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, 1998 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:
Common stock, $5.00 par value
(Title of Class)
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, 1998 were
$2,264,395.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 15, 1999 was $4,915,090 based on private sales known to the
Registrant at a price of $10.00 per share (the price at which the Registrant's
stock was sold in its initial public offering in 1997). There is no established
trading market for the Registrant's stock.
The number of shares outstanding of Registrant's class of common stock at March
15, 1999 was 758,458 shares of common stock.
Documents Incorporated by Reference: Certain pages of the 1998 Annual
Report to Shareholders and the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 22, 1999 are incorporated herein by reference
in Parts II, III, and IV of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes No X
Page 1 of 73
Exhibit Index on Page 16
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TABLE OF CONTENTS
Page PART I
ITEM 1. DESCRIPTION OF BUSINESS ......................... 3
ITEM 2. DESCRIPTION OF PROPERTIES........................ 12
ITEM 3. LEGAL PROCEEDINGS................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................. 13
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS...................... 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION ............................ 14
ITEM 7. FINANCIAL STATEMENTS ............................ 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ............................ 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS ............................. 14
ITEM 10. EXECUTIVE COMPENSATION .......................... 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT ................ 15
ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS ............................ 15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ................ 15
SIGNATURES ........................................................ 17
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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
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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.
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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
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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
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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 2.4 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
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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
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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.
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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
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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,
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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, 1999, the Bank had 16 full-time employees and 4 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.
In addition, one of the primary components of the Bank's loan portfolio
is loans secured by first or second mortgages on real estate. These loans
generally consist of commercial real estate loans, construction and developments
loans, and residential real estate loans. Loan terms are generally limited to
five years or less, although payments are frequently structured on a longer
amortization basis. Interest rates are fixed or adjustable, and are more likely
to be fixed in the case of shorter term loans. Management attempts to reduce
credit risk in the commercial real estate portfolio by emphasizing loans on
owner-occupied office and retail buildings where the loan-to-value ratio,
established by independent appraisals, does not exceed 85%. In addition, the
Bank typically requires personal guarantees of the principal owners of the
property backed with a review by the Bank of the personal financial statements
of the principal owners. The principal
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economic risk associated with each category of loans, including real estate
loans, is the creditworthiness of the Bank's borrowers. The risks associated
with real estate loans vary with many economic factors, including employment
levels and fluctuations in the value of real estate. The Bank also originates
residential real estate loans for sale into the secondary market. The Bank
limits interest rate risk and credit risk on these loans by locking the interest
rate for each loan with the secondary investor and receiving the investor's
underwriting approval prior to originating the loan.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal proceedings
which management believes would have a material effect upon operations or
financial condition.
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, 1998.
PART II
ITEM 5. MARKET FOR ISSUER'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of December 31, 1998, there were approximately 1050 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, 1998. 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.
The Company completed its initial stock offering as of July 7, 1997.
758,458 shares were sold in the offering, raising total capital of $7,584,580.
From the capital raised, the Company paid part of the organizational debt
incurred by the organizers, as well as the $50,000 originally loaned to the
Company by the organizers. This debt repayment represented the payment of
$37,474 of stock offering expenses, $18,559 of organization costs for the
Company, and $73,016 of pre-opening operating expenses allocated to the
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Company. In addition, the Company capitalized the Bank in September, 1997 with
$6,500,000 in return for 650,000 shares of common stock of the Bank, which is
all of the Bank's outstanding stock.
The Bank expended a portion of its capital to repay in effect the
remainder of the organizational debt and advances by the Company on behalf of
the Bank prior to September, 1997. This debt and advances repayment represented
the payment of $53,000 of organizational expenses of the Bank, $405,265 for the
purchase of the site for the bank building, $1,194,966 for construction of the
bank building on the site, $271,366 for the purchase of equipment, and $153,036
of pre-opening operating expenses allocated to the Bank. Since opening in
September, 1997, the Bank has used the remainder of its capital in its normal
banking operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Information relating to Management's Discussion and Analysis of Financial
Condition and Results of Operations appears on pages 37 through 56 of the
Company's 1998 Annual Report to Shareholders, and is incorporated by reference
in this Form 10-KSB Annual Report.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements, notes thereto and independent auditors'
report thereon, dated February 11, 1999, appearing on pages 5 through 35 of
Company's 1998 Annual Report to Shareholders, are incorporated by reference in
this Form 10-KSB Annual Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no disagreements with accountants on accounting and financial
disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning directors and executive officers is presented under
Identification of Directors and Executive Officers on pages 3 through 6, and
under Non-Director Executive Officers of the Bank on page 7, of the Proxy
Statement for Annual Meeting of Shareholders, to be held April 22, 1999, which
information is incorporated by reference in this Form 10-KSB Annual Report. In
addition, the information concerning compliance with Section 16(a) of the
Exchange Act shown under Filings under Section 16(a) on page 13 of said Proxy
Statement is incorporated by reference in this Form 10-KSB Annual Report.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation is shown under Compensation of Directors and Executive
Officers on pages 7 through 10 of the Proxy Statement for Annual Meeting of
Shareholders, to be held Apri 22, 1999, which is incorporated by reference in
this Form 10-KSB Annual Report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Stock Ownership of Certain Beneficial Owners which appears on pages 12 and 13 of
the Proxy Statement for Annual Meeting of Shareholders, to be held April 22,
1999, is incorporated by reference in this Form 10-KSB Annual Report.
Security Ownership of Directors, Nominees, Executive Officers, and Directors and
Executive Officers as a group, which appears on pages 11 and 12 of the Proxy
Statement for Annual Meeting of Shareholders, to be held April 22, 1999, is
incorporated by reference in this Form 10-KSB Annual Report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management which appears on page 10 of the Proxy Statement for
Annual Meeting of Shareholders, to be held April 22, 1999, is incorporated by
reference in this Form 10-KSB Annual Report.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The consolidated financial statements of the Company, notes thereto and
independent auditors' report thereon, incorporated herein by reference
from pages 5 through 35 of the Company's 1998 Annual Report to
Shareholders, have been filed as Item 7 in Part II of this report and
are attached hereto as Exhibit 13.1.
15
<PAGE>
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 --
10.2 Stock Option Agreement between the
Company and John L. Coleman 19
13.1 Consolidated Financial Statements of
the Company 23
13.2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 53
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 73
- ------------------------
*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, 1998.
16
<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 29, 1999.
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 29, 1999.
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
_________________________ Director
William B. Jones
s/Harry Lewis Director; Secretary-Treasurer
Harry Lewis and C.F.O./C.A.O.
_________________________ Director
Joey McClelland
[SIGNATURES CONTINUED ON NEXT PAGE]
17
<PAGE>
s/Dr. Alexander Pollack Director
Dr. Alexander Pollack
s/Robert Ryan Director
Robert Ryan
s/James H. Warren 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:
Not Applicable.
18
<PAGE>
EXHIBIT 10.2
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 8th day of September, 1997 by and
between JOHN L. COLEMAN (hereinafter "Employee") and FIRST GEORGIA COMMUNITY
CORP.(hereinafter "FGCC").
WHEREAS, Employee is a senior officer of First Georgia Community Bank,
the sole subsidiary of FGCC,(the "Employer" as the case may be) and FGCC desires
to encourage and enable the acquisition of a financial interest in FGCC by its
senior officers through options to purchase stock, as approved by the Directors
of FGCC on April 21, 1998 and to be approved by the Shareholders on April 23,
1998 (hereinafter the "Plan").
