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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended March 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
for the transition period from _____ to _____
Commission file number: 000-24137
GATEWAY BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-2202210
(State of Incorporation) (I.R.S. Employer Identification No.)
5102 Alabama Highway
Ringgold, Georgia 30736
(Address of principal executive offices)
(706) 965-5500
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class
-----
Common Stock, $5.00 par value 679,048
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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GATEWAY BANCSHARES, INC.
March 31, 2000 Form 10-QSB
TABLE OF CONTENTS
<TABLE>
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Page No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets.................................................... 3
Consolidated Statements of Income.............................................. 4
Consolidated Statements of Comprehensive Income................................ 5
Consolidated Statements of Cash Flows.......................................... 6
Notes to Consolidated Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 15
Item 2. Changes in Securities and Use of Proceeds...................................... 15
Item 3. Defaults Upon Senior Securities................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders............................ 15
Item 5. Other Information.............................................................. 15
Item 6. Exhibits and Reports on Form 8-K............................................... 15
</TABLE>
* * * * *
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEWAY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 2000 December 31,
(UNAUDITED) 1999
------------ ------------
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ASSETS
Cash $ 280,603 $ 1,354,182
Due from banks 2,445,785 1,024,353
Federal funds sold 2,700,000 600,000
Securities available-for-sale 16,153,231 16,014,879
Securities held-to-maturity 4,728,189 4,729,974
Restricted investments 241,100 230,800
Loans 63,762,869 62,564,092
Allowance for loan losses (770,711) (701,234)
------------ ------------
Net loans 62,992,158 61,862,858
Premises and equipment, net 2,118,428 1,956,568
Accrued interest 820,158 780,543
Other assets 395,543 545,417
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TOTAL ASSETS $ 92,875,195 $ 89,099,574
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 6,411,324 $ 6,039,739
Interest-bearing 78,380,210 75,104,608
------------ ------------
TOTAL DEPOSITS 84,791,534 81,144,347
Long-term debt 1,000,000 1,000,000
Accrued interest 397,699 363,948
Other liabilities 32,935 76,389
------------ ------------
TOTAL LIABILITIES 86,222,168 82,584,684
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SHAREHOLDERS' EQUITY:
Common stock ($5 par value; 10,000,000 shares
authorized, 679,048 shares issued and outstanding) 3,395,240 3,395,240
Capital surplus 3,357,637 3,357,637
Accumulated deficit 493,327 331,640
Accumulated other comprehensive income:
Unrealized gains (losses) on investment securities
available-for-sale, net of tax (593,177) (569,627)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,653,027 6,514,890
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 92,875,195 $ 89,099,574
============ ============
</TABLE>
See notes to consolidated financial statements.
3
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GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
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REVENUE FROM EARNING ASSETS:
Loans $ 1,524,425 $ 991,745
Interest on investment securities
Taxable securities 329,631 409,644
Non-taxable securities 2,664 -0-
Interest on federal funds sold 9,831 11,362
Interest on deposits in other banks 77 -0-
------------ ------------
TOTAL REVENUE FROM EARNING ASSETS 1,866,628 1,412,751
------------ ------------
INTEREST EXPENSE:
Interest on deposits 987,304 754,696
Interest on notes payable 14,248 14,104
Interest on federal funds purchased 1,251 3,495
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TOTAL INTEREST EXPENSE 1,002,803 772,295
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NET INTEREST INCOME 863,825 640,456
Provision for loan losses 76,500 95,000
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 787,325 545,456
------------ ------------
NON INTEREST INCOME:
Service charges 63,938 47,613
Mortgage lending fees 26,673 58,030
Commissions on insurance 678 1,291
Investment gains -0- 9,218
Other income 10,561 7,977
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TOTAL NON INTEREST INCOME 101,850 124,129
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NON INTEREST EXPENSE
Salaries and employee benefits 370,617 254,393
Occupancy expense 27,588 27,034
Furniture and equipment expense 37,250 30,086
Other operating expenses 209,533 266,951
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TOTAL NON INTEREST EXPENSE 644,988 578,464
