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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 June 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for
the transition period from to
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Commission file number: 000-21383
APPALACHIAN BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-2242407
(State of Incorporation) (I.R.S. Employer Identification No.)
315 Industrial Blvd.
Ellijay, Georgia 30540
(Address of principal executive offices)
(706) 276-8000
(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 Outstanding at August 13, 1997
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Common Stock, $5.00 par value 578,287
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
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APPALACHIAN BANCSHARES, INC.
June 30, 1997 Form 10-QSB
TABLE OF CONTENTS
<TABLE>
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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 Cash Flows. . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1997 December 31,
(Unaudited) 1996
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<S> <C> <C>
ASSETS
Cash $ 659,709 $ 866,211
Due from banks 392,722 1,658,182
Federal funds sold 1,975,000 1,150,000
Securities available for sale 18,665,387 20,131,443
Securities held to maturity 2,997,743 2,247,479
Loans 74,097,009 64,961,742
Allowance for loan losses (793,600) (655,296)
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Net Loans 73,303,409 64,306,446
Premises and equipment, net 1,631,569 1,673,203
Accrued interest 888,191 806,811
Other assets 838,429 314,116
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TOTAL ASSETS $101,352,159 $93,153,891
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 3,969,680 $ 3,464,810
Interest-bearing 86,394,958 77,683,071
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TOTAL DEPOSITS 90,364,638 81,147,881
Securities sold under agreements to repurchase 3,186,305 5,283,972
Accrued interest 178,894 154,461
Long-term debt 1,000,000 700,000
Other liabilities 254,116 62,641
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TOTAL LIABILITIES 94,983,953 87,348,955
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SHAREHOLDERS' EQUITY:
Common stock ($5 par value; 20,000,000 shares authorized,
578,287 shares issued and outstanding as of June 30, 1997,
568,000 shares issued and outstanding as of December 31, 1997) 2,961,435 2,840,000
Capital surplus 3,096,487 2,829,314
Treasury stock (at cost) (252,000) 0
Accumulated earnings 632,716 168,593
Unrealized losses on investment securities available for sale, net
of deferred tax or tax benefit (70,432) (32,971)
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TOTAL SHAREHOLDERS' EQUITY 6,368,206 5,804,936
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $101,352,159 $93,153,891
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</TABLE>
See notes to financial statements.
3
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APPALACHIAN BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest and fees on loans $1,798,044 $1,213,155 $3,582,589 $2,189,726
Interest on investment securities:
Taxable securities 303,232 231,901 622,653 445,327
Nontaxable securities 36,219 0 68,197 0
Interest on federal funds sold 37,724 13,885 72,162 37,936
---------- ---------- ---------- ----------
TOTAL REVENUE FROM EARNING ASSETS 2,175,219 1,458,941 4,345,601 2,672,989
INTEREST EXPENSE:
Interest on deposits 1,209,218 766,510 2,351,606 1,412,654
Interest on federal funds purchased and
securities sold under agreements to
repurchase 0 55,867 0 106,489
Interest expense - other 68,050 0 136,762 0
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 1,277,268 822,377 2,488,368 1,519,143
NET INTEREST INCOME: 897,951 636,564 1,857,233 1,153,846
Provision for loan losses 75,000 107,000 215,000 197,000
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AFTER PROVISION FOR LOAN LOSSES 822,951 529,564 1,642,233 956,846
NONINTEREST INCOME:
Service charges on deposits 50,865 31,753 94,687 60,932
Insurance commissions 6,042 6,550 12,145 9,550
Other operating income 48,105 26,525 79,343 35,651
Investment securities gains (losses) (5,138) 313 (636) 9,719
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 99,874 65,141 185,539 115,852
NONINTEREST EXPENSES:
Salaries and employee benefits 280,318 221,852 547,287 414,247
Occupancy expense 23,593 22,042 46,326 45,638
Furniture and equipment expense 39,781 30,506 78,871 58,339
Other operating expenses 255,979 122,327 476,165 235,829
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSES 599,671 396,727 1,148,649 754,053
Income before income taxes 323,154 197,978 679,123 318,645
Income tax provision (100,000) (67,312) (215,000) (108,340)
---------- ---------- ---------- ----------
NET INCOME $ 223,154 $ 130,666 $ 464,123 $ 210,305
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - PRIMARY AND
FULLY DILUTED
Net income per common share .39 .23 .81 .37
Weighted average common shares outstanding 578,643 568,000 576,397 568,000
</TABLE>
See notes to financial statements.
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APPALACHIAN BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
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1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 464,123 $ 210,305
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 215,000 197,000
Provision for depreciation and amortization 80,242 57,334
Amortization of investment security premiums
and accretion of discounts 3,091 (7,617)
Deferred tax 47,023 108,340
Realized investment security loss (gains) 635 (9,719)
Increase in accrued interest receivable (81,380) (281,956)
Increase in accrued interest payable 24,433 17,970
Purchase of key man life insurance (570,871) 0
Other 199,836 23,885
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NET CASH PROVIDED IN OPERATING ACTIVITIES 382,132 315,542
INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available for sale 4,702,566 2,826,346
Purchase of securities available for sale (3,294,098) (4,007,297)
Purchase of securities held to maturity (753,163) 0
Net increase in loans to customers (9,211,963) (20,031,111)
Capital expenditures (28,134) (27,108)
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NET CASH USED IN INVESTING ACTIVITIES (8,584,792) (21,239,170)
FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts,
and savings accounts 6,933,869 7,675,034
Net increase in certificates of deposit 2,282,888 12,293,732
Net increase in securities sold under agreement to repurchase (2,097,667) 148,557
Proceeds from sale of stock 388,608 0
Purchase of treasury stock (252,000) 0
Proceeds from notes payable 300,000 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES 7,555,698 20,117,323
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Net decrease in cash and cash equivalents (646,962) (806,305)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,674,393 3,760,098
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,027,431 $ 2,953,793
---------- ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 1,495,710 1,537,113
Income taxes 86,765 0
</TABLE>
See notes to financial statements.
