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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM 10-SB
General Form for Registration of Securities of
Small Business Issuers
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
WGNB CORP.
(Exact name of Small Business Issuer as specified in its charter)
Georgia 58-1640130
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Maple Street
P.O. Box 280
Carrollton, Georgia 30117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 832-3557
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which
to be registered each class is to be registered
None None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $1.25 par value
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CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995.
This Registration Statement may contain certain "forward-looking
statements" including statements concerning plans, objectives, future events or
performance and assumptions and other statements that are not statements of
historical fact. The Company cautions readers that the following important
factors, among others, could cause the Company's actual results to differ
materially from the forward-looking statements contained in this Registration
Statement: (i) the effect of changes in laws and regulations, including federal
and state banking laws and regulations, with which the Company, the Bank or the
Finance Company (each as later defined herein) must comply, and the associated
costs of compliance with such laws and regulations either currently or in the
future as applicable; (ii) the effect of changes in accounting policies and
practices, as may be adopted by the regulatory agencies as well as by the
Financial Accounting Standards Board, or of changes in the Company's
organization, compensation and benefit plans; (iii) the effect on the Company's
competitive position within its market area of the increasing consolidation
within the banking and financial services industries, including the increased
competition from larger regional and out-of-state banking organizations as well
as non-bank providers of various financial services; (iv) the effect of changes
in interest rates; and (v) the effect of changes in the business cycle and
downturns in local, regional or national economies. The Company cautions that
the foregoing list of important factors is not exclusive.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
WGNB Corp. (the "Company"), a Georgia corporation and a registered bank
holding company under the Federal Bank Holding Company Act of 1956, as amended,
was incorporated on May 11, 1984, to acquire all of the outstanding shares of
common stock of West Georgia National Bank (the "Bank"). The Bank was organized
in 1946 as a national banking association under the federal banking laws of the
United States. The Company received approval to become a bank holding company
from the Board of Governors of the Federal Reserve System (the "Federal
Reserve") and from the Georgia Department of Banking and Finance in early 1985.
In 1997, the Company formed a non-bank subsidiary, West Georgia Credit Services,
Inc. (the "Finance Company"), which conducts business as "Mortgage & Loan
Solutions." As of May 31, 2000, the Company had 3,098,075 issued and outstanding
shares of common stock, $1.25 par value per share (the "Common Stock"), held by
approximately 340 shareholders of record.
The Company conducts all of its business through the Bank and the
Finance Company. The Bank has five full service branches and six additional
24-hour ATM sites located in the Carroll County, Georgia communities of
Carrollton, Villa Rica and Bowdon. The Finance Company conducts business through
one office located in Paulding County, Georgia. The executive offices of the
Company and the main office of the Bank are located at 201 Maple Street,
Carrollton, Georgia 30117. The Finance Company office is located at 4109 Jimmy
Lee Smith Parkway, Hiram, Georgia 30141.
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THE BANK
The Bank is a full service commercial bank offering a variety of
services customary for community banks of similar size which are designed to
meet the banking needs of individuals and small to medium-sized businesses. The
Bank attracts most of its deposits and conducts most of its lending transactions
from and within its primary service area encompassing Carroll County, Georgia
and the western portion of Douglas County, Georgia.
The Bank operates a total of five branches and six additional 24-hour
ATM sites, all located in Carroll County, Georgia. The Bank's main office is
located in Carrollton, Georgia. In addition, the Bank operates two other
branches in the city of Carrollton and branches in Villa Rica and Bowdon,
Georgia. In addition, the Bank received approval on May 18, 2000 to open a
branch in the western portion of Douglas County in an area known as Mirror Lake.
The Bank has purchased a modular branch which will serve as a temporary site
until a permanent structure is built.
As a convenience to its customers, the Bank offers at each branch
location Saturday banking hours, drive-thru teller windows and 24-hour automated
teller machines. The Bank is a member of Honor, Cirrus and several other ATM
networks of automated teller machines which permit Bank customers to perform
monetary transactions in most cities throughout the southeast and other regions.
The Bank also offers Internet banking services through its web site located at
www.wgnb.com.
Deposit Services. The Bank offers a full range of deposit services
including checking accounts, NOW accounts, savings accounts and other time
deposits of various types, ranging from money market accounts to longer-term
certificates of deposit. The accounts are all offered to the Bank's market area
at rates competitive to those offered in the area. All deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum allowed
by law.
As of December 31, 1999, the Bank had deposits of approximately $215
million, and approximately 23,000 deposit accounts. No material portion of the
Bank's deposits have been obtained from an individual or a few individuals
(including federal, state and local governments and agencies), the loss of any
one or more of which would have a materially adverse effect on the Bank.
The following table sets forth the mix of depository accounts at the
Bank as a percentage of total deposits at December 31, 1999.
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Deposit Mix
<TABLE>
<CAPTION>
At December 31, 1999
<S> <C>
Non-interesting bearing demand 14.17%
NOW accounts and money market 36.54%
Savings 3.58%
Time Deposits
Under $100,000 31.19%
$100,000 and over 14.52%
100.00%
</TABLE>
Lending Services. The Bank's lending business consists principally of
making consumer loans to individuals and commercial loans to small and
medium-sized businesses and professional concerns. In addition, the Bank makes
secured real estate loans, including residential and commercial construction
loans, and first and second mortgage loans for the acquisition or improvement of
personal residences. As of December 31, 1999, the Bank had approximately $184
million in total loans, representing 72.5% of its total assets of approximately
$254 million. The loan portfolio is made up of both fixed and adjustable rate
loans. Approximately 67% of the Company's total loan portfolio is fixed rate and
33% is adjustable rate as of December 31, 1999. No material portion of the
Bank's loans is concentrated within a single industry or group of related
industries. The Bank is not depending to any material degree upon any single
borrower or a few principal borrowers. The loss of any individual borrower or of
a few principal borrowers would not have a material adverse effect on the
operations or earnings of the Bank.
Real Estate Loans. Loans secured by real estate make up the primary
component of the Bank's loan portfolio, constituting approximately $142.9
million, or 77.3%, of the Bank's total loans as of December 31, 1999.
Approximately 62% of the real estate loans are fixed rate and 38% are adjustable
rate. These loans consist of commercial real estate loans, construction and
development loans, residential real estate loans and home equity loans. Real
estate loans are collateralized by commercial and residential real estate in the
Company's primary and secondary market areas. The types of real estate that
typically constitute collateral include primary and secondary residences for
individuals including multi family projects, places of business, real estate for
agricultural uses and undeveloped land.
Commercial Loans. The Bank makes loans for commercial purposes in
various industries resident to its market area. As of December 31, 1999,
commercial loans constituted approximately $24.1 million, or 13.1% of the Bank's
total loans. Approximately 77% of commercial loans are fixed rate while 23% are
adjustable. The typical commercial loan has a maturity of three years or less.
Loans in this category exclude commercial loans secured by real estate.
Commercial loans secured by real estate are included in the real estate category
described above. The typical commercial loan has collateral such as equipment
for business use, inventory and may include unsecured working capital lines.
Consumer Loans. The Bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
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term loans and lines of credit. As of December 31, 1999, the Bank held
approximately $17.7 million of consumer loans, representing 9.6% of its total
loans. Consumer loans are primarily fixed rate in nature with 96% of this loan
category carrying fixed rates. These loans are typically collateralized by
personal automobiles, recreational vehicles, household items and may include
unsecured loans to individuals.
Other Lending Activities. The Bank also engages in secondary-market
mortgage activities whereby the Bank originates mortgage loans on behalf of
investor correspondent banks who fund the loans. The investor correspondent
banks underwrite and price the loans and the Bank receives a fee for originating
and packaging the loans. Periodically the Bank receives discount points
depending on the pricing of the loan. No mortgage loans are held by the Bank for
resale nor does the Bank service third party loans.
Risks Associated with Lending Activities. Consumer and non-mortgage
loans entail greater risk than do residential mortgage loans, particularly in
the case of loans that are unsecured or secured by rapidly depreciating assets
such as automobiles. In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan balance as a result of the greater likelihood of damage, loss or
depreciation. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans.
Commercial loans and loans secured by commercial and multi-family real
estate properties are generally larger and involve greater degree of credit risk
than one- to four-family residential mortgage loans. Because payments on these
loans are often dependent on the successful operation of the business or
management of the property, repayment of such loans may be subject to adverse
conditions in the economy or real estate markets. It has been the Bank's
practice to underwrite such loans based on its analysis of the amount of cash
flow generated by the business and the resulting ability of the borrower to meet
its payment obligations. In addition, the Bank in general, seeks to obtain a
personal guarantee of the loan by the owner of the business and under certain
circumstances, seeks additional collateral.
Construction loans are generally considered to involve a higher degree
of credit risk than residential mortgage loans. Risk of loss on a construction
loan is dependent largely upon the accuracy of the initial estimate of the
security property's value upon completion of construction as compared to the
estimated costs of construction, including interest. In addition, the Bank
assumes certain risks associated with the borrowers' ability to complete
construction in a timely and workmanlike manner. If the estimate of value proves
to be inaccurate, or if construction is not performed timely or accurately, the
Bank may be confronted with a project which, when completed, has a value
insufficient to assure full repayment or to advance funds beyond the amount
originally committed to permit completion of the project.
Target Concentrations & Loan Portfolio Mix. The Bank has target
concentration and portfolio mix limits written in its loan policy. The goal of
the policy is to avoid concentrations that would result in particular loan or
collateral type, industry or geographic area comprising a large part of the
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whole portfolio. The portfolio should be varied enough to obtain a balance
of maximum yield and minimum risk. The loan portfolio mix is reported and
reviewed quarterly by the Board of Directors. Concentration targets are
evaluated periodically to determine changes in risk profiles and market need.
The following represents maximum target concentrations of loans by category as
a percentage of total loans:
<TABLE>
<S> <C>
Single-payment loans 25%
Unsecured loans 6%
Loans secured by:
Residential real estate 30%
Commercial real estate 35%
Convenience stores assets 6%
Hotels/motels 5%
Poultry industry 7%
Acquisition & development/construction loans 20%
Commercial and industrial purpose loans 20%
Exceptions to primary and secondary trade area 10%
</TABLE>
The loan policy includes a provision limiting all types of real estate
loans to 75% of the total loan portfolio. Although, in aggregate, this accounts
for a large portion of the loan portfolio, real estate lending has historically
been the Company's lowest loan loss category.
Legal Lending Limit. The Bank is subject to loans to one borrower
limitations prescribed for national banks by the Office of the Comptroller of
the Currency (see Supervision and Regulation). The legal lending limit to a
single borrower by regulation is defined as 25% of total capital plus reserves.
The Bank, however, has defined an internal exposure limit to one borrower of
10% of total capital plus reserves.
Loan Underwriting Standards. Management recognizes the importance of
character and past performance as consideration in the lending decision
process. In analyzing a credit relationship, primary emphasis is placed on
adequacy of cash flow and the ability of the obligor to service the debt.
Secondary emphasis is placed on the past performance of the borrower, the type
or value of the collateral, the amount of net worth present or any performance
of endorsers or guarantor that has not been proven.
Collateral is not considered a substitute for the borrower's ability to
repay. Collateral serves as a way to control the borrower and provide additional
sources of repayment in the event of default. The quality and liquidity of the
collateral are of paramount importance and must be confirmed before the loan is
made. The Bank has loan to value and margin guidelines that are varied depending
on the type of collateral offered. Loans secured by liquid assets and securities
carry margins of 75% to 100% depending on the liquidity and price volatility of
the asset. In general, loans to value on various types of real estate range from
a high of 85% to a low of 60%. Installment loans, in general, require a loan to
collateral value of at least 80%. In addition, there are limits on terms of
repayment of loans for automobiles and related collateral which are dependent of
the age of the asset. There are certain exceptions to the loan to value
guidelines that are dependent on the overall creditworthiness of the borrower.
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Loan Approval. The Bank's loan approval policies provide for various
levels of officer lending authority. When the aggregate outstanding loans to a
single borrower exceeds an individual officer's lending authority, the loan
request must be considered and approved by an officer with a higher lending
limit or an officers' loan committee (the "OLC"). Individual officers' secured
and unsecured lending limits range from $5,000 to $100,000, depending on
seniority. The OLC, which consists of the president, executive vice president,
two senior vice presidents and other lenders, has a lending limit of $300,000
for secured and $100,000 for unsecured loans. Loans between $300,000 and the
Bank's legal lending limit must be approved by an executive loan committee,
which is made up of the CEO of the Company, the President of the Bank and six
outside directors.
Loan Review. The Bank has a comprehensive loan review process involving
an independent loan review officer and lending officers. The loan review process
is designed to promote early identification of credit quality problems. All loan
officers are charged with the responsibility of rating their loans. The Bank's
independent loan review officer is charged with the responsibility of ensuring
that all problem loans and all loan or line of credit relationships in excess
of $350,000 are reviewed annually, with random sample checks on consumer loans
and other loans less than $350,000. Additionally, the loan review officer
monitors the loan rating system to ensure proper risk identification. The Bank's
risk identification process is also reviewed by its regulators.
THE FINANCE COMPANY
The Finance Company was established primarily for the purpose of
diversifying revenue sources for the Company by offering conforming and
non-conforming mortgage and home equity products as well as consumer financing
not traditionally offered by banks. The Finance Company, like the Bank,
originates first and second residential mortgage loans and sells these loans to
correspondent investors. In addition, the Finance Company makes consumer finance
loans to individuals, which it holds in its own loan portfolio. The consumer
finance loans consist of (a) loans to individuals in original principal amounts
of less than $3,000 that are regulated under the Georgia Industrial Loan Act
("GILA") or (b) loans to individuals in excess of $3,000 that are not regulated
under GILA. As of December 31, 1999, the Finance Company contributed less than
1% of the total consolidated revenues for the Company.
MARKET AREA
The Bank's primary market area includes all of Carroll County, Georgia
and the western portion of Douglas County, Georgia. Approximately 98% of the
Bank's customers reside in Carroll County, although it attracts some loan
business from neighboring Douglas and Paulding Counties. The Bank's secondary
market area includes the Georgia counties of Paulding, Douglas, Heard, and
Haralson, and the Alabama counties of Clebourne and Randolph. Carroll County is
located approximately 45 miles southwest of Atlanta and 90 miles east of
Birmingham, Alabama. Carroll County's major industries include wire production,
poultry processing, textiles and other manufacturing. The State University of
West Georgia, which serves more than 8,000 students, is also located in
Carrollton, the location of the Bank's main office.
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Carroll County's population has grown steadily but comparatively slowly
when compared to some metro Atlanta counties, reflecting an average annual
growth rate of 2.0% from 1990 to 1998. Its growth rate is also lower than that
for the state of Georgia. However, there has been an increase in infrastructure
spending by local and state government and an increase in the issuance of
residential and commercial building permits. Unemployment rates for Carroll
County have historically been at or above the state average. This can be
attributed to the recent decline in the textile industry in Carroll County. Per
capita income in Carroll County has been slightly lower than that for the state
as a whole but the overall gap has been narrowing.
The City of Carrollton has been a major retail draw for surrounding
counties in western Georgia and eastern Alabama. Single family building permits
issued in Carroll County in 1999 (concentrated primarily in the northern part of
the County near I-20) were 29% higher than in 1998 and surpassed all other
western Georgia counties. Douglasville, in neighboring Douglas County, is
currently experiencing a surge of new retail activity primarily centered near
the recently completed Arbor Place Mall. Hiram, in neighboring Paulding County,
has also experienced a significant increase in retail activity, particularly at
the intersection of Georgia Highway 92 and U.S. Highway 278 where the Finance
Company is located.
Carroll County is the largest deposit base county in its market area
with Douglas County to its east and Paulding County to its north emerging as
deposit growth areas. The compound annual growth rate for deposits at financial
institutions in Carroll County for the years 1993-1998 was 3.2%. The amount of
total deposits in Carroll County was approximately $850 million at December 31,
1998, compared to total deposits of approximately $710 million in 1993. Douglas
County had the second largest deposit base in its market area with $600 million,
with Paulding County coming in third with $390 million, at the end of 1998.
Significant development has occurred in the western Georgia area
along the I-20 West corridor. The development of communities west of metro
Atlanta along I-20 such as Douglasville and westward toward the city of Villa
Rica will have an impact on the Company's primary and secondary market areas.
Because this growth and development is so new, the statistical impact on the
Company's market area has not been determined. Retail developments such as
Arbor Place Mall and additional retail establishments in the Chapel Hill area of
Douglas County along with large residential developments such as Chapel Hills
Country Club, Bear Creek and Mirror Lake are anticipated to have an economic
impact on the West Georgia area including North Carroll County. The Bank's Villa
Rica Office has experienced the fastest percentage loan growth of all locations
with approximately 36% or $15.6 million in 1999.
COMPETITION
The Bank and the Finance Company operate in a competitive environment,
competing for deposits and/or loans with commercial banks, thrifts and other
financial entities. Principal competitors include other community commercial
banks (such as Community First Bank, CB&T of West Georgia, Regions Bank, Peoples
Bank of West Georgia and Hometown Bank of Villa Rica) and larger institutions
with branches in the Bank's market area (such as Bank of America, SunTrust Bank
and SouthTrust Bank). Numerous mergers and consolidations involving banks in the
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Bank's market area have occurred recently, requiring the Bank to compete with
banks with greater resources.
The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. Many of the financial
institutions operating in the Bank's market area offer services such as trust,
investment and international banking, which the Bank does not offer, and have
greater financial resources or have substantially higher lending limits than do
the Bank or Finance Company.
To compete with other financial services providers, the Bank
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. Management believes
that the Bank has an opportunity to establish business ties with customers who
have been displaced by the consolidations and desire to forge banking
relationships with locally owned and managed institutions.
The Bank offers many personalized services and attracts customers by
being responsive and sensitive to the needs of the community. The Bank relies
not only on the goodwill and referrals of satisfied customers, as well as
traditional media advertising to attract new customers, but also on individuals
who develop new relationships to build the customer base of the Bank. To enhance
the Bank's image in the community, the Bank supports and participates in many
events. Employees, officers and directors represent the Bank on many boards and
local civic and charitable organizations.
EMPLOYEES
As of December 31, 1999, the Bank had 104 full time equivalent
employees and the Finance Company had five full time employees none of whom is a
party to a collective bargaining agreement. Certain executive officers of the
Bank and Finance Company also serve as the officers of the Company (who does not
have compensated employees). The Company believes that both the Bank and Finance
Company enjoy satisfactory relations with their respective employees.
MONETARY POLICIES
The operations of the Bank and Finance Company are affected by the
credit policies of monetary authorities, particularly the Board of Governors of
the Federal Reserve System. The instruments of monetary policy employed by the
Federal Reserve System 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 could be made as to possible future changes in
interest rates, deposit levels, loan demand, or the business and earnings of the
Bank and Finance Company.
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SUPERVISION AND REGULATION
The Company and its subsidiaries are extensively regulated under
federal and state law. These laws and regulations generally are intended to
protect depositors, not stockholders. The following is a summary description of
certain provisions of certain laws which affect the regulation of bank holding
companies and banks. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company and its subsidiaries. Beginning with the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and
following with the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), numerous additional regulatory requirements have been placed on the
banking industry in the past five years, and additional changes have been
proposed. The banking industry is also likely to change significantly as a
result of the passage of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"). The Company's operations
may be affected by legislative changes and the policies of various regulatory
authorities and the Company is unable to predict the nature or the extent of the
effect on its business and earnings that fiscal or monetary policies, economic
control or new federal or state legislation may have in the future.
THE COMPANY
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHCA"). Under the BHCA, the
Company is subject to periodic examination by the Federal Reserve and is
required to file periodic reports of its operations and such additional
information as the Federal Reserve may require. The Company's and the Bank's
activities are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity that the Federal Reserve determines to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto.
Investments, Control and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain prior approval of the
Federal Reserve:
- to acquire the ownership or control of more than 5% of any
class of voting stock of any bank not already controlled by
it;
- for it or any subsidiary (other than a bank) to acquire all
or substantially all of the assets of a bank; and
- to merge or consolidate with any other bank holding company.
