U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
_
|X| Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee required]
For fiscal year ended December 31, 1995
Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No fee required]
For the transition period from ___________ to
____________
Commission file number 0-24008
BUTTON GWINNETT FINANCIAL CORPORATION
(Name of Small Business Issuer in Its Charter)
Georgia 58-1766331
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organizaiton Identification No.)
2230 Scenic Highway, Snellville, Georgia 30278
(Address of Principal Executive Offices) (Zip Code)
(770) 978-3242
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 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 past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for past 90 days.
Yes X No_________
Check if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. []
(Cover page continued)
State issuer's revenues for its most recent fiscal year:
$14,815,250
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:
$8,260,977 as of March 25, 1996.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: 1,380,487 as of
March 25, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 Annual Report to
Shareholders are included by reference into Part II.
Portions of the Registrant's Proxy Statement for the
1996 Annual Meeting of Shareholders are incorporated by
reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Button Gwinnett Financial Corporation (the "Company")
is the surviving corporation resulting from the merger (the
"Merger") of Button Gwinnett Bancorp, Inc. ("BGB"), a
Georgia corporation, and The Gwinnett Financial Corporation
("GFC"), a Georgia corporation, on January 25, 1994.
Following the Merger, the Company held all of the common
stock of two subsidiary banks, The Bank of Gwinnett County
(the "Bank"), a banking corporation chartered by the State
of Georgia, and Button Gwinnett National Bank ("BGNB"), a
national banking association. On September 25, 1993, the
Bank acquired one of the two offices of BGNB which was
located at 2230 Scenic Highway, Snellville, Georgia, and the
Company sold the assets and liabilities associated with the
other office of BGNB which was located at 4640 Jimmy Carter
Boulevard, Norcross, Georgia, to Mountain Holding
Corporation. This acquisition and sale is referred to
herein as the "Reorganization."
The Company was organized to facilitate the Bank's
ability to serve its customers' requirements for financial
services. The holding company structure also provides
flexibility for expansion of the Company's banking business
through the possible acquisition of other financial
institutions and the provision of additional banking-related
services that a traditional commercial bank may not provide
under present laws. It is expected that the Company may
make additional acquisitions in the future in the event that
such acquisitions are deemed to be in the best interests of
the Company and its shareholders. Such acquisitions, if
any, will be subject to certain regulatory approvals and
requirements. The Company is not presently involved in any
such negotiations, but can enter into such negotiations from
time to time. See Item 1 "Description of Business -
Supervision and Regulation."
From time to time, management of the Company reviews
the permissible nonbanking activities in which the Company
could engage, but currently has no specific plans with
respect to any nonbanking activities. The Company's future
nonbanking activities may include financial and other
activities permitted by law, and such activities could be
conducted by subsidiary corporations that have not yet been
organized. Commencement of nonbanking operations by
subsidiaries, if they are organized, will be contingent upon
the approval by the Board of Directors of the Company and by
appropriate regulatory authorities.
The Bank
The Bank is a full-service commercial bank. The Bank
offers personal and business checking accounts, interest-
bearing checking accounts, and various types of certificates
of deposit. The Bank also provides financing for commercial
transactions, makes secured and unsecured loans and provides
other financial services to its customers.
Market Area and Competition
Gwinnett County, the Bank's primary service area, is
located 25 miles northeast of downtown Atlanta, Georgia.
Gwinnett County was chartered by the Georgia legislature in
1818 and was named for Button Gwinnett, a signer of the
Declaration of Independence. Gwinnett county has 13
municipalities, including Lawrenceville, Snellville, Buford,
Lilburn, Duluth and Norcross. The County Seat is
Lawrenceville.
The banking industry in Georgia is highly competitive.
In recent years, intense market demands, economic pressures,
rapidly fluctuating interest rates and increased customer
awareness of product and service differences among financial
institutions have forced banks to diversify their services
and become more cost effective. The Bank faces strong
competition in attracting deposits and making loans. Its
most direct competition for deposits comes from savings
institutions, commercial banks, credit unions and issuers of
securities such as shares in money market funds. Interest
rates, convenience of office locations and marketing are all
significant factors in the Bank's competition for deposits.
Competition for loans comes from savings institutions,
commercial banks, insurance companies, consumer finance
companies, credit unions and other institutional lenders.
The Bank competes for loan originations through the interest
rates and loan fees it charges and the efficiency and
quality of services it provides. Competition is affected by
the general availability of lendable funds, general and
local economic conditions, current interest rate levels and
other factors that are not readily predictable.
Deposits
The Bank offers a wide range of commercial and consumer
deposit accounts, including noninterest bearing checking
accounts, money market checking accounts (consumer and
commercial), negotiable order of withdrawal ("NOW")
accounts, individual retirement accounts, time certificates
of deposit, and regular savings accounts. The sources of
deposits typically are residents and businesses and their
employees within the Bank's market area, and are obtained
through personal solicitation by the Bank's officers and
directors, direct mail solicitation, and advertisements
published in the local media. The Bank pays competitive
interest rates on time and savings deposits and has
implemented a service charge fee schedule competitive with
other financial institutions in the Bank's market area,
covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts,
returned check charges, and the like.
Lending Activities
The Bank makes primarily real estate-construction;
commercial loans; and to a lesser extent consumer loans. As
of December 31, 1995 such loans constituted 29.1%, 56.5% and
14.4%, respectively, of the loans.
Real Estate Loans
The Bank makes single-family residential construction
loans for one-to four-unit structures. The Bank requires a
first lien position on the land associated with the
construction projects and offers these loans only to
qualified residential building contractors. Loan
disbursements require on-site inspections to assure the
project is on budget and that the loan proceeds are being
used in accordance with the plans, specifications and survey
for the construction project and not being diverted to
another project. The loan to value ratio for such loans is
predominately 75% of the appraised value based on plans and
specifications, and is a maximum of 80% if the loan is
amortized. Loans for construction can present a high degree
of risk to the lender, depending on, among other things,
whether the builder can sell the home to a buyer, whether
the buyer can obtain permanent financing, whether the
transaction produces income in the interim, and the nature
of changing economic conditions.
The Bank also makes acquisition and development loans
to Bank-approved developers for the purpose of developing
acreage into single-family lots on which houses will be
built. Loan disbursements require on-site inspections to
assure the project is on budget and that the loan proceeds
are being used for the development project and not being
diverted to another project. The loan-to-value ratio for
such loans does not exceed 75% of the discounted value, as
defined in the appraisal report. Loans for acquisition and
development can present a high degree of risk to the lender,
depending upon, among other things, whether the developer
can find builders to buy the lots, whether the builder can
obtain financing, whether the transaction produces income in
the interim and the nature of changing economic conditions.
Commercial Loans
Commercial lending is directed principally towards
businesses whose demand for funds falls within the Bank's
legal lending limits and are existing or potential deposit
customers of the Bank. This category includes loans made to
individual, partnership or corporate borrowers obtained for
a variety of purposes. Risks associated with these loans
can be significant. Risks include, but are not limited to,
fraud, bankruptcy, economic downturn, deteriorated or non-
existing collateral and changes in interest rates.
Additionally, the Bank offers first mortgage loans on
commercial real estate for owner occupied or investment real
estate. Almost all conventional first mortgage loans
originated by the Bank have a loan-to-value that does not
exceed 80% with a maximum term of 20 years and call
provisions every three to five years. Such loans carry
fixed or adjustable interest rates. Risks involved with
commercial mortgage lending include, but are not limited to,
title defects, fraud, general real estate market
deterioration, inaccurate appraisals, violation of banking
protection laws, interest rate fluctuations and financial
deterioration of borrower.
The Bank also makes commercial loans to small
businesses with respect to which the U.S. Small Business
Administration ("SBA") guarantees repayment on varying
percentages of the loan amount, subject to certain other
limitations. The Bank may sell the guaranteed portion of
these loans to institutional investors in the secondary
markets. The Bank also participates in other SBA loan
programs. Risks associated with these loans include, but
are not limited to, credit risk, e.g., fraud, bankruptcy,
economic downturn, deteriorated or non-existing collateral
and changes in interest rates, and operational risk, e.g.,
failure of the Bank to adhere to SBA funding and servicing
requirements in order to secure and maintain the SBA
guarantees and servicing rights.
Consumer Loans
The Bank makes consumer loans, consisting primarily of
installment loans to individuals for personal, family and
household purposes, including loans for automobiles and
investments, first mortgage residential loans and home
equity lines of credit. Risks associated with these loans
include, but are not limited to, fraud, bankruptcy,
deteriorated or non-existing collateral, general economic
downturn, interest rate fluctuations and customer financial
problems.
Investment Activities
After establishing necessary cash reserves and funding
loans, the Bank invests its remaining liquid assets in
investments allowed under banking laws and regulations. The
Bank invests primarily in obligations of the United States
or obligations guaranteed as to principal and interest by
the United States, and other taxable securities and in
certain obligations of states and municipalities. The Bank
also engages in Federal Funds transactions with its
principal correspondent banks and primarily acts as a net
seller of such funds. The sale of Federal Funds amounts to
a short-term loan from the Bank to another bank. Risks
associated with these investments include, but are not
limited to, mismanagement in terms of interest rate,
maturity and concentration.
Asset/Liability Management
It is the objective of the Bank to manage its assets
and liabilities to provide a satisfactory, consistent level
of profitability within the framework of established cash,
loan, investment, borrowing and capital policies. Certain
officers of the Bank are charged with the responsibility for
developing and monitoring policies and procedures that are
designed to insure acceptable composition of the
asset/liability mix. It is the overall philosophy of
management to support asset growth primarily through growth
of core deposits, which include deposits of all categories
made by individuals, partnerships and corporations.
Management of the Bank seeks to invest the largest portion
of the Bank's assets in small- to medium-sized business
loans and real estate related loans. The Bank's
asset/liability mix is monitored on a timely basis with a
report reflecting interest-sensitive assets and interest-
sensitive liabilities being prepared and presented to the
Bank's Asset/Liability Committee on a monthly basis. The
objective of this policy is to manage interest-sensitive
assets and liabilities so as to minimize the impact of
substantial movements and interest rates on the Bank's
earnings. See "Selected Financial Data" in the Company's
Annual Report to Shareholders, which is included in Exhibit
13.1 to this Annual Report on Form 10-KSB and is
incorporated herein by reference.
Employees
As of December 31, 1995, the Bank had 47 full-time
employees and 8 part time employees. The Bank is not a
party to any collective bargaining agreement, and, in the
opinion of management, enjoys excellent relations with its
employees. The Company does not have any employees who are
not also employees of the Bank.
SELECTED STATISTICAL INFORMATION OF
BUTTON GWINNETT FINANCIAL CORPORATION
The following statistical information is provided for
the Company for the years ended December 31, 1995 and 1994.
The data is presented using daily average balances. This
data should be read in conjunction with the financial
statements incorporated into this Annual Report.
Average Balances and Net Income Analysis
The following tables set forth the amount of the
Company's interest income or interest expense for each
category of interest-earning assets and interest-bearing
liabilities and the average interest rate for total
interest-earning assets and total interest-bearing
liabilities, net interest spread and net yield on average
interest-earning assets.