NOW, THEREFORE, in consideration of the premises, it is agreed:
1. Grant of Options and Time of Exercise.
(a) FGCC hereby grants to Employee the right, privilege and option to
purchase, subject to the limitations herein set forth, a total of 15,000 shares
(the "Total Shares") of the common stock of FGCC until September 8, 2007, at
which time this option shall expire. The stock options granted hereunder are
intended to be nonqualified stock options not qualified under Section 422 of the
Internal Revenue Code.
(b) Employee may exercise the option to purchase as to the Total Shares
at any time before the termination of this option agreement as provided in
Paragraph 4 hereof.
(c) Employee acknowledges and agrees that he has been furnished
information concerning the differences in the tax consequences between
"incentive stock options" and nonqualified stock options and that he understands
the tax effect of a nonqualified stock option.
2. Purchase Price. During the initial three (3) years of the term of
this agreement, the purchase price of the shares shall be the lesser of $10.00
per share or book value per share as of the end of the month immediately
preceding the date of exercise. Beginning September 8, 2000, the purchase price
of the shares shall be the book value per share as of the end of the month
immediately preceding the date of exercise. The purchase price shall be paid in
full: (a) in cash or (b) by exchanging for the FGCC shares purchased pursuant to
the exercise of this option previously owned FGCC shares of equivalent value
which were acquired other than through the exercise of stock options or (c) by a
combination of
19
<PAGE>
the types of consideration permitted under (a), (b) or (c). Notwithstanding the
foregoing, the purchase price may be subject to adjustment as provided in
Paragraph 5 hereof.
3. Method of Exercise. The option granted above shall be exercised by
written notice directed to the Board of Directors of FGCC, at FGCC's principal
place of business, accompanied by a check in payment of the option price for the
number of shares specified and paid for. If previously owned FGCC shares are
being used as all or any portion of the payment, the stock certificates for such
shares shall be tendered, duly endorsed for transfer to FGCC. FGCC shall make
delivery of such shares purchased as soon as is practicable, provided that if
any law or regulation requires FGCC to take any action with respect to the
shares specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take such
action.
4. Termination of Options. Except as provided in Paragraph 8 or 9
hereof, the option granted hereunder shall terminate upon the first to occur of
the following dates:
(a) The expiration of 3 months after the date on which Employee's
employment terminates, other than by reason of permanent and total disability or
death of Employee or other than for cause by Employer;
(b) Immediately, upon the termination or severance of Employee by
Employer for cause, or upon notice to Employee to terminate or sever for cause,
if earlier;
(c) The expiration of twelve months after the date on which Employee's
employment by FGCC is terminated, if such termination is by reason of Employee's
permanent and total disability;
(d) In the event of Employee's death while in the employ of FGCC, his
executors or administrators may exercise, within six months following the date
of his death, the option as to any of the shares subject to exercise of the
option at Employee's death to the extent not exercised prior to his death;
(e) The date shown in subparagraph 1(a) hereof.
5. Reclassification, Consolidation, or Merger. If and to the extent the
number of issued shares of common stock of FGCC shall be increased or reduced by
change in par value, split up, reclassification, distribution of a dividend
payable in stock, or the like, the number of shares subject to option and the
option price per share shall be proportionately adjusted. If FGCC is reorganized
or consolidated or merged with another corporation, Employee shall be entitled
to receive options covering shares of such reorganized, consolidated, or merged
company in the same
20
<PAGE>
proportion, at an equivalent price, and subject to the same conditions. For
purposes of the preceding sentence, the excess of the aggregate fair market
value of the shares subject to the option immediately after the reorganization,
consolidation, or merger over the aggregate option price of such shares shall
not be more than the excess of the aggregate fair market value of all shares
subject to the option immediately before such reorganization, consolidation, or
merger over the aggregate option price of such shares, and the new option or
assumption of the old option shall not give Employee additional benefits which
he did not have under the old option, or deprive him of benefits which he had
under the old option.
6. Administration. The Board of Directors of FGCC is responsible for
administering the rights and obligations of FGCC under this agreement.
Notwithstanding anything to the contrary contained herein, references herein to
the Board of Directors of FGCC shall be deemed to refer to the members of the
Board of Directors of the Company who are disinterested persons", as hereinafter
defined. The term "disinterested person" as used herein shall have the same
meaning as said term has in Rule 16b-3(c) (2) (i) promulgated under the
Securities Exchange Act of 1934, as amended, as such rule is amended or modified
from time to time.
7. Rights Prior to Exercise of Option. This option is non-transferrable
by Employee except in the event of his death as provided in Paragraph 4 (d)
above, and during his lifetime is exercisable only by him. Employee shall have
no rights as a stockholder with respect to the optioned shares until payment of
the option price and delivery to him of such shares as herein provided.
8. Restrictions on Disposition of Stock. All shares acquired by
Employee pursuant to this Agreement shall be subject to all restrictions on sale
generally applicable to common shares of FGCC, if any. All shares issued to
Employee under this Agreement shall contain a legend on the reverse side
containing such restrictions as may be required in connection with the transfer
of such shares under State or Federal law, or under the Bylaws of FGCC.
9. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
10. Conditions to Agreement. Notwithstanding anything to the contrary
contained herein, this Agreement shall be subject to approval by the
shareholders of FGCC at the shareholders meeting to be held on April 23, 1998.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
EMPLOYEE:
s/John L. Colman (SEAL)
JOHN L. COLEMAN
EMPLOYER:
FIRST GEORGIA COMMUNITY CORP.
By: s/George L. Weaver
Title: Chairman
Attest: s/Harry Lewis
Title: Secretary
22
<PAGE>
EXHIBIT 13.1
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
23
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT.................................................1
FINANCIAL STATEMENTS
Consolidated balance sheets.............................................2
Consolidated statements of operations...................................3
Consolidated statements of comprehensive loss...........................4
Consolidated statements of stockholders' equity (deficit)...............5
Consolidated statements of cash flows.............................6 and 7
Notes to consolidated financial statements...........................8-28
24
<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, 1998 and
1997, and the related consolidated statements of operations, comprehensive loss,
stockholders' equity (deficit), and cash flows for the years then ended. 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, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As described in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for organization costs.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
February 11, 1999
25
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets 1998 1997
------------------- -----------------
Cash and due from banks $ 675,969 $ 1,568,017
Federal funds sold 3,410,000 4,320,000
Securities available-for-sale 5,565,028 2,029,491
Loans held for sale 251,605 0
Loans 24,314,616 6,117,022
Less allowance for loan losses 433,882 72,000
------------------- -------------------
Loans, net 23,880,734 6,045,022
Premises and equipment 2,242,202 2,220,331
Other assets 325,287 150,849
------------------- -------------------
Total assets $ 36,350,825 $ 16,333,710
=================== ===================
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 4,496,294 $ 3,510,170
Interest-bearing demand 11,434,152 3,150,132
Savings 901,040 303,658
Time, $100,000 and over 4,321,355 400,000
Other time 8,169,062 1,801,130
------------------- -------------------
Total deposits 29,321,903 9,165,090
Other borrowings 22,241 29,397
Other liabilities 136,879 25,562
------------------- -------------------
Total liabilities 29,481,023 9,220,049
------------------- -------------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5; 10,000,000
shares authorized; 758,458 issued
and outstanding 3,792,290 3,792,290
Capital surplus 3,754,816 3,754,816
Accumulated deficit (675,728) (432,986)
Accumulated other comprehensive loss (1,576) (459)
------------------- -------------------
Total stockholders' equity 6,869,802 7,113,661
------------------- -------------------
Total liabilities and stockholders'
equity $ 36,350,825 $ 16,333,710
=================== ===================
See Notes to Consolidated Financial Statements.
