U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 000-24203
GB&T BANCSHARES, INC.
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(Name of small business issuer in its charter)
Georgia 58-2400756
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
500 Jesse Jewell Parkway, S.E.
Gainesville, Georgia 30501
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (770) 532-1212
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5.00
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $19,886,172
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price of which the
common equity was sold, or the average bid and asked price of such common equity
as of a specified date within the past 60 days. $23,908,867
State the number of shares outstanding at each of the issuer's classes
of common equity as of latest practicable date: February 28, 2000, 2,117,638
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1999, are incorporated by reference into Parts I and II of this
report.
Portions of the Proxy Statement for the 2000 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days of the Registrant's 1999 fiscal year end are incorporated by reference into
Part III of this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
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GB&T Bancshares, Inc. (the "Company") was formed in 1998 as a bank
holding company existing under the laws of the State of Georgia. On April 24,
1998, the Company acquired all of the outstanding common stock of Gainesville
Bank & Trust (the "Bank") in exchange for 1,676,160 shares at $5 par value
common stock. The acquisition was accounted for as a pooling of interests, and,
accordingly, all prior financial statements reflect the combination. At December
31, 1999, the Company had one wholly-owned subsidiary, the Bank.
The Company operates as a one bank holding company. At December 31,
1999, the Company had invested in two de novo banks in Georgia, representing a
less than 5% ownership in each bank. The Company's current plans include
exploring additional opportunities through mergers and acquisitions. Currently,
there are no employees of the Company.
Gainesville Bank & Trust
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Gainesville Bank & Trust located in Gainesville, Georgia was
incorporated under the laws of the State of Georgia on July 20, 1987 and
commenced operations as a Georgia state-chartered bank on February 1, 1988.
The Bank conducts business from its main office facility at 500 Jesse
Jewell Parkway, Gainesville, Hall County, Georgia, which is owned equally by the
Bank and one of its directors. The Bank currently occupies sixty-eight percent
of this facility. The remainder of this facility is available for lease and
approximately 10,000 square feet in the building is currently under lease to
four tenants unrelated to the Bank. The Bank currently operates three branches
in Gainesville, Georgia and one branch in Oakwood, Georgia.
The Bank provides a full range of banking services to customers within
its primary market area of Hall County. The Bank offers checking accounts, money
market accounts, savings accounts, certificates of deposit, commercial, small
business, real estate, consumer, home equity, automobile and credit card loans.
The Bank also offers a variety of other traditional banking services to its
customers, including drive-up and night depository facilities, 24-hour automated
teller machines, PC banking and limited trust services.
The Company and Bank have grown from their initial capital base of $7
million to a total asset base of approximately $259 million. The continued
growth in total assets and loans was generated almost exclusively from deposits
obtained from the Hall County market area. The loan portfolio of $200 million as
of December 31, 1999 is comprised of commercial loans ($33 million), loans
secured by real estate ($147 million), and consumer and other loans ($20
million). The Company and Bank are not currently engaged in any nonbanking
activities.
Market Area and Competition
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The Bank competes primarily with ten other commercial banks, Bank of
America, N.A., Regions Bank, Georgia First Bank, N.A., Lanier National Bank,
Community Bank & Trust-Habersham, Premier Bank, SunTrust Bank, Northeast
Georgia, NBC Bank, FSB, and Wachovia Bank, N.A. In addition, the Bank competes
with other financial institutions, including two credit unions. The banking
business is very competitive in the Gainesville, Hall County market. The banking
industry continues to experience increased competition for deposits from
brokerage firms and money market funds.
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As a whole, the banking industry in Georgia is highly competitive. The
Bank competes with institutions, some of which have much greater financial
resources than the Bank, and which may be able to offer more services to their
customers. In recent years, intense market demands, economic pressures, and
increased customer awareness of products, services, and the availability of
electronic services have forced banks to diversify their services and become
more cost effective. The Bank continually faces strong competition in attracting
and retaining deposits and loans.
The most direct competition for deposits comes from other commercial
banks, savings banks, credit unions and issuers of securities such as shares in
money market funds. Interest rates, convenience, availability of products and
services, and marketing are all significant factors in the Bank's competition
for deposits.
Competition for loans comes from other commercial banks, savings banks,
insurance companies, consumer finance companies, credit unions and other
institutional lenders. The Bank competes for loan originations through interest
rates, loan fees, efficiency in closing and handling of loans, and the overall
quality of service. Competition is affected by the general availability of
lendable funds, general and local economic conditions, current interest rates,
and other factors that are not readily predictable.
Management expects that competition will continue in the future due to
the fully phased-in statewide branching laws that became effective in 1998 and
the entry of additional bank and nonbank competitors.
Lending Activities
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The Bank originates loans primarily secured by single family real
estate, residential construction, owner-occupied commercial buildings, and other
loans to small businesses and individuals. In addition, loans are made to small-
and medium-sized commercial businesses, as well as to consumers for a variety of
purposes. The Bank also lends to a limited number of residential contractors and
developers in the Hall County area.
In addition, the Bank originates loans to small businesses secured by
real estate and other collateral, which loans are in part (up to 75% of each
loan) guaranteed by the U.S. Small Business Administration ("SBA").
The Bank's commercial lending includes loans to smaller business
ventures, credit lines for working capital and short-term seasonal or inventory
financing, as well as occasional letters of credit. Commercial borrowers
typically secure their loans with assets of the business, personal guaranties of
their principals, and often secured by mortgages on their personal residences.
The Bank provides commercial and consumer installment loans to its
customers. Such loans are typically of multiple-year duration and, if not
variable rate, bear interest at a rate tied to the Bank's cost of funds of
equivalent maturity. Commercial installment loans generally finance commercial
equipment and real estate, while consumer installment loans typically finance
automobiles, consumer products, or home improvements.
Risks associated with loans made by the Bank include, but are not
limited to, the real estate market in Hall County, fraud, deteriorating or
non-existing collateral, general economic conditions, interest rate risk, and
deteriorating borrower financial conditions.
The Company's Board of Directors establishes and periodically reviews
the Bank's lending policies and procedures. State banking regulations provide
that no secured loan relationship may exceed 25% of the Bank's statutory capital
and no unsecured loan relationship may exceed 15% of the Bank's statutory
capital, except in very limited circumstances. The Bank occasionally sells
participation interests in loans to other lenders, primarily when a loan exceeds
the Bank's legal lending limits.
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Deposits
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Checking, savings, money market accounts, and certificates of deposit
are the primary sources of funds for investing in loans and securities. The Bank
obtains most of its deposits from individuals and businesses in its market area.
An alternative source of funding is through advances from the Federal Home Loan
Bank and other borrowings which enable the Bank to borrow funds at rates and
terms which at times are more beneficial to the Bank.
The Bank does not solicit deposits by offering depositors rates of
interest on certificates of deposit or money market accounts significantly above
rates paid by other local competitors. The Bank solicits brokered deposits on a
limited basis.
Securities
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After establishing necessary cash reserves and funding loans, the Bank
invests its remaining liquid assets in securities allowed under banking laws and
regulations. The Bank invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States, other
taxable securities and in certain obligations of states and municipalities. The
Bank also invests excess funds in Federal funds with its correspondents and
primarily acts as a net seller of such funds. The sale of Federal funds amounts
to a short term loan from the Bank to another bank. Risks associated with
securities include, but are not limited to, interest rate fluctuation, maturity,
and concentration.
Asset/liability Management
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It is the objective of the Bank to manage its assets and liabilities to
provide a satisfactory and consistent level of profitability within the
framework of established cash, loan, securities, borrowing and capital policies.
Certain officers of the Bank are charged with the responsibility for developing
and monitoring policies and procedures that are designed to insure acceptable
composition of the asset/liability mix. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories from individuals and businesses.
Management of the Bank seeks to invest the largest portion of the Bank's assets
in loans.
The Bank's asset-liability mix is monitored on a periodic basis with a
report reflecting interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the Bank's Board of Directors on a monthly
basis. The objective of this policy is to manage interest-sensitive assets and
liabilities so as to minimize the impact of substantial movements in interest
rates on the Bank's earnings.
Employees
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As of December 31, 1999, the Bank had 91 total employees and 89
full-time equivalent employees. The Bank is not a party to any collective
bargaining agreement and, in the opinion of management, the Bank enjoys
satisfactory relations with its employees.
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REGULATION AND SUPERVISION
General
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We are a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") and the Georgia Department of
Banking and Finance (the "Georgia Department") under the BHC Act and the Georgia
BHC Act, respectively. As such, we are subject to the supervision, examination
and reporting requirements of the BHC Act and the regulations of the Federal
Reserve, and the Georgia BHC Act and the regulations of the Georgia Department.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before:
o it may acquire direct or indirect ownership or control of any
voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank;
o it or any of its subsidiaries, other than a bank, may acquire
all or substantially all of the assets of any bank; or
o it may merge or consolidate with any other bank holding
company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any part of the United States, or the effect of which may
be substantially to lessen competition or to tend to create a monopoly, or that
in any other manner would be in restraint of trade, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by the public
interest in meeting the convenience and needs of the communities to be served.
The Federal Reserve is also required to consider the financial and managerial
resources and future prospects of the bank holding companies and banks involved
and the convenience and needs of the communities to be served. Consideration of
financial resources generally focuses on capital adequacy, and consideration of
convenience and needs issues generally focuses on the parties' performance under
the Community Reinvestment Act of 1977.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, and any other bank holding company located in Georgia,
may now acquire a bank located in any other state, and any bank holding company
located outside of Georgia may lawfully acquire any Georgia-based bank,
regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provides that, as of June 1, 1997, national and
state-chartered banks may now branch interstate through acquisitions of banks in
other states.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act which became effective on July 1,
1995. The Georgia Interstate Banking Act provides that
o interstate acquisitions by institutions located in Georgia
will be permitted in states which also allow national
interstate acquisitions, and
o interstate acquisitions of institutions located in Georgia
will be permitted by institutions located in states which
allow national interstate acquisitions.
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Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia the right to merge any lawfully acquired bank into an interstate branch
network. The Georgia Interstate Branching Act also allows banks to establish de
novo branches on a limited basis beginning July 1, 1996. Beginning July 1, 1998,
the number of de novo branches which may be established is no longer limited.
Except as amended by the Gramm-Leach-Bliley Act of 1999 discussed
below, the BHC Act generally prohibits a bank holding company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity reasonably can be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh possible adverse effects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices. For example, factoring
accounts receivable, acquiring or servicing loans, leasing personal property,
conducting discount securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit transactions, and
performing certain insurance underwriting activities all have been determined by
the Federal Reserve to be permissible activities of bank holding companies. The
BHC Act does not place territorial limitations on permissible non-banking
activities of bank holding companies. Despite prior approval, the Federal
Reserve has the power to order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
The Bank is a member of the FDIC, and as such, its deposits are insured
by the FDIC to the maximum extent provided by law. The Bank is also subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations, and it is supervised and examined by one or more
state or federal bank regulatory agencies.
The Bank is subject to regulation, supervision, and examination by the
FDIC and the Georgia Department. The FDIC and the Georgia Department regularly
examine the operations of the Bank and are given authority to approve or
disapprove mergers, consolidations, the establishment of branches, and similar
corporate actions. The FDIC and the Georgia Department also have the power to
prevent the continuance or development of unsafe or unsound banking practices or
other violations of law.
Gramm-leach-bliley Act of 1999
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President Clinton signed the Gramm-Leach-Bliley Act of 1999, which
reforms financial services regulation, into law on November 12, 1999. This new
law covers various topics such as insurance, unitary thrifts, privacy protection
provisions for customers of financial institutions, the Federal Home Loan Bank
system's modernization, automatic teller machine reform, the Community
Reinvestment Act and certain changes related to the securities industry. This
new law also eliminates legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
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The Gramm-Leach-Bliley Act amends the Bank Holding Company Act to
clarify that a bank holding company may hold shares of any company that the
Federal Reserve determined, as of the day before the date of enactment of the
Gramm-Leach-Bliley Act, to be engaged in activities that were sufficiently
closely related to banking. This act also amends the Bank Holding Company Act to
establish a new type of bank holding company - the "financial holding company."
Pursuant to the Gramm-Leach-Bliley Act, financial holding companies have the
authority to engage in financial activities in which other bank holding
companies may not engage. Financial holding companies may also affiliate with
companies that are engaged in financial activities. These financial activities
include activities that are:
o financial in nature;
o incidental to an activity that's financial in nature; or
o complimentary to a financial activity and does not pose a
substantial risk to the safety and soundness of depository
institutions or the financial system in general.
The Federal Reserve and the Secretary of the Treasury may determine
which activities meet these standards. However, the Gramm-Leach-Bliley Act lists
certain activities as being financial in nature. For example, some of these
activities are:
o lending, exchanging, transferring, investing for others, or
safeguarding money or securities;
o insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability, or death, or providing and
issuing annuities, and acting as principal, agent, or broker
for these purposes in any state;
o providing financial, investment or economic advice;
o issuing or selling interests in pools of assets that a bank
could hold directly;
o underwriting, dealing in or making markets in securities;
o engaging in any activity that the Federal Reserve determined
by an order or regulation that's in effect on the date of
enactment of the Gramm-Leach-Bliley Act to be related closely
to banking; and
o engaging within the United States in any activity that a bank
holding company could engage in outside of the United States,
if the Federal Reserve found before the Gramm-Leach-Bliley Act
that the activity was usual in connection with banking or
other financial operations internationally.
