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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-13153
HABERSHAM BANCORP
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(Exact name of small business issuer as specified in its charter)
Georgia 58-1563165
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(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification Number)
organization)
Highway 441 North, P. O. Box 1980, Cornelia, Georgia 30531
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 778-1000
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Securities registered pursuant to Section 12(b) of the Exchange Act:
None.
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $1.00 par value.
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
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Exhibit index on page 37 Page 1 of 74 pages
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State the issuer's revenues for its most recent fiscal year: $17,927,285
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days:
1,634,951 Shares of Common Stock, $1.00 par value--$22,480,576 as of
March 8, 1996 (based upon market value of $13.75/share).
State the number of shares outstanding of each of the issuer's classes of
common equity stock, as of December 31, 1995, covered by this report.
Common Stock, $1.00 par value-- 2,325,781 shares
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Company's Annual Report to Shareholders for the year ended
December 31, 1995 (the "Annual Report") are incorporated by reference into Part
II.
(2) Portions of the Company's Proxy Statement relating to the 1996 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated by reference
into Part III.
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PART I
Item 1. BUSINESS.
Business of the Company
Habersham Bancorp (the "Company"), a Georgia corporation, was organized on
March 9, 1984. Effective December 31, 1984, the Company acquired all of the
outstanding shares of common stock of Habersham Bank ("Habersham Bank"). As a
result of this transaction, the former shareholders of Habersham Bank became
shareholders of the Company, and the Bank became the wholly-owned subsidiary of
the Company. Effective June 30, 1995, the Company consummated its acquisition
of Security Bancorp, Inc. ("Security") by agreeing to exchange 612,516 shares
of its common stock and cash of $1,990,269 for the outstanding shares of
Security's common stock in a merger of Security with and into the Company.
Currently, the primary business of the Company is the same as that of Habersham
Bank and Security State Bank ("Security State Bank").
The Company also has one direct nonbank subsidiary, The Advantage Group, Inc.,
and one indirect nonbank subsidiary, BancMortgage Financial Corp.
(a subsidiary of Habersham Bank).
Business of the Banks
Habersham Bank is a financial institution which was organized under the
laws of the State of Georgia in 1904. Habersham Bank operates a full-service
commercial banking business based in Habersham County, Georgia, providing such
customary banking services as checking and savings accounts, various types of
time deposits, safe deposit facilities and individual retirement accounts. It
also makes secured and unsecured loans and provides other financial services to
its customers. Habersham Bank has a full-time trust officer on staff and
offers a full spectrum of trust services, including trust administration, asset
management services, estate and will probate and administration, and other
services in the area of personal trusts.
Security State Bank is a financial institution which was organized under
the laws of the State of Georgia in 1988. Security State Bank operates a
full-service commercial banking business based in Cherokee and surrounding
counties in Georgia, providing such customary banking services as checking and
savings accounts, various types of time deposits, safe deposit facilities and
individual retirement accounts. It also makes secured and unsecured loans and
provides other financial services to its customers.
Business of The Advantage Group, Inc.
The Advantage Group, Inc. was organized as a wholly-owned nonbank
subsidiary of the Company in 1987. The Advantage Group, Inc. administers the
Company's Kids' Advantage banking program and markets and develops personal
computer software and other services.
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Business of BancMortgage Financial Corp.
BancMortgage Financial Corp. was organized as a wholly-owned nonbank
subsidiary of Habersham Bank in 1996. BancMortgage Financial Corp. is a full
service mortgage lending and servicing company located in the northern Atlanta
Metropolitan area.
Competition
The banking industry is highly competitive. Habersham Bank's primary
market area consists of Habersham County, Georgia, which has a population of
approximately 27,621. Habersham Bank competes for all types of loans, deposits
and other financial services with four other commercial banks located in
Habersham County, Georgia. As of December 31, 1995, Habersham Bank was the
largest of the commercial banks located in Habersham County based upon total
assets.
Security State Bank's primary market area consists of Cherokee County,
Georgia. Security State Bank competes for all types of loans, deposits and
other financial services with other commercial banks located in Cherokee
County, Georgia.
Habersham Bank and Security State Bank (collectively, the "Banks"), also
compete with other financial institutions in Habersham and Cherokee counties
and with commercial banks, savings and loan associations and other financial
institutions located outside of Habersham and Cherokee counties. To a lesser
extent, Habersham Bank and Security State Bank compete for loans with insurance
companies, regulated small loan companies, credit unions and certain
governmental agencies.
The Company and its subsidiaries compete with numerous other companies and
financial institutions engaged in similar lines of business, such as other bank
holding companies, mortgage companies, mortgage servicers, leasing companies,
insurance companies, companies providing data processing services and companies
providing bank consulting services.
Recent legislation, together with other regulatory changes by the primary
regulators of the various financial institutions and competition from
unregulated entities, has resulted in the elimination of many traditional
distinctions between commercial banks, thrift institutions and other providers
of financial services. Consequently, competition among financial institutions
of all types is virtually unlimited with respect to legal ability and authority
to provide most financial services.
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Employees
The three officers of the Company who are also officers of Habersham Bank
do not receive compensation from Habersham Bank in addition to their
compensation from the Company. The Company does not have any employees who are
not also employees of Habersham Bank.
As of December 31, 1995, Habersham Bank and Security State Bank had 90 and
24 full-time equivalent employees, respectively. Neither the Company nor any
of its subsidiaries is a party to any collective bargaining agreement. In the
opinion of management, the Company and its subsidiaries enjoy satisfactory
relations with their respective employees.
Supervision and Regulation
Bank Holding companies and banks are extensively regulated under both
Federal and state law. The following is a brief summary of certain statutes
and rules and regulations affecting the Company and the Banks. This summary is
qualified in its entirely by reference to the particular statute and regulatory
provision referred to below and is not intended to be an exhaustive description
of the statutes or regulations applicable to the business of the Company and
the Banks. Supervision, regulation and examination of the Company and the
Banks by the bank regulatory agencies are intended primarily for the protection
of depositors rather than shareholders of the Company.
Bank Holding Company Regulation
General
The Company is a registered holding company under the Bank Holding Company
Act of 1956, as amended (the "Federal Bank Holding Company Act"), and the
Georgia Bank Holding Company Act (the "Georgia Bank Holding Company Act") and
is regulated under such acts by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and by the Georgia Department of Banking and
Finance (the "Georgia Department"), respectively.
As a bank holding company, the Company is required to file an annual
report with the Federal Reserve and the Georgia Department and such additional
information as the applicable regulator may require pursuant to the Federal and
Georgia Bank Holding Company Acts. The Federal Reserve and the Georgia
Department may also conduct examinations of the Company to determine whether
the institution is in compliance with both Bank Holding Company Acts and the
regulations promulgated thereunder.
The Federal Bank Holding Company Act also requires every bank holding
company to obtain prior approval from the Federal Reserve before acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank which is not already majority owned or controlled by that bank holding
company. Acquisition of any additional banks would also require prior approval
from the Georgia Department.
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On September 29, 1994, the President of the United States signed the
"Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the
"Interstate Branching Act"). The Interstate Branching Act amends Federal Law
to permit bank holding companies to acquire existing banks in any state
effective September 19, 1995, subject to certain deposit - percentage, aging
requirements and other restrictions. In addition, the Interstate Branching Act
provides that any interstate bank holding company is permitted to merge its
various bank subsidiaries into a single bank with interstate branches effective
June 1, 1997. By adopting legislation prior to the date, a state has the
authority either to "opt in" and accelerate the date after which interstate
branching is permissible or to "opt out" and prohibit interstate branching
altogether.
In response to the Interstate Branching Act the Georgia legislature
adopted the "Georgia Interstate Banking Act," effective July 1, 1995, which
provides that (1) interstate acquisitions by institutions located in Georgia
will be permitted in states which also allow national interstate acquisitions,
and (2) interstate acquisitions of institutions located in Georgia will be
permitted by institutions located in states which also allow national
interstate acquisitions; provided, however, that if the board of directors of a
Georgia bank or bank holding company adopts a resolution to except such bank or
bank holding company from being acquired pursuant to the provisions of the
Georgia Interstate Banking Act and properly files a certified copy of such
resolution with the Georgia Department, such bank or bank holding company may
not be acquired by an institution located outside of the State of Georgia.
Additionally, in February 1996, the Georgia legislature adopted the
"Georgia Interstate Branching Act," which when signed by the Governor, will
permit Georgia-based banks and bank holding companies owning or acquiring banks
outside of Georgia and all non-Georgia bank and bank holding companies owning
or acquiring banks in Georgia the right to merge any lawfully acquired bank
into an interstate branch network. The Georgia Interstate Branching Act also
allows banks to establish de novo branch banks on a limited basis beginning
July 1, 1996. Beginning July 1, 1998, the number of de novo bank branches
which may be established will no longer be limited.
In addition to having the right to acquire ownership or control of other
banks, the Company is authorized to acquire ownership or control of nonbanking
companies, provided the activities of such companies are so closely related to
banking or managing or controlling banks that the Federal Reserve considers
such activities to be proper to the operation and control of banks. Regulation
Y, promulgated by the Federal Reserve, sets forth those activities which are
regarded as closely related to banking or managing or controlling banks and,
thus, are permissible activities for bank holding companies, subject to
approval by the Federal Reserve in individual cases.
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Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not be warranted. Under these provisions, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or
other instruments which qualify for capital under regulatory rules. Any loans
by the holding company to such subsidiary banks are likely to be unsecured and
subordinated to such bank's depositors and perhaps to its other creditors.
Federal Securities Laws
The Company is subject to various federal securities laws, including the
Securities Act of 1933 (the "1933 Act") and the Securities Exchange Act of 1934
(the "1934 Act"). The 1933 Act regulates the distribution or public offering
of securities, while the 1934 Act regulates trading in securities that are
already issued and outstanding. Both Acts provide civil and criminal penalties
for misrepresentations and omissions in connection with the sale of securities,
and the 1934 Act also prohibits market manipulation and insider trading.
Pursuant to the 1934 Act, the Company files annual, quarterly and current
reports with the Securities and Exchange Commission. In addition, the Company
and its directors, executive officers and 5% shareholders are subject to
certain additional reporting requirements, including requirements governing the
submission of proxy statements and reports of beneficial ownership of the
Company's securities.
Bank Regulation
General
The Banks operate as banks organized under the laws of the State of
Georgia subject to examination by the Georgia Department. The Georgia
Department regulates all areas of each Bank's commercial banking operations
including reserves, loans, mergers, payment of dividends, interest rates,
establishment of branches, and other aspects of operations.
The Banks are also insured and regulated by the Federal Deposit Insurance
Corporation (the "FDIC"). The major functions of the FDIC with respect to
insured banks include paying depositors to the extent provided by law in the
event an insured bank is closed without adequately providing for payment of the
claims of depositors, acting as a receiver of state banks placed in
receivership when so appointed by state authorities, and preventing the
continuance or development of unsound and unsafe banking practices. In
addition, the FDIC is authorized to examine insured banks which are not members
of the Federal Reserve to determine the condition of such banks for insurance
purposes. The FDIC also approves conversions, mergers, consolidations and
assumption of deposit liability transactions between insured banks and
noninsured banks or
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institutions to prevent capital or surplus diminution in such transactions
where the resulting, continued or assumed bank is an insured non-member state
bank.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Bank Holding Company Act on any extension
of credit to the bank holding company or any of its subsidiaries, on investment
in the stock or other securities of the bank holding company or its
subsidiaries, and on the taking of such stock or securities as collateral for
loans to any borrower. In addition, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
Under Georgia law, a bank must obtain the approval of the Georgia
Department before cash dividends may be paid if (1) the total classified assets
at the most recent examination of such bank exceeded 80% of the equity capital,
(2) the aggregate amount of dividends declared or anticipated to be declared in
the calendar year exceeds 50% of the net profits, after taxes but before
dividends, for the previous calendar year or (3) the ratio of equity capital to
adjusted assets is less than 6%.
The Banks are also subject to the provisions of the Community Reinvestment
Act of 1977, which requires the appropriate Federal bank regulatory agency, in
connection with its regular examination of a bank, to assess each Bank's record
in meeting the credit needs of the communities served by that Bank, including
low- and moderate-income neighborhoods.
Capital Requirements
Regulatory agencies measure capital adequacy with a framework that makes
capital requirements sensitive to the risk profile of the individual banking
institutions. The guidelines define capital as either Tier 1 capital
(primarily shareholders' equity) or Tier 2 capital (certain debt instruments
and a portion of the reserve for loan losses).
There are two measures of capital adequacy for bank holding companies and
their subsidiary banks: the Tier 1 leverage ratio and the risk-based capital
requirements. Bank holding companies and their subsidiary banks must maintain
a minimum Tier 1 leverage ratio of 4%. In addition, Tier 1 capital must equal
4% of risk-weighted assets, and total capital (Tier 1 plus Tier 2) must equal
8% of risk-weighted assets. These are minimum requirements, however, and
institutions experiencing internal growth or making acquisitions, as well as
institutions with supervisory or operational weaknesses, will be expected to
maintain capital positions well above these minimum levels.
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At December 31, 1995, the Banks' ratios were as follows:
Habersham Security State
Bank Bank
Tier 1 Risk-Based 11.91% 15.14%
Total Risk-Based 13.16% 16.39%
Tier 1 9.23% 11.58%
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDIC Act") imposes a regulatory matrix which requires the
Federal banking agencies to take prompt corrective action to deal with
depository institutions that fail to meet their minimum capital requirements or
are otherwise in a troubled condition. The prompt corrective action provisions
require undercapitalized institutions to become subject to an increasingly
stringent array of restrictions, requirements and prohibitions, as their
capital levels deteriorate and supervisory problems mount. Should these
corrective measures prove unsuccessful in recapitalizing the institution and
correcting its problems, the FDIC Act mandates that the institution be placed
in receivership.
Pursuant to regulations promulgated under the FDIC Act, the corrective
actions that the banking agencies either must or may take are tied primarily to
an institution's capital levels. In accordance with the framework adopted by
the FDIC Act, the banking agencies have developed a classification system,
pursuant to which all banks and thrifts will be placed into one of five
categories: well-capitalized institutions, adequately capitalized
institutions, undercapitalized institutions, significantly undercapitalized
institutions and critically undercapitalized institutions. The capital
thresholds established for each of the categories are as follows:
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<TABLE>
<CAPTION>
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Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
===================================================================================================
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not subject to a
capital directive
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Adequately
Capitalized 4% or more 8% or more 4% or more --
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Undercapitalized less than 4% less than 8% less than 4% --
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Significantly
Undercapitalized less than 3% less than 6% less than 3% --
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Critically 2% or less tangible
Undercapitalized equity -- -- --
===================================================================================================
</TABLE>
The down-grading of an institution's category is automatic in two
situations: (1) whenever an otherwise well-capitalized institution is subject
to any written capital order or directive, and (2) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
All insured institutions regardless of their level of capitalizations are
prohibited by the FDIC Act from paying any dividend or making any other kind of
capital distribution or paying any management fee to any controlling person if
following the payment or distribution the institution would be
undercapitalized. While the prompt corrective action provisions of the FDIC
Act contain no requirements or restrictions aimed specifically at adequately
capitalized institutions, other provisions of the FDIC Act and the agencies'
regulations relating to deposit insurance assessments, brokered deposit, and
interbank liabilities treat adequately capitalized institutions less favorably
than those that are well-capitalized. At December 31, 1995, the Company and
the Banks had the requisite capital levels to qualify as well-capitalized.
