<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended March 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for
the transition period from _____ to _____
Commission file number: 33-80855
GATEWAY BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-2202210
(State of Incorporation) (I.R.S. Employer Identification No.)
5102 Alabama Highway, P.O. Box 129
Ringgold, Georgia 30736
(Address of principal executive offices)
(706) 965-5500
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class
-----
Common Stock, $5.00 par value 679,048
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE> 2
GATEWAY BANCSHARES, INC.
March 31, 1997 Form 10-QSB
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows. . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan of Operation . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEWAY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1997 December 31,
(Unaudited) 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash $ -0- $ -0-
-0-
Due from banks 44,480 30,615
Federal funds sold 695,000 850,000
Securities available for sale 2,223,735 1,491,574
Securities held to maturity 2,549,193 3,682,579
Premises and equipment, net 1,211,270 548,390
Accrued interest 42,791 42,844
Other assets 80,462 58,208
------------------ ---------------------
TOTAL ASSETS $ 6,846,931 $ 6,704,210
================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Other liabilities 298,256 88,870
------------------ ---------------------
TOTAL LIABILITIES 298,256 88,870
------------------ ---------------------
SHAREHOLDERS' EQUITY:
Common stock ($5 par value; 10,000,000 shares authorized,
679,048 shares issued and outstanding) 3,395,240 3,395,240
Capital surplus 3,224,047 3,357,637
Retained earnings (accumulated deficit) (61,431) (133,590)
Unrealized gains (losses) on investment securities
available for sale, net of deferred tax or tax benefit (9,181) (3,947)
------------------ ---------------------
TOTAL SHAREHOLDERS' EQUITY 6,548,675 6,615,340
------------------ ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,846,931 $ 6,704,210
================== =====================
See notes to financial statements.
</TABLE>
3
<PAGE> 4
GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended For the Period
March 31 July 11, 1995
-------------------------------------- (inception) to
1997 1996 March 31, 1997
-------------------------------------- --------------
<S> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest on investment securities:
Taxable securities 73,018 -0- 230,291
Interest on federal funds sold 6,698 -0- 34,840
Interest on deposits in other banks 177 -0- 35,986
---------------- ----------- ------------
TOTAL REVENUE FROM EARNING ASSETS 79,893 -0- 301,117
INTEREST EXPENSE:
Interest on notes payable -0- 1,371 4,827
---------------- ----------- ------------
TOTAL INTEREST EXPENSE -0- 1,371 4,827
NET INTEREST INCOME (EXPENSE): 79,893 (1,371) 296,290
---------------- ----------- ------------
NONINTEREST EXPENSES:
Salaries and employee benefits 97,002 41,584 326,278
Occupancy expense 9,249 5,206 32,526
Furniture and equipment expense 2,948 -0- 9,785
Other operating expenses 32,125 4,217 122,721
--------------- ---------- -----------
TOTAL NONINTEREST EXPENSES 141,324 51,007 491,310
--------------- ---------- -----------
Loss before income taxes (61,431) (52,378) (195,020)
Income tax (provision) benefit -0- -0- -0-
---------------- ---------- -----------
NET INCOME (LOSS) $ (61,431) $ (52,378) $ (195,020)
=============== ========== ===========
EARNINGS (LOSS) PER COMMON SHARE - PRIMARY
AND FULLY DILUTED
Net income (loss) per common share $ (0.09) $ (0.08) $ (0.29)
Weighted average common shares outstanding 679,048 679,048 679,048
See notes to financial statements.
