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Filed pursuant to Rule 424(b)(1)
Registration No. 333-69763
PROSPECTUS
740,741 SHARES
(GEORGIA CAROLINA BANCSHARES, INC. LOGO)
COMMON STOCK
This is a public offering by Georgia-Carolina Bancshares, Inc. of its
common stock. This offering is an "any and all" best efforts offering. An "any
and all" best efforts offering means that we will use our best efforts to sell
the stock offered by this prospectus but that we are not required to sell a
particular amount of shares in order to complete the offering. Further, because
there are no escrow arrangements in this offering, money we receive for shares
will be deposited directly with us and will be immediately available for our
use.
Shares in this offering will be sold by our directors and executive
officers, who will not receive commissions for any sales they make. In order to
purchase shares in this offering, you must purchase at least 100 shares. We may,
at our option, extend this offering until January 20, 2000, without giving you
notice. In addition, we may reject all or part of any subscription to purchase
shares of common stock for any reason.
There is no established public trading market for our common stock. We
expect that quotations for our Common Stock will be reported on the Nasdaq OTC
Bulletin Board under the symbol "GCBI."
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE
4, ALONG WITH THE REST OF THIS PROSPECTUS, BEFORE YOU INVEST IN THE COMMON STOCK
BEING SOLD WITH THIS PROSPECTUS.
<TABLE>
<CAPTION>
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PER SHARE MAXIMUM
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<S> <C> <C>
Price to Public................................. $13.50 $10,000,004
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Underwriting Discounts and Commissions.......... $0 $0
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Proceeds to the Company......................... $13.50 $10,000,004
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</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE NOTE THAT THESE SECURITIES:
- ARE NOT BANK ACCOUNTS OR DEPOSITS;
- ARE NOT FEDERALLY INSURED BY THE FDIC; AND
- ARE NOT INSURED BY ANY OTHER STATE OR FEDERAL AGENCY.
The date of this Prospectus is January 25, 1999.
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GEORGIA-CAROLINA BANCSHARES, INC.
AUGUSTA MARKET
(MAP DEPICTING THE STATES OF GEORGIA AND SOUTH CAROLINA WITH AUGUSTA MARKET
HIGHLIGHTED)
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(1) The Company operates two offices in Thomson, Georgia.
(2) The Company expects the new branch office in Augusta, Georgia to open in the
first quarter of 1999 and the new branch office in Martinez, Georgia to open
in late 1999.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
This summary is not complete and does not contain all of the information you
should consider before investing in our common stock. You should read carefully
this entire prospectus.
THE COMPANY
IN GENERAL
We are Georgia-Carolina Bancshares, Inc., a bank holding company that owns
First Bank of Georgia, a state-chartered commercial bank that operates two
offices in Thomson, Georgia under the name "First Bank-McDuffie." We have
immediate plans to expand our presence in the Augusta, Georgia Metropolitan
Statistical Area (the "Augusta Market"). Construction has begun on our new
branch office in Augusta which is expected to open in the first quarter of 1999.
In late 1999, we expect to open another branch office in Martinez, a rapidly
growing community adjacent to Augusta. Future business plans include further
expansion in the Augusta Market by opening additional branch offices or
acquiring other banks or branches. As of September 30, 1998, we had total assets
of $43.8 million, deposits of $35.8 million and shareholders' equity of $7.5
million.
THE AUGUSTA MARKET
The Augusta Market consists of the City of Augusta in Richmond County, the
adjacent Georgia counties of McDuffie and Columbia located west and northwest of
Augusta, and the adjacent South Carolina counties of Aiken and Edgefield located
east and northeast of Augusta just across the Savannah River. Columbia County is
one of the fastest growing counties in Georgia, in terms of both population and
commercial growth. The economy of the Augusta Market is diverse and consists of
established and new residential neighborhoods, commercial and retail businesses,
large corporate headquarters, light and heavy manufacturing, a growing service
sector, a university-supported health care community and significant sports and
recreation enterprises. As of June 30, 1998, the latest period for which
government reports are available, there were 14 depository institutions
(including the Bank) represented in the Augusta Market with aggregate deposits
of approximately $3.8 billion.
MARKET OPPORTUNITY
The Augusta Market has been significantly affected by consolidation in the
banking industry in recent years, and particularly by the acquisition of Bankers
First Corporation by SouthTrust Corporation in 1996 and by the acquisition of
Allied Bankshares, Inc. by Regions Financial Corporation in 1997. Consolidation
often results in the dissolution of local boards of directors and the
dislocation of management and customer service personnel with extensive banking
experience and strong ties to the local community. Accordingly, we believe that
many customer relationships in the Augusta Market have been disrupted as the
bigger financial institutions have increasingly focused their attention on
larger corporate customers, standardized loan and deposit products and other
services. Generally, these products and services are offered by less
personalized delivery systems, creating a demand for the delivery of higher
quality, personalized banking services to individuals and small to medium-sized
businesses. As a result of these factors, we believe that we have a unique
opportunity to attract and retain experienced and talented management personnel
and to become the primary provider of community banking services in the Augusta
Market.
BUSINESS STRATEGY
Our business strategy is to become the community bank of choice in the
Augusta Market. The principal elements of this strategy are to:
- Expand our presence in the Augusta Market by opening a branch office in
Augusta in the first quarter of 1999 and in Martinez in late 1999;
- Staff our branch offices with local and responsive management teams
emphasizing a high level of personalized customer service;
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- Leverage the extensive business relationships and diverse backgrounds of
our Board of Directors and our branch office advisory boards to assist us
in attracting customers;
- Establish local identities by using the names "First Bank-Augusta" for
the Augusta branch office and "First Bank-Columbia County" for the
Martinez branch office;
- Target individuals, professionals and small to medium-sized business
customers that require the attention and service which a
community-oriented bank is well suited to provide;
- Provide a broad array of traditional banking products and services while
utilizing technology and strategic outsourcing to compete effectively
with other financial institutions; and
- Pursue further expansion opportunities in the Augusta Market by opening
additional branch offices or acquiring other banks or branches.
EXECUTIVE OFFICES
Our executive offices are located at 110 East Hill Street, Thomson,
Georgia, and our telephone number is (706) 595-1600.
THE OFFERING
Common stock offered............................ 740,741 shares
Common stock to be outstanding after this
offering........................................ 1,376,121 shares(1)
Use of proceeds................................. To support internal growth
related to expanding our
presence in the Augusta
Market, to finance possible
future acquisitions and for
other general corporate
purposes. See "Use of
Proceeds" (page 10).
Proposed trading symbol......................... "GCBI"
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(1) This number is estimated based on the sale of 100% of the common stock
offered. Because no minimum amount of shares must be sold, the common stock
outstanding following this offering could range from 635,380 shares, if no
offers are accepted, to 1,376,121, if 100% of the common stock is sold.
These numbers exclude (i) 21,500 shares issuable upon the exercise of
outstanding stock options and (ii) an outstanding stock option to be granted
upon completion of the offering for 2.5% of the number of shares of common
stock sold in this offering.
RISK FACTORS
Prior to making an investment decision, you should read carefully the "Risk
Factors" section, beginning on page 4, for a discussion of specific risks
related to an investment in the common stock.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data
concerning Georgia-Carolina and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this Prospectus. The summary data presented below for and
as of the end of each of the years in the three-year period ended December 31,
1997 are derived from the consolidated financial statements of Georgia-Carolina,
all of which have been audited by Cherry, Bekaert & Holland, L.L.P., independent
auditors. The financial statements as of and for the years ended December 31,
1997 and 1996 are included elsewhere in this Prospectus. The summary data
presented below for the nine months ended September 30, 1998 and 1997 are
derived from the unaudited financial statements of Georgia-Carolina.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
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1998 1997 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.............................. $ 1,433 $ 1,292 $ 1,750 $ 1,668 $ 1,783
Provision for loan losses........................ -- 15 16 56 240
Noninterest income............................... 217 197 257 292 261
Noninterest expense.............................. 1,453 1,176 1,619 1,447 1,577
Net income....................................... 142 205 234 325 154
PER COMMON SHARE DATA:
Net income, basic................................ $ 0.22 $ 0.33 $ 0.37 $ 0.51 $ 0.24
Net income, diluted(1)........................... 0.21 0.31 0.35 0.50 0.24
Cash dividends................................... 0.10 0.20 0.20 0.10 0.10
Book value....................................... 11.77 11.32 11.45 11.22 10.92
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
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1998 1997 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets......................................... $43,798 $38,077 $40,571 $38,026 $42,450
Loans(2)....................................... 21,816 18,745 19,732 21,008 21,105
Allowance for loan losses...................... 834 858 752 889 1,155
Deposits....................................... 35,823 30,551 32,937 30,655 35,320
Shareholders' equity........................... 7,478 7,192 7,278 7,132 6,937
</TABLE>
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(1) Assumes the exercise of outstanding options to acquire Common Stock. See
Note 8 to Georgia-Carolina's consolidated financial statements.
(2) Loans exclusive of unearned income, before allowance for losses.
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RISK FACTORS
You should note, in particular, that this Prospectus contains statements
relating to financial results, plans for future business development activities,
capital spending or financing sources, capital structure and the effects of
regulation and competition that are forward-looking. These forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by the forward looking statements. Potential risks and uncertainties
include those discussed below, as well as risks and uncertainties discussed
elsewhere in this Prospectus and described from time to time in our filings with
the Securities and Exchange Commission.
RISKS OF EXPANSION AND MANAGING GROWTH
We intend to pursue an aggressive growth strategy in the Augusta Market,
and future results of operations will be affected by our ability to, among other
things, identify suitable sites for branch offices, build a customer base,
attract qualified bank staff, negotiate leases and other agreements with
acceptable terms in connection with the opening of additional branch offices and
maintain adequate working capital. Failure to manage growth effectively or to
attract and retain qualified personnel could have a material adverse effect on
our business, future prospects, financial condition or results of operations,
and could adversely affect our ability to implement our business strategy
successfully. There can be no assurance that we will be able to expand our
market presence in the Augusta Market or that any such expansion will not
adversely affect us.
The process of opening new branch offices may divert our time and
resources. There can be no assurance that we will not incur disruption and
unexpected expenses in integrating newly established branch offices. Our ability
to manage growth as we pursue our expansion strategy will also be dependent
upon, among other factors, our ability to (i) maintain appropriate policies,
procedures and systems to ensure that our loan portfolio maintains an acceptable
level of credit risk and loss and (ii) manage the costs associated with
expanding our infrastructure, including systems, personnel and facilities. Our
inability to manage growth as we pursue our expansion strategy could have a
material adverse effect on our business, future prospects, financial condition
or results of operations. See "Business -- Business Strategy" (page 27).
NO OPERATING HISTORY FOR OFFICES IN AUGUSTA AND MARTINEZ, GEORGIA
We have immediate plans to expand our presence in the Augusta Market by
opening a branch office in Augusta and in Martinez, Georgia, a community
adjacent to Augusta. Our profitability will, in large part, depend upon the
successful operation of these new offices. The operation of these new offices
will be subject to the risks inherent in the establishment of a new business
and, specifically, of a new bank. The likelihood of the success of each of the
offices must be considered in light of the expenses, complications, and delays
frequently encountered in connection with the development of a new bank and the
competitive environment in which each office will operate.
Typically, new offices incur substantial initial expenses and often are not
profitable on an annual basis until several years after commencing business.
There can be no assurance that any of our new offices will ever operate
profitably or that the impact of one or more of their respective operations will
not have a material adverse impact on our results of operations and financial
condition.
DEPENDENCE ON LOCAL ECONOMIC CONDITIONS
We anticipate that a majority of our customers will be located and doing
business in and around the Augusta Market. Any factors adversely affecting the
economy of this area could, in turn, adversely affect our performance due to the
impact unfavorable economic conditions could have on the ability of borrowers to
repay their loans. Further, commercial banks and other financial institutions
are affected by economic and political conditions, both domestic and
international, and by governmental monetary policies. Conditions such as
inflation, recession, unemployment, high interest rates, short money supply,
scarce natural resources, international disorders and other factors beyond our
control may adversely affect our profitability.
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LOAN PORTFOLIO PREDOMINANTLY SECURED BY REAL ESTATE
As of September 30, 1998, real estate loans comprised approximately 67% of
our total loan portfolio, which includes residential mortgages and construction
and commercial loans secured by real estate. Because we generate a substantial
portion of our real estate loans in Thomson and in suburban Atlanta, real estate
market conditions in these areas could strongly influence our level of
non-performing loans and our results of operations and financial condition. Real
estate values and the demand for mortgages and construction loans are affected
by, among other things, changes in general or local economic conditions, changes
in governmental rules or policies, the availability of loans to potential
purchasers and natural disasters. Although our underwriting standards are
intended to protect us against adverse general and local real estate trends,
declines in real estate markets could adversely impact the demand for new real
estate loans, the value of the collateral securing our loans and our business,
results of operations and financial condition.
We first began making real estate loans in suburban Atlanta in June 1997.
These loans are generated by a third party loan broker and consist primarily of
construction loans to builders of new homes and, to a lesser degree, commercial
office buildings. As of September 30, 1998, our real estate loans outstanding in
suburban Atlanta totaled $3.9 million and comprised approximately 18.1% of our
total loan portfolio. These loans typically have a six month maturity, subject
to possible renewal. To date, we have not experienced any defaults on these
loans and we do not believe that these loans entail any greater risk than real
estate loans made in the Augusta Market. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Lending Activities" (page 28).
CREDIT RISK; ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
Lending money is an essential part of the banking business. However,
borrowers do not always repay their loans. The risk of non payment is affected
by, among other things:
- the duration of the loan;
- credit risks of a particular borrower;
- changes in economic and industry conditions; and
- in the case of a collateralized loan, uncertainties as to the future
value of the collateral.
We attempt to maintain an appropriate allowance for loan losses to provide
for potential losses in our loan portfolio. We periodically determine the amount
of the allowance for loan losses based upon consideration of several factors,
including, among others:
- an ongoing review of the quality, mix and size of the overall loan
portfolio;
- historical loan loss experience;
- evaluation of non-performing loans;
- assessment of economic conditions and their effects on the existing
portfolio; and
- the amount and quality of collateral, including guarantees, securing
loans.
There is no precise method of predicting loan losses; therefore, there can
be no assurance that the allowance for loan losses will be sufficient to absorb
future loan losses. Excess loan losses could have a material adverse effect on
our financial condition and results of operations.
INTEREST RATE SENSITIVITY
Our results of operations are materially affected by the monetary and
fiscal policies of the federal government and the regulatory policies of
governmental authorities. Our profitability is dependent to a large extent on
our net interest income, which is the difference between our income on
interest-earning assets, such as loans, and our expense on interest-bearing
liabilities, such as deposits. Consequently, we, like most bank
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holding companies, are particularly sensitive to interest rate fluctuations and,
accordingly, a change in market interest rates could adversely affect our
earnings.
NO ESTABLISHED MARKET FOR OUR COMMON STOCK
Presently, there is no established public market for our common stock.
There is no guarantee:
- that any market for our common stock will develop;
- that any market for our common stock that develops will be liquid;
- that you will be able to sell the common stock you buy in this
offering; or
- that you will be able to sell the common stock you buy in this
offering at any particular price.
Although we expect to list our common stock on the Nasdaq OTC Bulletin Board, an
active trading market may not continue or develop after this offering.
The trading markets for securities quoted on the Nasdaq OTC Bulletin Board
lack the depth, liquidity and orderliness necessary to maintain an active
market. We will seek to encourage broker-dealers to make a market in our common
stock upon completion of this offering, but there can be no assurance that we
will be successful in doing so. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of which
is not within our control nor assured by listing our common stock on the Nasdaq
OTC Bulletin Board. Market makers on the Nasdaq Bulletin Board are not required
to maintain a continuous two-sided market, are required to honor firm quotations
for only a limited number of shares and are free to withdraw firm quotations at
any time. Accordingly, investors should consider the potential illiquid and
long-term nature of an investment in our common stock.
POTENTIAL FLUCTUATION IN QUARTERLY RESULTS AND VOLATILITY OF STOCK PRICE
If a market develops for our common stock after this offering, the price
for the common stock will be determined in the market and may be influenced by a
number of factors. These factors include:
- depth and liquidity of the market,
- investor perceptions of our company,
- changes in conditions or trends in the banking industry or in the
industries of our significant customers,
- publicly traded comparable companies, and
- general economic and political conditions.
In addition, the trading price of our common stock could be subject to
significant fluctuations in response to quarterly variations in our actual or
anticipated operating results, changes in general market conditions and other
factors. In particular, our quarterly revenues are difficult to forecast and our
expense levels are based in part on our expansion plans in anticipation of loan
growth and corresponding revenues generated from new branch offices. If revenue
levels are below expectations, we may be unable or unwilling to reduce expenses
proportionately and operating results would likely be adversely affected. As a
result, prior to the full implementation of our business strategy, we believe
that period to period comparisons of our results may not necessarily be
meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is possible that in future quarters our
operating results will be below the expectations of public market analysts and
investors. In such event, the market price of our common stock would likely be
materially adversely affected. In recent years, significant price and volume
fluctuations have occurred in the stock prices of companies that often have been
unrelated or disproportionate to their operating performance. There can be no
assurance that the market price of our common stock will not decline below the
public offering price.
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COMPETITION
Competition among financial institutions in the Augusta Market is intense.
We compete with other state and national banks, savings and loan associations,
consumer financial companies, credit unions, money market mutual funds and other
financial institutions which have far greater financial resources than those
available to us. Our relatively small size may adversely impact our ability to
compete effectively with larger institutions. If we are unable to compete for
deposits effectively in our primary service areas, such inability would likely
have an adverse effect on our potential for growth and profitability.
DEPENDENCE ON PATRICK G. BLANCHARD
We rely on a number of key executives, including Patrick G. Blanchard, our
President and Chief Executive Officer. Mr. Blanchard has an employment agreement
with us. We maintain key man life insurance on Mr. Blanchard in the amount of
$500,000. The loss of the services of any of our key executives, including Mr.
Blanchard, could have a material adverse effect on us. No assurance can be given
that replacements for any of these officers could be hired and retained if these
officers' services were no longer available. See "Management" (page 36).
YEAR 2000
A critical issue affecting companies that rely extensively on electronic
data processing systems, such as our company, is the Year 2000 issue. The Year
2000 issue has arisen due to the widespread use of computer programs that rely
on two-digit date codes to perform computations or decision-making functions.
Many of these programs may fail as a result of their inability to interpret
properly date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, equipment
controlled by microprocessor chips may not deal appropriately with the year
"00."
Our bank primarily uses a third-party service provider for processing our
primary banking applications. During 1997, we formed an internal task force to
address the Year 2000 issue, conduct a comprehensive review of our systems and
ensure that we take any necessary remedial measures. We believe that our systems
and those of our data processing service provider are currently Year 2000
compliant and do not believe that material expenditures will be necessary to
implement any further modifications. As of September 30, 1998, we had spent
approximately $45,000 to upgrade our software and hardware systems to help
ensure that our systems would be Year 2000 compliant. Further, we have issued a
certification request to our data processing service provider seeking assurance
that its systems will be Year 2000 compliant. Our service provider has responded
that it believes that its systems are Year 2000 compliant. However, there can be
no assurance that unforeseen difficulties or costs will not arise. In addition,
there can be no assurance that the systems of other companies on which our
systems rely, such as our bank's data processing vendor, will be modified on a
timely basis, or that the failure by another company to modify properly its
systems will not negatively impact our systems or operations.
We also recognize the importance of determining that our borrowers are
facing the Year 2000 problem in a timely manner in order to avoid deterioration
of our loan portfolio solely due to this issue. All material relationships have
been identified to assess inherent risks. Deposit customers have received
statement stuffers and informational material in this regard. We plan to work on
a one-on-one basis with any borrower who has been identified as having high Year
2000 risk exposure.
Our contingency plans relative to Year 2000 issues have been finalized. We
have developed a "worst case scenario" contingency plan which will, among other
things, anticipate that our deposit customers will have increased demands for
cash in the latter part of 1999. The plan also provides for copies of documents
to be produced in case of equipment failure, utilization of security personnel
in case of security equipment failure, manual posting of transactions, hiring
temporary additional personnel and telephone verification of information
normally received by electronic means.
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GOVERNMENT REGULATION AND LEGISLATION
We operate in a highly regulated environment and are subject to supervision
by several governmental regulatory agencies, including the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation (the "FDIC") and the Georgia Department of Banking and
Finance (the "Georgia Banking Department"). These regulations are generally
intended to provide protections for depositors and borrowers rather than for the
benefit of shareholders. We are subject to future legislation and government
policy, including bank deregulation and interstate expansion, which could
adversely affect the banking industry as a whole, including our operations.
Moreover, the establishment of branch offices and the acquisition of other
financial institutions are subject to the prior receipt of certain regulatory
approvals. Failure to obtain regulatory approvals for branch sites could impair
our long-term plans for expansion and have a material adverse effect on our
business, future prospects, financial condition or results of operation. See
"Supervision and Regulation" (page 31).
LIMITATIONS ON DIVIDENDS
Georgia law restricts our payment of dividends if, after such payment, we
would be unable to meet our obligations as they mature or our liabilities would
exceed our assets. Our ability to pay dividends is dependent upon our bank's
ability to provide funds to the company through the payment of dividends.
Pursuant to the Financial Institutions Code of Georgia (the "Georgia Code"), our
bank may pay dividends only when and if the bank is not insolvent or when the
payment of such dividends would not render the bank insolvent or when the
declaration or payment would not be contrary to any restrictions contained in
the bank's articles of incorporation. In addition, dividends may not be declared
or paid by the bank at any time when it does not have paid-in capital and
appropriated retained earnings which, in combination, equal at least 20% of the
bank's capital stock. Moreover, dividends may not be paid by the bank without
the prior approval of the Georgia Banking Department, if the dividends are in
excess of specified amounts. Therefore, future dividend policy will depend on
the bank's earnings, capital requirements, financial condition and other factors
considered relevant by our Board of Directors. See "Dividend Policy" (page 10).
ANTI-TAKEOVER CONSIDERATIONS
Our company's articles of incorporation (the "Articles") contain provisions
requiring supermajority shareholder approval to effect certain extraordinary
corporate transactions which are not approved by the company's Board of
Directors. These provisions make it more difficult to effect a merger, sale of
control or other similar transaction involving the company even though a
majority of the company's shareholders may vote in favor of such a transaction.
In addition, the Articles authorize the issuance of up to 1,000,000 shares of
preferred stock, the relative rights and preferences of which may be designated
by the company's Board of Directors without shareholder approval. These
provisions make it more difficult to effect a change in control of the company
through the acquisition of a large block of our company's common Stock or
otherwise. See "Description of Capital Stock" (page 43).
