<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 June 30, 1998
[ ] 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)
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<S> <C>
Georgia 58-2202210
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
5102 Alabama Highway
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:
<TABLE>
<CAPTION>
Class
-----
<S> <C>
Common Stock, $5.00 par value 679,048
</TABLE>
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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GATEWAY BANCSHARES, INC.
June 30, 1998 Form 10-QSB
TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities - None. . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . 17
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
* * * * *
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEWAY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31,
UNAUDITED 1997
------------ -------------
<S> <C> <C>
ASSETS
Cash $ 273,550 $ 229,994
Due from banks 2,037,289 1,152,424
Federal funds sold 400,000 750,000
Securities available for sale 13,048,704 14,264,819
Securities held to maturity 7,757,365 944,986
Loans 28,731,014 17,195,468
Allowance for loan losses (286,639) (170,000)
------------ ------------
Net loans 28,444,375 17,025,468
Premises and equipment, net 1,707,795 1,725,463
Accrued interest 618,370 279,050
Other assets 261,669 239,181
------------ ------------
TOTAL ASSETS $ 54,549,117 $ 36,611,385
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 4,613,767 $ 3,306,847
Interest-bearing 42,227,065 26,804,361
------------ ------------
TOTAL DEPOSITS 46,840,832 30,111,208
Note payable-FHLB 1,000,000 -0-
Accrued interest 216,066 91,297
Other liabilities 36,712 48,467
------------ ------------
TOTAL LIABILITIES 48,093,610 30,250,972
------------ ------------
SHAREHOLDER'S 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 3,357,637 3,357,637
Accumulated deficit (311,228) (407,329)
Unrealized gains on investment securities
available for sale, net of deferred tax or tax benefit 13,858 14,865
------------ ------------
TOTAL SHAREHOLDER'S EQUITY 6,455,507 6,360,413
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 54,549,117 $ 36,611,385
============ ============
</TABLE>
See notes to financial statements.
3
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GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest on investment securities:
Loans $692,764 $ 68,375 $1,248,419 $ 68,375
Taxable securities 269,309 68,443 440,843 141,461
Interest on federal funds sold 27,723 27,016 56,271 33,891
Interest on deposits in other banks 2,172 -0- 2,172 -0-
-------- --------- ---------- ---------
TOTAL REVENUE FROM EARNING ASSETS 991,968 163,834 1,747,705 243,727
INTEREST EXPENSE:
Interest on deposits 513,830 41,963 851,092 41,963
Interest on notes payable 14,200 -0- 26,641 -0-
Interest on federal funds purchased -0- -0- 322 -0-
-------- --------- ---------- ---------
TOTAL INTEREST EXPENSE 528,030 41,963 878,055 41,963
-------- --------- ---------- ---------
NET INTEREST INCOME: 463,938 121,871 869,650 201,764
Provision for loan losses 78,000 43,500 118,000 43,500
-------- --------- ---------- ---------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES: 385,938 78,371 751,650 158,264
NON INTEREST INCOME:
Service charges 32,339 3,504 55,253 3,504
Commissions on insurance 1,072 -0- 1,920 -0-
Investment gains -0- -0- 604 -0-
Other income 14,679 4,064 20,833 4,064
-------- --------- ---------- ---------
TOTAL NONINTEREST INCOME 48,090 7,568 78,610 7,568
NONINTEREST EXPENSES:
Salaries and employee benefits 189,253 152,350 366,320 249,352
Occupancy expense 25,026 17,183 49,028 26,432
Furniture and equipment expense 27,461 15,978 51,757 18,926
Other operating expenses 144,045 130,281 267,054 162,406
-------- --------- ---------- ---------
TOTAL NONINTEREST EXPENSES 385,785 315,792 734,159 457,116
Income (loss) before income taxes 48,243 (229,853) 96,101 (291,284)
Income tax (provision) benefit -0- 100,500 -0- 100,500
-------- --------- ---------- ---------
NET INCOME (LOSS) $ 48,243 $(129,353) $ 96,101 $(190,784)
======== ========= ========== =========
EARNINGS (LOSS) PER COMMON SHARE - PRIMARY
AND FULLY DILUTED
Net income (loss) per common share $ .07 $ (.19) $ .14 $ (.28)
Weighted average common shares outstanding 679,048 679,048 679,048 679,048
</TABLE>
See notes to consolidated financial statements.
4
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GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ -------------------------
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net Income $ 48,243 $(129,353) $ 96,101 $(190,784)
Other comprehensive, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses)
arising during the period (26,294) 15,990 (2,131) 8,047
Less: reclassification adjustments
for gains (losses) included in net income -0- -0- 604 -0-
-------- --------- -------- ---------
$(26,294) 15,990 (1,527) 8,047
Income tax (expense) benefit related
items of other comprehensive income 8,985 (5,445) 520 (2,736)
-------- --------- -------- ---------
Other comprehensive income (loss) (17,309) 10,545 (1,007) 5,311
-------- --------- -------- ---------
Comprehensive income (loss) $ 30,934 $(118,808) $ 95,094 $(185,473)
======== ========= ======== =========
</TABLE>
See notes to financial statements.
5
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GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 96,101 $ (190,784)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for loan losses 118,000 43,500
Provision for depreciation and amortization 65,130 28,589
Amortization of investment security
premiums and accretion of discounts (14,210) (19,659)
Gain on sale of investment securities (604) -0-
Deferred tax provision -0- (100,500)
Increase in accrued interest receivable (339,320) (86,082)
Increase in accrued interest payable 124,769 26,378
Other (39,672) (80,314)
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES 10,194 (378,872)
------------ -----------
INVESTING ACTIVITIES:
Net increase in loans (11,536,907) (4,509,394)
Proceeds from maturities of securities 2,124,133 -0-
Proceeds from sales of available for sale securities 3,296,460 3,031,058
Purchase of available for sale securities (6,546,292) (3,373,281)
Purchase of held to maturity securities (4,457,278) (743,574)
Capital expenditures (41,513) (1,149,814)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (17,161,397) (6,745,005)
------------ -----------
FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts,
and savings accounts 6,743,119 5,517,921
Net increase in certificates of deposit 9,986,505 3,533,487
Proceeds from FHLB loan 1,000,000 -0-
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,729,624 9,051,408
------------ -----------
Net increase in cash and cash equivalents 578,421 1,927,531
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,132,418 880,615
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,710,839 $ 2,808,146
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 538,735 $ 15,585
Income taxes $ -0- $ -0-
</TABLE>
See notes to financial statements.
6
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GATEWAY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 1998
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 and six-month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. 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,
1997.
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 a new bank in Ringgold, Georgia, called
Gateway Bank & Trust (the "Bank").
The Company is a one-bank holding company which provides a full range of banking
services to individual and business customers in the Catoosa County, Georgia and
surrounding areas through its wholly owned subsidiary, the Bank. The Bank
received preliminary charter approval on December 11, 1995 and a permit to begin
business on April 21, 1997. The Bank was granted a charter by the Georgia
Department of Banking and Finance, and began full operation on April 21, 1997.
The Company is funding operations from deposits and from capital raised through
the issue of its common stock in 1996. Further discussion of the Company's
financial condition and results of operations 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, 1997.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
Premises and Equipment
Premises and equipment are stated at cost less depreciation of $145,410. The
provision for depreciation charged to expense for the three and six months ended
June 30, 1998 was $32,522 and $59,181, respectively.
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 being amortized on a straight-line basis over five years. Management
plans to adopt SOP 98-5, as discussed in Note 5, in a future period with regards
to accounting for organizational and start up expenses. Stock offering costs
were charged to additional paid-in capital when the stock offering was completed
during the second quarter of 1996.
Income Taxes
The Company and the Bank are subject to federal and state income taxes. No taxes
have been paid because of operating losses incurred during the pre-opening
stage. No taxes have been accrued during the first six months of 1998 as the
valuation allowance has been released against current taxable income. The
Company has a remaining valuation allowance of $29,749 at June 30, 1998.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the number of shares outstanding
for the periods presented.
NOTE 3 - INVESTMENT SECURITIES
The Company has 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 June 30, 1998, the Company had net unrealized gains of $ 20,997 in
available-for-sale securities which are reflected in the presented assets and
resulted in an increase in Shareholder's equity of $13,858, net of deferred tax
asset. There were no trading securities. The net decrease in shareholder's
equity as a result of the SFAS 115 adjustment from December 31, 1997 to June 30,
1998 was $520.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)( concluded)
NOTE 4 - NOTES PAYABLE
In January, 1998, the Company obtained a $1 million loan from the Federal Home
Loan Bank. The note requires monthly interest payments at an interest rate of
5.72%. Principal is due in full on January 13, 2003. The note is secured by
specifically identified single family first mortgage loans.
NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", issued
by FASB, which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Statement requires that an enterprise classify items
of other comprehensive income by their nature in the financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid in capital in the equity section of a
statement of financial position. Management does not believe that the adoption
of SFAS 130 will have a material impact on the Company's consolidated financial
statements.
Effective for years ending after December 15, 1998, SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" was issued by FASB
which standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain other
disclosures previously required. Management does not believe that the adoption
of SFAS 132 will have a material impact on the Company's consolidated financial
statements.
Effective for years beginning after December 15, 1998, Statement of Position
(SOP) 98-5 requires costs of start up activities and organization costs to be
expensed as incurred. Initial application of the SOP is to be reported as the
cumulative effect of a change in accounting principle. Management does not
believe that the adoption of SFAS will have a material impact on the Company's
financial statements.
