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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
[Fee Required] for the fiscal year ended June 30, 1996
Commission file number 33-52930
GF BANCSHARES, INC.
(Name of small business issuer in its charter)
Georgia 58-2016968
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
327 West Taylor Street
Griffin, Georgia 30223
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 228-2786
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether Issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive Proxy or Information Statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[ ] Not Applicable
Issuer's revenues for its most recent fiscal year were $8,564,813.
The aggregate market value of the voting stock held by non-affiliates of Issuer
at September 16, 1996 was $10,305,315 based on private trades at $17 per share,
although there is no established trading market.
The number of shares outstanding of Issuer's class of common stock at September
16, 1996 was 945,730 shares of common stock.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (Check one): Yes No X
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TABLE OF CONTENTS
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Page
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.......................................... 1
ITEM 2. DESCRIPTION OF PROPERTIES........................................ 28
ITEM 3. LEGAL PROCEEDINGS................................................ 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 28
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......... 29
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS....... 30
ITEM 7. FINANCIAL STATEMENTS............................................. 33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................ 34
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT............................... 34
ITEM 10. EXECUTIVE COMPENSATION........................................... 38
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................................... 42
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 44
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................. 45
SIGNATURE................................................................... 47
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
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(A) BUSINESS DEVELOPMENT.
The Company is a bank holding company organized in 1992 to own 100% of
the outstanding common stock of Griffin Federal Bank (the "Bank" or the "Savings
Bank"), a federally-chartered savings bank located in Griffin, Georgia. The
Bank was originally chartered in 1960 as a federal mutual savings and loan
association. The Bank converted its charter to a federal stock savings bank in
December 1987.
The Company's executive offices are located at the Bank's main office
at 327 West Taylor Street, Griffin, Georgia 30223 and its telephone number is
(770) 228-2786.
(B) BUSINESS OF ISSUER.
The primary business of the Bank is to attract deposits from the
general public and to use such deposits, together with borrowings and other
funds, to make residential loans and purchase investment and other securities.
The Bank also makes consumer loans, commercial loans, and provides other
financial services to its customers. The Bank also provides second mortgages on
existing structures and construction loans, as well as a variety of consumer
loans for personal, education and automobile purchases. Customer deposits with
the Bank are insured to the maximum extent provided by law through the Savings
Association Insurance Fund, a unit of the Federal Deposit Insurance Corporation
(the "FDIC"), and the Bank is a member of the Federal Home Loan Bank of Atlanta.
The Bank's primary service area is Griffin, Spalding County, Georgia.
The Bank's business is primarily conducted through its main office in Griffin,
Georgia. The Bank has five loan production offices in Austell,
Fayetteville/Peachtree City, Jonesboro, Savannah and Warner Robins, Georgia,
which make construction loans, and residential loans for sale in the secondary
market.
The Bank had approximately $94.2 million in total assets, deposits of
approximately $78.5 million, and a net worth of approximately $12.7 million at
June 30, 1996. The Bank's income is primarily derived from interest and fees
collected on loans and interest on investment securities and gains received on
sales of loans. The principal expenses of the Bank are interest paid on
deposits, interest paid on other borrowings by the Bank, employee compensation,
office expenses, and other overhead expenses. The Bank offers a full range of
banking services to individuals, professional and business customers in its
primary service area.
The Bank's loan portfolio, including loans held for sale, at June 30,
1996 totaled approximately $80.6 million, representing approximately 86% of its
total assets. Such loan portfolio was comprised of approximately 94%
construction and residential real estate loans, 3% consumer loans and 3%
commercial loans. The Bank has primarily operated as a mortgage banker by
selling most of its real estate mortgage production to other financial
institutions. The Bank is an approved
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Veterans Administration and Federal Housing Administration lender and employs a
direct endorsement underwriter on staff to facilitate the loan approval process
for Federal Housing Administration loans. Such mortgage banking activities
permit the Bank to generate fee income to supplement its traditional source of
income, i.e., the interest margin between the interest earned on interest-
earning assets (primarily loans) and the interest paid on interest-bearing
liabilities (primarily savings and time certificates of deposit). The Bank does
not retain the servicing of the majority of the mortgage loans sold in the
secondary market.
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LOAN PORTFOLIO
GENERAL
The Company, through the Savings Bank, continues to concentrate its lending
activities on conventional first mortgage loans secured by residential property,
and to a much lesser extent, commercial property. The Savings Bank requires
that its mortgagees carry insurance against fire and casualty losses in property
value. In the event such insurance lapses, the Savings Bank would pursue all
remedies available to it to require the mortgagee to reinstitute coverage. The
Savings Bank does not require title insurance, but instead depends upon the
professional liability insurance of the person preparing the title.