5
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APPALACHIAN BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
June 30, 1997
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Appalachian
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary, Gilmer County
Bank (the "Bank"). The accompanying unaudited 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 six month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the financial statements for Appalachian Bancshares, Inc. for the year ended
December 31, 1996, and footnotes thereto included in Form 10-KSB, filed with
the Securities and Exchange Commission on March 26, 1997.
The Company was formed in May 1996 for the purpose of acquiring all the
outstanding stock of Gilmer County Bank, a Georgia banking corporation located
in Ellijay, Georgia, and operating as a bank holding company. On August 8,
1996, Gilmer County Bank became a wholly-owned subsidiary of the Company.
Unless otherwise indicated herein, the financial results and projections of the
Company refer to the Company and the Bank on a consolidated basis, except that
all financial data prior to August 8, 1996, is for the Bank only.
NOTE B - INCOME TAXES
The effective tax rate of approximately 32 percent for the six months
ended June 30, 1997 approximates the statutory rate less an adjustment for the
effect of tax exempt securities.
NOTE C - INVESTMENT SECURITIES
Effective May 26, 1994, the Company applied the accounting and reporting
requirements of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"). This
pronouncement requires that all investments in debt securities be classified as
either "held-to-maturity" securities, which are reported at amortized cost;
trading securities, which are reported at fair value, with unrealized gains and
losses included in earnings; or "available-for-sale" securities, which are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of Shareholder's equity (net of deferred
tax effect).
At June 30, 1997, the Company had net unrealized losses of $106,715 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in Shareholder's equity of $70,432, net of deferred tax
liability. There were no trading securities. The net decrease in
Shareholder's equity as a result of the SFAS 115 adjustment from December 31,
1996 to June 30, 1997 was $37,461.
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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 elsewhere
herein and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1996 appearing in the
Company's Form 10-KSB filed with the Securities and Exchange Commission on
March 26, 1997.
FINANCIAL CONDITION
JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996
LOANS
Loans comprised the largest single category of the Company's earning
assets on June 30, 1997. Loans, net of unearned income and reserve for loan
losses, were 72.3 percent of total assets at June 30, 1997. Total net loans
were $73,303,409 at June 30, 1997, representing a 14 percent increase from the
December 31, 1996 total of $64,306,446. This increase reflects the continued
increase in loan demand for the Bank's market area coupled with an increase in
the Bank's market share for this area.
INVESTMENT SECURITIES AND OTHER EARNING ASSETS
Investment securities and federal funds sold increased $109,208 or 0.4
percent from December 31, 1996 to June 30, 1997. Investment securities at June
30, 1997 were $21,663,130 compared with $22,378,922 at December 31, 1996,
reflecting a 3.2 percent decrease of $715,792. Federal funds sold were
$1,975,000 at June 30, 1997 compared to the December 31, 1996 total of
$1,150,000, a 71.7 percent increase. The investment securities portfolio is
used to make various term investments, to provide a source of liquidity and to
serve as collateral to secure certain government deposits. Federal funds sold
are maintained as a tool in managing the daily cash needs of the Company. The
increase in federal funds sold is the result of Management's plan to improve
the Company's liquidity position relative to the current size of the Company.
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) increased from 9.94 to 13.5. The ratio of total
nonperforming assets to total assets remained at 0.001 and the ratio on
nonperforming loans to total loans also remained constant at 0.001 as compared
to December 31, 1996. All of these ratios remain favorable as compared with
industry averages, and management is aware of no factors which would suggest
that they are prone to erosion in future periods.
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DEPOSITS
Total deposits of $90,364,638 at June 30, 1997 increased $9,216,757
(11.4%) over total deposits of $81,147,881 at year-end 1996. Deposits are the
Company's primary source of funds with which to support its earning assets.
Noninterest-bearing deposits increased $504,870 or 14.6 percent from year-end
1996 to June 30, 1997, and interest-bearing deposits increased $8,711,887 or
11.2% during the same period. Time deposits of $100,000 or more increased
$1,776,268 (14.7%).
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $3,186,305 at June
30, 1997, a $2,097,667 decrease from the December 31, 1996 total of $5,283,972.
The total of Securities sold under agreements to repurchase are associated
with the cash flow needs of our corporate customers that participate in
repurchase agreements. The decreased balances reflect the needs of these
customers to increase their cash balances on hand.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $563,270 from December 31, 1996 to June 30,
1997, due in part to net earnings of $464,123 and the increase in unrealized
losses on securities available for sale totaling $37,461, net of deferred tax
liability. The increase was also a result of the issuance of 24,287 shares of
the Company's common stock to the Company's 401(k) plan at a price of $16.00 per
share (total purchase price $388,592). The decrease in shareholder's equity
resulting from the purchase of Company stock by the Company on June 30, 1997
from a shareholder of the Company for a total purchase price of $252,000 (14,000
shares at $18.00 per share) was also a significant component of the change.
