U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period _________ to ____________
Commission file number: 0-16657
FIRST GEORGIA HOLDING, INC.
(Name of Small Business Issuer)
GEORGIA 58-1781773
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1703 GLOUCESTER STREET, BRUNSWICK, GA 31520
(Address of principal executive offices)
Registrant's telephone number,
including area code: (912) 267-7283
Securities registered pursuant
to Section 12(b) of the Act: NONE
Securities registered pursuant
to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00
Check whether the issuer (1) has filed all reports
required to be filed by section 12 or 15(d) of the
Exchange Act of 1934 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 the past 60 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-B contained in
this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or
information statement incorporated by reference in
Part III of this Form 10-KSB or any amendment to this
Form 10-K. [X]
State issuer's revenues for its most recent fiscal
year $12,797,813
State the aggregate market value of the voting stock
held by non-affiliates of the registrant as of
December 1, 1996:
1,225,461 SHARES OF COMMON STOCK, $1.00 PAR VALUE --
$10,575,728 BASED UPON APPROXIMATE MARKET VALUE OF
$8.63 PER SHARE AT DECEMBER 1, 1996.
State the number of shares outstanding of each of the
issuer's classes of common stock, as of December 1,
1996: COMMON STOCK, $1.00 PAR VALUE --2,034,962
SHARES
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement (the "Proxy
Statement") for the Annual Meeting of Shareholders
scheduled to be held January 21, 1997 are incorporated
by reference into Part I and Part III.
Portions of the Company's Annual Report (the "Annual
Report") to Shareholders for the year ended September
30, 1996 are incorporated by reference into Part I,
Part II and Part III.
<PAGE>
FIRST GEORGIA HOLDING, INC.
FORM 10-KSB
INDEX
Part I PAGE
Item 1. Business . . . . . . . . . . . . . . 3
Item 2. Description of Properties. . . . . . 41
Item 3. Legal Proceedings. . . . . . . . . . 42
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . 42
Part II
Item 5. Market for Common Equity and Related
Stockholder Matters . . . . . . . 42
Item 6. Management's Discussion and Analysis
or Plan of Operation . . . . . . . 42
Item 7. Financial Statements . . . . . . . . 42
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . 42
Part III
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act . . . . . . . . .43
Item 10. Executive Compensation . . . . . . . 43
Item 11. Security Ownership of Certain
Beneficial Owners and Management . 43
Item 12. Certain Relationships and Related
Transactions . . . . . . . . . . . 43
Item 13. Exhibits and Reports on Form 8-K . . 43
Signatures . . . . . . . . . . . . . . . . . 44
Exhibit Index . . . . . . . . . . . . . . . 46
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
BUSINESS OF THE COMPANY
First Georgia Holding, Inc. (the Company), was
incorporated as a Georgia corporation on December 16,
1987, for the purpose of acquiring all of the issued
and outstanding shares of First Georgia Bank, F.S.B.
(formerly known as First Georgia Savings Bank,
F.S.B.)(the Bank) pursuant to a plan of
reorganization. The reorganization of the Bank into a
holding company structure became effective on April
30, 1988, and the Bank is now a wholly-owned
subsidiary of the Company.
The Company has not engaged in any material
operations to date and management of the Company has
no immediate plans to engage in any non-banking
activities.
The holding company structure provides the
Company with the ability to expand and diversify its
financial services beyond those currently offered
through the Bank. As a holding company, the Company
has greater flexibility than the Bank to diversify its
business activities, through existing or newly-formed
subsidiaries, or through acquisition or merger.
Commencement of non-banking operations by
subsidiaries, if they are organized, will be
contingent upon approval by the Board of Directors of
the Company and by regulatory authorities as
appropriate. While the Company has no plans,
arrangements, agreements or understandings regarding
diversification through acquisition or development of
other businesses, the Board of Directors believes that
the holding company structure offers significant
advantages.
The Company may, in the future, enter into a
management agreement for the purpose of rendering
certain services to the Bank. No proposal and no
terms of such agreement, however, have been considered
as yet and it has not been decided that such an
agreement will be made. Certain restrictions on the
total compensation under management and similar
agreements are imposed by federal regulation and,
under certain circumstances, regulatory approval may
be required.
Except for the officers of the Bank who
presently serve as officers of the Company, the
Company does not have any employees.
The Company's executive office is located at
1703 Gloucester Street, Brunswick, Georgia 31520. At
the present time the Company does not have any plans
to establish additional offices.
BUSINESS OF THE BANK
The Bank is a federal stock savings bank
headquartered in Brunswick, Georgia. It was chartered
in 1983 and opened for business on January 31, 1984
with approximately $8.6 million of acquired deposits.
The Bank's business consists primarily of
residential and consumer lending and retail banking.
To a lesser extent the Bank engages in commercial real
estate lending and construction lending.
<PAGE>
The Bank's retail banking operation consists of
attracting deposits and making commercial and consumer
loans. It attracts deposits by offering a wide array
of banking services, including checking accounts,
overdraft protection, various savings programs, IRAs,
and access to the AVAIL network of automatic teller
machines. Similarly, the Bank offers a full range of
commercial loans, including short-term loans for
working capital purposes, seasonal loans, lines of
credit, accounts receivable loans and inventory loans,
as well as a full range of consumer loans, including
automobile, boat, home improvement and other similar
loans.
Commercial real estate and construction lending
includes construction and permanent loans on multi-
family apartment buildings, shopping centers, office
buildings and other income producing properties
located mainly in the Bank's primary market area.
The principal executive offices of the Bank are
located at 1703 Gloucester Street, Brunswick, Georgia
31520 and the telephone number at that address is
(912) 267-7283.
SUMMARY OF FINANCIAL RESULTS
First Georgia Holding, Inc. reported Net Income
of $761,366 in 1996, a decrease of $515,722. This
decrease is due primarily to a SAIF special assessment
of $727,704. In addition, Net Income decreased as a
result of reduced net interest margins. The
assessment resulted in an after tax decrease in Net
Income of $451,467. Net Interest Income after
Provision for Loan Losses increased a total of
$191,592. Other Income decreased by a total of
$264,919, and other expenses, exclusive of the SAIF
assessment, increased $122,620.
RETURN ON AVERAGE EQUITY AND ASSETS
Return on Average Assets for the year ended
September 30, 1996 was 0.55% as compared to 0.95% for
the year ended September 30, 1995. Return on Average
Equity for the year ended September 30, 1996 was 6.52%
compared to 11.88% for the year ended September 30,
1995. These decreases were due primarily to start up
costs associated with the opening of the new North
Brunswick branch and the one time special SAIF
assessment.
<PAGE>
SELECTED STATISTICAL INFORMATION
The following tables set forth certain selected
statistical information
and should be read in conjunction with the
consolidated financial statements
of the Company and Bank.
Year Ended
September 30,
------------------
1996 1995
-------- --------
Return on Average Assets 0.55% 0.95%
Return on Average Equity 6.52% 11.88%
Average Equity to Average Assets 8.39% 8.01%
Dividend Payout Ratio 17.42% 6.38%
AVERAGE BALANCE SHEETS
Year Ended
September 30,
------------------------
1996 1995
----------- -----------
Cash $ 2,711,372 2,627,902
Interest-bearing deposits
in other banks 1,835,076 3,421,075
Investment securities 9,514,086 8,148,300
Loans receivable, net 117,481,323 115,870,551
Real estate acquired in
settlement of loans 88,293 466,281
Federal Home Loan Bank stock 1,575,700 1,575,700
Premises and equipment, net 3,309,094 3,028,371
Accrued interest receivable 855,218 820,405
Intangible assets, net 1,325,933 1,558,861
Other assets 601,994 316,418
----------- -----------
$ 139,298,088 137,833,864
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 112,422,778 107,968,855
Federal Home Loan Bank advances 12,822,012 15,399,672
Advance payments by borrowers for
taxes and insurance 61,647 78,304
Other borrowed money 160,493 216,000
Accrued expenses and
other liabilities 2,148,177 3,403,065
----------- -----------
127,615,107 127,065,896
----------- -----------
Stockholders' equity 11,682,981 10,767,968
----------- -----------
Total liabilities and
stockholders' equity $ 139,298,088 137,833,864
=========== ===========
<PAGE>
INTEREST EARNINGS AND YIELD
Year Ended
September 30,
------------------------
1996 1995
----------- -----------
Interest earned on:
Loans $ 10,986,155 10,871,713
Taxable investment securities 699,732 507,009
Interest-bearing deposits in
other banks 108,029 247,615
----------- -----------
Total interest income 11,793,916 11,626,337
----------- -----------
Interest paid on:
Deposits 5,682,330 5,345,453
Short term debt 198,335 12,176
Long term debt 668,717 1,049,728
----------- -----------
Total interest expense 6,549,382 6,407,357
----------- -----------
NET INTEREST EARNED $ 5,244,534 5,218,980
=========== ============
Average percentage earned on:
Loans 9.35% 9.38%
Taxable investment securities 7.35 6.22
Interest-bearing deposits in
other banks 5.89 7.24
Total interest earning assets 9.15 9.46
Average percentage paid on:
Deposits 5.05 4.95
Short term debt 7.27 5.90
Long term debt 6.63 6.82
Total interest bearing liabilities 5.23 5.29
NET YIELD ON INTEREST EARNING ASSETS 4.07 4.17%
========================
"Management's Discussion and Analysis of Financial
Condition and Results of Operations - Yields Earned and Rates
Paid" in the Company's Annual Report is incorporated by reference
herein.
<PAGE>
LENDING ACTIVITIES
GENERAL
Thrift institutions are permitted to invest up
to 400% of their capital in commercial real estate
loans. Thrift institutions are also permitted to
invest up to 10% of their assets in secured or
unsecured loans for commercial, corporate, business or
agricultural purposes. Institutions may also invest
up to 35% of their assets in consumer loans and up to
10% of their assets in tangible personal property in
order to engage in personal property leasing.
In 1992 the Bank entered into a supervisory
agreement with the OTS. The agreement required the
Bank to submit to the OTS a written plan to improve
the Bank's record of compliance with applicable
federal consumer protection laws and regulations.
Effective May 20, 1996, the OTS released the Bank from
this supervisory agreement.
LOAN PORTFOLIO ANALYSIS
The Bank's net loan portfolio totaled
approximately $122,431,469 at September 30, 1996,
representing approximately 82% of its total assets.
On that date, approximately 77% of its total
outstanding loans were secured by mortgages on
residential property. The balance of the Bank's
outstanding loans at that date consisted of commercial
real estate loans, construction loans, consumer loans
and commercial loans.
The Bank extends credit to customers throughout
its market area with a concentration in real estate
mortgage loans. The real estate loan portfolio is
substantially secured by properties located throughout
Southeast Georgia. Although the Bank has a
diversified loan portfolio, a substantial portion of
its borrowers' ability to repay such loans is
dependent upon the economy in the Bank's market area.
Set forth on the next page is selected data
relating to the composition of the Bank's loan
portfolio by type of loan and type of security on the
dates indicated.
<PAGE>
LOAN ANALYSIS
September 30,
----------------------------
(In Thousands) 1996 1995
------------- -------------
Loans By:
Type of Security:
Real Estate Loans:
Residential:
One-four family:
Conventional $ 66,695 54.48% 64,086 58.03%
FHA-VA 259 0.21% 265 0.24%
Multi-family
conventional 6,205 5.07% 6,560 5.94%
----------------------------------
Total residential 73,159 59.75% 70,911 64.21%
Commercial Property 21,283 17.38% 19,555 17.71%
Land development
and other 11,654 9.52% 8,802 7.97%
Less Loans held for sale - 0.00% - 0.00%
----------------------------------
Total real estate loans 106,096 86.65% 99,268 89.89%
Non-real estate loans 17,340 14.17% 15,136 13.71%
Less: Loans in process - 0.00% (2,868) -2.60%
Unearned Interest income (32) -0.03% (40) -0.04%
Allowances for losses (955) -0.78% (1,004) -0.91%
Deferred loan fees (17) -0.01% (60) -0.05%
----------------------------------
Total $ 122,432 100.00% 110,432 100.00%
==================================
TYPE OF LOAN:
Real Estate Loans:
Loans on existing
property:
Fixed rate $ 30,967 25.29% 35,238 31.91%
One-year ARM(1) 62,581 51.10% 55,201 49.98%
Three-year ARM 1,130 0.92% 1,224 1.11%
Construction loans 11,418 9.34% 7,605 6.89%
Less: Loans held for sale - 0.00% - 0.00%
----------------------------------
Total real estate loans 106,096 86.65% 99,268 89.89%
Consumer loans 9,448 7.72% 9,094 8.23%
Commercial loans 7,892 6.45% 6,042 5.48%
Less: Loans in process - 0.00% (2,868) -2.60%
Unearned Interest Income (32) -0.03% (40) -0.04%
Allowance for losses (955) -0.78% (1,004) -0.91%
Deferred loan fees (17) -0.01% (60) -0.05%
----------------------------------
$ 122,432 100% 110,432 100%
==================================
(1) An ARM is an adjustable rate mortgage
<PAGE>
LOAN MATURITY SCHEDULE
The following table sets forth certain information
at September 30, 1996 regarding the dollar amount of loans
maturing in the Bank's portfolio based on their contractual
terms to maturity. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.
This table does not consider the repricing of loans to
be maturities. Interest rate sensitivity is incorporated
herein by reference from the Management's Discussion and
Analysis of Financial Condition and Results of
Operations - Asset/Liability Management from the Annual
Report to Shareholders for 1996.
Maturities
During years
ended Real estate Real estate Commercial
September 30, mortgage construction Consumer and other Total
- -----------------------------------------------------------------
(In Thousands)
1997 $ 22,848 9,768 5,045 3,008 40,669
1998 9,170 1,650 1,582 2,646 15,048
1999 8,408 - 1,768 832 11,008
2000 664 - 590 297 1,551
2001-2005 7,606 - 347 813 8,766
2006-2010 9,188 - 116 296 9,600
After 2010 36,794 - - - 36,794
-----------------------------------------------------
Total $ 94,678 11,418 9,448 7,892 123,436
=====================================================
Less: Loans in process -
Unearned Interest Income (32)
Allowance for losses (955)
Deferred loan fees (17)
----------
$ 122,432
==========
The next table sets forth the dollar amount of all loans due
more than one year after September 30, 1996 which have
predetermined interest rates and which have floating or
adjustable interest rates.
Real estate Real estate Commercial
mortgage construction Consumer and other Total
- -----------------------------------------------------------------
Pre- (In Thousands)
determined
Rates $ 18,799 - 4,217 1,295 24,311
Floating or
adjustable
Rates 54,230 1,649 186 2,391 58,456
- -----------------------------------------------------------------
$ 73,029 1,649 4,403 3,686 82,767
=================================================================
<PAGE>
LENDING POLICIES
Federal regulations limit the amount which
federally chartered thrift institutions may lend in
relation to the appraised value of the real estate
securing the loan, as determined by an appraisal at
the time of loan origination. Those regulations
permit a maximum loan-to-value ratio of 100% for real
estate loans. The Bank's lending policies generally
limit the maximum loan-to-value ratio on residential
mortgage loans to 95% of the lesser of the appraised
value or purchase price. Multi-family residential and
commercial real estate loans and unimproved real
estate loans generally do not exceed 90% of value.
The loan-to-value ratio, maturity and other provisions
of the loans made by the Bank generally reflect the
policy of making less than the maximum loan
permissible under applicable regulations in accordance
with sound lending practices, market conditions and
underwriting standards established by the Bank.
In an effort to keep the yields on its loan
portfolio and investments more interest rate
sensitive, the Bank has implemented a number of
measures including: (a) generally originating long-
term fixed rate mortgage loans for brokerage to other
financial institutions; (b) emphasizing origination of
ARMs on residential and commercial properties when
market conditions permit; (c) originating construction
loans secured by residential properties generally for
a 12-month period at interest rates determined by
reference to the Bank's prime rate; and (d)
originating consumer and commercial loans having
either adjustable rates or relatively short
maturities.
SINGLE FAMILY RESIDENTIAL
One of the lending activities of the Bank has
been the origination of single family residential
loans through its mortgage lending operation. Through
an arrangement with another financial institution, the
Bank brokers substantially all of its fixed rate
single family residential loans. This allows the Bank
to offer a broader base of financing alternatives than
would be possible if the Bank were structuring all of
its loans to sell to the Federal Home Loan Mortgage
Corporation (FHLMC) or the Federal National Mortgage
Association (FNMA).
Federally chartered thrift institutions are
authorized to make home loans on which the interest
rate, loan balance or maturity may be adjusted,
provided that the adjustments are tied to specified
indices. The rate adjustments are determined by
reference to cost of funds and Treasury securities
indices and are limited generally to 1.5-2.0% per
adjustment period and 5-6% over the life of the loan.
COMMERCIAL REAL ESTATE LOANS
Current regulations permit federal institutions
to invest up to 400% of their capital in commercial
real estate loans. At September 30, 1996, the Bank
had 276% of its capital invested in commercial real
estate loans. The commercial real estate loans
originated by the Bank are primarily secured by multi-
family apartment buildings, shopping centers, office
buildings and other income-producing properties. The
interest rates on commercial real estate loans
presently offered by the Bank generally adjust every
one to three years. The rate is generally determined
by reference to money center banks' prime rates. The
Bank's commercial real estate loans have various
terms, with the payments based on a 15 to 25 year
amortization schedule and have balloon maturities of 5
to 7 years. The Bank generally requires that such
loans have a minimum debt service coverage of 1.15 and
a loan-to-value ratio of not more than 90%.
<PAGE>
Commercial real estate lending entails
significant additional risks compared to residential
lending. Commercial real estate loans typically
involve large loan balances to single borrowers or
groups of related borrowers. The payment experience
of such loans typically depends upon the successful
operation of the real estate project. These risks can
be significantly affected by supply and demand
conditions in the market for office and retail space
and for apartments, and as such may be subject, to a
greater extent than residential real estate loans, to
adverse conditions in the economy. In dealing with
these risk factors, the Bank generally limits itself
to a real estate market or to borrowers with which it
is familiar and sells a portion of its commercial real
estate loans. The Bank concentrates on originating
commercial real estate loans secured by properties
generally located within its primary market area,
although the Bank will continue, on a limited basis,
to originate commercial real estate loans secured by
properties located in other parts of Georgia and in
other states.
CONSTRUCTION LOANS
The Bank originates construction loans on single
family residences. Such construction loans generally
have a term of 12 months or less. The interest rates
charged by the Bank on construction loans are
determined by reference to the prime rate charged by
money center banks and vary depending upon the type of
property, the loan amount and the credit worthiness of
the borrower. The Bank generally requires personal
guarantees of payment from the principals of the
borrowing entities for the full amount of the loan,
and it is the policy of the Bank to enforce guarantees
in the event of non-payment of the loan.
The Bank also originates construction loans on
multi-family and commercial real estate. The interest
rates on such loans presently offered by the Bank are
also determined by reference to the prime rate charged
by money center banks. Multi-family and commercial
real estate construction financing generally exposes
the lender to a greater risk of loss than long-term
financing on improved, occupied real estate, due in
part to the fact that the loans are underwritten on
projected rather than historical income and rental
results. The Bank's risk of loss on such loans
depends largely upon the accuracy of the initial
appraisal of the property's value at completion of
construction and the estimated cost (including
interest) of completion. If either estimate proves to
have been inadequate and the borrower is unable to
provide additional funds pursuant to his or her
guarantee, the Bank either may be required to advance
funds beyond the amount originally committed to permit
completion of the development or be confronted at the
maturity of the loan with a project whose value is
insufficient to assure full repayment.
The Bank's underwriting criteria are designed to
evaluate and to minimize the risks of each commercial
real estate construction loan. The Bank considers
evidence of the financial stability and reputation of
both the borrower and the contractor, the amount of
the borrower's cash equity in the project, independent
evaluation and review of the building costs, local
market conditions, pre-construction sales and leasing
information based upon evaluation of similar projects,
the use of independent engineers to examine plans and
monitor construction and the borrower's cash flow
projections upon completion. The Bank may require a
performance bond in the amount of the construction
contract based on management's evaluation of the
project and the financial strength of the contractor
and also requires personal guaranties of payment by
the principals of any borrowing entity. At September
30, 1996, approximately $11,417,553 of the Bank's loan
portfolio consisted of construction loans.
<PAGE>
CONSUMER LOANS
Current regulations permit federal savings
institutions to invest up to 35% of their assets in
consumer loans. The Bank currently offers a wide
variety of consumer loans including secured and
unsecured personal loans (such as home improvement
loans and loans secured by savings accounts),
automobile, boat and other loans. Total consumer
loans amounted to approximately $9,447,481 at
September 30, 1996.
The Bank markets consumer loans in order to
provide a full range of retail banking services to its
customers and because of the shorter term and normally
higher interest rates on such loans. The Bank's
underwriting standards for consumer loans include a
determination of the applicant's payment history on
other debts and an assessment of his or her ability to
meet existing obligations and to make payments on the
proposed loan. Loan-to-value, cash equity and debt
service-to-income ratios are also generally
considered. Risks associated with consumer loans
include, but are not limited to, fraud, deteriorated
or non-existing collateral, general economic downturn,
and customer financial problems.
