SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K12G3
Notification of
Securities of Successor Issuers
Deemed Registered Pursuant to Section 12
Date of Report: March 31, 2000
Chestatee Bancshares, Inc.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Georgia * 58-2535333
------- --------------------- ----------
(State or other (Commission File No.) (IRS Employer ID No.)
Jurisdiction of Incorporation)
6639 Highway 53 East
Dawsonville, Dawson County, Georgia 30534
-----------------------------------------
(Address of Principal Executive Offices)
706/216-2265
-------------------------------
(Registrant's Telephone Number)
* Registrant has requested a 1934 Act number be issued.
Item One. Changes in Control of Registrant.
(a) Registrant is a Georgia corporation formed to act as a
holding company for Chestatee State Bank (the "Bank"). Registrant was only
recently organized at the instruction of management of the Bank. Initially, only
a nominal number of shares of Registrant were issued and outstanding, all of
which were held by J. Philip Hester, Sr., CEO of the Bank, for the sole purpose
of insuring adequate capital. Pursuant to a shareholder agreement, Mr. Hester
surrendered and cancelled those shares upon consummation of the reorganization.
Pursuant to the Plan of Reorganization and Agreement of Merger
(attached as Exhibit (2) hereto), Registrant organized Chestatee Interim, Inc.
("Interim") solely for the purpose of effectuating the merger. Upon approval of
more than two-thirds of the Bank's shareholders in a special meeting held March
21, 2000, each outstanding shares of the $5.00 par
<PAGE>
value common stock of the Bank was converted into and became one share of the no
par value common stock of Registrant. The outstanding no par value common stock
of Interim owned by Registrant was converted into and became a number of shares
of the Bank's common stock equal to the number of such shares outstanding on the
effective date of the merger. As a result, shareholders of the Bank became
shareholders of the Registrant (instead of the Bank), the Bank became a
wholly-owned subsidiary of the Registrant, and Interim ceased to exist as a
separated corporation. Following the merger, the Bank continues to operate as a
bank but functions as a wholly-owned subsidiary of the Registrant. The articles
of incorporation, bylaws, corporate identity, existence, and the officers and
directors of the Bank did not change as a result of the merger. The terms of the
merger were set forth in a Proxy Statement to shareholders dated February 21,
2000 (attached as Exhibit B hereto).
Item Seven. Financial Statements and Exhibits.
(a) In accordance with Staff Accounting Bulletins, Topic One -
Financial Statements: "F. Financial Statement Requirements in Filings Involving
the Formation of a One-bank Holding Company", we hereby state on behalf of the
Registrant: (1) there were no changes in the shareholders' relative equity
ownership in the underlying bank assets; (2) in the aggregate, only nominal
borrowings were incurred for purposes of organizing the holding company and
meeting minimum capital requirements; (3) no new classes of stock were
authorized other than those corresponding to stock of the Bank immediately prior
to the organization; (4) there are no plans or arrangements to issue any
additional shares to acquire any business other than the Bank; and (5) there
have been no material adverse changes in the financial condition of the Bank
since the latest fiscal year end included in the annual report to shareholders.
Accordingly, financial statements otherwise required by Item Seven are not
included, but copies of the most recent audited financial statements of the Bank
are enclosed herein as Exhibit (20). These financial statements have previously
been mailed to shareholders of the Bank (now shareholders of Registrant). All
documents filed by Chestatee State Bank with the FDIC pursuant to Sections 13,
14 and 15(d) of the 1934 Act are deemed incorporated by reference and a part
hereof.
(b) Also enclosed is the unaudited pro forma consolidated balance
sheet at March 31, 2000, giving effect to the reorganization discussed in Item
One above. The information presented by management reflects all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the periods covered.
<PAGE>
(c) The following exhibits are furnished as a part of this report
pursuant to Item 601 of Regulation S-B.
INDEX OF EXHIBITS
-----------------
Exhibit No. Description
----------- -----------
(2) Plan of Reorganization and Agreement of Merger
(20) Annual Reports to Security Holders
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHESTATEE BANCSHARES, INC.
Date: March 31, 2000 By:/s/ J. PHILIP HESTER, SR.
-------------- ----------------------------
J. PHILIP HESTER, SR.
President, CEO and Director
PLAN OF REORGANIZATION
This Plan of Reorganization, hereinafter called the Plan, made and entered
into this 21st day of December, 1999, by and among Chestatee Bancshares, Inc., a
Georgia corporation, (the "Holding Company"), Chestatee State Bank, a bank
organized under the laws of the state of Georgia (the "Bank"); and Chestatee
Interim, Inc., a Georgia corporation ("Interim").
W I T N E S S E T H :
WHEREAS, Holding Company owns all the outstanding common shares of Interim;
and
WHEREAS, the Board of Directors of Holding Company, the Bank and Interim
have determined it is desirable to effect a Plan of Reorganization meeting the
requirements of Sec. 368(a) of the Internal Revenue Code of 1954, as amended,
whereby Interim shall be merged with and into the Bank pursuant to Section
14-2-1101, et seq. of the Georgia Business Corporation Code, Sec. 7-1-530, et
seq. of the Financial Institutions Code of Georgia, and the Agreement of Merger,
a copy of which is attached hereto as Exhibit "A". All of the outstanding common
shares of the Bank will be converted into and exchanged for Holding Company
common shares, and all of the issued and outstanding common shares of Interim
will be converted into common shares of the surviving corporation to the Merger.
NOW, THEREFORE, in order to consummate the transaction set forth above and in
consideration of the mutual promises herein made and the mutual benefits to be
derived from this Plan, the Company, the Bank and Interim do represent, warrant
and agree as follows:
EXHIBIT (2)
<PAGE>
1. Representation and Warranties of the Bank. The Bank represents and
warrants as follows:
(a) The Bank is a state bank duly organized, validly existing, and in
good standing under the laws of the state of Georgia and has the power to
own its properties and to carry on its business as and where now conducted.
(b) The Bank has complete and unrestricted power to enter into and
consummate the transaction contemplated under this Plan.
(c) The aggregate number of shares that the Bank has issued and
outstanding is 950,000 with $5.00 par value per share.
(d) To the knowledge of the officers of the Bank, the Bank has filed
with the Internal Revenue Service all tax returns by law, all taxes due to
the Internal Revenue Service or properly accruable have been paid or
adequately taken into account in determining the consolidated net worth of
the Bank, and neither the execution and delivery of nor compliance with the
terms and provisions of this Plan on the part of the Bank conflicts with
the terms and provisions of this Plan on the part of the Bank conflicts
with or results in a breach of any of the terms of any judgment or ruling
of any court or governmental authority or breaches any contract entered
into by the Bank.
(e) The execution of this Plan has been duly authorized and approved
by the Board of Directors of the Bank.
(f) No representation or warranty by the Bank in this Plan, nor any
written statement, certificate or document furnished or to be furnished by
or on behalf of the Bank pursuant to this Plan knowingly contains or shall
knowingly contain any untrue statement of a material fact or knowingly
omits or shall omit a material fact necessary to make any statement
contained herein not misleading.
<PAGE>
2. Representations and Warranties of Holding Company and Interim. Holding
Company and Interim represent and warrant as follows:
(a) Holding Company and Interim are corporations duly organized,
validly existing, and in good standing under the laws of the state of
Georgia.
(b) The aggregate number of shares that Interim is authorized to issue
is 2,000,000 common shares with no par value per share, of which 950,000
shares are validly issued and outstanding, fully paid and nonassessable and
owned by Holding Company.
(c) Holding Company has been organized with J. Philip Hester, Sr. as
the initial shareholder owning 100 common shares with a par value of $5.00
for a total capitalization of $500.00. The Shareholder Agreement, copy of
which is attached hereto as Exhibit "B", executed by the initial
shareholder upon organization of Holding Company restricts the
transferability of the shares and requires him to redeem his shares
immediately following the effective date of the Merger and reorganization
for the par value of the stock. Interim has been organized with
capitalization of $500.00 which is held in the corporation as cash.
Immediately following the effective date of the Merger, the surviving
corporation, the Bank, will pay a special dividend in the amount of $500.00
payable to its then sole stockholder, the Holding Company. This $500.00
will be used to redeem the shares of the initial shareholder of Holding
Company pursuant to the Shareholder Agreement. Following this redemption,
the only shares of the common stock of Holding Company issued and
outstanding will be the shares exchanged for the original shares of the
Bank.
(d) Holding Company's common shares to be delivered pursuant to this
Plan and the Agreement of Merger will be voting shares and, when so
delivered, will have been duly and validly authorized and issued by Holding
Company, will be fully paid and nonaccessable, and will be registered
pursuant to the Securities Act of 1933.
(e) To the knowledge of the officers of Holding Company and Interim,
neither the execution and delivery of this Plan, not compliance with the
terms and conditions of this Plan, on the part of Holding Company or
Interim breaches any laws or regulations of the state of Georgia or the
Untied States; breaches any of the terms or conditions of any judgment or
ruling of any court or governmental authority; or constitutes a breach or
default under the terms of any contract to which Holding Company or Interim
is a party.
(f) The execution of this Plan has been duly authorized by the Board
of Directors of Holding Company and Interim.
(g) No representation or warranty by Holding Company or Interim in
this Plan nor any statement, certificate, or document furnished or to be
furnished by or on behalf of Holding Company or Interim pursuant to this
Plan knowingly contains or shall knowingly contain any untrue statement of
a material fact or knowingly omits or shall omit a material fact necessary
to make any statement contained herein not misleading.
3. Particular Covenants of the Parties.
(a) Interim shall call a special meeting of its shareholders as soon
as practicable after the execution of this Plan, for the purpose of
approving this Plan and Agreement of Merger.
(b) The Bank shall call a special meeting of its shareholders for the
purpose of authorizing, approving and adopting this Plan of Reorganization
and the Agreement of Merger as soon as practicable after the execution of
this Plan and Agreement of Merger.
(c) In the event the Bank should issue any additional shares of its
$5.00 par value common stock subsequent to the execution of this Plan or
Reorganization and the related Agreement of Merger and prior to the
effective date of the merger, Interim shall issue to Holding Company an
additional share of its common stock for each share of common stock of the
Bank subsequently issued, and Holding Company agrees to furnish, in
connection with the proposed merger, additional shares of its no par value
common stock necessary to convert each new Bank share into one (1) share of
Holding Company common stock.
4. Tax Consequences. The parties anticipate the transaction will be a tax
free reorganization and the reorganization will not be consummated until an
opinion has been received from the special counsel of the Bank, Schreeder,
Wheeler & Flint, LLP, to the effect that:
(a) The exchange of all the outstanding shares of the Bank for shares
of Holding Company and the conversion of Interim shares into the Bank
shares pursuant to the transaction contemplated by this Plan and the
Agreement of Merger will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code.
(b) No gain or loss will be recognized by Holding Company, Interim or
the Bank, or their respective shareholders as a result of the transactions
contemplated under this Plan.
(c) The tax basis of the common stock of Holding Company received by
the shareholders of the Bank pursuant to the Plan of Reorganization and
Agreement of Merger will be the same as the tax basis of the shares of
common stock of the Bank exchanged therefor.
(d) The holding period of the shares of common stock of the Company
received by the shareholders of the Bank will include the holding period of
the shares of common stock of the Bank exchanged therefor; provided the
stock of the Bank is held as a capital asset of the date this Plan and
Agreement of Merger is consummated.
(e) For the purpose of filing a consolidated tax return, Holding
Company will be treated as the new parent corporation of a continuing
affiliated group having the same taxable year as the full taxable year of
the Bank.
5. Terms of Merger.
(a) The Merger of Interim into the Bank shall be in accordance with
the Agreement of Merger attached hereto as Exhibit "A".
(b) Immediately prior to the effective date of the Merger, Holding
Company will issue 950,000 shares of its common stock or such other number
as may be required for the exchange and conversion herein provided to
Interim as a contribution to capital, and the shareholders of the Bank
shall thereafter be entitled to receive upon the effective date of the
Merger 950,000 shares or such other number as may be required for the
exchange and conversion hereinafter provided. In return, Interim shall
simultaneously deliver to Holding Company, (1) a written representation and
warranty by Interim that the Plan of Reorganization and Agreement of Merger
has been duly approved and adopted by the shareholders of the Bank and
Interim, and that all conditions precedent to the Merger of Interim into
the Bank in accordance with the Agreement of Merger have been fully
satisfied, except for the filing of the Agreement of Merger with the
Secretary of the State of Georgia, and that the Agreement of Merger has not
been and will not be terminated or abandoned, and (2) a joint written
undertaking by Interim and the Bank to file the Agreement of Merger and
Articles of Merger forthwith with the Secretary of State of Georgia.
(c) The 950,000 shares of Holding Company contemplated to be delivered
to Interim for distribution to the shareholders of the Bank, shall be
reduced by the number of shares whose holders elect to dissent from the
Merger and demand payment for fair value of their shares in accordance with
Article 13 of the Georgia Business Corporation Code, and shall be increased
by the number of shares issued by the Bank subsequent to execution of this
agreement but prior to the merger.
(d) The 100 Holding Company common shares outstanding on the date
hereof, shall, as soon as possible after the effective date of the Merger,
be surrendered and retired, and the certificates representing such shares
shall be canceled pursuant to the Shareholder Agreement, a copy of which is
attached hereto as Exhibit "B".
6. Effective Date. Interim and the Bank will effect the Merger provided for
in the Agreement of Merger by executing and filing Articles of Merger with the
Department of Banking and Finance in the manner provided for by the laws of the
State of Georgia. The effective date for the purpose of this Plan of
Reorganization shall be the date a Certificate of Merger is issued by the
Secretary of State of Georgia.
7. Termination and Abandonment. Anything to the contrary herein
notwithstanding, this Plan of Reorganization and Agreement of Merger may be
terminated and the transaction provided for thereby may be abandoned at any time
before and after approval thereof by the stockholders of the parties, but not
later than the effective date, by the vote of the majority of any of the Boards
of Directors of Holding Company, Interim and the Bank.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and affixed
their seal by and through their duly authorized corporate officers the day and
year first above written.
CHESTATEE BANCSHARES, INC.
By: /s/ J. Philip Hester, Sr.
------------------------------
President
Attest: /s/ James H. Grogan
--------------------------
Secretary
CHESTATEE INTERIM, INC.
By: /s/ J. Philip Hester, Sr.
------------------------------
President
Attest: /s/ James H. Grogan
--------------------------
Secretary
CHESTATEE STATE BANK
By: /s/ J. Philip Hester, Sr.
------------------------------
President
Attest: /s/ James H. Grogan
--------------------------
Secretary
<PAGE>
EXHIBIT "A"
AGREEMENT OF MERGER
This Agreement of Merger entered into this 21st day of March, 1999,
hereinafter called "The Agreement", pursuant to ss.14-2-1101, et seq. of the
Georgia Business Corporation Code and ss.7-1-530, et seq. of the Financial
Institutions Code of Georgia, by and between Chestatee State Bank, a banking
corporation organized under the laws of the State of Georgia (hereinafter
referred to as the "Bank"); and Chestatee Interim, Inc., a corporation duly
organized and existing under the laws of the State of Georgia (hereinafter
referred to as "Interim"), such corporations being hereinafter referred to
jointly as the constituent companies.
W I T N E S S E T H:
WHEREAS, the aggregate number of shares the Bank is authorized to issue is
2,000,000 shares, of which 950,000 are outstanding as common shares with $5.00
par value per shares; and
WHEREAS, the aggregate number of shares Interim is authorized to issue is
2,000,000 common shares with no par value, of which 950,000 shares are
outstanding to Chestatee Bancshares, a Georgia corporation (hereinafter referred
to as "Holding Company"); and
WHEREAS, the Board of Directors of the Bank and Interim deem it advisable
for the general welfare of both corporations and the shareholders of each
thereof that such corporations merge under and pursuant to the provisions of
ss.14-2-1101, et seq. of the Georgia Business Corporation Code and ss.7-1-463,
et seq. of the Financial Institutions Code of Georgia, and the board of
directors of each of such corporations has, by resolution duly adopted and
approved this Agreement; and
WHEREAS, the board of directors of the Bank has directed that this
Agreement be submitted to a vote of its shareholders at a specially called
meeting to be held at such time as designated by the board of directors, and the
board of directors of Interim has recommended the merger to shareholders and
directed that this Agreement be submitted to a vote of Interim shareholders at a
special meeting of such shareholders to be held at such time as directed by the
board of directors of Interim, for the purpose of approving this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree, that in accordance with the
provisions of the Financial Institutions Code of Georgia and the Georgia
Business Corporation Code, Interim shall be merged into the Bank, which shall be
the surviving corporation (hereinafter referred to as the "Surviving Company"),
and that the terms and conditions of such Merger, the mode of carrying it into
effect, the manner of converting and exchanging the shares of the constituent
companies into shares of the surviving company or shares of Holding Company, and
other details and provisions deemed necessary or proper are and shall be as
herein set forth.
1. Merger. Upon the merger becoming effective in accordance with the laws
of the State of Georgia;
(a) Interim shall be merged into the Bank, which shall be the
surviving corporation and its name shall continue to be Chestatee State
Bank. The constituent companies shall be a single corporation and the
separate existence of Interim shall cease, except to the extent provided by
the laws of the State of Georgia.
