U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
- ---- Annual Report Pursuant to Section 13 or 15(d) of
| X | The Securities Exchange Act of 1934
- ---- For the Fiscal Year Ended December 31, 1998
- ---- Transition Report Pursuant to Section 13 or 15(d) of
| | The Securities Exchange Act of 1934
- ----
Commission File Number 000-25267
Oconee Financial Corporation
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(Exact name of registrant as specified in its charter)
Georgia 58-2442250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 North Main Street, Watkinsville, Georgia 30677-0205
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (706) 769-6611
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Securities registered pursuant to Section 12(b) of the Act: None
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$10.00 par value per share.
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 pursuant to Item 405 of
Regulation S-K is not contained herein and will not 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. $11,056,635.
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Transitional Small Business Disclosure format. Yes No X
--- ---
State the aggregate market value of the voting stock held by
non-affiliates (which for purposes hereof are all holders other than
executive officers and directors): As of February 28, 1999: 116,102 shares
of common stock $10.00 par value (the "Common Stock"), with an aggregate
value of $16,834,790 (based on approximate market value of $145.00/share)
(the last sale price known to the Registrant for the Common Stock, for which
there is no established trading market).
State the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date: As of March 15, 1999, there
were issued and outstanding 180,000 shares of Common Stock, par value $10.00
per share.
<PAGE>
PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
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Oconee Financial Corporation ("Oconee"), a registered bank holding
company, was incorporated under the laws of Georgia in 1998 and commenced
operations by acquiring 100% of the outstanding shares of Oconee State Bank
(the "Bank") effective January 1, 1999. Oconee is the Bank's successor
issuer after the aforementioned acquisition. All of Oconee's activities are
currently conducted by the Bank, its wholly-owned subsidiary, which was
incorporated as a bank under the laws of Georgia in 1959. At December 31,
1998, the Bank had approximately 600 holders of record of Common Stock, its
only class of equity securities.
At December 31, 1998, the Bank's total assets were $130,652,000,
compared to $117,482,000 at year-end 1997. Over the past 5 years, total
assets of the Bank have grown by $50,516,000 representing an increase of
63.4%.
FORWARD LOOKING STATEMENTS
- --------------------------
The following appears in accordance with the Securities Litigation
Reform Act of 1995. These financial statements and financial review
include forward looking statements that involve inherent risks and
uncertainties. A number of important factors could cause actual results
to differ materially from those in the forward looking statements. Those
factors include fluctuations in interest rates, inflation, government
regulations, economic conditions, competition in the geographic business
areas in which Oconee conducts its operations, material unforeseen changes
in the financial stability and liquidity of Oconee's credit customers and
material unforeseen complications arising from the year 2000 issue.
.
SERVICES
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The Bank is a community oriented, full-service commercial bank, located
in Oconee County, Georgia with three banking offices and four automated
teller machines (ATMs). The Bank places an emphasis on retail banking, and
offers such customary banking services as consumer and commercial checking
accounts, NOW accounts, money market accounts, savings accounts,
certificates of deposits, individual retirement accounts, safe deposit
facilities, and money transfers. The Bank finances commercial and consumer
transactions, makes secured and unsecured loans, offers lines of credit,
VISA and MasterCard accounts, and provides a variety of other banking
services.
MARKETS
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The primary market for the Bank is Oconee County, Georgia. The Bank's
secondary market is defined as those counties contiguous to Oconee County,
which include Clarke, Greene, Morgan, Walton, Barrow, and Oglethorpe, as
well as any counties which are a part of the Athens Standard Metropolitan
Statistical Area, but are not continguous to Oconee County.
DEPOSITS
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The Bank offers a full range of depository accounts and services to
both consumers and businesses. At December 31, 1998, the Bank's deposit
base totaled $116,120,000 and consisted of the following types of accounts:
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Amount Percentage
Non-interest bearing demand deposits $ 17,734,000 15.3%
Interest-bearing NOW accounts 26,481,000 22.8%
Money market deposit accounts 9,860,000 8.5%
Savings deposits 8,876,000 7.6%
Time deposits less than $100,000 41,560,000 35.8%
Time deposits of $100,000 or more 4,999,000 4.3%
Individual Retirement Accounts 6,610,000 5.7%
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Total Deposits $116,120,000 100.0%
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Management of the Bank is of the opinion that its time deposits of
$100,000 or more are customer relationship-oriented and represent a
reasonably stable source of funds.
LOANS
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The Bank makes both secured and unsecured loans to individuals and
businesses. At December 31, 1998, the Bank's loan portfolio totaled
$76,780,000, consisting of the following categories of loans:
Amount Percentage
Loans secured by real estate $ 56,194,000 73.2%
Agricultural production & loans to farmers 638,000 0.8%
Commercial and industrial loans 10,433,000 13.6%
Credit cards and related plans 738,000 1.0%
Consumer loans (excluding credit cards) 8,428,000 11.0%
All other loans 87,000 0.1%
Lease financing receivables 301,000 0.4%
LESS: Unearned income (39,000) (0.1%)
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Total Loans Net of Unearned Income $ 76,780,000 100.0%
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The following table shows the amounts and growth for loans, deposits,
capital, and total assets at December 31, for the years ended 1993-1998
(dollar amounts are in millions).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 5-Year Growth
---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $ 76.8 $ 72.3 $ 68.8 $58.6 $54.9 $55.9 37.4%
Deposits 116.1 104.6 97.0 79.3 74.2 72.0 61.3%
Capital 12.5 11.2 10.0 9.1 8.0 7.5 66.7%
Total Assets 130.7 117.5 108.5 89.8 82.9 80.0 63.4%
</TABLE>
As of December 31, 1998, the Bank had a concentration of loans to the
housing industry. Loans secured by real estate totaled $56,194,000, which
represented 73.2% of the Bank's loan portfolio at December 31, 1998. At
year-end 1998, total commitments for development and construction loans were
$35,673,933, which represented 46.5% of the Bank's total loans and 285.4% of
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the Bank's equity capital. The Bank's established guidelines for this
concentration, is to be in a range of 200% - 285% of equity capital. Low
interest rates and the desirability of living in Oconee County are fueling
demand for new housing and therefore new subdivisions in the area. Georgia
Highway 316, the Watkinsville by-pass, and the re-routing of Highway 441
will continue to encourage further housing growth, resulting in the Bank's
continued concentration of loans to this industry. As of December 31, 1998,
the Bank has no related borrower concentrations.
LENDING POLICY
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The current lending policy of the Bank is to offer consumer, real
estate, and commercial credit services to individuals and entities that meet
the Bank's credit standards. The Bank provides each lending officer with
written guidelines for lending activities. Lending authority is delegated
by the Board of Directors of the Bank to loan officers, each of whom is
limited in the amount of secured and unsecured loans which he can make to a
single borrower or related group of borrowers. As of December 31, 1998,
the Bank had a legal lending limit of $1,512,500.
The Board of Directors of the Bank is responsible for approving and
monitoring the loan policy, providing guidance and counsel to all lending
personnel and approving all extensions of credit over $125,000.
LOAN REVIEW AND NON-PERFORMING ASSETS
- -------------------------------------
The Bank reviews its loan portfolio to determine deficiencies and
corrective action to be taken. Senior lending officers conduct periodic
reviews of borrowers with total direct and indirect indebtedness of $150,000
or more and ongoing review of all past due loans. Past due loans are
reviewed at least weekly by lending officers, and a summary report is
reviewed monthly by the Board of Directors of the Bank. The Board of
Directors of the Bank reviews all loans over $150,000, whether current or
past due, at least once annually. In addition, the Bank maintains internal
classifications of potential problem loans.
INVESTMENT POLICY
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The Bank's investment policy provides guidelines for determining
permissible investments in the investment portfolio, credit criteria and
quality ratings, the desired mix among those investments, and preferred
maturity distribution of the portfolio. The Bank has five objectives
concerning its investment portfolio which address asset/liability
management, profitability, liquidity, pledging, and local community support.
The Bank's President and Executive Vice President/CFO are authorized to buy
and sell securities according to the criteria set forth in the investment
policy. Individual transactions, portfolio composition and performance are
reviewed by the Bank's Investment and Asset/Liability Management Committee
and the full Board of the Bank on a monthly basis. The investment policy is
reviewed annually by the Bank's Board of Directors.
In general, the Bank's investment policy is to place U.S. Treasury and
Agency securities in the Available for Sale portfolio, while State, County,
and Municipal obligations are placed in the Held to Maturity portfolio. As
of December 31, 1998, investment securities totaled $35,359,414 with
$20,055,424 available for sale and $15,303,990 held to maturity.
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The primary risks in the Bank's securities portfolio consist of 2 types:
(1) Credit risk, or the risk of default of the issuer. Treasury and
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Agency securities comprised 56.7% of the portfolio; therefore the
credit risk is primarily limited to the risk of default of the
U.S. Government and its agencies. State, County, and Municipal
bonds represent 43.3% of the portfolio with the credit risk
limited to the risk of default of the issuing municipality.
Substantially all of such securities have been rated by a bond
rating service and all are investment grade and bank qualified
investments.
(2) Interest rate risk, or the risk of adverse movements in interest
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rates on the value of the portfolio. In general, a rise in
-----------------------------------
interest rates will cause the value of the Bank's securities
portfolio to decline. The longer the maturity of an individual
security, the greater the effect of change in interest rate on its
value. The Bank measures its interest rate risk exposure by
analyzing its rate sensitivity GAP position. The Bank's GAP
position is reviewed monthly by the Investment and Asset/Liability
Management Committee and the Board of Directors.
COMPETITION
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The Bank competes in Oconee County with four other commercial banks.
There are seven commercial banks in Athens-Clarke County, four of which have
offices in Oconee County. As of June 30, 1998, the seven banks located in
Athens-Clarke County held deposits totaling $1,135,156,000. The Bank's
physical presence in Athens-Clarke County is limited to an ATM located in
a convenience store. With three full service and one limited banking
office, the Bank is the dominant market leader in Oconee County in terms of
assets, deposit size, facility locations, and market coverage. The
following table shows deposits by financial institution along with market
share for the period ended June 30, 1998 (Dollar amounts are in thousands):
Total Market
Deposits Share
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Athens First Bank & Trust Company $ 25,771 13.8%
Bank of Georgia 47,446 25.3%
First American Bank & Trust Company 1,125 0.6%
NationsBank, N.A. 7,487 4.0%
Oconee State Bank 105,317 56.3%
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Total Deposits $187,146 100.0%
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In addition to the Bank's competition in Oconee County, the Bank competes
with commercial banks, thrifts, and various other financial institutions and
brokerage firms located in Northeast Georgia counties outside its primary
and secondary market areas. To a lesser extent, the Bank also competes for
deposits and loans with credit unions and for loans with insurance
companies, small loan or finance companies, and certain governmental
agencies. To the extent that banks must maintain non-interest earning
reserves against deposits, they may be at a competitive disadvantage when
compared with other financial service organizations that are not required to
maintain reserves against substantially equivalent sources of funds.
Further, the increased income competition from investment bankers and
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brokers and other financial service organizations may have a significant
impact upon the competitive environment in which the Bank operates.
Set forth below are certain ratios of the Bank for the years indicated:
1998 1997 1996
---- ---- ----
Net income to:
Average equity capital accounts 16.61% 15.66% 15.97%
Average daily total deposits 1.93% 1.75% 1.73%
Ratio of average daily loans to
average daily deposits 72.16% 74.23% 71.97%
For the most part, the business of the Bank is not materially seasonal.
Construction and development lending are strongest in Spring and Summer.
Building slows somewhat in Fall and Winter, but not to the degree that there
is an appreciable impact upon the Bank's Balance Sheet or Statement of
Earnings.
YEAR 2000 COMPLIANCE
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Generally, the year 2000 risk involves computer programs and computer
hardware that are not able to perform without interruption into the year
2000. The arrival of the year 2000 poses a unique worldwide challenge to the
ability of all systems to correctly recognize the date change from December
31, 1999 to January 1, 2000. If Oconee's systems did not correctly recognize
such a date change, computer applications that rely on the date field could
fail or create erroneous results. Such erroneous results could affect
interest, payment or due dates or could cause the temporary inability to
process transactions, send invoices or engage in similar normal business
activities. If it is not adequately addressed by Oconee or its suppliers and
borrowers, the year 2000 issue could result in a material adverse impact on
Oconee's financial condition, liquidity and results of operations.
OCONEE'S STATE OF READINESS. The Bank began its Year 2000 project in
1996. The Bank established a Year 2000 Task Force comprised of executive
and senior management of the Bank. The chairman of the committee is the
Bank's President and CEO. The Year 2000 Task Force continues to communicate
the Year 2000 issue and the Bank's status to the Board, employees, and the
customers of the Bank. The Bank has made a complete assessment of its
information technology systems and non-information technology systems and
has contacted its system vendors requesting information as to their Year
2000 preparedness.
The Bank has developed a year 2000 plan with the following phases:
awareness, assessment, renovation, validation and implementation. The Bank
developed a specific timeline to follow through each of these processes.
The Bank is currently in the validation phase. Testing of renovated
computer systems deemed mission critical for Year 2000 compliance was
completed on March 10, 1999, with all other testing scheduled to be
completed by June 30, 1999. Systems not deemed Year 2000 compliant will be
upgraded or replaced by June 30, 1999 in accordance with the Bank's overall
contingency plan.
COSTS TO ADDRESS YEAR 2000 ISSUES. The Bank currently estimates that
the total cost of such modifications for Year 2000 compliance issues will be
approximately $230,500 expensed over the course of five years from 1998
through 2002 (including hardware/software expenses which are permitted to be
capitalized). Year 2000 expenditures for 1999 have been budgeted and are
not expected to have a significantly negative impact on results of
operations, liquidity, or capital resources. However, there can be no
assurance that all necessary modifications will be identified and corrected
or that unforeseen difficulties or additional costs will not arise.
6<PAGE>
RISKS OF THIRD PARTY YEAR 2000 ISSUES. The impact of year 2000 non-
compliance by outside parties with whom Oconee transacts business cannot be
accurately gauged. Oconee has surveyed its major vendors and suppliers to
ascertain their year 2000 readiness. Although all are not year 2000
compliant at this date, Oconee has received certain assurances that such
third parties will be ready for the year 2000 date change by the end of
1999, including any additional certification from its major software
provider.
The Bank will continue to monitor the progress of third party vendors
regarding their Year 2000 readiness focusing on mission critical
applications including, but not limited to: The Federal Reserve Bank,
Intercept, The Bankers Bank, telecommunications and power companies. The
Year 2000 Task Force reviews progress reports from third party vendors.
Third party progress reports may include, but are not limited to: updates
from the company website, written status reports from the third party
vendor, and verbal communication regarding the current status of the vendor.
The Bank is currently requesting the results from the testing and validation
of its mission critical third party vendors regarding business contingency
plans.
OCONEE'S CONTINGENCY PLAN. The Bank has established an overall
contingency plan, a liquidity plan, as well as a business resumption
contingency plan for implementation in the event of system or operational
failures. The Bank has developed business resumption contingency plans that
contain the following elements: (1) evaluates options and selects the most
reasonable contingency strategy; (2) identifies contingency plans and
implementation for each core business process; (3) establishes trigger dates
to activate the contingency plans; (4) assigns responsibility for resumption
of core business processes; (5) implements an independent review of the
feasibility of the contingency plan; and (6) develops an implementation
strategy for the century date change as well as other critical dates. In
general, the overall contingency plan is designed to minimize disruptions of
service to the Bank and its customers in the event of a Year 2000
disruption.
The Bank is expected, by the Federal Deposit Insurance Corporation, to
substantially complete the four phases of the business resumption
contingency planning process as soon as possible, but no later than June 30,
1999. Oconee has completed the organizational planning, business impact,
and contingency plan phases. We are reviewing and updating our current
contingency plans, so that we will be able to complete the validation phase
by June 30, 1999.
