<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1997
REGISTRATION NO. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________
GEORGIA BANK FINANCIAL CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 6711 58-2005097
(State or jurisdiction of incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
</TABLE>
3530 WHEELER ROAD
AUGUSTA, GEORGIA 30909
(706) 738-6990
(Address and telephone number of principal executive offices)
RONALD L. THIGPEN
3530 WHEELER ROAD
AUGUSTA, GEORGIA 30909
(706) 738-6990
(Name, address and telephone number of agent for service)
COPIES TO:
W. THOMAS CARTER III
ALSTON & BIRD LLP
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
(404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date 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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE BE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE (1) PRICE (1) FEE
================================================================================
<S> <C> <C> <C> <C>
Common Stock 278,000 $18 $5,004,000 $1,517
Shares
================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(e).
____________________
___________________
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.
================================================================================
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION,
DATED AUGUST 20, 1997
UP TO 278,000 SHARES
GEORGIA BANK FINANCIAL CORPORATION
COMMON STOCK
--------------------
This Prospectus relates to the offering by Georgia Bank Financial
Corporation, a Georgia corporation (the "Company"), of up to 278,000 shares (the
"Shares") of common stock, $3.00 par value (the "Common Stock"). From
______________, 1997, until 5:00 p.m. Eastern time on ________________, 1997,
subject to the terms and conditions set forth elsewhere herein, shareholders of
the Company ("Shareholders") at 9:00 a.m. Eastern time on August 8, 1997 (the
"Record Date") will have the right to subscribe for a number of shares of Common
Stock equal to the product of (i) .18025 and (ii) the number of shares of
Common Stock owned by such Shareholder as of the Record Date, at a purchase
price of $18 per share (the "Rights Offering"). After 5:00 p.m. Eastern time on
________________, 1997, until the close of the offering at 5:00 p.m. Eastern
time on ___________, 1997, any Common Stock not subscribed for by Shareholders
will be offered to persons, including existing Shareholders, at a purchase price
of $18 per share and on the terms and conditions set forth elsewhere herein (the
"Community Offering" and together with the Rights Offering, the "Offering").
The termination date for this Offering is the earlier of the date the Company
sells all of the 278,000 Shares offered hereby or 5:00 p.m. Eastern time on
__________________, 1997. Such termination date may be extended at the
discretion of the Company until _________________, 199_. No fractional shares
of Common Stock will be issued in connection with either the Rights Offering or
the Community Offering. See "The Offering."
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE
COMMON STOCK.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSIT ACCOUNTS AND
ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
Fees and
Price to Public Commissions (1) Proceeds to Company (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rights Offering - Per Share...... -0-
- --------------------------------------------------------------------------------------------------
Community Offering - Per Share... -0-
- --------------------------------------------------------------------------------------------------
Total............................ -0-
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Offers and sales of the Common Stock will be made on behalf of the Company
by certain of its executive officers in reliance on Commission Rule 3a4-1
under the Securities Exchange Act of 1934. Such officers will receive no
special compensation, commissions or other remuneration for such activities,
but may be reimbursed for reasonable expenses, if any, incurred in
connection therewith. See "The Offering"
(2) Before deducting expenses of the offering, estimated to be $50,000, all of
which will be paid by the Company.
The Company reserves the right, in its sole discretion, to reject any
Community Offering subscription in whole or part, to allocate Common Stock among
subscribers, and to withdraw, cancel or modify the Offering without notice.
Subscriptions are not binding obligations of the Company until accepted by the
Company in writing. In determining which Community Offering subscriptions to
accept, in whole or part, including in the event the offering is over-
subscribed, the Company may take into account factors such as whether a
subscriber is an existing shareholder of the Company, the order in which the
subscriptions were received and a subscriber's potential to do business with or
refer customers to the Bank (as defined herein).
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
THE DATE OF THIS PROSPECTUS IS AUGUST ___, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information may be
inspected and copied at the principal office of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be
available at the Commission's Regional Offices at 7 World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants such as
the Company that file electronically with the Commission through the Electronic
Data Gathering, Analysis and Retrieval ("EDGAR") System.
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the provisions
of certain documents filed as exhibits to the Registration Statement are
necessarily brief descriptions thereof, and are not necessarily complete, and
each such statement is qualified in its entirety by reference to the full text
of such document. For further information pertaining to the Company and the
Common Stock, reference is made to such Registration Statement and the schedules
and exhibits thereto, which may be inspected without charge at the principal
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the Commission at prescribed rates.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this Prospectus may constitute forward-looking statements for the purposes of
the Securities Act and the Exchange Act and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management pursuant to "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including, without limitation: the
effects of the Company's growth and whether such growth is sustainable in future
economic circumstances; the effects of future economic conditions; governmental
monetary and fiscal policies, as well as legislative and regulatory changes; the
risks of changes in interest rates on the level and composition of deposits,
loan demand, and the values of loan collateral and securities; the effects of
competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds and other financial institutions
operating in the Company's market area and elsewhere, including institutions
operating locally, regionally, nationally and internationally, together with
such competitors offering banking products and services by mail, telephone and
computer and the Internet; and the failure of assumptions underlying the
establishment of the allowance for loan losses, including the value of
collateral underlying delinquent loans and other factors. The Company cautions
that such factors are not exclusive. All written or oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by these cautionary statements.
----------
-2-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS RELATES SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR ITS SUBSIDIARY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
[THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES
OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT LAWFUL, NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY
IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION WITHIN SUCH JURISDICTION.
-3-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, and the notes thereto, appearing
elsewhere in this Prospectus.
THE COMPANY
The Company is a Georgia bank holding company with total consolidated
assets of approximately $235.1 million, total deposits of approximately $208.9
million and total shareholders' equity of approximately $17.3 million at June
30, 1997. Through its wholly-owned subsidiary, Georgia Bank & Trust Company of
Augusta (the "Bank"), the Company operates a total of seven banking offices in
the greater Augusta area of Richmond and Columbia Counties, Georgia.
The Bank is community oriented and focuses primarily on offering real
estate, commercial and consumer loans and various deposit and other services to
individuals, small to medium-sized businesses and professionals in its market
area. The Bank is the only locally owned and managed commercial bank operating
in both Richmond and Columbia Counties. Its management team includes a number
of banking professionals with years of experience in the Augusta area market
with this and other banking organizations, a number of whom have worked together
for many years. The Bank competes against the larger regional and super-
regional banks operating in its market by emphasizing the stability and
accessibility of its management, management's long-term familiarity with the
market, immediate local decision making and the pride of local ownership.
The Bank was organized by a group of local citizens from Richmond and
Columbia Counties and commenced business from its main office location at 3530
Wheeler Road in Augusta on August 28, 1989. The Bank opened its first Augusta
branch at 3111 Peach Orchard Road in December 1991 and its second Augusta branch
at 1530 Walton Way in December 1992. The Bank became a subsidiary of the
Company in 1992 as a result of its holding company reorganization. The Company
acquired FCS Financial Corporation ("FCS") and its wholly-owned subsidiary,
First Columbia Bank ("First Columbia") on December 31, 1992. This allowed the
Company to expand its banking operations into neighboring Columbia County. In
July 1993, First Columbia merged into the Bank, and the Bank now operates the
former main office of First Columbia at 4105 Columbia Road, Martinez, Georgia,
as a branch. The Bank opened an additional branch in Columbia County in
November 1994 that is located in Evans, Georgia. In October 1995, the Bank
opened its sixth banking office at 3133 Washington Road. In July 1996, the Bank
opened a seventh location in a newly constructed Wal-Mart SuperCenter located at
3209 Deans Bridge Road. This second location in the heavily populated and
consumer retail oriented southern section of Richmond County is anticipated to
provide additional opportunities for consumer loans and retail deposits.
The Company was founded with an experienced management team, and that team
has continued to expand with the growth of the Bank. The Company proposes to
expand in the Richmond County and faster growing Columbia County markets
primarily by capturing a larger market share from its various competitors
through internal growth. Management believes that the Bank's seven locations in
these two counties are strategically positioned to take advantage of important
segments of the market and that the depth and experience of management in those
locations will assist it in its effort toward market penetration and growth.
The principal executive offices of the Company and the Bank are located at
3530 Wheeler Road, Augusta, Georgia 30909. The Company's telephone number is
(706) 738-6990.
-4-
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................................. 278,000 shares of Common Stock
Common Stock Outstanding as of the Record Date..... 1,542,368 shares
Common Stock Outstanding after the Offering........ 1,820,368 shares/(l)/
</TABLE>
- ----------
(1) Assumes the sale of all of the 278,000 shares of Common Stock offered
hereby.
Use of Proceeds.................... For general corporate purposes, including
capital to support future growth. See
"Use Of Proceeds."
Structure of Offering.............. A total of 278,000 shares of Common Stock
will be offered initially on an exclusive
basis to shareholders of the Company as of
August 8, 1997 ("Shareholders"). Each
Shareholder will have the opportunity to
subscribe for a number of shares of Common
Stock equal to the product of (i) .18025
and (ii) the number of shares of Common
Stock owned by such Shareholder as of the
Record Date at a price of $18 per share.
Any of such shares of Common Stock not
subscribed for by Shareholders will be
offered to other persons, including
existing shareholders, at a purchase price
of $18 per share. No fractional shares of
Common Stock will be issued in connection
with either the Rights Offering or the
Community Offering.
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES CERTAIN RISKS. INVESTORS SHOULD
CAREFULLY EVALUATE THESE RISKS BEFORE MAKING AN INVESTMENT DECISION. SEE "RISK
FACTORS."
-5-
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------- ---------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ------------ ---------------------------
(UNAUDITED)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
EARNINGS
Total interest income $ 8,980 $ 7,595 $ 15,677 $ 14,026 $ 11,081
Total interest expense 4,130 3,547 7,373 6,728 4,368
Net interest income 4,850 4,048 8,305 7,298 6,713
Provision for loan losses 464 220 470 200 180
Non-interest income 1,125 944 2,151 1,415 900
Non-interest expense 4,155 3,476 7,234 6,341 5,771
Net income 1,023 812 1,952 1,405 1,118
PER SHARE DATA
Net income $ 0.66 $ 0.53 $ 1.27 $ 0.91 $ 0.77
Book value 11.24 10.95 10.60 10.76 9.46
Weighted average shares outstanding 1,542 1,543 1,542 1,538 1,460
(in thousands)
SELECTED AVERAGE BALANCES
Assets $228,958 $192,186 $201,961 $171,733 $151,170
Loans (net of unearned income) 143,190 124,377 128,592 113,977 102,166
Deposits 208,706 171,061 181,416 152,564 135,294
Shareholders' equity 16,743 14,599 15,426 13,740 11,842
SELECTED PERIOD-END BALANCES
Assets $235,148 $201,126 $216,008 $179,348 $160,410
Loans (net of unearned income) 155,365 128,780 135,212 120,427 108,223
Allowance for loan losses 1,845 1,448 1,468 1,335 1,275
Deposits 208,930 180,267 195,668 157,150 141,365
Other borrowings 5,160 4,780 1,187 4,640 5,318
Shareholders' equity 17,341 14,687 16,347 14,439 12,458
SELECTED RATIOS
Return on average total assets 0.89% 0.85% 0.97% 0.82% 0.74%
Return on average equity 12.22 11.12 12.65 10.23 9.44
Average earning assets to average
total assets 90.62 88.98 89.00 88.40
88.69
Average loans to average deposits 68.61 73.71 70.88 74.71 75.51
Average equity to average
total assets 7.31 7.64 8.00 7.83
7.60
Net interest margin 4.72 4.81 4.62 4.78 5.03
Net charge-offs to average loans 0.12 0.17 0.26 0.12 0.17
Non-performing assets to period end 1.11 1.46 1.40 0.72 1.14
loans
Allowance for loan losses to net
loans (period-end) 1.19 1.12 1.09 1.11 1.18
Risk-based capital
Tier 1 capital 9.85 9.90 10.70 10.15 9.46
Total capital 10.93 10.89 11.84 11.19 10.56
Tier 1 leverage ratio 7.21 6.80 7.36 7.30 6.74
</TABLE>
-6-
<PAGE>
RISK FACTORS
An investment in the shares offered hereby involves certain risks and
should be made only after careful consideration of the risk factors set forth
below and elsewhere in this Prospectus, and should be undertaken only by persons
who can afford an investment involving such risks.
OFFERING PRICE
The price of the Common Stock offered hereby and the aggregate number of
shares being offered were established by the Company's Board of Directors with
reference to historical and projected earnings, book value, management's
analysis of the capital needs of the Company and Bank and other criteria without
the assistance of any investment banking or investment advisory firm. The
offering price is not the product of arm's-length negotiation between the
Company and any third party and should not be relied upon by Shareholders or
other prospective investors in this offering as a measure of current value of
the Common Stock. No assurance is or can be given that any of the Common Stock
could be resold at a price equal to or greater than the offering price or that
such price necessarily indicates the fair market value of the shares. See "The
Offering - Determination of the Offering Price."
OPERATING HISTORY
The Company and the Bank have experienced rapid growth throughout their
relatively short operating histories. This growth accelerated in late 1992 and
early 1993 with the acquisition of FCS and its wholly-owned banking subsidiary,
First Columbia, and the subsequent merger of First Columbia into the Bank. This
rapid growth has placed and will continue to place demands on the Company's and
the Bank's management and other resources and there is no assurance that these
demands can be successfully met.
ECONOMIC CONDITIONS
The financial condition and performance of the Bank are impacted by the
economic conditions in its market area. The Bank's market area is primarily
dependent on the medical care, educational and manufacturing sectors of the
economy. There can be no assurance that the current economic performance in
this market will be sustained, and any significant downturn in the local economy
will likely affect the Bank's loan demand and the value of collateral which
secures the Bank's loans. See "Business - Market Area."
DEPENDENCE ON KEY PERSONNEL
The success of the Company and the Bank is highly dependent on the
performance of the Bank's executive officers. The Bank's rapid growth will
continue to place significant demands on the Bank's management and there can be
no assurance that the Bank can keep the management team intact.
SUPERVISION AND REGULATION
The success of the Company and the Bank depends not only upon competitive
factors but also on state and federal regulations affecting banks, savings and
loan associations, and bank and savings and loan holding companies generally.
The Company and the Bank operate in a highly regulated environment and are
subject to supervision by several governmental regulatory agencies, including
the Board of Governors of the Federal Reserve, the Federal Deposit Insurance
Corporation, the Georgia Department of Banking and Finance and the Securities
and Exchange Commission. On September 29, 1994, the President signed the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act"), which, among other things, has permitted nationwide
interstate banking and branching subject to certain restrictions. The Reigle-
Neal Act may result in greater competition for the Bank. Regulation of the
financial institutions industry is undergoing continued changes, and the
ultimate impact of such changes cannot be predicted. Recently, Congress and the
federal bank regulatory agencies have proposed and promulgated laws and
regulations that would significantly alter the financial services industry,
including the powers and activities of financial institutions, the types of
entities that may own banks and
-7-
<PAGE>
bank holding companies, and the supervisory authority and jurisdiction of
various federal bank regulatory agencies. Regulations now affecting the Company
and the Bank may be modified at any time. There can be no assurance that any
such legislation or regulations will not adversely affect the business of the
Company and the Bank. See "Supervision And Regulation."
RESTRICTIONS ON DIVIDENDS
Because the Company's principal operations are conducted through the Bank,
it generates cash to pay dividends on the Common Stock primarily through
dividends paid to it by the Bank. The Company is also dependent on dividends
from the Bank to service its long-term debt. The Bank's ability to pay
dividends to the Company is limited by certain legal and regulatory
restrictions. The Boards of Directors of the Company and the Bank presently
intend that earnings of the Bank will be retained by the Bank during the
foreseeable future for the purpose of enhancing the Bank's capital to support
future growth, except to the extent dividends must be paid to the Company to
service its debt and pay its operating expenses. Consequently, it is unlikely
that the Company will have funds available for distribution as cash dividends to
its shareholders in the foreseeable future. See "Market Information And
Dividends."
COMPETITION
The banking business in general and in the Bank's market area is highly
competitive. The Bank competes as a financial intermediary with other
commercial banks, savings and loan associations, credit unions, mortgage banking
companies, consumer finance companies, securities brokerages, insurance
companies, and money market mutual funds operating in Richmond and Columbia
Counties, surrounding areas, and elsewhere. Many of these competitors have
substantially greater resources and lending limits, more diversified markets and
larger branch networks than the Company, and are able to offer similar services
at varying costs with higher lending limits. In addition, with the enactment of
the Reigle-Neal Act and other laws affecting interstate bank expansion, there
have been major interstate acquisitions involving Augusta financial institutions
which have offices in the Company's market area but are headquartered in other
states. The effect of such acquisitions (and the possible increase in size of
the financial institutions operating in the Company's market areas) may be to
increase further the competition faced by the Company. See "Business-
Competition."
NO ESTABLISHED TRADING MARKET
No active trading market exists for the Common Stock, and the Company has
no reason to believe that a more active trading market will develop in the
forseeable future. There are no present plans for the Common Stock to be listed
or qualified for trading on any stock exchange or in the over-the-counter
market. There is currently one independent market maker in the Common Stock.
Officers and directors of the Company and the Bank are expected to purchase
approximately 88,000 shares in the Offering thereby reducing the number of
Shares available to be purchased by non-affiliates in the Community Offering.
The ability of a holder of Common Stock to sell shares of Common stock and the
price at which the Common Stock could be sold could be affected by significant
fluctuations in the securities markets and bank stocks generally in response to
variations in interest rates, periodic operating results and other factors. In
addition, the stock market in recent years has experienced price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of specific companies. These broad fluctuations may adversely
affect the price of the Common Stock. See "The Offering" and "Market
Information And Dividends."
DILUTION OF PERCENTAGE OWNERSHIP
The Company's principal stockholders have acquired their Common Stock in
various transactions and at different prices over a number of years. A current
holder of Common Stock will suffer dilution in his or her percentage interest in
the aggregate outstanding shares of Common Stock to the extent that such holder
does not purchase the total number of shares allotted to such holder in the
Rights Offering.
-8-
<PAGE>
ANTI-TAKEOVER CONSIDERATIONS/CONTROLLING SHAREHOLDERS
The Company's Articles of Incorporation and Bylaws, and the Georgia
Business Corporation Act (the "GBCA"), contain certain provisions that could
have the effect of discouraging a party from attempting to acquire or acquiring
control of the Company without the approval of the Company's Board of Directors.
As of June 30, 1997, the directors and officers of the Company beneficially
owned approximately 491,132 shares (31.8% of the shares then outstanding and the
directors and officers of the Company and the Bank collectively beneficially
owned 530,649 shares (34.40%). The Company's and Bank's directors and officers
are expected to purchase approximately 88,000 shares in the Offering. As a
result of this director and officer group ownership percentage, the ability of
other subscribers as a group to effectively exercise control over the election
of directors of the Company and thereby exercise control over the supervision of
the management or the business of the Company and the Bank is limited. See
"Management" and "Description Of Common Stock- Anti-takeover Provisions."
LEGAL PROCEEDINGS
In the ordinary course of operations, the Company is a party to various
legal proceedings. In the opinion of management, there is no proceeding pending
or, to the knowledge of management, threatened in which an adverse decision
could result in a material adverse change in the business or assets of the
Company. No assurance can be given, however, that a future legal proceeding
will not result in a material adverse change in the business or assets of the
Company.
NO UNDERWRITING/NO MINIMUM NUMBER OF SHARES REQUIRED TO BE SOLD
The Common Stock is being offered directly by the Company and is not
subject to any underwriting agreements assuring the sale of any of the Common
Stock offered. No minimum number of Shares is required to be sold, and no
assurance is given that any particular number of Shares will be sold. In the
event all of the Shares offered are not sold in the Offering, the proceeds
available to the Company will be reduced. See "The Offering" and "Market
Information And Dividends."
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements concerning the
Company's existing and contemplated operations, economic performance and
financial condition. Such forward looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management pursuant to "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements are based upon a
number of assumptions and estimates which are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, including, without limitation: the effects of the Company's growth and
whether such growth is sustainable in future economic circumstances; the effects
of future economic conditions; governmental monetary and fiscal policies, as
well as legislative and regulatory changes; the risks of changes in interest
rates on the level and composition of deposits, loan demand, and the values of
loan collateral and securities; the effects of competition from other commercial
banks, thrifts, mortgage banking firms, consumer finance companies, credit
unions, securities brokerage firms, insurance companies, money market and other
mutual funds and other financial institutions operating in the Company's market
area and elsewhere, including institutions operating locally, regionally,
nationally and internationally, together with such competitors offering banking
products and services by mail, telephone, and computer and the Internet; and the
failure of assumptions underlying the establishment of the allowance for loan
losses, including the value of collateral underlying delinquent. The Company
cautions that such factors are not exclusive. See "Special Cautionary Notice
Regarding Forward-Looking Statements."
-9-
<PAGE>
THE OFFERING
BASIC TERMS OF THE OFFERING
The Company is offering up to 278,000 shares of Common Stock in accordance
with the terms below. The termination date for this Offering is the earlier of
the date the Company sells all of the 278,000 Shares offered hereby or 5:00 p.m.
Eastern time on __________________, 1997. Such termination date may be extended
at the discretion of the Company until _________________, 199_.
COMMON STOCK AVAILABLE TO EXISTING SHAREHOLDERS
From _____________, 1997, until 5:00 p.m. Eastern time on ______________,
1997, 278,000 shares of Common Stock will be offered only to shareholders of
record of the Company ("Shareholders") at 9:00 a.m. Eastern time on August 8,
1997 (the "Record Date"). During such period, each Shareholder will have the
opportunity to subscribe for a number of shares of Common Stock equal to the
product of (i) .18025 and (ii) the number of shares of Common Stock owned by
such Shareholder as of the Record Date, at a purchase price of $18 per share
(the "Rights Offering"). If, for example, a Shareholder owns 10% of the
aggregate number of shares of the Common Stock issued and outstanding on the
Record Date, such Shareholder will have the right to subscribe for all or a
portion of 27,800 additional shares of Common Stock, an amount representing 10%
of the total number of shares of Common Stock being offered, at a purchase price
of $18 per share. No fractional shares or interests will be issued by the
Company in connection with either the Rights Offering or the Community Offering.
A Shareholder desiring to subscribe for shares in the Rights Offering must
deliver to the Company before 5:00 p.m. Eastern time on _____________, 1997, a
completed Subscription Agreement and check as described below under "- How to
Subscribe."
COMMON STOCK AVAILABLE AFTER RIGHTS OFFERING
Any portion of the 278,000 shares of Common Stock offered in the Rights
Offering and not subscribed for by Shareholders on or before 5:00 p.m. Eastern
time on ______________, 1997 will be offered to existing Shareholders and any
other person or entity that qualifies as a Georgia Resident or a South Carolina
Resident, beginning at 5:00 p.m. Eastern time on _______________, 1997, and
continuing thereafter until the termination of the offering at a purchase price
of $18 per share (the "Community Offering").
A "Georgia Resident" and "South Carolina Resident" is defined to be a
resident of the State of Georgia or the State of South Carolina, respectively,
as determined in accordance with the following rules regarding determination of
residence:
(a) A corporation, partnership, trust or other form of business
organization shall be deemed to be a resident of a state if, at the
time of the offer and sale to it, it has its principal office within
such state.
(b) An individual shall be deemed to be a resident of a state if such
individual has, at the time of the offer and sale to him, his
principal residence in the state.
(c) A corporation, partnership, trust or other form of business
organization which is organized for the specific purpose of acquiring
part of an issue shall be deemed not to be a resident of a state
unless all of the beneficial owners of such organization are residents
of such state.
The Company reserves the right, in its sole discretion, to reject any
Community Offering subscription in whole or part, to allocate Common Stock among
subscribers, and to withdraw, cancel or modify the Offering without notice.
Subscriptions are not binding obligations of the Company until accepted by the
Company in writing. In determining which Community Offering subscriptions to
accept, in whole or part, including in the event the offering is over-
subscribed, the Company may take into account factors such as whether a
subscriber is an
-10-
<PAGE>
existing shareholder of the Company, the order in which the subscriptions were
received and a subscriber's potential to do business with or refer customers to
the Bank.
The Community Offering will terminate on the earlier of the date the
Company sells all of the 278,000 Shares offered hereby or 5:00 p.m. Eastern time
on __________________, 1997. Such termination date may be extended at the
discretion of the Company until _________________, 199_.
HANDLING OF SUBSCRIPTIONS
Subscriptions are binding upon the Company only if and to the extent
accepted by the Company. The Company will decide which subscriptions to accept
within _______ days after receipt. In the event the Company rejects all or a
portion of any subscription, the Company will promptly refund by mail to the
subscriber all or the appropriate portion of the amount remitted with the
subscription, without interest. Upon rejection of a subscription or the
termination or expiration of this Offering, the Company, its Subsidiaries, and
their respective directors, officers, employees, agents and affiliates will have
no further liability to the subscribers whose subscriptions are being returned
once all appropriate refunds have been mailed to the address shown in the
Subscription Agreement.
The Company will confirm all sales of Common Stock. Certificates
representing Shares of Common Stock duly subscribed and fully paid will be
issued by the Company's registrar and transfer agent promptly after the
Company's acceptance of the subscriptions and the issuance of a confirmation
therefor.
DETERMINATION OF THE OFFERING PRICE
The price of the Common Stock offered hereby was established by the
Company's Board of Directors with reference to historical and projected
earnings, book value, management's analysis of the capital needs of the Company
and Bank and other criteria without the assistance of any investment banking or
investment advisory firm. The offering price is not the product of arm's-length
negotiation between the Company and any third party and should not be relied
upon by Shareholders or other prospective investors in this offering as a
measure of current value of the Common Stock. No assurance is or can be given
that any of the Common Stock could be resold at a price equal to or greater than
the offering price or that such price necessarily indicates the fair market
value of the shares.
METHOD OF DISTRIBUTION
The Common Stock is being offered hereby and sold through the efforts of
certain executive officers of the Company in reliance on Commission Rule 3a4-1
under the Exchange Act on behalf of the Company. Their activities in connection
with the offering will be in addition to their other duties, and they will not
receive any additional compensation, commission, or other remuneration for such
activities.
NOTICE TO REGULATORY AUTHORITIES REGARDING CERTAIN PURCHASES
Provisions of federal and Georgia laws make it unlawful for a company to
acquire control of a bank or a bank holding company without the prior approval
of the appropriate regulatory authority, or for an individual to acquire control
of a bank unless notices are filed with the appropriate regulatory authorities.
Ownership, control, or the power to vote a substantial percentage of a class of
voting securities raises the presumption that such control exists. Therefore,
the Company reserves the right, but does not assume the obligation, to reject
any subscription for Common Stock offered hereunder if the Company is not
satisfied that the subscriber has obtained the required approvals or filed the
required notices. See "Supervision And Regulation - The Company."
-11-
<PAGE>
HOW TO SUBSCRIBE
Each prospective investor who desires to purchase Common Stock should:
1. Complete, date, and execute the Subscription Agreement, which has been
delivered along with this Prospectus;
2. Make a check payable to "Georgia Bank Financial Corporation" in the
amount of $18 for each share subscribed for in the Offering;
3. Return the completed Subscription Agreement and check to the Company
in the return envelope enclosed with the Prospectus or mail the
Subscription Agreement and check to:
Georgia Bank Financial Corporation
3530 Wheeler Road
Augusta, Georgia 30909
Attention: Ronald L. Thigpen
4. Subscription Agreements and checks for the purchase of Common Stock in
the Rights Offering MUST be received by the Company prior to 5:00 p.m.
Eastern time on ___________, 1997; and
5. Subscription Agreements and checks for the purchase of Common Stock in
the Community Offering MUST be received by the Company prior to 5:00
p.m. Eastern time on _____________, 1997, unless this date is
otherwise extended by the Company.
USE OF PROCEEDS
The net proceeds of the Company from the sale of all Shares offered hereby
are estimated to be approximately $4,954,000. The Company intends to use the
net proceeds for general corporate purposes, including use in operating
activities and the origination of loans. Following the Offering, the Company's
consolidated shareholders' equity to total assets on a pro forma basis as of
June 30, 1997 would be approximately 9.55%. No minimum number of shares of
Common Stock must be sold in the Offering. To the extent that all 278,000
shares of Common Stock are not sold in the Offering, the proceeds from the
Offering available to the Company will be reduced.
-12-
<PAGE>
MARKET INFORMATION AND DIVIDENDS
No active trading market exists for the Common Stock, and the Company has
no reason to believe that a more active trading market will develop in the
forseeable future. There are no present plans for the Common Stock to be listed
or qualified for trading on any stock exchange or in the over-the-counter
market. There is currently one independent market maker in the Common Stock.
As of June 30, 1997, there were approximately 502 holders of record of the
Company's Common Stock. As of June 30, 1997, 1,542,368 shares of Common Stock
were issued and outstanding. Transactions in the Company's Common Stock
generally are negotiated through J. C. Bradford & Company. The following table
reflects the range of quotations from J. C Bradford & Company since the fourth
quarter of 1995 when they began making a market in the Company's stock:
GEORGIA BANK FINANCIAL CORPORATION COMMON STOCK PRICE *
<TABLE>
<CAPTION>
QUARTER ENDED LOW HIGH
- ------------- ------- ------
<S> <C> <C>
December 31, 1995 13 1/4 15
March 31, 1996 13 7/8 15 5/8
June 30, 1996 14 1/4 16 3/8
September 30, 1996** 16 1/16 16 5/8
December 31, 1996 17 1/4 17 1/2
March 31, 1997 18 3/4 19 1/2
June 30, 1997 19 5/8 20
</TABLE>
* The prices reflect inter-dealer prices, without retail markup,
mark-down or commission and may not represent actual
transactions. No formal market existed for the Company's Common
Stock prior to the fourth quarter of 1995.
** The Company issued a 15% stock dividend on September 25, 1996
No cash dividends have been paid to date on the Common Stock, and it is
anticipated that earnings will be retained for the foreseeable future to support
the Bank's rapid growth and expansion. The Company currently has no source of
income other than dividends and other payments received from the Bank. The
amount of dividends that may be paid by the Bank to the Company depends on the
Bank's earnings and capital position and is limited by federal and state law,
regulation and policies.
Cash dividends on the Bank's common stock may be declared and paid only out
of its retained earnings, and dividends may not be declared at any time at which
the Bank's paid-in capital and appropriated retained earnings do not, in
combination, equal at least 20% of its capital stock account. In addition, the
Georgia Department of Banking and Finance's (the "Department") current rules and
regulations require prior approval before cash dividends may be declared and
paid if: (i) the Bank's ratio of equity capital to adjusted total assets is less
than 6%; (ii) the aggregate amount of dividends declared or anticipated to be
declared in that calendar year exceeds 50% of the Bank's net profits, after
taxes but before dividends, for the previous calendar year; or (iii) the
percentage of the Bank's loans classified as adverse as to repayment or recovery
by the Department at the most recent examination of the Bank exceeds 80% of the
Bank's equity capital as reflected at such examination.
