U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year Commission file number
ended December 31, 1997 333-13583
FIRST GEORGIA COMMUNITY CORP.
(Name of small business issuer in its charter)
Georgia 58-2261088
(State of Incorporation) (I.R.S. Employer
Identification No.)
150 Covington Street
P. O. Box 1534
Jackson, Georgia
30233
(Address of principal executive offices) (Zip Code)
(770) 504-1090
(Issuer's telephone number)
Securities Registered pursuant to Section 12(b) of the Exchange Act: None
Securities Registered pursuant to Section 12(g) of the Exchange Act: None
Check whether Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive Proxy or
Information Statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Registrant's revenues for its fiscal year ended December 31, 1997 were
$414,779.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 15, 1998 was $4,917,740 based on the offering price
of $10.00 per share, since there is no established trading market. The
Registrant completed its offering on July 7, 1997.
The number of shares outstanding of Registrant's class of common stock at
March 15, 1998 was 758,458 shares of common stock.
Documents Incorporated by Reference:
Transitional Small Business Disclosure Format (check one):
Yes No X
Page 1 of 79
Exhibit Index on Page 44
<PAGE>
TABLE OF CONTENTS
PART I Page
ITEM 1. DESCRIPTION OF BUSINESS ......................... 3
ITEM 2. DESCRIPTION OF PROPERTIES........................ 12
ITEM 3. LEGAL PROCEEDINGS................................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................. 12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS...................... 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION ............................ 13
ITEM 7. FINANCIAL STATEMENTS ............................ 33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ............................ 33
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS ............................. 33
ITEM 10. EXECUTIVE COMPENSATION .......................... 37
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT ................ 41
ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS ............................ 43
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ................ 44
SIGNATURES ................................................ 45
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
First Georgia Community Corp. (the "Company"), Jackson, Georgia,
was incorporated as a Georgia business corporation for the purpose
of becoming a bank holding company by acquiring all of the common
stock of First Georgia Community Bank, Jackson, Georgia (the
"Bank") upon its formation. The Company filed applications to the
Board of Governors of the Federal Reserve System (the "Board") and
the Georgia Department of Banking and Finance (the "DBF") for prior
approval to become a bank holding company. The Company received
Board approval on December 24, 1996, and the DBF approval on
December 3, 1996. The Company became a bank holding company within
the meaning of the federal Bank Holding Company Act (the "Act") and
the Georgia bank holding company law (the "Georgia Act") upon the
acquisition of all of the Common Stock of the Bank, which occurred
in September, 1997.
The Bank is the sole operating subsidiary of the Company. On
October 11, 1996, the Bank received the approval of its Articles of
Incorporation from the DBF. Its permit to begin business has been
issued, and it opened for business on September 8, 1997. The
deposits at the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), initial approval by the FDIC having been
obtained on September 30, 1996.
In October, 1996, the Company registered 800,000 shares of its
common stock with the Securities and Exchange Commission under the
Securities Act of 1933. The registration statement became
effective on December 11, 1996, and the Company began its stock
offering a few days later. The stock offering was completed as of
July 7, 1997. 758,458 shares were sold in the offering, raising
total capital of $7,584,580.
(b) Business of Issuer
The Bank conducts a general commercial banking business in its
primary service area, emphasizing the banking needs of individuals
and small- to medium-sized businesses. The Company conducts
business from its office located at 150 Covington Street, Jackson,
Georgia 30233.
The Company is authorized to engage in any activity permitted by
law to a corporation, subject to applicable Federal regulatory
restrictions on the activities of bank holding companies. The
Company was formed for the purpose of becoming a holding company to
own 100% of the stock of the Bank. The holding company structure
provides the Company with greater flexibility than the Bank. While
the Company has no present plans to engage actively in any
nonbanking business activities, management anticipates studying the
feasibility of establishing or acquiring subsidiaries to engage in
other business activities to the extent permitted by law.
The principal business of the Bank is to accept deposits from the
public and to make loans and other investments in and around Butts
County, Georgia, as well as the geographically adjacent counties,
its primary service area.
The Bank offers a full range of deposit services that are typically
available from financial institutions. The Bank offers personal
and business checking accounts, interest-bearing checking accounts,
savings accounts, money market funds and various types of
certificates of deposit. The Bank also offers installment loans,
real estate loans, second mortgage loans, commercial loans and home
equity lines of credit. In addition, the Bank provides such
services as official bank checks and money orders, Mastercard and
VISA credit cards, safe deposit boxes, traveler's checks, bank by
mail, direct deposit of payroll and social security checks, and US
Savings Bonds. All deposit accounts are insured by the FDIC up to
the maximum amount currently permitted by law.
The Bank's lending philosophy is to make loans, taking into
consideration the safety of the Bank's depositors' funds, the
preservation of the Bank's liquidity, the interest of the Company's
shareholders, and the welfare of the community. Interest income
from the Bank's lending operations will be the principal component
of the Bank's income, so therefore prudent lending will be
essential for the prosperity of the Bank.
The principal sources of income for the Bank will be interest and
fees collected on loans, interest and dividends collected on other
investments, and mortgage brokerage fees. The principal expenses
of the Bank will be interest paid on deposits, employee
compensation, office expenses, and other overhead expenses.
The Bank's business plan for its initial years of operation relies
principally upon local advertising and promotional activity and
upon personal contacts by its directors, officers and shareholders
to attract business and to acquaint potential customers with the
Bank's personalized services. The Bank emphasizes a high degree of
personalized client service in order to be able to provide for each
customer's banking needs. The Bank's marketing approach emphasizes
the advantages of dealing with an independent, locally-owned and
managed state chartered bank to meet the particular needs of
individuals, professionals and small-to-medium-size businesses in
the community. All banking services are continually evaluated with
regard to their profitability and efforts will be made to modify
the Bank's business plan if the Bank does not prove successful.
The Bank does not presently offer trust or permissible securities
services.
Supervision and Regulation
Regulation of the Bank. The operations of the Bank are subject to
state and federal statutes applicable to state chartered banks
whose deposits are insured by the FDIC and the regulations of the
DBF and the FDIC. Such statutes and regulations relate to, among
other things, required reserves, investments, loans, mergers and
consolidations, issuances of securities, payment of dividends,
establishment of branches and other aspects of the Bank's
operations. Under the provisions of the Federal Reserve Act, the
Bank is subject to certain restrictions on any extensions of credit
to the Company or, with certain exceptions, other affiliates, and
on the taking of such stock or securities as collateral on loans to
any borrower. In addition, the Bank is prohibited from engaging in
certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
The Bank, as a state chartered bank, is permitted to branch only to
the extent that banks are permitted to branch under Georgia law.
In January 1996, the Georgia legislature passed a bill designed to
eliminate Georgia's current intra-county branching restrictions.
The new legislation provides that effective after July 1, 1996,
banks in Georgia, with prior approval of the DBF (and the
appropriate federal regulatory authority), may establish additional
branches in up to three new counties in the state per year. On
July 1, 1998, full statewide branching goes into effect as Georgia
banks may establish new branches in any county in the state with
prior approval of the appropriate regulatory authorities.
The FDIC adopted final risk-based capital guidelines for all FDIC
insured state chartered banks that are not members of the Federal
Reserve System effective December 31, 1990. As of December 31,
1992, all banks are required to maintain a minimum ratio of total
capital to risk weighted assets of 8 percent (of which at least 4
percent must consist of Tier 1 capital). Tier 1 capital of state
chartered banks (as defined in regulations) generally consists of
(i) common stockholders equity; (ii) noncumulative perpetual
preferred stock and related surplus; and (iii) minority interests
in the equity accounts of consolidated subsidiaries.
In addition, the FDIC adopted a minimum ratio of Tier 1 capital to
total assets of banks. This capital measure is generally referred
to as the leverage capital ratio. The FDIC has established a
minimum leverage capital ratio of 3 percent if the FDIC determines
that the institution is not anticipating or experiencing
significant growth and has well-diversified risk, including no
undue interest rate exposure, excellent asset quality, high
liquidity, good earnings and, in general, is considered a strong
banking organization, rated Composite 1 under the Uniform Financial
Institutions Rating System. Other financial institutions are
expected to maintain leverage capital at least 100 to 200 basis
points above the minimum level. Management intends to operate the
Bank so as to exceed the minimum Tier 1, risk-based and leverage
capital ratios.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a
proposal to add an interest rate risk component to risk-based
capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991,
enacted in December 1991 ("FDICIA"), specifies, among other things,
the following five capital standard categories for depository
institutions: (i) well capitalized, (ii) adequately capitalized,
(iii) undercapitalized, (iv) significantly under-capitalized and
(v) critically undercapitalized. FDICIA imposes progressively more
restrictive constraints on operations, management and capital
distributions depending on the category in which an institution is
classified. Each of the federal banking agencies has issued final
uniform regulations that became effective December 19, 1992, which,
among other things, define the capital levels described above.
Under the final regulations, a bank is considered "well
capitalized" if it (i) has a total risk-based capital ratio of 10%
or greater, (ii) has a Tier 1 risk-based capital ratio of 6% or
greater, (iii) has a leverage ratio of 5% or greater, and (iv) is
not subject to any order or written directive to meet and maintain
a specific capital level for any capital measure. An "adequately
capitalized" bank is defined as one that has (i) a total risk-based
capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater and (iii) a leverage ratio of 4% or
greater, and an "undercapitalized" bank is defined as one that has
(i) a total risk-based capital ratio of less than 8%, (ii) a Tier
1 risk-based capital ratio of less than 4%, and (iii) a leverage
ratio of less than 4%. A bank is considered "significantly
undercapitalized" if the bank has (i) a total risk-based capital
ratio of less than 6%, (ii) a Tier 1 risk-based capital ratio of
less than 3%, and (iii) a leverage ratio of less than 3%, and
"critically undercapitalized" if the bank has a ratio of tangible
equity to total assets equal to or less than 2%. The applicable
federal regulatory agency for a bank that is "well capitalized" may
reclassify it as an "adequately capitalized" or "undercapitalized"
institution and subject it to the supervisory actions applicable to
the next lower capital category, if it determines that the Bank is
in an unsafe or unsound condition or deems the bank to be engaged
in an unsafe or unsound practice and not to have corrected the
deficiency.
"Undercapitalized" depository institutions, among other things, are
subject to growth limitations, are prohibited, with certain
exceptions, from making capital distributions, are limited in their
ability to obtain funding from a Federal Reserve Bank and are
required to submit a capital restoration plan. The federal banking
agencies may not accept a capital plan without determining, among
other things, that the plan is based on realistic assumptions and
is likely to succeed in restoring the depository institution's
capital. In addition, for a capital restoration plan to be
acceptable, the depository institution's parent holding company
must guarantee that the institution will comply with such capital
restoration plan and provide appropriate assurances of performance.
If a depository institution fails to submit an acceptable plan,
including if the holding company refuses or is unable to make the
guarantee described in the previous sentence, it is treated as if
it is "significantly undercapitalized". Failure to submit or
implement an acceptable capital plan also is grounds for the
appointment of a conservator or a receiver. "Significantly
undercapitalized" depository institutions may be subject to a
number of additional requirements or restrictions, including the
requirement to issue additional voting stock to become adequately
capitalized and requirements to reduce total assets and cessation
of receipt of deposits from correspondent banks. "Critically
undercapitalized" institutions, among other things, are prohibited
from making any payments of principal and interest on subordinated
debt, and are subject to the appointment of a receiver or
conservator.