9
<PAGE> 10
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 June 30, 1998 Form 10-QSB and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Year ended December 31,
1997 appearing in the Company's Form 10-KSB.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-QSB and the
exhibits hereto which are not statements of historical fact constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act (the "Act"). In addition, certain statements in future filings by the
Company with the Securities and Exchange Commission, in press releases, and in
oral and written statements made by or with the approval of the Company which
are not statements of historical fact constitute forward looking statements
within the meaning of the Act. Examples of forward-looking statements include
but are not limited to: (1) projections of revenues, income or loss, earnings or
loss per share, the payment or non-payment of dividends, capital structure and
other financial items; (2) statements of plans and objectives of the Company or
its management or Board of Directors, including those relating to products or
services; (3) statements of future economic performance' and (4) statements of
assumptions underlying such statements. Words such as "believes," "anticipates,"
"expects," "intends," "targeted," and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Facts that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (1) the strength of the U.S. economy
in general and the strength of the local economies in which operations are
conducted; (2) the effects of and changes in trade monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System; (3) inflation, interest rate, market and monetary
fluctuations; (4) the timely development of and acceptance of new products and
services and perceived overall value of these products and services by users:
(5) changes in consumer spending, borrowing, and saving habits; (6)
technological changes; consumer spending, borrowing and saving habits; (7)
acquisitions; (8) the ability to increase market share and control expenses; (9)
the effect of changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) with which the Company and
its subsidiary must comply; (10) the effect of changes in accounting policies
and practices, as may be adopted by the regulatory agencies, as well as the
Financial Accounting Standards Board; (11) changes in the Company's
organization, compensation, and benefit plans; (12) the costs and effects of
litigation and of unexpected or adverse outcomes in such litigation; and (13)
the success of the Company at managing the risks involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
EARNINGS SUMMARY
The Company's net income for the three and six months ended June 30, 1998 was
$48,243 and $96,101, respectively, which compares to net losses of $129,353 and
$190,784 for the same periods in 1997. The increase in net income resulted from
the increased interest spread from growth in the Company's loan and deposit base
since opening April 21, 1997. Prior to opening, the Company's only source of
revenues was interest on proceeds from its initial stock offering which was
insufficient to cover its start up costs and other overhead.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income on loans and investment securities 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 $991,968 and $1,747,705 for the first three and six months ended June
30, 1998, respectively, compared to interest income of $163,834 and $243,727 for
the same periods in 1997. The increase in interest income resulted from the
increase in its loan and investment portfolios.
INTEREST EXPENSE
Interest expense on deposits for the three and six months ended June 30, 1998
was $528,030 and $878,055, respectively, compared to interest expense of $41,963
for the same periods in 1997. The increase in interest expense relates to the
increase in customer deposits since opening April 21, 1997 as well as the
$1,000,000 note from the Federal Home Loan Bank obtained in January, 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the charge against current earnings
necessary to maintain the reserve for loan losses at a level which management
considers appropriate. This level is determined based upon management's
assessment of current economic condition, the composition of the loan portfolio
and the levels of nonaccruing and past due loans. The provision for loan losses
was $78,000 and $118,000 for the three and six months ended June 30, 1998,
respectively. The reserve for loan losses as a percent of outstanding loans, net
of unearned income, was .99 percent at June 30, 1998 and at December 31, 1997.
NON-INTEREST INCOME
Non-interest income for the three and six months ended June 30, 1998,
respectively, was $48,090 and $78,610 compared to $7,568 for the three and six
month periods in 1997. Non-interest income consisted primarily of service
charges on customer deposits ($55,253 through June 30, 1998), ATM and credit
card fees, and rental of safe deposit boxes.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
NON-INTEREST EXPENSE
Non-interest expense totaled $385,785 and $734,159 for the three and six months
ended June 30, 1998, respectively, and $315,792 and $457,116 for the same
periods in 1997. The increases reflect the hiring of additional staff,
occupancy, furniture and fixtures, and other expenses necessary for the
operation of the Company.
INCOME TAXES
The Company's net operating losses of approximately $451,000 and valuation
allowance incurred to date are expected to be utilized in the current and
subsequent years to offset future taxable income.
FINANCIAL CONDITION
EARNING ASSETS
The Company's earning assets include loans, investment securities and federal
funds sold. The mix of earning assets reflects management's attempt to maximize
interest income while maintaining acceptable levels of risk.
NON-EARNING ASSETS
Non-earning assets include premises and equipment of $1,707,795 at June 30,
1998, a decrease of $17,668 from December 31, 1997. The decrease results
primarily from depreciation provided for those assets that have been placed in
service.
The Company began leasing the site for the Bank beginning 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 $618,370 at June 30, 1998, an increase of $339,320 from
December 31, 1997. The increase is due to related increases in earning assets
since year end 1997.
Other assets consist of the organization costs of the Company and the Bank and
the deferred tax asset. Organization costs are primarily consulting, legal and
regulatory fees related to the incorporation and initial organization of the
Company and the Bank. The deferred tax asset consists primarily of tax benefits
related to the net operating losses and will be realized as the Company
generates taxable income.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
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
available for sale, it is the intention to hold such securities for the
foreseeable future except for funds for increases in loan demand. Management of
the maturity of the portfolio is necessary to provide liquidity and to control
interest rate risk.
Investment securities and federal funds sold increased $5,246,264 or 32.8 % from
December 31, 1997 to June 30, 1998. The increase is due to the higher growth in
deposits compared to loans since year end which has provided additional funds
for short and medium range investments. 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 June 30, 1998 were $20,806,069 compared with $15,209,805 at
December 31, 1997, reflecting a decrease of $5,596,264. Federal funds sold
decreased from $750,000 at December 31, 1997 to $400,000 at June 30, 1998.
LOANS
Loans comprised the single largest category of the Company's earning assets on
June 30, 1998. At June 30, 1998, the Company had outstanding loans amounting to
$28,731,014 net of its reserve for loan losses, or 52.6% of total assets,
compared to net loans of $17,025,468, or 46.5% of total assets at December 31,
1997. The Company will continue to search for loan opportunities in its market
area while assuming acceptable levels of risk.
ASSET QUALITY
Asset quality is measured by three key ratios: The ratio of loan loss allowance
to total nonperforming assets (defined as nonaccrual loans, loans past due 90
days or greater, restructured loans, nonaccruing securities, and other real
estate), nonperforming assets to total assets, and nonperforming assets to total
loans. At June 30, 1998 and December 31, 1997, the Company had no nonperforming
assets. Although the Company will have some nonperforming assets in the future,
there is nothing that would indicate that overall asset quality is prone to
material erosion in future periods.
DEPOSITS
At June 30, 1998, the Company had outstanding deposits of $46,840,832, compared
to a balance of $30,111,208 at December 31, 1997. Deposits are the Company's
primary source of funds with which to support its earning assets. Non-interest
bearing deposits increased from $3,306,847 at December 31, 1997 to $4,613,767 at
June 30, 1998. Time deposits of $100,000 or more increased by $6,743,119.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
OTHER LIABILITIES
Liabilities consists primarily of accrued interest payable and accounts payable.
Accrued interest payable increased $124,769 from December 31, 1997 to June 30,
1998. The increase relates to the increase in the Company's deposit base as well
as an increase in the average accrual period for certificates of deposits.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $96,101 from December 31, 1997 to June 30, 1998,
due to net earnings of $96,101 and the decrease in unrealized losses on
securities available for sale totaling $1,007 net of deferred tax liability.
YEAR 2000
The Bank utilizes and is dependent upon data processing systems and software to
conduct its business. Management has initiated a Year 2000 project to prepare
the Company's computer systems and applications for the Year 2000. The approach
of the Year 2000 presents a problem in that many computer programs have been
written using two digits rather than four to define the applicable year. Any of
the Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the Year 2000. This could result in
internal system failure or miscalculation, and also creates risk for the Company
from third parties with whom the Company deals on financial transactions. The
Company is conducting a comprehensive review of its computer systems to identify
the systems that could be affected by the Year 2000, and has developed an
implementation plan to resolve the issue. The Company believes that, since a
majority of our equipment is less than three years old, the Year 2000 problem
will not pose significant operational problems. The Company is not purchasing
any new software products or engaging in any new contracts unless the products
and counterparts are Year 2000 compliant. Maintenance, testing, and modification
costs will be expensed as incurred, while the costs of new software or hardware
will be capitalized and amortized over their useful lives. The Company does not
expect the amounts required to be expensed to resolve Year 2000 issues to have a
material effect on its financial position or results of operations. However,
there can be no assurance that the systems of third parties upon which the
Bank's business relies will be Year 2000 compliant on a timely basis. The
failure of the Bank's computer system or applications or those operated by third
parties could have a material adverse effect on the Company's result of
operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY MANAGEMENT
Liquidity is defined as the ability of a company to convert assets into cash or
cash equivalents without significant loss. Liquidity management involves
maintaining the Bank's ability to meet the day-to-day cash flow requirements of
its customers, whether they are depositors wishing to
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
LIQUIDITY MANAGEMENT - CONTINUED
withdraw funds or borrowers requiring funds to meet their credit needs. Without
proper liquidity management, the Bank would not be able to perform the primary
function of a financial intermediary and would, therefore, not be able to meet
the production and growth needs of the communities it serves.
The primary function of assets and liabilities management is not only to assure
adequate liquidity in order for the Bank to meet the needs of its customer base,
but also to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Bank can also meet the investment
requirements of its shareholders. Daily monitoring of the sources and uses of
funds is necessary to maintain an acceptable cash position that meets both
requirements. In the banking environment, both assets and liabilities are
considered sources of liquidity funding and both are, therefore, monitored on a
daily basis.