COMMERCIAL LOANS
Current regulations authorize federal thrift
institutions to make secured and unsecured loans for
commercial, corporate, business and agricultural
purposes, including issuing letters of credit. The
aggregate amount of such loans outstanding generally
may not exceed 10% of the institution's assets.
The Bank makes commercial loans primarily on a
secured basis. Substantially all of such loans to
date have interest rates which adjust with changes in
the prime rate charged by money center banks. The
Bank's commercial loans primarily consist of short-
term loans for working capital purposes, seasonal
loans, lines of credit, accounts receivable loans and
inventory loans. The Bank customarily requires
personal guaranties of payment by the principals of
any borrowing entity and reviews the financial
statements and income tax returns of the guarantors
generally on an annual basis. At September 30, 1996,
the Bank had approximately $7,891,541 outstanding in
commercial loans. Risks associated with these loans
can be significant. Risks include, but are not
limited to, fraud, bankruptcy, deteriorated or non-
existing collateral, general economic downturn, and
changes in interest rates.
<PAGE>
LOAN SOLICITATION AND PROCESSING
The Bank actively solicits mortgage loan
applications from existing customers, walk-ins,
referrals, builders and real estate brokers.
Commercial real estate loan applications are also
obtained through direct solicitation.
Detailed loan applications are obtained to
determine the borrower's ability to repay, and the
more significant items on these applications are
verified through the use of credit reports, financial
statements and confirmations. After analysis of the
loan applications and property or collateral involved,
including an appraisal of the property by independent
appraisers approved by the Bank's management, the
lending decision is made in accordance with the
underwriting guidelines of the Bank. With respect to
commercial loans, the Bank also reviews the capital
adequacy of the business, the ability of the borrower
to repay the loan and honor its other obligations, and
general economic and industry conditions. All
applications for loans greater than $250,000 but less
than $500,000 require the approval of the Bank's Loan
Committee, which consists of the Bank's president and
three outside directors. All loan applications in
excess of $500,000 must be approved by the full Board
of Directors.
Loan applicants are promptly notified of the
decision of the Bank, together with the terms and
conditions of the decision. In this regard, the Bank
seeks to handle loan processing and origination faster
than its competition. If approved, these terms and
conditions include the amount of the loan, interest
rate basis, amortization term, a brief description of
the real estate to be mortgaged to the Bank,
notification that insurance coverage must be
maintained to protect the Bank's interest and any
other special conditions.
It is the Bank's policy to obtain a title
insurance policy insuring that the Bank has a valid
first lien on the mortgaged real estate and that the
property is free of encumbrances. Borrowers are also
to obtain paid hazard insurance policies prior to
closing and, when the property is in a flood plain as
designated by the Department of Housing and Urban
Development, paid flood insurance policies. It is the
Bank's policy to require flood insurance for the full
insurable value of the improvements for any such loan
located in a designated flood hazard area. In certain
coastal areas, however, there are limits on the amount
of insurance available. Substantially all borrowers
are also required to advance funds on a monthly basis,
together with each payment of principal and interest,
to a mortgage escrow account from which the Bank makes
disbursements for items such as real estate taxes,
hazard insurance premiums and private mortgage
insurance premiums. See "Lending Activities -
General" regarding the Bank's recent efforts to ensure
compliance with federal regulations pertaining to
flood insurance, Truth-In-Lending, and the Community
Reinvestment Act.
LOAN ORIGINATIONS, SALES AND PURCHASES
It is a policy of the Bank not to originate
for its own portfolio any long term fixed rate
mortgage loans. The Bank instead originates long term
fixed rate mortgages to be brokered out to various
mortgage lenders. The Bank may sell its commercial
real estate and construction loans, generally
retaining a percentage of the loans in its own
portfolio. Loan sales provide additional funds for
lending, generate income for the Bank and generally
reduce exposure to interest rate risk. The Bank
generally continues to collect payments on the loans
and otherwise to service the loans sold. The Bank
retains a portion of the interest paid by the borrower
on these loans as consideration for its servicing
loans sold to others. At September 30, 1996, the Bank
was servicing loans for others of approximately
$2,003,000.
<PAGE>
The Bank has purchased a number of loans in the
past, and intends to consider future purchases of
residential mortgage loans as market conditions
warrant. The Bank has also sold loans in the past
and, similarly, intends to consider future sales as
conditions warrant.
It is the current intention of management to
continue offering residential fixed rate mortgage
loans through the Bank's brokerage lending arrangement
and to continue offering adjustable rate instruments
to be held in the Bank's portfolio.
LOAN COMMITMENTS
Upon loan approval, short-term commitments of 45
days are issued to the applicant and in most cases
provide for the loan to be closed at the prevailing
rate of interest as of the date of approval. At
September 30, 1996 the Bank had loan commitments
outstanding of approximately $142,000 excluding the
undisbursed portion of loans in process.
LOAN ORIGINATION FEES
Beginning October 1, 1988, the Bank
prospectively adopted Statement of Financial
Accounting Standards No. 91 "Accounting for
Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct
Costs of Leases". This standard requires the Bank to
defer and amortize loan origination fees, net of
certain direct origination costs incurred, and to
recognize such fees over the life of the related loan
as a yield adjustment.
The Bank also receives other fees and charges
relating to existing loans along with late charges and
fees collected in connection with a change in borrower
or other loan modifications.
DELINQUENCIES AND ASSET CLASSIFICATIONS
The Bank's collection procedures provide that
when a loan is 15 days past due, the borrower will be
contacted by mail and payment requested. If the
delinquency continues, subsequent efforts will be made
to contact the delinquent borrower. In certain
instances, the Bank may modify the loan or grant a
limited moratorium on loan payments to enable the
borrower to reorganize his or her financial affairs.
If the loan continues in a delinquent status for 90
days or more, the Bank generally will initiate
foreclosure proceedings, but there is no requirement
that the Bank defer foreclosure proceedings or other
enforcement action. Any property acquired as the
result of foreclosure is classified as real estate
acquired in settlement of loans until such time as it
is sold or otherwise disposed of by the Bank to
recover its investment.
<PAGE>
As a measure of the soundness of a thrift
institution's loans, federal regulatory authorities
have developed the concept of asset classification and
have established four categories of problem assets:
"Special Mention," "Substandard," "Doubtful" and
"Loss". Assets designated Special Mention do not
require that a bank take any specific action. For
assets classified Substandard or Doubtful, a bank's
examiner is authorized to direct the establishment of
a general allowance for loan losses based on the
assets classified and the overall quality of the
bank's asset portfolio. This valuation allowance must
be established in accordance with generally accepted
accounting principles. For assets or portions of
assets classified Loss, a bank is required either to
establish specific allowances of 100% of the amount so
classified, or to charge off such amount. These
specific allowances or charge offs must also be
established in accordance with generally accepted
accounting principles.
The Bank is responsible for determining the
valuation and classification of its assets, subject to
review by regulatory authorities. Portions of an
asset may be classified in more than one category.
An asset will be designated Special Mention if
it does not justify a classification of Substandard
but does constitute undue and unwarranted credit risk
to the Bank. An asset will be classified Substandard
if it is determined to involve a distinct possibility
that the Bank may sustain some loss if deficiencies
associated with the loan, such as inadequate
documentation, are not corrected. An asset will be
classified as Doubtful if full collection is highly
questionable or improbable. An asset will be
classified as Loss if it is considered uncollectible,
even if a partial recovery may be expected in the
future.
The Bank closely monitors its classified loans
and actively attempts to dispose of real estate
acquired in settlement of loans. Real estate acquired
through foreclosure is appraised when acquired and is
recorded at the lower of cost or fair market value.
At September 30, 1996, the following amounts of
loans were classified as follows:
Special Mention $2,161,000
Substandard 1,976,000
Doubtful -
Loss -
------------------
$4,137,000
==================
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The Bank has approximately $1,951,000 of loans
in nonaccrual status at September 30, 1996. The Bank
had approximately $2,061,000 of loans in nonaccrual
status at September 30, 1995. The Bank has had no
restructured loans. ("Management's Discussion and
Analysis of Financial Condition and Results of
Operations - Provision for Loan Losses" in the
Company's Annual Report is incorporated by reference
herein.) Had all nonaccrual loans at September 30,
1996 actually accrued interest for the full fiscal
year, approximately $93,000 of additional interest
income would have been added to fiscal 1996 earnings.
<PAGE>
Accrual of interest is discontinued when either
principal or interest become 90 days past due unless,
in management's opinion, the loan is well secured and
in the process of collection.
ALLOWANCE FOR LOAN LOSSES
For a detailed analysis of the allowance for
loan losses, Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Provision for Loan Losses is incorporated by reference
from the Annual Report to Shareholders herein.
The Company has allocated the allowance for
possible loan losses according to the amount deemed to
be reasonably necessary to provide for the possibility
of losses being incurred within the categories of
loans set forth in the table below. This allocation
is based on management's evaluation of the loan
portfolio under current economic conditions, past
loan loss experience, adequacy and nature of
collateral, and such factors which, in the judgment of
management, deserve recognition in estimating loan
losses. Regulatory agencies, as an integral part of
their examination process, periodically review the
Company's allowances for possible losses on loans and
real estate acquired through foreclosure and other
nonperforming assets. Such agencies may require the
Company to make additions to the allowance based on
their judgments about information available to them at
the time of their examination. Because the allocation
is based on estimates and subjective judgment, it is
not necessarily indicative of the specific amounts or
loan categories in which charge-offs may occur.
The allocation of the allowance for possible
loan losses to the various loan categories and the
ratio of each loan category to total loans outstanding
at September 30, 1996 and 1995 are presented in the
following table.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSS
September 30, 1996 September 30, 1995
------------------ ------------------
Percent of Percent of
loans loans
in each in each
category category
to total to total
(IN THOUSANDS) Amount loans Amount loans
-------------- -----------------
Balance at end of
period applicable to:
Commercial, financial,
and agricultural $ 89 6.40% 18 5.28%
Real estate-construction 28 9.25% 52 6.65%
Real estate-mortgage 272 76.70% 386 80.12%
Consumer 20 7.65% 36 7.95%
Unallocated 546 N/A 512 N/A
-------------- -----------------
$ 955 100.00% 1,004 100.00%
=================================
OTHER
The Company has no foreign operations and,
accordingly, there are no assets or liabilities
attributed to foreign operations.
<PAGE>
At September 30, 1996, the Company had no
concentration of loans exceeding 10% of total loans to
borrowers engaged in any single industry.
INVESTMENT ACTIVITIES
The Bank is required under federal regulations
to maintain a minimum amount of liquid assets and is
also permitted to make certain other securities
investments. It is the intention of management to
hold securities with short maturities in the Bank's
investment portfolio in order to enable the Bank to
match more closely the interest rate sensitivities of
its assets and liabilities. All of the Bank's
investments are subject to interest rate risk. Since
some securities have fixed interest rates, as interest
rates rise the value of the securities falls and as
rates decline the value increases. In addition,
mortgage-backed securities are subject to prepayment
risk. As rates fall, prepayments increase and the
amount of the security earning the coupon rate
declines.
Investment decisions are made by senior officers
of the Bank. The actions of the officers are within
policies established by the Board of Directors. At
September 30, 1996 the investment portfolio totaled
approximately $10,325,537.
The following table sets forth the amortized
cost, approximate fair value, and weighted average
yield of the investment portfolio. The weighted
average yield with respect to maturities is also
presented.
<PAGE>
INVESTMENT SECURITIES ANALYSIS
Weighted Approximate
Amortized Average Fair
Cost Yield Value
-----------------------------
September 30, 1996:
Investment Securities:
U.S. Government Agencies $ 5,500,683 4.71% 5,423,659
Mortgage-backed securities
and SBA's 3,704,854 7.62% 3,688,295
State and municipal 870,000 4.12% 866,790
Corporate Bonds 250,000 8.50% 230,000
-----------------------------
$ 10,325,537 10,208,744
=============================
Weighted Approximate
Amortized Average Fair
Cost Yield Value
-----------------------------
September 30, 1995:
Investment Securities:
U.S. Government Agencies $ 4,498,377 4.67% 4,337,790
Mortgage-backed securities
and SBA's 4,182,601 5.49% 4,233,188
State and municipal 500,000 3.84% 498,300
-----------------------------
$ 9,180,978 9,069,278
=============================
A summary of investment and mortgage-backed securities by
maturities as of September 30, 1996 follows:
Weighted Approximate
Amortized Average Fair
Cost Yield Value
-----------------------------
Investment Securities:
Within 1 Year $ 3,099,391 4.33% 3,082,800
After 1 Year thru 5 Years 3,153,832 5.39% 3,112,882
After 5 Years thru 10 Years 761,320 8.33% 770,869
After 10 Years 3,310,994 7.17% 3,242,193
-----------------------------
$10,325,537 10,208,744
=============================
At September 30, 1996 the Company had pledged $8,245,000 of
its securities to government and municipal depositors.
<PAGE>
INTEREST DIFFERENTIAL
The following table describes the extent to which
changes in volume of interest-earning assets and interest-bearing
liabilities and changes in interest rates have affected the Bank's
interest income and expense during the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (a) change in
volume (change in volume multiplied by old rate) and (b) change
in rate (change in rate multiplied by old volume). The net
change attributable to the combined impact of volume and
rate has been allocated to both components in proportion to the
relationship of the absolute dollar amounts of the change in each.
Year Ended September 30, 1996
vs. Year Ended September 30, 1995
----------------------------------
Increase (Decrease) Due To
----------------------------------
(In Thousands) Total Rate Volume
Interest income:
Loans $ 114 (37) 151
Taxable investment securities 193 101 92
Interest-bearing deposits in
other banks (139) (40) (99)
----- ---- ------
Total interest-earning
assets 168 24 144
----- ---- ------
Interest expense:
Deposits 337 113 224
Short term debt 186 184 2
Long term debt (381) (165) (216)
----- ---- ------
Total interest-bearing
liabilities 142 132 10
----- ---- ------
Net interest income $ 26 (108) 134
====== ====== ======
Year Ended September 30, 1995
vs. Year Ended September 30, 1994
----------------------------------
Increase (Decrease) Due To
----------------------------------
(In Thousands) Total Rate Volume
Interest income:
Loans $1,157 1,170 (13)
Taxable investment securities 150 101 49
Interest-bearing deposits in
other banks 106 110 (4)
------ ----- ------
Total interest-earning
assets 1,413 1,381 32
------ ----- ------
Interest expense:
Deposits 859 791 68
Short term debt 8 14 (6)
Long term debt (4) 191 (195)
----- ---- ------
Total interest-bearing
liabilities 863 996 (133)
----- ---- ------
Net interest income $ 550 385 165
====== ====== ======
<PAGE>
RETAIL BANKING ACTIVITIES AND SOURCES OF FUNDS
GENERAL
The Bank's retail banking activities consist of
attracting deposits and making consumer and commercial
loans. A principal objective of the Bank is to
establish a total banking relationship, including a
deposit relationship as well as a lending
relationship, between the Bank and the customer.
Savings accounts and other types of deposits
generated by the Bank's retail banking division are
the primary source of the Bank's funds for use in
lending and for other general business purposes. In
addition to savings accounts, the Bank derives funds
from loan repayments, FHLB advances, other borrowings
and operations. Loan repayments are a relatively
stable source of funds while deposit inflows and
outflows vary widely and are influenced by prevailing
interest rates and money market conditions.
Borrowings may be used on a short-term basis to
compensate for reductions in normal sources of funds
such as deposit inflows at less than projected levels
and may be used on a longer-term basis to support
expanded lending activities. The Bank's sources of
borrowings have been advances from the FHLB of Atlanta
and obligations under Repurchase Agreements.
DEPOSITS
Savings deposits in the Bank at September 30,
1996 and 1995 were represented by the various types of
programs described as follows:
<PAGE>
DEPOSITS AT SEPTEMBER 30, 1996
Percentage
Weighted Balance of
Type of Minimum Average (Dollars in Total
Account Term Amount Rate thousands) Deposits
- ---------------------------------------------------------------
Easy Checking -- -- $ 1,632 1.34%
Commercial checking -- -- 4,635 3.81%
Now Accounts 750 1.25% 11,598 9.54%
Super NOW and MMDA 1,000 2.35% 2,410 1.98%
Statement Savings 100 2.30% 4,565 3.76%
Certificates of deposit accounts:
Jumbo
certificates 30 days to
5 years 99,000 4.48% 18,298 15.05%
Other time deposits
3 month 3-5 months 1,000 4.32% 649 0.53%
6 month 6-11 months 1,000 6.35% 6,281 5.17%
1 year 12-17 months 500 5.25% 21,470 17.66%
1.5 years 18-23 months 500 5.27% 199 0.16%
2 years 24-29 months 500 5.30% 11,025 9.07%
2.5 years 30-35 months 500 5.31% 2,524 2.08%
3 years 36-41 months 500 5.35% 5,032 4.14%
3.5 years 42-47 months 500 5.36% 100 0.08%
4 years 48-59 months 500 5.40% 3,853 3.17%
5 years 60 months 500 5.45% 10,944 9.00%
18 month IRA 18 months 500 5.29% 15,747 12.95%
Other 30 day 500 2.78% 593 0.49%
--------- ------------------
4.49% $121,555 100%
============================
Savings deposits at September 30, 1995, including accrued interest
payable, are represented on the next page.
<PAGE>
DEPOSITS AT SEPTEMBER 30, 1995
Percentage
Weighted Balance of
Type of Minimum Average (Dollars in Total
Account Term Amount Rate thousands) Deposits
- ---------------------------------------------------------------
Easy Checking -- -- $ 1,721 1.62%
Commercial checking -- -- 2,882 2.71%
Now Accounts 750 2.41% 11,606 10.89%
Super NOW and MMDA 1,000 2.78% 2,345 2.20%
Statement Savings 100 2.45% 4,713 4.42%
Certificates of deposit accounts:
Jumbo
certificates 30 days to
5 years 99,000 5.34% 12,530 11.76%
Other time deposits
3 month 3-5 months 1,000 5.35% 2,638 2.48%
6 month 6-11 months 1,000 4.84% 2,705 2.54%
1 year 12-17 months 500 6.18% 22,872 21.47%
1.5 years 18-23 months 500 5.53% 260 0.24%
2 years 24-29 months 500 6.40% 8,691 8.16%
2.5 years 30-35 months 500 5.26% 1,909 1.79%
3 years 36-41 months 500 6.44% 2,476 2.32%
3.5 years 42-47 months 500 5.42% 81 0.08%
4 years 48-59 months 500 6.26% 4,674 4.39%
5 years 60 months 500 6.90% 8,779 8.24%
18 month
IRA 18 months 500 6.07% 14,758 13.85%
Other 30 day 500 2.73% 888 0.83%
-------- -------------------
5.14% $106,528 100%
===============================
<PAGE>
The Bank has a number of different programs
designed to attract both short-term and long-term
savings of the general public. The programs include
commercial demand deposits (checking), NOW accounts,
money market deposits accounts (MMDA), traditional
passbook savings, time deposits in a minimum amount of
$100,000 (Jumbo Certificates), other certificates of
deposits and individual retirement accounts (IRAs).
The minimum amount required to open a
certificate of deposit for other than retirement
accounts varies from $500 to $100,000, depending on
the type of deposit. Rates on certificates of deposit
are determined weekly by the Bank, based upon local
market rates, national money market rates and yields
on assets of the same maturity.
The variety of deposit accounts offered by the
Bank allows it to be competitive in obtaining new
funds, although the threat of disintermediation (the
flow of funds away from the Bank into direct
investment vehicles, such as mutual funds and
government and corporate securities) still exists.
The ability of the Bank to attract and retain deposits
and the Bank's cost of funds have been, and will
continue to be, significantly affected by capital and
money market conditions.
The Bank attempts to control the flow of
deposits by pricing its accounts to remain generally
competitive with other financial institutions in its
market area.
The Bank has generated Jumbo Certificates from
both local individuals and businesses and from out-of-
town individuals and businesses who have ties to its
market area. In addition, the Bank accepts public
deposits. The Bank responds to requests for rate
information but does not accept deposits for which a
broker's commission must be paid. As with other
deposits, rates on Jumbo Certificates are set in a
manner to be competitive in the Bank's market area.
The following table sets forth the composition
of deposits, excluding accrued interest payable, by
type and interest rate at the dates indicated.
<PAGE>
DEPOSITS BY TYPE
September 30,
1996 1995 1994
------- ------- -------
Access accounts: (In thousands)
Commercial checking
- 0.00% $ 6,266 4,602 5,195
NOW account - 1.25% 11,599 11,607 13,684
Super NOW Account -
variable rate - - -
Money Market deposit
account - variable
rate 2,410 2,345 4,106
Statement savings - 2.30% 4,565 4,713 6,122
Certificates of deposit:
2.75% - 5.00% 6,408 10,134 40,759
5.01% - 7.00% 81,918 52,078 29,701
7.01% - 9.00% 8,389 20,993 3,673
9.01% - 11.00% - 56 167
------- ------- -------
Subtotal 121,555 106,528 103,407
------- ------- -------
Accrued interest 548 527 372
------- ------- -------
Total $ 122,103 107,055 103,779
======= ======= =======
TIME DEPOSIT MATURITIES
Balances at September 30,
- ---------------------------------------------------------------------
Interest There-
Rates 1997 1998 1999 2000 after Total
- ---------------------------------------------------------------------
(in thousands)
2.75% - 5.00% $ 2,163 2,507 721 1,006 11 6,408
5.01% - 7.00% 16,133 44,150 15,066 5,717 852 81,918
7.01% - 9.00% 1,952 4,317 900 343 877 8,389
9.01% - 11.00% - - - - - -
- -----------------------------------------------------------------------
$ 20,248 50,974 16,687 7,066 1,740 96,715
=======================================================================
JUMBO CD MATURITIES
September 30,
Maturity 1996
-------------------- ----------------
(in thousands)
Three Months or Less $ 550
Three to Six Months 709
Six to Twelve Months 2,870
Over Twelve Months 14,169
---------
Total $ 18,298
=========
Early withdrawal from a certificate of deposit subjects the depositor
to an early withdrawal penalty.