Under FDICIA, the FDIC is permitted to provide financial assistance
to an insured bank before appointment of a conservator or receiver
only if (i) such assistance would be the least costly method of
meeting the FDIC's insurance obligations, (ii) grounds for
appointment of a conservator or a receiver exist or are likely to
exist, (iii) it is unlikely that the bank can meet all capital
standards without assistance and (iv) the bank's management has
been competent, has complied with applicable laws, regulations,
rules and supervisory directives and has not engaged in any insider
dealing, speculative practice or other abusive activity.
The Bank is subject to FDIC deposit insurance assessments for the
Bank Insurance Fund ("BIF"). The FDIC has implemented a risk-based
assessment system whereby banks are assessed on a sliding scale
depending on their placement in nine separate supervisory
categories. Recent legislation provides that BIF insured
institutions, such as the Bank, will share the Financial
Corporation ("FICO") bond service obligation. Previously, only
Savings Association Insurance Fund ("SAIF") insured institutions
were obligated to contribute to the FICO bond service. The BIF
deposit insurance premium for the Bank is presently 4.3 cents per
$100 of BIF insured deposits.
On April 19, 1995, the federal bank regulatory agencies adopted
uniform revisions to the regulations promulgated pursuant to the
Community Reinvestment Act (the "CRA"), which are intended to set
standards for financial institutions. The revised regulation
contains three evaluation tests: (a) a lending test which will
compare the institution's market share of loans in low and moderate
income areas to its market share of loans in its entire service
area and the percentage of a bank's outstanding loans to low and
moderate income areas or individuals, (b) a services test which
will evaluate the provision of services that promote the
availability of credit to low and moderate income areas, and (c) an
investment test, which will evaluate an institution's record of
investments in organizations designed to foster community
development, small and minority owned businesses and affordable
housing lending, including state and local government housing or
revenue bonds. The regulation is designed to reduce the paperwork
requirements of the current regulations and provide regulatory
agencies, institutions, and community groups with a more objective
and predictable manner with which to evaluate the CRA performance
of financial institutions. The rule became effective on January 1,
1996 when evaluation under streamlined procedures began for
institutions with total assets of less than $250 million that are
owned by a holding company with total assets of less than $1
billion.
Congress and various federal agencies (including, in addition to
the bank regulatory agencies, the Department of Housing and Urban
Development, the Federal Trade Commission and the Department of
Justice (collectively, the "Federal Agencies") responsible for
implementing the nation's fair lending laws have been increasingly
concerned that prospective home buyers and other borrowers are
experiencing discrimination in their efforts to obtain loans. The
Department of Justice has filed suit against financial institutions
which it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from
discriminatory practices. Most, if not all, of these suits have
been settled (some for substantial sums) without a full
adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify
what constitutes discrimination in lending and to specify the
factors the agencies will consider in determining if lending
discrimination exists, announced a joint policy statement detailing
specific discriminatory practices prohibited under the Equal Credit
Opportunity Act and the Fair Housing Act. In the policy statement,
three methods of establishing discrimination in lending were
identified: (a) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, or (b) where there
is no showing that the treatment was motivated by intent to
discriminate against a person, and (c) evidence of disparate
impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect on a
protected class, even where such practices are neutral on their
face and are applied equally, unless the practice can be justified
on the basis of business necessity.
Regulation of the Company. The Company is a bank holding company
within the meaning of the Federal Bank Holding Company Act (the
"Act") and the Georgia bank holding company law (the "Georgia
Act"). As a bank holding company, the Company is required to file
with the Federal Reserve Board (the "Board") an annual report and
such additional information as the Board may require pursuant to
the Act. The Board may also make examinations of the Company and
each of its subsidiaries. Bank holding companies are required by
the Act to obtain approval from the Board prior to acquiring,
directly or indirectly, ownership or control of more than 5% of the
voting shares of a bank.
The Act also prohibits bank holding companies, with certain
exceptions, from acquiring more than 5% of the voting shares of any
company that is not a bank and from engaging in any nonbanking
business (other than a business closely related to banking as
determined by the Board) or from managing or controlling banks and
other subsidiaries authorized by the Act or furnishing services to,
or performing services for, its subsidiaries without the prior
approval of the Board. The Board is empowered to differentiate
between activities that are initiated de novo by a bank holding
company or a subsidiary and activities commenced by acquisition of
a going concern. The Company has no present intention to engage in
nonbanking activities.
As a bank holding company, the Company is subject to capital
adequacy guidelines as established by the Board. The Board
established risk based capital guidelines for bank holding
companies effective March 15, 1989. Beginning on December 31,
1992, the minimum required ratio for total capital to risk weighted
assets became 8 percent (of which at least 4 percent must consist
of Tier 1 capital). Tier 1 capital (as defined in regulations of
the Board) consists of common and qualifying preferred stock and
minority interests in equity accounts of consolidated subsidiaries,
less goodwill and other intangible assets required to be deducted
under the Board's guidelines. The Board's guidelines apply on a
consolidated basis to bank holding companies with total
consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in total consolidated assets
(such as the Company), the guidelines will be applied on a bank
only basis, unless the bank holding company is engaged in
nonbanking activity involving significant leverage or has
significant amount of debt outstanding that is held by the general
public. The Board has stated that risk based capital guidelines
establish minimum standards and that bank holding companies
generally are expected to operate well above the minimum standards.
The Company is also a bank holding company within the meaning of
the Georgia Act, which provides that, without the prior written
approval of the DBF, it is unlawful (i) for any bank holding
company to acquire direct or indirect ownership or control of more
than 5% of the voting shares of any bank, (ii) for any bank holding
company or subsidiary thereof, other than a bank, to acquire all or
substantially all of the assets of a bank, or (iii) for any bank
holding company to merge or consolidate with any other bank holding
company.
It is also unlawful for any company to acquire direct or indirect
ownership or control of more than 5% of the voting shares of any
bank in Georgia unless such bank has been in existence and
continuously operating or incorporated as a bank for a period of
five years or more prior to the date of application to the DBF for
approval of such acquisition. Bank holding companies themselves
are prohibited from acquiring another bank until the initial bank
in the bank holding company has been incorporated for a period of
twenty-four months.
The Reigle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"), subject to certain
restrictions, allows adequately capitalized and managed bank
holding companies to acquire existing banks across state lines,
regardless of state statutes that would prohibit acquisitions by
out-of-state institutions. Further, effective June 1, 1997, a bank
holding company may consolidate interstate bank subsidiaries into
branches and a bank may merge with an unaffiliated bank across
state lines to the extent that the applicable states have not
"opted out" of interstate branching prior to such effective date.
Some states may elect to permit interstate mergers prior to June 1,
1997. The Interstate Banking Act generally prohibits an interstate
acquisition (other than the initial entry into a state by a bank
holding company) that would result in either the control of more
than (i) 10% of the total amount of insured deposits in the United
States, or (ii) 30% of the total insured deposits in the home state
of the target bank, unless such 30% limitation is waived by the
home state on a basis which does not discriminate against out-of-state
institutions. As a result of this legislation, the Company
may become a candidate for acquisition by, or may itself seek to
acquire, banking organizations located in other states.
The Reigle Community Development and Regulatory Improvement Act of
1994 (the "Improvement Act") provides for the creation of a
community development financial institutions' fund to promote
economic revitalization in community development. Banks and thrift
institutions are allowed to participate in such community
development banks. The Improvement Act also contains (i)
provisions designed to enhance small business capital formation and
to enhance disclosure with regard to high cost mortgages for the
protection of consumers, and (ii) more than 50 regulatory relief
provisions that apply to banks and thrift institutions, including
the coordination of examinations by various federal agencies,
coordination of frequency and types of reports financial
institutions are required to file and reduction of examinations for
well capitalized institutions.
Bank holding companies may be compelled by bank regulatory
authorities to invest additional capital in the event a subsidiary
bank experiences either significant loan losses or rapid growth of
loans or deposits. In addition, the Company may be required to
provide additional capital to any additional banks it acquires as
a condition to obtaining the approvals and consents of regulatory
authorities in connection with such acquisitions.
The Company and the Bank are subject to the Federal Reserve Act,
Section 23A, which limits a bank's "covered transactions"
(generally, any extension of credit) with any single affiliate to
no more than 10% of a bank's capital and surplus. Covered
transactions with all affiliates combined are limited to no more
than 20% of a bank's capital and surplus. All covered and exempt
transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices, and a
bank and its subsidiaries are prohibited from purchasing low
quality assets from the bank's affiliates. Finally, Section 23A
requires that all of a bank's extensions of credit to an affiliate
be appropriately secured by collateral. The Company and the Bank
are also subject to Section 23B of the Federal Reserve Act, which
further limits transactions among affiliates. Sections 22(b) and
22(h) of the Federal Reserve Act and implementing regulations also
prohibit extensions of credit by a state non-member bank (such as
the Bank) to its directors, officers and controlling shareholders
on terms which are more favorable than those afforded other
borrowers, and impose limits on the amounts of loans to individual
affiliates and all affiliates as a group.
The United States Congress and the Georgia General Assembly
periodically consider and adopt legislation that results in, and
could further result in, deregulation, among other matters, of
banks and other financial institutions. Such legislation could
modify or eliminate geographic restrictions on banks and bank
holding companies and current prohibitions restricting competition
with other financial institutions, including mutual funds,
securities brokerage firms, insurance companies, banks from other
states and investment banking firms. The effect of any such
legislation on the business of the Company or the Bank cannot be
accurately predicted. The Company cannot predict what legislation
might be enacted or what other implementing regulations might be
adopted, and if enacted or adopted, the effect thereof.
Competition
The banking business is highly competitive. The Bank competes with
other commercial banks in its primary service area.
Banks generally compete with other financial institutions through
the banking products and services offered, the pricing of services,
the level of service provided, the convenience and availability of
services, and the degree of expertise and the personal manner in
which services are offered. The Bank has encountered strong
competition from most of the financial institutions in the Bank's
primary service area. In the conduct of certain areas of its
banking business, the Bank also competes with credit unions,
consumer finance companies, insurance companies, money market
mutual funds and other financial institutions, some of which are
not subject to the same degree of regulation and restrictions
imposed upon the Bank. Many of these competitors have
substantially greater resources and lending limits than the Bank
has and offer certain services, such as trust services, that the
Bank does not provide presently. Management believes that
competitive pricing and personalized service provides it with a
method to compete effectively in the primary service area.
Employees
As of March 1, 1998, the Bank had 12 full-time employees and 1
part-time employee. The Company does not have any employees who
are not also employees of the Bank. The Company and the Bank are
not parties to any collective bargaining agreement, and management
believes the Bank has good relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company acquired a 2.5 acre tract of land located at 150
Covington Street, Jackson, Georgia, in January, 1997 for $395,000,
as the site for the main office of the Bank and the Company. On
said tract of land, the Company constructed a two-story main office
with approximately 9,085 square feet of finished space. The Bank
occupies said building, opening for banking business on September
8, 1997. The main office has five inside teller stations and four
outside drive-up teller stations. The first floor also has four
customer service stations, eight enclosed office spaces (four of
which are presently occupied), a safe deposit vault, a coupon room,
a children's play room, and three customer waiting areas. The
second floor of the building is unoccupied and is used for storage
space and future expansion. In the opinion of management of the
Company, the office building and personal property of the Company
and the Bank are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings which
management believes would have a material effect upon the
operations or financial condition of the Company. The Bank has not
commenced banking activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
Company's fourth quarter of the fiscal year ended December 31,
1997.
