SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
COMMUNITY NATIONAL BANCORPORATION
- ---------------------------------
(Name of small business issuer in its charter)
Georgia 6021 58-186963
- -------------- -------------------- ----------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) No.)
organization)
561 East Washington Avenue - Box 2619
Ashburn, Georgia 31714-2619 - (912) 567-9686
- -----------------------------------------------
(Address, including zip code, and telephone number,
including area code, of principal executive offices
and principal place of business)
T. Brinson Brock, Sr.
561 East Washington Avenue - Box 2619
Ashburn, Georgia 31714-2619 - (912) 567-9686
- -----------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies Requested to: Daniel D. Dinur - Dinur & Associates, P.C.
One Lakeside Commons - 990 Hammond Drive - Suite 760
Atlanta, Georgia 30328-5510 - (770) 395-3170
- ---------------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after effectiveness of this Registration
Statement
- --------------------------------------------------------------
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
- --------------------
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
----
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
----
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box.
----
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title Of Each Dollar Maximum Maximum
Class of Amount Offering Aggregate Amount of
Securities to To Be Price Offering Registration
Be Registered Registered Per Unit Price Fee
Common Stock $4,000,000 $10.00 $4,000,000 $1,180
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PROSPECTUS
COMMUNITY NATIONAL BANCORPORATION
A bank holding company for Community National Bank
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400,000 Shares Maximum; 300,000 Shares Minimum
No Par Common Stock
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Community National Bancorporation, a Georgia corporation (the
"Company") hereby offers a minimum of 300,000 shares (the
"Minimum Subscription") of its no par Common Stock (the "Shares)
and a maximum of 400,000 Shares (the "Maximum Subscription") at
the price of $10.00 per Share (the "Offering Price"). The
offering will be conducted on a "best efforts" basis through
officers and directors of the Company who meet federal and
applicable state exemptions from registration as broker/dealers
and who will receive no commissions for such sales (the
"Offering"). Subscription funds from the Offering will be
deposited in an interest-bearing escrow account with The Bankers
Bank, Atlanta, Georgia (the "Escrow Agent") until at least the
required minimum 300,000 Shares are sold or the Offering expires
or is terminated by the Company. The subscription funds of any
person who subscribes for Shares following satisfaction of the
Minimum Subscription will not be placed in escrow, but will be
immediately available to the Company. The Offering will expire
at midnight, Ashburn, Georgia, time on November 11, 1998, unless
terminated earlier by the Company at its discretion with or
without notice to any subscriber, but may be extended for three
(3) consecutive thirty (30) day periods without notice to
subscribers. Certain persons (the "Camden County Promoters") have
agreed to subscribe for 100,000 Shares at the Offering Price
within thirty (30) days after the effective date of the
Registration Statement. In recognition of the financial risk
they have undertaken prior to December 27, 1998 and as an
incentive for them to serve as advisory directors for Community
National Bank, if the Offering is successful, the Camden County
Promoters will be granted warrants to acquire additional Shares
at the Offering Price in the future subject to certain
conditions. See "THE OFFERING -- Bank Development Agreement."
There is no public market for the Shares and there can be no
assurance that an established active market for the Shares will
develop in the future. See "THE OFFERING -- Determination of
Offer Price" for information related to the determination of the
Offering Price.
- ----------------------------------------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE SIGNIFICANT RISK. SEE
"RISK FACTORS."
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
- ---------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- ----------------------------------------------------------------
Underwriting
Price Fees and Proceeds
to Public Commissions(1) to Company(2)
Per Share $10,00(3) $0 $10.00(3)
Total Minimum
for Shares $3,000,000 $0 $3,000,000
Total Maximum
for Shares $4,000,000 $0 $4,000,000
- -----------------------------------------------------------------
(1) The Shares offered hereby will be sold on a best-efforts,
300,000 Shares minimum basis by certain directors and executive
officers of the Company and no commission will be paid on such
sales. However, the Company reserves the right to utilize
registered broker/dealers and agents as sales persons in the
Offering of the Shares and to pay a reasonable fee or commission
for their efforts. See "THE OFFERING."
(2) Assuming no fees or commissions are paid and before
deducting expenses of the Offering, estimated to be approximately
$129,680 (which includes registration fees, legal and accounting
fees, advisory fees, escrow fees and expenses and other fees and
expenses related to the initial registration and offering of the
Shares). See "USE OF PROCEEDS."
(3) The Offering Price was established by the Company based on a
variety of factors and after consultation with Scott &
Stringfellow, Inc., an investment banking firm based in Richmond,
Virginia.
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The Company reserves the unqualified right to terminate the
Offering to the public during its pendency for any reason
whatsoever.
THE DATE OF THIS PROSPECTUS IS MAY 11, 1998.
(End of Outside Front Cover)
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AVAILABLE INFORMATION
=====================
The Company is subject to certain informational requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act")
and, in accordance therewith, files, reports and other
information with the Securities and Exchange Commission (the
"SEC"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, NW, Washington, D.C. 20549 and at the SEC's
regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to
the Securities and Exchange Commission, Public Reference Section,
450 Fifth Street, NW, Washington, D.C. 20549. The SEC also
maintains a World Wide Web site, containing such reports, proxy
and information statements and other information regarding the
Company at http://www.sec.gov.
The Company has filed a Registration Statement on Form SB-2
(together with all amendments and exhibits filed or to be filed
in connection therewith, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with
respect to the Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Statements contained
herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document
filed with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
===============================================
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such
person, a copy of any and all of the information that has been
incorporated by reference in this Prospectus (excluding exhibits
unless such exhibits are specifically incorporated by reference
into such documents). Please direct such requests to the Company
at Community National Bancorporation, 561 East Washington Avenue,
Box 2619, Ashburn, Georgia 31714-2619, telephone (912) 567-9686,
Attention: Ms. Ava Lovett.
REPORTS TO SHAREHOLDERS
=======================
The Company intends to furnish annual reports to its
shareholders, including financial statements that have been
audited and an opinion thereon rendered by an independent
certified public accountant. The Company's fiscal year ends on
December 31.
CAUTIONARY STATEMENT FOR PURPOSES
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
========================================================
This Prospectus may contain certain "forward-looking statements"
including statements concerning plans, objectives, future events
or performance and assumptions and other statements which are
other than statements of historical fact. The Company and the
Bank caution readers that the following important factors, among
others, may have affected and could in the future affect the
Company's actual results and could cause the Company's actual
results for subsequent periods to differ materially from those
expressed in any forward-looking statement made by or on behalf
of the Company herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and
regulations, with which the Company and the Bank must comply, and
the associated costs of compliance with such laws and regulations
either currently or in the future as applicable; (ii) the effect
of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as by the Financial
Accounting Standards Board, or of changes in the Company's or the
Bank's organization, compensation and benefit plans; (iii) the
effect on the Company's or the Bank's competitive position within
its market area as a result of the increasing consolidation
within the banking and financial services industries, including
the increased competition from larger national or regional and
out of state banking organizations as well as nonbank providers
of various financial services; (iv) the effect of changes in
interest rates; and (v) the effect of changes in the business
cycle and downturns in the local, regional or national economies.
THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS
IS NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY
FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.
(End of Inside Front Cover)
TABLE OF CONTENTS
==================
Page
Prospectus Summary......................................... 1
Risk Factors................................................ 4
The Offering................................................ 6
Use of Proceeds............................................. 10
The Company's Business...................................... 11
Supervision and Regulation of the Company and the Bank...... 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 23
Additional Statistical Information ......................... 29
Legal Proceedings........................................... 38
Management.................................................. 39
Executive Compensation...................................... 43
Security Ownership of Certain Beneficial
Owners and Management...................................... 45
Certain Transactions........................................ 49
Description of Securities................................... 49
Indemnification of Directors and Officers .................. 50
Legal Matters............................................... 51
Experts..................................................... 51
Additional Information...................................... 51
Index to Financial Statements............................... 52
Appendix A - Subscription Documents......................... 79
PROSPECTUS SUMMARY
==================
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD
BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND
THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
- -----------
Community National Bancorporation (the "Company") was
incorporated under the laws of Georgia on August 18, 1989, for
the purpose of operating as a bank holding company pursuant to
the Bank Holding Company Act of 1956 (the "Bank Holding Company
Act"). The Company intends to use the net proceeds of the
Offering to expand its banking presence by branching its wholly-
owned subsidiary, Community National Bank, Ashburn, Georgia (the
"Bank") into St. Marys, Camden County, Georgia. The Bank
operates as a full service commercial bank. The main offices of
the Company are located at 561 East Washington Avenue, Box 2619,
Ashburn, Georgia 31714-2619, and its telephone number is (912)
567-9686.
The Company closed its initial public offering of common stock on
December 14, 1990, raising $3,520,010 of capital through the sale
of 352,001 Shares at $10.00 per Share (the number of shares and
the offering price are not adjusted to reflect the Company's
three for one stock split effective in October 1997). The
majority of the proceeds of the offering were utilized to acquire
100% of the capital stock of the Bank. The remainder, after
paying expenses of the offering, was retained by the Company.
The Bank opened for business on August 6, 1990, to engage in a
general commercial banking business in Turner County, Georgia.
Since that date, the Bank has engaged in a general commercial
banking business emphasizing the banking needs of individuals,
small to medium-sized business and agricultural enterprises in
its primary service area. On April 3, 1992, the Bank acquired
$11.3 million of deposits from the Resolution Trust Corporation
as receiver for First Federal Savings Bank, Ashburn, Georgia.
The Bank opened a branch in Cordele, Crisp County, Georgia on
October 29, 1997. The branch occupies approximately 540 square
feet of leased space situated inside a newly constructed Wal-Mart
discount store in Cordele, Georgia. In November 1997, the Bank
was granted regulatory approval for an additional branch in
Ashburn, Turner County, Georgia. The Bank intends to open the
Ashburn branch in the third quarter of 1998.
Effective 10, 1998, the Bank received regulatory approval to
open an additional branch bank in St. Marys, Camden County,
Georgia. Contingent upon the successful completion of the
Offering, the Company intends to begin construction of a branch
banking facility in St. Marys, Camden County, Georgia (the
"Camden County Branch"). The Company presently owns a parcel of
real estate in St. Marys, Camden County, Georgia, which is
intended as the site for the new Camden County Branch. The
proceeds of the Offering, after expenses, will be used for the
construction and capitalization of the Camden County Branch and
as working capital and for other general corporate purposes of
the Bank and the Company.
The holding company structure was originally chosen for the
Company because, in the opinion of its organizers, that structure
provides flexibility and certain financial benefits in the
creation, ultimately, of a full-service financial company
anchored by a commercial bank. As a holding company, the Company
can assist the Bank in maintaining its required capital ratios,
because the Company may, subject to compliance with Federal
Reserve debt guidelines, borrow money and contribute the proceeds
to the Bank as primary capital. In addition, the holding company
structure permits the Company to loan money or infuse capital to
other subsidiary companies as needed.
The holding company structure also permits the Company
flexibility in issuing stock for cash, property or services and
in reorganization transactions. A holding company also may
engage in certain non-banking activities which the Federal
Reserve Board has deemed to be closely related to banking. These
activities include making and servicing consumer loans, operating
an industrial bank or loan company, performing fiduciary
services, leasing personal property, providing investment and
financial advice, providing data processing and data transmission
services, acting as an insurance agent for certain types of
credit insurance and for property and casualty insurance sold in
connection with extensions of credit, underwriting credit
insurance directly related to the holding company system,
providing courier services, providing management and consulting
services for financial institutions, conducting mortgage banking
operations, performing real estate appraisals, providing
brokerage services which do not include underwriting or provision
of investment advice or research services, and selling money
orders, travelers' checks and U.S. savings bonds.
The Bank conducts a commercial banking business serving Turner
County and Crisp County Georgia. Upon successful completion of
the Offering, the Bank intends to open the Camden County Branch.
The Bank offers a full range of deposit services that are
typically available in most banks and savings and loan
associations, including checking accounts, NOW accounts, savings
accounts and other deposits of various types, ranging from daily
money market accounts to longer-term certificates of deposit. It
also offers retirement accounts such as IRA's (Individual
Retirement Accounts).
The Bank also offers short to medium-term commercial,
agricultural and personal loans. Commercial loans include both
secured and unsecured loans for working capital (including
inventory and receivables), business expansion (including
acquisition of real estate and improvements), and purchase of
equipment and machinery. The Bank also is qualified to
participate in SBA (Small Business Administration), lending.
Agricultural loans include secured and unsecured loans for row
crop production including corn, soybeans, peanuts, cotton and
other produce. Consumer loans include secured and unsecured
loans for financing automobiles, home improvements, education and
personal investments. The Bank also offers real estate
construction and acquisition loans.
Other services the Bank offers include safe deposit boxes,
travelers, checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts. The Bank is a
member of the HONOR network of automated teller machines and
offers its own credit cards.
The Bank intends to offer the same deposit services and accounts,
loans and other services at the Camden County Branch as are
offered at its current locations.
RISK FACTORS
- ------------
An investment in the Company is speculative and involves certain
risks. The Company and the Bank operate in a highly regulated
and intensely competitive environment. The Company derives its
income primarily from dividends from its wholly-owned subsidiary,
the Bank, and the Bank faces significant competition in its
service areas and is affected significantly by regulatory,
legislative and economic conditions over which it has no control.
There is no active market for the Shares (although the Company
does attempt to maintain a buy-sell list for use by its
shareholders), and the price of the Shares may not reflect
current value. There may be additional risks in connection with
this investment. The Company has sought to identify material
risks of which it is aware in its discussion under "RISK FACTORS"
elsewhere in this Prospectus. Prospective investors should
carefully consider the matters discussed thereunder.
THE OFFERING
Offering of Shares
Securities Offered--------------400,000 Shares of No Par
Common Stock
Offering Price------------------$10.00 per Share
Number of Shares Offered--------Minimum of 300,000 Shares
- --------------------------------Maximum of 400,000 Shares
Shares Outstanding Prior to
the Offering-------------------1,060,758
Shares to be Outstanding
after the Offering-------------1,460,758 Shares (assuming the
maximum Shares offered are sold)
Use of Proceeds-----------------The Company will use the proceeds
of the Offering:
(1) to pay expenses of the
Offering (such expenses
are estimated to be
$129,680);
(2) for the formation,
construction and
capitalization of
a branch bank to be located
in St. Marys, Camden County,
Georgia; and
(3) for working capital and
other general corporate
purposes, including the
reimbursement of certain
organizational expenses
pursuant to the Bank
Development Agreement.
Conditions to Offering----------The offering of Shares will be
terminated and all subscription
funds will be returned to
subscribers with their pro-rata
share of interest earned while
held in escrow unless, on or
before the Expiration Date, the
Company has accepted
subscriptions and payment
in full for a minimum of 300,000
Shares. The minimum investment is
100 Shares to one subscriber.
See "USE OF PROCEEDS." See "THE
OFFERING."
Interest on Escrow Funds
If the Offering Closes:---------The Escrow Agent will release all
subscription funds, and any
interest or profits thereon, to
the Company.
If the Offering Does Not Close:-All subscribers will receive
their pro rate share of interest
actually earned, if any, on the
subscription funds held in escrow
until such funds are returned to
the subscribers. No assurance can
be given that subscription funds
can or will be invested at the
highest rate of return available
or that any profits will be
realized from the investment of
subscription funds.
Bank Development Agreement------The Offering is being undertaken
pursuant to the Bank Development
Agreement. See "THE OFFERING --
Bank Development Agreement."
RISK FACTORS
============
An investment in the Shares offered hereby involves certain
risks. Prior to making an investment decision with respect to
the Shares, prospective investors should carefully consider,
along with the other matters discussed in this Prospectus, the
following risk factors as well as risks and uncertainties
detailed from to time in the Company's filings with the SEC:
REGULATION AND LEGISLATION
- --------------------------
The Company and the Bank operate in a highly regulated
environment and are subject to supervision by several
governmental regulatory agencies, including the Office of the
Comptroller of the Currency ("OCC") Georgia Department of Banking
and Finance (the "Georgia Department"), the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"), the
Federal Deposit Insurance Corporation ("FDIC") and the SEC. Laws
and regulations currently applicable to the Company and the Bank
may be changed at any time and there is no assurance that such
changes will not adversely affect the business of the Company and
the Bank. Accordingly, the Company and the Bank are vulnerable
to future legislation and government policy, including bank
deregulation and interstate expansion, which could adversely
affect the banking industry as a whole including the operations
of the Company and the Bank. See "SUPERVISION AND REGULATION OF
THE COMPANY AND THE BANK."
INTENSE COMPETITION
- -------------------
In the conduct of the various aspects of its banking business,
the Bank encounters intense competition in both Turner County and
Crisp County, its primary service areas, as well as the market
area in which the Bank intends to expand, from other commercial
banks, savings institutions, credit unions, mortgage banking
firms, consumer finance companies, securities brokerage firms,
money market mutual funds and other financial institutions. A
number of these competitors are well established in the Turner
and Crisp County areas. Some of them have substantially greater
resources and lending limits than the Bank. The Bank's proposed
Camden County Branch will face strong competition and may find it
difficult to attract customers away from well-established
competing banks. Further, certain competitors have substantially
greater resources and lending limits than the Bank. If the Bank
is unable to compete for deposits and loans effectively in Camden
County, such inability would likely have an adverse effect on the
Camden County Branch's potential for growth and profitability.
In addition, the Georgia Legislature and the United States
Congress have passed legislation that will more freely permit
interstate banking and, Congress may, in the near future,
consider the elimination of barriers to entry by non-banking
enterprises into the commercial banking industry by repealing the
Glass-Steagall Act. The combined effect of such legislation is
likely to increase competition in the commercial banking industry
generally and in the Bank's service area. See "THE COMPANY'S
BUSINESS -- Competition."
ECONOMIC CONDITIONS
- -------------------
The success of the Company and the Bank depend, to a significant
extent, upon economic and political conditions, both local and
national. Like all regulated financial institutions, the Bank is
affected by monetary policies implemented by the Federal Reserve
Board and other federal instrumentalities. A primary instrument
of monetary policy employed by the Federal Reserve Board is the
restriction or expansion of the money supply through open market
operations. This instrument of monetary policy frequently causes
volatile fluctuations in interest rates, and it can have a
direct, adverse effect on the operating results of financial
institutions. Borrowing by the United States government to
finance the government debt may also cause fluctuations in
interest rates and have similar effects on the operating results
of such institutions. See "SUPERVISION AND REGULATION OF THE
COMPANY AND THE BANK." Conditions such as inflation, recession,
unemployment, high interest rates, short money supply and other
factors beyond the control of the Company and the Bank may
adversely affect the Bank's deposit levels and loan demand, and,
therefore, the earnings of the Bank and, to a large extent, the
Company. Although management of the Company believes that the
diversified economies of Turner County and Crisp County and the
addition of a branch bank in Camden County provide the
opportunity for diversifying geographic economic risk, there is
no assurance that favorable economic development will occur in
the Bank's market areas or that management's expectations of
corresponding growth will be achieved.
ABSENCE OF ESTABLISHED PUBLIC MARKET
- ------------------------------------
There currently is no established public trading market for the
Shares. There can be no assurance that an established public
market will develop for the Shares in the near future.
Furthermore, it is unlikely that an established public market
will develop for the Shares upon completion of this Offering
because the Company does not presently intend to seek to list the
Shares on a national securities exchange or to qualify such
Shares for inclusion on the NASDAQ Stock Market.
NO FIRM UNDERWRITING OF THIS OFFERING
- -------------------------------------
This Offering is being made without the benefit of a "firm"
underwriting. Sales will be solicited on a "best-efforts" basis
by certain directors and executive officers of the Company.
Accordingly, except for the purchase of shares by the Camden
County Promoters, there can be no assurance that any of the
securities offered hereby will be sold or that the Minimum
Subscription will be obtained. The Company may extend the
Offering, without notice to subscribers, for three (3)
consecutive periods of thirty (30) days each. However, the
Company reserves the right to utilize registered broker/dealers
and agents as sales persons and to pay a reasonable fee or
commission for their efforts although the Company has no current
plans to retain any such persons.
DIVIDENDS
- ---------
The Company's ability to pay dividends is dependent upon the
Bank's ability to provide funds to the Company through the
payment of dividends. The Bank, in turn, is restricted in its
ability to pay dividends under the national banking laws and by
regulations of the OCC. These laws and regulations prohibit the
Bank from paying dividends until, in essence, its surplus
(retained earnings) is at least equal to its stated capital. Due
to the satisfaction by the Bank of the criteria for payment of
dividends, the Company has paid dividends in the last three
years. However, due to the projected increase in the Bank's
stated capital as a result of the Offering, and because expansion
into Camden County is likely to have a dilutive effect on the
Company's earnings in the next two years, there is no assurance
that the Company will pay dividends in the foreseeable future.
In any event, future dividend policy will depend on the Bank's
earnings, capital requirements, financial condition, applicable
regulatory requirements and other factors considered relevant by
the Board of Directors of the Company. See "DESCRIPTION OF
SECURITIES -- Dividends."
DEPENDENCE ON SENIOR MANAGEMENT
- -------------------------------
Due to the recent changes in the duties of Theron G. Reed, the
Company's long time President and Chief Executive Officer, the
success of the Company's and the Bank's operations is
substantially dependent on the banking and management expertise
of T. Brinson Brock, Sr., the President of the Bank and the
Executive Vice President and Acting Chief Executive Officer of
the Company. Mr. Reed has agreed to return, if the Company
requests, to his full time duties with the Company if, during the
next five years, Mr. Brock were unable to perform his current
duties with the Company. Also, the Board of Directors of the
Company intends to strengthen the senior management of the
Company through promotions inside the Company or recruitment from
outside the Company as the Board of Directors deems appropriate.
Nevertheless, the death, disability or resignation of Mr. Brock
may have a material adverse impact on the Company and its future
operations. The Company presently maintains a $250,000 "Key
Person" life insurance policy on Mr. Brock, but has not yet
entered into an employment agreement with Mr. Brock.
ADEQUACY OF LOAN LOSS RESERVE
- -----------------------------
Banks in competitive markets are susceptible to credit and
collectibility risks associated with their loan portfolios. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Loan Portfolio Analysis." The Bank's
loan customers may include a disproportionate number of
individuals and entities seeking to establish a new banking
relationship because they are dissatisfied with the amount or
terms of credit offered by their current banks, or they may have
demonstrated less than satisfactory performance in previous
banking relationships. Although management is aware of, and has
been taking the steps it believes are necessary to protect the
Bank from, the potential risks associated with extending credit
to customers with whom the Bank has not had a prior lending
relationship, there can be no assurance that the Bank will not
incur excessive loan losses. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS --
Summary of Loan Loss Experience -- and -- Loan Loss Reserve."
USE OF PROCEEDS
- ---------------
The majority of the proceeds from the sale of Shares will be
applied to expenses of the Offering, formation, and construction
of the Camden County Branch and the capitalization of the Bank to
support the growth anticipated as a result of the opening of the
Camden County Branch and other expansion of the Bank's service
area. Within the discretion of the Company's management, subject
to applicable law and regulations, the Company may use the
remainder of such proceeds, among other uses, to inject
additional capital into the Bank, pay holding company expenses
and fund permissible holding company activities. In addition,
the Company may use proceeds of the Offering to provide the
capital required for the conversion of the Camden County Branch
into a separate banking subsidiary. There is no assurance that
in the exercise of such discretion management will make choices
that will ultimately be proven to have been the most appropriate
among possible choices. See "USE OF PROCEEDS."
THE OFFERING
============
GENERAL
- -------
The Company is offering for sale a minimum of 300,000 and a
maximum of 400,000 Shares of no par Common Stock. The minimum
investment is 100 Shares to one subscriber. The Company may
limit subscriptions of an individual to the extent necessary to
preclude beneficial ownership by that person causing a change in
control of the Company as defined in the Bank Holding Company
Act.
The Shares are being offered by the Company on a best-efforts
basis through its officers and directors and the Camden County
Promoters, who will receive no commissions or other remuneration
in connection with their sales efforts. If the Offering is
successful, the Camden County Promoters will be granted warrants
to acquire up to an additional 100,000 Shares at the Offering
Price in the future subject to certain conditions. The Company
reserves the right to utilize licensed broker/dealers and agents
to assist the Company in the Offering. Such persons may be
compensated by a fee or a commission.
SUBSCRIPTION AGREEMENTS FOR SHARES
- ----------------------------------
All subscriptions for Shares must be made on a Subscription
Agreement in substantially the form which is attached hereto.
The full amount of each subscription will be required to be paid
with the Subscription Agreement. A check payable to The Bankers
Bank, as Escrow Agent for the Company, in the amount of the
subscription must be delivered with the executed Subscription
Agreements. Upon collection of each check by the Escrow Agent,
the Escrow Agent will invest the funds in deposit accounts or
certificates of deposit which are fully insured by the Federal
Deposit Insurance Corporation or other agency of the United
States government, short-term securities issued or fully
guaranteed by the United States government, federal funds or such
other investments as the Escrow Agent and the Company shall
agree. If the Minimum Subscription is not attained by the
Expiration Date, then subscription funds will earn interest at
the annual rate that the funds earned interest in the escrow
account. In such event, all subscribers will receive their pro
rata share of interest actually earned, if any, on the
subscription funds held in escrow until such funds are returned
to the subscribers. If the offering closes after the Minimum
Subscription is attained, then the Escrow Agent will release all
subscription funds held in escrow, and interest and profits
thereon, to the Company.