The asset portion of the balance sheet provides liquidity primarily through loan
principal repayments or sales of investment and trading account securities.
Outstanding loans that mature in one year or less, excluding outstanding credit
card debt equaled approximately 22 million at June 30, 1998. Investment
securities maturing in one year or less equaled .7 million. Other sources of
liquidity include short-term investments such as federal funds sold and maturing
interest-bearing deposits with other banks.
The liability portion of the balance sheet provides liquidity through various
customers' interest-bearing and non interest-bearing deposit accounts. At the
end of second quarter 1998, funds were also available through the purchase of
federal funds from correspondent commercial banks. Purchases can be made from
available lines of up to an aggregate of $2.6 million. Liquidity management
involves the daily monitoring of the sources and uses of funds to maintain an
acceptable cash position.
In an effort to maintain and improve the liquidity position of the Bank,
management made application for membership with the FHLB of Atlanta as explained
in further detail below. As a member of the FHLB, the Bank would improve its
ability to manage liquidity and reduce interest rate risk by having a funding
source to match longer term loans. As or June 30, 1998, the balance of the note
payable was $1,000,000.
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 in 1996 and through
the retention of earnings.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (concluded)
NOTE PAYABLE - FEDERAL HOME LOAN BANK
In January, 1998, the Company obtained a $1 million loan from the Federal Home
Loan Bank. At June, 1998, the balance on the note was $1,000,000. Interest on
the outstanding amounts under the note is payable on a monthly basis at 5.72%.
Principal is due in full on January 13, 2003. The note is secured by
specifically identified single family first mortgage loans.
FEDERAL CAPITAL STANDARDS
Regulatory capital 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. Tier I capital, which consists of common equity less
goodwill, amounted to $6.4 million at June 30, 1998. Tier II capital components
include supplemental capital components such as qualifying allowance for loan
losses and qualifying subordinated debt. Tier I capital plus the Tier II capital
components is referred to as Total Risk-Based capital and was $6.7 million at
June 30, 1998. The percentage ratios as calculated under FDICIA guidelines were
16.36% and 17.23% for Tier I and Total Risk-based capital, respectively, at June
30, 1998. Both levels exceeded the minimum ratios of four percent and eight
percent, respectively. Management has reviewed and will continue to monitor the
Company's asset mix and product pricing, and the loan loss allowance, which are
the areas determined to be most affected by these requirements.
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 June 30, 1998 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.
DBF CAPITAL REQUIREMENT
In addition to the capital standards imposed by federal banking regulators, the
DBF imposed its 8% primary capital ratio as a condition to the approval of the
Bank's charter. This requirement, which exceeds the FDIC capital requirements,
is calculated as the ratio of total equity to total assets, each as adjusted for
unrealized gains and losses on securities and allowance for loan losses. This
heightened requirement will continue through the first three years of the Bank's
operation, at which time the Bank will be subject to a 6% capital ratio. At June
30, 1998, the capital ratio as calculated under the DBF standard was 12.3%. As
of June 30, 1998 the Bank was in compliance with the 8% requirement.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1- LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal proceedings
which management believes would have a material adverse effect upon the
operations or financial condition of the Bank.
ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS-NONE
ITEM 3- DEFAULTS UPON SENIOR SECURITIES- NONE
ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS
An Annual Shareholders' Meeting was held on April 16, 1998.
All of the nine incumbent directors were elected to serve one-year terms until
the Annual Shareholders Meeting in 1999. The following table sets forth the
number of votes cast for and withheld with respect to each nominee. There were
no abstentions or broker non-votes.
<TABLE>
<CAPTION>
Name of Nominee Votes For Votes Withheld
--------------- --------- --------------
<S> <C> <C>
Jack Babb 457,505 5,764
William H. Clark 457,605 5,664
Patricia Y. Cochran 457,705 5,564
Jeanette W. Dupree 457,705 5,564
James Arthell Gray Sr. 456,705 6,564
Harle B. Green 457,705 5,564
Walter Lee Jackson 457,705 5,564
Ernest Kresch 457,205 6,064
Robert G. Peck 457,705 5,564
</TABLE>
Pursuant to Rule 14a-4(c)(1) promulgated under the Securities Exchange Act of
1934, as amended, shareholders desiring to present a proposal for consideration
at the Company's 1999 Annual Meeting of Shareholders must notify the Company in
writing at its principal office at 5102 Alabama Highway, Ringgold, Georgia
30736, of the contents of such proposal no later than February 6, 1998. Failure
to timely submit such a proposal will enable the proxies appointed by management
to exercise their discretionary voting authority when the proposal is raised at
the Annual Meeting of Shareholders without any discussion of the matter in the
proxy statement.
ITEM 5 - OTHER INFORMATION - NONE
17
<PAGE> 18
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Page number
-------------- ---------------------- -----------
<S> <C> <C>
3.1 Articles of Incorporation* N/A
3.2 Bylaws* N/A
4.1 Instruments Defining Rights of
Security Holders. See Articles of
Incorporation at Exhibit 3.1 hereto
and Bylaws at Exhibit 3.2 hereto. N/A
10.1 Ground Lease Agreement by and
between Gateway Bancshares, Inc.
and Ringgold Mining and Manufacturing
Company, dated as of May 1, 1996** N/A
10.2 Escrow Agreement by and between First
Tennessee Bank, National Association and
Gateway Bancshares, Inc. (In Organization),
dated December 15, 1995.* N/A
10.3 Advances, Specific Collateral Pledge and
Security Agreement, dated November 19,
1997; Application for Advance Agreement
Federal Home Loan Bank, dated January 9,
1998; and Assignment of Mortgages and
Deeds of Trust, dated January 3, 1998
11 Computation of Earnings Per Share
27 Financial Data Schedule
(for the SEC use only)
</TABLE>
* Incorporated herein by reference to exhibit of same number in the Company's
Registration Statement on Form SB-2, registration No. 33-80855, filed
December 20, 1995.
** Incorporated herein by reference to exhibit of same number in the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1996.
18
<PAGE> 19
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended March
31, 1998.
19
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 12, 1998
GATEWAY BANCSHARES, INC.
/s/ Robert G. Peck
----------------------------------------
Robert G. Peck,
President and CEO
Principal Executive Officer)
/s/ Harle B. Green
----------------------------------------
Harle B. Green,
Chairman and Chief Financial Officer
(Principal Financial Officer)
20
<PAGE> 1
EXHIBIT 10.3
FEDERAL HOME LOAN BANK OF ATLANTA APPLICATION FOR ADVANCES
1475 Peachtree Street, NE, Atlanta, Georgia 30309
1/9/98 .
-------------------
(Date)
Pursuant to, and subject to, the terms of an Agreement for Advances and
Security Agreement with Blanket Floating Lien or an Advances, Specific,
Collateral Pledge and security Agreement ("the Advances Agreement") now on file
with the Federal Home Loan Bank of Atlanta ("the Bank"), the undersigned Member
hereby applies for an advance, under the terms of the FIXED RATE CREDIT program
in the amount of $1,000,000 to mature on sixty months after the date of the
advance (specify either date or months to maturity). For Short Term Credit
advances, indicate reset frequency N/A (i.e. overnight, monthly or quarterly), a
Security Agreement will need to be submitted if additional collateral is being
pledged and the collateral delivered to the Bank prior to funding. For Principal
Reducing Credit advance requests with equal reductions, the first principal
reduction date is specified to be N/A (Date) with N/A principal reductions,
thereafter (Indicate reduction frequency, i.e., quarterly, semi-annually or
annually). For puttable advance requests, the first put date is specified to be
N/A months after the advance grant date. Such advance will draw interest at the
rate prevailing for such program and be subject to a all conditions of such
program.
It is understood and agreed that in the event the program under which
this application is being made carries a fixed rate of interest for all or any
portion of the term, the Bank will waive its right as set forth in the Advances
Agreement to increase or decrease such rate.
It is further understood and agreed that in the event the program under
which the application is being made carries an adjustable rate of interest, the
Bank will increase or decrease such rate during the term of the advance pursuant
to the condition of such program.
/the Member hereby agrees, as a condition of the granting of the
advance, to be bound by the terms and conditions set forth in the Confirmation
and the Bank's Credit and Collateral Policies. In addition, if the Bank requires
that a Confirmation of Advance be executed, the Member hereby agrees, as a
condition of the granting of the advance, to execute such Confirmation. If the
advance is granted under the Community Investment Program (CIP"), the Member
further agrees to abide by the terms and conditions set forth in the CIP
Authorization letter(s) issued by the Bank. If Member is a savings association
and , pursuant to the Qualified Thrift Lender requirements of the Office of
Thrift Supervision, it becomes ineligible for Bank Advances, Member agrees to
immediately provide the Bank with written notice of such ineligibility. The
Member agrees the Bank will not honor advance commitments previously made to it
if its access to Bank advances is subsequently restricted pursuant to the
Federal Home Loan Bank Act ("Act"), or the regulations or guidelines of the
Federal Housing Finance Board.
The Member certifies that, in accordance with a resolution adopted by
the Board of Directors of the undersigned Member, a certified copy of which
resolution has heretofore been submitted or is attached hereto, the undersigned
is authorized to apply to the Bank for this advance.
It is agreed, as a condition of making said advance, that, if pursuant
to Section 10(C) or 10(e) of the Act, the Member is required to purchase
additional capital stock, the Bank may deduct the amount of the required
purchase from the proceeds of this advance and apply it towards the purchase of
said stock.