</TABLE>
4
<PAGE> 5
GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Period
Three Months Ended March 31, July 11, 1995
-------------------------------- (inception) to
1997 1996 March 31, 1997
-------------- ---------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (61,431) $ (52,378) $ (195,021)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for depreciation and amortization 3,065 -0- 9,527
Amortization of investment security premiums
and accretion of discounts (21,765) -0- (137,304)
Increase (decrease) in accounts payable & accrued expense (582) 847 88,288
Increase in deferred stock offering costs -0- (13,937) -0-
Increase in organization costs -0- (5,030) (59,492)
Other (18,114) -0- (60,958)
------------------- ----------- -------------------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES (98,827) (70,498) (354,960)
------------------- ----------- -------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities -0- -0- 1,000,000
Proceeds from maturities of securities 2,700,000 -0- 6,649,173
Purchase of securities (2,286,974) -0- (12,298,708)
Capital expenditures (665,302) (19,225) (1,218,870)
------------------- ----------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (252,276) (19,225) (5,868,405)
------------------- ----------- -------------------
FINANCING ACTIVITIES:
Borrowing under line of credit and savings accounts 209,968 93,000 209,968
Issuance of common stock -0- -0- 6,790,490
Stock issued costs -0- -0- (37,603)
Retirement of common stock -0- -0- (10)
------------------- ----------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 209,968 93,000 6,962,845
------------------- ----------- -------------------
Net increase in cash and cash equivalents (141,135) 3,277 739,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 880,615 196 -0-
------------------- ----------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $739,480 $ 3,473 $ 739,480
=================== =========== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest -0- 524 4,827
Income taxes -0- -0- -0-
See notes to financial statements.
</TABLE>
5
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GATEWAY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Gateway
Bancshares, Inc., and its wholly-owned subsidiary, Gateway Bank & Trust. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain items in prior period's financial statements have been
reclassified to conform with the current financial statement presentation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
1997 and the period from July 11, 1995 (inception) to March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual financial report filed
under cover Form 10-KSB for the year ended December 31, 1996.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Organization
Gateway Bancshares, Inc., (the "Company") was formed to become a bank holding
company to acquire all the stock of Gateway Bank & Trust (the "Bank") to be
located in Ringgold, Georgia.
Prior to the Company's incorporation on October 3, 1995, organizational and
pre-opening activities were conducted by the organizers through a general
partnership. Activities since inception (July 11, 1995) have consisted of
organizational and pre-opening activities necessary to obtain regulatory
approvals and to otherwise prepare to commence business as a financial
institution.
The Company was in the developmental stages at March 31, 1997. It is a one-bank
holding company which expects to provide a full range of banking services to
individual and business customers in the Catoosa County, Georgia and
surrounding areas through the bank. The Company was incorporated in 1995. The
Bank received preliminary charter approval on December 11, 1995 and a permit to
begin business on April 21, 1997. The Bank has been granted a charter by the
Georgia Department of Banking and Finance, and began full operations on April
21, 1997. The Bank's facilities were under construction at March 31, 1997 in
Ringgold, Georgia. The Company is funding operations from income earned on
investments and from capital raised through the issue of its common
stock in 1996. Further discussion of the
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited, continued)
Company's financial condition and results of operation is included in the
Company's consolidated financial statements presented in the Company's annual
report on Form 10-KSB for the year ended December 31, 1996.
Premises and Equipment
Premises and equipment are stated at cost less depreciation of $7,600. The
provision for depreciation charged to expense for the three months ending March
31, 1997 was $2,423.
Pre-Opening, Organization and Stock Offering Costs
Organization costs are primarily consulting, legal and regulatory fees related
to the incorporation and initial organization of the Company and the Bank.
Pre-opening costs are initial expenses incurred to prepare the Bank to commence
business as a financial institution. Organization costs have been capitalized
and are amortized on a straight-line basis over five years. Stock offering
costs were charged to additional paid-in capital when the stock offering was
completed during the second quarter of 1996. Additional organizational and
pre-opening costs are expected to be incurred.
Income Taxes
The Company and the Bank are subject to federal and state income taxes. No
taxes have been accrued or paid because of operating losses incurred during the
pre-opening stage.
Net Loss Per Common Share
Net loss per common share is based on the number of shares outstanding for the
periods presented.
NOTE 3 - INVESTMENT SECURITIES
The Company applied the accounting and reporting requirements of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS 115"). This pronouncement requires that all
investments in debt securities be classified as either "held-to-maturity"
securities, which are reported at amortized cost; trading securities, which are
reported at fair value, with unrealized gains and losses included in earnings;
or "available-for-sale" securities, which are reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate
component of Shareholder's equity (net of deferred tax effect).