If the Minimum Subscription is attained, then the subscription
proceeds will be released to the Company and the investors will
be delivered a stock certificate representing the Shares
purchased. After the minimum required subscriptions are
received, and funds are released from escrow, subsequent
subscriptions accepted by the Company will not be deposited in an
interest-bearing account but rather the subscription amount will
immediately be available to the Company as investment proceeds.
Interest payments will be made by the Company within 60 days
after the expiration or earlier termination of the Offering.
Interest payments will be funded solely from the returns earned
by amounts deposited in the escrow account. Also, the amount
returned will be in the form of interest on the subscription
amount and therefore would be subject to income taxation to the
subscriber. The Company is not guaranteeing any rate of interest
on funds in escrow. In no event will the subscription proceeds
held in escrow be invested in instruments with terms or
conditions that would preclude the Company from returning funds
to subscribers as described above.
The Bankers Bank, by accepting appointment as Escrow Agent under
the Escrow Agreement, in no way endorses the purchase of the
Company's securities by any person.
The Company has established the Minimum Subscription of 300,000
Shares. The Company may further limit subscriptions of a
subscriber so that, individually or together with any persons
affiliated with the subscriber (including any shares already
owned by such subscriber and affiliates and shares subject to
options exercisable within 60 days), the subscriber will not
attain beneficial ownership that would cause a change of control
of the Company and therefore the Bank. The Company has also
established a minimum investment of 100 Shares for each
subscriber. However, the Company reserves the right to waive the
minimum number of Shares per subscription without notifying any
subscriber.
Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the
consent of the Company. In addition, the Company reserves the
right to cancel accepted subscriptions at any time and for any
reason until the proceeds of this Offering are released from
escrow as discussed above. The Company also reserves the right
to reject, in whole or in part and in its sole discretion, any
subscription. The Company may, in its sole discretion, allocate
Shares among subscribers in the event of an oversubscription for
the Shares. In determining which subscriptions to accept, in
whole or in part, the Company may take into account the order in
which subscriptions are received, a subscriber's existing or
potential business relationship with the Company and the Bank,
and the Company's desire to have a broad distribution of stock
ownership.
In the event the Company rejects all, or accepts less than all,
of any subscription, or if the Company accepts a subscription,
but in its discretion subsequently elects to cancel all or part
of such subscription, the Company will refund promptly the amount
remitted that corresponds to the number of Shares as to which the
subscription is not accepted or canceled, together with actual
interest earned on the amount while held in the escrow account.
HOW TO SUBSCRIBE FOR SHARES
- ---------------------------
Shares may be subscribed for by delivering the Subscription
Agreement, completed and executed, to the Company on or prior to
the Expiration Date. Subscribers should retain a copy of the
completed Subscription Agreement for their records. The
subscription price is due and payable when the Subscription
Agreement is delivered. Payment must be made in United States
dollars by cash or by check, bank draft or money order drawn to
the order of The Bankers Bank, as Escrow Agent for Community
National Bancorporation, in the amount of the total purchase
price.
BANK DEVELOPMENT AGREEMENT
- --------------------------
In the fourth quarter of 1997, the Company was contacted by
certain Camden County businesswomen and businessmen who were
interested in chartering a new bank that would serve the markets
of St. Marys and Camden County, Georgia. These Camden County
business leaders proposed the concept of making the new bank a
subsidiary of the Company or a branch of the Bank. Further,
they also offered to assist the Company in locating investors to
purchase Shares to finance the expansion of the Company's banking
operations into Camden County. The Company determined that there
are significant opportunities for expansion in Camden County and
that such expansion would benefit the Company and the Bank
through deposit and loan growth by developing a presence in a
relatively affluent, growing market and by diversifying in its
deposit base and loan portfolio. See "THE COMPANY'S BUSINESS --
Expansion into the Camden County Market." This group of civic
leaders ultimately included Angela Denise Bryant, Donald M.
Crews, J. Alan Eason, Rowland T. Eskridge, Sr., Bobby Y.
Franklin, Carroll E. Franklin, Maurice Hannah, Liz G. Jordan, and
Joe Sheppard (collectively, the "Camden County Promoters").
Discussions with the Camden County Promoters continued until
December 27, 1997, when a Bank Development Agreement (the "Bank
Development Agreement") was entered into by the Company and the
Camden County Promoters pursuant to which the Offering is being
undertaken. The purpose of the Bank Development Agreement was to
establish a mechanism whereby the Company and the Camden County
Promoters will combine their efforts to establish the Camden
County Branch. The Camden County Promoters are business, civic
and community leaders who reside or work in or around Camden
County, Georgia, and who will promote the Bank and the Camden
County Branch as viable banking alternatives and as participants
in the growth and advancement of the Camden County community.
The Camden County Promoters' commitment is evidenced by their
individual and collective financial commitment to the success of
the Offering described below.
Under the Bank Development Agreement, the Company and the Camden
County Promoters are jointly responsible for (i) the raising of
up to Four Million Dollars ($4,000,000) of additional capital for
the Company to be used in the manner described herein (See "USE
OF PROCEEDS"); (ii) obtaining certain regulatory approvals; and
(iii) undertaking all other necessary or appropriate steps in
order to commence banking operations at the Camden County Branch.
The Company is required to perform certain development activities
in connection with establishing the Camden County Branch pursuant
to the Bank Development Agreement. The Company is solely
responsible for (i) causing the Bank to file the necessary
applications to open the Camden County Branch and obtaining the
approval thereof; (ii) causing the preparation and filing of the
Registration Statement related to the Offering (including
qualification under appropriate state securities or "Blue Sky"
laws); (iii) pursuing the Offering to its successful conclusion
or termination; (iv) entering into an employment agreement with
Rowland T. Eskridge, Sr. ("Eskridge") (See "MANAGEMENT --
Eskridge Employment Agreement"); (v) causing the Bank to acquire
certain real estate located in St. Marys, Georgia previously
identified by the Camden County Promoters on which to construct
the Camden County Branch (See "THE COMPANY'S BUSINESS --
Description of Property"); and (vi) undertaking certain other
development activities. The Company is required to bear all of
the costs and expenses incurred in connection with the discharge
of the foregoing, as well as the reasonable organizational costs
incurred by the Camden County Promoters. As of the date hereof,
the Company has satisfied its obligations described in
subparagraphs (i), (ii), (iv) and (v) above.
Pursuant to the Bank Development Agreement, the Camden County
Promoters have agreed to render assistance in connection with the
discharge of the Company's obligations set forth above and
severally have agreed to subscribe for and to purchase 100,000
Shares at the Offering Price in connection with the Offering
within thirty (30) days following the effective date of the
Registration Statement. The Camden County Promoters are entitled
to be reimbursed out of the proceeds of the Offering for certain
organizational expenses incurred by them prior to the date of the
Bank Development Agreement in the aggregate amount of $135,015.
In addition, the Camden County Promoters will be reimbursed by
the Company for all reasonable organizational and promotional
costs and expenses incurred after the date of the Bank
Development Agreement subject to the Company's usual verification
and approval procedures.
The Shares subscribed for and acquired by the Camden County
Promoters pursuant to the Offering are subject to a prohibition
against any voluntary sale, assignment, transfer, hypothecation,
pledge or any other transfer for a period of six (6) months from
the date of issuance with respect to all of such Shares and
twelve (12) months from the date of issuance with respect to 50%
of all of such Shares (the "Lock Up").
Following the successful completion of the Offering and the
establishment of the Camden County Branch, each of the Camden
County Promoters will serve as an advisory (nonvoting) director
of the Camden County Branch. See "MANAGEMENT -- Advisory
Directors." In addition, upon the opening of the Camden County
Branch, three (3) of the Camden County Promoters chosen by the
Camden County Promoters after consultation with and input from
the Company, will be elected by the Board of Directors of the
Company to fill vacancies existing on the Board of Directors of
the Company. See "MANAGEMENT -- Additional Directors." The
election of the representatives selected by the Camden County
Promoters is subject to appropriate regulatory approval. After
his or her election to the Board of Directors of the Company,
each Camden County Promoter shall serve until the next annual
meeting of the shareholders of the Company in accordance with the
bylaws of the Company and the other rules and regulations
applicable to the directors of the Company.
In recognition of the financial risks undertaken by the Camden
County Promoters prior to December 27, 1998, and as an incentive
for them to serve as advisory directors of the Bank, upon the
successful completion of the Offering and the opening of the
Camden County Branch, the Company has agreed to grant each Camden
County Promoter the right (a "Camden Warrant") to acquire
additional Shares at the exercise price of $10.00 per Share. The
Camden Warrants will vest ratably over three (3) years if the
Camden County Promoter satisfies minimum attendance requirements
(attendance at 75% of the meetings of the Board of Directors of
which each Camden County Promoter is a member or an advisory
member) in each of such three (3) years. The Camden Warrants will
entitle the Camden County Promoters to acquire between 83,333
Shares and 100,000 Shares in the aggregate, depending upon the
total number of Shares subscribed for pursuant to the Offering.
The Camden Warrants will expire (if not exercised) on the seventh
anniversary of date of the formal opening of the Camden County
Branch.
DETERMINATION OF THE OFFERING PRICE
- -----------------------------------
Prior to the Offering there has been no public trading market for
the Shares or any other of the Company's securities nor are there
any uniformly quoted prices for the Shares or other Company
securities. Accordingly, the Offering Price of the Shares has
been established by the Company based on: (i) the history of
operations of the Bank; (ii) present earnings of the Bank; (iii)
prospective earnings of the Bank; (iv) the desirability of being
able to sell the Shares without the assistance of an underwriter;
(v) the market prices of and demand for securities of
institutions engaged in similar activities; (vi) on trades of
Shares known to management; and (vii) after consultation with
Scott & Stringfellow, Inc., an investment banking firm based in
Richmond, Virginia.
RESTRICTIONS ON FUTURE SALE OF SHARES
- -------------------------------------
Upon completion of the Offering, and assuming the maximum number
of Shares are sold, there will be 1,460,758 Shares issued and
outstanding. The 400,000 Shares offered hereby will be
immediately freely tradeable without restriction or further
registration under the Securities Act, except for any such
securities purchased in this offering by an "affiliate" of the
Company (in general, a director, officer or principal
shareholder) and except for Shares acquired by the Camden County
Promoters which are subject to the Lock Up. A total of 1,050,033
Shares (adjusted for the three for one stock split effective on
October 9, 1997) were previously issued and outstanding under an
effective registration statement and are already freely tradeable
in the same manner. Securities purchased from an affiliate of the
Company in a private transaction, as well as securities purchased
directly from the Company in a private transaction, such as
through the exercise of an option or a warrant granted in
connection with the Company's original public offering or the
Camden Warrants, would be "restricted securities" under Rule 144.
As of April 20, 1998, 10,725 Shares have been sold by the Company
pursuant to the exercise of options and warrants (as adjusted for
the October 1997 three for one stock split). These restricted
securities and all securities held by affiliates are subject to
resale restrictions under the Securities Act, but may be eligible
for sale without registration in accordance with the provisions
of Rule 144.
Under the Securities Act the holder of "restricted" securities
may not sell those securities without registration of such sale
under the Securities Act, unless an exemption from registration
is available. Rule 144 provides such an exemption. Subject to
the satisfaction of certain other conditions, such as the
availability to the public of certain current information about
the Company, a person, including an affiliate of the Company, who
has beneficially owned restricted Shares for at least one year is
entitled to sell under Rule 144, within any three-month period, a
number of Shares that does not exceed the greater of 1% of the
total number of outstanding Shares of Common Stock, or if the
Common Stock were ever quoted on the NASDAQ Market or listed on
an exchange, the average weekly trading volume during a specified
four-week period preceding the sale. A person who is not an
affiliate of the Company and who has beneficially owned
restricted Shares for at least two years is entitled to sell such
Shares under Rule 144 without regard to the volume limitations or
public information requirements described above. Affiliates may
sell non-restricted securities under Rule 144 without regard to
the length of their holding period but subject to the volume
limitations and other restrictions.
Rule 144 also requires that the securities must be sold in
"brokers' transactions," as defined in the Securities Act, and
the person selling the securities may not solicit orders or make
any payment in connection with the offer or sale of securities to
any person other than the broker who executed the order to sell
the securities. This requirement may make the sale of the Common
Stock by affiliates of the Company pursuant to Rule 144 difficult
if no trading market develops in the Common Stock. The
requirement does not apply to sales of restricted securities held
by non-affiliates for at least two years.
USE OF PROCEEDS
===============
Upon satisfaction of the Minimum Subscription condition, all
subscription funds held by the Escrow Agent will be released to
the Company. Subsequent subscription amounts will be available
to the Company immediately upon acceptance of the subscription.
The gross proceeds to the Company from the sale of the Shares
offered hereby will be at least $3,000,000 and a maximum of
$4,000,000. Out of the gross proceeds, an amount necessary to
pay expenses in connection with the Offering, estimated at
$129,680, will be retained by the Company and used to pay such
expenses and another $2,500,000 will be contributed by the
Company to the capital of the Bank, with the remainder of the
proceeds to be used by the Company for working capital and other
general purposes.
The following is a schedule of estimated expansion and operating
expenditures of the Bank for the Camden County Branch to be made
by the Bank out of the $2,500,000 capital injection:
Reimbursement for pre-opening expenses of the
Camden County Branch Bank (including salaries) $ 75,000
Reimbursement for expenses incurred by the
Camden County Promoters under the Bank
Development Agreement 135,015
Reimbursement for the purchase of land and
funds to be spent for construction and
improvement of facilities(1) 911,073
Branch office premises-net occupancy expense(2) 21,600
Salaries and benefits(3) 365,432
General and administrative expense, comprised
primarily of data processing, marketing and
advertising, telephone and casualty
and deposit insurance(4) 87,975
Furniture, fixtures and equipment(5) 287,219
Working capital of Bank 616,686
----------
TOTAL: $2,500,000
==========
- ---------------
(1) Cost for construction and improvements of the branch office
site is based on management's previous banking experience. The
land has been acquired by the Bank for $241,073 and the cost of
the construction and improvements include site work, paving, and
landscaping is expected to be approximately $670,000. The Bank's
proposed Camden County Branch will be owned by the Bank and
constructed on land owned by the Bank. See "BUSINESS OF THE BANK
- -- Premises."
(2) This expense is based on the experience of similar size
banks in Georgia and on management's previous banking experience;
it reflects 12 months of operation.
(3) Salaries and benefits are based on management's estimates of
the number and types of employees which will be required during
the first 12 months of operation of the Bank's proposed Camden
County Branch. It is presently anticipated that the proposed
Branch will initially employ eight (8) persons on a full-time
basis.
(4) Represents operating expenses of the Bank's proposed Camden
County Branch which will be incurred during the first 12 months
of operations.
(5) Furniture and equipment cost is based on the Bank's
estimates and upon information from suppliers of bank equipment
with respect to the costs required to furnish and equip the
Bank's proposed branch for the expected level of operations.
The above described expenses are estimates only and assume the
Camden County Branch will commence operations in the third
quarter of 1998, or as soon thereafter as practicable. Actual
expenses may exceed these amounts. A portion of these expenses
will be offset by revenues generated by the proposed Camden
County Branch during the first year of operation. Moreover,
although the amounts set forth above provide an indication of the
proposed use of funds based on the plans and estimates of the
Company's management, actual expenditures may vary from the
estimates.
Based on the above, the net proceeds of the Offering available
for the Company's working capital and general corporate purposes
would range from $370,320 (in case the gross proceeds are equal
to the Minimum Subscription) to $1,370,320 (in case the gross
proceeds are equal to the Maximum Subscription).
THE COMPANY'S BUSINESS
======================
Highlights in the Development of the Business
- ---------------------------------------------
The Company was incorporated as a Georgia corporation on August
18, 1989, for the purpose of becoming a bank holding company
through its ownership 100% of the outstanding stock of the Bank,
a national banking association chartered under the laws of the
United States. The Company received approval to become a bank
holding company from the Federal Reserve Bank of Atlanta on
February 16, 1990, and from the Georgia Department on February
19, 1990. On December 14, 1990, the Company completed a public
offering of its common stock pursuant to which it raised
$3,520,010 from the sale of 352,001 shares of its common stock at
$10.00 per share. The Company used substantially all of the
proceeds of its public offering to purchase shares of capital
stock of the Bank. The Bank received its permit to begin
business from the OCC on August 6, 1990 and commenced business as
a commercial bank on August 6, 1990. Since that date, the Bank
has engaged in a general commercial banking business, emphasizing
the banking needs of individuals and small to medium-sized
business and agricultural enterprises in its primary service
areas. On April 3, 1992, the Bank acquired $11.3 million of
deposits from the Resolution Trust Corporation as receiver for
First Federal Savings Bank, Ashburn, Georgia.
On September 4, 1997, the Bank received approval to open a branch
in Cordele, Crisp County, Georgia. The Cordele Branch was opened
for business at the Wal-Mart discount store on October 29, 1997.
On October 9, 1997, the Company effected a three-for-one stock
split for all shares outstanding as of October 6, 1997. In
connection with the stock split, the Company amended its Articles
of Incorporation, changing the par value of its Common Stock from
$5.00 to no par value.
On November 20, 1997, the Bank received approval to open an
additional branch in Ashburn, Turner County, which branch is
expected to open for business in the third quarter of 1998. The
second Turner County branch will occupy approximately 1,500
square feet in a building to be constructed on real estate owned
by the Bank located at 131 Industrial Drive, Ashburn, Georgia.
The Bank purchased the real estate, including a residence located
thereon, on July 8, 1997, for $100,000. The residence portion
was subsequently resold for $7,000. The branch is expected to
have three drive-through windows and one automatic teller.
Management believes that opening a second facility in Ashburn
will improve the level of service and convenience to existing and
prospective customers of the Bank, as the increase in business
activity has taxed the existing main banking facility beyond its
capacity. Accordingly, the Company does not expect the Ashburn
Branch to generate significant new deposits or loans for the
Bank.
Effective December 27, 1997, the Company entered into the Bank
Development Agreement with a group of businessmen and women from
in and around St. Marys, Camden County, Georgia. Under the terms
of the Bank Development Agreement, the Company and the Camden
County Promoters agreed to develop and capitalize a branch of the
Bank in St. Marys, Camden County. Pursuant to the Bank
Development Agreement, the Bank applied and obtained, on 9,
1998, approval for the opening of a branch in St. Marys. On 26,
1998, the Bank purchased two parcels of land, aggregating
approximately 11 acres, in St. Marys on which it intends to
construct the building for the Camden County Branch. The
purchase price of the land was $241,074. On December 27, 1997,
the Company also entered into an Employment Agreement with
Rowland T. Eskridge, Sr., one of the Camden County Promoters,
under which Mr. Eskridge will serve as Vice President of Business
Development for the Bank and perform various other duties. See
"MANAGEMENT -- Eskridge Employment Agreement." The Company, the
Bank and the Camden County Promoters have agreed to capitalize
the St. Marys branch by means of the proceeds of a public
offering by the Company of up to 400,000 shares of its common
stock at $10.00 per share. See "THE OFFERING."
Existing Business
- -----------------
The Company operates as a bank holding company pursuant to the
Bank Holding Company Act. The business of the Company is
primarily conducted through the banking operations and business
of the Bank.
A. SERVICES OFFERED BY THE BANK
The Bank conducts a commercial banking business serving Turner
and Crisp Counties, Georgia. The Bank offers a full range of
deposit services that are typically available in most banks and
savings and loan associations, including checking accounts, NOW
accounts, savings accounts and other deposits of various types,
ranging from daily money market accounts to longer-term
certificates of deposit. It also offers retirement accounts such
as IRA's (Individual Retirement Accounts).
The Bank also offers short to medium-term commercial,
agricultural and personal loans. Commercial loans include both
secured and unsecured loans for working capital (including
inventory and receivables), business expansion (including
acquisition of real estate and improvements), and purchase of
equipment and machinery. The Bank also is qualified to
participate in SBA (Small Business Administration) lending.
Agricultural loans include secured and unsecured loans for row
crop production including corn, soybeans, peanuts, cotton and
other produce. Consumer loans include secured and unsecured loans
for financing automobiles, home improvements, education and
personal investments. The Bank also offers real estate
construction and acquisition loans.
Other services the Bank offers include safe deposit boxes,
travelers' checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts. The Bank is a
member of the HONOR network of automated teller machines and
offers its own credit cards.
B. DESCRIPTION OF PROPERTY
The Bank owns its main banking facility located in an
approximately 9,500 square foot building at 561 East Washington
Avenue, Ashburn, Georgia 31714. The Hudson Avenue side of the
property contains a house which has been remodeled and is used
for various activities, including banking and civic functions.
The bank invested approximately $1,141,396 in the construction of
the building, landscaping, and the purchase of security devices,
the main vault, furniture and fixtures. The Bank leases, at the
rent of $2,083 per month, 540 square feet at the Wal-Mart store
in Cordele, Crisp County, where it operates its Crisp County
Branch. The lease expires on September 19, 2002. The Bank has
acquired a second location in Ashburn, Georgia, at which to
locate the branch for which regulatory approval was obtained on
November 30, 1997. For this purpose, the Bank purchased the real
estate for $100,000 located at 131 Industrial Drive, Ashburn,
Georgia on July 8, 1997. The Bank subsequently subdivided the
parcel and disposed of a portion thereof, including a single
family residence, for which the Bank had no use. The Bank
intends to construct a 1,500 square foot branch building on the
remaining real estate. The second Ashburn Branch will have three
drive-through windows and an automatic teller.
On 26, 1998, the Bank purchased two parcels of land in St.
Marys, Camden County, Georgia, for $241,074 on which it intends
to build a banking facility for its proposed Camden County
Branch.
C. EXISTING MARKET AREA
The Bank's primary service area includes all of Turner County and
Crisp County, Georgia. The Bank also extends credit to qualified
borrowers in the contiguous counties of Tift and Worth. Pending
the successful completion of the Offering and construction of a
branch in St. Marys, the Bank will also include Camden County,
Georgia as a primary service area.
Turner County is located approximately 80 miles north of the
Georgia-Florida state line, 165 miles south of Atlanta, 38 miles
east of Albany, and 180 miles west of Savannah. The county is
comprised of the cities of Ashburn, which is the county seat,
Sycamore and Rebecca and covers an area of 293 square miles. In
1990, the population of Turner County was 10,498, representing a
10% growth from 1980. Assuming that this rate of growth
continues in the 1990's, by the year 2000 the population of
Turner County is expected to surpass 11,400. Turner County's
economy is primarily dependent on agriculture. Management of the
Bank intends to continue to place a substantial portion of the
Bank's assets in agricultural loans. This sector of the Turner
County economy is healthy and remains the largest single source
of loan demand in the Turner County market. A significant
portion of the agricultural output produced in the county is
peanuts. Golden Peanut Company is located in Ashburn, where it
operates the largest peanut shelling plant in the Southeast.
Coley Farm Services, also headquartered in Ashburn, serves
primarily as a peanut buying point for area farmers from three
separate locations. Livestock is another important segment of
the economy. The largest stock yard in Georgia, Turner County
Stock Yards, is located in Turner County. The poultry industry
is a growing component of the Turner County agricultural economy.
In 1995, local farmers built thirty-five poultry houses in Turner
County at a cost of approximately $3.5 million. The farmers who
built these poultry houses have entered into contracts with Tyson
Poultry to raise chickens for Tyson Poultry. These contracts
will contribute approximately $1.0 million per year to the local
economy. Turner County also contains light manufacturing,
primarily in the apparel and textile sector. The major employer
is M&W Sportswear. Other local manufacturing concerns include
Delta Apparel, DCR Industries and Cornerstone Manufacturing.
Management expects the moderate growth and recent commercial
development experienced in Turner County, and in adjacent Tift
County to continue providing a favorable economic environment for
the Bank. However, there is no assurance that population growth
and ongoing economic development will continue or that the Bank
will be able to exploit the growth and development profitably
even if they continue. During 1997, there was one other bank
operating in Turner County. Management estimates that as of
December 31, 1997, deposits in the county totaled $155 million
with the Bank having approximately 52% of such deposits.
The Crisp County Branch opened on October 29, 1997. The
expansion by the Bank into Crisp County was a natural extension
of the Bank's base Turner County market. The Bank's strategy is
to methodically increase its market share in the contiguous Crisp
County market. The Bank leases approximately 540 square feet
inside the new Wal-Mart store. The Bank believes that the
"retailer strategy" provides a low cost entry into this new
market.
Crisp County is located contiguous to Turner County on the
northwest border. Although slightly smaller in total area, Crisp
County's population is nearly twice that of Turner County
according to the 1990 Census. However, Crisp County's growth
rate was 2.7% between 1980 and 1990 compared to a statewide
average of 13.2%. Retail trade is the largest employment sector
in Crisp County, providing 25% of the jobs and 17% of employment
earnings. Service employment is also important to the County's
economy, providing 17% of the jobs and 15% of employment
earnings. Between 1990 and 1994, Crisp County's unemployment
rate was 7.4% compared to 5.7% for the State of Georgia. Crisp
County's per capita income for 1992 was $14,850 compared to
$18,549 for the State of Georgia as a whole. Crisp County had
512 reported business establishments in 1992 and showed no
percentage change over the previous five years. Cordele Uniform,
Masonite Corporation and Serco Company are among the largest
non-governmental employers in Crisp County.
