Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
On
February 8, 2017, FB Financial Corporation (FB Financial or the Company), and its wholly-owned banking subsidiary, FirstBank, entered into a Stock Purchase Agreement (as amended, the stock purchase agreement)
with Clayton HC, Inc., a Tennessee Corporation (Clayton HC or Seller), Clayton Bank and Trust, a Tennessee state bank and wholly-owned subsidiary of Seller (CBT), American City Bank, a Tennessee state bank and
wholly-owned subsidiary of Seller (ACB, and together with CBT, the Clayton Banks), and James L. Clayton, the approximately 98% owner of Seller (Mr. Clayton). On the terms and subject to the conditions set
forth in the stock purchase agreement, FirstBank has committed to purchase from Seller all of the issued and outstanding shares of the Clayton Banks (the acquisition). Following the consummation of the acquisition, the Clayton Banks will
merge with and into FirstBank, with FirstBank continuing as the surviving banking corporation. On May 26, 2017, the parties amended the stock purchase agreement to address certain competitive effects concerns raised by the Federal Reserve Board
with respect to the proposed acquisition.
CBT is headquartered in Knoxville, Tennessee and has assets of approximately $885 million.
CBT has 13 branches across its markets in Knoxville, Jackson, Oakland, Covington, Henderson, Lexington, Friendship and Cookeville, Tennessee. ACB is headquartered in Tullahoma, Tennessee and has assets of approximately $314 million. ACB
operates five branches in Tullahoma, Manchester, Lynchburg and Decherd, Tennessee.
As consideration for the acquisition, Clayton HC will
receive (i) $124,200,000 in cash from the Company, (ii) 1,521,200 shares of the Companys common stock, $1.00 par value per share (the stock consideration), and (iii) a $60 million
Fixed-to-Floating
Rate Subordinated Note due 2027 issued by FirstBank (the Subordinated Note), subject to the right of FirstBank to reduce the principal amount of the Subordinated Note to be
issued at the closing by paying all or a portion of such principal amount in cash at FirstBanks discretion.
In addition to this
consideration, the Clayton Banks will also distribute excess capital in the amount of $79.5 million to Clayton HC at or immediately prior to the closing (the excess capital payment). In the event that the Clayton Banks are
restricted from making the entire excess capital payment to Clayton HC due to regulatory restrictions or applicable liquidity policies, then FirstBank shall be required to pay any shortfall to Clayton HC at the closing. The Clayton Banks will also
distribute to Clayton HC certain specified assets, with a book value of approximately $4.8 million, prior to the closing. The Clayton Banks will also be permitted to make certain distributions prior to closing to Seller in amounts intended to
cover the Sellers S corporation tax liabilities attributable to the earnings of the Clayton Banks for the period prior to the closing.
On May 26, 2017, the Company entered into securities purchase agreements with accredited investors pursuant to which the Company agreed to
sell in a private placement (the Private Placement) an aggregate of 4,806,710 shares of the Companys common stock at a purchase price of $33.00 per share in order to fund the $124,200,000 cash payment to Seller at the closing. As
part of the Private Placement, the Company entered into securities purchase agreements with Gordon Inman, an emeritus director and employee of the Company, providing for the sale of 180,303 shares to Mr. Inman (such shares, the Private
Placement Shares).
Before we can complete the acquisition, our shareholders must approve the issuance of the stock consideration to
Clayton HC pursuant to the terms of the stock purchase agreement. We are also seeking shareholder approval for the issuance of the Private Placement Shares to Mr. Inman pursuant to the terms of the Private Placement. As a result, a special
meeting of the Companys shareholders will be held on , 2017 for these purposes.
We cannot complete the acquisition unless our shareholders approve the issuance of the stock consideration to Clayton HC pursuant to the terms
of the stock purchase agreement. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend our special meeting of shareholders in person, please submit a proxy to vote your shares as promptly as
possible so that your shares may be represented and voted at the special meeting.
The Companys board of directors has unanimously
(i) determined that the terms of the stock purchase agreement and the transactions contemplated thereby, including the acquisition, are fair to and in the best interests of the Company and its shareholders and (ii) approved and declared
advisable the stock purchase agreement and the transactions contemplated thereby, including the acquisition. The Companys board of directors unanimously recommends that the Companys shareholders vote
FOR
the proposal to approve
the issuance of the Stock Consideration pursuant to the stock purchase agreement,
FOR
the proposal to ratify and approve the issuance of the private placement shares to Mr. Inman and
FOR
the proposal to approve any motion to
adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of the Stock Consideration pursuant to the stock purchase agreement.
We look forward to the successful completion of the acquisition of the
Clayton Banks and thank you for your prompt attention to this important matter.
Christopher T. Holmes,
This proxy statement is dated , 2017 and is
first being mailed to FB Financial shareholders on or about , 2017.
FUTURE SHAREHOLDER PROPOSALS
FB Financial will hold a regular annual meeting in 2018 regardless of whether the acquisition is completed. Shareholders wishing to include
proposals in our proxy materials in relation to our 2018 Annual Meeting of Shareholders must submit the same in writing, by mail, first-class postage
pre-paid,
to General Counsel, FB Financial Corporation, 211
Commerce Street, Suite 300, Nashville, Tennessee 37201, which must be received at our executive office on or before December 22, 2017 (120 days before the date of mailing based on this years Proxy Statement date). Such proposals must also
meet the other requirements and procedures prescribed by
Rule 14a-8
under the Exchange Act relating to shareholders proposals. We will only include in our proxy materials those shareholder proposals
that we receive before the deadline and that are proper for shareholder action.
Although information received after such date will not be
included in our proxy materials sent to shareholders, a shareholder proposal may still be presented at the annual meeting if such proposal complies with our bylaws. In accordance with our bylaws, shareholder proposals may be brought before an annual
meeting only if such proposal is made pursuant to written notice timely given to the Companys Corporate Secretary accompanied by certain information required by our bylaws. To be timely, a shareholders written notice must be received at
the registered office of the Company no earlier than 120 days and no later than 90 days prior to the first anniversary of the preceding years annual meeting, provided, however, that in the event that the date of the annual meeting is advanced
more than 30 days prior to such anniversary date or delayed more than 60 days after such anniversary date, then to be timely such notice must be received by the Company no earlier than 120 days prior to such annual meeting and no later than the
later of 90 days prior to the date of the meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of
the date of such meeting is first made by the Company. For shareholder proposals for the 2018 annual meeting of shareholders, written notice must be received between January 18, 2018 and February 17, 2018. The proposal must be sent to:
General Counsel, FB Financial Corporation, 211 Commerce Street, Suite 300, Nashville, Tennessee 37201 and will need to comply with the SECs rules and regulations.
OTHER MATTERS AT THE SPECIAL MEETING
As of the date of this proxy statement, the FB Financial board of directors does not know of any matters that will be presented for
consideration at the FB Financial special meeting other than as described in this proxy statement. If any other matters come before the FB Financial special meeting or any adjournment or postponement thereof and shall be voted upon, the proposed
proxy will be deemed to confer authority to the individuals named as authorized therein to vote the shares represented by the proxy as to any matters that fall within the purposes set forth in the notice of special meeting. It is intended that the
persons named in the enclosed proxy card and acting thereunder will vote in accordance with their best judgment on such matters.
A list
of the names of FB Financial shareholders of record will be available at least two (2) business days after notice of the FB Financial special meeting and such list shall be open to examination and to copy by any FB Financial shareholder through
the date of the special meeting during normal business hours at FB Financials office at 211 Commerce Street, Suite 300, Nashville, Tennessee 37201 and that the list shall be produced and kept open at the time and place of the FB Financial
special meeting during the duration thereof.
WHERE YOU CAN FIND MORE INFORMATION
FB Financial files annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. You may
read and copy any of this information at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further
71
information on the Public Reference Room. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including FB
Financial, who files electronically with the SEC. The address of that site is
www.sec.gov
.
Investors may also consult FB
Financials website for more information about FB Financial. FB Financials website is
www.firstbankonline.com
You
should rely only on the information contained in this proxy statement. No one has been authorized to provide you with information that is different from that contained in this proxy statement. This proxy statement is dated
, 2017. You should not assume that the information contained in this proxy statement is accurate as of any date other than that
date. Neither our mailing of this proxy statement to FB Financial shareholders nor the issuance by FB Financial of shares of common stock pursuant to the stock purchase agreement will create any implication to the contrary.
This proxy statement contains a description of the representations and warranties that FB Financial, Clayton HC and the Clayton Banks have
made in the stock purchase agreement. Representations and warranties made by FB Financial, Clayton HC, the Clayton Banks and other applicable parties are also set forth in contracts and other documents (including the stock purchase agreement) that
are attached or filed as exhibits to this proxy statement or are incorporated by reference into this proxy statement. These materials are included or incorporated by reference only to provide you with information regarding the terms and conditions
of the agreements, and not to provide any other factual information regarding FB Financial, Clayton HC, the Clayton Banks or their businesses. Accordingly, the representations and warranties and other provisions of the stock purchase agreement
should not be read alone, but instead should be read only in conjunction with the other information provided elsewhere in this proxy statement or incorporated by reference into this proxy statement.
72
Annex A-1
STOCK PURCHASE AGREEMENT
BY AND AMONG
FB
FINANCIAL CORPORATION,
FIRSTBANK,
CLAYTON HC, INC.,
CLAYTON BANK AND TRUST
AMERICAN CITY BANK
AND
JAMES L. CLAYTON
DATED AS OF FEBRUARY 8, 2017
TABLE OF CONTENTS
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ARTICLE I PURCHASE AND SALE OF THE SHARES
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A-1-1
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Section 1.01
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Purchase and Sale of the Bank Shares
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A-1-1
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Section 1.02
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Total Consideration
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A-1-1
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Section 1.03
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Additional Actions
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A-1-2
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Section 1.04
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Bank Merger
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A-1-2
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Section 1.05
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Reservation of Right to Revise Structure
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A-1-2
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ARTICLE II PROCEDURE FOR CLOSING
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A-1-2
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Section 2.01
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Time and Place of Closing
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A-1-2
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Section 2.02
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Transactions at Closing
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A-1-3
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER ENTITIES
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A-1-3
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Section 3.01
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Making of Representations and Warranties
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A-1-3
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Section 3.02
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Organization, Standing and Authority
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A-1-3
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Section 3.03
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Capital Stock
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A-1-4
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Section 3.04
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Subsidiaries
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A-1-5
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Section 3.05
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Corporate Power; Minute Books
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A-1-5
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Section 3.06
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Corporate Authority
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A-1-6
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Section 3.07
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Regulatory Approvals; No Defaults
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A-1-6
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Section 3.08
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Financial Statements; Internal Controls
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A-1-6
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Section 3.09
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Regulatory Reports
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A-1-8
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Section 3.10
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Absence of Certain Changes or Events
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A-1-8
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Section 3.11
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Legal Proceedings
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A-1-9
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Section 3.12
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Compliance With Laws
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A-1-9
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Section 3.13
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Seller Material Contracts; Defaults
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A-1-9
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Section 3.14
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Agreements with Regulatory Agencies
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A-1-11
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Section 3.15
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Brokers
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A-1-11
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Section 3.16
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Employee Benefit Plans
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A-1-11
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Section 3.17
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Labor Matters
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A-1-13
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Section 3.18
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Environmental Matters
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A-1-13
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Section 3.19
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Tax Matters
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A-1-14
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Section 3.20
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Investment Securities and Commodities
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A-1-16
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Section 3.21
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Derivative Transactions
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A-1-17
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Section 3.22
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Regulatory Capitalization
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A-1-17
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Section 3.23
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Loans; Nonperforming and Classified Assets
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A-1-17
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Section 3.24
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Allowance for Loan and Lease Losses
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A-1-18
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A-i
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Section 3.25
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Trust Business; Administration of Fiduciary Accounts
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A-1-18
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Section 3.26
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Investment Management and Related Activities
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A-1-19
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Section 3.27
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Repurchase Agreements
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A-1-19
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Section 3.28
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Deposit Insurance
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A-1-19
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Section 3.29
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Community Reinvestment Act, Anti-money Laundering and Customer Information Security
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A-1-19
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Section 3.30
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Transactions with Affiliates
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A-1-19
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Section 3.31
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Tangible Properties and Assets
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A-1-19
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Section 3.32
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Intellectual Property
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A-1-20
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Section 3.33
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Insurance
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A-1-21
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Section 3.34
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Antitakeover Provisions
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A-1-21
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Section 3.35
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Seller Information
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A-1-21
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Section 3.36
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Transaction Costs
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A-1-21
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Section 3.37
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Privacy of Customer Information
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A-1-21
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Section 3.38
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Disaster Recovery and Business Continuity
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A-1-22
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Section 3.39
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No Knowledge of Breach
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A-1-22
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Section 3.40
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Investment Representations
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A-1-22
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER BANK
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A-1-23
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Section 4.01
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Making of Representations and Warranties
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A-1-23
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Section 4.02
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Organization, Standing and Authority
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A-1-23
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Section 4.03
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Capital Stock
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A-1-24
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Section 4.04
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Corporate Power
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A-1-24
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Section 4.05
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Corporate Authority
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A-1-24
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Section 4.06
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SEC Documents; Financial Statements
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A-1-24
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Section 4.07
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Regulatory Reports
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A-1-25
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Section 4.08
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Regulatory Approvals; No Defaults
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A-1-25
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Section 4.09
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Buyer Information
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A-1-25
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Section 4.10
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Absence of Certain Changes or Events
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A-1-25
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Section 4.11
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Compliance with Laws
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A-1-25
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Section 4.12
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Brokers
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A-1-26
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Section 4.13
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Tax Matters
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A-1-26
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Section 4.14
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Regulatory Capitalization
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A-1-26
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Section 4.15
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No Financing
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A-1-26
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Section 4.16
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No Knowledge of Breach
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A-1-26
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A-ii
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ARTICLE V COVENANTS
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A-1-26
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Section 5.01
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Covenants of Seller Entities
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A-1-26
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Section 5.02
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Covenants of Buyer
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A-1-31
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Section 5.03
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Commercially Reasonable Efforts
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A-1-31
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Section 5.04
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Shareholder Approval
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A-1-31
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Section 5.05
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Proxy Statement; Stock Consideration
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A-1-32
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Section 5.06
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Registration; NYSE Listing; Finance Committee
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A-1-32
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Section 5.07
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Regulatory Filings; Consents
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A-1-33
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Section 5.08
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Publicity
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A-1-34
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Section 5.09
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Access; Current Information
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A-1-34
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Section 5.10
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No Solicitation by Seller
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A-1-35
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Section 5.11
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Indemnification
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A-1-35
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Section 5.12
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Employees; Benefit Plans
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A-1-36
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Section 5.13
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Notification of Certain Changes
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A-1-38
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Section 5.14
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Transition; Informational Systems Conversion
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A-1-38
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Section 5.15
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No Control of Other Partys Business
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A-1-38
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Section 5.16
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[RESERVED]
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A-1-39
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Section 5.17
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Certain Litigation
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A-1-39
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Section 5.18
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Director Resignations
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A-1-39
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Section 5.19
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Coordination
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A-1-39
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Section 5.20
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Transactional Expenses
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A-1-40
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Section 5.21
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Confidentiality
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A-1-40
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Section 5.22
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Allocation of Buyer Consideration
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A-1-40
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Section 5.23
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Notice of
Non-Renewal
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A-1-41
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Section 5.24
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Seller Bank Distributions
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A-1-41
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Section 5.25
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Corporate Governance Matters
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A-1-42
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Section 5.26
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Employment and
Non-Competition
Agreements
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A-1-43
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Section 5.27
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Insurance Coverage
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A-1-43
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Section 5.28
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Additional Agreements
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ARTICLE VI CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
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A-1-43
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Section 6.01
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Conditions to Obligations of the Parties to Effect the Stock Purchase
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A-1-43
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Section 6.02
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Conditions to Obligations of Seller
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A-1-44
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Section 6.03
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Conditions to Obligations of Buyer
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A-1-44
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Section 6.04
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Frustration of Closing Conditions
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A-1-45
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A-iii
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ARTICLE VII TERMINATION
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A-1-45
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Section 7.01
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Termination
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A-1-45
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Section 7.02
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Termination Fee; Liquidated Damages
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A-1-47
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Section 7.03
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Effect of Termination
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A-1-47
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ARTICLE VIII INDEMNIFICATION
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A-1-47
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Section 8.01
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Indemnification Obligation
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A-1-47
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Section 8.02
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Termination of Indemnification Obligation and Consideration Retention
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A-1-48
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ARTICLE IX
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A-1-48
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Section 9.01
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Voting Agreement. Clayton agrees with, and covenants to, Buyer and Buyer Bank as follows:
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A-1-48
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Section 9.02
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Covenants. Clayton agrees with, and covenants to, the Buyer and Buyer Bank as follows:
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A-1-49
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ARTICLE X TAX MATTERS
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A-1-49
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Section 10.01
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Tax Returns
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A-1-49
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Section 10.02
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Cooperation on Tax Matters
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A-1-50
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Section 10.03
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Termination of Tax Sharing Agreements
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A-1-50
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Section 10.04
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Seller Tax Responsibilities
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A-1-50
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ARTICLE XI DEFINITIONS
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A-1-50
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Section 11.01
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Definitions
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A-1-50
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ARTICLE XII MISCELLANEOUS
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A-1-59
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Section 12.01
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Survival
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A-1-59
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Section 12.02
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Waiver; Amendment
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A-1-59
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Section 12.03
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Governing Law; Waiver of Right to Trial by Jury
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A-1-59
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Section 12.04
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Expenses
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A-1-59
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Section 12.05
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Notices
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A-1-59
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Section 12.06
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Entire Understanding; No Third Party Beneficiaries
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A-1-60
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Section 12.07
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Severability
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A-1-60
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Section 12.08
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Enforcement of the Agreement
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A-1-61
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Section 12.09
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Interpretation
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A-1-61
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Section 12.10
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Assignment
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A-1-61
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Section 12.11
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Counterparts
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A-1-61
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A-iv
LIST OF EXHIBITS
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Exhibit
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Description
|
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A
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Form of Bank Merger Agreement
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B
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Form of Release
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C
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Form of Subordinated Note
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D
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Form of Amended and Restated Shareholders Agreement
|
A-v
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is dated as of February 8, 2017 (this
Agreement
), by and among FB Financial
Corporation, a Tennessee corporation (
Buyer
), FirstBank, a Tennessee state banking corporation and a wholly-owned subsidiary of Buyer (
Buyer
Bank
), Clayton HC, Inc., a Tennessee
corporation (
Seller
), Clayton Bank and Trust, a Tennessee state bank and wholly-owned subsidiary of Seller (
CBT
), American City Bank, a Tennessee state bank and wholly-owned subsidiary of Seller
(
ACB
), and James L. Clayton, a significant shareholder of Seller (
Clayton
). Each of CBT and ACB are referred to herein as a
Seller
Bank
and, together, as the
Seller
Banks
. Each of Seller, CBT and ACB are referred to herein as a
Seller
Entity
and, together, as the
Seller
Entities
.
W I T N E S S E T H
WHEREAS
, Seller owns (1) all the issued and outstanding shares (the
CBT
Shares
) of common
stock, $25.00 par value per share, of CBT (the
CBT
Common
Stock
), and (2) all of the issued and outstanding shares (the
ACB
Shares
, and, together with
CBT Shares, the
Bank
Shares
) of common stock, $362.092 par value per share, of ACB (the
ACB
Common
Stock
, and, together with CBT Common Stock, the
Bank
Common
Stock
);
WHEREAS
, Seller wishes to sell to Buyer Bank, and Buyer
Bank wishes to purchase from Seller, the Bank Shares, subject to the terms and conditions set forth herein (the
Stock
Purchase
);
WHEREAS,
Clayton and the Clayton Bancorp, Inc. Employee Stock Ownership Plan (the
Seller
ESOP
and together with Clayton, the
Shareholders
, and each a
Shareholder
) own all of the issued and outstanding shares of capital stock or other equity ownership
interests of the Seller;
WHEREAS
, the parties desire to make certain representations, warranties and agreements in connection with
the transactions described in this Agreement and to prescribe certain conditions thereto; and
WHEREAS
, the parties desire that
capitalized terms used herein shall have the definitions ascribed to such terms when they are first used herein or as otherwise specified in ARTICLE X hereof.
NOW,
THEREFORE
, in consideration of the mutual promises herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.01
Purchase and Sale of the Bank Shares
. On and subject to the terms and conditions of this Agreement, at the Effective
Time, Seller shall sell, and Buyer Bank shall purchase, all of Sellers right, title, and interest in and to the Bank Shares. Seller shall transfer and convey, and Buyer Bank shall purchase, the Bank Shares free and clear of any and all Liens.
Section 1.02
Buyer Payments
. Seller shall receive the following consideration from Buyer and Buyer Bank as consideration for
the Bank Shares:
(a) 5,860,000 shares of Buyers common stock (the
Stock
Consideration
),
$1.00 par value per share (the
Buyer
Common
Stock
).
A-1-1
(b) Sixty Million Dollars ($60,000,000) in aggregate principal amount of Buyer Banks 5.5%
Fixed-to-Floating
Rate Subordinated Note due 2027 (the
Debt
Consideration
, and together with the Stock Consideration, the
Buyer
Consideration
), in the form attached hereto as
Exhibit C
.
Section 1.03
Pre-Closing
Return of Capital
. Seller shall receive the following return of capital from the Seller Banks at or prior to the Closing:
(a)
Cash
Dividend
. Special cash dividend of Seventy-Nine Million Dollars Five Hundred Thousand Dollars ($79,500,000) (the
Special
Cash
Dividend
) from the Seller Banks to the Seller paid as set forth and in accordance with
Section 5.24(c)
. If the Seller Banks are unable to make the entire Special Cash Dividend
to the Seller (following the distributions contemplated by
Sections 5.24(a)-(b)
) solely (i) as a result of the failure of the Seller Banks to obtain Regulatory Approval to exceed statutory maximum dividend payment amounts with respect to
the Special Cash Dividend or (ii) because such Special Cash Dividend would be prohibited under the liquidity policies of the Seller Banks as of the date hereof (true and correct copies of which have been provided to the Buyer and the Buyer
Bank), the Buyer Bank, or the Governmental Authorities with respect to maintaining a deposit account in the Seller Banks or the Buyer Bank in such amount on behalf of the Seller when paid or after the Closing (such restrictions in clauses
(i) and (ii), the
Special
Cash
Dividend
Restrictions
), then the Seller Banks shall distribute to Seller the maximum amount of cash permitted to be distributed to Seller under
the Special Cash Dividend Restrictions (the
Permissible
Cash
Dividend
Amount
) and Buyer or Buyer Bank shall pay to Seller an amount at Closing equal to the amount of the Special
Cash Dividend
less
the Permissible Cash Dividend Amount (the
Special
Cash
Dividend
Make-Whole
Payment
).
(b)
Asset
Dividend
. Special asset dividend from the Seller Banks to Seller as set forth and in accordance with
Section
5.24(b)
.
Section 1.04
Additional Actions
. If, at any time after the Effective Time, Buyer Bank shall consider or be
advised that any further deeds, documents, assignments or assurances in Law or any other acts are necessary or desirable to carry out the purposes of this Agreement, each Seller Entity, its respective Subsidiaries and its respective officers and
directors shall be deemed to have granted to Buyer and Buyer Bank, and each or any of them, an irrevocable power of attorney to execute and deliver, in such official corporate capacities, all such deeds, assignments or assurances in Law or any other
acts as are necessary or desirable to carry out the purposes of this Agreement, and the officers and directors of Buyer and Buyer Bank, as applicable, are authorized in the name of each Seller Entity and its respective Subsidiaries or otherwise to
take any and all such action.
Section 1.05
Bank Merger
. Immediately following the Effective Time or as promptly as
practicable thereafter, Seller Banks will be merged with and into Buyer Bank upon the terms and with the effect set forth in the Plan of Bank Merger (Buyer Bank, as the surviving entity in the Bank Merger, sometimes being referred to herein as the
Surviving
Entity
), substantially in the form attached hereto as
Exhibit A
(the
Bank
Merger
).
Section 1.06
Reservation of Right to Revise Structure
. Buyer Bank may at any time and without the approval of any Seller Entity
change the method of effecting the Bank Merger contemplated by this Agreement if and to the extent that it deems such a change to be desirable;
provided,
however
, that no such change shall (i) alter or change the amount of the
Buyer Consideration or (ii) reasonably be expected to materially impede or delay consummation of the Stock Purchase. In the event that Buyer Bank elects to make such a change, the parties agree to execute appropriate documents to reflect the
change.
ARTICLE II
PROCEDURE FOR CLOSING
Section 2.01
Time and Place of Closing
. The consummation of the Stock Purchase contemplated by this Agreement (the
Closing
) shall be held at the offices of Alston & Bird LLP, 1201 West Peachtree Street, Atlanta, Georgia 30309 as soon as possible, but in no event later than three (3) Business Days after satisfaction or
A-1-2
waiver of the conditions set forth in ARTICLE VI to the extent such conditions are capable of being satisfied at or prior to the Closing, commencing at 10:00 A.M., local time, or at such other
time and place as the parties hereto may agree in writing (the date on which the Closing actually occurs is hereinafter referred to as the
Closing
Date
). The Closing shall be effective as of 12:01 AM local
time in Nashville, Tennessee, on the Closing Date (the
Effective
Time
).
Section 2.02
Transactions at Closing
. At Closing, each of the following shall be delivered:
(a) Seller shall deliver, or shall cause to be
delivered, to Buyer Bank, (i) free and clear of any Liens, certificate(s) representing all of the issued and outstanding Bank Shares, duly endorsed (or accompanied by duly executed stock powers) for transfers to Buyer Bank, and (ii) the
items set forth in
Section
6.03
that are required to be delivered at Closing. The documents and certificates to be delivered hereunder by or on behalf of each Seller Entity on the Closing Date shall be in form and substance
reasonably satisfactory to Buyer Bank and its counsel.
(b) Buyer and Buyer Bank shall deliver, or shall cause to be delivered, to Seller
(i) the Stock Consideration from the Buyer, (ii) the Debt Consideration from the Buyer Bank, (iii) the Special Cash Dividend Make-Whole Payment, if any, and (iv) the items set forth in
Section
6.02
that
are required to be delivered at Closing. The documents and certificates to be delivered hereunder by or on behalf of Buyer and Buyer Bank on the Closing Date shall be in form and substance reasonably satisfactory to Seller and its counsel.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER ENTITIES
Section 3.01
Making of Representations and Warranties
.
(a) On or prior to the date hereof, Seller Entities have delivered to Buyer and Buyer Bank a schedule (the
Seller
Disclosure
Schedule
) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in ARTICLE III or to one or more of its covenants contained in ARTICLE V;
provided,
however
, that nothing in the Seller Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or a warranty unless such schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail.
(b) Except as set forth in the Seller Disclosure Schedule, Seller Entities hereby represent and warrant, jointly and severally, to Buyer and
Buyer Bank that the statements contained in this ARTICLE III are correct as of the date of this Agreement and will be correct as of the Closing Date (as though made on and as of the Closing Date), except as to any representation or warranty which
specifically speaks as of an earlier date (including without limitation representations made as of the date hereof), which only need be correct as of such earlier date.
Section 3.02
Organization, Standing and Authority
.
(a) Seller is a Tennessee corporation duly organized, validly existing and in good standing under the Laws of the State of Tennessee, and is
duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Seller is duly licensed or qualified to do business as a foreign corporation or other entity in each jurisdiction where its ownership or leasing of
property or the conduct of its business requires such qualification, except where the failure to be so licensed or qualified has not had, and is not reasonably likely to have, a Material Adverse Effect on Seller.
(b) Each Seller Bank is a Tennessee state-chartered bank duly organized, validly existing and in good standing under the Laws of the State of
Tennessee. Each Seller Bank is duly licensed or qualified to do business
A-1-3
in Tennessee and each other jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so licensed or
qualified has not had, and is not reasonably likely to have, a Material Adverse Effect on such Seller Bank. Each Seller Bank is a member of the Federal Home Loan Bank of Cincinnati.
Section 3.03
Capital Stock
.
(a) The authorized capital stock of CBT consists solely of 200,000 shares of CBT Common Stock, of which, as of the date of this Agreement (the
Seller
Capitalization
Date
), 153,600 shares were issued and outstanding. The authorized capital stock of ACB consists solely of 105,000 shares of ACB Common Stock, of which, as of the Seller
Capitalization Date, 1,000 shares were issued and outstanding. The authorized capital stock of Seller consists solely of 50,000,000 shares of Sellers common stock, $2.50 par value per share (the
Seller
Common
Stock
), of which, as of the Seller Capitalization Date, 24,635,070 shares were issued and outstanding, 24,216,527.23 of which were held by Clayton and 418,542.77 of which were held by the Seller ESOP. As of the Seller
Capitalization Date, no shares of Bank Common Stock were reserved for issuance. All of the issued and outstanding shares of Seller Common Stock and Bank Common Stock have been duly authorized and validly issued and are fully paid and nonassessable
and have not been issued in violation of nor are they subject to preemptive rights of any Seller Entity shareholder. All shares of Seller Common Stock and Bank Common Stock issued and outstanding have been issued in compliance with and not in
violation of any applicable federal or state securities Laws.
(b) As of the date of this Agreement, no bonds, debentures, notes or other
indebtedness of Seller Banks having the right to vote on any matters on which its shareholder may vote are issued or outstanding. Except as set forth in
Seller Disclosure Schedule 3.03(b)(i)
, as of the date of this Agreement, no Seller Entity
has or is bound by any outstanding subscriptions, options, warrants, calls, rights, commitments or agreements of any character calling for the purchase or issuance of, or the payment of any amount based on, any shares of Bank Common Stock or any
other equity securities of either Seller Bank or any securities representing the right to purchase or otherwise receive any shares of Bank Common Stock or other equity securities of either Seller Bank. As of the date of this Agreement, there are no
contractual obligations of Seller or any of its Subsidiaries (i) to repurchase, redeem or otherwise acquire any shares of capital stock of Seller Banks or any securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of Seller Banks or (ii) pursuant to which either Seller Bank is or could be required to register shares of such Seller Banks capital stock or other securities under the Securities Act. Other than
as set forth on
Seller Disclosure Schedule 3.03(b)(i)
, no options or other equity-based awards for Bank Common Stock are outstanding as of the Seller Capitalization Date. Except as set forth on
Seller Disclosure Schedule 3.03(b)(ii)
,
since December 31, 2014 through the date hereof, Seller Banks have not issued or repurchased any shares of Bank Common Stock, or other equity securities of Seller Banks.
(c)
Seller Disclosure Schedule 3.03(c)
sets forth each Seller Banks capital stock, equity interest or other direct or indirect
ownership interest in any person, where such ownership interest is equal to or greater than five percent (5%) of the total ownership interest of such person.
(d) No Seller Entity has issued or awarded any options, warrants, restricted shares or other equity based awards with respect to shares of
Bank Common Stock.
(e) The Bank Shares represent all of the issued and outstanding shares of capital stock or other equity ownership
interests of Seller Banks.
(f) All of the outstanding shares of capital stock of Seller Banks are owned by Seller free and clear of all
security interests, liens, claims, pledges, taking actions, agreements, limitations in Seller Banks voting rights, charges or other encumbrances of any nature whatsoever. All of the outstanding shares of capital stock of Seller are owned by
the Shareholders free and clear of all security interests, liens, claims, pledges, taking actions,
A-1-4
agreements, limitations in Sellers voting rights, charges or other encumbrances of any nature whatsoever. No Seller Bank has any trust preferred securities or other similar securities
outstanding.
Section 3.04
Subsidiaries
.
(a)
Seller Disclosure Schedule 3.04(a)
sets forth a complete and accurate list of all Subsidiaries of Seller, including the
jurisdiction of organization and all jurisdictions that such entity is qualified to do business. Except as set forth in
Seller Disclosure Schedule 3.04(a)
, (i) Seller owns, directly or indirectly, all of the issued and outstanding equity
securities of each Seller Subsidiary, (ii) no equity securities of any of Sellers Subsidiaries are or may become required to be issued (other than to Seller) by reason of any contractual right or otherwise, (iii) there are no
contracts, commitments, understandings or arrangements by which any of such Subsidiaries is or may be bound to sell or otherwise transfer any of its equity securities (other than to Seller or a wholly-owned Subsidiary of Seller), (iv) there are
no contracts, commitments, understandings or arrangements relating to Sellers rights to vote or to dispose of such securities, (v) all of the equity securities of each such Subsidiary are held by Seller, directly or indirectly, are
validly issued, fully paid and
non-assessable,
are not subject to preemptive or similar rights, and (vi) all of the equity securities of each Subsidiary that is owned, directly or indirectly, by Seller or
any Subsidiary thereof, are free and clear of all Liens, other than restrictions on transfer under applicable securities Laws.
(b) Seller
Banks have no Subsidiaries.
(c) In the case of Seller, except for its ownership of Seller Banks, it does not own, beneficially or of
record, either directly or indirectly, any stock or equity interest in any depository institution (as defined in 12 U.S.C. Section 1813(c)(1)) other than as collateral for any Loan, and neither Seller nor any of Sellers Subsidiaries
beneficially owns, directly or indirectly (other than in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted), any equity securities or similar interests of any Person, or any interest in a partnership or joint venture
of any kind, except as set forth in
Seller Disclosure Schedule 3.04(c)
.
(d) Each of Sellers Subsidiaries has been duly
organized and qualified and is in good standing under the Laws of the jurisdiction of its organization and is duly qualified to do business and is in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified, except where the failure to be so qualified has not had, and is not reasonably expected to have, a Material Adverse Effect. A complete and accurate list of all such jurisdictions is set forth in
Seller
Disclosure Schedule 3.04(a)
.
Section 3.05
Corporate Power; Minute Books
.
(a) Each Seller Entity has the corporate power and authority to carry on its business as it is now being conducted and to own all of its
properties and assets; and each Seller Entity has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject to receipt of all necessary
approvals of Governmental Authorities, the Regulatory Approvals and the Requisite Seller Shareholder Approval.
(b) Seller has made
available to Buyer Bank a complete and correct copy of its Charter and Bylaws or equivalent organizational documents, each as amended to date, of each Seller Entity, the minute books of each Seller Entity, and the stock ledgers and stock transfer
books of each Seller Bank. No Seller Entity is in violation of any of the terms of its Charter, Bylaws or equivalent organizational documents. The minute books of each Seller Entity contain records of all meetings held by, and all other corporate
actions of, their respective shareholders and boards of directors (including committees of their respective boards of directors) or other governing bodies, which records are complete and accurate in all material respects. The stock ledgers and the
stock transfer books of each Seller Bank contain complete and accurate records of the ownership of the equity securities of each Seller Bank.
A-1-5
Section 3.06
Corporate Authority
. Subject only to the receipt of the Requisite Seller
Shareholder Approval, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of each Seller Entity and each Seller Entitys respective boards of directors on or prior to the date hereof.
Seller, as the sole shareholder of Seller Banks, has approved this Agreement, the Plan of Bank Merger and the Bank Merger. The Seller Board has determined that the transactions contemplated by this Agreement are advisable and in the best interests
of Seller and the Shareholders, has directed that this agreement and the transactions contemplated hereby be submitted to the Shareholders for consideration, and has determined that it will recommend that the Shareholders vote in favor of the
adoption and approval of this Agreement and the transactions contemplated hereby. Except for the approval of this Agreement by the Shareholders required under Tennessee law, no other corporate proceedings on the part of any Seller Entity are
required by Law, the Charter of or the Bylaws of any Seller Entity or otherwise to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each Seller Entity
and (assuming due authorization, execution and delivery by Buyer and Buyer Bank) constitutes the valid and legally binding obligation of Seller Entities, enforceable in accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors rights or by general equity principles).
Section 3.07
Regulatory Approvals; No Defaults
.
(a) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority are required to be made or
obtained by Seller Entities in connection with the execution, delivery or performance by Seller Entities of this Agreement or to consummate the transactions contemplated by this Agreement, except for filings of applications or notices with, and
consents, approvals or waivers by the FRB, the FDIC, the Tennessee Department of Financial Institutions, the filing of the Articles of Bank Merger with the Tennessee Department of Financial Institutions and the Tennessee Secretary of State, and the
filing with the SEC of the Proxy Statement. Subject to the receipt of the approvals referred to in the preceding sentence and the Requisite Seller Shareholder Approval, the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby (including, without limitation, the Stock Purchase and the Bank Merger) by Seller Entities do not and will not (i) constitute a breach or violation of, or a default under, the Charter, Bylaws or similar
governing documents of Seller Entities or any of their respective Subsidiaries, (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to any Seller Entity or any of its Subsidiaries,
or any of their respective properties or assets, (iii) conflict with, result in a breach or violation of any provision of, or the loss of any benefit under, or a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the creation of any Lien under, result in a right of termination or the acceleration of any right or obligation under, any permit, license, credit agreement, indenture, loan, note, bond, mortgage, reciprocal
easement agreement, lease, instrument, concession, contract, franchise, agreement or other instrument or obligation of any Seller Entity or any of its Subsidiaries or to which any Seller Entity, or their respective properties or assets is subject or
bound, or (iv) require the consent or approval of any third party or Governmental Authority under any such Law, rule or regulation or any judgment, decree, order, permit, license, credit agreement, indenture, loan, note, bond, mortgage,
reciprocal easement agreement, lease, instrument, concession, contract, franchise, agreement or other instrument or obligation.
(b) As of
the date hereof, each Seller Entity has no Knowledge of any reason (i) why the Regulatory Approvals referred to in
Section 6.01(b)
will not be received in customary time frames from the applicable Governmental Authorities having
jurisdiction over the transactions contemplated by this Agreement or (ii) why any Burdensome Condition would be imposed.
Section 3.08
Financial Statements; Internal Controls
.
(a) Seller has previously delivered or made available to Buyer Bank copies of Sellers consolidated (i) audited financial statements
(including the related notes and schedules thereto) for the years ended
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December 31, 2015, 2014 and 2013, accompanied by the unqualified audit reports of Rodefer Moss & Co, PLLC, independent registered accountants (collectively, the
Audited
Financial
Statements
) and (ii) unaudited financial statements for the twelve months ended December 31 2016 (the
Unaudited
Financial
Statements
; and collectively with the Audited Financial Statements, the
Financial
Statements
). The Financial Statements (including any related notes and schedules thereto) are accurate and
complete in all material respects and fairly present in all material respects the financial condition and the results of operations, changes in shareholders equity, and cash flows of Seller and its Subsidiaries as of the respective dates of
and for the periods referred to in such financial statements, all in accordance with GAAP, consistently applied, subject, in the case of the Unaudited Financial Statements, to normal, recurring
year-end
adjustments (the effect of which has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect) and the absence of notes and schedules (that, if presented, would not differ materially from
those included in the Audited Financial Statements). No financial statements of any entity or enterprise other than Seller and its Subsidiaries are required by GAAP to be included in the financial statements of Seller. The audits of Seller and its
Subsidiaries have been conducted in accordance with GAAP. Since December 31, 2016, neither Seller nor any its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to
be set forth on its balance sheet except for liabilities reflected or reserved against in the Financial Statements and current liabilities incurred in Seller Banks Ordinary Course of Business since December 31, 2016. True, correct and
complete copies of the Financial Statements are set forth in
Seller Disclosure Schedule 3.08(a)
.
(b) The books, records, systems,
controls, data and information of Seller Banks are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct
control of Seller, Seller Banks or accountants (including all means of access thereto and therefrom), except for any
non-exclusive
ownership and
non-direct
control that
would not reasonably be expected to have a Material Adverse Effect on the system of internal account controls described in the following sentence. Seller Entities have devised and maintain a system of internal accounting controls sufficient to
provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Seller Entities have disclosed based on its most recent evaluations, to its outside auditors and the
audit committee of their respective board of directors (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Seller
Entities ability to record, process, summarize and report financial data and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Seller Entities internal control over
financial reporting.
(c) The Seller or any of its Subsidiaries (including the Seller Banks) do not have any liability that is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on either Seller Bank, of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for (i) those liabilities
that are reflected or reserved against on the Financial Statements (including any notes thereto), (ii) liabilities incurred in the Ordinary Course of Business since December 31, 2016; or (iii) liabilities incurred since December 31,
2015 in connection with this Agreement and the transactions contemplated hereby.
(d) Since January 1, 2011, (i) to the knowledge of
Seller Entities, through the date hereof, no Seller Entity or any director, officer, auditor, accountant or representative of Seller Entity has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the any Seller Entity or its internal accounting controls, including any material complaint, allegation, assertion or claim that
a Seller Entity has engaged in questionable accounting or auditing practices, and (ii) no attorney(s) representing the Seller Entities, whether or not employed by the Seller Entities, have reported evidence of a material violation of securities
laws, breach of fiduciary duty or similar violation by a Seller Entity or any of its respective officers, directors or agents to the Board of Directors of a Seller Entity or any committee thereof or to any director or officer of a Seller Entity.
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Section 3.09
Regulatory Reports
. Since January 1, 2011, each Seller Entity has
duly and timely filed (including all applicable extensions) with the FRB, the FDIC, and any other applicable Governmental Authority, in correct form, the material reports and other documents required to be filed under applicable Laws and regulations
and have paid all fees and assessments due and payable in connection therewith, and such reports were complete and accurate and in compliance with the requirements of applicable Laws and regulations. Except as set forth in
Seller Disclosure
Schedule 3.09
, other than normal examinations conducted by a Governmental Authority in the Ordinary Course of Business of Seller Entities, no Governmental Authority has notified any Seller Entity that it has initiated or has pending any
proceeding or enforcement action or, to Seller Entities Knowledge, threatened an investigation into the business, disclosures or operations of any Seller Entity since January 1, 2011. There is no unresolved violation, criticism, or
exception by any Governmental Authority with respect to any report or statement relating to any examinations or inspections of any Seller Entity. Except as set forth in
Seller Disclosure Schedule 3.09
, (a) no Governmental Authority has
resolved any proceeding, enforcement action or, to the knowledge of Seller Entities, investigation into the business, disclosures or operations of any Seller Entity, and (b) there have been no formal or informal inquiries by, or disagreements
or disputes with, any Governmental Authority with respect to the business, operations, policies or procedures of any Seller Entity since January 1, 2011.
Section 3.10
Absence of Certain Changes or Events
. Except as set forth in
Seller Disclosure Schedule 3.10
, or as otherwise
expressly contemplated by this Agreement, since December 31, 2015, there has not been (a) any event, change or development in the business, operations, assets, liabilities, condition (financial or otherwise), results of operations, cash
flows or properties of any Seller Entity or any of its Subsidiaries which has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to any Seller Bank, and to Seller Entities
Knowledge, no fact or condition exists which is reasonably likely to cause a Material Adverse Effect with respect to any Seller Bank in the future; (b) any change by a Seller Entity in its accounting methods, principles or practices, other than
changes required by applicable Law or GAAP or regulatory accounting as concurred by such Seller Entitys independent accountants; (c) any entry by a Seller Bank into any contract or commitment of (i) more than $100,000 or
(ii) $50,000 per annum with a term of more than one year, other than purchases or sales of Investment Securities, and loans and loan commitments, all in the Ordinary Course of Business; (d) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock of a Seller Bank or any redemption, purchase or other acquisition of any of its securities, other than in the Ordinary Course of Business; (e) any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any current, former or
retired directors, officers or employees of a Seller Bank (other than normal salary adjustments to employees made in the Ordinary Course of Business), or the granting of stock options, stock appreciation rights, performance awards, restricted stock
awards, restricted stock unit awards, deferred stock unit awards or any other stock-based award, any grant of severance or termination pay (other than individual severance or termination payments of less than $20,000 each that have been paid by a
Seller Entity as of the date hereof), or any contract or arrangement entered into to make or grant any severance or termination pay, any payment of any bonus, or the taking of any action not in the Ordinary Course of Business with respect to the
compensation or employment of current, former or retired directors, officers or employees of a Seller Bank; (f) any material election or material changes in existing elections made by a Seller Entity for federal or state Tax purposes;
(g) any material change in the credit policies or procedures of a Seller Bank, the effect of which was or is to make any such policy or procedure less restrictive in any material respect; (h) any material acquisition or disposition of any
assets or properties, or any contract for any such acquisition or disposition entered into other than Investment Securities or loans and loan commitments purchased, sold, made or entered into in the Ordinary Course of Business; (i) any strike,
work stoppage, slow-down or other labor disturbance; (j) any hiring, termination, promotion or demotion of any employee, consultant, independent contractor, executive officer, director or other service provider (other than in the Ordinary
Course of Business) or (k) any lease of real or personal property entered into, other than in connection with foreclosed property or in the Ordinary Course of Business.
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Section 3.11
Legal Proceedings
.
(a) Other than as set forth in
Seller Disclosure Schedule 3.11(a)
, there are no civil, criminal, administrative or regulatory actions,
suits, demand letters, demands for indemnification, claims, hearings, notices of violation, arbitrations, investigations, orders to show cause, market conduct examinations, notices of
non-compliance
or other
proceedings of any nature pending or, to Seller Entities Knowledge, threatened against any Seller Bank or to which any Seller Bank is a party, including without limitation, any such actions, suits, demand letters, demands for indemnification,
claims, hearings, notices of violation, arbitrations, investigations, orders to show cause, market conduct examinations, notices of
non-compliance
or other proceedings of any nature that would challenge the
validity or propriety of the transactions contemplated by this Agreement.
(b) Other than as set forth on
Seller Disclosure Schedule
3.11(b)
, there is no injunction, order, judgment or decree imposed upon any Seller Bank, or the assets of any Seller Bank, and no Seller Entity has been advised of, or has Knowledge of, the threat of any such action.
Section 3.12
Compliance
With
Laws
.
(a) Each Seller Entity is, and have been since January 1, 2011, in compliance in all material respects with all applicable federal,
state, local and foreign Laws, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, Laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Dodd-Frank Act, Sections 23A and 23B of the Federal Reserve
Act, the Sarbanes-Oxley Act or the regulations implementing such statutes, all other applicable anti-money laundering Laws, fair lending Laws and other Laws relating to discriminatory lending, financing, leasing or business practices and all agency
requirements relating to the origination, sale and servicing of mortgage loans. No Seller Entity has been advised of any supervisory criticisms regarding their compliance with the Bank Secrecy Act or related state or federal anti-money laundering
laws, regulations and guidelines, including without limitation those provisions of federal regulations requiring (i) the filing of reports, such as Currency Transaction Reports and Suspicious Activity Reports, (ii) the maintenance of
records and (iii) the exercise of due diligence in identifying customers.
(b) Seller Entities have all permits, licenses,
authorizations, orders and approvals of, and each has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its business as presently
conducted. All such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to Seller Entities Knowledge, no suspension or cancellation of any of them is threatened. Other than as required by (and
in conformity with) Law, no Seller Entity acts as a fiduciary for any person, or administer any account for which it acts as a fiduciary, including as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor
(c) No Seller Entity has received, since January 1, 2011, written or, to Seller Entities Knowledge, oral notification from any
Governmental Authority (i) asserting that it is not in compliance with any of the Laws which such Governmental Authority enforces or (ii) threatening to revoke any license, franchise, permit or governmental authorization (nor do any
grounds for any of the foregoing exist).
(d)
Seller Disclosure Schedule 3.12(d)
sets forth, as of the date hereof, a schedule of
all executive officers and directors of Seller Entities or entities controlled by executive officers and directors of Seller Entities, who have outstanding loans from Seller Banks, and there has been no default on, or forgiveness or waiver of, in
whole or in part, any such loan during the three years immediately preceding the date hereof.
Section 3.13
Seller Material
Contracts; Defaults
.
(a) Except as set forth in
Seller Disclosure Schedule 3.13(a)
, neither Seller Bank is a party to, bound
by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral) (i) with
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respect to the employment of any directors, officers, employees or consultants, including any bonus, stock option, restricted stock, stock appreciation right or other employee benefit agreements
or arrangements; (ii) which would entitle any present or former director, officer, employee, consultant or agent of any Seller Entity to indemnification from any Seller Bank; (iii) which, upon the execution or delivery of this Agreement,
Shareholders adoption of this Agreement or the consummation of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether
change-of-control,
severance pay or otherwise) becoming due from a Seller Bank, Surviving Entity, or any of their respective Subsidiaries to any current, former or retired
officer, employee, director, consultant, independent contractor or other service provider thereof; (iv) the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (v) which grants any right of first refusal, right of first
offer or similar right with respect to any assets or properties of any Seller Bank; (vi) related to the borrowing by any Seller Bank of money other than those entered into in the Ordinary Course of Business and any guaranty of any obligation
for the borrowing of money, excluding endorsements made for collection, repurchase or resell agreements, letters of credit and guaranties made in the Ordinary Course of Business; (vii) which provides for payments to be made by any Seller Bank
upon a change in control thereof; (viii) relating to the lease of personal property having a value in excess of $25,000 individually or $50,000 in the aggregate; (ix) relating to any joint venture, partnership, limited liability company
agreement or other similar agreement or arrangement, or to the formation, creation or operation, management or control of any partnership or joint venture with any third parties or which limits payments of dividends; (x) which relates to
capital expenditures and involves future payments in excess of $50,000 individually or $100,000 in the aggregate; (xi) which relates to the disposition or acquisition of assets or any interest in any business enterprise outside the Ordinary
Course of Business of any Seller Bank; (xii) which is not terminable on sixty (60) days or less notice and involving the payment of more than $100,000 per annum; (xiii) which contains a
non-compete
or client or customer
non-solicit
requirement or any other provision that materially restricts the conduct of any line of business by a Seller Bank or any of
its respective Affiliates or upon consummation of the Stock Purchase will materially restrict the ability of the Surviving Entity or any of its Affiliates to engage in any line of business or which grants any right of first refusal, right of first
offer or similar right or that limits or purports to limit the ability of any Seller Bank (or, following consummation of the transactions contemplated hereby, Buyer or any of its Subsidiaries) to own, operate, sell, transfer, pledge or otherwise
dispose of any assets or business; (xiv) pursuant to which any Seller Bank may become obligated to invest in or contribute capital to any entity; (xv) related to any stock option plan, stock appreciation rights plan, restricted stock plan,
performance stock, phantom or restricted stock units, stock purchase plan, employee stock ownership plan or benefits plan in which any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the
execution of this Agreement, the occurrence of the Requisite Seller Shareholder Approval or the consummation of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of
or affected by any of the transactions contemplated by this Agreement; (xvi) with or to a labor union or guild (including any collective bargaining agreement); or (xvii) that is a contract material to the business of a Seller Bank to be
performed after the date of this Agreement. Each contract, arrangement, commitment or understanding of the type described in this
Section 3.13(a)
, is set forth in
Seller Disclosure Schedule 3.13(a)
, and is referred to herein as a
Seller
Material
Contract
. Seller has previously made available to Buyer Bank true, complete and correct copies of each such Seller Material Contract, including any and all amendments and
modifications thereto.
(b) (i) Each Seller Material Contract is valid and binding on Seller Banks and on Seller or any of its
Subsidiaries to the extent Seller or any of its Subsidiaries is a party thereto, as applicable, and to the Knowledge of Seller Entities, each other party thereto, and is in full force and effect and enforceable in accordance with its terms, except
to the extent that validity and enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the enforcement of creditors rights generally or by general principles of equity or by
principles of public policy and except where the failure to be valid, binding, enforceable and in full force and effect, individually or in the aggregate, has not had, a Material Adverse Effect; (ii) each Seller Bank has in all material
respects performed all obligations required to be performed by it under
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each Seller Material Contract, and (iii) no Seller Bank is in default under any Seller Material Contract or other material agreement, commitment, arrangement, Lease, Insurance Policy or
other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default, except to the extent that such default or event of default has not had, and is not reasonably likely to have, a Material Adverse Effect. No power of attorney or similar
authorization given directly or indirectly by any Seller Bank is currently outstanding.
(c)
Seller Disclosure Schedule 3.13(c)
sets forth a true and complete list of all Seller Material Contracts pursuant to which consents, waivers or notices are or may be required to be given thereunder, in each case, prior to the performance by Seller Entities of this Agreement and the
consummation of the Stock Purchase, the Bank Merger and the other transactions contemplated hereby and thereby.
Section 3.14
Agreements with Regulatory Agencies
. Except as set forth in
Seller Disclosure Schedule 3.14
, no Seller Entity nor any of its Subsidiaries is subject to any
cease-and-desist
or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is a recipient of any extraordinary supervisory letter from, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has adopted any board resolutions at the request
of any Governmental Authority (each, whether or not set forth in
Seller Disclosure Schedule 3.14
, a
Seller
Regulatory
Agreement
) that restricts, or by its terms will in the future
restrict, the conduct of a Seller Banks business or that in any manner relates to their capital adequacy, credit or risk management policies, dividend policies, compliance policies, internal controls, management, business or operations, nor
has any Seller Entity or any of its Subsidiaries been advised by any Governmental Authority that it is considering issuing, initiating, ordering or requesting (or is considering the appropriateness of issuing or requesting) any Seller Regulatory
Agreement. To Seller Entities Knowledge, there are no investigations relating to any material regulatory matters pending before any Governmental Authority with respect to any Seller Entity or any of its Subsidiaries.
Section 3.15
Brokers
. Neither Seller Entity nor any of its officers, or directors has employed any broker or finder or incurred,
nor will it incur, any liability for any brokers fees, commissions or finders fees in connection with any of the transactions contemplated by this Agreement, except that Seller has engaged, and Seller will pay all fees or commissions
owed to Olsen Palmer, LLC (
Seller
Financial
Advisor
) in connection with the transactions contemplated hereby and in accordance with the terms of the letter agreement, as amended, between Seller
Financial Advisor and Seller, a true, complete and correct copy of which has been previously delivered by Seller to Buyer Bank.
Section 3.16
Employee Benefit Plans
.
(a)
Seller Disclosure Schedule 3.16(a)
sets forth a list of each Employee Benefit Plan currently or previously adopted, maintained,
sponsored in whole or in part, or contributed to by any of the Seller Entities or their Subsidiaries or under which any of the Seller Entities have any obligation or liability contingent or otherwise (the
Seller
Benefit
Plans
). Neither the Seller Entities nor any of their Subsidiaries nor their ERISA Affiliates have any stated plan, intention or commitment to establish any new Employee Benefit Plan or has made any specific
commitment to modify any Seller Benefit Plan (except to the extent required by Law).
(b) Seller Entities have made available to Buyer
Bank true and complete copies of all Seller Benefit Plans including, but not limited to, (i) all trust instruments and other funding arrangements, including insurance contracts, forming a part of any Seller Benefit Plans and all amendments
thereto, (ii) summary plan descriptions and summary of material modifications, (iii) IRS Form 5500 (for the three (3) most recently completed plan years), (iv) the most recent IRS determination, opinion, notification and advisory
letters, with respect thereto and including any correspondence from any regulatory agency and
(v) non-discrimination
testing data and results under Code Sections 105(h), 125, 129, 401(k) or 401(m), as
applicable. In addition, with respect to the Seller
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Benefit Plans for the three (3) most recently completed plan years, any plan financial statements and accompanying accounting reports, service contracts, fidelity bonds and required
participant annual notices,) have been made available to Buyer Bank.
(c) All Seller Benefit Plans are in material compliance in form and
operation with all applicable Laws, including ERISA and the Code in all respects. All Seller Benefit Plans have been administered in accordance with their terms in all respects. Each Seller Benefit Plan which is intended to be qualified under
Section 401(a) of the Code (
Seller
401(a)
Plan
), has received a favorable determination letter from the IRS, or is maintained under a prototype or volume submitter document and is entitled
to rely on a favorable opinion or advisory letter from the IRS, and neither Seller nor either Seller Bank is aware of any circumstance that could reasonably be expected to result in revocation of any such favorable determination, opinion, or
advisory letter or the loss of the qualification of such Seller 401(a) Plan under Section 401(a) of the Code, and nothing has occurred that would reasonably be expected to result in the Seller 401(a) Plan ceasing to be qualified under Section
401(a) of the Code. No Seller 401(a) Plan has been submitted under or been the subject of an IRS voluntary compliance program submission that is still outstanding or that has not been fully corrected in accordance with a compliance statement issued
by the IRS with respect to any applicable failures.
(d) There is no pending or, to Seller Entities Knowledge, threatened litigation
or regulatory action relating to the Seller Benefit Plans (other than routine claims for benefits). There are no audits, investigations, inquiries or proceedings pending or, to Seller Entities Knowledge, threatened by the IRS or the U.S.
Department of Labor with respect to any Seller Benefit Plan.
(e) None of the Seller Entities have engaged in a transaction with respect
to any Seller Benefit Plan, including a Seller 401(a) Plan that could reasonably be expected to subject Seller or any of its Subsidiaries, including the Seller Banks, to a material tax or material penalty under any Law including, but not limited to,
Sections 4980H or 4975 of the Code or Section 502(i) of ERISA.
(f) No liability under Title IV of ERISA or Code
Section 412 has been or is expected to be incurred by any Seller Entity or any ERISA Affiliate. No Seller Entity or any ERISA Affiliate has ever maintained a plan subject to Title IV of ERISA or Section 412 of the Code. No Seller Entity,
or any ERISA Affiliate has sponsored, maintained, contributed to (or been obligated to contribute to) (i) a defined benefit plan (as defined in ERISA Section 3(35), (ii) a multiemployer plan within the meaning
of Section 3(37) of ERISA, or (iii) a multiple employer plan (meaning a plan sponsored by more than one employer within the meaning of ERISA Sections 4063 or 4064) at any time. No notice of a reportable event,
within the meaning of Section 4043 of ERISA has been required to be filed for any Seller Benefit Plan or by any ERISA Affiliate or will be required to be filed in connection with the transactions contemplated by this Agreement.
(g) All contributions required to be made with respect to all Seller Benefit Plans have been timely made or have been reflected on the
consolidated financial statements of Seller or Seller Banks.
(h) Except as set forth in
Seller Disclosure Schedule 3.16(h)
, no
Seller Benefit Plan provides and the Seller Entities have not proposed or promised any arrangement that provides for any liability to provide life insurance, medical or other employee welfare benefits to any Seller Bank Employee, or any of their
affiliates, upon his or her retirement or termination of employment for any reason, except as may be required by Law.
(i) Except as set
forth in
Seller Disclosure Schedule 3.16(
i
)
or otherwise provided for in this Agreement, neither the execution of this Agreement, shareholder approval of this Agreement or consummation of any of the transactions contemplated by
this Agreement will (i) entitle any Seller Bank Employee to severance pay or any increase in severance pay upon any termination of employment, (ii) accelerate the time of payment or vesting (except as required by Law) or trigger any
payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Seller Benefit Plans, (iii) result in any breach or
violation of, or a default under, any of the Seller
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Benefit Plans, (iv) result in any payment that would be an excess parachute payment to a disqualified individual as those terms are defined in Section 280G of the
Code, or (v) limit or restrict the right of Seller or either Seller Bank or, after the consummation of the transactions contemplated hereby, Buyer or any of its Subsidiaries, to merge, amend or terminate any of the Seller Benefit Plans.
(j) Each Seller Benefit Plan that is a
non-qualified
deferred compensation plan or arrangement within
the meaning of Section 409A of the Code, and any underlying award, is in compliance in all material respects with Section 409A of the Code. No payment or award that has been made to any participant under a Seller Benefit Plan is subject to
the interest and penalties specified in Section 409A(a)(1)(B) of the Code. Neither Seller or either Seller Bank nor any of their Subsidiaries (i) has agreed to reimburse or indemnify any participant in a Seller Benefit Plan for any of the
interest and the penalties specified in Section 409A(a)(1)(B) of the Code that may be currently due or triggered in the future, or (ii) has been required to report to any Government Authority any correction or taxes due as a result of a
failure to comply with Section 409A of the Code.
(k)
Seller Disclosure Schedule 3.16(k)
contains a schedule showing the monetary
amounts payable as of the date specified in such schedule, whether individually or in the aggregate (including good faith estimates of all amounts not subject to precise quantification as of the date of this Agreement, such as
change-in-control
payments based, in part, upon incentive payments earned in 2016 but payable in January 2017), under any employment,
change-in-control,
severance or similar contract, plan or arrangement with or which covers any present or former director, officer, employee or consultant of either Seller Bank or any of their Subsidiaries
who may be entitled to any such amount and identifying the types and estimated amounts of the
in-kind
benefits due under any Seller Benefit Plans (other than a plan qualified under Section 401(a) of the
Code) for each such person, specifying the assumptions in such schedule and providing estimates of other required contributions to any trusts for any related fees or expenses.
(l) All individuals participating in (or eligible to participate in) the Seller Benefit Plans are common law employees of the Seller or Seller
Banks or their ERISA Affiliates.
Section 3.17
Labor Matters
. No Seller Bank is a party to or bound by any collective
bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is there any proceeding pending or, to Seller Entities Knowledge threatened, asserting that any Seller Bank has committed an
unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel any Seller Bank to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute
involving it pending or, to Seller Entities Knowledge, threatened, nor is any Seller Entity aware of any activity involving Seller Bank Employees seeking to certify a collective bargaining unit or engaging in other organizational activity.
Seller Entities have correctly classified all individuals who directly or indirectly perform services for Seller Banks for purposes of federal and state unemployment compensation Laws, workers compensation Laws and the rules and regulations of
the U.S. Department of Labor.
Section 3.18
Environmental Matters
.
(a) To Seller Entities Knowledge, there has been no release of Hazardous Substances at, on, or under any Seller Bank Property, real
property currently owned, operated or leased by any Seller Bank (including buildings or other structures) or formerly owned, operated or leased by any Seller Bank or any predecessor, that has formed or that could reasonably be expected to form the
basis of any Environmental Claim against any Seller Bank.
(b) To Seller Entities Knowledge, no Seller Bank has acquired, nor is any
of them now in the process of acquiring, any real property through foreclosure or deed in lieu of foreclosure which has been contaminated with, or has had any release of, any Hazardous Substance in a manner that violates Environmental Law or
requires reporting, investigation, remediation or monitoring under Environmental Law.
(c) To Seller Entities Knowledge, no Seller
Bank has previously been nor is any of them now in violation of or noncompliant with applicable Environmental Law.
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(d) To Seller Entities Knowledge, neither Seller Bank could be deemed the owner or operator
of, nor to have participated in the management of, any Seller Bank Property which has been contaminated with, or has had any release of, any Hazardous Substance in a manner that violates Environmental Law or requires reporting, investigation,
remediation or monitoring under Environmental Law.
(e) With respect to any Seller Bank Property, no Seller Entity has received
(i) any written notice, demand letter, or claim alleging any violation of, or liability under, any Environmental Law or (ii) any written request for information reasonably indicating an investigation or other inquiry by any Governmental
Authority concerning a possible violation of, or liability under, any Environmental Law.
(f) No Seller Entity has received notice of any
Lien or encumbrance having been imposed on any Seller Bank Property or any property owned, operated or leased by Seller Banks in connection with any liability or potential liability arising from or related to Environmental Law, and there is no
action, proceeding, writ, injunction or claim pending or, to Seller Entities Knowledge, threatened which could result in the imposition or any such Lien or encumbrance on any Seller Bank Property or property owned, operated or leased by Seller
Banks.
(g) No Seller Bank is, or has been, subject to any order, decree or injunction relating to a violation of or allegation of
liability under any Environmental Law.
(h) There are no circumstances or conditions (including the presence of asbestos, underground
storage tanks, lead products, polychlorinated biphenyls, prior manufacturing operations,
dry-cleaning,
or automotive services) involving any Seller Bank, or any currently or, to Seller Entities
Knowledge, formerly owned, operated or leased property, or any Seller Bank Property that could reasonably be expected pursuant to applicable Environmental Law to (i) result in any claim, liability or investigation against any Seller Bank, or
(ii) result in any restriction on the ownership, use, or transfer of any such property.
(i) Seller has delivered to Buyer Bank
copies of all environmental reports, studies, sampling data, correspondence, filings and other information known to Seller Entities and in their possession or reasonably available to them relating to environmental conditions at or on any real
property (including buildings or other structures) currently owned, operated or leased by Seller Banks.
