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
For fiscal year ended December 31, 1997
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
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 Identification No.)
Incorporation or Organization)
2230 Scenic Highway, Snellville, Georgia 30078
(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_________
(Cover page continued)
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. [X]
State issuer's revenues for its most recent fiscal year: $17,768,344
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:
$13,505,142 as of March 17, 1998.
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: 1,432,477 as of
March 17, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
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., a Georgia corporation, and The Gwinnett Financial
Corporation, a Georgia corporation, on January 25, 1993. 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 the assets and
liabilities of one of the two offices of BGNB which was located at 2230
Scenic Highway, Snellville, Georgia, and the Company sold BGNB (then
consisting of the assets and liabilities associated with the other office of
BGNB which was located at 4640 Jimmy Carter Boulevard, Norcross, Georgia) to
Mountain National Bank.
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.
On February 5, 1998, the Company entered into an Agreement and Plan
of Reorganization with Premier Bancshares ("Premier") of Atlanta, Georgia.
Under this agreement, the Company will merge with and into Premier. Upon
consummation of the merger, each share of Company stock will be converted
into and exchanged for the right to receive 3.885 shares of Premier stock,
subject to possible adjustment as defined in the agreement. Consummation
is subject to certain conditions, including regulatory and stockholder
approval.
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.
<PAGE>
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, changing 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 loans, commercial
loans, and to a lesser extent consumer loans. As of December 31, 1997 such
loans constituted 24.0%, 64.9% and 11.1%, respectively, of total 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 the 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 Statistical Information of Button Gwinnett
Financial Corporation - Asset/Liability Management.
Employees
As of December 31, 1997, the Bank had 51 full-time employees and 11
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, 1997 and 1996. 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----------------
----------1997----------- ---------1996-------------
AVG. AVERAGE
INTEREST YIELD INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
(Dollars in Thousands)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned income $128,921 $ 13,719 10.64% $109,190 $ 12,020 11.01%
Federal Funds Sold 13,844 750 5.42% 17,805 939 5.27%
Taxable investments 33,808 2,014 5.96% 27,021 1,558 5.77%
Tax-exempt investments 3,167 154 4.86% 3,973 181 4.56%
Interest-bearing deposits
in banks 487 30 6.16% 115 8 6.96%
Total interest-earning
assets $180,227 $ 16,667 9.25% 158,104 $14,706 9.30%
Noninterest-earning assets:
Cash $ 9,691 $ 8,312
Allowance for loan losses (2,463) (2,077)
Other Assets 6,252 5,895
Total noninterest-earning
assets $ 13,480 $ 12,130
TOTAL ASSETS $193,707 $ 16,667 $170,234 $ 14,706
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 62,348 $ 2,394 3.84% $ 47,549 $ 1,789 3.76%
Savings and time deposits 62,971 3,292 5.23% 65,061 3,436 5.28%
Total interest-bearing
liabilities $125,319 $ 5,686 4.54% $112,610 $ 5,225 4.64%
Noninterest-bearing liabilities and
stockholders' equity:
Demand deposits $ 45,219 $ 37,541
Other liabilities 1,747 1,803
Stockholders' equity 21,422 18,280
Total noninterest-bearing
liabilities and
stockholders' equity $ 68,388 $ 57,624
Total liabilities and
stockholders' equity $193,707 $ 5,686 $170,234 $ 5,225
Interest rate spread 4.71% 4.66%
Net interest income $10,981 $ 9,481
Net interest margin 6.09% 6.00%
</TABLE>
(1) Interest income on loans includes $1,261,354 and $1,353,976 of loan
fee income for the years ended December 31, 1997 and 1996, respectively.
Interest income on loans also includes $7,216 and $6,061 of interest
income recognized on non accrual and renegotiated loans for the years ended
December 31, 1997 and 1996, 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 ----------------
1997 1996
Increase Changes Due To Increase Changes Due to
(Decrease) Rate Volume (Decrease) Rate Volume
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees
on loans $1,699 $ (473) $2,172 $ 623 $ (432) $1,055
Interest on
taxable investments 456 65 391 475 (1) 476
Interest on
tax-exempt investments (27) 10 (37) (30) (11) (19)
Interest on
Federal Funds Sold (189) 20 (209) 108 (91) 199
Interest on deposits
in banks 22 (4) 26 (6) 2 (8)
Total interest income $1,961 $ (382) $2,343 $1,170 $ (533) $1,703
Expense from interest-bearing
liabilities:
Interest on
interest-bearing demand $ 605 $ 48 $ 557 $ 672 $ 196 $ 476
Interest on time and
savings deposits (144) (53) (91) (254) (134) (120)
Total interest expense $ 461 $ (5) $ 466 $ 418 $ 62 $ 356
Net interest income $1,500 $ (377) $1,877 $ 752 $ (595) $1,347
</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, 1997, 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 Company 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 11% and the
aggressive marketing and officer calling program that maintains 29% of the
total deposits in non-interest bearing accounts, thus maintaining some of
the highest returns on average assets for its 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 $ 77,080 $ 84,170 $139,728 $144,851
Federal Funds sold 6,765 6,765 6,765 6,765
Taxable Investments 7,644 18,338 41,474 42,467
Tax-exempt investments 400 400 2,341 3,073
Interest-bearing deposits in
banks 500 500 500 500
$ 92,389 $110,173 $190,808 $197,656
<CAPTION>
<S> <C> <C> <C> <C>
Interest Bearing Liabilities:
Interest-bearing deposits $ 69,336 $ 69,336 $ 69,336 $ 69,336
Savings 4,473 4,473 4,473 4,473
Time Deposits 48,188 56,513 63,688 63,688
$121,997 $130,322 $137,497 $137,497
Cumulative Interest Rate
Sensitivity Gap $(29,608) $(20,149) $ 53,311 $ 60,159
Cumulative Interest Rate
Sensitivity Gap Ratio 76% 85% 139% 144%
</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 58% of the loan portfolio is
comprised of loans which have variable rate terms or are 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, 49% of average other earning assets mature
within one year.
INVESTMENT PORTFOLIO
Types of Investments
The carrying value and estimated market value of investment
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
<S> <C> <C> <C> <C>
Securities Held-to-Maturity
December 31, 1997:
U. S. Government and
agency securities $ 32,777,796 $ 89,531 $ (29,352) $ 32,837,975
State and municipal
securities 5,223,492 57,461 (630) 5,280,323
Mortgage-backed
securities 7,539,332 16,759 (7,587) 7,548,504
$ 45,540,620 $ 163,751 $ (37,569) $ 45,666,802
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996:
U. S. Government and
agency securities $ 28,300,312 $ 66,788 $ (74,851) $ 28,292,249
State and municipal
securities 3,703,971 55,716 (4,003) 3,755,684
$ 32,004,283 $ 122,504 $ (78,854) $ 32,047,933
</TABLE>
Maturities
The amounts of investment securities in each category as of December 31,
1997 and 1996 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 -----------
1997 1996
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)
Maturity:
One year or less $ 9,642 5.68% $ 7,716 5.53%
After one year
through five years 23,136 6.25% 20,084 5.95%
After five years
through ten years -- -- 500 6.50%
After ten years 9,689 6.17% --
$ 42,467 $28,300
State and Political Subdivisions
(Dollars in Thousands)
Amount Yield Amount Yield
(1) (1) (2)
Maturity:
One year or less $ 400 4.14% $ 655 4.69%
After one year
through five years 1,941 4.76% 1,839 4.67%
After five years
through ten years 732 5.70% 1,210 5.26%
After ten years -- --
$ 3,073 $ 3,704
</TABLE>
(1) Yields are 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 is 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,
1997 1996
(Dollars in Thousands)
Commercial and financial $ 32,179 $ 28,102
Business loans secured by real estate 62,035 42,297
Real estate - construction 34,857 37,199
Real estate - mortgage 9,134 7,997
Consumer instalment and other 6,995 4,651
145,200 120,246
Deferred fees (350) (347)
Allowance for loan losses (2,577) (2,331)
Loans, net $ 142,273 $117,568
Maturities and Sensitivity to Changes in Interest Rates
Total loans as of December 31, 1997 and 1996 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
1997 1996
(Dollars in Thousands)
Maturity:
One year or less $ 72,426 $ 72,764
After one year through five years 66,427 42,749
After five years 6,347 4,733
$145,200 $120,246
The following table summarizes loans at December 31, 1997 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 $ 55,609 $ 5,126 $ 60,735
Floating or adjustable rates 10,818 1,221 12,039
$ 66,427 $ 6,347 $ 72,774
Nonperforming Loans
The following table presents, at December 31, 1997 and 1996, the
aggregate of nonperforming loans for the categories indicated.
December 31
1997 1996
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis $ 25 $ 38
Installment loans and term loans -- --
contractually past due ninety days or
more as to interest or principal payments
and still accruing
Loans, the terms of which have been 63 84
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 10 10
nonaccrual and restructured loans under
original terms
Interest income that was recorded on a nonaccrual 7 6
and restructured loans
The accrual of interest income on loans is discontinued when the
loans 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, 1996, the Bank adopted Statement of Financial
Accounting Standards No. 114 and, as amended, No. 118, "Accounting by Creditors
for Impairment of a Loan". The statement prescribes that impaired loans be
measured ont he 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 fiar value of the collateral if the loan is
collateral dependent. The statement had no material effect on the financial
statements of Button Gwinnett Financial Corporation as of December 31, 1997.