<TABLE>
<CAPTION>
---------------------- YEARS ENDED DECEMBER
31-----------------------------
------------1995--------------
- ---------1994------------------
AVERAGE
AVERAGE
INTEREST YIELD/
INTEREST YIELD
AVERAGE INCOME/ RATE AVERAGE
INCOME/ RATE
BALANCE EXPENSE PAID BALANCE
EXPENSE PAID
(Dollars in Thousands)
<S> <C> <C> <C>
<C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned income $ 99,937 $ 11,397 11.40%
$ 78,283 $ 8,300 10.60%
Federal Funds Sold 14,368 831 5.78%
8,589 345 4.02%
Taxable investments 18,767 1,083 5.77%
14,919 816 5.47%
Tax-exempt investments 4,364 211 4.84%
4,579 207 4.52%
Interest-bearing deposits in banks 280 14 5.00%
1,095 50 4.57%
Total interest-earning assets $137,716 $ 13,536 9.83%
$107,465 $ 9,718 9.04%
Noninterest-earning assets:
Cash $ 6,809
$ 5,213
Allowance for loan losses (1,688)
(1,299)
Other Assets 6,053
7,357
Total noninterest-earning assets $ 11,174
$ 11,271
TOTAL ASSETS $148,890 $ 13,536
$118,736 $ 9,718
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits $ 33,349 $ 1,117 3.35%
$ 30,145 $ 883 2.93%
Savings and time deposits 67,256 3,690 5.49%
49,273 2,098 4.26%
Debt 11 0 --
0 0 --
Total interest-bearing liabilities $100,616 $ 4,807 4.78%
$ 79,418 $ 2,981 3.75%
Noninterest-bearing liabilities and
stockholders' equity:
Demand deposits $ 30,662
$ 22,690
Other liabilities 2,169
2,606
Stockholders' equity 15,443
14,022
Total noninterest-bearing liabilities
and stockholders' equity $ 48,274
$ 39,318
Total liabilities and
stockholders' equity $148,890 $ 4,807
$118,736 $ 2,981
Interest rate spread 5.05%
5.29%
Net interest income $ 8,729
$ 6,737
Net interest margin 6.34%
6.27%
</TABLE>
(1) Interest income on loans includes $1,368,493 and
$1,340,913 of loan fee income for the years ended December
31, 1995 and 1994, respectively. Interest income on loans
also includes $459 and $7,627 of interest income recognized
on non accrual and renegotiated loans for the years ended
December 31, 1995 and 1994, respectively.
Rate and Volume Analysis
The following table reflects the changes in net
interest income resulting from changes in interest rates and
from asset and liability volume. The change in interest
attributable to rate has been determined by applying the
change in rate between the two years indicated to average
balances outstanding in the later year. The change in
interest due to volume has been determined by applying the
rate from the earlier year to the change in average balances
outstanding between years. Thus, changes that are not
solely due to volume have been consistently attributed to
rate.
<TABLE>
<CAPTION>
----------------Years Ended December 31 ----------------
1995 1994
Increase Changes Due To Increase Changes Due to
(Decrease) Rate Volume (Decrease) Rate Volume
<S> <C> <C> <C> <C> <C>
<C>
Increase (decrease) in:
Income from earning assets:
Interest and fees
on loans $3,097 $ 801 $2,296 $ 628 $ 331
$ 297
Interest on
taxable investments 267 57 210 39 92
(53)
Interest on
tax-exempt investments 3 14 (11) 66 (81)
147
Interest on
Federal Funds Sold 486 254 232 48 21
69
Interest on deposits
in banks (36) 1 (37) (2) (31)
29
Total interest income $3,817 $1,127 $2,690 $ 779 $ 290
$ 489
Expense from interest-bearing
liabilities:
Interest on
interest-bearing demand $ 234 $ 140 $ 94 $ 56 $ (14)
$ 70
Interest on time and
savings deposits 1,592 826 766 (143) (89)
(54)
Interest on debt 0 0 0 0 0
0
Total interest expense $1,826 $ 966 $ 860 $ (87) $ (103)
$ 16
Net interest income $1,991 $ 161 $1,830 $ 866 $ (393) $
473
</TABLE>
Asset/Liability Management
The following table sets forth the distribution of the
repricing of the Company's earning assets and interest-
bearing liabilities as of December 31, 1995, the cumulative
interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities) and the
cumulative interest rate sensitivity gap ratio (i.e.,
interest rate sensitive assets divided by interest rate
sensitive liabilities). The table also sets forth the time
periods in which earning assets and liabilities will mature
or may reprice in accordance with their contractual terms.
However, the table does not necessarily indicate the impact
of general interest rate movements on the net interest
margin since the repricing of various categories of assets
and liabilities is subject to competitive pressures and the
needs of the Bank's customers. In addition, various assets
and liabilities indicated as repricing within the same
period may in fact reprice at different times within such
period and at different rates.
The Bank uses this tables as a tool to manage interest
rate sensitivity and risk on certain products. What is not
taken into consideration is the Company's strong capital
position of 10% of the aggressive marketing and officer
calling program that maintains 23% of the total deposits in
non-interest bearing accounts, thus maintaining some of the
highest returns on average assets for our peer group, as
well as some of the highest net interest margins.
<TABLE>
<CAPTION>
Within Within Within
After
Six One Five
Five
Months Year Years
Years
<S> <C> <C>
<C> <C>
Interest-earning assets:
Loans, net of unearned income $ 64,044 $ 70,522 $
97,647 $100,698
Federal Funds sold 19,625 19,625
19,625 19,625
Taxable Investments 5,250 11,180
21,544 21,544
Tax-exempt investments 385 685
3,068 4,368
Interest-bearing deposits in
banks 0 200
200 200
$ 89,304 $102,212 $142,084
$146,435
Interest Bearing Liabilities:
Interest-bearing deposits $ 35,691 $ 35,691 $
35,691 $ 35,691
Savings 6,132 6,132
6,132 6,132
Time Deposits 44,865 54,270
62,101 62,131
$ 86,688 $ 96,093 $103,924
$103,954
Cumulative Interest Rate
Sensitivity Gap $ 2,616 $ 6,119 $
38,160 $ 42,481
Cumulative Interest Rate
Sensitivity Gap Ratio 103% 106%
137% 141%
</TABLE>
The Company actively manages the mix of asset and
liability maturities to control the effects of changes in
the general level of interest rates on net interest income.
Except for its effect on the general level of interest
rates, inflation does not have a material impact on the
Company due to the rate variability and short-term
maturities of its earning assets. In particular,
approximately 70% of the loan portfolio is comprised of
loans which are variable rate terms or short-term
obligations. Mortgage loans, primarily with five to fifteen
year maturities, are also made on a variable rate basis with
rates being adjusted every one to five years. Additionally,
71% of average other earning assets mature within one year.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
Types of Investments
The carrying value and estimated market value of
investment securities are as follows:
Gross Gross
Amortized Unrealized Unrealized
Fair
Cost Gains Losses
Value
<S> <C> <C>
<C> <C>
Securities Held for Investment:
December 31, 1995
U. S. Government and agency
securities $21,543,639 $100,693
$ (61,439) $21,582,893
State and municipal securities 4,367,921 71,662
(13,300) 4,426,283
$25,911,560 $172,355 $ (74,739)
$26,009,176
Securities Held for Investment:
December 31, 1994
U. S. Government and agency
securities $19,005,532 $ 2,175
$ (615,191) $18,392,516
State and municipal securities 4,656,082 39,572
(169,551) 4,526,103
$23,661,614 $ 41,747 $ (784,742)
$22,918,619
</TABLE>
Maturities
The amounts of investment securities in each category
as of December 31, 1995 and 1994 are shown in the following
table according to maturity classifications (1) one year or
less, (2) after one year through five years, (3) after five
years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
---------Year Ended December 31 -----------
1995 1994
U. S. Treasury and Other U. S. Government
Agencies and Corporations
(Dollars in Thousands)
Amount Yield Amount Yield
<S> <C> <C>
<C> <C>
(1) (1) (2)
Maturity:
One year or less $ 7,180 6.00%
$ 5,374 5.57%
After one year through five years 13,364 5.53%
12,633 5.44%
After five years through ten years 1,000 6.17%
999 6.13%
After ten years --
--
$ 21,544 $19,006
<CAPTION>
State and Political Subdivisions
(Dollars in Thousands)
Amount Yield Amount Yield
<S> <C> <C>
<C> <C>
(1) (1) (2)
Maturity:
One year or less $ 685 3.96%
$ 800 3.65%
After one year through five years 2,383 4.68%
2,309 4.46%
After five years through ten years 1,300 5.14%
1,350 5.10%
After ten years --
197 5.95%
$ 4,368 $ 4,656
</TABLE>
(1) Yields were computed using coupon interest, adding
discount accretion or subtracting premium amortization, as
appropriate, on a ratable basis over the life of each
security. The weighted average yield for each maturity
range was computed using the acquisition price of each
security in that range.
(2) Yields on municipal securities are not stated on a tax
equivalent basis.
LOAN PORTFOLIO
Types of Loans
The amount of loans outstanding at the indicated dates
is shown in the following table according to type of loans
and concentration of loans which exceed 10% of total loans.
December 31
1995 1994
(Dollars in Thousands)
Commercial and business $ 27,356 $ 23,283
Business loans secured by
real estate 30,814 22,613
Real estate - construction 29,989 27,635
Real estate - mortgage 8,838 7,848
Consumer installment loans 5,906 6,028
Loans to other financial institutions -- --
Other loans 83 167
$102,986 $ 87,574
Deferred fees (334) (346)
Reserve for loan losses (1,953) (1,464)
Loans, net $100,699 $ 85,764
Maturities and Sensitivity to Changes in Interest Rates
Total loans as of December 31, 1995 and 1994 are shown
in the following table according to maturity classifications
(1) one year or less, (2) after one year through five years,
and (3) after five years.
December 31
1995 1994
(Dollars in Thousands)
Maturity:
One year or less 64,574 $ 86,840
After one year through
five years 34,204 17,493
After five years 4,208 1,241
$102,986 $ 87,574
The following table summarizes loans at December 31,
1995 with due dates after one year which (1) have
predetermined interest rates and (2) have floating or
adjustable interest rates.
1 - 5 Over 5
Years Years Total
(Dollars in Thousands)
Predetermined interest rates $ 27,558 $ 3,113 $ 30,671
Floating or adjustable rates 6,646 1,095 7,741
$ 34,204 $ 4,208 $ 38,412
Nonperforming Loans
The following table presents, at December 31, 1995 and
1994, the aggregate of nonperforming loans for the
categories indicated.
<TABLE>
<CAPTION>
December 31
1995 1994
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 95 $ 147
Installment loans and term loans 138 13
contractually past due ninety days or
more as to interest or principal payments
and still accruing
Loans, the terms of which have been -- --
renegotiated to provide a reduction or
deferral of interest or principal because
of deterioration in the financial position
of the borrower
Loans now current about which there are -- --
serious doubts as to the ability of the
borrower to comply with present loan
repayment terms
Interest income that would have been recorded on 11 19
nonaccrual and restructured loans under
original terms
Interest income that was recorded on a nonaccrual 1 8
and restructured loans
The accrual of interest income on loans is discontinued
when the loan become over 90 days past due. Interest
previously accrued but not collected is charged against
current period interest income when such loans are placed on
nonaccrual status. Interest accruals are recorded on such
loans only when they are brought fully current with respect
to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible
as to both principal and interest.