The Gramm-Leach-Bliley Act also directs the Federal Reserve to adopt a
regulation or order defining certain additional activities as financial in
nature, to the extent that they are consistent with that act. These include:
o lending, exchanging, transferring, investing for others or
safeguarding financial assets other than money or securities;
o providing any device or other instrumentality for transferring
financial assets; and
o arranging, effecting or facilitating financial transactions
for third parties.
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Not all bank holding companies may become financial holding companies.
A bank holding company must meet three requirements before becoming a financial
holding company:
o all of the bank holding company's depository institution
subsidiaries must be well capitalized;
o all of the bank holding company's depository institution
subsidiaries must be well managed; and
o the bank holding company must file with the Federal Reserve a
declaration of its election to become a financial holding
company, including a certification that its depository
institution subsidiaries meet the prior two criteria.
With only a few exceptions, in order to exercise the powers granted to
them under the Gramm-Leach-Bliley Act, a financial holding company or insured
depository institution also must meet the Community Reinvestment Act's
requirements. If any insured depository institution, insured depository
institution affiliate, or insured depository institution subsidiary of a
financial holding company did not receive a Community Reinvestment Act rating of
at least "satisfactory record of meeting community credit needs" at its most
recent Community Reinvestment Act examination, the regulatory agencies are to
present the insured depository institution or financial holding company from
exercising the new powers, either directly or through a subsidiary.
A company that is not a bank holding company or a foreign bank, which
becomes a financial holding company, may be able to continue to engage in
nonfinancial activities and the company may be able to keep its ownership
interests in other companies that are engaged in nonfinancial activities. The
ability to continue the nonfinancial activities or keep ownership interests in
other companies that are engaged in nonfinancial activities lasts for ten years
after the Gramm-Leach-Bliley Act's enactment and may be extended for an
additional five-year term if granted by the Federal Reserve pursuant to an
application. In order to continue in the nonfinancial activities:
o the holding company must have been engaged in the nonfinancial
activity or held the shares in the other companies engaged in
nonfinancial activities on September 30, 2000;
o the holding company must be predominantly engaged in financial
activities; and
o the company engaged in the nonfinancial activity must continue
to engage in the same nonfinancial activities it did on
September 30, 1999 and engage in other authorized activities
under the Gramm-Leach-Bliley Act.
A holding company is predominantly engaged in financial activities
where at least 85% of the consolidated annual gross revenues of the holding
company and its subsidiaries, other than depository institutions, come from
financial activities.
Payment of Dividends
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We are a legal entity separate and distinct from our banking
subsidiary. Our principal source of cash flow, including cash flow to pay
dividends to our shareholders, is dividends from the Bank. There are statutory
and regulatory limitations on the payment of dividends by the Bank, as well as
by us to our shareholders.
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If, in the opinion of the federal banking regulators, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "--Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
Our ability to pay dividends may also be affected or limited by other
factors, such as the requirement to maintain adequate capital above regulatory
guidelines.
Capital Adequacy
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We are required to comply with the capital adequacy standards
established by the Federal Reserve, and the FDIC in the case of the Bank. There
are two basic measures of capital adequacy for bank holding companies that have
been promulgated by the Federal Reserve: a risk-based measure and a leverage
measure. All applicable capital standards must be satisfied for a bank holding
company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks
and bank holding companies, to account for off-balance sheet exposure, and to
minimize disincentives for holding liquid, low-risk assets. Assets and
off-balance-sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must be comprised of common stock, undivided
profits, minority interests in the equity accounts of consolidated subsidiaries
and noncumulative perpetual preferred stock, less goodwill and certain other
intangible assets ("Tier 1 Capital"). The remainder may consist of subordinated
debt, other preferred stock, and a limited amount of loan loss reserves ("Tier 2
Capital"). At December 31, 1999, our consolidated Total Risk-Based Capital Ratio
and its Tier 1 Risk-Based Capital Ratio (I.E., the ratio of Tier 1 Capital to
risk-weighted assets) were 9.73% and 8.62%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including those having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. Our Leverage Ratio at December 31, 1999 was 6.84%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Bank is subject to risk-based and leverage capital requirements
adopted by the FDIC, which are substantially similar to those adopted by the
Federal Reserve for bank holding companies. The Bank was in compliance with
applicable minimum capital requirements as of December 31, 1999. We have not
been advised by any federal banking agency of any specific minimum capital ratio
requirement applicable to it.
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Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "--Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its off-balance
sheet position) in the evaluation of a bank's capital adequacy. The bank
regulatory agencies have recently established a methodology for evaluating
interest rate risk which sets forth guidelines for banks with excessive interest
rate risk exposure to hold additional amounts of capital against such exposures.
Support of Subsidiary Institution
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Under Federal Reserve policy, we are expected to act as a source of
financial strength for, and to commit resources to support, the Bank. This
support may be required at times when, absent such Federal Reserve policy, we
may not be inclined to provide such support. In addition, any capital loans by a
bank holding company to its banking subsidiary are subordinate in right of
payment to deposits and to certain other indebtedness of such bank. In the event
of a bank holding company's bankruptcy, any commitment by a bank holding company
to a federal bank regulatory agency to maintain the capital of a banking
subsidiary will be assumed by the bankruptcy trustee and entitled to a priority
of payment.
Prompt Corrective Action
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FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Total Risk-Based Capital Ratio of 10%
or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be adequately capitalized. An institution with a Total
Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital Ratio of
less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to be
undercapitalized. An institution with a Total Risk-Based Capital Ratio of less
than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 3.0%, or a Leverage
Ratio of less than 3.0% is considered to be significantly undercapitalized, and
an institution with a tangible equity capital to assets ratio equal to or less
than 2.0% is deemed to be critically undercapitalized. For purposes of the
regulation, the term "tangible equity" includes core capital elements counted as
Tier 1 Capital for purposes of the risk-based capital standards, plus the amount
of outstanding cumulative perpetual preferred stock (including related surplus),
minus intangible assets with certain exceptions. A depository institution may be
deemed to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution will meet its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of the
applicable agency. In addition, the appropriate federal banking regulator is
given authority with respect to any undercapitalized depository institution to
take any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
9
<PAGE>
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region"; (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior executive officer, the regulator must comply
with certain procedural requirements, including the opportunity for an appeal in
which the director or officer will have the burden of proving his or her value
to the institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking regulator, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer, without
regulatory approval.
At December 31, 1999, the Bank had the requisite capital levels to
qualify as "adequately capitalized."
FDIC Insurance Assessments
- --------------------------
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The
risk-based assessment system, which originally went into effect on January 1,
1994, assigns an institution to one of three capital categories: (i) well
capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These
three categories are substantially similar to the prompt corrective action
categories described above, with the "undercapitalized" category including
institutions that are undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action purposes. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for members of both the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") for
the first half of 1995, as they had been during 1994, ranged from 23 basis
points (0.23% of deposits) for an institution in the highest category (i.e.,
"well capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning in 1996, the deposit insurance premiums for 92% of all BIF members in
the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
10
<PAGE>
Recognizing that the disparity between the SAIF and BIF premium rates
have adverse consequences for the SAIF insured institutions and other banks with
SAIF assessed deposits, including reduced earnings and an impaired ability to
raise funds in capital markets and to attract deposits, in July 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the disparity
between the assessment rates on BIF and SAIF deposits following recapitalization
of the SAIF.
A variation of this proposal designated the Deposit Insurance Funds Act
of 1996 ("DIFA") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by DIFA, the
FDIC implemented a special one-time assessment of approximately 65.7 basis
points (0.657%) on a depository institution's SAIF-insured deposits held as of
March 31, 1995 (or approximately 52.6 basis points on SAIF deposits acquired by
banks in certain qualifying transactions). In addition, the FDIC has implemented
a revision in the SAIF assessment rate schedule which effected, as of October 1,
1996 (i) a widening in the assessment rate spread among institutions in the
different capital and risk assessment categories, (ii) an overall reduction of
the assessment rate range assessable on SAIF deposits of from 0 to 27 basis
points, and (iii) a special interim assessment rate range for the last quarter
of 1996 of from 18 to 27 basis points on institutions subject to Financing
Corporation ("FICO") assessments. Effective January 1, 1997, assessments to help
pay off the $780 million in annual interest payments on the $8 billion FICO
bonds issued in the late 1980's as part of the government rescue of the thrift
industry were imposed on both BIF- and SAIF-insured deposits in annual amounts
presently estimated at 1.29 basis points and 6.44 basis points, respectively.
Beginning in January, 2000, BIF- and SAIF-insured institutions share the FICO
interest costs at equal rates currently estimated at 2.43 basis points.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
Safety and Soundness Standards
- ------------------------------
The FDIA, as amended by the FDICIA and the Riegle Community Development
and Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits,
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective August
9, 1995, a set of guidelines prescribing safety and soundness standards pursuant
to FDICIA, as amended. The guidelines establish general standards relating to
internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, earnings and compensation, fees and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal shareholder. In addition, the agencies adopted
regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable compliance
plan or fails in any material respect to implement an acceptable compliance
plan, the agency must issue an order directing action to correct the deficiency
and may issue an order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDICIA. See "--Prompt Corrective Action." If an institution fails
to comply with such an order, the agency may seek to enforce such order in
judicial proceedings and to impose civil money penalties.
11
<PAGE>
Community Reinvestment Act
- --------------------------
The Community Reinvestment Act of 1977 ("CRA") requires the federal
bank regulatory agencies to encourage financial institutions to meet the credit
needs of low- and moderate-income borrowers in their local communities. In May
1995, the federal bank regulatory agencies published final amended regulations
promulgated pursuant to the CRA. The final regulations eliminate the 12
assessment factors under the former regulation and replace them with performance
tests. Institutions are no longer required to prepare CRA Statements or
extensively document director participation, marketing efforts or the
ascertainment of community credit needs. Under the final rule, an institution's
size and business strategy determines the type of examination that it will
receive. Large, retail-oriented institutions will be examined using a
performance-based lending, investment and service test. Small institutions will
be examined using a streamlined approach. All institutions have the option of
being evaluated under a strategic plan formulated with community input and
pre-approved by the bank regulatory agency.
CRA regulations provide for certain disclosure obligations. In
accordance with the CRA, each institution must post a CRA notice advising the
public of the right to comment to the institution and its regulator on the
institution's CRA performance and to review the institution's CRA public file.
Each lending institution must maintain for public inspection a public file that
includes a listing of branch locations and services, a summary of lending
activity, a map of its communities, and any written comments from the public on
its performance in meeting community credit needs. Public disclosure of written
CRA evaluations of financial institutions made by regulatory agencies is
required by the CRA. This promotes enforcement of CRA requirements by providing
the public with the status of a particular institution's community reinvestment
record.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's and Bank's main office is owned jointly by the Bank and
Director Donald J. Carter. The three story building is located in downtown
Gainesville at the intersection of Jesse Jewell Parkway and Race Street. The
Bank occupies over two-thirds of the building, with remaining space presently
leased to other tenants. The Bank's main office also has a drive-in automated
teller machine.
The Bank has a branch banking facility in Oakwood, Georgia, a Hall
County town seven miles south of Gainesville. This branch also has an automated
teller machine.
The Bank has three branch locations in Gainesville, Georgia, the first
located in a leased shopping center facility at 2412 Old Cornelia Highway, in a
small community just north of Gainesville, the second located in a leased
shopping center facility at 1210 Thompson Bridge Road, and the third located in
a leased shopping center facility at 475 Dawsonville Highway, all of which have
an automated teller machine.
The Bank operates automated teller machines in a Gainesville-based
retail shopping center at 975 Dawsonville Road, at 6800 Aqualand Marina, in
Flowery Branch, Georgia and in a hospital atrium at 675 White Sulphur Road in
Gainesville, Georgia.
In the opinion of management, all properties including improvements and
furnishings are adequately insured.
The Bank is currently in the process of completing a full service
branch located on Friendship Road in south Hall County. Completion is expected
in the third quarter of 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject
of, any material pending legal proceedings, other than ordinary routine
proceedings incidental to the business of the Bank, nor to the knowledge of the
management of the Company are any such proceedings contemplated or threatened
against the Company or Bank.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The common stock of the Company and its predecessor entity was traded
on the electronic bulletin board market under the symbol "GVLG" from
September 26, 1996 through January 5, 1999. Effective January 5, 1999,
the Company began listing their stock on The NASDAQ Stock Market under
the symbol "GBTB." The following table sets forth the high and low
closing sale prices for the Company's common stock as reported on the
respective markets. Historical stock prices have been adjusted to
reflect the five-for-four common stock split in the form of a dividend
declared August 29, 1998. The sales prices indicated reflect
inter-dealer prices, without mark-up, mark-down or commission, and may
not represent actual transactions.