The FDIC has adopted or currently proposes to adopt other rules pursuant
to the FDIC Act that include: (1) real estate lending standards for banks,
which would provide guidelines concerning loan-to-value ratios for various
types of real estate loans; (2) revision to the risk-based capital rules to
account for interest rate risk, concentration of credit risk and the risks
proposed by "non-traditional activities"; (3) rules requiring depository
institutions to develop and implement internal procedures to evaluate and
control credit and settlement exposure to their correspondent banks; (4) a rule
restricting the ability of
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depository institutions that are not well capitalized from accepting brokered
deposits; (5) rules addressing various "safety and soundness" issues, including
operations and managerial standards for asset quality, earnings and stock
valuations, and compensation standards for the officers, directors, employees
and principal shareholders of the depository institutions; (6) rules mandating
enhanced financial reporting and audit requirements; and (7) rules restricting
the ability of a state bank, or a subsidiary thereof, to engage as principal
in activities not permissible for a national bank or make any investment not
permissible for a national bank.
FDIC Insurance Assessments
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had used for the 1993 calendar year, assigns an
institution to one of three capital categories: (1) well-capitalized; (2)
adequately capitalized; and (3)undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based
on a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institutions's state supervisor). An institution's insurance assessment rate
is then determined based on the capital category and supervisory category to
which it is assigned. Under the final risk-based assessment system, as well as
the prior transitional system, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied. Assessment rates for members of both
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") for the first half of 1995, as they had during 1994, ranged from 23
basis points (0.23% of deposits) for an institution in the highest category
(i.e., "well capitalized" and "healthy") to 31 basis points (0.31% of deposits)
for an institution in the lowest category (i.e., "undercapitalized" and
"substantial supervisory concern"). These rates were established for both
funds to achieve a designated ratio of reserves to insured deposits (i.e.,
1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached, which appears to have
occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted
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final regulations reducing the assessment rates for BIF-member banks. Under
the revised schedule, BIF-member banks, starting with the second half of 1995,
will now pay assessments ranging from 4 basis points to 31 basis points, with
an average assessment rate of 4.5 basis points. Refunds, with interest, were
paid for assessments for the months(s) after the month in which the designated
reserve ratio for the BIF was reached, as well as for the quarterly payment
made on September 30, 1995, assuming that the designated reserve ratio was
achieved prior to June 30, 1995. At the same time, the FDIC elected to retain
the existing assessment rate of 23 to 31 basis points for SAIF members for the
foreseeable future given the undercapitalized nature of that insurance fund.
More recently, on November 14, 1995, the FDIC announced that, beginning in
1996, it would further reduce the deposit insurance premiums for 92% of all BIF
members that are in the highest capital and supervisory categories to $2,000
per year, regardless of deposit size.
On July 28, 1995, the FDIC, the Treasury Department and the OTS released
statements outlining a proposed plan to recapitalize the SAIF, certain features
of which were subsequently agreed upon by members of the Banking Committees of
the U.S. House of Representatives and the Senate on November 7, 1995 in
negotiations to reconcile differences in bills on the issue that had been
introduced or partially adopted by each body. Under the agreement, all
SAIF-member institutions would pay a special assessment to the SAIF of
approximately 80 basis points, the amount that would enable the SAIF to attain
its designated reserve ratio of 1.25%. The special assessment would be payable
on January 1, 1996, based on the amount of deposits held as of March 31, 1995.
BIF-insured institutions holding SAIF-assessed deposits would receive a 20%
reduction in the assessment rate and would pay a one-time assessment of 64
basis points. The agreement also provides that the assessment base for the
bonds issued in the late 1980s by the Financing Corporation to recapitalized
the now defunct Federal Savings and Loan Insurance Corporation would be
expanded to include deposits of both BIF- and SAIF-insured institutions, with
BIF members paying approximately 75% of the interest on such obligations. The
committee members further agreed the BIF and SAIF should be merged on January
1, 1998, with such merger being conditioned upon the prior elimination of the
thrift charter. At this time, the Company is not able to predict if the
recapitalization will take place, the timing or exact amount of any SAIF
special assessment that might be required. As of December 31, 1995, Habersham
Bancorp held no SAIF-assessed deposits.
Under the Federal Deposit Insurance Act, 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
conditions imposed by the FDIC.
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Recent Legislation and Regulatory Action
CRA
On April 19, 1995, the Federal bank regulatory agencies adopted revisions
to the regulations promulgated pursuant to the Community Reinvestment Act (the
"CRA"), which are intended to set distinct assessment standards for financial
institutions. The revised regulation contains three evaluation tests: (a) a
lending test which will compare the institutions's market share of loans in
low- and moderate-income areas to its market share of loans in its entire
service area and the percentage of a bank's outstanding loans to low- and
moderate-income areas or individuals, (b) a services test which will evaluate
the provision of services that promote the availability of credit to low- and
moderate-income areas, and (c) an investment test, which will evaluate an
institution's record on investment in organizations designed to foster
community development, small- and minority-owned businesses and affordable
housing lending, including state and local government housing or revenue bonds.
The regulation is designed to reduce the paperwork requirements of the current
regulations and provide regulators, institutions and community groups with a
more objective and predictable manner with which to evaluate the CRA
performance of financial institutions. The rule became effective on January 1,
1996, at which time evaluation under streamlined procedures began for
institutions with assets of less that $250 million that are owned by a holding
company with total assets of less that $1 billion.
Fair Lending
Congress and various Federal agencies (including, in addition to the bank
regulator agencies, the Department of Housing and Urban development, the
Federal Trade Commission and the Department of Justice)(collectively the
"Federal Agencies") responsible for implementing the nation's fair lending laws
have been increasingly concerned that prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. In
recent years, the Department of Justice has filed suit against financial
institutions which it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from discriminatory practices.
Most, if not all, of these suits have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exits, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified: (1)
overt evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, (2) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate
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against a person, and (3) evidence of disparate impact, when a lender applies
a practice uniformly to all applicants, but the practice has a discriminatory
effect, even where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of business
necessity.
Future Requirements
Statutes and regulations are regularly introduced which contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed stature or regulation will be adopted or the
extent to which the business of the Company and the Banks may be affected by
such statute or regulation.
Monetary Policy
The earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The Federal Reserve has had, and will continue to have, an important
impact on the operating results of commercial banks through its power to
implement national monetary policy in order, among other things, to mitigate
recessionary and inflationary pressures by regulating the national money
supply. The techniques used by the Federal Reserve include setting the reserve
requirements of member banks and establishing the discount rate on member bank
borrowings. The Federal Reserve also conducts open market transactions in
United States government securities.
Item 2. PROPERTIES
The Company's principal office is located at Habersham Bank's Central
Habersham office, on Highway 441 North, Cornelia, Georgia. The telephone
number of that office is (706) 778-1000.
Habersham Bank's North Habersham (main) office is located at 201
Washington Street, Clarkesville, Georgia. The telephone number of that office
is (706) 778-1000. Habersham Bank also has two full-service branch offices and
one limited service office for receiving deposits. Its Central Habersham
office is located on Highway 441 North, Cornelia, Georgia, and its South
Habersham office is located on Highway 441 By-Pass, Baldwin, Georgia. The
Hospitality Center is located at 802 N. Washington Street, Clarkesville,
Georgia. Each office has a 24-hour teller machine. Habersham Bank owns its
office properties without encumbrance.
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Security State Bank's office is located at 1600 Marietta Highway, Canton,
Georgia, and the telephone number of that office is (770) 479-2111. Security
State Bank owns its office properties without encumbrance.
The Advantage Group, Inc.'s principal office is located at Habersham
Bank's Central Habersham office, on Highway 441 North, Cornelia, Georgia. The
telephone number of that office is (706) 778-1000. BancMortgage Financial
Corp.'s principal office is located at 990 Hammond Drive, Suite 1020, Atlanta,
Georgia 30328. The telephone number of that office is (770) 804-7208.
Item 3. LEGAL PROCEEDINGS
The Company and the Banks are not parties to, nor is any of their property
the subject of, any material pending legal proceedings, other than ordinary
routine litigation incidental to their business, and no such proceedings are
known to be contemplated by governmental authorities.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Habersham Bancorp is traded on the NASDAQ Stock Market
("NASDAQ") under the symbol HABC. At December 31, 1995, Habersham
Bancorp had 615 shareholders of record. The following table sets forth the
high and low sale prices of the Company's common stock on a quarterly basis
since July 17, 1995, the date on which the common stock commenced trading on
NASDAQ. This per share information reflects a 5 for 1 stock split in the form
of a 400% stock dividend effective May 15, 1995.
1995 High Low
---- ---- ---
Third Quarter 13.00 10.75
Fourth Quarter 14.25 12.00
Prior to July 17, 1995, there was no established trading market for the
Habersham common stock. Management was aware of transactions resulting in
shares being traded from January 1, 1993 to July 17, 1995 at prices ranging
from $7.40 to $8.60 per share (adjusted to reflect the effect of the 5 for 1
stock split).
Cash dividends were paid semi-annually and were paid at a rate of $.10 per
share of common stock in 1995 and $.08 per share on common stock in 1994. The
Company plans to pay cash dividends on a quarterly basis in 1996.
16
<PAGE> 16
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion sets forth the major factors that affect the
Company's results of operations and financial condition. These comments should
be read in conjunction with the consolidated financial statements.
ORGANIZATION
Habersham Bancorp owns all of the outstanding stock of Habersham Bank
("Habersham Bank"), Security State Bank ("Security Bank"), and The Advantage
Group, Inc., and Habersham Bank owns all of the outstanding stock of
BancMortgage Financial Corp. The Company and its subsidiaries are collectibely
referred to as the "Company". The Advantage Group, Inc. is a non-bank
subsidiary which engages in the business of providing certain management
consulting advice to depository institutions. The Advantage Group, Inc. did
not comprise a significant portion of the financial position, results of
operations, or cash flows of the Company. Management's discussion and
analysis, which follows, relates primarily to Habersham Bank and Security Bank.
RESULTS OF OPERATIONS
The Company's net income was $2,021,012, $1,658,385 and $1,557,718 for the
years ended December 31, 1995, 1994 and 1993, respectively, with related
earnings per common and common equivalent share of $.99, $.98 and $.93,
respectively. The per share amounts reflect the 5 for 1 stock split effective
May 15, 1995. The primary increase in net income for 1995 over 1994 was the
acquisition of Security Bank on June 30, 1995. Net income represents a return
on average equity of 9.39% for 1995, 10.50% for 1994 and 10.66% for 1993.
The Company's net income per share of common stock rose 1.02% in 1995 to
$.99, up from $.98 per share in 1994 and $.93 per share in 1993.
NET INTEREST INCOME
Net interest income is the largest single source of income for the
Company. Management strives to develop a level of earning asset growth while
maintaining and developing a net yield on earning assets which will cover
overhead and other costs and provide a reasonable return to our shareholders.
Net interest income for 1995 was approximately $9.1 million compared to $7.6
million in 1994 and $7.7 million in 1993.
Average assets rose approximately $38.6 million or 23.83% in 1995 over
1994, and 5.23% in 1994 over 1993. The 1995 increase was primarily due to the
acquisition of Security Bank at June 30, 1995, which increased average assets
by approximately $56 million. Net interest income for 1995 increased
approximately $1.5 million or 19.96% when compared to 1994 and decreased $.02
million or .24% for 1994 when compared to 1993.
17
<PAGE> 17
Interest income increased $4,121,319 in 1995 or 33.14% over 1994, and
1994 and 1993 interest income was approximately the same. The increase in
interest income for 1995 resulted primarily from the addition of interest on
loans and investments of Security Bank. The average balance of loans for 1995
increased by $24,718,977 from 1994 with the average interest rate on loans of
approximately 10.54% in 1995, 9.8% in 1994 and 9.7% in 1993. The average
balance of investment securities increased $5,544,674 or 11.36%. The average
balance of federal funds sold in 1995 increased $4,416,833 or 147.27% over
1994 and carried an average interest rate of 4.75% in 1995, 4.32% in 1994 and
3.30% in 1993.
The increase in interest expense for 1995 of $2,597,541 over 1994 resulted
primarily from the addition of interest expense on Security Bank deposits from
June 30, 1995. Average short-term and other borrowings increased by
approximately $1.4 million or 107.26% over 1994 as a result of the Company's
decision to increase its Federal Home Loan Bank advances by approximately $1.5
million in 1995. The average balance of deposits for 1995 increased 21.29%
over 1994 and 1994 increased 4.94% over 1993, with the average rate paid
increasing to 1.05% in 1995 from 3.68% in 1994 and 3.84% in 1993.
The interest margin of the Company, the spread between interest income and
interest expense, was 4.87% in 1995, 5.08% in 1994 and 5.39% in 1993. Careful
management of deposit and loan growth and pricing has allowed the Company to
average a net interest margin of approximately 5.1% over the last three years.