PART II
ITEM 5. MARKET FOR ISSUER'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of December 31, 1997, there were approximately 1,000
shareholders of record of the Company's common stock. There is no
established trading market for the Company's common stock. The
Company has 758,458 shares of its common stock outstanding as of
December 31, 1997. The Company has not paid and does not
anticipate paying dividends on its common stock in the immediate
future. At present, the only source of funds from which the
Company could pay dividends would be dividends paid to the Company
by the Bank. Certain regulatory requirements restrict the amount
of dividends that can be paid to the Company by the Bank without
obtaining the prior approval of the DBF. No assurance can be given
that dividends will be declared by the Company, or if declared,
what the amount of the dividends will be or whether such dividends,
once declared, would continue.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
PLAN OF OPERATION
The Company was incorporated on August 7, 1996, for the
purpose of becoming a bank holding company for the Bank. The
Company filed applications to the Board of Governors of the Federal
Reserve System (the "Board") and the Georgia Department of Banking
and Finance (the "DBF") for prior approval to become a bank holding
company. The Company received Board approval on December 24, 1996,
and DBF approval on December 3, 1996. The Company became a bank
holding company within the meaning of the federal Bank Holding
Company Act and the Georgia bank holding company law upon the
acquisition of all of the Common Stock of the Bank. The Bank
opened for business on September 8, 1997. The Company's plan of
operation for 1998 consists primarily of gaining market share in
the Bank's primary service area.
During 1998, the Bank will continue to offer a full range of
commercial banking services to individual, professional and
business customers in its primary service area. These services
will include personal and business checking accounts and savings
and other time certificates of deposit. The transaction accounts
and time certificates will be at rates competitive with those
offered in the Bank's primary service area. Customer deposits with
the Bank will be insured to the maximum extent provided by law
through the FDIC. The Bank will continue to issue credit cards to
act as a merchant depository for cardholder drafts under both Visa
and Mastercard. The Bank will continue to offer night depository
and bank-by-mail services and to sell traveler's checks (issued by
an independent entity) and cashier's checks. The Bank does not
anticipate offering trust and fiduciary services during 1998 and
will rely on trust and fiduciary services offered by correspondent
banks until the Bank determines that it is profitable to offer such
services directly.
During 1998, the Bank anticipates deriving its income principally
from interest charged on loans and, to a lesser extent, from
interest earned on investments, from fees received in connection
with the origination of loans and from other services. The Bank's
principal expenses are anticipated to be interest expense on
deposits and operating expenses.
Management believes the Company and Bank can satisfy future cash
requirements indefinitely, and will not have to raise additional
capital during 1998 or in the foreseeable future. The Bank will
accept deposits and make loans and investments in accordance with
an asset and liability management framework that emphasizes
appropriate levels of liquidity and interest rate risk.
The Bank completed construction of its banking facility during
August, 1997. Land and construction costs were approximately $1.8
million. In addition, furnishings and equipment cost approximately
$446,000.
The Bank presently employs 12 full-time employees and 2 part-time
employees. Management expects the Bank to employ approximately 14
employees and 3 part-time employees by the end of 1998.
Significant increases in the number of employees above this level
are not expected in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition of the
Company (sometimes hereinafter referred to as "FGC") and its bank
subsidiary, First Georgia Community Bank (the "Bank"), at
December 31, 1997 and 1996, and the results of operations for the
year ended December 31, 1997 and for the period from inception to
December 31, 1996. The purpose of this discussion is to focus on
information about FGC's financial condition and results of
operations which are not otherwise apparent from the audited
consolidated financial statements. Reference should be made to
those statements and the selected financial data presented
elsewhere in this report for an understanding of the following
discussion and analysis.
Overview
FGC's 1997 results were highlighted by the successful completion
of its common stock offering and the commencement of its banking
operations on September 8, 1997. The Company's capital base will
allow for substantial growth in 1998.
Financial Condition at December 31, 1997 and 1996
Following is a summary of FGC's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
December 31,
1997 1996
(Dollars in Thousands)
<S> <C> <C>
Cash and due from banks $ 1,568 $ 466
Federal funds sold 4,320 -
Securities 2,029 -
Loans 6,045 -
Premises and equipment 2,220 166
Other assets 152 116
$ 16,334 $ 748
Total deposits $ 9,165 $ -
Other borrowings 29 366
Other liabilities 26 477
Stockholders' equity (deficit) 7,114 (95)
$ 16,334 $ 748
</TABLE>
Financial Condition at December 31, 1997 and 1996
As of December 31, 1997, the Company had total assets of $16.3
million. The Company raised $7.58 million from the sale of its
common stock and has received $9.2 million in deposits since the
commencement of operations on September 8, 1997. The Company has
invested the proceeds from its stock sale and deposit growth in
Federal funds sold ($4.3 million), U.S. Agency and equity
securities ($2.0 million), loans ($6.0 million), and premises and
equipment ($2.2 million). The Company also repaid debt incurred
during the organizational period of $366,000. The Company expects
that loan and deposit growth will be significant during the coming
year. This expected growth is not uncommon for de novo banks. The
Company was in process of its common stock offering as of
December 31, 1996 and had raised $465,000 at that time.
The Bank's investment portfolio, consisting of U.S. Agency
securities and equity securities, amounted to $2.0 million at
December 31, 1997. Unrealized losses on securities amounted to
$459 at December 31, 1997. Management has not specifically
identified any securities for sale in future periods which, if
so designated, would require a charge to operations if the market
value would not be reasonably expected to recover prior to the time
of sale.
<PAGE>
FGC has 23% of its loan portfolio collateralized by real estate
located in FGC's primary market area of Butts County and
surrounding counties. FGC's real estate mortgage and construction
portfolio consists of loans collateralized by one to four-family
residential properties (80%), construction loans to build one to
four-family residential properties (4%), and nonresidential
properties consisting primarily of small business commercial
properties (16%). FGC generally requires that loans collateralized
by real estate not exceed the collateral values by the following
percentages for each type of real estate loan as follows.
One to four-family residential properties 90%
Construction loans on one to four-family
residential properties 90%
Nonresidential property 75%
FGC's remaining 77% of its loan portfolio consists of commercial,
consumer, and other loans. FGC requires collateral commensurate
with the repayment ability and creditworthiness of the borrower.
The specific economic and credit risks associated with FGC's
loan portfolio, especially the real estate portfolio, include,
but are not limited to, a general downturn in the economy which
could affect unemployment rates in FGC's market area, general
real estate market deterioration, interest rate fluctuations,
deteriorated or non-existing collateral, title defects, inaccurate
appraisals, financial deterioration of borrowers, fraud, and any
violation of banking protection laws. Construction lending can
also present other specific risks to the lender such as whether
developers can find builders to buy lots for home construction,
whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the
buyer can obtain permanent financing. Currently, real estate
values and employment trends in FGC's market area are stable with
no indications of a significant downturn in the general economy.
FGC attempts to reduce these economic and credit risks not only by
adherence to loan to value guidelines, but also by investigating
the creditworthiness of the borrower and monitoring the borrower's
financial position. Also, FGC establishes and periodically reviews
its lending policies and procedures. State banking regulations
limit exposure by prohibiting secured loan relationships that
exceed 25% of the Bank's statutory capital and unsecured loan
relationships that exceed 15% of the Bank's statutory capital.
Liquidity and Capital Resources
The purpose of liquidity management is to ensure that there are
sufficient cash flows to satisfy demands for credit, deposit
withdrawals, and other needs of FGC. Traditional sources of
liquidity include asset maturities and growth in core deposits.
A company may achieve its desired liquidity objectives from the
management of assets and liabilities and through funds provided by
operations. Funds invested in short-term marketable instruments
and the continuous maturing of other earning assets are sources
of liquidity from the asset perspective. The liability base
provides sources of liquidity through deposit growth, the maturity
structure of liabilities, and accessibility to market sources of
funds.
Scheduled loan payments are a relatively stable source of funds,
but loan payoffs and deposit flows fluctuate significantly, being
influenced by interest rates and general economic conditions and
competition. FGC attempts to price its deposits to meet its
asset/liability objectives consistent with local market conditions.
The liquidity and capital resources of the Bank are monitored on a
periodic basis by State and Federal regulatory authorities. As
determined under guidelines established by those regulatory
authorities and internal policy, the Bank's liquidity was
considered satisfactory.
At December 31, 1997, FGC had loan commitments outstanding of
$866,000. Because these commitments generally have fixed expiration
dates and many will expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. If needed, the Bank has the ability on a short-term
basis to borrow and purchase Federal funds from other financial
institutions. At December 31, 1997, the Bank has arrangements
with one commercial bank for additional short-term advances of
$1,500,000.
At December 31, 1997, FGC's and the Bank's capital ratios were
considered adequate based on regulatory minimum capital
requirements. FGC's stockholders' equity increased due to the
issuance of common stock of $7.58 million offset by a net loss of
$338,000. FGC's stockholders' equity also decreased due to the
decrease in the fair value of securities available for sale in
the amount of $459. For regulatory purposes, the net unrealized
losses on securities available for sale are excluded in the
computation of the capital ratios.
In the future, the primary source of funds available to FGC will be
the payment of dividends by its subsidiary Bank. Banking
regulations limit the amount of the dividends that may be paid
without prior approval of the Bank's regulatory agency. Currently,
no dividends can be paid by the Bank to FGC without regulatory
approval.
The minimum capital requirements to be considered well capitalized
under prompt corrective action provisions and the actual capital
ratios for FGC and the Bank as of December 31, 1997 are as follows:
<PAGE>
<TABLE>
<CAPTION>
Actual
Regulatory
FGC Bank Requirements
<S> <C> <C> <C>
Leverage capital ratio 58.68% 50.77% 5.00%
Risk-based capital ratios:
Core capital 71.71 62.04 6.00
Total capital 72.44 62.78 10.00
</TABLE>
At December 31, 1997, FGC had no material commitments for capital
expenditures.
These ratios will decline as asset growth continues, but will
still remain in excess of the regulatory minimum requirements.
Management believes that its liquidity and capital resources are
adequate and will meet its foreseeable short and long-term needs.
Management anticipates that it will have sufficient funds available
to meet current loan commitments and to fund or refinance, on a
timely basis, its other material commitments and liabilities.
Except for expected growth common to a de novo bank, management is
not aware of any other known trends, events or uncertainties that
will have or that are reasonably likely to have a material effect
on its liquidity, capital resources or operations. Management is
also not aware of any current recommendations by the regulatory
authorities which, if they were implemented, would have such an
effect.
Effects of Inflation
The impact of inflation on banks differs from its impact on
non-financial institutions. Banks, as financial intermediaries,
have assets which are primarily monetary in nature and which tend
to fluctuate in concert with inflation. A bank can reduce the
impact of inflation if it can manage its rate sensitivity gap. This
gap represents the difference between rate sensitive assets and
rate sensitive liabilities. FGC, through its asset-liability
committee, attempts to structure the assets and liabilities and
manage the rate sensitivity gap, thereby seeking to minimize the
potential effects of inflation. For information on the management
of FGC's interest rate sensitive assets and liabilities, see the
"Asset/Liability Management" section.
Results of Operations For The Year Ended December 31, 1997 and
Period from Inception to December 31, 1996
Following is a summary of FGC's operations for the periods
indicated.