The Company's Board of Directors declared a 15% stock dividend to holders
of the Company's Common Stock on record as of September 4, 1996. The dividend
was payable on September 25, 1996. All per share information has been restated
to reflect the effect of this dividend.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997, and as adjusted to show the effects of the sale of 278,000 shares of
Common Stock in the Offering at the public offering price of $18 producing
estimated net proceeds to the Company of $4,954,000 and the application of the
net proceeds as set forth under "Use Of Proceeds." The information set forth in
the table should be read in conjunction with the financial statements and
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
(Dollars in Thousands)
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
LONG-TERM DEBT:
Bonds payable, interest at 64% of $ 160,002 $ 160,002
prime, not to
exceed 11% or be less than 6%
Total Long-Term Debt
SHAREHOLDERS' EQUITY:
Common Stock, par value $3.00; 4,627,104 5,461,104
10,000,000
shares authorized; 1,542,368 shares
issued and outstanding - Actual;
1,820,368 shares issued and
outstanding - As Adjusted
Additional Paid in Capital 10,337,222 14,457,222
Retained Earnings 2,587,469 2,587,469
----------- -----------
Unrealized loss on investment (211,288) (211,288)
securities available-for-
sale
Total Shareholders' Equity 17,340,507 22,294,507
Total Long-Term Debt and 17,500,509 22,454,509
Shareholders' Equity =========== ===========
</TABLE>
-14-
<PAGE>
BUSINESS
GENERAL
Georgia Bank Financial Corporation is a Georgia bank holding company with
total consolidated assets of approximately $235.1 million, total deposits of
approximately $208.9 million and total stockholders' equity of approximately
$17.3 million at June 30, 1997. Through its wholly owned subsidiary, Georgia
Bank & Trust Company, the Company operates a total of seven banking offices in
the greater Augusta area of Richmond and Columbia Counties, Georgia.
The Bank is community oriented and focuses primarily on offering real
estate, commercial and consumer loans and various deposit and other services to
individuals, small to medium-sized businesses and professionals in its market
area. The Bank is the only locally owned and managed commercial bank operating
in Richmond and Columbia Counties. Its management team includes a number of
banking professionals with years of experience in the Augusta area market with
this and other banking organizations, a number of whom have worked together for
many years. The Bank competes against the larger regional and super-regional
banks operating in its market by emphasizing the stability and accessibility of
its management, management's long-term familiarity with the market, immediate
local decision making and the pride of local ownership.
The Bank was organized by a group of local citizens from Richmond and
Columbia Counties and commenced business from its main office location at 3530
Wheeler Road in Augusta on August 28, 1989. The Bank opened its first Augusta
branch at 3111 Peach Orchard Road in December 1991 and its second Augusta branch
at 1530 Walton Way in December 1992. The Bank became a subsidiary of the
Company in 1992 as a result of its holding company reorganization. The Company
acquired FCS Financial Corporation and First Columbia Bank ("First Columbia") on
December 31, 1992. This allowed the Company to expand into neighboring Columbia
County. In July 1993, First Columbia merged into the Bank, and the Bank now
operates the former main office of First Columbia at 4105 Columbia Road,
Martinez, Georgia, as a branch. The Bank opened an additional branch in
Columbia County in November 1994 that is located in Evans, Georgia. In October
1995, the Bank opened its sixth banking office at 3133 Washington Road. In July
1996, the Bank opened a seventh location in a newly constructed Wal-Mart
SuperCenter located at 3209 Deans Bridge Road. This second location in the
heavily populated and consumer/retail oriented southern section of Richmond
County is anticipated to provide additional opportunities for consumer loans and
retail deposits.
The Bank was founded with an experienced management team, and that team has
continued to expand with the growth of the Bank. The Bank's President, Patrick
G. Blanchard, its Executive Vice President and Chief Operating Officer, R.
Daniel Blanton, and its Chief Operations Officer, Patricia E. Leopard, have
worked together for over eight years with the Bank and before that with First
Union National Bank and its predecessor, Georgia State Bank, for a period of 12
years. With the acquisition of First Columbia, the Bank obtained its Chief
Financial Officer, Ronald L. Thigpen, who had served as Chief Executive Officer
of First Columbia since 1991 and before that served in various capacities with
First Union National Bank and its predecessors. J. Pierce Blanchard Jr., Group
Vice President-Branch Administration, joined the team in 1994. He previously
served for six years as President of Citizens Bank & Trust Company in Evans,
Georgia, and had prior experience with First Union National Bank and its
predecessor, Georgia Railroad Bank & Trust Company.
MARKET AREA
The Bank's market area includes Richmond and Columbia Counties and is
centered in West Augusta. This area represents a significant portion of the
Augusta-Aiken metropolitan area. Aiken-Augusta is one of 313 metropolitan
statistical areas (MSA) in the United States and its 1995 population of 453,209
ranked 104th in the nation. Between 1990 and 1995, the population increased
9.1%. The Augusta market area has a diversified economy based principally on
health care, education, government, military, manufacturing, wholesale and
retail trade concerns. Augusta is one of the leading medical centers in the
Southeast with more than 25,000 people employed in the medical community.
Significant medical facilities include the Medical College of Georgia, the
University Hospital, Veteran's Administration Hospital, Dwight D. Eisenhower
Hospital, Gracewood State School and Hospital, Columbia/Augusta Medical Center
and St. Joseph's Hospital. Other major employers in the Augusta
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<PAGE>
market area include the Fort Gordon military installation, E-Z Go (golf car
manufacturer), International Paper Board Company (bleached paper board
manufacturer), Thermal Ceramics (insulating material manufacturer), President
Baking Company (cookie manufacturer), John P. King Manufacturing (textile
manufacturer) and Club Car (golf car manufacturer). The area is served by
Interstate 20, which connects it to Atlanta 140 miles to the west and Columbia,
South Carolina, 70 miles to the east. Augusta is also served by a major
commercial airport (Bush Field) and a commuter airport (Daniel Field). The
average unemployment rate for the first three quarters of 1996 for the Augusta-
Aiken MSA was 6.6% compared to 4.6% for the state of Georgia. Between June 1989
and June 1996, total commercial bank and thrift deposits in Richmond County
increased 7.4% from $1,803 million to $1,936 million, and total commercial bank
and thrift deposits in Columbia County increased 50.6% from $229 million to $345
million. The demographic information as presented above is based upon
information and estimates provided by the Selig Center for Economic Growth at
the University of Georgia and the Federal Deposit Insurance Corporation.
LENDING ACTIVITIES
General. The Bank offers a range of lending services, including real
estate, commercial and consumer loans, to individuals and small to medium-sized
businesses and professionals that are located in, or conduct a substantial
portion of their business in, the Bank's market area. The Bank's total loans at
June 30, 1997, were approximately $155.4 million, or approximately 73.7% of
total earning assets. An analysis of the composition of the Bank's loan
portfolio is set forth under "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations - Composition of Loan Portfolio."
Real Estate Loans. Loans secured by real estate are the primary component
of the Bank's loan portfolio, constituting approximately $100.2 million, or
approximately 64.5% of the Bank's total loans, at June 30, 1997. These loans
consist of commercial real estate loans, construction and development loans and
residential real estate loans, but exclude home equity loans, which are
classified as consumer loans. See "- Consumer Loans."
At June 30, 1997, the Bank held approximately $51.6 million of commercial
real estate loans of various sizes secured by office buildings, retail
establishments, and other types of property. Loan terms are limited to five
years and often do not exceed three years, although the installment payments may
be structured on a 15-year amortization basis. Interest rates may be fixed or
adjustable, and tend to be fixed in the case of three-year term loans and
adjustable in the case of five-year term loans. The Bank generally charges an
origination fee. Management attempts to reduce credit risk in the commercial
real estate portfolio by emphasizing loans on owner-occupied office and retail
buildings where the loan-to-value ratio, established by independent appraisals,
does not exceed 80%. In addition, the Bank typically requires personal
guarantees from the principal owners of the property supported with an analysis
by the Bank of the guarantors' personal financial statements. A number of the
loans classified as commercial real estate loans are, in fact, commercial loans
for which a security interest in real estate has been taken as additional
collateral. These loans are subject to underwriting as commercial loans as
described below. The Bank experienced net loan charge offs on commercial real
estate loans of approximately $134,000 during 1996 and no charge offs in 1995.
Construction and Development Loans. Construction and development real
estate loans comprise approximately $22.2 million, or approximately 14.3% of the
Bank's total loans at June 30, 1997.
A construction and development loan portfolio represents special problems
and risks. This level of construction and development loans are representative
of the character of the Bank's market. Columbia County has been rated among the
top five in the State of Georgia in population growth during each of the last
three years. This growth has spawned a significant demand for residential
housing in the county. The Bank subjects this type of loan to underwriting
criteria that include: certified appraisal and valuation of collateral; loan-
to-value margins (typically not exceeding 75%); cash equity requirements;
evaluations of borrowers' cash flows and alternative sources of repayment; and a
determination that the market is able to absorb the project on schedule.
To further reduce the risk related to construction and development loans
generally, the Bank relies upon the long-standing relationship between its loan
officers (particularly R. Daniel Blanton) on the one hand and the developer and
contractor borrowers, on the other. In most cases these relationships exceed
ten or more years. The
-16-
<PAGE>
Bank targets seasoned developers and contractors who have experience in the
local market. Various members of the Bank's Board of Directors have close
contacts with the construction industry; Robert W. Pollard, Jr., manages a
lumber manufacturing company; E. G. Meybohm, owns a prominent real estate
brokerage firm; Larry S. Prather, owns a utility and grading company; and
William J. Badger owns and operates a lumber company. Through these connections
to the industry, the Bank attempts to monitor current economic conditions in the
market place for residential real estate, and the financial standing and on-
going reputation of its construction and development borrowers.
Infrastructure development loans are generally made with an initial
maturity of one year, although the Bank may renew the loan for up to two
additional one-year terms to allow the developer to complete the sale of the
lots comprising the property before requiring the payment of the related loan.
These loans typically bear interest at a floating rate and the Bank typically
charges an origination fee. These loans are repaid, interest only, on a monthly
or quarterly basis until sales of lots begin, and then principal reductions are
made as each lot is sold at a rate allowing the Bank to be repaid in full by the
time 75% of the lots have been sold. In order to reduce the credit risk
associated with these loans, the Bank requires the project's loan to value ratio
(on an as completed basis) to be not more than 70%. The Bank experienced net
loan charge offs on these loans of $37,000 during 1996 and no losses during
1995.
Residential construction loans are typically made for homes with a
completed value in the range of $110,000 to $250,000. Loans for the lower-value
homes are typically made for a term of 6 months, while loans for the larger
homes are typically made for a term of nine to 12 months. These loans bear
interest at a floating rate and the Bank collects an origination fee. The Bank
may renew these loans for one additional term to allow the contractor time to
market the home. In order to reduce the credit risk with respect to these
loans, the Bank restricts the loans that are made for homes being built on a
speculative basis, carefully manages its aggregate lending relationship with
each borrower, and requires approval of the Loan Committee of the Board of
Directors to lend more than $300,000 in the aggregate to any borrower and its
related interests.
Residential Loans. The Bank originates, on a selective basis, residential
loans for its portfolio on single-and multi-family properties, both owner-
occupied and non-owner-occupied. At June 30, 1997, the Bank held approximately
$26.0 million of such loans (exclusive of home equity loans), representing
approximately 16.7% of the Bank's loan portfolio, as compared to $22.1 million,
or 17.2% of the Bank's loan portfolio at June 30, 1996. The growth in this
portfolio is due to the relative importance of residential real estate lending
in the Columbia County market. This portfolio includes, typically 15 or 25-year
adjustable rate mortgage loans whose terms mirror those prevalent in the
secondary market for mortgage loans or, less typically, floating rate non-
amortized term loans for purposes other than acquisition of the underlying
residential property.
The Bank also originates residential loans for sale into the secondary
market, an activity that began with the acquisition of First Columbia and its
mortgage operations. The Bank originates both fixed and variable rate
residential mortgage loans for sale with servicing released. Loans originated
for sale into the secondary market are approved for purchase by an investor
prior to closing and the Bank takes no credit or interest rate risk with respect
to these loans. The Bank generates loan origination fees, typically ranging
from 1.0% to 1.5% of the loan balance, and servicing release fees, generally
ranging from 0.25% to 0.75% of the loan balance, both of which are recognized as
income when the loan is sold. The Bank limits interest rate and credit risk on
these loans by locking the interest rate for each loan with the secondary
investor and receiving the investor's underwriting approval prior to originating
the loan.
Commercial Loans. The Bank makes loans for commercial purposes in various
lines of businesses. At June 30, 1997, the Bank held approximately $26.5
million of these loans, representing approximately 17.0% of the loan portfolio,
excluding for these purposes commercial loans secured by real estate. See "-
Lending Activities - Real Estate." Equipment loans are made for a term of up to
five years (more typically three years) at fixed or variable rates, with the
loan being fully amortized over the term and secured by the financed equipment
with a loan-to-value ratio of 80% or less. Working capital loans are made for a
term typically not exceeding one year. These loans are usually secured by
accounts receivable or inventory, and principal is either repaid as the assets
securing the loan are converted into cash, or principal is due at maturity. The
Bank experienced net loan charge-offs on commercial loans of $70,000 during 1996
and $72,000 during 1995.
-17-
<PAGE>
Consumer Loans. The Bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit and revolving lines of credit
such as credit cards. At June 30, 1997, the Bank held approximately $22.0
million of consumer loans, representing approximately 14.2% of total loans.
These loans typically carry balances of less than $25,000 and earn interest at a
fixed rate. Non-revolving loans are either amortized over a period not
exceeding 48 months or are ninety-day term loans. Revolving loans require
monthly payments of interest and a portion of the principal balance (typically
2-3% of the outstanding balance). In the case of home equity loans and lines
of credit, the underwriting criteria are the same as applied by the Bank when
making a first mortgage loan, as described above. Home equity lines of credit
typically expire ten years after their origination. The Bank experienced net
loan charge offs on consumer loans of $96,000 during 1996 and $19,000 during
1995.
Loan Approval and Review. The Bank's loan approval policies provide for
various levels of officer lending authority. When the aggregate amount of
outstanding loans to a single borrower exceeds that individual officer's lending
authority, the loan request must be considered and approved by an officer with a
higher lending limit or by the Officers' Loan Committee. The lending limits of
individual officers range from $5,000 to $300,000 depending on seniority and
type of loan. The Officers' Loan Committee has a lending limit of $100,000 for
unsecured and $300,000 for secured loans. Any loan in excess of the lending
limit of the Officers' Loan Committee must be approved by the Directors' Loan
Committee.
The Bank has a continuous loan review procedure involving multiple officers
of the Bank which is designed to promote early identification of credit quality
problems. All loan officers are charged with the responsibility of rating all
their loans exceeding $25,000 and reviewing those loans on a periodic basis, the
frequency of which increases as the quality of the loans decreases. The Bank's
Senior Credit Officer is charged with the responsibility of ensuring that all
loans or lines of credit of $200,000 and above are reviewed annually. In
addition, the Senior Credit Officer is involved in the analysis and approval of
all loans that require Officers' Loan Committee approval.
DEPOSITS
The Bank offers a variety of deposit programs to individuals and to small
to medium-sized businesses and other organizations at interest rates generally
consistent with local market conditions. The following table sets forth the mix
of depository accounts at the Bank as a percentage of total deposits at the
dates indicated.
DEPOSIT MIX
<TABLE>
<CAPTION>
At December 31
---------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Non-interest bearing demand 17.02% 17.11% 16.14%
Interest checking 12.24 12.06 16.36
Market rate investment 10.86 10.23 11.99
Savings 22.26 12.76 4.34
Time Deposits
Under $100,000 21.71 27.15 31.29
$100,000 and over 15.91 20.69 19.88
------ ------ ------
100.00% 100.00% 100.00%
------ ------ ------
</TABLE>
The Bank accepts deposits at its main office and six branch banking
offices, each of which maintains an automated teller machine. The Bank is a
member of the "HONOR" network of automated teller machines, which permits Bank
customers to perform certain transactions in cities throughout Georgia and other
regions. The Bank controls deposit volumes primarily through the pricing of
deposits and to a certain extent through promotional activities such as "free
checking." In 1994 and 1995, the Bank adjusted the rates it paid on its
interest checking deposits downward to be more nearly in line with its
competition, resulting in a shift in its deposit base from interest checking
accounts to time deposits as customers sought the higher rates available in
certificates of deposit.
-18-
<PAGE>
This continued in 1996 and a significant shift to savings occurred when the bank
promoted a variable rate account tied to the prime rate. Deposit rates are set
weekly by senior management of the Bank. Management believes that the rates it
offers are competitive with or, in some cases, slightly above those offered by
other institutions in the Bank's market area. The Bank does not actively solicit
deposits outside of its market area.
COMPETITION
The banking business generally is highly competitive, and sources of
competition are varied. The Bank competes as a financial intermediary with
other commercial banks, savings and loan associations, credit unions, mortgage
banking companies, consumer finance companies, securities brokerages, insurance
companies, and money market mutual funds operating in Columbia and Richmond
Counties and elsewhere.
Many of the financial organizations in competition with the Company have
much greater financial resources, more diversified markets and larger branch
networks than the Company, and are able to offer similar services at varying
costs with higher lending limits. In addition, with the enactment of the
Reigle-Neal Act and other laws affecting interstate bank acquisitions, there
have been major interstate acquisitions involving Augusta financial institutions
which have offices in the Company's market area but are headquartered in other
states. The effect of such acquisitions (and the possible increase in size of
the financial institutions in the Company's market areas) may be to increase
further the competition faced by the Company. The Company believes, however,
that it will be able to use its local independent image to its advantage in
competing for business from certain Augusta individuals and businesses.
EMPLOYEES
The Company had approximately 131 full-time equivalent employees at June
30, 1997.
PROPERTY
The Company currently operates a main office, six branches and an
operations center. The principal administrative offices of the Company are
located at 3530 Wheeler Road, Augusta, Georgia. The main office and four branch
offices are located in Augusta, Georgia, one branch is located in Martinez,
Georgia and one branch is located in Evans, Georgia. With the exception of the
Fury's Ferry and the Wal-Mart branches each banking office is a brick building
of Georgian architecture with a teller line, customer service area, offices for
the Bank's lenders, drive-in teller lanes, a vault with safe deposit boxes, and
a walk-up or drive-up automated teller machine. The banking offices are
generally 3,000 - 5,000 square foot buildings except for the main office and the
Fury's Ferry Branch. The main office contains approximately 14,000 square feet
of space. The Fury's Ferry branch contains 1,800 square feet with all the
facilities of the other branches except safe deposit boxes. The Wal-Mart
branch, located inside the Wal-Mart SuperCenter, contains 517 square feet and
provides teller, customer service and lending areas. An automated teller
machine is also located on the premises. The 5,000 square foot operations
center is located in Grovetown, Georgia.
In April of 1997, the Bank acquired 24,000 square feet of commercial office
space located at 3515 Wheeler Road, Augusta, Georgia, across the street from its
main office. Approximately 12,000 square feet will be renovated to accommodate
all of the Bank's operations functions. The remaining 12,000 square feet will
leased to third parties and will be available to the Bank for any future
expansion. The existing operations building will be sold.
The Company has expanded its automated teller machine network to include
three drive-up machines located in major retail shopping areas and has also
located four walk-up machines in convenience/gasoline outlets.
See Note 5 to the Consolidated Financial Statements for additional
information concerning the Bank's premises and equipment and Note 7 to the
Consolidated Financial Statements for additional information concerning the
Bank's commitments under various equipment leases.
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Commission and its reports to shareholders. Statements made in this
Registration Statement, other than those concerning historical information,
should be considered forward-looking and subject to various risks and
uncertainties. Such forward looking statements are made based on management's
belief as well as assumptions made by, and information currently available to,
management pursuant to "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results may differ
materially from the results anticipated in these forward-looking statements due
to a variety of factors, including, without limitation: the effects of the
Company's growth and whether such growth is sustainable in future economic
circumstances; the effects of future economic conditions; governmental monetary
and fiscal policies, as well as legislative and regulatory changes; the risks of
changes in interest rates on the level and composition of deposits, loan demand,
and the values of loan collateral and securities; the effects of competition
from other commercial banks, thrifts, mortgage banking firms, consumer finance
companies, credit unions, securities brokerage firms, insurance companies, money
market and other mutual funds and other financial institutions operating in the
Company's market area and elsewhere, including institutions operating locally,
regionally, nationally and internationally, together with such competitors
offering banking products and services by mail, telephone and computer and the
Internet; and the failure of assumptions underlying the establishment of the
allowance for loan losses, including the value of collateral underlying
delinquent loans and other factors. The Company cautions that such factors are
not exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by, or on behalf of, the Company.
THE BUSINESS OF THE COMPANY
Georgia Bank Financial Corporation was organized on September 11, 1991, to
become a bank holding company by acquiring all outstanding capital stock of
Georgia Bank & Trust Company of Augusta. The Company acquired FCS Financial
Corporation on December 31, 1992, and merged its wholly owned subsidiary, First
Columbia Bank into the Bank on July 1, 1993.
The Bank is engaged in general commercial and retail banking from its main
office and six other offices in Richmond and Columbia Counties. The Bank offers
a full range of deposit, lending and other services to its customers. The
deposit services include checking accounts, NOW accounts, savings accounts and
other time deposits of various types, ranging from daily money market accounts
to longer-term certificates of deposit. The lending services include short to
medium-term secured and unsecured commercial loans for working capital
(including inventory and receivables), business expansion (including acquisition
of real estate and improvements), and purchase of equipment and machinery,
consumer loans for financing automobiles, home improvements, and real estate
construction and acquisition loans. The Bank also offers a full range of long-
term mortgage services. Other services of the Bank include various MasterCard
and Visa credit programs, 24 hour telephone access to accounts through Express
Banking, cash management and automated clearing services. The Bank provides
access to the HONOR network of automated teller machines through 13
strategically located ATM's throughout Richmond and Columbia Counties. In
addition, as of August 1997, the Bank began offering its customers selected
securities brokerage and investment advisory services through a third party
securities firm. These securities activities are expected to provide the Bank
with additional fee income and enable the Bank to better diversify the Bank's
income.
FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
Results of Operations
- ---------------------
The Company had record net income of $1,952,000 in 1996, compared to
$1,405,000 in 1995, an increase of 39%. The 1995 earnings of $1,405,000 were a
26% increase above 1994 earnings of $1,118,000.
-20-
<PAGE>
The improvement in 1996 earnings resulted primarily from increased levels
of net interest income and non-interest income, specifically service charges and
fees on deposits. The increase in net interest income was primarily the result
of balance sheet growth with the resulting higher levels of earning assets. Net
interest income grew 13.8% in 1996 on a net interest margin of 4.62%, a decline
from the net interest margin of 4.78% in 1995. Non-interest income increased
$736,000 (52.0%) in 1996 to $2.2 million compared to $1.4 million in 1995.
The earnings performance of the Company is reflected in a return on average
assets and average equity of 0.97% and 12.65%, respectively, during 1996
compared to 0.82% and 10.23%, respectively, in 1995. The return on average
assets and average equity was 0.73% and 9.44% in 1994. Earnings per share
improved to $1.27 in 1996 compared to $0.91 in 1995. The Company's average
equity to average asset ratio decreased to 7.64% from 8.00% the previous year as
a result of an increase in average assets of 17.6%. The average equity to
average asset ratio was 7.83% for 1994. The Company did not pay any cash
dividends in 1996 or 1995. The Company declared a 15% stock dividend on
September 4, 1996, payable on September 25, 1996.
The improved earnings of the Company represent, in part, the continued
leveraging of the Company's and the Bank's investment in additional offices
during prior years; these offices are maturing and generating higher asset and
deposit levels. In addition, the reduction of the Company's long-term debt
resulted in lower interest expense, which also contributed to the improved
earnings.
Net Interest Income/Margins
- ---------------------------
The primary source of revenue for the Company is net interest income, which
is the difference between income on interest-earning assets, such as loans and
investment securities, and interest expense incurred on interest-bearing sources
of funds, such as deposits and borrowings. The following table shows the
average balances of earning assets and interest-bearing liabilities, average
yields earned and rates paid on those respective balances, and the resulting
interest income and expense for the periods indicated:
-21-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995
-------------------------------- --------------------------------
AVERAGE AVERAGE AMOUNT AVERAGE AVERAGE AMOUNT
AMOUNT YIELD PAID AMOUNT YIELD PAID
OR RATE OR OR RATE OR
EARNED EARNED
------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Amounts in thousands, except yields and rates)
ASSETS:
Loans...................... $128,592 9.70% $12,470 $113,977 10.12% $11,530
Investments
Taxable................ 43,863 6.36% 2,788 31,795 6.50% 2,068
Tax-free............... 1,635 4.71% 77 1,583 4.30% 68
Interest-bearing deposits
with - - - - - - - - - - (2)
banks.................
Federal funds sold......... 5,615 6.09% 342 5,479 6.61% 362
---------- -------- -------- ---------
TOTAL EARNING ASSETS.. 179,705 8.72% 15,677 152,834 9.18% 14,026
---------- -------- -------- ---------
Cash and due from banks.... 11,139 9,148
Premises and equipment..... 8,799 8,375
Other...................... 3,759 2,643
Allowance for loan losses.. (1,441) (1,267)
---------- --------
TOTAL ASSETS.......... $201,961 $171,733
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing
transaction $ 20,454 2.54% $ 520 $ 19,314 2.73% $ 528
accounts..............
Savings, MMA............... 55,661 4.38% 2,436 30,674 4.00% 1,226
Certificates............... 74,048 5.67% 4,196 78,953 5.96% 4,705
Federal funds purchased/
repurchase agreements.. 1,068 4.12% 44 486 5.56% 27
Other borrowings........... 2,713 6.52% 177 4,198 5.76% 242
---------- ------------ -------- ---------
TOTAL INTEREST-BEARING
LIABILITIES.......... 153,944 4.79% 7,373 133,625 5.03% 6,728
---------- ------------ -------- ---------
Demand deposits............ 31,253 23,623
Other liabilities.......... 1,338 745
Shareholders' equity....... 15,426 13,740
---------- -- --------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY............ $201,961 $171,733
========== ========
Net interest spread........ 3.93% 4.15%
Benefit of non-interest sources 0.69% 0.63%
Net interest margin/income. 4.62% $ 8,304 4.78% $ 7,298
========== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------
AVERAGE AVERAGE AMOUNT
AMOUNT YIELD PAID
OR RATE OR
EARNED
---------------------------------------------
(Amounts in thousands, except yields and rates)
<S> <C> <C> <C>
ASSETS:
Loans...................... $102,166 9.16% $ 9,355
Investments
Taxable................ 24,723 5.84% 1,443
Tax-free............... 1,545 3.95% 61
Interest-bearing deposits
with 66 4.55% 3
banks.................
Federal funds sold......... 5,133 4.27% 219
---------- ----------
TOTAL EARNING ASSETS.. 133,633 8.30% 11,081
---------- ----------
Cash and due from banks.... 7,416
Premises and equipment..... 7,626
Other...................... 3,764
Allowance for loan losses.. (1,269)
----------
TOTAL ASSETS.......... $151,170
==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing
transaction $ 26,185 2.72% $ 713
accounts..............
Savings, MMA............... 23,596 2.78% 657
Certificates............... 65,828 4.31% 2,841
Federal funds purchased/
repurchase agreements.. 404 3.47% 14
Other borrowings........... 2,629 5.43% 143
---------- ----------
TOTAL INTEREST-BEARING
LIABILITIES.......... 118,642 3.68% 4,368
---------- ----------
Demand deposits............ 19,685
Other liabilities.......... 1,001
Shareholders' equity....... 11,842
----------
TOTAL LIABILITIES AND
SHAREHOLDERS' $151,170
EQUITY............
==========
Net interest spread........ 4.62%
Benefit of non-interest sources 0.41%
Net interest margin/income. 5.03% $ 6,713
==========
</TABLE>
Net interest income was $8.3 million for 1996, a 13.8% increase from 1995.
Net interest income increased as a result of an increase in the volume of
average earning assets, which was offset partially by a decrease in the rate on
those earning assets. Earning assets averaged $179.7 million in 1996, an
increase of 17.6% from 1995. Average rates on earning assets decreased to 8.72%
from 9.18% in 1995. These decreases were due primarily to a declining interest
rate environment and competitive pressures in the pricing of loans.
A key performance measure for net interest income is the "net interest
margin", or net interest income divided by the average interest-earning assets.
Unlike "net interest spread", net interest margin is affected by the level of
non-interest sources of funding used to support earning assets. The Company's
net interest margin decreased to 4.62% in 1996 from 4.78% in 1995. In 1994, the
net interest margin was 5.03%. The net interest margin decreased as the average
rate earned on earning assets declined at a faster rate than the decline in the
average rate paid on interest-bearing liabilities and the amount of earning
assets increased more that the amount of interest-bearing liabilities.
Increased competition in the local market for both loans and deposits also
negatively impacted the net interest margin. The net interest margin was
assisted, however, by an increasing amount of demand deposits which function as
a non-interest source of funds.
Changes in net interest income from period to period result from increases
or decreases in volume of interest-earning assets and interest-bearing
liabilities, increases or decreases in the average rates earned and paid
-22-
<PAGE>
on such assets and liabilities, the ability to manage the earning asset
portfolio, and the availability of particular sources of funds, such as non-
interest bearing deposits. The table titled "Analysis of Changes in Net Interest
Income" which follows indicates the changes in the Company's net interest income
as a result of changes in volume and rate from 1995 to 1996, 1994 to 1995, and
1993 to 1994. The analysis of changes in net interest income included in the
following table indicates that on an overall basis in 1996, positive changes in
the balances or volumes of the interest-earning assets had a greater impact on
the increase in interest income than the negative changes in yields and rates
applicable to those balance sheet accounts which served to reduce interest
income, and the positive changes in the balances or volume of the interest
bearing liability categories had a greater impact on the increase in interest
expense than did negative changes in yields and rates which served to reduce
interest expense. In 1995, positive changes in the balances or volumes of the
interest earning assets and in the yields contributed to the increase in
interest income, and interest expense increased as a result of both positive
changes in the balances or volume of and the rates paid on interest-bearing
liabilities.
-23-
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995
COMPARED WITH 1995 COMPARED WITH 1994
VARIANCES DUE TO VARIANCES DUE TO
---------------------------------------------------------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
---------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME FROM EARNING ASSETS:
Loans...................... $1,479 ($478) ($61) $ 940 $1,082 $ 981 $113 $2,176
Investments,
785 (45) (17) 723 413 163 47 623
taxable.................
Investments, tax-
2 6 0 8 2 5 0 7
free....................
Interest-bearing
deposits with 0 0 0 0 (4) (4) 4 (4)
banks...................
Federal funds sold......... 9 (28) (1) (20) 15 120 8 143
---------------------------------------------------------------------------
Total.................. $2,275 ($545) ($79) $1,651 $1,508 $1,265 $172 $2,945
---------------------------------------------------------------------------
INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Interest-bearing
transaction
$ 31 ($37) ($2) ($8) ($188) $ 2 ($2) ($188)
accounts................
Savings and market
rate investments........ 999 116 95 1,210 196 287 86 569
Certificates and
other time deposits..... (293) (229) 14 (508) 565 1,086 216 1,867
Federal funds 32 (7) (9) 16 3 8 2 13
purchased...............
Other borrowings........... (86) 32 (11) (65) 85 9 5 99
---------------------------------------------------------------------------
Total.................. $ 683 ($125) $ 87 $ 645 $ 661 $1,392 $307 $2,360
---------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME: $1,006 $ 585
========= ===========
<CAPTION>
YEAR ENDED DECEMBER 31,
1994
COMPARED WITH 1993
VARIANCES DUE TO
-----------------------------------------
RATE/
VOLUME RATE VOLUME TOTAL
-----------------------------------------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
INTEREST INCOME FROM EARNING ASSETS:
Loans...................... $1,004 $ 325 $ 40 $1,369
Investments,
(4) 48 0 44
taxable.................
Investments, tax-
38 (9) (9) 20
free....................
Interest-bearing
deposits with (7) (1) 0 (8)
banks...................
Federal funds sold......... (88) 137 (54) (5)
--------------------------------------
Total.................. $ 943 $ 500 ($23) $1,420
--------------------------------------
INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Interest-bearing
transaction
($207) ($76) $ 16 ($267)
accounts................
Savings and market
rate investments........ 82 (14) (2) 66
Certificates and
other time deposits..... 612 (61) (16) 535
Federal funds (12) 36 (27) (3)
purchased...............
