AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MAY 12 1999
REGISTRATION NO. 333 - _____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S - 4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JAMES RIVER BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
VIRGINIA 0-26314 54-1740210
(State or other jurisdiction of (Primary Standard Industrial (I.R.S.
incorporation or organization) Classification Code Number) Identification)
</TABLE>
1514 HOLLAND ROAD
SUFFOLK, VIRGINIA 23434
(757) 934-8100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DONALD W. FULTON, JR.
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1514 HOLLAND ROAD
SUFFOLK, VIRGINIA 23434
(757) 934-8100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
JODY M. WAGNER, ESQ. WAYNE A. WHITHAM, JR., ESQ.
KAUFMAN & CANOLES, P.C. WILLIAMS, MULLEN, CHRISTIAN & DOBBINS
ONE COMMERCIAL PLACE, SUITE 2000 TWO JAMES CENTER
P.O. BOX 3037 1021 EAST CARY STREET
NORFOLK, VA 23514 P.O. BOX 1320
(757) 624-3294 RICHMOND, VA 23210-1320
(804) 783-6473
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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<CAPTION>
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<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED SHARE(1) PRICE(1) FEE
======================== ============== ==================== ==================== =============
Common Stock, $5.00 843,978 $8.91 $7,519,843.98 $2,090.51
par value
======================== ============== ==================== ==================== =============
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f), based on $25.83, the book value of the common stock of
State Bank of Remington, Inc. on March 31, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 5(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of James River Bankshares, Inc. and State Bank of
Remington, Inc. have agreed on a merger agreement that provides for the
combination of the two companies. After the merger, James River will have total
assets of almost $500 million and will span the area from Suffolk to Remington,
Virginia.
If shareholders of both companies approve the proposals related to the
merger, State Bank will become a wholly owned subsidiary of James River and
State Bank shareholders will receive 2.9 shares of James River common stock for
each share of State Bank common stock they own. James River shareholders will
continue to hold their existing shares of James River common stock after the
merger. We estimate that upon completion of the merger, approximately 18.4% of
the outstanding James River common stock will be owned by current State Bank
shareholders and approximately 81.6% will be owned by persons who are James
River shareholders just before the merger is completed.
We cannot complete the merger unless shareholders of State Bank (equal
to more than two-thirds of the holders of State Bank common stock) approve the
merger agreement and shareholders of James River approve the issuance of shares
to holders of State Bank common stock. Approval of the other James River annual
meeting matters is not a condition to the merger.
We have each scheduled meetings for our shareholders to vote on these
matters. In James River's case, the meeting will be an annual meeting of
shareholders at which shareholders will also elect directors and ratify the
appointment of auditors. In State Bank's case, the meeting will be a special
meeting at which shareholders will only be asked to consider the proposed
merger. WHETHER OR NOT YOU PLAN TO ATTEND YOUR SHAREHOLDER MEETING, PLEASE TAKE
THE TIME TO VOTE BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD TO us. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the transaction. In the case of
State Bank shareholders, if you do not return your card, the effect will be a
vote against the merger. If your shares are held in "street name," you must
instruct your broker in order to vote.
The dates, times and places of the meetings are as follows:
FOR JAMES RIVER SHAREHOLDERS:
_________, 1999, ____ _.m.
__________________________
__________________________
FOR STATE BANK SHAREHOLDERS:
_________, 1999, ____ _.m.
__________________________
__________________________
The document accompanying this letter contains additional information
regarding the merger agreement, the proposed merger and the two companies. We
encourage you to read this entire document carefully. You can also obtain more
information about James River in documents James River has filed with the
Securities and Exchange Commission.
We strongly support this strategic merger of James River and State Bank
and appreciate your prompt attention to this very important matter.
____________________________
Harold U. Blythe
PRESIDENT
JAMES RIVER BANKSHARES, INC.
____________________________
Larry B. Olinger
PRESIDENT
STATE BANK OF REMINGTON, INC.
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<S> <C>
- ----------------------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
document. Any representation to the contrary is a criminal offense. The securities offered
hereby are not savings accounts, deposits or other obligations of a bank or savings
association and are not insured by the Federal Deposit Insurance Corporation or any other
government agency.
- ----------------------------------------------------------------------------------------------
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The date of this joint proxy statement/prospectus is _________ __, 1999 and it
is first being mailed to shareholders on or about _________ __, 1999.
<PAGE>
TABLE OF CONTENTS
CHAPTER I
QUESTIONS AND ANSWERS ABOUT THE MERGER .................1
WHO CAN HELP ANSWER YOUR QUESTIONS .....................3
SUMMARY ................................................4
The Companies ........................................4
Recommendations ......................................4
Reasons for the Merger ...............................5
The Meetings .........................................5
Votes Required .......................................5
Record Date; Voting Power ............................5
Opinion of State Bank's Financial Advisor.............6
No Appraisal Rights ..................................6
James River to Use Pooling of Interest
Accounting Treatment...............................6
Comparative Per Share Market Price ...................6
Fee for Termination ..................................6
Share Ownership of Management ........................7
Benefits to Management in the Merger .................7
Conditions that Must be Satisfied for the Merger
to Occur...........................................7
Termination of the Merger Agreement ..................8
Effective Date Expected: Third Quarter of 1999 .......8
Other James River Annual Meeting Matters..............8
Selected Historical Financial Data ...................9
Selected Proforma Financial Data ....................10
Comparative Per Share Data ..........................11
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS..........................12
THE MERGER ............................................12
Background of the Merger ............................12
State Bank's Reasons for the Merger and
Recommendation of State Bank Board................14
Opinion of the State Bank's Financial Advisor .......15
James River's Reasons for the Merger and
Recommendation of James River Board...............18
Accounting Treatment ................................19
Material Federal Income Tax Consequences
of the Merger.....................................19
Absence of Appraisal Rights .........................20
PRO FORMA FINANCIAL INFORMATION .......................21
INTERESTS OF CERTAIN PERSONS IN THE MERGER.............27
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS..........27
TERMS OF THE MERGER AGREEMENT .........................28
Representations and Warranties;
Conditions to the Merger...........................28
Regulatory Approvals ................................28
Business Pending the Merger .........................29
No Solicitation; Board Action .......................29
Effective Date ......................................30
Surrender of Stock Certificates .....................30
Waiver, Amendment and Termination ...................30
Resales of James River Common Stock .................31
Expenses of the Merger and Termination Fee ..........31
MARKET PRICES AND DIVIDENDS ...........................32
CHAPTER II
INFORMATION ABOUT THE MEETINGS AND VOTING
General ..............................................1
James River Meeting ..................................1
State Bank Meeting ...................................3
CHAPTER III
DESCRIPTION OF STATE BANK
BUSINESS OF STATE BANK .................................1
General ..............................................1
Lending Activities ...................................1
Supervision and Regulation ...........................3
Employees ............................................4
Competition ..........................................4
Properties ...........................................4
STATE BANK SELECTED FINANCIAL INFORMATION...............5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........6
STATE BANK OWNERSHIP OF MANAGEMENT ....................21
CHAPTER IV
LEGAL MATTERS
COMPARATIVE RIGHTS OF SHAREHOLDERS .....................1
General ..............................................1
Authorized Capital ...................................1
Preemptive Rights ....................................1
Dividend Rights ......................................2
Voting Rights ........................................2
Shareholder Meetings .................................2
Directors ............................................2
Anti-Takeover Provisions .............................2
Director and Officer Exculpation .....................3
Indemnification ......................................4
RESALES OF JAMES RIVER COMMON STOCK ....................4
EXPERTS ................................................5
LEGAL OPINIONS .........................................5
CHAPTER V
OTHER MATTERS-JAMES RIVER ANNUAL MEETING
ELECTION OF DIRECTORS ..................................1
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS....13
CHAPTER VI
SUBMISSION OF PROPOSALS FOR 2000 .......................1
WHERE YOU CAN FIND MORE INFORMATION ....................1
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Opinion of McKinnon & Co., Inc.
Annex C Financial Statements of State Bank of Remington, Inc.
<PAGE>
CHAPTER I
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS STATE BANK MERGING WITH JAMES RIVER?
A: Both the State Bank board of directors and the James River board of directors
believe the merger is in the best interests of their respective companies and
will provide significant benefits to their respective shareholders, customers
and employees. The boards believe the merger will create a company with enhanced
financial performance which will be better positioned to be a strong competitor
in the rapidly changing and consolidating financial services industry in
Virginia. To review the background and reasons for the merger in greater detail,
see pages I-12 through I-19.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: STATE BANK SHAREHOLDERS. State Bank shareholders will receive 2.9 shares
of James River common stock in exchange for each share of State Bank common
stock they hold. This is the "exchange ratio." James River will not issue
fractional shares in the merger. Instead, State Bank shareholders will receive a
cash payment, without interest, for the value of any fraction of a share of
James River common stock that they would otherwise be entitled to receive based
upon the market value (as determined in the merger agreement) of a share of
James River common stock at the time of the merger.
JAMES RIVER SHAREHOLDERS. Each share of James River common stock held by
James River shareholders will continue to represent one share of James River
common stock following the merger. After the merger, State Bank's former
shareholders will own approximately 18.4% of James River's outstanding shares of
common stock and current James River shareholders will own approximately 81.6%
of James River's outstanding shares of common stock.
FOR EXAMPLE:
o IF YOU OWN 100 SHARES OF STATE BANK COMMON STOCK, AFTER THE MERGER
YOU WILL RECEIVE 290 SHARES OF JAMES RIVER COMMON STOCK.
o IF YOU OWN 15 SHARES OF STATE BANK COMMON STOCK, AFTER THE MERGER YOU
WILL RECEIVE 43 SHARES OF JAMES RIVER COMMON STOCK AND A CHECK FOR THE MARKET
VALUE OF 0.5 TIMES THE MARKET VALUE OF ONE SHARE OF JAMES RIVER COMMON STOCK.
o IF YOU OWN 100 SHARES OF JAMES RIVER COMMON STOCK, AFTER THE MERGER
THOSE SHARES WILL CONTINUE TO REPRESENT 100 SHARES OF JAMES RIVER COMMON STOCK.
Q: WHAT WILL MY DIVIDENDS BE AFTER THE MERGER?
A: In 1998, James River increased its dividend to $0.48 per share per year,
payable quarterly at the rate of $0.12 per share per quarter. The board
continued this payment rate in the first quarter of 1999 and intends to continue
dividends at this rate, however, James River cannot assure these payments. The
James River board will use its discretion to decide whether and when to declare
dividends and in what amount, and it will consider all relevant factors in doing
so.
Q: WHAT HAPPENS AS THE MARKET PRICE OF JAMES RIVER COMMON STOCK FLUCTUATES?
A: The exchange ratio is fixed at 2.9 shares of James River common stock
for each share of State Bank common stock. Since the market value of James River
common stock will fluctuate before and after the closing of the merger, the
value of the James River common stock that State Bank shareholders will receive
in the merger will fluctuate as well and could increase or decrease. State Bank
shareholders should obtain current market prices for shares of James River
common stock and shares of State Bank common stock.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We are working to complete the merger during the third quarter of 1999.
<PAGE>
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: STATE BANK SHAREHOLDERS. We expect that the exchange of shares by State
Bank shareholders generally will be tax-free to State Bank shareholders for U.S.
federal income tax purposes. State Bank shareholders will, however, have to pay
taxes on cash received for fractional shares. To review the tax consequences to
State Bank shareholders in greater detail, see pages I-19 and I-20. Your tax
consequences may depend on your personal situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
JAMES RIVER SHAREHOLDERS. The merger will have no tax consequences
to James River shareholders.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: STATE BANK SHAREHOLDERS: You are being asked to approve the merger
agreement which provides for the merger of State Bank into a James River
subsidiary, to effectively make State Bank a wholly owned subsidiary of James
River, and the issuance of 2.9 shares of James River common stock for each
outstanding share of State Bank common stock. Approval of the proposal requires
the affirmative vote of more than two-thirds of the outstanding shares of State
Bank common stock.
THE STATE BANK BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND RECOMMENDS VOTING FOR THE APPROVAL OF THE MERGER AGREEMENT.
JAMES RIVER SHAREHOLDERS: You are being asked to approve the issuance of
James River common stock to State Bank shareholders in connection with the
merger. Approval of the proposal requires the affirmative vote of a majority of
the shares voted, and the shares voted must represent over 50% of the shares
entitled to vote.
THE JAMES RIVER BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND THE STOCK ISSUANCE AND RECOMMENDS VOTING FOR THE APPROVAL OF THE
STOCK ISSUANCE.
Q: WHAT SHOULD I DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail
it in the enclosed envelope as soon as possible, so that your shares will be
represented at your meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be voted in the case of the State Bank shareholders in
favor of the proposal to approve and adopt the merger agreement, and, in the
case of James River shareholders, in favor of the issuance of James River common
stock in the merger. IF YOU ARE A STATE BANK SHAREHOLDER AND YOU DO NOT SIGN AND
SEND IN YOUR PROXY OR YOU ABSTAIN, IT WILL HAVE THE EFFECT OF A VOTE AGAINST THE
MERGER, AS APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF MORE THAN TWO-THIRDS OF THE
SHARES OUTSTANDING. If you are a James River shareholder and you do not sign and
send in your proxy or you abstain, your shares will not be counted as having
voted at the James River meeting.
You may attend your shareholders' meeting and vote your shares in
person, rather than voting by proxy. In addition, you may withdraw your proxy up
to and including the day of your shareholders' meeting by following the
directions on pages II-1 through II-4 and either change your vote or attend your
shareholders, meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares of State Bank common stock or James
River common stock only if you provide instructions on how to vote. You should
instruct your broker how to vote your shares, following the directions your
broker provides. IF YOU DO NOT PROVIDE INSTRUCTIONS TO YOUR BROKER, YOUR SHARES
WILL NOT BE VOTED. If you are a State Bank shareholder and do not provide
instructions to your broker, your shares will not be voted and this will have
the effect of voting against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If you are a State Bank shareholder, after the merger is completed
we will send you written instructions for exchanging your State Bank common
stock certificates for James River common stock certificates. If you are a James
River shareholder, the merger will not require you to take any action regarding
your James River common stock certificates.
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask
any questions about the merger, you should contact:
JAMES RIVER SHAREHOLDERS:
Harold U. Blythe
President
James River Bankshares, Inc.
1514 Holland Road
Suffolk, Virginia 23434
Telephone: (757) 934-8100
STATE BANK SHAREHOLDERS:
Larry B. Olinger
President
State Bank of Remington, Inc.
P.O. Box 158
Remington, Virginia 22734
Telephone: (540) 439-3233
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY
NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL
TERMS OF THE MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY, AS WELL AS
THE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU, INCLUDING THE MERGER AGREEMENT.
SEE "WHERE YOU CAN FIND MORE INFORMATION" (PAGE VI-1).
THE COMPANIES
JAMES RIVER BANKSHARES, INC.
1514 Holland Road
Suffolk, Virginia 23434
(757) 934-8100
James River is a Virginia bank holding company that began operations June
1, 1995. James River now has four operating bank subsidiaries with a total of 24
banking offices that conduct operations from the Tidewater Region of
Southeastern Virginia to the tri-city areas of Hopewell, Petersburg and Colonial
Heights and in South-central Virginia. James River's banking subsidiaries are
members of the Federal Reserve System and their deposits are insured by the
Federal Deposit Insurance Corporation. In addition to the banking subsidiaries,
James River has a consumer finance subsidiary, a consumer equity lending
subsidiary, a support services subsidiary, and one of its banking subsidiaries
operates a mortgage lending subsidiary. On March 31, 1999, James River had total
assets of $414.0 million, total deposits of $366.8 million, total loans of
$282.3 million and shareholders' equity of $43.7 million.
James River stock is listed and traded on the NASDAQ National Market
System under the symbol "JRBK."
STATE BANK OF REMINGTON, INC.
P.O. Box 158
Remington, Virginia 22734
(540) 439-3233
State Bank of Remington is a Virginia commercial bank chartered in 1913.
It is a member of the Federal Reserve, and its deposits are insured by the
Federal Deposit Insurance Corporation. State Bank's headquarters are, and have
always been, in the Town of Remington, in Southern Fauquier County, Virginia.
State Bank operates two branch offices, opened in 1971 and 1975, extending
operations into the neighboring communities of Catlett and Bealeton, Virginia.
On March 31, 1999, State Bank had total assets of $70.2 million, total deposits
of $62.1 million, total loans of $39.3 million, and shareholders' equity of $7.5
million.
THE EXCHANGE RATIO IS 2.9 SHARES OF JAMES RIVER COMMON STOCK FOR EACH SHARE OF
STATE BANK COMMON STOCK.
The merger agreement provides that each share of State Bank common stock
will be converted into 2.9 shares of James River common stock on the effective
date of the merger. Accordingly, the 291,027 shares of State Bank common stock
will be converted into approximately 843,978 shares of James River common stock.
Fractional shares of James River common stock will not be issued, and State Bank
shareholders will receive cash payment, without interest, for the value of any
fraction of a share of James River common stock that they would otherwise be
entitled to receive based upon the market value of a share of James River common
stock at the time of the merger.
RECOMMENDATIONS
The James River board of directors and the State Bank board of directors
have each unanimously approved and adopted the merger agreement. The State Bank
board recommends a vote FOR approval of the merger agreement and the
transactions contemplated thereby. The James River board recommends a vote FOR
approval of issuance of shares of James River common stock to holders of State
Bank common stock pursuant to the merger agreement. You also should refer to the
reasons that the boards considered in determining whether to approve and adopt
the merger agreement on pages I-14 through I-19.
<PAGE>
REASONS FOR THE MERGER
The James River board and State Bank board each carefully considered the
merger decision. Each board had several reasons for approving the merger. A few
of the reasons are set forth below. For a complete discussion, see pages I-14
through I-19.
JAMES RIVER:
o The merger with State Bank will expand James River's reach into Fauquier
County, an attractive region of Virginia, and afford new expansion
opportunities into adjacent areas such as Warrenton, Manassas,
Fredericksburg and Culpeper.
o The merger will allow James River to spread certain administrative and
operational costs over a larger base and to realize a limited amount of
direct cost savings.
o The compatibility of State Bank and James River, including community bank
operating philosophies and similarity of products and customer orientation.
STATE BANK:
o The fact that James River common stock is more liquid since it is traded on
the NASDAQ National Market while State Bank common stock is traded only
internally by State Bank personnel matching prospective buyers and sellers.
o The terms of the merger agreement, including the exchange ratio and the
provisions that will permit State Bank to continue operations as a separate
banking entity with its current management and board.
o The compatibility of State Bank's and James River's community bank operating
philosophies and the similarity of products and customer orientation.
o An association with James River will result in State Bank's participation in
a banking organization with 27 offices in Virginia and the Board's
conclusion that the resulting geographic diversification and economies of
scale would enable State Bank to compete more effectively in the financial
services industry of the future.
o The representation of McKinnon & Company to the board, that as of such date,
the exchange ratio was fair from a financial point of view to the State Bank
shareholders.
o The expectation that the merger will be tax-free for federal income tax
purposes to State Bank and its shareholders, except for cash paid instead of
fractional shares.
THE MEETINGS (PAGES II-1 THROUGH II-4)
JAMES RIVER. The James River meeting will be held at
__________________________, Virginia, at ____ _.m., local time, on ___________,
1999. At the James River meeting, James River shareholders will be asked to
consider and vote upon a proposal to approve the issuance of James River common
stock in connection with the merger.
STATE BANK. The State Bank meeting will be held at
_________________________ __________________, Virginia, at ____ _.m., local
time, on ___________, 1999. At the State Bank meeting, State Bank shareholders
will be asked to consider and vote upon a proposal to approve and adopt the
merger agreement.
VOTES REQUIRED (PAGES II-1 AND II-3)
JAMES RIVER. Approval by the James River shareholders of the proposal to
approve the issuance of James River common stock will require a greater number
of votes cast in favor of the proposal than the number of votes cast opposing
such proposal, and that the total number of votes cast on the proposal must
represent over 50% of the shares entitled to vote.
STATE BANK. Approval by the State Bank shareholders of the proposal to
approve and adopt the merger agreement will require the affirmative vote of more
than two-thirds of the shares of State Bank common stock outstanding.
RECORD DATE; VOTING POWER (PAGES II-1 AND II-3)
JAMES RIVER. You are entitled to vote at the James River meeting if you
owned shares on __________, 1999, the James River record date. As of such date,
there were ___________ shares of James River common stock issued and outstanding
held by approximately ______ holders of record. James River shareholders are
entitled to one vote per share on any matter that may properly come before the
James River meeting.
<PAGE>
STATE BANK. You are entitled to vote at the State Bank meeting if you
owned shares on __________, 1999, the State Bank record date. On that date,
there were 291,027 shares of State Bank common stock issued and outstanding held
by approximately 421 holders of record. State Bank shareholders are entitled to
one vote per share on any matter that may properly come before the State Bank
meeting.
OPINION OF STATE BANK'S FINANCIAL ADVISOR (PAGE I-15)
At the January 21, 1999, meeting of the State Bank board, McKinnon &
Company, Inc., financial advisor to State Bank board, gave its opinion to the
State Bank board that as of such date, the exchange ratio was fair to the State
Bank shareholders from a financial point of view. McKinnon & Company
subsequently confirmed its January 21, 1999 opinion by delivery to the State
Bank board of a written opinion dated as of the date of this document. A copy of
the fairness opinion, setting forth the information reviewed, assumptions made
and matters considered, is attached to this document as Annex B. State Bank
shareholders should read the fairness opinion of McKinnon & Company in its
entirety.
NO APPRAISAL RIGHTS (PAGE I-20)
Under Virginia law, you have no right to an appraisal of the fair value
of your shares in connection with the merger.
JAMES RIVER TO USE POOLING OF INTEREST ACCOUNTING TREATMENT (PAGE I-19)
We expect that the merger will be accounted for as a pooling of
interests. This will enhance future earnings of James River by avoiding the
creation of goodwill relating to the merger and enable James River to also avoid
charges against future earnings resulting from amortizing goodwill. This
accounting method also means that after the merger James River will report
financial results as if State Bank had always been combined with James River.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
State Bank common stock is traded on a sporadic basis in private
transactions often by State bank personnel matching prospective buyers and
sellers. To State Bank management's knowledge, the last sales of State Bank
common stock took place in the fall of 1998 at prices ranging from $27 to $28
per share.
James River common stock is traded on the NASDAQ National Market System
under the symbol "JRBK." James River common stock is thinly traded. On February
17, 1999, the last full trading day before State Bank and James River issued a
joint press release announcing the merger, James River common stock closed at
$17.00. On ________, 1999, James River common stock closed at $____.
FEE FOR TERMINATION (SEE PAGE I-31)
State Bank would be required to pay James River $400,000 to compensate
James River for its external and internal costs associated with the merger if
the merger agreement is terminated because
(1) a condition of the merger was not satisfied;
(2) and one of the following events occurred:
(a) State Bank entered into an agreement with another party to
(i) acquire, merge or consolidate or enter into any similar
transaction,
(ii) purchase, lease or otherwise acquire all or substantially
all of the assets of State Bank, or
(iii) purchase or otherwise acquire directly from State Bank
securities representing 10% or more of the voting power of
State Bank;
(b) any person acquired beneficial ownership or the right to acquire
beneficial ownership of 20% or more of the outstanding shares of State Bank
common stock after the date of the merger agreement; or
(c) after the date of the merger agreement, any person made a proposal
to State Bank by a public announcement or written communication that is or
becomes subject to public disclosure to acquire the State Bank by merger, share
exchange, consolidation, purchase of all or substantially all of the assets or
any other similar transaction; and
<PAGE>
(3) within six months after the termination of the merger agreement, State
Bank enters into an agreement to be acquired by such person.
This provision is intended to discourage another party from interferring
with the merger agreement between James River and State Bank.
SHARE OWNERSHIP OF MANAGEMENT (PAGES III-21 AND V-10)
On the James River record date, the executive officers and directors of
James River, including their affiliates, had voting power with respect to an
aggregate of ____________ shares of James River common stock, or approximately
_____% of the shares of James River common stock then outstanding.
On the State Bank record date, the executive officers and directors of
State Bank, including their affiliates, had voting power with respect to an
aggregate of ____________ shares of State Bank common stock, or approximately
______% of the shares of State Bank common stock then outstanding.
We currently expect that the directors and executive officers of James
River and State Bank will vote their shares of James River common stock and
State Bank common stock, respectively, FOR the merger-related proposals.
BENEFITS TO MANAGEMENT IN THE MERGER (PAGE I-27)
When considering the recommendation of the State Bank board, you should
be aware that some State Bank directors and officers have interests in the
merger that differ from the interests of other State Bank shareholders. One
director of State Bank, ________________________, will become a director of
James River and will receive a fee of $1,000 per month. All State Bank directors
(including Mr. ____________, who will serve on both James River's and State
Bank's boards initially) will receive annual retainers and monthly fees for
service on the State Bank board. Based on the existing schedule utilized by
James River, State Bank's directors will receive an annual retainer of $3,000,
payable in equal monthly installments, an additional $150 for each monthly board
meeting attended and $75 for each committee meeting attended. The chairman of
the board of State Bank, John A. Berna, will receive a fee of $200 per monthly
board meeting, rather that the $150 fee paid to other directors. The directors
of James River and its subsidiary banks have the option of receiving registered
shares of James River common stock in lieu of receiving cash payments for
directors' fees.
In connection with the merger, Larry B. Olinger, President and Chief
Executive Officer of State Bank, and James E. Underhill, Chief Financial Officer
of State Bank, will amend their existing change of control agreements with State
Bank to provide that the agreements will terminate three years and two years,
respectively, from the effective date of the merger. It is anticipated that
after his change of control agreement expires, Mr. Olinger will execute a
standard employment agreement utilized by James River for its executive
officers, which employment agreement provides some protections to the officers
in the event of a change in control. For a description of the James River
agreements, see "Information Regarding Directors and Executive Officers -
Executive Officers Employment Agreements" at V-5.
The State Bank board was aware of these and other interests and
considered them before approving and adopting the merger agreement.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (PAGE I-28)
The following conditions must be met for us to complete the merger:
o approval by James River shareholders of the issuance of shares of James
River common stock in connection with the merger;
o approval by State Bank shareholders of the merger agreement;
o the continuing effectiveness of James River's registration statement
filed with the Securities and Exchange Commission;
o receipt by James River of a letter from its accountants stating that the
merger qualifies for pooling of interests accounting treatment; and
o receipt of an opinion of James River's counsel that the merger will be
treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended.
We cannot complete the merger unless we obtain the approval of the Board
of Governors of the Federal Reserve System and the Virginia State Corporation
Commission. On May __, 1999, James River filed applications with the Federal
Reserve Board and the Virginia State Corporation Commission. While we cannot
predict whether or when we will obtain all required regulatory approvals, we see
no reason why the approvals will not be obtained in a timely manner.
<PAGE>
Unless prohibited by law, either State Bank or James River could elect
to waive a condition that has not been satisfied and complete the merger anyway.
TERMINATION OF THE MERGER AGREEMENT (PAGE I-30)
We can agree to terminate the merger agreement at any time without
completing the merger. Either company may also terminate the merger agreement
if:
o the merger is not completed on or before December 31, 1999; or
o any event occurs which renders impossible, in a material way, the
satisfaction by one company of one or more of the conditions described
above, unless the other company waives such satisfaction.
In addition, there are other situations in which one or both parties may
terminate the merger.
EFFECTIVE DATE EXPECTED: THIRD QUARTER OF 1999 (PAGE I-30)
The merger will become effective at the date and time stated on the
certificate of merger issued by the Virginia State Corporation Commission. We
anticipate the merger will take place in the Third Quarter of 1999.
OTHER JAMES RIVER ANNUAL MEETING MATTERS
At the James River meeting, James River is also asking the shareholders to:
o elect nine directors to the James River board;
o ratify the appointment of James River's independent accountants; and
o conduct other business as properly presented.
Approval by James River shareholders of these Annual Meeting proposals
is not a condition to completion of the merger. Approval of the merger is not a
condition to approval of these other Annual Meeting proposals.
The James River board recommends that you vote FOR the election of
directors and ratification of appointment of James River's independent
accountants.
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
We are providing the following information to help you analyze the
financial aspects of the merger. We derived this information from audited
financial statements for 1994 through 1999 and unaudited financial statements
for the three months ended March 31, 1999. This information is only a summary,
and you should read it in conjunction with James River's historical financial
statements and the related notes contained in the annual and quarterly reports
and other documents that James River has filed with the Securities and Exchange
Commission, the information regarding State Bank contained in this proxy
statement/prospectus beginning at page III-5, and State Bank's historical
financial statements in Annex C. See "Where You Can Find More Information" on
page V-13. You should not rely on the three-month information as being
indicative of results expected for the entire year.
JAMES RIVER - HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income....... $ 4,075 $ 3,891 $ 15,929 $ 15,410 $ 13,664 $ 11,660 $ 10,891
Net income................ 637 1,330 4,309 3,805 2,417 3,093 3,502
Diluted net income
per share............... 0.17 0.35 1.14 1.02 0.65 0.84 1.00
Cash dividends per share.. 0.12 0.10 0.42 0.37 0.35 0.29 0.25
Book value per share...... 11.69 11.17 11.74 11.00 10.20 10.04 9.02
Total assets.............. 414,029 397,680 419,820 390,076 381,608 326,280 306,148
Shareholders' equity...... 43,723 41,122 43,703 40,384 37,603 36,885 32,473
</TABLE>
STATE BANK - HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income....... $ 687 $ 665 $ 2,709 $ 2,597 $ 2,553 $ 2,633 $ 2,601
Net income................ 145 133 346 560 586 611 552
Diluted net income
per share............. 0.50 0.46 1.19 1.92 2.01 2.10 1.90
Cash dividends per share.. 0.20 0.20 0.80 0.80 0.80 0.73 0.73
Book value per share...... 25.83 25.57 25.69 25.29 23.96 22.71 20.38
Total assets.............. 70,238 65,307 69,083 64,736 61,929 62,107 58,842
Shareholders' equity...... 7,516 7,440 7,476 7,359 6,973 6,610 5,931
</TABLE>
<PAGE>
SELECTED PROFORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined
financial data for James River giving effect to the merger accounted for as a
pooling of interests. This information should be read in conjunction with the
historical financial statements of James River and State Bank, including
respective notes thereto, appearing elsewhere in this proxy statement
/prospectus. See "Pro Forma Financial Information" beginning on page I-21. The
pro forma financial data may not be indicative of the results that actually
would have occurred had the merger been consummated on the dates indicated or
that may be obtained in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income....... $ 4,762 $ 4,556 $ 18,638 $ 18,007 $ 16,217 $ 14,293 $ 13,492
Net income................ 782 1,463 4,655 4,365 3,003 3,704 4,054
Diluted net income
per share.............. 0.17 0.32 1.00 0.95 0.66 0.81 0.94
Cash dividends per share.. 0.12 0.10 0.42 0.37 0.35 0.29 0.25
Book value per share...... 11.18 10.73 11.21 10.57 9.84 9.63 8.64
Total assets.............. 484,267 462,987 488,903 454,812 443,537 388,387 364,990
Shareholders' equity...... 51,239 48,562 51,179 47,743 44,576 43,495 38,404
</TABLE>
<PAGE>
COMPARATIVE PER SHARE DATA
The following unaudited financial information reflects certain
comparative per share data relating to (i) net income, cash dividends, and book
value per common share for both James River and State Bank on a historical
basis, (ii) net income and book value per common share on a pro forma basis for
James River assuming the State Bank merger had been effected for the periods
presented, and (iii) net income and book value per common share on a pro forma
equivalent basis per common share for State Bank assuming the State Bank merger
has been effected for the periods indicated and accounted for as a pooling of
interests. See "- Accounting Treatment" on page I-19. The pro forma data
reflects the conversion of each share of State Bank common stock into 2.9 shares
of James River common stock. The information shown below should be read in
conjunction with the historical financial statements of James River and State
Bank, including the respective notes thereto, and in conjunction with the
unaudited pro forma financial statements, including the notes thereto, appearing
elsewhere in this proxy statement/prospectus. See " Pro Forma Financial
Information" on page I-21.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------------ -------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE:
Net Income Basic
James River- Historical $ 0.17 $ 0.36 $ 1.16 $ 1.04 $ 0.66
State Bank- Historical 0.50 0.46 1.19 1.92 2.01
Pro forma combined 0.17 0.32 1.02 0.97 0.66
State Bank pro forma equivalent 0.49 0.93 2.96 2.81 1.91
Net Income Diluted
James River- Historical $ 0.17 $ 0.35 $ 1.14 $ 1.02 $ 0.65
State Bank- Historical 0.50 0.46 1.19 1.92 2.01
Pro forma combined 0.17 0.32 1.00 0.95 0.66
State Bank pro forma equivalent 0.49 0.93 2.90 2.76 1.91
CASH DIVIDEND DECLARED:
James River- Historical $ 0.12 $ 0.10 $ 0.42 $ 0.37 $ 0.35
State Bank- Historical 0.20 0.20 0.80 0.80 0.80
Pro forma combined(1) 0.12 0.10 0.42 0.37 0.35
State Bank pro forma equivalent(2) 0.35 0.29 1.22 1.07 1.02
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
BOOK VALUE:
James River- Historical $ 11.69 $ 11.74
State Bank- Historical 25.83 25.68
Pro forma combined 11.18 11.21
State Bank pro forma equivalent 32.39 32.50
</TABLE>
(1) Pro forma combined cash dividends declared represent historical cash
dividends declared by James River.
(2) State Bank pro forma equivalent amounts represent pro forma combined
information multiplied by the exchange ratio of 2.9 shares of James River
common stock for each share of State Bank common stock.
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, including information included or
incorporated by reference herein, contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and businesses of each of James River and State
Bank. These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:
o competitive pressure from banks and other financial service providers
increases significantly;
o changes in the interest rate environment reduce margins;
o general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a deterioration
in credit quality;
o changes occur in the regulatory environment;
o changes occur in business conditions and inflation;
o changes occur in the securities markets; and
o any business disruptions that may result from Year 2000 issues.
THE MERGER
BACKGROUND OF THE MERGER
During the spring of 1997, State Bank was approached by a local community
bank desirous of expanding its operations into southern Fauquier County and was
hopeful that State Bank would consider the possibility of an affiliation with
it. State Bank directors discussed the issue but decided that the Bank's
depressed earnings that were being caused by a significant investment in
non-income-producing real estate taken back in satisfaction of debt made it a
less than desirable time to enter into affiliation discussions. The interested
party was advised of the board's decision but it continued to make further
inquiry over the next several months. To insure that the continued expressions
of interest were given adequate attention, the board of directors, on August 13,
1997, appointed directors John A. Berna, James W. Craun, Jr., Jeffrey W. Parker
and Larry B. Olinger to a Consolidation Study Committee. This Committee was
requested to study the future of State Bank and to attempt to determine the
prospects for enhancing shareholder value, both as an independent bank and as a
part of a larger banking institution or group of banks. Following a number of
meetings over a two-month period, the Committee concluded that, while there were
some economic advantages in considering an affiliation with another banking
organization, State Bank would best serve the interest of its shareholders by
improving earnings and delaying consideration of an affiliation, and on November
12, 1997, the local community bank was so advised.
Several weeks thereafter, another local financial institution announced
its intent to affiliate with a large regional banking institution and the
Consolidation Study Committee, noting the significant amount of recent merger
activity in State Bank's area, determined that it would be in the best interest
of State Bank to secure some outside counsel on affiliation possibilities. In
particular, the Committee was concerned about whether or not its decision to
delay affiliation consideration until earnings could be improved would actually
work to the detriment of shareholders as potential acquirers purchased other
banks in the area. Mr. William J. McKinnon, Jr., President of McKinnon &
Company, Inc. ("McKinnon") was invited to meet with the Committee on December
15, 1997, to discuss these issues. McKinnon was advised of the recent
expressions of interest by the local community bank, informed of the board's
decision to not consider an offer at that time, and questioned by the Committee
about whether or not he felt that there might be other banking institutions that
would be interested in acquiring State Bank at a later date. McKinnon advised
the Committee that there were several local community banks, three multi-bank
holding companies headquartered in the eastern and Richmond areas of Virginia,
and three or four larger regional bank holding companies, all of which he felt
would be interested in discussing affiliation prospects with State Bank. Feeling
comfortable that a future partner could be found, if desired, among this large
number of interested buyers, the Committee again affirmed its desire to improve
earnings before engaging in affiliation discussions with prospective purchasers.
<PAGE>
On April 28, 1998, Mr. Olinger contacted McKinnon to inform him that the
local community bank had again contacted State Bank regarding a possible merger
and that the Consolidation Study Committee and the board had decided that it
might be wise to invite the local community bank to make an offer, particularly
in view of its persistence. McKinnon was asked by Mr. Olinger to meet with the
Committee to discuss serving as State Bank's financial advisor in merger
discussions with the local community bank. On April 30, 1998, McKinnon met with
the Consolidation Study Committee to discuss the proposed contract for his
engagement and was subsequently retained to serve as financial advisor to State
Bank in its possible sale or merger with the local community bank. On July 6,
1998, State Bank received the proposed offer of merger from the local community
bank, which McKinnon reviewed and subsequently advised State Bank that he did
not consider to be fair from a financial point of view. Negotiations between the
institutions ceased but were renewed several months later when the institution
verbally confirmed that it would be willing to increase its offering price.
Conditions of the increased offer would have dictated that State Bank's branches
would have been merged into the acquirer's system and State Bank would have
ceased to exist as a separate bank with its own board and management. In its
earlier offer to State Bank, this local community bank had indicated it would
permit State Bank to operate as a separate independent bank for several years
following the proposed merger. While board members would have preferred the
structure proposed earlier, the Directors did feel that the revised offering
price was of such size that careful consideration would have to be given to the
merger proposal. In that regard and to insure that the offer represented the
best that could be obtained for bank shareholders, the board, on August 26,
1998, directed President Olinger to contact McKinnon and to request that he
arrange meetings of the Consolidation Study Committee with representatives of
several other financial institutions that he had indicated might be interested
in acquiring State Bank.
During October and November, 1998, Mr. Berna, Mr. Craun, Mr. Parker and
Mr. Olinger met with representatives from two Virginia-based bank holding
companies (one of which was James River) and a larger out-of-state bank holding
company. Following the meetings and discussions at the board level, two
institutions were invited to make offers for the potential acquisition or merger
of State Bank with their institutions. James River was not asked to make an
offer.
On November 13, 1998, the local community bank submitted a draft of a
proposed agreement and plan of merger and related documents to Larry B. Olinger,
State Bank's President and Chief Executive Officer.
On November 19, 1998, the out-of-state bank holding company, which has a
member bank in Fauquier County, submitted a written indication of interest for a
tax free stock exchange in which State Bank would be merged into the bank
affiliate located in Fauquier County. The value of this offer was at that time
slightly lower than the offer the local community bank submitted November 13,
1998. The out-of-state bank holding company subsequently increased its offer to
a level closer to that of the local institution.
On November 20, 1998, the Virginia-based bank holding company also
submitted a written indication of interest. In its proposed transaction, State
Bank would be allowed to operate as an independent bank. The value of this offer
was substantially less than the offer of the other two institutions.
McKinnon advised State Bank that the Virginia-based bank holding
company's offer was not fair to State Bank's shareholders from a financial point
of view, but that both the offer from the out-of-state bank holding company and
the offer from the local community bank were fair from a financial point of
view. McKinnon indicated that both the out-of-state bank holding company and the
local community bank might have an anti-trust problem due to the market
concentration of deposits of the combined institution in State Bank's market
area, which could prohibit, delay or substantially alter the structure of the
proposed mergers, as envisioned. State Bank's management contacted the local
community bank to see if this issue had been addressed and McKinnon asked the
multi-state holding company to address the same potential problem. The local
community bank subsequently advised State Bank that the Federal Reserve
representative indicated there was a substantial potential concentration problem
but that the Federal Reserve indicated it would be receptive to arguments as to
market area delineation. The local institution also indicated it planned to
pursue this with the Federal Reserve and its financial advisor. The out-of-state
bank holding company indicated it did not think it would have a concentration
problem with the Federal Reserve.
<PAGE>
Offers from the three institutions were considered by the board on
November 25, 1998, at which time the board of directors rejected the offers from
the out-of-state bank holding company and the Virginia-based bank holding
company. The offer from the local community bank was not rejected but was tabled
pending the receipt of further elaboration on certain aspects of the offer,
including clarification of possible anti-trust issues. Following a meeting by
Mr. Berna and Mr. Olinger with officials from the local community bank and a
presentation to the board of matters discussed, the board of directors on
December 10, 1998 rejected the offer from the local community bank.
In late December 1998, McKinnon suggested to State Bank's management that
State Bank invite James River, which had indicated an interest in merging with
State Bank, to submit an offer. On December 30, 1998, McKinnon met with Mr.
Berna and Mr. Olinger to discuss a proposed offer by James River to merge with
State Bank, in a manner that would permit State Bank to operate as a separate
bank with its own board and management team and at a price level approximating
the highest offer which had been previously received by State Bank. The full
board of State Bank, meeting later on December 30, 1998, expressed an interest
in this proposed merger structure. Two weeks later on January 13, 1999, the
President and Chief Executive Officer of James River, Harold U. Blythe, James
River's Chief Financial Officer, Donald W. Fulton, Jr., and McKinnon met with
the full board of State Bank to discuss the proposal. On January 21, 1999, the
State Bank board met and voted to pursue a merger with James River subject to
James River increasing its offer to 2.9 shares of James River for each share of
State Bank which the Board noted would exceed all previously received offers.
James River increased the proposed exchange ratio to 2.9 shares and, following
several days of due diligence, a merger agreement between James River and State
Bank was executed on February 17, 1999 and announced publicly on February 18,
1999. The agreement was subject to completion of due diligence and regulatory
and shareholder approval.
STATE BANK'S REASONS FOR THE MERGER AND RECOMMENDATION OF STATE BANK BOARD
During the past several years, State Bank's board has concerned itself
with ways to improve State Bank's financial performance and has given
significant consideration to numerous factors that it deemed appropriate to
improving operational results. Among those factors were the current and
prospective economic and competitive environment facing the banking industry
generally, and State Bank in particular. The Board noted that the continued pace
of consolidation in the industry and, particularly in State Bank's marketing
area had significantly impacted the Bank in that the larger organizations were
benefiting from economies of scale that enhanced their competitive advantage
over State Bank. Growth through branching was deemed impossible at the present
time because of costs and the fact that State Bank had recently invested
significant sums in the rebuilding of an existing branch and in improving its
existing retail delivery systems. The board also has been concerned that the
Bank's shareholder base is aging and the heirs of those shareholders often live
outside of the Bank's market area and have few ties to the local community. That
factor, combined with shareholder opportunities to invest in other more exciting
and oftentimes more lucrative stocks has resulted in larger volumes of State
Bank shares being offered for sale in recent years. Liquidation of that stock
has become more difficult as evidenced by a market price that has failed to
reflect a reasonable rate of growth.
During 1998, State Bank's board opted to consider the possibility of
resolving these issues through consolidation with another financial institution
when it received an offer from a local community bank. Those considerations
ultimately led to a review of James River's proposal to acquire State Bank. In
discussing that particular proposal, the board addressed both the financial
aspects of the proposed merger, including the benefits of the transaction to
State Bank's shareholders, as well as the potential effect of the merger on
State Bank's management, employees, customers and the community in which State
Bank is located, without assigning relative weights to the various
constituencies and factors considered. Relying on the opinion of McKinnon &
Company, and after consultation with management and legal counsel, the State
Bank board determined that the merger is fair from a financial point of view to,
and is in the best interests of, State Bank and its shareholders. In reaching
this determination, the board considered the following:
o An association with James River would result in State Bank's
participation in a banking organization with 27 offices in Virginia
and the board's conclusion that the resulting geographic
diversification and economies of scale would enable State Bank to
compete more effectively in the financial services industry of the
future.
<PAGE>
o The compatibility of State Bank's and James River's community bank
operating philosophies and the similarity of products and customer
orientation.
o The terms of the merger agreement, including the exchange ratio and
the provisions that will permit State Bank to continue operations as
a separate banking entity with its current management and Board.
o The fact that James River common stock is more liquid since it is
traded on the NASDAQ National Market while State Bank common stock is
traded only internally by State Bank personnel matching prospective
buyers and sellers.
o The representation of McKinnon & Company to the board, that as of
such date, the exchange ratio was fair from a financial point of view
to the State Bank shareholders.
o The expectation that the merger will be tax-free for federal income
tax purposes to State Bank and its shareholders, except for cash paid
instead of fractional shares.
o The generally favorable impact that the merger could be expected to
have on the shareholders, customers, and employees of State Bank and
the communities it serves.
