U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-21498
LANIER BANKSHARES, INC.
(Name of small business issuer in its charter)
Georgia 58-1814713
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
854 Washington Street, Gainesville, Georgia 30501
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 536-2265
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $1 Per Share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $8,257,695
Aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date within the
past 60 days: $13,800,000 as of March 15, 1998
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 600,000as of
March 15, 1998
Transitional Small Business Disclosure format (check one): Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1997 are incorporated by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders,
scheduled to be held April 22, 1998, are incorporated by reference into
Part III.
TABLE OF CONTENTS
Page
PART I 1
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTIES 23
ITEM 3. LEGAL PROCEEDINGS 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND 23
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 24
ITEM 7. FINANCIAL STATEMENTS 24
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 24
PART III 25
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT 25
ITEM 10. EXECUTIVE COMPENSATION 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 10-KSB 26
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
The Company was incorporated as a Georgia business corporation on
November 3, 1988, and became a bank holding company by acquiring all of the
Common Stock of Lanier National Bank (the "Bank") upon the Bank's formation.
On July 31, 1991, the Company purchased shares representing 51% ownership in
a data processing company, Lanier Data Corporation (the "Data Corporation").
The Company currently owns all of the stock of the Data Corporation. The Bank
and the Data Corporation are presently the only operating subsidiaries of the
Company.
The Company was organized to facilitate the Bank's ability to serve its
customers' requirements for financial services. The holding company structure
provides flexibility for expansion of the Company's banking business through
the possible acquisition of other financial institutions and the provision of
additional banking-related services that a traditional commercial bank may not
provide under present laws. For example, banking regulations require the Bank
to maintain a minimum ratio of capital to assets. In the event that the Bank's
growth prevents it from maintaining this minimum ratio, the Company may borrow
funds, subject to capital adequacy guidelines of the Federal Reserve and
contribute them to the capital of the Bank and otherwise raise capital in a
manner unavailable to the Bank under the existing banking regulations.
The Company has no present plans to acquire any additional operating
subsidiaries. The Company may, however, make additional acquisitions in
the future in the event that the acquisitions are deemed to be in the best
interests of the Company and its shareholders. Such acquisitions, if any,
will be subject to certain regulatory approvals and requirements.
See "Business - Bank Holding Company Regulation."
The Bank
General
The Bank opened for business on August 1, 1989 as a full-service commercial
bank without trust powers. The Bank offers personal and business checking
accounts, interest-bearing checking accounts, savings accounts, and various
types of certificates of deposit. The Bank also offers consumer/installment
loans, construction loans, commercial loans, and home equity lines of credit.
In addition, the Bank provides such services as official bank checks and money
orders, Mastercard credit cards, safe deposit boxes, travelers' checks,
bank-by-mail, direct deposit of payroll and Social Security checks,
U.S. Savings Bonds, wire transfer of funds, and a night depository. The Bank
also offers individual retirement accounts.
- 1 -
<PAGE>
Philosophy
The philosophy of the Bank's management (the "Management") is to emphasize
prompt and responsive personal service to residents of Gainesville, Georgia,
as well as other Hall County communities, in order to attract customers and
acquire market share controlled by other financial institutions in the Bank's
market area. Management conducts an active call program, by which officers
and directors promote these efforts by personally describing the products,
services, and philosophy of the Bank to both existing and new business
prospects. In addition, the Bank President has substantial banking
experience in Hall County which gives the Bank an important asset in its
efforts to provide products and services designed to meet the needs of the
Bank's customer base. All of the Bank's directors are active members of
the business communities in Gainesville and other cities located in Hall
County, and their continued active community involvement provides them with
an opportunity to promote the Bank and its products and
services.
Market Area and Competition
The Bank is located near the center of the Gainesville retail district, which
is anchored by the Lakeshore Mall. In 1995, the Bank opened a full service
branch on Thompson Bridge Road located in Gainesville, Georgia. The Bank's
primary market area is Hall County, Georgia, from which the Bank draws
approximately 95% of its business, and the Bank's marketing efforts are focused
in the cities of Gainesville, Oakwood, and Flowery Branch. The Bank competes
for deposits and loan customers with other financial institutions whose
resources are equal to or greater than those available to the Bank and the
Company. There are thirty-five (35) offices of ten (10) commercial banks
located in Hall County. These financial institutions offer all of the services
that the Bank offers.
Deposits
The Bank offers a wide range of commercial and consumer deposit accounts,
including noninterest-bearing checking accounts, money market checking accounts
(consumer and commercial), negotiable order of withdrawal ("NOW") accounts,
individual retirement accounts, time certificates of deposit, and regular
savings accounts. Sources of deposits are typically residents, businesses,
and business employees within the Bank's market area and are obtained through
personal solicitation by the Bank's officers and directors, direct mail
solicitation, and advertisements published in the local media. The Bank pays
competitive interest rates on time and savings deposits and has implemented a
service charge fee schedule competitive with other financial institutions in
the Bank's market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, and returned checks
charges.
Loan Portfolio
General. The Bank engages in a full complement of lending activities,
including consumer/installment loans and home equity lines of credit,
commercial loans, and construction loans, with particular emphasis on small
business loans. Management believes that the origination of short-term fixed
rate loans and loans tied to floating interest rates is the most desirable
method of conducting its lending activities.
- 2 -
<PAGE>
Consumer Loans. The Bank's consumer loans consist primarily of installment
loans to individuals for personal, family, and household purposes, including
loans for automobiles, home improvement, and investments. Also included as
consumer loans are those loans secured by second priority mortgages on the
residences of borrowers.
Commercial Loans. The Bank's commercial lending is directed principally toward
businesses which are existing deposit customers of the Bank, and whose demands
for funds fall within the Bank's legal lending limits. This category of loans
includes loans made for a variety of business purposes to individual,
partnership, or corporate borrowers. The Bank's commercial loan portfolio
includes approximately $1,422,000 of residential construction loans or
approximately 2.1% of the Bank's loan portfolio. Management has limited this
category of loans because, to a greater extent than other commercial loans,
residential construction loans are sensitive to changes in the economy, and
therefore present greater risk to the Bank.
Investments
As of December 31, 1997, investment securities comprised approximately 19% of
the Bank's assets, with net loans comprising approximately 71% of assets. The
Bank invests primarily in obligations of the United States, obligations
guaranteed as to principal and interest by the United States, other taxable
securities, and certain obligations of states and municipalities. The Bank
also engages in Federal funds transactions with its principal correspondent
banks and anticipates it will primarily act as a net seller of such funds.
The sale of Federal funds amounts to a short-term loan from the Bank to another
bank.
Asset/Liability Management
It is the Bank's objective to manage its assets and liabilities to provide a
satisfactory and consistent level of profitability within the framework of
established cash, loan, investment, borrowing, and capital policies. Certain
Bank officers are responsible for developing and monitoring policies and
procedures that ensure acceptable composition of the asset/liability mix.
Management's overall philosophy is to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by
individuals, partnerships, and corporations. Management seeks to invest the
largest portion of the Bank's assets in consumer/installment, commercial, and
construction loans.
The Bank's asset/liability mix is monitored daily, and a report reflecting
interest-sensitive assets and interest-sensitive liabilities is prepared and
presented to the Bank's Board of Directors monthly. The objective of this
regular review is to control interest-sensitive assets and liabilities so as
to minimize the impact of substantial movements in interest rates on the
Bank's earnings.
The Data Corporation
The Data Corporation was incorporated as a Georgia Business corporation on
July 31, 1991. The Data Corporation rents space from the Bank and presently
provides data processing services to the Bank.
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<PAGE>
Employees
At December 31, 1997, the Company and its subsidiaries employed 37 full-time
employees and 3 part-time employees. The Company considers its relationship
with its employees to be excellent.
Selected Statistical Information
The following statistical information is provided for Lanier Bankshares, Inc.
for the years ended December 31, 1997 and 1996. The data is presented using
daily average balances. This data should be read in conjunction with the
financial statements appearing elsewhere in this Annual Report.
Average Balances and Net Income Analysis
The following tables set forth the amount of the Company's interest income
or interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net
interest spread, and net yield on average interest-earning assets.
- 4 -
<PAGE>
Average Balances. The condensed average balance sheets for the years indicated
are presented below.
December 31,
1997 1996
(Dollars in Thousands)
ASSETS
Cash and due from banks $ 3,637 $ 3,336
Taxable securities 13,328 12,800
Nontaxable securities 6,718 5,254
Federal funds sold 1,763 2,969
Loans (1) 58,177 49,599
Reserve for loan losses (758) (676)
Other assets 5,178 4,995
------- -------
Total assets $ 88,043 $ 78,277
======= =======
Total interest-earning assets $ 79,986 $ 70,622
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 12,247 $ 10,538
Interest-bearing demand 13,007 10,762
Savings 9,363 8,021
Time 42,723 39,730
------- -------
Total deposits $ 77,340 $ 69,051
======= =======
Other borrowings $ 623 $ 494
Other liabilities 1,302 1,211
------- -------
Total liabilities $ 79,265 $ 70,756
Stockholders' equity 8,778 7,521
------- -------
Total liabilities and stockholders' equity $ 88,043 $ 78,277
======= =======
Total interest-bearing liabilities $ 65,716 $ 59,007
======= =======
(1) Average loans include nonaccrual loans.
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<PAGE>
Interest Income and Interest Expense
The following table sets forth the Company's interest income and interest
expense for each category of interest-earning assets and interest-bearing
liabilities and the average interest rate for total interest-earning assets
and total interest-bearing liabilities, net interest spread and net yield on
average interest-earning assets.
Year Ended December 31,
1997 1996
Average Average
Interest Rate Interest Rate
(Dollars in Thousands)
INTEREST INCOME:
Interest and fees on loans (1) $ 6,348 10.91 % $ 5,421 10.93% %
Interest on taxable securities 843 6.33 821 6.41
Interest on nontaxable securities (2) 329 4.90 234 4.45
Interest on Federal funds sold 84 4.76 160 5.39
----- -----
Total interest income 7,604 9.51 6,636 9.40
===== ====
INTEREST EXPENSE:
Interest on interest-bearing demand 450 3.46 405 3.76
Interest on savings 458 4.89 383 4.77
Interest on time deposits 2,593 6.07 2,411 6.07
Interest on other borrowing 46 7.38 44 8.91
----- -----
Total interest expense 3,547 5.40 3,243 5.50
===== =====
NET INTEREST INCOME $ 4,057 $ 3,393
Net interest spread 4.11 % 3.90% %
==== ====
Net yield on average
interest-earning assets 5.07 % 4.80% %
==== ====
(1) Interest and fees on loans include $580,326 and $513,712 of loan fee income
for the years ended December 31, 1997 and 1996, respectively. There was
approximately $21,000 in income recognized on nonaccrual loans in 1996.
There was no income recognized on nonaccrual loans during 1997.
(2) Yields on nontaxable securities have not been computed on a tax equivalent
basis.
- 6 -
<PAGE>
Rate and Volume Analysis. The following table reflects the changes in net
interest income resulting from changes in interest rates and from asset and
liability volume. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to change in average
balances outstanding between years. Thus, changes that are not solely due
to volume have been consistently attributed to rate.