(b) On the effective date of the merger, for all purposes of the laws
of the State of Georgia, the separate existence of Interim shall cease and
Interim shall be merged into the Bank which shall possess all the rights,
privileges, powers, and franchises both of a public and a private nature,
and shall be subject to all the restrictions, disabilities, and duties of
each of the constituent companies so merged; and all and singular the
rights, privileges, powers and franchises of each of the constituent
companies, in all property, real and personal, and mixed, and all debts due
to any of such constituent companies on whatever account, as well for share
subscriptions as for all other things and actions or belonging to each of
such constituent companies, shall be vested in the surviving company; and
all property, rights, privileges, powers and franchises and all and every
other interest shall be thereafter as effectively the property of the
surviving company as they were of the respective constituent companies, and
the title to any real estate vested by deed or otherwise, under the laws of
this state and any of such constituent companies, shall not revert or be in
any way impaired by reason of the merger, but all rights of creditors and
all liens upon any property of any of such constituent companies shall be
preserved unimpaired, and all debts, liabilities, and duties of the
respective constituent companies shall thenceforth attach to such surviving
company, and may be enforced against it to the same extent as if such
debts, liabilities, and duties had been incurred or contracted by it.
(c) The Articles of Incorporation, capital structure and Bylaws of the
Bank in existence on the effective date of the merger shall not be altered
or amended by the merger and shall continue in effect as that of the Bank
as the surviving company.
(d) The directors and officers of the Bank immediately prior to the
merger becoming effective shall be and constitute the directors and
officers of the surviving company. If on the effective date of the merger a
vacancy shall exist on the board of directors of in any of the offices of
the surviving company, such vacancy may thereafter be filled in the manner
provided by the articles of incorporation and the bylaws of the surviving
company and the laws of the State of Georgia.
2. Articles of Incorporation and Certificate of Incorporation. The articles
of incorporation and certificate of incorporation of the surviving company shall
be the articles of incorporation and certificate of incorporation of the Bank as
in effect on the effective date of the merger and shall constitute the composite
articles of incorporation and certificate of incorporation of the surviving
company.
3. Conversion of Shares. The manner of converting and exchanging the shares
of the constituent companies into the shares of the surviving company or of
Holding Company, as the case may be, shall be as follows:
(a) Each of the 950,000 shares with no par value or Interim to be
issued and outstanding on the effective date of the merger and owned by
Holding Company, or such greater number as may be issued to correspond with
any additional shares of Bank stock issued subsequent to the execution of
this agreement and prior to the merger shall, by virtue of the merger and
without any action on the part of the holder thereof, be converted, upon
the merger becoming effective, into one common share of the surviving
company. Immediately after the merger, Holding Company shall own all of the
950,000 shares of $5.00 par value stock of the surviving company, the Bank,
or such greater number of shares as may then be issued and outstanding. (b)
In consideration for the merger of Interim with and into the Bank, each
share of the 950,000 shares of the $5.00 par value common stock of
Chestatee State Bank, or such greater amount as may be issued and
outstanding on the effective date shall as of the effective date, by virtue
of the merger and without any action on the part of the holders thereof, be
converted into and exchanged for one (1) share of Holding Company's no par
value common stock, resulting in the receipt in the aggregate of not more
than 950,000 shares of Holding Company common stock by the shareholders of
the Bank or such greater number as may be required to implement the terms
of the merger. As soon as practicable after the effective date of the
merger, each holder as of the effective date of any of the shares of the
Bank's common stock owned by him or her shall be entitled, upon
presentation and surrender to Holding Company of the certificates
representing such shares, to receive in exchange therefore a stock
certificate to evidence the whole or fractional shares of Holding Company
common stock to which he or she is entitled to by virtue of the merger.
Until so surrendered, each outstanding certificate which prior to the
merger date represented stock of the Bank shall be deemed for all corporate
purposes to evidence the holder's entitlement to certificates evidencing
his or her ownership in Holding Company, and shall not evidence the
holder's entitlement to certificates evidencing his or her ownership in
Holding Company, and shall not evidence any shares of stock of the Bank,
all of which shall, upon the effective date of the merger, be owned by
Holding Company. Unless and until each such certificate owned by holders of
common stock of the Bank immediately prior to the effective date of the
merger is surrendered, the holder of any such certificate shall not have
any right to receive any cash or stock dividends paid with respect to the
shares of Holding Company to which the holder is entitled to as a result of
the merger, but upon surrender of such certificates, Holding Company shall
issue to the holder stock certificates evidencing the holder's ownership of
shares of company stock to which he or she is entitled under the terms of
the merger.
4. Further Instruments. If at any time the surviving company shall consider
or be advised that any further assignment or assurance in law is necessary or
desirable to vest in surviving company the title to any property or rights of
Interim, the proper officers and directors of Interim shall, and will, execute
and make all such proper assignments and assurances in law and do all things
necessary or proper to vest such property or rights in the surviving company,
and otherwise to carry out the purposes of this agreement.
5. Shareholder Approval. Adoption of this agreement by each party thereto
shall require the affirmative vote of at least:
(a) The majority vote of the directors of each corporation which is a
party hereto; and
(b) The holders of at least two-thirds of the outstanding voting
shares of each corporate party's common stock entitled to vote at any
special meeting called by such corporation for purposes of approving the
plan of reorganization and this agreement of merger. The notices to
shareholders of the meeting shall include a copy or summary of this
agreement and a full statement of the rights and remedies of dissenting
shareholders, the method of exercising them, the limitations on such rights
and remedies and all other information required by law.
(c) Any modification of this agreement after it has been adopted shall
be made by the same vote as that required for adoption.
6. Dissenting Shareholders of the Bank or Interim. Any shareholder of the
Bank or Interim may object to the merger and demand payment to him or her of the
fair value of his or her shares of the Bank or Interim. Any holder of record
intending to exercise his right to dissent shall file with the respective
corporation, before the meeting of shareholders at which the proposed plan of
merger is submitted to a vote, or at such meeting but before the vote, a written
notice of his or her intent to demand payment for his or her shares if the
proposed merger is effectuated. The shareholder must also refrain from voting in
favor of the proposed merger.
No later than ten days after the proposed merger is effectuated, the Bank
will deliver to each shareholder who shall have perfected his or her rights as a
dissenter written notice advising of the approval of the proposed merger and
enclosing a copy of Article 13 of the Georgia Business Corporation Code. The
notice will further advise the dissenting shareholder where the demand for
payment must be sent and where and when certificates must be deposited, inform
holders to what extent transfer of the shares will be restricted after the
payment demand is received, and will set a date by which the corporation must
receive the payment demand, which date may not be fewer than thirty (30) nor
more than sixty (60) days after the date the notice to the shareholder is
delivered. With the time provided by such notice, the dissenting shareholder
must demand payment and deposit his certificates with the Bank in accordance
with the terms of the notice.
If all of the preceding conditions are fully satisfied, the Bank will be
required within ten (10) days of the later of the date the proposed merger is
effectuated or reciept of a payment demand to offer to pay each dissenter who
has complied with all of the conditions set forth the amount the Bank estimates
to be the fair value of his or her shares, plus accrued interest. The offer of
payment will be accompanied by certain recent financial statements of the Bank
and will advise the dissenter of his or her right to demand payment under
O.C.G.A. ss.14-2-1327, and will include a copy of Article 13 of the Georgia
Business Corporation Code. If the merger is not completed within sixty (60) days
after the date set for demanding payment and depositing share certificates, the
deposited certificates must be returned, and if the proposed merger is later
effectuated, the applicable corporation must send a new notice to those
shareholders who perfected their dissenter's rights under O.C.G.A. ss.14-2-1322.
Any dissenting shareholder who is dissatisfied with the Bank's offer of
payment may demand payment of his or her estimate of the fair value of his or
her shares, together with interest due, if the shareholder believes the amount
offered by the corporation is less than the fair value of his or her shares or
that the interest due is incorrectly calculated, or if the corporation, having
failed to effectuate the proposed merger, does not return the deposited
certificates within sixty (60) days after the date set for demanding payment.
Any shareholder who fails to notify the corporation of his demand in writing
within thirty (30) days after the Bank made or offered payment for his or her
shares will not be entitled to receive payment for his or her estimated value of
the shares.
If the shareholder's demand for payment remains unsettled, the corporation
will commence legal proceedings within sixty (60) days after receiving the
payment demand in the Superior Court of Dawson County to determine the fair
value of the shares and accrued interest. If it fails to take that action, it
must pay to each dissenter whose demand remains unsettled the amount demanded.
All dissenters whose demand remains unsettled will be made parties to the
proceedings.
The provisions of Article 13 of the Georgia Business Corporation Code shall
prevail to the extent of any inconsistency between the provisions of this
agreement of merger and the provisions of the Georgia Business Corporation Code.
7. Payments to Dissenters. With respect to payments to the holders of any
shares which may be voted in dissent to this agreement of merger and related
plan of reorganization, Holding Company may, at its election, provide the Bank
with the monetary consideration in an amount sufficient to redeem any and all
dissenting shares, or any portion thereof.
8. Conditions Precedent to the Merger. This merger is subject to, and
consummation of the merger herein provided for, is conditioned upon receiving
all consents and approvals required by law, including but not limited to the
following:
(a) Approval by the Georgia Department of Banking as required by the
Georgia Financial Institution Code.
(b) Approval by the Federal Deposit Insurance Corporation as required
by the Federal Deposit Insurance Act.
(c) Registration by the Company as a bank holding company with the
Georgia Department of Banking and Finance.
(d) Prior approval of the Federal Reserve Board for Holding Company to
become a holding company pursuant to the Bank Holding Company Act of 1956,
as amended.
(e) As to the securities issued by the Company in exchange for the
common stock of the Bank in compliance with the registration provision of
the Securities Act of 1933, as amended.
(f) Receipt by the Bank from Schreeder, Wheeler & Flint, LLP, its
special counsel, that the transaction will be a tax free reorganization
pursuant to ss.368 of the Internal Revenue Code and that no gain or loss
will be recognized for federal income tax purposes by the Bank, Holding
Company or the shareholders of the Bank who receive stock of Holding
Company in connection with the merger provided for herein.
(g) Compliance by Holding Company with the Blue Sky Laws of the
various states wherein the shareholders of the Bank reside on the effective
date of the merger.
9. Abandonment of Merger Plan. This plan of reorganization and agreement of
merger may be terminated and abandoned before it becomes effective by a
resolution passed by a majority of the board of directors of any of the parties
to this agreement. In the event of termination and abandonment of this agreement
of merger by the board of directors of any of the parties, this agreement of
merger shall become wholly void and of no effect and there shall be no liability
on the part of either of the parties, their respective boards of directors,
officers, employees or shareholders.
10. Expenses of the Merger. All of the expenses of the merger, including
filing fees, printing costs, mailing costs, accountant's fees and legal fees
shall be borne by Holding Company. In the event the merger is abandoned for any
reason, the expenses shall be paid by Holding Company.
11. Effective Date. This merger agreement shall become effective at the
close of business on the day on which a certificate of merger is issued by the
Secretary of State of Georgia.
IN WITNESS WHEREOF, the parties have hereunto set their hands and affixed
their seals by and through their duly authorized corporate officers the day and
year first above written.
CHESTATEE INTERIM, INC.
By:
President
Attest:
Secretary
(Affix Corporate Seal)
CHESTATEE STATE BANK
By:
President
Attest:
Secretary
(Affix Corporate Seal)
<PAGE>
EXHIBIT "B"
SHAREHOLDER AGREEMENT
THIS AGREEMENT entered into effective October 13, 1999, by and between J.
Philip Hester, Sr. (hereinafter referred to as "Shareholder") and Chestatee
Bancshares, Inc., a Georgia corporation (hereinafter referred to as "Holding
Company").
W I T N E S S E T H:
WHEREAS, on December 21, 1999, the Board of Directors of Chestatee State
Bank, Dawsonville, Dawson County, Georgia, a state bank organized under the laws
of the State of Georgia, adopted a Plan of Reorganization and Merger and Holding
Company was organized for the purpose of being a party to said merger; and
WHEREAS, the Shareholder is presently the holder of all of the issued and
outstanding shares of Holding Company, but Holding Company contemplates that
additional shares will be outstanding to the public after the consummation of
the Plan of Reorganization and Merger herein referred to; and
WHEREAS, in the event the Plan of Reorganization and Merger is concluded,
the Shareholder believes it to be in the best interest of Holding Company to
provide for restrictions on the transferability and require compulsory
redemption of the initial one hundred (100) shares issued to Shareholder in the
organization of Holding Company.
NOW, THEREFORE, in consideration of Holding Company issuing to the
Shareholder one hundred (100) of its common shares and in consideration of the
mutual promises contained herein, the parties agree as follows:
1. Holding Company has issued to Shareholder one hundred (100) of its
common shares at a price of $5.00 per share.
2. The Shareholder agrees that the one hundred (100) initial shares issued
to him shall not be sold, assigned, transferred, pledged, encumbered, or in any
other way disposed or; and any sale, assignment, transfer, pledge, encumbrance,
or other disposition whatsoever of the initial shares shall be void; and no
transfer of any right, title or interest therein, shall be valid or binding,
except in compliance with the terms, covenants and conditions of this agreement.
3. After consummation of the Plan of Reorganization and Merger by and among
Holding Company, Chestatee Interim, Inc., and Chestatee State Bank, the
Shareholder agrees to surrender upon demand by Holding Company the initial one
hundred (100) shares of Holding Company to Holding Company for redemption, at a
price of $5.00 per share, the same price for which they were issued. Holding
Company agrees to redeem the initial one hundred (100) shares at a price of
$5.00 per share after consummation of the Reorganization and Merger. Upon
redemption, the initial one hundred (100) shares shall be canceled.
4. In the event the Plan of Reorganization and Agreement of Merger by and
among Holding Company, Chestatee Interim, Inc. and Chestatee State Bank is not
consummated, the Shareholder agrees Holding Company shall be liquidated and
dissolved pursuant to the laws of the State of Georgia.
5. The Shareholder agrees to vote his shares in favor of the Plan of
Reorganization and Agreement of Merger by and between Holding Company, Chestatee
Interim, Inc. and Chestatee State Bank, and to vote his shares in whatever
manner is required and to take whatever action is necessary to conclude the Plan
of Reorganization and Merger.
6. Upon written notice given by regular mail to the Shareholder at his last
known address by Holding Company of its intent to redeem the shares subject to
the terms of this Agreement, the shares subject hereto shall automatically be
canceled and the Shareholder shall have no further rights as Shareholder by and
through the shares subject to the terms of this Agreement. Upon presentation of
the stock certificates to Holding Company, the redemption price shall be paid in
cash to the Shareholder.
7. The certificate issued to the Shareholder as the initial shares of
Holding Company, in addition to any legend required thereon, shall be endorsed
on the face as follows:
"The shares represented by this certificate are subject to an
agreement, effective October 13, 1999, which restricts the
transferability of the shares and requires redemption of the shares at
a fixed price. A copy of said agreement is on file at the office of the
corporation."
8. Holding Company is authorized to enter into this agreement by virtue of
a resolution adopted by the board of directors at its organizational meeting and
the Shareholder consents by execution of this Agreement.
9. This Agreement shall be binding upon and shall operate for the benefit
of the Shareholder and his respective executors, administrators, successors and
assigns.
J. PHILIP HESTER, SR.
Shareholder
CHESTATEE BANCSHARES, INC.
By:
President
Attest:
Secretary
(Seal)
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20549
FORM 10-KSB
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
---
Act of 1934 for the fiscal year ended December 31, 1999, or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
FDIC Certificate Number: 34578
CHESTATEE STATE BANK
--------------------
(Exact name of small business issuer as specified in its Charter)
Georgia 58-2381111
- --------------- ----------------
(State or other (IRS Employer
jurisdiction of Identification
incorporation or Number)
organization)
6639 Highway 53 East
Dawsonville, Georgia 30534 (706) 216-2265
- -------------------------- --------------
(Address of principal (Issuer's telephone
executive offices) number)
Securities registered under Section 12(b) of the Exchange Act:
Name of Exchange
Title of each class: on which registered:
- -------------------- --------------------
None None
Securities registered under Section 12(g) of the Exchange Act
Name of Exchange
Title of each class: on which registered:
- -------------------- --------------------
Common Stock None
par value $5.00 per share
Indicate by mark whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No
Indicate by mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The issuer's revenues for the fiscal year ended December 31, 1999 were:
$3,761,332
There were 950,000 outstanding shares of common stock, par value $5.00 per
share, as of December 31, 1999. The aggregate market value of the voting stock
of the Registrant held by non-affiliates of the Registrant, as of December 31,
1999, was $ 10,244,800 based on the last sales price on such date.
<PAGE>
PART I
------
ITEM 1. BUSINESS
- -----------------
History
- -------
The Bank is a state banking institution chartered under the laws of the
State of Georgia on December 31, 1997. Since opening on May 15, 1998, the Bank
has conducted its general banking business and presently serves its customers
from two locations: the main office located at 6639 Highway 53 East,
Dawsonville, Dawson County, Georgia and a full-service branch located in the
Ingles Supermarket at the intersection of Georgia Highway 400 and Georgia
Highway 53, also in Dawsonville, Dawson County, Georgia.
Business
- --------
The Bank operates a full-service banking business and engages in a
broad range of commercial banking activities, including accepting customary
types of demand and timed deposits, making individual, consumer, commercial, and
installment loans, money transfers, safe deposit services, and making
investments in U. S. government and municipal services. The Bank does not offer
trust services.
The data processing work of the Bank is processed with the Intercept
Group f/k/a Provesa, Inc. of Thomson, Georgia. The Bank issues credit cards. The
Bank also offers its customers a variety of checking and savings accounts. The
installment loan department makes both direct consumer loans and also purchases
retail installment contracts from sellers of consumer goods.