The Bank's Year 2000 Liquidity Contingency Plan (Plan) provides a ready
framework for meeting liquidity needs on an expedited basis. The Plan
identifies and assesses liquidity needs in connection with Year 2000,
further identifies and updates both primary and secondary sources of
liquidity, and provides policy and procedures for the use of liquidity
should the need for additional liquidity arise.
SUPERVISION AND REGULATION
- --------------------------
GENERAL. Oconee is a registered bank holding company subject to
regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve") under the Bank Holding Company Act of 1956, as amended
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(the "Act"). Oconee is required to file financial information with the
Federal Reserve periodically and is subject to periodic examination by the
Federal Reserve.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before (i) it may acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that
it does not already control; (ii) it or any of its subsidiaries, other than
a bank, may acquire all or substantially all of the assets of a bank; and
(iii) it may merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from engaging in,
or acquiring, direct or indirect control of the voting shares of any company
engaged in non-banking activities. This prohibition does not apply to
activities found by the Federal Reserve, by order or regulation, to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereto. Some of the activities that the Federal Reserve
has determined by regulation or order to be closely related to banking are:
making or servicing loans and certain types of leases; performing certain
data processing services; acting as fiduciary or investment or financial
advisor; providing discount brokerage services; underwriting bank eligible
securities; underwriting debt and equity securities on a limited basis
through separately capitalized subsidiaries; and making investments in
corporations or projects designed primarily to promote community welfare.
Oconee must also register with the Georgia Department of Banking and
Finance (the "GDBF") and file periodic information with the GDBF. As part
of such registration, the GDBF requires information with respect to the
financial condition, operations, management and intercompany relationships
of Oconee and the Bank and related matters. The GDBF may also require such
other information as is necessary to keep itself informed as to whether the
provisions of Georgia law and the regulations and orders issued thereunder
by the GDBF have been complied with, and the GDBF may examine Oconee and the
Bank.
Oconee is an "affiliate" of the Bank under the Federal Reserve Act,
which imposes certain restrictions on (i) loans by the Bank to Oconee, (ii)
investments in the stock or securities of Oconee by the Bank, (iii) the
Bank's taking the stock or securities of an "affiliate" as collateral for
loans by the Bank to a borrower, and (iv) the purchase of assets from Oconee
by the Bank. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of
services.
The Bank, a subsidiary of Oconee, is regularly examined by the Federal
Deposit Insurance Corporation (the "FDIC"). The Bank, as state banking
association organized under Georgia law, is subject to the supervision of,
and is regularly examined by, the GDBF. Both the FDIC and the GDBF must
grant prior approval of any merger, consolidation or other corporation
reorganization involving the Bank. A bank can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in
connection with the default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. Oconee is a legal entity separate and distinct
from the Bank. Most of the revenues of Oconee result from dividends paid to
it by the Bank. There are statutory and regulatory requirements applicable
to the payment of dividends by the Bank, as well as by Oconee to its
shareholders.
The Bank is a state chartered bank regulated by the GDBF and the FDIC.
Under the regulations of the GDBF, dividends may not be declared out of the
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retained earnings of a state bank without first obtaining the written
permission of the GDBF unless such bank meets all the following
requirements:
(a) total classified assets as of the most recent examination of the
bank do not exceed 80% of equity capital (as defined by
regulation);
(b) the aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed 50% of the net
profits after taxes but before dividends for the previous calendar
year; and
(c) the ratio of equity capital to adjusted assets is not less than
6%.
The payment of dividends by Oconee and the Bank may also be affected or
limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending
upon the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The FDIC has issued a policy
statement providing that insured banks should generally only pay dividends
out of current operating earnings. In addition to the formal statutes and
regulations, regulatory authorities consider the adequacy of the Bank's
total capital in relation to its assets, deposits and other such items.
Capital adequacy considerations could further limit the availability of
dividends to the Bank. At December 31, 1998, net assets available from the
Bank to pay dividends without prior approval from regulatory authorities
totaled approximately $1,015,947. For 1998, Oconee's cash dividend payout
to stockholders was 35.4% of net income.
MONETARY POLICY. The results of operations of the Bank are affected by
credit policies of monetary authorities, particularly the Federal Reserve.
The instruments of monetary policy employed by the Federal Reserve include
open market operations in U.S. government securities, changes in the
discount rate on bank borrowings and changes in reserve requirements against
bank deposits. In view of changing conditions in the national economy and
in the money markets, as well as the effect of actions by monetary and
fiscal authorities, including the Federal Reserve, no prediction can be made
as to possible future changes in interest rates, deposit levels, loan demand
or the business and earnings of the Bank.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have implemented
substantially identical risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital
standards in relation to assets and off-balance sheet exposures as adjusted
for credit risk. Banks and bank holding companies are required to have (1)
a minimum level of total capital (as defined) to risk-weighted assets of
eight percent (8%); (2) a minimum Tier One Capital (as defined) to risk-
weighted assets of four percent (4%); and (3) a minimum stockholders' equity
to risk-weighted assets of four percent (4%). In addition, the Federal
Reserve and the FDIC have established a minimum four percent (4%) leverage
ratio of Tier One Capital to total assets for the most highly-rated banks
and bank holding companies. "Tier One Capital" generally consists of common
equity not including unrecognized gains and losses on securities, minority
interests in equity accounts of consolidated subsidiaries and certain
perpetual preferred stock less certain intangibles. The Federal Reserve and
the FDIC will require a bank holding company and a bank, respectively, to
maintain a leverage ratio greater than four percent (4%) if either is
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experiencing or anticipating significant growth or is operating with less
than well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve and the FDIC use the leverage ratio in tandem with the risk-
based ratio to assess the capital adequacy of banks and bank holding
companies. The FDIC, the Office of the Comptroller of the Currency (the
"OCC") and the Federal Reserve amended, effective January 1, 1997, the
capital adequacy standards to provide for the consideration of interest rate
risk in the overall determination of a bank's capital ratio, requiring banks
with greater interest rate risk to maintain adequate capital for the risk.
The revised standards have not had a significant effect on Oconee's capital
requirements.
In addition, effective December 19, 1992, a new Section 38 to the
Federal Deposit Insurance Act implemented the prompt corrective action
provisions that Congress enacted as a part of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "1991 Act"). The "prompt
corrective action" provisions set forth five regulatory zones in which all
banks are placed largely based on their capital positions. Regulators are
permitted to take increasingly harsh action as a bank's financial condition
declines. Regulators are also empowered to place in receivership or require
the sale of a bank to another depository institution when a bank's capital
leverage ratio reaches 2%. Better capitalized institutions are generally
subject to less onerous regulation and supervision than banks with lesser
amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act, which place financial institutions in the
following five categories based upon capitalization ratios: (1) a "well
capitalized" institution has a total risk-based capital ratio of at least
10%, a Tier One risk-based ratio of at least 6% and a leverage ratio of at
least 5%; (2) an "adequately capitalized" institution has a total risk-based
capital ratio of at least 8%, a Tier One risk-based ratio of at least 4% and
a leverage ratio of at least 4%; (3) an "undercapitalized" institution has a
total risk-based capital ratio of under 8%, a Tier One risk-based ratio of
under 4% or a leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a total risk-based capital ratio of under
6%, a Tier One risk-based ratio of under 3% or a leverage ratio of under 3%;
and (5) a "critically undercapitalized" institution has a leverage ratio of
2% or less. Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital distributions.
The FDIC regulations also establish procedures for "downgrading" an
institution to a lower capital category based on supervisory factors other
than capital. Under the FDIC's regulations, the Bank was a "well capitalized"
institution at December 31, 1997 and December 31, 1998.
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Set forth below are pertinent capital ratios for the Bank as of
December 31, 1998:
Minimum Capital Requirement The Bank
- --------------------------- --------
Tier One Capital to 15.1%
Risk Based
Assets: 4% <F1>
Total Capital to 16.3%
Risk Based
Assets: 8% <F2>
Leverage Ratio (Tier One 10.5%
Capital to Average Total
Assets): 4% <F3>
__________________________
[FN]
<F1> Minimum required ratio for "well capitalized" banks is 6%
<F2> Minimum required ratio for "well capitalized" banks is 10%
<F3> Minimum required ratio for "well capitalized" banks is 5%
[FN]
RECENT LEGISLATIVE AND REGULATORY ACTION. On September 23, 1994,
President Clinton signed the Reigle Community Development and Regulatory
Improvement Act of 1994 (the "Regulatory Improvement Act"). The Regulatory
Improvement Act contains funding for community development projects through
banks and community development financial institutions and also numerous
regulatory relief provisions designed to eliminate certain duplicative
regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Federal
Interstate Bill") which amends federal law to permit bank holding companies
to acquire existing banks in any state effective September 29, 1995.
Further, any interstate bank holding company is permitted to merge its
various bank subsidiaries into a single bank with interstate branches after
May 31, 1997. States have the authority to authorize interstate branching
before June 1, 1997, or, alternatively, to opt out of interstate branching
prior to that date. The Georgia Financial Institutions Code was amended in
1994 to permit the acquisition of a Georgia bank or bank holding company by
out-of-state bank holding companies beginning July 1, 1995. On September
29, 1995, the interstate banking provisions of the Georgia Financial
Institutions Code were superseded by the Federal Interstate Bill.
On January 26, 1996, the Georgia legislature adopted a bill (the
"Georgia Intrastate Bill") to permit, effective July 1, 1996, any Georgia
bank or group of affiliated banks under one holding company to establish up
to an aggregate of three new or additional branch banks anywhere within the
State of Georgia, excluding any branches established by a bank in a county
in which it is already located. After July 1, 1998, all restrictions on
state-wide branching are removed. Before adoption of the Georgia Intrastate
Bill, Georgia only permitted branching via merger or consolidation with an
existing bank or in certain other limited circumstances.
ECONOMIC CONDITIONS
- -------------------
Economic growth in the Bank's primary service area is expected to
remain steady. The counties in the Bank's market area are expected to
continue to receive revenues from their traditional sources of trade,
finance, insurance, real estate development and sales, manufacturing and the
service industry. Both employment and population growth are projected to
increase steadily in Oconee and Athens-Clarke Counties.
11
<PAGE>
EMPLOYEES
- ---------
At December 31, 1998, the Bank had 49 full-time employees and 24 part-
time employees. The Bank is not a party to any collective bargaining
agreement, and the Bank believes that its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Bank operates three full-service banking offices and one limited
service banking office as follows:
(1) Main Office
-----------
35 North Main Street
Watkinsville, Georgia 30677
(2) Bogart Branch
-------------
U.S. Highway 78
Bogart, Georgia 30622
(3) Friendship Branch
-----------------
8811 Macon Highway
Athens, Georgia 30606
(4) Mortgage Department/Operations Annex
------------------------------------
(Limited Service/Support Offices)
Condominium Units 10, 12, 14, 16, & 18
Durham Street
Watkinsville, Georgia 30677
The executive offices and the main office of Oconee and the Bank are
located in a 6,500 square-foot facility at 35 North Main Street in
Watkinsville, Georgia with three drive-thru windows and a walk-up ATM.
The Bogart Branch is located at the intersection of U.S. Highway 78 and
Mars Hill Road in Bogart, Georgia. This 5,250 square-foot facility has 2
drive-thru windows and a drive-thru ATM.
The Friendship Branch is an 800 square-foot facility at 8811 Macon
Highway, Athens, Georgia. This branch has three drive-thru windows and
serves the Friendship community. Although it has an Athens address, this
branch is located within Oconee County.
The Bank owns five office condominium units adjacent to and behind its
main office in Watkinsville. The units are numbered 10, 12, 14, 16, & 18 on
Durham Street in Watkinsville, Georgia. Each unit contains 1,180 square
feet on the ground floor and 450 square feet on the second floor, for a
total of 1,630 square feet per unit or 8,150 square feet for all units
owned. Unit 10 houses the Bank's mortgage loan department, Units 12, 14,
and 16 are connected by interior hallways and house proof, bookkeeping,
12
<PAGE>
supplies, human resources, and accounting functions. Unit 18 is occupied by
the Bank's loan operations department.
All of the properties referenced previously are owned by Oconee or the
Bank. In September 1999, the Bank entered into a lease agreement with
Hardigree Properties, LLLP to lease office condominium unit #20 on Durham
Street in Watkinsville, Georgia. This unit is next to other office
condominiums owned by the Bank. The lease is for two years with an option
to renew at the end of two years. Unit 20 houses data processing,
accounting, and audit personnel and allows needed space for expansion,
including Year 2000 activities. In addition, two parking lots adjacent to
the main office are leased which provide additional parking for employees.
None of the properties owned by Oconee or the Bank are subject to any
encumbrances.
The Bank also owns 2.3 acres of land located on Epps Bridge Road,
1331st G.M.D., Oconee County, Georgia for future branch expansion. The
property is not subject to any other encumbrances.
Management of Oconee and the Bank believe that all of its properties
are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
Neither Oconee or the Bank is a party to, nor are any of their
properties the subject of, any material legal proceeding other than ordinary
routine litigation incidental to Oconee's and the Bank's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of the shareholders of the Bank was held on December
15, 1998 to vote on the reorganization of the Bank, whereby the Bank would
be reorganized into a wholly-owned subsidiary of Oconee, the newly formed
bank holding company. The shareholders approved the reorganization on
December 15, 1998, with 152,816 votes for the reorganization, 168 votes
against, and 311 abstentions. The reorganization became effective January
1, 1999.
13
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKETS FOR CAPITAL STOCK
- -------------------------
Bank Stock is not traded on any established public trading market.
Management of the Bank is aware of 34 trades of Bank Stock in 1998,
aggregating 758 shares in blocks ranging from 1 share to 150 shares at
prices ranging from $115.00 to $145.00 per share.
Management of the Bank is aware of 80 trades of Bank Stock in 1997,
aggregating 6,705 shares in blocks ranging from 1 share to 1,895 shares at
prices ranging from $85.00 to $115.00 per share.
HOLDERS
- -------
As of December 31, 1998, there were approximately 600 holders of
record of common stock.
DIVIDENDS
- ---------
In 1998 and 1997, the Bank declared cash dividends of $4.00 per share
and $3.30 per share respectively, payable to shareholders of record on
December 31 of each year. Oconee intends to continue paying cash dividends
on an annual basis. Cash dividends for 1998 represented a payment of 35.43%
of net income for the year compared to 34.85% for 1997. The amount and
frequency of dividends is determined by the Company's Board of Directors in
light of earnings, capital requirements and the financial condition of the
Bank.
The only source of cash available to the holding company to pay
dividends are the dividends it receives from the Bank. Under Section 7-1-460
of the Financial Institutions Code of Georgia, the Board of Directors of the
Bank may declare dividends payable to the shareholders from time to time,
subject to the conditions stated therein, which include restrictions on the
payment of dividends to payments made out of the retained earnings of the
Bank, and a prohibition against payments which would render the Bank
insolvent. See "Supervision and Regulation -- Payment of Dividends."
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATION FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997.
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(AMOUNTS ARE PRESENTED IN THOUSANDS.)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 5,734 5,418 4,865 4,592 4,036
Other operating income 1,283 1,080 949 848 799
Provision for loan losses 61 166 281 100 138
Income from operations 2,032 1,705 1,506 1,350 1,010
Income from operations per common share 11.29 9.47 8.37 7.50 5.61
Total assets 130,652 117,482 108,506 89,779 83,026
Cash dividends declared per common share 4.00 3.30 3.00 2.50 2.00
</TABLE>
FINANCIAL CONDITION - 1998 VS. 1997. During 1998, average total assets
increased $9,609,000 (9%) over 1997. Average deposits increased $8,114,000
(8%) in 1998 over 1997. Average loans increased $3,839,000 (5%) in 1998
over 1997.