Regulatory changes in the thrift industry have expanded the Savings Bank's
lending authority from making primarily long-term residential mortgage loans
with fixed rates of interest and, to a lesser extent, multi-family and
commercial real estate loans to making consumer loans and non-real estate
commercial loans as well as developing a variety of mortgage instruments,
particularly those providing for periodic interest rate adjustments. As a
result of these additional lending powers and in an effort to reduce the
maturity and increase the interest rate sensitivity of its assets, the Savings
Bank continues to retain primarily adjustable rate loans. At June 30, 1996
adjustable rate mortgage loans represent approximately 70.52% of the Savings
Bank's loan portfolio. The Savings Bank has expanded its lending to include a
variety of consumer loans which are predominantly secured by residential real
estate.
RESIDENTIAL REAL ESTATE LOANS
The Company, through the Savings Bank, has the authority to make real estate
loans throughout the United States. The Savings Bank originates loans primarily
in its market area within Georgia. The Savings Bank primarily originates
adjustable rate residential mortgage loans ("ARMS") secured by first liens on
single-family dwellings to hold in its portfolio. It is authorized and
qualified to originate loans guaranteed by the Veterans Administration ("VA") or
insured by the Federal Housing Administration ("FHA"). The Savings Bank obtains
its loan originations primarily through referrals from customers and other
persons such as real estate brokers and contractors.
The Savings Bank began emphasizing the origination of adjustable rate mortgage
loans in 1984, and they have since become the Savings Bank's principal
residential mortgage product to be held for portfolio. The Savings Bank is
currently offering residential mortgage loans with rate adjustments based on the
one year Treasury Bill rate. The adjustment frequency is generally one year.
These loans carry a maximum adjustment of 6 percentage points over the life of
the loan and 2 percentage points yearly and generally have an interest rate
which varies with the one year constant Treasury Bill plus 2.75%.
The original contractual loan payment period for residential loans originated by
the Savings Bank is normally up to 30 years. The Savings Bank's experience is
that residential loans normally remain outstanding for an average period of 8 to
12 years because borrowers usually prepay their loans.
The Savings Bank originates fixed rate loans but for the past five years most
such loans have been sold through the Federal Home Loan Mortgage Corporation
("FHLMC") with the Savings Bank earning 3/8% for servicing.
All of the Savings Bank mortgage lending is subject to prescribed loan
origination and underwriting procedures. Applicants submit detailed loan
applications, and all large loans require property
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valuations by approved appraisers. In addition, the Savings Bank's loan policy
requires that loans be approved by senior management and all large loans be
subject to final ratification of the Board of Directors.
Interest rates and loan origination fees charged on loans originated by the
Savings Bank are generally competitive with other financial institutions and
mortgage originators in its general market area.
"Due-on-sale" clauses are an important means of increasing the interest rate on
existing fixed-rate mortgage loans. Since February 1975, the Savings Bank's
first mortgage loans have included due-on-sale clauses, which are provisions
giving the Savings Bank the right to declare a loan immediately due and payable
in the event, among other things, that the borrower sells or otherwise disposes
of the real property subject to the mortgage and the loan is not repaid. The
Savings Bank is actively enforcing such due-on-sale clauses.
RESIDENTIAL CONSTRUCTION LOANS
Residential construction mortgage loans are offered to owner occupants, to
persons building residential properties for permanent or seasonal uses or
investment purposes and to builders for inventory and sale. Construction loans
to builders of residential units are made on a renewable nine month fixed-rate
basis. Federal regulations permit a maximum period of 18 months for the
construction period of the loan. The Savings Bank's Loan Policy permits only a
six month period before repayments must begin, unless the loan is renewed. If
an inspection shows the house to be occupied, repayments must begin immediately.
The application process to obtain such loans includes the same criteria as other
residential mortgage loans and also includes a submission to the Savings Bank of
accurate plans, specifications, and costs of the property to be constructed.
These items are used as a basis to determine the appraised value of the subject
property. Appraisal reports are completed by approved appraisers. Loans are
generally made based on 75% of the current appraised value.
CONSUMER LOANS
Federal regulations permit federally chartered institutions to make secured and
unsecured consumer loans for up to 30% of the institution's assets. In
addition, a federally chartered institution has lending authority above the 30%
category for certain consumer loans, such as home equity loans, property
improvement loans and deposit account secured loans.
