSE> 3,252
<INTEREST-INCOME-NET> 5,696
<LOAN-LOSSES> 84
<SECURITIES-GAINS> 29
<EXPENSE-OTHER> 4,800
<INCOME-PRETAX> 2,931
<INCOME-PRE-EXTRAORDINARY> 2,931
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,846
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 9.97
<LOANS-NON> 0
<LOANS-PAST> 118
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,027
<CHARGE-OFFS> 50
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 1,129
<ALLOWANCE-DOMESTIC> 1,129
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