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TERMS OF THE OFFERING
GENERAL
Georgia Carolina Bancshares, Inc. (the "Company") is offering hereunder up
to 740,741 shares of its $.001 par value per share common stock (the "Common
Stock") for cash at a price of $13.50 per share (this "Offering"). A minimum
subscription of 100 shares is required for each subscription hereunder. The
minimum subscription amount may be waived by the Company in its sole discretion.
The purchase price of $13.50 per share shall be paid in full upon execution and
delivery of the Subscription Agreement attached to this Prospectus as Appendix
A. Subscription funds paid to the Company will be immediately available for use
by the Company. All subscriptions tendered by investors are subject to
acceptance by the Board of Directors of the Company, and the Company reserves
the absolute and unqualified right to reject or reduce any subscription for any
reason prior to acceptance. Once a subscription has been accepted by the
Company, it may not be withdrawn for any reason. Furthermore, the Company
reserves the unqualified right to terminate the Offering at any time during its
pendency for any reason whatsoever.
Prior to this Offering, there has been no established public trading market
for the shares of the Common Stock and there can be no assurance that an
established market for such stock will develop. There are, however, occasional
transactions in the Common Stock as a result of private negotiations. After this
Offering, the Company expects that quotations for the Common Stock will be
reported on the Nasdaq OTC Bulletin Board under the symbol "GCBI."
CONDITIONS OF THE OFFERING
This Offering will expire at 5:00 p.m. Eastern Time, on April 25, 1999 (the
"Expiration Date"), unless such date is extended by the Company. The Expiration
Date may be extended by the Company without notice to subscribers for up to
three consecutive 90-day periods, or not later than January 20, 2000.
PLAN OF DISTRIBUTION
The Company may terminate this Offering for any reason at any time during
its pendency for any reason whatsoever.
Shares of the Common Stock will be marketed on an "any and all" basis, with
a required 100 share minimum per investor, through certain directors and
executive officers of the Company, none of whom will receive any commissions or
other form of remuneration based on the sale of the shares. In addition, the
Company may engage sales agents to sell shares on a best efforts basis. The
Company anticipates that if sales agents are retained, such persons would be
paid sales commissions not exceeding 10% of the aggregate dollar amount of
Common Stock sold by the sales agents as well as certain other marketing-related
expenses.
As soon as practicable, the Company will accept or reject each
subscription. Subscriptions not rejected by the Company within 10 business days
after receipt shall be deemed accepted. Once a subscription is accepted by the
Company, it cannot be withdrawn by the subscriber.
Subscriptions to purchase shares of Common Stock can be made by completing
the Subscription Agreement attached to this Prospectus as Appendix A and
delivering the same to the Company at P.O. Box 1560, Thomson, Georgia 30824.
Full payment of the purchase price must accompany the subscription. Failure to
pay the full subscription price shall entitle the Company to disregard the
subscription. No Subscription Agreement is binding until accepted by the
Company, which may, in its sole discretion, refuse to accept any subscription
for shares, in whole or in part, for any reason whatsoever. Unless otherwise
agreed by the Company, all subscription amounts must be paid in United States
currency by check, bank draft or money order payable to "Georgia-Carolina
Bancshares, Inc." A subscription will be accepted in writing by the Company in
the Form of Acceptance attached to this Prospectus.
9
<PAGE> 12
DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of $13.50 per share in this Offering has been
determined by the Company based on a number of factors, including prevailing
market conditions, the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an opinion by an
independent financial advisor, an assessment of the Company's management and the
consideration of the above factors in relation to the market valuation of other
community banks and community bank holding companies in the Southeast. In the
event a market should develop for the Common Stock after completion of this
Offering, there can be no assurance that the market price for the Common Stock
will not be lower than the offering price in this Offering.
USE OF PROCEEDS
Assuming the sale of all 740,741 shares, the net proceeds to be received by
the Company from this Offering will be approximately $10.0 million, before the
deduction of offering expenses payable by the Company estimated at $150,000.
Approximately all of the net proceeds of this Offering will be contributed
to the capital of the Bank and used to support internal growth related to
expanding the Company's presence in the Augusta Market. The Company currently
has no specific plan for the remaining estimated net proceeds. The Company is
raising such monies for general corporate purposes, including working capital
and possible acquisitions. The Company does not presently have any agreements,
arrangements or understandings regarding any material acquisition.
Pending such uses, the Company expects that the net proceeds of this
Offering will be invested by the Company in a variety of short and
intermediate-term interest-bearing assets, such as obligations of the United
States government and its agencies, and other permitted investments.
DIVIDEND POLICY
Prior to being reorganized into a holding company structure in 1997, First
Bank of Georgia (the "Bank") paid a cash dividend of $.10 per share on its
common stock in April 1996, January 1997 and April 1997. Subsequent to the
Bank's reorganization into a holding company structure, the Company paid a cash
dividend of $.10 per share in April 1998.
Future dividends will be determined by the Board of Directors of the
Company in light of circumstances existing from time to time, including the
Company's growth, financial condition and results of operations, the continued
existence of the restrictions described below on the Bank's ability to pay
dividends and other factors that the Board of Directors of the Company considers
relevant. In addition, the Board of Directors of the Company may determine, from
time to time, that it is prudent to pay special nonrecurring cash dividends in
addition to or in lieu of regular cash dividends. Such special dividends will
depend upon the financial performance of the Company and will take into account
its capital position. No special dividend is presently contemplated.
Because the Company's principal operations are conducted through the Bank,
the Company generates cash to pay dividends primarily through dividends paid to
it by the Bank. Accordingly, any dividends paid by the Company will depend on
the Bank's earnings, capital requirements, financial condition and other factors
considered relevant by the Company's Board of Directors. Pursuant to the Georgia
Code, the Bank may pay dividends only when and if the Bank is not insolvent. In
addition, dividends may not be declared or paid at any time when the Bank does
not have combined paid-in capital and appropriated retained earnings equal to at
least 20% of the Bank's capital stock. Moreover, dividends may not be paid by
the Bank without the prior approval of the Georgia Banking Department, if the
dividends are in excess of specified amounts fixed by the Georgia Banking
Department.
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this Prospectus. The selected data presented below for and
as of the end of each of the years in the three-year period ended December 31,
1997, are derived from the consolidated financial statements of the Company, all
of which have been audited by Cherry, Bekaert & Holland, L.L.P., independent
auditors. The financial statements as of and for the years ended December 31,
1997 and 1996 are included elsewhere in this Prospectus. The selected financial
data presented below for the nine months ended September 30, 1998 and 1997 are
derived from the unaudited financial statements of the Company. In the opinion
of management, such unaudited financial statements have been prepared on the
same basis as the audited financial statements referred to above and include all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position of the Company and results of operations
for the indicated periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............................................. $ 2,472 $ 2,189 $ 2,963 $ 3,053 $ 3,194
Interest expense............................................ 1,039 897 1,213 1,385 1,411
Net interest income......................................... 1,433 1,292 1,750 1,668 1,783
Provision for loan losses................................... -- 15 16 56 240
Net interest income after provision......................... 1,433 1,277 1,734 1,612 1,543
Noninterest income.......................................... 217 197 257 292 261
Noninterest expense......................................... 1,453 1,176 1,619 1,447 1,577
Income before income taxes.................................. 197 298 372 457 227
Income tax expense.......................................... 55 93 138 132 73
Net income.................................................. 142 205 234 325 154
PER COMMON SHARE DATA:
Net income, basic........................................... $ .22 $ .33 $ 0.37 $ 0.51 $ 0.24
Net income, diluted(1)...................................... .21 .31 0.35 0.50 0.24
Cash dividends.............................................. .10 .20 0.20 0.10 0.10
Book value (at period end).................................. 11.77 11.32 11.45 11.22 10.92
Tangible book value (at period end)......................... 11.77 11.32 11.45 11.22 10.92
BALANCE SHEET DATA (AT PERIOD END):
Assets...................................................... $43,798 $38,077 $40,571 $38,026 $42,450
Loans(2).................................................... 21,816 18,745 19,732 21,008 21,105
Allowance for loan losses................................... 834 858 752 889 1,155
Deposits.................................................... 35,823 30,551 32,937 30,655 35,320
Shareholders' equity........................................ 7,478 7,192 7,278 7,132 6,937
PERFORMANCE RATIOS:
Return on average assets(3)................................. 0.86% .72% 0.58% 0.83% 0.37%
Return on average equity(3)................................. 2.53 3.80 3.22 4.68 2.24
Net interest margin (taxable equivalent).................... 5.10 4.84 5.02 4.65 4.80
Dividend payout............................................. 45.07 61.95 54.27 19.69 40.91
Efficiency(4)............................................... 88.06 78.98 80.67 73.82 77.15
ASSET QUALITY RATIOS:
Allowance for loan losses to period end loans............... 4.10% 4.70% 3.81% 4.23% 5.47%
Net charge-offs (recovery) to average loans................. (4.04) 2.27 0.75 1.52 2.06
Non-performing assets to period end loans and foreclosed
property(5)............................................... 1.20 2.70 0.22 0.71 1.07
CAPITAL AND LIQUIDITY RATIOS (AT PERIOD END):
Average equity to average assets............................ 17.91% 18.37% 18.54% 17.87% 17.22%
Leverage.................................................... 16.70 18.30 18.90 17.10 17.10
Tier 1 risk-based........................................... 27.10 31.60 30.00 30.80 28.20
Total risk-based............................................ 28.40 32.40 31.30 32.10 29.50
Average loans to average deposits........................... 61.20 65.19 65.40 68.80 70.84
Average loans to average deposits and borrowings............ 61.20 65.18 65.33 68.78 70.84
</TABLE>
- ---------------
(1) Assumes the exercise of outstanding options to acquire Common Stock. See
Note 8 to the Company's consolidated financial statements.
(2) Loans exclusive of unearned income, before allowance for losses.
(3) Annualized for nine month periods.
(4) Computed by dividing noninterest expense by the sum of taxable equivalent
net interest income and noninterest income.
(5) Non-performing loans and non-performing assets include loans past due 90
days or more that are still accruing interest.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, the term the "Company" refers to
Georgia-Carolina Bancshares, Inc. and its wholly-owned subsidiary, First Bank of
Georgia. The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of the Company and should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
SUMMARY
The Company was incorporated under the laws of the State of Georgia in
January 1997 for the purpose of acquiring and holding all of the Bank's
outstanding capital stock. The Company's principal business activities have been
conducted solely through the Bank since June 1997, when the Bank became a
subsidiary of the Company. The Company's principal business has historically
consisted of attracting deposits from the general public and making consumer and
commercial loans secured by various types of collateral. The primary goals of
management are to increase the Company's profitability, monitor its capital
position, and enhance its banking franchise. The Company's results of operations
are dependent upon net interest income, which is the difference between income
earned on interest-earning assets, such as loans and investments, and the cost
of its interest-bearing liabilities consisting primarily of deposits. Operations
are affected to a much lesser degree by the Company's noninterest income, such
as transaction and other service fee income, and other sources of income. Net
income also is affected by, among other things, the Company's provision for loan
losses and operating expenses. The Company's principal operating expenses, aside
from interest expense, consist of compensation and employee benefits, office
occupancy costs, data processing expenses, and federal deposit insurance
premiums. The Company's results of operations also are significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation, policies concerning monetary and fiscal
affairs and the attendant actions of regulatory authorities.
The Company currently operates two branch offices in Thomson, Georgia under
the name "First Bank-McDuffie." The Company has immediate plans to expand its
presence in the Augusta Market by opening branch offices in Augusta and in
Martinez, Georgia, a community adjacent to Augusta. Construction has begun on
the Augusta office, which is expected to open during the first quarter of 1999.
The Company expects to open its Martinez office in late 1999. The Company
expects to incur substantial start-up expenses in connection with opening branch
offices, including costs for construction, personnel, furnishings, equipment and
advertising. Management anticipates that each branch office is likely to incur
operating losses during its first year of operations, and possibly for a longer
period. As a result of the recent consolidation in the banking industry in the
Augusta Market and the opportunities that management believes this consolidation
offers the Company, management believes the investment in new branch offices
should, over time, result in profitable contributions by these offices to the
Company's consolidated results of operations. See "Use of Proceeds."
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1998 and 1997. Net interest
income increased to $1,433,000 for the nine months ended September 30, 1998 from
$1,292,000 for the nine months ended September 30, 1997, an increase of
$141,000, or 10.9%. This increase in net interest income is attributed to the
growth in average earning assets and an increase in the average yield on earning
assets. "See -- Net Interest Income."
Noninterest income for the nine months ended September 30, 1998 was
$217,000, an increase of $20,000, or 10.2%, from $197,000 for the nine months
ended September 30, 1997. Deposit service charges and other income remained
relatively constant from the 1997 period to 1998 as a result of a consistent
deposit base.
Noninterest expense was $1,453,000 for the nine months ended September 30,
1998, an increase of $277,000, or 23.6%, from $1,176,000 for the nine months
ended September 30, 1997. Personnel costs were $765,000 for the nine months
ended September 30, 1998, an increase of $163,000, or 27.1%, from $602,000 for
the nine months ended September 30, 1997. Of the increase in personnel costs,
$35,000 resulted from the
12
<PAGE> 15
addition of a senior lending officer during 1997 and $106,000 resulted from the
addition of an executive officer in October 1997 to support the Company's
planned expansion in the Augusta Market. Occupancy expenses were $148,000 for
the nine months ended September 30, 1998, an increase of $27,000, or 22.3%, from
$121,000 for the nine months ended September 30, 1997. The increase resulted
from equipment costs associated with Year 2000 compliance and the Company's
planned expansion in the Augusta Market. Other noninterest expenses were
$540,000 for the nine months ended September 30, 1998, an increase of $87,000,
or 19.2%, from $453,000 for the nine months ended September 30, 1997. This
increase included an increase in data processing costs of approximately $12,000
related to the implementation of an image processing system, an increase in
directors' fees of approximately $11,000 related to the expansion of the Board
of Directors, an increase of approximately $6,000 for costs of maintaining other
real estate owned and approximately $40,000 related to the Company's planned
expansion in the Augusta Market. In addition, the Company provided for a
non-recurring $18,000 valuation adjustment of other real estate owned during the
nine months ended September 30, 1998.
The provision for income taxes for the nine months ended September 30, 1998
was $55,000 compared to $93,000 for the nine months ended September 30, 1997.
The decrease resulted from a decrease in income before income taxes and deferred
tax benefits arising from the Company's improved loan loss experience.
The Company's net income for the nine months ended September 30, 1998 was
$142,000, a decline of $63,000, or 30.7%, from net income of $205,000 for the
nine months ended September 30, 1997. Basic earnings per share was $.22 for the
nine months ended September 30, 1998 and $.33 for the nine months ended
September 30, 1997. The decrease in net income is attributed to an increase in
noninterest expense that was partially offset by an increase in net interest
income.
During 1998, the Company commenced a "best efforts" offering which was
subsequently restructured to an underwritten offering on a firm commitment
basis. Due to unfavorable market conditions, the Company was unable to close the
offering and the offering was terminated. In effecting both the "best efforts"
offering and the underwritten offering on a firm commitment basis, the Company
incurred approximately $300,000 of expenses. The Company expects to charge
approximately $200,000 of these expenses to earnings in the fourth quarter of
1998 and expects the remaining expenses to be charged to the proceeds of this
Offering. See "Business -- Background."
Comparison of Years Ended December 31, 1997 and 1996. Net interest income
increased to $1.8 million for the year ended December 31, 1997 from $1.7 million
for the year ended December 31, 1996, an increase of 4.9%. This increase in net
interest income resulted primarily from a stable yield on earning assets from
1996 to 1997 and a decrease in the average cost of interest-bearing funds during
this period. See "-- Net Interest Income."
Noninterest income for the year ended December 31, 1997 was $257,000, a
decline of $35,000, or 11.9%, from the balance of $292,000 for the year ended
December 31, 1996. The decrease is primarily attributed to a decline of $28,000
in deposit non-sufficient-funds service charges arising from the introduction of
an overdraft protection loan product by the Company. This decrease in fees was
partially offset by an increase in interest income as a result of activating the
overdraft lines of credit.
Noninterest expense was $1.6 million for the year ended December 31, 1997,
an increase of $172,000, or 11.8%, from $1.4 million for the year ended December
31, 1996. Personnel costs for the year ended December 31, 1997 were $831,000, an
increase of $117,000, or 16.5%, from $714,000 for the year ended December 31,
1996. Approximately $73,000 of this personnel cost increase resulted from the
addition of a new senior lending officer in April of 1997 and approximately
$35,000 resulted from the addition of an executive officer in October 1997 to
support the Company's planned expansion in the Augusta Market. Also contributing
to the personnel expense increase were salary increases for existing staff and
increased costs associated with benefits programs. Occupancy expenses for the
year ended December 31, 1997 were $167,000, representing a decline of $64,000
from $231,000 for the year ended December 31, 1996. The decline resulted
primarily from decreased depreciation estimates and maintenance costs. Other
noninterest expenses increased $119,000, or 23.7%, from $502,000 for the year
ended December 31, 1996 to $621,000 for the year ended December 31, 1997. This
included an increase in legal costs of approximately $39,000 related to a
special shareholders'
13
<PAGE> 16
meeting and the drafting and negotiation of various agreements in connection
with the Company's planned expansion in the Augusta Market. Also included was an
increase in advertising costs of approximately $11,000, an increase in
professional fees of approximately $12,000 primarily related to the preparation
of public company reporting documents and approximately $50,000 of legal and
professional fees associated with the Company's formation. The Company has
elected to fully expense the $50,000 of legal and professional fees in the year
incurred.
The provision for income taxes for the year ended December 31, 1997 was
$138,000 compared to $132,000 for the year ended December 31, 1996. While income
before income tax declined from $457,000 for the year ended December 31, 1996 to
$372,000 for the year ended December 31, 1997, the income tax provision
increased due to deferred tax expenses related to the utilization of net
operating loss carryforwards during 1997. At December 31, 1997, the Company did
not have any further net operating loss carryforwards available to offset future
taxable income.
Net income for the year ended December 31, 1997 was $234,000, a decline of
$91,000, or 28.0%, from net income of $325,000 for the year ended December 31,
1996. Basic earnings per share was $.37 for the year ended December 31, 1997
compared to $.51 for the year ended December 31, 1996. The decrease in net
income is primarily attributed to an increase in noninterest expense that was
partially offset by an increase in net interest income.
NET INTEREST INCOME
The following table sets forth, for the periods indicated, certain
information related to the Company's average balance sheet, its yield on average
earning assets and its average rates on interest-bearing liabilities. Such
yields and rates are derived by dividing income or expense by the average
balance of the corresponding assets or liabilities.
AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
FULLY TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,(1)
-----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans, net.................. $20,312 $1,670 10.96% $20,306 $1,513 9.93%
Taxable investment
securities................. 11,669 628 7.17 9,679 504 6.94
Tax-exempt investment
securities................. 1,318 42 4.25 1,975 67 4.51
Federal funds sold.......... 4,040 125 4.13 3,346 96 3.83
Interest-bearing deposits in
bank....................... 149 7 6.04 281 9 4.27
-------- ------ ------- -------
Total earning
assets.............. 37,488 2,472 8.79 35,587 2,189 8.20
NON-EARNING ASSETS:
Cash and due from banks..... 1,252 1,226
Premises and equipment...... 1,944 1,470
Other assets................ 1,133 1,260
Less: Allowance for loan
losses..................... (872) (1,024)
------- -------
Total assets......... $40,945 $38,519
======= =======
INTEREST BEARING
LIABILITIES:
Savings and time deposits... $29,515 $1,039 4.69% $27,835 $ 895 4.29%
Federal funds purchased..... -- -- -- 5 2 --
------- ------ ------- ------
Total interest
bearing
liabilities......... 29,515 1,039 4.69 27,840 897 4.30
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans, net.................. $19,729 $2,034 10.31% $21,841 $2,178 9.97%
Taxable investment
securities................. 10,900 670 6.15 10,845 677 6.24
Tax-exempt investment
securities................. 1,147 88 7.67 1,243 95 7.64
Federal funds sold.......... 2,824 160 5.67 1,611 87 5.40
Interest-bearing deposits in
bank....................... 243 11 4.53 363 16 4.41
------- ------ ------- ------
Total earning
assets.............. 34,843 2,963 8.50 35,903 3,053 8.50
NON-EARNING ASSETS:
Cash and due from banks..... 984 1,696
Premises and equipment...... 1,459 1,501
Other assets................ 1,207 1,023
Less: Allowance for loan
losses..................... (907) (1,165)
------- -------
Total assets......... $37,586 $38,958
======= =======
INTEREST BEARING
LIABILITIES:
Savings and time deposits... $26,806 $1,211 4.51% $28,905 $1,384 4.79%
Federal funds purchased..... 32 2 -- 9 1 --
------- ------ ------- ------
Total interest
bearing
liabilities......... 26,838 1,213 4.51 28,914 1,385 4.79
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,(1)
-----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits............. 3,677 3,313
Other liabilities........... 418 289
Shareholders' equity........ 7,335 7,077
------- -------
Total liabilities and
shareholders'
equity.............. $40,945 $38,519
======= =======
Net interest income and net
yield on earning assets.... $1,433 5.10% $1,292 4.84%
====== ===== ====== =====
Interest rate spread........ 4.10% 3.90%
===== =====
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits............. 3,361 2,840
Other liabilities........... 420 243
Shareholders' equity........ 6,967 6,961
------- -------
Total liabilities and
shareholders'
equity.............. $37,586 $38,958
======= =======
Net interest income and net
yield on earning assets.... $1,750 5.02% $1,668 4.65%
====== ===== ====== ====
Interest rate spread........ 3.99% 3.71%
===== ====
</TABLE>
- ---------------
(1) Average yields for nine month periods have been annualized.
The net yield on earning assets increased 26 basis points to 5.10% on
average earning assets of $37.5 million for the nine months ended September 30,
1998 compared to average earning assets of $35.6 million for the nine months
ended September 30, 1997. The Company has maintained a stable interest rate
spread and an increase in the average yield on earning assets to offset
increases in the cost of funds. The average yield on earning assets increased 59
basis points to 8.79% from 8.20% primarily due to an increase in the yield on
loans. The increase in the cost of interest-bearing liabilities is attributable
to an increase in rates on time deposits and savings accounts. The interest rate
spread increased 20 basis points to 4.10% for the nine months ended September
30, 1998 from 3.90% for the nine months ended September 30, 1997.
The net yield on earning assets increased 37 basis points to 5.02% on
average earning assets of $34.8 million for the year ended December 31, 1997
from 4.65% on average earning assets of $35.9 million for the year ended
December 31, 1996. The average yield on earning assets was 8.50% for the years
ended December 31, 1997 and 1996. The average yield on the loan portfolio
increased 34 basis points to 10.31% for the year ended December 31, 1997 from
9.97% for the year ended December 31, 1996. During 1997 the loan portfolio
composition included $2.2 million more in real estate loans over 1996, including
construction loans, which generally provide a greater yield than most other
types of loans, contributing to the increased average yield on loans. The
decrease in the cost of interest-bearing liabilities resulted from changes in
rates and volumes of the liability accounts. The interest rate spread for the
year ended December 31, 1997 was 3.99%, an increase of 28 basis points from
3.71% for the year ended December 31, 1996. This increase resulted from a
combination of the stable yield on earning assets and the declining volume and
rate of interest-bearing liabilities.