If this request is for a CIP advance, pleased provide the CIP
authorization number(s): N/A
If this advance is a repayment of an existing advance(s), provide
existing advance number(s): N/A
Please disburse the proceeds of this advance as follows:
1. $1,000,000 to the Member's demand deposit account number 45211
2. $32,600 (to purchase additional Bank stock under Section 10(C) or 10(e) of
the Act. (Under Section 10(C) of the Act, capital stock must be at least 5%
of total advances.)
<PAGE> 2
Note: This application must be signed by an officer authorized by the Member's
Resolution and Signature Card for Advances or the Credit and Collateral
Signature Card on file with the Bank.
GATEWAY BANK & TRUST (s) Harle B. Green
- --------------------------------- ------------------------------
(Name of Member) (Authorized Signature)
RINGGOLD, GA 30736 HARLE B. GREEN, CHAIRMAN & CFO
- ---------------------------------
(location)
FEDERAL HOME LOAN BANK OF ATLANTA
1475 Peachtree Street, NE, Atlanta, Georgia 30309
ASSIGNMENT OF MORTGAGES OR DEEDS OF TRUST
KNOW ALL MEN BY THESE PRESENTS, THAT Gateway Bank & Trust, a corporation duly
created and established by law and having its principal place of business in the
City of Ringgold, State of Georgia (hereinafter referred to as the INSTITUTION)
in consideration of the sum of one dollar ($1.00) and other good and valuable
considerations to it in hand paid by the Federal Home Loan Bank of Atlanta, a
corporation organized and existing under the laws of the United States of
America (hereinafter referred to as the BANK), the receipt whereof is hereby
acknowledged, has granted bargained, sold assigned, conveyed transferred and set
over, and by these presents, does grant, bargain sell, assign convey transfer
and sets over unto the said Bank, its successors or assigns, those certain
mortgages or other instruments listed on the attached sheet or sheets marked
Schedule A securing debt, together with the note or notes or other primary
obligations accompanying or described in the herein-mentioned mortgages or other
instruments and all money due and to become due thereon with the interest,
together with any and all indebtedness secured by said respective-instruments,
and together with any shares of stock referred to in said instruments, subject
to the provisions set forth in the assignment of such shares accompanying such
instruments; and the Institution does hereby make, constitute and appoint the
Bank its true and lawful attorney, irrevocable, in its name or otherwise, but at
the Institution's proper costs and charges, with power of substitution, to
transfer any said shares of stock on the books of the Institution and to do in
the premises all that the Institution might or could do if these presents were
not made. The Institution hereby transfers and assigns all of its right, title
and interest in and to each, all or any policies of fire insurance and all other
policies of insurance, accompanying its loan application, as well as all
renewals of substitutions therefor, together with any and all sums of money,
interest or benefit whatsoever now due, or hereinafter to become due and
demandable by reason of destruction by fire, tornado, or otherwise by virtue of
the coverings of said policies on the respective improvements, dwellings,
buildings or on the lands and premises described in the mortgages, Deeds of
Trust or other instruments set forth in Schedule A hereto attached, and assigned
to the Bank as security for the advance made to the Institution.
The Institution further represents, covenants and warrants that the
herein-mentioned mortgages are at this time in each instance a first lien,
except for taxes due and unpaid for a period not exceeding one year, on property
on which there is a home or other dwelling unit; that none of such mortgages is
contractually delinquent six months or more; that none of such mortgages has
more than 30 years to run to maturity unless such home mortgage is insured under
the National Housing Act, as amended, or insured or guaranteed under the
Servicemen's Readjustment Act of 1944, as amended, Chapter 37 of Title 38; that
none of the borrowers listed herein is a director, officer, employee, agent, or
an attorney of either of the parties hereto; that the title to each of the
properties described in said mortgages has been examined by an attorney or title
company and that there is in the files of the Institution a certificate
certifying that each of said mortgages is a first lien, which certificates will
be delivered to the Bank upon request; that the Institution will be responsible
for keeping the aforementioned insurance in full force and effect and, as to
said policies and/or funds paid or payable thereunder, will act as agent and
trustee for the Federal Home Loan Bank of Atlanta,; that each of the said
mortgages is eligible as collateral under the Federal Home Loan Bank Act and the
Institution agrees that the same may be used as therein provided;
<PAGE> 3
and that it will defend the said mortgages against all claims whatsoever and has
full right, title and authority to transfer the same.
The within assignment is made to secure the repayment of any debt or debts now
due or hereafter to become due from the Institution to the Bank as evidenced by
the Institution's primary obligation or obligation, and upon default in the
terms thereof or any of them, the Bank or its assigns may, at its option, sell
all or any of the securities hereby transferred at private or public sale, and
the Institution hereby constitutes and appoints the Bank or its assignees as its
Attorney in Fact to conduct such sale and execute any and all documents
necessary to effectuate a legal conveyance of said securities with full right,
title, and authority to sign the name of the Institution to any such documents
as such Attorney in Fact; and further said Bank as such Attorney in Fact at its
option may take all lawful means fore the collection of all sums due upon the
collateral hereby assigned, and in case of payment may discharge the instruments
securing such debt as fully the Institution could do if acting for itself.
The powers of attorney herein contained are coupled with an interest and are
irrevocable by death or otherwise, and full power of substitution is granted to
the assignee or holder.
The undersigned hereby agrees to execute such other and further instruments that
may be found necessary to fully secure the Federal Home Loan Bank of Atlanta the
payment in full of the indebtedness hereinbefore referred to.
IN WITNESS WHEREOF, the undersigned instituion has caused this assignment to be
duly executed by its officer thereunto duly authorized, this the 3rd day of
January, A.D., 1998.
Gateway Bank & Trust
------------------------
(Name of Institution)
Ringgold, Georgia .
------------------------
(City and State)
(s) Harle B. Green .
------------------------
Harle B. Green
Chairman & CFO
Note: This form must be signed by an officer authorized by the Institution's
current Resolution and Signature Card for Advances on file with the Bank.
<PAGE> 4
FEDERAL HOME LOAN BANK OF ATLANTA
ADVANCES, SPECIFIC COLLATERAL PLEDGE AND SECURITY AGREEMENT
AGREEMENT, dated as of November 19, 1997, between Gateway Bank and
Trust having its principal place of business at 5102 Alabama Highway, Ringgold,
Georgia 30736 ("Member") and the Federal Home Loan Bank of Atlanta, 1475
Peachtree Street, N. E., Atlanta, Georgia 30309 ("Bank").
WHEREAS, the Member desires from time to time to participate in the
Bank's credit program(s) under the terms of the Agreement, and the Bank is
authorized to extend credit to the Member pursuant to the provisions of the
Federal Home Loan Bank Act, as now and hereafter amended (the "Act"), and the
regulations and guidelines of the Federal Housing Finance Board (the "Board") or
any successor entity now and hereafter in effect (collectively, the
"Regulations"); and
WHEREAS, the Bank requires that advances by the Bank be secured
pursuant to this Agreement, and the Member agrees to provide such security as
requested by the Bank by the means set forth in this Agreement;
NOW THEREFORE, the Member and the Bank agree as follows:
ARTICLE 1: DEFINITIONS
Section 1.01 Definitions. As used herein, the following terms shall have the
following meanings:
A) "Advance" or "Advances" means any and all loans or other extensions
of credit, including all Commitment, heretofore, now or hereafter
granted by the Bank to, on behalf of, or for the account of, the
Member.
B) "Application" means a writing, signed by the Member, in such form or
forms as shall be specified by the Bank from time to time, by which
the Member requests, and which if executed by the Bank shall
together with this Agreement evidence the terms of, and Advance or a
commitment for an Advance.
C) "Capital Stock" means all of the capital stock of the Bank held by
the Member, and all payments which have been or hereafter are made
on account of subscriptions to and all unpaid dividends on such
capital stock.
D) "Collateral" means all property, including the proceeds thereof,
heretofore assigned, transferred or pledged to the Bank by the
Member as collateral for Advances or other extensions of credit
prior to the date hereof, and all Capital Stock, First Mortgage
Collateral, Government and Agency Securities Collateral, Other
Collateral and Other Securities Collateral, including the proceeds
thereof, which is now or hereafter pledged to the bank pursuant to
section 3.01 hereof.
E) "Collateral Maintenance Level" means the aggregate dollar amount
equal to such percentage(s) as the Bank may specify from time to
time of (1) the outstanding amounts of all Advances; (2) with
respect to each outstanding Swap Transaction, the amount for which
the Member is required to maintain Collateral; and (3) any
additional obligations and liabilities of the Member to the Bank.
The Bank may increase or decrease the Collateral Maintenance Level
at any time.
1
<PAGE> 5
F) "Commitment" or "Commitments" means any and all agreements under
which the Bank is contractually obligated to make a loan to, or to
make a future payment on behalf or for the account of, the Member
(but excluding any obligations that the Bank may now or hereafter
have to honor items or transfer orders under a depository or similar
agreement between the Bank and the Member), regardless of whether
such obligation is contingent in whole or in part, including,
without limitation, letters of credit or credit issued for the
account of the Member.
G) "Confirmation of Advance" means a writing of machine readable
electronic transmission, in such form or forms as the Bank may
general from time to time, by which the Bank agrees to and confirms
the Member's request for an Advance or a commitment for an Advance
and which, together with the Agreement, shall evidence the terms of
such Advance or commitment.