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, 1997 and 1996.
December 31
1997 1996
(Dollars in Thousands)
Commitments to extend credit $ 47,304 $ 46,186
Standby letters of credit 2,449 2,201
$ 49,753 $ 48,387
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 and other relevant factors. The Company's
allowance for loan losses was approximately $2,577,044 at December 31,
1997, representing 1.78% of year end total loans outstanding, compared with
$2,330,733 at December 31, 1996, which represented 1.94% 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, 1997.
The following table presents an analysis of the Company's loan
loss experience for the year ended December 31, 1997.
December 31
1997 1996
(Dollars in Thousands)
Average amount of loans outstanding $ 128,921 $109,190
Balance of reserve for possible loan losses
at beginning of period $ 2,331 $ 1,953
Charge-offs:
Commercial, financial and agricultural $ (17) $ (49)
Real estate 0 (20)
Consumer (8) (16)
Recoveries:
Commercial, financial and agricultural 10 7
Real estate 0 4
Consumer 1 7
Net charge-offs $ (14) $ (67)
Additions to reserve charged to
operating expenses $ 260 $ 445
Balance of reserve for
possible loan losses $ 2,577 $ 2,331
Ratio of net loan charge-offs
to average loans 0.01% 0.06%
<PAGE>
DEPOSITS
The average amount of deposits and average rate paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing
demand deposits, savings deposits and time deposits, for the years ended
December 31, 1997 and 1996 are presented below.
December 31
1997 1996
Amount Rate Amount Rate
(Dollars in Thousands)
Noninterest-bearing demand deposits $ 45,219 ---% $ 37,541 ---%
Interest-bearing demand deposits 62,348 3.84% 47,549 3.76%
Savings 5,173 2.41% 5,991 2.40%
Time deposits 57,798 5.48% 59,070 5.57%
Total deposits $170,538 $150,151
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1997 and 1996, are shown below by
category, which is based on time remaining until maturity of (1) three
months or less, (2) over three through six months (3) over six through
twelve months and (4) over twelve months.
December 31
1997 1996
Amount Amount
(Dollars in Thousands)
Three months or less $ 12,069 $ 7,181
Over three through six months 6,502 3,754
Over six through twelve months 2,031 3,716
Over twelve months 4,658 3,796
Total $ 25,260 $18,447
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the years ended
December 31, 1997 and 1996 is presented below.
December 31
1997 1996
Return on assets (1) 2.51% 2.26%
Return on equity (2) 22.70% 21.03%
Dividend payout ratio (3) 18.07% 19.08%
Equity to assets ratio (4) 11.07% 10.74%
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by diluted earnings per
common share.
(4) Average equity divided by average total assets.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the
regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to the Company.
General
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). As such, the
Company and its, if applicable, non-bank subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after
such acquisition, the bank holding company will directly or indirectly own
or control more than 5% of the voting shares of the bank; (b) it or any of
its subsidiaries, other than a bank, may acquire all or substantially all
of the assets of any bank; or (c) it may merge or consolidate with any
other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of
which may be substantially to lessen competition or to tend to create a
monopoly in any section of the country, or that in any other manner would
be in restraint of trade, unless the anticompetitive effects of the
proposed transaction are clearly outweighed by the public interest in
meeting the convenience and needs of the community to be served. The
Federal Reserve is also required to consider the financial and managerial
resources and future prospects of the bank holding companies and banks
concerned and the convenience and needs of the community to be served.
Consideration of financial resources generally focuses on capital adequacy,
which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1996,
repealed the prior statutory restrictions on interstate acquisitions of
banks by bank holding companies, such that the Company, and any other bank
holding company located in Georgia may now acquire a bank located in any
other state, and any bank holding company located outside Georgia may
lawfully acquire any Georgia-based bank, regardless of state law to the
contrary, in either case subject to certain deposit-percentage, aging
requirements, and other restrictions. The Interstate Banking Act also
generally provides that, as of June 1, 1997, national and state-chartered
banks may branch interstate through acquisitions of banks in other states.
By adopting legislation prior to that date, a state had the ability either
to "opt in" and accelerate the date after which interstate branching
is permissible or "opt out" and prohibit interstate branching altogether.
In response to the Interstate Banking Act, the Georgia General
Assembly adopted the Georgia Interstate Banking Act, which was effective on
July 1, 1995. The Georgia Interstate Banking Act provides that (a)
interstate acquisitions by institutions located in Georgia will be
permitted in states that also allow national interstate acquisitions and
(b) interstate acquisitions of institutions located in Georgia will be
permitted by institutions in states that allow nationsl interstate
acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly
adopted the Georgia Interstate Branching Act which permits Georgia-based
banks and bank holding companies owning or acquiring banks outside of
Georgia and all non-Georgia banks and bank holding companies owning or
acquiring banks in Georgia to merge any lawfully acquired bank into an
interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branches on a limited basis as of July 1, 1996.
Beginning July 1, 1998, the number of de novo branches that may be
established will no longer be limited.
The BHC Act generally prohibits the Company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those
activities determined by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices. For example, factoring accounts receivable,
acquiring or servicing loans, leasing personal property, conducting
discount securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life
insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities all
have been determined by the Federal Reserve to be permissible activities of
bank holding companies. The BHC Act does not place territorial limitations
on permissible non-banking activities of bank holding companies. Despite
prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability
of any bank subsidiary of that bank holding company.
The bank subsidiary of the Company is a member of the Federal Deposit
Insurance Corporation (the "FDIC"), and as such, its deposits are insured
by the FDIC to the maximum extent provided by law. Such subsidiary is also
subject to numerous state and federal statutes and regulations that affect
its business, activities, and operations, and it is supervised and examined
by one or more state or federal bank regulatory agencies.
The FDIC and the Georgia Department of Banking and Finance (the
"Georgia Department") regularly examine the operations of the Bank and is
given authority to approve or disapprove mergers, consolidations, the
establishment of branches, and similar corporate actions. The FDIC and the
Georgia Department also have the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of
law.
Payment of Dividends
The Company is a legal entity separate and distinct from its banking
subsidiary. The principal sources of cash flow of the Company, including
cash flow to pay dividends to its shareholders, are dividends by the Bank.
There are statutory and regulatory limitations on the payment of dividends
by the Bank to the Company as well as by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in
an unsafe or unsound practice (which, depending on the financial condition
of the depository institution, could include the payment of dividends),
such authority may require, after notice and hearing, that such institution
cease and desist from such practice. The federal banking agencies have
indicated that paying dividends that deplete a depository institution's
capital base to an inadequate level would be an unsafe and unsound banking
practice. Under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. See "-- Prompt Corrective Action." Moreover, the
federal agencies have issued policy statements that provide that bank
holding companies and insured banks should generally only pay dividends out
of current operating earnings.
At December 31, 1997, under dividend restrictions imposed under
federal and state laws, the Bank, without obtaining governmental approvals,
could declare aggregate dividends to the Company of up to approximately
$2,413,915.
The payment of dividends by the Company and the Bank may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Capital Adequacy
The Company and the Bank are required to comply with the capital
adequacy standards established by the Federal Reserve and the appropriate
federal banking regulator in the case of Bank. There are two basic
measures of capital adequacy for bank holding companies that have been
promulgated by the Federal Reserve: a risk-based measure and a leverage
measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among
banks and bank holding companies, to account for off-balance-sheet
exposure, and to minimize disincentives for holding liquid assets. Assets
and off-balance-sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets
(including certain off-balance-sheet items, such as standby letters of
credit) is 8%. At least half of Total Capital must comprise common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible
assets ("Tier 1 Capital"). The remainder may consist of subordinated debt,
other preferred stock, and a limited amount of loan loss reserves ("Tier 2
Capital"). At December 31, 1997, the Company's consolidated Total Risk-
Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio (i.e., the
ratio of Tier 1 Capital to risk-weighted assets) were 16.51% and 15.26%,
respectively.
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for
a minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets,
less goodwill and certain other intangible assets, of 3% for bank holding
companies that meet certain specified criteria, including having the
highest regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3%, plus an additional
cushion of 100 to 200 basis points. The Company's Leverage Ratio at
December 31, 1997 was 11.37%. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will
consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals
for expansion or new activities.
The Bank is subject to risk-based and leverage capital requirements
adopted by the FDIC, which are substantially similar to those adopted by
the Federal Reserve for bank holding companies.
The Bank was in compliance with applicable minimum capital requirements
as of December 31, 1997. The Company has not been advised by any federal
banking agency of any specific minimum capital ratio requirement applicable
to it or its subsidiary depository institution.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking
of brokered deposits, and certain other restrictions on its business. As
described below, substantial additional restrictions can be imposed upon
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "-- Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their
current levels. In this regard, the Federal Reserve and the FDIC have,
pursuant to FDICIA, recently adopted final regulations, which will become
mandatory on January 1, 1998, requiring regulators to consider interest
rate risk (when the interest rate sensitivity of an institution's assets
does not match the sensitivity of its liabilities or its off-balance-sheet
position) in the evaluation of a bank's capital adequacy. The bank
regulatory agencies' methodology for evaluating interest rate risk requires
banks with excessive interest rate risk exposure to hold additional amounts
of capital against such exposures. The market risk rules apply to any bank
or bank holding company whose trading activity equals 10% or more of its
total assets, or whose trading activity equals $1 billion or more.
