<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
---------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
---------- ----------
COMMISSION FILE NUMBER: 333-10909
Forsyth Bancshares, Inc.
-----------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-2231953
- ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
501 TRI-COUNTY PLAZA, HIGHWAYS 9 AND 20, CUMMING, GEORGIA 30040
---------------------------------------------------------------
(Address of principal executive offices)
(770) 886-9500
---------------------------
(Issuer's telephone number)
N/A
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 1, 1999: 800,000; no par value.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
<PAGE> 2
FORSYTH BANCSHARES, INC. AND SUBSIDIARY
================================================================================
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - JUNE 30, 1999............................3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME (LOSS) - THREE MONTHS ENDED JUNE 30, 1999 AND 1998
AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998.......................4
CONSOLIDATED STATEMENT OF CASH FLOWS - SIX
MONTHS ENDED JUNE 30, 1999 AND 1998................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............7
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........16-17
ITEM 5 - OTHER INFORMATION..............................................17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K...............................17
SIGNATURES..............................................................18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORSYTH BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(Unaudited)
(Dollars in Thousands)
<TABLE>
<S> <C>
Assets
Cash and due from banks $ 3,100
Federal funds sold 680
Securities available-for-sale, at fair value 24,102
Securities held-to-maturity, fair value of $999 1,001
Loans 31,816
Less allowance for loan losses 398
-------
Loans, net 31,418
-------
Premises and equipment 989
Other assets 977
-------
TOTAL ASSETS $62,267
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing demand $ 6,734
Interest-bearing demand 14,384
Savings 784
Time 32,253
-------
TOTAL DEPOSITS 54,155
Other liabilities 316
-------
TOTAL LIABILITIES 54,471
-------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, no par value 7,960
Retained earnings 198
Accumulated other comprehensive loss (362)
-------
TOTAL STOCKHOLDERS' EQUITY 7,796
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,267
=======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
FORSYTH BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 730 $ 631 $ 1,405 $ 1,150
Taxable securities 335 271 670 527
Nontaxable securities 13 17 25 21
Federal funds sold 44 21 113 43
--------- --------- --------- ---------
TOTAL INTEREST INCOME 1,122 940 2,213 1,741
--------- --------- --------- ---------
INTEREST EXPENSE ON DEPOSITS 540 457 1,104 849
--------- --------- --------- ---------
NET INTEREST INCOME 582 483 1,109 892
PROVISION FOR LOAN LOSSES 34 49 36 100
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 548 434 1,073 792
--------- --------- --------- ---------
OTHER INCOME
Service charges on deposit accounts 26 25 50 43
Other operating income 9 7 19 13
--------- ---------
TOTAL OTHER INCOME 35 32 69 56
--------- --------- --------- ---------
OTHER EXPENSES
Salaries and other employee benefits 194 171 371 344
Occupancy and equipment expenses 71 62 138 125
Other operating expenses 153 133 287 211
--------- --------- --------- ---------
TOTAL OTHER EXPENSES 418 366 796 680
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 165 100 346 168
INCOME TAX EXPENSE 60 0 123 0
--------- --------- --------- ---------
NET INCOME 105 100 223 168
--------- --------- --------- ---------
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized losses on securities available-for-sale
arising during period (265) (4) (438) (22)
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (160) $ 96 $ (215) $ 146
========= ========= ========= =========
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.13 $ 0.13 $ 0.28 $ 0.21
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC AND DILUTED) $ 800,000 $ 800,000 $ 800,000 $ 800,000
========= ========= ========= =========
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
FORSYTH BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 223 $ 168
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31 35
Provision for loan losses 36 100
Other operating activities (950 (110)
------- --------
Net cash provided by operating activities 195 193
------- --------
INVESTING ACTIVITIES
Purchases of securities available-for-sale and
held-to-maturity (4,916) (2,688)
Proceeds from maturities of securities available-for-sale
and held-to-maturity 609 0
Net decrease in Federal funds sold 7,500 0
Net increase in loans (4,279) (7,876)
Purchase of premises and equipment (77) (41)
------- --------
Net cash used in investing activities (1,163) (10,605)
------- --------
FINANCING ACTIVITIES
Net increase in deposits 2,742 9,100
------- --------
Net cash provided by financing activities 2,742 9,100
------- --------
Net increase (decrease) in cash and due from banks 1,774 (1,312)
Cash and due from banks at beginning of period 1,326 3,797
------- --------
Cash and due from banks at end of period $ 3,100 $ 2,485
======= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
FORSYTH BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
period.
