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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission file number: 33-28050-A
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FIRST CLAYTON BANCSHARES, INC.
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(Name of small business issuer in its charter)
Georgia 58-1823105
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Village Shopping Center, Hwy. 441, Clayton, Georgia 30525
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (706) 782-7100
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
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. $5,079,000
As of March 11, 1997 registrant had 400,391 outstanding shares of common stock,
$1 par value per share, which is the registrant's only class of common stock.
There is no established market for the common stock of the registrant.
Therefore, the aggregate market value of the voting stock held by nonaffiliates
of the registrant is not known.
DOCUMENTS INCORPORATED BY REFERENCE
None
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
First Clayton Bancshares, Inc. (the "Company" or "First Clayton") is a
one-bank holding company which engages through its subsidiary, First Clayton
Bank and Trust Company (the "Bank"), in providing full banking services to
customers of the Bank. The Company's executive offices are located at U. S. 441
Village Center, Clayton, Georgia 30525, and its telephone number is (706) 782-
7100.
The Company was incorporated on February 3, 1989 as a Georgia business
corporation. On February 2, 1990, the Company purchased all of the shares of
common stock of First Clayton Bank and Trust Company. The Company's primary
business is to manage the business and affairs of its bank subsidiary. The
Company's subsidiary bank provides a full range of banking services to its
customers, except for trust services. The Bank is organized under the laws of
the State of Georgia. The Bank is a nonmember of the Federal Reserve and
utilizes The Bankers Bank as its primary correspondent bank.
MARKET AREA AND COMPETITION
The Bank's office is located in the Village Shopping Center at U. S. 441,
Clayton, Georgia. The Bank competes primarily with two other commercial banks,
Regions Bank and Rabun County Bank. In addition, the Bank competes with other
financial institutions, including one savings and loan association, two finance
companies and several credit unions. The banking industry continues to
experience increased competition for deposits from money market mutual funds.
The Bank's primary market area is Rabun County.
The banking industry in Georgia is highly competitive. In recent years,
intense market demands, economic pressures, and increased customer awareness of
product and service differences among financial institutions have forced banks
to diversify their services and become more cost effective. The Bank faces
strong competition in attracting deposits and making loans.
The most direct competition for deposits comes from other commercial
banks, thrift institutions, credit unions and issuers of securities such as
shares in money market funds. Interest rates, convenience of office locations,
and marketing are all significant factors in the Bank's competition for
deposits.
Competition for loans comes from other commercial banks, thrift
institutions, savings banks, insurance companies, consumer finance companies,
credit unions and other institutional lenders. The Bank competes for loan
originations through the interest rates and loan fees it charges and the
efficiency and quality of services it provides. Competition is affected by the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors that are not readily predictable.
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Management expects that competition will remain intense in the future due
to state and Federal laws and regulations and the entry of additional bank and
nonbank competitors. SEE SUPERVISION AND REGULATION.
LENDING ACTIVITIES
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The Bank makes loans primarily secured by real estate for single family home
construction, owner-occupied commercial buildings, and other loans to small
businesses and individuals who secure these loans by mortgages on their homes.
In addition, loans are made to small- and medium-sized commercial businesses, as
well as to consumers for a variety of purposes.
The Bank makes secured and unsecured commercial loans, principally to
smaller business enterprises, and extends consumer and commercial instalment
loans to existing customers. The Bank also lends to a limited number of
residential real estate contractors and developers in the Lake Rabun area. The
Bank makes loans occasionally in bordering North Carolina.
The Bank's commercial lending includes loans to smaller business ventures,
credit lines for working capital and short-term seasonal or inventory financing,
as well as occasional letters of credit. Commercial borrowers typically secure
their loans with assets of the business as well as personal guaranties of their
principals, often secured by second mortgages on their residences.
The Bank provides commercial and consumer instalment loans to its customers.
Such loans are typically of multiple-year duration, secured by the property
financed thereby, and, if not variable rate, bear interest at a rate tied to the
Bank's cost of funds of equivalent maturity. Commercial instalment loans
typically finance commercial equipment, while consumer instalment loans are
typically for automobiles, consumer products, or home improvements.
Risks associated with loans made by the Bank include, but are not limited
to, fraud, deteriorated or non-existing collateral, general economic downturn,
and customer financial problems.
The Bank's Board of Directors establishes and periodically reviews the
Bank's lending policies and procedures. State banking regulations provide that
no secured loan relationship may exceed 25% of the Bank's statutory capital and
no unsecured loan relationship may exceed 15% of the Bank's statutory capital.
The Bank sells participation interests in loans to other lenders when a loan
exceeds the Bank's legal lending limits.
DEPOSITS
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Checking, savings and money market accounts and other time accounts are the
primary sources of the Bank's funds for loans and investments. The Bank obtains
most of its deposits from individuals and from businesses in its market area.
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The Bank does not attract new or retain old deposits by paying depositors
rates of interest on certificates of deposit and money market accounts
significantly above rates paid by other local banks. The Bank has never
accepted deposits for which a broker's commission was paid.
INVESTMENT ACTIVITIES
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After establishing necessary cash reserves and funding loans, the Bank
invests its remaining liquid assets in investments allowed under banking laws
and regulations. The Bank invests primarily in obligations of the United States
or obligations guaranteed as to principal and interest by the United States,
other taxable securities and in certain obligations of states and
municipalities. The Bank also engages in Federal funds transactions with its
principal correspondent banks and primarily acts as a net seller of such funds.
The sale of Federal funds amounts to a short term loan from the Bank to another
bank. Risks associated with these investments include, but are not limited to,
mismanagement in terms of interest rate, maturity and concentration.
Traditionally, losses associated with the investment portfolio have been
minimal.
ASSET/LIABILITY MANAGEMENT
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It is the objective of the Bank to manage its assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
officers of the Bank are charged with the responsibility for developing and
monitoring policies and procedures that are designed to insure acceptable
composition of the asset/liability mix. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of the
Bank's assets in loans. The Bank's asset/liability mix is monitored on a
periodic basis with a report reflecting interest-sensitive assets and interest-
sensitive liabilities being prepared and presented to the Bank's Board of
Directors on a monthly basis. The objective of this policy is to manage
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on the Bank's earnings.
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SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). As such, the Company and its
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, after 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 has the
ability either to "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and prohibit interstate branching
altogether.
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In February 1996, the Georgia Legislature adopted the "Georgia Interstate
Branching Act" effective June 1, 1997. The Georgia Interstate Branching Act
will permit Georgia-based banks and bank holding companies owning or acquiring
banks outside of Georgia and all non-Georgia banks and bank holding companies
owning or acquiring banks in Georgia 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 beginning July 1, 1996.
Beginning July 1, 1998, the number of de novo branches which may be established
will no longer be limited.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act
does not place territorial limitations on permissible non-banking activities of
bank holding companies. Despite prior approval, the Federal Reserve has the
power to order a holding company or its subsidiaries to terminate any activity
or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that continuation of such activity or such ownership
or control constitutes a serious risk to the financial safety, soundness, or
stability of any bank subsidiary of that bank holding company.
The bank subsidiary of the Company is a member of the Federal Deposit
Insurance Corporation (the "FDIC"), and as such, its deposits are insured by the
FDIC to the maximum extent provided by law. Such subsidiary is also subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations, and it is supervised and examined by one or more
state or federal bank regulatory agencies.
The FDIC and the Georgia Department of Banking and Finance (the "Georgia
Department") regularly examines the operations of the Bank and are given
authority to approve or disapprove mergers, consolidations, the establishment of
branches, and similar corporate actions. The FDIC and the Georgia Department
also have the power to prevent the continuance or development of unsafe or
unsound banking practices or other violations of law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking
subsidiary. The principal sources of cash flow of the Company, including cash
flow to pay dividends to its stockholders, are dividends by the Bank. There are
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statutory and regulatory limitations on the payment of dividends by the Bank to
the Company as well as by the Company to its stockholders.
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, 1996, under dividend restrictions imposed under federal and
state laws, the Bank, without obtaining governmental approvals, could declare
aggregate dividends to the Company of approximately $366,000.
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 December 31, 1996, 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 17.88%
and 16.63%, respectively.
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In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1996 was 10.13%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Bank is subject to risk-based and leverage capital requirements adopted
by the FDIC, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies.
The Bank was in compliance with applicable minimum capital requirements as
of December 31, 1996. 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 have
concurrently proposed a methodology for evaluating interest rate risk which
would require banks with excessive interest rate risk exposure to hold
additional amounts of capital against such exposures. The market risk rules
will apply to any bank or bank holding company whose trading activity equals 10%
or more of its total assets, or whose trading activity equals $1 billion or
more.
SUPPORT OF SUBSIDIARY INSTITUTION
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength for, and to commit resources to support, its banking
subsidiary. 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
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capital loans by a bank holding company to any banking subsidiary is subordinate
in right of payment to deposits and to certain other indebtedness of such bank.
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 stockholders 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 institution of the Company is subject to these cross-
guarantee provisions. As a result, any loss suffered by the FDIC in respect of
this subsidiary 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 institution.
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.
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The capital levels established for each of the categories are as follows:
<TABLE>
<CAPTION>
Total Tier 1
Capital Category Tier 1 Risk-Based Risk- Other
Capital Capital Based
Capital
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or Not
more subject to
a capital
directive
- --------------------------------------------------------------------------------
Adequately Capitalized 4% or more 8% or more 4% or --
more
- --------------------------------------------------------------------------------
Undercapitalized less than less than 8% less than --
4% 4%
- --------------------------------------------------------------------------------
Significantly less than less than 6% less than --
Undercapitalized 3% 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 December 31, 1996, the Bank had the requisite capital levels to qualify
as well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
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to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, 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 final risk-based assessment system, as well as the prior transitional
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied. Assessment rates for members of both the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF") for the first half
of 1995, as they had during 1994, ranged from 23 basis points (0.23% of
deposits) for an institution in the highest category (i.e., "well capitalized"
and "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of
time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning 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, on July 28, 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the disparity
between the assessment rates on BIF and SAIF deposits following recapitalization
of the SAIF.
A variation of this proposal designated 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).
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In addition, the FDIC proposed 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 FICO assessments. Effective January 1, 1997, FICO
assessments will be 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. The Funds Act further provides that BIF and SAIF are to be merged,
creating the "Deposit Insurance Fund," on January 1, 1999, provided that bank
and savings association charters are combined by that date.
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 which contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed regulation or statute will be adopted or the
extent to which the business of the Company may be affected by such regulation
or statute.
Monetary Policy
---------------
The earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The Federal Reserve has had, and will continue to have, an important impact
on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to mitigate recessionary
and inflationary pressures by regulating the national money supply. The
techniques used by the Federal Reserve include setting the reserve requirements
of member banks and establishing the discount rate on member bank borrowings.
The Federal Reserve also conducts open market transactions in United States
government securities.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate office and the Bank are located in the Village
Shopping Center at U. S. 441, Clayton, Georgia and is owned by the Bank. This
property consists of a two-story building which contains approximately 12,500
square feet of heated floor space.
ITEM 3. LEGAL PROCEEDINGS
Neither the registrant nor its subsidiary bank is a party to, nor is any
of their property the subject of, any material pending legal proceedings, other
than ordinary routine proceedings incidental to the business of the Bank, nor
to the knowledge of the management of the registrant are any such proceedings
contemplated or threatened against it or its subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the registrant's stockholders
during the fourth quarter of 1996.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) There currently is no public market for the common stock of the
registrant.
(b) As of March 11, 1997, there were approximately 382 holders of record of
the registrant's common stock.