18
<PAGE> 18
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME AND EXPENSES AND AVERAGE YIELDS
EARNED AND RATES PAID
The following table sets forth the consolidated average balance sheets for
the Company. This information is presented for the years ended December 31,
1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1995 1994 1995 1994
AVERAGE AVERAGE YIELD/ YIELD/ INCOME INCOME
BALANCE BALANCE RATES RATES (EXPENSE) (EXPENSE)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,118,340 $ 5,113,163
Interest bearing balances
with other banks 847,000 631,012 4.52% 6.27% $ 38,281 $ 39,561
Federal funds sold 7,416,000 2,999,167 4.75% 4.32% 352,521 129,640
Investment securities:
Taxable 34,917,011 30,554,17 5.86% 5.33% 2,044,608 1,628,829
Non-taxable 19,457,262 18,275,423 5.57% 5.78% 1,083,349 1,056,133
------------ ------------
Total investment securities 54,374,273 48,829,599
Loans, net (taxable)(1)(2) 122,451,274 97,732,297 10.54% 9.80% 12,901,162 9,580,514
Premises & equipment 3,980,079 3,138,724
Other assets 6,195,447 3,372,902
------------ ------------ ----------- ------------
TOTAL $200,382,413 $161,816,864 8.87% 8.28% 16,419,921 12,434,677
============ ============ ----------- ------------
LIABILITIES
Demand deposit accounts $ 21,439,057 $ 14,067,454
Money market & NOW 35,706,305 36,267,136 3.02% 2.52% (1,077,322) (913,911)
Savings accounts 6,542,031 5,247,192 2.52% 2.82% (164,639) (148,197)
Certificates of deposit 108,190,308 86,130,065 5.43% 4.22% (5,870,006) (3,635,738)
Treasury tax and short-term
and other borrowings 4,339,038 3,039,712 6.60% 3.39% (286,507) (103,086)
Other liabilities 2,645,613 1,276,447
------------ ------------
TOTAL 178,862,351 146,028,006 4.78% 3.67% (7,398,474) (4,800,932)
Shareholders' Equity 21,520,062 15,788,858
------------ ------------
TOTAL LIABILITIES & EQUITY $200,382,413 $161,816,864
============ ============
NET YIELD ON INTEREST EARNING ASSETS 4.87% 5.08% $ 9,021,447 $ 7,633,745
=========== ============
</TABLE>
19
<PAGE> 19
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME AND EXPENSES AND AVERAGE YIELDS
EARNED AND RATES PAID, CONTINUED
<TABLE>
<CAPTION>
1993 1993 1993
AVERAGE YIELD/ INCOME
BALANCE RATES (EXPENSE)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 4,742,654
Interest bearing balances
with other banks 804,679 4.82% $ 38,746
Federal funds sold 2,173,667 3.30% 71,705
Investment securities:
Taxable 19,628,106 6.13% 1,165,243
Non-taxable 15,956,180 6.33% 1,010,857
------------
Total investment securities 35,584,286
Loans, net (taxable)(1)(2) 103,336,660 9.72% 10,043,542
Premises & equipment 3,471,295
Other assets 3,658,429
------------ -----------
TOTAL $153,771,670 8.72% 12,330,093
============ -----------
LIABILITIES
Demand deposit accounts $ 14,808,391
Money market & NOW 28,660,269 2.68% (769,086)
Savings accounts 4,927,940 2.85% (140,600)
Certificates of deposit 86,639,094 4.28% (3,709,863)
Treasury tax and short-term
and other borrowings 2,796,799 2.08% (58,058)
Other liabilities 1,328,921
------------
TOTAL 139,161,414 3.80% (4,677,607)
-----------
Shareholders' Equity 14,610,256
------------
TOTAL LIABILITIES & EQUITY $153,771,670
============
NET YIELD ON INTEREST EARNING ASSETS 5.39% $ 7,652,486
===========
</TABLE>
(1) Interest earnings on nonaccrual loans are included in the foregoing
analysis to the extent that such interest earnings had been recorded during
1995, 1994 AND 1993.
(2) Loan fees of $264,180, $275,541 and $324,406 are included in interest
income for the years ended December 31, 1995, 1994 and 1993, respectively.
20
<PAGE> 20
The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rates for the periods
indicated:
<TABLE>
<CAPTION>
1995 as compared to 1994 1994 as compared to 1993
Increase (Decrease) due to Increase (Decrease) due to
Net Rate(1) Volume(1) Net Rate(1) Volume(1)
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST BEARING ASSETS
Interest bearing balances
with other banks $ (1,280) $ (14,822) $ 13,542 $ 815 $ 9,186 $ (8,371)
Investment securities:
Taxable 415,779 183,240 232,539 463,586 (206,182) 669,768
Non-taxable 27,216 (41,094) 68,310 45,276 (101,532) 146,808
---------- ---------- ---------- ---------- ----------- ----------
Total investment securities 442,995 142,146 300,849 508,862 (307,714) 816,576
Federal funds sold 222,881 32,074 190,807 57,935 30,693 27,242
Loans, gross (taxable) 3,320,648 898,188 2,422,460 (463,028) 81,716 (544,744)
---------- ---------- ---------- ---------- ----------- ----------
TOTAL INTEREST INCOME 3,985,244 1,057,586 2,927,658 104,584 (186,119) 290,703
---------- ---------- ---------- ---------- ----------- ----------
INTEREST BEARING LIABILITIES
Money market & NOW 163,411 177,544 (14,133) 144,825 (59,039) 203,864
Savings accounts 16,442 (20,072) 36,514 7,597 (1,502) 9,099
Certificates of deposit 2,234,268 1,303,326 930,942 (74,125) (52,339) (21,786)
Short-term and
other borrowings 183,421 139,374 44,047 45,028 39,975 5,053
---------- ---------- ---------- ---------- ----------- ----------
TOTAL INTEREST EXPENSE 2,597,542 1,600,172 997,370 123,325 (72,905) 196,230
---------- ---------- ---------- ---------- ----------- ----------
NET INTEREST INCOME $1,387,702 $ (542,586) $1,930,288 $ (18,741) $ (113,214) $ 94,473
========== ========== ========== ========== =========== ==========
</TABLE>
(1) The changes in interest income and/or expense not due solely to rate or
volume have been allocated to the rate component.
OTHER INCOME AND OTHER EXPENSE
Non-interest income in 1995 increased $164,174 or 13.60% as compared to
1994 and increased $289,288 or 31.52% in 1994 as compared to 1993. The 1995
increase was primarily due to the addition of Security Bank's non-interest
income for the third and fourth quarters of 1995. The 1994 increase in other
income resulted primarily from the gain on sale of other real estate of
$104,000, gains on sales of securities of $25,000 and approximately $89,000 of
income relating to sales of the guaranteed portion of loans guaranteed by the
U.S. Small Business Administration.
Other non-interest expense increased by approximately $1,210,462 or 18.29%
as compared to 1994 and increased approximately $289,961 or 4.6% in 1994 as
compared with 1993. The increase for 1995 is primarily due to the addition of
Security Bank's expenses for the third and fourth quarters of 1995. Other
increases are generally attributable to normal salary increases and higher
occupancy expenses for each year.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses is intended to create an adequate
allowance for potential losses in the loan portfolio at the end of each
reporting period. The provision for loan losses was $ 98,043 in 1995 as
compared to $208,096 in 1994 and $249,765 in 1993. The Company's
21
<PAGE> 21
allowance for loan losses was $2,335,788 at December 31, 1995, which was 1.61%
of year-end loans and 103.8% of total nonperforming loans as compared to
$1,744,335 at December 31, 1994, which was 1.73% of year-end loans and 92% of
total nonperforming loans.
At December 31, 1995, loans over 90 days past due and non accrual loans
totaled $1,280,683 or .88% of gross outstanding loans as compared to $764,839
or .76% at December 31, 1994.
The provision for loan losses provided in 1995 was approximately $110,000
less than the amount provided in 1994 and the amount provided in 1994 was
approximately $ 42,000 less than the amount provided in 1993. These changes
were the result of management's valuation of the loan portfolio at each year
end.
Net charge-offs amounted to $134,961 in 1995, representing .11% of average
loans, as compared to $65,633 in 1994, representing .07% of average loans and
$351,455 in 1993, representing .34% of average loans.
The following table summarizes, for the five years ended December 31,
1995, selected information related to the allowance for loan losses:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses at beginning of period $ 1,744,335 $ 1,601,902 $ 1,703,592 $ 1,265,939 $ 1,438,052
------------ ----------- ------------ ------------ ------------
Balance of allowance of Security
Bank at June 30, 1995 628,371
Loans charged-off:
Commercial, financial & agricultural (22,252) (37,146) (250,732) (4,898) (627,745)
Real Estate - construction
Real Estate - mortgage (47,110) (17,011) (4,507) (21,905)
Installment loans to individuals (44,242) (49,962) (45,433) (97,048) (62,396)
Other (62,230) (21,025) (80,262) (50,875) (34,721)
------------ ----------- ------------ ------------ ------------
Total charged-off loans (175,834) (125,144) (376,427) (157,328) (746,767)
------------ ----------- ------------ ------------ ------------
Recoveries:
Commercial, financial & agricultural 5,566 1,893 5,517 5,776
Real Estate - construction
Real Estate - mortgage 1,610 4,772
Installment loans to individuals 17,429 15,387 11,917 12,776 12,880
Other 16,268 37,429 13,055 11,688 4,266
------------ ----------- ------------ ------------ ------------
Total recoveries 40,873 59,481 24,972 28,981 22,922
------------ ----------- ------------ ------------ ------------
Net charge-offs (134,961) (65,663) (351,455) (128,347) (723,845)
Additions to allowance 98,043 208,096 249,765 566,000 551,732
------------ ----------- ------------ ------------ ------------
Balance of allowance for
loan losses at end of period $ 2,335,788 $ 1,744,335 $ 1,601,902 $ 1,703,592 $ 1,265,939
============ =========== ============ ============ ============
Average amount of loans $122,451,274 $97,723,297 $103,336,660 $101,181,597 $103,581,778
============ =========== ============ ============ ============
Ratio of net charge-offs during the
period to average loans outstanding
during the period .11% .07% .34% .13% .70%
Ratio of allowance to year-end loans 1.61% 1.73% 1.54% 1.62% 1.22%
</TABLE>
22
<PAGE> 22
The Company's provision for loan losses is based upon management's
continuing review and evaluation of the loan portfolio and is intended to
create an allowance adequate to absorb losses on loans outstanding as of the
end of each reporting period. For individually significant amounts,
management's review consists of evaluations of the borrowers' strength, value
of the related collateral, and other factors. This evaluation is made by
classifying loans based on values assigned to each of the aforementioned
variables. These classifications are assigned by the loan review area and are
reviewed by the Board of Directors. Totals by loan classification, along with
related historical loss ratios, are used to determine the allowance required to
provide for potential losses. The review of groups of loans, which are
individually insignificant, is based upon delinquency status of the group,
lending policies and previous collection experience of each category. The
effects of current conditions on specific industries or classes of borrowers
are also considered in determining allowance for loan loss requirements.
Management believes such allowance is adequate to absorb future losses on loans
outstanding at December 31, 1995.
The risk associated with loans varies with the creditworthiness of the
borrower, the type of loan (consumer, commercial, or real estate) and its
maturity. Cash flows adequate to support a repayment schedule is an element
considered for all types of loans. Real estate loans are impacted by market
conditions regarding the value of the underlying property used as collateral.
Commercial loans are also impacted by the management of the business as well as
economic conditions.
The approximate anticipated amount of loan charge-offs by category during
1996 is as follows:
Commercial, financial & agricultural $100,000
Real estate - construction and mortgage 50,000
Installment loans to individuals 100,000
--------
Total $250,000
========
LOANS
Loans increased approximately $45 million or 44.2% when compared to 1994.
Approximately $34 million is attitbutable to Security Bank's loan portfolio
and approximately $10 million is due to the purchase of participation loans.
The composition of the Bank's loan portfolio changed during 1995 due to the
addition of Security Bank's loan portfolio. Construction loans increased by
approximately $11 million or 196.7% when compared to 1994, commercial loans
increased by approximately $4.4 million or 33.5% when compared to 1994, and
real estate secured loans increased by approximately $27 million or 39.7% when
compared to 1994.
The decrease in loans of approximately $3.3 million or 3.2% in 1994 when
compared to 1993 is due primarily to the sale of loans related to poultry
farms.
23
<PAGE> 23
The amount of loans outstanding for the five years ended December 31, 1995
is set forth in the following table according to type of loan. The Company had
no foreign loans at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial &
agricultural $ 17,945,695 $ 13,653,109 $ 19,006,561 $ 20,719,893 $ 18,642,444
Real Estate - construction 16,512,884 5,564,753 5,112,344 6,447,313 16,647,784
Real Estate - mortgage 96,361,817 68,992,708 68,830,196 66,218,750 58,396,667
Installment loans to individuals 14,613,500 12,637,913 11,204,998 11,718,479 10,364,626
------------ ------------ ------------ ------------ ------------
TOTAL $145,433,896 $100,848.483 $104,154,099 $105,104,435 $104,051,521
============ ============ ============ ============ ============
</TABLE>
The following table sets forth the maturities and sensitivities of loans
to changes in interest rates.
<TABLE>
<CAPTION>
DUE AFTER
DUE IN ONE THROUGH DUE AFTER
LOAN MATURITY: ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, financial
& agricultural $ 8,047,174 $4,410,795 $5,487,726 $17,945,695
Real Estate - constr. 14,618,191 767,666 1,127,027 16,512,884
----------- ---------- ---------- -----------
TOTAL $22,665,365 $5,178,461 $6,614,753 $34,458,579
=========== ========== ========== ===========
LOAN INTEREST RATE SENSITIVITY:
Selected loans with:
Predetermined
interest rates $11,505,992 $3,726,723 $ 728,079 $15,960,794
Floating or adjustable
interest rates 11,159,373 1,451,738 5,886,674 18,497,785
----------- ---------- ---------- -----------
TOTAL $22,665,365 $5,178,461 $6,614,753 $34,458,579
=========== ========== ========== ===========
</TABLE>
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of nonaccrual loans, restructured loans and
other real estate owned. Nonperforming assets increased $414,388 at December
31, 1995 or 13.57% from December 31, 1994. This increase was primarily due to
the inclusion of Security Bank's nonperforming assets.
24
<PAGE> 24
The following table sets forth the totals of nonperforming assets,
selected ratios and accruing loans past due 90 days or more for the five years
ended December 31, 1995.
<TABLE>
<CAPTION>
Nonperforming assets: 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual $1,022,683 $ 568,822 763,425 $1,588,462 $1,545,094
Restructured loans 1,227,411 1,318,790 1,169,987 132,281
Other real estate owned 1,217,860 1,165,954 1,180,431 2,028,908 1,350,014
---------- ---------- ---------- ---------- ----------
Total Nonperforming assets $3,467,954 $3,053,566 $3,113,843 $4,940,211 $2,895,108
========== ========== ========== ========== ==========
Ratios:
Nonperforming assets to total loans 2.38% 3.03% 2.99% 4.70% 2.78%
Nonperforming assets to total loans
plus other real estate owned 2.36% 2.99% 2.96% 4.61% 2.75%
Allowance to nonperforming assets 67.35% 57.12% 51.44% 34.48% 43.73%
Accruing loans past due 90 days or
more $258,000 $196,017 $196,864 $325,041 $240,663
</TABLE>
Accrual of interest is discontinued when either principal or interest
becomes 90 days past due, or earlier when, in management's opinion,
collectability of such interest is doubtful unless it is both well secured and
in process of collection. Interest income that would have been recorded on
these nonaccrual and restructured loans in accordance with their original terms
totaled $214,523 in 1995 and $268,713 in 1994 compared with interest income
recognized of $164,015 and $214,700, respectively.
At December 31, 1995, the Company had no significant loans which
management designated as potential problem loans which have not been disclosed
above as nonnatural or past due loans.
The Company had impaired loans of $568,822 and $1,022,683 as of December
31, 1994 and 1995, respectively. No allowance was necessary for such loans
under the provisions of such statements. The interest income recognized on
such loans for the twelve months ended December 31, 1995 was $57,416.
Habersham Bank held a concentration of loans at December 31, 1995 which
totaled approximately $24 million, and approximately 16.78% of total net loans
that consisting of mortgages for agribusiness purposes in the poultry industry.