The results of operations for the six month period ended June 30, 1999
are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. Forsyth Bancshares, Inc. ("the Company")
expects to adopt this statement effective January 1, 2001. SFAS No. 133
requires the Company to recognize all derivatives as either assets or
liabilities in the balance sheet at fair value. For derivatives that
are not designated as hedges, the gain or loss must be recognized in
earnings in the period of change. For derivatives that are designated
as hedges, changes in the fair value of the hedged assets, liabilities,
or firm commitments must be recognized in earnings or recognized in
other comprehensive income until the hedged item is recognized in
earnings, depending on the nature of the hedge. The ineffective portion
of a derivative's change in fair value must be recognized in earnings
immediately. Management has not yet determined what effect the adoption
of SFAS No. 133 will have on the Company's earnings or financial
position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the financial position and
operating results of the Company and its bank subsidiary, The Citizens
Bank of Forsyth County (the "Bank"), during the periods included in the
accompanying consolidated financial statements.
The Company is not aware of any known trends, events or uncertainties,
other than the effect of events as described below, that will have or
that are reasonably likely to have a material effect on its liquidity,
capital resources or operations. The Company is also not aware of any
current recommendations by the regulatory authorities which, if they
were implemented, would have such an effect.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A") are forward-looking statements for purposes of the
Securities Act of 1933, as amended (the "Securities Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
as such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements
of the Company to be materially different from future results,
performance or achievements expressed or implied by such
forward-looking statements. Such forward looking statements include
statements using words such as "may," "will," "anticipate," "should,"
"would," "believe," "contemplate," "expect," "estimate," "continue,"
"may," "intend," or other similar words and expressions of the future.
Our actual results may differ significantly from the results we discuss
in these forward-looking statements.
These forward-looking statements involve risks and uncertainties and
may not be realized due to a variety of factors, including, without
limitation: the effects of future economic conditions; governmental
monetary and fiscal policies, as well as legislative and regulatory
changes; the risks of changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan
collateral, securities, and other interest-sensitive assets and
liabilities; interest rate risks; the effects of competition from other
commercial banks, thrifts, mortgage banking firms, consumer finance
companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds and other financial
institutions operating in the Company's market area and elsewhere,
including institutions operating regionally, nationally, and
internationally, together with such competitors offering banking
products and services by mail, telephone, computer, and the Internet;
the possible effects of the Year 2000 issues on the Company.
7
<PAGE> 8
Management's current assessment and estimates with respect to the
Company's Year 2000 compliance efforts and the impact of Year 2000
issues on the Company's business and operations have been included in
the MD&A. Various factors could cause actual plans and results to
differ materially from those contemplated by such assessments,
estimates and forward-looking statements, many of which are beyond the
control of the Company. Some of these factors include, but are not
limited to, representations by the Company's vendors and
counterparties, technological advances, economic considerations, and
consumer perceptions. The Company's Year 2000 compliance program is an
ongoing process involving continual evaluation and may be subject to
change in response to new developments.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Management considers the Company's liquidity to be adequate to meet operating
and loan funding requirements at June 30, 1999. At June 30, 1999, the liquidity
ratio (i.e. cash, short-term assets and marketable assets divided by deposits
and short term liabilities) for the Bank was approximately 51% and the loan to
deposit ratio was approximately 59%. As the portfolio grows, management will
continue to monitor the liquidity of the Bank and the Company and make
adjustments as deemed necessary. Investing the Bank's available funds in loans
and other high yielding interest securities will increase the Bank's earning
potential.