</TABLE>
26
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
---------------- ------------------
Interest income
Loans $ 1,641,616 $ 120,064
Taxable securities 219,451 8,727
Federal funds sold 210,458 255,057
------------------ ------------------
Total interest income 2,071,525 383,848
------------------ ------------------
Interest expense
Deposits 779,294 46,030
Other borrowings 1,256 6,993
------------------ ------------------
Total interest expense 780,550 53,023
------------------ ------------------
Net interest income 1,290,975 330,825
Provision for loan losses 385,000 72,000
------------------ ------------------
Net interest income
after provision
for loan losses 905,975 258,825
------------------ ------------------
Other income
Service charges on deposit accounts 121,660 18,980
Other operating income 71,210 11,951
------------------ ------------------
Total other income 192,870 30,931
------------------ ------------------
Other expenses
Salaries and employee benefits 633,339 350,175
Equipment and occupancy expenses 189,300 70,618
Other operating expenses 453,619 207,161
------------------ ------------------
Total other expenses 1,276,258 627,954
------------------ ------------------
Loss before income taxes
and cumulative effect of
a change in accounting
principle (177,413) (338,198)
Income tax expense 0 0
------------------ ------------------
Loss before cumulative effect of
a change in accounting principle (177,413) (338,198)
Cumulative effect of a change in
accounting principle (65,329) 0
------------------ ------------------
Net loss $ (242,742) $ (338,198)
================== ==================
Basic and diluted losses per common
share before cumulative effect of
a change in accounting principle $ (0.23) $ (0.92)
Cumulative effect of a change in
accounting principle (0.09) -
------------------ ------------------
Basic and diluted losses per
common share $ (0.32) $ (0.92)
================== ==================
See Notes to Consolidated Financial Statements.
</TABLE>
27
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
---------------- ----------------
Net loss $ (242,742) $ (338,198)
Unrealized holding losses on securities
available-for-sale arising during period (1,117) (459)
---------------- ----------------
Comprehensive loss $ (243,859) $ (338,657)
================ ================
See Notes to Consolidated Financial Statements.
</TABLE>
28
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Capital Accumulated Comprehensive Stockholders'
-------------------------
Shares Par Value Surplus Deficit Loss Equity (Deficit)
-------- --------------- -------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996 1 $ 5 $ 5 $ (94,788) $ 0 $ (94,778)
Net loss 0 0 0 (338,198) 0 (338,198)
Redemption of common
stock (1) (5) (5) 0 0 (10)
Issuance of common
stock 758,458 3,792,290 3,792,290 0 0 7,584,580
Stock issue costs 0 0 (37,474) 0 0 (37,474)
Other comprehensive
loss 0 0 0 0 (459) (459)
-------- ------------- -------------- ------------- ------------ --------------
Balance, December 31,
1997 758,458 3,792,290 3,754,816 (432,986) (459) 7,113,661
Net loss 0 0 0 (242,742) 0 (242,742)
Other comprehensive
loss 0 0 0 0 (1,117) (1,117)
-------- ------------- -------------- ------------- ------------ ----------------
Balance, December 31,
1998 758,458 $ 3,792,290 $ 3,754,816 $ (675,728) $ (1,576) $ 6,869,802
======== ============= ============== ============== ============ ==============
See Notes to Consolidated Financial Statements.
</TABLE>
29
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
-------------------- --------------------
OPERATING ACTIVITIES
Net loss $ (242,742) $ (338,198)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation 105,662 29,191
Write-off/amortization of
organization costs 65,329 6,230
Net increase in loans held
for sale (251,605) 0
Provision for loan losses 385,000 72,000
Increase in interest receivable (205,148) (50,686)
Increase in interest payable 63,339 16,905
Other operating activities 13,359 (16,279)
-------------------- --------------------
Net cash used in
operating activities (66,806) (280,837)
--------------------- --------------------
INVESTING ACTIVITIES
Purchases of securities
available-for-sale (5,538,533) (2,029,950)
Proceeds from sale of
securities available-for-sale 500,000 0
Proceeds from maturities of
securities available-for-sale 1,501,879 0
Net (increase) decrease in
Federal funds sold 910,000 (4,320,000)
Net increase in loans (18,220,712) (6,117,022)
Purchase of premises and equipment (127,533) (2,052,844)
------------------- -------------------
Net cash used in investing
activities (20,974,899) (14,519,816)
------------------- -------------------
FINANCING ACTIVITIES
Net increase in deposits 20,156,813 9,165,090
Repayment of other borrowings (7,156) (366,960)
Net proceeds from sale of
common stock 0 7,104,443
------------------- -------------------
Net cash provided by
financing activities 20,149,657 15,902,573
------------------- -------------------
Net increase (decrease) in
cash and due from banks (892,048) 1,101,920
Cash and due from banks
at beginning of year 1,568,017 466,097
------------------- -------------------
Cash and due from banks
at end of year $ 675,969 $ 1,568,017
=================== ===================
</TABLE>
30
<PAGE>
FIRST GEORGIA COMMUNITY CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
----------------- ---------------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 717,211 $ 36,118
Income taxes $ 0 $ 110
NONCASH TRANSACTIONS
Unrealized losses on securities
available-for-sale $ 1,117 $ 459
Finance of premises and equipment
purchases $ 0 $ 30,557
See Notes to Consolidated Financial Statements.
</TABLE>
31
<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 Bank commenced its
operations on September 8, 1997.
Basis of Presentation
The consolidated financial statements include the accounts
of the Company and its subsidiary. Significant intercompany
transactions and accounts are eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenues and expenses during the
reporting 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.
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 would be
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 included in securities available-for-sale
and 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 sale of securities are determined using the specific
identification method.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held for Sale
Loans held for sale consist of mortgage loans and are
carried at the lower of aggregate cost or fair value. These
loans are sold to investors who purchase the loans with
"locked in" interest rates agreed to by the investors and
the Company prior to funding, thereby reducing the
Company's exposure to interest rate risk.
Loans
Loans are carried at their principal amounts outstanding
less deferred loan fees 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 most
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, past loan loss experience, current economic
conditions, volume, growth, composition of the loan
portfolio, and other risks inherent in the portfolio. This
evaluation is inherently subjective as it requires material
estimates that are susceptible to significant change
including the amounts and timing of future cash flows
expected to be received on impaired loans. 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 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.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
A loan is considered to be 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.
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 income tax
assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset
or liability is determined based on the tax effects of the
differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
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.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Losses Per Common Share
Basic losses per common share are computed by dividing net
loss by the weighted average number of shares of common
stock outstanding. Diluted losses per share are computed by
dividing net loss by the sum of the weighted-average number
of shares of common stock outstanding and potential common
shares. Potential common shares consist of stock options.
Cumulative Effect of a Change in Accounting Principle
In April of 1998, the Accounting Standards Executive
Committee issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start Up Activities". SOP 98-5
requires that costs of start-up activities and organization
costs be expensed as incurred. SOP 98-5 becomes effective
for financial statements for fiscal years beginning after
December 15, 1998. However, early adoption is encouraged
for fiscal years in which financial statements have not
been issued. During 1998, the Company wrote off $65,329 of
unamortized organization costs upon adoption of SOP 98-5.
Prior to the adoption of SOP 98-5, the Company was
amortizing these costs over a five year period.