Year Ended December 31,
1997 vs. 1996
Increase Changes Due To
(Decrease) Rate Volume
(Dollars in Thousands)
Interest income
Interest and fees on loans $ 927 $ (9) $ 936
Interest on taxable securities 22 (12) 34
Interest on nontaxable securities 95 25 70
Interest on Federal funds sold (76) (16) (60)
Total interest income 968 (12) 980
Interest expense
Interest on interest-bearing demand 45 (35) 80
Interest on savings 75 10 65
Interest on time deposits 182 - 182
Interest on other borrowings 2 (8) 10
--- --- ---
Total interest expense 304 (33) 337
Net interest income $ 664 $ 21 $ 643
===== ==== =====
Asset/Liability Management. The following table sets forth the distribution of
the repricing of the Company's earning assets and interest-bearing liabilities
as of December 31, 1997, the interest rate sensitivity gap (i.e., interest
rate sensitive assets less interest rate sensitive liabilities), the
cumulative interest rate sensitivity gap, the interest rate sensitivity gap
ratio (i.e., interest rate sensitive assets divided by interest rate
sensitive liabilities) and the cumulative sensitivity gap ratio.
The table also sets forth the time periods in which earning assets and
liabilities will mature or may reprice in accordance with their contractual
terms. However, the table does not necessarily indicate the impact of
general interest rate movements on the net interest margin since the repricing
of various categories of assets and liabilities is subject to competitive
pressures and the needs of the Bank's customers. In addition, various
assets and liabilities indicated as repricing within the same period may in
fact reprice at different times within such period and at different rates.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
After
Three
After
Months One
Year
Within But But
Three Within
Within After
Months One Year Five
Years Five Years Total
(Dollars in
Thousands)
<S> <C> <C> <C>
<C> <C>
Interest-earning assets:
Interest-bearing deposits in banks $ 37 $ - $
- $ - $ 37
Federal funds sold 200 -
- - 200
Securities 1,488 498
6,658 9,120 17,764
Loans 29,124 10,330
28,119 261 67,834
------ ------
- ------ ----- ------
Total interest-earning assets 30,849 10,828
34,777 9,381 85,835
====== ======
====== ====== ======
Interest-bearing liabilities:
Interest-bearing demand deposits 14,784 -
- - 14,784
Savings 10,060 -
- - 10,060
Time deposits 15,255 22,783
7,192 - 45,230
Other borrowings 384 28
401 - 813
------ ------
- ----- ----- ------
Total interest-bearing liabilities 40,483 22,811
7,593 - 70,887
====== ======
====== ====== ======
Interest rate sensitivity gap $ (9,634) $ (11,983)
$27,184 $ 9,381 $ 14,948
====== ======
====== ====== ======
Cumulative interest rate sensitivity gap $ (9,634) $ (21,617) $
5,567 $ 14,948
====== ======
====== ====== ======
Interest rate sensitivity gap ratio 0.76 0.47
4.58 -
====== ======
====== ====== ======
Cumulative interest rate sensitivity gap ratio 0.76 0.66
1.08 1.21
====== ======
====== ====== ======
</TABLE>
The Company actively manages the mix of asset and liability maturities to
control the effects of changes in the general level of interest rates on
net interest income. Except for its effect on the general level of interest
rates, inflation does not have a material impact on the Company due to the rate
variability and short-term maturities of its earning assets. In particular,
approximately 58% of the loan portfolio is comprised of loans which are
variable rate terms or short-term obligations.
Capability of the Company's Data Processing Software to Accommodate the
Year 2000
Like many financial institutions, the Company and its subsidiaries rely upon
computers for the daily conduct of their business and for data processing
generally. There is concern among industry experts that commencing on
January 1, 2000, computers will be unable to "read" the new year and that
there may be widespread computer malfunctions. Management of the Company
has assessed the electronic systems, programs, applications, and other
electronic components used in the operations of the Company and believes
that the Company's hardware and software has been programmed to be able to
accurately recognize the year 2000, and that significant additional costs will
not be incurred in connection with the year 2000 issue, although there can be
no assurances in this regard.
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<PAGE>
<TABLE>
Investment Portfolio
Types of Investments. The amortized cost and approximate fair value of
securities are as follows:
<CAPTION>
Gross Gross
Amortized Unrealized
Unrealized Fair
Cost Gains Losses
Value
<S> <C> <C> <C>
<C>
Securities Available for Sale
December 31, 1997:
U.S. Government and
agency securities $ 6,240 $ 12 $ (5)
$ 6,247
State and municipal securities 2,060 40 -
2,100
Equity securities 482 42 -
524
----- ----- -----
-----
$ 8,782 $ 94 $ (5)
$ 8,871
===== ===== =====
=====
Securities Held for Investment
December 31, 1997:
U.S. Government and
agency securities $ 2,501 $ 5 $ (6)
$ 2,500
State and municipal securities 5,988 121 (2)
6,107
Mortgage-backed securities 404 - (3)
401
----- ----- -----
-----
$ 8,893 $ 126 $ (11)
$ 9,008
===== ===== =====
=====
Securities Available for Sale
December 31, 1996:
U.S. Government and
agency securities $ 6,283 $ 7 $ (37)
$ 6,253
State and municipal securities 2,060 23 (21)
2,062
Mortgage-backed securities 708 - -
708
Equity securities 448 18 -
466
----- ----- -----
-----
$ 9,499 $ 48 $ (58)
$ 9,489
===== ===== =====
=====
Securities Held for Investment
December 31, 1996:
U.S. Government and
agency securities $ 6,532 $ 17 $ (58)
$ 6,491
State and municipal securities 4,469 37 (30)
4,476
Mortgage-backed securities 483 - (8)
475
Equity securities - - -
-
------ ----- -----
------
$ 11,484 $ 54 $ (96)
$ 11,442
====== ===== =====
======
<FN>
<F1>
The Company does not have investments to one issuer totaling more than 10% of
equity.
</FN>
</TABLE>
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<PAGE>
Maturities. The carrying amounts of investment securities in each category as
of December 31, 1997 are shown in the following table according to maturity
classifications (1) one year or less, (2) after one year through five years
and (3) after five years through ten years.
U.S. Treasury and
State and Other U.S.
Political Government
Subdivisions Agencies
Carrying Yield Carrying Yield
Amount (1)(3) Amount (1)(2)
( Dollars in Thousands)
Maturity:
One year or less $ 465 4.12 % $ 1,249 5.33%
After one year through five years 3,331 4.72 5,497 6.31
After five years through ten years 3,593 4.88 2,002 7.11
After ten years 699 5.21 - -
----- -----
$ 8,088 4.80 % $ 8,748 6.35%
===== =====
(1) Yields were computed using coupon interest, adding discount accretion, or
subtracting premium amortization, as appropriate, on a ratable basis
over the life of each security. The weighted average yield for each
maturity range was computed using the acquisition price of each security
in that range.
(2) The above schedule excludes the carrying amounts of mortgage-backed
securities of $404,255 which have portions that mature on a monthly basis
and equity securities totaling $523,914, which have no
contractual maturity.
(2) Yields on state and political subdivision securities have not been computed
on a tax equivalent basis.
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<PAGE>
Loan Portfolio
Types of Loans. The amount of loans outstanding at the indicated dates is
shown in the following table according to type of loans. Management is not
aware of any additional concentrations.
December 31,
1997 1996
(Dollars in Thousands)
Commercial, financial, and agricultural $ 10,053 $ 7,693
Real estate - construction 1,422 5,276
Real estate - mortgage 47,556 30,693
Consumer instalment and others 8,803 7,623
------ ------
67,834 51,285
Allowance for loan losses (837) (707)
------ ------
Loans, net $ 66,997 $ 50,578
====== ======
Maturities and Sensitivity to Changes in Interest Rates. Total loans as of
December 31, 1997 are shown in the following table according to maturity
classifications (1) one year or less, (2) after one year through five years,
and (3) after five years.
(Dollars in
Thousands)
Maturity:
One year or less $ 33,003
After one year through five years 34,570
After five years 261
------
$ 67,834
======
The following table summarizes loans at December 31, 1997 with due dates after
one year which (1) have predetermined interest rates and (2) have floating or
adjustable interest rates.
(Dollars in
Thousands)
Predetermined interest rates $ 28,392
Floating or adjustable interest rates 6,439
------
$ 34,831
======
Records were not available to present the above information in each category
listed in the first paragraph above and could not be reconstructed without
undue burden.
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<PAGE>
Nonperforming Loans. The following table presents, at the dates indicated,
the aggregate of nonperforming loans for the categories indicated.
December 31,
1997 1996
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis $ 97 $ 127
Installment loans and term loans contractually
past due ninety days or more as to interest or
principal payments and still accruing 172 75
Loans, the terms of which have been renegotiated
to provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower - -
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayment terms - -
In the opinion of management, any loans classified by regulatory authorities as
doubtful, substandard, or special mention that have not been disclosed above do
not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms. Any
loans classified by regulatory authorities as loss have been charged off.
Commitments and Lines of Credit. In the ordinary course of business, the Bank
has granted commitments to extend credit to approved customers. Generally,
these commitments to extend credit have been granted on a temporary basis for
seasonal or inventory requirements and have been approved by the Bank's Board
of Directors. The Bank has also granted commitments to approved customers for
standby letters of credit. These commitments are recorded in the financial
statements when funds are disbursed or the financial instruments become
payable. The Bank uses the same credit and collateral policies for these off
balance sheet commitments as they do for financial instruments that are recorded
in the consolidated financial statements. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitment amounts expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
- 12 -
<PAGE>
Following is a summary of the commitments outstanding at December 31, 1997
and 1996.
1997 1996
(Dollars in Thousands)
Commitments to extend credit $ 14,074 $ 6,194
Standby letters of credit 613 816
------ ------
$ 14,687 $ 7,010
====== ======
Summary of Loan Loss Experience
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the
period in which such loans, in management's opinion, become uncollectible.
Recoveries during the period are credited to this allowance. The factors
that influence management's judgment in determining the amount charged to
operating expense are past loan experience, composition of the loan portfolio,
evaluation of possible future losses, current economic conditions, and other
relevant factors. The Company's allowance for loan losses was approximately
$837,000 at December 31, 1997, representing 1.23% of year end total loans
outstanding, compared with $707,000 at December 31, 1996, representing 1.38%
of year end total loans outstanding. The allowance for loan losses is reviewed
continuously based on management's evaluation of current risk characteristics
of the loan portfolio, as well as the impact of prevailing and expected
economic business conditions. Management considers the allowance for loan
losses adequate to cover possible loan losses on the loans outstanding.
Management has not allocated the Company's allowance for loan losses to
specific categories of loans. Based on management's best estimate,
approximately 50% of the allowance should be allocated to real estate loans,
37% to commercial loans, and 13% to consumer loans as of December 31, 1997.
