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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
_____ SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1996.
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to ___________________
Commission file number 0-13153
HABERSHAM BANCORP
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-1563165
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(State or other jurisdiction of (I.R.S. Employer
incorporation of Identification Number)
organization)
</TABLE>
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
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
-----------------------------
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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State the issuer's revenues for its most recent fiscal year: $25,644,139
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:
1,657,035 Shares of Common Stock, $1.00 par value--$33,969,218 as of March 5,
1997 (based upon market value of $20.50/share).
State the number of shares outstanding of each of the issuer's classes of common
equity stock, as of December 31, 1996, covered by this report.
Common Stock, $1.00 par value--2,367,309 shares,
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Company's Annual Report to Shareholders for the year ended
December 31, 1996 (the "Annual Report") are incorporated by reference into Part
II.
(2) Portions of the Company's Proxy Statement relating to the 1997 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated by reference
into Part III.
Exhibit index on page 37 Page 2 of 70 pages
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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 two indirect nonbank
subsidiaries, BancMortgage Financial Corp. and Appalachian Travel Service, Inc.
(both are subsidiaries 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.
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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.
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.
Business of Appalachian Travel Service, Inc.
Appalachian Travel Service, Inc. was acquired as a wholly-owned nonbank
subsidiary of Habersham Bank in 1996. Appalachian Travel Service, Inc. is a
full service travel agency located in Cornelia, Georgia.
Competition
The banking industry is highly competitive. Habersham Bank's primary market
area consists of Habersham County, Georgia. 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, 1996, 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.
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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.
Employees
As of December 31, 1996, the Company had 190 full-time equivalent employees.
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
The following discussion sets forth the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and its non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (C) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to
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monopolize the business of banking in any section of the United States, or the
effect of which may be substantially to lessen competition or to tend to create
a monopoly in any section of the country, or that in any other manner would be
in restraint of trade, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by the public interest in meeting the
convenience and needs of the community to be served. The Federal Reserve is also
required to consider the financial and managerial resources and future prospects
of the bank holding companies and banks concerned and the convenience and needs
of the community to be served. Consideration of financial resources generally
focuses on capital adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Company, and any other bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
In February 1996, the Georgia Legislature adopted the "Georgia Interstate
Branching Act" effective June 1, 1997. The Georgia Interstate Banking Act will
permit Georgia-based banks and bank holding companies owning or acquiring banks
outside of Georgia and all non-Georgia banks and bank holding companies owning
or acquiring banks in Georgia to merge any lawfully acquired bank into an
interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branches on a limited basis beginning July 1, 1996.
Beginning July 1, 1998, the number of de novo branches which may be established
will no longer be limited.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
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Each of the bank subsidiaries of the Company is a member of the Federal
Deposit Insurance Corporation (the "FDIC"), and as such, its deposits are
insured by the FDIC to the maximum extent provided by law. Each such subsidiary
is also subject to numerous state and federal statutes and regulations that
affect its business, activities, and operations, and each is supervised and
examined by one or more state or federal bank regulatory agencies.
The FDIC and the Georgia Department of Banking and Finance (the "Georgia
Department") regularly examine the operations of the subsidiary banks and are
given authority to approve or disapprove mergers, consolidations, the
establishment of branches, and similar corporate actions. The FDIC and the
Georgia Department also have the power to prevent the continuance or development
of unsafe or unsound banking practices or other violations of law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking and
other subsidiaries. The principal sources of cash flow of the Company, including
cash flow to pay dividends to its shareholders, are dividends by its subsidiary
banks. There are statutory and regulatory limitations on the payment of
dividends by the subsidiary banks to the Company as well as by the Company to
its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
At December 31, 1996, under dividend restrictions imposed under federal
and state laws, the subsidiary banks, without obtaining governmental approvals,
could declare aggregate dividends to the Company of approximately $1,173,163.
The payment of dividends by the Company and the subsidiary banks may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
CAPITAL ADEQUACY
The Company and its subsidiary banks are required to comply with the
capital adequacy standards established by the Federal Reserve and the
appropriate federal banking regulator in the case of its banking subsidiaries.
There are two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
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The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1996, the
Company's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
10.23% and 9.36%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1996 was 9.01%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The subsidiary banks are subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to those
adopted by the Federal Reserve for bank holding companies.
Each of the subsidiary banks was in compliance with applicable minimum
capital requirements as of December 31, 1996. The Company has not been advised
by any federal banking agency of any specific minimum capital ratio requirement
applicable to it or its subsidiary depository institutions.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations, which will become mandatory on
January 1, 1998, requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital
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adequacy. The bank regulatory agencies have concurrently proposed a methodology
for evaluating interest rate risk which would require banks with excessive
interest rate risk exposure to hold additional amounts of capital against such
exposures. The market risk rules will apply to any bank or bank holding company
whose trading activity equals 10% or more of its total assets, or whose trading
activity equals $1 billion or more.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, the Company is expected to act as a source
of financial strength for, and to commit resources to support, each of its
banking subsidiaries. This support may be required at times when, absent such
Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its banking
subsidiaries are subordinate in right of payment to deposits and to certain
other indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (a) the default of a commonly controlled FDIC-insured depository
institution or (b) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of shareholders
of the insured depository institution or its holding company, but is subordinate
to claims of depositors, secured creditors, and holders of subordinated debt
(other than affiliates) of the commonly controlled insured depository
institution. The subsidiary depository institutions of the Company are subject
to these cross-guarantee provisions. As a result, any loss suffered by the FDIC
in respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
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The capital levels established for each of the categories are as follows:
<TABLE>
<CAPTION>
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
Adequately 4% or more 8% or more 4% or more --
Capitalized
Undercapitalized less than 4% less than 8% less than 4% --
Significantly less than 3% less than 6% less than 3% --
Undercapitalized
Critically 2% or less -- -- --
Undercapitalized tangible equity
</TABLE>
For purposes of the regulation, the term "tangible equity" includes core
capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At December 31, 1996, each subsidiary bank had the requisite capital
levels to qualify as well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, 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, assigns
an institution to one of three capital categories: (a) well capitalized; (b)
adequately capitalized; and (c) 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
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corrective action purposes. An institution is also assigned by the FDIC to one
of three supervisory subgroups within each capital group. The supervisory
subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's insurance assessment rate is then determined based
on the capital category and supervisory category to which it is assigned. Under
the final risk-based assessment system, 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 in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning 1996, the deposit insurance premiums for 92% of all BIF members in the
highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates had
adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, on July 28, 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the disparity
between the assessment rates on BIF and SAIF deposits following recapitalization
of the SAIF.
A variation of this proposal designated the Deposit Insurance Funds Act
of 1996 (the "Funds Act") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by the Funds
Act, the FDIC implemented a special one-time assessment of approximately 65.7
basis points (0.657%) on a depository institution's SAIF-insured deposits held
as of March 31, 1995 (or approximately 52.6 basis points on SAIF deposits
acquired by banks in certain qualifying transactions). The Company was not
required to record a charge against earnings for the special assessment.
In addition, the FDIC proposed a revision in the SAIF assessment rate
schedule that effected, as of October 1, 1996 (a) a widening in the assessment
rate spread among institutions in the different capital and risk assessment
categories, (b) an overall reduction of the assessment rate range assessable on
SAIF deposits of from 0 to 27 basis points, and (c) a special interim assessment
rate range for the last quarter of 1996 of from 18 to 27 basis points on
institutions subject to FICO assessments. Effective January 1, 1997, FICO
assessments will be imposed on both BIF- and SAIF-insured deposits in annual
amounts presently estimated at 1.29 basis points and 6.44 basis points,
respectively. Beginning in January, 2000, BIF- and SAIF- insured institutions
will share the FICO interest costs at equal rates currently estimated 2.43 basis
points. The Funds Act further provides that BIF and SAIF are to be merged,
creating the "Deposit Insurance Fund," on January 1, 1999, provided that bank
and savings association charters are combined by that date.
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Under the FDIA, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed 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 regulation or statute will be adopted or the
extent to which the business of the Company may be affected by such regulation
or statute.
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.
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, and the telephone number of that
office is (770) 804-7208. This office is leased.
Appalachian Travel Service, Inc. principal office is located at 104 Market
Centre, Cornelia, Georgia, and the telephone number of that office is (706)
778-5777. This office is leased.
12
<PAGE> 13
Item 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings, other than ordinary routine litigation
incidental to its 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, 1996, Habersham Bancorp had
approximately 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.
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
First quarter 14.50 13.18
Second quarter 15.25 14.25
Third quarter 15.50 14.50
Fourth quarter 17.00 15.00
</TABLE>
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
Third quarter 13.00 10.75
Fourth quarter 14.25 12.00
</TABLE>
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).
13
<PAGE> 14
Cash dividends were paid quarterly during 1996 and were paid at a rate of
$.12 per share of common stock in 1996. Cash dividends were paid semi-annually
during 1995 and were paid at a rate of $.10 per share on common stock in 1995.
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. (collectively the "Company"). Habersham Bank owns all of the
outstanding stock of BancMortgage Financial Corp ("BancMortgage") and
Appalachian Travel Service, Inc. ("Appalachian"). 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. and Appalachian do 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,
Security Bank and BancMortgage.
RESULTS OF OPERATIONS
The Company's net income was $1,907,849, $2,021,012 and $1,658,385 for the
years ended December 31, 1996, 1995 and 1994, respectively, with related
earnings per common and common equivalent share of $.79, $.99 and $.98,
respectively. The per share amounts reflect the 5 for 1 stock split effective
May 15, 1995. The decrease in net income for 1996 from 1995 was primarily due to
expenses incurred to start up BancMortgage. In addition, higher than planned
loan volume was sold to Habersham Bank by BancMortgage, which resulted in the
deferral of approximately $500,000 in fees which will be recognized in
subsequent periods. The increase in net income for 1995 over 1994 was primarily
due to the acquisition of Security Bank on June 30, 1995. Net income represents
a return on average equity of 7.16%, 9.39% and 10.50% for 1996, 1995 and 1994,
respectively.