(c) The Company paid a dividend on its common stock of $.44 and $.40 per
share for the fiscal years 1996 and 1995, respectively.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The purpose of this discussion is to focus on information about the
Company's consolidated financial condition and results of operations which is
not otherwise apparent from the financial statements included in this Annual
Report. Reference should be made to those statements and the selected financial
data presented elsewhere in this report for an understanding of the following
discussion and analysis.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to provide adequate sources of funds for
funding loan commitments and investment activities, as well as the ability to
provide sufficient funds to cover deposit withdrawals and financing of
operations. These funds are obtained by converting assets to cash (representing
primarily proceeds from collections on loans and maturities of securities) or
by attracting and obtaining new deposits. During 1996, the Company was
successful in obtaining deposits as evidenced by the fact that average deposits
increased by 19% to $47,892,000 in 1996 from average deposits of $40,271,000 in
1995. This growth was attributed to movement of deposits from other local
institutions which have been acquired by holding companies outside the Rabun
County area and the customers preference to bank with a locally owned financial
institution.
The Company's liquidity position remained satisfactory in 1996. Average
liquid assets (cash and amounts due from banks, interest-bearing deposits in
banks, Federal funds sold and securities) represented 31.30% of average
deposits in 1996 as compared to 37.31% in 1995. This level of liquidity is
above the Bank's target ratio of 30%.
14
<PAGE>
During 1996, net earnings were retained in the amount of $550,000. Equity
decreased by $42,000 from unrealized losses on securities available-for-sale,
net of tax, and decreased $408,000 due to the purchase of treasury stock.
Therefore, total equity increased by a net amount of $100,000 in 1996. In 1995,
growth in equity was provided by retained earnings of $448,000, plus unrealized
gains on securities of $85,000 and a decrease of $7,000 due to the purchase of
treasury stock.
At December 31, 1996, total capital of First Clayton was approximately
$5,280,000. At December 31, 1996, there were no outstanding commitments for any
major capital expenditures.
The FDIC has issued risk-based capital guidelines for U. S. banking
organizations. The objective of these efforts was to provide a more uniform
capital framework that is sensitive to differences in risk assets among banking
organizations. The guidelines define a two-tier capital framework. Tier 1
capital consists of common stock, surplus and retained earnings. Tier 2
capital consists of certain convertible, subordinated and other qualifying term
debt and the allowance for loan losses up to 1.25% of risk-weighted assets.
The Company has no Tier 2 capital other than the allowance for loan losses.
Based upon the capital requirements in effect at the end of 1996, the Tier
1 ratio at December 31, 1996 was 15.14% and total Tier 2 risk-based capital was
16.39%. Both of these measures compare favorably with the regulatory minimum
requirement of 4% for Tier 1 and 8% for total risk-based capital. The
Company's leverage ratio was 9.23% at December 31, 1996 which exceeds the
minimum required leverage ratio of 4%.
The Company paid dividends of $.44 and $.40 per share for the years 1996
and 1995, respectively. The dividend payout ratio, defined as dividends per
share divided by net income per share, was 24.72% in 1996 and 27.40% for 1995.
At December 31, 1996, management was not aware of any recommendations by
regulatory authorities which, if they were to be implemented, would have a
material effect on the Company's liquidity, capital resources or operations.
RESULTS OF OPERATIONS
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the Bank's ability to obtain an adequate spread between the
rate earned on interest-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, which is net interest income divided by average
earning assets.
15
<PAGE>
Interest-earning assets consist of loans, securities, interest-bearing
deposits in banks and Federal funds sold. Interest-bearing liabilities consist
solely of interest-bearing deposits.
The net interest margin decreased by .06% to 4.93% in 1996 as compared to
4.99% in 1995. The yield on average interest-earning assets decreased in 1996
to 9.63% from 9.72% in 1995, while the interest paid on average interest-bearing
liabilities decreased from 5.41% in 1995 to 5.34% in 1996. The net of these
changes resulted in net interest income of $2,448,000 in 1996 as compared to
$2,096,000 in 1995, representing an increase of 16.79%. Although the net
interest margin, the average rate paid decreased on interest-bearing
liabilities, and the yield on interest-earning assets decreased, the increase in
volume of interest-earning assets enabled the Company to increase its net
interest income. This is further illustrated in Table 2, "Rate and Volume
Analysis".
Average total assets increased by 17.37% to $53,385,000 in 1996 as
compared to $45,485,000 in 1995. Average interest-earning assets increased by
18.23% in 1996 over 1995. Loan demand was steady in 1996 as average loans
increased 28% from $28,450,000 to $36,319,000. In addition to the steady loan
demand, the Bank's average securities increased by 16.09% from $10,106,000 in
1995 to $11,732,000 in 1996. Both the loan and securities growth were funded by
a net increase in average deposits of 18.92% from $40,271,000 in 1995 to
$47,892,000 in 1996. As mentioned earlier, a significant portion of the growth
in deposits and loans can be attributed to the Bank now being the only locally-
owned financial institution in its market.
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
determines to be adequate. The provision for loan losses charged to earnings
amounted to $186,000 in 1996 and $76,500 in 1995. The provisions resulted from
management's evaluation of the loan portfolio and the potential loan risk
associated with certain loans and a general reserve for loans not specifically
identified. The charge-offs incurred are not attributable to any one industry
or type of loan. A significant portion of the provision for loan losses in 1996
is related to the growth of total loans during the year. Net loan charge-offs
as a percentage of average loans was .22% in 1996 and .06% in 1995. The
allowance for loan losses as a percentage of total loans outstanding at December
31, 1996 and 1995 amounted to 1.05% and 1.10%, respectively. The determination
of the amounts allocated for loan losses is based upon management's judgment
concerning factors affecting loan qualify and assumptions about the local and
national economy. Management considers the allowance for loan losses at
December 31, 1996 to be adequate to cover potential losses in the loan
portfolio.
16
<PAGE>
Following is a comparison of noninterest income for 1996 and 1995.
DECEMBER 31,
------------------------
1996 1995
------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS $ 210,000 $ 185,000
OTHER SERVICE CHARGES, COMMISSIONS AND FEES 38,000 45,000
NET REALIZED GAINS ON SECURITIES
AVAILABLE-FOR-SALE 1,000 -
OTHER INCOME 49,000 29,000
---------- ----------
$ 298,000 $ 259,000
========== ==========
OTHER NONINTEREST INCOME INCREASED BY $39,000 OR 15.06% DURING 1996.
SERVICE CHARGES ON DEPOSIT ACCOUNTS INCREASED BY $25,000 OR 13.51% WHILE
COMMISSIONS ON CREDIT LIFE INCOME DECREASED BY $7,000 OR 15.56%. OTHER INCOME
INCREASED BY $20,000 OR 68.97% FROM 1995 TO 1996 DUE TO AN INCREASE IN ATM FEE
INCOME. THESE INCREASES ARE DIRECTLY RELATED TO THE SIGNIFICANT INCREASE IN
DEPOSITS DURING THE YEAR.
FOLLOWING IS AN ANALYSIS OF NONINTEREST EXPENSE FOR 1996 AND 1995.
DECEMBER 31,
---------------------------
1996 1995
---------------------------
SALARIES AND EMPLOYEE BENEFITS $ 680,000 $ 614,000
OCCUPANCY AND EQUIPMENT EXPENSE 284,000 253,000
STATIONERY AND SUPPLIES 95,000 73,000
DIRECTORS' FEES 64,000 64,000
OTHER EXPENSE 408,000 346,000
---------- ----------
$1,531,000 $1,350,000
========== ==========
THE MOST SIGNIFICANT NONINTEREST EXPENSE IS SALARIES AND EMPLOYEE
BENEFITS WHICH REPRESENTS APPROXIMATELY 45% OF TOTAL NONINTEREST EXPENSE FOR
BOTH 1996 AND 1995. THE INCREASE IN SALARIES AND EMPLOYEE BENEFITS IS
ATTRIBUTABLE TO AN INCREASE OF 2 EMPLOYEES IN 1996 PLUS NORMAL INCREASES IN
SALARIES AND BENEFITS. OTHER EXPENSES INCREASED DURING 1996 TO $408,000 FROM
$346,000 IN 1995 OR 17.92%. THE LARGEST INCREASE WAS IN CONSULTING FEES WHICH
INCREASED $46,000 DURING 1996. INCOME TAX EXPENSE DECREASED BY $8,000 AND
RESULTED IN A 30% EFFECTIVE TAX RATE FOR 1996 AS COMPARED TO AN EFFECTIVE RATE
OF 33% IN 1995.
SELECTED STATISTICAL INFORMATION OF FIRST CLAYTON BANCSHARES, INC.
The following statistical information is provided for First Clayton
Bancshares, Inc. for the years ended December 31, 1996 and 1995. This data
should be read in conjunction with the consolidated financial statements
appearing elsewhere in this Annual Report.
17
<PAGE>
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
The following table sets forth the amount of 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. Federally tax-exempt income is not
presented on a tax-equivalent basis. Included are the condensed average balance
sheets for the periods as well.
TABLE 1 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIALS
<TABLE>
<CAPTION>
1996 1995
--------- ----------
Average Income or Yields/ Average Income or Yields/
Balances(1) Expense Rates Balances(1) Expense Rates
----------- --------- -------- ----------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxable securities 9,798 616 6.29% 8,708 563 6.47%
Nontaxable securities 1,934 90 4.65 1,398 64 4.58
Unrealized losses on securities (11) -- -- (14) 0 0.00
Federal funds sold 1,598 88 5.51 3,436 202 5.88
Loans (2)(4) 36,319 3,987 10.98 28,450 3,253 11.43
Allowance for loan losses (367) (311)
Cash and due from banks 1,690 1,483
Other assets 2,424 2,335
------ ----- ------ -----
Total 53,385 4,781 45,485 4,082
====== ===== ====== =====
Total interest-earning assets 49,649 9.63% 41,992 9.72%
====== ======
Noninterest-bearing demand 4,191 3,586
Interest-bearing demand & savings 11,523 375 3.25% 9,479 325 3.43%
Time 32,178 1,958 6.08 27,206 1,661 6.11
------ ----- ------ -----
Total deposits 47,892 2,333 40,271 1,986
Other liabilities 235 227
Stockholders' equity (3) 5,258 4,987
------ ------
Total 53,385 2,333 45,485 1,986
====== ===== ====== =====
Total interest-bearing liabilities 43,701 5.34% 36,685 5.41%
====== ======
Net interest income 2,448 2,096
===== =====
Net interest spread 4.29% 4.31%
Net yield on average interest-earning assets 4.93% 4.99%
</TABLE>
(1) Average balances were determined using the daily average balances during
the year for each category.
(2) Average loans include nonaccrual loans.
(3) In accordance with FASB 115, unrealized losses on securities available for
sale have been included in stockholders' equity at $7,000 and $9,000 for
1996 and 1995, respectively, which are the average balances for the years,
net of average taxes.
(4) Interest and fees on loans include $238,232 and $201,331 of loan fee income
for the years ended December 31, 1996 and 1995, respectively. Also included
in interest and fees on loans is $591 and $3,292 of interest recognized on
nonaccrual loans in 1996 and 1995, respectively.
18
<PAGE>
TABLE 2 - RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
year indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (1)
change in volume (change in volume multiplied by old rate); (2) change in rate
(change in rate multiplied by old volume); and (3) a combination of change in
rate and change in volume. The changes in interest income and interest expense
attributable to both volume and rate have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 TO 1995
--------------------------------
DOLLARS IN THOUSANDS
--------------------------------
INCREASE (DECREASE)
DUE TO CHANGES IN
RATE VOLUME TOTAL
--------------------------------
<S> <C> <C> <C>
INCOME FROM INTEREST-EARNING ASSETS:
INTEREST AND FEES ON LOANS (125) 859 734
INTEREST ON TAXABLE SECURITIES (15) 68 53
INTEREST ON NONTAXABLE SECURITIES 1 25 26
INTEREST ON FEDERAL FUNDS SOLD (12) (102) (114)
------- ------- -----
TOTAL INTEREST INCOME (151) 850 699
------- ------- -----
EXPENSE FROM INTEREST-BEARING LIABILITIES:
INTEREST ON INTEREST-BEARING DEMAND (16) 66 50
DEPOSITS
INTEREST ON TIME DEPOSITS (6) 303 297
------- ------- -----
TOTAL INTEREST EXPENSE (22) 369 347
------- ------- -----
NET INTEREST INCOME (129) 481 352
======= ======= =====
</TABLE>
19
<PAGE>
ASSET/LIABILITY MANAGEMENT
The following table sets forth the distribution of the repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1996, 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 interest rate sensitivity gap ratio. The table also sets
forth the time periods in which interest-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.