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In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities and either the
Company has registered securities under Section 12 of the Exchange Act or no
other person will own a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure for
challenge of the rebuttable control presumption.
The BHCA further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly, or the effect of which may be
substantially to lessen competition in any section of the country, or that in
any other manner would be in restraint of trade, unless the transaction's
anticompetitive effects are clearly outweighed by the public interest. The
Federal Reserve is also required to consider the financial and managerial
resources and future prospects of the bank holding companies and banks concerned
and the convenience and needs of the community to be served.
Bank holding companies generally are also prohibited under the BHCA
from engaging in non-banking activities or from acquiring direct or indirect
control of any company engaged in non-banking activities. However, the Federal
Reserve may permit bank holding companies to engage in certain types of
non-banking activities determined by the Federal Reserve to be closely related
to banking or managing or controlling banks. Activities determined by the
Federal Reserve to fall under this category include:
- making or servicing loans and certain leases;
- providing certain data processing services;
- acting as a fiduciary or investment or financial advisor,
- providing discount brokerage services;
- underwriting bank eligible securities; and
- making investments designed to promote community welfare.
Subsidiary banks of a bank holding company are subject to certain
restrictions on extensions of credit to the bank holding company or its
subsidiaries, on investments in their securities and on the use of their
securities as collateral for loans to any borrower. These regulations and
restrictions may limit the Company's ability to obtain funds from the Bank for
its cash needs, including funds for the payment of dividends, interest and
operating expenses. Further, federal law prohibits a bank holding company and
its subsidiaries from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property, or the furnishing of
services. For example, the Bank may not generally require a customer to obtain
other services from it or the Company, and may not require that a customer
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promise not to obtain other services from a competitor as a condition to an
extension of credit to the customer.
Source of Strength; Cross-Guarantee. Under Federal Reserve policy, a
bank holding company is expected to act as a source of financial strength to its
bank subsidiaries and to commit resources to support these subsidiaries. This
support may be required at times when, absent such policy, the bank holding
company might not otherwise provide such support. Under these provisions, a bank
holding company may be required to loan money to its subsidiary banks in the
form of capital notes or other instruments, which qualify for capital under
regulatory rules. Under the BHCA, the Federal Reserve may require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition. The Bank may be required to
indemnify, or cross-guarantee, the FDIC against losses it incurs with respect to
any other bank controlled by the Company, which in effect makes the Company's
equity investments in healthy bank subsidiaries available to the FDIC to assist
any failing or failed bank subsidiary of the Company.
State Regulation. Activities of the Company are subject to certain
provisions of The Financial Institutions Code of Georgia and regulations issued
pursuant to such code. These provisions are administered by The Georgia
Department of Banking & Finance, which has concurrent jurisdiction with the
Federal Reserve over the activities of the Company. The laws and regulations
administered by The Georgia Department of Banking & Finance are generally
consistent with, or supplemental to, those federal laws and regulations
discussed herein.
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THE BANK
As a national bank, the Bank is subject to the supervision and
examination by the Office of the Comptroller of the Currency (the "OCC").
Deposits in the Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC") up to a maximum amount (generally $100,000 per depositor, subject
to aggregation rules). The OCC and the FDIC regulate or monitor all areas of the
Bank's commercial banking operations, including security devices and procedures,
adequacy of capitalization and loan loss reserves, loans, investments,
borrowings, deposits, mergers, consolidations, reorganizations, issuance of
securities, payment of dividends, interest rates, establishment of branches, and
other aspects of its operations. The OCC requires the Bank to maintain certain
capital ratios and imposes limitations on the Bank's aggregate investment in
real estate, bank premises and furniture and fixtures. The Bank is currently
required by the OCC to prepare quarterly reports on the Bank's financial
condition and to conduct an annual audit of its financial affairs in compliance
with minimum standards and procedures prescribed by the OCC.
Under FDICIA, all insured institutions must undergo periodic on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or other report of any insured depository institution. FDICIA also requires the
federal banking regulatory agencies to prescribe, by regulation, standards for
all insured depository institutions and depository institution holding companies
relating, among other things, to: (i) internal controls, information systems and
audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest
rate risk exposure; and (v) asset quality.
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC or any other appropriate
federal agency, shall evaluate the record of each financial institution in
meeting the credit needs of its local community, including low and moderate
income neighborhoods. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility. Failure to
adequately meet these criteria could pose additional requirements and
limitations on the bank. The Bank was examined for CRA compliance in March, 1997
and received a CRA rating of "outstanding."
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to Georgia usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves, the Equal Credit
12
<PAGE> 14
Opportunity Act prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit, the Fair Credit Reporting Act of 1978
governing the use and provision of information to credit reporting agencies, the
Fair Debt Collection Act governing the manner in which consumer debts may be
collected by collection agencies, and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Bank also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve to implement that act, which
governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services. The Bank's commercial
transactions are also subject to the provisions of Georgia law governing such
transactions as they appear in non-banking commercial activities. These laws
include the Uniform Commercial Code and other provisions of The Georgia Code
Annotated.
DEPOSIT INSURANCE
The deposits of the Bank are currently insured to a maximum of $100,000
per depositor, subject to aggregation rules. The FDIC establishes rates for the
payment of premiums by federally insured banks and thrifts for deposit
insurance. Since 1993, insured depository institutions like the Bank have paid
for deposit insurance under a risk-based premium system. Insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.
DIVIDENDS
The Company is a legal entity separate and distinct from the Bank. The
principal source of cash flow for the Company is dividends from the Bank. The
amount of dividends that may be paid by the Bank to the Company depends on the
Bank's earnings and capital position and is limited by various statutory and
regulatory limitations. In addition, the Federal Reserve has stated that bank
holding companies should refrain from or limit dividend increases or reduce or
eliminate dividends under circumstances in which the bank holding company fails
to meet minimum capital requirements or in which its earnings are impaired.
As a national bank, the Bank may not pay dividends from its
paid-in-capital. All dividends must be paid out of undivided profits then on
hand, after deducting expenses, including reserves for losses and bad debts. In
addition, a national bank is prohibited from declaring a dividend on its shares
of common stock until its surplus equals its stated capital, unless there has
been transferred to surplus no less than one-tenth of the bank's net profits of
the preceding two consecutive half-year periods (in the case of an annual
dividend). The approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus. Under FDICIA, the Bank may
not pay a dividend if, after paying the dividend, the Bank would be
undercapitalized. See Capital Adequacy.
13
<PAGE> 15
As discussed below, additional capital requirements imposed by the OCC
may limit the Bank's ability to pay dividends to the Company. The Bank paid
dividends in the amount of $2,143,871 to the Company during 1999. Under the OCC
guidelines, at December 31, 1999, the Bank was permitted to pay the Company
dividends of up to $8,088,714.
In addition to the availability of funds from the Bank, the future
dividend policy of the Company is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
financial condition, cash needs and general business conditions. If dividends
should be declared in the future, the amount of such dividends presently cannot
be estimated and it cannot be known whether such dividends would continue for
future periods.
CAPITAL ADEQUACY
Federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to:
- make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding
companies;
- account for off-balance sheet exposure; and
- minimize disincentives for holding liquid assets.
The resulting capital ratios represent qualifying capital as a
percentage of total risk-weighted assets and off-balance sheet items. The
guidelines are minimums, and the federal regulators have noted that banks and
bank holding companies contemplating significant expansion programs should not
allow expansion to diminish their capital ratios and should maintain ratios well
in excess of the minimums.
The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based Total Capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. The degree of
regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Bank holding companies controlling financial
institutions can be called upon to boost the institution's capital and to
partially guarantee the institution's performance under their capital
restoration plans. Tier 1 capital includes stockholders' equity, qualifying
perpetual preferred stock and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangible
assets and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt
and intermediate-term preferred stock and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under the guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100%
14
<PAGE> 16
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business.
The Federal Reserve also has implemented a leverage ratio, which is
Tier 1 capital as a percentage of average total assets less intangible assets,
to be used as a supplement to the risk-based guidelines. The principal objective
of the leverage ratio is to place a constraint on the maximum degree to which a
bank holding company may leverage its equity capital base. The Federal Reserve
has established a minimum 3% leverage ratio of Tier 1 capital to total assets
for the most highly rated bank holding companies and insured banks. All other
bank holding companies and insured banks will be required to maintain a leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
tangible Tier 1 Leverage ratio is the ratio of a banking organization's Tier 1
capital, less all intangibles, to total assets, less all intangibles.
FDICIA established a capital-based regulatory plan designed to promote
early intervention for troubled banks and requires the FDIC to choose the least
expensive resolution of bank failures. The capital-based regulatory framework
contains five categories of compliance with regulatory capital requirements,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. To qualify as a
well capitalized institution, a bank must have a leverage ratio of no less than
5%, a Tier 1 risk-based ratio of no less than 6%, and a total risk-based capital
ratio of no less than 10%. The bank must also not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific
capital level.
Under FDICIA, regulators must take prompt corrective action against
depository institutions that do not meet minimum capital requirements. FDICIA
and the related regulations establish five capital categories as shown in the
following table.
15
<PAGE> 17
<TABLE>
<CAPTION>
TOTAL RISK- TIER I RISK- TIER I
CLASSIFICATION BASED CAPITAL BASED CAPITAL LEVERAGE
-------------- ------------- ------------- --------
<S> <C> <C> <C>
Well Capitalized (1) 10% 6% 5%
Adequately Capitalized (1) 8% 4% 4%(2)
Undercapitalized (3) <8% <4% <4%
Significantly Undercapitalized (3) <6% <3% <3%
Critically Undercapitalized (3) -- -- <2%
</TABLE>
---------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(3) An institution is classified as undercapitalized if it is
below the specified capital level for any of the three capital
measures.
A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives a less than satisfactory examination rating in any one of four
categories. As a depository institution moves downward through the
capitalization categories, the degree of regulatory scrutiny will increase and
the permitted activities of the institution will decrease. Action may be taken
by a depository institution's primary federal regulator against an institution
that falls into one of the three undercapitalized categories, including the
requirement of filing a capital plan with the institution'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 sell the institution.
As of the date of this filing, the Company and the Bank are both
considered to be well capitalized according to their regulatory capital
requirements.
INTERSTATE BANKING AND BRANCHING RESTRICTIONS
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act"), effective September 29, 1995, an adequately
capitalized and adequately managed bank holding company may acquire a bank
across state lines, without regard to whether such acquisition is permissible
under state law. A bank holding company is considered to be "adequately
capitalized" if it meets all applicable federal regulatory capital standards.
While the Riegle-Neal Act precludes a state from entirely insulating
its banks from acquisition by an out-of-state holding company, a state may still
provide that a bank may not be acquired by an out-of-state company unless the
bank has been in existence for a specified number of years, not to exceed five
years. Additionally, 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
16
<PAGE> 18
discriminate against out of state institutions. The limitations do not apply to
the initial 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.
The Riegle-Neal Act also provides that, beginning on June 1, 1997,
banks with different home states may merge, unless a particular state opts out
of the statute. Consistent with the Riegle-Neal Act, Georgia adopted legislation
in 1996 which has permitted interstate bank mergers since June 1, 1997.
In addition, beginning June 1, 1997, the Riegle-Neal Act has permitted
national and state banks to establish de novo branches in another state if there
is a law in that state which applies equally to all banks and expressly permits
all out-of-state banks to establish de novo branches. However, in 1996, Georgia
adopted legislation which opts out of this provision. The Georgia legislation
provides that, with the prior approval of the Georgia Department of Banking and
Finance, after July 1, 1996, a bank may establish three new or additional de
novo branch banks anywhere in Georgia and, beginning July 1, 1998, a bank may
establish new or additional branch banks anywhere in the state with prior
regulatory approval.
OTHER APPLICABLE REGULATIONS
RCDRIA. The Riegle Community Development and Regulatory Improvement Act
of 1994 promotes economic revitalization and community development to investment
areas. It established 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 million. A qualifying institution may receive
an additional $3.75 million for the purpose of serving an investment area in
another state.
The act 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 act
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 also are
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.
Financial Services Modernization Act. On November 12, 1999, the
President signed into law the Gramm-Leach-Bliley Act of 1999, known as the
Financial Services Modernization Act of 1999, which repeals many of the
restrictions on the activities of banks and bank holding companies. The new law
establishes two new structures - "financial holding companies" and "financial
subsidiaries" - that enable qualifying bank holding companies and banks to
provide a wide variety of financial services that formerly could be performed
only by insurance companies and securities firms. The new law also permits bank
affiliations with insurance and securities firms.
17
<PAGE> 19
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Some of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. The Company cannot predict whether any of these
proposals will be adopted or, if adopted, what effect these would have.
The earnings of the Company are affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve's monetary policies have had, and are
likely to continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order to curb inflation or combat a recession. The monetary policies of the
Federal Reserve have major effects upon the levels of bank loans, investments
and deposits through its open market operations in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.
THE FINANCE COMPANY
The small balance loans made by the Finance Company are governed by
GILA, which governs loans of $3,000 or less and requires that lenders subject to
GILA not lend funds for a term of more than 36 months and 15 days. GILA provides
for a maximum rate of interest and specifies permitted additional fees which can
be charged for a loan, including loan fees, maintenance fees and late fees. The
Finance Company is also authorized to collect the actual and reasonable expense
of repossessing, storing, and selling any collateral pledged as security. In
general, charges, interest and fees cannot exceed the 5% per month limit
established by the criminal usury provisions of Georgia law.
GILA requires that each office in which a small loan business is
conducted be licensed by the State of Georgia. The granting of a license depends
on a finding of public convenience and advantage for the proposed office, and
upon a finding of the financial responsibility, character and fitness of the
applicant. Pursuant to regulations under GILA, the Finance Company is required
to demonstrate that it has a minimum net worth of $25,000 to begin business. As
a condition to obtaining such license, the applicant must consent to state
regulation and examination and to the making of periodic reports to the Georgia
Industrial Loan Department. Licenses are revocable for cause, and their
continuance depends upon compliance with the law and regulations under which
they are issued. As of the date of this Registration Statement, the Finance
Company has never had any of its GILA licenses revoked.
The activities of the Finance Company are subject to provisions of the
Georgia Residential Mortgage Act and regulations issued pursuant thereto. In
addition, all of its lending operations are carried on under the provisions of
the Federal Consumer Credit Protection Act and the Fair Credit Reporting Act. On
all loans made by the Finance Company, the finance charge, the annual percentage
rate, the total of payments and other disclosures required by the
Truth-in-Lending Act are disclosed to the borrower.
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<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
The following discussion is intended to provide insight into the
financial condition and results of operations of the Company and its
subsidiaries and should be read in conjunction with the consolidated financial
statements and accompanying notes. Management's discussion contains comments
about the years ended December 31, 1999 and 1998 and the quarters ended March
31, 2000 and 1999. Quarterly ratios and percentages were annualized where
applicable.
EARNINGS OVERVIEW
For the Years Ended December 31, 1999 and 1998
GENERAL
The Company's earnings were $3.56 million in 1999, an increase of 4.71%
when compared to $3.40 million earned in 1998. This increase is primarily
attributable to the Bank's continued loan growth. Net earnings per share on a
fully diluted basis was $1.13 for 1999, compared with $1.07 reported in 1998, an
increase of 5.6%. Return on average assets and return on average stockholders'
equity for 1999 was 1.48% and 16.27%, respectively, compared with 1.57% and
16.08%, respectively, for 1998.
NET INTEREST INCOME
The Company's operational results primarily depend on the earnings of
the Bank. The Bank's earnings depend, to a large degree, on net interest income.
Net interest income is defined as the difference between the interest income
received from its investments (such as loans, investment securities, federal
funds sold, etc.) and the interest expense on deposits and other borrowings. The
following discussion and analysis of net interest margin assumes and is stated
on a tax equivalent basis. That is, non-taxable interest is restated at its
taxable equivalent rate.
The banking industry uses two key ratios to measure the relative
profitability of net interest income. The net interest rate spread measures the
difference between the average yield on interest earning assets and the average
rate paid on interest bearing liabilities. The interest rate spread eliminates
the impact of non-interest bearing deposits and gives a direct perspective on
the effect of market interest rate movements. The other commonly used measure is
net interest margin. The net interest margin is defined as net interest income
as a percent of average total interest earning assets and takes into account the
positive impact of investing non-interest-bearing deposits.
Net interest income increased by $797 thousand or 7.2% in 1999 from
1998. Net interest income at December 31, 1999, was $11.9 million compared to
$11.1 million in 1998. The net interest margin on interest earning assets was
5.49% in 1999, a decrease when compared to 1998's net interest margin of 5.63%.
The net interest spread was 4.78% in 1999 and 4.79% in 1998, while the
net interest margin was 5.49% in 1999 and 5.63% in 1998. The decrease in the
margin and the spread are primarily
19
<PAGE> 21
due to the Bank's increased emphasis in commercial lending and its endeavor to
attract more credit worthy borrowers. Commercial loans are indicative of larger
balances, which typically have lower interest rates than consumer loan products.
The Bank focuses on attracting customers who are the most credit worthy in its
market. The competition for these customers in our market area and in most
market areas is strong. Because we have chosen to take less risk, the interest
rates and fees for those borrowers is not as high as those borrowers that
present more credit risk.
The cost of interest-bearing liabilities for 1999 was 4.29%, a decrease
of 41 basis points from 1998. The decrease is primarily attributable to the
generally stable and slight downward trend in interest rates over the past three
years and the Bank's deposit base continuing to re-price at lower rates.
Interest-bearing demand accounts were also re-priced to lower rates in 1999.
The following table shows, for the past two years, the relationship
between interest income and interest expense and the average daily balances of
interest-earning assets and interest-bearing liabilities.
20
<PAGE> 22
TABLE 1
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
For the Years Ended December 31,
(in thousands)
1999 1998
----------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earnings assets:
Investments:
Federal funds sold $ 6,087 316 5.19% 8,779 481 5.48%
Taxable 33,116 1,956 5.91% 27,320 1,650 6.04%
Tax exempt 11,261 853 7.57% 6,943 523 7.53%
-------- -------- -------- -------- -------- --------
Total Investments 50,464 3,125 6.19% 43,042 2,654 6.17%
Loans (including loan fees):
Taxable 171,185 16,951 9.90% 157,106 16,331 10.39%
Tax Exempt 1,443 148 10.26% 1,703 175 10.28%
-------- -------- -------- -------- -------- --------
Total Loans 172,628 17,099 9.91% 158,809 16,506 10.39%
-------- -------- -------- -------- -------- --------
Total interest earning assets 223,092 20,224 9.07% 201,851 19,160 9.49%
Other non-interest earnings assets 17,062 14,961
-------- --------
Total assets $240,154 216,812
======== ========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Demand $ 72,318 2,068 2.86% 59,070 1,788 3.03%
Savings 11,913 236 1.98% 11,343 311 2.74%
Time 93,068 5,230 5.62% 88,794 5,335 6.00%
FHLB advances
& other borrowings 8,323 434 5.21% 6,915 370 5.35%
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 185,622 7,968 4.29% 166,122 7,804 4.70%
Non-interest bearing deposits 29,199 26,598
Other liabilities 3,483 2,954
Stockholders' equity 21,850 21,138
-------- --------
Total liabilities and
Stockholders' equity $240,154 216,812
======== ========
Excess of interest-earning assets
over interest-bearing liabilities $ 37,470 35,729
======== ========
Ratio of interest-earning assets to
Interest-bearing liabilities 120.19% 121.51%
Net interest income tax equivalent 12,256 11,356
Net interest spread 4.78% 4.79%
Net interest yield on interest 5.49% 5.63%
Earning assets
Taxable Adjustments
Investments (290) (178)
Loans (50) (60)
-------- --------
Net interest income $11,916 11,118
======== ========
</TABLE>
21
<PAGE> 23
Non-accrual loans and the interest income that was recorded on these
loans, are included in the yield calculation for loans in all periods reported.
Tax-exempt interest income is calculated on a tax equivalent basis.