The Company's net income per share of common stock decreased 20.2% to $.79
in 1996, down from $.99 in 1995 and increased 1.02% in 1995, up from $.98 per
share in 1994.
14
<PAGE> 15
NET INTEREST INCOME
Net interest income is the largest single source of income for the Company.
Management strives to attain a level of earning asset growth while providing 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 1996
was approximately $13 million compared to $9.1 million in 1995 and $7.6 million
in 1994.
Net interest income for 1996 increased approximately $3.8 million or 42.04%
when compared to 1995 and increased approximately $1.5 million or 19.96% when
compared to 1994.
Average assets rose approximately $70.5 million or 35.1% in 1996 over 1995,
and $38.6 million or 23.83% in 1995 over 1994. The 1996 increase was primarily
due to increased loan originations of approximately $91 million by BancMortgage.
Interest income increased approximately $7.5 million or 45.27% in 1996 when
compared to 1995 and increased approximately $4.1 million or 33.14% in 1995 when
compared to 1994. The increase in interest income for 1996 resulted primarily
from the increase in the loan portfolio of approximately $62.2 million from
1995. The average balance of loans for 1996 increased approximately $66.4
million from 1995 and increased approximately $24.7 million in 1995 from 1994.
Average interest rates on loans were 10.54% in 1996 and 1995 and 9.81% in 1994.
The average balance of investment securities decreased $1.5 million or 2.74% in
1996 over 1995. The average balance of federal funds sold in 1996 increased
$629,000 or 8.48% from 1995 and carried an average interest rate of 5.66%, 4.75%
and 4.32% in 1996, 1995 and 1994, respectively.
The increase in interest expense for 1996 of $3.6 million over 1995 resulted
primarily from additional interest expense on increased other time deposits of
approximately $24 million and on increased Federal Home Loan Bank advances of
approximately $44 million related to the funding of loans originated by
BancMortgage.
The average balance of deposits for 1996 increased by approximately $38.7
million or 22.52% over 1995 and increased by approximately $30.1 million or
21.29% over 1994. The weighted average rate paid was 5.62%, 4.49% and 3.68% in
1996, 1995 and 1994, respectively.
15
<PAGE> 16
The net interest margin of the Company, the spread between interest income
and interest expense, was 4.96% in 1996, 4.87% in 1995 and 5.08% in 1994. By
careful management of deposit and loan growth and pricing, the Company maintains
its net interest margin.
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, average rates paid on deposits, average rates earned on earning
assets, and total interest paid on deposits and earned on earning assets. This
information is presented for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1996 1995 1996 1995
AVERAGE AVERAGE YIELD/ YIELD/ INCOME INCOME
BALANCE BALANCE RATES RATES (EXPENSE) (EXPENSE)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 7,038,373 $ 5,118,340
Interest bearing balances
with other banks 279,148 847,000 6.74% 4.52% $ 18,824 $ 38,281
Federal funds sold 8,045,000 7,416,000 5.66% 4.75% 455,733 352,521
Investment securities:(3)
Taxable 32,062,428 34,917,011 7.22% 5.86% 2,314,243 2,044,608
Non-taxable 20,821,319 19,457,262 8.47% 5.57% 1,763,320 1,083,349
------------- ------------
Total investment securities 52,883,747 54,374,273
Loans, net (taxable)(1)(2) 188,885,803 122,451,274 10.54% 10.54% 19,906,204 12,901,162
Premises & equipment 5,414,446 3,980,079
Other assets 8,346,113 6,195,447
------------- ------------ ---------- -----------
TOTAL $270,892,630 $200,382,413 9.78% 8.87% 24,458,324 16,419,921
============ ============ ---------- ----------
LIABILITIES
Demand deposit accounts $ 23,626,106 $ 21,439,056
Money market & NOW 37,566,357 35,706,305 3.04% 3.02% (1,140,686) (1,077,322)
Savings accounts 7,639,507 6,542,031 2.71% 2.52% (206,935) (164,639)
Certificates of deposit 141,763,866 108,190,308 6.46% 5.43% (9,153,533) (5,870,006)
Treasury tax and short-term
and other borrowings 30,316,397 4,339,038 5.09% 6.60% (1,542,481) (286,507)
Other liabilities 3,335,003 2,645,613
----------- ----------- ---------- ---------
TOTAL 244,247,236 178,862,351 5.54% 4.78% (12,043,635) (7,398,474)
---------- ---------
Shareholders' equity 26,645,394 21,520,062
------------ ------------
TOTAL LIABILITIES & EQUITY $270,892,630 $200,382,413
============ ============
NET YIELD ON INTEREST EARNING ASSETS 4.96% 4.87% $12,414,689 $ 9,021,447
=========== ===========
</TABLE>
16
<PAGE> 17
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME AND EXPENSE AND AVERAGE YIELDS
EARNED AND RATES PAID, CONTINUED
<TABLE>
<CAPTION>
1994 1994 1994
AVERAGE YIELD/ INCOME
BALANCE RATES (EXPENSE)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,113,163
Interest bearing balances
with other banks 631,012 6.27% $ 39,561
Federal funds sold 2,999,167 4.32% 129,640
Investment securities:(3)
Taxable 30,554,176 5.33% 1,628,829
Non-taxable 18,275,423 5.78% 1,056,133
------------
Total investment securities 48,829,599
Loans, net (taxable)(1)(2) 97,732,297 9.80% 9,580,514
Premises & equipment 3,138,724
Other assets 3,372,902
------------ -----------
TOTAL $161,816,864 8.28% 12,434,677
============ -----------
LIABILITIES
Demand deposit accounts $ 14,067,454
Money market & NOW 36,267,136 2.52% (913,911)
Savings accounts 5,247,192 2.82% (148,197)
Certificates of deposit 86,130,065 4.22% (3,635,738)
Treasury tax and short-term
and other borrowings 3,039,712 3.39% (103,086)
Other liabilities 1,276,447
------------ -----------
TOTAL 146,028,006 3.67% (4,800,932)
-----------
Shareholders' equity 15,788,858
------------
TOTAL LIABILITIES & EQUITY $161,816,864
============
NET YIELD ON INTEREST EARNING ASSETS 5.08% $ 7,633,745
===========
</TABLE>
(1) Interest earnings on nonaccrual loans are included in the foregoing analysis
to the extent that such interest earnings had been recorded during 1996, 1995
and 1994.
(2) Loan fees of $1,042,162, $264,180 and $275,541 are included in interest
income for the years ended December 31, 1996, 1995 and 1994, respectively.
(3) Average yields for available for sale securities are computed using the
historical cost balances. Such yields do not give effect to changes in
fair value that are reflected as a component of shareholders' equity.
17
<PAGE> 18
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>
1996 as compared to 1995 1995 as compared to 1994
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 $ (19,457) $ 6,210 $ (25,667) $ (1,280) $ (14,822) $ 13,542
Investment securities:
Taxable 269,635 436,913 (167,278) 415,779 183,240 232,539
Non-taxable 679,971 603,993 75,978 27,216 (41,094) 68,310
---------- ---------- ---------- ---------- ---------- ----------
Total Investment securities 949,606 1,040,906 (91,300) 442,995 142,146 300,849
Federal funds sold 103,212 73,334 29,878 222,881 32,074 190,807
Loans, gross (taxable) 7,005,042 2,843 7,002,199 3,320,648 898,188 2,422,460
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 8,038,403 1,123,293 6,915,110 3,985,244 1,057,586 2,927,658
---------- ---------- ---------- ---------- ---------- ----------
INTEREST BEARING LIABILITIES
Money market & NOW 63,364 7,190 56,174 163,411 177,544 (14,133)
Savings accounts 42,296 14,640 27,656 16,442 (20,072) 36,514
Certificates of deposit 3,283,527 1,460,483 1,823,044 2,234,268 1,303,326 930,942
Short-term and
other borrowings 1,255,974 (458,532) 1,714,506 183,421 139,374 44,047
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 4,645,161 1,023,781 3,621,380 2,597,542 1,600,172 997,370
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME $3,393,242 $ 99,512 $3,293,730 $1,387,702 $ (542,586) $1,930,288
========== ========== ========== ========== ========== ----------
</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 1996 increased $222,302 or 16.21% as compared to 1995
and the 1995 amount increased $164,174 or 13.60% as compared to 1994. The 1996
increase was primarily due to an increase of $112,695 in service charge income
on deposit accounts and an increase of $274,610 in sales income from Appalachian
offset by a decrease of approximately $81,000 in gains on sales of securities.
The 1995 increase was primarily due to the addition of Security Bank's
noninterest income for the third and fourth quarters of 1995.
Other noninterest expense in 1996 increased by approximately $3.9 million or
50.21% as compared to 1995 and the 1995 amount increased approximately $1.2
million or 18.29% as compared to 1994. The increase
18
<PAGE> 19
for 1996 was primarily due to the addition of $1,706,341, $179,399 and $955,001
in personnel, occupancy and operating expenses, respectively, related to the
start up of BancMortgage.
The increase for 1995 was primarily due to the addition of Security Bank's
expenses for the third and fourth quarters of 1995 and to normal increases in
salary and occupancy expenses.
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 $360,000 in 1996 as compared
to $98,043 in 1995 and $208,096 in 1994. The Company's allowance for loan losses
was $2,261,406 at December 31, 1996 which was 1.09% of year-end loans and
115.65% of total nonperforming loans as compared to $2,335,788 at December 31,
1995, which was 1.61% of year-end loans and 103.8% of total nonperforming loans.