Other borrowings........... (172) (52) 26 (198)
--------------------------------------
Total.................. $ 303 ($167) ($3) $ 133
--------------------------------------
CHANGE IN NET INTEREST INCOME: $1,287
===========
</TABLE>
The variances for each major category of interest-earning asset and
interest-bearing liability are attributable to (a) changes in volume (changes in
volume times old rate), (b) changes in rate (changes in rate times old volume)
and (c) changes in rate/volume (changes in rate times the change in volume).
Non-Interest Income
- -------------------
Non-interest income for 1996 was $2.2 million, an increase of $736,000 from
1995. The increase is attributable to a 50.7% increase in service charges on
deposit accounts resulting from a higher volume of deposits and increases in the
overall pricing of accounts. A decrease in losses on investment securities of
$21,000 also contributed to the increase in non-interest income. The following
table presents the principal components of non-interest income for the last
three years.
-24-
<PAGE>
NON-INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT
PERCENTAGES)
Service charges on $2,150 $1,427 $1,014
deposit accounts......
Investment securities 0 (21) (117)
gains (losses)........
Other.................. 1 8 3
------------------------------------------
Total $2,151 $1,414 $ 900
non-interest
income...........
==========================================
Non-interest income as
a percentage 1.07% 0.82% 0.60%
of total average
assets...........
</TABLE>
Non-Interest Expense
- --------------------
Non-interest expense totaled $7.2 million in 1996, up 14.1% from 1995 non-
interest expense of $6.3 million. The increase was the result of the Company's
continued growth and expansion. The Company experienced a full year of
operating expenses associated with the Fury's Ferry branch which opened in
October, 1995 in addition to the opening and operating expenses of the Wal-Mart
branch which opened in July, 1996. This increase in non-interest expense is
necessary to support the Company's continued growth and to better position
itself with strategic locations in the market.
Management continues to place a significant emphasis on expense control and
continues to improve its ability to monitor growth in discretionary expense
categories and to maintain improved control over future increases. The following
table presents the principal components of non-interest expense for the years
ended December 31, 1996, 1995 and 1994.
-25-
<PAGE>
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
Salaries and employee benefits........ $3,653 $3,146 $2,798
Occupancy expense..................... 1,262 1,032 924
Amortization of intangible assets..... 280 287 298
Business development expense.......... 402 290 180
Communication expense................. 515 419 359
Data processing expense............... 137 150 199
Insurance expense..................... 37 198 325
Legal and professional fees........... 202 210 193
Office Supplies....................... 434 328 272
Other................................. 312 281 223
------------------------------------------
Total non-interest expense......... $7,234 $6,341 $5,771
==========================================
Non-interest expense as a percentage
of total average assets.......... 3.58% 3.69% 3.82%
</TABLE>
The Company's efficiency ratio (non-interest expense as a percentage of net
interest income and non-interest income, excluding gains and losses on the sale
of investment securities) improved to 69.2% in 1996 compared to 72.6% in 1995
and 74.7% in 1994. This improvement continues even through though the Company
incurs significant expense associated with the expansion of facilities to
deliver the Company's products and services.
Composition of the Loan Portfolio
- ---------------------------------
Loans are the primary component of the Bank's earning assets and,
generally, are expected to provide higher yields than the other types of earning
assets. Those higher yields reflect the inherent credit risks associated with
the loan portfolio. Management attempts to control and balance those risks with
the rewards associated with the higher returns.
Loans averaged $128.6 million in 1996 compared to $114.0 million in 1995
and $102.2 million in 1994. At December 31, 1996, loans totaled $135.2 million,
compared to $120.4 million at the end of 1995, or an increase of $14.8 million
(12.3%), and $108.2 million at the end of 1994, an increase during 1995 of $12.2
million (11.3%).
The Company continues to experience significant increases in loan volumes
and balances. These increases are attributable to a continued stable local
economy and the Company's relatively small market share. The successful
expansion in Columbia County (acquisition of FCS Financial Corporation at the
end of 1992 and branch expansion in November 1994), and the continued expansion
in Richmond County (opening of the Fury's
-26-
<PAGE>
Ferry branch in October, 1995 and the Wal-Mart branch in July, 1996) have
provided significant opportunities to grow the loan portfolio. While absolute
loan growth continues in double digits, loan growth as a percentage of average
earning assets and average total assets decreased in 1996. Average loans
constituted 71.6% of average earning assets and 63.7% of average total assets in
1996 as compared with 76.4% of average earning assets and 66.4% of average total
assets during 1995, and 74.6% of average earning assets and 67.6% of average
total assets in 1994. This decrease in percentage illustrates that deposit
growth increased at a faster pace than loan growth during the year.
The following table sets forth the composition of the Company's loan
portfolio as of December 31, for the past five years.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------- ------------------- ------------------- ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------------------------------------------------------------------------------------------------------
(AMOUNT IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate
Commercial.............. $ 48,422 35.81% $ 44,053 36.58% $ 34,336 31.73% $30,413 31.71% $35,907 42.49%
Residential............. 24,156 17.87% 24,856 20.64% 23,452 21.67% 17,646 18.40% 11,746 13.89%
Residential held for
sale................ 477 0.35% 404 0.34% 341 0.32% 1,048 1.09% 381 0.45%
Construction and
Development.......... 10,829 8.01% 13,273 11.02% 18,155 16.78% 19,002 19.81% 11,068 13.09%
-------------------------------------------------------------------------------------------------------
Total real
estate (1)........... 83,884 62.04% 82,586 68.58% 76,284 70.49% 68,109 71.02% 59,102 69.92%
-------------------------------------------------------------------------------------------------------
Commercial
Financial and
agricultural............ 32,141 23.77% 22,614 18.78% 18,734 17.31% 15,292 15.95% 14,722 17.41%
-------------------------------------------------------------------------------------------------------
Lease financing............ - - - - - - - - - - - - - - - - - - - -
Consumer
Direct.................. 11,998 8.87% 10,874 9.03% 9,029 8.34% 8,413 8.77% 7,940 9.39%
Indirect................ - - - - - - - - - - - - - - - - - - - -
Home equity............. 5,580 4.13% 2,928 2.43% 2,676 2.47% 2,171 2.26% 1,847 2.18%
Revolving (2) 1,609 1.19% 1,425 1.18% 1,500 1.39% 1,917 2.00% 928 1.10%
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total consumer........ 19,187 14.19% 15,227 12.64% 13,205 12.20% 12,501 13.04% 10,715 12.67%
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total................. $135,212 100.00% $120,427 100.00% $108,223 100.00% $95,902 100.00% $84,539 100.00%
======== ====== ======== ====== ======== ====== ======= ====== ======= ======
</TABLE>
- -------------------
(1) Excluding home equity lines that, while secured by real estate and
reported elsewhere herein as real estate loans, are included under the
consumer loan category in this table.
(2) Includes credit cards and other revolving consumer lines, excluding home
equity lines.
Loan Quality
- ------------
Allowance for Loan Losses. The allowance for loan losses represents a
reserve for potential losses in the loan portfolio. The Bank has developed
policies and procedures for evaluating the overall quality of its loan portfolio
and the timely identification of problem credits. Management continues to
review these policies and procedures and makes further improvements as needed.
The adequacy of the Bank's allowance for loan losses and the effectiveness of
the Bank's internal policies and procedures are also reviewed periodically by
the Bank's regulators, independent auditors and the Bank's internal loan
reviewer. The Bank's regulators may require the Bank to recognize additions to
the allowance based on their judgments about information available to them at
the time of their examination.
The Bank's Board of Directors, with the recommendation of management,
approves the appropriate level for the allowance for loan losses based upon the
internal policies and procedures, historical loan loss ratios and present or
anticipated economic conditions.
-27-
<PAGE>
For significant problem loans, management's review consists of evaluation
of the financial condition and strengths of the borrower, the related collateral
supporting the loan, and the effects of current and expected economic
conditions. When the evaluation reflects a greater than normal risk associated
with the individual problem loan, management classifies the loan accordingly and
allocates a portion of the allowance for loan losses for that loan. The table
below indicates those specific allowances allocated for problem loans and also
the unallocated general allowances included in allowances for loan losses for
the years indicated. As reflected by the unallocated portion of the allowance,
the adequacy of the Company's allowance for loan losses is evaluated on an
overall portfolio basis. Because these allocations are based on estimates and
subjective judgment it is not necessarily indicative of the specific amounts or
loan categories in which charge-offs may occur.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES(1)
DECEMBER 31,
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------------- --------------- --------------- ---------------
Amount % (2) Amount % (2) Amount % (2) Amount % (2)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Specific Reserves for Classified Loans..
Commercial,
financial,
and agricultural..................... $ 189 23.77% $ 257 18.78% $ 115 17.31% $ 23 23.39%
Real estate 30 8.01% 111 11.02% - - 16.78% 55 19.81%
construction......................
Real-estate mortgage................. 189 54.03% 85 57.56% 274 53.71% 123 48.16%
Installment loans to
individuals....................... 37 14.19% 21 12.64% 29 12.20% 33 8.64%
Unallocated............................. 1,023 - - 861 - - 857 - - 1,031 - -
------ ------ ------ ------ ------ ------ ------ ------
Balance at Period End................... $1,468 100.00% $1,335 100.00% $1,275 100.00% $1,265 100.00%
======== ========= ========= =========
</TABLE>
______________________
(1) Prior to 10-SB Registration in 1993, Company used an unallocated General
Reserve
(2) Percent of total loans
Additions to the allowance for loan losses, which are expensed on the
Company's income statement as the "provision for loan losses", are made
periodically to maintain the allowance for loan losses at an appropriate level
based upon management's evaluation of the potential risk in the loan portfolio.
The actual amount of the provision is determined by evaluating the level of
loans outstanding, the level of non-performing loans, historical loan loss
ratios, that amount of loan losses actually charged against the reserve,
delinquency trends, and an assessment of present and anticipated economic
conditions.
The Company's provision for loan losses in 1996 was $470,000, an increase
of $270,000 over the provision in 1995. The provision in 1996 was necessary to
maintain an adequate allowance and support the growth of the loan portfolio
during the year. The provision for loan losses charged to earnings in 1994 was
$180,000.
The following table, "Allowance for Loan Losses," provides details
regarding loan losses and recoveries by category of loan during the most recent
five-year period, as well as supplemental information relating to both net loan
losses and the provision and allowance for loan losses during each of the past
five years. As the following table indicates, net charge-offs for 1996
represented 0.26% of average loans outstanding, compared to 0.12% for 1995 and
0.17% for 1994. The Company's charge-off ratios continue to be significantly
below the average for the industry.
-28-
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Amounts in thousands, except percentages)
----------------------------------------------------
YEAR-ENDED DECEMBER 31,
1996 1995 1994 1993 1992
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Total loans outstanding at end of
$135,212 $120,427 $108,223 $95,902 $84,539
period, net of unearned income.....
====================================================
Daily average amount of loans
outstanding, net of unearned $128,592 $113,977 $102,166 $90,744 $43,975
income.............................
====================================================
Balance of allowance for loan losses.... $ 1,335 $ 1,275 $ 1,265 $ 1,377 $ 363
Charge-offs:
Commercial, financial and
agricultural....................... 77 93 101 51 50
Real estate - construction............ - - - - - - - - - -
Real estate - mortgage................ 171 54 41 19 - -
Consumer.............................. 121 43 74 61 15
Total charge-offs.................. 369 190 216 131 65
----------------------------------------------------
Recoveries of previous charge-offs:
Commercial, financial and
agricultural....................... 7 21 - - - - - -
Real estate - construction............ - - - - - - - - - -
Real estate - mortgage................ - - 5 5 22 - -
Consumer.............................. 25 24 41 26 2
-------------------------------
Total recoveries................... 32 50 46 48 2
----------------------------------------------------
Net charge-offs......................... 337 140 170 83 63
----------------------------------------------------
Provision for loan losses............... 470 200 180 - - 247
Adjustment for sale of branch........... - - - - - - (29) - -
Adjustment for FCS acquisition.......... - - - - - - - - 830
Balance of allowance for loan losses at
end of period........................ $ 1,468 $ 1,335 $ 1,275 $ 1,265 $ 1,377
====================================================
Allowance for loan losses to period end
1.09% 1.11% 1.18% 1.36% 1.63%
loans..............................
Net charge-offs to average loans........ 0.26% 0.12% 0.17% 0.09% 0.14%
</TABLE>
At December 31, 1996, the allowance for loan losses was 1.09% of
outstanding loans, a slight decline from the 1.11% level of December 31, 1995.
Management considers the decline in the allowance, measured as a percentage of
loans, to be acceptable based on its analysis of the potential risk in the
portfolio using the methods previously discussed. 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 correct. 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 allowance will not be required.
Non-Performing Assets. As a result of management's ongoing review of the
loan portfolio, loans are classified as non-accrual when it is not reasonable to
expect collection of interest and principal under the original terms, generally
when a loan becomes 90 days or more past due. These loans are classified as non-
accrual, even though the presence of collateral or the borrower's financial
strength may be sufficient to provide for ultimate repayment. There are a
number of adverse implications for the earnings of the Company when a loan is
placed on
-29-
<PAGE>
non-accrual. The interest which has been accrued but remains unpaid is reversed
and deducted from current period interest income. No additional interest is
accrued on the loan balance until the collection of both principal and interest
becomes reasonably certain. Also, there may be a write-down and, ultimately, the
total charge-off of the principal balance of the loan, which could necessitate
additional charges to earnings through the provision for loan losses. During
1996, 1995, and 1994, approximately $28,000, $58,000, and $37,000 respectively,
in additional interest income would have been recognized as earnings if the
Company's non-accrual loans had been current under their original terms. The
total amount of interest recognized as earnings on the non-accrual loans in 1996
was $106,188.
Non-performing loans are defined as non-accrual and renegotiated loans.
When real estate acquired by foreclosure and held for sale is included with non-
performing loans, the result comprises non-performing assets. The following
table, "Non-Performing Assets", presents information on these assets and loans
past due 90 days or more and still accruing interest as of December 31, for the
past five years. Non-performing assets were approximately $1.9 million at
December 31, 1996, or 1.4% of total loans and real estate acquired by
foreclosure, compared to $861,000 in non-performing assets at December 31, 1995
or 0.72% of total loans and real estate acquired by foreclosure and $1.2 million
at December 31, 1994, or 1.14% of total loans and real estate acquired by
foreclosure. One credit for $1.1 million accounts for a significant portion of
the total non-accrual loan balance at December 31, 1996. That loan is secured
by real estate collateral and other collateral as well as the personal guaranty
of the principal. Due to the superior lien position of the Bank, management
feels there is minimum risk of loss although there is no assurance of this
assessment until the normal repayment and collection process are completed.
The increase in non-performing loans during 1996 reflects primarily the
deterioration of a significant relationship. The reduction in the remaining
non-performing loans represents the resolution of several prior "problem loans"
and management's continued emphasis on asset quality. At December 31, 1996,
loans past due 90 days or more and still accruing interest totaled $131,000 a
decrease from $279,000 at the end of 1995 and equivalent to the $131,000 at the
end of 1994. Management currently believes the Company will receive full
payment of principal and interest on these loans despite their past due status
because of the Company's collateral position and other factors. This amount of
loans past due 90 days or more does not indicate a deterioration in loan quality
or portend a future increase in non-accruals.
NON-PERFORMING ASSETS
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1996 1995 1944 1993 1992
------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Non-accrual loans....................... $1,747 $ 786 $ 1,237 $ 726 $ 303
Restructured loans...................... 0 0 0 21 0
Other real estate owned................. 150 75 0 24 1,245
-----------------------------------------------
Total nonperforming assets......... $1,897 $ 861 $ 1,237 $ 771 $1,548
===============================================
Loans past due 90 days or more and still
accruing interest.................. $ 131 $ 279 $ 131 $ 260 $ 99
===============================================
Allowance for loan losses to period end
loans.............................. 1.09% 1.11% 1.18% 1.36% 1.63%
Allowance for loan losses to period end
nonperforming loans................ 84.03% 169.85% 103.07% 164.07% 88.95%
Net charge-offs to average loans........ 0.26% 0.12% 0.17% 0.09% 0.14%
Nonperforming assets to period end 1.40% 0.72% 1.14% 0.80% 1.70%
loans.
Nonperforming assets to period end loans
and foreclosed property............ 1.40% 0.72% 1.14% 0.80% 1.68%
</TABLE>
-30-
<PAGE>
Management is not aware of any other loans classified for regulatory
purposes as loss, doubtful or substandard that have not been disclosed which (i)
represents 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.
Asset/Liability Management, Interest Rate Sensitivity and Liquidity
- -------------------------------------------------------------------
General. It is the objective of the Company to manage assets and
liabilities to preserve the integrity and safety of the deposit and capital base
of the Company by protecting the Company from undue exposure to poor asset
quality and interest rate risk. Additionally, the Company pursues a consistent
level of earnings as further protection of the depositors and to assure an
appropriate return to stockholders on their investment.
These objectives are achieved through compliance with an established
framework of asset/liability, loan, investment and capital policies. Management
is responsible for monitoring policies and procedures that ensure proper
management of the components of the asset/liability function to achieve the
stated objectives. The Company's philosophy is to support quality asset growth
primarily through growth of core deposits, which include non-volatile deposits
of individuals, partnerships and corporations. Management seeks to invest the
largest portion of the Company's assets in those loans that meet the Company's
quality standards. Alternative investments are made in the investment
portfolio. The Company's asset/liability function and related components of
liquidity and interest rate risk are monitored on a continuous basis by
management. The Board of Directors reviews and monitors these functions on a
monthly basis.
Interest Sensitivity Analysis. The process of asset/liability management
involves monitoring the Company's balance sheet in order to determine the
potential impact that changes in the interest rate environment would have on net
interest income so that the appropriate strategies to minimize any negative
impact can be implemented. The primary objective of asset/liability management
is to ensure the steady growth of the net interest income, the Company's primary
earnings component.
In theory, interest rate risk can be minimized by maintaining a nominal
level of interest rate sensitivity. In practice, however, this is made
difficult because of uncontrollable influences on the Company's balance sheet,
including variations in both loan demand and the availability of funding
sources.
The measurement of the Company's interest rate sensitivity, or "gap", is
one of the principal techniques employed by the Company in asset/liability
management. Interest sensitive gap is the dollar difference between assets and
liabilities which are subject to interest-rate repricing within a given time
period, including both floating rate or adjustable rate instruments and
instruments which are approaching maturity.
The Company manages its sensitivity to interest rate movements by adjusting
the maturity of, and establishing rate prices on, the earning asset portfolio
and interest-bearing liabilities in line with management's expectations relative
to market interest rates. The Company would generally benefit from increasing
market interest rates when the balance sheet is asset sensitive and would
benefit from decreasing market rates when it is liability sensitive.
The following table, "Interest Sensitivity Analysis," shows the interest
rate sensitivity of the Company's balance sheet as of December 31, 1996. In
that table, the principal balances of the various interest-earning and interest-
bearing balance sheet instruments are shown in the time frame where they are
first subject to repricing, either as a result of floating or adjustable rate
contracts or a contractual maturity. In the three-month time frame, the Company
had a liability sensitive gap of $23.7 million or 12.22% of total earning
assets. In the one-year time frame, the pricing mismatch on a cumulative basis
was liability sensitive $34.4 million or 17.7% of total earning assets. In the
current interest rate environment, management considers this level of interest
rate risk to be acceptable although procedures are in place to carefully monitor
and reduce this one-year cumulative gap as the interest rate environment
changes. It should also be noted that all interest rates and yields do not
adjust at the same velocity. As an example, the majority of the savings
category listed below is priced on an adjustable basis that is sixty percent of
Prime Rate. Therefore, as Prime Rate adjusts 100 basis points, the rate on this
liability only
-31-
<PAGE>
adjusts 60 basis points. Hence, the gap is only a general indicator of interest
rate sensitivity and cannot be interpreted as an absolute measurement of the
Company's interest rate risk.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------------
AFTER THREE AFTER SIX ONE YEAR
WITHIN THREE THROUGH SIX THROUGH WITHIN ONE THROUGH FIVE OVER FIVE
MONTHS MONTHS TWELVE MONTHS YEAR YEARS YEARS TOTAL
---------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans...................... $ 83,430 $ 7,308 $ 12,950 $ 103,688 $30,234 $ 1,290 $135,212
Investment securities, 7,799 135 5,633 13,567 27,505 14,132 55,204
taxable...................
Investment securities, - - - - 225 225 970 912 2,107
tax-free..................
Interest-bearing deposits
with - - - - - - - - - - - - - -
banks.................
Federal Funds sold......... 1,520 - - - - 1,520 - - - - 1,520
---------------------------------------------------------------------------------------------------------
Total earning assets.. $ 92,749 $ 7,443 $ 18,808 $ 119,000 $58,709 $ 16,334 $194,043
=========================================================================================================
INTEREST BEARING
LIABILITIES:
Money market accounts...... $ 21,241 $ - - $ -- $ 21,241 $ - - $ - - $ 21,241
Savings deposits........... 43,558 - - - - 43,558 - - - - 43,558
NOW accounts............... 23,942 - - - - 23,942 - - - - 23,942
Time deposits.............. 25,304 18,332 18,692 62,328 11,292 - - 73,620
Federal Home Loan advances/
securities repurchased. 1,225 - - - - 1,225 - - - - 1,225
Notes and Bonds payable.... 1,187 - - - - 1,187 - - - - 1,187
---------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities.......... $ 116,457 $ 18,332 $ 18,692 $ 153,481 $11,292 $ - - $164,773
=========================================================================================================
Interest-free funds........ - - - - - 29,270 29,270
---------------------------------------------------------------------------------------------------------
Funds supporting earning
$ 116,457 $ 18,332 $ 18,692 $ 153,481 $11,292 $ 29,270 $194,043
assets................
=========================================================================================================
Period gap................. ($23,708) ($10,889) $ 116 ($34,481) $47,417 ($12,936) - -
Cumulative gap............. ($23,708) ($34,597) ($34,481) ($34,481) 12,936 - - - -
Ratio of cumulative gap to
total earning assets.. -12.22% -17.83% -17.77% -17.77% 6.67% - - - -
</TABLE>
Liquidity. Management of the Company's liquidity position is closely
related to the process of asset liability management. Liquidity represents the
ability to provide steady sources of funds for loan commitments and investment
activities, as well as to provide 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.
Average liquid assets (cash and amounts due from banks, federal funds sold,
investment securities and other short term investments) were maintained at 33.6%
of average deposits in 1996 compared to 30.5% in 1995 and 28.1 % in 1994.
-32-
<PAGE>
The structure of the loan portfolio with regards to repricing and the
resulting sensitivity to changes in interest rates are important in the overall
management of the Company's asset/liability position. The following table sets
forth the repricing maturity distribution, classified according to sensitivity
to changes in interest rates, for selected components of the loan portfolio at
December 31, 1996.
LOAN REPRICING SCHEDULE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
AFTER ONE THROUGH
ONE YEAR OR LESS FIVE YEARS AFTER FIVE YEARS TOTAL
-----------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.. $ 28,360 $ 3,746 $ 35 $ 32,141
Real estate-construction................ 10,829 - - - - 10,829
All other loans......................... 64,499 26,488 1,255 92,242
-----------------------------------------------------------------
Total loans........................ $103,688 $30,234 $1,290 $135,212
=========================================================================================================
Loans maturing after one year with:
Fixed interest rates................. $29,900 $1,290 $ 31,190
Floating interest rates.............. 334 - - 334
-----------------------------------------------
Total Loans........................ $30,234 $1,290 $ 31,524
</TABLE>
The investment securities portfolio is intended primarily to provide a
steady source of interest income, but also serves as a secondary source of
liquidity. Maturities of the portfolio are intentionally staggered to provide a
predictable source of liquidity for the Company. The following table sets forth
the scheduled maturities and average yields of securities held in the investment
portfolio at December 31, for the past three years.
-33-
<PAGE>
MATURITY DISTRIBUTION AND YIELDS OF
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------
-------------------------------------
1996 1995
------ ------
AMORTIZED COST YIELD AMORTIZED COST YIELD
----------------- ------ ----------------- ------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury
One year or less................... $ 499,318 7.51% $ 1,507,300 6.37%
Over one through five years........ 6,924,910 5.90% 985,216 7.00%
----------- ---- ----------- ----
Total U. S. Treasury............ $ 7,424,228 6.01% $ 2,492,516 6.62%
U.S. Government Agency
One year or less................... - - - - 477,533 7.41%
Over one through five years........ 21,357,845 6.35% 14,469,979 6.36%
Over five through ten years........ 7,168,442(1) 6.86% 5,514,602 6.64%
Over ten years..................... 16,365,026(2) 6.43% 9,975,665(3) 5.85%
----------- ---- ----------- ----
Total U. S. Government Agency.. $44,891,313 6.46% $30,437,779 6.26%
Other Equity Securities
One year or less................... 783,121 6.00% 726,021 6.00%
================ =================
Total Securities Available for Sale... $53,098,662 6.39% $33,656,316 6.28%
SECURITIES HELD TO MATURITY
U.S. Government Agency................
One year or less................... - - - - - - - -
Over one through five years........ - - - - - - - -
Over five through ten years........ 659,532 7.02% - - - -
Over ten years..................... 1,339,956 7.24% - - - -
----------- ---- ----------- ----
Total U.S. Government Agency.... $ 1,999,488 7.17% - - - -
Municipal Securities (4)
One year or less................... 359,980 5.82% 255,000 5.80%
Over one through five years........ 1,219,847 6.04% 1,579,654 5.61%
Over five through ten years........ 731,830 5.88% - - - -
Over ten years..................... 180,000 7.29% 180,000 7.29%
----------- ---- ----------- ----
Total Municipal Securities...... 2,491,657 6.05% $ 2,014,654 5.78%
================ =================
Total Securities Held to Maturity..... $ 4,491,143 6.54% $ 2,014,654 5.78%
Total Investment Securities........... $57,589,807 6.40% $35,670,970 6.25%
================ =================
- --------------------------
</TABLE>
(1) Includes $2,631,651 in adjustable-rate mortgage-backed securities
(2) Includes $5,170,925 in adjustable-rate mortgage-backed securities
(3) Includes $6,896,651 in adjustable, mortgage-backed securities
(4) Tax-equivalent yield
-34-
<PAGE>
The following table presents the amortized cost and fair value of
investment securities held by the Company at December 31, 1996, 1995 and 1994.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------- ---------------------------------------------
Estimated Estimated
Available-for-sale Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
($ in thousands) Cost Gains Losses Value Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries 7,424 32 (8) 7,448 2,492 39 - - 2,532
U.S. Government Agencies
24,245 75 (200) 24,120 16,037 56 - - 16,093
Mortgage-backed securities
10,588 39 (38) 10,590 3,294 23 (33) 3,284
REMICs 10,058 27 (206) 9,879 11,107 65 (372) 10,800
Equity securities 783 - - - - 783 726 - - - - 726
-----------------------------------------------------------------------------------------
53,098 173 (452) 52,820 33,656 183 (405) 33,435
<CAPTION>
1996 1995
----------------------------------------------- --------------------------------------------
Estimated Estimated
Held-to-maturity Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
($ in thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of states and
political subdivisions 2,492 30 (9) 2,512 2,015 25 (16) 2,024
U.S. Government Agencies
- - - - - - - - - - - - - - - -
REMICs 1,999 5 (3) 2,001 - - - - - - - -
--------------------------------------------------------------------------------------------
4,491 35 (12) 4,513 2,015 25 (16) 2,024
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------
Estimated
Available-for-sale Amortized Unrealized Unrealized Fair
($ in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasuries 2,466 - - (25) 2,441
U.S. Government Agencies
3,215 - - (38) 3,177
Mortgage-backed securities
3,955 - - (215) 3,740
REMICs 9,869 - - (363) 9,506
Equity securities 726 - - - - 726
----------------------------------------------
20,231 -- (641) 19,590
<CAPTION>
1994
-------------------------------------------------
Estimated
Held-to-maturity Amortized Unrealized Unrealized Fair
($ in thosuands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions 2,032 - - (86) 1,946
U.S. Government Agencies
3,897 - - - - 3,897
REMICs - - - - - - - -
----------------------------------------------
5,929 - - (86) 5,843
</TABLE>
On the liability side of the balance sheet, liquidity is enhanced through
the pricing of certificates of deposit at various maturities and by the
Company's excellent reputation in its market, which allows the Company to
maintain borrowing lines and a stable base of deposits. Historically, this has
allowed the Company to meet its liquidity needs successfully. Management
anticipates that deposits, particularly its base of core deposits, will continue
to grow and continue to be the Company's primary source of funding in the
future. Average loans were 69.4% of average deposits in 1996 compared to 72.5%
in 1995 and 73.9% in 1994.
The scheduled maturities of the Company's time deposits over $100,000 at
December 31, 1996, are shown in the table below.
MATURITY OF TIME DEPOSITS
AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
After Three Through Six After Six Through
Within Three Months Months Twelve Months After Twelve Months Total
---------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit
of $100,000 or more $14,160 $9,103 $7,204 $619 $31,122
</TABLE>
-35-
<PAGE>
Almost forty-six percent of those time deposits had scheduled maturities
within three months. This is typical of the Company's market where the majority
of certificate of deposits, regardless of size have had a maturity of six months
or less in recent interest environments. Large certificate of deposit customers
tend to be extremely rate sensitive, making these deposits less stable sources
of funding for liquidity planning purposes. However, dependent upon pricing,
these certificates are virtually always available in the Company's market. The
Company does not obtain large certificates of deposit from outside its local
market area.
Overnight and short-term borrowed funds can also be used as a source of
liquidity. However, the Company does not often utilize such funding. The
Company maintains overnight borrowing lines, but they are seldom used. The
Company does utilize from time to time borrowings from the Federal Home Loan
Bank. These borrowings often provide a lower cost source of funds. At December
31, 1996, the Company had no borrowings outstanding from the Federal Home Loan
Bank.
Capital
- -------
Total shareholders' equity was $16.3 million at December 31, 1996,
increasing $1.9 million from the previous year. While the increase in
shareholders' equity was comprised primarily of earnings of $1.9 million, it
does reflect an increase in the unrealized losses on investment securities of
$37,000 and the cash paid in lieu of fractional shares for the stock dividend of
$6,000.
The Company's average equity-to-assets ratio was 7.64% in 1996, compared to
8.00% in 1995 and 7.83% in 1994. Both the Company and the Bank exceeded their
respective regulatory capital requirements at December 31, 1996, as is reflected
in the following table:
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
Required Actual Excess
Amount % Amount % Amount %
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
GEORGIA BANK FINANCIAL CORPORATION
DECEMBER 31, 1996
Risk-based capital:
Tier 1 capital....... $ 5,850 4.00% $15,650 10.70% $ 9,800 6.70%
Total capital........ 11,700 8.00% 17,182 11.84% 5,575 3.84%
Tier 1 leverage ratio... 8,506 4.00% 15,650 7.36% 7,144 3.36%
DECEMBER 31, 1995
Risk-based capital:
Tier 1 capital....... 5,160 4.00% 13,101 10.15% 7,941 6.15%
Total capital........ 10,321 8.00% 14,439 11.19% 4,115 3.19%
Tier 1 leverage ratio... 7,179 4.00% 13,101 7.30% 5,922 3.30%
GEORGIA BANK & TRUST COMPANY
DECEMBER 31, 1996
Risk-based capital:
Tier 1 capital....... $ 5,741 4.00% $14,325 9.98% $ 8,584 5.98%
Total capital........ 11,483 8.00% 15,793 11.00% 4,310 3.00%
Tier 1 leverage ratio... 8,451 4.00% 14,325 6.78% 5,874 2.78%
DECEMBER 31, 1995
Risk-based capital:
Tier 1 capital....... 5,077 4.00% 12,466 9.82% 7,389 5.82%
Total capital........ 10,155 8.00% 13,801 10.87% 3,646 2.87%
Tier 1 leverage ratio... 7,134 4.00% 12,466 6.99% 5,332 2.99%
</TABLE>
-36-
<PAGE>
THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1997
Performance Overview -- Net Income
- ----------------------------------
The Company's net income for the second quarter of 1997 was $537,000, which
was an increase of $79,000 (17.2%) compared to net income of $458,000 for the
second quarter of 1996. Earnings per share for the quarter were $0.35 in 1997
compared to $0.30 in 1996. Net income for the first six months of 1997 was
$1,023,000, an increase of $211,000 (26.0%) above net income of $812,000 for the
first six months of 1996. Total assets decreased $1.7 million (0.7%) and
reflect an increase of $19 million (8.9%) from year end 1996 and $34 million
(16.9%) over the comparable period in 1996.