THE STATE BANK BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTEREST OF
STATE BANK AND THE STATE BANK SHAREHOLDERS. THE STATE BANK BOARD UNANIMOUSLY
RECOMMENDS THAT STATE BANK SHAREHOLDERS VOTE TO APPROVE THE MERGER.
OPINION OF THE STATE BANK'S FINANCIAL ADVISOR
State Bank's board of directors retained the investment banking firm of
McKinnon & Company, Inc. to serve as its financial advisor and to evaluate the
terms of the merger. McKinnon has rendered its opinion to the board of directors
of State Bank that the terms of the merger are fair from a financial point of
view to the State Bank shareholders.
In developing its opinion, McKinnon reviewed and analyzed material
bearing upon the financial and operating conditions of State Bank, James River,
and on a pro forma basis, State Bank and James River combined, and material
proposed in connection with the merger including, among other things, the
following:
o the merger agreement;
o the registration statement;
o State Bank's and James River's financial results for fiscal years 1991
through 1998, and certain documents and information deemed relevant to
McKinnon's analysis;
o discussions with senior management of State Bank and James River
regarding past and current business operations of, and outlook for,
State Bank, James River, including trends, the terms of the proposed
merger, and related matters;
o the reported price and trading activity of State Bank common stock and
James River common stock and financial and stock market information
(when available) for State Bank and James River with similar information
for certain other companies, and securities for which are publicly
traded;
o the financial terms of certain recent business combinations which
McKinnon deemed comparable in whole or in part;
o the relationship of prices paid to relevant financial data such as net
worth, loans, deposits and earnings in certain bank and bank holding
company affiliations and acquisitions in Maryland, North Carolina and
Virginia in recent years and the deal price relative to the seller's
price one day prior to the announcement of such deals; and
<PAGE>
o other published information and other factors and information which
McKinnon deemed relevant.
No instructions or limitations were given or imposed in connection with
the scope of or the examination or investigations made by McKinnon in arriving
at its findings. Finally, McKinnon has performed such other studies and analyses
it deemed appropriate, including an analysis of the pro forma financial impact
of the merger on State Bank and James River. A copy of McKinnon's opinion, which
sets forth the assumptions made, matters considered and qualifications made on
the review undertaken, is attached as Annex B hereto and should be read in its
entirety.
McKinnon used the information gathered to evaluate the financial terms
of the merger using standard valuation methods, including discounted cash flow
analysis, market comparable analysis, comparable acquisition analysis and
dilution analysis.
COMPARABLE ACQUISITION ANALYSIS
McKinnon compared the relationship of prices paid to relevant financial
data such as net worth, assets, deposits and earnings in eleven bank and bank
holding company mergers and acquisitions in Maryland, North Carolina and
Virginia since December 31, 1997, representing all such transactions known to
McKinnon to have occurred during this period involving banks and bank holding
companies, with the proposed merger and found the consideration to be received
from James River to be within the relevant pricing ranges acceptable for such
recent transactions. As a generalization, State Bank has experienced slower
growth in assets, loans and deposits over the four years ending December 31,
1998 than the average community bank in Virginia. Among the twelve bank and bank
holding company transactions in 1998 and through February 12, 1999 either closed
or pending in Maryland, Virginia and North Carolina, McKinnon has developed a
group of ten small transactions, ranging in deal value from $2.5 million to
$82.7 million and in asset size from $28 million to $294 million, and two larger
transactions each exceeding $500 million in deal value and over $2 billion in
assets of the selling institution. The ten smaller transactions included six in
Virginia and four in Maryland, while the two larger transactions were in
Virginia. Specifically, the price to book value, price to latest twelve months'
earnings, price to deposits' and price to assets were as follows:
<TABLE>
<CAPTION>
Six Four Md. Overall
State Bank/ Va. Bank Bank Bank
James River Comparables Comparables Comparables
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deal Price/ 191.28% 228.20% 281.64% 255.42%
Book Value
Deal Price/ 41.13x 26.91x 36.15x 32.69x
LTM Earnings
Deal Price/ 24.41% 34.92% 27.50% 31.20%
Deposits
Deal Price/ 21.37% 29.19% 23.35% 26.27%
Assets
</TABLE>
Among the two larger transactions in Virginia, the average price to book
was 373.82% compared with 191.28% for the merger; the average price to earnings
was 27.82 times compared with 41.33 times for the merger, the average price to
deposits was 48.95% compared with 24.41% for the merger, the average price to
assets was 31.11% compared with 21.37% for the merger. Among the community
banks, the best comparable in terms of size, geographical proximity and time was
Security Bank, which had a price to book of 208.33% compared with 191.28% for
the merger and a price to earnings of 40.12% compared to 41.33% for the merger.
<PAGE>
MARKET COMPARABLE ANALYSIS
McKinnon analyzed the performance and financial condition of James River
relative to two groups including the following large and small financial
institutions: First Union Corporation; Wachovia Corporation; BB&T Corp.; First
Virginia Banks, Inc.; Centura Banks, Inc.; Mercantile Bankshares, Inc.; Keystone
Financial; One Valley Bancorp; Riggs National Corp.; Provident Bankshares;
United Bankshares, Inc.; Susquehanna Bancshares; F&M National Corporation; First
Charter Corporation; F&M Bancorp; FCNB Corp.; First Community Bankshares; and
Union Bankshares Corp. (collectively the "Large Bank Group") and: a group of
fifty-four community banks, primarily located in Virginia, with some in North
Carolina, Maryland and the District of Columbia (collectively the "Small Bank
Group"). Among the financial information compared was information relating to
equity to assets, loans to deposits, net interest margin, non-performing assets,
total assets, non-accrual loans, loan loss reserve and asset growth rates.
Additional information compared for the trailing twelve month period ended
September 30, 1998 was:
<TABLE>
<CAPTION>
Average of Average of Average of
Large Bank Small Bank Large &
James River Group Group Small
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Price/ Book Value 149.8% 228.8% 179.6% 191.6%
Price/ LTM Earnings 15.4x 17.1x 15.5x 15.9x
Return on 1.14% 1.31% 1.36% 1.31%
Average Assets
Return on 10.96% 14.04% 11.34% 12.00%
Average Equity
Dividend Yield 2.74% 2.60% 2.07% 2.20%
</TABLE>
Overall, in the opinion of McKinnon, James River's operating ratios were
slightly below average compared with the Large and Small Bank Group, which was
reflected by the stock market in its lower relative price to book and price to
earnings ratios, while its financial condition was in line with or slightly
better than the average Large or Small Bank Group, and James River's market
value was reasonable when compared to the Large and Small Bank Group.
Accordingly, State Bank shareholders will receive James River common stock that
is reasonably valued when compared to the Large Bank Group and to the Small Bank
Group.
DILUTION ANALYSIS
Based upon publicly available financial information on State Bank and
James River, McKinnon considered the effect of the transaction on the book
value, earnings and market value of State Bank and James River. The immediate
effect on James River was less than 5% decrease in book value and approximately
7.5% decrease in earnings per share. The effect on State Bank under the same
assumption is to increase dividends by $.59 per share, or 74%, and to increase
the market value per share of State Bank to $50.75, or approximately 92.3% over
the book value and approximately 111.5% over the last trading price of State
Bank common stock, known to State Bank management. State Bank's common stock has
traded very infrequently to the knowledge of its board of directors and
management. Prior to this transaction, isolated trades of State Bank's common
stock occurred at or below book value at the time of the trade according to
management. State Bank's dividend payout is approximately 39% of net income
compared with approximately 34% for James River and approximately 31% for the
Large and Small Bank Groups under a market comparable analysis, above. This
dilution analysis does not take into account the longer term benefits for the
combined companies resulting from the combination. Management of James River
believes anticipated cost savings and projected sales of real estate acquired by
State Bank will partially if not entirely, offset the 7.5% dilution to earnings
per share within the first twelve months following completion of the
transaction. McKinnon concluded from the analysis that the transaction would
have a significant positive effect on State Bank and the State Bank shareholders
in that the market value of James River's common stock to be received by the
State Bank shareholders, after giving effect to the exchange ratio, would
represent a substantial increase in the historical market value of State Bank's
common stock, although there can be no assurance that pro forma amounts are
indicative of the future and there is no assurance that anticipated cost savings
or property sales will occur.
<PAGE>
PRESENT VALUE ANALYSIS
McKinnon performed an analysis to determine a range of present values per
share of State Bank common stock assuming State Bank continued to operate as an
independent community bank. This range was determined by present valuing the
estimated value of State Bank common stock at the end of year 2003. The net
income projections were grown using an earnings growth rate of 8% for years 1999
through 2003. The future value of State Bank common stock at the end of year
2003 was determined by offering a range of price-to-earnings multiple (15.0x to
17.0x) to year 2003 projected earnings. These values were discounted to present
value using discount ranges of 11.00% to 13.00%, which McKinnon viewed as the
appropriate discount rate range for a commercial bank with State Bank's risk
characteristics. Based upon the above assumptions, the value of State Bank
common stock ranged from approximately $27.61 to $33.15 per share on a
stand-alone basis.
Terminal Price/Earnings Multiple
Discount
Rate 15.0x 15.5x 16.0x 16.5x 17.0x
- ---- ----- ----- ----- ----- -----
11.00% $30.25 $30.97 $31.70 $32.42 $33.15
11.50% 29.56 30.26 30.97 31.68 32.38
12.00% 28.89 29.58 30.26 30.95 31.64
12.50% 28.24 28.91 29.58 30.24 30.91
13.00% 27.61 28.26 28.91 29.56 30.21
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by
McKinnon to the State Bank board or of the analyses performed by McKinnon. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. Accordingly,
notwithstanding the separate factors summarized above, McKinnon believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, would create an incomplete view of the process underlying the
preparation of its opinion. As a whole, these various analyses contributed to
McKinnon's opinion that the terms of the merger agreement are fair from a
financial point of view to the State Bank shareholders.
McKinnon is an investment banking firm that specializes in Virginia
community banks. In eleven years McKinnon has been lead managing underwriter in
approximately thirty-four public stock offerings for Virginia community banks
and thrifts and has served as financial advisor, including providing fairness
opinions, to numerous Virginia community banks and thrifts. McKinnon, as part of
its investment banking business, is engaged in the evaluation of businesses,
particularly banks and thrifts, and their securities, in connection with mergers
and acquisitions, initial public offerings, private placements and evaluations
for estate and corporate recapitalizations. McKinnon is also a market maker in
Virginia community bank stocks listed on NASDAQ:NMS, the NASDAQ Small Cap Market
and the OTC Bulletin Board, but not in State Bank. McKinnon believes it has a
thorough working knowledge of the banking industry throughout Virginia. In the
past, McKinnon has served in an investment banking capacity for James River,
including manager of a public offering of common stock of a member bank,
financial advisor to the original two member banks, including fairness opinions,
and financial advisor to two member banks acquired by James River, of which one
was at the time of the merger a thrift, including fairness opinions. McKinnon is
also a market maker in James River's common stock on the NASDAQ National Market
System.
Pursuant to an engagement letter dated May 5, 1998, between State Bank
and McKinnon, in exchange for its services, McKinnon shall receive a contingent
fee of 1% of the market value paid for State Bank, payable at the closing or
effective date of the merger. This investment advisory fee is a legal obligation
of State Bank and is 1% of the fair market value of the consideration to be paid
to the shareholders of State Bank on the date the merger becomes effective for
McKinnon's services as independent financial advisor in connection with the
merger, including the rendering of a fairness opinion to State Bank's board.
<PAGE>
JAMES RIVER'S REASONS FOR THE MERGER AND RECOMMENDATION OF JAMES RIVER BOARD
The James River board has continued to look for opportunities to expand
James River's banking franchise in the state through the acquisition of quality
financial institutions. The board of directors of James River believes that the
merger with State Bank represents an opportunity to expand James River's service
to Fauquier County through merger with a quality institution that operates in
three appealing locations. In reaching this determination, the board also
considered the following:
o The opportunity to expand James River's reach into an attractive region of
Virginia, and afford new expansion opportunities into adjacent areas such as
Warrenton, Manassas, Fredericksburg and Culpeper.
o The compatibility of State Bank and James River, including community bank
operating philosophies and similarity of products and customer orientation.
o The terms of the merger agreement and the merger, including the exchange
ratio.
o The merger will allow James River to spread certain administrative and
operational costs over a larger base and to realize a limited amount of
direct cost savings from the overhead of State Bank.
o The current and prospective economic and competitive environment facing the
banking industry generally, and State Bank in particular, including the
continued pace of consolidation in the industry, the perceived importance
of operational scale in enhancing efficiency and profitability and remaining
competitive over the long term, and the benefits of increased geographic
diversification. In this regard, the board noted that the combined bank
resulting from the merger will have 27 offices in Virginia and will
possess the financial resources and economies of scale necessary to
compete more effectively in the financial services industry in the future.
o The quality of State Bank's management.
THE JAMES RIVER BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTEREST
OF JAMES RIVER AND THE JAMES RIVER SHAREHOLDERS. THE JAMES RIVER BOARD
UNANIMOUSLY RECOMMENDS THAT JAMES RIVER SHAREHOLDERS VOTE TO APPROVE THE
ISSUANCE OF SHARES TO HOLDERS OF STATE BANK COMMON STOCK PURSUANT TO THE MERGER
AGREEMENT.
ACCOUNTING TREATMENT
We anticipate that the merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, recorded assets and liabilities of James River and State Bank are
carried forward at their previously recorded amounts, income of the combined
corporations will include income of James River and State Bank for the entire
fiscal year in which the merger occurs, and the reported income of the separate
corporations for prior periods will be combined. No recognition of goodwill in
the combination is required of any party to the merger.
For the merger to qualify as a pooling of interests, it must satisfy a
number of conditions. If any of the conditions to pooling of interests
accounting are not satisfied, then the merger would not qualify for pooling of
interests accounting treatment, and a condition to the obligation of James River
to consummate the merger would not be satisfied. Both James River and State Bank
have agreed that they will use their respective best efforts to ensure that the
merger will qualify for pooling of interests accounting treatment. In addition,
certain affiliates of James River and State Bank have agreed that they will not
sell any James River common stock or State Bank common stock within 30 days
before the effective date of the merger, nor sell any James River common stock
until such time as James River has published financial results covering at least
30 days of the combined operations of James River and State Bank after the
merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of all material federal income tax
consequences of the merger under the Internal Revenue Code to State Bank
shareholders who receive James River common stock solely in exchange for State
Bank common stock and cash instead of fractional shares. The discussion does not
deal with all aspects of federal taxation that may be relevant to particular
State Bank shareholders. Certain tax consequences of the merger may vary
depending upon the particular circumstances of each State Bank shareholder and
other factors.
<PAGE>
YOU ARE URGED TO CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER TO YOU.
This summary is based on current law and the advice of Kaufman & Canoles,
legal counsel to James River. The advice in this summary is based on, among
other things, certain customary assumptions and representations relating to
certain facts and circumstances of, and the intentions of the parties to the
merger. Neither James River nor State Bank has requested a ruling from the
Internal Revenue Service in connection with the merger. To meet a condition to
consummation of the merger, James River and State Bank will receive from Kaufman
& Canoles an opinion as to certain federal income tax consequences of the
merger. Such opinion is not binding on the Internal Revenue Service.
In the opinion of counsel, the merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code, if consummated
in the manner set forth in the merger agreement. Accordingly, among other
things, in the opinion of such counsel:
o The merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
o No gain or loss will be recognized by James River or State Bank as a result
of the merger;
o No gain or loss will be recognized by a State Bank shareholder to the extent
he or she receives James River common stock solely in exchange for his or
her State Bank common stock pursuant to the merger.
o The tax basis of the James River common stock received by each State Bank
shareholder will be the same as the tax basis of the State Bank common stock
surrendered in exchange therefor; and;
o The holding period for each share of James River common stock received by
each State Bank shareholder in exchange for State Bank common stock will
include the period for which such shareholder held the State Bank common
stock exchanged therefor, provided such State Bank common stock is a capital
asset in the hands of such holder at the effective date.
Any cash received by you instead of fractional shares could result in
taxable income to you. The receipt of such cash will generally be treated as a
sale or exchange of the stock resulting in capital gain or loss measured by the
difference between the cash received and an allocable portion of the basis of
the stock relinquished. The receipt of such cash may be treated as a dividend
and taxed as ordinary income in certain limited situations.
ABSENCE OF APPRAISAL RIGHTS
Under Section 6.1-43 of the Virginia Banking Act, shareholders of State
Bank WILL NOT be entitled to dissent from the merger and obtain the judicially
determined fair value of their shares of State Bank.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
JAMES RIVER AND STATE BANK
The following unaudited pro forma condensed financial statements have
been prepared on a consolidated basis based upon the historical financial
statements of James River and State Bank. The pro forma combined information
gives effect to the merger accounted for as a pooling of interests, and is based
on the issuance of 843,978 shares of James River common stock in connection with
the merger, which in turn is based on the number of shares of State Bank common
stock outstanding at February 17, 1999. The number of shares of James River
common stock to be issued in connection with the merger is subject to certain
adjustments described elsewhere in this proxy statement/prospectus. Any
difference in the number of shares of James River common stock issued in
connection with the merger would affect the pro forma financial information set
forth below. The pro forma financial statements should be read in conjunction
with the separate historical financial statements and the related notes thereto
of James River contained in reports filed with the Securities and Exchange
Commission and State Bank's historical financial statements included in Annex C.
There are no adjustments necessary to the historical results of operations as a
result of these transactions. The pro forma combined financial position and
results of operations are not necessarily indicative of the results which would
actually have been attained if the State Bank merger has occurred in the past or
which may be attained in the future.
<TABLE>
<CAPTION>
Pro Forma Combined Statement of Condition
March 31, 1999
James River State Bank Adjustments Consolidated
----------- ---------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $ 13,009 $ 2,111 $ - $ 15,120
Interest-bearing deposits in banks 12,477 - - 12,477
Federal funds sold 1,250 3,525 - 4,775
Investment Securities
Securities held to maturity 7,985 7,217 - 15,202
Securities available for sale
at fair market value 82,719 14,736 - 97,455
--------------- --------------- -------------- ---------------
Total investment securities 90,704 21,953 - 112,657
Loans held for sale 4,083 - - 4,083
Loans 278,214 39,280 - 317,494
Less: Allowance for loan losses (3,944) (446) - (4,390)
--------------- --------------- -------------- ---------------
Net loans receivable 278,353 38,834 - 317,187
Premises and equipment 10,186 1,310 - 11,496
Accrued interest receivable 3,009 509 - 3,518
Other assets 4,536 1,747 - 6,283
Deferred income taxes 505 249 - 754
--------------- --------------- -------------- ---------------
Total Assets $ 414,029 $ 70,238 $ - $ 484,267
=============== =============== ============== ===============
Liabilities
Deposits
Demand deposits $ 43,700 $ 9,512 $ - $ 53,212
Interest checking 57,784 16,466 - 74,250
Money market savings 19,926 1,264 - 21,190
Savings 45,821 11,039 56,860
Time deposits $100,000 and over 33,432 3,937 - 37,369
Other time deposits 166,164 19,869 - 186,033
--------------- --------------- -------------- ---------------
Total deposits 366,827 62,087 - 428,914
Accrued interest payable 783 168 - 951
Federal Funds purchased and
other short-term borrowings 1,392 159 - 1,551
Other liabilities 1,304 308 - 1,612
--------------- --------------- -------------- ---------------
Total Liabilities 370,306 62,722 - 433,028
Shareholders Equity
Common stock 18,707 2,910 1,310 22,927
Surplus 3,829 1,527 (1,310) 4,046
Retained earnings 20,603 3,204 - 23,807
Unrealized gain (loss) on
investment 584 (125) - 459
--------------- --------------- -------------- ---------------
Total Shareholder's equity 43,723 7,516 - 51,239
Total Liabilities and
Shareholders' Equity $ 414,029 $ 70,238 $ - $ 484,267
=============== =============== ============== ===============
</TABLE>
<PAGE>
JAMES RIVER AND STATE BANK
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Pro Forma
James River State Bank Combined
----------- ---------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $6,062 $823 $6,885
Investment securities
Taxable 1,006 289 1,295
Tax exempt 303 27 330
Interest bearing deposits 126 - 126
Federal funds sold 90 42 132
-------------- ------------ ------------
Total Interest Income 7,587 1,181 8,768
INTEREST EXPENSE:
Deposits 3,500 493 3,993
Federal funds and other borrowings 12 1 13
-------------- ------------ ------------
Total Interest Expense 3,512 494 4,006
Net Interest Income 4,075 687 4,762
Provision for loan losses 147 8 155
-------------- ------------ ------------
Net Credit Income 3,928 679 4,607
NON INTEREST INCOME:
Service charges on deposit accounts 395 81 476
Other service charges and fees 122 14 136
Gains on securities 6 - 6
Other income 38 7 45
-------------- ------------ ------------
Total Non Interest Income 561 102 663
NON INTEREST EXPENSE:
Personnel expense 2,116 318 2,434
Occupancy expense 307 39 346
Equipment expense 257 55 312
Other expense 1,017 180 1,197
-------------- ------------ ------------
Total Non Interest Expense 3,697 592 4,289
NET INCOME BEFORE TAXES 792 189 981
INCOME TAXES 155 44 199
-------------- ------------ ------------
NET INCOME $637 $145 $782
============== ============ ============
Earnings per common share
Basic $ 0.17 $ 0.50 $ 0.17
============== ============ ============
Diluted $ 0.17 $ 0.50 $ 0.17
============== ============ ============
</TABLE>
<PAGE>
JAMES RIVER AND STATE BANK
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma
James River State Bank Combined
----------- ---------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $5,986 $771 $6,757
Investment securities
Taxable 921 326 1,247
Tax exempt 294 20 314
Interest bearing deposits 112 - 112
Federal funds sold 158 29 187
-------------- ------------- -------------
Total Interest Income 7,471 1,146 8,617
INTEREST EXPENSE:
Deposits 3,578 479 4,057
Federal funds and other borrowings 2 2 4
-------------- ------------- -------------
Total Interest Expense 3,580 481 4,061
Net Interest Income 3,891 665 4,556
Provision for loan losses 143 8 151
-------------- ------------- -------------
Net Credit Income 3,748 657 4,405
NON INTEREST INCOME:
Service charges on deposit accounts 295 77 372
Other service charges and fees 121 14 135
Gains on securities 439 - 439
Other income 171 7 178
-------------- ------------- -------------
Total Non Interest Income 1,026 98 1,124
NON INTEREST EXPENSE:
Personnel expense 1,634 314 1,948
Occupancy expense 204 40 244
Equipment expense 229 54 283
Other expense 914 174 1,088
-------------- ------------- -------------
Total Non Interest Expense 2,981 582 3,563
NET INCOME BEFORE TAXES 1,793 173 1,966
INCOME TAXES 463 40 503
-------------- ------------- -------------
NET INCOME $1,330 $ 133 $1,463
============== ============= =============
Earnings per common share
Basic $0.36 $0.46 $0.32
============== ============= =============
Diluted $0.35 $0.46 $0.32
============== ============= =============
</TABLE>
<PAGE>
JAMES RIVER AND STATE BANK
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
James River State Bank Combined
----------- ---------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $24,447 $3,199 $27,646
Investment securities
Taxable 3,888 1,231 5,119
Tax exempt 1,197 91 1,288
Interest income on deposits 553 - 553
Federal funds sold 556 164 720
------------- ------------ ------------
Total Interest Income 30,641 4,685 35,326
INTEREST EXPENSE:
Deposits 14,665 1,969 16,634
Federal funds and other borrowings 47 7 54
------------- ------------ ------------
Total Interest Expense 14,712 1,976 16,688
Net Interest Income 15,929 2,709 18,638
Provision for loan losses 507 30 537
------------- ------------ ------------
Net Credit Income 15,422 2,679 18,101
NON INTEREST INCOME:
Service charges on deposit accounts 1,399 338 1,737
Other service charges and fees 478 65 543
Gains on securities 457 - 457
Other income 411 40 451
------------- ------------ ------------
Total Non Interest Income 2,745 443 3,188
NON INTEREST EXPENSE:
Personnel expense 6,673 1,271 7,944
Occupancy expense 871 165 1,036
Equipment expense 906 250 1,156
Other expense 3,812 996 4,808
------------- ------------ ------------
Total Non Interest Expense 12,262 2,682 14,944
NET INCOME BEFORE TAXES 5,905 440 6,345
INCOME TAXES 1,596 94 1,690
============= ============ ============
NET INCOME $ 4,309 $ 346 $ 4,655
============= ============ ============
Earnings per common share
Basic $ 1.16 $1.19 $ 1.02
============= ============ ============
Diluted $ 1.14 $1.19 $ 1.00
============= ============ ============
</TABLE>
<PAGE>
JAMES RIVER AND STATE BANK
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma
James River State Bank Combined
----------- ---------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $23,473 $3,116 $26,589
Investment securities
Taxable 4,414 1,276 5,690
Tax exempt 1,184 49 1,233
Interest bearing deposits 170 - 170
Federal funds sold 366 102 468
--------------- ------------- --------------
Total Interest Income 29,607 4,543 34,150
INTEREST EXPENSE:
Deposits 14,157 1,939 16,096
Federal funds and other borrowings 40 7 47
--------------- ------------- --------------
Total Interest Expense 14,197 1,946 16,143
Net Interest Income 15,410 2,597 18,007
Provision for loan losses 439 30 469
--------------- ------------- --------------
Net Credit Income 14,971 2,567 17,538
NON INTEREST INCOME:
Service charges on deposit accounts 1,099 289 1,388
Other service charges and fees 482 57 539
Gains on securities 100 9 109
Other income 204 12 216
--------------- ------------- --------------
Total Non Interest Income 1,885 367 2,252
NON INTEREST EXPENSE:
Personnel expense 6,232 1,198 7,430
Occupancy expense 756 135 891
Equipment expense 932 238 1,170
Other expense 3,637 569 4,206
--------------- ------------- --------------
Total Non Interest Expense 11,557 2,140 13,697
NET INCOME BEFORE TAXES 5,299 794 6,093
INCOME TAXES 1,494 234 1,728
=============== ============= ==============
NET INCOME $3,805 $ 560 $ 4,365
=============== ============= ==============
Earnings per common share
Basic $ 1.04 $1.92 $ 0.97
=============== ============= ==============
Diluted $ 1.02 $1.92 $ 0.95
=============== ============= ==============
</TABLE>
<PAGE>
JAMES RIVER AND STATE BANK
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
James River State Bank Combined
----------- ---------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $20,449 $3,258 $23,707
Investment securities
Taxable 4,980 1,050 6,030
Tax exempt 1,285 80 1,365
Interest income on deposits - - -
Federal funds sold 510 110 620
---------------- ------------- --------------
Total Interest Income 27,224 4,498 31,722
INTEREST EXPENSE:
Deposits 13,531 1,939 15,470
Federal funds and other borrowings 29 6 35
---------------- ------------- --------------
Total Interest Expense 13,560 1,945 15,505
Net Interest Income 13,664 2,553 16,217
Provision for loan losses 491 30 521
---------------- ------------- --------------
Net Credit Income 13,173 2,523 15,696
NON INTEREST INCOME:
Service charges on deposit accounts 1,089 285 1,374
Other service charges and fees 362 49 411
Gains on securities 41 - 41
Other income 163 34 197
---------------- ------------- --------------
Total Non Interest Income 1,655 368 2,023
NON INTEREST EXPENSE:
Personnel expense 5,254 1,174 6,428
Occupancy expense 704 130 834
Equipment expense 680 233 913
Other expense 4,865 535 5,400
---------------- ------------- --------------
Total Non Interest Expense 11,503 2,072 13,575
NET INCOME BEFORE TAXES 3,325 819 4,144
INCOME TAXES 908 233 1,141
================ ============= ==============
NET INCOME $ 2,417 $586 $ 3,003
================ ============= ==============
Earnings per common share
Basic $ 0.66 $ 2.01 $ 0.66
================ ============= ==============
Diluted $ 0.65 $ 2.01 $ 0.66
================ ============= ==============
</TABLE>
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of State Bank's management, as well as certain members
of the State Bank board of directors, have interests in the merger in addition
to their interests as shareholders of State Bank. The provisions are described
below. In each case, the State Bank board was aware of these potential
interests, and considered them, among other matters, in approving the merger
agreement and the transactions contemplated thereby.
INDEMNIFICATION. James River has generally agreed to indemnify the
officers and directors of State Bank to the same extent and on the same
conditions as they are entitled to from State Bank before the merger. James
River also has agreed to provide directors' and officers' liability insurance
for the present officers and directors of State Bank comparable to the coverage
currently provided by State Bank before the merger.
DIRECTORS OF STATE BANK. All State Bank directors (including Mr.
____________), who will serve on both the James River and State Bank boards
initially, will receive annual retainers and monthly fees for service on the
State Bank board. Based on the existing schedule utilized by James River, State
Bank's directors will receive an annual retainer of $3,000, payable in equal
monthly installments, and an additional $150 for each monthly board meeting
attended and $75 for each committee meeting attended. The chairman of the board
of State Bank, John A. Berna, will receive a fee of $200 per monthly board
meeting, rather that the $150 fee paid to other directors.
DIRECTOR OF JAMES RIVER. One director of State Bank,
________________________, will become a director of James River and will receive
a fee of $1,000 per month.
CHANGE OF CONTROL AGREEMENTS. In connection with the merger, Larry B.
Olinger, President and Chief Executive Officer of State Bank, and James E.
Underhill, Chief Financial Officer of State Bank, will amend their existing
change of control agreements with State Bank to provide that the agreements will
terminate three years and two years, respectively, from the effective date of
the merger. It is anticipated that upon expiration of Mr. Olinger's change of
control agreement, Mr. Olinger will execute a standard employment agreement
utilized by James River for its executive officers, which provides some
protections for the officer in the event of change in control.
EMPLOYEE AND BENEFIT PLANS. The merger agreement provides that the State
Bank pension plan will be suspended on the effective date of the merger. As soon
as administratively practicable following the merger, employees of State Bank
will be entitled to participate in the James River pension, health and welfare
benefit and similar plans on the same terms and conditions as employees of James
River. Employees of State Bank will receive credit for their years of service to
State Bank for participation and vesting purposes only.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Both James River and State Bank are corporations subject to the
provisions of the Virginia State Corporation Act. State Bank's shareholder's
rights are presently governed by State Bank's articles of incorporation and
bylaws. Upon consummation of the merger and State Bank's shareholders becoming
shareholders of James River, then shareholder's rights will then be governed by
the articles of incorporation and bylaws of James River.
There are a few material differences between the rights of a State Bank
shareholder under State Bank's articles of incorporation and bylaws, on the one
hand, and the rights of a James River shareholder under the articles of
incorporation and bylaws of James River, on the other hand, which are disclosed
in the section "Comparative Rights of Shareholders" on page IV-1.
<PAGE>
TERMS OF THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY DESCRIPTION IN THE MATERIAL ASPECTS OF THE
MERGER AGREEMENT. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ANNEX A THAT CONTAINS THE FULL
MERGER AGREEMENT. WE URGE YOU TO READ THE ANNEX IN ITS ENTIRETY.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER
The merger agreement contains representations and warranties by James
River and State Bank, including representations and warranties with respect to
their individual organizations, authorizations to enter into the merger
agreement, capitalization, financial statements and pending and threatened
litigation. These representations and warranties, except as otherwise provided
in the merger agreement, will not survive the effective date of the merger.
The obligations of James River and State Bank to consummate the merger
are subject to the following conditions, among others:
o approval of the merger agreement by the requisite shareholder vote of
the State Bank shareholders;
o approval of the stock issuance by the requisite shareholder vote of the
James River shareholders;
o receipt of all necessary regulatory approvals not conditioned or
restricted in a manner that, in the judgment of the boards of
directors of James River or State Bank, materially adversely affects the
economic or business benefits of the merger so as to render inadvisable
or unduly burdensome consummation of the merger;
o the absence of certain actual or threatened proceedings before a court
or other governmental body relating to the merger;
o amendment of the change of control agreements between State Bank and
Larry B. Olinger, President and Chief Executive Officer of State Bank,
and James E. Underhill, Chief Financial Officer of State Bank, to
provide that the agreements terminate three years, and two years,
respectively, from the effective date of the merger;
o receipt of a fairness opinion from McKinnon;
o the receipt of an opinion of counsel as to certain federal income tax
consequences of the merger;
o the receipt of a letter from James River's accountants to the effect
that the merger will qualify for pooling-of-interests accounting
treatment under generally accepted accounting principles;
o performance by the other company of its obligations under the merger
agreement;
o the accuracy, in all material respects, of the representations and
warranties of the other company contained in the merger agreement; and
o the receipt of certain opinions and certificates from the other company.
REGULATORY APPROVALS
As indicated above, the merger is conditioned on the prior approval of
the merger by the Board of Governors of the Federal Reserve System and the
Virginia State Corporation Commission. On _________________, 1999, applications
were filed with the Federal Reserve and the Virginia State Corporation
Commission. The applications were accepted but no approvals have been obtained.
While we cannot predict whether or when we will obtain all required regulatory
approvals, we see no reason why the approvals will not be obtained in a timely
manner. However, there can be no assurance that the necessary approvals will be
obtained, or that any approval will not be conditioned in a manner which makes
consummation of the merger, in the judgment of the board of directors of James
River or State Bank, inadvisable or unduly burdensome.
<PAGE>
BUSINESS PENDING THE MERGER
Except with the prior consent of James River, until the effective date
of the merger State Bank may not:
o conduct its operations except only in the ordinary and usual course,
consistent with past practice and to use its best efforts to maintain
its business organization, employees and business relationships and
retain the services of its officers and key employees;
o take any action, engage in any transactions or enter into any
agreements which would adversely affect or delay in any material
respect the ability of James River or State Bank to obtain the
necessary approvals, consents or waivers required to effect the
merger or to perform its covenants and agreements on a timely basis;
o issue any capital stock or effect any stock split or otherwise
change its capitalization;
o make, or commit to make, any capital expenditures aggregating
$100,000 or more without the prior written consent of James River;
o enter into any material transaction except in the ordinary course of
its business;
o enter into or amend, except as required by law, any employee benefit,
incentive or welfare arrangement, or any related trust agreement,
relating to any of its directors, officers or employees;
o incur any obligation or liability, make any pledge, or encumber any
of its assets, nor dispose of any of its assets in any other manner,
except in the ordinary course of business and for adequate value, or
as otherwise permitted in the merger agreement;
o amend its articles of incorporation or bylaws;
o declare or pay dividends on its capital stock in excess of $0.20 per
share per quarter; or
o purchase or redeem any of its capital stock.
Pending consummation of the merger, James River has agreed that it will
operate its business substantially as presently operated, in the ordinary course
of business, and will use its best efforts to preserve intact its relationships
with persons having business dealings with it.
NO SOLICITATION; BOARD ACTION
State Bank has agreed not to (i) encourage, solicit or initiate
discussions or negotiations with any person other than James River concerning
any merger, share exchange, sale of substantial assets, tender offer, sale of
shares of capital stock or similar transaction involving State Bank, (ii) enter
into any agreement with any third party providing for a business combination
transaction, equity investment or sale of a significant amount of assets, or
(iii) furnish any information to any other person relating to or in support of
such transaction.
State Bank also agreed that it will promptly communicate to James River
the terms of any proposal which it may receive in respect to any of the
foregoing transactions.
In the event the merger agreement is terminated and State Bank is
acquired by another financial institution within six months after termination of
the merger agreement and certain specified events occurred prior to termination
of the merger agreement, State Bank may be required to pay James River $400,000
as compensation for James River's out-of-pocket and internal expenses. See "-
Expenses of the Merger and Termination Fee" on page I-31.
<PAGE>
EFFECTIVE DATE
If the merger is approved by the shareholders of State Bank, all
required governmental and other consents are obtained and the other conditions
to the merger are satisfied or waived, the merger will be consummated and made
effective on the date and at the time indicated on the certificate of merger
issued by the Virginia State Corporation Commission pursuant to the Virginia
Stock Corporation Act. See "Representations and Warranties; Conditions to the
Merger" on page I-28.
It is anticipated that the effective date of the merger will occur in
the third quarter of 1999.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the merger, James River will cause First
Union National Bank of North Carolina, its exchange agent, to mail to you a
letter of transmittal and instructions for use to surrender the certificates
representing shares of State Bank common stock in exchange for certificates
representing shares of James River common stock.
STATE BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for State Bank
common stock, together with a properly completed letter of transmittal, you will
receive a certificate or certificates representing the number of shares of James
River common stock to which you are entitled and, where applicable, a check for
the amount payable in cash instead of issuing a fractional share. Lost, stolen,
mutilated or destroyed certificates will be treated in accordance with the
existing procedures of James River.
After the merger, you will be entitled to vote the number of shares of
James River common stock into which your State Bank common stock has been
converted, regardless of whether you have surrendered your State Bank
certificates. The merger agreement provides, however, that no dividend or
distribution payable to the holders of record of James River common stock at or
as of any time after the effective date of the merger will be paid to the holder
of any State Bank certificate until such holder physically surrenders such
certificate, promptly after which time all such dividends or distributions will
be paid, without interest.
WAIVER, AMENDMENT AND TERMINATION
At any time on or before the effective date of the merger, any term or
condition of the merger may be waived by the party which is entitled to the
benefits thereof and without shareholder approval. The merger agreement may be
amended at any time before the merger by agreement of the parties whether before
or after the meetings. Any material change in a material term of the merger
agreement would require a resolicitation of State Bank's shareholders. Such a
material change would include, but not be limited to, a decrease in the exchange
ratio or a change in the tax consequences to State Bank's shareholders. In the
event the merger agreement is terminated and State Bank is acquired by another
financial institution within six months after termination of the merger
agreement and certain specified events occurred prior to termination of the
merger agreement, State Bank may be required to pay James River $400,000 as
compensation for James River's out-of-pocket and internal expenses. See
"Expenses of the Merger and Termination Fee" on page I-31.
The merger agreement may be terminated by James River or State Bank,
whether before or after the approval of the merger by the shareholders of State
Bank:
o by mutual consent of State Bank and James River;
o unilaterally by State Bank or James River, if the merger has not
occurred on or before December 31, 1999, except that the party
whose failure to perform any obligation under the merger
agreement is the cause of the delay may not terminate the merger
based upon the delay; or
<PAGE>
o unilaterally by State Bank or James River if the satisfaction in
any material respect of one or more conditions to the obligation
of that party is rendered impossible of satisfaction. In the
event of termination, the merger agreement shall become null and
void, except that certain provisions thereof relating to expenses
and confidentiality of information exchanged between the parties
shall survive any such termination.
RESALES OF JAMES RIVER COMMON STOCK
All shares of James River common stock received by State Bank
shareholders in connection with the merger will be freely transferable, except
that James River common stock received by persons who are deemed to be
"affiliates" of State Bank for purposes of Rule 145 under the Securities Act of
1933. To the best knowledge of State Bank and James River, the only persons who
may be deemed to be affiliates of State Bank subject to these limitations are
the directors and executive officers of State Bank.
EXPENSES OF THE MERGER AND TERMINATION FEE
In general, whether or not the merger is consummated, State Bank and
James River will pay their own expenses incident to preparing, entering into and
carrying out the merger agreement, and preparing and filing the registration
statement of which this proxy statement/prospectus is a part.
If the merger agreement is terminated by James River or State Bank
because a condition of the merger was not satisified and one of the specified
events (described below) occurred, then State Bank will be required to pay James
River $400,000 to compensate James River for all of its out-of-pocket and
internal costs and expenses associated with the transaction. The specified
events that would trigger this obligation on behalf of State Bank include:
(i) State Bank entering into an agreement with another party to
(a) acquire, merge or consolidate or enter into any similar
transaction,
(b) purchase, lease or otherwise require all or substantially
all of the assets of State Bank, or
(c) purchase or otherwise acquire directly from State Bank
securities representing 10% or more of the voted power of State Bank;
(ii) any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 20% or more of the outstanding shares
of State Bank common stock after the date of the merger agreement; or
(iii) after the date of the merger agreement, any person shall have made
a bona fide proposal to State Bank by a public announcement or written
communication that is or becomes subject to public disclosure to acquire
the State Bank by merger, share exchange, consolidation, purchase of all
or substantially all of the assets or any other similar transaction, and
within six months after the termination of the merger agreement, State
Bank enters into an agreement to be acquired by such person.
This provision is intended to discourage another party from interferring
with the merger agreement between James River and State Bank.
If either party willfully and materially breaches the merger agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If the merger agreement is terminated because State Bank
shareholders did not approve the merger agreement or James River shareholders
did not approve the Stock Issuance, then the party whose shareholders failed to
grant such approval will pay 50% of the costs and expenses of the other party,
except that such reimbursement will not exceed a total of $50,000.
<PAGE>
MARKET PRICES AND DIVIDENDS
MARKET PRICES
State Bank common stock is traded on a sporadic basis in private
transactions often by State Bank personnel matching prospective buyers and
sellers. To State Bank management's knowledge, the last sales of State Bank
common stock took place in the fall of 1998 at prices ranging from $27 to $28
per share.
James River common stock is listed and traded on the NASDAQ Stock
Market, National Market System under the symbol "JRBK."
The following table sets forth the high, low, and closing sales prices
of the common stock as reported by the NASDAQ Stock Market's National Market
System for the periods listed. Sales price have been restated to reflect the
Company's three-for-two stock split effected in the form of a 50% stock dividend
in November 1997. The common stock is thinly traded.
JAMES RIVER
HIGH LOW CLOSING
1999
2nd Quarter (through ________, 1999) $_____ $_____ $_____
1st Quarter 18.75 16.00 17.63
1998
4th Quarter $19.50 $16.50 $17.50
3rd Quarter 24.00 17.50 18.25
2nd Quarter 26.00 21.50 22.00
1st Quarter 23.00 19.63 21.25
1997
4th Quarter $21.00 $16.83 $21.00
3rd Quarter 18.17 15.00 16.00
2nd Quarter 15.17 13.33 15.17
1st Quarter 14.17 13.17 13.33
The closing price of James River common stock on the NASDAQ National
Market on February 17, 1999, the last full trading day preceding the public
announcement of the proposed merger, was $17.00 per share. The closing price of
James River common stock on the NASDAQ National Market on _____________, 1999,
the latest practicable date before the date of this proxy statement/prospectus
was $_________ per share.
DIVIDENDS
The following table reflects the cash dividends declared per share
during each quarter on James River common stock and State Bank common stock for
the periods indicated.
JAMES RIVER
1999 1998 1997
Fourth Quarter $ $0.12 $0.10
Third Quarter 0.10 0.09
Second Quarter 0.10 0.09
First Quarter 0.12 0.10 0.09
STATE BANK
1999 1998 1997
Fourth Quarter $ $0.20 $0.20
Third Quarter 0.20 0.20
Second Quarter 0.20 0.20
First Quarter 0.20 0.20 0.20
<PAGE>
CHAPTER II
INFORMATION ABOUT THE MEETINGS AND VOTING
GENERAL
We are furnishing this document in connection with the solicitation of
proxies by the board of directors of James River for use at the annual meeting
of James River shareholders including any adjournments or postponements thereof,
to be held on ________________, 1999, and by the board of directors of State
Bank for use at the special meeting of State Bank shareholders including any
adjournments or postponements thereof, to be held on _______________1999, at the
times and places set forth in the accompanying notice.
The purpose of the State Bank meeting is to consider and vote upon the
Agreement and Plan of Merger, dated February 17, 1999, among James River, State
Bank and JRB Acquisition Bank, Inc., a Virginia corporation and a wholly owned
subsidiary of James River (the "Sub"). The merger agreement is attached to this
document as Annex A. For a description of the merger agreement, see "The Merger
- -- Terms of the Merger Agreement" on page ____.
The merger agreement provides that State Bank will merge with and into
the Sub. In the merger, each share of common stock, par value $10.00 per share,
of State Bank then outstanding will be converted into the right to receive 2.9
shares (the "exchange ratio") of common stock, par value $5.00 per share, of
James River. James River will pay cash in lieu of fractional shares.
JAMES RIVER MEETING
GENERAL. The James River meeting will be held on ___________, 1999 at
____ _.m., local time, at __________________________________________. At the
James River meeting, holders of James River common stock will be asked, (i) in
accordance with the rules of the NASDAQ National Market System ("NASDAQ National
Market"), to consider and vote upon a proposal to approve the issuance of James
River common stock in connection with the merger (the "Stock Issuance"); (ii) to
elect nine (9) directors to hold office for a term of one year and until their
successors are elected and qualified; (iii) to act on a proposal to ratify the
appointment of Yount, Hyde & Barbour, P.C. as independent auditors for the
ensuing year; and (iv) to transact such other business as may properly come
before the special meeting or any adjournment or postponement of the meeting.