<PAGE>
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1997 December 31, 1996
(Dollars in Thousands)
<S> <C> <C>
Interest income $ 369 $ 1
Interest expense 53 5
Net interest income (expense) 316 (4)
Provision for loan losses 72 -
Other income 46 -
Other expenses 628 91
Pretax loss (338) (95)
Income taxes - -
Net loss (338) (95)
</TABLE>
The Company commenced its operations on September 8, 1997. Prior to
the commencement, the Company was engaged in activities involving
the formation of the Company, selling its common stock, and
obtaining necessary approvals. The Company incurred operating
losses totaling $226,000 during its organizational period ($95,000
in 1996 and $131,000 in 1997). The Company incurred total
organizational and stock issue costs of $109,000 of which $72,000
has been capitalized to be amortized over a period of sixty months,
and $37,000 has been recorded as a reduction in capital surplus.
Through the end of the year, the Company has incurred additional
operating losses of $207,000.
Operations during 1996 and through August of 1997 consisted
primarily of FGC's organizers engaging in organizational and
preopening activities necessary to obtain regulatory approvals and
to prepare to commence business as a bank. Therefore, operational
comparisons between 1997 and 1996 would not be meaningful and are
not presented.
Net Interest Income
FGC's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan
and investment losses, to generate non-interest income, and to
control operating expenses. Since interest rates are determined by
market forces and economic conditions beyond the control of FGC,
FGC's ability to generate net interest income is dependent upon its
ability to obtain an adequate net interest spread between the rate
paid on interest-bearing liabilities and the rate earned on
interest-earning assets.
The net yield on average interest-earning assets during FGC's
operational period from September 8, 1997 to December 31, 1997 was
5.66%. Average loans were $1.0 million, average securities were
$150,000, and average Federal funds sold were $1.7 million. Average
interest-bearing liabilities were $1.1 million. The rate earned on
average interest-earning assets was 7.25%. The rate paid on average
interest-bearing liabilities was 4.21%.
Provision for Loan Losses
The provision for loan losses was $72,000 in 1997. The amount
provided was due primarily to the growth of the portfolio.
Based upon management's evaluation of the loan portfolio,
management believes the reserve for loan losses to be adequate to
absorb possible losses on existing loans that may become
uncollectible. This evaluation considers past due and classified
loans, underlying collateral values, and current economic
conditions which may affect the borrower's ability to repay. As of
December 31, 1997, FGC has no nonperforming loans or assets. The
allowance for loan losses as a percentage of total loans was 1.18%.
Other Income
Other operating income consists of service charges on deposit
accounts and other miscellaneous revenues and fees. Other operating
income was $46,000 in 1997.
Non-interest Expense
Other operating expense consists of salaries and employee benefits
($350,000), equipment and occupancy expenses ($71,000), and other
operating expenses ($207,000).
Income Tax
FGC had no income tax expense due to a pre-tax operating loss of
$338,000.
Asset/Liability Management
It is FGC's objective to manage assets and liabilities to provide
a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing, and
capital policies. Certain officers are charged with the
responsibility for monitoring policies and procedures that are
designed to ensure acceptable composition of the asset/liability
mix. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits of all categories
made by local individuals, partnerships, and corporations.
FGC's asset/liability mix is monitored on a regular basis with a
report reflecting the interest rate-sensitive assets and interest
rate-sensitive liabilities being prepared and presented to the
Board of Directors of the Bank on a monthly basis. The objective of
this policy is to monitor interest rate-sensitive assets and
liabilities so as to minimize the impact of substantial movements
in interest rates on earnings. An asset or liability is considered
to be interest rate-sensitive if it will reprice or mature within
the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive when
the amount of interest rate-sensitive assets exceeds the amount of
interest rate-sensitive liabilities. A gap is considered negative
when the amount of interest rate-sensitive liabilities exceeds the
interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest
income, while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling
interest rates, a negative gap would tend to result in an increase
in net interest income, while a positive gap would tend to
adversely affect net interest income. If FGC's assets and
liabilities were equally flexible and moved concurrently, the
impact of any increase or decrease in interest rates on net
interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an
accurate indicator of how net interest income will be affected by
changes in interest rates. Accordingly, FGC also evaluates how the
repayment of particular assets and liabilities is impacted by
changes in interest rates. Income associated with interest-earning
assets and costs associated with interest-bearing liabilities may
not be affected uniformly by changes in interest rates. In
addition, the magnitude and duration of changes in interest rates
may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to
changes in market interest rates. Interest rates on certain types
of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag
behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features
(generally referred to as "interest rate caps and floors") which
limit changes in interest rates. Prepayment and early withdrawal
levels also could deviate significantly from those assumed in
calculating the interest rate gap. The ability of many borrowers to
service their debts also may decrease during periods of rising
interest rates.
Changes in interest rates also affect FGC's liquidity position. FGC
currently prices deposits in response to market rates and it is
management's intention to continue this policy. If deposits are not
priced in response to market rates, a loss of deposits could occur
which would negatively affect FGC's liquidity position.
At December 31, 1997, FGC's cumulative one year interest
rate-sensitivity gap ratio was 182%. FGC's targeted ratio is 80% to
120% in this time horizon. This indicates that FGC's
interest-earning assets will reprice during this period at a rate
considerably faster than FGC's interest-bearing liabilities. FGC is
not within its targeted parameters. However, as FGC continues to
invest its excess liquidity, currently invested in Federal funds
sold, in loans and securities, the gap ratio will become more in
line with the targeted ratio, and net interest income should not be
significantly affected by changes in interest rates. A gap ratio in
FGC's current range is not unusual for a de novo bank. It is also
noted that over 75% of FGC's certificates of deposit greater than
$100,000 mature within the one year time horizon. It is
management's belief that as long as FGC pays the prevailing market
rate on these type deposits, FGC's liquidity, while not assured,
will not be negatively affected.
The following table sets forth the distribution of the repricing of
FGC's interest-earning assets and interest-bearing liabilities as
of December 31, 1997, the interest rate-sensitivity gap, the
cumulative interest rate-sensitivity gap, the interest rate-
sensitivity gap ratio and the cumulative interest rate-sensitivity
gap ratio. The table also sets forth the time periods in which
earning assets and liabilities will mature or may reprice in
accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various
categories of assets and liabilities is subject to competitive
pressures and the needs of FGC's customers. In addition, various
assets and liabilities indicated as repricing within the same
period may in fact, reprice at different times within such period
and at different rates.
<PAGE>
<TABLE>
<CAPTION>
After After
Three One
Months Year but
Within but Within After
Three Within Five Five
Months One Year Years Years Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $4,320 $ -- $ -- $ -- $ 4,320
Securities 31 -- 1,998 -- 2,029
Loans 2,519 681 2,466 451 6,117
6,870 681 4,464 451 12,466
Interest-bearing
liabilities:
Interest-bearing
demand deposits 3,150 -- -- -- 3,150
Savings 304 -- -- -- 304
Certificates, less
than $100,000 -- 396 1,405 -- 1,801
Certificates,
$100,000 and over 100 200 100 -- 400
Other borrowings 2 5 22 -- 29
3,556 601 1,527 -- 5,684
Interest rate
sensitivity gap $3,314 $ 80 $2,937 $ 451 $ 6,782
Cumulative interest
rate sensitivity
gap $3,314 $ 3,394 $6,331 $ 6,782
Interest rate
sensitivity gap
ratio 1.93 1.13 2.92 --
Cumulative interest
rate sensitivity
gap ratio 1.93 1.82 2.11 2.19
</TABLE>
<PAGE>
Capability of FGC's Data Processing Software to Accommodate the
Year 2000
Like many financial institutions, FGC and its subsidiary rely upon
computers for the daily conduct of their business and for data
processing generally. There is concern among industry experts that
commencing on January 1, 2000, computers will be unable to "read"
the new year and that there may be widespread computer
malfunctions. Management of FGC has assessed the electronic
systems, programs, applications, and other electronic components
used in the operations of FGC and believes that FGC's hardware and
software has been programmed to be able to accurately recognize the
year 2000, and that significant additional costs will not be
incurred in connection with the year 2000 issue, although there can
be no assurances in this regard. A Year 2000 Committee of the
Board of Directors has been appointed to formulate a policy and
plan for dealing with the year 2000 issue. This Committee will
direct and monitor the plan regarding the year 2000 issue.
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The tables and schedules on the following pages set forth certain
significant financial information and statistical data with respect
to: the distribution of assets, liabilities and stockholders'
equity of FGC; the interest rates experienced by FGC; the
investment portfolio of FGC; the loan portfolio of FGC, including
types of loans, maturities, and sensitivities of loans to changes
in interest rates and information on nonperforming loans; summary
of the loan loss experience and reserves for loan losses of FGC;
types of deposits of FGC and the return on equity and assets for
FGC.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES, AND
STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
Average Balances
The condensed average balance sheet for the period indicated is
presented below. (1)
<TABLE>
<CAPTION>
From September 8, 1997,
Date of Commencement of Operations,
to December 31, 1997
(Dollars in Thousands)
ASSETS
<S> <C>
Cash and due from banks $ 273
Taxable securities 150
Federal funds sold 1,706
Loans (2) 1,060
Reserve for loan losses (6)
Other assets 624
$ 3,807
Total interest-earning assets $ 2,916
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 420
Interest-bearing demand 624
Savings 62
Time 408
Total deposits $ 1,514
Other borrowings 5
Other liabilities 7
Total liabilities 1,526
Stockholders' equity 2,281
$ 3,807
Total interest-bearing
liabilities $ 1,099
</TABLE>
(1) Average balances were determined using the daily average
balances during the period from September 8, 1997, date of
commencement of operations, to December 31, 1997, for each
category.
(2) There were no nonaccrual loans included in average loans.
<PAGE>
Interest Income and Interest Expense
The following tables set forth the amount of FGC's interest income
and interest expense for each category of interest-earning assets
and interest-bearing liabilities and the average interest rate for
total interest-earning assets and total interest-bearing
liabilities, net interest spread and net yield on average
interest-earning assets. These rates do not include the time period
prior to the commencement of its banking operations.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Average
Interest Rate
(Dollars in Thousands)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans (1) $ 105 9.89%
Interest on taxable securities 9 5.82
Interest on Federal funds sold 98 5.74
Interest earned during the period
prior to commencement of
banking operations 157 -
Total interest income $ 369 7.25
INTEREST EXPENSE:
Interest on interest-bearing
demand deposits $ 20 3.22
Interest on savings deposits 2 2.97
Interest on time deposits 24 5.91
Interest on other borrowings(2) - 4.80
Interest incurred during the
period prior to commencement
of banking operations 7 -
Total interest expense 53 4.21
NET INTEREST INCOME $ 316
Net interest spread 3.04%
Net yield on average interest
-earning assets 5.66%
</TABLE>
(1) Interest and fees on loans includes $7,000 of loan fee income
for the year ended December 31, 1997. There was no interest
income recognized on nonaccrual loans during 1997.
(2) Interest on other borrowings was less than $300.
Rate and Volume Analysis
Because FGC commenced its banking operations in 1997, the change in net
interest income from banking operations is all due to volume. Therefore,
a rate and volume analysis table is not presented.
INVESTMENT PORTFOLIO
Types of Investments
The carrying amounts of securities at the dates indicated, which are all
classified as available-for-sale, are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
(Dollars in Thousands)
<S> <C>
U.S. Government agencies $ 1,998
Equity securities 31
$ 2,029
</TABLE>
Maturities
The amounts of securities in each category as of December 31, 1997 are shown
in the following table according to contractual maturity classifications
(1) one year or less, (2) after one year through five years, (3) after five
years through ten years and (4) after ten years. Equity securities are not
included in the table because they have no contractual maturity.