The Bank principally serves the residents of Dawsonville and Dawson
County which have, collectively, a population of approximately 15,000 persons.
Dawsonville and Dawson County have a diverse commerce, including retail,
manufacturing, service and farming sector economies. Dawsonville also serves as
the county seat for Dawson County, Georgia, with a significant number of
residents employed in government. Dawsonville, located approximately 15 miles
north of Cumming, Georgia and 22 miles west of Gainesville, Georgia, is situated
in the center of the development corridor extending north from Atlanta between
Interstate 75 and Interstate 85. The Bank will also seek deposit and loan
business from outside its primary service area, including the adjacent counties
of Cherokee, Forsyth, Gilmer, Hall, Lumpkin and Pickens.
As of December 31, 1999, the Bank has a correspondent relationship with
the Bankers Bank of Atlanta, Georgia. The correspondent bank provides certain
services to the Bank, such as investing its excess funds, processing checks and
other items, buying and selling federal funds, handling money fund transfers and
exchanges, shipping coins and currency, providing security and safekeeping of
funds and other valuable items, handling loan participation and furnishing
management investment advice on the Bank's securities portfolio.
2
<PAGE>
Competition
- -----------
The banking business in Dawsonville and Dawson County is highly
competitive. The Bank competes with several other financial institutions in the
market it represents. Within the primary service area, the Bank competes with
Bank of America, N.A., First Community Bank of Dawsonville, owned by regional
banking company Century South Banks, Inc. of Dahlonega, and Dawson County Bank,
a closely held locally owned institution. While there are no other financial
institutions with offices in Dawson County, numerous financial institutions
within the Atlanta metropolitan area market their services to its residents,
including Bank of America, N.A., First Union, SunTrust and Wachovia. In addition
to these banks, there are several finance companies, credit union offices, and
other non-traditional providers of service that compete in the Bank's market.
Employees
- ---------
As of December 31, 1999, the Bank had 25 full-time and 2 part-time
employees. In the opinion of management, the Bank enjoys an excellent
relationship with its employees. The Bank is not a party to any collective
bargaining agreement.
Selected Financial Information
- ------------------------------
A history of the Bank's financial position for the period ended
December 31, 1998, is as follows (audited, dollar amounts in thousands, except
for per share information):
Total Assets.............................................................$31,960
Total Deposits...........................................................$23,054
Total Shareholders Equity.................................................$8,739
Net Income (Loss).........................................................$(743)
Number of Issued and Outstanding Shares..................................950,000
Book Value Per Share.......................................................$9.20
Net Income (Loss) Per Share..............................................$(0.78)
A history of the Bank's financial position for the year ended December 31, 1999,
is as follows (audited, dollar amounts in thousands, except for per share
information):
Total Assets.............................................................$51,031
Total Deposits...........................................................$41,816
Total Shareholders Equity.................................................$9,027
Net Income (Loss)...........................................................$297
Number of Issued and Outstanding Shares................................. 950,000
Book Value Per Share.......................................................$9.50
Net Income (Loss) Per Share................................................$0.31
3
<PAGE>
Monetary Policies
- -----------------
The results of operation of the Bank are affected by the credit
policies of monetary authorities, particularly the Federal Reserve, even though
the Bank is not a member of the Federal Reserve. The instruments of monetary
policy employed by the Federal Reserve include open market operations in U. S.
government securities, changes in discount rates on member bank borrowings, and
changes in reserve requirements against member bank deposits. In view of
changing conditions in the national economy and in the money markets, as well as
the effect of action by monetary and fiscal authorities, including the Federal
Reserve System, 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.
Supervision and Regulation
- --------------------------
The Bank is subject to state and federal governmental regulations. The
Bank operates as a banking institution incorporated under the laws of the State
of Georgia and subject to examination by the Department. The Bank must also
comply with the state usury laws which limit the rates of interest which may be
charged on certain types of loans. The Bank is also, as a nonmember insured
bank, subject to the powers, functions and duties of the FDIC.
The Department regulates all areas of the Bank's commercial banking
operations, including de novo branching, banking facilities, mergers, interest
rate ceilings and holding companies. The Bank must also comply with state usury
laws that limit the rates of interest which may be charged on certain types of
loans. For example, the Financial Institutions Code limits the establishment and
operation of bank offices and bank facilities generally within the county in
which the parent bank or branch bank is situated. State law also limits, upon
approval by the Department, the merger or consolidation of banks. Finally, the
Financial Institutions Code limits the ability of a bank holding company to
acquire direct or indirect ownership or control of any voting shares of any
bank. These provisions are not anticipated to have a material impact upon the
operations of the Bank.
In addition to state banking laws and regulations applicable to the
Bank as a state banking institution, the Bank is also regulated, as an insured
institution not a member bank of the Federal Reserve System, by the FDIC. The
major functions of the FDIC with respect to insured banks include paying off
depositors to the extent provided by law in the event a bank is closed without
adequate provisions having been made to pay the claims of depositors, acting as
the receiver of state banks placed in receivership when appointed receiver by
state authorities, and preventing the continuance or development of unsound and
unsafe banking practices. In addition, the FDIC is authorized to examine insured
banks which are not members of the Federal Reserve System to determine the
condition of such banks for insurance purposes. The FDIC is also authorized to
approve mergers, consolidations and assumption of deposit liability transactions
between insured banks and non-insured banks or institutions, and to prevent
capital or surplus diminution in such transactions whether resulting, continued,
or assumed bank is an insured non-member state bank. Also, the FDIC closely
examines non-member banks for compliance with certain federal statutes such as
the Community Reinvestment Act and the Truth-and-Lending Act.
4
<PAGE>
The Federal Deposit Insurance Act (the "Act"), including the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
generally regulates the Bank's operations and compliance with federal banking
laws. FIRREA was enacted on August 9, 1989 primarily in an attempt to address
problems in the savings and loan industry. However, FIRREA has had a substantial
effect on the environment in which commercial banks operate. The Bank is
required to meet certain core, tangible and risk-based capital ratios. In
addition, the annual assessment rates for banks insured by the FDIC increased
from .083% of insured deposits to .12% of insured deposits in 1990, to .195% in
1991, and to .23% of insured deposits in 1992. Banks will be entitled to a
rebate of deposit insurance premiums when the FDIC's insurance reserves equal
1.25% of estimated insured deposits (unless the FDIC determines future losses
are probable). The increase in deposit premiums is directly attributable to the
large number of insured banks which have failed in recent years.
FDICIA was enacted on December 19, 1991 in large measure to improve the
supervision and examination of insured depository institutions in an effort to
reduce the number of bank failures and the resulting demands on the deposit
insurance system. FDICIA generally divides insured financial institutions into
five categories: (1) well capitalized institutions having 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) adequately capitalized institutions having 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) undercapitalized institutions
having 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) significantly undercapitalized
institutions having 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) critically
undercapitalized institutions having a ratio of tangible equity to total assets
of 2% or less. As an institution drops below the well capitalized category, it
becomes subject to increasing scrutiny, decreasing management flexibility, and
increasingly onerous regulatory control.
For example, the FDICIA requires all depository institutions with
assets in excess of $150 million, or such larger threshold as may be established
by the FDIC, prepare and submit to the FDIC an appropriate federal and state
banking regulators annual financial statements that have been audited by
independent public accountants, file reports repaired by the depository
institutions containing a statement by management of its responsibilities and by
the depository institutions' independent public accountant attesting to the
accuracy of management's annual assessment of its financial reporting, internal
controls and regulatory compliance, and establish an audit committee composed of
members of the board of directors who are independent of management. The FDIC
has provided by regulation that these provisions of the FDICIA do not apply to
depository institutions with assets less than $500 million. An enactment of the
FDICIA has also resulted in the promulgation of regulations by regulatory
agencies that will tend to restrict to some degree the real estate lending
practices of financial institutions. FDICIA also provides a ban on acceptance of
brokered deposits except by well capitalized institutions and by adequately
capitalized institutions with the permission of the FDIC, and for restrictions
on activities engaged in by state banks and their subsidiaries, including
insurance underwriting, to the same activities permissible for national banks
and their subsidiaries, unless the state bank is well capitalized and a
determination is made by the FDIC that the activities do not pose a significant
risk to the insurance fund. The FDICIA
5
<PAGE>
otherwise provides for additional supervision and regulation of financial
institutions, the effect of which is likely to increase the operating expenses
of the Bank.
The FDICIA also contains provisions requiring prompt corrective action by
financial institutions which are characterized as "under capitalized" or worse.
The action required to be taken by such institutions includes the requirement of
filing a capital plan with the bank's primary federal regulator, prohibition on
the payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring. Other restrictions may be
imposed on the institution either by its primary federal regulator or by the
FDIC, including requirements to raise additional capital, sell assets, or to
sell the institution. At December 31, 1999, the Bank exceeded those minimum
capital requirements.
The Bank Holding Company Act of 1956, as amended (the "BHCA") restricts
the ability of a bank holding company to redeem its stock. The regulations
promulgated under the BHCA provide that a bank holding company may not redeem
its shares without prior written notice to the Federal Reserve under certain
circumstances. Unless a bank holding company, both before and immediately after
the redemption, is well-capitalized, well-managed, and not subject to any
unresolved supervisory issues, a bank holding company is obligated to give the
Federal Reserve prior written notice before purchasing or redeeming its equity
securities if the gross consideration for the purchase or redemption, when
aggregated with the net consideration paid by the company for all such purchases
or redemptions during the preceding 12 months, is equal to 10 percent or more of
the company's consolidated net worth. Further, any notice filed under this
section must contain the purpose of the transaction, a description of the
securities to be purchased or redeemed, the total number of each class
outstanding, the gross consideration to be paid, and the terms and sources of
funding for the transaction, a description of all equity securities redeemed
within the preceding 12 months, the net consideration paid and the terms of any
debt incurred in connection with those transactions, and if the bank holding
company has consolidated assets of $150 million or more, consolidated pro forma
risk-based capital and leverage ratio calculations for the bank holding company
as of the most recent quarter, and, if the redemption is to be debt funded, a
parent-only pro forma balance sheet of the most recent quarter (or if the bank
holding company has consolidated assets of less than $150 million, a pro forma
balance sheet as of the most recent quarter, and, if the redemption is to be
debt funded, one-year income statement and cash flow projections). The Federal
Reserve is authorized to disapprove a proposed purchase or redemption if it
would constitute an unsafe or unsound practice, or would violate any law,
regulation, order, directive, or condition imposed by, or written agreement
with, the Federal Reserve.
The BHCA also regulates any change in control of a state member bank or
a bank holding company. Generally, any person acting directly or in concert with
other persons must provide 60 days written notice before acquiring control of a
bank holding company. "Control" is deemed found if, immediately after the
transaction, the acquiring person owns, controls or holds power to vote 25% or
more of the voting securities of the institution. "Control" may be found if,
immediately after the transaction, the acquiring person owns, controls or holds
power to vote 10% or more of the voting securities of an institution with
securities registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or no other person owns,
6
<PAGE>
controls or holds power to vote a greater percentage of those voting securities.
The person may consummate the acquisition 60 days after notice absent
disapproval by the Federal Reserve.
Regulatory and Legislative Changes
- ----------------------------------
On March 16, 1994, the Georgia General Assembly adopted the Georgia
Interstate Banking Act (the "Georgia Act"). The Georgia Act, effective July 1,
1995, revises the existing regional interstate banking law to expand the scope
nationwide. The Georgia Act permits bank holding companies located in any state
outside of Georgia to acquire Georgia banks, or bank holding companies owning
Georgia banks, if the state in which the acquiring company's principal place of
business is located permits Georgia bank holding companies to make acquisitions
in that state. However, the Georgia Act retains the existing prohibition on
acquiring banks in operation less than five years. Further, the board of
directors of a Georgia bank or bank holding company may adopt a resolution to
exempt its bank or bank holding company from acquisition under the Georgia Act.
Finally, acquisition of a bank requires the prior approval of the Federal
Reserve and the Department. The Board of Directors of the Bank has not adopted
to date a resolution to exempt the Bank from acquisition under the Georgia Act.
Recently enacted federal statutes impacting the ways in which the Bank
conducts business include the Riegle Community Development and Regulatory
Improvement Act of 1994 ("RCDRIA"), and the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking Act").
The RCDRIA was enacted September 23, 1994, to promote economic
revitalization and community development to "investment areas." The RCDRIA
establishes a Community Development Financial Institutions Fund to achieve these
objectives. The fund is authorized to provide financial assistance through a
variety of mechanisms, including equity investments, grants, loans, credit union
shares and deposits. The amount of assistance any community development
financial institution and its subsidiaries and affiliates may receive is
generally limited to $5,000,000.00. A qualifying institution may receive an
additional $3.75 million for the purpose of serving an investment area in
another state.
The RCDRIA also provides certain regulatory relief, requiring each
federal agency to streamline and modify its regulations and policies, remove
inconsistencies and eliminate outmoded and duplicative requirements. The RCDRIA
also directs the federal agencies to coordinate examinations among affiliate
banks, coordinate examinations with other federal banking agencies, and work to
coordinate with state banking agencies. The federal banking agencies are also
directed to work jointly in developing a system for banks and savings
associations to file reports and statements electronically and to adopt a single
form for filing core information in reports and statements.
The RCDRIA also provides procedures for expediting bank holding company
applications, eliminating prior approval of the Federal Reserve for the
acquisition of control of a bank in a reorganization in which persons exchange
their shares for shares of a newly-formed bank holding company provided the bank
holding company immediately after the acquisition meets capital and other
financial standards and the bank is "adequately capitalized," the holding
company does not
7
<PAGE>
engage in any activities other than those of managing and controlling banks,
company provides 30 days prior notice to the board of the transaction, and the
holding company will not acquire control of any additional bank. The RCDRIA also
provides for reduction of post-approval waiting periods, decreasing the waiting
period from 30 days to 15 days in most instances. The RCDRIA also exempts from
federal securities registration securities issued in connection with the
formation of a one-bank holding company.
The RCDRIA also permits a bank holding company to engage in non-banking
activities or acquire or retain ownership or control of the shares of a company
engaged in non-banking activities if prior written notice of the proposed
transaction or activity is provided to the Federal Reserve at least 60 days
before the transaction or activity occurs or commences. In assessing the
proposed transaction or activity, the board will consider whether performance of
the activity by a bank holding company or a subsidiary can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency that outweighs possible adverse
effects.
The Interstate Banking Act, enacted September 29, 1994, will, among
other things, permit bank holding companies to merge their multi-state bank
subsidiaries into a single bank by June 1, 1997, unless state legislators act to
"opt-out" of this provision, to acquire banks in any state one year after the
effective date of the Interstate Banking Act, and permit banks to establish de
novo branches across state lines so long as the individual states into which a
potential de novo entrant proposes to branch specifically passes legislation to
"opt-in."
Under the Interstate Banking Act, a bank may merge beginning on June 1,
1997, with a bank in another state so long as the transaction does not involve a
bank in a home state which has enacted a law after the date of enactment of the
Interstate Banking Act and before June 1, 1997, that applies equally to all out
of state banks and expressly prohibits such interstate merger transactions. Such
a law would have no effect on merger transactions approved before the effective
date of such state law. States may also elect to permit merger transactions
before June 1, 1997. The Interstate Banking Act authorizes interstate mergers
involving the acquisition of a branch of a bank without the acquisition of the
bank only as state law permits an out of state acquired to acquire a branch
without acquiring the bank. State minimum age laws for banks to be acquired will
be preserved unless state law provides for a minimum age period of more than
five years. After consummation of any interstate merger transaction, a resulting
bank may establish or operate additional branches at any location where any bank
involved in the transaction could have established or operated a branch under
applicable federal or state law.
Beginning September 29, 1995, the Federal Reserve is authorized to
approve the acquisition by a well capitalized and adequately managed bank
holding company of a bank that is located in another state without regard as to
whether the acquisition is prohibited under the laws of any state. Again, state
minimum age laws for banks to be acquired will be preserved unless the state law
provides for a minimum age period of more than five years. The Federal Reserve
may not approve an interstate acquisition which would result in the acquirer's
controlling more than 10% of the total amount of deposits of insured depository
institutions in the United States with 30% or more of the deposits in the home
state of the target bank. A state may waive the 30% limit based on criteria that
does not discriminate against out of state institutions. The limitations do not
apply to the initial
8
<PAGE>
entry into a state by a bank holding company unless the state has a deposit
concentration cap that applies on a nondiscriminatory basis to in state or out
of state bank holding companies making an initial acquisition. Notwithstanding
the foregoing, anti-trust laws are not affected by the Interstate Banking Act.
The Interstate Banking Act now provides that banks may establish
branches across state lines upon approval of the appropriate federal regulator
if the state "opts-in" by enacting legislation that expressly permits de novo
interstate branching. The establishment of the initial branch in a host state
which permits de novo interstate branching is subject to the same requirements
which apply to the initial acquisition of a bank in a host state, other than the
deposit concentration limits, since the bank would not control any deposits in
the host state at the time of entry. Once a branch has been established by de
novo branching, the bank may establish and acquire additional branches at any
location in the host state in the same manner as any bank in the host state
could have established or acquired under applicable federal or state law.
The Gramm-Leach-Bliley Act (the "Gramm Act"), adopted November 12,
1999, is intended to enhance competition in the financial services industry by
providing a framework for the affiliation of banks, brokerage firms, insurance
companies and other financial service providers. If the bank holding company and
its subsidiaries have a satisfactory or better rating under the Community
Reinvestment Act of 1977, then the Gramm Act permits a bank holding company to
become a financial holding company.