In the opinion of management, any loans classified by
regulatory authorities as doubtful, substandard or special
mention that have not been disclosed above do not (i)
represent or result from trends or uncertainties which
management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii)
represent material credits about which management is aware
of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with
the loan repayment terms. Any loans classified by
regulatory authorities as loss have been charged off.
Effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards No. 114 and, as
amended, No. 188, "Accounting by Creditors for Impairment of
a Loan". The statement prescribes that impaired loans be
measured on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price
or the fair value of the collateral if the loan is
collateral dependent. The statement had no material effect
on the financial statements of the Company as of December
31, 1995.
Commitments and Lines of Credit
In the ordinary course of business, the Bank has
granted commitments to extend credit to approved customers.
The Bank has also granted commitments to approved customers
for standby letters of credit. These commitments are
recorded in the financial statements when funds are
disbursed or the financial instruments become payable. The
Bank uses the same credit and collateral policies for these
off balance sheet commitments as it does for financial
instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment
of a fee. Since many of the commitment amounts expire
without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
The following is a summary of the commitments outstanding
at December 31, 1995 and 1994.
December 31
1995 1994
(Dollars in Thousands)
Commitments to extend credit $ 32,781 $ 30,939
Standby letters of credit 1,540 1,619
$ 34,321 $ 32,558
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by
direct charges to operations. Losses on loans are charged
against the allowance in the period in which such loans, in
management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The
factors that influence management's judgment in determining
the amount charged to operating expense are past loan
experience, composition of the loan portfolio, evaluation of
possible future losses, current economic conditions an other
relevant factors. The Company's allowance for loan losses
was approximately $1,953,189 at December 31, 1995,
representing 1.90% of year end total loans outstanding,
compared with $1,464,057 at December 31, 1994, which
represented 1.68% of year end total loans outstanding. The
allowance for loan losses is reviewed continuously based on
management's evaluation of current risk characteristics of
the loan portfolio, as well as the impact of prevailing and
expected economic business conditions. Management considers
the allowance for loan losses adequate to cover possible
loan losses on the loans outstanding.
Management has not allocated the Company's allowance
for loan losses to specific categories of loans. Based on
management's best estimate, approximately 40% of the
allowance should be allocated to real estate loans, 45% to
commercial, financial and agricultural loans and 15% to
consumer/installment loans as of December 31, 1995.
Since the Bank was having excellent profits during
1995, management and the Board of Directors made the
decision to put additional money into loan loss reserve.
The economy seems to be sending mixed signals which
contributed to this decision.
The following table presents an analysis of the
Company's loan loss experience for the year ended
December 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
December 31
1995 1994
(Dollars in Thousands)
<S> <C> <C>
Average amount of loans outstanding $ 99,937 $ 78,283
Balance of reserve for possible loan losses
at beginning of period $ 1,464 $ 1,249
Charge-offs:
Commercial, financial and agricultural $ (76) $ (1)
Real estate (28) (55)
Consumer (17) (11)
Recoveries:
Commercial, financial and agricultural 0 5
Real estate 3 12
Consumer 7 10
Net charge-offs $ (111) $ (40)
Additions to reserve charged to
operating expenses $ 600 $ 255
Balance of reserve for
possible loan losses $ 1,953 $ 1,464
Ratio of net loan charge-offs
to average loans 0.11% .05%
</TABLE>
DEPOSITS
Average amount of deposits and average rate paid
thereon, classified as to noninterest-bearing demand
deposits, interest-bearing demand and savings deposits and
time deposits, for the years ended December 31, 1995 and
1994 is presented below.
<TABLE>
<CAPTION>
December 31
1995 1994
Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 30,662 ---% $ 22,690
- ---%
Interest-bearing demand deposits 33,349 3.35% 30,145
2.93%
Savings 6,430 2.68% 6,995
2.80%
Time deposits 60,826 5.78% 42,278
4.50%
Total deposits $131,267 $102,108
</TABLE>
The amounts of time certificates of deposit issued in
amounts of $100,000 or more as of December 31, 1995 and
1994, are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2)
over three through twelve months and (3) over twelve months.
December 31
1995 1994
Amount Amount
(Dollars in Thousands)
Three months or less $ 7,267 $ 3,583
Over three through six months 5,140 4,113
Over six through twelve months 2,556 3,197
Over twelve months 3,300 3,216
Total $ 18,263 $ 14,109
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the years
ended December 31, 1995 and 1994 is presented below.
December 31
1995 1994
Return on assets (1) 2.21% 1.93%
Return on equity (2) 21.35% 16.39%
Dividend payout ratio (3) 15.28% 18.99%
Equity to assets ratio (4) 10.37% 11.81%
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per
share.
(4) Average Equity divided by average total assets.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively
regulated under both Federal and state law. The following
is a brief summary of certain statutes and rules and
regulations affecting the Company and the Bank. This
summary is qualified in its entirety by reference to the
particular statute and regulatory provision referred to
below and is not intended to be an exhaustive description of
the statutes or regulations applicable to the business of
the Company and the Bank. Supervision, regulation and
examination of the Company and the Bank by the bank
regulatory agencies are intended primarily for the
protection of depositors rather than shareholders of the
Company.
Bank Holding Company Regulation
The Company is a registered holding company under the
Bank Holding Company Act of 1956, as amended (the "Federal
Bank Holding Company Act"), and the Georgia Bank Holding
Company Act (the "Georgia Bank Holding Company Act") and is
regulated under such acts by the Board of Governors of the
Federal Reserve System (the "Federal Reserve") and by the
Georgia Department of Banking and Finance (the "Georgia
Department"), respectively.
As a bank holding company, the Company is required to
file annual reports with the Federal Reserve and the Georgia
Department and such additional information as the applicable
regulator may require pursuant to the Federal and Georgia
Bank Holding Company Acts. The Federal Reserve and the
Georgia Department may also conduct examinations of the
Company to determine whether the institution is in
compliance with both Bank Holding Company Acts and the
regulations promulgated thereunder.
The Federal Bank Holding Company Act also requires
every bank holding company to obtain prior approval from the
Federal Reserve before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of
any bank which is not already majority owned or controlled
by that bank holding company. Acquisitions of any
additional banks would also require prior approval from the
Georgia Department.
On September 29, 1994, the President of the United
States signed the "Riegel-Neal Interstate Banking and
Branching Efficiency Act of 1994" (the "Interstate Branching
Act"). The Interstate Branching Act amends Federal law to
permit bank holding companies to acquire existing banks in
any state effective September 29, 1995, subject to certain
deposit - percentage, aging requirements and other
restrictions. In addition, the Interstate Branching Act
provides that any interstate bank holding company is
permitted to merge its various bank subsidiaries into a
single bank with interstate branches effective June 1, 1997.
By adopting legislation prior to that date, a state has the
authority either to "opt in" and accelerate the date after
which interstate branching is permissible or to "opt out"
and prohibit interstate branching altogether.
In response to the Interstate Branching Act, the
Georgia legislature adopted the "Georgia Interstate
Branching Act." effective July 1, 1995, which provides that
(1) interstate acquisitions by institutions located in
Georgia will be permitted in states which also allow
national interstate acquisitions, and (2) interstate
acquisitions of institutions located in Georgia will be
permitted by institutions located in states which also allow
national interstate acquisitions; provided, however, that if
the board of directors of a Georgia bank or bank holding
company adopts a resolution to except such bank or bank
holding company from being acquired pursuant to the
provisions of the Georgia Interstate Banking Act and
properly files a certified copy of such resolution with the
Georgia Department, such bank or bank holding company may
not be acquired by an institution located outside of the
State of Georgia.
Additionally, in February 1996, the Georgia legislature
adopted the "Georgia Interstate Branching Act," which when
signed by the Governor, will permit Georgia-based banks and
bank holding companies owning or acquiring banks outside of
Georgia and all non-Georgia banks and bank holding companies
owning or acquiring banks in Georgia the right to merge any
lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to
establish de novo branch banks on a limited basis beginning
July 1, 1996. Beginning July 1, 1996, the number of de novo
bank branches which may be established will no longer be
limited.
In addition to having the right to acquire ownership or
control of other banks, the Company is authorized to acquire
ownership or control of nonbanking companies, provided the
activities of such companies are so closely related to
banking or managing or controlling banks that the Federal
Reserve considers such activities to be proper to the
operation and control of banks. Regulation Y, promulgated
by the Federal Reserve, sets forth those activities which
are regarded as closely related to banking or managing or
controlling banks and, thus, are permissible activities for
bank holding companies, subject to approval by the Federal
Reserve in individual cases.
Federal Reserve policy requires a bank holding company
to act as a source of financial strength and to take
measures to preserve and protect bank subsidiaries in
situations where additional investments in a troubled bank
may not be warranted. Under these provisions, a bank
holding company may be required to loan money to its
subsidiaries in the form of capital notes or other
instruments which qualify for capital under regulatory
rules. Any loans by the holding company to such subsidiary
banks are likely to be unsecured and subordinated to such
bank's depositors and perhaps to its other creditors.
The Company is also subject to various federal
securities laws, including the Securities Act of 1988 (the
"1933 Act") and the Securities Exchange Act of 1934 (the
"1934 Act"). The 1933 Act regulates the distribution or
public offering of securities, while the 1934 Act regulates
trading in securities that are already issued and
outstanding. Both Acts provide civil and criminal penalties
for misrepresentations and omissions in connection with the
sale of securities, and the 1934 Act also prohibits market
manipulation and insider trading. Pursuant to the 1934 Act,
the Company files annual, quarterly and current reports with
the Securities and Exchange Commission. In addition, the
Company and its directors, executive officers and 5%
shareholders are subject to certain additional reporting
requirements, including requirements governing the
submission of proxy statements and reports of beneficial
ownership of the Company's securities.
Bank Regulation
The Bank operates as a bank organized under the laws of
the State of Georgia subject to examination by the Georgia
Department. The Georgia Department regulates all areas of
the Bank's commercial banking operations including reserves,
loans, mergers, payment of dividends, interest rates,
establishment of branches, and other aspects of operations.
The Bank is also insured and regulated by the Federal
Deposit Insurance Corporation (the "FDIC"). The major
functions of the FDIC with respect to insured banks include
paying depositors to the extent provided by law in the event
an insured bank is closed without adequately providing for
payment of the claims of depositors, acting as a receiver of
state banks placed in receivership when so appointed by
state authorities, and preventing the continuance or
development of unsound and unsafe banking practices. In
addition, the FDIC is authorized to examine insured banks
which are not members of the Federal Reserve to determine
the condition of such banks for insurance purposes. The
FDIC also approved conversions, mergers, consolidations and
assumption of deposit liability transactions between insured
banks and noninsured banks or institutions to prevent
capital or surplus diminution in such transactions where the
resulting, continued or assumed bank is an insured nonmember
state bank.