Apart from the changes in the average yields on loans for the nine month
and annual periods, changes in the average yields on the other earning assets
had a minimal impact on interest income. The prime rate remained constant at
8.25% throughout 1996. In 1997, the rate increased 25 basis points to 8.50% in
March and remained at that level throughout 1997. Approximately 23.0% of the
Company's loan portfolio floats with variable rate indices such as the prime
rate. When interest rates rise, interest income on this segment of the portfolio
increases. Conversely, interest income from this segment of the portfolio
declines if interest rates fall and these loans reprice at lower rates.
15
<PAGE> 18
The table below presents the increase (decrease) in interest income and
interest expense attributable to volume and rate changes between the years ended
December 31, 1997 and 1996, and for the years ended December 31, 1996 and 1995.
In addition, the table presents changes for the nine month periods ended
September 30, 1998 and 1997, and September 30, 1997 and 1996.
VOLUME AND RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
VARIANCE VARIANCE VARIANCE VARIANCE VARIANCE VARIANCE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, net........................ $ -- $157 $157 $(168) $ 49 $(119)
Taxable investment securities..... 104 20 124 (5) 6 1
Tax-exempt investment
securities....................... (22) (3) (25) (6) 2 (4)
Other earning assets.............. (5) 3 (2) (6) -- (6)
Federal funds sold and securities
purchased under agreement to
resell........................... 20 9 29 124 (104) 20
---- ---- ---- ----- ----- -----
Total interest income............ 97 186 283 (61) (47) (108)
---- ---- ---- ----- ----- -----
INTEREST EXPENSE:
Savings and time deposits......... 55 89 144 (68) (80) (148)
Federal funds purchased, borrowed
funds and securities sold under
agreements to repurchase......... (1) (1) (2) 1 1 2
---- ---- ---- ----- ----- -----
Total interest expense........... 54 88 142 (67) (79) (146)
---- ---- ---- ----- ----- -----
Increase (decrease) in net
interest income.................. $ 43 $ 98 $141 $ 6 $ 32 $ 38
==== ==== ==== ===== ===== =====
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
VARIANCE VARIANCE VARIANCE VARIANCE VARIANCE VARIANCE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, net........................ $(195) $ 51 $(144) $(143) $ (30) $(173)
Taxable investment securities..... 7 (14) (7) (7) 54 47
Tax-exempt investment
securities....................... 8 (15) (7) 57 (4) 53
Other earning assets.............. (1) (4) (5) (1) (9) (10)
Federal funds sold and securities
purchased under agreement to
resell........................... (18) 91 73 (40) (18) (58)
----- ----- ----- ----- ----- -----
Total interest income............ (199) 109 (90) (134) (7) (141)
----- ----- ----- ----- ----- -----
INTEREST EXPENSE:
Savings and time deposits......... (130) (43) (173) (19) (5) (24)
Federal funds purchased, borrowed
funds and securities sold under
agreements to repurchase......... 3 (2) 1 (3) (1) (4)
----- ----- ----- ----- ----- -----
Total interest expense........... (127) (45) (172) (22) (6) (28)
----- ----- ----- ----- ----- -----
Increase (decrease) in net
interest income.................. $ (72) $ 154 $ 82 $(112) $ (1) $(113)
===== ===== ===== ===== ===== =====
</TABLE>
FINANCIAL CONDITION
General. At September 30, 1998, the Company's consolidated assets were
$43.8 million, an increase of $5.7 million, or 15.0%, from $38.1 million at
September 30, 1997. Management believes the asset increase was directly related
to new customers gained from a competing local community bank that was acquired
by a regional bank holding company in 1997. For the nine months ended September
30, 1998, loans represented 54.2%, investment securities comprised 34.6%,
Federal funds sold comprised 10.8% and interest-bearing deposits in banks
comprised 0.4% of average earning assets. The Company's total loans outstanding
were $21.8 million at September 30, 1998, an increase of $3.0 million, or 16.0%,
from the September 30, 1997 balance of $18.8 million.
At December 31, 1997, the Company's consolidated assets were $40.6 million,
an increase of $2.6 million, or 6.8%, from $38.0 million at December 31, 1996.
The additional funds were invested by the Company in investment securities and
Federal funds. For the year ended December 31, 1997, loans represented 56.6%,
investment securities comprised 34.6%, Federal funds sold comprised 8.0% and
interest-bearing deposits in banks comprised 1.0% of average earning assets.
16
<PAGE> 19
The table below provides an analysis of the loan portfolio by major type as
of September 30, 1998 and 1997 and December 31, 1997 and 1996.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------------------
1998 1997 1997 1996
--------------- --------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE:
Commercial.................. $ 4,896 22.4% $ 4,690 25.0% $ 4,549 23.1% $ 3,974 18.9%
Residential................. 4,768 21.8 4,760 25.4 4,588 23.3 6,943 33.0
Construction and
development............... 4,972 22.8 3,264 17.4 4,893 24.8 2,547 12.1
------- ----- ------- ----- ------- ----- ------- -----
Total real estate...... 14,636 67.0 12,714 67.8 14,030 71.2 13,464 64.0
------- ----- ------- ----- ------- ----- ------- -----
COMMERCIAL, FINANCIAL AND
AGRICULTURAL.............. 4,010 18.4 3,262 17.4 3,059 15.5 4,794 22.8
------- ----- ------- ----- ------- ----- ------- -----
CONSUMER:
Direct...................... 3,007 13.8 2,628 14.1 2,495 12.6 2,585 12.3
Revolving................... 163 .8 141 .7 148 0.7 165 0.9
------- ----- ------- ----- ------- ----- ------- -----
Total consumer......... 3,170 14.6 2,769 14.8 2,643 13.3 2,750 13.2
------- ----- ------- ----- ------- ----- ------- -----
Total............. $21,816 100.0% $18,745 100.0% $19,732 100.0% $21,008 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
For additional information regarding the composition of the loan portfolio
and descriptions of loan types, see "Business -- Lending Activities."
Real estate loans include loans secured by real estate for a variety of
purposes including commercial properties, income producing properties,
owner-occupied residential and construction and development. Loans secured by
real estate equaled $14.6 million, or 67.0%, of the loan portfolio at September
30, 1998 compared to $12.7 million, or 67.8%, of the portfolio at September 30,
1997. At December 31, 1997, loans secured by real estate were $14.0 million, or
71.2%, of the portfolio compared to $13.5 million, or 64.0%, at December 31,
1996. The Company has experienced significant loan growth in the area of
construction and development lending. This growth has, in part, resulted from
the Company's lending activities in the suburban Atlanta, Georgia area. See
"Business -- Lending Activities."
Commercial, financial and agricultural loans include loans to individual,
partnership or corporate borrowers which are obtained for a variety of business
purposes. Commercial, financial and agricultural loans equaled $4.0 million, or
18.4%, of the portfolio at September 30, 1998 compared to $3.3 million, or
17.4%, of the portfolio at September 30, 1997. At December 31, 1997, these loans
were $3.1 million, or 15.5%, of the portfolio compared to $4.8 million, or
22.8%, of the portfolio at December 31, 1996.
Consumer loans consist primarily of residential first and second mortgage
loans, home equity loans, installment loans, including automobile loans and
pre-approved lines of credit. At September 30, 1998 and September 30, 1997,
consumer loans were $3.2 million and 2.8 million, respectively, representing
14.6% and 14.8% of the portfolio, respectively. At December 31, 1997, consumer
loans were $2.6 million, or 13.3%, of the portfolio compared to $2.8 million, or
13.2%, at December 31, 1996.
17
<PAGE> 20
The repayment of loans in the portfolio as they mature is a source of
liquidity for the Company. The following table sets forth the maturity of the
Company's portfolio within specific intervals as of September 30, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------------------------------------------------
RATE STRUCTURE FOR LOANS
MATURITY MATURING OVER ONE YEAR
------------------------------------------- --------------------------------
ONE YEAR OVER ONE PREDETERMINED FLOATING OR
OR YEAR TO OVER FIVE INTEREST ADJUSTABLE
LESS FIVE YEARS YEARS TOTAL RATE RATE
-------- ---------- --------- ------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural.... $ 2,725 $1,262 $-- $ 3,987 $1,262 $ --
Real estate --
construction........ 3,928 1,044 -- 4,972 1,054 --
Real
estate -- mortgage.. 5,134 4,532 13 9,679 4,545 --
Consumer.............. 1,377 1,765 36 3,178 1,801 --
$13,171 $8,603 $49 $21,816 $8,662 $ --
======= ====== === ======= ====== ====
</TABLE>
Asset Quality. Management considers the Company's asset quality to be of
primary importance. The allowance for loan losses, which is utilized to absorb
actual charge-offs in the loan portfolio, is maintained at a level sufficient to
provide for estimated potential charge-offs of non-collectible loans. The loan
portfolio is analyzed periodically in an effort to identify potential problems
before they actually occur. The Company's allowance for loan losses is also
analyzed monthly by management. This analysis includes a methodology that
segments the loan portfolio by selected loan types and considers the current
status of the portfolio, historical charge-off experience, current levels of
delinquent, impaired and non-performing loans, as well as economic and inherent
risk factors. In addition, the Company engages a third party consultant to
review its loan portfolio semi-annually. The provision for loan losses
represents a charge against income in an amount necessary to maintain the
allowance at an appropriate level. The monthly provision for loan losses may
fluctuate based on the results of this analysis. The following table sets forth
the allowance for loan losses at September 30, 1998 and 1997 and December 31,
1997 and 1996. The allocation is based on management's grading of the loan
portfolio with the remaining portion allocated to the general category, although
the entire allowance is available to be used for charge-offs in any loan
category.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------------------
1998 1997 1997 1996
--------------- --------------- --------------- ---------------
% OF % OF % OF % OF
LOANS IN LOANS IN LOANS IN LOANS IN
$ CATEGORY $ CATEGORY $ CATEGORY $ CATEGORY
---- -------- ---- -------- ---- -------- ---- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable
to:
Commercial......................... $ 41 18.4% $ 38 17.4% $ 6 38.6% $ 66 41.7%
Real estate -- construction........ 64 22.8 27 17.4 50 24.8 66 12.1
Real estate -- mortgage............ 189 44.2 312 50.4 323 23.3 365 33.0
Consumer........................... 75 14.6 115 14.8 105 13.3 57 13.2
General............................ 465 -- 366 -- 268 -- 325 --
---- ----- ---- ----- ---- ----- ---- -----
Total allocation......... $834 100.0% $858 100.0% $752 100.0% $889 100.0%
==== ===== ==== ===== ==== ===== ==== =====
</TABLE>
The Company did not provide a provision for loan losses for the nine months
ended September 30, 1998. For the nine months ended September 30, 1997, the
Company provided a loss provision of $15,000. For the year ended December 31,
1997, the Company provided a provision of $16,000, representing a 71.4% decrease
from the provision of $56,000 for the year ended December 31, 1996. The Company
is continuing to decrease the amount of the provision in recognition of
improvements made in the Company's level of non-performing assets and loan
charge-offs. The Company experienced a net recovery of $82,000 for the nine
months ended September 30, 1998, compared with a net charge-off of $46,000 for
the nine months ended September 30, 1997. Net charge-offs were $153,000 for the
year ended December 31, 1997, or 0.8%, of average loans
18
<PAGE> 21
outstanding, compared with $322,000, or 1.5%, of average loans outstanding, for
the year ended December 31, 1996. The following table contains an analysis of
the allowance for loan losses including the amount of charge-offs and recoveries
by loan type, for the nine months ended September 30, 1998 and 1997 and for the
years ended December 31, 1997 and 1996.
SUMMARY OF ALLOWANCES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- -------------
1998 1997 1997 1996
----- ----- ---- ------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Balance, beginning of period................................ $752 $889 $889 $1,155
CHARGE-OFFS:
Commercial, financial and agricultural (primarily single
payment).................................................. -- 70 91 143
Consumer (primarily installment)............................ 17 44 141 381
Credit cards................................................ 1 4 10 29
---- ---- ---- ------
18 118 242 553
RECOVERIES:
Commercial.................................................. 16 6 8 11
Consumer (primarily installment)............................ 83 65 80 212
Credit cards................................................ 1 1 1 8
---- ---- ---- ------
100 72 89 231
Net charge-offs (recovery).................................. (82) 46 153 322
---- ---- ---- ------
Provision charged to operations............................. -- 15 16 56
---- ---- ---- ------
Balance, end of period...................................... $834 $858 $752 $ 889
==== ==== ==== ======
Ratio of net charge-offs (recovery) to average loans........ (4.0)% 2.3% 0.8% 1.5%
==== ==== ==== ======
Ratio of allowance to period-end loans...................... 4.1% 4.7% 3.8% 4.2%
==== ==== ==== ======
</TABLE>
Non-performing assets include non-accrual loans, accruing loans
contractually past due 90 days or more, restructured loans, other real estate,
and other real estate under contract for sale. Loans are placed on non-accrual
when management has concerns relating to the ability to collect the loan
principal and interest, and when such loans are 90 days or more past due.
Although non-performing assets represent potential losses to the Company,
management does not anticipate any aggregate material losses since most loans
are believed to be adequately secured. Management believes the allowance for
loan losses is sufficient to absorb known risks in the portfolio. No assurance
can be given that economic conditions will not adversely affect borrowers and
result in increased losses.
The following table summarizes non-performing assets by type at September
30, 1998 and 1997 and December 1977 and 1996. Other than the amounts listed,
there were no other loans that (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources or (ii) represent material
credits about which management has information that causes them to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms.
SCHEDULE OF NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------
1998 1997 1997 1996
----- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-accrual................................................. $ 1 $ 50 $ 43 $143
Past due 90 days or more and still accruing interest........ -- -- -- 7
Other real estate........................................... 253 452 306 516
</TABLE>
19
<PAGE> 22
Investment Portfolio. Total investment securities were $14.8 million at
September 30, 1998, an increase of $3.6 million, or 32.1%, from $11.2 million at
September 30, 1997. At December 31, 1997, total investment securities were $13.8
million, an increase of $1.2 million, or 9.3%, from $12.6 million at December
31, 1996. As a percentage of total assets, investment securities were 33.8% and
29.4% at September 30, 1998 and 1997, respectively, and were 34.0% and 33.1% at
December 31, 1997 and 1996, respectively.
The Company invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States and
obligations of agencies of the United States. In addition, the Company enters
into Federal funds transactions with principal correspondent banks.
The Company's entire securities portfolio has been categorized as
Available-For-Sale. While the Company has no plans to liquidate a significant
amount of any securities, the Company's securities may be used for liquidity
purposes when management deems it to be in the best interests of the Company.
Due to declines in interest rates, and in order to maintain liquidity, the
majority of the securities purchased has been relatively short-term in maturity.
United States government agency securities continue to represent a majority of
the portfolio.
The following tables present the amortized cost, market value and weighted
average yield for investment securities at September 30, 1998 and 1997, and
December 31, 1997 and 1996, and presents the scheduled maturities and yields of
the securities at June 30, 1998.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------------------- ------------------------------------------
1998 1997 1997 1996
------------------------------ ------------------------------ ------------------------------ ---------
WEIGHTED WEIGHTED WEIGHTED
AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE AMORTIZED
COST VALUE YIELD COST VALUE YIELD COST VALUE YIELD COST
--------- ------- -------- --------- ------- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury........ $ 249 $ 250 6.6% $ 246 $ 248 6.7% $ 247 $ 249 6.7% $ 244
U.S. government
agency............. 13,363 13,542 6.4 9,254 9,166 6.5 11,724 11,705 6.5 10,260
State and municipal
obligations(1)..... 805 831 7.4 1,783 1,805 7.4 1,784 1,824 7.4 2,137
------- ------- ------- ------- ------- ------- -------
Total investment
securities(1)...... $14,417 $14,623 $11,283 $11,219 $13,755 $13,778 $12,641
======= ======= ======= ======= ======= ======= =======
<CAPTION>
DECEMBER 31,
------------------
1996
------------------
WEIGHTED
MARKET AVERAGE
VALUE YIELD
------- --------
<S> <C> <C>
U.S. Treasury........ $ 253 6.8%
U.S. government
agency............. 10,204 6.5
State and municipal
obligations(1)..... 2,146 6.9
-------
Total investment
securities(1)...... $12,603
=======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN YEAR TO YEARS TO AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS WEIGHTED
-------------- -------------- -------------- -------------- AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury........................... $ -- --% $ 250 6.6% $ -- --% $-- --% $ 250 6.6%
U.S. government agency.................. -- -- 4,321 6.2 9,206 6.4 15 10.0 13,542 6.4
State and municipal obligations(1)...... -- -- 220 6.8 611 7.2 -- -- 831 7.4
---- ------ ------ --- -------
Total investment
securities(1)................. $ -- $4,791 $9,817 $15 $14,623
==== ====== ====== === =======
</TABLE>
- ---------------
(1) Yields stated on a tax equivalent basis.
Deposits. The Company's deposits were $35.8 million at September 30, 1998,
an increase of $5.2 million, or 17.0%, from the September 30, 1997 balance of
$30.6 million. The Company's deposits were $32.9 million at December 31, 1997,
an increase of $2.2 million, or 7.2%, from $30.7 million at December 31, 1996.
Average interest-bearing liabilities were $29.5 million for the nine months
ended September 30, 1998 compared to $27.8 million for the nine months ended
September 30, 1997. Average noninterest-bearing deposits were $3.7 million and
$3.3 million for the nine months ended September 30, 1998 and 1997,
respectively. Average interest bearing liabilities were $26.8 million for the
year ended December 31, 1997 compared to $28.9 million for the year ended
December 31, 1996. Average noninterest-bearing deposits were $3.4 million and
$2.8 million for the years ended December 31, 1997 and 1996, respectively.
20
<PAGE> 23
As interest rates declined over the past several years, the Company's
customers shortened the terms of their deposits allowing the depositors to react
more quickly to rising interest rates. The marketplace for deposits is extremely
competitive from both traditional financial institutions, such as banks, as well
as other more non-traditional and less regulated financial intermediaries such
as brokerage houses and mutual funds. The Company seeks to attract and retain
retail customers through competitive products and quality service. In the
commercial area, management is focused on building long-lasting relationships
that will foster deposit growth. In addition, the Company offers a broad range
of products to attract and maintain customers.
The Company's growth in retail deposits has been primarily through
increases in certificate of deposit accounts. At September 30, 1998,
certificates of deposit totaled $19.7 million, an increase of $2.1 million, or
11.9%, from the September 30, 1997 balance of $17.6 million. At September 30,
1998, certificates with maturities of one year or less were $17.4 million
representing an increase of $4.9 million, or 39.2%, from September 30, 1997.
Certificates with maturities of one year or more were $2.3 million representing
a decrease of $2.8 million, or 54.9%, from September 30, 1997. At December 31,
1997, certificates of deposit totaled $17.6 million, a decrease of $753,000, or
4.1%, from the December 31, 1996 balance of $18.4 million. Certificates with
maturities of one year or less were $13.0 million, representing a decrease of
7.6% from December 31, 1996. Certificates with maturities of one year or more
were $4.6 million, representing an increase of 15.0% from December 31, 1996.
The Company may at times purchase Federal funds as an additional short-term
funding source. In addition, the Company has available lines of credit with
various correspondence institutions. See "Business -- Correspondent Banking."
The following table presents, for the periods indicated, the average amount
of and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------
1998 1997 1997 1996
----------------- ----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing...................... $ 3,677 --% $ 3,313 --% $ 3,361 --% $ 2,840 --%
NOW...................................... 6,169 2.4 4,461 2.1 4,464 2.3 4,146 2.5
Money Market............................. 2,795 3.6 2,495 3.3 2,649 3.2 2,270 2.6
Savings.................................. 1,899 2.5 1,804 2.6 1,814 2.5 1,920 2.5
Time Deposits............................ 18,652 5.9 19,075 5.1 17,879 5.6 20,569 5.7
------- --- ------- --- ------- --- ------- ---
$33,192 4.7 $31,148 4.3 $30,167 4.5 $31,745 4.8
======= ======= ======= =======
</TABLE>
The maturities of certificates of deposit accounts of $100,000 or more as
of September 30, 1998 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Three months or less........................................ $1,349
Three to six months......................................... 1,068
Six to twelve months........................................ 2,399
Over twelve months.......................................... 100
------
$4,916
======
</TABLE>
CAPITAL RESOURCES
Shareholders' equity was $7.5 million at September 30, 1998, an increase of
$300,000, or 4.2%, from $7.2 million at September 30, 1997. At December 31,
1997, shareholders' equity was $7.3 million, an increase of $200,000, or 2.8%,
from $7.1 million at December 31, 1996. The increase in both periods resulted
from retained net income and changes in the unrealized gain or loss on
securities available-for-sale. Assuming the sale of all 740,741 shares of Common
Stock had been completed on September 30, 1998 and resulted in net proceeds of
approximately $10.0 million, the Company's pro forma shareholders' equity would
have been approximately $17.5 million, pro forma book value per share would have
been $12.55, pro forma leverage capital ratio would have been 32.5%, tier 1 risk
based capital ratio would have been 47.3% and total risk based capital ratio
would have been 48.3%
21
<PAGE> 24
Banks and bank holding companies, as regulated institutions, must meet
required levels of capital. The FDIC and the Federal Reserve Board, the primary
federal regulators for the Bank and the Company, respectively, have adopted
minimum capital regulations or guidelines that categorize components and the
level of risk associated with various types of assets. Financial institutions
are expected to maintain a level of capital commensurate with the risk profile
assigned to its assets in accordance with the guidelines. As shown in the
following table, at September 30, 1998 and 1997, and at December 31, 1997 and
1996, the Company maintained capital levels exceeding the minimum levels
required for "well capitalized" bank holding companies. See "Supervision and
Regulation."