The Gramm Act also streamlines the Federal Reserve's supervision of
bank holding companies, liberalizing the reporting and examination requirements
of the BHCA. The Gramm Act prohibits regulations of the capital of a bank
holding company, so long as the bank holding company is not a bank and is in
compliance with the capital regulations of the Commission and the appropriate
state authority.
The Gramm Act generally limits the Federal Reserve's ability to
regulate a bank holding company subsidiary directly. For example, the Gramm Act
prohibits the Federal Reserve from requiring bank holding companies to provide
funds or other assets to subsidiary banks, so long as the bank holding company
or its affiliate is an insurance company, broker or dealer registered under the
Exchange Act and providing such funds would have a material adverse effect on
the financial condition of the company. The Federal Reserve may, however, order
the bank holding company to divest of the bank subsidiary within 180 days.
Moreover, the Federal Reserve (or FDIC or Office of the Comptroller of the
Currency) may impose certain "prudential safeguards" regulating transactions
between a bank and its affiliates if consistent with the purposes of certain
banking laws. The Gramm Act also amends previous legislation permitting the
Federal Reserve to order a bank holding company to terminate all non-banking
activities or divest itself of control in the non-banking subsidiary in cases
where the Federal Reserve found the activities to be a serious risk to the
subsidiary bank. The Gramm Act now allows the bank holding company to elect
whether to terminate the activity or divest, as before, or terminate ownership
and control of the bank itself.
9
<PAGE>
ITEM 2. DESCRIPTION OF THE PROPERTY
- ------------------------------------
The Bank conducts its operations from two locations: its main offices
at 6639 Highway 53 East, Dawsonville, Georgia 30534 and its supermarket branch
at 120 South Center Lane, Dawsonville, Georgia 30534. The main offices are owned
by the Bank. The branch is leased by the Bank.
The main office consists of approximately 11,000 square feet, 4
drive-in windows, an automated teller machine ("ATM") and an adjacent parking
lot. The supermarket branch has been in continuous operation since it opened in
September, 1998. The branch lease space is approximately 1,000 square feet, with
an ATM but no drive-in windows.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Bank is not a party to any material pending legal proceedings other
than ordinary routine litigation incidental to the business of the Bank. The
Bank is not a party to any legal, administrative or judicial proceeding under
Section 8 of the BHCA. To the knowledge of the management of the Bank, no such
proceedings are contemplated or threatened against the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Bank did not submit any matter during the fourth quarter of the
fiscal year ending December 31, 1999 to a vote of security holders through the
solicitation of proxies or otherwise. The Bank did hold a special meeting of
shareholders on March 21, 2000 for the purpose of considering a plan of
reorganization pursuant to which the Bank would become and thereafter operated
as a wholly-owned subsidiary of a new Georgia corporation, Chestatee Bancshares,
Inc. (the "Holding Company"). The reorganization was approved unanimously by
more than two-thirds (2/3) of the outstanding shares of common stock of the Bank
entitled to vote and present at the special meeting of shareholders..
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------
There is no established trading market for shares of the common stock
of the Bank. Further, management of the Bank has no reason to expect that an
established trading market will develop in either the common or preferred shares
of the Bank or its unsecured debentures.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
The following table reflects the trades of shares of the Bank from inception May
15, 1998 through December 31, 1999 based on limited available information.
- -------------- -------------- ------------ ------------
NUMBER OF HIGH SELLING LOW SELLING
YEAR SHARES TRADED# PRICE* PRICE*
- -------------- -------------- ------------ ------------
1998
First Quarter N/A N/A N/A
Second Quarter N/A N/A N/A
Third Quarter 1,100 $12.00 $10.00
Fourth Quarter 2,000 $16.00 $14.00
- -------------- -------------- ------------ ------------
1999
First Quarter 5,000 $16.00 $16.00
Second Quarter 2,000 $16.00 $16.00
Third Quarter 2,600 $16.00 $16.00
Fourth Quarter 4,000 $16.00 $16.00
- -------------- -------------- ------------ ------------
* The Bank is not generally made aware of the number of shares of the Bank stock
trades or the prices at which such shares have traded. The prices reported are
best upon the best available information.
# According to information available to Management of the Bank, the above Table
includes trades between family members with respect to 10,000 shares during the
year ended December 31, 1999. There were no shares traded between family members
during the year ended December 31, 1998.
As of December 31, 1999, the Company had approximately 740 shareholders of
record of the Bank's common stock.
The Bank is also allowed to declare and pay dividends in authorized but
unissued sharaes of its stock, provided there is transferred to capital stock an
amount equal to the value of the shares distributed and provided further that
after payment of the dividend the Bank continues to maintain required levels of
paid-in capital and appropriated retained earnings. The Bank did not pay a stock
dividend to its shareholders in 1998 or 1999.
In the absence of other activities conducted by the Holding Company
following the reorganization, its ability to pay dividends will depend upon the
earnings of the Bank. The Board of Directors of the Holding Company hopes future
operations of the Bank result in a payment of dividends to its shareholders.
However, the Holding Company can not assure the future payment of dividends,
either in cash or in stock, in the foreseeable future.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
The following is a discussion of the financial condition of Chestatee
State Bank (the "Bank") at December 31, 1999 and 1998 and the results of
operations for the periods then ended. The purpose of this discussion is to
focus on information about the Bank's financial condition and results of
operations which are not otherwise apparent from the audited financial
statements. Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following discussion and analysis.
Forward-Looking Statements
- --------------------------
The Bank may from time to time make written or oral forward-looking
statements, including statements contained in the Bank's filings with the
Federal Deposit Insurance Corporation and its reports to stockholders.
Statements made in the Annual Report, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based upon
management's belief as well as assumptions made by, and information currently
available to, management pursuant to "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Bank's actual results may differ
materially from the results anticipated in forward-looking statements due to a
variety of factors, including governmental monetary and fiscal policies, deposit
levels, loan demand, loan collateral values, securities portfolio values,
interest rate risk management; the effects of competition in the banking
business from other commercial banks, thrifts, mortgage banking firms, consumer
finance companies, credit unions, securities brokerage firms, insurance
companies, money market funds and other financial institutions operating in the
Bank's market area and elsewhere, including institutions operating through the
Internet, changes in governmental regulation relating to the banking industry,
including regulations relating to branching and acquisitions, failure of
assumptions underlying the establishment of reserves for loan losses, including
the value of collateral underlying delinquent loans and other factors. The Bank
cautions that such factors are not exclusive. The Bank does not undertake to
update any forward-looking statement that may be made from time to time by, or
on behalf of, the Bank.
Overview
- --------
The year 1999 marked the first full year of banking operations for the
Bank. The Bank commenced banking operations on May 15, 1998. The Bank's results
were highlighted by significant loan and deposit growth that would be expected
for a de novo bank. This growth should provide a base for future profitability
and a recovery of the Bank's accumulated deficit.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
Financial Condition at December 31, 1999 and 1998
- -------------------------------------------------
<TABLE>
<CAPTION>
Following is a summary of the Bank's balance sheets for the periods
indicated:
December 31,
1999 1998
(Dollars in Thousands)
<S> <C> <C>
Cash and due from banks $ 2,264 $ 903
Federal funds sold 2,420 7,510
Securities 3,492 5,020
Loans 39,245 15,545
Premises and equipment 2,970 2,770
Other assets 640 212
-------- -------
$ 51,031 $ 31,960
====== ======
Total deposits $ 41,816 $ 23,054
Other liabilities 188 167
Stockholders' equity 9,027 8,739
------- ------
$ 51,031 $ 31,960
====== ======
</TABLE>
Financial Condition at December 31, 1999 and 1998
- -------------------------------------------------
As of December 31, 1999, the Bank had total assets of $51.0 million,
increasing its asset size by 59.67% as compared to December 31, 1998. The
completion of the Bank's stock offering in 1998, which raised $9.5 million, has
provided a strong capital base to support this growth. Total interest-earning
assets were $45.6 million at December 31, 1999 or 89.27% of total assets as
compared to 88.32% at December 31, 1998. The Bank's primary interest-earning
assets at December 31, 1999 were loans, which made up 87.02% of total
interest-earning assets as compared to 55.61% at December 31, 1998. The Bank's
loan to deposit ratio was 94.80% as compared to 68.09% at December 31, 1998.
Deposit growth of $18.8 million, and a decrease in Federal funds sold of $5.1
million, has been used primarily to fund loan growth of $23.9 million.
The Bank's investment portfolio, consisting of U.S. Agency securities
and equity securities, amounted to $3.5 million at December 31, 1999. Unrealized
losses on securities amounted to $9,000 at December 31, 1999. Management has not
specifically identified any securities for sale in future periods which, if so
designated, would require a charge to operations if the market value would not
be reasonably expected to recover prior to the time of sale.
The Bank has 72% of its loan portfolio collateralized by real estate
located in the Bank's primary market area of Dawson County and surrounding
counties. The Bank's real estate mortgage and construction portfolio consists of
loans collateralized by one to four-family residential properties (30%),
construction loans to build one to four-family residential properties (17%), and
nonresidential properties consisting primarily of small business commercial
13
<PAGE>
properties (53%). The Bank generally requires that loans collateralized by real
estate not exceed 80% of the collateral value.
The Bank's remaining 28% of its loan portfolio consists of commercial,
consumer, and other loans. The Bank requires collateral commensurate with the
repayment ability and creditworthiness of the borrower.
The specific economic and credit risks associated with the Bank's loan
portfolio, especially the real estate portfolio, include, but are not limited
to, a general downturn in the economy which could affect unemployment rates in
the Bank's market area, general real estate market deterioration, interest rate
fluctuations, deteriorated or non-existing collateral, title defects, inaccurate
appraisals, financial deterioration of borrowers, fraud, and any violation of
banking protection laws. Construction lending can also present other specific
risks to the lender such as whether developers can find builders to buy lots for
home construction, whether the builders can obtain financing for the
construction, whether the builders can sell the home to a buyer, and whether the
buyer can obtain permanent financing. Currently, real estate values and
employment trends in the Bank's market area are stable with no indications of a
significant downturn in the general economy.
The Bank attempts to reduce these economic and credit risks not only by
adherence to loan to value guidelines, but also by investigating the
creditworthiness of the borrower and monitoring the borrower's financial
position. Also, the Bank establishes and periodically reviews its lending
policies and procedures. State banking regulations limit exposure by prohibiting
secured loan relationships that exceed 25% of the Bank's statutory capital and
unsecured loan relationships that exceed 15% of the Bank's statutory capital.
Liquidity and Capital Resources
- -------------------------------
The purpose of liquidity management is to ensure that there are
sufficient cash flows to satisfy demands for credit, deposit withdrawals, and
other needs of the Bank. Traditional sources of liquidity include asset
maturities and growth in core deposits. A company may achieve its desired
liquidity objectives from the management of assets and liabilities and through
funds provided by operations. Funds invested in short-term marketable
instruments and the continuous maturing of other earning assets are sources of
liquidity from the asset perspective. The liability base provides sources of
liquidity through deposit growth, the maturity structure of liabilities, and
accessibility to market sources of funds.
Scheduled loan payments are a relatively stable source of funds, but
loan payoffs and deposit flows fluctuate significantly, being influenced by
interest rates and general economic conditions and competition. The Bank
attempts to price its deposits to meet its asset/liability objectives consistent
with local market conditions.
The liquidity and capital resources of the Bank are monitored on a
periodic basis by State and Federal regulatory authorities. As determined under
guidelines established by those regulatory authorities and internal policy, the
Bank's liquidity was considered satisfactory.
14
<PAGE>
At December 31, 1999, the Bank had loan commitments outstanding of $13
million. Because these commitments generally have fixed expiration dates and
many will expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. If needed, the Bank has the
ability on a short-term basis to borrow and purchase Federal funds from other
financial institutions. If needed, the Bank has the ability, on a short-term
basis, to borrow and purchase Federal funds from other financial institutions.
At December 31, 1999, The Bank's capital ratios were considered
adequate based on regulatory minimum capital requirements. Stockholders' equity
increased due to net income in 1999 of $297,000 and decreased due to the
decrease in the fair value of securities available-for-sale in the amount of
$9,000. For regulatory purposes, the net unrealized losses on securities
available-for-sale are excluded in the computation of the capital ratios.
Banking regulations limit the amount of the dividends that may be paid
without prior approval of the Bank's regulatory agency. Currently, no dividends
can be paid by the Bank without regulatory approval.
The minimum capital requirements to be considered well capitalized
under prompt corrective action provisions and the actual capital ratios for the
Bank as of December 31, 1999 are as follows:
Actual
------
Regulatory
Bank Requirements
---- ------------
Leverage capital ratio 17.94% 5.00%
Risk-based capital ratios:
Core capital 21.76 6.00
Total capital 22.72 10.00
At December 31, 1999, the Bank had no material commitments for capital
expenditures.
These ratios will decline as asset growth continues, but will still
remain in excess of the regulatory minimum requirements.
Management believes that its liquidity and capital resources are
adequate and will meet its foreseeable short and long-term needs. Management
anticipates that it will have sufficient funds available to meet current loan
commitments and to fund or refinance, on a timely basis, its other material
commitments and liabilities.
Except for expected continued growth common to a de novo bank,
management is not aware of any other known trends, events or uncertainties that
will have or that are reasonably likely to have a material effect on its
liquidity, capital resources or operations. Management is
15
<PAGE>
also not aware of any current recommendations by the regulatory authorities
which, if they were implemented, would have such an effect.
Effects of Inflation
- --------------------
The impact of inflation on banks differs from its impact on
non-financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and which tend to fluctuate in concert
with inflation. A bank can reduce the impact of inflation if it can manage its
rate sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. The Bank, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the rate
sensitivity gap, thereby seeking to minimize the potential effects of inflation.
For information on the management of the Bank's interest rate sensitive assets
and liabilities, see the "Asset/Liability Management" section.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED DECEMBER 31, 1999 AND 1998
Following is a summary of the Bank's operations for the periods
indicated.
Periods Ended December 31,
1999 1998
(Dollars in Thousands)
Interest income $ 3,426 $ 961
Interest expense 1,330 323
Net interest income 2,096 638
Provision for loan losses 245 152
Other income 335 130
Other expenses 1,889 1,359
Pretax income (loss) 297 (743)
Income taxes - -
Net income (loss) 297 (743)
The Bank commenced its operations on May 15, 1998. Prior to the commencement,
the Bank's organizing partnership was engaged in activities involving the
formation of the Bank, selling its common stock, and obtaining necessary
approvals. The Partnership incurred operating losses totaling $374,000 during
this period. The Bank reimbursed the costs upon commencement of operations. The
Bank incurred total organizational and stock issue costs of $76,000, of which
$58,000 was expensed and $18,000 was recorded as a reduction in capital surplus.
16
<PAGE>
Net Interest Income
- -------------------
The Bank's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate non-interest income, and to control operating expenses.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Bank, the Bank's ability to generate net interest
income is dependent upon its ability to obtain an adequate net interest spread
between the rate paid on interest-bearing liabilities and the rate earned on
interest-earning assets.
The net yield on average interest-earning assets was 5.43% in 1999 as
compared to 4.97% in 1998. Average loans increased by $26 million which
accounted for the majority of a $27.8 million increase in total average
interest-earning assets. Average interest-bearing liabilities increased by $26.8
million with average interest-bearing demand and time deposits accounting for
the vast majority of this increase. The rate earned on average interest-earning
assets increased to 8.87% in 1999 from 7.71% in 1998. The rate paid on average
interest-bearing liabilities was 4.08% in 1999 and 5.13% in 1998.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $245,000 in 1999 as compared to
$152,000 in 1998. The amounts provided were due primarily to the growth of the
portfolio. Based upon management's evaluation of the loan portfolio, management
believes the reserve for loan losses to be adequate to absorb possible losses on
existing loans that may become uncollectible. This evaluation considers past due
and classified loans, underlying collateral values, and current economic
conditions which may affect the borrower's ability to repay. As of December 31,
1999 and 1998, the Bank has no nonperforming loans or assets. The allowance for
loan losses as a percentage of total loans at December 31, 1999 and 1998 was
1.00% and .97%, respectively.
Other Income
- ------------
Other operating income consists of service charges on deposit accounts
and other miscellaneous revenues and fees. Other operating income was $335,000
in 1999 as compared to $130,000 in 1998. The increase is due to the Bank being
open for an entire year versus only eight months in 1998.
Non-interest Expense
- --------------------
Other operating expense for 1999 consists of salaries and employee
benefits ($946,000), equipment and occupancy expenses ($227,000), and other
operating expenses ($716,000). The increases over 1998 ($501,000 for salaries
and employee benefits, $73,000 for equipment and occupancy, and $330,000 for
other operating expenses) are due primarily to The Bank being open for an entire
year versus only eight months in 1998 and the growth of the Bank.
17
<PAGE>
Income Tax
- ----------
The Bank had no income tax expense due to accumulated losses of
$446,000 through December 31, 1999.
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 of all categories made by local
individuals, partnerships, and corporations.
The Bank's asset/liability mix is monitored on a regular basis with a
report reflecting the interest rate-sensitive assets and interest rate-sensitive
liabilities being prepared and presented to the Board of Directors on a monthly
basis. The objective of this policy is to monitor interest rate-sensitive assets
and liabilities so as to minimize the impact of substantial movements in
interest rates on earnings. An asset or liability is considered to be interest
rate-sensitive if it will reprice or mature within the time period analyzed,
usually one year or less. The interest rate-sensitivity gap is the difference
between the interest-earning assets and interest-bearing liabilities scheduled
to mature or reprice within such time period. A gap is considered positive when
the amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive liabilities. A gap is considered negative when the amount of
interest rate-sensitive liabilities exceeds the interest rate-sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to adversely affect net interest income.