The Savings Bank makes various types of consumer loans which are predominantly
secured by real estate. The consumer loan portfolio includes property or home
improvement, education, automobile, and secured and unsecured personal loans.
FEE INCOME FROM LENDING ACTIVITIES
The Company, through the Savings Bank, generally charges loan origination fees
(excluding fees for private insurance) for first mortgage loans secured by
residential property or land. The Savings Bank also charges fees for builder's
construction loans and home equity second mortgage loans. Origination fees on
commercial and multi-family residential property loans are negotiated, along
with other loan terms, for each loan. Loan application fees and out-of-pocket
costs of the Savings Bank in reviewing loan applications, such as appraisal or
survey costs, are paid by the Borrower. The Savings Bank believes its loan
origination fees generally are competitive with those of other lenders in its
market area.
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In addition to origination fees, the Savings Bank charges fees for late
payments, changes of property ownership, and for miscellaneous services. Income
realized from these activities can vary significantly with the volume and type
of loans in the portfolio and in response to competitive factors.
INVESTMENTS
The Savings Bank invests primarily in obligations of the United States,
obligations guaranteed as to principal and interest by the United States, other
taxable securities and certain obligations of states and municipalities. The
Savings Bank also invests funds in time deposits in other banks and has an
interest-bearing checking account with the Federal Home Loan Bank.
SOURCE OF FUNDS
Certificates of deposit and other types of deposits are the primary source of
funds for the Savings Bank. Substantially all of the Savings Bank's deposits
are derived from its primary marketing area which includes Griffin and the
surrounding communities in central Georgia. In addition to deposits, the
Savings Bank obtains funds from loan repayments, interest on investments,
investment maturities, and other borrowed money.
DEPOSITS
The Company, through the Savings Bank, relies on short to intermediate term
certificate of deposit accounts and interest bearing transaction accounts for
its funding, rather than relying on traditional passbook savings accounts and
longer term certificates of deposit. This development has allowed the Savings
Bank to be more competitive in obtaining funds; however, the shift in demand
from lower yielding, less interest sensitive deposits has created a greater
challenge for management in the industry. The ability of the Savings Bank to
attract and maintain deposits and manage their associated costs is significantly
affected by market changes in interest rates.
BORROWINGS
The Savings Bank's primary source of funding is deposits, as discussed above.
However, during periods when the supply of lendable funds cannot meet the demand
for such loans, the Federal Home Loan Bank ("FHLB") System seeks to provide a
portion of the funds necessary through loans (advances) to its members. The
FHLB of Atlanta has served as the Savings Bank's primary borrowing source.
Advances may be on a secured or unsecured basis, depending on a number of
factors, including the purpose for which the funds are being borrowed and
existing advances outstanding.
The FHLB functions as a central reserve bank providing credit for thrift
institutions and certain other member financial institutions. As a member, the
Savings Bank is authorized to apply for advances on the security of FHLB stock
it owns, certain of its home mortgages, and other assets (principally,
securities which are obligations of, or guaranteed by, the United States),
provided certain standards related to creditworthiness have been met. Advances
are made pursuant to several different programs. Each credit program has its
own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage of
an institution's net worth or on the FHLB's assessment of the institution's
creditworthiness.
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ASSET/LIABILITY MANAGEMENT
It is the Bank's objective to manage its assets and liabilities to provide a
satisfactory and consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
Bank officers are responsible for developing and monitoring policies and
procedures that ensure acceptable composition of the asset/liability mix.
Management's overall philosophy is to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by
individuals, partnerships and corporations, while providing adequate liquidity
for the operation of the loan production function. Management seeks to invest
the largest portion of the Bank's assets in loans.
The Bank's asset/liability mix is monitored regularly through a report
reflecting interest-sensitive assets and interest-sensitive liabilities. The
objective of this review is to control interest-sensitive assets and liabilities
so as to minimize the impact of substantial movements in market interest rates
on the Bank's earnings.
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COMPETITION
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The Bank experiences competition in attracting and retaining business
and personal checking and savings accounts and in making residential real
estate, consumer and commercial real estate loans in its primary service area.