Arabi and Cordele are the only two incorporated municipalities in
Crisp County. Crisp County is the gateway to the Presidential
Pathways Travel Region with many attractions within easy driving
distance of Cordele, including the home of Jimmy Carter, the
Little Grand Canyon and the Andersonville Confederate Prison
site. Crisp County is one of the few areas in the nation
designated as an Enterprise Community/Enterprise Zone.
During 1997 there were three other banks operating in Crisp
County. Management estimates that as of December 31, 1997,
deposits in Crisp County totaled $229 million, with the branch
having less than 1% of such deposits.
EXPANSION INTO THE CAMDEN COUNTY MARKET
Camden County is bordered on the south by the Florida state line
and on the east by the Atlantic Ocean and Barrier Islands. In
total, Camden County encompasses 630 square miles. The City of
St. Marys is located seven miles east of Interstate 95 on highway
40 and only 30 miles north of the Jacksonville metropolitan area.
The economy of Camden County, Georgia relies heavily on its ocean
access, ports and natural resources. In 1979, Kings Bay, at St.
Marys, was selected as the location of the United States Navy's
East Coast Trident submarine base. The base at Kings Bay
supports two of the Navy's most vital weapons systems, the
Submarine Launched Ballistic Missile System: Trident and Ohio
Class submarines. The base has been in operation since 1989 and
added a tenth submarine in late 1997. In addition to the naval
facility, paper, seafood, manufacturing and retail activities
contribute to the local economy. Tourism continues to play a
vital part in the local economy, due largely to the historic
nature of St. Marys and Cumberland Island. As of 1996, Camden
County had a population of 48,903, which represents an annual
growth rate of 7.4% from the 1993 population of 34,200. The
unemployment rate for Camden County, as of 1997, was 4.7% which
is .1% higher than the state average. Presently there are five
banks operating in Camden County. Management estimates that
there is a total of $142 million in total deposits in the Camden
County.
The Camden County Branch will be located approximately 150 miles
from the Bank's main banking facility in Ashburn, Georgia. The
Bank and the Company believe that Camden County represents a
significant growth opportunity for the Bank. Between 1992 and
1996 deposits in Camden County have increased approximately $10
million each year. The county's population has been growing at a
steady rate during the 1980's and l990's and Camden County is
expected to surpass that of Glynn County by the year 2001. Glynn
County is immediately north of Camden County and has historically
been the leading county in coastal, southern Georgia.
The Bank's strategy is to enter the Camden County market and
methodically increase market share. The Bank's current loan mix
weighs heavily toward agriculture related loans. By expanding
into the St. Marys, Camden County, Georgia banking market, the
Bank expects to have the opportunity to lend to many small
commercial and light industrial customers and to the many
retirees purchasing homes in Camden County. Accordingly, the
Bank believes that it will achieve a more diversified loan
portfolio and will be able to better manage the risk inherent in
the loan portfolio through the operation of the Camden County
Branch.
The Company and the Bank, together with the Camden County
Promoters have taken and are taking the steps described below to
generate community support and deposit and loan business for the
Camden County Branch:
a. Establish an Advisory Board for the Camden County Branch
consisting of the Camden County Promoters, whose mission will be
to promote the branch both as a viable banking alternative and as
a participant in the growth of the community.
b. Appoint or elect three members of the Advisory Board to
the Company's Board of Directors (subject to regulatory
approvals).
c. As part of this Offering, attempt to sell a minimum of
300,000 Shares within Camden County, Georgia pursuant to the
Offering including the Shares subscribed for by the Camden County
Promoters. See "THE OFFERING -- Bank Development Agreement."
The Company expects that these new shareholders will provide a
customer base in the Camden County community from which the Bank
can successfully expand its deposit base and operations.
d. Hire a Vice President of Business Development who will
have primary responsibility for developing business for the
Camden County Branch. See "MANAGEMENT -- Eskridge Employment
Agreement."
Prior to opening, the Company will inject a minimum of $2.5
million into the Bank's capital. These funds will be earmarked
and allocated primarily to the proposed Camden County Branch.
The following are year-end balance sheet and income statement
projections for each of the first three years of operation of the
Camden County Branch:
YEAR-END PROJECTED BALANCE SHEETS (IN 000'S)
============================================
Year 1 Year 2 Year 3
Loans $ 6,100 $12,000 $17,000
Securities 3,750 4,450 7,200
Land 175 175 175
Building 525 512 499
Furniture and Equipment 300 250 200
Other 100 138 177
------- ------- -------
Total Assets $10,950 $17,525 $25,251
======= ======= =======
Deposits $ 8,500 $15,000 $22,500
Other Liabilities 81 100 125
Capital 2,336 2,425 2,626
------- ------- -------
Total Liabilities
and Capital $10,550 $17,525 $25,251
======= ======= =======
INCOME PROJECTIONS (IN 000'S)
=============================
Year 1 Year 2 Year 3
Interest Income:(1)
Loans $ 335 $ 996 $1,595
Securities 164 256 364
Total Interest Income 499 1,252 1,959
Interest Expense(2) (187) (517) (825)
-------- ------- -------
Net Interest Income 312 735 1,134
Provision for Loan Losses (92) (115) (150)
Interest Income After
Provision for loan losses 220 620 984
Other Income(3) 55 97 146
Other Expenses(4) (480) (630) (816)
Income/(Loss) Before Taxes (205) 87 314
Tax (expense)/Benefit (5) 74 (31) (113)
======== ======= =======
Net Income (Loss) $ (131) $ 56 $ 201
- -----------------
(1) The Bank's current average yield on loans and securities is
11.0% and 6.25%, respectively. Projections for the proposed
branch assumed similar yields.
(2) The Bank's current cost on deposits is 4.4%. Projections
for the proposed branch assumed the same cost.
(3) The Bank's "other income" represents .65% of year-end
deposits. Projections for the proposed branch assumed a similar
income structure.
(4) Other expenses include employee salaries and benefits,
depreciation expense related to the Camden County Branch
facility, the furniture, fixtures and equipment at the Camden
County Branch and other overhead expenses allotted to the
operation of the Camden County Branch.
(5) Average Federal and State income tax is assumed to aggregate
36% of income/(loss).
The foregoing three-year projected results of operation of the
Camden County Branch shows that during at least the first two
years the branch might affect somewhat adversely the earnings of
the Bank as a whole. Nevertheless, as stated earlier, the
Company expects that the opening of the Camden County Branch will
assist in diversifying the loan mix of the Bank, thus reducing
the Bank's reliance on a single segment (agriculture) of the
economy. Further, the Camden County Branch will offer the Bank
access to a new, expanding deposit base. Consequently,
management believes that this geographical and asset
diversification will enable the Bank to temper the cyclical
nature of the agriculture-based economy of its existing market
area and thus should result in enhanced earnings over the longer
term.
COMPETITION
In all three counties, the Bank competes and will compete as a
financial intermediary with other commercial banks, savings and
loan associations, credit unions, mortgage banking companies,
consumer finance companies, securities brokerage firms, insurance
companies, money market mutual funds, and other financial
institutions. Competition is likely to increase due to trends
in federal interstate banking laws and state laws. Many of the
financial institutions operating in Georgia have substantially
greater financial resources and offer certain services, such as
trust services, that the Bank does not expect to provide in the
near future. By virtue of the greater total capitalization of
such institutions, they have substantially higher lending limits
than the Bank and substantial advertising and promotional
budgets. To compete, the Bank relies on specialized services,
responsive handling of customer needs and personal contacts by
officers, directors and staff.
EMPLOYEES
As of 24, 1998, the Bank employed 34 full-time equivalent
employees, including two officers. The Bank will hire additional
persons as needed, including additional tellers and financial
service representatives in connection with the opening of the
Turner County Branch and the Camden County Branch. Management of
the Bank believes that its employee relations are good. There
are no collective bargaining agreements covering any of the
Bank's employees.
Effective 24, 1998, T. Brinson Brock, Sr. was elected President
and Chief Executive Officer of the Bank and Executive Vice
President and Acting Chief Executive Officer of the Company
replacing Theron G. Reed, who continues to serve as President of
the Company. In connection with the change in Mr. Reed's duties,
at his request, Mr. Reed had ceased being employed on a full-time
basis by the Bank and the Company and will render services to the
Company on a part-time, as needed basis, for twelve months, at a
compensation level of $1,000 per month with an annual bonus of up
to $12,000. Mr. Reed has agreed to return, if requested by the
Board of Directors of the Company, to his full time duties as the
Chief Executive Officer of the Company if, at any time during the
next five years Mr. Brock were unable to perform such duties.
On December 27, 1997, the Company entered into an Employment
Agreement with Rowland T. Eskridge, Sr., one of the Camden County
Promoters, to serve as a Vice President of Business Development
at the Bank. Mr. Eskridge's development efforts will be related
to the establishment of the Camden County Branch, including
supervising the construction and outfitting of the branch
facility, assisting in the Offering, developing business for the
Camden County Branch, serve as Chairman of the Advisory Board and
various other duties. The term of the Employment Agreement is
two (2) years. The Employment Agreement provides for a base
salary plus a bonus based upon the Camden County Branch achieving
certain deposit and loan levels. See "MANAGEMENT -- Eskridge
Employment Agreement."
The following is a projection of the number of employees to be
added to staff the Camden County Branch and their respective
salaries for each of the first three years:
Number of Employees Salaries (in 000's)
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
Manager/Loan Officer 1.0 1.0 1.0 $ 75 $ 80 $ 85
Loan Officers .0 .5 1.0 --- 25 55
Business Development 1.0 1.0 1.0 53 56 60
Bookkeeper 1.0 1.0 2.0 60 101 132
Tellers/Customer Svc. 5.0 6.0 7.5 80 101 132
---- ---- ---- ---- ---- ----
Total 8.0 9.5 12.5 $238 $294 $396
==== ==== ==== ==== ==== ====
SUPERVISION AND REGULATION OF THE COMPANY AND THE BANK
======================================================
GOVERNMENT REGULATION
- ---------------------
The Company and the Bank operate in a highly regulated
environment, and their business activities are governed by
statute, regulation and administrative policies. The business
activities of the Company and the Bank are closely supervised by
a number of state and federal regulatory agencies, including the
Federal Reserve Board, the OCC, the Georgia Department and the
FDIC.
The Company is regulated by the Federal Reserve Board under the
Bank Holding Company Act, which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board
before acquiring more than 5% of the voting shares of any bank or
all or substantially all of the assets of a bank, and before
merging or consolidating with another bank holding company. The
Federal Reserve Board (pursuant to regulation and published
statements) has maintained that a bank holding company must serve
as a source of financial strength to its subsidiary banks. In
adhering to the Federal Reserve Board policy, the Company may be
required to provide financial support to the Bank at a time when,
absent such Federal Reserve Board policy, the Company may not
deem it advisable to provide such assistance. A bank holding
company is at this time prohibited from acquiring control of any
company which is not a bank and from engaging in any business
other than the business of banking, managing and controlling
banks or activities closely related thereto.
Given certain proposed transactions on the national level, the
United States Congress is likely to consider, in the immediate
future, legislation which might reduce or even remove the
existing barriers to cross-ownership of and by bank holding
companies and other financial services enterprises and even
industrial companies. This legislation may effect these changes
by means of repeal of the Glass-Steagall Act or other means.
Pursuant to Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), effective
September 29, 1995, an adequately capitalized and adequately
managed bank holding company may acquire a bank across state
lines, without regard to whether such acquisition is permissible
under state law. A bank holding company is considered to be
"adequately capitalized" if it meets all applicable federal
regulatory capital standards.
While the Riegle-Neal Act precludes a state from entirely
insulating its banks from acquisition by an out-of-state holding
company, a state may still provide that a bank may not be
acquired by an out-of-state company unless the bank has been in
existence for a specified number of years, not to exceed five
years. Additionally, the Federal Reserve Board is directed not
to approve an application for the acquisition of a bank across
state lines if (i) the applicant bank holding company, including
all affiliated insured depository institutions, controls, or
after the acquisition would control, more than ten percent of the
total amount of deposits of all insured depository institutions
in the United States (the "ten percent concentration limit") or
(ii) the acquisition would result in the holding company
controlling thirty percent or more of the total deposits of
insured depository institutions in any state in which the holding
company controlled a bank or branch immediately prior to the
acquisition (the "thirty percent concentration limit"). States
may waive the thirty percent concentration limit, or may make
same more or less restrictive, so long as they do not
discriminate against out-of-state bank holding companies.
The Riegle-Neal Act also provides that, beginning on June 1,
1997, banks located in different states may merge and operate the
resulting institution as a bank with interstate branches.
However, a state may (i) prevent interstate branching through
mergers by passing a law prior to June 1, 1997 that expressly
prohibits mergers involving out-of-state banks or (ii) permit
such merger transactions prior to June 1, 1997. Under the
Riegle-Neal Act, an interstate merger transaction may involve the
acquisition of a branch of an insured bank without the
acquisition of the bank itself, but only if the law of the state
in which the branch is located permits this type of transaction.
A state may impose certain conditions on a branch of an out-of-state
bank resulting from an interstate merger so long as such
conditions do not have the effect of discriminating against out-of-state
banks or bank holding companies, other than on the basis
of a requirement of nationwide reciprocal treatment. The ten
percent concentration limit and the thirty percent concentration
limit described above, as well as the rights of the states to
modify or waive the thirty percent concentration limit, apply to
interstate bank mergers in the same manner as they apply to the
acquisition of out-of-state banks.
A bank resulting from an interstate merger transaction may retain
and operate any office that any bank involved in the transaction
was operating immediately before the transaction. After
completion of the transaction, the resulting bank may establish
or acquire additional branches at any location where any bank
involved in the transaction could have established or acquired a
branch.
The Riegle-Neal Act also provides that the appropriate federal
banking agency may approve an application by a bank to establish
and operate an interstate branch in any state that has in effect
a law that expressly permits all out-of-state banks to establish
and operate such a branch.
The Company is also regulated by the Georgia Department under the
Georgia Bank Holding Company Act, which requires every Georgia
bank holding company to obtain the prior approval of the Georgia
Department before acquiring more than 5% of the voting shares of
any bank or all or substantially all of the assets of a bank or
before merging or consolidating with any other bank holding
company. A Georgia bank holding company is generally prohibited
from acquiring ownership or control of 5% or more or the voting
shares of any bank unless the bank being acquired is either a
bank for purposes of the Bank Holding Company Act, or a federal
or state savings and loan association or a savings bank or
federal savings bank whose deposits are insured by the Federal
Savings and Loan Insurance Corporation and such bank has been in
existence and continuously operating as a bank for a period of
five years or more prior to the date of application to the
Georgia Department for approval of such acquisition.
As a national bank, the Bank is subject to the supervision of the
OCC and, to a limited extent, the FDIC and the Federal Reserve
Board. With respect to expansion, national banks situated in the
State of Georgia are currently prohibited from establishing
branch offices or facilities outside of the county in which the
bank's main office is located, except (i) in adjacent counties in
certain situations, or (ii) by means of a merger or consolidation
with a bank which has been in existence for at least five years.
In addition, in the case of a merger or consolidation, the
acquiring bank must have been in existence for at least 24 months
prior to the merger. However, Georgia, effective July 1, 1996,
permits the subsidiary bank(s) of any bank holding company then
engaged in the banking business in the State of Georgia to
establish, de novo, upon receipt of required regulatory approval,
an aggregate of up to three additional branch banks in any county
within the State of Georgia. Effective July 1, 1998, Georgia
will permit, with required regulatory approval, the establishment
of de novo branches in an unlimited number of counties within the
State of Georgia by the subsidiary bank(s) of the bank holding
companies then engaged in the banking business in the State of
Georgia. This new legislation could result in increased
competition in the Bank's market area. As a national bank, the
Bank is subject to the Georgia banking and usury laws restricting
the amount of interest which it may charge in making loans or
other extensions of credit.
Loans and extensions of credit by national banks are subject to
legal lending limitations. Under federal law, a national bank
may grant unsecured loans and extensions of credit in an amount
of up to 15% of its unimpaired capital and surplus to any person.
In addition, a national bank may grant loans and extensions of
credit to a single person in an amount up to 10% of its
unimpaired capital and surplus, provided that the transactions
are fully secured by readily marketable collateral having a
market value determined by reliable and continuously available
price quotations. This 10% limitation is separate from, and in
addition to, the 15% limitation for unsecured loans. Loans and
extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions. Such exceptions include
certain loans or extensions of credit arising from the discount
of commercial or business paper, the purchase of bankers'
acceptances, loans secured by documents of title, loans secured
by U.S. obligations, and loans to or guaranteed by the federal
government.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the OCC.
The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies on a consolidated
basis with the subsidiary banks owned by the holding company.
The OCC's risk-based capital guidelines apply directly to
national banks regardless of whether they are a subsidiary of a
bank holding company. Under both agencies' requirements, banking
organizations must have capital (as defined in the rules)
equivalent to 8.0% of risk-weighted assets. The risk weights
assigned to assets are based primarily on credit risk. For
example, securities with an unconditional guarantee by the United
States government are assigned the lowest risk category (0%). A
risk weight of 50% is assigned to loans secured by owner-occupied
one-to-four family residential mortgages. Commercial loans are
assigned to a 100% risk category. The aggregate amount of assets
assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which
are added together to determine total risk-weighted assets.
Both the Federal Reserve Board and the OCC also require the
maintenance of minimum capital leverage ratios to be used in
tandem with the risk-based guidelines in assessing the overall
capital adequacy of banks and bank holding companies. Under
these new rules, banking institutions are required to maintain a
ratio of "Tier 1" capital to total assets (net of goodwill) of
4.0%. Tier 1 capital includes common stockholders' equity,
noncumulative perpetual preferred stock, and minority interests
in the equity accounts of consolidated subsidiaries.
As of December 31, 1997, the Company maintained excellent total
risk-based capital and "Tier 1" ratios of 11.0% and 9.7%,
respectively. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Capital
Adequacy."
Both the risk-based capital guidelines and the leverage ratio
are minimum requirements, applicable only to top-rated banking
institutions. Institutions operating at or near these levels are
expected to have well-diversified risk, excellent asset quality,
high liquidity, good earnings and, in general, have to be
considered strong banking organizations, rated Composite 1 under
the CAMEL rating system for banks or the BOPEC rating system for
bank holding companies. Institutions with lower ratings and
institutions with high levels of risk or experiencing or
anticipating significant growth would be expected to maintain
ratios 100 to 200 basis points above the stated minimums.
The OCC recently amended the risk-based capital guidelines
applicable to national banks in an effort to clarify certain
questions of interpretation and implementation, specifically with
regard to the treatment of purchased mortgage servicing rights
("PMSRs") and other intangible assets. The OCC's guidelines
provide that intangible assets are generally deducted from Tier 1
capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria
("qualifying intangibles") such as PMSRs are retained as a part
of Tier 1 capital. The OCC currently maintains that only PMSRs
and purchased credit card relationships meet the criteria to be
considered qualifying intangibles. The OCC's guidelines formerly
provided that the amount of such qualifying intangibles that
could be included in Tier 1 capital was strictly limited to a
maximum of 25% of total Tier 1 capital. The OCC has amended its
guidelines to increase the limitation of such qualifying
intangibles from 25% to 50% of Tier 1 capital and further to
permit the inclusion of purchased credit card relationships as a
qualifying intangible asset.
In addition, the OCC has adopted rules which clarify treatment of
asset sales with recourse not reported on a bank's balance sheet.
Among assets affected are mortgages sold with recourse under
Fannie Mae, Freddie Mac and Farmer Mac programs. The new rules
clarify that even though those transactions are treated as asset
sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital
guidelines.
Recent releases by the OCC contain several explanatory provisions
designed to alleviate confusion over treatment of the following
issues in the risk-based guidelines: treatment of supervisory
goodwill in the definition of capital, the unused portion of
commitments, the calculation of the amount of allowance for loan
and lease losses included in Tier 2 capital, the redemption of
capital instruments, local currency claims guaranteed by central
governments which are not member countries of the Organization
for Economic Cooperation and Development ("OECD") and claims on
non-OECD central banks.
The OCC, the Federal Reserve Board and the FDIC have proposed a
revision to their risk-based capital guidelines to further ensure
that those guidelines take adequate account of interest rate
risk. Interest rate risk is the adverse effect that changes in
market interest rates may have on a bank's financial condition
and is inherent to the business of banking. The agencies have
proposed two alternative methods for assessing a bank's capital
adequacy for interest rate risk. Under the first approach, the
banking agencies would establish minimum capital standards for
interest rate risk based on either a supervisory model or the
bank's internal model of measuring risk. Institutions would be
required to have capital sufficient to cover the amount of
measured exposure in excess of the threshold level. The proposed
threshold level is a decline in net economic value equal to 1.0
percent of assets. Under the second approach, a minimum capital
requirement for interest rate risk would not be set. Instead,
examiners would consider results of quantitative measures of
interest rate risk along with other factors in evaluating an
institution's capital adequacy for interest rate risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(the "Act"), enacted on December 19, 1991, provided for a number
of reforms relating to the safety and soundness of the deposit
insurance system, supervision of domestic and foreign depository
institutions and improvement of accounting standards. One aspect
of the Act involves the development of a regulatory monitoring
system requiring prompt action on the part of banking regulators
with regard to certain classes of undercapitalized institutions.
While the Act does not change any of the minimum capital
requirements, it directs each of the federal banking agencies to
issue regulations putting the monitoring plan into effect. The
Act creates five "capital categories" ("well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are
defined in the Act and which will be used to determine the
severity of corrective action the appropriate regulator may take
in the event an institution reaches a given level of
undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the
appropriate regulator outlining the steps it will take to become
adequately capitalized. Upon approving the plan, the regulator
will monitor the institution's compliance. Before a capital
restoration plan will be approved, any entity controlling a bank
(i.e., holding companies) must guarantee compliance with the plan
until the institution has been adequately capitalized for four
consecutive calendar quarters. The liability of the holding
company is limited to the lesser of five percent of the
institution's total assets or the amount which is necessary to
bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted
from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth
restrictions and will be required to obtain prior approval from
the appropriate regulator to open new branches or expand into new
lines of business.
As an institution drops to lower capital levels, the extent of
action to be taken by the appropriate regulator increases,
restricting the types of transactions in which the institution
may engage and ultimately providing for the appointment of a
receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks will have to meet new safety and
soundness standards. In order to comply with the Act, the
Federal Reserve Board, the OCC and the FDIC have proposed rules
defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting,
interest rate exposure, asset growth, director and officer
compensation, asset quality, earnings and stock valuation.
Both the capital standards and the safety and soundness standards
which the Act seeks to implement are designed to bolster and
protect the deposit insurance fund.
In response to the directive issued under the Act, the regulators
have adopted regulations which, among other things, prescribe the
capital thresholds for each of the five capital categories
established under the Act.
The following table reflects these capital thresholds:
Total Risk Tier 1 Risk Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
Well capitalized(1) 10% 6% 5%
Adequately capitalized(1) 8% 4% 4%(2)
Undercapitalized(3) < 8% < 4% < 4%
Significantly undercapitalized(3) < 6% < 3% < 3%
Critically undercapitalized < 2%
- ------------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to
appropriate federal banking agency guidelines.
(3) An institution falls into this category if it is below the
specified capital level for any of the three capital measures.
As a national bank, the Bank is subject to examination and review
by the OCC. This examination is typically completed on-site at
least annually and is subject to off-site review as well. The
Bank submits to the OCC quarterly reports of condition, as well
as such additional reports as may be required by the national
banking laws.
As a bank holding company, the Company is required to file with
the Federal Reserve Board and the Georgia Department an annual
report of its operations at the end of each fiscal year and such
additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company
and its subsidiaries is subject to change by future federal and
state legislation.
EFFECT OF GOVERNMENTAL MONETARY POLICIES
- -----------------------------------------
The results of operations of the Bank are affected by credit
policies of monetary authorities, particularly the Federal
Reserve Board. The instruments of monetary policy employed by
the Federal Reserve Board include open market operations in U.S.
Government securities, changes in the discount rate on member
bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member
banks may pay on time and savings deposits. In view of the
changing conditions in the national economy and the money
markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction
can be made as to possible future changes in interest rates,
deposit levels, loan demand or the business and earnings of the
Bank.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion of the financial condition and results of operations
of the Company should be read in conjunction with the Company's
consolidated financial statements and related notes which are
included elsewhere herein.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1997
COMPARED TO YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------
For the years ended December 31, 1997 and 1996, net income
amounted to $1,041,943 and $942,558 respectively. For 1997,
basic and diluted income per share of common stock was $.98 and
$.81, respectively; for 1996, basic and diluted income per share
of common stock amounted to $.89 and $.76, respectively. Note
that during 1997 and 1996, the outstanding warrants and stock
options were dilutive (i.e., upon exercise, they diluted earnings
per share by more than 3.0%), thus necessitating the disclosure
of basic and diluted income per share. Net income in 1997
increased by $99,385 primarily because of an increase in average
earning assets and a corresponding increase in net interest
income.