For the second quarter of 1997, as compared to the second quarter of 1996,
the increase in net income resulted from an increase in net interest income of
$308,000 and an increase in non-interest income of $89,000. The total of these
increases in income were reduced by an increase in non-interest expense of
$321,000 and an increase in the provision for loan losses of $215,000. The
increase in the provision for loan losses reflects the growth in the loan
portfolio and the maintenance of the allowance for loan losses at desired
levels. The net impact of these changes was a decrease in income before taxes
of $141,000; however, this change was offset by a decrease in the provision for
income taxes of $220,000 due to the determination by management that the
existing valuation allowance for deferred taxes was no longer necessary. This
determination was based on the nature of existing timing differences and levels
of historical income, such that management believes it is more likely than not
that the benefits of deductible differences will be realized.
The return on average assets for the Company was 0.89% for the six months
ended June 30, 1997, compared to 0.85% for the same period last year. The
return on average stockholders' equity increased to 12.22%, compared to 11.12%
for the comparable period in 1996.
Net Interest Income
- -------------------
Net interest income increased $118,000 (14.15%) over the first quarter of
1997 and $802,000 (19.8%) during the first six months over the comparable period
in 1996, primarily due to increases in earning asset balances. Interest earning
assets increased $2.9 million (1.4%) over the first quarter of 1997, $31.4
million (17.5%) over June 30, 1996 and $16.9 million (8.7%) over December 31,
1996. Loans, the highest yielding component of interest earning assets,
increased $12.3 million (8.6%) during the second quarter, $20.2 million (14.9%)
over year end and $26.6 million (20.6%) over the comparable period in 1996.
Investment securities decreased $8.8 million (13.9%) during the second quarter,
decreased $2.9 million (5.0%) from year end and increased $9.0 million (19.8%)
over the comparable period in 1996. Federal funds sold decreased $400,000 from
year end and $4.1 million from June 30, 1996.
Interest Income
- ---------------
Interest income increased $274,000 (6.3%) over the first quarter of 1997
and $625,000 (15.6%) over the comparable quarter in 1996. Interest income on
loans increased $313,000 (9.46%) over the first quarter of 1997 and $499,000
(15.9%) over the second quarter in 1996. These increases are primarily the
result of significantly higher volumes. Interest income earned on investment
securities decreased $36,000 (3.7%) over the first quarter of 1997 and increased
$169,000 (22.2%) over the comparable period in 1996. The volume of investment
securities was lower in the second quarter of 1997 as securities were sold to
fund loan growth However, the volume remains significantly higher than the
comparable period in 1996. Interest income from Federal funds sold decreased
from both comparable periods as excess funds were utilized to fund loan growth
and purchases of investment securities.
Non-interest Income
- -------------------
Non-interest income (excluding investment securities gains and losses) for
the second quarter was $589,000, an increase of $35,000 (6.3%) above the first
quarter and $98,000 (20.0%) above the second quarter of 1996. The increases for
both periods are the result of increases in volumes of demand deposit accounts.
Demand
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<PAGE>
deposits increased $1.1 million during the second quarter of 1997 and $3.4
million over the comparable period in 1996. Total deposits decreased $6.3
million (2.9%) during the second quarter of 1997 and increased $28.6 million
(15.9%) over June 30, 1996. During the second quarter of 1997, the Bank allowed
higher cost time deposits over $100,000 ($3.0 million) and other time deposits
($600,000) to mature and replaced them with lower cost Federal Home Loan Bank
borrowings.
Non-interest expense
- --------------------
Non-interest expense totaled $2.1 million for the second quarter, an
increase of $47,000 (2.3%) over the first quarter of 1997 and an increase of
$321,000 (18.0%) over the comparable period in 1996. Increases for the
respective periods are attributable to increases in salary and benefits expense
of $44,000 (4.2%) and $181,000 (19.9%) respectively, a decrease in occupancy
expense of $17,000 (4.2%) from the first quarter and an increase of $83,000
(27.1%) over the comparable quarter in 1996, and increases in other operating
expenses of $19,000 (3.1%) and $57,000 (10.1%), respectively.
The increases are the result of the continued expansion in the Company's
local market that is reflected in additions to staff and the higher occupancy
and operating expense associated with operating seven full service offices and
the resulting overall growth of the Company. The Company continues to add lines
of business that should increase profitability in the future as the Company
continues to grow. Management continues to focus on expense control and
improving operating efficiencies based upon the significant increases in the
volumes of loans and deposits.
Income Taxes
- ------------
Income taxes in the second quarter of 1997 totaled $55,000, a decrease of
$222,000 from the first quarter of 1997 and a decrease of $220,000 from the
comparable period in 1996. The decrease is primarily due to a tax benefit
recorded related to a decrease of $163,000 in the valuation allowance for
deferred taxes. Without the impact of this change, effective tax rates remained
comparable for the periods.
Asset Quality
- -------------
The following table shows the current and prior period amounts of non-
performing assets. Non-performing assets were $1.6 million at June 30, 1997,
compared to $1.9 million at December 31, 1996 and $1.8 million at June 30, 1996.
The ratio of non-performing loans to total loans and other real estate was 1.02%
at June 30, 1997, compared to 1.40% at December 31, 1996 and 1.41% at June 30,
1996. The control and monitoring of non-performing assets continues to be
management priority.
Loans past due 90 days or more and still accruing decreased to $50,000,
down from $131,000 at December 31, 1996 and $99,000 at June 30, 1996. Based
upon the information available to it, management continues to believe that the
value of the collateral securing each loan is sufficient to cover principal and
interest.
Additions to the allowance for loan losses are made periodically to
maintain the allowance at an appropriate level based upon management's analysis
of potential risk in the loan portfolio. The amount of the loan loss provision
is determined by an evaluation of the level of loans outstanding, the level of
non-performing loans, historical loan loss experience, delinquency trends, the
amount of actual losses charged to the allowance in a given period, and an
assessment of present and anticipated economic conditions. A provision for
losses in the amount of $370,000 was charged to expense for the quarter ended
June 30, 1997. This provision for losses far exceeded the net charge-offs for
the second quarter which totaled $109,000. At June 30, 1997, the ratio of
allowance for loan losses to total loans was 1.19%, increases from 1.09% at
December 31, 1996 and 1.12% at June 30, 1996. Management considers the current
allowance for loan losses appropriate based upon its analysis of the potential
risk in the portfolio, although there can be no assurance that the assumptions
underlying such analysis will continue to be correct.
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<PAGE>
Liquidity and Capital Resources
- -------------------------------
The liquidity of the Company is primarily dependent on the Bank. Because
the Company's principal operations are conducted through the Bank, the Company
generates cash to pay dividends on the Common Stock primarily through dividends
paid to it by the Bank. The Company is also dependent on dividends from the
Bank to service its long-term debt and to conduct other activities. The Bank's
ability to pay dividends to the Company is limited by certain legal and
regulatory restrictions. The Boards of Directors of the Company and the Bank
presently intend that earnings of the Bank will be retained by the Bank during
the foreseeable future for the purpose of enhancing the Bank's capital to
support future growth, except to the extent dividends must be paid to the
Company to service its debt and pay its operating expenses.
The Company's liquidity remains adequate to meet operating and loan funding
requirements. The loan to deposit ratio at June 30, 1997 was 74.4% compared to
69.1% at December 31, 1996 and 71.4% at June 30, 1996. This increase in the
loan to deposit ratio and resulting decrease in liquidity is due to the increase
in loans of $20.1 million during the first six months while deposits only
increased $13.3 million.
Shareholders' equity to total assets was 7.37% at June 30, 1997 compared to
7.57% at December 31, 1996. This decrease reflects the growth experienced
during the first six months of the year. The capital of the Company and the
Bank exceeded all required regulatory guidelines at June 30, 1997. The
Company's Tier 1 risk-based, total risk-based and the leverage capital ratios
were 9.85%, 10.93%, and 7.21%, respectively, at June 30, 1997. The following
schedule reflects the current regulatory capital levels in more detail,
including comparisons to the regulatory minimums.
-39-
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------
PROFITABILITY 1997 1996
- ------------- -------- --------
<S> <C> <C>
Return on average assets * 0.89% 0.85%
Return on average equity * 12.22% 11.12%
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Beginning balance, January 1 $1,468 $1,335
Loans charged off:
Commercial, financial and
agricultural 31 61
Real estate-construction - -
Real estate-mortgage - -
Consumer 104 59
Total charge-offs 135 120
---------- ----------
Recoveries:
Commercial, financial and
agricultural 15 5
Real estate-construction - -
Real estate-mortgage 9 -
Consumer 24 8
---------- ----------
Total recoveries 48 13
Net charge-offs 87 107
Provision charged to expense 464 220
Ending balance, June 30 $1,845 $1,448
========== ==========
NON-PERFORMING ASSETS June 30, 1997 December 31, 1996 June 30, 1996
- ---------------------------------- ------------- ----------------- -------------
Non-accrual loans $1,574 $1,739 $ 585
Other real estate owned 11 150 75
Restructured loans -- -- 1,156
-------- ----------- ----------------
Total non-performing assets $1,585 $1,889 $1,816
======== =========== ================
LOANS PAST DUE 90 DAYS OR
MORE AND STILL ACCRUING $ 50 $ 131 $ 99
======== =========== ================
Net charge-offs to average loans
outstanding for period 0.12% 0.26% 0.17%
</TABLE>
* Annualized
-40-
<PAGE>
ANALYSIS OF CAPITAL
JUNE 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Required Actual Excess
Amount Percent Amount Percent Amount Percent
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GEORGIA BANK FINANCIAL
CORPORATION
Risk-based capital:
Tier 1 capital $ 6,825 4.00% $ 16,812 9.85% $9,987 5.85%
Total capital 13,650 8.00% 18,657 10.93% 5,007 2.93%
Tier 1 leverage ratio 9,327 4.00% 16,8120 7.21% 7,485 3.21%
GEORGIA BANK & TRUST
COMPANY
Risk-based capital:
Tier 1 capital 6,765 4.00% 15,483 9.16% 8,718 5.16%
Total capital 13,530 8.00% 17,328 10.25% 3,798 2.25%
Tier 1 leverage ratio 9,271 4.00% 15,483 6.68% 6,212 2.68%
</TABLE>
-41-
<PAGE>
MANAGEMENT
The Bylaws of the Company provide that the Board of Directors shall consist
of not less than five nor more than twenty-five directors, with the exact number
to be determined by the Board of Directors, each having a term of office of one
year and continuing thereafter until his or her successor has been elected and
has qualified. At the 1997 Annual Meeting of Shareholders twelve directors were
elected by the Company's Shareholders. Subsequent to being reelected to the
Company's Board of Directors at the 1997 Annual Meeting of Shareholders, Mr. C.
Linton DeVaughn III passed away, and Mr. Warren A. Daniel no longer serves on
the Company's Board of Directors, but maintains his position on the Board of
Directors of the Bank. As a result, the Board has reduced from 12 to 10 the
number of persons to constitute the Board of Directors.
<TABLE>
<CAPTION>
Position with
Name Age the Company
- ---- --- -------------
<S> <C> <C>
William J. Badger 47 Director
Patrick G. Blanchard 54 President
and Director
R. Daniel Blanton 47 Executive Vice
President, Chief
Operating Officer and
Director
William P. Copenhaver 72 Director
Patricia E. Leopard 48 Senior Vice President,
Chief Operations
Officer
Edward G. Meybohm 54 Vice Chairman and
Director
Travers W. Paine III 49 Corporate Secretary
and Director
Robert W. Pollard, Jr. 47 Chairman of the Board,
Chief Executive Officer
and Director
Randolph R. Smith, M.D. 53 Director
Ronald L. Thigpen 45 Senior Vice President,
Chief Financial Officer
and Director
John W. Trulock, Jr. 51 Director
</TABLE>
-42-
<PAGE>
ADDITIONAL INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY AND THE BANK
No director or executive officer of the Bank or Company is related to any
other director or executive officer, except that Robert W. Pollard, Jr. is the
brother-in-law of R. Daniel Blanton, and Patrick G. Blanchard is the brother of
J. Pierce Blanchard, Jr. No director or executive officer currently serves as
an officer or director of any other financial institution.
All directors of the Company and the Bank will serve until the next annual
meeting of the shareholders of the Company and the Bank, respectively, or until
their successors are elected and have qualified. Officers of the Company and
the Bank serve at the pleasure of their respective Board of Directors.
The following additional information has been supplied by the directors and
officers of the Company and Bank.
Earl W. Allen, Sr., a Director of the Bank since January 1993, served as an
organizer, member of the Board of Directors and later Chairman of the Board of
FCS Financial Corporation and First Columbia Bank from 1984 until their
acquisition by the Company in 1992. From 1968 to 1992, Mr. Allen also served as
President of CSRA Camperland, Inc. in Martinez, Georgia. He is a past President
of the Columbia County Chamber of Commerce and has served for more than two
decades as a member of the Columbia County Planning and Zoning Commission.
William J. Badger, a Director of the Company and Bank since the
organization of each (November 1988 and February 1992, respectively), has been
the President of Howard Lumber Company, a dealer in building materials and
supplies, since 1978. Prior to that time, he served as treasurer and worked in
sales for the company. Mr. Badger graduated from Richmond Academy in Augusta,
Georgia, and received his B.A. degree from the University of Georgia in 1972.
He is active in the Kiwanis Club, the Construction Suppliers Association of
Georgia, and the Augusta Builders Exchange. Mr. Badger serves on the Vestry of
St. Paul's Episcopal Church, Augusta.
James G. Blanchard, Jr., was elected a Director of the Bank in 1996. Mr.
Blanchard is a senior partner in the law firm of Fleming, Blanchard, Jackson &
Durham, P.C. He has actively practiced law since 1968. Mr. Blanchard is a
native of Evans, Georgia, and graduated from Georgia Southern University. He
received his law degree from the Cumberland School of Law at Stamford University
in Birmingham, Alabama. Mr. Blanchard was an organizing director of Georgia
State Bank in 1970 and continued his service through the acquisition by Georgia
Railroad Bank & Trust Company in 1986. He later served on the Board of
Directors of Citizens Bank & Trust Company of Evans, Georgia. Mr. Blanchard
serves as the attorney for the Columbia County Board of Education, Associate
Judge of the Columbia County Juvenile Court and is City Attorney for the City of
Grovetown, Georgia.
J. Pierce Blanchard, Jr., has served as Group Vice President and Columbia
County Executive of the Bank since March 1994. In November of 1995, he was
designated as Marketing Officer responsible for business development activities,
branch administration, and the overall marketing plan for the Bank. He was
formerly employed as the President and Chief Executive Officer of Citizens Bank
& Trust Company in Evans, Georgia, from 1989 until March 1994. He also served
with First Union National Bank and its predecessor, Georgia Railroad Bank &
Trust Company from 1979 until 1989. Mr. Blanchard received his B.B.A. degree
from Georgia Southern University and is a graduate of the Georgia Banking School
and the School of Banking of the South at Louisiana State University. He
currently serves as a member of the Board of Directors of Augusta Technical
Institute, the Columbia County Chamber of Commerce, the United Way of the CSRA,
the Private Industry Council, and is a member of the Board and Vice Chairman of
the Residential Care Facilities for the Elderly Authority.
Patrick G. Blanchard, has been the President and a Director of the Company
since its formation. He has been the President of the Bank since it was
organized and a Director since June 1990. Before joining the Bank, he was
Senior Vice President of First Union National Bank of Georgia ("First Union")
from February 1987 through May 1989. Prior to its acquisition by First Union,
Mr. Blanchard was President of the Columbia County Division of the Georgia
Railroad Bank from January 1986 to February 1987. He was President and Chief
Executive Officer of Georgia State Bank in Martinez, Georgia, from 1974 to 1985.
From 1971 to 1974, Mr. Blanchard served as the
-43-
<PAGE>
Assistant State Treasurer of Georgia, at the State Capitol in Atlanta. Mr.
Blanchard received his B.B.A. degree from Georgia Southern University. He has
served as a member of the Board of Directors of the Community Bankers
Association of Georgia and the Georgia Bankers Association. He currently serves
as Chairman of the Metro Augusta Chamber of Commerce and is Past President of
the Columbia County Chamber of Commerce. He also serves on the Board of
Directors of St. Joseph Hospital, Inc., Historic Augusta, Inc., and the Advisory
Board of the Gertrude Herbert Institute of Art. Blanchard is an active member of
the Augusta Rotary Club and was named "1994 CEO of the Year" by The Business
Journal. Mr. Blanchard was the 1995 recipient of the "Sponsor of the Year" Award
from Credit Professionals International of Georgia. Mr. Blanchard is an honorary
member of the United States Signal Corps Regiment and holds the rank of Brevet
Colonel in the United States Signal Corps. He is a member of First Baptist
Church of Augusta.
R. Daniel Blanton, has been a Director and Executive Vice President of the
Company since it was formed. He has been a Director of the Bank since June 1990
and Executive Vice President and Senior Lending Officer of the Bank since it was
organized. He was named Chief Operating Officer of the Company and the Bank in
November 1995. Mr. Blanton was Vice President of The Bank of Columbia County
in Martinez, Georgia, from 1987 to 1988. From 1986 to 1987, he was self
employed as a real estate developer, and is the President and Owner of
Summerville Land Co., Inc., a real estate development company. From 1976 to
1986, Mr. Blanton served as the Senior Vice President and Senior Lending Officer
of Georgia State Bank in Martinez, Georgia. A graduate of Georgia Military
College, Mr. Blanton received his B.S. Degree from Clemson University in 1973
and received further training at the Georgia Banking School in 1984. He
graduated from the School of Banking of the South at Louisiana State University
in 1986.
William P. Copenhaver, a Director of the Company since its formation and a
Director of the Bank since September 1991, is a private investor and the retired
Chairman of the Board and President of Columbia Nitrogen Corporation and Nipro,
Inc., positions he held until 1991. Mr. Copenhaver is a graduate of Virginia
Polytechnic Institute and State University and the Harvard University Business
School. He currently serves on the Board of Directors of Thermal Ceramics, the
Creel Foundation, Inc. the Greater Augusta Community Foundation, Inc. and the
Pinnacle Club, Inc. A resident of Augusta since 1971, Mr. Copenhaver is a
member of the Augusta National Golf Club, the West Lake and Augusta Country
Clubs, and the Augusta Rotary Club. Mr. Copenhaver previously served on the
Board of Directors of Arcadian Corporation, Millhaven Corporation and the
Southern Company.
Warren A. Daniel, a director of the Company since its formation and a
director of the Bank since July, 1990, has been an agent for Northwestern Mutual
Life Insurance Company since 1978, and is a director of Howard Lumber Company.
Prior to 1978, Mr. Daniel was a Loan Officer with Trust Company Bank of Augusta.
He is a graduate of Richmond Academy in Augusta and received his B.B.A. degree
from the University of Georgia in 1970. Mr. Daniel's professional designations
include Chartered Life Underwriter and Chartered Financial Consultant. He is
the past Chairman of the Metro Augusta Chamber of Commerce and is active in
other civic and business organizations.
Patricia E. Leopard, has served as Senior Vice President and Chief
Operations Officer of the Company since April, 1993 and Group Vice President and
Chief Operations Officer of the Bank since December 1988. Mrs. Leopard
previously served as Vice President of First Union National Bank and its
predecessor Georgia Railroad Bank, and was Senior Vice President of Georgia
State Bank prior to its acquisition by Georgia Railroad Bank. A native of
Augusta, she is a graduate of Aquinas High School and attended Augusta State
University. Mrs. Leopard formerly served as State President of Financial Women
International, President of the Augusta Chapter of the American Institute of
Banking, Vice President and Board Member of Safe Homes of Augusta, Inc., Ticket
Chairman of the Augusta Invitational Rowing Regatta and Treasurer of the Augusta
Junior Rowing Association. She currently serves as Chair-Elect of the American
Institute of Banking, Georgia Chapter; and serves on the Human Resources
Committee of the Georgia Bankers Association. She is an honor graduate of the
GBA Operations School. Mrs. Leopard also serves on the Board of Directors of
the March of Dimes and the Board of Directors and Executive Committee of the
CSRA Partnership for Community Health, Inc.
Dr. Shirley A. R. Lewis, a Director of the Bank since August 1994, is the
President of Paine College in Augusta, Georgia. She earned a Ph.D. in Education
from Stanford University and the M.S.W. and B.A. degrees from the University of
California, Berkeley. She also holds a Certificate in African Studies from the
Joint program
-44-
<PAGE>
of the University of London and University of Ghana. From 1986 to 1994, Dr.
Lewis served as Assistant General Secretary of the Black College Fund of the
General Board of Higher Education and Ministry of the United Methodist Church in
Nashville, Tennessee. She is a past member of the College of Education Planning
Committee for the Africa University in Mutare, Zimbabwe. She is the author of
numerous articles and research memoranda on higher education, language arts,
historically black colleges and universities, and teacher training. Dr. Lewis
participates in a variety of civic, educational and service activities including
the Metro Augusta Chamber of Commerce, the United Negro College Fund, and the
National Association of Independent Colleges and Universities. She is a member
of the Board of Directors of the Morris Museum, the Medical College of Georgia
Research Institute, and she is a member of Augusta Rotary Club.
Edward G. Meybohm, has served as Vice Chairman of the Company's Board of
Directors since its formation and is the current Chairman of the Bank's Board of
Directors and the Bank's Asset/Liability and Investment Committee. He has been
the President of Meybohm Realty, Inc., a real estate brokerage firm, since 1977.
Prior to that time, Mr. Meybohm worked at Southern Finance Corporation, where he
was employed as a Sales Manager from 1972 to 1977. Mr. Meybohm, a native of
Harlem, Georgia, received his B.S. degree in Education from Georgia Southern
University in 1964. He served as a member of the Board of Directors of Georgia
State Bank, Martinez, Georgia, from November 1983 through December 1985, when
Georgia State Bank merged with Georgia Railroad Bank. Thereafter, Mr. Meybohm
continued to serve on the Columbia County Advisory Board of Georgia Railroad
Bank and its successor, First Union National Bank of Georgia, until his
resignation in June 1988. Mr. Meybohm is past president of the Georgia
Association of Realtors, a past Chairman of the Metro Augusta Chamber of
Commerce and is active in other civic and business organizations. He is
currently a member of the Board of Governors of Augusta Country Club, Inc.,
President of the Augusta Golf Association, and was recently appointed to the
State Board of Education.
Travers W. Paine, III, a Director and Corporate Secretary of the Company
since its formation and a director and Corporate Secretary of the Bank since it
was organized, is a partner in the law firm of Paine Little LLP, of Augusta.
After graduating from Richmond Academy in Augusta, Mr. Paine received his
Bachelor of Business Administration and Juris Doctor degrees from the University
of Georgia in 1970 and 1973, respectively. He is a member of the Board of
Directors of numerous closely held companies, including Southmed Management,
Inc., a medical consulting company, and R. W. Allen & Associates, Inc., a
construction company. Active in civic, business and professional
organizations, he is a member of the Forum Committee on Health Law of the
American Bar Association and the National Health Lawyers Association, and a
former member of the City Council of Augusta. Mr. Paine also serves on the
Board of Governors of the State Bar of Georgia and is a member of the National
Association of Bond Lawyers.
Robert W. Pollard, Jr., has been a Director of the Company and the Bank
since August 1994. In April of 1995, he was elected Chairman of the Board of
the Company and Vice Chairman of Georgia Bank & Trust Company. He also serves
as Chief Executive Officer and Chairman of the Company's Executive Committee.
He is President of Pollard Lumber Company, Inc., a lumber manufacturer located
in Appling, Georgia. He is a native of Georgia, and attended Harlem High
School. He also attended the University of Georgia and received his B.S. degree
in Forest Resources. Mr. Pollard has served on the Board of Directors of the
Southeastern Lumber Manufacturers Association, the Georgia Forestry Association,
and on the Steering Committee of the Southern Timber Purchasers Council. He
currently serves on the Board of Trustees of Westminster Schools and is a member
and Deacon of Kiokee Baptist Church in Appling.
Larry S. Prather, a Director of the Bank since January 1, 1993, was
previously an organizer and member of the Board of Directors of FCS Financial
Corporation and First Columbia Bank. He has been self-employed as the President
and owner of Prather Construction Company, Inc., a utility and grading
contractor, for the past twenty-six years. A native of Columbia County, Mr.
Prather has served as a member of the Columbia County Board of Education and as
Chairman of the Columbia County Board of Commissioners. He is also a past
Chairman of Columbia County Development Authority and continues to serves as a
member of the Authority. Mr. Prather is a graduate of Harlem High School and
the University of Georgia where he received a B.S. degree in Business
Administration.
-45-
<PAGE>
Larry E. Sconyers, a Director of the Bank since August 1994, is a native of
Richmond County. He is a graduate of the public school system of Richmond
County and the Augusta Technical Institute. In 1993, he was elected as a member
of the Richmond County Commission and served as its Chairman through 1995. In
January 1996, Mr. Sconyers assumed his role as Mayor/Chairman of the newly
consolidated Augusta-Richmond County Government, a position he was elected to in
November 1995. He is a past member of the Board of Directors of University
Health Care Foundation, Inc. He is President of Sconyers Bar-B-Que, Inc. which
has been named one of the top ten barbecue restaurants in America by People
Magazine.
Randolph R. Smith, M.D., has been a Director of the Company and Bank since
each was formed, and is currently the Chairman of the Company's Audit Committee.
He is a medical doctor specializing in plastic and reconstructive surgery and a
member of the medical staff of University Hospital in Augusta where he has
served as Chief of Staff. He has practiced his specialty in the Augusta area
since 1978. Prior to that time, Dr. Smith served his residency at the Medical
College of Georgia in Augusta and Duke University. He graduated from Richmond
Academy in Augusta, received his B.S. Degree from Clemson University in 1966 and
received his M.D. degree from the Medical College of Georgia in 1970. Dr. Smith
is active in civic and professional associations and is a native of Augusta.
Ronald L. Thigpen, has been Senior Vice President and Chief Financial
Officer of the Company and Group Vice President and Chief Financial Officer of
the Bank since April of 1993. He was elected to the Board of Directors of both
the Company and the Bank in April of 1995. He was previously employed as the
President and Chief Executive Officer of FCS Financial Corporation and First
Columbia Bank from January 1991 to December 1992. From January 1989 until
January 1991, Mr. Thigpen was Vice President and Regional Commercial Banking
Manager for First Union National Bank of Georgia. From 1971 to 1989, Mr.
Thigpen served First Union National Bank, and its predecessors Georgia Railroad
Bank and Central Bank of Georgia, in a variety of positions including Macon City
Executive Officer from November 1986 until January 1989. He received his B.B.A.
degree from Augusta College in 1973 and is a graduate of the Graduate School of
Retail Bank Management at the University of Virginia and the School of Banking
of the South at Louisiana State University. He has served as a member of the
Board of Directors of the Georgia Bankers Association and is presently a member
of the Risk Management Committee. Mr. Thigpen is Secretary of the Rotary Club
of Columbia County. He is a member of the Board of Directors of University
Health Care Foundation; the Development Authority of Columbia County, CSRA
Unified Development Authority, and the Golden Harvest Food Bank.
Mr. John W. Trulock, Jr., a Director of the Company and the Bank since
April 1995, is a native Augustan. He attended Augusta State University and is a
graduate of the University of Georgia, Athens, Georgia. Since 1981, Mr. Trulock
has served as an agent for Massachusetts Mutual Life Insurance Company in
Augusta. Mr. Trulock is a past President of the Exchange Club of Augusta, the
Augusta College Alumni Association, Garden City Lions Club, and Boys Club of
Augusta as well as past Chairman of the Augusta College Foundation. He is a
member of Covenant Presbyterian Church and has served as Deacon, Elder, and
Trustee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 1997,
with respect to the directors, executive officers and certain other members of
the Company's and Bank's management and any shareholder of the Company known to
the Company to own 5% or more of the Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) WITH THE NUMBER OF SHARES PERCENTAGE OF
COMPANY AND THE BANK (1) BENEFICIALLY OWNED (2) OWMERSHIP (3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earl A. Allen, Sr. Director of 3,218 (4) 0.21%
3842 Washington Road the Bank
Martinez, Georgia 30907
William J. Badger Director 33,770 (5) 2.19%
P. O. Box 1039
Evans, Georgia 30809
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH THE NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS COMPANY AND THE BANK (1) BENEFICIALLY OWNED (2) OWNERSHIP (3)
- --------------------------- ------------------------------------------------------------------
<S> <C> <C> <C>
J. Pierce Blanchard, Jr. Group Vice President 285(6) 0.02%
4109 Columbia Road and Marketing Officer
Martinez, Georgia 30907
James G. Blanchard Director of the Bank 27,133(7) 1.76%
610 High Hampton Drive
Martinez, Georgia 30907
Patrick G. Blanchard Director and President 1,570(8) 0.10%
3530 Wheeler Road
Augusta, Georgia 30909
R. Daniel Blanton Director, Executive 118,858(9) 7.71%
3530 Wheeler Road Vice President and
Augusta, Georgia 30909 Chief Operating
Officer
William P. Copenhaver Director 16,649(10) 1.08%
3531 Interlachen Road
Martinez, Georgia 30907
Warren A. Daniel Director of the Bank 5,648(11) 0.37%
P.O. Box 14445
Augusta, Georgia 30919
Patricia E. Leopard Senior Vice President 7,182(12) 0.47%
3530 Wheeler Road and Chief Operations
Augusta, Georgia 30909 Officer of the
Company, and Group
Vice President and
Chief Operations
Officer of the Bank
Dr. Shirley A. R. Lewis Director of the Bank -- --
1238 Beman Street
Augusta, Georgia 30909
Edward G. Meybohm Vice Chairman of the 77,650(13) 5.03%
3523 Walton Way Board of the Company,
Augusta, Georgia 30909 and Chairman of the
Board of the Bank
Travers W. Paine, III Corporate Secretary 23,559(14) 1.53%
301 Wheeler Executive of the Bank and
Center Director
Augusta, Georgia 30909
Robert W. Pollard, Jr. Chairman of the Board 129,611(15) 8.40%
6313 Keg Creek Road and Chief Executive
Appling, Georgia 30802 Officer of the
Company, and Vice
Chairman of the Board
of the Bank
Larry S. Prather Director of the Bank 3,233 0.21%
302 Louisville Street
Harlem, Georgia 30907
Larry E. Sconyers Director of the Bank -- --
3052 Richmond Hill Road
Augusta, Georgia 30906
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS THE COMPANY AND BENEFICIALLY OWNED (2) OWNERSHIP (3)
THE BANK (1)
- --------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Randolph R. Smith, MD Director 80,018(16) 5.19%
820 St. Sebastian Way
Augusta, Georgia 30901
Ronald L. Thigpen Director, Senior Vice President and 2,159 .14%
3530 Wheeler Road Chief Financial Officer of the
Augusta, Georgia 30909 Company and Director, Group Vice
President and Chief Financial
Officer of the Bank
John W. Trulock, Jr. Director 106 .01%
211 Pleasant Home Road
Bldg. E
Augusta, GA 30907
All executive officers and directors 491,132 31.84%
of the Company as a group
(11 persons)
All executive officers and directors 530,649 34.40%
of the Company and the Bank as a group
(18 persons)
SHAREHOLDERS OWNING GREATER THAN 5% OF THE COMMON STOCK OF THE COMPANY
WHO ARE NOT DIRECTORS OR EXECUTIVE OFFICERS OF THE COMPANY
Estate of Robert W. Pollard, Sr. 270,477(17) 17.53%
5975 Washington Road
Appling, Georgia 30802
Levi A. Pollard 104,021(18) 6.74%
3310 Scotts Ferry Road
Appling, Georgia 30802
- --------------------
</TABLE>
1. Each person holds the offices listed with both the Company and the Bank
unless otherwise noted.