<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 $ 4 $ $ $ $ 4
FEDERAL FUNDS SOLD 370 370
SECURITIES 1,202 700 7,832 1,970 11,704
LOANS (1) 12,726 22,027 6,918 552 42,223
--------- ----------- ---------- ---------- ---------
TOTAL INTEREST-EARNING ASSETS 14,302 22,727 14,750 2,522 54,301
--------- ----------- ---------- ---------- ---------
INTEREST-BEARING LIABILITIES:
INTEREST-BEARING DEMAND DEPOSITS 9,248 9,248
SAVINGS 2,962 2,962
TIME DEPOSITS, LESS THAN $100,000 5,809 13,776 3,557 23,142
TIME DEPOSITS, $100,000 AND OVER 3,624 8,311 957 100 12,992
--------- ----------- ---------- ---------- ---------
TOTAL INTEREST-BEARING LIABILITIES 21,643 22,087 4,514 100 48,344
--------- ----------- ---------- ---------- ---------
INTEREST RATE SENSITIVITY GAP $ (7,341) $ 640 $ 10,236 $ 2,422 $ 5,957
========= =========== ========== ========== =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (7,341) $ (6,701) $ 3,535 $ 5,957
========= =========== ========== ==========
INTEREST RATE SENSITIVITY GAP RATIO 0.66 1.03 3.27 25.22
========= =========== ========== ==========
CUMULATIVE INTEREST RATE SENSITIVITY
GAP RATIO 0.66 0.85 1.07 1.12
========= =========== ========== ==========
</TABLE>
(1) NONACCRUAL LOANS ARE INCLUDED AS REPRICING WITHIN THREE MONTHS.
OTHER THAN THE THREE MONTH TIME PERIOD, THE COMPANY IS WITHIN ITS TARGET RANGE
OF 80% TO 120% CUMULATIVE GAP RATIO. THE THREE MONTH PERIOD INCLUDES ALL
INTEREST-BEARING DEMAND AND SAVINGS ACCOUNTS WHICH TYPICALLY ARE CONSIDERED
LONG-TERM CORE DEPOSITS.
20
<PAGE>
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 82% OF THE LOAN PORTFOLIO IS COMPRISED OF LOANS WHICH ARE
VARIABLE RATE TERMS OR SHORT-TERM OBLIGATIONS. MORTGAGE LOANS ARE ALSO MADE ON
A VARIABLE RATE BASIS WITH RATES BEING ADJUSTED AT LEAST ANNUALLY, WITH MOST
ADJUSTED QUARTERLY.
SECURITIES PORTFOLIO
The carrying amounts of securities at the dates indicated are summarized
as follows:
DECEMBER 31,
----------------------
1996 1995
----------------------
(DOLLARS IN THOUSANDS)
----------------------
U. S. TREASURY AND OTHER U. S. GOVERNMENT AGENCIES
AND CORPORATIONS $ 9,489 $ 10,082
STATE AND MUNICIPAL SECURITIES 2,215 1,805
--------- ---------
$ 11,704 $ 11,887
--------- ---------
MATURITIES
The carrying amounts of securities in each category as of December 31,
1996 are shown in the following table according to maturity classifications (1)
one year or less, (2) after one year through five years, (3) after five years
through ten years and (4) after ten years.
U. S. TREASURY
AND OTHER U. S. STATE AND
GOVERNMENT MUNICIPAL
AGENCIES
AND CORPORATIONS SECURITIES
------------------ --------------------
CARRYING YIELD CARRYING YIELD
AMOUNT (1) AMOUNT (1) (2)
------------------ --------------------
(DOLLARS IN THOUSANDS)
----------------------------------------
MATURITY:
ONE YEAR OR LESS $ 1,401 6.11% $ 100 4.40%
AFTER ONE YEAR THROUGH FIVE YEARS 6,945 6.16 983 4.88
AFTER FIVE YEARS THROUGH TEN YEARS 1,143 6.09 531 4.21
AFTER TEN YEARS 601 5.01
--------- --------
$ 9,489 6.14% $ 2,215 4.73%
========= ========
21
<PAGE>
(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 CARRYING VALUE OF EACH SECURITY IN THAT RANGE.
(2) YIELDS ON MUNICIPAL SECURITIES ARE NOT STATED ON A TAX EQUIVALENT BASIS.
LOAN PORTFOLIO
TYPES OF LOANS
The amount of loans outstanding at the indicated dates are shown in the
following table according to the type of loan.
DECEMBER 31,
----------------------
1996 1995
----------------------
(DOLLARS IN THOUSANDS)
----------------------
COMMERCIAL, FINANCIAL AND AGRICULTURAL $ 649 $ 1,169
REAL ESTATE - CONSTRUCTION 902 527
REAL ESTATE - MORTGAGE 28,920 20,757
CONSUMER 11,748 8,255
OTHER 4 57
--------- ---------
42,223 30,765
LESS ALLOWANCE FOR LOAN LOSSES 445 (339)
--------- ---------
LOANS, NET $ 41,778 $ 30,426
========= =========
MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
Total loans as of December 31, 1996 are shown in the following table
according to maturity classifications (1) one year or less, (2) after one year
through five years, and (3) after five years. The disclosure of loans by the
above categories is not available and preparation of such information would
involve undue burden and expense to the Company. In making this determination,
the Company has considered the estimated expense and capabilities of its data
processing system.
(DOLLARS IN
THOUSANDS)
-------------
MATURITY:
ONE YEAR OR LESS $ 18,496
AFTER ONE YEAR THROUGH FIVE YEARS 9,291
AFTER FIVE YEARS 14,436
-----------
$ 42,223
===========
22
<PAGE>
THE FOLLOWING TABLE SUMMARIZES LOANS AT DECEMBER 31, 1996 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 $ 7,398
FLOATING OR ADJUSTABLE INTEREST RATES 16,329
-----------
$ 23,727
===========
RISK ELEMENTS
The following table presents at the dates indicated the aggregate of
nonperforming loans for the categories indicated.
DECEMBER 31,
----------------------
1996 1995
----------------------
(DOLLARS IN THOUSANDS)
----------------------
LOANS ACCOUNTED FOR ON A NONACCRUAL BASIS $ 52 $ 103
INSTALMENT LOANS AND TERM LOANS CONTRACTUALLY PAST DUE
NINETY DAYS OR MORE AS TO INTEREST OR PRINCIPAL
PAYMENTS AND STILL ACCRUING 251 65
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 - -
THE REDUCTION IN INTEREST INCOME ASSOCIATED WITH NONACCRUAL LOANS AS OF
DECEMBER 31, 1996 IS AS FOLLOWS:
INTEREST INCOME THAT WOULD HAVE BEEN
RECORDED ON NONACCRUAL LOANS UNDER ORIGINAL TERMS $ 7,083
=========
INTEREST INCOME THAT WAS RECORDED ON NONACCRUAL LOANS $ 591
=========
MANAGEMENT CONSIDERS ALL NONACCRUAL LOANS TO BE IMPAIRED IN ACCORDANCE WITH
FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") NO. 114 AND 118. LOANS PAST DUE
GREATER THAN NINETY DAYS AND STILL ACCRUING REPRESENTS THOSE LOANS WHICH HAVE
ADEQUATE COLLATERAL VALUES, THEREFORE MINIMIZING THE RISK OF LOSS OF PRINCIPAL
OR INTEREST.
23
<PAGE>
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 (1) REPRESENT OR RESULT FROM TRENDS OR UNCERTAINTIES WHICH MANAGEMENT
REASONABLY EXPECTS WILL MATERIALLY IMPACT FUTURE OPERATING RESULTS, LIQUIDITY OR
CAPITAL RESOURCES, OR (2) 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 and standby letters of 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. These commitments are recorded in the financial statements when
funds are disbursed or the financial instruments become payable. The Bank uses
the same credit policies for these off balance sheet commitments as it does for
financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1996
and 1995.
1996 1995
----------------------
(DOLLARS IN THOUSANDS)
----------------------
COMMITMENTS TO EXTEND CREDIT $ 4,027 $ 4,047
STANDBY LETTERS OF CREDIT - 104
---------- --------
$ 4,027 $ 4,151
========== ========
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for 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 $445,000 at December 31, 1996,
representing 1.05% of year end total loans outstanding, compared with $339,000
at December 31, 1995, which represented 1.10% of year end total loans
outstanding. The allowance for loan losses is reviewed periodically and, 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.
24
<PAGE>
Management has not allocated the Company's allowance for loan losses to
specific categories of loans. Based on management's best estimate,
approximately 30% of the allowance should be allocated to real estate loans, 40%
to commercial, financial and agricultural loans and 30% to consumer loans as of
December 31, 1996.
PERCENT OF LOANS IN EACH CATEGORY OF TOTAL
LOANS
---------------------------------------------
1996 1995
---------------------- ---------------------
Commercial 2% 4%
Real estate 71 69
Consumer 27 27
---------------------- ---------------------
100% 100%
---------------------- ---------------------
The following table summarizes average loan balances for each year
determined using the daily average balances during the year; changes in the
allowance for loan losses arising from loans charged off and recoveries on loans
previously charged off; additions to the allowance which have been charged to
operating expense; and the ratio of net charge-offs during the period to average
loans.
DECEMBER 31,
-----------------------
1996 1995
----------- ---------
(DOLLARS IN THOUSANDS)
-----------------------
AVERAGE AMOUNT OF LOANS OUTSTANDING $ 36,319 $ 28,450
========= =========
BALANCE OF ALLOWANCE FOR LOAN LOSSES AT BEGINNING
OF YEAR $ 339 $ 280
--------- ---------
CHARGE-OFFS:
CONSUMER (47) (26)
COMMERCIAL (47) -
--------- ---------
(94) (26)
--------- ---------
RECOVERIES, CONSUMER 14 8
--------- ---------
NET CHARGE-OFFS (80) (18)
--------- ---------
ADDITIONS TO ALLOWANCE CHARGED TO OPERATING
EXPENSES 186 77
--------- ---------
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR $ 445 $ 339
========= =========
RATIO OF NET LOAN CHARGE-OFFS DURING THE
YEAR TO AVERAGE LOANS OUTSTANDING DURING
THE YEAR 0.22% 0.06%
========= =========
25
<PAGE>
DEPOSITS
Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below. (1)
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
----------------- ---------------
AMOUNT RATE AMOUNT RATE
----------------- ---------------
(DOLLARS IN THOUSANDS)
----------------------------------
NONINTEREST-BEARING DEMAND DEPOSITS $ 4,191 -% $ 3,586 -%
INTEREST-BEARING DEMAND AND SAVINGS 11,523 3.25 9,479 3.43
DEPOSITS
TIME DEPOSITS 32,178 6.08 27,206 6.11
----------- ---------
TOTAL DEPOSITS $ 47,892 $ 40,271
=========== =========
THE AMOUNTS OF TIME CERTIFICATES OF DEPOSIT ISSUED IN AMOUNTS OF $100,000
OR MORE AS OF DECEMBER 31, 1996 ARE SHOWN BELOW BY CATEGORY, WHICH IS BASED ON
TIME REMAINING UNTIL MATURITY OF (1) THREE MONTHS OR LESS, (2) OVER THREE
THROUGH SIX MONTHS (3) OVER SIX THROUGH TWELVE MONTHS AND (4) OVER TWELVE
MONTHS.