Average earning assets for the year ended December 31, 1997
increased from $68.3 million to $80.2 million, representing an
increase of $11.9 million, or 17.4%. Below are various
components of average earning assets for the periods indicated:
December 31,
1997 1996
(in 000's)
Federal funds sold $ 2,753 $ 2,920
Securities 7,688 7,043
Net loans 69,756 58,337
------- -------
Total average earning assets $80,197 $68,300
======= =======
As a consequence of the increase in average earning assets, the
net interest income also increased from $3,640,591 for the year
ended December 31, 1996 to $4,335,936 for the year ended December
31, 1997. Below are various components of interest income and
expense, as well as their yield/costs for the periods indicated:
Years Ended: December 31, 1997 December 31, 1996
Interest Interest
Income Yield Income Yield
/Expense /Cost /Expense /Cost
Interest Income:
Federal funds sold $ 144,290 5.24% $ 147,314 5.05%
Securities 458,277 5.96 399,890 6.32
Loans 7,698,998 11.04 6,536,735 11.21
---------- ------ ---------- ------
Total $8,301,565 10.35% $7,083,939 10.37%
========== ====== ========== ======
Interest expense:
NOW and money
market deposit $ 365,167 3.22% $ 309,347 3.22%
Savings Deposits 41,575 3.22 39,379 3.41
Time Deposits 3,557,982 5.95 3,087,551 6.00
Borrowings 905 5.97 7,071 6.02
---------- ------ ---------- -----
Total $3,965,629 5.47% $3,443,348 5.54%
========== ====== ========= =====
Net interest
income $4,335,936 $3,640,591
========== ==========
Net yield on
earning assets 5.41% 5.33%
====== =====
Returns on average consolidated assets and average consolidated
equity for the year ended December 31, 1997 and 1996 were as
follows:
1997 1996
Return on average assets 1.23% 1.30%
Return on average equity 15.56% 16.16%
Equity to assets ratio 7.90% 8.02%
Dividend payout ratio 9.50% 6.75%
NET INTEREST INCOME
- -------------------
The Company's results of operations are determined by its ability
to manage effectively interest income and expense, to minimize
loan and investment losses, to generate non-interest income and
to control non-interest 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 Company's ability to maintain an
adequate spread between the rate earned on earning assets and the
rate paid on interest-bearing liabilities, such as deposits and
borrowings. Thus, net interest income is the key performance
measure of income.
The Company's net interest income for 1997 was $4,335,936 as
compared to $3,640,591 for 1996. Average yields on earning
assets were 10.35% and 10.37% for the years ended December 31,
1997 and 1996, respectively. The average costs of funds for 1997
decreased to 5.47% from the 1996 cost of 5.54%. The net interest
yield is computed by subtracting interest expense from interest
income and dividing the resulting figure by average interest-earning
assets. Net interest yields for the years ended December
31, 1997 and 1996 amounted to 5.41% and 5.33%, respectively. The
increase in net interest yield is primarily due to the fact that
the cost of funds in 1997 has decreased at a faster pace than the
increase in the yield on earning assets. Net interest income for
1997 as compared to 1996, increased by $695,345. The increase is
due primarily to the growth in average earning assets from $68.3
million in 1996 to $80.2 million in 1997.
NON-INTEREST INCOME
- -------------------
Non-interest income for the years ended December 31, 1997 and
1996, amounted to $504,158 and $464,658, respectively. As a
percentage of average assets, non-interest income decreased from
.64% in 1996 to .59% in 1997. The primary reason for the above
decrease is due to the fact that the fee schedule on deposit
accounts remained virtually identical in 1997 as compared to
1996.
The following table summarizes the major components of non-
interest income for the periods therein indicated:
Non-Interest Income
Year Ended December 31,
1997 1996
Service fees on deposit accounts $418,012 $375,961
Gain on sale of securities 4,773 (2,811)
Miscellaneous, other 81,373 91,508
-------- --------
Total non-interest income $504,158 $464,658
======== ========
NON-INTEREST EXPENSE
Non-interest expense increased from $2,028,650 during 1996 to
$2,227,859 in 1997. As a percent of total average assets, non-
interest expense has decreased from 2.79% in 1996 to 2.63% in
1997. Below are the components of non-interest expense for the
years 1997 and 1996.
Non-Interest Expense
Year Ended December 31,
1997 1996
Salaries and other personnel benefits $1,106,062 $ 958,720
Data processing charges 111,377 82,984
Depreciation 130,746 132,722
Professional Fees 141,246 139,759
Other expenses 738,428 714,465
---------- ----------
Total non-interest expense $2,227,859 $2,028,650
========== ==========
For the year ended December 31, 1997, the allowance for loan
losses increased from $1,200,398 to $1,565,923. The allowance
for loan losses as a percent of gross loans increased from 1.94%
at December 31, 1996 to 2.02% at December 31, 1997. As of
December 31, 1997, management considers the allowance for loan
losses to be adequate to absorb possible future losses. However,
there can be no assurance that charge-offs in future periods will
not exceed the allowance for loan losses or that additional
provisions to the allowance will not be required.
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
Net interest income, the Bank's primary source of earnings,
fluctuates with significant interest rate movements. To lessen
the impact of these margin swings, the balance sheet should be
structured so that repricing opportunities exist for both assets
and liabilities in roughly equivalent amounts at approximately
the same time intervals. Imbalances in these repricing
opportunities at any point in time constitute interest rate
sensitivity.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market
interest rates. The rate sensitive position, or gap, is the
difference in the volume of rate-sensitive assets and
liabilities, at a given time interval. The general objective of
gap management is to manage actively rate sensitive assets and
liabilities so as to reduce the impact of interest rate
fluctuations on the net interest margin. Management generally
attempts to maintain a balance between rate sensitive assets and
liabilities as the exposure period is lengthened to minimize the
Bank's overall interest rate risks. The asset mix of the balance
sheet is continually evaluated in terms of several variables:
yield, credit quality, appropriate funding sources and liquidity.
To effectively manage the liability mix of the balance sheet
focuses on expanding the various funding sources. The interest
rate sensitivity position at year-end 1997 is presented below.
Since all interest rates and yields do not adjust at the same
velocity, the gap is only a general indicator of rate
sensitivity.
After After
three one
months year
With- but After but
in with- six but within After
Earning three in six within five five
Assets: months months one year years years Total
Loans $32,278 $ 8,332 $12,331 $21,758 $ 2,658 $77,357
Securities 519 162 524 5,434 439 7,078
Federal funds
sold 2,250 --- --- --- --- 2,250
------- ------ ------ ------- ------ -------
Total earning
assets $35,047 $ 8,494 $12,855 $27,192 $ 3,097 $86,685
======= ======= ======= ======= ======= =======
Supporting
Sources of
Funds:
Interest-
bearing
demand
deposits
and
savings $12,301 $ --- $ --- $ --- $ --- $12,301
Certificates,
Less than
$100M 14,289 10,070 19,205 4,923 --- 48,487
Certificates,
$100M and
over 4,837 3,586 5,583 1,559 --- 15,565
------ ------- ------ -------- ------ -------
Total interest-
bearing
liabilities $31,427 $13,656 $24,788 $ 6,482 $ --- $76,353
======= ======= ======== ====== ====== =======
Interest rate
Sensitivity
gap $ 3,620 $(5,162)$(11,933) $20,710 $ 3,097 $10,332
Cumulative gap 3,620 (1,542) (13,475) 7,235 10,332 10,332
Interest rate
sensitivity
gap ratio 1.12 .62 .52 4.20 N/A 1.14
Cumulative
interest rate
sensitivity
gap ratio 1.12 .97 .81 1.09 1.14 1.14
As evidenced by the table above, the Bank is asset sensitive from
zero to three months, liability sensitive from zero to twelve
months, and asset sensitive thereafter. In a declining interest
rate environment, a liability sensitive position (a gap ratio of
less than 1.0) is generally more advantageous since liabilities
are repriced sooner than assets. Conversely, in a rising
interest rate environment, an asset sensitive position (a gap
ratio over 1.0) is generally more advantageous, as earning assets
are repriced sooner than liabilities. With respect to the Bank,
an increase in interest rates would increase income from zero
through three months and from one year on; it would reduce income
from three months through one year. Conversely, a decline in
interest rates would reduce income from zero through three
months, and from one year on; it would increase income from three
months through one year. This, however, assumes that all other
factors affecting income remain constant.
As the Bank continues to grow, management will continuously
structure its rate sensitivity position to best hedge against
rapidly rising or falling interest rates. The Bank's
Asset/Liability Committee meets on a quarterly basis and develops
management's strategy for the upcoming period. Such strategy
includes anticipations of future interest rate movements.
Interest rate risk will, nonetheless, fall within previously
adopted policy parameters to contain any risk.
Liquidity represents the ability to provide steady sources of
funds for loan commitments and investment activities and to
maintain sufficient funds to cover deposit withdrawals and
payment of debt and operating obligations. These funds can be
obtained by converting assets to cash or by attracting new
deposits. The Bank's primary source of liquidity comes from its
ability to maintain and increase deposits. Deposits grew by
$13.7 million in 1997. Below are pertinent liquidity balances
and ratios for the years ended December 31, 1997 and 1996.
December, 31
1996 1997
Cash and cash equivalents $5,020,621 $6,112,819
CDS, over $100,000 to total
deposits ratio 18.6% 20.1%
Loan to deposit ratio 90.4% 86.4%
Securities to total assets ratio 7.7% 9.8%
Brokered deposits --- ---
As the above balances and ratios indicate, management believes
that the Bank's 1997 liquidity position is satisfactory.
Management is unaware of any trends, demands, commitments, events
or uncertainties that will result in or are reasonably likely to
result in the Bank's liquidity increasing or decreasing in any
material way. The Company is not aware of any current
recommendations by the regulatory authorities which, if
implemented, would have a material effect on the Company's or the
Bank's liquidity, capital resources or results of operations.
CAPITAL ADEQUACY
- ----------------
There are now two primary measures of capital adequacy for banks
and bank holding companies: (i) risk-based capital guidelines;
and (ii) the leverage ratio.
The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in
its assets and its off-balance sheet items. For example, cash
and Treasury Securities are placed under a 0% risk category while
commercial loans are placed under the 100% risk category. Banks
are required to maintain a minimum risk-based capital ratio of
8.0%, with at least 4.0% consisting of Tier 1 capital. Under the
risk-based capital guidelines, there are two "tiers" of capital.
Tier 1 capital consists of common shareholders' equity, non-
cumulative and cumulative (bank holding companies only),
perpetual preferred stock and minority interests. Goodwill is
subtracted from the total. Tier 2 capital consists of the
allowance for loan losses, hybrid capital instruments, term
subordinated debt and intermediate term preferred stock.
The second measure of capital adequacy relates to the leverage
ratio. The OCC has established a 3.0% minimum leverage ratio
requirement. The leverage ratio is computed by dividing Tier 1
capital into total assets. Banks that are not rated CAMEL 1 by
their primary regulator are required to maintain a minimum
leverage ratio of 3.0% plus an additional cushion of at least 1
to 2 percent, depending upon risk profiles and other factors.
A new rule was recently adopted by the Federal Reserve Board, the
OCC and the FDIC that add a measure of interest rate risk to the
determination of supervisory capital adequacy. In connection
with this new rule, the agencies also proposed a measurement
process to measure interest rate risk. Under this proposal, all
items reported on the balance sheet, as well as off-balance sheet
items, would be reported according to maturity, repricing dates
and cash flow characteristics. A bank's reporting position would
be multiplied by duration-based risk factors and weighted
according to rate sensitivity. The net risk weighted position
would be used in assessing capital adequacy. The objective of
this complex proposal is to determine the sensitivity of a bank
to various rising and declining interest rate scenarios. This
proposal is under consideration by the Federal banking
regulators.
The table below illustrates the Bank's and Company's regulatory
capital ratios at December 31, 1997.
Minimum
December 31, Regulatory
Bank 1997 Requirement
Tier 1 Capital 9.6% 4.0%
Tier 2 Capital 1.3% N/A
----- ----
Total risk-based capital ratio 10.9% 8.0%
===== ====
Leverage ratio 8.1% 3.0%
===== =====
Company/Consolidated
Tier 1 Capital 9.7% 4.0%
Tier 2 Capital 1.3% N/A
----- ----
Total risk-based capital ratio 11.0% 8.0%
===== ====
Leverage ratio 8.1% 3.0%
===== ====
The above ratios indicate that the capital positions of the
Company and the Bank are "well capitalized."
ADOPTION AND IMPACT OF SFAS NO. 128
- -----------------------------------
Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS 128") establishes standards for computing and
presenting earnings per share ("EPS"). SFAS 128 simplifies the
previous standards for competing and presenting EPS and makes the
new standards comparable to international EPS standards. SFAS
128 is effective for financial statements issued for periods
ending after December 15, 1997; it also requires restatement of
all prior period EPS data presented. The Company has adopted
SFAS 128. The adoption of SFAS 128 did not have a significant
impact on the Company's consolidated financial condition or
results of operations.
ADDITIONAL STATISTICAL INFORMATION
==================================
DISTRIBUTION OF ASSETS, LIABILITIES AND
SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
- --------------------------------------------------------------
The following is a presentation of the average consolidated
balance sheet of the Company for the year ended December 31, 1997
and for the year ended December 31, 1996. This presentation
includes all major categories of interest-earning assets and
interest-bearing liabilities:
Average Consolidated Assets
Year Ended Year Ended
December 31, 1997 December 31, 1996
Cash and due from banks $ 1,719,415 $ 1,604,841
----------- -----------
Interest-bearing bank
balances 93,500 100,000
Taxable securities 6,041,608 6,036,267
Non-taxable securities 1,553,045 1,907,004
Federal funds sold 2,753,055 2,919,809
Net Loans 69,756,028 58,336,667
----------- -----------
Total earning assets 80,197,236 68,299,747
Other assets 2,818,044 2,821,843
----------- -----------
Total assets $84,734,695 $72,726,431
=========== ===========
Average Consolidated Liabilities and Stockholders' Equity
Year Ended Year Ended
December 31, 1997 December 31, 1996
Non interest
bearing-deposits $ 4,855,539 $ 3,963,860
NOW and money market
deposits 11,338,648 9,598,235
Savings Deposits 1,291,136 1,153,608
Time Deposits 59,828,302 51,272,040
Borrowings (lease) 2,241 41,116
Federal funds purchased 12,918 38,094
Other Liabilities 709,486 827,295
----------- -----------
Total liabilities 78,038,270 66,894,248
----------- -----------
Common Stock 3,479,988 3,479,988
Treasury Stock (8,850) ---
Retained earnings 3,236,509 2,344,493
Unrealized gain/loss
securities (11,222) 7,702
----------- -----------
Total stockholders'
equity 6,696,425 5,832,183
----------- -----------
Total liabilities and
stockholders' equity $84,734,695 $72,726,431
=========== ===========
The following is a presentation of an analysis of the net
interest earnings of the Company for the periods indicated with
respect to each major category of interest-earning asset and each
major category of interest-bearing liability. The Yield/Rate was
computed on a tax equivalent basis.
Year Ended December 31, 1997
<PAGE>
Average Average Yield/
Assets Amount Interest Rate
Interest bearing
bank balances $ 93,500 $ 5,352 5.72%
Taxable securities 6,041,608 379,696 6.28%
Non-taxable securities 1,553,045 73,229 7.14%
Federal funds sold 2,753,055 144,290 5.24%
Net loans 69,756,028(1) 7,698,998(2) 11.04%
----------- ---------- ------
Total earning assets $80,197,236 $8,301,565 10.35%
=========== ========== ======
Liabilities
NOW and money market
deposits $11,338,648 $ 365,167 3.22%
Savings deposits 1,291,136 41,575 3.22%
Time deposits 59,828,302 3,557,982 5.95%
Borrowings (lease) 2,241 226 10.08%
Federal funds purchased 12,918 679 5.26%
----------- ---------- ------
Total interest bearing
liabilities $72,473,245 $3,965,629 5.47%
=========== ========== ======
Interest spread 4.88%
=====
Net interest income $4,335,936
==========
Net yield on interest earning assets 5.41%
=====
(1) Net loans include $16,600 in loans that were placed on non-
accrual status. The Company would have earned an additional $930
had these loans accrued interest throughout 1997.
(2) Interest earned on net loans includes $403,340 in loan fees
and service fees.
Year Ended December 31, 1996
Average
Average Yield/
Assets Amount Interest Rate
Interest bearing
bank balance $ 100,000 $ 4,647 4.65%
Taxable securities 5,036,267 307,330 6.10%
Non-taxable
securities 1,907,004 87,913 6.98%
Federal funds sold 2,919,809 147,314 5.05%
Net loans 58,336,667(1) 6,536,735(2) 11.21%
----------- ---------- ------
Total earning assets $68,299,747 $7,083,939 10.37%
=========== ========== ======
<PAGE>
Liabilities
NOW and money market
deposits $ 9,598,235 $ 309,347 3.22%
Savings deposits 1,153,608 39,379 3.41%
Time deposits 51,272,040 3,087,551 6.02%
Borrowings (lease) 41,116 5,132 12.48%
Federal funds
purchased 38,094 1,939 5.09%
----------- ---------- ------
Total interest bearing
liabilities $62,103,093 $3,443,348 5.54%
=========== ========== ======
Interest spread 4.83%
======
Net interest income $3,640,591
==========
Net yield on interest earning assets 5.33%
======
(1) Net loans include $93,505 in loans that were placed on non-
accrual status. The Company would have earned an additional
$6,400 had these loans accrued interest throughout 1996.
(2) Interest earned on net loans includes $365,541 in loan fees
and service fees.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
- -------------------------------------------
The effect on interest income, interest expense and net income in
the periods indicated of changes in average balance and rate from
the corresponding prior period is shown below. The effect of a
change in average balance has been determined by applying the
average rate in the earlier period to the change in average
balance in the later period, as compared with the earlier period.
The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in
each.
Year Ended December 31, 1997
Compared with Year Ended December 31, 1996
Increase (decrease) due to:
Interest earned on: Volume Rate Total
Interest bearing
bank balances $ (277) $ 982 $ 705
Taxable securities 63,047 9,319 72,366
Non-taxable securities (16,753) 2,069 (14,684)
Federal funds sold (8,864) 5,840 (3,024)
Net loans 1,259,867 (97,604) 1,162,263
---------- ---------- -----------
Total Interest Income $1,297,020 $ (79,394) $1,217,626
=========== ========== ===========
Interest paid on:
NOW and money market
deposits $ 55,820 $ --- $ 55,820
Savings deposits 4,123 (1,927) 2,196
Time deposits 505,664 (35,233) 470,431
Borrowings (4,077) (829) (4,906)
Federal funds purchased (1,327) 67 (1,260)
----------- ---------- -----------
Total Interest Expense $ 560,203 $ (37,922) $ 522,281
=========== ========== ===========
Change in net
interest income $ 736,817 $ (41,472) $ 695,345
=========== ========== ===========
Year Ended December 31, 1996
Compared with Year Ended December 31, 1995
Increase (decrease) due to:
Interest earned on: Volume Rate Total
Interest bearing
bank balances $ --- $ (850) $ (850)
Taxable securities (112,289) (11,397) (123,686)
Non-taxable securities (3,335) --- (3,335)
Federal funds sold 70,043 (5,330) 64,713
Net loans 999,465 (53,570) 945,895
----------- ---------- -----------
Total Interest Income $ 953,884 $ (71,147) $ 882,737
=========== =========== ===========
Interest paid on:
NOW and money market
deposits $(14,657) $3,037 $(11,620)
Savings deposits (4,067) 2,802 (1,265)
Time deposits 491,751 8,649 500,400
Borrowings (7,821) 5,302 (2,519)
Federal Funds Purchased (15,639) (3,206) (18,845)
Total Interest Expense $ 49,567 $ 16,584 $ 466,151
----------- ---------- -----------
Change in net
interest income $ 504,317 $ (87,731) $ 416,586
=========== =========== ===========
Deposits Analysis
- -----------------
The Bank offers a full range of interest-bearing and non-interest
bearing accounts, including commercial and retail checking
accounts, negotiable order of withdrawal ("NOW") accounts,
individual retirement accounts, regular interest-bearing savings
accounts and certificates of deposit with a range of maturity
date options. The sources of deposits are residents, businesses
and employees of businesses within the Bank's market area.
Customers are obtained through the personal solicitation of the
Bank's officers and directors, direct mail solicitation and
advertisements published in the local media.
The Bank pays competitive interest rates on time and savings
deposits up to the maximum permitted by law or regulation. In
addition, the Bank has implemented a service charge fee schedule
competitive with other financial institutions in the Bank's
market area, covering such matters as maintenance fees on
checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
The following table presents, for the periods indicated, the
average amount of and average rate paid on each of the indicated
deposit categories.
Year Ended December 31, 1997
Average Average
Deposit Category Amount Rate Paid
Non interest bearing demand deposits $ 4,855,539 N/A
NOW and money market deposits $ 11,338,64 3.22%
Savings deposits $ 1,291,136 3.22%
Time deposits $ 59,828,302 5.95%
Year Ended December 31, 1996
Average Average
Deposit Category Amount Rate Paid
Non interest bearing demand deposits $ 3,963,860 N/A
NOW and money market deposits $ 9,598,235 3.22%
Savings deposits $ 1,153,608 3.41%
Time deposits $ 51,272,040 6.02%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective
maturities at December 31, 1997:
Time Certificates of Deposit
3 months or less $ 4,837,027
3-6 months 3,585,632
6-12 months 5,583,142
over twelve months 1,558,952
-------------
Total $ 15,564,753
=============
LOAN PORTFOLIO ANALYSIS
- -----------------------
The Company engages in a full complement of lending activities,
including commercial, consumer installment and real estate loans.
A significant number of loans are made to farmers or farming
concerns.
Commercial lending is directed principally toward businesses
whose demands for funds fall within the Company's legal lending
limits and which are potential deposit customers of the Bank.
These loans include loans obtained for a variety of business
purposes, and are made to individual, partnership, or corporate
borrowers. The Company places particular emphasis on loans to
small and medium-sized businesses.
The Company's consumer loans consist primarily of installment
loans to individuals for personal, family and household purposes,
including automobile loans and pre-approved lines of credit to
individuals. This category of loans includes lines of credit and
term loans secured by second mortgages on residences for a
variety of purposes, including home improvements, education and
other personal expenditures.
The Company's real estate loans consist of residential and
commercial first and second mortgages.
The following table presents various categories of loans
contained in the Bank's loan portfolio as of December 31, 1997
and 1996 and the total amount of all loans for such periods:
As of December 31
Type of Loan 1997 1996
Domestic:
Commercial, financial and agricultural $56,442,799 $43,230,547
Real estate-construction 188,759 202,844
Real estate mortgage 13,049,306 11,149,943
Installment and other loans to
individuals 7,676,118 7,146,751
Subtotal 77,356,982 61,760,085
Allowance for loan losses (1,565,923) (1,200,398)
----------- -----------
Total (net of allowance) $75,791,059 $60,529,687
=========== ===========
The following is a presentation of an analysis of maturities of
loans as of December 31, 1997 (in thousands):
Due in 1 Due In 1 Due After
Type of Loan Year or Less To 5 Years 5 Years Total
Commercial, financial
and agricultural $31,439 $24,261 $ 743 $56,443
Real estate-construction 189 --- --- 189
------- ------- ----- -------
Total $31,628 $24,261 $ 743 $56,632
======= ======= ===== =======
Experience of the Company has shown that some receivables will be
paid prior to contractual maturity and others will be converted,
extended or renewed. Therefore, the tabulation of contractual
payments should not be regarded as a forecast of future cash
collections.
The following is a presentation of an analysis of sensitivity of
loans, excluding installment and other loans to individuals, to
changes in interest rates as of December 31, 1997 (in thousands):
Due in 1 Due In 1 Due After
Type of Loan Year or Less To 5 Years 5 Years Total
Fixed rate loans $10,585 $ 9,316 $ 743 $20,644
Variable rate loans 21,043 14,645 --- 35,988
------- ------- ----- -------
Total $31,628 $24,261 $ 743 $56,632
======= ======= ===== =======
The following table presents information regarding nonaccrual,
past due and restructured loans as of December 31, 1997 and 1996
(dollars in thousands):
As of December 31
1997 1996
Loans accounted for on
a non-accrual basis:
Number: 2 3
Amount: $ 17 $ 94
Accruing loans which are contractually
past due 90 days or more as to principal
and interest payments:
Number: 1 2
Amount: $ 46 $ 11
Loans which were renegotiated to provide
a reduction or deferral of interest or
principal because of deterioration in
the financial position of the borrower:
Number: 0 2
Amount: $ 0 $ 0
Loans now current but for which there
are serious doubts as to the borrower's
ability to comply with existing terms:
Number: 0 4
Amount: $ 0 $127
As of December 31, 1997, there are no loans classified for
regulatory purposes as doubtful, substandard or special mention
that have not been disclosed in the above table, which (i)
represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represent
material credits about which management is aware of any
information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment
terms.
Loans are classified as non-accruing when the probability of
collection of either principal or interest becomes doubtful. The
balance classified as non-accruing represents the net realizable
value of the account, which is the most realistic estimate of the
amount the Company expects to collect in final settlement. If
the account balance exceeds the estimated net realizable value,
the excess is written off at the time this determination is made.