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<PAGE>
The following table presents an analysis of the Company's loan loss experience
for the periods indicated:
December 31,
1997 1996
(Dollars in Thousands)
Average amount of loans outstanding $ 58,177 $ 49,599
====== ======
Balance of reserve for possible loan losses
at beginning of period $ 707 $ 634
------ ------
Charge-offs:
Commercial, financial, and agricultural $ - $ (27)
Consumer (25) (24)
Real estate (16) -
Recoveries:
Consumer 1 4
Real estate - -
------ ------
Net charge-offs $ (40) $ (47)
====== ======
Additions to reserve charged to
operating expenses $ 170 $ 120
====== ======
Balance of reserve for possible loan losses $ 837 $ 707
====== ======
Ratio of net loan charge-offs to average loans 0.07% 0.09%
====== ======
Deposits
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand deposits, savings
deposits, and time deposits, for the periods indicated are presented below.
Year Ended December 31,
1997 1996
Amount Rate Amount Rate
(Dollars in Thousands)
Noninterest-bearing
demand deposits $ 12,247 - % $ 10,538 - %
Interest-bearing demand 13,007 3.46 10,762 3.76
Savings deposits 9,363 4.89 8,021 4.77
Time deposits 42,723 6.07 39,730 6.07
------ ------
Total deposits $ 77,340 $ 69,051
====== ======
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<PAGE>
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1997 are shown below by category, which is based on
time remaining until maturity of (1) three months or less, (2) over three
through twelve months, and (3) over twelve months.
(Dollars in
Thousands)
Three months or less $ 7,237
Over three months through twelve months 9,612
Over twelve months 2,787
------
Total $ 19,636
======
Return on Assets and Shareholders' Equity
The following rate of return information for the periods indicated is
presented below.
Year Ended December 31,
1997 1996
Return on assets (1) 1.60 % 1.39 %
Return on equity (2) 16.02 14.46
Dividend payout ratio (3) 17.78 13.09
Equity to assets ratio (4) 9.97 9.61
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by diluted earnings per common share.
(4) Average equity divided by average total assets.
Supervision and Regulation
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information related to the Company.
- 15 -
<PAGE>
General
The Company is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). As such, the Company and, if
applicable, its non-bank subsidiaries are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior approval
of the Federal Reserve before: (a)it may acquire direct or indirect ownership
or control of any voting shares of any bank if, after such acquisition, the
bank holding company will directly or indirectly own or control more than 5% of
the voting shares of the bank; (b)it or any of its subsidiaries, other than a
bank, may acquire all or substantially all of the assets of any bank; or (c)it
may merge or consolidate with any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of
which may be substantially to lessen competition or to tend to create a
monopoly in any section of the country, or that in any other manner would
be in restraint of trade, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by the public interest in meeting the
convenience and needs of the community to be served. The Federal Reserve is
also required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned and the convenience
and needs of the community to be served. Consideration of financial resources
generally focuses on capital adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that the Company, and any other bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, as of
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state had the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
In response to the Interstate Banking Act, the Georgia General Assembly adopted
the Georgia Interstate Banking Act, which was effective on July 1, 1995. The
Georgia Interstate Banking Act provides that (a) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (b) interstate acquisitions of
institutions located in Georgia will be permitted by institutions in states
that allow national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted the
Georgia Interstate Branching Act which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis as of July 1, 1996. Beginning July 1, 1998, the
number of de novo branches that may be established will no longer be limited.
- 16 -
<PAGE>
The BHC Act generally prohibits the Company from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity
is permissible, the Federal Reserve must consider whether the performance of
such an activity reasonably can be expected to produce benefits to the public,
such as greater convenience, increased competition, or gains in efficiency,
that outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act
does not place territorial limitations on permissible non-banking activities
of bank holding companies. Despite prior approval, the Federal Reserve has
the power to order a holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when it
has reasonable cause to believe that continuation of such activity or such
ownership or control constitutes a serious risk to the financial safety,
soundness, or stability of any bank subsidiary of that bank holding company.
The bank subsidiary of the Company is a member of the Federal Deposit Insurance
Corporation (the "FDIC"), and as such, its deposits are insured by the FDIC to
the maximum extent provided by law. Such subsidiary is also subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations, and it is supervised and examined by one or more
state or federal bank regulatory agencies.
The Office of the Comptroller of the Currency (the "OCC") regularly examines
the operations of the Bank and is given authority to approve or disapprove
mergers, consolidations, the establishment of branches, and similar corporate
actions. The OCC also has the power to prevent the continuance or development
of unsafe or unsound banking practices or other violations of law.
Payment of Dividends
The Company is a legal entity separate and distinct from its banking and other
subsidiaries. The principal sources of cash flow of the Company, including
cash flow to pay dividends to its shareholders, are dividends by the Bank.
There are statutory and regulatory limitations on the payment of dividends by
the Bank to the Company as well as by the Company to its shareholders.
- 17 -
<PAGE>
If, in the opinion of the federal banking regulator, a depository institution
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized.
See "--Prompt Corrective Action." Moreover, the federal agencies have issued
policy statements that provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
At December 31, 1997, under dividend restrictions imposed under federal and
state laws, the Bank, without obtaining governmental approvals, could declare
aggregate dividends to the Company of up to approximately $2,979,000.
The payment of dividends by the Company and the Bank may also be affected or
limited by other factors, such as the requirement to maintain adequate capital
above regulatory guidelines.
Capital Adequacy
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve and the appropriate federal
banking regulator in the case of Bank. There are two basic measures of
capital adequacy for bank holding companies that have been promulgated by
the Federal Reserve: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company to be
considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items
are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio") of
total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least
half of Total Capital must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a
limited amount of loan loss reserves ("Tier 2 Capital"). At December31, 1997,
the Company's consolidated Total Risk-Based Capital Ratio and its Tier 1
Risk-Based Capital Ratio (i.e., the ratio of Tier 1 Capital to
risk-weighted assets) were 15.05% and 13.78%, respectively.
- 18 -
<PAGE>
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating.
All other bank holding companies generally are required to maintain a Leverage
Ratio of at least 3%, plus an additional cushion of 100 to 200 basis points.
The Company's Leverage Ratio at December31, 1997 was 9.62%. The guidelines
also provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
The Bank is subject to risk-based and leverage capital requirements adopted by
the OCC, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies.
The Bank was in compliance with applicable minimum capital requirements as of
December31, 1997. The Company has not been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it or
its subsidiary depository institution.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As
described below, substantial additional restrictions can be imposed upon
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "--Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
In this regard, the Federal Reserve and the FDIC have, pursuant to FDICIA,
recently adopted final regulations, which will become mandatory on
January 1, 1998, requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. The bank regulatory agencies'
methodology for evaluating interest rate risk requires banks with excessive
interest rate risk exposure to hold additional amounts of capital against
such exposures. The market risk rules apply to any bank or bank holding
company whose trading activity equals 10% or more of its total assets, or whose
trading activity equals $1 billion or more.
- 19 -
<PAGE>
Support of Subsidiary Institutions
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength for, and to commit resources to support, each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, the Company may not be inclined to provide it. In addition,
any capital loans by a bank holding company to any of its banking subsidiaries
are subordinate in right of payment to deposits and to certain other
indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(a) the default of a commonly controlled FDIC-insured depository institution or
(b) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally
as the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
subsidiary depository institutions of the Company are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against
the depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
Prompt Corrective Action
FDICIA establishes a system of prompt corrective action to resolve the problems
of undercapitalized institutions. Under this system, which became effective in
December 1992, the federal banking regulators are required to establish five
capital categories (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized) and to take
certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon the
capital category in which the institution is placed. Generally, subject
to a narrow exception, FDICIA requires the banking regulator to appoint a
receiver or conservator for an institution that is critically undercapitalized.
The federal banking agencies have specified by regulation the relevant capital
level for each category.
- 20 -
<PAGE>
<TABLE>
The capital levels established for each of the categories are as follows:
<CAPTION>
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based
Capital Other
<S> <C> <C> <C>
<C>
Well Capitalized 5% or more 10% or more 6% or more
Not subject to
Adequately Capitalized 4% or more 8% or more 4% or more
--
Undercapitalized less than 4% Less than 8% Less than
4% --
Significantly Undercapitalized Less than 3% Less than 6% Less than
3% --
Critically Undercapitalized 2% or less
tangible equity -- --
--
</TABLE>
For purposes of the regulation, the term "tangible equity" includes core
capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible assets
with certain exceptions. A depository institution may be deemed to be in
a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan, subject to certain
limitations. The obligation of a controlling holding company under FDICIA to
fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
At December31, 1997, the Bank had the requisite capital levels to qualify as
well capitalized.
FDIC Insurance Assessments
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories:
(a)well capitalized; (b)adequately capitalized; and (c)undercapitalized.
These three categories are substantially similar to the prompt corrective
action categories described above, with the "undercapitalized" category
including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information
which the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance funds (which may include,
if applicable, information provided by the institution's state supervisor).
An institution's insurance assessment rate is then determined based on the
capital category and supervisory category to which it is assigned. Under the
risk-based assessment system, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied. Assessment rates for members of both
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") for the first half of 1995 ranged from 23 basis points (0.23% of
deposits) for an institution in the highest category (i.e., "well capitalized"
and "healthy") to 31 basis points (0.31% of deposits) for an institution in
the lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period
of time.
- 21 -
<PAGE>
Once the designated ratio for the BIF was reached in May 1995, the FDIC reduced
the assessment rate applicable to BIF deposits in two stages, so that,
beginning in 1996, the deposit insurance premiums for 92% of all BIF members in
the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates had
adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to
raise funds in capital markets and to attract deposits, the Deposit Insurance
Funds Act of 1996 (the "Funds Act") was enacted by Congress as part of the
omnibus budget legislation and signed into law on September 30, 1996. As
directed by the Funds Act, the FDIC implemented a special one-time assessment
of approximately 65.7 basis points (0.657%) on a depository institution's
SAIF-insured deposits held as of March 31, 1995 (or approximately 52.6 basis
points on SAIF deposits acquired by banks in certain qualifying transactions).
In addition, the FDIC has implemented a revision in the SAIF assessment rate
schedule that effected, as of October 1, 1996 (a)a widening in the assessment
rate spread among institutions in the different capital and risk assessment
categories, (b)an overall reduction of the assessment rate range assessable
on SAIF deposits of from 0 to 27 basis points, and (c)a special interim
assessment rate range for the last quarter of 1996 of from 18 to 27 basis
points on institutions subject to Financing Corporation ("FICO") assessments.
Effective January 1, 1997, assessments to help pay off the $780 million in
annual interest payments on the $8 billion FICO bonds issued in the late 1980s
as part of the government rescue of the thrift industry were imposed on both
BIF- and SAIF-insured deposits in annual amounts presently estimated at 1.29
basis points and 6.44 basis points, respectively. Beginning in January 2000,
BIF- and SAIF- insured institutions will share the FICO interest costs at
equal rates currently estimated 2.43 basis points.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated
any applicable law, regulation, rule, order, or condition imposed by the FDIC.
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain wide-ranging
proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be
predicted whether or what form any proposed regulation or statute will be
adopted or the extent to which the business of the Company may be affected
by such regulation or statute.