While the ratio of the allowance to year-end loans decreased from 1.61% to 1.09%
primarily due to an increase of loan volume in residential properties, the ratio
of the allowance to year-end nonperforming loans increased from 103.8% to
115.65%. Typically, loans secured by residential properties have a lower charge
off rate.
At December 31, 1996, loans over 90 days past due and non accrual loans
totaled $1,358,801 or .65% of gross outstanding loans as compared to $1,280,683
or .88% at December 31, 1995.
The provision for loan losses in 1996 was approximately $262,000 more than
the amount provided in 1995 and the amount provided in 1995 was approximately
$110,000 less than the amount provided in 1994. These changes were the result of
management's valuation of the loan portfolio at each year end.
Net charge-offs amounted to $434,382 in 1996 representing .23% of average
loans, as compared to $134,961 in 1995, representing .11% of average loans and
$65,633 in 1994, representing .07% of average loans.
19
<PAGE> 20
The following table summarizes, for the five years ended December 31, 1996,
selected information related to the allowance for loan losses:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses at beginning of period $ 2,335,788 $ 1,744,335 $ 1,601,902 $ 1,703,592 $ 1,265,939
------------ ------------ ----------- ------------ -----------
Balance of allowance of Security
Bank at June 30, 1995 628,371
Loans charged-off:
Commercial, financial & agricultural (183,218) (22,252) (37,146) (250,732) (4,898)
Real Estate - construction
Real Estate - mortgage (256,126) (47,110) (17,011) (4,507)
Installment loans to individuals (108,660) (44,242) (49,962) (45,433) (97,048)
Other (23,014) (62,230) (21,025) (80,262) (50,875)
------------- ------------ ----------- ------------ -----------
Total charged-off loans (571,018) (175,834) (125,144) (376,427) (157,328)
------------ ------------ ----------- ------------ -----------
Recoveries:
Commercial, financial & agricultural 32,857 5,566 1,893 5,517
Real Estate - construction
Real Estate - mortgage 65,150 1,610 4,772
Installment loans to individuals 28,760 17,429 15,387 11,917 12,776
Other 9,869 16,268 37,429 13,055 11,688
------------ ------------ ----------- ------------ -----------
Total recoveries 136,636 40,873 59,481 24,972 28,981
------------ ------------ ----------- ------------ -----------
Net charge-offs (434,382) (134,961) (65,663) (351,455) (128,347)
Additions to allowance 360,000 98,043 208,096 249,765 566,000
------------ ------------ ----------- ------------ -----------
Balance of allowance for
loan losses at end of period $ 2,261,406 $ 2,335,788 $ 1,744,335 $ 1,601,902 $ 1,703,592
============ ============ =========== ============ ===========
Average amount of loans $188,885,803 $122,451,274 $97,723,297 $103,336,660 $101,181,597
============ ============ =========== ============ ============
Ratio of net charge-offs during the
period to average loans outstanding
during the period .23% .11% .07% .34% .13%
Ratio of allowance to year-end loans 1.09% 1.61% 1.73% 1.54% 1.62%
</TABLE>
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
20
<PAGE> 21
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, 1996.
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
1997 is as follows:
<TABLE>
<S> <C>
Commercial, financial & agricultural $100,000
Real estate - construction and mortgage 175,000
Installment loans to individuals 125,000
--------
Total $400,000
========
</TABLE>
LOANS
Loans increased approximately $85.4 million or 58.74% as compared to 1995.
Approximately $23.2 million is attributable to loans originated by BancMortgage
held for sale as of December 31, 1996, and approximately $67.7 million of loans
originated by BancMortgage which were sold to Habersham Bank and included in
Habersham Bank's portfolio as of December 31, 1996.
The composition of the Company's loan portfolio changed during 1996 due to
the loans originated by BancMortgage and either sold to Habersham Bank or held
for sale as of December 31, 1996. Construction loans increased by approximately
$33.7 million or 204.39% when compared to 1995, commercial loans increased by
approximately $350,000 or 1.94% when compared to 1995, and real estate secured
loans increased by approximately $27.2 million or 28.27% when compared to 1995.
The increase in loans of approximately $44.6 million or 44.21% in 1995 when
compared to 1994 is attributable to the addition of Security Bank's loan
portfolio of approximately $34 million and purchase of participation loans of
approximately $10 million.
21
<PAGE> 22
The amount of loans outstanding for the five years ended December 31, 1996
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>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial &
agricultural $ 18,292,993 $ 17,945,695 $ 13,653,109 $ 19,006,561 $ 20,719,893
Real Estate - construction 50,263,496 16,512,884 5,564,753 5,112,344 6,447,313
Real Estate - mortgage 123,601,815 96,361,817 68,992,708 68,830,196 66,218,750
Installment loans to individuals 15,410,015 14,613,500 12,637,913 11,204,998 11,718,479
------------ ------------ ------------ ------------ ------------
TOTAL $207,568,319 $145,433,896 $100,848.483 $104,154,099 $105,104,435
============ ============ ============ ============ ============
</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
and agricultural ............ $ 7,704,887 $4,854,846 $5,733,260 $18,292,993
Real estate - construction ... 46,284,567 1,919,742 2,059,187 50,263,496
----------- ---------- ---------- -----------
TOTAL ................... $53,989,454 $6,774,588 $7,792,447 $68,556,489
=========== ========== ========== ===========
LOAN INTEREST RATE SENSITIVITY:
Selected loans with:
Predetermined interest rates .. $ 8,555,733 $3,848,559 $4,228,508 $16,632,799
Floating or adjustable
interest rates ............... 45,433,721 2,926,029 3,563,939 51,923,690
----------- ---------- ---------- -----------
TOTAL $53,989,454 $6,774,588 $7,792,447 $68,556,489
=========== ========== ========== ===========
</TABLE>
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of nonaccrual loans, restructured loans and
other real estate owned. Nonperforming assets increased $890,803 at December 31,
1996 or 25.69% from December 31, 1995. This increase was primarily due to the
increase in other real estate.
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, 1996.
<TABLE>
<CAPTION>
Nonperforming assets: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 981,801 $1,022,683 $ 568,822 $ 763,425 $1,588,462
Restructured loans 973,559 1,227,411 1,318,790 1,169,987 132,281
Other real estate owned 2,403,397 1,217,860 1,165,954 1,180,431 2,028,908
---------- ---------- ---------- ---------- ----------
Total Nonperforming assets $4,358,757 $3,467,954 $3,053,566 $3,113,843 $4,940,211
========== ========== ========== ========== ==========
Ratios:
Nonperforming assets to total loans 2.10% 2.38% 3.03% 2.99% 4.70%
Nonperforming assets to total loans
plus other real estate owned 2.08% 2.36% 2.99% 2.96% 4.61%
Allowance to nonperforming assets 51.88% 67.35% 57.12% 51.44% 34.48%
Accruing loans past due 90 days or
more $ 377,000 $ 258,000 $ 196,017 $ 196,864 $ 325,041
</TABLE>
22
<PAGE> 23
Accrual of interest is discontinued when either principal or interest
becomes 90 days past due, or earlier when, in management's opinion,
collectibility of such interest is doubtful unless it is both well secured and
in the process of collection. Interest income that would have been recorded on
these nonaccrual and restructured loans in accordance with their original terms
totaled $213,484, $214,523 and $263,713, respectively, in 1996, 1995 and 1994,
compared with interest income recognized of $180,781, $164,015 and $214,700,
respectively.
At December 31, 1996, the Company had no significant loans which management
designated as potential problem loans which have not been disclosed above as
nonaccrual or past due loans.
The Company had impaired loans of $981,801 and $1,022,683 as of December 31,
1996 and 1995, respectively. The interest income recognized on such loans was
$84,646 and $57,416 for the years ended December 31, 1996 and 1995,
respectively.
Habersham Bank held a concentration in mortgages for agribusiness purposes in
the poultry industry at December 31, 1996 which totaled approximately $16
million, or approximately 8.32% of total net loans. Habersham Bank and Security
Bank held concentrations in residential construction loans at December 31, 1996,
totaling approximately $41.1 million or 21.43% and $9.1 million or 23.56%,
respectively, of total net loans. As of December 31, 1996, Habersham Bank and
Security Bank held concentrations in residential mortgages of approximately
$93.1 million or 48.45% and $7.2 million or 28.8%, respectively, of total net
loans.
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, 1996, approximately $31.6 million of
investment securities were classified as available for sale. Approximately
$57,000 of net unrealized gain, net of income taxes, was included in
Shareholders' Equity related to the available for sale investment securities.
23
<PAGE> 24
The following table sets forth the carrying amounts of investment securities
at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Investment securities
available for sale:
U.S. Treasury $ 801,003 $ 3,811,579
U.S. Government agencies 21,625,933 26,742,352
States & political subdivisions 8,520,859 9,059,417
Other investments 680,881 699,961
----------- -----------
Total $31,628,676 $40,313,309
=========== ===========
Investment securities held to maturity:
U.S. Treasury $ 199,634
U.S. Government agencies $ 2,187,521 3,407,647
States & political subdivisions 12,122,431 12,545,318
Other investments 4,453,992 1,345,592
----------- -----------
Total $18,763,944 $17,498,191
=========== ===========
</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 the
recognition of an unrealized gain of $279,112.