<PAGE>
AVERAGE DEPOSIT BY TYPE
September 30, 1996 September 30, 1995
--------------------- ------------------------
Average Weighted Average Weighted
Balance Avg. Rate Balance Avg. Rate
(In Thousands) ---------------------- -------------------------
Non-interest
bearing deposits $ 5,804 - $ 5,086 -
NOW's 12,509 1.84% 8,228 2.41%
MMDA's 2,471 2.47% 3,214 2.78%
Savings 4,747 2.28% 5,328 2.45%
Time Deposits 86,891 6.11% 86,113 5.57%
---------------------- ------------------------
Total Average
Deposits $112,422 5.05% $107,969 4.95%
======================= =======================
LOAN REPAYMENTS
In addition to regularly scheduled repayments,
loans are prepaid in full as properties are sold, or
are refinanced by the Bank or other lenders, or are
satisfied in full by the borrower. Loan repayments
constitute a major source of funding for the Bank.
BORROWINGS
Savings deposits are the primary source of funds
for the Bank's lending and investment activities and
for its general business purposes. The Bank has,
however, used advances from the FHLB of Atlanta and
other borrowings to supplement its supply of lendable
funds. Advances from the FHLB are typically secured
by a portion of the Bank's first mortgage loans. A
summary of the Bank's borrowings from the FHLB is set
forth below:
Due during
year ending Interest
September 30, Rates 1996 1995
- --------------------------- -----------------------
1996 4.98% to 8.55% $ - 4,448,000
1997 4.93% to 8.45% 4,000,000 4,000,000
1998 5.32% to 7.27% 4,500,000 2,000,000
1999 5.68% to 6.76% 2,100,000 1,000,000
2002 7.90% 500,000 500,000
------------------------
$11,100,000 11,948,000
=========================
The FHLB System functions as a central reserve bank
providing credit for savings institutions. As a
member of the FHLB of Atlanta, the Bank is required to
own capital stock in the FHLB of Atlanta and is
authorized to apply for advances on the security of
its home mortgage loans and other assets (primarily,
securities which are obligations of, or are guaranteed
by, the United States) provided certain standards
related to creditworthiness have been met.
<PAGE>
The FHLB offers several different credit
programs each with its own interest rate and term. It
prescribes the acceptable uses for advances as well as
size limitations. The FHLB periodically reviews its
credit limitations and standards. Under its current
policies, the FHLB limits its advances based on a
member institution's net worth or the FHLB's
assessment of the institution's creditworthiness.
The Company has also established a line of
credit with a Georgia financial institution in the
amount of $1,000,000. The interest rate floats at
one-half percent over the prime rate. The Company
pledged all of the outstanding stock in the Bank as
collateral for the line. As of September 30, 1996,
$92,000 was outstanding and the proceeds have been
invested in the Bank.
The following table sets forth certain
information regarding borrowings by the Bank at the
end of and during the periods indicated:
FEDERAL HOME LOAN BANK ADVANCES
At September 30,
-----------------------------------------
1996 1995 1994
-----------------------------------------
Balance outstanding $ 11,100,000 11,948,000 16,748,000
Weighted average rate 6.44% 7.10% 6.56%
Maximum amount of short term
borrowings outstanding at any
month end 5,198,000 4,448,000 5,300,000
Approximate average short-term
borrowings outstanding 4,092,000 2,157,000 125,000
Approximate weighted average
paid on short-term
borrowings(1) 7.27% 5.90% 7.43%
- --------------------------------------------------------------------
(1) The average method used is the average end of month totals.
EMPLOYEES
At September 30, 1996, the Bank employed 83
full-time equivalent employees. Management considers
relations with its employees to be excellent. The
Bank currently maintains a comprehensive employee
benefits program including, among other benefits,
hospitalization and major medical insurance, life
insurance, dental insurance, long term disability, a
401(k) plan and educational assistance. Management
considers these benefits to be generally competitive
with those offered by competing financial institutions
in its market area. The Bank's employees are not
represented by any collective bargaining group.
<PAGE>
COMPETITION
The Bank's primary market area is southeastern
Georgia. The Bank competes for loans primarily
through referrals and quality of the services it
provides to borrowers and home builders. It competes
for savings by offering depositors a wide variety of
savings accounts, checking accounts, NOW accounts,
convenient office locations, tax-deferred retirement
programs and other services.
Federal deregulation of financial institutions
has contributed to the dramatic increase in
competition for savings dollars between savings
institutions and other types of investment vehicles,
such as money market mutual funds, U.S. Treasury
securities and municipal bonds, and also due to an
increase in competition with commercial banks for
loans, checking accounts and other types of financial
services. In addition, large conglomerates and
investment banking firms have entered the market for
financial services. Accordingly, the Bank, like other
institutions, faces increased competition in the
future in attracting and retaining customers for the
services it offers.
SUPERVISION AND REGULATION
Savings and loan holding companies, such as the
Company, and federal savings banks, such as the Bank,
are extensively regulated under both Federal and state
law. The following is a brief summary of certain
statutes and rules and regulations that affect the
Company and the Bank. This summary is qualified in
its entirety by reference to the particular statute
and regulatory provision referred to below and is not
intended to be an exhaustive description of the
statutes or regulations applicable to the business of
the Company and the Bank. Supervision, regulation and
examination of the Company and the Bank by the
regulatory agencies are intended primarily for the
protection of depositors rather than shareholders of
the Company. The terms savings association, federal
savings bank and thrift are used interchangeably in
the section.
SAVINGS AND LOAN HOLDING COMPANY REGULATION.
The Company is a registered holding company under both
the Savings and Loan Holding Company Act (the "SLHCA")
set forth in Section 10 of the Home Owners Loan Act
("HOLA") and the Georgia Bank Holding Company Act.
The Company is regulated under such acts by the Office
of Thrift Supervision (the "OTS") and by the
Department of Banking, respectively. As a savings and
loan holding company, the Company is required to file
with the OTS an annual report and such additional
information as the OTS may require pursuant to the
SLHCA. The OTS also conducts examinations of the
Company and each of its subsidiaries.
<PAGE>
Savings and loan holding companies and their
subsidiaries are prohibited from engaging in any
activity or rendering any services for or on behalf of
their savings institution subsidiaries for the purpose
or with the effect of evading any law or regulation
applicable to the institution. This restriction is
designed to prevent the use of holding company
affiliates to evade requirements of the SLHCA that are
designed to protect the holding company's savings
institution subsidiaries. A unitary holding company,
that is, a holding company that owns only one insured
institution whose subsidiary institution satisfies the
qualified thrift lender test (discussed below), is not
restricted to the statutorily prescribed list of
permissible activities, and the SLHCA imposes no
limits on direct or indirect non-savings institution
subsidiary operations.
The SLHCA makes it unlawful for any savings and
loan holding company, directly or indirectly, or
through one or more subsidiaries or one or more
transactions, to acquire control of another savings
association or another savings and loan holding
company without prior approval from the OTS. An
acquisition by merger, consolidation or purchase of
assets of such an institution or holding company or of
substantially all of the assets of such an institution
or holding company is also prohibited without prior
OTS approval. When considering an application for
such an acquisition, the OTS takes into consideration
the financial and managerial resources and future
prospects of the prospective acquiring company and the
institution involved. This includes consideration of
the competence, experience and integrity of the
officers, directors and principal shareholders of the
acquiring company and savings institution. In
addition, the OTS considers the effect of the
acquisition on the institution, the insurance risk to
the Savings Association Insurance Fund ("SAIF") and
the convenience and needs of the community to be
served.
The OTS may not approve an acquisition that
would result in the formation of certain types of
interstate holding company networks. The OTS is
precluded from approving an acquisition that would
result in the formation of a multiple holding company
controlling institutions in more than one state unless
the acquiring company or one of its savings
institution subsidiaries is authorized to acquire
control of an institution or to operate an office in
the additional state pursuant to a supervisory
acquisition authorized under Section 13(k) of the
Federal Deposit Insurance Act or unless the statutes
of the state in which the institution to be acquired
is located permits such an acquisition.
The "Georgia Interstate Banking Act," which
became effective July 1, 1995, provides that (I)
interstate acquisitions by institutions located in
Georgia are permitted in states which also allow
national interstate acquisitions, and (ii) interstate
acquisitions of institutions located in Georgia are
permitted by institutions located in states which also
allow national interstate acquisitions; provided,
however, that if the board of directors of a Georgia
savings and loan institution adopts a resolution to
except such thrift or holding company from being
acquired pursuant to the provisions of the Georgia
Interstate Banking Act and properly files a certified
copy of such resolution with the Georgia Department,
such savings and loan institution or holding company
may not be acquired by an institution located outside
of the State of Georgia.
Savings and loan holding companies are allowed
to acquire or to retain as much as 5% of the voting
shares of a savings institution or savings and loan
holding company without regulatory approval.
<PAGE>
BANK REGULATION.
GENERAL. The Bank is a federal savings bank
organized under the laws of the United States subject
to examination by the OTS. The OTS regulates all
areas of the Bank's banking operations including
reserves, loans, mergers, payment of dividends,
interest rates, establishment of branches, and other
aspects of operations. OTS regulations generally
provide that federal savings banks must be examined no
less frequently than every 12 months, unless the
federal savings bank (I) has assets of less than $250
million; (ii) is well capitalized; (iii) was found to
be well managed and its composite condition was found
to be outstanding (or good, if the bank had total
assets of not more than $100,000) during its last
examination; (iv) is not subject to a formal
enforcement proceeding or an order from the FDIC or
another banking agency; and (v) has not undergone a
change of control during the previous 12-month period.
Federal savings banks must be examined no less
frequently than every 18 months. The Bank also is
subject to assessments by the OTS to cover the costs
of such examinations.
The Bank is also insured and regulated by the
Federal Deposit Insurance Corporation (the "FDIC").
The major functions of the FDIC with respect to
insured federal savings banks include paying
depositors to the extent provided by law in the event
an insured bank is closed without adequately providing
for payment of the claims of depositors and preventing
the continuance or development of unsound and unsafe
banking practices.
Subsidiary institutions of a savings and loan
holding company, such as the Bank, are subject to
certain restrictions imposed by the Federal Reserve
Act on any extension of credit to the holding company
or any of its subsidiaries, on investment in the stock
or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any
borrower. In addition, a holding company and its
subsidiaries are prohibited from engaging in certain
tying arrangements in connection with any extension of
credit or provision of any property or services.
CAPITAL REQUIREMENTS. OTS regulations require
that federal savings banks maintain (I) "tangible
capital" in an amount of not less than 1.5% of total
assets, (ii) "core capital" in an amount not less than
3.0% of total assets, and (iii) a level of risk-based
capital equal to 8% of risk-weighted assets. Under
OTS regulations, the term "core capital" generally
includes common stockholders' equity, noncumulative
perpetual preferred stock and related surplus, and
minority interests in the equity accounts of
consolidated subsidiaries less unidentifiable
intangible assets (other than certain amounts of
supervisory goodwill) and certain investments in
certain subsidiaries plus 90% of the fair market value
of readily marketable purchased mortgage servicing
rights ("PMSRs") and purchased credit card
relationships (subject to certain conditions).
"Tangible capital" generally is defined as core
capital minus intangible assets and investments in
certain subsidiaries, except PMSRs.
In determining total risk-weighted assets for
purposes of the risk-based requirement, (I) each
off-balance sheet asset must be converted to its
on-balance sheet credit equivalent amount by
multiplying the face amount of each such item by a
credit conversion factor ranging from 0% to 100%
(depending upon the nature of the asset), (ii) the
credit equivalent amount of each off-balance sheet
asset and each on-balance sheet asset must be
multiplied by a risk factor ranging from 0% to 200%
(again depending upon the nature of the asset) and
(iii) the resulting amounts are added together and
constitute total risk-weighted assets. "Total
capital," for purposes of the risk-based capital
requirement equals the sum of core capital plus
supplementary capital (which, as defined, includes the
sum of, among other items, perpetual preferred stock
not counted as core capital, limited life preferred
stock, subordinated debt, and general loan and lease
loss allowances up to 1.25% of risk-weighted assets)
less certain deductions. The amount of supplementary
capital that may be counted towards satisfaction of
the total capital requirement may not exceed 100% of
core capital, and OTS regulations require the
maintenance of a minimum ratio of core capital to
total risk-weighted assets of 4%.
<PAGE>
OTS regulations have been amended to include an
interest-rate risk component to the risk-based capital
requirement. Under this regulation, an institution is
considered to have excess interest rate-risk if, based
upon a 200-basis point change in market interest
rates, the market value of an institution's capital
changes by more than 2%. This new requirement,
application of which has been delayed indefinitely by
the OTS, is not expected to have any material effect
on the ability of the Bank to meet the risk-based
capital requirement. The OTS also revised its
risk-based capital standards to ensure that its
standards provide adequately for concentration of
credit risk, risk from nontraditional activities and
actual performance and expected risk of loss on
multi-family mortgages.
Capital requirements higher than the generally
applicable minimum requirement may be established for
a particular savings association if the OTS determines
that the institution's capital was or may become
inadequate in view of its particular circumstances.
Additionally, the Department of Banking requires
that savings and loan holding companies, such as the
Company, must maintain a 5% Tier 1 leverage ratio on a
consolidated basis.
PROMPT CORRECTIVE ACTION. The Federal Deposit
Insurance Corporation Improvement Act of 1991 (the
"FDIC Act") imposes a regulatory matrix which requires
the federal banking agencies, which include the OTS,
the FDIC, the Office of the Comptroller of Currency
(the "OCC"), and the Federal Reserve Board, to take
prompt corrective action to deal with depository
institutions that fail to meet their minimum capital
requirements or are otherwise in a troubled condition.
The prompt corrective action provisions require
undercapitalized institutions to become subject to an
increasingly stringent array of restrictions,
requirements and prohibitions, as their capital levels
deteriorate and supervisory problems mount. Should
these corrective measures prove unsuccessful in
recapitalizing the institution and correcting its
problems, the FDIC Act mandates that the institution
be placed in receivership.
Pursuant to regulations promulgated under the
FDIC Act, the corrective actions that the banking
agencies either must or may take are tied primarily to
an institution's capital levels. In accordance with
the framework adopted by the FDIC Act, the banking
agencies have developed a classification system,
pursuant to which all banks and thrifts will be placed
into one of five categories: well-capitalized
institutions, adequately capitalized institutions,
undercapitalized institutions, significantly
undercapitalized institutions and critically
undercapitalized institutions. The capital thresholds
established for each of the categories are as follows:
<PAGE>
TIER 1 RISK-
CAPITAL TIER 1 RISK-BASED BASED
CATEGORY CAPITAL CAPITAL CAPITAL OTHER
- --------------------------------------------------------------
Well-Capitalized 5% or 10% or 6% or Not subject
more more more to a capital
directive
Adequately
Capitalized 4% or 8% or 4% or ---
more more more
Undercapitalized less less less ---
than 4% than 8% than 4%
Significantly
Undercapitalized less less less ---
than 3% than 6% than 3%
Critically
Undercapitalized 2% or less --- --- ---
tangible
equity
The undercapitalized, significantly
undercapitalized and critically undercapitalized
categories overlap; therefore, a critically
undercapitalized institution would also be an
undercapitalized institution and a significantly
undercapitalized institution. This overlap ensures
that the remedies and restrictions prescribed for
undercapitalized institutions will also apply to
institutions in the lowest two categories.
The down-grading of an institution's category is
automatic in two situations: (I) whenever an
otherwise well-capitalized institution is subject to
any written capital order or directive, and (ii) where
an undercapitalized institution fails to submit or
implement a capital restoration plan or has its plan
disapproved. The federal banking agencies may treat
institutions in the well-capitalized, adequately
capitalized and undercapitalized categories as if they
were in the next lower capital level based on safety
and soundness considerations relating to factors other
than capital levels.
The FDIC Act prohibits all insured institutions
regardless of their level of capitalization from
paying any dividend or making any other kind of
capital distribution or paying any management fee to
any controlling person if following the payment or
distribution the institution would be
undercapitalized. While the prompt corrective action
provisions of the FDIC Act contain no requirements or
restrictions aimed specifically at adequately
capitalized institutions, other provisions of the FDIC
Act and the agencies' regulations relating to deposit
insurance assessments, brokered deposits and interbank
liabilities treat adequately capitalized institutions
less favorably than those that are well-capitalized.
<PAGE>
A depository institution that is not well
capitalized is prohibited from accepting deposits
through a deposit broker. However, an adequately
capitalized institution can apply for a waiver to
accept brokered deposits. Institutions that receive a
waiver are subject to limits on the rates of interest
they may pay on brokered deposits.
Undercapitalized institutions are prohibited
from offering rates of interest on insured deposits
that significantly exceed the prevailing rate in their
normal market area or the area in which the deposits
would otherwise be accepted. Institutions classified
as undercapitalized are precluded from increasing
their assets, acquiring other institutions,
establishing additional branches, or engaging in new
lines of business without an approved capital plan and
an agency determination that such actions are
consistent with the plan.
Savings associations that are significantly
undercapitalized may be required to take one or more
of the following actions: (I) raise additional capital
so that the institution will be adequately
capitalized; (ii) be acquired by, or combined with,
another institution if grounds exist for appointing a
receiver; (iii) refrain from affiliate transactions;
(iv) limit the amount of interest paid on deposits to
the prevailing rates of interest in the region where
the institution is located; (v) further restrict asset
growth; (vi) hold a new election for directors,
dismiss any director or senior executive officer who
held office for more than 180 days immediately before
the institution became undercapitalized, or employ
qualified senior executive officers; (vii) stop
accepting deposits from correspondent depository
institutions; and (viii) divest or liquidate any
subsidiary which the OTS determines poses a
significant risk to the institution.
Significantly undercapitalized institutions are
subject to the same mandatory sanctions and
discretionary actions applicable to all
undercapitalized institutions. In addition, a
significantly undercapitalized institution is
prohibited from paying any bonus or giving a raise to
any senior executive officer without prior agency
approval. A significantly undercapitalized
institution will be required to (I) sell sufficient
shares or obligations to restore its capital
compliance or be acquired by another institution, (ii)
restrict the institution's transactions with
affiliates, and (iii) limit the interest rates paid by
the institution on its deposits. The banking agencies
are also given the option to impose one or more of the
activities restrictions that are applicable to
critically undercapitalized institutions.
Critically undercapitalized institutions must be
placed in conservatorship or receivership within
ninety (90) days unless both the institution's
regulator and the FDIC agree that some other course of
action ultimately would result in a lower cost
solution. If the regulators decide to keep a
critically undercapitalized institution open, they
must reassess their decision every ninety (90) days
and document the reasons why they elected not to
appoint a conservator or receiver. Further, if an
institution continues to be critically
undercapitalized on average for four quarters after
falling below two percent (2%) tangible capital, the
regulatory agencies are required to place the
institution in receivership, unless it (I) has
positive net worth, (ii) is in substantial compliance
with an approved capital restoration plan, (iii) is
profitable or has a sustainable upward trend in
earnings, and (iv) has reduced its ratio of non-
performing loans to total loans. In addition, the
institution's regulator and the FDIC must certify that
the institution is viable and is not expected to fail.
<PAGE>
Critically undercapitalized institutions that
are allowed to remain open are subject to all the
requirements and restrictions discussed above that
either automatically apply to or may be imposed on
undercapitalized and significantly undercapitalized
institutions. In addition, beginning sixty (60) days
after it becomes critically undercapitalized, an
institution is generally prohibited from paying any
interest or principal on its subordinated debt.
Critically undercapitalized institutions are also
required to obtain prior FDIC approval for a number of
activities, including (I) entering into any material
transaction other than in the usual course of
business, (ii) extending credit for any highly
leveraged transaction, (iii) amending their charter or
bylaws, (iv) making any material change in accounting
methods, (v) engaging in any affiliate transactions
under Section 23A of the Federal Reserve Act, (vi)
paying "excessive" compensation or bonuses, and (vii)
paying interest on new or renewed liabilities so as to
increase the institution's weighted average cost of
funds significantly above the prevailing interest
rates for deposits in the institution's normal market.
Capital Distributions. An OTS rule imposes
limitations on all capital distributions by savings
associations (including dividends, stock repurchases
and cash-out mergers). Under the current rule, a
savings association is classified as a Tier 1
institution, a Tier 2 institution or a Tier 3
institution, depending on its level of regulatory
capital both before and after giving effect to a
proposed capital distribution. Under a proposed rule,
the OTS would conform its three classifications to the
five capital classifications set forth under the
prompt corrective action regulations. Under the
proposal, institutions that are at least adequately
capitalized would still be required to provide prior
notice. Well capitalized institutions could make
capital distributions without prior regulatory
approval in specified amounts in any calendar year.