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 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 to maintain an appropriate balance between
interest-sensitive assets and interest-sensitive liabilities so that the
Company 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 or re-price in one year or less,
excluding outstanding credit card debt equaled approximately $51.4 million at
June 30, 1997. Investment securities maturing in one year or less equaled
$1.17 million. Other sources
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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 noninterest-bearing deposit accounts.
At the end of second quarter 1997, 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 $2,000,000. 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 Federal Home Loan Bank of
Atlanta. As a member of the Federal Home Loan Bank, the Bank would improve its
ability to manage liquidity and reduce interest rate risk by having a funding
source to match longer term loans. The application received approval on April
17, 1997. The Bank received an approval to borrow up to $8,000,000. On June
24, 1997, the Bank drew $1,000,000 from its available credit with the Federal
Home Loan Bank.
CAPITAL RESOURCES
A strong capital position is vital to the continued profitability of the
Company because it promotes depositor and investor confidence and provides a
solid foundation for future growth of the organization. A majority of the
Company's and Bank's capital requirements has been provided from the proceeds
from the Bank's initial stock offering in 1994, through draws by the Company on
a $1 million line of credit with Hardwick Bank and Trust Company (described
below), through the retention of earnings and the sale of Company stock to the
Company's 401(k) plan.
Line of Credit. In November 1996, the Company obtained a $1 million
unsecured line of credit with Hardwick Bank & Trust Company. At December 31,
1996 the balance on the line of credit was $700,000. The Company subsequently
drew down the remaining amount in January 1997. On May 22, 1997 the Company
used a portion of the proceeds from the sale of Company stock to the Company's
401(k) plan to make a $300,000 principal payment on the line of credit.
Subsequently, on May 30, 1997 the Company made a $300,000 draw from the line of
credit to fund the repurchase of Company stock from a shareholder of the
Company (described below) and for working capital needs. Interest on the
outstanding amounts under the line of credit is payable on a quarterly basis at
the prime rate (as defined in the Credit Agreement with Hardwick) less 3/4 of a
percentage point. The Company began making interest payments on April 1,
1997. Principal is due in five equal annual installments beginning January 1,
1999 with the last payment due January 1, 2003. The Credit Agreement contains
certain restrictive covenants, including but not limited to certain
restrictions on (i) additional indebtedness; (ii) creating or allowing liens on
the capital stock of the Bank; (iii) guaranteeing certain obligations of other
persons; (iv) merging, consolidating or exchanging shares with, or acquiring
the stock or assets of, any Person (as defined in the Credit Agreement); (v)
payment of dividends; and (vi) disposing of the stock of the Bank. The Company
also covenanted to cause its depository institution subsidiaries (presently
only the Bank) at all times to be classified as "well capitalized" under
FDICIA capital ratios, maintain nonperforming assets below a specified level,
and maintain a minimum ratio of consolidated loan loss reserves to total loans.
The Credit Agreement also contains certain customary affirmative covenants.
Federal Capital Standards. Regulatory authorities in the banking
industry are placing increased emphasis on the maintenance of adequate capital.
In 1990, new risk-based capital requirements became effective. The guidelines
take into consideration risk factors, as defined by regulators, associated with
various categories of assets, both on and off the balance sheet. Under the
guidelines, capital strength is measured in two tiers which are used in
conjunction with risk-adjusted assets to determine the risk-based capital
ratios. Tier 1 capital, which consists of common equity less
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goodwill, amounted to 6.37 million at June 30, 1997. Tier 2 capital components
include supplemental capital components such as qualifying allowance for loan
losses and qualifying subordinated debt. Tier 1 capital plus the Tier 2
capital components is referred to as Total Risk-Based capital and was $7.17
million at June 30, 1997. The percentage ratios as calculated under FDICIA
guidelines were 8.54 percent and 9.61 percent for Tier 1 and Total Risk-Based
capital, respectively, for the six months ended June 30, 1997. Both levels
exceeded the minimum ratios of four percent and eight percent, respectively.
The Company is also subject to a leverage capital requirement which calls for a
minimum ratio of leverage capital, as defined by regulation, to quarterly total
assets of 3-5%. As of June 30, 1997 the leverage capital ratio was 6.28%.
The Company's current capital positions exceed the new guidelines.
Management has reviewed and will continue to monitor the Bank's asset mix and
product pricing, and the loan loss allowance, which are the areas determined to
be most affected by these new requirements.
DBF Capital Requirement. In addition to the capital standards imposed by
federal banking regulators, the DBF imposed an 8% primary capital ratio on the
Bank as a condition to the approval of the Bank's charter. This standard, which
exceeds the FDIC capital standards, 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. The Bank reports its capital ratio to
the DBF on a monthly basis and has been in compliance for each month end during
the second quarter, however the capital ratio has fallen below the 8% level from
time to time as calculated on a daily basis. At June 30, 1996, the capital
ratio as calculated under the DBF standard was 8.0%. As of July 31, 1997 the
ratio was 8.1%.
Management closely monitors the Bank's capital ratios for day-to-day
fluctuations, which may be affected by increases in deposits or other assets.
To offset daily fluctuations in assets (primarily deposits), which may cause
the capital ratio to fall below the 8% level imposed by the DBF, the Company's
401(k) plan was amended to allow for the purchase of Company stock by the plan.