The following tables set forth the maturities of investment securities at
December 31, 1996 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 $ 801,003
U.S. Government agencies 3,185,029 $9,099,154 $2,254,651 $7,087,099
States & political subdivisions 939,891 1,965,294 2,063,987 3,551,687
Other investments 680,881
Weighted average yields:
U.S. Treasury 5.43%
U.S. Government agencies 5.64% 5.72% 5.85% 7.20%
States & political subdivisions 5.67% 6.09% 6.13% 6.19%
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
Investment securities held to maturity:
Carrying Value:
U.S. Government agencies $ 615,072 $ 493,690 $ 272,601 $ 806,158
States & political subdivisions 2,477,351 3,723,864 4,235,282 1,685,934
Other investments 99,000 99,000 4,255,992
Weighted average yields:
U.S. Government agencies 5.36% 6.63% 5.74% 7.32%
States & political subdivisions 4.76% 4.93% 5.04% 5.78%
</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, 1996.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets increased approximately $3.4 million
due to the acquisition of Security Bank effective June 30, 1995. Intangible
assets consisting of a premium on core deposits of approximately $400,000 and
goodwill of approximately $3 million were recorded in connection with the
acquisition.
DEPOSITS
Average deposits increased approximately $38.7 and $30.1 million during 1996
and 1995, respectively.
The Company's loan to deposit ratio based on average balances during each
year was 89.69% and 71.24% in 1996 and 1995, respectively. Management
anticipates maintaining a loan to deposit ratio between 80% to 90% in 1997.
The following table sets forth the average amount of deposits for the
Company which exceed 10% of average total deposits for the five years ended
December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
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 $ 37,566,357 $ 35,706,305 $36,267,136 $28,660,269 $24,421,278
Noninterest bearing
demand deposits 23,626,106 21,439,056 14,067,454 14,808,391 15,297,601
Time certificates of
deposits 141,763,866 108,190,308 86,130,065 86,639,094 97,886,292
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
AVG. AVG. AVG. AVG. AVG.
RATE RATE RATE RATE RATE
<S> <C> <C> <C> <C> <C>
Interest bearing
demand deposits 3.04% 3.02% 2.52% 2.68% 3.17%
Noninterest bearing
demand deposits N/A N/A N/A N/A N/A
Time certificates of
deposits 6.46% 5.43% 4.22% 4.28% 5.71%
</TABLE>
At December 31, 1996, time certificates of deposit of $100,000 or more
totaled $31,941,517. The maturities of all time certificates of deposit over
$100,000 are as follows:
<TABLE>
<S> <C>
3 months or less $12,149,732
Over 3 but not more than 12 months 13,233,390
Over 1 year but not more than 5 years 6,558,395
-----------
Total $31,941,517
===========
</TABLE>
OTHER BORROWINGS
Other borrowings increased approximately $44 million during 1996 as compared
with 1995 and $2.2 million during 1995 as compared with 1994 as a result of
borrowings from the Federal Home Loan Bank.
CAPITAL RESOURCES
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Banks must meet specific capital guidelines that
involve quantitative measures of the Company's and the Banks' assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and the Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Banks to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management
26
<PAGE> 27
believes, as of December 31, 1996, that the Company and the Banks meet all
capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notifications from both the Federal
Deposit Insurance Corporation and the Federal Reserve Bank of Atlanta
categorized the Company and the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Company and the Banks must maintain minimum total risk-based, Tier 1
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Company's and the Banks' actual capital amounts and ratios as of
December 31, 1996 follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital(to Risk Weighted Assets):
The Company $26,665 10.23% $20,854 8% $26,068 10%
Habersham Bank 18,443 10.67% 13,833 8% 17,291 10%
Security Bank 7,024 15.58% 3,606 8% 4,508 10%
Tier I Capital(to Risk Weighted Assets):
The Company $24,403 9.36% $10,427 4% 15,641 6%
Habersham Bank 16,921 9.79% 6,916 4% 10,375 6%
Security Bank 6,459 14.33% 1,803 4% 2,705 6%
Tier I Capital(to Average Assets):
The Company $24,403 9.01% $10,836 4% 13,545 5%
Habersham Bank 16,921 6.78% 9,980 4% 12,475 5%
Security Bank 6,459 11.62% 2,223 4% 2,779 5%
</TABLE>
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.
Treasury stock activity in 1996 consisted of 38,000 shares sold from the
Treasury upon exercise of options at a per share price of $7.51. Treasury stock
activity in 1995 consisted of 38,000 shares sold from the Treasury upon exercise
of options at a per share price of $6.78 and 41,447 shares acquired upon the
acquisition of Security Bank at a per share price of $6.33.
27
<PAGE> 28
Cash dividends were paid at a rate of $.03 per share in March, June,
September and December 1996. Cash dividends were paid at a rate of $.05 per
share in June and December 1995.
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
reflect the split. Also, $875,000 has been retroactively charged to Additional
Paid-in Capital and credited to Common Stock to reflect the stock split and the
change in par value.
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 AT DECEMBER 31, 1996
The objective of asset and liability management is to maintain an optimum
match of maturities and interest rate sensitivity between loans, investment
securities and deposits. In order to obtain this optimum match, adjustable rate
loans and maturity matched investments are used.
The Company's historical performance in various economic climates assists
management in making long-term asset and liability decisions for the Company.
The interest rate sensitivity analysis below has a negative one year gap of
approximately $29.5 million (excess of interest bearing liabilities to earning
assets repricing within one year). However, the Company's experience has shown
that NOW, IMMA and Savings deposits of approximately $46.3 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.
28
<PAGE> 29
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 7.22% $ 4,700,104 $ 9,691,844 $ 2,527,252 $12,830,130 $ 29,749,330
States & political subdivisions 8.47% 3,417,242 5,689,158 6,299,269 5,237,621 20,643,290
Loans 10.54% 170,997,973 38,353,383 21,516,158 230,867,514
Federal funds sold 5.66% $ 6,590,000 6,590,000
----- ------------ ------------ ----------- ----------- ------------
Total earning assets 9.78% $185,705,319 53,734,385 $30,342,679 18,067,751 287,850,134
----- ------------ ------------ ----------- ----------- ------------
INTEREST BEARING LIABILITIES:
Deposits:
Money Market and NOW 3.04% 39,401,692 39,401,692
Savings 2.71% 6,930,811 6,930,811
Certificates of Deposit 6.46% 123,482,679 31,353,939 154,836,618
Short term borrowings 5.09% $ 45,411,273 3,000,000 48,411,273
----- ------------ ------------ ----------- ----------- ------------
Total interest bearing
liabilities 5.54% $215,226,455 34,353,939 249,580,394
----- ------------ ------------ ----------- ----------- ------------
INTEREST RATE SPREAD 4.94%
=====
Excess (deficiency) of earning assets
over (to) interest bearing liabilities $(29,521,136) $ 19,380,446 $30,342,679 $18,067,751 $ 38,269,740
============ ============ =========== =========== ============
Cumulative Gap $(29,521,136) $(10,140,690) $20,201,989 $38,269,740
Ratio of cumulative gap to
total cumulative earning assets 15.90% 4.24% 7.49% 13.30%
Ratio of earning assets to
interest bearing liabilities 86.28% 156.41%
</TABLE>
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
29
<PAGE> 30
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 25%. The following table lists the liquidity ratios
for the Banks.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Habersham Bank 21.83% 35.03%
Security State Bank 26.84% 32.17%
</TABLE>
ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 125,"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. The Company adopted SFAS 125 effective January 1, 1997. The Company
has not completed the process of evaluating the impact that will result from
adopting SFAS 125 and is therefore, unable to disclose the impact that such
adoption will have on its financial position or results of operations. In 1996,
the FASB issued SFAS No. 127 (Deferral of the Effective Date of Certain
Provisions of SFAS No. 125). SFAS 127 defers the effective date of certain
provisions of SFAS 125 until December 31, 1997.
NEW SUBSIDIARY
Effective January 23, 1997, Habersham Bank signed a purchase and assumption
agreement to acquire substantially all of the assets of Dillard-Scruggs
Insurance Services of Cornelia, Inc. d/b/a Cornelia Insurance Agency. The
resulting corporation will be named Advantage Insurers, Inc. and will continue
to offer a full line of property, casualty and life insurance products. This
acquisition is expected to be accounted for as a purchase with an approximate
purchase price of $380,000 and is expected to begin operations during the second
quarter of 1997.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company as of December 31, 1996 and
1995, 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, 1996, and the report issued
thereon by the Company's
30
<PAGE> 31
independent public accountants, attached hereto as Exhibit 13 and are
incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 25, 1997, the Company replaced its existing independent public
accounting firm, Deloitte & Touche LLP ("Deloitte"), with KPMG Peat Marwick.
Neither of Deloitte's reports on the Company's financial statements for the
years ended December 31, 1995 or 1996 contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles. The change of accountants was approved by the
Board of Directors. The Company had no disagreements with Deloitte during any of
the years ended December 31, 1995 or 1996 or during the interim period through
February 25, 1997 (date of dismissal) on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure that
would have caused that firm to make reference to the subject disagreement if it
had not been resolved to Deloitte's satisfaction.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; AND FINANCIAL DISCLOSURE
Information concerning the Company's directors and executive officers
appears in the Proxy Statement under the headings "Election of
Directors-Nominees," "Executive Officers" and "Ownership of Stock - Compliance
with Section 16(a) of the Exchange Act" and is incorporated by reference
herein.
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.
31
<PAGE> 32
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.
32
<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.
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
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. (6)
13.0 Financial statements and notes thereto contained in the Habersham Bancorp
1996 Annual Report.
16.0 Change in Accountants. (7)
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 Registrant's Registration Statement on Form S-4 (Regis. No. 33-57915).
</TABLE>
33
<PAGE> 34
(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 on 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).
(6) 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, 1995
(File No. 0-13153).
(7) Incorporated herein by reference to exhibit of same number in the
Registrant's current report on Form 8-K dated March 4, 1997. (File No.
0-13153).
* Indicates the Registrant's plans, management contracts and compensatory
arrangements.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1996.