H) "First Mortgage Collateral" means First Mortgage Documents
(excluding participation or other fractional interests therein) and
all ancillary security agreements, policies and certificates of
insurance or guarantees, evidences of recordation, applications,
underwriting materials, surveys, appraisals, approvals, permits,
notices, opinions of counsel and loan servicing data and all other
electronically stored and written records or materials relating to
the loans evidenced or secured by the First Mortgage Documents.
I) "First Mortgage Documents" mean mortgages and deeds of trust (herein
"mortgages") secured by a first lien on one-to-one unit single
family dwellings, and all notes, bonds or other instruments (herein
"mortgage notes") evidencing fully disbursed loans secured by such
mortgages and any endorsements or assignments thereof to the Member.
J) "Government and Agency Securities Collateral" means mortgage-backed
securities (including participation certificates) issued by the
Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, obligations guaranteed by the Government
National Mortgage Association, and obligations issued or guaranteed
by the United States or an agency thereof.
K) "Indebtedness" means all indebtedness, now or hereafter outstanding,
of the Member to the Bank, including, without limitation, all
Advances and all other obligations to pay and liabilities of the
Member to the Bank.
L) "Lendable Collateral Value" means an amount equal to such percentage
as the Bank shall from time to time, in its sole discretion, ascribe
to the market value or unpaid principal balances of items of
Qualifying Collateral.
M) "Other Collateral" means items of property other than Capital Stock,
First Mortgage Collateral, Government and Agency Securities
Collateral and Other Securities Collateral which are offered as
Collateral by the Member to the Bank and are specifically accepted
by the Bank as Collateral.
N) "Other Mortgagee Documents" mean mortgages secured by a first lien
on real property other than on a one-to-four unit single family
dwelling and all mortgage notes secured by such mortgages and any
endorsements or assignments thereof to the Member.
O) "Other Securities Collateral" means securities (other than
Government and Agency Securities Collateral) representing
unsubordinated interests in, or collateralized by first lien
security interests in, both the interest and principal payments on
first lien residential mortgages.
2
<PAGE> 6
P) "Qualifying Collateral" means (Collateral other than Capital Stock
which (i) is eligible as collateral that can be used to support the
origination of Advances under the terms and conditions of the Act
and the Regulations, and satisfies such other requirements as may be
established by the Bank; (ii) is owned by the Member free and clear
of any liens, encumbrances or other interests other than the
assignment to the Bank hereunder, (iii) has not been in default
within the most recent 12-month period, excepting only in the case
of First Mortgage Collateral payments which are not past due except
as permitted by the Bank's Credit Policy; (iv) in the case of First
Mortgage Collateral, relates to residential real property on which
is located a one-to-four unit single family dwelling that is covered
by fire and hazard insurance in an amount at least sufficient to
discharge the mortgage loan in full in case of loss and as to which
all real estate taxes are current; (v) has not been classified as
substandard, doubtful, or loss by the Member's regulatory authority
or its management; (vi) in the case of First Mortgage Collateral and
Other Collateral does not secure an indebtedness on which any
director officer, employee, attorney or agent of the Member or any
Federal Home Loan Bank is personally liable unless the acceptance of
such Collateral by the Bank has been specifically approved by formal
resolution of the Board; and (vii) in the case of Other Collateral,
Government and Agency Securities Collateral and Other Securities
Collateral has been offered by the Member to the Bank and
specifically accepted by the Bank as Qualifying Collateral.
Q) "Swap Transaction" means an interest rate swap, interest rate cap,
floor or collar, currency exchange transaction or similar
transaction entered into between the Bank and the Member.
ARTICLE II: ADVANCES AGREEMENT
Section 2.01 Advance Documentation. The Member may apply for Advances and
commitments for Advances by completing and submitting an Application to the Bank
or by telephonic or other unsigned communication. The Bank conclusively
established by this Agreement and by either (i) the Member's Application when
such Application is executed by the Bank without any change, or (ii) in the case
of an Application received, completed or modified by the Bank pursuant to a
telephonic or other unsigned communication from the Member ("telephonic
application"), by a Confirmation of Advance generated by the Bank. The Member
shall be estopped from asserting any claim or defend with respect to the terms
applicable to an Advance or commitment entered into pursuant to a telephonic
application unless, within two (2) business days of receipt of the Bank's
Confirmation of Advance, the Member delivers to the Bank a written notice
specifying the disputed term(s) or condition(s) of the Advance or commitment,
Within three (3) business days of the date of the Member's receipt of the Bank's
Confirmation of Advance, the Member shall prepare, sign and submit to the Bank a
completed Application nonforming to such Confirmation of Advance. Upon the
request of the Bank, the Member shall sign and deliver to the Bank a promissory
note or notes in such form as the Bank may reasonable require evidencing any
Advance. Unless otherwise agreed to by the Bank in writing, each Advance shall
be made by crediting the Member's demand deposit account(s) with the Bank.
Section 2.02 Repayment of Advances. The Member agrees to repay each Advance in
accordance with this Agreement and the terms and conditions of the Application
or Confirmation of Advance evidencing such Advance. Interest shall be paid on
each Advance at the times specified by the Bank in writing and shall be charged
for each day that an Advance is outstanding at the rate applicable to the
Advance. The Member
3
<PAGE> 7
shall pay to the Bank, immediately and without demand, interest on any past due
principal of and interest on any Advance at an interest rate which is the
greater of (i) the rate applicable to such Advance plus one percent (1%) or (ii)
the rate in effect and being charged by the Bank from time to time on overdrafts
on demand deposit accounts of its members, but in no event more than any
applicable limit set by the Regulation. The Member shall ensure that, on any day
on which any payment is due to the Bank with respect to Advances or other
indebtedness, the Member's demand deposit account(s) with the Bank has an
available balance in an amount at least equal to the amounts then due and
payable to the Bank, and the Member hereby authorizes the Bank to debit the
Member's demand deposit account(s) with the Bank for all amounts due and payable
with respect to any Advance and for all other amounts due and payable hereunder.
In the event that the available balance in the Member's demand deposit
account(s) is insufficient to pay such due and payable amounts, the Bank may,
without notice to or request from the Member, apply any other deposits, credits,
or monies of the Member then in the possession of the Bank to the payment of
amounts due and payable. All payments with respect to Advances shall be applied
first to any fees or charges applicable thereto and to interest due thereon, in
such order as the Bank may determine, and then to any principal amount thereof
that is then due and payable.
Section 2.03 Right of Bank to Make Advances with Respect to Outstanding
Commitments. In the event that there are one or more outstanding Commitments at
the time of an Event of Default under Section 4.01 hereof, the Bank may at its
option, and without notice to or request from the Member, make an Advance by
crediting a special account of the Member with the Bank in an amount equal to
the outstanding Commitments. Amounts credited to such special account shall be
utilized by the Bank for the purpose of satisfying the Bank's obligations under
such Commitments. When all such obligations have expired or have been satisfied,
the Bank shall disburse the balance, if any, in such special account first to
the satisfaction of any amounts then due and owing by the Member to the Bank and
then to the Member or its successors in interest. Advances made pursuant to this
Section 2.03 shall be payable on demand and shall bear interest from the date
the same shall be made until paid at the rate in effect and being charged by the
Bank from time to time on overdrafts on demand deposit accounts of its members,
but in no event more than any applicable limit set by the Regulations.
Section 2.04 Amortization of Advances. In the event that the Bank determines
that the creditworthiness of the Member, as determined from time to time by the
Bank, does not meet the requirements of the Bank, the Bank may, without
limitation of the Bank's rights upon the occurrence of an Event of Default
hereunder, require amortization by making such monthly amortization payments,
upon thirty (30) days written notice from the Bank, in such monthly amounts as
the Bank shall specify in writing. No monthly payment shall exceed ten percent
(10%0 of the original principal balance of the Advance being amortized. Unless
otherwise specified by the Bank in writing to the Member, such monthly
amortizing payments shall not extend or modify the maturity date of other
scheduled payment dates applicable to the Advance being amortized.
ARTICLE III: SECURITY AGREEMENT
Section 3.01 Creation of Security Interest. As security for all Indebtedness,
the Member hereby assigns, transfers, and pledges to the Bank, and grants to the
Bank a security interest in: (i) all of the Capital Stock and (ii) all of the
First Mortgage Collateral, Government and Agency Securities Collateral, Other
Collateral, and Other Securities Collateral now or hereafter owned by the
Member, and all proceeds
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thereof, which is specified pursuant to Section 3.04 or delivered pursuant to
Section 3.05. Without limitation of the foregoing, all property heretofore
assigned, transferred or pledged by the Member to the Bank as Collateral
securing indebtedness and other obligations of the Member prior to the date
hereof is hereby assigned, transferred and pledged to the Bank as Collateral
hereunder.
Section 3.02 Member's Representation and Warranties Concerning Collateral. The
Member represents and warrants to the Bank, as of the date hereof and the date
of each Advance hereunder, as follows:
A) The Member owns and has marketable title to the Collateral and has the
right and authority to grant a security interest in the Collateral and to
subject all of the Collateral to this Agreement;
B) The information given from time to time by the Member as to each item of
Collateral is true, accurate and complete in all material respects;
C) All the Collateral meets the standards and requirements with respect
thereto from time to time established by the Act, the Regulations and the
Bank;
D) The lien of the First Mortgage Collateral and Other Collateral on the real
property securing the same is a perfected lien under applicable law;
E) The Member has not conveyed or otherwise created, and there does not
otherwise exist, any participation interest or other direct, indirect,
legal, or beneficial interest in any Collateral on the part or anyone other
than the Bank and the Member;
F) Except as may be approved in writing by the Bank, no account debtor or
other obligor owing any obligation to the Member with respect to any item
of First Mortgage Collateral of Other Collateral has or will have any
defenses, offsetting claims, or other rights affecting the right of the
Member or the Bank to enforce such mortgage, mortgage note or promissory
obligation, and no defaults (or conditions that, with the passage of time
or the giving of notice or both, would constitute a default) exist under
any such writings; and
G) No part of any real property or interest in real property that is, or is
the subject of mortgages, included in the Qualifying Collateral contains or
is subject to the effects of toxic or hazardous materials or other
hazardous substances (including those defined in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended,
42 U.S.C. section 9601, et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. section 1801 et seq.; the resource Conservation and Recovery
Act, 42 U.S.C.section 6901 et seq.; and in the regulations adopted and
publications promulgated pursuant to said laws) the presence of which could
subject the Bank to any liability under applicable state or Federal law or
local ordinance wither at any time that such property is pledged to the
Bank or upon the enforcement by the Bank of its security interest therein.