NASDAQ National Market requires shareholder approval of the Stock
Issuance because the number of shares of James River common stock to be issued
in the merger is expected to exceed 20% of the shares of James River common
stock outstanding immediately prior to the effective date. James River
shareholders may also be asked to vote upon a proposal to adjourn or postpone
the James River meeting for the purpose of, among other things, allowing
additional time for the solicitation of proxies from James River shareholders to
approve the Stock Issuance.
RECORD DATE; VOTING POWER. Only holders of record of shares of James
River common stock at the close of business on _________________, 1999 are
entitled to notice of and to vote at the James River meeting. On such date,
there were ___________ issued and outstanding shares of James River common stock
held by approximately ______________ holders of record. Holders of record of
James River common stock on the James River record date are entitled to one vote
per share on any matter that may properly come before the James River meeting.
Brokers who hold shares of James River common stock as nominees will not have
discretionary authority to vote such shares in favor of the Stock Issuance in
the absence of instructions from the beneficial owners thereof. Any shares of
James River common stock for which a broker has submitted an executed proxy but
for which the beneficial owner thereof has not given instructions on voting to
such broker are referred to as "broker non-votes."
VOTE REQUIRED. The approval of the Stock Issuance at the James River
meeting requires a greater number of votes cast in favor of the matter than the
number of votes cast opposing such matter, provided that the total number of
votes cast on such matter represents over 50% of the shares entitled to vote on
the proposal.
<PAGE>
Broker non-votes and abstentions will be counted for purposes of
establishing the presence of a quorum at the James River meeting. Abstentions
and broker non-votes will not, however, be deemed to have been cast either "for"
or "against" the proposal for approval of the Stock Issuance considered at the
meeting and, since approval of the proposal requires the affirmative vote of a
majority of the votes cast at the James River meeting, will have no effect on
the approval of the Stock Issuance, unless the total number of votes cast does
not exceed 50% of the shares entitled to vote. The James River board urges James
River shareholders to complete, date and sign the accompanying proxy and return
it promptly in the enclosed, postage-paid envelope.
On the James River record date, the executive officers and directors of
James River, including their affiliates, had voting power with respect to an
aggregate of ____________ shares of James River common stock or approximately
_____% of the shares of James River common stock then outstanding. We expect
that such directors and officers will vote all of such shares in favor of the
approval of the Stock Issuance, election of the nine directors and ratification
of the appointment of the independent auditors. In addition, on the James River
record date, the directors and executive officers of State Bank did not
beneficially own any shares of James River common stock.
RECOMMENDATION OF THE JAMES RIVER BOARD. The James River board has
unanimously approved and adopted the merger agreement and the transactions
contemplated thereby, including the Stock Issuance. The James River board
believes that the merger agreement and the transactions contemplated thereby,
including the Stock Issuance, are fair to and in the best interests of James
River and the James River shareholders and recommends that the James River
shareholders vote "FOR" approval of the Stock Issuance. (See "The Merger -
- --Background of and Reasons for the Merger -- James River's Reasons for the
Merger").
SOLICITATION AND REVOCATION OF PROXIES. A form of proxy is enclosed with
this document. All shares of James River common stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such shares will be voted FOR approval of the Stock
Issuance and in the discretion of the proxy holder as to any other matter which
may properly come before the James River meeting.
EACH HOLDER OF JAMES RIVER COMMON STOCK IS REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO JAMES RIVER IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE.
Any James River shareholder that has previously delivered a properly
executed proxy may revoke such proxy at any time before its exercise. A proxy
may be revoked either by (i) filing with the secretary of James River prior to
the James River meeting, at James River's principal executive offices, a written
revocation of such proxy or a duly executed proxy bearing a later date or (ii)
attending the James River meeting and voting in person. Presence at the James
River meeting will not revoke a shareholder's proxy unless such shareholder
votes in person.
The cost of soliciting proxies will be borne by James River. Proxies may
be solicited by personal interview, mail or telephone. In addition, James River
may reimburse brokerage firms and other persons representing beneficial owners
of shares of James River common stock for their expenses in forwarding
solicitation materials to beneficial owners. Proxies may also be solicited by
certain of James River's executive officers, directors and regular employees,
without additional compensation, personally or by telephone or facsimile
transmission.
OTHER MATTERS. James River is unaware of any matter to be presented at
the James River meeting other than the proposals to approve the Stock Issuance,
elect directors and approve auditors. If other matters are properly presented at
the James River meeting, the persons named in the enclosed form of proxy will
have authority to vote all properly executed proxies in accordance with their
judgment on any such matter, including, without limitation, any proposal to
adjourn or postpone the James River meeting, provided that no proxy that has
been designated to vote against approval and adoption of the merger agreement
and the Stock Issuance will be voted in favor of any proposal to adjourn or
postpone the James River meeting for the purpose of soliciting additional
proxies to approve and adopt the merger agreement and the Stock Issuance.
<PAGE>
STATE BANK MEETING
GENERAL. The State Bank meeting will be held on _____________, 1999 at
_____ ___.m., local time, in Remington, Virginia. At the State Bank meeting,
holders of State Bank common stock will be asked to consider and vote upon a
proposal to approve the merger agreement. State Bank shareholders may also he
asked to vote upon a proposal to adjourn or postpone the State Bank meeting for
the purpose of, among other things, allowing additional time for the
solicitation of proxies from State Bank shareholders to approve the merger
agreement.
RECORD DATE; VOTING POWER. Only holders of record of shares of State
Bank common stock at the close of business on _____________, 1999 are entitled
to notice of and to vote at the State Bank meeting. As of such date, there were
291,027 issued and outstanding shares of State Bank common stock held by
approximately 421 holders of record. Holders of record of State Bank common
stock on the State Bank record date are entitled to one vote per share on any
matter that may properly come before the State Bank meeting. Brokers who hold
shares of State Bank common stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners thereof. Any such shares of State Bank common stock for which a broker
has submitted an executed proxy but for which the beneficial owner thereof has
not given instructions on voting to such broker are referred to as "broker
non-votes."
VOTE REQUIRED. The presence in person or by proxy of the holders of a
majority of the shares of State Bank common stock outstanding on the State Bank
record date will constitute a quorum for the transaction of business at the
State Bank meeting. Abstentions and broker non-votes will be counted for
purposes of establishing the presence of a quorum at the State Bank meeting. The
approval of the proposal to approve the merger agreement requires the
affirmative vote of holders of more than two-thirds of the shares of State Bank
common stock outstanding on the State Bank record date. Broker non-votes and
abstentions will be counted and will have the effect of a vote against the
proposal to approve the merger agreement.
On the State Bank record date, the executive officers and directors of
State Bank, including their affiliates, had voting power with respect to an
aggregate of ___________ shares of State Bank common stock or approximately ___%
of the shares of State Bank common stock then outstanding. We currently expect
that such directors and officers will vote all of such shares in favor of the
proposal to approve the merger agreement. In addition, on the State Bank record
date, the directors and executive officers of James River did not beneficially
own any shares of State Bank common stock.
RECOMMENDATION OF THE STATE BANK BOARD. The State Bank board has
unanimously approved and adopted the merger agreement and the transactions
contemplated thereby. The State Bank board believes that the merger is fair to
and in the best interests of State Bank and the State Bank shareholders and
unanimously recommends that the State Bank shareholders vote "FOR" approval of
the merger agreement and the transactions contemplated thereby. See "The Merger
- -- Background of and Reasons for the Merger -- State Bank's Reasons for the
Merger."
SOLICITATION AND REVOCATION OF PROXIES. A form of proxy is enclosed with
this document. All shares of State Bank common stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such shares will be voted FOR approval of the merger
agreement and in the discretion of the proxy holder as to any other matter which
may properly come before the State Bank meeting.
EACH HOLDER OF STATE BANK COMMON STOCK IS REQUESTED TO VOTE BY
COMPLETING, DATING AND SIGNING THE ACCOMPANYING PROXY CARD AND RETURNING IT
PROMPTLY TO STATE BANK IN THE ENCLOSED, POSTAGE-PAID ENVELOPE. STATE BANK
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
Any State Bank shareholder that has previously delivered a properly
executed proxy may revoke such proxy at any time before its exercise. A proxy
may be revoked either by (i) filing with the secretary of State Bank prior to
the State Bank meeting, at State Bank's principal executive offices, either a
written revocation of such proxy or a duly executed proxy bearing a later date
or (ii) attending the State Bank meeting and voting in person. Presence at the
State Bank meeting will not revoke a shareholder's proxy unless such shareholder
votes in person.
<PAGE>
The cost of soliciting proxies will be borne by State Bank. Proxies may
be solicited by personal interview, mail or telephone. In addition, State Bank
may reimburse brokerage firms and other persons representing beneficial owners
of shares of State Bank common stock for their expenses in forwarding
solicitation materials to beneficial owners. Proxies may also be solicited by
certain of State Bank's executive officers, directors and regular employees,
without additional compensation, personally or by telephone or facsimile
transmission.
OTHER MATTERS. State Bank is unaware of any matter to be presented at
the State Bank meeting other than the proposal to approve the merger agreement.
If other matters are properly presented at the State Bank meeting, the persons
named in the enclosed form of proxy will have authority to vote all properly
executed proxies in accordance with their judgment on any such matter,
including, without limitation, any proposal to adjourn or postpone the State
Bank meeting, provided that no proxy that has been designated to vote against
approval of the merger agreement will be voted in favor of any proposal to
adjourn or postpone the State Bank meeting for the purpose of soliciting
additional proxies to approve the merger agreement.
<PAGE>
CHAPTER III
DESCRIPTION OF STATE BANK
BUSINESS OF STATE BANK
GENERAL
The State Bank of Remington, Inc. is a commercial banking organization,
chartered in 1913 under the laws of the Commonwealth of Virginia. State Bank is
a member of the Federal Reserve, and its deposits are insured by the Federal
Deposit Insurance Corporation. Headquarters of State Bank have remained in the
Town of Remington in southern Fauquier County, Virginia since formation of State
Bank, and two branch offices, opened in 1971 and 1975, extended State Bank's
operations into the neighboring communities of Catlett and Bealeton, Virginia.
State Bank considers its primary market area to be the middle and southern
portions of Fauquier County, as well as the adjoining portions of Culpeper,
Stafford and Prince William Counties. At March 31, 1999, State Bank had total
assets of $70.2 million, deposits of $62.1 million and loans of $39.3 million.
Shareholder's equity amounted to $7.5 million with 421 shareholders owning the
291,027 shares of common stock outstanding.
State Bank provides a wide range of banking services, including the
handling of demand, savings and time deposit accounts for personal and
commercial customers and the making of consumer, commercial, agricultural and
real estate construction, mortgage and home equity loans. State Bank also acts
as a depository for United States taxes, sells U.S. Savings bonds, money orders
and travelers checks, assists customers with money transfers and domestic
collections and offers night depository and safe deposit box services. All three
of State Bank's offices provide drive-up banking and each office is equipped
with an automated teller machine that provides 24-hour service to customers
wishing to make balance inquiries, withdrawals from or deposits to their
personal checking accounts and transfers of funds between checking and savings
accounts. Around the clock inquiry on most deposit and loan accounts is also
extended to customers via an automated voice response system installed in 1997.
State Bank's services also include overdraft protection and VISA(R) and
MasterCard(R) credit cards and, since State Bank is a member of the Honor(R) and
Plus(R) automated teller machine networks, ATM access cards provide customers
with access to their funds nationwide and in selected foreign countries.
LENDING ACTIVITIES
GENERAL. State Bank engages in a broad range of lending activities,
including the making of real estate, commercial and consumer loans within its
primary service area. At March 31, 1999, State Bank's loans totaled $39.3
million before the allowance for loan losses, representing 56.0% of total
assets. On that date, loans secured by real estate totaled $24.0 million or
61.1% of total loans outstanding, commercial loans amounted to $6.4 million or
16.3%, and consumer loans totaled $8.9 million or 22.6%. In addition to the
$39.3 million in outstanding loans, State Bank had commitments to extend credit
of $7.0 million on March 31, 1999 representing unused amounts on outstanding
lines of credit and approved but undisbursed loans. State Bank's legal lending
limit to any one borrower was approximately $1.1 million at March 31, 1999.
COMMERCIAL LENDING. As a full service community bank, State Bank is a
major lender to small retail businesses and commercial service providers in its
area. Commercial business loans generally have a higher degree of risk than
residential mortgage loans and are generally extended at commensurately higher
yields. Residential mortgage loans are generally made on the basis of the
borrower's ability to make repayment from employment and other income and are
secured by real estate the value of which tends to be easily determined. In
contrast, repayment of commercial business loans is substantially dependent upon
the success of the business itself. To minimize the risk, State Bank generally
secures the loans with appropriate collateral and requires the personal
guarantee of business owners on extensions of credit to separate corporations.
Management of the risk is also enhanced by the maintenance of an internal watch
system to monitor the financial condition of the business, the guarantors and
the market value of associated collateral. Because the local economy is diverse,
State Bank has no significant concentration of credit in any single industry.
<PAGE>
REAL ESTATE CONSTRUCTION LENDING. State Bank generally limits its
construction lending to residential single-family property but, on occasion, has
extended credit for the completion of community service facilities such as
churches and other smaller commercial types of real estate such as day-care
centers. While most loans are extended to experienced builders for the
construction of pre-sold single family residential units only to buyers who have
pre-qualified for permanent take-out financing, State Bank has a few builders to
whom construction loans are extended in moderate amounts for the construction of
speculative single-family residential property. These latter loans are generally
structured on a six to twelve month term with payout expected from permanent
financing to be arranged by the buyers of the completed properties.
Construction loans by their nature entail a greater degree of risk than
do simple mortgage loans since funds are advanced upon the security of the home
under construction, for which the value is uncertain prior to project
completion. In those instances where construction funds are provided for
pre-sold homes, there remains a risk that a change in the buyer's financial
situation could result in the failure of the lender to advance the take-out
funding. In the case of spec-construction financing, sale of the house could
take much longer than expected with the builder being forced to absorb larger
than expected carrying costs.
To minimize risks associated with this type of financing, State Bank
limits these lending activities to borrowers with demonstrated financial
strength, requires first deeds of trust on the properties under construction and
limits advances to no more than 80% of appraised completion value as determined
by a properly licensed and bank-approved appraiser. Advances on the construction
loans are also withheld until inspections have been made to ascertain that the
construction projects are on schedule as set forth in the permitted draw section
of construction loan agreements executed at closing of the loans.
RESIDENTIAL MORTGAGE LENDING. Asset/liability strategies of State Bank
do not permit the making of conventional 30-year fixed-rate mortgage loans. As
an alternative, State Bank extends mortgage loans on a long-term basis but with
an adjustable rate feature that provides for an adjustment in the interest rate
at the expiration of predefined intervals in the life of the loan. Three-year,
five-year and seven-year adjustment intervals are offered to customers, with the
longer-term periods carrying modestly higher rates of interest compared to the
three-year program.
Residential mortgage loans, including home equity loans, are extended
for a variety of purposes including the purchase, refinance or improvement of
residential real property. The loans are collateralized by mortgage liens on the
property that are restricted to no more than 80% of appraised value as
determined by a properly licensed and bank-approved appraiser.
CONSUMER LENDING. State Bank offers most types of consumer installment
loans on both a secured and unsecured basis depending on the size and nature of
the credit extension. Additionally, State Bank offers its customers small
overdraft protection lines of credit as well as VISA(R) and MasterCard(R) credit
lines. The performance of the consumer loan portfolio is directly tied to and
dependent upon the general economic conditions throughout State Bank's market
area.
CREDIT POLICIES AND LOAN ADMINISTRATION. State Bank has a comprehensive
lending policy that includes stringent underwriting standards for all types of
loans. The policy defines "permitted" loans and, in addition, sets forth the
types of loans deemed by State Bank to be "prohibited and undesirable."
Collateral requirements and maturity limits are also addressed.
The principal economic risk associated with all lending activities is
the creditworthiness of the borrowers and the impact on the borrowers of
prevailing economic conditions. In an effort to manage such risk, State Bank's
lending policy limits the approval authority of individual loan officers to an
amount that is considered reasonable based on the level of experience of each
loan officer. Loan requests that exceed individual authority must be submitted
for approval to an officer or committee with higher authority. Loans exceeding
the authority of all individuals within State Bank are first submitted to the
Officers' Loan Committee, which consists of senior lending officers of State
Bank, and if necessary, to the Executive Committee of the Board or to the full
board of directors of State Bank.
<PAGE>
SUPERVISION AND REGULATION
State Bank is subject to various state and federal banking laws and
regulations that impose specific requirements or restrictions on and provide for
general regulatory oversight with respect to virtually all aspects of
operations. The following is a brief summary of the material provisions of
certain statutes, rules and regulations that affect the Bank. This summary is
qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below.
GENERAL. State Bank is under the supervision of, and subject to
regulation and examination by, the Virginia State Corporation Commission and the
Federal Reserve. State Bank is subject to various statutes and regulations
administered by these agencies that govern, among other things, required
reserves, investments, loans, lending limits, acquisitions of fixed assets,
interest rates payable on deposits, transactions among affiliates and the Bank,
the payment of dividends, mergers and consolidations, and establishment of
branch offices. Federal and state bank regulatory agencies also have the general
authority to eliminate dividends paid by insured banks if such payment is deemed
to constitute an unsafe and unsound practice. As its primary federal regulator,
the Federal Reserve has the authority to impose penalties, initiate civil and
administrative actions and take other steps to prevent State Bank from engaging
in unsafe and unsound practices.
Under federal legislation, existing restrictions on interstate bank
acquisitions were abolished in 1995. Bank holding companies from any state are
able to acquire banks and bank holding companies located in any other state. The
law allows banks to merge across state lines and allows interstate branch
acquisitions and DE NOVO branching if permitted by the host state. Virginia
legislation allows interstate bank mergers. Virginia also permits interstate
branch acquisitions and DE NOVO branching if reciprocal treatment is accorded
Virginia banks in the state of the acquirer.
DIVIDENDS. The amount of dividends payable by State Bank depends upon
its earnings and capital position, and is limited by Federal and state law,
regulations and policy. Virginia law imposes restrictions on the ability of all
banks chartered under Virginia law to pay dividends. No dividend may be declared
or paid that would impair a bank's paid-in capital. Each of the Commission and
the Federal Reserve have the general authority to limit dividends paid by a bank
if such payments are deemed to constitute an unsafe and unsound practice.
Under current supervisory practice, prior approval of the Federal
Reserve is required if cash dividends declared in any given year exceed the
total of its net profits for such year, plus its retained net profits for the
preceding two years. Also, a bank may not pay a dividend in an amount greater
than its undivided profits then on hand after deducting current losses and bad
debts. For this purpose, bad debts are generally defined to include the
principal amount of all loans which are in arrears with respect to interest by
six months or more, unless such loans are fully secured and in the process of
collection. Federal law further provides that no insured depository institution
may make any capital distribution (which would include a cash dividend) if,
after making the distribution, the institution would not satisfy one or more of
its minimum capital requirements.
CAPITAL RESOURCES. The various federal bank regulatory agencies,
including the Federal Reserve, have adopted risk-based capital requirements for
assessing bank capital adequacy. Virginia chartered banks must also satisfy the
capital requirements adopted by the Commission. The federal capital standards
define capital and establish minimum capital requirements in relation to assets
and off-balance sheet exposure, as adjusted for credit risk. The risk-based
capital standards currently in effect are designed to make regulatory capital
requirements more sensitive to differences in risk profile among bank holding
companies and banks, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate risk weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
The minimum standard for the ratio of capital to risk-weighted assets
(including certain off-balance sheet obligations, such as stand-by letters of
credit) is 8.0%. At least half of the risk-based capital must consist of common
equity, retained earnings and qualifying perpetual preferred stock, less
deductions for goodwill and various other tangibles ("Tier I capital"). The
remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, preferred
stock and a limited amount of the general valuation allowance for loan losses.
The sum of Tier I capital and Tier 2 capital is "total risk-based capital."
<PAGE>
The Federal Reserve also has adopted regulations which supplement the
risk-based guidelines to include a minimum leverage ratio of Tier I capital to
quarterly average assets ("Leverage ratio") of 3%. The Federal Reserve has
emphasized that the foregoing standards are supervisory minimums and that a
banking organization will be permitted to maintain such minimum levels of
capital only if it receives the highest rating under the regulatory rating
system and the banking organization is not experiencing or anticipating
significant growth. All other banking organizations are required to maintain a
Leverage ratio of at least 4.0% to 5.0% of Tier I capital. These rules further
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain capital positions substantially above
the minimum supervisory levels and comparable to peer group averages, without
significant reliance on intangible assets. The Federal Reserve continues to
consider a "tangible Tier I leverage ratio" in evaluating proposals for
expansion or new activities. The tangible Tier I leverage ratio is the ratio of
a banking organization's Tier I capital, less deductions for intangibles which
otherwise are included in Tier I capital, to total tangible assets.
DEPOSIT INSURANCE. As an institution with deposits to be insured by Bank
Insurance Fund ("BIF") of the FDIC, State Bank is also subject to regulation and
insurance assessments imposed by the FDIC.
EMPLOYEES
At March 31, 1999, State Bank had 33 full-time employees, 12 of whom
were officers, and six part-time employees. None of its employees are
represented by any collective bargaining agreements and relations with employees
are considered to be excellent.
COMPETITION
While promotional activities of State Bank emphasize the many advantages
of dealing with a locally run institution closely attuned to the needs of its
community, State Bank faces strong competition in all areas of its operations.
State Bank competes directly with nine other commercial banks operating within
the immediate trade area, most of which have resources substantially greater
than its own, as well as with a credit union, a branch of a large regional
savings bank and several investment brokerage houses. Included among State
Bank's competitors are large regional institutions such as First Virginia,
Crestar, F&M National Corporation, Wachovia, and Mercantile Bankshares through
its ownership of Marshall National Bank and Trust, and Chevy-Chase FSB which
operates a branch office in nearby Warrenton. Non-bank competitors which vie for
potential deposits include investment brokerage firms such as Wheat-First
Securities, Scott and Stringfellow and Edward Jones while numerous agents
representing mortgage brokerage firms and large out-of-state lenders compete
with State Bank's lending activities. The primary method of competition is in
pricing and, since many of State Bank's nonbank competitors are not subject to
the same extensive federal and state regulations that govern State Bank, State
Bank's competitors often have advantages in the pricing of certain services.
Size of the competing institutions is also a factor in generating efficiencies
that result in more attractive pricing and the higher lending limits of the
larger institutions often place State Bank at a competitive disadvantage.
PROPERTIES
State Bank currently operates three banking offices, its headquarters in
Remington, which houses all administrative and operational activities including
data processing services, and retail branch offices on State Rt. 28 in Catlett,
Virginia and on U.S. Rt. 17 in Bealeton, Virginia. All three of these properties
are owned by State Bank and are free of liens. In addition, State Bank leases,
on a monthly basis, office space near its main office facility. At the present
time, that space is used to accommodate State Bank's accounting staff and to
provide needed storage and meeting space.
<PAGE>
STATE BANK
SELECTED FINANCIAL INFORMATION
The income statement data, per share data, and balance sheet data
contained in the following summary financial data for the five years ended
December 31, 1998 are derived from the audited historical financial statements
of State Bank. The financial data for the three-month periods ended March 31,
1999 and 1998 are taken from unaudited financial statements. The summary should
be reviewed in conjunction with the historical financial statements and the
notes thereto of State Bank included in Annex C.
<TABLE>
<CAPTION>
Three Months ended
March 31, Years Ended December 31,
------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income.............. $ 687 $ 665 $ 2,709 $ 2,597 $ 2,553 $ 2,633 $ 2,601
Loan loss provision.............. 8 8 30 30 30 --- 50
Non-interest income.............. 102 98 443 367 368 325 357
Non-interest expense............. 592 582 2,682 2,140 2,072 2,086 2,124
Income tax expense............... 44 40 94 234 233 261 232
Net income....................... 145 133 346 560 586 611 552
Per Share Data: (1)
Net Income....................... $ 0.50 $ 0.46 $ 1.19 $ 1.92 $ 2.01 $ 2.10 $ 1.90
Cash dividends................... 0.20 0.20 0.80 0.80 0.80 0.73 0.73
Book value at period end......... 25.83 25.57 25.69 25.29 23.96 22.71 20.38
Average shares outstanding ..... 291,027 291,027 291,027 291,027 291,027 291,027 291,027
Balance Sheet Data at period end:
Total assets..................... $ 70,238 $ 65,307 $ 69,083 $ 64,736 $ 61,929 $ 62,107 $ 58,842
Loans, net....................... 38,834 33,208 36,515 32,953 33,283 34,338 32,772
Securities....................... 21,953 23,194 21,770 22,793 21,317 18,694 19,758
Deposits ........................ 62,087 57,188 61,128 56,704 54,424 55,054 52,380
Stockholders' equity............. 7,516 7,440 7,476 7,359 6,973 6,610 5,931
Performance Ratios: (3)
Return on average assets......... 0.84% 0.83% 0.52% 0.88% 0.95% 1.02% 0.91%
Return on average equity......... 7.73% 7.16% 4.58% 7.82% 8.67% 9.70% 9.22%
Net interest margin.............. 4.47% 4.69% 4.63% 4.63% 4.65% 4.94% 4.78%
Asset Quality Ratios:
Allowance for loan losses to period 1.14% 1.41% 1.21% 1.41% 1.75% 1.89% 1.94%
end loans........................
Allowance for loan losses to ----- ----- ----- ----- 370.09% ----- -----
non-accrual loans................
Non-performing assets to period end
loans and other real estate owned (2) 3.38% 5.25% 3.59% 5.31% 6.65% 5.06% 5.80%
Net charge-offs (recoveries) to
average loans (3).............. 0.08% 0.06% 0.16% 0.46% 0.28% (0.04%) 0.01%
Capital and Liquidity
Leverage......................... 10.8% 11.4% 10.7% 11.4% 11.0% 10.9% 10.2%
Risk Based:
Tier 1 capital................... 16.8% 19.0% 17.4% 19.1% 18.3% 16.9% 15.9%
Total Capital.................... 17.8% 20.2% 18.5% 20.3% 19.6% 18.1% 17.5%
</TABLE>
(1) Shares outstanding and per share data for years prior to 1996 adjusted to
reflect the impact of the May 6, 1996 200% stock dividend.
(2) Non-performing assets consist of non-accrual loans and other real estate
owned.
(3) Annualized for the three months ended March 31, 1999 and 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in understanding
and evaluating the financial condition and results of operation of the State
Bank. The review should be read in conjunction with State Bank's financial
statements and accompanying notes included in Annex C.
OVERVIEW
At March 31, 1999, State Bank had total assets of $70.2 million, total
loans of $39.3 million, total deposits of $62.1 million and total shareholders'
equity of $ 7.5 million, all of which represented record-high quarter-end
levels. Deposit growth of State Bank has been satisfactory in recent years but
growth in loan volume, although up in 1998 and early 1999, has been inadequate
over that same period of time. This lack of sufficient loan volume coupled with
a sizeable investment in non-income producing other real estate owned which the
Bank took back in satisfaction of debt almost six years ago, negatively impacted
State Bank's earnings. In spite of the lower earnings, State Bank's leverage
capital ratio of 10.8% at March 31, 1999 was well above regulatory requirements
and, considering the moderate level of net loan losses in recent years, the
reserve for loan losses at 1.14% of period-end loans appears adequate to absorb
future write-offs.
NET INCOME
During the three-month period ended March 31, 1999, State Bank earned
$145 thousand or $0.50 per share as compared to $133 thousand or $0.46 per share
earned during the same period of 1998. These earnings equated to a return on
average assets of .84% compared to .83% for the same period of 1998 and a return
on average equity of 7.73%, which was up modestly from its 1998 level of 7.16%.
The improvement in earnings is attributed to growth in the loan portfolio that
more than offset a significant drop in the average interest rate earned on loans
thus enabling the Bank to generate a $22 thousand increase in net interest
income. Also contributing to the improved profitability was a modest increase of
$10 thousand in non-interest expense, most of which represented one-time costs
incurred in connection with the planned merger with James River.
Net income for 1998 totaled $346 thousand or $1.19 per share of State
Bank common stock, a decline of 38.2% from the $560 thousand or $1.92 per share
earned during 1997. The drop in net income is attributed to an increase of $542
thousand in non-interest expense which more than offset increases of $112
thousand and $76 thousand in net interest income and non-interest income,
respectively, and a reduction in income tax expense of $140 thousand. Stated in
terms of the widely used measures of profitability, State Bank's return on
assets for the year ended December 31, 1998 amounted to .52% compared to .88%
for the prior year, while the return on average equity of 4.58% for 1998 was
also significantly below the 7.82% recorded for the period ended December 31,
1997.
The significant increase in non-interest expense is partially attributed
to an increase of $72 thousand in employment costs and a $42 thousand rise in
furniture and fixture and occupancy costs as State Bank absorbed the cost of its
first full year of operation in an expanded and remodeled branch facility at
Catlett, Virginia. More significant, however, was a one-time charge of $410
thousand representing the establishment of a reserve for possible future loss on
other real estate owned which State Bank took back in satisfaction of debt
approximately six years ago. Exclusive of this one-time charge, operating
earnings of the Bank reflected improvement over 1997 results, rising to $610
thousand or $2.10 per share, which equated to returns on average assets and
equity of .92% and 8.07%, respectively.
NET INTEREST INCOME
Net interest income is the major component of State Bank's earnings and
is equal to the amount by which interest income exceeds interest expense. State
Bank's assets are comprised primarily of loans and securities, while deposits
and short term borrowings represent the major portion of interest-bearing
liabilities. Changes in the volume and mix of these assets and liabilities, as
well as changes in the yields earned and rates paid, determine changes in net
interest income. Net interest margin which is calculated by dividing
taxable-equivalent net interest income by average earning assets, represents
State Bank's net yield on its earning assets.
<PAGE>
During the first three-month period of 1999, State Bank recorded net
interest income on a taxable-equivalent basis of $710 thousand, a $25 thousand
or 3.7% increase over the $685 thousand recorded for the period ended March 31,
1998. The improvement is attributed to a higher level of earning assets which
more than offset a decline in the net interest margin from a first three-month
period of 1998 level of 4.69% to 4.47% for the first three-month period in 1999.
For the year ended December 31, 1998, State Bank recorded net interest
income on a taxable-equivalent basis of $ 2.8 million, a modest increase of 4.9%
compared to the $ 2.7 million reported for 1997. The improvement was primarily
attributed to a $2.9 million increase in the level of earning assets during a
period in which interest-bearing liabilities rose only $1.5 million. The
remaining $1.4 million in required funding was provided by an average increase
of $400 thousand in shareholders' equity and significant growth of $1.0 million
in average non-interest bearing demand deposit accounts. This growth in
non-interest bearing funds made it possible for the Bank to offset lower yields
on its earning assets and post a net interest margin of 4.63% for 1998, the same
margin as was reported for 1997.
State Bank's net interest margin is affected by changes in the amount
and mix of earning assets and interest-bearing liabilities, referred to as a
"volume change". It is also affected by changes in yields earned on earning
assets and rates paid on interest-bearing deposits and other borrowed funds,
referred to as a "rate change". The following table sets forth for each category
of earning assets and interest-bearing liabilities, the average amounts
outstanding, the interest earned or incurred on such amounts and the average
rate earned or incurred for the three months ended March 31, 1999 and the years
ended December 31, 1998 and 1997. The table also sets forth the average rate
earned on total earning assets, the average rate paid on total interest-bearing
liabilities, and the net interest margin on average total earning assets for the
same periods.
<PAGE>
Average Balances, Interest Income and Expenses and Average Yields and Rates
<TABLE>
<CAPTION>
Years ended December 31,
Three Months ended March 31, --------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- --------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (3) Balance Expense Rate Balance Expense Rate
------- ------- -------- ------- ------- -------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, taxable (1)............ $36,897 $ 807 8.75% $33,562 $3,124 9.31% $32,085 $3,036 9.46%
Loans, nontaxable (1) (2)..... 1,175 25 8.51% 1,299 114 8.78% 1,333 122 9.15%
Investment securities, taxable 19,562 289 5.91% 20,585 1,231 5.98% 21,274 1,276 6.00%
Investment securities,
nontaxable (2).............. 2,381 41 6.89% 1,920 137 7.14% 966 74 7.66%
Federal funds sold............ 3,527 42 4.76% 3,034 164 5.41% 1,863 102 5.48%
------- ------ ------ ----- ------- ------
Total earning assets...... 63,542 1,204 7.58% 60,400 4,770 7.90% 57,521 4,610 8.01%
-------- ------ -------- ------ -------- -------
NON-EARNING ASSETS:
Cash and due from banks....... 1,897 2,305 2,194
Other assets net of loan loss
reserve..................... 3,344 3,717 3,713
-------- -------- --------
Total non-earning assets 5,241 6,022 5,907
-------- -------- --------
Total Assets.................. $68,783 $66,422 $63,428
======== ======== ========
INTEREST BEARING LIABILITIES:
Deposits:
Savings and other time
deposits................. $10,465 $ 77 2.94% $9,586 $285 2.97% $9,218 $ 273 2.96%
Money-market and
interest-bearing demand
deposit accounts.......... 17,425 126 2.89% 17,098 513 3.00% 15,989 479 3.00%
Certificates of deposit.... 23,543 290 4.93% 23,090 1,171 5.07% 23,030 1,187 5.15%
Other borrowed money....... 100 1 4.52% 122 7 5.74% 128 7 5.47%
-------- ------ ------ ----- ------ -----
Total interest-bearing
liabilities............ 51,533 494 3.83% 49,896 1,976 3.96% 48,365 1,946 4.02%
NON-INTEREST BEARING
LIABILITIES:
Demand deposits............... 9,300 8,471 7,448
Other liabilities............. 443 492 454
-------- ------ ------
Total liabilities.......... 61,276 58,859 56,267
Stockholders' equity.......... 7,507 7,563 7,161
-------- ------- -------
Total liabilities and
stockholders' equity....... $68,783 $66,422 $63,428
======= ======= =======
Interest rate spread.......... 3.75% 3.94% 3.99%
Net interest margin........... $ 710 4.47% $2,794 4.63% $2,664 4.63%
====== ====== ======
</TABLE>
- ---------------------
(1) State Bank had no nonaccrual loans during the periods reflected.
(2) Yields and income amounts on nontaxable loans and securities are presented
on a tax-equivalent basis using an effective tax rate of 34%. This
presentation resulted in net interest income adjustments of $23 thousand,
$85 thousand and $67 thousand for the three months ended March 31, 1999, and
for the calendar years 1998 and 1997, respectively.
(3) March 31, 1999 average yield/rate has been annualized.
<PAGE>
The following table describes the impact on the interest income of State
Bank resulting from changes in average balances and average rates for the
periods indicated.
Volume and Rate Analysis
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998 December 31, 1997
Compared To Compared To Compared To
March 31, 1998 December 31, 1997 December 31, 1996
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due To Due To Due To
---------------------- ---------------------- ---------------------
Rate Volume Total Rate Volume Total Rate Volume Total
---- ------ ------- ----- ------- ------ ----- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans, taxable...................... $(45) $101 $ 56 $(46) $134 $ 88 $ (3) $(169) $(172)
Loans, nontaxable................... - (5) (5) (5) (3) (8) (12) 58 46
Investment securities, taxable...... (10) (27) (37) (4) (41) (45) 49 178 227
Investment securities, nontaxable... (2) 13 11 (5) 68 63 (10) (37) (47)
Federal funds sold.................. (4) 17 13 (1) 63 62 1 (9) (8)
------ ------ ----- ------ ------- ------ ----- ------ -------
Total interest income........... (61) 99 38 (61) 221 160 25 21 46
----- ------ ----- ----- ------ ----- ---- ------ -------
INTEREST PAID ON:
Savings and other time deposits... - 9 9 1 11 12 (1) 9 8
Money-market and interest-bearing
demand deposit accounts......... (2) 8 6 - 34 34 - 7 7
Certificates of deposit........... (8) 7 (1) (19) 3 (16) (18) 3 (15)
Other borrowed money.............. (1) - (1) - - - 1 - 1
------ -------------- --------------- ----- ----- ------ ------
Total interest expense.......... 11) 24 13 (18) 48 30 (18) 19 1
----- ------- ----- ----- ----- ----- ----- ------ ------
Net interest income............. $(50) $ 75 $ 25 $(43) $173 $130 $ 43 $ 2 $ 45
==== ======= ==== ====== ==== ===== ===== ====== ======
</TABLE>
<PAGE>
INTEREST SENSITIVITY
An important element of both earnings performance and liquidity is
management of the interest sensitivity gap. The interest sensitivity gap is the
difference between interest-sensitive assets and interest-sensitive liabilities
in a specific time interval. The gap can be managed by repricing assets or
liabilities, by selling investments available for sale, by replacing an asset or
liability at maturity, or by adjusting the interest rate during the life of an
asset or liability. Matching the amounts of assets and liabilities repricing in
the same time interval helps to hedge the risk and minimize the impact on net
interest income in periods of rising or falling interest rates.
State Bank evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation and pricing, funding sources and pricing,
and off-balance sheet commitments in order to decrease sensitivity risk. These
guidelines are based upon management's forecast regarding future interest rate
movements, the state of the regional and national economy, and other financial
and business risk factors.
The following table illustrates the interest sensitivity gap position of
the State Bank at March 31, 1999. This table presents a position that existed at
that one particular day and, since it changes continually, it is not necessarily
indicative of State Bank's position at any other time.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
March 31, 1999
Maturing or Repricing In:
-------------------------------------------------
3 Months 4-12 Over 12
or Less Months Months Total
---------- --------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
EARNING ASSETS:
Loans (1) .................................. $ 9,882 $ 8,586 $ 20,812 $ 39,280
Securities ................................. 5,108 1,442 15,403 21,953
Federal funds sold ......................... 3,525 -- -- 3,525
-------- -------- -------- --------
Total interest-sensitive assets .......... $ 18,515 $ 10,028 $ 36,215 $ 64,758
======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Savings and other time deposits (2) ........ $ -- $ 180 $ 10,859 $ 11,039
Money-market and interest-bearing demand
accounts ................................... 17,730 -- -- 17,730
Certificates of deposit .................... 4,946 10,872 7,988 23,806
Other borrowed money ....................... 159 -- -- 159
-------- -------- --------
Total interest-bearing liabilities ....... $ 22,835 $ 11,052 $ 18,847 $ 52,734
======== ======== ======== ========
Period gap ................................. (4,320) (1,024) 17,368
Cumulative gap ............................. (4,320) (5,344) 12,024
Ratio of cumulative interest-sensitive assets
to interest-sensitive liabilities .......... 81.08% 84.23% 122.80%
-------- -------- --------
Ratio of cumulative gap to total earning
assets ................................... (6.67%) (8.25%) 18.57%
======== ======== ========
</TABLE>
(1) State Bank had no nonaccrual loans during the periods reflected.
(2) Savings accounts have been determined to be unsensitive to changes in
related market rates and, therefore, have been allocated to the over 12
month period.
<PAGE>
SECURITIES
INVESTMENT SECURITIES. The carrying value of investment securities
amounted to $ 7.2 million at March 31, 1999, the same level reported at December
31, 1998. The comparison of amortized cost to fair value is shown in Note 2 of
the Notes to State Bank's Financial Statements included in Annex C. Note 2 also
reflects gross unrealized gains and losses on investment securities. Investment
securities consist of the following:
Portfolio of Investment Securities
<TABLE>
<CAPTION>
December 31,
March 31, ---------------
1999 1998 1997
------ ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
BOOK VALUE:
U.S. Treasury and U.S. governmental agencies............ $4,837 $4,853 $5,814
Securities of U.S. states and political subdivisions.... 2,380 2,381 1,578
------- ------- -------
Total Securities.................................... $7,217 $7,234 $7,392
====== ====== ======
</TABLE>
SECURITIES AVAILABLE FOR SALE. Securities available for sale are used by
State Bank as part of its interest rate risk management strategy and may be sold
in response to changes in interest rates, changes in prepayment risk, liquidity
needs, the need to increase regulatory capital or for other purposes. The fair
value of securities available for sale totaled $14.7 million at March 31, 1999,
compared to $14.5 million and $15.4 million at December 31, 1998 and 1997,
respectively. The comparison of fair market value to amortized cost is shown in
Note 2 of the Notes to State Bank's Financial Statements included in Annex C.
Note 2 also provides an analysis of gross unrealized gains or losses on
securities available for sale. Securities available for sale consist of the
following:
Securities Available for Sale
<TABLE>
<CAPTION>
December 31,
March 31, ------------------
1999 1998 1997
------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FAIR VALUE:
U.S. Treasury and U.S. governmental agencies................ $10,676 $10,473 $11,355
Mutual Funds................................................ 3,909 3,896 3,791
Other securities............................................ 151 167 255
------- ------- -------
Total Securities........................................ $14,736 $14,536 $15,401
======= ======= =======
</TABLE>
<PAGE>
The following table sets forth the maturity distribution and weighted
average yields of State Bank's total securities portfolio at March 31, 1999. The
weighted average yields have been calculated by dividing interest income on the
investments adjusted for amortization of premium and accretion of discount by
the book value of the investments. Weighted average yields for municipal
securities are reflected on a tax-equivalent basis using a tax rate of 34%.
Investment Portfolio - Maturity and Yields
<TABLE>
<CAPTION>
Weighted After One Weighted After Weighted After Weighted
One Year Average to Average 5 Years Average Ten Average
Or Less Yield 5 Years Yield To 10 Yrs. Yield Years Yield
------- ------ ------- ----- -------- ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency securities..... $ 805 6.08% $ 8,776 6.14% $1,905 6.39% $1,007 7.39%
U.S. Treasury securities... 1,103 6.16% 1,916 6.42% - 0.00% - 0.00%
Municipal securities (1)... 326 7.85% 435 7.00% 1,372 6.75% 247 7.40%
Mutual funds............... 3,909 4.88% - 0.00% - 0.00% - 0.00%
Other securities........... 134 6.01% 18 8.46% - 0.00% - 0.00%
------ ----- ------- ----- ------ ----- ------ -----
Total Securities....... $6,277 5.44% $11,145 6.22% $3,277 6.54% $1,254 7.39%
====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
- ------------------
(1) Nontaxable municipal securities yields have been presented on a
tax-equivalent basis.
LOAN PORTFOLIO
State Bank's loan portfolio is comprised of commercial loans,
construction loans, residential and commercial real estate loans, and consumer
installment loans. The portfolio does not and never has included any loans to
foreign countries or loans to support highly leveraged transactions. State
Bank's primary market is the southern portion of Fauquier County, Virginia and
also includes portions of the surrounding counties of Prince William, Culpeper
and Stafford.
Net loans consist of total loans minus the allowance for loan losses.
Net loans were $38.8 million at March 31, 1999, 16.9% more than the $33.2
million outstanding on March 31, 1998. At December 31, 1998, net loans
outstanding totaled $36.5 million and were 10.8% above the $33.0 million
reported at December 31, 1997. For the three month period ended March 31, 1999,
average loans as a percentage of average earning assets amounted to 59.9% and
for the years ended December 31, 1998 and 1997, 57.7% and 58.1%, respectively.
In the normal course of business, State Bank makes various commitments
and incurs certain contingent liabilities that are disclosed but not reflected
in the financial statements. These commitments and contingent liabilities
include commitments to extend credit and standby letters of credit issued to
guarantee performance by a customer to a third party. At March 31, 1999,
commitments for financial standby letters of credit totaled $1.2 million and
commitments to extend credit amounted to $7.0 million. These levels were
generally in line with the respective $1.3 million and $6.5 million committed at
December 31, 1998, but were moderately higher than the respective December 31,
1997, levels of $1.0 million and $4.6 million.
Interest income on installment, commercial and all real estate mortgage
loans is calculated on the principal balance outstanding. Most variable rate
loans carry an interest rate tied to New York Prime, as published in the WALL
STREET JOURNAL.