A Tier 1 institution (i.e., one that both before
and after a proposed capital distribution has net
capital equal to or in excess of its capital
requirements) may, subject to any otherwise applicable
statutory or regulatory requirements or agreements
entered into with the regulators, make capital
distributions in any calendar year up to 100% of its
net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus
capital ratio" (i.e., the percentage by which the
association's capital-to-assets ratio exceeds the
ratio of its fully phased-in capital requirement to
its assets) at the beginning of the calendar year. No
regulatory approval of the capital distribution is
required, but prior notice must be given to the OTS.
A Tier 2 institution (i.e., one that both before
and after a proposed capital distribution has net
capital equal to its then-applicable minimum capital
requirement but which fails to meet its fully
phased-in capital requirement either before or after
the distribution) may, after prior notice but without
the approval of the OTS, make capital distributions of
up to: (I) 75% of its net income over the most recent
four quarter period if it satisfies the applicable
risk-based capital standard; or (ii) 50% of its net
income over the most recent four quarter period if it
satisfies the applicable risk-based capital standard.
In calculating an institution's permissible percentage
of capital distributions, previous distributions made
during the previous four quarter period must be
included. Tier 2 institutions may not make capital
distributions in excess of the above limitations
without the prior written approval of the OTS.
<PAGE>
A Tier 3 institution (i.e., one that either
before or after a proposed capital distribution fails
to meet its then applicable minimum capital
requirement) may not make any capital distributions
without the prior written approval of the OTS. In
addition, the OTS may prohibit a proposed capital
distribution, which would otherwise be permitted by
the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound
practice. Also, an institution meeting the Tier 1
criteria which has been notified that it needs more
than normal supervision will be treated as a Tier 2 or
Tier 3 institution, unless the OTS deems otherwise.
LIQUIDITY. Under applicable federal
regulations, savings associations are required to
maintain an average daily balance of liquid assets
(including cash, certain time deposits, certain
bankers' acceptances, certain corporate debt
securities and highly rated commercial paper,
securities of certain mutual funds and specified
United States government, state or federal agency
obligations) equal to a monthly average of not less
than a specified percentage of the average daily
balance of the savings association's net withdrawable
deposits plus short-term borrowings. Under HOLA, this
liquidity requirement may be changed from time to time
by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the deposit
flows of member institutions, and currently is 5%.
Savings institutions also are required to maintain an
average daily balance of short-term liquid assets at a
specified percentage (currently 1%) of the total of
the average daily balance of its net withdrawable
deposits and short-term borrowings.
EQUITY INVESTMENTS. The OTS has revised its
risk-based capital regulation to modify the treatment
of certain equity investments and to clarify the
treatment of other equity investments. Equity
investments that are permissible for both savings
banks and national banks will no longer be deducted
from savings associations' calculations of total
capital over a five-year period. Instead, permissible
equity investments will be placed in the 100% risk-
weight category, mirroring the capital treatment
prescribed for those investments when made by national
banks under the regulations of the OCC. Equity
investments held by savings associations that are not
permissible for national banks must still be deducted
from assets and total capital.
QUALIFIED THRIFT LENDER REQUIREMENT. A federal
savings bank is deemed to be a "qualified thrift
lender" ("QTL") as long as its "qualified thrift
investments" equal or exceed 65% of its "portfolio
assets" on a monthly average basis in nine out of
every 12 months. Qualified thrift investments
generally consist of (I) various housing related loans
and investments (such as residential construction and
mortgage loans, home improvement loans, mobile home
loans, home equity loans and mortgage-backed
securities), (ii) certain obligations of the FDIC
(including the Federal Savings and Loan Insurance
Corporation) and (iii) shares of stock issued by any
FHLB, the FHLMC or the FNMA. In addition, the
following assets may be categorized as qualified
thrift investments in an amount not to exceed 20% in
the aggregate of portfolio assets: (I) 50% of the
dollar amount of residential mortgage loans originated
and sold within 90 days of origination; (ii)
investments in securities of a service corporation
that derives at least 80% of its income from
residential housing finance; (iii) 200% of loans and
investments made to acquire, develop or construct
starter homes or homes in credit needy areas (subject
to certain conditions); (iv) loans for the purchase or
construction of churches, schools, nursing homes and
hospitals; and (v) consumer loans (in an amount up to
20% of portfolio assets). For purposes of the QTL
test, the term "portfolio assets" means the savings
institution's total assets minus goodwill and other
intangible assets, the value of property used by the
savings institution to conduct its business, and
liquid assets held by the savings institution in an
amount up to 20% of its total assets.
<PAGE>
OTS regulations provide that any savings
association that fails to meet the definition of a QTL
must either convert to a national bank charter or
limit its future investments and activities (including
branching and payments of dividends) to those
permitted for both savings associations and national
banks. Further, within one year of the loss of QTL
status, a holding company of a savings association
that does not convert to a bank charter must register
as a bank holding company and will be subject to all
statutes applicable to bank holding companies. In
order to exercise the powers granted to federally
chartered savings associations and maintain full
access to FHLB advances, the Bank must meet the
definition of a QTL.
LOANS TO ONE BORROWER LIMITATIONS. HOLA
generally requires savings associations to comply with
the loans to one borrower limitations applicable to
national banks. National banks generally may make
loans to a single borrower in amounts up to 15% of
their unimpaired capital and surplus, plus an
additional 10% of capital and surplus for loans
secured by readily marketable collateral. HOLA
provides exceptions under which a savings association
may make loans to one borrower in excess of the
generally applicable national bank limits. A savings
association may make loans to one borrower in excess
of such limits under one of the following
circumstances: (I) for any purpose, in any amount not
to exceed $500,000; or (ii) to develop domestic
residential housing units, in an amount not to exceed
the lesser of $30 million or 30% of the savings
association's unimpaired capital and unimpaired
surplus, provided other conditions are satisfied. The
Federal Institutions Reform, Recovery, and Enforcement
Act of 1989 provided that a savings association could
make loans to one borrower to finance the sale of real
property acquired in satisfaction of debts previously
contracted in good faith in amounts up to 50% of the
savings association's unimpaired capital and
unimpaired surplus. The OTS, however, has modified
the third standard by limiting loans to one borrower
to finance the sale of real property acquired in
satisfaction of debts to 15% of unimpaired capital and
surplus. That rule provides, however, that purchase
money mortgages received by a savings association to
finance the sale of such real property do not
constitute "loans" (provided no new funds are advanced
and the savings association is not placed in a more
detrimental position holding the note than holding the
real estate) and, therefore, are not subject to the
loans to one borrower limitations.
<PAGE>
COMMERCIAL REAL PROPERTY LOANS. HOLA limits the
aggregate amount of commercial real estate loans that
a federal savings association may make to an amount
not in excess of 400% of the savings association's
capital.
COMMUNITY REINVESTMENT. Under the Community
Reinvestment Act (the "CRA") and the implementing OTS
regulations, federal savings banks have a continuing
and affirmative obligation to help meet the credit
needs of its local community, including low and
moderate-income neighborhoods, consistent with the
safe and sound operation of the institution. The CRA
requires the board of directors of financial
institutions, such as the Bank, to adopt a CRA
statement for each assessment area that, among other
things, describes its efforts to help meet community
credit needs and the specific types of credit that the
institution is willing to extend. The regulations
promulgated pursuant to CRA, contain three evaluation
tests: (I) a lending test which will compare the
institution's market share of loans in low- and
moderate-income areas to its market share of loans in
its entire service area and the percentage of a bank's
outstanding loans to low- and moderate-income areas or
individuals, (ii) a services test which will evaluate
the provision of services that promote the
availability of credit to low- and moderate-income
areas, and (iii) an investment test, which will
evaluate an institution's record of investments in
organizations designed to foster community
development, small- and minority-owned businesses and
affordable housing lending, including state and local
government housing or revenue bonds. The regulation
is designed to reduce the paperwork requirements of
the current regulations and provide regulators,
institutions and community groups with a more
objective and predictable manner with which to
evaluate the CRA performance of financial
institutions.
FAIR LENDING. Congress and various federal
agencies (including, in addition to the bank
regulatory agencies, the Department of Housing and
Urban Development, the Federal Trade Commission and
the Department of Justice) (collectively the "Federal
Agencies") responsible for implementing the nation's
fair lending laws have been increasingly concerned
that prospective home buyers and other borrowers are
experiencing discrimination in their efforts to obtain
loans. In recent years, the Department of Justice has
filed suit against financial institutions that it
determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from
discriminatory practices. Most, if not all, of these
suits have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an
effort to clarify what constitutes lending
discrimination and to specify the factors the agencies
will consider in determining if lending discrimination
exists, announced a joint policy statement detailing
specific discriminatory practices prohibited under the
Equal Credit Opportunity Act and the Fair Housing Act.
In the policy statement, three methods of proving
lending discrimination were identified: (I) overt
evidence of discrimination, when a lender blatantly
discriminates on a prohibited basis, (ii) evidence of
disparate treatment, when a lender treats applicants
differently based on a prohibited factor even where
there is no showing that the treatment was motivated
by prejudice or a conscious intention to discriminate
against a person, and (iii) evidence of disparate
impact, when a lender applies a practice uniformly to
all applicants, but the practice has a discriminatory
effect, even where such practices are neutral on their
face and are applied equally, unless the practice can
be justified on the basis of business necessity.
<PAGE>
FDIC INSURANCE ASSESSMENT. Federal deposit
insurance is required for all federally chartered
savings associations. Deposits at the Bank are
insured to a maximum of $100,000 for each depositor by
Savings Association Insurance Fund (the "SAIF"). As a
SAIF-insured institution, the Bank is subject to
regulation and supervision by the FDIC, to the extent
deemed necessary by the FDIC to ensure the safety and
soundness of the SAIF. The FDIC is entitled to have
access to reports of examination of the Bank made by
the OTS and all reports of condition filed by the Bank
with the OTS. The FDIC also may require the Bank to
file such additional reports as it determines to be
advisable for insurance purposes. Additionally, the
FDIC may determine by regulation or order that any
specific activity poses a serious threat to the SAIF
and that no SAIF member may engage in the activity
directly.
Insurance premiums are paid in semiannual
assessments. Under a risk-based assessment system,
the FDIC is required to calculate a savings
association's semiannual assessment based on (I) the
probability that the insurance fund will incur a loss
with respect to the institution (taking into account
the institution's asset and liability concentration),
(ii) the potential magnitude of any such loss, and
(iii) the revenue and reserve needs of the insurance
fund. The semiannual assessment imposed on the Bank
may be higher depending on the SAIF revenue and
expense levels, and the risk classification applied to
the Bank. Effective January 1, 1998, the FDIC is
required to set SAIF semiannual assessments rates in
an amount sufficient to increase the reserve ratio of
the SAIF to 1.25% of insured deposits over no more
than a 15-year period. The FDIC also has the
authority to establish a higher reserve ratio.
The deposit insurance assessment rate was
increased from 23 cents per one hundred dollars of
SAIF assessable deposits (generally all insured
accounts subject to certain adjustments) to an
assessment rate within the range of 23 cents to 31
cents, depending on the assessment risk classification
assigned to each institution. Under the
risk-classification system, each SAIF member is
assigned to one of three capital groups: "well
capitalized," "adequately capitalized," or "less than
adequately capitalized," as such terms are defined
under the OTS's prompt corrective action regulation
(discussed above), except that "less than adequately
capitalized" includes any institution that is not well
capitalized or adequately capitalized. Within each
capital group, institutions are assigned to one of
three supervisory subgroups_"healthy" (institutions
that are financially sound with only a few minor
weaknesses), "supervisory concern" (institutions with
weaknesses which, if not corrected could result in
significant deterioration of the institution and
increased risk to the SAIF) or "substantial
supervisory concern" (institutions that pose a
substantial probability of loss to the SAIF unless
corrective action is taken). The FDIC will place each
institution into one of nine assessment risk
classifications based on the institution's capital
group and supervisory subgroup classification.
<PAGE>
Until recently, SAIF premiums had been
equivalent to deposit insurance premiums paid by banks
on deposits to the Bank Insurance Fund ("BIF").
Deposit insurance premiums were set to facilitate each
fund achieving its designated reserve ratios. As each
fund achieves its designated reserve ratio, however,
the FDIC has the authority to lower the premium
assessments for that fund to a rate that would be
sufficient to maintain the designated reserve ratio.
In August 1995, the FDIC determined that the BIF had
achieved its designated reserve ratio and approved
lower BIF premium rates for deposit insurance by the
BIF for all but the riskiest institutions. On
November 14, 1995, the FDIC determined that BIF
deposit insurance premiums for well capitalized banks
would be further reduced to the statutory minimum of
$2,000 per institution per year, effective January 1,
1996. Because the SAIF remained significantly below
its designated reserve ratio, insurance premiums for
assessable SAIF deposits were not reduced in either
FDIC action.
The current financial condition of the SAIF
resulted in the adoption of the Deposit Insurance
Funds Act of 1996 ("DIFA"), which was enacted on
September 30, 1996 as part of the Omnibus Consolidated
Appropriations Act. Under DIFA, a special one-time
assessment of 65.7 cents per $100 of assessable SAIF
deposits was collected on November 27, 1996 and
applied retroactively to SAIF deposits as of March 31,
1995. DIFA provides that special assessments will be
deductible under Section 162 of the Internal Revenue
Code in the year in which the assessment is paid.
After collection of the special assessment, it is
expected that the SAIF would achieve its designated
reserve ratio and SAIF premium rates would then become
the same as BIF rates. DIFA further provides that BIF
and SAIF are to be merged, creating the "Deposit
Insurance Fund," on January 1, 1999, provided that
bank and savings association charters are combined by
that date. The Treasury Department is preparing a
report to be submitted to Congress by March 31, 1997
on the development of a common charter for all insured
depository institutions. See "Supervision and
Regulation - Elimination of Federal Savings Charter."
DIFA further assesses premiums for Financing
Corporation Bond debt service ("FICO"). Beginning
January 1, 1997, FICO premiums for BIF and SAIF will
be 1.3 and 6.4 basis points, respectively. Full
pro rata sharing of FICO will begin no later than
January 1, 2000.
Effective January 1, 1997, SAIF members will
have the same risk-based assessment schedule as BIF
members, which is 0 to 27 cents per $100 of deposits.
FICO assessments of 1.3 cents for BIF deposits and 6.4
cents for SAIF deposits will be added to the BIF-
assessable base and SAIF assessable base,
respectively, until December 31, 1999. Thereafter,
approximately 2.4 cents would be added to each regular
assessment for all insured depositors, thereby
achieving full pro rata FICO sharing.
The SAIF-assessable base previously was assessed
at a rate of 23 to 31 basis points for the fourth
quarter as part of the regular annual deposit
insurance assessment. Following the enaction of DIFA,
the special assessment was booked as an asset by the
FDIC effective October 1, 1996, fully capitalizing
SAIF as of that date. Consequently, the proposed
regular assessment rate for SAIF-member savings
associations has been lowered retroactively to 18 to
27 basis points effective October 1, 1996, which
represents the amount necessary to cover FICO
obligations.
<PAGE>
Until January 1, 1997, under the FDIC's
interpretation of existing law, FICO payments can be
met only from assessments on SAIF-member savings
associations. Overpayment of fourth quarter
assessments from such institutions, estimated at
approximately 1.25 cents per $100 of deposits, will be
refunded or credited, with interest, using regular
quarterly payment procedures.
The federal banking agencies are required to
take action to prevent insured institutions from
facilitating or encouraging the shifting of SAIF
deposits to BIF deposits for purposes of evading the
assessments imposed on SAIF-assessable deposits.
Insurance of deposits may be terminated by the
FDIC after notice and hearing, upon a finding by the
FDIC that the savings association has engaged in
unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has
violated any applicable law, rule, regulation, order
or condition imposed by, or written agreement with,
the FDIC. Additionally, if insurance termination
proceedings are initiated against a savings
association, the FDIC may temporarily suspend
insurance on new deposits received by an institution
under certain circumstances.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System
consists of 12 regional FHLBs, each subject to
supervision and regulation by the Federal Housing
Finance Board (the "FHFB"). The FHLBs provide a
central credit facility for member savings
associations. The maximum amount that the FHLB of
Atlanta will advance fluctuates from time to time in
accordance with changes in policies of the FHFB and
the FHLB of Atlanta, and the maximum amount generally
is reduced by borrowings from any other source. In
addition, the amount of FHLB advances that a savings
association may obtain will be restricted in the event
the institution fails to constitute a QTL.
FEDERAL RESERVE SYSTEM. The Federal Reserve
Board has adopted regulations that require savings
associations to maintain nonearning reserves against
their transaction accounts (primarily NOW and regular
checking accounts). These reserves may be used to
satisfy liquidity requirements imposed by the OTS.
Because required reserves must be maintained in the
form of cash or a non-interest-bearing account at a
Federal Reserve Bank, the effect of this reserve
requirement is to reduce the amount of the Bank's
interest-earning assets.
Savings institutions also have the authority to
borrow from the Federal Reserve "discount window."
Federal Reserve Board regulations, however, require
savings associations to exhaust all FHLB sources
before borrowing from a Federal Reserve bank.
<PAGE>
TRANSACTIONS WITH AFFILIATES RESTRICTIONS.
Transactions engaged in by a savings association or
one of its subsidiaries with affiliates of the savings
association generally are subject to the affiliate
transaction restrictions contained in Sections 23A and
23B of the Federal Reserve Act in the same manner and
to the same extent as such restrictions apply to
transactions engaged in by a member bank or one of its
subsidiaries with affiliates of the member bank.
Section 23A of the Federal Reserve Act imposes both
quantitative and qualitative restrictions on
transactions engaged in by a member bank or one of its
subsidiaries with an affiliate, while Section 23B of
the Federal Reserve Act requires, among other things
that all transactions with affiliates be on terms
substantially the same, and at least as favorable to
the member bank or its subsidiary, as the terms that
would apply to, or would be offered in, a comparable
transaction with an unaffiliated party. Exemptions
from, and waivers of, the provisions of Sections 23A
and 23B of the Federal Reserve Act may be granted only
by the Federal Reserve Board. The HOLA and OTS
regulations promulgated thereunder contain other
restrictions on loans and extension of credit to
affiliates, and the OTS is authorized to impose
additional restrictions on transactions with
affiliates if it determines such restrictions are
necessary to ensure the safety and soundness of any
savings association. Current OTS regulations are
similar to Sections 23A and 23B of the Federal Reserve
Act.
FUTURE REQUIREMENTS. Statutes and regulations
are regularly introduced which contain wide-ranging
proposals for altering the structures, regulations and
competitive relationships of financial institutions.
It cannot be predicted whether or what form any
proposed statute or regulation will be adopted or the
extent to which the business of the Company and the
Bank may be affected by such statute or regulation.
ELIMINATION OF FEDERAL SAVINGS ASSOCIATION
CHARTER. Legislation that would eliminate the federal
savings association charter is under discussion. If
such legislation is enacted, the Bank would be
required to convert its federal savings bank charter
to either a national bank charter or to a state
depository institution charter. Pending legislation
also may provide relief as to recapture of the bad
debt deduction for federal tax purposes that otherwise
would be applicable if the Bank converted its charter,
provided that the Bank meets a proposed residential
loan origination requirement. Various legislative
proposals also may result in the restructuring of
federal regulatory oversight, including, for example,
consolidation of the OTS into another agency, or
creation of a new Federal banking agency to replace
the various such agencies which presently exist. The
Bank is unable to predict whether such legislation
will be enacted or, if enacted, whether it will
contain relief as to bad debt deductions previously
taken.
<PAGE>
Item 2. DESCRIPTION OF PROPERTIES
The executive office of the Company and Bank is
located at 1703 Gloucester Street, Brunswick, Georgia
31520, and its telephone number at that office is
(912) 267-7283. The Bank also has six full-service
branch offices. The following table sets forth the
addresses of the aforementioned offices, their net
book value and the expiration dates of the leases
applicable to the offices not owned by the Bank.
Lease Net
Expiration Book
Office Date Value
- ------- ------------ ------
Executive Office
- ----------------
1703 Gloucester Street
Brunswick, GA 31520 owned $904,694
Full Service Offices
- --------------------
Altama Avenue Office
4510 Altama Avenue
Brunswick, GA 31520 7/28/2007 ---
Demere Village
2461 Demere Road
St. Simons Island, GA
31522 owned $241,218
North Brunswick Office
2001 Commercial Drive South
Brunswick, GA 31525 6/27/97 ---
Wal-Mart SuperCenter
150 Altama Connector
Brunswick, Georgia 31525 10/10/06 ---
Waycross-Plant
1010 Plant Avenue
Waycross, GA 31501 owned $206,429
Blackshear
129 Highway 82 East
Blackshear, GA 31516 owned $30,354
Hinesville
404 South Main
Hinesville, GA 31313 owned $206,430
<PAGE>
Item 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to,
nor is any of their property the subject of, any
material pending legal proceedings, other than
ordinary routine litigation incidental to their
business, and no such proceedings are known to be
contemplated by governmental authorities.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information concerning common stock,
shareholders and dividends appears in the Annual
Report under the heading "Shareholder Information" and
is incorporated by reference herein.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Management's discussion and analysis of the
Company's financial condition and its results of
operations appears in the Annual Report under the
heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and is
incorporated by reference herein.