If the Bank's assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest rates on net
interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Bank also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps and floors") which limit changes in interest rates.
Prepayment and early withdrawal levels also could deviate significantly from
those assumed in calculating the interest
18
<PAGE>
rate gap. The ability of many borrowers to service their debts also may decrease
during periods of rising interest rates.
Changes in interest rates also affect the Bank's liquidity position.
The Bank currently prices deposits in response to market rates and it is
management's intention to continue this policy. If deposits are not priced in
response to market rates, a loss of deposits could occur which would negatively
affect the Bank's liquidity position.
At December 31, 1999, the Bank's cumulative one year interest
rate-sensitivity gap ratio was 97%. The Bank's targeted ratio is 80% to 120% in
this time horizon. This indicates that the Bank's interest-bearing liabilities
will reprice during this period at a rate faster than the Bank's
interest-earning assets.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
The following table sets forth the distribution of the repricing of the
Bank's interest-earning assets and interest-bearing liabilities as of December
31, 1999, the interest rate- sensitivity gap, the cumulative interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio. The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in accordance
with their contractual terms. However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Bank's customers. In addition,
various assets and liabilities indicated as repricing within the same period may
in fact, reprice at different times within such period and at different rates.
<TABLE>
<CAPTION>
After After
Three One
Months Year but
Within but Within After
Three Within Five Five
Months One Year Years Years Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold ..... $ 2,420 $ -- $ -- $ -- $ 2,420
Securities ............. 596 1,006 1,890 -- 3,492
Loans .................. 22,072 2,521 12,662 2,387 39,642
-------- -------- -------- -------- --------
25,088 3,527 14,552 2,387 45,554
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposits 18,341 -- -- -- 18,341
Savings 501 -- -- -- 501
Certificates of deposit 2,771 7,778 7,321 2 17,872
-------- -------- -------- -------- --------
21,613 7,778 7,321 2 36,714
-------- -------- -------- -------- --------
Interest rate sensitivity
gap $ 3,475 $ (4,251) $ 7,231 $ 2,385 $ 8,840
======== ======== ======== ======== ========
Cumulative interest rate
sensitivity gap $ 3,475 $ (776) $ 6,455 $ 8,840
======== ======== ======== ========
Interest rate sensitivity
gap ratio 1.16 .45 1.99 1,193.50
======== ======== ======== ========
Cumulative interest rate
sensitivity gap ratio 1.16 .97 1.18 1.24
======== ======== ======== ========
</TABLE>
20
<PAGE>
Year 2000 Disclosures
- ---------------------
The Year 2000 issue was the result of problems with computer systems
that could not properly recognize the date change from 1999 to 2000. Like most
financial institutions, the Bank relies heavily on computer systems in the daily
conduct of its business. Failure to take adequate measures to prepare for Year
2000 problems could have resulted in material adverse consequences for the Bank.
As a result of the Bank's efforts in taking cautionary measures, the Bank had no
interruption of service. All computer systems were fully operational following
the century date change. The Bank continues to monitor its systems to insure
that problems with the century date change are identified and promptly
corrected. The costs incurred by the Bank to address Year 2000 issues were
approximately $12,000.
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The tables and schedules on the following pages set forth certain
significant financial information and statistical data with respect to: the
distribution of assets, liabilities and stockholders' equity of the Bank, the
interest rates experienced by the Bank; the investment portfolio of the Bank;
the loan portfolio of the Bank, including types of loans, maturities, and
sensitivities of loans to changes in interest rates and information on
nonperforming loans; summary of the loan loss experience and reserves for loan
losses of the Bank; types of deposits of the Bank and the return on equity and
assets for the Bank.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
Average Balances
- ----------------
The condensed average balance sheet for the period indicated is
presented below. (1)
<TABLE>
<CAPTION>
From May 15, 1998,
Date of Commencement
Year Ended of Operations,
December 31, 1999 to December 31, 1998
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,383 $ 672
Taxable securities 4,728 997
Securities valuation account (6) --
Federal funds sold 3,138 5,005
Loans (2) 30,764 4,795
Reserve for loan losses (294) (41)
Other assets 3,282 1,426
-------- --------
$ 42,995 $ 12,854
======== ========
Total interest-earning assets $ 38,630 $ 10,797
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 1,422 $ 1,265
Interest-bearing demand 20,572 3,421
Savings 420 41
Time 11,473 2,305
-------- --------
Total deposits $ 33,887 $ 7,032
Other borrowings 91 --
Other liabilities 184 92
-------- --------
Total liabilities 34,162 7,124
-------- --------
Stockholders' equity 8,833 5,730
-------- --------
$ 42,995 $ 12,854
======== ========
Total interest-bearing liabilities.. $ 32,556 $ 5,767
======== ========
<FN>
(1) For each category, average balances were determined using the daily average
balances during the year for 1999 and for the period from May 15, 1998,
date of commencement of operations, to December 31, 1998, for 1998.
(2) Nonaccrual loans included in average balances for 1999 were $53,000. There
were no nonaccrual loans included in average balances for 1998.
</FN>
</TABLE>
22
<PAGE>
Interest Income and Interest Expense
- ------------------------------------
The following tables set forth the amount of the Bank's interest income
and interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets. These rates do not
include the time period prior to the commencement of its banking operations.
<TABLE>
<CAPTION>
Periods Ended December 31,
1999 1998
Average Average
Interest Rate Interest Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (1) $3,014 9.80% $ 506 10.56%
Interest on taxable securities 248 5.25 51 5.11
Interest on Federal funds sold 164 5.23 275 5.50
Interest earned during the period
prior to commencement of
banking operations -- -- 129 --
------ ------
Total interest income $3,426 8.87 961 7.71
------ ------
INTEREST EXPENSE:
Interest on interest-bearing
demand deposits $ 671 3.26 $ 159 4.66
Interest on savings deposits 13 2.97 2 3.42
Interest on time deposits 641 5.59 135 5.86
Interest on other borrowings 5 5.46 -- --
Interest incurred during the period
prior to commencement of
banking operations -- -- 27 --
------ ------
Total interest expense 1,330 4.08 323 5.13
------ ------
NET INTEREST INCOME $2,096 $ 638
====== ======
Net interest spread 4.78% 2.58%
====== =======
Net yield on average interest-earning assets 5.43% 4.97%
====== =======
<FN>
(1) Interest and fee on loans includes $281,000 and $62,000 of loan fee income
for the periods ended December 31, 1999 and 1998, respectively. There was
no interest income recognized on nonaccrual loans during 1999 or 1998.
</FN>
</TABLE>
23
<PAGE>
Rate and Volume Analysis
- ------------------------
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and expense during the year
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) change in
volume (change in volume multiplied by old rate); (2) change in rate (change in
rate multiplied by old volume); and (3) a combination of change in rate and
change in volume. The changes in interest income and interest expense
attributable to both volume and rate have been allocated proportionately on a
consistent basis to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Period Ended December 31,
1999 vs. 1998
Changes Due To:
Increase
Rate Volume (Decrease)
Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ (38) $ 2,546 $ 2,508
Interest on taxable securities 1 196 197
Interest on Federal funds sold (13) (98) (111)
------- ------- -------
Total interest income (50) 2,644 2,594
------- ------- -------
Expense from interest-bearing liabilities:
Interest on interest-bearing
demand deposits (61) 573 512
Interest on savings deposits (1) 12 11
Interest on time deposits (7) 513 506
Interest on other borrowings -- 5 5
------- ------- -------
Total interest expense (69) 1,103 1,034
------- ------- -------
Net interest income $ 19 $ 1,541 $ 1,560
======= ======= =======
</TABLE>
Interest income earned of $129,000 and interest expense incurred of $27,000
prior to the commencement of banking operations in 1998 have been excluded from
the above table.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
INVESTMENT PORTFOLIO
Types of Investments
- --------------------
The carrying amounts of securities at the dates indicated, which are
all classified as available-for-sale, are summarized as follows:
December 31,
1999 1998
(Dollars in Thousands)
U.S. Government agencies $ 3,396 $ 4,978
Equity securities 96 42
----- -----
$ 3,492 $ 5,020
===== =====
Maturities
- ----------
The amounts of securities in each category as of December 31, 1999 are
shown in the following table according to contractual maturity classifications
(1) one year or less, (2) after one year through five years, (3) after five
years through ten years and (4) after ten years. Equity securities are not
included in the table because they have no contractual maturity.
<TABLE>
<CAPTION>
After one year After five years
One year or less through five years through ten year
Amount Yield (1) Amount Yield (1) Amount Yield (1)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
agencies $ 1,507 5.00% $ 1,889 5.40% $ -- --
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
After ten years Total
Amount Yield (1) Amount Yield (1)
<S> <C> <C> <C> <C>
U.S. Government agencies $ -- -- $ 3,396 5.22%
======= =======
<FN>
(1) Yields were computed using coupon interest, adding discount accretion
or subtracting premium amortization, as appropriate, on a ratable basis
over the life of each security. The weighted average yield for each
maturity range was computed using the carrying value of each security
in that range.
</FN>
</TABLE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
LOAN PORTFOLIO
Types of Loans
- --------------
The amount of loans outstanding at the indicated dates are shown in the
following table according to the type of loan.
<TABLE>
<CAPTION>
December 31,
1999 1998
(Dollars in Thousands)
<S> <C> <C>
Commercial $ 5,104 $ 2,535
Real estate-construction 4,900 1,255
Real estate-mortgage 23,713 10,398
Consumer installment loans and other 5,925 1,509
------ ------
39,642 15,697
Less allowance for loan losses (397) (152)
------ ------
Net loans $ 39,245 $ 15,545
====== ======
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
- ------------------------------------------------------------------
Total loans as of December 31, 1999 are shown in the following table
according to contractual maturity classifications (1) one year or less, (2)
after one year through five years, and (3) after five years.
(Dollars in Thousands)
Commercial
One year or less $ 2,816
After one year through five years 1,823
After five years 465
------
5,104
-----
Construction
One year or less 4,344
After one year through five years 556
After five years -
------
4,900
Other
One year or less 18,121
After one year through five years 9,927
After five years 1,590
------
29,638
------
$ 39,642
======
26
<PAGE>
The following table summarizes loans at December 31, 1999 with the due
dates after one year which have predetermined and floating or adjustable
interest rates.
(Dollars in Thousands)
Predetermined interest rates $ 5,448
Floating or adjustable interest rates 8,913
------
$ 14,361
======
Risk Elements
- -------------
Information with respect to nonaccrual, past due, and restructured
loans at December 31, 1999 and 1998 is as follows:
December 31,
1999 1998
(Dollars in Thousands)
Nonaccrual loans $ 0 $ 0
Loans contractually past due ninety
days or more as to interest or
principal payments and still accruing 3 0
Restructured loans 0 0
Loans, now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment terms 0 0
Interest income that would have been recorded
on nonaccrual and restructured loans under
original terms 5 0
Interest income that was recorded on
nonaccrual and restructured loans 0 0
It is the policy of the Bank to discontinue the accrual of interest income when,
in the opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) there is a significant deterioration
in the financial condition of the borrower and full repayment of principal and
interest is not expected and (2) the principal or interest is more than ninety
days past due, unless the loan is both well-secured and in the process of
collection.
Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been included in the table above
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources. These classified loans do not represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
27
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances for the year
determined using the daily average balances during the period of banking
operations; changes in the allowance for loan losses arising from loans charged
off and recoveries on loans previously charged off; additions to the allowance
which have been charged to operating expense; and the ratio of net charge-offs
during the period to average loans.
<TABLE>
<CAPTION>
Periods Ended December 31,
1999 1998
(Dollars in Thousands)
<S> <C> <C>
Average amount of loans outstanding $ 30,764 $ 4,795
====== =====
Balance of allowance for loan losses
at beginning of period $ 152 $ --
------ -----
Loans charged off
Commercial and financial -- --
Real estate mortgage -- --
Instalment -- --
------ ------
-- --
------ ------
Loans recovered
Commercial and financial -- --
Real estate mortgage -- --
Instalment -- --
------ ------
-- --
------ ------
Net charge-offs -- --
------ ------
Additions to allowance charged to operating
expense during period 245 152
------ ------
Balance of allowance for loan losses
at end of period $ 397 $ 152
====== ======
Ratio of net loans charged off during the
period to average loans outstanding --% --%
====== ======
</TABLE>
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio. Management's evaluation of the loan portfolio includes a
periodic review of loan loss experience,
28
<PAGE>
current economic conditions which may affect the borrower's ability to pay and
the underlying collateral value of the loans.
As of December 31, 1999 and 1998, management had made no allocations of
its allowance for loan losses to specific categories of loans. Based on
management's best estimate, the allocation of the allowance for loan losses to
types of loans, as of the indicated dates, is as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Percent of loans in Percent of loans in
each category each category
Amount to total loans Amount to total loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $120 13% $ 46 16%
Real estate - construction 40 12 15 8
Real estate - mortgage 197 60 76 66
Consumer installment
loans and other 40 15 15 10
---- ---- ---- ----
$397 100% $152 100%
==== ==== ==== ====
</TABLE>
DEPOSITS
Average amount of deposits and average rates paid thereon, classified
as to noninterest-bearing demand deposits, interest-bearing demand deposits,
savings deposits, and time deposits, for the period of banking operations is
presented below.(1)
<TABLE>
<CAPTION>
Periods Ended December 31,
1999 1998
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 1,422 --% $ 1,265 --%
Interest-bearing demand deposits 20,572 3.26 3,421 4.66
Savings deposits 420 2.97 41 3.42
Time deposits 11,473 5.59 2,305 5.86
------ -----
$33,887 $ 7,032
====== =====
<FN>
(1) Average balances were determined using the daily average balances
during the year for 1999 for the period from May 15, 1998, date of
commencement of operations, to December 31, 1998 for 1998.
</FN>
</TABLE>
29
<PAGE>
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1999 are shown below by category, which is
based on time remaining until maturity of (1) three months or less, (2) over
three through six months, (3) over six through twelve months, and (4) over
twelve months.
(Dollars in Thousands)
Three months or less $ 1,470
Over three months through six months 1,175
Over six through twelve months 2,328
Over twelve months 2,631
-----
Total $ 7,604
=====
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following rate of return information for the year indicated is
presented below.
Periods Ended December 31,
1999 1998
Return on assets (1) .69% (3.67)%
Return on equity (2) 3.37 (7.83)
Dividend payout ratio (3) - -
Equity to assets ratio (4) 20.54 44.58
(1) Net income (loss) divided by average total assets.
(2) Net income (loss) divided by average equity.
(3) Dividends declared per share of common stock divided by net los per
share.