The Member hereby agrees to indemnify and hold the Bank harmless against
all costs, claims, expenses, damages, and liabilities resulting in any way
from the presence or effects of any such toxic or hazardous substances or
materials in, on, or under any real property or interest in real property
that is subject to or included in the Collateral.
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A) Collateral that is not Qualifying Collateral) as may be required by the
Bank in order to protect its security position with respect to outstanding
Indebtedness. The Member shall not assign, pledge, transfer, create any
security interest in, sell, or otherwise dispose of any Collateral without
the express written consent of the Bank.
B) If any Collateral that was Qualifying collateral ceases to be Qualifying
Collateral, the Member shall promptly notify the Bank in writing of that
fact and, if so requested by the Bank, of the reason that the collateral
has ceased to be Qualifying Collateral. The Member shall promptly specify,
or deliver, as the case may be, other qualifying Collateral having at least
the same Lendable Collateral value as the Collateral so requested to be
withdrawn.
C) The Bank may review the form and sufficiency of all documents pertaining to
the Collateral. Such documents must be satisfactory to the Bank and, if
not, such Collateral may not be acceptable as Qualifying Collateral or may
have a Lendable Collateral Value applied thereto that is less tan the
Lendable Collateral Value otherwise applicable under the Bank's Credit
Policy, as the Bank may specify. The Bank may require that the Member make
any or all documents pertaining to the Collateral available to the bank for
its inspection and approval.
Section 3.04 Specification and Identification of Collateral
A) Upon execution of this Agreement, the Member shall deliver to the Bank a
status report and accompanying schedules, all in the form(s) prescribed by
the Bank, specifying and describing Qualifying Collateral in an amount
sufficient to satisfy the requirements of Section 3.03 (A) hereof.
B) Specified Collateral shall be held by the Member in trust for the benefit
of, and subject to the direction and control of the Bank, and will be
physically safeguarded by the Member with at least the same degree of care
as the Member uses in physically safeguarded by the Member with at least
the same degree of care as the Member uses in physically safeguarding its
other property. Without limitation of the foregoing, the Member shall take
all action necessary or desirable to protect and preserve the Collateral
and the Bank's interest therein, including without limitation the
maintaining or insurance on property securing mortgages constituting
Collateral (such policies and certificates of insurance or guaranty
relating to such mortgages are herein called "insurance"), the collection
of payments under all mortgages and under all insurance, and otherwise
assuring that all mortgages are serviced in accordance with the standards
of a reasonable and prudent mortgagee.
C) The Member shall hold each set of First Mortgage Documents and all Other
Mortgage Documents which are a part of such specified Collateral in a
separate file folder with each file folder clearly labeled with the lean
identification number and the name of the borrower(s). Each such file
folder shall be clearly marked or stamped with the Statement: The
Mortgage/Deed of Trust and Note Relating to This Loan Have Been Assigned to
the Federal Home Loan Bank of Atlanta." Or such other statement that may by
approved by the Bank from time to time. If so requested by the Bank, in
writing, the Member shall physically segregate First Mortgage Documents and
Other Mortgage Documents which are a part of such specified Collateral from
all other property of the Member in a manner satisfactory to the Bank.
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Section 3.05 Delivery of Collateral
A) Upon the Bank's written or oral request, or promptly at any time that the
Member becomes subject to any mandatory collateral delivery requirements
that may be established in writing by the Bank, and until such time as may
be agreed upon by the Bank in writing, the Member shall deliver to the
Bank, or to a custodian designated by the Bank, such Qualifying Collateral
as may be necessary so that the Lendable Collateral Value or Qualifying
Collateral held by the Bank, or such custodian, meets or exceeds the
Collateral Maintenance Level at all times. The Member shall also deliver to
the Bank, or to a custodian designated by the Bank, additional Collateral
(which may be Collateral that is not Qualifying Collateral) in such amount
as may be required by the Bank. Collateral delivered to the Bank shall be
endorsed or assigned, as appropriate, in recordable form by the Member to
the Bank, as specified by the Bank. Unless otherwise indicated by the Bank,
such endorsements or assignments may be in blanket form and, in the case of
First Mortgage documents and Other Mortgage Documents, there shall be
separate endorsements and assignments for each county or recording district
in which to real property covered by such mortgage loans is located. With
respect to First Mortgage Collateral and mortgage loans which are Other
Collateral that are delivered hereunder, the Member need only deliver the
First Mortgage Documents and Other Mortgage Documents together with
recordable assignments of the mortgages, unless otherwise directed by the
Bank. Concurrently with the initial delivery of Collateral, the Member
shall deliver to the Bank a status report and accompanying schedules , all
in the form(s) prescribed by the Bank, specifying and describing the
Collateral held by the Bank or its custodian and identifying those items of
Collateral that are Qualifying collateral.
B) With respect to any uncertified securities pledged to the Bank as
Collateral hereunder, the delivery requirements contained in the Agreement
shall be satisfied by the transfer of a security interest in such
securities to the Bank, such transfer to be effected in such manner and to
be evidenced by such documents as shall be reasonable specified by the
Bank.
C) The Member agrees to pay to the Bank such reasonable fees and charges as
may be assessed by the Bank to cover the Bank's overhead and other costs
relating to the receipt, holding, redelivery and reassignment of Collateral
and to reimburse the Bank upon request for all recording fees and other
reasonable expenses, disbursements and advances incurred or made by the
Bank in connection therewith (including the reasonable compensation and the
expenses and disbursements of any custodian that may be appointed by the
Bank hereunder, and the agents and legal counsel of the Bank and of such
custodian).
D) The Member shall, upon request of the Bank, immediately take such other
actions as the Bank shall deem necessary or appropriate t perfect the
Bank's security interest in the Collateral or otherwise to obtain,
preserve, protect, enforce or collect the Collateral.
Section 3.06 Withdrawal of Collateral. Upon receipt by the Bank or writings in
the form specified by the Bank constituting (i) a request from the Member for
the withdrawal of Collateral which has been specified or identified pursuant to
Section 3.04 hereof, delivered pursuant to Section 3.05 3.05 hereof, or as to
which the Bank has otherwise perfected its security interest; (ii) a detailed
listing of the collateral to be withdrawn; and (iii) a certificate of a
responsible officer of the Member certifying as to the Qualifying Collateral
that is as specified and identified by the Member, or held by the Bank, as
appropriate, after such withdrawal, and upon the Bank's determination that the
Lendable Collateral Value of the remaining
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Qualifying Collateral is not less than the current required Collateral
Maintenance level, the Bank shall promptly deliver, release or reassign to the
Member the Collateral identified in the Member's listing of Collateral to be
withdrawn, provided that the Collateral requested to be withdrawn is not
required by the Bank to be maintained as additional Collateral. Notwithstanding
anything to the contrary herein contained, while an Event of Default hereunder
shall have occurred and be continuing, or at any time that the Bank reasonable
and in good faith deems itself insecure, the Member may not obtain any such
withdrawal.
Section 3.07 Reports: Collateral Audits: Access
A) The Member shall furnish to the Bank annually, and at such other items as
the Bank may request, an audit report with respect to the Member's
Collateral, prepared by the Member's external auditor and in form or
substance acceptable to the Bank, and such financial reports and other
information relating to the Member's financial condition as the Bank may
reasonable request.
B) The Member shall furnish to the Bank at such times as the Bank may request,
or as necessary to satisfy the requirements of the Bank, a status report
with respect to the Member's Collateral prepared by the Member in for and
substance acceptable to the Bank and as of a date within two weeks of the
report due date. The status report shall be a written report covering such
matters regarding the Collateral as the Bank may require, including
listings of mortgages and unpaid principal balances thereof and
certifications concerning the status of payments on mortgages and unpaid
principal balances thereof and certifications concerning the status of
payments on mortgages and of taxes and insurance on securing mortgages.
C) If so requested by the Bank, the Member shall promptly report to the Bank
any event which reduces the principal balance of any mortgage or security
or other item of Collateral by five percent (5%) or more, whether by
prepayment, foreclosure sale, insurance or guaranty payment or otherwise.
D) The Member shall give the Bank access at all reasonable times to Collateral
in the Member's possession and to the Member's books and records of account
relating to such Collateral, for the purpose of the Bank's examining,
verifying or reconciling the Collateral and the Member's reports to the
Bank thereon.
E) If the Member becomes aware or has reason to believe that the Lendable
Collateral Value of the Member's Qualifying Collateral has fallen below the
Collateral Maintenance Level, of that a contingency exists which with the
lapse of time could result in the Member failing to meet the collateral
Maintenance Level, the Member shall immediately notify the Bank.