(DOLLARS IN
THOUSANDS)
THREE MONTHS OR LESS $ 3,624
OVER THREE MONTHS THROUGH SIX MONTHS 4,412
OVER SIX MONTHS THROUGH TWELVE MONTHS 3,899
OVER TWELVE MONTHS 1,057
--------
TOTAL $ 12,992
========
(1) AVERAGE BALANCES WERE DETERMINED USING THE DAILY AVERAGE BALANCES DURING
THE YEAR FOR EACH CATEGORY.
26
<PAGE>
RETURN ON EQUITY AND ASSETS
The following rate of return information for the periods indicated is
presented below.
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
------------ ---------
RETURN ON ASSETS (1) 1.36% 1.36%
RETURN ON EQUITY (2) 13.80 12.39
DIVIDEND PAYOUT RATIO (3) 24.72 27.40
EQUITY TO ASSETS RATIO (4) 9.85 10.96
(1) NET INCOME DIVIDED BY AVERAGE TOTAL ASSETS.
(2) NET INCOME DIVIDED BY AVERAGE EQUITY.
(3) DIVIDENDS DECLARED PER SHARE DIVIDED BY NET INCOME PER SHARE.
(4) AVERAGE EQUITY DIVIDED BY AVERAGE TOTAL ASSETS.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiary are included on pages F-1 through F-23 of this Annual Report on Form
10-KSB.
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years Ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December 31,
1996 and 1995
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During 1996, the Company did not change accountants and there was no
disagreement on any matter of accounting principles or practices for financial
statement disclosure that would have required the filing of a current report on
Form 8-K.
27
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the respective names, ages and positions
with the Company and the Bank, other directorships and principal occupations of
the members of the Board of Directors and the executive officers of the Company
and the Bank.
<TABLE>
<CAPTION>
POSITIONS WITH THE PRINCIPAL OCCUPATION
NAME (AGE) COMPANY AND THE BANK DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
ROBERT H. BLALOCK (49) DIRECTOR OF THE COMPANY PRESIDENT, BLALOCK
(DIRECTOR SINCE 1989) AND BANK INSURANCE
CO., INC.
LAMAR EDWARDS (51) TREASURER OF THE PROFESSIONAL SURVEYOR,
(DIRECTOR SINCE 1989) COMPANY PRESIDENT, EDWARDS &
AND DIRECTOR OF THE ASSOCIATES, INC.
COMPANY AND BANK
ELIZABETH FOWLER (61) VICE CHAIRMAN AND DIETARY CONSULTANT TO RABUN
(DIRECTOR SINCE 1989) DIRECTOR OF THE COUNTY MEMORIAL HOSPITAL
COMPANY AND BANK AND WOODRIDGE HOSPITAL AND
PAST CHAIRMAN OF RABUN
COUNTY BOARD OF EDUCATION
JOHN R. MARTIN (47) PRESIDENT, CHAIRMAN, PRESIDENT, JOHN MARTIN
(DIRECTOR SINCE 1989) DIRECTOR OF THE CONSTRUCTION CO. AND
COMPANY,
AND DIRECTOR OF THE PHARMACIST
BANK
RONALD E. VANDIVER (50) SECRETARY AND DIRECTOR SELF-EMPLOYED, GENERAL
(DIRECTOR SINCE 1989) OF THE CONTRACTOR AND REAL ESTATE
COMPANY AND THE BANK DEVELOPER
COLIE B. WHITAKER (73) DIRECTOR OF THE PRESIDENT OF CLAYTON OIL CO.,
(DIRECTOR SINCE 1989) COMPANY AND GEORGIA TRANSPORTERS, INC.,
THE BANK AND WHITAKER OIL COMPANY,
EACH OF WHICH IS A
PETROLEUM
DISTRIBUTOR
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH THE PRINCIPAL OCCUPATION
NAME (AGE) COMPANY AND THE BANK DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------
<S> <C> <C>
J. MARK SMITH (46) PRESIDENT AND CHIEF OFFICER, FIRST CLAYTON
(DIRECTOR SINCE 1993) EXECUTIVE BANK AND
OFFICER OF THE BANK AND TRUST COMPANY SINCE 1991;
DIRECTOR OF THE COMPANY EXECUTIVE VICE PRESIDENT,
AND BANK BANK OF CLAYTON, 13 YEARS
RODNEY R. HICKOX (44) EXECUTIVE VICE PRESIDENT OFFICER, FIRST CLAYTON BANK AND
OF THE BANK AND TRUST COMPANY SINCE 1991;
SECRETARY VICE PRESIDENT AND LOAN
OF THE BANK OFFICER, BANK OF CLAYTON,
14 YEARS
</TABLE>
NO DIRECTOR OF THE COMPANY OR THE BANK IS RELATED TO ANY OTHER DIRECTOR OR
EXECUTIVE OFFICER. NO DIRECTOR OF THE COMPANY OR THE BANK IS AN ACTIVE DIRECTOR
OR EXECUTIVE OFFICER OF ANOTHER BANK, SAVINGS AND LOAN ASSOCIATION, CREDIT UNION
OR BANK OR BANK HOLDING COMPANY.
ITEM 10. EXECUTIVE COMPENSATION
During 1996, the Directors of the Company received an aggregate of $63,600
for their service as Directors of the Bank. The executive officers of the
Company are John R. Martin, Chairman of the Board and Betsy Fowler, Vice
Chairman. Neither of them has received any salary or other benefits as the
result of their service in these capacities.
No director is entitled to receive remuneration for services as a director
under any arrangement.
C. Lloyd Clay resigned as director of the Company and the Bank effective
April 17, 1996. In connection with his resignation, Mr. Clay and the Company
entered into a Consulting and Non-Competition Agreement (the "Consulting
Agreement") and a Settlement Agreement. The Consulting Agreement provides that
Mr. Clay will provide consulting services to the Company with respect to its
banking and other operations and that Mr. Clay will not compete with the Company
during the term of the agreement. The Consulting Agreement has a term of three
years and provides for monthly payments which will aggregate $145,212 over the
term of the agreement. Pursuant to the Settlement Agreement, the Company
repurchased an aggregate of 24,202 shares from Mr. Clay and members of his
family for a purchase price of $17 per share for a total of $411,434.
The following information is furnished with respect to the Chief Executive
Officer and each executive officer of the Company who had cash and cash
equivalent forms of remuneration from the Company and the Bank which exceeded
$100,000 for each of the three years ended December 31, 1996.
29
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended December 31, 1996,
1995 and 1994 compensation paid or accrued by the Company and its subsidiary to
or on behalf of its Chief Executive Officer. There are no other executive
officers of the Company whose total compensation equaled or exceeded $100,000 in
1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------ ----------------------- -------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
BONUS SATION AWARDS OPTIONS/ PAYOUTS SATION
NAME POSITION YEAR SALARY ($) ($) ($) SAR'S (#) ($) ($)(1)
- -------------- --------------------- ---- -------- ------- ------- ------- ------------ ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. MARK SMITH PRESIDENT AND CHIEF 1996 82,400 7,500 - - - - 5,090
EXECUTIVE OFFICER 1995 80,000 3,000 - - - - 3,606
OF THE BANK 1994 74,600 1,500 - - - - 2,096
</TABLE>
(1) ALL OTHER COMPENSATION CONSISTS OF TERM LIFE INSURANCE, AUTO
ALLOWANCES, AND DIRECTOR FEES PAID TO THE EXECUTIVE OFFICER
(2) NO OTHER COMPENSATION IS REQUIRED TO BE REPORTED IN ACCORDANCE WITH
REGULATION S-B ITEM 402.
(3) JOHN R. MARTIN, PRESIDENT OF THE COMPANY, RECEIVED NO COMPENSATION
OTHER THAN NORMAL DIRECTORS FEES AS A DIRECTOR OF THE BANK.
STOCK OPTION PLAN
The Company has adopted a Stock Option Plan (the "Plan") for the
granting of options to purchase up to an aggregate of 75,000 shares of common
stock. The Plan serves as an employee incentive and encourages the continued
employment of key personnel by facilitating their purchase of an equity
interest in the Company. The Plan is administered by a committee of the Board
of Directors of the Company, which has the authority to select recipients,
designate the number of shares to be covered by each option and, subject to
certain restrictions, specify the terms of the options. The Plan provides for
the granting of both "incentive stock options" under Section 422A of the
Internal Revenue Code of 1986 and "nonqualified stock options". The Company
has not granted any stock options to date.
30
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of March 11, 1997, with
respect to the shares of the Company's Common Stock beneficially owned by each
director, by all directors and officers as a group, and by all persons known to
the Company to own beneficially more than 5% of the Company's outstanding
Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
<S> <C> <C>
Robert H. Blalock 23,334 5.83%
Post Office Box 713
Clayton, Georgia 30325
Lamar Edwards 21,100(1) 5.27
Route 2, Box 211
Clayton, Georgia 30525
Elizabeth B. Fowler 20,843(2) 5.20
Post Office Box 472
Clayton, Georgia 30525
John R. Martin, Jr. 26,313 6.58
Star Route - Spruce Creek
Lakemont, Georgia 30552
Ronald E. Vandiver 4,400 1.10
Route 1, Box 2600
Lakemont, Georgia 30552
Colie B. Whitaker 36,000(3) 9.00
100 Cherry Street
Panama City, Florida 32401
J. Mark Smith 3,817 .95
Post Office Box 1622
Clayton, Georgia 30525
All current directors and
officers as a group
(7 persons) 135,807 33.92%
======= =====
</TABLE>
31
<PAGE>
(1) Included are 1,100 shares owned by members of Mr. Edward's family, as
to which he shares voting and investment power.
(2) Included are 8,142 shares owned by Mrs. Fowler's family, as to which
she shares voting and investment power.
(3) All stock is held in the name of the following: Whitaker Oil Company,
6,000 shares and Clayton Oil Company, 30,000 shares.
32
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Bank have had and expect to have banking and other
business transactions in the ordinary course of business with directors and
officers of the Company and the Bank and their affiliates, including members of
their families or corporations, partnerships or other organizations in which
such officers or directors have a controlling interest, on substantially the
same terms (including price, or interest rates and collateral) as those
prevailing at the time for comparable transactions with unrelated parties.
Such banking transactions are not expected to involve more than the normal risk
of collectibility nor present other unfavorable features to the Company and the
Bank.
33
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Item 13(a) 1., 2. and 3. and Item 13(b).
(a) The following documents are filed as part of this report:
1. Financial statements:
(a) First Clayton Bancshares, Inc. and Subsidiary:
(i) Consolidated Balance Sheets - December 31,
1996 and 1995
(ii) Consolidated Statements of Income - Years ended
December 31, 1996 and 1995
(iii) Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1996 and 1995
(iv) Consolidated Statements of Cash Flows - Years ended
December 31, 1996 and 1995
(v) Notes to Consolidated Financial Statements
(b) First Clayton Bancshares, Inc. (Parent Company Only):
Parent Company Only financial information has been included
in Note 12 of Notes to Consolidated Financial Statements.
2. Financial statement schedules:
All schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
34
<PAGE>
3. Exhibits required by Item 601 of Regulation S-K:
Number Description
------ -----------
Exhibit 3.1 Articles of Incorporation of First Clayton
Bancshares, Inc. (incorporated by reference to
Exhibit 3.1 to Registration Statement No. 33-
28050-A on Form S-18)
Exhibit 3.2 By-Laws of First Clayton Bancshares,
Inc. (incorporated by reference to
Exhibit 3.2 to Registration Statement
No. 33-28050-A on Form S-18)
Exhibit 4.1 The rights of security holders are defined in
the Articles of Incorporation and By-Laws of
First Clayton Bancshares, Inc., provided in
Exhibits 3.1 and 3.2, respectively
Exhibit 10.1* Stock Option Agreement between First Clayton
Bancshares, Inc., and Directors (incorporated
by reference to Exhibit 10.1 to Form 10-K,
Commission File No. 33-28050-A, for the fiscal
year ended December 31, 1989)
Exhibit 10.2* Settlement Agreement, dated April 17, 1996,
between C. Lloyd Clay, First Clayton Bank &
Trust, and First Clayton Bancshares, Inc. and
the related Consulting and Non-Competition
Agreement, dated April 17, 1996, between
C. Lloyd Clay and First Clayton Bancshares,
Inc.