Comprehensive Income
In 1998, the Company adopted Statement of Financial
Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting
and display of comprehensive income and its components in
the financial statements. This statement requires that all
items that are required to be recognized under accounting
standards as components of comprehensive income be reported
in a financial statement that is displayed in equal
prominence with the other financial statements. The Company
has elected to report comprehensive loss in a separate
financial statement titled "Consolidated Statements of
Comprehensive Loss". SFAS No. 130 describes comprehensive
income as the total of all components of comprehensive
income including net income. This statement uses other
comprehensive income to refer to revenues, expenses, gains
and losses that under generally accepted accounting
principles are included in comprehensive income but
excluded from net income. Currently, the Company's other
comprehensive loss consists of items previously reported
directly in equity under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". As
required by SFAS No. 130, the financial statements for the
prior year have been reclassified to reflect application of
the provisions of this statement. The adoption of this
statement did not affect the Company's financial position,
results of operations or cash flows.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain items of income in the statement of operations for
the year ended December 31, 1997 have been reclassified,
with no effect on net loss, to be consistent with the
classifications for the year ended December 31, 1998.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement is required to be
adopted for fiscal years beginning after June 15, 1999.
However, the statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The
Company expects to adopt this statement effective January
1, 2000. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance
sheet at fair value. For derivatives that are not
designated as hedges, the gain or loss must be recognized
in earnings in the period of change. For derivatives that
are designated as hedges, changes in the fair value of the
hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings,
depending on the nature of the hedge. The ineffective
portion of a derivative's change in fair value must be
recognized in earnings immediately. Management has not yet
determined what effect the adoption of SFAS No. 133 will
have on the Company's earnings or financial position.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- ---------------
Securities Available-for-Sale
December 31, 1998:
U. S. Government and agency $ 5,517,604 $ 3,840 $ (5,416) $ 5,516,028
securities
Equity securities 49,000 - - 49,000
-------------- ------------- ------------- ---------------
$ 5,566,604 $ 3,840 $ (5,416) $ 5,565,028
============== ============= ============= ===============
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>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December
31, 1998 by contractual maturity are shown below.
<TABLE>
<CAPTION>
Securities Available-for-Sale
----------------------------------
Amortized Fair
Cost Value
--------------- ----------------
<S> <C> <C>
Due in one year or less $ 507,859 $ 507,750
Due from one year to five years 5,009,745 5,008,278
Equity securities 49,000 49,000
--------------- ----------------
$ 5,566,604 $ 5,565,028
=============== ================
</TABLE>
Securities with a carrying value of $3,061,000 at December 31,
1998 were pledged to secure public deposits and for other
purposes. There were no securities pledged as of December 31,
1997.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Commercial, financial, and agricultural $ 2,878,000 $ 2,432,000
Real estate - construction 4,659,000 57,000
Real estate - mortgage 14,936,000 1,346,000
Consumer instalment and other 1,858,913 2,282,022
---------------- ---------------
24,331,913 6,117,022
Deferred loan fees (17,297) -
Allowance for loan losses (433,882) (72,000)
----------------- ----------------
$ 23,880,734 $ 6,045,022
================ ===============
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for
loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Balance, beginning of year $ 72,000 $ -
Provision for loan losses 385,000 72,000
Loans charged off (23,118) -
Recoveries of loans previously
charged off - -
---------------- ---------------
Balance, end of year $ 433,882 $ 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, 1998 are as follows:
Balance, beginning of year $ 2,624,786
Advances 2,125,274
Repayments (1,541,241)
---------------
Balance, end of year $ 3,208,819
===============
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Land $ 405,265 $ 405,265
Buildings 1,469,033 1,398,495
Equipment 502,757 445,762
--------------- ---------------
2,377,055 2,249,522
Accumulated depreciation (134,853) (29,191)
--------------- ---------------
$ 2,242,202 $ 2,220,331
=============== ===============
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 DEPOSITS
At December 31, 1998, the scheduled maturities of time
deposits are as follows:
1999 $ 10,596,087
2000 832,888
2001 396,182
2002 232,429
2003 432,831
-----------------
$ 12,490,417
=================
At December 31, 1998, the Company had related party deposits
of $4,270,670.
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Note payable, payable in monthly
installments of $701 including
interest at 4.80%, collateralized
by automobile $ 22,241 $ 29,397
=============== ===============
</TABLE>
Other borrowings at December 31, 1998 have maturities in
future years as follows:
Year ending December 31,
1999 $ 7,507
2000 7,876
2001 6,858
---------------
$ 22,241
===============
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 7. STOCK OPTIONS
The Company has granted options to purchase 32,500
shares of common stock to key employees under an incentive
stock option plan. For a period of three years from the date
of grant, these options are exercisable for the lesser of the
book value of the Company's common stock at the date of
exercise or $10. Subsequent to the three year period, the
options are exercisable at book value per share. The options
cannot be exercised until the Bank is cumulatively profitable.
The options expire ten years from the date of grant.
The Company has also reserved 150,000 shares of
common stock for issuance to directors with the same exercise
price, expiration dates, and exercise restrictions as the key
employee stock options. No options have been granted to
directors as of December 31, 1998.
Other pertinent information related to the options is
as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1998 1997
--------------------------- ----------------------------
Weighted- Weighted-
average average
Exercise Exercise
Number Price Number Price
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Under option,
beginning of year - $ - - $ -
Granted 32,500 10.00 - -
Exercised - - - -
Terminated - - - -
----------- ------------
Under option,
end of year 32,500 10.00 - -
=========== ============
Weighted average
remaining contractual
life 10 -
=========== ============
Weighted average
fair value of
options granted
during the year $3.97 $ -
=========== ============
</TABLE>
As permitted by SFAS No. 123, ("Accounting for
Stock-Based Compensation"), the Company recognizes
compensation cost for stock-based employee compensation awards
in accordance with APB Opinion No. 25, ("Accounting for Stock
Issued to Employees"). The Company recognized no compensation
cost for stock-based employee compensation awards for the year
ended December 31, 1998. If the Company had recognized
compensation cost in accordance with SFAS No. 123, net loss
and losses per share would have been increased as follows:
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------
Basic and
Diluted Losses
Net Loss Per Share
--------------- ------------------
<S> <C> <C>
As reported $ (242,742) $ (0.32)
Stock-based compensation,
net of related tax effect (80,284) (0.11)
--------------- ------------------
As adjusted $ (323,026) $ (0.43)
=============== ==================
</TABLE>
The fair value of the options granted during the year
was based upon the Black-Scholes method of valuing options
using the following weighted-average assumptions:
Risk free interest rate 5.12%
Expected life of the options 10 Years
Expected dividends (as a percent of the fair value of the stock) 0%
Volatility 0%
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Current $ (4,996) $ (24,987)
Deferred (75,686) (90,000)
Change in valuation allowance 80,682 114,987
--------------- ---------------
Income tax expense $ - $ -
=============== ===============
</TABLE>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. 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,
-------------------------------------------------------------
1998 1997
---------------------------- ----------------------------
Amount Percent Amount Percent
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Income taxes at
statutory rate $ (82,532) (34) % $ (114,987) (34) %
Change in valuation
allowance 80,682 33 114,987 34
Other 1,850 1 - -
--------------- ---------- --------------- ----------
Income tax expense $ - - % $ - - %
=============== ========== =============== ==========
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 106,950 $ 5,299
Preopening and organization expenses 109,368 116,984
Net operating loss carryforward 31,364 26,368
Securities available-for-sale 535 156
Other 6,581 72
--------------- ---------------
254,798 148,879
Valuation allowance (228,432) (147,371)
--------------- ---------------
26,366 1,508
--------------- ---------------
Deferred tax liabilities; depreciation 26,366 1,508
--------------- ---------------
Net deferred taxes $ - $ -
=============== ===============
</TABLE>
At December 31, 1998, the Company has available net operating
loss carryforwards of $92,246 for Federal income tax purposes.