(4)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
[BEGINNING ON NEXT PAGE]
31
<PAGE>
CHESTATEE STATE BANK
FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
CHESTATEE STATE BANK
FINANCIAL REPORT
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT AUDITOR'S REPORT.................................................1
FINANCIAL STATEMENTS
Balance sheets..........................................................2
Statements of operations................................................3
Statements of comprehensive income (loss)...............................4
Statements of stockholders' equity......................................5
Statements of cash flows................................................6
Notes to financial statements........................................7-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
Chestatee State Bank
Dawsonville, Georgia
We have audited the accompanying balance sheets of Chestatee
State Bank as of December 31, 1999 and 1998, and the related statements of
operations, comprehensive income (loss), stockholders' equity and cash flows for
the year ended December 31, 1999 and for the period from May 15, 1998, date of
inception, to 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 Chestatee
State Bank as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the year ended December 31, 1999 and for the period from
May 15, 1998, date of inception, to December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
January 12, 2000
<PAGE>
CHESTATEE STATE BANK
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- ------------------------------------------------------------------------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Assets
Cash and due from banks $ 2,264,288 $ 903,205
Federal fund sold and securities purchased
under agreements to resell 2,420,000 7,510,000
Securities available-for-sale 586,381 42,500
Securities held-to-maturity, fair value of $2,866,480
and $4,978,145, respectively 2,905,919 4,977,792
Loans 39,642,439 15,696,878
Less allowance for loan losses 397,262 151,820
----------------- ---------------
Loans, net 39,245,177 15,545,058
Premises and equipment 2,969,556 2,770,192
Other assets 639,587 211,903
----------------- ---------------
Total assets $ 51,030,908 $ 31,960,650
================= ===============
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 5,102,347 $ 3,118,729
Interest-bearing demand 18,340,836 12,149,357
Savings 500,639 195,702
Time, $100,000 and over 7,604,393 2,982,765
Other time 10,267,764 4,607,895
----------------- ---------------
Total deposits 41,815,979 23,054,448
Other liabilities 187,837 167,308
----------------- ---------------
Total liabilities 42,003,816 23,221,756
----------------- ---------------
Commitments and contingent liabilities
Stockholders' equity
Common stock; par value $5; 2,000,000 shares
authorized; 950,000 issued and outstanding 4,750,000 4,750,000
Capital surplus 4,732,364 4,732,364
Accumulated deficit -446,053 -743,470
Accumulated other comprehensive loss -9,219 0
----------------- ---------------
Total stockholders' equity 9,027,092 8,738,894
----------------- ---------------
Total liabilities and stockholders' equity $ 51,030,908 $ 31,960,650
================= ===============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
CHESTATEE STATE BANK
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MAY 15, 1998, DATE OF INCEPTION, TO DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Interest income
Loans $ 3,013,558 $ 506,151
Taxable securities 248,082 50,915
Federal funds sold and securities purchased
under agreements to resell 163,962 403,936
--------------- ----------------
Total interest income 3,425,602 961,002
--------------- ----------------
Interest expense
Deposits 1,324,791 295,854
Other borrowings 4,942 27,386
--------------- ----------------
Total interest expense 1,329,733 323,240
--------------- ----------------
Net interest income 2,095,869 637,762
Provision for loan losses 245,442 151,820
--------------- ----------------
Net interest income after provision for loan losses 1,850,427 485,942
--------------- ----------------
Other income
Service charges on deposit accounts 181,453 36,381
Gain on sale of loans 0 75,654
Other operating income 154,277 17,771
--------------- ----------------
Total other income 335,730 129,806
--------------- ----------------
Other expense
Salaries and employee benefits 945,671 444,928
Equipment and occupancy expense 226,674 153,910
Preopening expenses 0 374,443
Other operating expenses 716,395 385,937
--------------- ----------------
Total other expense 1,888,740 1,359,218
--------------- ----------------
Income (loss) before income taxes 297,417 -743,470
Income tax expense 0 0
--------------- ----------------
Net income (loss) $ 297,417 $ -743,470
=============== ================
Earnings (losses) per common share $ 0.31 $ -0.78
=============== ================
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
CHESTATEE STATE BANK
<TABLE>
<CAPTION>
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MAY 15, 1998, DATE OF INCEPTION, TO DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------
1999 1998
----------- ------------
<S> <C> <C> <C>
Net income (loss) $ 297,417 $ -743,470
Other comprehensive loss:
Unrealized holding losses on securities
available-for-sale arising during period -9,219 0
----------- ------------
Comprehensive income (loss) $ 288,198 $ -743,470
=========== ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
CHESTATEE STATE BANK
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MAY 15, 1998, DATE OF INCEPTION, TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Other Total
------------------------------ Capital Accumulated Comprehensive Stockholders'
Shares Par Value Surplus Deficit Loss Equity
---------- ------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 15, 1998 0 $ 0 $ 0 $ 0 $ 0 $ 0
(date of inception)
Issuance of common stock 950,000 4,750,000 4,732,364 0 0 9,482,364
Net loss 0 0 0 -743,470 0 -743,470
----------- -------------- ------------- ------------ ----------- --------------
Balance, December 31, 1998 950,000 4,750,000 4,732,364 -743,470 0 8,738,894
Net income 0 0 0 297,417 0 297,417
Other comprehensive loss 0 0 0 0 -9,219 -9,219
----------- -------------- ------------- ------------ ----------- --------------
Balance, December 31, 1999 950,000 $ 4,750,000 $ 4,732,364 $ -446,053 $ -9,219 $ 9,027,092
=========== ============== ============= ============ =========== ==============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
CHESTATEE STATE BANK
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MAY 15, 1998, DATE OF INCEPTION, TO DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 297,417 $ -743,470
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 108,047 77,246
Deferred taxes -7,240 0
Provision for loan losses 245,442 151,820
Gain on sale of loans 0 -75,654
Increase in interest receivable -141,908 -140,737
Increase in interest payable 65,567 24,973
Other operating activities -118,610 -23,706
----------------- ------------------
Net cash provided by (used in) operating activities 448,715 -729,528
----------------- ------------------
INVESTING ACTIVITIES
Purchase of securities available-for-sale -1,304,613 -42,500
Proceeds from maturities of securities available-for-sale 751,513 0
Purchase of securities held-to-maturity -898,750 -4,977,792
Proceeds from maturities of securities held-to-maturity 2,970,623 0
Net (increase) decrease Federal funds sold and securities
purchased under agreements to resell 5,090,000 -7,510,000
Net increase in loans -24,150,525 -18,779,474
Proceeds from sale of loans 0 3,253,125
Purchase of premises and equipment -307,411 -2,847,438
----------------- ------------------
Net cash used in investing activities -17,849,163 -30,904,079
----------------- ------------------
FINANCING ACTIVITIES
Net increase in deposits 18,761,531 23,054,448
Net proceeds from sale of stock 0 9,482,364
----------------- ------------------
Net cash provided by financing activities 18,761,531 32,536,812
----------------- ------------------
Net increase in cash and due from banks 1,361,083 903,205
Cash and due from banks at beginning of period 903,205 0
----------------- ------------------
Cash and due from banks at end of year $ 2,264,288 $ 903,205
================= ==================
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 1,264,166 $ 298,267
Income taxes $ 6,000 $ 0
NONCASH TRANSACTIONS
Unrealized losses on securities available-for-sale $ 9,219 $ 0
Loans transferred to other real estate $ 204,964 $ 0
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Chestatee State Bank (the "Bank") is a commercial bank located in
Dawsonville, Dawson County, Georgia. The Bank provides a full range of
banking services in its primary market area of Dawson County and
surrounding counties. The Bank commenced operations on May 15, 1998.
Organizing Partnership
CSB Partners, LLP, (the "Partnership"), was formed for the purpose of
raising capital for the Bank, obtaining properties for Bank
facilities, and obtaining necessary regulatory approvals to commence
banking operations. The Partnership incurred preopening expenses of
$374,443 for which it was reimbursed by the Bank upon commencement of
operations.
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of
the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible
to significant change in the near term relate to the determination of
the allowance for loan losses, the valuation of foreclosed real
estate, and deferred tax assets.
Cash and Due From Banks
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and due from banks.
The Bank maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Bank has not experienced any losses
in such accounts.
Securities Purchased Under Resell Agreements
Securities purchased under resell agreements are recorded at the
amounts at which the securities are acquired plus accrued interest.
The Bank enters into purchases of U.S. Government and agency
securities under resell agreements to resell substantially identical
securities.
7
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Purchased Under Resell Agreements (Continued)
The amounts advanced under resell agreements represent short-term
loans and are combined with Federal funds sold in the balance sheet.
The securities underlying the resell agreements are delivered by
appropriate entry into a third party custodian's account designated by
the Bank under a written custodial agreement that explicitly
recognizes the Bank's interest in the securities.
Securities
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held-to-maturity and recorded at
amortized cost. All other debt securities are classified as
available-for-sale and recorded at fair value with net unrealized
gains and losses reported in other comprehensive income (loss). Equity
securities without a readily determinable fair value are classified as
available-for-sale and recorded at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sale of securities are determined
using the specific identification method.
Loans
Loans are reported at their outstanding principal balances less
unearned income and the allowance for loan losses. Interest income is
accrued based on the principal balance outstanding.
Fees on loans and costs incurred in origination of consumer and
instalment loans are recognized at the time the loan is placed on the
books. Because these loan fees are not significant and the majority of
loans have maturities of one year or less, the results of operations
are not materially different than the results which would be obtained
by accounting for loan fees and costs in accordance with generally
accepted accounting principles. Nonrefundable loan fees and certain
direct loan origination costs for all other loans are deferred and
recognized in income over the life of the loans.
8
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan
portfolio. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan is confirmed.
Subsequent recoveries are credited to the allowance. Management's
determination of the adequacy of the allowance is based on an
evaluation of the portfolio, current economic conditions, volume,
growth, composition of the loan portfolio, and other risks inherent in
the portfolio. This evaluation is inherently subjective as it requires
material estimates that are susceptible to significant change
including the amounts and timing of future cash flows expected to be
received on impaired loans. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the
Bank's allowance for loan losses, and may require the Bank to record
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
The accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become
due. When accrual of interest is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only
to the extent cash payments are received.
A loan is impaired when it is probable the Bank will be unable to
collect all principal and interest payments due in accordance with the
contractual terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of payments
expected to be received, using the contractual loan rate as the
discount rate. Alternatively, measurement may be based on observable
market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value
of the collateral. If the recorded investment in the impaired loan
exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the
provision for loan losses.
Premises and Equipment
Land is carried at cost. Premises and equipment are carried at cost
less accumulated depreciation. Depreciation is computed principally by
straight-line methods over the estimated useful lives of the assets.
9
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate Owned
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair value
at the time of transfer to other real estate owned is charged to the
allowance for loan losses. Subsequent gains or losses on sale and any
subsequent adjustment to the value are recorded as other expenses. The
carrying amount of other real estate owned at December 31, 1999 and
1998 was $204,964 and $--, respectively.
Income Taxes
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for the
applicable year. Deferred income tax assets and liabilities are
determined using the balance sheet method. Under this method, the net
deferred tax asset or liability is determined based on the tax effects
of the differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences will be
realized. A valuation allowance is recorded for those deferred tax
items for which it is more likely than not that realization will not
occur in the near term.
10
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130,
("Reporting Comprehensive Income"), describes comprehensive income as
the total of all components of comprehensive income, including net
income. Other comprehensive income refers to revenues, expenses, gains
and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income.
Currently, the Bank's other comprehensive income consists of
unrealized gains and losses on available-for-sale securities.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Bank expects to adopt this statement
effective January 1, 2001. SFAS No. 133 requires the Bank to recognize
all derivatives as either assets or liabilities in the balance sheet
at fair value. For derivatives that are not designated as hedges, the
gain or loss must be recognized in earnings in the period of change.
For derivatives that are designated as hedges, changes in the fair
value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings, depending on the
nature of the hedge. The ineffective portion of a derivative's change
in fair value must be recognized in earnings immediately. Management
has not yet determined what effect the adoption of SFAS No. 133 will
have on the Bank's earnings or financial position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Bank's financial
statements.
Earnings (Losses) Per Common Share
Earnings (losses) per common share are computed by dividing net income
(loss) by the weighted average number of shares of common stock.
11
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1999:
U.S. Government and
agency securities $ 500,000 $ - $ (9,219) $ 490,781
Equity securities 95,600 - - 95,600
-------------- ------------- ------------- ---------------
$ 595,600 $ - $ (9,219) $ 586,381
============== ============= ============= ===============
Securities Held-to-Maturity
December 31, 1999:
U. S. Government and agency
securities $ 2,905,919 $ - $ (39,439) $ 2,866,480
============== ============= ============= ===============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1998:
Equity securities $ 42,500 $ - $ - $ 42,500
============== ============= ============= ==============
Securities Held-to-Maturity
December 31, 1998:
U. S. Government and agency
securities $ 4,977,792 $ 3,013 $ (2,660) $ 4,978,145
============== ============= ============= ==============
</TABLE>
The amortized cost and fair value of securities as of December 31, 1999
by contractual maturity are shown below.
12
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities Held-to-Maturity
--------------------------------- ----------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 1,506,917 $ 1,497,656
Due from one year to five years 500,000 490,781 1,399,002 1,368,824
Equity securities 95,600 95,600 - -
--------------- --------------- --------------- ---------------
$ 595,600 $ 586,381 $ 2,905,919 $ 2,866,480
=============== =============== =============== ===============
</TABLE>
There were no sales of securities in 1999 or 1998.
Securities with a carrying value of $399,000 at December 31, 1999 were
pledged to secure public deposits and for other purposes. There were no
securities pledged at December 31, 1998.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -----------------
<S> <C> <C>
Commercial and industrial $ 5,104,000 $ 2,535,000
Real estate - construction 4,902,000 1,255,000
Real estate - mortgage 23,802,000 10,490,000
Consumer and other 5,930,007 1,508,523
------------------- -----------------
39,738,007 15,788,523
Unearned income (95,568) (91,645)
Allowance for loan losses (397,262) (151,820)
------------------- -----------------
Loans, net $ 39,245,177 $ 15,545,058
=================== =================
</TABLE>
Changes in the allowance for loan losses for the year ended
December 31, 1999 and for the period from May 15, 1998, date of
inception, to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Balance, beginning of period $ 151,820 $ -
Provision for loan losses 245,442 151,820
Loans charged off - -
Recoveries of loans
previously charged off - -
---------------- ----------------
Balance, end of year $ 397,262 $ 151,820
================ ================
</TABLE>
13
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Management has identified no material amounts of impaired
loans as of December 31, 1999 or 1998 as defined by SFAS No.
114, ("Accounting by Creditors for Impairment of a Loan"). The
average recorded investment in impaired loans for 1999 and
1998 was $52,913 and $- -, respectively. Interest income
recognized for cash payments received on impaired loans was
not material for the year ended December 31, 1999 and for the
period from May 15, 1998, date of inception, to December 31,
1998.
The Bank has granted loans to certain directors, executive
officers, and their related entities. The interest rates on
these loans were substantially the same as rates prevailing at
the time of the transaction and repayment terms are customary
for the type of loan involved. Changes in related party loans
for the year ended December 31, 1999 are as follows:
Balance, beginning $ 2,515,327
Advances 3,718,410
Repayments (2,340,644)
-----------------
Balance, ending $ 3,893,093
=================
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
----------------------------------
1999 1998
--------------- ---------------
Land $ 416,725 $ 416,725
Buildings 2,090,616 2,019,545
Equipment 647,507 411,168
--------------- ---------------
3,154,848 2,847,438
Accumulated depreciation (185,292) (77,246)
--------------- ---------------
$ 2,969,556 $ 2,770,192
=============== ===============
14
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
2000 $ 10,548,549
2001 5,494,285
2002 118,481
2003 768,828
2004 939,304
Thereafter 2,710
----------------
$ 17,872,157
================
At December 31, 1999 and 1998, the Bank had related party deposits
of $3,551,085 and $2,735,749, respectively.
NOTE 6. LEASE
The Bank leases its branch facilities under a noncancelable operating
lease agreement. The initial term of the lease is for five years with
two five-year renewal options. The lease requires monthly payments of
$2,500 ($30,000 annually) during the first five years of the lease
through April 2003, $3,000 ($36,000 annually) during the second five
years of the lease through April 2008, and $3,500 ($42,000 annually)
during the third five years of the lease through April 2013. The lease
requires the Bank to pay normal maintenance costs.
Rental expense under all operating leases amounted to $31,756 for the
year ended December 31, 1999 and $51,141 for the period from May 15,
1998 , date of inception, to December 31, 1998.
NOTE 7. 401(K) PLAN
The Bank has a 401(K) plan available to all eligible employees
subject to certain minimum age and service requirements. The
contributions were $19,748 for the year ended December 31, 1999 and
$12,418 for the period from May 15, 1998, date of inception, to
December 31, 1998.
15
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
Income tax expense for the year ended December 31, 1999 and for the
period from May 15, 1998, date of inception, to December 31, 1998,
consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Current $ 100,326 $ (93,086)
Deferred (17,781) (157,915)
Change in valuation allowance (82,545) 251,001
--------------- ---------------
Income tax expense $ - $ -
=============== ===============
</TABLE>
The Bank's income tax expense differs from the amounts computed
by applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences for the year ended
December 31, 1999 and for the period from May 15, 1998, date of
inception, to December 31, 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Amount Percent Amount Percent
---------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $ 101,122 34 % $ (252,780) (34) %
Change in valuation allowance (82,545) (28) 251,001 34
Tax-free interest on loans (10,190) (3) - -
Surtax exemption (9,170) (3) - -
Other items 783 - 1,779 -
---------------- ------------ --------------- ------------
Income tax expense $ - - % $ - - %
================ ============ =============== ============
</TABLE>
16
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 67,804 $ 9,192
Deferred loan fees 30,970 29,797
Preopening and organization costs 88,997 115,695
Net operating loss carryforward - 93,086
Other 23,364 3,231
Securities available-for-sale 3,134 -
Valuation allowance (171,590) (251,001)
---------------- ---------------
Deferred tax liabilities, depreciation 35,439 -
---------------- ---------------
Net deferred tax assets $ 7,240 $ -
================ ===============
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into
off-balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments may include
commitments to extend credit and standby letters of credit. Such
financial instruments are included in the financial statements when
funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Bank uses the same credit
and collateral policies for these off-balance-sheet financial
instruments as it does for on-balance-sheet financial instruments. A
summary of the Bank's commitments is as follows:
December 31,
-------------------------------
1999 1998
-------------- --------------
Commitments to extend credit $ 12,984,000 $ 2,908,000
============== ==============
17
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
loans to customers. The 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 of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, inventory, equipment and personal
property.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to
customers. Collateral held varies as specified above and is required
in instances which the Bank deems necessary.
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management of the Bank, any
liability resulting from such proceedings would not have a material
adverse effect on the Bank's financial statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Bank originates primarily commercial, residential, and consumer
loans to customers in Dawson County and surrounding counties. The
ability of the majority of the Bank's customers to honor their
contractual loan obligations is dependent on the economy in the Dawson
County area.
Seventy-two percent of the Bank's loan portfolio is concentrated in
real estate loans, of which a substantial portion is secured by real
estate in the Bank's primary market area. Accordingly, the ultimate
collectibility of the loan portfolio is susceptible to changes in
market conditions in the Bank's primary market area. The other
significant concentrations of credit by type of loan are set forth in
Note 3.
The Bank, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 25% of
statutory capital, or approximately $2,259,000.
18
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. Regulatory Matters
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December
31, 1999, no dividends could be paid without regulatory approval.
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 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 of
Total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of December 31, 1999, the
Bank met all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum Total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the following table. There are no conditions or events since that
notification that management believes have changed the Bank's
category.