Exhibit 22.1 Subsidiaries of First Clayton
Bancshares, Inc. consist of: First
Clayton Bank and Trust Company, located in
Clayton, Georgia, and incorporated under the
laws of the State of Georgia
Exhibit 27.1 Financial Data Schedule (for SEC use only)
* Management contract or compensatory plan or arrangement.
(b) The registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
35
<PAGE>
----------------------------------------
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
----------------------------------------
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT....................... 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS...................... 2
CONSOLIDATED STATEMENTS OF INCOME................ 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS............ 5 AND 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....... 7-23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
FIRST CLAYTON BANCSHARES, INC. AND SUBSIDIARY
CLAYTON, GEORGIA
We have audited the accompanying consolidated balance sheets of FIRST
CLAYTON BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1996 and 1995, 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 management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Clayton Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, 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
January 17, 1997
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks $ 1,703,910 $ 2,266,014
Interest-bearing deposits in banks 3,799 3,677
Federal funds sold 370,000 5,655,000
Securities available-for-sale 6,400,371 5,104,399
Securities held-to-maturity (fair value
$5,289,699 and $6,810,219) 5,303,712 6,783,115
----------- -----------
Loans 42,223,164 30,764,720
Less allowance for loan losses 444,936 339,087
----------- -----------
Loans, net 41,778,228 30,425,633
----------- -----------
Premises and equipment 1,457,890 1,549,188
Other assets 1,055,439 842,337
----------- -----------
Total assets $58,073,349 $52,629,363
=========== ===========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 4,229,518 $ 3,343,823
Interest-bearing demand 9,248,098 11,387,688
Savings 2,961,981 2,173,719
Time, $100,000 and over 12,992,175 9,508,820
Other time 23,141,996 20,762,382
----------- -----------
Total deposits 52,573,768 47,176,432
Other liabilities 219,751 272,610
----------- -----------
Total liabilities 52,793,519 47,449,042
----------- -----------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1;
10,000,000 shares authorized;
427,827 shares issued 427,827 427,827
Capital surplus 3,850,443 3,850,443
Retained earnings 1,465,917 916,402
Unrealized gains (losses) on securities
available-for-sale, net of tax (13,167) 29,205
----------- -----------
5,731,020 5,223,877
Less cost of 27,436 and 3,434 shares
of treasury stock 451,190 43,556
----------- -----------
Total stockholders' equity 5,279,830 5,180,321
----------- -----------
Total liabilities and
stockholders' equity $58,073,349 $52,629,363
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income
Loans $3,987,256 $3,252,443
Taxable securities 615,298 562,915
Nontaxable securities 90,313 64,229
Deposits in banks 857 120
Federal funds sold 87,399 202,291
---------- ----------
Total interest income 4,781,123 4,081,998
Interest expense on deposits 2,332,820 1,985,704
Net interest income 2,448,303 2,096,294
Provision for loan losses 185,999 76,500
---------- ----------
Net interest income after provision
for loan losses 2,262,304 2,019,794
---------- ----------
Other income
Service charges on deposit accounts 209,409 185,314
Other service charges, commissions and fees 38,189 44,572
Net realized gains on securities
available-for-sale 1,241 -
Other operating income 49,277 29,117
---------- ----------
Total other income 298,116 259,003
---------- ----------
Other expense
Salaries and employee benefits 679,640 614,300
Equipment expenses 148,893 128,995
Occupancy expenses 135,438 123,859
Stationery and supplies 95,045 73,158
Directors' fees 63,600 64,200
Other operating expenses 408,646 345,348
---------- ----------
Total other expenses 1,531,262 1,349,860
---------- ----------
Income before income taxes 1,029,158 928,937
Income tax expense 303,471 311,000
---------- ----------
Net income $ 725,687 $ 617,937
========== ==========
Net income per share of common stock $ 1.78 $ 1.46
========== ==========
Weighted average shares outstanding 408,198 424,919
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
--------------------- Capital Retained
Shares Par Value Surplus Earnings
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 427,827 $427,827 $ 3,850,443 $ 468,222
Net income - - - 617,937
Cash dividend declared, $.40 per share - - - (169,757)
Purchase of treasury stock - - - -
Net change in unrealized gains
(losses) on securities available-
for-sale, net of tax - - - -
-------- -------- ----------- -----------
Balance, December 31, 1995 427,827 427,827 3,850,443 961,402
Net income - - - 725,687
Cash dividend declared, $.44 per share - - - (176,172)
Purchase of treasury stock - - - -
Sale of treasury stock - - - -
Net change in unrealized gains
(losses) on securities available-
for-sale, net of tax - - - -
-------- -------- ----------- -----------
Balance, December 31, 1996 427,827 $427,827 $ 3,850,443 $ 1,465,917
======== ======== =========== ===========
Unrealized
Gains
(Lossses) on
Securities
Available- Treasury Stock Total
for Sale, ------------------------ Stockholders'
Net of Taxes Shares Cost Equity
------------ --------- ----------- -----------
Balance, December 31, 1994 $(55,675) 2,977 $ (36,701) $4,654,116
Net income - - - 617,937
Cash dividend declared, $.40 per share - - - (169,757)
Purchase of treasury stock - 457 (6,855) (6,855)
Net change in unrealized gains
(losses) on securities available-
for-sale, net of tax 84,880 - - 84,880
-------- ------ --------- -----------
Balance, December 31, 1995 29,205 3,434 (43,556) 5,180,321
Net income - - - 725,687
Cash dividend declared, $.44 per share - - - (176,172)
Purchase of treasury stock - 24,202 (411,434) (411,434)
Sale of treasury stock - (200) 3,800 3,800
Net change in unrealized gains
(losses) on securities available-
for-sale, net of tax (42,372) - - (42,372)
-------- ------ --------- ----------
Balance, December 31, 1996 $(13,167) 27,436 $(451,190) $5,279,830
======== ====== ========= ==========
</TABLE>
4
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 725,687 $ 617,937
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization 35,060 38,732
Depreciation 136,051 128,394
Provision for loan losses 185,999 76,500
Deferred income taxes (80,800) (11,756)
Net realized gains on securities available-
for-sale (1,241) -
Increase in interest receivable (111,617) (172,694)
Increase (decrease) in interest payable (17,728) 84,406
Other operating activities (67,042) (51,525)
------------ ------------
Net cash provided by operating activities 804,369 709,994
------------ ------------
INVESTING ACTIVITIES
Net increase in interest-bearing
deposits in banks (122) (120)
Proceeds from maturities of securities
available-for-sale 651,036 2,801,844
Purchases of securities available-for-sale (3,304,629) (3,776,990)
Proceeds from sales of securities available-
for-sale 1,292,656 -
Proceeds from maturities of securities
held-to-maturity 2,425,490 2,852,408
Purchases of securities held-to-maturity (946,087) (4,175,974)
Net (increase) decrease in Federal funds sold 5,285,000 (4,055,000)
Net increase in loans (11,538,594) (5,487,358)
Purchase of premises and equipment (44,753) (57,717)
------------ ------------
Net cash used in investing activities (6,180,003) (11,898,907)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 5,397,336 12,448,014
Dividends paid (176,172) (169,757)
Proceeds from sale of treasury stock 3,800 -
Purchase of treasury stock (411,434) (6,855)
------------ ------------
Net cash provided by financing activities 4,813,530 12,271,402
------------ ------------
Net increase (decrease) in cash
and due from banks (562,104) 1,082,489
Cash and due from banks at beginning of year 2,266,014 1,183,525
------------ ------------
Cash and due from banks at end of year $ 1,703,910 $ 2,266,014
============ ============
</TABLE>
5
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
----------- -----------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 2,350,548 $ 1,901,298
Income taxes $ 414,604 $ 353,768
NONCASH TRANSACTIONS
Unrealized losses on securities
available-for-sale $ 66,207 $ 132,626
Securities held to maturity transferred
to securities available-for-sale $ 0 $ 1,002,542
See Notes to Consolidated Financial Statements.
6
<PAGE>
FIRST CLAYTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
First Clayton Bancshares, Inc. (the "Company") is a one-bank holding company
whose business is presently conducted by its wholly-owned subsidiary, First
Clayton Bank & Trust Company (the "Bank"). The Bank is a commercial bank with
operations in Clayton, Rabun County, Georgia. The Bank provides a full range of
banking services to individual and corporate customers in its primary market
area of Rabun County.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiary. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the financial
services industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts 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 CASH EQUIVALENTS
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.
Interest on securities, including amortization of premiums and accretion of
discounts, is 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.
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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
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 on the temporary differences
between the bases of assets and liabilities as measured by tax laws and their
bases as reported in the financial statements. Deferred tax expense or benefit
is then recognized for the change in deferred tax assets or liabilities between
periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards and tax credits
will be realized. A valuation allowance is recorded for those deferred tax
items for which it is more likely than not that realization will not occur.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of shares of common stock outstanding.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
DECEMBER 31, 1996:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 5,615,095 $ 10,792 $ (34,488) $ 5,591,399
STATE AND MUNICIPAL SECURITIES 805,849 5,160 (2,037) 808,972
------------ ---------- ---------- ------------
$ 6,420,944 $ 15,952 $ (36,525) $ 6,400,371
============ ========== ========== ============
December 31, 1995:
U. S. Government and agency
securities $ 4,789,685 $ 47,363 $ (6,803) $ 4,830,245
State and municipal securities 269,080 6,023 (949) 274,154
------------ ---------- ---------- ------------
$ 5,058,765 $ 53,386 $ (7,752) $ 5,104,399
============ ========== ========== ============
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1996:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 3,897,387 $ 13,698 $ (26,774) $ 3,884,311
STATE AND MUNICIPAL SECURITIES 1,406,325 8,118 (9,055) 1,405,388
------------ ---------- ---------- ------------
$ 5,303,712 $ 21,816 $ (35,829) $ 5,289,699
============ ========== ========== ============
December 31, 1995:
U. S. Government and agency
securities $ 5,252,057 $ 59,799 $ (31,840) $ 5,280,016
State and municipal securities 1,531,058 8,750 (9,605) 1,530,203
------------ ---------- ---------- ------------
$ 6,783,115 $ 68,549 $ (41,445) $ 6,810,219
============ ========== ========== ============
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1996 by
contractual maturity are shown below.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY
------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,102,807 $ 1,100,545 $ 1,304,084 $ 1,301,375
Due from one year to five years 3,898,975 3,893,287 4,190,943 4,186,090
Due from five to ten years 301,930 295,867 535,000 522,425
Due after ten years - - 390,917 390,481
----------- ----------- ----------- -----------
$ 5,303,712 $ 5,289,699 $ 6,420,944 $ 6,400,371
----------- ----------- ----------- -----------
</TABLE>
Securities with a carrying value of $3,958,934 and $5,168,825 at December 31,
1996 and 1995, respectively, were pledged to secure public deposits and for
other purposes.