------------ ------------
Income Before Income Taxes 244,187 91,121
Income Tax Provision (82,500) (31,000)
------------ ------------
NET INCOME $ 161,687 $ 60,121
============ ============
EARNINGS PER COMMON SHARE - PRIMARY AND FULLY DILUTED
Net income per common share $ .24 $ .09
Basic weighted average shares outstanding 679,048 679,048
Diluted earnings per common share $ .24 $ .09
Diluted weighted average shares outstanding 680,337 679,048
</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
MARCH 31,
-------------------------------
2000 1999
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Net Income $ 161,687 $ 60,121
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Other comprehensive, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising
during the period (35,681) (203,742)
Less: reclassification adjustments for gains
(losses) included in net income
-0- -0-
------------ ------------
(35,681) (203,742)
Income tax (expense) benefit related items
of other comprehensive income 69,272 12,131
------------ ------------
Other comprehensive income (loss) (23,550) (134,470)
------------ ------------
Comprehensive income (loss) $ 138,137 $ (74,349)
============ ============
</TABLE>
See notes to consolidated financial statements.
5
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GATEWAY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
------------ ------------
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OPERATING ACTIVITIES:
Net income (loss) $ 161,687 $ 60,120
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for loan losses 76,500 95,000
Provision for depreciation and amortization 35,345 36,470
Amortization of investment security premiums and
accretion of discounts 8,315 15,126
Gain on sale of investment securities -0- (9,218)
Deferred tax provision 82,500 31,000
Decrease (increase) in accrued interest receivable (39,615) (5,213)
Increase (decrease) in accrued interest payable 33,751 (2,975)
Other 19,895 97,094
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 378,378 317,404
------------ ------------
INVESTING ACTIVITIES:
Net increase in loans (1,205,800) (9,395,819)
Proceeds from maturities, calls, and principal pay-downs
of securities 319,437 4,825,164
Proceeds from sales of available-for-sale securities -0- 4,174,844
Proceeds from sales of held-to-maturity securities -0- 750,703
Purchase of available-for-sale securities (500,000) (2,456,499)
Purchase of restricted securities (10,300) -0-
Capital expenditures (181,049) (14,802)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,577,712) (2,116,409)
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts 748,480 (764,605)
Net increase (decrease) in certificates of deposit 2,898,707 (3,197,455)
Purchase of federal funds -0- 1,120,000
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,647,187 (2,842,060)
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,447,853 (4,641,065)
Cash and cash equivalents at beginning of period 2,978,535 6,112,902
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,426,388 $ 1,471,837
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 969,052 $ 775,270
Income taxes $ 40,338 $ -0-
</TABLE>
See notes to consolidated financial statements.
6
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GATEWAY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 2000
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.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Gateway Bancshares, Inc. (the "Company") is a one-bank holding which engages in
providing a full range of banking services through its subsidiary bank in
Ringgold, Georgia, Gateway Bank & Trust (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. 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, 1999.
Income Taxes
The Company and the Bank are subject to federal and state income taxes. Income
taxes have been accrued during the first three months of 2000 and 1999 at a rate
of 34 percent of income before income taxes.
Net Income Per Common Share
Net income per common share is based on the weighted-average 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
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Securities ("SFAS 115"). This pronouncement requires that all investments in
debt securities be classified as either "held-to-maturity" securities, which are
reported at amortized cost; trading securities, which are reported at fair
value, with unrealized gains and losses included in earnings; or
"available-for-sale" securities, which are reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate
component of shareholder's equity (net of deferred tax effect).
At March 31, 2000, the Company had net unrealized losses of $898,752 in
available-for-sale securities which are reflected in the presented assets and
resulted in an decrease in shareholders' equity of $593,177, net of deferred tax
asset. There were no trading securities. The net decrease in shareholder's
equity as a result of the SFAS No. 115 adjustment from December 31, 1999 to
March 31, 2000 was $23,550.
