<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
----------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
----------- -----------
Commission File Number: 0-12498
Lanier Bankshares, Inc.
---------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-1814713
- ------------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
854 Washington Street, Gainesville, Georgia 30503
---------------------------------------------------------
(Address of principal executive offices)
(770) 536-2265
-------------------------------------
(Issuer's telephone number
N/A
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
-------- --------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 1, 1999: 1,200,000; $1.00 par value.
Transitional Small Business Disclosure Format (Check One) Yes No X
------- -------
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet - September 30, 1999.................. 3
Consolidated Statements of Income and Comprehensive
Income - Three Months Ended September 30, 1999 and 1998
and Nine Months Ended September 30, 1999 and 1998............. 4
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1999 and 1998................. 5 and 6
Notes to Consolidated Financial Statements....................... 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 10
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders........ 17
Item 6 - Exhibits and Reports on Form 8-K........................... 17
Signatures.......................................................... 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
Assets
------
<TABLE>
<CAPTION>
<S> <C>
Cash and due from banks $ 4,600,215
Interest-bearing deposits in banks 22,206
Securities available-for-sale, at fair value 14,324,292
Securities held-to-maturity (fair value $15,457,000) 15,800,150
Federal funds sold 4,600,000
Loans 75,777,477
Less allowance for loan losses 1,142,906
----------------------
Loans, net 74,634,571
----------------------
Premises and equipment 3,468,467
Other assets 3,441,239
----------------------
$ 120,891,140
======================
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 16,326,249
Interest-bearing demand 20,859,591
Savings 14,770,510
Time 54,720,725
----------------------
Total deposits 106,677,075
Obligation under capital lease 20,799
Other borrowings 1,472,406
Other liabilities 1,214,133
----------------------
Total liabilities 109,384,413
----------------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1.00; 10,000,000 shares authorized;
1,237,826 shares issued 1,237,826
Capital surplus 5,230,107
Retained earnings 5,688,652
Treasury stock, 37,826 shares (419,024)
Accumulated other comprehensive loss (230,834)
----------------------
Total common stockholders' equity 11,506,727
----------------------
$ 120,891,140
======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------- ---------- ---------- ----------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income
Loans $1,980,569 $2,013,888 $5,819,623 $5,826,744
Taxable securities 252,654 171,562 658,159 484,956
Nontaxable securities 161,713 124,122 471,276 322,948
Federal funds sold 15,171 46,516 105,219 101,788
Deposits in banks 425 845 1,023 1,851
---------- ---------- ---------- ----------
Total interest income 2,410,532 2,356,933 7,055,300 6,738,287
---------- ---------- ---------- ----------
Interest expense
Deposits 1,067,428 1,100,689 3,159,168 3,080,569
Other borrowings 23,297 28,418 67,331 54,078
---------- ---------- ---------- ----------
Total interest expense 1,090,725 1,129,107 3,226,499 3,134,647
---------- ---------- ---------- ----------
Net interest income 1,319,807 1,227,826 3,828,801 3,603,640
Provision for loan losses 30,000 90,000 120,000 210,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,289,807 1,137,826 3,708,801 3,393,640
---------- ---------- ---------- ----------
Other income
Service charges on deposit accounts 133,141 132,013 399,038 405,275
Gain on sale of securities available-for-sale 508 0 508
Other operating income 41,797 35,893 125,940 113,963
---------- ---------- ---------- ----------
175,446 167,906 525,486 519,238
---------- ---------- ---------- ----------
Other expenses
Salaries and employee benefits 436,137 399,264 1,273,468 1,153,674
Equipment and occupancy expenses 130,901 111,201 382,989 311,844
Other operating expenses 233,892 183,159 605,607 531,887
---------- ---------- ---------- ----------
800,930 693,624 2,262,064 1,997,405
---------- ---------- ---------- ----------
Income before income taxes 664,323 612,108 1,972,223 1,915,473
Income tax expense 187,956 181,660 570,746 573,469
---------- ---------- ---------- ----------
Net income 476,367 430,448 1,401,477 1,342,004
---------- ---------- ---------- ----------
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available-for-sale arising during period, net of tax (80,346) 32,989 (319,796) 30,746
---------- ---------- ---------- ----------
Comprehensive income $ 396,021 $ 463,437 $1,081,681 $1,372,750
========== ========== ========== ==========
Basic earnings per common share $ 0.40 $ 0.36 $ 1.17 $ 1.12
========== ========== ========== ==========
Diluted earnings per common share $ 0.39 $ 0.35 $ 1.14 $ 1.09
========== ========== ========== ==========
Cash dividends per share of common stock $ 0.00 $ 0.00 $ 0.17 $ 0.14