- 22 -
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's corporate office, the Bank, and the Data corporation are located
at 854 Washington Street, Gainesville, Georgia. The Bank owns the building
without encumbrance. This property consists of a two-story building which
contains approximately 13,600 square feet of heated floor space. The Bank also
owns two branch offices without encumbrance. The first branch office is
located on Mundy Mill Road in south Hall County, and is a single story facility
with approximately 3,000 square feet of heated floor space. The second branch
office is located on Thompson Bridge Road in Gainesville, which opened as a
branch office in February 1995, and contains approximately 3,300 square feet
of heated floor space. The Company is currently constructing branch facilities
on Cleveland Highway in Clermont. The branch will be a single story facility
with approximately 2,000 square feet of heated floor space. The Company has
incurred costs totaling $142,000 on the branch as of December 31, 1997 with
approximately $266,000 in additional costs to complete.
Other than normal real estate commercial lending activities of the Bank, the
Company generally does not invest in real estate, interests in real estate,
real estate mortgages, or securities of or interests in persons primarily
engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer, or affiliate or any principal
security holder of the Company or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The response to this item is partially included in the Company's Annual Report
to shareholders at page 1, and is incorporated herein by reference.
The Company issued and sold (without payment of any selling commission to any
person) unregistered shares of its Common Stock, $1.00 par value, pursuant to
the exemption provided by Section 4(2) of the Securities Act of 1933, as
amended, as follows:
(i) On January 3, 1995, the Company issued 1,000 shares to an
organizing director upon exercise of a warrant to purchase shares of
the Company's Common Stock at an exercise price of $10.00 per share;
- 23 -
<PAGE>
(ii) On May 5, 1996, the Company issued 1,300 shares to an organizing
director upon the exercise of a warrant to purchase shares of the
Company's Common Stock at an exercise price of $10.00 per share; and
(iii) On July 31, 1996, the Company issued 84,374 shares to organizing
directors pursuant to a Warrant Exchange Plan. The Warrant Exchange
Plan provided that organizing directors could exchange warrants for
cash, stock, or a combination of cash and stock. All warrants not
otherwise exchanged or exercised expired on July 31, 1996.
Other than as described above, the Company did not have any sales of
unregistered securities during 1997, 1996, and 1995.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The response to this item is included in the Company's Annual Report to
Shareholders under the heading, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" at pages 31 through 39, and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included in the Company's Annual Report
to Shareholders at pages 1 through 30, and are incorporated herein by reference:
Independent Auditors' Report
Financial Statements
Consolidated Balance Sheets dated as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31, 1997
and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1997
and 1996
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
- 24 -
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held April 22, 1998, under the
headings, "Directors and Executive Officers - Election of Directors - Nominees
and Continuing Directors," at pages 2 through 4, "Security Ownership of Certain
Beneficial Owners and Management," at pages 7 through 10, and are incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held April 22, 1998, under the
heading, "Compensation of Executive Officers and Directors," at pages 4
through 7, and are incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held April 22, 1998, under the
headings, "Security Ownership of Certain Beneficial Owners," at pages 7
through 10, and are incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held April 22, 1998, under the
headings, "Certain Relationships and Related Transactions," at page 11,
and "Compensation of Executive Officers and Directors," at pages 4
through 7, and are incorporated herein by reference.
- 25 -
<PAGE>
ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 10-KSB
(a) Exhibits
Exhibit Number Exhibit
3.1 Articles of Incorporation 1/
3.2 Bylaws 1/
4.1 Instruments Defining the Rights of Security Holders.
See Articles of Incorporation at Exhibit 3.1 hereto and
Bylaws at Exhibit 3.2 hereto.
10.2* Lanier Bankshares, Inc. 1990 Stock Option Plan 2/
10.3 Form or Organizer's Stock Warrant Agreement 1/
10.6 Form of Lanier Bankshares, Inc. Stock Option
Agreement 2/
10.7 Lanier National Bank Director's Indexed Fee
Continuation Program, effective March 13, 1995, and
related form of Director Indexed Fee Continuation
Program, Director Agreement, and related form of
Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement 3/
10.8 Lanier Bankshares, Inc. Warrant Exchange Plan dated
July 11, 1996 5/
13.1 Lanier Bankshares, Inc. 1997 Annual Report to
Shareholders. Except with respect to those portions
specifically incorporated by reference into this
Report, the Company's 1997 Annual Report to
Shareholders is not deemed to be filed as part of
this Report.
21.1 Subsidiaries of Lanier Bankshares, Inc. 4/
24.1 Power of Attorney (appears on the signature pages to
this Annual Report on 10-KSB)
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1995: None
1/ Incorporated herein by reference to exhibit of same number in the
Company's Registration Statement on Form S-18, registration
No. 33-25402-A.
2/ Incorporated herein by reference to exhibit of same number in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
- 26 -
<PAGE>
3/ Incorporated herein by reference to exhibit of the same number in
the Company's Annual report on Form 10-KSB for the year ended
December 31, 1995.
4/ Incorporated herein by reference to exhibit of same number in the
Company's Annual report on Form 10-KSB for the year ended
December 31, 1994.
5/ Incorporated herein by reference to exhibit of same number in the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
* The indicated exhibit is a compensatory plan required to be filed as an
exhibit to this Form 10-KSB.
- 27 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LANIER BANKSHARES, INC.
By: /s/ Joseph D. Chipman, Jr.
Joseph D. Chipman, Jr.
President and Chief
Executive Officer
Date: March 18, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the
signature page to this Report constitutes and appoints Joseph D. Chipman, Jr.
and Jeffrey D. Hunt, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and
in his name, place, and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits hereto, and
other documents in connection herewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
- 28 -
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ John W. Browning, III, M.D. Date March 18, 1998
John W. Browning III, M.D., Director
/s/ Joseph D. Chipman, Jr. Date March 18, 1998
Joseph D. Chipman, Director, President, and
Chief Executive Officer
/s/ Lewis W. Coker Date March 18, 1998
Lewis W. Coker, Director
/s/ C. Edmondson Daniel Date March 18, 1998
C. Edmondson Daniel, Director
/s/ J. Austin Edmondson Date March 18, 1998
J. Austin Edmondson, Director
/s/ Jeffrey D. Hunt Date March 18, 1998
Jeffrey D. Hunt, Senior Vice President and
Secretary (Principal Financial and
Accounting Officer)
/s/ Jerry D. Jackson Date March 18, 1998
Jerry D. Jackson, Director
/s/ Ricky H. Pugh Date March 18, 1998
Ricky H. Pugh, Executive Vice President
/s/ R. Thomas Jarrard Date March 18, 1998
R. Thomas Jarrard, Director
/s/ Carlton W. Rogers, Sr. Date March 18, 1998
Carlton W. Rogers, Sr., Director
/s/ Stewart Teaver Date March 18, 1998
Stewart Teaver, Director
/s/ Mike Wilson Date March 18, 1998
Mike Wilson, Director
- 29 -
<PAGE>
EXHIBIT INDEX
Page Number in
Exhibit Sequentially
Number Exhibit Numbered Copy
3.1 Articles of Incorporation. 1/ N/A
3.2 Bylaws. 1/ N/A
4.1 Instruments Defining the Rights of Security Holders.
See Articles of Incorporation at Exhibit 3.1 hereto and
Bylaws at Exhibit 3.2 hereto. N/A
10.2* Lanier Bankshares, inc. 1990 Stock Option Plan. 2/ N/A
10.3 Form of Organizer's Stock Warrant Agreement 1/ N/A
10.6 Form of Lanier Bankshares, Inc. Stock Option
Agreement 2/ N/A
10.7 Lanier National Bank Director's Indexed Fee
Continuation Program, effective March 13, 1995, and
related form of Director Indexed Fee Continuation
Program, Director Agreement, and related form of
Flexible Premium Life Insurance Endorsement
Method Split Dollar Plan Agreement. 3/
10.8 Lanier Bankshares, Inc. Warrant Exchange Plan,
dated July 11, 1996 5/
13.1 Lanier Bankshares, Inc. 1997 Annual Report to
Shareholders. Except with respect to those portions
specifically incorporated by reference into this
Report, the Company's 1997 Annual Report to
Shareholders is not deemed to be filed as part of this
Report.
21.1 Subsidiaries of Lanier Bankshares, Inc. 4/ N/A
24.1 Power of Attorney (appears on the signature pages to
this Annual Report on 10-KSB).
27.1 Financial Data Schedule.
1/ Incorporated herein by reference to exhibit of same number in the
Company's Registration Statement on Form S-18, registration
No. 33-25402-A.
- 30 -
2/ Incorporated herein by reference to exhibit of same number in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
3/ Incorporated herein by reference to exhibit of same number in the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995.
4/ Incorporated herein by reference to exhibit of same number in the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994.
5/ Incorporated herein by reference to exhibit of same number in the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
* The indicated exhibit is a compensatory plan required to be filed as an
exhibit to this Form 10-KSB.
- 31 -
EXHIBIT 13.1
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statemtns of Cash Flows 5
Notes to Consolidated Financial Statements 7
Managment's Discussion and Analysis 31
Lanier Bankshares, Inc., a Georgia coporation (the "Company"), is a
holding company engaged in commercial banking primarily in Hall County,
Georgia. The Company currently has two subsidiaries. Lanier National
Bank is active in retail and commercial banking. Lanier Data Coporation
is a data processing company and provides such services to Lanier National Bank.
The Company's common stock, $1.00 par value (the "Common Stock"), is
not traded on an established trading market. As of March 13, 1998 there
were 554 holders of record of the Company's Common Stock. The Company paid
a dividend of $.15 on July 11, 1997 to shareholders of record on June 30, 1997
and a dividend of $.25 per share on January 16, 1998 to shareholders of
record as of January 2, 1998. Currently, the Company's sole source of
dividends is the Bank. The Bank is subject to regulation by the Office of the
Comptroller of the Currency (the "OCC"). Statutes and regulations enforced
by the OCC include parameters which define when the Bank may or may not pay
dividends. The prior approval of the OCC is required if the total of all
dividends declared by a national bank in any calendar year exceeds the
Bank's net profits, as defined, for that year combined with its retained
net profits for the preceding two calendar years, less any required
transfers to surplus or a fund for retirement of any preferred stock.
All FDIC insured institutions, regardless of their level of capitalization,
are prohibited from paying any dividend or making any other kind of
distribution if, following the payment or distribution, the institution
would be undercapitalized.