Item 7. FINANCIAL STATEMENTS
The consolidated financial statements of the
Company and the Bank as of September 30, 1996 and 1995
and for each of the years in the three year period
ended September 30, 1996, and the report issued
thereon by the Company's independent certified public
accountants, appear in the Annual Report and are
incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; Compliance with Section
16(a) of the Exchange Act
Information concerning the Company's and the
Bank's Directors and Executive Officers appears in the
Proxy Statement under the heading "Election of
Directors", "Executive Officers", "Ownership of
Stock", and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" and is incorporated
by reference herein.
Item 10. EXECUTIVE COMPENSATION
Information concerning the compensation of the
Company's and the Bank's Management appears in the
Proxy Statement under the heading "Executive
Compensation" and is incorporated by reference herein.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information concerning beneficial owners of more
than 5% of the Company's common stock appears in the
Proxy Statement under the heading "Ownership of Stock
- - Principal Holders of Stock" and is incorporated by
reference herein.
Information concerning the common stock owned by
the Company's management appears in the Proxy
Statement under the heading "Ownership of Stock -
Stock Owned by Management" and is incorporated by
reference herein.
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Information concerning certain relationships and
related transactions appears in the Proxy Statement
under the heading "Executive Compensation - Certain
Other Transactions" and is incorporated by reference
herein.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The list of documents set forth on the
Exhibit Index that immediately follows
the last signature page hereof is
incorporated herein by reference, and such
documents are filed as exhibits to this report
on Form 10-KSB.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during
the year ended September 30, 1996.
<PAGE>
SIGNATURES
In accordance with 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.
FIRST GEORGIA HOLDING, INC.
(Registrant)
BY: HENRY S. BISHOP
Henry S. Bishop
President
Date: DECEMBER 30, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints
Henry S. Bishop and G.F. Coolidge III, and each of
them, the person's attorneys-in-fact, each with full
power of substitution, for the person in his or her
name, place and stead, in any and all capacities, to
sign any amendment to this Report on form 10-KSB, and
to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities
and Exchange Commission and hereby ratifies and
confirms all that each of said attorneys-in-fact, or
his or her substitute or substitutes, may do or cause
to be done by virtue hereof.
<PAGE>
In accordance with the Securities Exchange Act of
1934, this report has been signed by the following
persons on behalf of the Registrant in the capacities
and on the dates indicated.
Signatures Title Date
- ------------------ -------------- -----------------
HENRY S. BISHOP DECEMBER 30, 1996
Henry S. Bishop President and
Director
(principal executive
officer)
B.W. BOWIE
B.W. Bowie Director DECEMBER 30, 1996
TERRY DRIGGERS
Terry Driggers Director DECEMBER 30, 1996
ROY K. HODNETT
Roy K. Hodnett Director DECEMBER 30, 1996
HUBERT W. LANG, JR
Hubert W. Lang, Jr. Director DECEMBER 30, 1996
E. RAYMOND MOCK
E. Raymond Mock Director DECEMBER 30, 1996
JAMES D. MOORE
James D. Moore Director DECEMBER 30, 1996
D. LAMONT SHESS
D. Lamont Shell Director DECEMBER 30, 1996
G.F. COOLIDGE III
G.F. Coolidge III Chief Financial
Officer (principal DECEMBER 30, 1996
financial and
accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Document Page
- ----------- ---------------------------------- -------
3.(I) Articles of Incorporation of First
Georgia Holding, Inc. incorporated by
reference herein By reference to
Appendix B to the Proxy Statement and
Prospectus included in the
Registration statement on Form S-4
(SEC No. 33-19150), filed
December 18, 1987 ("Form S-4"),
as amended on December 31, 1987
("Amendment No. 1")First Georgia Savings
Bank, F.S.B. is now known as
First Georgia Bank, F.S.B. N/A
3.(ii) Amended By-Laws of First Georgia
Holding, Inc. incorporated by reference
to Exhibit 3(ii) of the Form 10-KSB
for the year ended September 30,
1994 (the "1994 10-KSB") N/A
*10.1 First Georgia Holding, Inc.
1995 Stock Incentive Plan incorporated
by reference to Exhibit 10.1 of the
Form 10-KSB for the year ended
September 30, 1995 (the "1995 10-KSB") N/A
*10.2 First Georgia Holding, Inc.
Employee Stock Purchase Plan
incorporated by reference to
Exhibit 10.2 of the 1995 10-KSB N/A
*10.3 Qualified 401 (k) Standardized
Profit Sharing Plan, Adoption Agreement,
First Georgia Savings Bank, F.S.B.,
incorporated herein by reference to
Exhibit 10.3 of the Form 10-K for the year
ended September 30, 1992 (the "1992 10-K") N/A
*10.4 Qualified Retirement Plan,
Basic Plan Document, First Georgia
Savings Bank, F.S.B., incorporated
herein by reference to Exhibit 10.4
of the 1992 10-K N/A
13 First Georgia Holding, Inc.
1996 Annual Report 48
21 Subsidiaries of First Georgia
Holding, Inc. incorporated by
reference to Exhibit 21.6 of the
Form 10-KSB for the year ended
September 30, 1993 (the "1993 10-KSB) N/A
<PAGE>
Exhibit No. Document Page
- ----------- ---------------------------------- -------
23 Consent of KPMG Peat Marwick LLP 42
24 A power of attorney is set forth on the
signature pages to this Form 10-KSB 44
99.1 The Company's Proxy Statement for
the Annual Meeting of Shareholders (the
"Proxy")To be held January 21, 1997,
incorporated by reference to the
Proxy filed December 30, 1996. N/A
<PAGE>
EXHIBIT 13.0
FIRST GEORGIA HOLDING, INC.
1996 ANNUAL REPORT
<PAGE>
ANNUAL REPORT
First Georgia:
Its Mission and Markets
First Georgia Holding, Inc. owns 100% of the stock of First
Georgia Bank, F.S.B. The Bank is federally chartered and
began operations in January 1984. First Georgia develops
and provides a full range of financial services encompassing
retail banking, real estate, commercial and consumer
lending, and a host of related financial products. The Bank
currently operates eight full service offices in four
Georgia counties.
First Georgia's PRIMARY MISSION is to maximize stockholder
value in a prudent manner. We will concentrate on the
following principles.
We will maintain high levels of asset quality through
conservative lending policies, a vigorous comprehensive
credit administration system and a diversified portfolio of
earning assets. Interest rate risk will be thoroughly
evaluated and controlled.
Our long-term goals for return on equity and assets will be
set at the upper levels of peer bank comparisons. We will
strive to maintain a strong capital base supported by
adequate loan loss reserves.
We will continue to attract and retain exceptional people.
We will deliver the best quality customer service available
in the banking industry. This high level of personal
service is what separates us from our competitors.
Our officers and employees will be encouraged to provide
leadership and support in civic and economic development
activities. We will also strive to assess and serve the
credit needs of each community in which we are located.
We are committed to the overall success of First Georgia.
The proper implementation of these principles will continue
to maximize the value of the Company.
<PAGE>
PRESIDENT'S MESSAGE
Dear Stockholders:
I am pleased once again to report to you the results
from operations of our Company for the year 1996. Our
Company experienced good growth in earnings, loans and
deposits. However, as you will note from the income
statement, we actually recorded a decrease in earnings from
the previous year. This decrease came as a result of a one
time special assessment by the F.D.I.C. charged to all
thrifts nationwide. Our charge to earnings this past year
was in excess of $720,000 which materially impacted our net
income for the year. The good news surrounding this
assessment is that our F.D.I.C. insurance costs will be
dramatically reduced in the future.
I am also pleased to report on two other significant
events that have taken place in our Company within the past
year. We determined that our marketing strategy would be
more productive and profitable by concentrating our
resources within Glynn County. We have signed an agreement
with the Hinesville Bank to purchase our branch located in
Hinesville, and we have now opened a full service branch in
the Wal-Mart Supercenter located in Brunswick.
The opening of our new Wal-Mart branch brings a new
level of banking services to our area as this office will be
open seven days a week. With the addition of our first ATM
located at this branch, we will be providing 24-hour banking
service. Additionally, this expands our branch network in
Glynn County to five offices that are strategically located
to serve the local market.
Our market share in loans and deposits continues to
grow which will translate to positive results in our
earnings.
As you can see, our Company continues to do extremely
well. We look forward to the challenges of 1997 with great
optimism and enthusiasm. As always we appreciate your
support.
Sincerely,
HENRY S. BISHOP
Henry S. Bishop
President
<PAGE>
FIRST GEORGIA HOLDING, INC.
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
September 30, 1996 and 1995 (With Independent Auditors'
Report Thereon)
<PAGE>
CONSOLIDATED BALANCE SHEETS
First Georgia Holding, Inc. and subsidiary
SEPTEMBER 30,
-----------------------
1996 1995
ASSETS --------------- -------------
Cash and cash equivalents $ 2,956,328 2,543,495
Interest bearing deposits in other banks 2,954,350 2,352,183
Investment securities to be held to
maturity, fair value approximately
$10,209,000 and $9,069,000 at
September 30, 1996 and 1995,
respectively (note 2) 10,325,537 9,180,978
Loans receivable, net of allowance
for loan loss of $955,288 and $1,003,569
at September 30 1996 and 1995,
respectively, (notes 3 and 8) 122,431,469 110,432,233
Real estate acquired in settlement
of loans 94,200 206,334
Federal Home Loan Bank stock,
at cost (notes 6 and 8) 1,575,700 1,575,700
Premises and equipment, net (note 4) 3,334,879 3,388,207
Accrued interest receivable (note 5) 852,632 751,108
Intangible assets, net (note 10) 1,276,532 1,408,268
Other assets (note 12) 1,113,646 903,891
--------------- -------------
TOTAL ASSETS $ 146,915,273 132,742,397
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (note 7) $ 121,554,457 106,527,689
Federal Home Loan Bank advances (note 8) 11,100,000 11,948,000
Advance payments by borrowers
for property taxes and insurance 60,619 90,238
Other borrowed money (note 9) 92,000 192,000
Accrued expenses and
other liabilities (notes 7, 12, and 13) 2,192,501 2,859,484
------------- ------------
Total liabilities 134,999,577 121,617,411
------------- ------------
STOCKHOLDERS' EQUITY (notes 11, 12, and 18):
Common stock, $1.00 par value. Authorized
10,000,000 shares; issued and outstanding
2,034,962 and 1,989,962 shares at
September 30, 1996and 1995 respectively 2,034,962 1,989,962
Additional paid-in capital 5,239,851 5,122,843
Retained earnings 4,640,883 4,012,181
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 11,915,696 11,124,986
------------ -------------
Commitments and contingencies (notes 3,
11, 13, 19, and 20)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 146,915,273 132,742,397
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED
STATEMENTS OF OPERATIONS
First Georgia Holding, Inc., and subsidiary
Years Ended September 30,
--------------------------
1996 1995 1994
---------- ---------- ----------
Interest Income:
Loans $ 10,986,155 10,871,713 9,714,327
Mortgage-backed securities 321,798 211,136 79,703
Investment securities 377,934 295,873 277,322
Other 108,029 247,615 141,845
---------- ---------- ----------
Total interest income 11,793,916 11,626,337 10,213,197
---------- ---------- ----------
Interest Expense:
Deposits (note 7) 5,682,330 5,345,453 4,486,147
Advances and other borrowings 867,052 1,061,904 1,057,594
---------- ---------- ----------
Total interest expense 6,549,382 6,407,357 5,543,741
---------- ---------- ----------
Net interest income 5,244,534 5,218,980 4,669,456
Provision for Loan Losses (note 3) 48,104 214,142 39,000
---------- ---------- ----------
Net interest income after provision for
loan losses 5,196,430 5,004,838 4,630,456
---------- ---------- ----------
Other Income:
Loan fees 382,841 451,199 422,821
Deposit service charges 555,174 601,059 625,944
Gain on sale of branch (note 14) - 122,043 -
Other operating income 65,882 94,515 149,254
---------- ---------- ----------
Total other income 1,003,897 1,268,816 1,198,019
---------- ---------- ----------
Other Expenses:
Salaries and employee
benefits (note 15) 1,986,763 1,932,837 1,979,302
Net occupancy expense (note 13) 952,724 904,659 857,201
Data processing 10,572 15,143 16,093
Amortization of intangibles 131,736 143,304 143,304
Loss on sale of foreclosed property - 17,969 52,821
Federal insurance premiums 254,944 281,033 267,500
SAIF special assessment 727,704 - -
Other operating expenses 1,010,132 929,306 925,238
---------- ---------- ----------
Total other expenses 5,074,575 4,224,251 4,241,459
---------- ---------- ----------
Income before income taxes 1,125,752 2,049,403 1,587,016
---------- ---------- ----------
Income Tax Expense (note 12) 364,386 772,315 524,839
---------- ---------- ----------
Net income $ 761,366 1,277,088 1,062,177
========== ========== ==========
Net income per share and common share
equivalent (note 17) $ 0.35 0.62 0.52
========== ========== ==========
Weighted average common shares
outstanding and common share
equivalents 2,167,181 2,043,894 2,047,367
========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
First Georgia Holding, Inc., and subsidiary
Years Ended September 30, 1996, 1995, and 1994
----------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Earnings Total
---------- ---------- ---------- ----------
Balance, September 30, 1993 $ 1,319,141 5,766,164 1,814,074 8,899,379
Three for two stock split
effected as a 50% stock
dividend in 1996 659,571 (659,571) - -
---------- ---------- ---------- ----------
Balance, September 30, 1993,
as adjusted 1,978,712 5,106,593 1,814,074 8,899,379
Exercise of stock
options (note 16) 11,250 16,250 - 27,500
Net income - - 1,062,177 1,062,177
Cash dividends, $.031 per share - - (61,560) 61,560)
---------- ---------- ---------- ----------
Balance, September 30, 1994 1,989,962 5,122,843 2,814,691 9,927,496
Net Income - - 1,277,088 1,277,088
Cash dividends, $.04 per share - - (79,598) (79,598)
---------- ---------- ---------- ----------
Balance, September 30, 1995 1,989,962 5,122,843 4,012,181 11,124,986
Exercise of stock
options (note 16) 45,000 40,125 - 85,125
Income tax benefit resulting
from exercise of stock options - 76,883 - 76,883
Net Income - - 761,366 761,366
Cash dividends,$.067 per share - - (132,664) (132,664)
---------- ---------- ---------- ----------
$2,034,962 5,239,851 4,640,883 11,915,696
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED
STATEMENTS OF CASH FLOWS
First Georgia Holding, Inc. and subsidiary
Years Ended September 30,
---------------------------------------
1996 1995 1994
---------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 761,366 1,277,088 1,062,177
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 48,104 214,142 39,000
Depreciation and amortization, net of
accretion 381,871 425,849 413,326
Amortization of intangibles 131,736 143,304 143,304
Amortization of net deferred loan
costs (fees) 24,672 (106,755) (161,878)
Federal Home Loan Bank stock dividends - - (38,600)
Gain on sale of branch - (122,043) -
(Gain) Loss on sale of real estate
acquired in settlement of loans (505) 17,969 52,821
Deferred income tax (benefit) expense (287,279) 29,959 31,173
Decrease (Increase) in accrued
interest receivable (101,524) (20,244) 124,365
Decrease (Increase) in other assets 154,407 (205,076) (151,062)
(Decrease) Increase in advance
payments by borrowers for property
and insurance (29,619) 8,237 (39,664)
(Decrease) Increase in accrued
expenses and other liabilities (666,983) 364,447 351,834
---------- ----------- -----------
Net cash provided by operating
activities 416,246 2,026,877 1,826,796
---------- ----------- -----------
INVESTING ACTIVITIES
Principal payments received on
mortgage-backed securities 478,221 311,364 422,510
Maturities of investment securities 100,000 1,000,000 -
Purchase of investment securities (1,721,563) (3,030,598) (916,030)
Loan originations, net of principal
repayments (12,375,532) (1,575,594) (99,718)
Purchase of premises and equipment (329,760) (260,405) (74,375)
Proceeds from sale of real estate
acquired in settlement of loans 416,159 1,380,599 397,314
Proceeds from sale of premises and
equipment - 21,008 152,307
---------- ----------- -----------
Net cash used in investing
activities $(13,432,475) (2,153,626) (117,992)
---------- ----------- -----------
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS(Cont'd.)
First Georgia Holding, Inc. and subsidiary
Years Ended September 30,
---------------------------------------
1996 1995 1994
---------- ----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in
deposits $ 15,026,768 9,780,378 (2,845,978)
Net liabilities of branch assumed
by purchaser, net of gain - (2,868,419) -
(Repayments of) Proceeds from other
borrowed money (100,000) (1,048,000) 940,000
Proceeds from FHLB advances 19,600,000 4,000,000 7,800,000
Repayment of FHLB advances (20,448,000) (8,800,000) (6,500,000)
Net proceeds from exercise of
stock options 85,125 - 27,500
Dividends paid (132,664) (79,598) (61,560)
---------- ----------- -----------
Net cash provided by (used in)
financing activities 14,031,229 984,361 (640,038)
---------- ----------- -----------
Increase in cash and
cash equivalents 1,015,000 857,612 1,068,766
Cash and cash equivalents
at beginning of year 4,895,678 4,038,066 2,969,300
---------- ----------- -----------
Cash and cash equivalents
at end of year $ 5,910,678 4,895,678 4,038,066
========== =========== ==========
Supplemental disclosure of cash paid during year for:
Interest $ 6,529,000 6,252,000 5,654,000
Income taxes $ 828,000 538,000 978,000
========== =========== ==========
Supplemental disclosure of non-cash activities:
Loans receivable of approximately $478,000, $1,365,000, and
$191,000 were transferred to real estate acquired in
settlement of loans during the years ended September 30,
1996, 1995, and 1994, respectively.
Sales of real estate acquired in settlement of loans
totaling approximately $173,000, and $127,000 for the years
ended September 30, 1996 and 1994, respectively, were
financed by the Bank.
During 1996, the exercise of stock options resulted in a
$76,883 tax benefit to the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Georgia Holding, Inc.and Subsidiary
September 30, 1996, 1995, 1994
(1) Summary of Significant Accounting Policies
First Georgia Holding, Inc. (the Company) was incorporated
on December 16, 1987 for the purpose of acquiring all of the
issued and outstanding stock of First Georgia Bank, F.S.B.
(the Bank). The accounting and reporting policies of First
Georgia Holding, Inc. and subsidiary conform to generally
accepted accounting principles. The following is a
description of the more significant of those policies which
the Company follows in preparing and presenting its
consolidated financial statements.
(a) Basis of Financial Statement Presentation
The financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing
the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Material estimates that are particularly susceptible to
significant change in the near term relate to the
determination of the allowance for loan losses and the
valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection
with the determination of the allowances for losses on loans
and real estate acquired through foreclosure, management
obtains independent appraisals and reviews available market
data such as comparable sales and recent market trends
through discussions with local real estate professionals.
The consolidated financial statements include the accounts
of the Company and the Bank. All significant intercompany
balances and transactions have been eliminated in
consolidation.
(b) Investment Securities to be Held to Maturity
Effective September 30, 1994, the Company adopted Statement
of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities (SFAS
115). Under SFAS 115, the Company has classified all its
securities as held to maturity securities. Held to maturity
securities are those securities that the Company has the
positive ability and intent to hold until maturity.
Held to maturity securities are recorded at amortized cost
adjusted for the amortization or accretion of premiums and
discounts. Premiums and discounts are amortized or accreted
over the life of the related investment security using a
method which approximates level yield. Purchase premiums
and discounts on mortgage-backed securities are amortized
and accreted to interest income using a method which
approximates level-yield over the remaining lives of the
securities taking into consideration assumed prepayment
patterns.
A decline in the market value of a security below cost that
is deemed other than temporary results in a charge to
earnings and the establishment of a new cost basis for the
security. At September 30, 1996, the Company did not have
any securities with other than temporary impairment for
which a new cost basis had not been established.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(c) Loans and the Allowance for Loan Losses
Loans are reported at principal amounts outstanding, less
unearned income and the allowance for loan losses. Interest
income on loans is recognized on a level-yield basis.
Loans are placed on a nonearning basis when reasonable doubt
exists as to the full, timely collection of interest and
principal or they become contractually in default for 90
days or more as to either interest or principal unless they
are both well secured and in the process of collection.
In May 1993, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 114 Accounting by Creditors for Impairment of a Loan
("SFAS 114"). SFAS 114 requires impaired loans to be
measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, or
at the loan's observable market price, or the fair value of
the collateral if the loan is collateral dependent,
beginning in fiscal 1996. In October 1994, the FASB issued
Statement of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures ("SFAS 118") which amends SFAS
114 to require information about the recorded investment in
certain impaired loans and eliminates its provisions
regarding how a creditor should report income on an impaired
loan. SFAS 118 allows creditors to use existing methods for
recognizing income on impaired loans, including methods
required by certain industry regulators. The Company
adopted SFAS 114 and SFAS 118, on a prospective basis,
effective October 1, 1995. This adoption required no
increase to the allowance for loan losses and had no impact
on net income in 1996.