REGULATORY CAPITAL
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------- -----------------------------------
1998 1997 1997 1996
---------------- ---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 risk based:
Actual............................... $7,200 27.1% $7,033 31.6% $7,099 30.0% $6,870 30.8%
Minimum required..................... 1,062 4.0 886 4.0 945 4.0 891 4.0
Total risk based:
Actual............................... 7,538 28.4 7,317 32.4 7,400 31.3 7,156 32.1
Minimum required..................... 2,124 8.0 1,772 8.0 1,890 8.0 1,783 8.0
Leverage:
Actual............................... 7,200 16.7 7,033 18.3 7,099 18.9 6,870 17.6
Minimum required..................... 1,727 4.0 1,481 4.0 1,503 4.0 1,557 4.0
</TABLE>
INTEREST RATE SENSITIVITY AND LIQUIDITY MANAGEMENT
A primary objective of interest rate sensitivity management is to ensure
the stability and quality of the Company's primary earning component, net
interest income. This process involves monitoring the Company's balance sheet in
order to determine the potential impact that changes in the interest rate
environment would have on net interest income. Rate sensitive assets and
liabilities have interest rates which are subject to change within a specific
time period, due to either maturity or contractual agreements which allow the
instruments to reprice prior to maturity. Interest rate sensitivity management
seeks to ensure that both assets and liabilities react to changes in interest
rates within a similar time period, thereby minimizing the risk to net interest
income.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------------------------------------------
TOTAL TOTAL OVER
1-90 DAYS 91-180 DAYS 181-365 DAYS ONE YEAR ONE YEAR TOTAL
--------- ----------- ------------ -------- ---------- -------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNINGS ASSETS:
Loans, net of non-accruals... $ 6,772 $ 4,266 $ 2,150 $ 13,188 $ 8,628 $21,816
Taxable investment
securities................. 250 -- -- 250 13,542 13,792
Tax exempt investment
securities................. -- -- -- -- 831 831
Federal funds sold........... 3,000 -- -- 3,000 -- 3,000
------- ------- ------- -------- ------- -------
Total interest
earning assets... 10,022 4,266 2,150 16,438 23,001 39,439
------- ------- ------- -------- ------- -------
INTEREST BEARING LIABILITIES:
Savings/NOW/MMA.............. 12,539 -- -- 12,539 -- 12,539
Other time deposits.......... 3,809 5,318 8,251 17,378 2,344 19,722
------- ------- ------- -------- ------- -------
Total interest
bearing
liabilities...... 16,348 5,318 8,251 29,917 2,344 32,261
------- ------- ------- -------- ------- -------
Interest sensitivity gap..... $(6,326) $(1,052) $(6,101) $(13,479)
======= ======= ======= ========
Ratio of interest sensitive
assets to interest
sensitive liabilities...... 61% 80% 26% 55%
</TABLE>
The measurement of the Company's interest rate sensitivity, or "gap," is a
technique traditionally used in asset/liability management. The interest
sensitivity gap is the difference between repricing assets and repricing
22
<PAGE> 25
liabilities for a particular time period. The preceding table indicates a ratio
of rate sensitive assets to rate sensitive liabilities within one year at
September 30, 1998 of 60%. This ratio indicates that net interest income would
increase in a rising interest rate environment and decrease in a falling
interest rate environment. Included in rate sensitive liabilities are certain
deposit accounts (such as savings, NOW and MMA accounts), that are subject to
immediate withdrawal and repricing, and have no stated maturity. These balances
are presented in the category that management believes best identifies their
actual repricing patterns.
In addition to the traditional gap analysis, the Company also utilizes a
computer based interest rate risk simulation model. This comprehensive model
includes rate sensitivity gap analysis, rate shock net interest margin analysis,
and asset/liability term and rate analysis. The Company uses this model to
monitor interest rate risk on a monthly basis and to detect trends that may
affect the overall net interest income for the Company. This simulation
incorporates the dynamics of balance sheet and interest rate changes and
reflects the related effect on net interest income. As a result, this analysis
more accurately projects the risk to net interest income over the upcoming
twelve month period.
Liquidity management refers to the ability to meet day-to-day cash flow
requirements based primarily on activity in loan and deposit accounts of the
Company's customers. Deposit withdrawals, loan funding, and general corporate
activity create a need for liquidity for the Company. Liquidity is derived from
sources such as deposit growth, maturity/calls/sales of investment securities,
principal and interest payments on loans, access to borrowed funds or lines of
credit, and profits.
The Company purchases Federal funds as an additional short-term funding
sources. In addition, the Company has available lines of credit with various
correspondent institutions. See "Business -- Correspondent Banking."
Interest rate risk management and liquidity management are both a part of
the Company's overall asset/liability management process. The primary oversight
of asset/liability management rests with the Bank's Asset and Liability
Committee, which is comprised of senior management and a member of the Board of
Directors. The committee meets on a regular basis to review the asset liability
management activities of the Company and monitor compliance with established
policies. A member of the Board of Directors chairs the committee and reports on
its activities to the full Board of Directors.
YEAR 2000
A critical issue affecting companies that rely extensively on electronic
data processing systems, such as the Company, is the Year 2000 issue. This issue
deals with the Company's ability to process year-date data accurately beyond the
year 1999. The Year 2000 issue has been a well-publicized, but nevertheless
continually evolving issue. The Company is dependent upon electronic data
processing for nearly all of its major activities. During 1997, the Company
formed an internal task force, chaired by the Executive Vice President, to
address the Year 2000 issue, conduct a comprehensive review of the Company's
systems and ensure that the Company takes any necessary measures. The Company
believes that its systems, those of the Bank and its data processing service
provider are currently Year 2000 compliant and does not believe that material
expenditures will be necessary to implement any further modifications. As of
September 30, 1998, the Company had spent approximately $45,000 to upgrade its
software and hardware systems to help ensure that its systems would be Year 2000
compliant. The Company has issued a certification request to its data processing
service provider seeking assurance that its systems will be Year 2000 compliant.
The service provider has responded that its systems are Year 2000 compliant now.
The Company also recognizes the importance of determining that its
borrowers are facing the Year 2000 problem in a timely manner to avoid
deterioration of its loan portfolio solely due to this issue. All material
relationships have been identified to assess the inherent risks. The Company
plans to work on a one-on-one basis with any borrower who has been identified as
having high Year 2000 risk exposure.
The Company's contingency plans relative to Year 2000 issues have not been
finalized. Management will develop and modify a "worst case scenario"
contingency plan which will, among other things, anticipate that the Company's
deposit customers will have increased demands for cash in the latter part of
1999. The plan also provides for copies of documents to be produced in case of
equipment failure, utilization of security
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personnel in case of security equipment failure, manual posting of transactions,
hiring temporary additional personnel and telephone verification of information
normally received by electronic means.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," which establishes standards for computing and presenting earnings
per share. This new accounting standard applied to entities with publicly held
common stock or potential common stock, such as the Company. SFAS No. 128
simplifies the standards for computing earnings per share previously found in
other accounting standards, requires dual presentation of basic and diluted
earnings per share on the face of the income statement for entities with complex
capital structures such as the Company, and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
Company adopted this new accounting standard at December 31, 1997 and restated
all prior period earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The comprehensive income and related cumulative equity impact of comprehensive
income items will be required to be disclosed prominently as part of the notes
to the financial statements. Only the impact of unrealized gains or losses on
securities available-for-sale is expected to be disclosed as an additional
component of the Company's income under the requirements of SFAS No. 130. The
Company adopted this Statement for interim reporting periods beginning in 1998.
This Statement will apply to all future financial reporting by the Company. The
adoption of this Statement did not have a material effect on the Company's
financial reporting.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which changes the way public companies
report information about segments of their business on their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity wide
disclosures about the products and services an entity provides, the foreign
countries in which it holds assets and reports revenues, and its major
customers. This statement is effective for fiscal years beginning after December
15, 1997. The Company does not expect the adoption of this Statement to have a
material effect on the Company's financial reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other post-retirement benefit plans. The statement
does not change the measurement or recognition of those plans, but requires
additional information on changes in benefits obligations and fair values of
plan assets, and eliminates certain disclosures previously required by SFAS Nos.
87, 88 and 106. This statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the adoption of this Statement to
have a material effect on the Company's financial reporting.
In June 1998, the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. This Statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of this
Statement to have a material adverse impact on financial condition or results of
operation. At the initial application of this Statement, the Company may elect
to transfer any security classified by the Company as held-to-maturity to the
available-for-sale or trading classification. In addition, the Company may elect
to transfer any security classified as available-for-sale to the trading
classification. Presently, management does not expect to elect these options.
EFFECTS OF INFLATION
Inflation affects financial institutions in ways that are different from
most commercial and industrial companies, which have significant investments in
fixed assets and inventories. The effect of inflation on interest rates can
materially impact bank operations, which rely on net interest margins as a major
source of earnings. Noninterest expenses, such as salaries and wages, occupancy
and equipment cost are also negatively impacted by inflation.
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BUSINESS
BACKGROUND
The Company was formed as a Georgia corporation in January 1997 at the
direction of the Board of Directors of the Bank based on its belief that a
reorganization of the Bank (the "Reorganization") into a holding company
structure would provide a platform to strengthen the Bank's competitive
position. On April 28, 1997, the shareholders of the Bank approved the
Reorganization and, after receipt of final regulatory approvals, the
Reorganization was consummated on June 6, 1997.
The Bank, which is the only subsidiary of the Company, was chartered under
the laws of Georgia in 1988 as a locally-owned, full-service commercial bank
with deposits insured by the FDIC. Due to unsuccessful operating strategies
employed by the former management of the Bank, the Board of Directors of the
Bank began addressing certain asset quality problems which had developed during
1994. As a result of these asset quality problems, the Bank recorded a loss of
$508,000 in 1994 and entered into a Memorandum of Understanding with the Georgia
Banking Department and the FDIC in March 1995 (the "MOU"). Pursuant to the MOU,
the Bank agreed to improve its condition and operating performance and to
address certain specifically identified deficiencies. In 1995, a new management
team made significant progress in addressing the performance issues identified
in the MOU. The Bank returned to profitability by earning $154,000 in that year
and, in November 1996, the MOU was rescinded.
In February 1997, the Bank was contacted by several Augusta businessmen who
offered to assist the Company in financing the expansion of the Company's
banking operations in the Augusta Market. This group of Augusta businessmen
included Ray Brown, Arthur J. Gay, Jr., J. Randal Hall, George H. Inman, John W.
Lee, A. Montague Miller and Julian W. Osbon (collectively, the "Augusta Group").
Discussions with the Augusta Group continued until October 1997, when an
agreement was entered into with the Augusta Group (the "Agreement"), pursuant to
which the Company agreed (i) to register shares of the Common Stock for sale in
a public offering and to use the net proceeds to expand the Company's banking
operations in the Augusta Market, (ii) to elect Patrick G. Blanchard President
and Chief Executive Officer of the Company and (iii) to elect certain members or
representatives of the Augusta Group to the Board of Directors of the Company.
See "Management."
Pursuant to the Agreement, on February 19, 1998, the Company commenced a
"best efforts" offering of Common Stock undertaken by certain directors and
officers of the Company (the "Original Best Efforts Offering"). The Original
Best Efforts Offering commenced on February 19, 1998 and, as of August 18, 1998,
had resulted in the receipt of subscriptions for 310,000 shares of Common Stock,
at $13.50 per share, from approximately 265 subscribers (the "Initial
Subscribers"). Although, by its terms, the Original Best Efforts Offering could
have been extended without modification through February 14, 1999, the Company
decided to restructure the Original Best Efforts Offering prior to that date
after Interstate/Johnson Lane Corporation ("IJL"), a firm with extensive
experience in raising equity capital for community banks and their holding
companies, advised the Company that it would underwrite the sale of the Common
Stock on a firm commitment basis (the "Firm Commitment Offering"). Accordingly,
the Company amended its Prospectus relating to the Original Best Efforts
Offering and, on October 2, 1998, began joint marketing efforts with IJL to
sell, on a firm commitment basis, up to 740,000 shares of Common Stock at the
same price per share ($13.50) as offered in the Original Best Efforts Offering.
On October 28, 1998, IJL informed the Company that it could not complete the
Firm Commitment Offering due to unfavorable market conditions. Shortly
thereafter, the Company withdrew from the Securities and Exchange Commission
(the "SEC") its Registration Statement relating to the Firm Commitment Offering,
deregistered with the SEC the Common Stock which had been registered in
connection with the Original Best Efforts Offering and returned to the Initial
Subscribers their subscription proceeds with interest. After the termination of
the Original Best Efforts Offering and Firm Commitment Offering, the Company
explored various alternatives of raising equity capital in which the Augusta
Group and others could participate. On December 9, 1998, the Company's Board of
Directors approved this Offering, which the Company believes best enables it to
rapidly accomplish its goal of
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raising equity capital through the participation of the Augusta Group and
others, the net proceeds of which will promptly be used to expand the Company's
banking operations in the Augusta Market.
The Company is currently constructing a branch office in Augusta's Daniel
Village, which is expected to open during the first quarter of 1999. In late
1999, the Company is planning to open a branch office in Martinez, Georgia, a
growing community adjacent to Augusta. Future business plans include further
expansion in the Augusta Market by opening additional branch offices and through
the possible acquisition of other banks or branches.
AUGUSTA MARKET
The Augusta Market consists of the City of Augusta in Richmond County, the
adjacent Georgia counties of McDuffie and Columbia located west and northwest of
Augusta, and the adjacent South Carolina counties of Aiken and Edgefield,
located east and northeast of Augusta just across the Savannah River. Columbia
County is one of the fastest growing counties in Georgia in terms of both
population and commercial growth. The economy of the Augusta Market is diverse,
and consists of established and new residential neighborhoods, commercial and
retail businesses, large corporate headquarters, light and heavy manufacturing,
a growing service sector, a university-supported health care community and
significant sports and recreation enterprises. As of June 30, 1998, the latest
period for which government reports are available, there were 14 depository
institutions (including the Bank) represented in the Augusta Market with
aggregate deposits of approximately $3.8 billion.
The Augusta Market has been significantly affected by consolidation in the
banking industry in recent years, and particularly by the acquisition of Bankers
First Corporation by SouthTrust Corporation in 1996 and by the acquisition of
Allied Bankshares, Inc. by Regions Financial Corporation in 1997. Consolidation
often results in the dissolution of local boards of directors and the
dislocation of management and customer service personnel with extensive banking
experience and strong ties to the local community. Accordingly, management
believes that many customer relationships in the Augusta Market have been
disrupted as the larger regional financial institutions have increasingly
focused on larger corporate customers, standardized loan and deposit products
and other services. Generally, these products and services are offered by less
personalized delivery systems, creating a demand for the delivery of higher
quality, personalized banking services to individuals and small to medium-sized
businesses. As a result of these factors, management believes that the Company
has a unique opportunity to attract and retain experienced and talented
management personnel and to become the primary provider of community banking
services in the Augusta Market.
The following is a summary description of each of the communities the
Company currently serves or will serve after its initial expansion in the
Augusta Market.
Augusta. As a result of the consolidation of the City of Augusta and
Richmond County in 1996, Augusta became the second largest city in Georgia with
an estimated population of 193,000. Augusta is the nucleus of what is known as
the Central Savannah River Area ("CSRA"), which is comprised of the surrounding
Georgia counties of Columbia, McDuffie, Burke, Jefferson, Lincoln and Wilkes and
the South Carolina counties of Aiken, Edgefield, McCormick and Barnwell. Augusta
is also home to a large medical community, with the Medical College of Georgia
being one of the area's largest employers. Augusta's Fort Gordon, where the
United States Army Signal Corps operates one of the largest communication
facilities in the world, further contributes to the strong economic base of
Augusta by employing over 4,500 civilians.
The Company's new Augusta office, which is presently under construction at
2805 Wrightsboro Road, is located in the Daniel Village, an area which
management believes to be one of Augusta's strongest commercial and residential
markets. As of June 30, 1998, deposit reports indicate total deposits for
Augusta to be $2.1 billion, with the Daniel Village area accounting for
approximately $253 million, or 13.1%, of Augusta's total deposits.
To assist in the long-term growth, development and marketing of the Bank's
new Augusta office, the Bank has established an Augusta Advisory Board of
Directors. Members of the Augusta Advisory Board of Directors presently include:
Karen Foushee, M.D., a member of a local pediatric physicians practice group;
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Don Grantham, President of Forest Sales Corporation; Michael B. Hagler, a local
attorney; Frank Lawrence, President of Bobby Jones Ford, Inc.; Will McKnight,
President of McKnight Construction Company; Edwin S. Presnell, City Director of
KMC Telecom, Inc.; Cary H. Rivers, a retired executive of Club Car, Inc.; and
Stephen H. Steinberg, a local attorney.
Martinez. Adjacent to Augusta, Martinez is located in Columbia County, one
of Georgia's fastest growing counties. With an estimated population of over
90,000, Columbia County's population is estimated to increase to over 102,000 in
the next five years. As of June 30, 1998, deposit reports indicate total
deposits for Columbia County to be $536 million, with the Martinez community
accounting for $264 million, or 49.2% of Columbia County's total deposits.
Although there are no banks headquartered in Columbia County, six southeastern
regional banks and one community bank operate offices in the county.
The major employers in Columbia County include: Greenfield Industries,
Inc.; World Color Press; Howard Lumber Company; Club Car, Inc.; Fairway Ford of
Augusta, Inc.; and the Columbia County Government Complex in nearby Evans,
Georgia.
The Company has established an Advisory Board of Directors for its new
Martinez office. Members of the Advisory Board presently include: former U.S.
Representative Doug Barnard, Jr.; Douglas Duncan, President and Chief Executive
Officer of Golf Augusta Pro Shops, Inc., a franchisor of retail golf merchandise
stores; Jake Ivey, President of J.W. Ivey & Associates, a residential
construction firm; T.R. Reddy, an engineer and developer; Carl E. Sanders, Jr.,
a real estate developer; and Jimmy Whitehead, owner of a local retail tire
business and Chairman of the Columbia County Board of Commissioners.
Thomson. The county seat of McDuffie County, Thomson is located
approximately 30 miles west of Augusta at the hub formed by the intersection of
Interstate Highway 20 and U.S. Highway 78. McDuffie County's excellent highway
system has served to make Thomson a retail shopping center for the surrounding
counties. Major employers in McDuffie County include: Shaw Industries, Inc.,
Temple-Inland Forest Products Corporation, Badcock Furniture Company's
distribution center, McDuffie County Hospital and Advance Auto Parts'
distribution center.
In addition to the Bank's two offices, McDuffie County is served by two
southeastern regional banks and two branches of community banks headquartered in
an adjacent counties.
BUSINESS STRATEGY
The Company's business strategy is to become the community bank of choice
in the Augusta Market. The principal elements of this strategy are to:
- Expand the Company's presence in the Augusta Market by opening a branch
office in Augusta in the first quarter of 1998 and in Martinez in late
1999;
- Staff branch offices with local and responsive management teams
emphasizing a high level of personalized customer service;
- Leverage the extensive business relationships and diverse backgrounds of
its Board of Directors and its branch office advisory boards to assist
the Company in attracting customers;
- Establish local indentities by using the names "First Bank-Augusta" for
the Augusta branch office and "First Bank-Columbia County" for the
Martinez branch office;
- Target individuals, professionals and small to medium-sized business
customers that require the attention and service which a
community-oriented bank is well suited to provide;
- Provide a broad array of traditional banking products and services while
utilizing technology and strategic outsourcing to compete effectively
with other financial institutions; and
- Pursue further expansion opportunities in the Augusta Market by opening
additional branch offices or through the possible acquisition of other
banks or branches.
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LENDING ACTIVITIES
General. The Company engages in a full complement of lending activities,
including real estate, commercial and consumer loans to individuals and small to
medium-sized businesses and other organizations that are generally located in,
or conduct a substantial portion of their business in, the Company's primary
market area. The Company concentrates its lending efforts in the areas of real
estate and consumer loans. As of September 30, 1998, the Company's loan
portfolio consisted of 67.0% real estate loans (22.8% construction, 21.8%
mortgage and 22.4% commercial), 18.4% commercial, financial and agricultural
loans and 14.6% consumer loans. As of September 30, 1998, the Company had no
large loan concentrations (exceeding 10% of its portfolio) in any particular
industry. For more information on the Company's loan composition, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Real Estate Loans. Loans secured by real estate for a variety of purposes
constituted $14.6 million, or 67.0%, of the Company's total loans as of
September 30, 1998. The Company held, as of September 30, 1998, real estate
loans of various sizes ranging up to $1.5 million, secured by office buildings,
retail establishments, warehouses, motels, restaurants and other types of
property. Loan terms are typically limited to five years, although the
installment payments may be structured generally on a 15-year amortization
basis. Interest rates may be fixed or adjustable, based on market conditions.
Management has attempted to reduce credit risk in the 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 80% and
net project cash flow available for debt service equals 120% of the debt service
requirement. The Company also requires personal guarantees of the principal
owners of the property and obtains personal financial statements of the
principal owners in such cases.
As of September 30, 1998, approximately 18.0% of the Company's total loan
portfolio consisted of real estate mortgage loans in suburban Atlanta. These
loans were generated by a third party loan broker pursuant to a brokerage
agreement with the Company and consist primarily of construction loans to
builders of new homes and, to a lesser degree, commercial office buildings. The
Company does not consider the loans generated by this broker to have any greater
amount of risk than those generated in its primary market area of Thomson.
The Company originates residential loans on single and multi-family
properties, both owner occupied and non-owner occupied, and, as of September 30,
1998, it held $5.5 million of such loans. Loan terms are typically limited to
five years, with payments through the date of maturity generally based on a
15-year amortization schedule. Rates may be fixed or variable, and the Company
typically charges an origination fee. The Company attempts to minimize credit
risk by requiring a loan to value ratio of 80% or less.
Currently, the Company limits its portfolio of construction and development
loans on commercial and residential projects to $7.5 million. However, as the
Company's capital increases, this limit may be raised. As of September 30, 1998
and 1997, the Company held $5.0 million and $3.3 million, respectively, of such
loans. To reduce credit risk associated with such loans, the Company limits its
lending to projects involving small commercial centers that are substantially
pre-leased. The leases on commercial projects must generally result in a loan to
capitalized lease value of no greater value than 80% and a net cash flow to debt
service ratio of at least 120%. The Company requires a personal guarantee from
the developer or builder. Loan terms are typically six to 12 months on a
commercial project and six months on a residential project, although the Company
occasionally will make a "mini-permanent" loan for purposes of construction and
development up to a five to 15-year term. Rates are typically variable, and the
Company typically charges an origination fee. During 1997 and 1996, the Company
experienced no net loan losses on these types of loans.
Commercial Loans. Commercial lending is directed principally towards
businesses whose demands for funds fall within the Company's legal lending
limits and which are potential deposit customers of the Company. This category
of loans includes loans made to individual, partnership or corporate borrowers
which are obtained for a variety of business purposes. Such loans include
short-term lines of credit, short to medium-term plant and equipment loans,
short to medium-term land acquisition and development loans, construction loans
and letters of credit. Commercial loans are generally secured by real estate,
equipment and other business assets. Commercial loans to corporate borrowers
generally require the guarantee of the owners.
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Consumer Loans. The Company's consumer loans consist primarily of
residential first and second mortgage loans, home equity loans, installment
loans to individuals for personal, family or household purposes, including
automobile loans to individuals and pre-approved lines of credit. The Company's
consumer loan portfolio comprised 14.6% of the Company's total loan portfolio as
of September 30, 1998. As of September 30, 1998, the majority of the Company's
consumer loans were secured by collateral primarily consisting of automobiles,
and other personal property.