2. Information relating to beneficial ownership of Common Stock by officers,
directors and shareholders is based upon information furnished by each person
using "beneficial ownership" concepts set forth in rules of the SEC under the
Exchange 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. The person is also deemed to be a beneficial
owner of any security of which that person has a right to acquire beneficial
ownership within 60 days. Under such 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 or she may
disclaim any beneficial ownership. Accordingly, certain persons are named as
beneficial owners of shares as to which they may disclaim any beneficial
interest. Except as indicated in other notes to this table describing
special relationships with other persons and specifying shared voting or
investment power, the above named persons possess sole voting and investment
power with respect to all shares of Common Stock set forth opposite their
names.
-48-
<PAGE>
3. Based on 1,542,368 shares issued and outstanding. There are no options to
purchase the Common Stock held by any listed person.
4. Includes 380 shares held by Mr. Allen's grandchildren as to which Mr. Allen
disclaims beneficial ownership.
5. Includes 731 by Mr. Badger's wife in an IRA, 2,566 by Mr. Badger's IRA and
575 held with J. C. Bradford.
6. Includes 152 in an IRA and joint ownership with wife of 133.
7. Includes 22,270 in Profit Sharing Plan of which Mr. Blanchard is beneficiary,
1,915 in wife's IRA, 957 with wife as custodian, 460 joint with wife and
1,531 in his IRA.
8.. Includes 570 shares held by Mr. Blanchard's wife and children
9. Includes 60,596 shares held by Mr. Blanton's wife and 18,838 shares held in
trust by Mr. Blanton's wife for their minor children.
10. Includes 1,317 shares held by Mr. Copenhaver's wife.
11. Includes 476 shares held by Mr. Daniel's minor children and 1,072 held in an
IRA.
12. Includes 5,985 shares held by Mrs. Leopard's husband, mother and children.
13. Includes 19,965 shares owned by a pension and profit sharing plan of which
Mr. Meybohm is a beneficiary.
14. Includes 765 shares held by Mr. Paine's wife, 765 shares held by his minor
children and 6,809 shares held by Mr. Paine in an IRA.
15. Includes 1,225 shares held by Mr. Pollard's wife and 26,498 held in trust
for their minor children.
16. Includes 24,830 shares held in a pension and profit sharing plan of which
Dr. Smith is a beneficiary
17. Includes 1,043 shares held by Mr. Pollard's widow but excludes shares owned
by Mr. Pollard's adult children or held in trust by such persons for their
own minor children and shares held by his son-in-law, Mr. Blanton, as to all
of which the estate of Mr. Pollard disclaims beneficial ownership.
18. Includes 9,812 shares held in trust for Mr. Pollard's children.
-49-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Bank have had, and expect to have in the future,
banking and other business transactions in the ordinary course of business with
directors and officers of the Company and Bank and their related interests,
including corporations, partnerships or other organizations in which such
officers or directors have a controlling interest. All of such transactions, in
the opinion of management, were on substantially the same terms (including
price, or interest rates and collateral) as those prevailing at the time for
comparable transactions with unrelated parties, and have not involved more than
the normal risk of collectibility nor present other unfavorable features to the
Bank. Loans outstanding to officers, directors and affiliates of the Company
and the Bank totaled $5,816,381 and aggregated 33.5% of the Company's
shareholder equity at June 30, 1997.
The law firm of Paine Little LLP, in which Mr. Paine is a partner, serves
as legal counsel to the Company and Bank in connection with a variety of
matters. Such services have been, and will continue to be, provided at a rate
less than or equal to the prevailing rates in the Augusta area for comparable
services from unrelated parties. The representation has been approved by the
directors, with Mr. Paine abstaining. For the two years ended December 31,
1996, the Company and the Bank paid Paine Little LLP and its predecessors an
aggregate of $47,269 for legal services.
DIRECTOR COMPENSATION
The Company's Board of Directors receives a fee for their service on the
Board at the rate of $100 for each Board meeting attended. No additional fees
are paid for committee participation.
COMPENSATION OF EXECUTIVE OFFICERS
Under rules established by the SEC, the Company is required to provide
certain data and information regarding the compensation and benefits provided to
its chief executive officer and other executive officers, including the four
other most highly compensated executive officers who receive more than $100,000
in compensation. Collectively, for purposes hereof, only two executive officers
are compensated at this level. The disclosure requirements for these officers
include the use of tables and a report explaining the rationale and
considerations that led to executive compensation decisions affecting these
individuals.
The Compensation Committee either approves or recommends to the Board of
Directors payment amounts and bonus award levels for executive officers of the
Company and the Bank. The report reflects the compensation philosophy of the
Company and the Bank as endorsed by the Company's Board of Directors and the
Compensation Committee and resulting actions taken by the Company for the
reporting periods shown in the compensation table.
COMPENSATION COMMITTEE REPORT
Overview
The Compensation Committee is composed entirely of individuals who are
outside directors. The Compensation Committee fully supports the Company's
philosophy that the relationship between pay and individual performance is
fundamental to a salary administration program. Pay for performance relating to
executive officer compensation comprises base salary and annual incentives. The
administration of executive officer compensation in these areas is based not
only on individual performance and contributions but also total Company
performance relative to profitability and shareholder interests. The
Compensation Committee makes recommendations to the Board to assure that
competitive and fair compensation is provided the officers and employees in
order to recruit and retain quality personnel. The committee periodically
reviews and revises salary ranges and total compensation programs for officers
and employees using an outside consultant to recommend salary ranges based upon
current surveys of peer group market salaries for specific jobs.
Base Salary and Increases
-50-
<PAGE>
In establishing executive officer salaries and increases, the Compensation
Committee considers individual annual performance and the relationship of total
compensation to the existing salary market. The decision to increase base pay
is recommended by the chief operating officer and approved by the Compensation
Committee. Information regarding salaries paid by other financial institutions
is obtained through formal salary surveys and other means and is used in the
decision process to ensure competitiveness with the Company's peers and
competitors.
The Company's general philosophy is to provide base pay competitive with
other banks and bank holding companies of similar size in the Southeast. The
Company is beginning to reward individual performance with annual cash
incentives.
Executive Officer Pay
The Compensation Committee formally reviews the compensation paid to
executive officers in January of each year. Changes in base salary and the
awarding of cash incentives are based on overall financial performance and
profitability related to the Company's financial performance objectives and the
initiatives taken to direct the Company.
Annual Cash Incentives
The Company has begun to utilize cash incentives to better align pay with
individual and Company performance. Funding for the cash incentives will be
dependent on the Company attaining performance thresholds for return on equity
and earnings per share. The performance objectives promote a group effort by
all key managers. Once these thresholds are attained, the Compensation
Committee, based in part upon recommendations of the chief operating officer,
may approve awards to those officers who have made superior contributions to
Company profitability as measured and reported against the performance goals
established at the beginning of the year. This philosophy, when fully
implemented, will better control overall expenses associated with salary
increases by reducing the need for significant annual base salary increases as a
reward for past performance, and places more emphasis on annual profitability
and the potential rewards associated with future performance. Market
information regarding salaries will be used to establish competitive rewards
that are adequate to motivate strong individual performance during the year.
Long-Term Incentives
The Company has established a Long-Term Incentive Plan designed to motivate
sustained high levels of individual performance and align the interests of key
officers with those of the Company's shareholders by rewarding capital
appreciation and earnings growth. Upon recommendation by the chief operating
officer, and subject to approval by the Compensation Committee, stock
appreciation rights may be awarded annually to those key officers whose
performance during the year has made a significant contribution to the Company's
long-term growth. The initial incentives under the plan could be awarded based
upon the financial performance of the Company beginning in 1997.
Employment and Severance Contracts
The Company presently has no employment or severance contracts with any
officer or employee of the Company or the Bank.
-51-
<PAGE>
Summary
In summary, the Compensation Committee believes that the compensation
program of the Company is reasonable and competitive with compensation paid by
other financial institutions of similar size. The program is designed to reward
managers for superior personal, Company and share value performance. The
compensation program incorporates a shareholder point of view in several
different ways. The Compensation Committee monitors the various guidelines that
make up the program and may adjust them as it deems appropriate to continue to
meet Company and shareholder objectives.
Robert W. Pollard, Jr. Chairman, William P. Copenhaver E. G. Meybohm
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Name and Deferred Other
Principal Position Year Salary Bonus Compensation Compensation
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert W. Pollard, Jr. 1996 -0- -0- -0- (1)
Chairman & CEO 1995 -0- -0- -0- (1)
Patrick G. Blanchard 1996 $95,000 $10,000 $3,800 $11,157(2)
President 1995 95,000 -0- 3,800 10,225(3)
1994 92,000 -0- 3,680 9,097(4)
R. Daniel Blanton 1996 94,500 $15,000 3,780 $ 6,578(5)
Executive Vice President 1995 90,000 -0- 3,600 6,292(6)
& Chief Operating Officer 1994 78,000 -0- 3,120 7,223(7)
</TABLE>
___________________
(1) Mr. Pollard receives compensation only as a director, which totaled $1,300
in 1996 and $1,300 in 1995.
(2) Included club dues of $3,120 health insurance of $6,040 and life insurance
of $1,997.
(3) Includes club dues of $3,120, health insurance of $5,035 and life insurance
of $2,070.
(4) Includes club dues of $3,120, health insurance of $3,399 and life insurance
of $2,578.
(5) Includes club dues of $480, health insurance of $5,409 and life insurance
of $689.
(6) Includes club dues of $480, health insurance of $5,160 and life insurance
of $652.
(7) Included club dues of $480, health insurance of $6,172 and life insurance
of $571.
BENEFIT PLANS
The Bank has an employee savings plan that qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan,
participating employees may defer a portion of their pre-tax earnings, up to the
Internal Revenue Service annual contribution limit. The Bank has the option to
make an annual discretionary contribution to the Plan. For the year ended
December 31, 1996, the Bank contributed $73,018 to the Plan, which is 3% of the
annual salary of all eligible employees.
During 1994, the Bank adopted a non-qualified deferred bonus plan for
officers of the Bank. Under the plan, the Bank has the option to make an annual
discretionary contribution to the plan. For the year-ended December 31, 1996,
the Bank contributed $32,733 to the plan.
There were no stock options issued to or exercised or held by any officer
of the Company during 1996.
-52-
<PAGE>
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on, and provide
for general regulatory oversight with respect to, virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not stockholders. To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable laws or regulations may have a material effect on the business and
prospects of the Company. Beginning with the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and
following with the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which was enacted in 1991, numerous additional regulatory
requirements have been placed on the banking industry and additional changes
have been proposed. The operations of the Company and the Bank may be affected
by legislative changes and the policies of various regulatory authorities. The
Company is unable to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control, or new
federal or state legislation may have in the future.
Federal Bank Holding Company Regulation
- ---------------------------------------
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve and is required to file
periodic reports of its operations and such additional information as the
Federal Reserve may require. The Company's and the Bank's activities are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries, or engaging in any other activity that
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank holding company, such as the
Company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of the bank holding
company. In the case of the Company, under Federal Reserve regulations, control
will be rebutably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of voting securities once the Company registers
the Common Stock under the Exchange Act. The regulations provide a procedure
for challenge of the rebutable control presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in nonbanking activities, unless the Federal Reserve, by order
or regulation, has found those activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include making or servicing loans and
certain types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning savings
associations, and making investments in certain corporations or projects
designed primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances in which the
Company might not otherwise do so. Under the BHCA, the Federal Reserve may
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than
-53-
<PAGE>
a nonbank subsidiary of a bank) upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution of the bank holding
company. Further, federal bank regulatory authorities have additional discretion
to require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition. The Bank may be required to indemnify, or
cross-guarantee, the FDIC against losses it incurs with respect to any other
Bank controlled by the Company, which in effect makes the Company's equity
investments in healthy bank subsidiaries available to the FDIC to assist any
failing or failed bank subsidiary of the Company.
The Bank
- --------
General. The Bank is a Georgia banking corporation and state non-member
bank. The Georgia Department of Banking and Finance (the "Department") and the
Federal Deposit Insurance Corporation are the primary regulators for the Bank.
These regulatory authorities regulate or monitor all areas of the Bank's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates payable
on deposits, interest rates or fees chargeable on loans, establishment of
branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices. The Bank must maintain certain capital ratios and is subject to
limitations on aggregate investments in real estate, bank premises, and
furniture and fixtures.
Under FDICIA, all insured institutions must undergo regular on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. In addition,
most of these loans and certain other transactions must be secured in prescribed
amounts. The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act that, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal stockholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
Branching. In addition to the main office, the Bank currently has four
branches in Richmond County and two branches in Columbia County. Under current
Georgia law, effective July 1, 1996 banks may branch into three additional
counties besides the county in which their principal office is located. If the
Bank is part of a bank holding company, all affiliates would be treated as one
and the holding company would be limited to three counties. Effective July 1,
1998 all intra state branching restrictions will be removed. Although the Bank
currently has no definitive plans for opening any other branch offices,
depending on profitability and community needs, other branches may be
considered. The Company, with prior regulatory approval, will be permitted to
acquire interest in and operate banks throughout the State of Georgia. Under
Georgia law, any bank acquired by the Company could be merged into the Bank and
its offices could then be operated as branches of the Bank. There
-54-
<PAGE>
are currently no definitive plans for the Company to make any such acquisition,
but the Company remains open to such acquisitions as part of its strategic
growth plan.
The BHCA, as amended by the interstate banking provisions of the Riegle-
Neal Interstate Banking and Branch Efficiency Act of 1994 ("Reigle-Neal Act"),
which became effective on September 29, 1995, repealed the prior statutory
restrictions on interstate acquisitions of banks by bank holding companies, such
that the Company and any other bank holding company located in Georgia may now
acquire a bank located in any other state, and any bank holding company located
outside Georgia may lawfully acquire any bank based in another state, regardless
of state law to the contrary, in either case subject to certain deposit-
percentage, aging requirements, and other restrictions. The Reigle-Neal Act
also generally provides that, after June 1, 1997, national and state-chartered
banks may branch interstate through acquisitions of banks in other states. By
adopting legislation prior to that date, a state has the ability either to "opt
in" and accelerate the date after which interstate branching is permissible or
"opt out" and prohibit interstate branching altogether. In March 1996, the
Georgia legislature adopted legislation opting into interstate branching which
will permit such mergers after June 1, 1997. The Georgia legislation also
provides that an out-of-state bank may not enter the State of Georgia through a
de novo branch, nor may it enter through the acquisition of less than
substantially all of the assets of an existing bank.
Community Reinvestment Act. The Community Reinvestment Act requires that,
each insured depository institution shall be evaluated by its primary federal
regulator with respect to its record in meeting the credit needs of its local
community, including low and moderate income neighborhoods, consistent with the
safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. The Bank received a satisfactory rating in its most recent
evaluation.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves, the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit, the Fair Credit Reporting Act of 1978 governing the
use and provision of information to credit reporting agencies, the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board to implement that act, which
governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
system, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the agency deems
appropriate. FDICIA also contains a variety of other provisions that may affect
the operations of the Company and the Bank, including new reporting
requirements, regulatory standards for estate lending, "truth in savings"
provisions, the requirement that a depository institution give 90 days prior
notice to customers and regulatory authorities before closing any branch, and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC.
Enforcement Policies and Actions
- --------------------------------
FIRREA and subsequent federal legislation significantly increased the
enforcement authorities of the FDIC and other federal depository institution
regulators, and authorizes the imposition of civil money penalties up
-55-
<PAGE>
to $1 million per day. Persons who are affiliated with depository institutions
can be removed from any office held in such institution and banned for life from
participating in the affairs of any such institution. The banking regulators
have not hesitated to use the new enforcement authorities provided under FIRREA.
Deposit Insurance
- -----------------
The deposits of the Bank are currently insured to a maximum of $100,000 per
depositor, subject to certain aggregation rules. The FDIC establishes rates for
the payment of premiums by federally insured banks and thrifts for deposit
insurance. Separate insurance funds (BIF and SAIF) are maintained for
commercial banks and thrifts, with insurance premiums from the industry used to
offset losses from insurance payouts when banks and thrifts fail. Due to the
high rate of failures in recent years, the fees that commercial banks and
thrifts pay to BIF and SAIF have increased, and the FDIC has adopted a risk-
based deposit insurance premium system for all insured depository institutions,
including the Bank, which requires that a depository institution pay to BIF or
SAIF from $.04 to $.31 per $100 of insured deposits depending on its capital
levels and risk profile, as determined by its primary federal regulator on a
semiannual basis.
In 1995, the FDIC declared the BIF fully funded, and assessments were
suspended on certain financial institutions until further notice. The
assessment for the Bank was suspended through December 1996 under this ruling;
however, in 1996 the Bank was notified that assessments will be reinstated in
1997. Because the Bank's risk classification is the lowest allowable, the Bank
will not be required to pay an assessment for deposit insurance in 1997. The
Bank will be required to pay a premium for the new "Financing Corporation (FICO)
payment" which is a result of the Deposit Insurance Act of 1996. The annual
amount of this premium is $.01296 of insured deposits. This assessment is
subject to change. Any increase in deposit insurance premiums for the Bank will
increase its cost of funds, and there can be no assurance that such cost can be
passed on to the Bank's customers.
Dividends
- ---------
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank to
the Company depends on the Bank's earnings and capital position and is limited
by federal and state law, regulations, and policies. In addition, the Board of
Governors has stated that bank holding companies should refrain from or limit
dividend increases or reduce or eliminate dividends under circumstances in which
the bank holding company fails to meet minimum capital requirements or in which
its earnings are impaired.
Cash dividends on the Bank's common stock may be declared and paid only out
of its retained earnings, and dividends may not be declared at any time at which
the Bank's paid-in capital and appropriated retained earnings do not, in
combination, equal at least 20% of its capital stock account. In addition, the
Department's current rules and regulations require prior Department approval
before cash dividends may be declared and paid if: (i) the Bank's ratio of
equity capital to adjusted total assets is less than 6%; (ii) the aggregate
amount of dividends declared or anticipated to be declared in that calendar year
exceeds 50% of the Bank's net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the Bank's assets classified
as adverse as to repayment or recovery by the Department at the most recent
examination of the Bank exceeds 80% of the Bank's equity capital as reflected at
such examination.
Under FDICIA, the Bank may not pay a cash dividend if, after paying the
dividend, the Bank would be undercapitalized. See "Capital Regulations" below.
The Company's Board of Directors declared a 15% stock dividend to holders
of the Company's Common Stock on record as of September 4, 1996. The dividend
was payable on September 25,1996.
Capital Regulations
- -------------------
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize
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disincentives for holding liquid assets. The resulting capital ratios represent
qualifying capital as a percentage of total risk weighted assets and off-balance
sheet items. The guidelines are minimums, and the federal regulators have noted
that banks and bank holding companies contemplating significant expansion
programs should not allow expansion to diminish their capital ratios and should
maintain ratios well in excess of the minimums. The current guidelines require
all bank holding companies and federally regulated banks to maintain a minimum
risk-based total capital ratio equal to 8% of which at least 4% must be Tier 1
capital. Tier 1 capital includes common stockholders equity, qualifying
perpetual preferred stock, and minority interest in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. As of December 31, 1996, the
Company and the Bank were qualified as "well-capitalized." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Capital."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice.
The degree of regulatory scrutiny of a financial institution will increase, and
the permissible activities of the institution will decrease, as it moves
downward through the capital categories. Institutions that fall into one of the
three undercapitalized categories may be required to (i) submit a capital
restoration plan; (ii) raise additional capital; (iii) restrict their growth,
deposit interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
These capital guidelines can affect the Company in several ways. Rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Company's capital position in a
relatively short period of time, making an additional capital infusion
necessary.
FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk, and the risks of non-traditional activities. It
is uncertain what effect these regulations, when implemented, would have on the
Company and the Bank.
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Both the Company and the Bank exceeded their respective regulatory capital
requirements at December 31, 1996. See "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations - Capital."
Recent Legislative Developments
- -------------------------------
Revisions to the Bank Secrecy Act in 1996 affected numerous issues,
including suspicious activity reporting, funds transfer recording keeping,
interim exemption rules, and the definition of "exempt persons" and the way in
which banks designate exempt customers.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was
enacted in September 1996. This Act primarily provided arrangements for the
recapitalization of the SAIF and regulatory relief for bank holding companies in
several significant areas. Bank holding companies that also owned savings
associations and were therefor subject to regulation by the Office of Thrift
Supervision ("OTS") as savings and loan holding companies were relieved of such
duplicative regulation, and neither future acquisitions of savings associations
by bank holding companies nor mergers of savings associations into banks will
any longer require application to and approval by the OTS. Acquisitions by
well-capitalized and well-managed bank holding companies of companies engaging
in permissible nonbanking activities (other than savings association) may now be
made with only 12 days prior notice to the Federal Reserve, and de novo
engagement in such activities by such bank holding companies may be commenced
without prior notice and with only subsequent notice to the Federal Reserve.
The same legislation also gave regulatory relief to banks in regard to corporate
governance, branching, disclosure (under the Real Estate Settlement Procedures
Act and the Truth in Lending Act) and other operational areas.
The Federal Reserve also recently adopted regulations providing for a
streamlined application process in connection with acquisitions of banks and
bank holding companies by well-capitalized, well-managed bank holding companies.
During 1996, changes were also made to the current system used to rate banks.
The State of Georgia Department of Insurance and Department of Banking and
Finance also recently adopted regulations that will permit banks operating in
Georgia to engage in certain insurance sales activities, subject to compliance
with certain conditions.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and bank
and bank holding company powers are being considered by the executive branch of
the Federal government, Congress and various state governments, including
Georgia. Among other items under consideration are the possible combination of
the BIF and SAIF, changes in or repeal of the Glass-Steagall Act which separates
commercial banking from investment banking, and changes in the BHC Act to
broaden the powers of "financial services" companies to own and control
depository institutions and engage in activities not closely related to banking.
Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry. It cannot be predicted
whether any of these proposals will be adopted, and, if adopted, how these
proposals will affect the Company and the Bank.
Fiscal and Monetary Policy
- --------------------------
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of the Company and the Bank are subject to the influence
of economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Board of Governors of the Federal Reserve System (the "Federal Reserve").
The Federal Reserve regulates the supply of money through various means,
including open market dealings in United States government securities, the
discount rate at which banks may borrow from the Federal Reserve, and the
reserve requirements on deposits.
The monetary policies of the Federal Reserve historically have had a
significant effect on the operating results of commercial banks and will
continue to do so in the future. The conditions in the national and
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international economies and money markets, as well as the actions and changes in
policy by monetary and fiscal authorities, and their effect on the Company and
the Bank cannot be predicted.
SHARES ELIGIBLE FOR FUTURE SALE
If all Shares offered are sold, 1,820,368 Shares of Company Common Stock will
be outstanding. The 278,000 Shares offered hereby will be freely tradable
without restriction or further registration unless purchased by "affiliates" of
the Company. As defined in Commission Rule 144 under the Securities Act, an
"affiliate" of an issuer is a person who directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, such issuer, and generally includes members of the Board of Directors of
the Company and the Bank, executive officers of the Company and the Bank, and 5%
or greater stockholders of the Company and the Bank.
In general, under Rule 144, as currently in effect, any affiliate of the
Company who purchases Shares pursuant to this Offering is entitled to sell
within any three-month period a number of Shares that does not exceed the
greater of 1% of the outstanding Shares of the Company's Common Stock (18,203
Shares immediately after the Offering) or the average weekly trading volume in
the Company's Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain provisions regarding the manner
of sale, notice requirements, and the availability of current public information
about the Company. Following the Expiration Date of this Offering, the Company
intends to file with the Commission periodic reports that provide the "current
public information" required by Rule 144. A stockholder (or stockholders whose
Shares are aggregated) who has not been an affiliate of the Company for at least
90 days prior to a proposed sale transaction, and who has beneficially owned
"restricted securities" for at least three years is entitled to sell such Shares
under Rule 144 without regard to the value or other limitations described above.
No active trading market exists for the Common Stock, and the Company has no
reason to believe that a more active trading market will develop in the
foreseeable future. There are no present plans for the Common Stock to be
listed or qualified for trading on any stock exchange or in the over-the-counter
market. There is currently one independent market maker in the Common Stock.
As a result, no prediction can be made of the effect, if any, that this Offering
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of such shares, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of equity securities. See "Special Considerations."
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized by its Articles of Incorporation, as amended, to
issue 10,000,000 shares of common Stock, $3.00 par value per share. As of June
30, 1997, 1,542,368 shares were issued and outstanding. All shares of Common
Stock of the Company are entitled to share equally in dividends from funds
legally available therefor, when, as and if declared by the Board of Directors,
and upon liquidation or dissolution of the Company, whether voluntary or
involuntary, to share equally in the assets of the Company available for
distribution to shareholders. Each holder of Common Stock is entitled to one
vote for each share on all matters submitted to the shareholders. There is no
cumulative voting, redemption right, sinking fund provision, or right of
conversion in existence with respect to the Common Stock. All outstanding
shares of Common Stock issued in the Offering will be fully paid and
nonassessable.
The Bank is authorized by its Articles of Incorporation to issue up to
10,000,000 shares of common stock, $5.00 par value per share, 625,000 shares of
which are issued and outstanding and owned by the Company. All shares of Bank
common stock are entitled to share equally in dividends from funds legally
available therefor when, as and if declared by the Board of Directors, and upon
liquidation or dissolution of the Bank, whether voluntary or involuntary, to
share equally in the assets of the Bank available for distribution to
shareholders. Each holder of Bank common stock is entitled to one vote for each
share held on all matters submitted to the shareholders. There
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is no cumulative voting, redemption right, sinking fund provision, or right of
conversion in existence with respect to the common stock. All outstanding shares
of stock of the Bank are fully paid and nonassessable.
PREEMPTIVE RIGHTS
Pursuant to the Articles of Incorporation of the Company, holders of shares
of the Company have rights to acquire proportional amounts of the Company's
unissued shares upon the decision of the Board to issue such shares.
Shareholders entitled to preemptive rights must be given a period of at least
thirty days to exercise their rights. Shareholders do not have any preemptive
right with respect to the issuance of:
(1) Shares issued as a share dividend;
(2) Fractional shares;
(3) Shares issued to effect a merger or share exchange;
(4) Shares issued pursuant to the acquisition of substantially all the
assets of another bank or trust company or any other corporation, partnership,
association, or trust;
(5) Shares issued as compensation to directors, officers, agents or
employees of the Company, their subsidiaries, or affiliates upon terms and
conditions approved or ratified by the affirmative vote of the holders of a
majority of the shares entitled to vote thereon;
(6) Shares issued to satisfy conversion, option, or other share purchase
rights created to provide compensation, incentive or reward to directors,
officers, agents, or employees of the Company, their subsidiaries, or affiliates
upon terms and conditions, or in accordance with a stock option, employee stock
ownership, profit sharing, pension or similar plan or arrangement, approved or
ratified by the affirmative vote of the holders of a majority of the shares
entitled to vote thereon;
(7) Shares authorized in the Articles of Incorporation that are issued
within one year from the effective date of incorporation;
(8) Shares issued under a plan of reorganization approved in a proceeding
under any applicable law of the State of Georgia or the United States of America
relating to the reorganization of corporations;
(9) Shares sold otherwise than for money, deemed by the board of directors
in good faith to be advantageous to the Company's business, other than shares
sold pursuant to (1) or (2) above; or
(10) Shares released by waiver from their preemptive rights by the
affirmative vote or written consent of the holders of two-thirds of the shares
of the class to be issued.
Additionally, no holder of shares of any class or series of such class has
any preemptive right with respect to shares of any other class or series which
may in the future be authorized, issued or sold by the Company. A shareholder
may waive his or her individual preemptive right at any time, and the holders of
a class of shares may waive the preemptive rights of that class by the
affirmative vote or written consent of the holders of two-thirds of the shares
of the class. A waiver of preemptive rights with respect to past issuances of
shares is effective if made by the person who was the shareholder at the time
the shares were issued. A waiver evidenced by a writing is irrevocable even
though it is not supported by consideration.
Shares that are otherwise validly issued and outstanding are not affected
by any violation of preemptive rights with respect to their issuance.
Shareholders do not have any preemptive right to acquire securities of the
Company unless they are residents of the State of Georgia, or another state in
which the Company is legally permitted to offer and sell its securities, and the
Company has no obligation to take any action to qualify to offer or sell its
securities in any state other than Georgia.
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An action to enforce any liability for violation of preemptive rights must
be brought within three years of the discovery or notice of the violation, and
in any event must be brought within five years after the issuance giving rise to
the violation.
ANTI-TAKEOVER PROVISIONS
Fair Price Article. The Articles of Incorporation of the Bank and the
Company restrict certain transactions involving the Bank and the Company which
involve unequal payments to shareholders. Under the Articles of each
corporation, certain "business combinations" between the corporation and an
'interested shareholder" are restricted. An interested shareholder with respect
to the corporation is a beneficial owner of 20% or more of the voting power of
the outstanding shares of the corporation or an affiliate of the corporation
who, at anytime within the previous two years, was the beneficial owner of 20%
or more of the voting power of the shares of the corporation. The business
combinations restricted include (i) any merger or consolidation with any
interested shareholder, (ii) any sale or transfer during any twelve-month.
period of 10% or more of the net assets of the corporation to an interested
shareholder or its affiliates, (iii) any issuance or transfer during any twelve-
month period of equity securities having a market value exceeding 5% of the
total market value of the corporation's outstanding shares to any interested
shareholder, (iv) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation in which anything other than cash will be
received by an interested shareholder, or (v) any reclassification of securities
which has the effect of increasing in any twelve-month period the proportional
amount of shares held by any interested shareholder by 5% or more.
Pursuant to this provision of the Articles, a business combination cannot
occur unless it receives a special approval from certain directors and/or
shareholders of the corporation, or meets certain conditions with respect to the
consideration paid as the part of the business combination. The special
approval required is either (i) the unanimous approval by the "continuing
directors" of the corporation, provided that they constitute at least three
members of the board of directors at the time, or (ii) the recommendation by at
least two-thirds of the continuing directors and approval by shareholders owning
at least a majority of the shares entitled to vote at a shareholder's meeting,
other than shares beneficially owned by the interested shareholder which is a
party to the business combination. A continuing director is director of the
corporation who is not an affiliate or associate of the interested shareholder
and who was a director of the corporation prior to the date on which the
interested shareholder became such, or a successor to a continuing director
which was recommended or elected by a majority of all of the continuing
directors.
The special approval is not required for a business combination if it meets
certain conditions designed to insure that all shareholders receive fair
consideration for their shares. These conditions include (i) a requirement that
the aggregate amount of cash and other consideration received by selling
shareholders at least equal the greater of (a) the highest of the prices paid by
the interested shareholder for any shares of the same class or series within the
previous two years and in the transaction in which the interested shareholder
became such, (b) the fair market value of such shares, or (c) the highest
preferential liquidation amount applicable to shares other than common shares if
the interested shareholder has acquired shares of such class within two years
prior to the business combination; (ii) a requirement that the consideration to
be received by selling shareholders is to be in cash or in the same form as the
interested shareholder has previously paid for shares of the same class or
series; (iii) a requirement that, after the interested shareholder became such,
unless approved by a majority of the continuing directors, there has been no
failure to pay full periodic dividends on preferred shares, no reduction in the
annual rate of dividends on common shares, proportionate increases in the annual
rate of dividends as necessary to reflect any reclassification, including any
reverse share split, which had the effect of reducing the number of outstanding
shares, and no increase in the interested shareholder's percentage ownership of
any class by more than one percent in any twelve month period (provided that the
interest shareholder or any affiliate or associate did not, voting as a
director, approve these actions and protested such actions in writing to the
board of directors); and (iv) after the interested shareholder became such, it
has not received the benefit, except proportionately as a shareholder, of any
loans, advances, or other financial assistance or any tax advantages provided by
the corporation or any of its subsidiaries.