Sales Price
Calendar Period Low High
----------------------------------------------------------
1998
First Quarter $ 17.59 $ 18.80
Second Quarter 18.80 21.59
Third Quarter 18.80 21.59
Fourth Quarter 21.50 23.00
1999
First Quarter $ 23.00 $ 33.00
Second Quarter 24.50 26.00
Third Quarter 20.00 25.00
Fourth Quarter 18.8125 21.625
(b) As of February 28, 2000, there were approximately 596 holders of record
of the Company's common stock.
(c) The Company paid a $.25 and $.16 per share cash dividend on its common
stock for the years ended December 31, 1999 and 1998, respectively. The
Company anticipates paying a quarterly dividend in the future. Any
declaration and payment of dividends will be based on the Company's
earnings, economic conditions, and the Board of Directors' evaluation
of other relevant factors. The Company's ability to pay dividends will
also be dependent on cash dividends paid to it by the Bank. The ability
of the Bank to pay dividends to the Company is restricted by applicable
regulatory requirements. See "Supervision and Regulation - Payment of
Dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
- -------
The purpose of this discussion is to focus on information about the
Company's financial condition and results of operations which is not otherwise
apparent from the financial statements included in this Annual Report. Reference
should be made to those statements and the selected financial data presented
elsewhere in this report for an understanding of the following discussion and
analysis. Historical results of operations and any trends which may appear, are
not necessarily indicative of the results to be expected in future years.
13
<PAGE>
A Warning About Forward-looking Statements
- ------------------------------------------
Some of the statements made in this annual report (and in other
documents to which we refer) are "forward-looking statements." When used in this
document, the words "anticipate," "believe," "estimate," and similar expressions
generally identify forward-looking statements. These statements are based on the
beliefs, assumptions, and expectations of the Company's management, and on
information currently available to those members of management. They are
expressions of historical fact, not guarantees of future performance.
Forward-looking statements include information concerning possible or assumed
future results of operations of the Company.
Forward-looking statements involve risks, uncertainties, and
assumptions, and certain factors could cause actual results to differ from
results expressed or implied by the forward-looking statements, including:
1. economic conditions (both generally and in the markets where
the Company operates);
2. competition from other companies that provide financial
services similar to those offered by the Company;
3. government regulation and legislation;
4. changes in interest rates; and
5. unexpected changes in the financial stability and liquidity of
the Company's credit customers
We believe these forward-looking statements are reasonable. You should
not, however, place undue reliance on these forward-looking statements, because
the future results and shareholder values of the Company may differ materially
from those expressed or implied by these forward-looking statements.
Summary
- -------
During 1999 and 1998, the Company continued to experience significant
growth in interest-earning and total assets which has been funded by increases
in deposits, borrowings, and the retention of net profits. The Company has
recorded net income of $2,272,000 and $1,673,000 for the years ended December
31, 1999 and 1998, respectively, increasing total equity to $16,607,000 at
December 31, 1999. Total equity at December 31, 1999 is net of unrealized losses
on securities available-for-sale of $656,000 compared to unrealized gains of
$151,000 for year-end 1998.
Balance Sheets
- --------------
Total assets of the Company increased $62.6 million or 31.9% for the
year ended December 31, 1999 compared to $23 million or 13.4% for the same
period in 1998. The increase in total assets consists primarily of an increase
in interest-earning assets of $63.1 million or 35.2% compared to an increase of
$22.4 million or 14.3% during 1998. The overall growth in 1999 is considered
above average compared to the Georgia average.
The Company's primary focus is to maximize earnings through lending
activities. Any excess funds are invested according to the Company's investment
policy. Total loans increased 44.4% or $61.3 million for the year ended December
31, 1999. This is compared to an increase of 14.0% or $17.0 million during 1998.
The increase in total loans included a 37.3% increase in real estate loans, or
$39.8 million, an increase in commercial loans of $15.9 million, and an increase
in consumer loans of $2.0 million. The significant growth in loans and assets
has exceeded management's expectations for 1999. For the past several years, the
14
<PAGE>
Gainesville/Hall County area has been experiencing significant changes in the
local banking community. This activity continues due to acquisitions by regional
banks of community banks in the area. In addition, the economy in Gainesville,
and Georgia as a whole, continues to be strong. As of December 31, 1999, the
Bank's loan-to-deposit ratio was 99% compared to 78% in 1998. During 1999, the
bank borrowed $25,000,000 from the Federal Home Loan Bank as additional funds to
support the Bank's loan demand. These advances have varying maturities and are
managed as part of the Bank's overall asset/liability mix to be properly matched
against the assets funded. Therefore, as of December 31, 1999, the Bank's
loan-to-funds ratio was 83%.
During 1999, total deposits grew by $24 million, or 13.6% compared to
an increase of $20.8 million or 13.4% in 1998. This increase consists primarily
of an increase in time deposits of $24.6 million or 25.0% compared to an
increase of $4.0 million or 4.2% during 1998. The significant increase in time
deposits is a combination of more competitive pricing and the movement of
deposits from regional banks in the Gainesville area. In addition, the Bank
purchased $5,484,000 in brokered certificates of deposit during 1999 as an
additional funding source. The certificates have a coupon rate of 5.95% and
mature on October 6, 2000. Noninterest bearing demand, interest-bearing demand
and savings deposits decreased slightly during the year by approximately .75%
compared to an increase of 27.7% in 1998.
The specific economic and credit risks associated with the Company's loan
portfolio, especially the real estate portfolio, include, but are not limited
to, a general downturn in the economy which could affect unemployment rates in
the Company's market area, general real estate market deterioration, interest
rate fluctuations, deteriorated collateral, title defects, inaccurate
appraisals, and financial deterioration of borrowers. Construction and
development lending can also present other specific risks to the lender such as
whether developers can find builders to buy lots for home construction, whether
the builders can obtain financing for the construction, whether the builders can
sell the home to a buyer, and whether the buyer can obtain permanent financing.
Currently, real estate values and employment trends in the Company's market area
are stable with no indications of a significant downturn in the general economy.
The Company attempts to reduce these economic and credit risks not only by
adherence to the Company's lending policy, which included loan to value
guidelines, but also by investigating the creditworthiness of the borrower and
monitoring the borrower's financial position. Also, the Company periodically
reviews its lending policies and procedures.
Liquidity and Capital Resources
- -------------------------------
Liquidity management involves the matching of the cash flow
requirements of customers who may be either depositors desiring to withdraw
funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs and the ability of the Company to meet those needs. The
Company seeks to meet liquidity requirements primarily through management of
short-term investments, monthly amortizing loans, maturing single payment loans,
and maturities of securities and prepayments. Also, the Company maintains
relationships with correspondent banks which could provide funds on short
notice. As of December 31, 1999, the Company had borrowed under Federal funds
purchase lines and securities sold under repurchase agreements $12,969,000
compared to $1,235,000 as of December 31, 1998. These borrowings typically
mature within one to four business days.
The liquidity and capital resources of the Company are monitored on a
periodic basis by management and state and Federal regulatory authorities. At
December 31, 1999, the Company's liquidity ratio was 18.3% which was slightly
below the Company's target ratio of 20%. Management reviews liquidity on a
periodic basis to monitor and adjust liquidity as necessary. Management has the
ability to adjust liquidity by selling securities available for sale, selling
participations in loans generated by the Company and accessing available funds
through various borrowing arrangements. The Company's short-term investments and
available borrowing arrangements are adequate to cover any reasonably
anticipated immediate need for funds. The Company is not aware of any events or
trends likely to result in a material change in liquidity.
15
<PAGE>
At December 31, 1999, the Company's capital to asset ratios were
considered adequate based on guidelines established by the regulatory
authorities. During 1999, the Company increased its capital by retaining net
earnings of $1,745,000. Unrealized losses on securities available-for-sale
decreased capital by $808,000 as a result of a decline in the bond market.
Capital also increased during 1999 by the Company's dividend reinvestment plan
and from the exercise of stock options. Capital was increased approximately
$364,000 from these two sources. At December 31, 1999, total capital of the
Company amounted to $16,607,000 and is considered adequately-capitalized based
on regulatory requirements. Management has not specifically identified any
securities for sale in future periods which, if so designated, would require a
charge to operations if the market value would not be reasonably expected to
recover prior to the time of sale.
At December 31, 1999, the Company had outstanding commitments of $1,259,000 for
construction of a fourth full service branch facility located in south Hall
County on Friendship Road.
Management is not aware of any known trends, events or uncertainties
that will have or are reasonably likely to have a material effect on its
liquidity, capital resources, or operations. Management is also not aware of any
current recommendations by the regulatory authorities which, if they were
implemented, would have such an effect.
Effects of Inflation
- --------------------
The impact of inflation on banks differs from its impact on
non-financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and which tend to fluctuate in concert
with inflation. A bank can reduce the impact of inflation if it can manage its
rate sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the rate
sensitivity gap, thereby seeking to minimize the potential effects of inflation.
For information on the management of the Company's interest rate sensitive
assets and liabilities, see the "Asset/Liability Management" section.
Results of Operations - for the Years Ended December 31, 1999 and 1998
- ----------------------------------------------------------------------
The Company's profitability is determined by its ability to effectively
manage interest income and expense, to minimize loan and security losses, to
generate noninterest income, and to control operating expenses. Since interest
rates are determined by market forces and economic conditions beyond the control
of the Company, the Company's ability to generate net interest income is
dependent upon its ability to obtain an adequate net interest spread between the
rate paid on interest-bearing liabilities and the rate earned on
interest-earning assets. The net yield on average interest-earning assets
decreased slightly to 4.61% in 1999 from 4.65% in 1998. This slight decrease is
attributable primarily to the change in the rate earned on average
interest-bearing assets. In 1999, the average yield on interest-earning assets
decreased from 9.26% in 1998 to 8.94% while the average yield on
interest-bearing liabilities decreased from 5.32% in 1998 to 4.98% in 1999. The
overall change in the interest rate spread from 1998 to 1999 was an increase of
2 basis points. The minimal change results from the effective management of the
Bank's asset-liability mix during a period of changing interest rates.
Net interest income increased by $1,802,000 to $9,537,000 in 1999. This
is compared to an increase of $928,000 in 1998. The increase is directly related
to the increase in interest-earning assets. As shown in Table 1 and Table 2
included in this annual report, the change is the result of the increase in net
volume versus changes in net interest rates.
16
<PAGE>
Provisions for loan losses increased by $142,000 during 1999 compared
to an increase of $30,000 during 1998. The provision for loan losses is the
charge to operations which management feels is necessary to fund the allowance
for loan losses. This provision is based on the growth of the loan portfolio,
the amount of net charge-offs incurred, consideration of peer group averages,
and the general economy as well as the local economy. The allowance for loan
loss was $2,222,000 or 1.11% of total loans at December 31, 1999 compared to
$1,773,000 or 1.28% of total loans at December 31, 1998. The Bank incurred net
charge offs of $72,000 and $38,000 for the years ended December 31, 1999 and
1998, respectively. The percentage of net charge-offs to average loans
outstanding was .04% and .03% for the years ended December 31, 1999 and 1998,
and is considered acceptable. Due to the insignificant level of net charge-offs,
the increased provision for loan losses in 1999 is primarily attributable to the
increased volume in loans. There were no nonaccrual loans at December 31, 1999
compared to $93,000 at December 31, 1998. Based on management's evaluations, the
allowance for loan losses is adequate to absorb potential losses on existing
loans.
Other income decreased during 1999 by $95,000 or 6.4% compared to an
increase of $547,000 or 57.6% during 1998. The major component of other income
is service charges on deposit accounts which increased $104,000 during 1999
compared to a decrease of $8,000 during 1998. Changes in service charge income
on deposits are primarily due to changes in the volume of deposit transaction
accounts and changes in the fee structure for these accounts. During 1999, there
was an increase in NSF fees charged by the Bank which resulted in an increase of
$83,000 in NSF charges. Other major components of other income are mortgage
origination fees, gain on sale of loans and trust fees. During 1999, mortgage
origination fees decreased $95,000 due to rising interest rates creating an
unfavorable refinance market. Gain on sale of loans, which consist of sales of
SBA loans to the secondary market, decreased $179,000. Trust fees increased
$55,000 due to further expansion of the Bank's trust department which was
established in 1997. Other operating income increased during 1999 by $21,000
which is the result of increased safe deposit box rentals and other
miscellaneous service charges.
During 1998, the other major components of other income were mortgage
origination fees and gain on sale of loans. Mortgage origination fees increased
$168,000 due to the growth of the mortgage department and declining interest
rates during 1998. Gain on sale of loans increased $247,000 as a result of
increased activity on sales of SBA loans. Other operating income increased
$83,000 which is the result of increases in other miscellaneous fees as well as
increases in cash surrender values on insurance policies owned by the Bank.