Loan Approval and Review. The Company's loan approval policies provide for
various levels of officer lending authority. When the aggregate outstanding
loans to a single borrower exceed the Senior Lending Officer's lending
authority, the loan request must be submitted to and approved by the Bank's Loan
Committee.
While risk of loss in the Company's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due to
factors beyond the Company's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also impact
the relative risk in the Company's real estate portfolio. Although the Company
has a diversified loan portfolio, the ability of borrowers to repay their loans
is largely dependent upon economic conditions in the Augusta Market and the
Atlanta metropolitan area, where many of the Company's construction loans are
originated.
The Company has a continuous loan review procedure designed to promote
early identification of credit quality problems. The Bank's Senior Lending
Officer is charged with the responsibility of reviewing, no less than annually,
all credit relationships in excess of $100,000 in the portfolio. The Senior
Lending Officer also reviews all criticized and classified assets in the
Company's portfolio quarterly with the Loan Committee of the Bank. The Senior
Lending Officer is responsible for implementing, where appropriate, approved
action plans with respect to such criticized and classified assets designed to
improve the Company's credit position for an early resolution of the problem
loan. As part of its overall strategy to improve policies and procedures, the
Company also engages a third party consultant to review its loan portfolio on a
semi-annual basis.
For more information on the Company's allowance for loan and lease losses,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unless the Board of Directors of the Bank approves otherwise, loans past
due 90 days or more, or those involved in bankruptcy proceedings, are placed in
non-accrual status. For a loan to be an exception to this policy, it must be
well secured by readily marketable collateral with sufficient liquidation value
to protect the Company from loss and the loan must be in the process of
collection. There were no loans restructured for 1997 or 1996. The Board of
Directors of the Bank monitors the loan portfolio quarterly to enable it to
evaluate the adequacy of the allowance for loan losses. The loans are rated and
the reserve established based on the assigned rating. The provision for loan
losses charged to operating expenses is based on this established reserve.
Factors considered by the Bank's Loan Committee in rating the loans include
delinquent loans, underlying collateral value, payment history and local and
general economic conditions affecting collectibility.
DEPOSITS
The Company offers a wide range of commercial and consumer interest bearing
and noninterest bearing deposit accounts, including checking accounts, money
market accounts, negotiable order of withdrawal ("NOW") accounts, individual
retirement accounts, certificates of deposit and regular savings accounts. The
sources of deposits are residents, businesses and employees of businesses within
the Company's market area, obtained through the personal solicitation of the
Company's officers and directors, direct mail solicitation and advertisements
published in the local media. See "-- Marketing." The Company pays competitive
interest rates on time and savings deposits. In addition, the Company has
implemented a service charge fee schedule competitive with other financial
institutions in the Company's market area, such as maintenance fees on checking
accounts, per item processing fees on checking accounts and returned check
charges.
For more information on the Company's various types of deposits accounts,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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MARKETING
The Company currently markets its services through advertising campaigns
and in printed material, such as newspapers, magazines and direct mailings, as
well as through promotional items, such as caps, pens, pencils and shirts. The
Company's officers are also heavily involved in local civic affairs and
philanthropic organizations in order to focus customers on products and services
on a personal level. The Company sponsors community events and holds grand
opening ceremonies for its new branches to which local dignitaries are invited
to speak and to participate in the festivities. Since the Company does not have
a fully-staffed marketing department, the Company's marketing, advertising and
public relations campaigns focus on the following two components:
- Value. Among other things, the Company offers attractive rates for its
financial products, including its certificates of deposit and checking
accounts. This pricing structure has been successful in attracting
depositors who are motivated by the Company's rates, as well as by the
variety of individualized services the Company promotes and offers.
- Convenience and Service. All personnel of the Company are encouraged to
focus on serving the individual needs of the Company's customers. For
example, senior personnel are accessible to customers on very short
notice, even after normal banking hours.
Management intends to continue to market the Company's services through a
combination of advertising campaigns, public relations activities and local
affiliations. In Augusta and Martinez, the Company has established advisory
boards, comprised of local community leaders, to assist the branch offices in
attracting customers. While the key messages of value, convenience, service and
reliability will continue to play a major role in the Company's marketing and
public relations efforts, management may also focus on targeted groups, such as
professionals, in addition to small to medium-sized local businesses.
A vital part of the Company's marketing plan is the execution of a public
relations strategy. Many traditional public relations methods will be used in
promoting Company services. Management intends to pursue media coverage,
including general press, industry periodicals and other media covering banking
and finance, consumer issues and special interests. Press releases, media alerts
and presentations will announce new banking services as they are added.
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Company is required to purchase correspondent services
offered by larger banks, including check collections, purchase of federal funds,
security safekeeping, investment services, coin and currency supplies, over line
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Company participates in loans with correspondent banks. Management of
the Company has established correspondent relationships with The Bankers Bank,
Atlanta, Georgia and SunTrust Bank, Atlanta, Georgia. As compensation for
services provided by a correspondent, the Bank maintains certain balances with
the correspondent in noninterest bearing accounts.
COMPETITION
Competition among financial institutions in the Augusta Market is intense.
The Company competes primarily with other bank holding companies, state and
national commercial banks and savings and loan associations. Most of these
competitors offer a full range of banking services and vigorously compete for
all types of services, especially deposits. In addition, in certain aspects of
its banking business, the Company also competes with credit unions, small loan
companies, consumer finance companies, brokerage houses, insurance companies,
money market funds, and other financial institutions which have recently begun
offering some traditional banking services. The competition between these types
of financial institutions and commercial banks has increased significantly
within the past few years as a result of federal and state legislation which
has, in several respects, deregulated financial institutions. The full impact of
this legislation and subsequent laws
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that will continue to deregulate the financial services industry even further
cannot be fully assessed or predicted. Many of the Company's competitors have
substantially greater resources and lending limits, larger branch office
networks and are able to offer a broader range of products and services than the
Company.
EMPLOYEES
The Company currently employs 23 persons on a full-time or part-time basis,
including five officers. The Company anticipates that approximately 11
additional persons will be required on a full-time basis, including additional
tellers and customer service representatives, to staff the Company's two
proposed office locations.
PROPERTIES
The Company's main office is located at 110 East Hill Street in Thomson.
The property consists of a two-story building with approximately 6,000 square
feet of usable space on the first floor and approximately 2,800 square feet of
unfinished space on the second floor designated for future expansion. The
building is constructed on 3.4 acres of land owned by the Bank. In addition, the
Company has a branch office, which is located at 1043 Washington Road, in
Thomson. The branch office is approximately two miles north of the main office,
is approximately 2,600 square feet in size and is located on 1.25 acres of land.
The Company has purchased a site located adjacent to the Daniel Village
Shopping Center at 2805 Wrightsboro Road for its new Augusta branch office. On
October 12, 1998, the Company's new Augusta branch office was destroyed by fire.
The office, which was under construction at the time of the fire and had not yet
been occupied by the Company, was insured by the contractor. Prior to the fire,
the Company expected the office to open in the fourth quarter of 1998. As a
result of the fire, the Company expects this office will open during the first
quarter of 1999. The Company expects to purchase property in Martinez, a
community adjacent to Augusta, in the near future. The Augusta and Martinez
offices will be relatively similar to the Company's current branch office
located on Washington Road.
MONETARY POLICIES
The results of operations of the Company are affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments of
monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on member
bank borrowings, changes in reserve requirements against member bank deposits
and limitations on interest rates which member banks may pay on time and savings
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of the Company.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of operations in the normal course of business. As of the
date of this Prospectus, the Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material effect
on the Company.
SUPERVISION AND REGULATION
GENERAL
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of federal regulatory agencies, including the Federal
Reserve Board, the Georgia Banking Department and the FDIC.
The Company is regulated by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), which requires every
bank holding company to obtain the prior approval of the Federal Reserve Board
before acquiring more than 5% of the voting shares of any bank or all or
substantially all of the assets of a bank, and before merging or consolidating
with another bank holding company. The
31
<PAGE> 34
Federal Reserve Board (pursuant to regulation and published policy statements)
has maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve Board
policy, the Company may be required to provide financial support to a subsidiary
bank at a time when, absent such Federal Reserve Board policy, the Company may
not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, (the "Riegle-Neal Act") the restrictions on interstate acquisitions of
banks by bank holding companies were repealed on September 29, 1995, such that
the Company and any other bank holding company located in Georgia is able to
acquire a bank located in any other state, and a bank holding company located
outside Georgia can acquire any Georgia-based bank, in either case, subject to
certain deposit percentage and other restrictions. The legislation also provides
that, unless an individual state elects beforehand either (i) to accelerate the
effective date or (ii) to prohibit out-of-state banks from operating interstate
branches within its territory, on or after June 1, 1997, adequately capitalized
and managed bank holding companies will be able to consolidate their multistate
bank operations into a single bank subsidiary and to branch interstate through
acquisitions. De novo branching by an out-of-state bank would be permitted only
if it is expressly permitted by the laws of the host state. The authority of a
bank to establish and operate branches within a state will continue to be
subject to applicable state branching laws. Pursuant to the Riegle-Neal Act,
Georgia has adopted an interstate banking statute that removed restrictions on
the ability of banks to branch interstate through mergers, consolidations and
acquisitions.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies, including the following activities:
acting as investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated banks and
nonbank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing and
data transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligations of the United
States, the states and their political subdivisions. In determining whether an
activity is so closely related to banking as to be permissible for bank holding
companies, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce such benefits to the public as greater
convenience, increased competition or gains in efficiency that outweigh such
possible adverse effects as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
Generally, bank holding companies are required to obtain prior approval of the
Federal Reserve Board to engage in any new activity not previously approved.
The Company is also regulated by the Georgia Banking Department under the
Georgia Bank Holding Company Act, which requires every Georgia bank holding
company to obtain the prior approval of the Commissioner of Banking before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, and before merging or consolidating with any other
bank holding company. A Georgia bank holding company is generally prohibited
from acquiring ownership or control of 5% or more of the voting shares of any
bank unless the bank being acquired is either a bank for purposes of the BHC
Act, or a federal or state savings and loan association or a federal savings
bank whose deposits are insured by the Savings Association Insurance Fund, and
such bank has been in existence and continuously operating as a bank for a
period of five years or more prior to the date of application to the
Commissioner of Banking for approval of such acquisition.
As a state bank, the Bank is subject to the supervision of the Georgia
Banking Department and the FDIC. In addition, the Bank, as a subsidiary of the
Company, will be subject to restrictions under federal law in dealing with the
Company and other affiliates, if any. These restrictions apply to extensions of
credit to an affiliate, investments in the securities of an affiliate and the
purchase of assets from an affiliate.
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<PAGE> 35
Georgia recently adopted legislation which reduces the restrictions on a
bank's ability to establish branch offices. Under the new legislation, a bank
located in the state is permitted to establish new or additional branch offices
anywhere in the state (i) upon approval of the Georgia Banking Department, (ii)
by relocation of the parent bank or another branch office, or (iii) by merger,
consolidation, or the purchase of assets and the assumption of liabilities
involving another parent bank or branch bank.
Georgia has also enacted an interstate banking statute which authorizes
bank holding companies located throughout the United States to acquire banks and
bank holding companies located in Georgia under certain conditions. Such
legislation has had the effect of increasing competition among financial
institutions in the Augusta Market and in Georgia generally.
CAPITAL ADEQUACY REQUIREMENTS
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the FDIC which vary based
on differences in risk profiles. The capital adequacy guidelines issued by the
Federal Reserve Board are applied to bank holding companies on a consolidated
basis with the banks owned by the holding company. The FDIC's risk-based capital
guidelines apply directly to state-chartered banks which are not members of the
Federal Reserve Board System and whose deposits are insured by the FDIC
regardless of whether they are a subsidiary of a bank holding company. Both
agencies' requirements (which are substantially similar) provide that banking
organizations must have capital (as defined in the rules) equivalent to 8% of
risk-weighted assets. The risk weights assigned to assets are based primarily on
credit risks. Depending upon the riskiness of a particular asset, it is assigned
to a risk category. For example, securities with an unconditional guarantee by
the United States government are assigned to the lowest risk category. A risk
weight of 50% is assigned to loans secured by owner-occupied one to four family
residential mortgages. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to determine
the weighted values, which are added together to determine total risk-weighted
assets. As of September 30, 1998, the Bank's risk-based capital ratio was 28.4%
and its leverage ratio was 16.7%. These ratios are well above the minimum
standards.
Both the Federal Reserve Board and the FDIC have also adopted minimum
capital leverage ratios to be used in tandem with the risk-based guidelines in
assessing the overall capital adequacy of banks and bank holding companies.
Under the Federal Reserve Board's rule, banking institutions are required to
maintain a ratio of 3% "Tier 1" capital to total assets (net of goodwill). Tier
1 capital includes common shareholders' equity, noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
excellent asset quality, high liquidity, good earnings and in general, have to
be considered strong banking organizations rated composite 1 under the CAMELS
rating systems for banks. Institutions with lower ratings and institutions with
high levels of risk or experiencing or anticipating significant growth would be
expected to maintain ratios 100 to 200 basis points above the stated minimums.
The Federal Reserve Board and the FDIC have adopted regulations revising
their risk-based capital guidelines to further ensure that the guidelines take
adequate account of interest rate risk. Interest rate risk is the adverse effect
that changes in market interest rates may have on a bank's financial condition
and is inherent to the business of banking. Under the regulations, when
evaluating a bank's capital adequacy, the agencies' capital standards now
explicitly include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates. The exposure of a bank's economic
value generally represents the change in the present value of its assets, less
the change in the value of its liabilities, plus the change in the value of its
interest rate off-balance sheet contracts. The agencies have also issued a joint
policy statement which provides guidance on sound practices for managing
interest rate risk. In the policy statement, the agencies emphasize the
necessity of adequate oversight by a bank's Board of Directors and senior
management and of a comprehensive risk management process The policy statement
also describes the critical factors affecting the agencies' evaluations of a
bank's interest rate risk when making a determination of capital
33
<PAGE> 36
adequacy. The agencies' risk assessment approach used to evaluate a bank's
capital adequacy for interest rate risk relies on a combination of quantitative
and qualitative factors. Banks that are found to have high levels of exposure
and/or weak management practices will be directed by the agencies to take
corrective action.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for a number of reforms
relating to the safety and soundness of the deposit insurance system,
supervision of domestic and foreign depository institutions and improvement of
accounting standards. One aspect of the FDICIA involves the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., holding companies) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the holding company is limited to the lesser
of 5% of the institution's total assets or the amount which is necessary to
bring the institution into compliance with all capital standards. In addition,
"undercapitalized" institutions will be restricted from paying management fees,
dividends and other capital distributions. Further, these institutions will be
subject to certain asset growth restrictions and will be required to obtain
prior approval from the appropriate regulator to open new branches or expand
into new lines of business.
As an institution drops to lower capital levels, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
In order to comply with the FDICIA, the Federal Reserve Board and the FDIC
have adopted regulations defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting criteria, interest
rate exposure, asset growth, and compensation, fees and benefits.
In response to the directive issued under the FDICIA, the Federal Reserve
Board and the FDIC have adopted regulations which, among other things, prescribe
the capital thresholds for each of the five capital categories established by
the FDICIA. The following table reflects the capital thresholds:
<TABLE>
<CAPTION>
TOTAL RISK - TIER 1 RISK - TIER 1
BASED CAPITAL BASED CAPITAL LEVERAGE
RATIO RATIO RATIO
------------- ------------- --------
<S> <C> <C> <C>
Well Capitalized(1)................................. >=10% >=6% >=5%
Adequately Capitalized(1)........................... >=8% >=4% >=4%(2)
Undercapitalized(3)................................. Less than8% Less than4% Less than4%(4)
Significantly Undercapitalized(3)................... Less than6% Less than3% Less than3%
Critically Undercapitalized......................... -- -- Less than Equal to2%(5)
</TABLE>
- ---------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified capital
level for any of the three capital measures.
(4) Less than3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(5) Ratio of tangible equity to total assets.
34
<PAGE> 37
REPORTING REQUIREMENTS
As a state-chartered bank, most of the Bank's operations are regulated and
examined by the Georgia Banking Department and the FDIC, including reserves for
loan losses and other contingencies, loans, investments, borrowings, deposits,
mergers, issuances of securities, payments of dividends, interest rates payable
on deposits, interest rates or fees chargeable on loans, establishment of
branches, consolidation or corporate reorganization, and maintenance of books
and records. The Bank is required by the Georgia Banking Department to prepare
reports on its financial condition and to conduct an annual external audit of
its financial affairs, in compliance with minimum standards and procedures
prescribed by the Georgia Banking Department. Reports of the Bank's auditors
must be filed with the Georgia Banking Department within 15 days after the
Bank's receipt of any such report. The Bank is also subject to the Georgia
banking and usury laws restricting the amount of interest which it may charge in
making loans or other extensions of credit.
As a bank holding company, the Company is required to file with the Federal
Reserve Board an annual report of its operations at the end of each fiscal year
and such additional information as the Federal Reserve Board may require
pursuant to the BHC Act. The Federal Reserve Board may also make examinations of
the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and the
Bank is subject to change by future federal and state legislation. In addition,
regulators may require higher capital levels on a case-by-case basis based on
such factors as the risk characteristics or management of a particular
institution. The Company and the Bank are not aware of any attributes of their
operating plan that would cause regulators to impose higher requirements.
35
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK
The Company's directors and executive officers, as well as the Bank's
directors and executive officers, are named below:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY POSITION WITH BANK
- ------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
Patrick G. Blanchard.......... President, Chief Executive Vice Chairman
Officer and Class III
Director
Larry DeMeyers................ None Director
Phillip G. Farr............... Class I Director Director
Samuel A. Fowler, Jr. ........ Class I Director Vice Chairman
Arthur J. Gay, Jr. ........... Class I Director Director
Joseph E. Gore................ Executive Vice President and Executive Vice President and
Senior Credit Officer Senior Lending Officer
Joseph D. Greene.............. Class I Director Director
J. Randal Hall................ Class II Director Director
Hugh L. Hamilton, Jr.......... Class I Director Director
William G. Hatcher............ Class I Director Director
George O. Hughes.............. Class II Director Director
George H. Inman............... Class II Director Director
David W. Joesbury, Sr......... Chairman, Class III Director Interim President and Chief
Executive Officer and
Director
John W. Lee................... Class III Director Chairman
James L. Lemley, M.D.......... Class II Director Director
Julian W. Osbon............... Class II Director Director
J. Harold Ward, Jr............ Senior Vice President and Senior Vice President and
Chief Financial Officer Chief Financial Officer
Robert N. Wilson, Jr.......... Class III Director Director
Bennye M. Young............... None Director
</TABLE>
The Board of Directors of the Company (the "Company Board") consists of 15
directors. Each member of the Company Board has served as a director since
February 1997, except (i) Messrs. Gay, Hall, Hamilton, Hatcher, Inman, Lee and
Osbon, who were appointed to the Company Board pursuant to the Agreement and
(ii) Mr. Blanchard who, pursuant to the Agreement, was named President, Chief
Executive Officer and a Class III Director. See "Business -- Background." The
terms of the members of the Company Board are staggered such that one-third of
the members are elected each year at the Company's annual meeting of
shareholders. Upon such election, each director of the Company serves for a term
of three years. The Company's officers are appointed by the Company Board and
hold office at the discretion of the Company Board.
The Board of Directors of the Bank (the "Bank Board") presently consists of
17 directors. The Bank's Articles of Incorporation and Bylaws provide for a
single class of directors, ranging in number from five to 25 members, the
precise number to be determined from time to time by resolution of the
shareholders at any annual or special meeting of the shareholders. Each member
of the Bank Board has served as a director since the Bank was organized in April
1988, except (i) Dr. Lemley, who was elected to the Bank Board by shareholders
at the Bank's 1997 annual meeting of shareholders and (ii) Messrs. Blanchard,
DeMeyers, Gay, Hall, Hamilton, Hatcher, Inman, Lee and Osbon, each of whom was
elected, pursuant to the Agreement, to the Bank Board. Each Bank director serves
for a term of one year and is elected at the Bank's annual meeting of
shareholders. The Bank's officers are appointed by the Bank Board and hold
office at the pleasure of the Bank Board. On January 8, 1999, the Bank's
President and Chief Executive Officer, Heyward Horton, Jr., resigned. The Bank
Board has appointed the Company's Chairman, David W. Joesbury, Sr., to serve as
interim President and Chief Executive Officer of the Bank until such time as the
position can be filled on a permanent basis.
36
<PAGE> 39
PATRICK G. BLANCHARD, age 55, was elected President and Chief Executive
Officer of the Company on October 8, 1997. Prior to accepting this position, Mr.
Blanchard had served as President of Georgia Bank & Trust Company of Augusta
since 1988. Mr. Blanchard began his banking career in 1966 and, since that time,
has organized two state banks. Mr. Blanchard has also been employed in a number
of senior banking positions including President of the Columbia County Division
of Georgia Railroad Bank & Trust Company until its acquisition by First Union
Corporation in 1988, and President of Georgia State Bank, Martinez, Georgia for
11 years until its merger with Georgia Railroad Bank & Trust Company in 1985.
Mr. Blanchard is Past President of the Columbia County Chamber of Commerce and
Past Chairman of the Board of the Metro Augusta Chamber of Commerce. He
presently serves as Chairman of the Georgia Southern University Foundation and
as President of Historic Augusta, Inc. He was named "1994 CEO of the Year" by
The Augusta Business Journal and was named "1995 Sponsor of the Year" by the
Credit Professionals International of Georgia. He was recently recognized by the
International Fraternity of Delta Sigma Pi as one of its most outstanding
alumnus on a national level.
LARRY DEMEYERS, age 52, has served as President, Chief Operating Officer
and as a director of Bankers First Corporation and its successor, SouthTrust
Bank, prior to his resignation from these positions in November 1997. Mr.
DeMeyers had been associated with Bankers First Corporation in various positions
for over twenty years. Mr. DeMeyers is Past President and a member of the
Augusta Kiwanis Club. He currently serves as Treasurer of the St. Joseph
Hospital Foundation and as Secretary and a member of the Board of Governors of
the Augusta Country Club. He is also an active member of Reid Memorial
Presbyterian Church.
PHILLIP G. FARR, age 50, founded a local certified public accounting firm
in 1975 in Thomson and has been the managing principal since that time. Prior to
1975, Mr. Farr worked in public accounting for both a regional and a national
firm. Mr. Farr served as Chairman of the Bank Board from 1991 to 1995.
SAMUEL A. FOWLER, JR., age 52, is currently a partner in the Thomson law
firm of Fowler & Wills. Mr. Fowler has practiced law in McDuffie and Wilkes
Counties since 1977. Fowler & Wills serves as the Bank's legal counsel.