Year-end balances at December 31, 1998 and 1997 show increases in total
assets of $13,170,000 (11%) from 1997 to 1998. Total deposits increased
$11,530,000 (11%) from 1997 to 1998 while total gross loans increased
$4,507,000 (6%) during 1998. Time deposits decreased $932,000 from 1997 to
1998 while all other deposit accounts increased $12,462,000 (25%) from 1997
to 1998. Loan demand continued to increase due to a strong local economy.
These loan increases, along with the net increases in investment securities,
were funded by increases in deposits during 1998. Non-performing assets at
December 31, 1998 were $71,000 compared to $44,000 at December 31, 1997.
The majority of the increase is attributable to an increase in non-accrual
loans. There were no related party loans which were considered non-
performing at December 31, 1998.
The Bank was most recently examined by its primary regulatory authority
in March of 1998. There were no recommendations by the regulatory authority
that, in management's opinion, will have material effects on the Bank's
liquidity, capital resources, or operations.
RESULTS OF OPERATIONS - 1998 VS. 1997. The Bank's earnings depend to a
large degree on net interest income, which is the difference between the
interest income received from its earning assets (such as loans, investment
securities, federal funds sold, etc.) and the interest expense which is paid
on deposit liabilities.
Net interest income in 1998, which was $5,734,000, increased by
$316,000, or 6%, over 1997. The increase is primarily attributable to the
increase in interest and fees on loans offset by increases in interest
expense on time deposits. Net yield on interest earning assets (5.08% in
1998 and 5.25% in 1997) decreased approximately 0.2% in 1998 from 1997.
This decrease was associated with a $585,000 or 6% increase in interest
earned and a $269,000 or 7% increase in interest paid in 1998 as compared to
1997, as well as an increase in average interest bearing liabilities of
$5,516,000 or 7% in 1998. The prime rate dropped 0.75% during 1998, which
15
<PAGE>
was a contributing factor to the decrease in the Bank's net interest margin
during the year.
The provision for loan losses in 1998 was $60,720 compared to $166,200
in 1997. The decrease in the provision for loan losses was primarily
attributable to an improvement in the overall quality of loans within the
loan portfolio. The provision for loan losses continues to reflect
management's estimate of potential loan losses inherent in the portfolio and
the creation of an allowance for loan losses to absorb such losses. The
allowance for loan losses represented approximately 1.9% of total loans
outstanding at December 31, 1998 and 1997. Net recoveries for 1998 were
$4,170 compared to net charge-offs of $5,871 during 1997. A dedicated loan
review function is utilized by the Bank which is supplemented by the use of
an outside loan review specialist. All loans $150,000 or more are reviewed
annually and placed into various loan grading categories which assist in
developing lists of potential problem loans. These loans are regularly
monitored by the loan review process to ensure early identification of
repayment problems so that adequate allowances can be made through the
provision for loan losses. Management believes that these levels of
allowance are appropriate based upon the Bank's loan portfolio and current
economic conditions.
Other operating income in 1998 of $1,283,000 increased from 1997 by
$203,000 or 19%, due primarily to an increase of $157,000 in fee income on
mortgage loans sold. Other operating expenses in 1998 of $4,109,000
increased by $203,000 or 5% over 1997 levels. The increase in operating
expenses is attributable to an increase in salaries and employee benefits
expense of $94,000 or 4%. In addition, occupancy expense increased by
$48,000 or 10% due to increased repairs and maintenance expense and computer
upgrades. Also, other operating expenses increased by $61,000 or 5% with
$41,000 in costs attributed to Year 2000 compliance.
Income taxes expressed as a percentage of earnings before income taxes
decreased from 30% in 1997 to 29% in 1998. This decrease relates to a
higher amount of tax-free interest income from state, county and municipal
investment securities as compared to 1997.
RESULTS OF OPERATIONS - 1997 VS. 1996. Net interest income in 1997,
which was $5,418,000, increased by $553,000, or 11%, over 1996. The
increase was primarily attributable to the increase in interest and fees on
loans offset by increases in interest expense on time deposits. Net yield
on interest earning assets (5.25% in 1997 and 5.27% in 1996) decreased
approximately 0.2% in 1997 from 1996. This decrease was associated with a
$1,030,000 or 13% increase in interest earned and a $477,000 or 14% increase
in interest paid in 1997 as compared to 1996, as well as an increase in
average interest bearing liabilities of $8,600,000 in 1997.
The provision for loan losses in 1997 was $166,200 compared to $281,100
in 1996. The decrease in the provision for loan losses was primarily
attributable to an improvement in the overall quality of loans within the
loan portfolio. The provision for loan losses continues to reflect
management's estimate of potential loan losses inherent in the portfolio and
the creation of an allowance for loan losses to absorb such losses. The
allowance for loan losses represented approximately 1.9% of total loans
outstanding at December 31, 1997, compared to 1.7% at December 31, 1996.
Net charge-offs were $5,871 and $98,543 during 1997 and 1996, respectively.
A dedicated loan review function is utilized by the Bank which is
supplemented by the use of an outside loan review specialist. All loans
$150,000 or more are reviewed annually and placed into various loan grading
categories which assist in developing lists of potential problem loans.
These loans are regularly monitored by the loan review process to ensure
16
<PAGE>
early identification of repayment problems so that adequate allowances can
be made through the provision for loan losses. Management believes that
these levels of allowance are appropriate based upon the Bank's loan
portfolio and current economic conditions.
Other operating income in 1997 of $1,080,000 increased from 1996 by
$131,050 or 14%. Other operating expenses in 1997 of $3,907,000 increased
by $500,000 or 15% over 1996 levels. The increase in operating expenses is
attributable to an increase in salaries and employee benefits expense of
$319,000 or 16% primarily resulting from expenses associated with the first
full year of operation of a mortgage loan department established mid-year
1996. In addition, other outside service fees increased by $118,000 or 53%,
primarily as the result of legal and accounting fees associated with
registration of the Bank's stock ($63,000) and technology related fees
($48,000).
Income taxes expressed as a percentage of earnings before income taxes
increased from 29% in 1996 to 30% in 1997. This increase relates to total
revenue growth in 1997 resulting in higher taxable income in 1997 as
compared to 1996, and using up a net operating loss carryforward in late
1996 resulting in $77,070 in state income taxes in 1997, compared to $1,270
in 1996.
INVESTMENTS. The investment portfolio consists of debt securities
which provide the Bank with a source of liquidity and a long-term,
relatively stable source of income. Additionally, the investment portfolio
provides a balance to interest rate and credit risk in other categories of
the balance sheet while providing a vehicle for the investment of available
funds, furnishing liquidity, and supplying securities to pledge as required
collateral for certain deposits.
LIQUIDITY. The Bank must maintain, on a daily basis, sufficient funds
to cover the withdrawals from depositors' accounts and to supply new
borrowers with funds. To meet these obligations, the Bank keeps cash on
hand, maintains account balances with its correspondent banks, and purchases
and sells federal funds and other short term investments. Asset and
liability maturities are monitored in an attempt to match these to meet
liquidity needs. It is the policy of the Bank to monitor its liquidity to
meet regulatory requirements and their local funding requirements.
The Bank maintains relationships with correspondent banks that can
provide funds to it on short notice, if needed. Presently, the Bank has
arrangements with a commercial bank for short term unsecured advances up to
$3,900,000. Additional liquidity is provided to the Bank through available
FHLB advances up to $12,000,000.
Cash and cash equivalents increased $1,888,000 to a total of
$14,069,000 at year end 1998 as cash provided by financing activities and
operating activities outpaced amounts used by investing activities. Cash
inflows from operations totaled $926,000 in 1998, while inflows from
financing activities totaled $11,136,000, most of which were net deposit
increases during 1998 of $11,530,000.
Investing activities used $10,174,000 of cash and cash equivalents,
principally composed of net advances of loans to customers of $4,503,000
during 1998 and investment purchases, net of sales, calls, and paydowns of
investment securities totaling $5,430,000.
CAPITAL RESOURCES. The Bank continues to maintain adequate capital
ratios. The following tables present the Bank's regulatory capital position
at December 31, 1998.
17<PAGE>
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
-------------------------
Actual as of December 31, 1998
--------------------------------
<S> <C>
Tier 1 Capital 15.1%
Tier 1 Capital minimum requirement 4.0%
----
Excess 11.1%
====
Total Capital 16.3%
Total Capital minimum requirement 8.0%
----
Excess 8.3%
====
Leverage Ratio As of December 31, 1998
--------------------------------------
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 10.5%
Minimum leverage requirement 4.0%
----
Excess 6.5%
====
</TABLE>
For a more complete discussion of the actual and required ratios of the
Bank, see note 10 to the consolidated financial statements.
ASSET/LIABILITY MANAGEMENT. It is the Bank's objective to manage
assets and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan, investment,
borrowing and capital policies. Certain officers are charged with the
responsibility for monitoring policies and procedures that are designed to
ensure acceptable composition of the asset/liability mix. It is the overall
philosophy of management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by local
individuals, partnerships and corporations. The objective of the policy is
to control interest sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on earnings.
The asset/liability mix is monitored on a regular basis. A report
reflecting the interest sensitive assets and interest sensitive liabilities
is prepared and presented to the Board of Directors of the Bank on a monthly
basis.
One method to measure a bank's interest rate exposure is through its
repricing gap. The gap is calculated by citing all liabilities that reprice
or taking all assets that reprice or mature within a given time frame and
subtracting all liabilities that reprice or mature within that time frame.
The difference between these two amounts is called the "gap", the amount of
either liabilities or assets that will reprice without a corresponding asset
or liability repricing.
A negative gap (more liabilities repricing than assets) generally
indicates that the bank's net interest income will decrease if interest
rates rise and will increase if interest rates fall. A positive gap
generally indicates that the bank's net interest income will decrease if
rates fall and will increase if rates rise.
The following table summarizes the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1998 that are
expected to mature, prepay or reprice in each of the future time periods
shown. Except as stated below, the amount of assets or liabilities that
18
<PAGE>
mature or reprice during a particular period was determined in accordance
with the contractual terms of the asset or liability. Adjustable rate loans
are included in the period in which interest rates are next scheduled to
adjust rather than in the period in which they are due, and fixed rate loans
and mortgage-backed securities are included in the periods in which they are
anticipated to be repaid based on scheduled maturities. The Bank's savings
accounts and interest-bearing demand accounts (NOW and money market deposit
accounts), which are generally subject to immediate withdrawal, are included
in the "Three Months or Less" category, although historical experience has
proven these deposits to be more stable over the course of a year.
<TABLE>
<CAPTION>
At December 31, 1998
Maturing or Repricing in
(dollars in thousands)
Three Four Months
Months to 1 to 5 Over 5
or Less 12 Months Years Years Total
--------- ----------- --------- --------- -----------
<C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 500 3,395 6,175 25,742 35,812
Federal funds sold 9,640 - - - 9,640
Loans 37,012 17,361 24,026 45 78,444
-------- ------- ------- -------- --------
Total interest-bearing assets $ 47,152 20,756 30,201 25,787 123,896
-------- ------- ------- -------- --------
Interest-bearing liabilities:
Deposits:
Savings and demand $ 45,217 - - - 45,217
Time deposits 10,859 34,595 7,715 - 53,169
Repurchase agreements 558 - - - 558
-------- ------- -------- -------- --------
Total interest-bearing liabilities 56,634 34,595 7,715 - 98,944
-------- ------- -------- -------- --------
Interest sensitive difference per period (9,482) (13,839) 22,486 25,787 24,952
-------- ------- -------- -------- -------
Cumulative interest sensitivity difference (9,482) (23,321) (835) 24,952
-------- ------- -------- --------
Cumulative difference to total assets (7.3%) (17.8%) (0.6%) 19.1%
-------- ------- -------- --------
At December 31, 1998, the difference between the Bank's liabilities
and assets repricing or maturing within one year was $23,321,000. Due to
an excess of liabilities repricing or maturing within one year, a rise in
interest rates would cause the Bank's net interest income to decline.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may
react in different degrees or at different points in time to changes in
market interest rates. Additionally, certain assets, such as adjustable-
rate mortgages, have features that restrict changes in interest rates,
both on a short-term basis and over the life of the asset. Changes in
interest rates, prepayment rates, early withdrawal levels and the ability
of borrowers to service their debt, among other factors, may change
significantly from the assumptions made in the table.
19
<PAGE>
INFLATION. Inflation impacts the growth in total assets in the
banking industry and causes a need to increase equity capital at higher
than normal rates to meet capital adequacy requirements. The Bank copes
with the effects of inflation through the management of its interest rate
sensitivity gap position, by periodically reviewing and adjusting its
pricing of services to consider current costs, and through managing its
level of net earnings relative to its dividend payout policy.
20
<PAGE>
SELECTED STATISTICAL INFORMATION
The following section presents statistical information for the Bank
which supplements the financial data discussed elsewhere herein.
INDEX TO SELECTED STATISTICAL INFORMATION
Table 1 Average Balances and Interest Rates
Table 2 Volume-Rate Analysis
Table 3 Investment Portfolio
Table 4 Loan Portfolio
Table 5 Allowance for Loan Losses
Table 6 Deposits
Table 7 Selected Ratios
Average balances contained in the following selected statistical
information generally represent average daily balances for all periods.
21
<PAGE>
TABLE 1
AVERAGE BALANCE SHEETS AND INTEREST RATES
The table below shows the month-end average balance for each category of
interest earning assets and interest-bearing liabilities for the indicated
periods and the average rate of interest earned or paid thereon.
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997
---------------------------------------- ----------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest earning deposits - - - - - -
Investment securities:
Taxable 16,607,049 1,051,887 6.33% 17,934,818 1,150,389 6.42%
Non-taxable 13,976,265 704,153 5.04% 8,859,856 461,016 5.20%
Federal funds sold 6,201,576 340,869 5.50% 4,215,699 245,238 5.82%
Loan (including loan fees) 76,117,421 7,676,432 10.09% 72,278,399 7,331,744 10.14%
----------- ---------- ------ ----------- ---------- ------
Total interest-earning assets 112,902,311 9,773,341 8.66% 103,288,772 9,188,387 8.90%
Allowance for loan losses (1,371,765) (1,284,979)
Cash and due from banks 3,516,984 3,508,953
Other assets 3,912,157 3,838,035
Total assets $118,959,687 $109,350,781
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand 26,784,495 771,894 2.88% 26,299,721 767,773 2.92%
Savings 8,741,058 203,929 2.33% 9,226,456 257,510 2.79%
Time 53,995,027 3,043,214 5.64% 48,487,156 2,723,989 5.62%
Securities sold under repurchase
agreements 510,940 20,499 4.01% 502,284 21,301 4.24%
----------- ---------- ----- ----------- --------- -----
Total interest bearing liabilities 90,031,520 4,039,536 4.49% 84,515,617 3,770,573 4.46%
Non-interest bearing deposits 15,970,054 13,362,850
Other liabilities 724,339 588,763
----------- -----------
Total liabilities 106,725,913 98,467,230
Stockholders' equity 12,233,774 10,883,551
=========== ===========
Total liabilities and stockholders'
equity 118,959,687 $109,350,781
=========== ===========
Excess of interest-bearing assets over
interest-bearing liabilities 22,870,791 18,773,155
=========== ==========
Ratio of interest-earning assets to
interest-bearing liabilities 125.40% 122.21%
Net interest income 5,733,805 5,417,814
Net interest spread 4.17% 4.44%
Net interest yield on interest earning
assets 5.08% 5.25%
1996
----------------------------------------
Average Yield/
Balance Interest Rate
--------- ---------- ---------
Assets:
Interest earning assets:
Interest earning deposits - - -
Investment securities:
Taxable 18,813,286 1,225,545 6.52%
Non-taxable 6,277,063 318,944 5.08%
Federal funds sold 4,435,456 247,313 5.57%
Loan (including loan fees) 62,720,660 6,366,607 10.15%
----------- ---------- ------
Total interest-earning assets 92,246,465 8,158,409 8.84%
Allowance for loan losses (1,143,391)
Cash and due from banks 3,105,738
Other assets 3,791,213
Total assets $ 98,000,025
===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 23,398,948 642,438 2.75%
Savings 9,503,106 287,484 3.03%
Time 42,604,627 2,346,522 5.51%
Securities sold under repurchase
agreements 409,843 17,415 4.25%
----------- ---------- -----
Total interest bearing liabilities 75,916,524 3,293,859 4.34%
Non-interest bearing deposits 11,642,310
Other liabilities 1,012,101
-----------
Total liabilities 88,570,935
Stockholders' equity 9,429,090
===========
Total liabilities and stockholders'
equity $ 98,000,025
===========
Excess of interest-bearing assets over
interest-bearing liabilities 16,329,941
===========
Ratio of interest-earning assets to
interest-bearing liabilities 121.51%
Net interest income 4,864,550
Net interest spread 4.50%
Net interest yield on interest earning
assets 5.27%
</TABLE>
Non-accrual loans and the interest income which was recorded on these loans,
if any, are included in the yield calculation for loans in all periods
reported. Tax-exempt income is not calculated on a tax-equivalent basis.