Requirements by banking regulators include the monitoring of risk-based capital
guidelines for banks and holding companies that are designed to make capital
requirements more sensitive to differences in risk profiles and account for off
balance sheet items. The Bank and the Company exceed the regulatory minimums on
capital requirements and ratios. However, as the Company and the Bank continue
to grow and the loan portfolio increases, these ratios should adjust downward.
Management will monitor these amounts and ratios on a continuous basis. The
minimum capital requirements and the actual capital ratios for the Company and
the Bank are as follows:
<TABLE>
<CAPTION>
ACTUAL
----------------------------
THE CITIZENS
FORSYTH BANK OF
BANCSHARES FORSYTH REGULATORY
INC. COUNTY REQUIREMENT
---------- ------------ -----------
<S> <C> <C> <C>
Leverage capital ratios 12.33% 11.38% 4.00%
Risk-based capital ratios:
Tier I capital 20.40 18.96 4.00
Total capital 21.48 20.07 8.00
</TABLE>
FINANCIAL CONDITION
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998 INCREASE (DECREASE)
-------- ----------- ------------------------
AMOUNT PERCENT
------- --------
(DOLLARS IN THOUSANDS)
----------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 3,100 $ 1,326 $ 1,774 133.79%
Federal funds sold 680 8,180 (7,500) (91.69)
Securities 25,103 21,460 3,643 16.98
Loans 31,418 27,175 4,243 15.61
Premises and equipment 989 943 46 4.88
Other assets 977 673 304 45.17
--------- ---------- ---------
$ 62,267 $ 59,757 $ 2,510 4.20
========= ========== =========
Deposits $ 54,155 $ 51,412 $ 2,743 5.34%
Other liabilities 316 334 (18) (5.39)
Stockholders' equity 7,796 8,011 (215) (2.68)
--------- ---------- ---------
$ 62,267 $ 59,757 $ 2,510 4.20
========= ========== =========
</TABLE>
9
<PAGE> 10
As indicated in the above table, the Company's total assets grew at a rate of
4.20%. Deposit growth of $2,743,000 and a shift from Federal funds sold funded
new loans of $4,243,000 and an increase in securities of $3,643,000.
Stockholders' equity has decreased by $215,000 due to net income of $223,000
being offset by an increase in unrealized losses on securities
available-for-sale, net of tax, of $438,000. The most significant decline in the
securities portfolio was for longer-term U.S. agencies and corporations, the
fair value of which are $439,000 below amortized cost.
10
<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1999 1998 INCREASE (DECREASE)
-------------- ---------------- --------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT
----------------------------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 1,122 $ 940 $ 182 19.36%
Interest expense 540 457 83 18.16
------------- --------------- -------------
Net interest income 582 483 99 20.49
Provision for loan losses 34 49 (15) (30.61)
Other income 35 32 3 9.38
Other expense 418 366 52 14.21
------------- --------------- -------------
Pretax income 165 100 65 65.00
Income taxes 60 - 60 -
------------- --------------- -------------
Net income $ 105 $ 100 $ 5 5.00
============= =============== =============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998 INCREASE (DECREASE)
-------------- ---------------- --------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT
----------------------------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 2,213 $ 1,741 $ 472 27.11%
Interest expense 1,104 849 255 30.04
------------- --------------- -------------
Net interest income 1,109 892 217 24.33
Provision for loan losses 36 100 (64) (64.00)
Other income 69 56 13 23.21
Other expense 796 680 116 17.06
------------- --------------- -------------
Pretax income 346 168 178 105.95
Income taxes 123 - 123 -
------------- -------------
Net income $ 223 $ 168 $ 55 32.74
============= =============== =============
</TABLE>
As indicated in the above table, the Company's net interest income has increased
by $99,000 and $217,000 for the second quarter and first six months of 1999,
respectively, over prior periods. The Company's net interest margin decreased to
3.87% during the first six months of 1999 as compared to 4.16% for the previous
year. The increase in net interest income is due primarily to the increased
volume of average interest-earning assets. The decrease in the net interest
margin is due to an increase in securities and Federal funds sold as components
of average interest-earning assets.