Seller Disclosure Schedule 3.18(
i
)
includes a list of the environmental reports and other information provided.
(j) There is no litigation pending or, to Seller Entities Knowledge, threatened against any Seller Bank, or affecting any property now
owned or, to Seller Entities Knowledge, formerly owned, used or leased by Seller Banks or any predecessor, before any court, or Governmental Authority (i) for alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the presence or release into the environment of any Hazardous Substance.
(k) To the Seller Entities
Knowledge, there are no underground storage tanks on, in or under any property currently owned, operated or leased by any Seller Bank, except as set forth in
Seller Disclosure Schedule 3.18(k)
.
Section 3.19
Tax Matters
.
(a) Each of Seller and its Subsidiaries has filed all Tax Returns that it was required to file under applicable Laws, other than Tax Returns
that are not yet due or for which a request for extension was timely filed consistent with requirements of applicable Law. All such Tax Returns were correct and complete in all respects and have been prepared in compliance with all applicable Laws.
All Taxes due and owing by Seller or any of its Subsidiaries (whether or not shown on any Tax Return) have been paid. Except as set forth in
Seller Disclosure Schedule 3.19(a),
neither Seller nor any of its Subsidiaries is currently the
beneficiary of any extension of time within which to file any Tax Return. To the Knowledge of Seller and its Subsidiaries no claim has ever been made by any Governmental Authority in a jurisdiction where Seller or any of its Subsidiaries does not
file Tax
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Returns that it is or may be subject to Tax by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of Seller or any of its
Subsidiaries. Neither Seller nor any of its Subsidiaries is subject to any pending, ongoing, or threatened examination or audit with respect to Taxes by any Governmental Authority. There are no disputes pending, or claims asserted, for Taxes or
assessments upon Seller or any of its Subsidiaries. Neither Seller nor any of its Subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code, no such adjustment has been proposed by the IRS and no pending
request for permission to change any accounting method has been submitted by any Seller Entity or any of its Subsidiaries. Neither Seller nor any of its Subsidiaries has participated in a reportable transaction within the meaning of
Treasury Regulation Section
1.6011-4(b).
(b) Seller and each of its Subsidiaries have withheld
and paid all material Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.
(c) No foreign, federal, state, or local Tax audits or administrative or judicial Tax proceedings are currently being conducted or, to the
Knowledge of Seller or any of its Subsidiaries, pending with respect to Seller or any of its Subsidiaries. Other than with respect to audits that have already been completed and resolved, neither Seller nor any of its Subsidiaries has received in
writing from any foreign, federal, state, or local taxing authority (including jurisdictions where Seller and or any of its Subsidiaries have not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review,
(ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against Seller or any of its Subsidiaries.
(d) Seller has made delivered or made available to Buyer Bank true and complete copies of the United States federal, state, local, and foreign
Tax Returns filed with respect to Seller and its Subsidiaries, as well as any examination reports and statements of deficiencies assessed against or agreed to by Seller or its Subsidiaries with respect to Taxes, for taxable periods under on or after
December 31, 2012. Seller and its Subsidiaries have timely and properly taken such actions in response to and in compliance with notices that Seller or its Subsidiaries, as applicable, has received from Governmental Authorities in respect of
information reporting and backup and nonresident withholding as are required by Law.
(e) Seller has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.
(f) Seller has not been a United
States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). Seller has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. Other than a Tax allocation or sharing agreement between Seller and Seller Banks, neither Seller nor any Seller Bank is
a party to or bound by any Tax allocation or sharing agreement. Neither Seller nor any Seller Bank (i) has been a member of a group filing a consolidated, unitary or combined income Tax Return (other than a group the common parent of which was
Seller), and (ii) has no liability for the Taxes of any Person (other than Seller and its Subsidiaries) under Regulations
Section 1.1502-6
(or any similar provision of state, local, or foreign Law),
as a transferee or successor, by contract, or otherwise.
(g) The unpaid Taxes of Seller and its Subsidiaries (i) do not exceed the
reserve for Tax liability (which reserve is distinct and different from any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Financial Statements delivered to Buyer Bank
(rather than in any notes thereto), and (ii) do not exceed that reserve as adjusted for the passage of time in accordance with the past custom and practice of Seller in filing its Tax Returns. Since December 31, 2015, neither Seller nor
any of its Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the Ordinary Course of Business.
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(h) Neither Seller nor any of its Subsidiaries will be required to include any item of income in,
or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Effective Time as a result of any: (i) change in method of accounting for a taxable period ending on or prior to the Closing
Date; (ii) closing agreement as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign income Tax Law) executed on or prior to the Closing Date; (iii) intercompany transactions
or any excess loss account described in Regulations under Code Section 1502 (or any corresponding or similar provision of state, local or foreign income Tax Law); (iv) installment sale or open transaction disposition made on or prior to
the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.
(i) Within the past five years neither Seller nor
any Subsidiary has distributed stock of another Person nor had its stock distributed by another Person in a transaction that was purported or intended to be nontaxable and governed in whole or in part by Section 355 or Section 361 of the
Code.
(j) For Federal and all applicable state income tax purposes, Seller (and any predecessor of Seller) has been a validly electing S
Corporation within the meaning of Code Sections 1361 and 1362 at all times, and will be such an S Corporation up to and including the Closing Date.
(k) For Federal and all applicable state income tax purposes, each Seller Bank (and any predecessor of Bank) has been a validly electing
Qualified Subchapter S Subsidiary within the meaning of Code Section 1361(b)(3)(B) at all times, and will be such a Qualified Subchapter S Subsidiary up to and including the Closing Date.
(l) Seller and its Subsidiaries have no potential liability for any Tax under Code Section 1374 or any comparable provision of state law.
Neither Seller nor any Subsidiary has, in the past ten (10) years, (i) acquired assets from another corporation in a transaction in which the transferees Tax basis for the acquired assets was determined, in whole or in part, by
reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor or (ii) acquired the stock of any corporation that is a qualified subchapter S subsidiary.
Section 3.20
Investment Securities and Commodities
.
(a) Except as would not reasonably be expected to have a Material Adverse Effect on Seller Banks, each Seller Bank has good title to all
securities and commodities owned by it (except those sold under repurchase agreements or held in any fiduciary or agency capacity), free and clear of any Liens, except to the extent such securities or commodities are pledged in the Ordinary Course
of Business to secure obligations of such Seller Bank. Such securities and commodities are valued on the books of Seller Banks in accordance with GAAP in all material respects.
(b) Each Seller Bank and its business employ and have acted in compliance in all material respects with investment, securities, commodities,
risk management and other policies, practices and procedures (the
Policies,
Practices
and
Procedures
) that are prudent and reasonable in the context of such businesses. Before the
date hereof, each Seller Bank has made available to Buyer Bank in writing the material Policies, Practices and Procedures.
(c)
Seller
Disclosure Schedule 3.20(c)
sets forth as of December 31, 2016, the Investment Securities, as well as any purchases or sales of Investment Securities between December 31, 2016 to and including the date hereof, reflecting with respect
to all such securities, whenever purchased or sold, descriptions thereof, CUSIP numbers, designations as securities available for sale or securities held to maturity (as those terms are used in ASC 320), book values,
fair values and coupon rates, and any gain or loss with respect to any Investment Securities sold during such time period after December 31, 2016. Neither Seller Bank owns any of the outstanding equity of any savings bank, savings and loan
association, savings and loan holding company, credit union, bank or bank holding company, Federal Home Loan Bank of Cincinnati, insurance company, mortgage or loan broker or any other financial institution.
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Section 3.21
Derivative Transactions
.
(a) All Derivative Transactions entered into by a Seller Bank or for the account of any of its customers were entered into in the Ordinary
Course of Business and in accordance with prudent banking practice and in accordance with applicable Laws and regulatory policies of any Governmental Authority, and in accordance with the investment, securities, commodities, risk management and
other policies, practices and procedures employed by such Seller Bank, and were entered into with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with its advisers) and to
bear the risks of such Derivative Transactions. All of such Derivative Transactions are legal, valid and binding obligations of each Seller Bank enforceable against it in accordance with their terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity), and are in full force and effect. Each Seller Bank has duly performed all of their obligations under the
Derivative Transactions to the extent that such obligations to perform have accrued, and, to Seller Entities Knowledge, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder.
(b) Each Derivative Transaction is listed in
Disclosure Schedule Section 3.21(b)
, and the financial position of a Seller Bank under or
with respect to each has been reflected in the books and records of such Seller Bank in accordance with GAAP, and no open exposure of Seller Banks with respect to any such instrument (or with respect to multiple instruments with respect to any
single counterparty) exists, except as set forth in
Disclosure Schedule Section 3.21(b)
.
(c) No Derivative Transaction, were it to
be a Loan held by a Seller Bank, would be classified as Special Mention, Substandard, Doubtful, Loss, Classified, Criticized, Credit Risk Assets, Concerned
Loans, Watch List, as such terms are defined by the FDICs uniform loan classification standards, or words of similar import.
Section 3.22
Regulatory Capitalization
. Each Seller Bank is well-capitalized, as such term is defined in the rules and
regulations promulgated by the FDIC and the Tennessee Department of Financial Institutions. Seller is well-capitalized, as such term is defined in the rules and regulations promulgated by the FRB. There has not been any event or
occurrence that would result in a determination that either Seller Bank is not both well capitalized and well managed as a matter of U.S. federal banking law.
Section 3.23
Loans; Nonperforming and Classified Assets
.
(a)
Seller Disclosure Schedule 3.23(a)
identifies any written loan, loan agreement, note or borrowing arrangement and other extensions
of credit (including, without limitation, leases, credit enhancements, commitments, guarantees and interest-bearing assets) to which any Seller Bank is a party (collectively,
Loans
), under the terms of which the obligor was
over sixty (60) days delinquent in payment of principal or interest as of December 31, 2016 and such list as of the date hereof.
(b)
Seller Disclosure Schedule 3.23(b)
sets forth of a list of, and identifies a summary of each Loan that, as of December 31,
2016, (i) was classified as Special Mention, Substandard, Doubtful, Loss, Classified, Criticized, Impaired, Credit Risk Assets, Concerned
Loans, Watch List or words of similar import by Seller, Seller Banks or any bank examiner, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder,
(ii) was on
non-accrual
status, (iii) where the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the Loan was originally
created due to concerns regarding the borrowers ability to pay in accordance with its initial terms, (iv) where a specific reserve allocation exists in connection therewith, and (v) which is required to be accounted for as a troubled
debt restructuring in accordance with Statement of Financial Accounting Standards No. 15.
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(c)
Seller Disclosure Schedule 3.23(c)
identifies each asset of a Seller Bank that as of
December 31, 2016 was classified as other real estate owned (
OREO
) and the book value thereof as of the date of this Agreement as well as any assets classified as OREO since December 31, 2016 and any sales of OREO
between December 31, 2016 and the date hereof, reflecting any gain or loss with respect to any OREO sold.
(d) Each Loan held in a
Seller Banks loan portfolio (each a
Seller
Loan
) (i) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (ii) to the extent
secured, is and has been secured by valid Liens that have been perfected, (iii) where required by applicable Law, has been based on an appraisal that has been provided to Seller Banks, and (iv) to Seller Entities Knowledge, is a
legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other Laws of general applicability relating to or affecting creditors
rights and to general equity principles.
(e) All currently outstanding Seller Loans (to the extent such loans were not originated by a
Seller Bank, to Seller Banks Knowledge) were solicited, originated and, currently exist in material compliance with all applicable requirements of Law and, to the extent originated by a Seller Bank, such Seller Banks lending policies at
the time of origination of such Seller Loans, and the notes or other credit or security documents with respect to each such outstanding Seller Loan are complete and correct. There are no oral modifications or amendments or additional agreements
related to the Seller Loans that are not reflected in the written records of either Seller Bank, as applicable. All such Seller Loans (and any related guarantees) are owned by Seller Banks free and clear of any Liens (other than blanket Liens by the
Federal Home Loan Bank of Cincinnati). No claims of defense as to the enforcement of any Seller Loan have been asserted in writing against Seller Banks for which there is a reasonable possibility of an adverse determination, and no Seller Entity has
any Knowledge of any acts or omissions which would give rise to any claim or right of rescission,
set-off,
counterclaim or defense for which there is a reasonable possibility of an adverse determination to any
Seller Bank. Except as set forth in
Seller Disclosure Schedule 3.23(e)
, no Seller Loans are presently serviced by third parties, and there is no obligation which could result in any Seller Loan becoming subject to any third party servicing.
(f) No Seller Entity is a party to any agreement or arrangement with (or otherwise obligated to) any Person which obligates any Seller
Entity to repurchase from any such Person any Loan or other asset of any Seller Bank, unless there is a material breach of a representation or covenant by any Seller Entity, and none of the agreements pursuant to which any Seller Entity has sold
Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan.
(g) No Seller Entity is now nor has it ever been since January 1, 2011, subject to any fine, suspension, settlement or other contract or
other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Authority relating to the origination, sale or servicing of mortgage or consumer Loans.
Section 3.24
Allowance for Loan and Lease Losses
. Each Seller Banks allowance for loan and lease losses as reflected in each
of (i) the latest balance sheet included in the Audited Financial Statements and (ii) in the balance sheet as of December 31, 2016 included in the Unaudited Financial Statements, were, in the opinion of management, as of each of the
dates thereof, in compliance with such Seller Banks existing methodology for determining the adequacy of its allowance for loan and lease losses as well as the standards established by applicable Governmental Authority, the Financial
Accounting Standards Board and GAAP.
Section 3.25
Trust Business; Administration of Fiduciary Accounts
. Except as set forth
on
Seller Disclosure Schedule 3.25
, neither Seller Bank has offered or engaged in providing any individual or corporate trust services or administers any accounts for which it acts as a fiduciary, including, but not limited to, any accounts
in which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor.
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Section 3.26
Investment Management and Related Activities
. Except as set forth in
Seller Disclosure Schedule 3.26
, no Seller Bank or any of its respective directors, officers or employees is required to be registered, licensed or authorized under the Laws of any Governmental Authority as an investment adviser, a broker or
dealer, an insurance agency or company, a commodity trading adviser, a commodity pool operator, a futures commission merchant, an introducing broker, a registered representative or associated person, investment adviser, representative or solicitor,
a counseling officer, an insurance agent, a sales person or in any similar capacity with a Governmental Authority.
Section 3.27
Repurchase Agreements
. With respect to all agreements pursuant to which any Seller Bank has purchased securities subject to an agreement to resell, if any, each Seller 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.
Section 3.28
Deposit Insurance
. The deposits of each Seller Bank are insured by the FDIC in accordance with the Federal Deposit
Insurance Act (
FDIA
) to the full extent permitted by Law, and each Seller Bank has paid all premiums and assessments and filed all reports required by the FDIA. No proceedings for the revocation or termination of such
deposit insurance are pending or, to Seller Entities Knowledge, threatened.
Section 3.29
Community Reinvestment Act,
Anti-money Laundering and Customer Information Security
. Except as set forth in
Seller Disclosure Schedule 3.29
, neither Seller Bank is a party to any agreement with any individual or group regarding Community Reinvestment Act matters and
no Seller Entity is aware of or has Knowledge that any facts or circumstances exist, which would cause a Seller Bank: (i) to be deemed not to be in satisfactory compliance with the Community Reinvestment Act, and the regulations promulgated
thereunder, or to be assigned a rating for Community Reinvestment Act purposes by federal or state bank regulators of lower than satisfactory; or (ii) to be deemed to be operating in violation of the Bank Secrecy Act and its
implementing regulations (31 C.F.R. Part 1020), the USA PATRIOT Act, any order issued with respect to anti-money laundering by the U.S. Department of the Treasurys Office of Foreign Assets Control, or any other applicable anti-money laundering
statute, rule or regulation; or (iii) to be deemed not to be in satisfactory compliance with the applicable privacy of customer information requirements contained in any federal and state privacy Laws and regulations, including, without
limitation, in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated thereunder, as well as the provisions of the information security program adopted by such Seller Bank pursuant to 12 C.F.R. Part 364. Furthermore, the board of
directors of each Seller Bank has adopted and implemented an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that has not been deemed ineffective by any Governmental Authority and
that meets the requirements of Sections 352 and 326 of the USA PATRIOT Act.
Section 3.30
Transactions with Affiliates
. Except
as set forth in
Seller Disclosure Schedule 3.30
, there are no outstanding amounts payable to or receivable from, or advances by any Seller Bank, and neither Seller Bank is otherwise a creditor or debtor to (a) any director, executive
officer, five percent (5%) or greater shareholder of any Seller Entity or to any of their respective Affiliates or Associates or other Affiliate of Seller or any of its Subsidiaries, other than part of the normal and customary terms of such
persons employment or service as a director with Seller or any of its Subsidiaries and other than deposits held by such Seller Bank in the Ordinary Course of Business. Except as set forth in
Seller Disclosure Schedule 3.30
, neither
Seller Bank is a party to any transaction or agreement with any of its respective directors, executive officers or other Affiliates. All agreements between any Seller Bank and any of its respective Affiliates comply, to the extent applicable, with
Regulation W of the FRB.
Section 3.31
Tangible Properties and Assets
.
(a)
Seller Disclosure Schedule 3.31(a)
sets forth a true, correct and complete list of all real property owned by Seller Banks. Except
as set forth in
Seller Disclosure Schedule 3.31(a)
, each Seller Bank has good, valid and marketable title to, valid leasehold interests in or otherwise legally enforceable rights to use all of the real
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property, personal property and other assets (tangible or intangible), used, occupied and operated or held for use by it in connection with its business as presently conducted in each case, free
and clear of any Lien, except for (i) statutory Liens for amounts not yet delinquent, and (ii) easements, rights of way, and other similar encumbrances that do not materially affect the value or use of the properties or assets subject
thereto or affected thereby or otherwise materially impair business operations at such properties. Except as set forth on
Seller Disclosure Schedule 3.31(a)
, there is no pending or, to Seller Entities Knowledge, threatened legal,
administrative, arbitral or other proceeding, claim, action or governmental or regulatory investigation of any nature with respect to the real property that a Seller Bank owns, uses or occupies or has the right to use or occupy, now or in the
future, including without limitation a pending or threatened taking of any of such real property by eminent domain. True and complete copies of all deeds or other documentation evidencing ownership of the real properties set forth in
Seller
Disclosure Schedule 3.31(a)
, and complete copies of any title insurance policies and any surveys for such properties in the possession of the Seller Entities, together with any mortgages, deeds of trust and security agreements to which such
property is subject have been furnished or made available to Buyer Bank.
(b)
Seller Disclosure Schedule 3.31(b)
sets forth a true,
correct and complete schedule of all leases, subleases, licenses and other agreements under which Seller Banks use or occupy or have the right to use or occupy, now or in the future, real property (the
Leases
). Each of the
Leases is valid, binding and in full force and effect and no Seller Entity has received a written notice of, and otherwise has no Knowledge of any, default or termination with respect to any Lease. There has not occurred any event and no condition
exists that would constitute a termination event or a material breach by any Seller Bank of, or material default by any Seller Bank in, the performance of any covenant, agreement or condition contained in any Lease. To Seller Entities
Knowledge, no lessor under a Lease is in material breach or default in the performance of any material covenant, agreement or condition contained in such Lease. Seller Banks have paid all rents and other charges to the extent due under the Leases.
True and complete copies of all leases for, or other documentation evidencing ownership of or a leasehold interest in, the properties listed in
Seller Disclosure Schedule 3.31(b)
, have been furnished or made available to Buyer Bank.
(c) All buildings, structures, fixtures, building systems and equipment, and all components thereof, including the roof, foundation,
load-bearing walls and other structural elements thereof, heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building systems, environmental control, remediation and abatement systems, sewer, storm and waste water
systems, irrigation and other water distribution systems, parking facilities, fire protection, security and surveillance systems, and telecommunications, computer, wiring and cable installations, included in the owned real property or the subject of
the Leases are in (i) material compliance with all applicable zoning laws and building codes; (ii) in good operating condition and in a state of good working order (normal wear and tear excepted) and (iii) sufficient for the operation
of the business of Seller Banks except where such condition has not had, nor is reasonably likely to have, a Material Adverse Effect on Seller Banks. There are no pending or, to the Knowledge of Seller Entities threatened, condemnation proceedings
against the any of the property mentioned above. To Seller Entities Knowledge, each Seller Bank is in material compliance with all applicable health and safety related requirements for all real property mentioned herein, including those under
the Americans with Disabilities Act of 1990 and the Occupational Health and Safety Act of 1970.
Section 3.32
Intellectual
Property
.
Seller Disclosure Schedule 3.32
sets forth a true, complete and correct list of all Bank Intellectual Property. Seller Banks own or have valid licenses to use all Bank Intellectual Property, free and clear of all Liens, royalty
or other payment obligations (except for royalties or payments with respect to
off-the-shelf
Software at standard commercial rates) and all license fees in connection
with Bank Intellectual Property has been paid. The Bank Intellectual Property constitutes all of the Intellectual Property necessary to carry on the business of Seller Banks as currently conducted. The Bank Intellectual Property is valid and
enforceable and has not been cancelled, forfeited, expired or abandoned, and no Seller Entity has received notice challenging the validity or enforceability of Bank Intellectual Property. No Seller Bank is, nor will any of them be as a result of the
execution and delivery of this Agreement or the performance by Seller Entities of their
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obligations hereunder, in violation of any licenses, sublicenses and other agreements as to which a Seller Bank is a party and pursuant to which such Seller Bank is authorized to use any
third-party patents, trademarks, service marks, copyrights, trade secrets or computer software and no Seller Entity has received notice challenging Seller Banks license or legally enforceable right to use any such third-party intellectual
property rights. The consummation of the transactions contemplated hereby will not result in the loss or impairment of the right of Seller Banks to own or use any of Bank Intellectual Property.
Section 3.33
Insurance
.
(a)
Seller Disclosure Schedule 3.33(a)
identifies all of the insurance policies, binders, or bonds currently maintained by Seller Banks
(the
Insurance
Policies
), including the insurer, policy numbers, amount of coverage, effective and termination dates and any pending claims thereunder involving more than $10,000. Each Seller Bank is insured
with reputable insurers against such risks and in such amounts as the management of Seller Entities reasonably have determined to be prudent in accordance with industry practices. All the Insurance Policies are in full force and effect and all
premiums payable have been timely paid. Neither Seller nor any Seller Bank has received notice of cancellation of any of the Insurance Policies or is otherwise aware (i) of any claim for coverage pending as to which coverage has been
questioned, denied or disputed, or (ii) that any insurer under any of the Insurance Policies has expressed an intent to cancel any such Insurance Policies, and neither Seller Bank is in default thereunder and all claims thereunder have been
filed in due and timely fashion. No Seller Entity has received written notice of any threatened termination of, material premium increase with respect to, lapse of coverage under, or material alteration of coverage under, any of such Insurance
Policies.
(b)
Seller Disclosure Schedule Section 3.33(b)
sets forth a true, correct and complete description of all bank owned
life insurance (
BOLI
) owned by Seller Banks, including the value of its BOLI as of the end of the month prior to the date hereof. The value of such BOLI is and has been fairly and accurately reflected in the most recent
balance sheet included in the Financial Statements in accordance with GAAP. All BOLI is owned solely by the applicable Seller Bank, no other Person has any ownership claims with respect to such BOLI or proceeds of insurance derived therefrom and
there is no split dollar or similar benefit under such Seller Banks BOLI. Neither Seller nor any Seller Bank has any outstanding borrowings secured in whole or part by its BOLI.
Section 3.34
Antitakeover Provisions
. No control share acquisition, business combination moratorium,
fair price or other form of antitakeover statute or regulation is applicable to this Agreement and the transactions contemplated hereby.
Section 3.35
Seller Information
. The information relating to Seller and its Subsidiaries that is provided by or on behalf of
Seller for inclusion in the Proxy Statement, or for inclusion in any Regulatory Approval or other application, notification or document filed with any other Governmental Authority in connection with the Stock Purchase, Bank Merger or other
transactions contemplated herein, will not (with respect to the Proxy Statement, as of the date the Proxy Statement is first mailed to Buyers shareholders and as of the date of the Buyer Meeting, and with respect to any application or other
document filed or submitted to any Governmental Authority, as of the date filed or submitted, as applicable) contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading. The portions of the Proxy Statement relating to Seller and its Subsidiaries and other portions thereof within the reasonable control of Seller and its Subsidiaries will comply in all material
respects with the provisions of the Exchange Act, and the rules and regulations thereunder.
Section 3.36
Transaction Costs
.
Seller Disclosure Schedule 3.36
sets forth attorneys fees, investment banking fees, accounting fees and other costs or fees of Seller Entities that, based upon reasonable inquiry, are expected to be paid or accrued through the Closing
Date in connection with the Stock Purchase and the other transactions contemplated by this Agreement.
Section 3.37
Privacy of
Customer Information
. Each Seller Bank is the sole owner or, in the case of participated loans, a
co-owner
with the other participant(s), of all individually identifiable personal information
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(
IIPI
) relating to customers, former customers and prospective customers that will be transferred to Buyer Bank pursuant to this agreement and the other transactions
contemplated hereby. For purposes of this
Section
3.37
, IIPI shall include any information relating to an identified or identifiable natural person. Seller Entities do not have any reason to believe that any
facts or circumstances exist, which would cause the collection and use of such IIPI by Seller Banks, the transfer of such IIPI to Buyer Bank, and the use of such IIPI by Buyer Bank as contemplated by this Agreement not to comply with all applicable
privacy policies, the Fair Credit Reporting Act of 1970, as amended (the
Fair
Credit
Reporting
Act
), the Gramm-Leach-Bliley Act of 1999 (the
Gramm-Leach-Bliley
Act
) and all other applicable state or federal privacy laws, and any contract or industry standard relating to privacy. In accordance with the requirements of the Gramm-Leach-Bliley Act, and the regulations promulgated
thereunder, each Seller Bank (i) maintains the security and confidentiality of customer records and information; (ii) protects against any anticipated threats or hazards to the security or integrity of such records; and (iii) protects
against unauthorized access to or use of such records or information, which could result in substantial harm or inconvenience to any customer.
Section 3.38
Disaster Recovery and Business Continuity
. Each Seller Bank has developed and implemented a contingency planning
program to evaluate the impact of significant events that may adversely affect such Seller Banks customers, assets, or employees. To Seller Entities Knowledge, such program ensures that Seller Banks can recover its mission critical
functions, and complying with the requirements of the Federal Financial Institutions Examination Council (
FFIEC
) and the FDIC.
Section 3.39
No Knowledge of Breach
. No Seller Entity has any Knowledge of any facts or circumstances that would result in Buyer
or Buyer Bank being in breach on the date of execution of this Agreement of any representations and warranties of Buyer or Buyer Bank set forth in ARTICLE IV.
Section 3.40
Investment Representations
.
(a) The Stock Consideration to be issued to Seller pursuant to this Agreement will be acquired for Sellers own account and not with a
view to, or intention of, distribution thereof in violation of the Securities Act, any other applicable securities Laws or the terms of the Shareholders Agreement, and the Stock Consideration will not be disposed of in contravention of any such Laws
or agreement.
(b) Seller and Clayton are able to bear the economic risk of the investment in the Buyer Common Stock to be received as
Stock Consideration for an indefinite period of time, and Seller and Clayton understand that the Buyer Common Stock to be received as Stock Consideration are subject to the transfer restrictions contained herein and that no Buyer Common Stock that
has been issued as Stock Consideration have been registered under the Securities Act or the securities laws of any other jurisdiction.
(c) Seller and Clayton each has had an opportunity to ask questions and receive answers concerning the terms and conditions regarding the
issuance of the Stock Consideration and has had full access to such other information concerning the Buyer as Seller and Clayton has requested. Seller and Clayton each has reviewed, or has had an opportunity to review copies of, the Charter and
Bylaws of the Buyer and the Shareholders Agreement.
(d) Each of Seller and Clayton (i) is an Accredited Investor as
defined in Regulation D under the Securities Act, (ii) considers himself, herself or itself, either alone or with a representative, to be an experienced and sophisticated investor and to have such knowledge and experience in financial and
business matters as are necessary to evaluate the merits and risks of an investment in the Buyer Common Stock and (iii) acknowledges and understands that an investment in the Buyer Common Stock involves substantial risks and each is able to
bear the economic risk of an investment in the Buyer Common Stock pursuant to the terms hereof, including the complete loss of eachs investment in the Buyer Common Stock.
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(e) Each share of Buyer Common Stock issued to the Seller as Stock Consideration will bear the
following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, NOR WILL ANY ASSIGNEE OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF BY THE ISSUER FOR ANY PURPOSE, UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES SHALL THEN BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION WITH RESPECT TO ANY PROPOSED TRANSFER OR DISPOSITION OF SUCH SHARES SHALL BE ESTABLISHED TO THE
SATISFACTION OF COUNSEL FOR THE ISSUER.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER BANK
Section 4.01
Making of Representations and Warranties
.
(a) On or prior to the date hereof, Buyer and Buyer Bank has delivered to Seller a schedule (the
Buyer
Disclosure
Schedule
) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in ARTICLE IV;
provided,
however
, that nothing in the Buyer Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or a warranty
unless such schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail.
(b)
Except as set forth in the Buyer Disclosure Schedule, Buyer and Buyer Bank hereby represent and warrant, jointly and severally, to Seller that the statements contained in this ARTICLE IV are correct as of the date of this Agreement and will be
correct as of the Closing Date (as though made on and as of the Closing Date), except as to any representation or warranty which specifically speaks as of an earlier date (including without limitation representations made as of the date
hereof), which only need be correct as of such earlier date.
Section 4.02
Organization, Standing and Authority
.
(a) Buyer is a Tennessee corporation duly organized, validly existing and in good standing under the Laws of the State of Tennessee, and is
duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. True, complete and correct copies of the Charter and Bylaws of Buyer, each as amended, as in effect as of the date of this Agreement, have previously
been made available to Seller. Buyer is duly licensed or qualified to do business in the State of Tennessee and each jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification, except where the
failure to be so licensed or qualified has not had, and is not reasonably likely to have, a Material Adverse Effect on Buyer.
(b) Buyer
Bank is a Tennessee state banking corporation duly organized, validly existing and in good standing under the Laws of the State of Tennessee. Buyer Bank is duly licensed or qualified to do business in the State of Tennessee and each other
jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so licensed or qualified has not had, and is not reasonably likely to have, a Material Adverse Effect
on Buyer Bank. Buyer Banks deposits are insured by the FDIC in the manner and to the full extent provided by applicable Law, and all premiums and assessments required to be paid in connection therewith have been paid by Buyer Bank when due.
Buyer Bank is a member in good standing of the Federal Home Loan Bank of Cincinnati.
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Section 4.03
Capital Stock
. The authorized capital stock of Buyer consists of (a)
75,000,000 shares of Buyer Common Stock, of which, as of December 31, 2016, 24,107,660 shares were issued and outstanding and (b) 7,500,000 shares of preferred stock, no par value per share, of which, as of December 31, 2016 no shares were
outstanding. The outstanding shares of Buyer Common Stock have been duly authorized and validly issued and are fully paid and
non-assessable
and have not been issued in violation of nor are they subject to
preemptive rights of any Buyer shareholder. The shares of Buyer Common Stock to be issued pursuant to this Agreement, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and
non-assessable
and will not be subject to preemptive rights. All shares of Buyers capital stock issued and outstanding have been issued in compliance with and not in violation of any applicable federal or
state securities Laws.
Section 4.04
Corporate Power
. Buyer and Buyer Bank have the corporate power and authority to carry on
their business as it is now being conducted and to own all their properties and assets; and each of Buyer and Buyer Bank has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby, subject to receipt of all necessary approvals of Governmental Authorities.
Section 4.05
Corporate Authority
. Subject only to the receipt of the Requisite Buyer Shareholder Approval at the Buyer Meeting, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of Buyer and
Buyer Bank on or prior to the date hereof. Buyer and Buyer Bank have duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by Seller Entities, this Agreement is a valid and legally binding obligation of
Buyer and Buyer Bank, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or
affecting creditors rights or by general equity principles).
Section 4.06
SEC Documents; Financial Statements
.
(a) Buyer has filed all required reports, forms, schedules, registration statements and other documents with the SEC that it has been required
to file since September 15, 2016 (the
Buyer
Reports
), and has paid all fees and assessments due and payable in connection therewith. As of their respective dates of filing with the SEC (or, if amended or
superseded by a subsequent filing prior to the date hereof, as of the date of such subsequent filing), the Buyer Reports complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such Buyer Reports, and none of the Buyer Reports when filed with the SEC, or if amended prior to the date hereof, as of the date of such amendment, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of the date hereof, there are no
outstanding comments from or unresolved issues raised by the SEC, as applicable, with respect to any of the Buyer Reports.
(b) The
consolidated financial statements of Buyer (including any related notes and schedules thereto) included in the Buyer Reports complied as to form, as of their respective dates of filing with the SEC (or, if amended or superseded by a subsequent
filing prior to the date hereof, as of the date of such subsequent filing), in all material respects, with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto (except, in the case of
unaudited statements, as permitted by the rules of the SEC), have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be disclosed therein), and fairly present, in all material respects, the
consolidated financial position of Buyer and its Subsidiaries and the consolidated results of operations, changes in shareholders equity and cash flows of such companies as of the dates and for the periods shown.
(c) Buyer (x) has established and maintained disclosure controls and procedures and internal control over financial reporting (as such
terms are defined in paragraphs (e) and (f), respectively, of Rule
13a-15
under the
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Exchange Act) as required by Rule
13a-15
under the Exchange Act, and (y) has disclosed, based on its most recent evaluation, to its outside auditors
and the audit committee of Buyers board of directors (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule
13a-15(f)
of the Exchange Act) which are reasonably likely to adversely affect Buyers ability to record, process, summarize and report financial data and (B) any fraud, whether or not material, that
involves management or other employees who have a significant role in Buyers internal control over financial reporting.
Section 4.07
Regulatory Reports
. Since January 1, 2011, Buyer and Buyer Bank have filed with the FDIC, the FRB, the Tennessee
Department of Financial Institutions and any other applicable Governmental Authority, all material reports and other documents, that they were required to file under applicable Law (other than Buyer Reports) and have paid all fees and assessments
due and payable in connection therewith. Except for normal examinations conducted by a Governmental Authority in the regular course of the business of Buyer and its Subsidiaries, no Governmental Authority has notified Buyer that it has initiated any
proceeding or, to the Knowledge of Buyer, threatened an investigation into the business or operations of Buyer or any of its Subsidiaries since January 1, 2011 which would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Buyer. There is no material unresolved violation or exception by any Governmental Authority with respect to any report filed by, or relating to any examinations by any such Governmental Authority of Buyer or any of its
Subsidiaries which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Buyer.
Section 4.08
Regulatory Approvals; No Defaults
. Subject to the receipt of the Requisite Buyer Shareholder Approval, the Regulatory
Approvals and any required filings under federal and state securities Laws, the execution, delivery and performance of this Agreement by Buyer, and the consummation of the transactions contemplated hereby do not and will not, (i) constitute a
breach or violation of, or a default under, the Charter or Bylaws of the Buyer and Buyer Bank, (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Buyer or any of its
Subsidiaries, or any of their respective properties or assets or (iii) violate, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Buyer or any
of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, contract, agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound.
Section 4.09
Buyer Information
. As of the date
of the Proxy Statement and the date of the Buyer Meeting to which such Proxy Statement relates, none of the information supplied or to be supplied by Buyer for inclusion or incorporation by reference in the Proxy Statement prepared pursuant to the
Securities Act and the regulations thereunder, will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
provided,
however
, that any information contained in any Buyer Report as of a later date shall be deemed to modify information as of an earlier date.
Section 4.10
Absence of Certain Changes or Events
. Except as reflected or disclosed in Buyers Registration Statement on
Form S-1
effective as of September 15, 2016 or in the Buyer Reports since September 15, 2016, as filed with the SEC, there has been no change or development with respect to Buyer and its assets and
business or combination of such changes or developments which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect with respect to Buyer.
Section 4.11
Compliance with Laws
. Buyer and each of its Subsidiaries is and since January 1, 2011 has been in compliance in
all material respects with all applicable federal, state, and local Laws, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, Laws related to data protection or
privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal
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Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act and any other Law relating
to discriminatory lending, financing or leasing practices, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act, and the Dodd-Frank Act, except where the failure to be in such compliance would not have a Material Adverse Effect
with respect to Buyer.
Section 4.12
Brokers
. No broker, investment banker, financial advisor or other Person, other than
Stephens Inc., the fees and expenses of which will be paid by Buyer, is entitled to any brokers, finders, financial advisors or other similar fee or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Buyer or any of its Affiliates.
Section 4.13
Tax Matters
.
(a) Buyer and each of its Subsidiaries have filed all material Tax Returns that they were required to file under applicable Laws and
regulations, other than Tax Returns that are not yet due or for which a request for extension was filed consistent with requirements of applicable Law or regulation. All such Tax Returns were correct and complete in all material respects and have
been prepared in substantial compliance with all applicable Laws. All material Taxes due and owing by Buyer or any of its Subsidiaries (whether or not shown on any Tax Return) have been paid other than Taxes that have been reserved or accrued on the
balance sheet of Buyer and which Buyer is contesting in good faith. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of Buyer or any of its Subsidiaries.
(b) Seller and its Subsidiaries shall not take or allow any action that would result in the termination of revocation for Federal and State of
Tennessee income tax purposes of Sellers status as a validly electing S Corporation within the meaning of Code Sections 1361 and 1362, or of each Seller Banks status as a validly electing Qualified Subchapter S Subsidiary within the
meaning of Code Section 1361(b)(3)(B).
Section 4.14
Regulatory Capitalization
. Buyer Bank is, and will be upon consummation
of the transactions contemplated by this Agreement, well-capitalized, as such term is defined in the rules and regulations promulgated by the FDIC. Buyer is, and will be upon consummation of the transactions contemplated by this
Agreement, well-capitalized as such term is defined in the rules and regulations promulgated by the FRB.
Section 4.15
No Financing
. Buyer and Buyer Bank have and will have as of the Effective Time, without having to resort to external sources, sufficient capital to effect the transactions contemplated by this Agreement.
Section 4.16
No Knowledge of Breach
. Neither Buyer nor Buyer Bank has any Knowledge of any facts or circumstances that would
result in any Seller Entity being in breach on the date of execution of this Agreement of any representations and warranties of Seller Entities set forth in ARTICLE III.
ARTICLE V
COVENANTS
Section 5.01
Covenants of Seller Entities
. During the period from the date of this Agreement and continuing until the
Effective Time, except as expressly contemplated or permitted by this Agreement or with the prior written consent of Buyer Bank (which consent shall not be unreasonably withheld or delayed), each Seller Entity shall carry on its business, including
the business of each of its Subsidiaries, only in the Ordinary Course of Business and consistent with prudent banking practice, and in compliance in all material respects with all applicable Laws. Without limiting the generality of the foregoing,
each Seller Entity shall, in respect of loan loss provisioning, securities, portfolio management, compensation and other expense management and other operations which might impact Seller Banks equity capital, operate only in the Ordinary
Course of Business and
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in accordance with the limitations set forth in this
Section
5.01
unless otherwise consented to in writing by Buyer Bank; which for purposes of requesting and giving
consent under this
Section
5.01
, Seller Entities representatives shall be James L. Clayton and Buyer Banks representatives shall be Christopher T. Holmes and James R. Gordon;
provided,
however
,
that with respect to
Section 5.01(q)(
i
)
,
Section 5.01(r)
and
Section 5.01(s)
, if Buyer Bank shall not have disapproved of a Seller Entitys request in writing within two (2) Business Days upon
receipt of such written request from such Seller Entity, then such request shall be deemed to be approved by Buyer Bank. Each Seller Entity will use commercially reasonable efforts to (i) maintain and preserve its business organizations and
assets intact, (ii) keep available to itself and Buyer Bank the present services of the current officers and employees of Seller Entities, (iii) preserve for itself and Buyer Bank the goodwill of its customers, employees, lessors and
others with whom business relationships exist, and (iv) continue diligent collection efforts with respect to any delinquent loans and, to the extent within its control, not allow any material increase in delinquent loans. Without limiting the
generality of and in furtherance of the foregoing, from the date of this Agreement until the Effective Time, except (x) as set forth in
Seller Disclosure
Schedule 5.01
, (y) as otherwise expressly required by this Agreement, or
(y) consented to in writing by Buyer Bank, the each Seller Entity shall not:
(a)
Stock
. (i) Except as set forth in
Seller Disclosure Schedule 5.01(a)
, issue, sell, grant, pledge, dispose of, encumber, or otherwise permit to become outstanding, or authorize the creation of, any additional shares of capital stock of the Seller Banks
(
Bank
Capital
Stock
), any stock options, restricted shares or other equity-based awards with respect to shares of Bank Capital Stock, or enter into any agreement with respect to the
foregoing, (ii) grant any individual, corporation or other entity any right acquire any shares of Bank Capital Stock; (iii) except as expressly permitted by this Agreement, accelerate the vesting of any existing Rights; (iv) except as
expressly permitted by this Agreement, directly or indirectly change (or establish a record date for changing), adjust, split, combine, redeem, reclassify, exchange, purchase or otherwise acquire any shares of Bank Capital Stock, or any other
securities convertible into or exchangeable for any additional shares of Bank Capital Stock, any Rights issued and outstanding prior to the Effective Time; or (v) amend, alter or modify any warrant or other equity-based right to purchase any
capital stock or other equity interests in Seller Banks or any securities exchangeable for or convertible into the same or other Bank Capital Stock outstanding on the date hereof.
(b)
Dividends; Other Distributions
. Other than as expressly permitted by
Section
5.24
, make, declare, pay or
set aside for payment of dividends payable in cash, stock or property on or in respect of, or declare or make any distribution on, any shares of capital stock of either Seller Bank.
(c)
Compensation; Employment Agreements, Etc
. Enter into or amend or renew any employment, consulting, compensatory, severance,
retention or similar agreements or arrangements with any current, former or retired director, officer or employee of any Seller Bank, or grant any salary, wage or fee increase or increase any employee benefit or pay any incentive or bonus payments,
except (i) normal increases in base salary to employees in the Ordinary Course of Business and pursuant to policies currently in effect,
provided
that,
such increases shall not result in an annual adjustment in base compensation
(which includes base salary and any other compensation other than bonus payments) of more than 5% for any individual or 3% in the aggregate for all employees of Seller Banks other than as disclosed in
Seller Disclosure Schedule 5.01(c)
,
(ii) as may be required by Law, (iii) to satisfy contractual obligations existing or contemplated as of the date hereof, as previously disclosed to Buyer Bank and set forth in
Seller Disclosure Schedule 5.01(c)
, and (iv) bonus
payments in the Ordinary Course of Business and pursuant to plans in effect on the date hereof,
provided
that
, such payments shall not exceed the aggregate amount set forth in
Seller Disclosure Schedule 5.01(c)
and shall not be
paid to any individual for whom such payment would be an excess parachute payment as defined in Section 280G of the Code.
(d)
Hiring
. Hire or terminate any person as an employee or independent contractors of Seller Banks, except for
at-will
employees at an annual rate of salary not to exceed $50,000 to fill vacancies that may arise from time to time in the Ordinary Course of Business, or enter into any new employment or independent contractor
agreements or arrangements, or enter into any collective-bargaining agreements,.
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(e)
Benefit Plans
. (i) Enter into, establish, adopt, amend, modify or terminate
(except (w) as may be required by or to make consistent with applicable Law, subject to the provision of prior written notice to and consultation with respect thereto with Buyer Bank, (x) to satisfy contractual obligations existing as of
the date hereof and set forth in
Seller Disclosure Schedule 5.01(e)
, (y) as previously disclosed to Buyer Bank and set forth in
Seller Disclosure Schedule 5.01(e)
, or (z) as may be required pursuant to the terms of this Agreement)
any Seller Benefit Plan or other pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or
any trust agreement (or similar arrangement) related thereto, in respect of any current or former director, officer or employee of any Seller Bank, (ii) take any action other than in the Ordinary Course of Business to fund or in any way secure
the payment of compensation of benefits under any Seller Benefit Plan, (iii) increase contributions to the Seller ESOP above historic levels or (iv) enter, amend, modify, alter, terminate or change any third-party vendor or service
agreement related to any Seller Benefit Plan.
(f)
Transactions with Affiliates
. Except pursuant to agreements or arrangements in
effect on the date hereof and set forth in
Seller Disclosure Schedule 5.01(f)
, pay, loan or advance any amount to, or sell, transfer or lease any Seller Bank properties or assets (real, personal or mixed, tangible or intangible) to, or enter
into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any Affiliates or Associates of any of its officers or directors other than compensation or business expense advancements or
reimbursements in the Ordinary Course of Business.
(g)
Dispositions
. Except as set forth on
Seller Disclosure Schedule
5.01(g)
or in the Ordinary Course of Business, sell, license, lease, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of Seller Banks rights, assets, deposits, business or properties or cancel, assign or
release any indebtedness owed to any Seller Bank.
(h)
Acquisitions
. Acquire (other than by way of foreclosures or acquisitions of
control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the Ordinary Course of Business) all or any portion of the assets, debt, business, deposits or properties of any other entity
or Person, except for purchases specifically approved by Buyer Bank pursuant to any other applicable paragraph of this
Section 5.01
.
(i)
Capital Expenditures
. Make any capital expenditures in amounts exceeding $50,000 individually, or $100,000 in the aggregate.
(j)
Governing Documents
. Amend the Charter or Bylaws of any Seller Entity.
(k)
Accounting Methods
. Implement or adopt any change in its accounting principles, practices or methods, other than as may be required
by applicable Laws or GAAP.
(l)
Contracts
. Except as set forth in
Seller Disclosure Schedule 5.01(l)
, enter into, amend,
modify, terminate, extend, or waive any material provision of, any Seller Material Contract, Lease or Insurance Policy, or make any change in any instrument or agreement governing the terms of any of its securities, or material lease or contract,
other than normal renewals of contracts and leases without material adverse changes of terms with respect to Seller Banks, or enter into any contract that would constitute a Seller Material Contract if it were in effect on the date of this
Agreement, except for any amendments, modifications or terminations requested by Buyer Bank.
(m)
Claims
. Other than commencement
or settlement of foreclosure actions in the Ordinary Course of Business, (i) enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which any Seller Entity is or becomes a party
after the date of this Agreement, which settlement or agreement involves payment by Seller Bank of an amount which exceeds $25,000 individually or $100,000 in the aggregate and/or would impose any material restriction on the business of Seller Banks
or (ii) waive or release any material rights or claims, or agree or consent to the issuance of any injunction, decree, order or
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judgment restricting or otherwise affecting its current or future business or operations (including the future business and operations of Buyer and Buyer Bank).
(n)
Banking Operations
. (i) Enter into any material new line of business, introduce any material new products or services, any
material marketing campaigns or any material new sales compensation or incentive programs or arrangements; (ii) change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking and
operating policies, except as required by applicable Law, regulation or policies imposed by any Governmental Authority; or (iii) make any material changes in its policies and practices with respect to underwriting, pricing, originating,
acquiring, selling, servicing, or buying or selling rights to service Loans, its hedging practices and policies.
(o)
Derivative
Transactions
. Enter into any Derivative Transaction.
(p)
Indebtedness
. Incur, modify, extend or renegotiate any indebtedness
of any Seller Bank or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person or make any loan or advance of capital contribution to, or investment in, any other Person (other than
creation of deposit liabilities, purchases of federal funds, purchases of Federal Home Loan Bank advances that have a maturity under twelve (12) months, and purchases of brokered certificates of deposit that have a maturity under twelve
(12) months, which are in each case in the Ordinary Course of Business).
(q)
Investment Securities
. (i) Acquire or make
any material investment in (other than (x) by way of foreclosures or acquisitions in a bona fide fiduciary capacity or (y) in satisfaction of debts previously contracted in good faith), sell or otherwise dispose of any debt security or
equity investment or any certificates of deposits issued by other banks, (ii) change the classification method for any of the Investment Securities from held to maturity to available for sale or from available for
sale to held to maturity, as those terms are used in ASC 320, nor (iii) restructure or materially change its investment securities portfolio or its gap position, through purchases, sales or otherwise other than in the Ordinary
Course of Business, or the manner in which the portfolio is classified or reported.
(r)
Deposits
. Make any changes to deposit
pricing (other than immaterial changes on an individual customer basis, consistent with past practices).
(s)
Loans
. Except for
loans or extensions of credit approved and/or committed as of the date hereof that are listed in
Seller Disclosure Schedule 5.01(s)
, with respect to any Seller Bank, (i) make, renew, renegotiate, increase, extend or modify any
(A) unsecured loan, if the amount of such unsecured loan, together with any other outstanding unsecured loans made by any Seller Bank to such borrower or its Affiliates would be in excess of $500,000, in the aggregate, (B) loan secured by
other than a first lien in excess of $200,000, (C) loan in excess of FFIEC regulatory guidelines relating to loan to value ratios, (D) secured loan over $7,500,000, (E) any residential and commercial real estate acquisition, development,
and construction (ADC) loan in excess of $1,000,000, (F) any loan that is not made in conformity with Seller Banks ordinary course lending policies and guidelines in effect as of the date hereof, or (G) loan, whether secured or
unsecured, if the amount of such loan, together with any other outstanding loans (without regard to whether such other loans have been advanced or remain to be advanced), would result in the aggregate outstanding loans to any borrower of a Seller
Bank (without regard to whether such other loans have been advanced or remain to be advanced) to exceed $10,000,000, (ii) sell any loan or loan pools in excess of $5,000,000 in principal amount or sale price, or (iii) acquire any servicing
rights, or sell or otherwise transfer any loan where any Seller Bank retains any servicing rights. The limits set forth in this
Section 5.01(s)
may be increased upon mutual agreement of the parties, provided such adjustments shall be
memorialized in writing by all parties thereto.
(t)
Investments or Developments in Real Estate
. Make any investment or commitment
to invest in real estate or in any real estate development project other than by way of foreclosure or deed in lieu thereof or make any investment or commitment to develop, or otherwise take any actions to develop any real estate owned by a Seller
Bank.
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(u)
Taxes
. Except as required by applicable Law, make, in any manner different from a
Seller Entitys prior custom and practice, or change any material Tax election, file any material amended Tax Return, enter into any material closing agreement, settle or compromise any material liability with respect to Taxes, agree to any
material adjustment of any Tax attribute, file any claim for a material refund of Taxes, or consent to any extension or waiver of the limitation period applicable to any material Tax claim or assessment,
provided
that
, for purposes of
this subsection (u), material shall mean affecting or relating to $10,000 or more in Taxes or $25,000 or more of taxable income.
(v)
Compliance with Agreements
. Commit any act or omission which constitutes a material breach or default by any Seller Entity under
any agreement with any Governmental Authority or under any Seller Material Contract, Lease or other material agreement or material license to which any Seller Entity is a party or by which any of them or their respective properties are bound or
under which any of them or their respective assets, business, or operations receives benefits.
(w)
Environmental Assessments
.
Foreclose on or take a deed or title to any real estate other than single-family residential properties without first conducting an ASTM International
E1527-13
Phase I Environmental Site Assessment (or any
applicable successor standard) of the property that satisfies the requirements of 40 C.F.R. Part 312, or foreclose on or take a deed or title to any real estate other than single-family residential properties if such environmental assessment
indicates the presence or likely presence of any Hazardous Substances under conditions that indicate an existing release, a past release, or a material threat of a release of any Hazardous Substances into structures on the property or into the
ground, ground water, or surface water of the property.
(x)
Adverse Actions
. Except as expressly contemplated or permitted by this
Agreement, without the prior written consent of Buyer Bank, each Seller Entity will not, and will cause each of its Subsidiaries not to take any action or knowingly fail to take any action not contemplated by this Agreement that is intended or is
reasonably likely to (i) prevent, delay or impair Seller Entities ability to consummate the Stock Purchase or the transactions contemplated by this Agreement, (ii) result in any of the conditions set forth in ARTICLE VI not being
satisfied, (iii) materially impede or delay the ability of the parties to obtain any necessary Regulatory Approvals of any Governmental Authority required for the transactions contemplated hereby, or (iv) agree to take, make any commitment
to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by this
Section
5.01
.
(y)
Capital Stock Purchase
. Directly or indirectly repurchase, redeem or otherwise acquire any shares of Bank Capital Stock or any
securities convertible into or exercisable for any shares of Bank Capital Stock.
(z)
Facilities
. Except as set forth in
Seller
Disclosure Schedule 5.01(z)
or as required by Law, file any application or make any contract or commitment for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production or servicing facility or
automated banking facility of any Seller Bank, except for any change that may be requested by Buyer Bank.
(aa)
Restructure
. Merge
or consolidate itself or any of its Subsidiaries with any other Person, or restructure, reorganize or completely or partially liquidate or dissolve the Seller Banks.
(bb)
Commitments
. (i) Enter into any contract with respect to, or otherwise agree or commit to do, or adopt any resolutions of its
board of directors or similar governing body in support of, any of the foregoing or (ii) take any action that is intended or expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in
any material respect at any time prior to the Effective Time, or in any of the conditions to the Stock Purchase not being satisfied or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable Law.
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Section 5.02
Covenants of Buyer
.
(a)
Affirmative Covenants
. From the date hereof until the Effective Time, Buyer and Buyer Bank will carry on its business consistent
with prudent banking practices and in compliance in all material respects with all applicable Laws.
(b)
Negative Covenants
. From
the date hereof until the Effective Time, except as expressly contemplated or permitted by this Agreement, without the prior written consent of Seller, Buyer will not, and will cause each of its Subsidiaries not to take any action or knowingly fail
to take any action not contemplated by this Agreement that is intended or is reasonably likely to (i) prevent, delay or impair Buyers and Buyer Banks ability to consummate the Stock Purchase or the transactions contemplated by this
Agreement, (ii) result in any of the conditions set forth in ARTICLE VI not being satisfied, (iii) materially impede or delay the ability of the parties to obtain any necessary Regulatory Approvals of any Governmental Authority required
for the transactions contemplated hereby, or (iv) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by this
Section
5.02
.
Section 5.03
Commercially Reasonable Efforts
. Subject to the terms and conditions of this Agreement, each of the parties to the
Agreement agrees to use commercially reasonable 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 advisable under applicable Laws, so as to permit consummation of the
transactions contemplated hereby as promptly as practicable, including the satisfaction of the conditions set forth in ARTICLE VI hereof, and shall cooperate fully with the other parties hereto to that end.
Section 5.04
Shareholder Approval
.
(a) Seller Shareholder Approval.
(i) As promptly as practicable, but in no event later than 45 days after the execution of this Agreement, Seller shall either
(A) obtain the Requisite Seller Shareholder Approval required in connection with the Stock Purchase, on the terms and conditions set forth in this Agreement, by written consent in a form reasonably satisfactory to Buyer and Buyer Bank and in
accordance with applicable Law and the Charter and Bylaws of Seller or (B) convene, in accordance with applicable Law and the Charter and Bylaws of Seller, a meeting of its shareholders to consider and vote upon the approval of the Stock
Purchase and the other transactions contemplated hereby and any other matter required to be approved by the shareholders of Seller in order to consummate the Stock Purchase and the transactions contemplated hereby (including any adjournment or
postponement thereof, the
Seller
Meeting
).
(ii) Seller shall comply with the
requirements of the Seller ESOP with respect to obtaining the Requisite Seller Shareholder Approval and provide an information statement or similar disclosure document describing this Agreement and the Stock Purchase to participants in the Seller
ESOP. Participants in the Seller ESOP will then have the opportunity to indicate their approval or rejection of the Stock Purchase and the transactions contemplated thereby. The trustees of the Seller ESOP shall then vote the shares of Seller Common
Stock owned by the Seller ESOP at the Seller Meeting in accordance with the terms of the Seller ESOP. Seller, Buyer and Buyer Bank agree to cooperate in the preparation of such information statement or similar disclosure document to be provided to
the participants in the Seller ESOP and Buyer and Buyer Bank shall be given a reasonable opportunity to review and comment on such document.
(iii) The Seller Board has adopted resolutions approving the Stock Purchase, on the terms and conditions set forth in this
Agreement, and directing that the Stock Purchase, on such terms and conditions, be submitted to the Shareholders for its consideration. The Seller Board shall recommend approval of this Agreement by the Shareholders and the transactions contemplated
hereby (including the Stock Purchase) (the
Seller
Recommendation
) and shall not withhold, withdraw, amend, modify, change or qualify such recommendation in a manner adverse in any respect to the interests of
Buyer or Buyer Bank.
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(b) Buyer Shareholder Approval.
(i) Following the execution of this Agreement, Buyer shall take, in accordance with applicable Law, applicable rules of NYSE
and the Charter and Bylaws of Buyer, all action necessary to convene a meeting of its shareholders as promptly as practicable to consider and vote upon (i) the issuance of the shares of Buyer Common Stock as the Stock Consideration and
(ii) any other matter required to be approved by the shareholders of Buyer in order to consummate the Stock Purchase and the transactions contemplated hereby (including any adjournment or postponement thereof, the
Buyer
Meeting
).
(ii) Buyer shall use its commercially reasonable efforts to obtain the Requisite Buyer
Shareholder Approval at the Buyer Meeting, and shall ensure that the Buyer Meeting is called, noticed, convened, held and conducted, and that all proxies solicited by Buyer in connection with the Buyer Meeting are solicited in compliance with the
Tennessee Business Corporation Act, Charter and Bylaws of Buyer, and all other applicable legal requirements. Buyer shall keep Seller updated with respect to the proxy solicitation results in connection with the Buyer Meeting as reasonably requested
by Seller. Buyers board of directors shall recommend that Buyers shareholders vote to approve the issuance of Buyer Common Stock in the transactions contemplated by this Agreement and any other matters required to be approved by
Buyers shareholders for consummation of the Stock Purchase and the transactions contemplated hereby (the
Buyer
Recommendation
), and the Proxy Statement shall include the Buyer Recommendation.
Section 5.05
Proxy Statement; Stock Consideration
.
(a) Buyer, Buyer Bank and Seller Entities agree to cooperate in the preparation of the Proxy Statement to be filed by Buyer with the SEC in
connection with the receipt of the Requisite Buyer Shareholder Approval at the Buyer Meeting as promptly as practicable following the execution of this Agreement. Seller shall, as promptly as practicable following the execution of this Agreement,
prepare and deliver to Buyer such information, financial statements and related analysis of the Seller Entities, including any audited financial statements or unaudited financial statements of the Seller Banks, any Managements Discussion and
Analysis of Financial Condition and Results of Operations with respect to the Seller Banks, in each case, as may be required by applicable SEC rules and regulations to be included in the Proxy Statement or any other report required to be filed by
Buyer with the SEC, in each case, in compliance with applicable Laws. Buyer also agrees to use commercially reasonable efforts to obtain any necessary state securities Law or blue sky permits and approvals required to carry out the
transactions contemplated by this Agreement. Seller agrees to cooperate with Buyer and Buyers counsel and accountants in requesting and obtaining appropriate opinions, consents and letters from Sellers independent auditors in connection
with the Proxy Statement.
(b) Buyer shall issue the Stock Consideration to Seller pursuant to an exemption under Section 4(a)(2) and Rule
506 of Regulation D under the Securities Act.
Section 5.06
Registration; NYSE Listing; Finance Committee
.
(a) Buyer shall file a registration statement with the SEC promptly following the Closing to register the resale of the shares of Buyer Common
Stock issued as Stock Consideration to Seller and held by Seller; provided, however, that Buyer shall be under no obligation to file such registration statement with the SEC until after September 15, 2017. Buyer shall file such registration
statement by the later of (i) September 30, 2017 or (ii) thirty (30) days after the Closing. Buyer shall use commercially reasonable efforts to cause such registration statement to become effective as expeditiously as practicable.
Seller shall provide Buyer with such information regarding Seller as is required by applicable SEC rules and regulations to be included in such registration statement.
(b) Buyer shall cause the shares of Buyer Common Stock to be issued as Stock Consideration to be approved for listing on NYSE no later than
the time that the registration statement referenced in
Section 5.06(b)
becomes effective.
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(c) Promptly after the Closing, Buyer shall form a Finance Committee consisting of the Chief
Financial Officer and Chief Executive Officer of Buyer, a representative of James W. Ayers (
Ayers
) and a representative of Clayton (the
Finance
Committee
). The Finance Committee shall
be terminated once each of Ayers and Clayton cease to beneficially own at least 5% of the outstanding shares of Buyer Common Stock. Prior to undertaking the sale or a series of related sales of shares of Buyer Common Stock valued at $5,000,000 or
more, Ayers and Clayton agree to discuss such intention with the Finance Committee and consider in good faith the Finance Committees views on conducting such sales in a manner that would minimize any negative impact on the Buyer Common Stock
resulting from such sales, would be in the best interests of Buyer and would achieve Ayers or Claytons objectives with respect to such sales.
Section 5.07
Regulatory Filings; Consents
.
(a) Each of Buyer and Seller and their respective Subsidiaries shall cooperate and use their respective commercially reasonable efforts
(i) to prepare all documentation (including the Proxy Statement), to effect all filings, to obtain all permits, consents, approvals and authorizations of all third parties and Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement, the Regulatory Approvals and all other consents and approvals of a Governmental Authority required to consummate the Stock Purchase in the manner contemplated herein, (ii) to comply with the terms and conditions
of such permits, consents, approvals and authorizations and (iii) to cause the transactions contemplated by this Agreement to be consummated as expeditiously as practicable;
provided,
however
, that in no event shall Buyer be
required to agree to any prohibition, limitation, or other requirement which would prohibit or materially limit the ownership or operation by any Seller Bank, or by Buyer or any of its Subsidiaries, of all or any material portion of the business or
assets of any Seller Bank or Buyer or its Subsidiaries, or compel Buyer or any of its Subsidiaries to dispose of all or any material portion of the business or assets of any Seller Bank or Buyer or any of its Subsidiaries or continue any portion of
any Seller Regulatory Agreement against Buyer or any of its Subsidiaries after the Stock Purchase except as set forth on
Seller Disclosure Schedule 5.07(a)
(together, the
Burdensome
Conditions
). Buyer
and Seller will furnish each other and each others counsel with all information concerning themselves, their Subsidiaries, directors, trustees, officers and shareholders and such other matters as may be necessary or advisable in connection
with any application, petition or any other statement or application made by or on behalf of Buyer or Seller to any Governmental Authority in connection with the transactions contemplated by this Agreement. Each party hereto shall have the right to
review and approve in advance all characterizations of the information relating to such party and any of its Subsidiaries that appear in any filing made in connection with the transactions contemplated by this Agreement with any Governmental
Authority. In addition, Buyer and Seller shall each furnish to the other for review a copy of each such filing made in connection with the transactions contemplated by this Agreement with any Governmental Authority prior to its filing, and shall
promptly advise the other upon receiving any communication from any Governmental Authority the consent or approval of which is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that there
is a reasonable likelihood that any Regulatory Approval will not be obtained or that the receipt of any such approval may be materially delayed.
(b) Seller Entities will use its commercially reasonable efforts, and Buyer and Buyer Bank shall reasonably cooperate with Seller Entities at
Sellers request, to obtain all consents, approvals, authorizations, waivers or similar affirmations described on
Seller Disclosure Schedule 3.13(c)
. Each party will notify the other party promptly and shall promptly furnish the other
party with copies of notices or other communications received by such party or any of its Subsidiaries of any communication from any Person alleging that the consent of such Person (or another Person) is or may be required in connection with the
transactions contemplated by this Agreement (and the response thereto from such party, its Subsidiaries or its representatives). Seller Entities will consult with Buyer, Buyer Bank and their respective representatives as often as practicable under
the circumstances so as to permit Seller Entities, Buyer and Buyer Bank and their respective representatives to cooperate to take appropriate measures to obtain such consents and avoid or mitigate any adverse consequences that may result from the
foregoing.