If unused, the carryforwards will expire beginning in 2007.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. LOSSES PER COMMON SHARE
The following is a reconciliation of net loss and
weighted-average shares outstanding used in determining basic
and diluted losses per common share:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------
Net Weighted-Average Per Share
Loss Shares Amount
--------------- -------------------- ---------------
<S> <C> <C> <C>
Basic losses per
common share $ (242,742) 758,458 $ (0.32)
===============
Effect of Dilutive
Securities
Stock options - - -
--------------- --------------------
Diluted losses per
common share $ (242,742) 758,458 $ (0.32)
=============== ==================== ===============
</TABLE>
Because the exercise price of the stock options approximate
the fair value of the Company's common stock, the stock
options have no dilutive effect.
For the year ended December 31, 1997, the weighted-average
shares outstanding was 367,801. The Company had no dilutive
securities in 1997.
NOTE 10. 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 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.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Commitments to extend credit $ 5,842,000 $ 866,000
Standby letters of credit 2,500 -
---------------- ----------------
$ 5,844,500 $ 866,000
================ ================
</TABLE>
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.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
Year 2000 Disclosures
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Systems that do not properly recognize the
year "2000" could generate erroneous data or cause systems to
fail. The Company is heavily dependent on computer processing
and telecommunication systems in the daily conduct of business
activities. In addition, the Company must rely on
intermediaries, vendors and customers to appropriately modify
their systems in order that all may continue normal operations
and operate without significant disruptions. The Company has
conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 issue. The
Company presently believes that, with modifications to its
computer systems and conversions to new systems, the Year 2000
issue will not pose significant operational problems for the
Company or have a material adverse effect on future operating
results. However, absolute assurance cannot be given that; (1)
the modifications and conversions will remedy all
deficiencies, (2) failure of any of the Company's systems will
not have a material impact on operations, or (3) failure of
any other companies' systems with whom the Company conducts
business will not have a material impact on operations.
NOTE 11. 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.
Eighty-one percent of the Company's loan portfolio is
concentrated in loans secured by real estate, of which a
substantial portion is secured by real estate in the Company's
primary market area. Accordingly, the ultimate collectibility
of the loan portfolio is susceptible to changes in market
conditions in the Company's primary market area. 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 $1,475,000.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. 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, 1998, 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, 1998, the Company and
the Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 1998, 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.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 REGULATORY MATTERS (Continued)
<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>
December 31, 1998:
Total Capital (to
Risk Weighted Assets):
Consolidated $ 7,243 24.40% $ 2,375 8% $ 2,969 10%
Bank $ 6,306 21.24% $ 2,375 8% $ 2,969 10%
Tier I Capital
(to Risk Weighted
Assets):
Consolidated $ 6,871 23.15% $ 1,188 4% $ 1,781 6%
Bank $ 5,934 19.99% $ 1,188 4% $ 1,781 6%
Tier I Capital
(to Average Assets):
Consolidated $ 6,871 20.74% $ 1,326 4% $ 1,657 5%
Bank $ 5,934 17.91% $ 1,326 4% $ 1,657 5%
December 31, 1997:
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 I Capital
(to Risk Weighted
Assets):
Consolidated $ 7,049 71.71% $ 394 4% $ 590 6%
Bank $ 6,099 62.04% $ 394 4% $ 590 6%
Tier I Capital
(to Average Assets):
Consolidated $ 7,049 58.68% $ 481 4% $ 601 5%
Bank $ 6,099 50.77% $ 481 4% $ 601 5%
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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 models. Those models 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, 1998 and 1997. 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 approximate their fair value.
Securities:
Fair values for securities are based on available 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 models, using current
market interest rates offered for loans with similar terms
to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow
models or based on the fair value of the underlying
collateral.
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 models,
using current market interest rates offered on certificates
with similar remaining maturities.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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, 1998 December 31, 1997
---------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks,
and Federal funds sold $ 4,085,969 $ 4,085,969 $ 5,888,017 $ 5,888,017
Securities available-
for-sale 5,565,028 5,565,028 2,029,491 2,029,491
Loans held for sale 251,605 251,605 - -
Loans 23,880,734 24,329,634 6,045,022 6,074,230
Accrued interest
receivable 255,834 255,834 50,686 50,686
Financial liabilities:
Deposits 29,321,903 29,391,929 9,165,090 9,171,887
Other borrowings 22,241 22,241 29,397 29,397
Accrued interest payable 81,682 81,682 18,343 18,343
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. SUPPLEMENTAL FINANCIAL DATA
Components of other operating income and expenses in excess of 1% of total
revenue for the year ended December 31, 1998 are as follows:
Other income:
ATM fee income $ 45,519
Other expense:
Stationery and office supplies 43,530
Legal and professional 75,557
Data processing 58,047
Advertising 37,426
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance
sheets, statements of operations, and cash flows of First
Georgia Community Corp. as of and for the years ended December
31, 1998 and 1997:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1998 1997
--------------- ----------------
<S> <C> <C>
Assets
Cash $ 936,917 $ 949,360
Investment in subsidiary 5,932,885 6,146,672
Other assets - 17,629
--------------- ----------------
Total assets $ 6,869,802 $ 7,113,661
=============== ================
Stockholders' equity $ 6,869,802 $ 7,113,661
=============== ================
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
1998 1997
--------------- ----------------
<S> <C> <C>
Income, interest $ - $ 50,079
--------------- ----------------
Expenses
Salaries and benefits - 85,239
Interest - 11,514
Write-off/amortization of
organization costs 17,629 930
Other expenses 12,443 32,514
--------------- ----------------
Total expenses 30,072 130,197
--------------- ----------------
Loss before equity in
loss of subsidiary (30,072) (80,118)
Equity in loss of subsidiary (212,670) (258,080)
--------------- ----------------
Net loss $ (242,742) $ (338,198)
=============== ================
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
1998 1997
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (242,742) $ (338,198)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Write-off/amortization of
organization costs 17,629 930
Loss of subsidiary 212,670 258,080
Other operating activities - 323,808
--------------- ----------------
Net cash provided by (used in) operating (12,443) 244,620
activities
--------------- ----------------
INVESTING ACTIVITIES
Investment in subsidiary - (6,500,000)
--------------- ----------------
Net cash used in investing activities - (6,500,000)
--------------- ----------------
FINANCING ACTIVITIES
Repayment of other borrowings - (365,800)
Net proceeds from sale of common stock - 7,104,443
--------------- ----------------
Net cash provided by financing activities - 6,738,643
--------------- ----------------
Net increase (decrease) in cash (12,443) 483,263
Cash at beginning of year 949,360 466,097
--------------- ----------------
Cash at end of year $ 936,917 $ 949,360
=============== ================
</TABLE>
52
<PAGE>
EXHIBIT 13.2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following is a discussion of the financial condition of First Georgia
Community Corp., Inc. (FGC) and its bank subsidiary, First Georgia Community
Bank at December 31, 1998 and 1997 and the results of operations for the years
then ended. 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.