As of December 31, 1995, Security Bank loans for residential construction
purposes totaled approximately $15.5 million.
INVESTMENT SECURITIES
The Company has classified all investment securities as either available
for sale or held to maturity depending upon whether the Company has the intent
and ability to hold the investment securities to maturity. The classification
of certain investment securities as available for sale is consistent with the
Company's investment philosophy of maintaining flexibility to manage the
securities portfolio. At December 31, 1995,
25
<PAGE> 25
approximately $40.3 million of investment securities were classified as
available for sale. Approximately $208,000 of unrealized gain was included in
Shareholders' Equity related to the available for sale investment securities.
The following table sets forth the carrying amounts of investment
securities at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Investment securities
available for sale:
U.S. Treasury $ 3,811,579 $ 5,671,680
U.S. Government agencies 26,742,352 17,021,102
States & political subdivisions 9,059,417 5,192,169
Other investments 699,961 644,728
----------- -----------
Total $40,313,309 $28,529,679
=========== ===========
Investment securities
held to maturity:
U.S. Treasury $ 199,634 $ 198,698
U.S. Government agencies 3,407,647 5,724,080
States & political subdivisions 12,545,318 13,176,349
Other investments 1,345,592 2,520,377
----------- -----------
Total $17,498,191 $21,619,504
=========== ===========
</TABLE>
In December 1995, in accordance with the "Guide to the Implementation of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities", the Company reclassified certain
investments with an unamortized cost of $5,569,161 and a market value of
$5,848,273 as available for sale. The reclassification resulted in an
unrealized gain of approximately $279,112.
26
<PAGE> 26
The following tables set forth the maturities of investment securities at
December 31, 1995 and the related weighted yields of such securities on a tax
equivalent basis (assuming a 34% tax rate).
<TABLE>
<CAPTION>
one year 1-5 5-10 after 10
or less years years years
-------- ----- ----- ---------
<S> <C> <C> <C> <C>
Investment securities available for sale:
Carrying Value:
U.S. Treasury $3,010,877 $ 800,702
U.S. Government agencies 2,350,642 14,051,149 $2,660,394 $7,680,167
States & political subdivisions 531,791 5,321,765 2,620,843 585,018
Other investments 699,961
Weighted average yields:
U.S. Treasury 5.55% 5.43%
U.S. Government agencies 5.17% 5.89% 7.38% 6.55%
States & political subdivisions 5.29% 6.26% 6.05% 6.13%
Investment securities held to maturity:
Carrying Value:
U.S. Treasury $ 199,634
U.S. Government agencies 207,496 2,082,704 $863,805 $253,642
States & political subdivisions 1,699,175 6,776,588 3,843,261 226,294
Other investments 299,000 198,000 848,592
Weighted average yields:
U.S. Treasury 6.01%
U.S. Government agencies 6.71% 5.89% 7.37% 8.96%
States & political subdivisions 4.88% 5.25% 5.20% 6.13%
</TABLE>
No securities were held which represent a combined total for one issuer
which is in excess of 10% of the Company's equity capital at December 31, 1995.
At December 31, 1993, the Company adopted the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" under which
an unrealized gain on investment securities available for sale of approximately
$.3 million was recorded in shareholders' equity.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets increased approximately $3.4 million
due to the acquisition of Security Bank effective at June 30, 1995. Intangible
assets consisting of a premium on core deposits of approximately $.4 million
and goodwill of $3 million were recorded in connection with the acquisition.
DEPOSITS
Average deposits increased approximately $30 million and increased $6.7
million during 1995 and 1994, respectively.
27
<PAGE> 27
The Company's loan to deposit ratio based on average balances during each
year was 71.24%, 68.2%, and 75.8% in 1995, 1994 and 1993, respectively.
Management anticipates maintaining a loan to deposit ratio between 70% and 80%
in 1996.
The following table sets forth the average amount of deposits for the
Company which exceed 10% of average total deposits for the years ended December
31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1993
---- ---- ---- ---- ----
AVG. AMT. AVG. AMT. AVG. AMT. AVG. AMT AVG. AMT.
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
<S> <C> <C> <C> <C> <C>
Interest bearing
demand deposits $ 35,706,305 $36,267,136 $28,660,269 $24,421,278 $ 20,170,957
Noninterest bearing
demand deposits 21,439,056 14,067,454 14,808,391 15,297,601 13,891,823
Time certificates of
deposits 108,190,308 86,130,065 86,639,094 97,886,292 101,345,710
<CAPTION>
AVG. AVG. AVG. AVG. AVG.
RATE RATE RATE RATE RATE
<S> <C> <C> <C> <C> <C>
Interest bearing
demand deposits 3.02% 2.52% 2.68% 3.17% 4.87%
Noninterest bearing
demand deposits N/A N/A N/A N/A N/A
Time certificates of
deposits 5.43% 4.22% 4.28% 5.71% 7.26%
</TABLE>
At December 31, 1995, time certificates of deposit of $100,000 or more
totaled $28,264,502. The maturities of all time certificates of deposit over
$100,000 are as follows:
3 months or less $11,061,712
Over 3 through 6 months 12,035,852
Over 6 through 12 months 5,166,938
-----------
Total $28,264,502
===========
OTHER BORROWINGS
Other borrowings increased $2.2 million from year-end 1994 to year-end
1995 as a result of borrowings from the Federal Home Loan Bank. Other
borrowings decreased $1.0 million from year-end 1994 to 1993 as a result of
repayment of borrowings from the Federal Home Loan Bank.
CAPITAL RESOURCES
Habersham Bank and Security Bank have consistently maintained capital
ratios well above regulatory requirements. Banking regulators measure capital
adequacy using a ratio of shareholders' equity, excluding any unrealized gain
or loss on investment securities available for sale to total risk weighted
assets, known as Tier I Capital. Also used is a ratio of shareholders' equity
excluding any unrealized gain or loss of investment securities available for
sale plus the allowance for loan losses to total
28
<PAGE> 28
risk weighted assets, known as Tier II Capital. Additionally, the regulators
have also established an additional capital adequacy guideline referred to as
the Tier I leverage ratio that measures the ratio of shareholders' equity
excluding any unrealized gain or losses on investment securities available for
sale to average quarterly assets. The following table sets forth the Banks'
ratios.
Habersham Bank Security Bank Regulatory
Requirement
Tier I Capital 11.91% 15.14% 4%
Tier II Capital 13.16% 16.39% 8%
Tier I Leverage Ratio 9.23% 11.58% 4%
Treasury stock activity consisted of 38,000 shares sold from the Treasury
at a per share price of $6.78 in 1995 and 41,447 shares acquired upon the
acquisition of Security Bank at a per share price of $6.33. Treasury stock
activity consisted of 16,740 shares sold from the Treasury at a per share price
of $ 7.02 in 1994.
Cash dividends were paid at a rate of $.05 per share in June 1995 and $.05
per share in December 1995. Cash dividends were paid at a rate of $.08 per
share for 1994 and $.08 per share for 1993.
Effective May 15, 1995, the Company declared a 5 for 1 stock split of its
common stock effected in the form of a 400% stock dividend. In addition,
effective April 15, 1995, the Company changed the par value of its common stock
from $2.50 to $1.00 per share and increased the number of authorized shares of
common stock to 10,000,000 shares. All references to share and per share
amounts have been retroactively adjusted to reflect the split. Also,
retroactively, $875,000 has been charged to Additional Paid-in Capital and
credited to Common Stock to reflect the stock split and the change in par
value.
While management believes that the current level of capital is sufficient
for current and foreseeable needs of the Company, capital needs are continually
evaluated by management.
Management is not aware of any required regulatory changes, or any
recommendation by any regulatory authority which will have a material effect on
the Company's liquidity, capital or results of operations.
INTEREST RATE SENSITIVITY
The objective of asset and liability management is to maintain an optimum
match of maturities and interest sensitivity between loans, investment
securities and deposits. In order to obtain this optimum match, adjustable
rate loans and maturity matched investments are used.
The Bank's historical performance in various economic climates assist
management in making long-term asset/liability decisions for the bank.
29
<PAGE> 29
The interest rate sensitivity analysis below has a negative one year gap
of approximately $8.2 million (excess of interest bearing liabilities to
earning assets repricing within one year). However, the Bank's experience has
shown that NOW, IMMA and Savings deposits of approximately $45 million are not
rate sensitive.
The time period indicated in the table represents the shorter of the time
remaining before the asset or liability either matures or can be repriced. The
principal amounts for each asset and liability are shown in the period in which
it matures or reprices. The rate indicated represents the effective yield.
Funds from loan principal payments and anticipated loan repayments are included
in the period in which they are anticipated to be received. Savings, NOW, and
IMMA accounts have been included in due in one year.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DUE IN DUE AFTER DUE AFTER
YIELD/ ONE ONE THROUGH FIVE THROUGH DUE AFTER
EARNING ASSETS: RATE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable investment securities and
interest bearing balances with
other banks 5.83% $ 6,067,649 $ 17,132,555 $ 3,524,199 $ 9,482,362 $ 36,206,765
States & political subdivisions 5.57% 2,230,966 12,098,353 6,464,104 811,312 21,604,735
Loans 10.54% 115,137,839 25,836,970 4,459,087 145,433,896
Federal funds sold 4.75% 9,790,000 9,790,000
----- ------------ ------------ ----------- ----------- ------------
Total earning assets 8.97% 133,226,454 55,067,878 14,447,390 10,293,674 213,035,396
----- ------------ ------------ ----------- ----------- ------------
INTEREST BEARING LIABILITIES:
Deposits:
Money Market and NOW 3.02% 37,183,366 37,183,366
Savings 2.52% 7,901,172 7,901,172
Certificates of Deposit 5.43% 93,251,020 33,590,699 30,126 126,871,845
Short term borrowings 6.60% 3,096,601 2,200,000 5,296,601
----- ------------ ------------ ----------- ----------- ------------
Total interest bearing
liabilities 4.78% $141,432,159 $35,790,699 30,126 177,252,984
----- ------------ ------------ ----------- ----------- ------------
INTEREST RATE SPREAD 4.87%
=====
Excess (deficiency) of earning assets
over (to) interest bearing liabilities $(8,205,705) $19,277,179 $14,417,264 $10,293,674 $35,782,412
=============================================== =========== ===========
Cumulative Gap $(8,205,705) $11,071,474 $25,488,738 $35,782,412
Ratio of cumulative gap to
total cumulative earning assets 6.16% 5.88% 12.57% 16.80%
Ratio of earning assets to
interest bearing liabilities 94.20% 153.86% 47956.55%
</TABLE>
30
<PAGE> 30
INFLATION
The Company's assets and liabilities are generally monetary in nature.
Therefore, interest rates have a greater impact on the Company's performance
than the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or magnitude as the prices of goods and
services.
LIQUIDITY
The Company's liquidity program is designed and intended to provide
guidance in funding the credit and investment activities of the affiliate banks
while at the same time ensuring that the deposit obligations of the affiliate
banks are met on a timely basis. In order to permit active and timely
management of assets and liabilities, these accounts are monitored regularly in
regard to volume, mix and maturity. Habersham Bank's liquidity policy requires
a minimum ratio of 20% of cash and certain short-term investments to net
withdrawable deposit accounts and Security Bank's liquidity policy requires a
minimum of 30%. The following table lists the liquidity ratios for the Banks.
1995 1994
---- ----
Habersham Bank 35.03% 33.15%
Security State Bank 32.17% 21.50%
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 addresses issues surrounding the measurement and recognition of
losses when the value of certain assets has been deemed to be permanently
impaired. The Company plans to adopt SFAS 121 in 1996 and believes that there
will be no material effect on its financial position or results of operations
from adopting SFAS 121.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SAFS 123"). SFAS 123 establishes a method of accounting for
stock compensation plans based on fair value of employee stock options and
similar equity instruments. Adoption of a fair value method of accounting is
not required and the Company plans to continue accounting for stock based
compensation using the Accounting Principles Board Opinion No. 25 ("Accounting
for Stock Issued to Employees") method which is based on the intrinsic value of
equity instruments. In this case SFAS 123 requires disclosure of pro forma net
income and earnings per share as if a fair value method included in SFAS 123
had been used to measure compensation cost and the Company will provide this
information beginning in 1996.
31
<PAGE> 31
NEW SUBSIDIARY
On January 2, 1996, Habersham Bank formed a new subsidiary, BancMortgage
Financial Corp ("BancMortgage"). BancMortgage will be a full service mortgage
lender and servicer located in the North Atlanta Metropolitan area.
BancMortgage received approval from the Department of Banking and Finance of
the State of Georgia to begin business on January 26, 1996 and expects to be in
operation by February 1, 1996.
NEW LEGISLATION
On January 25, 1996, the State of Georgia Legislature passed legislation
allowing a bank to establish three branches during the period from July 1, 1996
through June 30, 1998 in counties in Georgia in which the bank presently does
not have a branch. If the bank is part of a bank holding company, all holding
company bank affiliates will be treated as one, and the holding company group
will be limited to opening three de novo branches in three new counties.
Effective July 1, 1998, the legislation will allow a bank to branch anywhere in
Georgia, subject to regulatory approval. The bill must be signed by the
Governor of Georgia before the legislation will become effective. This
legislation is not expected to have an adverse effect on the results of
operation of the Company.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity
and of cash flows and notes to the consolidated financial statements for each
of the three years in the period ended December 31, 1995, and the report issued
thereon by the Company's independent public accountants, appear in the Annual
Report, on pages 9 through 12 and are incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a)
Information concerning the Company's directors and executive officers
appears in the Proxy Statement under the headings "Stock Owned by
Management","Election of Directors - Nominees," "Executive Officers" and
"Certain Transactions" is incorporated by reference herein.
32
<PAGE> 32
Item l0. EXECUTIVE COMPENSATION
Information concerning the compensation of the Company's management
appears in the Proxy Statement under the heading "Executive Compensation" and
is incorporated by reference herein.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning beneficial owners of more than 5% of the Company's
Stock and information concerning the Stock owned by the Company's management
appears in the Proxy Statement under the heading "Ownership of Stock" and is
incorporated by reference herein.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears in the Proxy Statement under the heading "Certain Transactions" and is
incorporated by reference herein.
33
<PAGE> 33
PART IV
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The registrant submits herewith as exhibits to this report on Form
10-KSB the exhibits required by Item 601 of Regulation S-K, subject to Rule
12b-32 under the Securities Exchange Act of 1934.
Exhibit No. Document
- ----------- --------
3.1 Amended and restated Articles of Incorporation of Habersham
Bancorp, as amended. (1)
3.2 By-laws of Habersham Bancorp, as amended as of November 20, 1989 (2)
and as of March 16, 1991. (3)
10.1 Habersham Bancorp Savings Investment Plan, as amended and restated
March 17, 1990, and the related Trust Agreements, as amended March 17,
1990. (2)
10.2 Habersham Bancorp Incentive Stock Option Plan, as amended February 26,
1994. (4)
10.3 Habersham Bancorp Outside Directors Stock Option Plan. (5)
10.4 Habersham Bancorp 1996 Incentive Stock Option Plan.
13.0 Financial statements and notes thereto contained in the Habersham
Bancorp 1995 Annual Report.