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Section 5.08
Publicity
. Buyer and Seller shall consult with each other before issuing
any press release with respect to this Agreement or the transactions contemplated hereby and shall not issue, and shall instruct their respective agents, advisors, representatives and Affiliates not to issue, any such press release or make any such
public statement without the prior consent of the other party, which shall not be unreasonably delayed or withheld;
provided,
however
, that a party may, without the prior consent of the other party (but after such consultation, to the
extent practicable in the circumstances), issue such press release or make such public statements as may upon the advice of counsel be required by Law or the rules and regulations of any stock exchanges. It is understood that Buyer shall assume
primary responsibility for the preparation of joint press releases relating to this Agreement, the Stock Purchase and the other transactions contemplated hereby.
Section 5.09
Access; Current Information
.
(a) For the purposes of verifying the representations and warranties of the other and preparing for the Stock Purchase and the other matters
contemplated by this Agreement, upon reasonable notice and subject to applicable Laws relating to the confidentiality and exchange of information, Seller agrees to afford Buyer Bank and its officers, employees, counsel, accountants and other
authorized representatives such access during normal business hours at any time and from time to time throughout the period prior to the Effective Time to Seller Entities books, records (including, without limitation, Tax Returns and work
papers of independent auditors), information technology systems, properties and personnel and to such other information relating to them as Buyer Bank may reasonably request and Seller shall use commercially reasonable efforts to provide any
appropriate notices to employees and/or customers in accordance with applicable Law and Seller Banks privacy policy and, during such period, Seller shall furnish to Buyer Bank, upon Buyer Banks reasonable request, all such other
information concerning the business, properties and personnel of Seller Entities that is substantially similar in scope to the information provided to Buyer Bank in connection with its diligence review prior to the date of this Agreement.
(b) As soon as reasonably practicable after they become available, Seller will furnish to Buyer Bank copies of the board packages distributed
to the Seller Entities Board and minutes from the meetings thereof, copies of any internal management financial control reports showing actual financial performance against plan and previous period, and copies of any reports provided to the
Seller Entities Board or any committee thereof relating to the financial performance and risk management of Seller Banks.
(c)
During the period from the date of this Agreement to the Effective Time, each of Seller and Buyer Bank will cause one or more of its designated representatives to confer on a regular basis with representatives of the other party and to report the
general status of the ongoing operations of Seller Entities and Buyer Bank, respectively. Without limiting the foregoing, Seller agrees to provide to Buyer Bank (i) a copy of each report filed by any Seller Entity with a Governmental Authority
within one (1) Business Day following the filing thereof, (ii) a copy of each Seller Banks monthly loan trial balance within one (1) Business Day of the end of the month (including a report on each Seller Banks
concentration of ADC loans to total risk-based capital), and (iii) a copy of each Seller Banks monthly statement of condition and profit and loss statement within five (5) Business Days of the end of the month and, if requested by
Buyer Bank, a copy of each Seller Banks daily statement of condition and daily profit and loss statement, which shall be provided within two (2) Business Days of such request.
(d) No investigation by Buyer Bank or its representatives shall be deemed to modify or waive any representation, warranty, covenant or
agreement of Seller Entities set forth in this Agreement, or the conditions to the respective obligations of Buyer, Buyer Bank and Seller Entities to consummate the transactions contemplated hereby.
(e) Seller shall not be required to copy Buyer Bank on any documents that disclose confidential discussions of this Agreement or the
transactions contemplated hereby or any other matter that Seller Entities boards of directors have been advised by counsel that such distribution to Buyer Bank may violate a confidentiality
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obligation or fiduciary duty or any Law or regulation, or may result in a waiver of a Seller Entitys attorney-client privilege. In the event any of the restrictions in this
Section
5.09(e)
shall apply, each Seller Entity shall use its reasonable best efforts to provide appropriate consents, waivers, decrees and approvals necessary to satisfy any confidentiality issues relating to documents prepared or held by third parties
(including work papers), the parties will make appropriate alternate disclosure arrangements, including adopting additional specific procedures to protect the confidentiality of sensitive material and to ensure compliance with applicable Laws.
Section 5.10
No Solicitation by Seller
. Each of Clayton, Seller, CBT and ACB shall not, and shall cause each of their respective
Subsidiaries, officers, directors and employees not to, and shall instruct, and use commercially reasonable efforts to cause, each of their respective investment bankers, financial advisors, attorneys, accountants, consultants, affiliates or other
agents (collectively, the
Seller
Representatives
) not to, directly or indirectly, (i) initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer
or proposal which constitutes, or could reasonably be expected to lead to, an Alternative Proposal; (ii) participate in any discussions or negotiations regarding any Alternative Proposal or furnish, or otherwise afford access, to any Person
(other than Buyer or Buyer Bank) any information or data with respect to any Seller Entity or otherwise relating to an Alternative Proposal; (iii) release any Person from, waive any provisions of, or fail to enforce any confidentiality
agreement or standstill agreement to which a Seller Entity is a party; or (iv) enter into any agreement, agreement in principle or letter of intent with respect to any Alternative Proposal or approve or resolve to approve any Alternative
Proposal or any agreement, agreement in principle or letter of intent relating to an Alternative Proposal. Any violation of the foregoing restrictions by any of the Seller Representatives, whether or not such Seller Representative is so authorized
and whether or not such Seller Representative is purporting to act on behalf of Seller Entities or otherwise, shall be deemed to be a breach of this Agreement by Seller Entities. Seller Entities shall, and shall cause each of the Seller
Representatives to, (x) immediately cease and cause to be terminated any and all existing discussions, negotiations, and communications with any Persons with respect to any existing or potential Alternative Proposal, (y) request the prompt
return or destruction of all confidential information previously furnished in connection therewith, and (z) not terminate, waive, amend, release or modify any provision of any confidentiality or standstill agreement relating to any Alternative
Proposal to which it or any of it or any of its Seller Representatives is a party, and shall enforce the provisions of any such agreement.
For purposes of this Agreement,
Alternative
Proposal
shall mean any inquiry, offer or proposal (other
than an inquiry, offer or proposal from Buyer or Buyer Bank), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an Alternative Transaction.
For purposes of this Agreement,
Alternative
Transaction
shall mean (A) any transaction or series
of transactions involving any merger, consolidation, recapitalization, share exchange, liquidation, dissolution or similar transaction involving any Seller Entity; (B) any transaction pursuant to which any third party or group acquires or would
acquire (whether through sale, lease or other disposition), directly or indirectly, a significant portion of the assets of any Seller Entity; (C) any issuance, sale or other disposition of (including by way of merger, consolidation, share
exchange or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities) representing 20% or more of the votes attached to the outstanding securities of any Seller Entity;
(D) any tender offer or exchange offer that, if consummated, would result in any third party or group beneficially owning 20% or more of any class of equity securities of any Seller Entity; or (E) any transaction which is similar in form,
substance or purpose to any of the foregoing transactions, or any combination of the foregoing, in each case other than the transactions contemplated by this Agreement.
Section 5.11
Indemnification
.
(a) For a period of six (6) years from and after the Effective Time, and in any event subject to the provisions of
Section 5.11(b)(iv)
, Buyer Bank shall indemnify and hold harmless the present and former directors and officers of Seller Banks (the
Indemnified
Parties
), against all costs or expenses (including
reasonable attorneys fees), judgments, fines, losses, claims, damages, or liabilities incurred in connection with any claim,
A-1-35
action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative arising out of actions or omissions of such persons in the course of performing their duties
for Seller Banks occurring at or before the Effective Time (including the transactions contemplated by this Agreement) (each a
Claim
), to the same extent as such persons have the right to be indemnified pursuant to the
Charter and Bylaws of Seller Banks in effect on the date of this Agreement, to the extent permitted by applicable Law.
(b) Any
Indemnified Party wishing to claim indemnification under this
Section
5.11
shall promptly notify Buyer Bank upon learning of any Claim,
provided
that
, failure to so notify shall not affect the obligation of
Buyer Bank under this
Section
5.11
, unless, and only to the extent that, Buyer Bank is materially prejudiced in the defense of such Claim as a consequence. In the event of any such Claim (whether asserted or claimed prior
to, at or after the Effective Time), (i) Buyer Bank shall have the right to assume the defense thereof and Buyer Bank shall not be liable to such Indemnified Parties for any legal expenses or other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, (ii) the Indemnified Parties will cooperate in the defense of any such matter, (iii) Buyer Bank shall not be liable for any settlement effected without its prior written
consent and (iv) Buyer Bank shall have no obligation hereunder to any Indemnified Party if such indemnification would be in violation of any applicable federal or state banking Laws or regulations, or in the event that a federal or state
banking agency or a court of competent jurisdiction shall determine that indemnification of an Indemnified Party in the manner contemplated hereby is prohibited by applicable Laws and regulations, whether or not related to banking Laws.
Section 5.12
Employees; Benefit Plans
.
(a) Seller Bank Employees shall be retained as at will employees after the Effective Time as employees of Buyer Bank;
provided
, that continued retention by Buyer Bank of such employees subsequent to the Effective Time shall be subject to Buyer Banks normal and customary employment procedures and practices, including customary background screening and
evaluation procedures, and satisfactory employment performance. In addition, Seller Entities agree, upon Buyer Banks reasonable request, to facilitate discussions between Buyer Bank and Seller Bank Employees a reasonable time in advance of the
Closing Date regarding employment, consulting or other arrangements to be effective prior to or following the Effective Time. Prior to the Effective Time, any interaction between Buyer Bank and any Seller Bank Employees shall be coordinated by
Seller or Seller Banks.
(b) Except as otherwise contemplated by this Agreement, Seller shall, and shall cause each Seller Bank to, take
whatever action is necessary to terminate any and all other severance arrangements and to ensure that it and Buyer Bank have no other liability for any other severance payments (other than pursuant to agreements disclosed in
Seller Disclosure
Schedule 3.16(i)
).
(c) Seller Bank Employees (other than those listed in
Seller Disclosure Schedule 5.12(c)
who are parties to
an employment,
change-of-control
or other type of agreement which provides for severance) as of the date of the Agreement who remain employed by a Seller Bank as of the
Effective Time, who become employees of Buyer Bank at the Effective Time and whose employment is terminated by Buyer Bank (absent termination for cause as determined by the employer) within one hundred eighty (180) days after the Effective Time
shall receive severance pay in accordance with Buyer Banks standard practices (which may include a severance agreement and general release of claims to be provided by the terminated employee) equal to 2 weeks of base pay for each year of service,
with a minimum payment equal to 2 weeks of base pay and a maximum payment equal to 26 weeks of base pay (unless otherwise agreed in a separate written agreement between such employee and Buyer Bank). Subject to the terms and execution of the
severance agreement and general release of claims by such employee, such severance payment will be made in accordance with the terms stated in the severance document and such severance payments will be in lieu of any severance pay plans that may be
in effect at any Seller Entity prior to the Effective Time. No officer or employee of Seller Bank is, or shall be, entitled to receive duplicative severance payments and benefits under (i) an employment or severance agreement; (ii) a
severance or
change-of-control
plan; (iii) this
Section
5.12
; or (iv) any other program or arrangement.
A-1-36
(d) Effective as of no later than the day immediately preceding the Effective Time, Seller
Entities shall provide Buyer Bank with a copy of the appropriate board resolutions and plan amendments, if applicable, evidencing that all Seller Benefit Plans sponsored by the Seller Banks intended to qualify under Section 401(a) and 401(k) of the
Code are in the process of being terminated effective as of no later than the day immediately preceding the Effective Time. The form and substance of such resolutions or plan amendment shall be subject to the review and reasonable and timely
approval of Buyer Bank.
(e) As promptly as practicable following the Effective Time, but no later than 90 days following the Effective
Time, Seller Entities shall take all necessary and appropriate actions to terminate the Seller ESOP. Participant account balances under the Seller ESOP shall be distributed as soon as reasonably feasible following such termination. Any Buyer Bank
stock held by the Seller ESOP shall be liquidated and shall not be paid out in kind to any Seller ESOP plan participant.
(f) Until such
time as the Seller Bank Employees retained by the Buyer Bank are able to participate in the Buyer Benefit Plans, the Buyer Bank shall maintain for the benefit of the Seller Bank Employees the Benefit Plans maintained by Seller Entities immediately
prior to the Effective Date (it being understood that participation in the Buyer Benefit Plans may commence at different times with respect to each Benefit Plan);
provided
,
however
, that this provision shall not apply to (i) any
Seller Benefit Plan that was terminated or in which participation was frozen on or prior to the Effective Date or (ii) the Clayton Bancorp, Inc. Employee Stock Ownership Plan. To the extent allowable under any Buyer Benefit Plan, Seller Bank
Employees shall be given credit for prior service or employment with applicable Seller Bank for purposes of eligibility and vesting in all Buyer Benefit Plans, including service with any predecessor companies or banks, and eligible for any increased
benefits under such plans that would apply to such employees as if they had been eligible for such benefits as of the Effective Time, based on the length of service or employment with the applicable Seller Bank, including service with any
predecessor companies or banks. Notwithstanding the foregoing, Buyer Bank may amend or terminate any Buyer Benefit Plan at any time in its sole discretion.
(g) If employees of Seller Banks become eligible to participate in a medical, dental or health plan of Buyer Bank upon termination of such
plan of a Seller Bank, Buyer Bank shall use commercially reasonable efforts to cause each such plan to (i) waive any
pre-existing
condition limitations to the extent such conditions are covered under the
applicable medical, health, or dental plans of Buyer Bank, (ii) subject to approval from Buyer Banks insurance carrier, provide full credit under such plans for any deductible or
out-of-pocket
expenses incurred by the employees and their beneficiaries during the portion of the calendar year prior to such participation, and (iii) waive any waiting period limitation or evidence of
insurability requirement which would otherwise be applicable to such employee on or after the Effective Time, in each case to the extent such employee had satisfied any similar limitation or requirement under an analogous plan prior to the Effective
Time for the plan year in which the Effective Time occurs.
(h) Except to the extent otherwise expressly provided in this
Section
5.12
, Buyer Bank shall assume and honor, and Buyer Bank shall be obligated to perform, all employment, severance, deferred compensation, retirement or
change-in-control
agreements, plans or policies of Seller Banks, but only if such obligations, rights, agreements, plans or policies are set forth in
Seller Disclosure Schedule 5.12(h)
. Buyer Bank acknowledges that the consummation of the Stock Purchase and Bank Merger will constitute a
change-in-control
of Seller Banks for purposes of any benefit plans, agreements and arrangements of Seller Banks. Nothing herein shall limit the ability of
Buyer or Buyer Bank to amend or terminate any of the Seller Benefit Plans or Buyer Benefit Plans in accordance with their terms at any time, subject to vested rights of employees and directors that may not be terminated pursuant to the terms of such
Seller Benefit Plans.
(i) Immediately prior to the Effective Time, Seller and/or Seller Bank, as applicable, will terminate the
employment agreements set forth in
Seller Disclosure Schedule 5.12(i)
and pay to each of the parties thereto the amounts set forth in
Seller Disclosure Schedule 5.12(i)
.
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(j) Nothing in this
Section
5.12
, expressed or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this
Section
5.12
. Without limiting the foregoing, no provision of this
Section
5.12
will create
any third party beneficiary rights in any current or former employee, director or consultant of Seller Banks, any beneficiary or dependent thereof, or any collective bargaining representative thereof, in respect of continued employment (or resumed
employment), compensation, terms and conditions of employment and/or benefits or any other matter. Nothing in this
Section
5.12
is intended (i) to amend any Seller Benefit Plan or any Buyer Benefit Plan,
(ii) interfere with Buyer Banks right from and after the Closing Date to amend or terminate any Seller Benefit Plan that is not terminated prior to the Effective Time or Buyer Benefit Plan, (iii) interfere with Buyer Banks
right from and after the Effective Time to terminate the employment or provision of services by any director, employee, independent contractor or consultant or (iv) interfere with Buyer Banks indemnification obligations set forth in
Section
5.11
.
(k) A
tax-qualified
Buyer Benefit Plan shall accept, in
accordance (a) with requirements of applicable law, (b) the terms of the Buyer Benefit Plans, and (c) reasonable requirements of the plan administrator of any Buyer Benefit Plan, a direct rollover (within the meaning of
section 401(a)(31) of the Code) of account balances in Seller Benefit Plans by any Seller employee who becomes a Buyer employee, including earnings thereon through the date of rollover and any promissory note evidencing an outstanding participant
loan which is not in default.
Section 5.13
Notification of Certain Changes
. Buyer and Seller shall promptly advise the other
party of any change or event having, or which could reasonably be expected to have, a Material Adverse Effect or which it believes would, or which could reasonably be expected to, cause or constitute a material breach of any of its or its respective
Subsidiaries representations, warranties or covenants contained herein. From time to time prior to the Effective Time (and on the date prior to the Closing Date), Seller will supplement or amend the Seller Disclosure Schedules delivered in
connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Seller Disclosure Schedule or which is
necessary to correct any information in such Seller Disclosure Schedule which has been rendered materially inaccurate thereby. No supplement or amendment to any Seller Disclosure Schedule or provision of information relating to the subject matter of
any Seller Disclosure Schedule after the date of this Agreement shall operate to cure any breach of a representation or warranty made herein or have any effect for the purpose of determining satisfaction of the conditions set forth in
Section
6.02(a)
or
Section 6.03(b)
hereof, as the case may be, or compliance by Buyer or Seller with the respective covenants and agreements of such parties set forth herein.
Section 5.14
Transition; Informational Systems Conversion
. From and after the date hereof, Buyer, Buyer Bank and Seller Entities
shall use their commercially reasonable efforts to facilitate the integration of Seller Banks with the business of Buyer Bank following consummation of the transactions contemplated hereby, and shall meet on a regular basis to discuss and plan for
the conversion of the data processing and related electronic informational systems of Seller Banks (the
Informational
Systems
Conversion
) to those used by Buyer Bank, which planning shall
include, but not be limited to, (a) discussion of third-party service provider arrangements of Seller Banks;
(b) non-renewal
or changeover, after the Effective Time, of personal property leases and
software licenses used by Seller Banks in connection with the systems operations; (c) retention of outside consultants and additional employees to assist with the conversion; (d) outsourcing, as appropriate after the Effective Time, of
proprietary or self-provided system services; and (e) any other actions necessary and appropriate to facilitate the conversion, as soon as practicable following the Effective Time. Buyer Bank shall promptly reimburse Seller Entities on request
(within seven (7) Business Days of such request) for any reasonable and documented
out-of-pocket
fees, expenses or charges that Seller Entities may incur as a
result of taking, at the request of Buyer Bank, any action prior to the Effective Time to facilitate the Informational Systems Conversion.
Section 5.15
No Control of Other Party
s Business
. Nothing contained in this Agreement shall give Buyer Bank,
directly or indirectly, the right to control or direct the operations of Seller or its Subsidiaries prior to the Effective Time, and nothing contained in this Agreement shall give Seller, directly or indirectly, the right to control or direct the
operations of Buyer or its Subsidiaries prior to the Effective Time. Prior to the Effective
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Time, each of Seller and Buyer shall exercise, consistent with the terms and conditions of this Agreement, control and supervision over its and its Subsidiaries respective operations.
Section 5.16
[RESERVED]
.
Section 5.17
Certain Litigation
. Each party shall promptly advise the other party orally and in writing of any actual or
threatened shareholder litigation against such party and/or the members of the Seller Board or Buyers board of directors related to this Agreement or the Stock Purchase and the other transactions contemplated by this Agreement. Seller shall:
(i) permit Buyer to review and discuss in advance, and consider in good faith the views of Buyer in connection with, any proposed written or oral response to such shareholder litigation; (ii) furnish Buyers outside legal counsel with
all
non-privileged
information and documents which outside counsel may reasonably request in connection with such shareholder litigation; (iii) consult with Buyer regarding the defense or settlement of
any such shareholder litigation, shall give due consideration to Buyers advice with respect to such shareholder litigation and shall not settle any such litigation prior to such consultation and consideration;
provided,
however
,
that Seller shall not settle any such shareholder litigation if such settlement requires the payment of money damages, without the written consent of Buyer (such consent not to be unreasonably withheld) unless the payment of any such damages by
Seller is reasonably expected by Seller, following consultation with outside counsel, to be fully covered (disregarding any deductible to be paid by Seller) under Sellers existing director and officer insurance policies, including any tail
policy.
Section 5.18
Director Resignations
. Seller Entities shall use commercially reasonable efforts to cause to be
delivered to Buyer Bank resignations of all the directors of Seller Banks, such resignations to be effective as of the Effective Time.
Section 5.19
Coordination
.
(a) Prior to the Effective Time, Seller and its Subsidiaries shall take any actions Buyer Bank may reasonably request from time to time to
better prepare the parties for integration of the operations of Seller Banks with Buyer Bank. Without limiting the foregoing, senior officers of Seller Entities, Buyer and Buyer Bank shall meet from time to time as Buyer Bank may reasonably request,
and in any event not less frequently than monthly, to review the financial and operational affairs of Seller Banks, and Seller Entities shall give due consideration to Buyer Banks input on such matters, with the understanding that,
notwithstanding any other provision contained in this Agreement, neither Buyer nor Buyer Bank shall under any circumstance be permitted to exercise control of Seller or any of its Subsidiaries prior to the Effective Time. Seller Entities shall
permit representatives of Buyer Bank to be onsite at Seller Banks to facilitate integration of operations and assist with any other coordination efforts as necessary.
(b) Upon Buyer Banks reasonable request, prior to the Effective Time and consistent with GAAP, the rules and regulations of the SEC and
applicable banking Laws and regulations, each Seller Bank shall modify or change its loan, OREO, accrual, reserve, tax, litigation and real estate valuation policies and practices (including loan classifications and levels of reserves) so as to be
applied, on a basis that is consistent with that of Buyer Bank. In order to promote a more efficient and orderly integration of operation of Seller Banks with Buyer Bank, Seller Entities shall use commercially reasonable efforts to cause Seller
Banks to sell or otherwise divest itself of such Investment Securities and loans as are identified by Buyer Bank and agreed to in writing between Seller and Buyer Bank from time to time prior to the Closing Date, such identification to include a
statement as to Buyer Banks business reasons for such divestitures, if requested. Notwithstanding the foregoing, no such modifications, changes or divestitures of the type described in this
Section 5.19(b)
need be made prior to the
satisfaction of the conditions set forth in
Section 6.01(b)
.
(c) Seller Banks shall, consistent with GAAP and regulatory
accounting principles, use its commercially reasonable efforts to adjust, at Buyer Banks reasonable request, internal control procedures which are consistent with Buyers and Buyer Banks current internal control procedures to allow
Buyer to fulfill its reporting
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requirement under Section 404 of the Sarbanes-Oxley Act,
provided,
however
, that no such adjustments need be made prior to the satisfaction of the conditions set forth in
Section 6.01(b)
.
(d) Prior to the Effective Time, Seller Entities shall take any actions Buyer Bank may reasonably request in
connection with negotiating any amendments, modifications or terminations of any Leases or Seller Material Contracts that Buyer Bank may request, including but not limited to, actions necessary to cause any such amendments, modifications or
terminations to become effective prior to, or immediately upon, the Closing, and shall cooperate with Buyer Bank and use commercially reasonable efforts to negotiate specific provisions that may be reasonably requested by Buyer Bank in connection
with any such amendment, modification or termination.
(e) Subject to
Section 5.19(b)
, Buyer and Seller shall cooperate (i) to
minimize any potential adverse impact to Buyer under Financial Accounting Standards Board Accounting Standards Codification Topic 805 (Business Combinations), and (ii) to maximize potential benefits to Buyer and its Subsidiaries under Code
Section 382 in connection with the transactions contemplated by this Agreement, in each case consistent with GAAP, the rules and regulations of the SEC and applicable banking Laws and regulations.
(f) From and after the date hereof, Seller Entities shall, upon Buyer Banks reasonable request, introduce Buyer, Buyer Bank and their
representatives to suppliers of Seller Banks for the purpose of facilitating the integration of Seller Banks and its business into that of Buyer Bank. In addition, after satisfaction of the conditions set forth in
Section 6.01(a)
and
Section 6.01(b)
, Seller Entities shall, upon Buyer Banks reasonable request, introduce Buyer, Buyer Bank and their representatives to customers of Seller Banks for the purpose of facilitating the integration of Seller Banks and its
business into that of Buyer Bank. Any interaction between Buyer, Buyer Bank and Seller Banks customers and suppliers shall be coordinated by Seller. Seller shall have the right to participate in any discussions between Buyer, Buyer Bank and
Seller Bank customers and suppliers.
(g) Buyer, Buyer Bank and Seller Entities agree to take all action necessary and appropriate
to cause Seller Banks to merge with Buyer Bank in accordance with applicable Laws and the terms of the Plan of Bank Merger immediately following the Effective Time or as promptly as practicable thereafter.
Section 5.20
Transactional Expenses
. Seller Entities have provided in
Seller Disclosure Schedule 3.36
a reasonable good
faith estimate of costs and fees that Seller Entities expect to pay to retained representatives in connection with the transactions contemplated by this Agreement (collectively,
Seller
Expenses
). Seller
Entities shall use its commercially reasonable efforts to cause the aggregate amount of all Seller Expenses to not exceed the total expenses disclosed in
Seller Disclosure Schedule 3.36
. Seller Entities shall promptly notify Buyer Bank if or
when it determines that it expects to exceed its budget for Seller Expenses. Notwithstanding anything to the contrary in this
Section
5.20
, Seller Entities shall not incur any investment banking, brokerage, finders or other
similar financial advisory fees in connection with the transactions contemplated by this Agreement other than those expressly set forth in
Seller Disclosure Schedule 3.36
.
Section 5.21
Confidentiality
. Prior to the execution of this Agreement and prior to the consummation of the Stock Purchase, each
of Seller and Buyer, and their respective Subsidiaries, affiliates, officers, directors, agents, employees, consultants and advisors have provided, and will continue to provide one another with information which may be deemed by the party providing
the information to be
non-public,
proprietary and/or confidential, including but not limited to trade secrets of the disclosing party. Each party hereto agrees that it will, and will cause its representatives
to, hold any information obtained pursuant to this ARTICLE V in accordance with the terms of the confidentiality and
non-disclosure
agreements, dated as of April 22, 2016, and December 9, 2016,
between Buyer and Seller.
Section 5.22
Allocation of Buyer Consideration
. Seller has represented that for Federal and
applicable state income tax purposes each Seller Bank is a Qualified Subchapter S Subsidiary within the meaning of Code Section 1361(b)(3)(B). Therefore, it is intended that the Stock Purchase be treated for Federal and applicable
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state income tax purposes as the sale of assets owned by Seller (the
Acquired
Assets
). Within ninety (90) calendar days following the Closing Date,
Buyer shall prepare a proposed allocation (the
Allocation
Schedule
) of the Buyer Consideration and other capitalizable costs among the Acquired Assets in accordance with Code Section 1060 and the Treasury
Regulations thereunder. The Allocation Schedule shall become final and binding on the parties hereto thirty (30) calendar days after Buyer provides such schedule to Seller, unless Seller objects in writing to Buyer. If Seller does object, Buyer
and Seller shall in good faith attempt to resolve the dispute within fifteen (15) calendar days of written notice to Buyer of Sellers objection. Any such resolution shall be final and binding on the parties. Any unresolved disputes shall
be promptly submitted to an accountant chosen jointly by Buyer and Seller (the
Arbitrating
Accountant
) for determination, with such determination being final and binding on the parties. Buyer and Seller will
each pay
one-half
of the fees and expenses of the Arbitrating Accountant. Seller and Buyer shall cooperate with each other and the Arbitrating Accountant in connection with the matters contemplated by this
Section
5.22
, including, without limitation, by furnishing such information and access to books, records (including, without limitation, accountants work papers), personnel and properties as may be reasonably requested.
Neither Buyer nor Seller shall take any position (whether in audits, Tax Returns, or otherwise) that is inconsistent with an allocation that is final and binding under this
Section
5.22
unless otherwise required to do so by
applicable law.
Section 5.23
Notice of
Non-Renewal
. To avoid the costs and expenses
associated with terminating certain Seller Material Contracts, applicable Seller Entity shall have provided written notice to the vendors set forth in
Seller Disclosure Schedule 5.23
, notifying such vendors, by the date specified, of
such Seller Entitys intent not to renew the applicable agreement as set forth in such schedule and shall negotiate with such vendor, in coordination with Buyer Bank, any necessary continued use agreements needed until conversion. In the event
that (w) a Seller Entity has provided the written notices required under this
Section
5.23
in a timely manner as set forth in
Seller Disclosure Schedule 5.23
, (x) the Stock Purchase has not been consummated by
the Expiration Date (provided that the failure of the Closing to occur by such date shall not be due to any material breach of this Agreement by a Seller Entity), (y) Seller Entities, in coordination with Buyer Bank, have negotiated and entered into
extensions or amendments to the agreements identified in
Seller Disclosure Schedule 5.23
necessary in order to continue to receive the services of the applicable vendor until conversion, and (z) such extensions, amendments or
continued use agreements increase Seller Entities current monthly cost, as set forth on
Seller Disclosure Schedule 5.23
as of the date hereof, then to the extent that such increased monthly costs are directly related to the
continued use of such agreements after their respective expiration date, Buyer Bank agrees to reimburse Seller for the additional cost incurred by Seller during the period beginning after the Expiration Date through the Closing Date or the date this
Agreement is terminated, whichever is earlier. Notwithstanding the foregoing, Buyer Bank shall have no obligation to make any payments or reimbursements to Seller under this
Section
5.23
if a Seller Entity terminates this
Agreement for any reason.
Section 5.24
Seller Bank Distributions
. The Sellers Banks shall make the following distributions to
the Seller:
(a)
2017 Taxable Earnings Distribution
.
(i)
Estimated 2017 Tax Distribution
. No later than five Business Days prior to the Closing Date, Seller shall deliver to
Buyer a consolidated income statement of the Seller Bank for the period ended on the last completed month prior to the Closing Date (the
Measurement
Period
), which represents Sellers good faith estimate
of the income statement of the Seller Banks for the Measurement Period (the
Estimated
Income
Statement
), together with a summary statement (together with the Estimated Income Statement, the
Estimated
Tax
Distribution
Statement
) setting forth Sellers good faith estimate of the 2017 Taxable Income and the resulting 2017 Tax Distribution (the
Estimated
2017
Tax
Distribution
). The Seller Banks shall distribute an amount of cash equal to the Estimated 2017 Tax Distribution immediately prior to the Closing, with such amount
allocated between CBT and ACB as reasonably determined by Buyer Bank.
(ii)
Preliminary Tax Distribution Statement
.
Within sixty (60) days after the Closing Date, Buyer shall prepare and deliver to Seller a consolidated income statement of the Seller Banks for the Measurement
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Period (the
Preliminary
Income
Statement
), together with a summary statement (together with the Preliminary Income Statement, the
Preliminary
Tax
Distribution
Statement
) setting forth Buyers calculation of the 2017 Taxable Income and the 2017 Tax Distribution. Within
twenty-one
(21) days after Buyer delivers the Preliminary Tax Distribution Statement to Seller, Seller shall complete its review of the Preliminary Tax Distribution Statement. If Seller wishes to object
to the contents of the Preliminary Tax Distribution Statement, then Seller shall inform Buyer on or prior to the last day of such
twenty-one
(21) day period by delivering a written notice to Buyer (a
Tax
Distribution
Statement
Objection
) setting forth a specific description of the basis of the Tax Distribution Statement Objection and Sellers proposed adjustments to the
preliminary 2017 Taxable Income and the 2017 Tax Distribution. If Seller does not deliver a Tax Distribution Statement Objection to Buyer within such
twenty-one
(21) day period, then the Preliminary Tax
Distribution Statement and the items reflected thereon shall be deemed to have been accepted by Sellers and shall become final and binding upon the Parties, absent fraud.
(iii)
Resolution Following Tax Distribution Statement Objection
. If Seller timely delivers a Tax Distribution Statement
Objection to Buyer in accordance with Section 5.24(a)(ii), then Seller and Buyer shall resolve in good faith any dispute or disagreement relating to the Preliminary Tax Distribution Statement and set forth in the Tax Distribution Statement Objection
(the
Tax
Distribution
Statement
Dispute
) and agree in writing on the final 2017 Taxable Income and the 2017 Tax Distribution.
(iv)
Final Tax Distribution Statement
. The 2017 Tax Distribution and each of the components thereof shall be deemed
final for the purposes of this Agreement upon the earliest of (x) the failure of Seller to deliver a Tax Distribution Statement Objection within
twenty-one
(21) days after Buyer delivers the
Preliminary Tax Distribution Statement to Seller pursuant to Section 5.24(a)(ii) or (y) the resolution of all Tax Distribution Statement Disputes pursuant to Section 5.24(a)(iii) by Seller and Buyer. Buyer shall, if necessary, revise the
Preliminary Tax Distribution Statement, including the Preliminary Closing Date Balance Sheet, to reflect the final determination of the 2017 Tax Distribution in accordance with Section X(c) (as so adjusted, the
Final
Tax
Distribution
Statement
). After the determination of the Final Tax Distribution Statement pursuant to this Section 5.24(a)(iv), no party shall, have the right to make any claim based on the
preparation of the Final Tax Distribution Statement or the calculation of the 2017 Tax Distribution.
(v)
Payment of
Closing Adjustment
. Within five (5) Business Days of the final determination of the 2017 Tax Distribution in accordance with this Section 5.24(a)(iv):
i. if the Actual 2017 Tax Distribution exceeds the Estimated 2017 Tax Distribution, Buyer shall pay to Seller an amount equal
to the amount of such excess; or
ii. if the Actual 2017 Tax Distribution is less than the Estimated 2017 Tax Distribution,
Sellers shall pay to Buyer an amount equal to the amount of such shortfall.
(b)
Special Asset Dividend
. Following the date of this
Agreement and prior to Closing Date, the Seller Banks shall distribute the properties and assets set forth in
Seller Disclosure Schedule 5.24(b)
of the Seller Bank to Seller.
(c)
Return of Excess Capital
. Immediately prior to the Closing Date, the Seller Banks shall distribute an amount of cash to the Seller
equal to the Special Cash Dividend or, if the Seller Banks are unable to make the entire Special Cash Dividend due to the Special Cash Dividend Restrictions, the Permissible Cash Dividend Amount, with such amount allocated between CBT and ACB as
determined by Buyer Bank and as permitted by the applicable Governmental Authorities.
Section 5.25
Corporate Governance
Matters
.
(a) Immediately prior to the Closing Date, Buyer, Clayton, Seller and Ayers shall enter into an Amended and Restated
Shareholders Agreement in the form attached hereto as
Exhibit D
.
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(b) Effective at the Effective Time, unless otherwise agreed in writing by Buyer Bank and Seller,
Buyer and Buyer Bank shall take all action necessary (i) to increase the size of the Board of Directors of the Buyer Bank by one directorship and (ii) to appoint as a director of Buyer Bank Travis Edmondson (or if Mr. Edmondson is
unwilling or unable to serve as a director of Buyer Bank, a replacement designated by Seller reasonably acceptable to the Board of Directors of Buyer Bank).
Section 5.26
Employment and
Non-Competition
Agreements
.
(a) On the date hereof, Buyer Bank has entered into employment agreements with the employees of the Seller Banks listed on
Seller
Disclosure Schedule 5.26
(such individuals, the
Key
Employees
) providing for the employment of such individuals by Buyer Bank following the Closing (the
Employment
Agreements
).
(b) On the date hereof, each of Seller and Clayton has entered into a
non-competition,
non-solicitation
and confidentiality agreement with Buyer Bank (the
Seller
Non-Competes
).
Section 5.27
Insurance Coverage
. At or immediately
prior the Closing, the Seller Banks shall obtain the insurance coverage listed on
Seller Disclosure Schedule 5.27
(the
Required
Insurance
Coverage
).
Section 5.28
Additional Agreements
. In case at any time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of each party and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by Buyer Bank.
ARTICLE VI
CONDITIONS
TO CONSUMMATION OF THE STOCK PURCHASE
Section 6.01
Conditions to Obligations of the Parties to Effect the Stock Purchase
.
The respective obligations of Buyer, Buyer Bank and Seller Entities to consummate the Stock Purchase are subject to the fulfillment or, to the extent permitted by applicable Law, written waiver by the parties hereto prior to the Closing Date of each
of the following conditions:
(a)
Shareholder Approval
. The Requisite Seller Shareholder Approval shall have been obtained in
accordance with applicable law and the Sellers Charter and Bylaws and the Requisite Buyer Shareholder Approval shall have been obtained in accordance with applicable law and the Buyers Charter and Bylaws.
(b)
Regulatory Approvals; No Burdensome Condition
. All Regulatory Approvals required to consummate the Stock Purchase and the Bank
Merger in the manner contemplated herein shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof, if any, shall have expired or been terminated. None of such Regulatory Approvals shall
impose any term, condition or restriction upon Buyer or any of its Subsidiaries that Buyer reasonably determines is a Burdensome Condition.
(c)
No Injunctions or Restraints; Illegality
. No judgment, order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation of the Stock Purchase of any of the transactions contemplated hereby shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Authority that prohibits or makes illegal the consummation of the Stock Purchase or any of the transactions contemplated hereby.
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Section 6.02
Conditions to Obligations of Seller
. The obligations of Seller Entities
to consummate the Stock Purchase also are subject to the fulfillment or written waiver by Seller prior to the Closing Date of each of the following conditions:
(a)
Representations and Warranties
. The representations and warranties of Buyer and Buyer Bank set forth in this Agreement shall be true
and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term material, or contain terms such as Material Adverse Effect in which
case such representations and warranties (as so written, including the term material or Material) shall be true and correct in all respects at and as of the Closing Date. Seller shall have received a certificate dated as of
the Closing Date, signed on behalf of Buyer by its Chief Executive Officer and Chief Financial Officer to such effect.
(b)
Performance
of Obligations of Buyer
. Buyer and Buyer Bank shall have performed and complied with all of its obligations under this Agreement in all material respects at or prior to the Closing Date except where the failure of the performance of, or
compliance with, such obligation has not had and does not have a Material Adverse Effect on Buyer or Buyer Bank, and Seller shall have received a certificate, dated the Closing Date, signed on behalf of Buyer by its Chief Executive Officer and the
Chief Financial Officer to such effect.
(c)
Other Actions
. Buyer shall have furnished Seller with such certificates of its
officers and such other documents to evidence fulfillment of the conditions set forth in
Section
6.01
and this
Section
6.02
as Seller may reasonably request. Buyers board of directors shall
have approved this Agreement and the transactions contemplated herein and shall not have withheld, withdrawn or modified (or publicly proposed to withhold, withdraw or modify), in a manner adverse to Seller, the Buyer Recommendation referred to in
Section 5.04(b)
.
(d)
No Material Adverse Effect
. Since the date of this Agreement (i) no change or event has occurred
which has resulted in Buyer or Buyer Bank being subject to a Material Adverse Effect and (ii) no condition, event, fact, circumstance or other occurrence has occurred that may reasonably be expected to have or result in such parties being
subject to a Material Adverse Effect.
(e)
Shareholders Agreement
. Buyer and Ayers shall have executed and delivered to Seller the
Amended and Restated Shareholders Agreement in the form attached hereto as
Exhibit D
.
Section 6.03
Conditions to
Obligations of Buyer
. The obligations of Buyer and Buyer Bank to consummate the Stock Purchase also are subject to the fulfillment or written waiver by Buyer Bank prior to the Closing Date of each of the following conditions:
(a)
Representations and Warranties
. The representations and warranties of Seller Entities set forth in this Agreement shall be true and
correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term material, or contain terms such as Material Adverse Effect in which case
such representations and warranties (as so written, including the term material or Material) shall be true and correct in all respects at and as of the Closing Date. Buyer Bank shall have received a certificate dated as of
the Closing Date, signed on behalf of Seller Entities by Sellers Chief Executive Officer and Chief Financial Officer to such effect.
(b)
Performance of Obligations of Seller Entities
. Seller Entities and Clayton shall have performed and complied with all of their
respective obligations under this Agreement in all material respects at or prior to the Closing Date, and Buyer Bank shall have received a certificate, dated the Closing Date, signed on behalf of Seller Entities by Sellers Chief Executive
Officer and Chief Financial Officer to such effect.
(c)
Plan of Bank Merger
. The Plan of Bank Merger shall have been executed and
delivered.
(d)
Resignations
. The directors of each Seller Bank immediately before the Effective Time shall have submitted their
resignations to be effective as of the Effective Time.
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(e)
Release
. Seller and Clayton shall each execute a release in the form of
Exhibit
C
attached hereto, which, among other things, releases Seller Banks from any claims that Seller and Clayton may have against the Seller Banks except for claims exclusively related to Seller and Clayton as depositors or customers of Seller Banks.
(f)
Seller
Non-Competition
. Each of the Seller
Non-Competes
shall be in full force and effect at the Closing.
(g)
Employment Agreements
.
Each of the Employment Agreements shall be in full force and effect at the Closing, unless earlier terminated by Buyer Bank, and no Key Employee shall have terminated or rescinded his Employment Agreement.
(h)
FIRPTA Affidavit
. Seller shall deliver to Buyer a
non-foreign
affidavit dated as of the
Closing Date, sworn under penalty of perjury and in form and substance required under Treasury Regulations issued pursuant to Code Section 1445 stating that Seller is not a foreign person as defined in Code Section 1445 in a
form reasonably satisfactory to Buyer.
(i)
Other Actions
. Sellers board of directors shall not have (i) withdrawn or
modified (or publicly proposed to withhold, withdraw or modify), in a manner adverse to Buyer Bank, the Seller Recommendation referred to in
Section 5.04(a)
, (ii) approved or recommended (or publicly proposed to approve or recommend) any
Alternative Proposal, or (iii) allowed Seller or any Seller Representative to, enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement relating to any
Alternative Proposal. Seller shall have furnished Buyer Bank with such certificates of its officers or others and such other documents to evidence fulfillment of the conditions set forth in
Section
6.01
and this
Section
6.03
as Buyer Bank may reasonably request.
(j)
No Material Adverse Effect
. Since the date of
this Agreement (i) no change or event has occurred which has resulted in Seller or any its Subsidiaries being subject to a Material Adverse Effect and (ii) no condition, event, fact, circumstance or other occurrence has occurred that may
reasonably be expected to have or result in such parties being subject to a Material Adverse Effect.
(k)
Consents and Approvals
.
Each Seller Entity has received in form and substance satisfactory to Buyer Bank, all consents, approvals, waivers and other assurances from all
non-governmental
third parties which are required to be obtained
under the terms of any contract, agreement or instrument to which any Seller Entity is a party or by which any of their respective properties is bound in order to prevent the consummation of the transactions contemplated by this Agreement from
constituting a default under such contract, agreement or instrument or creating any lien, claim or charge upon any of the assets of Seller Banks.
(l)
Required Insurance Coverage
. The Required Insurance Coverage shall have been obtained on terms reasonably satisfactory to Buyer
Bank at Seller Banks expense.
Section 6.04
Frustration of Closing Conditions
. No party hereto may rely on the failure
of any condition set forth in
Section
6.01
,
Section
6.02
or
Section
6.03
, as the case may be, to be satisfied if such failure was caused by such partys failure to
use commercially reasonable efforts to consummate any of the transactions contemplated hereby, as required by and subject to
Section
5.03
.
ARTICLE VII
TERMINATION
Section 7.01
Termination
. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned:
(a)
Mutual Consent
. At any time prior to the Effective Time, by the mutual consent, in writing, of Buyer and Seller if the board of
directors of Buyer and Seller each so determines by vote of a majority of the members of its entire board.
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(b)
No Regulatory Approval
. By Buyer or Seller, if either of their respective boards of
directors so determines by a vote of a majority of the members of its entire board, in the event any Regulatory Approval required for consummation of the transactions contemplated by this Agreement shall have been denied by final,
non-appealable
action by such Governmental Authority or an application therefor shall have been permanently withdrawn at the request of a Governmental Authority.
(c)
No Shareholder Approval
.
(i) By Buyer if the Requisite Seller Shareholder Approval has not been obtained with forty five (45) days after the
execution of this Agreement in accordance with
Section 5.04(a)
either by written consent or at the Seller Meeting.
(ii) By either Buyer or Seller (provided, in the case of Buyer, that it shall not be in breach of any of its obligations under
Section 5.04(b)
), if the Requisite Buyer Shareholder Approval at the Buyer Meeting shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of such shareholders or at any adjournment or
postponement thereof.
(d)
Seller Terminating Breach
. By Buyer and Buyer Bank if any Seller Entity or Clayton shall have breached
or failed to perform any of its representations, warranties, obligations, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or in the aggregate, if continuing at the Closing (i) would
result in the failure of any of the conditions set forth in
Section 6.03(a)
or
Section 6.03(b)
(a
Seller
Terminating
Breach
) and (ii) such Seller Terminating Breach is either
incapable of being cured by the Seller Entities or Clayton, as applicable, by the Expiration Date or, if capable of being cured, is not cured or waived by the earlier of (x) thirty (30) days following written notice to Seller by Buyer of such
Seller Terminating Breach, and (y) one (1) Business Day prior to the Expiration Date;
provided
, that Buyer shall not have the right to terminate this Agreement pursuant to this
Section 7.01(d)
if a Buyer Terminating Breach shall
have occurred and be continuing at the time Buyer delivers notice of its election to terminate this Agreement pursuant to this
Section 7.01(d)
.
(e)
Buyer Terminating Breach
. By Seller if either Buyer or Buyer Bank shall have breached or failed to perform any of its
representations, warranties, obligations, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or in the aggregate, if continuing at the Closing (i) would result in the failure of any of
the conditions set forth in
Section 6.02(a)
or
Section 6.02(b)
(a
Buyer
Terminating
Breach
) and (ii) such Buyer Terminating Breach is either incapable of being cured by Buyer
or Buyer Bank, as applicable, by the Expiration Date or, if capable of being cured, is not cured or waived by the earlier of (x) thirty (30) days following written notice to Buyer by Seller of such Buyer Terminating Breach, and (y) one (1)
Business Day prior to the Expiration Date;
provided
, that Seller shall not have the right to terminate this Agreement pursuant to this
Section 7.01(e)
if a Seller Terminating Breach shall have occurred and be continuing at the
time Seller delivers notice of its election to terminate this Agreement pursuant to this
Section 7.01(e)
.
(f)
Delay
. By
either Buyer or Seller if the Stock Purchase shall not have been consummated on or before October 31, 2017 (the
Expiration
Date
), unless the failure of the Closing to occur by such date shall be due to a
material breach of this Agreement by the party seeking to terminate this Agreement.
(g)
Failure to Recommend; Etc
. In addition to
and not in limitation of Buyers termination rights under
Section 7.01(e)
, by Buyer if (i) there shall have been a material breach of
Section
5.10
or ARTICLE IX, or (ii) the Seller Board
(A) withdraws, qualifies, amends, modifies or withholds the Seller Recommendation, or makes any statement, filing or release, in connection with the Requisite Seller Shareholder Approval or otherwise, inconsistent with the Seller Recommendation
(it being understood that taking a neutral position or no position with respect to an Alternative Proposal shall be considered an adverse modification of the Seller Recommendation), (B) materially breaches its obligation to obtain the Requisite
Seller Shareholder Approval under
Section 5.04(a)
, (C) approves or recommends an Alternative Proposal, or (D) resolves or otherwise determines to take, or announces an intention to take, any of the foregoing actions.
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The party desiring to terminate this Agreement pursuant to any clause of this
Section
7.01
shall give prompt written notice of such termination to the other party in accordance with
Section
12.05,
specifying the provision or provisions hereof pursuant to which such
termination is effected.
Section 7.02
Termination Fee; Liquidated Damages
.
(a) In recognition of the efforts, expenses and other opportunities foregone by Buyer while structuring and pursuing the Stock Purchase,
Seller shall pay to Buyer a termination fee equal to $20,000,000 (
Termination
Fee
) by wire transfer of immediately available funds to an account specified by Buyer in the event of any of the following:
(i) in the event Buyer terminates this Agreement pursuant to
Section 7.01(g)
, Seller shall pay Buyer the Termination Fee within two (2) Business Days after receipt of Buyers notification of such termination; and (ii) in
the event that after the date of this Agreement and prior to the termination of this Agreement, an Alternative Proposal shall have been made known to senior management of Seller or has been made directly to its shareholders generally or any Person
shall have publicly announced (and not withdrawn) an Alternative Proposal with respect to Seller and (A) thereafter this Agreement is terminated (x) by Buyer pursuant to
Section 7.01(c)(
i
)
because the Requisite Seller
Shareholder Approval shall not have been obtained or (y) by Buyer pursuant to
Section 7.01(d)
and (B) prior to the date that is twelve (12) months after the date of such termination, Seller enters into any agreement or
consummates a transaction with respect to an Alternative Proposal (whether or not the same Alternative Proposal as that referred to above), then Seller shall, on the earlier of the date it enters into such agreement and the date of consummation of
such transaction, pay Buyer the Termination Fee.
(b) [Reserved].
(c) Seller and Buyer each agree that the agreements contained in this
Section
7.02
are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements, Buyer would not enter into this Agreement; accordingly, if Seller fails promptly to pay any amounts due under this
Section
7.02
, Seller shall
pay interest on such amounts from the date payment of such amounts were due to the date of actual payment at the rate of interest equal to the sum of (i) the rate of interest published from time to time in The Wall Street Journal, Eastern
Edition (or any successor publication thereto), designated therein as the prime rate on the date such payment was due, plus (ii) 200 basis points, together with the costs and expenses of Buyer (including reasonable legal fees and expenses) in
connection with such suit.
(d) Notwithstanding anything to the contrary set forth in this Agreement, the parties agree that if Seller
pays or causes to be paid to Buyer or to Buyer Bank the Termination Fee in accordance with
Section 7.02(a)
Seller (or any successor in interest of Seller) will not have any further obligations or liabilities to Buyer or Buyer Bank with
respect to this Agreement or the transactions contemplated by this Agreement.
Section 7.03
Effect of Termination
. Except as
set forth in
Section 7.02(d)
, termination of this Agreement will not relieve a breaching party from liability for any breach of any covenant, agreement, representation or warranty of this Agreement giving rise to such termination.
ARTICLE VIII
INDEMNIFICATION
Section 8.01
Indemnification Obligation
.
(a) Seller agrees to indemnify, defend, and hold harmless Buyer, Buyer Bank (including as successor to the Clayton Banks following the Bank
Merger) and their respective officers, directors, shareholders, employees, agents and representatives (
Buyer
Indemnified
Parties
) from, against, for, and in respect of any and all Losses asserted
against, relating to, imposed upon, or incurred by the Buyer Indemnified Parties by reason of, resulting
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from, based upon, or arising out of any cross-guarantee liability determined by the Federal Deposit Insurance Corporate in its discretion to be payable by any Buyer Indemnified Party at any time
pursuant to 12 U.S.C. 1815(e) with respect to Seller or Apex.
(b) Seller agrees to indemnify, defend, and hold harmless the Buyer
Indemnified Parties for any Losses, in excess of $150,000, that are incurred by the Buyer Indemnified Parties by reason of, resulting from, based upon, or arising out of (i) the matters described under the headings Charles
Jason Richmond (FDIC Complaint) and Charles Jason Richmond v. Clayton Bank Lawsuit - Defendant) on
Seller Disclosure Schedule 3.11(a)
or (ii) any items or any claims or potential claims that are
asserted after the date hereof but (A) not covered by insurance coverage because of failure of Seller to acquire the Required Insurance Coverage or (B) that are excluded from the Required Insurance Coverage on the basis of prior
acts or prior knowledge of the insured or comparable exclusions from the Required Insurance Coverage (collectively, the
Known
Matters
).
(c) The Buyer Indemnified Parties shall have the option, exercisable in their sole discretion, to recover any amounts owed to the Buyer
Indemnified Parties by Seller pursuant to this Article VIII by offset against (i.e., reduce) any amounts that are actually due and payable to Seller under the 5.5%
Fixed-to-Floating
Rate Subordinated Note due 2027 issued to Seller as Debt Consideration.
(d)
Loss
means any and all direct or indirect, payments, obligations, recoveries, deficiencies, fines, penalties,
interest, assessments, losses, diminution in the value of assets, damages, liabilities, costs, expenses, net of any income tax benefit and insurance proceeds, (including (i) interest, penalties and reasonable attorneys fees and expenses,
(ii) reasonable attorneys fees and expenses necessary to enforce rights to indemnification hereunder, and (iii) consultants fees and other costs of defense or investigation), and interest on any amount payable to a third party
as a result of the foregoing, whether accrued, absolute, contingent, known, unknown, or otherwise as of the Closing Date or thereafter.
Section 8.02
Termination of Indemnification Obligation and Consideration Retention
. Sellers indemnity obligations under
Section 8.01(a)
shall terminate upon the Indemnification Termination Date. Sellers indemnity obligations under
Section 8.01(b)
shall terminate following (i) the final resolution of the Known Matters by
non-appealable
order or binding settlement and (ii) the satisfaction in full of any indemnity obligations of Seller under
Section 8.01(b)
. Until the Indemnification Termination Date, Seller shall retain
ownership over the Stock Consideration and the Debt Consideration and shall not Transfer any portion of the Stock Consideration or the Debt Consideration;
provided
,
however
, Seller shall be permitted to (i) transfer the Stock
Consideration in a bona fide third party sale (so long as the proceeds of such sale less any amounts needed to pay the tax liabilities resulting from such sale are retained by Seller until the Indemnification Termination Date, (ii) transfer the
Stock Consideration in the event such Transfer would result in Seller ceasing to be a Bank Holding Company of Buyer Bank (or any successor bank to Buyer Bank), and (iii) make such distributions in amounts that are reasonably sufficient to cover
any tax liability resulting from Sellers ownership of the Stock Consideration and Debt Consideration.
ARTICLE IX
SHAREHOLDER SUPPORT
Section 9.01
Voting Agreement
. Clayton agrees with, and covenants to, Buyer and Buyer Bank as follows:
(a) Clayton shall appear at the Seller Meeting in person or by proxy and vote (or cause to be voted) all of the shares of Seller in favor of
the approval of this Agreement and the transactions contemplated thereby, including the Stock Purchase, and shall not grant any proxies to any third party, except where such proxies are expressly directed to vote in favor of this Agreement, the
Stock Purchase and the transactions contemplated hereby. If the Requisite Shareholder Approval is obtained by Seller pursuant to Section 5.04(a)(i)(A) by written consent instead
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of at a Seller Meeting, Clayton shall vote all of his shares of Seller stock in favor of the approval of this Agreement and the transactions contemplated hereby, including the Stock Purchase, by
executing and delivering such written consent. Clayton hereby waives all notice and publication of notice of the Seller Meeting to be called or held with respect to this Agreement, the Stock Purchase and the transactions.
(b) At the Seller Meeting or in any other circumstances upon which the Seller shareholders vote, consent or other approval is sought,
Clayton shall appear at any such meeting in person or by proxy and vote (or cause to be voted) Claytons shares of Seller against (i) any Alternative Proposal or Alternative Transaction; (ii) any action or agreement that would result
in a breach of any covenant, representation or warranty or any other obligation or agreement of Seller contained in this Agreement; and (iii) any amendment of Sellers charter or bylaws or other proposal or transaction involving Seller or
any of its Subsidiaries, which amendment or other proposal or transaction would in any manner delay, impede, frustrate, prevent or nullify this Agreement, or any of the transactions.
(c) Clayton further agrees not to vote or execute any written consent to rescind or amend in any manner any prior vote or written consent, as
a shareholder of Seller, to approve or adopt this Agreement and the transactions contemplated hereby unless this Agreement shall have been terminated in accordance with its terms.
Section 9.02
Covenants
. Clayton agrees with, and covenants to, the Buyer and Buyer Bank as follows:
(a) Without the prior written consent of Buyer and Buyer Bank, Clayton shall not (i) Transfer, or consent to any Transfer of, any or all
of Claytons shares of Seller or any interest therein, (ii) enter into any contract, option or other agreement, arrangement or understanding with respect to any Transfer of any or all of Claytons shares of Seller or any interest
therein, (iii) grant or solicit any proxy, power of attorney or other authorization in or with respect to Claytons shares of Seller, except for this Agreement, (iv) deposit Claytons shares of Seller into a voting trust or enter
into any voting agreement, arrangement or understanding with respect to Claytons shares of Seller for any purpose (other than to satisfy its obligations under this Agreement), or (v) initiate a shareholders vote or action by consent
of Sellers shareholders with respect to an Alternative Transaction; provided, however, that the foregoing shall not preclude a Transfer in connection with bona fide estate planning purposes to Claytons affiliates or immediate family
members, provided that as a condition to such Transfer, such affiliate or immediate family member shall execute an agreement that is identical to this Agreement (except to reflect the change in the ownership of the shares) and provided further, that
Clayton shall remain jointly and severally liable for any breaches by any of his affiliates or immediate family members of the terms hereof. The restriction on the Transfer of the Claytons shares of Seller set forth in this Section 9.02(a)
shall terminate upon the first to occur of (x) the Effective Time or (y) the date upon which this Agreement is terminated in accordance with its terms.
(b) Clayton hereby waives any rights of appraisal, or rights to dissent from the Stock Purchase or the transactions that Clayton may have.
(c) Clayton shall not, nor shall it permit any investment banker, attorney or other adviser or representative of Clayton to, directly or
indirectly, enter into any contract or arrangement requiring it to abandon, terminate or fail to consummate the Stock Purchase or the transaction, or initiate a shareholders vote or action by consent of Sellers shareholders with respect
to an Alternative Transaction.
ARTICLE X
TAX MATTERS
Section 10.01
Tax Returns
. Buyer shall prepare and file (or cause to be prepared and filed) all Tax Returns for the Seller Banks
which are filed after the Closing Date (other than income Tax Returns with respect to periods for which a consolidated, unitary or combined income Tax Return of Seller will include the operations of the Seller Banks).
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Section 10.02
Cooperation on Tax Matters
. With regards to cooperation on tax matters:
(a) Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to
Section
10.01
and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other partys request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The
Seller Entities agree (A) to retain all books and records with respect to Tax matters pertinent to the Seller Banks relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Seller Banks, as the case may be, shall allow the other party to take possession of such books and records.
(b) Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).
(c) Buyer and Seller further agree, upon request, to provide the other party with all information that either party may be required to report
pursuant to Section 6043 of the Code and all Treasury Regulations promulgated thereunder.
Section 10.03
Termination of Tax
Sharing Agreements
. All Tax sharing agreements or similar agreements with respect to or involving the Seller Banks shall be terminated as of the Closing Date and, after the Closing Date, the Seller Banks shall not be bound thereby or have any
liability thereunder.
Section 10.04
Seller Tax Responsibilities
. All transfer, documentary, deed recording, sales, use,
stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with consummation of the transactions contemplated by this Agreement shall
be paid by Seller when due, and Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges, and, if required by applicable law, Buyer will, and will cause its Affiliates
to, join in the execution of any such Tax Returns and other documentation.
ARTICLE XI
DEFINITIONS
Section 11.01
Definitions
. The following terms are used in this Agreement with the meanings set forth below:
2017
Tax
Distribution
shall mean the product of the 2017 Taxable Income multiplied by
38.1%.
2017
Taxable
Income
shall the consolidated
pre-tax
income of the Seller Banks for the Measurement Period minus applicable state income taxes paid (or accrued) by each Seller Bank for the Measurement Period determined in accordance with GAAP and
consistent with the calculation of the
pre-tax
income of the Seller Banks for 2016.
ACB
has the meaning set forth in the preamble to this Agreement.
ACB
Common
Stock
has the meaning set forth in the recitals.
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ACB
Shares
has the meaning set forth in the recitals.
Actual
2017
Tax
Distribution
shall mean the 2017 Tax Distribution as
set forth on the Final Tax Distribution Statement.
Accredited
Investor
means a Person who
qualifies as an accredited investor, as such term is defined in Rule 501 of the Securities Act.
Acquired
Assets
has the meaning set forth in
Section
5.22
.
Affiliate
means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person. As used in this definition, control (including, with its correlative meanings, controlled by and
under common control with) means the possession, directly or indirectly, of power to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise.
Agreement
has the meaning set forth in the preamble to this Agreement.
Allocation
Schedule
has the meaning set forth in
Section
5.22
.
Alternative
Proposal
has the meaning set forth in
Section
5.10
.
Alternative
Transaction
has the meaning set forth in
Section
5.10
.
Apex
means Apex Bank, any successor bank to Apex Bank or any other bank that is acquired by Apex Bancorp.
Arbitrating
Accountant
has the meaning set forth in
Section
5.22
.
Associate
when used to indicate a relationship with any Person means (1) any corporation or organization (other
than Seller or any Seller Bank) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (2) any trust or other estate in which such Person has a
substantial beneficial interest or serves as trustee or in a similar fiduciary capacity, or (3) any relative or family member of such Person.
Audited
Financial
Statements
has the meaning set forth in
Section 3.08(a)
.
Bank
Capital
Stock
has the meaning set forth in
Section 5.01(a)
.
Bank
Common
Stock
has the meaning set forth in the recitals.
Bank
Holding
Company
means any company registered as a bank holding company with the
Board of Governors of the Federal Reserve System pursuant to the Bank Holding Company Act of 1956, as amended.
Bank
Intellectual
Property
means the Intellectual Property used in or held for use in the conduct of the business of Seller Banks.
Bank
Merger
has the meaning set forth in
Section
1.05
.
Bank
Secrecy
Act
means the Bank Secrecy Act of 1970, as amended.
Bank
Shares
has the meaning set forth in the recitals.
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BOLI
has the meaning set forth in
Section 3.33(b)
.
Burdensome
Conditions
has the meaning set forth in
Section 5.07(a)
.
Business
Day
means Monday through Friday of each week, except a legal holiday recognized as such by
the U.S. government or any day on which banking institutions in the State of Tennessee are authorized or obligated to close.
Buyer
has the meaning set forth in the preamble to this Agreement.
Buyer
Bank
has the meaning set forth in the preamble to this Agreement.
Buyer
Benefit
Plans
means any Employee Benefit Plan adopted, maintained, sponsored, or
contributed to by the Buyer or Buyer Bank.
Buyer
Common
Stock
means the common
stock, $1.00 par value per share, of Buyer.
Buyer
Consideration
has the meaning set forth in
Section 1.02(b)
.
Buyer
Disclosure
Schedule
has the meaning set forth in
Section 4.01(a)
.
Buyer
Indemnified
Parties
and
Buyer
Indemnifying
Party
have the meanings set forth in ARTICLE VIII.
Buyer
Meeting
has the meaning set forth in
Section 5.04(b)
.
Buyer
Recommendation
has the meaning set forth in
Section 5.04(b)
.
Buyer
Reports
has the meaning set forth in
Section 4.06(a)
.
CBT
has the meaning set
forth in the preamble to this Agreement.
CBT
Common
Stock
has the meaning set forth
in the recitals.
CBT
Shares
has the meaning set forth in the recitals.
Claim
has the meaning set forth in
Section 5.11(a)
.
Clayton
has the meaning set forth in the preamble to this Agreement.
Closing
and
Closing
Date
have the meanings set forth in
Section
2.01
.
Code
means Internal Revenue Code of 1986, as amended.
Community
Reinvestment
Act
means the Community Reinvestment Act of 1977, as amended.
Debt
Consideration
has the meaning set forth in
Section 1.02(b)
.
Derivative
Transaction
means any swap transaction, option, warrant, forward purchase or sale
transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, catastrophe events, weather-related events, credit-related
events or conditions or any indexes, or any other similar transaction (including any option
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with respect to any of these transactions) or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity
instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to any such transaction or transactions.
Dodd-Frank
Act
means the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Effective
Time
has the meaning set forth in
Section
2.01
.