This statement has not been reviewed, or confirmed for accuracy or revelence
by the Federal Deposit Insurance Corporation.
i
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Lanier Bankshares, Inc. and Subsidiaries
Gainesville, Georgia
We have audited the accompanying consolidated balance sheets of
Lanier Bankshares, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity,
and cash flows for the years then ended. These financial statements are
the responsibility of the Company's managment. Our responsibility is
to express an opinion on these financial statemtns 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 financiaol statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Lanier Bankshares, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
February 19, 1998
<PAGE>
LANIER BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets 1997 1996
------ ---- ----
Cash and due from banks $ 4,062,492 $ 5,380,072
Interest-bearing deposits in banks 36,635 53,155
Federal funds sold 200,000 1,800,000
Securities available-for-sale 8,870,631 9,489,072
Securities held-to-maturity (fair value
$9,008,060 and $11,441,995) 8,893,071 11,484,207
Loans 67,834,287 51,285,375
Less allowance for loan losses 837,092 706,852
---------- ----------
Loans, net 66,997,195 50,578,523
Premises and equipment 3,155,562 3,084,665
Other assets 2,256,354 2,068,933
---------- ----------
Total assets $ 94,471,940 $ 83,938,627
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 12,940,461 $ 12,447,966
Interest-bearing demand 14,784,001 11,380,481
Savings 10,059,915 9,525,019
Time, $100,000 and over 19,636,268 18,147,088
Other time 25,594,145 22,345,128
---------- ----------
Total deposits 83,014,790 73,845,682
Obligation under capital lease 88,167 123,146
Other borrowings 724,967 523,170
Other liabilities 1,507,478 1,124,202
---------- ----------
Total liabilities 85,335,402 75,616,200
========== ==========
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1; 10,000,000 shares
authorized; 618,913 issued and outstanding 618,913 618,913
Capital surplus 5,232,969 5,232,102
Retained earnings 3,641,504 2,478,038
Treasury stock, 18,913 shares (415,486) -
Unrealized gains (losses) on securities
available-for-sale, net of tax 58,638 (6,626)
---------- ----------
Total stockholders' equity 9,136,538 8,322,427
---------- ----------
Total liabilities and
stockholders' equity $ 94,471,940 $ 83,938,627
========== ==========
See Notes to Consolidated Financial Statements.
- 2 -
<PAGE>
LANIER BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Interest income
Loans $ 6,348,118 $ 5,421,122
Taxable securities 829,361 815,965
Nontaxable securities 328,625 234,485
Federal funds sold 83,537 160,236
Deposits in banks 14,280 4,729
---------- ----------
Total interest income 7,603,921 6,636,537
---------- ----------
Interest expense
Deposits 3,500,330 3,199,277
Other borrow 46,208 43,847
---------- ----------
Total interest expense 3,546,538 3,243,124
---------- ----------
Net interest income 4,057,383 3,393,413
Provision for loan losses 170,000 120,000
Net interest income after --------- ---------
provision for loan losses 3,887,383 3,273,413
---------- ----------
Other income
Service charges on deposit accounts 526,571 430,655
Net realized gains on sale of securities 6,052 -
Other operating income 121,151 116,616
---------- ----------
Total other income 653,774 547,271
---------- ----------
Other expenses
Salaries and employee benefits 1,434,407 1,292,945
Equipment and occupancy expenses 400,982 375,101
Other operating expenses 652,945 579,475
---------- ----------
Total other expenses 2,488,334 2,247,521
---------- ----------
Income before income taxes 2,052,823 1,573,163
---------- ----------
Income tax expense 646,805 485,928
---------- ----------
Net income $ 1,406,018 $ 1,087,235
========== ==========
Basic earnings per common share $ 2.30 $ 1.91
==== ====
Diluted earnings per common share $ 2.25 $ 1.89
==== ====
See Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
LANIER BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
Unrealized
Gains
(Losses)on
Securities
Available Total
Common Stock Capital Retained Treasury
Stock for-Sale, Stockholders'
Shares Par Value Surplus Earnings Shares
Cost Net of Tax Equity
-------- --------- ----------- ---------- -------
- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Balance,
December 31, 1995 533,239 $533,239 $4,799,151 $1,545,531 -
$ - $17,395 $6,895,316
Net income - - - 1,087,235 -
- - 1,087,235
Cash dividends declared,
$.25 per share - - - (154,728) -
- - (154,728)
Exercise and redemption
of stock warrants 85,674 85,674 432,951 - -
- - 518,625
Net change in unrealized
gains (losses) on
securities available-
for-sale, net of tax - - - - -
- (24,021) (24,021)
------- ------- --------- --------- ------
------- ------- ---------
Balance,
December 31, 1996 618,913 618,913 5,232,102 2,478,038 -
- (6,626) 8,322,427
Net income - - - 1,406,018 -
- - 1,406,018
Cash dividends declared,
$.40 per share - - - (242,552) -
- - (242,552)
Purchase of treasury
stock - - - - 19,780
(434,560) - (434,560)
Sale of treasury stock - - 867 - (867)
19,074 - 19,941
Net change in unrealized
gains (losses) on
securities available-
for-sale - - - - -
- 65,264 65,264
------- ------- --------- --------- ------
------- ------ ---------
Balance,
December 31, 1997 618,913 $618,913 $5,232,969 $3,641,504 18,913
$(415,486) 58,638 $9,136,538
======= ======= ========= ========= ======
======= ====== =========
</TABLE>
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
LANIER BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
OPERATING ACTIVITIES ------------ ------------
Net income $ 1,406,018 $ 1,087,235
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 194,205 186,157
Provision for loan losses 170,000 120,000
Deferred income taxes (55,154) (5,370)
Net realized gains on sale of securities (6,052) -
Increase in interest receivable (49,381) (122,189)
Increase in interest payable 129,450 57,613
Other operating activities 142,048 (120,833)
--------- ---------
Net cash provided by operating
activites 1,931,134 1,202,613
--------- ---------
INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks 16,520 15,850
Purchases of securities available-for-sale (3,852,631) (4,798,042)
Proceeds from sales of securities
available-for-sale 699,320 -
Proceeds from maturities of
securities available-fosale 3,876,688 2,057,570
Purchases of securities held-to-maturity (2,022,880) (6,669,405)
Proceeds from maturities of securities
held-to-maturity 4,614,016 2,167,943
Net decrease in Federal funds sold 1,600,000 1,200,000
Net increase in loans (16,588,672) (1,543,864)
Purchase of premises and equipment (265,102) (267,811)
---------- ---------
Net cash used in investing activities (11,922,741) (7,837,759)
---------- ---------
FINANCING ACTIVITIES
Net increase in deposits 9,169,108 9,069,426
Repayment of obligations under capital lease (34,979) (32,633)
Net proceeds (repayment) of other borrowings 201,797 (350,336)
Net proceeds from exercise and redemption of stock
warrants - 518,625
Purchase of treasury stock (434,560) -
Proceeds from sale of treasury stock 19,941 -
Dividends paid (247,280) (117,462)
---------- ----------
Net cash provided by financing
activities 8,674,027 9,087,620
---------- ---------
- 5 -
<PAGE>
LANIER BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Net increase (decrease) in cash and due from banks $(1,317,580) $ 2,452,474
Cash and due from banks at beginning of year 5,380,072 2,927,598
--------- ---------
Cash and due from banks at end of year $ 4,062,492 $ 5,380,072
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 3,546,538 $ 3,185,512
Income taxes $ 608,592 $ 602,887
NONCASH TRANSACTION
Unrealized (gains) losses on securities
available-for-sale $ (98,883) $ 36,395
See Notes to Consolidated Financial Statements.
- 6 -
<PAGE>
LANIER BANKSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Lanier Bankshares, Inc. (the Company) is a bank holding company whose business
is conducted by its wholly-owned subsidiaries, Lanier National Bank (the Bank)
and Lanier Data Corporation. The Bank is a commercial bank located in
Gainesville, Hall County, Georgia. The Bank provides a full range of banking
services in its primary market area of Hall County and the surrounding
counties. Lanier Data Corporation provides data processing services to the
Bank.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the financial
services industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts and
disclosures of assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results could differ from those
estimates.
Cash and Due From Banks
Cash on hand, cash items in process of collection, and amounts due from banks
are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Company has not experienced any losses in such
accounts.
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost.
All other debt securities are classified as available-for-sale and carried at
fair value with net unrealized gains and losses included in stockholders'
equity, net of tax. Marketable equity securities are carried at fair value
with net unrealized gains and losses included in stockholders' equity. Other
equity securities without a readily determinable fair value are carried at cost.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
Loans
Loans are carried at their principal amounts outstanding less the allowance for
loan losses. Interest income on loans is credited to income based on the
principal amount outstanding.
Loan origination fees and certain direct costs of loans are recognized at the
time the loan is recorded. Because net origination loan fees and costs are not
material, the results of operations are not materially different than the
results which would be obtained by accounting for loan fees and costs in
accordance with generally accepted accounting principles.
The allowance for loan losses is maintained at a level that management believes
to be adequate to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth, composition of the loan portfolio, and other risks inherent in the
portfolio. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses, and may require the Company to record additions to the allowance based
on their judgment about information available to them at the time of their
examinations.
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments
are received.
A loan is impaired when it is probable the Company will be unable to collect
all principal and interest payments due in accordance with the terms of the
loan agreement. Individually identified impaired loans are measured based on
the present value of payments expected to be received, using the contractual
loan rate as the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established as a component
of the allowance for loan losses. Changes to the valuation allowance are
recorded as a component of the provision for loan losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.
Income Taxes
Income tax expense consists of current and deferred taxes. Current income tax
provisions approximate taxes to be paid or refunded for the applicable year.
Deferred tax assets and liabilities are recognized for the temporary
differences between the bases of assets and liabilities as measured by tax laws
and their bases as reported in the financial statements. Deferred tax expense
or benefit is then recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards and tax
credits would be realized. A valuation allowance would be recorded for those
deferred tax items for which it is more likely than not that realization would
not occur.
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
The Company and the subsidiaries file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income taxes
(benefits) of the consolidated group.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income by the
weighted-average number of shares of common stock outstanding. Diluted
earnings per share are computed by dividing net income by the sum of the
weighted-average number of shares of common stock outstanding and potential
common shares. Potential common shares consist of stock options.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued, and the Company has
adopted, Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". SFAS No. 125 was amended by SFAS No. 127, which defers the
effective date of certain provisions of SFAS No. 125 until January 1, 1998.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of this statement did not
have a material effect on the Company's financial statements.
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
The FASB has issued, and the Company has adopted, SFAS No. 128, "Earnings Per
Share". SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15
"Earnings Per Share" and specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with publicly
held common stock or potential issuable common stock. SFAS No. 128 replaces
the presentation of primary EPS with a presentation of basic EPS and fully
diluted EPS with diluted EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator for the basic EPS computation to the numerator and denominator of
the diluted EPS computation. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
The adoption of this statement did not have a material effect on the Company's
financial statements.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 requires
all items that are required to be recognized under accounting standards as
components of comprehensive income to be reported in a financial statement
that is displayed in equal prominence with the other financial statements.