Other expenses of the Company increased $604,000 or 9.4% during 1999
compared to an increase of $1.6 million or 33.4% during 1998. The majority of
the increase in 1999 is due to an increase in salaries and employee benefits of
$417,000 or 12.1% which is the result of an increase in full-time equivalent
employees from 79 in 1998 to 89 in 1999. In addition to base salary increases
related to the addition of 10 employees, the Company incurs employee related
expenses including social security taxes, insurance benefits, 401(k) profit
sharing match contributions, as well as various other employee benefits. Other
changes include an increase in equipment and occupancy expenses of $88,000 which
is primarily due to increased depreciation and maintenance related to the
opening of two branches in the recent years. Other operating expenses increased
$99,000 primarily as a result of increased professional fees of $70,000 which
were offset by decreases in other real estate owned loss provisions of $196,000.
There were no other unusual or significant changes in other expenses as compared
to 1998.
As noted above, other expenses of the Company increased $1.6 million or
33.4% during 1998. The majority of the increase is due to an increase in
salaries and employee benefits of $741,000 or 27.2%. Base salaries increased
$592,000, related payroll taxes increased $41,000, and group insurance increased
$45,000 for the year ended December 31, 1998. A new branch was opened during
1997, the trust department was staffed in 1997, and mortgage department
personnel increased with the level of business in 1998. Other changes included
an increase in equipment and occupancy expense of $246,000 due to the opening of
the two branches. Other operating expenses increased $621,000 primarily as a
result of increases in advertising, provision for other real estate owned
losses, public relations and legal and professional expenses of $75,000,
$229,000, $35,000 and $106,000, respectively.
17
<PAGE>
Income tax expense increased $361,000 from $753,000 in 1998 to
$1,114,000 in 1999. The effective tax rate increased to 33% in 1999 from 31% in
1998.
Net income increased in 1999 by $599,000 as compared to a decrease of
$30,000 for the year ended December 31, 1998. The return on average assets was
1.03% in 1999 compared to 0.93% in 1998. As discussed previously, the increase
in net income is attributable to the growth in interest-earning assets.
Business Combination
- --------------------
On October 14, 1999, the Company executed an Agreement and Plan of
Reorganization with UB&T Financial Services Corporation ("UB&T"), a one-bank
holding company located in Rockmart, Georgia. UB&T had consolidated total assets
of $49 million as of December 31, 1999. The acquisition was consummated on
February 29, 2000. The Company issued approximately 646,803 shares of its common
shares in exchange for the outstanding common shares of UB&T. The combination
has been accounted for as a pooling of interests.
The following unaudited pro forma data summarizes operating data as if the
combination had been consummated on January 1, 1998.
As of and for the year ended
December 31,
-------------------------------
1999 1998
------------ --------------
(Dollars in Thousands)
-------------------------------
Total assets $307,954,530 $239,378,083
Stockholders' equity 21,517,945 20,262,030
Net income 2,469,303 1,953,619
Basic income per share 0.90 0.71
Diluted income per share 0.86 0.68
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The tables and schedules on the following pages set forth certain
financial information and statistical data with respect to: the distribution of
assets, liabilities and stockholders' equity; interest rates and interest
differentials; interest rate sensitivity gap ratios; the securities portfolio;
the loan portfolio; including types of loans, maturities and sensitivities to
changes in interest rates and information on nonperforming loans; summary of the
loan loss experience and allowance for loan losses; types of deposits; and the
return on equity and assets.
The following table sets forth the amount of the Company's interest income or
interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest yield/rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets.
18
<PAGE>
TABLE 1 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIALS
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances<F1> Expense Rates Balances<F1> Expense Rates
-------- -------- --------- ------------ -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxable securities 31,934 1,927 6.03% 27,192 1,707 6.28%
Nontaxable securities <F5> 4,137 171 4.13 2,902 130 4.48
Unrealized losses on securities (240) -- -- 159 -- --
Federal funds sold 4,055 202 4.98 10,601 569 5.37
Loans <F2> <F4> 166,624 16,185 9.71 125,769 13,006 10.34
Allowance for loan losses (1,953) -- (1,644) --
Cash and due from banks 7,092 -- 5,653 --
Other assets 9,398 -- 9,216 --
---------------------- ----------------------
Total 221,047 18,485 179,848 15,412
====================== ======================
Total interest-earning assets 206,750 8.94% 166,464 9.26%
====================== ======================
Noninterest-bearing demand 22,184 -- -- 18,913 -- --
Interest-bearing demand & savings 52,924 1,646 3.11 46,513 1,643 3.53
Time 108,674 6,305 5.80 95,388 5,916 6.20
---------------------- ----------------------
Total deposits 183,782 7,951 160,814 7,559
Borrowings 19,519 997 5.11 2,437 118 4.84
Other liabilities 2,334 -- 2,111 --
Stockholders' equity <F3> 15,412 -- 14,486 --
---------------------- ----------------------
Total 221,047 8,948 179,848 7,677
====================== ======================
Total interest-bearing liabilities 179,797 4.98% 144,338 5.32%
====================== ======================
Net interest income 9,537 7,735
===== =====
Net interest spread 3.96% 3.94%
Net yield on average interest-earning assets 4.61% 4.65%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
1997
------------------------------------
Average Income/ Yields/
Balances<F1> Expense Rates
-------- -------- ---------
<S> <C> <C> <C>
Taxable securities 23,268 1,504 6.46%
Nontaxable securities <F5> 1,218 58 4.76
Unrealized losses on securities (86) -- --
Federal funds sold 6,048 327 5.41
Loans <F2> <F4> 108,203 11,449 10.58
Allowance for loan losses (1,271) -- --
Cash and due from banks 4,782 -- --
Other assets 7,420 -- --
------------------------
Total 149,582 13,338
========================
Total interest-earning assets 138,737 9.61%
========================
Noninterest-bearing demand 14,615 -- --
Interest-bearing demand & savings 34,845 1,243 3.57
Time 83,669 5,221 6.24
------------------------
Total deposits 133,129 6,464
Borrowings 1,470 67 4.56
Other liabilities 1,873 --
Stockholders' equity <F3> 13,110 --
------------------------
Total 149,582 6,531
========================
Total interest-bearing liabilities 119,982 5.44%
========================
Net interest income 6,807
======
Net interest spread 4.17%
Net yield on average interest-earning assets 4.91%
<FN>
<F1> Average balances were determined using the daily average balances.
<F2> Average balances of loans include nonaccrual loans and are net of
deferred interest and fees.
<F3> Average unrealized gains (losses) on securities available for sale, net
of tax, have been included in stockholders' equity at $(149,000),
$94,000, and $(54,000) for 1999, 1998, and 1997, respectively.
<F4> Interest and fees on loans include $1,487,000, $1,146,000, and $976,000
of loan fee income for the years ended December 31, 1999, 1998, and
1997, respectively.
<F5> Yields on nontaxable securities are not presented on a tax-equivalent
basis.
</FN>
</TABLE>
TABLE 2 - RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
year indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) change in volume (change in volume multiplied by old rate); (2) change in
rate (change in rate multiplied by old volume); and (3) a combination of change
in rate and change in volume. The changes in interest income and interest
expense attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
20
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1999 to 1998 1998 to 1997
------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
Rate Volume Total Rate Volume Total
----------- ------------ ------------ ------------ ------------ -----------
(Dollars in Thousands)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from interest-earning assets:
Interest and fees on loans $ (734) $ 3,913 $ 3,179 $ (265) $ 1,822 $ 1,557
Interest on taxable securities (66) 286 220 (43) 246 203
Interest on nontaxable securities (9) 50 41 (3) 75 72
Interest on Federal funds sold (36) (331) (367) (2) 244 242
----------- ------------ ------------ ------------ ------------ -----------
Total interest income (845) 3,918 3,073 (313) 2,387 2,074
----------- ------------ ------------ ------------ ------------ -----------
Expense from interest-bearing
liabilities:
Interest on interest-bearing demand
deposits and savings deposits (19) 22 3 (16) 416 400
Interest on time deposits (336) 725 389 (33) 728 695
Interest on other borrowings 18 861 879 4 47 51
----------- ------------ ------------ ------------ ------------ -----------
Total interest expense (337) 1,608 1,271 (45) 1,191 1,146
----------- ------------ ------------ ------------ ------------ -----------
Net interest income $ (508) $ 2,310 $ 1,802 $ (268) $ 1,196 $ 928
=========== ============ ============ ============ ============ ===========
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability mix is monitored on a regular basis and
a report evaluating the interest rate sensitive assets and interest rate
sensitive liabilities is prepared and presented to the Board of Directors on a
monthly basis. The objective of this policy is to monitor interest rate
sensitive assets and liabilities so as to minimize the impact of substantial
movements in interest rates on earnings. An asset or liability is considered to
be interest rate-sensitive if it will reprice or mature within the time period
analyzed, usually one year or less. The interest rate-sensitivity gap is the
difference between the interest-earning assets and interest-bearing liabilities
scheduled to mature or reprice within such time period. A gap is considered
positive when the amount of interest rate-sensitive assets exceeds the amount of
interest rate-sensitive liabilities. A gap is considered negative when the
amount of interest rate-sensitive liabilities exceeds the interest
rate-sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. Conversely, during a
period of falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend to adversely
affect net interest income. If the Bank's assets and liabilities were equally
flexible and moved concurrently, the impact of any increase or decrease in
interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Bank also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
21
<PAGE>
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps and floors") which limit the amount of changes in interest
rates. Prepayment and early withdrawal levels also could deviate significantly
from those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debts also may decrease during periods of rising
interest rates.
Changes in interest rates also affect the Company's liquidity
position. The Bank currently prices deposits in response to market rates and it
is management's intention to continue this policy. If deposits are not priced in
response to market rates, a loss of deposits could occur which would negatively
affect the Company's liquidity position.
At December 31, 1999 the Bank's cumulative one year interest rate
sensitivity gap ratio was 67%. The Bank's targeted ratio is 80% to 120% in this
time horizon. This indicates that the Company's interest-earning assets will
reprice during this period at a rate slower than the Company's interest-bearing
liabilities.
The following table sets forth the distribution of the repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1999, the interest rate sensitivity gap (i.e., interest rate
sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e.,
interest rate sensitive assets divided by interest rate sensitive liabilities)
and the cumulative interest rate sensitivity gap ratio.
The table also sets forth the time periods in which interest-earning
assets and interest-bearing liabilities will mature or may reprice in accordance
with their contractual terms. However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Company's customers. In addition,
various assets and liabilities indicated as repricing within the same period may
in fact reprice at different times within such period and at different rates.
22
<PAGE>
<TABLE>
<CAPTION>
After
Three After
Months One Year
Within But But
Three Within Within After
Months One Year Five Years Five Years Total
------------- ------------ ------------ ------------- -------------
(Dollars in Thousands)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 179 $ -- $ -- $ -- $ 179
Federal funds sold 120 -- -- -- 120
Securities 4,287 171 32,935 5,279 42,672
Loans 77,257 37,866 84,409 199,532
------------- ------------ ------------ ------------- -------------
Total interest earning assets 81,843 38,037 117,344 5,279 242,503
------------- ------------ ------------ ------------- -------------
Interest-bearing liabilities:
Interest-bearing demand 49,962 -- -- -- 49,962
Savings 4,227 -- -- -- 4,227
Time deposits 31,353 73,085 18,667 -- 123,105
Federal funds purchased a
repurchase agreements 12,969 -- -- -- 12,969
Other borrowings 6,649 51 19,103 -- 25,803
------------- ------------ ------------ ------------- -------------
Total interest-bearing liabilities 105,160 73,136 37,770 -- 216,066
------------- ------------ ------------ ------------- -------------
Interest rate sensitivity gap $ (23,317) $ (35,099) $ 79,574 $ 5,279 $ 26,437
============= ============ ============ ============= =============
Cumulative interest rate sensitivity gap $ (23,317) $ (58,416) $ 21,158 $ 26,437
============= ============ ============ =============
Interest rate sensitivity gap ratio 0.78 0.52 3.11 --
============= ============ ============ =============
Cumulative interest rate sensitivity gap ratio 0.78 0.67 1.10 1.12
============= ============ ============ =============
</TABLE>
The Company actively manages the mix of asset and liability maturities
to control the effects of changes in the general level of interest rates on net
interest income. Except for its effect on the general level of interest rates,
inflation does not have a material impact on the Bank due to the rate
variability and short-term maturities of its earning assets. In particular,
approximately 58% of the loan portfolio is comprised of loans which have
variable rate terms or mature within one year. Most mortgage loans are made on a
variable rate basis with rates being adjusted every one to five years.
SECURITIES PORTFOLIO
The carrying value at the dates indicated of securities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1999 1998 1997
----------------- ----------------- ---------------
(Dollars in Thousands)
-----------------------------------------------------
<S> <C> <C> <C>
U. S. Treasury and U. S. government agencies and corporations $ 28,199 $ 23,691 $ 16,960
Mortgage-backed securities 6,248 3,426 5,376
State and municipal securities 6,049 3,608 2,173
Equity securities <F1> 2,176 519 396
----------------- ----------------- ---------------
$ 42,672 $ 31,244 $ 24,905
================= ================= ===============
<FN>
<F1> Equity securities consist of Federal Home Loan Bank stock and
investments in two de novo banks. For presentation purposes, the equity
securities are not included in the maturity table below because it has
no contractual maturity date.