The principal factors in competing for such accounts are interest rates, the
range of financial services offered, convenience of office and branch locations
and flexible office hours. Direct competition for such accounts comes from
other savings institutions, commercial banks, credit unions, brokerage firms and
money market funds. The primary factors in competing for loans are interest
rates, loan origination fees and the range of lending services offered. The
competition for origination of loans normally comes from other savings
institutions, commercial banks, credit unions and mortgage banking firms. Such
entities may have competitive advantages as a result of greater resources and
higher lending limits (by virtue of greater capitalization) and may offer their
customers certain services which the Bank may not presently provide.
EMPLOYEES
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As of June 30, 1996, the Bank employed 88 full-time employees and 6
part-time employees. The Bank is not a party to any collective bargaining
agreement, and management believes the Bank enjoys satisfactory relations with
its employees.
SUPERVISION AND REGULATION
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The following discussion, which summarizes statutes and regulations
affecting savings and loan holding companies and savings banks, does not purport
to be complete and is qualified in its entirety by reference to such statutes
and regulations. Furthermore, no assurance can be given that the statutes and
regulations affecting the Company and the Bank will not be changed.
Regulation of the Company
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The Company is a savings and loan holding company within the meaning
of the Federal Home Owners' Loan Act and the Georgia Bank Holding Company Act.
As a savings and loan holding company, the Company would be required to file
with the Office of Thrift Supervision (the "OTS") and the Georgia Department of
Banking and Finance (the "DBF") annual reports and information regarding its
business operations and those of its subsidiaries. A savings and loan holding
company and its subsidiaries are also subject to examination by these agencies.
A savings and loan holding company is required by the Home Owners'
Loan Act to obtain approval from the OTS prior to acquiring, directly or
indirectly, ownership of more than 5% of the voting stock or control of any
savings association. Savings and loan holding companies are permitted to engage
in activities directly, or indirectly through non-financial institution
subsidiaries, unrelated to the savings association's business provided the
holding company controls only one savings association and provided that its
savings association subsidiary meets the requirements to qualify as a qualified
thrift lender (the "QTL Test").
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A savings and loan holding company which controls more than one
savings association or whose savings association subsidiary fails to comply with
the QTL Test is required to restrict its activities to those permitted for bank
holding companies under the federal Bank Holding Company Act of 1956 and to
register with the Board of Governors of the Federal Reserve System as a bank
holding company. Bank holding companies are generally prohibited from engaging
in any businesses that are not determined by the Board of Governors of the
Federal Reserve System to be so closely related to banking or to managing or
controlling banks as to be a proper incident thereto. Furthermore, the savings
association subsidiary which fails to comply with the QTL Test is required to
restrict its activities.
A savings and loan holding company may be compelled by the savings
association regulatory authorities to invest additional capital in its savings
association subsidiary up to an amount equal to 5% of the subsidiary's total
assets in the event its subsidiary fails to maintain its equity capital at
required levels due to either significant loan losses, risk-weighting of the
subsidiary's assets, rapid growth of loans or deposits in the subsidiary, or due
to other causes. If the Company is unsuccessful in maintaining the equity
capital of the Bank at required levels, the regulatory authorities may require
the divestiture by the Company of certain of its subsidiaries, including the
Bank if the OTS determines that the divestiture would improve the Bank's
financial condition and future prospects. In addition, a savings and loan
holding company may be required to provide additional capital to other savings
associations that it acquires as a condition to obtaining the approvals or
consents of regulatory authorities in connection with such acquisitions.
The Company is also a bank holding company within the meaning of the
Georgia Bank Holding Company Act, which provides that, without the prior
approval of the DBF, it is unlawful for (i) any bank holding company to acquire
direct or indirect ownership or control of more than 5% of the voting shares of
any bank (which by definition includes a savings association), (ii) any bank
holding company or subsidiary thereof, other than a bank, to acquire all or
substantially all of the assets of a bank, or (iii) any bank holding company to
merge or consolidate with any other bank holding company. It is also unlawful
for any bank holding company to acquire direct or indirect ownership or control
of 5% or more of the voting shares of a bank in Georgia unless such bank has
been in existence and continuously operating as a bank for a period of five
years or more prior to the date of application to the Georgia Commissioner of
Banking for approval of such acquisition.
The Company is an "affiliate" of the Bank within the meaning of the
Home Owners' Loan Act, which makes the restrictions on transactions with
affiliates of banks contained in Sections 23A and 23B of the Federal Reserve Act
applicable to savings associations to the same extent as they would be if they
were members of the Federal Reserve System. These sections of the Federal
Reserve Act, among other things, impose restrictions on loans to the Company by
the Bank and investments by the Bank in the securities of the Company and on the
use of such securities as collateral for loans by the Bank to any borrower. The
Company will also be subject to certain restrictions with respect to engaging in
the business of issuing, underwriting and distributing securities.