This amendment allows for additional capital to be injected into the Bank to
further the ability of the Company to maintain an adequate capital ratio. On
May 22, 1997 the Company's 401(k) plan purchased 24,287 shares of the Company's
stock for $16.00 per share. Other such plans proposed, but not yet implemented
include (1) the issuance of subordinated debt securities and (2) the
implementation of a controlled growth plan to enhance profitability relative to
the Bank's asset growth.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
SUMMARY
Net earnings for the six months ended June 30, 1997 were $464,123 compared
to net earnings of $210,305 for the same period in 1996. The Company has
reported net income for each quarter since the fourth quarter of 1995. Net
interest income increased $685,386 (71.6%) during the first six months of 1997,
as compared to the same period in 1996; noninterest expenses increased $609,597
(80.8%) during same period, while noninterest income increased by $69,688
(60.2%).
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NET INTEREST INCOME
Net interest income, the difference between interest earned on assets and
the cost of interest-bearing liabilities, is the largest component of the
Company's net income. Revenue from earning assets of the Company during the
six months ended June 30, 1997 increased $1,672,612 (62.6%) from the same
period in 1996. This increase was due to the continued growth of earning
assets which averaged $93.8 million for the six months ended June 30, 1997.
Interest expense for the six months ended June 30, 1997 increased $969,225 or
(63.8%) compared to the same period of 1996.
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 $215,000 for the six months ended June 30, 1997 compared to
$197,000 for the same period of 1996. Charge-offs exceeded recoveries by
$76,696 for the six months ended June 30, 1997. The reserve for loan losses as
a percent of outstanding loans, net of unearned income, was 1.07 percent at
June 30, 1997 compared to 1.01 percent at year-end 1996.
NONINTEREST INCOME
Noninterest income for the six months ended June 30, 1997 was $185,539
compared to $115,852 for the same period of 1996. This increase was primarily
due to an increase in service charges on deposit accounts of $33,755 in 1997 as
compared to the same period of 1996, and increases in other operating income of
$43,692. Significant components of noninterest income changed as follows:
Service charges on deposit increased $33,755 (55.4%), insurance commissions
increased $2,595 (27.2%), gains on investment securities decreased $10,355
(106.5%), and other operating income increased $43,692 (122.6%) to $79,343.
Increased credit card fees provided $27,546 of the increase in other operating
income, rising from $19,822 for the six months ended June 30, 1996 to $47,368
for the same period of 1997.
NONINTEREST EXPENSES
Noninterest expenses for the six months ended June 30, 1997 were
$1,363,650, reflecting a 80.8 percent increase over the same period of 1996.
The primary components of noninterest expenses are salaries and employee
benefits, which increased to $547,287 for the six months ended June 30, 1997,
32.1 percent higher than in the same period of 1996. The increase in salaries
and employee benefits are due to increased staffing for the unusually high
level of growth which has been experienced since the Bank's opening on March 3,
1995. Occupancy costs increased $688 (1.5%), and furniture and equipment
expenses rose by $20,532 (35.2%). Other operating expenses rose by 102 percent
to $476,167. Significant components of other operating expenses changed as
follows: professional and regulatory fees increased $65,092 (137.4%),
directors' compensation constituted an expense of $46,437, office supply,
postage and data processing fees increased $49,228 (57%) and insurance premiums
increased $20,761 (175%). The continued growth of the Bank and the Company
continues to necessitate increased expenditures for data processing and other
support activities and personnel.
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INCOME TAXES
The Company attempts to maximize its net income through active tax
planning. Management is attempting to reduce its tax burden by purchasing tax
exempt securities. The provision for income taxes of $215,000 for the six
months ended June 30, 1997 increased $106,660 compared to the same period of
1996. This increase is primarily due to lack of additional loss carryforwards
which were used in the year ended December 31, 1996.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the shareholders of the Company was held on April 17,
1997 for the purpose of electing the Board of Directors of the Company, voting
on a proposed Directors' Non-Qualified Stock Option Plan and Employee Stock
Incentive Plan, and ratification of the appointment of the Company's
independent auditors. At the annual meeting the Directors' Non-Qualified Stock
Option Plan was approved, receiving 393,611 votes for and 30,668 votes against,
with 6,833 abstentions. The Employee Stock Incentive Plan was approved with
396,547 votes for and 24,480 votes against, with 10,085 abstentions. The
appointment of Schauer, Taylor, Cox and Edwards, P.C. as the Company's
independent auditors was ratified with 422,152 votes for and 6,550 against,
with 2,410 abstentions. In addition, the director nominees listed in the
following table, each of whom served as a director of the Company prior to the
annual meeting, were elected to constitute the entire Board of Directors of the
Company for a term of one year.
Directors Elected at Annual Meeting of Shareholders
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Alan S. Dover 428,912 2,200
Charles A. Edmondson 428,912 2,200
Roger E. Futch 423,412 7,700
Joseph C. Hensley 423,412 7,700
Frank E. Jones 426,102 5,010
J. Ronald Knight 423,912 7,200
Tracy R. Newton 423,412 7,700
P. Joe Sisson 430,912 200
Kenneth D. Warren 423,912 7,200
</TABLE>
ITEM 5. OTHER INFORMATION
(a) Pursuant to the stock option plans discussed above and included as
exhibits to the Company's Form 10-KSB filed with the Securities and Exchange
Commission on March 26, 1997, the Company's Board of Directors granted options
under the approved option plans as described below.