11
<PAGE> 12
The provision for loan losses was $34,000 and $36,000 for the second quarter and
first six months in 1999 as compared to $49,000 and $100,000 for the same
periods in 1998. This decrease is due primarily to slower loan growth and $2,000
in net recoveries. The Company's allowance for loan losses amounted to 1.25% at
June 30, 1999 as compared to 1.31% at December 31, 1998. The allowance for loan
losses is maintained at a level that is considered appropriate by management to
adequately cover all known and inherent risks in the loan portfolio.
Management's evaluation of the loan portfolio includes a continuing review of
loan loss experience, current economic conditions which may affect the
borrower's ability to repay and the underlying collateral value.
Information with respect to nonaccrual, past due and restructured loans at June
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
---------------------------------
<S> <C> <C>
Nonaccrual loans $ 27 $ -
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing 4 -
Restructured loans - -
Loans, now current about which there are serious doubts as to the
ability of the borrower to comply with loan repayment terms - -
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms 1 -
Interest income that was recorded on nonaccrual and restructured loans - -
</TABLE>
It is the policy of the Bank to discontinue the accrual of interest income when,
in the opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) there is a significant deterioration
in the financial condition of the borrower and full repayment of principal and
interest is not expected and (2) the principal or interest is more than ninety
days past due, unless the loan is both well-secured and in the process of
collection.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
12
<PAGE> 13
Information regarding certain loans and allowance for loan loss data through
June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
---------------------------------
<S> <C> <C>
Average amount of loans outstanding $ 28,612 $ 20,845
=============== ===============
Balance of allowance for loan losses at beginning of period $ 360 $ 235
Loans charged off
Commercial and financial $ - $ -
Real estate mortgage - -
Instalment - 4
--------------- ---------------
- 4
--------------- ---------------
Loans recovered
Commercial and financial - -
Real estate mortgage - -
Instalment 2 -
--------------- ---------------
2 -
--------------- ---------------
Net charge-offs (recoveries) (2) 4
--------------- ---------------
Additions to allowance charged to operating expense during period 36 100
--------------- ---------------
Balance of allowance for loan losses at end of period $ 398 $ 331
=============== ===============
Ratio of net loans charged off during the period to
average loans outstanding (0.01)% 0.02%
=============== ===============
</TABLE>
Other income has increased during the second quarter and first six months of
1999 as compared to the same periods in 1998 by $3,000 and $13,000,
respectively, due to increased service charges and other miscellaneous fees.
Other expenses increased during the second quarter and first six months of 1999
as compared to the same periods in 1998 by $52,000 and $116,000, respectively,
due primarily to increased other operating expenses and increased salaries and
benefits. The increase in other operating expenses is primarily due to increased
data processing and professional fees.
The Company's provision for income taxes was $60,000 and $123,000, respectively,
for the second quarter and first six months of 1999, or an effective tax rate of
36%. Because the Company had accumulated deficits as of June 30, 1998, no income
tax provision was recorded during the first six months of 1998.
13
<PAGE> 14
THE YEAR 2000 ISSUE
The Year 2000 issue is the result of potential problems with computer systems or
any equipment with computer chips that use dates that have been sorted as two
digits rather than four (e.g., "99" for 1999). On January 1, 2000, any clock or
date recording mechanism, including date sensitive software, which uses only two
digits to represent the year may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices or perform similar
tasks.