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Regulation of the Bank
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Office of Thrift Supervision (the "OTS"). Under the Home Owners' Loan
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Act ("HOLA") and other federal statutes, the OTS is the primary federal
regulator of the Bank and all other federal and state-chartered savings
associations whose deposits are insured by the FDIC. HOLA and regulations of
the OTS regulate, among other things, the investment, operation and structure,
accounts, accounting, capital, consumer compliance, community reinvestment, and
transactions with affiliated interests of all such savings associations. The
Bank is subject to periodic examinations by the OTS and files periodic reports
of its operations with that agency.
Federal Deposit Insurance Corporation. The FDIC insures the deposits
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of the Bank up to the maximum amount provided by law. As a member of the FDIC's
Savings Association Insurance Fund ("SAIF"), the Bank pays insurance premiums
which are established by the Federal Deposit Insurance Act ("FDIA"), as amended
by the Financial Institution Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). Under FDIA, the FDIC has authority to examine the operations of the
Bank and, if necessary, take action to assure that the Bank is operated in a
manner consistent with the FDIA.
Federal Home Loan Bank System. The Federal Home Loan Bank System
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consists of 12 regional Federal Home Loan Banks ("FHLB"). The FHLB's provide a
central credit facility primarily for member institutions. As a member of the
FHLB of Atlanta, the Bank is required to acquire and hold shares of capital
stock in the FHLB of Atlanta in an amount at least equal to the greater of (i)
1% of the aggregate principal amount of its unpaid residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each year or
(ii) 5% of its borrowings from the FHLB of Atlanta. At June 30, 1996 the Bank
was in compliance with this requirement with an investment in FHLB of Atlanta
stock of approximately $944,000.
Federal Reserve System. Federal Reserve regulations require savings
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associations to maintain reserves against their transaction accounts (primarily
checking, money market demand and negotiable order of withdrawal accounts) and
non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve may be used to satisfy the liquidity
requirements that are imposed by the OTS.
Savings associations also have authority to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve Board regulations require
savings associations to exhaust all FHLB sources before borrowing from the
Federal Reserve Bank.
Investment Limitations. HOLA and federal regulations limit the
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investment authority of federal savings associations and limit the aggregate
amount of a savings association's direct investment in real estate, equity
securities, service corporations and operating subsidiaries. Investment loans to
one borrower in any one real estate project may not exceed an amount equal to 2%
of the savings association's assets.
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Liquidity Requirements. The federal regulations require savings
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associations to maintain an average daily balance of liquid assets (cash,
certain time deposits, bankers' acceptances and specified United States
Government, state or federal agency obligations) equal to or in excess of an
amount of not less than a specified percentage of its net withdrawable savings
deposits plus short-term borrowings. The OTS may change this liquidity
requirement from time to time to any amount within the range of 4% to 10%,
depending upon economic conditions and the savings flows of member institutions.
Currently, the liquidity requirement is 5%. Federal regulations also require
each savings association to maintain an average daily balance of short-term
liquid assets at a specified percentage, which is currently 1%, of the total of
its net withdrawable savings accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The liquidity of the Bank at June 30, 1996 was 8.34% which
exceeded the then applicable 5% liquidity requirement.
FIRREA. The Financial Institutions Reform, Recovery, and Enforcement
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Act of 1989 ("FIRREA") was enacted on August 9, 1989. FIRREA changed the way
the thrift industry operates. The changes described below resulting from FIRREA
have not had a material adverse effect on the Bank's financial condition and
results of operations. Management believes that FIRREA's ultimate effect will
be to strengthen the industry and re-establish investor and depositor confidence
in institutions that operate under the more stringent regulatory structure.
Capital Requirements. A savings association must satisfy three
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standards to meet its capital requirement: (a) a leverage ratio of core capital
to adjusted total assets equal to 3%, (b) a tangible capital standard expressed
as a percentage of adjusted total assets equal to 1.5%, and (c) a risk-based
capital standard expressed as a percentage of risk-weighted assets equal to
8.0%. The OTS is converting from a Management, Asset Quality, Capital Adequacy,
Risk Management and Operating Results ("MACRO") rating system to a Capital
Adequacy, Asset Quality, Management, Earnings and Liquidity ("CAMEL") rating
system, in order to reduce regulatory burden by using the same rating system
employed by the other federal banking regulatory agencies. The conversion is
intended to improve consistency with regard to risk-based assessments and joint
examinations. The OTS does not expect there to be any practical effect on
savings institutions as a result of the change. The Bank met all of the capital
standards imposed by FIRREA and the OTS implementing regulations at June 30,
1996.