ARTHUR J. GAY, JR., age 51, is President and Chief Executive Officer of T
and T Associates, Inc., a land development and consulting firm that he founded
in 1996. From 1970-1996, Mr. Gay was employed as Corporate Vice President of
Bankers First Corporation and Executive Vice President of Bankers First Savings
Bank, FSB in Augusta. Mr. Gay is a past Chairman and a past member of the
Columbia County Planning and Zoning Commission, and a past Chairman of the Board
of the Golden Harvest Food Bank. He is also a past board member of the Augusta
State University Alumni Association and has been active with the United Way, the
Georgia Heart Association and the Church of Christ of Augusta.
JOSEPH E. GORE, age 50, joined the Bank in April of 1997 as Executive Vice
President and Senior Lending Officer. Mr. Gore also serves as Executive Vice
President and Senior Credit Officer of the Company, a position he has held since
joining the Bank. Prior to his employment with the Bank, from April 1996 to
April 1997, Mr. Gore served as President and Chief Executive Officer of The Bank
of Spalding County, Griffin, Georgia. From March 1994 to April 1996, he served
as President and Chief Executive Officer of Pineland State Bank, Metter,
Georgia. From September 1987 to March 1994, he served as Executive Vice
President of The Bank of Spalding County, Griffin, Georgia. Mr. Gore has also
served as a Senior Lending Officer of banks in Houston and Coweta Counties and
as an officer of two regional bank affiliates. Mr. Gore holds a Bachelor of
Science in Industrial Management from the Georgia Institute of Technology in
Atlanta and is a graduate of the School of Banking of the South at Louisiana
State University and from the National Graduate Compliance School at The
University of Oklahoma.
JOSEPH D. GREENE, age 58, is a professor of Business Administration for the
College of Business at Augusta State University in Augusta, Georgia. Before
joining Augusta State University, Mr. Greene was employed by Pilgrim Health and
Life Insurance Company, where he retired as Executive Vice President after 32
years of employment with the company. Mr. Greene is past Chairman of the Georgia
Board of Regents. He currently serves on the Board of Directors of Cerulean
Companies, Inc., a holding company for Blue Cross & Blue Shield of Georgia,
Inc., the Greater Augusta Community Foundation, Southeastern Technology Center,
the National Science Center's Fort Discovery and the University of Georgia Terry
College of Business.
37
<PAGE> 40
J. RANDAL HALL, age 40, is an attorney at law with the Augusta law firm of
Hall & Mullins, P.C., which he founded in 1996. From 1985 to 1996, Mr. Hall
served as Corporate Vice President and Legal Counsel of Bankers First
Corporation in Augusta, Georgia. Mr. Hall is past President of the Augusta Lions
Club, past Chairman of the Board of the Augusta Southern Nationals, Inc., serves
as counsel for the Augusta-Richmond County Community Partnership for Children &
Families, Inc. and is a member of the Augusta-Richmond County Planning
Commission.
HUGH L. HAMILTON, JR., age 44, has served as General and Operations Manager
of Intertape Polymer Group, an Evans, Georgia manufacturing firm, since 1996.
Mr. Hamilton previously served as President of Augusta Bag Co. Mr. Hamilton is
an active member of the Rotary Club of Augusta. He serves on the Board of
Directors of the Boys and Girls Club, the Episcopal Day School and the
Tuttle-Newton Home. He is a past board member of the Georgia-Carolina Council of
the Boys Scouts of America.
WILLIAM G. HATCHER, age 73, is Chief Executive Officer and principal
shareholder of MAU, Inc. ("MAU"), an Augusta personnel services company he
founded in 1973. In 1998, MAU won the 1998 Kennesaw State University
"Medium-Sized Family Business of the Year Award" for being an outstanding family
business with a superior performance record in the human resource and staffing
field. Mr. Hatcher is a member of the Augusta Kiwanis Club and serves as a
Trustee of Historic Augusta, Inc. He has also served on the Board of Directors
for the Boys Club for 30 years and is a member of the Augusta Country Club.
GEORGE O. HUGHES, age 75, is Chairman of the Board of George O. Hughes
Furniture Co., Inc., a retail furniture and appliance business in Thomson that
he founded in 1947.
GEORGE H. INMAN, age 65, retired in May 1997 as Chairman of Club Car, Inc.,
a manufacturer of golf cars and utility vehicles in Augusta, Georgia. Mr. Inman
had been employed by Club Car, Inc. since 1978. Mr. Inman is a graduate of the
Georgia Institute of Technology. For a number of years he served on the Board of
Directors of Junior Achievement of Augusta and the Board of Directors of the
Chamber of Commerce. Mr. Inman also served on the Board of Directors of Bankers
First Savings Bank in Augusta for approximately nine years.
DAVID W. JOESBURY, SR., age 49, is President of Joesbury Insurance Agency,
Inc. and, since 1971, has served in various capacities with that company. Mr.
Joesbury currently serves as Chairman of the Company Board and interim President
and Chief Executive Officer of the Bank.
JOHN W. LEE, age 60, retired in 1995 as a consultant to GIW Industries,
Inc., a manufacturing firm located in Grovetown, Georgia. From 1986 to 1993, Mr.
Lee served as President and Chief Operating Officer of GIW Industries, Inc. Mr.
Lee currently serves as Chairman of the Bank Board. Mr. Lee previously served on
the Boards of Directors of the Bank of Thomson and Allied Bankshares, Inc. Mr.
Lee is a member of the Boards of Directors of University Hospital and the CSRA
Community Foundation.
JAMES L. LEMLEY, M.D., age 39, has practiced family medicine in Thomson,
Georgia since 1988. Dr. Lemley is on the active medical staff at McDuffie County
Hospital, serves on the courtesy staff at University Hospital in Augusta and is
an affiliate faculty member of the Medical College of Georgia's Schools of
Nursing, Medicine and Allied Health.
JULIAN W. OSBON, age 58, is President and Chief Executive Officer of
Charter Management d/b/a Osbon & Associates, an Augusta consulting and
management firm he founded in 1997. Prior to 1997, Mr. Osbon was President and
Chief Executive Officer of Osbon Medical Systems. Mr. Osbon is Chairman of the
Board of Directors of the CSRA Community Foundation and First Vice President of
Historic Augusta, Inc. He also serves as Vice President of Augusta Tomorrow,
Inc. and on the Board of Directors of the Metro Augusta Chamber of Commerce,
Main Street Augusta, the Augusta State University Foundation, and the East
Georgia Easter Seals. In 1997, he received the Spirit of Georgia Award presented
by the State of Georgia. He also was named Philanthropist of the Year in Augusta
in 1996.
J. HAROLD WARD, JR., age 56, joined the Bank in April of 1995 as Senior
Vice President and Chief Financial Officer. Mr. Ward also serves as Senior Vice
President and Chief Financial Officer of the Company, a position he has held
since the commencement of operations in February 1997. Prior to his employment
with
38
<PAGE> 41
the Bank, from September 1992 to April 1995, Mr. Ward served as Senior Vice
President and Chief Financial Officer of DeKalb State Bank, Tucker, Georgia and
from March 1987 to September 1992, he served as Senior Vice President of First
Gwinnett Bank, Norcross, Georgia. Mr. Ward has also served as Vice President and
Senior Operations Officer of banks in Walton County and Tift County, as well as
Assistant Operations Officer of First National Bank of Atlanta. Mr. Ward holds a
BBA in Management from Georgia State University in Atlanta and has completed the
Bank Administration Institute School of Banking at the University of Wisconsin.
ROBERT N. WILSON, JR., age 47, has served as the manager of Wilson Finance
Corp. d/b/a The Wilson Co. since 1982. In addition, Mr. Wilson currently owns
Wilson Ventures, Inc. ("Wilson Ventures"), which engages in real estate
speculation and manages residential rental properties as well as Wilson
Ventures' real estate and insurance businesses. Mr. Wilson served as Chairman of
the Bank Board from 1988 until 1991.
BENNYE M. YOUNG, age 55, taught school in DeKalb, Richmond and McDuffie
Counties from 1966 until 1980. Since that time, she has been a homemaker.
COMPENSATION OF DIRECTORS
During fiscal 1997, directors of the Bank received director's fees of $200
per regular board meeting attended and $25 per committee meeting attended.
Directors of the Company currently do not receive any compensation for services
provided to the Company.
EXECUTIVE COMPENSATION
The following table sets forth information regarding all cash and noncash
compensation paid to the Chief Executive Officer of the Company and the Bank
during each of the last three fiscal years (the "Named Executive Officers"). No
other executive officer of the Company or the Bank received annual salary and
bonus in excess of $100,000 during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS COMPENSATION($)(1)
--------------------------- ---- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Patrick G. Blanchard(2) 1998 120,000 -- 630
President and Chief Executive 1997 29,000(3) -- --
Officer of the Company
Heyward Horton, Jr.(4) 1997 115,000 5,000 3,450
Former President and Chief Executive 1996 115,000 -- 1,760
Officer of the Bank
</TABLE>
- ---------------
(1) Consists of matching contributions to the Bank's 401(k) Plan.
(2) Mr. Blanchard was elected President and Chief Executive Officer of the
Company on October 8, 1997.
(3) Only covers the period from October 8, 1997 through December 31, 1997.
(4) Mr. Horton served as President and Chief Executive Officer of the Bank from
February 15, 1995 until January 8, 1999. He also served as President and
Chief Executive Officer of the Company from the commencement of operations
in February 1997 until October 8, 1997.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with Patrick G.
Blanchard pursuant to which he serves as President and Chief Executive Officer
of the Company and Vice Chairman of the Bank. The current term of the agreement
expires on December 31, 2001, but on February 28, 1999 and the last day of
February of each year thereafter, the expiration date will automatically be
extended by one additional year unless the agreement is terminated pursuant to
its terms. The agreement provides for an annual salary of $120,000, an annual
incentive bonus of $12,000, subject to the satisfaction of certain performance
criteria, and
39
<PAGE> 42
certain incidental benefits commensurate with his position. The agreement also
provides that, upon completion of this Offering, Mr. Blanchard will be granted
an option to purchase a number of shares of Common Stock equal to 2.5% of the
number of shares of Common Stock sold in this Offering at an exercise price of
$13.50 per share. The option will vest with respect to one-fourth of the
underlying shares on the grant date. The balance of the option will vest in
three equal installments on December 31 of the years in which the Company's
average assets exceed $100 million, $150 million and $200 million, respectively.
The option will expire 10 years from the date of grant. Under the agreement, in
the event Mr. Blanchard's employment is terminated within three years after any
"change of control" (as defined in the agreement) by (i) the Company, other than
for "cause" (as defined in the agreement), or (ii) Mr. Blanchard as a result of
certain reasons set forth in the agreement, then Mr. Blanchard will be entitled
to receive cash in an amount equal to two times his current base salary, plus an
amount equal to the "in-the-money" portion of any unexercised stock options held
by him, whether or not then exercisable (the "Additional Severance Payment"). In
the event Mr. Blanchard terminates his employment for any reason other than
those set forth in the agreement during the three-year period following a change
of control, he will be entitled to a cash payment equal to his current base
salary plus the Additional Severance Payment. The agreement further provides
that upon termination of Mr. Blanchard's employment without cause, he will
receive 12 months' salary at the prevailing level and a continuation of all
insurance benefits until the earlier of (i) 12 months or (ii) employment in
another full-time position. The agreement also provides that for 12 months
following Mr. Blanchard's termination he shall not (i) serve as an executive
officer of any financial institution in McDuffie, Richmond, and Columbia
Counties, Georgia and Aiken County, South Carolina or (ii) solicit business from
any of the Company's customers.
SEVERANCE AGREEMENTS
J. Harold Ward, Jr., Senior Vice President and Chief Financial Officer of
the Company as well as Joseph E. Gore, Executive Vice President and Senior
Credit Officer of the Company, have entered into severance agreements with the
Company on terms substantially similar to the change of control provisions
contained in Mr. Blanchard's employment agreement except that Messrs. Ward and
Gore will not be entitled to any Additional Severance Payment as severance pay.
Messrs. Ward and Gore, however, do not have employment agreements with the
Company.
STOCK OPTION PLAN
In connection with the Reorganization, the Company adopted a stock option
plan (the "Stock Plan") which became effective on February 12, 1997. The purpose
of the Stock Plan is to encourage and enable participating directors, officers,
key employees and certain consultants or advisors of the Company to remain in
the employ of, and to give a greater effort on behalf of, the Company through
the ownership of Common Stock. The maximum number of shares of Common Stock
reserved under the Stock Plan is 100,000. The Stock Plan is administered by
either the Company Board or a committee comprised of no fewer than two
"Non-Employee Directors" (as defined under Rule 16b-3 of the Exchange Act) (such
committee or the Company Board itself, the "Committee"). Subject to the
provisions of the Stock Plan, the Committee has the authority to determine the
individuals to whom options shall be granted and to determine exercise prices,
vesting requirements, and other terms and conditions of each option. The Stock
Plan provides for the grant of "incentive stock options" intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended, and
"nonqualified stock options." Options granted under the Stock Plan must be
exercised within the period fixed by the Committee, which may not exceed 10
years from the date of the option grant, or in the case of incentive stock
options granted to any 10% stockholder, five years from the date of the option
grant. The exercise price for incentive stock options is the fair market value
(the "FMV") of the Common Stock on the date of grant (or in the case of
incentive stock options granted to any 10% shareholder, 110% of FMV of the
Common Stock on the date of grant) and for nonqualified stock options is no less
than 75% of FMV of the Common Stock on the date of grant. The FMV of Common
Stock with respect to which incentive stock options are exercisable by an
optionee for the first time cannot exceed $100,000 in any calendar year.
There are currently options outstanding under the Stock Plan to purchase
5,500 shares of Common Stock. These options vest in installments over a period
of four years beginning three years from the date of
40
<PAGE> 43
grant and the exercise prices range from $10.00 to $12.10 per share. Pursuant to
the terms of his employment agreement with the Company, upon completion of this
Offering, Patrick G. Blanchard will be granted an option under the Stock Plan to
purchase 2.5% of the number of shares of Common Stock sold in this Offering at
an exercise price of $13.50 per share. See "Management -- Employment Agreement."
The following table presents information regarding grants of options to
purchase shares of the Common Stock to the Named Executive Officers during the
year ended December 31, 1998:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES
OPTION AS OF EXERCISE EXPIRATION
NAME GRANTED 12/31/98 PRICE DATE
- ---- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Heyward Horton, Jr......................... 5,000(1) 59% $12.10 06/11/07(1)
</TABLE>
- ---------------
(1) This option was to expire 10 years from the date of grant and become
exercisable as to 40% after three years of employment with the Bank
(February 1998) and at the rate of 20% per annum thereafter. However,
pursuant to the Stock Plan and a stock option agreement entered into with
the Company, Mr. Horton's option expires on April 8, 1999, (90 days from the
date of his resignation), and is exercisable only with respect to those
shares that were exercisable at the time of his resignation (2,000 shares).
The following table provides certain information concerning the exercise of
stock options during the year ended December 31, 1997, and the value of
unexercised stock options held at December 31, 1998 by the Named Executive
Officers:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTION OPTIONS
AS OF 12/31/98 AS OF 12/31/98
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- ------------------ --------------------
<S> <C> <C>
Heyward Horton, Jr................................. 2,000/5,000 $2,800/$4,200
</TABLE>
CERTAIN TRANSACTIONS
The Company extends loans from time to time to certain of its directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans are made in the ordinary
course of business, are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with persons not affiliated with the Company and do not involve
more than the normal risks of collectibility or present other unfavorable
features.
41
<PAGE> 44
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 1, 1999, and as adjusted to reflect
the completion of this Offering, by: (i) each person known by the Company to
beneficially own 5% or more of the outstanding Common Stock; (ii) each of the
Company's directors and executive officers; and (iii) all directors and
executive officers of the Company as a group. Except as otherwise noted below,
each of the holders listed below has sole voting and investment power with
respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO MINIMUM OWNED AFTER THIS
THIS OFFERING(1) NUMBER OF OFFERING(1)
------------------- SHARES TO BE -------------------
NAME NUMBER PERCENT PURCHASED NUMBER PERCENT
---- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Patrick G. Blanchard............................ -- * 5,556 5,556 *
Larry DeMeyers+................................. -- * 5,000 5,000 *
Phillip G. Farr(2).............................. 11,250 1.8% -- 11,750 *
Samuel A. Fowler, Jr.(3)........................ 10,600 1.7 -- 10,600 *
Arthur J. Gay, Jr............................... -- * 3,704 3,704 *
Joseph E. Gore.................................. -- * 296 296 *
Joseph D. Greene................................ 13,500 2.1 -- 13,500 *
J. Randal Hall.................................. -- * 6,500 6,500 *
Hugh L. Hamilton, Jr............................ -- * 18,518 18,518 1.3%
William G. Hatcher.............................. -- * 26,000 26,000 1.9
George O. Hughes(4)............................. 39,724 6.3 -- 39,724 2.9
George H. Inman(5).............................. 10,212 1.6 4,150 14,362 1.0
David W. Joesbury, Sr.(6)....................... 11,650 1.8 450 12,100 *
John W. Lee(7).................................. 10,211 1.6 26,796 37,007 2.7
James L. Lemley, M.D.(8)........................ 33,800 5.3 -- 33,800 2.5
Julian W. Osbon(9).............................. 10,211 1.6 26,796 37,007 2.7
J. Harold Ward, Jr.(10)......................... 3,080 * 115 3,195 *
Robert N. Wilson, Jr.(11)....................... 13,220 2.1 100 13,320 1.0
Bennye M. Young+(12)............................ 14,300 2.3 800 15,100 1.1
The Augusta Group(13)........................... 51,058 8.0 67,946 119,004 8.6
The Prime Group, Inc.(14)....................... 59,058 9.1 -- 59,058 4.3
All directors and executive officers
as a group (19 persons)....................... 181,758 28.6 124,781 307,039 22.3
</TABLE>
- ---------------
* Represents less than 1%.
+ Bank Director only.
(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Exchange Act. Percentages are based on
the sale of 100% of the Common Stock offered hereby.
(2) Includes 200 shares owned by Mr. Farr's wife, with whom Mr. Farr shares
voting and investment power.
(3) Includes 100 shares owned by Mr. Fowler's wife, with whom Mr. Fowler shares
voting and investment power. Also includes 500 shares held by a
professional corporation established and managed by Mr. Fowler.
(4) Includes 4,914 shares owned by Mr. Hughes' wife, with whom Mr. Hughes
shares voting and investment power. Also includes 5,946 shares held by a
corporation controlled by Mr. Hughes. Mr. Hughes' address is 626 Beechwood
Drive, Thomson, Georgia 30824.
(5) Does not include 40,846 shares (6.4% of the currently outstanding shares of
the Common Stock) presently owned by certain members of the Augusta Group,
as to which Mr. Inman disclaims beneficial ownership.
(6) Includes 2,100 shares owned by Mr. Joesbury's wife, with whom Mr. Joesbury
shares voting and investment power. Also includes 100 shares held by Mr.
Joesbury as custodian for his children.
42
<PAGE> 45
(7) Does not include 40,847 shares (6.4% of the currently outstanding shares of
the Common Stock) presently owned by certain members of the Augusta Group,
as to which Mr. Lee disclaims beneficial ownership.
(8) Includes 33,500 shares held by a trust for which Dr. Lemley serves as
co-trustee. Dr. Lemley shares voting and investment power with respect to
shares held by this trust. James L. Lemley's brother, Robert K. Lemley,
M.D., serves as the other co-trustee of the trust. Accordingly, Robert K.
Lemley may also be deemed to beneficially own the 33,500 shares held by the
trust. James L. Lemley's address is P.O. Box 1898, Thomson, Georgia 30824.
(9) Does not include 40,847 shares (6.4% of the currently outstanding shares of
the Common Stock) presently owned by certain members of the Augusta Group,
as to which Mr. Osbon disclaims beneficial ownership.
(10) Includes 1,000 shares subject to presently exercisable stock options.
(11) Includes 1,220 shares held by Mr. Wilson as custodian for his children.
(12) Includes 1,700 shares held by Ms. Young as custodian for her children.
(13) Includes 10,212 shares beneficially owned by George H. Inman; 10,211 shares
beneficially owned by John W. Lee; 10,212 shares beneficially owned by A.
Montague Miller; 10,211 shares beneficially owned by Julian W. Osbon; and
10,212 shares beneficially owned by RDB Family Limited Partnership. Each of
the foregoing individuals and entities disclaims beneficial ownership of
the shares owned by any other member of the Augusta Group as such
individuals do not have or share voting and/or investment power with
respect to such shares. The business address of the Augusta Group is P.O.
Box 1463, Augusta, Georgia 30903.
(14) Includes 16,000 shares subject to presently exercisable options. Share
ownership is based on a Schedule 13G dated February 10, 1998 filed by the
Prime Group, Inc. The business address of the Prime Group, Inc. is 736
Jones Creek, Evans, Georgia 30809. The Company makes no representation as
to the accuracy or completeness of the information reported.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 9,000,000 shares of Common
Stock, of which 635,380 shares are issued and outstanding and 1,000,000 shares
of preferred stock, $.001 par value (the "Preferred Stock"), of which no shares
are presently issued and outstanding. As of December 15, 1998, the 635,380
shares of Common Stock currently issued and outstanding were held of record by
approximately 520 persons.
COMMON STOCK
The holders of Common Stock are entitled to elect the members of the
Company Board and such holders are entitled to vote as a class on all matters
required or permitted to be submitted to the shareholders of the Company. No
holder of any class of stock of the Company has preemptive rights with respect
to the issuance of shares of that or any other class of stock and the Common
Stock is not entitled to cumulative voting rights with respect to the election
of directors.
The holders of Common Stock are entitled to receive ratably such dividends
and other distributions if, as, and when declared by the Company Board out of
assets legally available therefor, subject to the preferential dividend or
distribution rights of any outstanding shares of Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock will be entitled to share ratably in the distribution of the Company's net
assets, subject to the prior rights of any outstanding shares of Preferred
Stock. The holders of Common Stock are not entitled to the benefit of any
sinking fund provision. The shares of Common Stock are not subject to any
redemption provisions, nor are they convertible into any other security or
property of the Company. All outstanding shares of Common Stock are, and the
shares to be outstanding upon completion of this Offering will be, fully paid
and nonassessable.