<TABLE>
<CAPTION>
After one year After five years
One year or less through five years through ten years
Amount Yield(1) Amount Yield(1) Amount Yield(1)
<S> <C> <C> <C> <C> <C> <C>
U.S.
Government
agencies $ -- - $ 1,998 6.24 $ -- -
</TABLE>
<TABLE>
<CAPTION>
After ten years Total
Amount Yield(1) Amount Yield(1)
<S> <C> <C> <C> <C>
U.S.
Government
agencies $ -- - $ 1,998 6.24
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion
or subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity range
was computed using the carrying value of each security in that range.
<PAGE>
LOAN PORTFOLIO
Types of Loans
The amount of loans outstanding at the indicated dates are shown in
the following table according to the type of loan.
<TABLE>
<CAPTION>
December 31, 1997
(Dollars in Thousands)
<S> <C>
Commercial $ 2,432
Real estate-construction 57
Real estate-mortgage 1,346
Consumer installment loans and other 2,282
6,117
Less allowance for loan losses (72)
Net loans $ 6,045
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
Total loans as of December 31, 1997 are shown in the following
table according to contractual maturity classifications (1) one
year or less, (2) after one year through five years, and (3) after
five years.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Commercial
One year or less $ 365
After one year through five years 1,768
After five years 299
2,432
Construction
One year or less 57
After one year through five years -
After five years -
57
Other
One year or less 940
After one year through five years 2,135
After five years 553
3,628
$ 6,117
</TABLE>
The following table summarizes loans at December 31, 1997 with the
due dates after one year which have predetermined and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Predetermined interest rates $ 3,807
Floating or adjustable interest rates 948
$ 4,755
</TABLE>
Risk Elements
Information with respect to nonaccrual, past due, and restructured
loans at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
December 31, 1997
(Dollars in Thousands)
<S> <C>
Nonaccrual loans $ 0
Loans contractually past due
ninety days or more
as to interest or principal
payments and still accruing 0
Restructured loans 0
Loans, now current about which
there are serious doubts
as to the ability of the borrower
to comply with loan repayment terms 0
Interest income that would have been
recorded on nonaccrual and
restructured loans under original terms 0
Interest income that was recorded on
nonaccrual and restructured loans 0
</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.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances for the year
determined using the daily average balances during the period of
banking operations; changes in the allowance for loan losses
arising from loans charged off and recoveries on loans previously
charged off; additions to the allowance which have been charged to
operating expense; and the ratio of net charge-offs during the
period to average loans.
<TABLE>
<CAPTION>
1997
(Dollars in Thousands)
<S> <C>
Average amount of loans outstanding $ 1,060
Balance of allowance for loan losses
at beginning of period $ -
Loans charged off -
Loans recovered -
Net charge-offs -
Additions to allowance charged to
operating expense during period 72
Balance of allowance for loan losses
at end of period $ 72
Ratio of net loans charged off during
the period to average loans
outstanding -%
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that is
deemed appropriate by management to adequately cover all known and
inherent risks in the loan portfolio. Management's evaluation of
the loan portfolio includes a periodic review of loan loss
experience, current economic conditions which may affect the
borrower's ability to pay and the underlying collateral value of
the loans.
<PAGE>
As of December 31, 1997, management had made no allocations of its
allowance for loan losses to specific categories of loans. Based on
management's best estimate, the allocation of the allowance for
loan losses to types of loans, as of the indicated dates, is as
follows:
<TABLE>
<CAPTION>
December 31, 1997
Percent of loans in
each category
Amount to total loans
(Dollars in Thousands)
<S> <C> <C>
Commercial $ 36 40%
Real estate - construction 7 1
Real estate - mortgage 14 22
Consumer installment
loans and other 15 37
$ 72 100%
</TABLE>
<PAGE>
DEPOSITS
Average amount of deposits and average rates paid thereon,
classified as to noninterest-bearing demand deposits, interest-
bearing demand deposits, savings deposits, and time deposits, for
the period of banking operations is presented below.(1)
<TABLE>
<CAPTION>
1997
Amount Percent
(Dollars in Thousands)
<S> <C> <C>
Noninterest-bearing demand deposits $ 420 --%
Interest-bearing demand deposits 624 3.22
Savings deposits 62 2.97
Time deposits 408 5.91
Total deposits $1,514
</TABLE>
(1) Average balances were determined using the daily average
balances during the year for the period from September 8,
1997, date of commencement of operations, to December 31,
1997.
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1997 are shown below by
category, which is based on time remaining until maturity of (1)
three months or less, (2) over three through six months, (3) over
six through twelve months, and (4) over twelve months.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Three months or less $ 100
Over three months through six months -
Over six through twelve months 200
Over twelve months 100
Total $ 400
</TABLE>
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following rate of return information for the year indicated is
presented below.
<TABLE>
<CAPTION>
1997
<S> <C>
Return on assets (1) (2.80)%
Return on equity (2) (4.67)
Dividend payout ratio (3) -
Equity to assets ratio (4) 59.92
</TABLE>
(1) Net loss divided by average total assets.
(2) Net loss divided by average equity.
(3) Dividends declared per share of common stock divided by net
income per share.
(4) Average common equity divided by average total assets.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements, notes thereto and
independent auditors' report thereon are attached hereto as Exhibit
99.1 and incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no disagreements with accountants on accounting and
financial disclosure. The Company changed accountants during the
1997 fiscal year, as previously reported on a Form 8-K filed by the
Company at the time of the change.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table sets forth the name of each director and
Executive Officer of the Company, his or her age, and a brief
description of their principal occupation and business experience
for the preceding five years. Except as otherwise indicated, each
director has been or was engaged in his or her present or last
physical occupation, in the same or similar position for more than
five years. Listed below are the directors and executive officers
of the Company. The directors of the Company also serve as
directors of the Bank. Each has served as a director of the
Company since the formation of the Company on August 8, 1996, and
their initial terms of office will end on April 23, 1998 (the date
of the first annual meeting of shareholders of the Company).
Beginning with the first annual meeting of shareholders of the
Company, directors will serve for one year terms. The executive
officers serve at the pleasure of the Board of Directors of the
Company.
<PAGE>
Name Age Principal Occupation
John L. Coleman 52 Mr. Coleman is the President, Chief
Executive Officer and a Director of
the Company and will hold the same
positions with the Bank. From 1994
until July, 1996, Mr. Coleman acted
as Regional Retail Manager Northwest
Georgia-Bartow County and Senior
Banking Executive for NationsBank
Bartow County in Cartersville,
Georgia. From 1986 to 1994, Mr.
Coleman was President and Senior
Lender of C&S Bank and NationsBank,
Bartow County Division, in
Cartersville, and acted in a similar
position at C&S Bank, Jackson
Division, in Jackson, Georgia, from
1982 to 1986. From 1967 to 1982,
Mr. Coleman worked in various
management positions for C&S Bank in
LaGrange, Georgia, and Atlanta,
Georgia.
D. Richard Ballard 51 Since 1967, Mr. Ballard has been
affiliated with Haisten Funeral
Home, Inc. in Jackson, Georgia, and
is currently the President/CEO. Mr.
Ballard is also the President/CEO of
Haisten Funeral Home of Henry
County, Inc.
Charles W. Carter 62 Since 1968, Mr. Carter has been
affiliated with Carter Builders
Supply in Jackson, and is currently
the President. Mr. Carter was an
advisory director of C & S Bank and
NationsBank in Jackson from 1978
until 1994.
Alfred D. Fears, Jr. 41 Mr. Fears' primary occupation is as
an attorney, and he has been
practicing law in Jackson, Georgia
since 1981. He also owns and
operates an apartment rental
business in Jackson.
William B. Jones 53 From 1966 to 1976, Mr. Jones was a
teacher, coach and school
superintendent in Jackson, Georgia.
Since 1977, Mr. Jones has practiced
law in Jackson, Georgia, and has
been active in the food and
petroleum distribution business.
Mr. Jones is currently President of
Jones Petroleum Co., Meriwether
Properties, Inc. and Jones &
Hudgins, and Vice President of
Jones & Owenby, Inc. He also served
on the Advisory Board of NationsBank
in Jackson.
Harry Lewis 45 Mr. Lewis owns and operates an
automobile dealership in Jackson,
Georgia, which he has operated since
1983. He is also affiliated with
Playtime Learning Center, Inc., and
is currently President. Mr. Lewis
is also the Secretary-Treasurer,
Chief Financial Officer and Chief
Accounting Officer of the Company.
Joey McClelland 51 Since 1997, Mr. McClelland has
served as a director of
International Consulting. Prior to
1997, Mr. McClelland has acted as
Executive Director of Marketing and
Logistics Consulting, providing
design and implementation consulting
services to international business
operations. Prior to 1989, Mr.
McClelland held numerous management
level positions in related marketing
fields.
Dr. Alexander Pollack 44 Since 1986, Dr. Pollack has been
self-employed in Jackson, Georgia,
as a general surgeon. In addition,
Dr. Pollack is the medical director
at the Georgia Diagnostic and
Classification Prison.
Robert Ryan 60 Since 1983, Mr. Ryan has been
President of Atlanta South 75 Inc.
From 1960 to 1983, Mr. Ryan held
various management positions with
Unocal Corporation, Los Angeles,
California. Mr. Ryan served on the
Board of Directors of Speedway
Corporation and the Association of
Christian Truckers.
<PAGE>
James H. Warren 59 Since 1971, Mr. Warren has been
self-employed as a general
contractor and developer. He is
President of Sure Power, Inc.,
Secretary-Treasurer of Brushy
Mountain Hydro-Electric Power, Inc.
and Alternator & Starter House,
Inc., and a partner in Fenwyck
Development Co.
George L. Weaver 49 Mr. Weaver has been President of
Central Georgia EMC since 1984.
From 1971 to 1984, Mr. Weaver held
various management positions with
Central Georgia EMC. Mr. Weaver
served on the Advisory Board of
NationsBank of Georgia, N.A. in
Jackson, and as Vice Chairman of the
Board of Directors of Federated
Rural Electric Insurance Corp. He
presently serves as a director of
Southeastern Data Corporation (past
Chairman of the Board) and Georgia
Rural Electric Service Corporation
(past Chairman of the Board). Mr.
Weaver also serves as President of
the Georgia Rural Electric Managers
Association and as a member of the
Rural Electric Management
Development Council.
All of the Company's directors have served in such capacity since
the inception of the Company in 1996. There are no arrangements or
understandings between the Company and any person pursuant to which
any of the above persons have been or will be elected a director.
Charles W. Carter and Harry Lewis are first cousins. There are no
other family relations between any of the directors or executive
officers. No director is a director of another bank or bank
holding company. Mr. Fears provided legal services to the Company
during 1996, and it is anticipated he will provide legal services
to the Company during 1997.
The Company's Bylaws provide that the Board of Directors shall
consist of not less than 8 or more than 20 Directors, and that the
number of Directors shall be fixed or changed from time to time,
within the maximum and minimum, by the shareholders by the
affirmative vote of two-thirds of the issued and outstanding shares
of the Company entitled to vote in an election of Directors, or by
the Board of Directors by the affirmative vote of two-thirds of all
Directors then in office. Directors serve for a one year term, and
the present term of each Director will expire at the annual
shareholders meeting of the Company to be held in April, 1999.