Support of Subsidiary Institutions
Under Federal Reserve policy, the Company is expected to act as a
source of financial strength for, and to commit resources to support, each
of its banking subsidiaries. This support may be required at times when,
absent such Federal Reserve policy, the Company may not be inclined to
provide it. In addition, any capital loans by a bank holding company to
any of its banking subsidiaries are subordinate in right of payment to
deposits and to certain other indebtedness of such banks. In the event of
a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
banking subsidiary will be assumed by the bankruptcy trustee and entitled
to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC after August 9,
1989, in connection with (a) the default of a commonly controlled FDIC-
insured depository institution or (b) any assistance provided by the FDIC
to any commonly controlled FDIC-insured depository institution "in danger
of default." "Default" is defined generally as the appointment of a
conservator or receiver, and "in danger of default" is defined generally as
the existence of certain conditions indicating that a default is likely to
occur in the absence of regulatory assistance. The FDIC's claim for
damages is superior to claims of shareholders of the insured depository
institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
subsidiary depository institutions of the Company are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against
the depository institution's banking affiliates, and a potential loss of
the Company's investment in such other subsidiary depository institutions.
Prompt Corrective Action
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized) and to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, with
respect to institutions in the three undercapitalized categories, the
severity of which will depend upon the capital category in which the
institution is placed. Generally, subject to a narrow exception, FDICIA
requires the banking regulator to appoint a receiver or conservator for an
institution that is critically undercapitalized. The federal banking
agencies have specified by regulation the relevant capital level for each
category.
The capital levels established for each of the categories are as
follows:
Tier 1 Risk-Based Tier 1 Risk-
Capital Category Capital Capital Based Capital Other
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 -- -- --
For purposes of the regulation, the term "tangible equity" includes
core capital elements counted as Tier 1 Capital for purposes of the risk-
based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
assets with certain exceptions. A depository institution may be deemed to
be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination
rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking
agency. Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meets its capital restoration plan,
subject to certain limitations. The obligation of a controlling holding
company under FDICIA to fund a capital restoration plan is limited to the
lesser of 5% of an undercapitalized subsidiary's assets or the amount
required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any
new line of business, except in accordance with an accepted capital
restoration plan or with the approval of the FDIC. In addition, the
appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At December 31, 1997, the Bank had the requisite capital levels to
qualify as well capitalized.
FDIC Insurance Assessments
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system
for insured epository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The system assigns an institution to one of three capital
categories: (a) well capitalized; (b) adequately capitalized; and
(c) undercapitalized. These three categories are substantially similar to the
prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is
also assigned by the FDIC to one of three supervisory subgroups within each
capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds (which may include, if
applicable, information provided by the institution's state supervisor).
An institution's insurance assessment rate is then determined based on the
capital category and supervisory category to which it is assigned. Under
the risk-based assessment 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 ranged from
23 basis points (0.23% of deposits) for an institution in the highest
category (i.e., "well capitalized" and "healthy") to 31 basis points (0.31%
of deposits) for an institution in the lowest category (i.e.,
"undercapitalized" and "substantial supervisory concern"). These rates
were established for both funds to achieve a designated ratio of reserves
to insured deposits (i.e., 1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached in May 1996, the
FDIC reduced the assessment rate applicable to BIF deposits in two stages,
so that, beginning in 1996, the deposit insurance premiums for 92% of all
BIF members in the highest capital and supervisory categories were set at
$2,000 per year, regardless of deposit size. The FDIC elected to retain
the existing assessment rate range of 23 to 31 basis points for SAIF
members for the foreseeable future given the undercapitalized nature of
that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates
had adverse consequences for SAIF-insured institutions and other banks with
SAIF assessed deposits, including reduced earnings and an impaired ability
to raise funds in capital markets and to attract deposits, the Deposit
Insurance Funds Act of 1996 (the "Funds Act") was enacted by Congress as
part of the omnibus budget legislation and signed into law on September 30,
1996. As directed by the Funds Act, the FDIC implemented a special one-
time assessment of approximately 65.7 basis points (0.657%) on a depository
institution's SAIF-insured deposits held as of March 31, 1995 (or
approximately 52.6 basis points on SAIF deposits acquired by banks in
certain qualifying transactions).
In addition, the FDIC has implemented a revision in the SAIF
assessment rate schedule that effected, as of October 1, 1996 (a) a
widening in the assessment rate spread among institutions in the different
capital and risk assessment categories, (b) an overall reduction of the
assessment rate range assessable on SAIF deposits of from 0 to 27 basis
points, and (c) a special interim assessment rate range for the last
quarter of 1996 of from 18 to 27 basis points on institutions subject to
Financing Corporation ("FICO") assessments. Effective January 1, 1997,
assessments to help pay off the $780 million in annual interest payments on
the $8 billion FICO bonds issued in the late 1980s as part of the
government rescue of the thrift industry were imposed on both BIF- and
SAIF-insured deposits in annual amounts presently estimated at 1.29 basis
points and 6.44 basis points, respectively. Beginning in January 2000,
BIF- and SAIF- insured institutions will share the FICO interest costs at
equal rates currently estimated 2.43 basis points.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or
has violated any applicable law, regulation, rule, order, or condition
imposed by the FDIC.
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be
predicted whether or what form any proposed regulation or statute will be
adopted or the extent to which the business of the Company may be affected
by such regulation or statute.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's main office is currently located at 2230 Scenic Highway,
Snellville, Georgia 30078.
The Bank currently has three banking offices which it owns without
encumbrance. They are as follows:
Main Office
150 S. Perry Street
Lawrenceville, Georgia 30045
Lilburn Office
4700 U.S. Highway 29
Lilburn, Georgia 30047
Snellville Office
2230 Scenic Highway
Snellville, Georgia 30078
The Bank has two additional properties. The first, which is located
at 234 Luckie Street, Lawrenceville, Georgia 30245 is currently leased to
RE/MAX Gwinnett, Inc. The second is a parcel of land purchased as a
potential branch site. This property is located on Riverside Parkway and Lakes
Parkway, Lawrenceville, Georgia 30043. The Bank also has a contract on a
parcel of land for a future branch site. This property is located on Sugarloaf
Parkway at Pruett Road, Duluth, Georgia 30097.
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 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, 1995. The prices set forth below have been volunteered by
shareholders and reflect only information that has come to management's
attention.
Sales Price Dividends
Calendar Period High Low
1996
First quarter $14.50 $14.50 $0.50
Second quarter 14.50 14.50
Third quarter N/A N/A
Fourth quarter 23.00 20.00
1997
First quarter $21.00 $21.00
Second quarter 21.00 25.00 $0.60
Third quarter 21.00 21.00
Fourth quarter N/A N/A
As of December 31, 1997, there were 449 holders of record of
Common Stock.
The Company paid a dividend of $.60 per share on April 1, 1997.
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, 1997, there was approximately $2,412,915 available to be
paid as dividends to the Company by the Bank without prior approval from
the DBF.
ITEM 6. MANAGEMENT'S DISCUSSIONS 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, 1997 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, 1997, the Company's and the Bank's capital to asset
ratios were considered adequate based on guidelines established by the
regulatory authorities. During 1997, the Company increased its capital
by $4,462,567, which is net income for the year, less treasury stock,
dividends paid and adjustments to capital due to the exercise of stock
options. At December 31, 1997, total capital of the Company amounted
to $24,475,511.
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 depends upon the Bank's ability to generate
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 net 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 29% are noninterest-bearing.
Net interest income was $10,980,881 in 1997 as compared to $9,481,517
in 1996, representing an increase of 15.81%. This increase is attributable
to a higher volume of average earning assets offset by a lower net interest
margin.
Average earning assets increased by $22,123,000 or 13.99%
to $180,227,000 in 1997 from $158,104,000 in 1996. This increase is
attributable to an increase in average loans of $19,731,000 an increase
in average investments of $5,981,000 and an increase in average
certificates of deposits in other banks of $372,000. Average deposits
increased $20,387,000 or 13.58% to $170,538,000 in 1997 from $150,151,000
in 1996. Approximately 26% of the average deposits were noninterest-
bearing deposits in 1997.
The net interest margin increased to 6.09% in 1997 as compared to
6.00% in 1996. This increase is attributable to the decrease in the yield
on average earning assets being less than the decrease in the rate paid on
average interest-bearing liabilities. The yield on average earning assets
decreased slightly in 1997 by 0.5% to a current yield of 9.25% from 9.30%
in 1996, while the rate of interest paid on average interest bearing
liabilities decreased by 2.15% from 4.64% in 1996 to 4.54% in 1997.
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to them at the
time of their examinations.
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 totaled $260,000 in 1997 and $445,000 in 1996. The decreased
provision in 1997 resulted from management's evaluation of the loan
portfolios and minimal losses during the year. Net loan charge-offs decreased
by $53,768 in 1997 as compared to 1996. Net loan charge-offs as a
percentage of the provision for loan losses amounted to 5% in 1997 and 15%
in 1996. The allowance for loan losses as a percentage of total loans
outstanding at December 31, 1997 and 1996 amounted to 1.78% and 1.94%,
respectively. Management considers the year end allowance adequate to cover
potential losses in the loan portfolio.
The following is a comparison of noninterest income for 1997 and 1996.