The following table shows the relative impact on net interest income of
changes in the annual average daily outstanding balances (volume) of
interest-earning assets and interest-bearing liabilities and the rates earned
(rate) by the Company on such assets and liabilities. Variances resulting from a
combination of changes in rate and volume are allocated in proportion to the
absolute dollar amounts of the change in each category.
TABLE 2
CHANGES IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
(in thousands)
Increase (decrease) due to changes in:
--------------------------------------
1999 over 1998 1998 over 1997
-------------- --------------
Volume Rate Total Volume Rate Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Federal funds sold $ (140) (25) (165) 215 (5) 210
Taxable investments 342 (37) 305 120 (87) 33
Non-taxable investments 328 3 331 71 11 82
Taxable loans 1,394 (774) 620 1,784 168 1,952
Non-taxable loans (27) 0 (27) (9) 0 (9)
-------- -------- -------- -------- -------- --------
Total Interest Income 1,897 (833) 1,064 2,181 87 2,268
-------- -------- -------- -------- -------- --------
Interest expense on:
Deposits:
Demand 379 (99) 280 158 (47) 111
Savings 11 (87) (76) 22 (22) 0
Time 240 (345) (105) 516 205 721
FHLB advances & other borrowings 74 (10) 64 317 (5) 312
-------- -------- -------- -------- -------- --------
Total Interest Expense 704 (541) 163 1,013 131 1,144
-------- -------- -------- -------- -------- --------
Increase (decrease) in net interest income $ 1,193 (293) 900 1,168 (44) 1,124
======== ======== ======== ======== ======== ========
</TABLE>
OTHER INCOME AND EXPENSE
Other income in 1999 of $1.93 million increased over 1998 by $122
thousand or 6.7%. The increase is primarily due to an increase in the volume of
service charges on deposit accounts and more specifically attributable to
insufficient funds charges on deposit accounts.
Other expenses increased by $794 thousand (11.0%) in 1999 over 1998
principally due to the increase in employee costs of approximately $354 thousand
related to an increase in the both number and pay rate of employees. The Company
added personnel in the operations and commercial loan departments in an effort
to better manage its expanding asset base. Additionally, other operating expense
increased by $405 thousand. This increase was the result of increased
professional fees and other expense attributable to year 2000 preparation and
updating of operating systems.
Income taxes, expressed as a percentage of earnings before income
taxes, remained relatively stable at 36% in 1999 and 35% in 1998.
22
<PAGE> 24
For the Quarters Ended March 31, 2000 and 1999
GENERAL
Net earnings for the quarter ended March 31, 2000 were $997 thousand.
This represented an increase of approximately $180 thousand or 22% compared to
first quarter 1999. Net earnings per common share on a fully diluted basis
increased 24% for the first quarter of 2000 and was $0.31 compared to $0.25 in
the first quarter of 1999. Return on average assets and return on average equity
on an annualized basis for the first quarter of 2000 was 1.60% and 18.82%,
respectively. This compared to return on average assets and average equity of
1.50% and 15.66%, respectively for the first quarter of 1999.
NET INTEREST INCOME
Net interest income increased 17% for the quarter ended March 31, 2000
over the same period of 1999 to $3.2 million. Net interest income for the
quarter ended March 31, 2000 increased approximately $470 thousand compared to
the first quarter of 1999. This increase resulted from an $832 thousand or 18%
increase in interest income and a $362 thousand or 19% increase in interest
expense.
The increase in interest income resulted from an increase in average
earning assets of $33 million that was augmented by an increase of 27 basis
points in average yield on earning assets for the period from 8.94% to 9.21%.
The first quarter ended March 31, 2000 net interest margin was helped by a
recovery of previously charged off interest of approximately $68 thousand. The
increase in interest expense was due to a $31 million increase in average
interest bearing liabilities and a 17 basis point increase in the cost of those
funds.
OTHER INCOME AND EXPENSE
Other income for the first three months of 2000 increased approximately
$75 thousand or 14% compared to the first quarter of 1999. Service charges on
deposit accounts increased by approximately $64 thousand or 21% during 2000
compared to the first three months of 1999. Of this increase, approximately $56
thousand was due to increases in non-sufficient funds fees on customers' return
checks and the remainder was attributable to an increase in service charge
income due to an increase the number of deposit accounts.
Other expense increased almost $300 thousand or 15% in the first
quarter of 2000 compared to the same period in 1999. Salaries and employee
benefits increased approximately $190 thousand, a 17% increase over first
quarter 1999. The increase was due to additional staff in the commercial loan
and operations departments as well as increases in pay rates for employees in
the Bank. The increase in salaries and benefits were normal for the company and
planned to properly handle increased work requirements. Other expenses increased
approximately $108 thousand or 13% this period compared to the first three
months in 1999. Approximately $64 thousand of this increase is attributable to
occupancy expenses such as depreciation expense, maintenance and repairs and
other occupancy expense. The Bank's main office required exterior repairs. In
addition, the Bank had purchased software and hardware associated with a new
accounts platform and year 2000 upgrades that caused
23
<PAGE> 25
depreciation expense to increase in 2000. The remainder of the increase in other
expense was not concentrated in any single expense line item.
Income tax expense for the first three months was $541 thousand in 2000
compared to $447 thousand in 1999. The effective tax rates for the first three
months ended March 31, 2000 and 1999 were 35% for each period.
BALANCE SHEET OVERVIEW
For the Years Ended December 31, 1999 and 1998
GENERAL
During 1999, average total assets increased $23.3 million (11.1%) over
1998. Average deposits increased $20.7 million (11.1%) in 1999 over 1998.
Average loans increased $13.8 million (8.1%) in 1999 over 1998. The growth
figures discussed above are attributable to the expansion of metro Atlanta
westward towards the Company's market area over the past several years and the
resulting development of the Bank's market area including Carroll, Douglas and
Paulding Counties, Georgia.
Total assets at December 31, 1999, were $254.0 million, representing a
$29.9 million (13.3%) increase from December 31, 1998. Total deposits increased
$21.9 million (11.3%) from 1998 to 1999 while total loans increased $22.9
million (14.1%) during 1999. More than one half of the increase in deposits came
as a result of an increase of $11.9 million in interest-bearing demand accounts
from 1998 to 1999 while time deposits accounts increased $7.6 million in 1999.
As the local economy remains strong, loan demand remains good. Consequently, the
Bank showed increases in each loan classification at year-end with particular
increases in residential construction and commercial real estate loans. The loan
growth experienced by the Company was funded principally with increases in
deposit accounts and advances from the Federal Home Loan Bank.
INVESTMENTS
The investment portfolio consists primarily of debt securities, which
provide the Company with a source of liquidity and a relatively stable source of
income. Additionally, the investment portfolio provides a balance to interest
rate and credit risk in other categories of the balance sheet while providing a
vehicle for the investment of available funds and supplying securities to pledge
as required collateral for certain deposits. The following table shows the
carrying value of the Company's securities, by security type, as of December 31,
1999 and 1998.
24
<PAGE> 26
TABLE 3
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
(in thousands)
Available for Sale 1999 1998
-------- --------
<S> <C> <C>
United States treasuries and agencies $ 13,696 15,099
State, county and municipal 13,240 8,445
Mortgage-backed securities 14,449 17,952
-------- --------
Total available for sale $ 41,385 41,996
======== ========
Held to Maturity
Trust Preferred Securities $ 1,000
--------
Total held to maturity $ 1,000
========
</TABLE>
The following table presents the expected maturity of the amortized
cost of securities by maturity date and average yields based on amortized cost
(for all obligations on a fully taxable basis, assuming a 34% tax rate) at
December 31, 1999. The composition and maturity/re-pricing distribution of the
securities portfolio is subject to change depending on rate sensitivity, capital
and liquidity needs.
TABLE 4
EXPECTED MATURITY OF SECURITIES
<TABLE>
<CAPTION>
(in thousands)
United States Wtd. State Wtd. Mortgage- Wtd. Wtd.
Maturities at Treasuries & Avg. County and Avg. Backed Avg. Trust Avg.
December 31, 1999 Agencies Yld. Municipal Yld. Securities Yld. Preferred Yld.
----------------- ------------- ------- ---------- ------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 year $ 2,500 5.53% -- -- 202 4.89% -- --
After 1 through 5 years 7,107 5.77% 2,432 6.43% 5,913 5.94% -- --
After 5 through 10 years 4,688 6.05% 6,741 6.83% 8,058 6.23% -- --
After 10 years -- -- 4,449 7.37% 845 7.09% 1,000 9.75%
-------- ------ ------ ------ ------ ------ ------ ------
Totals $ 14,295 5.82% 13,622 6.93% 15,018 6.15% 1,000 9.75%
======== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Mortgage backed securities are included in the maturities categories in
which they are anticipated to be repaid based on scheduled maturities. The
actual cash flow of mortgage backed securities differs with this assumption.
Yields on tax-exempt securities are calculated on a tax equivalent basis.
25
<PAGE> 27
The following table presents loans by type at the end of each of the
last two years.
TABLE 5
LOAN PORTFOLIO
<TABLE>
<CAPTION>
(in thousands)
December 31,
1999 1998
---------- ----------
<S> <C> <C>
Commercial, financial & agricultural $ 24,144 19,527
Real estate - construction 34,769 22,717
Real estate - mortgage 108,137 102,702
Consumer loans 17,745 16,970
---------- ----------
184,795 161,916
Less: Unearned interest and fees (467) (442)
Allowance for loan losses (2,281) (2,019)
---------- ----------
Loans, net $ 182,047 159,455
========== ==========
</TABLE>
The following table sets forth the maturity distribution and interest
rate sensitivity of commercial, financial and agricultural loans, real estate
construction and mortgage loans and consumer loans as of December 31, 1999.
TABLE 6
LOAN PORTFOLIO MATURITY
<TABLE>
<CAPTION>
(in thousands)
Over
One Wtd. One to Wtd. Over Wtd. Wtd.
Year Avg. Five Avg. Five Avg. Avg.
or Less Yld. Years Yld. Years Yld. Total Yld.
-------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial & agricultural $ 15,751 8.68% 7,064 8.79% 1,329 7.56% 24,144 8.65%
Real estate - construction 23,999 8.83% 9,515 8.93% 1,255 8.59% 34,769 8.85%
Real estate - mortgage 26,688 8.71% 48,110 8.82% 33,339 8.72% 108,137 8.76%
Consumer 9,685 10.45% 7,954 9.45% 106 8.72% 17,745 9.99%
-------- ------ ------ ------ ------ ------ ------- ------
Total $ 76,123 8.96% 72,643 8.90% 36,029 8.67% 184,795 8.88%
======== ====== ====== ====== ====== ====== ======= ======
</TABLE>
VARIABLE/FIXED RATE MIX
<TABLE>
<CAPTION>
(in thousands)
Fixed Wtd Variable Wtd
Interest Avg Interest Avg
Rates Yld Rates Yld
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 5,500 9.04% 18,644 8.54%
Real estate - construction 7,231 9.04% 27,538 8.80%
Real estate - mortgage 47,346 8.85% 60,791 8.69%
Consumer 705 10.20% 17,040 9.98%
-------- ------ -------- ------
Total $ 60,782 8.91% 124,013 8.87%
======== ====== ======== ======
</TABLE>
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The provision for loan losses for the Company in 1999 was $303 thousand
compared to $495 thousand in 1998. The significant decrease in the provision for
loan losses was primarily attributable to continued low loan charge-offs and
good recovery experience. The Company's methodology for measuring the adequacy
of the allowance for loan loss indicates sufficient reserve for expected future
loan losses in the portfolio. The provision for loan losses continues to reflect
management's estimate of potential loan losses inherent in the portfolio and the
creation of an allowance for loan losses
26
<PAGE> 28
adequate to absorb such losses. The allowance for loan losses represented
approximately 1.23% and 1.25% of total loans outstanding at December 31, 1999
and 1998, respectively. Total charge-offs were $130 thousand and $130 thousand
compared to recoveries of $89 thousand and $128 thousand during 1999 and 1998,
respectively.
The Company has an independent loan review function. All loans are
placed in loan grade categories, which are consistent with those used by the
Bank's regulators. All loans are constantly monitored by the loan officer and
the loan review function for consistency and accuracy. Through this grading
process, the Bank assures the timely recognition of credit risks. In general, as
credit risk increases, the level of the allowance for loan and lease loss will
also increase.
A formal allowance for loss adequacy test is performed at each month
end. Specific amounts of loss are estimated on problem loans and historical loss
percentages are applied to the balance of the portfolio using certain portfolio
stratifications. Additionally, the evaluation takes into consideration such
factors as changes in the nature and volume of the loan portfolio, current
economic conditions, regulatory examination results, and the existence of loan
concentrations.
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the collectability of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality, and review of specific problem loans. In
determining the adequacy of the allowance for loan losses, management uses a
loan grading system that rates loans in eight different categories. Grades five
though six, which represent criticized or classified loans, are assigned
allocations of loss based on management's estimate of potential loss that is
generally based on historical losses and/or collateral deficiencies. Loans
graded one through four are stratified by type and allocated loss ranges based
on historical loss experience for the strata. The combination of these results
are compared monthly to the recorded allowance for loan losses and material
differences are adjusted by increasing or decreasing the provision for loan
losses. Management uses an internal loan reviewer who is independent of the
lending function to challenge and corroborate the loan grading system and
provide additional analysis in determining the adequacy of the allowance for
loan losses and the future provisions for estimated loan losses.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulators, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such
regulators may require the Company to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination. Management of the Company realizes the importance of maintaining an
adequate allowance for loan losses. Through a professional loan review function
and effective loan officer identification program, management is recognizing
weaknesses in the loan portfolio in a timely manner. Early identification of
deteriorating credit attributes allows management to take a proactive role in
documenting an established plan to enhance the Company's position and minimize
the potential for loss.
Through the problem loan identification program outlined above,
management is able to identify those loans that exhibit weakness and classify
them on a classified and criticized loan list.
27
<PAGE> 29
The Company's migration analysis assigns historical loss amounts to pools of
loans according to classifications of risk ratings to calculate a general
allowance to the overall portfolio. In cases where significant weaknesses exist
in a specific loan, a specific reserve is assigned to such loans in addition to
the general allowance. The Company also evaluates the risks associated with
concentrations in credit. If it is necessary to assign an allowance related to
concentrations of credit, the Company adds a specific reserve related to such
risks.
The following table presents a summary of changes in the allowance for
loan losses for each of the past two years.
TABLE 7
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1999 1998
------ ------
<S> <C> <C>
Balance at beginning of year $2,019 1,526
Charge-offs:
Commercial, financial and agricultural 32 38
Real estate-construction -- --
Real estate-mortgage 18 5
Consumer loans 80 87
------ ------
Total charge-offs 130 130
------ ------
Recoveries:
Commercial, financial and agricultural 14 30
Real estate-construction -- --
Real estate-mortgage 6 25
Consumer loans 69 73
------ ------
Total recoveries 89 128
------ ------
Net charge-offs 41 2
Provision for loan losses 303 495
------ ------
Balance at end of year $2,281 2,019
====== ======
Ratio of net charge-offs during the period
to average loans outstanding .02% .00%
Ratio of allowance to average total loans 1.32% 1.27%
</TABLE>
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets at December 31, 1999, were $418 thousand or .23%
of total loans and other real estate owned compared to $734 thousand or .45% of
total loans and other real estate owned at December 31, 1998. There were no
related party loans that were considered non-performing for 1999 or 1998. The
reduction of non-performing loans from 1998 to 1999 was attributable to the sale
of real estate owned and the payoff of non-accrual loans.
The following table summarizes past due and non-accrual loans, other
real estate and repossessions, and income that would have been reported on
non-accrual loans as of December 31, 1999 and 1998.
28
<PAGE> 30
TABLE 8
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
(in thousands)
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Other real estate and repossessions $ -- 96
Non-accrual loans 370 481
Loans 90 days past due still accruing 48 157
---- ----
Total $418 734
==== ====
Non-performing assets as % of total loans .23% .45%
</TABLE>
While there may be additional loans in the portfolio that may become
classified as conditions indicate, management is not aware of any potential
problem loans that are not disclosed in the table above. As a result of
management's ongoing review of the loan portfolio, loans are classified as
non-accrual generally when they are past due in principal or interest payments
for more than 90 days or it is otherwise not reasonable to expect collection of
principal and interest under the original terms. Exceptions are allowed for 90
day past due loans when such loans are well secured and in process of
collection. Generally, payments received on non-accrual loans are applied
directly to principal. The Company has adopted the principals of Financial
Accounting Standards Board (FASB) SFAS 114 and 118 relating to accounting for
impaired loans.
The Bank's loan review function that continually monitors selected
accruing loans for which general economic conditions or changes within a
particular industry could cause the borrowers financial difficulties. The loan
review function also identifies loans with high degrees of credit or other
risks. The focus of loan review and management is to maintain a low level of
non-performing assets and return current non-performing assets to earning
status. Management is unaware of any known trends, events or uncertainties that
will have or that are reasonably likely to have a material effect on the
Company's liquidity, capital resources or operations.
DEPOSITS
Time deposits of $100 thousand and greater totaled $31.2 million at
December 31, 1999, compared with $27.0 million at year-end 1998. The following
table sets forth the scheduled maturities of time deposits of $100 thousand and
greater at December 31, 1999.
TABLE 9
DEPOSITS
(in thousands)
<TABLE>
<S> <C>
Within 3 months $ 6,680
After 3 through 6 months 4,215
After 6 through 12 months 11,768
After 12 months 8,531
--------
Total $ 31,194
========
</TABLE>
29
<PAGE> 31
LIQUIDITY
The Bank must maintain, on a daily basis, sufficient funds to cover the
withdrawals from depositors' accounts and to supply new borrowers with funds. To
meet these obligations, the Bank keeps cash on hand, maintains account balances
with its correspondent banks, and purchases and sells federal funds and other
short-term investments. Asset and liability maturities are monitored in an
attempt to match these to meet liquidity needs. It is the policy of the Bank to
monitor its liquidity to meet regulatory requirements and their local funding
requirements. Management believes that the Bank's current level of liquidity is
adequate to meet its needs.
The Bank maintains relationships with correspondent banks including the
Federal Home Loan Bank (the "FHLB") that can provide funds to it on short
notice, if needed. At December 31, 1999, the Bank has arrangements with a
correspondent and commercial banks for short term unsecured advances up to $7.5
million. As of December 31, 1999 the Bank had not drawn on the available
facilities. In addition, the Bank has a line of credit with the FHLB in the
amount of $22.0 million of which the Bank had drawn $15.0 million at December
31, 1999. The Company has a line of credit arrangement with a financial
institution in the amount of $1.5 million, which is used by the Company to lend
to the Finance Company to fund its loan volume. The lines of credit have varying
terms and maturities that are further discussed in the notes to the financial
statements.
Cash and cash equivalents increased $4.5 million to a total $20.1
million at December 31, 1999, as the Bank adopted a strategy of greater
liquidity in anticipation of potential cash outflows related to year 2000
activities by the Bank's customers. Cash inflows from operations totaled $4.4
million in 1999, while inflows from financing activities totaled $27.5 million,
most of which was net deposit increases during 1999 of $21.9 million and FHLB
advances of $10.0 million. Included in financing activities were line of credit
repayments of $2.3 million, retirement of common stock of $830 thousand and $1.3
million of dividends paid to stockholders.
Investing activities used $27.4 million of cash and cash equivalents,
principally composed of net advances of loans to customers of $23.1 million
during 1999 and investment security purchases, net of sales, calls, and
pay-downs of $3.1 million. The Bank purchased property and equipment for
operations and future expansion amounting to $1.4 million.
CAPITAL RESOURCES
The Company continues to maintain capital ratios in the
"well-capitalized" classification. The following tables present the Company's
regulatory capital position at December 31, 1999.