At December 31, 1997, with the exception of the two non-accruing
loans reported above, all loans were accruing interest. There
are no other loans which are not disclosed above where known
information about possible credit problems of borrowers causes
management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
SUMMARY OF LOAN LOSS EXPERIENCE
- -------------------------------
An analysis of the Bank's loss experience is furnished in the
following table for the years ended December 31, 1997 and 1996,
as well as a breakdown of the allowance for possible loan losses
(in thousands):
Year Ended December 31
1997 1996
Balance at beginning of period $1,200 $ 923
Charge-offs (476)
(229)
Recoveries 107 33
Provision charged to Operations 735 473
------ ------
Balance at end of period $1,566 $ 1,200
====== =======
Ratio of allowance for loan losses to
total loans outstanding during the
period 2.02% 1.94%
====== =======
Net charge-offs to average loans .53% .32%
====== =======
As of December 31, 1997, the allowance for possible losses was
allocated as follows:
Percent
of Loans
in Each
Category
Loans Amount to Total
Commercial, financial and agricultural $1,185,000 73.0%
Real estate-Construction 6,000 .2%
Real estate-Mortgage 223,000 16.9%
Installment and other loans to
individuals 142,000 9.9%
Unallocated 9,923 N/A
---------- ------
Total $1,565,923 100.0%
========== ======
LOAN LOSS RESERVE
- -----------------
In considering the adequacy of the Company's allowance for
possible loan losses, management has focused on the fact that as
of December 31, 1997, 73.0% of outstanding loans were in the
category of commercial, financial and agricultural, loans. These
loans are generally considered by management as having greater
risk than other categories of loans in the Company's loan
portfolio. However, 92.3% of the outstanding loans in this
category at December 31, 1997, were made on a secured basis, such
collateral consisting primarily of improved farmland real estate
and equipment. Management believes that the secured condition of
the preponderant portion of its commercial, financial and
agricultural loan portfolio greatly reduces any risk of loss
inherently present in these loans.
The Company's consumer loan portfolio is also secured. At
December 31, 1997, the majority of the Company's consumer loans
were secured by collateral primarily consisting of automobiles,
boats and second mortgages on real estate. Management believes
that these loans involve less risk than other categories of
loans.
Real estate mortgage loans constitute 16.9% of outstanding loans.
Management considers these loans to have minimal risk due to the
fact that these loans represent conventional residential real
estate mortgages where the amount of the original loan does not
exceed 80% of the appraised value of the collateral.
The allowance for loan losses reflects an amount which, in
management's judgment, is adequate to provide for potential loan
losses. Management's determination of the proper level of the
allowance for loan losses is based on the ongoing analysis of the
credit quality and loss potential of the portfolio, actual loan
loss experience relative to the size and characteristics of the
portfolio, changes in composition and risk characteristics of the
portfolio and anticipated impacts of national and regional
economic policies and conditions. Senior management and the
Board of Directors of the Bank review the adequacy of the
allowance for loan losses on a monthly basis.
Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio; however,
management's judgment is based upon a number of assumptions about
future events, which are believed to be reasonable, but which may
or may not prove valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the loan loss
allowance will not be required.
INVESTMENTS
- -----------
As of December 31, 1997, the securities portfolio comprised
approximately 7.7% of the Company's assets, while loans comprised
approximately 82.7% of the Company's assets. 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. In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and 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.
The following table presents, for the years ended December 31,
1997 and 1996, the approximate market value of the Company's
investments, classified by category and by whether they are
considered available-for-sale or held-to-maturity (in thousands):
INVESTMENT CATEGORY:
December 31,
Available-for-Sale: 1997 1996
Obligations of U.S. Treasury and
other U.S. Agencies $5,480,504 $5,465,945
State, Municipal and County
Securities 1,187,667 1,734,904
Mortgage-Backed Securities 19,388 ---
Federal Reserve Bank Stock 99,000 99,000
Federal Home Loan Bank Stock 231,400 201,000
Other Securities 60,000 100,000
---------- ----------
Total $7,077,909 $7,600,849
========== ==========
HELD-TO-MATURITY:
As of December 31, 1997 and 1996, there were no securities
categorized as held-to-maturity.
The following table indicates, for the year ended December 31,
1997, the amount of investments, appropriately classified, due in
(i) one year or less, (ii) one to five years, (iii) five to ten
years, and (iv) over ten years.
INVESTMENT CATEGORY:
Average
Available-for-Sale: Amount Weighted Yield
Obligations of U.S. Treasury and
other U.S. Agencies
0 to 1 year $ 500,150 5.61%
Over 1 through 5 years 4,980,354 6.16%
State, Municipal and County Securities
0 to 1 year 625,536 7.11%
Over 1 through 5 years 453,567 7.75%
Over 5 through 10 years 108,564 8.94%
Mortgage backed Securities
0 to 1 year 19,338 6.11%
Other Securities
0 to 1 year 60,000 5.73%
No maturity 330,400 6.00%
---------- -----
Total $7,077,909 6.34%
========== =====
HELD-TO-MATURITY:
As of December 31, 1997, there were no securities categorized as
held-to-maturity.
ASSET/LIABILITY MANAGEMENT
- --------------------------
It is the objective of the Bank to manage assets and liabilities
to provide a satisfactory, consistent level of profitability
within the framework of established cash, loan investment,
borrowing and capital policies. Certain of the officers of the
Bank are responsible for monitoring policies and procedures that
are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of
funds while adhering to prudent banking practices. It is the
overall philosophy of management to support asset growth
primarily through growth of core 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
commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis. A
monthly report reflecting interest-sensitive assets and interest-
sensitive liabilities is prepared and presented to the Bank's
Board of Directors. The objective of this policy is to control
interest-sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on the Bank's
earnings.
LEGAL PROCEEDINGS
=================
Neither the Company nor the Bank is a party to, nor is any of
their property the subject of any material pending legal
proceeding which is not routine litigation that is incidental to
their respective businesses or any other material legal
proceeding.
MANAGEMENT
==========
Directors and Executive Officers
- --------------------------------
The Directors and executive officers of the Company, as well as
the Bank's directors and executive officers are as follows:
<PAGE>
Position with Position with
Name the Company the Bank
T.Brinson Brock,Sr. Director, Executive Vice Director,
President, Secretary President
Acting Chief Executive and
Officer Secretary
Willis R. Collins Director Director
Gene Stallings
Crawford Director Director
Benny Warren Denham Director Director
Rowland T.Eskridge,Sr. Vice President -
Development
Lloyd Greer Ewing Director Director
Ava Lovett Senior Vice
President
and Chief
Financial
Officer
Grady Elmer Moore Director Director
Sara Ruth Raines Director Director
Theron G. Reed Director, President
Benjamin E. Walker Director Director
Jimmie Ann Ward Director Director
Freddie J. Weston, Jr. Director Director
The Company's Board of Directors presently consists of 11
directors. The Company's Articles of Incorporation and Bylaws
provide for a single class of directors, ranging in number from 5
to 25 members. The directors are elected by the shareholders of
the Company at the annual shareholders meeting held in May of
each year. Vacancies on the Board of Directors may be filled
(for a term ending on the date of the next annual meeting) by a
majority vote of the existing directors. The Company's officers
are appointed by the Board of Directors of the Company and serve
and hold office at the pleasure of the Company's Board of
Directors.
The Board of Directors of the Bank presently consists of 10
directors. The Board of Directors of the Bank are elected
annually by the Board of Directors of the Company, the Bank's
sole shareholder. The Bank's officers are appointed by the Board
of Directors of the Bank and serve and hold office at the
pleasure of the Board of Directors of the Bank.
The following table provides biographical information for each
director and executive officer of the Company. Board members are
elected for a one-year term and serve until their successors are
elected and qualified. Except as otherwise indicated, each
individual has been or was engaged in his/her present or last
principal occupation, in the same or a similar position, for more
than five years.
Position with Company and
Name Age Bank and Principal Occupation
T. Brinson Brock, Sr. 41 Mr. Brock has been the Executive
Vice President and Acting Chief
Executive Officer of the Company since 24, 1998, Secretary of
the Company since November 1989, a director of the Company since
August 1989, President of the Bank since 24, 1998 and a director
and Secretary of the Bank since August 1990. Before 24, 1998,
Mr. Brock served as the Vice President of the Company and as the
Executive Vice President of the Bank in charge of the Bank's
lending, business and professional development activities. Mr.
Brock began his banking career in 1978 with Cordele Banking
Company in Cordele, Georgia. In 1984 he joined Ashburn Bank as
Vice President and was promoted to Senior Vice President in
charge of lending in 1987. Mr. Brock raises beef cattle and is
Vice President of the Turner County Cattleman's Association. Mr.
Brock also serves as Chairman of the Georgia Banker's
Agricultural Committee.
Willis R. Collins 52 Mr. Collins has been a director of
the Company since August 1989 and of
the Bank since August 1990. Mr. Collins served as a Commissioner
of Turner County, Georgia from 1986 to 1993. He organized Cotton
Warehouse, Inc. in 1988 and is a partner and manager of Arabi Gin
Company.
Gene Stallings Crawford 69 Mr. Crawford has been a director of
the Company since August 1989 and of
the Bank since August 1990. For over forty years Mr. Crawford
has been active in developing Crawford Cattle Company, a beef and
feeder cattle production business.
Benny Warren Denham 67 Mr. Denham has been a director of
the Company since August 1989 and of
the Bank since August 1990. Mr. Denham is a co-owner of Denham
Farms and has operated this farming business since 1951. Mr.
Denham has been a director of Oglethorpe Power Company since
1988. Mr. Denham served as a Commissioner of Turner County,
Georgia from 1980 to 1990.
Rowland T. Eskridge, Sr. 60 Mr. Eskridge has served as Vice
President of Development of the
Company since December 27, 1997. He has been in the financial
service industry for thirty-nine years. Until January 1997, Mr.
Eskridge served as President and Chief Executive Officer at First
National Bank, St. Marys, Georgia, which he helped organize in
1987. During 1997, Mr. Eskridge was a banking consultant. (Mr.
Eskridge will also serve as an Advisory Director of the Bank.
See "Advisory Directors" immediately following.)
Lloyd Greer Ewing 53 Mr. Ewing has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Ewing joined Ewing Buick, Pontiac,
GMC Trucks, Inc. in sales in 1973 and has held various positions
in the company. He is now its President and General Manager.
Mr. Ewing is a former member of the Board of Directors at First
Federal Savings Bank of Turner County.
Ava Lovett 53 Ms. Lovett has been Senior Vice
President and Chief Financial
Officer since 24, 1998, and Vice President and Cashier of the
Bank since May 1990. Previously, Ms. Lovett served in various
management functions at several other Georgia banks. Ms. Lovett
also served for four years as a financial examiner with the
Georgia Department of Banking and Finance, Atlanta, Georgia
(District Office, Douglas, Georgia). She performed safety and
soundness examinations of state chartered banks, credit unions
and bank holding companies. Her responsibilities included
examiner-in-charge duties, credit analysis and detail (audit)
functions.
Grady Elmer Moore 63 Mr. Moore has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Moore runs a row crop operation,
G.M. Farms, Inc., which he has pursued for the past thirty-five
years.
Sara Ruth Raines 52 Mrs. Raines has been a director of
the Company since August 1989 and
of the Bank since August 1990. Until recently, Mrs. Raines
operated a department (clothing) store in Ashburn. Mrs. Raines
is the President of Raines Investment Group, Inc., which is a
franchisee of Aaron's Rental Purchase Stores.
Theron G. Reed 55 Mr. Reed served as a director,
President, Chief Executive Officer
and Treasurer of the Company from November 1989 until 24, 1998.
Mr. Reed also served as President, Chief Executive Officer and a
director of the Bank from August 1990 until 24, 1998. Effective
24, 1998, Mr. Reed is serving as a director and President of the
Company on an as needed, not full time basis. Mr. Reed also
serves as President of Cornerstone Manufacturing, Inc., a family-
owned business in Turner County. Georgia.
Benjamin E. Walker 67 Mr. Walker has been a director of
the Company since August 1989 and of
the Bank since August 1990. Mr. Walker is a part-owner of M & W
Sportswear, Inc., a local garment contracting company. Mr.
Walker is also a co-owner of S.S. Garment, Inc., a uniform
manufacturing company in Fitzgerald, Georgia. Mr. Walker is a
former Chairman of the Board of The Citizens Bank of Ashburn.
Jimmie Ann Ward 60 Mrs. Ward has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mrs. Ward is Vice President of Ward Land
Company and is a community volunteer in Turner County.
Freddie J. Weston, Jr. 60 Mr. Weston has been a director of
the Company since August 1989 and of
the Bank since August 1990. Mr. Weston served in the U.S. Army
for more than twenty-five years, retiring in October 1981. Since
1983, he has been the coordinator of Vocational Academic
Education at Turner County High School where he is Assistant
Principal and teaches business and financial management. Mr.
Weston is also Vice Chairman of the Ashburn Chamber of Commerce
and Director of the Tiff Area Big Brothers/Big Sisters.
ADVISORY DIRECTORS
- ------------------
Pursuant to the Bank Development Agreement, upon the successful
completion of the Offering and the opening of the Camden County
Branch, the Camden County Promoters will be elected to serve as
members of the Advisory (non-voting) Board of Directors of the
Bank with respect to the business and operation of the Camden
County Branch.
The following provides biographical information for each person
chosen to serve as an Advisory Director:
ANGELA DENISE BRYANT, 44, has been employed for the last
five years as a legal secretary with the law firm of Smith &
Floyd. She also is a co-owner of Bryant Photography, which
specializes in sports photography and weddings. Ms. Bryant is
Treasurer for Cumberland Sound, a community choral group and Vice
Chairman and Script Chairman for Camden Area Player, Inc. a
community theater group.
DONALD M. CREWS, 50, has been the owner and operator of
Furniture Factory Outlet, St. Marys, Georgia, since 1985. Mr.
Crews also owns and manages commercial real estate. Mr. Crews is
a past director of the Camden/Kingsbay Chamber of Commerce and
the Camden/Kingsbay Navy League and has served for four years on
the Better Business Committee for Camden County.
J. ALAN EASON, 31, is a native of Camden County and has, for
the last five years, served as President of Eason, Inc., a
family-owned business.
ROWLAND T. ESKRIDGE, SR., 60. See biography of Rowland T.
Eskridge, Sr., under "MANAGEMENT -- Directors and Executive
Officers."
BOBBY Y. FRANKLIN, age 51, has been the owner and operator
of B & D Tire Company in Kingsland, Georgia, since 1975 and the
owner of Franklin Properties, Hilliard, Florida, since 1979. Mr.
Franklin serves as a director of the Georgia Tire and Retreaders
Dealers Association.
CARROLL E. FRANKLIN, age 49, has been the owner of Franklin
Tire & Auto Parts, Inc. and Franklin Ministorage, Hilliard,
Florida, during the last five years.
JAMES R. HANNAH, age 51, has been engaged in the real estate
development and construction businesses in Camden County,
Georgia, since 1979.
MAURICE HANNAH, age 55, has been a real estate developer in
Waycross and Camden County, Georgia, since 1971.
DR. LIZ G. JORDAN, age 59, is the Assistant Superintendent
of Special Programs of the Camden County Schools and has been an
educator, motivational speaker and writer for the last five
years.
JOE SHEPPARD, age 64, has been Chairman of the Board of
Resource Systems, Inc., an Atlanta-based company engaged in the
telecommunication business for more than five years. Previously
he held Regional Manager and Sales Manager positions at the
Digital Telephone Systems Division of Harris Corporation.
ADDITIONAL DIRECTORS
- --------------------
Pursuant to the Bank Development Agreement, upon the successful
completion of the Offering and the opening of the Camden County
Branch, three of the Advisory Directors nominated by the Advisory
Board after consultation with and input from the Company, will be
elected by the Board of Directors of the Company to fill
vacancies then existing on the Board of Directors of the Company.
The election of such directors is also subject to regulatory
approvals. The three additional directors will serve until the
next annual meeting of the shareholders of the Company.
ESKRIDGE EMPLOYMENT AGREEMENT
- -----------------------------
Effective December 27, 1997, the Company entered into an
Employment Agreement with Rowland T. Eskridge, Sr., one of the
Camden County Promoters. Under the terms of the Employment
Agreement, Mr. Eskridge will serve as Vice President of
Development for the Bank. His specific employment duties
include: (i) assisting the Company with application and
regulatory approval of the Camden County Branch; (ii) supervising
the construction and outfitting of the Camden County Branch
facilities; (iii) assisting the Company with promotion of the
Offering and the Camden County Branch; and (iv) serving as
Chairman of the Advisory Board of the Bank. In connection with
these duties, however, Mr. Eskridge will have no role in credit
approval or the administrative decision making processes of the
Bank or the Company.
As compensation for the services outlined in the Employment
Agreement, Mr. Eskridge will receive a base salary of $52,500
plus (i) a bonus of $12,500 at the end of the first year of
employment if the Offering was successfully completed and the
Camden County Branch opened for business; and (ii) a bonus of
$12,500 at the end of the second year of employment if the Camden
County Branch has achieved total deposits of $10,000,000 and
total loans of $5,000,000 by such time. In addition to the
compensation described above, Mr. Eskridge will be entitled to
business and automobile expense reimbursement, vacation, sick
leave and other benefits generally available to employees of the
Bank and consistent with the Bank's standard policies in effect
from time to time.
The term of the Employment Agreement is two years, unless earlier
terminated upon thirty (30) days notice following breach by Mr.
Eskridge or the failure to successfully complete the Offering.
In the event of termination, all compensation under the
Employment Agreement ceases. In addition, Mr. Eskridge is
prohibited from competing, directly or indirectly, with the Bank
in any area within a twenty-five (25) mile radius of St. Marys,
Georgia, for a period of one year from any such termination.
EXECUTIVE COMPENSATION
======================
NAMED EXECUTIVE OFFICERS
- ------------------------
The following table sets forth the compensation paid to the named
executive officers of the Company for each of the Company's last
three completed fiscal years:
Summary Compensation Table
Annual Compensation
Name and Principal Year Salary Bonus Compensation
Position (a) (b) (c) (d) (e)
Theron G. Reed,
President of the 1997 $100,000 $27,500 $39,381(1)
the Company 1996 $100,000 $27,500 $34,726(2)
1995 $100,404 $18,000 $22,408(3)
T. Brinson Brock, Sr., 1997 $ 89,000 $27,000 $38,967(4)
Executive Vice 1996 $ 84,000 $23,500 $33,053(5)
President, Secretary 1995 $ 81,200 $17,000 $21,984(6)
and Acting CEO of the
Company
Long Term Compensation
Securities
and All
Underly- Other
Stock Restricted ing LTIP Compen-
Name and Principal Awards Options/SARs Payouts sation
Position (a) (f) (g) (h) (i)
Theron G. Reed, 1997 $0 0 0 0
President of
the Company 1996 $0 0 0 0
1995 $0 0 0 0
T.Brinson
Brock, Sr. 1997 $0 0 0 0
Executive Vice 1996 $0 0 0 0
President, 1995 $0 0 5,280(7) 0
Secretary and
Acting CEO of the
Company
(1) Includes $3,000 car allowance, $7,800 in director's fees,
insurance and profit sharing payments.
(2) Includes $17,283 in contributions to the Company's profit
sharing plan and $5,950 in director's fees.
(3) Includes $14,208 in contributions to the Company's profit
sharing plan and $3,400 in director's fees.
(4) Includes $4,200 car allowance, $9,000 in director's fees,
insurance and profit sharing payments.
(5) Includes $14,630 in contributions to the Company's profit
sharing plan and $7,150 in director's fees.
(6) Includes $11,784 in contributions to the Company's profit
sharing plan and $4,500 in director's fees.
(7) When the Bank opened for business in 1990, Mr. Brock was
granted an option to acquire 1% of the Registrant's original
stock issue (i.e., 3,520 shares). Thereafter, at the end of each
of fiscal year 1992, 1993, 1994 and 1995, Mr. Brock, based upon
the Bank's having achieved a specified return on assets in each
such year, was granted additional options to acquire .5% per year
of the Registrant's original stock issue (i.e., 1,760 additional
shares per year). The return on assets which the Bank had to
achieve in years 1992-1995 for Mr. Brock to earn the options
granted to him in such years was: calendar year 1992, .3%;
calendar year 1993, .5%; calendar year 1994, .75%; and calendar
year 1995, 1.0%. All options are exercisable (after taking into
account the three-for-one stock split in October 1997) at a price
of $3.33 per share and are exercisable at any time for seven
years after the year in which such options were awarded.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Percent
Number of of Total
Securities Options/SARs Exercise
Underlying Granted to or Expira-
Options/ Employees in Base tion
Name SARs Granted Fiscal Year Price Date
(a) (b) (c) (d) (e)
Theron G. Reed 0 0% $N/A/Share N/A
T. Brinson
Brock, Sr. 0 0% $N/A/Share N/A
No stock options or warrants were exercised and there were no
SARs outstanding during fiscal year 1997. The following table
presents information regarding the value of unexercised options
and warrants held at December 31, 1997.
Aggregated Option/SAR Exercises in Last
Fiscal Year and FY-end Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Shares Options/SARs Options/SARs
Acquired on FY-End at FY-End
on Value Exercisable Exercisable
Name Exercise Realized /Unexercisable /Unexercisable
(a) (b) (c) (d) (e)(1)
Theron G.
Reed --- --- 42,240/0 281,740/0
T.Brinson
Brock,Sr. --- --- 31,680/0 211,305/0
(1) Dollar values have been calculated by determining the
difference between the estimated fair market value of the Shares
at December 31, 1997 (i.e., $10.00 per share) and the exercise
price of such options (i.e., $3.33). The number of securities
has been adjusted for the three-for-one stock split in October
1997.
The Registrant does not have any Long Term Incentive Plans in
effect.
DIRECTORS
- ---------
The Company's directors receive $500 for each monthly bonus
meeting they attended. In addition, directors who are members of
the Board's Loan Committee receive $100 for each Loan Committee
meeting attended. In December 1997, each director of the Bank
received a $2,000 Christmas bonus.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
=======================================
On April 20, 1998, the Company had 465 shareholders of record.
The following table sets forth share ownership information as of
April 20, 1998 (adjusted for the three-for-one stock split in
October 1997), with respect to the Shares, with respect to any
person known to the Company to be a beneficial owner of more than
5% of the Shares:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS*
- ------------------------------------------------
Name and Address of
Beneficial Owner Number of Shares Percent of Class(1)
T. Brinson Brock, Sr. 78,837(2) 7.1%
Arabi, Georgia
Willis R. Collins 91,500(3) 8.4%
Rebecca, Georgia
Gene Stallings Crawford 105,579(4) 9.7%
Rebecca, Georgia
Grady Elmer Moore 76,050(5) 6.9%
Arabi, Georgia
Sara Ruth Raines 70,800(6) 6.5%
Ashburn, Georgia
Theron G. Reed 72,363(7) 6.5%
Rebecca, Georgia
Benjamin E. Walker 77,361(8) 7.1%
Ashburn, Georgia
Jimmie Ann Ward 75,000(9) 6.9%
Ashburn, Georgia
* Information relating to beneficial ownership of Shares is
based upon "beneficial ownership" concepts set forth in rules of
the SEC under Section 13(d) of the 1934 Act. Under such rules, a
person is deemed to be a "beneficial owner" of a security if that
person has or shares "voting power," which includes the power to
vote or direct the voting of such security, or "investment
power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the
right to acquire beneficial ownership within sixty (60) days.
Under the rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he has
no beneficial interest. For instance, beneficial ownership
includes spouses, minor children and other relatives residing in
the same household, and trusts, partnerships, corporations or
deferred compensation plans which are affiliated with the
principal.
(1) The percentages are based on 1,060,758 Shares outstanding,
plus Shares which may be acquired by the beneficial owner within
60 days of April 20, 1998, by exercise of options and/or
warrants.
(2) Includes 750 Shares held as custodian for Brent Brock, 840
Shares held as custodian for Kristen Brock, 450 Shares held as
custodian for Hunter Chess Brock, and 978 Shares owned by Mr.
Brock's wife, as to all of which Mr. Brock disclaims beneficial
ownership. Does not include 3,000 Shares owned by Mr. Brock's
father, and 3,150 Shares owned by his mother. Also includes the
right to acquire 21,000 Shares pursuant to currently exercisable
warrants and the right to acquire 31,680 Shares pursuant to
currently exercisable options.
(3) Includes 40,065 Shares owned by Mr. Collins' wife as to
which he disclaims beneficial ownership. Also includes the right
to acquire 25,752 Shares pursuant to currently exercisable
warrants.
(4) Includes 18,750 Shares owned by Mr. Crawford's wife as to
which he disclaims beneficial ownership, 8,115 Shares held as
custodian for his son Gene Scott Crawford and 8,115 Shares held
as custodian for his son Phillip Andrew Crawford. Also includes
the right to acquire 30,000 Shares pursuant to currently
exercisable warrants.
(5) Includes the right to acquire 36,750 Shares pursuant to
currently exercisable warrants.
(6) Includes 1,500 Shares owned by Ruth's of Ashburn, Inc., and
24,000 Shares owned by Mrs. Raines' husband. Also includes 1,200
Shares owned by Mrs. Raines' son John D. Raines, III and 600
Shares owned by her son Mitchell Davis Raines. Also includes the
right to acquire 30,000 Shares pursuant to currently exercisable
warrants.
(7) Includes 1,200 Shares held as custodian for Mr. Reed's son,
Jeff Reed, as to which Mr. Reed disclaims beneficial ownership.
Also includes the right to acquire 42,240 Shares pursuant to
currently exercisable options and the right to acquire 15,000
Shares pursuant to currently exercisable warrants.
(8) Includes 12,300 Shares owned by Mr. Walker's wife as to
which he disclaims beneficial ownership. Also includes the right
to acquire 30,000 Shares pursuant to currently exercisable
warrants.
(9) Includes 15,000 Shares owned by Mrs. Ward's son as to which
she disclaims beneficial ownership. Also includes the right to
acquire 30,000 Shares pursuant to currently exercisable warrants.