There were no sales of securities in 1995. Gains and losses on sales of
securities available-for-sale during 1996 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
GROSS GAINS ON SALES OF SECURITIES $ 1,966
Gross losses on sales of securities (725)
-------
Net realized gains on sales of securities $ 1,241
=======
</TABLE>
Under special provisions adopted by the Financial Accounting Standards Board in
October 1995, the Company transferred $1,002,542 from securities held-to-
maturity to securities available-for-sale on December 31, 1995, resulting in a
net unralized gain of $17,929, which was included in stockholders' equity at
$11,475 net of related taxes of $6,454.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
COMMERCIAL, FINANCIAL AND AGRICULTURAL $ 649,000 $ 1,169,000
REAL ESTATE - CONSTRUCTION 902,000 527,000
REAL ESTATE - MORTGAGE 28,920,000 20,757,000
CONSUMER 11,748,000 8,255,000
OTHER 4,164 56,720
------------- -------------
42,223,164 30,764,720
ALLOWANCE FOR LOAN LOSSES (444,936) (339,087)
------------- -------------
LOANS, NET $ 41,778,228 $ 30,425,633
------------- -------------
</TABLE>
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 339,087 $ 280,465
PROVISION FOR LOAN LOSSES 185,999 76,500
LOANS CHARGED OFF (94,843) (25,947)
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF 14,693 8,069
---------- ----------
BALANCE, END OF YEAR $ 444,936 $ 339,087
---------- ----------
</TABLE>
THE TOTAL RECORDED INVESTMENT IN IMPAIRED LOANS WAS $51,469 AND $102,627 AT
DECEMBER 31, 1996 AND 1995, RESPECTIVELY. INCLUDED IN THESE LOANS WERE $- - AND
$45,672 THAT HAD RELATED ALLOWANCES FOR LOAN LOSSES OF $- - AND $44,926 AT
DECEMBER 31, 1996 AND 1995, RESPECTIVELY. THE AVERAGE RECORDED INVESTMENT IN
IMPAIRED LOANS FOR 1996 AND 1995 WAS $55,155 AND $126,108, RESPECTIVELY.
INTEREST INCOME ON IMPAIRED LOANS OF $591 AND $3,292 WAS RECOGNIZED FOR CASH
PAYMENTS RECEIVED FOR THE YEARS ENDED 1996 AND 1995, RESPECTIVELY.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Company has granted loans to certain related parties including 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, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
BALANCE, BEGINNING OF YEAR $ 988,444
ADVANCES 1,867,374
Repayments (530,439)
Transactions due to change in related parties (199,075)
------------
BALANCE, END OF YEAR $ 2,126,304
------------
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
LAND $ 300,000 $ 300,000
BUILDINGS 1,296,116 1,296,116
EQUIPMENT 625,362 594,545
------------ ------------
2,221,478 2,190,661
ACCUMULATED DEPRECIATION (763,588) (641,473)
------------ ------------
$ 1,457,890 $ 1,549,188
============ ============
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. EMPLOYEE BENEFIT PLAN
The Bank has a contributory 401(k) profit-sharing plan covering all employees,
subject to certain minimum age and service requirements. The Bank contributed
$19,090 and $10,367 to the plan for the years ended December 31, 1996 and 1995,
respectively.
NOTE 6. INCOME TAXES
The income tax expense consists of the following:
1996 1995
---------- ----------
CURRENT $ 384,271 $ 322,756
DEFERRED TAX (BENEFITS) (80,800) (11,756)
---------- ----------
INCOME TAX EXPENSE $ 303,471 $ 311,000
---------- ----------
THE COMPANY'S INCOME TAX EXPENSE DIFFERS FROM THE AMOUNTS COMPUTED BY APPLYING
THE FEDERAL INCOME TAX STATUTORY RATES TO INCOME BEFORE INCOME TAXES. A
RECONCILIATION OF THE DIFFERENCES IS AS FOLLOWS:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995
------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 349,914 34 % $ 315,839 34 %
Tax-exempt interest (30,984) (3) (21,838) (2)
Disallowed interest expense 5,758 1 4,165
Other (21,217) (2) 12,834 1
---------- -- ---------- --
Income tax expense $ 303,471 30 % $ 311,000 33 %
========== == ========== ==
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. INCOME TAXES (CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves $145,358 $ 81,649
Depreciation 48,388 31,297
Securities available-for-sale - -
-------- --------
Deferred tax assets 193,746 112,946
-------- --------
DEFERRED TAX LIABILITIES, securities
available-for-sale 7,406 16,428
-------- --------
NET DEFERRED TAX ASSETS $186,340 $ 96,518
======== ========
</TABLE>
NOTE 7. 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.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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,
--------------------------
1996 1995
------------ ------------
COMMITMENTS TO EXTEND CREDIT $ 4,027,000 $ 4,047,000
STANDBY LETTERS OF CREDIT - 104,000
------------ ------------
$ 4,027,000 $ 4,151,000
============ ============
COMMITMENTS TO EXTEND CREDIT GENERALLY HAVE FIXED EXPIRATION DATES OR OTHER
TERMINATION CLAUSES AND MAY REQUIRE PAYMENT OF A FEE. SINCE MANY OF THE
COMMITMENTS ARE EXPECTED TO EXPIRE WITHOUT BEING DRAWN UPON, THE TOTAL
COMMITMENT AMOUNTS DO NOT NECESSARILY REPRESENT FUTURE CASH REQUIREMENTS. THE
CREDIT RISK INVOLVED IN ISSUING THESE FINANCIAL INSTRUMENTS IS ESSENTIALLY THE
SAME AS THAT INVOLVED IN EXTENDING LOANS TO CUSTOMERS. THE COMPANY EVALUATES
EACH CUSTOMER'S CREDITWORTHINESS ON A CASE-BY-CASE BASIS. THE AMOUNT OF
COLLATERAL OBTAINED, IF DEEMED NECESSARY BY THE COMPANY, UPON EXTENSION OF
CREDIT, IS BASED ON MANAGEMENT'S CREDIT EVALUATION OF THE CUSTOMER. COLLATERAL
HELD VARIES BUT MAY INCLUDE REAL ESTATE AND IMPROVEMENTS, MARKETABLE SECURITIES,
ACCOUNTS RECEIVABLE, INVENTORY, EQUIPMENT AND PERSONAL PROPERTY.
STANDBY LETTERS OF CREDIT ARE CONDITIONAL COMMITMENTS ISSUED BY THE COMPANY TO
GUARANTEE THE PERFORMANCE OF A CUSTOMER TO A THIRD PARTY. THOSE GUARANTEES ARE
PRIMARILY ISSUED TO SUPPORT PUBLIC AND PRIVATE BORROWING ARRANGEMENTS. THE
CREDIT RISK INVOLVED IN ISSUING LETTERS OF CREDIT IS ESSENTIALLY THE SAME AS
THAT INVOLVED IN EXTENDING 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.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. CONCENTRATIONS OF CREDIT RISK
The Company originates primarily commercial, residential and consumer loans to
customers in Rabun County and surrounding counties. The ability of the majority
of the Company's customers to honor their contractual loan obligations is
dependent on the local economy.
Seventy-one (71%) of the Company's loan portfolio is concentrated in loans
secured by real estate. A substantial portion of these loans are secured by
real estate in the Company's market area. Accordingly, the ultimate
collectibility of the loan portfolio are susceptible to changes in market
conditions in the Company's 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 25% of statutory
capital, or approximately $900,000.
NOTE 9. STOCK OPTIONS
The Company has a Stock Option Plan (the "Plan") for granting of options to
purchase up to an aggregate of 75,000 shares of common stock. The Plan serves
as an employee incentive and encourages the continued employment of key
personnel by facilitating their purchase of an equity interest in the Company.
The Plan is administered by a committee of the Board of Directors of the
Company, which has the authority to select recipients, designate the number of
shares to be covered by each option and, subject to certain restrictions,
specify the terms of the options. The Plan provides for the granting of both
"incentive stock options" under Section 422A of the Internal Revenue Code of
1986 and "nonqualified stock options". The Company has not granted any stock
options to date.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that may
be declared without prior regulatory approval. At December 31, 1996,
approximately $366,000 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, 1996, the Company and the Bank
meet all capital adequacy requirements to which they are subject.
At December 31, 1996 and 1995, notification from the FDIC categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. REGULATORY MATTERS (CONTINUED)
The Company and Bank's actual capital amounts and ratios as of December 31, 1996
are presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
Consolidated $ 6,162 17.88% $ 2,757 8% $ 3,446 10%
Bank $ 5,652 16.39% $ 2,759 8% $ 3,448 10%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 5,731 16.63% $ 1,378 4% $ 2,068 6%
Bank $ 5,220 15.14% $ 1,379 4% $ 2,069 6%
Tier I Capital
(to Average Assets):
Consolidated $ 5,731 10.13% $ 2,263 4% $ 2,829 5%
Bank $ 5,220 9.23% $ 2,262 4% $ 2,828 5%
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using discounted
cash flow methods. Those methods are significantly affected by the assumptions
used, including the discount rates and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The use of different methodologies may have a
material effect on the estimated fair value amounts. Also, the fair value
estimates presented herein are based on pertinent information available to
management as of December 31, 1996 and 1995. Such amounts have not been
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, and Federal funds sold approximate
their fair value.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES:
Fair values for securities are based on quoted market prices.
LOANS:
For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. For other loans, the
fair values are estimated using discounted cash flow methods, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow methods or underlying collateral values.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for fixed-
rate certificates of deposit are estimated using discounted cash flow methods,
using interest rates currently being offered on certificates.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS:
Fair values of the Company's off-balance-sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to
extend credit and standby letters of credit do not represent a significant value
to the Company until such commitments are funded. The Company has determined
that these instruments do not have a distinguishable fair value and no fair
value has been assigned.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
CASH AND DUE FROM BANKS, INTEREST-BEARING
DEPOSITS IN BANKS, AND FEDERAL
FUNDS SOLD $ 2,077,709 $ 2,077,709 $ 7,924,691 $ 7,924,691
Securities available-for-sale 6,400,371 6,400,371 5,104,399 5,104,399
Securities held-to-maturity 5,303,712 5,289,699 6,783,115 6,810,219
Loans 41,778,228 42,220,000 30,425,633 30,644,288
Accrued interest receivable 779,365 779,365 667,748 667,748
Financial liabilities:
Deposits 52,573,768 52,940,000 47,176,432 47,575,425
Accrued interest payable 182,698 182,698 200,426 200,426
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets of First Clayton
Bancshares, Inc. as of December 31, 1996 and 1995 and the statements of income
and cash flows for the years then ended:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
----------------------------
<S> <C> <C>
ASSETS
CASH $ 3,949 $ 973
INTEREST-BEARING DEPOSITS 44,272 158,306
INVESTMENT IN SUBSIDIARY 5,207,353 5,003,631
OTHER ASSETS 24,256 17,411
------------ ------------
Total assets $ 5,279,830 $ 5,180,321
============ ============
STOCKHOLDERS' EQUITY $ 5,279,830 $ 5,180,321
============ ============
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
INCOME
DIVIDENDS FROM SUBSIDIARY $ 486,172 $ 169,757
INTEREST 4,559 6,714
------------ ------------
490,731 176,471
------------ ------------
EXPENSES
Amortization - 2,408
OTHER EXPENSES 17,829 15,317
------------ ------------
17,829 17,725
------------ ------------
Income before income tax benefits
and equity in undistributed income
of subsidiary 472,902 158,746
INCOME TAX BENEFITS 6,729 4,180
------------ ------------
Income before equity in undistributed
income of subsidiary 479,631 162,926
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 246,056 455,011
------------ ------------
Net income $ 725,687 $ 617,937
============ ============
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 725,687 $ 617,937
Adjustments to reconcile net income
to net cash provided by
operating activities:
Undistributed earnings of subsidiary (246,056) (455,011)
Other operating activities (6,883) (1,772)
----------- -----------
Net cash provided by operating activities 472,748 161,154
----------- -----------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits 114,034 (120)
----------- -----------
Net cash provided by (used in)
investing activities 114,034 (120)
----------- -----------
FINANCING ACTIVITIES
Dividends paid (176,172) (169,757)
Purchase of treasury stock (411,434) (6,855)
Proceeds from sale of treasury stock 3,800 -
----------- -----------
Net cash used in financing activities (583,806) (176,612)
----------- -----------
Net increase (decrease) in cash 2,976 (15,578)
Cash at beginning of year 973 16,551
----------- -----------
Cash at end of year $ 3,949 $ 973
========== ===========
NONCASH TRANSACTION
Unrealized (gains) losses on securities
available-for-sale $ 42,372 $ (84,880)
</TABLE>
23
<PAGE>
SETTLEMENT AGREEMENT EXHIBIT 10.2
------------
THIS SETTLEMENT AGREEMENT is made and entered into this 17th day of
April, 1996, by and between C. LLOYD CLAY ("Consultant"), FIRST CLAYTON BANK &
TRUST, a Georgia corporation (the "Bank") and FIRST CLAYTON BANCSHARES, INC., a
Georgia corporation ("First Clayton").