A loan is considered impaired when it is probable that the
Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. When the
ultimate collectibility of an impaired loan's principal is
in doubt, cash receipts are applied under the contractual
terms of the loan agreement first to principal and then to
interest income. Once the recorded principal balance has
been reduced to zero, future cash receipts are applied to
interest income, to the extent that interest has not been
previously recognized. Future cash receipts are recorded as
recoveries of any amounts previously charged off.
The Bank extends credit to customers throughout its market
area with a concentration in real estate mortgage loans.
The real estate loan portfolio is substantially secured by
properties located throughout Southeast Georgia. Although
the Bank has a diversified loan portfolio, a substantial
portion of its borrowers' ability to repay such loans is
dependent upon the economy in the Bank's market area.
Additions to the allowance for loan losses are charged to
operations based upon management's evaluation of the
potential losses in its loan portfolio. This evaluation
considers the estimated value of the underlying collateral
and such other factors as, in management's judgment, deserve
recognition under existing economic conditions. While
management uses the best information available to make
evaluations, future adjustments to the allowance may be
necessary if conditions differ substantially from the
assumptions used in making the evaluations. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's
allowances for losses on loans and real estate acquired in
settlement of loans. Such agencies may require the Bank to
recognize additions to the allowances based on their
judgments of information available to them at the time of
their examination.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(d) Loan Origination and Commitment Fees
Loan origination fees, net of certain direct origination
costs, are deferred and amortized on a basis that
approximates level yield over the contractual lives of the
underlying loans. In addition, fees for a commitment to
originate or purchase loans are offset against direct loan
origination costs incurred to make such commitments. The
net amounts are deferred and, if the commitment is
exercised, recognized over the life of the related loan as a
yield adjustment or, if the commitment expires unexercised,
recognized as income upon expiration of the commitment.
(e) Real Estate Acquired in Settlement of Loans
Real estate acquired in settlement of loans represents real
estate acquired through foreclosure and is reported at lower
of cost or fair value, adjusted for estimated selling costs.
Fair value is determined on the basis of current appraisals,
comparable sales, and other estimates of value obtained
principally from independent sources. Any excess of the
loan balance at the time of foreclosure over the fair value
of the real estate held as collateral is recorded as a loan
loss. Gain or loss on sale and any subsequent permanent
decline in fair value is recorded in income.
(f) Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is provided on a straight-line
basis over the estimated useful lives of the related
assets.
(g) Income Taxes
The Company files consolidated income tax returns with its
subsidiary.
Deferred tax assets and liabilities are recognized for
temporary differences between the financial reporting basis
of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A
valuation allowance is established for the portion of a
deferred tax asset for which it is more likely than not that
a tax benefit will not be realized.
(h) Statement of Cash Flows
For the purposes of the statement of cash flows, the Company
considers cash on hand and in banks and investments with a
maturity of ninety days or less, at purchase, to be cash
equivalents.
(I) Reclassifications
Certain reclassifications have been made to the 1995 and
1994 consolidated financial statements to conform with the
presentation adopted in 1996.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(j) Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121), which is
effective for fiscal years beginning after December 15,
1995. This statement requires that long-lived assets that
are to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not
be recoverable. In the event that facts and circumstances
indicate that the carrying value of long-lived assets may be
impaired, an evaluation of their recoverability would be
performed and any resulting impairment loss recorded. The
implementation of SFAS 121 is not expected to materially
impact the Company's financial position or results of
operations because the Company periodically evaluates its
commercial property and other assets for impairment using
independent appraisals, cash flow analyses and other
relevant information. The Company has not experienced any
significant impairment losses.
On October 23, 1995, Statement of Financial Accounting
Standard No. 123 (SFAS 123), Accounting for Stock-Based
Compensation was issued. SFAS 123 allows companies to
retain the current approach set forth in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, for recognizing stock-based compensation
expense in the basic financial statements; however,
companies are encouraged to adopt a new accounting method
based on the estimated fair value of employee stock options.
Companies that do not follow the new fair value based method
will be required to provide expanded disclosures in the
footnotes. The Company does not plan to adopt the
recognition provisions of SFAS 123. The disclosure
requirements of SFAS 123 are effective for fiscal years
beginning after December 15, 1995. and the Company intends
to provide such information in expanded disclosures in the
footnotes in fiscal 1997.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(2) Investment Securities
Investment securities to be held to maturity consist of the
following:
Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
September 30, 1996:
U.S. Government Agencies $ 5,500,683 3,107 80,131 5,423,659
Mortgage-backed securities
and SBA's 3,704,854 64,441 81,000 3,688,295
State and municipal 870,000 - 3,210 866,790
Corporate Bonds 250,000 - 20,000 230,000
---------- ---------- ---------- ----------
$ 10,325,537 67,548 184,341 10,208,744
========== ========== ========== ==========
Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
September 30, 1995:
U.S. Government Agencies $ 4,498,377 - 160,587 4,337,790
Mortgage-backed securities
and SBA's 4,182,601 81,754 31,167 4,233,188
State and municipal 500,000 300 2,000 498,300
---------- ---------- ---------- ----------
$ 9,180,978 82,054 193,754 9,069,278
========== ========== ========== ==========
A summary of investment and mortgage-backed securities by maturity as of
September 30, 1996 follows:
Approximate
Amortized Fair
Cost Value
---------- ----------
Within 1 Year $ 3,099,391 3,082,800
After 1 Year through 5 Years 3,153,832 3,112,882
After 5 Years through 10 Years 761,320 770,869
After 10 Years 3,310,994 3,242,193
---------- ----------
$ 10,325,537 10,208,744
========== ==========
The Company did not sell any investments during 1996, 1995,
or 1994.
At September 30, 1996 and 1995, the Company had pledged
$8,245,000 and $5,095,000, respectively, of its securities
to government and municipal depositors.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(3) Loans Receivable
Loans receivable at September 30, are summarized as follows:
1996 1995
----------- -----------
Real estate mortgage loans $ 94,679,525 91,663,176
Real estate construction loans 11,417,553 7,605,089
Consumer loans 9,447,481 9,093,850
Commercial and other loans 7,891,541 6,041,835
----------- -----------
123,436,100 114,403,950
Less:
Undisbursed portion of loans in
process - 2,868,215
Deferred loan fees 17,264 59,500
Unearned interest income 32,079 40,433
Allowance for loan losses 955,288 1,003,569
----------- -----------
$ 122,431,469 110,432,233
=========== ===========
An analysis of the activity in the allowance for loan losses is as
follows:
1996 1995 1994
--------- --------- ---------
Balance at beginning of year $ 1,003,569 983,058 968,784
Provision for loan losses 48,104 214,142 39,000
Recoveries 112,901 84,482 113,055
Losses charged to allowance (209,286) (278,113) (137,781)
--------- --------- ---------
Balance at end of year $ 955,288 1,003,569 983,058
========= ========= =========
As of September 30, 1996 and 1995, outstanding loan
commitments, exclusive of the undisbursed portion of loans
in process amounted to approximately $142,000 and $100,000
respectively, with variable interest rates and $739,000 and
$1,460,000, respectively, in fixed interest rates. The
Bank is also committed to extend standby letters of credit
amounting to approximately $622,000 and $572,000,
respectively, at September 30, 1996 and 1995. In addition,
customers of the Bank have the ability to borrow
approximately $992,000 and $974,000, respectively at
September 30, 1996 and 1995, under existing credit card
agreements. It is the opinion of management that such
commitments do not involve more than the normal risk of
loss.
At September 30, 1996 and 1995, the Bank had nonaccrual
loans aggregating approximately $1,951,000 and $2,061,000,
respectively. The effects of carrying nonaccrual loans
during 1996, 1995, and 1994 resulted in a reduction of
interest income of approximately $93,000, $91,000, and
$119,000, respectively.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(3) Loans Receivable (Cont'd)
As discussed in Note 1, the Company adopted SFAS 114 and
SFAS 118 on October 1, 1995. This adoption required no
increase to the allowance for loan losses and had no impact
on net income for the year ended September 30, 1996.
Impaired loans and related amounts included in the allowance
for loan losses at September 30, 1996 are as follows:
Principal
Balance Allowance
------------- -----------
Impaired loans, with a related allowance $ - -
Impaired loans, without allowance 447,433 -
------------- -----------
Total $ 447,433 -
============= ===========
The allowance amounts were primarily determined using the
fair value of the related collateral.
The average recorded investment in impaired loans for the
year ended September 30, 1996 was
$455, 757. The interest income recognized on impaired loans
for the year ended September 30, 1996 was approximately
$16,990, of which all was recorded on a cash basis.
At September 30, 1996 and 1995, the Bank had no loans held
for sale.
The Bank has direct and indirect loans outstanding to
certain directors and executive officers. All of these
loans were made in the ordinary course of business on
substantially the same terms, including interest rate and
collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more
than the normal credit risk or present other unfavorable
features. The following is a summary of such loans
outstanding and the activity in these loans for 1996:
Balance at September 30, 1995 $ 4,438,741
Repayments (3,166,801)
New borrowings 3,390,948
------------
Balance at September 30, 1996 $ 4,662,888
============
As of September 30, 1996, 1995, and 1994, the Bank was
servicing loans for others aggregating approximately
$2,003,000, $7,346,000, and $3,205,000, respectively.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(4) Premises and Equipment
Premises and equipment at September 30 are summarized as
follows:
1996 1995
--------- ---------
Land $ 730,464 730,464
Buildings and improvements 2,144,940 2,083,675
Building under capital lease 372,902 372,902
Leasehold Improvements 177,851 -
Furniture, equipment, and automobiles 2,276,280 2,185,636
--------- ---------
$ 5,702,437 5,372,677
Less accumulated depreciation
and amortization 2,367,558 1,984,470
--------- ---------
Premises and equipment, net $ 3,334,879 3,388,207
========= =========
(5) Accrued Interest Receivable
Accrued interest receivable at September 30 is summarized as
follows:
1996 1995
------- -------
Loans $ 768,080 690,731
Investment securities 51,913 34,744
Mortgage-backed securities 32,639 25,633
------- -------
$ 852,632 751,108
======= =======
(6) Investments Required by Law
Investment in stock of a Federal Home Loan Bank is carried
at cost and is required of those institutions who utilize
its services. No ready market exists for the stock, and it
has no quoted market value.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(7) Deposits
Deposits are summarized at September 30 as follows:
1996 1995
---------------------- -------------------
Weighted Weighted
Average Average
Balance Rate Balance Rate
----------- ----- ----------- -----
Non-interest demand deposits $ 6,266,901 - 4,602,376 -
Negotiable orders of withdrawal 11,598,046 1.25% 11,606,103 2.41%
Money market deposit accounts 2,410,008 2.35% 2,344,735 2.78%
Savings deposits 4,564,993 2.30% 4,713,420 2.45%
Time deposits:
Six-month money market
certificates 7,522,860 5.89% 3,558,025 3.45%
Certificates greater than
six months 70,893,473 5.32% 67,172,895 6.17%
Jumbo certificates 18,298,176 4.48% 12,530,135 5.34%
----------- ----- ----------- -----
$ 121,554,457 5.05% 106,527,689 5.14%
=========== ===== =========== =====
Interest expense on deposits is summarized as follows:
1996 1995 1994
--------- --------- ---------
Negotiable orders of withdrawal $ 219,520 329,557 335,806
Money market deposit accounts 60,966 86,840 113,324
Savings deposits 108,398 132,734 138,543
Time deposits:
Six-month money market certificates 301,268 186,451 171,095
Certificates greater than six months 4,081,112 3,928,004 3,194,256
Jumbo certificates 930,813 710,217 556,200
--------- --------- ---------
5,702,077 5,373,803 4,509,224
Less:
Early withdrawal penalties 19,747 28,350 23,077
--------- --------- ---------
$ 5,682,330 5,345,453 4,486,147
========= ========= =========
At September 30, 1996 the rates on deposits were as follows:
Negotiable orders of withdrawal 1.25 %
Money market deposit accounts 2.35
Savings deposits 2.30
Time deposits 2.75 - 6.25
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(7) Deposits (Cont'd)
Accrued interest payable on all deposits at September 30,
1996 and 1995 was $547,939 and $527,338, respectively, and
is included in accrued expenses and other liabilities in the
accompanying consolidated financial statements.
As of September 30, 1996, and 1995, the Bank had no brokered
deposits.
The amount and maturities of all time deposits at September
30, 1996 are as follows:
Year ending
September 30, Amount
------------ -----------
1997 $ 20,247,486
1998 50,973,898
1999 16,686,964
2000 7,066,236
2001 1,506,940
After 2001 232,985
-----------
$ 96,714,509
===========
(8) Federal Home Loan Bank Advances
Advances from the Federal Home Loan Bank at September 30 are
summarized as follows:
Due during
year ending Interest
September 30, Rates 1996 1995
------------- --------------- ---------- ----------
1996 4.98% to 8.55% $ - 4,448,000
1997 4.93% to 8.45% 4,000,000 4,000,000
1998 5.32% to 7.27% 4,500,000 2,000,000
1999 5.68% to 6.76% 2,100,000 1,000,000
2002 7.90% 500,000 500,000
---------- -----------
$ 11,100,000 11,948,000
=========== ===========
The weighted average interest rate on Federal Home Loan Bank
advances was 6.44% and 7.10% at September 30, 1996 and 1995,
respectively.
The Bank has the ability to borrow additional funds from the
Federal Home Loan Bank. The advances and any future
borrowings are collateralized by certain qualifying real
estate loans under a security agreement with the Federal
Home Loan Bank. Additionally, all stock of the Federal Home
Loan Bank is pledged as collateral for the advances.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(9) Other Borrowed Money
The Company has a $1.0 million revolving line of credit with
a financial institution expiring in May 1998 at an interest
rate of prime plus one-half percent. The Company has pledged
the outstanding stock of the Bank as collateral for the line
of credit. At September 30, 1996 and 1995, $92,000 and
$192,000, respectively, were outstanding.
(10) Intangible Assets
Intangible assets at September 30 are summarized as follows:
1996 1995
--------- ---------
Customer deposit base $ 1,802,560 1,802,560
Cost in excess of net assets
acquired 566,172 566,172
--------- ---------
2,368,732 2,368,732
Less accumulated amortization 1,092,200 960,464
--------- ---------
$ 1,276,532 1,408,268
========= =========
The intangible assets were generated as a result of the
Company purchasing eight branches of another financial
institution. Such amounts are being amortized on a
straight-line method over the estimated life (19 years) of
the customer deposit base. Four of the eight acquired
branches have been sold, three in 1991 and one in 1995.
Accordingly, the unamortized intangible assets associated
with the sold branches were expensed upon sale.
(11) Stockholders' Equity and Regulatory Matters
The Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) was signed into law on December 19, 1991.
Regulations implementing the prompt corrective action
provisions of FDICIA became effective on December 19, 1992.
In addition to the prompt corrective action requirements,
FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions
including reductions in insurance coverage for certain kinds
of deposits, increased supervision by the Federal regulatory
agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal
controls, accounting and operations.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(11) Stockholders' Equity and Regulatory Matters (Cont'd)
The prompt corrective action regulations define specific
capital categories based on an institution's capital ratios.
The capital categories, in declining order, are "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital
plan with its primary Federal regulator, prohibitions on the
payment of dividends and management fees, restrictions on
executive compensation, and increased supervisory
monitoring, among other things. Other restrictions may be
imposed on the institution either by its primary Federal
regulator or by the Federal Deposit Insurance Corporation,
including requirements to raise additional capital, sell
assets, or sell the entire institution. Once an institution
becomes "critically undercapitalized," it must generally be
placed in receivership or conservatorship within 90 days.
To be considered "well capitalized," an institution must
generally have a leverage ratio of at least 5%, a Tier 1
risk-based capital ratio of at least 6%, and a total risk-
based capital ratio of at least 10%. An institution is
deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
While the Office of Thrift Supervision (OTS) and the
Financial Institutions Reform Recovery and Enforcement Act
of 1989 (FIRREA) minimum capital requirements were not
changed by FDICIA, an OTS regulated thrift rating will be
determined using thresholds associated with the above
capital categories. OTS minimum capital requirements are
1.5% tangible capital, 3% core capital, and 8% risk-based
capital. Therefore, an OTS-regulated thrift could meet all
three of its OTS minimum capital requirements yet still be
"undercapitalized" for purposes of prompt corrective action
under FDICIA.
At September 30, 1996, the Bank was in compliance with all
such capital requirements. The following table summarizes
the regulatory capital requirements and the Bank's
regulatory capital at September 30, 1996.
Minimum required
regulatory capital
Regulatory capital under FIRREA
------------------- ---------------------
% of % of
Amount assets Amount assets
---------- ------ ----------- ------
Tangible $ 10,619,000 7.31% 2,179,000 1.50%
Core 11,896,000 8.12% 4,397,000 3.00%
Risk-based 12,851,000 10.51% 9,781,000 8.00%
At September 30, 1996, the Bank's tangible, core, and risk-
based regulatory capital exceeded the minimum required
regulatory capital under FIRREA by $8,440,000, $7,499,000
and $3,070,000, respectively; furthermore, the Bank was
categorized as "well capitalized" under the aforementioned
FDICIA requirements.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(11) Stockholders' Equity and Regulatory Matters (Cont'd)
A reconciliation of stockholder's equity of the Bank as
disclosed in note 18 to regulatory capital amounts at
September 30, 1996 follows:
Tangible Core Risk-based
---------- ---------- ----------
(unaudited)
Stockholder's equity as
reported in Note 18 $ 11,896,000 11,896,000 11,896,000
Less qualifying
intangible assets (1,277,000) - -
Plus general loan loss
reserves - - 955,000
---------- ---------- ----------
$ 10,619,000 11,896,000 12,851,000
========== ========== ==========
In 1992 the Bank entered into a supervisory agreement with
the OTS. The agreement required the Bank to submit to the
OTS a written plan to improve the Bank's record of
compliance with applicable federal consumer protection laws
and regulations. Effective May 20, 1996, the OTS released
the Bank from this supervisory agreement.
(12) Income Taxes
The components of income tax expense (benefit) attributable
to income from continuing operations are as follows:
1996 1995 1994
------- ------- -------
Federal: Current $ 651,665 742,356 493,666
Deferred (287,279) 29,959 31,173
------- ------- -------
364,386 772,315 524,839
State: Current - - -
------- ------- -------
$ 364,386 772,315 524,839
======= ======= =======
The difference between the actual total provision for income taxes
and income taxes computed at the Federal statutory rate of 34% is as
follows:
1996 1995 1994
------- ------- -------
Computed "expected" tax expense $ 382,756 696,797 539,585
Increase (Decrease) resulting from:
Amortization of intangibles 12,534 10,574 10,574
Tax exempt income (7,957) (8,298) (8,182)
Other, net (22,947) 73,242 (17,138)
-------- -------- --------
$ 364,386 772,315 524,839
======== ======== ========
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(12) Income Taxes (Cont'd)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities as of September 30, 1996 and 1995 are
presented below:
1996 1995
------- -------
Deferred tax assets:
Allowance for loan losses $ 267,021 315,000
Deferred loan fees 6,553 22,586
SAIF assessment accrual 276,237 -
------- -------
Total gross deferred tax assets 549,811 337,586
Less valuation allowance - -
------- -------
Net deferred tax assets 549,811 337,586
------- -------
Deferred tax liabilities:
Depreciation 71,265 146,319
FHLB stock dividends 240,379 240,379
------- -------
Total deferred tax liabilities 311,644 386,698
------- -------
Net deferred tax assets (liabilities) $ 238,167 (49,112)
======= ========
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income
during the periods in which those temporary differences
become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making the
assessment.
Prior to January 1, 1996, under the Internal Revenue Code
("Code") the Company was allowed a special bad debt
deduction related to additions to tax bad debt reserves
established for the purpose of absorbing losses. The
provisions of the Code permitted the Company to deduct from
taxable income an allowance for bad debts based on the
greater of a percentage of taxable income before such
deductions or actual loss experience. Retained earnings at
September 30, 1996 include approximately $248,000 for which
no deferred Federal income tax liability has been
recognized. The amounts represent an allocation of income
for bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt
losses or adjustments arising from carry back of net
operating losses would create income for tax purposes only,
which would be subject to the then current corporate income
tax rate.
On August 20, 1996, President Clinton signed legislation
which will eliminate the percentage of taxable income bad
debt deduction for thrift institutions for tax years
beginning after December 31, 1995. This new legislation
also requires a thrift to generally recapture the excess of
its current tax reserves over its 1987 base year reserves.
As the Company has previously provided deferred taxes on
this amount, no additional financial statement tax expense
should result from this new litigation.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(13) Leases
On September 28, 1987, the Bank entered into a sale-
leaseback of one of its branches. The facility has been
capitalized and the related obligation is recorded in other
liabilities in the accompanying financial statements based
on the present value of future minimum lease payments. The
lease term expires August 28, 2007.