30
<PAGE> 32
TABLE 10
CAPITAL RATIOS
<TABLE>
<CAPTION>
Actual as of December 31, 1999
------------------------------
<S> <C>
Tier 1 Capital (to risk weighted assets) 12.00%
Tier 1 Capital minimum requirement 4.00%
------
Excess 8.00%
======
Total Capital (to risk weighted assets) 13.00%
Total Capital minimum requirement 8.00%
------
Excess 5.00%
======
Leverage Ratio
As of December 31, 1999
-----------------------
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 10.00%
Minimum leverage requirement 4.00%
----
Excess 6.00%
====
</TABLE>
For a more complete discussion of the actual and required ratios of the
Company and its subsidiaries, see Note 9 to the consolidated financial
statements. Average equity to average assets was 9.10% in 1999 and 9.75% in
1998. The ratio of dividends declared to net earnings was 36.33% during 1999,
compared with 34.34% in 1998.
ASSET/LIABILITY MANAGEMENT
It is the Company'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 deposits and borrowing strategies, which
minimize the Company's exposure to interest rate risk. The objective of the
policy is to control interest sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on earnings.
The asset/liability mix is monitored on a regular basis. A report
reflecting the interest sensitive assets and interest sensitive liabilities is
prepared and presented to management and the asset/liability management
committee on at least a quarterly basis. One method to measure a bank's interest
rate exposure is through its repricing gap. The gap is calculated by taking all
assets that reprice or mature within a given timeframe and subtracting all
liabilities that reprice or mature within that timeframe. The difference between
these two amounts is called the "gap", the amount of either liabilities or
assets that will reprice without a corresponding asset or liability repricing. A
negative gap (more liabilities repricing than assets) generally indicates that
the bank's net interest income will decrease if interest rates rise and will
increase if interest rates fall. A positive gap generally indicates that the
bank's net interest income will decrease if rates fall and will increase if
rates rise.
31
<PAGE> 33
The following table summarizes the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1999 that are
expected to mature, prepay or reprice in each of the future time periods shown.
Except as stated below, the amount of assets or liabilities that mature or
reprice during a particular period was determined in accordance with the
contractual terms of the asset or liability. Adjustable rate loans are included
in the period in which interest rates are next scheduled to adjust rather than
in the period in which they are due, and fixed rate loans and mortgage-backed
securities are included in the periods in which they are anticipated to be
repaid based on scheduled maturities, although the cash flows received often
differ from scheduled maturities. The Company's savings accounts and
interest-bearing demand accounts (NOW and money market deposit accounts), which
are generally subject to immediate withdrawal, are included in the "One Year or
Less" category, although historical experience has proven these deposits to be
less interest rate sensitive over the course of a year.
TABLE 11
INTEREST RATE GAP SENSITIVITY
<TABLE>
<CAPTION>
At December 31, 1999
Maturing or Repricing in
------------------------
(in thousands)
Over 1 Over 3
One Year Year Thru Years thru Over 5
or Less 3 Years 5 Years Years Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with
Other banks $ 4,958 -- -- -- 4,958
Federal funds sold 5,220 -- -- -- 5,220
Investment securities 2,702 6,250 9,202 25,781 43,935
Loans: Fixed rate 61,064 36,912 17,124 8,969 124,069
Variable rate 31,513 29,213 -- -- 60,726
---------- ---------- ---------- ---------- ----------
Total interest-earning assets $ 105,547 72,375 26,326 34,750 238,908
---------- ---------- ---------- ---------- ----------
Interest-bearing liabilities:
Deposits:
Demand $ 78,484 -- -- -- 78,484
Savings 7,693 -- -- -- 7,693
Time deposits 69,282 25,527 3,388 -- 98,197
FHLB advances 5,000 10,000 -- -- 15,000
Line of Credit 350 -- -- -- 350
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities $ 160,809 35,527 3,388 -- 199,724
---------- ---------- ---------- ---------- ----------
Interest sensitive difference
per period $ (55,352) 36,848 22,938 34,750 39,184
========== ========== ========== ========== ==========
Cumulative interest sensitivity
difference $ (55,352) (18,504) 4,434 39,184
========== ========== ========== ==========
Cumulative difference to total
assets (21.79)% (7.28)% 1.75% 15.42%
========== ========== ========== ==========
</TABLE>
At December 31, 1999, the difference between the Company's liabilities
and assets repricing or maturing within one year was $54.0 million. The above
chart indicates an excess of liabilities repricing or maturing within one year,
thus a rise in interest rates would cause the Company's net interest income to
decline. However, certain shortcomings are inherent in the method of analysis
presented in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees or at different points in time to changes in market
interest rates. Such is the case in analyzing NOW
32
<PAGE> 34
accounts, which are disclosed in the one year or less category. Those
liabilities do not necessarily reprice as quickly or to the same degree as rates
in general. Additionally, certain assets, such as adjustable-rate mortgages,
have features that restrict changes in interest rates, both on a short-term
basis and over the life of the asset. Changes in interest rates, prepayment
rates, early withdrawal levels and the ability of borrowers to service their
debt, among other factors, may change significantly from the assumptions made in
the table.
For the Quarter Ended March 31, 2000 and Year Ended December 31, 1999
GENERAL
Total assets were $276 million at March 31, 2000, an increase of $45
million or 19.5% when compared to March 31, 1999 and an increase of $22 million
or 8.7% when compared to December 31, 1999. At the end of the first quarter of
2000, the Bank experienced large deposits that management expects will be
withdrawn early in the second quarter. Total assets are estimated to be
approximately $260 million after the withdrawal, resulting in an increase from
December 31, 1999 of 2.3%.
At March 31, 2000 earning assets totaled $260 million, an increase of
more than $25 million from December 31, 1999. The mix of interest earning assets
changed slightly in the first 3 months of 2000 due to the large deposit amount
mentioned above. However, the percentages are expected to fall back in line with
historical percentages early in the second quarter. Loans were 75.1%; investment
securities were 17.6% and federal funds sold were 7.3% of earning assets as of
March 31, 2000. This compared to loans of 79%, investment securities of 18.8%
and fed funds of 2.2% as of December 31, 1999.
At March 31, 2000, interest-bearing deposits totaled $204 million that
represented an increase of $20.2 million compared to December 31, 1999. During
the same time period, noninterest-bearing deposits increased approximately $245
thousand and totaled $30.7 million. At March 31, 2000, deposits represented 93%
of the Company's interest-bearing liabilities and Federal Home Bank advances
represented 7%.
The allowance for loan losses at March 31, 2000 was $2.38 million
compared to $2.28 million at December 31, 1999. The ratio of the allowance for
loan losses to outstanding loans at March 31, 2000 was 1.22% compared to 1.32%
at December 31, 1999. Management believes that these levels of allowance are
appropriate based upon the Company's loan portfolio and the current economic
conditions.
Non-performing assets, comprised of real estate owned, non-accrual
loans and loans for which payments are more than 90 days past due, totaled
approximately $631 thousand at March 31, 2000 compared to $418 thousand at
December 31, 1999. Non-performing assets as a percentage of total loans and real
estate owned at March 31, 2000 and December 31, 1999 were .32% and .23%,
respectively.
Net cash provided by operations totaled $1.6 million for the quarter
ended March 31, 2000. Net cash used by investing activities totaling $11.1
million consisted primarily of $10.1 of cash
33
<PAGE> 35
flows for funding of loans. Net cash provided by financing activities that
amounted to $20.2 consisted primarily of increases in deposits in the amount of
$20.4 million.
The following is a table representing WGNB Corp.'s consolidated total
and tier-1 capital ratios as of March 31, 2000:
<TABLE>
<CAPTION>
March 31, 2000
----------------------------------------------------------------------------------------------
Actual Required Excess
Amount % Amount % Amount %
----------------------------------------------------------------------------------------------
(in 000's) (in 000's) (in 000's)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets) $ 26,073 13% $ 15,869 8% $ 10,204 5%
Tier 1 capital (to risk-
weighted assets) $ 23,698 12% $ 7,934 4% $ 15,764 8%
Tier 1 capital (to average
Assets) $ 23,698 9% $ 10,285 4% $ 13,413 5%
</TABLE>
ITEM 3. DESCRIPTION OF THE PROPERTIES
The Company and the Bank's main office is located at 201 Maple Street
in Carrollton, Georgia near the city's downtown square at the intersection of
Georgia Highway 16 and U.S. Highway 27. The Bank has two other locations within
the city limits of Carrollton. The First Tuesday Mall office is located at 1004
Bankhead Highway and the Motor office is located at 314 Newnan Street. In
addition, the Bank has two other locations in Carroll County, one located at 725
Bankhead Highway, Villa Rica, Georgia and another located at 205 East College
Street, Bowdon Georgia. All locations are typical of branch banking facilities
located throughout the United States. All except the Motor office are full
service locations. The Motor office provides primarily teller and ATM
transactions and does not originate loans. In addition, the Bank received
approval on May 18, 2000 to open a branch in western Douglas County in an area
known as Mirror Lake. The Bank has purchased a modular branch which will serve
as a temporary site until a permanent structure is built.
The Bank's main office, operations center and related parking are
located on approximately 2.5 acres. The main office is a two-story building with
a total of approximately 19,100 square feet housing its lobby, retail offices,
administrative and executive offices. The operations center is a two-story
building with a total of approximately 12,200 square feet housing a computer
room, administrative offices, storage facilities and a training center. The
branch offices are typical of other banking facilities and range in size from
700 square feet (at the Motor office) to approximately 5,000 square feet, which
is typical of the Bank's full service branch sites. Each branch location has an
ATM machine that is either walk-up or drive-up. The Bank operates six additional
ATM locations located throughout the Carrollton and Villa Rica area. All of
these properties are owned.
The Finance Company is located in Hiram, Georgia in a leased location
at 4109 Jimmy Lee Smith Parkway. The office (approximately 1,800 square feet) is
located at the intersection of U.S. Highway 278 and Georgia Highway 92 in a
shopping center anchored by a Kmart and a Kroger. The intersection has retail
space on all corners, which include retail anchors such as Walmart,
34
<PAGE> 36
Home Depot and Publix. The office is typical of finance companies containing
administrative offices.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Company's common stock $1.25 par value per share ("Common
Stock"), as of May 20, 2000 by the Company's directors, executive officers and
greater than five percent beneficial owners. The Common Stock is the Company's
only outstanding voting security. Except as set forth below, the following
shareholders have the sole voting power with respect to all shares of Common
Stock shown as beneficially owned by them. The percent of class is based on
3,105,394 shares outstanding at May 20, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL COMMON STOCK
OWNERS(1) TITLE OWNED PERCENT OF CLASS
------- ----- ------------ ----------------
<S> <C> <C> <C>
L. Leighton Alston CEO, President and Director 41,256 1.32%
P.O. Box 280
Carrollton, Georgia (1)
Grady Woodfin Cole Director 34,550 1.11%
P.O. Box 278
Carrollton, Georgia
Richard A. Duncan Executive Vice President and 85,296 2.75%
P.O. Box 280 Director
Carrollton, Georgia (2)
W. T. (Tommy) Green, Jr. Director 62,588 1.69%
1340 North Park Street
Carrollton, Georgia (3)
L. G. (Jack) Joyner Director 88,280 2.84%
P.O. Box 1010
Carrollton, Georgia (4)
R. David Perry Director 60,000 1.93%
P.O. Box 1941
Carrollton, Georgia
</TABLE>
---------------
(1) Information relating to beneficial ownership of common stock is based upon
"beneficial ownership" concepts set forth in rules of the SEC under Section
13(d) of the Securities Exchange Act of 1934, as amended. Under such rules, a
person is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or direct the voting of
such security, or "investment power," which includes the power to dispose of or
to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to acquire
beneficial ownership within sixty (60) days. Under the rules, more than one
person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he has
no beneficial interest. For instance, beneficial ownership includes spouses,
minor children and other relatives residing in the same household, and trusts,
partnerships, corporations or deferred compensation plans which are affiliated
with the principal.
35
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
L. Richard Plunkett Director 7,224 .23%
12 Piedmont Center, Suite 418
Atlanta, Georgia (5)
Dr. Thomas E. Reeve III Director 1,919 .06%
619 Dixie Street
Carrollton, Georgia (6)
Thomas T. Richards Director 20,272 .65%
P.O Box 1510
Carrollton, Georgia
Oscar W. Roberts, III Director 43,380 1.40%
P.O. Box 1277
Cleveland, Georgia (7)
Frank T. Thomasson, III Director 1,600 .05%
P.O. Box 188
Carrollton, Georgia
J. Thomas Vance Director 260,500 8.39%
100 Wagon Yard Plaza
Carrollton, Georgia (8)
Joe Whit Walker Director and Chairman of the 344,670 11.10%
P.O. Box 649 Board
Carrollton, Georgia (9)
Charles M. Willis, Sr. Director 28,400 .91%
820 Maple Street
Carrollton, Georgia
Steven J. Haack, Secretary and Treasurer 700 .02%
P.O. Box 280 Chief Financial Officer - Bank
Carrollton, Georgia
H. James Crowe Executive Vice President and 400 .01%
P.O. Box 280 Chief Operating Officer - Bank
Carrollton, Georgia
W. Galen Hobbs, Jr. Sr. Vice President - Bank 750 .02%
P.O. Box 280
Carrollton, Georgia
H B Lipham, III Sr. Vice President - Bank 1,385 .04%
P.O. Box 280
Carrollton, Georgia
Louise Tyus Roberts Jewell (10) 325,882 10.49%
Carrollton, Georgia
Estate of H. W. Richards 258,200 8.31%
Carrollton, Georgia
</TABLE>
36
<PAGE> 38
<TABLE>
<S> <C> <C>
All Executive Officers 1,083,170 34.72%
and Directors as a
Group (18 persons) (10)
</TABLE>
(1) Includes 21,880 shares, which Mr. Alston does not own, but
controls and 13,104 options which are currently exercisable.
(2) Includes 2,366 shares owned by Mr. Duncan's minor children,
1,920 shares owned by his wife and 972 options which are
currently exercisable.
(3) Includes 700 shares owned by W. T. Green Jr. Family Limited
Partnership of which Mr. Green is the general partner.
(4) Includes 3,480 shares, which Mr. Joyner does not own, but
controls.
(5) Includes 6,000 shares owned by Mr. Plunkett's minor children
and 424 shares held by Mr. Plunkett as custodian for his
minor children.
(6) Includes 319 shares owned with Mr. Reeves' wife.
(7) Includes 2,928 shares owned jointly with Mr. Roberts' minor
children.
(8) Includes 258,200 shares owned by the Estate of H.W. Richards
which are controlled by Mr. Vance.
(9) Includes 38,400 shares owned by the Carl Walker Estate
Marital Deduction, 38,400 shares owned by the Carl Walker
Remainder Trust which are controlled by Mr. Walker and 6,400
shares held by Mr. Walker's wife.
(10) Includes shares held personally and as executrix of the
Estate of Oscar W. Roberts, Jr.
(11) See notes (1) through (9) above.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table provides biographical information for each
director and executive officer of the Company. The Board is divided into three
equal classes, with the term of each class staggered so that in any given year
no more than one-third of the total Board membership shall stand for
re-election. Board members are elected for a three-year term and serve until
their successors are elected and qualified. Class I, whose terms expire at the
2001 annual meeting of shareholders, consists of L. Richard Plunkett, Thomas T.
Richards, Oscar W. Roberts, III and Joe Whit Walker. Class II, whose terms
expire at the 2002 annual meeting of shareholders, consists of W. T. Green,
Jr., L.J. Joyner , R. David Perry, J. Thomas Vance and Charles M. Willis, Sr.
Class III, whose terms expire at the 2003 annual meeting of shareholders,
consists of L. Leighton Alston, G. Woodfin Cole, Richard A. Duncan, Thomas E.
Reeve, III and Frank T. Thomasson, III. Except as otherwise indicated, each
individual has been or was engaged in his or her present or last principal
occupation, in the same or a similar position, for more than five years.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY AND PRINCIPAL OCCUPATION
<S> <C> <C>
JOE WHIT WALKER 67 Mr. Walker is Chairman of the Board of Directors of the Company and the
Bank. He has been a director of the Company since 1984 and a director of
the Bank since 1971. Mr. Walker graduated from the State University of West
Georgia, with a B. S. in Business Administration. He is president of Walker
Oldsmobile, Cadillac, GMC, Buick, Pontiac, Inc. He is active in many
charitable organizations, including the Tanner Medical Foundation.
</TABLE>
37
<PAGE> 39
<TABLE>
<S> <C> <C>
L. LEIGHTON ALSTON 47 Mr. Alston is a director of the Company and the Bank and currently serves as
its Chief Executive Officer and President. He has been a director of the
Company and the Bank since 1991. Mr. Alston is a graduate of the State
University of West Georgia and of the Graduate School of Banking of the
South at LSU. He joined the Bank in 1978 after working for the Office of
the Comptroller of the Currency as Assistant National Bank Examiner. In
1991 he became President and CEO and a director of the Bank and the
Company. He assumed the sole title of Chief Executive Officer of the Bank
and Finance Company in December, 1999. Mr. Alston is a member of the
Existing Industry Committee of the Carroll County Chamber of Commerce, the
Carrollton Redevelopment Authority and the West Georgia Business and
Industrial Leaders Association, as well as serving as Chairman of the
Carrollton Payroll Development Authority. He is also a member of the
Community Bankers Committee of the Georgia Bankers Association and serves on
the Finance Committee of the Carroll County Association for Retarded
Citizens.
GRADY W. COLE 47 Mr. Cole is a director of the Company and the Bank. He has been a director
of the Company and the Bank since 1992. Mr. Cole is President and CEO of
Carroll Realty and Insurance Company where he has been employed since 1978.
He is a graduate of the University of Georgia with a BBA in Finance. The
Carrollton native is past director of the Carrollton Rotary Club, the State
University of West Georgia Foundation and the Tanner Medical Foundation. He
currently serves as director of the Carrollton City School Educational
Foundation and of Canine Vision, a training facility for Seeing Eye dogs.
RICHARD A. DUNCAN 52 Mr. Duncan is a director of the Company and also serves as its Executive
Vice President. He has been a director of the Company and the Bank since
1991. Mr. Duncan is also the President of the Bank and Executive Vice
President of the Finance Company. He joined the Bank in 1974. He is a
graduate of the State University of West Georgia with a B.S. in Business
Administration and the Graduate School of Banking of the South at LSU. Mr.
Duncan is a member of the State University of West Georgia Athletic Booster
Club, the Carrollton High School Athletic Booster Club and a member and past
director of the Carrollton Civitans.
</TABLE>
38
<PAGE> 40
<TABLE>
<S> <C> <C>
W.T. GREEN, JR. 55 Mr. Green has served as a director of the Company and the Bank since 1988.
He is a 1966 graduate of the University of Georgia and is President and CEO
of Greenway Medical Technologies, Inc. a software company located in
Carrollton, Georgia that designs computer software applications for
healthcare providers. He was also President and CEO of Greenway
Corporation, a software company he founded in 1992 that provided check and
document imaging software for financial institutions. Greenway Corporation
was sold to The BISYS Group, Inc., a publicly held corporation based in
Little Falls, NJ in 1998. Mr. Green is Chairman of the Tanner Medical
Foundation and a member of the Board of Directors of the State University of
West Georgia Foundation. He is past President of the Carrollton Rotary Club
and Sunset Hills Country Club.
L.G. (JACK) JOYNER 63 Mr. Joyner has served as a director of the Company and the Bank since 1986.
He is the owner of J & R Construction & Development, Inc., which specializes
in commercial construction. He is also President of Ivy Bluff Properties,
Inc., Ivy Bluff Farms and Joyner Poultry Farms, Inc. Mr. Joyner is a member
and former Master of the Tyus Masonic Lodge #671 and currently serves a
Chairman of the Lodge Finance Committee. He is also a member and past
Chairman of the Board of the Carroll County Cattle Sales Corporation,
Chairman of the Board of Southern States and a member of the Carrollton
Sertoma Club.
R. DAVID PERRY 59 Mr. Perry is a director of the Company and the Bank. He has been a
director of the Company since 1984 and a director of the Bank since 1980.