The term "comprehensive income" is used in the SFAS to describe the total of
all components of comprehensive income including net income. "Other
comprehensive income" refers to revenues, expenses, gains and losses that are
included in comprehensive income but excluded from earnings under current
accounting standards. Currently, "other comprehensive income" for the Company
consists of items previously recorded directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS
No. 130 is effective for periods beginning
after December 15, 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 11 -
<PAGE>
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities Available-for-Sale ------------ ---------- ---------- ------
December 31, 1997:
U. S. Government and agency
securities $ 6,240,184 $ 11,416 $ (5,029) $ 6,246,571
State and municipal securities 2,059,711 40,455 (20) 2,100,146
Equity securities 481,892 42,022 - 523,914
----------- -------- --------- -----------
$ 8,781,787 $ 93,893 $ (5,049) $ 8,870,631
=========== ========= ========= ===========
December 31, 1996:
U. S. Government and agency
securities $ 6,283,022 $ 6,511 $(37,008) $ 6,252,525
State and municipal securities 2,060,559 23,295 (21,492) 2,062,362
Mortgage-backed securities 707,706 420 - 708,126
Equity securities 447,824 18,235 - 466,059
--------- -------- --------- -----------
$ 9,499,111 $ 48,461 $(58,500) $ 9,489,072
========= ======== ========= ==========
Securities Held-to-Maturity
December 31, 1997:
U. S. Government and agency
securities $ 2,500,960 $ 4,845 $(6,358) $ 2,499,447
State and municipal securities 5,987,856 120,726 (1,552) 6,107,030
Mortgage-backed securities 404,255 - (2,672) 401,583
------------ -------- --------- -----------
$ 8,893,071 $125,571 $(10,582) $ 9,008,060
============ ======== ======== ===========
December 31, 1996:
U. S. Government and agency
securities $ 6,531,696 $ 16,593 $ (58,147) $ 6,490,142
State and municipal securities 4,468,953 37,590 (30,175) 4,476,368
Mortgage-backed securities 483,558 - (8,073) 475,485
---------- --------- --------- ----------
$ 11,484,207 $ 54,183 $ (96,395) $11,441,995
============ ========= ========== ==========
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1997 by
contractual maturity are shown below. Maturities may differ from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities and equity securities are not included in the maturity categories in
the following summary.
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities
Held-to-Maturity
Amortized Cost Fair Value Amortized Cost
Fair Value
-------------- ----------- --------------
- ----------
<S> <C> <C> <C>
<C>
Due in one year or less $ 1,085,000 $ 1,082,050 $ 631,201
$ 630,135
Due from one year to five
years 4,710,697 4,726,753 4,101,157
4,132,978
Due from five to ten years 2,298,061 2,325,054 3,270,773
3,342,360
Due after ten years 206,137 212,860 485,685
501,004
Mortgage-backed securities - - 404,255
401,583
Equity securities 481,892 523,914 -
-
----------- --------- ---------
- -----------
$ 8,781,787 $ 8,870,631 $ 8,893,071
$ 9,008,060
=========== =========== =========
============
</TABLE>
Securities with a carrying value of $8,709,000 and $8,003,000 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits and for other purposes.
Gains and losses on sales of securities available-for-sale consist of the
following:
December 31,
1997 1996
Gross gains $ 6,052 $ -
Gross losses - -
----- -----
Net realized gains $ 6,052 $ -
===== =====
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
December 31,
1997 1996
Commercial, financial, and agricultural $ 10,053,000 $ 7,693,000
Real estate - construction 1,422,000 5,276,000
Real estate - mortgage 47,556,000 30,693,000
Consumer instalment and other 8,803,287 7,623,375
67,834,287 51,285,375
---------- ----------
Allowance for loan losses (837,092) (706,852)
---------- ----------
Loans, net $ 66,997,195 $ 50,578,523
========== ==========
Changes in the allowance for loan losses for the years ended December 31
were as follows:
1997 1996
Balance, beginning of year $ 706,852 $ 633,732
Provision for loan losses 170,000 120,000
Loans charged off (41,357) (50,080)
Recoveries of loans previously charged off 1,597 3,200
------- -------
Balance, end of year $ 837,092 $ 706,852
======= =======
The total recorded investment in impaired loans was $96,835 and $127,210 at
December 31, 1997 and 1996, respectively. There were no impaired loans that
had related allowances determined in accordance with Statement of Financial
Accounting Standard No. 114, ("Accounting by Creditors for Impairment of a
Loan") at December 31, 1997 and 1996. The average recorded investment in
impaired loans for 1997 and 1996 was $105,741 and $165,509. Interest income
recognized for cash payments received on impaired loans was not material for
the years ended December 31, 1997 and 1996.
- 14 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The Company has granted loans to certain directors, executive officers, and
their related entities. The interest rates on these loans were substantially
the same as rates prevailing at the time of the transaction and repayment terms
are customary for the type of loan involved. Changes in related party loans
for the year ended December 31, 1997 are as follows:
Balance, beginning of year $ 1,889,063
Advances 1,242,375
Repayments (1,172,557)
----------
Balance, end of year $ 1,958,881
==========
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
1997 1996
Land $ 785,405 $ 724,965
Buildings and improvements 2,169,345 2,169,345
Equipment 1,046,169 1,041,187
Construction in process, estimated
cost to complete, $266,000 141,833 -
Equipment acquired under capital lease 178,810 178,810
--------- ---------
4,321,562 4,114,307
Accumulated depreciation, including amounts
applicable to equipment acquired under
capital lease of $80,329 and $52,639 (1,166,000) (1,029,642)
--------- ---------
$ 3,155,562 $ 3,084,665
========= =========
- 15 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. OBLIGATION UNDER CAPITAL LEASE
Obligation under capital lease consists of an equipment lease due
in quarterly installments, including imputed interest at 6%, of $10,673
through March 2000. The balance of the obligation at December 31, 1997
and 1996 was $88,167 and $123,146, respectively. Future minimum lease
payments, by year and in the aggregate, under the capital lease at
December 31, 1997 are as follows:
1998 $ 42,694
1999 42,694
2000 10,673
------
Total minimum lease payments 96,061
Amounts representing interest (7,894)
------
Present value of minimum lease payments $ 88,167
======
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
December 31,
1997 1996
Advance from Federal Home Loan Bank with $ 350,000 $ 350,000
interest at 7.66% due on February 28, 2000,
collateralized by a blanket floating lien on
qualifying first mortgage loans.
Treasury, tax and loan note option account, with 374,967 173,170
interest at .25% less than the Federal funds
rate, due on demand.
------- -------
$ 724,967 $ 523,170
======= =======
NOTE 7. EMPLOYEE BENEFIT PLAN
The Company has a noncontributory profit-sharing plan covering substantially
all employees. Contributions to the plan charged to expense for the years
ended December 31, 1997 and 1996 amounted to $60,000 and $50,000, respectively.
- 16 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan providing for death and retirement
benefits for its directors. The estimated amounts to be paid under the
compensation plan have been funded through the purchase of life insurance
policies on the directors. The balance of the policy cash surrender values
included in other assets at December 31, 1997 and 1996 is $1,113,642 and
$1,052,495, respectively. The balance of the deferred compensation included
in other liabilities at December 31, 1997 and 1996 is $119,448 and $52,199,
respectively.
NOTE 9. STOCK WARRANTS AND EMPLOYEE STOCK OPTION PLAN
Each director involved in the organization of the Company was granted one
warrant to purchase one share of the Company's common stock for each share
purchased at inception. The warrants were exercisable at any time within
seven years following the first issuance of the common stock of the Company,
or by July 1996, at a price equal to the original issue price of $10.
During 1996, 57,600 of the warrants were exercised at $10, 64,770 of the
warrants were redeemed for 28,074 shares of common stock and 7,500 of the
warrants were redeemed for $57,375 in cash. As of December 31, 1996, all
warrants have been exercised or redeemed.
The Company has reserved 50,000 shares of common stock to be awarded to key
employees under an Employee Stock Option Plan. This Plan is administered by
a committee of the Board of Directors and provides for the granting of options
to purchase shares of the common stock to officers and key employees of the
Company and the Bank. The exercise price of each option granted under the Plan
is not to be less than the fair market value of the shares of common stock
subject to the option on the date of grant as determined by the Board of
Directors. Options are exercisable in whole or in part upon such terms as
may be determined by the committee. Options will not be exercisable later
than ten years after the date of grant. These options vest in equal increments
over a five year period. The exercise price of each option granted was
equivalent to the fair market value on the date of the grant. Other pertinent
information related to the options is as follows:
- 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK WARRANTS AND EMPLOYEE STOCK OPTION PLAN (Continued)
December 31,
1997 1996
----------------- -----------------
Weighted- Weighted-
average average
Exercise Exercise
Number Price Number Price
Under option, beginning of year 26,250 $ 12.62 26,850 $ 12.61
Granted - - - -
Exercised - - - -
Terminated - - (600) 12.00
------ ------
Under option, end of year 26,250 12.62 26,250 12.62
====== ======
Exercisable, end of year 18,000 11.53 15,250 10.90
====== ======
Weighted-
Weighted- average
average Remaining
Range of Exercise Contractual
Number Prices Price Life in Yrs
------ -------- -------- ----------
Under Option, End of Year 26,250 $ 10 - 15 $ 12.62 6
======
Options Exercisable, End of Year 18,000 10 - 15 11.53 5
======
- 18 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK WARRANTS AND EMPLOYEE STOCK OPTION PLAN (Continued)
As permitted by SFAS No. 123 ("Accounting for Stock-Based Compensation"), the
Company recognizes compensation cost for stock-based employee compensation
awards in accordance with APB Opinion No. 25, ("Accounting for Stock Issued
to Employees"). The Company recognized no compensation cost for stock-based
employee compensation awards for the year ended December 31, 1997 and 1996.
If the Company had recognized compensation cost in accordance with
SFAS No. 123, net income and earnings per share would have been reduced
as follows:
December 31, 1997
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
As reported $ 1,406,018 $ 2.30 $ 2.25
Stock-based compensation,
net of related tax effect (6,310) (0.01) (0.01)
--------- ---- ----
As adjusted $ 1,399,708 $ 2.29 $ 2.24
========= ==== ====
December 31, 1996
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
As reported $ 1,087,235 $ 1.91 $ 1.89
Stock-based compensation,
net of related tax effect (6,310) (0.01) (0.01)
--------- ---- ----
As adjusted $ 1,080,925 $ 1.90 $ 1.88
========= ==== ====
- 19 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES
The components of income tax expense are as follows:
December 31,
1997 1996
Current $ 701,959 $ 491,298
Deferred (55,154) (5,370)
------- -------
Income tax expense $ 646,805 $ 485,928
======= =======
The Company's income tax expense differs from the amounts computed by applying
the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
December 31,
1997 1996
Amount Percent Amount Percent
Income taxes at statutory rate $ 697,960 34 % $ 534,875 34 %
Tax-exempt interest (109,765) (5) (87,540) (6)
State income taxes 39,218 2 26,191 2
Other items, net 19,392 1 12,402 1
------- -- ------- --
Income tax expense $ 646,805 32 % $ 485,928 31 %
======= == ======= ==
- 20 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
December 31,
1997 1996
Deferred tax assets:
Loan loss reserves $ 275,672 $ 226,525
Deferred compensation 45,075 19,698
Securities available-for-sale - 3,413
Other - 5,000
------- -------
320,747 254,636
======= =======
Deferred tax liabilities:
Depreciation 83,045 68,675
Securities available-for-sale 30,208 -
------- -------
113,253 68,675
======= =======
Net deferred tax assets $ 207,494 $ 185,961
======= =======
NOTE 11. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and weighted-
average shares outstanding (the denominator) used in determining basic and
diluted earnings per common share (EPS):
Year Ended December 31, 1997
Weighted-
Net Average Per
Income Shares share
(Numerator) (Denominator) Amount
Basic EPS $ 1,406,018 612,585 $ 2.30
Effect of Dilutive Securities ====
Stock options - 11,192
--------- -------
Diluted EPS $ 1,406,018 623,777 $ 2.25
========= ======= ====
- 21 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. EARNINGS PER COMMON SHARE (Continued)
Year Ended December 31, 1996
Weighted-
Net Average Per
Income Shares share
(Numerator) (Denominator) Amount
Basic EPS $ 1,087,235 569,053 $ 1.91
Effect of Dilutive Securities ====
Stock options - 7,320
--------- -------
Diluted EPS $ 1,087,235 576,373 $ 1.89
========= ======= ====
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
off-balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments to
extend credit and standby letters of credit. Such financial instruments
are included in the financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. A summary of the Company's commitments is as follows:
December 31,
1997 1996
Commitments to extend credit $ 14,074,000 $ 6,194,000
Standby letters of credit 613,000 816,000
---------- ---------
$ 14,687,000 $ 7,010,000
========== =========
- 22 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The credit risk involved in issuing these financial instruments is essentially
the same as that involved in extending loans to customers. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, crops, marketable
securities, accounts receivable, inventory, equipment, and personal property.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held
varies as specified above and is required in instances which the Company
deems necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management of the Company, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
NOTE 13. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer loans
to customers in Hall County and surrounding counties. The ability of the
majority of the Company's customers to honor their contractual loan
obligations is dependent on the economy in these areas.