The following table sets forth share ownership information as of
April 20, 1998 of the Company's Shares with respect to (i) each
director and named executive officer of the Registrant who
beneficially owns Shares; and (ii) all directors and named
executive officers of the Company as a group:
SECURITY OWNERSHIP OF MANAGEMENT*
- ---------------------------------
Name and Address of Number
Beneficial Owner of Shares Percent of Class(1)
T. Brinson Brock, Sr. 78,837(2) 7.1%
Arabi, Georgia
Willis R. Collins 91,500(3) 8.4%
Rebecca, Georgia
Gene Stallings Crawford 105,579(4) 9.7%
Rebecca, Georgia
Benny Warren Denham 38,700(5) 3.6%
Sycamore, Georgia
Lloyd Greer Ewing 39,000(6) 3.6%
Ashburn, Georgia
Grady Elmer Moore 76,050(7) 6.9%
Arabi, Georgia
Sara Ruth Raines 70,800(8) 6.5%
Ashburn, Georgia
Theron G. Reed 72,363(9) 6.5%
Rebecca, Georgia
Benjamin E. Walker 77,361(10) 7.1%
Ashburn, Georgia
Jimmie Ann Ward 75,000(11) 6.9%
Ashburn, Georgia
Freddie J. Weston, Jr. 15,000(12) 1.3%
Ashburn, Georgia
All directors and named
executive officers
as a group(13) 738,690 52.2%
(11 persons) Shares
* Information relating to beneficial ownership of common stock
is based upon "beneficial ownership" concepts set forth in rules
of the SEC under Section 13(d) of the 1934 Act. Under such
rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which
includes the power to vote or direct the voting of such security,
or "investment power," which includes the power to dispose of or
to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any security of which that
person has the right to acquire beneficial ownership within sixty
(60) days. Under the rules, more than one person may be deemed
to be a beneficial owner of the same securities, and a person may
be deemed to be a beneficial owner of securities as to which he
has no beneficial interest. For instance, beneficial ownership
includes spouses, minor children and other relatives residing in
the same household, and trusts, partnerships, corporations or
deferred compensation plans which are affiliated with the
principal.
(1) The percentages are based on 1,060,758 Shares outstanding,
plus Shares which may be acquired by the beneficial owner, or
group of beneficial owners, within 60 days of April 20, 1998, by
exercise of options and/or warrants. The percentage total
differs from the sums of the individual percentages due to the
differing denominators with respect to each calculation. All
share numbers and percentages reflect the three-for-one stock
split in October 1997.
(2) Includes 750 Shares held as custodian for Brent Brock, 840
Shares held as custodian for Kristen Brock, 450 Shares held as
custodian for Hunter Chess Brock, and 978 Shares owned by Mr.
Brock's wife, as to all of which Mr. Brock disclaims beneficial
ownership. Does not include 3,000 Shares owned by Mr. Brock's
father, and 3,150 Shares owned by his mother. Also includes the
right to acquire 21,000 Shares pursuant to currently exercisable
warrants and the right to acquire 31,680 Shares pursuant to
currently exercisable options.
(3) Includes 40,065 Shares owned by Mr. Collins' wife as to
which he disclaims beneficial ownership. Also includes the right
to acquire 25,752 Shares pursuant to currently exercisable
warrants.
(4) Includes 18,750 Shares owned by Mr. Crawford's wife as to
which he disclaims beneficial ownership, 8,115 Shares held as
custodian for his son Gene Scott Crawford and 8,115 Shares held
as custodian for his son Phillip Andrew Crawford. Also includes
the right to acquire 30,000 Shares pursuant to currently
exercisable warrants.
(5) Includes 4,788 Shares owned by Mr. Denham's wife as to which
he disclaims beneficial ownership. Also includes the right to
acquire 18,000 Shares pursuant to currently exercisable warrants.
(6) Includes 3,000 Shares owned by his daughter, Mary Margaret
Ewing, 3,000 Shares owned by his son, Lloyd Scott Ewing, and
3,000 Shares owned by his daughter, Jennifer L. Ewing, as to all
of which Mr. Ewing disclaims beneficial ownership. Also includes
the right to acquire 15,000 Shares pursuant to currently
exercisable warrants.
(7) Includes the right to acquire 36,750 Shares pursuant to
currently exercisable warrants.
(8) Includes 1,500 Shares owned by Ruth's of Ashburn, Inc.,
24,000 Shares owned by Mrs. Raines' husband, 1,200 Shares owned
by Mrs. Raines' son John D. Raines, III and 600 Shares owned by
her son Mitchell Davis Raines. Also includes the right to
acquire 30,000 Shares pursuant to currently exercisable warrants.
(9) Includes 1,200 Shares held as custodian for his son, Jeff
Reed, as to which Mr. Reed disclaims beneficial ownership. Also
includes the right to acquire 42,240 Shares pursuant to
currently exercisable options and the right to acquire 15,000
Shares pursuant to currently exercisable warrants.
(10) Includes 12,300 Shares owned by Mr. Walker's wife as to
which he disclaims beneficial ownership. Also includes the right
to acquire 30,000 Shares pursuant to currently exercisable
warrants.
(11) Includes 15,000 Shares owned by Mrs. Ward's son as to which
she disclaims beneficial ownership. Also includes the right to
acquire 30,000 Shares pursuant to currently exercisable warrants.
(12) Includes the right to acquire 6,000 Shares pursuant to
currently exercisable warrants.
(13) Warrants to purchase Shares at the original offering price
were issued to each director of the Company and the Bank on the
basis of one warrant for each share of common stock that they
purchased in the initial offering. The stock purchase warrants
entitle the holder of the warrants to purchase Shares at $3.33
per share at any time during the term of the warrant. None of
the warrants were exercisable until December 14, 1991 (which date
is one year from the date the offering was completed). The
warrants have a term of ten years from August 6, 1990 (the date
the bank opened for business). One-third of each director's
warrants became vested on December 14, 1991; an additional one-
third became vested on December 14, 1992, and the final one-third
became vested on December 14, 1993. The warrants exercisable on
or after December 14, 1993, are reflected in the beneficial
ownership table.
SECURITY OWNERSHIP OF CAMDEN COUNTY PROMOTERS
- ----------------------------------------------
The following table sets forth the maximum possible ownership of
the Shares by the Camden County Promoters, assuming (i) the
purchase by them of the Shares they have each agreed to purchase
and (ii) the completion of the Offering at the maximum
subscription (400,000 Shares) level:
Number
of Shares
Number to be
Beneficially Beneficially
Owner Owned
Prior to Immediately
Name Offering Percent the Offering Percent
Angela Bryant 0 0% 1,500 ---*
Donald M. Crews 0 0% 15,000 1.00%
J. Alan Eason 0 0% 10,000 ---*
Rowland T. Eskridge, Sr. 0 0% 12,000 ---*
Bobby Y. Franklin 0 0% 16,000 1.10%
Carroll Franklin 0 0% 11,000 ---*
James Hannah 0 0% 11,000 ---*
Maurice Hannah 0 0% 10,000 ---*
Liz G. Jordan 0 0% 2,500 ---*
Joe Sheppard 0 0% 11,000 ---*
-- --- ------- ----
0 0%
Camden County Promoters as
a Group (10 Persons) 100,000 6.85%
* Less than 1%
CERTAIN TRANSACTIONS
====================
During 1997 the Bank loaned funds to certain of the Company's
executive officers and directors in the ordinary course of
business, on substantially the same terms as those prevailing at
the time for comparable transactions with other customers, and
which did not involve more than the normal risk of collectibility
or present other unfavorable features.
DESCRIPTION OF SECURITIES
=========================
Common Stock
- ------------
The Company is authorized to issue up to 10,000,000 Shares, of
which 1,060,758 Shares are outstanding as of April 20, 1998. The
holders of Common Stock have the following rights: (i) the right
to share ratably in the distribution of dividends, as and when
declared by the Board of Directors out of funds legally available
therefor; (ii) the right to cast one vote per share on all
matters voted on by shareholders generally, including the
election of directors and approval of mergers; and (iii) in the
event of liquidation, dissolution or winding up of the Company,
the right to share ratably in all assets remaining after payment
of liabilities. The Shares are not convertible or redeemable and
do not carry any cumulative voting rights (thus shareholders
holding more than 50% of the outstanding Shares are able to elect
all members of the Board of Directors). The currently
outstanding Shares are, and the Shares to be issued hereunder
will be, upon issuance by the Company against receipt of the
purchase price therefor, fully paid and nonassessable by the
Company.
Reference is made to the Company's Restated Articles of
Incorporation, as amended, and bylaws filed as exhibits to the
registration statement of which this Prospectus is a part (the
"Registration Statement"), and to the Georgia Business
Corporation Act, for more complete information concerning the
rights, privileges and liabilities of the holders of the
Company's Shares.
DIVIDENDS
- ---------
The Company has paid dividends with respect to the Shares during
each of the last three fiscal years: $.10 per Share for 1997,
of $0.93 per Share for 1996 and $.06 per Share in 1995,
respectively Any declaration of future dividends is within the
discretion of the Board of Directors of the Company and will
depend, among other things, on general business conditions, the
banking industry, the Company's and the Bank's earnings and
capital and the applicable regulatory requirements.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
=========================================
The Company's Bylaws provide that it may indemnify any person who
is a party to any litigation or proceeding by reason of the fact
that he is or was a director, officer, employee or agent of the
Company, or served as such with another entity at the request of
the Company, against expenses actually and reasonably incurred in
defending or settling such litigation, if such person is
successful in such defense and except if such persons actions
fail to meet certain qualifications. Under some circumstances
the Company may pay expenses in advance.
No indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise. The Company has been advised that in the opinion of
the SEC such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable.
The Company has procured a directors and officers liability
policy with a coverage limit of $1,000,000 million. Such a
policy and the indemnification provisions help the Company and
its subsidiaries attract and retain qualified individuals to
serve as officers and directors by limiting their personal
exposure for such services. The insurance policy also acts to
limit the Company's and its subsidiaries' exposure to liability
for the indemnification offered to officers and directors.
The Articles of Incorporation of the Company and its subsidiaries
limit certain liabilities of the directors of the Company to the
Company or its shareholders. The Articles do not eliminate the
liability of a director for any appropriation, in violation of
his duties, of any business opportunity of the Company or the
subsidiaries, acts or omissions not taken in good faith or which
involved intentional misconduct or a knowing violation of law,
the types of liabilities set forth in Official Code of Georgia
Annotated Sections 14-2-831 (unlawful distributions), or any
transaction from which the director derived an improper personal
benefit.
LEGAL MATTERS
=============
The validity of the issuance of the shares of Common Stock
offered hereby has been passed upon for the Company by Dinur &
Associates, P.C.
EXPERTS
=======
The consolidated financial statements of the Company at December
31, 1997 and 1996, and for the years then ended, included herein
and elsewhere in the registration statement have been included
herein and in the Registration Statement in reliance upon the
report of Francis & Company, independent certified public
accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing
ADDITIONAL INFORMATION
======================
The Company has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a registration statement
under the Securities Act with respect to the shares offered
hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement. For further information
with respect to the Company and the Shares, reference is hereby
made to the Registration Statement and the exhibits thereto. The
Registration Statement may be inspected by anyone without charge
at the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C., and copies of all or any part of the
Registration Statement may be obtained upon payment of the
prescribed fees, from the SEC's principal office in Washington,
D.C. Copies of the Registration Statement and exhibits may be
obtained via the Internet at http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
=============================
Page
REPORT OF INDEPENDENT ACCOUNTANTS....................53
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................54
Consolidated Statements of Income..................55
Consolidated Statements of Changes
in Shareholders' Equity...........................56
Consolidated Statements of Cash Flows..............57
Notes to Consolidated Financial Statements.........58
Report of Independent Accountants
Board of Directors
Community National Bancorporation
Ashburn, Georgia
We have audited the accompanying consolidated balance sheets of
Community National Bancorporation (the "Company") and subsidiary
as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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 consolidated
financial position of Community National Bancorporation and
subsidiary at December 31, 1997 and 1996, and the results of
their consolidated operations and their cash flows for the years
then ended in conformity with generally accepted accounting
principles.
FRANCIS & CO., CPAs
Atlanta, Georgia
February 14, 1998
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
- ------
As of December 31,
1997 1996
Cash and due from banks $ 2,770,621 $ 3,512,819
Federal funds sold, net (Note 3) 2,250,000 2,600,000
----------- -----------
Total cash and cash equivalents $ 5,020,621 $ 6,112,819
Securities: (Notes 2 & 4)
Available-for-sale at fair value 7,077,909 7,600,849
Loans, net (includes loans of $3,191,232
(1997) and $1,579,651 (1996) to
insiders) (Notes 2, 5, 6 & 15) 75,791,059 60,529,687
Property and equipment, net
(Notes 2 & 7) 1,323,876 1,017,210
Other assets 2,380,922 1,995,364
----------- -----------
Total Assets $91,594,387 $77,255,929
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 7,488,707 $ 5,859,192
Interest bearing deposits 76,353,452 64,234,336
----------- -----------
Total deposits (Note 9) $88,842,159 $70,093,528
Obligation under capital lease
(Note 14) --- 15,186
Other liabilities 574,556 891,938
----------- -----------
Total Liabilities $84,416,715 $71,000,652
=========== ===========
Commitments and Contingencies (Note 8)
Shareholders' Equity: (Notes 1& 15)
Common stock, no par value, 10,000,000
shares authorized, 1,060,251 shares
issued; 1,054,251 (1997) and 1,060,251
(1996)outstanding $ 3,479,988 $ 3,479,988
Treasury stock (40,000) ---
Retained earnings 3,726,950 2,783,964
Unrealized gain (loss) on securities, net 10,734 (8,675)
----------- -----------
Total Shareholders' Equity $ 7,177,672 $ 6,255,277
----------- -----------
Total Liabilities and
Shareholders' Equity $91,594,387 $77,255,929
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
1997 1996
Interest income:
Interest and fees on loans (Note 2) $ 7,698,998 $ 6,536,735
Interest on investment securities 458,277 399,890
Interest on federal funds sold 144,290 147,314
---------- -----------
Total interest income $ 8,301,565 $ 7,083,939
Interest expense:
Interest on deposits and borrowings
(Note 11) $ 3,965,629 $ 3,443,348
Net interest income 4,335,936 3,640,591
Provision for possible loan
losses (Note 6) 735,300 473,000
---------- -----------
Net interest income after provision
for possible loan losses $ 3,600,636 $ 3,167,591
---------- -----------
Other income:
Gain/(loss) on sale of
securities (Note 4) $ (4,773) $ (2,811)
Service fees on deposit accounts 418,012 375,961
Miscellaneous, other 81,373 91,508
---------- -----------
Total other income $ 504,158 $ 464,658
---------- -----------
Other Expenses:
Salaries and benefits $ 1,106,602 $ 958,720
Data processing expense 111,377 82,984
Professional fees 141,246 139,759
Depreciation 130,746 132,722
Repairs and maintenance 124,152 90,715
Other operating expenses (Note 12) 614,276 623,750
---------- -----------
Total other expenses $ 2,227,859 $ 2,028,650
---------- -----------
Income before income tax $ 1,876,935 $ 1,603,599
Income tax (Notes 2 & 13) 834,992 651,041
---------- -----------
Net income $ 1,041,943 $ 942,558
=========== ===========
Basic earnings per share (Note 2) $ .98 $ .89
=========== ===========
Diluted earnings per share (Note 2) $ .81 $ .76
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997 and 1996
Common Stock Treasury Stock
Shares Amount Shares Amount
Balance, December 31,
1995 353,417 $3,479,988 --- ---
------- ---------- ------ --------
Dividends paid --- --- --- ---
Net income, 1996 --- --- --- ---
Unrealized (loss) on
securities --- --- --- $ ---
------- ---------- ------ --------
Balance, December 31,
1996 353,417 $3,479,988 --- $ ---
------- ---------- ------ --------
Stock Split (3:1) 709,834 --- --- ---
Dividends paid (.0933
per share) --- --- --- ---
Purchase of stock --- --- 6,000 $(40,000)
Net income, 1997 --- --- --- ---
Unrealized gain, securities --- --- --- ---
Balance, December 31,
1997 1,060,251 $3,479,988 6,000 $(40,000)
========= ========== ===== ========
Unrealized Total Share-
Retained Gain on holders'
Earnings Securities Equity
Balance, December 31, 1995 $1,905,021 $ 34,079 $5,409,088
Dividends paid (63,615) --- (63,615)
Net income, 1996 942,558 --- 942,558
Unrealized (loss) on
securities --- (32,754) $ (32,754)
---------- -------- ----------
Balance, December 31, 1996 $2,782,964 $ (8,675) $6,255,277
---------- -------- ----------
Stock Split (3:1) --- --- ---
Dividends paid (.0933 per
share) (98,957) --- (98,957)
Purchase of stock --- --- (40,000)
Net income, 1997 1,041,943 --- 1,041,943
Unrealized gain, securities --- 19,409 $ 19,409
---------- -------- ----------
Balance, December 31, 1997 $ 326,950 $ 10,734 $7,177,672
========== ======== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996
Cash flows from operating
activities:
Net income $ 1,041,943 $ 942,558
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation $ 130,746 $ 132,722
Net Amortization of premiums on
securities 3,184 12,121
Gain on sale or settlements of
securities (4,773) 2,811
Provisions for loan losses 735,300 473,000
(Increase) in other assets (385,558) (293,921)
(Decrease) in liabilities (317,382) 294,995
------------ ------------
Net cash provided by operating
activities $ 1,203,460 $ 1,564,286
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and
paydowns of securities $ 3,632,000 $ 1,303,466
Proceeds from sales of securities $ 496,626 $ 2,740,796
Purchase of investment securities (3,584,688) (4,568,846)
Net increase in loans (15,996,672) (9,728,819)
Purchase of property and equipment (473,412) (59,931)
Net cash used in investing activities $(15,890,146) $(10,313,334)
------------ ------------
Cash flows from financing activities:
Purchase of stock $ (40,000) $ ---
Payment of dividends (98,957) (63,615)
(Decrease) in lease obligations (15,186) (52,144)
Increase in customer deposits 13,748,631 11,673,567
------------ ------------
Net cash provided from financing
activities: $ 13,594,488 $ 11,557,808
------------ ------------
Net (decrease) in cash and
cash equivalents $ (1,092,198) $ 2,808,760
Cash and cash equivalents, beginning
of year $ 6,112,819 $ 3,304,059
------------ ------------
Cash and cash equivalents,
end of year $ 5,020,621 $ 6,112,819
============ ============
Supplemental Information:
Income taxes paid $ 800,125 $ 595,747
============ ============
Interest paid $ 3,908,406 $ 3,422,661
============ ============
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - ORGANIZATION OF THE BUSINESS
Community National Bancorporation, Ashburn, Georgia (the
"Company") was organized in August 1989 to serve as a holding
company for a proposed de novo bank, Community National Bank,
Ashburn, Georgia (the "Bank"). The Bank was chartered by and is
currently regulated by the Office of the Comptroller of the
Currency and its deposits are each insured up to $100,000 by the
Federal Deposit Insurance Corporation. The Bank has two offices,
one in Ashburn, Georgia (headquarters), and one in Cordele,
Georgia. The Company has no other subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated
financial statements include the accounts of the Company and the
Bank. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current year
presentation. Such reclassifications had no impact on net income
or shareholders' equity.
Basis of Accounting. The accounting and reporting policies of
the Company conform to generally accepted accounting principles
and to general practices in the banking 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 significantly from those estimates. Material estimates
that are particularly susceptible to significant change in the
near term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans.
Investment Securities. The Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investment in Debt and Equity Securities" ("SFAS 115") on
January 1, 1994. SFAS 115 requires investments in equity and
debt securities to be classified into three categories:
1. Held-to-maturity securities. These are securities which the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of
premiums and the accretion of discounts. As of December 31, 1997
and 1996, the Company had no securities in this category.
2. Trading securities. These are securities which are bought
and held principally for the purpose of selling in the near
future. Trading securities are reported at fair market value,
and related unrealized gains and losses are recognized in the
income statement. As of December 31, 1997 and 1996, the Company
had no securities in this category.
3. Available-for-sale securities. These are securities which
are not classified as either held-to-maturity or as trading
securities. These securities are reported at fair market value.
Unrealized gains and losses are reported, net of tax, as separate
components of shareholders' equity. Unrealized gains and losses
are excluded from the income statement.
A decline below cost in the fair value of any available-for-sale
or held-to-maturity security that is deemed other than temporary,
results in a charge to income and the establishment of a new cost
basis for the security.
Purchase premiums and discounts on investment securities are
amortized and accredited to interest income using the level yield
method on the outstanding principal balances. In establishing
the accretion of discounts and amortization of premiums, the
Company utilizes market-based prepayment assumptions. Interest
and dividend income are recognized when earned. Realized gains
and losses for securities sold are included in income and are
derived using the specific identification method for determining
the costs of securities sold.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized
loan fees and the allowance for possible loan losses are deducted
from total loans in the statement of condition. Interest income
is recognized over the term of the loan based on the principal
amount outstanding. Points on real estate loans are taken into
income to the extent they represent the direct cost of initiating
a loan. The amount in excess of direct costs is deferred and
amortized over the expected life of the loan.
Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full or timely collection of
interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal.
When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current
period interest income. Income on such loans is then recognized
only to the extent that cash is received and where the future
collection of principal is probable. Loans are returned to
accruing status only when they are brought fully current with
respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as to
both principal and interest.
The Company adopted the provisions of SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting for Impairment of a Loan - Income Recognition
and Disclosure." These standards require impaired loans to be
measured based on the present value of expected future cash flows
discounted at the loan's original effective interest rate, or at
the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. A loan is
considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect
all amounts due according to the contractual terms of the note
agreement. Cash receipts on impaired loans which are accruing
interest are applied to principal and interest under the
contractual terms of the loan agreement. Cash receipts on
impaired loans for which the accrual of interest has been
discontinued are applied to reduce the principal amount of such
loans until the principal has been recovered and are recognized
as interest income thereafter.
Allowance for Loan Losses. The allowance for loan losses is
established through provisions charged to operations. Such
provisions are based on management's evaluation of the loan
portfolio under current economic conditions, past loan loss
experience, adequacy of underlying collateral, changes in the
nature and volume of the loan portfolio, review of specific
problem loans and such other factors which, in management's
judgment, deserve recognition in estimating loan losses. Loans
are charged off when, in the opinion of management, such loans
are deemed to be uncollectible. Subsequent recoveries are added
to the allowance.
Management believes that the allowance for loan losses is
adequate. While management uses available information to
recognize losses of loans, future additions to the allowance may
be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on their judgments
about information available to them at the time of their
examination.
Property and Equipment. Building, furniture, equipment and
leasehold improvements are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight line
method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major
improvements are capitalized. Upon retirement, sale or other
disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts, and gain or loss
is included in income from operations.
Other Real Estate. Other real estate represents property
acquired through foreclosure or in satisfaction of loans. Other
real estate is carried at the lower of: (i) cost; or (ii) fair
value less estimated selling costs. Fair value is determined on
the basis of current appraisals, comparable sales and other
estimates of value obtained principally from independent sources.
Any excess of the loan balance at the time of foreclosure or
acceptance in satisfaction of loans over the fair value of the
real estate held as collateral is treated as a loan loss and
charged against the allowance for loan losses. Gain or loss on
sale and any subsequent adjustments to reflect changes in fair
value and selling costs are recorded as a component of income.
Costs of improvements to other real estate are capitalized, while
costs associated with holding other real estate are charged to
operations.
Income Taxes. The consolidated financial statements have been
prepared on the accrual basis. When income and expenses are
recognized in different periods for financial reporting purposes
and for purposes of computing income taxes currently payable,
deferred taxes are provided on such temporary differences. The
Company files a consolidated income tax return. Taxes are
accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be realized or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
Profit Sharing. The Company has a noncontributory profit sharing
plan that covers all eligible employees. The annual contribution
to the plan is determined by the Board of Directors. Such
contribution cannot exceed amounts allowable as a deduction for
federal income tax purposes.
Restriction on Cash and Due from Banks. The Bank is required to
maintain reserve funds in cash or on deposits with the Federal
Reserve System. The required reserves at December 31, 1997 and
1996 were approximately $199,000 and $190,000, respectively.
Statement of Cash Flows. For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from
banks and federal funds sold. Generally, federal funds are
purchased or sold for one day periods.
Earnings Per Share ("EPS"). The Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 establishes standards for computing and
presenting EPS. Because the Company has a complex capital
structure, it is required to report: (i) basic EPS; and (ii)
diluted EPS. Basic EPS is defined as the amount of earnings
available to each share of common stock outstanding during the
reporting period. Diluted EPS is defined as the amount of
earnings available to each share of common stock outstanding
during the reporting period and to each share that would have
been outstanding assuming the issuance of common stock for all
dilutive potential common stock outstanding during the reporting
period.
Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed assuming
the conversion of all warrants and options.
For the year ended December 31, 1997, basic EPS and diluted EPS
were computed as follows:
Basic EPS Diluted EPS
Numerator Denominator Numerator Denominator
Net income $1,041,093 $1,041,943
Weighted
average
shares 1,058,866 1,058,866
Options,
warrants 220,597
---------- ----------- -------- ---------
Totals $1,041,943 1,058,866 $1,041,943 1,279,463
========== =========== ========== =========
EPS $.98 $.81
==== ====
NOTE 3 - FEDERAL FUNDS SOLD
The Bank is required to maintain legal cash reserves computed by
applying prescribed percentages to its various types of deposits.