21.0 Subsidiaries of Habersham Bancorp.
23.0 Consent of Independent Auditors.
24.0 A Power of Attorney is set forth on the signature page to this Form
10-KSB.
27.0 Financial Data Schedule (for SEC use only).
(1) Incorporated herein by reference to exhibit 3(a) in Amendment No. 1 to
the Registrants's Registration Statement on Form S-4 (Regis. No.
33-57915).
(2) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1989 (File No. 0-13153).
(3) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991 (File No. 0-13153).
(4) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report of Form 10-KSB for the year ended December
31, 1993 (File No. 0-13153).
(5) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1994 (File No. 0-13153).
34
<PAGE> 34
Executive Compensation Plans and Arrangements
The following is a list of all of the Registrant's plans, management
contracts and compensatory arrangements filed herewith or incorporated herein
by reference, together with the location of each such plan, contract or
arrangement.
<TABLE>
<CAPTION>
Title Location
- ----- --------
<S> <C>
Habersham Bancorp Savings Investment Plan, Exhibit 10.1 in the
as amended and restated March 7, 1990, Registrant's Annual Report
and the related Trust Agreements, as amended on Form 10-K for the year
March 17, 1990 ended December 31, 1989.
Habersham Bancorp Incentive Stock Option Exhibit 10.2 in the
Plan, as amended February 26, 1994. Registrant's Annual Report
on Form 10-KSB for the year
ended December 31, 1993.
Habersham Bancorp Outside Directors Exhibit 10.3 in the
Stock Option Plan. Registrant's Annual Report
on Form 10-KSB for the year
ended December 31, 1994.
Habersham Bancorp 1996 Incentive Exhibit 10.4 in this Annual
Stock Option Plan. Report on Form 10-KSB.
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1995.
35
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HABERSHAM BANCORP (Registrant)
By: /s/ David D. Stovall Date: March 28, 1996
----------------------- -------------------
Director, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas A. Arrendale, Jr. and David D. Stovall,
and each of them, his attorneys-in-fact, each with full power of substitution,
for him in his name, place and stead, in any and all capacities, to sign any
amendment to this Report on Form 10-KSB, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and hereby ratifies and confirms all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas A. Arrendale, Jr. Chairman of the Board March 28, 1996
- ---------------------------- and Director
/s/ Thomas A. Arrendale, III Vice Chairman of the Board March 28, 1996
- ---------------------------- and Director
/s/ David D. Stovall Director, President and March 28, 1996
- ---------------------------- Chief Executive Officer *
/s/ James Holcomb Director March 28, 1996
- ----------------------------
/s/ James A. Stapleton, Jr. Director March 28, 1996
- ----------------------------
/s/ Ken White Director March 28, 1996
- ----------------------------
/s/ Calvin R. Wilbanks Director March 28, 1996
- ----------------------------
</TABLE>
* Principal financial officer, principal executive officer, controller and
principal accounting officer.
36
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Document Page
- ----------- -------- -------------
<S> <C> <C>
3.1 Amended and restated Articles of Incorporation of Habersham Bancorp, as amended (1). N/A
3.2 By-laws of Habersham Bancorp, as amended as of November 20, 1989 (1) and as of March
16, 1991 March 16, 1991 (2).......................................................... N/A
10.1 Habersham Bancorp Savings Investment Plan, as amended and restated March 17, 1990, and
the related Trust Agreements, as amended (1) ........................................ N/A
10.2 Habersham Bancorp Incentive Stock Option Plan, as amended February 26, 1994 (3)...... N/A
10.3 Habersham Bancorp Outside Directors Stock Plan (4)................................... N/A
10.4 Habersham Bancorp 1996 Incentive Stock Option Plan.................................. 38
13.0 Financial statements and notes thereto contained in the Habersham Bancorp 1995
Annual Report ...................................................................... 47
21.0 Subsidiaries of Habersham Bancorp .................................................. 72
23.0 Consent of Independent Auditors .................................................... 73
24.0 A Power of Attorney is set forth on the
signature page to this Form 10-KSB ................................................. 36
27.0 Financial Data Schedule (for SEC use only).......................................... 74
</TABLE>
(1) Incorporated herein by reference to exhibit 3(a) in Amendment No. 1 to
the Registrant's Registration Statement on Form S-4 (Regis. No. 33-57915).
(2) Incorporated herein by reference to exhibit of same number in the
Registrant Annual Report on Form 10-K for the year ended December 31, 1989.
(3) Incorporated herein by reference to exhibit of same number in the
Registrant Annual Report on Form 10-K for the year ended December 31, 1991.
(4) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1993.
(5) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1994.
37
<PAGE> 1
EXHIBIT 10.4
HABERSHAM BANCORP 1996 INCENTIVE STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 "Fair Market Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 "Option" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.8 "Option Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 "Over 10% Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.10 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.11 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 "Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 "Termination of Employment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2 THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Purpose of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Eligibility and Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3 TERMS OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Option Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Conditions to the Exercise of an Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Special Provisions for Certain Substitute Options . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Treatment of Awards Upon Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 4 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Changes in Capitalization; Merger; Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Right to Terminate Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Restrictions on Delivery and Sale of Shares; Legends. . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Nonalienation of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Termination and Amendment of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Effective Date of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.8 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
2
<PAGE> 3
HABERSHAM BANCORP
1996 INCENTIVE STOCK OPTION PLAN
SECTION 1 DEFINITIONS
Whenever used herein, the masculine pronoun shall be deemed to include
the feminine, and the singular to include the plural, unless the context
clearly indicates otherwise, and the following capitalized words and phrases
are used herein with the meaning thereafter ascribed:
1.1 "Board of Directors" means the board of directors of the
Company.
1.2 "Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
1.3 "Committee" means a committee composed of members of the Board
of Directors appointed by the Board of Directors to administer the Plan.
1.4 "Company" means Habersham Bancorp, a Georgia corporation.
1.5 "Disability" means that condition described in Code Section
22(e)(3), as amended from time to time. In the event of a dispute, the
determination of Disability shall be made by the Committee and shall be
supported by advice of a physician competent in the area to which such
Disability relates.
1.6 "Fair Market Value" refers to the fair market value of the
Stock as of a particular date, as determined in good faith by the Company;
provided that the Committee uses a reasonable valuation method in determining
fair market value in accordance with Code Section 422 and the regulations
issued thereunder and provided further that fair market value shall be
determined without regard to any restriction other than a restriction which, by
its terms, will never lapse.
1.7 "Option" means an incentive stock option, but includes any
option granted under the Plan that is treated as a nonqualified stock option
pursuant to Section 2.4.
1.8 "Option Agreement" means a written agreement between the
Company and a Participant or other documentation evidencing an award of an
Option.
1.9 "Over 10% Owner" means an individual who at any time an
incentive stock option is granted owns Stock possessing more than ten percent
(10%) of the total combined voting power of the Company or one of its
Subsidiaries, determined applying the attribution rules of Code Section 424(d).
1.10 "Participant" means an individual who receives an Option
hereunder.
3
<PAGE> 4
1.11 "Plan" means the Habersham Bancorp 1996 Incentive Stock Option
Plan.
1.12 "Stock" means the Company's common stock $1.00 par value.
1.13 "Subsidiary" means, with respect to the Company, any
subsidiary corporation within the meaning of Code Section 424(f).
1.14 "Termination of Employment" means the termination of the
employee-employer relationship between a Participant and the Company and its
Subsidiaries, regardless of the fact that severance or similar payments are
made to the Participant for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee shall, in its absolute discretion, determine the
effect of all matters and questions relating to a Termination of Employment,
including, but not by way of limitation, the question of whether a leave of
absence constitutes a Termination of Employment.
SECTION 2 THE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide
incentive to certain officers and key employees of the Company and its
Subsidiaries to stimulate their efforts toward the continued success of the
Company and to operate and manage the business in a manner that will provide
for the long-term growth and profitability of the Company; (b) encourage stock
ownership by certain officers and key employees by providing them with a means
to acquire a proprietary interest in the Company by acquiring shares of Stock;
and (c) provide a means of obtaining and rewarding key personnel.
2.2 Stock Subject to the Plan. Subject to adjustment in
accordance with Section 4.1, 250,000 shares of Stock (the "Maximum Plan
Shares") are hereby reserved exclusively for issuance pursuant to Options. At
no time shall the Company have outstanding Options and shares of Stock issued
in respect of Options under the Plan in excess of the Maximum Plan Shares,
determined in accordance with Rule 16b-3(a)(1) as promulgated under the
Securities Exchange Act of 1934, as amended from time to time.
2.3 Administration of the Plan. The Plan shall be administered by
the Committee. The Committee shall have full authority in its discretion to
determine the persons to whom Options shall be granted and the terms and
provisions of Options, subject to the Plan. Subject to the provisions of the
Plan, the Committee shall have full and conclusive authority to interpret the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Option Agreements
and to make all other determinations necessary or advisable for the proper
administration of the Plan. The Committee's determinations under the Plan need
not be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). The Committee's decisions shall be final and binding on
all Participants.
4
<PAGE> 5
The Committee shall consist of two or more directors, each of whom is
not, during the one year prior to service as a member of the Committee, granted
or awarded equity securities of the Company or an affiliate pursuant to the
Plan or any other plan of the issuer or an affiliate, except as may be
permitted under Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange
Act of 1934.
In addition to any other rights of indemnification that they may have
as directors of the Company or as members of the Committee, the members of the
Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
thereon, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided the settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged
in the action, suit or proceeding that the Committee member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within 60 days after the institution of any action, suit or proceeding a
Committee member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
2.4 Eligibility and Limits. Options may be granted only to
employees of the Company or any Subsidiary. In addition, in the event the
aggregate Fair Market Value (determined as of the option grant date) of stock
subject to such Options (under all plans of the Company and Subsidiaries) that
first become exercisable during any calendar year by an amount that exceeds
$100,000, then such Options in excess of the limitation shall not be incentive
stock options and, to the extent such Options were granted pursuant to this
Plan, they shall be treated as nonqualified stock options.
SECTION 3 TERMS OF OPTIONS
3.1 Terms and Conditions of Options.
(a) The number of shares of Stock as to which an Option shall be
granted shall be determined by the Committee in its sole discretion, subject to
the provisions of Section 2.2 as to the total number of shares available for
grants under the Plan. Notwithstanding the preceding, to the extent required
under Code Section 162(m) and regulations thereunder for compensation to be
treated as qualified performance-based compensation, the maximum number of
shares of Stock with respect to which Options may be granted during any single
fiscal year of the Company to any employee shall not exceed 100,000.
(b) The date an Option is granted shall be the date on which the
Committee has approved the terms and conditions of the Option and has
determined the recipient of the
5
<PAGE> 6
Option and the number of shares covered by the Option and has taken all such
other action necessary to complete the grant of the Option.
(c) Options shall not be transferable or assignable except by will
or by the laws of descent and distribution and shall be exercisable, during the
Participant's lifetime, only by the Participant; in the event of the Disability
of the Participant, by the legal representative of the Participant; or in the
event of the death of the Participant, by the personal representative of the
Participant's estate or if no personal representative has been appointed, by
the successor in interest determined under the Participant's will.
(d) Each Option granted under the Plan shall be evidenced by an
Option Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine is appropriate, which shall
specify, at a minimum, the number of shares of Stock subject to the grant, the
option price and the option term. Each Option Agreement shall be subject to
the terms of the Plan and any provision contained in the Option Agreement that
is inconsistent with the Plan shall be null and void.
3.2 Option Price. Subject to adjustment in accordance with
Section 4.2 and the other provisions of this Section 3, the exercise price (the
"Exercise Price") per share of Stock purchasable under any Option shall be as
set forth in the applicable Option Agreement and shall in no event be less than
the Fair Market Value of a share of Stock. With respect to an Option grant to
an Over 10% Owner, the Exercise Price shall in no event be less than 110% of
Fair Market Value of a share of Stock on the date the Option is granted.
3.3 Option Term. The term of an Option shall be as specified in
the applicable Option Agreement and shall expire no later than five (5) years
from the date of grant. In addition, the applicable Option Agreement shall
provide that, in the event of a Termination of Employment, the then unexpired
portion of the Option shall terminate no later than the date of Termination of
Employment; provided, however, that in the case of a Participant whose
Termination of Employment is due to death, the then unexpired portion of the
Option shall terminate no later than one (1) year from the date of Termination
of Employment.
3.4 Payment. Payment for all shares of Stock purchased pursuant
to exercise of an Option shall be made in any form or manner authorized by the
Committee in the Option Agreement or by amendment thereto, including, but not
limited to, cash or, if the Option Agreement provides, (i) by delivery to the
Company of a number of shares of Stock which have been owned by the holder for
at least six (6) months prior to the date of exercise having an aggregate Fair
Market Value of not less than the product of the Exercise Price multiplied by
the number of shares the Participant intends to purchase upon exercise of the
Option on the date of delivery; or (ii) in a cashless exercise through a
broker. The holder of an Option, as such, shall have none of the rights of a
stockholder.
3.5 Conditions to the Exercise of an Option. Each Option granted
under the Plan shall be exercisable by whom, at such time or times, or upon the
occurrence of such event or
6
<PAGE> 7
events, and in such amounts, as the Committee shall specify in the Option
Agreement; provided, however, except as otherwise provided by the Plan, that
subsequent to the grant of an Option, the Committee, at any time before its
expiration or cancellation, may accelerate the time or times at which such
Option may be exercised in whole or in part and may permit the Participant or
any other designated person to exercise the Option, or any portion thereof, for
all or part of the remaining Option term notwithstanding any provision of the
Option Agreement to the contrary.
3.6 Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section 3, any Option issued
in substitution for an Option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such
other terms and conditions as the Committee may prescribe to cause such
substitute Option to contain as nearly as possible the same terms and
conditions (including the applicable vesting and termination provisions) as
those contained in the previously issued Option being replaced thereby.
3.7 Treatment of Awards Upon Termination of Employment. Any award
under this Plan to a Participant who suffers a Termination of Employment may be
cancelled, accelerated, paid or continued, as provided in the applicable Option
Agreement or, in the absence of such provision, as the Committee may determine
thereafter. The portion of any award exercisable in the event of continuation
or the amount of any payment due under a continued award may be adjusted by the
Committee to reflect the Participant's period of service from the date of grant
through the date of the Participant's Termination of Employment or such other
factors as the Committee determines are relevant to its decision to adjust the
award.