Fair Price Bylaw. The Bylaws of the Bank and Company provide for the
applicability of the Fair Price Requirements of Part 2 of Article 11 of the
Georgia Business Corporation Code, O.C.G.A. 14-2-1110, et seq. (the
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"Fair Price Requirements"), to the Bank and Company. The Fair Price Requirements
are substantially identical to the provisions of the Fair Price Article
described above, except that a person is deemed to be an "interested
shareholder" if he or she is the beneficial owner of 10% (as opposed to 20%
under the Article) or more of the voting power of the outstanding shares of the
corporation or is an affiliate of the corporation who, at anytime within the
previous two years, was the beneficial owner of 10% (as opposed to 20% under the
Article) or more of the voting power of the shares of the Corporation. In
addition, under the Fair Price Requirements, a "business combination" includes
an exchange of shares with an interested shareholder or any corporation which
is, or would be after the transaction, an affiliate of an interested
shareholder.
Business Combination Bylaw. The Bylaws of the Company provide for the
applicability of the Business Combinations Restrictions of Part 3 of Article II
of the Georgia Business Corporation Code, O.C.G.A. 14-2-1131, et seq. (the
"Business Combinations Restrictions"), to the Company. The Business
Combinations Restrictions prohibit a 'resident domestic corporation' from
engaging in a "business combination" with an interested shareholder for a period
of five years following the date the interested shareholder became such. The
prohibition does not apply if (i) prior to that date, the corporation's board of
directors approved either the business combination or the transaction in which
the interested shareholder became such; (ii) in the transaction in which the
interested shareholder became such, it acquired at least 90 percent of the
outstanding shares of the corporation, other than shares held by directors and
officers (or their affiliates or associates), shares held directly by the
corporation, or shares held in employee stock plans in which the participants do
not have the right to tender their shares confidentially (collectively, the
"Excluded Shares"); or (iii) after the interested shareholder became such, it
acquired additional shares so that it beneficially owned at least 90 percent of
the outstanding shares of the corporation, other than Excluded Shares, and the
business combination is approved by a majority of the outstanding shares of the
corporation, other than Excluded Shares.
The purpose of the Business Combinations Restrictions is to encourage a
person to seek the approval of the board of directors of a resident domestic
corporation prior to acquiring 10% or more of the outstanding stock of the
corporation. If the person does not secure the approval of the board or acquire
90 percent of the corporation's shares (other than the Excluded Shares),
business combinations between such person and the corporation are limited for a
period of five years.
The same defined terms apply for purposes of the Business Combinations
Restrictions as apply to the Fair Price Requirements, with some exceptions. A
business combination is defined to include (i) any merger or consolidation with
any interested shareholder or its affiliates, (ii) any sale or transfer of 10%
or more of the net assets of the corporation to an interested shareholder or its
affiliates, (iii) any issuance or transfer of equity securities having a market
value exceeding 5% of the total market value of the corporation's outstanding
shares to any interested shareholder, (iv) the adoption of any plan or proposal
for the liquidation or dissolution of the corporation, (v) any reclassification
of securities which has the effect of increasing the proportional amount of
shares held by any interested shareholder by 5% or more, or (vi) any receipt by
an interested shareholder or its affiliates or associates, other than in the
ordinary course of business, of the benefit of any loans, advances or other
financial benefits or assistance from the corporation. A "resident domestic
corporation" is defined as a Georgia corporation which has located in Georgia at
least 100 beneficial owners and either (a) its principal office, (b) at least 10
percent of its shares, (c) at least 10 percent of its shareholders, or (d) the
lesser of $25 million in assets or over half of its assets (or assets producing
over half of its revenue). It is likely that the Company would be a resident
domestic corporation.
LEGAL MATTERS
The legality of the shares of Common Stock to be issued in the offering has
been passed upon by Alston & Bird LLP, Atlanta, Georgia.
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EXPERTS
The consolidated financial statements of the Company as of and for the year
ended December 31, 1996 have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company at and for the years
ended December 31, 1994 and 1995 appearing in this Prospectus have been audited
by Cherry, Bekaert & Holland, L.L.P., independent auditors, as set forth in
their report appearing elsewhere herein and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
INDEMNIFICATION
The Georgia Business Corporation Code permits, under certain circumstances,
the indemnification of officers, directors, employees and agents of a
corporation with respect to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
such person was or is a party or is threatened to be made a party by reason of
his action in such capacity for, or at the request of, such corporation. To the
extent that such person is successful in defending any such suit, Georgia law
provides that he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
The Company's Bylaws provide for the indemnification of the Company's
directors, officers, employees and agents in accordance with the Georgia
Business Corporation Code. Georgia law also provides that, with certain
exceptions, the above rights will not be deemed exclusive of other rights of
indemnification contained in any Bylaw, resolution or agreement approved by the
holders of a majority of the stock. The Company's Bylaws provide that the
Company may purchase and maintain insurance on behalf of directors, officers,
employees and agents, as well as others serving at their request, against any
liabilities asserted against such persons whether or not the Company would have
the power to indemnify such persons against such liability under the Georgia
Business Corporation Code. The Company has purchased and maintains such
insurance.
Insofar as 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 Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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CHANGE IN ACCOUNTANTS
As reported on the Company's Form 8-K, filed April 23, 1996, Cherry,
Bekaert & Holland LLP was previously the principal accountants for Georgia Bank
Financial Corporation. On April 17, 1996, that firm was not re-elected as
principal accountants and KPMG Peat Marwick LLP was engaged as principal
accountants. The decision to change accountants was recommended by the Audit
Committee and approved by the Board of Directors.
In connection with the audits of the two fiscal years ended December 31,
1995, and the subsequent interim period through April 17, 1996, there were no
disagreements with Cherry, Bekaert & Holland LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
The Audit reports on the consolidated financial statements of Georgia Bank
Financial Corporation and subsidiaries as of and for the years ended December
31, 1995 and 1994, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope or accounting
principles.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Independent Auditors' Reports F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994 F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 F-8
Notes to Consolidated Financial Statements F-10
Consolidated Balance Sheets as of June 30, 1997, and December 31, 1996 (unaudited) F-28
Consolidated Statements of Income for the quarters ended June 30, 1997 and June 30, 1996
and the six months ended June 30, 1997 and June 30, 1996 (unaudited) F-29
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
June 30, 1996 (unaudited) F-30
Notes to Consolidated Financial Statements (unaudited) F-31
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Georgia Bank Financial Corporation:
We have audited the accompanying consolidated balance sheet of Georgia Bank
Financial Corporation and subsidiary (the "Bank") as of December 31, 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Georgia Bank
Financial Corporation and subsidiary as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 10, 1997
F-2
<PAGE>
Report of Independent Certified Public Accountant
The Board of Directors
Georgia Bank Financial Corporation
and Subsidiary
Augusta, Georgia
We have audited the accompanying consolidated balance sheets of Georgia
Bank Financial Corporation and Subsidiary as of December 31, 1995, 1994 and
1993, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Corporations'
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 consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Corporation as
of December 31, 1995, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
CHERRY, BEKAERT & HOLLAND, L.L.P.
Augusta, Georgia
February 2, 1997
F-3
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------------------------------------------------------- ------------ -----------
<S> <C> <C>
Cash and due from banks (note 2) $ 10,550,857 12,725,123
Federal funds sold 1,520,000 -
------------ -----------
Cash and cash equivalents 12,070,857 12,725,123
------------ -----------
Investment securities (note 3):
Available-for-sale 52,819,926 33,434,524
Held-to-maturity, at cost (fair values of $4,513,828
and $2,024,126 at December 31, 1996 and 1995,
respectively) 4,491,145 2,014,654
Loans (note 4) 135,212,336 120,427,011
Less allowance for loan losses 1,467,702 1,335,275
------------ -----------
Loans, net 133,744,634 119,091,736
------------ -----------
Premises and equipment, net (note 5) 8,927,402 8,539,172
Accrued interest receivable 1,494,291 1,354,174
Other real estate 150,315 74,942
Intangible assets, net (note 6) 878,089 1,158,106
Other assets (note 9) 1,431,023 955,237
------------ -----------
$216,007,682 179,347,668
============ ===========
</TABLE>
(Continued)
F-4
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1996 1995
- ------------------------------------------------------ ------------- ------------
<S> <C> <C>
Deposits:
Noninterest bearing $ 33,306,103 26,900,509
Interest-bearing:
NOW accounts 23,942,118 18,959,510
Savings 43,557,783 20,045,474
Money management accounts 21,241,122 16,071,501
Time deposits over $100,000 31,122,021 32,515,699
Other time deposits 42,498,381 42,657,047
------------ -----------
195,667,528 157,149,740
Federal funds purchased and securities sold
under repurchase agreements 1,225,294 1,761,527
Advances from Federal Home Loan Bank (note 8) - 4,000,000
Other borrowed funds (note 8) 1,186,668 640,000
Accrued interest and other liabilities 1,580,714 1,357,720
------------ -----------
Total liabilities 199,660,204 164,908,987
------------ -----------
Stockholders' equity (notes 11 and 14):
Common stock, $3.00 par value; 10,000,000
shares authorized; shares issued and outstanding
of 1,542,368 in 1996 and 1,341,479 in 1995 4,627,104 4,024,437
Additional paid-in capital 10,337,222 7,122,998
Retained earnings 1,564,330 3,435,381
Unrealized loss on investment securities available-
for-sale, net of deferred income tax benefit
of $97,558 in 1996 and $75,222 in 1995 (181,178) (144,135)
------------ -----------
Total stockholders' equity 16,347,478 14,438,681
Commitments (note 7)
$216,007,682 179,347,668
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
Interest income:
<S> <C> <C> <C>
Loans, including fees $12,469,638 11,529,864 9,355,191
Investment securities:
Taxable 2,788,829 2,068,874 1,442,195
Tax-exempt 76,557 67,494 61,249
Federal funds sold 342,264 360,126 219,117
Deposits in banks - - 2,997
----------- ---------- ----------
Total interest income 15,677,288 14,026,358 11,080,749
----------- ---------- ----------
Interest expense:
Deposits (including interest on time deposits over
$100,000 of $1,814,916, $1,757,452, and
$1,109,419 in 1996, 1995, and 1994,
respectively) 7,151,635 6,458,661 4,210,731
Federal funds purchased and securities sold
under repurchase agreements 43,774 27,332 14,271
Other borrowings 177,271 242,118 142,883
----------- ---------- ----------
Total interest expense 7,372,680 6,728,111 4,367,885
----------- ---------- ----------
Net interest income 8,304,608 7,298,247 6,712,864
Provision for loan losses (note 4) 470,000 200,000 180,000
----------- ---------- ----------
Net interest income after provision for
loan losses 7,834,608 7,098,247 6,532,864
----------- ---------- ----------
Noninterest income:
Service charges and fees on deposits 2,150,350 1,426,964 1,013,936
Miscellaneous income 495 8,336 3,232
Investment securities losses, net (note 3) (92) (20,679) (117,464)
----------- ---------- ----------
Total noninterest income 2,150,753 1,414,621 899,704
----------- ---------- ----------
Noninterest expense:
Salaries 3,074,532 2,578,618 2,242,262
Employee benefits 578,844 567,075 556,115
Occupancy expenses 1,262,475 1,032,349 923,758
Other operating expenses (note 13) 2,317,686 2,163,401 2,048,478
----------- ---------- ----------
Total noninterest expense 7,233,537 6,341,443 5,770,613
----------- ---------- ----------
Income before income taxes 2,751,824 2,171,425 1,661,955
Income tax expense (note 9) 799,659 766,359 543,519
----------- ---------- ----------
Net income $ 1,952,165 1,405,066 1,118,436
=========== ========== ==========
Income per share $1.27 0.91 0.77
=========== ========== ==========
Weighted average common shares outstanding
(note 1(i)) 1,542,368 1,538,025 1,459,912
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Unrealized loss on
investment securities
Common stock available-for-sale,
----------------------- Additional net of deferred Total
Number of paid-in Retained income tax stockholders'
shares Amount capital earnings benefit equity
---------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1993 1,175,044 $3,525,133 6,120,272 911,879 -- 10,557,284
Issuance of shares
of common stock 141,667 425,000 841,500 -- -- 1,266,500
Net income -- -- -- 1,118,436 -- 1,118,436
Change in
unrealized loss on
investment
securities
available-for-sale,
net of deferred income
tax benefit -- -- -- -- (483,781) (483,781)
--------- --------- --------- --------- -------- ----------
Balance, December
31, 1994 1,316,711 3,950,133 6,961,772 2,030,315 (483,781) 12,458,439
--------- --------- --------- --------- -------- ----------
Issuance of shares
of common stock 24,768 74,304 161,226 - - 235,530
Net income - - - 1,405,066 - 1,405,066
Change in
unrealized loss on
investment
securities
available-for-sale, net
of deferred income
tax benefit - - - - 339,646 339,646
--------- --------- --------- --------- -------- ----------
Balance, December
31, 1995 1,341,479 4,024,437 7,122,998 3,435,381 (144,135) 14,438,681
Stock dividend
declared - 15% 200,889 602,667 3,214,224 (3,816,891) - -
Cash paid in lieu
of fractional
shares for stock - - - (6,325) - (6,325)
dividend
Net income - - - 1,952,165 - 1,952,165
Change in
unrealized loss on
investment
securities
available-for-sale,
net of deferred income
tax benefit - - - - (37,043) (37,043)
--------- --------- --------- --------- -------- ----------
Balance, December
31, 1996 1,542,368 $4,627,104 10,337,222 1,564,330 (181,178) 16,347,478
========= ========== ========== ========= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,952,165 1,405,066 1,118,436
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 894,858 757,221 670,230
Deferred income tax benefit (253,995) (1,032) (19,508)
Provision for loan losses 470,000 200,000 180,000
Net investment securities losses 92 20,679 117,464
Amortization/(accretion) of premium/discount
on investment securities (36,686) (72,884) 26,428
Real estate loans originated for sale (21,443,710) (18,093,358) (7,334,824)
Proceeds from sales of real estate loans 21,370,452 16,714,800 8,041,550
Increase in accrued interest receivable (140,117) (329,250) (127,184)
(Increase) decrease in other assets (101,890) 250,860 (869,237)
Increase in accrued interest and other liabilities 222,994 430,148 168,240
------------ ----------- -----------
Net cash provided by operating activities 2,934,163 1,282,250 1,971,595
------------ ----------- -----------
Cash flows from investing activities:
Net decrease in interest-bearing deposits in banks - - 99,000
Proceeds from sales and maturities of available-
for-sale securities 20,317,428 15,185,367 13,776,811
Proceeds from maturities of held-to-maturity
securities 400,993 95,000 -
Purchase of held-to-maturity securities (2,879,762) (180,000) -
Purchase of available-for-sale securities (39,720,902) (24,638,825) (6,787,460)
Net increase in loans (15,125,013) (11,040,151) (13,173,539)
Purchases of premises and equipment (1,003,071) (686,741) (2,230,472)
Proceeds from sale of land - 232,535 -
Purchase of other investments (100,000) - -
------------ ----------- -----------
Net cash used in investing activities (38,110,327) (21,032,815) (8,315,660)
------------ ----------- -----------
</TABLE>
(Continued)
F-8
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in noninterest-bearing deposits $ 6,405,594 4,078,520 5,346,608
Net increase (decrease) in NOW accounts 4,982,608 (4,166,061) (5,581,758)
Net increase (decrease) in savings accounts 23,512,309 13,904,836 (468,132)
Net increase (decrease) in money management
accounts 5,169,621 (883,002) 1,696,278
Net (decrease) increase in time deposits
over $100,000 (1,393,678) 4,424,931 6,321,807
Net (decrease) increase in other time deposits (158,666) (1,574,948) 11,041,270
Net (decrease) increase in federal funds purchased
and securities sold under repurchase agreements (536,233) 1,445,605 97,342
Proceeds from issuance of common stock - 237,750 1,266,500
Proceeds from other borrowed funds 1,000,000 - 50,000
Payments of Federal Home Loan Bank advances (4,000,000) - (500,000)
Principal payments on other borrowed funds (453,332) (678,333) (2,078,333)
Cash paid for fractional shares related to
stock dividend (6,325) - -
Cash paid for fractional shares related to reverse
stock split - (2,220) -
----------- ---------- ----------
Net cash provided by financing activities 34,521,898 16,787,078 17,191,582
----------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents (654,266) (2,963,487) 10,847,517
Cash and cash equivalents at beginning of year 12,725,123 15,688,610 4,841,093
----------- ---------- ----------
Cash and cash equivalents at end of year $12,070,857 12,725,123 15,688,610
=========== ========== ==========
Supplemental disclosures of cash paid during
the year for:
Interest $ 7,460,076 6,510,982 4,104,649
========== ========== ==========
Income taxes $ 1,026,463 769,459 543,519
=========== ========== ==========
Supplemental information on noncash
investing activities:
Loans transferred to other real estate $ 153,373 74,943 -
=========== ========== ==========
Sales of other real estate financed with
loans from the Bank $ 78,000 14,916 -
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies of Georgia Bank Financial Corporation
and subsidiary (the Bank) conform to generally accepted accounting principles
and to general practice within the banking industry. The following is a
description of the more significant of those policies the Bank follows in
preparing and presenting its consolidated financial statements.
(a) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Georgia
Bank Financial Corporation and its wholly owned subsidiary, Georgia
Bank & Trust Company of Augusta. Significant intercompany transactions
and accounts are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent 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. In connection with the
determination of the allowances for loan losses and real estate owned,
management obtains independent appraisals for significant properties.
A substantial portion of the Bank's loans is secured by real estate in
Augusta, Georgia and the surrounding area. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio is
susceptible to changes in real estate market conditions in the Augusta,
Georgia and surrounding area.
(b) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash and due from banks and federal
funds sold. Generally, federal funds are sold for one-day periods.
F-10
<PAGE>
(c) Investment Securities
---------------------
The Bank adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities, effective January 1, 1994. Under SFAS No. 115,
the Bank classifies its investment securities into one of three
categories: available for sale, held to maturity, or trading. Held to
maturity securities are those securities for which the Bank has the
ability and intent to hold the security until maturity. All other
securities are classified as available for sale. The Bank does not
hold any trading securities or engage in the trading or holding of
financial derivatives.
Held to maturity securities are recorded at cost adjusted for the
amortization or accretion of premiums or discounts. Available for sale
securities are recorded at fair value. Unrealized holding gains and
losses, net of related tax effects, on securities available for sale
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
Mortgage-backed securities held to maturity are stated at their unpaid
principal balances, adjusted for unamortized premiums and unaccredited
discounts.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost
basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using a method
which approximates the effective interest method and takes into
consideration prepayment assumptions. Dividends and interest income are
recognized when earned. Realized gains and losses for investment
securities available for sale which are sold are included in earnings
and are derived using the specific identification method for
determining the cost of securities sold.
(d) Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at the amount of unpaid principal outstanding, reduced
by an allowance for loan losses. Interest on loans is calculated using
the simple interest method on daily balances of the principal amount
outstanding. Accrual of interest is discontinued on loans that become
past due 90 days or more and for which collateral is inadequate to
cover principal and interest, or immediately if management believes,
after considering economic and business conditions and collection
efforts, that a borrower's financial condition is such that collection
is doubtful. When a loan is placed on nonaccrual status, all
previously accrued but uncollected interest is reversed against current
period interest income. Future collections are applied first to
principal and then to interest until such loans are brought current, at
which time loans may be returned to accrual status.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that the collectibility of the
principal is unlikely. Subsequent recoveries are added to the
allowance. The allowance is an amount that management believes will be
adequate to absorb losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans.
The evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and
trends that may affect a borrower's ability to pay.
F-11
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
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 Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the
time of their examination.
The Bank originates mortgages to be held for sale only for loans that
have been individually pre-approved by the investor. The Bank bears
minimal interest rate risk on these loans and only holds the loans
temporarily until documentation can be completed to finalize sale to
the investor. Such loans are stated at the lower of cost or aggregate
market.
The Bank adopted the provisions of SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures, on January 1, 1995, and the impact to the consolidated
financial statements was not material. Under the provisions of SFAS
Nos. 114 and 118, a loan is considered impaired when, based on current
information and events, it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the note
agreement. The provisions of SFAS No. 114 do not apply to large pools
of smaller balance homogeneous loans, such as consumer and installment
loans, which are collectively evaluated for impairment. Impairment
losses are included in the allowance for loan losses through a charge
to the provision for loan losses, and are measured based on the present
value of expected future cash flows, discounted at the loan's effective
interest rate, or at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. 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.
(e) Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on the straight-line basis over
the estimated useful lives of the related assets, which range from
three to forty years.
(f) Other Real Estate
-----------------
Other real estate is carried at the lower of its cost or fair value
less estimated costs to sell. Any excess of the loan balance at the
time of foreclosure over the fair value of the collateral is treated as
a loan loss and is charged against the allowance for loan losses. A
provision for estimated losses on other real estate is charged to
earnings upon subsequent declines in value. Costs related to the
development and improvement of property are capitalized; holding costs
are charged to expense.
F-12
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(g) Intangible Assets
-----------------
Intangible assets relate to certain acquisitions and consist of
goodwill, a noncompete agreement, deposit base premiums, and
organization costs. The core deposit intangible is being amortized on
a straight-line basis over the estimated lives of the related deposits,
which is estimated to be 10 years. The cost of a noncompetition
agreement is being amortized over a 60-month period using the straight-
line method. Goodwill is being amortized over 15 years using the
straight-line method. Organization costs represent costs incurred for
organizational activities and are being amortized using the straight-
line method over 60 months.
(h) Income Taxes
------------
The Bank accounts for income taxes under the asset and liability
method. 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 enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Income Per Share
----------------
Income per share is computed on the weighted average number of shares
outstanding. On April 21, 1995, the Company effected a 1 for 3 reverse
stock split that increased the par value of common stock to $3.00 per
share and reduced the number of outstanding shares. On August 21,
1996, the Board of Directors approved a 15% stock dividend payable on
September 25, 1996. All weighted average share and per share
information in the accompanying consolidated financial statements have
been restated to reflect the effect of the above-mentioned
transactions.
(j) Reclassifications
-----------------
For comparability, certain of the 1995 and 1994 amounts have been
reclassified, where appropriate, to conform with the financial
statement presentation used in 1996.
(2) Cash and Due From Banks
-----------------------
The subsidiary bank is required to maintain average daily cash balances
with the Federal Reserve. These balances were $1,299,000 and $994,000
at December 31, 1996 and 1995, respectively.
F-13
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(3) Investment Securities
---------------------
A summary of investment securities as of December 31, 1996 and 1995 is as
follows:
1996
------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ----------- ----------
<S> <C><C> <C> <C> <C>
Held-to-maturity:
Obligations of states and political subdivisions $ 2,491,657 30,151 (9,376) 2,512,432
REMICs 1,999,488 4,829 (2,921) 2,001,396
----------- ------- -------- ----------
$ 4,491,145 34,980 (12,297) 4,513,828
=========== ======= ======== ==========
Available-for-sale:
Obligations of U.S. Government agencies $ 24,245,222 74,464 (199,928) 24,119,758
U.S. Treasury notes 7,424,228 32,169 (8,417) 7,447,980
Mortgage-backed securities 10,588,197 39,424 (38,012) 10,589,609
REMICs 10,057,894 27,387 (205,823) 9,879,458
Equity securities 783,121 - - 783,121
----------- ------- -------- ----------
$ 53,098,662 173,444 (452,180) 52,819,926
======= ==========
1995
---------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
Held-to-maturity:
Obligations of states and political subdivisions $ 2,014,654 25,161 (15,689) 2,024,126
=========== ======= ======== ==========
Available-for-sale:
Obligations of U.S. Government agencies $ 16,036,655 56,260 - 16,092,915
U.S. Treasury notes 2,492,516 39,284 - 2,531,800
Mortgage-backed securities 3,294,422 23,265 (32,711) 3,284,976
REMICs 11,106,702 64,455 (372,345) 10,798,812
Equity securities 726,021 - - 726,021
----------- ------- -------- ----------
$ 33,656,316 183,264 (405,056) 33,434,524
======= ==========
</TABLE>
The amortized cost and estimated fair value of securities held-to-maturity
and available-for-sale other than equity securities as of December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Securities
held-to-maturity available-for-sale
---------------------------- ----------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year or less $ 359,980 360,437 499,319 507,655
After one through five years 1,219,847 1,226,360 26,670,678 27,164,386
After five years through ten years 1,391,362 1,394,759 5,031,375 4,451,135
After ten years 1,519,956 1,532,272 9,525,972 9,324,020
---------- --------- ---------- ----------
4,491,145 4,513,828 41,727,344 41,447,196
Mortgage-backed securities - - 10,588,197 10,589,609
---------- --------- ---------- ----------
$4,491,145 4,513,828 52,315,541 52,036,805
========== ========= ========== ==========
</TABLE>
F-14
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Proceeds from sales of investment securities during 1996, 1995, and 1994 were
$16,629,955, $11,062,692, and $9,130,351, respectively. Gross realized gains
of $115,883, $67,319, and $32,764 and gross realized losses of $115,975,
$87,998, and $150,228 were realized on those sales in 1996, 1995, and 1994,
respectively.
Proceeds from maturities and principal repayments of investment securities
during 1996, 1995, and 1994 were $4,088,466, $4,217,675, and $4,646,460,
respectively.
Investment securities with a carrying amount of approximately $24,341,000 and
$20,356,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public and trust deposits, and for other purposes required by law.
(4) Loans
-----
Loans at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Commercial, financial, and agricultural $ 32,141,492 22,613,637
Real estate - construction/development 10,829,416 13,273,177
Other loans secured by real estate:
Single-family 24,155,487 24,856,440
Commercial 48,421,500 44,053,490
Real estate loans originated for sale 477,458 404,200
Consumer installment 19,186,983 15,226,067
------------ -----------
135,212,336 120,427,011
Less allowance for loan losses 1,467,702 1,335,275
------------ -----------
$133,744,634 119,091,736
============ ===========
</TABLE>
As of December 31, 1996 and 1995, the Bank had nonaccrual loans aggregating
$1,747,684 and $792,515, respectively. Interest that would have been
recorded on nonaccrual loans had they been in accruing status was
approximately $28,000 in 1996, $58,000 in 1995, and $34,000 in 1994.
At December 31, 1996, pursuant to the definitions within SFAS No. 114, the
Bank had one impaired loan with an outstanding balance of $1,186,100 with a
related valuation allowance of $178,000. There were no impaired loans at
December 31, 1995. The average balance of impaired loans was $1,227,800 for
the year ended December 31, 1996.
The following is a summary of the activity in the allowance for loan losses
for the years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year $1,335,275 1,274,686 1,264,902
Provision for loan losses 470,000 200,000 180,000
Charge-offs (369,423) (190,265) (215,720)
Recoveries 31,850 50,854 45,504
---------- --------- ---------
Balance, end of year $1,467,702 1,335,275 1,274,686
========== ========= =========
</TABLE>
F-15
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
In the ordinary course of business, the Bank has direct and indirect loans
outstanding to certain executive officers, directors, and principal holders
of equity securities (including their associates). Management believes such
loans are made substantially on the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other customers.
The following is a summary of the activity in loans outstanding to officers,
directors, and their associates for the year ended December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Balance at beginning of year $ 4,362,200
New loans 2,851,507
Principal repayments (2,201,687)
Balance at end of year $ 5,012,020
===========
</TABLE>
The Bank is also committed to extend credit to certain directors and
executives of the Bank, including companies in which they are principal
owners, through personal lines of credit, letters of credit and other loan
commitments. As of December 31, 1996, available balances on these
commitments to these persons aggregated $3,372,169.
<TABLE>
<CAPTION>
<S> <C>
(5) Premises and Equipment
----------------------
</TABLE>
Premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Land $ 1,882,097 1,882,097
Buildings 6,033,667 6,033,667
Furniture and equipment 3,036,098 2,066,547
----------- ---------
10,951,862 9,982,311
Less accumulated depreciation 2,024,460 1,443,139
----------- ---------
$ 8,927,402 8,539,172
=========== =========
</TABLE>
Depreciation expense amounted to $614,841, $470,539, and $372,497 in 1996,
1995, and 1994, respectively.
F-16
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Intangible Assets
-----------------
Intangible assets, net of accumulated amortization, at December 31, 1996 and
1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Core deposit premium $640,512 747,264
Noncompetition agreements 99,996 199,992
Goodwill 73,329 79,996
Organization costs 64,252 130,854
-------- ---------
$878,089 1,158,106
======== =========
</TABLE>
Amortization expense amounted to $280,017, $286,682, and $297,733 in 1996,
1995, and 1994, respectively.
(7) Commitments
-----------
The Bank is committed under various operating leases for office space and
equipment. At December 31, 1996, minimum future lease payments for each of
the next five years under noncancelable real property and equipment
operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $249,329
1998 180,086
1999 133,108
2000 131,452
2001 103,459
--------
$797,434
========
</TABLE>
Rent expense for all building, equipment and furniture rentals totaled
$292,671, $288,785, and $350,202 for the years ended December 31, 1996, 1995,
and 1994, respectively.
The Bank is party to lines of credit with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers.
Lines of credit are unfunded commitments to extend credit. These instruments
involve, in varying degrees, exposure to credit and interest rate risk in
excess of the amounts recognized in the financial statements. The Bank's
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for unfunded commitments to extend credit and
letters of credit is represented by the contractual amount of those
instruments. The Bank follows the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Unfunded commitments to extend credit where contract amounts represent
potential credit risk totaled $32,431,722 and $16,712,315 at December 31,
1996 and 1995, respectively.
F-17
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Lines of credit are legally binding contracts to lend to a customer, as long
as there is no violation of any condition established in the contract. These
commitments have fixed termination dates and generally require payment of a
fee. As commitments often expire prior to being drawn, the amounts shown do
not necessarily represent the future cash requirements of the commitments.
Credit worthiness is evaluated on a case by case basis, and if necessary,
collateral is obtained to support the commitment.
(8) Other Borrowed Funds
--------------------
Other borrowed funds at December 31, 1996 consist of Development Authority
Industrial Development Revenue Bonds (the revenue bonds) payable to SunTrust
Bank of Augusta of $186,668 and a treasury, tax, and loan account with the
Federal Reserve Bank of $1,000,000. The bonds require principal to be paid
in 60 equal installments plus accrued interest at 64% of prime, not to exceed
11% per annum or be less than 6% per annum, and are collateralized by certain
buildings, furniture, fixtures and equipment. Other borrowed funds at
December 31, 1995 consist of $240,000 outstanding related to the revenue
bonds and a note payable of $400,000 with Columbus Bank & Trust. The note
payable accrued interest at Columbus Bank & Trust's prime rate floating
daily, and was collateralized by 100% of the outstanding stock of the bank
subsidiary.
Aggregate maturities on the revenue bonds for years subsequent to December
31, 1996 are estimated to be as follows:
1997 $ 53,332
1998 53,332
1999 53,332
2000 26,672
--------
$186,668
========
The Bank has a $14,000,000 available line of credit from the Federal Home
Loan Bank of Atlanta (FHLB) which is reviewed annually by the FHLB. At
December 31, 1996, no advances were outstanding under this line. At December
31, 1995, $4,000,000 of advances were outstanding with a related interest
rate of 5.63%.