12
<PAGE> 13
On June 1, 1997 the following options were granted under the Directors'
Non-Qualified Stock Option Plan with an exercise price of $16.00 per share:
<TABLE>
<CAPTION>
<S> <C>
Alan S. Dover 11,000 shares
Charles Edmondson 11,000 shares
Roger E. Futch 11,000 shares
Joseph C. Hensley 11,000 shares
Frank E. Jones 11,000 shares
J. Ronald Knight 11,000 shares
P. Joe Sisson 11,000 shares
Kenny D. Warren 11,000 shares
</TABLE>
Also on June 1, 1997 the following options were granted under the Employee
Stock Incentive Plan with an exercise price of $16.00 per share:
<TABLE>
<CAPTION>
<S> <C>
Tracy R. Newton 33,000 shares
Kent W. Sanford 22,000 shares
</TABLE>
(b) On June 30, 1997, Candace Gilliland, wife of former director Thomas C.
Gilliland, sold a total of 26,250 shares of the Company's common stock to the
Company, the individual directors and the Company's executive officers. These
shares were beneficially owned by Mr. Gilliland. The Company purchased 14,000
of these shares. Each director and executive officer purchased 1,225 shares on
an individual basis. The purchase price was $18.00 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
3.1 Articles of Incorporation of the Company
(included as Exhibit 3.1 to the Company's
Registration Statement on Form 8-A, dated
September 16, 1996, previously filed with the
Commission and incorporated herein by
reference).
3.2 Bylaws of the Company (included as
exhibit 3.2 to the Company's Registration
Statement on Form 8-A, dated September 16,
1996, previously filed with the Commission and
incorporated herein by reference).
10.1 Appalachian Bancshares, Inc. 1997
Directors' Non-Qualified Stock Option Plan
(included as Exhibit 10.1 to the Company's
Annual Report on Form 10-KSB, previously filed
with the Commission and incorporated herein by
reference).
10.2 Appalachian Bancshares, Inc. 1997 Employee
Stock Incentive Plan (included as Exhibit 10.2
to the Company's Annual Report on Form
13
<PAGE> 14
10-KSB, previously filed with the
Commission and incorporated herein by
reference).
10.3 Adoption Agreement for the Appalachian
Bancshares, Inc. Section 401(k) Profit Sharing
Plan (filed as Exhibit 4.3(a) to the Company's
Registration Statement on Form S-8 (No.
333-27127) and incorporated herein by
reference).
10.4 Georgia Bankers Association Master 401(k)
Profit Sharing Plan (filed as Exhibit
4.3 (b) to the Company's Registration Statement
on Form S-8 (No. 333-27127) and incorporated
herein by reference).
10.5 First Amendment to the Georgia Bankers
Association Master Section 401(k) Profit
Sharing Plan (filed as Exhibit 4.3 (c) to the
Company's Registration Statement on Form S-8
(No. 333-27127) and incorporated herein by
reference).
10.6 Form of Deferred Fee Agreement between
Gilmer County Bank and certain directors and
executive officers, with addendum.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the period
covered by this Report.
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: August 13, 1997
APPALACHIAN BANCSHARES, INC.
/s/ Tracy R. Newton
-----------------------------
Tracy R. Newton
President and CEO
(Duly authorized officer)
/s/ Kent W. Sanford
----------------------------
Kent W. Sanford
Executive Vice President
(Principal financial officer)
14
<PAGE> 1
EXHIBIT 10.6
GILMER COUNTY BANK
DEFERRED FEE AGREEMENT
THIS AGREEMENT is made this 1st day of June, 1997 by and between GILMER
COUNTY BANK, (the "Company"), and _________________ (the "Director").
INTRODUCTION
To encourage the Director to remain a member of the Company's Board of
Directors, the Company is willing to provide to the Director a deferred fee
opportunity. The Company will pay the benefits from its general assets.
AGREEMENT
The Director and the Company agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Change of Control" means:
(i) the direct or indirect acquisition by any person or related group
of persons (other than an acquisition from or by the Company or by a
Company-sponsored employee benefit plan) of beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding Stock;
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership or by one or more actions by
written consent of shareholders, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described
in clause (A) who were still in office at the time such election or
nomination was approved by the Board.
A "Corporate Transaction" shall be deemed to occur upon any of the
following transactions to which the Company is a party:
(iii) approval by the Company's shareholders of a merger or
consolidation in which the Company is not the surviving entity, except for
a transaction the principal purpose of which is to change the state in
which the Company is incorporated;
1
<PAGE> 2
(iv) approval by the Company's shareholders of the sale, transfer or
other disposition of all or substantially all of the assets of the Company
(including the capital stock of the Company's subsidiary corporations) in
connection with a complete liquidation or dissolution of the Company; or
(v) approval by the Company's shareholders of any reverse merger in
which the Company is the surviving entity but in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior
to such merger.
1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be to that section as it
now exists and to any successor provision.
1.1.3 "Disability" means the Director's inability to perform
substantially all normal duties of a director, as determined by the
Company's Board of Directors in its sole discretion. As a condition to
any benefits, the Company may require the Director to submit to such
physical or mental evaluations and tests as the Board of Directors deems
appropriate.
1.1.4 "Distribution Date" means the date elected by Director
in Exhibit A.
1.1.5 "Election Form" means the Form attached as Exhibit A.
1.1.6 "Fees" means the total directors fees payable to the Director.
1.1.7 "Termination of Service" means the Director's ceasing to
be a member of the Company's Board of Directors for any reason whatsoever.
1.1.8 "Projected Benefit" means the amount that would have been
deemed credited to the Director's Deferral Account balance as of the
Distribution Date had deferrals been made in accordance with Exhibit B and
had the interest rate credited been equal to 8.50%, compounded monthly.