SECTION 4 GENERAL PROVISIONS
4.1 Changes in Capitalization; Merger; Liquidation.
(a) The number of shares of Stock reserved for the grant of
Options; the number of shares of Stock reserved for issuance upon the exercise
of each outstanding Option; and the Exercise Price of each outstanding Option
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Stock resulting from a subdivision or combination of shares or
the payment of an ordinary stock dividend in shares of such Stock to holders of
outstanding shares of such Stock or any other increase or decrease in the
number of shares of such Stock outstanding effected without receipt of
consideration by the Company to the extent that Participant's proportionate
interest shall be maintained as before the occurrence of the event.
(b) In the event of a merger, consolidation, extraordinary
dividend, reorganization or other change in the capital structure of the
Company or tender offer for shares of Stock, the Committee may make such
adjustments with respect to Options and take such other action as it deems
necessary or appropriate to reflect or in anticipation of such merger,
consolidation,
7
<PAGE> 8
reorganization or tender offer, including, without limitation, the substitution
of new options, the acceleration of Options, the early expiration of Options,
the removal of restrictions on outstanding Options or the cash-out of the
Options, in cash or in kind, based upon the Fair Market Value of the Stock
determined as of a date within thirty (30) days immediately prior to the
transaction, all as may be provided in the applicable Option Agreement or, if
not expressly addressed therein, as the Committee subsequently may determine in
the event of any such merger, consolidation, extraordinary dividend,
reorganization, other change or tender offer.
(c) The existence of the Plan and the Options granted pursuant to
the Plan shall not affect in any way the right or power of the Company to make
or authorize any adjustment, reclassification, reorganization or other change
in its capital or business structure, any merger or consolidation of the
Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or
liquidation of the Company, any sale or transfer of all or any part of its
business or assets, or any other corporate act or proceeding. Any adjustment
pursuant to this Section 4.1 may provide, in the Committee's discretion, for
the elimination without payment therefor of any fractional shares that might
otherwise become subject to any Option.
4.2 Right to Terminate Services. Nothing in the Plan or in any
Option shall confer upon any Participant the right to continue as an employee,
officer, consultant or a member of the Board of Directors of the Company or any
of its affiliates or affect the right of the Company or any of its affiliates
to terminate the Participant's relationship with the Company or any of its
affiliates at any time.
4.3 Restrictions on Delivery and Sale of Shares; Legends. Each
Option is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Option upon any securities exchange or under any
state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Option or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to such Option
may be withheld unless and until such listing, registration or qualification
shall have been effected. If a registration statement is not in effect under
the Securities Act of 1933 or any applicable state securities laws with respect
to the shares of Stock purchasable or otherwise deliverable under Options then
outstanding, the Committee may require, as a condition of exercise of any
Option or as a condition to any other delivery of such Stock pursuant to an
Option, that the Participant or other recipient of an Option represent, in
writing, that the shares received pursuant to the Option are being acquired for
investment and not with a view to distribution and agree that the shares will
not be disposed of except pursuant to an effective registration statement,
unless the Company shall have received an opinion of counsel that such
disposition is exempt from such requirement under the Securities Act of 1933
and any applicable state securities laws. The Company may include on
certificates representing shares delivered pursuant to an Option such legends
referring to the foregoing representations or restrictions or any other
applicable restrictions on resale as the Company, in its discretion, shall deem
appropriate.
8
<PAGE> 9
4.4 Nonalienation of Benefits. Other than as specifically
provided with regard to the death of a Participant, no benefit under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge; and any attempt to do so shall be
void. No such benefit shall, prior to receipt by the Participant, be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the Participant.
4.5 Termination and Amendment of the Plan. The Board of Directors
at any time may amend or terminate the Plan without stockholder approval;
provided, however, that the Board of Directors may condition any amendment on
the approval of stockholders of the Company if such approval is necessary or
advisable with respect to tax, securities or other applicable laws. No such
termination or amendment without the consent of the holder of an Option shall
adversely affect the rights of the Participant under such Option.
4.6 Choice of Law. The laws of the State of Georgia shall govern
the Plan, to the extent not preempted by federal law.
4.7 Effective Date of Plan. The Plan shall become effective upon
the date the Plan is approved by the Board of Directors of the Company;
provided, however, that the grant of any Option prior to stockholder approval
shall be conditioned upon receipt of subsequent stockholder approval within
twelve months of the Plan's effective date.
4.8 Term. Unless terminated by the Board of Directors as of any
earlier date, the Plan shall expire on the tenth anniversary of the Plan's
effective date.
HABERSHAM BANCORP
By: /s/ David D. Stovall
-----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
ATTEST:
/s/ Edward D. Ariail
- --------------------------
Secretary
[CORPORATE SEAL]
9
<PAGE> 1
EXHIBIT 13
<PAGE> 2
HABERSHAM BANCORP
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,597,807 $ 4,450,912
Federal funds sold 9,790,000 1,020,000
Investment securities available
for sale, at market value (cost of $40,034,650 40,313,309 28,529,679
ASSETS in 1995 and $30,065,049 in 1994) (Note 4)
Investment securities held to maturity, at cost
(estimated market value of $17,676,919
in 1995 and $21,092,769 in 1994) (Note 5) 17,498,191 21,619,504
Loans (Notes 6 and 14) 145,433,896 100,848,483
Less: Unearned income (43,731) (45,338)
Allowance for loan losses (Note 6) (2,335,788) (1,744,335)
------------ ------------
Loans, net 143,054,377 99,058,810
------------ ------------
Premises and equipment, net (Note 7) 4,595,040 2,947,889
Interest receivable 2,015,240 1,346,942
Goodwill and other intangible assets, net of
accumulated amortization of
$103,277 in 1995 (Note 3) 3,396,564
Other assets 2,325,448 2,353,248
------------ ------------
TOTAL ASSETS $229,585,976 $161,326,984
============ ============
LIABILITIES
Deposits (Note 14)
Demand $ 23,128,946 $ 17,100,436
Money market and NOW accounts 37,183,366 33,653,457
Savings 7,901,172 5,504,444
Time ($100,000 and over) 28,264,502 21,165,754
Other time 98,607,343 64,191,404
------------ ------------
Total Deposits 195,085,329 141,615,495
Short-term borrowings (Note 8) 1,596,601 1,001,742
Federal Home Loan Bank advances (Note 8) 3,700,000 1,500,000
Accrued interest payable 2,377,378 1,000,104
Other liabilities 921,199 359,056
------------ ------------
TOTAL LIABILITIES 203,680,507 145,476,397
============ ===========
SHAREHOLDERS' EQUITY (Notes 10 and 11)
Common stock, $1.00 par value, authorized 10,000,000 shares
issued 2,403,974 shares in 1995 and
1,750,000 shares in 1994 2,403,974 1,750,000
Additional paid-in capital 8,837,624 2,446,028
Retained earnings 14,932,035 13,110,034
Unrealized gain (loss) on investment securities
available for sale 207,637 (1,013,344)
Treasury stock, at cost (475,801) (442,131)
------------ ------------
SHAREHOLDERS' EQUITY - NET 25,905,469 15,850,587
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $229,585,976 $161,326,984
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
HABERSHAM BANCORP
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $12,901,162 $ 9,580,514 $10,043,542
Investments:
U. S. Treasury and Government agencies 2,044,608 1,531,470 1,031,171
States and political subdivisions
(exempt from Federal income tax) 1,083,349 1,056,133 1,010,857
Other investment securities 174,356 136,920 172,818
Federal funds sold 352,521 129,640 71,705
------------ ------------ -----------
TOTAL INTEREST INCOME 16,555,996 12,434,677 12,330,093
------------ ------------ -----------
INTEREST EXPENSE
Time deposits, $100,000 and over 1,272,056 947,826 1,027,779
Other deposits 5,839,910 3,750,020 3,591,770
Short-term and other borrowings 286,507 103,086 58,058
------------ ------------ -----------
TOTAL INTEREST EXPENSE 7,398,473 4,800,932 4,677,607
------------ ------------ -----------
NET INTEREST INCOME 9,157,523 7,633,745 7,652,486
Provision for loan losses (Note 6) 98,043 208,096 249,765
------------ ------------ -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,059,480 7,425,649 7,402,721
------------ ------------ -----------
NON-INTEREST INCOME
Service charges on deposit accounts 536,891 430,211 426,088
Other service charges and commissions 207,287 232,887 224,532
Securities gains, net 76,842 25,128
Other income 550,269 518,889 267,207
------------ ------------ -----------
TOTAL NON-INTEREST INCOME 1,371,289 1,207,115 917,827
------------ ------------ -----------
NON-INTEREST EXPENSE
Salaries and employee benefits (Note 11) 3,781,345 3,152,261 3,053,726
Occupancy expenses 513,616 460,268 447,818
Furniture and equipment expenses 452,933 447,983 466,997
Data processing 217,626 179,421 226,285
Other operating expenses (Note 12) 2,864,847 2,379,972 2,135,118
------------ ------------ -----------
TOTAL NON-INTEREST EXPENSE 7,830,367 6,619,905 6,329,944
------------ ------------ -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,600,402 2,012,859 1,990,604
Provision for income taxes (Note 9) 579,390 354,474 345,886
INCOME BEFORE CUMULATIVE EFFECT OF ------------ ------------ -----------
CHANGE IN ACCOUNTING PRINCIPLE 2,021,012 1,658,385 1,644,718
Cumulative effect of change in
accounting principle (Note 9) (87,000)
------------ ------------ -----------
NET INCOME $ 2,021,012 $ 1,658,385 $ 1,557,718
============ ============ ===========
PER COMMON AND COMMON EQUIVALENT SHRARE:
Income before cumulative effect of
change in accounting principle $ .99 $ .98 $ .98
Cumulative effect of change in accounting
principle (Note 9) (0.05)
------------ ------------ -----------
NET INCOME PER SHARE (Note 10) $ .99 $ .98 $ .93
------------ ------------ -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING (Note 10) 2,032,567 1,689,795 1,672,065
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
HABERSHAM BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,021,012 $ 1,658,385 $ 1,557,718
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 98,043 208,096 249,765
Provision for other real estate 217,000 120,000 19,988
Depreciation 497,804 509,334 540,635
Amortization of intangible assets 108,251
Cumulative effect of change in
accounting principle 87,000
Loss on sale of premises and equipment 1,040
Gain on sale of securities (76,842) (25,128)
Gain on sale of other real estate (103,830)
Changes in assets and liabilities net of effects
of purchase of Security Bancorp, Inc.
(Increase) decrease in interest receivable (668,298) (10,368) 66,226
(Increase) decrease in other assets 31,592 (182,201) 46,355
Increase (decrease) in interest payable 1,377,276 49,054 (206,707)
Increase (decrease) in other liabilities (474,021) 218,545 (111,820)
----------- ----------- -----------
Net cash provided by operating activities 3,131,817 2,442,927 2,249,160
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale
Proceeds from maturity 4,396,036 6,440,949 9,299,503
Proceeds from sales 7,263,903 4,212,461
Purchases (10,894,483) (17,232,821) (18,394,548)
Investment securities held to maturity
Proceeds from maturity 4,524,864 2,522,864
Purchases (5,381,720) (5,981,582)
Net decrease (increase) in loans (12,372,090) 3,045,041 1,214,619
Purchases of premises and equipment (248,155) (143,525) (430,546)
Proceeds from sale of premises and equipment 47,767
Proceeds from sale of other real estate 226,269 163,633 228,449
Cash and cash equivalents acquired upon acquisition
of Security Bancorp, Inc., net of cash payments 3,219,000
----------- ----------- -----------
Net cash used in investing activities (9,266,376) (6,925,213) (8,082,523)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 14,197,882 3,156,495 4,008,441
Net increase (decrease) in short-term borrowings 594,859 (257,682) 190,875
Proceeds from Federal Home Loan Bank advances, net 2,200,000 (1,000,000) 2,500,000
Proceeds from sale of treasury stock 257,724 117,484 86,047
Cash dividends (199,011) (133,060) (132,520)
----------- ----------- -----------
Net cash provided by financing activities 17,051,454 1,883,237 6,652,843
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 10,916,895 (2,599,049) 819,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,470,912 8,069,961 7,250,481
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $16,387,807 $ 5,470,912 $ 8,069,961
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,208,061 $ 4,659,814 $ 4,884,605
Income taxes 634,000 367,089 343,697
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
Other real estate acquired through loan
foreclosures $ 280,277 $ 290,495
Loans granted to facilitate the sale of
other real estate 16,000 125,204 $ 600,100
Unrealized gain (loss) on investment
securities available for sale, net of tax effect 1,220,981 (1,338,528) 325,184
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
HABERSHAM BANCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
For the years ended December 31, 1995, 1994 and 1993
UNREALIZED
GAIN (LOSS)
ON INVESTMENT
ADDITIONAL SECURITIES
COMMON PAID IN RETAINED AVAILABLE TREASURY
STOCK CAPITAL EARNINGS FOR SALE STOCK
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $1,750,000 $2,425,000 $10,159,511 $(624,634)
Net income 1,557,718
Cash dividends, $.08 per share (132,520)
Sale of 11,650 shares of Treasury Stock 86,047
Unrealized gain on investment securities available for sale 325,184
---------- ---------- ----------- ----------- ---------
Balance at December 31, 1993 1,750,000 2,425,000 11,584,709 325,184 (538,587)
Net income 1,658,385
Cash dividends, $.08 per share (133,060)
Sale of 16,740 shares of Treasury Stock 21,028
Unrealized loss on investment
securities available for sale (1,338,528)
---------- ---------- ----------- ----------- ---------
Balance at December 31, 1994 1,750,000 2,446,028 13,110,034 (1,013,344) (442,131)
Net income 2,021,012
Cash dividends, $.10 per share (199,011)
Sale of 38,000 shares of Treasury Stock 28,904 228,820
Acquisition of Security Bancorp, Inc.
including 41,447 share of Treasury Stock (Note 3) 653,974 6,362,692 (262,490)
Unrealized gain on investment
securities available for sale 1,220,981
---------- ---------- ----------- ----------- ---------
Balance at December 31, 1995 $2,403,974 $8,837,624 $14,932,035 $ 207,637 $(475,801)
========== ========== =========== =========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1995, 1994 and 1993
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements of Habersham Bancorp (the "Company")
include the financial statements of Habersham Bank ("Habersham Bank"),
Security State Bank ("Security Bank") (collectively the "Banks") and The
Advantage Group, Inc. which are wholly-owned subsidiaries of the Company. All
intercompany transactions have been eliminated.
The Company operates two banks in rural and suburban communities in Habersham
and Cherokee counties in Georgia. The Company's primary source of revenue is
providing loans to businesses and individuals in their market area.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Legislation
On January 25, 1996, the State of Georgia Legislature passed legislation
allowing banks to establish three branches during the period July 1, 1996 to
June 30, 1998 in counties in Georgia in which a bank presently does not have a
branch. If a bank is part of a bank holding company, all holding company bank
affiliates will be treated as one, and the holding company group will be
limited to opening three de novo branches in three new counties. Effective
July 1, 1998 the legislation would allow a bank to branch anywhere in Georgia,
subject to regulatory approval. The bill must be signed by the Governor of
Georgia before the legislation will become effective. The legislation is not
expected to have an adverse effect on the results of operations of the Company.