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,401,477 $ 1,342,004
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 178,739 137,780
Provision for loan losses 120,000 210,000
Gain on sales of securities available-for-sale (508) 0
(Increase) decrease in interest receivable 14,229 (91,096)
Increase (decrease) in interest payable (337,335) 162,579
Other operating activities (277,936) (372,779)
-------------------- --------------------
Net cash provided by operating activities 1,098,666 1,388,488
-------------------- --------------------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks 19,330 (24,364)
Purchases of securities available-for-sale (6,281,538) (7,927,844)
Proceeds from sales of securities available-for-sale 400,508 0
Proceeds from maturities of securities available-for-sale 3,200,000 6,835,000
Purchases of securities held-to-maturity (4,193,361) (5,448,039)
Proceeds from maturities of securities held-to-maturity 1,878,333 2,130,000
Net increase in Federal funds sold (2,000,000) (3,100,000)
Net (increase) decrease in loans 1,345,556 (6,834,930)
Purchase of premises and equipment (139,336) (502,368)
Payment of life insurance premiums 0 (600,000)
-------------------- --------------------
Net cash used in investing activities (5,770,508) (15,472,545)
-------------------- --------------------
FINANCING ACTIVITIES
Net increase in deposits 4,930,007 13,962,770
Repayment of obligations under capital lease (29,877) (27,873)
Net proceeds (repayment) of other borrowings (32,234) 737,903
Purchase of treasury stock 0 (12,400)
Proceeds from sale of treasury stock 0 6,000
Dividends paid (384,000) (168,000)
-------------------- --------------------
Net cash provided by financing activities 4,483,896 14,498,400
-------------------- --------------------
Net increase (decrease) in cash and due from banks (187,946) 414,343
Cash and due from banks at beginning of period 4,788,161 4,062,492
-------------------- --------------------
Cash and due from banks at end of period $ 4,600,215 $ 4,476,835
==================== ====================
</TABLE>
5
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 3,563,834 $ 2,972,068
Income taxes $ 656,581 $ 697,161
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available-for-sale $ 484,538 $ (46,585)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the nine month period ended September
30, 1999 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2. 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):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
---------------------------------------------------------
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
---------------- -------------------- ---------------
<S> <C> <C> <C>
Basic EPS $ 476,367 1,200,000 $ 0.40
===============
Effect of Dilutive Securities
Stock options - 33,629
---------------- --------------------
Diluted EPS $ 476,367 1,233,629 $ 0.39
================ ==================== ===============
<CAPTION>
Three Months Ended September 30, 1998
----------------------------------------------------------
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
---------------- --------------------- ----------------
<S> <C> <C> <C>
Basic EPS $ 430,448 1,200,000 $ 0.36
================
Effect of Dilutive Securities
Stock options - 23,694
---------------- ---------------------
Diluted EPS $ 430,448 1,223,694 $ 0.35
================ ===================== ================
</TABLE>
7
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. EARNINGS PER COMMON SHARE (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
--------------------------------------------------------
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
-------------- -------------------- ----------------
<S> <C> <C> <C>
Basic EPS $ 1,401,477 1,200,000 $ 1.17
================
Effect of Dilutive Securities
Stock options - 33,629
-------------- --------------------
Diluted EPS $ 1,401,477 1,233,629 $ 1.14
============== ==================== ================
<CAPTION>
Nine Months Ended September 30, 1998
----------------------------------------------------------
Net Weighted-Average
Income Shares Per share
(Numerator) (Denominator) Amount
---------------- -------------------- ----------------
<S> <C> <C> <C>
Basic EPS $ 1,342,004 1,200,000 $ 1.12
================
Effect of Dilutive Securities
Stock options - 23,694
---------------- --------------------
Diluted EPS $ 1,342,004 1,223,694 $ 1.09
================ ==================== ================
</TABLE>
NOTE 3. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt this
statement effective January 1, 2001. SFAS No. 133 requires the Company
to recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated
as hedges, the gain or loss must be recognized in earnings in the
period of change. For derivatives that are designated as hedges,
changes in the fair value of the hedged assets, liabilities, or firm
commitments must be recognized in earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings,
depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value must be recognized in earnings
immediately. Management has not yet determined what effect the
adoption of SFAS No. 133 will have on the Company's earnings or
financial position.