At March 31, 1997, the Company had net unrealized losses of $13,911 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in Shareholder's equity of $9,181, net of deferred tax
liability. There were no trading securities. The net decrease in
Shareholder's equity as a result of the SFAS 115 adjustment from December 31,
1996 to March 31, 1997 was $5,234.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited, continued)
NOTE 4 - RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statements on Financial Accounting Standards No. 128, "Earnings Per Share" and
No. 129, "Disclosure of Information about Capital Structure". These standards
are effective for periods ending after December 15, 1997, (and interim periods
for SFAS No. 128) and simplifies reporting of earnings per share and requires
the disclosure of certain information about the entity's capital structure.
Management does not expect these new standards to have a material impact on the
consolidated financial statements.
8
<PAGE> 9
Part I.- Financial Information
Item 2. Management's Discussion and Analysis or Plan of Operation
This discussion is intended to assist in an understanding of the Company's
financial condition and results of operations. This analysis should be read in
conjunction with the financial statements and related notes appearing in Item 1
of the March 31, 1997 Form 10-QSB and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Year ended December 31,
1996 appearing in the Company's Form 10-KSB.
EARNINGS SUMMARY
The Company's loss for the quarter ended March 31, 1997 of $61,431 represents
the excess of pre-opening and operating costs over interest income on
investments and deposits in other banks. The Company's loss per share for first
quarter 1997 was $0.09. The Company was a development stage enterprise at
March 31, 1997.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income on investments is the principal source of the Company's
earnings stream. Fluctuations in interest rates as well as volume and mix
changes in earning assets materially affect interest income. Interest income
was $79,893 for the first quarter 1997, which reflects earnings on funds
invested from proceeds of the Company's sale of stock.
INTEREST EXPENSE
No interest expense has been incurred in 1997. The Company incurred interest
expense on temporary organizational loans incurred to fund pre-opening expenses
until such time as the offering of its common stock was complete. These loans
were paid in June, 1996, from proceeds of the stock offering.
NON-INTEREST EXPENSE
Non-interest expense totaled $141,324 for first quarter 1997, and $51,007 for
1996. The increase reflects the hiring of additional staff, and other expenses
necessary for the operation of the Company. The Company currently has a staff
of fifteen people and may hire an additional two within the next six months.
INCOME TAXES
The Company's net operating losses incurred to date totaling $195,020, are to
be utilized in subsequent years to offset net income. Future tax liabilities
are to be reduced by these liabilities which include losses sustained during
the pre-opening stage of the Company.
9
<PAGE> 10
FINANCIAL CONDITION
EARNING ASSETS
The Company's earning assets include interest bearing deposits in other banks,
federal funds sold, and investment securities.
The mix of earning assets reflects management's attempt to maximize interest
income while maintaining acceptable levels of risk and maintaining liquidity
for the completion of the Bank's facilities and initial operations upon opening
of the Bank.
NON-EARNING ASSETS
Non-earning assets include premises and equipment of $1,211,270 at March 31,
1997, an increase of $662,880 from December 31, 1996. Depreciation has been
provided for those assets that have been placed in service. The Company
expects to spend approximately $425,000 for the completion of the building and
additional furniture, fixtures and equipment prior to opening the Bank.
The Company began leasing the site for the Bank in September, 1996, at the rate
of $1,707 per month. The lease term is for a maximum of fifty years, including
extensions after the initial twenty-year period, and subject to certain
conditions after the initial forty-year period.
Accrued interest was $42,791 at March 31, 1997, and is derived from the
investment by the Company and the Bank of available proceeds from the stock
offering by the Company.
Other assets consist of the organization costs of the Company and the Bank.
Organization costs are primarily consulting, legal and regulatory fees related
to the incorporation and initial organization of the Company and the Bank.
Organization costs have been capitalized and are amortized on a straight line
basis over a period of five years.
INVESTMENT SECURITIES AND FEDERAL FUNDS SOLD
The composition of the Company's investment securities portfolio reflects the
Company's investment strategy of maximizing portfolio yields subject to risk
and liquidity considerations. The primary objectives of the Company's
investment strategy are to maintain an appropriate level of liquidity and
provide a tool to assist in controlling the Company's interest rate position
while at the same time producing adequate levels of interest income. For
securities classified as investment securities, it is the intention to hold
such securities for the foreseeable future except for providing funds for the
completion of the Bank's facilities and to fund additional costs to be incurred
prior to opening the Bank. Management of the maturity of the portfolio is
necessary to provide liquidity and to control interest rate risk.