<PAGE>
The following table summarizes the composition of the loan portfolio at
the dates indicated:
Loan Portfolio
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------
1999 1998 1997
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Real Estate Loans:
Construction and land development............... $ 1,288 $ 1,579 $ 1,607
Secured by Farmland............................. 1,355 1,339 838
Secured by 1-4 Family Residential............... 15,198 14,888 15,223
Other real estate loans......................... 6,160 5,952 5,019
--------- --------- --------
Real estate mortgage subtotal.............. 24,001 23,758 22,687
Loans to Farmers................................... 506 312 434
Commercial and industrial loans.................... 6,422 5,403 4,998
Loans to individuals............................... 7,716 6,829 4,393
All other loans.................................... 635 660 917
Unearned discount.................................. - (1) (5)
--------- --------- --------
Total loans................................ 39,280 36,961 33,424
Allowance for loan losses....................... (446) (446) (471)
-------- --------- -------
Net loans.................................. $38,834 $ 36,515 $32,953
======== ========= =======
</TABLE>
The following table presents the maturities or repricing periods of
selected loans outstanding at March 31, 1999:
Maturity and Rate Sensitivity of Loans
<TABLE>
<CAPTION>
Over One Year
Through Five Years Over Five Years
One Year ------------------------- ----------------------------
or Less Fixed Rate Floating Rate Fixed Rate Floating Rate
------- ---------- ------------- ----------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial & Agricultural... $3,924 $94 $2,310 $585 $15
Real Estate - Construction.. 1,288 - - - -
------- ----- ---------- ------- -----
Total....................... $5,212 $94 $2,310 $585 $15
====== === ====== ==== ===
</TABLE>
ASSET QUALITY
State Bank attempts to maintain the allowance for loan losses at a
sufficient level to provide for potential losses in the loan portfolio. Loan
losses are charged directly to the allowance when they occur, while recoveries
are credited to the allowance. The provision for loan losses is determined
periodically by senior management and lending officers based upon consideration
of several factors, including changes in the character and size of the loan
portfolio and related loan loss experience, a review and examination of overall
loan quality which includes the assessment of problem loans, and an analysis of
anticipated economic conditions in the market area. In addition, input from
regulatory agencies that regularly review the loan portfolio as part of their
examination process and advice from State Bank's independent accountants are
considered in reviewing and assessing the adequacy of the allowance for loan
losses.
<PAGE>
An analysis of the allowance for loan losses, including charge-off and
recovery activity, is presented below for the periods indicated:
Allowance for Loan Losses
<TABLE>
<CAPTION>
Three Months ended
March 31, Years ended December 31,
---------------------- -------------------------
1999 1998 1998 1997
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Average total loans ......................... $38,072 $33,374 $34,861 $33,418
Balance, beginning of periods ............... $ 446 $ 471 $ 471 $ 593
Less charge-offs:
Commercial ................................ 1 -- 28 102
Real Estate - construction ................ -- -- -- --
Real Estate - mortgage .................... -- -- -- --
Installment
8 13 60 93
------- ------- ------- -------
Total Charge-offs ........................... $ 9 $ 13 $ 88 $ 195
------- ------- ------- -------
Plus recoveries:
Commercial ................................ -- 8 19 28
Real Estate - construction ................ -- -- -- --
Real Estate - mortgage .................... -- -- -- --
Installment ............................... 1 -- 14 15
------- ------- ------- -------
Total recoveries ............................ 1 8 33 43
------- ------- ------- -------
Net charge-offs ............................. 8 5 55 152
Provision for loan losses ................... 8 8 30 30
Balance, end of period ...................... $ 446 $ 474 $ 446 $ 471
======= ======= ======= =======
Allowance for loan losses to
period end total loans.................. 1.14% 1.41% 1.21% 1.41%
Net charge-offs to average loans (1) ........ 0.08% 0.06% 0.16% 0.46%
</TABLE>
(1) Annualized for the three months ended March 31, 1999 and 1998.
The allowance for loan losses is maintained at a level that in
management's judgment is adequate to absorb credit losses inherent in the loan
portfolio, although no assurance can be given in this regard due to competitive
and economic uncertainties. Management believes that the March 31, 1999
allowance for loan losses was adequate at 1.14% of total loans. Management based
such estimate on the high quality of assets held and the strong local economy.
A breakdown of the allowance for loan losses is provided in the
following table. However, management of State Bank does not believe that the
allowance for loan losses can be fragmented by loan category with any precision
that would be useful to investors. The breakdown of the allowance for loan
losses is based primarily upon those factors discussed above in computing the
allowance for loan losses as a whole. Because all of these factors are subject
to change, the breakdown is not necessarily indicative of the category of future
loan losses.
Allocation of Allowance for Loan Losses in Dollars
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------------------
1999 1998 1997
------------------- ------------------ ------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and $166 19.26% $163 17.25% $194 18.99%
agricultural.....................
Real Estate...................... 57 61.10% 57 64.28% 65 67.87%
Installment...................... 160 19.64% 164 18.47% 118 13.14%
Unallocated...................... 63 0.00% 62 0.00% 94 0.00%
------ --------- ---- ------- ------ -------
Total............................ $446 100.00% $446 100.00% $471 100.00%
==== ======= ==== ======= ====== =======
</TABLE>
- --------------------
(1) Represents percentage of loans in each category to total loans.
<PAGE>
NON-PERFORMING ASSETS
The following table sets forth certain information with respect to State
Bank's non-accrual, restructured and past due loans, as well as other real
estate owned, for the periods indicated:
Non-Performing Assets
<TABLE>
<CAPTION>
December 31,
March 31, -----------------
1999 1998 1997
-------- ---- ----
(Dollars In
Thousands)
<S> <C> <C> <C>
Non-accrual loans...................................... $ ----- $ ----- $ -----
Restructured loans..................................... ----- ----- -----
Other real estate owned................................ 1,376 1,376 1,876
--------- -------- -------
Total Non-performing assets......................... 1,376 1,376 1,876
========= ======= =======
Loans past due 90 or more days accruing interest....... $ 189 $ 94 $ 160
======== ======== =======
Non-performing assets to period end loans and
other real estate owned........................... 3.38% 3.59% 5.31%
</TABLE>
Loans are placed on non-accrual when a loan is 90 days or more past due,
unless it is both well secured and in the process of collection.
PROVISION FOR LOAN LOSSES
Provisions for loan losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management of State
Bank based on such factors as historical experience, the volume and type of
lending conducted by the Bank, the amount of non-performing assets, regulatory
policies, generally accepted accounting principles, general economic conditions
and other factors related to the collectibility of loans in State Bank's
portfolio.
The provision for loan losses for the three-month period ended March 31,
1999 was $8 thousand and was identical to the provision recorded during the
first three-month period of 1998. For the year ended December 31, 1998, the
provision totaled $30 thousand and was the same amount recognized for the year
ended December 31, 1997.
Management believes the allowance is adequate to absorb losses inherent
in the loan portfolio. In view of State Bank's plans to continue its loan
growth, management will continue to closely monitor the performance of its
portfolio and make additional provisions as necessary. Management does not
presently anticipate that such provision will have a material adverse impact on
State Bank's results of operations in future periods.
NON-INTEREST INCOME
During the first three-month period of 1999, State Bank recorded
non-interest income of $102 thousand as compared to $98 thousand for the
three-month period ended March 31, 1998. This 4.1% increase is attributed to
higher levels of service charges on both individual and commercial checking
accounts.
For the period ended December 31, 1998, non-interest income totaled $443
thousand, representing an increase of $76 thousand or 20.7% compared to the $367
thousand reported for the period ended December 31, 1997. The increase during
1998 is primarily due to higher levels of fees and service charges on deposit
accounts and the fact that State Bank recorded gains of $15 thousand on the
disposition of some assets as compared to the recognition of a similar loss of
$10 thousand during 1997.
<PAGE>
NON-INTEREST EXPENSE
For the three-month period ended March 31, 1999, State Bank recorded
non-interest expense of $592 thousand, a modest $10 thousand or 1.7% increase
over the $582 thousand which had been recognized during the same period of 1998.
Most of the increase may be attributed to one-time costs incurred in connection
with the planned merger with James River.
Non-interest expense increased a significant 25.3% from $2.1 million in
1997 to $2.7 million for the period ended December 31, 1998. The increase is
partially attributed to an increase of $72 thousand in employment costs and a
$42 thousand rise in furniture and fixture and occupancy costs as State Bank
recognized its first full year of operation in its expanded and remodeled branch
facility at Catlett, Virginia. Of much more significance, however, was the
recognition of a $410 thousand reserve for possible future loss on other real
estate owned which real estate State Bank took back in satisfaction of debt
approximately six years ago.
INCOME TAXES
State Bank recognized income tax expense of $234 thousand during 1997
but lower levels of taxable income during 1998 reduced tax expense to $94
thousand. Quarterly comparisons for the periods ended March 31, 1999 and 1998
show a $4 thousand or 10.0% increase in tax expense consistent with the higher
level of taxable income recorded during 1999.
DEPOSITS
State Bank primarily uses deposits to fund its loan and investment
portfolios.
Average deposits for the three-month period ended March 31, 1999 totaled
$60.7 million and were 7.6% more than the average of $56.4 million for the same
period of 1998. Average savings and other time deposits totaled $10.5 million
for the 1999 period and were 12.6% higher than the average level of $9.3 million
reflected for the first quarter of 1998. Average money market accounts and other
interest-bearing demand deposits were up 7.0% to $17.4 million from their 1998
level of $16.3 million while average certificate of deposit balances rose 2.0%
from their first quarter 1998 level of $23.1 million to $23.5 million for the
first three-month period of 1999. Continuing their strong recent growth trend,
non-interest bearing checking accounts averaged $9.3 million during the first
quarter of 1999, a significant 20.5% more than the $7.7 million average for the
period ended March 31, 1998.
For the year ended December 31, 1998, total average deposits were up
4.6% to $58.2 million, compared to $55.7 million for the previous year. Average
savings and other time deposits for 1998 totaled $ 9.6 million, 4.0% more than
the average of $9.2 million for 1997 while average certificate of deposit
balances of $23.1 million for 1998 were almost identical to the average of $23.0
million for 1997. Average money market accounts and other interest-bearing
demand deposits were up 6.9% to $17.1 million in 1998 from a 1997 level of $16.0
million. Non-interest bearing checking accounts reflected the most impressive
increase as 1998 averages of $8.5 million were 13.7% higher than the $7.4
million average during 1997.
<PAGE>
At March 31, 1999, State Bank held $3.9 million in certificates of
deposit in amounts of $100,000 or more. The following table reflects the
maturity distribution of those certificates:
Maturities of CDs of $100,000 or More
<TABLE>
<CAPTION>
March 31, 1999
-------------------------
Amount Percent
(Dollars In Thousands)
<S> <C> <C>
Three months or less........................................... $ 875 22.23%
Three months to six months..................................... 783 19.89%
Six months to one year......................................... 833 21.16%
Over one year.................................................. 1,446 36.72%
------- --------
Total...................................................... $3,937 100.00%
====== =======
</TABLE>
SHORT-TERM BORROWINGS
State Bank maintains an arrangement with a correspondent bank that
provides that State Bank may purchase federal funds on a short-term basis when
necessitated by fluctuations in loan and deposit levels. State Bank did not find
it necessary at any time during 1997, 1998 or the first three-month period of
1999 to purchase federal funds. State Bank does participate in the note option
arrangement offered by the U.S. Treasury Department that permits banks to retain
income tax deposits collected from customers for short periods of time provided
that the Treasury Department is paid interest on the funds made available to the
bank. This arrangement did result in average funding to State Bank of $122
thousand and $128 thousand for the 1998 and 1997 periods, respectively. For the
three-month periods ended March 31, 1999 and 1998, these borrowings averaged
$100 thousand and $118 thousand, respectively.
CAPITAL REQUIREMENTS
The determination of capital adequacy depends upon a number of factors,
such as asset quality, liquidity, earnings, growth trends and economic
conditions. State Bank seeks to maintain a strong capital base to support its
growth and expansion plans, provide stability to current operations and promote
public confidence in the Bank.
State Bank's capital position exceeds all regulatory minimums. The
federal banking regulators have defined three tests for assessing the capital
strength and adequacy of banks, based on two definitions of capital. "Tier 1
Capital" is defined as a combination of common and qualifying preferred
stockholders' equity less goodwill. "Tier 2 Capital" is defined as qualifying
subordinated debt and a portion of the allowance for loan losses. "Total
Capital" is defined as Tier 1 Capital plus Tier 2 Capital. Three risk-based
capital ratios are computed using the above capital definitions, total assets
and risk-weighted assets. "Tier 1 Risk-based Capital" is Tier 1 Capital divided
by risk-weighted assets. "Total Risk-based Capital" is Total Capital divided by
risk-weighted assets. The Leverage Ratio is Tier 1 Capital divided by total
average assets. See "Supervision and Regulation ---Capital Resources" at page
III-3.
Capital Ratios
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------- Regulatory
1999 1998 1997 Minimum
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Leverage Ratio.......................... 10.8% 10.7% 11.4% 4.0%
Tier 1 Risk-based Capital............... 16.8% 17.4% 19.1% 4.0%
Total Risk-based Capital................ 17.8% 18.5% 20.3% 8.0%
</TABLE>
<PAGE>
LIQUIDITY
Liquidity represents the ability of State Bank to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management.
Liquid assets include cash, interest-bearing deposits with banks, federal funds
sold, and certain investment securities. As a result of State Bank's management
of liquid assets and the ability to generate liquidity through liability
funding, management believes that State Bank maintains overall liquidity
sufficient to satisfy its depositors' requirements and meet its customers'
credit needs.
The following table summarizes State Bank's liquid assets for the
periods indicated:
Summary of Liquid Assets
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1999 1998 1997
-------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Cash and due from banks .................... $ 2,111 $ 2,703 $ 2,681
Federal funds sold ......................... 3,525 4,340 2,060
Investment securities (1) .................. 326 326 2,179
Available-for-sale securities .............. 14,736 14,536 15,401
------- ------- -------
Total liquid assets .................... $21,905 $22,321 $20,698
======= ======= =======
Deposits and other liabilities ............. $62,722 $61,607 $57,377
======= ======= =======
Ratio of liquid assets to deposits
and other liabilities................... 33.00% 35.56% 38.90%
</TABLE>
- ------------------------
(1) Only investment securities with a maturity of one year or less are
considered liquid assets for this table.
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
The financial statements and related financial data concerning State
Bank presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical data without considering changes in the
relative purchasing power of money over time due to inflation. The primary
effect of inflation on the operations of State Bank is reflected in increased
operating costs. Unlike industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
changes in interest rates have a more significant effect on the performance of a
financial institution than do the effects of changes in the general level of
inflation and changes in prices. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Interest rates are highly sensitive to many factors which are beyond the control
of State Bank, including the influence of domestic and foreign economic
conditions and the monetary and fiscal policies of the U.S. government and
federal agencies, particularly the Federal Reserve. The Federal Reserve
implements national monetary policies such as seeking to curb inflation and
combat recession by its open market operations in U.S. government securities,
control of the discount rate applicable to borrowing by banks, and establishment
of reserve requirements against bank deposits. The actions of the Federal
Reserve in these areas influence the growth of bank loans, investments and
deposits, and affect the interest rates charged on loans and paid on deposits.
The nature, timing and impact of any future changes in federal monetary and
fiscal policies on State Bank and its results of operations are not predictable.
<PAGE>
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
is required to be adopted in years beginning after June 15, 1999. The statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. State Bank has not determined whether to adopt the new statement
early. The Statement will require State Bank to recognize all derivatives on the
balance sheets at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Because State Bank does not employ such derivative instruments,
management does not anticipate that the adoption of the new Statement will have
any effect on State Bank's earnings or financial position.
YEAR 2000 PLANNING
In 1997, management of State Bank established a Year 2000 plan to
prevent or mitigate the adverse effects of the Year 2000 issue on the Bank and
its customers. Goals of the plan include identifying risks, testing data
processing systems and equipment, informing customers of Year 2000 issues and
risks, establishing a contingency plan for operating if Year 2000 issues cause
important systems or equipment to fail, implementing changes necessary to
achieve Year 2000 compliance, and verifying that these changes are effective.
The Board of Directors reviews progress under the plan each quarter.
Management designed the plan to address Year 2000 issues. State Bank is
subject to guidelines established by the Federal Financial Institutions
Examination Council (FFIEC). This plan and State Bank's progress in implementing
it are subject to periodic examinations by the Federal Reserve Bank of Richmond.
State Bank has met its Year 2000 goals to date and believes it will
continue to meet the goals of the Year 2000 plan. By December 31, 1998, State
Bank had performed risk assessments of its internal information systems,
environmental systems, commercial customers with a significant amount of loans,
and other products with date sensitive issues. In addition, State Bank has
communicated with suppliers of goods and services in order to assess their Year
2000 readiness. Those systems that the Bank believes to be critical to its
operations have been tested and the results reviewed by management. Some
additional steps must be taken to achieve Year 2000 compliance, including some
steps that may not yet be identified. Elements of the Year 2000 plan, such as
risk assessments, customer communications and testing of systems and equipment
are processes that are ongoing.
State Bank continues to evaluate its contingency plan with respect to
Year 2000 issues. The plan focuses on systems to serve customers should a Year
2000 issue arise which may limit State Bank's normal operating procedures and
some testing and training has taken place. In 1999, State Bank is continuing to
evaluate the need for additional testing and training. Through the media, the
public has been advised to maintain above normal levels of cash. In conjunction
with the anticipated need for additional cash, State Bank is reviewing insurance
coverage and security concerns.
Management believes that the cost of resolving the Year 2000 issues
related to State Bank's computer programs and those used by its suppliers of
significant data processing services will not be material to State Bank's
business, operations, liquidity, capital resources, or financial condition,
based on information developed to date and communications with data processing
suppliers. State Bank expects total cost for Year 2000 compliance to be less
than $35 thousand. This amount includes hardware and software upgrades or
replacements, training, consulting and testing. Approximately $25 thousand of
this cost was incurred in 1998. These amounts do not include allocations of
compensation and other costs of State Bank's personnel. State Bank is funding
its Year 2000 expenditures through continuing operations.
<PAGE>
State Bank continues to assess its risk from other environmental factors
over which it has little control, such as electrical power, and telephone
service. Because of the nature of these external factors, however, State Bank is
not actively engaged in any repair, replacement, or testing efforts for these
services. Although State Bank has no reason to conclude that a failure will
occur, the most reasonably likely worse case Year 2000 scenario would entail a
disruption or failure of State Bank's power supplier or telephone company to
provide power or data transmission services to a computer system or facility. If
such a failure were to occur, the State Bank would implement its contingency
plan. While it is impossible to quantify the impact of such a scenario, the most
reasonably likely worst case scenario would entail diminishment of service
levels, some customer inconvenience, and additional, as yet undetermined, cost
associated with the implementation of the contingency plan.
Although State Bank has completed an assessment of Year 2000 effects on
its current commercial customers, the actual effects of individual and corporate
customers of State Bank and on governmental authorities that regulate State
Bank, and any resulting consequences to State Bank, cannot be determined with
any assurance. State Bank's belief that it will achieve Year 2000 compliance is
based on a number of assumptions and statements made by third parties, and are
subject to uncertainty. State Bank is also not able to predict the effects, if
any, on State Bank, financial markets or society in general of the public
reaction to Year 2000. Because of this uncertainty and reliance upon assumptions
and statements of third parties, State Bank cannot be assured that the results
of the Year 2000 plan can be achieved. Management believes, however, that State
Bank will be able to accomplish its Year 2000 goals and be able to continue
providing financial services to its customers into the next century.
<PAGE>
SECURITY OWNERSHIP OF STATE BANK MANAGEMENT AND CERTAIN SHAREHOLDERS
The following table sets forth for (i) each director and executive
officer of State Bank , (ii) each beneficial owner of 5% or more of the
outstanding shares of State Bank's common stock, and (iii) all directors and
executive officers of State Bank as a group: (1) the number of shares of State
Bank's common stock beneficially owned on March 31, 1999 and (2) the percentage
of ownership of outstanding shares of State Bank's common stock on that date.
Unless otherwise indicated by footnote, the individuals named below have sole
voting and dispositive powers over the shares beneficially owned by them. All of
State Bank's directors and executive officers receive mail at State Bank's
Remington office at P.O. Box 158, 100 John Stone Street, Remington, Virginia
22734.
<TABLE>
<CAPTION>
NAME OF COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- ------------------ ----------------
<S> <C> <C>
Evan H. Ashby, Jr., M.D.(1) 22,866(2) 7.86%
Richard M. Barb 3,336(3) 1.15
John A. Berna 2,968 1.02
James W. Craun, Jr. 7,269(4) 2.50
Janice N. Kehoe 354(5) 0.12
T. Leo McCarthy 8,953 3.08
Larry B. Olinger 4,058(6) 1.39
Jeffrey W. Parker 857(7) 0.29
James A. Rankin, Sr. 2,588(8) 0.89
J. Mark Rohrbaugh, Jr. 300(9) 0.10
James E. Underhill 1,446(10) 0.50
Beneficial ownership of Common 32,129 11.04
Stock; by all directors and executive
officers as a group (10 persons)
</TABLE>
(1) Dr. Ashby's mailing address is P.O. Box 234, Fancy Gap, VA 24328-0231.
(2) Includes 216 shares held by children or trusts.
(3) Includes 1,812 shares held by, or jointly with, spouse or children.
(4) Includes 2,532 shares held by, or jointly with, spouse or children.
(5) Includes 24 shares held jointly with spouse.
(6) Includes 1,808 shares held by, or jointly with, spouse, children, parent
or brother.
(7) Includes 557 shares held by, or jointly with, spouse, children or parent.
(8) Includes 588 shares held by children.
(9) Includes 200 shares held jointly with spouse.
(10) Includes 933 shares held jointly with spouse.
<PAGE>
CHAPTER IV
LEGAL MATTERS
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
James River and State Bank are corporations subject to the provisions of
the Virginia Stock Corporation Act. Rights as a shareholder of State Bank are
governed by State Bank's articles of incorporation and bylaws and by the
Virginia Stock Corporation Act. Upon consummation of the merger, State Bank
shareholders will become shareholders of James River, and as such shareholder
rights will then be governed by the articles of incorporation and bylaws of
James River and by the Virginia Stock Corporation Act.
The following is a summary of the material differences in the rights of
shareholders of State Bank and James River. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE ARTICLES OF INCORPORATION AND BYLAWS OF JAMES RIVER
AND STATE BANK AND TO THE VIRGINIA STATE CORPORATION ACT.
AUTHORIZED CAPITAL
JAMES RIVER. James River is authorized to issue 10,000,000 shares of
common stock, par value $5.00 per share, of which 3,741,410 shares were issued
and outstanding as of March 31, 1999, and 2,000,000 shares of preferred stock,
$5.00 par value, of which no shares were issued and outstanding as of March 31,
1999. James River's articles of incorporation authorize the James River board,
without shareholder approval, to fix the preferences, limitations and relative
rights of the preferred stock and to establish series of such preferred stock
and determine the variations between each series. If any shares of preferred
stock are issued, the rights of holders of James River common stock would be
subject to the rights and preferences conferred to holders of such preferred
stock.
STATE BANK. State Bank is authorized to issue 400,000 shares of State
Bank common stock, par value $10.00 per share, of which 291,027 shares were
issued and outstanding as of March 31, 1999. State Bank does not have an
authorized class of preferred stock.
PREEMPTIVE RIGHTS
JAMES RIVER. The holders of James River common stock are not entitled to
preemptive rights. Preemptive rights provide that holders of outstanding stock
will have an opportunity to purchase their pro rata share of any new stock to be
issued by the company before the company may sell shares to others. Preemptive
rights assure a shareholder that if he is willing to purchase shares at the
offering price, he will be able to maintain his proportionate ownership of the
company.
STATE BANK. The articles of incorporation of State Bank specifically
provide that if State Bank intends to issue any additional capital stock (other
than in the form of a stock dividend), the new shares must be offered by
subscription first to the holders of State Bank's outstanding common stock in
proportion to the number of shares of stock held by them. The articles
specifically provide that transferable subscription warrants exercisable for a
period of 30 days from the date of mailing must be sent to all shareholders and
the requisite 30 days must pass before shares may be generally sold. Further, if
at the end of the 30-day period any of the new shares have not been subscribed
for, after the expiration of said 30-day period, the new shares may be sold in a
manner determined by the board of directors, however, the articles impose a
minimum sales price. Accordingly, by accepting James River common stock in
exchange for State Bank common stock, State Bank shareholders will forfeit their
preemptive rights.
<PAGE>
DIVIDEND RIGHTS
JAMES RIVER. The holders of James River common stock are entitled to
share ratably in dividends when and as declared by the James River board of
directors out of legally available funds. One of the principal sources of income
to James River is dividends from its subsidiary banks. James River's articles of
incorporation permit the James River board to issue preferred stock with terms
set by the James River board, which terms may include the right to receive
dividends ahead of the holders of James River common stock. No shares of
preferred stock are presently outstanding.
STATE BANK. The holders of State Bank common stock also are entitled to
share ratably in dividends when and as declared by the State Bank board of
directors out of legally available funds.
VOTING RIGHTS
The holders of both James River and State Bank common stock have one
vote for each share held on any matter presented for consideration at a
shareholder meeting. Neither the holders of James River nor State Bank common
stock are entitled to cumulative voting in the election of directors.
SHAREHOLDER MEETINGS
JAMES RIVER. Shareholders of James River may not request that a special
meeting of shareholders be called.
STATE BANK. Shareholders owning 10% or more of the issued and
outstanding shares of State Bank may call a special meeting of shareholders.
DIRECTORS
JAMES RIVER AND STATE BANK. All of James River's and State Bank's
directors are elected each year. Neither company's articles of incorporation
include a provision relating to the removal of directors. Accordingly, the
removal of directors is governed by the Virginia Stock Corporation Act which
provides that shareholders may remove directors with or without cause if the
number of votes cast to remove him constitutes a majority of the outstanding
shares of common stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Virginia Stock Corporation Act and the
articles of incorporation and bylaws of James River may discourage an attempt to
acquire control of James River that a majority of James River's shareholders
determined was in their best interests. These provisions also may render the
removal of one or all directors more difficult or deter or delay corporate
changes of control that the James River board did not approve.
AUTHORIZED PREFERRED STOCK. The articles of incorporation of James River
authorize the issuance of preferred stock. The James River board may, subject to
applicable law and the rules of the NASDAQ National Market, authorize the
issuance of preferred stock at such times, for such purposes and for such
consideration as it may deem advisable without further shareholder approval. The
issuance of preferred stock under certain circumstances may have the effect of
discouraging an attempt by a third party to acquire control of James River by,
for example, authorizing the issuance of a series of preferred stock with rights
and preferences designed to impede the proposed transaction.
SUPERMAJORITY VOTING PROVISIONS. The Virginia Stock Corporation Act
provides that, unless a corporation's articles of incorporation provide for a
higher or lower vote, certain significant corporate actions must be approved by
the affirmative vote of the holders of more than two-thirds of the votes
entitled to be cast on the matter. Corporate actions requiring a two-thirds vote
include amendments to a corporation's articles of incorporation, adoption of
plans of merger or exchange, sales of all or substantially all of a
corporation's assets other than in the ordinary course of business and adoption
of plans of dissolution ("Fundamental Actions"). The Virginia Stock Corporation
Act provides that a corporation's articles may either increase the vote required
to approve Fundamental Actions or may decrease the required vote to not less
than a majority of the votes entitled to be cast.
<PAGE>
The provisions of the [ARTICLES OF INCORPORATION OF JAMES RIVER AND THE]
Virginia Stock Corporation Act could tend to make the acquisition of James River
more difficult to accomplish without the cooperation or favorable recommendation
of the James River board.
VIRGINIA ANTI-TAKEOVER STATUTES. Virginia has two anti-takeover statutes
in force, the Affiliated Transaction Statute and the Control Share Acquisitions
Statute.
AFFILIATED TRANSACTIONS. The Virginia Stock Corporation Act contains
provisions governing "affiliated transactions." These include various
transactions such as mergers, share exchanges, sales, leases, or other
dispositions of material assets, issuances of securities, dissolutions, and
similar transactions with an "interested shareholder." An interested shareholder
is generally the beneficial owner of more than 10% of any class of a
corporation's outstanding voting shares. During the three years following the
date a shareholder becomes an interested shareholder, any affiliated transaction
with the interested shareholder must be approved by both a majority of the
"disinterested directors" (those directors who were directors before the
interested shareholder became an interested shareholder or who were recommended
for election by a majority of disinterested directors) and by the affirmative
vote of the holders of two-thirds of the corporation's voting shares other than
shares beneficially owned by the interested shareholder. The foregoing
requirements do not apply to affiliated transactions if, among other things, a
majority of the disinterested directors approve the interested shareholder's
acquisition of voting shares making such a person an interested shareholder
before such acquisition. Beginning three years after the shareholder becomes an
interested shareholder, the corporation may engage in an affiliated transaction
with the interested shareholder if, (i) the transaction is approved by the
holders of two-thirds of the corporation's voting shares, other than shares
beneficially owned by the interested shareholder, (ii) the affiliated
transaction has been approved by a majority of the disinterested directors, or
(iii) subject to certain additional requirements, in the affiliated transaction
the holders of each class or series of voting shares will receive consideration
meeting specified fair price and other requirements designed to ensure that all
shareholders receive fair and equivalent consideration, regardless of when they
tendered their shares.
CONTROL SHARE ACQUISITIONS. Under the Virginia Stock Corporation Act's
control share acquisitions law, voting rights of shares of stock of a Virginia
corporation acquired by an acquiring person or other entity at ownership levels
of 20%, 33 1/3%, and 50% of the outstanding shares may, under certain
circumstances, be denied. The voting rights may be denied unless conferred by a
special shareholder vote of a majority of the outstanding shares entitled to
vote for directors, other than shares held by the acquiring person and officers
and directors of the corporation, or among other exceptions, such acquisition of
shares is made pursuant to a merger agreement with the corporation or the
corporation's articles of incorporation or by-laws permit the acquisition of
such shares before the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws,
the statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than 50% of the
corporation's outstanding stock, objecting shareholders may have the right to
have their shares repurchased by the corporation for "fair value."
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but
James River has not done so.
DIRECTOR AND OFFICER EXCULPATION
The Virginia Stock Corporation Act provides that in any proceeding
brought by or in the right of a corporation or brought by or on behalf of
shareholders of the corporation, the damages assessed against an officer or
director arising out of a single transaction, occurrence or course of conduct
may not exceed the lesser of (i) the monetary amount, including the elimination
of liability, specified in the articles of incorporation or, if approved by the
shareholders, in the bylaws as a limitation on or elimination of the liability
of the officer or director, or (ii) the greater of (a) $100,000 or (b) the
amount of cash compensation received by the officer or director from the
corporation during the twelve months immediately preceding the act or omission
for which liability was imposed. The liability of an officer or director is not
limited under the Virginia Stock Corporation Act or a corporation's articles of
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law.
<PAGE>
JAMES RIVER. The articles of incorporation of James River provide that
to the full extent that the Virginia Stock Corporation Act permits the
limitation or elimination of the liability of directors or officers, a director
or officer of James River shall not be liable to James River or its shareholders
for monetary damages in excess of one dollar.
STATE BANK. The bylaws of State Bank also eliminate monetary liability
of directors and officers in any proceeding brought by or in the right of the
corporation except for certain excluded acts consistent with the acts for which
the Virginia State Corporation Act would not provide elimination of liability.
INDEMNIFICATION
JAMES RIVER. The articles of incorporation of James River provide that
to the full extent permitted by the Virginia Stock Corporation Act and any other
applicable law, James River is required to indemnify a director or officer of
James River who is or was a party to any proceeding by reason of the fact that
he is or was such a director or officer or is or was serving at the request of
the corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. The James River board of directors is empowered, by majority
vote of a quorum of disinterested directors, to contract in advance to indemnify
any director or officer.
STATE BANK. The bylaws of State Bank include a similar provision with
respect to the indemnification of officers and directors.
RESALES OF JAMES RIVER COMMON STOCK
STATE BANK SHAREHOLDERS. The shares of James River common stock to be
issued to State Bank shareholders in the merger have been registered under the
Securities Act. These shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of State Bank as that term is
defined under the Securities Act. An affiliate of a corporation, as defined by
the rules promulgated under the Securities Act, is a person who directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, that corporation. Any subsequent transfer by an
affiliate of State Bank must be one permitted by the resale provisions of Rule
145 promulgated under the Securities Act or as otherwise permitted under the
Securities Act.
AFFILIATES OF JAMES RIVER AND STATE BANK. Commission guidelines
regarding qualifying for the pooling of interests method of accounting also
limit sales of shares of the acquiring company and acquired company by
affiliates of either company in a business combination such as the Merger. These
guidelines indicate that the pooling of interests method of accounting will
generally not be challenged on the basis of sales by such affiliates if these
persons do not dispose of any of the shares of the corporation they own or any
shares of the corporation they receive in connection with a merger during the
period beginning 30 days prior to the merger and ending when financial results
covering at least 30 days of post-merger operations of the combined entity have
been published (the "Pooling Restricted Period").
State Bank has agreed to deliver to James River not less than 30 days
prior to the effective date, for each of its affiliates, an agreement that such
person will not dispose of (i) any James River common stock in violation of the
Securities Act or (ii) any State Bank common stock or James River common stock
during the Pooling Restricted Period.
James River has agreed to deliver to State Bank not less than 30 days
prior to the effective date, for each of its affiliates, an agreement that such
person will not dispose of any James River common stock or State Bank common
stock during the Pooling Restricted Period.
<PAGE>
EXPERTS
The consolidated financial statements of James River incorporated in
this proxy statement/prospectus by reference to James River's Annual Report on
Form 10-K for the year ended December 31, 1998 has been so incorporated in
reliance upon the report of Goodman & Company, LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of such
firm as experts in auditing and accounting.
The financial statements of State Bank included in this proxy
statement/prospectus as Annex C have been so incorporated in reliance upon the
report of Yount, Hyde & Barbour, PC, independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in auditing and accounting.
LEGAL OPINIONS
The validity of the shares of James River common stock offered hereby is
being passed upon for James River by Kaufman & Canoles, a Professional
Corporation, Norfolk, Virginia. Kaufman & Canoles will deliver an opinion to
James River and State Bank concerning certain federal income tax consequences of
the merger. See "Material Federal Income Tax Consequences" on page I-19.
Certain matters relating to the merger will be passed upon for State
Bank by Williams, Mullen, Christien & Dobbins, Richmond, Virginia.
<PAGE>
CHAPTER V
OTHER MATTERS - JAMES RIVER ANNUAL MEETING
AT THE JAMES RIVER MEETING, JAMES RIVER SHAREHOLDERS WILL BE ASKED TO
VOTE ON (I) THE ELECTION OF NINE NOMINEES TO SERVE AS DIRECTORS AND (II) THE
RATIFICATION OF JAMES RIVER'S DECISION TO HIRE YOUNT, HYDE & BARBOUR, P.C. AS
JAMES RIVER'S INDEPENDENT ACCOUNTANTS. INFORMATION REGARDING THESE MATTERS IS
SET FORTH BELOW.
ELECTION OF DIRECTORS
INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
All directors are elected for a one year term and until their successors
are duly executed and qualified. The Board of Directors recommends that the
following nine nominees be elected as directors: Harold U. Blythe, James E.
Butler, Jr., Bruce B. Gray, Elmon T. Gray, Horace R. Higgins, Jr., G. P.
Jackson, Ben P. Kanak, John A. Ramsey, Jr., and Robert E. Spencer, Jr. Proxies
received will be voted for the election of such nominees unless marked to the
contrary. A shareholder who desires to withhold voting of the Proxy for all or
one or more of the nominees may so indicate on the Proxy. All of the nominees
are currently members of the Board of Directors and all nominees have consented
to be named and have indicated their intent to serve if elected. If any nominee
becomes unable to serve, an event which is not anticipated, the Proxy will be
voted for a substitute nominee to be designated by the Board of Directors, or
the number of directors will be reduced.
James River's Bylaws provide that the number of directors shall be
between seven and seventeen. Directors serve a one year term. In two separate
transactions that closed in February 1996, James River acquired First Colonial
Bank ("FCB") in Hopewell, Virginia and Bank of Isle of Wight, now named James
River Bank/Colonial ("Colonial") in Smithfield, Virginia, pursuant to which FCB
and Colonial became wholly owned subsidiaries of James River. In accordance with
the respective negotiated terms of these transactions, Ben P. Kanak and James C.
Stewart, directors of FCB, and John A. Ramsey, Jr. and Robert E. Spencer, Jr.,
directors of Colonial, were all appointed to James River's board of directors in
March 1996. The separate terms of these transactions required that Messrs. Kanak
and Stewart, on the one hand, and Messrs. Ramsey and Spencer, on the other hand,
be nominated for election as directors at James River's 1997 and 1998 Annual
Meetings to serve a one year term. For information regarding an Early Retirement
Agreement between FCB and James C. Stewart, see "Executive Compensation -
Stewart Retirement Agreement."
The following information relates to James River's nine
director-nominees and James River's executive officers. There are no family
relationships among any of the director-nominees, except that Mr. Elmon Gray is
the father of Mr. Bruce Gray, nor is there any arrangement or understanding
between any director-nominee pursuant to which the director-nominee was elected,
except as otherwise described above with respect to Messrs. Kanak, Stewart,
Ramsey and Spencer.
HAROLD U. BLYTHE, 56, James River's President and Chief Executive
Officer, has been an executive officer and director of James River since it was
initially organized in December 1994. From 1989 until 1997, Mr. Blythe was
President and Chief Executive Officer of Bank of Suffolk ("BOS"), one of James
River's wholly owned banking subsidiaries. Mr. Blythe also served as a director
of BOS from 1989 until 1997. Mr. Blythe is Chairman of the Board of James River
Support, Inc., James River's non-banking operations subsidiary, and Chairman of
the Board of Mortgage Company of James River, Inc. ("MCJR"), James River's
residential mortgage lending subsidiary. He is also a member of the Board of
Family Finance Corp., a consumer finance subsidiary of James River. Mr. Blythe
is also a director of Community Bankers Bank, Richmond, Virginia.
JAMES E. BUTLER, JR., 73, has been a director of James River since
December 1994 and a director of BOS since 1973. Mr. Butler is the President of
Butler Paper Company.
BRUCE B. GRAY, 45, James River's Vice Chairman, has been a director of
James River since December 1994. From 1993 until 1997, he was Chairman of the
Board of James River Bank ("JRB"), one of James River's wholly owned banking
subsidiaries, and served as a director of JRB from 1977 until 1997. Mr. Bruce
Gray is Vice President of Gray Lumber Co., Gray Land & Timber Co. and Gray Co.
Mr. Bruce Gray is also a partner of Grayland Co. and Gray Loblolly Co.
<PAGE>
ELMON T. GRAY, 73, has been a director of James River since December
1994, and served as James River's Chairman of the Board from 1994 until 1997.
Mr. Elmon Gray was a director of JRB from 1949 until 1996, serving as Chairman
of the Board from 1977 to 1993. Mr. Elmon Gray has been President of Gray Lumber
Co. since 1952 and President of Gray Co. since 1993. He was President of Gray
Land & Timber Co. from 1992 until 1993. Mr. Gray is a partner of Grayland Co.
and Gray Loblolly Co.
HORACE R. HIGGINS, JR., 51, was elected as a director of James River in
1998 and has been President of Higgins Trucking Company for over 26 years. Mr.
Higgins served as director of JRB from 1984 until 1998.
G. P. JACKSON, 72, James River's Chairman of the Board, has been a
director of James River since December 1994. Mr. Jackson also is currently the
Chairman of the Board of BOS and has been a director of BOS since 1967. Mr.
Jackson is engaged in real estate rentals and contracting, and serves as
President of G.P. Jackson, Inc., Jackson & Jackson Bros., Inc., Holland and
Jackson, Inc. and Suffolk Glass, Inc.
BEN P. KANAK, 76, was appointed to the Board of Directors in March 1996
after James River acquired FCB as described above. Mr. Kanak is currently
Chairman of the Board of Directors of FCB, a position he has held since 1982.
Mr. Kanak has been a director of FCB since FCB was formed in 1972. Mr. Kanak
also serves as a member of the Board of Directors of Plant Food Products, Inc.
Mr. Kanak has been an independent farmer since 1942.
JOHN A. RAMSEY, JR., 69, was appointed to the Board of Directors in
March 1996 after James River acquired Colonial as described above. Mr. Ramsey
has been Chairman of the Board of Directors of Colonial since 1991, and is a
charter director of Colonial having served as a director since 1971. Mr. Ramsey
is a farmer, and has been President of Ramsey Brothers, Inc. since 1991, which
farms numerous properties in and around Isle of Wight County, Virginia. He has
also been President of Prescription Fertilizer, Inc. since 1991.
ROBERT E. SPENCER, JR., 57, was appointed to the Board of Directors in
March 1996 after James River acquired Colonial. Mr. Spencer is a Senior Vice
President of James River and is responsible for bank investments and
asset/liability management, a position to which he was appointed in 1997. Mr.
Spencer served Colonial as a director and President and Chief Executive Officer
from 1986 until 1997. He is also a director of MCJR.
JAMES C. STEWART, 60, was appointed to the Board of Directors in March
1996 after James River acquired FCB. Mr. Stewart has been a director, President
and Chief Executive Officer of FCB since 1973. Mr. Stewart is also a director of
MCJR and Family Finance Corp. Mr. Stewart has entered into an Early Retirement
Agreement with FCB. See "Executive Compensation - Stewart Retirement Agreement."
DONALD W. FULTON, JR., 52, is James River's Senior Vice President and
Chief Financial Officer, a position to which he was appointed in January 1998.
He is also the Treasurer of MCJR. From 1968 until 1997, Mr. Fulton served as an
executive officer of Jefferson Bankshares, Inc. of Charlottesville, Virginia as
its Vice President- Investor Relations. Jefferson Bankshares was acquired by
Wachovia Corporation on October 31, 1997. From that date through December 31,
1997, Mr. Fulton was employed by Wachovia on merger transition activities
pertaining to financial reporting, corporate communications, and corporate
securities matters.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, officers and persons who beneficially own more than 10% of a
registered class of equity securities of James River to file initial reports of
ownership (Forms 3) and reports of changes in beneficial ownership ( Forms 4 and
5) with the SEC and NASDAQ. Such persons are also required under the rules and
regulations promulgated by the SEC to furnish James River with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms furnished to James River, James River believes that all reporting
requirements under Section 16(a) for 1998 were met in a timely manner by its
directors, officers and greater than 10% beneficial owners, except that sales of
James River common stock by James C. Stewart which took place in May and June
1998 and a transfer by him of James River common stock which took place in
September 1998 were not reported on a Form 4, but were reported on a Form 5 on
February 12,1999.
<PAGE>
EXECUTIVE COMPENSATION
The following table presents an overview of executive compensation paid
by James River and its subsidiaries during 1998, 1997 and 1996 to Harold U.
Blythe, President and Chief Executive Officer of James River and to the three
other executive officers of James River whose combined salary and bonus exceeded
$100,000 in 1998 ( collectively the "Named Executive Officers"). No other
executive officer of James River or any banking subsidiary received combined
salary and bonus in excess of $100,000 during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- -----------------------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation
- --------------------------- ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Harold U. Blythe, 1998 $140,184 $16,272(1) 0 $12,213(2)
President and CEO 1997 136,224 13,622(1) 0 14,701(2)
1996 132,000(3) 6,600 37,500(4) 18,882(5)
Robert E. Spencer, Jr., 1998 106,980(6) 12,838(1) 0 9,628(2)
Senior Vice President - 1997 104,425 16,082(1) 0 9,002(2)
Bank Investments and 1996 95,656 4,963(4) 22,500(4) 6,192(2)
Asset/Liability Management
Donald W. Fulton, Jr., 1998 102,000(7) 12,240(1) 22,500(4) 20,456(8)
Senior Vice President and
Chief Financial Officer
James C. Stewart, 1998 137,566(10) 9,428(1) 0 10,114(2)
President of FCB(9) 1997 134,671(11) 32,179(12) 0 11,974(1)
1996 126,960(13) --- 22,500(4) 22,191(14)
</TABLE>
- --------------------
(1) Paid pursuant to James River's Cash Bonus Program. See "-Cash Bonus
Program" below.
(2) Consists of Company contributions to 401(k) and Profit Sharing Plan.
(3) Includes $22,800 of director fees paid by James River and BOS
(4) Options granted pursuant to the 1996 Employee Stock Option Plan. See
"-1996 Employee Stock Option Plan" below.
(5) Consists of premiums paid for life insurance policies and contributions
to 401(k) Plan.
(6) Includes $24,012 of director fees paid by James River and Colonial.
(7) Mr. Fulton joined James River in January 1998.
(8) Consists of $15,754 of relocation and moving expenses paid pursuant to
the Fulton Employment Agreement described in "-Executive Officer
Employment Agreements" below. Also includes $4,702 of Company
contributions to 401(k) and Profit Sharing Plan.
(9) Pursuant to the terms of an Early Retirement Agreement, Mr. Stewart has
resigned as an employee of FCB and director of FCB and James River
effective May 26, 1999. See "Stewart Retirement Agreement" below.
(10) Includes $25,325 of director fees paid by James River and FCB.
(11) Includes $25,500 of director fees paid by James River, FCB and FCB's
subsidiaries.
(12) Consists of (i) $10,519 bonus for 1996 paid in January 1997 and (ii)
$21,660 bonus for 1997 paid in December 1997 pursuant to the Cash Bonus
Program.
(13) Includes $23,500 of director fees paid by James River and FCB.