Subsidiary banks of a bank holding company are subject
to certain restrictions imposed by the Federal Bank Holding
Company Act on any extension of credit to the bank holding
company or any of its subsidiaries, on investments in the
stock or other securities of the bank holding company or its
subsidiaries, and on the taking of such stock or securities
as collateral for loans to any borrower. In addition, a
bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection
with any extension of credit or provision of any property or
services.
Under Georgia law, a bank must obtain the approval of
the Georgia Department before cash dividends may be paid if
(1) the total classified assets at the most recent
examination of such bank exceeded 80% of the equity capital,
(2) the aggregate amount of dividends declared or
anticipated to be declared in the calendar year exceeds 50%
of the net profits, after taxes but before dividends, for
the previous calendar year or (3) the ratio of equity
capital to adjusted assets is less than 6%.
The Bank is also subject to the provisions of the
Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection
with its regular examination of a bank, to assess the Bank's
record in meeting the credit needs of the communities served
by the Bank, including low- and moderate-income
neighborhoods.
Capital Requirements
General
Regulatory agencies measure capital adequacy within a
framework that makes capital requirements sensitive to the
risk profile of the individual banking institutions. The
guidelines define capital as either Tier 1 capital
(primarily shareholders equity) or Tier 2 capital (certain
debt instruments and a portion of the reserve for loan
losses). There are two measures of capital adequacy for
bank holding companies and their subsidiary banks: the Tier
1 leverage ratio and the risk-based capital requirements.
Bank holding companies and their subsidiary banks must
maintain a minimum Tier 1 leverage ratio of 4%. In
addition, Tier 1 capital must equal 4% of risk-weighted
assets, and total capital (Tier 1 plus Tier 2) must equal 8%
of risk-weighted assets. These are minimum requirements,
however, and institutions experiencing internal growth or
making acquisitions, as well as institutions with
supervisory or operational weaknesses, will be expected to
maintain capital positions well above these minimum levels.
At December 31, 1995, the Bank had a Tier 1 leverage
ratio of 10.62%, a Tier 1 risk-based ratio of 14.18%, and a
Total risk-based ratio of 15.42%.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDIC Act") imposes a regulatory matrix
which requires the federal banking agencies to take prompt
corrective action to deal with depository institutions that
fail to meet their minimum capital requirements or are
otherwise in a troubled condition. The prompt corrective
action provisions require undercapitalized institutions to
become subject to an increasingly stringent array of
restrictions, requirements and prohibitions, as their
capital levels deteriorate and supervisory problems mount.
Should these corrective measures prove unsuccessful in
recapitalizing the institution and correcting its problems,
the FDIC Act mandates that the institutions be placed in
receivership.
Pursuant to regulations promulgated under the FDIC Act,
the corrective actions that the banking agencies either must
or may take are tied primarily to an institution's capital
levels. In accordance with the framework adopted by the
FDIC Act, the banking agencies have developed a
classification system, pursuant to which all banks and
thrifts will be placed into one of five categories: well-
capitalized institutions, adequately capitalized
institutions; undercapitalized institutions, significantly
undercapitalized institutions and critically
undercapitalized institutions. The capital thresholds
established for each of the categories are as follows:
<TABLE>
<CAPTION>
Tier 1 Risk-Based Tier 1 Risk-
Capital Category Capital 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% of less
Undercapitalized tangible equity -- -- --
</TABLE>
The undercapitalized, significantly undercapitalized
and critically undercapitalized categories overlap;
therefore, a critically undercapitalized institution would
also be an undercapitalized institution and a significantly
undercapitalized institution. This overlap ensures that the
remedies and restrictions prescribed for undercapitalized
institutions will also apply in the lowest two categories.
The down-grading of an institution's category is
automatic in two situations: (1) whenever an otherwise well-
capitalized institution is subject to any written capital
order or directive, and (2) where an undercapitalized
institution fails to submit or implement a capital
restoration plan or has its plan disapproved. The Federal
banking agencies may treat institutions in the well-
capitalized, adequately capitalized and under capitalized
categories as if they were in the next lower capital level
based on safety and soundness considerations relating to
factors other than capital levels.
All insured institutions regardless of their level of
capitalization are prohibited by the FDIC Act from paying
any dividend or making any other kind of capital
distribution or paying any management fee to any controlling
person if following the payment or distribution the
institution would be undercapitalized. While the prompt
corrective action provisions of the FDIC Act contain no
requirements or restrictions aimed specifically at
adequately capitalized institutions, other provisions of the
FDIC Act and the agencies' regulations relating to deposit
insurance assessments, brokered deposits and interbank
liabilities treat adequately capitalized institutions less
favorably than those that are well-capitalized.
At December 31, 1995, the Company and the Bank had the
requisite capital levels to qualify as well-capitalized.
The FDIC has adopted or currently proposes to adopt
other rules pursuant to the FDIC Act that include: (1) real
estate lending standards for banks, which would provide
guidelines concerning loan-to-value ratios for various types
of real estate loans; (2) revision to the risk-based capital
rules to account for interest rate risk, concentration of
credit risk and the risks proposed by "non-traditional
activities"; (3) rules requiring depository institutions to
develop and implement internal procedures to evaluate and
control credit and settlement exposure to their
correspondent banks; (4) a rule restricting the ability of
depository institutions that are not well capitalized from
accepting brokered deposits; (5) rules addressing various
"safety and soundness" issues, including operations and
managerial standards for asset quality, earnings and stock
valuations, and compensation standards for the officers,
directors, employees and principal shareholders of the
depository institutions; (6) rules mandating enhanced
financial reporting and audit requirements; and (7) rules
restricting the ability of a state bank, or a subsidiary
thereof, to engage as principal in activities not
permissible for a national bank or make any investment not
permissible for a national bank.
FDIC Insurance Assessments
In July 1993, the FDIC adopted a new risk-based
assessment system for insured depository institutions that
takes into account the risks attributable to different
categories and concentrations of assets and liabilities.
The new system, which went into effect on January 1, 1994,
and replaced a transitional system that the FDIC had used
for the 1993 calendar year, assigns an institution to one of
three capital categories: (1) well-capitalized; (2)
adequately capitalized; and (3) undercapitalized. These
three categories are substantially similar to the prompt
corrective action categories described above, with the
undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action
purposes. An institution is also assigned by the FDIC to
one of three supervisory subgroups 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 rise 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,
which appears to have occurred some time during May 1995,
the FDIC was authorized to reduce the minimum assessment
rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve
ratio at the designated level. In August 1995, the FDIC
adopted final regulations reducing the assessment rates for
BIF-member banks. Under the revised schedule, BIF-member
banks, starting with the second half of 1995, will not pay
assessments ranging from 4 basis points to 41 basis points,
with an average assessment ratio of 4.5 basis points.
Refunds, with interest, were paid for assessments for the
month(s) after the month in which the designated reserve
ratio for the BIF was reached, as well as for the quarterly
payment made on September 30, 1995, assuming that the
designated reserve ratio was achieved prior to June 30,
1995. At the same time, the FDIC elected to retain the
existing assessment rate of 23 to 31 basis points for SAIF
members for the foreseeable future given the
undercapitalized nature of that insurance fund. More
recently, on November 14, 1995, the FDIC announced
that,beginning in 1996, it would further reduce the deposit
insurance premiums for 92% of all BIF members that are in
the highest capital and supervisory categories to $2,000 per
year, regardless of deposit size.
On July 28, 1995, the FDIC, the Treasury Department,
and the OTS released statements outlining a proposed plan to
recapitalize the SAIF, certain features of which were
subsequently agreed upon by members of the Banking
Committees of the U. S. House of Representatives and the
Senate on November 7, 1995 in negotiations to reconcile
differences in bills on the issue that had been introduced
or partially adopted by each body. Under the agreement, all
SAID-member institutions would pay a special assessment to
the SAIF of approximately 80 basis points, the amount that
would enable the SAIF to attain its designated reserve of
1.25%. The special assessment would be payable on January
1, 1996, based on the amount of deposits held as of March
31, 1995. BIF-insured institutions holding SAIF-assessed
deposits would receive a 20% reduction in the assessment
rate and would pay a one-time assessment of 64 basis points.
The agreement also provides that the assessment base for the
bonds issued in the late 1980s by the Financing Corporation
to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation would be expanded to include deposits
of both BIF- and SAIF-insured institutions, with BIF members
paying approximately 75% of the interest on such
obligations. The committee members further agreed that the
BIF and SAIF should be merged on January 1, 1998, with such
merger being conditioned upon the prior elimination of the
thrift charter. At this time, the Company is not able to
predict if the recapitalization will take place, the timing
or exact amount of any SAIF special assessment that might be
required. However, if, for example an 80 basis point
assessment were levied against the SAIF deposits of the
Bank, the aggregate SAIF assessments of the Bank (on a pre-
tax basis) would be approximately $326,504.
Under the Federal Deposit Insurance Act, insurance of
deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, rule, order,
or condition imposed by the FDIC.
CRA
On April 19, 1995, the Federal bank regulatory agencies
adopted revisions to the regulations promulgated pursuant to
the Community Reinvestment Act (the "CRA"), which are
intended to set distinct assessment standards for financial
institutions. The revised regulation contains three
evaluation tests: (a) a lending test which will compare the
institution's market share of loans in low- and moderate-
income areas to its market share of loans in its entire
service area and the percentage of a bank's outstanding
loans to low- and moderate-income areas or individuals, (b)
a services test which will evaluate the provision of
services that promote the availability of credit to low- and
moderate-income areas, and (c) an investment test, which
will evaluate an institution's record of investments in
organizations designed to foster community development,
small- and minority-owned businesses and affordable housing
lending, including state and local government housing or
revenue bonds. The regulation is designed to reduce the
paperwork requirements of the current regulations and
provide regulators, institutions and community groups with a
more objective and predictable manner with which to evaluate
the CRA performance of financial institutions. The rule
became effective on January 1, 1996, at which time
evaluation under streamlined procedures began for
institutions with assets of less than $250 million that are
owned by a holding company with total assets of less than $1
billion.
Fair Lending
Congress and various Federal agencies (including, in
addition to the bank regulator agencies, the Department of
Housing and Urban Development, the Federal Trade Commission
and the Department of Justice) (collectively the "Federal
Agencies") responsible for implementing the nation's fair
lending laws have been increasingly concerned that
prospective home buyers and other borrowers are experiencing
discrimination in their efforts to obtain loans. In recent
years, the Department of Justice has filed suit against
financial institutions which it determined had
discriminated, seeking fines and restitution for borrowers
who allegedly suffered from discriminatory practices. Most,
if not all, of these suits have been settled (some for
substantial sums) without a full adjudication of the merits.
On March 8, 1994, the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and to
specify the factors the agencies will consider in
determining if lending discrimination exists, announced a
joint policy statement detailing specific discriminatory
practices prohibited under the Equal Credit Opportunity Act
and the Fair Housing Act. In the policy statement, three
methods of proving lending discrimination were identified:
(1) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, (2) evidence
of disparate treatment, when a lender treats applicants
differently based on a prohibited factor even where there is
no showing that the treatment was motivated by prejudice or
a conscious intention to discriminate against a person, and
(3) evidence of disparate impact, when a lender applies a
practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral
on their fact and are applied equally, unless the practice
can be justified on the basis of business necessity.