1997 1996
Service Charges on deposit accounts $ 780,220 $ 757,084
Other 320,918 279,438
$1,101,138 $1,036,522
Noninterest income increased approximately $65,000 in 1997 as compared
to 1996. The increase in service charges on deposit accounts is attributable
to commercial service charges, in addition to an increase in insufficient
funds charges. The increase in other income of approximately $41,000 is
primarily due to an increase in Invest Income, which are commissions earned
on the sale of mutual funds, annuities, etc. by a third party.
The following is an analysis of noninterest expense for 1997 and 1996.
1997 1996
Salaries and employee benefits $ 2,690,385 $ 2,346,532
Equipment 207,388 315,932
Occupancy expense 220,940 195,894
Other 1,107,112 1,256,931
$ 4,225,825 $ 4,115,289
Noninterest expense increased approximately $110,000 in 1997. There
was an increase of $344,000 in salaries and employee benefits as a result
of additional personnel and an increase in employee incentives. A decrease
of $108,000 in equipment expense is related to a reduction in depreciation
expense for the year. There was also an increase in occupancy expense of
$25,000 for building repairs made during 1997. Other expenses decreased
approximately $150,000 from $1,256,931 during 1996 to $1,107,112 in 1997.
The primary decreases are attributable to the following: $50,000 reduction
in legal and professional expense; $58,000 decrease in FDIC insurance
premiums; $25,000 reduction in Other Real Estate expense and approximately
$33,000 decrease in postage expense. There was an increase of $15,000 in
appraisal/inspection expense.
Year 2000
Like many financial institutions, the Company relies upon computers for
the daily conduct of its business and for data processing. There is concern
among industry experts that commencing on January 1, 2000, computers will be
unable to "read" the new year and that there may be widespread computer
malfunctions. Management of the Company has assessed the electronic systems,
programs, applications, and other electronic components used in its operations
and is currently in the process of determining the costs that will be incurred
in connection with the Year 2000 issue.
ITEM 7. FINANCIAL STATEMENTS
BUTTON GWINNETT FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT
FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Button Gwinnett Financial Corporation and Subsidiary
Lawrenceville, Georgia
We have audited the accompanying consolidated balance sheets of Button
Gwinnett Financial Corporation and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
January 14, 1998, except for Note 14 as to
which the date is February 5, 1998
BUTTON GWINNETT FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets 1997 1996
Cash and due from banks $ 13,808,676 $ 9,823,064
Interest-bearing deposits in banks 500,000 -0-
Federal funds sold 6,765,000 21,515,000
Securities held-to-maturity
(fair value of $45,666,802
and $32,047,933) 45,540,620 32,004,283
Loans 144,850,291 119,899,273
Less allowance for loan losses 2,577,044 2,330,733
Loans, net 142,273,247 117,568,540
Premises and equipment 3,873,124 3,620,119
Other assets 2,430,217 2,037,288
Total assets $215,190,884 $186,568,294
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 54,298,531 $ 43,877,754
Interest-bearing demand 66,759,403 59,655,148
Savings 4,473,462 5,531,514
Time, $100,000 and over 25,259,652 18,447,251
Other time 38,428,591 37,725,123
Total deposits 189,219,639 165,236,790
Other liabilities 1,495,734 1,318,560
Total liabilities 190,715,373 166,555,350
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $.01;
1,000,000 shares authorized;
none issued 0 0
Common stock, par value $.01;
5,000,000 shares authorized;
1,527,639 shares issued; 1,432,477
and 1,378,746 shares outstanding 15,276 15,276
Capital surplus 13,334,986 13,354,771
Retained earnings 12,311,438 8,264,430
Treasury stock, 95,162 and 148,893
shares (1,186,189) (1,621,533)
Total stockholders' equity 24,475,511 20,012,944
Total liabilities and
stockholders' equity $215,190,884 $186,568,294
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Interest income
Loans $ 13,718,655 $ 12,020,294 $ 11,396,642
Taxable securities 2,014,838 1,558,034 1,082,895
Nontaxable securities 153,496 181,592 211,158
Deposits in banks 29,822 7,705 14,646
Federal funds sold 750,395 938,688 830,876
Total interest income 16,667,206 14,706,313 13,536,217
Interest expense on deposits 5,686,325 5,224,796 4,807,424
Net interest income 10,980,881 9,481,517 8,728,793
Provision for loan losses 260,000 445,000 600,000
Net interest income after
provision for loan losses 10,720,881 9,036,517 8,128,793
Other income
Service charges on deposit
accounts 780,220 757,084 702,150
Other operating income 320,918 279,438 260,847
Gain on sale of land 0 0 316,036
Total other income 1,101,138 1,036,522 1,279,033
Other expenses
Salaries and employee
benefits 2,690,385 2,346,532 2,169,080
Equipment expenses 207,388 315,932 280,299
Occupancy expenses 220,940 195,894 226,839
Other operating expenses 1,107,112 1,256,931 1,636,198
Total other expenses 4,225,825 4,115,289 4,312,416
Income before income
taxes 7,596,194 5,957,750 5,095,410
Income tax expense 2,732,668 2,112,946 1,798,089
Net income $ 4,863,526 $ 3,844,804 $ 3,297,321
Basic earnings per
common share $ 3.54 $ 2.79 $ 2.38
Diluted earnings per
common share $ 3.32 $ 2.62 $ 2.30
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Total
Common Stock Capital Retained Treasury Stock Stockholders'
Shares Value Surplus Earnings Shares Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994 1,527,539 $15,275 $13,353,647 $ 2,297,206 82,828 $ (741,378) $14,924,750
Net income 0 0 0 3,297,321 0 0 3,297,321
Cash dividends
declared,
$.35 per
share 0 0 0 (484,658) 0 0 (484,658)
Exercise of
stock options 100 1 1,124 0 0 0 1,125
Purchase of
treasury stock 0 0 0 0 62,174 (823,735) (823,735)
Balance,
December 31,
1995 1,527,639 15,276 13,354,771 5,109,869 145,002 (1,565,113) 16,914,803
Net income 0 0 0 3,844,804 0 0 3,844,804
Cash dividends
declared,
$.50 per
share 0 0 0 (690,243) 0 0 (690,243)
Purchase of
treasury stock 0 0 0 0 3,891 (56,420) (56,420)
Balance,
December 31,
1996 1,527,639 15,276 13,354,771 8,264,430 148,893 (1,621,533) 20,012,944
Net income 0 0 0 4,863,526 0 0 4,863,526
Cash dividends
declared,
$.60 per
share 0 0 0 (816,518) 0 0 (816,518)
Exercise of
stock options 0 0 (217,013) 0 (98,950) 1,384,943 1,167,930
Purchase of
treasury stock 0 0 0 0 45,219 (949,599) (949,599)
Tax benefit of
stock-based
compensation
deducted for
income tax
reporting
purposes in
excess of
stock-based
compensation
recognized
for financial
reporting
purposes 0 0 197,228 0 0 0 197,228
Balance,
December 31,
1997 1,527,639 $15,276 $13,334,986 $12,311,438 95,162 $ (1,186,189) $24,475,511
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
BUTTON GWINNETT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,863,526 $ 3,844,804 $ 3,297,321
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 200,619 281,987 271,187
Increase (decrease) in
OAKAR deposit assessment
expense accrual 0 (260,000) 260,000
Provision for loan losses 260,000 445,000 600,000
Deferred income taxes (81,450) (229,337) (55,625)
Gain on sale of land 0 0 (316,036)
Gain on sale of other real estate 0 (40,347) 0
Increase in interest receivable (276,869) (112,697) (147,804)
Increase in interest payable 62,889 77,402 490,372
Other operating activities 276,903 (92,283) 78,954
Net cash provided by operating
activities 5,305,618 3,914,529 4,478,369
INVESTING ACTIVITIES
Purchases of securities held-to-maturity (23,184,053) (16,500,000) (9,165,000)
Proceeds from maturities of securities
held-to-maturity 9,647,716 10,407,277 6,915,054
Net (increase) decrease in Federal
funds sold 14,750,000 (1,890,000) (16,680,000)
Net (increase) decrease in
interest-bearing deposits in banks (500,000) 200,000 100,000
Net increase in loans (24,964,707) (17,605,807) (15,534,563)
Proceeds from sale of land 0 721,452 0
Proceeds from sale of other real estate 0 361,188 0
Purchase of premises and equipment (453,624) (53,911) (63,048)
Net cash used in investing activities (24,704,668) (24,359,801) (34,427,557)
FINANCING ACTIVITIES
Net increase in deposits 23,982,849 24,432,671 29,752,674
Purchase of treasury stock (949,599) (56,420) (823,735)
Proceeds from exercise of stock options 1,167,930 0 1,125
Dividends paid (816,518) (690,243) (484,658)
Net cash provided by financing
activities 23,384,662 23,686,008 28,445,406
BUTTON GWINNETT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Net increase (decrease) in cash
and due from banks $ 3,985,612 $ 3,240,736 $ (1,503,782)
Cash and due from banks at
beginning of year 9,823,064 6,582,328 8,086,110
Cash and due from banks at end of year $ 13,808,676 $ 9,823,064 $ 6,582,328
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 5,623,436 $ 5,147,394 $ 4,317,052
Income taxes $ 2,504,677 $ 2,291,000 $ 1,935,643
NONCASH TRANSACTIONS
Principal balances of loans
transferred to other real estate $ 0 $ 290,841 $ 30,000
</TABLE>
See Notes to Consolidated Financial Statements.