(14) Consists of funding of FCB's ESOP and life insurance premiums paid by
FCB to fund Mr. Stewart's supplemental income plan. Also includes
contributions to 401(k) Plan.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information regarding stock option grants to
Donald W. Fulton, Jr. during the fiscal year ended December 31, 1998. No other
stock options were granted to Named Executive Officers in 1998.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
underlying Granted to Grant Date
Options Employees in Present
Name Granted Fiscal Year Exercise Price Expiration Date Value($)
- ----- ---------- ------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Donald W. Fulton, Jr. 22,500 60% $21.45 02/25/08(1) $367,875(2)
</TABLE>
- -------------------
(1) 4,500 option shares vested on February 26, 1999. The remaining option shares
vest in 4 tranches of 4,500 shares each on February 26, 2000, 2001, 2002 and
2003. Each tranche expires if unexercised on February 25, 2008.
(2) Value determined using the Black-Scholes option pricing model with the
following weighted average assumptions: dividend yield of 2.2%, expected
volatility of 24%, risk free interest rate of 5.5% and expected life of 5
years. The actual value, if any, that may be realized on the options will
depend on the excess of the stock price over the exercise price on the date
the option is exercised. Accordingly, there can be no assurance that the
value realized on the options will be at or near the value estimated by the
Black-Scholes model.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The table below sets forth information regarding stock options exercised
by Named Executive Officers in 1998 and exerciseable and unexerciseable stock
options held as of December 31, 1998, by the Named Executive Officers. All of
these options were granted pursuant to James River's 1996 Employee Stock Option
Plan except as otherwise indicated.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-The-Money Options
Shares at Fiscal Year-End At Fiscal Year-End (1)
Acquired ------------------ -------------------
Upon Value
Name Exercise (#) Realized ($) Exerciseable Unexerciseable Exerciseable Unexerciseable
---- ------------ ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Harold U. Blythe 2,642 $10,092(2) 12,358 22,500 $48,691(3) $88,650(3)
Robert E. Spencer, Jr. 0 0 9,000 13,500 35,460(3) 53,190(3)
Donald W. Fulton, Jr. 0 0 0 22,500 0 -- (4)
James C. Stewart 6,880 118,542(5) 29,640(6) 13,500 246,607(6) 53,190(3)
</TABLE>
- ---------------------
(1) The closing sale price of James River's Common Stock on NASDAQ/NMS on
December 31, 1998 was $17.50 per share.
(2) Mr. Blythe exercised the options in March, 1998 at an exercise price of
$13.56 per share. On the date of exercise, the closing price of James
River's Common Stock on NASDAQ/NMS was $17.38.
(3) The exercise price of these options is $13.56 per share.
(4) The exercise price of these options is $21.45 per share.
(5) Mr. Stewart exercised the options in April, 1998 at an exercise price of
$7.27 per share. On the date of exercise, the closing price of James River's
Common Stock on NASDAQ/NMS was $24.50.
(6) Includes 20,640 options which were originally granted by FCB and were
converted into options to buy James River's Common Stock when James River
acquired FCB in February 1996. The exercise price of these options is $7.27
per share. Also includes 9,000 options granted pursuant to James River's
1996 Employee Stock Option Plan, the exercise price of which is $13.56 per
share. On March 16, 1999, Mr. Stewart exercised a total of 43,140 options
pursuant to the terms of an Early Retirement Agreement described in
"-Stewart Retirement Agreement" below.
<PAGE>
COMPENSATION OF DIRECTORS
Other than Mr. Stewart, directors of James River who are also employees
of James River or its subsidiaries do not receive director fees. Mr. Stewart and
the non-employee directors who serve on the Executive Committee are paid a fee
of $1,500 per month and non-employee directors who do not serve on the Executive
Committee are paid a fee of $1,000 per month. The Chairman of the Board of James
River, who serves on the Executive Committee, is paid a fee of $1,700 per month.
Directors also receive annual retainers and monthly fees if they serve on the
boards of James River's subsidiary banks. The fees are based on the asset sizes
of those banks and are payable in accordance with the following schedule:
<TABLE>
<CAPTION>
ASSETS: $0-50 $51-100 $101-150 $151-200
-------------------------------------------------- -------------
(dollars in millions)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
FEES:
Annual Retainer payable monthly $2,400 $3,000 $3,600 $4,200
Monthly board meeting 100 150 200 250
Board Chairman per board meeting 150 200 250 300
Committee meeting 50 75 100 125
</TABLE>
In addition to the fees payable above, Mr. Jackson also receives $600
per month from BOS, of which he is Chairman of the Board, for appraisal review
services. Directors of James River currently have the option of receiving
registered shares of Common Stock of James River in lieu of receiving cash
payments for director fees.
EXECUTIVE OFFICERS EMPLOYMENT AGREEMENTS
Harold U. Blythe, a director and the President and Chief Executive
Officer of James River is currently compensated pursuant to an Employment
Agreement ("Blythe Employment Agreement") that was entered into in June 1995 in
connection with the capitalization and formation of James River by BOS and JRB.
The Blythe Employment Agreement has a term of seven years, commencing on July 1,
1995. In 1995, the Compensation Committee of the Board of Directors
("Compensation Committee") established an initial annual salary of $109,200
under the Blythe Employment Agreement which can be adjusted periodically,
provided that no adjustment can be made that would provide for a salary lower
than the original $109,200. Mr. Blythe's current annual salary under the Blythe
Employment Agreement is $142,968, which includes amounts formerly payable to Mr.
Blythe as director fees that are now paid as salary. The Blythe Employment
Agreement provides that in the event of a change of control of James River
following which Mr. Blythe is not given reasonably equivalent, acceptable duties
and responsibilities as he had prior to the change of control, Mr. Blythe may be
terminated or resign, and, in either such case, Mr. Blythe is entitled to
receive 2.99 times his annual base compensation then being paid to him pursuant
to the Blythe Employment Agreement. In the event James River terminates Mr.
Blythe's employment without cause, and provided that Mr. Blythe does not
thereafter compete with James River, the Blythe Employment Agreement provides
that Mr. Blythe will receive his regular compensation for a period of one year
following termination, or during the remaining term of the agreement, whichever
is less.
Effective May 1, 1996, James River and Mr. Blythe entered into a
deferred compensation agreement ("Blythe Deferred Agreement"). The Blythe
Deferred Agreement provides for the payment of certain retirement, death and
disability benefits. The retirement benefit is payable if Mr. Blythe retires at
any time after age 60. Thereafter, James River will pay Mr. Blythe or his
beneficiaries a base monthly benefit of $2,000 per month for 120 consecutive
months. The monthly payment is subject to upward or downward adjustment based on
cost of living increases or decreases. In the event that Mr. Blythe dies before
his retirement date, James River will pay $5,000 per month for 120 consecutive
months to Mr. Blythe's designated beneficiary. In the event Mr. Blythe's
employment with James River terminates prior to retirement as a result of
disability, James River will pay Mr. Blythe a disability benefit of $3,166 per
month. The disability benefit will continue throughout the period of disability
or until Mr. Blythe reaches age 60, at which time Mr. Blythe will commence
receiving the retirement benefit described above. In addition, in the event Mr.
Blythe terminates his employment with James River for any reason other than
death or disability prior to attaining age 60, James River will pay Mr. Blythe a
lump sum termination benefit. Commencing May 1, 1998, the termination benefit is
$25,000 and increases by $25,000 on May 1 of each year thereafter for a total of
a $100,000 termination benefit should Mr. Blythe terminate employment under the
conditions described in the preceding sentence between May 1, 2001 and April 30,
2002. After May 1, 2002, Mr. Blythe is eligible for full retirement benefits.
Mr. Blythe's deferred compensation arrangement is funded by a life insurance
policy on the life of Mr. Blythe for which James River pays premiums and is the
beneficiary. Finally, the benefits provided under the Blythe Deferred Agreement
will immediately vest and become nonforfietable in the event of a
Change-in-Control of James River as defined in the agreement.
<PAGE>
James River has also entered into an employment agreement with Robert E.
Spencer, Jr. ("Spencer Employment Agreement"). The Spencer Employment Agreement,
which was initially entered into in connection with the Colonial Transaction,
has an initial five year term that commenced in 1996. James River is currently
paying Mr. Spencer a base salary of $109,104 under the Spencer Employment
Agreement. If Mr. Spencer is terminated without cause, the Spencer Employment
Agreement provides that he will continue to receive his salary for a period of
one year following termination of employment. The Spencer Employment Agreement
also contains a change of control provision that is the same as that provided
for in the Blythe Employment Agreement.
Effective September 1, 1998, James River and Mr. Spencer entered into a
deferred compensation agreement ("Spencer Deferred Agreement"). The Spencer
Deferred Agreement provides for the payment of certain retirement, death and
disability benefits. The retirement benefit is payable if Mr. Spencer retires
any time after the age of 62. Thereafter, James River will pay Mr. Spencer or
his beneficiaries a base monthly benefit of $2,000 per month for 120 consecutive
months. The monthly payment is subject to upward or downward adjustment based on
cost of living increases or decreases. In the event Mr. Spencer dies before his
retirement date, James River will pay $5,000 per month for 120 consecutive
months to Mr. Spencer's designated beneficiary. In the event Mr. Spencer's
employment terminates prior to retirement as a result of disability, James River
will pay Mr. Spencer a disability benefit of $3,000 per month. The disability
benefit will continue throughout the period of disability or until Mr. Spencer
reaches age 62, at which time Mr. Spencer will commence receiving the retirement
benefit described above. Finally, in the event Mr. Spencer terminates his
employment with James River for any reason other than death or disability prior
to attaining age 62, James River will pay a lump sum termination benefit.
Commencing September 1, 2000, the termination benefit is $50,000 and increases
by $25,000 on September 1 for each year thereafter for a total of a $100,000
termination benefit should Mr. Spencer terminate employment under the conditions
described in the preceding sentence between September 1, 2002 and August 31,
2003. After September 1, 2003, Mr. Spencer is eligible for full retirement
benefits. Mr. Spencer's deferred compensation agreement is funded by a life
insurance policy on the life of Mr. Spencer for which James River pays the
premiums and is the beneficiary. The Spencer Deferred Agreement contains
Change-in-Control provisions similar to those in the Blythe Deferred Agreement.
On January 1, 1998, James River entered into an Employment Agreement
with Donald W. Fulton, Jr. ("Fulton Employment Agreement"), pursuant to which
Mr. Fulton serves as James River's Senior Vice President and Chief Financial
Officer. The initial term of the Fulton Employment Agreement was one year with
successive one year renewals upon the mutual agreement of James River and Mr.
Fulton. The Fulton Employment Agreement was extended for a second one year term
on January 1, 1999. Under the Fulton Employment Agreement, Mr. Fulton's base
salary is currently $104,040. Pursuant to the Fulton Employment Agreement, James
River also granted Mr. Fulton options to purchase 22,500 shares of Common Stock
at an exercise price of $21.45 per share. The Fulton Employment Agreement
contains termination of employment and change of control provisions similar to
those contained in the Blythe Employment Agreement.
James River and Mr. Fulton entered into a deferred compensation
agreement ("Fulton Deferred Agreement") on September 1, 1998. The Fulton
Deferred Agreement contains similar terms and provisions as those described
above with respect to the Spencer Deferred Agreement. In the event Mr. Fulton
terminates his employment for any reason other than death or disability prior to
reaching age 62, James River will pay a lump sum termination benefit. Commencing
January 1, 2003, the termination benefit is $50,000 and increases $15,000 on
January 1 for each year thereafter for a total of a $125,000 termination benefit
should Mr. Fulton terminate employment under the conditions described in the
preceding sentence between January 1, 2008 and October 31, 2008. After October
31, 2008, Mr. Fulton is eligible for full retirement benefits.
<PAGE>
STEWART RETIREMENT AGREEMENT
FCB has entered into an Early Retirement Agreement with James C. Stewart
("Stewart Retirement Agreement"), a director of James River and the President
and Chief Executive Officer of FCB. Under the terms of the Stewart Retirement
Agreement, Mr. Stewart's last day of employment with FCB and last day of service
as a director of FCB and James River will be May 26, 1999. FCB will pay Mr.
Stewart, over 24 consecutive semi-monthly pay periods, an amount totaling
$140,225, less applicable withholdings required by law. Mr. Stewart will also
receive deferred compensation pursuant to the terms of his Deferred Compensation
Agreement dated November 1, 1988. Deferred compensation payments will commence
June 1, 1999 and will be $40,723 per year over a 15 year period. As long as Mr.
Stewart is receiving payments under the Stewart Retirement Agreement, he will
continue to be bound by the non-competition restrictions contained in his
Employment Agreement with FCB dated February 28, 1997. If Mr. Stewart violates
these non competition restrictions, he will forfeit the right to receive any
payments otherwise due under the Stewart Retirement Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of James River's Compensation Committee was an officer or
employee of James River during 1998. During 1998, no executive officer of James
River served as a member of the Compensation Committee of another entity, nor
did any executive officer of James River serve as a director of another entity,
one whose executive officers served on James River's Compensation Committee. Two
members of the Compensation Committee, Messrs. Jackson and Butler, have
outstanding loans with certain of James River's banking subsidiaries. Each of
these loans was made in the ordinary course of business on substantially the
same terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with unrelated parties and
did not involve more than normal risk of collectibility or present other
unfavorable features. See "Certain Relationships and Related Transactions".
CASH BONUS PROGRAM
In 1998, the Compensation Committee of James River's board of directors
adopted specific criteria and parameters for awards of cash bonuses to Executive
Officers, including certain executive officers of James River's subsidiaries.
Under James River's cash bonus program ("Bonus Program"), bonuses are paid as a
percentage of base salary. The percentage of salary awarded as a bonus is in
turn based on James River's or a particular subsidiary's net after tax income.
Executive Officers of James River receive bonuses based solely on James River's
overall financial performance. Executive Officers of subsidiaries receive
bonuses based solely on the financial performance of the subsidiaries by which
they are employed and the overall financial performance of James River.
The Bonus Program currently provides that, absent special circumstances,
annual salary adjustments will be limited to cost of living increases. In
addition, the maximum bonus under the Bonus Program is 25% of base salary. The
specific criteria, terms and conditions of the Bonus Program are subject to
adjustment at any time by the Compensation Committee. For 1998, a total of
$342,864 in cash bonuses was awarded under the Bonus Program. The chart below
sets forth information regarding the cash bonuses for 1998 received by the Named
Executive Officers:
<TABLE>
<CAPTION>
Name Bonus % of 1998 Base Salary (1)
- ---- ----- -------------------------
<S> <C> <C>
Harold U. Blythe $16,272 11.6%
Robert E. Spencer, Jr. $12,838 12.0%
Donald W. Fulton, Jr. $12,240 12.0%
James C. Stewart $ 9,428 8.4%
</TABLE>
- ------------------
(1) Percentages relate to 1998 base salary exclusive of director fees that are
included in the Named Executive Officers' salary for purposes of the Summary
Compensation Table.
See-"Summary Compensation Table."
<PAGE>
1996 EMPLOYEE STOCK OPTION PLAN
During 1995, the Board and the Compensation Committee studied and
considered means by which James River could award and compensate key employees
of James River in a manner that would align closely the interests of such key
employees with the interests of James River's shareholders. In furtherance of
this goal, the Board adopted the 1996 Employee Stock Option Plan ("Option
Plan"), which was approved by James River's shareholders at the 1996 Annual
Meeting. The purpose of the Option Plan is to support the business goals of
James River and to attract, retain and motivate management officials of high
caliber by providing incentives that will, through the award of options to
acquire James River's Common Stock, associate more closely the interests of
Executive Officers and key employees of James River with the interests of James
River's shareholders. Participation is limited to Executive Officers and key
employees of James River who are in positions in which their decisions, actions
and efforts significantly contribute to the success of James River. In 1998, the
Compensation Committee awarded options to purchase 37,500 shares of James
River's Common Stock to eligible employees.
COMPENSATION COMMITTEE REPORT CONCERNING COMPENSATION OF CERTAIN EXECUTIVE
OFFICERS
This report describes James River's executive officer compensation
strategy, the components of the compensation program and the manner in which the
1998 compensation determinations were made for James River's President and Chief
Executive Officer, Harold U. Blythe, and James River's other executive officers
(collectively "Executive Officers").
In addition to the information set forth in this Proxy Statement under
"Executive Compensation," the Compensation Committee is required to provide
shareholders a report explaining the rationale and considerations that led to
the fundamental executive compensation decisions affecting James River's
Executive Officers. In fulfillment of this requirement, the Compensation
Committee, at the direction of James River's Board of Directors, has prepared
the following report for inclusion in this Proxy Statement. None of the members
of the Compensation Committee are executive officers or employees of James
River.
COMPENSATION PHILOSOPHY
The compensation of James River's Executive Officers is designed to
attract, retain, motivate and reward qualified, dedicated executives, and to
directly link compensation with (i) the Executive Officer's previous and
anticipated performance, (ii) the contributions and responsibilities of the
Executive Officer to James River and (iii) James River's profitability. None of
these three factors is given more relative consideration than any other. The
principal components of an Executive Officer's compensation package in 1998 were
(i) a base salary at a stated annual rate, together with certain other benefits
as may be provided from time to time, and (ii) discretionary cash bonuses. See "
- - Bonus Program" below. In addition, stock option awards were made to certain
Executive Officers in 1998 pursuant to James River's 1996 Employee Stock Option
Plan. See " - 1996 Employee Stock Option Plan" below.
EMPLOYMENT AGREEMENTS
James River has entered into Employment Agreements with certain
Executive Officers as described below. The Compensation Committee believes that
written employment agreements are necessary to attract and retain a quality
management team and are consistent with James River's compensation philosophy.
Harold U. Blythe, James River's President and Chief Executive Officer,
Robert E. Spencer, Jr., James River's Senior Vice President - Bank Investments
and Asset/Liability Management, and Donald W. Fulton, Jr., James River's Senior
Vice President and Chief Financial Officer, have each entered into employment
agreements with James River. The specific terms of these Employment Agreements
are set forth in this Proxy Statement under the heading "- Executive Officer
Employment Agreements" above. For 1999, the Compensation Committee has
established base salaries under these employment agreements of $142,968 for Mr.
Blythe, $109,104 for Mr. Spencer, and $104,040 for Mr. Fulton.
<PAGE>
As also described above in this Proxy Statement under the heading "-
Executive Officer Employment Agreements," James River has entered into deferred
compensation agreements with each of Mr. Blythe, Mr. Spencer and Mr. Fulton. The
Compensation Committee believes that these deferred compensation arrangements
are consistent with James River's compensation philosophy.
In addition to the Executive Officers identified above, James River has
entered into employment agreements with certain other executive officers of
James River's subsidiaries. James River does not currently award employment
agreements to executive officers of subsidiaries below the Chief Executive
Officer level.
BONUS PROGRAM
In 1997, the Compensation Committee adopted specific criteria and
parameters for awards of cash bonuses to Executive Officers, including certain
executive officers of James River's subsidiaries. Under James River's cash bonus
program, bonuses are paid as a percentage of base salary. Information regarding
bonuses paid to Executive Officers in 1998, as well as additional information on
the Bonus Program, is set forth above under " Cash Bonus Program."
1996 EMPLOYEE STOCK OPTION PLAN
During 1995, the Board and the Compensation Committee studied and
considered means by which James River could award and compensate key employees
of James River in a manner that would align closely the interests of such key
employees with the interests of James River's shareholders. In furtherance of
this goal, the Board adopted the 1996 Employee Stock Option Plan, which was
approved by James River's shareholders at the 1996 Annual Meeting. The Option
Plan is further discussed above under " - 1996 Employee Stock Option Plan."
In 1998, the Compensation Committee awarded options to purchase 37,500
shares of James River's Common Stock to eligible employees, including 22,500 to
Donald W. Fulton, Jr., James River's Senior Vice-President and Chief Financial
Officer.
LIMITATION ON DEDUCTIBILITY OF CERTAIN COMPENSATION FOR FEDERAL INCOME TAX
PURPOSES
Section 162(m) of the Internal Revenue Code ("162(m)") precludes James
River from taking a deduction for compensation in excess of $1 million for the
Chief Executive Officer or certain of its other highest paid officers. Certain
performance based compensation, however, is specifically exempt from the
deduction limit. The Compensation Committee has considered 162(m) and has
determined that 162(m) will not impact James River in 1999 because it is not
anticipated that compensation in excess of $1 million will be paid to any
employee of James River. However, in adopting the Option Plan, the Board and
Compensation Committee duly considered Section 162(m) and structured it to
satisfy the performance based compensation exemptions under 162(m).
- James E. Butler, Jr.
- Elmon T. Gray
- G. P. Jackson
THE PRECEDING "COMPENSATION COMMITTEE REPORT CONCERNING COMPENSATION OF
CERTAIN EXECUTIVE OFFICERS" AND THE STOCK PERFORMANCE GRAPH BELOW SHALL NOT BE
DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, OR INCORPORATED BY REFERENCE IN ANY DOCUMENTS
SO FILED.
COMPANY STOCK PRICE PERFORMANCE
The following graph shows a comparison of cumulative total shareholder
returns for (i) James River, (ii) the NASDAQ Stock Market (US) and (iii) NASDAQ
Bank Stocks from the period June 29, 1995, the date James River became subject
to the reporting requirements of the Securities Exchange Act of 1934, through
December 31, 1998. The total shareholder return assumes $100 invested at the
beginning of the period in James River's Common Stock, the NASDAQ Stock Market
(US) and NASDAQ Bank Stocks. The total shareholder return assumes $100 invested
at the beginning of the period in James River's Common Stock, the NASDAQ Stock
Market (US) and NASDAQ Bank Stocks.
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG JAMES RIVER,
NASDAQ STOCK MARKET (US), AND NASDAQ BANK STOCKS
[GRAPH]
<TABLE>
<CAPTION>
BASE PERIOD RETURN RETURN RETURN RETURN
JUNE 29, 1995 DECEMBER 1995 DECEMBER 1996 DECEMBER 1997 DECEMBER 1998
<S> <C> <C> <C> <C> <C>
James River Bankshares, Inc. 100 119.03 107.25 172.70 145.32
NASDAQ Stock Market (US) 100 122.60 150.76 184.95 259.99
NASDAQ Bank Stocks 100 128.44 169.57 283.91 281.21
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The directors and executive officers of James River and its banking
subsidiaries, and their family members and certain business organizations and
individuals associated with each of them, have been customers of James River's
various subsidiary financial institutions with which they are affiliated, have
had normal banking transactions, including loans, with them, and are expected to
continue to do so in the future. As of December 31, 1998, James River's banking
subsidiaries had aggregate direct and indirect loans to the directors and
executive officers of James River and its banking subsidiaries totaling
approximately $8.8 million, which represented approximately 20% of James River's
shareholders' equity as of that date. Except as set forth below with respect to
Mr. Stewart, each of these transactions was made in the ordinary course of
business on substantially the same terms, including interest rates, collateral
and repayment terms, as those prevailing at the time for comparable transactions
with unrelated parties and did not involve more than normal risk of
collectibility or present other unfavorable features.
James C. Stewart, a Named Executive Officer, currently has two loans
outstanding with FCB with an aggregate principal balance of $120,054. These
loans were made in 1987 and 1988 under then existing FCB loan policies that
allowed FCB to make loans to its employees at an interest rate equal to FCB's
cost of funds adjusted annually. Under these terms, the current interest rates
of Mr. Stewart's loans are 4.85% and 4.88%, respectively. Both of Mr. Stewart's
loans are current with no history of payment default and are secured by real
property. FCB discontinued the policy of making below market rate loans to its
employees in 1989.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 7, 1999, relating
to the beneficial ownership of James River's Common Stock by (i) each of James
River's directors and Named Executive Officers (as defined in "--Executive
Compensation" on page V-3), (ii) all of James River's current directors and
Named Executive Officers as a group, and (iii) other persons known by James
River to be the beneficial owner of more than five percent (5%) of James River's
Common Stock. Except as otherwise set forth below, James River is not aware of
any person or group of affiliated persons who owns more than 5% of the Common
Stock of James River. All of James River's directors and Named Executive
Officers receive mail at James River's principal executive offices at 1514
Holland Road, Suffolk, Virginia 23434.
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned Outstanding Shares
---- ------------------ ------------------
<S> <C> <C> <C>
Harold U. Blythe 39,858 (1) 1.06
James E. Butler, Jr. 57,405 (2) 1.53
Bruce B. Gray 99,384 (3) 2.66
Elmon T. Gray 73,512 (4) 1.96
Horace R. Higgins, Jr. 1,790 *
G. P. Jackson 160,100 4.28
Ben P. Kanak 75,176 (5) 2.01
John A. Ramsey, Jr. 51,768 (6) 1.38
Robert E. Spencer, Jr. 50,946 (7) 1.36
6,500 (8) *
Donald W. Fulton, Jr.
James C. Stewart 94,193 (9) 2.52
Current Directors and
Executive Officers as a
Group (11 persons) 734,815 18.86
Bank America Corporation (11) 190,656 (11) 5.10
101 South Tryon Street
Charlotte, NC 28255
</TABLE>
- ---------------------------------
* Less than 1% ownership
(1) Includes (i) 24,178 shares owned jointly by Mr. Blythe and his wife, (ii) 75
shares owned by Mr. Blythe's wife, for which Mr. Blythe disclaims beneficial
ownership, and (iii) 1,500 shares owned by a family trust for which Mr.
Blythe has voting and investment power. Also includes options to purchase
11,930 shares of Common Stock that are currently exerciseable, which were
granted pursuant to James River's 1996 Employee Stock Option Plan ("Option
Plan").
(2) Includes 4,485 shares owned by Mr. Butler's wife, for which Mr. Butler
disclaims beneficial ownership.
(3) Includes (i) an aggregate of 45,314 shares held in six trusts for which Mr.
Bruce Gray and Mr. Garland Gray, II share voting and investment power, (ii)
an aggregate of 1,602 in custodian accounts for which Mr. Bruce Gray and Mr.
Garland Gray, II share voting and investment power. Does not include any
shares beneficially owned or otherwise described in this Proxy Statement by
or with respect to Mr. Elmon T. Gray or by Mr. Garland Gray, II, Mr. Bruce
Gray's father and brother respectively. Mr. Bruce Gray disclaims beneficial
ownership of any shares other than the 99,384 shares listed above.
(4) Includes (i) 6,297 shares owned by Mr. Elmon Gray's wife, Pamela B. Gray,
and (ii) 63,969 shares owned by various family trusts for which Mr. Elmon
Gray shares voting and investment power with NationsBank. Does not include
(i) 84,721 shares owned collectively by Elizabeth Gray Duff, Mr. Elmon
Gray's sister, and her husband and various children, (ii) 93,900 shares
owned collectively by Florence Gray Tullidge, Mr. Elmon Gray's sister, and
her husband and various children, (iii) 95,902 shares owned collectively by
Mary G. Stettinius, Mr. Elmon Gray's sister, and her husband and various
children, or (iv) 15,921 shares owned collectively by Katharine T. Gray, Mr.
Elmon Gray's daughter, and her various children. Also does not include any
shares beneficially owned or otherwise described in the Proxy Statement by
or with respect to Mr. Bruce Gray or Mr. Garland Gray, II, who are both sons
of Mr. Elmon Gray. Mr. Elmon Gray disclaims beneficial ownership of any
shares other than the 3,246 shares he owns individually and the 63,969
shares owned by family trusts as described above.
(5) Includes 2,571 shares owned by Mr. Kanak's wife, for which Mr. Kanak
disclaims beneficial ownership.
(6) Includes 36,792 shares owned jointly by Mr. Ramsey and his wife and 1,320
shares owned by Mr. Ramsey's wife. Mr. Ramsey disclaims beneficial ownership
of the 1,320 shares owned directly by his wife.
(7) Includes options to purchase 9,000 shares of Common Stock that are currently
exerciseable, which were granted pursuant to James River's Option Plan.
<PAGE>
(8) Includes options to purchase 4,500 shares of Common Stock that are currently
exerciseable, which were granted pursuant to James River's Option Plan.
(9) Includes 1,482 shares owned by Mr. Stewart's wife, for which Mr. Stewart
disclaims beneficial ownership and 2,407 shares owned jointly by Mr. Stewart
and his wife. Mr. Stewart has entered into an Early Retirement Agreement
with FCB. See "Executive Compensation- Stewart Retirement Agreement."
(10)Information regarding BankAmerica Corporation ("BankAmerica") has been
derived by James River from a Schedule 13G filed by BankAmerica with the
Securities and Exchange Commission ("Schedule 13G"). The 13G states that
BankAmerica filed the 13G on behalf of BankAmerica, NB Holdings Corporation,
100 North Tryon Center, Charlotte, NC 28255, and NationsBank, N.A., 110
South Tryon Street, Charlotte, NC 28255.
(11)The Schedule 13G indicates that certain of these shares are subject to
shared voting and dispositive power.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On January 28, 1999, James River's board of directors voted to engage
the accounting firm of Yount, Hyde & Barbour, P.C. as the independent public
accountant to audit James River's financial statements for the fiscal year
ending December 31, 1999, to replace the firm of Goodman & Company, L.L.P., the
independent public accountant engaged to audit James River's financial
statements as of December 31, 1998 and 1997, and for each of the years in the
three year period ended December 31, 1998. James River's board of directors is
asking shareholders of James River to ratify the appointment of Yount, Hyde &
Barbour.
Consistent with James River's policies, James River conducted a bidding
process to select the independent public accountant to audit James River's
fiscal year ending December 31, 1999. James River's Audit Committee received
bids from several independent public accounting firms including Goodman &
Company. After reviewing the proposals, the Audit Committee selected Yount, Hyde
& Barbour, and this selection was approved by James River's board of directors.
During the two fiscal years ending December 31, 1998 and the subsequent
interim period preceding the engagement of Yount, Hyde & Barbour, there were no
disagreements with Goodman & Company on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Goodman & Company would
have caused that firm to make reference in connection with its report to the
subject matter of the disagreement or any reportable events.
Goodman & Company did not resign or decline to stand for reelection.
Upon selection of Yount, Hyde & Barbour, James River dismissed Goodman & Company
with respect to the audit of James River's financial statements for periods
beginning with the fiscal year ending December 31, 1999 and thereafter. Goodman
& Company's report on the financial statements as of December 31, 1998 and 1997,
and for each of the years in the three year period ended December 31, 1998,
contained no adverse opinion or disclaimer of opinion and was not qualified as
to uncertainty, audit scope or accounting principles.
At the James River meeting, a representative of Yount, Hyde & Barbour
will be present, will have the opportunity to make a statement if he or she so
desires, and will be available to respond to appropriate questions.
<PAGE>
CHAPTER VI
SUBMISSION OF PROPOSALS FOR 2000
The next annual meeting of shareholders of James River will be held on
or about April 27, 2000. Any shareholder who wishes to submit a proposal for
consideration at that meeting, and who wishes to have such proposal included in
James River's proxy statement for that meeting, must submit the proposal in
writing to Harold U. Blythe, President and Chief Executive Officer, at 1514
Holland Road, Suffolk, Virginia 23434, no later than November 30, 1999.
WHERE YOU CAN FIND MORE INFORMATION
James River files reports, proxy statements and other information with
the Securities and Exchange Commission. You may read and copy any reports,
statements or other information that James River files at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Information on James River is also available to
the public through the Commission's website at "http://www.sec.gov." Reports,
proxy statements and other information about James River are also available to
the public from commercial document retrieval services and also should be
available for inspection at the offices of NASDAQ.
James River has filed a Registration Statement on Form S-4 to register
with the Commission the shares of James River common stock to be issued to State
Bank shareholders in the merger. This document is a part of the Registration
Statement and constitutes a prospectus and proxy statement of James River and a
proxy statement of State Bank for its special meeting. As allowed by Commission
rules, this document does not contain all the information that shareholders can
find in the Registration Statement or the exhibits to the Registration
Statement.
The Commission allows James River to "incorporate by reference"
information into this proxy statement/prospectus, which means that it can
disclose important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be a part of this proxy statement/prospectus, except for any
information superseded by information contained directly in this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that James River previously filed with the
Commission. These documents contain important business information about James
River and its financial condition.
<TABLE>
<CAPTION>
JAMES RIVER'S COMMISSION FILINGS (FILE NO. 0-26314) PERIOD
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarter ended March 31, 1999
</TABLE>
James River also incorporates by reference additional documents that it
may file with the Commission between the date of this document and the dates of
the meetings. These include periodic reports, such as annual reports, quarterly
reports and current reports, as well as proxy statements.
James River has supplied all information contained or incorporated by
reference in this document relating to James River and State Bank has supplied
all such information relating to State Bank.
<PAGE>
Documents incorporated by reference by James River are available through
the Commission or the Commission's website stated above or from James River
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this document. Shareholders of James River or State
Bank may obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from James River or State Bank at the
following addresses:
JAMES RIVER:
Harold U. Blythe
President
James River Bankshares, Inc.
1514 Holland Road
Suffolk, Virginia 23434
Telephone: (757) 934-8100
STATE BANK:
Larry B. Olinger
President
State Bank of Remington, Inc.
P.O. Box 158
Remington, Virginia 22734
Telephone: (540) 439-3233
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EITHER JAMES RIVER OR STATE
BANK, PLEASE DO SO BY _______, 1999 IN ORDER TO RECEIVE TIMELY DELIVERY OF SUCH
DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the meetings. James River and
State Bank have not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
_____________, 1999. You should not assume that the information contained in
this document is accurate as of any date other than that date, and neither the
mailing of this document to shareholders nor the issuance of James River common
stock in the merger creates any implication to the contrary.
<PAGE>
Annex A
AGREEMENT AND PLAN OF MERGER
BETWEEN
STATE BANK OF REMINGTON, INC.
AND
JAMES RIVER BANKSHARES, INC.
-------------------------
FEBRUARY 17, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
The Merger and Related Matters
1.1 The Merger ...........................................................1
1.2 Management of State Bank and James River...............................1
1.3 The Closing and Effective Date.........................................2
1.4 Definitions ...........................................................2
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of Shares...................................................3
2.2 Manner of Exchange.....................................................3
2.3 No Fractional Shares...................................................3
2.4 Dividends ...........................................................4
ARTICLE 3
Representation and Warranties
3.1 Representations and Warranties of State Bank...........................4
3.2 Representations and Warranties of James River.........................13
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties......................................20
4.2 Confidentiality.......................................................20
4.3 Registration Statement, Proxy Statement and Shareholder Approval......20
4.4 Operation of the Business of State Bank and James River...............21
4.5 Dividends ..........................................................22
4.6 No Solicitation.......................................................22
4.7 Regulatory Filings....................................................22
4.8 Public Announcements..................................................22
4.9 Notice of Breach......................................................22
4.10 Accounting Treatment..................................................23
4.11 Merger Consummation...................................................23
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ARTICLE 5
Additional Agreements
5.1 Registration of Shares................................................23
5.2 Benefit Plans.........................................................23
5.3 Indemnification.......................................................23
ARTICLE 6
Conditions to the Merger
6.1 Conditions to Each Party's Obligations to Effect the Merger...........24
6.2 Conditions to Obligations of James River..............................25
6.3 Conditions to Obligations of State Bank...............................25
ARTICLE 7
Termination
7.1 Termination ..........................................................26
7.2 Effect of Termination.................................................27
7.3 Non-Survival of Representations, Warranties and Covenants.............28
7.4 Expenses ..........................................................28
ARTICLE 8
General Provisions
8.1 Entire Agreement......................................................29
8.2 Waiver and Amendment..................................................29
8.3 Descriptive Headings..................................................29
8.4 Governing Law.........................................................30
8.5 Notices ..........................................................30
8.6 Counterparts..........................................................30
8.7 Severability..........................................................31
8.8 Brokers and Finders...................................................31
8.9 Subsidiaries..........................................................31
Exhibit A -- Plan of Merger between State Bank of Remington, Inc. and James
River Bankshares, Inc.
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into February 17, 1999 by and between State Bank of Remington, Inc., a
Virginia state bank with its principal office located in Remington, Virginia
("State Bank") and James River Bankshares, Inc., a Virginia corporation with its
principal office located in Suffolk, Virginia ("James River").
WITNESSETH:
WHEREAS, State Bank and James River desire to combine their respective
businesses; and
WHEREAS, the respective Boards of Directors of James River and State Bank
have approved the affiliation of their companies through the merger of State
Bank with and into JRB Acquisition Bank, Inc., a wholly-owned banking subsidiary
of James River to be incorporated under the laws of the Commonwealth of Virginia
("New Bank"), pursuant to and subject to the terms and conditions of this
Agreement and the Plan of Merger in the form attached hereto as Exhibit A (the
"Plan of Merger").
WHEREAS, the respective Boards of Directors of State Bank and James River
have resolved that the transactions described herein are in the best interests
of the parties and their respective shareholders and have authorized and
approved the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
The Merger and Related Matters
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Date as defined in Section 1.3 hereof, State Bank shall be merged
with and into New Bank pursuant to the Plan of Merger attached hereto as Exhibit
A and made a part hereof (the "Merger"). The separate corporate existence of
State Bank shall thereupon cease, and New Bank will be the surviving corporation
in the Merger and its name shall be changed to State Bank of Remington, Inc.
From and after the Effective Date, the Merger shall have the effect set forth in
Section 13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
1.2 Management of State Bank and James River. The executive management
positions in New Bank shall be held by those individuals currently holding the
same or similar executive management positions in State Bank. On the Effective
Date, the James River Board of Directors, which is currently comprised of ten
(10) members, shall be increased by one (1) member, and the additional member of
the James River Board of Directors shall be an individual currently serving on
the Board of Directors of State Bank nominated by State Bank's Board of
Directors. Additionally, on the Effective Date, each member currently serving on
the Board of Directors of State Bank shall serve on the Board of Directors of
New Bank. The State Bank director who is elected to the James River Board may
continue to serve on the New Bank Board until January 1, 2001, but thereafter
may not stand for reelection to the New Bank Board as long as he is serving on
the James River Board.
1
<PAGE>
1.3 The Closing and Effective Date. The closing of the transactions
contemplated by this Agreement and the Merger shall take place at the offices of
Kaufman & Canoles, P.C., Norfolk, Virginia, or at such other place as may be
mutually agreed upon by the parties. The Merger shall become effective on the
date shown on the Certificate of Merger issued by the State Corporation
Commission of Virginia effecting the Merger (the "Effective Date"). Unless
otherwise agreed upon in writing by the chief executive officers of James River
and State Bank, subject to the conditions to the obligations of the parties to
effect the Merger as set forth in Article 6, the parties shall use their best
efforts to cause the Effective Date to occur on the first day of the quarter
following the month in which the conditions set forth in Sections 6.1(a) and
6.1(b) are satisfied. All documents required by the terms of this Agreement to
be delivered at or prior to the Effective Date will be exchanged by the parties
at the closing of the Merger (the "Merger Closing"), which shall be held on or
before the Effective Date. At or after the Merger Closing, James River and State
Bank shall execute and deliver to the Virginia State Corporation Commission
Articles of Merger containing the Plan of Merger, in the form attached as
Exhibit A.
1.4 Definitions. Any term defined anywhere in this Agreement shall have
the meaning ascribed to it for all purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(a) the term "knowledge" when used with respect to a party shall
mean the knowledge, after due inquiry, of any "Executive Officer" of such party,
as such term is defined in Regulation O, (12 C.F.R. 215);
(b) the term "material adverse effect", when applied to a party,
shall mean an event, occurrence or circumstance (including without limitation
(i) the making of any provisions for possible loan and lease losses, write-downs
or other real estate and taxes and (ii) any breach of a representation or
warranty by such party) which (a) has or is reasonably likely to have a material
adverse effect on the financial position, results of operations or business of
the party and its subsidiaries, taken as a whole, or (b) would materially impair
the party's ability to perform its obligations under this Agreement or the
consummation of the Merger and the other transactions contemplated by this
Agreement; provided, however, that solely for purposes of measuring whether an
event, occurrence or circumstance has a material adverse effect on such party's
results of operations, the term "results of operations" shall mean net interest
income plus non-interest income (less securities gains) less gross expenses
(excluding provisions for possible loan and lease losses, write-downs of other
real estate and taxes); and provided further, that material adverse effect and
material impairment shall not be deemed to include the impact of (i) changes in
banking and similar laws of general applicability or interpretations thereof by
courts or governmental authorities, (ii) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to banks
and bank holding companies generally, and (iii) the Merger on the operating
performance of the parties to this Agreement; and
(c) the term "Disclosed in Writing" by a party shall mean
information set forth in one or more written disclosure letters delivered by
that party to the other party on or prior to February 28, 1999 and specifically
designated as information "Disclosed in Writing" pursuant to this Agreement.
2
<PAGE>
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of Shares. Upon and by reason of the Merger becoming
effective and except as set forth in Section 2.3 below, no cash shall be
allocated to the shareholders of State Bank and stock shall be issued and
allocated as follows:
(a) Each share of common stock, par value $10.00 per share, of State Bank
("State Bank Common Stock") issued and outstanding immediately prior to the
Effective Date shall, by operation of law, cease to be outstanding and shall
automatically be converted into and exchanged for 2.9 (the "Exchange Ratio")
shares of common stock, par value $5.00 per share, of James River ("James River
Common Stock"). Each holder of a certificate representing any shares of State
Bank Common Stock upon the surrender of his State Bank stock certificates to
James River, duly endorsed for transfer in accordance with Section 2.2 below,
will be entitled to receive in exchange therefore certificates representing the
number of shares of James River Common Stock that his shares shall be converted
into pursuant to the Exchange Ratio. Each such holder of State Bank Common Stock
shall have the right to receive any dividends previously declared but unpaid as
to such stock and the consideration described in Sections 2.1 and 2.3 upon the
surrender of such certificate in accordance with Section 2.2 . In the event
James River changes the number of shares of James River Common Stock issued and
outstanding prior to the Effective Date as a result of any stock split, stock
dividends, recapitalization or similar transaction with respect to the
outstanding James River Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted.
2.2 Manner of Exchange. As promptly as practicable after the Effective
Date, James River shall cause First Union National Bank, acting as the exchange
agent ("Exchange Agent"), to send to each former shareholder of record of State
Bank immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of State Bank Common Stock for the
consideration set forth in Section 2.1 above and Section 2.3 below. Any
fractional share checks which a State Bank shareholder shall be entitled to
receive in exchange for such shareholder's shares of State Bank Common Stock,
and any dividends paid on any shares of James River Common Stock that such
shareholder shall be entitled to receive prior to the delivery to the Exchange
Agent of such shareholder's certificates representing all of such shareholder's
shares of State Bank Common Stock will be delivered to such shareholder only
upon delivery to the Exchange Agent of the certificates representing all of such
shares (or indemnity satisfactory to James River and the Exchange Agent, in
their judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery.
2.3 No Fractional Shares. No certificates or scrip for fractional shares
of James River Common Stock will be issued. In lieu thereof, James River will
pay the value of such fractional shares in cash on the basis of the fair market
value of James River Common Stock immediately precedes the Effective Date. The
market value of James River Common Stock will be its average closing sales price
as reported on the Nasdaq/NMS ("Nasdaq") for each of the ten full trading days
ending on the fifth day prior to the Effective Date.
3
<PAGE>
2.4 Dividends. No dividend or other distribution payable to the holders of
record of James River Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of State Bank
Common Stock issued and outstanding at the Effective Date until such holder
physically surrenders such certificate for exchange as provided in Section 2.2
of this Agreement, promptly after which time all such dividends or distributions
shall be paid (without interest).
ARTICLE 3
Representation and Warranties
3.1 Representations and Warranties of State Bank. State Bank represents
and warrants to James River as follows:
(a) Organization, Standing and Power. (1) State Bank is a
corporation and a Virginia state bank, duly organized, validly existing and in
good standing under the laws of Virginia, and it has all requisite corporate
power and authority to carry on its business in Virginia as now being conducted
and to own and operate its assets, properties and business. State Bank has the
corporate power and authority to execute and deliver this Agreement and perform
the respective terms of this Agreement and the Plan of Merger. State Bank is a
member of the Federal Reserve System, and except as Disclosed in Writing is in
compliance in all material respects with all rules and regulations promulgated
by the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
the Virginia State Corporation Commission ("SCC") and any other relevant
regulatory authority, and it has all requisite corporate power and authority to
carry on a commercial banking business as now being conducted and to own and
operate its assets, properties and business.
(2) State Bank is an "insured bank" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder. All of the shares
of capital stock of State Bank are fully paid and nonassessable.
(b) Authority. (1) The execution and delivery of this Agreement,
the Plan of Merger and the consummation of the Merger, have been duly and
validly authorized by all necessary corporate action on the part of State Bank,
except the approval of shareholders. The Agreement represents the legal, valid,
and binding obligations of State Bank, enforceable against State Bank in
accordance with its terms (except in all such cases as 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).