</FN>
</TABLE>
23
<PAGE>
Maturities
- ----------
The amounts of securities as of December 31, 1999 are shown in the
following table according to contractual maturities classified as; (1) one year
or less; (2) after one year through five years; (3) after five years through ten
years; and (4) after ten years.
<TABLE>
<CAPTION>
U. S. Treasury
and Other U. S.
Government Agencies
and Corporations Municipal Securities
Yield Yield
Amount <F1> Amount <F1><F2>
-------- ------------ ----------- -------------
(Dollars in Thousands)
-------------------------------------------------------------
<S> <C> <C> <C>
Maturity:
One year or less $ - - % $ - - %
After one year through five years 28,241 6.09 3,119 4.44
After five years through ten years 277 5.52 2,930 4.69
After ten years 5,929 6.74 - -
------------ -----------
$ 34,447 6.20 % $ 6,049 4.56 %
============ ===========
<FN>
<F1> Yields were computed using coupon interest rates, including discount
accretion and premium amortization. The weighted average yield for each
maturity range was computed using the carrying value of each security
in that range.
<F2> Yields on municipal securities are not stated on a tax-equivalent basis.
</FN>
</TABLE>
LOAN PORTFOLIO
Types of Loans
Loans by type of collateral are presented below:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- --------------- --------------- ---------------- ----------------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 32,799 $ 16,880 $ 15,884 $ 9,416 $ 14,777
Real estate - construction 47,753 27,200 25,447 16,049 8,839
Real estate - mortgage <F1> 98,736 79,478 66,895 56,278 43,935
Consumer 14,932 12,935 10,934 9,935 7,789
Other 5,312 1,730 2,050 1,416 776
---------------- --------------- --------------- ---------------- ----------------
199,532 138,223 121,210 93,094 76,116
Less allowance for loan losses (2,222) (1,773) (1,433) (1,146) (1,012)
---------------- --------------- --------------- ---------------- ----------------
Net loans $ 197,310 $ 136,450 $ 119,777 $ 91,948 $ 75,104
================ =============== =============== ================ ================
<FN>
<F1> Real estate-mortgage loans are net of $19,000, 22,000, $25,000, $40,000
and $15,000 of deferred loan fees for the years ended December 31,
1999, 1998, 1997, 1996 and 1995, respectively.
</FN>
</TABLE>
24
<PAGE>
Maturities and Sensitivities to Changes in Interest Rates
Total loans as of December 31, 1999 are shown in the following table
according to remaining maturity of (1) one year or less, (2) after one year
through five years, and (3) after five years.
(Dollars in
Thousands)
---------------
Maturity:
One year or less $ 105,981
After one year through five years 82,862
After five years 10,689
---------------
$ 199,532
===============
The following table summarizes loans at December 31, 1999 with the due
dates after one year for predetermined and floating or adjustable interest
rates.
(Dollars in
Thousands)
-------------
Predetermined interest rates $ 68,521
Floating or adjustable interest rates 25,030
-------------
$ 93,551
=============
Records were not available to present the above two tables by
individual categories and could not be reconstructed without undue burden or
cost to the Company.
Risk Elements
The following table presents the aggregate of nonperforming loans for
the categories indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ------------
(Dollars in Thousands)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ - $ 93 $ 3 $ 6 $ 11
Loans contractually past due ninety days or more
to interest or principal payments and still
accruing 76 408 181 60 35
Loans, the term of which have been renegotiated to provide a
reduction or deferral of interest or principal because of
deterioration in the financial position of the borrower - - - - -
Loans now current about which there are serious doubts as to
the ability of the borrower to comply with present loan
repayment terms - - - - -
</TABLE>
25
<PAGE>
The reduction in interest income associated with nonaccrual loans as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
(Actual Dollars)
<S> <C>
Interest income that would have been recorded
on nonaccrual loans under original terms $ 14,601
==============
Interest income that was recorded on nonaccrual loans $ 14,601
==============
</TABLE>
As of December 31, 1999 and 1998, management included nonaccrual loans
in its definition of impaired loans as determined by Financial Accounting
Standards Board Statement Numbers 114 and 118.
The Company's policy is to discontinue the accrual of interest income
when, in the opinion of management, collection of such interest becomes
doubtful. This status is determined when; (1) there is a significant
deterioration in the financial condition of the borrower and full repayment of
principal and interest is not expected; and (2) the principal or interest is
more than ninety days past due, unless the loan is both well-secured and in the
process of collection. Accrual of interest on such loans is resumed when, in
management's judgment, the collection of interest and principal becomes
probable. Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been included in the table above
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources. These classified loans do not represent material credits
about which management is aware and which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. In the event of non-performance by the borrower, these loans have
collateral pledged which would prevent the recognition of substantial losses.
Commitments and Lines of Credit
The Company will, in the normal course of business, commit to extend
credit in the form of letters of credit or lines of credit. The amount of
outstanding loan commitments and letters of credit at December 31, 1999 and 1998
was $49,942,000 and $38,195,000, respectively. These commitments are recorded in
the financial statements when funds are disbursed or the financial instruments
become payable. The Company uses the same credit and collateral policies for
these off balance sheet commitments as it does for financial instruments that
are recorded in the financial statements. 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.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances for each year
determined using the daily average balances during the year; changes in the
allowance for loan losses arising from loans charged off and recoveries on loans
previously charged off; additions to the allowance which have been charged to
expense; and the ratio of net charge-offs during the year to average loans.
26
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- -----------------
(Dollars in Thousands)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 166,624 $ 125,769 $ 108,203 $ 81,967 $ 76,162
=============== =============== =============== =============== =================
Balance of allowance for loan losses
at beginning of year $ 1,773 $ 1,433 $ 1,146 $ 1,012 $ 901
--------------- --------------- --------------- --------------- -----------------
Loans charged off:
Real estate (3) (39) - - -
Commercial (15) (6) (37) (22) (5)
Installment (64) (19) (48) (24) (154)
Credit cards (8) (6) (3) (4) (10)
--------------- --------------- --------------- --------------- -----------------
(90) (70) (88) (50) (169)
--------------- --------------- --------------- --------------- -----------------
Recoveries of loans previously charged off:
Real estate - 8 - - 1
Installment 12 13 26 34 7
Credit cards 5 - - - 2
Commercial 2 11 1 - -
--------------- --------------- --------------- --------------- -----------------
19 32 27 34 10
--------------- --------------- --------------- --------------- -----------------
Net loans charged off during the year (71) (38) (61) (16) (159)
--------------- --------------- --------------- --------------- -----------------
Additions to allowance charged
to expense during year 520 378 348 150 270
--------------- --------------- --------------- --------------- -----------------
Balance of allowance for loan losses
at end of year $ 2,222 $ 1,773 $ 1,433 $ 1,146 $ 1,012
=============== =============== =============== =============== =================
Ratio of net loans charged off during
the year to average loans
outstanding 0.04% 0.03% 0.06% 0.02% 0.21%
=============== =============== =============== =============== =================
</TABLE>
The following table sets forth the allowance for loan losses to total
allowance for loan losses and the percent of loans to total loans in each of the
categories listed at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and other ... $ 181 19.10% $ 145 13.46% $ 117 14.79 $ 94 11.63% $ 83 20.43%
Real estate-construction 299 23.93 239 19.68 193 20.99 154 17.23 136 11.61
Real estate-mortgage ... 1,427 49.49 1,138 57.50 920 55.20 735 60.47 649 57.73
Consumer ............... 315 7.48 251 9.36 203 9.02 163 10.67 144 10.23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance ........ $2,222 100.00% $1,773 100.00% $1,433 100.00% $1,146 100.00% $1,012 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
27
<PAGE>
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is created by direct charges to income.
Losses on loans are charged against the allowance in the year in which such
loans, in management's opinion, become uncollectible. Recoveries during the year
are credited to this allowance. The factors that influence management's judgment
in determining the amount charged to income are past loan loss experience,
composition of the loan portfolio, evaluation of trends and possible losses,
current economic conditions and other relevant factors. The Company's allowance
for loan losses was approximately $2,222,000 at December 31, 1999, representing
1.11% of total loans, compared with $1,773,000 at December 31, 1998, which
represented 1.28% of total loans. The allowance for loan losses is evaluated and
adjusted periodically based on management's evaluation of current risk
characteristics of the loan portfolio, as well as the impact of prevailing and
expected economic business conditions. Management considers the allowance for
loan losses adequate to cover possible losses at December 31, 1999.
DEPOSITS
Average amounts of deposits and average rates paid thereon, classified
as to noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, are presented below. <F1>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997
-------------------------- ------------------------- --------------------------
Amount Rate Amount Rate Amount Rate
-------------- ---------- -------------- --------- -----------------------
(Dollars in Thousands)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing demand deposits $ 22,184 - % $ 18,913 - % $ 14,615 - %
Interest-bearing demand and
savings deposits 52,924 3.11 46,513 3.53 34,845 3.57
Time deposits 108,674 5.80 95,388 6.20 83,669 6.24
-------------- -------------- --------------
Total deposits $ 183,782 $ 160,814 $ 133,129
============== ============== ==============
<FN>
<F1> Average balances were determined using the daily average balances.
</FN>
</TABLE>
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1999 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months, (3) over six through twelve months, and (4) over twelve months.
(Dollars in
Thousands)
--------------
Three months or less $ 3,645
Over three through six months 10,982
Over six through twelve months 14,422
Over twelve months 2,583
--------------
Total $ 31,632
==============
28
<PAGE>
RETURN ON EQUITY AND ASSETS
The following rate of return information for the periods indicated is
presented below.
Year Ended December 31,
-------------------------------
1999 1998 1997
-------- -------- --------
Return on assets <F1> 1.03 % 0.93 % 1.14 %
Return on equity <F2> 14.74 11.55 12.99
Dividend payout ratio <F3> 24.75 21.33 22.22
Equity to assets ratio <F4> 6.97 8.05 8.76
[FN]
<F1> Net income divided by average total assets.
<F2> Net income divided by average equity.
<F3> Dividends declared per share divided by diluted earnings per share.
<F4> Average equity divided by average total assets.
</FN>
SHORT TERM BORROWINGS
Other Borrowings
- ----------------
As part of our operating strategy, we have utilized Federal funds
purchased and securities sold under repurchase agreements as an alternative to
retail deposits to fund our operations when borrowings are less costly and can
be invested at a positive interest rate spread or when we need additional funds
to satisfy loan demand. By utilizing Federal funds purchased and securities sold
under repurchase agreements, which possess varying stated maturities, we can
meet our liquidity needs without otherwise being dependent upon retail deposits
and revising our deposit rates to attract retail deposits, which have no stated
maturities, except for certificates of deposit, which are interest rate
sensitive and which are subject to withdrawal from us at any time. At December
31, 1999, we had $12,969,000 in outstanding Federal funds purchased and
securities sold under repurchase agreements.
The following table sets forth certain information regarding Federal
funds purchased and securities sold under repurchase agreements at or for the
years ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the Year Ended
December 31,
------------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Average balance outstanding $ 7,261 $ 1,804 $ 729
Maximum amount outstanding at any month-end during the year 13,859 4,203 1,226
Balance outstanding at end of year 12,969 1,235 362
Weighted average interest rate during year 4.65% 4.70% 3.72%
Weighted average interest rate at end of year 5.25% 3.94% 4.08%
</TABLE>
Year 2000
- ---------
Based on a review of the Bank's and the Company's business since
January 1, 2000, the Company has not experienced any material effects of the
Year 2000 problem. Although the Company has not been informed of any material
risks associated with the Year 2000 problem from third parties, there can be no
assurance that the Company will not be impacted in the future. The Company will
continuously monitor its business applications and maintain contact with its
third party vendors and key business partners to resolve Year 2000 problems that
may arise in the future.
29
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the independent auditor's report
identified in Item 13(a) are included in this report beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The information set forth under the caption "Election of Directors" and
"Executive Officers" in the Proxy Statement used in connection with the
Company's 2000 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Proxy Statement used in connection with the Company's 2000 Annual
Shareholders meeting is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement used in
connection with the Company's 2000 Annual Shareholders meeting is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in
the Proxy Statement used in connection with the Company's 2000 Annual
Shareholders meeting is incorporated herein by reference.
30
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
(a) Contents:
1. Consolidated financial statements:
----------------------------------
The following financial statements and notes thereto of the
Registrant are incorporated by reference into Item 7 of this
report:
G B & T Bancshares, Inc. and Subsidiary:
(i) Consolidated Balance Sheets - December 31, 1999 and
1998
(ii) Consolidated Statements of Income - Years Ended
December 31, 1999 and 1998
(iii) Consolidated Statements of Comprehensive Income -
Years Ended December 31, 1999 and 1998
(iv) Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1999 and 1998
(v) Consolidated Statements of Cash Flows - Years Ended
December 31, 1999 and 1998
(vi) Notes to Consolidated Financial Statements
2. Financial statement schedules:
------------------------------
All schedules are omitted as the required information
is inapplicable or the information is presented in the
financial statements or related notes.