43
<PAGE> 46
PREFERRED STOCK
The Company Board is authorized, without further action by the
shareholders, to divide any and all shares of Preferred Stock into one or more
series and to fix and determine the relative rights and preferences of the
Preferred Stock, such as the designation of the series and the number of shares
constituting such series, dividend rights, redemption and sinking fund
provisions, liquidating and dissolution preferences, conversion or exchange
rights and voting rights, if any. The issuance of Preferred Stock by the Company
Board may result in such shares having senior dividend and/or liquidation
preferences to the holders of shares of Common Stock and may dilute the voting
rights of such holders. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
rights of holders of Common Stock and could make it more difficult for a third
party to acquire, or discourage a third party from acquiring, a majority of the
outstanding voting stock of the Company. No shares of Preferred Stock have been
issued or authorized for issuance, and the Company has no present plans to issue
any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS
Classified Board of Directors. The Company Board presently consists of 15
directors. The directors are divided into three classes, designated Class I,
Class II and Class III. Each class consists, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Company
Board. The term of the Company's Class I directors expires at the Company's
annual meeting of shareholders in 2001; the term of the Company's initial Class
II directors expires at the Company's annual meeting of shareholders in 1999;
and the term of the Company's initial Class III directors expires at the
Company's annual meeting of shareholders in 2000. At each annual meeting of
shareholders, successors to the class of directors whose term expires at that
meeting will be elected for a three-year term. If the number of directors is
changed, an increase or decrease will be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class will hold office until the next annual meeting of
shareholders, but in no event will a decrease in the number of directors shorten
the term of any incumbent director. Except in the case of removal from office,
any vacancy on the Company Board will be filled by a majority vote of the
remaining directors then in office.
Because the Company has a classified Board of Directors, as many as two
consecutive annual meetings of shareholders may be required to replace a
majority of the directors on the Company Board and thus gain control of the
Company. As a consequence, the classified Board of Directors makes it more
difficult for a person, entity or group to effect a change in control of the
Company through a proxy contest or the acquisition of a large block of the
Company's voting stock.
Requirement for Supermajority Approval of Transactions. The Articles
contain provisions requiring supermajority approval to effect certain
extraordinary corporate transactions which are not approved by the Company
Board. The Articles require the affirmative vote of the holders of at least
two-thirds (66 2/3%) of the shares of each class of stock of the Company
entitled to vote in elections of directors to approve any merger, consolidation,
disposition of all or a substantial part of the assets of the Company or a
subsidiary of the Company, if any person who together with his affiliates and
associates owns beneficially 5% or more of any voting stock of the Company
("Interested Person") is a party to the transaction; provided that such approval
is not required if three-fourths (3/4) of the entire Company Board approve the
transaction. In addition, the Articles require the separate approval by the
holders of at least a majority of the shares of each class of stock of the
Company entitled to vote in elections of directors which are not beneficially
owned by an Interested Person, of any merger, consolidation, disposition of all
or a substantial part of the assets of the Company or a subsidiary of the
Company, or exchange of securities requiring shareholder approval ("Business
Combination"), if an Interested Person is a party to such transaction; provided,
that such approval is not required if (a) the consideration to be received by
the holders of the capital stock of the Company meets certain minimum levels
determined by a formula contained in the Articles (generally the highest price
paid by the Interested Person for any shares which he has acquired), (b) there
has been no reduction in the average dividend rate from that which prevailed
prior to the time the Interested Person became such, and (c) the consideration
to be received by shareholders who are not Interested Persons is paid in cash or
the same
44
<PAGE> 47
consideration that the Interested Person previously paid for shares of such
class of stock. These provisions of the Articles may be amended, altered or
repealed only by the affirmative vote of the holders of not less than eighty
percent (80%) of the shares of each class of stock of the Company entitled to
vote in elections of directors.
Constituency Considerations. The Articles provide for the right of the
Company Board to consider the interests of various constituencies, including
employees, customers, suppliers and creditors of the Company as well as the
communities in which the Company is located, in addition to the interests of the
Company and its shareholders, in discharging its duties in determining what is
in the Company's best interests.
These provisions may make it more difficult for a person, entity or group
to effect a change in control of the Company that is not approved in advance by
the Company Board.
Limitation of Directors' Liability. The Articles eliminate, subject to
certain exceptions, the personal liability of directors to the Company or its
shareholders for monetary damages for breaches of such directors' duty of care
or other duties as a director. The Articles do not provide for the elimination
of or any limitation on the personal liability of a director for (i) any
appropriation, in violation of the director's duties, of any business
opportunity of the Company, (ii) acts or omissions that involve intentional
misconduct or a knowing violation of law, (iii) unlawful corporate distributions
or (iv) any transaction from which the director received an improper benefit.
The effect of these provisions, among others, is to eliminate the rights of the
Company and its shareholders (through shareholder derivative suits on behalf of
the Company), to recover monetary damages against a director for a breach of his
fiduciary duty of care except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any shareholder to seek nonmonetary relief (such as an injunction or a
rescission) in the event of a breach of a director's duty of care.
Indemnification. The Company's Bylaws also provide broad indemnification
rights to directors and officers so long as the director or officer acted in a
manner believed in good faith to be in, or not opposed to, the best interests of
the Company, and with respect to criminal proceedings, if the director had no
reasonable cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the Bank.
LEGAL MATTERS
Certain legal matters in connection with this Offering are being passed
upon for the Company by Smith, Gambrell & Russell, LLP, Atlanta, Georgia,
counsel to the Company.
EXPERTS
The financial statements included in this Prospectus have been audited by
Cherry, Bekaert & Holland, L.L.P., independent auditors, as stated in their
report appearing herein; and are included in reliance upon the report of said
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 (together with
all amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and
45
<PAGE> 48
regulations of the SEC. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC.
The Company is subject to certain informational requirements of the
Exchange Act and, in accordance therewith, files reports and other information
with the SEC. Such reports and other information can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. The SEC also maintains a World Wide Web site,
containing such reports, proxy and information statements and other information
regarding the Company, at http://www.sec.gov.
46
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Balance Sheets as of September 30,
1998 and 1997............................................. F-2
Condensed Consolidated Statements of Income and
Comprehensive Income for the Nine Months Ended September
30, 1998 and 1997......................................... F-3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997.................. F-4
Notes to Condensed Consolidated Financial Statements........ F-5
GEORGIA-CAROLINA BANCSHARES, INC.
Report of Cherry, Bekaert & Holland, L.L.P., Independent
Certified Public Accountants.............................. F-7
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996................................ F-8
Consolidated Statements of Income for the Years Ended
December 31, 1997 and 1996................................ F-9
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997 and 1996.................... F-10
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996................................ F-11
Notes to Consolidated Financial Statements.................. F-12
</TABLE>
F-1
<PAGE> 50
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,371 $ 1,132
Federal funds sold.......................................... 3,000 5,080
Interest-bearing deposits in banks.......................... 99 199
Securities available-for-sale............................... 14,623 11,219
Loans, net of allowance for loan losses of $834 (1998), $858
(1997).................................................... 20,982 17,887
Bank premises and fixed assets.............................. 2,448 1,439
Accrued interest receivable................................. 435 308
Foreclosed real estate, net of allowance.................... 253 452
Deferred tax benefit........................................ 138 261
Other assets................................................ 449 100
------- -------
TOTAL ASSETS...................................... $43,798 $38,077
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest bearing...................................... $ 3,561 $ 3,786
Interest-bearing:
NOW accounts........................................... 7,561 4,776
Savings................................................ 2,109 1,688
Money market accounts.................................. 2,870 2,720
Time deposits of $100,000, and over.................... 3,953 4,681
Other time deposits.................................... 15,769 12,900
------- -------
TOTAL DEPOSITS.................................... 35,823 30,551
Accrued expenses and other liabilities...................... 497 334
------- -------
TOTAL LIABILITIES................................. 36,320 30,885
------- -------
SHAREHOLDERS' EQUITY:
Common stock, par value $.001; 9,000,000 shares
authorized; 635,380 shares issued and outstanding...... 1 1
Preferred stock, par value $.001; 1,000,000 shares
authorized; none issued................................ -- --
Additional paid-in capital................................ 6,354 6,355
Retained earnings......................................... 987 879
Unrealized gain (loss) on securities available-for-sale,
net of tax............................................. 136 (43)
------- -------
TOTAL SHAREHOLDERS' EQUITY........................ 7,478 7,192
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $43,798 $38,077
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE> 51
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $1,670 $1,513
Interest on taxable securities............................ 628 504
Interest on nontaxable securities......................... 42 67
Interest on Federal funds sold............................ 125 96
Interest on deposits in other banks....................... 7 9
------ ------
TOTAL INTEREST INCOME............................. 2,472 2,189
------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more............. 189 206
Interest on other deposits................................ 850 689
Interest on Federal funds purchased....................... -- 2
------ ------
TOTAL INTEREST EXPENSE............................ 1,039 897
------ ------
NET INTEREST INCOME............................... 1,433 1,292
PROVISION FOR LOAN LOSSES................................... -- 15
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES.......................................... 1,433 1,277
------ ------
NONINTEREST INCOME
Service charges on deposits............................... 188 162
Other income.............................................. 28 33
Net realized gain, sales of available-for-sale
securities............................................. 1 2
------ ------
217 197
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits............................ 765 602
Occupancy expenses........................................ 148 121
Other expenses............................................ 540 453
------ ------
1,453 1,176
------ ------
INCOME BEFORE INCOME TAXES.................................. 197 298
INCOME TAX EXPENSE.......................................... 55 93
------ ------
NET INCOME........................................ $ 142 $ 205
====== ======
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gain on securities arising during current
period, net of reclassification adjustment for gains
included in net income................................. 121 15
------ ------
COMPREHENSIVE INCOME........................................ $ 263 $ 220
====== ======
NET INCOME PER SHARE OF COMMON STOCK
Basic..................................................... $ .22 $ .33
====== ======
Diluted................................................... $ .21 $ .31
====== ======
DIVIDENDS PER SHARE OF COMMON STOCK......................... $ .10 $ .20
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE> 52
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 142 $ 205
Adjustments to reconcile net income to net cash provided
by operating activities................................
Depreciation and amortization........................ 78 62
Provision for loan loss.............................. -- 15
Deferred income tax.................................. 44 32
Adjustment to foreclosed real estate................. -- 5
Net (increase) decrease in accrued interest
receivable.......................................... (54) 101
Net increase in other assets......................... (207) (52)
Net increase in other liabilities.................... 143 95
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 146 463
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold............. 750 (3,660)
Net (increase) decrease in interest-bearing deposits with
banks.................................................. 1 (99)
Net (increase) decrease in loans, net..................... (2,010) 2,085
Net purchase and proceeds, available-for-sale
securities............................................. (857) 1,359
Net purchases of premises and equipment................... (1,080) (61)
Proceeds from sale of foreclosed real estate.............. 53 188
------- -------
NET CASH USED IN INVESTING ACTIVITIES............. (3,143) (188)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits....................... 2,886 (104)
Dividends paid............................................ (64) (127)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... 2,822 (231)
------- -------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS.......... (175) 44
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD.............. 1,546 1,088
------- -------
CASH AND DUE FROM BANKS AT END OF PERIOD.................... $ 1,371 $ 1,132
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE> 53
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying financial statements include the accounts of
Georgia-Carolina Bancshares, Inc. (the "Company") and its wholly-owned
subsidiary, First Bank of Georgia (the "Bank"). Significant intercompany
transactions and accounts are eliminated in consolidation.
The financial statements as of and for the nine months ended September 30,
1998 and 1997 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These condensed consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 1997.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair presentation of the financial position and
results for interim periods.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and income and expense amounts. Actual results could differ from
those estimates.
NOTE 2 -- EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding. During 1997 the Company adopted SFAS No. 128,
"Earnings Per Share." This Statement establishes standards for computing and
presenting basic and diluted earnings per share. As the Company has granted
stock options to certain officers of the Company, diluted earnings per share has
been presented in the Statements of Income and Comprehensive Income. See the
Company's audited consolidated financial statements and notes thereto for the
year ended December 31, 1997, for information on the outstanding stock options.
NOTE 3 -- COMPREHENSIVE INCOME
During the first quarter of 1998 the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This Statement establishes standards for
reporting and display of comprehensive income in a set of financial statements.
Matters of comprehensive income have been presented in the accompanying
condensed consolidated statements of income and comprehensive income for 1998
and 1997.
NOTE 4 -- SECURITIES OFFERING
During February 1998, the Company commenced a "best efforts" public
offering (the "Best Efforts Offering") of a minimum of 518,519 shares and a
maximum of 740,741 shares of its common stock. The 740,741 shares in the Best
Efforts Offering were registered pursuant to a Registration Statement on Form
SB-2. The shares in the Best Efforts Offering were offered by certain directors
and executive officers of the Company. During August 1998, the Company
determined to restructure the plan of distribution prior to that date after an
underwriting firm with extensive experience in raising equity for community
banks and their holding companies advised the Company that it would underwrite
the sale of up to 740,741 shares of the Common Stock on a firm commitment basis
(the "Firm Commitment Offering"). Accordingly, the Company filed a second
Registration Statement on Form SB-2, which included a Prospectus that was
amended from the Prospectus contained in the Company's Registration Statement
relating to the Best Efforts Offering. During October 1998, the underwriting
firm informed the Company that it could not complete the Firm Commitment
F-5
<PAGE> 54
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Offering. Based on such conditions and discussions with the Securities and
Exchange Commission, the Company determined not to proceed with either the Firm
Commitment Offering or the Best Efforts Offering. Accordingly, all subscription
funds tendered were returned. In effecting the offerings, the Company incurred
approximately $300,000 of issuance costs. The Company expects to charge
approximately $200,000 of these costs to earnings in the fourth quarter of 1998
and expects the remaining costs to be charged to the proceeds of the offering.
The Company is currently pursuing the raising of equity capital through an
"any and all" best efforts type of offering.
F-6
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
GEORGIA-CAROLINA BANCSHARES, INC.
Thomson, Georgia
We have audited the accompanying consolidated statements of financial
condition of GEORGIA-CAROLINA BANCSHARES, INC. as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity, 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 audits 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
Georgia-Carolina Bancshares, Inc. as of December 31, 1997 and 1996, and the
results of its operations and cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Cherry, Bekaert & Holland, L.L.P.
Augusta, Georgia
February 6, 1998, except for Note 15 as
to which the date is December 11, 1998
F-7
<PAGE> 56
GEORGIA-CAROLINA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,546 $ 1,088
Federal funds sold.......................................... 3,750 1,420
Interest-bearing deposits in banks.......................... 100 100
Securities available-for-sale............................... 13,778 12,603
Loans, net of allowance for loan losses..................... 18,972 20,116
Bank premises and fixed assets.............................. 1,446 1,440
Accrued interest receivable................................. 381 409
Foreclosed real estate, net of allowance.................... 306 516
Deferred tax benefit........................................ 182 286
Other assets................................................ 110 48
------- -------
TOTAL ASSETS...................................... $40,571 $38,026
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing...................................... $ 3,654 $ 3,096
Interest-bearing:
NOW accounts........................................... 7,187 4,959
Savings................................................ 1,602 2,007
Money market accounts.................................. 2,832 2,178
Time deposits of $100,000, and over.................... 4,700 4,746
Other time deposits.................................... 12,962 13,669
------- -------
Total deposits.................................... 32,937 30,655
Accrued expenses and other liabilities...................... 356 239
------- -------
Total liabilities................................. 33,293 30,894
------- -------
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, par value $.001; 1,000,000 shares
authorized; none issued................................ -- --
Common stock, par value $.001; 9,000,000 shares
authorized; 635,380 shares issued and outstanding...... 1 1
Additional paid-in capital................................ 6,354 6,354
Retained earnings......................................... 908 801
Unrealized gain (loss) on securities available-for-sale,
net of tax............................................. 15 (24)
------- -------
Total shareholders' equity........................ 7,278 7,132
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $40,571 $38,026
======= =======
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 57
GEORGIA-CAROLINA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $2,034 $2,178
Interest on taxable securities............................ 670 677
Interest on nontaxable securities......................... 88 95
Interest on Federal funds sold............................ 160 87
Interest on deposits in other banks....................... 11 16
------ ------
TOTAL INTEREST INCOME............................. 2,963 3,053
------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000, or more............ 273 310
Interest on other deposits................................ 938 1,074
Interest on federal funds purchased....................... 2 1
------ ------
TOTAL INTEREST EXPENSE............................ 1,213 1,385
------ ------
NET INTEREST INCOME............................... 1,750 1,668
PROVISION FOR LOAN LOSSES................................... 16 56
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................... 1,734 1,612
------ ------
NONINTEREST INCOME
Service charges on deposits............................... 210 239
Other income.............................................. 45 52
Net realized gain, sales of available-for-sale
securities............................................. 2 1
------ ------
257 292
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits............................ 831 714
Occupancy expenses........................................ 167 231
Other expenses............................................ 621 502
------ ------
1,619 1,447
INCOME BEFORE INCOME TAXES.................................. 372 457
INCOME TAX EXPENSE.......................................... 138 132
------ ------
NET INCOME........................................ $ 234 $ 325
====== ======
EARNINGS PER SHARE
Net income, basic......................................... $ 0.37 $ 0.51
====== ======
Net income, diluted....................................... $ 0.35 $ 0.50
====== ======
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 58
GEORGIA-CAROLINA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
SECURITIES
COMMON STOCK ADDITIONAL AVAILABLE-FOR- TOTAL
------------------- PAID-IN RETAINED SALE, NET OF SHAREHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS DEFERRED TAXES EQUITY
------- --------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995....... 635,380 $1 $6,354 $ 540 $ 42 $ 6,937
Net income....................... -- -- -- 325 -- 325
Change in unrealized gain (loss)
on securities
available-for-sale, net of
deferred taxes................. -- -- -- -- (66) (66)
Cash dividend of $.10 per
share.......................... -- -- -- (64) -- (64)
------- -- ------ ----- ---- -------
BALANCE, DECEMBER 31, 1996....... 635,380 1 6,354 801 (24) 7,132
Net income....................... -- -- -- 234 -- 234
Change in unrealized gain (loss)
on securities
available-for-sale, net of
deferred taxes................. -- -- -- -- 39 39
Cash dividend of $.20 per
share.......................... -- -- -- (127) -- (127)
------- -- ------ ----- ---- -------
BALANCE, DECEMBER 31, 1997....... 635,380 $1 $6,354 $ 908 $ 15 $ 7,278
======= == ====== ===== ==== =======
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 59
GEORGIA-CAROLINA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 234 $ 325
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 86 151
Provision for loan losses.............................. 16 56
Net realized loss on available-for-sale securities..... -- --
Deferred income tax.................................... 83 60
Adjustment to foreclosed real estate................... -- 48
Other gains and losses, net............................ (4) 2
Net decrease (increase) in accrued interest
receivable............................................ 28 (16)
Net decrease (increase) in other assets................ (62) 26
Net increase in other liabilities...................... 115 46
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 496 698
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing deposits with banks...... -- 98
Net (increase) decrease in Federal funds sold............. (2,330) 4,530
Net (increase) decrease in loans, net..................... 1,058 (446)
Purchases of available-for-sale securities................ (6,166) (5,360)
Proceeds from sales of available-for-sale securities...... 2,096 248
Proceeds from maturities of available-for-sale
securities............................................. 2,957 3,382
Proceeds from sale of foreclosed real estate.............. 284 67
Net purchases of premises and equipment................... (92) (40)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... (2,193) 2,479
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits....................... 2,282 (4,665)
Dividends paid............................................ (127) (64)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... 2,155 (4,729)
------- -------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS............................................ 458 (1,552)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR................ 1,088 2,640
------- -------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 1,546 $ 1,088
======= =======
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 60
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Georgia-Carolina Bancshares, Inc. (the "Company") is a one-bank holding
company. Substantially all of its business is conducted by its wholly-owned
subsidiary, First Bank of Georgia (the "Bank"), Thomson, Georgia. Most of the
Bank's loans and loan commitments have been granted to customers in the Thomson,
Georgia and McDuffie County area. Many of the Bank's loan customers are also
depositors of the Bank.
The Company and Bank are subject to the regulations of Federal and state
banking agencies and is periodically examined by them.
During 1997, the Board of Directors of the Bank formed a holding company to
acquire 100% of the outstanding shares of the Bank's stock. The transaction has
been accounted for in a manner substantially similar to a pooling of interests.
Accordingly, all periods presented in the consolidated financial statements have
been restated to give effect to the transaction as if it occurred at the
beginning of the earliest period presented.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of the Company and the Bank. Significant intercompany transactions and
accounts are eliminated in consolidation. The accounting and reporting policies
of the Bank conform to generally accepted accounting principles and general
practices within the banking industry.
ESTIMATES -- 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
disclosure of contingent assets and liabilities at the date of the 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 -- For purposes of reporting cash flows, cash and
due from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). The Bank maintains due from accounts with banks
primarily located in Georgia. Balances generally exceed insured amounts.
INVESTMENT SECURITIES -- The Bank's investments in securities are
classified and accounted for as follows:
Securities available-for-sale -- Securities classified as
available-for-sale are identified when acquired as being available-for-sale
to meet liquidity needs or other purposes. They are carried at fair value
with unrealized gains and losses, net of taxes, reported at a net amount as
a separate component of shareholders' equity.
Securities to be held-to-maturity -- Securities classified as
held-to-maturity are those debt securities the Bank has both the intent and
ability to hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions. These securities
are carried at cost adjusted for amortization of premium and accretion of
discount, computed by the interest method over their contractual lives.
The Bank has not classified any securities as trading.
Gains and losses on sale of available-for-sale securities are determined
using the specific-identification method.
LOANS AND RESERVE FOR LOAN LOSSES -- Loans are stated at principal amounts
outstanding less unearned income and the allowance for loan losses. Interest
income on loans is credited to income based on the principal amount outstanding
at the respective rate of interest, except for unearned interest on discounted
loans which is recognized as income over the term of the loan using a method
that approximates a level yield.
F-12
<PAGE> 61
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrual of interest income is discontinued when a loan becomes 90 days past
due as to principal and interest or when, in management's judgment, the interest
will not be collectible in the normal course of business. Accrual of interest on
such loans is resumed when, in management's judgment, the collection of interest
and principal becomes probable. When a loan is placed on nonaccrual status, all
interest previously accrued but not collected is reversed against current
interest income. Interest income is subsequently recognized only to the extent
cash payments are received.
Effective January 1, 1995, the Bank prospectively adopted Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
the Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures; An Amendment to SFAS
No. 114." These Statements apply to all loans of the Bank that are identified
for evaluation except for smaller-balance homogenous residential mortgage and
consumer installment loans that are collectively evaluated by management for
impairment. A loan is impaired when, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Management of the Bank evaluates
the borrower's ability to pay, the value of any collateral, and other factors in
determining when a loan is impaired. Management does not consider a loan to be
impaired during a period of delay in payment if it is expected that the Bank
will collect all amounts due including interest accrued at the contractual
interest rate for the period of the delay.