19
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS (Continued)
The Bank's actual capital amounts and ratios are presented in the
following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ------------------------ --------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- --------- ------------- ---------- ------------- ----------
(Dollars in Thousands)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital to Risk Weighted Assets $ 9,433 22.72% $ 3,322 8.00% $ 4,152 10.00%
Tier I Capital to Risk Weighted Assets $ 9,036 21.76% $ 1,661 4.00% $ 2,492 6.00%
Tier I Capital to Average Assets $ 9,036 17.94% $ 2,015 4.00% $ 2,519 5.00%
As of December 31, 1998:
Total Capital to Risk Weighted Assets $ 8,891 41.83% $ 1,701 8.00% $ 2,126 10.00%
Tier I Capital to Risk Weighted Assets $ 8,739 41.11% $ 851 4.00% $ 1,276 6.00%
Tier I Capital to Average Assets $ 8,739 27.21% $ 1,285 4.00% $ 1,606 5.00%
</TABLE>
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models are
significantly affected by the assumptions used, including the discount
rates and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1999
and 1998. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
20
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Cash, Due From Banks, Federal Funds Sold, and Securities Purchased
Under Agreements to Resell:
The carrying amounts of cash, due from banks, Federal funds sold, and
securities purchased under agreements to resell approximate their fair
value.
Securities:
Fair values for securities are based on available quoted market
prices. The carrying values of equity securities with no readily
determinable fair value approximate fair values.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow models, using current market interest rates
currently offered for loans with similar terms to borrowers of similar
credit quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the
underlying collateral.
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated using
discounted cash flow models, using current market interest rates
currently offered on certificates with similar remaining maturities.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
Off-Balance Sheet Instruments:
The fair values of the Bank's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Bank until such commitments are
funded. The Bank has determined that these instruments do not have a
distinguishable fair value and no fair value has been assigned.
21
<PAGE>
CHESTATEE STATE BANK
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The carrying amounts and estimated fair values of the Bank's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks, Federal funds
sold, and securities purchased
under agreements to resell $ 4,684,288 $ 4,684,288 $ 8,413,205 $ 8,413,205
Securities available-for-sale 586,381 586,381 42,500 42,500
Securities held-to-maturity 2,905,919 2,866,480 4,977,792 4,978,145
Loans 39,245,177 39,660,330 15,545,058 15,546,533
Accrued interest receivable 282,645 282,645 140,737 140,737
Financial liabilities:
Deposits 41,815,979 41,971,850 23,054,448 23,149,800
Accrued interest payable 90,540 90,540 24,973 24,973
</TABLE>
NOTE 13. SUPPLEMENTARY FINANCIAL DATA
Components of other operating income and expenses in excess of 1% of
total revenue for the year ended December 31, 1999 and for the period
from May 15, 1998, date of inception, to December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Other income:
Mortgage loan origination fees $ 125,364 $ 13,120
Other expenses:
Advertising 43,922 83,527
Stationery and supplies 68,874 70,273
Data processing 61,515 26,757
Legal and professional 72,291 35,822
Mortgage loan commissions 69,701 -
</TABLE>
22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- -----------------------------------
The Bank had no changes in or disagreements with its independent
auditors. Mauldin & Jenkins, LLC, since its inception on December 31, 1997,
through December 31, 1999.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ----------------------------------------------------------
The following paragraphs set forth for each director, principal officer
and significant employee: the name of each director of the Bank; the year he was
first elected a director; a description of his position and offices with the
Bank (other than as a director), if any; a brief description of his principal
occupation and business experience during at least the last five years; and
certain other information. Except as otherwise disclosed, there are no family
relationships between any directors or executive officers of the Bank, and no
director is a member of the board of directors of a publicly held company which
is required to file reports with the Commission. A director of the Bank is
elected by a majority of votes cast at an annual meeting of the shareholders,
and serve until the next annual meeting of shareholders and until a successor is
duly elected and qualified.
Directors
- ---------
Ralph Millard Bowen, born April 6, 1942, is the owner of Bowen & Bowen
Construction. He is a member of the Board of Directors of the Georgia Housing
Financial Authority and the Georgia Department of Community Affairs. He is a
principal of several real estate related business entities. He attended the
University of Georgia and Rheinhardt College. Mr. Bowen has served as a director
of the Bank since its inception.
Marcus Calvin Byrd, Jr., born June 1, 1953, is owner of Byrd's
Mini-Storage and Byrd's U-Haul. His is a member of the Executive Board of the
Boy Scouts of America. Mr. Byrd has served as a director of the Bank since its
inception.
Glennon C. Grogan, born July 20, 1939, is President of Grogan & Co.,
Inc. (25% owner) engaged in commercial sanitation services and sawdust sales. He
is the Secretary/Treasurer of Etowah Environment Group, Inc. (50% owner)
involved in waste management . He is a principal of several real estate
ventures. Mr. Grogan has served as a director of the Bank since its inception.
Mr. Grogan's brother, James H. Grogan, also serves as a director of the Bank.
James H. Grogan, born July 14, 1943, is Corporate Secretary/Treasurer
of Grogan & Co., Inc. (50% owner) engaged in commercial sanitation services and
sawdust sales. He is the President of Etowah Environmental Group, Inc. (50%
owner) engaged in waste management.
56
<PAGE>
He is a principal of several real estate ventures. Mr. Grogan has served as a
director of the Bank since its inception. Mr. Grogan's brother, Glennon C.
Grogan, is also a director of the Bank.
Andrew M. Head, born May 22, 1953, is President and majority owner of
Head Distributing Company (wholesale groceries) and is involved as an owner or
director or both in the wholesale lumber and restaurant franchise businesses. He
is a graduate of the University of Georgia. Mr. Head has served as a director of
the Bank since its inception.
John Philip Hester, Sr., born January 23, 1953, is the President and
Chief Executive Officer of the Bank in addition to serving as a member of the
Board of Directors. He served as President, Chief Executive Officer, and
Director of the Waycross Bank & Trust from 1987 to 1990 and has been engaged in
the Banking business in various capacities since 1975. He was President, Chief
Executive Officer, and Director of the First Community Bank of Dawsonville until
his resignation to participate in organization of the Bank. He is a graduate of
the University of Georgia and ahs completed courses at the School of Banking of
the South (Louisiana State University) and the University of Oklahoma Commercial
Lending Scholl. Mr. Hester has served as a director of the Bank since its
inception.
Bruce Todd Howard, born March 17, 1967, is President and co-owner of
H&H Custom Homes and his is the Operations Manager for Coal Mountain Builders
Supply. He is a member of the Forsyth Homebuilders Association. Mr. Howard has
served as a director of the Bank since its inception.
David E. Johnson, born May 9, 1942, is President and owner of Sleeveco,
Inc. (manufacturer of plastic packaging materials). Mr. Johnson has served as a
director of the Bank since its inception.
William Alan McRae, born July 22, 1952, is an owner of McRae & Stolz,
Inc., a real estate development firm. He received his undergraduate degree from
the University of Georgia and a masters degree from the University of Tennessee.
Mr. McRae has served as a director of the Bank since its inception.
Kim M. Mills, born February 11, 1962, is the principal of Mills Fuel
Service, Inc. He is a member of the Dawson County Rotary Club. Mr. Mills has
served as a director since December 1998.
James Wyman Walden, born January 6, 1948, is co-owner of C&W Ace
Hardware, Inc. He is a member of the Board of Directors of the Dahlonega Rotary
Club and he was the 1996 Chairman of the Dahlonega Lumpkin County Chamber of
Commerce. Mr. Walden has served as a director of the Bank since its inception.
Russell M. Wallace, born June 3, 1954, is President and co-owner of
Country Cupboard Food Stores, Inc. He is a past Chairman of the Georgia
Association of Convenience Stores and he is a member of the Board of Directors
of the National Association of Convenience Stores. He is past Chairman of the
Dawson County Heart Fund Association and the Dawson County Chamber of Commerce,
and he is a member of the Dawson County Chamber of Commerce
57
<PAGE>
Board of Directors. He attended the University of Georgia. Mr. Wallace has
served as a director of the Bank since its inception.
During the previous five years, no Director of the Bank was the subject
of a legal proceeding (as defined below) that is material to an evaluation of
the ability or integrity of the Director. "Legal proceeding" Includes: (a) any
bankruptcy petition filed by or against any busienss of which such person was a
general partner or executive officer either at the time of bankruptcy or within
two years prior to that time; (b) any conviction in a criminal proceeding or
being subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); (c) any order, judgment or decree of any court of
competent jurisdiction, permanently or temporarily enjoing, barring, suspending
or otherwise limiting his involvement in any type of business, securities or
banking activities; and (d) any finding by a court of competent jurisdiction (in
a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities
law, such judgment having not been reversed, suspended or vacated.
Executive Officers
- ------------------
John Philip Hester, Sr., (see paragraph in preceding section regarding
directors). Mr. Hester has served as the President and Chief Executive Officer
of the Bank since its inception.
Robert W. Coile, born April 24, 1966, resides at 4545 Shannon Court,
Suwanee, Georgia 30024. Mr. Coile previously was employed by Century South Bank
since 1995 until joining the Bank. He attended the University of Georgia. Mr.
Coile has served as the Chief Financial Officer, its principal accounting
officer, of the Bank since its inception.
During the previous five years, no Executive Officer of the Bank was
the subject of a legal proceeding (as defined above) that is material to an
evaluation of the ability or integrity of the Executive Officer.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely upon a review of Forms F-7, F-8 and F-8A, and amendments
thereto, furnished to the Bank pursuant to Rule 16a-3(d) during the year ended
December 31, 1999, no person, who at any time during the year was a director,
executive officer or beneficial owner of more than 10% of any class of equity
securities of the Bank, failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
58
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth the cash and cash equivalent forms of
compensation received by the chief executive officer of the Bank and its named
executive officers (in excess of $100,000) in the fiscal year ended December 31,
1999, and all cash and cash equivalent forms of compensation received by the
chief executive officer and all named executive officers of the Bank as a group.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME AND OTHER ANNUAL RESTRICTED OPTION LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARs PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Philip Hester, Sr 1999 $ 123,971 $ 5,417 - - - - $58,264 1
CEO, President, 1998 $ 108,633 $ 500 - - - - $12,418 2
Director 1997 - - - - - -
As a group 1999 $ 123,971 $ 5,417 - - - - $58,264 1
1998 $ 108,633 $ 500 - - - - $12,418 2
1997 - - - - - - -
<FN>
- -------------------------------------------
1 The Bank has accrued a deferred bonus under the terms of his Employment
Agreement totaling $51,755, payable at cumulative profit in accordance with the
restrictions in the Bank's charter provided an automobile allowance totaling
$2,938, and contributed to its 401(k) plan for eligible employees $3,571 for Mr.
Hester during the fiscal year ended December 31, 1999.
2 The Bank contributed to its 401(k) plan for eligible employees $3,541 for Mr.
Hester during the fiscal year ended December 31, 1998.
1 The Bank has accrued a deferred bonus under the terms of his Employment
Agreement totaling $51,755, payable at cumulative profit in accordance with the
restrictions in the Bank's charter, provided an automobile allowance totaling
$2,938, and contributed to its 401(k) plan for eligible employees $3,571 for Mr.
Hester during the fiscal year ended December 31, 1999.
2 The Bank contributed to its 401(k) plan for eligible employees $3,541 for Mr.
Hester during the fiscal year ended December 31, 1998.
</FN>
</TABLE>
59
<PAGE>
Compensation of Directors
- -------------------------
The Bank is prohibited under the terms of its charter to pay any
compensation or remuneration to the directors of the Bank until such time as the
Bank has a surplus in its accumulated retained earnings.
Employment Agreements and Change in Control Agreements
- ------------------------------------------------------
J. Philip Hester, Sr., President and Chief Executive Officer, as well
as a Director, of the Bank, entered into an Employment Agreement with the Bank
effective May 17, 1997 for a term ending at the close of the Bank's fifth full
calendar year after commencement of banking operations (i.e., December 31,
2003). Mr. Hester's base salary from the effective date is $110,000, increasing
5% annually on the first anniversary of the Employment Agreement. In addition to
the base salary, Mr. Hester will receive a performance bonus based upon the
Bank's CAMEL rating and the evaluation by the Board of Directors of the Bank's
"current" condition at the end of each calendar year. Mr. Hester is also
entitled to certain benefits, including an automobile allowance, a term life
insurance policy, annual paid vacation, healthcare insurance and disability
insurance. As a condition of employment, Mr. Hester was required to purchase at
least 10,000 shares of the Bank's common stock. He may earn an option to
purchase 5,000 shares of the common stock each year during the Bank's first five
years of operation, up to a maximum of 25,000 shares. The exercise price of the
options is the book value per share of the Bank's common stock at the time of
exercise, payable in cash. The option expires ten years after the date earned.
The Employment Agreement contains no provision for a change in control of the
Bank nor is Mr. Hester a party to any Change in Control Agreement with the Bank.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
60
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The table below sets forth the name of each director of the Bank,
number of shares of the Bank's Common Stock beneficially owned by him on
December 31, 1999 and the percentage of the total shares of the Bank's Common
Stock outstanding on December 31, 1999 which such beneficial ownership
represents.
Name and Address Amount and Nature of Percent of Class
of Beneficial Owner* Beneficial Ownership
Ralph Millard Bowen 44,000 1 4.63%
430 Fairmont Drive
Norcross, Georgia 33071
Marcus C. Byrd, Jr. 43,200 2 4.55%
1661 Highway 9 South
Dawsonville, Georgia 30534
Glennon C. Grogan 22,100 3 2.33%
6060 Jewell Bennett Road
Dawsonville, Georgia 30534
James H. Grogan 19,300 4 2.03%
4215 Dahlonega Highway
Cumming, Georgia 30130
Andrew M. Head 25,300 5 2.66%
5270 Woodridge Forest Trail
Atlanta, Georgia 30327
- ------------------------------
1 The figure includes 10,000 shares owned by Mr. Bowen's spouse, 1,500 shares
each owned by Mr. Bowen's two daughters and 1,000 shares owned by Mr. Bowen's
son, for which he disclaims beneficial ownership.
2 Includes 4,700 shares held in trust by Mr. Byrd for the benefit of BT Alex
Brown FBO and 5,300 shares held in trust by Mr. Byrd for the benefit of BT Alex
Brown FBO. The figure also includes 1,000 shares owned by Mr. Byrd's spouse,
1,100 shares owned by Mr. Byrd's son and 1,100 shares owned by Mr. Byrd's
daughter, for which he disclaims beneficial ownership.
3 The figure includes 1,000 shares owned jointly by Mr. Grogan's spouse and son,
1,000 shares owned jointly by Mr. Grogan's spouse and daughter, 2,600 shares
owned by Mr. Grogan's son, and 2,500 owned by Mr. Grogan's daughter, for which
he disclaims beneficial ownership.
4 The figure includes 1,500 shares owned by Mr. Grogan's spouse, 100 shares
owned by Mr. Grogan's son and 2,700 shares owned by Chris N. Grogan, for which
Mr. Grogan disclaims beneficial ownership.
5 The figure includes 100 shares owned by Mr. Head's son and 100 shares owned
each by Mr. Head's two daughters, for which Mr. Head disclaims beneficial
ownership.
61
<PAGE>
J. Philip Hester, Sr. 10,000 1.05%
32 Lakeshore Circle
Dawsonville, Georgia 30534
Bruce T. Howard 25,000 2.63%
4975 Bagley Terrace Drive
Alpharetta, Georgia 30201
David E. Johnson 32,500 6 3.42%
6775 Polo Drive
Cumming, Georgia 30130
William A. McRae 17,50 7 1.84%
499 Johnson Ferry Road
Atlanta, Georgia 30328
Kim Mills 4,100 8 0.43%
5015 Oak Grove Circle
Cumming, Georgia 30041
James W. Walden 20,100 9 2.12%
262 Jack Walker Road
Dahlonega, Georgia 30533
Russell M. Wallace 46,600 10 4.91%
77 Old River Road
Dahlonega, Georgia 30533
All executives officers and directors 309,700 32.60%
as a group
None of the persons listed in the above table have the right to acquire
beneficial ownership of any shares of the Bank as specified in Rule 13d-3(d)(1)
of the Exchange Act.
- -----------------------------
6 The figure includes 1,000 shares owned by Mr. Johnson's son, 500 shares owned
by Mr. Johnson's daughter and 1,000 shares owned by a second daughter, for which
he disclaims beneficial ownership.
7 The figure includes 2,500 shares held in the McRae and Stolz Pension Plan. 8
The figure includes 500 shares owned each by Ms. Mills' two daughters, for which
Ms. Mills disclaims beneficial ownership.
9 The figure includes 100 shares owned by Mr. Walden's daughter, for which he
disclaims beneficial ownership.
10 Includes 2,000 shares held in trust by Mr. Wallace for the benefit of Stearne
Agee Leach FBO. The figure also includes 1,600 shares held by Mr. Wallace's
spouse, 1,000 shares owned by Mr. Wallace's daughter and 1,000 shares owned by
Mr. Wallace's son for which Mr. Wallace disclaims beneficial ownership.
62
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The Bank has had and expects to have in the future banking transactions
in the ordinary course of its business with its directors, principal officers,
principal shareholders, certain relatives of such persons, and their associates
including corporations, partnerships, and other organizations in which such
directors and officers have an interest, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated parties. Such transactions have not
involved more than the normal risk of collectibility or presented other
unfavorable features. As of December 31, 1999, the Bank had outstanding loans to
certain of its directors, executive officers and certain relatives of such
persons and their associates, which aggregated approximately $3,893,000. This
represented approximately 43% of the Bank's $9,027,000 equity capital accounts.