34
<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)
<TABLE>
<S> <C>
By: /s/ David D. Stovall Date: March 27, 1997
----------------------- -----------------
Director, President and
Chief Executive Officer
</TABLE>
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 27, 1997
- ---------------------- and Director
/s/ Thomas A. Arrendale, III Vice Chairman of the Board March 27, 1997
- ----------------------
and Director
/s/ David D. Stovall Director, President and March 27, 1997
- ----------------------
Chief Executive Officer *
/s/ James Holcomb Director March 27, 1997
- ---------------------
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
/s/ James A. Stapleton, Jr Director March 27, 1997
- ---------------------
/s/ C. Kenneth White Director March 27, 1997
- ---------------------
/s/ Calvin R. Wilbanks Director March 27, 1997
- ---------------------
</TABLE>
* Principal financial officer, principal executive officer, controller and
principal accounting officer.
36
<PAGE> 37
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 (2) and as of March 16, 1991
March 16, 1991 (3)............................. N/A
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) ............................ N/A
10.2* Habersham Bancorp Incentive Stock Option Plan,
as amended February 26, 1994 (4) ............... N/A
10.3* Habersham Bancorp Outside Directors Stock
Plan (5) ....................................... N/A
10.4* Habersham Bancorp 1996 Incentive Stock Option
Plan (6) ...................................... N/A
13.0 Financial statements and notes thereto contained
in the Habersham Bancorp 1996 Annual Report .... 39
16.0 Change in Accountants (7) ...................... N/A
21.0 Subsidiaries of Habersham Bancorp .............. 69
23.0 Consent of Independent Auditors ................ 70
24.0 A Power of Attorney is set forth on the
signature page to this Form 10-KSB ............ 35
27.0 Financial Data Schedule (for SEC use only)..... 71
</TABLE>
37
<PAGE> 38
(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 December 31, 1989. (File
No. 0-13153).
(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.(File No. 0-13153).
(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. (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).
(6) 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, 1995.
(File No. 0-13153).
(7) Incorporated herein by reference to exhibit of same number in the
Registrant's current report on Form 8-K dated March 4, 1997. (File No.
0-13153).
* Indicates the Registrant's plans, management contracts and compensatory
arrangements.
38
<PAGE> 1
EXHIBIT 13
39
<PAGE> 2
EXHIBIT 13
HABERSHAM BANCORP
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 8,418,554 $ 6,597,807
Federal funds sold 6,590,000 9,790,000
Investment securities available
for sale, at fair value (cost of $31,543,997
in 1996 and $40,034,650 in 1995) (Note 4) 31,628,676 40,313,309
Investment securities held to maturity, at cost
(estimated fair value of $18,820,701
in 1996 and $17,676,919 in 1995) (Note 5) 18,763,944 17,498,191
Loans held for sale 23,299,195
Loans (Notes 6 and 14) 207,568,319 145,433,896
Less: Unearned income (31,677) (43,731)
Allowance for loan losses (Note 6) (2,261,406) (2,335,788)
------------ ------------
Loans, net 205,275,236 143,054,377
------------ ------------
Premises and equipment, net (Note 7) 6,294,533 4,595,040
Interest receivable 2,250,498 2,015,240
Goodwill and other intangible assets, net of
accumulated amortization of
$226,183 in 1996 and $103,277 in 1995 (Note 3) 3,402,684 3,396,564
Other assets 4,087,667 2,325,448
------------ ------------
TOTAL ASSETS $310,010,987 $229,585,976
============ ============
LIABILITIES
Deposits (Note 8 and 14)
Demand $ 23,192,377 $ 23,128,946
Money market and NOW accounts 39,401,692 37,183,366
Savings 6,930,811 7,901,172
Time ($100,000 and over) 31,941,517 28,264,502
Other time 122,895,101 98,607,343
------------ ------------
Total Deposits 224,361,498 195,085,329
Short-term borrowings (Note 8) 502,056 1,596,601
Federal Home Loan Bank advances (Note 8) 47,909,217 3,700,000
Accrued interest payable 2,808,420 2,377,378
Other liabilities 6,761,007 921,199
------------ ------------
TOTAL LIABILITIES 282,342,198 203,680,507
------------ ------------
SHAREHOLDERS' EQUITY (Notes 10 and 11)
Common stock, $1.00 par value, authorized 10,000,000
shares, issued 2,403,974 shares in 1996 and 1995 2,403,974 2,403,974
Additional paid-in capital 8,897,758 8,837,624
Retained earnings 16,560,893 14,932,035
Net unrealized gain on investment securities
available for sale, net of deferred income taxes 56,511 207,637
Treasury stock, at cost (250,347) (475,801)
------------ ------------
SHAREHOLDERS' EQUITY - NET 27,668,789 25,905,469
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $310,010,987 $229,585,976
============ ============
</TABLE>
See notes to consolidated financial statements.
40
<PAGE> 3
HABERSHAM BANCORP
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 20,456,992 $ 12,901,162 $ 9,580,514
Investments:
U. S. Treasury and Government agencies 1,763,320 2,044,608 1,531,470
States and political subdivisions
(exempt from Federal income tax) 1,143,088 1,083,349 1,056,133
Other investment securities 231,415 174,356 136,920
Federal funds sold 455,733 352,521 129,640
----------- ----------- ----------
TOTAL INTEREST INCOME 24,050,548 16,555,996 12,434,677
----------- ----------- ----------
INTEREST EXPENSE
Time deposits, $100,000 and over 1,819,962 1,272,056 947,826
Other deposits 7,681,191 5,839,910 3,750,020
Short-term and other borrowings 1,542,482 286,507 103,086
----------- ----------- ----------
TOTAL INTEREST EXPENSE 11,043,635 7,398,473 4,800,932
----------- ----------- ----------
NET INTEREST INCOME 13,006,913 9,157,523 7,633,745
Provision for loan losses (Note 6) 360,000 98,043 208,096
----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,646,913 9,059,480 7,425,649
----------- ----------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts 649,586 536,891 430,211
Other service charges and commissions 201,064 207,287 232,887
Securities gains (losses), net (4,134) 76,842 25,128
Other income 747,075 550,269 518,889
----------- ----------- ----------
TOTAL NON-INTEREST INCOME 1,593,591 1,371,289 1,207,115
----------- ----------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits (Note 11) 6,513,959 3,781,345 3,152,261
Occupancy expenses 610,682 513,616 460,268
Furniture and equipment expenses 615,815 452,933 447,983
Data processing 275,995 217,626 179,421
Other operating expenses (Note 12) 3,745,865 2,864,847 2,379,972
----------- ----------- ----------
TOTAL NON-INTEREST EXPENSE 11,762,316 7,830,367 6,619,905
INCOME BEFORE INCOME TAXES 2,478,188 2,600,402 2,012,859
Provision for income taxes (Note 9) 570,339 579,390 354,474
----------- ----------- ----------
NET INCOME $ 1,907,849 $ 2,021,012 $ 1,658,385
=========== =========== ==========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE: (Note 10) $.79 $.99 $.98
=========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING (Note 10) 2,411,681 2,032,567 1,689,795
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
41
<PAGE> 4
HABERSHAM BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,907,849 $ 2,021,012 $ 1,658,385
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 360,000 98,043 208,096
Provision for losses on other real estate 35,036 217,000 120,000
Depreciation 714,665 497,804 509,334
Amortization of intangible assets 226,183 108,251
Deferred Income Tax (249,205) (158,663) (91,344)
Loss on sale of premises and equipment 1,040
(Gain) Loss on sale of securities 4,134 (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 in interest receivable (235,258) (668,298) (10,368)
(Increase) decrease in other assets (750,891) 190,255 (90,857)
Increase in interest payable 431,042 1,377,276 49,054
Increase (decrease) in other liabilities 5,583,003 (474,021) 218,545
---------- ----------- -----------
Net cash provided by operating activities 8,244,332 3,131,817 2,442,927
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale
Proceeds from maturity 12,939,548 4,396,036 6,440,949
Proceeds from sales 5,354,342 7,263,903 4,212,461
Purchases (9,842,371) (10,894,483) (17,232,821)
Investment securities held to maturity
Proceeds from maturity 4,194,438 4,524,864 2,522,864
Purchases (5,460,191) (5,381,720) (5,981,582)
Net decrease (increase) in loans (87,770,834) (12,372,090) 3,045,041
Purchases of premises and equipment (2,105,824) (248,155) (143,525)
Proceeds from sale of premises and equipment 47,767
Net additions of other real estate (70,339)
Proceeds from sale of other real estate 740,208 226,269 163,633
Cash and cash equivalents acquired upon acquisition
of Security Bancorp, Inc., net of cash payments 3,219,000
---------- ----------- -----------
Net cash used in investing activities (82,021,023) (9,266,376) (6,925,213)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 29,276,169 14,197,882 3,156,495
Net increase (decrease) in short-term borrowings (1,094,545) 594,859 (257,682)
Proceeds (repayments) from Federal Home Loan Bank advances, 44,209,217 2,200,000 (1,000,000)
Proceeds from sale of treasury stock 285,588 257,724 117,484
Cash dividends (278,991) (199,011) (133,060)
---------- ----------- -----------
Net cash provided by financing activities 72,397,438 17,051,454 1,883,237
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents (1,379,253) 10,916,895 (2,599,049)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,387,807 5,470,912 8,069,961
---------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $15,008,554 $16,387,807 $5,470,912
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $10,612,593 $ 6,208,061 $ 4,659,814
Income taxes 924,000 634,000 367,089
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other real estate acquired through loan
foreclosures $ 1,904,871 $ 280,277 $ 290,495
Loans granted to facilitate the sale of
other real estate 14,091 16,000 125,204
Unrealized gain (loss) on investment
securities available for sale, net of tax effect (151,126) 1,220,981 (1,338,528)
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 5
HABERSHAM BANCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN RETAINED
STOCK CAPITAL EARNINGS
<S> <C> <C> <C>
Balance at December 31, 1993 $ 1,750,000 $ 2,425,000 $ 11,584,709
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, net of deferred income taxes
----------- ----------- ------------
Balance at December 31, 1994 1,750,000 2,446,028 13,110,034
Net income 2,021,012
Cash dividends, $.10 per share (199,011)
Sale of 38,000 shares of Treasury Stock 28,904
Acquisition of Security Bancorp, Inc.