Interest payments on impaired loans are applied to the remaining principal
balance until the balance is fully recovered. Once principal is recovered, cash
payments received are recorded as recoveries to the extent of any principal
previously charged-off, and then as interest income.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans, including impaired loans, are charged against
the allowance for loan losses when management believes that collectibility of
the principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb estimated losses on existing loans that may become
uncollectible, based on evaluation of the collectibility of certain specific
loans and prior loss experience. This evaluation also takes into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrower's ability to pay. While management uses
the best information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
FORECLOSED REAL ESTATE -- Foreclosed real estate represents properties
acquired through foreclosure or other proceedings. The property is held for sale
and is recorded at the lower of the recorded amount of the loan or fair value of
the properties less estimated costs of disposal. Any write-down to fair value at
the time of foreclosure is charged to the allowance for loan losses. Property is
evaluated regularly to ensure the carrying amount is supported by its current
fair value. Foreclosed real estate is reported net of allowance for losses in
the Bank's financial statements.
BANK PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost
less accumulated depreciation, computed by straight-line and declining balance
methods over the estimated useful lives of the assets.
INCOME TAXES -- Provisions for income taxes are based on amounts reported
in the statements of income after exclusion of nontaxable income, such as
interest on state and municipal securities, and include deferred taxes on
temporary difference in the recognition of income and expense for tax and
financial statement purposes. Deferred taxes are computed on the liability
method. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
EARNINGS PER SHARE -- Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. During the year, the Company
adopted SFAS No. 128, "Earnings per Share." This
F-13
<PAGE> 62
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The financial statements include
disclosure of fair value information about the Bank's financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate 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. Accordingly, the aggregate fair value amounts
presented are not intended to and do not represent the underlying value of the
Bank.
The following methods and assumptions are used by the Bank in estimating
fair values of financial instruments:
Cash and due from banks, Federal funds sold and interest-bearing
deposits in banks -- Due to the short-term nature of these instruments,
their estimated fair values approximates their carrying amounts.
Available-for-sale and held-to-maturity securities -- Estimated fair
values are based on quoted market prices when available. Where quoted
market prices are not available, quoted market prices of comparable
instruments or discounted cash flow methods are used to estimate fair
value.
Loans -- Fair values for loans are estimated by discounted cash flows
using interest rates currently being offered by the Bank for loans with
similar terms and similar credit quality.
Deposit liabilities -- Due to the short-term nature of demand and
savings accounts, the estimated fair value of these instruments
approximates their carrying amounts. Fair values for certificates of
deposit are estimated by discounted cash flows using interest rates
currently being offered by the Bank on certificates.
Commitments to extend credit and standby letters of credit are not recorded
until such commitments are funded. The value of these commitments are the fees
charged to enter into such agreements. These commitments do not represent a
significant value to the Bank until such commitments are funded. The Bank has
determined that such instruments do not have a distinguishable fair value and no
fair value has been assigned to these instruments.
NET ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards Board
("FASB") has issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." Both
Statements will be effective for the Company beginning in 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income to be
reported in a set of financial statements with the same prominence as other
financial statements. SFAS No. 131 establishes standards for the way that public
businesses report information about operating segments, products and services,
geographic areas and major customers in a set of financial statements. Each of
these Statements is a matter of reporting and display and does not effect
revenue or expense measurement. Management of the Company does not expect the
adoption of these Statements to materially effect the Company's financial
statements.
F-14
<PAGE> 63
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- INVESTMENT SECURITIES
The amortized cost and fair values of securities owned as of December 31,
are shown below:
<TABLE>
<CAPTION>
1997
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency securities........ $10,713 $40 $(27) $10,726
State, county and municipal securities....... 1,784 41 -- 1,825
Mortgage-backed securities................... 1,258 2 (33) 1,227
------- --- ---- -------
$13,755 $83 $(60) $13,778
======= === ==== =======
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency securities........ $ 7,840 $33 $ (51) $ 7,822
State, county and municipal securities....... 2,133 16 (4) 2,145
Mortgage-backed securities................... 2,668 22 (54) 2,636
------- --- ----- -------
$12,641 $71 $(109) $12,603
======= === ===== =======
</TABLE>
The amortized cost and fair value of securities as of December 31, 1997, by
contractual maturity are as follows. Actual maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without penalty, therefore
these securities are not included in the maturity categories in the following
maturity summary.
<TABLE>
<CAPTION>
SECURITIES
AVAILABLE-FOR-SALE
--------------------
AMORTIZED FAIR
COST VALUE
--------- -------
(IN THOUSANDS)
<S> <C> <C>
One year or less............................................ $ 641 $ 645
After one year through five years........................... 3,924 3,921
After five years through ten years.......................... 7,832 7,880
After ten years............................................. 100 105
Montage-backed securities................................... 1,258 1,227
------- -------
$13,755 $13,778
======= =======
</TABLE>
Securities with a carrying amount of approximately $3.4 million and $6.5
million at December 31, 1997 and 1996, respectively, were pledged to secure
public deposits and for other purposes.
Net realized gains (losses) on sales of securities available-for-sale were:
<TABLE>
<S> <C>
1997........................................................ $2,000
1996........................................................ 1,000
</TABLE>
F-15
<PAGE> 64
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LOANS
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial................................... $ 3,026 $ 3,865
Real estate -- construction................................. 4,893 2,547
Real estate -- mortgage..................................... 9,137 10,917
Consumer.................................................... 2,676 2,807
Federal funds sold, term.................................... -- 872
------- -------
19,732 21,008
Unearned income............................................. (8) (3)
------- -------
19,724 21,005
Allowance for loan losses................................... (752) (889)
------- -------
Loans, net........................................ $18,972 $20,116
======= =======
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
---- ------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.................................. $889 $1,155
Provision charged to operations............................. 16 56
Recoveries.................................................. 89 231
Loans charged off........................................... (242) (553)
---- ------
Balance, end of year.............................. $752 $ 889
==== ======
</TABLE>
Loans for which the accrual of interest had been discontinued or reduced
amounted to approximately $40,000 and $140,000 at December 31, 1997 and 1996,
respectively. There was no significant reduction in interest income associated
with nonaccrual and renegotiated loans. There were no loans identified as
impaired under SFAS No. 114 at December 31, 1997 or 1996.
At December 31, 1997, executive officers and directors, and companies in
which they have a beneficial ownership, were indebted to the Bank in the
aggregate amount of $563,000. The interest rates on these loans were
substantially the same as rates prevailing at the time of the transactions, and
repayment terms are customary for the type of loan involved. Following is a
summary of transactions for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.................................. $408 $573
Advances.................................................... 225 108
Repayments.................................................. 70 273
---- ----
Balance, end of year.............................. $563 $408
==== ====
</TABLE>
F-16
<PAGE> 65
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- FORECLOSED REAL ESTATE
A summary of foreclosed real estate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Carrying amount of property................................. $336 $613
Less, valuation allowance................................... 30 97
---- ----
$306 $516
==== ====
</TABLE>
NOTE 5 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 475 $ 475
Building and improvements................................... 1,248 1,248
Equipment, furniture & fixtures............................. 825 750
------- -------
Total cost........................................ 2,548 2,473
Less accumulated depreciation............................... (1,102) (1,033)
------- -------
Premises and equipment, net....................... $ 1,446 $ 1,440
======= =======
</TABLE>
NOTE 6 -- DEPOSITS
At December 31, 1997, the scheduled maturities of time-deposit liabilities
were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998...................................................... $ 13,008
1999...................................................... 3,344
2000...................................................... 1,128
2001...................................................... 60
2002 and thereafter....................................... 122
--------------
$ 17,662
==============
</TABLE>
NOTE 7 -- EMPLOYEE BENEFIT PLAN
The Bank has a 401(k) salary-deferred plan covering substantially all
employees. At the discretion of the Bank's Board of Directors, the Bank may
match a percentage of the annual amounts deferred by employees. Matching amounts
are funded by the Bank as accrued. Total deferred and matching amounts are
limited to amounts that can be deducted for Federal income tax purposes. The
Bank's matching contribution for the three years ended December 31, 1997, was
approximately $12,000 per year.
NOTE 8 -- SHAREHOLDERS' EQUITY AND REGULATORY MATTERS
The primary source of funds available to the Company is the payment of
dividends by the subsidiary Bank. Banking regulations limit the amount of
dividends that may be paid by the Bank without prior approval of regulatory
agencies. Approximately $115,000 is available to be paid as dividends at
December 31, 1997, without prior regulatory approval.
F-17
<PAGE> 66
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, regulatory agencies required the Bank to enter into a Memorandum
of Understanding with the agencies requiring the Bank to comply with and
implement certain operating procedures. In 1996, the regulatory agencies
released the Bank from the Memorandum of Understanding.
The Bank is subject to various regulatory capital requirements administered
by state and 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 Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes that as of December 31, 1997, the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the regulatory
agencies 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 table below. There are no conditions or events since
that notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
REQUIRED
TO BE WELL-
CAPITALIZED
UNDER
REQUIRED PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital
(To Risk Weighted Assets)................. $7,400 31.3% $1,890 8.0% $2,363 10.0%
Tier I capital
(To Risk Weighted Assets)................. 7,099 30.0 945 4.0 1,418 6.0
Tier I capital
(To Average Assets)....................... 7,099 18.9 1,503 4.0 1,879 5.0
</TABLE>
As of December 31, 1996, the Bank's actual regulatory capital ratios were
as follows:
<TABLE>
<S> <C>
Total capital (to Risk Weighted Assets)..................... 32.1%
Tier I capital (to Risk Weighted Assets).................... 30.8
Tier I capital (to Average Assets).......................... 17.6
</TABLE>
During 1997 the Company adopted the 1997 Stock Option Plan (the "Plan") for
eligible directors, officers and key employees of the Company and subsidiary
bank. Options are granted to purchase common shares at prices not less than the
fair market value of the stock at the date of grant as established by the Board
of Directors. The maximum number of shares which may be reserved and made
available-for-sale under the Plan is 100,000 shares.
F-18
<PAGE> 67
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Plan provides for the grant of both incentive and nonqualified stock
options on the Company's common stock. The Board of Directors of the Company
establishes to whom options shall be granted and determines exercise prices,
vesting requirements and the number of shares covered by each option.
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation,"
the Company has elected to account for the Plan in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for the Plan under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using an option
pricing model which included the following assumptions:
<TABLE>
<S> <C>
Dividend yield.............................................. 1.0%
Volatility.................................................. 10.0
Risk-free rate.............................................. 7.5
</TABLE>
In addition, the model assumed that each option was exercised during the
first year of vesting.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the option's vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<S> <C>
Pro forma net income........................................ $231
Pro forma earnings per share................................ .36
</TABLE>
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate. value estimate. In
management's opinion, the model does not necessarily provide a reliable single
measure of the fair value of options.
During 1997, all options granted have ten year terms to expiration and vest
and become exercisable based on the following schedule of years of continued
employment:
<TABLE>
<CAPTION>
YEARS OF CONTINUED
EMPLOYMENT VESTING
------------------ -------
<S> <C>
3.................................................... 40%
4.................................................... 60
5.................................................... 80
6.................................................... 100
</TABLE>
A summary of the Company's stock option activity, and related formation,
for the year ended December 31, 1997 follows:
<TABLE>
<CAPTION>
EXERCISE
PRICE
OPTIONS PER SHARE
------- ---------
<S> <C> <C>
Outstanding -- beginning of year............................ -- $ --
Granted..................................................... 8,500 12.10
-----
Outstanding -- end of year.................................. 8,500
=====
</TABLE>
None of the options were exercisable at year end. The estimated fair value
per option of the options granted during the year is $0.92.
At December 31, 1997, options to purchase 16,000 shares of the Company's
common stock were outstanding from a plan originated prior to the Stock Plan.
The options are nontransferrable and have exercise
F-19
<PAGE> 68
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prices between ten and twelve dollars per share and expire during the years 2000
to 2003. No options were exercised during the years ended December 31, 1997 and
1996. No additional shares are available to be granted under this plan. None of
the options outstanding under this plan are owned by employees or directors of
the Company.
During the current year the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure." This Statement establishes standards for
disclosing information about the Company's capital structure. The adoption of
this Statement did not have a material effect on the Company's financial
statements.
NOTE 9 -- INCOME TAXES
The total income taxes in the statements of income for the years end
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Current tax................................................. $ 58 $ 72
Deferred tax................................................ 80 60
---- ----
$138 $132
==== ====
</TABLE>
The Bank's provision for income taxes differs from the amounts computed by
applying the Federal and state income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory rates............................................. 38.0% 38.0%
Tax exempt income......................................... (8.0) (8.0)
Nondeductible interest.................................... 1.0 1.0
Other, including effect of graduated rate brackets........ 5.0 (2.0)
---- ----
36.0% 29.0%
==== ====
</TABLE>
The primary components of deferred income taxes at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Allowance for loan losses................................. $171 $253
Foreclosed real estate allowance.......................... 9 18
Unrealized loss on securities available-for-sale.......... -- 15
Other..................................................... 10 --
---- ----
Deferred income tax assets........................ 190 286
---- ----
Deferred tax liabilities
Unrealized gain on securities available-for-sale.......... 8 --
---- ----
Net deferred income tax asset..................... $182 $286
==== ====
</TABLE>
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences are
expected to be available to reduce taxable income.
F-20
<PAGE> 69
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank may enter into
off-balance-sheet financial instruments which are not reflected in the financial
statements. These instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when funds are disbursed or the instruments become payable. The Bank
uses the same credit policies for these off-balance-sheet financial instruments
as it does for other instruments that are recorded in the financial statements.
Following is an analysis of significant off-balance-sheet financial
instruments:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit................................ $5,407 $1,981
Standby letters of credit................................... 31 50
------ ------
$5,438 $2,031
====== ======
</TABLE>
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitment amounts
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 amount of collateral obtained, if deemed necessary by
the Bank, 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.
The nature of the business of the Bank is such that it ordinarily results
in a certain amount of litigation. In the opinion of management, there are no
present matters in which the outcome will have a material adverse effect on the
financial statements.
NOTE 11 -- SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Income taxes paid........................................... $ 68 $ 29
Interest paid............................................... 1,131 1,369
</TABLE>
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments, for those
instruments for which the Bank's management believes estimated fair value does
not by nature approximate the instruments' carrying amount, are as follows at
December 31, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Loans.................................................. $19.0 $18.9 $21.0 $20.9
===== ===== ===== =====
Certificates of deposit................................ $17.7 $17.8 $18.4 $18.4
===== ===== ===== =====
</TABLE>
Estimated fair value information of investment securities is presented in
Note 2 of the financial statements.
F-21
<PAGE> 70
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- OTHER EXPENSES
Other noninterest expenses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Data processing............................................. $ 97 $104
FDIC assessment............................................. 9 10
Legal and accounting........................................ 157 57
Printing and supplies....................................... 31 37
Other....................................................... 327 294
---- ----
$621 $502
==== ====
</TABLE>
NOTE 14 -- CONDENSED FINANCIAL INFORMATION ON GEORGIA-CAROLINA
BANCSHARES, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash...................................................... $ 1
Investment in subsidiary.................................. 7,286
Deferred tax benefit...................................... 10
------
TOTAL ASSETS........................................... $7,297
======
LIABILITIES
Accrued expenses and other liabilities.................... $ 19
SHAREHOLDERS' EQUITY........................................ 7,278
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $7,297
======
</TABLE>
CONDENSED STATEMENT OF INCOME
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
INCOME, DIVIDENDS FROM SUBSIDIARY........................... $ 35
EXPENSES
Accounting and legal...................................... 48
Other..................................................... 4
----
(Loss) before income tax benefits and equity in
undistributed earnings of subsidiary.................. (17)
INCOME TAX BENEFITS......................................... 10
----
(Loss) before equity in undistributed earnings of
subsidiary............................................ (7)
Equity in undistributed earnings of subsidiary......... 241
----
NET INCOME............................................. $234
====
</TABLE>
F-22
<PAGE> 71
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 234
Adjustments to reconcile net income to net cash used in
operating activities
Equity in undistributed earnings of subsidiary......... (241)
Deferred income tax.................................... (10)
------
Total adjustments................................. (251)
------
Net cash used in operating activities............. (17)
------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in notes payable............................. 18
------
Net cash provided by financing activities......... 18
------
Net increase in cash........................................ 1
Cash at beginning of year................................... --
------
Cash at end of year......................................... $ 1
======
NONCASH INVESTING AND FINANCING ACTIVITIES
Equity of subsidiary at formation of holding company...... $6,990
======
</TABLE>
NOTE 15 -- ISSUANCE OF COMMON STOCK
During February 1998, the Company commenced a "best efforts" public
offering (the "Best Efforts Offering") of a minimum of 518,519 shares and a
maximum of 740,741 shares of its common stock. The 740,741 shares in the Best
Efforts Offering were registered pursuant to a Registration Statement on Form
SB-2. The shares in the Best Efforts Offering were offered by certain directors
and executive officers of the Company.
During August 1998, the Company determined to restructure the plan of
distribution after an underwriting firm advised the Company that it would
underwrite the sale of up to 740,000 shares of the common stock on a firm
commitment basis (the "Firm Commitment Offering"). Accordingly, the Company
filed a second Registration Statement on Form SB-2, which included a Prospectus
that was amended from the Prospectus contained in the Company's Registration
Statement relating to the Best Efforts Offering. During October 1998, the
underwriting firm informed the Company that it could not complete the Firm
Commitment Offering. Based on such conditions and discussions with the
Securities and Exchange Commission, the Company determined not to proceed with
either the Firm Commitment Offering or the Best Efforts Offering. Accordingly,
all subscription funds tendered were returned.
The Company is presently considering an "any and all" best efforts type of
offering.
F-23
<PAGE> 72
APPENDIX A
GEORGIA-CAROLINA BANCSHARES, INC.
SUBSCRIPTION AGREEMENT
To: Georgia-Carolina Bancshares, Inc.
P.O. Box 1560
Thomson, Georgia 30824
Gentlemen:
You have informed me that Georgia-Carolina Bancshares, Inc., a Georgia
corporation (the "Company"), is offering up to 740,741 shares of its $.001 par
value common stock (the "Common Stock") at a price of $13.50 per share as
described in and offered pursuant to the Prospectus furnished to the undersigned
herewith (the "Prospectus"). In addition, you have informed me that the minimum
subscription is 100 shares.
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment in United
States currency by check, bank draft or money order payable to "Georgia-Carolina
Bancshares, Inc." or any other consideration satisfactory to the Company,
representing the payment of $13.50 per share for the number of shares of the
Common Stock indicated below.
2. ACCEPTANCE OF SUBSCRIPTION. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company shall reject this subscription,
if at all, in writing within ten business days after receipt of this
subscription. Subscriptions not rejected by the Company within this ten day
period shall be deemed accepted by the Company. The Company may reduce the
number of shares for which the undersigned has subscribed, indicating acceptance
of less than all of the shares subscribed on its written form of acceptance.
3. ACKNOWLEDGMENTS. The undersigned hereby acknowledges that he has
received a copy of the Prospectus and agrees to be bound by the terms of this
Agreement.
4. REVOCATION. The undersigned agrees that once this Subscription
Agreement is accepted by the Company, it may not be withdrawn by him. Therefore,
until the earlier of the expiration of ten business days after receipt by the
Company of this Subscription Agreement or acceptance of this Subscription
Agreement by the Company, the undersigned may withdraw his subscription and
receive a full refund of the subscription price. The undersigned agrees that,
except as provided in this Section 4, he shall not cancel, terminate or revoke
this Subscription Agreement or any agreement of the undersigned made hereunder
and that this Subscription Agreement shall survive the death or disability of
the undersigned.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY
RIGHTS HE MAY HAVE UNDER FEDERAL SECURITIES LAWS, INCLUDING THE SECURITIES ACT
OF 1933, AS AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
A-1
<PAGE> 73
Please fill in the information requested below, make your check payable to
"Georgia-Carolina Bancshares, Inc." and mail the Subscription Agreement, Stock
Certificate Registration Instructions and your check to the attention of Patrick
G. Blanchard, President and Chief Executive Officer, Georgia-Carolina
Bancshares, Inc., P.O. Box 1560, Thomson, Georgia 30824.
<TABLE>
<S> <C>
- ------------------------------------ -----------------------------------------------------
No. of Shares Subscribed (Signature of Subscriber)
$ --------------------------------- -----------------------------------------------------
Funds Tendered ($13.50 Name (Please Print or Type)
per share subscribed)
Date: -----------------------------------------------
Phone Number:
-------------------------------------------- (Home)
-------------------------------------------- (Office)
Residence Address:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
City, State and Zip Code
-----------------------------------------------------
Social Security Number or other
Taxpayer Identification Number
</TABLE>
A-2
<PAGE> 74
STOCK CERTIFICATE REGISTRATION INSTRUCTIONS
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Additional Name if Tenant in Common or Joint Tenant
Mailing Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Social Security Number or other Taxpayer Identification Number
- ------------------------
Number of Shares to be registered in above name(s):
- ------------------------
Legal form of ownership:
<TABLE>
<S> <C>
------ Joint Tenants with Rights of
Survivorship
- ------ Individual
------ Uniform Gift to Minors
- ------ Tenants in Common
- ------ Other ---------------
</TABLE>
A-3
<PAGE> 75
FORM OF ACCEPTANCE
Georgia-Carolina Bancshares, Inc.
P.O. Box 1560
Thomson, Georgia 30824
To:
Dear Subscriber:
Georgia-Carolina Bancshares, Inc. (the "Company") acknowledges receipt of
your subscription for shares of its $.001 par value Common Stock
and your check for $ .
The Company hereby accepts your subscription for the purchase of
shares of its Common Stock, at $13.50 per share, for an aggregate
of $ , effective as of the date of this letter.
Your stock certificate(s) representing shares of Common Stock duly
authorized and fully paid will be issued to you as soon as practicable.
If this acceptance is for a lesser number of shares than that number
subscribed by you as indicated in your Subscription Agreement, your payment for
shares of Common Stock in excess of the number of shares accepted hereby will be
refunded to you by mail, without interest, within ten (10) days of the date
hereof.
Very Truly Yours,
GEORGIA-CAROLINA BANCSHARES, INC.
By:
------------------------------------
Patrick G. Blanchard
President and Chief Executive
Officer
A-4
<PAGE> 76
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS PROSPECTUS OR ANY
SUPPLEMENT. THE COMPANY HAS NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THE COMPANY IS NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Terms of the Offering................. 9
Use of Proceeds....................... 10
Dividend Policy....................... 10
Selected Consolidated Financial
Data................................ 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 25
Supervision and Regulation............ 31
Management............................ 36
Certain Transactions.................. 41
Security Ownership of Management and
Certain Beneficial Owners........... 42
Description of Capital Stock.......... 43
Legal Matters......................... 45
Experts............................... 45
Available Information................. 45
Index to Financial Statements......... F-1
Appendix A -- Subscription
Materials........................... A-1
</TABLE>
---------------------
Until March 6, 1999 (40 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
740,741 SHARES
(GEORGIA CAROLINA BANCSHARES, INC. LOGO)
COMMON STOCK
------------------
PROSPECTUS
------------------
January 25, 1999
- ------------------------------------------------------
- ------------------------------------------------------