He is a retired pharmacist, graduated from the University of Georgia in 1962
with a B.S. in Pharmacy. Mr. Perry practiced pharmacy for twenty-five years
and owned Perry's Westside Pharmacy in Carrollton. After retiring from
pharmacy, he served as interim Executive Director of the Carroll County
Chamber of Commerce and training consultant for the State University of West
Georgia Continuing Education Department. In 1988, Mr. Perry was elected as
sole Commissioner of Carroll County and later served as the Chairman of the
Board of Commissioners of Carroll County. Other elected positions held were
Chairman of the Democratic Executive Committee of Carroll County and member
of the City of Carrollton Board of Education. He served as president of the
Carrollton Jaycees and a member of Carrollton Kiwanis Club and Carrollton
Rotary Club. Mr. Perry currently is a member of the Board of Directors of
Tanner Medical Center, Inc., and Systems & Methods, Inc., a computer
software company.
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C> <C>
L. RICHARD PLUNKETT 57 Mr. Plunkett has served as a director of the Company and the Bank since
1992. He is president of Plunkett & Associates, Inc., a money management
and investment firm. He is a graduate of Brown University and received his
Masters of Business Administration, Finance, from Georgia State University.
He earned his Chartered Financial Analyst certification in 1973. Mr.
Plunkett is CEO of the Association for Investment Management and Research,
and a member of the Society of International Business Fellows and the World
President's Organization. He currently serves on the Investment Committee
of Mercer University, Southern College of Technology Apparel Education
Foundation, the Tanner Medical Foundation and the University of West Georgia
College Foundation. He is a member of the Board of Trustees of the Michael
C. Carlos Museum and the State Private Colleges and University Authority.
THOMAS E. REEVE, III, 43 Dr. Reeve has served as a director of the Company and the Bank since 1992.
M.D. He is also a partner of Carrollton Surgical Group, P.A. He is a graduate of
Emory University and the Medical College of Georgia in Augusta and completed
Surgical Training at the University of Mississippi Medical Center. He is a
member of the Medical Association of Georgia, the Georgia Surgical Society,
the Southeastern Surgical Society, the American Society of Breast Surgeons
and the American Society of General Surgeons. Dr. Reeve is a Fellow of the
American College of Surgeons and a Diplomat of the American Board of Surgery.
THOMAS T. RICHARDS 59 Mr. Richards has served as a director of the Company and the Bank since
1984. He is a graduate of Georgia Tech with a BS in Industrial Management
and earned his MBA from the Harvard Business School. He is the President of
Richards Mortgage Servicing and a member of the Board of Directors of
Greenway Medical Technologies.
OSCAR W. ROBERTS, III 52 Mr. Roberts has served as a director of the Company and the Bank since
1996. He is a graduate of the State University of West Georgia and attended
Graduate School at Georgia Tech. Mr. Roberts has owned a variety of retail
and service businesses and currently manages personal investments and serves
as Director of Gateway Investment Corp. He served as Treasurer of the
Carrollton Kiwanis Club and is a past member of the Carrollton Jaycees.
</TABLE>
40
<PAGE> 42
<TABLE>
<S> <C> <C>
FRANK T. THOMASSON, 49 Mr. Thomasson has served as a director of the Company and the Bank since
III 1992. He is division president of Thomasson Printing Company. He is a
graduate of the State University of West Georgia. He serves on the Board of
Directors of the Printing Industry of Georgia and is a past Chairman. Mr.
Thomasson is currently chairman of the Carrollton Housing Authority and is a
member of the Carrollton Rotary Club. He is a former director of the
Carroll County Chamber of Commerce.
J. THOMAS VANCE 53 Mr. Vance has served as a director of the Company and the Bank since 1991.
He is a graduate of the University of Georgia School of Law, is a partner
with the law firm of Tisinger, Tisinger, Vance & Greer, P.C., where his
practice concentrates in the areas of business law, municipal law and
healthcare law. He serves as general counsel to Tanner Medical Center, Inc.
Greenway Medical Technologies, Inc., the Carroll County Board of Education
and Systems and Methods, Inc. He currently serves on the Board of Directors
of Greenway Medical Technologies, Inc., Northstar Hotels, Inc. and Camp
Sunshine. He also serves on the Finance Committee of the State Bar of
Georgia.
CHARLES M. WILLIS, SR. 60 Mr. Willis is a director of the Company and the Bank. He has served as a
director of the Company since 1984 and as a director of the Bank since
1972. He is the owner of The Squire Shop, a men's clothing store in
Carrollton, Georgia. He graduated from the University of Georgia with a BBA
Degree in Business Administration in 1962. He is past president of the
Jaycees, Rotary Club and the Carroll County Chamber of Commerce.
STEVEN J. HAACK 40 Mr. Haack is Chief Financial Officer of the Bank and Secretary/Treasurer of
the Company and Finance Company. He has been with the Bank as Chief
Financial Officer since January, 1995 and has served as Secretary/Treasury
of the Company since 1998. Mr. Haack holds a BBA in accounting from Iowa
State University. He is also a Certified Public Accountant. Mr. Haack has
held senior management positions in banking since 1989. Prior to his
banking career, he practiced as a Certified Public Accountant in Atlanta.
Mr. Haack is a Director of Fairfield Plantation Property Owners Association
serving as its Finance Chairman and a member of the Kiwanis Club.
</TABLE>
41
<PAGE> 43
ITEM 6. EXECUTIVE COMPENSATION
The table below sets forth the total compensation paid to each of the
Company's Named Executive Officers for each of the Company's last three
completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL & OTHER SECURITIES
PRINCIPAL POSITION YEAR SALARY BONUS (A) COMPENSATION (B) UNDERLYING OPTIONS(C)
------------------ ---- ------ --------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
L. Leighton Alston 1999 116,846 117,210 97,160 8,560
CEO - Company 1998 119,628 197,967 30,270 14,442
CEO - Bank 1997 115,582 203,195 28,809 16,516
Richard A. Duncan 1999 100,000 38,110 28,948 1,150
Exec. VP - Company 1998 95,944 38,277 25,692 2,156
President - Bank 1997 92,254 40,361 28,135 2,608
Steven J. Haack 1999 74,343 22,291 8,855 320
Sec/Treas - Company 1998 71,484 17,334 8,231 -
CFO - Bank 1997 67,438 9,013 6,744 -
H. James Crowe 1999 86,192 31,236 9,928 862
COO - Bank 1998 73,066 29,130 8,618 1,618
1997 67,653 30,065 8,687 1,960
W. Galen Hobbs, Jr. 1999 78,802 22,967 10,531 288
Sr. Vice President - Bank 1998 63,000 14,820 7,227 -
1997 60,000 6,775 6,600 -
H B ("Rocky") Lipham, III 1999 78,802 23,466 13,049 288
Sr. Vice President - Bank 1998 63,000 14,320 11,047 -
1997 60,000 8,019 6,600 -
</TABLE>
(a) The amounts included represent two bonus plans, a profit sharing plan
in which all employees participate and an executive bonus plan.
(b) Includes contributions made to a 401(k) plan, director fees (if
applicable), the exercise of options (if applicable) and the use of a
company automobile including automobile allowances.
(c) Represents the number of options granted under Incentive Stock Option
Agreements, as adjusted for stock split.
42
<PAGE> 44
OPTION GRANTS
Certain executive officers of the Company and the Bank receive stock
options under the Company's 1994 Incentive Stock Option Plan. The options are
exercisable after five years from the date of grant at a price that equals the
fair market value of the stock at the date of grant. All options expire ten
years from the date of grant and are intended to be qualified stock options as
defined under Section 422 of the Internal Revenue Code of 1986, as amended. The
following table summarizes options granted during 1999 to each of the Named
Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------------------------------------
% of Total
Number of Securities Options/SARS Granted
Underlying Granted to
Options/SARS Employees in Fiscal Exercise or Base
Name Granted Year Price ($/Sh) Expiration Date
---- ------- ---- ------------ ---------------
<S> <C> <C> <C> <C>
L. Leighton Alston 8,560 74.7% 20.00 2/9/2009
Richard A. Duncan 1,150 10.0% 20.00 2/9/2009
Steven J. Haack 320 2.8% 20.00 2/9/2009
H. James Crowe 862 7.5% 20.00 2/9/2009
W. Galen Hobbs, Jr. 288 2.5% 20.00 2/9/2009
H.B. Lipham 288 2.5% 20.00 2/9/2009
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth the name of the optionee, number of
shares received upon exercise, the dollar value realized, the total number of
unexercised held at December 31, 1999 separately identified as exercisable and
unexercisable and the aggregate dollar value of "in-the-money" unexercised
options, separately identified as exercisable and unexercisable. The value of
unexercised options which are exercisable and unexercisable is based on the
stock price of $23.00 per share, the market price of the Company's shares at
December 31, 1999.
43
<PAGE> 45
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN THE MONEY
OPTIONS AT OPTIONS AT
12/31/99 12/31/99
SHARES
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
L. Leighton Alston 4,448 65,469(1) 6,344 95,953
59,794 717,278
Richard A. Duncan 716 (2) -- --
10,009 109,053
Steven J. Haack -- -- -- --
320 960
H. James Crowe -- -- -- --
5,220 58,062
W. Galen Hobbs, Jr. -- -- -- --
288 864
H. B. Lipham -- -- -- --
288 864
</TABLE>
(1) Mr. Alston exercised 4,448 shares in 1999 from the
unqualified plan and no shares under the current qualified
plan. This amount is included under other compensation in the
executive compensation table.
(2) Mr. Duncan exercised 716 shares in a stock swap under the
qualified plan whereby he traded 226 of shares he owned for
716 shares of the Company's stock. No value was actually
realized in the swap transaction and, therefore, no value was
disclosed in other compensation.
BENEFIT PLANS
Under the Company's Incentive Stock Option Plan, the Company may grant
options to certain key officers to acquire shares of its common stock at the
then fair value, with the number of shares to be determined annually by agreed
upon formulas. A total of 160,000 shares of Common Stock are reserved for
issuance under this plan. Options may be granted through the year 2004. Options
may not be exercised prior to five years from the date of grant and are
exercisable no later than ten years from that date.
In 1996, the Company began a qualified retirement plan pursuant to
Section 401(k) of the Internal Revenue Code covering substantially all
employees subject to certain minimum age and service requirements.
Contributions to the plan by employees is voluntary. The Company makes
44
<PAGE> 46
matching contributions to the plan in an amount up to 6% of the participants'
salaries. The Company may also make discretionary contributions to the plan
which may be allocated to participants in proportion to compensation.
DIRECTOR COMPENSATION
The directors receive compensation in the form of fees for services
performed as directors and members of various committees. Each director has the
option to receive his compensation in the form of the Company's stock. The
following table discloses the name and amount of compensation for each director
of the Company in 1999. Director fees for Mr. Alston and Mr. Duncan are
included in "other compensation" in the Summary Compensation Table above.
<TABLE>
<CAPTION>
NAME 1999
---- ----
<S> <C>
Grady Woodfin Cole $ 8,900
W.T. Green 13,375
L.G. Joyner 17,000
R. David Perry 15,000
L. Richard Plunkett 7,300
Dr. Thomas E. Reeve, III 12,685*
Thomas T. Richards 13,125*
Oscar W. Roberts, III 8,900
Frank T. Thomasson 8,900
J. Thomas Vance 6,500*
Joe Whit Walker 24,800
Charles M. Willis, Sr. 16,800
</TABLE>
*indicates director who has elected to receive compensation in company stock
EMPLOYMENT AGREEMENT
On September 10, 1996, the Company entered into an employment
agreement with Mr. Alston, the Company's President and Chief Executive Officer.
The employment agreement provided for an initial term of two years with
automatic renewal terms of two years until either party gives notice of its
intent not to renew the agreement 90 days prior to the end of the then current
term. The employment agreement provided for an initial base salary of $111,137
for the fiscal year ending December 31, 1996, with annual raises as determined
by the Company's Board of Directors. In addition, Mr. Alston has the right to
participate in the Company's employee benefit plans such as medical coverage,
life insurance, pension and profit sharing plans and is entitled to
reimbursement of club dues and certain automobile expenses. Under the terms of
the employment agreement, employment terminates upon death or total disability
of Mr. Alston, and may be terminated by the Company for cause (such as
misconduct, commission of certain crimes or acts, or initiation of removal
proceedings by federal or state regulatory authorities). The employment
agreement contains a change in control provision that provides Mr. Alston with
the right to terminate his employment within 24 months of the date of a change
in control and have such termination treated as a termination without cause
meaning that Mr. Alston shall have the right to continue to be compensated
through the term of the employment agreement. For purposes of the employment
agreement, a change of control is deemed to have occurred at such time as (a)
45
<PAGE> 47
the individuals constituting the Company's or Bank's Board of Directors at the
beginning of the employment cease for any reason to constitute at least a
majority of said Board of Directors, (b) a notice is filed with the OCC or
Federal Reserve for permission to acquire control of the Company or the Bank or
more than 50% of the Company's or Bank's outstanding common stock, or (c) the
Company or the Bank shall become a subsidiary of another entity or shall be
merged or consolidated into another entity. The employment agreement also
contains certain customary terms regarding proprietary information,
confidentiality, and non-competition upon termination. A copy of the employment
agreement has been filed as an exhibit hereto.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past year, the Bank, as the Company's subsidiary, has had
banking transactions in the ordinary course of its business with its directors
and officers on substantially the same terms, including interest rates,
collateral, and repayment terms on loans, as those prevailing at the time for
comparable transactions with other customers. The extensions of credit by the
Bank to these persons have not and do not currently involve more than the
normal risk of collectability or present other unfavorable features and have
complied with the Bank's lending policies and statutory lending limits.
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES
The Company is authorized by its Articles of Incorporation to issue
10,000,000 shares of Common Stock. As of the date hereof, the Company had
3,105,394 shares of Common Stock issued and outstanding.
All shares of Common Stock are entitled to share equally in dividends
from funds legally available therefore, when, as and if declared by the Board
of Directors of the Company, and upon liquidation or dissolution of the
Company, whether voluntary or involuntary, to share equally in the assets of
the Company available for distribution to shareholders. Each holder of Common
Stock is entitled to one vote for each share on all matters submitted to the
shareholders.
There is no cumulative voting, redemption right, sinking fund
provision, or right of conversion in existence with respect to the Common
Stock. The Company's Articles of Incorporation do not provide for preemptive
rights to acquire additional shares of Common Stock when issued. All of the
outstanding shares of Common Stock are fully paid and non-assessable.
In December, 1996, the Board of Directors approved a Stock Repurchase
Plan of up to $2,000,000 of the Company's Common Stock currently outstanding.
In 1999, the Company redeemed 38,850 shares of Common Stock for $850,176. The
Company has approximately $318,366 remaining to reacquire shares under the
Stock Repurchase Plan.
ANTI-TAKEOVER PROVISIONS
The provisions of the Company's Articles of Incorporation, Bylaws and
the Georgia corporation law summarized in the following paragraphs may be
deemed to have anti-takeover effects and may delay, defer, or prevent a tender
offer or takeover attempt that a shareholder might
46
<PAGE> 48
consider to be in such shareholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by
shareholders, and may make removal of management more difficult.
Authorized but Unissued Stock. The authorized but unissued shares of
Common Stock will be available for future issuance without shareholder
approval. These additional shares may be used for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions, and employee benefit plans. The existence of authorized
but unissued and unreserved shares of Common Stock may enable the Board of
Directors to issue shares to persons friendly to current management, which
could render more difficult or discourage any attempt to obtain control of the
Company by means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of the Company's management.
Number of Directors. The Bylaws provide that the Board of Directors
shall consist of 14 directors. The number of directors may be amended only by
the affirmative vote of a majority of directors then in office or the
affirmative vote of shareholders owning at least two-thirds of the outstanding
shares entitled to vote.
Classified Board of Directors. The Articles divide the Board of
Directors into three classes of directors serving staggered three-year terms.
As a result, approximately one-third of the Board of Directors will be elected
at each annual meeting of shareholders. The classification of directors,
together with the provisions in the Articles and Bylaws described below that
limit the ability of shareholders to remove directors and that permit the
remaining directors to fill any vacancies on the Board of Directors, will have
the effect of making it more difficult for shareholders to change the
composition of the Board of Directors. As a result, at least two annual
meetings of shareholders may be required for the shareholders to change a
majority of the directors, whether or not a change in the Board of Directors
would be beneficial to the Company and its shareholders and whether or not a
majority of the Company's shareholders believes that such a change would be
desirable.
Removal of Directors and Filling Vacancies. The Articles of
Incorporation provide that shareholders may not remove a director without
cause. The Bylaws also provide that all vacancies on the Board of Directors,
including those resulting from an increase in the number of directors, may be
filled by a majority of the remaining directors, even if they do not constitute
a quorum. When one or more directors resign from the Board of Directors
effective at a future date, a majority of directors then in office, including
the directors who are to resign, may vote on filling the vacancy.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures with regard to
shareholder proposals and the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors. These procedures provide that the notice of shareholder proposals
and shareholder nominations for the election of directors at any meeting of
shareholders must be in writing and be received by the Secretary of the Company
not later than 120 days prior to the first anniversary of the date of the
Company's proxy statement released to its shareholders in connection with the
previous year's annual meeting. The Company may reject a shareholder proposal
or nomination that is not made in accordance with such procedures.
47
<PAGE> 49
Certain Nomination Requirements. Pursuant to the Bylaws, the Company
has established certain nomination requirements for an individual to be elected
as a director of the Company at any annual or special meeting of the
shareholders, including that the nominating party provide the Company within a
specified time prior to the meeting (i) notice that such party intends to
nominate the proposed director; (ii) the name of and certain biographical
information on the nominee; and (iii) a statement that the nominee has
consented to the nomination. The chairman of any shareholders' meeting may, for
good cause shown, waive the operation of these provisions. These provisions
could reduce the likelihood that a third party would nominate and elect
individuals to serve on the Board of Directors.
"Fair Price" Statute. The Company has elected to adopt Georgia's "Fair
Price" statute as set forth in sections 14-2-1110 through 14-2-1113 of the
Georgia Business Corporation Code. Subject to certain exclusions summarized
below, Section 14-2-1111 of the Georgia Business Corporation Code ("Section
14-2-1111") requires that a "Business Combination" with an "Interested
Shareholder" shall be (a) unanimously approved by the continuing directors who
must constitute at least three members of the Board of Directors at the time of
such approval, or (b) recommended by at least two-thirds of the continuing
directors and approved by a majority of the shareholders excluding the
Interested Shareholder.
"Interested Shareholder" generally includes: (a)(i) any person who is
the beneficial owner of 10% or more of the voting power of the outstanding
voting shares of the corporation; or (ii) any person who is an affiliate of the
corporation and who was the beneficial owner of 10% or more of the voting power
of the outstanding shares of the corporation at any time within two years
before the date on which such person's status as an Interested Shareholder is
determined; and (b) the affiliates of such person. For the purpose of
determining whether a person is an Interested Shareholder, the number of voting
shares deemed to be outstanding shall not include any unissued voting shares
which may be issuable pursuant to any agreement, arrangement, or understanding,
or upon exercise of conversion rights, warrants, options, or otherwise. Subject
to certain exceptions, a "Business Combination" includes: (i) any merger or
consolidation of the corporation or a subsidiary of the corporation; (ii) any
share exchange; (iii) any sale, lease, transfer, or other disposition of assets
of the corporation or its subsidiary occurring within a 12 month period and
having an aggregate book value equal to 10% or more of the net assets of the
corporation; (iv) any transaction that results in the issuance or transfer by
the corporation or a subsidiary of the corporation of any stock of the
corporation or the subsidiary representing 5% or more of the total market value
of the outstanding stock of the corporation to any Interested Shareholder
within a 12 month period, except pursuant to a transaction that effects a pro
rata distribution to all shareholders of the corporation; (v) the adoption of
any plan or proposal for the liquidation or dissolution of the corporation in
which anything other than cash will be received by an Interested Shareholder;
and (vi) any transaction occurring within a 12 month period involving the
corporation or a subsidiary of the corporation that has the effect of
increasing by 5% or more the proportionate share of the stock of any class or
series of the corporation or the subsidiary that is directly or beneficially
owned by the Interested Shareholder. A "Continuing Director" includes any
director who is not an affiliate or associate of an Interested Shareholder or
any board approved successor of such a director who is not an affiliate or
associate of an Interested Shareholder.