including 41,447 shares of Treasury Stock (Note 3) 653,974 6,362,692
Unrealized gain on investment
securities available for sale, net of deferred income taxes
----------- ----------- ------------
Balance at December 31, 1995 2,403,974 8,837,624 14,932,035
Net income 1,907,849
Cash dividends, $.12 per share (278,991)
Sale of 38,000 shares of Treasury Stock 60,134
Unrealized loss on investment
securities available for sale, net of deferred income taxes
----------- ----------- ------------
Balance at December 31, 1996 $ 2,403,974 $ 8,897,758 $ 16,560,893
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
AVAILABLE FOR SALE, TREASURY
NET OF DEFERRED INCOME TAXES STOCK
<S> <C> <C>
Balance at December 31, 1993 325,184 $ (538,587)
Net income
Cash dividends, $.08 per share
Sale of 16,740 shares of Treasury Stock 96,456
Unrealized loss on investment
securities available for sale, net of deferred income taxes (1,338,528)
----------- ----------
Balance at December 31, 1994 (1,013,344) (442,131)
Net income
Cash dividends, $.10 per share
Sale of 38,000 shares of Treasury Stock 228,820
Acquisition of Security Bancorp, Inc.
including 41,447 shares of Treasury Stock (Note 3) (262,490)
Unrealized gain on investment
securities available for sale, net of deferred income taxes 1,220,981
----------- ----------
Balance at December 31, 1995 207,637 (475,801)
Net income
Cash dividends, $.12 per share
Sale of 38,000 shares of Treasury Stock 225,454
Unrealized loss on investment
securities available for sale, net of deferred income taxes (151,126)
----------- ----------
Balance at December 31, 1996 $ 56,511 $ (250,347)
=========== ==========
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years
ended December 31, 1996, 1995 and 1994
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"), BancMortgage
Financial Corp ("BancMortgage"), The Advantage Group, Inc. and Appalachian
Travel Service, Inc. which are wholly-owned subsidiaries of the Company. All
intercompany transactions have been eliminated.
The Company's primary function is the operation of two banks in rural and
suburban communities in Habersham and Cherokee counties in Georgia and of a full
service single family mortgage lender and servicer located in the North Atlanta
metropolitan area. The Company's primary source of revenue is providing loans to
businesses and individuals in its 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.
A substantial portion of the Company's loans is secured by real estate in the
Atlanta, Georgia metropolitan area. Accordingly, the ultimate collectibility of
a substantial portion of the Company's mortgage loan portfolio is susceptible to
changes in real estate market conditions in the Atlanta, Georgia area.
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.
44
<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
The Company classifies 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 investments classified as held to maturity with an
unamortized cost of $5,569,161 and a fair value of $5,848,273, to available for
sale. The reclassification resulted in an unrealized gain of approximately
$279,112.
Investment securities classified as available for sale are carried at fair
value. The related unrealized gain or 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 classified as 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.
LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or market
determined on an aggregate basis. Market values are determined using current
market rates for mortgage loans of similar quality and type plus the value of
the related servicing. At December 31, 1996, there were no valuation adjustments
on mortgage loans held for sale.
45
<PAGE> 8
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.
PURCHASED MORTGAGE LOAN SERVICING RIGHTS
Purchased mortgage loan servicing rights are calculated pursuant to SFAS No.
122, "Accounting for Mortgage Servicing Rights," an amendment of SFAS No. 65,
which allows enterprises to recognize as separate assets, the rights to service
mortgage loans for others, whether those servicing rights are acquired via
purchase or origination. The purchased mortgage loan servicing rights are
amortized in proportion to and over the period of estimated net servicing income
taking into consideration assumed prepayment patterns. The carrying values of
the purchased mortgage loan servicing rights are evaluated and adjusted
periodically based on actual portfolio prepayments, so that the recorded amounts
do not exceed the present value of the future net servicing income. At the
present time, the Company has not recorded any originated mortgage servicing
rights.
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.
46
<PAGE> 9
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
twenty-five 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 five
years. Carrying values of goodwill and the other intangibles are periodically
reviewed to assess recoverability based on the expected 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, 1996.
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 PARTICIPATIONS
When loans are participated, 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.
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
47
<PAGE> 10
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.
NET INCOME PER SHARE
Net income per share is 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 1995 and 1994 financial
statements to conform to the 1996 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. The Company plans to adopt
SFAS 125 effective January 1, 1997. The Company has not completed the process of
evaluating the impact that will result from adopting SFAS 125 and is therefore,
unable to disclose the impact that such adoption will have on its financial
position or results of operations. In 1996, the FASB issued SFAS No. 127,
(Deferral of the Effective Date of Certain Provisions of SFAS No. 125). SFAS 127
defers the effective date of certain provisions of SFAS 125 until December 31,
1997.
3. ACQUISITIONS
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, totaled 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
48
<PAGE> 11
connection with the merger and are being amortized over a five and twenty-five
year period, respectively.
Effective September 1, 1996, Habersham Bank acquired all of the outstanding
stock of Appalachian Travel Service, Inc., Cornelia, Georgia for $50,000 in
cash. The acquisition was accounted for as a purchase and no significant amount
of intangibles was recorded. The acquisition was insignificant to the operations
of the Company.
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
Amortized cost, estimated fair values and gross unrealized gains and losses of
investment securities available for sale are as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasuries .... $ 799,859 $ 1,619 $ 475 $ 801,003
U.S. Government
agencies ......... 21,757,632 139,733 $271,432 21,625,933
States and political
subdivisions ..... 8,236,506 289,568 5,215 8,520,859
Other Investments .. 750,000 69,119 680,881
----------- -------- -------- -----------
Total ............ $31,543,997 $430,920 $346,241 $31,628,676
=========== ======== ======== ===========
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
=========== ======== ======== ===========
</TABLE>
During 1996, 1995 and 1994, there were realized gains of $31,980, $114,153 and
$37,664 and realized losses of $36,114, $37,311 and $12,536, respectively, from
sales of available for sale securities.
The amortized cost and estimated fair values of securities available for sale at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay
49
<PAGE> 12
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.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED COST FAIR VALUE
<S> <C> <C>
Due in one year or less................. $ 4,917,130 $ 4,925,924
Due after one year through five years... 11,140,766 11,064,448
Due after five years through ten years.. 4,299,320 4,318,637
Due after ten years..................... 11,186,781 11,319,667
----------- -----------
Total ................................ $31,543,997 $31,628,676
=========== ===========
</TABLE>
Securities available for sale with a fair value of $11,552,061 were pledged as
collateral at December 31, 1996 for public deposits and other deposits, as
required by law.
5. INVESTMENT SECURITIES HELD TO MATURITY
Amortized cost, estimated fair values and gross unrealized gains and losses of
investment securities held to maturity are as follows:
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Government
agencies.............. $ 2,187,521 $ 17,780 $26,460 $ 2,178,841
States and political
subdivisions......... 12,122,431 114,053 48,616 12,187,868
Other investments..... 4,453,992 4,453,992
----------- -------- ------- -----------
Total .............. $18,763,944 $131,833 $75,076 $18,820,701
=========== ======== ======= ===========
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
=========== ======== ======== ===========
</TABLE>
50
<PAGE> 13
The amortized cost and estimated fair values of securities held to maturity
at December 31, 1996, 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.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED COST FAIR VALUE
<S> <C> <C>
Due in one year or less................. $ 3,191,423 $ 3,194,624
Due after one year through five years... 4,316,554 4,332,627
Due after five years through ten years.. 4,507,883 4,501,998
Due after ten years..................... 6,748,084 6,791,452
----------- -----------
Total ................................ $18,763,944 $18,820,701
=========== ===========
</TABLE>
Securities held to maturity with a fair value of approximately $8,012,511 were
pledged as collateral at December 31, 1996 for public deposits and other
deposits, as required by law.
6. LOANS
At December 31, 1996 and 1995, loans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Real Estate:
Construction......................... $ 50,263,496 $ 16,512,884
Other................................ 123,601,815 96,361,817
Commercial............................ 18,292,993 17,579,029
Installment........................... 14,601,409 14,613,500
Other................................. 808,606 366,666
------------ ------------
Total............................. $207,568,319 $145,433,896
============ ============
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance, January 1.............. $2,335,788 $1,744,335 $1,601,902
Acquired in acquisition ........ 628,371
Provision for loan losses....... 360,000 98,043 208,096
Loans charged off............... (571,018) (175,834) (125,144)
Recoveries...................... 136,636 40,873 59,481
--------- ---------- ----------
Balance, December 31............ $2,261,406 $2,335,788 $1,744,335
========== ========== ==========
</TABLE>
51
<PAGE> 14
The Company adopted SFAS Nos. 114 & 118 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 original 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 $981,801 and $1,022,683 of December 31, 1996 and 1995,
respectively, which included all of its nonaccrual loans. The average amount of
impaired loans during 1996 and 1995 was $870,559 and $1,015,818, respectively.
Under the provisions of such Statements, approximately $177,000 was allocated to
reserves. The interest income recognized on such loans was $184,646 in 1996 and
$57,416 in 1995, which approximated the amount of interest received on the cash
basis.
Restructured loans not considered impaired totaled $973,559 at December 31, 1996
and $1,227,411 at December 31, 1995. Interest income that would have been
recorded on such restructured loans in accordance with their original terms
totaled $109,919 in 1996 and $111,796 in 1995, compared with amounts recognized
of $96,134 in 1996 and $106,599 in 1995.