8
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. CURRENT ACCOUNTING DEVELOPMENTS (Continued)
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
9
<PAGE>
LANIER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement about Forward-Looking Statements
The Management's Discussion and Analysis which follows, contains
forward-looking statements in addition to historical information,
including, but not limited to statements regarding Management's
beliefs, current expectations, estimates and projections about the
financial services industry, the economy, and about the Company and
the Bank in general. Such forward-looking statements are subject to
certain factors that could cause actual results to differ materially
from historical results or anticipated events, trends or results.
These factors include, but are not limited to:
. increased competition with other financial institutions,
. lack of sustained growth in the economy of Hall County,
. rapid fluctuations in interest rates,
. the inability of the Bank to maintain regulatory capital
standards, and
. changes in the legislative and regulatory environment
The purpose of the following discussion is to address information
relating to the financial condition and results of operations of the
Company that may not be readily apparent from a review of the
consolidated financial statements and notes thereto, which are
included in this Form 10-QSB.
Liquidity and Capital Resources
As of September 30, 1999, the liquidity ratio of the Bank, as
determined under guidelines established by regulatory authorities, was
satisfactory.
As of September 30, 1999, the capital ratios of the Company and the
Bank were adequate based on regulatory minimum capital requirements.
The minimum capital requirements and the actual capital ratios for the
Company and the Bank are as follows:
<TABLE>
<CAPTION>
Actual
--------------------------
Lanier Lanier
Bankshares, National Regulatory
Inc. Bank Requirement
------------- ----------- ------------
<S> <C> <C> <C>
Leverage capital ratios 9.99 % 9.82% 4.00%
Risk-based capital ratios:
Core capital 14.21 % 13.97% 4.00%
Total capital 15.46 % 15.22% 8.00%
</TABLE>
10
<PAGE>
Financial condition
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 Increase (Decrease)
---------------- ---------------- ------------------------------------
(Dollars in Thousands) Amount Percent
------------------------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 4,600 $ 4,788 $ (188) (3.93) %
Interest-bearing deposits in banks 22 42 (20) (47.62)
Securities 30,124 25,612 4,512 17.62
Federal funds sold 4,600 2,600 2,000 76.92
Loans, net 74,635 76,100 (1,465) (1.93)
Premises and equipment 3,469 3,508 (39) (1.11)
Other assets 3,441 3,101 340 10.96
---------------- ---------------- ---------------
$ 120,891 $ 115,751 $ 5,140 4.44
================ ================ ===============
Deposits $ 106,677 $ 101,747 $ 4,930 4.85 %
Other borrowings 1,493 1,556 (63) (4.05)
Other liabilities 1,214 1,819 (605) (33.26)
Stockholders' equity 11,507 10,629 878 8.26
---------------- ---------------- ---------------
$ 120,891 $ 115,751 $ 5,140 4.44
================ ================ ===============
</TABLE>
As indicated in the above table, the Company's total assets have increased by
4.44%. This increase is due to a 4.85% increase in total deposits. Loans have
decreased during the first nine months of 1999 by $1.5 million due to unexpected
loan repayments during the first quarter. Funds from net loan repayments and the
increase in deposits, have been reinvested in securities and Federal funds sold.