BUTTON GWINNETT FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Button Gwinnett Financial Corporation (the Company) is a bank holding company
whose business is conducted by its wholly-owned subsidiary, The Bank of
Gwinnett County, (the Bank). The Bank is a commercial bank located in
Lawrenceville, Gwinnett County, Georgia with branches located in Snellville
and Lilburn, Georgia. The Bank provides a full range of banking services
in its primary market area of Gwinnett County and the surrounding counties.
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.
The accounting and reporting policies of the Company 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
and disclosures 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.
Cash and Due From Banks
Cash on hand, cash items in process of collection and amounts due from banks
are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Company has not experienced any losses in
such accounts.
Securities
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost.
All other securities would be classified as available-for-sale and carried at
fair value with net unrealized gains and losses included in stockholders'
equity net of tax.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
Loans
Loans are carried at their 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.
Nonrefundable loan fees and certain direct loan origination costs are deferred
with the net amount recognized into income over the life of the loans as a
yield adjustment.
The allowance for loan losses is maintained at a level that management believes
to be adequate to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth, composition of the loan portfolio, and other risks inherent in the
portfolio. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses, and may require the Company to record additions to the allowance
based on their judgment about information available to them at the time of
their examinations.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments are
received.
A loan is impaired when it is probable the Company will be unable to collect
all principal and interest payments due in accordance with the terms of the
loan agreement. Individually identified impaired loans are measured based on
the present value of payments expected to be received, using the contractual
loan rate as the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established as a component
of the allowance for loan losses. Changes to the valuation allowance are
recorded as a component of the provision for loan losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.
Income Taxes
Income tax expense consists of current and deferred taxes. Current income tax
provisions approximate taxes to be paid or refunded for the applicable year.
Deferred tax assets and liabilities are recognized for the temporary
differences between the bases of assets and liabilities as measured by tax
laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards, and tax
credits will be realized. A valuation allowance would be recorded for those
deferred tax items for which it is more likely than not that realization would
not occur.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income by the
weighted-average number of shares of common stock outstanding. Diluted
earnings per share are computed by dividing net income by the sum of the
weighted-average number of shares of common stock outstanding and potential
common shares.
Potential common shares consist of stock options.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued, and the Company has
adopted, Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". SFAS No. 125 was amended by SFAS No. 127, which defers the
effective date of certain provisions of SFAS No. 125 until January 1, 1998.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of this statement did not
have a material effect on the Company's financial statements.
The FASB has issued, and the Company has adopted, SFAS No. 128, "Earnings Per
Share". SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15
"Earnings Per Share" and specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with
publicly held common stock or potential issuable common stock. SFAS No. 128
replaces the presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator for the basic EPS computation to the numerator and denominator
of the diluted EPS computation. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
The adoption of this statement did not have a material effect on the Company's
financial statements.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 requires
all items that are required to be recognized under accounting standards as
components of comprehensive income to be reported in a financial statement
that is displayed in equal prominence with the other financial statements.
The term "comprehensive income" is used in the SFAS to describe the total of
all components of comprehensive income including net income. "Other
comprehensive income" refers to revenues, expenses, gains and losses that are
included in comprehensive income but excluded from earnings under current
accounting standards. Currently, "other comprehensive income" for the Company
consists of items previously recorded directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
130 is effective for periods beginning after December 15, 1997.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity
December 31, 1997:
U. S. Government and
agency securities $ 32,777,796 $ 89,531 $ (29,352) $ 32,837,975
State and municipal
securities 5,223,492 57,461 (630) 5,280,323
Mortgage-backed
securities 7,539,332 16,759 (7,587) 7,548,504
$ 45,540,620 $ 163,751 $ (37,569) $ 45,666,802
Gross Gross
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity
U. S. Government and
agency securities $ 32,777,796 $ 89,531 $ (29,352) $ 32,837,975
December 31, 1996:
U. S. Government and
agency securities $ 28,300,312 $ 66,788 $ (74,851) $ 28,292,249
State and municipal
securities 3,703,971 55,716 (4,003) 3,755,684
$ 32,004,283 $ 122,504 $ (78,854) $ 32,047,933
The amortized cost and fair value of securities as of December 31, 1997 by
contractual maturity are shown below. Maturities may differ from contractual
maturities of mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities are not included in the maturity categories in the following
maturity summary.
Amortized Fair
Cost Value
Due in one year or less $ 10,041,850 $ 10,041,185
Due from one year to five years 25,615,663 25,725,068
Due from five to ten years 193,775 202,045
Due in over ten years 2,150,000 2,150,000
Mortgage-backed securities 7,539,332 7,548,504
$ 45,540,620 $ 45,666,802
Securities with a carrying value of $650,000 and $1,650,000 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits and for other purposes.
There were no sales of securities in 1997, 1996 or 1995.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
December 31,
1997 1996
Commercial and financial $ 32,179,000 $ 28,102,000
Business loans secured by real estate 62,035,000 42,297,000
Real estate - construction 34,857,000 37,199,000
Real estate - mortgage 9,134,000 7,997,000
Consumer instalment and other 6,995,787 4,651,036
145,200,787 120,246,036
Deferred fees (350,496) (346,763)
Allowance for loan losses (2,577,044) (2,330,733)
Loans, net $ 142,273,247 $117,568,540
Changes in the allowance for loan losses are as follows:
December 31,
1997 1996 1995
Balance, beginning of year $ 2,330,733 $ 1,953,189 $ 1,464,057
Provision for loan losses 260,000 445,000 600,000
Loans charged off (24,507) (85,160) (121,424)
Recoveries of loans
previously charged off 10,818 17,704 10,556
Balance, end of year $ 2,577,044 $ 2,330,733 $ 1,953,189
The total recorded investment in impaired loans was $88,302 and $121,760 at
December 31, 1997 and 1996, respectively. There were no impaired loans that
had related allowances for loan losses determined in accordance with SFAS
No. 114 ("Accounting by Creditors for Impairment of a Loan") at
December 31, 1997 and 1996. The average recorded investment in impaired loans
for 1997 and 1996 was $104,299 and $64,881, respectively. Interest income
recognized on impaired loans for cash payments received was not material for
the years ended December 31, 1997, 1996 and 1995.
The Company has granted loans to certain directors, executive officers, and
their related entities. The interest rates on these loans were substantially
the same as rates prevailing at the time of the transaction and repayment terms
are customary for the type of loan involved. Changes in related party loans
for the year ended December 31, 1997 are as follows:
Balance, beginning of year $ 5,110,576
Advances 676,824
Repayments (1,841,215)
Transactions due to changes in directors (1,353,909)
Balance, end of year $ 2,592,276
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
1997 1996
Land $ 1,719,914 $ 1,241,377
Buildings 2,662,122 2,715,658
Equipment 1,352,856 1,359,371
5,734,892 5,316,406
Accumulated depreciation (1,861,768) (1,696,287)
$ 3,873,124 $ 3,620,119
NOTE 5. EMPLOYEE BENEFIT PLANS
The Company has a contributory 401(K) retirement plan covering substantially
all employees. Contributions to the plan charged to expense for the years
ended December 31, 1997, 1996 and 1995 amounted to $46,827, $41,164, and
$33,712, respectively.
The Company has deferred compensation agreements with three of its key
employees which provide benefits payable at age sixty-five or if the employee
becomes totally disabled. There was no liability associated with these
agreements at December 31, 1997 and 1996, respectively.
The Company purchased and is the beneficiary of life insurance policies on
these three key employees. The policies will be used to fund the deferred
compensation agreements referred to above. The carrying value of these
policies at December 31, 1997 and 1996 was $171,026 and $118,968, respectively.
Income (expense) recognized on these policies for the years ended
December 31, 1997, 1996, and 1995 was $4,558, $(2,795), and $(8,691),
respectively.
NOTE 6. EMPLOYEE STOCK OPTION PLAN
The Company has an Employee Stock Option Plan with 17,400 remaining common
stock options available to grant to key employees. Option prices are
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. The options expire in ten years from date of grant. Other pertinent
information related to the options is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
<S> <C> <C> <C> <C> <C> <C>
Under option, beginning of year 186,331 $ 10.47 184,331 $ 10.35 155,225 $ 9.48
Granted 1,000 23.00 2,000 21.00 29,206 15.00
Exercised (64,122) 9.36 -- -- (100) 11.25
Terminated (400) 14.25 -- -- -- --
Under option end of year 122,809 11.14 186,331 10.47 184,331 10.35
Exercisable, end of year 105,437 12.45 149,587 9.65 121,381 8.99
Weighted-average fair value of
options granted during the year $ 4.49 $ 4.74 $ 2.61
</TABLE>
Under Option, End of Year
Weighted
Weighted Average
Average Remaining
Range of Exercise Contractual
Number Prices Price Life in Years
50,153 $ 6.93- 8.65 $ 8.05 3
69,656 11.25-15.00 12.90 7
3,000 21.00-23.00 21.67 9
122,809 11.14 5
Options Exercisable, End of Year
50,153 $ 6.93- 8.65 $ 8.05 3
54,484 11.25-15.00 12.58 7
800 21.00 21.00 9
105,437 12.45 5
The Company also had 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 were exercised in 1997 at book value as reported
on the most recent quarterly report of condition of the Company before the
exercise date or $16.31.