F) All Collateral and any matters relating thereto shall be subject to audit
and verification by or on behalf of the Bank. Such audits and verifications
may occur without notice during the Member's normal business hours or upon
reasonable notice at such other times as the Bank may reasonable request.
The Member shall provide access to, and shall make adequate working
facilities available to, the representatives or agents of the Bank for
purposes of such audits. Reasonable fees and charges may be assessed to the
Member by the Bank to cover overhead and other costs relating to such audit
and verification.
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G) Notwithstanding anything to the contrary, the Member shall be solely
responsible for the accuracy and adequacy of all information and data in
each audit or status report (or other writing specifying and describing any
Collateral) submitted to the Bank, regardless of the form in which
submitted. The Bank shall have no duty to make any independent examination
of or calculation with respect to the information submitted in an audit or
status report (or in any written schedule that may be submitted by the
Member) and, without limiting the generality of the foregoing, the Bank
makes no representation or warranty as to the validity, accuracy, or
completeness of any information contained in any written records of the
Bank concerning, or of any response to, such audit or status report.
Section 3.08 Additional Documentation. The Member shall make, execute, record
and deliver to the Bank such financing statements, notices, assignments,
listing, powers, and other documents with respect to the collateral and the
Bank's security interest therein and in such form as the Bank may reasonable
require.
Section 3.09 Bank's Responsibilities as to Collateral. The Bank's duty as to the
Collateral shall be solely to use reasonable care in the custody and
preservation of the Collateral in its possession, which shall not include any
steps necessary to preserve rights against prior parties nor the duty to send
notices perform services, or take any action in connection with the management
of the Collateral. The Bank shall not have any responsibility or liability for
the form, sufficiency, correctness, genuineness or legal effect of any
instrument or document constituting a part of the Collateral, or any signature
thereon or the description or misdescription, or value of property represented,
or purported to be represented, by any such document or instrument. The Member
agrees that any and all Collateral may be removed by the Bank from the state or
location where situated and may be subsequently dealt with by the Bank as
provided in the Agreement.
Section 3.10 Bank's Rights as to Collateral Power of Attorney. At any time or
times, at the expense of the Member, the Bank may in its discretion, before or
after the occurrence of an Event of Default as defined in Section 4.01 hereof,
in its own name or in the name of its nominee or of the Member, do any or all
things and take any and all actions that are pertinent to the protection of the
Bank's interest hereunder and are lawful under the laws of the state of Georgia,
including, but not limited to, the following:
A) Terminate any consent given hereunder;
B) Notify obligors on any Collateral to make payments thereon directly to the
Bank;
C) Endorse any Collateral in the Member's name;
D) Enter into any extension, compromise, settlement, or other agreement
relating to or affecting any Collateral;
E) Take any action the Member is required t take or which is otherwise
reasonable necessary to (i) sign and record a financing statement or
otherwise perfect a security interest in any or all of the collateral. Or
(ii) to obtain, preserve, protect, enforce or collect the Collateral;
F) Take control of any funds or other proceeds generated by the Collateral and
use the same to reduce Indebtedness as it becomes due; and
G) Cause the Collateral to be transferred to its name of the name of its
nominee.
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The Member hereby appoints the Bank as its true and lawful attorney, for and on
behalf of the Member and in its name, place and stead, to prepare, execute and
record endorsements and assignments to the Bank of all or nay item of
Collateral, giving or granting to the Bank, as such attorney, full power and
authority to do or perform every lawful act necessary or proper in connection
therewith s fully as the Member might or could do. The Member hereby ratifies
and confirms all that the Bank shall lawfully do or cause to be done by virtue
of this special power of attorney. This special power of attorney is granted for
a period commencing on the date hereof and continuing until the discharge of all
indebtedness and all obligations of the Member hereunder regardless of any
default by the Member, is coupled with an interest, and is irrevocable for the
period granted.
Section 3.11 Subordination of Other Loans to Collateral. The Member hereby
agrees that all mortgage notes which are part of the First Mortgage Collateral
of Other Collateral (:pledged notes") shall have priority in right and remedy
over nay other loans, whenever made and, however evidenced, which are also
secured by the mortgages or security agreements securing the pledged notes. The
pledged notes shall be satisfied out of the property (or proceeds thereof)
covered by such mortgages or security agreements before any payment is made on
the loans which are not part of the collateral. To this end, the Member hereby
subordinates the lien of such mortgages and security agreements with respect to
such other loans to the lien of such mortgages and security agreements with
respect to the pledged notes. The Member further agrees to retain possession of
all notes or other instruments evidencing such other loans and not to pledge,
assign, or transfer the same, except insofar as such other loans may be pledged
to the Bank as part of the Collateral.
Section 3.12 Proceeds of Collateral. The Member, as the Bank's agent, shall
collect all payments when due on al collateral. If the Bank so requires, the
Member shall hold such collections separate from its other monies in one or more
designated cash collateral accounts maintained at the Bank and apply them to the
reduction of Indebtedness as it becomes due; otherwise, the Bank consents to the
Member's use and disposition of all such collections.
ARTICLE IV: DEFAULT; REMEDIES
Section 4.01 Events of Default; Acceleration. Upon the occurrence of any of the
following events or conditions of default ("Event of Default"), the Bank may at
its option, by a notice to the Member, declare all or any part(s) of the
Indebtedness and accrued interest thereon, including any prepayment fees or
charges which are applicable to any Advance, to be immediately due and payable
without presentment, demand, protest, or any further notice:
A) Failure of the Member to pay when due any interest on or principal of any
advance; or
B) Failure of the Member to perform any promise or obligation or to satisfy
any condition or liability contained herein, in any Application, in any
Confirmation of Advance or in any other agreement to which the Member and
the Bank are parties; or
C) Evidence coming to the attention of the Bank that any, statements, or
warranties made of furnished in any manner to the Bank by or on behalf of
the Member in connection with any Advance of Swap Transaction, any
specification or description of Qualifying Collateral or any report or
certification concerning the status, value or principal balance of nay item
of Collateral was false in any material respect when made or furnished; or
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D) Failure of the Member to maintain adequate (Qualifying Collateral free of
any encumbrances of claims are required herein; or
E) The issuance of any tax, levy, seizure, attachment, garnishment, levy of
execution, or other process with respect to the Collateral; or
F) Any suspension of payment by the Member to any creditor of sums due or the
occurrence of any event which results in another creditor having the right
to accelerate the maturity of any indebtedness of the Member under any
security agreement, indenture, loan agreement, or comparable undertaking;
or
G) Appointment of a conservator, receiver, or similar official for the Member
or any subsidiary of the Member or the Member's property, entry of a
judgment or decree adjudicating the Member or any subsidiary of the Member
insolvent or bankrupt or an assignment by the Member or any subsidiary of
the Member for benefit or creditors; or
H) Sale by the Member of all or a material part of the member's assets or the
taking of any other action by the Member to liquidate or dissolve; or
I) Termination of for any reason of the Member's membership in the Bank, or
the Member's easing to be a type of entity that is eligible under the Act
to become a member of the Bank, or
J) Merger, consolidation or other combination of the Member with an entity
which is not a member of the Bank if the nonmember entity is the surviving
entity, or
K) With respect to Advances made pursuant to Section 11(g)(4) of the Act, if
the creditor liabilities of the Member, excepting liabilities to the Bank,
are increased in any manner to an amount exceeding five percent (5%) of the
Member's net assets; or
L) The Bank reasonable and in good faith determines that a material adverse
change has occurred in the financial condition of the Member from that
disclosed at the time of the making of any Advance or from the condition of
the Member as theretofore most recently disclosed to the Bank.
Section 4.02 Remedies. Upon the occurrence of any Event of default, the Bank
shall have all of the rights and remedies provided by applicable law which shall
include, but not be limited to, all of the remedies of a secured party under the
Uniform Commercial Code as in effect in the State of Georgia. In addition, the
Bank may take immediate possession of any of the Collateral or any part thereof
wherever the same may be found. The Bank may sell, assign and deliver the
Collateral or any part thereof at public or private sale for such price as the
Bank deems appropriate without any liability for any loss due to decrease in the
market value of the Collateral during the period held. The Bank shall have the
right to purchase all or part of the collateral at such sale. If the collateral
includes insurance or securities which will be redeemed by the issuer upon
surrender, or any accounts or deposits in the possession of the Ban, the Bank
may realize upon such Collateral without notice to the Member. If any
notification of intended disposition of any of the Collateral is required by
applicable, law or in accordance with Section 5.06 hereof at least 5 days before
any such disposition. The proceeds of any sale shall be applied in the order
that the Bank, in its sole discretion, may choose. The Member agrees to pay all
the costs and expenses of the Bank in the collection of the indebtedness and
enforcement of the Bank's rights and remedied in case of default, including,
without
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limitation, reasonable attorneys' fees. The Bank shall, to the extent required
by law, apply any surplus, after (I) payment of the indebtedness, (ii) provision
for repayment to the Bank of any amounts to be paid or advanced under
Outstanding Commitments, and (iii) payment of all costs of collection and
enforcement, to the claims of person(s) legally entitled thereto, with any
remaining surplus paid to the Member. The Member shall be liable to the Bank for
any deficiency remaining.
Section 4.03 Payment of Prepayment Charges. Any prepayment fees or charges
applicable to an Advance shall be payable at the time of any voluntary or
involuntary payment of all or part of the principal of such Advance prior to the
originally scheduled maturity thereof, including without limitation payments
that are made as a part of a liquidation of the Member or that become due by
operation of law or as a result of an acceleration pursuant to Section 4.01
hereof, whether such payment is made by the Member, by a conservator, receiver,
liquidator or trustee of or for the Member, or by any successor to or any
assignee of the Member.