W I T N E S S E T H:
WHEREAS, certain issues have arisen between Consultant, the Bank and
First Clayton, and Consultant, the Bank and First Clayton wish to resolve those
issues;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements of the parties to this Agreement, and for other good and valuable
consideration, it is hereby agreed by and between Consultant, the Bank and First
Clayton as follows:
1. Purchase of Shares of Stock. First Clayton, contemporaneously with
---------------------------
the execution of this Settlement Agreement, hereby purchases the shares of stock
of Consultant and of the members of Consultant's immediate family in the amount
of Seventeen and no/100 Dollars ($17.00) per share as follows:
C. Lloyd Clay 8,500 Shares of Stock
Patricia Clay 3,000 Shares of Stock
C. Lloyd Clay Individual
Retirement Account 1,927 Shares of Stock
Patricia Clay Individual
Retirement Account 1,640 Shares of Stock
Charles Lloyd Clay, Jr. 3,200 Shares of Stock
Christopher Thomas Clay 3,300 Shares of Stock
Willard Coates Clay 2,635 Shares of Stock
The total shares of stock to be purchased will be 24,202, at a price per share
of $17.00, for a total payment by First Clayton in the aggregate amount of
$411,434.00. Payment will be made by First Clayton to the owners of the shares
of stock as indicated in this paragraph.
2. Resignation as Director. Consultant hereby resigns as a Director of
-----------------------
First Clayton and agrees that he will not seek reelection to the Board of
Directors of First Clayton or its subsidiary, the Bank. Consultant expressly
agrees that he will not, from the date of this Settlement Agreement forward,
directly or indirectly, support, encourage, participate in, or assist in any way
in any effort to effect a change in the Board of Directors or management of
First Clayton or the Bank.
3. Leased Space. Consultant agrees that he will, not later than June 1,
------------
1996, vacate the space presently being occupied by him on the premises of the
Bank. Consultant will remove
<PAGE>
all property, furniture and effects from said premises, and will leave the
premises in good repair, normal wear and tear excepted, and in broom-clean
condition.
4. COBRA Benefits. Consultant was a covered employee under the group
--------------
health plan of the Bank, and received coverage under that plan for himself and
his immediate family. Consultant believes he is entitled to COBRA benefits as a
"qualified beneficiary," and that the group health plan of the Bank is required
to provide continuation coverage. Neither the Bank nor First Clayton make any
representation or warranty as to the availability of COBRA benefits or the
extent of coverage thereunder with respect to Consultant or any of his
dependents. In the event that COBRA benefits are available, the continuation
coverage will be for a minimum period of eighteen (18) months from the date of
this Settlement Agreement. If COBRA continuation coverage is available, First
Clayton (or the Bank) will reimburse Consultant for the cost of such premiums
for himself for this minimum period of 18 months, and Consultant will be
responsible for the payment of premiums for dependent coverage. If COBRA
continuation benefits are not available, First Clayton (or the Bank) will
reimburse Consultant for the equivalent cost of such premiums for Consultant,
but not for his dependent coverage. If continuation coverage is available for a
period greater than the minimum continuation period of 18 months, Consultant
will have the benefit of that additional continuation coverage, and Consultant
will be responsible for all premiums for himself and for any dependent coverage.
5. Release by Consultant. Except as set forth in this Agreement and in
---------------------
the Consulting and Non-Competition Agreement executed contemporaneously
herewith, Consultant hereby releases and forever discharges First Clayton, the
Bank and their directors, officers, agents, employees and representatives, from
any and all claims, costs, damages, liabilities or expenses of whatsoever
nature, whether in contract or in tort, arising out of or in connection with
First Clayton or the Bank, or any matter pertaining thereto; provided, that
nothing herein shall release the liability of the Bank to Consultant with
respect to any bank account maintained by Consultant with the Bank.
6. Release by the Bank and First Clayton. Except as set forth in this
-------------------------------------
Settlement Agreement and in the Consulting and Non-Competition Agreement
executed contemporaneously herewith, the Bank and First Clayton hereby release
and forever discharge Consultant from any and all claims, costs, damages,
liabilities or expenses of whatsoever nature, whether in contract or in tort,
arising out of or in connection with Consultant's previous official services as
a Director of the Bank and a Director of First Clayton.
7. Consulting and Non-Competition Agreement. Consultant and First
----------------------------------------
Clayton shall execute and deliver the Consulting and Non-Competition Agreement,
a copy of which is attached hereto and made a part hereof, contemporaneously
herewith.
8. Confidentiality. Consultant, the Bank and First Clayton agree that
---------------
the terms of this Settlement Agreement and the Consulting and Non-Competition
Agreement, and the disputes, negotiations and discussions by and among
Consultant and members of the Board of Directors of First Clayton with respect
thereto, shall, to the extent permitted by law, remain confidential and shall
not be discussed by Consultant or First Clayton with any third parties except to
the extent expressly required by law.
-2-
<PAGE>
9. Indemnification. Consultant shall be entitled to receive to all
---------------
rights and benefits of the indemnification obligations of the Bank contained in
Articles Nine and Thirteen of its Bylaws for any action, conduct, failure to act
or any other matter during the service by Consultant as a Director of the Bank
within the scope of those indemnification provisions. Consultant shall be
entitled to receive all rights and benefits of the indemnification obligations
of First Clayton contained in Article Nine of its Bylaws for any action,
conduct, failure to act or any other matter during the service by Consultant as
a Director of First Clayton within the scope of those indemnification
provisions. The Bank and First Clayton reserve the right to modify, amend or
otherwise deal with the provisions for indemnification, provided such
modification, amendment or other action will treat Consultant the same as other
existing and former Directors.
10. Modification and Waiver. Any term or condition of this Agreement
-----------------------
may be waived at any time by the party hereto which is entitled to the benefit
of such term or condition. Any waiver on one occasion shall not be deemed to be
a waiver of the same or of any other breach on any future occasion. This
Agreement may be modified or amended only by a writing signed by all of the
parties hereto.
11. Counterparts and Headings. This Agreement may be executed
-------------------------
simultaneous, in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. The
headings set out in this Agreement are for the convenience of reference only and
shall not be deemed to be a part of this Agreement.
12. Law to Govern and Time of Essence. The validity and effect of
---------------------------------
this Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia, without giving effect to any rules
regarding conflicts of law. Time is of the Essence.
13. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall be binding upon, and shall inure to the benefit of, the
parties and their respective heirs, successors and permitted assigns.
IN WITNESS WHEREOF, Consultant has executed this Agreement, and the
Bank and First Clayton have caused this Agreement to be executed by their
appropriate officers, under seal, all as of the day and year first above
written.
FIRST CLAYTON BANCSHARES, INC.
[CORPORATE SEAL]
By: /s/ John R. Martin
-----------------------------
President
ATTEST:
/s/ Ronald E. Vandiver
- ------------------------
Secretary
-3-
<PAGE>
FIRST CLAYTON BANK & TRUST
[CORPORATE SEAL]
By: /s/ J. Mark Smith
------------------------------------
President
ATTEST:
/s/ Rodney R. Hickox
- ---------------------------
Secretary
CONSULTANT:
/s/ C. Lloyd Clay (SEAL)
------------------------------------
C. Lloyd Clay
Signed 4-17-96
-4-
<PAGE>
CONSULTANT AND NON-COMPETITION AGREEMENT
THIS CONSULTING AND NON-COMPETITION AGREEMENT is made and entered into as
of the 17th day of April, 1996, by and between C. LLOYD CLAY ("Consultant"), and
FIRST CLAYTON BANCSHARES, INC., a Georgia corporation ("First Clayton").
W I N E S S E T H:
WHEREAS, Consultant has served as a Director of First Clayton, and First
Clayton Bank & Trust (the "Bank"), since the organization of the Bank without
compensation other than regular director's fees; and,
WHEREAS, Consultant has expended great effort on behalf of First Clayton
and the Bank in encouraging customers to utilize the services of First Clayton
and the Bank and has been responsible over time for the generation of
significant business for the Bank; and,
WHEREAS, as a result of philosophical differences on the Board of Directors
as to the future policies of First Clayton and the Bank, Consultant has
determined to submit his resignation as a Director of First Clayton and the
Bank; and,
WHEREAS, the continued goodwill of Consultant is of incalculable value to
the Bank; and,
WHEREAS, a decision by Consultant to tender his registration and take other
actions in connection therewith in order to resolve the current policy dispute
on the Board of Directors and to enable First Clayton and the Bank to go forward
with their plans free of contested disputes is of significant value to First
Clayton and the Bank; and,
WHEREAS, First Clayton desires that Consultant be available to assist it
and the Bank from time to time, and Consultant desires to provide such services
to First Clayton in accordance with the terms of this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements of the parties to this Agreement, and for other good and valuable
consideration, it is hereby agreed by and between Consultant and First Clayton
as follows:
1. Engagement As Consultant. Upon the terms and conditions contained in
this Agreement, First Clayton hereby retains Consultant to render consulting
services to First Clayton with respect to the banking and other operations of
First Clayton and the Bank, and Consultant hereby agrees to render such services
as directed by First Clayton until this Agreement expires or is terminated as
provided herein.
2. Scope of Consulting Services. During the term of this Agreement, the
general scope of Consultant's duties shall be to advise and consult with the
Chairman and the President of First Clayton and the Bank in connection with the
general banking and other operations and management matters of First Clayton and
the Bank, as reasonably requested, from time to time by the Chairman
<PAGE>
of the Board or the Chief Executive Officer of First Clayton (collectively, the
"Consulting Services"). The Consulting Services shall include but are not
limited to Consultant's general support of First Clayton in the Rabun County
market.
3. Duties of Consultant. During the term of this Agreement, Consultant
--------------------
shall perform the Consulting Services herein described and all reasonable tasks
incidental thereto as the Chairman of the Board of the Chief Executive Officer
may from time to time reasonably require, at such time and place and on such
schedule as may be reasonably designated by Consultant; provided, that no
request by First Clayton shall require any specific duties of Consultant other
than to discuss issues with and advise the Chairman or the President of First
Clayton or the Bank with respect thereto. Consultant shall provide Consulting
Services hereunder solely at the request and direction of the Chairman of the
Board or the President of First Clayton.
4. Term. The term of Consultant's engagement shall commence as of the date
----
hereof and continue for a period of three years (unless earlier terminated in
accordance with Section 10 hereof.)
5. Consulting Fee. In consideration of Consultant's agreement to perform
--------------
Consulting Services in accordance with this Agreement, First Clayton shall pay
to Consultant monthly payments of $4,033.67 (the "Consulting Fee"). Monthly
payments will be made for the period January 1 through May 1, 1996, in the
amount of $20,168.35. Payments will be made thereafter commencing June 1, 1996,
at the rate of $4,033.67. The total payment to be paid pursuant to this
Agreement is $145,212.00.
6. Taxes. Any and all sales, service, income and other taxes of any nature
-----
whatsoever with respect to any payments made by First Clayton to Consultant
pursuant to this Agreement shall be the sole responsibility and liability of
Consultant.
7. Independent Contractor. Consultant's relationship with First Clayton
----------------------
and the Bank under this Agreement shall be that of an independent contractor,
not an employee. Except as may be provided and allowed for purposes of any COBRA
benefits, Consultant shall not be entitled to participate in any of the benefit
plans of First Clayton or the Bank. Consultant shall not be an agent of First
Clayton or the Bank and shall have no authority to act on behalf of or bind or
represent (other than as counsel with respect to matters as to which he is
specifically and separately retained and compensated) First Clayton or the Bank
in any way.