Future Requirements
Statutes and regulations are regularly introduced which
contain wide-ranging proposals for altering the structures,
regulations and competitive relationships of the nation's
financial institutions. It cannot be predicted whether or
what form any proposed statute or regulation will be adopted
or the extent to which the business of the Company and the
Bank may be affected by such statute or regulation.
Monetary Policy
The earnings of the Company are affected by domestic
and foreign economic conditions, particularly by the
monetary and fiscal policies of the United States government
and its agencies.
The Federal Reserve has had, and will continue to have,
an important impact on the operating results of commercial
banks through its power to implement national monetary
policy in order, among other things, to mitigate
recessionary and inflationary pressures by regulating the
national money supply. The techniques used by the Federal
Reserve include setting the reserve requirements of member
banks and establishing the discount rate on member bank
borrowings. The Federal Reserve also conducts open market
transactions in United States government securities.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's main office is currently located at
2230 Scenic Highway, Snellville, Georgia 30278.
The Bank currently has three banking offices which it
owns without encumbrance. They are as follows:
Main Office
150 S. Perry Street
Lawrenceville, Georgia 30245
Lilburn Office
4700 U.S. Highway 29
Lilburn, Georgia 30247
Snellville Office
2230 Scenic Highway
Snellville, Georgia 30278
The Bank also has one additional property, which is
located at 234 Luckie Street, Lawrenceville, Georgia 30245
and is currently leased to RE/MAX Gwinnett, Inc.
Other than normal real estate and commercial lending
activities of the Bank, the Company generally does not
invest in real estate, interests in real estate, real estate
mortgages, or securities of or interests in persons
primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending proceedings to which the
Company or the Bank is a party or to which any of their
properties are subject other than routine litigation
incidental to the Bank's business; nor are there material
proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings
known to the Company, pending or contemplated, in which any
director, officer or affiliate or any principal security
holder of the Company, or any associate of any of the
foregoing, is a party or has an interest adverse to the
Company.
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 information set forth under the caption "Market for
Registrants Common Equity and Related Stockholder Matters"
in the Annual Report to Shareholders utilized in connection
with the Company's 1996 Annual Shareholders Meeting, which
is included as Exhibit 13.1 to this Annual Report on Form
10-KSB, is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption
"Management's Discussion and Analysis of Results of
Operations and Financial Condition" in the Annual Report to
Shareholders utilized in connection with the Company's 1996
Annual Shareholders Meeting, which is included as Exhibit
13.1 to this Annual Report on Form 10-KSB, is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The information set forth in the Annual Report to
Shareholders utilized in connection with the Company's 1996
Annual Shareholders Meeting, which is included as Exhibit
13.1 to this Annual Report on Form 10-KSB, is incorporated
herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The information set forth under the caption "Election
of Directors" in the Proxy Statement utilized in connection
with the Company's 1996 Annual Shareholders Meeting is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive
Compensation" in the Proxy Statement utilized in connection
with the Company's 1996 Annual Shareholders Meeting is
incorporated herein by reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information set forth under the caption "Principal
Shareholders and Management" in the Proxy Statement utilized
in connection with the Company's 1996 Annual Shareholders
Meeting is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain
Transactions" in the Proxy Statement utilized in connection
with the Company's 1996 Annual Shareholders Meeting is
incorporated herein by reference.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
3.1 (1) Articles of Incorporation.
3.2 (1) Bylaws.
4.1 (1) Instruments Defining the Rights of
Security Holders. (See Articles of
Incorporation at Exhibit 3.1 hereto
and Bylaws at Exhibit 3.2 hereto.)
10.1 (1) (2) Button Gwinnett Financial Corporation
1994 Stock Incentive Plan.
10.2 (1) (2) Button Gwinnett Financial Corporation
Non-Qualified Stock Option Award
(granted under the Button Gwinnett
Financial Corporation 1994 Stock
Incentive Plan).
10.3 (1) (2) Form of Button Gwinnett Financial
Corporation Incentive Stock Award
(granted under the Button Gwinnett
Financial Corporation 1994 Stock
Incentive Plan).
10.4 (2) Employment Agreement, dated as of
September 9, 1994,between Glenn S. White
and The Bank of Gwinnett County
and Button Gwinnett Financial
Corporation.
10.5 (2) Employment Agreement, dated as of
September 9, 1994, between Andrew R.
Pourchier and The Bank of Gwinnett
County and Button Gwinnett Financial
Corporation.
11.1 (1) Statement re: computation of per share
earnings.
13.1 Annual Report as of and for the year
ended December 31, 1995 furnished to
shareholders for which certain
specified pages are specifically
incorporated herein by reference.
21.1 (1) Subsidiary of Button Gwinnett Financial
Corporation
24.1 Power of Attorney (appears on the
signature pages to this Report on Form
10-KSB).
27.1 Financial Data Schedule
99 Registrants Proxy Statement for the 1996
Annual Meeting of Shareholders to be
held on April 15, 1996. Only those
portions of this proxy statement that
are specifically incorporated by
reference on Form 10-KSB shall be deemed
filed with the Securities and Exchange
Commission.
____________________
(1) Incorporated herein by reference to Exhibit of
the same number in the Company's Form 10-KSB
for the year ended December 31, 1993.
(2) Incorporated herein by reference to Exhibit of
the same number in the Company's Form 10-KSB
for the year ended December 31, 1994.
(b) Reports on Form 8-K filed in the fourth quarter of
1995: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUTTON GWINNETT FINANCIAL CORPORATION
By:_____________________________________
Glenn S. White
President
Date: March 18, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears on the signature page to this Report
constitutes and appoints Glenn S. White or Andrew R.
Pourchier, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in
his or her name, place, and stead, in any and all
capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits hereto, and other
documents in connection herewith with the Securities and
Exchange Commission, granting unto said attorneys-in-fact
and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
David R. Bowen Director March 18, 1996
Robert A. Bradshaw Director March 18, 1996
James F. Brannan, Jr. Director March 18, 1996
James R. Brown Director March 18, 1996
W. Emmett Clower Director March 18, 1996
Jean A. Coppage Director March 18, 1996
Edwin F. Forrext Director March 18, 1996
David G. Hanna Director March 18, 1996
J. Richard Norton, Sr. Director March 18, 1996
Andrew R. Pourchier Vice President/ March 18, 1996
Secretary/Treasurer
Director (Principal
Financial and Accounting
Officer)
John D. Stephens Chairman of the Board/
Director March 18, 1996
Judy A. Waters Director March 18, 1996
Warren O. Wheeler Director March 18, 1996
Glenn S. White President/Director March 18, 1996
(Principal Executive
Officer
Bobby W. Williams Director March 18, 1996
Button Gwinnett Financial
Corporation
1995 Annual Report
to Shareholders
2230 Scenic Highway
Snellville, Georgia 30278
GENERAL INFORMATION
Button Gwinnett Financial Corporation is a one-bank holding
company, owning 100% of the stock of The Bank of Gwinnett County.
The Bank of Gwinnett County ("The Bank") has three locations
located within the Lawrenceville, Lilburn and Snellville city
limits. The Bank opened for business in April 1988 as a state
chartered bank.
Gwinnett County has been one of the fastest growing counties in
the country and State of Georgia for the last ten years, with the
population growing from some 225,000 to over 400,000 in 1995.
FINANCIAL HIGHLIGHTS
BUTTON GWINNETT FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
Selected Balance Sheet Data For Year End December 31
(Ending Balances) 1995 1994
___________________________ ______________________________
Total Assets $159,199,966 $126,802,444
Total Deposits 140,804,199 111,051,445
Shareholders Equity 16,914,803 14,924,750
Allowance for Loan Losses 1,953,189 1,464,057
Financial Ratios
Stockholder Equity as a
Percent of Total Assets 10.6% 11.8%
Book Value Per Share $12.23 $10.33
Dividends Per Share 0.35 0.30
Net Interest Margin 6.34% 6.27%
Net Income Per Share $ 2.29 $ 1.58
Return on Average Equity 21.35 16.39
Return on Average Assets 2.21 1.93
Loan Loss Reserve to
Total Loans 1.90 1.68
Selected Income Data
Total Interest Income $ 13,536,217 $ 9,718,521
Total Interest Expense 4,807,424 2,980,811
Provision for Loan Loss 600,000 255,000
Other Expenses 4,312,416 3,850,994
Net Income $ 3,297,321 $ 2,297,206
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources
Liquidity management involves the matching of the cash
flow requirements of customers who may be either depositors
desiring to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs and
the ability of the Company and the Bank to meet those needs. The
Company and the Bank seek to meet liquidity requirements
primarily through management of short-term investments
(principally Federal Funds Sold) and monthly amortizing loans.
Another source of liquidity is the repayment of maturing single-
payment loans. Also, the Bank maintains relationships with
correspondent banks which could provide funds to them on a short
notice, if needed.
The liquidity and capital resources of the Company and the
Bank are monitored on a periodic basis by Federal and state
regulatory authorities. As determined under guidelines
established by those regulatory authorities, the Bank's liquidity
ratios at December 31, 1995 were considered satisfactory. At
that date, the Bank's short-term investments were adequate to
cover any reasonably anticipated immediate need for funds. The
Company and the Bank were not aware of any events or trends
likely to result in a material change in their liquidity. At
December 31, 1995, the Company's and the Bank's capital to asset
ratios were considered adequate based on guidelines established
by the regulatory authorities. During 1995, the Company
increased its capital by retaining net earnings of $1,990,053,
which is net income for the year plus stock options exercised,
less treasury stock and dividends paid. At December 31, 1995,
total capital of the Company amounted to $16,914,803. At
December 31, 1995, there were no outstanding commitments for any
major capital expenditures.
Management is not aware of any current recommendations by
the regulatory authorities which, if they were to be implemented,
would have a material effect on the Company's liquidity, capital
resources or operations.
Results of Operations
The Company's results of operations are determined by its
ability to effectively manage interest income and expense, to
minimize loan and investment losses, to generate noninterest
income and to control noninterest expense. Since interest rates
are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest
income is dependent upon the Bank's ability to obtain an adequate
spread between the rate earned on earning assets and the rate
paid on interest-bearing liabilities. Thus, the key performance
measure for net interest income is the interest margin or net
yield, divided by average earning assets.
The primary component of consolidated earnings is net
interest income, or the difference between interest income on
earning assets and interest paid on supporting liabilities. The
net interest margin is net interest income expressed as a
percentage of average earning assets. Earning assets consist of
loans, investment securities, Federal funds sold and interest-
bearing deposits in banks. Supporting liabilities consist of
deposits, of which approximately 23% are noninterest-bearing.
The net interest margin increased by 1.12% to 6.34% in 1995
as compared to 6.27% in 1994. The yield on average earning
assets increased in 1995 to 9.83% from 9.04% in 1994 or 8.74% and
the rate of interest paid on average interest-bearing liabilities
increased from 3.75% in 1994 to 4.78% in 1995 or 27.47%. Net
interest income was $8,728,793 in 1995 as compared to $6,737,710
in 1994, representing an increase of 29.55%
Average earning assets increased by $30,251,000 or 28.15% to
$137,716,000 in 1995 from $107,465,000 in 1994. Average loans
increased by $21,654,000; average investments increased by
$3,633,000; and average interest-bearing deposits in banks
decreased by $815,000. Average deposits increased $29,170,000 or
28.56% to $131,267,000 in 1995 from $102,108,000 in 1994.