ARTICLE V: MISCELLANEOUS
Section 5.01 General Representations and Warranties by the Member. The Member
represents and warrants that, as of the date hereof and the date of each Advance
hereunder:
The member is not, and neither the execution of nor the performance of any of
the transactions or obligations of the Member under this Agreement shall, with
the passage of time, the giving of notice or otherwise, cause the Member to be:
(I) in violation of its charter or articles of incorporation, by-laws, the Act
or the Regulations, any other law or administrative regulation, or any court
decree; or (ii) in default under or in breach of any material indenture,
contract or other instrument or agreement to which the Member is a party or by
which it or any of its property is bound.
The Member has full corporate power and authority and has received all corporate
and governmental authorizations and approvals (including without limitation
those required under the Act and the Regulations) as may be required to enter
into and perform its obligations under this Agreement, to borrow each Advance
and to obtain each commitment for an Advance.
The information give by the Member in any document provided, or in any oral
statement made, in connection with an application or request for an Advance or
commitment for an Advance, is true, accurate and complete in all material
respects.
Section 5.02 Assignment. The Bank may assign or negotiate to any other Federal
Home loan Bank or to any other person or entity, with or without recourse, any
Indebtedness of the Member or participation therein, and Bank , may assign and
deliver the whole or any part of the Collateral to the transferee, which shall
succeed to all the powers and rights of the Bank in respect thereof, and the
Bank shall thereafter be forever relieved and fully discharged from any
liability or responsibility with respect to the transferred Collateral. The
Member may not assign or transfer any of its rights or obligations hereunder
without the express prior written consent of the Bank.
Section 5.03 Discretion of the Bank to Grant or Deny Advances. Nothing contained
herein or in any documents describing or setting forth the Bank's Credit Program
and credit policies shall be construed as am agreement or commitment on the part
of the Bank to grant Advances or extend commitments for
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Advances hereunder, the right and power of the Bank in its discretion to either
grant or deny any Advance or commitment for an Advance requested hereunder being
expressly reserved. The determination by the Bank of Lendable Collateral Value
shall not constitute a determination by the Bank that the Member may obtain
Advances or commitments for Advances in amounts up to such Lendable Collateral
Value.
Section 5.04 Amendment: Waivers. No modification, amendment or waiver of any
provision of this Agreement of consent to any departure therefrom shall be
effective unless in a writing executed by a responsible officer of the party
against whom such change is asserted and shall be effective only in the specific
instance and for the purpose of which given. No notice to or demand on the
Member in any case shall entitle the Member to any other or further notice or
demand in the same, or similar or other circumstances. Any forbearance, failure
or delay by the Bank in exercising any right , power or remedy hereunder shall
not be deemed to be a waiver thereof, and any single or partial exercise by the
Bank of any right, power or remedy hereunder shall not preclude the further
exercise thereof. Every right, power and remedy of the Bank shall continue in
full force and effect until specifically waived by the Bank in writing.
Section 5.05 Jurisdiction: Legal Fees. In any action or proceeding brought b the
Bank or the Member in order to enforce any right or remedy under this Agreement,
the parties hereby consent to, and agree that they will submit to, the
jurisdiction of the United States District Court for the northern district of
Georgia or, if such action or proceeding may not be brought in Federal court,
the jurisdiction of the courts of the State of Georgia located in the City of
Atlanta. The Member agrees that if any action or proceeding is brought by the
Member seeking to obtain any legal or equitable relief against the Bank under or
arising out of this Agreement of any transaction contemplated hereby and such
relief is not granted by the final decision, after any and all appeals, of a
court of competent jurisdiction, the Member will pay all attorneys' fees and
other costs incurred by the Bank in connection therewith.
Section 5.06 Notices. Except as provided in the last sentence of this Section,
any written notice, advice, request, consent or direction given, made or
withdrawn pursuant to this Agreement shall be either in writing or transmitted
electronically and reproduced mechanically by the addressee and shall be given
by first class mail, postage, prepaid, by telescope or other facsimile
transmission, or by private courier or delivery service. All non-oral notices
shall be deemed given when actually received at the principal office of the Bank
or the Member, as appropriate. All notices shall be designated to the attention
of an office or section of the Bank or of the Member if the Bank or the Member
has made a request for the notice to be so addressed. Any notice by the Bank to
the Member pursuant to Sections 3.04 or 3.05 hereof may be oral and shall be
deemed to have been duly given to and received by the Member at the time of the
oral communication.
Section 5.07 Signatures of Member. For purposes of this Agreement , documents
shall be deemed signed by the Member when a signature of an authorized signatory
or an authorized facsimile thereof appears on the document. The Bank may rely on
any signature or facsimile thereof which reasonably appears to the Bank to be
the signature of an authorized person, including signatures appearing on
documents transmitted electronically to and reproduce mechanically at the Bank.
The Secretary of an Assistant Secretary of the Member shall from time to time
certify to the Bank on forms provided by the Bank for Advances and commitments
for Advances and otherwise act for and on behalf of the Member in accordance
with this Agreement. Such certifications are incorporated herein and made a part
of this Agreement and shall continue in effect until expressly revoked by the
Member notwithstanding that subsequent certifications may authorize additional
persons to act for and on behalf of the Member.
13
<PAGE> 17
Section 5.08 Applicable Law; Severabillity. In addition to the terms and
conditions specifically set forth herein and in any Application or Confirmation
of Advance between the Bank and the Member , this Agreement and all Advances and
all commitments granted hereunder shall be governed by the statutory and common
law of the United States and, to the extent Federal law incorporates or defers
to state law, the laws (exclusive of the choice of law provisions) of the State
of Georgia. Notwithstanding the foregoing, the Uniform Commercial Code as in
effect in the State of Georgia shall be deemed applicable to this Agreement and
to any Advance hereunder and shall govern the attachment and perfection of any
security interest granted hereunder. In the event that any portion of this
Agreement conflicts with applicable law, such conflict shall not affect other
provisions of this Agreement which can be given effect without the conflicting
provision, and to this end the provisions of this Agreement are declared to be
severable.
Section 5.09 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Member and
the Bank.
Section 5.10 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto relating to the subject matter hereof
and supersedes all prior agreements between such parties which relate to such
subject matter. Notwithstanding the above, rates of interest, repayment
schedules, and fees and other charges applicable to Advances and commitments for
Advances made by the Bank to The Member prior to the execution of this Agreement
shall continue to be governed exclusively by the terms of the prior agreements
pursuant to which such Advances and commitments were made, provided, however,
that Section 4.03 hereof shall apply to all Advances.
14
<PAGE> 18
IN WITNESS WHEREOF, Member and Bank have caused this Agreement to be
signed in their names by their duly authorized officers as of the date first
above mentioned.
Gateway Bank & Trust
- -------------------------------------------------------------------------------
(Full corporate Name of Member)
By: /s/ Harle B. Green, Chairman & CFO
-------------------------------- -----------------------------------------
(Authorized Signature) (Typed Name and Title of Signer)
By: /s/ Boyd M. Steele, Secretary
-------------------------------- -----------------------------------------
(Authorized Signature) (Typed Name and Title of Signer)
(MEMBER'S CORPORATE SEAL)
FEDERAL HOME LOAN BANK OF ATLANTA
By: /s/ Senior Vice President & Chief Credit Officer
--------------------------- --------------------------------------------
(Authorized Officer) (Title)
By: /s/ Vice President & Director of Collateral
--------------------------- --------------------------------------------
(Authorized Officer) (Title)
<PAGE> 1
Exhibit 11 - Computation of Earnings per Share
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the six-month periods ended June 30, 1998 and
1997:
<TABLE>
<CAPTION>
SIX MONTHS ENDED Six Months Ended
JUNE 30, 1998 June 30, 1997
---------------- ---------------
<S> <C> <C>
Reported net income (loss) $ 96,101 $(190,784)
========= =========
Earnings (loss) on common shares $ 96,101 $(190,784)
========= =========
Weighted average common shares outstanding 679,048 679,048
========= =========
Income (loss) per common share - basic and diluted
Income (loss) from continuing operations $ .14 $ (.28)
========= =========
Net income (loss) $ .14 $ (.28)
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,310,839
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,048,704
<INVESTMENTS-CARRYING> 7,757,365
<INVESTMENTS-MARKET> 7,763,027
<LOANS> 28,731,014
<ALLOWANCE> (286,639)
<TOTAL-ASSETS> 54,549,117
<DEPOSITS> 46,840,832
<SHORT-TERM> 0
<LIABILITIES-OTHER> 252,778
<LONG-TERM> 1,000,000
0
0
<COMMON> 3,395,240
<OTHER-SE> 3,060,267
<TOTAL-LIABILITIES-AND-EQUITY> 54,549,117
<INTEREST-LOAN> 1,248,419
<INTEREST-INVEST> 440,843
<INTEREST-OTHER> 58,443
<INTEREST-TOTAL> 1,747,705
<INTEREST-DEPOSIT> 851,092
<INTEREST-EXPENSE> 878,055
<INTEREST-INCOME-NET> 869,650
<LOAN-LOSSES> 118,000
<SECURITIES-GAINS> 604
<EXPENSE-OTHER> 734,158
<INCOME-PRETAX> 96,101
<INCOME-PRE-EXTRAORDINARY> 96,101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,101
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 9.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 170,000
<CHARGE-OFFS> 1,361
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 286,639
<ALLOWANCE-DOMESTIC> 286,639
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