22
<PAGE>
TABLE 2
VOLUME-RATE ANALYSIS
The following tables show a summary of the changes in interest income
and interest expense resulting from changes in volume and changes in
rates for each major category of interest earning assets and interest-
bearing liabilities for 1998 over 1997, and 1997 over 1996.
<TABLE>
<CAPTION>
1998 OVER 1997
--------------
INCREASE (DECREASE) DUE TO CHANGES IN:
--------------------------------------
VOLUME RATE TOTAL
<S> <C> <C>
Interest income on:
Investment securities
Taxable (80,646) (17,856) (98,502)
Non-taxable 257,775 (14,638) 243,137
Federal funds sold 108,932 (13,301) 95,631
Loans (including loan fees) 490,125 (145,437) 344,688
-------- --------- --------
Total interest earning assets 776,186 (191,232) 584,954
-------- --------- --------
Interest expense on:
Deposits:
Interest bearing demand 22,370 (18,249) 4,121
Savings (11,324) (42,257) (53,581)
Time 307,807 11,418 319,225
Securities sold under repurchase
agreements (802) - (802)
-------- --------- --------
Total interest bearing liabilities 318,051 (49,088) 268,963
-------- --------- --------
</TABLE>
Note: Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
23
<PAGE>
TABLE 2
VOLUME-RATE ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
1997 OVER 1996
--------------
INCREASE (DECREASE) DUE TO CHANGES IN:
--------------------------------------
VOLUME RATE TOTAL
<S> <C> <C> <C>
Interest income on:
Investment securities
Taxable $ (56,578) (18,578) (75,156)
Non-taxable 134,219 7,853 142,072
Federal funds sold (22,347) 20,272 (2,075)
Loans (including loan fees) $ 836,596 128,541 965,137
------- ------- ---------
Total interest earning assets $ 891,890 138,088 1,029,978
Interest expense on: ------- ------- ---------
Deposits:
Interest bearing demand $ 82,980 42,355 125,335
Savings (8,192) (21,782) (29,974)
Time 329,656 47,811 377,467
Securities sold under repurchase
agreements 3,927 (41) 3,886
------- ------- ---------
Total interest bearing liabilities $ 408,371 68,343 476,714
------- ------- ---------
</TABLE>
Note: Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
24
<PAGE>
TABLE 3
INVESTMENT PORTFOLIO
The following table presents the investments by category at December 31, 1998,
1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- ---------------
<S> <C> <C> <C>
HELD TO MATURITY (AT AMORTIZED COST)
State, county and municipal $ 15,303,990 $ 13,276,282 $ 6,852,029
----------- ----------- -----------
AVAILABLE FOR SALE
United States treasuries and agencies $ 6,291,116 $ 9,650,483 $ 13,475,466
Mortgage-backed 13,764,308 7,004,215 6,482,768
----------- ----------- -----------
Totals $ 20,055,424 $ 16,654,698 $ 19,958,234
----------- ----------- -----------
</TABLE>
The following table presents the maturities of all investment securities at
carrying value and the weighted average yields for each range of maturities
presented.
<TABLE>
<CAPTION>
Maturities at United States Mortgage- State, County Weighted
December 31, 1998 Treasury and Backed and Average
Agencies Securities Municipal Yields
------------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Within 1 year 2,012,055 244,428 501,102 5.89%
After 1 through 5 years 1,277,110 11,308,592 3,238,558 6.52%
After 5 through 10 years 2,827,501 2,211,288 4,827,851 6.55%
After 10 years 174,450 - 6,736,479 7.40%
---------- ----------- ----------- -----
Totals 6,291,116 13,764,308 15,303,990
========== =========== ===========
</TABLE>
Mortgage backed securities are included in the maturities categories in which
they are anticipated to be repaid based on scheduled maturities.
25
<PAGE>
TABLE 4
LOAN PORTFOLIO
The following table presents loans by type at the end of the last 5 years.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $11,332,765 $10,570,994 $ 9,792,533 $ 8,160,215 $ 9,648,722
Real estate - construction 16,925,962 13,824,372 16,836,092 12,583,049 10,789,376
Real estate - mortgage 38,942,845 38,748,388 34,511,657 31,534,900 28,648,605
Consumer 9,578,312 9,129,134 7,680,871 6,331,668 6,017,364
---------- ---------- ---------- ---------- ----------
76,779,884 72,272,888 68,821,153 58,609,832 55,104,067
Less: Allowance for loan
losses (1,427,420) (1,362,530) (1,202,201) (1,019,644) (1,056,807)
---------- ---------- ---------- ---------- ----------
Loans, net $75,352,464 $70,910,358 $67,618,952 $57,590,188 $54,047,260
========== ========== ========== ========== ==========
</TABLE>
At December 31, 1998, maturities of loans in the indicated classifications were
as follows:
Commercial, Real
Financial and Estate
Maturity Agricultural Construction Total
- -------- --------------- -------------- -------------
Within 1 year $ 6,109,951 $ 16,216,939 $ 22,326,890
1 to 5 years 4,994,692 709,023 5,703,715
Over 5 years 228,122 - 228,122
----------- ----------- -----------
Totals $ 11,332,765 $ 16,925,962 $ 28,258,727
=========== =========== ===========
As of December 31, 1998, the interest terms of loans in the indicated
classifications for the indicated maturity ranges are as follows:
<TABLE>
<CAPTION>
Fixed Variable
Interest Interest
Rates Rates Total
-------------- ----------- --------------
<S> <C> <C> <C>
Commercial, financial and agricultural
1 to 5 years $ 4,994,692 - $ 4,994,692
Over 5 years $ 228,122 - $ 228,122
Real estate construction
1 to 5 years - $ 709,023 $ 709,023
</TABLE>
26
<PAGE>
TABLE 4
LOAN PORTFOLIO (CONTINUED)
The following summarizes past-due and non-accrual loans, other real estate
and repossessions and income that would have been reported on non-accrual
loans as of December 31, 1998, 1997, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other real estate and repossessions 40,000 40,000 40,000 40,000 52,000
Accruing loans 90 days or more past due 530 - - 238,000 11,000
Non-accrual loans 30,571 4,000 278,000 282,000 223,000
Interest on non-accrual loans which would
have been reported 1,500 200 19,000 18,000 14,000
</TABLE>
A loan is placed on non-accrual status when, in management's judgment, the
collection of interest appears doubtful. As a result of management's ongoing
review of the loan portfolio, loans are classified as non-accrual generally
when they are past due in principal and interest for more than 90 days or it
is otherwise not reasonable to expect collection of principal and interest
under the original terms. Exceptions are allowed for 90 day past due loans
when such loans are well secured and in process of collection. Generally,
payments received on non-accrual loans are applied directly to principal.
27
<PAGE>
TABLE 5
ALLOWANCE FOR LOAN LOSSES
The following table summarizes information concerning the allowance for loan
losses:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,363 $1,202 $1,020 $1,057 $ 944
Charges-offs:
Commerce, financial and agricultural 18 4 83 40 44
Installment 74 30 47 120 11
----- ----- ----- ----- -----
Total charge-offs 92 34 130 160 55
----- ----- ----- ----- -----
Recoveries:
Commerce, financial and agricultural 73 4 5 4 19
Installment 23 25 26 19 11
----- ----- ----- ----- -----
Total recoveries 96 29 31 23 30
----- ----- ----- ----- -----
Net charge-offs (recoveries) (4) 5 99 137 25
Provisions charged to operations 60 166 281 100 138
----- ----- ----- ----- -----
Balance at end of year $1,427 $1,363 $1,202 $1,020 $1,057
===== ===== ===== ===== =====
Ratios of net charge-offs (recoveries)
during the period to average loans
outstanding during the period (.01%) .01% .15% .24% .05%
===== ===== ===== ===== =====
</TABLE>
The Bank has a dedicated loan review function. All loans $150,000 or more
are reviewed annually and placed into various loan grading categories which
assist in developing lists of potential problem loans. These loans are
regularly monitored by the loan review function to ensure early identification
of deterioration. The formal allowance for loan loss adequacy test is
performed at each calendar quarter end. Specific amounts of loss are
estimated on problem loans and historical loss percentages are applied to
the balance of the portfolio using certain portfolio stratifications.
Additionally, the evaluation takes into consideration such factors as
changes in the nature and volume of the loan portfolio, current economic
conditions, regulatory examination results, and the existence of loan
concentrations.
28
<PAGE>
TABLE 6
DEPOSITS
The average balance of the deposits and the average rates paid on such
deposits are summarized for the periods indicated in the following
table.
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
---------------------- ----------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Deposits:
Non-interest bearing demand $ 15,970,054 - $13,362,850 - $11,642,310 -
Interest bearing demand 26,784,495 2.88% 26,299,721 2.92% 23,398,948 2.75%
Savings 8,741,058 2.33% 9,226,456 2.79% 9,503,106 3.03%
Time 53,995,027 5.64% 48,487,156 5.62% 42,604,627 5.51%
----------- ---- ----------- ---- ---------- ----
$105,490,634 $97,376,183 $87,148,991
=========== ========== ==========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1998 are summarized as follows:
Within 3 months $1,044,000
After 3 through 6 months 1,441,000
After 6 through 12 months 2,295,000
After 12 months 762,000
---------
$5,542,000
=========
29
<PAGE>
TABLE 7
SELECTED RATIOS
The following table sets out certain ratios of the Bank for the years
indicated.
1998 1997 1996
---- ---- ----
Net income to:
Average stockholders' equity 16.61% 15.66% 15.97%
Average assets 1.71% 1.56% 1.54%
Dividends to net income 35.43% 34.85% 35.85%
Average equity to average assets 10.28% 9.95% 9.62%
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is included in Item 13 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the Bank's two most recent fiscal years, the Bank did not change
accountants and had no disagreement with its accountants on any matters of
accounting principles or practices or financial statement disclosure.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained under the headings "Information About Nominees
For Directors," "Executive Officers," and "Compliance with Section 16(a)" in
the definitive Proxy Statement to be used in connection with the solicitation
of proxies for the Bank's annual meeting of shareholders to be held on May 3,
1999, to be filed with the Securities and Exchange Commission ("SEC"), is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation" in
the definitive proxy statement to be used in connection with the solicitation
of proxies for the Bank's annual meeting of shareholders to be held on May 3,
1999, to be filed with the SEC, is incorporated herein by reference.
30
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Beneficial Ownership of
Securities and Voting Rights" in the definitive proxy statement to be used
in connection with the solicitation of proxies for the Bank's annual meeting
of shareholders to be held on May 3, 1999, to be filed with the SEC, is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Relationships and
Related Transaction" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for all the Bank's annual
meeting of shareholders to be held on May 3, 1999, to be filed with the SEC,
is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS.