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 percent. Principal is due in full on January 13, 2003. The note is secured
by specifically identified single family first mortgage loans.
NOTE 5 - STOCK OPTION PLAN
On March 18, 1999 the Company issued a total of 164,350 options to purchase its
common shares to its directors and executive officers. Each director received
13,550 shares and the executive officers received varying amounts of shares
ranging from 13,550 to 20,350 shares. Each of the stock option agreements
contained an option price of $12.00 per share, the market value of the shares at
the time of issuance. The options vest on an equal incremental basis over a
period of five years.
NOTE 6 - Recently Issued Accounting Standards
Effective for fiscal quarters ending after June 15, 1999, SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. Management does not believe that the adoption of SFAS No.133 will
have a material impact on the Company's consolidated financial statements.
NOTE 7 - RECLASSIFICATIONS
Certain amounts in 1999 have been reclassified to conform with the 2000
presentation.
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion is intended to assist in an understanding of the Company's
financial condition and results of operations. This analysis should be read in
conjunction with the financial statements and related notes appearing in Item 1
of the March 31, 2000 Form 10-QSB and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing in the Company's Form
10-KSB for the year ended December 31, 1999.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains 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 may contain
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 the forward-looking
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) the impact of Year 2000 and technological changes; (7) consumer
spending, borrowing and saving habits; (8) acquisitions; (9) the ability to
increase market share and control expenses; (10) 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;
(11) 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; (12) changes in the Company's organization, compensation, and
benefit plans; (13) the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; and (14) 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 the
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events
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or circumstances after the date on which the statement is made to reflect the
occurrence of unanticipated events.
EARNINGS SUMMARY
The Company's net income for the three months ended March 31, 2000 was $161,687
compared to net income of $60,121 for the same period in 1999. The increase in
net income resulted primarily from the increased net interest income from growth
in the Company's loan and deposit base.
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 $1,866,628 for the three months ended March 31, 2000 compared to
interest income of $1,412,751 for the same period in 1999. The increase in
interest income resulted from the increase in the Company's loan portfolio.
INTEREST EXPENSE
Interest expense on deposits for the three months ended March 31, 2000 was
$1,002,803 compared to interest expense of $772,295 for the same period in 1999.
The increase in interest expense relates to the increase in the Company's
deposit base.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the charge against current earnings
necessary to maintain the allowance for loan losses at a level which management
considers adequate to provide for probable losses in the loan portfolio. This
level is determined based upon management's assessment of current economic
conditions, the composition of the loan portfolio and the levels of nonaccruing
and past due loans. The provision for loan losses was $76,500 for the three
months ended March 31, 2000. The allowance for loan losses as a percent of
outstanding loans was 1.21 percent and 1.12 percent at March 31, 2000 and at
December 31, 1999, respectively.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2000 was $101,850
compared to $124,129 for the same period in 1999. Noninterest income consisted
primarily of service charges on customer deposits ($63,938 through March 31,
2000), mortgage lending fees, ATM and credit card fees, and rental of safe
deposit boxes.
NONINTEREST EXPENSE
Noninterest expense totaled $644,988 for the three months ended March 31, 2000
compared to $578,464 for the same period in 1999. The increases reflect the
hiring of additional staff, and increased occupancy, furniture and fixtures, and
other expenses necessary for the operation of the Company and are reflective of
the growth of the Bank. Other operating expenses consist
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primarily of data processing, advertising, professional fees, printing and
postage and other miscellaneous expenses.
INCOME TAXES
Income taxes of $82,500 and $31,000 have been provided for net income for the
first three months of 2000 and 1999, respectively.
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.