Interest Rate Risk
The Company's assets and liabilities are generally monetary in nature and
interest rates have an impact on the Company's performance. The Company
decreases the effect of interest rates on its performance by striving to match
maturities and interest sensitivity between loans, investment securities,
deposits and other borrowings. However, a significant change in interest rates
could have an effect on the Company's results of operations.
<PAGE> 7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant accounting
policies:
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold.
Investment Securities Available for Sale
At December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, the Company classified certain investments
as available for sale. In December 1995, in accordance with the "Guide to the
Implementation of SFAS No. 115, the Company reclassified certain held to
maturity investments with an unamortized cost of $5,569,161 and a market value
of $5,848,273 to available for sale. The reclassification resulted in an
unrealized gain of approximately $279,112.
Investment securities available for sale are carried at market value. The
related unrealized gain (loss), net of tax, is included as a separate component
of shareholders' equity. Gains and losses from dispositions are based on the
net proceeds and the adjusted carrying amounts of the securities sold, using
the specific identification method.
Investment Securities Held to Maturity
Investment securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts which are recognized as
adjustments to interest income based on the interest method. The Company has
the intent and ability to hold these investment securities to maturity.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level estimated to be adequate
to provide for potential losses in the loan portfolio. Management estimates the
adequacy of the allowance based upon reviews of individual loans, recent loss
experience, current economic conditions, the risk characteristics of the
various categories of loans and other pertinent factors. Loans deemed
uncollectible are charged to the allowance. Provisions for loan losses and
recoveries on loans previously charged off are added to the allowance.
<PAGE> 8
Other Real Estate Owned
Other real estate owned includes real estate acquired through foreclosure.
Other real estate owned is carried at the lower of its recorded amount at date
of foreclosure or estimated fair value less costs to sell. Any expense
incurred in connection with holding such real estate or resulting from any
writedowns subsequent to foreclosure is included in other non-interest expense.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using primarily the straight-line method over the
estimated useful lives of the assets.
Goodwill and Other Intangibles
Goodwill represents the excess of acquisition costs over the fair value of net
assets of businesses acquired and is amortized on a straight- line basis over
25 years. Other intangibles consist of an amount assigned to core deposits
representing the difference between fair value at date of acquisition and
recorded amounts which is amortized on a straight-line basis over 5 years.
Carrying values of goodwill and the other intangibles are periodically reviewed
to assess recoverability based on expectation of undiscounted cash flows and
operating income for the related business unit. Impairments would be
recognized in operating results if a permanent diminution in value was
expected. The Company also evaluates the amortization periods of intangible
assets to determine whether events or circumstances warrant revised estimates
of useful lives. The Company believes that no material impairment of goodwill
or other intangibles exists at December 31, 1995.
Interest Income on Loans
Interest on loans is generally recorded over the term of the loan based on the
unpaid principal balance. Accrual of interest is discontinued when either
principal or interest becomes 90 days past due, or when in management's
opinion, collectibility of such interest is doubtful.
Loan Origination Fees and Costs
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield on the related loan based on the
interest method.
Loan Sales
When loans are sold, the recorded investment in the loans is allocated between
the portion of the loans sold and the portion retained based on the relative
fair values. The difference between the fair value and the allocated cost
portion of the loan sold is recorded as a gain or loss. The difference between
the recorded amount and fair value of the portion of the loan retained is
recorded as a premium and amortized to interest income, using a method which
approximates the interest method, over the expected lives of the loans.
<PAGE> 9
Income Taxes
Provisions for income taxes are based upon amounts reported in the statements
of income (after exclusion of non-taxable income such as interest on state and
municipal securities) and include deferred taxes on temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the year.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 addresses issues surrounding the measurement and recognition of losses
when the value of certain assets has been deemed to be permanently impaired.
The Company plans to adopt SFAS 121 in 1996 and believes that there will be no
material effect on its financial position or results of operations from
adopting SFAS 121.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). SFAS 123 establishes a method of accounting for
stock compensation plans based on the fair value of employee stock options and
similar equity instruments. Adoption of a fair value method of accounting is
not required and the Company plans to continue accounting for stock based
compensation using the Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" method which is based on the intrinsic value of
equity instruments. In this case SFAS 123 requires disclosure of pro forma net
income and earnings per share as if a fair value method included in SFAS 123
had been used to measure compensation cost and the Company will provide this
information beginning in 1996.
<PAGE> 10
3. ACQUISITION
Effective June 30, 1995, the Company consummated its acquisition of Security
Bancorp, Inc. ("Security") by agreeing to exchange 612,516 shares of its common
stock and cash of $1,990,269 for the outstanding shares of Security's common
stock in a merger of Security with and into the Company. The Company had
previously acquired 5% of the outstanding shares of Security. The total
purchase price, including expenses, is expected to total approximately
$9,257,000. The fair value of the assets acquired totaled $49,468,281 and
liabilities assumed totaled $40,211,187. The merger was accounted for as a
purchase and the operations of Security were included in the Company's
operations after June 30, 1995. Intangible assets consisting of a premium on
core deposits of $416,000 and goodwill of $3,084,000 were recorded in
connection with the merger and are being amortized over a five and twenty-five
year period, respectively. The following represents pro forma income statement
information for the years ended December 31, 1995 and 1994 assuming the merger
occurred on January 1, 1995 and 1994, respectively, (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
-------------------
1995 1994
-------- ---------
<S> <C> <C>
Total revenues $20,074 $17,439
Net income 2,089 1,838
Net income per common share .89 .80
</TABLE>
The pro forma financial information presented above does not purport to be
indicative of either the results of operations that would have occurred had the
acquisition taken place on the indicated dates or of future consolidated
results of operations.
<PAGE> 11
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
Amortized cost, estimated market values and gross unrealized gains and losses
of investment securities available for sale are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasuries ..... $ 3,799,645 $ 18,758 $ 6,824 $ 3,811,579
U.S. Government
agencies ............ 26,892,449 186,712 $ 336,809 26,742,352
States and political
subdivisions ........ 8,592,556 468,980 2,119 9,059,417
Other Investments ... 750,000 50,039 699,961
----------- ------- --------- ----------
Total ............... $40,034,650 $674,450 $ 395,791 $40,313,309
=========== ======== ========== ===========
December 31, 1994:
U.S. Treasuries ..... $ 5,833,003 $ 161,323 $ 5,671,680
U.S. Government
agencies ............ 18,399,626 $ 47 1,378,571 17,021,102
States and political
subdivisions ........ 5,082,420 124,952 15,203 5,192,169
Other Investments ... 750,000 105,272 644,728
----------- -------- ---------- -----------
Total ............... $30,065,049 $124,999 $1,660,369 $28,529,679
=========== ======== ========== ===========
</TABLE>
During 1995 and 1994, there were realized gains of $114,153 and $37,664 and
realized losses of $37,311 and $12,536, respectively, from sales of securities.
During 1993, there were no sales of securities.
The amortized cost and estimated market values of securities available for sale
at December 31, 1995, by contractual maturity, are shown as follows. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties. Callable securities and mortgage-backed securities are included in
the year of their final original maturity. Equity investments are included in
the due after ten years category.
<PAGE> 12
<TABLE>
<CAPTION>
Estimated
Amortized Cost Market Value
<S> <C> <C>
Due in one year or less................. $ 5,885,748 $ 5,893,310
Due after one year through five years... 20,085,677 20,173,616
Due after five years through ten years.. 5,158,591 5,281,237
Due after ten years..................... 8,904,634 8,965,146
Total................................... $40,034,650 $40,313,309
</TABLE>
Securities available for sale with a market value of approximately $13,347,675
were pledged as collateral at December 31, 1995 for public deposits and other
deposits, as required by law.
5. INVESTMENT SECURITIES HELD TO MATURITY
Amortized cost, estimated market values and gross unrealized gains and losses
of investment securities held to maturity are as follows:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1995:
Treasuries.............. $ 199,634 $ 398 $ 200,032
U.S. Government
agencies................ 3,407,647 26,438 $ 36,477 3,397,608
States and political
subdivisions............ 12,545,318 215,852 27,483 12,733,687
Other investments....... 1,345,592 1,345,592
----------- -------- -------- -----------
Total................... $17,498,191 $242,688 $ 63,960 $17,676,919
=========== ======== ======== ===========
December 31,1994:
U.S. Treasuries......... $ 198,698 $ 3,760 $ 194,938
U.S. Government
agencies................ 5,724,080 $ 8,215 344,909 5,387,386
States and political
subdivisions............ 13,176,349 158,482 344,763 12,990,068
Other investments....... 2,520,377 2,520,377
----------- -------- -------- -----------
Total................... $21,619,504 $166,697 $693,432 $21,092,769
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated market values of securities held to maturity
at December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties. Callable securities and mortgage-backed securities are included in
the year of their final original maturity. Equity investments are included in
the due after ten years category.
<PAGE> 13
<TABLE>
<CAPTION>
Estimated
Amortized Cost Market Value
<S> <C> <C>
Due in one year or less................. $ 2,405,305 $ 2,415,967
Due after one year through five years... 9,057,292 9,152,110
Due after five years through ten years.. 4,707,066 4,759,530
Due after ten years..................... 1,328,528 1,349,312
----------- -----------
Total................................... $17,498,191 $17,676,919
=========== ===========
</TABLE>
Securities held to maturity with market value of approximately $6,776,678 were
pledged as collateral at December 31, 1995 for public deposits and other
deposits, as required by law.
6. LOANS
At December 31, 1995 and 1994, loans are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Real Estate:
Construction......................... $ 16,512,884 $ 5,564,753
Other............................... 96,361,817 68,992,708
Commercial.......................... 17,579,029 13,170,219
Installment.......................... 14,613,500 12,637,913
Other................................ 366,666 482,890
------------ ------------
Total............................. $145,433,896 $100,848,483
============ ============
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, January 1.............. $1,744,335 $1,601,902 $1,703,592
Acquired in acquisition ........ 628,371
Provision for loan losses....... 98,043 208,096 249,765
Loans charged off............... (175,834) (125,144) (376,427)
Recoveries...................... 40,873 59,481 24,972
---------- ---------- ----------
Balance, December 31............ $2,335,788 $1,744,335 $1,601,902
========== ========== ==========
</TABLE>
The Company adopted Statements of Financial Accounting Standards Nos. 114 & 118
(the "Statements") as of January 1, 1995. The Company considers a loan to be
impaired when it is probable that it will be unable to collect all amounts due
according to the terms of the loan agreement. The Company measures impairment
of a loan on a loan by loan basis for real estate, commercial and agricultural
loans. Installment and other consumer loans are considered smaller balance,
homogeneous loans. Amounts of impaired loans that are not probable of
collection are charged off immediately. The Company had impaired loans
of
<PAGE> 14
$568,822 and $1,022,683 as of January 1, 1995 and December 31, 1995,
respectively, which included all of its nonaccrual loans. The average amount of
impaired loans during 1995 and 1994 was $1,015,818 and $992,621, respectively.
No allowance was necessary for such loans under the provision of such
Statements. The interest income recognized on such loans was $57,416 in 1995
and $ 132,884 in 1994, which approximated the amount of interest received on
the cash basis.
Restructured loans not considered impaired totaled $1,227,411 at December 31,
1995 and $1,318,790 at December 31, 1994. Interest income that would have been
recorded on such restructured loans in accordance with their original terms
totaled $111,796 in 1995 and $87,073 in 1994, compared with amounts recognized
of $106,599 in 1995 and $81,816 in 1994.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of its lending activities to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. 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 these commitments as it does for on-balance-sheet
instruments and evaluates each customer's creditworthiness on a case-by-case
basis. At December 31, 1995 and 1994, the Company had outstanding loan
commitments of $27,619,000 and $10,614,313, respectively, and standby letters
of credit of $1,145,000 and $4,580,341, respectively. The amount of collateral
obtained, if deemed necessary, for these financial instruments by the Company,
upon extension of credit, is based on management's credit evaluation of the
customer. Collateral held, if any, varies but may include inventory,
equipment, real estate, or other property. As of December 31, 1995 and 1994,
Habersham Bank's loans to customers for agribusiness purposes in the poultry
industry were approximately $24 million and $22 million, respectively. As of
December 31, 1995, Security State Bank's loans for residential construction
purposes totaled approximately $15.5 million. The accounting loss the Company
would incur if any party to the financial instrument failed completely to
perform according to the terms of the contract and the collateral, if any,
proved to be of no value is equal to the face amount of the financial
instrument.
<PAGE> 15
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land.......................... $ 496,655 $ 233,750
Buildings..................... 4,371,077 2,956,097
Furniture and equipment....... 3,657,486 2,799,730
---------- ----------
Total....................... 8,525,218 5,989,577
Less accumulated depreciation 3,930,178 3,041,688
---------- ----------
Premises and equipment, net... $4,595,040 $2,947,889
========== ==========
</TABLE>
The Company has entered into lease agreements for equipment through 2000.
Approximate minimum rentals under noncancellable operating leases are as
follows:
<TABLE>
Caption>
<S> <C>
1996 94,545
1997 72,839
1998 18,730
1999 4,359
2000 1,090
</TABLE>
Rental expense was approximately $41,389 in 1995, $38,050 in 1994 and $34,821
in 1993.
8. SHORT-TERM AND OTHER BORROWINGS
Short-term borrowings of $1,596,601 and $1,001,742 at December 31, 1995 and
1994, respectively, consist of customers' deposits of withholding taxes held
for the U. S. Treasury on a note option basis and bear interest at 1/4 of 1%
less than the federal funds rate.
Federal Home Loan Bank advances include a $1,500,000 advance with an adjustable
rate using three months LIBOR minus eleven basis points with a maturity date of
July 15, 1996 received in 1994 and a $2,200,000 advance with an adjustable rate
using three months LIBOR plus eight basis points with a maturity date of
January 24, 1997 received in 1995.
The average interest rates for such advances during 1995 and 1994 were 5.84%
and 4.13%, respectively.
<PAGE> 16
9. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." Previously, the Company had accounted for its income tax
expense in accordance with Accounting Principles Board Opinion No. 11. SFAS
No. 109 requires the Company to provide deferred income taxes based on
temporary differences between financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse. The cumulative effect of the
adoption of this pronouncement on the Company's financial statements was to
decrease net income by $87,000 ($.26 per share) for the year ended December 31,
1993.