When the Bank's cash reserves are in excess of the required
amount, the Bank may lend the excess to other banks on a daily
basis. At December 31, 1997 and 1996, the Bank sold $2,250,000
and $2,600,000, respectively, to other banks through the federal
funds market.
NOTE 4 - SECURITIES AVAILABLE-FOR-SALE
The amortized costs and estimated market values of securities
available-for-sale as of December 31, 1997 follow:
Estimated
Description Amortized Costs Market Values
U.S. Agency securities $ 5,484,327 $ 5,480,504
FRB stock 99,000 99,000
FHLB stock 231,400 231,400
Municipal securities 1,167,580 1,187,667
Mortgage backed securities 19,338 19,338
CDS at other banks 60,000 60,000
----------- -----------
Total securities $ 7,061,645 $ 7,077,909
=========== ===========
Gross Unrealized
Description Gains Losses
U.S. Agency securities $ 7,923 $ (11,746)
FRB stock --- ---
FHLB stock --- ---
Municipal securities 20,701 (614)
Mortgage backed securities --- ---
CDS at other banks --- ---
----------- -----------
Total securities $ 28,624 $ (12,360)
=========== ===========
The amortized costs and estimated market values of securities
available-for-sale as of December 31, 1996 follow:
Estimated
Description Amortized Costs Market Values
U.S. Agency securities $ 5,505,952 $ 5,465,945
FRB stock 99,000 99,000
FHLB stock 201,000 201,000
Municipal securities 1,708,040 1,734,904
CDS at other banks 100,000 100,000
----------- -----------
Total securities $ 7,613,992 $ 7,600,849
=========== ===========
Gross Unrealized
Description Gains Losses
U.S. Agency securities $ 1,943 $ (41,950)
FRB stock --- ---
FHLB stock --- ---
Municipal securities 6,864 ---
CDS at other banks --- ---
----------- -----------
Total securities $ 28,807 $ (41,950)
=========== ===========
All national banks are required to hold FRB stock and all members
of the Federal Home Loan Bank are required to hold FHLB stock.
No ready market exists for either stock and neither stock has a
quoted market value. Accordingly, both FRB stock and FHLB stock
are reported at cost.
The amortized costs and estimated market values of securities
available-for-sale at December 31, 1997, by contractual
maturity, are shown in the following chart. Expected maturities
may differ from contractual maturities because issuers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Description Amortized Costs Market Values
Due in one year or less $ 1,202,085 $ 1,205,024
Due after one through five years 5,429,160 5,433,921
Due after five through ten years 100,000 108,564
FRB stock (no maturity) 99,000 99,000
FHLB stock (no maturity) 231,400 231,400
----------- -----------
Total securities $ 7,061,645 $ 7,077,909
=========== ===========
Proceeds from sales of securities during 1997 were $496,626. Net
gains of $4,773 were realized on those sales. Proceeds from
sales of securities during 1996 were $2,740,796. Net losses of
$2,811 were realized on those sales.
As of December 31, 1997, an aggregate amount of $2,750,000,
consisting of total or portions of seven securities, were pledged
as collateral for public funds deposits aggregating $3,706,172.
As of December 31, 1996, an aggregate amount of $2,110,000,
consisting of total or portions of five securities, were pledged
as collateral for public funds deposits aggregating $2,226,302.
NOTE 5 - LOANS
The composition of net loans by major loan category, as of
December 31, 1997 and 1996, follows:
December 31,
1997 1996
Commercial, financial,
agricultural $56,442,799 $43,230,547
Real estate - construction 188,759 202,844
Real estate - mortgage 13,049,306 1,149,943
Installment 7,676,118 7,146,751
----------- -----------
Loans, gross $77,356,982 $61,730,085
Deduct:
Allowance for loan losses (1,565,923) (1,200,398
----------- -----------
Loans, net $75,791,059 $60,529,687
=========== ===========
Loans in nonaccrual status amounted to $16,600 and $93,505 at
December 31, 1997 and 1996 respectively. If interest had been
accrued on those loans, interest income would have increased by
$930 and $6,400 for the years ended December 31, 1997 and 1996,
respectively. The above nonaccruing loans were the only impaired
loans at December 31, 1997 and 1996. The amounts included in the
allowance for loan losses relating to these impaired loans were
$2,500 and $19,700 at December 31, 1997 and 1996, respectively.
The average recorded investments in impaired loans during 1997
and 1996 were $211,520 and $105,340, respectively. Interest
income recognized for impaired loans during 1997 and 1996 was
approximately $16,300 and $8,300 respectively.
NOTE 6 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is a valuation reserve
available to absorb future loan charge-offs. The allowance is
increased by provisions charged to operating expenses and by
recoveries of loans which were previously written-off. The
allowance is decreased by the aggregate loan balances, if any,
which were deemed uncollectible during the year.
Activity within the allowance for loan losses account for the
years ended December 31, 1997 and 1996 follows:
Years ended December 31,
1997 1996
Balance, beginning of year $ 1,200,398 $ 922,613
Add: Provision for loan losses 735,300 473,000
Add: Recoveries of previously
charged off amounts 106,337 33,744
----------- -----------
Total $ 2,042,035 $1,429,357
Deduct: Amount charged-off (476,112) (228,959)
----------- -----------
Balance, end of year $ 1,565,923 $1,200,398
NOTE 7 - PROPERTY AND EQUIPMENT
Building, furniture, equipment, land and land improvements are
stated at cost less accumulated depreciation. Components of
property and equipment included in the consolidated balance
sheets at December 31, 1997 and 1996 follow:
December 31,
1997 1996
Land $ 155,018 $ 61,168
Land improvements 43,111 43,111
Leasehold improvements 166,500 ---
Building 939,338 939,338
Furniture and equipment 851,461 718,476
Property and equipment, gross $ 2,155,428 $ 1,762,093
Deduct:
Accumulated depreciation (831,552) (744,883)
Property and equipment, net $ 1,323,876 $ 1,017,210
=========== ===========
Depreciation expense for the years ended December 31, 1997 and
1996 amounted to $130,746 and $132,722, respectively.
Depreciation is charged to operations over the estimated useful
lives of the assets. The estimated useful lives and methods of
depreciation for the principal items follow:
Type of Asset Life in Years Depreciation
Method
Land improvements 2 to 7 Straight-line
Furniture and equipment 1 to 7 Straight-line
Building 32 Straight-line
Leasehold improvements 5 Straight-line
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Please refer to Note 15 concerning warrants and options earned by
directors and executive officers.
Please refer to Note 14 for the discussion concerning the lease
of the Bank's equipment.
Please refer to Note 17 concerning financial instruments with
off-balance sheet risk.
The Bank entered into a five-year operating lease with respect to
its branch located in Cordele, Georgia. Upon expiration, on
September 19, 2002, the lease is renewable for two successive
five-year periods. The approximate future minimum rental
commitments for the above lease as of December 31, 1997 are shown
below:
Calendar Year Amount
1998 $ 25,000
1999 25,000
2000 25,000
2001 25,000
2002 18,500
---------
Total $ 118,500
=========
NOTE 9 - DEPOSITS
The following details deposit accounts at December 31, 1997 and
1996:
December 31,
1997 1996
Non-interest bearing deposits $ 7,488,707 $ 5,859,192
Interest bearing deposits:
NOW accounts 6,585,459 6,383,195
Money market accounts 4,456,079 4,362,343
Savings 1,259,557 1,154,747
Time, less than $100,000 48,487,604 38,207,715
Time, $100,000 and over 15,564,753 14,126,336
------------ ------------
Total deposits $ 83,842,159 $ 70,093,528
============ ============
NOTE 10 - SHAREHOLDERS' EQUITY
On September 25, 1997 the Company's Board declared a
three-for-one stock split, in the form of a 200% stock dividend,
to all shareholders of record as of October 1, 1997. The par
value per share was reduced from $5.00 per share to zero. The
Company currently has 10.0 million shares authorized: 1,054,251
and 1,060,251 shares outstanding at December 31, 1997 and 1996,
respectively. There are 289,002 warrants and 73,920 options
outstanding at December 31, 1997. Each warrant and/or option can
be converted into one share of the Company's common stock upon
surrender and payment of $3.33.
NOTE 11 - INTEREST ON DEPOSITS AND BORROWINGS
A summary of interest expense for the years ended December 31,
1997 and 1996 follows:
December 31,
1997 1996
Interest on NOW accounts $ 211,537 $ 164,863
Interest on money market accounts 153,630 144,484
Interest on savings accounts 41,575 39,379
Interest on CDS under $100,000 2,658,701 2,235,709
Interest on CDS $100,000 and over 899,281 851,842
Interest on federal funds purchased 679 1,939
Interest, other borrowings 226 5,132
------------ ------------
Total interest on deposits
and borrowings $ 3,965,629 $ 3,443,348
NOTE 12- Other Operating Expenses
A summary of other operating expenses for the years ended
December 31, 1997 and 1996 follows:
December 31,
1997 1996
Stationary and supplies $ 68,050 $
50,802
Regulatory fees 50,058 117,054
Courier & postage 39,258 38,540
Advertising & business development 85,831 67,903
Utilities and telephone 47,834 47,301
Directors' fees 90,700 69,550
Taxes and licenses 60,309 54,515
All other operating expenses 172,236 178,085
------------ -----------
Total other operating expenses $ 614,276 $ 623,750
============ ============
NOTE 13 - INCOME TAXES
As of December 31, 1997 and 1996, the Company's provision for
income taxes consisted of the following:
December 31,
1997 1996
Current $ 735,153 $ 554,816
Deferred 99,839 106,225
------------ ------------
Federal income tax expense $ 834,992 $ 661,041
============ =============
Deferred income taxes consist of the following:
1997 1996
Provision for loan losses $ 124,278 $ 94,447
Other real estate (30,600) 13,600
Other 6,161
(1,822)
------------ ------------
Total $ 99,839 $ 106,225
============ ============
The Company's provision for income taxes differs from the amounts
computed by applying the federal income tax statutory rates to
income before income taxes. A reconciliation of federal
statutory income taxes to the Company's actual income tax
provision follows:
Years Ended December 31
1997 1996
Income taxes at statutory rate $ 638,160 $ 545,224
State tax, net of Federal benefits 80,011 70,306
Change in valuation allowance 124,278 129,801
Other (7,457)
(84,290)
------------ ------------
Total $ 834,992 $ 661,041
============ ============
The tax effects of the temporary differences that comprise the
net deferred tax assets at December 31, 1997 and 1996 are
presented below:
1997 1996
Deferred tax assets:
Allowance for loan losses $ 487,143 $ 362,865
Other real estate write-down --- 30,600
Unrealized gain, securities (5,530) 4,469
Deferred asset, depreciation 3,278 (1,822)
Valuation reserve (465,054) (340,776)
------------ ------------
Net deferred tax asset $ 19,837 $ 55,336
============ ============
There was a net change in the valuation allowance during 1996 and
1997. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical
taxable income and projection for future taxable income over the
periods which the temporary differences resulting in the deferred
tax assets are deductible, management believes it is more likely
than not that the Company will realize the benefits of those
deductible differences, net of the existing valuation allowance
at December 31, 1997.
NOTE 14 - CAPITAL LEASES
The Bank leased equipment (under two separate agreements) that is
used in the ordinary course of business for operational needs.
The leased equipment is a component of property and equipment on
the consolidated balance sheets, and its cost is capitalized.
Costs for leased equipment amounting to $247,897 and $152,984
were incurred during 1992 and 1991, respectively. The leases
entered into during 1992 and 1991 were paid in full during 1997
and 1996, respectively.
Total payments during 1997 and 1996 under the two leases
aggregated $34,727 and $58,426, respectively.
NOTE 15 - RELATED PARTY TRANSACTIONS
Stock Warrants and Options. In consideration of the directors'
financial risks and efforts in organizing the Company and the
Bank, each director was offered the opportunity to purchase
investment units consisting of one share of the Company's common
stock and a warrant to purchase one share of the Company's common
stock. Each warrant entitles its holder to purchase the
Company's common stock at a price of $3.33 per share at any time
during the warrant's term of ten years. Directors were issued
293,250 non-transferable warrants during the Company's initial
offering, and as of December 31, 1997 and 1996, there remained
289,002 outstanding warrants.
The president and executive vice president each have earned
options to purchase 42,240 and 31,680 shares of the Company's
common stock, respectively. The options are exercisable at $3.33
per share and mature at the end of seven years from the date of
grant. All the options were outstanding at December 31, 1997 and
1996.
Borrowings and Deposits by Directors and Executive Officers.
Certain directors, executive officers and companies with which
they are affiliated, are customers of and have banking
transactions with the Bank in the ordinary course of business.
As of December 31, 1997 and 1996, loans outstanding to directors,
their related interests and executive officers aggregated
$3,191,232 and $1,579,651, respectively. These loans were made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers during 1997 and 1996 follows:
1997 1996
Balance, beginning of year $ 1,579,651 $ 2,193,261
New loans 2,218,615 1,226,144
Less: loan payments (607,034) (1,839,754)
------------ ------------
Balance, end of year $ 3,191,232 $ 1,579,651
Deposits by directors and their related interests, at December
31, 1997 and 1996, approximated $3,464,115 and $2,699,257,
respectively.
Total directors' fees aggregated $90,700 in 1997 and $69,550 in
1996.
NOTE 16 - EMPLOYEE BENEFIT PLAN
A profit sharing plan (the "Plan") was established by the Bank to
provide for participation in profits by employees or their
beneficiaries. The Plan has a predetermine formula for
allocating contributions among participants and for distributing
funds upon the occurrence of certain events. For the years ended
December 31, 1997 and 1996, the Bank contributed $109,247 and
$84,600, respectively, to the Plan.
NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the ordinary course of business, and to meet the financing
needs of its customers, the Company is a party to various
financial instruments with off-balance sheet risk. These
financial instruments, which include commitments to extend credit
and standby letters of credit, involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amounts recognized in the balance sheets. The contract amount of
those instruments reflects the extent of involvement the Company
has in particular classes of financial instruments.
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 amounts of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any material condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require the
payment of a fee. At December 31, 1997 and 1996, unfunded
commitments to extend credit were $5,955,959 and $5,017,054,
respectively. The Company evaluates each customer's credit
worthiness 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
borrower. Collateral varies, but may include accounts
receivable, inventory, property, plant and equipment, farm
products, livestock and income producing commercial properties.
At December 31, 1997 and 1996, commitments under letters of
credit aggregated approximately $235,000 and $430,823,
respectively. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral varies but may include
accounts receivable, inventory, equipment, marketable securities
and property. Since most of the letters of credit are expected
to expire without being drawn upon, they do not necessarily
represent future cash requirements.
The Company makes commercial, agricultural, real estate and
consumer loans to individuals and businesses located in and
around Turner County, Georgia. The Company does not have a
significant concentration of credit risk with any individual
borrower. However, a substantial portion of the Company's loan
portfolio is collateralized by real estate (mainly farmland)
located in and around Turner County, Georgia.
NOTE 18 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory
capital requirements administered by 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 Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of the
Company's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting and
other factors.
Qualitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 1997, that the
Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1997, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank as
Well Capitalized. To be categorized as Adequately Capitalized or
Well Capitalized, the Bank must maintain minimum total risk
based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table below. There are no conditions or events since that
notification that management believes have changed the Company's
capital category. The actual capital amounts and ratios are also
presented in the table below.
Minimum Regulatory Capital Guidelines for Banks
(Dollars Adequately Well
in thousands) Actual Capitalized Capitalized
As of December Amount Ratio Amount Ratio Amount Ratio
31, 1997:
Total capital-
risk-based (to
risk-weighted
assets):
Bank $8,031 10.9% $5,894 > 8% $7,368 > 10%
Consolidated 8,097 11.0% 5,889 > 8% N/A N/A
Tier 1 capital-
risk-based (to
risk-weighted
assets):
Bank $7,103 9.6% $2,960 > 4% $4,439 > 6%
Consolidated 7,167 9.7% 2,955 > 4% N/A N/A
Tier 1 capital-
leverage (to
average
assets):
Bank $7,103 8.1% $3,508 > 4% $4,385 > 5%
Consolidated 7,167 8.1% 3,539 > 4% N/A N/A
Minimum Regulatory Capital Guidelines for Banks
(Dollars Adequately Well
in thousands) Actual Capitalized Capitalized
As of December Amount Ratio Amount Ratio Amount Ratio
31, 1997:
Total capital-
risk-based (to
risk-weighted
assets):
Bank $6,898 12.4% $4,450 > 8% $5,563 > 10%
Consolidated 6,964 2.5% 4,457 > 8% N/A N/A
Tier 1 capital-
risk-based (to
risk-weighted
assets):
Bank $6,200 11.1% $2,234 > 4% $3,351 > 6%
Consolidated 6,264 11.2% 2,237 > 4% N/A N/A
Tier 1 capital-
leverage (to
average assets):
Bank $6,200 8.1% $3,062 > 4% $3,827 > 5%
Consolidated 6,264 8.2% 3,056 > 4% N/A N/A
NOTE 19 - DIVIDENDS
The primary source of funds available to the Company to pay
shareholder dividends and other expenses is from the Bank. Bank
regulatory authorities impose restrictions on the amounts of
dividends that may be declared by the Bank. Further restrictions
could result from a review by regulatory authorities of the
Bank's capital adequacy. The amount of cash dividends available
from the Bank for payment in 1998 is $1,804,702 plus 1998 net
earnings of the Bank. At December 31, 1997, $5,308,997 of the
Company's investment in the Bank is restricted as to dividend
payments from the Bank to the Company. During 1997 and 1996,
dividends paid by the Company to its shareholders amounted to
$98,957 and $63,615, respectively. On a per share basis, the
above dividends amounted to $.093 for 1997 and $.06 for 1996.
NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION
This information should be read in conjunction with the other
notes to the consolidated financial statements.
Parent Company Balance Sheets
Assets: December 31,
1997 1996
Cash $ 117 $ 14,051
Accounts receivable 21,000 36,258
Investment in CDs 60,000 100,000
Investment in the Bank 7,113,719 6,191,236
------------ ------------
Total Assets $ 7,194,836 $ 6,341,545
============ ============
Liabilities and Shareholders'
Equity:
Income taxes payable $ 4,664 $ 79,268
Other liabilities 12,500 7,000
------------ ------------
Total Liabilities $ 17,164 $ 86,268
------------ ------------
Common stock $ 3,479,988 $ 3,479,988
Treasury stock (40,000) ---
Retained earnings 3,726,950 2,783,964
Unrealized gain on securities 10,734 (8,675)
------------ ------------
Total Shareholders' equity $ 7,177,672 $ 6,255,277
------------ ------------
Total Liabilities and
Shareholders' equity $ 7,194,836 $ 6,341,545
============ ============
Parent Company Statements of Income
Years Ended December 31,
Revenues: 1997 1996
Interest Income $ 5,352 $ 4,647
Dividends from Bank 185,000 65,000
------------ ------------
Total revenues $ 190,352 $ 69,647
------------ ------------
Expenses:
Professional fees $ 61,013 $ 27,920
Other expenses 11,471 4,855
------------ ------------
Total expenses $ 72,484 $ 32,775
------------ ------------
Income before taxes and equity in
undistributed earnings in Bank $ 117,868 $ 36,872
Tax (benefit) (21,000) (4,039)
------------ ------------
Income before equity in undis-
tributed earnings in Bank $ 138,868 $ 40,911
Equity in undistributed earnings
of Bank 903,075 901,647
------------ ------------
Net Income $ 1,041,943 $ 942,558
============ ============
Parent Company Statements of Cash Flows
Years Ended December 31,
Cash flows from operating activities: 1996 1997
Net income $ 1,041,943 $ 943,558
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings of
the Bank (903,075) (901,647)
Decrease in receivables and other
assets 15,259 16,456
(Decrease) in payables (69,104) 20,299
Net cash provided by operating $ 85,023 $ 77,666
Cash flows from investing activities:
Decrease in CDS invested at other
banks $ 40,000 $ ---
Net cash provided by financing
activities $ 40,000 $ ---
Cash flows from financing activities:
Payment of cash dividends $ (98,957) $ (63,615)
Purchase of treasury stock (40,000) $ ---
Net cash used by financing
activities $ (138,957) $ (63,615)
Net (decrease) in cash and cash
equivalents $ (13,934) $ 14,051
Cash and cash equivalents, beginning
of the year 14,051 ---
------------ ------------
Cash and cash equivalents,
end of year $ 117 $ 14,051
============ =============
NOTE 21- SUBSEQUENT EVENTS
Subsequent to December 31, 1997, and prior to the date of this
report, the Company declared a dividend of $.10 per share for
each share of its common stock outstanding. Any declaration of
future dividends is within the Board of Directors' discretion and
will depend, among other things, on general business conditions,
the banking industry, the Company's earnings and capital needs
and any applicable regulatory requirements.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO
WHICH IT RELATES, OR ANY OFFER OF SUCH SHARES OF COMMON STOCK TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ANY OF THE DATES
AS OF WHICH INFORMATION IS FURNISHED HEREIN OR THE DATE HEREOF.
HOWEVER, DURING THE PERIOD IN WHICH OFFERS OR SALES ARE BEING
MADE HEREUNDER, THE COMPANY IS REQUIRED TO UPDATE THE PROSPECTUS
TO REFLECT ANY FACTS OR EVENTS ARISING AFTER THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION WHICH REPRESENT A FUNDAMENTAL CHANGE IN THE
INFORMATION SET FORTH IN THE REGISTRATION STATEMENT.
UNTIL AUGUST 11, 1998, ALL DEALERS EFFECTING TRANSACTIONS
IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[end of outside back cover page]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
=======================================
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As provided under Georgia law, the Company's Articles of
Incorporation provide that a director shall not be personally
liable to the Company or its shareholders for monetary damages,
for breach of duty of care or any other fiduciary duty owed to
the Company as a director, except that such provisions shall not
eliminate or limit the liability of a director (a) for any
appropriation, in violation of his or her duties, of any business
opportunity of the Company; (b) for acts or omissions which
involve intentional misconduct or knowing violation of law; (c)
for unlawful corporate distributions; or (d) for any transaction
from which the director received an improper personal benefit.
Article 9.3 of the Company's Bylaws provides that the Company
shall indemnify a director, officer, employee or agent who has
been successful in the defense of any proceeding to which he was
a party or in defense of any claim, issue or matter therein
because he was a director of the Company, against reasonable
expenses incurred by him in connection with such defense.
The Company's Bylaws also provide that the Company may indemnify
any director, officer, employee or agent made a party to a
proceeding because he or is or was a director, officer, employee
or agent against liability incurred in the proceeding if he acted
in a manner he believed in good faith to be in or not opposed to
the best interests of the Company and, in the case of any
criminal proceeding, he or she had no reasonable call to believe
his conduct was unlawful. Determination concerning whether or
not the applicable standard of conduct has been met can be made
by (a) a disinterested majority of the Chairman of the Board of
Directors; (b) a majority of a committee of disinterested
Directors; (c) independent legal counsel; or (d) an affirmative
vote of a majority of Shares held by all the shareholders (other
than the interested directors). No indemnification may be made
to or on behalf of a director, officer, employee or agent (1) in
connection with a proceeding by or in the right of the Company in
which such person was adjudged liable to the Company, or (2) in
connection with any other proceeding in which such person was
adjudged liable on the basis that personal benefit was improperly
received by him.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses expected to be
incurred in connection with the issuance and distribution of the
securities being registered. All of the amounts shown are
estimated except for the registration fees of the Securities and
Exchange Commission.
SEC Registration Fee $ 1,180
Blue Sky Fees and Expenses 1,500
Printing and Engraving Expenses 13,500
Legal Fees and Expenses 60,000
Financial Advisors Fees 43,500
Accounting Fees and Expenses 8,000
Escrow Agent Fee 2,000
---------
Total $ 129,680
=========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this
Registration Statement:
Number Description of Exhibit
3.1 Restated Articles of Incorporation of Registrant as
amended on November 11, 1997.(1)
3.2 Bylaws of Registrant (incorporated by reference to
Exhibit 3(b) of Registration Statement on Form S-18,
File No. 33-31013-A).
4.1 Escrow Agreement between Registrant and The Bankers
Bank as Escrow Agent, dated April 22nd, 1998.
5.1 Legal opinion of Dinur & Associates, P.C.
10.1 Bank Development Agreement executed by Registrant,
effective December 27, 1997 (incorporated by reference
to Exhibit 10(a)of Annual Report on Form 10-KSB, File
No.33-31013-A.
10.2 Amendment to Bank Development Agreement, executed by
Registrant, effective April 14, 1998.
10.2A Second Amendment to Bank Development Agreement,
executed by Registrant, effective April 22, 1998.
10.3 Employment Agreement between Registrant and Rowland T.
Eskridge, Sr., dated December 27, 1997 (incorporated
by
reference to Exhibit 10(b) of Annual Report on Form
10-KSB, File No. 33-31013-A
21 Subsidiaries of Registrant.
23.1 Consent of Francis & Co., CPAs
(1) Restated pursuant to Rule 102(c) of Registration S-T and
Item 601(b)(3) of Regulation S-B.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, post-effective amendment to this Registration
Statement to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
registration statement. Notwithstanding the
foregoing, any increase or decrease in volume
of securities offered (if the total dollar
value of securities offered would not exceed
that which was registered) and any deviation
from the low or high end of the estimated
maximum offering range may be reflected in the
form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no
more than a 20 percent change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certified that it has reasonable grounds
to believe that it meets all the requirements of filing on Form
SB-2 and has authorized this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, in the
City of Ashburn, State of Georgia on the 9th day of May, 1998.