The Bank has not otherwise transacted within the previous two years,
nor does it expect to transact in the immediate future, any business with any
director, principal officer, or principal shareholder which exceeds 10% of the
Bank's equity capital accounts or $5 million, whichever is less.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
63
<PAGE>
PART IV
-------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
Index to Exhibits
- -----------------
Number Description Page
- ------ ----------- ----
3.1 Articles of Incorporation *
3.2 Bylaws *
10.1 Lease Agreement *
10.2 Data Processing Contract *
10.3 International Services Agreement *
10.4 Employment Agreement 66
24.1 Power of Attorney 73
27.1 Financial Data Schedule 75
Description of Exhibits
- -----------------------
3.1* Articles of Incorporation of Chestatee State Bank
3.2* Bylaws of Chestatee State Bank
10.1* Lease Agreement between Ingles Markets, Inc. and
Chestatee State Bank, dated April 16, 1998
10.2* Data Processing Contract between Chestatee State Bank
and its successors, dated January 20, 1998
10.3* International Services Agreement between Chestatee
State Bank and The Bankers Bank, dated April, 27, 1998
10.4 Employment Agreement dated May 18, 1997 between John
Philip Hester, Sr. and Chestatee State Bank
24.1 Power of Attorney dated March 28, 2000 executed by
officers and a majority of directors of Chestatee
State Bank
27.1 Financial Data Schedule for Chestatee State Bank
* Incorporated by reference to Form 10-SB filed with the Federal
Deposit Insurance Corporation effective April 29, 1999
Reports On Form 8-K
- -------------------
There were no Form 8-K filings for the year ended December 31, 1999.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
64
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Bank
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHESTATEE STATE BANK
BY:/s/ J. Philip Hester
---------------------
J. Philip Hester, Sr., Chief Executive Officer,
President and Director
DATE: March 28, 2000
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT (the "Agreement") is made and entered into this 18th day
of May , 1997, between Chestatee State Bank ("Employer" or the "Bank"), a
corporation organized for the sole purpose of organizing a banking association
to be chartered through the Georgia Department of Banking and Finance ("DBF");
and John Philip Hester, Sr., ("Employee").
WHEREAS, Employer is in the process of forming a new banking
association in Dawsonville, Georgia (the "Bank"); and.
WHEREAS, Employee has agreed to become President and Chief Executive
Office of the Bank and Employer, and,
WHEREAS, the parties hereto wish to establish the terms and conditions
of Employee's employment.
NOW THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. RELATIONSHIP AND DUTIES
--------------------------
(a) Employer hereby employs employee commencing on the Effective Date
hereof (as hereinafter defined) as President, Chief Executive Officer, and a
Director of Employer. Employee shall be expected to perform such services as are
generally performed by the President and Chief Executive Officer of a commercial
bank. The services to be performed may be extended or curtailed from time to
time at the direction of the Board of Directors (the "Board") during the term of
this Agreement, provided, however, such duties shall not be extended or
curtailed in such fashion as to alter the duties and responsibilities generally
expected of a President and Chief Executive Office of a commercial bank.
(b) Employee shall serve on the Board and as a member of its Executive
Committee and on such other committees as the Board may designate, subject to
the terms hereof.
(c) Employee accepts such employment and shall devote his full time,
attention, and best efforts to the diligent performance of his duties herein
specified and as an officer and director of Employer and will not accept
employment with any other individual, corporation, partnership, governmental
authority or other entity, or engage in any other venture for profit which
employer may consider to be in conflict with his or its best interest or to be
in competition with employer's business, or which may interfere in any way with
the employee's performance of his duties hereunder.
<PAGE>
(d) Whenever the term "Employer" is used herein, that term shall be
deemed synonymous with the terms "the Bank" or "the Board", whenever the context
so requires.
(e) Employer shall not require Employee, as a part of his duties under
this Agreement, to perform or to participate in any activity which constitutes a
violation of any state or federal law, rule, ordinance or regulation.
2. TERM OF EMPLOYMENT
---------------------
Employee's employment hereunder shall commence no later than May , _______1997,
(the "Effective Date"), and shall continue until the end of the Bank's fifth
full calendar year after the commencement of banking operations unless
terminated for cause pursuant to the terms hereof.
Notwithstanding any provision contained above, Employee's employment
pursuant to this Agreement shall be terminated by the first to occur of any of
the following:
(a) The death of Employee.
(b) The complete disability of Employee. "Complete disability" as used
herein shall mean the inability of Employee, due to illness, accident, or any
other physical or mental incapacity, to completely fulfill his obligations
hereunder for an aggregate of sixty (60) days within any period of one hundred
twenty (120) consecutive days during the term hereof.
(c) The discharge of Employee by Employer for just cause. "Just cause"
as used herein shall include conviction of a crime, which is either a felony or
misdemeanor other than any minor traffic violation, unethical business conduct
that is directly related to Employee's activities on behalf of employer and that
may cause harm to the business interests of Employer, or repeated refusal to
carry out the written directions of the Board. Should Employer believe that any
violation of Employee's obligations hereunder has occurred, written notice of
the alleged violation shall be provided by Employer to Employee and Employee
shall have a reasonable period of time in which to correct such alleged
violation, provided that the alleged violation is neither dishonest nor
criminal. It is agreed that thirty (30) days shall be deemed a reasonable time
in which to correct any such alleged violation.
(d) Discharge for "Just cause" will require a two-thirds majority vote
of the Board, exclusive of employee. Termination of Employee's employment for
"just cause" shall include termination as an employee, officer and director of
Employer.
(e) Discharge for reasons other than those described in paragraph 2(c)
above will require a two-thirds majority vote of the Board, exclusive of
Employee. Termination of Employee's employment for reasons other than for just
cause shall include termination as an employee and officer of Employer. It is
specifically
2
<PAGE>
understood, notwithstanding any other provision of this Agreement, that
termination for reasons other than for just cause as defined in paragraph 2(c)
above shall not suspend or negate Employer's obligation to compensate Employee,
as provided herein, provided.
3. COMPENSATION
---------------
For all services which Employee may render to Employer during the term
hereof, Employer shall pay to Employee, subject to such deductions as may be
required by law, according to the following schedule:
(a) Base Salary: Commencing of the Effective Date hereof, Employee
shall receive for the term of this Agreement an annual salary of $110,000.00,
payable in at least monthly installments, subject to such deductions as may be
required by law. Employee will receive a 5% annual increase in base salary with
first increase twelve months from the effective date.
(b) Performance Bonus: Each year, a performance bonus will be paid to
Employee (not later than sixty days following the close of the Bank's calendar
year) provided the Bank receives a CAMEL 1 or CAMEL 2 rating at the most recent
examination and based upon the board's evaluation of the Bank's current
condition based on a combination of safety and soundness criteria including
capital adequacy, risk assessment, asset quality, liquidity, planning, policy
adherence, personnel administration, internal controls and management
information systems or, if at the end of a particular calendar year the Bank did
not receive a CAMEL 1 or CAMEL 2 rating at the most recent examination but the
Bank receives a CAMEL 1 or CAMEL 2 rating at the first examination in the
following calendar year, in an amount equal to the Employee's base salary for
the year multiplied by the Bonus Percentage. The "Bonus Percentage" shall be
determined based on the following:
a. Return of Average Assets ("ROA") equal to .50% but less than
.7% (.25% and .35% in the first two years) Bonus Percentage = 5%
b. ROA greater than .70% but less than .90% (.35% and .45% in the
first two years) Bonus Percentage = 10%
c. ROA equal to .90% but less than 1.10% (.45% and .55% in the first
two years) Bonus Percentage = 15%
d. ROA equal to 1.10% but less than 1.20% (.55% and .60% in the
first two years) Bonus Percentage = 20%
e. ROA equal to 1.20% but less than 1.30% (.60% and .65% in the
first two years) Bonus Percentage = 25%
f. ROA equal to 1.30% but less than 1.40% (.65% and .70% in the
first two years) Bonus Percentage = 30%
3
<PAGE>
g. ROA equal to 1.40% but less than 1.60% (.70% and .80% in the
first two years) Bonus Percentage = 35%
h. ROA equal to 1.60% but less than 1.80% (.80% and .90% in the
first two years) Bonus Percentage = 40%
i. ROA over 1.80% Bonus Percentage = 50%
Notwithstanding the above, no cash bonus will be paid until such time
that it is eligible to be paid as determined by the State Banking Department of
Georgia. Any bonus(s) earned that is ineligible to be paid at the time it is
earned will be deferred until such time that is legal for the Employer to pay
such bonus(s) or until such time that the Employee wishes to receive the legal
payment of such bonus(s). While the bonus(s) is deferred, the earned bonus(s)
will earn a rate of 6% payable at such time that employee can and chooses to
legally receive the earned bonus(s).
4. OTHER BENEFITS
-----------------
During the term of Employee's employment hereunder on or after the
Effective Date (except as noted in this paragraph) Employer shall furnish to
Employee: (i) an automobile of his choice having a net cost not to exceed a
level established by the Employer which may be leased or purchased by the Bank,
(ii) a term life insurance policy providing for death benefits of $500,000.00
having a beneficiary designated by Employee, (iii) a group health and
hospitalization insurance policy covering Employee at no cost to Employee other
than such deductible as may be applicable to all other employees of the Bank,
and, if Employee desires, covering the dependents and spouse of Employee, (iv) a
long-term disability insurance policy, as generally defined in the insurance
industry, providing for benefits of at least sixty percent (60%) of Employee's
annual base salary. The long-term disability policy will be as consistent as is
reasonably possible with the definition of "complete disability" provided in
paragraph 2(b) above, and (v) an annual vacation leave of three (3) weeks per
year with one additional day for each year of service to the Employer up to four
(4) weeks, to be taken at the discretion of Employee.
5. STOCK OPTIONS
----------------
(a) As a condition of employment, Employee shall be obligated to
purchase a minimum of 10,000 shares of Chestatee State Bank Stock during the
initial stock offering.
(b) In addition, Employee can earn the option to purchase five thousand
(5,000) shares of Chestatee State Bank Stock per year during years one, two,
three, four and five of Bank operations, for a maximum number of twenty five
thousand (25,000) shares. The number of shares each year shall be determined by
multiplying (i) five thousand shares by (ii) a fraction whose numerator is the
Bonus Percentage for the year and whose denominator is 50% which could have been
received by the Employee for the year.
4
<PAGE>
The option granted to the Employee pursuant to this paragraph 3 may be
exercised by the Employee, in whole or in part, at any time or from time to time
during the period this Agreement is in effect beginning on the first day of the
second month following the close of the Bank's fiscal year to which such grant
is attributable. Notwithstanding anything contained herein to the contrary, if
the shareholders of the Bank approve of a capital reorganization of the common
stock of the Bank or a merger or consolidation of the Bank with or into another
corporation, or the sale of all or substantially all of the assets of the Bank,
then Employee shall have the right and option to purchase all stock options that
would have been paid to the Employee for the remaining term of this Agreement
pursuant to the terms of this paragraph. The purchase price for each share of
common stock of the Bank that the Employee purchases pursuant to the exercise of
the options granted herein shall be the book value at the time of purchase and
shall be paid in cash upon exercise. Employee must exercise all options earned
under Title 5 of this contract no later than ten years after they are earned.
(The price per share at which the options can be exercised is to be the book
value of the Bank's stock at the time the option is earned. Book value is
defined as common stock plus paid-in surplus plus/minus Retained Earnings.)
(c) If Employee has failed to earn any of the stock options called for
in 5(b) above by reason of the Bank's failure to obtain the performance
requirements called for thereunder, then at the end of the fifth calendar year
of operations of the Bank, the Employee shall be granted any of the options
missed if the following conditions are met:
(1) Employee is still employed by the Bank; and
(2) The Bank has obtained a return on assets of at least one
percent (1%) of said assets for either of its fourth or fifth calendar years of
operations.
6. DETERMINATION FOR UNFORESEEN BUSINESS REASONS
------------------------------------------------
This Agreement shall cease and be null and void, and of not further
force and effect upon the occurrence of either of the following events:
(a) The failure for any reason by Employer to commence operations as a
deposit-taking Bank; or
(b) Employee is deemed unacceptable as Chief Executive Officer by the
Department of Banking and Finance and/or the FDIC, or if either Regulatory
Agency fails to approve this Employment Agreement.
If this Agreement is terminated by reason of the foregoing and Employee
has actually commenced employment hereunder, then Employer agrees to pay
employee a pro rata portion of Employee's base salary as provided in paragraph
3(a) above for a period not to exceed six
6
<PAGE>
(6) months and will be given clear title to the company provided automobile.
7. EXPENSES
-----------
Upon Employee's presentment to Employer of expense reports acceptable
to Employer and in sufficiently detailed form to comply with standards for
deduction of business expenses established from time to time by the Internal
Revenue Service, Employer will reimburse Employee for, such expenses approved by
Employer and incurred by Employee in connection with the performance of his
duties hereunder, including reimbursement for a country club and appropriate
civic club dues.
8. CONVENTIONS
--------------
Employer will permit up to one week's attendance to a GBA and/or CBA
banking convention of Employee's choice and Employer agrees to pay all expenses
associated with such attendance for both Employee and his spouse. Employer
agrees to pay Employee's expenses for appropriate seminars and meetings.
9. SEVERABILITY
---------------
The parties hereto understand and agree that the provisions of this
Agreement are independent of each other, and to the extent any provision or
portion thereof shall be determined by a court of competent jurisdiction to be
void or unenforceable, such determination shall not affect the validity or
enforceability of any other provision or the remainder of this Agreement.
10. WAIVER OF PROVISIONS
------------------------
Failure by any of the parties hereto to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the obligation of future performance of any
right granted hereunder or of the obligation of future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in writing signed by or on behalf of all of the
parties.
11. GOVERNING LAW
-----------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.
12. MODIFICATION AND AMENDMENT
------------------------------
This Agreement contains the sole and entire agreement among the parties
hereto and supersedes all prior discussions and agreements among the parties,
and any such prior agreements shall, from and after the date hereof, be null and
void. This Agreement
6
<PAGE>
shall not be modified or amended except by an instrument in writing signed by or
on behalf of all parties hereto.
13. COUNTERPARTS AND HEADINGS
-----------------------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed on original, but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience or reference and shall not be deemed part of this Agreement.
14. SUCCESSORS
--------------
This Agreement shall inure to the benefit of and be binding upon
Employer, its successors and assigns and upon Employee, his heirs, executors,
administrators, and personal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first written above.
EMPLOYEE:
-----------------------
John Philip Hester, Sr.
EMPLOYER:
CHESTATEE STATE BANK (in organization)
By:
-----------------------
Title:
-----------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Philip Hester, Sr., his
Attorney-in-Fact, with full power of substitution, for him and in his name,
place and stead, and in any and all capacities, to sign this Form 10-KSB and any
amendment thereto, and to file the same, with exhibits thereto and such other
documents in connection therewith, with the Federal Deposit Insurance
Corporation, and hereby ratifies and confirms all that said Attorney-in-Fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Bank and in the capacities and on the
dates indicated.
/s/ J. Philip Hester, Sr. /s/ Robert W. Coile
- -------------------------------------- ----------------------------------
J. Philip Hester, Sr. Robert W. Coile
Chief Executive Officer, President and Chief Financial Officer (principal
Director (principal executive officer) accounting officer)
March 28, 2000 March 28, 2000
- -------------------------------------- -----------------------------------
Ralph Millard Bowen Andrew M. Head
Director Director
March 28, 2000 March 28, 2000
/s/ Marcus C. Byrd, Jr. /s/ Bruce T. Howard
- -------------------------------------- ----------------------------------
Marcus C. Byrd, Jr. Bruce T. Howard
Director Director
March 28, 2000 March 28, 2000
/s/ Glennon C. Grogan /s/ David E. Johnson
- -------------------------------------- ----------------------------------
Glennon C. Grogan David E. Johnson
Director Director
March 28, 2000 March 28, 2000
/s/ James H. Grogan
- -------------------------------------- ----------------------------------
James H. Grogan William A. McRae
Secretary and Director Director
March 28, 2000 March 28, 2000
<PAGE>
/s/ Kim Mills
- -------------------------------------- --------------------------------------
Kim Mills James W. Walden
Director Director
March 28, 2000
March 28, 2000
- --------------------------------------
Russell M. Wallace
Chairman of the Board of Directors
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,264,288
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,420,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 586,381
<INVESTMENTS-CARRYING> 2,905,919
<INVESTMENTS-MARKET> 2,866,480
<LOANS> 39,642,439
<ALLOWANCE> 397,262
<TOTAL-ASSETS> 51,030,908
<DEPOSITS> 41,815,979
<SHORT-TERM> 0
<LIABILITIES-OTHER> 187,837
<LONG-TERM> 0
0
0
<COMMON> 4,750,000
<OTHER-SE> 4,277,092
<TOTAL-LIABILITIES-AND-EQUITY> 51,030,908
<INTEREST-LOAN> 3,013,558
<INTEREST-INVEST> 248,082
<INTEREST-OTHER> 163,962
<INTEREST-TOTAL> 3,425,602
<INTEREST-DEPOSIT> 1,324,791
<INTEREST-EXPENSE> 1,329,733
<INTEREST-INCOME-NET> 2,095,869
<LOAN-LOSSES> 245,442
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,888,740
<INCOME-PRETAX> 297,417
<INCOME-PRE-EXTRAORDINARY> 297,417
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297,417
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 5.43
<LOANS-NON> 0
<LOANS-PAST> 3,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 152,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 397,000
<ALLOWANCE-DOMESTIC> 397,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>