For a bank, Year 2000 problems could have a material adverse effect if interest
accruals for loans and deposits are not calculated properly. A system crash
could result in a disruption of business which in turn could cause the bank to
lose a significant portion of its customer base, either of which could result in
material adverse consequences for the Company.
At the Company, preparation for Year 2000 challenges is a top priority. The
Company has chosen to address the Year 2000 problems by forming a project team
consisting of select personnel. The project manager is the chief financial
officer, who reports to the Executive Committee and Board. The project team has
been charged with the responsibility of assessing the problem and overseeing
corrective action, as well as testing the Year 2000 readiness of all equipment,
software, and applications after upgrades have been made. The Bank's senior
management continue to oversee the extensive Year 2000 project with the intent
to minimize any disruption in service to customers and to preserve customer
confidence in us. The Company has committed the people and the resources we
believe are necessary to prepare for the millennium change. The Company has
progressed through the awareness, assessment and renovation phases and has
substantially completed the validation phase where testing is conducted and
results analyzed to confirm the changes made to bring the affected system into
compliance and that no problems surface as a result.
The Company has distinguished between critical and non critical systems.
Mission-critical systems have priority attention. These systems are: core
processing system, both hardware and software, teller processing system and
items processing. Automated new accounts and loan document preparation software,
ATM processing, local area network and personal computers have been designated
as mission-necessary and have also been given appropriate attention. All
personal computers and the local area network have been tested and certified by
an outside firm to be Year 2000 compliant. The Company upgraded to a new core
processing system and an outside service provider which was installed on January
22, 1999. The validation of all mission critical systems has been completed as
of June 30, 1999.
Since the Company relies on other outside vendors for many services such as
electricity, phone service, water, gas, bond accounting, accounts payable, and
other related forms, correspondence has been sent to each of these vendors
requesting information regarding their Year 2000 readiness. Correspondence with
vendors continues to be obtained and evaluated.
Due to the critical nature of the core processing system, the Company has
established a Business Resumption Contingency Plan to accommodate the new
systems recently installed and has adopted the contingency plan of the outside
provider, the InterCept Group. The Company's contingency plans were
substantially complete at June 30, 1999 and accommodate disruption of service
due to power outage, system failure, and other Year 2000 issues.
14
<PAGE> 15
After the assessment phase, the Board of Directors approved a budget of $125,000
to address the Year 2000 issues, consisting mainly of new hardware and software
systems. This budget is subject to continuous review and amendment. Management
does not expect the cost of remediation to vary significantly from the present
budget. As of June 30, 1999, approximately $76,650 of costs had been incurred by
the Company with respect to Year 2000 issues.
It is the goal of the Company to make sure that customers are protected from any
Year 2000 problems and to provide customers with accurate and timely information
about the Year 2000 problem as well as its progress towards compliance. The
Company has provided numerous informational brochures and letters to its
customers. This will be a continued concentration throughout 1999.
Loan customers could also experience business interruptions which could affect
their ability to repay debts owed to the Company resulting in adverse bank
performance. Action has been taken by the Company's senior lending officer to
evaluate the current commercial relationships and is continuing with the
assessment of each new commercial relationship. Management and the Board of the
Company realize that due to many factors, consumers may withdraw extra amounts
of money which could result in a liquidity issue for the Company. The Company
has provided for additional liquidity sources for Year 2000 and the liquidity
policy of the Company continues to be reviewed to accommodate this issue. This
will be closely monitored throughout the second half of 1999, with extra
emphasis placed during the fourth quarter.
In addition to assessing the Company's information technology system and the
risks of customer credit relationships, the Company has also assessed its
electronic equipment, such as building security, environmental systems and other
devices which contain embedded electronic circuits. With regard to these
non-information technology systems, the Company believes that it is
substantially compliant as of June 30, 1999.
The Company presently believes that, with modifications to its computer systems
and conversions to new systems, the Year 2000 issue will not pose significant
operational problems for the Company or have a material adverse effect on future
operating results. However, absolute assurance cannot be given that: (1) the
modifications and conversions will remedy all deficiencies, (2) failure of any
of the Company's systems will not have a material impact on operations, or (3)
failure of any other companies' systems with whom the Company conducts business
will not have a material impact on operations.