Employee
Benefit
Plan
means collectively, each pension, retirement, profit-sharing,
401(k), savings, employee stock ownership, stock option, share purchase, stock appreciation rights, restricted stock, phantom stock, stock bonus, retention, severance pay, termination pay, change in control, vacation, holiday, sick pay, supplemental
unemployment, salary continuation, bonus, incentive, deferred compensation, executive compensation, medical, vision, dental, life insurance, accident, disability, fringe benefit, flexible spending account, cafeteria, or other similar plan, fund,
policy, benefit, program, practice, custom, agreement, arrangement or understanding for the benefit of any current or former officer, employee, director, retiree, or independent contractor or any spouse, dependent or beneficiary thereof whether or
not such Employee Benefit Plan is or is intended to be (A) arrived at through collective bargaining or otherwise, (B) funded or unfunded, (C) covered or qualified under the Internal Revenue Code, ERISA or other applicable law,
(D) set forth in an employment agreement or consulting agreement and (E) written or oral.
Environmental
Claim
means any written complaint, summons, action, citation, notice of violation, directive, order, claim, litigation, investigation, judicial or administrative proceeding or action, judgment, lien, demand, letter or
communication alleging
non-compliance
with any Environmental Law relating to any actual or threatened release of a Hazardous Substance.
Environmental
Law
means any federal, state or local Law, regulation, order, decree, permit,
authorization, opinion or agency requirement relating to: (a) pollution, the protection or restoration of the indoor or outdoor environment, human health and safety, or natural resources, (b) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance, or (c) any injury or threat of injury to persons or property in connection with any Hazardous Substance. The term Environmental Law includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: (a) Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, as amended, 42 U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. § 6901, et seq.; the Clean Air Act, as amended,
42 U.S.C. § 7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251, et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601, et seq.; the Emergency Planning and Community Right to Know
Act, 42 U.S.C. § 1101, et seq.; the Safe Drinking Water Act; 42 U.S.C. § 300f, et seq.; the Occupational Safety and Health Act, 29 U.S.C. § 651, et seq.; (b) common Law that may impose liability (including without limitation
strict liability) or obligations for injuries or damages due to the presence of or exposure to any Hazardous Substance.
Equal
Credit
Opportunity
Act
means the Equal Credit Opportunity Act, as
amended.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended.
ERISA
Affiliate
means any other entity which, together with any of the Seller Entities, would be
treated as a single employer under Code Section 414 or ERISA Section 4001(b).
Estimated
2017
Tax
Distribution
has the meaning set forth in
Section 5.24(a)(i)
.
Estimated
Income
Statement
has the meaning set forth in
Section 5.24(a)(i)
.
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Estimated
Tax
Distribution
Statement
has the meaning set forth in
Section 5.24(a)(i)
.
Exchange
Act
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Expiration
Date
has the meaning set forth in
Section 7.01(f)
.
Fair
Credit
Reporting
Act
means the Fair Credit Reporting Act, as amended.
Fair
Housing
Act
means the Fair Housing Act, as amended.
FDIA
has the meaning set forth in
Section
3.28
.
FDIC
means the Federal Deposit Insurance Corporation.
FFIEC
means the Federal Financial Institutions Examination Council.
Final
Tax
Distribution
Statement
has the meaning set forth in
Section
5.24(a)(iv)
.
Financial
Statements
has the meaning set forth in
Section 3.08(a)
.
FRB
means the Board of Governors of the Federal Reserve System.
GAAP
means generally accepted accounting principles in the United States of America, applied consistently with past
practice, including with respect to quantity and frequency.
Governmental
Authority
means any U.S.
or foreign federal, state or local governmental commission, board, body, bureau or other regulatory authority or agency, including, without limitation, courts and other judicial bodies, bank regulators, insurance regulators, applicable state
securities authorities, the SEC, the IRS or any self-regulatory body or authority, including any instrumentality or entity designed to act for or on behalf of the foregoing.
Gramm-Leach-Bliley
Act
means the Gramm-Leach-Bliley Act of 1999.
Hazardous
Substance
means any and all substances (whether solid, liquid or gas) defined, listed, or
otherwise regulated as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, flammable or explosive materials, radioactive materials or words of similar meaning or regulatory effect under any present or
future Environmental Law or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon,
radioactive materials, flammables and explosives, mold, mycotoxins, microbial matter and airborne pathogens (naturally occurring or otherwise). Hazardous Substance does not include substances of kinds and in amounts ordinarily and customarily used
or stored for the purposes of cleaning or other maintenance or operations.
Home
Mortgage
Disclosure
Act
means Home Mortgage Disclosure Act of 1975, as amended.
IIPI
has the meaning set forth in
Section
3.37
.
Indemnification
Termination
Date
the date that Seller ceases to be a Bank Holding Company of either Buyer Bank (or any successor bank to Buyer Bank) or Apex.
Indemnified
Parties
and
Indemnifying
Party
have the meanings
set forth in
Section 5.11(a)
.
A-1-54
Informational
Systems
Conversion
has the
meaning set forth in
Section
5.14
.
Insurance
Policies
has the meaning
set forth in
Section 3.33(a)
.
Intellectual
Property
means (a) trademarks, service
marks, trade names, Internet domain names, designs, logos, slogans, and general intangibles of like nature, together with all goodwill, registrations and applications related to the foregoing; (b) patents and industrial designs (including any
continuations, divisionals,
continuations-in-part,
renewals, reissues, and applications for any of the foregoing); (c) copyrights (including any registrations and
applications for any of the foregoing); (d) Software; and (e) technology, trade secrets and other confidential information,
know-how,
proprietary processes, formulae, algorithms, models, and
methodologies.
Investment
Securities
means the investment securities of the Seller Banks.
IRS
means the United States Internal Revenue Service.
Knowledge
means, with respect to Seller Entities, the actual knowledge, after reasonable inquiry under the
circumstances, of the Persons set forth in
Seller Disclosure Schedule 3.01(b)
, and with respect to Buyer and Buyer Bank, the actual knowledge, after reasonable inquiry under the circumstances, of the Persons set forth in
Seller Disclosure
Schedule 3.01(b)
.
Known
Matters
has the meaning set forth in
Section 8.01(b)
.
Law
means any federal, state, local or foreign Law, statute, ordinance, rule, regulation, judgment, order,
injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Authority that is applicable to the referenced Person.
Leases
has the meaning set forth in
Section 3.31(b)
.
Liens
means any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance, conditional
and installment sale agreement, charge, claim, option, rights of first refusal, encumbrances, or security interest of any kind or nature whatsoever (including any limitation on voting, sale, transfer or other disposition or exercise of any other
attribute of ownership).
Litigation
Matters
has the meaning set forth in
Section
8.02
.
Liquidated
Damages
Payment
has the meaning
set forth in
Section 7.02(b)
.
Loans
has the meaning set forth in
Section 3.23(a)
.
Material
Adverse
Change
or
Material
Adverse
Effect
with respect to any party means (i) any change, development or effect that individually or in the aggregate is, or is reasonably likely to be, material and adverse to the condition (financial or otherwise), results of
operations, liquidity, assets or deposit liabilities, properties, or business of such party and its Subsidiaries, taken as a whole, or (ii) any change, development or effect that individually or in the aggregate would, or would be reasonably
likely to, materially impair the ability of such party to perform its obligations under this Agreement or otherwise materially impairs, or is reasonably likely to materially impair, the ability of such party to consummate the Stock Purchase and the
transactions contemplated hereby;
provided,
however
, that, in the case of clause (i) only, a Material Adverse Effect shall not be deemed to include the impact of (A) changes after the date of this Agreement in banking and
similar Laws of general applicability or interpretations thereof by Governmental Authorities (except to the extent that such change disproportionately adversely affects Seller and its Subsidiaries or Buyer and its Subsidiaries, as the case may be,
compared to other companies of similar size operating in the same industry in which Seller Entities and Buyer and Buyer Bank operate, in which case only the disproportionate effect will be taken into account), (B) changes
A-1-55
after the date of this Agreement in GAAP or regulatory accounting requirements applicable to banks or bank holding companies generally (except to the extent that such change disproportionately
adversely affects Seller and its Subsidiaries or Buyer and its Subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which Seller Entities and Buyer and Buyer Bank operate, in which case only
the disproportionate effect will be taken into account), (C) changes after the date of this Agreement in general economic or capital market conditions affecting financial institutions, including, but not limited to, changes in levels of
interest rates generally (except to the extent that such change disproportionately adversely affects Seller and its Subsidiaries or Buyer and its Subsidiaries, as the case may be, compared to other companies of similar size operating in the same
industry in which Seller Entities and Buyer and Buyer Bank operate, in which case only the disproportionate effect will be taken into account), (D) the effects of any action or omission taken by Seller Entities with the prior consent of Buyer
or Buyer Bank, and vice versa, or as otherwise expressly permitted or contemplated by this Agreement, (E) any failure by Seller Entities or Buyer or Buyer Bank to meet any internal or published industry analyst projections or forecasts or
estimates of revenues or earnings for any period (it being understood and agreed that the facts and circumstances giving rise to such failure that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in
determining whether there has been a Material Adverse Effect), (F) changes in the trading price or trading volume of Buyer Common Stock, and (G) the impact of the Agreement and the transactions contemplated hereby on relationships with
customers or employees (including the loss of personnel subsequent to the date of this Agreement).
Measurement
Period
has the meaning set forth in
Section 5.24(a)(i)
.
National
Labor
Relations
Act
means the National Labor Relations Act, as amended.
NYSE
means
the New York Stock Exchange.
Ordinary
Course
of
Business
means the
ordinary, usual and customary course of business of Seller, Seller Banks and Sellers Subsidiaries consistent with past practice, including with respect to frequency and amount.
OREO
has the meaning set forth in
Section 3.23(c)
.
Person
means any individual, bank, corporation, partnership, association, joint-stock company, business trust,
limited liability company, unincorporated organization or other organization or firm of any kind or nature.
Plan
of
Bank
Merger
means that certain plan of bank merger between Seller Banks and Buyer Bank pursuant to which Seller Banks will be merged with and into Buyer Bank in accordance with the provisions of and
with the effect provided by the Tennessee Department of Financial Institutions.
Policies,
Practices
and
Procedures
has the meaning set forth in
Section 3.20(b)
.
Preliminary
Income
Statement
has the meaning set forth in
Section 5.24(a)(ii)
.
Preliminary
Tax
Distribution
Statement
has the meaning set forth in
Section 5.24(a
)(
ii)
.
Proxy
Statement
means the proxy statement and other
proxy solicitation materials of Buyer relating to the Buyer Meeting.
Regulations
means the final and temporary
regulations promulgated under the Code by the United States Department of the Treasury.
Regulatory
Approval
shall mean any consent, approval, authorization or
non-objection
from any Governmental Authority necessary to consummate the Stock Purchase, Bank Merger and the other transactions
contemplated by this Agreement.
A-1-56
Requisite
Buyer
Shareholder
Approval
means the approval of the issuance of the shares of Buyer Common Stock in connection with the transactions contemplated by this Agreement by a majority of the votes cast at the Buyer Meeting.
Required
Insurance
Coverage
has the meaning set forth in
Section
5.27
.
Requisite
Seller
Shareholder
Approval
means the approval of the sale of the Bank Common Stock to Buyer Bank pursuant to this Agreement by a majority of the outstanding shares of Seller Common Stock.
Rights
means, with respect to any Person, warrants, options, rights, convertible securities and other arrangements
or commitments which obligate the Person to issue or dispose of any of its capital stock or other ownership interests.
Sarbanes-Oxley
Act
means the Sarbanes-Oxley Act of 2002, as amended.
SEC
means the Securities and Exchange Commission.
Securities
Act
means the Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
Seller
has the meaning set forth in in the preamble of this Agreement.
Seller
401(a)
Plan
has the meaning set forth in
Section 3.16(c)
.
Seller
Bank
and
Seller
Banks
have the meaning set forth in the
preamble to this Agreement.
Seller
Bank
Employees
means any active, current
employee of either of the Seller Banks.
Seller
Bank
Property
means any real
property (including buildings or other structures) in which a Seller Banks holds a security interest, Lien or a fiduciary or management role.
Seller
Benefit
Plans
has the meaning set forth in
Section 3.16(a)
.
Seller
Board
means the Board of Directors of Seller.
Seller
Common
Stock
has the meaning set forth in
Section 3.3(a)
.
Seller
Capitalization
Date
has the meaning set forth in
Section 3.03(a
).
Seller
Disclosure
Schedule
has the meaning set forth in
Section 3.01(a)
.
Seller
Entity
and
Seller
Entities
have the meaning set
forth in the preamble to this Agreement.
Seller
ESOP
has the meaning set forth in the recitals.
Seller
Expenses
has the meaning set forth in
Section
5.20
.
Seller
Financial
Advisor
has the meaning set forth in
Section
3.15
.
Seller
Loan
has the meaning set forth in
Section
3.22(d)
.
Seller
Material
Contract
has the meaning set forth in
Section
3.13(a)
.
A-1-57
Seller
Recommendation
has the meaning set forth in
Section 5.04(a)
.
Seller
Regulatory
Agreement
has the meaning set forth in
Section
3.14
.
Seller
Representatives
has the meaning set forth in
Section
5.10
.
Shareholder
and
Shareholders
have the meaning
set forth in the recitals.
Software
means computer programs, whether in source code or object code form
(including any and all software implementation of algorithms, models and methodologies), databases and compilations (including any and all data and collections of data), and all documentation (including user manuals and training materials) related
to the foregoing.
Stock
Consideration
has the meaning set forth in
Section 1.02(a)
.
Stock
Purchase
has the meaning set forth in the recitals.
Subsidiary
means, with respect to any party, any corporation or other entity of which a majority of the capital
stock or other ownership interest having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such party. Any reference in this Agreement to
a Subsidiary of Seller means, unless the context otherwise requires, any current or former Subsidiary of Seller and any Subsidiary of Seller Bank.
Support
Agreement
has the meaning set forth in the recitals.
Surviving
Entity
has the meaning set forth in
Section
1.04
.
Tax
and
Taxes
mean all federal, state, local or foreign income, gross income, gains, gross
receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property,
environmental, custom duties, unemployment or other taxes of any kind whatsoever, or any liabilities with respect to escheat or unclaimed property, together with any interest, additions or penalties with respect to any of the foregoing and any
interest in respect of such interest, additions, or penalties.
Tax
Distribution
Statement
Dispute
has the meaning set forth in
Section 5.24(a)(iii)
.
Tax
Distribution
Statement
Objection
has the meaning set forth in
Section 5.24(a)(ii)
.
Tax
Returns
means any return, amended return, declaration or other report (including elections, declarations, schedules, estimates and information returns) required to be filed with any taxing authority with respect to any Taxes.
Termination
Fee
has the meaning set forth in
Section 7.02(a)
.
The
date
hereof
or
the
date
of
this
Agreement
shall mean the date first set forth above in the preamble to this Agreement.
Transfer
means any sale, gift, pledge, transfer, hypothecation or other disposition.
Truth
in
Lending
Act
means the Truth in Lending Act of 1968, as amended.
Unaudited
Financial
Statements
has the meaning set forth in
Section 3.08(a)
.
A-1-58
USA
PATRIOT
Act
means the USA PATRIOT Act
of 2001, Public Law
107-56,
and the regulations promulgated thereunder.
ARTICLE XII
MISCELLANEOUS
Section 12.01
Survival
. No representations, warranties, agreements or covenants contained in this Agreement shall survive the
Effective Time other than this
Section
12.01
and any other agreements or covenants contained herein that by their express terms are to be performed after the Effective Time, including, without limitation,
Section
5.11
and ARTICLE VIII, of this Agreement.
Section 12.02
Waiver; Amendment
. Prior to the
Effective Time and to the extent permitted by applicable Law, any provision of this Agreement may be (a) waived by the party benefited by the provision, provided such waiver is in writing and signed by such party, or (b) amended or
modified at any time, by an agreement in writing among the parties hereto executed in the same manner as this Agreement, except that after obtaining the Shareholder Approval and the Buyer Meeting no amendment shall be made which by Law requires
further approval by the shareholders of Buyer or Seller without obtaining such approval.
Section 12.03
Governing Law; Waiver of
Right to Trial by Jury
.
(a) This Agreement shall be governed by, and interpreted and enforced in accordance with, the internal,
substantive laws of the State of Tennessee without regard for conflict of law provisions. The parties agree that any suit, action or proceeding brought by a party to enforce any provision of, or based on any matter arising out of in connection with,
this Agreement or the transactions contemplated hereby shall be brought in any federal or state court located in Nashville, Tennessee. Each of the parties submit to the jurisdiction of any such court in any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of, or in connection with, this Agreement or the transactions contemplated hereby and hereby irrevocably waives the benefit of jurisdiction derived from present or future domicile or
otherwise in such action or proceeding. Each party irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(b) Each party acknowledges
and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury
in respect of any litigation directly or indirectly arising out of or relating to this Agreement, or the transactions contemplated by this Agreement. Each party certifies and acknowledges that (i) no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each party understands and has considered the implications of this waiver,
(iii) each party makes this waiver voluntarily, and (iv) each party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this
Section
12.03
.
Section 12.04
Expenses
. Except as otherwise provided in
Section
7.02
or
Section
5.20
, each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of its own financial consultants, accountants and
counsel. Nothing contained in this Agreement shall limit either partys rights to recover any liabilities or damages arising out of the other partys willful breach of any provision of this Agreement.
Section 12.05
Notices
. All notices, requests and other communications hereunder to a party, shall be in writing and shall be
deemed properly given if delivered (a) personally, (b) by registered or certified mail (return
A-1-59
receipt requested), with adequate postage prepaid thereon, (c) by properly addressed electronic mail delivery (with confirmation of delivery receipt), or (d) by reputable courier
service to such party at its address set forth below, or at such other address or addresses as such party may specify from time to time by notice in like manner to the parties hereto. All notices shall be deemed effective upon delivery.
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If to Buyer or Buyer Bank:
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With a copy (which shall not constitute notice) to:
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FB Financial Corporation.
211 Commerce Street, Suite 300
Nashville, Tennessee 37201
Attn: James R. Gordon
(jgordon@firstbankonline.com)
Will Martin
(
wmartin@firstbankonline.com
)
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Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Mark C. Kanaly
(Mark.Kanaly@alston.com)
Kyle G. Healy (Kyle.Healy@alston.com)
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If to Seller Entity:
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With a copy (which shall not constitute notice) to:
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Clayton HC, Inc.
520 West Summit Hill Drive
Knoxville, Tennessee 37902
Attn: James L. Clayton
(Jim.Clayton@Claytonbank.com)
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Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Baker Donelson Center, Suite 800
211 Commerce Street
Nashville, TN 37201
Attn:
Steven J. Eisen
(sjeisen@bakerdonelson.com)
Mark L. Miller
(mlmiller@bakerdonelson.com)
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If to Clayton:
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With a copy (which shall not constitute notice) to:
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James L. Clayton
c/o Clayton Bank and Trust
520 West Summit Hill Drive
Knoxville, Tennessee 37902
Attn: James L. Clayton
(Jim.Clayton@Claytonbank.com)
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Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Baker Donelson Center, Suite 800
211 Commerce Street
Nashville, TN 37201
Attn:
Steven J. Eisen
(sjeisen@bakerdonelson.com)
Mark L. Miller
(mlmiller@bakerdonelson.com)
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Section 12.06
Entire Understanding; No Third Party Beneficiaries
. This Agreement represents the
entire understanding of the parties hereto and thereto with reference to the transactions contemplated hereby, and this Agreement supersedes any and all other oral or written agreements heretofore made. Except for the Indemnified Parties
rights under
Section
5.11
and the Buyer Indemnified Parties rights under ARTICLE VIII, Buyer and Seller hereby agree that their respective representations, warranties and covenants set forth herein are solely for the
benefit of the other party hereto, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person (including any person or employees who might be affected by
Section
5.12
), other than the parties hereto, any rights or remedies hereunder, including, the right to rely upon the representations and warranties set forth herein. The representations and warranties in this Agreement are
the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto. Consequently, Persons other than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations
of actual facts or circumstances as of the date of this Agreement or as of any other date.
Section 12.07
Severability
. In the
event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such
A-1-60
invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and the parties shall use their commercially reasonable efforts to substitute a valid, legal and
enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement.
Section 12.08
Enforcement of the Agreement
. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having
jurisdiction without having to show or prove economic damages and without the requirement of posting a bond, this being in addition to any other remedy to which they are entitled at law or in equity.
Section 12.09
Interpretation
.
(a) When a reference is made in this Agreement to sections, exhibits or schedules, such reference shall be to a section of, or exhibit or
schedule to, this Agreement unless otherwise indicated. The table of contents and captions and headings contained in this Agreement are included solely for convenience of reference; if there is any conflict between a caption or heading and the text
of this Agreement, the text shall control. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation.
(b) The parties hereto have participated jointly in the negotiation and drafting of this Agreement and the other agreements and documents
contemplated herein. In the event an ambiguity or question of intent or interpretation arises under any provision of this Agreement or any other agreement or document contemplated herein, this Agreement and such other agreements or documents shall
be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorizing any of the provisions of this Agreement or any other agreements or documents
contemplated herein.
(c) Any reference contained in this Agreement to specific statutory or regulatory provisions or to any specific
Governmental Authority shall include any successor statute or regulation, or successor Governmental Authority, as the case may be. Unless the context clearly indicates otherwise, the masculine, feminine, and neuter genders will be deemed to be
interchangeable, and the singular includes the plural and vice versa.
(d) Unless otherwise specified, the references to
Section and ARTICLE in this Agreement are to the Sections and ARTICLES of this Agreement. When used in this Agreement, words such as herein, hereinafter, hereof, hereto, and
hereunder refer to this Agreement as a whole, unless the context clearly requires otherwise.
Section 12.10
Assignment
. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other party, and any purported assignment in violation of this
Section
12.10
shall be void. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.
Section 12.11
Counterparts
. This Agreement may be executed and delivered by facsimile or by electronic data file and in one or
more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties
need not sign the same counterpart. Signatures delivered by facsimile or by electronic data file shall have the same effect as originals.
[Signature Page Follows]
A-1-61
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in counterparts
by their duly authorized officers, all as of the day and year first above written.
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FB FINANCIAL CORPORATION
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By:
|
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/s/ Christopher T. Holmes
|
Name:
|
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Christopher T. Holmes
|
Title:
|
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President and Chief Executive Officer
|
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FIRSTBANK
|
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By:
|
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/s/ Christopher T. Holmes
|
Name:
|
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Christopher T. Holmes
|
Title:
|
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President and Chief Executive Officer
|
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CLAYTON HC, INC.
|
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By:
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/s/ James L. Clayton
|
Name:
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James L. Clayton
|
Title:
|
|
Chairman
|
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CLAYTON BANK AND TRUST
|
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By:
|
|
/s/ James L. Clayton
|
Name:
|
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James L. Clayton
|
Title:
|
|
Chairman
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AMERICAN CITY BANK
|
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|
By:
|
|
/s/ James L. Clayton
|
Name:
|
|
James L. Clayton
|
Title:
|
|
Chairman
|
|
JAMES L. CLAYTON
|
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|
By:
|
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/s/ James L. Clayton
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Name:
|
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James L. Clayton
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A-1-62
EXHIBIT A
Form of Bank Merger Agreement
A-1-63
PLAN OF BANK MERGER
This PLAN OF BANK MERGER (this
Agreement
) is made and entered into as of
, 2017, by and among FirstBank, a Tennessee state chartered banking institution with its main office located at 211 Commerce
Street, Suite 300, Nashville, TN 37201 (
FirstBank
), Clayton Bank and Trust, a Tennessee state chartered banking institution with its main office located at 520 W. Summit Hill Drive, Suite 801, Knoxville, TN 37092 (
Clayton
Bank
) and American City Bank, a Tennessee state chartered banking institution with its main office located at 340 West Lincoln St, Tullahoma, TN 37388 (
American City Bank
), to provide for the merger of Clayton Bank and
American City Bank with and into FirstBank (the
Bank Merger
). FirstBank, Clayton Bank and American City Bank are referred to herein as the
Merging Banks
.
WHEREAS
, pursuant to a Stock Purchase Agreement, dated as of January , 2017 (the
Stock Purchase Agreement
), by and
among FB Financial Corporation, a Tennessee corporation (the
Company
), Clayton HC, Inc., a Tennessee corporation (
Clayton HC
), FirstBank, Clayton Bank, American City Bank and James L. Clayton, the Company
purchased from Clayton HC all the outstanding shares of common stock of Clayton Bank and American City Bank (the
Stock Purchase
); and
WHEREAS
, as a result of the Stock Purchase, Clayton Bank and American City Bank will become wholly owned subsidiaries of FirstBank; and
WHEREAS
, the Stock Purchase Agreement contemplates the subsequent merger of Clayton Bank and American City Bank with and into
FirstBank, with FirstBank as the surviving bank (the
Surviving Bank
); and
WHEREAS
, the respective boards of
directors of the Company, FirstBank, Clayton Bank and American City Bank have approved the Bank Merger, upon the terms and subject to the conditions set forth in this Agreement, and have determined that the Bank Merger and the other transactions
contemplated by this Agreement are in the best interests of their respective shareholders.
NOW,
THEREFORE
, in consideration
of the premises and of the covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Merging Banks, intending to be legally bound, hereby make, adopt and approve this Agreement,
and hereby prescribe the terms and conditions of the Bank Merger and the mode of effecting the Bank Merger as follows:
ARTICLE 1
TERMS OF BANK MERGER
Section
1.1
The
Bank
Merger.
(a) As a result of the Bank Merger, (i) each share of common stock of Clayton Bank and American City Bank, par value $25.00 per share and
par value $362.092 per share, respectively, issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be cancelled and (ii) each share of capital stock of FirstBank, par value $1.00 per share, issued
and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall constitute the only shares of capital stock of the Surviving Bank issued and outstanding immediately after the Effective Time. For purposes of this
Agreement, the Bank Merger shall become effective on the date and time specified in the articles of merger as filed with the Tennessee Secretary of State and the Tennessee Department of Financial Institutions (such time when the Bank Merger becomes
effective, the
Effective Time
).
(b) At the Effective Time, the Surviving Bank shall be considered the same business
and corporate entity as each of the Merging Banks and thereupon and thereafter all the property, rights, privileges, powers and franchises of each of the Merging Banks shall vest in the Surviving Bank and the Surviving Bank shall be subject to and
be deemed to have assumed all of the debts, liabilities, obligations and duties of each of the Merging Banks and
A-1-64
shall have succeeded to all of each of their relationships, fiduciary or otherwise, as fully and to the same extent as if such property, rights, privileges, powers, franchises, debts,
liabilities, obligations, duties and relationships had been originally acquired, incurred or entered into by the Surviving Bank. The deposit-taking offices of Clayton Bank and American City Bank shall be operated by the Surviving Bank, and the
savings accounts issued by Clayton Bank and American City Bank shall be issued on the same terms by the Surviving Bank. In addition, any reference to either of the Merging Banks in any contract, will or document, whether executed or taking effect
before or after the Effective Time, shall be considered a reference to the Surviving Bank if not inconsistent with the other provisions of the contract, will or document; and any pending action or other judicial proceeding to which either of the
Merging Banks is a party shall not be deemed to have abated or to have been discontinued by reason of the Bank Merger, but may be prosecuted to final judgment, order or decree in the same manner as if the Bank Merger had not been made or the
Surviving Bank may be substituted as a party to such action or proceeding, and any judgment, order or decree may be rendered for or against it that might have been rendered for or against either of the Merging Banks if the Bank Merger had not
occurred.
Section
1.2
Name
of
Surviving
Bank
and
Principal
Office.
The name of the Surviving Bank shall be FirstBank. The principal office of FirstBank shall continue to be 211 Commerce Street, Suite 300, Nashville, TN 37201 after the Effective Time. The branch offices of Clayton Bank, American City
Bank and FirstBank will be operated as branch offices of the Surviving Bank immediately following the Effective Time.
Section
1.3
Charter.
On and after the Effective Time, the Charter of FirstBank shall be the Charter of the Surviving
Bank until amended in accordance with applicable law.
Section
1.4
Bylaws.
On and after the Effective Time, the
Bylaws of FirstBank shall be the Bylaws of the Surviving Bank until amended in accordance with applicable law.
Section
1.5
Directors
and
Officers
. On and after the Effective Time, until changed in accordance with
the Charter and Bylaws of the Surviving Bank, (i) the directors of the Surviving Bank shall be the directors of FirstBank immediately prior to the Effective Time and (ii) the officers of the Surviving Bank shall be the officers of
FirstBank immediately prior to the Effective Time. The directors and officers of the Surviving Bank shall hold office in accordance with the Charter and Bylaws of the Surviving Bank.
Section
1.6
Capital
of
Surviving
Bank.
The amount of capital stock of the Surviving Bank
authorized immediately following the Effective Time shall continue to be [●] shares of common stock, par value $[●] per share, and [●] shares of preferred stock, no par value per share, of which [●] shares of common stock are
issued and outstanding as of the date hereof.
Section
1.7
Income
Tax
Treatment
. Each party to
this Agreement agrees to treat the Bank Merger for all income tax purposes as a reorganization qualifying under Section 368(a) of the Internal Revenue Code of 1986, as amended and hereby adopts this Agreement as a result of execution thereof as a
plan of reorganization within the meaning of Treasury Regulations Section
1.368-2(g).
None of the parties shall file a tax return or take any position with any taxing authority that is inconsistent with the
tax treatment described in the preceding sentence.
Section
1.8
Offices
. The offices of the Surviving Bank are
set forth on
Exhibit A
.
ARTICLE II
MISCELLANEOUS
Section
2.1
Conditions
Precedent.
The respective obligations of each party pursuant to this Agreement shall
be subject to the approval by (i) the respective Boards of Directors of Clayton Bank, American City Bank and FirstBank, (ii) the respective sole shareholder of Clayton Bank, American City Bank and FirstBank, (iii) the FDIC,
(iv) the Tennessee Department of Financial Institutions (the
TDFI
), and (v) other regulatory authorities as applicable.
A-1-65
Section
2.2
Governing
Law
. This Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee, without regard to any applicable principles of conflicts of laws that would result in the application of the law of another jurisdiction.
Section
2.3
Counterparts
. This Agreement may be executed (by facsimile or otherwise) by any one or more of the
parties in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
Section
2.4
Amendments.
To the extent permitted by the FDIC and the TDFI, this Agreement may be amended by a
subsequent writing signed by the parties hereto upon the approval of the board of directors of each of the parties hereto.
Section
2.5
Successors.
This Agreement shall be binding on the successors of Clayton Bank, American City Bank and
FirstBank.
[
Signature
page
follows
]
A-1-66
IN WITNESS WHEREOF, FirstBank, Clayton Bank and Trust and American City Bank have caused this
Plan of Bank Merger to be executed by their duly authorized officers as of the date first set forth above.
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F
IRST
B
ANK
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A
TTEST
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By:
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Name:
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James L. Gordon
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Name:
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Christopher T. Holmes
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Title:
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Chief Financial Officer
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Title:
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President and Chief Executive Officer
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C
LAYTON
B
ANK
AND
T
RUST
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TTEST
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By:
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Name:
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Name:
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Title:
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Title:
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A
MERICAN
C
ITY
B
ANK
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TTEST
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By:
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Name:
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A-1-67
EXHIBIT A
BANKING OFFICES OF THE RESULTING BANK
Main Office:
211 Commerce Street, Suite 300
Nashville, TN 37201
Branch Offices:
[To be provided]
A-1-68
EXHIBIT B
Form of Release
A-1-69
SELLER RELEASE
THIS RELEASE is entered into as of
, 2017 (the
Release
) by Clayton HC, Inc., a Tennessee corporation (
Seller
), in favor of
FirstBank, a Tennessee commercial bank (
Buyer
), Clayton Bank & Trust, a Tennessee commercial bank (
Clayton Bank
), American City Bank, a Tennessee commercial bank (
American City Bank
,
and, together with Clayton Bank,
Seller Banks
)
1
. Capitalized terms used herein without definition shall have the meanings provided therefor in the Purchase Agreement (as
hereinafter defined).
W
I
T
N
E
S
S
E
T
H
WHEREAS, Seller is a party to that certain Stock Purchase Agreement dated as of January , 2017 (the
Purchase
Agreement
) by and among FB Financial Corporation, a Tennessee corporation, Buyer, Seller, Clayton Bank & Trust, a Tennessee commercial bank (
Clayton Bank
), the Seller Banks, and James L. Clayton, a resident of
Tennessee and a significant shareholder of Seller (
Clayton
);
WHEREAS, pursuant to the Purchase Agreement, Buyer
purchased all of the issued and outstanding common stock of the Seller Banks from Seller (the
Stock Purchase
);
WHEREAS, Seller will enjoy substantial benefits from the consummation of the transactions contemplated by the Purchase Agreement; and
WHEREAS, the execution and delivery of this Release is a condition to the obligations of Buyer to consummate the Stock Purchase.
NOW, THEREFORE, in consideration of the provisions contained herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Seller hereby acknowledges and agrees as follows:
1.
Release
. Seller, without any other action being
required to be taken, forever waives, releases and discharges the Seller Banks of and from any and all causes of actions, suits, debts, obligations, liabilities, proceedings, orders, damages, judgments, claims, demands and remedies of any nature,
whether known or unknown, foreseeable or unforeseeable, liquidated or unliquidated, or insured or uninsured (collectively,
Claims
) that Seller has, has ever had or may hereafter have against the Seller Banks arising out of or
relating to events occurring or circumstances existing prior to the Closing. Notwithstanding the foregoing, this Release shall not apply to (i) any obligations of the Seller Banks under or in connection with the Purchase Agreement or any of the
documents executed and/or delivered in connection therewith or (ii) Claims exclusively related to Seller as a depositor or customer of the Seller Banks.
2.
Further Acknowledgement
. Seller acknowledges and warrants that it (a) has carefully read this Release with the opportunity and
encouragement to seek the advice and consultation of independent legal counsel, and (b) fully understands that this Release is final and binding, that this Release is intended to release the Seller Banks from any and all Claims that Seller has,
has ever had or may hereafter have against any of the Seller Banks, except as set forth in Section 1 above, and that this Release is fair.
3.
Binding Nature
. This Release shall be binding upon Seller and its successors and assigns.
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James L. Clayton to enter into same form of release, which in addition to the exceptions provided in clause (i) and clause (ii) of Section 1 will include the following additional exception: any
indemnification or advancement of expenses that Clayton may be entitled to from the Seller Banks, in his capacity as an officer or director of the Seller Banks, pursuant to the relevant provisions of applicable state law and the charter and bylaws
of the Seller Banks.
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A-1-70
4.
Governing Law
. The validity, interpretation, performance and enforcement of this
Release shall be governed by and shall be construed and interpreted according to the laws of the State of Tennessee, without reference to any conflicts of law principles that would operate to make the internal laws of any other jurisdiction
applicable.
5.
Enforceability
. If any provision of this Release shall hereafter be held to be invalid, unenforceable or illegal,
in whole or in part, in any jurisdiction under any circumstances for any reason, (a) such provision shall be reformed to the minimum extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of
Seller as expressed in, and the benefits provided by, this Release or (b) if such provision cannot be so reformed, such provision shall be severed from this Release and an equitable adjustment shall be made to this Release (including addition
of necessary further provisions to this Release) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or legality of such provision in any other
jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall affect or impair the legality, validity or enforceability of any other provision of this Release.
6.
Amendment
. This Release may not be modified or amended except in a writing signed by the person or persons against whose interest
such modification or amendment shall operate.
7.
Counterparts
. This Release may be executed in any number of counterparts, each of
which shall be an original document and all of which together shall constitute one agreement, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or
e-mail
of a PDF
file containing a copy of an executed agreement (or signature page thereto), shall be treated in all manner and respects and for all purposes as an original agreement or instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person.
[signature on the following page]
A-1-71
I
N
W
ITNESS
W
HEREOF
, Seller has executed and delivered this Release Agreement as of the Effective Date.
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CLAYTON HC, INC.
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By:
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Name:
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Title:
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A-1-72
EXHIBIT C
Form of Subordinated Note
A-1-73
FIRSTBANK
Unsecured
Fixed-to-Floating
Rate Subordinated Note Due
[
●
], 2027
THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
FDIC
) OR ANY OTHER GOVERNMENT AGENCY OR FUND.
THIS OBLIGATION IS SUBORDINATED AND JUNIOR IN RIGHT OF PAYMENT TO THE OBLIGATIONS OF
FIRSTBANK (THE
ISSUER
) TO ITS GENERAL AND SECURED CREDITORS AND IS UNSECURED. IT IS INELIGIBLE AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY THE ISSUER OR ANY OF ITS SUBSIDIARIES.
THE ISSUER MAY REQUIRE PRIOR WRITTEN CONSENT OF THE FEDERAL RESERVE IN ORDER TO PREPAY ANY PART OF THIS OBLIGATION.
THIS NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE
SECURITIES ACT
), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS NOTE IS ISSUED SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER, EXERCISE AND OTHER PROVISIONS SET FORTH HEREIN, AND THE NOTE REPRESENTED BY THIS INSTRUMENT MAY NOT BE TRANSFERRED OR EXERCISED EXCEPT IN COMPLIANCE WITH SUCH PROVISIONS. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH THE TERMS OF THIS
NOTE WILL BE VOID.
ANY INSURED DEPOSITORY INSTITUTION WHICH SHALL BE A NOTEHOLDER OR WHICH OTHERWISE SHALL HAVE ANY BENEFICIAL INTEREST IN THIS NOTE
SHALL BY ITS ACCEPTANCE HEREOF BE DEEMED TO HAVE WAIVED ANY RIGHT OF OFFSET WITH RESPECT TO THE INDEBTEDNESS EVIDENCED HEREBY.
A-1-74
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Principal Amount:
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$60,000,000
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FirstBank
Unsecured
Fixed-to-Floating
Rate Subordinated Note Due
[
●
], 2027
1.
Payment
.
(a) FirstBank, a Tennessee state chartered bank (the
Issuer
), for value received, hereby promises to pay to Clayton HC,
Inc. (the
Noteholder
), the principal sum of Sixty Million Dollars (U.S.) ($60,000,000) plus accrued but unpaid interest on
[
●
]
, 2027 (the
Maturity Date
) and to pay
interest on such principal amount (i) at the fixed rate of 5.5% per annum (computed on the basis of a
360-day
year of twelve
30-day
months) from and including
[●], 2017 or from the most recent Interest Payment Date to which interest has been paid or duly provided, to but excluding [●], 2022
1
or any early redemption date, and (ii) at the
rate per annum equal to the greater of (A) three-month LIBOR rate plus 450 basis points (4.5%) (computed on the basis of a
360-day
year of twelve
30-day
months) and
(B) 5.75%, from and including [●], 2022
2
to the Maturity Date or any early redemption date. Payments shall be paid or duly provided for monthly on the 1
st
of each month (
Interest Payment Dates
), commencing on [●], 2017, but excluding [●], 2017, until the principal hereof is paid or made available for payment.
(b) Any payment of principal of or interest on this Subordinated Note (this
Note
) that would otherwise become due and
payable on a day which is not a Business Day shall become due and payable on the next succeeding Business Day, with the same force and effect as if made on the date for payment of such principal or interest, and no interest shall accrue in respect
of such payment for the period after such day. The term
Business Day
means any day that is not a Saturday or Sunday and that is not a day on which banks in the State of Tennessee are generally authorized or required by law or
executive order to be closed.
(c) For purposes hereof:
(i)
Determination Date
with respect to an Interest Period for a floating rate payment will be the second London Banking Day
preceding the first day of such Interest Period.
(ii)
Interest Period
for a floating rate payment means the period
commencing on and including an Interest Payment Date and ending on and including the day immediately preceding the next succeeding Interest Payment Date.
(iii)
LIBOR
with respect to an Interest Period for a floating rate payment will be the ICE Benchmark Administration London
Interbank Offered Rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period beginning on the second London Banking Day after the Determination Date that appears on the appropriate page of the Reuters Screen as
of 11:00 a.m., London time, on the Determination Date. If such screen does not include such a rate or is unavailable on a Determination Date, the Issuer will request the principal London office of each of four major banks in the London interbank
market, as selected by the Issuer, to provide such banks offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime banks in the London interbank market for
deposits in a Representative Amount in U.S. dollars for a three-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, the rate for the Interest Period will be
the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Issuer will request each of three major banks in New York City, as selected by the Issuer, to provide such banks rate (expressed as a percentage per
annum), as of approximately 11:00 a.m., New York City time, on such
A-1-75
Determination Date, for loans in a Representative Amount in U.S. dollars to leading European banks for a three-month period beginning on the second London Banking Day after the Determination
Date. If at least two such rates are so provided, the rate for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then the rate for the Interest Period will be the rate in effect with respect
to the immediately preceding Interest Period.
(iv)
London Banking Day
is any day on which dealings in U.S. dollars are
transacted or, with respect to any future date, are expected to be transacted in the London interbank market.
(v)
Representative
Amount
means a principal amount of not less than $1,000,000 for a single transaction in the relevant market at the relevant time.
(vi)
Reuters Screen
means the display page so designated on the Reuters service, or any successor source, a division of
Thomson Reuters Corporation (Reuters), or its successor.
2.
Subordination
. The indebtedness of the Issuer evidenced by
this Note shall be subordinate and junior in right of payment to the following, whether now outstanding or subsequently created, assumed or incurred (collectively,
Senior Indebtedness
): (a) all indebtedness of the Issuer for money
borrowed, whether or not evidenced by bonds, debentures, securities, notes or other written instruments; (b) any deferred obligations of the Issuer for the payment of the purchase price of property or assets acquired other than in the ordinary
course of business; (c) all obligations, contingent or otherwise, of the Issuer in respect of any letters of credit, bankers acceptances, security purchase facilities and similar credit transactions; (d) any capital lease obligations
of the Issuer; (e) all obligations of the Issuer in respect of interest rate swap, cap or other agreements, interest rate future or option contracts, currency swap agreements, currency future or option contacts, commodity contracts and other
similar arrangements; (f) all obligations of the type referred to in clauses (a) through (e) of other persons for the payment of which the Issuer is responsible or liable as obligor, guarantor or otherwise; and (g) all obligations of
the types referred to in clauses (a) through (f) of other persons secured by a lien on any property or asset of the Issuer;
except
Senior Indebtedness does not include (i) any obligation that by its terms is on parity
with this Note, (ii) any indebtedness between the Issuer and any of its subsidiaries or Affiliates or (iii) the Junior Subordinated Indebtedness (as defined below).
In the event of any insolvency, dissolution, assignment for the benefit of creditors, reorganization, restructuring of debt, marshaling of
assets and liabilities or similar proceedings or any liquidation or winding up of or relating to the Issuer, whether voluntary or involuntary, holders of Senior Indebtedness shall be entitled to be paid in full before any payment shall be made on
account of the principal of or interest on this Note. In the event of any such proceeding, after payment in full of all sums owing with respect to the Senior Indebtedness, the registered holder of this Note, together with the holders of any
obligations of the Issuer ranking on a parity with this Note, shall be entitled to be paid from the remaining assets of the Issuer the unpaid principal thereof, and the unpaid interest thereon before any payment or other distribution, whether in
cash, property or otherwise, shall be made on account of any capital stock or any present or future obligations of the Issuer ranking junior to this Note (collectively,
Junior Subordinated Indebtedness
), which includes any
obligation that by its terms is subordinated to this Note.
If there shall have occurred and be continuing (a) a default in any
payment with respect to any Senior Indebtedness or (b) an event of default with respect to any Senior Indebtedness as a result of which the maturity thereof is accelerated, unless and until such payment default or event of default shall have
been cured or waived or shall have ceased to exist, no payments shall be made by the Issuer with respect to this Note. The provisions of this paragraph shall not apply to any payment with respect to which the immediately preceding paragraph of this
Section
2
would be applicable.
Nothing herein shall impair the obligation of the Issuer, which is absolute and
unconditional, to pay the principal of and interest on this Note in accordance with its terms. Nothing herein shall act to prohibit, limit or impede the Issuer from issuing additional debt of the Issuer having the same rank as this Note or which may
be junior or senior in rank to this Note.
A-1-76
3.
Merger and Sale of Assets
. The Issuer shall not merge into another entity or convey,
transfer or lease its properties and assets substantially as an entirety to any person, unless:
(a) the continuing entity into which the
Issuer is merged or the person which acquires by conveyance or transfer or which leases the properties and assets of the Issuer substantially as an entirety shall be a corporation, association or other legal entity organized and existing under the
laws of the United States of America, any State thereof or the District of Columbia and expressly assumes the due and punctual payment of the principal of and any premium and interest on this Note according to its terms, and the due and punctual
performance of all covenants and conditions hereof on the part of the Issuer to be performed or observed; and
(b) immediately after
giving effect to such transaction, no Event of Default (as defined below), and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing.
4.
Events of Default; Acceleration; Compliance Certificate
. If any of the following events shall occur and be continuing (each an
Event of Default
):
(a) the Issuer shall commence a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or shall consent to the appointment of a receiver, liquidator, trustee or other similar official in any liquidation, insolvency or similar proceeding with respect to the Issuer or all or substantially all of
its property, or shall make an assignment for the benefit of creditors; or
(b) a court or other governmental agency or body having
jurisdiction on the premises shall enter a decree or order for the appointment of a receiver, liquidator, trustee or other similar official in any liquidation, insolvency or similar proceeding with respect to the Issuer or all or substantially all
of the property of the Issuer, or for the winding up of the affairs or business of the Issuer and such decree or order shall have remained in force for 60 days;
then, and in each such case, unless the principal of this Note already shall have become due and payable, the Noteholder, by notice in writing to the Issuer,
may declare the principal amount of this Note to be due and payable immediately and, upon any such declaration the same shall become and shall be immediately due and payable. The Issuer waives demand, presentment for payment, notice of nonpayment,
notice of protest, and all other notices.
The Issuer, within 45 calendar days after the receipt of written notice from the Noteholder of
the occurrence of an Event of Default with respect to this Note, shall mail to the Noteholder, at its addresses shown on in
Section
10
below, such written notice of Event of Default, unless such Event of Default shall have
been cured or waived before the giving of such notice as certified by the Issuer in writing.
Prior to any acceleration of this Note, the
Noteholder may waive any past Event of Default. In addition, the Noteholder may rescind a declaration of acceleration of this Note before any judgment has been obtained if (i) the Issuer pays all matured installments of principal of and
interest on this Note (other than installments due by reason of acceleration) and interest on the overdue installments and (ii) all other Events of Default with respect to this Note have been cured or waived.
THIS NOTE MAY NOT BE REPAID PRIOR TO THE MATURITY DATE, WHETHER PURSUANT TO AN ACCELERATION UPON AN EVENT OF DEFAULT OR OTHERWISE, WITHOUT THE PRIOR WRITTEN
APPROVAL OF THE FEDERAL RESERVE.
5.
Failure to Make Payment
. In the event of failure by the Issuer to make any required payment of
principal or interest on this Note (and, in the case of payment of interest, such failure to pay shall have continued for 30 calendar days), the Issuer will, upon demand of the Noteholder, pay to the Noteholder the whole amount then due and payable
on this Note for principal and interest (without acceleration), with interest on the overdue principal and interest at the rate borne by this Note, to the extent permitted by applicable law. If the Issuer fails to pay such amount upon such demand,
the Noteholder may, among other things, institute a judicial proceeding for the
A-1-77
collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Issuer and collect the amounts adjudged or decreed to be
payable in the manner provided by law out of the property of the Issuer.
Upon the occurrence of a failure by the Issuer to make any
required payment of principal or interest on this Note, the Issuer shall not (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Issuers capital
stock, (b) make any payment of principal or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Issuer that rank equal with or junior to this Note, or (c) make any payments under any guarantee that
ranks equal with or junior to this Note, other than (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of Issuers common stock; (ii) any declaration of a
dividend in connection with the implementation of a shareholders rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a
reclassification of Issuers capital stock or the exchange or conversion of one class or series of Issuers capital stock for another class or series of Issuers capital stock; (iv) the purchase of fractional interests in shares
of Issuers capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (v) purchases of any class of Issuers common stock related to the issuance of common
stock or rights under any of benefit plans for Issuers directors, officers or employees or any of Issuers dividend reinvestment plans.
6.
Redemption or Repayment
. The Issuer, in its discretion but subject to the prior written approval of the FDIC and the Tennessee
Department of Financial Institutions, to the extent such prior approval is required, shall have the right to redeem or prepay this Note, in whole or in part, without premium or penalty, at any time on or after [●], 2022
3
, and prior to the Maturity Date, on any Interest Payment Date at a price of 100% of the principal amount of this Note to be redeemed or prepaid on such date, plus interest accrued and unpaid to the
date of redemption or prepayment. Any such redemption or prepayment shall be subject to receipt of any and all required regulatory approvals. In the case of any redemption or prepayment of this Note, the Issuer will give the Noteholder notice not
less than 30 nor more than 60 calendar days prior to the redemption or prepayment date as to the aggregate principal amount to be redeemed or prepaid.
7.
Payment Procedures
. Payment of the principal and interest payable on the Maturity Date will be made by check, or by wire transfer in
immediately available funds to a bank account in the United States designated by the Noteholder of this Note if such Noteholder shall have previously provided wire instructions to the Issuer, upon presentation and surrender of this Note at the
Payment Office (as defined in
Section
10
below) or at such other place or places as the Issuer shall designate by notice to the Noteholder as the Payment Office, provided that this Note is presented to the Issuer in time
for the Issuer to make such payments in such funds in accordance with its normal procedures. Payments of interest (other than interest payable on the Maturity Date) shall be made by wire transfer in immediately available funds or check mailed to the
registered Noteholder, as such persons address appears in Section 10 below. To the extent permitted by applicable law, interest shall accrue, at the rate at which interest accrues on the principal of this Note, on any amount of principal
or interest on this Note not paid when due. All payments on this Note shall be applied first to accrued interest and then the balance, if any, to principal.
8.
Form of Payment
. Payments of principal and interest on this Note shall be made in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of public and private debts.
9.
Transfer
. This Note shall
not be transferred or assigned by the Noteholder without the prior written consent of the Issuer, except that the Noteholder may assign or transfer this note to James L. Clayton of an Affiliate of James L. Clayton upon thirty (30) days
advance notice to the Issuer and an agreement by James L. Clayton or such Affiliate to be bound by the terms of this Agreement in a form reasonably satisfactory to the Issuer. For purposes of this Note, Affiliate shall mean, with respect
to any Person, an affiliate as defined in Rule 405 of the rules and regulations promulgated under the Securities Act.
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10.
Notices
. All notices to the Issuer under this Note shall be in writing and addressed
to the Issuer at FirstBank, 211 Commerce Street, Suite 300, Nashville, Tennessee 37201, or to such other address as the Issuer may notify to the Noteholder (the
Payment Office
). All notices to the Noteholder shall be in writing
and sent by first-class mail to the Noteholder at Clayton HC, Inc., 520 West Summit Hill Drive, Knoxville, Tennessee 37902.
11.
Absolute and Unconditional Obligation of the Issuer
. No provisions of this Note shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal and interest on this Note at the times, places and
rate, and in the coin or currency, herein prescribed.
12.
Waiver and Consent
.
(a) Any consent or waiver given by the Noteholder of this Note shall be conclusive and binding upon the Noteholder and upon all future holders
of this Note and of any Note issued upon the transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.
(b) No delay or omission of the Noteholder to exercise any right or remedy accruing upon any Event of Default shall impair such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence therein.
(c) Any insured depository institution which shall
be a Noteholder of this Note or which otherwise shall have any beneficial ownership interest in this Note shall, by its acceptance of such Note (or beneficial interest therein), be deemed to have waived any right of offset with respect to the
indebtedness evidenced thereby.
13.
Governing Law; Interpretation
. This Note shall be governed by and construed in accordance with
applicable federal law and the laws of the State of Tennessee, without regard to conflict of laws principles of said state. This Note is intended to meet the criteria for qualification of the outstanding principal as Tier 2 capital under the
regulatory guidelines of the Board of Governors of the Federal Reserve System, and the terms hereof shall be interpreted in a manner to satisfy such intent.
14.
Priority
. This Note ranks
pari
passu
, in the event of any insolvency proceeding, dissolution, assignment for the
benefit of creditors, reorganization, restructuring of debt, marshaling of assets and liabilities or similar proceeding or any liquidation or winding up of the Issuer, with all other present or future unsecured subordinated debt obligations of the
Issuer, except any unsecured subordinated debt that may be expressly stated to be senior to or subordinate to this Note.
[SIGNATURES
APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed and attested and its corporate seal
to be hereunto affixed.
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FIRSTBANK
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By:
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Name:
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Title:
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ATTEST:
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CLAYTON HC, INC.
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By:
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Name:
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Title:
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EXHIBIT D
Form of Amended and Restated Shareholders Agreement
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AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
BY AND BETWEEN
FB
FINANCIAL CORPORATION,
JAMES W. AYERS,
JAMES L. CLAYTON
AND
CLAYTON HC, INC.
DATED AS OF [
●
], 2017
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TABLE OF CONTENTS
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SECTION 1.
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DEFINITIONS
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1.1.
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Drafting Conventions; No Construction Against Drafter.
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1.2.
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Defined Terms.
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SECTION 2.
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REPRESENTATIONS AND WARRANTIES
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2.1.
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Representations and Warranties of the Shareholders.
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2.2.
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Representations and Warranties of Company.
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SECTION 3.
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BOARD MATTERS
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3.1.
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Board of Directors.
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3.2.
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Committees of the Board of Directors.
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3.3.
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Observation Rights.
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3.4.
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Additional Management Provisions.
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3.5.
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Company.
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SECTION 4.
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MISCELLANEOUS PROVISIONS
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4.1.
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Confidentiality.
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4.2.
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Reliance.
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4.3.
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Access to Agreement; Amendment and Waiver; Actions of the Board.
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4.4
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Notices.
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4.5.
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Counterparts.
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4.6.
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Remedies; Severability.
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4.7.
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Entire Agreement.
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4.8.
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Termination.
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4.9.
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Governing Law.
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4.10.
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Successors and Assigns; Beneficiaries.
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4.11.
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Consent to Jurisdiction; WAIVER OF JURY TRIAL.
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4.12.
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Further Assurances.
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4.13.
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Regulatory Matters.
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4.14.
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Inconsistent Agreements.
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4.15.
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Effectiveness of Agreement.
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AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
This AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (as the same may be amended, modified or supplemented from time to time, the
Agreement
) is made as of [●], 2017 (the
Effective Time
) by and between FB Financial Corporation, a Tennessee corporation (the
Company
), James W. Ayers, an individual resident of the
State of Tennessee (
Ayers
), James L. Clayton, an individual resident of the State of Tennessee (James Clayton), and Clayton HC, Inc., a Tennessee corporation (
Clayton HC
, and together with James
Clayton,
Clayton
, and together with James Clayton and Ayers, the
Shareholders
, and each a
Shareholder
).
RECITALS
WHEREAS, in
connection with the Companys initial public offering (the
Initial Public Offering
) of its common stock, par value $1.00 per share (the
Common Stock
), the Company and Ayers entered into a Shareholders
Agreement, dated September 15, 2016 (the
Original Agreement
);
WHEREAS, the Company has entered into that certain
Stock Purchase Agreement, dated as of [●], 2017, by and among the Company, the Companys wholly-owned banking subsidiary, FirstBank, James Clayton, Clayton HC and Clayton HCs two wholly-owned banking subsidiaries, Clayton
Bank & Trust and American City Bank (the
Clayton Banks
), pursuant to which FirstBank will acquire from Clayton HC all of the outstanding capital stock of the Banks (the
Clayton Acquisition
);
WHEREAS, James Clayton owns approximately 98% of the outstanding capital stock of Clayton HC and, as partial consideration for the Clayton
Acquisition, the Company will issue 5,860,000 shares of Common Stock to Clayton HC, Inc. (the
Common Stock Consideration
) upon the consummation of the Clayton Acquisition;
WHEREAS, as an incentive for Clayton to consummate the Clayton Acquisition, the Company and Ayers desire to amend and restate the Original
Agreement in its entirety as provided herein, effective upon the closing of Clayton Acquisition;
WHEREAS, the parties hereto agree upon
the respective rights and obligations following the consummation of the Clayton Acquisition (the
Closing Date
) with respect to the securities of the Company now or hereafter outstanding and held by the Shareholders and certain
corporate governance matters with respect to the Shareholders investment in the Company; and
WHEREAS, the Board of Directors of
Company (the
Board of Directors
) has approved this amendment and restatement of the Original Agreement.
NOW, THEREFORE, in
consideration of the foregoing, and the mutual agreements and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby amend and restate the Original Agreement in its entirety as follows:
1.1.
Drafting Conventions; No Construction
Against
Drafter.
(a) The headings in this Agreement are provided for convenience and do not affect its meaning. The words
include, includes and including are to be read as if they were followed by the phrase without limitation. Unless specified otherwise, any reference to an agreement means that agreement as amended or
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supplemented, subject to any restrictions on amendment contained in such agreement. Unless specified otherwise, any reference to a statute or regulation means that statute or regulation as
amended or supplemented from time to time and any corresponding provisions of successor statutes or regulations. If any date specified in this Agreement as a date for taking action falls on a day that is not a business day, then that action may be
taken on the next business day. Unless specified otherwise, the words party and parties refer only to a party named in this Agreement or one who joins this Agreement as a party pursuant to the terms hereof.
(b) The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent. If an
ambiguity or question of intent or interpretation arises, this Agreement is to be construed as if drafted jointly by the parties and there is to be no presumption or burden of proof or rule of strict construction favoring or disfavoring any party
because of the authorship of any provision of this Agreement.
1.2.
Defined Terms.
The following capitalized terms, as used in this
Agreement, shall have the meanings set forth below.
Affiliate
means, with respect to any Person, an
affiliate as defined in Rule 405 of the rules and regulations promulgated under the Securities Act.
Agreement
shall have the meaning set forth in the Preamble.
Ayers
shall have the meaning set forth in the Preamble.
Ayers Designee
shall have the meaning as set forth in Section 3.1(a)(i).
beneficially own
shall have the meaning ascribed to such terms in
Rule 13d-3
under the Exchange Act.
Board of Directors
shall have the meaning set forth in the Recitals.
Bylaws
shall mean Companys amended and restated bylaws in effect as of the Closing Date, as amended from time to
time.
Charter
shall mean Companys amended and restated articles of incorporation in effect as of the Closing
Date, as amended from time to time.
Clayton
shall have the meaning set forth in the Preamble.
Clayton Acquisition
shall have the meaning set forth in the Recitals.
Clayton Designee
shall have the meaning set forth in Section 3.1(a)(ii).
Clayton HC
shall have the meaning set forth in the Recitals.
Clayton Termination Date shall have the meaning set forth in Section 4.8(c).
Closing Date
shall have the meaning set forth in the Recitals.
Common Stock
shall have the meaning set forth in the Recitals, together with any shares of stock or other securities issued
or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or in replacement or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger,
consolidation or other corporate reorganization).
Common Stock Consideration
shall have the meaning set forth in the
Recitals.
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Company
shall have the meaning set forth in the Preamble and shall include any
successor thereto.
Director
shall mean a member of the Board of Directors.
Effective Time
shall have the meaning set forth in the Preamble.
Equity Securities
shall have the meaning set forth in Section 3.5(c).
Exchange Act
shall mean the Securities Exchange Act of 1934 and the rules and regulations thereunder.
Group
means a group within the meaning of Section 13(d)(3) of the Exchange Act.
Initial Public Offering
shall have the meaning set forth in the Recitals.
James
Clayton
shall have the meaning set forth in the Recitals.
Law
means any applicable constitutional provision, statute, act, code, law, regulation, rule, ordinance, order, decree,
ruling, proclamation, resolution, judgment, decision, declaration, or interpretative or advisory opinion or letter of a Governmental Authority and shall include, for the avoidance of any doubt, the Tennessee Business Corporation Act and the listing
or other standards of any applicable stock exchange
Necessary Action
shall mean, with respect to a specified result,
all actions (to the extent such actions are permitted by Law and, in the case of any action by Company that requires a vote or other action on the part of the Board of Directors, to the extent such action is consistent with the fiduciary duties that
the Board of Directors may have in such capacity) necessary or desirable to cause such result, including (i) attending meetings in person or by proxy for purposes of obtaining a quorum, (ii) voting or providing a written consent or proxy
with respect to Shares, (iii) causing the adoption of resolutions and amendments to the organizational documents of Company, (iv) executing agreements and instruments and (v) making, or causing to be made, with governmental,
administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.
Permanent Disability
shall mean, with respect to either Shareholder, the inability of such Shareholder, as reasonably
determined by the Company, to perform, in the case of Ayers, the essential functions of his regular duties and responsibilities under this Agreement or, in the case of Clayton, the essential functions of a Director, with or without reasonable
accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of twelve (12) consecutive months. At the request of the applicable Shareholder or his personal
representative, the determination by the Company that the Permanent Disability of such Shareholder has occurred shall be certified by a physician mutually agreed upon by such Shareholder, or his personal representative, and the Company.
Person
shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust,
unincorporated organization, government (or agency or political subdivision thereof) or any other entity or group (as defined in Section 13(d) of the Exchange Act).
Regulatory Consent
shall mean the written approval or confirmed
non-objection
by an
official of the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of Atlanta that the Depository Institution Management Interlocks Act and its implementing regulations do not prohibit Clayton from service as a Director or
from designating a representative or nominee Director in accordance with this Agreement.
Removal Notice
shall have the
meaning as set forth in Section 3.1(c)(i).
Securities Act
shall mean the Securities Act of 1933 and the rules and
regulations thereunder.
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Shareholder
and
Shareholders
shall have the meanings set
forth in the Preamble.
Shares
shall mean, at any time, (i) any shares of Common Stock and (ii) any
other equity securities now or hereafter issued by Company, together with any options thereon and any other shares of stock or other securities issued or issuable with respect thereto (whether by way of a stock dividend, stock split or in exchange
for or in replacement or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization).
Total Number of Directors
shall have the meaning as set forth in Section 3.1(a)(i).
SECTION 2.
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REPRESENTATIONS AND WARRANTIES
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2.1.
Representations and Warranties of the
Shareholders.
(a) Ayers hereby individually represents, warrants and covenants to Company as follows: (i) Ayers has full legal
capacity to enter into this Agreement and perform its obligations hereunder; (ii) this Agreement constitutes the valid and binding obligation of Ayers enforceable against Ayers in accordance with its terms; and (iii) the execution,
delivery and performance by Ayers of this Agreement does not and will not: (A) violate any Law, rules or regulations of the United States or any state or other jurisdiction applicable to Ayers, or require Ayers to obtain any approval, consent
or waiver of, or to make any filing with, any Person that has not been obtained or made; and (B) constitute a breach of or default under any material agreement to which Ayers is a party.
(b) James Clayton hereby individually represents, warrants and covenants to Company as follows: (i) James Clayton has full legal capacity
to enter into this Agreement and perform its obligations hereunder; (ii) this Agreement constitutes the valid and binding obligation of James Clayton enforceable against James Clayton in accordance with its terms; and (iii) the execution,
delivery and performance by James Clayton of this Agreement does not and will not: (A) violate any Law, rules or regulations of the United States or any state or other jurisdiction applicable to James Clayton, or require James Clayton to obtain
any approval, consent or waiver of, or to make any filing with, any Person that has not been obtained or made; and (B) constitute a breach of or default under any material agreement to which James Clayton is a party.
2.2.
Representations and Warranties of Clayton HC and the Company.
(a) Clayton HC hereby represents, warrants and covenants to Company as follows: (i) Clayton HC has full corporate power and authority to
enter into this Agreement and perform its obligations hereunder; (ii) this Agreement constitutes the valid and binding obligation of Clayton HC enforceable against it in accordance with its terms; and (iii) the execution, delivery and
performance by Clayton HC of this Agreement does not and will not: (A) violate any Law, rules or regulations of the United States or any state or other jurisdiction applicable to Clayton HC, or require Clayton HC to obtain any approval, consent
or waiver of, or to make any filing with, any Person that has not been obtained or made; and (B) result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan
or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Clayton HC is a party or by which the
property of Clayton HC is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the assets or properties of Clayton HC.