Seventy-two percent of the Company's loan portfolio is concentrated in loans
secured by real estate, of which a substantial portion is secured by real
estate in the Company's primary market area. Accordingly, the ultimate
collectibility of the loan portfolio is susceptible to changes in market
conditions in the Company's primary market area. The other significant
concentrations of credit by type of loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 15% of statutory
capital, or approximately $1,450,000.
- 23 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that may
be declared without prior regulatory approval. At December 31, 1997,
approximately $2,979,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and Bank
must meet specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and Bank capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of December 31, 1997, the Company and
the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the Bank's category.
- 24 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS (Continued)
<TABLE>
The Company and Bank's actual capital amounts and ratios are presented
in the following table.
<CAPTION>
To Be Well
For
Capital Capitalized Under
Adequacy Prompt Corrective
Actual
Purposes Action Provisions
Amount Ratio Amount
Ratio Amount Ratio
------ ----- ------
----- ------ -----
(Dollars in
Thousands)
- ----------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated $ 9,915 15.05% $ 5,270
8.00% $ 6,588 10.00%
Bank $ 9,693 14.74% $ 5,260
8.00% $ 6,576 10.00%
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 9,078 13.78% $ 2,635
4.00% $ 3,953 6.00%
Bank $ 8,871 13.49% $ 2,630
4.00% $ 3,946 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 9,078 9.62% $ 3,775
4.00% $ 4,718 5.00%
Bank $ 8,871 9.41% $ 3,771
4.00% $ 4,714 5.00%
<CAPTION>
To Be Well
For
Capital Capitalized Under
Adequacy Prompt Corrective
Actual
Purposes Action Provisions
Amount Ratio Amount
Ratio Amount Ratio
------- ----- ------
----- ------ -----
(Dollars in
Thousands)
- -------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $ 9,036 13.82% $ 5,231
8.00% $ 6,491 10.00%
Bank $ 8,352 12.79% $ 5,224
8.00% $ 6,530 10.00%
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 8,329 12.74% $ 2,615
4.00% $ 3,923 6.00%
Bank $ 7,645 11.71% $ 2,611
4.00% $ 3,917 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 8,329 10.12% $ 3,292
4.00% $ 4,115 5.00%
Bank $ 7,645 9.31% $ 3,285
4.00% $ 4,106 5.00%
- 25 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are significantly affected by
the assumptions used, including the discount rates and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. The
use of different methodologies may have a material effect on the estimated
fair value amounts. Also, the fair value estimates presented herein are
based on pertinent information available to management as of
December 31, 1997 and 1996. Such amounts have not been revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
Cash, Due From Banks, Interest-Bearing Deposits in Banks,
and Federal Funds Sold:
The carrying amounts of cash, due from banks, interest-bearing deposits in
banks, and Federal funds sold approximate their fair value.
Securities:
Fair values for securities are based on quoted market prices. The carrying
values of equity securities with no readily determinable fair value
approximate fair values.
Loans:
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values.
For other loans, the fair values are estimated using discounted cash flow
methods, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for impaired loans
are estimated using discounted cash flow methods or underlying collateral
values.
Deposits:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using discounted cash
flow methods, using interest rates currently being offered on certificates.
- 26 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Obligation Under Capital Lease and Other Borrowings:
The fair values of the Company's obligation under capital lease and other
borrowings approximate their fair values.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair values.
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However, commitments
to extend credit and standby letters of credit do not represent a significant
value to the Company until such commitments are funded. The Company has
determined that these instruments do not have a distinguishable fair value and
no fair value has been assigned.
The carrying amounts and estimated fair values of the Company's financial
instruments were as follows:
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash, due from banks,
interest-bearing deposits
in banks, and Federal
funds sold $ 4,299,127 $ 4,299,127 $ 7,233,227 $ 7,233,227
Securities available-
for-sale 8,870,631 8,870,631 9,489,072 9,489,072
Securities held-to-
maturity 8,893,071 9,008,060 11,484,207 11,441,995
Loans 66,997,195 67,300,000 50,578,523 51,100,000
Accrued interest
receivable 791,061 791,061 741,680 741,680
Financial liabilities:
Deposits 83,014,790 83,421,378 73,845,682 74,418,467
Obligation under capital
lease and other
borrowings 813,134 813,134 646,316 646,316
Accrued interest payable 975,018 975,018 845,568 845,568
- 27 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total revenue
are as follows:
December 31,
1997 1996
Stationery and supplies $ 76,026 $ 80,913
Data processing 97,943 82,530
NOTE 17. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets, statements of
income, and cash flows of Lanier Bankshares, Inc. as of and for the years ended
December 31, 1997 and 1996:
CONDENSED BALANCE SHEETS
1997 1996
Assets
Cash $ 207,518 $ 162,170
Interest-bearing deposits in bank - 535,000
Investment in subsidiaries 8,983,059 7,692,794
Securities available-for-sale 122,314 94,759
Other assets - 188
--------- ---------
Total assets $ 9,312,891 $ 8,484,911
========= =========
Liabilities
Dividends payable $ 150,000 $ 154,728
Other 26,353 7,756
--------- ---------
176,353 162,484
--------- ---------
Stockholders' equity 9,136,538 8,322,427
--------- ---------
Total liabilities and
stockholders' equity $ 9,312,891 $ 8,484,911
========= =========
- 28 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME
1997 1996
Income
Dividends from bank subsidiary $ 150,000 $ -
Interest on deposits in bank 18,566 11,307
Other 7,761 838
--------- ---------
176,327 12,145
--------- ---------
Expenses, other 3,085 12,022
--------- ---------
Income before income tax benefits and
equity in undistributed income of
subsidiaries 173,242 (123)
Income tax expense (benefits) 7,925 (188)
--------- ---------
Income before equity in
undistributed income of
subsidiaries 165,317 311
Equity in undistributed income of
subsidiaries 1,240,701 1,086,924
--------- ---------
Net income $ 1,406,018 $ 1,087,235
========= =========
- 29 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
1997 1996
OPERATING ACTIVITIES
Net income $ 1,406,018 $ 1,087,235
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiaries (1,240,701) (1,086,924)
Gain on sale of securities
available-for-sale (4,562) -
Other operating activities 10,697 815
--------- ---------
Net cash provided by operating
activities 171,452 1,126
--------- ---------
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing
deposits in bank 535,000 (500,000)
Purchases of securities available-for-sale (4,907) (62,352)
Proceeds from sale of securities
available-for-sale 5,702 -
--------- ---------
Net cash provided by (used in)
investing activities 535,795 (562,352)
--------- ---------
FINANCING ACTIVITIES
Net proceeds from exercise and redemption
of stock warrants - 518,625
Purchase of treasury stock (434,560) -
Proceeds from sale of treasury stock 19,941 -
Dividends paid (247,280) (117,462)
--------- ---------
Net cash provided by (used in)
financing activities (661,899) 401,163
Net increase (decrease) in cash 45,348 (160,063)
Cash at beginning of year 162,170 322,233
--------- ---------
Cash at end of year $ 207,518 $ 162,170
========= =========
- 30 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Included below is a discussion of the Company's financial condition and recent
changes in its financial condition, cash flows, and the results of operations.
Management is not aware of any trends, events, or uncertainties that have had
or that are reasonably expected to have a material impact on the revenues or
income from continuing operations. Also, management is not aware of any
current recommendations by the regulatory authorities which, if they were to
be implemented, would have a material effect on the Company's liquidity,
capital resources, or operations.
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company and the Bank to meet those needs. The
Company and the Bank seek to meet liquidity requirements primarily through
management of short-term investments (principally Federal funds sold) and
monthly amortizing loans. Another source of liquidity is the repayment of
maturing single payment loans. Also, the Bank maintains relationships with
correspondent banks which could provide funds to them on short notice, if
needed.
The liquidity and capital resources of the Company and the Bank are monitored
on a periodic basis by Federal regulatory authorities. As determined under
guidelines established by those regulatory authorities, the Bank's liquidity
ratios at December31, 1997 were considered satisfactory. At that date, the
Bank's short-term investments were adequate to cover any reasonably anticipated
immediate need for funds. The Company and the Bank were not aware of any
events or trends likely to result in a material change in their liquidity.
At December31, 1997, the Company's and the Bank's capital to asset ratios were
considered adequate based on guidelines established by the regulatory
authorities. During 1997, the Company increased its capital by retaining
earnings of $1,163,000 and by an increase in the net unrealized gains on
securities available for sale of $65,000. The Company's capital decreased by
$415,000 due to the purchase of treasury stock. At December31, 1997, total
capital of the Company amounted to $9,137,000. The Company's Tier 1 Capital
leverage ratio for 1997 was 9.62%. The Company's Tier 1 Risk-Based Capital
and Total Risk-Based Capital ratios for 1997 were 13.78% and 15.05%,
respectively. At December31, 1997, the Company was building a new branch.
The estimated cost to complete the project as of year end was $266,000.
- 31 -
<PAGE>
Results of Operations
General
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income, and to control noninterest expense.
Because interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the Bank's ability to obtain an adequate spread between the
rate earned on earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, divided by average earning assets.
The primary component of consolidated earnings is net interest income, or the
difference between interest income on earning assets and interest paid on
supporting liabilities. The net interest margin is net interest income
expressed as a percentage of average earning assets. Earning assets consist of
loans, investment securities, Federal funds sold, and interest-bearing deposits
in banks. Supporting liabilities consist of other borrowings and deposits, of
which approximately 15.4% are noninterest-bearing.
Net Income
Net income for the year ended December31, 1997, increased to $1,406,000 from the
1996 amount of $1,087,000, representing an increase of $319,000 or 29.3%. This
increase is primarily attributable to an increase in net interest income of
$664,000 and an increase of $106,500 in other income, offset by a $241,000
increase in other expenses and a $50,000 increase in the provision for loan
losses. Diluted earnings per common share increased to $2.25 from the 1996
amount of $1.89, a $.36 increase or 19.05%.