(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by State
Bank with any of the provisions hereof will: (i) conflict with or result in a
4
<PAGE>
breach of any provision of State Bank's Articles of Incorporation or Bylaws;
(ii) except as Disclosed in Writing, constitute or result in the breach of any
term, condition or provision of, or constitute a default under, or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any lien, charge or encumbrance upon, any property or
assets of State Bank pursuant to (A) any note, bond, mortgage, indenture known
to State Bank, or (B) any material license, agreement, lease, or other
instrument or obligation known to State Bank, to which State Bank is a party or
by which it or any of its properties or assets may be bound, or (iii) subject to
the receipt of the requisite approvals referred to in Section 4.7, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to State
Bank or any or its properties or assets.
(c) Capital Structure. The authorized capital stock of State Bank
consists of Four Hundred Thousand (400,000) shares of common stock, par value
$10.00 per share, of which, as of the date hereof, Two Hundred Ninety-One
Thousand Twenty-Seven (291,027) shares are issued, outstanding, fully paid and
nonassessable, were not issued in violation of any shareholder's preemptive
rights or, to the knowledge of State Bank, were not issued in violation of any
other agreement to which State Bank is a party or otherwise bound, or of any
registration or qualification provisions of any federal or state securities
laws. There are no outstanding understandings or commitments of any character
pursuant to which State Bank could be required or expected to issue shares of
capital stock.
(d) No Bank Subsidiaries. (1) State Bank does not own, directly or
indirectly, 5% or more of the outstanding capital stock or other equity
securities of any corporation, bank or other organization.
(e) Financial Statements. The State Bank Financial Statements (as
defined below) fairly present or will fairly present, as the case may be, the
financial position of State Bank as of the dates indicated and the results of
operations, changes in shareholders' equity and statements of cash flows for the
periods or as of the dates set forth therein (subject, in the case of unaudited
interim statements, to normal recurring audit adjustments that are not material
in amount or effect, or except as otherwise Disclosed in Writing) in conformity
with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis. The books and records of State Bank
fairly reflect in all material respects the transactions to which it is a party
or by which its properties are subject or bound. Such books and records have
been properly kept and maintained and are in compliance in all material respects
with all applicable legal and accounting requirements. The State Bank Financial
Statements shall mean (i) the statements of financial condition of State Bank as
of December 31, 1997 and 1996 and the related statements of income,
shareholders' equity and cash flows for each of the three years ended December
31, 1997, 1996 and 1995 (including related notes and schedules, if any) and (ii)
the balance sheet of State Bank and related statements of income, shareholders'
equity and cash flows (including related notes and schedules, if any) with
respect to quarterly periods ended subsequent to December 31, 1997.
(f) Absence of Undisclosed Liabilities. At September 30, 1998,
State Bank did not have any obligation or liability (contingent or otherwise) of
any nature which was not reflected in the State Bank Financial Statements,
except for those which in the aggregate are immaterial or are Disclosed in
Writing.
5
<PAGE>
(g) Legal Proceedings; Compliance with Laws. Except as Disclosed
in Writing, there are no actions, suits or proceedings instituted or pending or,
to the best knowledge of State Bank's management, threatened or probable of
assertion against State Bank, or against any property, asset, interest or right,
that are reasonably expected to have, either individually or in the aggregate a
material adverse effect on the financial condition of State Bank or that are
reasonably expected to threaten or impede the consummation of the Merger. State
Bank is not a party to any agreement or instrument or subject to any judgment,
order, writ, injunction, decree or rule that might reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
business or prospects of State Bank. Except as Disclosed in Writing, as of the
date of this Agreement, neither State Bank nor any of its properties is a party
to or is subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment or similar submission to, any federal
or state governmental agency or authority charged with the supervision or
regulation of depository institutions or mortgage lenders or engaged in the
insurance of deposits which restricts or purports to restrict in any material
respect the conduct of its business or its properties, or in any manner relates
to the capital, liquidity, credit policies or management of it; and except as
Disclosed in Writing, State Bank has not been advised by any such regulatory
authority that such authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission. To the best knowledge of State Bank, State Bank has complied in all
material respects with all laws, ordinances, requirements, regulations or orders
applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
(h) Regulatory Approvals. State Bank knows of no reason why the
regulatory approvals referred to in Section 6.1(b) should not be obtained
without the imposition of any condition of the type referred to in Section
6.1(b).
(i) Labor Relations. State Bank is not 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 it the subject of a proceeding
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it, pending or, to the best of its
knowledge, threatened, nor is it aware of any activity involving its employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
(j) Tax Matters. State Bank has filed all federal, state and local
tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the State Bank Financial Statements or are being contested in good faith and
shall be Disclosed in Writing. Except to the extent that liabilities therefor
are specifically reflected in the State Bank Financial Statements, there are no
federal, state or local tax liabilities of State Bank other than liabilities
that have arisen since September 30, 1998, all of which have been properly
accrued or otherwise provided for on the books and records of State Bank. Except
as Disclosed in Writing, no tax return or report of State Bank is under
examination by any taxing authority or the subject of any administrative or
judicial proceeding, and no unpaid tax deficiency has been asserted against
State Bank by any taxing authority.
6
<PAGE>
(k) Property. Except as disclosed or reserved against in the State
Bank Financial Statements, State Bank has good and marketable title free and
clear of all material liens, encumbrances, charges, defaults or equities of
whatever character to all of the material properties and assets, tangible or
intangible, reflected in the State Bank Financial Statements as being owned by
State Bank as of the date thereof. To the best knowledge of State Bank, all
buildings, and all fixtures, equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by State Bank are held under valid instruments enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws. The buildings, structures, and appurtenances owned,
leased, or occupied by State Bank are in good operating condition and in a state
of good maintenance and repair, and to the best knowledge of State Bank (i)
comply with applicable zoning and other municipal laws and regulations, and (ii)
there are no latent defects therein.
(l) Reports. Since January 1, 1995, State Bank has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with the SCC, the Federal
Reserve, and to the best knowledge of State Bank, any other governmental or
regulatory authority or agency having jurisdiction over its operations.
(m) Employee Benefit Plans. (1) State Bank will deliver for James
River's review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
State Bank for the benefit of employees, retirees or other beneficiaries
eligible to participate (collectively, the "State Bank Benefit Plans"). Any of
the State Bank Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section (3(2) of ERISA, is referred to herein as a
"State Bank ERISA Plan." No State Bank Benefit Plan is or has been a
multi-employer plan within the meaning of Section 3(37) of ERISA.
(2) Except as Disclosed in Writing, all State Bank Benefit Plans
are in compliance with the applicable terms of ERISA and the Internal Revenue
Code of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to State Bank on a consolidated basis.
(3) No State Bank ERISA Plan has any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the present 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 was terminated
in accordance with all applicable legal requirements. Prior to February 28,
1999, State Bank shall provide James River with copies of all actuarial reports
on State Bank's ERISA Plan issued since January 1, 1996.
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(n) Investment Securities. Subject to FASB 115 and except for
pledges to secure public and trust deposits and obligations under agreements
pursuant to which State Bank has sold securities subject to an obligation to
repurchase, none of the investment securities reflected in the State Bank
Financial Statements is subject to any restriction, contractual, statutory, or
otherwise, which would impair materially the ability of the holder of such
investment to dispose freely of any such investment at any time.
(o) Certain Contracts. (1) Except as Disclosed in Writing or
agreements entered into in the ordinary course of the banking business of State
Bank, State Bank is not a party to, or bound by, (i) any material agreement,
arrangement or commitment, (ii) any agreement, indenture or other instrument
relating to the borrowing of money by State Bank or the guarantee by State Bank
of any such obligation, (iii) any agreement, arrangement or commitment relating
to the employment of a consultant or the employment, election, retention in
office or severance of any present or former director or officer, (iv) any
agreement to make loans or for the provision, purchase or sale of goods,
services or property between State Bank and any director of officer of State
Bank, or any member of the immediate family or affiliate of any of the
foregoing, or (v) any agreement between State Bank and any 5% or more
shareholder of State Bank.
(2) Neither State Bank, nor to the knowledge of State Bank, the
other party thereto, is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise, nor has there occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, other than defaults of loan agreement by borrowers from State Bank in
the ordinary course of its business.
(3) Since September 30, 1998, State Bank has not incurred or paid
any obligation or liability that would be material to State Bank, except
obligations incurred or paid in connection with transactions in the ordinary
course of business of State Bank consistent with its practice and, except as
Disclosed in Writing, from September 30, 1998 to the date hereof, State Bank has
not taken any action that, if taken after the date hereof, would breach any of
the covenants contained in Section 4.4 hereof.
(p) Insurance. A complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the State Bank shall be Disclosed in Writing
to James River and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by State Bank. State Bank is not in
default with respect to any provision contained in any such policy or binder and
has not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. State Bank has not received notice of
cancellation or non-renewal of any such policy or binder. State Bank has no
knowledge of any inaccuracy in any application for such policies or binders, any
failure to pay premiums when due or any similar state of facts or the occurrence
of any event that is reasonably likely to form the basis for any material claim
against it not fully covered (except to the extent of any applicable deductible)
by the policies or binders referred to above. State Bank has not received notice
from any of its insurance carriers that any insurance premiums will be increased
materially in the future or that any such insurance coverage will not be
available in the future on substantially the same terms as now in effect.
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(q) Absence of Material Changes and Events. Except as Disclosed in
Writing to James River prior to the execution of this Agreement, since September
30, 1998 there has not been any material adverse change in the condition
(financial or otherwise), aggregate assets or liabilities, cash flow, earnings
or business of State Bank, and State Bank has conducted its business only in the
ordinary course consistent with past practice.
(r) Loans, OREO and Allowance for Loan Losses. (1) Except as
Disclosed in Writing, and except for matters which individually or in the
aggregate do not have a material adverse effect on the Merger or the financial
condition of State Bank, to the best knowledge of State Bank, each loan
reflected as an asset in the State Bank Financial Statements (i) is evidenced by
notes, agreements, or other evidences of indebtedness which are true, genuine
and what they purport to be, (ii) to the extent secured, has been secured by
valid liens and security interests which have been perfected, and (iii) is the
legal, valid and binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. All loans and extensions of credit which are subject to
regulation by the Federal Reserve which have been made by State Bank comply
therewith.
(2) The classification on the books and records of State Bank of
loans and/or non-performing assets as nonaccrual, troubled debt restructuring,
OREO or other similar classification, complies in all material respects with
generally accepted accounting principles and applicable regulatory accounting
principles.
(3) Except for liens, security interests, claims, charges, or such
other encumbrances as have been appropriately reserved for in the State Bank
Financial Statements or are not material, title to the OREO is good and
marketable, and there are no adverse claims or encumbrances on the OREO. All
title, hazard and other insurance claims and mortgage guaranty claims with
respect to the OREO have been timely filed and State Bank has not received any
notice of denial of any such claim.
(4) State Bank is in possession of all of the OREO or, if any of
the OREO remains occupied by the mortgagor, eviction or summary proceedings have
been commenced or rental arrangements providing for market rental rates have
been agreed upon and State Bank is diligently pursuing such eviction or summary
proceedings or such rental arrangements. Except as Disclosed in Writing, no
legal proceeding or quasi-legal proceeding is pending or, to the knowledge of
State Bank, threatened concerning any OREO or any servicing activity or omission
to provide a servicing activity with respect to any of the OREO.
(5) Except as Disclosed in Writing, all loans made by State Bank
to facilitate the disposition of OREO are performing in accordance with their
terms.
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(6) Except as Disclosed in Writing, the allowance for possible
loan losses and the reserve for OREO shown on the State Bank Financial
Statements was, and the allowance for possible loan losses and the reserve for
OREO shown on the financial statements of State Bank as of dates subsequent to
the execution of this Agreement will be, in each case as of the dates thereof,
adequate in all material respects to provide for possible losses, net of
recoveries relating to loans previously charged off, on loans outstanding
(including accrued interest receivable) of State Bank and other extensions of
credit (including letters of credit and commitments to make loans or extend
credit) by State Bank, and for possible losses on OREO.
(s) Statements True and Correct. None of the information supplied
or to be supplied by State Bank for inclusion in the Registration Statement on
Form S-4 (the "Registration Statement") to be filed by James River with the SEC,
the Joint Proxy Statement (as defined in Section 4.3) to be mailed to every
State Bank shareholder or any other document to be filed with the SEC, the SCC,
the Federal Reserve, or any other regulatory authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and, in the case of the Registration Statement, when it becomes
effective and with respect to the Proxy Statement/Prospectus, when first mailed
to State Bank shareholders, be false or misleading with respect to any material
fact or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Joint Proxy Statement
or any supplement thereto, at the time of the State Bank Shareholders' Meeting
or the James River Shareholders' Meeting (as defined in Section 4.3), be false
or misleading with respect to any material fact or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the State Bank Shareholders'
Meeting or the James River Shareholders' Meeting.
(t) Brokers and Finders. Neither State Bank nor any of its
respective officers, directors or employees, has employed any broker, finder or
financial advisor or incurred any liability for any fees or commissions in
connection with the transactions contemplated herein, except for McKinnon &
Company, Inc.
(u) Repurchase Agreements. With respect to all agreements pursuant
to which State Bank has purchased securities subject to an agreement to resell,
if any, State Bank has a valid, perfected first lien or security interest in the
government securities or other collateral securing the repurchase agreement, and
the value of such collateral equals or exceeds the amount of the debt secured
thereby.
(v) Administration of Trust Accounts. State Bank has properly
administered, in all respects material and which could reasonably be expected to
be material to the business, operations or financial condition of State Bank,
all accounts for which it acts as a fiduciary including but not limited to
accounts for which it serves as trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable state and federal law and
regulation and common law. Neither State Bank, nor any director, officer or
employee of State Bank has committed any breach of trust with respect to any
such fiduciary account which is material to or could reasonably be expected to
be material to the business, operations or consolidated financial condition of
State Bank, and the accountings for each such fiduciary account are true and
correct in all material respects and accurately reflect the assets of such
fiduciary account in all material respects.
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(w) Takeover Laws; No Dissenters Rights. State Bank has taken all
action necessary to exempt this Agreement and the transactions contemplated
hereby from the requirements of any "control share," "fair price," "affiliate
transaction" or other anti-takeover laws and regulations of any state, including
without limitation Sections 13.1-725 through 13.1-728 of the VSCA, and Sections
13.1-728.1 through 13.1-728.9 of the VSCA. Holders of State Bank Common Stock do
not have dissenters' rights in connection with the Merger.
(x) Year 2000. Except as Disclosed in Writing, State Bank has
reviewed the areas within its business and operations which could be adversely
affected by, and has developed a program to address and remedy on a timely
basis, "Year 2000" issues such as risks that computer applications, vendors,
customers, equipment, and operating systems will not be "Year 2000 Compliant"
(hereinafter defined), and has made appropriate related inquiries of its vendors
and customers. "Year 2000 Compliant," with respect to any person, means that the
hardware and software systems and components (including without limitation
imbedded microchips) owned, licensed or used by such person in connection with
its business operations will (without any additional cost or the need for human
intervention) (i) accurately process information involving any and all dates
before, during and/or after January 1, 2000, including without limitation
recognizing and processing input, providing output, storing information and
performing date-related calculations, all without creating any ambiguity as to
the century and without any other material and adverse error or malfunction,
(ii) operate accurately without material and adverse interruption or malfunction
on and in respect of any and all dates before, during and/or after January 1,
2000 and (iii) where applicable, respond to and process two digit year input
without creating any ambiguity as to the century.
(y) Environmental Matters. (1) Except as Disclosed in Writing, to
the best of State Bank's knowledge, State Bank does not own or lease any
properties affected by toxic waste, radon gas or other hazardous conditions or
constructed in part with the use of asbestos. State Bank is in substantial
compliance with all Environmental Laws applicable to real or personal properties
in which it has a direct fee ownership or, with respect to a direct interest as
lessee, applicable to the leasehold premises or, to the best knowledge of State
Bank, the premises on which the leasehold is situated. State Bank has not
received any Communication alleging that it is not in such compliance and, to
the best knowledge of State Bank, there are no present circumstances (including
Environmental Laws that have been adopted but are not yet effective) that would
prevent or interfere with the continuation of such compliance.
(2) There are no legal, administrative, arbitral or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on State Bank of any liability
arising under any Environmental Laws pending or, to the best knowledge of State
Bank, threatened against (A) State Bank, (B) any person or entity whose
liability for any Environmental Claim State Bank has or may have retained or
assumed either contractually or by operation of law, or (C) any real or personal
property which State Bank owns or leases, or has been or is judged to have
managed or to have supervised or participated in the management of, which
liability might have a material adverse effect on the business, financial
condition or results of operations of State Bank. State Bank is not subject to
any agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
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(3) To the best knowledge of State Bank, there are no legal,
administrative, arbitral or other proceedings, or Environmental Claims or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on State Bank of any
liability arising under any Environmental Laws pending or threatened against any
real or personal property in which State Bank holds a security interest in
connection with a loan or a loan participation which liability might have a
material adverse effect on the business, financial condition or results of
operations of State Bank. State Bank is not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
(4) With respect to all real and personal property owned or leased
by any of the State Bank, other than OREO, State Bank has made available to
James River copies of any environmental audits, analyses and surveys that have
been prepared relating to such properties. With respect to all OREO held by
State Bank and all real or personal property which State Bank has been or is
judged to have managed or to have supervised or participated in the management
of, State Bank has made available to James River the information relating to
such OREO available to State Bank. State Bank is in compliance in all material
respects with all recommendations contained in any environmental audits,
analyses and surveys relating to any of the properties, real or personal,
described in this subsection (4).
(5) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Laws currently in
effect or adopted but not yet effective against State Bank or against any person
or entity whose liability for any Environmental Claim of State Bank has or may
have retained or assumed either contractually or by operation of law.
(6) For the purpose of this Agreement, the following terms
shall have the following meanings:
(i) "Communication" means a communication which is of a
substantive nature and which is made (A) in writing to State Bank on the one
hand or to James River or any James River Subsidiary on the other hand, or (B)
orally to a senior officer of State Bank or of James River or any James River
Subsidiary, whether from a governmental authority or a third party.
(ii) "Environmental Claim" means any Communication from any
governmental authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern.
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(iii) "Environmental Laws" means all applicable federal, state and
local laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, that relate to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata).
This definition includes, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
(iv) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
3.2 Representations and Warranties of James River. James River represents
and warrants to State Bank as follows:
(a) Organization, Standing and Power. (1) James River is a
corporation duly organized, validly existing and in good standing under the laws
of Virginia. It has all requisite corporate power and authority to carry on its
business as now being conducted and to own and operate its assets, properties
and business, and James River has the corporate power and authority to execute
and deliver this Agreement and perform the respective terms of this Agreement
and Plan of Merger. James River is duly registered as a bank holding company
under the Bank Holding Company Act of 1956. Each of James River's subsidiaries
that is a depository institution is a wholly owned subsidiary of James River, is
a Virginia corporation and is a Virginia state bank, duly organized, validly
existing and in good standing under the laws of Virginia, and except as
Disclosed in Writing, is in compliance in all material respects with all rules
and regulations promulgated by any relevant regulatory authority, and it has all
requisite corporate power and authority to carry on a commercial banking
business as now being conducted and to own and operate its assets, properties
and business.
(2) Each of the subsidiary corporations of James River (and the
subsidiaries thereof) are duly organized, validly existing and in good standing
in their respective states of incorporation and which have all requisite
corporate power and authority to carry on their businesses as now being
conducted and to own and operate their assets, properties and business (the
"James River Subsidiaries" and, collectively with James River, the "James River
Companies"). Each James River Subsidiary that is a depository institution is an
"insured bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder, is a member of the Federal Reserve and, except as
Disclosed in Writing, is in compliance in all material respects with all rules
and regulations promulgated by the Federal Reserve, the SCC and any other
relevant regulatory authority. All of the shares of capital stock of the James
River Subsidiaries held by James River are duly and validly issued, fully paid
and nonassessable, and all such shares are owned by James River or a James River
Subsidiary, free and clear of any claim, lien, pledge or encumbrance of any
kind, and were not issued in violation of the preemptive rights of any
shareholder or in violation of any agreement or of any registration or
qualification provisions of federal or state securities laws. Except as
Disclosed in Writing, each of the James River Companies is in good standing as a
foreign corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and where
failure to so qualify either singly or in the aggregate would have a material
adverse effect on the financial condition, properties, businesses or results of
operations of the James River Companies.
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(b) Authority. (1) The execution and delivery of this Agreement
and the Plan of Merger and the consummation of the Merger have been duly and
validly authorized by all necessary corporate action on the part of James River,
except the approval of shareholders. The Agreement represents the legal, valid,
and binding obligation of James River, enforceable against James River in
accordance with its terms (except in all such cases as 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).
(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated therein, nor the compliance by
James River with any of the provisions thereof will (i) conflict with or result
in a breach of any provision of the Articles of Incorporation or Bylaws of James
River, (ii) except as Disclosed in Writing, constitute or result in the breach
of any term, condition or provision of, or constitute default under, or give
rise to any right of termination, cancellation or acceleration with respect to,
or result in the creation of any lien, charge or encumbrance upon, any property
or assets of the James River Companies pursuant to (A) any note, bond, mortgage,
indenture, or (B) any material license, agreement, lease or other instrument or
obligation, to which any of the James River Companies is a party or by which any
of them or any of their properties or assets may be bound, or (iii) subject to
the receipt of the requisite approvals referred to in Section 4.7, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to any
of the James River Companies or any of their properties or assets.
(c) Capital Structure. The authorized capital stock of James River
consists of Ten Million (10,000,000) shares of common stock, par value $5.00 per
share ("James River Common Stock"), of which Three Million Seven Hundred
Twenty-one Thousand Three Hundred Forty-eight (3,721,348) shares are issued and
outstanding, and Two Million (2,000,000) shares of preferred stock, none of
which are issued. The issued and outstanding shares of James River Common Stock
are fully paid and nonassessable, not subject to shareholder preemptive rights,
and not issued in violation of any agreement to which James River is a party or
otherwise bound, or of any registration or qualification provisions of any
federal or state securities laws. The shares of James River Common Stock to be
issued in exchange for shares of State Bank Common Stock upon consummation of
the Merger will have been duly authorized and, when issued in accordance with
the terms of this Agreement, will be validly issued, fully paid and
nonassessable and subject to no preemptive rights. Except for options held by
officers and employees of James River pursuant to the James River 1996 Employee
Stock Option Plan and James River's obligation to issue shares in lieu of
directors' fees pursuant to the Stock/Cash Plan for Payment of Directors' Fees,
there are no outstanding understandings or commitments of any character pursuant
to which James River or any of the James River Companies could be required or
expected to issue shares of capital stock.
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(d) Ownership of the James River Subsidiaries; Capital Structure
of the James River Subsidiaries; and Organization of the James River
Subsidiaries. (1) James River does not own, directly or indirectly, 5% or more
of the outstanding capital stock or other voting securities of any corporation,
bank or other organization actively engaged in business except as Disclosed in
Writing (collectively the "James River Subsidiaries" and each individually a
"James River Subsidiary"). The outstanding shares of capital stock of each James
River Subsidiary have been duly authorized and are validly issued, and are fully
paid and nonassessable and all such shares are directly or indirectly owned by
James River free and clear of all liens, claims and encumbrances. No rights are
authorized, issued or outstanding with respect to the capital stock of any James
River Subsidiary and there are no agreements, understandings or commitments
relating to the right of James River to vote or to dispose of said shares. None
of the shares of capital stock of any James River Subsidiary has been issued in
violation of the preemptive rights of any person.
(2) Each James River Subsidiary is a duly organized corporation,
validly existing and in good standing under applicable laws. Each James River
Subsidiary (i) has full corporate power and authority to own, lease and operate
its properties and to carry on its business as now conducted except where the
absence of such power or authority would not have a material adverse effect on
the financial condition, results of operations or business of James River on a
consolidated basis, and (ii) is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to so qualify would have a material adverse effect on the financial
condition, results of operations or business of James River on a consolidated
basis. Each James River Subsidiary has all federal, state, local and foreign
governmental authorizations and licenses necessary for it to own or lease its
properties and assets and to carry on its business as it is now being conducted,
except where failure to obtain such authorization or license would not have a
material adverse effect on the business of such James River Subsidiary.
(e) Financial Statements. James River's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and all other documents filed or to
be filed subsequent to December 31, 1997 under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, in the form filed with the Securities and Exchange
Commission (the "SEC") (in each such case, the "James River Financial
Statements") did not 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
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; and each of the balance sheets in or
incorporated by reference into the James River Financial Statements (including
the related notes and schedules thereto) fairly presents and will fairly present
the financial position of the entity or entities to which it relates as of its
date and each of the statements of income and changes in stockholders' equity
and cash flows or equivalent statements in the James River Financial Statements
(including any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in stockholders' equity and
changes in cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein, in each case in accordance with
generally accepted accounting principles consistently applied to banks and bank
holding companies during the periods involved, except as may be noted therein,
subject to normal and recurring year-end audit adjustments in the case of
unaudited statements.
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(f) Absence of Undisclosed Liabilities. At September 30, 1998,
none of the James River Companies had any obligation or liability (contingent or
otherwise) of any nature which were not reflected in the James River Financial
Statements except for those which in the aggregate are immaterial or are
Disclosed in Writing.
(g) Legal Proceedings; Compliance with Laws. Except as Disclosed
in Writing, there are no actions, suits or proceedings instituted or pending or,
to the best knowledge of James River's management, threatened or probable of
assertion against any of the James River Companies, or against any property,
asset, interest or right of any of them, that are reasonably expected to have,
either individually or in the aggregate, a material adverse effect on the
financial condition of James River on a consolidated basis or that are
reasonably expected to threaten or impede the consummation of the Merger. None
of the James River Companies is a party to any agreement or instrument or
subject to any judgment, order, writ, injunction, decree or rule that might
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business or prospects of James River on a consolidated
basis. Except as Disclosed in Writing, as of the date of this Agreement, none of
the James River Companies nor any of their properties is a party to or is
subject to any order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter or similar submission to, any federal
or state governmental agency or authority charged with the supervision or
regulation of depository institutions or mortgage lenders or engaged in the
insurance of deposits which restricts or purports to restrict in any material
respect the conduct of the business of it or any of its subsidiaries or
properties, or in any manner relates to the capital, liquidity, credit policies
or management of it; and except as Disclosed in Writing, none of the James River
Companies has been advised by any such regulatory authority that such authority
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter or similar submission. To the best knowledge of
James River, the James River Companies have complied in all material respects
with all laws, ordinances, requirements, regulations or orders applicable to its
business (including environmental laws, ordinances, requirements, regulations or
orders).
(h) Regulatory Approvals. James River knows of no reason why the
regulatory approvals referred to in Section 6.1(b) should not be obtained
without the imposition of any condition of the type referred to in Section
6.1(b).
(i) Labor Relations. None of the James River Companies is a party
to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
the subject of a proceeding asserting that is has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking to
compel it to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it, pending
or, to the best of its knowledge, threatened, nor is it aware of any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
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(j) Tax Matters. The James River Companies have filed all federal,
state, and local tax returns and reports required to be filed, and all taxes
shown by such returns to be due and payable have been paid or are reflected as a
liability in the James River Financial Statements or are being contested in good
faith and shall be Disclosed in Writing. Except to the extent that liabilities
therefor are specifically reflected in the James River Financial Statements,
there are no federal, state or local tax liabilities of the James River
Companies other than liabilities that have arisen since September 30, 1998, all
of which have been properly accrued or otherwise provided for on the books and
records of the James River Companies. Except as Disclosed in Writing, no tax
return or report of any of the James River Companies is under examination by any
taxing authority or the subject of any administrative or judicial proceeding,
and no unpaid tax deficiency has been asserted against any of the James River
Companies by any taxing authority.
(k) Property. Except as disclosed or reserved against in the James
River Financial Statements, the James River Companies have good and marketable
title free and clear of all material liens, encumbrances, charges, defaults or
equities of whatever character to all of the material properties and assets,
tangible or intangible, reflected in the James River Financial Statements as
being owned by the James River Companies as of the date thereof. To the best
knowledge of James River, all buildings, and all fixtures, equipment, and other
property and assets which are material to its business on a consolidated basis,
held under leases or subleases by the James River Companies are held under valid
instruments enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws. The
buildings, structures, and appurtenances owned, leased, or occupied by the James
River Companies are in good operating condition and in a state of good
maintenance and repair, and to the best knowledge of James River (i) comply with
applicable zoning and other municipal laws and regulations, and (ii) there are
no latent defects therein.
(l) Reports. Since January 1, 1995 the James River Companies have
filed all reports and statements, together with any amendments required to be
made with respect thereto, that were required to be filed with the SEC, the
Federal Reserve, the SCC, and any other governmental or regulatory authority or
agency having jurisdiction over their operations.
(m) Employee Benefit Plans. (1) Except as Disclosed in Writing,
all material pension, retirement, profit sharing, deferred compensation, stock
option, bonus, vacation or other material incentive plans or agreements, all
material medical, dental or other health plans, all life insurance plans and all
other material employee benefit plans or fringe benefit plans, including without
limitation, all "employee benefit plans" as that term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by James River for the benefit of employees, retirees or other
beneficiaries eligible to participate (collectively, the "James River ERISA
Plans") are in compliance with the applicable terms of ERISA and the Internal
Revenue Code of 1986, as amended (the "IRC") and any other applicable laws,
rules and regulations the breach or violation of which could result in a
material liability to James River on a consolidated basis.
(2) No James River ERISA Plan which is a defined benefit pension
plan has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present 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 was terminated in accordance with all applicable legal
requirements.
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(n) Investment Securities. Subject to FASB 115 and except for
pledges to secure public and trust deposits and obligations under agreements
pursuant to which any of the James River Companies has sold securities subject
to an obligation to repurchase, none of the investment securities reflected in
the James River Financial Statements is subject to any restriction, contractual,
statutory, or otherwise, which would impair materially the ability of the holder
of such investment to dispose freely of any such investment at any time.
(o) Insurance. A complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the James River Companies shall be Disclosed
in Writing to State Bank and all such policies or binders are valid and
enforceable in accordance with their terms, are in full force and effect, and
insure against risks and liabilities to the extent and in the manner customary
for the industry and are deemed appropriate and sufficient by James River. Each
of the James River Companies currently maintains insurance in amounts reasonably
necessary for its operations and, to the knowledge of James River, similar in
scope and coverage to that maintained by other entities similarly situated.
Since January 1, 1998, and except as Previously Disclosed, none of the James
River Companies has received any notice of a premium increase or cancellation or
a failure to renew with respect to any insurance policy or bond and, within the
last three fiscal years, none of the James River Companies has been refused any
insurance coverage sought or applied for, and James River has no reason to
believe that existing insurance coverage cannot be renewed as and when the same
shall expire upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums or unavailability of coverage
that do not result from any extraordinary loss experience on the part of the
James River Companies. The James River Companies are not in default with respect
to any provision contained in any such policy or binder and have not failed to
give any notice or present any claim under any such policy or binder in due and
timely fashion. None of the James River Companies has received notice of
cancellation or non-renewal of any such policy or binder. None of the James
River Companies has knowledge of any inaccuracy in any application for such
policies or binders, any failure to pay premiums when due or any similar state
of facts or the occurrence of any event that is reasonably likely to form the
basis for any material claim against it not fully covered (except to the extent
of any applicable deductible) by the policies or binders referred to above. None
of the James River Companies has received notice from any of its insurance
carriers that any insurance premiums will be increased materially in the future
or that any such insurance coverage will not be available in the future on
substantially the same terms as now in effect.
(p) Allowance for Loan Losses. The allowance for loan losses
reflected on the balance sheets included in the James River Financial
Statements, as of their respective dates, is adequate in all material respects
under the requirements of generally accepted accounting principles and
regulatory accounting principles to provide for reasonably anticipated losses on
outstanding loans.
(q) Absence of Material Changes and Events. Except as Disclosed in
Writing to State Bank prior to the execution of this Agreement, since September
30, 1998 there has not been any material adverse change in the condition
(financial or otherwise), aggregate assets or liabilities, cash flow, earnings
or business or James River, and James River has conducted its business only in
the ordinary course consistent with past practice.
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(r) Statements True and Correct. None of the information supplied
or to be supplied by James River for inclusion in the Registration Statement,
the Joint Proxy Statement or any other document to be filed 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, in the case
of the Registration Statement, when it becomes effective and with respect to the
Joint Proxy Statement, when first mailed to State Bank shareholders, be false or
misleading with respect to any material fact or omit to state any material fact
necessary in order to make the statements therein not misleading, or, in the
case of the Joint Proxy Statement or any supplement thereto, at the time of the
State Bank Shareholders' Meeting or the James River Shareholders' Meeting, be
false or misleading with respect to any material fact or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the State Bank Shareholders'
Meeting or the James River Shareholders' Meeting. All documents that James River
is responsible for filing with the SEC or any other regulatory authority in
connection with the transactions contemplated, hereby will comply as to form in
all material respects with the provisions of applicable law, including
applicable provisions of federal and state securities law.
(s) Brokers and Finders. Neither James River nor any James River
Subsidiary, nor any of their respective officers, directors or employees, has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions in connection with the transactions contemplated herein.
(t) Environmental Matters. To the knowledge of James River, the
James River Companies are in substantial compliance with all Environmental Laws.
None of the James River Companies has received any Communication alleging that
James River or any James River Subsidiary is not in such compliance and, to the
knowledge of James River, there are no present circumstances that would prevent
or interfere with the continuation of such compliance.
(u) Year 2000. Except as Disclosed in Writing, James River has
reviewed the areas within its business and operations which could be adversely
affected by, and has developed a program to address and remedy on a timely
basis, "Year 2000" issues such as risks that computer applications, vendors,
customers, equipment, and operating systems will not be "Year 2000 Compliant"
(hereinafter defined), and has made appropriate related inquiries of its vendors
and customers. "Year 2000 Compliant," with respect to any person, means that the
hardware and software systems and components (including without limitation
imbedded microchips) owned, licensed or used by such person in connection with
its business operations will (without any additional cost or the need for human
intervention) (i) accurately process information involving any and all dates
before, during and/or after January 1, 2000, including without limitation
recognizing and processing input, providing output, storing information and
performing date-related calculations, all without creating any ambiguity as to
the century and without any other material and adverse error or malfunction,
(ii) operate accurately without material and adverse interruption or malfunction
on and in respect of any and all dates before, during and/or after January 1,
2000 and (iii) where applicable, respond to and process two digit year input
without creating any ambiguity as to the century.
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ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties. State Bank will keep James River,
and James River will keep State Bank advised of all material developments
relevant to their respective businesses prior to consummation of the Merger.
Prior to the Effective Date, James River, on the one hand, and State Bank on the
other, agree to give to the other party reasonable access to all the premises
and books and records (including tax returns filed and those in preparation) of
it and its subsidiaries and to cause its officers to furnish the other with such
financial and operating data and other information with respect to the business
and properties as the other shall from time to time request for the purposes of
verifying the warranties and representations set forth herein; provided,
however, that any such investigation shall be conducted in such manner as not to
interfere unreasonably with the operation of the respective business of the
other.
4.2 Confidentiality. Between the date of this Agreement and the Effective
Date, James River and State Bank each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party in
connection with this Agreement or the transactions contemplated hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or unless such information becomes publicly available through
no fault of such party, unless use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection with legal proceedings. If the Merger is not consummated, each
party will return or destroy as much of such written information as may
reasonably be requested.
4.3 Registration Statement, Proxy Statement and Shareholder Approval. The
Board of Directors of State Bank, and the Board of Directors of James River,
each will duly call and will hold a meeting of their respective shareholders as
soon as practicable for the purpose of approving the Merger in the case of State
Bank and approving the authorization and issuance of James River Common Stock
("Stock Approval") in the case of James River (the "State Bank Shareholders'
Meeting" and the "James River Shareholders' Meeting", respectively) and, subject
to the fiduciary duties of the Board of Directors of State Bank and of James
River (as advised in writing by their respective counsel), State Bank and James
River each shall use its best efforts to solicit and obtain votes of the holders
of its Common Stock in favor of the Merger, in the case of State Bank, and Stock
Approval , in the case of James River, and will comply with the provisions in
their respective Articles of Incorporation and Bylaws relating to the call and
holding of a meeting of shareholders for such purpose; no member of the Board of
Directors of State Bank or James River shall advise or encourage shareholders
not to vote in favor of the Merger, in the case of State Bank, or Stock
Approval, in the case of James River; and State Bank and James River shall, at
the other's request, recess or adjourn the meeting if such recess or adjournment
is deemed by the other to be necessary or desirable. James River and State Bank
will prepare jointly the proxy statement/prospectus to be used in connection
with the State Bank Shareholders' Meeting and the James River Shareholders'
Meeting (the "Joint Proxy Statement"). James River will prepare and file with
the SEC the Registration Statement, of which such Joint Proxy Statement shall be
a part and will use its best efforts to have the Registration Statement declared
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effective as promptly as possible. When the Registration Statement or any
post-effective amendment or supplement thereto shall become effective, and at
all times subsequent to such effectiveness, up to and including the dates of the
James River and State Bank Shareholders' Meetings, such Registration Statement
and all amendments or supplements thereto, with respect to all information set
forth therein furnished or to be furnished by State Bank relating to the State
Bank Companies and by James River relating to the James River Companies, (i)
will comply in all material respects with the provisions of the Securities Act
of 1933 and any other applicable statutory or regulatory requirements, including
applicable state blue-sky and securities laws, and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading; provided, however, in no event shall any party hereto be liable for
any untrue statement of a material fact or omission to state a material fact in
the Registration Statement made in reliance upon, and in conformity with,
written information concerning another party furnished by such other party
specifically for use in the Registration Statement.
4.4 Operation of the Business of State Bank and James River. (1) State
Bank and James River each agrees that from the date hereof to the Effective Date
it will operate its business substantially as presently operated and only in the
ordinary course, and, consistent with such operation, it will use its best
efforts to preserve intact its relationships with persons having business
dealings with it.
(2) Without limiting the generality of the foregoing, State Bank
agrees that it will not, without the prior written consent of James River:
(a) Make any change in its authorized capital stock, or issue or
sell any additional shares of, securities convertible into or exchangeable for,
or options, warrants or rights to purchase, its capital stock, nor shall it
purchase, redeem or otherwise acquire any of its outstanding shares of capital
stock;
(b) Voluntarily make any changes in the composition of its
officers, directors or other key management personnel;
(c) Make any change in the compensation or title of any Executive
Officer (as defined in Regulation O) or any director or make any change in the
compensation or title of any other employee, other than in accordance with past
employment policies and practices in the ordinary course of business, any of
which changes shall be reported promptly to James River;
(d) Enter into any bonus, incentive compensation, stock option,
deferred compensation, profit sharing, thrift, retirement, pension, group
insurance or other benefit plan or any employment or consulting agreement;
(e) Incur any obligation or liability (whether absolute or
contingent, excluding suits instituted against it), make any pledge, or encumber
any of its assets, nor dispose of any of its assets in any other manner, except
in the ordinary course of its business and for adequate value;
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(f) Make, or commit to make, capital expenditures aggregating
$100,000 or more without the prior written consent of James River;
(g) Knowingly waive any right to substantial value;
(h) Enter into material transactions otherwise than in the
ordinary course of its business;
(i) Alter, amend or repeal its Bylaws or Articles of
Incorporation; or
(j) Propose or take any other action which would make any
representation or warranty in Section 3.1 hereof untrue.
4.5 Dividends. State Bank shall not declare and pay cash dividends in
excess of $0.20 per share of State Bank Common Stock per quarter, in accordance
with its prior practices, from the date of this Agreement through the Effective
Date.
4.6 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to its terms, neither State Bank nor any of its officers,
directors, representatives or agents shall, directly or indirectly, (i)
encourage, solicit or initiate discussions or negotiations with any person other
than James River concerning any merger, share exchange, sale of substantial
assets, tender offer, sale of shares of capital stock or similar transaction
involving State Bank, (ii) enter into any agreement with any third party
providing for a business combination transaction, equity investment or sale of a
significant amount of assets, or (iii) furnish any information to any other
person relating to or in support of such transaction. State Bank will promptly
communicate to James River the terms of any proposal which it may receive in
respect to any of the foregoing transactions.
4.7 Regulatory Filings. James River shall prepare all regulatory filings
required to consummate the transactions contemplated by the Agreement and the
Plan of Merger and submit the filings for approval with the Federal Reserve
Board and the SCC, and any other governing regulatory authority, as soon as
practicable after the date hereof. James River shall use its best efforts to
obtain approvals of such filings.
4.8 Public Announcements. Each party will consult with the other before
issuing any press release or otherwise making any public statements with respect
to the Merger and shall not issue any such press release or make any such public
statement prior to such consultations except as may be required by law.
4.9 Notice of Breach. James River and State Bank will give written notice
to the other promptly upon becoming aware of the impending or threatened
occurrence of any event which would cause or constitute a breach of any of the
representations, warranties or covenants made to the other party in this
Agreement and will use its best efforts to prevent or promptly remedy the same.
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4.10 Accounting Treatment. James River and State Bank shall each use their
best efforts to ensure that the Merger qualifies for pooling-of-interests
accounting treatment.
4.11 Merger Consummation. Subject to the terms and conditions of this
Agreement, each party shall use its best efforts in good faith to take, or cause
to be taken, all actions, and to do or cause to be done all things necessary,
proper or desirable, or advisable under applicable laws, as promptly as
practicable so as to permit consummation of the Merger at the earliest possible
date, consistent with Section 1.3 herein, and to otherwise enable consummation
of the transactions contemplated hereby and shall cooperate fully with the other
parties hereto to that end, and each of State Bank and James River shall use,
and shall cause each of their respective subsidiaries to use, its best efforts
to obtain all consents (governmental or other) necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
ARTICLE 5
Additional Agreements
5.1 Registration of Shares. The shares of James River Common Stock to be
issued to shareholders of State Bank pursuant to this Agreement (including
shares issued upon the exercise of outstanding options for State Bank Common
Stock) will be registered under the Securities Act of 1933, as amended.
5.2 Benefit Plans. Upon the Effective Date, and as soon as
administratively practicable and subject to James River's best efforts,
employees of State Bank shall thereafter be entitled to participate in James
River pension, benefit, health and similar plans on the same terms and
conditions as employees of James River and its subsidiaries, without waiting
periods or exceptions for pre-existing conditions and giving effect to years of
service with State Bank as if such service were with James River. On the
Effective Date State Bank shall suspend all benefit accruals under its ERISA
Plan. If there is a surplus of plan assets over plan liabilities in the State
Bank ERISA Plan, such surplus shall be used to increased participants' benefits.
James River shall assume and honor in accordance with their terms as in effect
on the date hereof all employment, severance, consulting and other compensation
contracts and agreements Disclosed in Writing and executed in writing by State
Bank on the one hand and any individual current or former director, officer or
employee thereof on the other hand, copies of which have previously been
delivered by State Bank to James River, including, but not limited to, Split
Dollar Life Insurance Agreements and Collateral Assignments relating to four
officers of State Bank.
5.3 Indemnification. James River agrees that following the Effective Date,
it shall indemnify and hold harmless any person who has rights to
indemnification from State Bank, to the same extent and on the same conditions
as such person is entitled to indemnification pursuant to Virginia law and State
Bank's Articles of Incorporation or Bylaws, as in effect on the date of this
Agreement, to the extent legally permitted to do so, with respect to matters
occurring on or prior to the Effective Date. James River further agrees that any
such person who has rights to indemnification pursuant to this Section 5.3 is
expressly made a third party beneficiary of this Section 5.3 and may directly,
in such person's personal capacity, enforce such rights through an action at law
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or in equity or through any other manner or means of redress allowable under
Virginia law to the same extent as if such person were a party hereto. Without
limiting the foregoing, in any case in which corporate approval may be required
to effectuate any indemnification, James River shall direct, at the election of
the party to be indemnified, that the determination of permissibility of
indemnification shall be made by independent counsel mutually agreed upon
between James River and the indemnified party. James River shall use its
reasonable best efforts to maintain State Bank's existing directors' and
officers' liability policy, or some other policy, including James River's
existing policy, providing at least comparable coverage, covering persons who
are currently covered by such insurance of State Bank on terms no less favorable
than those in effect on the date hereof.
ARTICLE 6
Conditions to the Merger
6.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each of James River and State Bank to effect the
Merger and the other transactions contemplated by this Agreement shall be
subject to the fulfillment or waiver at or prior to the Effective Date of the
following conditions:
(a) Shareholder Approvals. Shareholders of State Bank shall have
approved all matters relating to this Agreement and the Merger required to be
approved by such shareholders in accordance with Virginia law, and shareholders
of James River shall have approved the issuance of shares of James River Common
Stock in connection with the Merger in accordance with Virginia law.