48
<PAGE> 50
Section 14-2-1111 will not apply to a Business Combination if: (a) the
aggregate amount of the cash, and fair market value five days before the
consummation date if payment is to be made in other than cash, to be received
per share by the shareholders is at least equal to the highest of: (i) the
highest per share price, including brokerage commissions, transfer taxes, and
soliciting dealers' fees, paid by the Interested Shareholder for any shares of
the same class or series acquired by it within two years preceding the
announcement date or in the transaction in which it became an Interested
Shareholder; (ii) the higher of the fair market value per share as determined
on the announcement date or the determination date; or (iii) in the case of
shares other than common shares, the highest amount per share to which
preferred shareholders are entitled in the event of liquidation, dissolution,
or winding up of the corporation, provided that subparagraph (iii) shall only
be applicable if the Interested Shareholder acquired the shares within the two
years period immediately preceding the announcement date; and (b) shareholders
receive cash or the form of consideration used in the past by the Interested
Shareholder to purchase the largest number of shares of such class or series.
Further, subject to exceptions, prior to the time the Business Combination with
the Interested Shareholder takes place, without the approval of the Board of
Directors, there shall have been: (i) no failure to declare and pay full
dividends on the corporation's outstanding preferred shares; (ii) no reduction
in the annual rate of dividends paid on common shares except as to reflect any
subdivision of the shares; (iii) an increase in the annual rate of dividends to
reflect any reclassification of shares; and (iv) not more than a 1% increase in
the Interested Shareholder's ownership of any of the corporation's stock in any
12 month period. An Interested Shareholder may not receive a direct or indirect
benefit, except proportionately as a shareholder, of any loans, advances,
guarantees, pledges, or other financial assistance or any tax credits or other
tax advantages provided by the corporation or its subsidiaries, either in
anticipation of or in connection with such Business Combination or otherwise.
"Business Combination" Statute. The Company has elected to adopt
Georgia's "Business Combination" statute as set forth in sections 14-2-1131
through 14-2-1133 of the Georgia Business Corporation Code. Subject to certain
exclusions summarized below, Section 14-2-1132 of the Georgia Business
Corporation Code ("Section 14-2-1132") prohibits any "Interested Shareholder"
from engaging in a "Business Combination" with a Georgia corporation for five
years following the date such person became an Interested Shareholder.
"Interested Shareholder" generally includes: (a)(i) any person who is the
beneficial owner of 10% or more of the voting power of the outstanding voting
shares of the corporation; or (ii) any person who is an affiliate of the
corporation and who was the beneficial owner of 10% or more of the voting power
of the outstanding shares of the corporation at any time within two years
before the date on which such person's status as an Interested Shareholder is
determined; and (b) the affiliates of such person. For the purpose of
determining whether a person is an interested Shareholder, the number of voting
shares deemed to be outstanding shall not include any unissued voting shares
which may be issuable pursuant to any agreement, arrangement, or understanding,
or upon exercise of conversion rights, warrants, or options, or otherwise.
Subject to certain exceptions, a "Business Combination" includes: (i) any
merger or consolidation of the corporation or a subsidiary of the corporation;
(ii) any sale, lease, transfer, or other disposition of assets of the
corporation or its subsidiary having an aggregate book value equal to 10% or
more of the net assets of the corporation; (iii) any transaction that results
in the issuance or transfer by the corporation or a subsidiary of the
corporation of any stock of the corporation or the subsidiary representing 5%
or more of the total market value of the outstanding stock of the corporation
to any Interested Shareholder, except pursuant to a transaction that effects
49
<PAGE> 51
a pro rata distribution to all shareholders of the corporation; (iv) the
adoption of any plan or proposal for the liquidation or dissolution of the
corporation; (v) any transaction involving the corporation or a subsidiary of
the corporation that has the effect of increasing by 5% or more the
proportionate share of the stock of any class or series of the corporation or
the subsidiary that is directly or beneficially owned by the Interested
Shareholder; (vi) any receipt by the Interested Shareholder of the benefit
(except proportionately as a shareholder) of any loans, advances, guarantees,
pledges or other financial benefits or assistance or any tax credits or other
tax advantages provided by or through the corporation or a subsidiary of the
corporation; and (vii) any share exchange.
Section 14-2-1132 does not apply to a Business Combination if: (i)
before a person became an Interested Shareholder, the Board of Directors of the
corporation approved either the transaction in which the Interested Shareholder
became an Interested Shareholder or the Business Combination; (ii) upon
consummation of the transaction that resulted in the person becoming an
Interested Shareholder, the Interested Shareholder owned at least 90% of the
voting stock of the corporation outstanding at the time the transaction
commenced (other than certain excluded shares); or (iii) following a
transaction in which the person became an Interested Shareholder, the Business
Combination is approved by the holders of a majority of the voting stock of the
corporation not owned by the Interested Shareholder and other excluded shares.
Rights Plan. On February 11, 1997, the Board of Directors of the
Company declared a dividend distribution of one "Right" for each outstanding
share of Company Common Stock to shareholders of record at the close of
business on February 12, 1997. Each "Right" includes an "Initial Right" and a
"Second Right," each of which entitles the registered holder to purchase from
the Company a number of shares of Common Stock equal to 10 shares of Common
Stock multiplied by a fraction, the numerator of which is the number of shares
of Common Stock outstanding on the "Initial Stock Acquisition Date" in the case
of the Initial Rights and the "Second Stock Acquisition Date" in the case of
the Second Rights, and the denominator of which is the number of Rights
outstanding on the respective Stock Acquisition Date that are not beneficially
owned by an "Acquiring Person" or its affiliates or associates, at a purchase
price of $.01 per share. The description and terms of the Rights are set forth
in the Rights Agreement (the "Rights Agreement"), a copy of which is filed as
an exhibit to this Registration Statement.
Until the earlier to occur of (i) 10 business days following a public
announcement that a person or a group of affiliated or associated persons has
acquired beneficial ownership of 10% or more of the outstanding shares of
Common Stock, (ii) 10 business days following the date on which the Board of
Directors of the Company first learns that such a person or group has acquired
beneficial ownership of 10% or more of the outstanding Common Stock, or (iii)
10 business days following the commencement of a tender offer or an exchange
offer that would result in a person or group beneficially owning 10% or more of
such outstanding shares of Common Stock (the earlier of such dates being called
the "Initial Rights Distribution Date"), the Initial Rights will be evidenced
by the certificates representing shares of Common Stock. Until the earlier to
occur of (i) 10 business days following a public announcement that a person or
a group of affiliated or associated persons has acquired beneficial ownership
of an additional 10% or more of the outstanding shares of Common Stock, (ii) 10
business days following the date on which the Board of Directors of the Company
first learns that such a person or group has acquired beneficial
50
<PAGE> 52
ownership of an additional 10% or more of the outstanding Common Stock, or
(iii) 10 business days following the commencement of a tender offer or an
exchange offer that would result in such a person or group beneficially owning
an additional 10% or more of such outstanding shares of Common Stock (the
earlier of such dates being called the "Second Rights Distribution Date"), the
Second Rights will be evidenced by the certificates representing shares of
Common Stock.
Until the Initial Distribution Date in the case of the Initial Rights
and the Second Distribution Date in the case of the Second Rights, (i) the
Rights will be evidenced by the Common Stock certificates and will be
transferred only with such Common Stock certificates, (ii) new Common Stock
certificates issued after February 12, 1997 will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
The Rights are not exercisable until the Initial Distribution Date in
the case of the Initial Rights and the Second Distribution Date in the case of
the Second Rights and will expire at the close of business on January 31, 2007,
unless earlier redeemed by the Company as described below.
As soon as practicable after the respective Distribution Date, Rights
Certificates evidencing the Initial Rights or the Second Rights, as the case
may be, will be mailed to holders of record of the Common Stock as of the close
of business on the respective Distribution Date and, thereafter, the separate
Rights Certificates alone will represent the respective Rights. Except as
otherwise determined by the Board of Directors, only shares of Common Stock
issued prior to the respective Distribution Date will be issued with Rights,
provided, however, that Second Rights also will be issued with the shares of
Common Stock issuable upon exercise of Initial Rights.
If at any time following the respective Distribution Date a Person
causes an Initial Distribution Date or a Second Distribution Date (the
"Acquiring Person"), each holder of a Right will thereafter have the right to
receive, upon exercise, a number of shares of Common Stock equal to 10 shares
of Common Stock multiplied by a fraction, the numerator of which is the number
of shares of Common Stock outstanding on the Stock Acquisition Date, and the
denominator of which is the number of Rights outstanding on the Stock
Acquisition Date that are not Beneficially Owned by the Acquiring Person or its
affiliates or associates. The price for the exercise of each Right shall be
$.01 multiplied by the number of shares of Common Stock to be received upon
exercise. Notwithstanding any of the foregoing, following the occurrence of any
of the events set forth in this paragraph, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by any Acquiring Person will be null and void. However, Rights are not
exercisable following the occurrence of the events set forth above until such
time as the Rights are no longer redeemable by the Company as set forth below.
In the event that, at any time following the respective Stock
Acquisition Date, (i) the Company is acquired in a merger or other business
combination in which the Company is not the surviving corporation, or (ii) all
of its shares are acquired in a share exchange or the Company engages in a
merger or consolidation in which all or part of its outstanding shares of
Common Stock are changed into or exchanged for stock, other securities or
assets of any other person or (iii)
51
<PAGE> 53
50% or more of the Company's assets or earning power is sold or transferred,
each holder of a Right (except Rights which previously have been voided as set
forth above) shall thereafter have the right to receive, upon exercise, a
number of shares of common stock of the acquiring company equal to the product
of 10 times the result obtained by dividing the current market price of the
Company's Common Stock by the current market price of the common stock of the
acquiring corporation or, if such stock is not traded in public markets, of its
parent corporation. The purchase price will be calculated on the same basis as
if the Right holder were exercising a Right to purchase Common Stock of the
Company at that time.
No fractional Rights will be issued, and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Rights on the
last trading date prior to the date of adjustment. No fractional shares will be
issued upon exercise of the Rights, and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Common Stock on the last trading
date prior to the date of exercise.
In general, the Company may redeem the Initial Rights or the Second
Rights, or both, at a price of $.001 per Right, at any time before the
respective Distribution Date (subject to extension under certain
circumstances). Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights to be redeemed will be to receive the $.001 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to shareholders or the Company, shareholders may, depending
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for Common Stock (or other consideration) of the Company or
for common stock of the acquiring company as set forth above.
The provisions of the Rights Agreement may be amended by the Board of
Directors prior to the Initial Distribution Date, in the case of the Initial
Rights, and the Second Distribution Date, in the case of the Second Rights.
After such dates, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights, or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable and the redemption period may not be extended beyond
30 days after the applicable Stock Acquisition Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become exercisable, unless the terms of
an offer for all shares are first approved by the Board and the Rights redeemed
by the Company. The Rights, however, should not affect any prospective offeror
willing to make an offer at a fair price and otherwise in the best interests of
the Company and its shareholders, as determined by the Board or willing to
negotiate with the Board. The Rights should not interfere with any merger or
other business combination approved by the Board since the Board may, at its
option, before the merger or business combination, redeem all, but not less
52
<PAGE> 54
than all, of the then-outstanding Rights at the redemption price or amend the
Rights Agreement to permit the transaction.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Approximately 340 shareholders of record held the Common Stock as of
May 31, 2000. The Common Stock is currently traded on the over the counter
bulletin board under trading symbol "WGNB" and there is a limited volume of
trading. The quotations are inter-dealer prices without retail mark-ups,
mark-downs or commissions and may not represent actual transactions. The high
and low bid prices for the Company's Common Stock for each quarter for the past
two years (adjusted to reflect a 2 for 1 stock split in the form of a stock
dividend effected in March, 1999) and the most recent quarter were as follows:
<TABLE>
<CAPTION>
PRICE RANGE
PER SHARE
LOW HIGH
------ ------
<S> <C> <C>
1998:
First Quarter $15.00 $15.50
Second Quarter 15.50 18.75
Third Quarter 17.75 19.00
Fourth Quarter 18.25 20.00
1999:
First Quarter 19.00 20.50
Second Quarter 19.75 22.25
Third Quarter 20.00 25.50
Fourth Quarter 23.00 33.00
2000:
First Quarter 20.00 26.00
</TABLE>
During 1999, the Company declared and paid quarterly cash dividends
amounting to $.42 per share. During 1998, the Company declared and paid
quarterly cash dividends of $.37 per share. The declaration of future dividends
is within the discretion of the Board of Directors and will depend, among other
things, upon business conditions, earnings, the financial condition of the Bank
and the Company, and regulatory requirements. See "Supervision and Regulation -
Dividends."
ITEM 2. LEGAL PROCEEDINGS
While the Company and its subsidiaries are from time to time party to
various legal proceedings arising from the ordinary course of business,
management believes that there are no proceedings of material risk threatened or
pending.
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<PAGE> 55
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company did not change accountants in 1998 or 1999 and continues to
use the independent accounting firm of Porter Keadle Moore, LLP.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company issued the following securities during the prior three
fiscal years without registering the securities under the Securities Act:
Directors may elect to receive compensation for their services to the
Company and the Bank in shares of Common Stock or cash. No shares were issues in
1997 or 1998. During 1999, certain directors of the Bank received 1,276 shares
in payment of deferred director compensation for an aggregate consideration owed
to them by the Bank of $26,158. The sale of the shares was exempt from
registration under the Securities Act, pursuant to Section 4(2) thereof, as a
transaction not involving a public offering.
Options to purchase 21,084 shares of Common Stock were granted in 1997
to individuals pursuant to the Company's Incentive Stock Option Plan having a
weighted average exercise price of $9.22. No options were exercised in 1997.
Options to purchase 18,216 shares of Common Stock were granted in 1998 to
individuals pursuant to the Company's Incentive Stock Option Plan having a
weighted average exercise price of $13.00. No options were exercised in 1998.
Options to purchase 11,469 shares of Common Stock were granted in 1999 to
individuals pursuant to the Company's Incentive Stock Option Plan having a
weighted average exercise price of $20.00. A total of 5,164 options were
exercised in 1999 at a weighted average exercise price of $6.07. The Company
believes that the grant of options and the exercise thereof was exempt from
registration under Section 4(2) of the Securities Act, and Rule 701 promulgated
under the Securities Act.
The above does not include unregistered issuances of the Company's
Common Stock that did not involve a sale, pursuant to stock splits effected in
1997 and 1999.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation contain a provision which,
subject to certain limited exceptions, limits the liability of a director to the
Company or its shareholders for any breach of duty as a director. There is no
limitation of liability for: a breach of duty involving appropriation of a
business opportunity of the Company; an act or omission which involves
intentional misconduct or knowing violation of law; any transaction from which
the director derives an improper personal benefit; or as to any payments of a
dividend or any other type of distribution that is illegal under Section
14-2-832 of the Georgia Code. In addition, if at any time the Georgia Code shall
have been amended to authorize further elimination or limitation of the
liability of a director, then the liability of the director of the Company shall
be eliminated or limited to the fullest extent permitted by such provisions, as
so amended, without further action by the shareholders, unless the provisions of
the Georgia Code require such action. The provision does not limit the right of
the Company or its shareholders to seek injunctive or other equitable relief not
involving payments in the nature of monetary damages.
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<PAGE> 56
The Company's Articles of Incorporation contain certain provisions
which provide indemnification to directors and officers of the Company that is
broader than the protection expressly mandated in Section 14-2-852 and 14-2-857
of the Georgia Code. To the extent that a director or officer of the Company has
been successful, on the merits or otherwise, in the defense of any action or
proceeding brought by reason of the fact that such person was a director or
officer of the Company, Sections 14-2-852 and 14-2-857 of the Georgia Code would
require the Company to indemnify such persons against expenses (including
attorney's fees) actually and reasonably incurred in connection therewith. The
Georgia Code expressly allows the Company to provide for greater indemnification
rights to its officers and directors subject to shareholder approval.
The Board of Directors also has the authority to extend to officers,
employees and agents the same indemnification rights held by directors, subject
to all of the accompanying conditions and obligations.
PART F/S
FINANCIAL STATEMENTS
The Financial Statements required by this item are submitted in a
separate section beginning on page F-1 of this registration statement.
<TABLE>
<S> <C>
Unaudited Consolidated Financial Statements for the Three Months
Ended March 31, 2000 and 1999 F-1
Consolidated Balance Sheets (unaudited) F-2
Consolidated Statements of Earnings (unaudited) F-3
Consolidated Statements of Comprehensive Income (unaudited) F-4
Consolidated Statements of Cash Flows (unaudited) F-5
Notes to Interim Financial Statements F-7
Consolidated Financial Statements for the Three Years
Ended December 31, 1999, 1998 and 1997 F-8
Report of Independent Certified Public Accountants F-9
Consolidated Balance Sheets F-10
Consolidated Statements of Earnings F-11
Consolidated Statements of Comprehensive Income F-12
Consolidated Statements of Changes in Stockholders Equity F-13
</TABLE>
55
<PAGE> 57
<TABLE>
<S> <C>
Consolidated Statements of Cash Flows F-14
Notes to Consolidated Financial Statements F-16
</TABLE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<S> <C>
3.1 * Amended and Restated Articles of Incorporation
3.2 * Amended and Restated Bylaws
4.1 * See exhibits 3.1 and 3.2 for provisions of Company's Articles
of Incorporation and Bylaws Defining the Rights of
Shareholders
4.2 * Specimen certificate representing shares of Common Stock
4.3 * Rights Agreement dated as of February 12, 1997 between the
Company and SunTrust Bank, Atlanta
10.1 * Employment Agreement dated as of September 10, 1996 between
the Company and L. Leighton Alston
10.2 * Incentive Stock Option Plan
10.3 * Bonus and Stock Option Agreement dated as of May 11, 1993
between the Company and L. Leighton Alston
10.4 * First Amendment to Bonus and Stock Option Agreement dated as
of June 14, 1994 between the Company and L. Leighton Alston
10.5 * Bonus and Stock Option Agreement dated as of June 14, 1994
between the Company and Richard A. Duncan
10.6 * Bonus and Stock Option Agreement dated as of September 23,
1998 between the Company and H.B. Lipham, III
10.7 * Bonus and Stock Option Agreement dated as of September 23,
1998 between the Company and W. Galen Hobbs, Jr.
10.8 * Bonus and Stock Option Agreement dated as of September 23,
1998 between the Company and Steven J. Haack
</TABLE>
56
<PAGE> 58
<TABLE>
<S> <C>
10.9 * Bonus and Stock Option Agreement dated as of November 29, 1995
between the Company and H. James Crowe
10.10 * Form of Election for Payment of Director Meeting Fees
23 * Subsidiaries of WGNB Corp.
27 * Financial Data Schedule (for SEC use only)
</TABLE>
_________________
*Previously filed.
57
<PAGE> 59
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant has caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
WGNB CORP.