As permitted by SFAS No. 123 ("Accounting for Stock-Based Compensation"), the
Company recognizes compensation cost for stock-based employee compensation
awards in accordance with APB Opinion No. 25, ("Accounting for Stock Issued
to Employees"). The Company recognized no compensation cost for stock-based
employee compensation awards for the years ended December 31, 1997, 1996 and
1995. If the Company had recognized compensation cost in accordance with SFAS
No. 123, net income and earnings per share would have been reduced as follows:
December 31, 1997
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
As reported $ 4,863,526 $ 3.54 $ 3.32
Stock-based compensation,
net of related tax effect (16,848) (0.01) (0.01)
As adjusted $ 4,846,678 $ 3.53 $ 3.31
December 31, 1996
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
As reported $ 3,844,804 $ 2.79 $ 2.62
Stock-based compensation,
net of related tax effect (21,989) (0.02) (0.01)
As adjusted $ 3,822,815 $ 2.77 $ 2.61
December 31, 1995
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
As reported $ 3,844,804 $ 2.79 $ 2.62
As reported $ 3,297,321 $ 2.38 $ 2.30
Stock-based compensation,
net of related tax effect (12,232) -- --
As adjusted $ 3,285,089 $ 2.38 $ 2.30
The fair value of the options granted during the year was based upon the
discounted value of future cash flows of the options using the following
assumptions:
1997 1996 1995
Risk-free interest rate 6.13% 6.50% 6.50%
Expected life of the options 7 years 7 years 7 years
Expected dividends (as a percent of the
fair value of the stock) 2.61% 2.38% 7.14%
NOTE 7. INCOME TAXES
The components of income tax expense are as follows:
December 31,
1997 1996 1995
Current $ 2,814,118 $ 2,342,283 $ 1,853,714
Deferred (81,450) (229,337) (55,625)
Income tax expense $ 2,732,668 $ 2,112,946 $ 1,798,089
The Company's income tax expense differs from the amounts computed by applying
the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory rate $2,582,706 34 % $2,025,635 34 % $1,732,439 34 %
Tax-exempt interest (52,447) (1) (61,741) (1) (69,100) (1)
State income taxes 173,453 2 122,296 2 115,035 2
Other items, net 28,956 1 26,756 - 19,715 -
Provision for income taxes $2,732,668 36 % $2,112,946 35 % $1,798,089 35 %
</TABLE>
The components of deferred income taxes are as follows:
December 31,
1997 1996
Deferred tax assets, loan loss reserves $ 816,131 $ 723,173
Deferred tax liabilities:
Depreciation 95,950 84,347
Other 13,243 13,338
109,193 97,685
Net deferred tax assets $ 706,938 $ 625,488
NOTE 8. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and weighted-
average shares outstanding (the denominator) used in determining basic and
diluted earnings per common share (EPS):
Year Ended December 31, 1997
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
Basic EPS $ 4,863,526 1,373,199 $ 3.54
Effect of Dilutive Securities
Stock options -- 91,170
Diluted EPS $ 4,863,526 1,464,369 $ 3.32
Year Ended December 31, 1996
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
Basic EPS $ 3,844,804 1,379,739 $ 2.79
Effect of Dilutive Securities
Stock options -- 87,084
Diluted EPS $ 3,844,804 1,466,823 $ 2.62
Year Ended December 31, 1995
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
Basic EPS $ 3,844,804 1,379,739 $ 2.79
Basic EPS $ 3,297,321 1,384,913 $ 2.38
Effect of Dilutive Securities
Stock options -- 50,344
Diluted EPS $ 3,297,321 1,435,257 $ 2.30
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company 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 Company'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. A summary of the Company's commitments is as follows:
December 31,
1997 1996
Commitments to extend credit $ 47,304,868 $ 46,186,625
Standby letters of credit 2,448,945 2,200,720
$ 49,753,813 $ 48,387,345
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 Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation 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 Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held varies as
specified above and is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management of the Company, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
The Company originates primarily commercial, residential and consumer loans to
customers in Gwinnett County and surrounding counties. The ability of the
majority of the Company's customers to honor their contractual loan obligations
is dependent on the economy in these areas.
Seventy-three percent (73%) of the Company's loan portfolio is concentrated
in loans secured by real estate, of which a substantial portion is secured by
real estate in the Company's primary market area. Accordingly, the ultimate
collectibility of the loan portfolio is susceptible to changes in market
conditions in the Company's primary market area.
The Company, as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 25% of statutory
capital, or approximately $3,250,000.
NOTE 10. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that
may be declared without prior regulatory approval. At December 31, 1997,
approximately $2,413,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company and
Bank capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of December 31, 1997, the Company and
the Bank meet all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the Bank's category.
The Company and Bank's actual capital amounts and ratios are presented in the
following table.
As of December 31, 1997:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
Consolidated $ 26,491 16.43% $ 12,897 8% $ 16,121 10%
Bank $ 23,907 14.83% $ 12,897 8% $ 16,121 10%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 24,476 15.18% $ 6,449 4% $ 9,673 6%
Bank $ 21,892 13.58% $ 6,449 4% $ 9,673 6%
Tier I Capital
(to Average Assets):
Consolidated $ 24,476 11.65% $ 8,406 4% $ 10,508 5%
Bank $ 21,892 10.42% $ 8,406 4% $ 10,508 5%
As of December 31, 1996:
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets):
Consolidated $ 21,702 16.13% $ 10,764 8% $ 13,454 10%
Bank $ 20,957 15.58% $ 10,764 8% $ 13,454 10%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 20,013 14.88% $ 5,380 4% $ 8,070 6%
Bank $ 19,268 14.32% $ 5,380 4% $ 8,070 6%
Tier I Capital
(to Average Assets):
Consolidated $ 20,013 11.13% $ 7,192 4% $ 8,991 5%
Bank $ 19,268 10.72% $ 7,192 4% $ 8,991 5%
</TABLE>
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are significantly affected by the
assumptions used, including the discount rates and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. The use of
different methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1997 and 1996.
Such amounts have not been revalued for purposes of these financial statements
since those dates and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash, Due From Banks, Interest-Bearing Deposits in Banks, and Federal Funds
Sold:
The carrying amounts of cash, due from banks, interest-bearing deposits in
banks, and Federal funds sold approximate their fair value.
Held-To-Maturity Securities:
Fair values for securities are based on quoted market prices.
Loans:
For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. For other loans,
the fair values are estimated using discounted cash flow methods, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow methods or underlying collateral values.
Deposits:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using discounted cash flow
methods, using interest rates currently being offered on certificates.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair values.
Off-Balance-Sheet Instruments:
Fair values of the Company's off-balance-sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to
extend credit and standby letters of credit do not represent a significant
value to the Company until such commitments are funded. The Company has
determined that these instruments do not have a distinguishable fair value and
no fair value has been assigned.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks, interest-
bearing deposits in banks,
and Federal funds sold $ 21,073,076 $ 21,073,076 $ 31,338,064 $ 31,338,064
Securities held-to-maturity 45,540,620 45,666,802 32,004,283 32,047,933
Loans 142,273,247 144,320,000 117,568,540 119,000,000
Accrued interest receivable 1,452,514 1,452,514 1,175,645 1,175,645
Financial liabilities:
Deposits 189,219,639 189,900,867 165,236,790 165,764,416
Accrued interest payable 1,145,529 1,145,529 1,082,640 1,082,640
</TABLE>
NOTE 12. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total revenue are as
follows:
December 31,
1997 1996 1995
FDIC insurance premiums $ 15,223 $ 2,000 $173,462
OAKAR deposit assessment expense -- 71,917 260,000
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets as of
December 31, 1997 and 1996 and the condensed statements of income and cash
flows for the years ended December 31, 1997, 1996 and 1995 of Button Gwinnett
Financial Corporation:
CONDENSED BALANCE SHEETS
1997 1996
Assets
Cash $ 2,584,147 $ 746,727
Investment in subsidiary 21,892,613 19,267,556
Total assets $ 24,476,760 $ 20,014,283
Liabilities, other $ 1,249 $ 1,339
Stockholders' equity 24,475,511 20,012,944
Total liabilities and
stockholders' equity $ 24,476,760 $ 20,014,283
CONDENSED STATEMENTS OF INCOME
1997 1996 1995
Income
Dividends from subsidiary $ 2,400,000 $ 700,000 $ 1,150,000
Interest 73,721 29,213 29,973
2,473,721 729,213 1,179,973
Expenses 38,024 51,432 13,002
Income before equity in
undistributed income
of subsidiary 2,435,697 677,781 1,166,971
Equity in undistributed
income of subsidiary 2,427,829 3,167,023 2,130,350
Net income $ 4,863,526 $ 3,844,804 $ 3,297,321
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,863,526 $ 3,844,804 $ 3,297,321
Adjustments to reconcile net income
to net cash provided by operating
activities:
Undistributed income of subsidiary (2,427,829) (3,167,023) (2,130,350)
Other operating activities (90) 460 (2,077)
Net cash provided by
operating activities 2,435,607 678,241 1,164,894
FINANCING ACTIVITIES
Purchase of treasury stock (949,599) (56,420) (823,735)
Proceeds from exercise of
stock options 1,167,930 -- 1,125
Dividends paid (816,518) (690,243) (484,658)
Net cash used in
financing activities (598,187) (746,663) (1,307,268)
Net increase (decrease) in cash 1,837,420 (68,422) (142,374)
Cash at beginning of year 746,727 815,149 957,523
Cash at end of year $ 2,584,147 $ 746,727 $ 815,149
</TABLE>
NOTE 14. BUSINESS COMBINATION
On February 5, 1998, the Company entered into an Agreement and Plan of
Reorganization with Premier Bancshares ("Premier") of Atlanta, Georgia.