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, management intends to hold such securities for the
foreseeable future except to fund 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 $2,246,867 or 10.41
percent from December 31, 1999 to March 31, 2000. The increase is due to the
sale of federal funds since year end 1999. The investment securities portfolio
is adjusted to make various term investments, to provide a source of liquidity
and to serve as collateral to secure certain government deposits. Investment
securities at March 31, 2000 were $21,122,520 compared to $20,975,653 at
December 31, 1999, reflecting an increase of $146,867. Federal funds sold
increased from $600,000 at December 31, 1999 to $2,700,000 at March 31, 2000.
LOANS
Loans comprised the single largest category of the Company's earning assets on
March 31, 2000. At March 31, 2000, the Company had outstanding loans amounting
to $62,992,158 net of its allowance for loan losses, or 67.8 percent of total
assets, compared to net loans of $61,862,858, or 69.4 percent of total assets at
December 31, 1999. 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
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assets, and nonperforming assets to total loans. At March 31, 2000, the Company
had nonperforming assets of $160,931, or .25 percent of all loans and .17
percent of total assets. At December 31, 1999, the Company had nonperforming
loans of $322,000, or .51 percent of all loans and .36 percent of total assets.
NONEARNING ASSETS
Nonearning assets include premises and equipment of $2,118,428 at March 31,
2000, an increase of $161,860 from December 31, 1999. The increase results
primarily from the construction in progress of a branch office, net of the
effect of depreciation of $35,345 provided for those assets that have been
previously placed in service.
The Bank leases the site for the Bank 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 $820,158 at March 31, 2000, an increase of $39,615 from
December 31, 1999. The increase is due to related increases in earning assets
since year end 1999.
Other assets consist primarily of accrued interest receivable on earning assets
and the deferred tax asset. The deferred tax asset consists primarily of tax
benefits related to timing differences in the tax and financial reporting
treatment of the allowance of loan losses, as well as other factors.
DEPOSITS
At March 31, 2000, the Company had outstanding deposits of $84,791,534 compared
to $81,144,347 at December 31, 1999. Deposits are the Company's primary source
of funds to support its earning assets. Non-interest bearing deposits increased
from $6,039,739 at December 31, 1999 to $6,411,324 at March 31, 2000. Time
deposits of $100,000 or more increased by $417,572. The increase in deposits
reflects management's philosophy of aggressively seeking new deposits while
maximizing the interest income spread on earning assets to interest bearing
liabilities.
OTHER LIABILITIES
Liabilities consists primarily of accrued interest payable and accounts payable.
Accrued interest payable increased $33,751 from December 31, 1999 to March 31,
2000. The increase relates to the increase in the Company's deposit base.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $138,137 from December 31, 1999 to March 31,
2000, due primarily to the net income for the first quarter of 2000 totaling
$161,687, net of the increase in unrealized losses on securities
available-for-sale totaling $23,550, net of deferred tax liability.
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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 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 therefore would 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 debts equaled approximately $35 million at March 31, 2000. Investment
securities maturing in one year or less equaled approximately $1 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 first quarter 2000, 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 $4 million. Liquidity management
involves the daily monitoring of the sources and uses of funds to maintain an
acceptable cash position.
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.
Note Payable - Federal Home Loan Bank
In an effort to maintain and improve the liquidity position of the Bank,
management approved the Bank's membership with the Federal Home Loan Bank of
Atlanta. As a member of the FHLB, the Bank improved its ability to manage
liquidity and reduce interest rate risk by having a funding sources to match
longer term loans. In January, 1998, the Company obtained a $1 million loan from
the FHLB of Atlanta. At March, 2000, 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 percent. Principal is due in full on January 13, 2003. The note is
secured by specifically identified single family first mortgage loans.
Additional lines of credit totaling $9.9 million are available to the Company
from secured loans at Federal Reserve Bank and Federal Home Loan Bank.