(b) Reports of Form 8-K:
The Company did not file a report on Form 8-K during the last
quarter of 1999.
31
<PAGE>
(c) Exhibits:
Exhibit
No. Description
------- -----------
3.1 Articles of Incorporation of the Registrant
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-3, filed on
September 24, 1998).
3.2 By-Laws of the Registrant (incorporated herein by
reference to the Registrant's Registration Statement
on Form S-3, filed on September 24, 1998).
4.1 See Exhibits 3.1 and 3.2 herein for provisions of the
Registrant's Articles of Incorporation and By-Laws
which define the rights of the holders of Common
Stock of the Registrant.
10.1 Dividend Reinvestment and Share Purchase Plan of the
Registrant (incorporated herein by reference to the
Registration's Registration Statement on Form S-3,
filed on September 24, 1998).
21.1 Subsidiary of the Registrant.
23.1 Consent of Mauldin & Jenkins, LLC.
27.1 Financial Data Schedule (for SEC use only).
32
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT AUDITOR'S REPORT..............................................F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets..........................................F-3
Consolidated statements of income....................................F-4
Consolidated statements of comprehensive income......................F-5
Consolidated statements of stockholders' equity......................F-6
Consolidated statements of cash flows..........................F-7 and 8
Notes to consolidated financial statements........................F-9-32
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
GB&T Bancshares, Inc. and Subsidiary
Gainesville, Georgia
We have audited the accompanying consolidated balance sheets of GB&T
BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, stockholders'
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 audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of GB&T
Bancshares, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
January 27, 2000, except Note 18 as to which
the date is February 29, 2000
F-2
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
============================================================================================
Assets 1999 1998
------ ------------- ------------
<S> <C> <C>
Cash and due from banks $ 8,151,398 $ 9,406,508
Interest-bearing deposits in banks 178,692 254,060
Federal funds sold 120,000 9,693,000
Securities available-for-sale 42,671,733 31,244,047
Loans 199,532,147 138,223,283
Less allowance for loan losses 2,221,668 1,773,187
------------- ------------
Loans, net 197,310,479 136,450,096
------------- ------------
Premises and equipment 5,014,677 4,521,824
Other assets 5,312,970 4,592,051
------------- ------------
Total assets $ 258,759,949 $196,161,586
============= ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 23,156,982 $ 25,374,358
Interest-bearing demand 49,961,823 48,739,521
Savings 4,226,941 3,814,887
Time, $100,000 and over 31,631,761 20,354,310
Other time 91,473,778 78,164,269
------------- ------------
Total deposits 200,451,285 176,447,345
------------- ------------
Federal funds purchased and securities
sold under repurchase agreements 12,969,374 1,234,984
Other borrowings 25,802,903 1,182,800
Other liabilities 2,929,031 1,990,794
------------- ------------
Total liabilities 242,152,593 180,855,923
------------- ------------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Common stock, par value $5; 10,000,000 shares
authorized, 2,117,146 and 2,099,148 shares
issued and outstanding, respectively 10,585,730 10,495,740
Capital surplus 339,260 64,559
Retained earnings 6,338,685 4,594,107
Accumulated other comprehensive income (loss) (656,319) 151,257
------------- ------------
Total stockholders' equity 16,607,356 15,305,663
------------- ------------
Total liabilities and stockholders' equity $ 258,759,949 $196,161,586
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
==============================================================================================
1999 1998
------------ -----------
<S> <C> <C>
Interest income
Loans $ 16,185,164 $13,006,457
Taxable securities 1,895,120 1,686,437
Nontaxable securities 170,530 129,773
Federal funds sold 202,546 568,761
Deposits in banks 32,066 20,849
------------ -----------
Total interest income 18,485,426 15,412,277
------------ -----------
Interest expense
Deposits 7,950,951 7,558,396
Federal funds purchased, securities sold under repurchase
agreements, and other borrowings 997,470 118,361
------------ -----------
Total interest expense 8,948,421 7,676,757
------------ -----------
Net interest income 9,537,005 7,735,520
PROVISION FOR LOAN LOSSES 520,000 378,000
------------ -----------
Net interest income after provision
for loan losses 9,017,005 7,357,520
------------ -----------
Other income
Service charges on deposit accounts 676,536 572,851
Other service charges and fees 24,040 22,525
Security transactions, net (2,071) --
Mortgage origination fees 209,974 304,754
Gain on sale of loans 96,661 276,001
Trust fees 100,108 45,484
Other operating income 295,498 274,354
------------ -----------
Total other income 1,400,746 1,495,969
------------ -----------
Other expense
Salaries and employee benefits 3,881,186 3,463,700
Equipment expenses 623,055 536,337
Occupancy expenses 488,982 487,799
Other operating expenses 2,039,280 1,940,201
------------ -----------
Total other expenses 7,032,503 6,428,037
------------ -----------
Income before income taxes 3,385,248 2,425,452
Income tax expense 1,113,652 752,517
------------ -----------
Net income $ 2,271,596 $ 1,672,935
============ ===========
Basic earnings per share $ 1.08 $ 0.80
============ ===========
Diluted earnings per share $ 1.01 $ 0.75
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
=========================================================================================================
1999 1998
----------- ----------
<S> <C> <C>
Net income $ 2,271,596 $1,672,935
----------- ----------
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during period,
net of tax (benefits) of $(495,670) and $56,122, respectively (808,943) 91,567
Reclassification adjustment for losses realized
in net income, net of benefit of $704 1,367 --
----------- ----------
Other comprehensive income (loss) (807,576) 91,567
----------- ----------
Comprehensive income $ 1,464,020 $1,764,502
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
===============================================================================================================================
Accumulated
Common Stock Other
--------------------------- Capital Retained Comprehensive Stockholders'
Shares Par Value Surplus Earnings Income (Loss) Equity
---------- ---------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,676,160 $ 8,380,800 $ 2,002,750 $ 3,357,703 $ 59,690 $ 13,800,943
Net income - - - 1,672,935 - 1,672,935
Options exercised 13 65 75 - - 140
Stock dividend 419,011 2,095,055 (2,002,750) (92,920) - (615)
Dividends reinvested 3,964 19,820 64,484 - - 84,304
Dividends declared,
$.16 per share - - - (343,611) - (343,611)
Other comprehensive - - - - 91,567 91,567
income
--------- ------------- -------------- ------------- ------------ --------------
Balance, December 31, 1998 2,099,148 10,495,740 64,559 4,594,107 151,257 15,305,663
Net income - - - 2,271,596 - 2,271,596
Options exercised 3,970 19,850 6,526 - - 26,376
Dividends reinvested 14,028 70,140 268,175 - - 338,315
Dividends declared,
$.25 per share - - - (527,018) - (527,018)
Other comprehensive loss - - - - (807,576) (807,576)
--------- ------------- -------------- ------------- ------------ --------------
Balance, December 31, 1999 2,117,146 $ 10,585,730 $ 339,260 $ 6,338,685 $ (656,319) $ 16,607,356
========= ============= ============== ============= =========== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
================================================================================================
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,271,596 $ 1,672,935
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 449,043 411,359
Provision for loan losses 520,000 378,000
Provision for other real estate owned 92,954 289,000
Loss on sale of securities available-for-sale 2,071 --
Loss on sale of other real estate owned 7,326 8,224
Deferred income taxes (238,496) (246,827)
Increase in interest receivable (279,554) (55,285)
Increase (decrease) in interest payable 908,274 (208,447)
Other operating activities 47,047 (297,339)
------------ ------------
Net cash provided by operating activities 3,780,261 1,951,620
------------ ------------
INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks 75,368 84,606
Purchases of securities available-for-sale (30,413,281) (21,551,745)
Proceeds from maturities of securities available-for-sale 15,130,665 14,460,252
Proceeds from sales of securities available-for-sale 2,550,318 900,000
Net decrease in Federal funds sold 9,573,000 832,000
Net increase in loans (61,543,476) (17,783,403)
Purchase of premises and equipment (941,896) (601,946)
Proceeds from sale of other real estate owned 337,825 462,421
------------ ------------
Net cash used in investing activities (65,231,477) (23,197,815)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 24,003,940 20,836,359
Net increase in Federal funds purchased and
securities sold under repurchase agreements 11,734,390 872,784
Net increase in other borrowings 24,620,103 115,370
Stock options exercised 26,376 140
Dividends reinvested 338,315 84,304
Dividends paid (527,018) (344,226)
------------ ------------
Net cash provided by financing activities 60,196,106 21,564,731
------------ ------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
================================================================================================
1999 1998
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $(1,255,110) $ 318,536
Cash and due from banks at beginning of year 9,406,508 9,087,972
----------- -----------
Cash and due from banks at end of year $ 8,151,398 $ 9,406,508
=========== ===========
SUPPLEMENTAL DISCLOSURES Cash paid for:
Interest $ 8,040,147 $ 7,885,204
Income taxes $ 1,282,000 $ 968,718
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities
available-for-sale $ 1,302,544 $ (147,689)
Principal balances of loans transferred to other
real estate $ 163,093 $ 732,385
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
- ------------------
GB&T Bancshares, Inc. (the "Company") is a bank holding company whose business
is conducted by its wholly-owned subsidiary, Gainesville Bank & Trust (the
"Bank"). The Bank is a commercial bank located in Gainesville, Hall County,
Georgia with three branches located in Gainesville, Georgia and one branch
located in Oakwood, Georgia. The Bank provides a full range of banking services
to individual and corporate customers in its primary market area of Hall County
and surrounding counties.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company and
its subsidiary. Significant intercompany transactions and accounts are
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the balance sheet date and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses, the valuation of foreclosed real estate, and
deferred tax assets.
Cash and Due From Banks
- -----------------------
Cash on hand, cash items in process of collection and amounts due from banks are
included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Company has not experienced any losses in such
accounts.
Securities
- ----------
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity would be classified as held-to-maturity and recorded at amortized cost.
All other securities are classified as available-for-sale and recorded at fair
value with net unrealized gains and losses reported in other comprehensive
income. Equity securities without a readily determinable fair value are
classified as available-for-sale securities and recorded at cost.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (Continued)
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
Loans
- -----
Loans are reported at their outstanding principal balance less unearned income
and the allowance for loan losses. Interest income on loans is accrued based on
the principal balance outstanding.
Loan origination fees and costs incurred in origination of loans are recognized
at the time the loan is recorded. Because net origination loan fees and costs
are not material, the results of operations are not materially different than
the results which would be obtained by accounting for loan fees and costs in
accordance with generally accepted accounting principles.
The accrual of interest on loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. When accrual of
interest is discontinued, all unpaid accrued interest is reversed against
interest income. Interest income is subsequently recognized only to the extent
cash payments are received.
The allowance for loan losses is maintained at a level that management believes
to be adequate to absorb potential losses in the loan portfolio. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan is confirmed. Subsequent recoveries are credited to the allowance.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. This evaluation is inherently subjective as it
requires material estimates that are susceptible to significant change including
the amounts and timing of future cash flows expected to be received on impaired
loans. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses, and may require the Company to record additions to the allowance based
on their judgment about information available to them at the time of their
examinations.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans (Continued)
A loan is considered impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with the
contractual terms of the loan agreement. Individually identified impaired loans
are measured based on the present value of payments expected to be received,
using the contractual loan rate as the discount rate. Alternatively, measurement
may be based on observable market prices or, for loans that are solely dependent
on the collateral for repayment, measurement may be based on the fair value of
the collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. Changes to the valuation allowance are recorded
as a component of the provision for loan losses.
Other Real Estate Owned
- -----------------------
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned 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
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent gains
or losses on sale and any subsequent adjustments to the value are recorded in
current income from operations. The carrying amount of other real estate owned
at December 31, 1999 and 1998 was $293,887 and $569,900, respectively.
Premises and Equipment
- ----------------------
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation computed principally by the straight-line method over
the estimated useful lives of the assets.
Sale of Loans
- -------------
The Company originates and sells participations in certain loans. Gains are
recognized at the time the sale is consummated. The amount of gain recognized on
the sale of a specific loan is equal to the percentage resulting from
determining the fair value of the portion of the loan sold relative to the fair
value of the entire loan. Losses are recognized at the time the loan is
identified as held for sale and the loan's carrying value exceeds its fair
value.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
- ------------
Income tax expense consists of current and deferred taxes. Current income tax
provisions approximate taxes to be paid or refunded for the applicable year.
Deferred income tax assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the differences between the book and tax
bases of the various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences will be realized. A valuation allowance would be
recorded for those deferred tax items for which it is more likely than not that
realization would not occur.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
Earnings Per Share
- ------------------
Basic earnings per share are computed by dividing net income by the
weighted-average number of shares of common stock outstanding. Diluted earnings
per share are computed by dividing net income by the sum of the weighted-average
number of shares of common stock outstanding and potential common shares.