The costs of the Year 2000 project and the date which the Company plans to
complete the Year 2000 modifications are based upon management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. There can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders was held on May 18, 1999.
(b) The following directors were elected for a term of one year
and until a successor is duly qualified and elected:
Catherine M. Amos
Jeffrey S. Bagley
Danny M. Bennett
Michael P. Bennett
Bryan L. Bettis
Talmadge W. Bolton
Thomas L. Bower, III
Charles R. Castleberry
David H. Denton
Charles D. Ingram
Herbert A. Lang, Jr.
John P. McGruder
James J. Myers
Danny L. Reid
Charles R. Smith
Wyatt L. Willingham
Jerry M. Wood
(c) The following matters were voted on at the meeting as was
previously identified in the Proxy materials forwarded to each
shareholder:
1. Proposal to elect the 17 individuals nominated by
management as Directors. The shares represented at the meeting
(456,090 or 57.01%) voted as follows:
<TABLE>
<CAPTION>
Director For Against Abstain
-------- --- ------- -------
<S> <C> <C> <C>
Catherine M. Amos 455,890 200 0
Jeffrey S. Bagley 455,890 200 0
Danny M. Bennett 455,890 200 0
Michael P. Bennett 455,890 200 0
Bryan L. Bettis 455,890 200 0
Talmadge W. Bolton 455,890 200 0
Thomas L. Bower, III 455,890 200 0
Charles R. Castleberry 455,890 200 0
</TABLE>
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED).
<TABLE>
<CAPTION>
Director For Against Abstain
-------- --- ------- -------
<S> <C> <C> <C>
David H. Denton 455,890 200 0
Charles D. Ingram 455,890 200 0
Herbert A. Lang, Jr. 455,890 200 0
John P. McGruder 455,890 200 0
James J. Myers 455,890 200 0
Danny L. Reid 455,890 200 0
Charles R. Smith 455,890 200 0
Wyatt L. Willingham 455,890 200 0
Jerry M. Wood 455,890 200 0
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule, (for SEC use only).
(b) Reports on Form 8-K.
None.
17
<PAGE> 18
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.
FORSYTH BANCSHARES, INC.
(Registrant)
DATE: August 12, 1999 BY: /s/ David H. Denton
--------------- -----------------------------------------
David H. Denton, President and C.E.O.
(Principal Executive Officer)
DATE: August 12, 1999 BY: /s/ Holly R. Hunt
--------------- -----------------------------------------
Holly R. Hunt, Vice President, Secretary
and Treasurer (Principal Financial and
Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,100
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 680
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,102
<INVESTMENTS-CARRYING> 1,001
<INVESTMENTS-MARKET> 999
<LOANS> 31,816
<ALLOWANCE> 398
<TOTAL-ASSETS> 62,267
<DEPOSITS> 54,155
<SHORT-TERM> 0
<LIABILITIES-OTHER> 316
<LONG-TERM> 0
0
0
<COMMON> 7,960
<OTHER-SE> (164)
<TOTAL-LIABILITIES-AND-EQUITY> 62,267
<INTEREST-LOAN> 1,405
<INTEREST-INVEST> 695
<INTEREST-OTHER> 113
<INTEREST-TOTAL> 2,213
<INTEREST-DEPOSIT> 1,104
<INTEREST-EXPENSE> 1,104
<INTEREST-INCOME-NET> 1,109
<LOAN-LOSSES> 36
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 796
<INCOME-PRETAX> 346
<INCOME-PRE-EXTRAORDINARY> 223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 3.87
<LOANS-NON> 27
<LOANS-PAST> 4
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 360
<CHARGE-OFFS> 0
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 398
<ALLOWANCE-DOMESTIC> 398
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