ARTICLE 2
DEFERRAL ELECTION
2.1 Initial Election. The Director shall make an initial deferral
election under this Agreement by filing with the Company a signed Election Form
within fifteen (15) days after the date of this Agreement. The Election Form
shall set forth the amount of Fees to be deferred and the form of benefit
payment. The Election Form shall be effective to defer only Fees earned after
the date the Election Form is received by the Company. The Director may defer
Fees for up to sixty (60) months following the date of this Agreement.
2.2 Election Changes
2.2.1 Generally. The Director may modify the amount of Fees
to be deferred by filing a new Election Form with the Company and
obtaining written approval by the Board of Directors of the Company. The
modified deferral shall not be effective until the calendar year following
2
<PAGE> 3
the year in which the subsequent Election Form is received by the Company. The
Director may not change the form of benefit payment initially elected under
Section 2.1 without the written approval of the Board of Directors of the
Company.
2.2.2 Hardship. If an unforeseeable financial emergency
arising from the death of a family member, divorce, sickness, injury,
catastrophe or similar event outside the control of the Director occurs,
the Director, by written instructions to the Company, may reduce future
deferrals under this Agreement.
ARTICLE 3
DEFERRAL ACCOUNT
3.1 Establishing and Crediting. The Company shall establish a Deferral
Account on its books for the Director, and shall credit to the Deferral Account
the following amounts:
3.1.1 Deferrals. The Fees deferred by the Director as of the time the
Fees would have otherwise been paid to the Director.
3.1.2 Interest. On each anniversary of the date of this Agreement
and immediately prior to the payment of any benefits, interest on the
account balance since the preceding credit under this Section 3.1.2, equal
to a rate determined by the return on average assets (ROAA) of the Company
for the preceding calendar year as detailed in Exhibit C. This schedule
may be modified from time to time by the Company's Board of Directors, in
its sole discretion.
3.2 Statement of Accounts. The Company shall provide to the Director,
within one hundred twenty (120) days after each anniversary of this Agreement
(or after each calendar year at the Company's discretion), a statement setting
forth the Deferral Account balance.
3.3 Accounting Device Only. The Deferral Account is solely a device for
measuring amounts to be paid under this Agreement. The Deferral Account is not
a trust fund of any kind. The Director is a general unsecured creditor of the
Company for the payment of benefits. The benefits represent the mere Company
promise to pay such benefits. The Director's rights are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by the Director's creditors.
ARTICLE 4
LIFETIME BENEFITS
4.1 Normal Benefit. Upon the Director's elected Distribution Date, the
Company shall pay to the Director the benefit described in this Section 4.1.
4.1.1 Amount of Benefit. The benefit under this Section 4.1 is the
Deferral Account balance at the Director's Distribution Date.
4.1.2 Payment of Benefit. The Company shall pay the benefit to the
Director in the form elected by the Director on the Election Form. The
Company shall continue to credit interest under Section 3.1.2 on the
remaining account balance during any applicable installment period.
3
<PAGE> 4
4.2 Early Termination Benefit. If the Director terminates service as a
director before his Distribution Date, and for reasons other than death or
Disability, the Company shall pay to the Director the benefit described in this
Section 4.2.
4.2.1 Amount of Benefit. The benefit under this Section 4.2 is the
Deferral Account at the Director's Termination of Service.
4.2.2 Payment of Benefit. The Company shall pay the benefit to the
Director in the form elected by the Director on the Election Form. The
Company shall continue to credit interest at the annual rate of 6.5% on
the account balance during any applicable accumulation or installment
periods.
4.3 Disability Benefit. If the Director terminates service as a director
for Disability prior to his Distribution Date, the Company shall pay to the
Director the benefit described in this Section 4.3.
4.3.1 Amount of Benefit. The benefit under this Section 4.3 is the
Deferral Account balance at the Director's Termination of Service.
4.3.2 Payment of Benefit. The Company shall pay the benefit to the
Director in the form elected by the Director on the Election Form. The
Company shall continue to credit interest at the annual rate under
Section 3.1.2 on the account balance during any applicable accumulation
or installment periods.
4.4 Change of Control Benefit. Upon a Change of Control while the
Director is in the active service of the Company, the Company shall pay to the
Director the benefit described in this Section 4.4 in lieu of any other benefit
under this Agreement.
4.4.1 Amount of Benefit. The benefit under this Section 4.4 is the
Deferral Account balance at the date of the Director's Termination of
Service.
4.4.2 Payment of Benefit. The Company shall pay the benefit to the
Director in the form elected by the Director on the Election Form. The
Company shall continue to credit interest at either the rate under 3.1.2
or at the annual rate of 8.5% on the remaining account balance during any
applicable installment period. The Director shall have a one time option
to elect which rate shall be used, such option to be made within one
hundred twenty (120) days of the Change of Control.
4.4.3 Rabbi Trust. Upon a Change of Control, the Company shall
establish a rabbi trust and contribute an amount equal to the present
value of the Director's Projected Benefit.
4.5 Hardship Distribution. Upon the Company's determination (following
petition by the Director) that the Director has suffered an unforeseeable
financial emergency as described in Section 2.2.2, the Company shall distribute
to the Director all or a portion of the Deferral Account balance as determined
by the Company, but in no event shall the distribution be greater than is
necessary to relieve the financial hardship.
4
<PAGE> 5
ARTICLE 5
DEATH BENEFITS
5.1 Death During Active Service. If the Director dies while in the active
service of the Company, the Company shall pay to the Director's beneficiary the
benefit described in this Section 5.1.