Potential common shares consist of stock options.
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards ("SFAS") No. 130 describes
comprehensive income as the total of all components of comprehensive income,
including net income. Other comprehensive income refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income. Currently, the
Company's other comprehensive income consists of unrealized gains and losses on
available-for-sale securities.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Developments
- -------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The effective
date of this statement has been deferred by SFAS No. 137 until fiscal years
beginning after June 15, 2000. However, the statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt this statement effective January 1, 2001. SFAS No. 133 requires the
Company to recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated as hedges,
the gain or loss must be recognized in earnings in the period of change. For
derivatives that are designated as hedges, changes in the fair value of the
hedged assets, liabilities, or firm commitments must be recognized in earnings
or recognized in other comprehensive income until the hedged item is recognized
in earnings, depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS No. 133 will
have on the Company's earnings or financial position.
There are no other recent accounting pronouncements that have had, or are
expected to have, a material effect on the Company's financial statements.
Reclassifications
- -----------------
Certain balance sheet and income statement items for the year ended December 31,
1998 have been reclassified, with no effect to total assets and net income, to
be consistent with classifications adopted for the year ended December 31, 1999.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1999:
U. S. Government and agency
securities $29,130,958 $ -- $ (932,508) $28,198,450
State and municipal securities 6,113,804 3,247 (67,929) 6,049,122
Mortgage-backed securities 6,309,110 1,261 (62,650) 6,247,721
Equity securities 2,176,440 -- -- 2,176,440
----------- ----------- ------------ -----------
$43,730,312 $ 4,508 $ (1,063,087) $42,671,733
=========== =========== ============ ===========
December 31, 1998:
U. S. Government and agency
securities $23,559,084 $ 160,353 $ (28,611) $23,690,826
State and municipal securities 3,512,190 96,111 (284) 3,608,017
Mortgage-backed securities 3,409,908 33,993 (17,597) 3,426,304
Equity securities 518,900 -- -- 518,900
----------- ----------- ------------ -----------
$31,000,082 $ 290,457 $ (46,492) $31,244,047
=========== =========== ============ ===========
</TABLE>
The amortized cost and fair value of securities as of December 31, 1999 by
contractual maturity are shown below. Maturities may differ from contractual
maturities of mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid without penalty. Therefore, these securities
and equity securities are not included in the maturity categories in the
following summary.
SECURITIES AVAILABLE-FOR-SALE
-----------------------------
AMORTIZED FAIR
COST VALUE
----------- -----------
Due within one year $ 500,000 $ 480,965
Due from one year to five years 31,794,819 30,883,089
Due from five years to ten years 2,949,943 2,933,518
Mortgage-backed securities 6,309,110 6,247,721
Equity securities 2,176,440 2,176,440
----------- -----------
$43,730,312 $42,721,733
=========== ===========
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
Securities with a carrying value of $17,303,768 and $7,332,475 at December 31,
1999 and 1998, respectively, were pledged to secure public deposits and for
other purposes.
Gross realized gains (losses) on securities available-for-sale were $8,177 and
$(10,248), respectively, for the year ended December 31, 1999. There were no
sales of securities for the year ended December 31, 1998.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
DECEMBER 31,
--------------------------------
1999 1998
------------- -------------
Commercial $ 32,799,000 $ 16,880,000
Real estate - construction 47,753,000 27,200,000
Real estate - mortgage 98,755,000 79,500,000
Consumer 14,932,000 12,935,000
Other 5,312,441 1,730,166
------------- -------------
199,551,441 138,245,166
Unearned income (19,294) (21,883)
Allowance for loan losses (2,221,668) (1,773,187)
------------- -------------
Loans, net $ 197,310,479 $ 136,450,096
============= =============
Changes in the allowance for loan losses are as follows:
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
----------- -----------
Balance, beginning of year $ 1,773,187 $ 1,432,957
Provision for loan losses 520,000 378,000
Loans charged off (91,251) (69,015)
Recoveries 19,732 31,245
----------- -----------
Balance, end of year $ 2,221,668 $ 1,773,187
=========== ===========
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The total recorded investment in impaired loans was $-- and $92,804 at December
31, 1999 and 1998, respectively. There were no impaired loans at December 31,
1998 which had a specific reserve determined in accordance with generally
accepted accounting principles. The average recorded investment in impaired
loans for 1999 and 1998 was $51,952 and $262,938, respectively. Interest income
of $-- and $9,873 was recognized on impaired loans for the years ended December
1999 and 1998.
The Company has granted loans to certain related parties, including executive
officers, directors and their related entities. The interest rates on these
loans were substantially the same as rates prevailing at the time of the
transaction and repayment terms are customary for the type of loan involved.
Changes in related party loans for the year ended December 31, 1999 are as
follows:
Balance, beginning of year $ 3,644,303
Advances 4,370,775
Repayments (3,519,185)
-----------
Balance, end of yeaR $ 4,495,893
===========
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land $ 1,139,409 $ 770,228
Buildings 1,384,396 1,348,871
Leasehold improvements 1,698,040 1,698,040
Furniture and equipment 3,728,829 3,006,264
Computer installation and construction in progress 28,200 215,720
----------- -----------
7,978,874 7,039,123
Accumulated depreciation (2,964,197) (2,517,299)
----------- -----------
$ 5,014,677 $ 4,521,824
=========== ===========
</TABLE>
At December 31, 1999, the Company's 50% interest in the main office banking
facility with a carrying value (including land) of $1,662,330 was pledged to a
bank to secure a $877,000 borrowing of a director who is the owner of the
remaining 50% interest in the building.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT (CONTINUED)
At December 31, 1999, computer installation and construction in progress
consisted of costs incurred in constructing a new branch and installing an
Internet banking system. At December 31, 1998, in progress items consisted of
equipment related to a new imaging system and network. Total estimated costs to
complete the computer installation and construction project as of December 31,
1999 were approximately $1,259,000.
NOTE 5. DEPOSITS
Aggregate maturities of time deposits at December 31, 1999 are as follows:
2000 $104,439,303
2001 12,820,658
2002 3,521,967
2003 2,323,611
------------
$123,105,539
============
At December 31, 1999, the Company had brokered time deposits of approximately
$5,484,000.
NOTE 6. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements, which are classified as
secured borrowings, generally mature within one to four days from the
transaction date. Securities sold under repurchase agreements are
reflected at the amount of cash received in connection with the
transactions. The Company monitors the fair value of the underlying
securities on a daily basis.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- ----------
<S> <C> <C>
FHLB advance, interest payable semi-annually at 6.33%, $ 154,286 $ 205,714
principal due in semi-annual instalments of $25,714
Advance matures on November 13, 2002. Advances
are secured by securities with a carrying value of $497,655
FHLB advance, interest payable quarterly at 5.98%, principal 6,000,000 --
due at maturity. Advance matures on January 31, 2000
FHLB advance, interest payable quarterly at the three month 5,000,000 --
LIBOR rate plus six basis points, principal due at maturity
Advance matures on August 13, 2001
FHLB advance, interest payable quarterly at 5.715%, principal 4,000,000 --
due at maturity. Advance matures on July 30, 2004
FHLB advance, interest payable quarterly at 5.26%, principal 10,000,000 --
due at maturity. Advance matures on April 21, 2009
Treasury, tax and loan note option account due on demand, 648,617 977,086
bearing interest equal to the 90 day Treasury bill rate
----------- ----------
$25,802,903 $1,182,800
=========== ==========
</TABLE>
Aggregate maturities of other borrowings as of December 31, 1999 are as follows:
2000 $ 6,700,045
2001 5,051,429
2002 51,429
2003 --
2004 4,000,000
Thereafter 10,000,000
-----------
$25,802,903
===========
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Company has a 401(k) Employee Profit-Sharing Plan available to all eligible
employees, subject to certain minimum age and service requirements. The
contributions expensed were $117,539 and $69,154 for the years ended December
31, 1999 and 1998, respectively.
Deferred Compensation Plan
The Company has a deferred compensation plan providing for death and retirement
benefits for certain officers. The estimated amounts to be paid under the
compensation plan are being funded through the purchase of life insurance
policies on the officers. Accrued deferred compensation of $65,730 and $33,456
is included in other liabilities as of December 31, 1999 and 1998, respectively.
Cash surrender values of $1,762,666 and $1,680,562 on the insurance policies is
included in other assets at December 31, 1999 and 1998, respectively.
Dividend Reinvestment and Share Purchase Plan
In 1998, the Company adopted a dividend reinvestment and share purchase plan.
Under the plan, all holders of record of common stock are eligible to
participate in the plan. Participants in the plan may direct the plan
administrator to invest cash dividends declared with respect to all or any
portion of their common stock. Participants may also make optional cash payments
which will be invested through the plan. All cash dividends paid to the plan
administrator are invested within 30 days of cash dividend payment date. Cash
dividends and optional cash payments will be used to purchase common stock of
the Company in the open market, from newly-issued shares, from shares held in
treasury, in negotiated transactions, or in any combination of the foregoing.
The purchase price of the shares of common stock is based on the average market
price. All administrative costs are borne by the Company. For the years ended
December 31, 1999 and 1998, 14,028 and 3,964 shares were purchased under the
plan, respectively.
NOTE 9. LEASES
The Company leases its main office banking facility under a noncancelable
operating lease agreement from 400 Church Street Properties, a partnership that
is 50% owned by the Bank and 50% owned by a director. The lease had an initial
lease term of 10 years with four five-year renewal options.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. LEASES (CONTINUED)
The Company also leases its Thompson Bridge and East Hall branches under
noncancelable operating leases with initial lease terms of 5 years with three
five year renewal options, and its Dawsonville Highway branch under a
noncancelable operating lease with an initial term of 10 years with three
five-year renewal options.
Rental expense under all operating leases amounted to $372,159 and $364,470, for
the years ended December 31, 1999 and 1998, respectively.
Future minimum lease payments on noncancelable operating leases are summarized
as follows:
2000 $ 393,050
2001 360,132
2002 325,695
2003 331,765
2004 332,632
Thereafter 166,211
----------
$1,909,485
==========
NOTE 10. STOCK OPTIONS
The Company has a 1992 stock option plan for key employees. Option prices
reflect the fair market value of the Company's common stock on the dates the
options are granted. These options expire five years from the grant date.
In 1997, the Board of Directors approved a stock option plan reserving 325,000
shares of common stock for the granting of options to directors, officers, and
employees. Option prices reflect the fair market value of the Company's common
stock on the dates the options are granted. The options may be exercised over a
period of ten years in accordance with vesting schedules determined by the Board
of Directors.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
--------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Under option, beginning of year 264,612 $ 10.64 270,250 $ 10.38
Granted 8,000 23.00 --
Exercised (3,970) 6.64 (13) 10.80
Terminated (775) 13.95 (5,625) 9.02
------- -------
Under option, end of year 267,867 11.06 264,612 10.64
======= =======
Options exercisable at year-end 103,426 $ 10.68 80,163 $ 10.70
Weighted-average fair value of options
granted during the year $ 8.37 $ --
</TABLE>
Information pertaining to options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ----------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------------------- ----------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$6.40 - $8.40 8,500 1.7 years $ 7.81 4,050 $ 7.61
$ 10.80 251,567 7.8 years 10.80 99,376 10.80
$ 23.00 7,800 9.1 years 23.00 -- --
------- -------
Outstanding at end of year 267,867 7.6 years $ 11.06 103,426 $
======= =======
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting for
the stock option plan. Accordingly, no compensation cost has been recognized.