Forward-Looking Statements
FGC may from time to time make written or oral forward-looking statements,
including statements contained in FGC's filings with the Securities and Exchange
Commission and its reports to stockholders. Statements made in the Annual
Report, other than those concerning historical information, should be considered
forward-looking and subject to various risks and uncertainties. Such
forward-looking statements are made based upon management's belief as well as
assumptions made by, and information currently available to, management pursuant
to "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. FGC's actual results may differ materially from the results anticipated in
forward-looking statements due to a variety of factors, including governmental
monetary and fiscal policies, deposit levels, loan demand, loan collateral
values, securities portfolio values, interest rate risk management; the effects
of competition in the banking business from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market funds and other financial
institutions operating in FGC's market area and elsewhere, including
institutions operating through the Internet, changes in governmental regulation
relating to the banking industry, including regulations relating to branching
and acquisitions, failure of assumptions underlying the establishment of
reserves for loan losses, including the value of collateral underlying
delinquent loans and other factors. FGC cautions that such factors are not
exclusive. FGC does not undertake to update any forward-looking statement that
may be made from time to time by, or on behalf of, FGC.
Overview
The year 1998 marked the first full year of banking operations for FGC. FGC
commenced banking operations on September 8, 1997. FGC's 1998 results were
highlighted by significant loan and deposit growth that would be expected for a
de novo bank. This growth should provide a base for future profitability and a
recovery of FGC's accumulated deficit.
53
<PAGE>
Financial Condition at December 31, 1998 and 1997
Following is a summary of FGC's balance sheets for the periods indicated:
<TABLE>
<CAPTION>
December 31,
1998 1997
(Dollars in Thousands)
<S> <C> <C>
Cash and due from banks $ 676 $ 1,568
Federal funds sold 3,410 4,320
Securities 5,565 2,029
Loans 23,881 6,045
Loans held for sale 251 -
Premises and equipment 2,242 2,220
Other assets 326 152
----------------------------
$ 36,351 $ 16,334
============ ============
Total deposits $ 29,322 $ 9,165
Other borrowings 22 29
Other liabilities 137 26
Stockholders' equity 6,870 7,114
---------------------------
$ 36,351 $ 16,334
============ ============
</TABLE>
Financial Condition at December 31, 1998 and 1997
As of December 31, 1998, FGC had total assets of $36.4 million, more than
doubling its asset size as of December 31, 1997. The completion of FGC's stock
offering in 1997, which raised $7.58 million, has provided a strong capital base
to support this growth. Total interest-earning assets were $33.1 million at
December 31, 1998 or 91.08% of total assets as compared to 75.88% at December
31, 1997. FGC's primary interest-earning assets at December 31, 1998 were loans,
which made up 72.89% of total interest-earning assets as compared to 48.77% at
December 31, 1997. FGC's loan to deposit ratio was 82.92% as compared to 66.74%
at December 31, 1997. The 1998 ratio is within FGC's target ratio of 75% to 85%.
Deposit growth of $20.2 million has been used primarily to fund loan growth of
$18.1 million.
FGC's investment portfolio, consisting of U.S. Agency securities and equity
securities, amounted to $5.6 million at December 31, 1998. Unrealized losses on
securities amounted to $1,576 at December 31, 1998. 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.
54
<PAGE>
FGC has 81% 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 (30%), construction loans to build one to
four-family residential properties (24%), and nonresidential properties
consisting primarily of small business commercial properties (46%). 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 85%
FGC's remaining 19% 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. Additionally, FGC has risk associated with its loan
portfolio as it relates to the Year 2000 issue. (See Year 2000 Disclosures.)
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.
55
<PAGE>
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, 1998, FGC had loan commitments outstanding of $5.8 million.
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, 1998, the Bank has arrangements with three
commercial banks for short-term advances of $3,500,000.
At December 31, 1998, FGC's and the Bank's capital ratios were considered
adequate based on regulatory minimum capital requirements. FGC's stockholders'
equity decreased due to a net loss in 1998 of $243,000. FGC's stockholders'
equity also decreased due to the decrease in the fair value of securities
available for sale in the amount of $1,117. 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, 1998 are as follows:
<TABLE>
<CAPTION>
Actual
------------------------------------------
Regulatory
FGC Bank Requirements
<S> <C> <C> <C>
Leverage capital ratio 20.74% 17.91% 5.00%
Risk-based capital ratios:
Core capital 23.15 19.99 6.00
Total capital 24.40 21.24 10.00
</TABLE>
At December 31, 1998, 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.
56
<PAGE>
Except for expected continued growth common to a de novo bank, and uncertainties
related to the Year 2000 issue (see Year 2000 Disclosures), 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 Years Ended December 31, 1998 and 1997
Following is a summary of FGC's operations for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
(Dollars in Thousands)
<S> <C> <C>
Interest income $ 2,072 $ 384
Interest expense 781 53
Net interest income 1,291 331
Provision for loan losses 385 72
Other income 193 31
Other expenses 1,342 628
Pretax loss (243) (338)
Income taxes - -
Net loss (243) (338)
</TABLE>
FGC commenced its operations on September 8, 1997. Prior to the commencement,
FGC was engaged in activities involving the formation of FGC, selling its common
stock, and obtaining necessary approvals. FGC incurred operating losses totaling
$226,000 during its organizational period ($95,000 in 1996 and $131,000 in
1997).
57
<PAGE>
FGC incurred total organizational and stock issue costs of $109,000 of which
$72,000 were capitalized to be amortized over a period of sixty months (see
Non-interest Expense), and $37,000 was recorded as a reduction in capital
surplus.
Through the end of 1997, FGC incurred additional operating losses of $207,000.
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 was 5.52% in 1998 as compared
to 6.19% in 1997. Average loans increased by $14.9 million which accounted for
the majority of a $20.5 million increase in total average interest-earning
assets. Average interest-bearing liabilities increased by $14.7 million with
average interest-bearing demand and time deposits accounting for the vast
majority of this increase. The rate earned on average interest-earning assets
increased to 8.86% in 1998 from 7.77% in 1997. The rate paid on average
interest-bearing liabilities was 4.93% in 1998 and 4.21% in 1997.
Provision for Loan Losses
The provision for loan losses was $385,000 in 1998 as compared to $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, 1998, and
1997, FGC has no nonperforming loans or assets. The allowance for loan losses as
a percentage of total loans at December 31, 1998 and 1997 was 1.78% and 1.18%,
respectively.
Other Income
Other operating income consists of service charges on deposit accounts and other
miscellaneous revenues and fees. Other operating income was $193,000 in 1998 as
compared to $31,000 in 1997. The increases are due to FGC being open for an
entire year versus only four months in 1997.
Non-interest Expense
Other operating expense for 1998 consists of salaries and employee benefits
($634,000), equipment and occupancy expenses ($189,000), and other operating
expenses ($519,000). The increases over 1997 ($283,000 for salaries and employee
benefits, $119,000 for equipment and occupancy, and $312,000 for other operating
expenses) are due primarily to FGC being open for an entire year versus only
four months in 1997 and the growth of the Bank. FGC also adopted SOP 98-5 which
required the write-off of $65,000 of organization costs.
58
<PAGE>
Income Tax
FGC had no income tax expense due to pre-tax operating losses of $243,000 and
$338,000 in 1998 and 1997, respectively.
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 January 31, 1999, FGC's cumulative one year interest rate-sensitivity gap
ratio was 86%. FGC's targeted ratio is 80% to 120% in this time horizon. This
indicates that FGC's interest-bearing liabilities will reprice during this
period at a rate faster than FGC's interest-earning assets.