5.1.1 Amount of Benefit. The benefit under Section 5.1 is the
prorata portion of the Projected Benefit based on the actual amount
deferred at the date of death as compared to the projected deferrals, on a
cumulative basis, but not to exceed 100 percent of the Projected Benefit.
Projected deferrals and the Projected Benefit are as detailed in Exhibit
B.
5.1.2 Payment of Benefit. The Company shall pay the benefit to the
beneficiary in the form elected by the Director on the Election Form. The
Company shall continue to credit interest under Section 3.1.2 on the
remaining account balance during any applicable installment period.
5.2 Death During Benefit Period. If the Director dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Company shall pay the remaining benefits to the Director's
beneficiary at the same time and in the same amounts they would have been paid
to the Director had the Director survived.
ARTICLE 6
BENEFICIARIES
6.1 Beneficiary Designations. The Director shall designate a beneficiary
by filing a written designation with the Company. The Director may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Director and accepted by
the Company during the Director's lifetime. The Director's beneficiary
designation shall be deemed automatically revoked if the beneficiary
predeceases the Director, or if the Director names a spouse as beneficiary and
the marriage is subsequently dissolved. If the Director dies without a valid
beneficiary designation, all payments shall be made to the Director's surviving
spouse, if any, and if none, to the Director's surviving children and the
descendants of any deceased child by right of representation, and if no
children or descendants survive, to the Director's estate.
6.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
person or incapable person. The Company may require proof of incompetency,
minority or guardianship as it may deem appropriate prior to distribution of
the benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.
ARTICLE 7
GENERAL LIMITATIONS
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not
5
<PAGE> 6
pay any benefit under this Agreement that is in excess of the Director's
Deferral Account balance if the Director commits suicide within two years after
the date of this Agreement, or if the Director has made any material
misstatement of fact on any application for life insurance purchased by the
Company.
ARTICLE 8
CLAIMS AND REVIEW PROCEDURES
8.1 Claims Procedure. The Company shall notify the Director's beneficiary
in writing, within ninety (90) days of his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Agreement. If the Company determines that the beneficiary is not eligible for
benefits or full benefits, the notice shall set forth (1) the specific reasons
for such denial, (2) a specific reference to the provisions of the Agreement on
which the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Company
determines that there are special circumstances requiring additional time to
make a decision, the Company shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day period.
8.2 Review Procedure. If the beneficiary is determined by the Company not
to be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which
the beneficiary believes entitle him or her to benefits or to greater or
different benefits. Within sixty (60) days after receipt by the Company of the
petition, the Company shall afford the beneficiary (and counsel, if any) an
opportunity to present his or her position to the Company orally or in writing,
and the beneficiary (or counsel) shall have the right to review the pertinent
documents. The Company shall notify the beneficiary of its decision in writing
within the sixty-day period, stating specifically the basis of its decision,
written in a manner calculated to be understood by the beneficiary and the
specific provisions of the Agreement on which the decision is based. If,
because of the need for a hearing, the sixty-day period is not sufficient, the
decision may be deferred for up to another sixty-day period at the election of
the Company, but notice of this deferral shall be given to the beneficiary.
ARTICLE 9
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Director.
ARTICLE 10
MISCELLANEOUS
10.1 Binding Effect. This Agreement shall bind the Director and the
Company, and their beneficiaries, survivors, executors, administrators and
transferees.
6
<PAGE> 7
10.2 No Guaranty of Service. This Agreement is not a contract for
services. It does not give the Director the right to remain a director of the
Company, nor does it interfere with the shareholders' rights to replace the
Director. It also does not require the Director to remain a director nor
interfere with the Director's right to terminate services at any time.
10.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
10.4 Tax Withholding. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
10.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of Georgia, except to the extent preempted by the laws of
the United States of America.
10.6 Unfunded Arrangement. The Director and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors. Any insurance on the Director's life
is a general asset of the Company to which the Director and beneficiary have no
preferred or secured claim.
IN WITNESS WHEREOF, the Director and a duly authorized Company officer
have signed this Agreement.
DIRECTOR: COMPANY:
GILMER COUNTY BANK
_______________________ BY __________________________
NAME
TITLE ______________________
7
<PAGE> 8
EXHIBIT A
TO
DEFERRED FEE AGREEMENT
ELECTION FORM
DEFERRAL ELECTION
I elect to defer Fees under my Deferred Fee Agreement with the Company, as
follows:
I elect to defer $_______ per month, commencing June 15, 1997 and
continuing for_____ months (not to exceed 60 months).
I understand that I may change the amount, frequency and duration of my
deferrals by filing a new election form with the Company; provide, however,
that any subsequent election will not be effective until the calendar year
following the year in which the new election is received by the Company.
DISTRIBUTION ELECTION
I elect to have my Deferral Account distributed as follows:
<TABLE>
<CAPTION>
Age
Agreement Distribution Payout
Occurrence Reference Commences Period
- ---------- --------- ------------ ------
<S> <C> <C> <C>
Normal Benefit 4.1.2
------------ ------ months
Early Termination Benefit 4.2.2
------------ ------ months
Disability Benefit 4.3.2
------------ ------ months
Change of Control Benefit 4.4.2
------------ ------ months
</TABLE>
I understand that I may not change my distribution elections, but that I may
petition the Company for a hardship distribution in accordance with Section 4.5
of the Agreement.