Under this agreement, the Company will merge with and into Premier. Upon
consummation of the merger, each share of Company stock will be converted
into and exchanged for the right to receive 3.885 shares of Premier stock,
subject to possible adjustment as defined in the agreement. Consummation
is subject to certain conditions, including regulatory and stockholder
approval.
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
POSITION WITH DIRECTOR OF THE
NAME THE COMPANY COMPANY SINCE
Robert A. Bradshaw Director 1993
James F. Brannan, Jr. Director 1993
W. Emmett Clower Director 1993
Jean A. Coppage Director 1993
Edwin F. Forrest Director 1993
David G. Hanna Director 1993
J. Richard Norton, Sr. Director 1993
Andrew R. Pourchier Vice Pres./Sec./
Treas./Director 1993
John D. Stephens Chairman of the
Board/Director 1993
Judy A. Waters Director 1993
Warren O. Wheeler Director 1993
Glenn S. White President/
Director 1993
Bobby W. Williams Director 1993
The following is a brief description of the business experience of the
Directors and Executive Officers of the Company:
Robert A. Bradshaw - Date of Birth: 08/30/38
Mr. Bradshaw is a partner in the firm Bradshaw, Pope & Franklin, CPA,
which is engaged in the practice of accounting in the metropolitan Atlanta,
Georgia area. Mr. Bradshaw has practiced accounting since 1968. Mr. Bradshaw
received a bachelor of business administration degree from Georgia State
University in 1962. He has been a director of the Company and of The Bank
since 1993.
James F. Brannan, Jr. - Date of Birth: 02/17/39
Mr. Brannan has been a director of the Company since 1993 and a director
of The Bank since August of 1991. He is the owner of Lawrenceville Auto Parts,
which has been in the business of automobile parts sales in Lawrenceville,
Georgia for 39 years. He was formerly a director of Trust Company Bank of
Gwinnett County.
W. Emmett Clower - Date of Birth: 10/13/42
Mr. Clower has operated Emmett Clower Studio in Snellville, Georgia since
1972. Mr. Clower is active in several business and community service
organizations in the metropolitan Atlanta, Georgia area, including serving as
Mayor in the City of Snellville, Georgia since 1973. He has been a director
of the Company and of The Bank since 1993.
Jean A. Coppage - Date of Birth: 10/6/45
Mrs. Coppage has been a director of the Company since 1993 and of The Bank
since 1987. She received her bachelor of business administration degree from
the University of Houston and is a former teacher with the Houston, Texas
public school system. She has been an active civic leader in the community
for a number of years working closely with the Gwinnett Housing Authority,
Gwinnett Council for the Arts, Gwinnett Chamber of Commerce, Chattahoochee
Junior Service League, and the High Museum of Arts, Birthright, Inc. and
the DeKalb Medical Auxiliary.
Edwin F. Forrest - Date of Birth: 02/25/44
Mr. Forrest is President of Central Drywall, Inc. in Alpharetta, Georgia
which has engaged in wallboard installation since 1980. He has been a director
of the Company and of The Bank since 1993.
David G. Hanna - Date of Birth: 04/18/64
Mr. Hanna has been a director of the Company since 1993 and a director of
The Bank since November of 1991. He is President of HBR Capital, an investment
company which specializes in consumer financial services. Prior to forming HBR
in 1992, Mr. Hanna was employed by Nationwide Credit, Inc. as President of the
Government Services Division. He had previous banking experience at C & S
National Bank (now Nations Bank) as a lending officer for small- to
medium-sized businesses.
J. Richard Norton, Sr. - Date of Birth: 06/04/32
Mr. Norton is President of Norton Southeast, Inc., a company which is
involved in the sale of portable storage buildings. Prior to forming this
company in 1994, Mr. Norton had been President of Norton Auto Parts, Inc. in
Snellville, Georgia since 1965, and Secretary of Tony's Auto Parts in
Loganville, Georgia since 1987. Both of these entities are engaged in the
retail sale of automobile replacement parts. Mr. Norton received a bachelor's
degree in business administration from the University of Georgia in 1954.
He has been a director of the Company and The Bank since 1993.
Andrew R. Pourchier - Date of Birth: 03/21/51
Mr. Pourchier is Executive Vice President and Secretary of The Bank of
Gwinnett County and Vice President/Secretary/Treasurer of the Company. He
has been a director of the Company and The Bank since 1993. Mr. Pourchier has
been in the banking business in Gwinnett County for over twenty years. He
attended Morehead State University in Kentucky.
John D. Stephens - Date of Birth: 04/24/40
Mr. Stephens has been the Chairman of the Board of Directors of the
Company and the Bank since 1993. In addition, Mr. Stephens is Chief Executive
Officer and Owner of John D. Stephens, Inc. in Stone Mountain, Georgia which
has engaged in pipeline construction since 1966. Mr. Stephens received an
associates of science and mechanical technology degree from Southern Technical
Institute in 1960.
Judy Waters - Date of Birth: 11/8/46
Mrs. Waters has been a director of the Company since 1993 and a director
of the Bank since November of 1991. She currently serves on the Gwinnett
County Board of Commissioners and the Gwinnett County Soil Conservation Board.
She is very active in the Snellville community.
Warren O. Wheeler - Date of Birth: 07/19/41
Mr. Wheeler has been a partner in the law firm of Schreeder, Wheeler &
Flint in Atlanta, Georgia since 1974. Mr. Wheeler received a bachelor of
electrical engineering degree from Georgia Institute of Technology in 1963
and a juris doctor degree from Emory University in 1969. Mr. Wheeler has been
a director of the Company and the Bank since 1993.
Glenn S. White - Date of Birth: 04/29/51
Mr. White has been a director of the Company since 1993 and a director
and President of the Company and the Bank since 1987. He has over twenty years
of banking experience in which he has held the following positions: President
of First National Bank of Gwinnett, Senior Vice President of First National
Bank of Atlanta and President and founding director of The Bank of Gwinnett
County. Mr. White has been involved in numerous civic and community
organizations which have included Chairman of the Gwinnett Chamber of Commerce,
Gwinnett Council for the Arts, South Gwinnett Rotary Club, and Gwinnett
Homebuilders Association. He is presently a board member of the Gwinnett
Chamber of Commerce, Gwinnett Foundation, the Council for Quality Growth and
the Board of Regents of the University System of Georgia.
Bobby W. Williams - Date of Birth: 11/28/36
Mr. Williams is owner and President of Perimeter Investment Corp. which
is engaged in real estate building and development (including shopping centers
and residential subdivisions) primarily in Gwinnett County, Georgia since 1971.
Mr. Williams has been a director of the Company and the Bank since 1993.
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table presents the total compensation paid to each executive
officer of the Company during fiscal 1997, 1996 and 1995 whose salary and bonus
exceeded $100,000 during fiscal 1997.
Summary Compensation Table (1)
Annual Compensation
Other
Salary Bonus Annual
Name and Position Year ($) ($) Compensation
Glenn S. White 1997 149,625 82,000 $186,400 (2)
President and
Chief Executive 1996 142,500 75,000 *
Officer
1995 135,000 45,000 *
Andrew R. Pourchier 1997 110,250 65.000 *
Vice President and
Chief Financial Officer 1996 105,000 60,300 *
1995 100,000 40,000 *
All Other Compensation
Company
Name and 401-K Insurance Directors
Position Year Comp. Benefit Fees
Glenn S. White 1997 2,394 383 4,200
President and
Chief Executive 1996 2,281 369 4,200
Officer
1995 2,160 349 4,200
Andrew R. Pourchier 1997 3,800 184 3,850
Executive Vice
President 1996 3,800 179 4,200
1995 3,696 171 3,850
_____________
(1) Information concerning restricted stock awards, securities underlying
options and long-term incentive plan payouts is not applicable and,
therefore, columns relating to such items have been omitted.
(2) Reflects tax reimbursement payment pursuant to option agreement
associated with exercise of stock options.
*Information with respect to certain prerequisites and other personal benefits
has been omitted because the aggregate value of such items does not meet the
minimum required amount for disclosure under SEC regulations.
Director Compensation
During 1997, the same individuals who served as directors of the Company
also served as directors of The Bank. While such individuals are not
compensated for their services as Directors of the Company, they were paid $350
per Bank Board meeting attended. Directors who are also officers of the
Company or the Bank receive fees for attending Board meetings.
Fiscal Year-End Option Values
The following table presents information regarding the value of the named
executives' options held at December 31, 1997.
Number of Value* of
Securities Unexercised
Underlying In-The Money
Options at Options at
Shares Fiscal Year Fiscal Year
Acquired Value End (#) End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Glenn S. 34,828 163,343 67,318/5,682 767,170/40,094
White
Andrew R. 37,885 431,640 4,200/4,200 21,000/29,400
Pourchier
_____________
*Calculated by subtracting the exercise price from the market price of the
common stock at fiscal year-end (estimated to be $21.00 per share) and
multiplying the resulting figure by the number of shares subject to
in-the-money options.