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, 1996 and
1995, the Company had outstanding loan commitments of $43,212,000 and
$27,619,000, respectively, and standby letters of credit of $446,000 and
$1,145,000, 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, 1996 and 1995,
52
<PAGE> 15
Habersham Bank's loans to customers for agribusiness purposes in the poultry
industry were approximately $16 and $24 million, respectively. As of December
31, 1996 and 1995, Security State Bank's loans for residential construction
purposes totaled approximately $7.2 and $15.5 million, respectively. 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, proved to be of no value, is equal to the face amount of the
financial instrument.
At December 31, 1996, the Company has gross commitments to acquire mortgage
loans in the amount of approximately $17,284,000 with a weighted average
interest rate of 7.33%. At December 31, 1996, the Company has gross commitments
to sell mortgage loans in the amount of $2,000,000 with an interest pass-
through rate of 7.00%.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land.......................... $ 807,157 $ 496,655
Buildings..................... 4,550,366 4,371,077
Furniture and equipment....... 5,583,403 3,657,486
---------- ----------
Total....................... 10,940,926 8,525,218
Less accumulated depreciation. 4,646,393 3,930,178
---------- ----------
Premises and equipment, net... $ 6,294,533 $4,595,040
=========== ==========
</TABLE>
The Company has entered into operating lease agreements for
equipment through 2001. Approximate minimum rentals under such
leases are as follows:
<TABLE>
<S> <C>
1997 $480,957
1998 486,752
1999 440,480
2000 418,252
2001 70,004
</TABLE>
Rental expense was $430,303 in 1996, $41,389 in 1995 and $38,050 in 1994.
53
<PAGE> 16
8. DEPOSITS AND OTHER BORROWINGS
At December 31, 1996, the scheduled maturities of certificates of deposits are
as follows:
<TABLE>
<S> <C>
6 months or less ............... $ 80,024,873
Over 6 through 12 months ....... 43,920,276
Over 1 year through 5 years .... 16,327,322
Over 5 years ................... 14,564,147
------------
Total ......................... $154,836,618
============
</TABLE>
Short-term borrowings of $502,056 and $1,596,601 at December 31, 1996 and 1995,
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.
The Company has Federal Home Loan Bank advances of $47,909,217 at December 31,
1996 and $3,700,000 at December 31, 1995 with a weighted average interest rate
of 5.75% at December 31, 1996 and 5.94% at December 31, 1995. The advances at
December 31, 1996 all mature in 1997 except for $3,000,000 which matures in May
1998. The average interest rates for such advances during 1996 and 1995 were
4.59% and 5.84%, respectively.
9. INCOME TAXES
The Company provides 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 provision for income taxes for the years ended December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current.................... $819,544 $738,053 $445,818
Deferred................... (249,205) (158,663) (91,344)
-------- --------- --------
Total.................... $570,339 $579,390 $354,474
======== ======== ========
</TABLE>
54
<PAGE> 17
At December 31, 1996 and 1995 the significant components of the Company's net
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets: 1996 1995
<S> <C> <C>
Allowance for possible loan losses $ 582,467 $ 591,499
Allowance for other real estate 74,800 74,800
Deferred Loan Fees 273,434 110,769
Other 75,073 38,772
---------- ---------
1,005,774 815,840
---------- ---------
Deferred Tax Liabilities:
Unrealized gain on investment
securities available for sale (28,168) (97,510)
Accumulated Depreciation (106,085)
Prepaids (69,684)
Other (25,652)
---------- ---------
(97,852) (229,247)
---------- ---------
Net Deferred Tax Asset $ 907,922 $ 586,593
========== =========
</TABLE>
No valuation allowance has been recorded by the Company as management considers
it more likely than not that all deferred tax assets will be realized.
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>
1996 1995 1994
<S> <C> <C> <C>
Income tax at statutory rate... $ 843,989 $ 884,137 $ 684,372
Effect of tax exempt income.... (347,804) (336,991) (317,126)
Amortization of intangibles.... 72,191 35,114
Other.......................... 1,963 (2,870) (12,772)
--------- --------- ---------
Provision for income taxes..... $ 570,339 $ 579,390 $ 354,474
========= ========= =========
</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 reflect the
split. Also, $875,000 has been retroactively charged to Additional Paid-in
Capital and credited to Common Stock to reflect the stock split and the change
in par value.
55
<PAGE> 18
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,
1996, the Banks could declare dividends to the Company up to approximately
$1,173,163 without regulatory approval.
The Company and the Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines, the Company and the Banks must meet specific
capital guidelines that involve quantitative measures of the Company's and the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's and the Banks' capital
amounts and the Banks' classifications under the regulatory framework for prompt
corrective action are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Company and the Banks meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996 and 1995, the most recent notifications from both the
Federal Deposit Insurance Corporation and the Federal Reserve Bank of Atlanta
categorized the Company and the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Company and the Banks must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
56
<PAGE> 19
The Company's and the Banks' actual capital amounts and ratios as of December
31, 1996 and 1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital(to Risk Weighted Assets):
The Company $26,665 10.23% $20,854 8% $26,068 10%
Habersham Bank 18,443 10.67% 13,833 8% 17,291 10%
Security Bank 7,024 15.58% 3,606 8% 4,508 10%
Tier I Capital(to Risk Weighted Assets):
The Company $24,403 9.36% $10,427 4% 15,641 6%
Habersham Bank 16,921 9.79% 6,916 4% 10,375 6%
Security Bank 6,459 14.33% 1,803 4% 2,705 6%
Tier I Capital(to Average Assets):
The Company $24,403 9.01% $10,836 4% 13,545 5%
Habersham Bank 16,921 6.78% 9,980 4% 12,475 5%
Security Bank 6,459 11.62% 2,223 4% 2,779 5%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995
Total Capital(to Risk Weighted Assets):
The Company $24,704 14.47% $13,660 8% $17,075 10%
Habersham Bank 17,200 13.16% 10,456 8% 13,070 10%
Security Bank 6,589 16.39% 3,216 8% 4,020 10%
Tier I Capital(to Risk Weighted Assets):
The Company $22,569 13.22% $ 6,830 4% $10,245 6%
Habersham Bank 15,566 11.91% 5,228 4% 7,842 6%
Security Bank 6,087 15.14% 1,640 8% 2,412 6%
Tier I Capital(to Average Assets):
The Company $22,569 11.26% $ 8,015 4% $10,019 5%
Habersham Bank 15,566 9.23% 6,748 4% 8,435 5%
Security Bank 6,087 11.58% 2,103 4% 2,629 5%
</TABLE>
At December 31, 1996 and 1995, the Company held 42,193 and 80,192 shares,
respectively, of treasury stock.
57
<PAGE> 20
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 Internal Revenue Service. The Company contributes amounts
as specified in the plan agreement. The Company's contribution to the plan
totaled $104,020 in 1996, $88,652 in 1995 and $67,938 in 1994.
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.
The Company's Outside Directors Stock Option Plan which provides that outside
directors 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 are fully vested on the
date of grant and exercisable six months from the date of grant. There are
350,000 shares reserved for issuance under the Plan.
Effective April, 1996, the Company's shareholders approved the Company's 1996
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 have been granted under the plan 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 250,000
shares which have been reserved for the Plan.
58
<PAGE> 21
A summary of the status of the Company's stock options plans as of December 31,
1996, 1995 and 1994 and changes during such years is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 269,754 $10.16 170,000 $ 8.08 168,000 $ 7.83
Granted 114,000 16.04 139,754 11.71 12,000 10.08
Exercised (38,000) 7.52 (38,000) 6.74 (10,000) 6.25
Terminated (2,000) 7.47
Outstanding and
exercisable at
------- ------- -------
end of year 345,754 12.40 269,754 10.16 170,000 8.08
------- ------- -------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Range of Number Weighted Average Weighted Average
Exercise Outstanding Remaining Exercise Price
Prices At 12/31/96 Contractual Life
------ ------------------------------ ----------------
<S> <C> <C> <C>
$ 8.33 40,000 1 $ 8.33
9.19 40,000 2 9.19
10.08 12,000 3 10.08
9.19 - 13.50 139,754 5.5 11.71
13.63 - 18.56 114,000 5.6 16.04
-------
345,754 4.5 12.40
=======
</TABLE>
The estimated fair value of options granted during 1996 and 1995 was $8.59 and
$6.84, respectively, per share. The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for its Incentive Stock Option Plan and
its Outside Directors Stock Option Plan. Had compensation cost for the Company's
incentive stock option plan and its outside director stock option plan been
determined based on the fair value at the grant dates for awards under those
plans consistent with a method included in SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net income and earnings per share for
the years ended December 31, 1996 and 1995 would have been reduced to the pro
forma amounts indicated below:
59
<PAGE> 22
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income to common shareholders:
As reported $1,907,849 $2,021,012
Pro forma 1,261,537 1,727,576
Net income per common and common equivalent share:
As reported $.79 $.99
Pro forma .52 .85
</TABLE>
The fair value of options granted under the Company's fixed stock option plans
during 1996 and 1995 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used:
expected dividend yield of less than 1%, expected volatility of 22% in 1996 and
32% in 1995, weighted average risk free interest rates of 5.90% with expected
weighted average life of 4.5 years in 1996 and 5 years in 1995. Pro forma
compensation cost of options granted under the Incentive Stock Option Plan and
Outside Directors Stock Option Plan is measured based on the discounted market
value.
12. OTHER OPERATING EXPENSES
Items comprising other operating expenses for the years ended December 31, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Outside services................. $ 615,765 $ 612,838 $ 714,538
Advertising and public relations. 788,040 621,524 489,952
Office supplies.................. 524,925 349,775 287,565
Other............................ 1,817,135 1,280,710 887,917
---------- ---------- ----------
Total.......................... $3,745,865 $2,864,847 $2,379,972
========== ========== ==========
</TABLE>
Outside services include charges for FDIC insurance, legal and professional
services, insurance, director fees and State of Georgia Department of Banking
fees.