8. Covenants.
---------
(a) Non-Competition. Consultant agrees that during the term of this
---------------
Agreement of three years, Consultant will not (except on behalf of or with prior
written consent of First Clayton), within the Area (as hereinafter defined),
either directly or indirectly, on his own behalf or in the service of or on
behalf of others, as a principal, partner, officer, director, manager,
supervisor, administrator, consultant, executive employee or in any other
capacity which involves duties and
-2-
<PAGE>
responsibilities similar to those undertaken for First Clayton and the Bank,
engage in any business which is the same as or essentially the same as the
Business of First Clayton (as hereinafter defined), provided that nothing herein
shall be deemed to limit or prohibit the provision of legal services to any
third party.
(b) Non-Solicitation of Customers. Consultant agrees that during the term
-----------------------------
of this Agreement of three years and for two years thereafter, Consultant will
not (except on behalf of or with the prior written consent of First Clayton),
within the Area, on his own behalf or in the service or on behalf of others,
solicit, divert or appropriate or attempt to solicit, divert or appropriate,
directly or by assisting others, any business from any customers of First
Clayton or the Bank, for purposes of providing products or services that are
competitive with those provided by First Clayton.
(c) Non-Solicitation of Employees. Consultant agrees that during the term
-----------------------------
of this Agreement of three years and for a period of two years thereafter,
Consultant will not, within the Area, on his own behalf or in the service of or
on behalf of others, solicit, recruit or hire away or attempt to solicit,
recruit or hire away, directly or by assisting others, any employee of First
Clayton or the Bank, whether or not (i) such employee is a full-time employee or
a temporary employee of First Clayton, (ii) such employment is pursuant to
written agreement, and (iii) such employment is for a determined period or is at
will.
(d) Community Support. Consultant expressly agrees that, during the term of
-----------------
this Agreement of three years and for a period of two years thereafter, he will
use his best efforts to promote the business of First Clayton and the Bank
within the Area. Consultant will not make, publish or endorse any negative,
disparaging or derogatory comments concerning First Clayton, the Bank, or any
officer, director or agent of First Clayton or the Bank with respect to their
activities as such. Consultant hereby further specifically agrees that during
the term of this Agreement and for a period of two years thereafter he will not,
acting alone or in conjunction with others, initiate, support, cooperate with,
advise or represent any party in any matter in which the Bank or First Clayton
is an adverse party, or which has as a goal, result or objective, directly or
indirectly, a change in the ownership or in the Board of Directors or management
of First Clayton or the Bank.
(e) Definitions.
-----------
(i) "Area" shall mean the geographic area within the boundaries of
Rabun, Towns, White and Habersham Counties. It is the express intent of the
parties that the Area as defined herein is the area where Consultant performs
services on behalf of First Clayton or the Bank.
(ii) "Business of First Clayton" shall mean the business conducted by
-------------------------
First Clayton and the Bank, which is commercial banking.
-3-
<PAGE>
9. Confidentiality.
---------------
(a) Confidential Information. As used herein, the term "Confidential
------------------------
Information" means all facts and information not generally available to the
public concerning any aspect of the business of First Clayton and the Bank,
including, without limitation, the terms and conditions of this Agreement or the
Settlement Agreement being executed in conjunction herewith, any information
obtained by Consultant in his capacity as a Director of First Clayton or the
Bank, or any methods and plans of operation, marketing and sales strategies,
research, know-how, costs, pricing strategies, business plans, financial data,
and lists of actual or potential customers (and including such information that
constitutes a "trade secret" under (S)10-1-761(4) of the Official Code of
Georgia Annotated or any successor statute).
(b) Confidentiality Obligations. Consultant acknowledges that he may from
---------------------------
time to time have access to, or otherwise be provided with, Confidential
Information. Consultant agrees that, during the applicable "Nondisclosure
Period" (as described below), he shall neither use (except as necessary to
perform his obligations hereunder) nor disclose to any other person or entity
any Confidential Information without the prior written consent of an officer of
First Clayton. The Nondisclosure Period with respect to Confidential Information
that does not constitute a trade secret under Georgia law shall be the period of
Consultant's engagement hereunder and for a period of two years thereafter; the
Nondisclosure Period for Confidential Information constituting a trade secret
under Georgia law shall be the period of Consultant's engagement hereunder and
for so long thereafter as the pertinent Confidential Information remains a trade
secret under Georgia law. Neither the limited duration of the Nondisclosure
Period nor any other term or condition of this Agreement shall operate or be
construed as affording Consultant any right or license to use any Confidential
Information at the end of such Nondisclosure Period or otherwise.
(c) Exceptions. The foregoing confidentiality obligations shall not apply
----------
to (i) any information that, through no fault of Consultant, is disclosed in the
public domain; (ii) any information received by Consultant in good faith from a
third party who has legitimate possession of, and the unrestricted right to
disclose, such information; and (iii) any information that Consultant can
demonstrate through prior written records to have been within his legitimate
possession prior to the time of his engagement hereunder.
(d) Return of Information. Upon the request by an officer of First Clayton
---------------------
at any time, and in any event upon the termination of Consultant's engagement
for any reason, Consultant will deliver to First Clayton all written materials
and records and all other tangible items in his possession or control that
constitute or embody Confidential Information or that otherwise are the property
of First Clayton or the Bank, and will keep no copies or duplicates thereof,
except as may be expressly authorized in writing at that time by an officer of
First Clayton.
-4-
<PAGE>
10. Termination.
-----------
(a) Termination by First Clayton. Notwithstanding any provision hereof to the
----------------------------
contrary, the Board of Directors of First Clayton, in a duly convened meeting as
to which notice of the purpose of the meeting has been duly given, shall have
the right to terminate this Agreement, by written notice to Consultant, upon the
occurrence of one or more of the following events and the good-faith belief
after reasonable investigation by the Board of Directors of First Clayton, that
such events have in fact occurred and justify termination:
(i) The commission by Consultant of any act involving dishonesty, fraud
or other act having a material detrimental financial effect with respect to the
business affairs of First Clayton or the Bank; or
(ii) Consultant's breach of any term or provision of Sections 7
(Independent Contractor), 8 (Covenants) or 9 (Confidentiality) of this Agreement
(provided, however, that Consultant shall be afforded 30 days, after receipt of
written notice of such breach, to cure such breach).
(b) Termination by Consultant. Notwithstanding any provision hereof to the
-------------------------
contrary, Consultant shall have the right to immediately terminate this
Agreement, by written notice to First Clayton, upon the occurrence of one or
more of the following events:
(i) The failure of First Clayton to make any consulting fee payment due
hereunder within 10 days after receipt of written notice of delinquency from
Consultant; or
(ii) The breach by First Clayton of any other term or provision of this
Agreement (provided, however, that First Clayton shall be afforded 30 days,
after receipt of notice of such breach, to cure such breach).
(c) Effect of Expiration or Termination. Except as otherwise provided herein,
-----------------------------------
upon the expiration of this Agreement, First Clayton and Consultant will have no
continuing obligations to each other under this Agreement, except for any
unsatisfied rights accrued under this Agreement through the date of expiration,
and except for those rights and obligations set forth in Section 6, which shall
survive and remain in full force and effect. Upon termination by First Clayton
pursuant to Section 10(a) hereof, First Clayton shall have no further rights or
obligations to Consultant, and the provisions of Sections 8 and 9 shall continue
for an additional term of two years. Upon termination by Consultant pursuant to
Section 10(b) hereof, First Clayton shall immediately make all payments
remaining pursuant to Section 5 hereof within thirty days of such termination,
and thereupon neither First Clayton nor Consultant shall have any further
obligations under any provision of this Agreement other than Section 9 hereof,
which shall continue for an additional term of one year. Nothing in this
subsection (c) shall constitute liquidated damages or prevent either party
hereto from seeking damages with respect to any breach hereof.
-5-
<PAGE>
11. Modification and Waiver. Any term or condition of this Agreement may
-----------------------
be waived at any time by the party hereto which is entitled to the benefit
such term or condition. Any waiver on one occasion shall not be deemed to be a
waiver of the same or of any other breach on any future occasion. This Agreement
may be modified or amended only by a writing signed by all of the parties
hereto.
12. Counterparts and Headings. This Agreement may be executed
-------------------------
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. The
headings set out in this Agreement are for the convenience of reference only
and shall not be deemed to be a part of this Agreement.
13. Injunctive Relief. Consultant and First Clayton acknowledge that
-----------------
any reach of the terms and conditions of this Agreement by either would result
in material harm or damage to the other, although it might be difficult to
establish the monetary value of the damage. Consultant and First Clayton
therefore agree that, in addition to any other available rights and remedies (at
law or in equity), either shall be entitled to obtain injunctive relief against
the other in the event of any such breach or threatened breach by either which
the other in good faith believes will or is likely to cause it irreparable harm.
14. Law to Govern and Time of Essence. The validity and effect of this
---------------------------------
Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Georgia, without giving effect to any rules regarding
conflicts of law. Time is of the essence.
15. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall be binding upon, and shall inure to the benefit of, the parties
and their respective heirs, successors and permitted assigns. Upon the death or
disability of Consultant, First Clayton will make a lump-sum payment of the
total balance of any payments that would have otherwise been due to Consultant
under this Agreement, such payments will be made payable to the estate of
Consultant.
16. Severability. This Agreement is intended to be performed in accordance
------------
with, and only to the extent permitted by, all applicable laws, ordinances,
rules and regulations. If any provision of this Agreement, or the application
thereof to any person or particular circumstance, shall, for any reason and to
any extent, be invalid or unenforceable, it is the intention of the parties to
this Agreement that the remainder of this Agreement and the application of such
provisions to other persons or particular circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.
17. Failure to Enforce. The failure of a party at anytime, or for any
------------------
period of time, to enforce the provisions of this Agreement shall not be
construed as a waiver of such provisions of the right of any such party
thereafter to enforce each and every such provisions.
-6-
<PAGE>
18. Attorneys Fees. In the event that either party brings any action for
--------------
the breach of or to enforce any provision of this Agreement, reasonable
attorneys' fees, including all court costs, witness fees and other expenses,
shall be recovered by the prevailing party.
IN WITNESS WHEREOF, Consultant has executed this Agreement, and First
Clayton has caused this Agreement to be executed by its appropriate officers,
under seal, all as of the day and year first above written.
FIRST CLAYTON BANCSHARES, INC.
[CORPORATE SEAL] By:/s/ John R. Martin 4/29/96
--------------------------------------
ATTEST:
/S/ Ronald E. Vandiver
- ----------------------
Secretary
CONSULTANT:
/s/ C. Lloyd Clay (SEAL)
-------------------------------
C. Lloyd Clay
Signed 4-17-96
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,704
<INT-BEARING-DEPOSITS> 4
<FED-FUNDS-SOLD> 370
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,400
<INVESTMENTS-CARRYING> 5,304
<INVESTMENTS-MARKET> 5,290
<LOANS> 42,223
<ALLOWANCE> 445
<TOTAL-ASSETS> 58,073
<DEPOSITS> 52,574
<SHORT-TERM> 0
<LIABILITIES-OTHER> 219
<LONG-TERM> 0
0
0
<COMMON> 428
<OTHER-SE> 4,852
<TOTAL-LIABILITIES-AND-EQUITY> 58,073
<INTEREST-LOAN> 3,987
<INTEREST-INVEST> 706
<INTEREST-OTHER> 88
<INTEREST-TOTAL> 4,781
<INTEREST-DEPOSIT> 2,333
<INTEREST-EXPENSE> 2,333
<INTEREST-INCOME-NET> 2,448
<LOAN-LOSSES> 186
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 1,531
<INCOME-PRETAX> 1,029
<INCOME-PRE-EXTRAORDINARY> 726
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 726
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 4.93
<LOANS-NON> 52
<LOANS-PAST> 251
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 339
<CHARGE-OFFS> 94
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 445
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 445
</TABLE>