Stockholders' equity has increased due to the retention of earnings, net of
dividends, of $1,197,000 offset by a decrease in accumulated other comprehensive
income of $320,000. The decrease in accumulated other comprehensive income is
due to unrealized losses on longer term securities available-for-sale.
11
<PAGE>
Results of Operations For The Three Months Ended September 30, 1999 and 1998 and
for the Nine Months Ended September 30, 1999 and 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
1999 1998 Increase (Decrease)
------------- ------------ ----------------------------
(Dollars in Thousands) Amount Percent
----------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Interest income $ 2,411 $ 2,357 $ 54 2.29 %
Interest expense 1,091 1,129 (38) (3.37)
Net interest income 1,320 1,228 92 7.49
Provision for loan losses 30 90 (60) (66.67)
Other income 175 168 7 4.17
Other expense 801 694 107 15.42
Pretax income 664 612 52 8.50
Income taxes 188 182 6 3.30
Net income 476 430 46 10.70
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998 Increase (Decrease)
------------- ------------ ---------------------------
(Dollars in Thousands) Amount Percent
----------------------------- ---------- -------------
<S> <C> <C> <C> <C>
Interest income $ 7,055 $ 6,738 $ 317 4.70 %
Interest expense 3,226 3,135 91 2.90
Net interest income 3,829 3,603 226 6.27
Provision for loan losses 120 210 (90) (42.86)
Other income 525 519 6 1.16
Other expense 2,262 1,997 265 13.27
Pretax income 1,972 1,915 57 2.98
Income taxes 571 573 (2) (0.35)
Net income 1,401 1,342 59 4.40
</TABLE>
As indicated in the above tables, the Company's net interest income has
increased by $92,000 and $226,000 for the three and nine month periods in 1999,
respectively, as compared to the same periods in 1998. The Company's net
interest margin decreased to 4.85% during the first nine months of 1999 as
compared to 5.05% for the previous year. The increases in net interest income
are due primarily to increases in average interest-earning assets. The decrease
in the net interest margin is due primarily to a decrease in average loans as a
component of average interest-earning assets.
12
<PAGE>
The provision for loan losses decreased by $60,000 and $90,000 for the three and
nine month periods in 1999, respectively, as compared to the same periods in
1998. This decrease is due primarily to a $1.5 million decrease in loans. Net
charge-offs for the first nine months of 1999 were $50,000 as compared to
$51,000 for the same period in 1998. The Company's allowance for loan losses to
total loans amounted to 1.51% at September 30, 1999 as compared to 1.39% at
December 31, 1998. The allowance for loan losses is maintained at a level that
is deemed appropriate by management to adequately cover all known and inherent
risks in the loan portfolio. Management's evaluation of the loan portfolio
includes a continuing review of loan loss experience, current economic
conditions which may affect the borrower's ability to repay and the underlying
collateral value. The Company had other real estate owned of $159,000 at
September 30, 1999.
Information with respect to nonaccrual, past due, and restructured loans at
September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
---------------------------------
<S> <C> <C>
Nonaccrual loans $ 12 $ 190
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing 2 534
Restructured loans - -
Loans, now current about which there are serious doubts as to the
ability of the borrower to comply with loan repayment terms - -
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms 1 13
Interest income that was recorded on nonaccrual and restructured loans - -
</TABLE>
It is the policy of the Bank to discontinue the accrual of interest income when,
in the opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) there is a significant deterioration
in the financial condition of the borrower and full repayment of principal and
interest is not expected and (2) the principal or interest is more than ninety
days past due, unless the loan is both well-secured and in the process of
collection. The increase in loans contractually past due ninety days or more and
still accruing interest is due primarily to a real estate loan to a group of
family-related borrowers. Management believes that this loan does not meet
either of the criteria for discontinuance of interest accrual.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not 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.