Had compensation cost for the stock option plan been determined based on the
fair value at the grant dates for awards under the plan consistent with the
method prescribed by FASB Statement No. 123, the net income and earnings per
share would have been adjusted to the pro forma amounts indicated below.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998
---------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Net income As reported $ 2,272 $ 1,673
Pro forma $ 2,218 $ 1,619
Earnings per share As reported $ 1.08 $ 0.80
Pro forma $ 1.05 $ 0.77
Earnings per share - As reported $ 1.01 $ 0.75
assuming dilution Pro forma $ 0.99 $ 0.73
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
Year Ended December 31,
---------------------------
1999
---------------------------
Dividend yield .38%
Expected life 10 years
Expected volatility 6.37%
Risk-free interest rate 6.86%
NOTE 11. INCOME TAXES
The components of income tax expense are as follows:
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
----------- ---------
Current $ 1,352,148 $ 999,344
Deferred (238,496) (246,827)
----------- ---------
Income tax expense $ 1,113,652 $ 752,517
=========== =========
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. INCOME TAXES (CONTINUED)
The Company's income tax expense differs from the amounts computed by applying
the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998
----------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 1,150,985 34 % $ 824,654 34 %
Tax-exempt interest (57,914) (2) (43,618) (2)
Disallowed interest 10,474 1 8,313 --
Life insurance (27,527) (2) (26,745) (1)
State income taxes 30,357 1 5,594 --
Merger expenses 8,500 1 -- --
Other (1,223) -- (15,681) --
----------- ----- --------- -----
Income tax expense $ 1,113,652 33 % $ 752,517 31 %
========== ====== ========= =====
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 760,527 $593,575
Other real estate write-down 159,272 141,568
Deferred compensation 42,702 --
Organizational expenses 11,096 --
Securities available-for-sale 402,260 --
Other 1,154 1,153
---------- --------
1,377,011 736,296
---------- --------
Deferred tax liabilities:
Depreciation 87,479 83,122
Accretion of discount on securities 1,133 5,531
Securities available-for-sale -- 92,706
---------- --------
88,612 181,359
---------- --------
Net deferred tax assets $1,288,399 $554,937
========== ========
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. EARNINGS PER SHARE
Presented below is a summary of the components used to
calculate basic and diluted earnings per share for the years ended December 31,
1999 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
----------- ----------
<S> <C> <C>
Basic Earnings Per Share:
Weighted average common shares outstanding $ 2,110,389 $2,095,661
=========== ==========
Net income $ 2,271,596 $1,672,935
=========== ==========
Basic earnings per share $ 1.08 $ 0.80
=========== ==========
Diluted Earnings Per Share:
Weighted average common shares outstanding $ 2,110,389 $2,095,661
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year 128,777 127,937
----------- ----------
Total weighted average common shares and
common stock equivalents outstanding 2,239,166 2,223,598
=========== ==========
Net income $ 2,271,596 $1,672,935
=========== ==========
Diluted earnings per share $ 1.01 $ 0.75
=========== ==========
</TABLE>
NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-balance-sheet
financial instruments which are not reflected in the financial statements. These
financial instruments include commitments to extend credit and standby letters
of credit. Such financial instruments are included in the financial statements
when funds are disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. A summary of the Company's commitments is as follows:
December 31,
---------------------------
1999 1998
----------- -----------
Commitments to extend credit $43,985,000 $32,552,000
Standby letters of credit 1,941,872 2,257,348
Credit card commitments 4,015,000 3,386,000
----------- -----------
$49,941,872 $38,195,348
=========== ===========
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
credit risk involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable securities,
accounts receivable, inventory, equipment and personal property.
Credit card commitments are granted on an unsecured basis.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held varies as
specified above and is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material effect on the Company's financial
statements.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential and consumer loans to
customers in Hall County and surrounding counties. The ability of the majority
of the Bank's customers to honor their contractual obligations is dependent on
the local and metropolitan Atlanta, Georgia economies.
Seventy-three percent of the Company's loan portfolio is concentrated in loans
secured by real estate. A substantial portion of these loans are in the
Company's primary market area. In addition, a substantial portion of the other
real estate owned is located in those same markets. Accordingly, the ultimate
collectibility of the Company's loan portfolio and recovery of the carrying
amount of other real estate owned are susceptible to changes in market
conditions in the Company's market area. The other significant concentrations of
credit by type of loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 25% of statutory
capital, or approximately $3,096,000.
NOTE 15. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that may
be declared without prior regulatory approval. At December 31, 1999,
approximately $1,192,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of
the assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and the Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Total
and Tier I capital to risk-weighted assets and of Tier I capital to average
assets. Management believes, as of December 31, 1999, the Company and the Bank
met all capital adequacy requirements to which they are subject.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 15. REGULATORY MATTERS (CONTINUED)
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as adequately capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
The Company and Bank's actual capital amounts and ratios are presented in the
following table.
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ------- ------ -----
(Dollars in Thousands)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets):
Consolidated $ 19,486 9.73% $ 16,025 8% $N/A N/A
Bank $ 18,420 8.95% $ 16,465 8% $20,581 10%
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 17,264 8.62% $ 8,012 4% $N/A N/A
Bank $ 16,198 7.87% $ 8,233 4% $12,349 6%
Tier I Capital (to Average Assets):
Consolidated $ 17,264 6.84% $ 10,103 4% $N/A N/A
Bank $ 16,198 6.44% $ 10,061 4% $12,576 5%
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Consolidated $ 16,928 11.76% $ 11,516 8% $N/A N/A
Bank $ 16,421 11.42% $ 11,505 8% $14,381 10%
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 15,154 10.52% $ 5,762 4% $N/A N/A
Bank $ 14,648 10.19% $ 5,753 4% $8,629 6%
Tier I Capital (to Average Assets):
Consolidated $ 15,154 7.89% $ 7,683 4% $N/A N/A
Bank $ 14,648 7.65% $ 7,662 4% $9,578 5%
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using discounted
cash flow models. Those models are significantly affected by the assumptions
used, including the discount rates and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The use of different methodologies may have a
material effect on the estimated fair value amounts. Also, the fair value
estimates presented herein are based on pertinent information available to
management as of December 31, 1999 and 1998. Such amounts have not been revalued
for purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
Cash, Due From Banks, Interest-bearing Deposits in Banks and Federal Funds
- --------------------------------------------------------------------------
Sold:
- -----
The carrying amounts of cash, due from banks, interest-bearing deposits in banks
and Federal funds sold approximate their fair value.
Securities:
- ----------
Fair values for securities are based on available quoted market prices. The
carrying values of equity securities with no readily determinable fair value
approximate fair values.
Loans:
- -----
For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. For other loans, the
fair values are estimated using discounted cash flow models, using current
market interest rates offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the underlying
collateral.
Deposits:
- --------
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using discounted cash flow
models, using current market interest rates offered on certificates with similar
remaining maturities.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Federal Funds Purchased, Repurchase Agreements, and Other Borrowings:
- ---------------------------------------------------------------------
The fair values of the Company's fixed rate other borrowings are estimated using
discounted cash flow models based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements. The carrying amounts of all
other variable rate borrowings, Federal funds purchased, and securities sold
under repurchase agreements approximate their fair values.
Accrued Interest:
- -----------------
The carrying amounts of accrued interest approximate their fair values.
Off-balance Sheet Instruments:
- ------------------------------
Fair values of the Company's off-balance sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to extend
credit and standby letters of credit do not represent a significant value to the
Company until such commitments are funded. The Company has determined that these
instruments do not have a distinguishable fair value and no fair value has been
assigned.
The carrying amounts and estimated fair value of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks, interest-
bearing deposits in banks
and Federal funds sold $ 8,450,090 $ 8,450,090 $ 19,353,568 $ 19,353,568
Securities 42,671,733 42,671,733 31,244,047 31,244,047
Loans 197,310,479 198,933,071 136,450,096 138,403,535
Accrued interest receivable 1,611,542 1,611,542 1,331,988 1,331,988
Financial liabilities:
Deposits 200,451,285 201,181,168 176,447,345 176,953,478
Federal funds purchased and
securities sold under
repurchase agreements 12,969,374 12,969,374 1,234,984 1,234,984
Other borrowings 25,802,903 24,544,401 1,182,800 1,185,985
Accrued interest payable 2,567,373 2,567,373 1,659,099 1,659,099
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. STOCK DIVIDEND
On August 29, 1998, the Company effected a five-for-four stock split in the form
of a stock dividend. Stockholders of record as of August 31, 1998 received one
additional share of common stock for every four shares they owned. Share and per
share data for all periods presented herein have been adjusted to give effect to
the split.
NOTE 18. BUSINESS COMBINATIONS
On April 24, 1998, GB&T Bancshares, Inc. acquired all of the outstanding common
stock of Gainesville Bank & Trust in exchange for 1,676,160 shares of $5 par
value common stock. The acquisition was accounted for as a pooling of interests,
and, accordingly, all prior financial statements were restated to reflect the
combination. Income of the subsidiary prior to acquisition on April 24, 1998 was
$523,580, which was included in the consolidated statement of income.
On February 29, 2000, the Company consummated its merger with UB&T Financial
Services Corporation ("UB&T") subject to a definitive agreement dated October
14, 1999. Under this agreement, UB&T will merge with and into the Company. UB&T
stockholders will receive 646,803 shares of Company stock. The combination will
be accounted for as a pooling of interests.
The following unaudited pro forma data summarizes operating data as if the
combination had been consummated on January 1, 1998.
As of and for the year ended
December 31,
------------------------------------
1999 1998
------------ -------------
(Dollars in Thousands)
(Unaudited)
----------------------------------
Total assets $307,954,530 $239,378,083
Stockholders' equity 21,517,945 20,262,030
Net income 2,469,303 1,953,619
Basic income per share 0.90 0.71
Diluted income per share 0.86 0.68
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total revenue are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
--------- --------
<S> <C> <C>
Advertising $200,616 $195,904
Provision for other real estate owned losses 92,954 289,000
</TABLE>
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet, statements of
income and cash flows of GB&T Bancshares, Inc. as of and for the periods ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash $ 95,249 $ 423,937
Securities available-for-sale 917,440 --
Investment in subsidiary 15,540,777 14,798,707
Other assets 53,890 83,019
------------ ------------
Total assets $ 16,607,356 $ 15,305,663
============ ============
Stockholders' Equity $ 16,607,356 $ 15,305,663
============ ============
CONDENSED STATEMENT OF INCOME
1999 1998
------------ ------------
Income
Dividends from subsidiary $ 834,778 $ 742,207
Expenses, Other 168,090 122,643
------------ ------------
Income before income tax benefit and equity
in undistributed income of subsidiary 666,688 619,564
Income Tax Benefit (55,262) (46,604)
------------ ------------
Income before equity in undistributed income
of subsidiary 721,950 666,168
Equity in Undistributed Income of Subsidiary 1,549,646 483,187
------------ ------------
Net income $ 2,271,596 $ 1,149,355
============ ============
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,271,596 $ 1,149,355
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiary (1,549,646) (483,187)
Amortization 36,416 6,426
Other operating activities (7,287) (89,446)
----------- -----------
Net cash provided by operating activities 751,079 583,148
----------- -----------
INVESTING ACTIVITIES
Purchase of securities available-for-sale (917,440) --
----------- -----------
Net cash used in investing activities (917,440) --
----------- -----------
FINANCING ACTIVITIES
Dividends paid (527,018) (243,655)
Proceeds from issuance of common stock 26,376 140
Dividends reinvested 338,315 84,304
----------- -----------
Net cash used in financing activities (162,327) (159,211)
----------- -----------
Net increase (decrease) in cash (328,688) 423,937
Cash at beginning of period 423,937 --
----------- -----------
Cash at end of year $ 95,249 $ 423,937
=========== ===========
</TABLE>
F-32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GB&T BANCSHARES, INC.
By: /s/ Richard A. Hunt DATE
------------------------------------------
Richard A. Hunt, President, Chief
Executive Officer and Director
By: /s/ Gregory L. Hamby DATE
------------------------------------------
Gregory L. Hamby, Senior Vice President
and Senior Operations Officer
By: /s/ F. Abit Massey DATE
-------------------------------------------
F. Abit Massey, Chairman and Director
By: /s/ Philip A. Wilheit DATE
--------------------------------------------
Philip A. Wilheit, Vice-Chairman and
Director
By: /s/ Samuel L. Oliver DATE: 3/27/00
--------------------------------------------
Samuel L. Oliver, Secretary and Director
By: /s/ Donald J. Carter DATE: 3/27/00
--------------------------------------------
Donald J. Carter, Director
By: /s/ J. Grady Coleman DATE: 3/27/00
--------------------------------------------
J. Grady Coleman, Director
By: /s/ Dr. John W. Darden DATE: 3/27/00
--------------------------------------------
Dr. John W. Darden, Director
By: /s/ Bennie E. Hewett DATE: 3/27/00
--------------------------------------------
Bennie E. Hewett, Director
By: /s/ John E. Mansfield, Sr. DATE: 3/27/00
--------------------------------------------
John E. Mansfield, Sr., Director
By: /s/ Alan S. Wayne DATE: 3/27/00
--------------------------------------------
Alan A. Wayne, Director
EXHIBIT 21.1
SUBSIDIARY OF THE REGISTRANT
Gainesville Bank & Trust
[CONSENT WILL GO HERE]
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001061068
<NAME> GB&T BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,151
<INT-BEARING-DEPOSITS> 179
<FED-FUNDS-SOLD> 120
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,672
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 199,532
<ALLOWANCE> 2,222
<TOTAL-ASSETS> 258,760
<DEPOSITS> 200,451
<SHORT-TERM> 19,669
<LIABILITIES-OTHER> 2,929
<LONG-TERM> 19,103
0
0
<COMMON> 10,586
<OTHER-SE> 6,022
<TOTAL-LIABILITIES-AND-EQUITY> 258,760
<INTEREST-LOAN> 16,185
<INTEREST-INVEST> 2,066
<INTEREST-OTHER> 234
<INTEREST-TOTAL> 18,485
<INTEREST-DEPOSIT> 7,951
<INTEREST-EXPENSE> 8,948
<INTEREST-INCOME-NET> 9,537
<LOAN-LOSSES> 520
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 7,033
<INCOME-PRETAX> 3,385
<INCOME-PRE-EXTRAORDINARY> 3,385
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,272
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 4.61
<LOANS-NON> 0
<LOANS-PAST> 76
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,773
<CHARGE-OFFS> 90
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 2,222
<ALLOWANCE-DOMESTIC> 2,222
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,222
</TABLE>