COMMUNITY NATIONAL BANCORPORATION
By:/s/
T. Brinson Brock, Sr., Executive Vice President,
Principal Executive Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Amendment No. 2 to the Registration Statement has been
signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
/s/ Director, Executive May 9, 1998
T. Brinson Brock, Sr. Vice President and
Acting Chief
Executive Officer
/s/ Director May 9, 1998
Willis R. Collins
/s/ Director May 9, 1998
Gene Stallings Crawford
/ Director May 9, 1998
Benny Warren Denham
/ Director May 9, 1998
Lloyd Greer Ewing
/ Director May 9, 1998
Grady Elmer Moore
/ Director May 9, 1998
Sara Ruth Raines
/s/ Director, President May 9, 1998
Theron G. Reed
/s/ Director May 9, 1998
Benjamin E. Walker
/s/ Director May 9, 1998
Jimmie Ann Ward
/s/ Director May 9, 1998
Freddie J. Weston, Jr.
APPENDIX A
=========
COMMUNITY NATIONAL BANCORPORATION SUBSCRIPTION AGREEMENT
========================================================
TO: T. Brinson Brock, Sr.
Executive Vice President
Community National Bancorporation
561 E. Washington Avenue
Box 2619
Ashburn, GA 31714-2619
Gentlemen:
You have informed me that Community National Bancorporation, a
Georgia corporation (the "Company"), is offering 400,000 Shares
of the Company's Common Stock at a price of $10.00 per Share
payable as provided herein and as described in and offered
pursuant to the Prospectus furnished to the undersigned herewith
(the "Prospectus").
1. SUBSCRIPTION. Subject to the terms and conditions hereof,
the undersigned hereby tenders this subscription, together with
payment indicated below in United States currency by check, bank
draft or money order payable to "The Bankers Bank" as Escrow
Agent for Community National Bancorporation," representing the
payment of $10.00 per Share for the number of Shares indicated
below. The total subscription price must be paid at the time the
Subscription Agreement is executed.
2. ACCEPTANCE OF SUBSCRIPTION. It is understood and agreed that
the Company shall have the right to accept or reject this
subscription in whole or in part, for any reason whatsoever. The
Company may reduce the number of Units for which the undersigned
has subscribed, indicating acceptance of less than all of the
Shares subscribed on its written form of acceptance.
3. ACKNOWLEDGMENTS. The undersigned hereby acknowledges receipt
of a copy of the Prospectus, and represents that this
subscription is made solely on the basis of the information
contained in the Prospectus and is not made in reliance on any
inducement, representation or statement not contained in the
Prospectus. The undersigned understands that no person
(including any director) has authority to give any information or
make any representation not contained in the Prospectus, and if
given or made, such information and representations should not be
relied upon as having been made by the directors or the Company.
This Subscription Agreement and the Prospectus contain the entire
agreement and understanding among the undersigned, the directors
and the Company with respect to the offering and sale of Shares
to the undersigned. This Subscription Agreement creates a
legally binding obligation, and the undersigned agrees to be
bound by the terms of this Agreement.
4. REVOCATION. The undersigned agrees that once this
Subscription Agreement is tendered to the Company it may not be
withdrawn by the undersigned and that this Agreement shall
survive the death or disability of the undersigned.
BY EXECUTING THIS AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY
RIGHTS HE OR SHE MAY HAVE UNDER FEDERAL SECURITIES LAWS,
INCLUDING THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE
ACT OF 1934.
Please indicate in the space provided below ("Registration
Instructions") the exact name or names and address in which the
stock certificate representing Shares subscribed for hereunder
should be registered.
- -------------------------- ------------------------(L.S.)
No.of Shares Subscribed at (Signature of Subscriber)
$10.00 per Share
$------------------------- -------------------------
Total (Funds Tendered) Name (Please Print)
------------------------(L.S.)
(Signature of Subscriber)
-------------------------
Name (Please Print)
Date: , 1998
---------------
Residence Address:
---------------------------
----------------------------
-----------------------------
City, State and Zip Code
-----------------------------
Social Security Number or
other Taxpayer Identification
Number
REGISTRATION INSTRUCTIONS
=========================
Name or Names:
--------------------------------------------------
Mailing Address:
-------------------------------------------------
-------------------------------------------------
Social Security Number or
Taxpayer Identification Number
-----------------------------------
If certificates will be registered in more than one name, please
print the full name of each person or entity and indicate the
type of legal ownership by using the following abbreviations. If
you fail to identify the type of legal ownership, certificates
for subscriptions made in the name of two or more persons will be
issued in the names of such persons as joint tenants with right
of survivorship, and not as tenants in common.
TEN COM - As Tenants in Common
TEN ENT - As Tenants by the Entireties
JT TEN - As Joint Tenants with Right of Survivorship and not as
Tenants in Common
UNIF GIFT MIN ACT - Under Uniform Gifts to Minor Act,
Custodian:
---------------------------
Minor:
--------------------------------
FEDERAL INCOME TAX BACKUP WITHHOLDING
=====================================
In order to prevent the application of federal income tax backup
withholding, each subscriber must provide the Escrow Agent with a
correct Taxpayer Identification Number ("TIN"). An individual's
social security number is his or her TIN. The TIN should be
provided in the space provided in the Substitute Form W-9, which
is set forth below.
Under federal income tax law, any person who is required to
furnish his or her correct TIN to another person, and who fails
to comply with such requirements, may be subject to a $50 penalty
imposed by the IRS.
If backup withholding applies, the Escrow Agent is required to
withhold 20% of payments of interest made to such subscriber.
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding
results in an overpayment of taxes, a refund may be obtained from
the IRS. Certain taxpayers, including all corporations, are not
subject to these backup withholding and reporting requirements.
If the shareholder has not been issued a TIN and has applied or
intends to apply for a TIN in the near future, then "Applied For"
should be written in the space provided for the TIN on the
Substitute Form W-9. In such case, if the Escrow Agent is not
provided with a TIN within 60 days then, the Escrow Agent will
withhold 20% of interest payments thereafter made to each
subscriber until a TIN is provided to the Escrow Agent.
SUBSTITUTE FORM W-9
===================
Under penalties of perjury, I certify that: (1) The number shown
on this form is my correct Taxpayer Identification Number or I am
waiting for a Taxpayer Identification Number to be issued to me,
and (2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding; or (b) I have not been notified
by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all
interest or dividends; or (c) the IRS has notified me that I am
no longer subject to backup withholding.
You must cross out item (2) above if you have been notified by
the IRS that you are subject to backup withholding because of
under-reporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the
IRS that you are no longer subject to backup withholding, do not
cross out item (2).
Each Subscriber Should Complete this Section.
- --------------------------- ----------------------------
Signature of Subscriber Signature of Subscriber
- --------------------------- ----------------------------
Printed Name Printed Name
- --------------------------- ----------------------------
Social Security or Employer Social Security or Employer
Identification No. Identification No.
TO BE COMPLETED BY THE COMPANY:
==============================
Accepted as of , 1998, as to Shares.
------------- -----------
COMMUNITY NATIONAL BANCORPORATION
By:
----------------------------
EXHIBIT 3.1
===========
RESTATED ARTICLES OF INCORPORATION
OF
COMMUNITY NATIONAL BANCORPORATION
==================================
1.
The name of the Corporation is "Community National
Bancorporation."
2.
The aggregate number of shares which the Corporation shall have
authority to issue is ten million (10,000,000), all of which
shall be common shares with no par value.
3.
The address of the initial registered office of the Corporation
shall be located at 707 Hudson Avenue, Ashburn, Turner County,
Georgia 31714, Attention: Theron G. Reed, registered agent of the
Corporation.
4.
The name and address of the Incorporator is Theron G. Reed, 707
Hudson Avenue, Ashburn, Turner County, Georgia 31714.
5.
The mailing address of the initial principal office of the
Corporation is 707 Hudson Avenue, Ashburn, Turner County, Georgia
31714.
6.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach
of duty of care or other duty as a director, provided that this
provision shall not eliminate or limit the liability of a
director (i) for any appropriation, in violation of his duties,
or any business opportunity of the Corporation; (ii) for acts or
omissions which involve intentional misconduct or a knowing
violation of law; (iii) for the types of liability set forth in
Section 14-2-831 of the Georgia Business Corporation Code; or
(iv) for any transaction from which the director received an
improper personal benefit.
IN WITNESS WHEREOF, the undersigned has executed these Articles
of Incorporation this 11th day of November, 1997.
By: /s/
Theron G. Reed, President
EXHIBIT 4.1
===========
ESCROW AGREEMENT
================
THIS ESCROW AGREEMENT (this "Agreement") is entered into
effective as of the 22nd day of April, 1998, by and between
Community National Bancorporation, a Georgia corporation (the
"Company"), and The Bankers Bank (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to offer and sell (the "Offering")
up to 400,000 shares of Common Stock, No par value per share (the
"Shares"), to investors at $10.00 per Share pursuant to a
registered public offering; and
WHEREAS, the Company desires to establish an escrow for funds
forwarded by subscribers for Shares, and the Escrow Agent is
willing to serve as Escrow Agent upon the terms and conditions
herein set forth.
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Deposit with Escrow Agent
- -----------------------------
(a) The Escrow Agent agrees that it will from time to
time accept, in its capacity as escrow agent, subscription funds
for the Shares (the "Escrowed Funds") received by it from
subscribers or from the Company when it has received checks from
subscribers. All checks shall be made payable to the Escrow
Agent. If any check does not clear normal banking channels in
due course, the Escrow Agent will promptly notify the Company.
Any check which does not clear normal banking channels and is
returned by the drawer's bank to Escrow Agent will be promptly
turned over to the Company along with all other subscription
documents relating to such check. Any check received that is
made payable to a party other than the Escrow Agent shall be
returned to the Company for return to the proper party. The
Company in its sole and absolute discretion may reject any
subscription for Shares for any reason and upon such rejection it
shall notify and instruct the Escrow Agent in writing to return
the Escrowed funds by check made payable to the subscriber. If
the Company rejects or cancels any subscription for any reason,
the Company will retain any interest earned on the Escrowed Funds
to help defray organizational costs.
(b) Subscription agreements for the Shares shall be reviewed
for accuracy by the Company and, immediately thereafter, the
Company shall deliver to the Escrow Agent the following
information: (i) the name and address of the subscriber; (ii) the
number of Shares subscribed for by such subscriber; (iii) the
subscription price paid by such subscriber; (iv) the subscriber's
tax identification number certified by such subscriber; and (v) a
copy of the subscription agreement.
2. Investment of Escrowed Funds
- ----------------------------------
Upon collection of each check by the Escrow Agent, the Escrow
Agent shall invest the funds in deposit accounts or certificates
of deposit which are fully insured by the Federal Deposit
Insurance Corporation or another agency of the United States
government, short-term securities issued or fully guaranteed by
the United States government, federal funds or such other
investments as the Escrow Agent and the Company shall agree. The
Company shall provide the Escrow Agent with instructions from
time to time concerning in which of the specific investment
instruments described above the Escrowed Funds shall be invested,
and the Escrow Agent shall adhere to such instructions. Interest
and other earnings shall be invested, and the Escrow Agent shall
adhere to such instructions. Unless and until otherwise
instructed by the Company, the Escrow Agent shall by means of a
"Sweep" or other automatic investment program invest the Escrowed
Funds in blocks of $10,000 in federal funds. Interest and other
earnings shall start accruing on such funds as soon as such funds
would be deemed to be available for access under applicable
banking laws and pursuant to the Escrow Agent's own banking
policies.
3. Distribution of Escrowed Funds
- ----------------------------------
The Escrow Agent shall distribute the Escrowed Funds in the
amounts, at the times, and upon the conditions hereinafter set
forth in this Agreement.
(a) If at any time on or prior to the expiration date of the
offering as described in the prospectus relating to the offering,
(the "Closing Date"), (i) the Escrow Agent has certified to the
Company in writing that the Escrow Agent has received at least
$3,000,000 in Escrowed Funds, and (ii) the Escrow Agent has
received a certificate from the President or the Chairman of the
Board of the Company that all other conditions to the release of
funds as described in the Company's Registration Statement filed
with the Securities and Exchange Commission pertaining to the
public offering have been met, then the Escrow Agent shall
deliver the Escrowed Funds to the Company to the extent such
Escrowed Funds are collected funds. If any portion of the
Escrowed Funds are not collected funds, then the Escrow Agent
shall notify the Company of such facts and shall distribute such
funds to the Company only after such funds become collected
funds. For purposes of this Agreement, "collected funds" shall
mean all funds received by the Escrow Agent which have cleared
normal banking channels. In all events, the Escrow Agent shall
deliver not less than $3,000,000 in collected funds to the
Company, except as provided in Paragraph 3(b) hereof.
(b) If the Escrowed Funds do not, on or prior to the Closing
Date, become deliverable to the Company based on failure to meet
the conditions described in Paragraph 3(a), or if the Company
terminates the offering at any time prior to the Closing Date and
deliver written notice to the Escrow Agent of such termination
(the "Termination Notice"), the Escrow Agent shall return the
Escrowed Funds which are collected funds as directed in writing
by the Company to the respective subscribers in amounts equal to
the subscription amount theretofore paid by each of them. All
uncleared checks representing Escrowed Funds which are not
collected funds as of the Initial Closing Date shall be collected
by the Escrow Agent, and together with all related subscription
documents thereof shall be delivered to the Company by the Escrow
Agent, unless the Escrow Agent is otherwise specifically directed
in writing by the Company.
4. Distribution of Interest
- ----------------------------
Any interest earned on the Escrowed Funds shall be retained by
the Company.
5. Fee of Escrow Agent
- -----------------------
The Company shall pay the Escrow Agent a fee of $2,000 for its
services hereunder. The escrow account will accrue a service
charge of $15.00 per month. In addition, a $20.00 per check fee
will be charged if the escrow account has to be refunded due to a
failure to complete the subscription. All of these fees are
payable upon the release of the Escrowed Funds, and the Escrow
Agent is hereby authorized to deduct such fees from the Escrowed
Funds prior to any release thereof pursuant to Section 3 hereof.
6. Liability of Escrow Agent
- -----------------------------
(a) In performing any of its duties under the Agreement, or
upon the claimed failure to perform its duties hereunder, the
Escrow Agent shall not be liable to anyone for any damages,
losses, or expenses which it may incur as a result of the Escrow
Agent so acting, or failing to act; provided, however, the Escrow
Agent shall be liable for damages arising out of its willful
default or misconduct or its gross negligence under this
Agreement. Accordingly, the Escrow Agent shall not incur any
liability with respect to (i) any action taken or omitted to be
taken in good faith upon advice of its counsel or counsel for the
Company which is given with respect o any questions relating to
the duties and responsibilities of the Escrow Agent hereunder; or
(ii) any action taken or omitted to be taken in reliance upon any
document, including any written notice or instructions provided
for this Escrow Agreement, not only as to its due execution and
to the validity and effectiveness of its provisions but also to
the truth and accuracy of any information contained therein, if
the Escrow Agent shall in good faith believe such document to be
genuine, to have been signed or presented by a proper person or
persons, and to conform with the provisions of this Agreement.
(b) The Company agrees to indemnify and hold harmless the
Escrow Agent against any and all losses, claims, damages,
liabilities and expenses, including, without limitation,
reasonable costs of investigation and counsel fees and
disbursements which may be imposed by the Escrow Agent or
incurred by it in connection with its acceptance of this
appointment as Escrow Agent hereunder or the performance of its
duties hereunder, including, without limitation, any litigation
arising from this Escrow Agreement or involving the subject
matter thereof; except, that if the Escrow Agent shall be found
guilty of willful misconduct or gross negligence under this
Agreement, then, in that event, the Escrow Agent shall bear all
such losses, claims, damages and expenses.
(c) If a dispute ensues between any of the parties hereto
which, in the opinion of the Escrow Agent, is sufficient to
justify its doing so, the Escrow Agent shall retain legal counsel
of its choice as it reasonably may deem necessary to advise it
concerning its obligations hereunder and to represent it in any
litigation to which it may be a party by reason of this
Agreement. The Escrow Agent shall be entitled to tender into the
registry or custody of any court of competent jurisdiction all
money or property in its hands under the terms of this Agreement,
and to file such legal proceedings as it deems appropriate, and
shall thereupon be discharged from all further duties under this
Agreement. Any such legal action may be brought in any such
court as the Escrow Agent shall determine to have jurisdiction
thereof. In connection with such dispute, the Company shall
indemnify the Escrow Agent against its costs and reasonable
attorneys' fees incurred.
(d) The Escrow Agent may resign at any time upon giving thirty
(30) days written notice to the Company. If a successor escrow
agent is not appointed by the Company within thirty (30) days
after notice of resignation, the Escrow Agent may petition any
court of competent jurisdiction to name a successor escrow agent
and the Escrow Agent herein shall be fully relieved of all
liability under this Agreement to any and all parties upon the
transfer of the Escrowed Funds and all related documentation
thereto, including appropriate information to assist the
successor escrow agent with the reporting of earnings of the
Escrowed Funds to the appropriate state and federal agencies in
accordance with the applicable state and federal income tax laws,
to the successor escrow agent designated by the Company appointed
by the court.
7. Appointment of Successor
- ----------------------------
The Company may, upon delivery of thirty (30) days written notice
appointing a successor escrow agent to the Escrow Agent,
terminate the services of the Escrow Agent hereunder. In the
event of such termination, the Escrow Agent shall immediately
deliver to the successor escrows agent selected by the Company,
all documentation and Escrowed Funds including interest earnings
thereon in its possession, less any fees and expenses due to the
Escrow Agent or required to be paid by the Escrow Agent to a
third party pursuant to this Agreement.
8. Notice
- ----------
All notices, requests, demands and other communications or
deliveries required or permitted to be given hereunder shall be
in writing and shall be deemed to have been duly given three days
after having been deposited for mailing if sent by registered
mail, or certified mail return receipt requested, or delivery by
courier, to the respective addresses set forth below:
If to the subscribers
for Shares: To their respective addresses as
specified in their Subscription
Agreements.
The Company: Community National Bancorporation
561 East Washington Avenue
Box 2619
Ashburn, Georgia 31714
Attention: T. Brinson Brock, Sr.
With a copy to: Dinur & Associates, P.C.
One Lakeside Commons
990 Hammond Drive, Suite 760
Atlanta, Georgia 30325
Attention: Daniel D. Dinur
The Escrow Agent: The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339-4098
Attention: Mr. William R. Burkett
Senior Vice President
9. Representation of the Company
- ---------------------------------
The Company hereby acknowledges that the status of the Escrow
Agent with respect to the offering of the Shares is that of agent
only for the limited purposes herein set forth, and hereby agrees
it will not represent or imply that the Escrow Agent, by serving
as the Escrow Agent hereunder, or otherwise, has investigated the
desirability or advisability in an investment in the Shares, or
has approved, endorsed or passed upon the merits of the Shares,
not shall the Company use the name of the Escrow Agent in any
manner whatsoever in connection with the offer or sale of the
Shares, other than by acknowledgment that it has agreed to serve
as Escrow Agent for the limited purposes herein set forth.
10. General
- ------------
(a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia.
(b) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties with regard to this escrow
transaction and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or
canceled, and any of the terms or conditions hereof may be
waived, only be a written instrument executed by each party
hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any part at any time or times to
require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver
in any one or more instances by any part of any condition, or of
the breach of any term contained in this Agreement, whether by
conduct or otherwise, shall be deemed to be, or construed as, a
further or continuing waiver of any such condition or breach, or
a waiver of any other condition or of the breach of any other
terms of this Agreement.
(e) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed as original, but
all of which together shall constitute one and the same
instrument.
(f) This Agreement shall inure to the benefit of the parties
hereto and their respective administrators, successors and
assigns. The Escrow Agent shall be bound only by the terms of
this Escrow Agreement and shall not be bound by or incur any
liability with respect to any other agreement or understanding
between the parties except as herein expressly provided. the
Escrow Agent shall not have any duties hereunder except those
specifically set forth herein.
(g) No interest in any part to this Agreement shall be
assignable in the absence of a written agreement by and between
all the parties to this Agreement, executed with the same
formalities as the original Agreement.
IN WITNESS WHEREOF, the parities have duly executed this
Agreement as the date first written above.
COMPANY: ESCROW AGENT:
COMMUNITY NATIONAL BANCORPORATION THE BANKERS BANK
By:/s/ By:/s/
T. Brinson Brock, Sr., William R Burkett,
Executive Vice President Senior Vice President
EXHIBIT 5.1
==========
April 9, 1998
Community National Bancorporation
561 E. Washington Avenue
Ashburn, GA 31714-2619
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel for Community National Bancorporation
(the "Company") in connection with the preparation for the filing
with the Securities and Exchange Commission of a Registration
Statement on Form SB-2 (the "Registration Statement") under the
Securities Act of 1933, as amended. The Registration Statement
relates to an aggregate of 400,000 shares of the Company's
common stock, no par value (the "Shares"). The Shares will be
issued and sold by the Company through its officers and/or
directors.
We have examined such corporate records, documents, instruments
and certificates of the Company and have received such
representations from the officers and directors of the Company
and have reviewed such questions of law as we have deemed
necessary, relevant or appropriate to enable us to render the
opinion expressed herein. In such examination, we have assumed
the genuineness of all signatures and the authenticity of all
documents, instruments, records and certificates submitted to us
as originals.
Based upon such examination and review and upon the
representations made to us by the officers and directors of the
Company, we are of the opinion that the Shares to be issued have
been duly and validly authorized and will be, upon issuance and
delivery against payment therefore in the manner contemplated by
the Registration Statement, validly issued, and upon such
issuance, the Shares will be fully paid and nonassessable.
This firm consents to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
Daniel D. Dinur
DDD/shm
EXHIBIT 10.2
============
AMENDMENT TO BANK DEVELOPMENT AGREEMENT
=======================================
The undersigned parties to that certain Bank Development
Agreement, dated December 27, 1997 (the "Agreement"), hereby
amend, pursuant to the provisions of Section F.2. of the
Agreement, the Agreement as follows:
1. Delete Section B.2. of the Agreement in its entirety and
substitute in lieu thereof the following:
"2. Cause the preparation and filing, on or before May 15,
1998, of the SB-2, including qualification in Georgia and
such other states, if any, as may be determined (after
consultation with and input from the Founders) to be
optimally conducive to the ultimate success of the
Offering."
2. This Agreement may be executed in multiple counterparts each
of which shall be deemed an original and all of which together
shall constitute one and the same Agreement. This Agreement may
be executed and transmitted via facsimile and such facsimile
signatures shall constitute original signatures for purposes of
this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to
be executed effective April 15, 1998.
FOUNDERS:
Signed:/s/ Signed:/s/
Angela Bryant Carroll E. Franklin
Signed:/s/ Signed:/s/
Donald M. Crews James Hannah
Signed:/s/ Signed:/s/
J. Alan Eason Maurice Hannah
Signed:/s/ Signed:/s/
Rowland T. Eskridge, Sr. Liz G. Jordan
Signed:/s/ Signed:/s/
Bobby Y. Franklin Joe Sheppard
COMMUNITY NATIONAL BANCORPORATION
By: /s/
T. Brinson Brock, Sr.,
Executive Vice President and
Chief Accounting Officer
EXHIBIT 10.2A
=============
SECOND AMENDMENT TO BANK DEVELOPMENT AGREEMENT
===============================================
The undersigned parties to that certain Bank Development
Agreement, dated December 27, 1997 (the "Agreement"), hereby
amend, pursuant to the provisions of Section F.2. of the
Agreement, the Agreement as follows:
1. Add new paragraph D.1(d) to read as follows:
"(d) The Board of Directors of Community determines,
in good faith, that continuing the Offering would not
be in the best interest of Community."
2. This Agreement may be executed in multiple counterparts each
of which shall be deemed an original and all of which together
shall constitute one and the same Agreement. This Agreement may
be executed and transmitted via facsimile and such facsimile
signatures shall constitute original signatures for purposes of
this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to
be executed effective April 15, 1998.
FOUNDERS:
Signed:/s/ Signed:/s/
Angela Bryant Carroll E. Franklin
Signed:/s/ Signed:/s/
Donald M. Crews James Hannah
Signed:/s/ Signed:/s/
J. Alan Eason Maurice Hannah
Signed:/s/ Signed:/s/
Rowland T. Eskridge, Sr. Liz G. Jordan
Signed:/s/ Signed:/s/
Bobby Y. Franklin Joe Sheppard
COMMUNITY NATIONAL BANCORPORATION
By: /s/
T. Brinson Brock, Sr.,
Executive Vice President and
Chief Accounting Officer
EXHIBIT 21
==========
Community National Bank
561 East Washington Avenue
Box 2619
Ashburn, Georgia 31714-2619
EXHIBIT 23.1
============
FRANCIS & CO., CPAs
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
================================================
Community National Bancorporation:
We hereby consent to the use in this Registration Statement on
Form SB-2 of our report dated February 14, 1998, relating to the
consolidated financial statements of Community National
Bancorporation, Ashburn, Georgia, and its subsidiary, and to the
reference to our Firm under the caption "Experts" in the
Prospectus.
/s/
Francis & Co., CPAs
Atlanta, Georgia
April 23, 1998