--------------------
The following financial statements and notes thereto of
the Registrant start on page F-1 of this Report:
1. Report of Independent Certified Public Accountants
2. Balance Sheets for December 31, 1998 and 1997
3. Statements of Earnings For the Years Ended
December 31, 1998, 1997, and 1996
4. Statements of Comprehensive Income For the Years
Ended December 31, 1998, 1997 and 1996
5. Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1998,
1997 and 1996
6. Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996
7. Notes to Financial Statements
-31-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Oconee State Bank:
We have audited the accompanying balance sheets of Oconee State Bank as of
December 31, 1998 and 1997, and the related statements of earnings,
comprehensive income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Bank'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 financial statements referred to above present fairly,
in all material respects, the financial position of Oconee State Bank as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Porter Keadle Moore, LLP
PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 3, 1999
F-1
<PAGE>
OCONEE STATE BANK
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
Assets
------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $1,124,000 and $794,000 $ 4,428,512 3,980,521
Federal funds sold 9,640,000 8,200,000
----------- -----------
Cash and cash equivalents 14,068,512 12,180,521
Investment securities available for sale 20,055,424 16,654,698
Investment securities held to maturity (market
value of $16,091,715 and $13,786,262) 15,303,990 13,276,282
Mortgage loans held for sale, at lower of
aggregate cost or market 1,835,300 661,847
Loans, net 75,352,464 70,910,358
Premises and equipment, net 1,494,656 1,497,333
Accrued interest receivable and other assets 2,542,037 2,301,393
----------- -----------
$ 130,652,383 117,482,432
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Deposits:
Demand $ 17,733,931 16,009,579
Interest-bearing demand 36,341,561 25,772,175
Savings 8,875,677 8,707,364
Time 53,169,019 54,100,789
----------- -----------
Total deposits 116,120,188 104,589,907
Securities sold under repurchase agreements 558,169 358,836
Accrued interest payable and other liabilities 1,475,842 1,332,815
----------- -----------
Total liabilities 118,154,199 106,281,558
=========== ===========
Commitments:
Stockholders' equity:
Common stock, par value $10, authorized
300,000 shares, issued and outstanding
180,000 shares 1,800,000 1,800,000
Additional paid-in capital 4,250,000 4,250,000
Retained earnings 6,398,412 5,086,518
Accumulated other comprehensive income 49,772 64,356
----------- -----------
Total stockholders' equity 12,498,184 11,200,874
----------- -----------
$ 130,652,383 117,482,432
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
OCONEE STATE BANK
STATEMENTS OF EARNINGS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,676,432 7,331,744 6,366,607
Interest on federal funds sold 340,869 245,238 247,313
Interest on investment securities:
U. S. Treasuries 204,356 272,193 297,846
U. S. Government agencies 847,531 878,196 927,699
State, county and municipal 704,153 461,016 318,944
--------- --------- ---------
Total interest income 9,773,341 9,188,387 8,158,409
--------- --------- ---------
Interest expense:
Interest-bearing demand deposits 771,894 767,773 642,438
Savings deposits 203,929 257,510 287,484
Time deposits 3,043,214 2,723,989 2,346,522
Other 20,499 21,301 17,415
--------- --------- ---------
Total interest expense 4,039,536 3,770,573 3,293,859
--------- --------- ---------
Net interest income 5,733,805 5,417,814 4,864,550
Provision for loan losses 60,720 166,200 281,100
--------- --------- ---------
Net interest income after provision for loan losses 5,673,085 5,251,614 4,583,450
--------- --------- ---------
Other income:
Service charges 659,014 659,239 654,019
Gain (loss) on sale of securities 14,250 (10,727) -
Miscellaneous 610,030 431,710 295,153
--------- --------- ---------
Total other income 1,283,294 1,080,222 949,172
--------- --------- ---------
Other expenses:
Salaries and employee benefits 2,418,512 2,324,232 2,005,208
Occupancy 516,428 468,764 459,172
Other operating 1,174,378 1,113,638 942,203
--------- --------- ---------
Total other expenses 4,109,318 3,906,634 3,406,583
--------- --------- ---------
Earnings before income taxes 2,847,061 2,425,202 2,126,039
Income tax expense 815,167 720,674 619,899
--------- --------- ---------
Net earnings $ 2,031,894 1,704,528 1,506,140
========= ========= =========
Earnings per common share based on average outstanding
shares of 180,000 in 1998, 1997 and 1996:
Net earnings per share $ 11.29 9.47 8.37
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
OCONEE STATE BANK
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 2,031,894 1,704,528 1,506,140
Other comprehensive income, net of income taxes:
Unrealized gains on securities available for sale:
Holding gains (losses) arising during period,
net of tax of $(14,332) and $39,415 and $(44,640) (23,424) 64,419 (72,957)
Reclassification adjustment for gains (losses) included in
net earnings, net of tax of $5,410 and $(4,072) 8,840 (6,655) -
--------- --------- ---------
Total other comprehensive income (14,584) 57,764 (72,957)
--------- --------- ---------
Comprehensive income $ 2,017,310 1,762,292 1,433,183
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
OCONEE STATE BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
----------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 1,800,000 3,250,000 4,009,850 79,549 9,139,399
Cash dividends declared
($3.00 per share) - - (540,000) - (540,000)
Net earnings - - 1,506,140 - 1,506,140
Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax - - - (72,957) (72,957)
--------- --------- --------- ------ ----------
Balance, December 31, 1996 1,800,000 3,250,000 4,975,990 6,592 10,032,582
Transfers - 1,000,000 (1,000,000) - -
Cash dividends declared
($3.30) per share - - (594,000) - (594,000)
Net earnings - - 1,704,528 - 1,704,528
Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax - - - 57,764 57,764
--------- --------- --------- ------ ----------
Balance, December 31, 1997 1,800,000 4,250,000 5,086,518 64,356 11,200,874
Cash dividends declared
($4.00) per share - - (720,000) - (720,000)
Net earnings - - 2,031,894 - 2,031,894
Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax - - - (14,584) (14,584)
--------- --------- --------- ------ ----------
Balance, December 31, 1998 $ 1,800,000 4,250,000 6,398,412 49,772 12,498,184
========= ========= ========= ====== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
OCONEE STATE BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,031,894 1,704,528 1,506,140
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion 214,733 250,457 154,667
Provision for loan losses 60,720 166,200 281,100
Provision for deferred taxes (11,509) (51,666) (39,942)
Loss (gain) on sale of investment securities (14,250) 10,727 -
Loss (gain) on sale of premises and equipment 21,428 - (2,358)
Change in:
Accrued interest receivable (178,321) 25,415 (140,980)
Accrued interest payable (33,326) 98,055 25,971
Other assets (41,890) (150,254) (2,936)
Other liabilities 50,353 88,672 (128,878)
Mortgage loans held for sale (1,173,453) (378,227) (283,620)
---------- ---------- ----------
Net cash provided by operating activities 926,379 1,763,907 1,369,164
---------- ---------- ----------
Cash flows from investing activities:
Purchase of investment securities available for sale (13,590,609) (5,692,077) (17,755,943)
Purchase of investment securities held to maturity (2,602,423) (6,729,454) (2,710,985)
Proceeds from calls and maturities of investment securities
available for sale 7,683,927 4,039,880 12,241,768
Proceeds from calls and maturities of investment securities
held to maturity 575,900 310,000 1,600,000
Proceeds from sales of investment securities available
for sale 2,503,305 5,014,688 -
Net change in loans (4,502,826) (3,893,658) (10,309,864)
Purchases of premises and equipment (241,276) (70,058) (240,259)
Proceeds from sale of premises and equipment - - 2,358
Proceeds from sales of other real estate - 447,058 -
Improvements to other real estate - (11,006) -
--------- ---------- ----------
Net cash used by investing activities (10,174,002) (6,584,627) (17,172,925)
---------- ---------- ----------
Cash flows from financing activities:
Net change in deposits 11,530,281 7,624,413 17,633,910
Securities sold under repurchase agreements 199,333 (56,740) 212,342
Dividends paid (594,000) (540,000) (450,000)
---------- ---------- ----------
Net cash provided by financing activities 11,135,614 7,027,673 17,396,252
---------- ---------- ----------
Net increase in cash and cash equivalents 1,887,991 2,206,953 1,592,491
Cash and cash equivalents at beginning of year 12,180,521 9,973,568 8,381,077
---------- ---------- ----------
Cash and cash equivalents at end of year $ 14,068,512 12,180,521 9,973,568
========== ========== ==========
</TABLE>
F-6<PAGE>
OCONEE STATE BANK
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,072,800 3,674,518 3,267,888
Income taxes $ 773,000 819,000 707,000
Noncash investing and financing activities:
Change in net unrealized loss on investment
securities available for sale, net of tax $ (14,584) 57,764 (72,957)
Transfer of loans to other real estate $ - 436,052 -
Change in dividends payable $ 126,000 54,000 90,000
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Organization
------------
Oconee State Bank (the "Bank") commenced business in 1960 upon
receipt of its banking charter from the Georgia Department of
Banking and Finance (the "DBF"). The Bank is primarily regulated
by the DBF and the Federal Deposit Insurance Corporation and
undergoes periodic examinations by these regulatory agencies. The
Bank provides a full range of commercial and consumer banking
services primarily in Oconee and Clarke counties in Georgia.
Basis of Presentation
---------------------
The accounting principles followed by the Bank, and the methods of
applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices in the
banking industry. In preparing the financial statements in
conformity with GAAP, management is required to make estimates and
assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from these
estimates. Material estimates common to the banking industry that
are particularly susceptible to significant change in the near
term include, but are not limited to, the determination of the
allowance for loan losses and valuation of real estate acquired in
connection with or in lieu of foreclosure on loans.
Investment Securities
---------------------
The Bank classifies its securities in one of three categories:
trading, available for sale, or held to maturity. Trading
securities are bought and held principally for sale in the near
term. Held to maturity securities are those securities for which
the Bank has the ability and intent to hold the security until
maturity. All other securities not included in trading or held to
maturity are classified as available for sale. At December 31,
1998 and 1997, the Bank had no trading securities.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized
holding gains and losses, net of the related tax effect, on
securities available for sale are excluded from earnings and are
reported as a separate component of stockholders' equity until
realized.
A decline in the market value of any available for sale or held to
maturity investment below cost that is deemed other than temporary
is charged to earnings and establishes a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of
the related security as an adjustment to the yield. Realized gains
and losses for securities classified as available for sale and
held to maturity are included in earnings and are derived using
the specific identification method for determining the cost of
securities sold.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans held for sale are carried at the lower of aggregate
cost or market value. At December 31, 1998 and 1997, the cost of
mortgage loans held for sale approximates the market value.
Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by
using the simple interest method on daily balances of the
principal amount outstanding.
Impaired loans are measured based on the present value of expected
future cash flows, discounted at the loan's effective interest
rate, or at the loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent. A loan is
impaired when, based on current information and events, it is
probable that all amounts due according to the contractual terms
of the loan will not be collected.
Accrual of interest is discontinued on a loan when management
believes, after considering economic conditions and collection
efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Interest previously accrued
but not collected is reversed against current period earnings when
such loans are placed on non-accrual status.
F-8
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Loans and Allowance for Loan Losses, continued
------------------------------------
The allowance for loan losses is established through a provision
for loan losses charged to earnings. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance
represents an amount which, in management's judgment, will be
adequate to absorb probable losses on existing loans that may
become uncollectible.
Management's judgment in determining the adequacy of the allowance
is based on evaluations of the collectibility of loans. These
evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, current economic
conditions that may affect the borrower's ability to pay, overall
portfolio quality and review of specific problem loans. In
determining the adequacy of the allowance for loan losses,
management uses a loan grading system that rates loans in seven
different categories. Grades four through seven are assigned
allocations of loss based on standard regulatory loss percentages.
All other loans are assigned loss allocations based historical
credit loss percentages. The combination of these results are
compared quarterly to the recorded allowance for loan losses.
Management uses an external loan review program to challenge and
corroborate the internal grading system and provide additional
analysis in determining the adequacy of the allowance and the
future provisions for estimated loan losses.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the
allowance based on judgments different than those of management.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily using the
straight-line method over the estimated useful lives of the
assets. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the
accounts, and any gain or loss is reflected in earnings for the
period. The cost of maintenance and repairs which do not improve
or extend the useful life of the respective asset is charged to
income as incurred, whereas significant renewals and improvements
are capitalized. The range of estimated useful lives for premises
and equipment are generally as follows:
Buildings and improvements 5 - 40 years
Furniture and equipment 3 - 10 years
Securities Sold Under Repurchase Agreements
-------------------------------------------
Repurchase agreements are treated as financing activities, and are
carried at the amounts at which the securities will be repurchased
as specified in the respective agreements.
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Additionally, the recognition of future
tax benefits, such as net operating loss carryforwards, is required
to the extent that realization of such benefits is more likely than
not. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
the assets and liabilities are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Bank's assets
and liabilities result in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated
by such assets is required. A valuation allowance is provided for
the portion of the deferred tax asset when it is more likely than
not that some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of deferred
tax liabilities, projected future taxable income, and tax planning
strategies.
F-9
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Profit Sharing Plan
-------------------
The Bank has a contributory profit sharing plan which is available
to substantially all employees subject to certain age and service
requirements. Contributions to the plan are determined annually by
the Board of Directors. The total contribution by the Bank for
1998, 1997 and 1996 was $203,200, $170,460 and $150,600,
respectively.
Net Earnings Per Common Share
-----------------------------
Earnings per common share are based on the weighted average number
of common shares outstanding during the period while the effects of
potential common shares outstanding during the period are included
in diluted earnings per share. The Bank had no potential common
shares outstanding during 1998, 1997 and 1996.
Reclassification
----------------
Reclassifications of certain amounts in the 1997 and 1996 financial
statements have been made to conform with the financial statement
presentation for 1998. The reclassifications have no effect on net
earnings or shareholders' equity as previously reported.
Comprehensive Income
--------------------
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard "SFAS" No. 130, "Reporting
Comprehensive Income". SFAS No. 130 established standards for the
reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. The Company has
elected to present comprehensive income in a separate statement of
comprehensive income. Accumulated other comprehensive income is
solely related to the net of tax effect of unrealized gains on
securities available for sale.
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE: Cost Gains Losses Value
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasuries and
Government agencies $ 6,226,438 64,678 - 6,291,116
Mortgage-backed securities 13,748,760 70,612 55,064 13,764,308
---------- ------- ------ ----------
Total $ 19,975,198 135,290 55,064 20,055,424
========== ======= ====== ==========
December 31, 1997
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ------------
U.S. Treasuries and
Government agencies $ 9,604,166 51,114 4,797 9,650,483
Mortgage-backed securities 6,946,798 64,329 6,912 7,004,215
---------- ------- ------ ----------
Total $ 16,550,964 115,443 11,709 16,654,698
========== ======= ====== ==========
</TABLE>
F-10
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY: December 31, 1998
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
State, county and municipal $ 15,303,990 788,399 674 16,091,715
========== ======= === ==========
December 31, 1997
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
State, county and municipal $ 13,276,282 511,037 1,057 13,786,262
========== ======= ===== ==========
</TABLE>
The amortized cost and fair value of investment securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held Securities Available
to Maturity for Sale
December 31, 1998 December 31, 1998
------------------------------- --------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Due within one year $ 501,102 503,510 2,000,428 2,012,055
Due from one to five years 3,238,558 3,321,386 1,252,904 1,277,110
Due from five to ten years 4,827,851 5,061,419 2,800,000 2,827,501
Due after ten years 6,736,479 7,205,400 173,106 174,450
Mortgage-backed securities - - 13,748,760 13,764,308
---------- ---------- ---------- ----------
$ 15,303,990 16,091,715 19,975,198 20,055,424
========== ========== ========== ==========
</TABLE>
Proceeds from sales of securities available for sale during 1998
were $2,503,305. Gross gains of $14,695 along with gross losses of
$445 were realized on 1998 sales. Proceeds from sales of securities
available for sale during 1997 were $5,014,688. Gross gains of
$20,266 and gross losses of $30,993 were realized on 1997 sales.
There were no sales of securities available for sale in 1996.
Securities with a carrying value of approximately $14,966,000 and
$11,090,000 at December 31, 1998 and 1997, respectively, were
pledged to secure public deposits and for other purposes as
required by law.
(3) LOANS
Major classifications of loans at December 31, 1998 and 1997 are
summarized as follows:
1998 1997
---- ----
Commercial and agricultural $ 11,332,765 10,570,994
Real estate - mortgage 38,942,845 38,748,388
Real estate - construction 16,925,962 13,824,372
Consumer 9,578,312 9,129,134
---------- ----------
Total loans 76,779,884 72,272,888
Less allowance for loan losses 1,427,420 1,362,530
---------- ----------
Total net loans $ 75,352,464 70,910,358
========== ==========
F-11
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(3) LOANS, CONTINUED
The Bank grants loans and extensions of credit primarily to individuals
and a variety of firms and corporations located in certain Georgia
counties including Oconee and Clarke. Although the Bank has a
diversified loan portfolio, a substantial portion of the loan portfolio
is collateralized by improved and unimproved real estate and is dependent
upon the real estate market.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,362,530 1,202,201 1,019,644
Amounts charged off (91,925) (34,524) (129,493)
Recoveries on amounts previously charged off 96,095 28,653 30,950
Provision for loan losses 60,720 166,200 281,100
--------- --------- ---------
Balance at end of year $ 1,427,420 1,362,530 1,202,201
========= ========= =========
</TABLE>
(4) PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
1998 1997
---- ----
Land $ 459,928 459,928
Buildings and improvements 1,704,111 1,698,211
Furniture and equipment 2,049,703 1,885,754
--------- ---------
4,213,742 4,043,893
Less accumulated depreciation 2,719,086 2,546,560
--------- ---------
$ 1,494,656 1,497,333
========= =========
Depreciation expense was $222,525, $231,827 and $229,218 for the years
ended December 31, 1998, 1997 and 1996, respectively.
(5) DEPOSITS
The aggregate amounts of certificates of deposit, each with a minimum
denomination of $100,000, were approximately $5,542,000 and $8,688,000
at December 31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of certificates of
deposits are as follows:
1999 $ 45,653,177
2000 5,875,318
2001 712,927
2002 426,350
2003 501,247
----------
$ 53,169,019
==========
(6) INCOME TAXES
The components of income tax expense in the statements of earnings are
as follows:
1998 1997 1996
---- ---- ----
Current $ 826,676 772,340 659,841
Deferred (11,509) (51,666) (39,942)
------- ------- -------
Total income tax expense $ 815,167 720,674 619,899
======= ======= =======
F-12
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(6) INCOME TAXES, CONTINUED
The differences between income tax expense and the amount computed by
applying the statutory federal income tax rate to earnings before income
taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $ 968,000 824,569 722,853
Add (deduct):
Tax exempt interest income (243,794) (167,078) (116,853)
Non-deductible interest expense 37,162 26,844 17,243
Other 53,799 36,339 (3,344)
------- ------- -------
$ 815,167 720,674 619,899
======= ======= =======
</TABLE>
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset. The net deferred tax asset is a component of other assets at
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 454,064 431,015
Other real estate 26,142 26,142
Other - 3,096
------- -------
Total gross deferred income tax assets 480,206 460,253
------- -------
Deferred income tax liabilities:
Unrealized gains on investment securities available for sale (30,454) (39,377)
Premises and equipment (38,469) (30,025)
------- -------
Total gross deferred income tax liabilities (68,923) (69,402)
------- -------
Net deferred income tax asset $ 411,283 390,851
======= =======
</TABLE>
(7) FEDERAL HOME LOAN BANK ADVANCES
The Bank has an agreement with the Federal Home Loan Bank ("FHLB")
whereby the FHLB agreed to provide the Bank credit facilities under
an Agreement for Advances and Security Agreement. Any amounts advanced
by the FHLB are secured under a Blanket Floating Lien covered by all
of the Bank's 1-4 family first mortgage loans. The Bank may draw
advances up to 75% of the outstanding balance of these loans based on
the agreement with the FHLB. The Bank has no borrowings from the FHLB
as of December 31, 1998 or 1997.