The present value of future minimum capital lease payments
as of September 30, 1996, are:
Year ending
September 30,
-------------
1997 $ 39,348
1998 39,348
1999 39,348
2000 39,348
2001 39,348
2002 and later years 236,088
-------
Total minimum lease payments 432,828
Less amount representing
interest at 10% 170,924
-------
Present value of future minimum
capital lease payments $ 261,904
=======
The Bank is obligated under various noncancelable operating
leases, primarily for operating facilities that expire over the
next fifteen years. The future minimum lease payments under
these operating leases as of September 30, 1996 are as follows:
Year ending
September 30,
--------------
1997 $ 50,480
1998 25,000
1999 25,000
2000 25,000
2001 25,000
2002 and later years 70,313
--------
Total future minimum
lease payments $ 220,793
=======
Total rent expense was approximately $75,000, $16,000, and
$22,000 for the years ended September 30, 1996, 1995, and
1994, respectively.
(14) Sale of Branch
Effective September 22, 1995, the Bank completed the sale of
its Alma branch, which had deposits of $6,660,144, loans
receivable of $3,247,943, and net premises and equipment of
$270,163. This transaction resulted in a gain of $122,043
which is reported separately in the accompanying
consolidated statement of operations.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(15) Employee Benefit Plans
Effective October 1, 1992, the Company adopted a 401(k)
Profit Sharing Plan, (the Plan) which covers substantially
all of its employees. The Company matches 50% of employee
contributions
to the Plan, up to 3% of an employee's salary. The Company
contributed $27,376, $28,852, and $30,517 to the Plan in
1996, 1995, and 1994, respectively.
Effective September 30, 1995, the Company adopted an
Employee Stock Purchase Plan which covers substantially all
of its employees. The Company buys its stock in the open
market for the employees. Employees pay 85% of the price at
which the Company buys the stock. During 1996,
approximately 6,500 shares were purchased by employees. As
a result of such employee stock purchases, the Company
incurred employee benefits expense of approximately $11,000
in 1996.
(16) Stock Option Plan
The Company has a nonqualified Stock Option Plan (the Option
Plan). The remaining number of shares of stock reserved
under the Option Plan is 304,274. The shares will be
available for future issuance upon the exercise of stock
options to be granted to officers and key employees of the
Company under the Option Plan. The following is a summary
of activity in the Option Plan for the periods indicated.
Such amounts have been adjusted to reflect 50% stock
dividends accounted for as 3 for 2 stock splits declared in
each of fiscal 1996 and 1994.
1996 1995 1994
------- ------- -------
Options outstanding at beginning
of period 349,274 154,274 165,524
Options granted - 195,000 -
Options canceled - - -
Options exercised (45,000) - (11,250)
------- ------- -------
Options outstanding at end
of period 304,274 349,274 154,274
======== ======= =======
Option prices per share:
Options granted during period - $4.33-4.77 -
Options canceled - - -
Options exercised $1.45-2.44 - $2.44
Options outstanding at end
of period $2.22-4.77 $1.45-4.77 $1.45-2.44
At September 30, 1996, 189,468 of the options can be
exercised.
(17) Net Income Per Share
Net income per share is based on weighted average shares and
share equivalents of 2,167,181, 2,043,894, and 2,047,367
during the years ended September 30, 1996, 1995 and 1994,
respectively. The dilutive effect of stock options has been
considered in the computation of equivalent shares and is
included from the respective dates of grant. Net income per
share and weighted average shares and equivalent shares
outstanding have been retroactively restated to reflect the
50% stock dividends accounted for as 3 for 2 stock splits
that occurred during each of fiscal 1996 and 1994.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(18) Condensed Financial Information of First Georgia
Holding, Inc. (Parent Only)
First Georgia Holding, Inc., was organized December 16,
1987. The following represents parent company only condensed
financial information.
September 30,
-----------------------
Condensed Balance Sheets 1996 1995
---------- ----------
Assets
Cash $ 34,447 7,486
Other assets 76,883 -
Investment in subsidiary (note 11) 11,896,366 11,309,500
---------- ----------
Total assets $ 12,007,696 11,316,986
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Other borrowed money (note 9) $ 92,000 192,000
Stockholders' Equity
Common stock 2,034,962 1,989,962
Additional paid-in-capital 5,239,851 5,122,843
Retained earnings 4,640,883 4,012,181
---------- ----------
Total liabilities and stockholders'
equity $ 12,007,696 11,316,986
========== ==========
Years ended September 30,
---------------------------------
Condensed Statements of Operations 1996 1995 1994
--------- --------- ---------
Dividends from bank subsidiary $ 194,000 215,000 84,000
Expenses (19,500) (27,807) (25,249)
--------- --------- ---------
Income before equity in undistributed
income of bank subsidiary 174,500 187,193 58,751
Equity in undistributed income of bank
subsidiary 586,866 1,089,895 1,003,426
--------- --------- ---------
Net income $ 761,366 1,277,088 1,062,177
======== ========= =========
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(18) Condensed Financial Information of First Georgia Holding,
Inc. (Parent Only)
Condensed Statements of Cash Flows
Cash flows from operating activities: 1996 1995 1994
------- ------- -------
Net income $ 761,366 1,277,088 1,062,177
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed income
of bank subsidiary (586,867)(1,089,895)(1,003,426)
(Decrease) Increase in accounts
payable - (79,725) 62,925
--------- --------- ----------
Net cash provided by operating
activities 174,499 107,468 121,676
--------- --------- ----------
Cash flows from financing activities:
Dividends paid on common stock (132,664) (79,598) (61,560)
Net proceeds from exercise of stock
options 85,125 - 27,500
Repayments of other borrowed money (100,000) (48,000) (60,000)
--------- --------- ----------
Net cash used in financing activities (147,539) (127,598) (94,060)
--------- --------- ----------
Increase (Decrease) in cash and cash
equivalents 26,960 (20,130) 27,616
Cash and cash equivalents at beginning of
year 7,486 27,616 -
--------- --------- ----------
Cash and cash equivalents at end of
year $ 34,447 7,486 27,616
========= ========= ==========
The primary source of funds available to the parent company
to pay shareholder dividends and other expenses is dividends
from its subsidiary bank. Regulatory agencies impose
restrictions on the amounts of dividends that may be
declared by the subsidiary bank and requires maintenance of
minimum capital amounts (see note 11). The amount of cash
dividends available from the subsidiary bank for payment in
1997, upon regulatory approval, is approximately $3,070,000.
As a result, at September 30, 1996, approximately $8,826,000
of the parent company's investment in the Bank was
restricted as to dividend payments from the Bank to the
parent company under the foregoing regulatory limitations.
(19) Commitments and Contingencies
The Bank is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters
will not have a material adverse effect on the Bank's or the
Company's financial position or results of operations.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(20) Pending Branch Sale
In July 1996, the Bank signed a letter of intent to sell its
branch located in Hinesville Georgia to a local bank in that
area. The sale of approximately $8,400,000 in deposits and
$340,000 in premises and equipment is expected to close
during the first quarter of 1997, subject to regulatory
approval.
(21) Fair Value of Financial Instruments
SFAS 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value of financial
instruments, whether or not recognized on the face of the
balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of
the instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with
precision. Changes in assumptions would significantly
affect the estimates. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its
disclosure requirements. Fair value estimates are based on
existing on and off-balance sheet financial instruments
without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that
are not considered financial instruments. In addition, the
tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of
the estimates. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of
the Company.
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for
financial instruments.
Cash and due from banks, interest-bearing deposits in other
financial institutions, accrued interest receivable: The
carrying amounts approximate those assets' fair values
because of their short-terms to maturity.
Investment securities: Fair values for investment securities
are based on quoted market prices, where available. If
quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and
are of normal credit risk, fair values are considered to
approximate carrying values. The fair values for all other
loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Off-balance sheet instruments: Fair values for the Company's
off-balance sheet instruments are based on a comparison with
terms, including interest rate and commitment periods
currently being offered in similar agreements, taking into
account credit worthiness of the counter parties. The
carrying and fair values of off-balance-sheet instruments at
September 30, 1996, are the same based on the fact that the
Company generally does not offer lending commitments to its
customers for long periods and, therefore, the underlying
rates of the commitments approximate market rates.
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (CONT'D)
First Georgia Holding, Inc. and Subsidiary
(21) Fair Value of Financial Instruments(Cont'd) Deposits:
Fair values for fixed-rate certificates of deposits are
estimated using a discounted cash flow calculation that
considers interest rates currently being offered on
certificates of similar terms to maturity. The carrying
amounts of all other deposits, due to their nature,
approximate their fair value.
Federal Home Loan Bank advances: Fair values for fixed-rate
borrowings from the Federal Home Loan Bank are estimated
using a discounted cash flow calculation that considers
interest rates currently being offered on advances of
similar terms to maturity.
Other Borrowed Money: The carrying amount of the note
payable, which has a variable rate, is assumed to
approximate its fair value.
The following is a summary of the Company's financial
instruments at September 30, 1996:
Carrying Estimated
value fair value
----------- -----------
Assets:
Cash and due from banks $ 2,956,328 2,956,328
=========== ===========
Interest bearing deposits in other
financial institutions 2,954,350 2,954,350
=========== ===========
Investment securities 10,325,537 10,208,744
=========== ===========
Loans 122,431,469 125,114,586
=========== ===========
Liabilities:
Deposits
Noninterest bearing 6,266,901 6,266,901
=========== ===========
Interest bearing demand
and savings 18,573,047 18,573,047
=========== ===========
Time certificates 96,714,509 97,988,140
=========== ===========
Federal Home Loan Bank advances 11,100,000 11,083,890
=========== ===========
Other borrowed money 92,000 92,000
=========== ===========
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Georgia Holding, Inc.
Brunswick, Georgia
We have audited the accompanying consolidated balance sheets
of First Georgia Holding, Inc.
and subsidiary as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-
year period ended September 30, 1996. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these consolidated 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
consolidated 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 First Georgia Holding, Inc. and
subsidiary at September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat
Marwick LLP
Atlanta, Georgia
November 1, 1996
<PAGE>
SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
First Georgia Holding, Inc.
Selected consolidated financial data is presented below as of and for
each of the years in the five-year period ended September 30, 1996.
(Dollars in thousands, except per share data)
September 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ---------- ----------
Balance Sheet Data:
Total assets $ 146,915 132,742 133,870 133,105 139,587
Loans receivable,
net $ 122,431 110,432 113,579 113,420 118,084
Total investments $ 10,326 9,181 7,511 7,070 7,001
Deposits $ 121,554 106,528 103,407 106,736 115,739
Borrowings $ 11,192 12,140 17,988 15,748 13,898
Stockholders'
equity $ 11,916 11,125 9,927 8,899 8,065
Book value
per share $ 5.85 5.59 4.99 4.50 4.08
Number of shares
outstanding 2,034,962 1,989,962 1,989,962 1,978,712 1,978,712
Year Ended
September 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ---------- ----------
Income Statement Data:
Interest income $ 11,794 11,626 10,213 10,807 12,008
Interest expense 6,549 6,407 5,544 6,039 7,318
-------- -------- -------- ---------- ----------
Net interest income 5,245 5,219 4,669 4,768 4,690
Provision for loan
losses 48 214 39 171 300
Other income 1,004 1,268 1,198 1,051 1,308
Other expense 4,347 4,224 4,241 4,551 4,706
SAIF special
assessment 727 - - - -
-------- -------- -------- ---------- ----------
Income before
income taxes and
cumulative change
in accounting
principle 1,127 2,049 1,587 1,097 992
Income tax expense 364 772 525 435 375
-------- -------- -------- ---------- ----------
Income before
cumulative
effect of a change
in accounting
principle 763 1,277 1,062 662 617
Cumulative effect
of a change
in accounting
principle - - - 216 -
-------- -------- -------- ---------- ----------
Net income $ 763 1,277 1,062 878 617
======= ======== ======== ========== ==========
Income per share
before cumulative
effect of a change
in accounting
principle $ 0.35 0.62 0.52 0.33 0.31
Cumulative effect
of a change in
accounting principle - - - 0.12 -
-------- -------- -------- ---------- ----------
Net income
per share $ 0.35 0.62 0.52 0.45 0.31
======= ======== ======== ========== ==========
At or For
Year Ended
September 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ---------- ----------
Other Data:
Net income to
average assets 0.55% 0.95% 0.79% 0.64% 0.43%
Net income to
average equity 6.52% 11.88% 11.04% 10.36% 7.96%
Average equity to
average assets 8.40% 8.01% 7.41% 6.53% 5.66%
Number of
full-service offices 8 6 7 7 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
First Georgia Holding, Inc. and subsidiary
General
First Georgia Holding, Inc. (the Company) was organized in
1987 to acquire the outstanding common stock of First
Georgia Bank, F.S.B. (the Bank or First Georgia). On April
30, 1988, the Company became the sole shareholder of the
Bank and issued its stock to the former Bank shareholders.
Management's Discussion and Analysis which follows, relates
primarily to the Bank since the Company has not had material
operations since it was organized.
First Georgia's net income depends on (a) its net interest
income, which is the difference between its interest income
from loans and investments and its interest expense on
deposits and borrowings, (b) its non-interest income, which
consists principally of fee income generated by First
Georgia's retail banking operations, and (c) its non-
interest expenses, such as employee salaries and benefits.
Interest income on loans and investments (yield) is a
function of the average balances outstanding during the
period and the average rates earned. Interest expense (cost
of funds) is a function of the average amount of deposits
and borrowings outstanding during the period and average
rates paid on such deposits and borrowings. Retail banking
fee income, consisting mainly of recurring fees collected
for deposit-related services rendered by the Bank, varies
with the volume of the Bank's retail banking business. Non-
interest expenses vary primarily with the number of
employees, expansion of facilities and inflation.
Capital Resources
The following is a reconciliation at September 30, 1996 of
the Bank's capital under generally accepted accounting
principles to regulatory capital.
First Georgia Savings Bank
Stockholder's equity $ 11,896,000
Less:
Intangible assets 1,277,000
------------
Tangible Capital 10,619,000
------------
Plus:
Qualifying intangible assets 1,277,000
------------
Core capital 11,896,000
------------
Plus:
General allowance for loan losses 955,000
------------
Risk-based capital $ 12,851,000
Current regulations require financial institutions to have
minimum regulatory tangible capital equal to 1.5% of
adjusted assets, minimum core capital to adjusted assets of
4% (the leverage ratio), and risk-based capital to risk-
adjusted assets of 8.0%. The minimum core capital or
leverage ratio also may be increased by the Office of Thrift
Supervision (the OTS) based on its assessment of the
institution's risk management systems and the level of
overall risk in the individual institution. At September
30, 1996, the Bank was in compliance with its minimum
capital requirements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
The Bank's regulatory capital and the required minimum
amounts, at September 30, 1996, are summarized below.
Bank Required Excess
Capital Minimum Amount (Deficiency)
---------------- -------------- --------------
% $ % $ % $
---- ---------- ---- --------- ---- ---------
Tangible
capital 7.31 10,619,000 1.50 2,179,455 5.81 8,439,545
Core
capital 8.12 11,896,000 4.00 5,863,000 4.12 6,033,000
Risk-based
capital 10.51 12,851,000 8.00 9,780,560 2.51 3,070,440
As of September 30, 1996, the Bank exceeded all the required
minimum capital amounts as demonstrated by the chart above.
The Bank had strong earnings during the year which helped to
strengthen its capital position. The Company secured a line
of credit from another financial institution for an amount
not to exceed $1.0 million. At September 30, 1996 the
Company had $92,000 outstanding on that line at prime plus
one-half percent, which it used to invest in the Bank in
prior years. The Company secured this line of credit with
all the outstanding stock of the Bank.
The Federal Deposit Insurance Corporation Improvement Act
(FDICIA) requires Federal banking agencies to take "prompt
corrective action" with respect to institutions that do not
meet minimum capital requirements. In addition to the
ratios described above, FDICIA introduced an additional
capital measurement, the Tier 1 risk-based capital ratio.
The Tier 1 ratio is the ratio of Tier 1 or core capital to
total risk-adjusted assets. FDICIA establishes five capital
tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." The five capital tiers
established by FDICIA and the regulator's minimum
requirements for each are summarized below.
Total Tier 1
Risk-Based Risk-Based
Capital Ratio Capital Ratio Leverage Ratio
------------- ------------- --------------
Well capitalized 10% or above 6% or above 5% or above
Adequately
capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly
undercapitalized Less than 6% Less than 3% Less than 3%
Critically
undercapitalized - - 2% or less
An institution may be deemed to be in a capitalization
category lower than is indicated by its capital position
based on safety and soundness considerations other than
capital levels.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
At September 30, 1996, the Bank's total risk-based ratio,
tier 1 risk-based ratio and leverage ratio were
10.51%, 9.73%, and 8.12%, respectively, placing the Bank in
the well capitalized category under FDICIA for each ratio.
Liquidity
First Georgia has traditionally maintained levels of
liquidity in excess of levels required by regulatory
authorities. As a member of the Federal Home Loan Bank
system, the Bank is required to maintain a daily average
balance of cash and eligible liquidity investments in an
amount equal to a monthly average of 5% of withdrawable
savings and short term borrowings. The Bank's liquidity
level was 3.94% and 6.10% at September 30, 1996 and 1995,
respectively.
The Bank's operational needs, demand for loan disbursements
and savings withdrawals can be met by loan principal and
interest payments, new deposits and excess liquid assets.
While significant loan demand, deposit withdrawal, increased
delinquencies and increased foreclosed properties could
alter this condition, the Bank has sufficient borrowing
capacity through Federal Home Loan Bank advances and other
short term borrowings to manage such an occurrence.
Management does not foresee any liquidity problems for 1997.
Asset/Liability Management
First Georgia has implemented a program of asset/liability
management to limit the Bank's vulnerability to material and
prolonged increases in interest rates (interest rate risk).
The principal determinant of the exposure of the Bank's
earnings to interest rate risk is the difference in the time
between interest rate adjustments or maturities on interest-
earning assets and interest rate adjustments or maturities
of interest-bearing liabilities. If the maturities of the
Bank's assets and liabilities were perfectly matched and if
the interest rates earned on its assets and paid on its
liabilities moved concurrently, which is not the case, the
impact on net interest income of rapid increases or
decreases in interest rates would be minimized. The Bank's
asset/liability management policy seeks to increase the
adjustability of the interest rates earned on its assets and
paid on its liabilities and to match the maturities of its
interest-earning assets and interest-bearing liabilities so
that the Bank will be able to restructure and reprice its
asset portfolio in a relatively short period to correspond
to changes in its cost and flow of funds. The Bank's policy
also seeks to encourage the flow of deposits into longer
term certificates during periods of lower interest rates and
to emphasize shorter term accounts during periods of high
rates. During fiscal 1996, the Bank actively managed its
interest rate risk by limiting its lending to short-term
fixed rate balloon notes or adjustable rate loans and
lengthening the maturity on its deposits.
It is a policy of First Georgia not to originate for its own
portfolio any long term fixed rate mortgage loans. This
allows First Georgia to better match the maturities of its
assets and liabilities, thereby limiting interest rate risk.
Similarly, the Bank emphasizes the origination of commercial
real estate loans, construction loans, consumer loans and
commercial loans with either adjustable rates or short
maturities.
The interest rate sensitivity of the Bank's assets and
liabilities provides an indication of the extent to which
the Bank's net interest income may be affected by interest
rate movements. The concept of interest rate sensitivity
recognizes that certain assets and liabilities have interest
rates that are subject to change prior to maturity. One
method of measuring the impact of interest rate changes on
net interest income is to measure, in a number of time
frames, the interest sensitivity gap by subtracting interest
rate sensitive liabilities from interest rate sensitive
assets. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities, and is considered
negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive
assets. Generally, during a period of rising interest
rates, a negative gap would adversely affect net interest
income while a positive gap would result in an increase in
net interest income, while conversely during a period of
falling interest rates, a negative gap would result in an
increase in net interest income and a positive gap would
negatively affect net interest income. To the extent that
the gaps are close to zero, net interest income can be
considered to be relatively immune from interest rate
movements. The following table sets forth the Bank's
interest-earning assets and interest-bearing liabilities at
September 30, 1996. The information presented, however, may
not be indicative of actual future trends of net interest
income in rising or declining interest rate environments.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
(in thousands)
Over One Over Five Over Ten
Through Through Through Over
One Year Five Ten Twenty Twenty
or Less Years Years Years Years
------- ------ ----- ----- ------
Interest-earning assets (IEA's):
Taxable investments $ 7,202 786 1,853 484 -
Interest earning deposits 2,954 - - - -
Loans 90,523 25,976 1,449 3,128 2,360
------- ------ ------- ------ -------
Total 100,679 26,762 3,302 3,612 2,360
------- ------ ------- ------ -------
Interest-bearing liabilities (IBL's):
Savings deposits 4,565 - - - -
Other time deposits 20,247 76,234 233 - -
Demand deposits 20,275 - - - -
Debt 4,092 6,600 500 - -
------- ------ ------- ------ -------
Total 49,179 82,834 733 - -
------- ------ ------- ------ -------
Interest sensitivity gap $ 51,500 (56,072) 2,569 3,612 2,360
======= ====== ======= ====== ======
Cumulative gap $ 51,500 (4,572) (2,003) 1,609 3,969
======= ====== ======= ====== ======
Ratio of IEA's to IBL's 2.05 0.32 4.50 - -
======= ====== ======= ====== ======
Cumulative ratio of IEA's to IBL's 2.05 0.97 0.98 1.01 1.03
======= ====== ======= ====== ======
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1996 AND 1995
RESULTS OF OPERATIONS
GENERAL
First Georgia Holding, Inc. reported Net Income of $761,366
in 1996, a decrease of $515,722. This decrease is due
primarily to the special one time SAIF assessment of
$727,704. Net Income before this one time assessment is
$1,212,833. Net Interest Income after Provision for Loan
Losses increased a total of $191,592. Other Income
decreased by a total of $264,919, and other expenses,
exclusive of the SAIF assessment, increased $122,620.