(b) Company hereby represents, warrants and covenants to each Shareholder as follows: (i) Company has full corporate power and authority
to enter into this Agreement and perform its obligations hereunder; (ii) this Agreement constitutes the valid and binding obligation of Company enforceable against it in accordance with its terms; and (iii) the execution, delivery and
performance by Company of this Agreement does not and will not: (A) violate any Law, rules or regulations of the United States or any state or other jurisdiction applicable
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to Company, or require Company to obtain any approval, consent or waiver of, or to make any filing with, any Person that has not been obtained or made; and (B) result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to which Company is a party or by which the property of Company is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets or properties of Company.
3.1.
Board of Directors.
Effective as of the Closing Date:
(a)
Rights to Designate
. Each Shareholder hereby agrees to vote, or cause to be voted, all of its Shares, at any annual or special
meeting, by written consent, or otherwise, and will take all Necessary Actions within the Shareholders control, and Company will take all Necessary Actions within its control, to cause the authorized number of directors on the Board of
Directors to be established and remain between 7 and 9, with such number approved pursuant to the Bylaws and Charter, and to elect or appoint or cause to be elected or appointed to the Board of Directors and cause to be continued in office (subject
to Section 4.8):
(i) a number of designees of Ayers determined as follows: (A) up to a majority of the total
number of directors comprising the Board of Directors (the
Total Number of Directors
), so long as Ayers beneficially owns, directly or indirectly, more than 50% of the then outstanding shares of Common Stock; (B) up to 40% of
the Total Number of Directors, in the event that Ayers beneficially owns, directly or indirectly, more than 40%, but less than or equal to 50%, of the then outstanding shares of Common Stock; (C) up to 30% of the Total Number of Directors, in
the event that Ayers beneficially owns, directly or indirectly, more than 30%, but less than or equal to 40%, of the then outstanding shares of Common Stock; (D) up to 20% of the Total Number of Directors, in the event that Ayers beneficially
owns, directly or indirectly, more than 20%, but less than or equal to 30%, of the then outstanding shares of Common Stock; (E) up to 10% of the Total Number of Directors, in the event that Ayers beneficially owns, directly or indirectly, at
least 5% of the then outstanding shares of Common Stock; and (F) no directors in the event that Ayers beneficially owns, directly or indirectly, less than 5% of the then outstanding shares of Common Stock. For purposes of calculating the number
of directors that Ayers is entitled to designate pursuant to the immediately preceding sentence, any fractional amounts shall automatically be rounded up to the nearest whole number (e.g., 1
1
⁄
4
Directors shall equate to two Directors) and any such calculations shall be made on a pro forma basis, including, for the avoidance of doubt, taking into account any increase in the size of the Board of
Directors. In the event that Ayers has nominated less than the total number of designees that Ayers shall be entitled to nominate pursuant to this Section 3.1(a), Ayers shall have the right, at any time, to nominate such additional
designees to which he is entitled, in which case, the Board of Directors shall take all Necessary Action to (x) increase the size of the Board of Directors as required to enable Ayers to so nominate such additional designees and
(y) designate such additional designees nominated by Ayers to fill such newly-created vacancies. Each such designee whom Ayers shall actually nominate pursuant to this Section 3.1(a)(i) and is thereafter elected to the Board of
Directors to serve as a Director shall be referred to herein as an
Ayers Designee
;
(ii) if (A) the
Regulatory Consent has been obtained for such designation rights and (B) such designation is not otherwise prohibited by any applicable law, including but not limited to the Depository Institution Management Interlocks Act and its implementing
regulations, a designee of James Clayton, which designee shall initially be James Clayton and, if James Clayton is unable or unwilling to serve as a Director, such designee shall be a designee that is reasonably acceptable to the Board and would
qualify as an independent Director and shall initially be designated no later than thirty days following the closing of the Clayton Acquisition (as determined in accordance with applicable NYSE rules and the Companys corporate governance
guidelines) (such designee whom
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James Clayton shall actually nominate pursuant to this Section 3.1(a)(ii) and is thereafter elected to the Board of Directors to serve as a Director shall be referred to herein as a
Clayton Designee
);
(iii) the chief executive officer of Company and its subsidiaries, who initially
shall be Christopher T. Holmes, shall serve on the Board of Directors of the Company; and
(iv) each additional designee
shall be filled as provided in the Charter and Bylaws.
Company shall cause the individuals designated in accordance with this
Section 3.1(a) to be nominated for election to the Board of Directors, shall solicit proxies in favor thereof, and at each meeting of the shareholders of Company at which directors of Company are to be elected, shall recommend that the
shareholders of Company elect to the Board of Directors each such individual nominated for election at such meeting.
(b)
Initial Ayers
Designees
. The initial Ayers Designees pursuant to the provisions of Section 3.1(a)(i) of this Agreement shall be Ayers, Orrin H. Ingram, Stuart C. McWhorter, William F. Andrews and Agenia Clark. Any remaining undesignated Ayers Designees
shall be designated by Ayers at such time as they shall determine.
(c)
Removal and Replacement of Ayers Designees
.
(i) Ayers may remove an Ayers Designee by sending a written notice to Companys Secretary stating the name of the designee
to be removed from the Board of Directors (the
Removal Notice
) and, upon receipt of such notice by Companys Secretary, such designee shall be deemed to have resigned from the Board of Directors (and such a designee shall
only be removed in such manner).
(ii) If at any time any Ayers Designee ceases to serve on the Board of Directors (whether
due to death, disability, resignation, removal or otherwise), Ayers shall designate or nominate a successor to fill the vacancy created thereby on the terms and subject to the conditions of Section 3.1(a) of this Agreement, and the Company will
take all Necessary Actions within its control, to cause the designated successor to be elected to fill such vacancy. In the event that Ayers does not, pursuant to Section 3.1(a) of this Agreement, have the right to designate an individual to
fill such vacancy, then such vacancy shall be filled as provided in the Charter and the Bylaws.
(d)
Removal and Replacement of Clayton
Designee
. Following receipt of the Regulatory Consent and for so long as James Clayton has the right to designate a Clayton Designee:
(i) James Clayton may remove a Clayton Designee by sending a Removal Notice with respect to the Clayton Designee and, upon
receipt of such notice by Companys Secretary, such designee shall be deemed to have resigned from the Board of Directors (and such a designee shall only be removed in such manner).
(ii) If at any time any Clayton Designee ceases to serve on the Board of Directors (whether due to death, disability,
resignation, removal or otherwise), James Clayton shall designate or nominate a successor to fill the vacancy created thereby no later than thirty days following such vacancy on the terms and subject to the conditions of Section 3.1(a) of this
Agreement, and the Company will take all Necessary Actions within its control, to cause the designated successor to be elected to fill such vacancy. In the event that James Clayton does not, pursuant to Section 3.1(a) of this Agreement, have
the right to designate an individual to fill such vacancy, then such vacancy shall be filled as provided in the Charter and the Bylaws.
(e)
Expenses
. Each Director shall be entitled to reimbursement from Company for his or her
reasonable out-of-pocket expenses
(including travel) incurred in attending any meeting of the Board of Directors or any committee thereof or governing body of any subsidiary of Company or any
committee thereof.
3.2.
Committees of the Board of Directors.
For so long as the Company qualifies as a controlled
company under applicable listing standards and subject to applicable Law, Ayers shall have the right, but not the
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obligation, to designate (a) a majority of the members of any Nominating and Corporate Governance Committee or similar committee of the Board of Directors and (b) up to two members of
any Compensation Committee or similar committee of the Board of Directors. In the event that the Company no longer qualifies as a controlled company under applicable listing standards, Ayers shall continue to have the right to
designate at least one member of each such committee of the Board of Directors for so long as permitted under applicable Law;
provided
,
however
, Ayers shall cease to have such right to designate a committee member in the event that
Ayers ceases to have the right to designate a Director pursuant to Section 3.1(a) of this Agreement.
3.3.
Observation Rights
.
If the Regulatory Consent is not received, during the period prior to the Clayton Termination Date, the Company shall invite a designee of James Clayton, which designee shall be reasonably acceptable to the Board and shall initially be James
Clayton, to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such designee copies of all notices, minutes, consents, and other materials that it provides to its directors; provided,
however, that such designee shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to
exclude such designee from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets
or a conflict of interest.
3.4.
Additional Management Provisions.
(a) The Shareholders and Company hereby agree, notwithstanding anything to the contrary in any other agreement or at law or in equity, that,
to the maximum extent permitted by Law, when a Shareholder takes any action under this Agreement to give or withhold its consent, such Shareholder shall have no duty (fiduciary or other) to consider the interests of Company and may act exclusively
in its own interest in its capacity as a Shareholder and shall have only the duty to act in good faith;
provided
,
however
, that the foregoing shall in no way affect the obligations of the parties hereto to comply with the
provisions of this Agreement.
(b) The provisions of this Agreement shall be controlling if any such provisions or the operation thereof
conflict with the provisions of Companys Bylaws. Each of the parties covenants and agrees to take all Necessary Actions within its control to ensure that the Charter and Bylaws do not, at any time, conflict with the provisions of this
Agreement.
(c) For so long as Company qualifies as a controlled company under the applicable listing standards then in
effect, Company will elect to be a controlled company for purposes of such applicable listing standards, and will disclose in its annual meeting proxy statement that it is a controlled company and the basis for that
determination. Company and the Shareholders acknowledge and agree that, as of the date of this Agreement, Company is a controlled company. After Company ceases to qualify as a controlled company under applicable listing
standards then in effect, Ayers acknowledges that a sufficient number of its designees will be required to qualify as independent directors to ensure that the Board of Directors complies with such applicable listing standards in the time
periods required by the applicable listing standards then in effect, and shall discuss and use commercially reasonable efforts to agree upon appropriate changes to their designees consistent with the foregoing.
3.5.
Standstill Agreement
.
(a) Except as provided herein or as otherwise consented to by the Company, Clayton covenants and agrees that, from and after the date hereof,
it shall not, and it shall cause each of its Affiliates not to, singly or as part of a Group, directly or indirectly:
(i)
acquire, offer to acquire, or agree to acquire, by purchase, gift or otherwise, directly or indirectly, the beneficial ownership of any additional securities of the Company (or any warrants,
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options, or other rights to purchase or acquire, or any securities convertible into, or exchangeable for, any securities of the Company) that would result in Clayton beneficially owning in excess
of the number of voting securities of the Company issued to Clayton in the Clayton Acquisition, plus 5% of such number of voting securities;
(ii) make, or in any way participate, directly or indirectly, in any solicitation of proxies to vote
(as such terms are defined in Rule
14a-1
under the Exchange Act), solicit any consent or communicate with or seek to advise or influence any person or entity with respect to the voting of any securities of the
Company or become a participant in any election contest (as such terms are defined in the Exchange Act) with respect to the Company;
(iii) form, join, or knowingly encourage, or participate in any way in the formation of any person or
group within the meaning of Section 13(d)(3) of the Exchange Act with respect to any shares of Common Stock (except for clarification to the extent any such group could be deemed formed with respect to this Agreement or any conduct by
the Stockholders contemplated hereunder or thereunder);
(iv) except as contemplated by this Agreement, grant or agree to
grant any proxy or other voting power to any Person other than the Company or other Persons designated by the Company to vote at any meeting of the stockholders of the Company, or deposit any shares of Common Stock into a voting trust or subject any
shares of Common Stock to any arrangement or agreement with respect to the voting thereof;
(v) initiate, propose or
otherwise solicit stockholders for the approval of one or more stockholder proposals with respect to the Company as described in Rule
14a-8
under the Exchange Act or otherwise, or induce or attempt to induce
any other person to initiate any stockholder proposal;
(vi) except as contemplated by this Agreement, seek election to or
seek to place a representative on the Board of the Company or seek removal of any member of the Board;
(vii) (A) solicit,
seek to effect, negotiate with or provide any information to any other person with respect to, (B) make any public statement or proposal, whether written or oral, to the Board or any director or officer of the Company with respect to, or
(C) make any public announcement or proposal whatsoever with respect to, any form of business combination transaction involving the Company (other than as contemplated by the Merger Agreement), including, without limitation, a merger, exchange
offer, or sale of substantially all the assets or liquidation of the Company, or any restructuring, recapitalization or similar extraordinary transaction with respect to the Company;
(viii) seek publicly to have called any special meeting of the stockholders of the Company;
(ix) seek publicly to have the Company waive, amend or modify any of the provisions contained in this Section 3.5;
(x) publicly disclose or announce any intention, plan or arrangement to do any of the foregoing; or
(xi) advise, assist, instigate or encourage any third party to do any of the foregoing.
provided
,
however
, that this Section 3.5 of this Agreement shall not (i) prohibit or restrict any action taken by any Director,
including any Clayton Designee, as members of the Board of Directors in such capacity, (ii) prevent, restrict, encumber or in any way limit the exercise of the fiduciary rights and obligations of any Clayton Designee as a member of the Board to
take any action or make any statement at any meeting of the Board or any committee thereof, or otherwise to act, in each case, in their capacity as members of the Board; or (iii) apply to or restrict any discussions or other communications
between or among: the Clayton Designee and the directors, officers or employees of the Company or its subsidiaries; the Clayton Designee and the directors, members, officers, employees or agents of Clayton HC or any affiliate of Clayton.
(b) Subject to Section 3.5(c) of this Agreement, the provisions of this Section 3.5 shall survive this Agreement until the Clayton
Termination Date.
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(c) The provisions of Section 3.5(a) and 3.5(b) of this Agreement shall no longer be in force and
effect if, after the date hereof, (a) any person (other than Ayers or Ayers Affiliates or heirs and assigns) (i) becomes the beneficial owner of 50% or more of the outstanding equity securities of the Company entitled to vote in the
normal course in the election of the Board of Directors (
Equity Securities
) or (ii) commences a tender or exchange offer which, if consummated, would make such person (or any of its affiliates) the beneficial owner of 50% or
more of the Equity Securities and the Board of the Directors of the Company does not, within 10 business days after the commencement of such offer (or at any time thereafter at which it publicly takes a position with respect to such offer),
recommend against stockholders tendering their shares in such offer or (b) the Company enters into a definitive agreement with a third party to effectuate a sale (including by way of a merger) of 50% or more of the consolidated assets of the
Company and its wholly-owned subsidiaries or 50% or more of the voting equity of the Company.
3.6.
Company.
Company will not give
effect to any action by a Shareholder which is in contravention of this Section III.
SECTION 4.
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MISCELLANEOUS PROVISIONS
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4.1.
Confidentiality.
Each Shareholder agrees that it
will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in Company and its subsidiaries, any confidential information obtained from the Company, unless such confidential information
(a) is known or becomes known to the public in general (other than as a result of a breach of any confidentiality obligation by such Shareholder or its Affiliates), (b) is or has been independently developed or conceived by such
Shareholder without use of Companys confidential information or (c) is or has been made known or disclosed to such Shareholder by a third party (other than an Affiliate of the Shareholder) without a breach of any confidentiality
obligations such third party may have to Company that is known to such Shareholder;
provided
,
that
, a Shareholder may disclose confidential information (i) to its attorneys, accountants, consultants and other professional advisors
to the extent necessary to obtain their services in connection with monitoring its investment in the Company, (ii) to any prospective purchaser of any Shares from the Shareholder as long as such prospective purchaser agrees to be bound by the
provisions of this Section 4.1 as if a Shareholder, (iii) to any Affiliate, partner, member, limited partners, prospective partners or related investment fund of such Shareholder and its directors, employees, consultants and
representatives, in each case in the ordinary course of business (provided that the recipients of such confidential information are subject to a customary confidentiality and
non-disclosure
obligation),
(iv) as may be reasonably determined by the Shareholder to be necessary in connection with such Shareholders enforcement of its rights in connection with this Agreement or its investment in the Company and its subsidiaries, or (v) as
may otherwise be required by Law or legal, judicial or regulatory process,
provided
that
such Shareholder takes reasonable steps to minimize the extent of any required disclosure described in this clause (v); and
provided,
further
, that the acts and omissions of any Person to whom such Shareholder may disclose confidential information pursuant to clauses (i) through (iii) of the preceding proviso shall be attributable to such Shareholder for purposes
of determining such Shareholders compliance with this Section 4.1.
4.2.
Reliance.
Each covenant and agreement made by a
party in this Agreement or in any certificate, instrument or other document delivered pursuant to this Agreement is material, shall be deemed to have been relied upon by the other parties and shall remain operative and in full force and effect after
the Closing Date regardless of any investigation. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties hereto and their respective successors and permitted assigns.
4.3.
Access to Agreement; Amendment and Waiver; Actions of the Board.
Any party may waive in writing any provision hereof intended for
its benefit, provided, that, in the case of any waiver by Company, such waiver is consented to in writing by each Shareholder; provided, however, that if any Shareholder dies, is Permanently Disabled or ceases to own 5% or more of the outstanding
shares of Common Stock then such Shareholders consent shall not be required for any waiver. No failure or delay on the part of any party in exercising any right,
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power or remedy hereunder shall operate as a waiver thereof. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to any party at law or in
equity or otherwise. This Agreement may be amended with the prior written consent of the Company and each Shareholder; provided, however, that if any Shareholder dies, is Permanently Disabled or ceases to own 5% or more of the outstanding shares of
Common Stock this Agreement may be amended without such Shareholders consent.
4.4.
Notices
. All notices, requests, demands
and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), sent by express overnight courier service, or delivered to the applicable party at the respective address
indicated below:
If to Company:
FB Financial Corporation
211
Commerce Street, Suite 300
Nashville, TN 37201
Attn: General Counsel
If to
Ayers:
Ayers Asset Management
211 Commerce Street, Suite 300
Nashville, Tennessee 37201
Attn:
James W. Ayers, President
If
to
Clayton:
James L. Clayton
c/o Clayton
Bank and Trust
520 West Summit Hill Drive
Knoxville, Tennessee 37902
Attn:
James L. Clayton
All such notices, requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mail or (ii) one day after being deposited with the express overnight courier service, respectively, addressed as aforesaid.
4.5.
Counterparts.
This Agreement may be executed in two or more counterparts, and delivered via facsimile, .pdf or other electronic
transmission, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
4.6.
Remedies; Severability.
It is specifically understood and agreed that any breach of the provisions of this Agreement by any party will result in irreparable injury to the other parties, that the remedy at law alone will be an inadequate
remedy for such breach, and that, in addition to any other legal or equitable remedies which they may have, such other parties may enforce their respective rights by actions for specific performance or injunctive relief (to the extent permitted at
law or in equity). If any one or more of the provisions of this Agreement, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions contained herein are not to be in any way impaired thereby, it being intended that all of the rights and privileges of the parties be enforceable to the fullest extent permitted
by Law.
4.7.
Entire Agreement.
This Agreement is intended by the parties as a final expression of their agreement as to the
subject matter hereof and, together with the Bylaws and the Charter, intended to be complete and exclusive statement of the agreement and understanding of the parties with respect to that subject matter, and supersedes all prior agreements and
undertakings among the parties hereto with regard to such subject matter.
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4.8.
Termination.
(a) This Agreement shall terminate (a) if the Clayton Acquisition is not consummated by [●], or (b) on the date that each
Shareholder has either died, is Permanently Disabled or beneficially owns less than 5% of the outstanding shares of Common Stock.
(b) The
designation rights of Ayers in Section 3.1(a)(i) shall terminate upon the earlier of the death or the Permanent Disability of Ayers or the date that Ayers beneficially owns less than 5% of the outstanding shares of Common Stock.
(c) The designation rights of Clayton in Section 3.1(a)(ii) and observation rights in Section 3.3 shall each terminate upon the earlier
of (i) the death or the Permanent Disability of James Clayton, (ii) the date that James Clayton beneficially owns less than 5% of the outstanding shares of Common Stock or (iii)
[●]
1
(such earlier date, the Clayton Termination Date).
4.9.
Governing Law.
This Agreement is to be construed and enforced in accordance with the laws of the State of Tennessee, without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not
mandatorily applicable by statute and would require or permit the application of the laws of another jurisdiction.
4.10.
Successors
and Assigns; Beneficiaries.
This Agreement shall be binding upon and inure to the benefit of the parties and the respective successors and assigns of the parties as contemplated herein, and shall also apply to any Common Stock acquired by either
Shareholder after the date hereof;
provided
,
that
neither this Agreement nor any right arising under this Agreement may be assigned by any party hereto without the prior written consent of the Company and each Shareholder, and any
attempted assignment, without such consent, will be null and void;
provided
,
however
, that if any Shareholder dies, is Permanently Disabled or ceases to own 5% or more of the outstanding shares of Common Stock the consent of such
Shareholder shall not be required. Any successor to Company by way of merger or otherwise must specifically agree to be bound by the terms hereof as a condition of such succession.
4.11.
Consent to Jurisdiction; WAIVER OF JURY TRIAL.
(a) Each of the parties hereto irrevocably and unconditionally consents to the sole and exclusive jurisdiction of the state and federal courts
located in Nashville, Tennessee to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to or in connection with this Agreement or the negotiation, breach,
validity, termination or performance hereof and thereof or the transactions contemplated hereby and thereby and agrees that it will not bring any such action in any court other than the federal or state courts located in Nashville, Tennessee. Each
party further irrevocably waives any objection to proceeding in such courts based upon lack of personal jurisdiction or to the laying of venue in such courts and further irrevocably and unconditionally waives and agrees not to make a claim that such
courts are an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given as provided in Section 4.4 of this Agreement. Each of the parties hereto
agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. The choice of forum set forth in this Section shall not be deemed to preclude the
enforcement of any judgment of a Tennessee federal or state court, or the taking of any action under this Agreement to enforce such a judgment, in any other appropriate jurisdiction.
(b) EACH PARTY TO THIS AGREEMENT WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST THE OTHER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR ANY OTHER AGREEMENTS
1
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Three year anniversary of the Closing Date.
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EXECUTED AND DELIVERED PURSUANT TO OR IN CONNECTION HEREWITH OR THE NEGOTIATION, BREACH, VALIDITY, TERMINATION OR PERFORMANCE HEREOF AND THEREOF OR THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY. FURTHER, (I) NO PARTY TO THIS AGREEMENT SHALL SEEK A JURY TRIAL IN ANY SUCH ACTION AND (II) NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. EACH PARTY TO THIS AGREEMENT CERTIFIES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT OR INSTRUMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SET FORTH ABOVE IN THIS SECTION 4.11. NO PARTY HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
4.12.
Further Assurances.
At any time or from time to time after the Closing Date, the parties hereto agree to cooperate with each
other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as any other party may reasonably request in order to evidence or effectuate the provisions of this
Agreement and to otherwise carry out the intent of the parties hereunder.
4.13.
Regulatory Matters.
Company shall and shall cause
its subsidiaries to keep the Shareholders informed, on a current basis, of any events, discussions, notices or changes with respect to any criminal or regulatory investigation or action involving Company or any of its subsidiaries, so that each
Shareholder and his respective Affiliates will have the opportunity to take appropriate steps to avoid or mitigate any regulatory consequences to them that might arise from such investigation or action.
4.14.
Inconsistent Agreements.
Neither Company nor the Shareholders shall enter into any agreement or side letter with, or grant any
proxy to, the Shareholders, Company or any other Person (whether or not such proxy, agreements or side letters are with holders of Common Stock that are not parties to this Agreement or otherwise) that conflicts with the provisions of this Agreement
or which would obligate such Person to breach any provision of this Agreement.
4.15.
Effectiveness of Agreement.
Upon the
consummation of the Clayton Acquisition, this Agreement shall thereupon be deemed to be in effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties are signing this Amended and Restated Shareholders Agreement as
of the date first set forth above.
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COMPANY:
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FB FINANCIAL CORPORATION
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By:
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Name:
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Christopher T. Holmes
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Title:
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President and Chief Executive Officer
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SHAREHOLDERS:
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JAMES W. AYERS
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By:
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JAMES L. CLAYTON
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By:
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CLAYTON HC, INC.
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By:
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Name:
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Title:
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[Signature page to Amended and Restated Shareholders Agreement]
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Annex A-2
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This First Amendment (this Amendment) to that certain Stock Purchase Agreement, dated as of February 8, 2017, by and among FB
Financial Corporation, a Tennessee corporation (Buyer), FirstBank, a Tennessee state banking corporation and a wholly-owned subsidiary of Buyer (Buyer Bank), Clayton HC, Inc., a Tennessee corporation (Seller),
Clayton Bank and Trust, a Tennessee state bank and wholly-owned subsidiary of Seller (CBT), American City Bank, a Tennessee state bank and wholly-owned subsidiary of Seller (ACB), and James L. Clayton, a significant
shareholder of Seller (Clayton), is made and entered into as of May 26, 2017 by and among Buyer, Buyer Bank, Seller, CBT, ACB and Clayton.
WITNESSETH
WHEREAS, Buyer, Buyer Bank, Seller, CBT, ACB and Clayton are parties to that certain Stock Purchase Agreement, dated as of February 8,
2017 (the
Agreement
), pursuant to which Buyer and Buyer Bank will acquire CBT and ACB from Seller;
WHEREAS, the
parties hereto desire by this Amendment to amend certain provisions of the Agreement pursuant to Section 12.02 of the Agreement as more fully set forth hereinafter.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to
amend the Agreement as set forth herein:
Section 1.
Capitalized Terms
. Unless otherwise defined herein, capitalized
terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.
Section 2.
Amendments to the Agreement
. The amendments to the Agreement set forth in this Section 2 shall be effective as of the date hereof.
(a)
Section 1.02 Buyer Payments
. Section 1.02 of the Agreement shall be replaced in its entirety with the following
Section 1.02:
Section 1.02
Buyer Payments
.
(a) Seller shall receive the following consideration from Buyer and Buyer Bank as consideration for the Bank Shares:
(i) 1,521,200 shares of Buyers common stock (the
Stock Consideration
), $1.00 par value per
share (the
Buyer Common Stock
).
(ii) One Hundred Twenty Four Million Two Hundred Thousand
Dollars ($124,200,000) in immediately available funds (the
Cash Consideration
).
(iii)
Subject to adjustment as set forth in Section 1.02(b), Sixty Million Dollars ($60,000,000) in aggregate principal amount (the
Principal Amount
) of Buyer Banks 5.5%
Fixed-to-Floating
Rate Subordinated Note due 2027 (the
Debt Consideration
, and together with the Stock Consideration and the Cash Consideration, the
Buyer
Consideration
), in the form attached hereto as
Exhibit C
.
(b) Notwithstanding Section 1.02(a)(iii), Buyer and the
Buyer Bank shall have the option, in their sole discretion, to reduce the Principal Amount of the Debt Consideration to be issued to Seller at the Closing by
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paying the Seller an additional amount in immediately available funds at the Closing equal to such reduced Principal Amount. For illustrative purposes only, if the Buyer or Buyer Bank determine
to pay Seller an additional Twenty Million Dollars ($20,000,000) at Closing, then Buyer Bank shall issue the Debt Consideration with an aggregate principal amount of Forty Million Dollars ($40,000,000). For the avoidance of doubt, Buyer and Buyer
Bank shall be permitted to eliminate the Debt Consideration entirely by paying an additional Sixty Million Dollars ($60,000,000) in immediately available funds to Seller at the Closing. Any amounts in immediately available funds paid by Buyer or
Buyer Bank pursuant to this Section 1.02(b) shall be considered Cash Consideration for purposes of this Agreement.
(b)
Section
2.02 Transactions at Closing
. Section 2.02(b) of the Agreement shall be replaced in its entirety with the following Section 2.02(b):
(b) Buyer and Buyer Bank shall deliver, or shall cause to be delivered, to Seller (i) the Stock Consideration from the Buyer, (ii) the Cash
Consideration, (iii) the Debt Consideration from the Buyer Bank, if any, (iv) the Special Cash Dividend Make-Whole Payment, if any, and (v) the items set forth in
Section
6.02
that are required to be
delivered at Closing. The documents and certificates to be delivered hereunder by or on behalf of Buyer and Buyer Bank on the Closing Date shall be in form and substance reasonably satisfactory to Seller and its counsel. The Cash Consideration and
the Special Cash Dividend Make-Whole Payment, if any, shall be paid by Buyer or Buyer Bank to Seller by wire transfer in immediately available funds to an account designated by Seller in writing to Buyer no later than three (3) Business Days
prior to the Closing.
(c)
Section 3.35 Seller Information
. Section 3.35 of the Agreement shall be replaced in
its entirety with the following Section 3.35:
Section 3.35
Seller Information
. The information relating to Seller and its
Subsidiaries that is provided by or on behalf of Seller for inclusion in the Proxy Statement or any Registration Statement or other disclosure document with respect to a Qualified Offering, or for inclusion in any Regulatory Approval or other
application, notification or document filed with any other Governmental Authority in connection with the Stock Purchase, Bank Merger or other transactions contemplated herein, will not (with respect to the Proxy Statement, as of the date the Proxy
Statement is first mailed to Buyers shareholders and as of the date of the Buyer Meeting, and with respect to any Registration Statement or other disclosure document with respect to a Qualified Offering, as of the date of such document, and
with respect to any application or other document filed or submitted to any Governmental Authority, as of the date filed or submitted, as applicable) contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made, not misleading. The portions of the Proxy Statement and any Registration Statement relating to Seller and its Subsidiaries and other portions thereof within the reasonable
control of Seller and its Subsidiaries will comply in all material respects with the provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder, as applicable.
(d)
Section 3.40 Investment Representations
. The following paragraph shall be added to Section 3.40 of the Agreement as
Section 3.40(f):
(f) Neither Clayton, the Seller nor the Seller Banks beneficially own any shares of Buyer Common Stock or, other than the right to
acquire the Stock Consideration pursuant to this Agreement, have the right to acquire any shares of Buyer Common Stock pursuant to any subscriptions, options, warrants, calls, rights, commitments or agreements of any character.
(e)
Section 4.03 Capital Stock
. The following paragraph shall be added to Section 4.03 of the Agreement as
Section 4.03(b):
Based on 24,160,643 shares of Buyer Common Stock outstanding as of the date of this Amendment, following the Closing, Seller
will beneficially own less than 5% of the outstanding shares of Buyer Common Stock.
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(f)
Section 4.09 Buyer Information
. Section 4.09 of the Agreement shall be
replaced in its entirety with the following Section 4.09:
Section 4.09
Buyer Information
. As of the date of the Proxy Statement
and the date of the Buyer Meeting to which such Proxy Statement relates, if applicable, and as of the date of any Registration Statement or other disclosure document with respect to a Qualified Offering, none of the information supplied or to be
supplied by Buyer for inclusion or incorporation by reference in the Proxy Statement, any Registration Statement or any other disclosure document with respect to a Qualified Offering, as applicable, will contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that any information contained in any Buyer Report as of a later date shall
be deemed to modify information as of an earlier date.
(g)
Section 4.15 No Financing
. Section 4.15 of the
Agreement shall be replaced in its entirety with the following Section 4.15:
Section 4.15
No Financing
. Buyer and Buyer Bank will
have as of the Effective Time after giving effect to the Qualified Offering, without having to resort to external sources other than the Qualified Offering, sufficient capital to effect the transactions contemplated by this Agreement.
(h)
Section 5.04 Shareholder Approval
. Section 5.04(b) of the Agreement shall be amended by adding the words If the
Requisite Buyer Shareholder Approval is Required by the NYSE Rules at the beginning of that section and by adding to the following paragraph to Section 5.04(b) of the Agreement as Section 5.04(b)(iii):
Buyer, Buyer Bank and Seller Entities agree to cooperate in the preparation of the Proxy Statement to be filed by Buyer with the SEC in connection with
the receipt of the Requisite Buyer Shareholder Approval at the Buyer Meeting as promptly as practicable following the execution of this Agreement. Seller shall, as promptly as practicable following the execution of this Agreement, prepare and
deliver to Buyer such information, financial statements and related analysis of the Seller Entities, including any audited financial statements or unaudited financial statements of the Seller Banks, any Managements Discussion and Analysis of
Financial Condition and Results of Operations with respect to the Seller Banks, in each case, as may be required by applicable SEC rules and regulations to be included in the Proxy Statement or any other report required to be filed by Buyer with the
SEC, in each case, in compliance with applicable Laws. Buyer also agrees to use commercially reasonable efforts to obtain any necessary state securities Law or blue sky permits and approvals required to carry out the transactions
contemplated by this Agreement. Seller agrees to cooperate with Buyer and Buyers counsel and accountants in requesting and obtaining appropriate opinions, consents and letters from Sellers independent auditors in connection with the
Proxy Statement.
(i)
Section 5.05 Qualified Offering
. Section 5.05 of the Agreement shall be replaced in its
entirety with the following new Section 5.05:
Section 5.05
Qualified Offering
.
(a) As promptly as reasonably practicable following the date hereof, Buyer shall conduct an offering of a minimum of 4,806,710 shares of Buyer Common Stock
(the
Minimum Offering Shares
) to raise sufficient net proceeds to finance the payment of the Cash Consideration at the Closing (such an offering, a
Qualified Offering
). Buyer shall be entitled to
conduct the Qualified Offering in its sole and reasonable discretion, including the manner of such offering (e.g. a private placement or a registered underwritten public offering), determining the offering price for the shares of Buyer Common Stock
offered in such offering, determining the total number of shares of Buyer Common Stock above the Minimum Offering Shares to be included in such offering, the engagement of financial advisors or underwriters with respect to such offering, the
discounts and commissions to be paid to the underwriters, placement agents or similar advisors in such offering, the exact
A-2-3
timing of such offering and the disclosure to be included in any Registration Statement, prospectus, offering circular or other disclosure document distributed to potential investors in such
offering. Buyer shall also be permitted to sell the Minimum Offering Shares in multiple offerings that in combination will constitute a Qualified Offerings.
(b) Seller shall, as promptly as practicable following the date hereof, prepare and deliver to Buyer such information, financial statements and related
analysis of the Seller Entities, including any audited financial statements or unaudited financial statements of the Seller Banks, any Managements Discussion and Analysis of Financial Condition and Results of Operations with respect to the
Seller Banks, in each case, as may be required by applicable SEC rules and regulations in the event the Qualified Offering is conducted as a registered public offering for inclusion in the Registration Statement with respect thereto (or for
inclusion in a resale Registration Statement in the event the Qualified Offering is conducted as a private placement with resale registration rights) or as may be reasonably requested by Buyer in the event the Qualified Offering is conducted as a
private placement. Seller also agrees to cooperate with Buyer and Buyers counsel and accountants in requesting and obtaining appropriate opinions, consents and letters from Sellers legal counsel and independent auditors in connection
with the Qualified Offering.
(c) Notwithstanding the foregoing, Buyer shall be permitted to delay or abandon the Qualified Offering in the event that
market conditions, including the U.S. stock markets or the stock price of the Buyer Common Stock, deteriorate in such a manner that Buyer reasonably determines that proceeding with such Qualified Offering would not be in the best interests of the
Buyer and its shareholders.
(d) In the event the conditions to closing set forth in Sections 6.01(d) or 6.03(m) are not satisfied or the Buyer abandons
the Qualified Offering in accordance with Section 5.05(c), the parties agree to negotiate in good faith prior to the Expiration Date amendments to this Agreement that are agreeable to Buyer and Buyer Bank, on the one hand, and Clayton and the Seller
Entities, on the other hand, in each case in their sole discretion, that would enable the parties to obtain the necessary Regulatory Approvals required to consummate the Stock Purchase and the Bank Merger; provided, however, that nothing in this
Section 5.05(d) shall be deemed to require any party to agree to any amendment to this Agreement and this Section 5.05(d) only obligates the parties to negotiate in good faith.
(j)
Section 5.06 Registration, Stock Consideration, NYSE Listing
. Section 5.06(c) of the Agreement shall be replaced in its
entirety with the following new Section 5.06(c):
(c) Buyer shall issue the Stock Consideration to Seller pursuant to an exemption under Section
4(a)(2) and Rule 506 of Regulation D under the Securities Act.
(k)
Section 5.25 Corporate Governance Matters
.
Section 5.25 of the Agreement shall be deleted in its entirety.
(l)
Section 5.29 No Acquisition of Buyer Common Stock
.
The following paragraph shall be added to the Agreement as new Section 5.29:
Section 5.29
No Acquisition of Buyer Common Stock
.
Except for the Stock Consideration, each of the Seller Entities and Clayton agree not to acquire beneficial ownership of, or the right to acquire beneficial ownership with respect to, any shares of Buyer Common Stock.
(m)
Section 6.01 Conditions to Obligations of the Parties to Effect the Stock Purchase
. The following paragraph shall be added
to Section 6.01 of the Agreement as Section 6.01(d):
(d)
Qualified Offering
. The Minimum Offering Shares shall have been issued and
sold in the Qualified Offering.
A-2-4
(n)
Section 6.02(e) Shareholders Agreement
. Section 6.01(e) of the Agreement shall
be deleted in its entirety and Exhibit D to the Agreement shall be deleted in its entirety.
(o)
Section 6.03 Conditions to
Obligations of Buyer
. The following paragraph shall be added to Section 6.03 of the Agreement as Section 6.03(m):
(m)
Qualified
Offering
. The sale of the Minimum Offering Shares in the Qualified Offering shall have resulted in net proceeds to the Buyer equal or greater to the Cash Consideration set forth in Section 1.02(a)(1).
(p) Section 11.01 Definitions:
(1) The definition of Agreement shall be amended by adding the words and as the Agreement may be amended from time to
time at the end of the definition.
(2) The definition of Debt Consideration shall be replaced in its entirety by the
following:
Debt Consideration
has the meaning set forth in
Section 1.02(a)(iii)
.
(3) The
definition of Proxy Statement shall be replaced in its entirety by the following:
Proxy Statement
means, if the Requisite Buyer Shareholder Approval is required by the NYSE Rules, the proxy
statement and other proxy solicitation materials of Buyer relating to the Buyer Meeting.
(4) The definition of Requisite Buyer
Shareholder Approval shall be replaced in its entirety by the following:
Requisite Buyer Shareholder Approval
means, if and as such approval is required by the NYSE Rules, the approval of the issuance of
the shares of Buyer Common Stock in connection with the transactions contemplated by this Agreement by a majority of the votes cast at the Buyer Meeting.
(5) The following definitions shall be added to Section 11.01:
(i)
beneficially own
shall have the meaning ascribed to such terms in Rule
13d-3
under the Exchange Act.
(ii)
Cash Consideration
has the
meaning set forth in Section 1.02(a)(ii) and shall include any amounts paid to Seller pursuant to Section 1.02(b).
(iii)
Minimum Offering Shares
has the meaning set forth in Section 5.05(a).
(iv)
NYSE Rules
means the rules and policies promulgated by the NYSE applicable to the Buyer.
(v)
Principal Amount
has the meaning set forth in Section 1.02(a)(iii).
(vi)
Qualified Offering
has the meaning set forth in Section 5.05(a).
(vii)
Registration Statement
means any registration statement filed by the Company under the Securities Act to register under the Securities Act the shares of Buyer Common Stock to be issued and sold by Buyer in a
Qualified Offering or the resale of shares of Buyer Common Stock sold in a Qualified Offering.
(q) Requisite Buyer Shareholder Approval.
Each instance of the words Requisite Buyer Shareholder Approval in the Agreement (except for the defined term Requisite Buyer Shareholder Approval in Section 11.01 of the Agreement) shall be replaced with the words
Requisite Buyer Shareholder Approval, if required by the NYSE Rules.
Section 3
.
Representations and Warranties
of the Parties
.
A-2-5
(a)
Representations and Warranties of Seller Entities
. The Seller Entities hereby
represent and warrant, jointly and severally, to Buyer and Buyer Bank:
(1) This Amendment and the revised terms of the Stock Purchase as
set forth in this Amendment has been authorized by all necessary corporate action of each Seller Entity and each Seller Entitys respective boards of directors on or prior to the date hereof. Seller, as the sole shareholder of Seller Banks, has
approved this Amendment. No other corporate proceedings on the part of any Seller Entity are required by Law, the Charter of or the Bylaws of any Seller Entity or otherwise to approve this Amendment or the revised terms of the Stock Purchase.
(2) This Amendment and the revised terms of the Stock Purchase set forth in this Amendment has been duly and validly executed and delivered
by each Seller Entity and (assuming due authorization, execution and delivery by Buyer and Buyer Bank) constitutes the valid and legally binding obligation of Seller Entities, enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors rights or by general equity principles).
(3) No Seller Entity has any Knowledge of any facts or circumstances that would result in a breach of any representations and warranties of
the Seller Entities set forth in ARTICLE III of the Agreement (after giving effect to this Amendment) that, if continuing at Closing, would result in the failure of the condition to closing set forth in Section 6.03(a) from being satisfied.
(b)
Representation and Warranties of Buyer and Buyer Bank
. The Buyer and Buyer Bank hereby represent and warrant, jointly and
severally, to Buyer and Buyer Bank:
(1) Subject only to the receipt of the Requisite Buyer Shareholder Approval at the Buyer Meeting, if
required by the NYSE Rules, this Amendment and the revised terms of the Stock Purchase set forth in this Amendment have been authorized by all necessary corporate action of Buyer and Buyer Bank on or prior to the date hereof.
(2) Buyer and Buyer Bank have duly executed and delivered this Amendment and, assuming due authorization, execution and delivery by Seller
Entities, this Amendment is a valid and legally binding obligation of Buyer and Buyer Bank, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability relating to or affecting creditors rights or by general equity principles).
(3) Neither Buyer nor Buyer Bank has any Knowledge of any facts or circumstances that would result in Buyer or Buyer Bank being in breach of
any representations and warranties of Buyer and Buyer Bank set forth in ARTICLE IV of the Agreement (after giving effect to this Amendment) that, if continuing at Closing, would result in the failure of the condition set forth in Section 6.02(a) of
the Agreement from being satisfied.
Section 4
.
No Other Amendments
. Except as expressly provided in this Amendment,
each of the terms and provisions of the Agreement shall remain in full force and effect in accordance with its terms. The amendments set forth herein are limited precisely as written and shall not be deemed to be an amendment or waiver to any other
term or condition of the Agreement or any of the documents referred to therein. Whenever the Agreement is referred to herein and in any other agreements, documents and instruments, such reference shall be to the Agreement as amended hereby.
Section 5
.
Governing Law
. This Amendment shall be construed and enforced in accordance with, and governed by, the laws of
the State of Tennessee.
Section 6
.
Counterparts; Facsimile Signatures
. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. Facsimile signatures shall be acceptable and binding.
[Signatures appear on the following page.]
A-2-6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in counterparts
by their duly authorized officers, all as of the day and year first above written.
|
|
|
FB FINANCIAL CORPORATION
|
|
|
By:
|
|
/s/ Christopher T. Holmes
|
Name:
|
|
Christopher T. Holmes
|
Title:
|
|
President and Chief Executive Officer
|
|
FIRSTBANK
|
|
|
By:
|
|
/s/ Christopher T. Holmes
|
Name:
|
|
Christopher T. Holmes
|
Title:
|
|
President and Chief Executive Officer
|
|
CLAYTON HC, INC.
|
|
|
By:
|
|
/s/ James L. Clayton
|
Name:
|
|
James L. Clayton
|
Title:
|
|
Chairman
|
|
CLAYTON BANK AND TRUST
|
|
|
By:
|
|
/s/ James L. Clayton
|
Name:
|
|
James L. Clayton
|
Title:
|
|
Chairman
|
|
AMERICAN CITY BANK
|
|
|
By:
|
|
/s/ James L. Clayton
|
Name:
|
|
James L. Clayton
|
Title:
|
|
Chairman
|
|
JAMES L. CLAYTON
|
|
|
By:
|
|
/s/ James L. Clayton
|
Name:
|
|
James L. Clayton
|
Title:
|
|
Chairman
|
Annex B
February 2, 2017
Board
of Directors
FB Financial Corporation
211 Commerce Street
Suite 300
Nashville, TN 37201
Board of Directors
FirstBank
211 Commerce Street
Suite 300
Nashville, TN 37201
Dear Members of the Boards:
We have acted as your financial advisor in connection with the proposed acquisitions of Clayton Bank & Trust (CBT) and
American City Bank (ACB) (collectively the Target) by FB Financial Corporation (the Company) (collectively, the Transaction) and you have requested that we provide our opinion (the Opinion)
as to whether the Transaction is fair to the Company from a financial point of view.
The terms and conditions of the Transaction are more
fully set forth in a Stock Purchase Agreement (the Agreement) expected to be dated February 8, 2017. Pursuant to the Agreement and for purposes of our Opinion, we understand that the consideration expected to be exchanged by the
Company for the outstanding common stock and of the Target, has an aggregate value of approximately $287.2 million based on the Companys closing stock price of $25.46 as of January 31, 2017. The consideration consists of 5,860,000
shares of the Companys common stock, $78 million in cash, and $60 million in the form of a seller note with an initial interest rate of 5.5% per annum.
In connection with rendering our Opinion we have:
|
(i)
|
analyzed certain publicly filed or publicly available financial statements and reports regarding the Company and the Target;
|
|
(ii)
|
analyzed certain management reports regarding the Company and the Target;
|
|
(iii)
|
analyzed certain internal financial statements and other financial and operating data concerning the Company and the Target prepared by management of the Company and Target, respectively;
|
|
(iv)
|
analyzed, on a pro forma basis, the effect of the Transaction on the balance sheet, capitalization ratios, earnings and tangible book value both in the aggregate and, where applicable, on a per share basis of the
Company;
|
|
(v)
|
reviewed the reported prices and trading activity for the common stock of the Company;
|
|
(vi)
|
compared the financial performance of the Company and the Target with that of certain other publicly-traded companies and their securities that we deemed relevant to our analysis of the Transaction;
|
|
|
|
|
|
|
|
Stephens Inc.
|
|
3344 Peachtree Rd. NE
|
|
404-461-5100 t
|
|
www.stephens.com
|
|
|
Suite 1650
|
|
404-461-5140 f
|
|
|
|
|
Atlanta, GA 30326
|
|
800-643-9691
|
|
|
B-1
February 2, 2017
PAGE
2
|
(vii)
|
reviewed the financial terms, to the extent publicly available, of certain merger or acquisition transactions that we deemed relevant to our analysis of the Transaction;
|
|
(viii)
|
reviewed the most recent draft of the Agreement and related documents provided to us by the Company;
|
|
(ix)
|
discussed with management of the Company the operations of and future business prospects for the Company and the Target and the anticipated financial consequences of the Transaction to the Company;
|
|
(x)
|
assisted in your deliberations regarding the material terms of the Transaction and your negotiations with the Target; and
|
|
(xi)
|
performed such other analyses and provided such other services as we have deemed appropriate.
|
We have relied on the accuracy and completeness of the information and financial data provided to us by the Company and the Target and of the
other information reviewed by us in connection with the preparation of our Opinion, and our Opinion is based upon such information. We have not assumed any responsibility for independent verification of the accuracy or completeness of any of such
information or financial data. Management of the Company has assured us that they are not aware of any relevant information that has been omitted or remains undisclosed to us. We have not assumed any responsibility for making or undertaking an
independent evaluation or appraisal of any of the assets or liabilities of the Company or of the Target, and we have not been furnished with any such evaluations or appraisals; nor have we evaluated the solvency or fair value of the Company or of
the Target under any laws relating to bankruptcy, insolvency or similar matters. We have not assumed any obligation to conduct any physical inspection of the properties or facilities of the Company or Target. With respect to the financial forecasts
prepared by the Company, including the forecasts of potential cost savings and potential synergies, we have assumed that such financial forecasts have been reasonably prepared and reflect the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company and the Target, and that the financial results reflected by such projections will be realized as predicted. We have not received or reviewed any individual credit files
nor have we made an independent evaluation of the adequacy of the allowance for loan losses of the Company or the Target. We have also assumed that the representations and warranties contained in the Agreement and all related documents are true,
correct and complete in all material respects.
As part of our investment banking business, we regularly issue fairness opinions and are
continually engaged in the valuation of companies and their securities in connection with business reorganizations, private placements, negotiated underwritings, mergers and acquisitions and valuations for estate, corporate and other purposes. We
are familiar with the Company and the Target, and issue periodic research reports regarding the Companys business activities and prospects. During the two years preceding the date of this letter we have received fees from the Company in
connection with investment banking services that we provided to assist the Company with its initial public offering. We serve as financial adviser to the Company in connection with the Transaction, and we are entitled to receive from the Company
reimbursement of our expenses and a fee for our services as financial adviser to the Company, a significant portion of which is contingent upon the consummation of the Transaction. We are also entitled to receive a fee from the Company for providing
our Opinion to the Board of Directors of the Company. The Company has also agreed to indemnify us for certain liabilities arising out of our engagement, including certain liabilities that could arise out of our providing this Opinion letter. We
expect to pursue, and may also receive, fees for future investment banking services assignments with the Company. In the ordinary course of business, Stephens Inc. and its affiliates at any time may hold long or short positions, and may trade or
otherwise effect transactions as principal or for the accounts of customers, in debt or equity securities or options on securities of the Company or of any other participant in the Transaction.
B-2
February 2, 2017
PAGE
3
We are not legal,
accounting, regulatory or tax experts, and we have relied solely, and without independent verification, on the assessments of the Company and its other advisors with respect to such matters. We have assumed, with your consent, that the Transaction
will not result in in any material adverse legal, regulatory, accounting or tax consequences for the Company.
The Opinion is necessarily
based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to us as of the date hereof. It should be understood that subsequent developments may affect this Opinion and that we do
not have any obligation to update, revise or reaffirm this Opinion. We have assumed that the Transaction will be consummated on the terms of the latest draft of the Agreement provided to us, without material waiver or modification. We have assumed
that in the course of obtaining the necessary regulatory, lending or other consents or approvals (contractual or otherwise) for the Transaction, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed
that would have a material adverse effect on the contemplated benefits of the Transaction to the Company. We are not expressing any opinion herein as to the price at which the common stock or any other securities of the Company will trade following
the announcement of the Transaction.
This Opinion is for the use and benefit of the Board of Directors of the Company for purposes of its
evaluation of the Transaction. Our Opinion does not address the merits of the underlying decision by the Company to engage in the Transaction, the merits of the Transaction as compared to other alternatives potentially available to the Company or
the relative effects of any alternative transaction in which the Company might engage, nor is it intended to be a recommendation to any person as to any specific action that should be taken in connection with the Transaction. This Opinion is not
intended to confer any rights or remedies upon any other person. In addition, except as explicitly set forth in this letter, you have not asked us to address, and this Opinion does not address, the fairness to, or any other consideration of, the
holders of any class of securities, creditors or other constituencies of the Company. We have not been asked to express any opinion, and do not express any opinion, as to the fairness of the amount or nature of the compensation to any of the
Companys officers, directors or employees, or to any group of such officers, directors or employees, relative to the compensation to other stockholders of the Company. Our Fairness Opinion Committee has approved the Opinion set forth in this
letter. Neither this Opinion nor its substance may be disclosed by you to anyone other than your advisors without our written permission. Notwithstanding the foregoing, this Opinion and a summary discussion of our underlying analyses and role as
financial adviser to the Company may be included in communications to stockholders of the Company, provided that we approve of the content of such disclosures prior to any filing, distribution or publication of such communications.
Based on the foregoing and our general experience as investment bankers, and subject to the assumptions and qualifications stated herein, we
are of the opinion, on the date hereof, that the Transaction is fair from a financial point of view to the Company.
|
|
|
Very truly yours,
|
STEPHENS INC.
|
|
|
|
By:
|
|
|
B-3
Annex C
Index to Combined Financial Statements of Clayton Banks
|
|
|
|
|
|
|
Page
|
|
Interim Combined Financial Statements
|
|
|
|
|
|
|
Combined Balance Sheets (unaudited)
|
|
|
C-2
|
|
|
|
Combined Statements of Income (unaudited)
|
|
|
C-3
|
|
|
|
Combined Statements of Comprehensive Income (unaudited)
|
|
|
C-4
|
|
|
|
Combined Statements of Changes in Shareholders Equity (unaudited)
|
|
|
C-5
|
|
|
|
Combined Statements of Cash Flows (unaudited)
|
|
|
C-6
|
|
|
|
Notes to Combined Financial Statements (unaudited)
|
|
|
C-7
|
|
|
|
2016, 2015 and 2014 Combined Annual Financial Statements
|
|
|
|
|
|
|
Independent Auditors Report
|
|
|
C-23
|
|
|
|
Audited Financial Statements
|
|
|
|
|
|
|
Combined Balance Sheets
|
|
|
C-24
|
|
|
|
Combined Statements of Income
|
|
|
C-25
|
|
|
|
Combined Statements of Comprehensive Income
|
|
|
C-26
|
|
|
|
Combined Statements of Changes in Shareholders Equity
|
|
|
C-27
|
|
|
|
Combined Statements of Cash Flows
|
|
|
C-28
|
|
|
|
Notes to Combined Financial Statements
|
|
|
C-29
|
|
C-1
Clayton Banks
Combined balance sheets
(unaudited)
(dollars in thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
37,856
|
|
|
$
|
37,735
|
|
Federal funds sold
|
|
|
|
|
|
|
11,857
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
37,856
|
|
|
|
49,592
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Securities available for sale, at fair value
|
|
|
51,133
|
|
|
|
52,981
|
|
Securities held to maturity, at cost
|
|
|
13,601
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
64,734
|
|
|
|
66,672
|
|
|
|
|
|
|
|
|
|
|
Loans, net of discounts and unearned income
|
|
|
1,066,193
|
|
|
|
1,052,570
|
|
Less: allowance for loan losses
|
|
|
20,519
|
|
|
|
20,395
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,045,674
|
|
|
|
1,032,175
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
22,570
|
|
|
|
22,662
|
|
Goodwill
|
|
|
8,425
|
|
|
|
8,425
|
|
Federal Home Loan Bank stock, at cost
|
|
|
3,370
|
|
|
|
3,370
|
|
Accrued interest receivable
|
|
|
4,922
|
|
|
|
5,050
|
|
Other real estate owned
|
|
|
3,207
|
|
|
|
3,103
|
|
Cash surrender value of life insurance
|
|
|
466
|
|
|
|
464
|
|
Repossessed assets
|
|
|
3,674
|
|
|
|
263
|
|
Other
|
|
|
4,346
|
|
|
|
3,040
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
50,980
|
|
|
|
46,377
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,199,244
|
|
|
$
|
1,194,816
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
205,133
|
|
|
$
|
193,525
|
|
Interest bearing
|
|
|
723,526
|
|
|
|
724,849
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
928,659
|
|
|
|
918,374
|
|
Federal funds purchased
|
|
|
695
|
|
|
|
308
|
|
Federal Home Loan Bank advances
|
|
|
49,399
|
|
|
|
52,414
|
|
Accrued interest payable
|
|
|
600
|
|
|
|
553
|
|
Other liabilities
|
|
|
6,301
|
|
|
|
9,590
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
985,654
|
|
|
|
981,239
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
CBT Common stock, $25 par value; authorized 200,000 shares; 153,600 shares issued and outstanding
and ACB Common stock $362.09 par value; authorized 105,000; 1,000 shares issued and outstanding
|
|
|
4,202
|
|
|
|
4,202
|
|
Additional paid in capital
|
|
|
89,902
|
|
|
|
89,902
|
|
Retained earnings
|
|
|
118,178
|
|
|
|
118,389
|
|
Accumulated other comprehensive income, net of applicable taxes
|
|
|
1,308
|
|
|
|
1,084
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
213,590
|
|
|
|
213,577
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,199,244
|
|
|
$
|
1,194,816
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial statements.
C-2
Clayton Banks
Combined statements of income
(unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Interest income
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
16,659
|
|
|
$
|
14,555
|
|
Securities
|
|
|
532
|
|
|
|
610
|
|
Other
|
|
|
85
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
17,276
|
|
|
|
15,245
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,439
|
|
|
|
1,319
|
|
Other borrowings
|
|
|
329
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,768
|
|
|
|
1,633
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
15,508
|
|
|
|
13,612
|
|
Provision for loan losses
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
15,278
|
|
|
|
13,612
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
200
|
|
|
|
198
|
|
Trust fee income
|
|
|
221
|
|
|
|
172
|
|
Net loss on sales of foreclosed real estate owned and fixed assets
|
|
|
(51
|
)
|
|
|
(117
|
)
|
Loan servicing income
|
|
|
549
|
|
|
|
475
|
|
Other non-interest income
|
|
|
624
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,543
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,624
|
|
|
|
3,754
|
|
Occupancy and equipment
|
|
|
678
|
|
|
|
600
|
|
FDIC and state banking fees
|
|
|
108
|
|
|
|
154
|
|
Collection expense
|
|
|
77
|
|
|
|
84
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
14
|
|
Professional fees
|
|
|
176
|
|
|
|
76
|
|
Other non-interest expense
|
|
|
1,048
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
5,711
|
|
|
|
5,593
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11,110
|
|
|
|
9,290
|
|
State income tax expense
|
|
|
871
|
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,239
|
|
|
$
|
8,627
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial statements.
C-3
Clayton Banks
Combined statements of comprehensive income
(unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net Income
|
|
$
|
10,239
|
|
|
$
|
8,627
|
|
|
|
|
Other comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
Net change in unrealized gains on securities available for sale, net of tax effect
|
|
|
224
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
10,463
|
|
|
$
|
8,947
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial statements.
C-4
Clayton Banks
Combined statements of changes in shareholders equity
(unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
paid in
capital
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Total
shareholders
equity
|
|
Balance, December 31, 2015
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
101,242
|
|
|
$
|
2,086
|
|
|
$
|
197,432
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
8,627
|
|
|
|
|
|
|
|
8,627
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
(11,000
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2016
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
98,869
|
|
|
$
|
2,406
|
|
|
$
|
195,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
118,389
|
|
|
$
|
1,084
|
|
|
$
|
213,577
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
10,239
|
|
|
|
|
|
|
|
10,239
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(10,450
|
)
|
|
|
|
|
|
|
(10,450
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
118,178
|
|
|
$
|
1,308
|
|
|
$
|
213,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial statements.
C-5
Clayton Banks
Combined statements of cash flows
(unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,239
|
|
|
$
|
8,627
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
134
|
|
|
|
154
|
|
Provision for loan losses
|
|
|
230
|
|
|
|
|
|
Net accretion of discounts and amortization of premiums on securities
|
|
|
39
|
|
|
|
61
|
|
Net gains on sales of securities
|
|
|
|
|
|
|
(1
|
)
|
Net loss on sales of foreclosed real estate owned and fixed assets
|
|
|
51
|
|
|
|
117
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
128
|
|
|
|
(159
|
)
|
Accrued interest payable
|
|
|
47
|
|
|
|
109
|
|
Other, net
|
|
|
(1,966
|
)
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
8,902
|
|
|
|
9,517
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
Maturities, prepayments and calls
|
|
|
2,053
|
|
|
|
2,006
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
Maturities, prepayments and calls
|
|
|
86
|
|
|
|
917
|
|
Net change in loans
|
|
|
(17,580
|
)
|
|
|
5,738
|
|
Purchases of premises and equipment
|
|
|
(78
|
)
|
|
|
(4
|
)
|
Proceeds from the sales of other real estate owned
|
|
|
76
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
(15,443
|
)
|
|
|
9,180
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
10,285
|
|
|
|
20,423
|
|
Proceeds from FHLB advances
|
|
|
5,500
|
|
|
|
|
|
Repayments of FHLB advances
|
|
|
(8,515
|
)
|
|
|
(15
|
)
|
Proceeds (repayments) from federal funds purchased
|
|
|
387
|
|
|
|
(10,587
|
)
|
Dividends paid
|
|
|
(12,852
|
)
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(5,195
|
)
|
|
|
(1,179
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(11,736
|
)
|
|
|
17,518
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
49,592
|
|
|
|
44,459
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
37,856
|
|
|
$
|
61,977
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,721
|
|
|
$
|
1,524
|
|
Income taxes, net of refunds
|
|
|
869
|
|
|
|
576
|
|
|
|
|
Supplemental schedule of non-cash activities
|
|
|
|
|
|
|
|
|
Transfers from loans to other real estate owned
|
|
$
|
3,528
|
|
|
$
|
358
|
|
Transfers from loans to repossessed assets
|
|
|
3,333
|
|
|
|
|
|
See accompanying notes to unaudited combined financial statements.
C-6
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Note 1Summary of significant accounting policies
Nature of Operations and Principles of Combination
The combined financial statements include Clayton Bank and Trust and American City Bank,
together referred to as Clayton Banks or the Banks. Intercompany transactions and balances are eliminated in consolidation. The Banks are wholly-owned by Clayton HC Inc.
The Banks provide financial services through its branches in the counties of Chester, Blount, Knox, Madison, Tipton, Crockett, Henderson, Putnam, Franklin,
Coffee, Moore, and Fayette, Tennessee. Their primary deposit products are checking, savings, and term certificate accounts, and their primary lending products are residential mortgage including Manufactured Housing, commercial, and installment
loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of
businesses. However, the customers ability to repay their loans is dependent on the cash flow of borrowers, which can be impacted by the general economic conditions in the area.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America and general practices of the banking industry. The Combined Balance Sheet at December 31, 2016 has been derived from the audited combined financial statements included elsewhere within this prospectus. Certain prior
period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders equity.
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. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan loss, the valuation of real estate acquired
in connection with foreclosures or in satisfaction of loans, the determination of the fair value of financial instruments, and the realization of deferred tax assets. In connection with the determination of the allowance for loan loss and the
estimated fair value of real estate owned, management obtains independent appraisals for significant properties.
There are currently no new accounting
policies that were not disclosed in the Banks December 31, 2016 audited financial statements included elsewhere within this prospectus except as described below.
Repossessed assets- includes other non-real estate, including notes receivable, vehicles and mobile homes carried at their estimated fair value.
Date of Managements Review
Management has evaluated events and transactions occurring subsequent to the balance sheet date for items that
should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through the date of this registration statement, which is the date these financial statements were available to be issued. There were no other
subsequent events that occurred after March 31, 2017, but prior to the issuance of these financial statements that would have a material impact on the Banks combined financial statements.
C-7
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Note 2 Securities
The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as
follows for March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
32,284
|
|
|
$
|
817
|
|
|
$
|
(69
|
)
|
|
$
|
33,032
|
|
State and municipal
|
|
|
17,440
|
|
|
|
664
|
|
|
|
(3
|
)
|
|
|
18,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,724
|
|
|
$
|
1,481
|
|
|
$
|
(72
|
)
|
|
$
|
51,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
34,378
|
|
|
$
|
791
|
|
|
$
|
(173
|
)
|
|
$
|
34,996
|
|
State and municipal
|
|
|
17,444
|
|
|
|
583
|
|
|
|
(42
|
)
|
|
|
17,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,822
|
|
|
$
|
1,374
|
|
|
$
|
(215
|
)
|
|
$
|
52,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, unrecognized gains and losses, and fair value of securities held to maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
691
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
718
|
|
State and municipal
|
|
|
12,910
|
|
|
|
462
|
|
|
|
|
|
|
|
13,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,601
|
|
|
$
|
489
|
|
|
$
|
|
|
|
$
|
14,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
777
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
808
|
|
State and municipal
|
|
|
12,914
|
|
|
|
482
|
|
|
|
(4
|
)
|
|
|
13,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,691
|
|
|
$
|
513
|
|
|
$
|
(4
|
)
|
|
$
|
14,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of debt securities at March 31, 2017, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
Held to maturity
|
|
|
|
Amortized
cost
|
|
|
Fair
value
|
|
|
Amortized
cost
|
|
|
Fair
value
|
|
Due in one year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
300
|
|
|
$
|
303
|
|
Due in one to five years
|
|
|
6,053
|
|
|
|
6,412
|
|
|
|
2,436
|
|
|
|
2,524
|
|
Due in five to ten years
|
|
|
6,140
|
|
|
|
6,304
|
|
|
|
7,168
|
|
|
|
7,424
|
|
Due in greater than ten years
|
|
|
5,247
|
|
|
|
5,385
|
|
|
|
3,006
|
|
|
|
3,121
|
|
Mortgage-backed securities
|
|
|
32,284
|
|
|
|
33,032
|
|
|
|
691
|
|
|
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,724
|
|
|
$
|
51,133
|
|
|
$
|
13,601
|
|
|
$
|
14,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-8
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
There were no securities sold or redeemed during the first quarter of 2017. Securities carried at $53,498 and
$55,560 at March 31, 2017 and December 31, 2016, respectively, were pledged to secure deposits and for other purposes as required or permitted by law.