Investment securities and federal funds sold decreased $556,225 or 9.2 percent
from December 31, 1996 to March 31, 1997. The decrease is due to funds having
been used for facilities growth during the period. The investment securities
portfolio is adjusted to make various term investments, to provide a source of
liquidity and to serve as collateral to secure certain government deposits.
Investment securities at March 31, 1997 were $4,772,928 compared with
$5,174,153 at December 31, 1996, reflecting a 7.8 percent decrease of $401,225.
10
<PAGE> 11
LIABILITIES
Liabilities consist primarily of building construction contract amounts payable
at March 31, 1997 and December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
A strong capital position is vital to the profitability of the Company because
it promotes depositor and investor confidence and provides a solid foundation
for future growth of the organization. The Company has provided for its
capital requirements with proceeds from its initial stock offering. During
1996, the Company issued 679,048 shares of its common stock at $10 per share.
The Company allocated $3,395,240 to common stock, and $3,357,637, (after the
payment of $37,603 in stock issue costs), to additional paid in capital. In
1996, the Company capitalized the Bank by the purchase of all the Bank's
outstanding common stock for $6,000,000.
Bank regulatory authorities are placing increased emphasis on the maintenance
of adequate capital. In 1990, risk-based capital requirements became effective.
The guidelines take into consideration risk factors, as defined by regulators,
associated with various categories of assets, both on and off the balance
sheet. Under the guidelines, capital strength is measured in two tiers which
are used in conjunction with risk-adjusted assets to determine the risk-based
capital ratios. The Bank's capital exceeds the required ratios at March 31,
1997. The Bank will be subject to these guidelines upon receiving a permit to
begin operation from the Georgia Department of Banking and Finance, (DBF). In
addition to the capital standards imposed by federal banking regulators, the
DBF has imposed an 8% capital ratio for the first three years of operation as a
condition to the approval of the Bank's charter. This standard, which exceeds
the requirements as discussed above, is calculated as the ratio of total equity
to total assets, each as adjusted for unrealized gains and losses on securities
and the allowance for loan losses. After the initial three years of operation,
the Bank will be subject to a 6% ratio.
Other important indicators of capital adequacy in the banking industry are the
leverage ratio and the tangible leverage ratio. The leverage ratio is defined
as the ratio that the Bank's shareholders equity minus goodwill bears to total
assets minus goodwill. The tangible leverage ratio is defined as the Bank's
shareholders equity minus all intangibles, divided by total assets minus all
intangibles. The Bank's leverage ratios as of March 31, 1997 exceeded the
regulatory minimum requirements, which are generally 3% plus an additional
cushion of at least 100-200 basis points depending on risk profiles and other
factors.
11
<PAGE> 12
Part II - Other Information
Item 6 - Exhibits and Reports on form 8-K
(a) Exhibits:
Exhibit number Description of Exhibit
-------------- -----------------------
27 Financial Data Schedule
(For SEC use only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 1997.
12
<PAGE> 13
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: May 12, 1997
GATEWAY BANCSHARES, INC.
/s/ Robert G. Peck
----------------------------
Robert G. Peck,
President and CEO
(Duly authorized officer)
/s/ Harle B. Green
----------------------------
Harle B. Green,
Chairman and Chief Financial Officer
(Principal financial officer)
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 44,480
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 695,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,223,735
<INVESTMENTS-CARRYING> 2,549,193
<INVESTMENTS-MARKET> 2,546,509
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 6,846,931
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 298,256
<LONG-TERM> 0
0
0
<COMMON> 3,395,240
<OTHER-SE> 3,153,435
<TOTAL-LIABILITIES-AND-EQUITY> 6,846,931
<INTEREST-LOAN> 0
<INTEREST-INVEST> 79,893
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 79,893
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 141,324
<INCOME-PRETAX> (61,431)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,431)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
<YIELD-ACTUAL> 5.56
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