Executive Officers of the Company and the Bank will be elected
annually by the Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The Company does not separately compensate any of its directors or
executive officers, except for the chief executive officer. After
the Bank commenced operations, the Company no longer separately
compensated the chief executive officer. The following sets forth
certain information concerning the compensation of the Company's
chief executive officer during fiscal year 1997. No other
executive officer received compensation.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Name and Other Annual Securities All Other
Principal Fiscal Compensation Underlying Compensation
Position Year Salary ($) Bonus ($) ($) Options (#) ($)
<S> <C> <C> <C> <C> <C> <C>
John L.
Coleman 1997 135,000 0 --(1) 0 816(2)
President
and Chief
Executive
Officer
</TABLE>
(1) Compensation does not include any prerequisites and other personal
benefits which may be derived from business-related expenditures that
in the aggregate do not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for such person.
(2) The Company provided Mr. Coleman with a $200,000 term life insurance
policy; the premium paid by the Company in 1997 was $816. In addition,
pursuant to Mr. Coleman's employment agreement, Mr. Coleman will be
entitled to severance pay equal to one month's pay for each year
employed by the Bank in the event of termination of his employment.
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
John L. 0 - 15,000/0 0/-
Coleman
President
and Chief
Executive
Officer
</TABLE>
Employment Agreement
John L. Coleman has an employment agreement with the Company
and the Bank under which he will serve as President and Chief
Executive Officer of the Company and of the Bank. The employment
agreement provides for a five-year term and is annually renewable
thereafter. He will be paid an initial annual salary of $135,000.
Once the Bank begins operations he will also be entitled to certain
performance bonuses. To qualify for the annual bonus, the Bank
must first have a CAMEL 2 rating for the applicable year. If the
Bank has a CAMEL 2 rating for the applicable year, then Mr. Coleman
will be paid a cash bonus for the year which is a certain
percentage of his salary for the year depending on the pre-tax
return on average assets ("ROA") performance of the Bank for the
year. The CAMEL rating is a rating which will be assigned to the
Bank each year by the Department of Banking based on its
examination of different performance factors, with "1" being the
best CAMEL rating and "5" being the worst. The bonus formula is as
follows:
<PAGE>
<TABLE>
<CAPTION>
ROA Percentage of Salary
<S> <C>
Less than .9% No bonus
.9% or greater; less than 1.0% 5%
1.0% or greater; less than 1.10% 10%
1.10% or greater; less than 1.20% 15%
1.20% or greater; less than 1.30% 20%
1.30% or greater; less than 1.40% 25%
1.40% or greater; less than 1.60% 30%
1.60% or greater; less than 1.75% 35%
1.75% or greater; less than 2.00% 40%
Over 2.00% 50%
</TABLE>
Under Mr. Coleman's employment agreement, he also has the
option to purchase 15,000 shares of Common Stock of the Company at
the price of the lesser of $10.00 or book value of the stock during
the first three years of operation of the Bank and at the price of
book value of the stock during the remainder of the term of the
employment agreement, not to exceed a ten year option term. He
also will receive options to purchase up to an additional 5,000
shares at the price of book value of the stock at the date of
exercise, with the number of options which he may receive in any
year being determined based on a formula tied to performance of the
Bank. The number of options which Mr. Coleman will be entitled to
receive in any year is determined by multiplying (i) 1,000 shares
by (ii) a fraction whose numerator is the amount of the bonus
earned by Mr. Coleman determined as set forth above and whose
denominator is the maximum bonus which Mr. Coleman could have
received for the year. The term of these options is the same as
the term of the initial option to purchase 15,000 shares.
Mr. Coleman will also receive health, life and disability
insurance under the same plan and terms as other employees of the
Bank. He will receive a mid-size automobile to be used primarily
for business purposes, and the Bank will pay operating, maintenance
and insurance expenses for the automobile. The Bank will pay
monthly membership dues for Mr. Coleman up to $75.00 per month at
a local country club and the initiation fee of a local country club
up to $3,000.
Mr. Coleman's employment agreement provides for severance pay
for Mr. Coleman in the event of Mr. Coleman's termination (except
for cause) after a change of control of the Bank. Under the
employment agreement, the term "control" means the acquisition of
25 percent or more of the voting securities of the Bank by any
person, or persons acting as a group within the meaning of Section
13(d) of the Securities Exchange Act of 1934 or the acquisition of
between 10 percent and 25 percent of the voting securities of the
Bank if the Board of Directors of the Bank or the Comptroller of
the Currency, the Federal Deposit Insurance Corporation or the
Federal Reserve Bank has made a determination that such acquisition
constitutes or will constitute control of the Bank.
The employment agreement provides that if Mr. Coleman is
terminated after 365 days as a result of a change of control, Mr.
Coleman shall be entitled to receive his salary through the last
day of the calendar month of the termination, or payment in lieu of
the notice period. In addition, Mr. Coleman would receive an
amount equal to three times his then existing annual base salary.
The employment agreement further provides that the payment shall
also be made in connection with, or within 120 days after, a change
of control of the Bank if such change of control was opposed by Mr.
Coleman or the Bank's Board of Directors. This payment would be in
addition to any amount otherwise owed to Mr. Coleman pursuant to
his employment agreement.
Director Compensation
The Company and the Bank presently do not compensate any of
their directors for their services as directors. The directors of
the Company and the Bank presently do not receive a fee for
attending Board meetings.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding
the shares of voting common stock of the Company, which is the only
class of stock outstanding, beneficially owned as of March 15,
1998,(i) by each person who beneficially owns more than 5% of
shares of common stock of the Company, (ii) by each of the
Company's directors and named executive officers and (iii) by all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owner Ownership Ownership
<S> <C> <C>
D. Richard Ballard 20,500(1) 2.70%
Director
P. O. Box 1183
Jackson, GA 30233
Charles W. Carter 26,700(2) 3.49
Director
853 W. 3rd Street
Jackson, GA 30120
John L. Coleman 40,000(3) 5.17(4)
Director, President &
Chief Executive Officer
866-E Halls Bridge Road
Jackson, GA 30120
Alfred D. Fears 20,000(5) 2.64
Director
327 E. 3rd Street
Jackson, GA 30233
William B. Jones 32,532(6) 4.29
Director
642 Stark Road
Jackson, GA 30233
Harry Lewis 20,500 2.70
Director,
Secretary-
Treasurer
549 Wesley Drive
Jackson, GA 30233
Joey McClelland 20,500(7) 2.70
Director
P. O. Box 660
Jackson, GA 30233
Dr. Alexander Pollack 29,600(8) 3.90
Director
140 Strickland Pasture Road
Jackson, GA 30233
Robert Ryan 15,000(9) 1.98
Director
P. O. Box 967
Jackson, GA 30233
James H. Warren 20,152(10) 2.66
Director
866-A Halls Bridge Road
Jackson, GA 30233
George L. Weaver 21,000(11) 2.77
Director
2705 High Falls Road
Jackson, GA 30233
All current directors 281,684(12) 36.42(4)
and executive officers as
a group (12 persons)
</TABLE>
________________________
(1) Includes 500 shares owned by Haisten Funeral Homes, Inc., over
which shares Mr. Ballard has investment and voting power; does
not include 300 shares owned by his adult son over which
shares he asserts no voting or investment power.
(3) Includes 6,700 shares owned by C. Carter, Inc., over which
shares Mr. Carter has investment and voting power; does not
include 4,300 shares owned by his wife, 1,500 shares owned by
his adult son, and 100 shares owned by his mother, over all of
which shares he asserts no voting or investment power.
(3) Includes 15,000 shares that are subject to options granted to
Mr. Coleman under the terms of his employment agreement.
Those options will be immediately exercisable at an exercise
price of the lesser of $10.00 per share or book value per
share and expire ten years from the date of grant. Also
includes 25,000 shares held in Mr. Coleman's IRA.
(4) In calculating percentage ownership, includes 15,000 shares
subject to options granted Mr. Coleman in calculating total
outstanding stock of the Company and number of shares
beneficially owned by Mr. Coleman.
(5) Includes 1,059 shares owned by Mr. Fears as custodian for his
minor children and 5,941 shares owned by Mr. Fear's IRA, over
all of which shares Mr. Fears has investment and voting power.
(6) Includes 17,532 shares owned by Jones Petroleum Co., Inc.,
over which shares Mr. Jones has investment and voting power;
does not include 500 shares owned by his adult son and 1,000
shares owned by his wife, over all of which shares he asserts
no voting or investment power.
(7) Does not include 100 shares owned by Mr. McClelland's adult
son, 100 shares owned by Mr. McClelland's adult daughter,
1,900 shares owned by Mr. McClelland's mother, over all of
which shares he asserts no voting or investment power.
(8) Includes 500 shares owned by Dr. Pollack as custodian for his
minor child, over which shares he has investment and voting
power; does not include 500 shares owned by his wife, over
which he asserts no voting or investment power.
(9) Owned by Mr. Ryan and his wife jointly; does not include 100
shares owned by Mr. Ryan's adult son, over which shares Mr.
Ryan asserts no voting or investment power.
(10) Includes 2,926 shares owned by Mr. Warren's IRA, 9,300 shares
owned jointly with his wife, and 2,926 shares owned by Mr.
Warren's wife's IRA, over all of which shares he shares voting
and investment power; does not include 100 shares owned by his
adult daughter and 200 shares owned by his father, over all of
which shares Mr. Warren asserts no voting or investment power.
(11) Includes 5,177 shares owned by Mr. Weaver's IRA, over which
shares he has voting and investment power.
(12) Includes 15,200 shares beneficially owned by an officer not
named or listed above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain executive officers and directors of the Company and the
Bank, and principal shareholders of the Company and affiliates of
such persons have, from time to time, engaged in banking
transactions with the Bank. All loans or other extensions of
credit were made by the Bank to such individuals in the ordinary
course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated parties and are believed
by management to not involve more than the normal risk of
collectibility or present other unfavorable features. As of
December 31, 1997, there were loans to executive officers and
directors of the Company and the Bank, principal shareholders of
the Company, and affiliates of such persons, totaling $2,624,786 in
aggregate principal amount. As of December 31, 1997, said
aggregate amount constituted 42.9% of the aggregate principal
amount of the loan portfolio of the Bank.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements/
The consolidated financial statements, notes thereto and
independent auditors' report thereon, are filed as Exhibit
99.1 hereto, and made a part hereof.
2. Exhibits
Exhibit Numbers
Sequential
Page Number
3.1* Articles of Incorporation --
3.2* Bylaws --
10.1*+ Employment Contract between John L.
Coleman and the Company --
21.1 Subsidiaries of the Company. The
sole subsidiary of the Company is
First Georgia Community Bank,
Jackson, Georgia, which is
wholly-owned by the Company. --
27.1 Financial Data Schedule 47
99.1 Consolidated Financial Statements
of the Company 49
________________________
*Items 3.1 through 10.1, as listed above, were previously
filed by the Company as Exhibits (with the same
respective Exhibit Numbers as indicated herein) to the
Company's Registration Statement (Registration No. 333-13583)
and such documents are incorporated herein by
reference.
+Item 10.1 is an employment-compensatory agreement.
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the fourth
quarter of the year ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 30, 1998.
FIRST GEORGIA COMMUNITY CORP.
By: s/John L. Coleman
John L. Coleman
President and C.E.O.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on
March 30, 1998.
Signature Title
s/John L. Coleman Director; President and C.E.O.