At March 31, 2017 and December 31, 2016 there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in
an amount greater than 10% of shareholders equity.
The following table shows securities with unrealized losses and their fair value, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
Description of Securities
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
March 31, 2017
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,103
|
|
|
$
|
(49
|
)
|
|
$
|
4,406
|
|
|
$
|
(20
|
)
|
|
$
|
5,509
|
|
|
$
|
(69
|
)
|
State and municipal
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
(3
|
)
|
|
$
|
476
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
1,103
|
|
|
$
|
(49
|
)
|
|
$
|
4,882
|
|
|
$
|
(23
|
)
|
|
$
|
5,985
|
|
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
9,242
|
|
|
$
|
(97
|
)
|
|
$
|
2,059
|
|
|
$
|
(76
|
)
|
|
$
|
11,301
|
|
|
$
|
(173
|
)
|
State and municipal
|
|
|
4,197
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
$
|
4,197
|
|
|
$
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
13,439
|
|
|
$
|
(143
|
)
|
|
$
|
2,059
|
|
|
$
|
(76
|
)
|
|
$
|
15,498
|
|
|
$
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on debt securities have not been recognized into income because the issuers are of high credit quality
(rated AA or higher), management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the investments approach their
maturity date.
Note 3Loans
A summary of loans
outstanding by category at March 31, 2017 and December 31, 2016 follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Construction and land
|
|
$
|
116,828
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
339,271
|
|
|
|
299,059
|
|
Commercial and agriculture
|
|
|
168,957
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
101,490
|
|
|
|
103,668
|
|
Consumer
|
|
|
21,605
|
|
|
|
23,349
|
|
Manufactured homes
|
|
|
318,042
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,066,193
|
|
|
|
1,052,570
|
|
Less: Allowance for loan losses
|
|
|
(20,519
|
)
|
|
|
(20,395
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned fees
|
|
$
|
1,045,674
|
|
|
$
|
1,032,175
|
|
|
|
|
|
|
|
|
|
|
C-9
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
For purposes of the disclosures required pursuant to the Banks adoption of ASU 2010-20, the Banks
loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes. A portfolio segment is defined as the level at which management develops and documents a systematic method for determining its allowance for loan
losses. The Banks had the following loan portfolio segments Construction and land; Commercial real estate; Commercial and agriculture; Consumer real estate; Consumer; and Manufactured homes loans. A class is generally determined based on the
initial measurement attribute, risk characteristics of the loan, and the Banks method for monitoring and assessing credit risk. Classes within the Construction and land segment are Land acquisition, Commercial construction, and Residential
construction. Classes within the Commercial real estate segment are Rental, Business and industrial, and Other. Classes within the Consumer segment are Auto, Credit cards and Other consumer.
The allowance for loan losses (ALLL) includes the following components reserves for loans collectively evaluated for impairment (determined in
accordance with FASB ASC 450-20 Contingencies) and reserves for loans individually evaluated for impairment (determined in accordance with FASB ASC 310-10 Receivables).
The reserves for loans collectively evaluated for impairment are determined based on an application of average historical charge-off percentages by loan
portfolio segment, adjusted for loans internally assigned loan grades, and also adjusted for managements evaluation of current economic events, trends, and conditions in accordance with FASB ASC 450-20 Contingencies. The Banks used a
three-year average historical charge-off percentages.
The reserves for loans individually evaluated for impairment are determined based on the present
value of the expected future repayments discounted at the loans effective interest rate, or for loans that are mainly dependent on the collateral for repayment, the estimated fair value of the collateral less estimated selling costs (net
realizable value).
A summary of the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
20,395
|
|
|
$
|
21,780
|
|
Provision for loan losses
|
|
|
230
|
|
|
|
|
|
Loans charged off
|
|
|
(364
|
)
|
|
|
(437
|
)
|
Recoveries
|
|
|
258
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
20,519
|
|
|
$
|
21,425
|
|
|
|
|
|
|
|
|
|
|
C-10
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
The following tables provide a detailed roll forward of the allowance for loan losses for the three months
ended March 31, 2017 and 2016 by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Construction
and land
|
|
|
Commercial
real estate
|
|
|
Commercial
and
agriculture
|
|
|
Consumer
real estate
|
|
|
Consumer
|
|
|
Manufactured
homes
|
|
|
Total
|
|
Allowance for loan loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,660
|
|
|
$
|
5,353
|
|
|
$
|
2,900
|
|
|
$
|
1,399
|
|
|
$
|
480
|
|
|
$
|
8,603
|
|
|
$
|
20,395
|
|
Charge-offs
|
|
|
|
|
|
|
(16
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
(207
|
)
|
|
|
(364
|
)
|
Recoveries
|
|
|
1
|
|
|
|
8
|
|
|
|
16
|
|
|
|
192
|
|
|
|
12
|
|
|
|
29
|
|
|
|
258
|
|
Provision
|
|
|
(110
|
)
|
|
|
40
|
|
|
|
231
|
|
|
|
80
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,551
|
|
|
$
|
5,385
|
|
|
$
|
3,084
|
|
|
$
|
1,671
|
|
|
$
|
403
|
|
|
$
|
8,425
|
|
|
$
|
20,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,376
|
|
|
$
|
1,456
|
|
|
$
|
18
|
|
|
$
|
41
|
|
|
$
|
19
|
|
|
$
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
1,551
|
|
|
$
|
4,009
|
|
|
$
|
1,628
|
|
|
$
|
1,653
|
|
|
$
|
362
|
|
|
$
|
8,406
|
|
|
$
|
17,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
207
|
|
|
$
|
10,430
|
|
|
$
|
2,804
|
|
|
$
|
1,880
|
|
|
$
|
320
|
|
|
$
|
14,342
|
|
|
$
|
29,983
|
|
Ending balance collectively evaluated for impairment
|
|
|
116,621
|
|
|
|
328,841
|
|
|
|
166,153
|
|
|
|
99,610
|
|
|
|
21,285
|
|
|
|
303,700
|
|
|
|
1,036,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance total loans
|
|
$
|
116,828
|
|
|
$
|
339,271
|
|
|
$
|
168,957
|
|
|
$
|
101,490
|
|
|
$
|
21,605
|
|
|
$
|
318,042
|
|
|
$
|
1,066,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Construction
and land
|
|
|
Commercial
real estate
|
|
|
Commercial
and
agriculture
|
|
|
Consumer
real estate
|
|
|
Consumer
|
|
|
Manufactured
homes
|
|
|
Total
|
|
Allowance for loan loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,561
|
|
|
$
|
6,582
|
|
|
$
|
1,811
|
|
|
$
|
1,446
|
|
|
$
|
859
|
|
|
$
|
7,521
|
|
|
$
|
21,780
|
|
Charge-offs
|
|
|
(42
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
(173
|
)
|
|
|
(76
|
)
|
|
|
(71
|
)
|
|
|
(437
|
)
|
Recoveries
|
|
|
3
|
|
|
|
8
|
|
|
|
11
|
|
|
|
8
|
|
|
|
21
|
|
|
|
31
|
|
|
|
82
|
|
Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,522
|
|
|
$
|
6,590
|
|
|
$
|
1,747
|
|
|
$
|
1,281
|
|
|
$
|
804
|
|
|
$
|
7,481
|
|
|
$
|
21,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
|
|
|
$
|
2,402
|
|
|
$
|
359
|
|
|
$
|
344
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
3,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
3,522
|
|
|
$
|
4,188
|
|
|
$
|
1,388
|
|
|
$
|
937
|
|
|
$
|
771
|
|
|
$
|
7,481
|
|
|
$
|
18,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
1,668
|
|
|
$
|
7,471
|
|
|
$
|
2,816
|
|
|
$
|
1,597
|
|
|
$
|
440
|
|
|
$
|
14,792
|
|
|
$
|
28,784
|
|
Ending balance collectively evaluated for impairment
|
|
|
145,514
|
|
|
|
291,588
|
|
|
|
152,955
|
|
|
|
102,071
|
|
|
|
22,909
|
|
|
|
308,749
|
|
|
|
1,023,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance total loans
|
|
$
|
147,182
|
|
|
$
|
299,059
|
|
|
$
|
155,771
|
|
|
$
|
103,668
|
|
|
$
|
23,349
|
|
|
$
|
323,541
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-11
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
The Banks use internally assigned loan grades as credit quality indicator. Loans are graded as Pass, Special
Mention, or Substandard.
Pass
Loans considered to have a normal credit risk. The borrower has the apparent ability to satisfy its
obligations to the Banks, and therefore no loss in ultimate collection is anticipated based on current facts and circumstances. Pass grade loans have reasonable collateral and low to normal loan to value ratios.
Special Mention
Loans considered to have a slightly above normal credit risk. These loans have potential weaknesses that deserve
managements close attention, and if left uncorrected, such potential weaknesses may result in an increased risk of loss in the future. Special Mention grade loans do not expose the Banks to sufficient risk to warrant adverse classification.
Substandard
Loans considered to be inadequately protected by the current net worth and financial capacity of the borrower or the collateral
pledged, if any. These loans are characterized by the distinct possibility that the Bank will sustain some loss in the future, if the weaknesses are not corrected. Loss potential, while existing in the aggregate amount of the Substandard grade
loans, does not have to exist in the individual loans classified as Substandard.
The following table provides the balances of loans by loan classes
disaggregated based on credit quality indicator internally assigned loan grades as of March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Loan Grade
|
|
|
Total
|
|
Loan Class
|
|
Pass
|
|
|
Special
mention
|
|
|
Substandard
|
|
|
Construction and land
|
|
$
|
115,772
|
|
|
$
|
841
|
|
|
$
|
215
|
|
|
$
|
116,828
|
|
Commercial real estate
|
|
|
307,041
|
|
|
|
19,233
|
|
|
|
12,997
|
|
|
|
339,271
|
|
Commercial & agriculture
|
|
|
165,814
|
|
|
|
201
|
|
|
|
2,942
|
|
|
|
168,957
|
|
Consumer real estate
|
|
|
97,439
|
|
|
|
1,852
|
|
|
|
2,199
|
|
|
|
101,490
|
|
Consumer
|
|
|
20,806
|
|
|
|
421
|
|
|
|
378
|
|
|
|
21,605
|
|
Manufactured homes
|
|
|
284,694
|
|
|
|
16,863
|
|
|
|
16,485
|
|
|
|
318,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
991,566
|
|
|
$
|
39,411
|
|
|
$
|
35,216
|
|
|
$
|
1,066,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Loan Grade
|
|
|
Total
|
|
Loan Class
|
|
Pass
|
|
|
Special
mention
|
|
|
Substandard
|
|
|
Construction and land
|
|
$
|
144,654
|
|
|
$
|
852
|
|
|
$
|
1,676
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
265,044
|
|
|
|
20,854
|
|
|
|
13,161
|
|
|
|
299,059
|
|
Commercial & agriculture
|
|
|
152,063
|
|
|
|
716
|
|
|
|
2,992
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
97,988
|
|
|
|
3,614
|
|
|
|
2,066
|
|
|
|
103,668
|
|
Consumer
|
|
|
22,326
|
|
|
|
523
|
|
|
|
500
|
|
|
|
23,349
|
|
Manufactured homes
|
|
|
287,601
|
|
|
|
18,971
|
|
|
|
16,969
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
969,676
|
|
|
$
|
45,530
|
|
|
$
|
37,364
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-12
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Impaired loans individually evaluated for impairment in accordance with ASC 310 at March 31, 2017 and
December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Carrying value of total impaired loans
|
|
$
|
29,983
|
|
|
$
|
28,784
|
|
Amount of the direct allowance for loan losses allocated
|
|
|
2,910
|
|
|
|
2,669
|
|
Average of impaired loans during the period
|
|
|
29,384
|
|
|
|
35,549
|
|
Interest income recognized during impairment
|
|
|
347
|
|
|
|
1,406
|
|
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of March 31,
2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial real estate
|
|
|
4,791
|
|
|
|
4,898
|
|
|
|
1,376
|
|
|
|
4,571
|
|
|
|
10
|
|
Commercial & agriculture
|
|
|
1,755
|
|
|
|
1,810
|
|
|
|
1,456
|
|
|
|
1,733
|
|
|
|
21
|
|
Consumer real estate
|
|
|
234
|
|
|
|
242
|
|
|
|
18
|
|
|
|
218
|
|
|
|
4
|
|
Consumer
|
|
|
46
|
|
|
|
46
|
|
|
|
41
|
|
|
|
46
|
|
|
|
1
|
|
Manufactured homes
|
|
|
1,919
|
|
|
|
1,919
|
|
|
|
19
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance recorded
|
|
$
|
8,745
|
|
|
$
|
8,915
|
|
|
$
|
2,910
|
|
|
$
|
8,566
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
207
|
|
|
$
|
1,381
|
|
|
$
|
|
|
|
$
|
938
|
|
|
$
|
60
|
|
Commercial real estate
|
|
|
5,639
|
|
|
|
6,764
|
|
|
|
|
|
|
|
4,380
|
|
|
|
54
|
|
Commercial & agriculture
|
|
|
1,049
|
|
|
|
1,837
|
|
|
|
|
|
|
|
1,078
|
|
|
|
15
|
|
Consumer real estate
|
|
|
1,646
|
|
|
|
1,834
|
|
|
|
|
|
|
|
1,521
|
|
|
|
28
|
|
Consumer
|
|
|
274
|
|
|
|
496
|
|
|
|
|
|
|
|
335
|
|
|
|
6
|
|
Manufactured homes
|
|
|
12,423
|
|
|
|
13,393
|
|
|
|
|
|
|
|
12,568
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with no related allowance recorded
|
|
|
21,238
|
|
|
|
25,705
|
|
|
|
|
|
|
|
20,818
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
29,983
|
|
|
$
|
34,620
|
|
|
$
|
2,910
|
|
|
$
|
29,384
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-13
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of
December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial real estate
|
|
|
4,350
|
|
|
|
4,518
|
|
|
|
1,275
|
|
|
|
4,627
|
|
|
|
86
|
|
Commercial & agriculture
|
|
|
1,710
|
|
|
|
1,766
|
|
|
|
1,315
|
|
|
|
1,829
|
|
|
|
69
|
|
Consumer real estate
|
|
|
202
|
|
|
|
203
|
|
|
|
17
|
|
|
|
204
|
|
|
|
10
|
|
Consumer
|
|
|
45
|
|
|
|
45
|
|
|
|
40
|
|
|
|
2
|
|
|
|
|
|
Manufactured homes
|
|
|
2,079
|
|
|
|
2,078
|
|
|
|
22
|
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance recorded
|
|
$
|
8,386
|
|
|
$
|
8,610
|
|
|
$
|
2,669
|
|
|
$
|
8,860
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,668
|
|
|
$
|
2,842
|
|
|
$
|
|
|
|
$
|
2,861
|
|
|
$
|
8
|
|
Commercial real estate
|
|
|
3,121
|
|
|
|
4,200
|
|
|
|
|
|
|
|
4,485
|
|
|
|
125
|
|
Commercial & agriculture
|
|
|
1,106
|
|
|
|
1,860
|
|
|
|
|
|
|
|
2,949
|
|
|
|
82
|
|
Consumer real estate
|
|
|
1,395
|
|
|
|
1,648
|
|
|
|
|
|
|
|
1,930
|
|
|
|
63
|
|
Consumer
|
|
|
395
|
|
|
|
628
|
|
|
|
|
|
|
|
536
|
|
|
|
29
|
|
Manufactured homes
|
|
|
12,713
|
|
|
|
13,744
|
|
|
|
|
|
|
|
13,928
|
|
|
|
934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with no related allowance recorded
|
|
|
20,398
|
|
|
|
24,922
|
|
|
|
|
|
|
|
26,689
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
28,784
|
|
|
$
|
33,532
|
|
|
$
|
2,669
|
|
|
$
|
35,549
|
|
|
$
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of March 31,
2016 were as follows:
|
|
|
|
|
|
|
|
|
March 31, 2016
Loan Class
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with related allowance recorded
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
|
|
|
$
|
|
|
Commercial real estate
|
|
|
6,888
|
|
|
|
47
|
|
Commercial & agriculture
|
|
|
1,037
|
|
|
|
9
|
|
Consumer real estate
|
|
|
1,012
|
|
|
|
14
|
|
Consumer
|
|
|
33
|
|
|
|
|
|
Manufactured homes
|
|
|
2,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance recorded
|
|
$
|
11,408
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
C-14
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,445
|
|
|
$
|
1
|
|
Commercial real estate
|
|
|
6,037
|
|
|
|
62
|
|
Commercial & agriculture
|
|
|
1,931
|
|
|
|
20
|
|
Consumer real estate
|
|
|
2,505
|
|
|
|
33
|
|
Consumer
|
|
|
439
|
|
|
|
3
|
|
Manufactured homes
|
|
|
1,711
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total loans with no related allowance recorded
|
|
|
14,068
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
25,476
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans were as follows at March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Loans past due over 90 days still on accrual
|
|
$
|
2,164
|
|
|
$
|
1,270
|
|
Non-accrual loans
|
|
|
8,163
|
|
|
|
10,169
|
|
|
|
|
|
|
|
|
$
|
10,327
|
|
|
$
|
11,439
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans and impaired loans are defined differently. All non-performing loans were loans past due 90 days or
greater and still on accrual or loans on non-accrual status as of March 31, 2017 and December 31, 2016. Impaired loans are loans for which, based on current information and events, it is considered probable that the Bank will be unable to
collect all amounts of contractual interest and principal as scheduled in the loan agreement. Some loans may be included in both categories, whereas other loans may only be included in one category.
Age analysis of past due loans disaggregated by class as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
30-89 days
past due
|
|
|
Greater
than
90 days
|
|
|
Non-accruals
|
|
|
Current
and accruing
interest
|
|
|
Total
loans
|
|
Loan Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
207
|
|
|
$
|
116,512
|
|
|
$
|
116,828
|
|
Commercial real estate
|
|
|
|
|
|
|
580
|
|
|
|
6,355
|
|
|
|
332,336
|
|
|
|
339,271
|
|
Commercial & agriculture
|
|
|
166
|
|
|
|
274
|
|
|
|
551
|
|
|
|
167,966
|
|
|
|
168,957
|
|
Consumer real estate
|
|
|
792
|
|
|
|
347
|
|
|
|
616
|
|
|
|
99,735
|
|
|
|
101,490
|
|
Consumer
|
|
|
225
|
|
|
|
124
|
|
|
|
163
|
|
|
|
21,093
|
|
|
|
21,605
|
|
Manufactured homes
|
|
|
4,203
|
|
|
|
839
|
|
|
|
271
|
|
|
|
312,729
|
|
|
|
318,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
5,495
|
|
|
$
|
2,164
|
|
|
$
|
8,163
|
|
|
$
|
1,050,371
|
|
|
$
|
1,066,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-15
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Age analysis of past due loans disaggregated by class as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
30-89 days
past due
|
|
|
Greater
than
90 days
|
|
|
Non-accruals
|
|
|
Current
and accruing
interest
|
|
|
Total
loans
|
|
Loan Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,264
|
|
|
$
|
1
|
|
|
$
|
1,668
|
|
|
$
|
144,249
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
178
|
|
|
|
|
|
|
|
6,441
|
|
|
|
292,440
|
|
|
|
299,059
|
|
Commercial & agriculture
|
|
|
1,017
|
|
|
|
|
|
|
|
627
|
|
|
|
154,127
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
2,074
|
|
|
|
291
|
|
|
|
821
|
|
|
|
100,482
|
|
|
|
103,668
|
|
Consumer
|
|
|
491
|
|
|
|
69
|
|
|
|
277
|
|
|
|
22,512
|
|
|
|
23,349
|
|
Manufactured homes
|
|
|
14,362
|
|
|
|
909
|
|
|
|
335
|
|
|
|
307,935
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
19,386
|
|
|
$
|
1,270
|
|
|
$
|
10,169
|
|
|
$
|
1,021,745
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings (TDR) as part of the Banks ongoing risk management practices, the Banks attempt to
work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory
guidance. Each occurrence is unique to the borrower and is evaluated separately. The Banks consider regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment
terms consider the borrowers current and prospective ability to comply with the modified terms of the loan.
A modification is classified as TDR if
the borrower is experiencing financial difficulty and it is determined that the Banks have granted a concession to the borrower. The Banks may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on
any of its debt, or if it is probable that the borrower may default in the foreseeable future without a modification of its debt. Generally, a concession is granted when the Banks no longer expect to collect all amounts due at the original
contractual rate subsequent to modification.
Concessions could include reductions of interest rates, extension of the maturity date at a rate lower than
current market rate for a new loan with similar risk, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Banks also consider whether the borrower has provided additional collateral or
guarantors and whether such additions adequately compensate the Banks for the restructured terms. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is
subjective in nature and management judgment is required when determining whether a modification is classified as TDR. The Banks determination whether a TDR is placed on nonaccrual status generally follows the same internal policies and
procedures as for the other portfolio loans.
As of March 31, 2017 and December 31, 2016, the Company has a recorded investment in troubled debt
restructurings of $23,211 and $21,755, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate. The Company has allocated $708 and $677 of specific reserves
for those loans at March 31, 2017 and December 31, 2016, respectively, and has committed to lend additional amounts totaling up to $1,233 and $1,167, respectively to these customers. Of these loans, $4,369 and $4,574 were classified as
non-accrual loans as of March 31, 2017 and December 31, 2016, respectively.
There were no TDRs that occurred during the three months
ended March 31, 2017, additionally there were no payment defaults during the three months ended March 31, 2017 and 2016.
C-16
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
The following table reflects TDR occurring during the three months ended March 31, 2016 by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
Loan Class
|
|
Number of
contracts
|
|
|
Pre-modification
outstanding
recorded
investment
|
|
|
Post-modification
outstanding
recorded
investment
|
|
|
Charge-offs
to specific
reserves
|
|
Consumer real estate
|
|
|
1
|
|
|
$
|
93
|
|
|
$
|
93
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1
|
|
|
$
|
93
|
|
|
$
|
93
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4Regulatory capital matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations
provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of March 31, 2017 and
December 31, 2016, the most recent regulatory notifications categorized Clayton Bank and Trust, and American City Bank (the Banks) as well capitalized under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have changed the Banks categories.
Actual and required capital amounts and
ratios are presented below as of March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For capital adequacy
purposes
|
|
|
To be well capitalized
under prompt
corrective action
provisions
|
|
March 31, 2017
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
165,595
|
|
|
|
18.34
|
%
|
|
$
|
72,220
|
|
|
|
8.00
|
%
|
|
$
|
90,275
|
|
|
|
10.00
|
%
|
American City Bank
|
|
|
52,456
|
|
|
|
17.26
|
%
|
|
|
24,311
|
|
|
|
8.00
|
%
|
|
|
30,389
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
154,232
|
|
|
|
17.08
|
%
|
|
|
54,165
|
|
|
|
6.00
|
%
|
|
|
54,165
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
49,625
|
|
|
|
16.33
|
%
|
|
|
18,233
|
|
|
|
6.00
|
%
|
|
|
18,233
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
154,232
|
|
|
|
17.54
|
%
|
|
|
35,167
|
|
|
|
4.00
|
%
|
|
|
43,959
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
49,625
|
|
|
|
16.23
|
%
|
|
|
12,234
|
|
|
|
4.00
|
%
|
|
|
15,293
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
154,232
|
|
|
|
17.08
|
%
|
|
|
40,624
|
|
|
|
4.50
|
%
|
|
|
58,678
|
|
|
|
6.50
|
%
|
American City Bank
|
|
|
49,625
|
|
|
|
16.33
|
%
|
|
|
13,675
|
|
|
|
4.50
|
%
|
|
|
19,753
|
|
|
|
6.50
|
%
|
C-17
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For capital adequacy
purposes
|
|
|
To be well
capitalized under
prompt corrective
|
|
December 31, 2016
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
167,513
|
|
|
|
18.86
|
%
|
|
$
|
71,038
|
|
|
|
8.00
|
%
|
|
$
|
88,797
|
|
|
|
10.00
|
%
|
American City Bank
|
|
|
50,454
|
|
|
|
16.87
|
%
|
|
|
23,927
|
|
|
|
8.00
|
%
|
|
|
29,909
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
156,332
|
|
|
|
17.61
|
%
|
|
|
53,278
|
|
|
|
6.00
|
%
|
|
|
53,278
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
15.96
|
%
|
|
|
17,945
|
|
|
|
6.00
|
%
|
|
|
17,945
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
156,332
|
|
|
|
18.10
|
%
|
|
|
34,557
|
|
|
|
4.00
|
%
|
|
|
43,196
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
16.48
|
%
|
|
|
11,585
|
|
|
|
4.00
|
%
|
|
|
14,481
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
156,332
|
|
|
|
17.61
|
%
|
|
|
39,959
|
|
|
|
4.50
|
%
|
|
|
57,718
|
|
|
|
6.50
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
15.96
|
%
|
|
|
13,459
|
|
|
|
4.50
|
%
|
|
|
19,441
|
|
|
|
6.50
|
%
|
Note 5 Loan commitments, contingencies and other related activities
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet credit loss risk
exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as the ones used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Commitments to make Loans
|
|
$
|
278,299
|
|
|
$
|
243,068
|
|
Lines of Credit
|
|
|
2,127
|
|
|
|
1,653
|
|
Letters of Credit
|
|
|
6,532
|
|
|
|
6,878
|
|
In the normal course of business, the Banks are subject to various claims and litigation arising out of claims or other
disputes. Because litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance, it is reasonably possible that some of the legal actions and claims could be filed and decided as
unfavorable to the Banks. Although the amount of ultimate liabilities with respect to such matters cannot be ascertained, management, after evaluating current ongoing litigation or claims, believes that any resulting liability should not materially
affect the financial position of the Banks.
Note 6 Fair value of financial instruments
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The statement emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants
C-18
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
would use in pricing the asset or liability. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements.
Level 1
: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2
: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
Level 3
: Significant unobservable
inputs based on the Banks assumptions used to measure assets and liabilities at fair value.
The Banks utilize fair value measurements to record
fair value adjustments to certain assets and liabilities. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant
to the valuation hierarchy.
Securities Available for Sale
Where quoted prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other products. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of
securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Level 2 securities include mortgage-backed securities and municipal bonds. In certain cases, where there is limited activity or fair values are
estimated using discounted cash flow models, securities are classified within Level 3 of the valuation hierarchy.
Impaired Loans
A loan is
considered to be impaired when it is probable the Banks will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of
expected payments using the loans original effective rate as the discount rate, the loans observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan
exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the hierarchy.
Other Real Estate Owned
Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, is initially
recorded at lower of carrying value or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. Other real estate
owned is included in Level 3 of the valuation hierarchy.
The Banks had no liabilities measured at fair value on a recurring or non-recurring basis at
March 31, 2017 and December 31, 2016.
C-19
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Assets measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
|
|
|
$
|
33,032
|
|
|
$
|
|
|
|
$
|
33,032
|
|
State and municipal securities
|
|
|
|
|
|
|
18,101
|
|
|
|
|
|
|
|
18,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
51,133
|
|
|
$
|
|
|
|
$
|
51,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
|
|
|
$
|
34,996
|
|
|
$
|
|
|
|
$
|
34,996
|
|
State and municipal securities
|
|
|
|
|
|
|
17,985
|
|
|
|
|
|
|
|
17,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
52,981
|
|
|
$
|
|
|
|
$
|
52,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value on a non-recurring basis as of March 31, 2017 and December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Other real estate owned
|
|
$
|
|
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
27
|
|
Impaired loans, net
|
|
|
|
|
|
|
|
|
|
|
9,883
|
|
|
|
9,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,910
|
|
|
$
|
9,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Other real estate owned
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,315
|
|
|
$
|
1,315
|
|
Impaired loans, net
|
|
|
|
|
|
|
|
|
|
|
16,471
|
|
|
|
16,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,786
|
|
|
$
|
17,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1, 2 or 3 during the periods presented.
The following methods and assumptions were used in estimating its fair value disclosure for financial instruments that are not measured at fair value.
Cash and Cash Equivalents
The carrying amounts of cash, due from banks, and federal funds sold approximate their fair value.
Loans
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values.
For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality.
Deposits, Federal Home Loan Bank Advances and Other Borrowed Funds
The carrying amounts of demand deposits, savings deposits and floating rate
advances from the Federal Home Loan Bank approximate their fair values. Fair values for certificates of deposit, fixed rate advances from the Federal Home Loan Bank are estimated using discounted cash flow models using current market interest rates
offered on certificates, advances and other borrowings.
C-20
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Federal Funds Purchased
The carrying amounts of federal funds purchased approximate their fair
value.
Carrying amount and estimated fair values of financial instruments were as follows at March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Carrying
amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair value
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
$
|
37,856
|
|
|
$
|
37,856
|
|
|
|
|
|
|
|
|
|
|
$
|
37,856
|
|
Securities available for sale
|
|
|
51,133
|
|
|
|
|
|
|
|
51,133
|
|
|
|
|
|
|
|
51,133
|
|
Securities held to maturity
|
|
|
13,601
|
|
|
|
|
|
|
|
14,090
|
|
|
|
|
|
|
|
14,090
|
|
Loans, net
|
|
|
1,045,674
|
|
|
|
|
|
|
|
1,014,078
|
|
|
|
9,883
|
|
|
|
1,023,961
|
|
FHLB stock and securities
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
3,370
|
|
|
|
3,370
|
|
Accrued interest receivable
|
|
|
4,922
|
|
|
|
|
|
|
|
4,922
|
|
|
|
|
|
|
|
4,922
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non maturing deposits
|
|
|
601,922
|
|
|
|
601,922
|
|
|
|
|
|
|
|
|
|
|
|
601,922
|
|
Time deposits
|
|
|
326,737
|
|
|
|
|
|
|
|
324,974
|
|
|
|
|
|
|
|
324,974
|
|
FHLB advances
|
|
|
49,399
|
|
|
|
|
|
|
|
50,451
|
|
|
|
|
|
|
|
50,451
|
|
Fed funds purchased
|
|
|
695
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
695
|
|
Accrued interest payable
|
|
|
600
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Carrying
amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair value
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
$
|
49,592
|
|
|
$
|
49,592
|
|
|
|
|
|
|
|
|
|
|
$
|
49,592
|
|
Securities available for sale
|
|
|
52,981
|
|
|
|
|
|
|
|
52,981
|
|
|
|
|
|
|
|
52,981
|
|
Securities held to maturity
|
|
|
13,691
|
|
|
|
|
|
|
|
14,200
|
|
|
|
|
|
|
|
14,200
|
|
Loans, net
|
|
|
1,032,175
|
|
|
|
|
|
|
|
1,005,310
|
|
|
|
16,471
|
|
|
|
1,021,781
|
|
FHLB stock and securities
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
3,370
|
|
|
|
3,370
|
|
Accrued interest receivable
|
|
|
5,050
|
|
|
|
|
|
|
|
5,050
|
|
|
|
|
|
|
|
5,050
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non maturing deposits
|
|
|
583,048
|
|
|
|
583,048
|
|
|
|
|
|
|
|
|
|
|
|
583,048
|
|
Time deposits
|
|
|
335,326
|
|
|
|
|
|
|
|
333,634
|
|
|
|
|
|
|
|
333,634
|
|
FHLB advances
|
|
|
52,414
|
|
|
|
|
|
|
|
52,780
|
|
|
|
|
|
|
|
52,780
|
|
Fed funds purchased
|
|
|
308
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
Accrued interest payable
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
Note 7 Related party transactions
The Banks offer loans in the ordinary course of business to our insiders, including our executive officers and directors, their related interests and immediate
family members and other employees. Applicable law and our written credit policies require that loans to insiders be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties, and must not involve more than the normal risk of repayment or present other unfavorable features. Loans to non-insider employees and other non-insiders are subject to the same requirements and underwriting
standards and meet our normal lending guidelines, except that non-insider employees and other non-insiders may receive preferential interest rates and fees as an employee benefit. Loans to individual employees, directors and executive officers
C-21
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
must also comply with the Banks statutory lending limits and regulatory requirements regarding lending limits and collateral. All extensions of credit to the related parties must be
reviewed and approved by the Banks Boards of Directors. Directors with a personal interest in any loan application are excluded from the consideration of such loan application. The Banks have made loans to directors and executive officers.
Such loans amounted to $46,007 (representing 36 loans) and $46,107 (representing 38 loans) at March 31, 2017 and December 31, 2016,
respectively.
Deposits from principal officers, directors and their affiliates were $87,444 and $42,894 at March 31, 2017 and December 31,
2016, respectively.
At March 31, 2017 and December 31, 2016, Clayton HC, Inc. had cash balances on deposit with Clayton Bank and Trust
totaling $41,322 and $28,170, respectively, for ongoing corporate needs.
The Banks also have available lines of credit (or the equivalent thereof) with
the majority shareholder totaling approximately $52,000 as of March 31, 2017 and December 31, 2016. There was no balance outstanding on those lines at March 31, 2017 or December 31, 2016.
The Banks entered into aircraft time sharing agreement, dated July 2015, with companies controlled by the majority shareholder, (CFA Holdings LLC and CF
Services LLC), pursuant to which the Banks have the right to use, from time to time, an aircraft leased and operated by CFA Holdings. This replaces the previous agreement entered into during 2007. CFA Holdings and CF Services LLC bill the Banks for
usage of the aircraft based on hours of use and operating costs. During the three months ended March 31, 2017 and 2016 the banks paid CFA Holdings and CF Services $61 and $15, respectively, under the aviation timesharing agreement for the use
of the aircraft.
Clayton Bank and Trust leases branch space from Clayton HC, Inc. Annual lease for space is $6 per year. Clayton HC has a management
agreement with Clayton Bank and Trust to provide support for collection of debts, management of ORE, accounting and other management duties, amounting to $46 and $46 during the three months ended March 31, 2017 and 2016, respectively.
Apex Bank, 50% owned by Clayton HC, has a management agreement with Clayton Bank and Trust to provide support for IT and other management duties,
amounting to $5 and $5 during the three months ended March 31, 2017 and 2016, respectively.
C-22
Independent Auditors Report
To the Board of Directors
Clayton HC, Inc.
Knoxville, Tennessee
Report on the Combined Financial
Statements
We have audited the accompanying combined financial statements of Clayton Bank and Trust and American City Bank (wholly-owned
subsidiaries of Clayton HC, Inc.) (the Banks), which comprise the combined balance sheets as of December 31, 2016 and 2015, and the related combined statements of comprehensive income, changes in shareholders equity, and cash
flows for the three years ended December 31, 2016, 2015 and 2014, and the related notes to the combined financial statements.
Managements Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Banks preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Banks internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as
evaluating of the overall presentation of the combined financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Banks as of
December 31, 2016 and 2015, and the results of their operations and their cash flows for the three years ended December 31, 2016, 2015 and 2014 in accordance with accounting principles generally accepted in the United States of America.
/s/ Rodefer Moss & Co, PLLC
Knoxville, Tennessee
June 15, 2017
C-23
Clayton Banks
Combined balance sheets
December 31, 2016 and
2015
(dollars in thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
37,735
|
|
|
$
|
42,045
|
|
Federal funds sold
|
|
|
11,857
|
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
49,592
|
|
|
|
44,459
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Securities available for sale, at fair value
|
|
|
52,981
|
|
|
|
64,146
|
|
Securities held to maturity, at cost
|
|
|
13,691
|
|
|
|
15,336
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
66,672
|
|
|
|
79,482
|
|
|
|
|
|
|
|
|
|
|
Loans, net of discounts and unearned income
|
|
|
1,052,570
|
|
|
|
911,778
|
|
Less: allowance for loan losses
|
|
|
20,395
|
|
|
|
21,780
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,032,175
|
|
|
|
889,998
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
22,662
|
|
|
|
23,014
|
|
Goodwill
|
|
|
8,425
|
|
|
|
8,425
|
|
Core deposit intangible assets, net of accumulated amortization
|
|
|
|
|
|
|
29
|
|
Federal Home Loan Bank stock, at cost
|
|
|
3,370
|
|
|
|
3,370
|
|
Accrued interest receivable
|
|
|
5,050
|
|
|
|
4,373
|
|
Other real estate owned
|
|
|
3,103
|
|
|
|
4,095
|
|
Cash surrender value of life insurance
|
|
|
464
|
|
|
|
457
|
|
Other
|
|
|
3,303
|
|
|
|
3,422
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
46,377
|
|
|
|
47,185
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,194,816
|
|
|
$
|
1,061,124
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
193,525
|
|
|
$
|
146,876
|
|
Interest bearing
|
|
|
724,849
|
|
|
|
654,613
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
918,374
|
|
|
|
801,489
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
|
308
|
|
|
|
10,587
|
|
Federal Home Loan Bank advances
|
|
|
52,414
|
|
|
|
44,477
|
|
Accrued interest payable
|
|
|
553
|
|
|
|
467
|
|
Other liabilities
|
|
|
9,590
|
|
|
|
6,672
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
981,239
|
|
|
|
863,692
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
CBT Common stock, $25 par value; authorized 200,000 shares; 153,600 shares issued and outstanding
and ACB Common stock $362.09 par value; authorized 105,000; 1,000 shares issued and outstanding
|
|
|
4,202
|
|
|
|
4,202
|
|
Additional paid in capital
|
|
|
89,902
|
|
|
|
89,902
|
|
Retained earnings
|
|
|
118,389
|
|
|
|
101,242
|
|
Accumulated other comprehensive income, net of applicable taxes
|
|
|
1,084
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
213,577
|
|
|
|
197,432
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,194,816
|
|
|
$
|
1,061,124
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
C-24
Clayton Banks
Combined statements of income
December 31, 2016,
2015 and 2014
(dollars in thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
60,331
|
|
|
$
|
54,637
|
|
|
$
|
50,688
|
|
Securities
|
|
|
2,293
|
|
|
|
2,657
|
|
|
|
2,961
|
|
Other
|
|
|
341
|
|
|
|
252
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
62,965
|
|
|
|
57,546
|
|
|
|
53,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
5,483
|
|
|
|
4,815
|
|
|
|
4,662
|
|
Other borrowings
|
|
|
1,272
|
|
|
|
1,253
|
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,755
|
|
|
|
6,068
|
|
|
|
5,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
56,210
|
|
|
|
51,478
|
|
|
|
48,190
|
|
Provision for loan losses
|
|
|
978
|
|
|
|
419
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
55,232
|
|
|
|
51,059
|
|
|
|
48,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
872
|
|
|
|
943
|
|
|
|
1,018
|
|
Trust fee income
|
|
|
777
|
|
|
|
733
|
|
|
|
706
|
|
Net (loss) gain on sales of foreclosed real estate owned and fixed assets
|
|
|
(290
|
)
|
|
|
439
|
|
|
|
(219
|
)
|
Loan servicing income
|
|
|
1,970
|
|
|
|
1,649
|
|
|
|
1,510
|
|
Other non-interest income
|
|
|
3,149
|
|
|
|
2,026
|
|
|
|
1,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income, net
|
|
|
6,478
|
|
|
|
5,790
|
|
|
|
4,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
14,792
|
|
|
|
14,703
|
|
|
|
14,908
|
|
Occupancy and equipment
|
|
|
2,383
|
|
|
|
2,329
|
|
|
|
2,364
|
|
FDIC and state banking fees
|
|
|
642
|
|
|
|
609
|
|
|
|
618
|
|
Collection expense
|
|
|
305
|
|
|
|
312
|
|
|
|
601
|
|
Amortization of intangible assets
|
|
|
29
|
|
|
|
58
|
|
|
|
138
|
|
Professional fees
|
|
|
331
|
|
|
|
416
|
|
|
|
417
|
|
Other non-interest expense
|
|
|
4,212
|
|
|
|
3,793
|
|
|
|
3,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
22,694
|
|
|
|
22,220
|
|
|
|
22,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
39,016
|
|
|
|
34,629
|
|
|
|
30,357
|
|
Income tax expense
|
|
|
2,638
|
|
|
|
2,580
|
|
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,378
|
|
|
$
|
32,049
|
|
|
$
|
28,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Combined financial statements.
C-25
Clayton Banks
Combined statements of comprehensive income
December 31, 2016, 2015 and 2014
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net Income
|
|
$
|
36,378
|
|
|
$
|
32,049
|
|
|
$
|
28,104
|
|
Other comprehensive (loss) income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized (losses) gains on securities available for sale, net of tax
effect
|
|
|
(978
|
)
|
|
|
(421
|
)
|
|
|
1,529
|
|
Reclassification adjustment for gain on sale of securities included in net income, net of tax
expense of $2, $0 and $2
|
|
|
(24
|
)
|
|
|
(1
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
35,376
|
|
|
$
|
31,627
|
|
|
$
|
29,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Combined financial statements.
C-26
Clayton Banks
Combined statements of change in shareholders equity
December 31, 2016, 2015 and 2014
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
paid in
capital
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Total
shareholders
equity
|
|
Balance, December 31, 2013
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
53,186
|
|
|
$
|
1,006
|
|
|
$
|
148,296
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
28,104
|
|
|
|
|
|
|
|
28,104
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(12,097
|
)
|
|
|
|
|
|
|
(12,097
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,502
|
|
|
|
1,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
69,193
|
|
|
$
|
2,508
|
|
|
$
|
165,805
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
32,049
|
|
|
|
|
|
|
|
32,049
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(422
|
)
|
|
|
(422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
101,242
|
|
|
$
|
2,086
|
|
|
$
|
197,432
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
36,378
|
|
|
|
|
|
|
|
36,378
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(19,231
|
)
|
|
|
|
|
|
|
(19,231
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,002
|
)
|
|
|
(1,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
4,202
|
|
|
$
|
89,902
|
|
|
$
|
118,389
|
|
|
$
|
1,084
|
|
|
$
|
213,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Combined financial statements.
C-27
CLAYTON BANKS
Combined statements of cash flows
December 31,
2016, 2015 and 2014
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,378
|
|
|
$
|
32,049
|
|
|
$
|
28,104
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
576
|
|
|
|
616
|
|
|
|
694
|
|
Provision for loan losses
|
|
|
978
|
|
|
|
419
|
|
|
|
160
|
|
Net accretion of discounts and amortization of premiums on securities
|
|
|
227
|
|
|
|
250
|
|
|
|
274
|
|
Net gains on sales of securities
|
|
|
(26
|
)
|
|
|
(1
|
)
|
|
|
(29
|
)
|
Net loss (gain) on sales of foreclosed real estate owned and fixed assets
|
|
|
290
|
|
|
|
(439
|
)
|
|
|
219
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(677
|
)
|
|
|
(211
|
)
|
|
|
174
|
|
Accrued interest payable
|
|
|
86
|
|
|
|
29
|
|
|
|
(74
|
)
|
Other, net
|
|
|
1,397
|
|
|
|
682
|
|
|
|
(11,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
39,229
|
|
|
|
33,394
|
|
|
|
17,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
537
|
|
|
|
|
|
|
|
401
|
|
Maturities, prepayments and calls
|
|
|
9,373
|
|
|
|
10,236
|
|
|
|
13,009
|
|
Purchases
|
|
|
|
|
|
|
(3,836
|
)
|
|
|
(9,282
|
)
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities, prepayments and calls
|
|
|
1,627
|
|
|
|
2,273
|
|
|
|
1,658
|
|
Purchase of FHLB Stock
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Net change in loans
|
|
|
(150,342
|
)
|
|
|
(139,019
|
)
|
|
|
(33,208
|
)
|
Purchases of premises and equipment
|
|
|
(195
|
)
|
|
|
(221
|
)
|
|
|
34
|
|
Proceeds from the sales of foreclosed real estate owned
|
|
|
1,361
|
|
|
|
5,081
|
|
|
|
2,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(137,639
|
)
|
|
|
(125,486
|
)
|
|
|
(25,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
116,885
|
|
|
|
45,471
|
|
|
|
21,031
|
|
Proceeds from FHLB advances
|
|
|
8,500
|
|
|
|
2,000
|
|
|
|
30,000
|
|
Repayments of FHLB advances
|
|
|
(563
|
)
|
|
|
(255
|
)
|
|
|
(31,314
|
)
|
Proceeds (repayments) of Federal funds purchased
|
|
|
(10,279
|
)
|
|
|
10,587
|
|
|
|
(1
|
)
|
Dividends paid
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
(12,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
103,543
|
|
|
|
57,803
|
|
|
|
7,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
5,133
|
|
|
|
(34,289
|
)
|
|
|
75
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
44,459
|
|
|
|
78,748
|
|
|
|
78,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
49,592
|
|
|
$
|
44,459
|
|
|
$
|
78,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,669
|
|
|
$
|
6,039
|
|
|
$
|
6,138
|
|
Income taxes, net of refunds
|
|
|
3,250
|
|
|
|
1,939
|
|
|
|
3,254
|
|
Supplemental schedule of non-cash activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from loans to foreclosed real estate owned
|
|
$
|
490
|
|
|
$
|
1,546
|
|
|
$
|
4,921
|
|
Transfers from foreclosed real estate owed to loans
|
|
|
291
|
|
|
|
152
|
|
|
|
70
|
|
Non-cash dividend of loan receivable
|
|
|
5,829
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Combined financial statements.
C-28
Clayton Banks
Notes to combined financial statements
December 31, 2016, 2015 and 2014
(dollars in
thousands)
Note 1 Summary of significant accounting policies
Nature of Operations and Principles of Combination
The combined financial statements include Clayton Bank and Trust and American City Bank,
together referred to as Clayton Bank or the Banks. Intercompany transactions and balances are eliminated in consolidation. The Banks are wholly-owned by Clayton HC Inc.
The Banks provide financial services through its branches in the counties of Chester, Blount, Knox, Madison, Tipton, Crockett, Henderson, Putnam, Franklin,
Coffee, Moore, and Fayette, Tennessee. Their primary deposit products are checking, savings, and term certificate accounts, and their primary lending products are residential mortgage including Manufactured Housing, commercial, and installment
loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of
businesses. However, the customers ability to repay their loans is dependent on the cash flow of borrowers, which can be impacted by the general economic conditions in the area.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America and general practices of the banking industry.
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. Material estimates that are particularly susceptible to significant changes in the near term relate
to the determination of the allowance for loan loss, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the determination of the fair value of financial instruments, and the realization of deferred tax
assets. In connection with the determination of the allowance for loan loss and the estimated fair value of real estate owned, management obtains independent appraisals for significant properties.
Cash and Cash Equivalents
For purposes of balance sheet classification and reporting cash flows, cash and cash equivalents include cash on hand,
deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and
federal funds purchased.
Securities
Securities are classified as held to maturity and carried at amortized cost when management has the
positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported
in other comprehensive income, net of tax.
Interest income includes amortization of purchased premium or discount. Premiums and discounts on securities
are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities, where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific
identification method.
Declines in the fair value of the securities below their cost that are other than temporary are reflected as realized losses. In
estimating other than temporary impairment (OTTI), management considers the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, and the Banks ability and
intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. The banks recorded no OTTI for the years ended December 31, 2016, 2015 and 2014.
C-29
Clayton Banks
Notes to combined financial statements
Federal Home Loan Bank (FHLB) Stock
The Bank is a member of the FHLB system. Members are
required to own a certain amount of stock based on asset size, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par
value. Both cash and stock dividends are reported as income.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, purchased discount, and an allowance for loan losses. Interest income is accrued on the unpaid
principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income. Net deferred loan origination fees and purchased discount on manufactured home loans are accreted using methods that
approximate the level-yield method without anticipating prepayments.
Interest income on mortgage and commercial loans is discontinued at the time the
loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans
are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on
such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments
are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit
losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required
using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loan that, in managements judgment, should be charged off.
The allowance consists of specific
and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss
experience adjusted for current factors.
A loan is impaired when full payment under the loan terms is not expected. Commercial and commercial real estate
loans meeting certain size and performance characteristics are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is recorded at the present value of estimated future cash flows
using the loans existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively
evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.
Foreclosed Assets
Assets acquired
through or instead of loan foreclosure are initially recorded at lower of carrying value or fair value, less costs to sell, when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is
recorded through expense. Operating costs after acquisition are expensed.
Premises and Equipment
Land is carried at cost. Premises and
equipment are stated at cost, less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from five to forty years. Furniture, fixtures and equipment are depreciated using
the straight-line method with useful lives ranging from three to ten years.
C-30
Clayton Banks
Notes to combined financial statements
Bank Owned Life Insurance
The Bank has purchased life insurance policies on certain key
executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other changes or other amounts due that are probable at
settlement.
Goodwill
Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of
acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. Based on our assessment completed as of
December 31, 2016 and 2015, no goodwill impairment was indicated.
Core Deposit Intangible Assets
Core deposit intangible assets arise
from whole bank and branch acquisitions. They are initially measured at fair value and then are amortized over their estimated useful lives.
Long-Term
Assets
Premises and equipment, core deposits and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If
impaired, the assets are recorded at fair value.
Retirement Plans
Employee 401(k) and profit sharing expense is the amount of matching
contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. Employee stock ownership plan related compensation expense was recorded based on a fair market valuation of the shares
allocated to participant accounts.
Income Taxes
The Banks have elected to be treated as an S Corporation under Section 1362 of the
Internal Revenue Code of 1986, as amended. As a result, the Banks will generally not be subject to federal income tax. The Banks will continue to be subject to taxation by the State of Tennessee.
Pursuant to ASC 740,
Income Taxes
, a tax position is recognized as a benefit only if it is more likely than not that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the
more likely than not test, no tax benefit is recorded. Although the tax years ending after December 31, 2013 through December 31, 2016 remain open for examination for various taxing authorities, it is managements opinion
that resolution of any significant uncertain tax positions that remain open at December 31, 2016 will not have a material effect on the Banks financial statements.
The Banks policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
Off Balance Sheet Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they
are funded.
Comprehensive Income
Consists of net income and other comprehensive income. Other comprehensive income includes unrealized
gains and losses on securities available for sale, which are also recognized as separate components of equity.
Loss Contingencies
Loss
contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe
there are such matters that will have a material effect on the financial statements.
C-31
Clayton Banks
Notes to combined financial statements
Dividend Restriction
Banking regulations require maintaining certain capital levels and may
limit the dividends paid by the bank to the holding company or by the holding company to the shareholders.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Subsequent Events
Subsequent to year end, in February 2017, the Banks entered into stock purchase agreement with FirstBank, a wholly owned
subsidiary of FB Financial Corporation, whereby the Banks will be merged with and into FirstBank. The transaction is expected to close in the third quarter of 2017.
Clayton Bank and Trust paid a dividend to Clayton HC in January 2017 in the amount of $10,450 for the purpose of paying taxes on previous earnings of the
Banks.
Date of Managements Review
Management has evaluated events and transactions occurring subsequent to the balance sheet date for
items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through the date of the report, which is the date these financial statements were available to be issued. There were no other
subsequent events, other than what has been disclosed above that occurred after December 31 2016, but prior to the issuance of these financial statements that would have a material impact on the Banks combined financial statements.
Note 2 Securities
The fair value of available for
sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
34,378
|
|
|
$
|
791
|
|
|
$
|
(173
|
)
|
|
$
|
34,996
|
|
State and municipal
|
|
|
17,444
|
|
|
|
583
|
|
|
|
(42
|
)
|
|
|
17,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,822
|
|
|
$
|
1,374
|
|
|
$
|
(215
|
)
|
|
$
|
52,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
43,947
|
|
|
$
|
1,280
|
|
|
$
|
(134
|
)
|
|
$
|
45,093
|
|
State and municipal
|
|
|
17,962
|
|
|
|
1,091
|
|
|
|
|
|
|
|
19,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,909
|
|
|
$
|
2,371
|
|
|
$
|
(134
|
)
|
|
$
|
64,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, unrecognized gains and losses, and fair value of securities held to maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Mortgage-backed securities
|
|
$
|
777
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
808
|
|
State and municipal
|
|
|
12,914
|
|
|
|
482
|
|
|
|
(4
|
)
|
|
|
13,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,691
|
|
|
$
|
513
|
|
|
$
|
(4
|
)
|
|
$
|
14,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-32
Clayton Banks
Notes to combined financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Mortgage-backed securities
|
|
$
|
1,240
|
|
|
$
|
54
|
|
|
$
|
|
|
|
$
|
1,294
|
|
State and municipal
|
|
|
14,096
|
|
|
|
958
|
|
|
|
|
|
|
|
15,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,336
|
|
|
$
|
1,012
|
|
|
$
|
|
|
|
$
|
16,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of debt securities at December 31, 2016, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available For Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
cost
|
|
|
Fair
value
|
|
|
Amortized
cost
|
|
|
Fair
value
|
|
Due in one year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
300
|
|
|
$
|
304
|
|
Due in one to five years
|
|
|
5,355
|
|
|
|
3,425
|
|
|
|
4,024
|
|
|
|
4,176
|
|
Due in five to ten years
|
|
|
6,841
|
|
|
|
9,219
|
|
|
|
5,582
|
|
|
|
5,787
|
|
Due in greater than ten years
|
|
|
5,248
|
|
|
|
5,341
|
|
|
|
3,008
|
|
|
|
3,125
|
|
Mortgage-backed securities
|
|
|
34,378
|
|
|
|
34,996
|
|
|
|
777
|
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,822
|
|
|
$
|
52,981
|
|
|
$
|
13,691
|
|
|
$
|
14,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was one security sold and three securities redeemed during 2016 for a net gain of $26 and there were no securities sold
and seven securities redeemed during 2015 for a net gain of $1. There was one security sold and one security redeemed during 2014 for a net gain of $29. Securities carried at $55,560 and $65,930 at December 31, 2016 and 2015, respectively, were
pledged to secure deposits and for other purposes as required or permitted by law.
At December 31, 2016 and 2015, there were no holdings of
securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders equity.
The following
table shows securities with unrealized losses and their fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
Description of Securities
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
|
Fair
value
|
|
|
Unrealized
loss
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
9,242
|
|
|
$
|
(97
|
)
|
|
$
|
2,059
|
|
|
$
|
(76
|
)
|
|
$
|
11,301
|
|
|
$
|
(173
|
)
|
State and municipal
|
|
|
4,197
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
4,197
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
13,439
|
|
|
$
|
(143
|
)
|
|
$
|
2,059
|
|
|
$
|
(76
|
)
|
|
$
|
15,498
|
|
|
$
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
4,809
|
|
|
$
|
(22
|
)
|
|
$
|
3,803
|
|
|
$
|
(112
|
)
|
|
$
|
8,612
|
|
|
$
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
4,809
|
|
|
$
|
(22
|
)
|
|
$
|
3,803
|
|
|
$
|
(112
|
)
|
|
$
|
8,612
|
|
|
$
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on debt securities have not been recognized into income because the issuers are of high credit quality
(rated AA or higher), management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the investments approach their
maturity date.
C-33
Clayton Banks
Notes to combined financial statements
Note 3 Loans
A summary of loans outstanding by category at December 31, 2016 and 2015 follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Construction and land
|
|
$
|
147,182
|
|
|
$
|
107,163
|
|
Commercial real estate
|
|
|
299,059
|
|
|
|
251,428
|
|
Commercial and agriculture
|
|
|
155,771
|
|
|
|
149,409
|
|
Consumer real estate
|
|
|
103,668
|
|
|
|
94,249
|
|
Consumer
|
|
|
23,349
|
|
|
|
34,785
|
|
Manufactured homes
|
|
|
323,541
|
|
|
|
274,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,052,570
|
|
|
|
911,778
|
|
Less: Allowance for loan losses
|
|
|
(20,395
|
)
|
|
|
(21,780
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned fees
|
|
$
|
1,032,175
|
|
|
$
|
889,998
|
|
|
|
|
|
|
|
|
|
|
For purposes of the disclosures required pursuant to the Banks adoption of ASU 2010-20, the Banks loan portfolio
is disaggregated into portfolio segments and then further disaggregated into classes. A portfolio segment is defined as the level at which management develops and documents a systematic method for determining its allowance for loan losses. The Banks
has the following loan portfolio segments Construction and land; Commercial real estate; Commercial and agriculture; Consumer real estate; Consumer; and Manufactured homes loans. A class is generally determined based on the initial
measurement attribute, risk characteristics of the loan, and the Banks method for monitoring and assessing credit risk. Classes within the Construction and land segment are Land acquisition, Commercial construction, and Residential
construction. Classes within the Commercial real estate segment are Rental, Business and industrial, and Other. Classes within the Consumer segment are Auto, Credit cards and Other consumer.
During the year ended December 31, 2016 the Banks sold the credit card class portfolio (included in consumer loans above) which had a book value of
$2,527 for a gain of $147.
The allowance for loan losses (ALLL) includes the following components reserves for loans collectively evaluated for
impairment (determined in accordance with FASB ASC 450-20 Contingencies) and reserves for loans individually evaluated for impairment (determined in accordance with FASB ASC 310-10 Receivables).
The reserves for loans collectively evaluated for impairment are determined based on an application of average historical charge-off percentages by loan
portfolio segment, adjusted for loans internally assigned loan grades, and also adjusted for managements evaluation of current economic events, trends, and conditions in accordance with FASB ASC 450-20 Contingencies. The Banks uses a
three-year average historical charge-off percentages.
The reserves for loans individually evaluated for impairment are determined based on the present
value of the expected future payments discounted at the loans effective interest rate, or for loans that are mainly dependent on the collateral for repayment, the estimated fair value of the collateral less estimated selling costs (net
realizable value).
C-34
Clayton Banks
Notes to combined financial statements
Summary in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
$
|
21,780
|
|
|
$
|
23,108
|
|
|
$
|
24,614
|
|
Provision for loan losses
|
|
|
978
|
|
|
|
419
|
|
|
|
160
|
|
Loans charged off
|
|
|
(2,745
|
)
|
|
|
(2,198
|
)
|
|
|
(2,228
|
)
|
Recoveries
|
|
|
382
|
|
|
|
451
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
20,395
|
|
|
$
|
21,780
|
|
|
$
|
23,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables provides a detailed rollforward of the allowance for loan losses for the years ended December 31,
2016, 2015 and 2014 by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Construction
and
land
|
|
|
Commercial
real
estate
|
|
|
Commercial
and
agriculture
|
|
|
Consumer
real
estate
|
|
|
Consumer
|
|
|
Manufactured
homes
|
|
|
Total
|
|
Allowance for loan loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,561
|
|
|
$
|
6,582
|
|
|
$
|
1,811
|
|
|
$
|
1,446
|
|
|
$
|
859
|
|
|
$
|
7,521
|
|
|
$
|
21,780
|
|
Charge-offs
|
|
|
(66
|
)
|
|
|
(50
|
)
|
|
|
(543
|
)
|
|
|
(373
|
)
|
|
|
(577
|
)
|
|
|
(1,136
|
)
|
|
|
(2,745
|
)
|
Recoveries
|
|
|
10
|
|
|
|
31
|
|
|
|
105
|
|
|
|
45
|
|
|
|
73
|
|
|
|
118
|
|
|
|
382
|
|
Provision
|
|
|
(1,845
|
)
|
|
|
(1,210
|
)
|
|
|
1,527
|
|
|
|
281
|
|
|
|
125
|
|
|
|
2,100
|
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,660
|
|
|
$
|
5,353
|
|
|
$
|
2,900
|
|
|
$
|
1,399
|
|
|
$
|
480
|
|
|
$
|
8,603
|
|
|
$
|
20,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,275
|
|
|
$
|
1,315
|
|
|
$
|
17
|
|
|
$
|
40
|
|
|
$
|
22
|
|
|
$
|
2,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
1,660
|
|
|
$
|
4,078
|
|
|
$
|
1,585
|
|
|
$
|
1,382
|
|
|
$
|
440
|
|
|
$
|
8,581
|
|
|
$
|
17,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
1,668
|
|
|
$
|
7,471
|
|
|
$
|
2,816
|
|
|
$
|
1,597
|
|
|
$
|
440
|
|
|
$
|
14,792
|
|
|
$
|
28,784
|
|
Ending balance collectively evaluated for impairment
|
|
|
145,514
|
|
|
|
291,588
|
|
|
|
152,955
|
|
|
|
102,071
|
|
|
|
22,909
|
|
|
|
308,749
|
|
|
|
1,023,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance total loans
|
|
$
|
147,182
|
|
|
$
|
299,059
|
|
|
$
|
155,771
|
|
|
$
|
103,668
|
|
|
$
|
23,349
|
|
|
$
|
323,541
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,237
|
|
|
$
|
6,981
|
|
|
$
|
2,823
|
|
|
$
|
1,856
|
|
|
$
|
1,004
|
|
|
$
|
6,207
|
|
|
$
|
23,108
|
|
Charge-offs
|
|
|
(341
|
)
|
|
|
(166
|
)
|
|
|
(34
|
)
|
|
|
(374
|
)
|
|
|
(473
|
)
|
|
|
(810
|
)
|
|
|
(2,198
|
)
|
Recoveries
|
|
|
12
|
|
|
|
30
|
|
|
|
85
|
|
|
|
45
|
|
|
|
138
|
|
|
|
141
|
|
|
|
451
|
|
Provision
|
|
|
(347
|
)
|
|
|
(263
|
)
|
|
|
(1,063
|
)
|
|
|
(81
|
)
|
|
|
190
|
|
|
|
1,983
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,561
|
|
|
$
|
6,582
|
|
|
$
|
1,811
|
|
|
$
|
1,446
|
|
|
$
|
859
|
|
|
$
|
7,521
|
|
|
$
|
21,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
1,798
|
|
|
$
|
1,272
|
|
|
$
|
383
|
|
|
$
|
300
|
|
|
$
|
64
|
|
|
$
|
25
|
|
|
$
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
1,763
|
|
|
$
|
5,310
|
|
|
$
|
1,428
|
|
|
$
|
1,146
|
|
|
$
|
795
|
|
|
$
|
7,496
|
|
|
$
|
17,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
3,370
|
|
|
$
|
9,287
|
|
|
$
|
2,846
|
|
|
$
|
3,140
|
|
|
$
|
446
|
|
|
$
|
4,237
|
|
|
$
|
23,326
|
|
Ending balance collectively evaluated for impairment
|
|
|
103,793
|
|
|
|
242,141
|
|
|
|
146,563
|
|
|
|
91,109
|
|
|
|
34,339
|
|
|
|
270,507
|
|
|
|
888,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance total loans
|
|
$
|
107,163
|
|
|
$
|
251,428
|
|
|
$
|
149,409
|
|
|
$
|
94,249
|
|
|
$
|
34,785
|
|
|
$
|
274,744
|
|
|
$
|
911,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-35
Clayton Banks
Notes to combined financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
Construction
and
land
|
|
|
Commercial
real
estate
|
|
|
Commercial
and
agriculture
|
|
|
Consumer
real estate
|
|
|
Consumer
|
|
|
Manufactured
homes
|
|
|
Total
|
|
Allowance for loan loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
5,192
|
|
|
|
7,505
|
|
|
|
2,912
|
|
|
|
2,059
|
|
|
|
1,067
|
|
|
|
5,879
|
|
|
$
|
24,614
|
|
Charge-offs
|
|
|
(220
|
)
|
|
|
(432
|
)
|
|
|
(199
|
)
|
|
|
(266
|
)
|
|
|
(610
|
)
|
|
|
(501
|
)
|
|
$
|
(2,228
|
)
|
Recoveries
|
|
|
131
|
|
|
|
150
|
|
|
|
56
|
|
|
|
25
|
|
|
|
90
|
|
|
|
110
|
|
|
$
|
562
|
|
Provision
|
|
|
(866
|
)
|
|
|
(242
|
)
|
|
|
54
|
|
|
|
38
|
|
|
|
457
|
|
|
|
719
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,237
|
|
|
$
|
6,981
|
|
|
$
|
2,823
|
|
|
$
|
1,856
|
|
|
$
|
1,004
|
|
|
$
|
6,207
|
|
|
$
|
23,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
753
|
|
|
$
|
1,356
|
|
|
$
|
922
|
|
|
$
|
509
|
|
|
$
|
122
|
|
|
$
|
30
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance collectively evaluated for impairment
|
|
$
|
3,484
|
|
|
$
|
5,625
|
|
|
$
|
1,901
|
|
|
$
|
1,347
|
|
|
$
|
882
|
|
|
$
|
6,177
|
|
|
$
|
19,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance individually evaluated for impairment
|
|
$
|
3,123
|
|
|
$
|
9,752
|
|
|
$
|
1,381
|
|
|
$
|
4,487
|
|
|
$
|
118
|
|
|
$
|
2,963
|
|
|
$
|
21,824
|
|
Ending balance collectively evaluated for impairment
|
|
|
73,991
|
|
|
|
210,152
|
|
|
|
125,293
|
|
|
|
92,910
|
|
|
|
31,843
|
|
|
|
221,763
|
|
|
|
755,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance total loans
|
|
$
|
77,114
|
|
|
$
|
219,904
|
|
|
$
|
126,674
|
|
|
$
|
97,397
|
|
|
$
|
31,961
|
|
|
$
|
224,726
|
|
|
$
|
777,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Banks use internally assigned loan grades as credit quality indicator. Loans are graded as Pass, Special Mention, or
Substandard.