13
<PAGE>
Information regarding certain loans and allowance for loan loss data through
September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
---------------------------------
<S> <C> <C>
Average amount of loans outstanding $ 74,302 $ 71,437
=============== ===============
Balance of allowance for loan losses at beginning of period $ 1,073 $ 837
--------------- ---------------
Loans charged off
Commercial and financial $ 9 $ 1
Real estate mortgage - -
Instalment 49 54
--------------- ---------------
58 55
--------------- ---------------
Loans recovered
Commercial and financial - -
Real estate mortgage - -
Instalment 8 4
--------------- ---------------
8 4
--------------- ---------------
Net charge-offs 50 51
--------------- ---------------
Additions to allowance charged to operating expense during period 120 210
--------------- ---------------
Balance of allowance for loan losses at end of period $ 1,143 $ 996
=============== ===============
Ratio of net loans charged off during the period to
average loans outstanding .07% .07%
=============== ===============
</TABLE>
Other income was virtually unchanged for the three and nine month periods in
1999 as compared to the same periods in 1998 due to moderate deposit and overall
asset growth.
Other expenses increased for the three and nine month periods in 1999 as
compared to the same periods in 1998 by $107,000 and $265,000, respectively.
Increased salaries and employee benefits of $37,000 and $120,000, respectively,
and increased other operating expenses of $51,000 and $74,000, respectively,
accounted for the majority of the increase.
The Company's provision for income taxes was virtually unchanged for the three
and nine month periods in 1999 as compared to the same periods in 1998 due to
higher nontaxable income. The Company's effective tax rate decreased to 28.9%
for the first nine months of 1999 as compared to 29.9% to the same period in
1998.
14
<PAGE>
Capability of Data Processing Software to Accommodate the Year 2000
- -------------------------------------------------------------------
The Year 2000 Issue: As the end of this century draws near, there is worldwide
concern that Year 2000 technology problems may wreak havoc on global economies.
No country, government, business, or person is immune from the potential effects
of Year 2000 problems. The Year 2000 problem arose because many existing
computer systems and software programs use a two-digit year field. Because of
this, some computers will not properly recognize the turn of the century. A
computer with a two-digit year field may recognize the year 2000 as 1900. If not
corrected, many computer applications could fail or miscalculate data, creating
erroneous results.
The Company's State of Readiness: To address the Year 2000 problems, the Company
formed a "Year 2000 Project Team" made up of key employees. This team has been
charged with the responsibility of assessing the problem, overseeing corrective
action, as well as testing the Year 2000 readiness of all equipment, software,
and applications after upgrades have been made.
Critical systems, hardware, and software have received priority attention. As of
December 31, 1998, all critical systems have been upgraded or replaced and the
related software has been upgraded to meet Year 2000 standards and are presently
in the "testing phase" to ensure proper functioning in a Year 2000 environment.
These critical systems include our core bank processing hardware and Jack Henry
& Associates' CIF 20-20 software as well as Fedline communication system to the
Federal Reserve Bank, and our automated new accounts and loan document
preparation software. All critical station personal computers have been upgraded
or replaced with Year 2000 compliant hardware and software. Several other
software systems have been upgraded to be Year 2000 compliant and are currently
in the testing phase.
In addition to our primary core processing system, the bank has a backup data
processing site at Sungard Systems in Roswell, Georgia. This backup site has
already received hardware and software upgrades to bring the core backup system
to Year 2000 compliance standards. Management believes the backup site is Year
2000 compliant.
Since the Bank is heavily reliant on outside vendors for many services such as
electricity, phone service, water, gas, ATM processing, bond accounting, and
bank related forms, we have developed a system of obtaining vendor information
to help us determine a vendor's state of Year 2000 readiness. We are in the
process of obtaining and evaluating vendor provided information related to Year
2000.
Contingency Plans: Due to the critical nature of our core processing system and
our automated platform for new accounts and loan document preparation, we have
developed contingency plans that will be put into operation should any of these
systems not pass Year 2000 readiness testing. These plans have been developed to
minimize the impact of interruptions in business resulting from problems related
to the Year 2000. These plans encompass several alternative means, including
manual processing, to meet a minimum of services necessary to facilitate our
customers' banking needs.