John L. Coleman
s/D. Richard Ballard Director
D. Richard Ballard
s/Charles W. Carter Director
Charles W. Carter
s/Alfred D. Fears Director
Alfred D. Fears
s/William B. Jones Director
William B. Jones
s/Harry Lewis Director; Secretary-Treasurer and
Harry Lewis C.F.O./C.A.O.
s/Joey McClelland Director
Joey McClelland
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
_______________________ Director
Dr. Alexander Pollack
________________________ Director
Robert Ryan
________________________ Director
James H. Warren
s/George L. Weaver Director
George L. Weaver
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Exchange Act by Non-reporting
Issuers:
No annual report to security holders covering the registrant's 1997
fiscal year or proxy material with respect to an annual meeting of
security holders for 1997 has been or will be sent to security
holders of the registrant, since the registrant is not presently
required to provide security holders an annual report or proxy
material. The registrant does intend in April, 1998 to furnish its
security holders summary financial information for its fiscal year
ended December 31, 1997 and the notice of its annual meeting of
shareholders to be held on April 23, 1998.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE FISCAL YEAR ENDED 12/31/97 FILED ON
FORM 10-KSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,568,017<F1>
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,320,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,029,491
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,117,022
<ALLOWANCE> 72,000
<TOTAL-ASSETS> 16,333,710
<DEPOSITS> 9,165,090
<SHORT-TERM> 0
<LIABILITIES-OTHER> 25,562
<LONG-TERM> 29,397
0
0
<COMMON> 3,792,290
<OTHER-SE> 3,321,371
<TOTAL-LIABILITIES-AND-EQUITY> 16,333,710
<INTEREST-LOAN> 104,884
<INTEREST-INVEST> 8,727
<INTEREST-OTHER> 255,057
<INTEREST-TOTAL> 368,668
<INTEREST-DEPOSIT> 46,030
<INTEREST-EXPENSE> 53,023
<INTEREST-INCOME-NET> 315,645
<LOAN-LOSSES> 72,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 627,954
<INCOME-PRETAX> (338,198)
<INCOME-PRE-EXTRAORDINARY> (338,198)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (338,198)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> (.92)
<YIELD-ACTUAL> 5.66
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 72,000
<ALLOWANCE-DOMESTIC> 72,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>On September 8, 1997, the Company's sole subsidiary, First Georgia Community
Bank, commenced operations as a commercial bank.
</FN>
</TABLE>
EXHIBIT 99.1
_______________________________________________________
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
_______________________________________________________
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
_________________________________________________________________
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT ................................1
FINANCIAL STATEMENTS
Consolidated balance sheets ...............................2
Consolidated statements of operations .....................3
Consolidated statements of stockholders'
equity (deficit) ..........................................4
Consolidated statements of cash flows ...............5 and 6
Notes to consolidated financial statements .............7-23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
__________________________________________________________________
To the Board of Directors
First Georgia Community Corp. and Subsidiary
Jackson, Georgia
We have audited the accompanying consolidated balance
sheets of First Georgia Community Corp. and subsidiary as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and
cash flows for the year ended December 31, 1997 and for the period
from March 15, 1996, date of inception, to December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of First Georgia Community Corp. and subsidiary
as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the year ended December 31,
1997 and for the period from March 15, 1996, date of inception, to
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
January 22, 1998
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
__________________________________________________________________
<TABLE>
<CAPTION>
Assets 1997 1996
<S> <C> <C>
Cash and due from banks $ 1,568,017 $ 466,097
Federal funds sold 4,320,000 -
Securities available-for-sale 2,029,491 -
Loans 6,117,022 -
Less allowance for loan losses (72,000) -
Loans, net 6,045,022 -
Premises and equipment 2,220,331 166,121
Other assets 150,849 116,206
Total assets $ 16,333,710 $ 748,424
Liabilities and Stockholders' Equity (Deficit)
Deposits
Noninterest-bearing demand $ 3,510,170 $ -
Interest-bearing demand 3,150,132 -
Savings 303,658 -
Time, $100,000 and over 400,000 -
Other time 1,801,130 -
Total deposits 9,165,090 -
Stock subscription deposits - 464,600
Other borrowings 29,397 365,800
Other liabilities 25,562 12,802
Total liabilities 9,220,049 843,202
Commitments and contingent liabilities
Stockholders' equity (deficit)
Common stock, par value $5;
10,000,000 shares authorized;
758,458 and 1 issued and
outstanding, respectively 3,792,290 5
Capital surplus 3,754,816 5
Accumulated deficit (432,986) (94,788)
Unrealized losses on securities
available-for-sale (459) -
Total stockholders'
equity (deficit) 7,113,661 (94,778)
Total liabilities and
stockholders'
equity (deficit) $ 16,333,710 $ 748,424
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD
FROM MARCH 15, 1996, DATE OF INCEPTION,
TO DECEMBER 31, 1996
__________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Interest income
Loans $ 104,884 $ -
Taxable securities 8,727 -
Federal funds sold 255,057 461
Total interest income 368,668 461
Interest expense
Deposits 46,030 -
Other borrowings 6,993 4,522
Total interest expense 53,023 4,522
Net interest income (expense) 315,645 (4,061)
Provision for loan losses 72,000 -
Net interest income (expense)
after provision for loan losses 243,645 (4,061)
Other income
Service charges on deposit accounts 18,980 -
Other operating income 27,131 -
Total other income 46,111 -
Other expenses
Salaries and employee benefits 350,175 81,359
Equipment and occupancy expenses 70,618 -
Other operating expenses 207,161 9,368
Total other expenses 627,954 90,727
Loss before income taxes (338,198) (94,788)
Income tax expense - -
Net loss $(338,198) $(94,788)
Losses per common share $ (0.92)
Weighted average shares outstanding 367,801
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD
FROM MARCH 15, 1996, DATE OF INCEPTION,
TO DECEMBER 31, 1996
__________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (338,198) $(94,788)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 29,191 -
Amortization of intangibles 6,230 -
Provision for loan losses 72,000 -
Increase in interest receivable (50,686) -
Increase in interest payable 16,905 -
Other operating activities (16,279) (103,404)
Net cash used in operating
activities (280,837) (198,192)
INVESTING ACTIVITIES
Purchases of securities available-
for-sale (2,029,950) -
Net increase in Federal funds sold (4,320,000) -
Net increase in loans (6,117,022) -
Purchase of premises and equipment (2,052,844) (166,121)
Net cash used in investing
activities (14,519,816) (166,121)
FINANCING ACTIVITIES
Net increase in deposits 9,165,090 -
Net proceeds (repayment) of other
borrowings (366,960) 365,800
Net proceeds from sale of common
stock 7,104,443 464,610
Net cash provided by financing
activities 15,902,573 830,410
Net increase in cash and due from
banks 1,101,920 466,097
Cash and due from banks at beginning
of year 466,097 -
Cash and due from banks at end of year $ 1,568,017 $ 466,097
</TABLE>
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1997 AND PERIOD
FROM MARCH 15, 1996, DATE OF INCEPTION, TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Unrealized
Losses on
Securities Total
Common Stock Capital Accumulated Available- Stockholders'
Shares Par Value Surplus Deficit for-Sale Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance,
March 15,
1996
(date of
inception) - $ - $ - $ - $ - $ -
Net loss - - - (94,788) - (94,788)
Issuance
of common
stock 1 5 5 - - 10
Balance,
December
31, 1996 1 5 5 (94,788) - (94,788)
Net loss - - - (338,198) - (338,198)
Redemption
of common
common
stock (1) (5) (5) - - (10)
Issuance
of common
stock 758,458 3,792,290 3,792,290 - - 7,584,580
Stock
issue
costs - - (37,474) - - (37,474)
Net
change
in
unrealized
losses
on
securities
available-
for-sale - - - - (459) (459)
Balance
December
31, 1997 $758,458 $3,792,290 $3,754,816 $(432,986) $ (459) $ 7,113,661
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD
FROM MARCH 15, 1996, DATE OF INCEPTION,
TO DECEMBER 31, 1996
___________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 36,118 $ 3,084
Income taxes $ 110 $ -
NONCASH TRANSACTIONS
Unrealized losses on securities
available-for-sale $ 459 $ -
Finance of premises and equipment
purchases $ 30,557 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
First Georgia Community Corp. (the Company) is a bank holding
company whose business is conducted by its wholly-owned
subsidiary, First Georgia Community Bank (the Bank). The Bank
is a commercial bank located in Jackson, Butts County,
Georgia. The Bank provides a full range of banking services
in its primary market area of Butts County and the surrounding
counties. The Company commenced its banking operations on
September 8, 1997.
Basis of Presentation
The consolidated financial statements for 1997 include the
accounts of the Company and its subsidiary. Significant
intercompany transactions and accounts are eliminated in
consolidation. The financial statements for 1996 include
the accounts of the Company only.
The accounting and reporting policies of the Company conform
to generally accepted accounting principles and general
practices within the financial services industry. In
preparing the financial statements, management is required to
make estimates and assumptions that affect the reported
amounts and disclosures of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the
period. Actual results could differ from those estimates.
Cash and Due From Banks
Cash on hand, cash items in process of collection, and
amounts due from banks are included in cash and due from
banks.
The Company maintains amounts due from banks which, at times,
may exceed Federally insured limits. The Company has not
experienced any losses in such accounts.
<PAGE>
Securities
Securities are classified based on management's intention
on the date of purchase. Securities which management has the
intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost. All other
debt securities are classified as available-for-sale and
carried at fair value with net unrealized gains and losses
included in stockholders' equity. Equity securities without
a readily determinable fair value are carried at cost.
Interest and dividends on securities, including amortization
of premiums and accretion of discounts, are included in
interest income. Realized gains and losses from the sales of
securities are determined using the specific identification
method.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans
Loans are carried at their principal amounts outstanding less
unearned income and the allowance for loan losses. Interest
income on loans is credited to income based on the principal
amount outstanding.
Loan origination fees and certain direct costs of loans
are recognized at the time the loan is recorded. Because net
loan origination fees and costs are not material, the results
of operations are not materially different than the results
which would be obtained by accounting for loan fees and costs
in accordance with generally accepted accounting principles.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential
losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on an evaluation of the
portfolio, current economic conditions, volume, growth,
composition of the loan portfolio, and other risks inherent
in the portfolio. In addition, regulatory agencies, as an
integral part of their examination process, will
periodically review the Company's allowance for loan
losses, and may require the Company to record additions to
the allowance based on their judgment about information
available to them at the time of their examinations.
The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to
meet payments as they become due. When accrual of interest is
discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent
cash payments are received.
A loan is impaired when it is probable the Company will be
unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually
identified impaired loans are measured based on the present
value of payments expected to be received, using the
contractual loan rate as the discount rate. Alternatively,
measurement may be based on observable market prices or, for
loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan
exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses.
Changes to the valuation allowance are recorded as a component
of the provision for loan losses.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the
assets.
Income Taxes
Income tax expense consists of current and deferred taxes.
Current income tax provisions approximate taxes to be paid
or refunded for the applicable year. Deferred tax
assets and liabilities are recognized for the temporary
differences between the bases of assets and liabilities as
measured by tax laws and their bases as reported in the
financial statements. Deferred tax expense or benefit is
then recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the
tax benefit associated with certain temporary
differences, tax operating loss carryforwards and tax
credits will be realized. A valuation allowance is recorded
for those deferred tax items for which it is more likely than
not that realization will not occur in the near term.
The Company and the Bank file a consolidated income tax
return. Each entity provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated
group.
Losses Per Common Share
Losses per common share are computed by dividing net loss by
the weighted average number of shares of common stock
outstanding. Because only one share was outstanding during
1996, losses per common share for 1996 have not been
presented.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued,
and the Company has adopted, Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS No. 125 was amended by SFAS No. 127, which
defers the effective date of certain provisions of SFAS No.