Director:
____________________ ________________________
Date Name
8
<PAGE> 9
EXHIBIT B
TO
DEFERRED FEE AGREEMENT
PROJECTED DEFERRALS
Director: _________________
<TABLE>
<CAPTION>
Projected Deferrals Actual Deferrals
YEAR (Cumulative Basis) (Cumulative Basis)
----- ------------------- ------------------
<S> <C> <C>
1
2
3
4
5
</TABLE>
This schedule is used to determine the death benefit pursuant to
Subsection 5.1.1 of the Agreement. Based on the projected deferrals listed
above, an anticipated retirement age of _____, and a benefit period of _____
years, the projected benefit is $____________.
9
<PAGE> 10
EXHIBIT C
TO
DEFERRED FEE AGREEMENT
MATRIX OF
INTEREST RATE CREDITING RATE LINKED TO ROAA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ROAA <.70 .70 .80 .90 1.00 1.10 1.20+
INTEREST 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5%
</TABLE>
This Matrix determines the interest rate credited pursuant to Subsection 3.1.2
of the Agreement.
10
<PAGE> 11
BENEFICIARY DESIGNATION
I designate the following as beneficiary of benefits under the Deferred Fee
Agreement payable following my death:
Primary: ____________________________________________________________
Contingent: _________________________________________________________
NOTE: TO NAME A TRUST AS BENEFICIARY, PLEASE PROVIDE THE NAME OF THE TRUSTEE
AND THE EXACT DATE OF THE TRUST AGREEMENT.
I understand that I may change these beneficiary designations by filing a new
written designation with the Company. I further understand that the
designations will be automatically revoked if the beneficiary predeceases me,
or, if I have named my spouse as beneficiary, in the event of the dissolution
of our marriage.
Signature ______________________________
Name
Date ____________________________
Accepted by the Company this _____ day of _____________, 199__.
By ______________________________
Title ______________________
11
<PAGE> 12
ADDENDUM TO
GILMER COUNTY BANK
DEFERRED FEE AGREEMENT
On June 1, 1997 Gilmer County Bank entered into deferred fee agreements with
the individuals set forth below. Each agreement follows the form filed as
Exhibit 10.3 to the Company's quarterly report on Form 10-QSB for the period
ended June 30, 1997. The specifics of the amount of deferral, length of
deferral, payout period, and retirement age are detailed below.
Alan Dover elected to defer all of his director's fee ($600 per month)
commencing June 15, 1997 and continuing for a period of 60 months. Mr. Dover
expects to retire at age 62 and elected a payout period of 60 months.
Roger E. Futch elected to defer all of his director's fee ($600 per month)
commencing June 15, 1997 and continuing for a period of 60 months. Mr. Futch
expects to retire at age 57 and elected a payout period of 1 month.
J. Ronald Knight elected to defer all of his director's fee ($600 per month)
commencing June 15, 1997 and continuing for a period of 60 months. Mr. Knight
expects to retire at age 65 and elected a payout period of 120 months.
Tracy R. Newton elected to defer 50 percent of his director's fee ($300 per
month) commencing June 15, 1997 and continuing for a period of 60 months. Mr.
Newton expects to retire at age 60 and elected a payout period of 120 months.
Kenneth D. Warren elected to defer all of his director's fee ($600 per month)
commencing June 15, 1997 and continuing for a period of 60 months. Mr. Warren
expects to retire at age 60 and elected a payout period of 1 month.
Kent W. Sanford, the Recording Secretary for the Board, was also eligible for
the deferred fee agreement. Mr. Sanford elected to defer all of his board fee
($300 per month) commencing June 15, 1997 and continuing for a period of 60
months. Mr. Sanford expects to retire at age 55 and elected a payout period of
120 months.
12
<PAGE> 1
EXHIBIT 11
APPALACHIAN BANCSHARES, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the six month period ended June 30, 1997 and
1996.
<TABLE>
<CAPTION>
Six Months Ended June 30
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Reported net income $464,123 $210,305
Earnings on common shares $464,123 $210,305
======== ========
Weighted average common shares outstanding 576,397 568,000
======== ========
Earnings per common share - primary and fully diluted
Income form continuing operations $ .81 $ .37
======== ========
Net income $ .81 $ .37
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,052,431
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,975,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,665,387
<INVESTMENTS-CARRYING> 2,997,743
<INVESTMENTS-MARKET> 3,027,995
<LOANS> 74,097,009
<ALLOWANCE> (793,600)
<TOTAL-ASSETS> 101,352,159
<DEPOSITS> 90,364,638
<SHORT-TERM> 3,186,305
<LIABILITIES-OTHER> 433,010
<LONG-TERM> 1,000,000
0
0
<COMMON> 2,961,435
<OTHER-SE> 3,406,771
<TOTAL-LIABILITIES-AND-EQUITY> 101,352,159
<INTEREST-LOAN> 3,582,589
<INTEREST-INVEST> 690,850
<INTEREST-OTHER> 72,162
<INTEREST-TOTAL> 4,345,601
<INTEREST-DEPOSIT> 2,351,606
<INTEREST-EXPENSE> 2,488,368
<INTEREST-INCOME-NET> 1,857,233
<LOAN-LOSSES> 215,000
<SECURITIES-GAINS> (636)
<EXPENSE-OTHER> 476,165
<INCOME-PRETAX> 679,123
<INCOME-PRE-EXTRAORDINARY> 679,123
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464,123
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<YIELD-ACTUAL> 8.66
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<ALLOWANCE-CLOSE> 793,600
<ALLOWANCE-DOMESTIC> 793,600
<ALLOWANCE-FOREIGN> 0
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</TABLE>