The following table sets forth the distribution of the repricing of FGC's
interest-earning assets and interest-bearing liabilities as of January 31, 1999,
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.
59
<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 $ 4,560 $ -- $ -- $ -- $ 4,560
Securities 1,049 2,505 2,011 -- 5,565
Loans 9,773 2,646 12,841 -- 25,260
-----------------------------------------------------------------------------
15,382 5,151 14,852 -- 35,385
----------------------------------------------------------------------------
Interest-bearing
liabilities:
Interest-bearing demand
deposits 11,519 -- -- -- 11,519
Savings 867 -- -- -- 867
Certificates of deposit 3,130 8,485 2,961 -- 14,576
Other borrowings 2 5 15 -- 22
----------------------------------------------------------------------------------
15,518 8,490 2,976 -- 26,984
----------------------------------------------------------------------------
Interest rate sensitivity
gap $ (136) $ (3,339) $ 11,876 $ -- $ 8,401
================= =============== =============== =============== =========
Cumulative interest rate
sensitivity gap $ (136) $ (3,475) $ 8,401 $ 8,401
================= =============== =============== ===============
Interest rate sensitivity
gap ratio .99 .61 4.99 --
===============================================================
Cumulative interest rate
sensitivity gap ratio .99 .86 1.31 1.31
================================================================
</TABLE>
Year 2000 Disclosures
The Situation: Now that 1999 is well into the first quarter and the millennium
draws closer, FGC recognizes the global concern that information systems may be
subject to the much discussed "Year 2000 Bug". The Year 2000 ("Y2K") problem is
the existence of many programs and systems that will not operate correctly
unless they are reprogrammed to accommodate the new century. In fact, many
programs were originally written to only accommodate a two digit year field
and/or defaulted to the nineteenth century.
No country, government, business, or person is immune from the potential adverse
effects of the Y2K problem. The banking industry is especially susceptible to
the Y2K problem. If loan or deposit interest accruals are not calculated
properly, the impact can be devastating. A system crash could result in a
disruption of business which in turn could cause FGC to lose a significant
portion of its customer base, either of which could result in material adverse
consequences for FGC.
60
<PAGE>
Because of the potential risk posed by the Y2K problem, FGC has taken a
proactive role in addressing the impact to FGC and its customer base. FGC formed
a Y2K committee, consisting of key management, directors, and staff, to address
the impact. The Committee has been charged with the responsibility of assessing
the problem, overseeing corrective action, as well as testing Y2K readiness of
all equipment, software, and applications.
Readiness: FGC's Y2K committee has addressed each area of risk to FGC's
continued operation once the century date change takes place. FGC has broken
down the areas according to mission critical and non-mission critical areas.
Each area requiring attention are: service bureau (including ATM processing and
bank forms), correspondent relationship, check/coupon printers, and internal
office equipment. In efforts to ensure Y2K readiness, FGC converted to a new
core processing system in February 1999 with The InterCept Group. FGC also
engaged the services of an external firm to review and monitor the progress of
FGC's readiness plans. Readiness plans are under constant review and scrutiny to
ensure each aspect of the Federal Deposit Insurance Corporation and the Federal
Financial Institutions Examination Council's Year 2000 guidelines for
preparedness are met.
FGC also relies heavily on external vendors for its daily operations, such as
electricity, phone service, water, and gas. Each of these vendors is under
constant review as the century date change is rapidly approaching. An initial
review to assess readiness was completed in early 1998 and continues to be
monitored.
Contingency Plans: Due to the critical nature of our core processing systems and
our automated platform for new accounts and loan document preparation, FGC has
developed contingency plans that will be put into operation should any of these
systems not pass Year 2000 readiness testing. Contingency plans have also been
developed in the event of disruption of service due to power outage, etc.
Cost: After completing an overall assessment of the Year 2000 impact to FGC, FGC
established a Y2K budget. The budget has been reviewed and updated to keep up to
date with the current Y2K status. Subsequently, the budget was amended to its
current level of $48,777 with provisions made for the core processing conversion
and hardware changes to facilitate conversion. Management does not expect the
cost of remediation to vary significantly from the present budget.
Other Concerns: FGC has taken a proactive stance to communicate to the customer
base the Y2K problem, its impact, and how to stay informed. Customers are
receiving mailers in a timely manner to keep them updated on FGC and the Federal
Deposit Insurance Corporation's preparedness. FGC will continue to keep its
customer base updated.
In relation to credit risk, FGC has performed due diligence analysis on both
commercial loan customers and fund providers. The analysis is updated and
reviewed to ensure proper risk assessment.
Finally, FGC acknowledges that due to the heightened media attention to the Year
200 issue that customers may withdraw extra amounts of money at the end of 1999.
The increased withdrawal could result in a liquidity issue for FGC; therefore,
FGC has revised its liquidity policy to address the liquidity needs anticipated
in light of the Y2K issue.
61
<PAGE>
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to FGC's Year 2000 compliance efforts and
the impact of Year 2000 issues on FGC's business and operations. Various factors
could cause actual plans and results to differ materially from those
contemplated by such assessments, estimates and forward-looking statements, many
of which are beyond the control of FGC. Some of these factors include, but are
not limited to representations by FGC's vendors and counterparties,
technological advances, economic considerations, and consumer perceptions. FGC's
Year 2000 compliance program is an ongoing process involving continual
evaluation and may be subject to change in response to new developments.
62
<PAGE>
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.
63
<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
Year Ended of Operations,
December 31, 1998 to December 31, 1997
(Dollars in Thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,120 $ 273
Taxable securities 3,596 150
Securities valuation account 5 -
Federal funds sold 3,793 1,706
Loans (2) 15,999 1,060
Reserve for loan losses (252) (6)
Other assets 2,487 624
---------------------------------
$ 26,748 $ 3,807
==================== ============
Total interest-earning assets $ 23,388 $ 2,916
==================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 3,847 $ 420
Interest-bearing demand 8,614 624
Savings 657 62
Time 6,531 408
-----------------------------------
Total deposits $ 19,649 $ 1,514
Other borrowings 26 5
Other liabilities 106 7
-----------------------------------
Total liabilities 19,781 1,526
-----------------------------------
Stockholders' equity 6,967 2,281
-----------------------------------
$ 26,748 $ 3,807
==================== ===========
Total interest-bearing liabilities $ 15,828 $ 1,099
==================== ===========
</TABLE>
(1) For each category, average balances were determined using the daily
average balances during the year for 1998 and for the period from
September 8, 1997, date of commencement of operations, to December 31,
1997, for 1997.
(2) There were no nonaccrual loans included in average loans for 1998 or
1997.
64
<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>
Years Ended December 31,
1998 1997
Average Average
Interest Rate Interest Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (1) $ 1,642 10.26% $ 120 11.32%
Interest on taxable securities 219 6.10 9 5.82
Interest on Federal funds sold 211 5.55 98 5.74
Interest earned during the period
prior to commencement of
banking operations - - 157 -
---------------------------------------------------------
Total interest income $ 2,072 8.86 384 7.77
---------------------------------------------------------
INTEREST EXPENSE:
Interest on interest-bearing
demand deposits $ 380 4.41 $ 20 3.22
Interest on savings deposits 19 2.92 2 2.97
Interest on time deposits 381 5.82 24 5.91
Interest on other borrowings (2) 1 4.80 - 4.80
Interest incurred during the period
prior to commencement of
banking operations - - 7 -
------------------------------------------------------------
Total interest expense 781 4.93 53 4.21
------------------------------------------------------------
NET INTEREST INCOME $ 1,291 $ 331
================== ==========
Net interest spread 3.93% 3.56%
===== =====
Net yield on average
interest-earning assets 5.52% 6.19%
===== =====
</TABLE>
(1) Interest and fees on loans includes $215,000 and $22,000 of loan fee
income for the years ended December 31, 1998 and 1997, respectively.