13. 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
60
<PAGE> 23
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.
<TABLE>
<CAPTION>
1996
CARRYING FAIR
AMOUNT VALUE
Assets:
<S> <C> <C>
Cash and due from banks.................. $ 8,418,554 $ 8,418,554
Federal funds sold....................... 6,590,000 6,590,000
Investment securities available for sale. 31,628,676 31,628,676
Investment securities held to maturity... 18,763,944 18,820,701
Loans................................... 205,275,236 201,377,711
Liabilities:
Deposits................................. $224,361,498 $227,780,172
Short-term borrowings.................... 502,056 502,056
Other borrowings......................... 47,909,217 47,909,217
</TABLE>
<TABLE>
<CAPTION>
1995
CARRYING FAIR
AMOUNT VALUE
Assets:
<S> <C> <C>
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>
The carrying amounts of cash and due from banks, federal funds sold, and
short-term and other 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
61
<PAGE> 24
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.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996. 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 1996, 1995 and 1994 of loans to executive officers,
directors and principal shareholders is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance, January 1, .......... $4,139,208 $4,162,599 $ 4,868,492
Acquired in the acquisition .. 138,279
Amounts advanced.............. 6,013,837 4,789,363 7,726,038
Repayments.................... (5,087,784) (4,951,033) (8,431,931)
---------- ---------- -----------
Balance, December 31, ........ $5,065,261 $4,139,208 $4,162,599
========== ========== ==========
</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
62
<PAGE> 25
obtained from unaffiliated parties. Total fees paid to these directors for these
services were $46,375 for 1996, $40,350 for 1995 and $49,925 for 1994.
At December 31, 1996, 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.
On January 2, 1996, a Mortgage Banking Agreement (the "Agreement") was entered
into between Habersham, BancMortgage, the Company and BancMortgage's two
Principals/Directors. The Agreement provides, among other things, organizational
structure of BancMortgage, certain compensation terms and buy-out arrangements.
15. SUBSEQUENT EVENT
Effective January 23, 1997, Habersham Bank signed a purchase and assumption
agreement to acquire substantially all of the assets of Dillard-Scruggs
Insurance Services of Cornelia, Inc. d/b/a Cornelia Insurance Agency. The
resulting corporation will be named Advantage Insurers, Inc., and will continue
to offer a full line of property, casualty and life insurance products. This
acquisition is expected to be accounted for as a purchase with an approximate
purchase price of $380,000 and is expected to begin operations during the second
quarter of 1997.
63
<PAGE> 26
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
ASSETS: 1996 1995
<S> <C> <C>
Cash..................................... $ 240,148 $ 297,026
Investment in subsidiaries............... 23,933,109 22,100,107
Other investments........................ 213,159 113,159
Fixed Assets ............................ 14,224
Intangible assets ....................... 3,325,678 3,396,564
Other assets............................. 10,081 2,896
----------- -----------
Total assets............................. $27,736,399 $25,909,752
=========== ===========
LIABILITY:
Accounts Payable......................... $ 67,610 4,283
SHAREHOLDERS' EQUITY:
Common stock............................. 2,403,974 $ 2,403,974
Additional paid-in Capital............... 8,897,758 8,837,624
Retained earnings........................ 16,560,893 14,932,035
Unrealized gain on investment
securities available for sale........... 56,511 207,637
Treasury stock, at cost.................. (250,347) (475,801)
----------- -----------
Shareholders' equity - net .............. 27,668,789 25,905,469
----------- -----------
Total Liability & Shareholders' Equity .. $27,736,399 $25,909,752
=========== ===========
</TABLE>
64
<PAGE> 27
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS For the years ended
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
INCOME
Dividends from subsidiary...... $ 364,000 $ 1,677,750 $ 760,000
Other income - management fees
from subsidiary............... 743,940 324,328 321,533
---------- ----------- -----------
Total Income................. 1,107,940 2,002,078 1,081,533
EXPENSES - General and
administrative................ 1,314,893 488,916 327,074
---------- ----------- -----------
Income (loss) before income taxes and
equity in undistributed earnings
of subsidiaries............... (206,953) 1,513,162 754,459
Income tax credit.............. 130,675 19,338 1,406
Income (loss) before equity
in undistributed
---------- ---------- -----------
earnings...................... (76,278) 1,532,500 755,865
Equity in undistributed earnings of
subsidiaries................... 1,984,127 488,512 902,520
---------- ----------- -----------
Net Income..................... 1,907,849 2,021,012 1,658,385
RETAINED EARNINGS AT
BEGINNING OF YEAR ............. 14,932,035 13,110,034 11,584,709
Cash dividends on common stock. (278,991) (199,011) (133,060)
---------- ---------- ----------
RETAINED EARNINGS AT
END OF YEAR .................... $16,560,893 $14,932,035 $13,110,034
=========== =========== ===========
</TABLE>
65
<PAGE> 28
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
<S> <C> <C> <C>
Net Income....................... $1,907,849 $2,021,012 $1,658,385
Depreciation ................... 2,845
Amortization of intangible assets 212,326 103,277
Deferred income taxes ........... (31,431)
Changes in assets and liabilities,
net of effects:
Increase in other assets ..... (7,185)
Decrease in other liabilities . (46,682)
Equity in undistributed
earnings of subsidiaries....... (1,984,127) ( 488,512) ( 902,520)
---------- ---------- ----------
Net cash provided by
operating activities............ 53,595 1,635,777 755,865
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash payment in acquisition of
Security Bancorp, Inc. including
expenses of $345,717 .......... (2,335,987)
Purchase of investments ......... (100,000)
Purchase of equipment ........... (17,070)
Net cash used in investing --------- ----------
activities .................... (117,070) (2,335,987)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends........ (278,991) (199,011) (133,060)
Proceeds from sale of
treasury stock................. 285,588 257,724 117,484
---------- ---------- ----------
Net cash used by
financing activities............ 6,597 58,713 ( 15,576)
---------- ---------- ----------
Increase (decrease) in cash...... (56,878) (641,497) 740,289
CASH AT BEGINNING OF YEAR........ 297,026 938,523 198,234
---------- ---------- ----------
CASH AT END OF YEAR.............. $ 240,148 $ 297,026 $ 938,523
========== ========== ==========
</TABLE>
66
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
Habersham Bancorp,
Shareholders and Directors:
We have audited the accompanying consolidated balance sheets of Habersham
Bancorp and its subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 17, 1997
(January 23, 1997 as to Note 15)
67
<PAGE> 30
HABERSHAM BANCORP
SELECTED FINANCIAL DATA
(dollars in thousands, except per share date)
<TABLE>
<CAPTION>
For the years ended December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income $ 24,051 $ 16,556 $ 12,435 $ 12,330 $ 13,823
Interest Expense 11,044 7,398 4,801 4,678 6,528
Other Income 1,594 1,371 1,207 918 1,049
Other Expense 11,762 7,830 6,620 6,330 6,081
Income before cumulative effect
of change in accounting principle 1,908 2,021 1,658 1,645 1,410
Net Income 1,908 2,021 1,658 1,558 1,410
PER SHARE AMOUNTS
Income before cumulative effect
of change in accounting principle $ 0.79 $ 0.99 $ 0.98 $0.98 $ 0.85
Cumulative effect of change in
accounting principle -0.05
----------------------------------------------------------
Net Income $ 0.79 $ 0.99 $ 0.98 # 0.93 $ 0.85
Dividends 0.12 0.1 0.08 0.08 0.08
Weighted average number of common and
common equivalent shares outstanding 2,411,681 2,032,567 1,689,795 1,672,065 1,663,670
AT DECEMBER 31
Total Assets $ 310,011 $ 229,586 $ 161,327 $ 158,856 $ 150,639
Earning Assets 287,850 213,035 152,018 150,212 140,726
Loans 230,867 145,434 100,848 104,154 105,104
Deposits 224,361 195,085 141,615 138,459 134,451
Shareholders' Equity 27,669 25,905 15,851 15,546 13,710
RATIOS
Return on average assets 0.70% 1.01% 1.02% 1.01% 0.89%
Return on average equity 7.16% 9.39% 10.50% 10.66% 10.70%
Dividend payout ratio 9.85% 8.02% 8.51% 8.84%
Average equity to average assets ratio 9.84% 10.74% 9.76% 9.50% 8.31%
</TABLE>
68
<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. and Appalachian Travel Service, which are a wholly owned
subsidiaries 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.
Appalachian Travel Service, Inc., a Georgia corporation.
69
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Habersham Bancorp's Registration
Statement Nos. 33-64149, 33-61587 and 33-61589 on Forms S-8 and Registration
Statement No. 333-18023 on Form S-3 of our report dated January 17, 1997
(January 23, 1997 as to Note 15), appearing in this Annual Report on Form 10-KSB
of Habersham Bancorp for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 24, 1997
70
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,418,554
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,590,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,628,676
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<LOANS> 230,867,514
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<DEPOSITS> 224,361,498
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<LIABILITIES-OTHER> 9,569,427
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0
0
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<INTEREST-OTHER> 455,733
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<INTEREST-DEPOSIT> 9,501,153
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<INTEREST-INCOME-NET> 13,006,913
<LOAN-LOSSES> 360,000
<SECURITIES-GAINS> (4,134)
<EXPENSE-OTHER> 11,762,316
<INCOME-PRETAX> 2,478,188
<INCOME-PRE-EXTRAORDINARY> 2,478,188
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<ALLOWANCE-CLOSE> 2,261,406
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<ALLOWANCE-FOREIGN> 0
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</TABLE>