Cost: After our assessment phase to determine the extent of our Year 2000
problem, our Board of Directors approved a budget in the amount of $200,000 to
address the Year 2000 issue. In order to ensure adequate funds are provided to
resolve Year 2000 issues, including those that may not be presently known, our
Year 2000 budget is subject to continuous review and amendment. Management does
not expect the cost of remediation to vary significantly from our present
budget, although there can be no assurances in this regard.
15
<PAGE>
Through September 30, 1999, we have experienced $146,800 in Year 2000 expenses.
This expense breaks down as follows: $13,300 for testing of hardware and
software, $118,300 for system upgrade and replacement, and $15,200 on education,
training, and customer awareness.
Consequences of Year 2000 Problems: For a bank, Year 2000 problems could be
devastating if loan or deposit interest accruals are not calculated properly. A
Year 2000- caused system crash could result in a disruption of business which in
turn could cause the bank to lose a significant portion of its customer base.
Either of which could result in material adverse consequences for the Bank.
Another area of Year 2000 concern for the Bank is customer awareness and
preparedness. In particular, loan customers who are not Year 2000 compliant
could experience business interruptions which could affect their ability to
repay debts owed to the Bank resulting in adverse bank performance. The customer
awareness and education expenses have been incurred in an effort to insure
customers are aware of the Year 2000 problem and understand the potential impact
on their business. Loan customers considered to have Year 2000 exposure and that
subject the bank to moderate potential credit risk were required to complete a
questionnaire in order to assess their Year 2000 readiness. No customers were
considered to pose a potential credit risk to the Bank.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to the Company's Year 2000 compliance
efforts and the impact of Year 2000 issues on the Company's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond the control of the Company.
Some of these factors include, but are not limited to representations by the
Company's vendors and counterparties, technological advances, economic
considerations, and consumer perceptions. The Company's Year 2000 compliance
program is an ongoing process involving continual evaluation and may be subject
to change in response to new developments.
The Company is not aware of any known trends, events, or uncertainties, other
than the effect of events as described above, that will have or that are
reasonably likely to have a material effect on its liquidity, capital resources,
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
A report on Form 8-K was filed on September 2, 1999 in which
the Company announced that it had signed a letter of intent
to merge with Century South Banks, Inc.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant 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 (Principal Executive Officer)
BY: /s/ Jeffrey D. Hunt
----------------------------------------------------
Jeffrey D. Hunt, Senior Vice President, Operations
(Principal Financial and Accounting Officer)
DATE: November 12, 1999
----------------------------------------------------
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,600,215
<INT-BEARING-DEPOSITS> 22,206
<FED-FUNDS-SOLD> 4,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,324,292
<INVESTMENTS-CARRYING> 15,800,150
<INVESTMENTS-MARKET> 15,457,000
<LOANS> 75,777,477
<ALLOWANCE> 1,142,906
<TOTAL-ASSETS> 120,891,140
<DEPOSITS> 106,677,075
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,214,133
<LONG-TERM> 1,493,205
0
0
<COMMON> 1,237,826
<OTHER-SE> 10,268,901
<TOTAL-LIABILITIES-AND-EQUITY> 120,891,140
<INTEREST-LOAN> 5,819,623
<INTEREST-INVEST> 1,129,435
<INTEREST-OTHER> 106,242
<INTEREST-TOTAL> 7,055,300
<INTEREST-DEPOSIT> 3,159,168
<INTEREST-EXPENSE> 3,226,499
<INTEREST-INCOME-NET> 3,828,801
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 3,708,801
<EXPENSE-OTHER> 2,262,064
<INCOME-PRETAX> 1,972,223
<INCOME-PRE-EXTRAORDINARY> 1,401,477
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,401,477
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 4.85
<LOANS-NON> 12,000
<LOANS-PAST> 2,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,073,000
<CHARGE-OFFS> 58,000
<RECOVERIES> 8,000
<ALLOWANCE-CLOSE> 1,143,000
<ALLOWANCE-DOMESTIC> 1,143,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