There was no interest income recognized on nonaccrual loans during
1998 or 1997.
(2) Interest on other borrowings in 1997 was less than $300.
65
<PAGE>
Rate and Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected FGC's interest income and expense during the year indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) change in volume (change
in volume multiplied by old rate); (2) change in rate (change in rate multiplied
by old volume); and (3) a combination of change in rate and change in volume.
The changes in interest income and interest expense attributable to both volume
and rate have been allocated proportionately on a consistent basis to the change
due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 vs. 1997
Changes Due To:
Increase
Rate Volume (Decrease)
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ (12) $ 1,534 $ 1,522
Interest on taxable securities - 210 210
Interest on Federal funds sold (3) 116 113
------------------------------------
Total interest income (15) 1,860 1,845
------------------------------------
Expense from interest-bearing liabilities:
Interest on interest-bearing
demand deposits 10 350 360
Interest on savings deposits - 17 17
Interest on time deposits - 357 357
Interest on other borrowings - 1 1
------------------------------------
Total interest expense 10 725 735
------------------------------------
Net interest income $ (25) $ 1,135 $ 1,110
======= ============ ======
</TABLE>
Interest income earned of $157,000 and interest expense incurred of $7,000 prior
to the commencement of banking operations in 1997 have been excluded from the
above table.
66
<PAGE>
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:
December 31,
1998 1997
(Dollars in Thousands)
U. S. Government agencies $ 5,516 $ 1,998
Equity securities 49 31
---------------------------------
$ 5,565 $ 2,029
=================================
Maturities
The amounts of securities in each category as of December 31, 1998 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 $ 508 5.00% $ 5,008 5.80% $ -- --
====================================================================
After ten years Total
Amount Yield (1) Amount Yield (1)
U.S. Government
agencies $ -- - $ 5,516 5.73%
================================================
</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.
67
<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. December 31,
<TABLE>
<CAPTION>
1998 1997
(Dollars in Thousands)
<S> <C> <C>
Commercial $ 2,878 $ 2,432
Real estate-construction 4,659 57
Real estate-mortgage 14,919 1,346
Consumer installment loans and other 1,859 2,282
----------------------------------
24,315 6,117
Less allowance for loan losses (434) (72)
---------- --------
Net loans $ 23,881 $ 6,045
================== ==========
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
Total loans as of December 31, 1998 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.
The disclosure of loans by the required categories, commercial and financial and
real estate - construction, is not available and would involve undue burden and
expense to the Company. In making this determination, the Company has considered
the estimated cost to compile the required information and its current
electronic data processing capability.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Maturity:
One year or less $ 7,731
After one year through five years 14,622
After five years 1,962
--------------
$ 24,315
</TABLE>
The following table summarizes loans at December 31, 1998 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 $ 13,525
Floating or adjustable interest rates 3,059
-------------
$ 16,584
</TABLE>
68
<PAGE>
Risk Elements
Information with respect to nonaccrual, past due, and restructured loans at
December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
(Dollars in Thousands)
<S> <C> <C>
Nonaccrual loans $ 0 $ 0
Loans contractually past due ninety
days or more as to interest or
principal payments and still accruing 0 0
Restructured loans 0 0
Loans, now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment terms 0 0
Interest income that would have been recorded
on nonaccrual and restructured loans under
original terms 0 0
Interest income that was recorded on
nonaccrual and restructured loans 0 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.
69
<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>
Years Ended December 31,
1998 1997
(Dollars in Thousands)
<S> <C> <C>
Average amount of loans outstanding $ 15,999 $ 1,060
============= =====
Balance of allowance for loan losses
at beginning of period $ 72 $ --
------------ ---------
Loans charged off
Commercial and financial -- --
Real estate mortgage 14 --
Installment 9 --
---------------------------
23 --
---------------------------
Loans recovered
Commercial and financial -- --
Real estate mortgage -- --
Installment -- --
---------------------------
-- --
---------------------------
Net charge-offs 23 --
---------------------------
Additions to allowance charged to operating
expense during period 385 72
--------------------------
Balance of allowance for loan losses
at end of period $ 434 $ 72
=========== ========
Ratio of net loans charged off during the
period to average loans outstanding 0.14% --%
========== ========
Allowance for Loan Losses
</TABLE>
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.
70
<PAGE>
As of December 31, 1998 and 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, 1998 December 31, 1997
Percent of loans in Percent of loans in
each category each category
Amount to total loans Amount to total loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $ 87 12% $36 40%
Real estate -
construction 65 19 7 1
Real estate - mortgage 239 61 14 22
Consumer installment
loans and other 43 8 15 37
---------------------------------------------------------
$434 100% $72 100%
=================== ===============
</TABLE>
71
<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>
Years Ended December 31,
1998 1997
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 3,847 -- % $ 420 --%
Interest-bearing demand deposits 8,614 4.41 624 3.22
Savings deposits 657 2.92 62 2.97
Time deposits 6,531 5.82 408 5.91
------------------- ----------------
$19,649 $1,514
========================================
</TABLE>
(1) Average balances were determined using the daily average balances
during the year for 1998 for the period from September 8, 1997, date of
commencement of operations, to December 31, 1997 for 1997.
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1998 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 $ 2,109
Over three months through six months 967
Over six through twelve months 741
Over twelve months 504
------------
Total $ 4,321
============
</TABLE>
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following rate of return information for the year indicated is presented
below.
Years Ended December 31,
1998 1997
Return on assets (1) (0.91)% (2.80)%
Return on equity (2) (3.48) (4.67)
Dividend payout ratio(3) - -
Equity to assets ratio (4) 26.05 59.92
(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 loss per
share.
(4) Average common equity divided by average total assets.
72
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION ENTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE FISCAL YEAR ENDED 12/31/98 FILED ON
FORM 10-KSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFERNECE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 675,969
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,410,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,565,028
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 24,566,221
<ALLOWANCE> 433,882
<TOTAL-ASSETS> 36,350,825
<DEPOSITS> 29,321,903
<SHORT-TERM> 22,241
<LIABILITIES-OTHER> 136,879
<LONG-TERM> 0
0
0
<COMMON> 3,792,290
<OTHER-SE> 3,077,512
<TOTAL-LIABILITIES-AND-EQUITY> 36,350,825
<INTEREST-LOAN> 1,641,616
<INTEREST-INVEST> 219,451
<INTEREST-OTHER> 210,458
<INTEREST-TOTAL> 2,071,525
<INTEREST-DEPOSIT> 779,294
<INTEREST-EXPENSE> 780,550
<INTEREST-INCOME-NET> 1,290,975
<LOAN-LOSSES> 385,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,276,258
<INCOME-PRETAX> (177,413)
<INCOME-PRE-EXTRAORDINARY> (177,413)
<EXTRAORDINARY> 0
<CHANGES> (65,329)
<NET-INCOME> (242,742)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.53)
<YIELD-ACTUAL> 5.52
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 72,000
<CHARGE-OFFS> 23,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 385,000
<ALLOWANCE-DOMESTIC> 385,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