By: /s/ L. Leighton Alston
--------------------------------
L. Leighton Alston
Chief Executive Officer
Dated: September 20, 2000
58
<PAGE> 60
WGNB CORP.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
F-1
<PAGE> 61
WGNB CORP.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
Assets
------
2000 1999
---- ----
(unaudited) (audited)
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $100,000 and $100,000 $ 11,735,474 14,845,644
Federal funds sold 19,000,000 5,220,000
-------------- --------------
Cash and cash equivalents 30,735,474 20,065,644
Securities available for sale 43,175,997 41,384,953
Securities held to maturity 1,000,000 1,000,000
Loans, net 192,046,838 182,046,853
Premises and equipment, net 5,574,728 5,578,222
Accrued interest receivable 1,813,906 1,665,495
Other assets 1,568,467 2,293,839
-------------- --------------
$ 275,915,410 254,035,006
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 30,676,029 30,431,464
Interest bearing demand 96,590,904 78,483,721
Savings 8,362,138 7,693,336
Time 68,752,647 67,002,737
Time, over $100,000 30,866,099 31,194,144
-------------- --------------
Total deposits 235,247,817 214,805,402
Federal Home Loan Bank advances 15,000,000 15,000,000
Other borrowings 400,000 350,000
Accrued interest payable 1,155,420 1,098,101
Other liabilities 1,422,337 788,928
-------------- --------------
Total liabilities 253,225,574 232,042,431
-------------- --------------
Stockholders' equity:
Common stock, $1.25 par value, 10,000,000 shares authorized;
3,105,649 and 3,105,394 shares issued and outstanding 3,882,061 3,881,743
Additional paid-in capital 1,065,944 1,060,670
Retained earnings 18,750,309 18,094,975
Accumulated comprehensive (loss) income (1,008,478) (1,044,813)
-------------- --------------
Total stockholders' equity 22,689,836 21,992,575
-------------- --------------
$ 275,915,410 254,035,006
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 62
WGNB CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $4,691,239 3,979,190
Interest on federal funds sold 78,009 67,246
Interest on investment securities:
U.S. Treasury -- 18,939
U.S. Government agencies 466,849 440,165
State, county and municipal 184,389 112,290
Other 41,798 12,794
---------- ----------
Total interest income 5,462,284 4,630,624
Interest expense:
Interest on deposits:
Demand 618,524 472,350
Savings 58,333 56,767
Time 1,356,570 1,265,743
Interest on FHLB and other borrowings 229,139 105,613
---------- ----------
Total interest expense 2,262,566 1,900,473
---------- ----------
Net interest income 3,199,718 2,730,151
Provision for loan losses 50,000 78,462
---------- ----------
Net interest income after provision for loan losses 3,149,718 2,651,689
---------- ----------
Other income:
Service charges on deposit accounts 371,036 307,401
Miscellaneous 253,454 242,514
---------- ----------
Total other income 624,490 549,915
---------- ----------
Other expenses:
Salaries and employee benefits 1,293,021 1,102,998
Occupancy 363,183 319,860
Other operating 580,161 515,261
---------- ----------
Total other expenses 2,236,365 1,938,119
---------- ----------
Earnings before income taxes 1,537,843 1,263,485
Income taxes 540,835 446,972
---------- ----------
Net earnings $ 997,008 816,513
========== ==========
Net earnings per share $ .32 .26
========== ==========
Diluted net earnings per share $ .31 .25
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 63
WGNB CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net earnings $ 997,008 816,513
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment
securities available for sale:
Unrealized gains (losses) arising during the period 49,663 (164,670)
Associated benefit (taxes) (18,872) 62,574
Less: Reclassification adjustment for (gains) losses 8,936 (9,406)
Associated taxes (3,392) 3,570
------------ ------------
Other comprehensive (loss) income 36,335 (107,932)
------------ ------------
Comprehensive income $ 1,033,343 708,581
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 64
WGNB CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 997,008 816,513
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 189,950 171,330
Provision for loan losses 50,000 78,462
Provision for deferred income taxes 18,719 (192,389)
Loss (gain) on sale of securities available for sale 8,936 (9,406)
Loss (gain) on sale of premises and equipment -- --
Loss (gain) on sale of other real estate -- (995)
Change in: (516,340)
Other assets (311,758)
Other liabilities 690,728 686,194
------------ ----------
Net cash provided by operating activities 1,643,583 1,033,369
------------ ----------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 560,380 760,535
Proceeds from maturities of securities available for sale 832,694 2,887,399
Purchases of securities available for sale (2,286,470) (6,127,850)
Purchase of securities held to maturity -- --
Net change in loans (10,080,519) (3,195,686)
Proceeds from sales of premises and equipment -- (11)
Purchases of premises and equipment (156,171) (151,596)
Proceeds from sales of other real estate -- 18,312
------------ ----------
Net cash used by investing activities (11,130,086) (5,808,897)
Cash flows from financing activities:
Net change in deposits 20,442,415 5,827,574
Federal Home Loan Bank advances -- --
Repayment of Federal Home Loan Bank advances -- --
Proceeds from other borrowings 100,000 --
Repayment of other borrowings (50,000) (50,000)
Dividends paid (341,674) (320,802)
Issuance of common stock 24,792 26,158
Retirement of common stock (19,200) (164,152)
------------ ----------
Net cash provided by financing activities 20,156,333 5,318,778
Change in cash and cash equivalents 10,669,830 543,250
Cash and cash equivalents at beginning of quarter 20,065,644 15,561,652
------------ ----------
Cash and cash equivalents at end of quarter $ 30,735,474 16,104,902
============ ==========
</TABLE>
F-5
<PAGE> 65
WGNB CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest $2,205,247 2,001,825
Income taxes -- 212,128
Non-cash investing and financing activities:
Transfer of loans to other real estate -- 98,716
Financed sales of other real estate -- --
Change in unrealized gains (losses) on
securities available for sale, net of tax 36,335 (107,932)
Change in dividends payable 12,679 7,199
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 66
WGNB CORP.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
The accompanying unaudited consolidated financial statements do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31, 1999
appearing on pages F-8 - F-30.
The interim financial statements reflect all adjustments, which are normal and
recurring, and in the opinion of management, necessary for a fair presentation
of the results for the periods presented. Operating results for the three months
ended March 31, 2000 and 1999 are not necessarily indicative of the results that
may be expected for the years ending December 31, 2000 and 1999.
F-7
<PAGE> 67
WGNB CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
F-8
<PAGE> 68
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
WGNB Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of WGNB Corp. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of earnings, comprehensive income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WGNB Corp. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 7, 2000
F-9
<PAGE> 69
WGNB CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Assets
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $100,000 and $2,006,000 $ 14,845,644 10,489,540
Federal funds sold 5,220,000 5,072,112
------------ -----------
Cash and cash equivalents 20,065,644 15,561,652
Securities available for sale 41,384,953 41,496,161
Securities held to maturity 1,000,000 --
Loans, net 182,046,853 159,454,946
Premises and equipment, net 5,578,222 4,834,865
Accrued interest receivable 1,665,495 1,476,239
Other assets 2,293,839 1,360,849
------------ -----------
$254,035,006 224,184,712
============ ===========
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C> <C>
Deposits:
Demand $ 30,431,464 27,607,719
Interest bearing demand 78,483,721 66,522,647
Savings 7,693,336 8,195,666
Time 67,002,737 63,566,083
Time, over $100,000 31,194,144 27,030,101
------------ -----------
Total deposits 214,805,402 192,922,216
Federal Home Loan Bank advances 15,000,000 7,000,000
Other borrowings 350,000 600,000
Accrued interest payable 1,098,101 1,178,982
Other liabilities 788,928 572,664
------------ -----------
Total liabilities 232,042,431 202,273,862
------------ -----------
Commitments
Stockholders' equity:
Common stock, $1.25 par value, 10,000,000 shares authorized;
3,105,394 and 3,138,030 shares issued and outstanding 3,881,743 3,922,538
Additional paid-in capital 1,060,670 1,818,189
Retained earnings 18,094,975 15,833,121
Accumulated comprehensive (loss) income (1,044,813) 337,002
------------ -----------
Total stockholders' equity 21,992,575 21,910,850
------------ -----------
$254,035,006 224,184,712
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 70
WGNB CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $17,048,668 16,446,034 14,500,014
Interest on federal funds sold 316,157 480,658 271,379
Interest on investment securities:
U.S. Treasury 51,808 97,745 110,105
U.S. Government agencies 1,825,952 1,500,426 1,460,649
State, county and municipal 563,100 345,691 291,145
Other 77,650 52,162 46,378
----------- ---------- ----------
Total interest income 19,883,335 18,922,716 16,679,670
Interest expense:
Interest on deposits:
Demand 2,068,119 1,788,079 1,676,558
Savings 235,894 311,406 310,997
Time 5,230,259 5,334,972 4,614,172
Interest on FHLB and other borrowings 433,300 369,985 58,421
----------- ---------- ----------
Total interest expense 7,967,572 7,804,442 6,660,148
----------- ---------- ----------
Net interest income 11,915,763 11,118,274 10,019,522
Provision for loan losses 303,462 494,728 476,896
----------- ---------- ----------
Net interest income after provision for loan losses 11,612,301 10,623,546 9,542,626
----------- ---------- ----------
Other income:
Service charges on deposit accounts 1,433,757 1,287,513 1,122,668
Miscellaneous 497,196 521,004 403,404
----------- ---------- ----------
Total other income 1,930,953 1,808,517 1,526,072
----------- ---------- ----------
Other expenses:
Salaries and employee benefits 4,549,682 4,196,164 3,808,181
Occupancy 1,345,174 1,310,423 1,186,114
Other operating 2,097,760 1,692,286 1,576,250
----------- ---------- ----------
Total other expenses 7,992,616 7,198,873 6,570,545
----------- ---------- ----------
Earnings before income taxes 5,550,638 5,233,190 4,498,153
Income taxes 1,994,966 1,834,632 1,271,101
----------- ---------- ----------
Net earnings $ 3,555,672 3,398,558 3,227,052
=========== ========= =========
Net earnings per share $ 1.14 $ 1.08 $ 1.02
=========== ========= =========
Diluted net earnings per share $ 1.13 $ 1.07 $ 1.01
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 71
WGNB CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 3,555,672 3,398,558 3,227,052
----------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period (2,218,700) 299,943 202,874
Associated benefit (taxes) 845,482 (110,101) (77,011)
Less: Reclassification adjustment for gains (13,857) -- (8,378)
Associated taxes 5,260 -- 3,183
----------- --------- ---------
Other comprehensive (loss) income (1,381,815) 189,842 120,668
----------- --------- ---------
Comprehensive income $ 2,173,857 3,588,400 3,347,720
=========== ========= =========
</TABLE>
F-12
<PAGE> 72
WGNB CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
------------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
---------- ----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,586,974 $ 1,983,717 4,386,441 11,300,079 26,492 17,696,729
Cash dividend ($.29 per share) -- -- -- (927,529) -- (927,529)
Retirement of common stock (1,600) (2,000) (27,125) -- -- (29,125)
Stock split on a 2 for 1 basis 1,585,574 1,981,968 (1,981,968) -- -- --
Change in unrealized holding gains on
securities available for sale, net of tax -- -- -- -- 120,668 120,668
Net earnings -- -- -- 3,227,052 -- 3,227,052
---------- ----------- ---------- ----------- ---------- -----------
Balance, December 31, 1997 3,170,948 3,963,685 2,377,348 13,599,602 147,160 20,087,795
Cash dividend ($.37 per share) -- -- -- (1,165,039) -- (1,165,039)
Retirement of common stock (32,918) (41,147) (559,159) -- -- (600,306)
Change in unrealized holding gains on
securities available for sale, net of tax -- -- -- -- 189,842 189,842
Net earnings -- -- -- 3,398,558 -- 3,398,558
---------- ----------- ---------- ----------- ---------- -----------
Balance, December 31, 1998 3,138,030 3,922,538 1,818,189 15,833,121 337,002 21,910,850
Cash dividend ($.42 per share) -- -- -- (1,293,818) -- (1,293,818)
Retirement of common stock (37,800) (47,250) (782,429) -- -- (829,679)
Exercise of stock options 5,164 6,455 24,910 -- -- 31,365
Change in unrealized holding losses on
securities available for sale, net of tax -- -- -- -- (1,381,815) (1,381,815)
Net earnings -- -- -- 3,555,672 -- 3,555,672
---------- ----------- ---------- ----------- ---------- -----------
Balance, December 31, 1999 3,105,394 $ 3,881,743 1,060,670 18,094,975 (1,044,813) 21,992,575
========== =========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 73
WGNB CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,555,672 3,398,558 3,227,052
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 698,061 666,511 568,162
Provision for loan losses 303,462 494,729 476,896
Provision for deferred income taxes 26,197 (173,056) (165,512)
Gain on sale of securities available for sale (13,857) (38,201) (8,378)
Loss (gain) on sale of premises and equipment 29,556 -- (3,375)
Loss (gain) on sale of other real estate 5,979 (4,398) 5,632
Change in:
Other assets (379,817) 55,240 (42,993)
Other liabilities 138,754 1,919 (150,528)
------------ ------------ ------------
Net cash provided by operating activities 4,364,007 4,401,302 3,906,956
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 2,608,723 -- 3,385,669
Proceeds from maturities of securities available for sale 9,704,609 14,952,525 9,046,201
Purchases of securities available for sale (14,391,531) (23,982,823) (14,862,804)
Purchase of securities held to maturity (1,000,000) -- --
Net change in loans (23,145,057) (12,441,898) (19,724,237)
Proceeds from sales of premises and equipment 85,777 -- 5,014
Purchases of premises and equipment (1,447,146) (467,046) (520,206)
Proceeds from sales of other real estate 186,927 (89,891) 38,025
------------ ------------ ------------
Net cash used by investing activities (27,397,698) (22,029,133) (22,632,338)
Cash flows from financing activities:
Net change in deposits 21,883,186 18,373,990 19,325,283
Federal Home Loan Bank advances 10,000,000 5,000,000 500,000
Repayment of Federal Home Loan Bank advances (2,000,000) -- --
Proceeds from other borrowings 25,000 600,000 --
Repayment of other borrowings (275,000) -- --
Dividends paid (1,297,189) (1,080,340) (883,481)
Issuance of common stock 31,365 -- --
Retirement of common stock (829,679) (600,306) (29,125)
------------ ------------ ------------
Net cash provided by financing activities 27,537,683 22,293,344 18,912,677
Change in cash and cash equivalents 4,503,992 4,665,513 187,295
Cash and cash equivalents at beginning of year 15,561,652 10,896,139 10,708,844
------------ ------------ ------------
Cash and cash equivalents at end of year $ 20,065,644 15,561,652 10,896,139
============ ============ ============
</TABLE>
F-14
<PAGE> 74
WGNB CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 8,048,453 7,667,937 6,380,234
Income taxes 1,871,000 1,801,000 1,620,000
Non-cash investing and financing activities:
Transfer of loans to other real estate $ 249,688 158,674 712,408
Financed sales of other real estate -- 23,500 666,188
Change in unrealized gains (losses) on
securities available for sale, net of tax (1,381,815) 189,843 120,668
Change in dividends payable (3,371) 84,699 44,048
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 75
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant policies and procedures.
BASIS OF PRESENTATION
The consolidated financial statements of WGNB Corp. (the "Company")
include the financial statements of its wholly owned subsidiaries West
Georgia National Bank (the "Bank") and West Georgia Credit Services,
Inc. ("WGCS"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Bank commenced business in 1946 upon receipt of its banking charter
from the Office of the Comptroller of the Currency (the "OCC"). The
Bank is primarily regulated by the OCC and undergoes periodic
examinations by this regulatory agency. The Company is regulated by the
Federal Reserve and is also subject to periodic examinations. The Bank
provides a full range of commercial and consumer banking services
principally in Carroll County, Georgia.
WGCS, which also operates under the name Mortgage & Loan Solutions,
commenced operations in 1997 serving Paulding, Douglas and Carroll
counties. The Company established WGCS in order to diversify revenue
sources by offering conforming and non-conforming mortgage and home
equity products as well as consumer financing not traditionally offered
at banks.
The accounting and reporting policies of the Company, and the methods
of applying these principles, conform with generally accepted
accounting principles and with general practices within the banking
industry. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and income
and expenses for the year. Actual results could differ significantly
from those estimates. Material estimates common to the banking industry
that are particularly susceptible to significant change in an operating
cycle of one year include, but are not limited to, the determination of
the allowance for loan losses, the valuation of any real estate
acquired in connection with foreclosures or in satisfaction of loans
and valuation allowances associated with the realization of deferred
tax assets which are based on future taxable income.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold. Cash reserves of
$100,000 and $2,026,000 were maintained as required by the Federal
Reserve Bank as of December 31, 1999 and 1998, respectively. These
balances were maintained in the Bank's vaults.
INVESTMENT SECURITIES
The Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. Trading securities
are bought and held principally for the purpose of selling them in the
near term. Held to maturity securities are those securities for which
the Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held to
maturity are classified as available for sale.
Trading and available for sale securities are recorded at fair value.
Held to maturity securities are recorded at amortized cost, adjusted
for the amortization of premiums and accretion of discounts. Unrealized
holding gains and losses, net of the related tax effect, on securities
available for sale are excluded from earnings and are reported as a
separate component of accumulated comprehensive income in stockholders'
equity until realized. Transfers of securities between categories are
recorded at fair value at the date of transfer.
A decline in the market value of any available for sale investment
below cost that is deemed other than temporary is charged to earnings
and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and
losses for securities classified as available for sale are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
F-16
<PAGE> 76
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the principal amount outstanding, net of unearned
interest and the allowance for loan losses. Interest income on loans is
recognized in a manner that results in a level yield on the principal
amount outstanding. Nonrefundable loan fees are deferred, net of
certain direct origination costs, and amortized into income over the
life of the related loan.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that
collection of interest is doubtful.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that the collectibility of the
principal is unlikely. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and
volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality, and
review of specific problem loans.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the
allowance based on their judgments of information available to them at
the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. When assets are retired
or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. Costs incurred for maintenance and
repairs are expensed currently.
OTHER REAL ESTATE
Properties acquired through foreclosure are carried at the lower of
cost (defined as fair value at foreclosure) or fair value less
estimated costs to dispose. Accounting literature defines fair value as
the amount that is expected to be received in a current sale between a
willing buyer and seller other than in a forced or liquidation sale.
Fair values at foreclosure are based on appraisals. Losses arising from
the acquisition of foreclosed properties are charged against the
allowance for loan losses. Subsequent write-downs are provided by a
charge to income through the allowance for losses on other real estate
in the period in which the need arises.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the assets and
liabilities results in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by
such asset is required. A valuation allowance is provided for the
portion of the deferred tax asset when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. In
assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities,
projected future taxable income, and tax planning strategies.
F-17
<PAGE> 77
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS
133 establishes accounting and reporting standards for hedging
derivatives and for derivative instruments including derivative
instruments embedded in other contracts. It requires the fair value
recognition of derivatives as assets or liabilities in the financial
statements. The accounting for the changes in the fair value of a
derivative depends on the intended use of the derivative instruments at
inception. Instruments used as fair value hedges account for the change
in fair value in the earnings of the period simultaneous with
accounting for the fair value change of the item being hedged. Cash
flow hedges account for the change in fair value of the effective
portion in comprehensive income rather than earnings and foreign
currency hedges which are accounted for in comprehensive income as part
of the translation adjustment. Derivative instruments that are not
intended as a hedge account for the change in fair value in the
earnings of the period of the change. In 1999, the FASB issued
Statement No. 137 which deferred implementation of SFAS 133 to become
effective for all fiscal quarters beginning after June 15, 2000, but
initial application of the statement must be made as of the beginning
of the quarter. At the date of initial application, an entity may
transfer any held to maturity security into the available for sale or
trading categories without calling into question the entity's intent to
hold other securities to maturity in the future. The Company believes
the adoption of these standards will not have a material impact on its
financial position, results of operations or liquidity.
NET EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during the period. The effects of potential
common shares outstanding during the period are included in diluted
earnings per share. Stock options, which are described in note 10, are
granted to key management personnel. During 1999 and 1997, the Company
completed a two for one stock split. Earnings per share and the related
average shares outstanding for each reporting period have been restated
to reflect the effects of the stock split.
<TABLE>
<CAPTION>
Common Per Share
FOR THE YEAR ENDED DECEMBER 31, 1999 Net Earnings Shares Amount
------------ ---------- ---------
<S> <C> <C> <C>
Earnings per common share $3,555,672 3,121,816 $ 1.14
Effect of dilutive stock options -- 34,380 (0.01)
---------- ---------- -------
Diluted earnings per common share $3,555,672 3,156,196 $ 1.13
========== ========== =======
<CAPTION>
Common Per Share
FOR THE YEAR ENDED DECEMBER 31, 1998 Net Earnings Shares Amount
------------ ---------- ---------
<S> <C> <C> <C>
Earnings per common share $3,398,558 3,154,658 $ 1.08
Effect of dilutive stock options -- 34,744 (0.01)
---------- ---------- -------
Diluted earnings per common share $3,398,558 3,189,402 $ 1.07
========== ========== =======
<CAPTION>
Common Per Share
FOR THE YEAR ENDED DECEMBER 31, 1997 Net Earnings Shares Amount
------------ ---------- ---------
<S> <C> <C> <C>
Earnings per common share $3,227,052 3,171,402 $ 1.02
Effect of dilutive stock options -- 15,526 (0.01)
---------- ---------- -------
Diluted earnings per common share $3,227,052 3,186,928 $ 1.01
========== ========== =======
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 and 1997
consolidated financial statements to conform to the presentation used
in 1999.