125 until January 1, 1998. This statement provides accounting
and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are
secured borrowings. The adoption of this statement is not
expected to have a material effect on the Company's financial
statements.
The FASB has issued, and the Company has adopted, SFAS No.
128, "Earnings Per Share". SFAS No. 128 supersedes Accounting
Principles Board Opinion No. 15 "Earnings Per Share" and
specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with
publicly held common stock or potential issuable common stock.
SFAS No. 128 replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted
EPS. It also requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of
the numerator and denominator for the basic EPS computation
to the numerator and denominator of the diluted EPS
computation. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after
December 15, 1997. The adoption of this statement did not
have a material effect on the Company's financial statements.
The FASB has issued SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes
standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130
requires all items that are required to be recognized
under accounting standards as components of comprehensive
income to be reported in a financial statement that is
displayed in equal prominence with the other financial
statements. The term "comprehensive income" is used in the
SFAS to describe the total of all components of comprehensive
income including net income. "Other comprehensive income"
refers to revenues, expenses, gains and losses that are
included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other
comprehensive income" for the Company consists of items
previously recorded directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". SFAS No. 130 is effective for periods beginning
after December 15, 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________
NOTE 2.SECURITIES
The amortized cost and fair value of securities are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities
Available-for
Sale
December 31, 1997:
U.S. Government
and agency
securities $1,999,250 $ 625 $ (1,084) $1,998,791
Equity
securities 30,700 - - 30,700
$2,029,950 $ 625 $ (1,084) $2,029,491
</TABLE>
The amortized cost and fair value of securities as of
December 31, 1997 by contractual maturity are shown
below.
<TABLE>
<CAPTION>
Securities Available-for-Sale
Amortized Fair
Cost Value
<S> <C> <C>
Due from one year to five years $1,999,250 $1,998,791
Equity securities 30,700 30,700
$2,029,950 $2,029,491
</TABLE>
There were no securities pledged to secure public
deposits or for other purposes as of December 31, 1997.
There were no sales of securities in 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997
<S> <C>
Commercial $ 2,432,000
Real estate - construction 57,000
Real estate - mortgage 1,346,000
Consumer instalment and other 2,282,022
6,117,022
Allowance for loan losses (72,000)
Loans, net $ 6,045,022
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
1997
<S> <C>
Balance, beginning of year $ -
Provision for loan losses 72,000
Loans charged off -
Recoveries of loans previously
charged off -
Balance, end of year $ 72,000
</TABLE>
Management has identified no material amounts of impaired
loans as defined by SFAS No. 114, ("Accounting by
Creditors for Impairment of a Loan").
The Company has granted loans to certain directors,
executive officers, and their related entities. The
interest rates on these loans were substantially the
same as rates prevailing at the time of the transaction
and repayment terms are customary for the type of loan
involved. Changes in related party loans for the year
ended December 31, 1997 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year $ -
Advances 2,629,430
Repayments (20,785)
Balance, end of year $ 2,608,645
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 4.PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Land $ 405,265 $ -
Buildings 1,398,495 -
Equipment 445,762 -
Construction in progress - 166,121
$ 2,249,522 $166,121
Accumulated depreciation (29,191) -
$ 2,220,331 $166,121
</TABLE>
NOTE 5.OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Note payable, payable in
monthly installments of
$701 including interest
at 4.80%, collateralized
by automobile $ 29,397 $ -
Organizational line of credit
with financial institution,
repaid in 1997 - 310,800
Noninterest-bearing advances
from organizers, repaid in 1997 - 55,000
$ 29,397 $365,800
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________
NOTE 5. OTHER BORROWINGS (Continued)
Advances at December 31, 1997 have maturities in future
years as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 7,156
1999 7,507
2000 7,876
2001 6,858
$ 29,397
</TABLE>
<PAGE>
NOTE 6. STOCK OPTIONS
The Company has reserved 15,000 shares of common stock to be
granted to the President of the Company at a price of $10. The
options may be granted at such time the Company becomes
cumulatively profitable.
NOTE 7. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Current $(24,987) $(1,381)
Deferred (90,000) (30,847)
Change in valuation allowance 114,987 32,228
Income tax expense $ - $ -
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 7.INCOME TAXES (Continued)
The Company's income tax expense differs from the amounts
computed by applying the Federal income tax statutory
rates to income before income taxes. A reconciliation of
the differences is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Income taxes
at statutory
rate $(114,987) (34)% $(32,228) (34)%
Change in
valuation
allowanc 114,987 34 32,228 34
Income tax
expense $ - - % $ - - %
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 5,299 $ -
Preopening expenses 116,488 30,847
Net operating loss carryforward 26,368 1,381
Other 568 -
148,723 32,228
Valuation allowance (147,215) (32,228)
1,508 -
Deferred tax liabilities;
depreciation 1,508 -
Net deferred taxes $ - $ -
</TABLE>
At December 31, 1997, the Company has available net
operating loss carryforwards of $77,553 for Federal
income tax purposes. If unused, the carryforwards will
expire beginning in 2007.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered
into off-balance-sheet financial instruments which are
not reflected in the financial statements. These
financial instruments may include commitments to extend
credit and standby letters of credit. Such financial
instruments are included in the financial statements
when funds are disbursed or the instruments become
payable. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount
recognized in the balance sheet.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's
commitments is as follows:
December 31,
1997
Commitments to extend credit $ 866,000
Commitments to extend credit generally have fixed
expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent
future cash requirements. The credit risk involved in
issuing these financial instruments is essentially the
same as that involved in extending loans to customers.
The Company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit
evaluation of the customer. Collateral held varies but
may include real estate and improvements, marketable
securities, accounts receivable, inventory, equipment,
and personal property.
Standby letters of credit are conditional commitments
issued by the Company to guarantee the performance of a
customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Collateral held varies as specified above and is
required in instances which the Company deems necessary.
In the normal course of business, the Company is involved
in various legal proceedings. In the opinion of
management of the Company, any liability resulting from
such proceedings would not have a material effect on the
Company's financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________
NOTE 9. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial,
residential, and consumer loans to customers in Butts
County and surrounding counties. The ability of the
majority of the Company's customers to honor their
contractual loan obligations is dependent on the
economy in these areas. Seventy-seven percent the
Company's loan portfolio is concentrated in
commercial and consumer loans. The other significant
concentrations of credit by type of loan are set forth in
Note 3.
The Company, as a matter of policy, does not generally
extend credit to any single borrower or group of
related borrowers in excess of 25% of the lesser of
statutory capital or net assets as defined, or
approximately $1,386,000.
NOTE 10. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount
of dividends that may be declared without prior
regulatory approval. At December 31, 1997, no dividends
could be declared without regulatory approval.
The Company and the Bank are subject to various
regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory
- and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct
material effect on the financial statements. Under
capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and Bank must
meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and
certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and Bank's
capital amounts and classification are also subject to
qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and Bank to maintain
minimum amounts and ratios of total and Tier I capital
to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of December 31,
1997, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________
NOTE 10. REGULATORY MATTERS (Continued)
As of December 31, 1997, the most recent notification
from the FDIC categorized the Bank as well capitalized
under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in
the following table. There are no conditions or events
since that notification that management believes have
changed the Bank's category.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets):
Consolidated $ 7,121 72.44% $ 787 8% $ 983 10%
Bank $ 6,171 62.78% $ 787 8% $ 983 10%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $ 7,049 71.71% $ 394 4% $ 590 6%
Bank $ 6,099 62.04% $ 394 4% $ 590 6%
Tier 1 Capital (to
Average Assets):
Consolidated $ 7,049 58.68% $ 481 4% $ 601 5%
Bank $ 6,099 50.77% $ 481 4% $ 601 5%
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_________________________________________________________________
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
In cases where quoted market prices are not available, fair
values are based on estimates using discounted cash flow methods.
Those methods are significantly affected by the assumptions used,
including the discount rates and estimates of future cash flows.
In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many
cases, could not be realized in immediate settlement of the
instrument. The use of different methodologies may have a
material effect on the estimated fair value amounts. Also, the
fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and
1996. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
Cash, Due From Banks, and Federal Funds Sold:
The carrying amounts of cash, due from banks, and Federal
funds sold approximates their fair value.
Securities:
Fair values for securities are based on quoted market prices.
The carrying values of equity securities with no readily
determinable fair value approximate fair values.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on
carrying values. For other loans, the fair values are
estimated using discounted cash flow methods, using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow methods or
underlying collateral values.
<PAGE>
Deposits:
The carrying amounts of demand deposits, savings deposits,
and variable-rate certificates of deposit approximate their
fair values. Fair values for fixed-rate certificates of
deposit are estimated using discounted cash flow methods,
using interest rates currently being offered on certificates.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_________________________________________________________________
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Other Borrowings:
The fair values of the Company's other borrowings approximate
their fair values.
Accrued Interest:
The carrying amounts of accrued interest approximate their
fair values.
Off-Balance Sheet Instruments:
The fair values of the Company's off-balance-sheet financial
instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit and
standby letters of credit do not represent a significant
value to the Company until such commitments are funded. The
Company has determined that these instruments do not have a
distinguishable fair value and no fair value has been
assigned.
The carrying amounts and estimated fair values of the
Company's financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks,
and Federal funds
sold $5,888,017 $5,888,017 $466,097 $466,097
Securities available-
for sale 2,029,491 2,029,491 - -
Loans 6,045,022 6,074,230 - -
Accrued interest
receivable 50,686 50,686 - -
Financial liabilities:
Deposits 9,165,090 9,171,887 - -
Other borrowings 29,397 29,397 365,800 365,800
Accrued interest
payable 18,343 18,343 1,438 1,438
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 12. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets,
statements of operations, and cash flows as of and for the year
ended December 31, 1997 and period from March 15, 1996, date of
inception, to December 31, 1996:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Cash $ 949,360 $466,097
Investment in subsidiary 6,146,672 -
Other assets 17,629 282,327
Total assets $7,113,661 $748,424
Liabilities $ - $843,202
Stockholders' equity (deficit) 7,113,661 (94,778)
Total liabilities and
stockholders' equity
(deficit) $7,113,661 $748,424
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________________________________
NOTE 12. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Income
Interest $ 50,079 $ 461
Expenses
Salaries and benefits 85,239 81,359
Interest 11,514 4,522
Amortization 930 -
Other expenses 32,514 9,368
Total expenses 130,197 95,249
Loss before equity in loss of
subsidiary (80,118) (94,788)
Equity in loss of subsidiary (258,080) -
Net loss $(338,198) $(94,788)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________________________________
NOTE 12. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(338,198) $(94,788)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Amortization 930 -
Loss of subsidiary 258,080 -
Other operating activities 323,808 (103,404)
Net cash provided by
(used in) operating
activities 244,620 (198,192)
INVESTING ACTIVITIES
Purchase of premises and equipment - (166,121)
Investment in subsidiary (6,500,000) -
Net cash used in investing
activities (6,500,000) (166,121)
FINANCING ACTIVITIES
Proceeds (repayment)
of other borrowings (365,800) 365,800
Net proceeds from sale of
common stock 7,104,443 464,610
Net cash provided by financing
activities 6,738,643 830,410
Net increase in cash 483,263 466,097
Cash at beginning of period 466,097 -
Cash at end of year $ 949,360 $466,097
</TABLE>