F-18
<PAGE>
(9) Income Taxes
------------
Income tax expense (benefit) for the years ended December 31, 1996, 1995,
and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Current tax expense:
Federal $1,053,654 767,391 563,027
State - - -
---------- ------- -------
Total current 1,053,654 767,391 563,027
---------- ------- -------
Deferred tax benefit:
Federal (216,019) (930) (17,577)
State (37,976) (102) (1,931)
---------- ------- -------
Total deferred (253,995) (1,032) (19,508)
---------- ------- -------
Total income tax expense $ 799,659 766,359 543,519
========== ======= =======
</TABLE>
F-19
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Income tax expense differed from the amount computed by applying the
statutory Federal corporate tax rate of 34% to income before income taxes as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense $ 935,620 738,285 565,065
Increase (decrease) resulting from:
Tax-exempt interest income (25,893) (22,498) (25,840)
Nondeductible interest expense 4,953 4,226 15,399
Life insurance - 9,052 8,863
Change in valuation allowance (150,000) (54,408) 27,140
Meals, entertainment, and club dues 11,149 10,134 20,302
Other, net 23,830 81,568 (67,410)
--------- ------- -------
$ 799,659 766,359 543,519
========= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities
available for sale $ 97,558 75,222
Allowance for loan losses 418,716 326,436
Deferred compensation 24,326 -
State net operating loss carryforward - 11,117
Other 12,497 -
--------- --------
Total gross deferred tax assets before
valuation allowance 553,097 412,775
Valuation allowance (162,698) (312,698)
Total deferred tax assets 390,399 100,077
Deferred tax liabilities - depreciation (37,928) (23,937)
--------- --------
Net deferred tax asset $ 352,471 76,140
========= ========
</TABLE>
F-20
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 Bank will realize the benefits of these deductible
differences, giving consideration to the valuation allowance recorded.
(10) Related Parties
---------------
Deposits include accounts with certain directors and executives of the Bank,
including companies in which they are principal owners. As of December 31,
1996, these deposits totaled approximately $5,080,245.
In the normal course of business, the Bank paid approximately $17,000 in
legal fees to a law firm in which a director is a member.
(11) Regulatory Capital Requirements
-------------------------------
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy,
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank of Atlanta categorized the bank subsidiary as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table below. Management is not aware of the existence of any conditions or
events occurring subsequent to December 31, 1996 which would affect the bank
subsidiary's well capitalized classification.
F-21
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Actual capital amounts and ratios for the Bank are presented in the table
below as of December 31, 1996 and 1995, on a consolidated basis and for the
bank subsidiary individually (dollars in thousands):
<TABLE>
<CAPTION>
To be well
capitalized
For capital under prompt
adequacy corrective action
Actual purposes provisions
--------------- --------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Georgia Bank Financial Corporation and
subsidiary consolidated:
As of December 31, 1996:
Total Capital (to risk-weighted assets) $17,182 11.84% $11,607 8.0% N/A N/A
Tier I Capital - risk-based (to risk-
weighted assets) 15,650 10.70 5,850 4.0 N/A N/A
Tier I Capital - leverage (to average
assets) 15,650 7.36 8,505 4.0 N/A N/A
As of December 31, 1995:
Total Capital (to risk-weighted assets) 14,439 11.19 10,321 8.0 N/A N/A
Tier I Capital - risk-based (to risk-
weighted assets) 13,101 10.15 5,160 4.0 N/A N/A
Tier I Capital - leverage (to average
assets) 13,101 7.30 7,179 4.0 N/A N/A
Georgia Bank & Trust Company:
As of December 31, 1996:
Total Capital (to risk-weighted assets) $15,793 11.00% $11,483 8.0% $14,354 10.0%
Tier I Capital - risk-based (to risk-
weighted assets) 14,325 9.98 5,741 4.0 8,612 6.0
Tier I Capital - leverage (to average
assets) 14,325 6.78 8,451 4.0 10,564 5.0
As of December 31, 1995:
Total Capital (to risk-weighted assets) 13,801 10.87 10,155 8.0 12,693 10.0
Tier I Capital - risk-based (to risk-
weighted assets) 12,466 9.82 5,077 4.0 7,616 6.0
Tier I Capital - leverage (to average
assets) 12,466 6.99 7,134 4.0 8,918 5.0
</TABLE>
(12) Employee Benefit Plans
----------------------
The Bank has an employee savings plan that qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the
Plan, participating employees may defer a portion of their pretax earnings,
up to the Internal Revenue Service annual contribution limit. The Bank has
the option to make an annual discretionary payment to the Plan. For the
years ended December 31, 1996, 1995, and 1994, the Bank contributed $73,018,
$64,063, and $48,589, respectively, to the Plan, which is 3% of the annual
salary of all eligible employees.
During 1994, the Bank adopted a nonqualified deferred bonus plan for officers
of the Bank. Under the plan, the Bank has the option to make an annual
discretionary payment to the plan. For the years ended December 31, 1996,
1995, and 1994, the Bank contributed $32,733, $28,608, and $24,860,
respectively, to the plan.
F-22
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) Other Operating Expenses
------------------------
Components of other operating expenses exceeding 1% of total revenues include
the following for the years ended December 31, 1996, 1995, and 1994,
respectively:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Amortization of intangible assets $280,017 286,681 297,734
Business development expense 401,787 289,636 179,673
Communication expense 514,595 418,932 358,753
Data processing expense 137,272 150,277 198,893
Insurance expense 36,993 197,585 324,936
Legal and professional fees 201,673 210,202 193,003
Office supplies expense 433,538 328,309 271,875
</TABLE>
(14) Condensed Financial Statements of Georgia Bank Financial Corporation
--------------------------------------------------------------------
(Parent Only)
-------------
The following represents Parent Company only condensed financial information
of Georgia Bank Financial Corporation:
Condensed Balance Sheets
------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
Assets 1996 1995
- ------------------------------------------------------ ------------ -----------
<S> <C> <C>
Cash and due from banks $ 19,776 2,985
Investment in subsidiary 14,958,027 13,494,792
Premises and equipment, net 1,393,069 1,453,250
Intangible assets 64,252 128,632
Other assets 100,000 -
----------- ----------
$16,535,124 15,079,659
=========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------------------------
Accrued interest and other liabilities $ 978 978
Bonds payable 186,668 640,000
----------- ----------
Total liabilities 187,646 640,978
----------- ----------
Stockholders' equity:
Common stock, $3.00 par value, 10,000,000 shares
authorized; shares issued and outstanding of
1,542,368 in 1996 and 1,341,479 in 1995 4,627,104 4,024,437
Additional paid-in capital 10,337,222 7,122,998
Retained earnings 1,564,330 3,435,381
Net unrealized loss on investment securities
available for sale (181,178) (144,135)
----------- ----------
Total stockholders' equity 16,347,478 14,438,681
----------- ----------
$16,535,124 15,079,659
=========== ==========
</TABLE>
F-23
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Condensed Statements of Income
------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary $ 525,000 460,000 1,168,226
Miscellaneous income 91,200 91,200 84,600
---------- --------- ---------
616,200 551,200 1,252,826
---------- --------- ---------
Expense:
Interest expense 13,685 79,782 129,612
Occupancy expense 60,681 29,416 29,416
Other operating expense 89,947 105,006 78,518
---------- --------- ---------
164,313 214,204 237,546
---------- --------- ---------
Income before equity in undistributed
earnings of subsidiary 451,887 336,996 1,015,280
Equity in undistributed earnings of subsidiary 1,500,278 1,068,070 103,156
---------- --------- ---------
Net income $1,952,165 1,405,066 1,118,436
========== ========= =========
</TABLE>
Condensed Statements of Cash Flows
----------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,952,165 1,405,066 1,118,436
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 124,561 93,796 93,796
Equity in undistributed earnings of subsidiary (1,500,278) (1,068,070) (103,156)
----------
Net cash provided by operating activities 576,448 430,792 1,109,076
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures - - (453,757)
Purchase of other investment (100,000) - -
----------- ---------- ----------
Net cash used in investing activities (100,000) - (453,757)
----------- ---------- ----------
Cash flows from financing activities:
Principal payments on notes and bonds payable (453,332) (678,333) (2,078,333)
Proceeds from issuance of notes payable - - 50,000
Proceeds from issuance of common stock - 237,750 1,266,500
Cash paid for fractional shares related to stock dividend (6,325) - -
Cash paid for fractional shares related to reverse stock split - (2,220) -
----------- ---------- ----------
Net cash used in financing activities (459,657) (442,803) (761,833)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 16,791 (12,011) (106,514)
Cash and cash equivalents at beginning of year 2,985 14,996 121,510
----------- ---------- ----------
Cash and cash equivalents at end of year $ 19,776 2,985 14,996
=========== ========== ==========
</TABLE>
F-24
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Department of Banking and Finance of the State of Georgia (DBF) requires
that state banks in Georgia generally maintain a minimum ratio of primary
capital, as defined, to total assets of six percent (6%). Additionally,
banks and their holding companies are subject to certain risk-based capital
requirements based on their respective asset composition.
The DBF requires its prior approval for a bank to pay dividends in excess of
50% of the preceding year's earnings. Based on this limitation, the amount
of cash dividends available from the bank subsidiary for payment in 1997 is
approximately $1,013,000, subject to maintenance of the minimum capital
requirements. As a result of this restriction, at December 31, 1996,
approximately $13,945,000 of the Bank's investment in its subsidiary was
restricted from transfer in the form of dividends.
(15) Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value. Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings of
a particular financial instrument. Because no market exists for a portion of
the Bank's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. Fair value
estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in any of the estimates.
The assumptions used in the estimation of the fair value of the Bank's
financial instruments are explained below. Where quoted market prices are
not available, fair values are based on estimates using discounted cash flow
and other valuation techniques. Discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and estimates
of future cash flows. The following fair value estimates cannot be
substantiated by comparison to independent markets and should not be
considered representative of the liquidation value of the Bank's financial
instruments, but rather a good-faith estimate of the fair value of financial
instruments held by the Bank. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements.
The following methods and assumptions were used by the Bank in estimating the
fair value of its financial instruments:
(a) Cash and Cash Equivalents
-------------------------
Fair value equals the carrying value of such assets due to their
nature.
F-25
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(b) Investment Securities
---------------------
The fair value of investment securities is based on quoted market
prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments.
(c) Loans
-----
The fair value of loans is calculated using discounted cash flows by
loan type. The discount rate used to determine the present value of
the loan portfolio is an estimated market rate that reflects the credit
and interest rate risk inherent in the loan portfolio. The estimated
maturity is based on the Bank's historical experience with repayments
adjusted to estimate the effect of current market conditions. The
carrying amount of related accrued interest receivable approximates its
fair value.
(d) Deposits
--------
Fair values for certificates of deposit have been determined using
discounted cash flows. The discount rate used is based on estimated
market rates for deposits of similar remaining maturities. The
carrying amounts of all other deposits, by definition, approximate
their fair values. The carrying amount of related accrued interest
payable approximates its fair value.
(e) Federal Funds Purchased and Securities Sold Under Repurchase Agreements
-----------------------------------------------------------------------
Fair value approximates the carrying value of such liabilities due to
their short-term nature.
(f) Other Borrowed Funds
--------------------
Fair value approximates the carrying value of such liabilities as the
borrowings are at a variable rate of interest.
(g) Advances from FHLB
------------------
Fair value approximates the carrying value of such liabilities as the
borrowings are at a variable rate of interest.
F-26
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
The carrying amounts and estimated fair values of the Bank's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- ------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 12,070,857 12,070,857 12,725,123 12,725,123
Investment securities 57,311,071 57,333,754 35,499,178 35,458,650
Loans, net 133,744,634 134,547,543 119,091,736 119,264,282
Financial liabilities:
Deposits 195,667,528 195,734,454 157,149,740 157,164,330
Federal funds purchased and
securities sold under repurchase
agreements 1,225,294 1,225,294 1,761,527 1,761,527
Other borrowed funds 1,186,668 1,186,668 640,000 640,000
Advances from FHLB - - 4,000,000 4,000,000
</TABLE>
F-27
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1996
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
Assets
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
----------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 12,296,264 $ 10,550,857
Federal funds sold 1,090,000 1,520,000
--------------------------------------
Cash and cash equivalents 13,386,264 12,070,857
Investment Securities
Available-for-sale 50,741,489 52,819,926
Held-to-maturity (market values of
$3,716,743 and $4,513,828, 3,702,216 4,491,145
respectively)
Loans 155,365,189 135,212,336
Allowance for loan losses (1,845,103) (1,467,702)
--------------------------------------
Net Loans 153,520,086 133,744,634
Premises and equipment, net 9,987,605 8,927,402
Accrued interest receivable 1,522,342 1,494,291
Prepaid expenses 332,510 371,385
Intangible assets 739,190 878,089
Other assets 1,216,240 1,209,953
Total Assets $235,147,942 $216,007,682
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 35,617,779 33,306,103
Interest bearing
NOW accounts 23,726,460 23,942,118
Savings 59,464,956 43,557,783
Money management accounts 17,362,854 21,241,122
Time deposits over $100,000 32,099,776 31,122,021
Other time 40,658,395 42,498,381
--------------------------------------
Total Deposits 208,930,220 195,667,528
Federal funds purchased and securities sold
under repurchase agreements 2,224,547 1,225,294
Accrued interest and other liabilities 1,492,666 1,580,714
Advances from Federal Home Loan Bank 4,000,000 -
Other borrowed funds 1,160,002 1,186,668
--------------------------------------
Total liabilities 217,807,435 199,660,204
--------------------------------------
Stockholders' equity
Common Stock, par value $3.00; 10,000,000
shares authorized, shares issued and
outstanding of 4,627,104 4,627,104
1,542,368 in 1997 and 1996
Additional paid in capital 10,337,222 10,337,222
Retained Earnings 2,587,469 1,564,330
Unrealized loss on securities
available-for-sale,
net of deferred
income taxes of $117,984 in 1997 (211,288) (181,178)
and $97,558 in 1996
----------------------------------------
Total stockholders' equity 17,340,507 16,347,478
----------------------------------------
Total Liabilities and Stockholders' $235,147,942 $216,007,682
equity
========================================
See notes to interim consolidated financial statements.
</TABLE>
F-28
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------------------------------------
Interest Income
<S> <C> <C> <C> <C>
Loans $3,637,013 $3,138,095 $6,960,750 $5,976,582
Investment securities 930,806 761,631 1,897,726 1,407,116
Federal funds sold 59,476 103,054 121,626 211,437
4,627,295 4,002,780 8,980,102 7,595,135
------------------------------------------------
Interest Expense
Deposits 2,056,499 1,739,434 4,026,427 3,398,518
Federal funds purchased and
securities sold
under repurchase agreements 26,379 14,325 40,330 20,673
Loans and borrowings 60,677 72,707 63,473 128,200
2,143,555 1,826,466 4,130,230 3,547,391
------------------------------------------------
Net Interest Income 2,483,740 2,176,314 4,849,872 4,047,744
Provision for loan losses 370,262 155,000 464,012 220,000
------------------------------------------------
Net interest income after provision for 2,113,478 2,021,314 4,385,860 3,827,744
loan losses
------------------------------------------------
Non-interest Income
Service charges and fees 578,072 485,972 1,129,123 903,419
Miscellaneous income 10,750 5,480 13,924 11,281
Investment securities gains (losses) (9,208) - (18,340) 29,658
------------------------------------------------
579,614 491,452 1,124,707 944,358
------------------------------------------------
Non-interest expense
Salaries 861,989 735,005 1,707,690 1,422,541
Employee benefits 227,324 173,178 426,274 328,264
Occupancy 388,924 306,078 794,675 617,596
Other operating expenses 622,594 565,643 1,226,301 1,107,973
2,100,831 1,779,904 4,154,940 3,476,374
------------------------------------------------
Income before taxes 592,261 732,862 1,355,627 1,295,728
Provision for income taxes 55,488 274,652 332,488 483,694
------------------------------------------------
Net Income $ 536,773 $ 458,210 $1,023,139 $ 812,034
================================================
Earnings per common share:
Weighted average number of common
shares outstanding 1,542,368 1,542,701 1,542,368 1,542,701
Net income per share $0.35 $0.30 $0.66 $0.53
================================================
See notes to interim consolidated
financial statements.
</TABLE>
F-29
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net Income $ 1,023,139 $ 812,034
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 507,440 487,972
Provision for loan losses 464,012 220,000
Loss (gain) on sale of investment securities 18,340 (29,658)
Loss on disposal of land 12,175 -
Accretion of discount on investment securities (18,314) (12,083)
Loss on sale of other real estate 39,498 -
Real estate loans originated for sale (5,767,500) (12,076,817)
Proceeds from sale of real estate loans 5,928,008 12,126,367
Net increase in accrued interest receivable (28,051) (41,222)
Net decrease in prepaid expenses 38,875 15,319
Net increase in other assets (106,746) (60,724)
Net (decrease) increase in accrued interest
and other liabilities (88,048) 34,228
=========== ==========
Net cash provided by operating activities 2,022,828 1,475,416
----------- ----------
Cash flows from investing activities
Proceeds from sales and maturities of investment
securities 15,765,277 11,154,142
Purchase of investment securities (12,966,968) (22,057,754)
Net increase in loans (20,422,407) (8,509,582)
Proceeds from sale of other real estate 122,317 -
Net purchase of premises and equipment (1,440,919) (402,938)
----------- ----------
Net cash used in investing activities (18,942,700) (19,816,132)
----------- ----------
Cash flows from financing activities
Net increase in deposits 13,262,692 23,117,070
Net increase (decrease) in federal funds
purchased and securities sold under
repurchase agreements 999,253 (1,194,683)
Payments on notes and bonds payable (26,666) (426,666)
Proceeds from FHLB advances 4,000,000 -
----------- ----------
Net cash provided by financing activities 18,235,279 21,495,721
----------- ----------
Net increase in cash and cash equivalents 1,315,407 3,155,005
Cash and cash equivalents at beginning of period 12,070,857 12,725,123
----------- ----------
Cash and cash equivalents at end of period $ 13,386,264 $ 15,880,128
=========== ==========
Supplemental disclosures of cash paid during the
period for:
Interest $ 4,218,278 $ 3,722,908
=========== ==========
Income taxes $ 555,000 $ 405,000
=========== ==========
See notes to interim consolidated financial statements.
</TABLE>
F-30
<PAGE>
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
Note 1 - Basis of financial presentation
The accompanying financial statements include the accounts of Georgia Bank
Financial Corporation and its wholly-owned subsidiary, Georgia Bank & Trust
Company. Significant intercompany transactions and accounts are eliminated in
consolidation.
The financial statements for the six and the three months ended June 30, 1997
and 1996 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report on Form 10-
KSB for the year ended December 31, 1996.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the financial position and results for
interim periods.
Note 2 - Stockholders' equity
On August 21, 1996, the Company's Board of Directors approved a 15% stock
dividend payable on September 25, 1996 to shareholders of record on September 4,
1996. All weighted average share and per share information in the accompanying
financial statements has been restated to reflect the effect of the additional
shares outstanding resulting from the stock dividend.
Note 3 - Allowance for Loan Losses
The following is a summary of the activity in the allowance for loan losses for
the periods ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-----------------
<S> <C> <C>
Balance, beginning of period $1,468 $1,335
Provision for loan losses 464 220
Charge-offs (135) (120)
Recoveries 48 13
-----------------
Balance, end of period $1,845 $1,448
</TABLE>
Note 4 - Income Taxes
During the period ended June 30, 1997, the Company recorded a change in its
valuation allowance for deferred income taxes based on the determination that
the existing valuation allowance was no longer necessary. This determination
was made given the nature of existing temporary differences and levels of
historical income. A corresponding income tax benefit of $163,000 was
recognized related to this change.
F-31
<PAGE>
Note 5 - Recent Accounting Pronouncements
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (Statement 128). Statement 128 supersedes
Accounting Principles Board Opinion No. 15 "Earnings Per Share" and specifies
the computation, presentation, and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential common
stock. Statement 128 replaces the presentation of primary and fully diluted EPS
with a presentation of basic EPS and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Statement 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The expected impact on the Company's financial
statements of the provisions of Statement 128 is not expected to be material.
Note 6 - Derivatives Disclosures
In January 1997, the Securities and Exchange Commission approved rule amendments
(the Release) regarding disclosures about derivative financial instruments,
other financial instruments and derivative commodity instruments. The Release
requires inclusion in the footnotes to the financial statements of extensive
detail about the accounting policies followed by a registrant in connection with
its accounting for derivative financial instruments and derivative commodity
instruments. The accounting policy requirements become effective for all
registrants for filings that include financial statements for periods ending
after June 15, 1997. The Company does not presently have any derivative
financial instruments or derivative commodity instruments as defined in the
Release.
F-32
<PAGE>
SUBSCRIPTION AGREEMENT
Georgia Bank Financial Corporation
3530 Wheeler Road
Augusta, Georgia 30909
Re: Offering of 278,000 shares (the "Shares") of Common Stock, $3.00 par
value (the "Common Stock"), of Georgia Bank Financial Corporation, a Georgia
corporation (the "Company").
Ladies and Gentlemen:
Subject to acceptance of this Subscription Agreement by the Board of
Directors of the Company, the undersigned subscriber ("Subscriber") hereby
subscribes and agrees to purchase the amount of Common Stock set forth on page 3
hereof at the price set forth on page 3 hereof, and by the Subscriber's
execution hereof agrees to be bound by all of the terms and provisions of this
Subscription Agreement. Simultaneously with the execution and delivery of this
Subscription Agreement, the Subscriber is delivering to the Company payment of
the total price for the Common Stock subscribed for, as set forth on page 3, in
the form of a check or money order payable to "Georgia Bank Financial
Corporation." In order for a Subscriber who is a shareholder of the Company at
9:00 a.m. on August 8, 1997 (the "Record Date") to exercise his right to acquire
shares in the Rights Offering (as that term is defined in the Company's
_________, 1997 prospectus (the "Prospectus")) of the Common Stock, this
Subscription Agreement and the accompanying check must be received by the
Company on or before 5:00 p.m. Eastern time on ___________, 1997 . A subscriber
wishing to purchase common stock in the Community Offering (as that term is
defined in the Prospectus, and which begins following the close of the Rights
Offering) must return this Subscription Agreement and the accompanying check to
the Company before 5:00 p.m. Eastern time on _____________, 199__, unless such
date is extended by the Company in its sole discretion.
The Subscriber hereby acknowledges and understands that:
(1) The amount of Common Stock which each Subscriber who is presently a
shareholder of the Company is entitled to purchase shall be determined
by the Company, whose determination shall be final and binding on all
parties. With respect to any Subscriber who is not a shareholder of
the Company, his subscription may be accepted or rejected, in whole or
in part, by the Company in its sole and absolute discretion. This
subscription is and shall be irrevocable.
(2) The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended (the "Securities Act") to register
the Shares. In connection with the offering of such Shares, the
Company has delivered to the Subscriber a Prospectus, of which this
Subscription Agreement is part, relating to the Company and the
Shares. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in
schedules and exhibits to the Registration Statement as permitted by
the rules and regulations of the Commission. The Subscriber may
obtain a copy of the Registration Statement and other information and
reports pertaining to the Company as prescribed in this Prospectus.
(3) No representation or promise has been made concerning the
marketability or value of the Common Stock.
(4) No federal or state agency has made any finding or determination as to
the fairness of this offering for investment, or made any
recommendation or endorsement of the Common Stock.
The Subscriber hereby represents and warrants to the Company as follows:
(1) The information given below regarding the Subscriber is true and
correct as of the date set forth below. If there should be any change
in such information prior to the acceptance by the
A-1
<PAGE>
Company of his subscription, the Subscriber will immediately provide
such information to the Company.
(2) The Subscriber received a copy of the Company's Prospectus dated
_______________, 1997, and has carefully read the Prospectus. In
evaluating the suitability of an investment in the Company, the
Subscriber has not relied upon any representations or other
information (whether oral or written) other than as set forth in the
Prospectus.
(3) The Subscriber recognizes that an investment in the Company involves
certain risks. The Subscriber has taken full cognizance of and
understands all of the risks associated with the purchase of the
Common Stock.
With respect to the Rights Offering, each Subscriber who was a shareholder
as of the Record Date of August 8, 1997 may subscribe for the following amounts
of Common Stock:
A number of shares determined by multiplying (i) .18205 and (ii) the
number of shares of Common Stock beneficially owned by such Subscriber
on the Record Date of August 8, 1997, and rounding that number to the
nearest whole number (the "Rights Offering Shares"). The cost per
share is $18.
With respect to the Community Offering, each Subscriber who is an existing
Company shareholder or any other person or entity which is Georgia Resident or a
South Carolina Resident (as those terms are defined below) may subscribe for the
following amounts of Common Stock:
Any number of shares of Common Stock The cost per share is $18. The
Company may in its sole discretion accept or reject, in whole or part,
any subscriptions in the Community Offering.
As used in this Subscription Agreement, "Georgia Resident" and "South
Carolina Resident" means a resident of the State of Georgia or the State of
South Carolina, respectively, as determined in accordance with the following
rules regarding determination of residence:
(a) A corporation, partnership, trust or other form of business
organization shall be deemed to be a resident of a state if, at the
time of the offer and sale to it, it has its principal office within
such state.
(b) An individual shall be deemed to be a resident of a state if such
individual has, at the time of the offer and sale to him, his
principal residence in the state.
(c) A corporation, partnership, trust or other form of business
organization which is organized for the specific purpose of acquiring
part of an issue shall be deemed not to be a resident of a state
unless all of the beneficial owners of such organization are residents
of such state.
Each Subscriber in the Community Offering hereby represents and warrants to
the Company that such Subscriber is either (i) a shareholder of the Company on
the date of the subscription agreement andwill remain a Company shareholder at
all times until at least the date that such Subscriber's subscription is
accepted or rejected as the case may be or (ii) a Georgia Resident or a South
Carolina Resident as described above.
The Subscriber should carefully read Schedule A hereto regarding federal
income tax backup withholding and must complete the substitute Form W-9 which is
contained in Schedule A.
A-2
<PAGE>
IN WITNESS WHEREOF, the Subscriber has executed this Subscription Agreement
as of this _____ day of ______________________, 199__.
<TABLE>
<S> <C>
Shares of Common Stock subscribed for -------------------------------------------
at $18 per share in the Rights Offering: Subscriber's Name (please print or type)
Shares of Common Stock subscribed for ------------------------------------------
at $18 per share in the Community Offering: Signature of Subscriber (indicate title if
- --------------------------------------
Total Price of Common Stock subscribed ------------------------------------------
for in the Rights Offering: Taxpayer Identification Number
- ----------------------------- or Social Security Number
State and Date of Incorporation
(if a corporation)
- ------------------------------------
Residence Address (if an individual): Principal Office (if not an individual)
- ------------------------------------ ----------------------------------------------
- ------------------------------------ ----------------------------------------------
- ------------------------------------ ----------------------------------------------
Name and Address of Employer (if an If you are an individual, indicate whether
individual) (indicate if in military): you are registered to vote in Georgia:
Yes____ No_____
State and Number of Driver's License
(if an individual)
-------------------------------------
</TABLE>
**********
(FOR COMPANY USE ONLY)
Accepted as to _______ shares of Common Stock
in the Rights Offering at $18 per share
Accepted as to ______ shares of Common Stock
in the Community Offering at $18 per share
GEORGIA BANK FINANCIAL CORPORATION
By: -------------------------------------
------------------------------ Date
A-3
<PAGE>
Schedule A to Subscription Agreement
------------------------------------
FEDERAL INCOME TAX BACKUP WITHHOLDING
In order to prevent the application of federal income tax backup
withholding, the Subscriber must provide the Company 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 Company is required to withhold 31% of
payments of interest and of dividends 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 for a TIN or
intends to apply for a TIN in the near future, "Applied For" should be written
in the space provided for the TIN on the Substitute Form W-9 below. In such
case, if the Company is not provided with a TIN within 60 days, the Company will
withhold 31% of interest and dividend payments thereafter made to such
Subscriber until a TIN is provided to the Company.
SUBSTITUTE FORM W-9
Under penalties of perjury, I certify that (1) the number shown below 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 underreporting 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).
A-4
<PAGE>
Each Subscriber Should Complete this Section:
If Joint Tenants, Community Property,
Tenants in Common, etc.:
- ----------------------------- -----------------------------------
Signature of Subscriber Signature of Subscriber
- ----------------------------- -----------------------------------
Printed Name Printed Name
- ----------------------------- -----------------------------------
Social Security or Employer Social Security or Employer
Identification No. (TIN) Identification No. (TIN)
A-5
<PAGE>
==============================================================================
PROSPECTIVE INVESTORS SHOULD RELY ONLY ON INFORMATION PRESENTED IN THIS
PROSPECTUS IN MAKING AN INVESTMENT DECISION. NO PERSON HAS BEEN AUTHORIZED BY
THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, AND ANY INFORMATION OR STATEMENT NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE DELIVERY OF
THIS PROSPECTUS DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS OFFERING IS MADE SUBJECT TO
WITHDRAWAL, CANCELLATION, OR MODIFICATION BY THE COMPANY WITHOUT NOTICE. THE
COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY AND ALL
SUBSCRIPTIONS, AND NO SUBSCRIPTION WILL BE EFFECTIVE UNTIL ACCEPTED BY THE
COMPANY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information............ 3
Special Cautionary Notice
Regarding Forward-Looking
Statements...................... 3
Summary.......................... 5
Risk Factors..................... 8
The Offering..................... 10
Use of Proceeds.................. 12
Market Information and
Dividends...................... 13
Capitalization................... 14
Business......................... 14
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations..................... 20
Management....................... 39
Security Ownership of Certain
Beneficial Owners and
Management..................... 38
Certain Relationships and
Related Transactions........... 41
Director Compensation............ 41
Compensation of Executive
Officers....................... 41
Compensation Committee
Report......................... 42
Benefit Plans.................... 44
Supervision and Regulation....... 44
Shares Eligible for Future Sale.. 50
Description of Common Stock...... 51
Legal Matters.................... 54
Experts.......................... 54
Indemnification.................. 54
Change in Accountants............ 55
Financial Statements and
Supplementary Data............. F-1
Subscription Agreement........... A-1
.................................
================================================================================
</TABLE>
UP TO 278,000 SHARES
GEORGIA BANK FINANCIAL
CORPORATION
COMMON STOCK
PROSPECTUS
AUGUST ____, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws provide indemnification as follows:
ARTICLE EIGHT
-------------
INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify and
----------------------------
hold harmless any person (an "Indemnified Person") who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the Corporation) because he
is or was a director of the Corporation, against expenses (including, but not
limited to, attorney's fees and disbursements, court costs and expert witness
fees), and against judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit or proceeding,
provided, in any case, that no indemnification shall be made for any expenses,
judgments, fines and amounts paid in settlement attributable to circumstances as
to which, under applicable provisions of the Code as in effect from time to
time, such indemnification may not be authorized by action of the Board of
Directors, the shareholders, or otherwise.
8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the power
-------------------------
to cause the Corporation to provide to officers, employees and agents of the
Corporation all or any part of the right to indemnification and other rights of
the type provided under Sections 8.1, 8.5 and 8.11 of this Article Eight
(subject to the conditions, limitations and obligations specified therein) upon
a resolution to that effect identifying such offices, employees or agents (by
position or name) and specifying the particular rights provided, which may be
different for each of the persons identified. Each officer, employee or agent
of the Corporation so identified shall be an "Indemnified Person" for purposes
of the provisions of this Article Eight.