Approximately 23% of the average deposits were noninterest-
bearing deposits in 1995. Average assets increased $30,154,000
or 25.40% to $148,890,000 as compared to $118,736,000 in 1994.
The allowance for loan losses represents a reserve for
potential losses in the loan portfolio. The adequacy of the
allowance for loan losses in evaluated periodically based on a
review of all significant loans, with a particular emphasis on
nonaccruing, past due and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the
current period to replenish the allowance and maintain it at a
level management has determined to be adequate. The provision
for loan losses charged to earnings amounted to $600,000 in 1995
and $255,000 in 1994. Management chose to increase its provision
for loan losses during 1995 as the economy was sending mixed
signals. Net charge-offs increased by $71,386 in 1995 as
compared to 1994. Net loan charge-offs as a percentage of the
provision for loan losses amounted to 18% in 1995 and 15% in
1994. The allowance for loan losses as a percentage of total
loans outstanding at December 31, 1995 and 1994 amounted to 1.90%
and 1.68%, respectively. The determination of the amounts
allocated for loan losses is based upon management's judgment
concerning factors affecting loan quality and assumptions about
the local and national economy. Management considers the year-
end allowances adequate to cover potential losses in the loan
portfolio.
Following is a comparison of noninterest income for 1995 and
1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Service Charges on deposit accounts $ 702,150 $650,874
Other 260,847
243,461
Gain on sale of assets 316,036 --
$1,279,033 $894,335
</TABLE>
Noninterest income increased approximately $385,000 in
1995 as compared to 1994. This increase was primarily due to the
gain on the sale of a tract of land the Bank had purchased as a
potential future branch site.
Following is an analysis of noninterest expense for
1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Salaries and employee benefits $2,169,080 1,845,026
Equipment 280,299 316,391
Occupancy expense 226,839 253,915
Data processing 128,165 118,081
FDIC/OAKAR assessment 433,462 227,628
Other real estate expenses 11,145 180,275
Other 1,063,426 909,678
$4,312,416 $3,850,994
</TABLE>
Noninterest expense increased approximately $460,000 in
1995. There was a increase of $324,000 in salaries and employee
benefits as a result of the addition of commercial lending
officers and other personnel. A decrease of approximately
$36,000 in equipment expense was due to the reduction of
depreciation expense incurred in 1995 as compared to 1994. There
was also a decrease in occupancy expense of $19,000 during 1995
which was a result of rental expense paid in 1994 on a branch
site that was closed in 1993. An increase of $10,000 in data
processing expense was the result of an increase in the number of
new accounts. An increase of approximately $205,000 for
FDIC/OAKAR assessment is attributed to OAKAR fees that have been
accrued to transfer certain insured deposits from the SAIF fund
to the BIF fund. There was a decrease of approximately $169,000
in other real estate expense as compared to the same period in
1994, which was primarily the write-down on a closed branch bank
office that was sold during 1994. There was also an increase of
$153,000 in other expenses; $75,000 of this was incurred as a
result of a lawsuit which arose and was settled during 1995;
approximately $50,000 of this increase is attributed to the
purchase of office supplies and postage expenses incurred from
increased account volume; and approximately $16,000 is atributed
to the increase in check printing charges incurred by the Bank
for customers who transferred deposit relationships from other
financial institutions.
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock, $.01 par value ("Common Stock"),
is not traded on an established trading market, and there is only
very limited trading. The following table sets forth high and
low bid information for the Common Stock for each of the quarters
in which trading has occurred since January 1, 1994. The prices
set forth below have been volunteered by shareholders and reflect
only information that has come to management's attention.
<TABLE>
<CAPTION>
Sales Price Dividends
Calendar Period High Low
<S> <C> <C>
<C>
1995
First quarter $13.25 $13.25
Second quarter 15.00 12.90 $0.35
Third quarter 14.50 14.50
Fourth quarter 14.50 14.50
1994
First quarter $10.00 $ 8.75 $0.30
Second quarter 9.30 9.15
Third quarter 10.65 10.45
Fourth quarter 13.25 10.75
</TABLE>
As of December 31, 1995, there were 493 holders of record of
Common Stock.
The Company paid a dividend of $.35 per share on April 1,
1995. Currently, the Company's sole source of dividends is the
Bank. The Bank is subject to regulation by the Department of
Banking and Finance of Georgia (the "DBF"). Statutes and
regulations enforced by the DBF include parameters which defined
when the Bank may or may not pay dividends. On December 31,
1995, there was approximately $1,640,000 available to be paid as
dividends to the Company by the Bank without prior approval from
the DBF.
BUTTON GWINNETT FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT DECEMBER 31, 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Button Gwinnett Financial Corporation
Lawrenceville, Georgia
We have audited the accompanying consolidated
balance sheets of Button Gwinnett Financial Corporation and
subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and
cash flows for the years ended December 31, 1995, 1994 and
1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Button Gwinnett Financial
Corporation and subsidiary as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for
the years ended December 31, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
Atlanta, Georgia
January 26, 1996
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Cash and due from banks $ 6,582,328 $ 8,086,110
Securities held to maturity, at cost
(estimated fair value of $26,009,176
and $22,918,619) 25,911,560 23,661,614
Bank owned certificates of deposit 200,000 300,000
Federal funds sold 19,625,000 2,945,000
Loans, net 100,698,574 85,764,011
Premises and equipment, net 3,848,195 4,461,750
Other assets 2,334,309 1,583,959
$159,199,966 $126,802,444
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 36,850,139 $ 31,159,784
Interest-bearing demand 35,691,143 28,130,476
Savings 6,131,845 6,639,704
Time, $100,000 and over 18,263,816 14,443,881
Other time 43,867,176 30,677,600
Total deposits 140,804,119 111,051,445
Accrued expenses and other liabilities 1,481,044 826,249
Total liabilities 142,285,163 111,877,694
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $.01, 5,000,000 shares
authorized; none issued
Common stock, par value $.01;
5,000,000 shares authorized,
1,527,639 and 1,527,539 shares issued,
respectively 15,276 15,275
Surplus 13,354,771 13,353,647
Retained earnings 5,109,869 2,297,206
18,479,916 15,666,128
Less cost of 145,002 and 82,828 shares
acquired for the treasury 1,565,113 741,378
Total stockholders' equity 16,914,803 14,924,750
$159,199,966 $126,802,444
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 11,396,642 $ 8,299,919 $ 7,672,695
Interest on taxable securities 1,082,895 815,958 749,883
Interest on nontaxable securities 211,158 207,488 159,108
Interest on bank deposits and
other investments 14,646 50,391 51,931
Interest on Federal funds sold 830,876 344,765 305,786
13,536,217 9,718,521 8,939,403
Interest expense on deposit accounts 4,807,424 2,980,811 3,068,031
Net interest income before provision
for loan losses 8,728,793 6,737,710 5,871,372
Provision for loan losses 600,000 255,000 290,326
Net interest income after provision
for loan losses 8,128,793 6,482,710 5,581,046
Other income
Service charges on deposit accounts 702,150 650,874 691,937
Other 260,847 243,461 209,587
Gain on sale of land 316,036 -- --
Gain on sale of assets -- -- 525,000
1,279,033 894,335 1,426,524
Other expense
Salaries and employee benefits 2,169,080 1,845,026 1,875,720
Equipment expense 280,299 316,391 322,642
Occupancy expense 226,839 253,915 409,658
Data processing 128,165 118,081 203,814
FDIC insurance premiums 173,462 227,628 226,053
Other real estate expenses 11,145 180,275 80,805
OAKAR deposit assessment expense 260,000 -- --
Other 1,063,426 909,678 1,212,242
4,312,416 3,850,994 4,330,934
Income before applicable
income taxes $ 5,095,410 $ 3,526,051 $ 2,676,636
Applicable income taxes 1,798,089 1,228,845 748,153
Net income $ 3,297,321 $ 2,297,206 $ 1,928,483
Per share of common and common equivalent share
Net income $ 2.29 $ 1.58 $ 1.31
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Common Stock
Par
Shares Value Surplus
<S> <C> <C> <C>
Balance, December 31, 1992 1,525,798 $ 15,258 $ 11,098,485
Net income
Purchase of treasury stock -- -- --
Cash dividends paid, $.30 per share -- -- --
Balance, December 31, 1993 1,525,798 15,258 11,098,485
Net income -- -- --
Common stock issued for cash upon
the exercise of stock options 1,741 17 13,545
Purchase of treasury stock -- -- --
Cash dividends paid, $.30 per share -- -- --
Transfer to surplus -- -- 2,241,617
Balance, December 31, 1994 1,527,539 15,275 13,353,647
Net income -- -- --
Common stock issued for cash upon
the exercise of stock options 100 1 1,124
Purchase of treasury stock -- -- --
Cash dividends paid, $.35 per share -- -- --
Balance, December 31, 1995 1,527,639 $ 15,276 $ 13,354,771
Treasury Stock Retained
Shares Cost Earnings Total
<S> <C> <C> <C> <C>
Balance, December 31, 1992 2,200 $ (174,000) $ 1,186,150
$12,125,893
Net income -- -- 1,928,483
1,928,483
Purchase of treasury stock - 50,573 (422,022) --
(422,022)
Cash dividends paid, $.30 per share -- -- (436,508)
(436,508)
Balance, December 31, 1993 70,773 (596,022) 2,678,125
13,195,846
Net income -- -- 2,297,206
2,297,206
Common stock issued for cash upon
the exercise of stock options -- -- 13,562
Purchase of treasury stock 12,055 (145,356) --
(145,356)
Cash dividends paid, $.30 per share -- -- (436,508)
(436,508)
Transfer to surplus -- -- (2,241,617)
--
Balance, December 31, 1994 82,828 (741,378) 2,297,206
14,924,750
Net income -- -- 3,297,321
3,297,321
Common stock issued for cash upon
the exercise of stock options -- -- --
1,125
Purchase of treasury stock 62,174 (823,735) --
(823,735)
Cash dividends paid, $.35 per share -- -- (484,658)
(484,658)
Balance, December 31, 1995 145,002 $(1,565,113) $ 5,109,869
$16,914,803
</TABLE>
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,297,321 $ 2,297,206 $
1,928,483
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 271,187 331,443
294,274
Provision for loan losses 600,000 255,000
290,326
OAKAR deposit assessment expense accrual 260,000 --
--
Gain of sale of land (316,036) --
--
Gain on sale of assets -- --
(525,000)
Deferred taxes (55,625) (65,365)
(126,560)
Increase (decrease) in taxes payable (81,929) (45,475)
47,150
(Increase) decrease in interest receivable (147,804) (323,072)
93,171
Increase in interest payable 490,372 88,811
70,037
Other prepaids, deferrals and accruals, net (560,569) 118,248
(421,414)
Total adjustments 459,596 359,590
(278,016)
Net cash provided by operating activities 3,756,917 2,656,796
1,650,467
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities held to maturity (9,165,000) (11,850,000)
(6,033,214)
Proceeds from maturities of securities
held to maturity 6,915,054 3,161,744
6,651,253
Net (increase) decrease in Federal funds sold (16,680,000) 9,905,000
(8,275,000)
Net increase in loans (15,534,563) (12,728,559)
(2,287,479)
Proceeds from the sale of assets 721,452 --
890,000
Proceeds from Government Corporation
Bank stock -- --
385,600
Net decrease (increase) in bank owned
certificates of deposit 100,000 1,989,000
(1,390,000)
Purchase of premises and equipment, net (63,048) (108,894)
(242,101)
Net cash used in investing activities (33,706,105) (9,631,709)
(10,300,941)
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,297,321 $ 2,297,206 $
1,928,483
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 29,752,674 $ 11,169,868 $
4,941,578
Purchase of treasury stock (823,735) (145,356)
(422,022)
Dividends paid (484,658) (436,508)
(436,508)
Proceeds from exercise of stock options 1,125 13,562
--
Net cash provided by financing activities 28,445,406 10,601,566
4,083,048
Net increase (decrease) in
cash and due from banks (1,503,782) 3,626,653
(4,567,426)
Cash and due from banks at beginning of year 8,086,110 4,459,457
9,026,883
Cash and due from banks at end of year $ 6,582,328 $ 8,086,110 $
4,459,457
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 4,317,052 $ 2,892,000 $
2,997,994
Income taxes $ 1,935,643 $ 1,339,685 $
827,563
NONCASH TRANSACTION,
Loans transferred to other real estate $ 30,000 $ 223,451 $
121,358
</TABLE>
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Button Gwinnett Financial Corporation was incorporated in July
1987 as Button Gwinnett Bancorp, Inc. The Company is a one-bank
holding company whose business is presently conducted by its
subsidiary, The Bank of Gwinnett County. The Bank of Gwinnett
County (the Bank) is a commercial bank with operations in
Gwinnett County, Georgia. The Bank provides a full range of
banking services to individual and corporate customers in its
primary market area of Lawrenceville, Georgia; Snellville,
Georgia; Lilburn, Georgia; Gwinnett County and the surrounding
areas. The Bank is subject to competition from other financial
institutions and the regulations of certain Federal and state
agencies. The Bank is periodically examined by certain
regulatory authorities.