The net interest margin increased by .27% to 5.07% in 1997 as compared to 4.80%
in 1996. The yield on average earning assets increased in 1997 to 9.51% from
9.40% in 1996 or 11 basis points, while the interest paid on average
interest-bearing liabilities decreased from 5.50% in 1996 to 5.40% in 1997 or
10 basis points. Net interest income was $4,057,000 in 1997 as compared to
$3,393,000 in 1996, representing an increase of $664,000.
Average earning assets increased by $9,364,000 or 13.3% to $79,986,000 in 1997
from $70,622,000 in 1996. Average loans increased by $8,578,000; average
investments and interest-bearing deposits in banks increased by $1,992,000;
and average Federal funds sold decreased by $1,206,000. The net increase in
average earning assets of $9,364,000 was funded by an increase in average
deposits of $8,289,000 or 12.0% to $77,340,000 in 1997 from $69,057,000 in 1996.
Approximately 15.8% and 15.3% of the average deposits were noninterest-
bearing deposits in 1997 and 1996, respectively.
- 32 -
<PAGE>
Provision for Loan Losses
The allowance for loan losses represents a reserve for potential losses in the
loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due, and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the current period to
replenish the allowance and maintain it at a level management has determined to
be adequate. The provision for loan losses charged to earnings amounted to
$170,000 in 1997 and $120,000 in 1996. The provisions resulted from
management's evaluation of the loan portfolios and the potential loan risk
associated with certain loans and a general reserve for loans not
specifically identified. Net charge-offs for 1997 decreased to $39,760 as
compared to $46,880 in 1996. The allowance for loan losses as a percentage
of total loans outstanding at December31, 1997 and 1996 were 1.23% and 1.38%,
respectively. Net charge-offs to total loans outstanding at December31, 1997
and 1996 were .07% and .09%, respectively.
The determination of the amounts allocated for loan losses is based upon
management's judgment concerning factors affecting loan quality and assumptions
about the local and national economy. Management considers the year end
allowances adequate to cover potential losses in the loan portfolio.
Non-Interest Income
Following is an analysis of noninterest income for 1997 and 1996.
1997 1996
Service charges on deposit accounts $ 526,571 $ 430,655
Security transactions, net 6,052 --
Other income 121,151 116,616
------- -------
$ 653,774 $ 547,271
======= =======
- 33 -
<PAGE>
Service charges on deposit accounts increased by $95,916 or 22.27% from 1996 to
1997. The change is primarily attributable to an increase of $57,000 in NSF
charges resulting from an increase in the number of overdrawn accounts and an
increase in service charges on checking accounts of $27,000 during 1997.
Non-Interest Expense
Following is an analysis of noninterest expense for 1997 and 1996.
1997 1996
Salaries and employee benefits $ 1,434,407 $ 1,292,945
Occupancy and equipment expense 400,982 375,101
Data processing expense 97,943 82,530
Stationery and supplies 76,026 80,913
Other expense 478,976 416,032
--------- ---------
$ 2,488,334 $ 2,247,521
========= =========
The most significant increase in noninterest expense in 1997 over 1996 was an
increase in salaries and benefits of $141,462. This 10.9% increase was due to
normal increases in salaries and employee benefits.
Average total assets increased by $9,766,000 to $88,043,000 in 1997 as
compared to $78,277,000 in 1996. The increase in average total assets was
attributable largely to the normal growth in the bank. Loan demand was
moderate in 1997 as evidenced by an increase of $8,578,000 in average loans
from $49,599,000 in 1996 to $58,177,000 in 1997.
- 34 -
<PAGE>
Nonperforming Loans
The following table presents, at the dates indicated, the aggregate of
nonperforming loans for the categories indicated.
December 31,
1997 1996
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis $ 97 $ 127
Instalment loans and term loans contractually past
due ninety days or more as to interest or principal
payments and still accruing 172 75
Loans, the terms of which have been nenegotiated
to provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower - -
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayment terms - -
In the opinion of management, any loans classified by regulatory authorities
as doubtful, substandard or special mention that have not been disclosed above
do not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms. Any
loans classified by regulatory authorities as loss have been charged off.
- 35 -
<PAGE>
Summary of Loan Loss Experience
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense
are past loan loss experience, composition of the loan portfolio, evaluation
of possible future losses, current economic conditions, and other relevant
factors. The Company's allowance for loan losses was approximately $837,000 at
December 31, 1997, representing 1.23% of year end total loans outstanding,
compared with $707,000 at December 31, 1996, representing 1.38% of year end
total loans outstanding. The allowance for loan losses is reviewed
continuously based on management's evaluation of current risk characteristics
of the loan portfolio, as well as the impact of prevailing and expected
economic business conditions. Management considers the allowance for loan
losses adequate to cover possible loan losses on the loans outstanding.
Management has not allocated the Company's allowance for loan losses to
specific categories of loans. Based on management's best estimate,
approximately 50% of the allowance should be allocated to real estate loans,
37% to commercial loans and 13% to consumer loans as of December 31, 1997.
- 36 -
<PAGE>
The following table presents an analysis of the Company's loan loss experience
for the periods indicated:
December 31,
1997 1996
(Dollars in Thousands)
Average amount of loans outstanding $ 58,177 $ 49,599
====== ======
Balance of reserve for possible loan losses
at beginning of period $ 707 $ 634
------ ------
Charge-offs:
Commercial, financial and agricultural $ - $ (27)
Consumer (25) (24)
Real estate (16) -
Recoveries:
Consumer 1 4
Real estate - -
------ ------
Net Charge-offs $ (40) $ (47)
====== ======
Additions to reserve charged to operating expenses $ 170 $ 120
====== ======
Balance of reserve for possible loan losses $ 837 $ 707
====== ======
Ratio of net loan charge-offs to average loans .07% .09%
====== ======
- 38 -
<PAGE>
Deposits
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and saving deposits
and time deposits, for the periods indicated are presented below.
Year Ended December 31,
1997 1996
Amount Rate Amount Rate
(Dollars in Thousands)
Noninterest-bearing
demand deposits $ 12,247 --% $ 10,538 --%
Interest-bearing demand 13,007 3.46 10,762 3.76
Savings deposits 9,363 4.89 8,021 4.77
Time deposits 42,723 6.07 39,730 6.07
------ ------
Total deposits $ 77,340 $ 69,051
====== ======
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1997, are shown below by category, which is based on
time remaining until maturity of (1) three months or less, (2) over three
through twelve months, and (3) over twelve months.
(Dollars in
Thousands)
Three months or less $ 7,237
Over three through twelve months 9,612
Over twelve months 2,787
------
Total $ 19,636
======
- 38 -
<PAGE>
Return on Assets and Shareholders' Equity
The following rate of return information for the periods indicated is
presented below.
Year Ended December 31,
1997 1996
Return on assets (1) 1.60% 1.39%
Return on equity (2) 16.02 14.46
Dividend payout ratio (3) 17.78 13.09
Equity to assets ratio (4) 9.97 9.61
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by diluted earnings per common share.
(4) Average equity divided by average total assets.
Capability of the Company's Data Processing Software to Accommodate the
Year 2000
Like many financial institutions, the Company and its subsidiaries rely upon
computers for the daily conduct of their business and for data processing
generally. There is concern among industry experts that commencing on
January 1, 2000, computers will be unable to "read" the new year and that
there may be widespread computer malfunctions. Management of the Company
has assessed the electronic systems, programs, applications, and other
electronic components used in the operations of the Company and believes
that the Company's hardware and software has been programmed to be able to
accurately recognize the year 2000, and that significant additional costs
will not be incurred in connection with the year 2000 issue, although there
can be no assurances in this regard.
- 39 -
<PAGE>
OFFICERS OF LANIER BANKSHARES, INC.
Joseph D. Chipman, Jr., President and Chief Executive Officer
Ricky H. Pugh, Executive Vice President
Jeffrey D. Hunt, Secretary and Senior Vice President
EXECUTIVE OFFICERS OF LANIER NATIONAL BANK
Joseph D. Chipman, Jr., President and Chief Executive Officer
Ricky H. Pugh, Executive Vice President
Jeffrey D. Hunt, Senior Vice President - Operations
DIRECTORS OF LANIER BANKSHARES, INC. AND LANIER NATIONAL BANK
John W. Browning, III, M.D., Physician and Partner of Longstreet Clinic;
Chairman of Northeast Georgia Health Associates
Joseph D. Chipman, Jr., President and Chief Executive Officer of the Company
and of the Bank; Chairman of Lanier Data Corporation
Lewis W. Coker, President and General Manager, Coker Equipment Company
C. Edmondson Daniel, Chairman of the Board of the Company and of the Bank;
President and CEO of Carroll Daniel Construction Company
J. Austin Edmondson, Principal, Georgia Chair Company; Principal, Georgia
Plastic Company
Jerry D. Jackson, Real Estate Developer; Partner, Mundy Mill Properties;
Partner, Woodfield Properties; Partner, Lanier Car Wash
R. Thomas Jarrard, Attorney, Carey, Jarrard and Walker
Carlton W. Rogers, Sr., Agent, Turner, Wood & Smith Insurance Center
Stewart Teaver, Principal, City Plumbing & Electric Company; Principal,
Area Realty Company
Mike Wilson, Real Estate Developer; Principal, Whitmire & Wilson Properties
- 40 -
<PAGE>
Shareholders may obtain, without charge, a copy of Lanier Bankshares, Inc.
1997 Annual Report to the Securities and Exchange Commission on Form 10-KSB.
Written requests should be addressed to Jeffrey D. Hunt, Secretary to Lanier
Bankshares, Inc., P.O. Box 26, Gainesville, Georgia 30503.
- 41 -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,099,126
<INT-BEARING-DEPOSITS> 36,635
<FED-FUNDS-SOLD> 200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,870,631
<INVESTMENTS-CARRYING> 8,893,071
<INVESTMENTS-MARKET> 9,008,060
<LOANS> 67,834,287
<ALLOWANCE> 837,092
<TOTAL-ASSETS> 94,471,940
<DEPOSITS> 83,014,790
<SHORT-TERM> 724,967
<LIABILITIES-OTHER> 1,595,645
<LONG-TERM> 0
0
0
<COMMON> 618,913
<OTHER-SE> 8,517,625
<TOTAL-LIABILITIES-AND-EQUITY> 94,471,940
<INTEREST-LOAN> 6,348,118
<INTEREST-INVEST> 1,157,986
<INTEREST-OTHER> 97,817
<INTEREST-TOTAL> 7,603,921
<INTEREST-DEPOSIT> 3,500,330
<INTEREST-EXPENSE> 46,208
<INTEREST-INCOME-NET> 4,057,383
<LOAN-LOSSES> 170,000
<SECURITIES-GAINS> 6,052
<EXPENSE-OTHER> 2,488,334
<INCOME-PRETAX> 2,052,823
<INCOME-PRE-EXTRAORDINARY> 1,406,018
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,406,018
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 9.51
<LOANS-NON> 97,000
<LOANS-PAST> 172,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 253,000
<ALLOWANCE-OPEN> 706,852
<CHARGE-OFFS> 41,408
<RECOVERIES> 1,648
<ALLOWANCE-CLOSE> 837,092
<ALLOWANCE-DOMESTIC> 170,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