Pass grade loans are considered a normal credit risk. The borrower has the apparent ability to satisfy its obligations to the Banks, and
therefore no loss in ultimate collection is anticipated based on current facts and circumstances. Pass grade loans have reasonable collateral and low to normal loan to value ratios.
Special Mention grade loans are considered loans with a slightly above normal credit risk. These loans have potential weaknesses that deserve
managements close attention, and if left uncorrected, such potential weaknesses may result in an increased risk of loss in the future. Special Mention grade loans do not expose the Banks to sufficient risk to warrant adverse classification.
Substandard grade loans are considered inadequately protected by the current net worth and financial capacity of the borrower or the collateral pledged,
if any. These loans are characterized by the distinct possibility that the Bank will sustain some loss in the future, if the weaknesses are not corrected. Loss potential, while existing in the aggregate amount of the Substandard grade loans, does
not have to exist in the individual loans classified as Substandard.
C-36
Clayton Banks
Notes to combined financial statements
The following table provides the balances of loans by loan classes disaggregated based on credit quality
indicator internally assigned loan grades as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan grade
|
|
|
|
|
Loan Class
|
|
Pass
|
|
|
Special
mention
|
|
|
Substandard
|
|
|
Total
|
|
Construction and land
|
|
$
|
144,654
|
|
|
$
|
852
|
|
|
$
|
1,676
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
265,044
|
|
|
|
20,854
|
|
|
|
13,161
|
|
|
|
299,059
|
|
Commercial & agriculture
|
|
|
152,063
|
|
|
|
716
|
|
|
|
2,992
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
97,988
|
|
|
|
3,614
|
|
|
|
2,066
|
|
|
|
103,668
|
|
Consumer
|
|
|
22,326
|
|
|
|
523
|
|
|
|
500
|
|
|
|
23,349
|
|
Manufactured homes
|
|
|
287,601
|
|
|
|
18,971
|
|
|
|
16,969
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
969,676
|
|
|
$
|
45,530
|
|
|
$
|
37,364
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides the balances of loans by loan classes disaggregated based on credit quality
indicator internally assigned loan grades as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan grade
|
|
|
|
|
Loan Class
|
|
Pass
|
|
|
Special
mention
|
|
|
Substandard
|
|
|
Total
|
|
Construction and land
|
|
$
|
95,299
|
|
|
$
|
7,934
|
|
|
$
|
3,930
|
|
|
$
|
107,163
|
|
Commercial real estate
|
|
|
220,515
|
|
|
|
12,801
|
|
|
|
18,112
|
|
|
|
251,428
|
|
Commercial & agriculture
|
|
|
143,539
|
|
|
|
2,811
|
|
|
|
3,059
|
|
|
|
149,409
|
|
Consumer real estate
|
|
|
84,820
|
|
|
|
5,172
|
|
|
|
4,257
|
|
|
|
94,249
|
|
Consumer
|
|
|
32,303
|
|
|
|
1,964
|
|
|
|
518
|
|
|
|
34,785
|
|
Manufactured homes
|
|
|
255,285
|
|
|
|
12,679
|
|
|
|
6,780
|
|
|
|
274,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
831,761
|
|
|
$
|
43,361
|
|
|
$
|
36,656
|
|
|
$
|
911,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans individually evaluated for impairment in accordance with ASC 310 at December 31, 2016 and 2015 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Carrying value of total impaired loans
|
|
$
|
28,784
|
|
|
$
|
23,326
|
|
Amount of the direct allowance for loan losses allocated
|
|
|
2,669
|
|
|
|
3,842
|
|
Average of impaired loans during the year
|
|
|
35,549
|
|
|
|
40,598
|
|
Interest income recognized during impairment
|
|
|
1,406
|
|
|
|
2,019
|
|
C-37
Clayton Banks
Notes to combined financial statements
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of
December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial real estate
|
|
|
4,350
|
|
|
|
4,518
|
|
|
|
1,275
|
|
|
|
4,627
|
|
|
|
86
|
|
Commercial & agriculture
|
|
|
1,710
|
|
|
|
1,766
|
|
|
|
1,315
|
|
|
|
1,829
|
|
|
|
69
|
|
Consumer real estate
|
|
|
202
|
|
|
|
203
|
|
|
|
17
|
|
|
|
204
|
|
|
|
10
|
|
Consumer
|
|
|
45
|
|
|
|
45
|
|
|
|
40
|
|
|
|
2
|
|
|
|
|
|
Manufactured homes
|
|
|
2,079
|
|
|
|
2,078
|
|
|
|
22
|
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance recorded
|
|
$
|
8,386
|
|
|
$
|
8,610
|
|
|
$
|
2,669
|
|
|
$
|
8,860
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,668
|
|
|
$
|
2,842
|
|
|
$
|
|
|
|
$
|
2,861
|
|
|
$
|
8
|
|
Commercial real estate
|
|
|
3,121
|
|
|
|
4,200
|
|
|
|
|
|
|
|
4,485
|
|
|
|
125
|
|
Commercial & agriculture
|
|
|
1,106
|
|
|
|
1,860
|
|
|
|
|
|
|
|
2,949
|
|
|
|
82
|
|
Consumer real estate
|
|
|
1,395
|
|
|
|
1,648
|
|
|
|
|
|
|
|
1,930
|
|
|
|
63
|
|
Consumer
|
|
|
395
|
|
|
|
628
|
|
|
|
|
|
|
|
536
|
|
|
|
29
|
|
Manufactured homes
|
|
|
12,713
|
|
|
|
13,744
|
|
|
|
|
|
|
|
13,928
|
|
|
|
934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with no related allowance recorded
|
|
|
20,398
|
|
|
|
24,922
|
|
|
|
|
|
|
|
26,689
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
28,784
|
|
|
$
|
33,532
|
|
|
$
|
2,669
|
|
|
$
|
35,549
|
|
|
$
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of December 31,
2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
3,089
|
|
|
$
|
2,042
|
|
|
$
|
1,798
|
|
|
$
|
2,059
|
|
|
$
|
(1
|
)
|
Commercial real estate
|
|
|
2,967
|
|
|
|
2,957
|
|
|
|
1,272
|
|
|
|
2,975
|
|
|
|
66
|
|
Commercial & agriculture
|
|
|
446
|
|
|
|
497
|
|
|
|
383
|
|
|
|
459
|
|
|
|
2
|
|
Consumer real estate
|
|
|
912
|
|
|
|
993
|
|
|
|
300
|
|
|
|
1,010
|
|
|
|
19
|
|
Consumer
|
|
|
64
|
|
|
|
64
|
|
|
|
64
|
|
|
|
67
|
|
|
|
(1
|
)
|
Manufactured homes
|
|
|
2,507
|
|
|
|
2,507
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance recorded
|
|
$
|
9,985
|
|
|
$
|
9,060
|
|
|
$
|
3,842
|
|
|
$
|
6,570
|
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-38
Clayton Banks
Notes to combined financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Recorded
investment
|
|
|
Unpaid
principal
balance
|
|
|
Related
allowance
|
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
281
|
|
|
$
|
3,223
|
|
|
$
|
|
|
|
$
|
2,480
|
|
|
$
|
115
|
|
Commercial real estate
|
|
|
6,320
|
|
|
|
7,909
|
|
|
|
|
|
|
|
17,370
|
|
|
|
759
|
|
Commercial & agriculture
|
|
|
2,400
|
|
|
|
2,469
|
|
|
|
|
|
|
|
2,719
|
|
|
|
126
|
|
Consumer real estate
|
|
|
2,228
|
|
|
|
2,628
|
|
|
|
|
|
|
|
3,857
|
|
|
|
272
|
|
Consumer
|
|
|
382
|
|
|
|
397
|
|
|
|
|
|
|
|
584
|
|
|
|
44
|
|
Manufactured homes
|
|
|
1,730
|
|
|
|
2,573
|
|
|
|
|
|
|
|
7,018
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with no related allowance recorded
|
|
|
13,341
|
|
|
|
19,199
|
|
|
|
|
|
|
|
34,028
|
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
23,326
|
|
|
$
|
28,259
|
|
|
$
|
3,842
|
|
|
$
|
40,598
|
|
|
$
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of December 31,
2014 were as follows:
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with related allowance recorded
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,550
|
|
|
$
|
27
|
|
Commercial real estate
|
|
|
3,835
|
|
|
|
96
|
|
Commercial & agriculture
|
|
|
246
|
|
|
|
3
|
|
Consumer real estate
|
|
|
2,470
|
|
|
|
79
|
|
Consumer
|
|
|
123
|
|
|
|
6
|
|
Manufactured homes
|
|
|
900
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance recorded
|
|
$
|
9,124
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Average
recorded
investment
|
|
|
Interest
income
recognized
|
|
Impaired loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
3,300
|
|
|
$
|
53
|
|
Commercial real estate
|
|
|
11,086
|
|
|
|
356
|
|
Commercial & agriculture
|
|
|
437
|
|
|
|
3
|
|
Consumer real estate
|
|
|
5,715
|
|
|
|
304
|
|
Consumer
|
|
|
3,250
|
|
|
|
163
|
|
Manufactured homes
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total loans with no related allowance recorded
|
|
|
23,790
|
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
32,914
|
|
|
$
|
1,119
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans were as follows at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Loans past due over 90 days still on accrual
|
|
$
|
1,270
|
|
|
$
|
1,114
|
|
Non-accrual loans
|
|
|
10,169
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,439
|
|
|
$
|
11,114
|
|
|
|
|
|
|
|
|
|
|
C-39
Clayton Banks
Notes to combined financial statements
Non-performing loans and impaired loans are defined differently. All non-performing loans were loans past due
90 days or greater and still on accrual or loans on non-accrual status as of December 31, 2016 and 2015. Impaired loans are loans for which, based on current information and events, it is considered probable that the Bank will be unable to
collect all amounts of contractual interest and principal as scheduled in the loan agreement. Some loans may be included in both categories, whereas other loans may only be included in one category.
Age analysis of past due loans disaggregated by class as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
30-89 days
past due
|
|
|
Greater
than
90 days
|
|
|
Non-accruals
|
|
|
Current
and accruing
interest
|
|
|
Total
loans
|
|
Construction and land
|
|
$
|
1,264
|
|
|
$
|
1
|
|
|
$
|
1,668
|
|
|
$
|
144,249
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
178
|
|
|
|
|
|
|
|
6,441
|
|
|
|
292,440
|
|
|
|
299,059
|
|
Commercial & agriculture
|
|
|
1,017
|
|
|
|
|
|
|
|
627
|
|
|
|
154,127
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
2,074
|
|
|
|
291
|
|
|
|
821
|
|
|
|
100,482
|
|
|
|
103,668
|
|
Consumer
|
|
|
491
|
|
|
|
69
|
|
|
|
277
|
|
|
|
22,512
|
|
|
|
23,349
|
|
Manufactured homes
|
|
|
14,362
|
|
|
|
909
|
|
|
|
335
|
|
|
|
307,935
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
19,386
|
|
|
$
|
1,270
|
|
|
$
|
10,169
|
|
|
$
|
1,021,745
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age analysis of past due loans disaggregated by class as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
30-89 days
past due
|
|
|
Greater
than
90 days
|
|
|
Non-accruals
|
|
|
Current
and accruing
interest
|
|
|
Total
loans
|
|
Construction and land
|
|
$
|
177
|
|
|
$
|
|
|
|
$
|
3,567
|
|
|
$
|
103,419
|
|
|
$
|
107,163
|
|
Commercial real estate
|
|
|
491
|
|
|
|
|
|
|
|
3,351
|
|
|
|
247,586
|
|
|
|
251,428
|
|
Commercial & agriculture
|
|
|
839
|
|
|
|
33
|
|
|
|
776
|
|
|
|
147,761
|
|
|
|
149,409
|
|
Consumer real estate
|
|
|
1,506
|
|
|
|
514
|
|
|
|
1,481
|
|
|
|
90,748
|
|
|
|
94,249
|
|
Consumer
|
|
|
451
|
|
|
|
55
|
|
|
|
228
|
|
|
|
34,051
|
|
|
|
34,785
|
|
Manufactured homes
|
|
|
4,697
|
|
|
|
512
|
|
|
|
597
|
|
|
|
268,938
|
|
|
|
274,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
8,161
|
|
|
$
|
1,114
|
|
|
$
|
10,000
|
|
|
$
|
892,503
|
|
|
$
|
911,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings (TDR) as part of the Banks ongoing risk management practices, the Banks attempt to
work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory
guidance. Each occurrence is unique to the borrower and is evaluated separately. The Banks consider regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment
terms consider the borrowers current and prospective ability to comply with the modified terms of the loan.
A modification is classified as TDR if
the borrower is experiencing financial difficulty and it is determined that the Banks have granted a concession to the borrower. The Banks may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on
any of its debt, or if it is probable that the borrower may default in the foreseeable future without a modification of its debt. Generally, a concession is granted when the Banks no longer expect to collect all amounts due at the original
contractual rate subsequent to modification.
Concessions could include reductions of interest rates, extension of the maturity date at a rate lower than
current market rate for a new loan with similar risk, reduction of accrued interest, or principal forgiveness. When
C-40
Clayton Banks
Notes to combined financial statements
evaluating whether a concession has been granted, the Banks also consider whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate
the Banks for the restructured terms. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management judgment is required when
determining whether a modification is classified as TDR. The Banks determination whether a TDR is placed on nonaccrual status generally follows the same internal policies and procedures as for the other portfolio loans.
As of December 31, 2016 and 2015, the Company has a recorded investment in troubled debt restructurings of $21,755 and $16,222, respectively. The
modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate. The Company has allocated $677 and $1,268 of specific reserves for those loans at December 31, 2016 and 2015,
respectively, and has committed to lend additional amounts totaling up to $1,167 and $327, respectively to these customers. Of these loans, $4,574 and $4,434 were classified as non-accrual loans as of December 31, 2016 and 2015, respectively.
The following table reflects TDR occurring during the year ended December 31, 2016 by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Number of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
|
Charge-offs
to specific
reserves
|
|
Commercial Real Estate
|
|
|
1
|
|
|
$
|
46
|
|
|
$
|
46
|
|
|
$
|
|
|
Consumer Real Estate
|
|
|
7
|
|
|
|
363
|
|
|
|
366
|
|
|
|
|
|
Commercial & Agriculture
|
|
|
1
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
Consumer
|
|
|
6
|
|
|
|
6,968
|
|
|
|
6,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
15
|
|
|
$
|
7,394
|
|
|
$
|
7,397
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no TDRs within the previous 12 months for which there was a payment default during the year ended December 31,
2016.
The following table reflects TDR occurring during the year ended December 31, 2015 by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Number of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
|
Charge-offs
to specific
reserves
|
|
Commercial Real Estate
|
|
|
1
|
|
|
$
|
1,391
|
|
|
$
|
1,391
|
|
|
$
|
|
|
Consumer real estate
|
|
|
5
|
|
|
|
222
|
|
|
|
222
|
|
|
|
|
|
Consumer
|
|
|
2
|
|
|
|
56
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
8
|
|
|
$
|
1,669
|
|
|
$
|
1,668
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects TDRs within the previous 12 months for which there was a payment default during the year ended
December 31, 2015 by class:
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Number of
contracts
|
|
|
Defaulted
principal
balance
|
|
Commercial & Agriculture
|
|
|
2
|
|
|
$
|
35
|
|
Consumer
|
|
|
1
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
3
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
C-41
Clayton Banks
Notes to combined financial statements
The following table reflects TDR occurring during the year ended December 31, 2014 by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Number of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
|
Charge-offs
to specific
reserves
|
|
Commercial Real Estate
|
|
|
2
|
|
|
$
|
57
|
|
|
$
|
57
|
|
|
$
|
|
|
Commercial & Agriculture
|
|
|
2
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
Consumer real estate
|
|
|
9
|
|
|
|
719
|
|
|
|
722
|
|
|
|
|
|
Consumer
|
|
|
2
|
|
|
|
48
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
15
|
|
|
$
|
850
|
|
|
$
|
855
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects TDRs within the previous 12 months for which there was a payment default during the year ended
December 31, 2014 by class:
|
|
|
|
|
|
|
|
|
Loan Class
|
|
Number of
contracts
|
|
|
Defaulted
principal
balance
|
|
Consumer
|
|
|
2
|
|
|
$
|
180
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2
|
|
|
$
|
180
|
|
|
|
|
|
|
|
|
|
|
Note 4 Premises and equipment
Premises and equipment were as follows as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
10,562
|
|
|
$
|
10,562
|
|
Buildings
|
|
|
15,293
|
|
|
|
15,088
|
|
Furniture, fixtures and equipment
|
|
|
3,092
|
|
|
|
3,035
|
|
Vehicles
|
|
|
55
|
|
|
|
55
|
|
Computer & equipment
|
|
|
997
|
|
|
|
984
|
|
Construction in Progress
|
|
|
1,652
|
|
|
|
1,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,651
|
|
|
|
31,456
|
|
Less: Accumulated depreciation
|
|
|
(8,989
|
)
|
|
|
(8,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,662
|
|
|
$
|
23,014
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $547, $558 and $556 for the years ended December 31, 2016, 2015 and 2014, respectively.
Note 5 Deposits
Interest bearing deposits were as
follows as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Demand deposits
|
|
$
|
64,584
|
|
|
$
|
59,191
|
|
Savings and money market accounts
|
|
|
324,939
|
|
|
|
292,275
|
|
Certificates of deposits
|
|
|
335,326
|
|
|
|
303,147
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
724,849
|
|
|
$
|
654,613
|
|
|
|
|
|
|
|
|
|
|
C-42
Clayton Banks
Notes to combined financial statements
Interest expense on the above deposits totaled $5,483, $4,815, and $4,662 for the years ended
December 31, 2016, 2015 and 2014, respectively.
The amount up to which deposits in the Bank are insured by the FDIC in aggregate is $250 as part of
the Dodd-Frank Act.
Total deposits of $250 or more were $421,556 and $403,354 at December 31, 2016 and 2015, respectively.
Included in certificates of deposits above were internet and brokered deposits of $96,319 and $42,558 and $90,445 and $31, 385 as of December 31, 2016
and 2015, respectively.
Scheduled maturities of time deposits were as follows:
|
|
|
|
|
2017
|
|
$
|
176,881
|
|
2018
|
|
|
77,703
|
|
2019
|
|
|
36,889
|
|
2020
|
|
|
19,390
|
|
2021
|
|
|
18,979
|
|
After 2021
|
|
|
5,484
|
|
|
|
|
|
|
|
|
$
|
335,326
|
|
|
|
|
|
|
Note 6 Federal home loan bank advances
The Banks are currently participating in a program with the Federal Home Loan Bank (FHLB) of Cincinnati to provide funds to the public for affordable housing.
The FHLB advances are secured by qualifying loans, the majority being home mortgages (1-4 family residential). To participate in this program, the Banks are required to be a member and own stock in the FHLB. The Banks had $3,370 of such stock at
December 31, 2016 and 2015, to satisfy this requirement.
Interest expense on the above advances total $1,265, $1,247, and $1,056 for years ended
December 31, 2016, 2015, and 2014, respectively.
At December 31, 2016 and 2015, advances from the Federal Home Loan Bank were as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Maturities January 2017 through September 2027 fixed rates at rates from 0.25% to 6.07%, average
2.45%
|
|
$
|
52,414
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Maturities January 2016 through September 2027 fixed rates at rates from 0.25% to 6.07%, average
2.86%
|
|
$
|
|
|
|
$
|
44,477
|
|
|
|
|
|
|
|
|
|
|
Qualifying loans totaling $165,325 and $112,268 were pledged as security under a blanket pledge agreement with the FHLB at
December 31, 2016 and 2015, respectively.
C-43
Clayton Banks
Notes to combined financial statements
As of December 31, 2016, scheduled maturities were as follows:
|
|
|
|
|
2017
|
|
$
|
19,068
|
|
2018
|
|
|
12,551
|
|
2019
|
|
|
5,524
|
|
2020
|
|
|
133
|
|
2021
|
|
|
5,019
|
|
Thereafter
|
|
|
10,119
|
|
|
|
|
|
|
|
|
$
|
52,414
|
|
|
|
|
|
|
Note 7 Other borrowed funds
The Banks have available federal funds lines (or the equivalent thereof) with correspondent banks totaling approximately $62,500 and $52,500 as of
December 31, 2016 and 2015 respectively. Fed funds purchased were $308 and $10,587 as of December 31, 2016 and 2015, respectively.
Note 8
Income taxes
Income tax expense (benefit) for the years ended December 31, 2016, 2015 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current state
|
|
$
|
2,707
|
|
|
$
|
2,609
|
|
|
$
|
2,235
|
|
Deferred state
|
|
|
(69
|
)
|
|
|
(29
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,638
|
|
|
$
|
2,580
|
|
|
$
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the amount computed by applying the statutory tax rate of 6.5 percent to pretax income with income tax
expense follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income tax expense at statutory rate
|
|
$
|
2,536
|
|
|
$
|
2,540
|
|
|
$
|
2,060
|
|
Other
|
|
|
102
|
|
|
|
40
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,638
|
|
|
$
|
2,580
|
|
|
$
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities as of December 31, 2016 and 2015 were due to the following:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
623
|
|
|
$
|
807
|
|
Book versus tax basis of fixed assets depreciation
|
|
|
|
|
|
|
47
|
|
Deferred loan fees and costs
|
|
|
288
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
911
|
|
|
$
|
861
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Book versus tax basis of accounting
|
|
$
|
(23
|
)
|
|
$
|
28
|
|
Unrealized gain on securities
|
|
|
(76
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
(99
|
)
|
|
$
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
812
|
|
|
$
|
742
|
|
|
|
|
|
|
|
|
|
|
C-44
Clayton Banks
Notes to combined financial statements
Note 9 Regulatory capital matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations
provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2016 and 2015,
the most recent regulatory notifications categorized Clayton Bank and Trust, and American City Bank (the Banks) as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Banks categories.
Actual and required capital amounts and ratios are presented below as of
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For capital
adequacy purposes
|
|
|
To be well
capitalized under
prompt corrective
action provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
167,513
|
|
|
|
18.86
|
%
|
|
$
|
71,038
|
|
|
|
8.00
|
%
|
|
$
|
88,797
|
|
|
|
10.00
|
%
|
American City Bank
|
|
|
50,454
|
|
|
|
16.87
|
%
|
|
|
23,927
|
|
|
|
8.00
|
%
|
|
|
29,909
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
156,332
|
|
|
|
17.61
|
%
|
|
$
|
53,278
|
|
|
|
6.00
|
%
|
|
$
|
53,278
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
15.96
|
%
|
|
|
17,945
|
|
|
|
6.00
|
%
|
|
|
17,945
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
156,332
|
|
|
|
18.10
|
%
|
|
$
|
34,557
|
|
|
|
4.00
|
%
|
|
$
|
43,196
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
16.48
|
%
|
|
|
11,585
|
|
|
|
4.00
|
%
|
|
|
14,481
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
156,332
|
|
|
|
17.61
|
%
|
|
$
|
39,959
|
|
|
|
4.50
|
%
|
|
$
|
57,718
|
|
|
|
6.50
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
15.96
|
%
|
|
|
13,459
|
|
|
|
4.50
|
%
|
|
|
19,441
|
|
|
|
6.50
|
%
|
C-45
Clayton Banks
Notes to combined financial statements
Actual and required capital amounts and ratios are presented below as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For capital
adequacy purposes
|
|
|
To be well
capitalized under
prompt corrective
action provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
153,469
|
|
|
|
19.75
|
%
|
|
$
|
62,151
|
|
|
|
8.00
|
%
|
|
$
|
77,689
|
|
|
|
10.00
|
%
|
American City Bank
|
|
|
45,625
|
|
|
|
18.60
|
%
|
|
|
19,624
|
|
|
|
8.00
|
%
|
|
|
24,531
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
143,638
|
|
|
|
18.49
|
%
|
|
$
|
46,613
|
|
|
|
6.00
|
%
|
|
$
|
46,613
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
43,272
|
|
|
|
17.64
|
%
|
|
|
14,718
|
|
|
|
6.00
|
%
|
|
|
14,718
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
143,638
|
|
|
|
19.07
|
%
|
|
$
|
30,122
|
|
|
|
4.00
|
%
|
|
$
|
37,652
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
43,272
|
|
|
|
16.72
|
%
|
|
|
10,352
|
|
|
|
4.00
|
%
|
|
|
12,940
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
$
|
143,638
|
|
|
|
18.49
|
%
|
|
$
|
34,960
|
|
|
|
4.50
|
%
|
|
$
|
50,498
|
|
|
|
6.50
|
%
|
American City Bank
|
|
|
43,272
|
|
|
|
17.64
|
%
|
|
|
11,039
|
|
|
|
4.50
|
%
|
|
|
15,945
|
|
|
|
6.50
|
%
|
Note 10 Loan commitments, contingencies and other related activities
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet credit loss risk
exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as the ones used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Commitments to make Loans
|
|
$
|
243,068
|
|
|
$
|
203,730
|
|
Lines of Credit
|
|
$
|
1,653
|
|
|
$
|
1,013
|
|
Letters of Credit
|
|
$
|
6,878
|
|
|
$
|
4,726
|
|
Credit Cards
|
|
$
|
|
|
|
$
|
8,921
|
|
In the normal course of business, the Banks are subject to various claims and litigation arising out of claims or other
disputes. Because litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance, it is reasonably possible that some of the legal actions and claims could be filed and decided as
unfavorable to the Banks. Although the amount of ultimate liabilities with respect to such matters cannot be ascertained, management, after evaluating current ongoing litigation or claims, believes that any resulting liability should not materially
affect the financial position of the Banks.
NOTE 11 Fair value of financial instruments
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The
C-46
Clayton Banks
Notes to combined financial statements
statement emphasizes that fair value is a market-based measurement: not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that
market participants would use in pricing the asset or liability. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements.
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Significant unobservable inputs based on
the Banks assumptions used to measure assets and liabilities at fair value.
The Banks utilize fair value measurements to record fair value
adjustments to certain assets and liabilities. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the
valuation hierarchy.
Securities Available for Sale Where quoted prices are available in an active market, securities are classified within Level 1
of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other products. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities
with similar characteristics and are classified within Level 2 of the valuation hierarchy. Level 2 securities include mortgage-backed securities and municipal bonds. In certain cases, where there is limited activity or fair values are estimated
using discounted cash flow models, securities are classified within Level 3 of the valuation hierarchy.
Impaired Loans A loan is considered to be
impaired when it is probable the Banks will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments
using the loans original effective rate as the discount rate, the loans observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure
of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the hierarchy.
Other Real Estate Owned Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, is initially
recorded at lower of carrying value or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. Other real estate
owned is included in Level 3 of the valuation hierarchy.
The Banks had no liabilities measured at fair value on a recurring or non-recurring basis at
December 31, 2016 and 2015.
Assets measured at fair value on a recurring basis as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
|
|
|
$
|
34,996
|
|
|
$
|
|
|
|
$
|
34,996
|
|
State and municipal securities
|
|
|
|
|
|
|
17,985
|
|
|
|
|
|
|
|
17,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
52,981
|
|
|
$
|
|
|
|
$
|
52,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-47
Clayton Banks
Notes to combined financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
|
|
|
$
|
45,093
|
|
|
$
|
|
|
|
$
|
45,093
|
|
State and municipal securities
|
|
|
|
|
|
|
19,053
|
|
|
|
|
|
|
|
19,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
64,146
|
|
|
$
|
|
|
|
$
|
64,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value on a non-recurring basis as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Other real estate owned
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,315
|
|
|
$
|
1,315
|
|
Impaired loans, net
|
|
|
|
|
|
|
|
|
|
|
16,471
|
|
|
|
16,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,786
|
|
|
$
|
17,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Other real estate owned
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,105
|
|
|
$
|
2,105
|
|
Impaired loans, net
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,513
|
|
|
$
|
7,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1, 2 or 3 during the periods presented.
The following methods and assumptions were used in estimating its fair value disclosure for financial instruments that are not measured at fair value.
Cash and Cash Equivalents The carrying amounts of cash, due from banks, and federal funds sold approximate their fair value.
Loans For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. For other
loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality.
Deposits, Federal Home Loan Bank Advances and Other Borrowed Funds The carrying amounts of demand deposits, savings deposits and floating rate advances
from the Federal Home Loan Bank approximate their fair values. Fair values for certificates of deposit, fixed rate advances from the Federal Home Loan Bank are estimated using discounted cash flow models using current market interest rates offered
on certificates, advances and other borrowings.
Federal Funds Purchased The carrying amounts of federal funds purchased approximate their fair
value.
C-48
Clayton Banks
Notes to combined financial statements
Carrying amount and estimated fair values of financial instruments were as follows at December 31, 2016
and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
Carrying
amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair value
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
$
|
49,592
|
|
|
$
|
49,592
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,592
|
|
Securities available for sale
|
|
|
52,981
|
|
|
|
|
|
|
|
52,981
|
|
|
|
|
|
|
|
52,981
|
|
Securities held to maturity
|
|
|
13,691
|
|
|
|
|
|
|
|
14,200
|
|
|
|
|
|
|
|
14,200
|
|
Loans, net
|
|
|
1,032,175
|
|
|
|
|
|
|
|
1,005,310
|
|
|
|
16,471
|
|
|
|
1,021,781
|
|
FHLB stock and securities
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
3,370
|
|
|
|
3,370
|
|
Accrued interest receivable
|
|
|
5,050
|
|
|
|
|
|
|
|
5,050
|
|
|
|
|
|
|
|
5,050
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non maturing deposits
|
|
|
583,048
|
|
|
|
583,048
|
|
|
|
|
|
|
|
|
|
|
|
583,048
|
|
Time deposits
|
|
|
335,326
|
|
|
|
|
|
|
|
333,634
|
|
|
|
|
|
|
|
333,634
|
|
FHLB advances
|
|
|
52,414
|
|
|
|
|
|
|
|
52,780
|
|
|
|
|
|
|
|
52,780
|
|
Fed funds purchased
|
|
|
308
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
Accrued interest payable
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
Carrying
amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair value
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
$
|
44,459
|
|
|
$
|
44,459
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44,459
|
|
Securities available for sale
|
|
|
64,146
|
|
|
|
|
|
|
|
64,146
|
|
|
|
|
|
|
|
64,146
|
|
Securities held to maturity
|
|
|
15,336
|
|
|
|
|
|
|
|
16,348
|
|
|
|
|
|
|
|
16,348
|
|
Loans, net
|
|
|
889,998
|
|
|
|
|
|
|
|
867,965
|
|
|
|
5,408
|
|
|
|
873,373
|
|
FHLB stock and securities
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
3,370
|
|
|
|
3,370
|
|
Accrued interest receivable
|
|
|
4,095
|
|
|
|
|
|
|
|
4,095
|
|
|
|
|
|
|
|
4,095
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non maturing deposits
|
|
|
498,342
|
|
|
|
498,342
|
|
|
|
|
|
|
|
|
|
|
|
498,342
|
|
Time deposits
|
|
|
303,147
|
|
|
|
|
|
|
|
301,823
|
|
|
|
|
|
|
|
301,823
|
|
FHLB advances
|
|
|
44,477
|
|
|
|
|
|
|
|
50,673
|
|
|
|
|
|
|
|
50,673
|
|
Fed funds purchased
|
|
|
10,587
|
|
|
|
10,587
|
|
|
|
|
|
|
|
|
|
|
|
10,587
|
|
Accrued interest payable
|
|
|
467
|
|
|
|
|
|
|
|
467
|
|
|
|
|
|
|
|
467
|
|
Note 12 Investment in life insurance policies and compensation plans
American City Bank has a deferred compensation plan for certain former and active directors. The cash surrender value of life insurance policies related to
this deferred compensation plan was $122, $119 and $116 at December 31, 2016, 2015 and 2014, respectively. The liability related to the plan was $54, $72 and $90 at December 31, 2016, 2015 and 2014, respectively. Income recognized for this
plan was $2, $3 and $8 during the years ended December 31, 2016, 2015 and 2014, respectively.
American City Bank also has approved an Executive
Supplemental Retirement (ESR) plan for key officers. This plan offers death benefits to the officers beneficiaries during their employment with the Bank. In addition, the plan offers retirement benefits to these officers based upon the
earnings of specific life insurance policies. The liability related to the ESR plan was $61, $69 and $76 at December 31, 2016, 2015 and 2014, respectively. The
C-49
Clayton Banks
Notes to combined financial statements
cash surrender value of the life insurance policies related to the ESR plan was $342, $338 and $332 at December 31, 2016, 2015 and 2014, respectively. Expense recognized related to this plan
was $5, $5 and $5 during the years ended December 31, 2016, 2015 and 2014, respectively.
The Banks employees participate in a 401(k) defined
contribution plan sponsored by Clayton HC, Inc. covering all employees who have completed three months of service as the quarterly entry date and who are age 18 or older. The Banks may, at their discretion, contribute up to 6% matching funds. For
the years ended December 31, 2016, 2015 and 2014, the Banks matching contributions to the plan totaled $297, $235 and $224, respectively.
Clayton HC, Inc. sponsors an employee stock ownership plan (ESOP) see Note 15 for further discussion.
Note 13 Intangible and other assets
Intangible
assets
Intangible assets were as follows as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
5,530
|
|
|
$
|
5,530
|
|
|
$
|
5,530
|
|
|
$
|
5,501
|
|
Aggregate amortization expense was $29, $58, and $138 for the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016, the core deposit intangible asset was fully amortized.
Other Assets
Other assets were as follows as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Accounts receivable
|
|
$
|
208
|
|
|
$
|
751
|
|
Prepaid expenses other
|
|
|
852
|
|
|
|
558
|
|
Repossessed assets
|
|
|
263
|
|
|
|
428
|
|
Investment property
|
|
|
365
|
|
|
|
365
|
|
Deferred tax assets
|
|
|
911
|
|
|
|
861
|
|
Other assets
|
|
|
704
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
3,303
|
|
|
$
|
3,422
|
|
|
|
|
|
|
|
|
|
|
Note 14 Other liabilities
Other liabilities were as follows as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Loan escrow
|
|
$
|
2,521
|
|
|
$
|
1,717
|
|
Accrued expenses
|
|
|
3,797
|
|
|
|
1,599
|
|
Accounts payable
|
|
|
724
|
|
|
|
766
|
|
Long term incentive payable
|
|
|
873
|
|
|
|
713
|
|
Accrued ESOP
|
|
|
672
|
|
|
|
541
|
|
Other liabilities
|
|
|
1,003
|
|
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,590
|
|
|
$
|
6,672
|
|
|
|
|
|
|
|
|
|
|
C-50
Clayton Banks
Notes to combined financial statements
Note 15 Employee stock ownership plan
Clayton HC, Inc. adopted an employee stock ownership plan (ESOP) in January 2013. The ESOP is an additional retirement benefit plan where all eligible
employees are included in pro rata distribution of Clayton HC, Inc.s stock which vests over a period of six years. All employees of the Clayton Bank and Trust and American City Bank subsidiaries are entered into the plan once certain
eligibility requirements are met. Employees who had been employed for one year and have completed 1,000 hours of service are eligible to participate in the ESOP. Additional allocations of stock can be made annually at the discretion of the
shareholder and the trustees of the ESOP. The ESOP purchased 96,552, 107,705 and 114,286 shares of the Clayton HC, Inc. stock during the years ended December 31, 2016, 2015 and 2014, respectively. All the shares were released and allocated to
participant accounts. There was no unearned compensation related to the ESOP as of December 31, 2016 and 2015. The Banks expense related to the ESOP was $28, $16 and $16 for the years ended December 31, 2016, 2015, and 2014
respectively.
Note 16 Related party transactions
The Banks offer loans in the ordinary course of business to our insiders, including our executive officers and directors, their related interests and immediate
family members and other employees. Applicable law and our written credit policies require that loans to insiders be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties, and must not involve more than the normal risk of repayment or present other unfavorable features. Loans to non-insider employees and other non-insiders are subject to the same requirements and underwriting
standards and meet our normal lending guidelines, except that non-insider employees and other non-insiders may receive preferential interest rates and fees as an employee benefit. Loans to individual employees, directors and executive officers must
also comply with the Banks statutory lending limits and regulatory requirements regarding lending limits and collateral. All extensions of credit to the related parties must be reviewed and approved by the Banks boards of directors with
a personal interest in any loan application are excluded from the consideration of such loan application. The Banks have made loans to directors and executive officers.
Such loans amounted to $46,107 (representing 38 loans) and $25,587 (representing 23 loans) at December 31, 2016 and 2015 respectively.
Deposits from principal officers, directors and their affiliates were $42,894 and $34,415 at December 31, 2016 and 2015, respectively.
At December 31, 2016 and 2015, Clayton HC, Inc. had cash balances on deposit with the Clayton Bank and Trust totaling $28,170 and $1,003, respectively,
for ongoing corporate needs.
The Banks also have available lines of credit (or the equivalent thereof) with the majority shareholder totaling
approximately $52,000 as of December 31, 2016 and 2015. There was no balance outstanding on those lines at December 31, 2016 and 2015.
The
Banks entered into aircraft time sharing agreement, dated July 2015, with CFA Holdings LLC and CF Services LLC, pursuant to which the Banks have the right to use, from time to time, an aircraft leased and operated by CFA Holdings. This replaces the
previous agreement entered into during 2007. CFA Holdings and CF Services LLC bill the Banks for usage of the aircraft based on hours of use and operating costs. During the year end December 31, 2016, 2015, and 2014 the banks paid CFA Holdings
and CF Services $240 and $198 and $54 respectively, under the aviation timesharing agreement for the use of the aircraft.
Clayton Bank and Trust leases
branch space from Clayton HC, Inc. Annual lease for space is $6 per year. Clayton HC has a management agreement with Clayton Bank and Trust to provide support for collection of
C-51
Clayton Banks
Notes to combined financial statements
debts, management of ORE, accounting and other management duties, amounting to $186, $200, and $198 during the years ended December 31, 2016, 2015 and 2014, respectively.
Apex Bank, 50% owned by Clayton HC, Inc., has a management agreement with Clayton Bank and Trust to provide support for IT and other management duties,
amounting to $20, $24, and $14 during the years ended December 31, 2016, 2015 and 2014, respectively.
C-52
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE CLAYTON BANKS
The following is a discussion of the Clayton Banks combined financial condition as of March 31, 2017, December 31, 2016 and
2015 and their combined results of operations for the three months ended March 31, 2017 and 2016 and the years in the three-year period ended December 31, 2016. The purpose of this discussion is to focus on information about the Clayton
Banks combined financial condition and results of operations which is not otherwise apparent from the combined financial statements included in Annex C.
Introduction
Clayton HC owns 100% of the
outstanding shares of the Clayton Banks. The Clayton Banks are state-chartered community banks regulated by the TDFI and FDIC. CBT is headquartered in Knoxville, Tennessee, and conducts its banking operations from its main office, 520 Summit Hill
Drive, Suite 800, Knoxville, Tennessee 37902, 13 branches, located in Blount, Chester, Crockett, Fayette, Henderson, Knox, Madison, Putnam, and Tipton Counties in Tennessee. ACB is headquartered in Tullahoma, Tennessee, and conducts its banking
operations from its main office, four (4) branches, located in Coffee, Franklin, and Moore Counties in Tennessee. The Clayton Banks are community-focused financial organizations that offer a full range of financial services to individuals,
businesses, municipal entities, and nonprofit organizations in the communities that they serve. These services include consumer and commercial loans, deposit accounts, trust services, safe deposit services, consumer finance, insurance, mortgage
lending, and SBA lending.
S Corporation Status
The Clayton Banks have elected to be taxed for U.S. federal income tax purposes as an S corporation. As a result, the Clayton Banks net
income has not been subject to, and they have not paid, U.S. federal income tax, and the Clayton Banks have not been required to make any provision or recognize any liability for U.S. federal income tax in their financial statements. Historically,
the Clayton Banks have made cash distributions to its shareholder in amounts estimated by the Clayton Banks to be sufficient to pay estimated individual U.S. federal income tax liability resulting from the Clayton Banks taxable income that was
passed through.
Critical Accounting Policies and Estimates
The combined financial statements of the Clayton Banks are prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP). The Clayton Banks have adopted various accounting policies that govern the application of GAAP and in accordance with general practices within the banking industry. The Clayton Banks significant accounting
policies are described in Note 1 to the Clayton Banks combined financial statements as of December 31, 2016, contained in Annex C of this proxy statement.
The Clayton Banks management believes that the Clayton Banks policies with respect to the methodology for the determination of the
allowance for loan losses, the valuation of goodwill, investment and other asset valuations and impairment charges involve a high degree of complexity and require management to make subjective judgments that often require assumptions or estimates
about highly uncertain matters. Accordingly, the Clayton Banks consider the policies related to those areas to be critical. The allowance for loan losses is an estimate of the losses that may be sustained in the Clayton Banks loan portfolio,
The allowance is based on two standards under GAAP: (i) ASC Topic 450, Contingencies, which requires that losses be accrued when probable of occurring and estimable, and (ii) ASC 310, Receivables, which requires that losses be accrued
based on differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market, and the loan balance.
The Clayton Banks allowance consists of specific and general components. The specific component relates to loans that are impaired under
GAAP. The general component covers
non-impaired
loans and is based on
C-53
historical loss experience by type of loan adjusted for qualitative factors including local and national economic circumstances. Because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurances that the existing allowance for loan losses is adequate. Any material increase in the allowance for loan losses may adversely affect the Clayton Banks financial condition and results of
operations.
Overview of Recent Financial Performance
For the three months ended March 31, 2017, net income was $10.2 million compared to $8.6 million for the three months ended
March 31, 2016. The Clayton Banks net income represented a ROAA of 3.46% and 3.25% for the three months ended March 31, 2017 and 2016, respectively and an ROAE of 19.78% and 18.02% for the same periods. Net interest income was
$15.5 million and $13.6 million for the three months ended March 31, 2017 and 2016, respectively.
For the year ended
December 31, 2016, net income was $36.4 million compared with $32.0 million and $28.1 million for the years ended December 31, 2015 and 2014. The Clayton Banks net income represented a ROAA of 3.30%, 3.25% and 3.04%
for the years ended December 31, 2016, 2015 and 2014, respectively and an ROAE of 17.77%, 17.69% and 17.21% for the same periods.
Net interest income for the years ended December 31, 2016, 2015, and 2014 was $56.2 million, $51.5 million, and
$48.2 million, respectively.
The Clayton Banks total assets increased $4.4 million during the three months ended
March 31, 2017 compared with $1,194.8 million as of December 31, 2016 and $1,061.1 million at December 31, 2015. The growth in 2016 was primarily attributable to increases in Banks deposits which grew
$116.9 million from $801.5 million at December 31, 2015. This increase in funding allowed the Clayton Banks to fund loan growth of $140.8 million from $911.8 million at December 31, 2015. This trend has continued into
the first quarter of 2017 with loan and deposit growth of $13.6 million and $10.3 million, respectively, for the three months ended March 31, 2017.
Results of Operations
Net interest
income
Three months ended March 31, 2017 compared to three months ended March 31, 2016
Net interest income is the Clayton Banks principal source of revenue. Net interest income increased 13.9% to $15.5 million in the
three months ended March 31, 2017 compared to $13.6 million for the three months ended March 31, 2016. The increase in net interest income was driven primarily by higher average loan balances. Interest income was $17.3 million
for the three months ended March 31, 2017 compared with $15.3 million for the same period in 2016. The two largest components of interest income are loan interest income and investment interest income. Loan interest income increased
$2.1 million to $16.7 million primarily due to increased loan balances.
Net interest margin (NIM) for the three months ended
March 31, 2017 was 5.40% compared to 5.29% for the three months ended March 31, 2016. This increase was driven by overall increased yields on interest earning assets while maintaining a relatively flat cost of funds. The largest
contributor to the NIM is the loan yield which was 6.30% and 6.45% for the three months ended March 31, 2017 and 2016, respectively. This was offset by a total cost of deposits of 0.63% and 0.65% for the three months ended March 31, 2017
and 2016 and total cost of interest bearing deposits of 0.80% and 0.78% for the same periods.
C-54
Average balance sheet amounts, interest earned and yield analysis
The table below shows the average balances, income and expense and yield rates of each of the Clayton Banks interest earning assets and
interest-bearing liabilities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
Balances
|
|
|
Interest
Income/
Expense
|
|
|
Average
yield/
rate
(1)
|
|
|
Average
Balances
|
|
|
Interest
Income/
Expense
|
|
|
Average
yield/
rate
(1)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,072,368
|
|
|
$
|
16,659
|
|
|
|
6.30
|
%
|
|
$
|
907,491
|
|
|
$
|
14,555
|
|
|
|
6.45
|
%
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
35,095
|
|
|
|
244
|
|
|
|
2.82
|
%
|
|
|
46,783
|
|
|
|
311
|
|
|
|
2.67
|
%
|
Tax-exempt
|
|
|
30,352
|
|
|
|
288
|
|
|
|
3.85
|
%
|
|
|
31,420
|
|
|
|
299
|
|
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
65,447
|
|
|
|
532
|
|
|
|
3.30
|
%
|
|
|
78,203
|
|
|
|
610
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds
|
|
|
2,143
|
|
|
|
4
|
|
|
|
0.76
|
%
|
|
|
11,064
|
|
|
|
12
|
|
|
|
0.44
|
%
|
Interest-bearing deposits with other financial institutions
|
|
|
21,764
|
|
|
|
42
|
|
|
|
0.78
|
%
|
|
|
34,320
|
|
|
|
33
|
|
|
|
0.39
|
%
|
FHLB stock
|
|
|
3,370
|
|
|
|
39
|
|
|
|
4.69
|
%
|
|
|
3,370
|
|
|
|
35
|
|
|
|
4.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
1,165,092
|
|
|
|
17,276
|
|
|
|
6.01
|
%
|
|
|
1,034,448
|
|
|
|
15,245
|
|
|
|
5.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
11,912
|
|
|
|
|
|
|
|
|
|
|
|
12,353
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(20,458
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,615
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
42,982
|
|
|
|
|
|
|
|
|
|
|
|
42,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earning assets
|
|
|
34,436
|
|
|
|
|
|
|
|
|
|
|
|
33,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,199,528
|
|
|
|
|
|
|
|
|
|
|
$
|
1,068,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
331,090
|
|
|
$
|
889
|
|
|
|
1.09
|
%
|
|
$
|
311,251
|
|
|
$
|
789
|
|
|
|
1.02
|
%
|
Money market
|
|
|
297,405
|
|
|
|
494
|
|
|
|
0.67
|
%
|
|
|
269,146
|
|
|
|
476
|
|
|
|
0.71
|
%
|
Negotiable order of withdrawals
|
|
|
66,445
|
|
|
|
41
|
|
|
|
0.25
|
%
|
|
|
65,186
|
|
|
|
40
|
|
|
|
0.25
|
%
|
Savings deposits
|
|
|
33,093
|
|
|
|
15
|
|
|
|
0.18
|
%
|
|
|
30,570
|
|
|
|
14
|
|
|
|
0.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
|
728,033
|
|
|
|
1,439
|
|
|
|
0.80
|
%
|
|
|
676,153
|
|
|
|
1,319
|
|
|
|
0.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
52,904
|
|
|
|
323
|
|
|
|
2.48
|
%
|
|
|
44,467
|
|
|
|
312
|
|
|
|
2.82
|
%
|
Federal funds purchased
|
|
|
812
|
|
|
|
6
|
|
|
|
3.00
|
%
|
|
|
342
|
|
|
|
2
|
|
|
|
2.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other interest-bearing liabilities
|
|
|
53,716
|
|
|
|
329
|
|
|
|
2.48
|
%
|
|
|
44,809
|
|
|
|
314
|
|
|
|
2.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
781,749
|
|
|
|
1,768
|
|
|
|
0.92
|
%
|
|
|
720,962
|
|
|
|
1,633
|
|
|
|
0.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
202,083
|
|
|
|
|
|
|
|
|
|
|
|
148,560
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,729
|
|
|
|
|
|
|
|
|
|
|
|
5,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
|
|
207,812
|
|
|
|
|
|
|
|
|
|
|
|
154,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
989,561
|
|
|
|
|
|
|
|
|
|
|
|
875,478
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
209,967
|
|
|
|
|
|
|
|
|
|
|
|
192,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,199,528
|
|
|
|
|
|
|
|
|
|
|
$
|
1,068,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
15,508
|
|
|
|
|
|
|
|
|
|
|
$
|
13,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
5.21
|
%
|
|
|
|
|
|
|
|
|
|
|
5.14
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
5.40
|
%
|
|
|
|
|
|
|
|
|
|
|
5.29
|
%
|
Average interest-bearing assets to average interesting-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
149.04
|
%
|
|
|
|
|
|
|
|
|
|
|
143.48
|
%
|
(1)
|
Yields do not include any tax equivalent adjustments which were not considered material.
|
C-55
Year ended December 31, 2016 compared to year ended December 31, 2015
The Clayton Banks net interest income increased approximately $4.7 million for the year ended December 31, 2016 to
$56.2 million, compared to the year ended December 31, 2015.
The increase for the year ended December 31, 2016, compared
to 2015, was primarily attributable to higher interest income on loans driven by increased volume. The increase in net interest income was driven primarily by higher average loan balances. Interest income was $63.0 million for the year ended
December 31, 2016 compared with $57.6 million for the year ended December 31, 2015. The two largest components of interest income are loan interest income and investment interest income. Loan interest income increased
$5.7 million to $60.3 million primarily due to increased loan balances.
Net interest margin for the year ended
December 31, 2016 was 5.25% compared to 5.40% for the year ended December 31, 2015. The largest contributor to the decrease in NIM is the loan yield which declined 30 basis points to 6.32% for the year ended December 31, 2016. This
decrease was offset by a slight increase in total cost of deposits of 0.65% and 0.64% for the years ended December 31, 2016 and 2015, respectively, and total cost of interest bearing deposits of 0.80% and 0.77% for the same periods.
Year ended December 31, 2015 compared to year ended December 31, 2014
For the year ended December 31, 2015, net interest income was $3.3 million higher than for the year ended December 31, 2014. The
increase in net interest income was driven primarily by higher average loan balances. Interest income was $57.6 million for the year ended December 31, 2015 compared with $53.9 million for the year ended December 31, 2014. The
two largest components of interest income are loan interest income and investment interest income. Loan interest income increased $4.0 million to $54.6 million primarily due to increased loan balances.
Net interest margin for the year ended December 31, 2015 was 5.40% compared to 5.44% for the year ended December 31, 2014. The
largest contributor to the NIM is the loan yield which was 6.62% and 6.70% for the years ended December 31, 2015 and 2014, respectively. This was partially offset by a total cost of deposits of 0.64% and 0.65% for the years ended
December 31, 2015 and 2014 and total cost of interest bearing deposits of 0.77% and 0.78% for the same periods.
C-56
Average balance sheet amounts, interest earned and yield analysis
The table below shows the average balances, income and expense and yield rates of each of the Clayton Banks interest earning assets and
interest-bearing liabilities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Average
Balances
|
|
|
Interest
Income/
Expense
|
|
|
Average
yield/
rate
(1)
|
|
|
Average
Balances
|
|
|
Interest
Income/
Expense
|
|
|
Average
yield/
rate
(1)
|
|
|
Average
Balances
|
|
|
Interest
Income/
Expense
|
|
|
Average
yield/
rate
(1)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
954,153
|
|
|
$
|
60,331
|
|
|
|
6.32
|
%
|
|
$
|
825,444
|
|
|
$
|
54,637
|
|
|
|
6.62
|
%
|
|
$
|
756,061
|
|
|
$
|
50,688
|
|
|
|
6.70
|
%
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
43,505
|
|
|
|
1,129
|
|
|
|
2.60
|
%
|
|
|
52,863
|
|
|
|
1,414
|
|
|
|
2.67
|
%
|
|
|
64,565
|
|
|
|
1,691
|
|
|
|
2.62
|
%
|
Tax-exempt
|
|
|
30,712
|
|
|
|
1,164
|
|
|
|
3.79
|
%
|
|
|
32,621
|
|
|
|
1,243
|
|
|
|
3.81
|
%
|
|
|
33,492
|
|
|
|
1,270
|
|
|
|
3.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
74,217
|
|
|
|
2,293
|
|
|
|
3.09
|
%
|
|
|
85,484
|
|
|
|
2,657
|
|
|
|
3.11
|
%
|
|
|
98,057
|
|
|
|
2,961
|
|
|
|
3.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds
|
|
|
4,248
|
|
|
|
31
|
|
|
|
0.73
|
%
|
|
|
8,385
|
|
|
|
26
|
|
|
|
0.31
|
%
|
|
|
14,168
|
|
|
|
66
|
|
|
|
0.47
|
%
|
Interest-bearing deposits with other financial institutions
|
|
|
34,763
|
|
|
|
175
|
|
|
|
0.50
|
%
|
|
|
31,109
|
|
|
|
91
|
|
|
|
0.29
|
%
|
|
|
14,683
|
|
|
|
66
|
|
|
|
0.45
|
%
|
FHLB stock
|
|
|
3,370
|
|
|
|
135
|
|
|
|
4.01
|
%
|
|
|
3,370
|
|
|
|
135
|
|
|
|
4.01
|
%
|
|
|
3,367
|
|
|
|
135
|
|
|
|
4.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
1,070,751
|
|
|
|
62,965
|
|
|
|
5.88
|
%
|
|
|
953,792
|
|
|
|
57,546
|
|
|
|
6.03
|
%
|
|
|
886,336
|
|
|
|
53,916
|
|
|
|
6.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
10,250
|
|
|
|
|
|
|
|
|
|
|
|
10,401
|
|
|
|
|
|
|
|
|
|
|
|
14,466
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(21,382
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,423
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,924
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
42,090
|
|
|
|
|
|
|
|
|
|
|
|
44,363
|
|
|
|
|
|
|
|
|
|
|
|
46,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earning assets
|
|
|
30,958
|
|
|
|
|
|
|
|
|
|
|
|
32,341
|
|
|
|
|
|
|
|
|
|
|
|
36,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,101,709
|
|
|
|
|
|
|
|
|
|
|
$
|
986,133
|
|
|
|
|
|
|
|
|
|
|
$
|
923,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
319,472
|
|
|
$
|
3,541
|
|
|
|
1.11
|
%
|
|
$
|
309,477
|
|
|
$
|
3,288
|
|
|
|
1.06
|
%
|
|
$
|
327,504
|
|
|
$
|
3,688
|
|
|
|
1.13
|
%
|
Money market
|
|
|
272,814
|
|
|
|
1,725
|
|
|
|
0.63
|
%
|
|
|
225,162
|
|
|
|
1,327
|
|
|
|
0.59
|
%
|
|
|
183,254
|
|
|
|
760
|
|
|
|
0.41
|
%
|
Negotiable order of withdrawals
|
|
|
63,113
|
|
|
|
155
|
|
|
|
0.25
|
%
|
|
|
57,205
|
|
|
|
141
|
|
|
|
0.25
|
%
|
|
|
57,054
|
|
|
|
152
|
|
|
|
0.27
|
%
|
Savings deposits
|
|
|
31,644
|
|
|
|
62
|
|
|
|
0.20
|
%
|
|
|
29,925
|
|
|
|
59
|
|
|
|
0.20
|
%
|
|
|
30,630
|
|
|
|
62
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
|
687,043
|
|
|
|
5,483
|
|
|
|
0.80
|
%
|
|
|
621,769
|
|
|
|
4,815
|
|
|
|
0.77
|
%
|
|
|
598,442
|
|
|
|
4,662
|
|
|
|
0.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
47,481
|
|
|
|
1,265
|
|
|
|
2.66
|
%
|
|
|
44,077
|
|
|
|
1,247
|
|
|
|
2.83
|
%
|
|
|
36,310
|
|
|
|
1,057
|
|
|
|
2.91
|
%
|
Federal funds purchased
|
|
|
464
|
|
|
|
7
|
|
|
|
1.51
|
%
|
|
|
428
|
|
|
|
6
|
|
|
|
1.40
|
%
|
|
|
783
|
|
|
|
7
|
|
|
|
0.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other interest-bearing liabilities
|
|
|
47,945
|
|
|
|
1,272
|
|
|
|
2.65
|
%
|
|
|
44,505
|
|
|
|
1,253
|
|
|
|
2.82
|
%
|
|
|
37,093
|
|
|
|
1,064
|
|
|
|
2.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
734,988
|
|
|
|
6,755
|
|
|
|
0.92
|
%
|
|
|
666,274
|
|
|
|
6,068
|
|
|
|
0.91
|
%
|
|
|
635,535
|
|
|
|
5,726
|
|
|
|
0.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
156,198
|
|
|
|
|
|
|
|
|
|
|
|
133,232
|
|
|
|
|
|
|
|
|
|
|
|
119,254
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,820
|
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
5,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
|
|
162,018
|
|
|
|
|
|
|
|
|
|
|
|
138,640
|
|
|
|
|
|
|
|
|
|
|
|
124,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
897,006
|
|
|
|
|
|
|
|
|
|
|
|
804,914
|
|
|
|
|
|
|
|
|
|
|
|
760,006
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
204,703
|
|
|
|
|
|
|
|
|
|
|
|
181,219
|
|
|
|
|
|
|
|
|
|
|
|
163,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,101,709
|
|
|
|
|
|
|
|
|
|
|
$
|
986,133
|
|
|
|
|
|
|
|
|
|
|
$
|
923,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
56,210
|
|
|
|
|
|
|
|
|
|
|
$
|
51,478
|
|
|
|
|
|
|
|
|
|
|
$
|
48,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
4.96
|
%
|
|
|
|
|
|
|
|
|
|
|
5.12
|
%
|
|
|
|
|
|
|
|
|
|
|
5.18
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
5.25
|
%
|
|
|
|
|
|
|
|
|
|
|
5.40
|
%
|
|
|
|
|
|
|
|
|
|
|
5.44
|
%
|
Average interest-bearing assets to average interesting-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
145.68
|
%
|
|
|
|
|
|
|
|
|
|
|
143.15
|
%
|
|
|
|
|
|
|
|
|
|
|
139.46
|
%
|
(1)
|
Yields do not include any tax equivalent adjustments which were not considered material.
|
C-57
Rate/volume analysis
The tables below present the components of the changes in net interest income for the three months ended March 31, 2017 and 2016 and each
of the years ended December 31, 2016, 2015, and 2014. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to rates, with the
changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Three months ended
March 31, 2017
compared to three
months ended
March 31, 2016
due to change in
Net
increase
(decrease)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,561
|
|
|
$
|
(457
|
)
|
|
$
|
2,104
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(81
|
)
|
|
|
14
|
|
|
|
(67
|
)
|
Tax exempt
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(11
|
)
|
Federal funds sold and balances at Federal Reserve Bank
|
|
|
(17
|
)
|
|
|
9
|
|
|
|
(8
|
)
|
Interest-bearing deposits with other financial institutions
|
|
|
(24
|
)
|
|
|
33
|
|
|
|
9
|
|
FHLB stock
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
2,429
|
|
|
$
|
(398
|
)
|
|
$
|
2,031
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
53
|
|
|
|
47
|
|
|
|
100
|
|
Money market
|
|
|
47
|
|
|
|
(29
|
)
|
|
|
18
|
|
Negotiable order of withdrawals accounts
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Savings deposits
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Other borrowings
|
|
|
52
|
|
|
|
(41
|
)
|
|
|
11
|
|
Federal funds purchased
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
157
|
|
|
|
(22
|
)
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
2,272
|
|
|
$
|
(376
|
)
|
|
$
|
1,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-58
Three months ended March 31, 2017 compared to three months ended March 31, 2016
As shown above, the $2.1 million increase in loan interest income during the three months ended March 31, 2017 compared to the three
months ended March 31, 2016 was the primary driver of the $1.9 million increase in net interest income. The increase in loan interest income was driven by an increase in average loan balances of $164.9 million or 18.2%, to
$1.1 billion as of March 31, 2017, as compared to $907.5 million as of March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Year ended
December 31, 2016
compared to year
ended
December 31, 2015
due to change in
Net
increase
(decrease)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
8,138
|
|
|
$
|
(2,444
|
)
|
|
$
|
5,694
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(243
|
)
|
|
|
(42
|
)
|
|
|
(285
|
)
|
Tax exempt
|
|
|
(72
|
)
|
|
|
(7
|
)
|
|
|
(79
|
)
|
Federal funds sold and balances at Federal Reserve Bank
|
|
|
(30
|
)
|
|
|
35
|
|
|
|
5
|
|
Interest-bearing deposits with other financial institutions
|
|
|
18
|
|
|
|
66
|
|
|
|
84
|
|
FHLB stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
7,811
|
|
|
$
|
(2,392
|
)
|
|
$
|
5,419
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
111
|
|
|
|
142
|
|
|
|
253
|
|
Money market
|
|
|
301
|
|
|
|
97
|
|
|
|
398
|
|
Negotiable order of withdrawals accounts
|
|
|
15
|
|
|
|
(1
|
)
|
|
|
14
|
|
Savings deposits
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Other borrowings
|
|
|
91
|
|
|
|
(73
|
)
|
|
|
18
|
|
Federal funds purchased
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
522
|
|
|
|
165
|
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
7,289
|
|
|
$
|
(2,557
|
)
|
|
$
|
4,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-59
Year ended December 31, 2016 compared to year ended December 31, 2015
As shown above, the $5.7 million increase in loan interest income during the year ended December 31, 2016 compared to the year ended
December 31, 2015 was the primary driver of the $4.7 million increase in net interest income. The increase in loan interest income was driven by an increase in average loan balances of $128.7 million or 15.6%, to $954.2 million
as of December 31, 2016 as compared to $825.4 million as of December 31, 2015. This increase in interest income was partially offset by an increase of $0.7 million in interest expense driven primarily by increases in volume and
rate on time deposit and money market deposit accounts amounting to $0.3 million and $0.4 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Year ended
December 31, 2015
compared to year
ended
December 31, 2014
due to change in
Net increase
(decrease)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
4,593
|
|
|
$
|
(644
|
)
|
|
$
|
3,949
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(313
|
)
|
|
|
36
|
|
|
|
(277
|
)
|
Tax exempt
|
|
|
(33
|
)
|
|
|
6
|
|
|
|
(27
|
)
|
Federal funds sold and balances at Federal Reserve Bank
|
|
|
(18
|
)
|
|
|
(22
|
)
|
|
|
(40
|
)
|
Interest-bearing deposits with other financial institutions
|
|
|
48
|
|
|
|
(23
|
)
|
|
|
25
|
|
FHLB stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
4,277
|
|
|
$
|
(647
|
)
|
|
$
|
3,630
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
(192
|
)
|
|
|
(208
|
)
|
|
|
(400
|
)
|
Money market
|
|
|
247
|
|
|
|
320
|
|
|
|
567
|
|
Negotiable order of withdrawals accounts
|
|
|
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Savings deposits
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Other borrowings
|
|
|
220
|
|
|
|
(30
|
)
|
|
|
190
|
|
Federal funds purchased
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
269
|
|
|
|
73
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
4,008
|
|
|
$
|
(720
|
)
|
|
$
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2015 compared to year ended December 31, 2014
As shown above, the $4.0 million increase in loan interest income during the year ended December 31, 2015 compared to the year ended
December 31, 2014 was the primary driver of the $3.3 million increase in net interest income. The increase in loan interest income was driven by an increase in average loan balances of $69.4 million or 9.2%, to $825.4 million as
of December 31, 2015 as compared to $756.1 million as of December 31, 2014. This increase in interest income was partially offset by an increase of $0.3 million in interest expense driven primarily by increases in volume and rate
on money market deposit accounts amounting to $0.6 million offset by decrease in volume and rate in time deposit accounts amounting to $0.4 million.