(b) Regulatory Approvals. This Agreement and the Plan of Merger
shall have been approved by the Federal Reserve, the SCC, and any other
regulatory authority whose approval is required for consummation of the
transactions contemplated hereby, and such approvals shall not have imposed any
condition or requirement which would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Merger in the reasonable opinion of
the Board of Directors of James River or State Bank.
(c) Registration Statement. The Registration Statement shall have
been declared effective and shall not be subject to a stop order or any
threatened stop order.
(d) Opinions of Counsel. State Bank shall have delivered to James
River and James River shall have delivered to State Bank opinions of counsel,
dated as of the Effective Date, as to such matters as they may each reasonably
request with respect to the transactions contemplated by this Agreement and in a
form reasonably acceptable to each of them.
(e) Legal Proceedings. Neither James River nor State Bank shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Merger.
(f) Employment Contracts. The Agreement between Larry B. Olinger
and State Bank and the Agreement between James E. Underhill and State Bank, both
dated June 10, 1998 (collectively "Change of Control Agreements") shall be
amended to provide that the Change of Control Agreements terminate three (3)
years and two (2) years, respectively, from the Effective Date.
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(g) Accountants' Letter. James River shall have received a letter,
dated as of the Effective Date, from Yount, Hyde & Barbour, P.C., satisfactory
in form and substance to James River and State Bank, that the Merger will
qualify for pooling-of-interests accounting treatment under generally accepted
accounting principles.
6.2 Conditions to Obligations of James River. The obligations of James
River to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations
and warranties contained herein of State Bank shall be true and correct as of
the date of this Agreement and upon the Effective Date with the same effect as
though all such representations and warranties had been made on the Effective
Date, except (i) for any such representations and warranties made as of a
specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Merger and the other
transactions contemplated by this Agreement and James River shall have received
a certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of State Bank dated the Effective Date, to such effect.
(b) Performance of Obligations. State Bank shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and James River shall have received a
certificate signed by the Chief Executive Officer of State Bank to that effect.
(c) Affiliate Letters. Each shareholder of State Bank who may be
deemed by counsel for James River to be an "affiliate" of State Bank within the
meaning of Rule 145 under the Securities Act of 1933 shall have executed and
delivered a commitment and undertaking to the effect that (1) such shareholder
will dispose of the shares of James River Common Stock received by him in
connection with the Merger only in accordance with the provisions of paragraph
(d) of Rule 145 and in a manner that would not prevent the Merger from
qualifying for pooling-of-interests accounting treatment; (2) such shareholders
will not dispose of any such shares until James River has received an opinion of
counsel acceptable to it that such proposed disposition will not violate the
provisions of any applicable security laws; and (3) the certificates
representing said shares may bear a conspicuous legend referring to the forgoing
restrictions.
6.3 Conditions to Obligations of State Bank. The obligations of State Bank
to effect the Merger shall be subject to the fulfillment or waiver at or prior
to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations
and warranties contained herein of James River shall be true and correct as of
the date of this Agreement and upon the Effective Date with the same effect as
though all such representations and warranties had been made on the Effective
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date, except (i) for any such representations and warranties made as of a
specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Merger and the other
transactions contemplated by this Agreement and State Bank shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of James River dated the Effective Date, to such effect.
(b) Performance of Obligations. James River shall have performed
in all material respects all obligations required to be performed by it under
this Agreement prior to the Effective Date, and State Bank shall have received a
certificate signed by Chief Executive Officer of James River to that effect.
(c) Investment Banking Letter. State Bank shall have received a
written opinion in form and substance satisfactory to State Bank from McKinnon &
Company, Inc. addressed to State Bank and dated the date the Joint Proxy
Statement is mailed to shareholders of State Bank, to the effect that the terms
of the Merger, including the Exchange Ratio, are fair, from a financial point of
view, to State Bank. At its option, State Bank may require that such fairness
opinion be updated as of the Effective Date and, in such event, it shall also be
a condition to State Bank's obligation to consummate the Merger that State Bank
receive such updated opinion.
(d) Tax Opinion. State Bank shall have received an opinion of
Kaufman & Canoles, or other counsel reasonably satisfactory to State Bank, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Internal Revenue Code and that (i) no gain or loss will be
recognized by the shareholders of State Bank to the extent they receive James
River Common Stock solely in exchange for their State Bank Common Stock in the
Merger and (ii) the holding period of the shares of James River Common Stock
received pursuant to the Merger by State Bank's shareholders will include the
holding period of the shares of State Bank Common Stock exchanged therefor,
provided that the State Bank Common Stock was held as a capital asset at the
effective time of the Merger.
ARTICLE 7
Termination
7.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement and the Plan of Merger by the
shareholders of James River and State Bank, this Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Date:
(a) By the mutual consent of the Board of Directors of each of
James River and State Bank;
(b) By the respective Boards of Directors of James River or State
Bank if the conditions set forth in Section 6.1 have not been met or waived
by James River and State Bank;
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(c) By the Board of Directors of James River if the conditions
set forth in Section 6.2 have not been met or waived by James River;
(d) By the Board of Directors of State Bank if the conditions
set forth in Section 6.3 have not been met or waived by State Bank;
(e) By the respective Boards of Directors James River or State
Bank if the Merger is not consummated by December 31, 1999.
(f) By the Board of Directors of James River if the Board of
Directors of State Bank receives a subsequent offer to acquire State Bank and
does not within fourteen (14) days after receipt of such subsequent offer
confirm in writing to James River that each member of the Board of Directors of
State Bank supports the Merger, will vote his shares of State Bank Common Stock
in favor of the Merger, and will recommend to the shareholders of State Bank
that they approve the Merger.
(g) By the Board of Directors of State Bank if, before the
Effective Date, James River shall enter into any agreement or letter of intent
providing for the direct or indirect acquisition of substantially all of the
assets and liabilities or voting stock of James River.
(h)(i) By a vote of a majority of the Board of Directors of
James River at any time during the 30 day period following the date of this
Agreement if James River determines in its sole good faith judgment that the
financial condition, business, prospects or regulatory status of State Bank is
materially and adversely different from what was reasonably expected by James
River, based on the State Bank Financial Statements and other information
Disclosed in Writing by State Bank prior to the execution of this Agreement;
provided that James River shall inform State Bank upon any such termination as
to the reasons for James River's determination, and provided further, that this
Section 7.1(h)(i) shall not limit in any way the due diligence investigation of
State Bank which James River may perform, or otherwise affect any other rights
which James River has after the date hereof and after the expiration of such 30
day period following the date hereof, under the terms of this Agreement;
(ii) By a vote of a majority of the Board of Directors of State
Bank at any time during the 30 day period following the date of this Agreement,
if State Bank determines in its sole good faith judgment that the financial
condition, business, prospects or regulatory status of James River is materially
adversely different from what was reasonably expected by State Bank, based on
the James River Financial Statements and other information Disclosed in Writing
by James River prior to the execution of this Agreement; provided that State
Bank shall inform James River upon any such termination as to the reasons for
State Bank's determination; and, provided further, that this Section 7.1(h)(ii)
shall not limit in any way the due diligence investigation of James River which
State Bank may perform, or otherwise affect any other rights which State Bank
has after the date hereof and after the expiration of such 30 day period
following the date hereof, under the terms of this Agreement;
7.2 Effect of Termination. In the event of the termination and abandonment
of this agreement and the Merger pursuant to Section 7.1, this Agreement shall
become void and have no effect, except that (i) the last sentence of Section 4.2
27
<PAGE>
and all of Sections 4.8 and 7.4 shall survive any such termination and
abandonment and (ii) no party shall be relieved or released from any liability
arising out of an intentional breach of any provision of this Agreement.
7.3 Non-Survival of Representations, Warranties and Covenants. Except for
Sections 1.2, 1.4, 2.1, 2.2, 2.3, 2.4, 5.2, 5.3 and 7.4 of this Agreement, none
of the respective representations and warranties, obligations, covenants and
agreements of the parties shall survive the Effective Date, provided that no
such representations, warranties, obligations, covenants and agreements shall be
deemed to be terminated or extinguished so as to deprive James River or State
Bank (or any director, officer, or controlling person thereof) of any defense in
law or equity which otherwise would be available against the claims of any
person, including without limitation any shareholder or former shareholder of
either James River or State Bank.
7.4 Expenses. The parties provide for the payment of expenses as follows:
(a) Except as provided below, each of the parties shall bear and
pay all costs and expenses incurred by it or on its behalf in connection with
the transactions contemplated herein, including fees and expenses of its own
consultants, investment bankers, accountants and counsel.
(b) Notwithstanding the provisions of Section 7.4(a) hereof, if
for any reason the Merger is not approved by the shareholders of State Bank or
the Stock Approval is not approved by the shareholders of James River, that
party shall bear and pay 50% of the costs and expenses incurred by the other
party with respect to the fees and expenses of accountants, counsel, printers
and persons involved in the transactions contemplated by this Agreement,
including the preparation of the Registration Statement and the Joint Proxy
Statement.
(c) If this Agreement is terminated by James River or State Bank
because of a willful and material breach by the other of any representation,
warranty, covenant, undertaking or restriction set forth herein, and provided
that the terminating party shall not have been in breach (in any material
respect) of any representation and warranty, covenant, undertaking or
restriction contained herein, then the breaching party shall bear and pay all
such costs and expenses of the other party, including fees and expenses of
consultants, investment bankers, accountants, counsel, printers, and persons
involved in the transactions contemplated by this Agreement, including the
preparation of the Registration Statement and the Joint Proxy Statement.
(d) Any liability to the other incurred by State Bank or James
River pursuant to Section 7.4(a), (b) and (c), above, shall not exceed a total
of $50,000.
(e) If this Agreement is terminated by James River pursuant to
Section 7.1(f), then State Bank shall pay James River the amount of $400,000 to
compensate James River for all of its out-of-pocket and internal costs and
expenses associated with this transaction.
(f) If this Agreement is terminated by James River or State Bank
pursuant to Section 7.1(b) because (i) the condition set forth in Section 6.1(a)
requiring that shareholders of State Bank shall have approved all matters
relating to this Agreement and the Merger required to be approved by such
shareholders in accordance with Virginia law has not occurred and (ii) any
Specified Event (as defined below) occurs after the date of this Agreement, then
State Bank shall pay James River the amount of $400,000 to compensate James
River for all of its out-of-pocket and internal costs and expenses associated
with this transaction. The term "Specified Event" shall mean the following:
28
<PAGE>
(1) State Bank, without having received James River's prior written
consent, shall have entered into an agreement with any person other than
James River to (i) acquire, merge or consolidate, or enter into any
similar transaction, with State Bank, (ii) purchase, lease or otherwise
acquire all or substantially all of the assets of State Bank, or (iii)
purchase or otherwise acquire directly from State Bank securities
representing 10% or more of the voting power of State Bank;
(2) any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 20% or more of the outstanding shares
of State Bank Common Stock after the date hereof (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder); or
(3) after the date of this Agreement, any person shall have made a
bona fide proposal to State Bank by public announcement or written
communication that is or becomes the subject of public disclosure to
acquire State Bank by merger, share exchange, consolidation, purchase of
all or substantially all of its assets or any other similar transaction,
and within six (6) months after the termination of this Agreement, State
Bank enters into an agreement to be acquired by such person.
(g) Final settlement with respect to the payment of such fees and
expenses by the parties shall be made within thirty (30) days after the
termination of this Agreement.
ARTICLE 8
General Provisions
8.1 Entire Agreement. This Agreement contains the entire agreement among
James River and State Bank with respect to the Merger and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Waiver and Amendment. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof, and this Agreement may be amended or
supplemented by written instructions duly executed by the parties hereto at any
time, whether before or after the meetings of State Bank and James River
shareholders referred to in Section 6.1(a) hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
8.3 Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning and construction of any provisions
of this Agreement.
29
<PAGE>
8.4 Governing Law. Except as required otherwise or otherwise indicated
herein, this Agreement shall be construed and enforced according to the laws of
the Commonwealth of Virginia.
8.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows:
If to James River:
Harold U. Blythe, President
James River Bankshares, Inc.
1514 Holland Road
Suffolk, Virginia 23434
(Tel. (757) 934-8100)
Copy to:
Jody M. Wagner, Esq.
Kaufman & Canoles
One Commercial Place
P. O. Box 3037
Norfolk, Virginia 23514
(Tel. (757) 624-3294)
If to State Bank:
Larry B. Olinger, President
State Bank of Remington, Inc.
P.O. Box 158
Remington, Virginia 22734
(Tel. (540) 439-3233)
Copy to:
Wayne A. Whitham, Jr.
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23210-1320
(Tel. (804)-783-6473)
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.
30
<PAGE>
8.7 Severability. In the event any provisions of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or unenforceable only in
part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable. Further, the parties agree that a court of competent
jurisdiction may reform any provision of this Agreement held invalid or
unenforceable so as to reflect the intended agreement of the parties hereto.
8.8 Brokers and Finders. Except for McKinnon & Company as to State Bank,
each of the parties represents and warrants that neither it nor any of its
officers, directors, employees, affiliates, or subsidiaries has employed any
broker or finder or incurred any liability for any financial advisory fees,
investment banker's fees, brokerage fees, commissions, or finders' fees in
connection with this Agreement or the transactions contemplated hereby. In the
event of any claim by any broker or finder based upon his or its representing or
being retained by or allegedly representing or being retained by either James
River or State Bank, James River or State Bank, as the case may be, agrees to
indemnify and hold the other party harmless of and from any such claim.
8.9 Subsidiaries. All representations, warranties, and covenants herein,
where pertinent, include and shall apply to the wholly owned subsidiaries
belonging to the party making such representations, warranties, and covenants.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers and their
corporate seals to be affixed hereto, all as of the date first written above.
JAMES RIVER BANKSHARES, INC.
By: _____________________________________
Harold U. Blythe
President and Chief Executive Officer
STATE BANK OF REMINGTON, INC.
By: ______________________________________
Larry B. Olinger
President and Chief Executive Officer
31
<PAGE>
EXHIBIT A
to the Agreement and Plan of
Merger
PLAN OF MERGER
BETWEEN
STATE BANK OF REMINGTON, INC.
AND
JRB ACQUISTION CORP.
Pursuant to this Plan of Merger ("Plan of Merger"), State Bank of
Remington, Inc., a Virginia banking corporation ("State Bank") shall be merged
with and into JRB Acquistion Corp., ("New Bank") a wholly-owned subsidiary of
James River Bankshares, Inc., a Virginia corporation ("James River") pursuant to
a merger under Section 13.1-717 of the Virginia Stock Corporation Act.
ARTICLE 1
Terms of the Merger
1.1 The Merger. Subject to the terms and conditions of the Agreement and
Plan of Merger, dated as of February 17, 1999 between State Bank and James
River, at the Effective Date, State Bank shall be merged with and into New Bank
through the exchange of each outstanding share of common stock of State Bank for
shares of the common stock of James River in accordance with Section 2.1 of this
Plan of Merger (the "Merger"). The separate corporate existence of State Bank
shall thereupon cease, and New Bank will be the surviving corporation in the
Merger and its name shall be changed to State Bank of Remington, Inc. From and
after the Effective Date, the Merger shall have the effect set forth in Section
13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
1.2 Articles of Incorporation and Bylaws. The Articles of Incorporation
and Bylaws of New Bank in effect immediately prior to the consummation of the
Merger shall remain in effect following the Effective Date until otherwise
amended or repealed.
1.3 Management of State Bank and James River. The executive management
positions in New Bank shall be held by those individuals currently holding the
same or similar executive management positions in State Bank. On the Effective
Date, the James River Board of Directors, which is currently comprised of ten
(10) members, shall be increased by one (1) member, and the additional member of
the James River Board of Directors shall be an individual currently serving on
the Board of Directors of State Bank nominated by State Bank's Board of
Directors. Additionally, on the Effective Date, each member currently serving on
the Board of Directors of State Bank shall serve on the Board of Directors of
New Bank.
1
<PAGE>
ARTICLE 2
Manner of Exchanging Shares
2.1 Conversion of Shares. Upon and by reason of the Merger becoming
effective and except as set forth in Section 2.3 below, no cash shall be
allocated to the shareholders of State Bank and stock shall be issued and
allocated as follows:
(a) Each share of common stock, par value $10.00 per share, of State Bank
("State Bank Common Stock") issued and outstanding immediately prior to the
Effective Date shall, by operation of law, cease to be outstanding and shall
automatically be converted into and exchanged for 2.9 (the "Exchange Ratio")
shares of common stock, par value $5.00 per share, of James River ("James River
Common Stock"). Each holder of a certificate representing any shares of State
Bank Common Stock upon the surrender of his State Bank stock certificates to
James River, duly endorsed for transfer in accordance with Section 2.2 below,
will be entitled to receive in exchange therefore certificates representing the
number of shares of James River Common Stock that his shares shall be converted
into pursuant to the Exchange Ratio. Each such holder of State Bank Common Stock
shall have the right to receive any dividends previously declared but unpaid as
to such stock and the consideration described in Sections 2.1 and 2.3 upon the
surrender of such certificate in accordance with Section 2.2 . In the event
James River changes the number of shares of James River Common Stock issued and
outstanding prior to the Effective Date as a result of any stock split, stock
dividends, recapitalization or similar transaction with respect to the
outstanding James River Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted.
2.2 Manner of Exchange. As promptly as practicable after the Effective
Date, James River shall cause First Union National Bank, acting as the exchange
agent ("Exchange Agent"), to send to each former shareholder of record of State
Bank immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of State Bank Common Stock for the
consideration set forth in Section 2.1 above and Section 2.3 below. Any
fractional share checks which a State Bank shareholder shall be entitled to
receive in exchange for such shareholder's shares of State Bank Common Stock,
and any dividends paid on any shares of James River Common Stock that such
shareholder shall be entitled to receive prior to the delivery to the Exchange
Agent of such shareholder's certificates representing all of such shareholder's
shares of State Bank Common Stock will be delivered to such shareholder only
upon delivery to the Exchange Agent of the certificates representing all of such
shares (or indemnity satisfactory to James River and the Exchange Agent, in
their judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery.
2.3 No Fractional Shares. No certificates or scrip for fractional shares
of James River Common Stock will be issued. In lieu thereof, James River will
pay the value of such fractional shares in cash on the basis of the fair market
value of James River Common Stock immediately precedes the Effective Date. The
market value of James River Common Stock will be its average closing sales price
as reported on the Nasdaq/NMS ("Nasdaq") for each of the ten full trading days
ending on the fifth day prior to the Effective Date.
2
<PAGE>
2.4 Dividends. No dividend or other distribution payable to the holders of
record of James River Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of State Bank
Common Stock issued and outstanding at the Effective Date until such holder
physically surrenders such certificate for exchange as provided in Section 2.2,
promptly after which time all such dividends or distributions shall be paid
(without interest).
ARTICLE 3
Termination
This Plan of Merger may be terminated at any time prior to the Effective
Date by the parties hereto as provided in Article 7 of the Agreement and Plan of
Merger, dated February 17, 1999, between the parties.
3
<PAGE>
Annex B
May , 1999
Board of Directors
State Bank of Remington, Inc.
200 John Stone
Remington, Virginia 22734-0158
Dear Board Members:
In connection with the proposed affiliation of State Bank of Remington,
Inc. ("State Bank") with James River Bankshares, Inc. ("James River") you have
asked us to render an opinion as to whether the financial terms of the Agreement
and Plan of Merger, including the Agreeement to Merge attached thereto (the
"Affiliation Agreement") dated as of February 17, 1999 between State Bank and
James River, are fair from a financial point of view, to the stockholders of
State Bank. The Affiliation Agreement provides for the merger of State Bank with
and into an interim Virginia state chartered bank to be formed by James River
which will continue the business of State Bank under the State Bank name, and
stockholders of State Bank will receive common stock of James River (the
"Merger"). Under the terms of the Affiliation Agreement, upon consummation of
the Merger, each share of common stock of State Bank, par value $10.00 per
share, automatically shall become and be converted into 2.9 shares of the common
stock of James River, par value $5.00 per share ("James River Common Stock").
Cash will be paid in lieu of fractional shares. As of the date of the
Affiliation Agreement, State Bank had 291,027 shares of common stock issued and
outstanding. Under the terms of the Affiliation Agreement, and based on the
exchange ratio of 2.9 shares of James River for each share of State Bank common
stock, an aggregate of 843,978 shares of James River Common Stock may be issued
for the State Bank common stock outstanding.
McKinnon & Company, Inc. ("McKinnon") is an investment banking firm that
specializes in Virginia community banks and thrifts. In eleven years McKinnon
has been lead managing underwriter in approximately thirty-four public stock
offerings for Virginia community banks and thrifts and has served as financial
advisor, including providing fairness opinions, to numerous Virginia community
banks and thrifts. McKinnon, as part of its investment banking business, is
engaged in the evaluation of businesses, particularly banks, and their
securities, in connection with mergers and acquisitions, initial public
offerings, private placements and evaluations for estates and corporate
recapitalizations. In the past, McKinnon has served in an investment banking
capacity for James River, including: managing underwriter of a public offering
of common stock of a member bank of James River, serving as financial advisor to
the two original member banks of James River, including fairness opinions; and
serving as financial advisor to two member banks acquired by James River.
McKinnon is also a market maker in James River's Common Stock on the NASDAQ
National Market System. McKinnon is also a market maker in Virginia community
bank stocks listed on NASDAQ and the OTC Bulletin Board. McKinnon believes it
has a thorough working knowledge of the banking industry throughout Virginia.
<PAGE>
In developing our opinion, we have among other things, reviewed and
analyzed material bearing upon the financial and operating conditions of State
Bank, James River, and, on a pro forma basis, State Bank and James River
combined, and material proposed in connection with the Affiliation Agreement,
including, among other things, the following:
(1) the Agreement and Plan of Affiliation and Merger, dated as of
February 17, 1999 among State Bank and James River;
(2) the registration statement filed with the Securitie and Exchange
Commission in connection with the proposed Merger, including a prospectus
relating to 843,978 shares of common stock of James River, and the Proxy
Statement relating to a special meeting of stockholders of James River to be
held on , 1999; and
(3) State Bank's and James River's financial results for fiscal years
1991 through 1998, and the first quarter ended March 31, 1999, respectively, and
certain documents and information we deem relevant to our analysis;
(4) held discussions with senior management of State Bank and James
River regarding past and current business operations of, and outlook for, State
Bank, James River, including trends, the terms of the proposed Merger, and
related matters;
(5) reviewed the reported price and trading activity of State Bank and
James River Common Stock and compared financial and stock market information
(when available) for State Bank and James River with similar information for
certain other companies, and securities for which are publicly traded;
(6) reviewed the financial terms of certain recent business combinations
which we deemed comparable in whole or in part;
(7) performed such other studies and analyses as we considered
appropriate, including an analysis of the pro forma financial impact of the
Merger on State Bank and James River;
(8) reviewed other published information, performed certain financial
analyses and considered other factors and information which we deem relevant.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of State Bank and James River. We have not attempted
independently to verify such information, nor have we made any independent
appraisal of the assets of State Bank or James River. We have taken into account
our assessment of general economic, financial market and industry conditions as
they exist and can be evaluated at the date hereof, as well as our experience in
business valuation in general.
<PAGE>
We have been retained by you as a financial advisor to State Bank with
respect to the proposed Merger. In the normal course of business McKinnon &
Company, Inc. is a market maker in the common stock of James River listed on the
NASDAQ National Market System. Our opinion is directed to the Board of Directors
of State Bank. We participated in some of the discussions but we did not
recommend the structure or give any opinion regarding the business reasons for
doing this proposed Merger.
On the basis of our analysis and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, ti is our opinion that, as of the date hereof, the terms
of the Affiliation Agreement are fair, from a financial point of view, to the
holders of State Bank Common Stock.
Very truly yours,
McKinnon & Company, Inc.
<PAGE>
Annex C
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3 and 4
Statements of changes in stockholders' equity 5 and 6
Statements of cash flows 7 and 8
Notes to financial statements 9-23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Directors
State Bank of Remington, Inc.
Remington, Virginia
We have audited the accompanying balance sheets of State Bank of
Remington, Inc. as of December 31, 1998 and 1997, and the related statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of State Bank of
Remington, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Winchester, Virginia
January 27, 1999, except for Note 16 as to
which the date is February 17, 1999
1
<PAGE>
STATE BANK OF REMINGTON, INC.
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
<S> <C> <C>
Cash and due from banks $2 702 755 $2 681 076
Federal funds sold 4 340 000 2 060 000
------------ ----------
Total cash and cash equivalents $7 042 755 $4 741 076
Securities available for sale, at fair value 14 535 824 15 401 022
Securities held to maturity, at amortized cost (fair value approximates
$7,432,931 and $7,502,743 at December 31, 1998 and 1997) 7 234 081 7 392 447
Loans, less allowance for loan losses 36 514 864 32 953 381
Bank premises and equipment, net 1 330 950 1 365 870
Accrued interest receivable 402 937 445 296
Other real estate 1 375 682 1 876 073
Other assets 645 620 560 548
---------- ----------
Total assets $69 082 713 $64 735 713
============ ===========
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $9 557 601 $ 8 375 502
Savings and interest-bearing demand deposits 28 109 204 25 538 137
Time deposits 23 461 214 22 790 080
------------- -----------
Total deposits $61 128 019 $56 703 719
Interest expense payable 172 081 163 905
Other liabilities for borrowed money 22 707 200 000
Dividends payable 58 205 58 205
Other liabilities 225 914 250 687
Commitments and contingent liabilities - - - -
------------ -----------
Total liabilities $61 606 926 $57 376 516
------------ -----------
Stockholders' Equity
Common stock, par value $10 per share; authorized 400,000
shares; issued and outstanding 291,027 shares $ 2 910 270 $ 2 910 270
Surplus 1 527 486 1 527 486
Retained earnings 3 117 166 3 003 648
Accumulated other comprehensive income (79 135) (82 207)
----------- -----------
Total stockholders' equity $ 7 475 787 $ 7 359 197
------------ -----------
Total liabilities and stockholders' equity $69 082 713 $64 735 713
============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
Statements of Income
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest Income
Interest and fees on loans $ 3 198 968 $ 3 116 426
Interest on investment securities:
Taxable interest income 346 357 397 248
Interest income exempt from federal income taxes 90 517 48 625
Interest and dividends on securities available for sale:
Taxable interest income 877 124 870 671
Dividends 7 989 7 989
Interest on federal funds sold 163 918 101 645
----------- ------------
Total interest income $ 4 684 873 $ 4 542 604
----------- ------------
Interest Expense
Interest on deposits $ 1 969 163 $ 1 938 869
Interest on borrowed money 6 537 6 716
----------- ------------
Total interest expense $ 1 975 700 $ 1 945 585
----------- ------------
Net interest income $ 2 709 173 $ 2 597 019
Provision for loan losses 30 000 30 000
----------- ------------
Net interest income after provision for loan losses $ 2 679 173 $ 2 567 019
----------- ------------
Other Income
Service charges on deposit accounts $ 337 808 $ 289 456
Other service charges, commissions and fees 64 731 56 512
Gain (loss) on sale of equipment and other real estate owned 15 358 (10 247)
Security gains - - 8 912
Other operating income 24 685 22 200
----------- ------------
Total other income $ 442 582 $ 366 833
----------- ------------
Other Expenses
Salaries and wages of officers and employees $ 1 061 678 $ 989 339
Pension and other employee benefits 209 842 208 358
Occupancy expense of premises 164 612 134 949
Furniture and equipment expenses 249 809 238 067
Loss on other real estate owned 410 000 - -
Other operating expenses 585 702 569 294
----------- ------------
Total other expenses $ 2 681 643 $ 2 140 007
----------- ------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
Statements of Income
(Continued)
Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Income before income taxes $ 440 112 $ 793 845
Income tax expense 93 772 234 044
------------ -----------
Net income $ 346 340 $ 559 801
============ ==========
Earnings Per Share, basic and diluted $ 1.19 $ 1.92
============ ==========
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Retained
Stock Surplus Earnings
<S> <C> <C> <C>
Balance, December 31, 1996 $2 910 270 $1 527 486 $2 676 669
Comprehensive income:
Net income - - - - 559 801
Other comprehensive income, net of tax:
Unrealized holding gains on securities available
for sale arising during the period (net of tax, $33,330) - - - - - -
Less: reclassification adjustment (net of tax, $3,030) - - - - - -
Other comprehensive income (net of tax, $30,300) - - - - - -
Total comprehensive income - - - - - -
Dividends declared ($0.80 per share) - - - - (232 822)
--------- --------- ---------
Balance, December 31, 1997 $2 910 270 $1 527 486 $3 003 648
Comprehensive income:
Net income - - - - 346 340
Other comprehensive income, net of tax,
unrealized holding gains on securities available for
sale arising during the period (net of tax, $1,566) - - - - - -
Total comprehensive income - - - - - -
Dividends declared ($0.80 per share) - - - - (232 822)
--------- --------- ---------
Balance, December 31, 1998 $2 910 270 $1 527 486 $3 117 166
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Comprehensive
Income Income Total
<S> <C> <C> <C>
Balance, December 31, 1996 $ (141 024) $6 973 401
Comprehensive income:
Net income - - $ 559 801 559 801
Other comprehensive income, net of tax:
Unrealized holding gains on securities available
for sale arising during the period (net of tax, $33,330) - - 64 699 - -
Less: reclassification adjustment (net of tax, $3,030) - - (5 882) - -
--------------
Other comprehensive income (net of tax, $30,300) 58 817 $ 58 817 58 817
-------------
Total comprehensive income - - $ 618 618 - -
Dividends declared ($0.80 per share) =============
- - (232 822)
------------ ----------
Balance, December 31, 1997 $ (82 207) $7 359 197
Comprehensive income:
Net income - - $ 346 340 346 340
Other comprehensive income, net of tax,
unrealized holding gains on securities available for
sale arising during the period (net of tax, $1,566) 3 072 3 072 3 072
------------
Total comprehensive income - - $ 349 412 - -
Dividends declared ($0.80 per share) =============
- - (232 822)
------------- ---------
Balance, December 31, 1998 $ (79 135) $7 475 787
============= ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
Statements of Cash Flows
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 346 340 $ 559 801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 132 712 116 788
Amortization 39 929 41 295
Deferred tax expense (benefit) (115 015) 38 416
Provision for loan losses 30 000 30 000
Loss on other real estate owned 410 000 - -
(Gain) loss on other real estate, net (9 283) 10 763
Net premium amortization on securities 23 845 21 055
(Gain) from sale of equipment (6 075) (516)
(Gain) on sale of securities - - (8 912)
Changes in assets and liabilities:
Decrease in accrued interest receivable 42 359 25 806
(Increase) decrease in other assets 34 245 (22 091)
Increase (decrease) in interest expense payable 8 176 (8 278)
Increase (decrease) in other liabilities (24 773) 33 848
----------- -------
Net cash provided by operating activities $ 912 460 $ 837 975
---------- --------
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal payments
of securities being held to maturity $2 381 217 $2 642 778
Proceeds from maturities, calls and principal payments of
securities available for sale 3 340 649 5 239 023
Proceeds from sale of securities available for sale - - 1 509 844
Purchases of securities being held to maturity (2 227 118) (4 003 189)
Purchase of securities available for sale (2 490 391) (6 788 214)
Proceeds from sale of premises and equipment 6 075 516
Proceeds from sale of other real estate 53 877 463 686
Purchases of premises, equipment and software (97 792) (656 017)
Payments to improve or acquire other real estate - - (75 256)
Net (increase) decrease in loans (3 591 483) 299 714
----------- ----------
Net cash (used in) investing activities $(2 624 966) $(1 367 115)
----------- ----------
Cash Flows from Financing Activities
Net increase in demand deposits, NOW accounts,
money market accounts and savings accounts $3 753 166 $ 2 777 575
Net increase (decrease) in certificates of deposit 671 134 (498 332)
Cash dividends paid (232 822) (232 822)
Principal proceeds (payments) on other liabilities for borrowed money (177 293) 94 998
----------- -----------
Net cash provided by financing activities $4 014 185 $ 2 141 419
----------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
Statements of Cash Flows
(Continued)
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Increase in cash and cash equivalents $ 2 301 679 $1 612 279
Cash and Cash Equivalents
Beginning 4 741 076 3 128 797
----------- ----------
Ending $7 042 755 $4 741 076
========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $1 967 524 $1 953 863
========== ==========
Income taxes $ 156 095 $ 176 594
========== ==========
Supplemental Schedule of Noncash Investing and
Financing Activities
Unrealized gain on securities available for sale $ 4 638 $ 89 117
=========== =========
Other real estate transferred in settlement of
current and future obligations $ 45 797 $ - -
=========== ========
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
Notes to Financial Statements
Note 1. Nature of Banking Activities and Significant Accounting Policies
State Bank of Remington, Inc. grants commercial, financial,
agricultural, residential and consumer loans to customers in Virginia.
The loan portfolio is well diversified and generally is collateralized
by assets of the customers. The loans are expected to be repaid from
cash flow or proceeds from the sale of selected assets of the
borrowers.
The accounting and reporting policies of State Bank of Remington, Inc.
conform to generally accepted accounting principles and to general
practices within the banking industry. The following is a description
of the most significant of those policies and practices.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased and sold for one day
periods.
Securities
Investments are classified in three categories and accounted for
as follows:
a. Securities Held to Maturity
Securities classified as held to maturity are those debt
securities the Bank has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity
needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest
method over their contractual lives.
b. Securities Available for Sale
Securities classified as available for sale are those debt and
equity securities that the Bank intends to hold for an
indefinite period of time, but not necessarily to maturity.
Any decision to sell a security classified as available for
sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of
the Bank's assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors. Securities
available for sale are carried at fair value. Unrealized gains
or losses are reported as a separate component of other
comprehensive income, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost
of specific securities sold, are included in earnings.
<PAGE>
Notes to Financial Statements
c. Trading Securities
Trading securities, which are generally held for the short
term in anticipation of market gains, are carried at fair
value. Realized and unrealized gains and losses on trading
account assets are included in interest income on trading
account securities. The Bank had no trading securities at
December 31, 1998 and 1997.
Loans
Loans are shown on the balance sheets net of unearned income and
the allowance for loan losses. Interest income on commercial and
real estate mortgage loans is computed on the loan balance
outstanding. Interest income on installment loans is computed on
the sum-of-the-months digits and actuarial methods. Loans are
charged off when in the opinion of management they are deemed to
be uncollectible after taking into consideration such factors as
the current financial condition of the customer and the underlying
collateral and guarantees.
The Bank has adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This statement has been amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." Statement 114, as amended, requires
that the impairment of loans that have been separately identified
for evaluation is to be measured based on the present value of
expected future cash flows or, alternatively, the observable
market price of the loans or the fair value of the collateral.
However, for those loans that are collateral dependent (that is,
if repayment of those loans is expected to be provided solely by
the underlying collateral) and for which management has determined
foreclosure is probable, the measure of impairment of those loans
is to be based on the fair value of the collateral. Statement 114,
as amended, also requires certain disclosures about investments in
impaired loans and the allowance for loan losses and interest
income recognized on loans.
The Bank considers all consumer installment loans and residential
mortgage loans to be homogeneous loans. These loans are not
subject to impairment under SFAS 114. A loan is considered
impaired when it is probable that the Bank will be unable to
collect all principal and interest amounts according to the
contractual terms of the loan agreement. Factors involved in
determining impairment include, but are not limited to, expected
future cash flows, financial condition of the borrower, and the
current economic conditions. A performing loan may be considered
impaired, if the factors above indicate a need for impairment. A
loan on nonaccrual status may not be impaired if in the process of
collection or there is an insignificant shortfall in payment. An
insignificant delay of less than 30 days or a shortfall of less
than 5% of the required principal and interest payment generally
does not indicate an impairment situation, if in management's
judgment the loan will be paid in full. Loans that meet the
regulatory definitions of doubtful or loss generally qualify as
impaired loans under SFAS 114. Charge-offs for impaired loans
occur when the loan, or portion of the loan is determined to be
uncollectible, as is the case for all loans. The Bank had no loans
subject to SFAS 114 at December 31, 1998 and 1997.
<PAGE>
Loans are placed on nonaccrual when a loan is specifically
determined to be impaired or when principal or interest is
delinquent for 90 days or more. Any unpaid interest previously
accrued on those loans is reversed from income. Interest income
generally is not recognized on specific impaired loans unless the
likelihood of further loss is remote. Interest payments received
on such loans are applied as a reduction of the loan principal
balance. Interest income on other nonaccrual loans is recognized
only to the extent of interest payments received.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the loan
portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions.
Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows.
The allowance is increased by a provision for loan losses, which
is charged to expense and reduced by charge-offs, net of
recoveries. Changes in the allowances relating to impaired loans
are charged or credited to the provision for loan losses. Because
of uncertainties inherent in the estimation process, management's
estimate of credit losses inherent in the loan portfolio and the
related allowance may change in the near term.
Loan Fees and Costs
Loan origination and commitment fees and direct loan origination
costs are being recognized as collected and incurred. The use of
this method recognition does not produce results that are
materially different from results which would have been produced
if such costs and fees were deferred and amortized as an
adjustment of the loan yield over the life of the related loan.
Bank Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Premises and equipment are
depreciated over their estimated useful lives; leasehold
improvements are amortized over the estimated useful lives of the
leasehold improvements. Depreciation and amortization are recorded
generally on the straight-line method.
Costs of maintenance and repairs are charged to expense as
incurred. Costs of replacing structural parts of major units are
considered individually and are expensed or capitalized as the
facts dictate.
<PAGE>
Earnings Per Share
The Bank has adopted Statement No. 128, "Earnings Per Share."
Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings
per share is very similar to the previously reported fully
diluted earnings per share. The Bank had no potential common
stock as of December 31, 1998 and 1997.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences,
operating loss carryforwards, and tax credit carryforwards.
Deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
Other Real Estate
Real estate acquired by foreclosure is carried at the lower of
cost or fair market value less allowance for estimated selling
expenses on the future disposition of the property.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Advertising
The Bank follows the policy of charging the costs of advertising
to expense as incurred.
Defined Benefit Plan
In 1998, the Bank adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." This pronouncement does not change
the measurement or recognition of amounts recognized in the Bank's
financial statements applicable to its defined benefit plan.
Statement No. 132 standardizes the existing disclosure
requirements for pensions requiring certain additional information
on changes in the benefits obligation and fair values of plan
assets and eliminating certain disclosures.
<PAGE>
Comprehensive Income
As of January 1, 1998, the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Bank's net income
or stockholders' equity. The Statement requires other
comprehensive income to include unrealized gains and losses on
securities available for sale, which prior to adoption were
reported separately in stockholders' equity. The financial
statements of prior years have been reclassified to conform to the
requirements of SFAS No. 130.
Note 2. Securities
Amortized costs and fair values of securities available for sale as of
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
1998
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 2 599 253 $ 35 778 $ - - $ 2 635 031
Obligations of U.S. govern-
ment corporations and
agencies 7 771 678 89 391 (23 731) 7 837 338
Mortgage-backed securities 34 264 - - (122) 34 142
Mutual fund 4 117 397 - - (221 234) 3 896 163
Other 133 150 - - - - 133 150
---------- ---------- -------- -----------
$14 655 742 $ 125 169 $(245 087) $14 535 824
=========== ========== ========= ===========
<CAPTION>
1997
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 3 346 842 $ 21 184 $ (1 259) $ 3 366 767
Obligations of U.S. govern-
ment corporations and
agencies 7 965 555 42 305 (20 100) 7 987 760
Mortgage-backed securities 121 175 835 (2) 122 008
Mutual fund 3 958 856 - - (167 519) 3 791 337
Other 133 150 - - - - 133 150
---------- ---------- ---------- -----------
$15 525 578 $ 64 324 $ (188 880) $15 401 022
=========== ========== ========== ===========
</TABLE>
<PAGE>
The amortized cost and fair value of securities available for sale as
of December 31, 1998, by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay without penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 2 851 080 $ 2 866 610
Due after one year through five years 6 355 130 6 426 344
Due after five years through ten years 673 291 680 779
Due after ten years 491 430 498 636
Mortgage-backed securities 34 264 34 142
Mutual funds 4 117 397 3 896 163
Other 133 150 133 150
---------- --------------
$14 655 742 $ 14 535 824
=========== ==============
</TABLE>
Amortized costs and fair values of securities being held to maturity
as of December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
1998
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 997 324 $ 60 489 $ - - $ 1 057 813
Obligations of U.S. govern-
ment corporations and
agencies 3 855 783 108 263 (372) 3 963 674
Obligations of states and
political subdivisions 2 380 974 35 769 (5 299) 2 411 444
----------- ---------- --------- --------------
$7 234 081 $ 204 521 $ (5 671) $ 7 432 931
========== ========== ========= ==============
<CAPTION>
1997
<S> <C> <C> <C> <C>
U. S. Treasury securities $1 795 659 $ 36 833 $ (2 523) $ 1 829 969
Obligations of U.S. govern-
ment corporations and
agencies 4 018 333 62 894 (5 424) 4 075 803
Obligations of states and
political subdivisions 1 578 455 18 516 - - 1 596 971
----------- ---------- --------- --------------
$7 392 447 $ 118 243 $ (7 947) $ 7 502 743
=========== ========== ========= ==============
</TABLE>
<PAGE>
The amortized cost and fair value of securities being held to maturity
as of December 31, 1998, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay without penalties.
Amortized Fair
Cost Value
Due in one year or less $ 326 131 $ 328 333
Due after one year through five years 3 975 700 4 141 366
Due after five years through ten years 1 820 466 1 835 153
Due after ten years 1 111 784 1 128 079
---------- ----------
$7 234 081 $7 432 931
========== ==========
Proceeds from maturities, calls and principal payments of securities
being held to maturity during 1998 and 1997 were $2,381,217 and
$2,642,778. There were no sales or realized gains or losses in 1998
and 1997.
Proceeds from maturities, calls and principal payments of securities
available for sale during 1998 and 1997 were $3,340,649 and
$5,239,023. Proceeds from sales of securities available for sale
during 1997 were $1,509,844, with realized gains of $8,912. There were
no sales or realized gains in 1998.
Securities having a book value of $1,496,894 and $1,198,479 at
December 31, 1998 and 1997, were pledged to secure public deposits and
for other purposes required by law.
Note 3. Loans
The composition of the net loans is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
(thousands)
<S> <C> <C>
Real estate loans:
Construction and land development $ 1 579 $ 1 607
Secured by farmland 1 339 838
Secured by 1-4 family residential 14 888 15 223
Other real estate loans 5 952 5 019
Loans to farmers (except secured by real estate) 312 434
Commercial and industrial loans (except those
secured by real estate) 5 403 4 998
Loans to individuals for personal expenditures 6 829 4 393
All other loans 660 917
------ -----------
$ 36 962 $ 33 429
Less:
Unearned discount 1 5
Allowance for loan losses 446 471
---------- -----------
Loans, net $ 36 515 $ 32 953
========== ===========
</TABLE>
<PAGE>
Note 4. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
December 31,
1998 1997
------------- ---------
Balance, beginning $471 117 $ 593 767
Provision charged to operating expense 30 000 30 000
Recoveries 33 426 42 698
Loan losses charged to the allowance (88 425) (195 348)
--------- ---------
Balance, ending $446 118 $ 471 117
========= =========
There were no nonaccrual loans as of December 31, 1998 and 1997.
Note 5. Bank Premises and Equipment, Net
The major classes of bank premises and equipment and the total
accumulated depreciation are as follows:
December 31,
1998 1997
---------- -------------
Land $ 86 893 $ 86 893
Banking facilities 1 571 401 1 528 050
Building, rental 37 074 37 074
Furniture, fixtures and equipment 1 556 465 1 496 620
Construction in progress - - 24 404
---------- ---------
$3 251 833 $3 173 041
Less accumulated depreciation 1 920 883 1 807 171
---------- ---------
$1 330 950 $1 365 870
========== ==========
Depreciation of bank premises and equipment included in operating
expenses for the years ended December 31, 1998 and 1997 was $132,712
and $116,788, respectively.
Note 6. Deposits
The aggregate amount of jumbo time deposits, each with a minimum
denomination of $100,000, was $3,908,225 and $3,371,287 as of December
31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of certificates of
deposit are as follows:
1999 $15 783 291
2000 5 894 203
2001 1 286 769
2002 106 426
2003 and thereafter 390 525
-----------
$23 461 214
<PAGE>
Note 7. Defined Benefit Pension Plan
The Bank has a noncontributory, defined benefit pension plan for
full-time employees over 21 years of age and one year of service.