The accounting and reporting policies of the Bank conform to
generally accepted accounting principles and general practices
within the financial services industry. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those
estimates.
The principles which significantly affect the determination
of financial position, results of operations and cash flows are
summarized below.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany
transactions and accounts are eliminated in consolidation.
Assets held by the Bank in a fiduciary or agency capacity are not
assets of the Company and are not included in the consolidated
financial statements.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated
by the Bank, deposits, interest-bearing deposits and Federal
funds purchased and sold are reported net.
The Bank maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Bank has not experienced
any losses in such accounts.
Securities Available for Sale
Securities classified as available for sale are those debt
securities that the Bank intends to hold for an indefinite period
of time, but not necessarily to maturity. Any decision to sell a
security classified as available for sale would be based on
various factors, including significant movements in interest
rates, changes in the maturity mix of the Bank's assets and
liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains and losses are reported
as increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains and losses,
determined on the basis of the cost of specific securities sold,
are included in earnings.
Securities Held to Maturity
Securities classified as held to maturity are those debt
securities the Bank has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity
needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest
method over their contractual lives. The sale of a security
within three months of its maturity date or after collection of
at least 85 percent of the principal outstanding at the time the
security was acquired is considered a maturity for purposes of
classification and disclosure.
A decline in the fair value below cost of any available for sale
or held to maturity security that is deemed other than temporary
is charged to earnings resulting in the establishment of a new
cost basis for the security.
Realized gains and losses on the sale of securities available for
sale, if any, are determined using the specific-identification
method.
Loans and Interest Income
Loans are stated at principal amounts outstanding less unearned
income and the allowance for loan losses. Interest income on
loans is credited to income based on the principal amount
outstanding at the respective rate of interest. Interest on some
installment loans is credited to income based on the sum-of-the-
months-digits method, the results of which are not materially
different from generally accepted accounting principles.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest becomes
doubtful. Accrual of interest on such loans is resumed when, in
management's judgment, the collection of interest and principal
becomes probable.
Nonrefundable loan fees and certain direct loan origination costs
are accounted for in accordance with Statement of Financial
Accounting Standards Number 91 (SFAS No. 91), "Accounting for
Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases". SFAS No. 91
requires these fees and costs to be deferred and the net amount
recognized into income over the life of the loans as a yield
adjustment.
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb
estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loss
experience. This evaluation also takes into consideration such
factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans and current economic conditions that may affect the
borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant
changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses, and may
require the Bank to record additions to the allowance based on
their judgment about information available to them at the time of
their examinations.
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual
principal and interest payments due in accordance with the terms
of the loan agreement. Accrual of interest on an impaired loan
is discontinued when management believes, after considering
collection efforts and other factors, that the borrower's
financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans are credited to the
loans receivable balance, and no interest income is recognized on
those loans until the principal balance has been collected.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
Years
Buildings and improvements 31.50
Equipment 3-7
Income Taxes
The Company and its subsidiary file a consolidated income tax
return. The subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated
group.
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effect of changes in tax laws on
the date of enactment.
Earnings Per Share
Earnings per share is calculated on the weighted average number
of shares of common stock and common stock equivalents
outstanding during the period. Stock options granted, as
described in Note 7 are considered to be common stock equivalents
for purposes of calculated net income per share. Common stock
equivalents that are anti-dilutive are excluded from weighted
average outstanding shares.
NOTE 2. INVESTMENTS IN SECURITIES
The carrying amounts of investments in securities as shown in the
consolidated balance sheets and their approximate fair values at
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C>
<C>
Securities Held to Maturity
December 31, 1995:
U. S. Government and agency securities $ 21,543,639 $ 100,693 $ (61,439)
$ 21,582,893
State and municipal securities 4,367,921 71,662 (13,300)
4,426,283
$ 25,911,560 $ 172,355 $ (74,739) $ 26,009,176
December 31, 1994:
U. S. Government and agency securities $ 19,005,532 $ 2,175 $(615,191)
$ 18,392,516
State and municipal securities 4,656,082 39,572 (169,551)
4,526,103
$ 23,661,614 $ 41,747 $(784,742) 22,918,619
The amortized cost and fair value of securities as of December 31,1995 by
contractual maturity are shown below.
Amortized Cost Fair Value
Due in one year or less $ 7,865,200 $ 7,894,251
Due from one year to five years 15,751,288 15,787,509
Due from five to ten years 2,295,072 2,327,416
$25,911,560 $26,009,176
</TABLE>
Effective January 1, 1994, the Bank adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". Due to the Bank's adequate liquidity levels and
intentions to hold the securities to maturity, no securities were
transferred to securities available for sale.
Securities with a carrying value of $2,000,233 and
$998,055 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes.
At December 31, 1995 and 1994, respectively, no securities were
classified as available for sale. There were no sales of
securities during 1995, 1994 or 1993.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Commercial and financial $ 27,356,000 $ 23,283,000
Business loans secured by real estate 30,814,000 22,613,000
Real estate - construction 29,989,000 27,635,000
Real estate - mortgage 8,838,000 7,848,000
Consumer installment loans 5,906,000 6,028,000
Other 83,143 167,417
102,986,143 87,574,417
Deferred fees (334,380) (346,349)
Reserve for loan losses (1,953,189) (1,464,057)
Loans, net $100,698,574 $ 85,764,011
</TABLE>
Loans on which the accrual of interest had been discontinued or
reduced amounted to $94,874 and $147,074 at December 31, 1995 and
1994, respectively.
The reduction in interest income associated with nonaccrual and
renegotiated loans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income in accordance with original loan terms $ 10,933 $ 18,698 $ 31,099
Income recognized (459) (7,627) (18,164)
Reduction in interest income $ 10,474 $ 11,071 $ 12,935
</TABLE>
There were no other loans considered impaired other than the
nonaccrual loans listed above.
At December 31, 1995, management considered no loans impaired in
accordance with Financial Accounting Standard No. 114.
In the normal course of business, the Bank has made loans at
prevailing interest rates and terms to directors and executive
officers of the Company. The aggregate dollar amount of these
loans, as defined, was $3,464,967 at December 31, 1995 and
$3,124,616 at December 31, 1994. During 1995, $2,070,324 of
loans were made and repayments totaled $1,729,973. None of the
related party loans as of December 31, 1995 were restructured,
nor were any amounts charged off during 1995.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $ 1,464,057 $ 1,248,539 $ 1,067,762
Provisions charged to operations 600,000 255,000 290,326
Loans charged off (121,424) (67,449) (130,424)
Recoveries 10,556 27,967 45,875
Adjustment due to sale of
assets (Note 11) -- -- (25,000)
Balance, end of year $ 1,953,189 $ 1,464,057 $ 1,248,539
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
December 31,
1995 1994
Land $ 1,241,377 $ 1,644,793
Buildings 2,715,658 2,715,658
Furniture, fixtures and equipment 1,318,584 1,257,545
5,275,619 5,617,996
Accumulated depreciation (1,427,424) (1,156,246)
$ 3,848,195 $ 4,461,750
Depreciation expense for the years ended December 31, 1995, 1994
and 1993 was $271,178, $331,443 and $294,274, respectively.
NOTE 5. INCOME TAXES
The total income taxes in the consolidated statements of income
are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Currently payable $ 1,853,714 $ 1,294,210 $ 997,622
Deferred (55,625) (65,365) (126,560)
Benefit of net operating loss
carryforward -- -- (122,909)
$ 1,798,089 $ 1,228,845 $ 748,153
</TABLE>
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to
income before income taxes. A reconciliation of the differences
is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
Amount Percent Amount Percent Amount
Percent
<S> <C> <C> <C> <C>
<C> <C>
Tax provision at statutory rate $ 1,732,439 34 % $ 1,198,857 34 % $
910,056 34 %
Increase (decrease) resulting
from:
Tax-exempt interest (69,100) (1) (70,546) (2)
(49,716) (2)
Net operating loss deduction -- -- -- --
(122,909) (5)
State income tax 115,035 2 76,721 2
-- --
Other items, net 19,715 -- 23,813 1
10,722 1
Provision for income taxes $ 1,798,089 35 % $ 1,228,845 35 % $
748,153 28 %
</TABLE>
Net deferred income tax assets of $396,151 and $340,526 at
December 31, 1995 and 1994, respectively, are included in other
assets. The components of deferred income taxes at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 580,688 $ 396,090
Other -- 6,236
580,688 402,326
Deferred tax liabilities:
Depreciation and amortization 53,807 61,800
Deferred gain on sale of land 119,272 --
Other 11,458 --
184,537 61,800
Net deferred tax assets $ 396,151 $ 340,526
</TABLE>
The deferred gain on sale of land is not recognized for tax
purposes due to the client having the proceeds from the sale
placed in an escrow account. These funds will be reinvested in
like-kind property as soon as specific property is acquired.
NOTE 6. EMPLOYEE BENEFIT PLAN
The Bank has a contributory 401(K) retirement plan covering all
employees, subject to certain minimum age and service
requirements. The Bank contributed $33,712, $29,779 and $24,991
to the plan for the years ended December 31, 1995, 1994 and 1993,
respectively.