Provision for loan losses
The provision
for loan losses is an amount which, in the judgment of management, is necessary to maintain the allowance for loan losses at a level that is believed to be adequate to meet the inherent risks of the losses in the Clayton Banks loan portfolio.
The determination of the amount is complex and involves a high degree of subjectivity.
C-60
The Clayton Banks provision for loan losses was $0.2 million during the three months
ended March 31, 2017 compared to $0.0 million during the same period in 2016. The increase in provision is mainly attributable to loan growth of 1.3% from December 31, 2016.
The Clayton Banks provision for loan losses was $1.0 million, $0.4 million, and $0.2 million for the years ended
December 31, 2016, 2015, and 2014, respectively. The increase in provision during the year ended December 31, 2016 compared with the years ended December 31, 2015 and 2014 was primarily driven by annual loan growth of 15.4% and 17.2%
for years ending December 31, 2016 and 2015, respectively. While loan growth was strong, net charge-offs on loans was relatively flat at .25% and .21% of average loans for years ended December 31, 2016 and 2015, respectively During the
economic downturn, the Clayton Banks significantly increased its provision for loan losses as a result of increased historical credit losses and increases in levels of
non-performing
loans. The Clayton
Banks level of
non-performing
loans began decreasing in the second half of 2012, and the amount of provision for loan losses began decreasing in 2013 and has since maintained at a level consistently
below $1.0 million reflecting improvement in loan credit quality offset by overall loan growth.
The following table presents the allocation of the
allowance for loan losses by loan category as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
(dollars in thousands)
|
|
Amount
|
|
|
% of loans
|
|
|
Amount
|
|
|
% of loans
|
|
Loan Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,551
|
|
|
|
8
|
%
|
|
$
|
3,522
|
|
|
|
16
|
%
|
Commercial real estate
|
|
|
5,385
|
|
|
|
26
|
%
|
|
|
6,590
|
|
|
|
31
|
%
|
Commercial and agriculture
|
|
|
3,084
|
|
|
|
15
|
%
|
|
|
1,747
|
|
|
|
8
|
%
|
Consumer real estate
|
|
|
1,671
|
|
|
|
8
|
%
|
|
|
1,281
|
|
|
|
6
|
%
|
Consumer
|
|
|
403
|
|
|
|
2
|
%
|
|
|
804
|
|
|
|
4
|
%
|
Manufactured homes
|
|
|
8,425
|
|
|
|
41
|
%
|
|
|
7,481
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
20,519
|
|
|
|
100
|
%
|
|
$
|
21,425
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
(dollars in thousands)
|
|
Amount
|
|
|
% of loans
|
|
|
Amount
|
|
|
% of loans
|
|
|
Amount
|
|
|
% of loans
|
|
|
Amount
|
|
|
% of loans
|
|
|
Amount
|
|
|
% of loans
|
|
Loan Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
1,660
|
|
|
|
8
|
%
|
|
$
|
3,561
|
|
|
|
16
|
%
|
|
$
|
4,237
|
|
|
|
19
|
%
|
|
$
|
5,192
|
|
|
|
21
|
%
|
|
$
|
5,928
|
|
|
|
23
|
%
|
Commercial real estate
|
|
|
5,353
|
|
|
|
27
|
%
|
|
|
6,582
|
|
|
|
30
|
%
|
|
|
6,981
|
|
|
|
30
|
%
|
|
|
7,505
|
|
|
|
31
|
%
|
|
|
7,742
|
|
|
|
30
|
%
|
Commercial and agriculture
|
|
|
2,900
|
|
|
|
14
|
%
|
|
|
1,811
|
|
|
|
8
|
%
|
|
|
2,823
|
|
|
|
12
|
%
|
|
|
2,912
|
|
|
|
12
|
%
|
|
|
3,872
|
|
|
|
15
|
%
|
Consumer real estate
|
|
|
1,399
|
|
|
|
7
|
%
|
|
|
1,446
|
|
|
|
7
|
%
|
|
|
1,856
|
|
|
|
8
|
%
|
|
|
2,059
|
|
|
|
8
|
%
|
|
|
2,388
|
|
|
|
9
|
%
|
Consumer
|
|
|
480
|
|
|
|
2
|
%
|
|
|
859
|
|
|
|
4
|
%
|
|
|
1,004
|
|
|
|
4
|
%
|
|
|
1,067
|
|
|
|
4
|
%
|
|
|
753
|
|
|
|
3
|
%
|
Manufactured homes
|
|
|
8,603
|
|
|
|
42
|
%
|
|
|
7,521
|
|
|
|
35
|
%
|
|
|
6,207
|
|
|
|
27
|
%
|
|
|
5,879
|
|
|
|
24
|
%
|
|
|
5,137
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
20,395
|
|
|
|
100
|
%
|
|
$
|
21,780
|
|
|
|
100
|
%
|
|
$
|
23,108
|
|
|
|
100
|
%
|
|
$
|
24,614
|
|
|
|
100
|
%
|
|
$
|
25,820
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-61
The following table contains an analysis of the Clayton Banks allowance for loan losses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Allowance at beginning of period
|
|
$
|
20,395
|
|
|
$
|
21,780
|
|
|
$
|
21,780
|
|
|
$
|
23,108
|
|
|
$
|
24,614
|
|
|
$
|
25,819
|
|
|
$
|
22,612
|
|
Provision for loan losses
|
|
|
230
|
|
|
|
|
|
|
|
978
|
|
|
|
419
|
|
|
|
160
|
|
|
|
728
|
|
|
|
8,008
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
|
|
|
|
|
42
|
|
|
|
66
|
|
|
|
341
|
|
|
|
220
|
|
|
|
307
|
|
|
|
457
|
|
Commercial real estate
|
|
|
16
|
|
|
|
|
|
|
|
50
|
|
|
|
166
|
|
|
|
432
|
|
|
|
784
|
|
|
|
2,276
|
|
Commercial and agriculture
|
|
|
63
|
|
|
|
75
|
|
|
|
543
|
|
|
|
34
|
|
|
|
199
|
|
|
|
551
|
|
|
|
1,260
|
|
Consumer real estate
|
|
|
|
|
|
|
173
|
|
|
|
373
|
|
|
|
374
|
|
|
|
266
|
|
|
|
441
|
|
|
|
652
|
|
Consumer
|
|
|
78
|
|
|
|
76
|
|
|
|
577
|
|
|
|
473
|
|
|
|
610
|
|
|
|
557
|
|
|
|
525
|
|
Manufactured homes
|
|
|
207
|
|
|
|
71
|
|
|
|
1,136
|
|
|
|
810
|
|
|
|
501
|
|
|
|
345
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
364
|
|
|
|
437
|
|
|
|
2,745
|
|
|
|
2,198
|
|
|
|
2,228
|
|
|
|
2,985
|
|
|
|
5,613
|
|
Recoveries of loans previously
charged-off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
|
1
|
|
|
|
3
|
|
|
|
10
|
|
|
|
12
|
|
|
|
131
|
|
|
|
334
|
|
|
|
46
|
|
Commercial real estate
|
|
|
8
|
|
|
|
8
|
|
|
|
31
|
|
|
|
30
|
|
|
|
150
|
|
|
|
145
|
|
|
|
203
|
|
Commercial and industrial
|
|
|
16
|
|
|
|
11
|
|
|
|
105
|
|
|
|
85
|
|
|
|
56
|
|
|
|
127
|
|
|
|
318
|
|
Consumer real estate
|
|
|
192
|
|
|
|
8
|
|
|
|
45
|
|
|
|
45
|
|
|
|
25
|
|
|
|
252
|
|
|
|
8
|
|
Consumer
|
|
|
12
|
|
|
|
21
|
|
|
|
73
|
|
|
|
138
|
|
|
|
90
|
|
|
|
111
|
|
|
|
25
|
|
Manufactured homes
|
|
|
29
|
|
|
|
31
|
|
|
|
118
|
|
|
|
141
|
|
|
|
110
|
|
|
|
83
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
258
|
|
|
|
82
|
|
|
|
382
|
|
|
|
451
|
|
|
|
562
|
|
|
|
1,052
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged off (recoveries)
|
|
|
106
|
|
|
|
355
|
|
|
|
2,363
|
|
|
|
1,747
|
|
|
|
1,666
|
|
|
|
1,933
|
|
|
|
4,801
|
|
Balance at end of period
|
|
$
|
20,519
|
|
|
$
|
21,425
|
|
|
$
|
20,395
|
|
|
$
|
21,780
|
|
|
$
|
23,108
|
|
|
$
|
24,614
|
|
|
$
|
25,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non performing loans
|
|
|
198.69
|
%
|
|
|
193.65
|
%
|
|
|
178.29
|
%
|
|
|
195.97
|
%
|
|
|
142.72
|
%
|
|
|
152.64
|
%
|
|
|
186.58
|
%
|
Allowance for loan losses to end of period loans
|
|
|
1.92
|
%
|
|
|
2.37
|
%
|
|
|
1.94
|
%
|
|
|
2.39
|
%
|
|
|
2.97
|
%
|
|
|
3.29
|
%
|
|
|
3.48
|
%
|
Three months ended March 31, 2017 compared to three months ended March 31, 2016
The Clayton Banks allowance continues to exceed 100% of nonperforming loans for all periods shown. In addition, substantially all of the
Clayton Banks nonperforming assets are collateralized and therefore the Clayton Banks management anticipates that liquidation of collateral will repay a portion of the outstanding balance of the nonperforming loan due to the Clayton
Banks. The Clayton Banks also have personal guarantees on many of their business loans. The Clayton Banks actively monitor collateral levels on loans for those credits which are risk rated Watch or worse.
For the three months ended March 31, 2017, the Clayton Banks incurred net charge-offs of $0.1 million compared with
$0.4 million for the same period of 2016. Net charge-offs for the three months ended March 31, 2017 were approximately 0.04% of average outstanding loans. This compares to 0.16% of average loans for the three months ended March 31,
2016.
Year ended December 31, 2016 compared to year ended December 31, 2015
For the year ended December 31, 2016, the Clayton Banks incurred net charge-offs of $2.4 million compared $1.8 million for the
same period of 2015. Net charge-offs for the year ended December 31, 2016, were approximately 0.25% of average outstanding loans. This compares to 0.21% of average loans for the year ended December 31, 2015.
C-62
Year ended December 31, 2015 compared to year ended December 31, 2014
For the year ended December 31, 2015, the Clayton Banks incurred net charge-offs of $1.8 million compared with $1.7 million for
the same period of 2014. Net charge-offs for the year ended December 31, 2015 were approximately 0.21% of average outstanding loans. This compares to 0.22% of average loans for the year ended December 31, 2014.
Non-interest
income
The following table summarizes the Clayton Banks
non-interest
income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service charges and other fees
|
|
$
|
200
|
|
|
$
|
198
|
|
|
$
|
872
|
|
|
$
|
943
|
|
|
$
|
1,018
|
|
Trust fee income
|
|
|
221
|
|
|
|
172
|
|
|
|
777
|
|
|
|
733
|
|
|
|
706
|
|
Net (loss) gain on sale of other real estate owned and fixed assets
|
|
|
(51
|
)
|
|
|
(117
|
)
|
|
|
(290
|
)
|
|
|
439
|
|
|
|
(219
|
)
|
Loan servicing income
|
|
|
549
|
|
|
|
475
|
|
|
|
1,970
|
|
|
|
1,649
|
|
|
|
1,510
|
|
Other noninterest income
|
|
|
624
|
|
|
|
543
|
|
|
|
3,149
|
|
|
|
2,026
|
|
|
|
1,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income, net
|
|
$
|
1,543
|
|
|
$
|
1,271
|
|
|
$
|
6,478
|
|
|
$
|
5,790
|
|
|
$
|
4,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017 compared to three months ended March 31, 2016
Service charges and other fees on deposit accounts were $0.2 million for the three months ended March 31, 2017, relatively stable
with the same period in 2016.
The Clayton Banks operate a trust department and income for the three months ended March 31, 2017 was
$0.2 million, showing a slight increase from the same period in the previous year due to increases in assets under management from $0.4 million to $0.5 million.
Net loss on sale of other real estate owned and fixed assets amounted to $51 thousand for the three months ended March 31, 2017
compared with $0.1 million for the same period in the previous year. Activity is related to specific sales and valuation transactions of other real estate and fixed assets.
Loan servicing income for the three months ended March 31, 2017 was $0.6 million, an increase of 15.6% from the three months ended
March 31, 2016 of $0.5 million. This is due to an increase in volume in loan servicing of $71 million.
Other
non-interest
income for the three months ended March 31, 2017 was $0.6 million compared with $0.5 million in the same period in 2016. The increase is due to the Clayton Banks overall growth.
Year ended December 31, 2016 compared to year ended December 31, 2015
Service charges and fees on deposit accounts were $0.9 million for both the years ended December 31, 2016 and 2015.
Trust fee income for the year ended December 31, 2016 was $0.8 million compared with $0.7 million for the year ended
December 31, 2015. This increase is due to an 11.8% increase in assets under management or $50 million during 2016.
Net loss on
sale of other real estate owned and fixed assets was $0.3 million for the year ended December 31, 2016 compared with a net gain of $0.4 million for the year ended December 31, 2015. Activity is related to specific sales and
valuation transactions of other real estate and fixed assets.
C-63
Loan servicing income for the year ended December 31, 2016 was $2.0 million, an
increase of 19.5% from the year ended December 31, 2015 of $1.6 million. This is due to an increase in volume in loan servicing of $80 million.
Other
non-interest
income for the year ended December 31, 2016 was $3.1 million compared
with $2.0 million in the same period in 2015. The increase is due to the Clayton Banks overall growth and economic conditions.
Year ended
December 31, 2015 compared to year ended December 31, 2014
Service charges and fees on deposit accounts were
$0.9 million for the year ended December 31, 2015 compared with $1.0 million for the year ended December 31, 2014.
Trust fee income for the years ended December 31, 2015 and 2014 was flat at $0.7 million in both periods.
Net gain on sale of other real estate owned and fixed assets was $0.4 million for the year ended December 31, 2015 compared with a
net loss of $0.2 million for the year ended December 31, 2014. Activity is related to specific sales and valuation transactions of other real estate and fixed assets.
Loan servicing income for the year ended December 31, 2015 was $1.6 million compared to $1.5 million for the year ended
December 31, 2014. This is due to an increase in volume in loan servicing of $80 million.
Other
non-interest
income for the year ended December 31, 2015 was $2.0 million compared with $1.9 million in the same period in 2014. The increase is due to the Clayton Banks overall growth.
Non-interest
expense
The following table summarizes the Clayton Banks
non-interest
expense for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Salaries and employee benefits
|
|
$
|
3,624
|
|
|
$
|
3,754
|
|
|
$
|
14,792
|
|
|
$
|
14,703
|
|
|
$
|
14,908
|
|
Occupancy and equipment
|
|
|
678
|
|
|
|
600
|
|
|
|
2,383
|
|
|
|
2,329
|
|
|
|
2,364
|
|
FDIC and state banking fees
|
|
|
108
|
|
|
|
154
|
|
|
|
642
|
|
|
|
609
|
|
|
|
618
|
|
Collection expense
|
|
|
77
|
|
|
|
84
|
|
|
|
305
|
|
|
|
312
|
|
|
|
601
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
14
|
|
|
|
29
|
|
|
|
58
|
|
|
|
138
|
|
Professional fees
|
|
|
176
|
|
|
|
76
|
|
|
|
331
|
|
|
|
416
|
|
|
|
417
|
|
Other
non-interest
expenses
|
|
|
1,048
|
|
|
|
911
|
|
|
|
4,212
|
|
|
|
3,793
|
|
|
|
3,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
expense
|
|
$
|
5,711
|
|
|
$
|
5,593
|
|
|
$
|
22,694
|
|
|
$
|
22,220
|
|
|
$
|
22,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017 compared to three months ended March 31, 2016
Salaries and employee benefits expense was $3.6 million for the three months ended March 31, 2017 compared with $3.8 million in
the same period in 2016. The decrease is mainly attributable to the Clayton Banks restructuring in preparation of the Clayton Banks merger with FirstBank related to certain benefits.
Occupancy and equipment expense was $0.7 million in the three months ended March 31, 2017 compared with $0.6 million for the
three months ended March 31, 2016. The slight increase is attributable to increases in lease expense and property taxes.
FDIC and
state banking fees were $0.1 million during the three months ended March 31, 2017 compared with $0.2 million in the three months ended March 31, 2016. This slight decline is due to a decrease in state banking fees for the first
quarter of 2017.
C-64
Collection expense was $77 thousand for the three months ended March 31, 2017 compared
with $84 thousand for the three months ended March 31, 2016.
Amortization of intangible assets was $0 for the three months
ended March 31, 2017 compared with $14 thousand during the three months ended March 31, 2016. This decline is due to the Clayton Banks core intangible asset becoming fully depreciated during the year ended December 31,
2016.
Professional fees were $0.2 million during the three months ended March 31, 2017 compared with $0.1 million during
the three months ended March 31, 2016. This increase is due to costs associated with the Clayton Banks pending merger with FirstBank.
Other
non-interest
expenses were $1.0 million for the three months ended March 31, 2017
compared with $0.9 million for the same period in the prior year. The increase is mainly attributable to the Clayton Banks overall balance sheet growth.
Year ended December 31, 2016 compared to year ended December 31, 2015
Salaries and employee benefits expense was $14.8 million for the year ended December 31, 2016 compared with $14.7 million for
the year ended December 31, 2015. This increase is due to expansion of the Clayton Banks team associated with the Clayton Banks growth and increased volume.
Occupancy and equipment expense was $2.4 million for the year ended December 31, 2016, a slight increase from $2.3 million for
the year ended December 31, 2015.
FDIC and state banking fees were also flat at $0.6 million for both the years ended
December 31, 2016 and 2015.
Collection expense was $0.3 million for the year ended December 31, 2016, relatively flat with
the previous year.
Amortization of intangible assets was $29 thousand for the year ended December 31, 2016 compared with
$58 thousand for the year ended December 31, 2015. This decline is due to the core deposit intangible being fully amortized during the year ended December 31, 2016.
Professional fees declined to $0.3 million in the year ended December 31, 2016 from $0.4 million for the year ended
December 31, 2015.
Other
non-interest
expense was $4.2 million for the year ended
December 31, 2016 compared with $3.8 million for the year ended December 31, 2015. The increase in expense is a result of the Clayton Banks overall balance sheet growth.
Year ended December 31, 2015 compared to year ended December 31, 2014
Salaries and employee benefits expense was $14.7 million for the year ended December 31, 2015 compared with $14.9 million for
the year ended December 31, 2014. This decrease is personnel costs as a result of a reduction in head count as the Clayton Banks leveraged technology to reduce staffing costs.
Occupancy and equipment expense was $2.3 million for the year ended December 31, 2015, a slight decrease from $2.4 million for
the year ended December 31, 2014.
FDIC and state banking fees were also flat at $0.6 million for both the years ended
December 31, 2015 and 2014.
C-65
Collection expense was $0.3 million for the year ended December 31, 2015, declining
from $0.6 million for the year ended December 31, 2014. This decrease is primarily due to a decrease in other real estate owned during 2015 by $3.0 million from 2014.
Amortization of intangible assets was $58 thousand for the year ended December 31, 2015 compared with $138 thousand for the
year ended December 31, 2014. This decline is due to the amortization method being used.
Professional fees declined to
$0.4 million in the year ended December 31, 2015, remaining flat from the year ended December 31, 2014.
Other
non-interest
expense was $3.8 million for the year ended December 31, 2015 compared with $3.5 million for the year ended December 31, 2014. The increase in expense is a result of the Clayton
Banks overall balance sheet growth during the year ended December 31, 2015.
Return on equity and assets
The following table sets forth the Clayton Banks ROAA, ROAE, dividend payout ratio and average shareholders equity to average
assets ratio for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Return on average total assets
(1)
|
|
|
3.46
|
%
|
|
|
3.25
|
%
|
|
|
3.30
|
%
|
|
|
3.25
|
%
|
|
|
3.04
|
%
|
Return on average shareholders equity
(1)
|
|
|
17.50
|
%
|
|
|
18.02
|
%
|
|
|
17.77
|
%
|
|
|
17.69
|
%
|
|
|
17.21
|
%
|
Dividend payout ratio
|
|
|
102.06
|
%
|
|
|
127.51
|
%
|
|
|
52.86
|
%
|
|
|
0.00
|
%
|
|
|
43.04
|
%
|
Average shareholders equity to average assets
|
|
|
17.50
|
%
|
|
|
18.03
|
%
|
|
|
18.58
|
%
|
|
|
18.38
|
%
|
|
|
17.69
|
%
|
Income tax
Income tax expense was $0.9 million for the three months ended March 31, 2017 compared with $0.7 million for the three months
ended March 31, 2016. The effective tax rates were 7.84% and 7.14% for the three months ended March 31, 2017 and 2016, respectively.
Income tax expense was $2.6 million, $2.6 million and $2.3 million in 2016, 2015,
and 2014, respectively. The effective tax rates are 6.76%, 7.45% and 7.42% for years ended December 31, 2016, 2015 and 2014, respectively. The Clayton Banks have elected to be taxed as an S Corporation. Under these provisions, the Clayton Banks
do not pay corporate U.S. federal income tax on taxable income. Instead, the Clayton Banks taxable income is passed through to the shareholder of Clayton HC, Inc. The Clayton Banks effective tax rate reflects the Clayton
Banks liability for the state of Tennessee, which are not passed through to the shareholder, but paid directly by the Banks and Clayton HC, Inc.
Financial Condition
Total Assets
The Clayton Banks total assets grew to $1.2 billion as of March 31, 2017. This compares to $1.2 billion as of
December 31, 2016 and $1.1 billion at December 31, 2015. A portion of the growth in the Clayton Banks balance sheet was attributable to increased
non-interest
bearing deposits of
$11.6 million for the three months ended March 31, 2017 and $46.6 million for the year ended December 31, 2016. These funds were used to fund loan growth, increasing total loans at March 31, 2017 by $13.6 million from
$1.1 billion at December 31, 2016 and $911.8 million at December 31, 2015.
C-66
Loan Portfolio
The following table summarizes CBTs loan portfolio as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
Loan Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
116,828
|
|
|
|
11
|
%
|
|
$
|
147,182
|
|
|
|
14
|
%
|
|
$
|
107,163
|
|
|
|
12
|
%
|
|
$
|
77,114
|
|
|
|
10
|
%
|
|
$
|
86,580
|
|
|
|
11
|
%
|
|
$
|
63,527
|
|
|
|
9
|
%
|
Commercial real estate
|
|
|
339,271
|
|
|
|
32
|
%
|
|
|
299,059
|
|
|
|
28
|
%
|
|
|
251,428
|
|
|
|
28
|
%
|
|
|
219,904
|
|
|
|
28
|
%
|
|
|
199,400
|
|
|
|
27
|
%
|
|
|
243,776
|
|
|
|
33
|
%
|
Commercial and agricultural
|
|
|
168,957
|
|
|
|
16
|
%
|
|
|
155,771
|
|
|
|
15
|
%
|
|
|
149,409
|
|
|
|
16
|
%
|
|
|
126,674
|
|
|
|
16
|
%
|
|
|
117,702
|
|
|
|
16
|
%
|
|
|
99,656
|
|
|
|
13
|
%
|
Consumer real estate
|
|
|
101,490
|
|
|
|
9
|
%
|
|
|
103,668
|
|
|
|
10
|
%
|
|
|
94,249
|
|
|
|
10
|
%
|
|
|
97,397
|
|
|
|
13
|
%
|
|
|
104,578
|
|
|
|
14
|
%
|
|
|
111,080
|
|
|
|
15
|
%
|
Consumer
|
|
|
21,605
|
|
|
|
2
|
%
|
|
|
23,349
|
|
|
|
2
|
%
|
|
|
34,785
|
|
|
|
4
|
%
|
|
|
31,961
|
|
|
|
4
|
%
|
|
|
29,359
|
|
|
|
4
|
%
|
|
|
30,740
|
|
|
|
4
|
%
|
Manufactured housing
|
|
|
318,042
|
|
|
|
30
|
%
|
|
|
323,541
|
|
|
|
31
|
%
|
|
|
274,744
|
|
|
|
30
|
%
|
|
|
224,726
|
|
|
|
29
|
%
|
|
|
211,444
|
|
|
|
28
|
%
|
|
|
193,963
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,066,193
|
|
|
|
100
|
%
|
|
$
|
1,052,570
|
|
|
|
100
|
%
|
|
$
|
911,778
|
|
|
|
100
|
%
|
|
$
|
777,776
|
|
|
|
100
|
%
|
|
$
|
749,063
|
|
|
|
100
|
%
|
|
$
|
742,742
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Clayton Banks have continued to grow the loan portfolio during 2016 into the first quarter of 2017. The
portfolio has increased approximately $140.8 million, reflecting growth of approximately 15.4% from December 31, 2015. This growth has continued into the first quarter of 2017, increasing loans by $13.6 million or 1.3%. The growth of
the loan portfolio has been funded primarily by local deposits.
The Clayton Banks loan portfolio continues to have a concentration
in real estate secured loans. A substantial portion of the consumer loans are also secured by junior and senior lien positions on
1-4
family residential properties.
The following schedules present the contractual maturities of the Clayton Banks loan portfolio as of March 31, 2017 and
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
|
Maturing in one
year or less
|
|
|
Maturing in one
to five years
|
|
|
Maturing after
five years
|
|
|
Total
|
|
Construction and land
|
|
$
|
61,517
|
|
|
$
|
18,619
|
|
|
$
|
36,692
|
|
|
$
|
116,828
|
|
Commercial real estate
|
|
|
23,017
|
|
|
|
86,013
|
|
|
|
230,241
|
|
|
|
339,271
|
|
Commercial and agricultural
|
|
|
59,999
|
|
|
|
78,616
|
|
|
|
30,342
|
|
|
|
168,957
|
|
Consumer real estate
|
|
|
23,042
|
|
|
|
44,693
|
|
|
|
33,755
|
|
|
|
101,490
|
|
Consumer
|
|
|
3,611
|
|
|
|
15,894
|
|
|
|
2,100
|
|
|
|
21,605
|
|
Manufactured housing
|
|
|
29,010
|
|
|
|
103,672
|
|
|
|
185,360
|
|
|
|
318,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,196
|
|
|
$
|
347,507
|
|
|
$
|
518,490
|
|
|
$
|
1,066,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Maturing in one
year or less
|
|
|
Maturing in one
to five years
|
|
|
Maturing after
five years
|
|
|
Total
|
|
Construction and land
|
|
$
|
39,889
|
|
|
$
|
23,153
|
|
|
$
|
84,140
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
53,236
|
|
|
|
77,608
|
|
|
|
168,215
|
|
|
|
299,059
|
|
Commercial and agricultural
|
|
|
56,241
|
|
|
|
68,925
|
|
|
|
30,605
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
28,166
|
|
|
|
45,340
|
|
|
|
30,162
|
|
|
|
103,668
|
|
Consumer
|
|
|
3,704
|
|
|
|
16,991
|
|
|
|
2,654
|
|
|
|
23,349
|
|
Manufactured housing
|
|
|
30,745
|
|
|
|
111,093
|
|
|
|
181,703
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,981
|
|
|
$
|
343,110
|
|
|
$
|
497,479
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-67
The following tables present the sensitivities to changes in interest rates as of March 31,
2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
Loan Type
|
|
Fixed
interest Rate
|
|
|
Floating
interest Rate
|
|
|
Total
|
|
Construction and land
|
|
|
69,847
|
|
|
|
46,981
|
|
|
|
116,828
|
|
Commercial real estate
|
|
|
273,652
|
|
|
|
65,619
|
|
|
|
339,271
|
|
Commercial and agricultural
|
|
|
109,106
|
|
|
|
59,851
|
|
|
|
168,957
|
|
Consumer real estate
|
|
|
80,154
|
|
|
|
21,336
|
|
|
|
101,490
|
|
Consumer
|
|
|
20,671
|
|
|
|
934
|
|
|
|
21,605
|
|
Manufactured housing
|
|
|
144,093
|
|
|
|
173,949
|
|
|
|
318,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
697,523
|
|
|
$
|
368,670
|
|
|
$
|
1,066,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
Loan Type
|
|
Fixed
interest Rate
|
|
|
Floating
interest Rate
|
|
|
Total
|
|
Construction and land
|
|
$
|
65,561
|
|
|
$
|
81,621
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
278,140
|
|
|
|
20,919
|
|
|
|
299,059
|
|
Commercial and agricultural
|
|
|
103,704
|
|
|
|
52,067
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
83,419
|
|
|
|
20,249
|
|
|
|
103,668
|
|
Consumer
|
|
|
22,510
|
|
|
|
839
|
|
|
|
23,349
|
|
Manufactured housing
|
|
|
144,671
|
|
|
|
178,870
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
698,005
|
|
|
$
|
354,565
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-68
Asset Quality
The following table provides details of the Clayton Banks nonperforming assets, the ratio of such loans and foreclosed assets to total
assets as of the dates presented, and certain other related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
|
|
|
As of December 31,
|
|
(dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Loan Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and land
|
|
$
|
207
|
|
|
$
|
1,669
|
|
|
$
|
3,567
|
|
|
$
|
3,097
|
|
|
$
|
2,774
|
|
|
$
|
2,005
|
|
Commercial real estate
|
|
|
6,935
|
|
|
|
6,441
|
|
|
|
3,351
|
|
|
|
5,452
|
|
|
|
7,102
|
|
|
|
5,400
|
|
Commercial and agricultural
|
|
|
825
|
|
|
|
627
|
|
|
|
809
|
|
|
|
1,477
|
|
|
|
1,560
|
|
|
|
2,083
|
|
Consumer real estate
|
|
|
963
|
|
|
|
1,112
|
|
|
|
1,995
|
|
|
|
3,245
|
|
|
|
2,158
|
|
|
|
2,229
|
|
Consumer
|
|
|
287
|
|
|
|
346
|
|
|
|
283
|
|
|
|
465
|
|
|
|
382
|
|
|
|
243
|
|
Manufactured housing
|
|
|
1,110
|
|
|
|
1,244
|
|
|
|
1,109
|
|
|
|
2,455
|
|
|
|
2,150
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
10,327
|
|
|
|
11,439
|
|
|
|
11,114
|
|
|
|
16,191
|
|
|
|
16,126
|
|
|
|
13,838
|
|
Other real estate owned
|
|
|
3,207
|
|
|
|
3,103
|
|
|
|
4,095
|
|
|
|
7,081
|
|
|
|
6,456
|
|
|
|
6,757
|
|
Repossessed assets
|
|
|
3,674
|
|
|
|
263
|
|
|
|
428
|
|
|
|
311
|
|
|
|
231
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
17,208
|
|
|
$
|
14,805
|
|
|
$
|
15,637
|
|
|
$
|
23,583
|
|
|
$
|
22,813
|
|
|
$
|
20,736
|
|
Total nonperforming loans as a percentage of loans
|
|
|
0.97
|
%
|
|
|
1.09
|
%
|
|
|
1.22
|
%
|
|
|
2.08
|
%
|
|
|
2.15
|
%
|
|
|
1.86
|
%
|
Total nonperforming assets as a percentage of total assets
|
|
|
1.43
|
%
|
|
|
1.24
|
%
|
|
|
1.47
|
%
|
|
|
2.43
|
%
|
|
|
2.41
|
%
|
|
|
2.18
|
%
|
Total accruing loans over 90 days delinquent as a percentage of total assets
|
|
|
0.18
|
%
|
|
|
0.11
|
%
|
|
|
0.10
|
%
|
|
|
0.04
|
%
|
|
|
0.03
|
%
|
|
|
0.03
|
%
|
Loans restructured as troubled debt restructurings
|
|
$
|
23,211
|
|
|
$
|
21,755
|
|
|
$
|
16,222
|
|
|
$
|
20,472
|
|
|
$
|
20,548
|
|
|
$
|
18,311
|
|
Troubled debt restructurings as a percentage of loans
|
|
|
2.18
|
%
|
|
|
2.07
|
%
|
|
|
1.78
|
%
|
|
|
2.63
|
%
|
|
|
2.74
|
%
|
|
|
2.47
|
%
|
Total nonperforming loans at March 31, 2017 were $10.3 million or 0.97% of total loans. This
compares to $11.4 million, or 1.09%, at December 31, 2016 and $11.1 million, or 1.22%, at December 31, 2015. In addition, other real estate owned has declined to $3.1 million at December 31, 2016, from $4.1 million
at December 31, 2015. Total other real estate owned increased by 3.4% to $3.2 million as of March 31, 2017. Repossessed assets increased to $3.7 million from $0.3 million at December 31, 2016 due the repossession of
certain assets of a car dealership borrower during the three months ended March 31, 2017. The Clayton Banks have been more aggressively liquidating these problem assets so that more of their resources can be devoted to growing the Clayton
Banks.
The following tables summarize information related to the credit quality of the Clayton Banks loan portfolio as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total
|
|
Construction and land
|
|
$
|
115,772
|
|
|
$
|
841
|
|
|
$
|
215
|
|
|
$
|
116,828
|
|
Commercial real estate
|
|
|
307,041
|
|
|
|
19,233
|
|
|
|
12,997
|
|
|
|
339,271
|
|
Commercial & agriculture
|
|
|
165,814
|
|
|
|
201
|
|
|
|
2,942
|
|
|
|
168,957
|
|
Consumer real estate
|
|
|
97,439
|
|
|
|
1,852
|
|
|
|
2,199
|
|
|
|
101,490
|
|
Consumer
|
|
|
20,806
|
|
|
|
421
|
|
|
|
378
|
|
|
|
21,605
|
|
Manufactured homes
|
|
|
284,694
|
|
|
|
16,863
|
|
|
|
16,485
|
|
|
|
318,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
991,566
|
|
|
$
|
39,411
|
|
|
$
|
35,216
|
|
|
$
|
1,066,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total
|
|
Construction and land
|
|
$
|
144,654
|
|
|
$
|
852
|
|
|
$
|
1,676
|
|
|
$
|
147,182
|
|
Commercial real estate
|
|
|
265,044
|
|
|
|
20,854
|
|
|
|
13,161
|
|
|
|
299,059
|
|
Commercial & agriculture
|
|
|
152,063
|
|
|
|
716
|
|
|
|
2,992
|
|
|
|
155,771
|
|
Consumer real estate
|
|
|
97,988
|
|
|
|
3,614
|
|
|
|
2,066
|
|
|
|
103,668
|
|
Consumer
|
|
|
22,326
|
|
|
|
523
|
|
|
|
500
|
|
|
|
23,349
|
|
Manufactured homes
|
|
|
287,601
|
|
|
|
18,971
|
|
|
|
16,969
|
|
|
|
323,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
969,676
|
|
|
$
|
45,530
|
|
|
$
|
37,364
|
|
|
$
|
1,052,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities
The Clayton Banks uses their investment portfolio to provide liquidity for the purposes of unexpected deposit outflows or funding loans. In
addition, the investment portfolio is managed to provide additional net interest income and maintain the Clayton Banks overall interest rate risk within policy limits as approved by the board of directors. Note 1 to the Clayton Banks
combined audited financial statements included herein discusses accounting policies with respect to the investment portfolio and classification of securities as available for sale or held to maturity. As a result of managements view of the
portfolio as a source of liquidity, it classifies the majority of the securities in the investment portfolio as available for sale. Certain securities are classified as held to maturity based on the individual characteristics of the security.
The following table shows the carrying value of the Clayton Banks total securities available for sale and held to maturity by investment
type and the relative percentage of each investment type for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in thousands)
|
|
Carrying
value
|
|
|
% of
total
|
|
|
Carrying
value
|
|
|
% of
total
|
|
|
Carrying
value
|
|
|
% of
total
|
|
|
Carrying
value
|
|
|
% of
total
|
|
Mortgage-backed securities
|
|
$
|
33,723
|
|
|
|
52
|
%
|
|
$
|
35,773
|
|
|
|
54
|
%
|
|
$
|
46,333
|
|
|
|
58
|
%
|
|
$
|
54,300
|
|
|
|
61
|
%
|
State and municipal
|
|
|
31,011
|
|
|
|
48
|
%
|
|
|
30,899
|
|
|
|
46
|
%
|
|
|
33,149
|
|
|
|
42
|
%
|
|
|
34,555
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
64,734
|
|
|
|
100
|
%
|
|
$
|
66,672
|
|
|
|
100
|
%
|
|
$
|
79,482
|
|
|
|
100
|
%
|
|
$
|
88,855
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the securities portfolio by major classification as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
32,284
|
|
|
$
|
817
|
|
|
$
|
(69
|
)
|
|
$
|
33,032
|
|
State and municipal
|
|
|
17,440
|
|
|
|
664
|
|
|
|
(3
|
)
|
|
|
18,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,724
|
|
|
$
|
1,481
|
|
|
$
|
(72
|
)
|
|
$
|
51,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
691
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
718
|
|
State and municipal
|
|
|
12,910
|
|
|
|
462
|
|
|
|
|
|
|
|
13,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,601
|
|
|
$
|
489
|
|
|
$
|
|
|
|
$
|
14,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
34,378
|
|
|
$
|
791
|
|
|
$
|
(173
|
)
|
|
$
|
34,996
|
|
State and municipal
|
|
|
17,444
|
|
|
|
583
|
|
|
|
(42
|
)
|
|
|
17,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,822
|
|
|
$
|
1,374
|
|
|
$
|
(215
|
)
|
|
$
|
52,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
777
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
808
|
|
State and municipal
|
|
|
12,914
|
|
|
|
482
|
|
|
|
(4
|
)
|
|
|
13,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,691
|
|
|
$
|
513
|
|
|
$
|
(4
|
)
|
|
$
|
14,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
43,947
|
|
|
$
|
1,280
|
|
|
$
|
(134
|
)
|
|
$
|
45,093
|
|
State and municipal
|
|
|
17,962
|
|
|
|
1,091
|
|
|
|
|
|
|
|
19,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,909
|
|
|
$
|
2,371
|
|
|
$
|
(134
|
)
|
|
$
|
64,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,240
|
|
|
$
|
54
|
|
|
$
|
|
|
|
$
|
1,294
|
|
State and municipal
|
|
|
14,096
|
|
|
|
958
|
|
|
|
|
|
|
|
15,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,336
|
|
|
$
|
1,012
|
|
|
$
|
|
|
|
$
|
16,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
50,761
|
|
|
$
|
1,797
|
|
|
$
|
(108
|
)
|
|
$
|
52,450
|
|
State and municipal
|
|
|
17,711
|
|
|
|
1,088
|
|
|
|
(24
|
)
|
|
|
18,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
68,472
|
|
|
$
|
2,885
|
|
|
$
|
(132
|
)
|
|
$
|
71,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,850
|
|
|
$
|
90
|
|
|
$
|
|
|
|
$
|
1,940
|
|
State and municipal
|
|
|
15,780
|
|
|
|
1,199
|
|
|
|
(18
|
)
|
|
|
16,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,630
|
|
|
$
|
1,289
|
|
|
$
|
(18
|
)
|
|
$
|
18,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-71
The following table sets forth the fair value, scheduled maturities and weighted average yields
for the Clayton Banks investment portfolio as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
As of December 31, 2016
|
|
Available for sale:
|
|
Fair
Value
|
|
|
% of total
investment
Securities
|
|
|
Weighted
average
yield
|
|
|
Fair
Value
|
|
|
% of total
investment
Securities
|
|
|
Weighted
average
yield
|
|
Residential mortgage backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
$
|
7
|
|
|
|
0.0
|
%
|
|
|
4.17
|
%
|
|
$
|
12
|
|
|
|
0.0
|
%
|
|
|
4.86
|
%
|
Maturing in one to five years
|
|
|
196
|
|
|
|
0.4
|
%
|
|
|
4.96
|
%
|
|
|
185
|
|
|
|
0.3
|
%
|
|
|
3.24
|
%
|
Maturing in five to ten years
|
|
|
9,787
|
|
|
|
19.1
|
%
|
|
|
3.49
|
%
|
|
|
9,515
|
|
|
|
18.0
|
%
|
|
|
3.05
|
%
|
Maturing after ten years
|
|
|
23,042
|
|
|
|
45.1
|
%
|
|
|
2.96
|
%
|
|
|
25,284
|
|
|
|
47.7
|
%
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage backed
|
|
|
33,032
|
|
|
|
64.6
|
%
|
|
|
3.13
|
%
|
|
|
34,996
|
|
|
|
66.1
|
%
|
|
|
3.17
|
%
|
Obligations of state and municipal subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.00
|
%
|
Maturing in one to five years
|
|
|
6,412
|
|
|
|
12.5
|
%
|
|
|
5.41
|
%
|
|
|
3,425
|
|
|
|
6.5
|
%
|
|
|
5.52
|
%
|
Maturing in five to ten years
|
|
|
6,304
|
|
|
|
12.3
|
%
|
|
|
5.09
|
%
|
|
|
9,219
|
|
|
|
17.4
|
%
|
|
|
5.69
|
%
|
Maturing after ten years
|
|
|
5,385
|
|
|
|
10.5
|
%
|
|
|
5.13
|
%
|
|
|
5,341
|
|
|
|
10.1
|
%
|
|
|
5.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations of state and municipal subdivisions:
|
|
|
18,101
|
|
|
|
35.4
|
%
|
|
|
5.25
|
%
|
|
|
17,985
|
|
|
|
33.9
|
%
|
|
|
5.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
51,133
|
|
|
|
100.0
|
%
|
|
|
4.14
|
%
|
|
|
52,981
|
|
|
|
100.0
|
%
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
$
|
1
|
|
|
|
0.0
|
%
|
|
|
2.43
|
%
|
|
$
|
1
|
|
|
|
0.0
|
%
|
|
|
4.86
|
%
|
Maturing in one to five years
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.00
|
%
|
Maturing in five to ten years
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.00
|
%
|
Maturing after ten years
|
|
|
717
|
|
|
|
5.1
|
%
|
|
|
4.13
|
%
|
|
|
807
|
|
|
|
5.7
|
%
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage backed
|
|
|
718
|
|
|
|
5.1
|
%
|
|
|
4.13
|
%
|
|
|
808
|
|
|
|
5.7
|
%
|
|
|
3.17
|
%
|
Obligations of state and municipal subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
|
303
|
|
|
|
2.2
|
%
|
|
|
7.27
|
%
|
|
|
304
|
|
|
|
2.1
|
%
|
|
|
7.50
|
%
|
Maturing in one to five years
|
|
|
2,524
|
|
|
|
17.9
|
%
|
|
|
6.55
|
%
|
|
|
4,176
|
|
|
|
29.4
|
%
|
|
|
5.52
|
%
|
Maturing in five to ten years
|
|
|
7,424
|
|
|
|
52.7
|
%
|
|
|
6.06
|
%
|
|
|
5,787
|
|
|
|
40.8
|
%
|
|
|
5.69
|
%
|
Maturing after ten years
|
|
|
3,121
|
|
|
|
22.2
|
%
|
|
|
5.77
|
%
|
|
|
3,125
|
|
|
|
22.0
|
%
|
|
|
5.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations of state and municipal subdivisions:
|
|
|
13,372
|
|
|
|
94.9
|
%
|
|
|
6.26
|
%
|
|
|
13,392
|
|
|
|
94.3
|
%
|
|
|
5.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
14,090
|
|
|
|
100.0
|
%
|
|
|
6.15
|
%
|
|
|
14,200
|
|
|
|
100.0
|
%
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the securities comprising the Clayton Banks investment portfolio above, as of
March 31, 2017 and December 31, 2016 and 2015, the Clayton Banks own approximately $3.4 million of stock in the FHLB of Cincinnati (FHLB).
Deposits
The Clayton Banks gather
the majority of its funding and maintains its liquidity from local deposits. In addition to local community based deposits, it originates deposits through internet listing services and through brokered certificates of deposit (CDs). The
majority of the Clayton Banks deposit growth has been achieved through growth of these local deposits.
Total deposits were
$928.7 million at March 31, 2017 compared with $918.4 million at December 31, 2016 and $801.5 million at December 31, 2015. The mix between
non-interest
bearing and interest
bearing shifted in 2016 with the interest rate environment and has remained relatively stable in the first quarter of 2017.
C-72
Non-brokered
deposits at March 31, 2017 were $877.1 million, an increase of 0.2% from $875.8 million at December 31, 2016 and
$770.1 million at December 31, 2015. The Clayton Banks continue to offer competitive rates on their deposit products compared to other financial institutions, which has benefited their ability to grow
non-brokered
deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
As of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
% of
total
deposits
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
% of
total
deposits
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
% of
total
deposits
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
% of
total
deposits
|
|
|
Average
Rate
|
|
Deposit Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing demand
|
|
$
|
205,031
|
|
|
|
22
|
%
|
|
|
0.00
|
%
|
|
$
|
193,525
|
|
|
|
21
|
%
|
|
|
0.00
|
%
|
|
$
|
146,876
|
|
|
|
18
|
%
|
|
|
0.00
|
%
|
|
$
|
142,757
|
|
|
|
19
|
%
|
|
|
0.00
|
%
|
Interest bearing demand
|
|
|
67,387
|
|
|
|
7
|
%
|
|
|
0.25
|
%
|
|
|
64,584
|
|
|
|
7
|
%
|
|
|
0.25
|
%
|
|
|
59,191
|
|
|
|
8
|
%
|
|
|
0.25
|
%
|
|
|
55,050
|
|
|
|
7
|
%
|
|
|
0.27
|
%
|
Savings deposits
|
|
|
329,504
|
|
|
|
36
|
%
|
|
|
0.62
|
%
|
|
|
324,939
|
|
|
|
35
|
%
|
|
|
0.59
|
%
|
|
|
292,275
|
|
|
|
36
|
%
|
|
|
0.54
|
%
|
|
|
244,974
|
|
|
|
32
|
%
|
|
|
0.38
|
%
|
Certificate of deposits
|
|
|
326,737
|
|
|
|
35
|
%
|
|
|
1.09
|
%
|
|
|
335,326
|
|
|
|
37
|
%
|
|
|
1.11
|
%
|
|
|
303,147
|
|
|
|
38
|
%
|
|
|
1.06
|
%
|
|
|
313,698
|
|
|
|
42
|
%
|
|
|
1.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
928,659
|
|
|
|
100
|
%
|
|
|
0.63
|
%
|
|
$
|
918,374
|
|
|
|
100
|
%
|
|
|
0.65
|
%
|
|
$
|
801,489
|
|
|
|
100
|
%
|
|
|
0.64
|
%
|
|
$
|
756,479
|
|
|
|
100
|
%
|
|
|
0.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00-0.50%
|
|
$
|
51,109
|
|
|
|
16
|
%
|
|
|
|
|
|
$
|
69,614
|
|
|
|
21
|
%
|
|
|
|
|
|
$
|
88,055
|
|
|
|
29
|
%
|
|
|
|
|
|
$
|
88,795
|
|
|
|
28
|
%
|
|
|
|
|
0.51-1.00%
|
|
|
90,710
|
|
|
|
28
|
%
|
|
|
|
|
|
|
61,989
|
|
|
|
19
|
%
|
|
|
|
|
|
|
72,507
|
|
|
|
24
|
%
|
|
|
|
|
|
|
85,606
|
|
|
|
27
|
%
|
|
|
|
|
1.01-1.50%
|
|
|
126,813
|
|
|
|
39
|
%
|
|
|
|
|
|
|
145,764
|
|
|
|
43
|
%
|
|
|
|
|
|
|
89,274
|
|
|
|
29
|
%
|
|
|
|
|
|
|
64,776
|
|
|
|
21
|
%
|
|
|
|
|
1.51-2.00%
|
|
|
52,226
|
|
|
|
16
|
%
|
|
|
|
|
|
|
52,257
|
|
|
|
16
|
%
|
|
|
|
|
|
|
39,573
|
|
|
|
13
|
%
|
|
|
|
|
|
|
35,110
|
|
|
|
11
|
%
|
|
|
|
|
2.01-2.50%
|
|
|
4,298
|
|
|
|
1
|
%
|
|
|
|
|
|
|
4,607
|
|
|
|
1
|
%
|
|
|
|
|
|
|
11,938
|
|
|
|
4
|
%
|
|
|
|
|
|
|
24,196
|
|
|
|
8
|
%
|
|
|
|
|
Above 2.50%
|
|
|
1,581
|
|
|
|
0
|
%
|
|
|
|
|
|
|
1,095
|
|
|
|
0
|
%
|
|
|
|
|
|
|
1,800
|
|
|
|
1
|
%
|
|
|
|
|
|
|
15,215
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total time deposits
|
|
$
|
326,737
|
|
|
|
100
|
%
|
|
|
|
|
|
$
|
335,326
|
|
|
|
100
|
%
|
|
|
|
|
|
$
|
303,147
|
|
|
|
100
|
%
|
|
|
|
|
|
$
|
313,698
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below set forth the Clayton Banks time deposits segmented by months to maturity and deposit
amount as of March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
|
Time deposits
of $100 and
greater
|
|
|
Time deposits
of less than
$100
|
|
|
Total
|
|
Months to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three or Less
|
|
$
|
12,131
|
|
|
$
|
59,085
|
|
|
$
|
71,216
|
|
Over Three to Six
|
|
|
10,782
|
|
|
|
37,815
|
|
|
|
48,597
|
|
Over Six to Twelve
|
|
|
19,535
|
|
|
|
30,659
|
|
|
|
50,194
|
|
Over Twelve
|
|
|
29,914
|
|
|
|
126,816
|
|
|
|
156,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72,362
|
|
|
$
|
254,375
|
|
|
$
|
326,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Time deposits
of $100 and
greater
|
|
|
Time deposits
of less than
$100
|
|
|
Total
|
|
Months to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three or Less
|
|
$
|
47,113
|
|
|
$
|
16,201
|
|
|
$
|
63,314
|
|
Over Three to Six
|
|
|
32,180
|
|
|
|
11,448
|
|
|
|
43,628
|
|
Over Six to Twelve
|
|
|
48,057
|
|
|
|
18,251
|
|
|
|
66,308
|
|
Over Twelve
|
|
|
131,986
|
|
|
|
30,090
|
|
|
|
162,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
259,336
|
|
|
$
|
75,990
|
|
|
$
|
335,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-73
The Clayton Banks also utilizes brokered CDs to fund its earning assets and manage its interest
rate risk. Over the last several years, the Clayton Banks have experienced an increased demand for fixed rate loans. Management has utilized brokered CDs as a funding source for a portion of these fixed rate loans.
At March 31, 2017 and December 31, 2016, the Clayton Banks had approximately $51.6 million and $42.6 million,
respectively, of outstanding brokered CDs included in the tables above.
Capital Resources
The Clayton Banks are well-capitalized under applicable bank regulatory guidelines as of March 31, 2017. The Clayton Banks actual
capital amounts and ratios as of March 31, 2017 and December 31, 2016 and 2015, are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy
Purposes
|
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
165,595
|
|
|
|
18.34
|
%
|
|
|
72,220
|
|
|
|
8.00
|
%
|
|
|
90,275
|
|
|
|
10.00
|
%
|
American City Bank
|
|
|
52,456
|
|
|
|
17.26
|
%
|
|
|
24,311
|
|
|
|
8.00
|
%
|
|
|
30,389
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
154,232
|
|
|
|
17.08
|
%
|
|
|
36,110
|
|
|
|
4.00
|
%
|
|
|
54,165
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
49,625
|
|
|
|
16.33
|
%
|
|
|
12,156
|
|
|
|
4.00
|
%
|
|
|
18,233
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
154,232
|
|
|
|
17.54
|
%
|
|
|
35,167
|
|
|
|
4.00
|
%
|
|
|
43,959
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
49,625
|
|
|
|
16.23
|
%
|
|
|
12,234
|
|
|
|
4.00
|
%
|
|
|
15,293
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
154,232
|
|
|
|
17.08
|
%
|
|
|
39,569
|
|
|
|
4.50
|
%
|
|
|
52,759
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
49,625
|
|
|
|
16.33
|
%
|
|
|
13,759
|
|
|
|
4.50
|
%
|
|
|
18,340
|
|
|
|
6.00
|
%
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
167,513
|
|
|
|
18.86
|
%
|
|
|
71,038
|
|
|
|
8.00
|
%
|
|
|
88,797
|
|
|
|
N/A
|
|
American City Bank
|
|
|
50,454
|
|
|
|
16.87
|
%
|
|
|
23,927
|
|
|
|
8.00
|
%
|
|
|
29,909
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
156,332
|
|
|
|
17.61
|
%
|
|
|
53,278
|
|
|
|
6.00
|
%
|
|
|
53,278
|
|
|
|
N/A
|
|
American City Bank
|
|
|
47,736
|
|
|
|
15.96
|
%
|
|
|
17,945
|
|
|
|
6.00
|
%
|
|
|
17,945
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
156,332
|
|
|
|
18.10
|
%
|
|
|
34,557
|
|
|
|
4.00
|
%
|
|
|
43,196
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
47,736
|
|
|
|
16.48
|
%
|
|
|
11,585
|
|
|
|
4.00
|
%
|
|
|
14,481
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
156,332
|
|
|
|
17.61
|
%
|
|
|
39,959
|
|
|
|
4.50
|
%
|
|
|
53,718
|
|
|
|
N/A
|
|
American City Bank
|
|
|
47,736
|
|
|
|
15.96
|
%
|
|
|
13,459
|
|
|
|
4.50
|
%
|
|
|
19,441
|
|
|
|
6.50
|
%
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
153,469
|
|
|
|
19.75
|
%
|
|
|
62,151
|
|
|
|
8.00
|
%
|
|
|
77,689
|
|
|
|
10.00
|
%
|
American City Bank
|
|
|
45,625
|
|
|
|
18.60
|
%
|
|
|
19,624
|
|
|
|
8.00
|
%
|
|
|
24,531
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
143,638
|
|
|
|
18.49
|
%
|
|
|
46,613
|
|
|
|
6.00
|
%
|
|
|
46,613
|
|
|
|
6.00
|
%
|
American City Bank
|
|
|
43,272
|
|
|
|
17.64
|
%
|
|
|
14,718
|
|
|
|
6.00
|
%
|
|
|
14,718
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
143,638
|
|
|
|
19.07
|
%
|
|
|
30,122
|
|
|
|
4.00
|
%
|
|
|
37,652
|
|
|
|
5.00
|
%
|
American City Bank
|
|
|
43,272
|
|
|
|
16.72
|
%
|
|
|
10,352
|
|
|
|
4.00
|
%
|
|
|
12,940
|
|
|
|
5.00
|
%
|
Tier 1 (Common) Capital to risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Bank and Trust
|
|
|
143,638
|
|
|
|
18.49
|
%
|
|
|
34,960
|
|
|
|
4.50
|
%
|
|
|
50,498
|
|
|
|
N/A
|
|
American City Bank
|
|
|
43,272
|
|
|
|
17.64
|
%
|
|
|
11,039
|
|
|
|
4.50
|
%
|
|
|
15,945
|
|
|
|
6.50
|
%
|
C-74
In July 2013, the Federal Reserve announced its approval of a final rule to implement the Basel
III regulatory capital reforms, among other changes required by the Dodd Frank Act. The framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, taking into account the
impact of risk. The approved rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage
ratio of 4% for all banking institutions. In terms of quality capital, the final rule emphasizes common equity Tier 1 capital and implements strict eligibility criteria for regulatory capital instruments. It also improves the methodology for
calculating risk-weighted assets to enhance risk sensitivity. The
phase-in
for smaller banking organizations, such as the Clayton Banks, began in January 2015.
The Banks shareholder equity was $213.6 million and $213.6 million at March 31, 2017 and December 31, 2016,
respectively. It has increased 8.2% from $197.4 million at December 31, 2015 principally due to earnings. It remained stable from the year ended December 31, 2016 due to dividends paid to the Clayton Banks shareholders on
previous earnings.
Borrowings and Liquidity
Total borrowings include federal funds purchased and FHLB advances. These funds are used to control the Clayton Banks interest rate risk
exposure and can fluctuate depending on funding needs and the source of funds to satisfy the needs. Maturities of total borrowings is as follows:
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As of March 31, 2017
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(dollars in thousands)
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Amount
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% of
total
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Weighted
average
interest
rate (%)
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Maturing Within:
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March 31, 2018
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$
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16,000
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32
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%
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|
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2.33
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%
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March 31, 2019
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10,560
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22
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%
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|
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2.99
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%
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March 31, 2020
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7,500
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15
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%
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|
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2.23
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%
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March 31, 2021
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|
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5,135
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10
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%
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2.45
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%
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March 31, 2022
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0
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%
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Thereafter
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10,204
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21
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%
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2.93
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%
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Total
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$
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49,399
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100
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%
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2.59
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%
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Three months
ended
March 31,
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Years ended December 31,
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2017
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2016
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2015
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2014
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Average daily amount of short-term borrowings outstanding during the period
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$
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2,016
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$
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357
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$
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356
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$
|
649
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Weighted average interest rate on average daily short-term borrowings
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1.25
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%
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1.25
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%
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1.25
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%
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1.25
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%
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Maximum outstanding short-term borrowings outstanding at any
month-end
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$
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1,741
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$
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3,092
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$
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14,261
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|
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$
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15,965
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Short-term borrowings outstanding at period end
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$
|
695
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$
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308
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$
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10,587
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|
$
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Weighted average interest rate on short-term borrowing at period end
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1.25
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%
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1.25
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%
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1.25
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%
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0.00
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%
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The Clayton Banks have secured borrowing facilities with both the FHLB and the Federal Reserve Bank of Atlanta
(FRB). CBT regularly pledges certain loan assets to these institutions for any borrowings outstanding. At March 31, 2017, December 31, 2016 and 2015, the Clayton Banks had $49.4 million, $52.4 million and
$44.5 million, respectively, of outstanding borrowings to the FHLB.
C-75
In addition to its secured borrowing, The Clayton Banks maintain unsecured borrowing arrangements
with various correspondent banks. As of March 31, 2017 and December 31, 2016 and 2015, The Clayton Banks had approximately $62.5 million of available unsecured federal fund lines of which none had any outstanding balances.
Effects of Inflation
Interest rates are affected by inflation, but the timing and magnitude of the changes may not coincide with changes in the consumer price
index. Management actively monitors interest rate sensitivity in order to minimize the effects of inflationary trends on operations. Other areas of
non-interest
expense may be more directly affected by
inflation as several of the Clayton Banks material contracts such as leases and their data processing contract have price increase limits tied to the consumer price index. Since the Banks assets and liabilities are primarily monetary in
nature, their performance is more affected by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the changes in rates may not necessarily be the same.
While the effect of inflation on a financial institution is normally not as significant as is its influence on those businesses which have
large investments in plant and inventories, it does have an effect. During periods of high inflation, there are normally corresponding increases in the money supply, and financial institutions will normally experience above average growth in assets,
primarily through increased lending activity.
Commitments and Contingencies
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As of December 31, 2016 payments due in:
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Less than 1
year
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1 to 3 years
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3 to 5
years
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More
than 5
years
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Operating leases
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$
|
328
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$
|
655
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$
|
140
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$
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12
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Time deposits
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173,250
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114,460
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38,668
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8,948
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FHLB advances
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19,068
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18,075
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15,271
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Total
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$
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192,646
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$
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133,190
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|
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$
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54,079
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$
|
8,960
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Litigation
In the normal course of business, the Clayton Banks are involved in various legal proceedings. Management believes that any liability resulting
from such proceedings will not be material to the banks financial statements.
Financial Instruments with Off Balance-Sheet Risk
The Clayton Banks are a party to financial instruments with
off-balance
sheet risk in the normal course
of business to meet the financing needs of its customers. These financial instruments include 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 sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Clayton Banks use the same credit policies
in making commitments and conditional obligations as it does for
on-balance
sheet instruments. The Clayton Banks maintain a reserve for
off-balance
sheet losses included
in other liabilities in the consolidated balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Clayton
C-76
Banks evaluate each customers creditworthiness on a
case-by-case
basis. The amount of collateral obtained, if
deemed necessary by us, upon extension of credit is based on managements credit evaluation of the borrower. Collateral obtained varies, but may include real estate, stocks, bonds, and certificates of deposit.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is similar to that involved in extending loans to customers. Collateral held varies as discussed above and is evaluated by
management on a
case-by-case
basis.
The following table
summarizes the Clayton Banks commitments as of the dates indicated:
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March 31,
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December 31,
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2017
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2016
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2015
|
|
Commitments to make loans
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|
$
|
278,299
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|
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$
|
243,068
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|
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$
|
203,730
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Lines of credit
|
|
$
|
2,127
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|
|
$
|
1,653
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|
|
$
|
1,013
|
|
Letters of credit
|
|
$
|
6,532
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|
|
$
|
6,878
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|
|
$
|
4,726
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|
Credit cards
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,921
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|
C-77
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IMPORTANT SPECIAL MEETING INFORMATION
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Using a
black ink
pen, mark your votes with an
X
as shown in this example. Please do not write outside the designated areas.
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☒
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q
PLEASE FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
q
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A
|
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Proposals The Board of Directors recommends you vote FOR the following:
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For
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Against
|
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Abstain
|
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For
|
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Against
|
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Abstain
|
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1.
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Approval of the issuance of shares of FB Financial common stock to Clayton HC pursuant to the stock purchase agreement as partial consideration for the acquisition of the Clayton Banks.
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☐
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☐
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☐
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2. Ratification and approval of the issuance to Gordon Inman of
certain shares of FB Financial common stock in the private placement.
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☐
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☐
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☐
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3.
|
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Approval of any motion to adjourn the special meeting. If necessary or appropriate, to solicit additional proxies to approve the issuance of shares of FB Financial common stock to Clayton HC.
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☐
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☐
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☐
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NOTE:
The proxies may vote in their discretion on any
other business as may properly come
before the meeting or any adjournment or postponement
thereof.
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B
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Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All
holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Date (mm/dd/yyyy) Please print date below.
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Signature 1 Please keep signature within the box.
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Signature 2 Please keep signature within the box.
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∎
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1 U P X
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3 4 0 6 5 5 2
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+
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02N0MB
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q
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
q
Form of Proxy FB FINANCIAL CORPORATION
Special Meeting of Shareholders
, 2017 PM
This proxy is solicited by the Board of Directors
The shareholder(s) hereby appoint(s) Christopher T. Holmes and James R. Gordon, or either of them, as proxies, each with the power to appoint his/her
substitute, and hereby authorize(s) them to represent and to vote, as designated below, all of the shares of Common Stock of FB FINANCIAL CORPORATION that the shareholder(s) is/are entitled to vote at the Special Meeting of Shareholders to be held
at
PM, CST on , 2017, at
, and any
adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made,
this proxy will be voted in accordance with the Board of Directors recommendations.