8.3 SUBSIDIARIES. The Board of Directors shall have the power to cause
------------
the Corporation to provide to any directors, officer, employee or agent of the
Corporation who also is or was a director, officer, trustee, general partner,
employee or agent of a Subsidiary (as defined below), all or any part of the
right to indemnification and other rights of the type provided under Sections
8.1, 8.5 and 8.11 of this Article Eight (subject to the conditions, limitations
and obligations specified therein), with regard to amounts actually and
reasonably incurred by such person because he is or was a director, officer,
trustees general partner, employee or agent of the Subsidiary. The Board of
Directors shall exercise such power, if at all, through a resolution identifying
the person or persons to be indemnified (by position or name) and the Subsidiary
(by name or other classification), and specifying the particular rights
provided, which may be different for each of the persons identified. Each
person so identified shall be an "Indemnified Person" for purposes of the
provisions of this Article Eight. As used in this Article Eight "Subsidiary"
shall mean (a) another corporation, joint venture, trust, partnership or
unincorporated business association more than 20% of the voting capital stock or
other voting equity interest of which was, at or after the time the
circumstances giving rise to such action, suit or proceeding arose, owned,
directly or Indirectly, by the Corporation, or (b) a nonprofit corporation that
receives its principal financial support from the Corporation or its
Subsidiaries.
8.4 DETERMINATION. Notwithstanding any judgment, order, settlement,
-------------
conviction or plea in any action, suit or proceeding of the kind referred to in
Section 8.1, an Indemnified Person shall be entitled to indemnification as
provided in such Section unless a determination that such Indemnified Person is
not entitled to such indemnification shall be made (a) by the Board of Directors
by a majority vote of a quorum consisting of
II-1
<PAGE>
directors who are not at the time parties to the proceeding; (b) if a quorum
cannot be obtained under (a) above, by majority vote of a committee duly
designated by the Board of Directors (in which designation directors who are
parties may participate), consisting solely of two or more directors who are not
at the time, parties to the proceeding; or (c) is a written opinion by special
legal counsel selected as required by law. Notwithstanding any determination
pursuant to the preceding sentence, if such determination shall have been made
at a time that the members of the Board of Directors, so serving when the events
upon which such Indemnified Person's liability has been based occurred, no
longer constitute a majority of the members of the Board of Directors, then,
subject to any requirements of the Code, such Indemnified Person shall
nonetheless be entitled to indemnification as set forth in Section 8.1 unless
the Corporation shall carry the burden of proving, in an action before any court
of competent jurisdiction, that such Indemnified Person is not entitled to such
indemnification.
8.5 ADVANCES. Expenses (including, but not limited to, attorneys' fees
--------
and disbursements, court costs, and expert witness fees) incurred by the
Indemnified Person in defending any action, suit or proceeding of the kind
described in Section 8.1 (or in Sections 8.2 or 8.3, if the Board of Directors
has specified that advancement of expenses be made available to such Indemnified
Person) shall be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as set forth herein. The Corporation shall
promptly pay the amount of such expenses to the Indemnified Person, but in no
event later than 10 days following the Indemnified Person's delivery to the
Corporation of a written request for an advance pursuant to this Section 8.5,
together with a reasonable accounting of such expenses; provided, however, that
the Indemnified Person shall furnish to the Corporation a written affirmation of
his good faith belief that he has met the standard of conduct set forth in the
Code and a written undertaking and agreement to repay to the Corporation any
advances made pursuant to this Section 8.5 if it shall be determined that the
Indemnified Person is not entitled to be indemnified by the Corporation for such
amounts. The Corporation shall make the advances contemplated by this Section
8.5 regardless of the Indemnified Person's financial ability to make repayment.
Any advances and undertakings to repay pursuant to this Section 8.5 shall be
unsecured and interest-free.
8.6 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by the
---------------
Code or the Articles of Incorporation, the indemnification and advancement of
expenses provided by or granted pursuant to this Article Eight shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under any provision of the Articles
of Incorporation, or any Bylaw, resolution, or agreement specifically or in
general terms approved or ratified by the affirmative vote of holders of a
majority of the shares entitled to be cast thereon.
8.7 INSURANCE. The Corporation shall have the power and authority, but
---------
not the requirement, to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
trustee, general partner, employee or agent of a Subsidiary, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article Eight.
8.8 NOTICE. If the Corporation indemnifies or advances expenses to a
------
director under Sections 14-2-851, 14-2-852, 14-2-853 or 14-2-854 of the Code (or
any equivalent provision of these Bylaws) in connection with a proceeding by or
in the right of the Corporation, the Corporation shall, to the extent required
by Section 14-2-1621 of the Code, report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting.
8.9 SECURITY. The Corporation may designate certain of its assets as
--------
collateral, provide self-insurance or otherwise secure its obligations under
this Article Eight, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Eight, as the Board of Directors deems appropriate.
8.10 AMENDMENT. Any amendment to this Article Eight that limits or
---------
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to
II-2
<PAGE>
such Indemnified Person, apply only to claims, actions, suits, or proceedings
based on actions, events or omissions (collectively, "Post Amendment Events")
occurring after such amendment and after delivery of notice of such amendment to
the Indemnified Person so affected. Any Indemnified Person shall, as to any
claim, action, suit or proceeding based on actions, events or omissions
occurring prior to the date of receipt of such notice, be entitled to the right
of indemnification, advancement of expenses and other rights under this Article
Eight to the same extent as if such provisions had continued as part of the
Bylaws of the Corporation without such amendment. This Section 8.10 cannot be
altered, amended or repealed in a manner effective as to any Indemnified Person
(except as to Post Amendment Events) without the prior written consent of such
Indemnified Person.
8.11 AGREEMENT. The provisions of this Article Eight shall be deemed to
---------
constitute an agreement between the Corporation and each person entitled to
indemnification hereunder. In addition to the rights provided in this Article
Eight, the Corporation shall have the power, upon authorization by the Board of
Directors, to enter into an agreement or agreements providing to any person who
is or was a director, officer, employee or agent of the Corporation
indemnification rights substantially similar to those provided in this Article
Eight.
8.12 CONTINUING BENEFITS. The indemnification and advancement of expenses
-------------------
provided by or granted pursuant to this Article Eight shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
8.13 SUCCESSORS. For purposes of this Article Eight, the term
----------
"Corporation" shall include any corporation, joint venture, trust, partnership
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation or otherwise, and any such successors
shall be liable to the persons indemnified under this Article Eight on the same
terms and conditions and to the same extent as this Corporation.
8.14 SEVERABILITY. Each of the Sections of this Article Eight, and each of
------------
the clauses set forth herein, shall be deemed separate and independent, and
should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article Eight that is not
declared invalid or unenforceable.
8.15 ADDITIONAL INDEMNIFICATION. In addition to the specific
--------------------------
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and such of its officers as have been appointed by the Board of
Directors to the full extent permitted by action of the Board of Directors
without shareholder approval under the Code or other laws of the State of
Georgia as in effect from time to time.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the Company's estimated expenses in connection with
the issuance and distribution of the Shares offered by this Registration
Statement.
<TABLE>
<CAPTION>
<S> <C> <C>
Registration Fee $ 1,517
Blue Sky Fees and Expenses 500*
Printing and Engraving 7,500*
Legal Fees and Expenses 30,000*
Accountant's Fees and Expenses 10,000*
Miscellaneous 483*
-------
TOTAL $50,000*
-------
- ----------------
</TABLE>
*Estimated
II-3
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation of Georgia Bank
Financial Corporation, as amended.
3.2 Bylaws of Georgia Bank Financial Corporation
(Incorporated by reference to the Company's Form
10-SB, dated April 29, 1994)
5 Opinion of Alston & Bird LLP, including consent
21 Subsidiaries of Georgia Bank Financial Corporation
23.1 Consent of Alston & Bird LLP (Included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Cherry, Bekaert & Holland LLP
24 Powers of Attorney (Included in the signature
pages on pages II-6 and II-7 hereof)
</TABLE>
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sell securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
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 any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained
II-4
<PAGE>
in a form or prospectus filed by the registrant under Rule 424(b)(1),
or (4), or 497(h) under the Act as part of this registration statement
as of the time the Commission declared it effective.
(3) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona
fide offering of those securities.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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 Act and is, therefore,
unenforceable.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Augusta, State of Georgia, on the 23rd day of July,
1997.
GEORGIA BANK FINANCIAL CORPORATION
By: /s/ Robert W. Pollard, Jr.
----------------------------
Name: Robert W. Pollard, Jr.
Title: Chairman of the Board and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert W. Pollard, Jr. and Ronald L.
Thigpen as true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and a Registration Statement filed
under Rule 462(b) of the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could in person, hereby ratifying and
confirming all which said attorney-in-facts and agents or their substitutes, may
lawfully do, or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has duly been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert W. Pollard, Jr. Chairman of the Board, Chief 7/23/97
- ---------------------------- ---------
Robert W. Pollard, Jr. Executive Officer and Director
/s/ Edward G. Meybohm Vice Chairman of the Board 7/23/97
- ----------------------- ---------
Edward G. Meybohm and Director
/s/ Patrick G. Blanchard President and Director 7/23/97
- -------------------------- ---------
Patrick G. Blanchard
/s/ R. Daniel Blanton Executive Vice President, Chief 7/23/97
- ----------------------- ---------
R. Daniel Blanton Operating Officer and Director
II-6
<PAGE>
/s/ Ronald L. Thigpen Senior Vice President, Chief Financial 7/23/97
- ----------------------- ---------
Ronald L. Thigpen Officer (Principal Financial and
Accounting Officer) and Director
/s/ Travers W. Paine III Corporate Secretary and Director 7/23/97
------------------------ ---------
Travers W. Paine III
/s/ William J. Badger Director 7/23/97
- ----------------------- ---------
William J. Badger
/s/ William P. Copenhaver Director 7/23/97
- --------------------------- ---------
William P. Copenhaver
/s/ Randolph R. Smith, M.D. Director 7/23/97
- ----------------------------- ---------
Randolph R. Smith, M.D.
/s/ John W. Trulock, Jr. Director 7/23/97
- -------------------------- ---------
John W. Trulock, Jr.
II-7
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
OF EXHIBITS
- -----------
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation of Georgia Bank
Financial Corporation, as amended.
3.2 Bylaws of Georgia Bank Financial Corporation
(Incorporated by reference to the Company's Form
10-SB, dated April 29, 1994)
5 Opinion of Alston & Bird LLP, including consent
21 Subsidiaries of Georgia Bank Financial Corporation
23.1 Consent of Alston & Bird LLP (Included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Cherry, Bekaert & Holland LLP
24 Powers of Attorney (Included in the signature
pages on pages II-6 and II-7 hereof)
</TABLE>
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
GEORGIA BANK FINANCIAL CORPORATION
ARTICLE ONE
-----------
The name of the corporation is "Georgia Bank Financial Corporation".
ARTICLE TWO
-----------
The corporation shall have authority, exercisable by its board of
directors, to issue up to 10,000,000 shares of common stock, $1.00 par value per
share, and 5,000,000 shares of a special class of stock, $1.00 par value per
share, which shall be established and designated from time to time by the board
of directors, in such series and with such preferences, limitations and relative
rights as may be determined by the board of directors.
ARTICLE THREE
-------------
The street address and county of the initial registered office of the
corporation shall be at 301 Wheeler Executive Center, Augusta, Richmond County,
Georgia 30909. The initial registered agent of the corporation at such address
shall be Travers W. Paine III.
ARTICLE FOUR
------------
The name and address of the incorporator of the corporation is:
Travers W. Paine III
301 Wheeler Executive Center
Augusta, Georgia 30909
ARTICLE FIVE
------------
The mailing address of the initial principal office of the corporation is:
3530 Wheeler Road
Augusta, Georgia 30909
<PAGE>
ARTICLE SIX
-----------
The names and addresses of the initial directors of the corporation are:
------------------------------------------------------------------------
William J. Badger
HOWARD LUMBER COMPANY
Post Office Box 1456
Augusta, Georgia 30914
Patrick G. Blanchard
GEORGIA BANK & TRUST COMPANY OF AUGUSTA
3530 Wheeler Road
Augusta, Georgia 30909
R. Daniel Blanton
GEORGIA BANK & TRUST COMPANY Of AUGUSTA
3530 Wheeler Road
Augusta, Georgia 30909
Randolph L. Burnette
J. B. WHITE & CO., INC.
1700 Gordon Highway
Augusta, Georgia 30906
Warren A. Daniel, CLU
1916 North Leg
Augusta, Georgia 30909
C. Linton DeVaughn III
DEVAUGHN, DYCHES & LEONARD, INC.
3665 Wheeler Road
Augusta, Georgia 30909
E. G. Meybohm
MEYBOHM REALTY, INC.
3523 Walton Way Extension
Augusta, Georgia 30909
Travers W. Paine III
PAINE, MCELREATH, RHODES & HYDER, P.C.
309 Wheeler Executive Center
Augusta, Georgia 30909
-2-
<PAGE>
Robert W. Pollard, Sr.
POLLARD LUMBER COMPANY, INC.
Route 2, Box 657
Appling, Georgia 30802
Randolph R. Smith, M.D.
Suite 2-F
820 St. Sebastian Way
Augusta, Georgia 30904
ARTICLE SEVEN
-------------
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of the duty of
care or other duty as a director, except that such liability shall not be
eliminated for:
(i) any appropriation, in violation of the director's duties, of any
business opportunity of the corporation;
(ii) acts or omissions which involve intentional misconduct or a knowing
violation of law;
(iii) the types of liability set forth in Section 14-2-832 (or any
successor or redesignation thereof) of the Georgia Business
Corporation Code; and
(iv) any transaction from which the director received an improper personal
benefit.
If at any time the Georgia Business Corporation Code shall have been
amended to authorize the further elimination or limitation of the liability of a
director, then the liability of each director of the corporation shall be
eliminated or limited to the fullest extent permitted by such Code, as so
amended, without further action by the shareholders, unless the provisions of
the Georgia Business Corporation Code, as amended, require further action by the
shareholders.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect the elimination or limitation of liability or alleged
liability pursuant hereto of any director of the corporation for or with respect
to any acts or omissions of such director prior to such repeal or modification.
-3-
<PAGE>
ARTICLE EIGHT
-------------
(a) Except as otherwise provided in this Article and subject to the further
terms and conditions set forth herein, holders of shares of the corporation
shall have a preemptive right, granted on uniform terms and conditions
prescribed by the board of directors, to acquire proportional amounts of the
corporation's unissued shares upon the decision of the board of directors to
issue them; provided that the board of directors shall provide holders entitled
to preemptive rights a period of at least thirty days within which such rights
may be exercised.
(b) Notwithstanding the foregoing, there shall be no preemptive right with
respect to the issuance of:
(1) Shares issued as a share dividend;
(2) Fractional shares;
(3) Shares issued to effect a merger or share exchange;
(4) Shares issued pursuant to the acquisition of substantially all the
assets of any other corporation, partnership, association, or trust;
(5) Shares issued as compensation to directors, officers, agents or
employees of the corporation, its subsidiaries, or affiliates upon terms
and conditions approved or ratified by the affirmative vote of the holders
of a majority of the shares entitled to vote thereon;
(6) Shares issued to satisfy conversion, option, warrant or other
share purchase rights created to provide compensation, incentive or reward
to directors, officers, agents, or employees of the corporation, its
subsidiaries, or affiliates upon terms and conditions, or in accordance
with a stock option, employee stock ownership, profit sharing, pension or
similar plan or arrangement, approved or ratified by the affirmative vote
of the holders of a majority of the shares entitled to vote thereon;
(7) Shares authorized in the articles of incorporation that are issued
within one year from the effective date of incorporation;
(8) Shares issued under a plan of reorganization approved in a
proceeding under any applicable law of the State of Georgia or the United
States of America relating to the reorganization of corporations;
(9) Shares sold otherwise than for money, deemed by the board of
directors in good faith to be advantageous to the corporation's business,
other than shares sold pursuant to subparagraph (1) or (2) of this
paragraph; or
(10) Shares released by waiver from their preemptive rights by the
affirmative vote or written consent of the holders of two-thirds of the
shares of the class to be issued. Any vote or consent shall be binding on
all shareholders and their transferees for the time specified in the vote
or consent up to but not exceeding one year form the date thereof and shall
protect the corporation, its management, and all persons who may within
that time acquire the shares so released.
(c) No holder of shares of any class or series of securities issued by the
corporation shall have, solely by virtue of such ownership, any preemptive right
with respect to shares of any other class or series which may be issued or sold
by the corporation.
(d) A shareholder may waive his or her individual preemptive right at any
time, and the holders of a class of shares may waive the preemptive rights of
the class granted in this Article by the affirmative vote or written consent of
the holders of two-thirds of the shares of the class with preemptive lights.
The waiver of preemptive rights with respect to past issuances of shares shall
be effective if made by the person who was the shareholder at the time the
shares were issued. A waiver evidenced by a writing is irrevocable even though
it is not supported by consideration.
(e) Shares that are otherwise validly issued and outstanding shall not be
affected by reason of any violation of preemptive rights granted in this Article
with respect to their issuance,
(f) Notwithstanding anything in this Article to the contrary, no
shareholder of the corporation shall have any preemptive right to acquire
securities of the corporation unless said shareholder is resident in the State
of Georgia, or such other state in which the corporation is legally permitted to
offer and sell its securities, provided that the corporation shall have no
obligation to take any action to qualify to offer or sell its securities in any
state other than the State of Georgia.
-4-
<PAGE>
(g) No action shall be maintained to enforce any liability for violation of
preemptive rights granted in this Article unless brought within three years of
the discovery or notice of the violation) but in no event shall any action be
brought to enforce a liability for violation of preemptive rights more than five
years after the issuance giving rise to the violation.
ARTICLE NINE
------------
(a) Subject to the definitions hereinafter contained in paragraph (c) of
this Article, in addition to any vote otherwise required by law or these
Articles of Incorporation, a business combination shall be:
(1) Unanimously approved by the continuing directors, provided that
the continuing directors constitute at least three members of the board of
directors at the time of such approval; or
(2) Recommended by at least two-thirds of the continuing directors and
approved by at least a majority of the votes entitled to be cast by holders
of voting shares, other than voting shares beneficially owned by the
interested shareholder who is, or whose affiliate is, a party to the
business combination.
(b) The vote required by (a), above, does not apply to a business
combination if each of the following conditions is met:
(1) The aggregate amount of the cash, and the fair market value as of
five days before the consummation of the business combination of
consideration other than cash, to be received per share by holders of any
common shares, or, if authorized, preferred shares of the corporation, in
such business combination is at least equal to the highest of the
following:
(A) The highest per share price, including any brokerage
commissions, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholder for any shares of the same class or series
acquired by it:
(i) within the two-year period immediately prior to the announcement
date; or
(ii) in the transaction in which the interested shareholder became an
interested shareholder, whichever is higher;
(B) The fair market value per share of such class or series as
determined on the announcement date or as determined on the
determination date, whichever is higher, or
(C) In the case of shares other than common shares, the highest
preferential amount per share to which the holders of shares of such
class or series are entitled in the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the
corporation, provided that this subparagraph shall apply only if the
interested shareholder has acquired shares of such class or series
within the two-year period immediately prior to the announcement date;
(2) The consideration to be received by the holders of any class or
series of outstanding shares is to be in cash or in the shares of the same
class or series. If the interested shareholder has paid for shares of any
class or series of shares with varying forms of consideration, the form of
consideration for such class or series of shares shall be either cash or
the form used to acquire the largest number of shares of such class or
series previously acquired by it;
(3) After the interested shareholder has become an interested
shareholder and prior to the consummation of such business combination:
(A) Unless approved by a majority of the continuing directors,
there shall have been:
(i) no failure to declare and pay at the regular date therefore any
full periodic dividends, whether or not cumulative, on any
outstanding preferred shares of the corporation;
-5-
<PAGE>
(ii) no reduction in the annual rate of dividends paid on any class of
common shares, except as necessary to reflect any subdivision of
the shares;
(iii) any increase in such annual rate of dividends as is necessary
to reflect any reclassification, including any reverse share
split, recapitalization, reorganization, or any similar
transaction which has the effect of reducing the number of
outstanding shares; and
(iv) no increase in the interested shareholder's percentage ownership
of any class or series of shares of the corporation by more than
one percent in any twelve-month period.
(B) The provisions of divisions (i) and (ii) of subparagraph (A)
of this paragraph shall not apply if the interested shareholder or an
affiliate or associate of the interested shareholder did not vote as a
director of the corporation in a manner inconsistent with divisions
(i) and (ii) of subparagraph (A) of this paragraph and the interested
shareholder, within ten days after any act or failure to act
inconsistent with divisions (i) and (ii) of subparagraph (A) of this
paragraph, notified the board of directors of the corporation in
writing that the interested shareholder disapproved thereof and
requested in good faith that the board of directors rectify the act or
failure to act; and
(4) After the interested shareholder has become an interested
shareholder, the interested shareholder has not received the benefit,
directly or indirectly, except proportionately as a shareholder, of any
loans, advances, guarantees, pledges, or other financial assistance or any
tax credits or other tax advantages provided by the corporation or any of
its subsidiaries, whether in anticipation of or in connection with such
business combinations or otherwise.
(c) As used in this Article, the following definitions apply:
(1) "affiliate" means a person that directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a specified person;
(2) "announcement date" means the date of the first general public
announcement of the proposal of are business combination;
(3) "associate," when used to indicate a relationship with any person,
means:
(A) Any entity other than the corporation or a subsidiary of the
corporation, of which the person is an officer, director, or partner
or is the beneficial owner of ten percent or more of any class of
equity securities;
(B) Any trust or other estate in which the person has a
beneficial interest of ten percent or more or as to which the person
serves as trustee or in a similar fiduciary capacity; and
(C) Any relative or spouse of the person, or any relative of such
spouse, who has the same home as the person;
(4) A person shall be considered to be the "beneficial owner" of any
equity securities:
(A) Which the person or any of the person's affiliates or
associates owns, directly or indirectly;
(B) Which the person or any of the person's affiliates or
associates, directly or indirectly, has:
(i) the right to acquire, whether such right is exercisable
immediately or only after the passage of time, pursuant to any
agreement, arrangement, or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise; or
(ii) the right to vote pursuant to any agreement, arrangement, or
understanding; or
-6-
<PAGE>
(C) Which are owned, directly or indirectly, by any other person
with which the person or any of the person's affiliates or associates
has any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting, or disposing of such securities.
(5) "business combination" means:
(A) Any merger or consolidation of the corporation or any
subsidiary with:
(i) any interested shareholder; or
(ii) any other entity, whether or not itself an interested
shareholder, which is, or after the merger or consolidation would
be, an affiliate of an interested shareholder that was an
interested shareholder prior to the consummation of the
transaction;
(B) Any sale, lease, transfer, or other disposition, other than
in the ordinary course of business, in a transaction or series of
transactions in any twelve-month period, to any interested shareholder
or any affiliate of any interested shareholder, other than the
corporation or any of its subsidiaries, of any assets of the
corporation or any subsidiary having, measured at the time the
transaction or transactions are approved by the board of directors of
the corporation, an aggregate book value as of the end of the
corporation's most recently ended fiscal quarter of ten percent or
more of the net assets of the corporation as of the end of such fiscal
quarter;
(C) Any issuance or transfer by the corporation or any
subsidiary, in one transaction or a series of transactions in any
twelve-month period, or equity securities of the corporation or any
subsidiary which have an aggregate market value of five percent or
more of the total market value of the outstanding common and preferred
shares of the entity whose shares are being issued to any interested
shareholder or any affiliate of any interested shareholder, other than
the corporation or any of its subsidiaries, except pursuant to the
exercise of warranty or rights to purchase securities offered pro rata
to all holders of the corporation's voting shares or any other method
affording substantially proportionate treatment to the holders of
voting shares;
(D) The adoption of any plan or proposal for the liquidation or
dissolution of the corporation in which anything other than cash will
be received by an interested shareholder or any affiliate of any
interested shareholder; or
(E) Any reclassification of securities, including any reverse
stock split, recapitalization of the corporation, any merger or
consolidation of the corporation with any of its subsidiaries, which
has the effect, directly or indirectly, in one or a series of
transactions in any twelve-month period, of increasing by five percent
or more of the proportionate amount of the outstanding shares of any
class or series of equity securities of the corporation or any
subsidiary which is directly or indirectly beneficially owned by any
interested shareholder or any affiliate of any interested shareholder;
(6) "continuing director" means any member of the board of directors
who is not an affiliate or associate of an interest shareholder of any of
its affiliates, other than the corporation or any of its subsidiaries, and
who was a director of the corporation prior to the determination date, and
any successor to such continuing director who is not an affiliate or an
associate of an interested shareholder or any of its affiliates, other than
the corporation or its subsidiaries, and is recommended or elected by a
majority of all of the continuing directors;
(7) "control," including the terms "controlling," "controlled by" and
"under common control with," means the possession, directly or indirectly,
of die power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities,
by contract, or otherwise;
(8) "determination date" means the date on which an interested
shareholder first became an interested shareholder;
-7-
<PAGE>
(9) "entity" means a state charter banking corporation, federally
charter banking association, business corporation (including a bank holding
company), partnership, trust, state or federally chartered savings and loan
association or other financial institution;
(10) "fair market value" means:
(A) In the case of securities, the highest closing sale price,
during the period including the determination date and the 29 calendar
days prior to such date, of the security on the principal United
States securities exchange registered under the Securities Exchange
Act of 1934 on which the security is listed, or, if the security is
not listed on any such exchange, the highest closing sales price or,
if note is available, the average of the highest bid and asked prices
reported with respect to the security, in each case during the 30-day
period referred to above, on the National Association of Securities
Dealers, Inc. Automatic Quotation System, or any system then in use,
or, if no such quotations are available, the fair market value on the
date in question of the security as determined in good faith at a duly
called meeting of the board of directors, or, if there are no
continuing directors, by the entire board of directors; and
(B) In the case of property other than securities, the fair
market value of such property on the date in question as determined in
good faith at a duly called meeting of the board of directors by a
majority of all of the continuing directors, or, if there are no
continuing directors, by the entire board of directors of the
corporation;
(11) "interested shareholder" means any person, other than the
corporation or its subsidiaries or a trustee holding stock for the benefit
of employees of the corporation or its subsidiaries, pursuant to an
employee benefit plan or arrangement, that:
(A) Is a party to, or an affiliate of whom is a party to, the
business combination in question; and
---
(B) Is the beneficial owner of twenty percent or more of the
voting power of the outstanding voting shares of the corporation;
or
--
(C) Is an affiliate of the corporation and, at any time within
the two-year period immediately prior to the date in question was the
beneficial owner of twenty percent or more of the voting power of the
then outstanding voting shares of the corporation.
For the purpose of determining whether a person is an interested
shareholder, the number of voting shares deemed to be outstanding shall not
include any unissued voting shares which may be issuable pursuant to any
agreement, arrangement, or understanding, or upon exercise of conversion
rights, warrants, or options, or otherwise;
(12) "net assets" means the amount by which the total assets of an
entity exceed the total debts of the entity;
(13) "person" means a natural person or an entity; and
(14) "voting shares" means shares entitled to vote generally in the
election of directors.
ARTICLE TEN
-----------
The shareholders of the corporation, without a meeting, may take any action
required to be taken at a meeting of the shareholders, or any action which may
be taken at such a meeting, if written consent setting forth the action to be
taken is signed by those persons who would be entitled to vote at a meeting
those shares having voting power to cast not less than the minimum number (or
numbers, in the case of voting by classes) of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
were present and voted. Such action by less than unanimous consent may not be
taken with respect to any election of directors as to which shareholders would
be entitled to cumulative voting.
-8-
<PAGE>
IN WITNESS WHEREOF, the Undersigned executes these Articles of
incorporation this ____ day of September, 1991.
/s/ Travers W. Paine III
------------------------------------------
Travers W. Paine III
Incorporator
PAINE, McELREATH, RHODES & HYDER, P.C.
Attorneys at Law
301 Wheeler Executive Center
Augusta, Georgia 30909
404/738-9710
-9-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
GEORGIA BANK FINANCIAL CORPORATION
1.
The name of the corporation is Georgia Bank Financial Corporation (the
"Corporation").
2.
Article Two of the Articles of Incorporation of the Corporation is amended
in its entirety to read as follows:
"ARTICLE TWO
-----------
The Corporation shall have the authority, exercisable by its board of
directors, to issue up to 10,000,000 shares of its common stock, $3.00 par
value per share."
Except as expressly amended hereby, all other provisions of the Articles of
Incorporation shall remain in full force and effect.
3.
The purpose of this amendment is to effect a one-for-three reverse stock
split among the Corporation's $1.00 par value common stock while maintaining the
Corporation's authority to issue up to 10,000,000 shares of common stock.
4.
Effective upon the filing of this Amendment, each three (3) outstanding
shares of the $1.00 par value common stock of the Corporation held by each
record holder shall be deemed converted into one share of the $3.00 par value
common stock of the Corporation, and each remaining share (if any) of the $1.00
par value common stock shall be canceled and the holders thereof paid cash in
lieu thereof equal to the book value per share of the $1.00 par value common
stock of the Corporation on the date of filing of this amendment, or $3.19 per
share. At the option of each record holder, such conversion of shares may be
effected on a certificate by certificate basis for each certificate representing
shares of the $1.00 par value common stock held by such record holder on the
date of filing of this Amendment, and each share (if any) of the $1.00 par value
common stock from each certificate not converted shall be canceled and such
record holder paid cash in lieu thereof at a rate of $3.19 per share.
5.
This amendment was duly approved by the holders of a majority of the shares
of the Corporation in accordance with Section 14-2-1003 of the Georgia Business
Corporation Code at the Annual Meeting of Shareholders held on April 12, 1995.
-10-
<PAGE>
EXHIBIT 5
OPINION OF ALSTON & BIRD LLP
August 19, 1997
Georgia Bank Financial Corporation
3530 Wheeler Road
Augusta, Georgia 30909
Re: Georgia Bank Financial Corporation -- 278,000 Shares of $3.00 Par Value
Common Stock
Ladies and Gentlemen:
We have acted as counsel to Georgia Bank Financial Corporation, a Georgia
corporation (the "Company"), in connection with the Registration Statement on
Form SB-2 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") for the registration under the Securities Act of
1933, as amended (the "Securities Act") of 278,000 shares of the common stock,
par value $3.00 per share, of the Company (the "Shares").
In rendering this opinion, we have examined and relied upon such corporate
records, documents and other instruments that in our judgment are necessary or
appropriate in order to express the opinions hereinafter set forth. In such
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to the originals of all documents submitted to
us as copies, the authenticity of the originals of such documents, and the
truth, accuracy and completeness of the information, representations and
warranties contained in the records, documents, instruments and certificates we
have reviewed. Except to the extent expressly set forth herein, we have made no
independent investigations with regard to such records, documents and other
instruments, and, accordingly, we do not express any opinion as to matters that
have been disclosed by independent verification.
Based on the foregoing, we are of the opinion that the Shares are duly
authorized and, when issued and delivered to purchasers in accordance with the
Registration Statement, will be validly issued, fully paid, and non-assessable
under the Georgia Business Corporation Code as in effect on this date.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement. In giving such consent, we do not consider
that we are "experts," within the meaning of the term as used in the Securities
Act or the rules and regulations of the Commission issued thereunder, with
respect to any part of the Registration Statement, including this opinion as an
exhibit or otherwise.
<PAGE>
Members of our firm are licensed to practice law in the State of Georgia,
and we express no opinion with regard to any law other than the laws of the
State of Georgia and the federal laws of the United States of America.
Yours very truly,
ALSTON & BIRD LLP
By: /s/ David E. Brown, Jr.
--------------------------
David E. Brown, Jr.
WTC:mck
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF GEORGIA BANK FINANCIAL CORPORATION
A) GEORGIA BANK & TRUST COMPANY OF AUGUSTA
<PAGE>
Exhibit 23.2
The Board of Directors
Georgia Bank Financial Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 15, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Registration Statement of Georgia Bank
Financial Corporation (Form SB-2) for the registration of 278,000 shares of its
common stock of our report dated February 2, 1996, with respect to the financial
statements of Georgia Bank Financial Corporation for the years ended December
31, 1995 and 1994.
/s/CHERRY, BEKAERT & HOLLAND, L.L.P.
------------------------------------
Cherry, Bekaert & Holland, L.L.P.
Augusta, Georgia
August 11, 1997