Benefits are generally based upon years of service and average
compensation for the final five years of service. The Bank funds
pension costs in accordance with the funding provisions of the
Employee Retirement Income Security Act. Information about the plan
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation, beginning of year $ 1 146 595 $ 957 553
Service cost 67 743 67 032
Interest cost 85 839 71 661
Actuarial (gain) loss (31 229) 56 450
Benefits paid (50 490) (6 101)
----------- -----------
Benefit obligation, end of year $ 1 218 458 $ 1 146 595
=========== ===========
Change in Plan Assets
Fair value of assets, beginning of year $ 1 277 086 $ 1 068 560
Actual return on plan assets (2 201) 214 627
Employer contributions 70 812 - -
Benefits paid (50 490) (6 101)
--------- ---------
Fair value of assets, end of year $ 1 295 207 $ 1 277 086
========= ==========
Funded status $ 76 749 $ 130 491
Unrecognized net actuarial (gain) (165 986) (259 459)
Unrecognized net obligation at transition (98 012) (106 179)
Unrecognized prior service cost 26 110 28 118
--------- ----------
Accrued benefit cost included in
other liabilities $ (161 139) $ (207 029)
========= ==========
Components of Net Periodic
Benefit Cost
Service cost $ 67 743 $ 67 032
Interest cost 85 839 71 661
Expected return on plan assets (114 751) (95 983)
Amortization of prior service cost 2 008 2 008
Amortization of net obligation at transition (8 167) (8 167)
Recognized net actuarial (gain) (7 750) (5 023)
--------- ---------
Net periodic benefit cost $ 24 922 $ 31 528
========= =========
</TABLE>
<PAGE>
Weighted-Average Assumptions as
of December 31
Discount rate 7.50% 7.50%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.00% 5.00%
<PAGE>
Note 8. Income Taxes
Net deferred tax assets consist of the following components as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 50 216 $ 57 178
Pension payable 54 787 70 390
Allowance for other real estate owned 139 400 - -
Securities available for sale 40 782 42 348
---------- ----------
$ 285 185 $ 169 916
---------- ----------
Deferred tax liabilities, depreciation $ 36 497 $ 34 677
---------- ----------
$ 248 688 $ 135 239
========== ==========
</TABLE>
The provision for income taxes charged to operations for the years
ended December 31, 1998 and 1997, consists of the following:
1998 1997
--------- ----------
Current tax expense $208 787 $195 628
Deferred tax expense (benefit) (115 015) 38 416
--------- --------
$ 93 772 $234 044
========= ========
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax
income for the years ended December 31, 1998 and 1997, due to the
following:
1998 1997
-------- --------
Computed "expected" tax expense $149 638 $269 907
Increase (decrease) in income taxes
resulting from:
Tax-exempt interest income (49 767) (39 080)
Other (6 099) 3 217
--------- --------
$ 93 772 $234 044
========= ========
Note 9. Related Party Transactions
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors,
executive officers, their immediate families and affiliated companies
in which they are principal stockholders (commonly referred to as
related parties).
<PAGE>
In the opinion of management, these loans are on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with outsiders and
are not considered to involve more that the normal risk of
collectibility. At December 31, 1998 and 1997, these loans totaled
$1,716,386 and $1,613,008, respectively (for aggregate borrowings
exceeding $60,000).
An analysis of the activity of loans outstanding, both direct and
indirect to directors and policy making officers during 1998 is shown
below.
Balance, beginning of year $ 1 613 008
New loans and loans added 1 250 204
Repayments (1 146 826)
----------------
Balance, end of year $ 1 716 386
================
Note 10. Lease Commitment and Contingent Liabilities
The Bank is conducting a comprehensive review of its computer systems
to identify the systems that could be affected by the Year 2000 Issue,
and is developing a remediation plan to resolve the Issue. The Issue
is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or
cause a system to fail. The Bank is heavily dependent on computer
processing in the conduct of its business activities. Failure of these
systems could have a significant impact on the Bank's operations.
An office facility located in Remington is being leased on a
month-to-month basis. The current monthly rent is $602.
Total rental expense for the office facility and equipment was $8,914
and $9,508 for 1998 and 1997, respectively.
Note 11. Financial Instruments With Off-Balance-Sheet Risk
The Bank is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheets. The contract or
notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
notional amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments.
<PAGE>
A summary of the contract or notional amount of the Bank's exposure to
off-balance-sheet risk as of December 31, 1998 and 1997, is as
follows:
1998 1997
--------- ---------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $6 452 000 $4 608 231
Standby letters of credit 1 251 202 981 502
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property and
equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing,
and similar transactions. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds land and bank deposits as
collateral supporting those commitments for which collateral is deemed
necessary. The extent of collateral held for those commitments at
December 31, 1998, varies from 0 percent to 100 percent; the average
amount collateralized is 62 percent.
The Bank has cash accounts in other commercial banks. The amount on
deposit at these banks at December 31, 1998, exceeded the insurance
limits of the Federal Deposit Insurance Corporation by approximately
$1,495,148.
Note 12. Other Liabilities for Borrowed Money
The Bank has an agreement with the Federal Reserve Bank where it can
borrow funds deposited by customers. This agreement calls for variable
interest and is payable on demand. U.S. Government securities are
pledged as collateral. The maximum amount available under this
agreement is $200,000. The balance outstanding was $22,707 and
$200,000 at December 31, 1998 and 1997, respectively.
<PAGE>
Note 13. Fund Restrictions and Reserve Balance
Federal and state regulations limit the amount of dividends which the
Bank can pay without obtaining prior approval and, additionally,
federal regulations require that the Bank maintain a ratio of total
capital to assets, as defined by regulatory authorities. As of
December 31, 1998, the Bank could declare dividends of $1,058,020
without prior approval.
The Bank must maintain a reserve against its deposits in accordance
with Regulation D of the Federal Reserve Act. For the final weekly
reporting period in the years ended December 31, 1998 and 1997, the
aggregate amounts of daily average required balances were
approximately $611,000 and $504,000, respectively.
Note 14. Capital Requirements
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 - possibly
additional discretionary - actions 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 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 judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets, and of Tier 1 capital to
average assets. Management believes, as of December 31, 1998, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal
Reserve Bank 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 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Amount in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets) $ 7 779 18.5% =>$3 365 => 8.0% =>$4 206 => 10.0%
Tier 1 Capital (to Risk
Weighted Assets) $ 7 333 17.4% =>$1 683 => 4.0% =>$2 524 => 6.0%
Tier 1 Capital (to
Average Assets) $ 7 333 10.7% =>$2 740 => 4.0% =>$3 425 => 5.0%
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets) $ 7 802 20.3% =>$3 068 => 8.0% =>$3 835 => 10.0%
Tier 1 Capital (to Risk
Weighted Assets) $ 7 331 19.1% =>$1 534 => 4.0% =>$2 301 => 6.0%
Tier 1 Capital (to
Average Assets) $ 7 331 11.4% =>$2 567 => 4.0% =>$3 209 => 5.0%
</TABLE>
Note 15. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. The
Statement permits early adoption as of the beginning of any fiscal quarter
after its issuance. The Bank has not determined whether to adopt the new
statement early. The Statement will require the Bank to recognize all
derivatives on the balance sheets at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings.
Because the Bank does not employ such derivative instruments, management
does not anticipate that the adoption of the new Statement will have any
effect on the Bank's earnings or financial position.
<PAGE>
Note 16. Subsequent Event
On February 17, 1999, the Bank entered into a definitive merger agreement
with James River Bankshares, under which the Bank would become a wholly
owned subsidiary of James River Bankshares. The agreement provides for
State Bank of Remington, Inc.'s shareholders to receive 2.9 shares of James
River Bankshares common stock for each outstanding share of the Bank. The
transaction is expected to qualify as a tax-free exchange and to be
accounted for as a pooling of interests. The merger is subject, among other
conditions, to shareholder and regulatory approvals.
<PAGE>
INDEX TO (UNAUDITED) FINANCIAL STATEMENTS OF
STATE BANK OF REMINGTON, INC.
CONTENTS
FINANCIAL STATEMENTS (Unaudited)
Balance sheet
Statements of income
Statements of changes in stockholders' equity
Statements of cash flows
Notes to financial statements
<PAGE>
STATE BANK OF REMINGTON, INC.
BALANCE SHEET
(Unaudited)
March 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and due from banks $ 2 111 264
Federal funds sold 3 525 000
-------------
Total cash and cash equivalents $ 5 636 264
Securities available for sale, at fair value 14 735 753
Securities held to maturity, at amortized cost
(fair value approximates $7,361,404) 7 217 108
Loans, less allowance for loan losses 38 833 935
Bank premises and equipment, net 1 309 816
Accrued interest receivable 509 173
Other real estate 1 375 683
Other assets 620 490
-------------
Total assets $ 70 238 222
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits $ 9 511 965
Savings and interest-bearing demand deposits 28 769 388
Time deposits 23 805 938
-------------
Total deposits $ 62 087 291
Interest expense payable 167 856
Other liabilities for borrowed money 158 824
Other liabilities 307 937
Commitments and contingent liabilities - -
-------------
Total liabilities $ 62 721 908
-------------
STOCKHOLDERS' EQUITY
Common stock, par value $10 per share; authorized
400,000 shares; issued and outstanding 291,027 shares $ 2 910 270
Surplus 1 527 486
Retained earnings 3 203 621
Accumulated other comprehensive income (125 063)
-------------
Total stockholders' equity $ 7 516 314
-------------
Total liabilities and stockholders' equity $ 70 238 222
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 823 054 $ 771 075
Interest on investment securities:
Taxable interest income 79 793 92 098
Interest income exempt from federal income taxes 27 221 20 290
Interest and dividends on securities available for sale:
Taxable interest income 207 047 231 910
Dividends 1 997 1 997
Interest on federal funds sold 41 741 29 010
----------- -----------
Total interest income $ 1 180 853 $ 1 146 380
----------- -----------
INTEREST EXPENSE
Interest on deposits $ 492 997 $ 479 096
Interest on borrowed money 1 131 1 794
----------- -----------
Total interest expense $ 494 128 $ 480 890
----------- -----------
Net interest income $ 686 725 $ 665 490
Provision for loan losses 7 500 7 500
----------- -----------
Net interest income after provision for loan losses $ 679 225 $ 657 990
----------- -----------
OTHER INCOME
Service charges on deposit accounts $ 80 303 $ 76 949
Other service charges, commissions and fees 13 995 13 702
Other operating income 7 287 6 641
----------- -----------
Total other income $ 101 585 $ 97 292
----------- -----------
OTHER EXPENSES
Salaries and employee benefits $ 317 771 $ 314 251
Occupancy expense 38 723 39 529
Furniture and equipment expenses 55 008 53 930
Other operating expenses 180 963 174 026
----------- -----------
Total other expenses $ 592 465 $ 581 736
----------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
STATEMENTS OF INCOME
(Unaudited)
(Continued)
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income before income taxes $ 188 345 $ 173 546
Income tax expense 43 685 40 277
----------- -----------
Net income $ 144 660 $ 133 269
=========== ===========
EARNINGS PER SHARE, basic and diluted $ .50 $ .46
=========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON CAPITAL UNDIVIDED COMPREHENSIVE COMPREHENSIVE
STOCK SURPLUS PROFITS INCOME (LOSS) INCOME TOTAL
---------- ---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1998 $2 910 270 $1 527 486 $ 3 003 648 $ (82 207) $ 7 359 197
Comprehensive income:
Net income - - - - 133 269 - - $ 133 269 133 269
Other comprehensive income:
Unrealized gain on securities
available for sale, net of
tax of $3,169 - - - - - - 6 152 6 152 6 152
-------------
Total comprehensive income - - - - - - - - $ 139 421 - -
=============
Dividends declared ($.20 per
share) - - - - (58 205) - - (58 205)
---------- ---------- ----------- ------------ ------------
BALANCES, MARCH 31, 1998 $2 910 270 $1 527 486 $ 3 078 712 $ (76 055) $ 7 440 413
========== ========== =========== ============ ============
BALANCES, JANUARY 1, 1999 $2 910 270 $1 527 486 $ 3 117 166 $ (79 135) $ 7 475 787
Comprehensive income:
Net income - - - - 144 660 - - $ 144 660 144 660
Other comprehensive income:
Unrealized (loss) on securities
available for sale, net of
tax of $(23 660) - - - - - - (45 928) (45 928) (45 928)
-------------
Total comprehensive income - - - - - - - - $ 98 732 - -
=============
Dividends declared ($.20 per
share) - - - - (58 205) - - (58 205)
---------- ---------- ----------- ------------ ------------
BALANCES, MARCH 31, 1999 $2 910 270 $1 527 486 $ 3 203 621 $ (125 063) $ 7 516 314
========== ========== =========== ============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 144 660 $ 133 269
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 33 231 32 649
Amortization 9 348 9 981
Deferred tax expense (benefit) 1 538 - -
Provision for loan losses 7 500 7 500
Writedown of other real estate owned - - 10 000
Net premium amortization on securities 4 484 5 229
Changes in assets and liabilities:
(Increase) in accrued interest receivable (106 236) (89 140)
Decrease in other assets 15 781 16 675
Increase (decrease) in interest expense payable (4 225) 1 764
Increase in other liabilities 45 940 51 771
------------- -------------
Net cash provided by operating activities $ 152 021 $ 179 698
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, calls and principal payments
of securities being held to maturity $ 15 250 $ 776 388
Proceeds from maturities, calls and principal payments
of securities available for sale 1 721 593 470 699
Purchases of securities being held to maturity - - (740 000)
Purchases of securities available for sale (1 993 871) (903 482)
Purchases of premises, equipment and software (12 097) (43 655)
Net (increase) in loans (2 326 571) (262 162)
------------ ------------
Net cash (used in) investing activities $ (2 595 696) $ (702 212)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
accounts, money market accounts and savings accounts $ 614 548 $ (7 947)
Net increase in certificates of deposit 344 724 491 895
Cash dividends paid (58 205) (58 205)
Principal proceeds (payments) on other liabilities for
borrowed money 136 117 (50 460)
------------- -------------
Net cash provided by financing activities $ 1 037 184 $ 375 283
------------- -------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Increase in cash and cash equivalents $ (1 406 491) $ (147 231)
CASH AND CASH EQUIVALENTS
Beginning 7 042 755 4 741 076
------------- -------------
Ending $ 5 636 264 $ 4 593 845
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 498 353 $ 479 126
============= =============
Income taxes $ 19 541 $ - -
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES, unrealized gain (loss) on
securities available for sale $ (69 588) $ 9 321
============ =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATE BANK OF REMINGTON, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ACCOUNTING POLICIES
The unaudited financial statements as of and for the three months ended
March 31, 1999 and 1998 have not been audited but, in the opinion of
management, contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position and results of operations of the Bank as of such date and for
such periods. The unaudited financial statements should be read in
conjunction with the annual financial statements of the Bank and the
notes thereto appearing elsewhere herein. The results of operation for
the three months ended March 31, 1999 are not necessarily indicative of
the results of operations that may be expected for the year ending
December 31, 1999 or for any future periods.
NOTE 2. PROPOSED MERGER
On February 17, 1999, the Bank entered into a definitive merger
agreement with James River Bankshares, under which the Bank would
become a wholly-owned subsidiary of James River Bankshares. The
agreement provides for State Bank of Remington, Inc.'s shareholders to
receive 2.9 shares of James River Bankshares common stock for each
outstanding share of the Bank. The transaction is expected to qualify
as a tax-free exchange and to be accounted for as a pooling of
interests. The merger is subject, among other conditions, to
shareholder and regulatory approvals.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
JRB was incorporated in Virginia.
The Virginia Stock Corporation Act ("Virginia Stock Corporation Act")
contains the following provisions with respect to the indemnification of
officers, directors, employees and agents and the limitation on liability of
officers and directors:
Section 13.1-692.1. Limitation on liability of officers and directors;
exception.
A. In any proceeding brought by or in the right of a corporation or
brought by or on behalf of shareholders of the corporation, the damages assessed
against an officer or director arising out of a single transaction, occurrence
or course of conduct shall not exceed the lesser of:
1. The monetary amount, including the elimination of
liability, specified in the articles of incorporation or, if approved by the
shareholders, in the bylaws as a limitation on or elimination of the liability
of the officer or director; or
2. The greater of (i) $100,000 or (ii) the amount of cash
compensation received by the officer or director from the corporation during the
twelve months immediately preceding the act or omission for which liability was
imposed.
B. The liability of an officer or director shall not be limited as
provided in this section if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law, including, without limitation, any claim of unlawful insider
trading or manipulation of the market for any security.
C. No limitation on or elimination of liability adopted pursuant to
this section may be affected by any amendment of the articles of incorporation
or bylaws with respect to any act or omission occurring before such amendment.
Section 13.1-696. Definitions. - In this article:
"Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
"Director" means an individual who is or was a director of a corporation
or an individual who, while a director of a corporation, is or was serving at
the corporation's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise. A director is considered to
be serving an employee benefit plan at the corporation's request if his duties
to the corporation also impose duties on, or otherwise involve services by, him
to the plan or to participants in or beneficiaries of the plan. "Director"
includes, unless the context requires otherwise, the estate or personal
representative of a director.
"Expenses" includes counsel fees.
II-1
<PAGE>
"Liability" means the obligation to pay a judgment, settlement, penalty,
fine, including any excise tax assessed with respect to an employee benefit
plan, or reasonable expenses incurred with respect to a proceeding.
"Official capacity" means, (i) when used with respect to a director, the
office of director in a corporation; or (ii) when used with respect to an
individual other than a director, as contemplated in Section 13.1-702, the
office in a corporation held by the officer or the employment or agency
relationship undertaken by the employee or agent on behalf of the corporation.
"Official capacity" does not include service for any other foreign or domestic
corporation or any partnership, joint venture, trust, employee benefit plan, or
other enterprise.
"Party" includes an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
"Proceeding" means any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal.
Section 13.1-697. Authority to indemnify.
A. Except as provided in subsection D of this section, a corporation
may indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if:
1. He conducted himself in good faith; and
2. He believed:
a. In the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests; and
b. In all other cases, that his conduct was at least not
opposed to its best interest; and
3. In the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
B. A director's conduct with respect to an employee benefit plan for
a purpose he believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of paragraph
2b of subsection A of this section.
C. The termination of a proceeding by judgment, order, settlement or
conviction is not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
D. A corporation may not indemnify a director under this section:
1. In connection with a proceeding by or in the right
of the corporation in which the director was adjudged liable to the
corporation; or
2. In connection with any other proceeding charging improper
personal benefit to him, whether or not involving action in his official
capacity, in which he was adjudged liable on the basis that personal benefit was
improperly received by him.
E. Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
II-2
<PAGE>
Section 13.1-698. Mandatory indemnification. Unless limited by its
articles of incorporation, a corporation shall indemnify a director who entirely
prevails in the defense of any proceeding to which he was a party because he is
or was a director of the corporation against reasonable expenses incurred by him
in connection with the proceeding.
Section 13.1-699. Advance for expenses.
A. A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if:
1. The director furnishes the corporation a written statement
of his good faith belief that he has met the standard of conduct described in
Section 13.1-697;
2. The director furnishes the corporation a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet the standard of conduct; and
3. A determination is made that the facts then known to those
making the determination would not preclude indemnification under this article.
B. The undertaking required by paragraph 2 of subsection A of this
section shall be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability to make
repayment.
C. Determinations and authorizations of payments under this section
shall be made in the manner specified in Section 13.1-701.
Section 13.1-700.1. Court orders for advances, reimbursement or
indemnification.
A. An individual who is made a party to a proceeding because he is
or was a director of a corporation may apply to a court for an order directing
the corporation to make advances or reimbursement for expenses or to provide
indemnification. Such application may be made to the court conducting the
proceeding or to another court of competent jurisdiction.
B. The court shall order the corporation to make advances and/or
reimbursement for expenses or to provide indemnification if it determines that
the director is entitled to such advances, reimbursement or indemnification and
shall also order the corporation to pay the director's reasonable expenses
incurred to obtain the order.
C. With respect to a proceeding by or in the right of the
corporation, the court may (i) order indemnification of the director to the
extent of his reasonable expenses if it determines that, considering all the
relevant circumstances, the director is entitled to indemnification even though
he was adjudged liable to the corporation and (ii) also order the corporation to
pay the director's reasonable expenses incurred to obtain the order of
indemnification.
D. Neither (i) the failure of the corporation, including its board
of directors, its independent legal counsel and its shareholders, to have made
an independent determination prior to the commencement of any action permit ted
by this section that the applying director is entitled to receive advances
and/or reimbursement nor (ii) the determination by the corporation, including
its board of directors, its independent legal counsel and its shareholders, that
the applying director is not entitled to receive advances and/or reimbursement
or indemnification shall create a presumption to that effect or otherwise of
itself be a defense to that director's application for advances for expenses,
reimbursement or indemnification.
II-3
<PAGE>
Section 13.1-701. Determination and authorization of indemnification.
A. A corporation may not indemnify a director under Section 13.1-697
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in Section 13.1-697.
B. The determination shall be made:
1. By the board of directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
2. If a quorum cannot be obtained under paragraph 1 of this
subsection, by majority vote of a committee duly designated by the board of
directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding;
3. By special legal counsel:
a. Selected by the board of directors or its committee
in the manner prescribed in paragraph 1 or 2 of this subsection; or
b. If a quorum of the board of directors cannot be
obtained under paragraph 1 of this subsection and a committee cannot be
designated under paragraph 2 of this subsection, selected by majority vote of
the full board of directors, in which selection directors who are parties may
participate; or
4. By the shareholders, but shares owned by or voted under
control of directors who are at the time parties to the proceeding may not be
voted on the determination.
C. Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under paragraph 3 of
subsection B of this section to select counsel.
Section 13.1-702. Indemnification of officers, employees and agents.
Unless limited by a corporation's articles of incorporation,
1. An officer of the corporation is entitled to mandatory
indemnification under Section 13.1-698, and is entitled to apply for
court-ordered indemnification under Section 13.1-700.1, in each case to the same
extent as a director; and
2. The corporation may indemnify and advance expenses under this
article to an officer, employee, or agent of the corporation to the same extent
as to a director.
Section 13.1-703. Insurance. A corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by him in that capacity or arising from his status as a director,
officer, employee, or agent, whether or not the corporation would have power to
indemnify him against the same liability under Section 13.1-697 or Section
13.1-698.
II-4
<PAGE>
Section 13.1-704. Application of article.
A. Unless the articles of incorporation or bylaws expressly provide
otherwise, any authorization of indemnification in the articles of incorporation
or bylaws shall not be deemed to prevent the corporation from providing the
indemnity permitted or mandated by this article.
B. Any corporation shall have power to make any further indemnity,
including indemnity with respect to a proceeding by or in the right of the
corporation, and to make additional provisions for advances and reimbursement of
expenses, to any director, officer, employee or agent that may be authorized by
the articles of incorporation or any bylaw made by the shareholders or any
resolution adopted, before or after the event, by the shareholders, except an
indemnity against (i) his willful misconduct, or (ii) a knowing violation of the
criminal law. Unless the articles of incorporation, or any such bylaw or
resolution expressly provide otherwise, any determination as to the right to any
further indemnity shall be made in accordance with Section 13.1-701B. Each such
indemnity may continue as to a person who has ceased to have the capacity
referred to above and may inure to the benefit of the heirs, executors and
administrators of such a person.
C. No right provided to any person pursuant to this section may be
reduced or eliminated by any amendment of the articles of incorporation or
bylaws with respect to any act or omission occurring before such amendment.
Article V of JRB's Article of Incorporation reads as follows:
(a) To the full extent that the Virginia Stock Corporation
Act, as it exists on the date hereof or may hereafter be amended, permits the
limitation or elimination of the liability of directors or officers, a director
or officer of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages.
(b) To the full extent permitted and in the manner prescribed
by the Virginia Stock Corporation Act and any other applicable law, the
Corporation shall indemnify a director or officer of the Corporation who is or
was a party to any proceeding by reason of the fact that he is or was such a
director or officer or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise.
(c) Reference herein to directors, officers, employees or
agents shall include former directors, officers, employees and agents and their
respective heirs, executors and administrators.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. The exhibits on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form S-4 and the Exhibit Index is
incorporated herein by reference.
(b) Financial Statements Schedules. Not applicable.
(c) Report, Opinion or Appraisal. The opinion of McKinnon & Company, Inc.
is furnished as Annex B to the proxy statement/prospectus.
Item 22. Undertakings. The undersigned Registrant hereby undertakes:
(1) (i) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement, to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
II-5
<PAGE>
in the information set forth in the registration statement, and to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; (ii) that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(iii) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(2) that prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(3) that every prospectus (i) that is filed pursuant to (2) above, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Securities Act
of 1933, as amended, and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be initial bona fide offering thereof.
(4) that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) to respond to requests for information that is incorporated by
reference into the Joint Proxy Statement and Prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(6) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
**2.1 Agreement and Plan of Merger dated February 17, 1999,
between State Bank of Remington, Inc. ("State Bank")
and James River Bankshares, Inc. (included as Annex A
to Joint Proxy Statement and Prospectus).
*2.2 Agreement and Plan of Reorganization dated November 21,
1994 (Incorporated by reference to the Registrant's
Registration Statement of Form S-4, Commission File No.
33-88322, previously filed with the Commission on
January 6, 1995).
*2.3 First Colonial Bank Agreement and Plan of Merger dated
June 30, 1995, as amended (Incorporated by reference to
the Registrant's Registration Statement on Form S-4,
Commission File No. 33-99254, previously filed with the
Commission on November 13, 1995).
*2.4 Bank of Isle of Wight Agreement and Plan of Merger
dated June 30, 1995 (Incorporated by reference to the
Registrant's Registration Statement on Form S-4,
Commission File No. 33-99254, previously filed with the
Commission on November 13, 1995).
*3.1 Articles of Incorporation of James River Bankshares,
Inc. (Incorporated by reference to the Registrant's
Registration Statement on Form S-4, Commission File No.
33-88322, previously filed with the Commission on
January 6, 1995.)
*3.2 Amended and Restated Bylaws of James River Bankshares,
Inc. (Incorporated by reference to the Registrant's
Form 10-K/A, Commission File No. 0-26314, previously
filed with the Commission on August 12, 1996).
*4 Form of Common Stock certificate of James River
Bankshares, Inc. (Incorporated by reference to the
Registrant's Registration Statement on Form S-4,
Commission File No. 33-88322, previously filed with the
Commission on January 6, 1995).
**5 Opinion of Kaufman & Canoles, P.C. (including consent)
regarding legality of the Common Stock being
registered.
**8 Tax Opinion of Kaufman & Canoles, P.C. (including
consent) with respect to the State Bank Merger.
*10.1 Agreement between The Bank of Waverly and First Union
National Bank, dated November 13, 1995, regarding
branch acquisitions (Incorporated by reference to
Amendment No. 1 to the Registrant's Registration
Statement on Form S-4, Commission File No. 33-99254,
previously filed with the Commission on December 22,
1995).
*10.2 Employment Agreement between James River Bankshares,
Inc. and Harold U. Blythe dated July 18, 1995
(Incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4,
Commission File No. 33-99254, previously filed with
the Commission on December 22, 1995).
*10.3 Employment Agreement between James River Bankshares,
Inc. and Glenn T. McCall dated July 18, 1995
(Incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4,
Commission File No. 33-99254, previously filed with the
Commission on December 22, 1995).
*10.4 Employment Agreement between First Colonial Bank and
James C. Stewart dated February 29, 1996 (Incorporated
by reference to the Registrant's Form 10-K, Commission
File No. 0-26314, previously filed with the Commission
on April 15, 1996).
*10.5 Employment Agreement between Bank of Isle of Wight and
Robert E. Spencer, Jr. dated February 29, 1996
(Incorporated by reference to the Registrant's Form
10-K, Commission File No. 0-26314, previously filed
with the Commission on April 15, 1996).
<PAGE>
*10.6 Employment Agreement between James River Bankshares,
Inc. and Donald W. Fulton, Jr. dated January 1, 1998.
(Incorporated by reference to the Registrant's Form
10-K, Commission File No. 0-26314, previously filed
with the Commission on March 30, 1998.)
*10.7 Early Retirement Agreement dated March 5, 1999, between
First Colonial Bank and James C. Stewart.
(Incorporated by reference to the Registrant's
Form 10-K, Commission File No. 0-26314, previously
filed with the Commission on March 29, 1999.)
*13 Annual Report to security holders for 1999.
(Incorporated by reference to the Registrant's
Form 10-K, Commission File No. 0-26314, previously
filed with the Commission on March 29, 1999.)
*21 List of Subsidiaries. (Incorporated by reference to
the Registrant's Form 10-K, Commission File
No. 0-26314, previously filed with the Commission on
April 15, 1996.)
**23.1 Consent of Goodman & Company, L.L.P.
**23.2 Consent of Yount Hyde & Barbour, P.C.
**23.3 Consent of Kaufman & Canoles (included in Opinion filed
as Exhibit 5 and in Tax Opinion filed as Exhibit 8).
**24 Power of Attorney relating to James River (appears on
the signature page hereto).
**27 Financial Data Schedule
***99.1 Copy of letter to Shareholders of James River and State
Bank.
**99.2 Copy of Notice of Annual Meeting of Shareholders of
James River.
**99.3 Copy of form of proxy for use by Shareholders of James
River.
**99.4 Copy of Notice of Special Meeting of Shareholders of
State Bank.
**99.5 Copy of form of proxy for use by Shareholders of State
Bank.
* (Not filed herewith. In accordance with Rule 12b-32
of the General Rules and Regulations under the Securities Exchange Act
of 1934, the exhibit is incorporated by reference.)
** Filed herewith.
*** To be filed later.
KAUFMAN & CANOLES
A Professional Corporation
Attorneys and Counselors at Law
One Commercial Place
P.O. Box 3037
Writer's Direct Dial Norfolk, VA 23514
757 / 624-3000 757 / 624-3000
fax: 757 / 624-3169
@kaufcan.com
EXHIBIT 5
May 12, 1999
James River Bankshares, Inc.
1514 Holland Road
Suffolk, VA 23434
Registration Statement on Form S-4
Registration No. 333-_______
Gentlemen:
We have acted as counsel for James River Bankshares, Inc., a Virginia
corporation (the "Company"), in connection with the preparation of the subject
registration statement, as amended (the "Registration Statement"), filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Act"), to register up to 843,978 shares of common stock, par
value $5.00 per share, of the Company (the "Common Stock"), to be issued as
described in the Registration Statement. In this connection, we have reviewed
(a) the Registration Statement; (b) the Company's Articles of Incorporation
and Bylaws; and (c) certain records of the Company's corporate proceedings as
reflected in its minute and stock books. In our examination, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals and the conformity with the original of all documents
submitted to us as copies thereof.
In our opinion, the 843,978 shares of Common Stock to be issued by the
Company as described in the Registration Statement, when and to the extent
issued in accordance with the terms of the proxy statement/prospectus
contained in the Registration Statement, will be legally issued, fully paid
and non-assessable.
We hereby consent to use of this opinion as Exhibit 5 to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving such consent, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of
the Act and the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Kaufman & Canoles
Kaufman & Canoles,
a Professional Corporation
Chesapeake Newport News Virginia
757 / 547-7177 757 / 873-6300 Beach
757 /
491-4000
www.kaufmanandcanoles.com
KAUFMAN & CANOLES
A Professional Corporation
Attorneys and Counselors at Law
One Commercial Place
P.O. Box 3037
Writer's Direct Dial Norfolk, VA 23514
757 / 624-3000 757 / 624-3000
fax: 757 / 624-3169
@kaufcan.com
EXHIBIT 8
May 12, 1999
State Bank of Remington, Inc.
P.O. Box 158
Remington, VA 22734
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger ("Merger") of State Bank of Remington,
Inc. ("State Bank") with and into James River Acquisition Bank, Inc., a
wholly owned subsidiary of James River Bankshares, Inc. ("James River"),
pursuant to an Agreement and Plan of Merger dated February 17, 1999 (the
"Agreement") by and between James River and State Bank. Upon the completion
of the Merger, State Bank will cease to exist and James River Acquisition
Bank, Inc. will be the successor corporation and will change its name to
State Bank of Remington, Inc.
We have reviewed the section titled "Material Federal Income Tax
Consequences of the Merger" contained in the proxy statement/prospectus, in
connection with the Agreement, as part of the filing of a Registration
Statement on Form S-4 ("Registration Statement") under the Securities Act of
1933 ("Securities Act"). At the effective date of the Merger, and pursuant
to the Agreement, the shares of common stock of State Bank ("State Bank
Common Stock") will be converted into shares of common stock of James River
("James River Common Stock"), the shareholders of State Bank will become
shareholders of James River, and the successor State Bank of Remington, Inc.
will continue to conduct its business operations as a wholly owned subsidiary
of James River.
In connection with the preparation of this opinion, we have examined
such documents concerning the Merger and the Agreement as we have deemed
necessary. We have based our conclusions on the Internal Revenue Code of
1986 (the "Code") and the regulations thereunder, each as amended from time
to time and in effect as of the date of this letter, as well as relevant
judicial and administrative interpretations.
Our opinion is based on the assumptions that (i) the transactions
contemplated under the Agreement constitute all of the material transactions
relating to the shares of James River Common Stock to be issued in the
Merger, and (ii) there are no agreements, arrangements, or understandings of
Chesapeake Newport News Virginia
757 / 547-7177 757 / 873-6300 Beach
757 /
491-4000
www.kaufmanandcanoles.com
<PAGE>
the State Bank shareholders regarding disposition of the James River Common
Stock not reflected in such documents. We have relied on your
representations that the information presented to us in such documents or
otherwise furnished to us accurately and completely describes all material
facts relevant to our opinion. The opinion set forth below is based on,
among other things, the initial and continuing accuracy of the information,
statements and representations set forth in the documents referred to above.
No assurance can be given that future legislative or administrative
changes or court decisions will not significantly modify the statements,
opinions or analysis expressed herein. Any such changes may or may not be
retroactive with respect to transactions completed prior to the date such
changes are announced.
The tax consequences to any particular shareholder may be affected by
matters not discussed below. Certain types of shareholders may be subject to
special rules that are not addressed in this summary. Each shareholder
should be strongly urged to consult his own tax advisor concerning the
effects of Federal income tax law and regulations, and interpretations
thereof, on his own tax situation. This opinion does not address state or
local income tax consequences of the Merger.
Based upon the foregoing, subject to the limitations expressed herein,
and with due regard to such legal considerations as we deem necessary, it is
our opinion that:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
2. No gain or loss will be recognized by James River or State Bank
as a result of the Merger.
3. No gain or loss will be recognized by a State Bank shareholder to
the extent he or she receives James River Common Stock solely in exchange for
his or her State Bank Common Stock pursuant to the Merger.
4. The tax basis of the James River Common Stock received by each
State Bank shareholder will be the same as the tax basis of the State Bank
Common Stock surrendered in exchange therefor.
5. The holding period of each share of James River Common Stock
received by each State Bank shareholder in exchange for State Bank Common
Stock will include the period for which such shareholder held the State Bank
Common Stock exchanged therefor, provided such State Bank Common Stock is a
capital asset in the hands of such holder at the effective date.
We hereby consent to use of this opinion as Exhibit 8 to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving such consent, we do not thereby admit that we are
acting within the category of persons whose consent is required under Section
7 of the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Kaufman & Canoles
KAUFMAN & CANOLES
a Professional Corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the inclusion in the Form S-4
Registration Statement for James River Bankshares, Inc. of our report, dated
January 28 1999, on the consolidated financial statements of James River
Bankshares, Inc. and its subsidiaries as of December 31, 1998 and 1997, and
for each of the years in the three year period ended December 31, 1998, and
to the reference to our firm in the "Experts Section" of the Form S-4
Registration Statement.
/s/ Goodman & Company, L.L.P.
131 Temple Lake Drive, Suite 1
Colonial Heights, Virginia 23834
May 10, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the inclusion in the Form S-4
Registration Statement for James River Bankshares, Inc. of our report, dated
January 27, 1999 except for Note 16 as to which the date is February 17,
1999, on the financial statements of State Bank of Remington, Inc. as of
December 31, 1998 and 1997, and for each of the years in the two year period
ended December 31, 1998, and to the reference to our firm in the "Experts"
section of the Form S-4 Registration Statement.
/s/ Yount, Hyde & Barbour, P.C.
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,111,264
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,525,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,735,753
<INVESTMENTS-CARRYING> 7,217,108
<INVESTMENTS-MARKET> 7,361,404
<LOANS> 39,280,218
<ALLOWANCE> 446,283
<TOTAL-ASSETS> 70,238,222
<DEPOSITS> 62,087,291
<SHORT-TERM> 158,824
<LIABILITIES-OTHER> 475,793
<LONG-TERM> 0
0
0
<COMMON> 2,910,270
<OTHER-SE> 4,606,044
<TOTAL-LIABILITIES-AND-EQUITY> 70,238,222
<INTEREST-LOAN> 823,054
<INTEREST-INVEST> 816,058
<INTEREST-OTHER> 41,741
<INTEREST-TOTAL> 1,180,853
<INTEREST-DEPOSIT> 492,997
<INTEREST-EXPENSE> 494,128
<INTEREST-INCOME-NET> 686,725
<LOAN-LOSSES> 7,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 592,465
<INCOME-PRETAX> 188,345
<INCOME-PRE-EXTRAORDINARY> 188,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,660
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 4.47
<LOANS-NON> 0
<LOANS-PAST> 189,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 446,118
<CHARGE-OFFS> 7,965
<RECOVERIES> 630
<ALLOWANCE-CLOSE> 446,283
<ALLOWANCE-DOMESTIC> 383,283
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 63,000
</TABLE>
EXHIBIT 99.2
JAMES RIVER BANKSHARES, INC.
1514 HOLLAND ROAD
SUFFOLK, VIRGINIA 23434
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 1999
The Annual Meeting of Shareholders of James River Bankshares, Inc.
("James River") will be held on ___________, 1999, at ____ _.m., at
___________________, Suffolk, VA ________, for the following purposes:
(1) To approve the issuance of James River common stock in
connection with the Agreement and Plan of Merger ("Merger
Agreement") dated February 17, 1999, by and between State Bank of
Remington, Inc. and James River Bankshares, Inc., which agreement
provides for State Bank to be merged with and into JRB
Acquisition Bank, Inc., a wholly owned subsidiary of James River,
so that after the merger State Bank will, in effect, become a
wholly owned subsidiary of James River;
(2) To elect nine (9) directors to hold office for a term of one year
and until their successors are elected and qualified;
(3) To act on a proposal to ratify the appointment of Yount, Hyde &
Barbour, P.C. as independent auditors for the ensuing year; and
(4) To transact such other business as may properly come before the
annual meeting or any adjournment or postponement of the meeting.
THE JAMES RIVER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT JAMES
RIVER SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE ISSUANCE OF SHARES OF
COMMON STOCK TO SHAREHOLDERS OF STATE BANK IN THE MERGER. PLEASE READ THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS FOR A DETAILED DESCRIPTION OF
THE PROPOSAL.
Only holders of record of James River common stock as of the close of
business on __________, 1999, are entitled to notice of and to vote at the
annual meeting and any adjournments or postponements of the meeting.
We direct your attention to the documents submitted with this Notice.
By Order of the Board of Directors
/s/ __________________
_____________________
Corporate Secretary
Suffolk, Virginia
, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, WE URGE YOU
TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE
MANNER PROVIDED IN THE ACCOMPANYING DOCUMENT.
EXHIBIT 99.3
JAMES RIVER BANKSHARES, INC.
Proxy Solicited on Behalf of the
Board of Directors for
Annual Meeting of Shareholders
to be Held ________ ___, 1999
The undersigned, having received the Notice of Annual Meeting of
Shareholders and Joint Proxy Statement/Prospectus dated _______ ____, 1999,
hereby appoints G. P. Jackson and Harold U. Blythe (each with power to act
alone) as proxies, with full power of substitution, and hereby authorizes
them to represent and vote, as directed below, all the shares of the Common
Stock of James River Bankshares, Inc. held of record by the undersigned on
_______ __, 1999, at the Annual Meeting of Shareholders to be held on _____
___, 1999, and any adjournment thereof.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR"
PROPOSALS 1, 2 AND 3
1. To approve the issuance of James River Bankshares, Inc. common stock
pursuant to the Agreement and Plan of Merger dated February 17, 1999,
by and between State Bank of Remington, Inc. and James River
Bankshares, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
2. ELECTION OF DIRECTORS
FOR all nominees listed (except as indicated to the contrary) |_|
WITHHOLD AUTHORITY to vote for all nominees listed |_|
Harold U. Blythe G. P. Jackson
James E. Butler, Jr. Ben P. Kanak
Bruce B. Gray John A. Ramsey, Jr.
Elmon T. Gray Robert E. Spencer, Jr.
Horace R. Higgins, Jr.
(INSTRUCTIONS: To withhold authority to vote for any
individual nominee write the nominee's name on the
line provided below.)
___________________________________________________
3. TO RATIFY the appointment by the Board of Directors of Yount,
Hyde & Barbour, P.C. as the James River Bankshares, Inc.'s
independent auditors for the year ending December 31, 1999.
|_| FOR |_| AGAINST |_| ABSTAIN
IN THEIR DISCRETION, on such other matters as may properly come
before the meeting, or, if any nominee listed in Proposal 2 above
is unable to serve for any reason, to vote or refrain from voting
for a substitute nominee or nominees.
This proxy is revocable at any time prior to its exercise. This
proxy, when properly executed, will be voted as directed. Where
no direction is given, this proxy will be voted for Proposals 1,2
and 3.
Please sign your name(s)
exactly as they appear hereon. If
signer is a corporation, please
sign the full corporate name by
duly authorized officer. If an
attorney, guardian, administrator,
executor, or trustee, please give
full title as such. If a limited
liability company or partnership,
sign in limited liability company
or partnership name by authorized
person.
Date: __________________, 1999
______________________________
______________________________
Please complete, date, sign and
return this proxy promptly in the
accompanying envelope.
EXHIBIT 99.4
STATE BANK OF REMINGTON, INC.
P.O. Box 158
Remington, VA 22734
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 1999
A special meeting of shareholders of State Bank of Remington, Inc.
("State Bank") will be held at ____ _.m. on ___________, 1999 at
__________________, Remington, VA ______, to consider the following matters:
(1) The proposal to approve the Agreement and Plan of Merger (and
related Plan of Merger) (the "Merger Agreement") dated
February 17, 1999, by and between State Bank and James River
Bankshares, Inc. ("James River"), which agreement provides for
State Bank to merge with and into JRB Acquisition Bank, Inc., a
wholly owned subsidiary of James River, so that after the merger
State Bank will, in effect, become a wholly owned subsidiary of
James River; and
(2) Any other business properly brought before the special meeting or
any adjournment or postponement thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
APPROVAL OF THE MERGER AGREEMENT.
Only State Bank shareholders of record at the close of business on
__________, 1999 are entitled to notice of, and to vote at, this special
meeting and any adjournments or postponements thereof.
Your attention is directed to the Joint Proxy Statement/Prospectus
delivered with this Notice.
By Order of the Board of Directors
_________________
_________________
Corporate Secretary
Remington, Virginia
_________________, 1999
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON,
YOU ARE URGED TO VOTE PROMPTLY BY DATING, SIGNING AND RETURNING THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME
PRIOR TO ITS EXERCISE IN THE MANNER PROVIDED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
EXHIBIT 99.5
STATE BANK OF REMINGTON, INC.
Proxy Solicited on Behalf of the
Board of Directors for
Special Meeting of Shareholders
to be Held ________ ___, 1999
The undersigned, having received the accompanying Notice of Special
Meeting of Shareholders and Joint Proxy Statement/Prospectus dated _______
____, 1999, hereby appoints ________and _________(each with power to act
alone) as proxies, with full power of substitution, and hereby authorizes
them to represent and vote, as directed below, all the shares of the Common
Stock of State Bank of Remington, Inc. held of record by the undersigned on
_______ __, 1999, at the Special Meeting of Shareholders to be held on _____
___, 1999, and any adjournment thereof.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR"
PROPOSAL 1
1. To approve the Agreement and Plan of Merger dated February 17, 1999,
and related plan of merger, by and between State Bank of Remington,
Inc. and James River Bankshares, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
IN THEIR DISCRETION, on such other matters as may properly come
before the meeting.
This proxy is revocable at any time prior to its exercise. This
proxy, when properly executed, will be voted as directed. Where
no direction is given, this proxy will be voted for Proposal 1
Please sign your name(s)
exactly as they appear hereon. If
signer is a corporation, please
sign the full corporate name by
duly authorized officer. If an
attorney, guardian, administrator,
executor, or trustee, please give
full title as such. If a limited
liability company or partnership,
sign in limited liability company
or partnership name by authorized
person.
Date: __________________, 1999
______________________________
______________________________
Please complete, date, sign and
return this proxy promptly in the
accompanying envelope.