The provision for income taxes for the years ended December 31, 1995, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current.................... $738,053 $445,818 $302,036
Deferred................... (158,663) (91,344) 43,850
Total.................... $579,390 $354,474 $345,886
</TABLE>
At December 31, 1995 and 1994 the significant components of the Company's net
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets: 1995 1994
<S> <C> <C>
Unrealized loss on investment
securities available for sale $ 522,000
Allowance for possible loan losses $591,499 424,000
Allowance for other real estate 74,800
Deferred Loan Fees 110,769 57,000
Other 38,772 28,000
-------- ----------
815,840 1,031,000
-------- ----------
Deferred Tax Liabilities:
Unrealized gain on investment
securities available for sale (97,510)
Accumulated Depreciation (106,085) (52,000)
Other (25,652) (41,000)
-------- ----------
(229,247) (93,000)
-------- ----------
Net Deferred Tax Asset Before
Valuation Allowance 586,593 938,000
Valuation Allowance 00 00
-------- ----------
Net Deferred Tax Asset $586,593 $ 938,000
======== ==========
</TABLE>
<PAGE> 17
The provision for income taxes is less than that computed by applying the
federal statutory rate of 34% to income before income taxes as indicated by the
following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income tax at statutory rate... $884,137 $684,372 $676,805
Effect of tax exempt income.... (336,991) (317,126) (300,195)
Amortization of intangibles ... 35,114
Other.......................... (2,870) (12,772) (30,724)
-------- -------- --------
Provision for income taxes..... $579,390 $354,474 $345,886
======== ======== ========
</TABLE>
10. SHAREHOLDERS' EQUITY
Effective May 15, 1995, the Company declared a 5 for 1 stock split of its
common stock effected in the form of a 400% stock dividend. In addition,
effective April 15, 1995, the Company changed the par value of its common stock
from $2.50 to $1.00 per share and increased the number of authorized shares of
common stock to 10,000,000 shares. All references to share and per share
amounts have been retroactively adjusted to reflect the split. Also
retroactively, $875,000 has been charged to Additional Paid-in Capital and
credited to Common Stock to reflect the stock split and the change in par
value.
The approval of the Georgia Department of Banking and Finance is required if
dividends declared by the Banks to the Company in any year will exceed 50% of
the net income of the Banks for the previous calendar year. As of December 31,
1995, the Banks could declare dividends to the Company up to approximately
$1,189,000 without regulatory approval. The Banks are also required to
maintain minimum ratios of capital to total "risk weighted" assets, as defined
by the banking regulators. At December 31, 1995, the Banks are required to
have minimum Tier 1 and Total Capital ratios of 4% and 8%, respectively.
Additionally, the Banks are required to maintain a leverage ratio (Tier I
Capital to total assets) of at least 4%. The Banks' ratios at that date
follow:
<TABLE>
<CAPTION>
Habersham Bank Security State Bank
-------------- -------------------
<S> <C> <C>
Tier I 11.91% 15.14%
Total Capital 13.16% 16.39%
Leverage 9.23% 11.58%
</TABLE>
At December 31, 1995 and 1994, the Company held 80,192 shares and 76,745
shares, respectively, of treasury stock.
<PAGE> 18
11. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company has a contributory profit sharing plan under Internal Revenue Code
Section 401(k) (the "401k Plan"). The 401k Plan covers substantially all
employees. Employees may contribute up to 15% of their annual salaries up to
the amount allowed by the IRS. The Company will contribute amounts as
specified in the plan agreement. The Company's contribution to the plan
totaled $88,652 in 1995, $67,938 in 1994 and $70,925 in 1993.
The Company's Incentive Stock Option Plan provides that officers and certain
employees of the Company and its subsidiaries may be granted options to
purchase shares of common stock of the Company at an amount equal to the fair
market value of the stock at the date of grant. The options, which may be
exercised immediately, expire five years from the date of grant. The Plan
limits the total number of shares which may be purchased under the Plan to
350,000, which have been reserved for the Plan. Stock option activity is
summarized as follows:
<TABLE>
<CAPTION>
Number of Option Price
Options per Share
--------- ------------
<S> <C> <C>
Balance outstanding, December 31, 1992 128,000 $ 6.25 to $ 8.33
Granted 40,000 9.19
-------
Balance outstanding, December 31, 1993 168,000 6.25 to 9.19
Granted 12,000 10.08
Exercised (10,000) 6.25
-------
Balance outstanding, December 31, 1994 170,000 6.74 to 10.08
Options converted in the acquisition 5,528 10.63
Granted 50,000 13.50
Exercised (38,000) 6.74 to 7.47
Expired (2,000) 6.74
-------
Balance outstanding, December 31, 1995 185,528 6.79 to 13.50
=======
</TABLE>
At December 31, 1995, there were options for 185,528 shares exercisable and
350,000 shares of common stock reserved for options under the plan.
Effective January 21, 1995, the Company's Board of Directors adopted an
Outside Directors Stock Option Plan. The plan initially granted as of
January 21, 1995, the option to purchase 25,000 shares of common stock to
outside directors who were Company Board members on April 16, 1994 at an amount
approximately equal to the fair market value of the stock at that date. The
options are fully vested on the date of grant and exercisable six months from
the date of grant.
<PAGE> 19
<TABLE>
<CAPTION>
Number of Option Price
Options per Share
--------- ------------
<S> <C> <C>
Granted, January 21, 1995 25,000 $ 9.19
Options converted in the acquisition 44,226 10.63
Granted 15,000 13.50
------
Balance outstanding, December 31, 1995 84,226 9.19 to 13.50
======
</TABLE>
At December 31, 1995, all options are exercisable and 350,000 shares of common
stock are reserved for options under the plan.
12. OTHER OPERATING EXPENSES
Items comprising other operating expenses for the years ended December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Outside services................. $ 612,838 $ 714,538 $ 627,931
Advertising and public relations. 621,524 489,952 471,758
Office supplies.................. 349,775 287,565 286,524
Other............................ 1,280,710 887,917 748,905
---------- ---------- ----------
Total.......................... $2,864,847 $2,379,972 $2,135,118
========== ========== ==========
</TABLE>
Outside services include charges for FDIC insurance, legal and professional
services, insurance, director fees and State of Georgia Department of Banking
fees.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<PAGE> 20
<TABLE>
<CAPTION>
1995
-----------------------------
Carrying Fair
Amount Value
------------ -------------
<S> <C> <C>
Assets:
Cash and due from banks..................$ 6,597,807 $ 6,597,807
Federal funds sold....................... 9,790,000 9,790,000
Investment securities available for sale. 40,313,309 40,313,309
Investment securities held to maturity... 17,498,191 17,676,919
Loans.................................... 143,054,377 142,415,377
Liabilities:
Deposits.................................$195,085,329 $195,721,687
Short-term borrowings.................... 1,596,601 1,596,601
Other borrowings......................... 3,700,000 3,700,000
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------
Carrying Fair
Amount Value
------------ -------------
<S> <C> <C>
Assets:
Cash and due from banks..................$ 4,450,912 $ 4,450,912
Federal funds sold....................... 1,020,000 1,020,000
Investment securities available for sale. 28,529,679 28,529,679
Investment securities held to maturity... 21,619,504 21,092,769
Loans.................................... 99,058,810 99,780,771
Liabilities:
Deposits.................................$141,615,495 $140,741,928
Short-term borrowings.................... 1,001,742 1,001,742
Other borrowings......................... 1,500,000 1,500,000
</TABLE>
The carrying amounts of cash and due from banks, federal funds sold, and
short-term borrowings are a reasonable estimate of their fair value due to the
short term nature of these financial instruments. The fair value of investment
securities available for sale and investment securities held to maturity is
based on quoted market prices and dealer quotes. The fair value of loans and
deposits is estimated by discounting the future cash flows using interest rates
currently charged/paid by the Bank for such financial instruments.
As required by the Statement, demand deposits are shown at their face value. No
value has been ascribed to core deposits, which generally bear a low rate of
interest or no interest and do not fluctuate in response to changes in interest
rates.
The fair value of commitments to extend credit and standby letters of credit is
estimated to approximate the amount outstanding (see Note 6). The fair value
has been estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties.
<PAGE> 21
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
14. RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company and its subsidiaries,
including their associates, were loan customers of the Company. An analysis of
the activity during 1995, 1994, and 1993 of loans to executive officers,
directors and principal shareholders is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, January 1, .......... $4,162,599 $4,868,492 $ 4,440,957
Acquired in the acquisition .. 138,279
Amounts advanced.............. 4,789,363 7,726,038 5,423,152
Repayments.................... (4,951,033) (8,431,931) (4,995,617)
---------- ---------- ----------
Balance, December 31, ........ $4,139,208 $4,162,599 $4,868,492
========== ========== ==========
</TABLE>
Certain directors of Security received fees related to appraisal services and
loan closings. These fees were collected from loan customers. Management
believes the services obtained from these directors were on terms as favorable
to the bank as could have been obtained from unaffiliated parties. Total fees
paid to these directors for these services were $40,350 for 1995, $49,925 for
1994 and $76,645 for 1993.
At December 31, 1995, time deposits of $1,060,000 of a business controlled by
the principal shareholders of the Company were pledged as collateral for loans
of $1,060,000 made to unrelated parties.
15. SUBSEQUENT EVENT
On January 2, 1996, Habersham Bank formed a new subsidiary, BancMortgage
Financial, Corp ("BancMortgage"). BancMortgage will be a full service mortgage
lender and servicer located in the North Atlanta Metropolitan area.
BancMortgage received approval from the Department of Banking and Finance of
the State of Georgia to begin business on January 26, 1996 and expects to be in
operation by February 1, 1996.
<PAGE> 22
16. CONDENSED FINANCIAL STATEMENTS OF COMPANY (PARENT ONLY)
The condensed financial statements of the Company (parent only) are presented
below:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31
1995 1994
<S> <C> <C>
ASSETS:
Cash..................................... $ 297,026 $ 938,523
Investment in subsidiaries............... 22,100,107 14,633,519
Other investments........................ 113,159 275,649
Intangible assets ....................... 3,396,564
Other assets............................. 2,896 2,896
----------- -----------
Total assets............................. $25,909,752 $15,850,587
=========== ===========
LIABILITY:
Accounts Payable......................... $ 4,283
SHAREHOLDERS' EQUITY:
Common stock............................. 2,403,974 $ 1,750,000
Additional paid-in Capital............... 8,837,624 2,446,028
Retained earnings........................ 14,932,035 13,110,034
Unrealized gain (loss) on investment
securities available for sale........... 207,637 (1,013,344)
Treasury stock, at cost.................. (475,801) (442,131)
----------- -----------
Shareholders' equity - net .............. 25,905,469 15,850,587
----------- -----------
Total Liability & Shareholders' Equity .. $25,909,752 $15,850,587
=========== ===========
</TABLE>
<PAGE> 23
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C>
INCOME
Dividends from subsidiary....... $ 1,677,750 $ 760,000 $ 140,000
Other income - management fees
from subsidiary............... 324,328 321,533 293,334
----------- ----------- -----------
Total Income.................... 2,002,078 1,081,533 433,334
EXPENSES - General and
administrative................ 488,916 327,074 299,558
----------- ----------- -----------
Income before income taxes and
equity in undistributed
earnings of subsidiaries...... 1,513,162 754,459 133,776
Income tax credit............... 19,338 1,406 1,579
Income before equity
in undistributed earnings..... 1,532,500 755,865 135,355
----------- ----------- -----------
Equity in undistributed
earnings of subsidiaries...... 488,512 902,520 1,422,363
----------- ----------- -----------
Net Income...................... 2,021,012 1,658,385 1,557,718
RETAINED EARNINGS AT
BEGINNING OF YEAR .............. 13,110,034 11,584,709 10,159,511
Cash dividends on common stock.. (199,011) (133,060) (132,520)
----------- ----------- -----------
RETAINED EARNINGS AT
END OF YEAR .................... $14,932,035 $13,110,034 $11,584,709
=========== =========== ===========
</TABLE>
<PAGE> 24
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................... $2,021,012 $1,658,385 $ 1,557,718
Amortization of intangible assets 103,277
Equity in undistributed..........
earnings of subsidiaries....... (488,512) (902,520) (1,422,362)
---------- ---------- -----------
Net cash provided by
operating activities........... 1,635,777 755,865 135,356
---------- ---------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash payment in acquisition of
Security Bancorp, Inc. including
expenses of $345,717 .......... (2,335,987)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends........ (199,011) (133,060) (132,520)
Proceeds from sale of
treasury stock................. 257,724 117,484 86,047
---------- ---------- -----------
Net cash used by
financing activities........... 58,713 (15,576) (46,473)
Increase (decrease) in cash...... (641,497) 740,289 88,883
CASH AT BEGINNING OF YEAR....... 938,523 198,234 109,351
---------- ---------- -----------
CASH AT END OF YEAR............ $ 297,026 $ 938,523 $ 198,234
========== ========== ===========
</TABLE>
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
Habersham Bancorp,
Its Shareholders and Directors:
We have audited the accompanying consolidated balance sheets of Habersham
Bancorp and its subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
at December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, in 1993
the Company changed its methods of accounting for income taxes and investment
securities.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 26, 1996
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
The following list contains the names and jurisdictions of organization of
Habersham Bancorp's direct and indirect subsidiaries. Habersham Bancorp owns
100% of the outstanding stock of each listed entity, except for BancMortgage
Financial Corp., which is a wholly owned subsidiary of Habersham Bank.
Name and Jurisdiction
Habersham Bank, a Georgia state bank.
Security State Bank, a Georgia state bank.
The Advantage Group, Inc., a Georgia corporation.
BancMortgage Financial Corp., a Georgia corporation.
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT PUBLIC AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
33-64149, 33-61587 and 33-61589 of Habersham Bancorp on Forms S-8 of our report
dated January 26, 1996, appearing in this Annual Report on Form 10-K of
Habersham Bancorp for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,597,807
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,790,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,313,309
<INVESTMENTS-CARRYING> 17,498,191
<INVESTMENTS-MARKET> 17,676,919
<LOANS> 145,433,896
<ALLOWANCE> 2,335,788
<TOTAL-ASSETS> 229,585,976
<DEPOSITS> 195,085,329
<SHORT-TERM> 1,596,601
<LIABILITIES-OTHER> 3,700,000
<LONG-TERM> 0
0
0
<COMMON> 2,403,974
<OTHER-SE> 39,352,082
<TOTAL-LIABILITIES-AND-EQUITY> 229,585,976
<INTEREST-LOAN> 12,901,162
<INTEREST-INVEST> 3,302,313
<INTEREST-OTHER> 352,521
<INTEREST-TOTAL> 16,555,996
<INTEREST-DEPOSIT> 7,111,966
<INTEREST-EXPENSE> 7,398,473
<INTEREST-INCOME-NET> 9,157,523
<LOAN-LOSSES> 98,043
<SECURITIES-GAINS> 76,842
<EXPENSE-OTHER> 7,830,367
<INCOME-PRETAX> 2,600,402
<INCOME-PRE-EXTRAORDINARY> 2,600,402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,021,012
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 4.87
<LOANS-NON> 1,022,683
<LOANS-PAST> 258,000
<LOANS-TROUBLED> 1,227,411
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,744,335
<CHARGE-OFFS> 175,834
<RECOVERIES> 40,873
<ALLOWANCE-CLOSE> 2,335,788
<ALLOWANCE-DOMESTIC> 2,335,788
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