Several factors as discussed below contributed the increases
and decreases in these areas.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
INTEREST INCOME
Total Interest Income increased $167,579 for the year, or
1.44%. The major portion of this rise in Interest Income
was in loans where Interest Income from Loans increased
$114,442 or 1.05%. Average loans increased $1,610,772
during the year ended September 30, 1996, resulting in
higher interest income. Mortgage-backed securities interest
income increased $110,662, or 52.41% and investment
securities income increased by a total of $82,061 or 27.74%.
Because of increased deposit balances and the maturing of
some investments, the Bank was able to shift funds to higher
yielding investments. These investments carry a variable
rate of interest that will tend to move slower than other
rates. Management feels that such investments are prudent
because they tend to protect the Bank from wide interest
rate swings. Other Interest Income decreased by $139,586,
or 56.37%, as the Bank shifted funds from its interest
earning deposits to the higher earning investment
securities.
INTEREST EXPENSE
Total Interest Expense increased $142,025, or 2.22% for the
year. The increase is attributable to an increase in
average deposits of $4,453,923. In anticipation of the sale
of the Hinesville branch, the Bank offered competitive rates
to attract more deposits, which also increased interest
expense. Interest Expense on Advances and Other Borrowings
fell $194,852, or 18.35% as the Bank was able to pay down
the principal on its line of credit by $100,000. The Bank
also paid several advances, as indicated by the drop in the
average balance of advances outstanding by $2,577,660.
YIELDS EARNED AND RATES PAID
Net interest income is affected by (a) the difference
between rates of interest earned on interest-earning assets
and rates of interest paid on interest-bearing liabilities
(interest rate spread) and (b) the relative amounts of
interest-earning assets and interest-bearing liabilities.
When interest-earning assets approximate or exceed interest-
bearing liabilities, any positive interest rate spread will
generate net interest income. Financial institutions have
traditionally used interest rate spreads as a measure of net
interest income. Another indication of an institution's net
interest income is its "net yield on interest-earning
assets" which is net interest income divided by average
interest- earning assets. The following table sets forth
information with respect to weighted average contractual
yields on loans, yields on investments and the cost of funds
on deposits and borrowings for and as of the end of the
periods indicated.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
Year Ended At
September 30, September 30,
------------------------- ----------
(in percentages)
1996 1995 1994 1996
----- ----- ----- -----
Weighted average yield on:
Loans 9.35 9.77 8.71 9.20
Taxable
investment securities 7.35 6.22 3.76 6.03
Interest earning deposits
in other banks 5.89 7.24 3.50 5.41
----- ----- ----- -----
Total weighted average
yield on all
interest-earning assets 9.15 9.46 8.26 9.04
----- ----- ----- -----
Weighted average rate
paid on:
Deposits 5.35 4.95 4.22 5.05
Short term debt 7.27 5.90 3.25 7.12
Long term debt 6.63 6.82 6.76 6.36
----- ----- ----- -----
Total weighted average
rate paid on all
interest-bearing
liabilities 5.23 5.29 4.55 5.08
----- ----- ----- -----
Weighted average interest
rate spread (spread
between weighted average
yield on all
interest-earning assets
and rate paid on all
interest-bearing
liabilities) 3.92 4.17 3.71 3.96
====== ====== ===== =====
Net yield on average
interest-earning assets
(net interest income as
a percentage of average
interest-earning assets) 4.07 4.04 3.81 N/A
====== ====== ===== =====
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's
evaluation of the risk elements inherent in the loan
portfolio. The elements include possible declines in the
value of collateral due to changing economic conditions and
depreciation over time, size and composition of the loan
portfolio, current economic conditions that might affect a
borrower's ability to pay, review of specific problem loans,
findings and recommendations from regulatory examinations,
historical charge-off experience, and levels of non-
performing and past due loans. Management reviews these
elements and determines the level of allowance for loan
losses needed. The $48,104 provision for loan losses
recorded in 1996 represents management's desire to maintain
a prudent level of coverage. At September 30, 1996, the
Bank believes its allowance for loan losses is adequate to
provide for future losses. Table 1 sets forth an analysis
of non-accruing and past due loans as of September 30, 1994
through 1996 while Table 2 provides an analysis of the
allowance for loan losses, showing charge-offs and
recoveries by type of loan as well as the addition to the
allowance.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
Table 1 ANALYSIS OF NON-ACCRUING AND
PAST DUE LOANS
As of September 30,
-------------------------------
1996 1995 1994
--------- --------- ---------
Non-accruing Loans (1)
Real estate
Construction $ - - -
First mortgage 1,766,929 1,876,110 2,375,112
Second mortgage 19,764 82,918 49,169
Consumer 164,118 101,974 115,094
--------- --------- ---------
Total non-accruing loans 1,950,811 2,061,002 2,539,375
--------- --------- ---------
Past Due Loans (2)
Real estate
Construction - - -
First mortgage - 107,140 382,868
Second mortgage - - -
Consumer - 21,990 -
--------- --------- ---------
Total past due loans - 129,130 382,868
--------- --------- ---------
Total non-accruing and
past due loans $ 1,950,811 2,190,132 2,922,243
========= ========= =========
Percentage of total loans 1.58% 1.98% 2.57%
========= ========= =========
Real estate acquired
through foreclosure $ 94,200 206,334 240,281
========= ========= =========
Total non-accruing and
past due loans and
nonperforming assets. $ 2,045,011 2,396,466 3,162,524
========= ========= =========
- --------------------------------------------------------------
(1) Non-accruing loans are loans for which unpaid interest
is not recognized in income.
(2) Past due loans are 90 days or more delinquent for which
interest is still accruing.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
Table 2 ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Year Ended
September 30,
-------------------------------
1996 1995 1994
--------- --------- ---------
Beginning balance $ 1,003,569 983,058 968,784
Loans charged-off:
Real estate construction - - -
Real estate mortgage 152,684 177,417 26,416
Consumer and other 56,602 100,696 111,365
--------- --------- ---------
Total charge-offs 209,286 278,113 137,781
--------- --------- ---------
Recoveries:
Real estate construction - - -
Real estate mortgage 46,547 22,632 29,053
Consumer and other 66,354 61,850 84,002
--------- --------- ---------
Total recoveries 112,901 84,482 113,055
--------- --------- ---------
Net charge-offs 96,385 193,631 24,726
Provision charged to
operations 48,104 214,142 39,000
--------- --------- ---------
Balance at end of period $ 955,288 1,003,569 983,058
========= ========= =========
Ratio of net charge-offs to
average loans outstanding 0.08% 0.17% 0.02%
========= ========= =========
Ratio of allowance to
total loans 0.77% 0.90% 0.87%
========= ========= =========
OTHER INCOME
Other Income decreased $264,919, or 20.88% for the year.
The previous year's gain from the sale of the Alma Branch,
totaling $122,043, was absent this year, causing a portion
of the decrease. The Bank opened a new branch in Glynn
county upon the sale of the Alma office, so the loss of fee
income was not immediately offset as the new branch gained
business. Consequently, loan fees were down $68,358 or
15.15% and deposit fees were down $45,885 or 7.63%. The new
branch is growing steadily and should soon generate fee
income to replace that lost on the sale of the Alma branch.
The Bank continued its efforts to bank only high quality
accounts where non-sufficient fund fees were minimal.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
OTHER EXPENSES
Other Expenses increased $122,620, or 2.90% for the year,
not including the one time SAIF assessment. The FDIC
assessed each thrift institution an amount equal to 65.70
basis points of the institutions deposits at March 31, 1995
in order to recapitalize the SAIF Insurance Fund. The
assessment charged to this institution was $727,704. The
Bank's North Brunswick office opened in late October of
1995. While the branch has seen excellent growth, its
income has not reached a level to offset the expense
incurred in the organization of the branch. Consequently,
salaries expense increased $53,926 or 2.79% and net
occupancy expense increased $48,065 or 5.31%. Loss on the
Sale of Foreclosed Property was down $17,969 because the
Bank was able to keep its foreclosed real estate to a
minimum for most of the year. Amortization of intangibles
decreased by $11,568, or 8.07% resulting from the write off
of the intangible associated with the Alma branch, which was
sold last year. The Bank continued to look for
opportunities to reduce its Other Operating Expenses through
better management of its people and the use of new
technology. The Bank continually examines each phase of its
operation for opportunities to reduce expenses. The Company
incurred $364,386 in income tax expense for the year based
on applicable income tax rates at September 30, 1996.
FINANCIAL CONDITION
Total Assets of the Company increased $14,175,876 from
September 30, 1995 to September 30, 1996. Loans were the
driving force behind this increase, as the net balances grew
$11,999,236, or 10.87%. Loan demand remained strong
throughout fiscal 1996, and Management took advantage of
this demand by offering competitive loan products and
exceptional service. Interest bearing deposits in other
Banks increased $602,167, or 25.60% during 1996. An
increase in deposits caused these short term investments to
grow. Because of high cash balances, the Bank increased its
investment securities by $1,144,559 or 12.47%. The
objective is to earn a return on this money while protecting
the Bank from adverse interest rate risk. The Real Estate
Acquired in Settlement of Loans decreased $112,134, or
54.35%. This continued decrease in Real Estate Owned is
representative of Management's commitment to maintain higher
quality loan business and quick turnaround of its foreclosed
property.
As mentioned previously, total deposits increased
$15,026,768, or 14.11%. This increase represents an
increase in the local market for deposits, leading to more
attractive rates for depositors. With the increase in
deposit balances, the Bank was able to decrease its Federal
Home Loan Bank Advances by $848,000 or 7.10%. Other
Borrowed Money decreased $100,000 during the year due to
increased liquidity.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1995 AND 1994
RESULTS OF OPERATIONS
GENERAL
First Georgia Holding, Inc. reported Net Income of
$1,277,088 in 1995, an increase of $214,911, or 20.23%.
This increase in Net Income came as a result of several
factors. First, the Net Interest Income after Provision for
Loan Losses increased a total of $374,382. Other Income
also increased slightly by a total of $70,797. Other
expenses decreased slightly by a total of $17,208. All these
coming together had a strong positive effect on the
Company's Net Income.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
INTEREST INCOME
Total Interest Income increased $1,413,140 for the year, or
13.84%. The major portion of the rise in Interest Income
was in loans where Total Interest Income from Loans
increased $1,157,386 or 11.91%. While Average Loans
remained virtually unchanged from the previous year, the
yields earned on the various loans increased. Mortgage-
backed Securities Interest Income increased $131,433, or
164.9% as the Bank increased its position in these
securities because of the variable rate most of these
securities carry. This variable rate helps to shield the
Company from adverse interest rate shock. Investment
Securities Income increased by a total of $18,551 or 6.69%
because of shifting of excess funds to investments with
variable interest rates. Management feels that such
investments are prudent because they tend to protect the
Bank from wide interest rate swings. Other Interest Income
increased significantly, by $105,770 or 74.57% for the year.
The Bank held a large amount of cash in its Federal Home
Loan Bank Overnight Account for the funding of the sale of
the Alma branch. This large balance, over six million
dollars near the end of the year, generated a substantial
amount of interest income.
INTEREST EXPENSE
Total Interest Expense increased $863,616, or 15.58% for the
year. The increase is attributable to an increase in
average deposits of over a million dollars and an increase
in the weighted average rate paid on deposits from 4.22% in
1994 to 4.80% in 1995. Increased competition for deposits
in the area contributed to the higher interest rates the
Bank was willing to pay depositors. Interest Expense on
Borrowings rose a modest $4,310 or 0.41%. These borrowings
were in the form of advances from the Federal Home Loan
Bank.
OTHER INCOME
Other Income increased $70,797, or 5.91% for the year. The
gain from the sale of the Alma Branch, totaling $122,043,
was the most significant aspect of Other Income. Loan fees
were up $28,378 (6.71%). Part of this increase came from
the settlement of the sale of servicing rights for certain
loans to another institution. Deposit service charges
continued to decrease during the year, falling a total of
$24,885. The Bank continued its efforts to bank only high
quality accounts where non-sufficient fund fees were
minimal.
OTHER EXPENSE
Other Expenses decreased $17,208, or 0.41% for the year.
This reduction in Other Expenses occurred in several areas.
Salaries and employee benefits were down $46,465, or 2.35%.
The Bank tried to cut costs here by reassigning the duties
of an employee who was leaving to an existing employee
rather than hiring a new person. Loss on the Sale of
Foreclosed Property was down $34,852, or 65.98% because the
Bank was able to keep its foreclosed real estate to a
minimum for most of the year. The Bank acquired a
substantial amount of Furniture, Fixtures, and Equipment,
causing Net Occupancy expense to increase $47,458, or 5.54%
for the year. The Bank continued to look for opportunities
to reduce its Other Operating Expenses through better
management of its people and the use of new technology. The
Bank continually examines each phase of its operation for
opportunities to reduce expenses. The Company accrued
$772,315 in income tax expense for the year based on
applicable income tax rates at September 30, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
FINANCIAL CONDITION
Total Assets of the Company decreased $1,127,633 from
September 30, 1994, to September 30, 1995. The Bank as a
whole grew enough to absorb the sale of over $3,000,000 in
loans and over $6,000,000 in deposits as a result of the
Alma branch sale. Interest bearing deposits in other Banks
increased $1,635,299 during 1995. An increase in deposits
caused these short term investments to be unusually high at
September 30, 1995. Because of high cash balances, the Bank
bought an additional $1,670,180 in investment securities.
The objective is to earn a return on this money while
protecting the Bank from adverse interest rate risk. The
Real Estate Acquired in Settlement of Loans decreased
$33,947, or 14.13%. This continued decrease in Real Estate
Owned is representative of Management's commitment to
resolve more of its loan problems. Premises and equipment
decreased $407,562 (10.74%), due in large part to the sale
of $270,163 in premises and equipment at the Alma branch.
As mentioned previously, total deposits increased
$3,120,234, or 3.02%. This increase represents an increase
in the local market for deposits, leading to more attractive
rates for depositors. The Bank repaid $4,800,000, or
28.66%, in Federal Home Loan Bank Advances due to the
increased deposit demand. Other Borrowed Money decreased
$1,048,000 from during the year due to increased liquidity.
EFFECT OF INFLATION AND CHANGING PRICES
First Georgia's consolidated financial statements and
related data presented herein have been prepared in
accordance with generally accepted accounting principles,
which require the measurement of financial position and
operating results in terms of historical dollars, without
considering changes in the relative purchasing power of
money over time due to inflation. Unlike industrial
companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial
institution's performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of
goods and services. Non-interest expenses, however, do
reflect general levels of inflation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
First Georgia Holding, Inc. and subsidiary
SHAREHOLDER INFORMATION
A limited trading market has developed in the Company's
common stock which is quoted on the NASDAQ (National
Association of Securities Dealers Automated Quotation)
National Market System under the symbol "FGHC." Set forth
below are the high and low sales prices of the Company's
common stock for each full quarterly period since October
1992. Such prices reflect inter-dealer prices, without
retail mark-up, mark-down, or commission, and may not
represent actual transactions.
Quarterly Period High Low
October 1 - December 31, 1994 4 3 1/2
January 1 - March 31, 1995 4 5/8 3 1/2
April 1 - June 30, 1995 4 5/8 4 1/8
July 1 - September 30, 1995 6 1/8 4 1/8
October 1 - December 31, 1995 8 1/8 5 3/4
January 1 - March 31, 1996* 7 5/8 5 3/4
April 1 - June 30, 1996 7 1/4 6
July 1 - September 30, 1996 7 1/4 6
*On February 29, the Company effected a 50%
stock dividend in the form of a 3-for-2 stock
split.
At November 1, 1995, the Company had 264 shareholders of
record. The Company paid cash dividends of $0.067 per share
in December 1995 and $0.04 per share in December 1994. The
primary source of funds available to the Company is the
payment of dividends by the Bank. Banking regulations limit
the amount of dividends that may be paid without prior
approval of the Bank's regulators. Approximately $3,070,000
was available to be paid as dividends by the Bank to the
Company at September 30, 1996 upon regulatory approval.
<PAGE>
OFFICES
--------
1703 Gloucester Street 129 Highway 82, East
Brunswick, Georgia 31520 Blackshear, Georgia
912-267-7283 912-449-4711
4510 Altama Avenue 404 South Main Street
Brunswick, Georgia 31520 Hinesville, Georgia 31313
912-267-0010 912-876-2185
2001 Commercial Drive South 1010 Plant Avenue
Brunswick, Georgia 31525 Waycross, Georgia 31501
912-262-1500 912-287-2265
(Opened October 1995)
2461 Demere Road Wal-Mart Supercenter
St. Simons Island, 150 Altama Connector
Georgia 31522 Brunswick, Georgia 31525
912-638-7118 912-280-9020
(Opened October 1996)
OTHER INFORMATION
------------------
Transfer Agent: Independent Auditors
First Georgia Bank KPMG Peat Marwick LLP
1703 Gloucester Street Suite 2000
Brunswick, Georgia 31520 303 Peachtree Street, N.E.
Atlanta, Georgia 30308
Legal Counsel: Special Counsel:
James A. Bishop Powell, Goldstein,Frazer & Murphy
Suite 401 Sixteenth Floor
First Federal Plaza 191 Peachtree Street, N.E.
Brunswick, Georgia 31520 Atlanta, Georgia 30303
<PAGE>
DIRECTORS AND OFFICERS
----------------------
FIRST GEORGIA HOLDING, INC.
---------------------------
OFFICERS
HENRY S. BISHOP G. FRED COOLIDGE III
President, Chief Secretary and Treasurer
Financial Officer
- -------------------------------------------------------------
DIRECTORS
HENRY S. BISHOP B.W. BOWIE
President, Chief Executive Retired Senior Vice
Officer, First Georgia Holding, President,General
Inc. Manager, and Director
Federal Paper Board Co.
TERRY DRIGGERS ROY K. HODNETT
President, Driggers Construction President, T.H.E., Inc.
Company And The Island Inn
HUBERT W. LANG E. RAYMOND MOCK
President and Manager President, Mock
Building Supply, Inc. Enterprises, Inc.,
Rayette Foods, Inc.,
KTP, Inc.
JAMES D. MOORE D. LAMONT SHELL
President, J.D. Moore, Inc. President, Glynn
Electric Supply Co.
- --------------------------------------------------------------
FIRST GEORGIA BANK, ALTAMA
- --------------------------------------------------------------
ELZIE JACOBS
Vice President
- --------------------------------------------------------------
FIRST GEORGIA BANK, BRUNSWICK
- --------------------------------------------------------------
HENRY S. BISHOP G. FRED COOLIDGE III
President Senior Vice President
Chief Financial Officer
DORIS THOMAS MARK A. WESTBERRY
Vice President, Consumer Vice President, Credit
Lending
LAURA D. FRIEND DIANE A. BLAKEBROUGH
Vice President, Vice President,
Operations Officer Internal Auditor
JUDY DIXON DIANE SHARPE
Assistant Vice President Loan Officer
GEORGE McMANUS JODI TODD
Loan Officer Assistant Vice President
SUSAN USSREY ELI D. MULLIS
Assistant Vice President Assistant Vice President
SHERRYL JAMES
Assistant Vice President
<PAGE>
DIRECTORS AND OFFICERS
----------------------
- --------------------------------------------------------------
FIRST GEORGIA BANK, HINESVILLE
- --------------------------------------------------------------
GERDA BENEDIK
Operations Manager
- --------------------------------------------------------------
FIRST GEORGIA BANK, NORTH BRUNSWICK
- --------------------------------------------------------------
FRED ALEXANDER CHINITA DAVIS
Vice President Assistant Vice President
- --------------------------------------------------------------
FIRST GEORGIA BANK, ST. SIMONS ISLAND
- --------------------------------------------------------------
MEL BAXTER JAN WILDSMITH
Vice President, Assistant Vice President
Commercial Lending Operations Manager
PAUL SANDERS
Assistant Vice President
- --------------------------------------------------------------
FIRST GEORGIA BANK, WAYCROSS/BLACKSHEAR
- --------------------------------------------------------------
JON TAHLIER LINDA R. WALKER
President Assistant Vice President
Operations Manager
PAM TAYLOR
Vice President
<PAGE>
EXHIBIT 23.0
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
First Georgia Holding, Inc.
We consent to incorporation by reference in the
registration statements (No. 33-62245 and No. 33-
62249) on Form S-8 of First Georgia Holding, Inc. of
our report dated November 1, 1996, relating to the
consolidated balance sheets of First Georgia Holding,
Inc. and subsidiary as of September 30, 1996 and 1995,
and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the
years in the three-year period ended September 30,
1996, which report appears in the September 30, 1996
annual report on Form 10-KSB of First Georgia Holding,
Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
December 27, 1996
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2956
<INT-BEARING-DEPOSITS> 2954
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 10325
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<ALLOWANCE> 955
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<DEPOSITS> 121555
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<LONG-TERM> 11192
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<COMMON> 2035
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<INCOME-PRE-EXTRAORDINARY> 1126
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<EPS-PRIMARY> .35
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