F-18
<PAGE> 78
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES
Investment securities available for sale and held to maturity at
December 31, 1999 and 1998 are summarized as follows:
Available for Sale
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies $14,294,726 -- 598,593 13,696,133
Mortgage-backed securities 15,018,266 13,422 583,056 14,448,632
State, county and municipals 13,622,069 23,913 405,794 13,240,188
----------- -------- ---------- ----------
$42,935,061 37,335 1,587,443 41,384,953
=========== ======== ========== ==========
<CAPTION>
December 31, 1998
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,247,270 19,840 -- 1,267,110
U.S. Government agencies 13,812,865 66,928 47,789 13,832,004
Mortgage-backed securities 17,815,007 161,796 24,526 17,952,277
State, county and municipals 8,077,468 367,302 -- 8,444,770
----------- -------- ---------- ----------
$40,952,610 615,866 72,315 41,496,161
=========== ======== ========== ==========
</TABLE>
Held to Maturity
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trust preferred securities $ 1,000,000 -- (10,000) 990,000
=========== ======== ========== ==========
</TABLE>
The Bank did not own any securities classified as held to maturity as
of December 31, 1998.
F-19
<PAGE> 79
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
The amortized cost and estimated fair value of investment securities
available for sale and held to maturity at December 31, 1999, by
contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers have the right to call or
prepay certain obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------- ----------
<S> <C> <C>
AVAILABLE FOR SALE
U.S. Government agencies and
state, county and municipals:
Within 1 year $ 2,500,106 2,425,166
1 to 5 years 9,546,224 9,249,246
5 to 10 years 11,428,588 10,961,178
After 10 years 4,441,877 4,300,731
Mortgage-backed securities 15,018,266 14,448,632
----------- ----------
$42,935,061 41,384,953
=========== ==========
HELD TO MATURITY
Trust preferred securities:
After 10 years $ 1,000,000 990,000
=========== ==========
</TABLE>
Proceeds from sales of securities available for sale during 1999, 1998
and 1997 were $2,608,723, $0 and $3,385,669, respectively, with the
following gains and losses recognized:
<TABLE>
<CAPTION>
1999 1998 1997
------ ---- ------
<S> <C> <C> <C>
Gross gains 13,857 -- 22,098
Gross losses -- -- 13,720
</TABLE>
Investment securities with a fair value of approximately $35,477,739
and $27,683,000 as of December 31, 1999 and 1998, respectively, were
pledged to secure public deposits, as required by law, and for other
purposes.
F-20
<PAGE> 80
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS
Major classifications of loans at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural $ 24,143,675 19,526,599
Real estate - mortgage 108,137,100 102,702,043
Real estate - construction 34,769,179 22,717,593
Consumer 17,745,401 16,969,732
------------ ------------
184,795,355 161,915,967
Less: Unearned interest 467,204 442,169
Allowance for loan losses 2,281,298 2,018,852
------------ ------------
$182,046,853 159,454,946
============ ============
</TABLE>
The Bank and WGCS grant loans and extensions of credit to individuals
and a variety of businesses and corporations primarily located in its
general trade area of Carroll, Paulding and Douglas counties, Georgia.
Although the Bank has a diversified loan portfolio, a substantial
portion of the loan portfolio is collateralized by improved and
unimproved real estate and is dependent upon the real estate market.
Changes in the allowance for loan losses for the years ended December
31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $2,018,852 1,526,381 1,101,788
Provision for loan losses 303,462 494,728 476,896
Loans charged off (129,946) (130,050) (214,993)
Recoveries 88,930 127,793 162,690
---------- --------- ---------
Balance, end of year $2,281,298 2,018,852 1,526,381
========== ========= =========
</TABLE>
(4) PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31, 1999
and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Land $ 1,117,773 561,661
Buildings and improvements 5,103,477 5,092,875
Furniture and equipment 4,374,713 3,984,590
------------ ----------
10,595,963 9,639,126
Less: Accumulated depreciation (5,017,741) (4,804,261)
------------ ----------
$ 5,578,222 4,834,865
============ ==========
</TABLE>
Depreciation expense amounted to $588,456, $542,842 and $524,875 in
1999, 1998 and 1997, respectively.
(5) TIME DEPOSITS
At December 31, 1999 the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
2000 $69,398,707
2001 18,273,469
2002 5,172,874
2003 3,257,856
2004 & Thereafter 2,093,975
-----------
$98,196,881
===========
</TABLE>
F-21
<PAGE> 81
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LINES OF CREDIT
The Bank has lines of credit at December 31, 1999 and 1998 totaling
$29,500,000 and $27,500,000, respectively, of which $7,500,000
represents credit for overnight borrowings from financial institutions
for both 1999 and 1998. At December 31, 1999, the Bank had advances
outstanding from the Federal Home Loan Bank (FHLB) of Atlanta amounting
to $15,000,000. The following advances require quarterly interest
payments:
<TABLE>
<CAPTION>
Interest Current Early Conversion
Advance Basis Rate Maturity Call Date Option
----------- -------------------- ------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1 month LIBOR
$ 5,000,000 plus 4 basis points 6.51% October 2000 -- --
December 2001,
$ 5,000,000 Fixed 6.14% December 2004 -- 3 month LIBOR
February 2003,
$ 5,000,000 Fixed 5.44% February 2008 February 2003 3 month LIBOR
</TABLE>
The early conversion option allows the FHLB to convert the advances to
a variable interest rate upon notification to the Bank.
At December 31, 1998, the Bank had advances outstanding from the
Federal Home Loan Bank (FHLB) of Atlanta amounting to $7,000,000. The
following advances require quarterly interest payments:
<TABLE>
<CAPTION>
Early Conversion
Advance Interest Basis Current Rate Maturity Call Date Option
----------- -------------- ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2,000,000 Fixed 5.66% September 2002 September 1999 --
February 2003,
$ 5,000,000 Fixed 5.44% February 2008 February 2003 3 month LIBOR
</TABLE>
The FHLB advances are secured by the Bank's stock in the FHLB and its
1-4 family first mortgage loans.
Additionally, during 1999 the Company entered into a $1,500,000 line of
credit arrangement with a financial institution. At December 31, 1999,
the Company had outstanding advances of $350,000. The facility requires
interest payments quarterly with annual interest calculated at the
prime rate minus 1.25%.
(7) COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve,
to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contractual amounts of those
instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance
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 Company uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
F-22
<PAGE> 82
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) COMMITMENTS, CONTINUED
In most cases, the Company does require collateral to support
financial instruments with credit risk.
<TABLE>
<CAPTION>
Approximate
Contractual Amount
------------------
1999 1998
---- ----
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 26,509,000 22,308,000
Standby letters of credit $ 643,000 838,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company, upon extension of credit is based on
management's credit evaluation. Collateral held varies, but may
include unimproved and improved real estate, certificates of deposit
or personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.
(8) STOCK REPURCHASE PLAN
In December 1996, the Board of Directors approved a Stock Repurchase
Plan of up to $2,000,000 of the Company's common stock currently
outstanding. In 1999, the Company redeemed 38,850 shares of common
stock for $850,176. The Company has approximately $318,366 remaining
to reacquire shares under the Stock Repurchase Plan.
(9) REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and
the Bank's financial statements. Under certain adequacy guidelines and
the regulatory framework for prompt corrective action, the Company and
the Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and 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, that the Company and the Bank meet 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 table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
F-23
<PAGE> 83
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) REGULATORY MATTERS, CONTINUED
Presented below are the Bank's actual capital amounts and
ratios. Detail disclosures related to the Company have been excluded
as they do not materially deviate from the disclosure herein.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(in 000's) (in 000's) (in 000's)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk
Weighted Assets) $ 24,857 13% > 14,808 > 8% > 18,510 > 10%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 22,596 12% > 7,404 > 4% > 11,106 > 6%
- - - -
Tier I Capital
(to Average Assets) $ 22,596 10% > 10,228 > 4% > 12,785 > 5%
- - - -
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets) $ 23,117 15% > 12,706 > 8% > 15,882 > 10%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 21,124 13% > 6,353 > 4% > 9,529 > 6%
- - - -
Tier I Capital
(to Average Assets) $ 21,124 10% > 8,653 > 4% > 10,816 > 5%
- - - -
</TABLE>
Dividends paid by the Bank are the primary source of funds available
to the Company. Banking regulations limit the amount of dividends that
may be paid without prior approval of the regulatory authorities.
These restrictions are based on the level of regulatory classified
assets, the prior years' net earnings, and the ratio of equity capital
to total assets. At December 31, 1999 the Bank could pay approximately
$8,088,714 in dividends without obtaining prior regulatory approval.
(10) INCENTIVE STOCK OPTION PLAN
The Company has an incentive stock option plan accounted for under APB
25 and related Interpretations. Under the January 11, 1994 Incentive
Stock Option Plan the Company may grant options to certain key officers
to acquire shares of common stock of the Company at the then fair
value, with the number of shares to be determined annually by agreed
upon formulas. A total of 160,000 shares of common stock were reserved
for possible issuance under this plan. Options were to be granted
commencing March 8, 1994 and are to continue through the year 2004. The
options may not be exercised prior to five years from the date of grant
and are exercisable no later than ten years from that date.
Additionally, 4,448 options were issued to an officer of the Bank which
were not covered by the aforementioned plan but subject to the same
conditions. No compensation cost has been recognized for the stock
options. Had compensation cost for the plan been determined based upon
the fair value of the options at the grant dates, the Company's net
earnings and net earnings per share would have been reduced to the
proforma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings As reported $ 3,555,672 3,398,558 3,227,052
Proforma $ 3,485,786 3,206,213 3,155,810
Net earnings per share As reported $ 1.14 1.08 1.02
Proforma $ 1.12 1.05 1.00
Diluted earnings per share As reported $ 1.13 1.07 1.01
Proforma $ 1.10 1.04 0.99
</TABLE>
F-24
<PAGE> 84
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCENTIVE STOCK OPTION PLAN, CONTINUED
The fair value of each option is estimated on the date of grant using
the Minimum Value Model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively:
dividend yield of 1.7%, 2.2% and 2.2% risk free interest rates of
6.0%, 4.5% and 5.0%, respectively, and an expected life of 10 years.
For disclosure purposes, the Company immediately recognized the
expense associated with the option grants assuming that all awards
will vest.
A summary status of the Company's stock option plan as of December 31,
1999, 1998 and 1997, and changes during the years ending on those
dates, is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ --------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 74,916 $ 9.17 56,700 $ 7.94 35,616 $ 7.19
Awarded during the year 11,469 $20.00 18,216 $13.00 21,084 $ 9.22
Exercised during the year (5,164) $ 6.07 -- -- -- --
------ ------ ------
Outstanding, end of year 81,221 $10.90 74,916 $ 9.17 56,700 $ 7.94
====== ====== ======
Options exercisable at year end 11,508 4,448 --
====== ====== ======
Weighted average fair value of
options granted during the year $ 9.68 $ 7.42 $ 5.45
====== ====== ======
</TABLE>
The following information applies to all options outstanding at
December 31, 1999:
<TABLE>
<S> <C>
Range of exercise prices $5.78 to $20.00
Weighted average exercise price $10.90
Weighted average remaining contractual life (years) 7.28
</TABLE>
(11) DEFINED CONTRIBUTION PLAN
The Company began a qualified retirement plan pursuant to Internal
Revenue Code Section 401(k) in 1996 covering substantially all
employees subject to certain minimum age and service requirements.
Contribution to the plan by employees is voluntary. During 1999, 1998
and 1997, the Company matched 100% of the participants' contributions
up to 6%, of the participants' salaries. The Company also made
discretionary contributions to the plan in 1999, 1998 and 1997 of 5%
of participants' salaries. Contributions to the plan charged to
expense during 1999, 1998 and 1997 were $261,763, $247,834 and
$243,865, respectively.
(12) INCOME TAXES
The components of the provision for income taxes in the consolidated
statements of earnings for the years ended December 31, 1999, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 1,733,126 1,805,206 1,436,613
State 235,643 202,482 --
Deferred:
Federal 24,684 (164,418) (32,806)
State 1,513 (8,638) --
Change in valuation allowance -- -- (132,706)
----------- --------- ---------
Total $ 1,994,966 1,834,632 1,271,101
=========== ========= =========
</TABLE>
F-25
<PAGE> 85
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) INCOME TAXES, CONTINUED
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to earnings
before income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $ 1,887,217 1,779,285 1,529,372
Add (deduct):
Tax-exempt interest income (199,106) (156,771) (140,328)
State taxes, net of federal effect 155,524 127,937 --
Non-deductible interest expense 25,796 21,144 21,082
Change in valuation allowance -- -- (132,706)
Other 125,535 63,037 (6,319)
----------- --------- ---------
$ 1,994,966 1,834,632 1,271,101
=========== ========= =========
</TABLE>
The following summarizes the net deferred tax asset, which is included
as a component of other assets at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 674,035 562,750
Net unrealized losses on securities available for sale 511,702 --
Deferred fee income -- 33,564
Other 62,326 93,780
----------- --------
Total gross deferred income tax assets 1,248,063 690,094
----------- --------
Deferred income tax liabilities:
Premises and equipment (255,247) (272,232)
Net unrealized gains on securities available for sale -- (200,142)
Other (91,499) (2,050)
----------- --------
Total gross deferred income tax liabilities (346,746) (474,424)
----------- --------
Net deferred income tax asset $ 901,317 215,670
=========== =======
</TABLE>
(13) RELATED PARTY TRANSACTIONS
The Bank conducts transactions with directors and executive officers,
including companies in which they have beneficial interests, in the
normal course of business. It is the Bank's policy to comply with
federal regulations that require that loan transactions with directors
and executive officers be made on substantially the same terms as
those prevailing at the time made for comparable loans to other
persons. The following summary reflects activity for related party
loans for 1999:
<TABLE>
<CAPTION>
<S> <C>
Beginning balance $ 4,816,200
New loans 4,700,788
Repayments (4,507,894)
------------
Ending balance $ 5,009,094
============
</TABLE>
(14) OTHER OPERATING EXPENSES
Components of other operating expenses which exceed 1% of total
interest income and other income are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Professional fees $ 223,413 193,749 183,704
</TABLE>
F-26
<PAGE> 86
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose fair value information about
financial instruments, whether or not recognized on the face of the
balance sheet, for which it is practicable to estimate that value. The
assumptions used in the estimation of the fair value of the Company's
financial instruments are detailed below. Where quoted prices are not
available, fair values are based on estimates using discounted cash
flows and other valuation techniques. The use of discounted cash flows
can be significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. The following
disclosures should not be considered a surrogate of the liquidation
value of the Company or its subsidiaries, but rather a good-faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination, or issuance.
Cash and Cash Equivalents
For cash, due from banks, federal funds sold and interest bearing
deposits, the carrying amount is a reasonable estimate of fair value.
Investment Securities
The fair values for investment securities are based on quoted market
prices.
Loans
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings. For variable
rate loans, the carrying amount is a reasonable estimate of fair
value.
Deposits
The fair value of demand deposits, savings accounts, NOW and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the
rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank Advances
Federal Home Loan Bank fair value is estimated by discounting the
future cash flows using rates currently offered for similar financing
vehicles.
Other Borrowings
Because other borrowings are based on variable rates, the carrying
value is a reasonable estimate of fair value.
Commitments to Extend Credit, Standby Letters of Credit
Because commitments to extend credit and standby letters of credit
are made using variable rates or for a short term, the contract value
is a reasonable estimate of fair value.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Because no
market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on many judgements. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgement and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on and off-balance-sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include
deferred income taxes and premises and equipment. In addition, the
tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and
have not been considered in the estimates.
F-27
<PAGE> 87
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The carrying amount and estimated fair values of the Company's
financial instruments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 20,065,644 20,065,644 15,561,652 15,561,652
Securities available for sale 41,384,953 41,384,953 41,496,161 41,496,161
Securities held to maturity 1,000,000 990,000 -- --
Loans 182,046,853 181,349,376 159,454,946 160,612,606
Liabilities:
Deposits 214,805,402 214,801,456 192,922,216 193,907,911
Federal Home Loan Bank advances 15,000,000 14,805,212 7,000,000 7,254,709
Other borrowings 350,000 350,000 600,000 600,000
Unrecognized financial instruments:
Commitments to extend credit 26,509,000 26,509,000 22,308,000 22,308,000
Standby letters of credit 643,000 643,000 838,000 838,000
</TABLE>
(16) WGNB CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1999 and 1998
Assets
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash $ 434,747 489,007
Investment in Bank 21,550,909 21,461,335
Investment in WGCS 336,171 294,921
Funds due from WGCS 350,000 600,000
Other assets 8,036 6,246
----------- ----------
$22,679,863 22,851,509
=========== ==========
Liabilities and Stockholders' Equity
Dividends payable $ 337,288 340,659
Line of credit 350,000 600,000
----------- ----------
Total liabilities 687,288 940,659
----------- ----------
Stockholders' equity 21,992,575 21,910,850
----------- ----------
$22,679,863 22,851,509
=========== ==========
</TABLE>
F-28
<PAGE> 88
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) WGNB CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION, CONTINUED
Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividends from Bank $ 2,143,871 1,915,039 1,286,033
Other income 33,747 25,223 --
Other expense (34,532) (29,366) (41,888)
----------- --------- ---------
Earnings before equity in undistributed
earnings of subsidiaries 2,143,086 1,910,896 1,244,145
Equity in undistributed loss of WGCS (155,568) (145,077) (110,002)
Equity in undistributed earnings of Bank 1,568,154 1,632,739 2,092,909
----------- --------- ---------
Net earnings $ 3,555,672 3,398,558 3,227,052
=========== ========= =========
</TABLE>
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,555,672 3,398,558 3,227,052
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in undistributed earnings of Bank (1,568,154) (1,632,739) (2,092,909)
Equity in undistributed earnings of WGCS 155,568 145,077 110,002
Change in other assets 1,431 (6,247) --
Change in other liabilities (221) -- --
------------- ---------- ----------
Net cash provided by operating activities 2,144,296 1,904,649 1,244,145
------------- ---------- ----------
Cash flows from investing activities:
Investment in WGCS (100,053) (200,000) (350,000)
Purchase of premises and equipment (3,000) -- --
------------- ---------- ----------
Net cash used by investing activities (103,053) (200,000) (350,000)
------------- ---------- ----------
Cash flows from financing activities:
Dividends paid (1,297,189) (1,080,340) (883,481)
Proceeds from borrowings 25,000 600,000 --
Payments on borrowings (275,000) -- --
Loan to WGCS (25,000) (600,000) --
Payments received from WGCS 275,000 -- --
Retirement of common stock (855,837) (600,306) (29,125)
Issuance of stock 57,523 -- --
------------- ---------- ----------
Net cash used by financing activities $ (2,095,503) (1,680,646) (912,606)
------------- ---------- ----------
Increase (decrease) in cash (54,260) 24,003 (18,461)
Cash at beginning of year 489,007 465,004 483,465
------------- ---------- ----------
Cash at end of year $ 434,747 489,007 465,004
============= ========== ==========
</TABLE>
F-29
<PAGE> 89
WGNB CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) WGNB CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION, CONTINUED
Statements of Cash Flows, continued
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of non-cash financing activities:
Change in dividends payable $ (3,371) 84,699 44,048
Changes in unrealized gains (losses) on securities
available for sale, net of tax, of Bank $ (1,381,815) 189,843 120,668
Transfer of tax benefit from WGNB to WGCS $ 96,765 -- --
</TABLE>
F-30