Employment Agreement
As of September 9, 1994, the Company and The Bank entered into employment
agreements with Glenn S. White and Andrew R. Pourchier with regard to their
continued service as President and Chief Executive Officer of The Bank and
Executive Vice President of The Bank, respectively. Each agreement is for a
twelve-month term and automatically extends for an additional twelve-month
period on each anniversary of the agreement until the anniversary on which the
Executive is 65. Neither agreement will be extended, however, if either party
gives written notice to that effect at least 60 days prior to the next
anniversary of the agreement. During the term of each agreement, the Bank has
agreed to provide the applicable Executive with (a) an initial annual salary
set by the Board of Directors of The Bank or a committee designated by the
Board, plus reasonable increases due to increases in the cost of living and p
erformance of the Executive, which may be increased annually at The Bank's
discretion to reflect the Executive's performance and to maintain a
compensation level comparable to that of a similarly situated executive in the
financial services industry; (b) a bonus awarded by The Bank in its sole
discretion; (c) reimbursement of initiation fees and dues associated with club
memberships - Mr. White only, (d) the use of an automobile and reimbursement
of reasonable expenses relating to its operation and maintenance;
(e) participation in employee benefit programs maintained for employees
generally and those limited to senior executives; and (f) a Deferred
Compensation Plan providing certain death and retirement benefits. In the
event The Bank were to terminate either Executive's employment at any time,
whether for cause or without cause, The Bank would give the Executive 30 days'
prior written notice with severance pay equal to at least 30 days' salary, to
be based upon the Executive's average monthly compensation (which is includable
in his gross income) for the preceding 12-month period.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The table below sets forth, as of March 17, 1998 information regarding the
common stock of the Company owned (a) by each person who beneficially owns more
than 5% of the common stock, (b) by each of the Company's Directors and (c) by
all Directors and Executive Officers as a group:
Number of
Shares
Number Percent Subject Percent
Name of Beneficial of of to Warrants of
Owner Shares (1) Class and Options Class (2)
Robert A. Bradshaw 10,700 * 0 *
105 Merchants Drive
Norcross, GA 30093
James F. Brannan, Jr. 46,925 3.3% 0 3.1%
251 Hanarry Drive
Lawrenceville, GA 30045
W. Emmett Clower 5,274 * 0 *
2389 Scenic Highway
Snellville, GA 30078
Jean A. Coppage 19,329 (4) 1.3% 0 1.3%
3904 Ashford Lake Court
Atlanta, GA 30318
Edwin F. Forrest 1,250 (5) * 0 *
2360 Bethelview Road
Cumming, GA 30130
David G. Hanna 38,310 2.7% 0 2.5%
1810 Marlboro Drive
Atlanta, GA 30350
J. Richard Norton, Sr. 5,100 * 0 *
1926 Oak Road
Snellville, GA 30078
Andrew R. Pourchier 40,615 (7) 2.8% 4,200 (8) 3.0%
688 Ford Avenue
Lawrenceville, GA 30045
John D. Stephens 557,752 38.9% 0 37.1%
1899 Parker Court
Stone Mountain, GA 30087
Judy A. Waters 0 * 0 *
4251 Antelope Lane
Lithonia, GA 30058
Warren O. Wheeler 23,929 (9) 1.7% 0 1.6%
127 Peachtree St., N.E.
Atlanta, GA 30303-1845
Glenn S. White 39,181 (10) 2.7% 67,318 (11) 7.1%
1101 Summer Ridge Lane
Lawrenceville, GA 30244
Bobby W. Williams 1,000 * 0 *
1122 Rockbridge Road
Stone Mountain, GA 30087
All Directors and
Executive Officers as
a group (15 persons) 789,375 55.1% 71,518 57.2%
* Less than 1%
(1) Except as otherwise indicated, the persons named in the above table
have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. Information as to
beneficial ownership of common stock has been furnished by the
respective persons listed in the table.
(2) Based upon 1,432,477 shares outstanding as of March 17, 1998, as
adjusted for options exercisable within sixty (60) days thereof, which
are held by the indicated Directors.
(3) Includes (a) 1,915 shares held by Mrs. Coppage as custodian for her
son, as to which Mrs. Coppage disclaims beneficial ownership and
(b) 17,414 shares held by Dekalb Anesthesia Associates Pension Plan
for W. Mark Coppage (deceased), as to which Mrs. Coppage disclaims
beneficial ownership.
(4) Includes 1,250 shares held by Central Drywall, Inc. Profit Sharing
Plan.
(5) Includes (a) 39,135 shares owned directly by Mr. Pourchier and
(b) 1,480 shares held by Mr. Pourchier as custodian for his sons,
as to which Mr. Pourchier disclaims beneficial ownership.
(6) Includes 4,200 shares subject to presently exercisable options
granted pursuant to the Company's Stock Option Plan.
(7) Includes (a) 800 shares held by Mr. Wheeler as custodian for his
daughters, as to which Mr. Wheeler disclaims beneficial ownership.
(8) Includes (a) 38,181 shares owned directly by Mr. White and
(b) 1,000 shares held by Mr. White as custodian for his son, as
to which Mr. White disclaims beneficial ownership
(9) Includes 67,318 shares subject to presently exercisable options
granted pursuant to the Company's Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company anticipates that its Directors and Executive Officers, and
the other organizations with which they are associated, will have banking
transactions in the ordinary course of business with The Bank. Loans to such
Directors and Executive Officers were made in the ordinary course of business,
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectability
or present other unfavorable features.
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) (*) Button Gwinnett Financial Corporation 1993 Stock Incentive
Plan.
10.2 (1) (*) Button Gwinnett Financial Corporation Non-Qualified Stock
Option Award (granted under the Button Gwinnett Financial
Corporation 1993 Stock Incentive Plan).
10.3 (1) (*) Form of Button Gwinnett Financial Corporation Incentive
Stock Award (granted under the Button Gwinnett Financial
Corporation 1993 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.
10.5 (3) Agreement and Plan of Reorganization dated February 5, 1998,
by and between Premier Bancshares, Inc. and Button Gwinnett
Financial Corporation.
21.1 (1) Subsidiary of Button Gwinnett Financial Corporation
23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (appears on the signature pages to this
Report on Form 10-KSB).
27.1 Financial Data Schedule (for SEC use only)
____________________
(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.
(3) Incorporated herein by reference to Exhibit 2.1 to Premier
Bancshares, Inc.'s Fork 8-K dated February 5, 1998
(File No. 1-12625).
(*) Indicates a management contract or a compensatory plan or
arrangement.
(b) Reports on Form 8-K filed in the fourth quarter of 1997: 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:/s/ Glenn S. White
President
Date: March 27, 1998
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
/s/ Robert A. Bradshaw Director March 27, 1998
/s/ James F. Brannan, Jr. Director March 27, 1998
/s/ W. Emmett Clower Director March 27, 1998
/s/ Jean A. Coppage Director March 27, 1998
/s/ Edwin F. Forrest Director March 27, 1998
/s/ David G. Hanna Director March 27, 1998
/S/ J. Richard Norton, Sr. Director March 27, 1998
/s/ Andrew R. Pourchier Vice President/ March 27, 1998
Secretary/Treasurer
Director (Principal
Financial and Accounting
Officer)
/s/ John D. Stephens Chairman of the Board/
Director March 27, 1998
/s/ Judy A. Waters Director March 27, 1998
/s/ Warren O. Wheeler Director March 27, 1998
/s/ Glenn S. White President/Director March 27, 1998
(Principal Executive
Officer
/s/ Bobby W. Williams Director March 27, 1998
<TABLE> <S> <C>
<ARTICLE>9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,808,676
<INT-BEARING-DEPOSITS> 500,000
<FED-FUNDS-SOLD> 6,765,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 45,540,620
<INVESTMENTS-MARKET> 45,666,802
<LOANS> 144,850,291
<ALLOWANCE> 2,577,044
<TOTAL-ASSETS> 215,190,884
<DEPOSITS> 190,219,639
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,495,734
<LONG-TERM> 0
0
0
<COMMON> 15,276
<OTHER-SE> 24,460,235
<TOTAL-LIABILITIES-AND-EQUITY> 215,190,884
<INTEREST-LOAN> 13,718,655
<INTEREST-INVEST> 2,948,551
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,667,206
<INTEREST-DEPOSIT> 5,686,325
<INTEREST-EXPENSE> 5,686,325
<INTEREST-INCOME-NET> 10,980,881
<LOAN-LOSSES> 260,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,225,825
<INCOME-PRETAX> 7,596,194
<INCOME-PRE-EXTRAORDINARY> 7,596,194
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,863,526
<EPS-PRIMARY> 3.54
<EPS-DILUTED> 3.32
<YIELD-ACTUAL> 8.56
<LOANS-NON> 25,122
<LOANS-PAST> 0
<LOANS-TROUBLED> 63,180
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,330,733
<CHARGE-OFFS> 24,507
<RECOVERIES> 10,818
<ALLOWANCE-CLOSE> 2,577,044
<ALLOWANCE-DOMESTIC> 174,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,576,870
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-21487) of Button Gwinnett Financial Corporation and in the
related Prospectus pertaining to the Button Gwinnett Financial Corporation 1993
Stock Incentive Plan of our report dated January 14, 1998, except for Note 14
as to which the date is February 5, 1998, with respect to the consolidated
financial statements of Button Gwinnett Financial Corporation included in this
Annual Report (Form 10-KSB) for the year ended December 31, 1997.
/s/ Mauldin & Jenkins, LLC
March 27, 1998
Atlanta, Georgia