(8) RELATED PARTY TRANSACTIONS
The Bank conducts transactions with directors and executive officers,
including companies in which they have beneficial interests, in the
normal course of business. It is the policy of the Bank that loan
transactions with directors and officers be made on substantially the
same terms as those prevailing at the time made for comparable loans
to other persons. The following is a summary of activity for related
party loans for 1998:
Beginning balance $ 980,000
New loans, including loans for new director 1,534,000
Repayments (940,000)
---------
Ending balance $ 1,574,000
=========
F-13
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(9) COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees.
Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet.
The contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
The 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 and financial guarantees written is
represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
In most cases, the Bank does require collateral or other security to
support financial instruments with credit risk.
Contractual Amount
------------------
1998 1997
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 21,703,000 14,880,000
Standby letters of credit and
financial guarantees written $ 269,000 283,000
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank, upon extension of
credit is based on management's credit evaluation. Collateral held varies
but may include unimproved and improved real estate, certificates of
deposit, or personal property.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to businesses in
the Bank's delineated trade area. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank holds real estate, equipment,
automobiles and customer deposits as collateral supporting those
commitments for which collateral is deemed necessary.
(10) REGULATORY MATTERS
The Bank is 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 Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the assets, liabilities and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1998, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
F-14
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(10) REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ ---------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $ 13,482,775 16.3% 6,607,091 8.0% 8,258,863 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $ 12,448,411 15.1% 3,303,545 4.0% 4,955,318 6.0%
Tier 1 Capital
(to Average Assets) $ 12,448,411 10.5% 4,758,387 4.0% 5,947,984 5.0%
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) $ 12,114,573 15.5% 6,247,679 8.0% 7,809,598 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $ 11,136,517 14.3% 3,123,839 4.0% 4,685,759 6.0%
Tier 1 Capital
(to Average Assets) $ 11,136,517 10.2% 4,374,031 4.0% 5,467,539 5.0%
</TABLE>
(11) DIVIDEND LIMITATIONS
Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These
restrictions are based on the level of regulatory classified
assets, the prior year's net earnings, and the ratio of equity
capital to total assets.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Bank is required to disclose fair value information about
financial instruments, whether or not recognized on the face of
the balance sheet, for which it is practicable to estimate that
value. The assumptions used in the estimation of the fair value of
the Bank's financial instruments are detailed below. Where quoted
prices are not available, fair values are based on estimates using
discounted cash flows and other valuation techniques. The use of
discounted cash flows can be significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be
considered a surrogate of the liquidation value of the Bank, but
rather a good faith estimate of the increase or decrease in value
of financial instruments held by the Bank since purchase,
origination, or issuance.
Cash and Cash Equivalents
-------------------------
For cash, due from banks and federal funds sold, the carrying
amount is a reasonable estimate of fair value.
Investment Securities
---------------------
Fair values for investment securities are based on quoted market
prices.
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting
the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings. For
variable rate loans, the carrying amount is a reasonable estimate
of fair value.
Deposits and Securities Sold Under Repurchase Agreements
--------------------------------------------------------
The fair value of demand deposits, interest-bearing demand
deposits, savings, and securities sold under repurchase
agreements is the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposit is
estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities.
F-15
<PAGE>
OCONEE STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Commitments to Extend Credit and Standby Letters of Credit
----------------------------------------------------------
Because commitments to extend credit and standby letters of
credit are made using variable rates, the contract value is a
reasonable estimate of fair value.
Limitations
-----------
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the Bank's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Bank's
financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered
financial instruments include the deferred income taxes and
premises and equipment. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been
considered in the estimates.
The carrying amount and estimated fair values of the Bank's
financial instruments at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 14,069 14,069 12,181 12,181
Investment securities available for sale 20,055 20,055 16,655 16,655
Investment securities held to maturity 15,304 16,092 13,276 13,786
Loans 77,188 77,156 71,572 71,157
Liabilities:
Deposits and securities sold under
repurchase agreement 116,678 117,074 104,949 105,344
Unrecognized financial instruments:
Commitments to extend credit 21,703 21,703 14,880 14,880
Standby letters of credit 269 269 283 283
</TABLE>
(13) OTHER OPERATING EXPENSES
Components of other operating expenses which are greater than 1% of
interest income and other income are as follows:
1998 1997 1996
---- ---- ----
Postage expense $ 118,154 110,071 86,665
Other service fees $ 75,298 121,185 73,115
(14) HOLDING COMPANY FORMATION
On December 15, 1998, the Bank's shareholders approved a Plan of
Reorganization and Agreement of Merger (the "Plan"), providing for the
merger of Oconee Interim Corporation, a wholly-owned subsidiary of Oconee
Financial Corporation, with and into the Bank. The Plan calls for
stockholders of the Bank to exchange each share of Bank stock for one
share of Oconee Financial Corporation stock. The effective date of the
Plan is January 1, 1999, and is anticipated to be accounted for as a
reorganization in a manner similar to a pooling of interests.
F-16
<PAGE>
EXHIBITS
The following exhibits are required to be filed with this Report on
10-KSB by Item 601 of Regulation S-B.
2. Plan of Reorganization and Agreement of Merger by and among Oconee
Interim Corporation, Oconee State Bank, and Oconee Financial
Corporation, dated August 28, 1998.
3.1 Articles of Incorporation of Oconee Financial Corporation, dated August
27, 1998.
3.2 Bylaws of Oconee Financial Corporation, dated August 27, 1998.
4. See exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws which define the rights of the holders of
Common Stock of the Bank.
4.1 Form of Common Stock Certificate.
10.1 Oconee State Bank 401 (k) Savings Incentive Plan (included as Exhibit 3
to the Bank's F-1 filed with the FDIC on April 30, 1997 and
incorporated hereby reference.)
10.2 Oconee State Bank Officer's Cash Incentive Plan (included as Exhibit 3
to the Bank's F-1 filed with the FDIC on April 30, 1997 and
incorporated hereby reference.)
21. Subsidiaries of Oconee Financial Corporation.
24. Power of Attorney (included herein on signature page).
27. Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K.
-------------------
The Bank did not file any reports on Form 8-K during the fourth quarter
of 1998.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Watkinsville, State of Georgia, on the 30th of
March, 1999.
OCONEE FINANCIAL CORPORATION
(Registrant)
By: /s/ B. Amrey Harden
----------------------------
B. Amrey Harden
Title: President
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints B. Amrey Harden or Douglas D. Dickens and
either of them (with full power in each to act alone), as true and lawful
attorneys-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Report on Form 10-KSB and to file the same, with all exhibits thereto and
other documents in connection therewith, with the SEC, hereby ratifying and
confirming all that said attorney-in-fact, or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1934, this Report
on Form 10-KSB has been signed by the following persons in the capacities
indicated on the 30th day of March, 1999.
<PAGE>
SIGNATURE TITLE
- --------- -----
- -------------------------- Director
G. Robert Bishop
/s/ Steve W. Denman
- -------------------------- Director
Steve W. Denman
/s/ Douglas D. Dickens
- -------------------------- Chairman of the Board of Directors
Douglas D. Dickens
/s/ Walter T. Evans, Sr.
- -------------------------- Director
Walter T. Evans, Sr.
- -------------------------- Vice Chairman of the Board, Director
John A. Hale
/s/ B. Amrey Harden
- -------------------------- President and Chief Executive Officer,
B. Amrey Harden Director
/s/ Donald L. Jesweak
- --------------------------- Senior Vice President and Senior Lending
Donald L. Jesweak Officer
- --------------------------- Director
Henry C. Maxey
- ---------------------------- Director
Carl R. Nichols
- ---------------------------- Director
Ann Breedlove Powers
/s/ Jerry K. Wages
- ---------------------------- Executive Vice President and Chief Financial
Jerry K. Wages Officer, Corporate Secretary, and Director
/s/ Virginia S. Wells
- --------------------------- Director
Virginia S. Wells
Exhibit 2.1
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
----------------------------------------------
THIS PLAN OF REORGANIZATION AND AGREEMENT OF MERGER (hereinafter
referred to as the ("Agreement"), made and entered into this ________
day of _____________, 1998, by and among Oconee Interim Corporation,
Watkinsville, Georgia, a corporation organized under the laws of the
State of Georgia ("Interim"), Oconee State Bank, Watkinsville,
Georgia, a state bank organized under the laws of the State of
Georgia, ("Bank"), (Interim and Bank being hereinafter sometimes
referred to collectively as the "Constituent Companies") and Oconee
Financial Corporation, a corporation organized under the laws of the
State of Georgia, (the "Holding Company");
R E C I T A L S:
- - - - - - - -
WHEREAS, the Boards of Directors of Interim, the Bank and the
Holding Company deem it advisable and for the benefit of each of them
and their respective shareholders that Interim merge into and with the
Bank with the Bank being the surviving bank and with all of the
shareholders of the Bank becoming shareholders in the Holding Company;
NOW, THEREFORE, for and in consideration of the premises and
of the mutual agreements hereinafter contained, it is hereby agreed by
and between the parties hereto, that, pursuant to and with the effects
provided in the applicable provisions of the Financial Institutions
Code of Georgia, as amended, Interim be merged into and with the Bank
(hereinafter referred to as the "Surviving Bank"), the corporate
existence of which shall be continued under the name "Oconee State
Bank," and thereafter the individual existence of Interim shall cease.
The terms and conditions of the merger hereby agreed upon and the mode
of carrying the same into effect and the manner and basis of
converting the shares of Common Stock, $10.00 par value, of the Bank
("Bank Common Stock") into shares of Holding Company Common Stock
shall be as follows:
<PAGE>
1.
The acts required to be done by the laws of the State of
Georgia, in order to make this Agreement effective, including the
submission of this Agreement to the shareholders of the Constituent
Companies if required and the filing of this Agreement in the manner
provided in Section 7-1-530, et. seq., of the Financial Institutions
Code of Georgia, shall be attended to and done by the proper officers
of the Constituent Companies as soon as possible.
2.
The merger herein contemplated shall be effective upon the
certification of Articles of Merger with this Agreement attached by
the Secretary of State of Georgia (the "Effective Date").
3.
The Articles of Incorporation of the Bank shall on the
Effective Date be the Articles of Incorporation of the Surviving Bank.
4.
Until altered, amended or repealed, as therein provided, the
By-Laws of the Bank as in effect on the Effective Date shall be the
By-Laws of the Surviving Bank.
5.
Upon the Merger contemplated herein becoming effective, the
directors of the Bank and Holding Company shall be as follows:
G. Robert Bishop Carl R. Nichols
Steve W. Denman Ann Breedlove Powers
Douglas D. Dickens Jerry K. Wages
Walter T. Evans, Sr. Virginia S. Wells
John A. Hale William C. Wilkes
B. Amrey Harden
Said persons shall hold office until the next annual meeting
of the shareholders of the Surviving Bank and Holding Company and
until their successors are elected in accordance with the respective
By-Laws. If on the Effective Date any vacancy shall exist on the
Board of Directors of the Surviving Bank or Holding Company, such
-2-
<PAGE>
vacancy shall be filled in the manner specified in the respective By-
Laws.
6.
The manner and basis of converting the shares of capital
stock of each of the Constituent Companies into shares, rights,
obligations, securities of the Surviving Bank, of another corporation,
or, into cash or other property shall be as follows:
(a) Upon the Effective Date, the shares of Common
Stock of Interim issued and outstanding immediately prior
to the Effective Date shall be converted into 180,000
shares of $10.00 par value Common Stock of the Surviving
Bank;
(b) Upon the Effective Date, each of the 180,000
shares of Bank Common Stock outstanding on the Effective
Date shall be converted into one share of Holding Company
Common Stock $10.00 par value per share;
(c) Upon the Effective Date, each share of Holding
Company Common Stock issued and outstanding immediately
prior to the Merger shall be converted into $10.00 in cash;
(d) As soon as practicable after the Effective Date,
each holder as of the Effective Date of any of the shares
of Bank Common Stock shall, upon presentation and surrender
of the certificates representing such shares to the
transfer agent or agents designated by the Holding Company,
be entitled to receive in exchange therefor Holding Company
Common Stock. Until so surrendered, each such outstanding
certificate which before the Effective Date represented
Bank Common Stock shall be deemed for all corporate
purposes, except as set forth below, to evidence the right
to receive the Common Stock of the Holding Company into
which same shall have been converted. Unless and until any
such certificate shall be so surrendered, the holder of
such certificate shall not have the right to receive any
dividends on any shares of Holding Company Common Stock
into which the shares have been converted.
-3-
<PAGE>
7.
On the Effective Date of the merger, the separate existence of
Interim shall cease and the Surviving Bank shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises, of a publi
as well as of a private nature, of each of the Constituent Companies; and
all property, real, personal and mixed, and all debts due on whatever account,
and each and every other interest of or belonging to or due to each of the
Constituent Companies shall be taken and deemed to be transferred to and
invested in the Surviving Bank without further act or deed; and the title to
any real estate, or any interest therein, vested in any of the Constituent
Companies shall not revert or be in any way impaired by reason of such merger.
The Surviving Bank shall thenceforth be responsible and liable for all the
liabilities and obligations of each of the Constituent Companies; and any claim
existing or action or proceeding pending by or against either of the Constituent
Companies may be prosecuted as if such merger had not taken place, or the
Surviving Bank may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of either of the Constituent
Companies shall be impaired by such merger.
8.
This Agreement may be terminated and the merger abandoned at
any time before or after adoption thereof by the board of directors or
the shareholders of the Constituent Companies, notwithstanding
favorable action on the merger by such shareholders, but not later
than the issuing of a certificate of merger by the Secretary of State
of Georgia.
9.
The Bank, Interim and Holding Company, by unanimous consent,
may amend, modify and supplement this Agreement.
10.
This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts
shall together constitute but one and the same instrument.
-4-<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this
Plan of Reorganization and Agreement of Merger to be executed on their
respective behalves and their respective corporate seals affixed
hereto on the day and year above written.
[CORPORATE SEAL] OCONEE INTERIM CORPORATION
Attest: By: __________________________________
Name: B. Amrey Harden
Title: President
__________________________
Name: Jerry K. Wages
Title: Secretary
[BANK SEAL] OCONEE STATE BANK
Attest: By: __________________________________
Name: B. Amrey Harden
Title: President
__________________________
Name: Jerry K. Wages
Title: Secretary
[CORPORATE SEAL] OCONEE FINANCIAL CORPORATION
Attest: By: __________________________________
Name: B. Amrey Harden
Title: President
__________________________
Name: Jerry K. Wages
Title: Secretary
-5-
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
OCONEE FINANCIAL CORPORATION
I.
The name of the corporation is Oconee Financial Corporation
(the "Corporation").
II.
The Corporation is organized pursuant to the provisions of the
Georgia Business Corporation Code (the "Code").
III.
The Corporation is a corporation for profit and is organized
for the following general purposes: to be a bank holding company; to
carry on any lawful businesses or activities relating thereto; and to
engage in any lawful act or activity for which Corporations may be
organized under the Georgia Business Corporation Code.
IV.
The Corporation shall have authority to issue 300,000 shares
of common stock, $10.00 par value (the "Common Stock"). The Common Stock
shall together have unlimited voting rights and be entitled to receive
the net assets of the Corporation upon dissolution.
V.
The Corporation shall issue shares, option rights, or
securities having conversion or option rights by first offering them to
shareholders of the same class in proportion to their holdings of shares
of such class. No holder of shares of any class shall have any
preemptive right with respect to shares of any other class which may be
issued or sold by the corporation. The holders of shares entitled to
the preemptive rights shall be given prompt notice setting forth the
time within which and the terms and conditions upon which such
shareholders may exercise their preemptive rights. Such notice shall be
given at least thirty (30) days prior to the expiration of the period
during which the rights may be exercised.