In 1994, the Bank adopted a deferred compensation agreement with
three of its key employees which provides benefits payable at age
sixty-five or if the employee becomes totally disabled. Under
certain circumstances, benefits are payable to the employee's
beneficiary. The present value of the estimated liability under
the agreement is being accrued over the expected remaining years
of employment. Deferred compensation expense for 1995 totaled
$8,691.
NOTE 7. EMPLOYEE STOCK OPTION PLAN
The Company has adopted an Employee Stock Option Plan with
250,000 shares of common stock reserved for options to key
employees. Option prices will be determined by the Company's
Stock Option Plan Committee, but cannot be less than 100% of the
fair value of the Company's common stock on the date of the
grant. As of December 31, 1995, options have been granted as
follows:
<TABLE>
<CAPTION>
Number of Options Options Options
Granted Expire Price Shares Exercised Terminated
Unexercised
<S> <C> <C> <C> <C> <C>
<C>
1988 1998 $ 7 17,881 6,000 3,000
8,881
1989 1999 8 31,545 4,741 2,250
24,554
1990 2000 8 35,570 -- 2,003
33,567
1991 2001 9 5,500 -- --
5,500
1992 2002 9 26,329 -- 1,306
25,023
1993 2003 11 29,700 100 500
29,100
1994 2004 12 28,500 -- --
28,500
1995 2005 15 29,206 -- --
29,206
</TABLE>
The Company also has outstanding options to purchase 34,828
shares of stock to one key officer. These options were granted
in connection with the formation of the Bank. These options are
exercisable at book value on the most recent quarterly report of
condition of the Company before the exercise date. These options
expire April 19, 1999.
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into off-
balance-sheet financial instruments which are not reflected in
the financial statements. These financial instruments include
commitments to extend credit and standby letters of credit. Such
financial instruments are included in the financial statements
when funds are disbursed or the instruments become payable.
These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Bank uses the same
credit and collateral policies for these off-balance- sheet
financial instruments as it does for on-balance-sheet financial
instruments. A summary of the Bank's commitments is as follows:
.
December 31,
1995 1994
Commitments to extend credit $ 32,781,113 $ 30,939,349
Standby letters of credit 1,540,126 1,619,039
$ 34,321,239 $ 32,558,388
Commitments to extend credit generally have fixed expiration
dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The credit risk
involved in issuing these financial instruments is essentially
the same as that involved in extending loans to customers. The
Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral held varies but
may include real estate and improvements, marketable securities,
accounts receivable, inventory, equipment and personal property.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral
held varies as specified above and is required in instances which
the Bank deems necessary.
The Company or the Bank does not anticipate any material losses
as a result of the commitments and contingent liabilities.
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material adverse
effect on the Company's financial statements.
NOTE 9. CONCENTRATIONS OF CREDIT
The Bank makes commercial, residential and consumer loans to
customers primarily in Gwinnett County.
A substantial portion of the Bank's customers' abilities to honor
their contracts is dependent on the business economy in Gwinnett
and surrounding areas.
The Bank, as a matter of policy, does not generally extend credit
to any single borrower or group of related borrowers in excess of
25% of the Bank's combined common stock and surplus accounts
($12,000,000) which amounted to $3,000,000 at December 31, 1995.
A substantial portion of the Bank's loans are secured by real
estate in the Bank's primary market area. Accordingly, the
ultimate collectibility of a substantial portion of the Bank's
loan portfolio is susceptible to changes in market conditions in
the Bank's primary market area.
The concentrations of credit by type of loan are set forth in
Note 3.
NOTE 10. STOCKHOLDERS' EQUITY
At December 31, 1995, the Company's capital ratios were
considered adequate based on regulatory minimum capital
requirements. The minimum capital requirements and the actual
capital ratios for the Bank are as follows:
Actual Regulatory
Requirement
Leverage capital ratio 10.62 % 4.00 %
Risk based capital ratios:
Core capital 14.18 4.00
Total capital 15.42 8.00
Banking regulations limit the amount of dividends that may be
paid without prior approval of the Bank's regulatory agency.
Approximately $1,640,000 are available to be paid as dividends to
the holding company by the Bank at December 31, 1995.
NOTE 11. BUSINESS COMBINATION AND SALE OF ASSETS
On January 25, 1993, the stockholders of the Company approved a
merger with The Gwinnett Financial Corporation, Lawrenceville,
Georgia. The plan of merger allowed for stockholders of The
Gwinnett Financial Corporation to receive for each share of The
Gwinnett Financial Corporation common stock, 1.7414 shares of the
Company's common stock. The combination was accounted for as a
pooling of interests and, accordingly, all prior consolidated
financial statements have been restated to include The Gwinnett
Financial Corporation. The Company's name was changed from
Button Gwinnett Bancorp, Inc. to Button Gwinnett Financial
Corporation. All per share amounts have been restated to reflect
this transaction. The cash dividends paid prior to the merger
were paid on the outstanding shares of The Gwinnett Financial
Corporation.
Also, on September 25, 1993, the Company sold approximately
$5,500,000 of assets that were primarily located at its Jimmy
Carter location to another bank. The purchasing bank assumed
approximately $5,135,000 in deposits and paid $890,000 in cash.
The Company realized a $525,000 gain on this transaction. This
gain is reported in the consolidated financial statements as a
gain on sale of assets.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107,
"Disclosures About Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates
using present value valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks, including interest-bearing deposits
Federal funds sold
Variable rate loans that reprice frequently
Equity line loans
Variable rate money market accounts and other demand deposits
Variable rate certificates of deposit
Accrued interest receivable
Accrued interest payable
Quoted market prices, where available. If quoted market prices
were not available, fair values were based on quoted market
prices of comparable instruments for securities held to maturity.
Discounted cash flows using interest rates currently being
offered on instruments with similar terms and with similar credit
quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
Commitments to extend credit and standby letters of credit are
not recorded until such commitments are funded. The value of
these commitments are the fees charged to enter into such
agreements. These commitments do not represent a significant
value to the Company until such commitments are funded. The
Company has determined that such instruments do not have a
distinguishable fair value and no fair value has been assigned to
these instruments.
The carrying value and estimated fair values of the Company's
financial instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 26,407,328 $ 26,407,328
Investment securities $ 25,911,560 $ 26,009,176
Loans $102,651,763 $102,600,000
Less allowance for loan losses 1,953,189
Loans, net $100,698,574 $102,600,000
Accrued interest receivable $ 1,062,948 $ 1,062,948
Financial liabilities:
Noninterest-bearing demand $ 36,850,139 $ 36,850,139
Interest-bearing demand 35,691,143 35,691,143
Savings 6,131,845 6,131,845
Time deposits 62,130,992 62,400,000
Total deposits $140,804,119 $141,073,127
Accrued interest payable $ 1,005,238 $ 1,005,238
</TABLE>
NOTE 13. CONDENSED FINANCIAL INFORMATION ON BUTTON GWINNETT
FINANCIAL CORPORATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
<S> <C> <C>
Assets
Interest-bearing deposits $ 815,149 $ 957,523
Investment in bank 16,100,533 13,970,183
$16,915,682 $14,927,706
Liabilities, other $ 879 $ 2,956
Stockholders' equity 16,914,803 14,924,750
Total liabilities and
stockholders' equity $16,915,682 $14,927,706
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
<S> <C> <C> <C>
Income
Dividend $ 1,150,000 $ 436,508 $
436,508
Interest 29,973 31,516
15,004
1,179,973 468,024 451,512
Net investment income 1,179,973 468,024
451,512
Other income
Gain on sale of assets -- --
525,000
Other income 40 80
--
40 80 525,000
Other operating expense 13,042 40,809
75,937
Income before income tax benefits and
equity in net income of subsidiary 1,166,971 427,295
900,575
Income tax benefits -- --
(5,915)
Income before equity in net income
of subsidiary 1,166,971 427,295
906,490
Equity in net income of subsidiary 2,130,350 1,869,911
1,021,993
Net income $ 3,297,321 $2,297,206
$1,928,483
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
<C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,297,321 $ 2,297,206 $
1,928,483
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of organization costs -- --
1,256
Equity in net income of subsidiary (2,130,350) (1,869,911)
(1,021,993)
Gain on sale of assets -- --
(525,000)
Other prepaids, deferrals and
accruals, net (2,077) (3,347)
(17,343)
Total adjustments (2,132,427) (1,873,258)
(1,563,080)
Net cash provided by operating
activities 1,164,894 423,948 365,403
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets (Note 11) -- --
890,000
Net cash provided by investing
activities -- -- 890,000
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (823,735) (145,356)
(422,022)
Cash dividends paid (484,658) (436,508)
(436,508)
Proceeds from exercise of stock options 1,125 13,562
- --
Net cash used in financing
activities (1,307,268) (568,302) (858,530)
Net increase (decrease) in cash
and cash equivalents $(142,374) $ (144,354) $ 396,873
Cash and cash equivalents at
beginning of year 957,523 1,101,877 705,004
Cash and cash equivalents at end of year $ 815,149 $ 957,523 $1,101,877
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash (received) during the year
for income taxes $ -- $ -- $ (5,915)
</TABLE>
BUTTON GWINNETT FINANCIAL CORPORATION
AND
THE BANK OF GWINNETT COUNTY
GENERAL INFORMATION
GENERAL OFFICES BOARD OF DIRECTORS
2230 Scenic Highway W. Emmett Clower
Snellville, GA 30278 Emmett Clower Studio
MAILING ADDRESS Jean A. Coppage
Real Estate Investor
P. O. Box 1230
Lawrenceville, GA 30246 Edwin F. Forrest
Central Drywall, Inc.
EXECUTIVE OFFICERS
John D. Stephens David G. Hanna
Chairman of the Board HBR Capital
of Directors
J. Richard Norton, Sr.
Glenn S. White Norton Southeast, Inc.
President and CEO
Andrew R. Pourchier
Andrew R. Pourchier The Bank of Gwinnett County
Vice President, Secretary
and Treasurer John D. Stephens
John D. Stephens, Inc.
BOARD OF DIRECTORS
Judy W. Waters
David R. Bowen Gwinnett County Board of
RMT Development Company Commissioners
Robert A. Bradshaw Warren O. Wheeler
Bradshaw, Pope & Franklin Schreeder, Wheeler & Flint
James F. Brannan, Jr. Glenn S. White
Lawrenceville Auto Parts The Bank of Gwinnett County
James R. Brown Bobby W. Williams
Retired, Lumber Company Perimeter Investment Corp.
Executive
ANNUAL MEETING
DATE: APRIL 15, 1996
TIME: 2:00 P.M. EST
PLACE: 150 SOUTH PERRY STREET
LAWRENCEVILLE, GEORGIA 30246
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6582328
<INT-BEARING-DEPOSITS> 200000
<FED-FUNDS-SOLD> 19625000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 25911560
<INVESTMENTS-MARKET> 26009176
<LOANS> 102651763
<ALLOWANCE> 1953189
<TOTAL-ASSETS> 159199966
<DEPOSITS> 140804119
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1841044
<LONG-TERM> 0
<COMMON> 15276
0
0
<OTHER-SE> 16899527
<TOTAL-LIABILITIES-AND-EQUITY> 159199966
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