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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 $6.7 million at March 31, 2000. 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 $7.4 million at
March 31, 2000. The percentage ratios as calculated under FDIC guidelines were
8.49 percent and 9.47 percent for Tier I and Total Risk-based capital,
respectively, to risk-weighted assets at March 31, 2000. Both levels exceeded
the minimum ratios of 4 percent and 8 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 it believes are 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 March 31, 2000 exceeded the
regulatory minimum requirements which are generally 3 percent plus an additional
cushion of at least 100-200 basis points depending on risk profiles and other
factors.
Georgia Department of Banking and Finance Capital Requirement
In addition to the capital standards imposed by federal banking regulators, the
Georgia Department of Banking and Finance (DBF) imposed its 8 percent 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. This heightened requirement will continue through the
first three years of the Bank's operation. However, in December 1999, the
required ratio was lowered by the DBF to 7.50%. At March 31, 2000, the capital
ratio as calculated under the DBF standard was 7.97 percent. The Bank's capital
ratio as calculated by the DBF was in compliance as of March 31, 2000. Upon the
third anniversary of the Bank's operations on April 21, 2000, the Bank's
required capital ratio will reduce to 4.50%.
14
<PAGE> 15
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 - NONE
ITEM 5 - OTHER INFORMATION
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 2000 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 1, 2001. 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 to the matter in the proxy
statement.
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
-------------- ----------------------
<S> <C>
11 Computation of Net Income Per Share
27 Financial Data Schedule
(for the SEC use only)
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 2000.
15
<PAGE> 16
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: May 10, 2000
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)
16
<PAGE> 1
EXHIBIT 11
GATEWAY BANCSHARES, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
The following tabulation presents the calculation of basic and diluted earnings
per common share for the three month period ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
---- ----
<S> <C> <C>
Basic net income $ 161,687 $ 60,121
============ ============
Basic earnings on common shares $ 161,687 $ 60,121
============ ============
Weighted average common shares
outstanding - basic 679,048 679,048
============ ============
Basic earnings per common share $ .24 $ .09
============ ============
Basic net income per common share $ .24 $ .09
============ ============
Diluted net income $ 161,687 $ 60,121
============ ============
Diluted earnings on common shares $ 161,687 $ 60,121
============ ============
Weighted average common shares
outstanding - diluted 680,337 679,048
============ ============
Diluted earnings per common share $ .24 $ .09
============ ============
Diluted net income per common share $ .24 $ .09
============ ============
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GATEWAY BANCSHARES INC. FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,445,785
<INT-BEARING-DEPOSITS> 78,380,210
<FED-FUNDS-SOLD> 2,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,394,331
<INVESTMENTS-CARRYING> 4,728,189
<INVESTMENTS-MARKET> 4,446,118
<LOANS> 63,762,869
<ALLOWANCE> 770,711
<TOTAL-ASSETS> 92,875,195
<DEPOSITS> 84,791,534
<SHORT-TERM> 0
<LIABILITIES-OTHER> 430,634
<LONG-TERM> 1,000,000
0
0
<COMMON> 3,395,240
<OTHER-SE> 3,257,787
<TOTAL-LIABILITIES-AND-EQUITY> 6,653,027
<INTEREST-LOAN> 1,524,425
<INTEREST-INVEST> 332,295
<INTEREST-OTHER> 9,908
<INTEREST-TOTAL> 1,866,628
<INTEREST-DEPOSIT> 987,304
<INTEREST-EXPENSE> 1,002,803
<INTEREST-INCOME-NET> 863,825
<LOAN-LOSSES> 76,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 644,988
<INCOME-PRETAX> 244,187
<INCOME-PRE-EXTRAORDINARY> 244,187
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,687
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 1.01
<LOANS-NON> 144,726
<LOANS-PAST> 21,205
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 391,579
<ALLOWANCE-OPEN> 701,234
<CHARGE-OFFS> 7,533
<RECOVERIES> 510
<ALLOWANCE-CLOSE> 770,711
<ALLOWANCE-DOMESTIC> 770,711
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