There shall be no preemptive right to (i) shares issued as a
share dividend; (ii) fractional shares; (iii) shares issued pursuant to
employee stock option or purchase plans; (iv) shares issued pursuant to
acquisitions of substantially all of the assets of a corporation;
(v) shares released by waiver from their preemptive right by the
affirmative vote or written consent of the holders of two-thirds of the
shares of the class to be issued and (vi) shares which have been offered
to shareholders to satisfy their preemptive right but not purchased by
them within the prescribed time and which are thereafter issued or sold
to any other person or persons at the price not less than the price at
which they were offered to such shareholders.
<PAGE>
VI.
The street address and county of the Corporation's initial
registered office shall be 35 North Main Street, Watkinsville, Georgia.
The initial registered agent of the Corporation at that office shall be
Jerry K. Wages.
VII.
The name and address of the sole incorporator is:
F. Sheffield Hale
1100 Peachtree Street, Suite 2800
Atlanta, Georgia 30309
VIII.
The mailing address of the initial principal office of the
Corporation shall be:
35 North Main Street
Watkinsville, Georgia 30677-0205
IN WITNESS WHEREOF, the undersigned has executed these
Articles of Incorporation as of this 27th day of August, 1998.
/s/ F. Sheffield Hale
_______________________________
F. Sheffield Hale, Incorporator
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
OCONEE FINANCIAL CORPORATION
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The corporation shall
maintain at all times a registered office in the State of Georgia and
a registered agent at that office.
Section 2. Other Offices. The corporation may also have
offices at such other places both inside or outside of the State of
Georgia as the business of the corporation may require.
ARTICLE II
SHAREHOLDERS MEETINGS
---------------------
Section 1. Annual Meetings.
---------------
1.1. Date, time and purpose of meeting. The annual meeting
---------------------------------
of the shareholders of the corporation shall be held on the first
Monday of May, for the purpose of electing directors and transacting
such other business as may properly be brought before the meeting.
1.2. Failure to hold meeting. The failure to hold an
-----------------------
annual meeting at the time stated in or fixed in accordance with these
bylaws shall not affect the validity of any corporate action.
Section 2. Special Meetings.
----------------
2.1. Call of special meetings. The chairman of the board
------------------------
of directors, if any, or the president may call a special meeting of
the shareholders at any time. The president or the secretary must
call a special meeting:
(1) when so directed by the board of directors;
<PAGE>
(2) at the request in writing of shareholders owning at
least 25% of the outstanding shares of the corporation
entitled to vote thereat provided that such request
shall state the purposes for which the meeting is to be
called.
2.2. Business conducted. Except as otherwise provided in
------------------
these bylaws, only business within the purpose or purposes described
in the notice of the meeting may be conducted at a special meeting.
Section 3. Place of Meetings. Meetings of the shareholders
-----------------
of the corporation shall be held at the principal office of the
corporation or at any other place within or without the United States
as may be specified in the notice of the meeting.
Section 4. Notice of Meetings.
------------------
4.1. Notice requirements. Notice of every meeting of
-------------------
shareholders, stating the place, date and time of the meeting, shall
be given to each shareholder of record entitled to vote at such
meeting not less than 10 nor more than 60 days before the date of the
meeting.
4.2. Notice by mail. Notice may be given in any manner
--------------
permitted by law. Any written notice deposited in the United States
mail with prepaid first class postage thereon addressed to the
shareholder at his address as it appears on the corporation's record
of shareholders shall be deemed delivered when so deposited.
4.3. Waiver by attendance. A shareholder's attendance, in
--------------------
person or by proxy, at a meeting of shareholders shall constitute:
(1) a waiver of notice of the meeting and of all objections
to lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business
at the meeting; and
(2) a waiver of objection to consideration of a particular
matter at the meeting that is not within the purpose or
purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it
is presented.
4.4. Other waivers of notice. Notice of a meeting of
-----------------------
shareholders need not be given to any shareholder who signs a waiver
of notice, in person or by proxy, either before or after the meeting.
Neither the business transacted nor the purpose of the meeting need be
specified in the waiver, except that any waiver of the notice of a
meeting at which the shareholders consider an amendment of the
-2-
<PAGE>
articles of incorporation, a plan of merger or share exchange, or a
sale or other disposition of assets, or any other action which would
entitle the shareholder to dissent and obtain payment for his shares
shall not be effective unless:
(1) prior to the execution of the waiver, the shareholder
shall have been furnished the same material that would
have been required to be sent to the shareholder in a
notice of the meeting, including notice of any
applicable dissenters' rights; or
(2) the waiver expressly waives the right to receive the
material required to be furnished.
Section 5. Quorum.
------
5.1. Required number. At all meetings of the shareholders
---------------
a majority of the shares outstanding and entitled to vote thereat,
present in person or by proxy, shall constitute a quorum for the
transaction of all business, except as otherwise provided by law, by
the articles of incorporation, or by these bylaws.
5.2. Adjournment. If a quorum is not present at any
-----------
meeting of the shareholders, a majority of the shares present and
entitled to vote thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting before
adjournment of the date, time, and place for the adjourned meeting,
until a quorum shall be present. At such adjourned meeting at which a
quorum shall be present, any business may be transacted which might
have been transacted at the original meeting. If, after the meeting
is adjourned, a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of
record entitled to vote at the meeting.
5.3. When shares present. Once a share is represented for
-------------------
any purpose at a meeting other than solely to object to holding the
meeting or transacting business at the meeting, it is present for
quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is set for the
adjourned meeting.
Section 6. Order of Business. At the annual meeting of
-----------------
shareholders the order of business shall be as follows:
1. Calling of meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous annual
meeting.
4. Reports of officers.
-3-
<PAGE>
5. Reports of committees.
6. Election of directors.
7. Miscellaneous business.
Section 7. Voting.
------
7.1. Number of votes per share. Unless the articles of
-------------------------
incorporation or applicable law otherwise provide, each outstanding
share, regardless of class, shall be entitled to one vote on each
matter voted on at a meeting of shareholders.
7.2. Votes required. If a quorum exists, action on a
--------------
matter is approved if the votes cast favoring the action exceed the
votes cast opposing the action, unless the articles of incorporation,
these bylaws, or applicable law require a different vote.
7.3. Voting for Directors. Directors shall be elected by a
--------------------
plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. Shareholders do
not have a right to cumulate their votes for directors.
7.4. Proxies. A shareholder may vote his shares in person
-------
or by proxy. A shareholder may appoint a proxy to vote or otherwise
act for him by signing an appointment form. An appointment is valid
for 11 months unless a shorter or longer period is expressly provided
in the appointment form.
Section 8. Action Without Meeting.
----------------------
8.1. Generally. Action required or permitted to be taken
---------
at a meeting of shareholders may be taken without a meeting if the
action is evidenced by one or more written consents describing the
action taken and executed by:
(1) two-thirds (2/3) of the shareholders entitled to vote
on the action; or
(2) if so provided in the articles of incorporation,
persons who would be entitled to vote, at a meeting,
shares having voting power to cast not less than the
minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all
shareholders entitled to vote were present and voted.
-4-
<PAGE>
8.2. Requirements for consent. A written consent is valid only if:
------------------------
(1) the consenting shareholder was furnished the same
material that would have been required to be sent to
shareholders in a notice of a meeting at which the
proposed action would have been submitted to the
shareholders for action, including notice of any
applicable dissenters' rights; or
(2) it contains an express waiver of the right to receive
the material otherwise required to be furnished.
Section 9. List of Shareholders.
--------------------
9.1. Maintenance of list. The corporation shall keep or
-------------------
cause to be kept a record of its shareholders, giving their names and
addresses and the number, class and series, if any, of shares held by
each. After a record date for a meeting of shareholders is fixed, the
corporation shall prepare an alphabetical list of the names of all its
shareholders who are entitled to notice of the meeting. The list
shall show the address of and number of shares held by each
shareholder, and shall comply as to form in all other respects with
applicable law.
9.2. Inspection by shareholders. The list of shareholders
--------------------------
shall be made available for inspection by any shareholder, his agent,
or his attorney at the time and place of a meeting of shareholders.
9.3. Validity of action. Refusal or failure to prepare or
------------------
make available the list of shareholders shall not affect the validity
of action taken at a meeting of shareholders.
ARTICLE III
DIRECTORS
---------
Section 1. Powers. Except as otherwise provided by any
------
legal agreement among shareholders, the property, affairs and business
of the corporation shall be managed and directed by its board of
directors, which may exercise all powers of the corporation and do all
lawful acts and things which are not by law, by any legal agreement
among shareholders, by the articles of incorporation or by these
bylaws directed or required to be exercised or done by the
shareholders.
Section 2. Number, Election and Term.
-------------------------
2.1. Number of directors. The number of directors which
-------------------
shall constitute the whole board shall be eleven (11). The number of
directors may be increased or decreased from time to time by amendment
-5-
<PAGE>
of these bylaws or by election by the shareholders of a different
number of directors when electing the entire board of directors.
2.2. Qualifications. Directors shall be natural persons
--------------
who are 18 years of age or older, but need not be residents of the
State of Georgia nor shareholders of the corporation.
2.3. Term of office. The terms of the directors shall
--------------
expire at the annual meeting of shareholders following their election,
or at their earlier resignation, removal from office, or death. A
decrease in the number of directors by amendment of these bylaws shall
not shorten an incumbent director's term. A director whose term has
expired shall remain in office until his successor is elected and
qualified, or until there is a decrease in the number of directors. A
director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office. A director elected by the board of
directors to fill a vacancy created by reason of an increase in the
number of directors shall serve until the next election of directors
by the shareholders and until the election and qualification of his
successor.
Section 3. Vacancies. Except as otherwise provided in the
---------
articles of incorporation, these bylaws, or applicable law, a vacancy
on the board of directors, including a vacancy resulting from an
increase in the number of directors, may be filled by the
shareholders, the board of directors, or the affirmative vote of a
majority of all the directors remaining in office, if the directors
remaining in office constitute fewer than a quorum of the board.
Section 4. Meetings and Notice.
-------------------
4.1. Place of meetings. The board of directors may hold
-----------------
regular or special meetings either within or without the State of
Georgia.
4.2. Notice of meetings. Regular meetings of the board of
------------------
directors may be held without notice at such date, time, and place as
shall from time to time be determined by the board. Special meetings
of the board of directors may be called by the chairman of the board,
if any, or the president, or by any two directors, on at least one
day's oral, telegraphic, or written notice of the date, time, and
place of the meeting. The notice of a meeting need not state the
purpose of the meeting.
4.3. Waiver of notice. Notice of a meeting of the board of
----------------
directors need not be given to any director who signs a waiver of
notice either before or after the meeting. Attendance of a director
at a meeting shall constitute a waiver of notice of such meeting
unless the director at the beginning of the meeting or promptly upon
his arrival objects to holding the meeting or transacting business at
the meeting and does not thereafter vote for or assent to action taken
at the meeting.
-6-
<PAGE>
Section 5. Quorum. Except as otherwise provided by law,
------
the articles of incorporation, or these bylaws, a majority of
directors shall constitute a quorum for the transaction of business.
If a quorum is present when a vote is taken, the affirmative vote of a
majority of directors present is the act of the board of directors.
If a quorum shall not be present, or shall no longer be present, at
any meeting of the board, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 6. Conference Telephone Meeting. Unless the
----------------------------
articles of incorporation or these bylaws provide otherwise, directors
may participate in a meeting of the board by means of conference
telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other. Participation in
the meeting shall constitute presence in person.
Section 7. Action Without Meeting. Action required or
----------------------
permitted to be taken at a meeting of the board of directors may be
taken without a meeting if the action is evidenced by one or more
written consents describing the action taken and signed by each
director. Action by consent has the effect of a meeting vote and may
be described as such in any document.
Section 8. Committees.
----------
8.1. Creation. The board of directors from time to time
--------
may create one or more committees and appoint one or more directors to
serve on them at the pleasure of the board.
8.2. Authority. To the extent specified by the board of
---------
directors, the articles of incorporation or these bylaws, each
committee may exercise the authority of the board of directors, except
that, unless otherwise permitted by law, a committee may not:
(1) approve or propose to shareholders action that is
required to be approved by shareholders;
(2) fill vacancies on the board of directors or on any of
its committees;
(3) amend the articles of incorporation;
(4) adopt, amend, or repeal these bylaws; or
(5) approve a plan of merger not requiring shareholder
approval.
8.3. Meetings, notice, quorum and voting. Sections 4
-----------------------------------
through 7 of this Article shall also apply to committees and their
members, unless otherwise provided by the articles of incorporation,
these bylaws, or applicable law.
-7-
<PAGE>
Section 9. Removal of Directors.
--------------------
9.1. Removal right. The shareholders may remove any
-------------
director, with or without cause, by a majority of the votes entitled
to be cast for the election of directors.
9.2. Meeting required. A director may be removed only at a
----------------
meeting called for the purpose of removing him and the meeting notice
must state that the purpose, or one of the purposes, of the meeting is
removal of the director.
9.3. Replacement. A vacancy resulting from the removal of
-----------
a director by the shareholders may be filled by the shareholders at
the same meeting at which the director was removed or any subsequent
meeting of the shareholders; or, if (but only if) the shareholders do
not fill such a vacancy within sixty (60) days after the removal, by
majority vote of the remaining directors.
Section 10. Compensation of Directors. Directors shall be
-------------------------
entitled to such reasonable compensation for their services as
directors or members of any committee of the board as shall be fixed
from time to time by resolution adopted by the board, and shall also
be entitled to reimbursement for any reasonable expenses incurred in
attending any meeting of the board or any such committee.
Section 11. Honorary and Advisory Directors. The Board of
-------------------------------
Directors may from time to time appoint any individual an Honorary
Director, Director Emeritus, or a member of any advisory Board
established by the Board of Directors. Any individual appointed an
Honorary Director, Director Emeritus, or member of an advisory board
as provided by this Section 11 may be compensated as provided in
Section 10 of this Article, but such individual may not vote at any
meeting of the Board of Directors or be counted in determining a
quorum as provided in Section 5 of this Article and shall not have any
responsibility or be subject to any liability imposed upon a director,
or otherwise be deemed a director.
ARTICLE IV
OFFICERS
--------
Section 1. Number. The officers of the corporation shall
------
be chosen by the board of directors and shall be a president, a
secretary and a treasurer (the "principal officers"). The board of
directors may also choose a chairman of the board and may choose one
or more vice-presidents (any of whom may have such distinguishing
designations or titles as the board may determine), assistant
secretaries and assistant treasurers, and such other officers as the
board shall from time to time deem necessary. Any number of offices
may be held by the same person.
-8-
<PAGE>
Section 2. Compensation. The salaries of all officers and
------------
agents of the corporation shall be fixed by the board of directors or
by a committee or officer appointed by the board or by the president.
Section 3. Term of Office. Unless otherwise provided by
--------------
the board of directors, the principal officers shall be chosen
annually by the board at the first meeting of the board following the
annual meeting of shareholders of the corporation, or as soon
thereafter as is conveniently possible. Other officers may be chosen
from time to time. Each officer shall serve until his successor shall
have been chosen and qualified, or until his death, resignation or
removal, and any failure to choose officers of the corporation
annually shall not affect the validity of any action taken by or the
authority of an officer previously duly chosen and qualified and not
theretofore resigned or removed by the board of directors.
Section 4. Removal. Any officer may be removed from office
-------
at any time, with or without cause, by the board of directors whenever
in its judgment the best interest of the corporation will be served
thereby.
Section 5. Vacancies. Any vacancy in an office resulting
---------
from any cause may be filled by the board of directors.
Section 6. Powers and Duties. Except as hereinafter
-----------------
provided and subject to the control of the board of directors, the
officers of the corporation shall each have such powers and duties as
generally pertain to their respective offices, as well as such powers
and duties as from time to time may be conferred by the board of
directors.
(1) President. The president shall be the chief executive
---------
officer of the corporation, shall preside at all meetings of the
shareholders and (unless the board shall have created an office of
chairman of the board) the board of directors, shall have general and
active management of the business of the corporation and shall see
that all orders and resolutions of the board of directors are carried
into effect. He may execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where
required by law to be otherwise signed and executed and except where
the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
(2) Vice-President. In the absence of the president or in
--------------
the event of his inability or refusal to act, the vice-president (or
in the event there is more than one vice-president, the vice-
presidents in the ranking established by the board of directors, or in
the absence of any ranking, then in the order of their election) shall
perform the duties of the president, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and
-9-<PAGE>
have such other powers as the board of directors or the president may
from time to time prescribe.
(3) Secretary. The secretary shall attend all meetings of
---------
the board of directors and all meetings of the shareholders, shall
have responsibility for the preparation of minutes of all meetings of
the board of directors and of the shareholders and shall keep, or
cause to be kept, as permanent records of the corporation, in a book
or books for that purpose, all minutes of such meetings, all executed
consents evidencing corporate actions taken without a meeting, records
of all actions taken by a committee of the board of directors in place
of the board, and waivers of notice of all meetings of the board and
its committees. He shall have responsibility for authenticating
records of the corporation. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the
board of directors, and shall perform such other duties as may be
prescribed by the board of directors or president, under whose
supervision he shall be. He shall have charge of the corporate seal
of the corporation and shall be authorized to use the seal of the
corporation on all documents which are authorized to be executed on
behalf of the corporation under its seal.
(4) Assistant Secretary. The assistant secretary or if
-------------------
there is more than one, any assistant secretary, shall, in the absence
of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of
directors, the president, or the secretary may from time to time
prescribe.
(5) Treasurer. The treasurer shall have the legal custody
---------
of the corporate funds and securities and shall keep or cause to be
kept full and accurate accounts of receipts and disbursements and
other appropriate accounting records in books belonging to the
corporation and shall deposit all funds and other valuable effects in
the name and to the credit of the corporation in such depositories as
may be designated by the board of directors. He shall render to the
president and the board of directors, at its regular meetings, or when
the president or board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the
corporation. If required by the board of directors, he shall give the
corporation a bond in such sum, or such conditions, and with such
surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office.
(6) Assistant Treasurer. The assistant treasurer, or if
-------------------
there is more than one, any assistant treasurer, shall, in the absence
of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of
directors, the president, or the treasurer may from time to time
prescribe.
-10-
<PAGE>
Section 7. Securities of Corporation. Any security issued
-------------------------
by any other corporation or entity and owned or controlled by the
corporation may be voted, and all rights and powers incident to the
ownership of such securities, including without limitation execution
of any consent of shareholders or other consents in respect thereof,
may be exercised on behalf of the corporation by the president, who
may in his discretion delegate any of the foregoing powers, by
executing proxies or otherwise. The board of directors may from time
to time confer like powers on any person or persons.
Section 8. Checks and Drafts. All checks, drafts, and
-----------------
similar items drawn on the corporation's bank account shall be signed
by such officer or officers or agent or agents as the board of
directors shall from time to time determine.
ARTICLE V
SHARES
------
Section 1. Authorization of Issuance of Shares. The par
-----------------------------------
value and maximum number of shares of the capital stock of the
corporation which may be issued and outstanding shall be set forth
from time to time in the Articles of Incorporation of the Corporation.
No individual, firm, or corporation, may own more than forty
percent (40%) of the shares of the original capital stock of the
Corporation.
Section 2. Form and Content of Certificate.
-------------------------------
2.1. Form. Every holder of fully-paid shares in the
----
corporation shall be entitled to have a certificate in such form as
the board of directors may from time to time prescribe in accordance
with applicable law.
2.2. Required signatures. Except as otherwise provided by
-------------------
the board of directors from time to time, each share certificate shall
be signed by any two officers of the corporation, who may, but shall
not be required to, seal the certificate with the seal of the
corporation or a facsimile thereof.
Section 3. Lost Certificates. The board of directors may
-----------------
direct that a new share certificate be issued in place of any
certificate theretofore issued by the corporation and alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate to be lost, stolen or
destroyed. When authorizing such issue of a new certificate, the board
-11-
<PAGE>
of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation
a bond in such sum and on such conditions as it may direct as
indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or
destroyed, and/or satisfy any other reasonable requirements imposed by
the board of directors.
Section 4. Transfers. (1) Transfers of shares of the
---------
corporation shall be made only on the books of the corporation by the
registered holder thereof, or by his duly authorized attorney, or with
a transfer agent or registrar appointed as provided in Section 6 of
this Article, and on surrender of the certificate or certificates for
such shares properly endorsed and the payment of all taxes thereon.
(2) The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and for all
other purposes, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
(3) Shares of the corporation may be transferred by
delivery of the certificates therefor, accompanied either by an
assignment in writing on the back of the certificates or by separate
written power of attorney to sell, assign and transfer the same,
signed by the record holder thereof, or by his duly authorized
attorney-in-fact, and accompanied by such evidence that all such
signatures are genuine as the corporation may, at its option, request,
but no transfer shall affect the right of the corporation to pay any
dividend upon the stock to the holder of record as the holder in fact
thereof for all purposes, and no transfer shall be valid, except
between the parties thereto, until such transfer shall have been made
upon the books of the corporation as herein provided.
(4) The board may, from time to time, make such additional
rules and regulations as it may deem expedient, not inconsistent with
these bylaws or the articles of incorporation, concerning the issue,
transfer and registration of certificates for shares of the
corporation, and nothing contained herein shall limit or waive any
rights of the corporation with respect to such matters under
applicable law or any subscription or other agreement.
Section 5. Record Date.
-----------
5.1. Fixing of record date. For the purpose of determining
---------------------
the shareholders entitled to notice of a meeting of shareholders, to
demand a special meeting, to vote, or to take any other action, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect
of any change, conversion or exchange of shares, or for the purpose of
-12-
<PAGE>
any other lawful action, the board of directors may fix, in advance, a
record date, which shall not be more than 70 days before any meeting
or action requiring a determination of shareholders.
5.2. No record date fixed. If no record date is fixed by
--------------------
the board of directors for the determination of shareholders entitled
to notice of and to vote at any meeting of shareholders, the record
date shall be at the close of business on the day before the day on
which the first notice thereof is given, or, if notice is waived, at
the close of business on the day before the day on which the meeting
is held. If no record date is fixed by the board for determining
shareholders entitled to express consent to corporate action in
writing without a meeting when no prior action by the board of
directors is required by law, the record date shall be the first date
on which a signed written consent to such action shall have been
delivered to the corporation in any manner permitted by law on behalf
of all shareholders. If no record date is fixed for other purposes,
the record date shall be at the close of business on the day on which
the board of directors adopts the resolution or otherwise takes formal
action relating thereto.
5.3. Adjournment of meeting. A determination of the
----------------------
shareholders entitled to notice of or to vote at a meeting of
shareholders shall be effective for any adjournment of the meeting
unless the board of directors fixes a new record date. The board of
directors must fix a new record date if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
Section 6. Transfer Agent and Registrar. The board of
----------------------------
directors may appoint such transfer agents and/or registrars as it
shall determine, and may require all certificates of stock to bear the
signature or signatures of any of them.
ARTICLE VI
GENERAL PROVISIONS
------------------
Section 1. Distributions and Share Dividends. Distributions
---------------------------------
upon the shares of the corporation, subject to the provisions, if any,
of the articles of incorporation, or any lawful agreement among
shareholders, may be declared by the board of directors at any regular or
special meetings, pursuant to law. Distributions may be paid in cash
or in property, subject to the provisions of the articles of incorporation.
Before payment of any distribution, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing distributions,
or for repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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<PAGE>
Section 2. Fiscal Year. The fiscal year of the corporation
-----------
shall be fixed by the board of directors.
Section 3. Seal. The corporate seal shall be in such form
----
as the Board of Directors may from time to time determine.
Section 4. Annual Statements.
-----------------
4.1. Required statements. Not later than four months after
-------------------
the close of each fiscal year, and in any case prior to the next
annual meeting of shareholders, the corporation shall prepare the
following financial statements:
(1) a balance sheet showing in reasonable detail the
financial condition of the corporation as of the close
of its fiscal year; and
(2) a profit and loss statement showing the results of its
operations during its fiscal year.
4.2. Principles used; other information. If financial
----------------------------------
statements are prepared by the corporation on the basis of generally
accepted accounting principles, the annual financial statements must
also be prepared, and must disclose that they are so prepared, on that
basis. If otherwise prepared, they must so disclose and must be
prepared on the same basis as other reports or statements prepared by
the corporation for the use of others. If the statements are reported
upon by a public accountant, his report must accompany them. If not,
the statements shall be accompanied by a statement of the president or
the person responsible for the corporation's accounting records:
(1) stating his reasonable belief whether the statements
were prepared on the basis of generally accepted
accounting principles and, if not, describing the basis
of preparation; and
(2) describing any respects in which the statements were
not prepared on a basis of accounting consistent with
the statements prepared for the preceding year.
4.3. Requests for financial statements. Upon written
---------------------------------
request, the corporation promptly shall mail to any shareholder of
record a copy of the most recent annual balance sheet and profit and
loss statement. If prepared for other purposes, the corporation shall
also furnish upon written request a statement of changes in
shareholders' equity for the fiscal year.
-14-
<PAGE>
ARTICLE VII
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES
-------------------------------------------------
AND AGENTS
----------
Section 1. Authority to Indemnify. Every person who is or
----------------------
was an officer, director, employee or agent of this corporation may in
accordance with Section 3 hereof be indemnified for any liability and
expense that may be incurred by him in connection with or resulting
from any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative and whether
formal or informal, or in connection with any appeal relating thereto,
in which he may have become involved, as a party, prospective party or
otherwise, by reason of his being an officer, director, employee or
agent of this corporation, if he acted in a manner he believed in good
faith to be in or not opposed to the best interest of the corporation
and, in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. As used in this Article,
the terms "expense" and "liability" shall include attorneys fees and
reasonable expenses incurred with respect to a proceeding and the
obligation to pay a judgment, settlement, penalty, and fine including
an excise tax assessed with respect to an employee benefit plan.
Notwithstanding the foregoing, the corporation shall not
indemnify an officer, director, employee or agent in connection with a
proceeding by or in the right of the corporation in which the officer,
director, employee, or agent was adjudged liable to the corporation or
in connection with any other proceeding in which he was adjudged
liable on the basis that personal benefit was improperly received by
him. In addition, indemnification permitted pursuant to this section
in connection with a proceeding by or in the right of the corporation
is limited to reasonable expenses incurred in connection with the
proceeding.
Section 2. Mandatory Indemnification. Every officer,
-------------------------
director, employee or agent, to the extent that he has been
successful, on the merits or otherwise, in defense of any proceeding
to which he was a party, or in defense of any claim, issue or matter
therein, because he is or was an officer, director, employee or agent,
of this corporation, shall be indemnified by the corporation against
reasonable expenses incurred by him in connection therewith.
Section 3. Determination and Authorization of Indemnification.
--------------------------------------------------
Except as provided in Section 2 above, any indemnification under Section 1
above shall not be made unless a determination has been made in the specific
case that indemnification of the officer, director, employee, or agent is
permissible under the circumstances because he has met the standard of conduct
set forth in Section 1 above. The determination shall be made: (a) by the
board of directors by majority vote of a quorum consisting of directors not
at the time parties to the proceeding; (b) if such a quorum cannot be obtained,
then by majority vote of a committee duly designated by the board of directors
(in which designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the proceeding; (c)
-15-
<PAGE>
by special legal counsel (i) selected by the board of directors or its
committee in the manner prescribed above or (ii) if a quorum of the board of
directors cannot be obtained and a committee cannot be designated, then
selected by majority vote of the full board of directors (in which selection
directors who are parties may participate); or (d) by the shareholders, but
the shares owned by or voted under the control of directors who are at the time
parties to the proceeding may not be voted on the determination.
Once it has been determined that indemnification of the
officer, director, employee, or agent is permissible, an authorization
of indemnification or an obligation to indemnify and an evaluation as
to reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible, except that if
determination is made by special legal counsel, authorization of
indemnification and evaluation as to reasonableness of expenses shall
be determined in the manner prescribed in item (c) above.
Section 4. Advance for Expenses. Expenses incurred with
--------------------
respect to any claim, action, suit or proceeding of the character
described in Section 1 to this Article VII may be advanced by the
corporation prior to the time of the disposition thereof upon the
receipt of written affirmation from the director of his good faith
belief that he has met the standard of conduct set forth in Section 1
above and the officer, director, employee or agent furnishes the
corporation a written undertaking executed personally or on his behalf
to repay any advances if it is ultimately determined that he is not
entitled to indemnification under Section 1 of this Article.
ARTICLE VIII
AMENDMENTS
----------
Power to Amend By-Laws. The shareholders shall have the
----------------------
power to alter, amend or repeal these by-laws or adopt new by-laws, by
majority vote of all shares, at any regular or special meeting of the
shareholders.
-16-
EXHIBIT 4.1
NUMBER
OF SHARES
- --------- ----------
INCORPORATED UNDER THE LAWS OF THE CUSIP 675608 10 3
STATE OF GEORGIA
OCONEE FINANCIAL CORPORATION
This is to certify that _______________________________________________________
is the record holder of _______________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE OF TEN DOLLARS
($10.00) EACH, OF
- -------------------------OCONEE FINANCIAL CORPORATION-------------------------
transferable on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed in facsimile by its duly authorized officers and the facsimile
Corporate Seal to be hereunto affixed.
Dated:______________________
_________________________________ ____________________________
/s/ Jerry K. Wages /s/ B. Amrey Harden
CORPORATE SECRETARY President
<PAGE>
OCONEE FINANCIAL CORPORATION
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <S>
TEN COM - as tenants in common UNIF GIFT MIN ACT --------------Custodian-------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants __________________________________
in common State
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _________________________________ hereby sells, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________________________
__________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEED MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
Exhibit 21.1
SUBSIDIARIES OF OCONEE FINANCIAL CORPORATION
Oconee State Bank
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001076691
<NAME> OCONEE FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,428,512
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,640,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,055,424
<INVESTMENTS-CARRYING> 15,303,990
<INVESTMENTS-MARKET> 16,091,715
<LOANS> 76,779,884
<ALLOWANCE> 1,427,420
<TOTAL-ASSETS> 130,652,383
<DEPOSITS> 116,120,188
<SHORT-TERM> 558,169
<LIABILITIES-OTHER> 1,475,842
<LONG-TERM> 0
0
0
<COMMON> 1,800,000
<OTHER-SE> 10,698,184
<TOTAL-LIABILITIES-AND-EQUITY> 130,652,383
<INTEREST-LOAN> 7,676,432
<INTEREST-INVEST> 1,756,040
<INTEREST-OTHER> 340,869
<INTEREST-TOTAL> 9,773,341
<INTEREST-DEPOSIT> 4,019,037
<INTEREST-EXPENSE> 4,039,536
<INTEREST-INCOME-NET> 5,733,805
<LOAN-LOSSES> 60,720
<SECURITIES-GAINS> 14,250
<EXPENSE-OTHER> 4,109,318
<INCOME-PRETAX> 2,847,061
<INCOME-PRE-EXTRAORDINARY> 2,847,061
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,031,894
<EPS-PRIMARY> 11.29
<EPS-DILUTED> 11.29
<YIELD-ACTUAL> 5.08
<LOANS-NON> 30,571
<LOANS-PAST> 530
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,362,530
<CHARGE-OFFS> 91,925
<RECOVERIES> 96,095
<ALLOWANCE-CLOSE> 1,427,420
<ALLOWANCE-DOMESTIC> 1,427,420
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