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The following table presents the regulatory capital positions of the
Bank at June 30, 1996.
<TABLE>
<CAPTION>
Current Minimum
Amount Requirement Excess
<S> <C> <C> <C>
Tangible Capital $11,082,000 $1,409,000 $9,673,000
Core Capital $11,082,000 $2,819,000 $8,263,000
Risk-Based Capital $11,600,000 $6,199,000 $5,401,000
</TABLE>
SAIF-insured savings associations unable to meet prescribed capital
standards face restrictions on their acceptance of brokered deposits. These
restrictions include: (i) a general prohibition is imposed on the acceptance,
directly or indirectly, of new brokered deposits from a third-party deposit
broker; (ii) a renewal or rollover of any amount on a deposit received from a
third-party broker on or before the effective date of the prohibition will be
treated as an acceptance of new deposits. Undercapitalized savings banks may
accept deposits brokered by their own employees, according to stipulated
conditions and restrictions.
An undercapitalized savings association may apply to the FDIC for a
waiver to be granted if it finds that the acceptance of brokered deposits would
not constitute an unsafe and unsound practice. An undercapitalized savings
association is also subject to restrictions imposed upon its payment of
dividends and other capital distributions and payment of management fees and may
be subject to limitations on its asset growth, compensation paid to senior
executive officers and other operating restrictions.
On August 31, 1993, the OTS issued a final rule effective January 1,
1994, which sets forth the methodology for calculating an interest rate risk
("IRR") component which is added to the risk-based capital requirements for OTS
regulated thrift institutions. Under the final rule, savings associations with
a greater than "normal" level of interest rate exposure will be subject to a
deduction from total capital for purposes of calculating their risk-based
capital requirement. Specifically, interest rate exposure will be measured as
the decline in net portfolio value due to a 200 basis point change in market
interest rates. The IRR component to be deducted from total capital is equal to
one-half the difference between an institution's measured exposure and the
"normal" level of exposure which is defined as two percent of the estimated
economic value of its assets. The Bank believes that it was in compliance with
the risk-based capital requirements of the new regulation as of June 30, 1996.
The final rule establishes a two quarter "lag" between the reporting
date that is used to calculate the IRR component and the effective date of each
quarter's IRR component. Under the final rule, the Director of the OTS may
waive or defer an institution's IRR component, but not decrease it unless it is
as the result of an appeal. The OTS intends to make an appeals process
available to institutions under certain circumstances.
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The OTS was required by statute to revise the risk-based capital
regulations to include a credit risk component and a nontraditional activities
component, the purpose of which will be to increase the minimum capital
requirements for savings associations with higher credit risks.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") also established a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective December 19, 1992, the banking regulators are required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of capitalization. Under the OTS final
rule implementing the prompt corrective action provisions, an institution shall
be deemed to be (i) "well capitalized" if it has total risk-based capital of
10.0% or more, has a Tier 1 risk-based capital ratio (core or leverage capital
to risk-weighted assets) of 6.0% or more, has a leverage capital of 5.0% or more
and is not subject to any order or final capital directive to meet and maintain
a specific capital level for any capital measure, (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risked-
based ratio of 4.0% or more and a leverage capital ratio of 4.0% or more (3.0%
under certain circumstances) and does not meet the definition of "well
capitalized," (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less
than 4.0% or a leverage capital ratio that is less than 4.0% (3.0% in certain
circumstances), (iv) "significantly undercapitalized" if it has a total risk-
based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio
that is less than 3.0% or a leveraged capital ratio that is less than 3.0% and
(v) "critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%. In addition, under certain
circumstances, a federal banking agency may reclassify a well capitalized
institution as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized). The Bank has been classified as a "well capitalized"
institution.
Activities Restrictions. FIRREA imposes three activity restrictions
-----------------------
on federal savings associations:
(a) The non-residential real estate lending limit for federal savings
associations is four times capital. FIRREA does not require
divestment of commercial real estate loans exceeding this new
ceiling that were held by an institution on the date of enactment.
(b) Federal savings associations may provide demand deposit (checking)
accounts to any customer, including any business customer.
-12-
<PAGE>
(c) No savings association may directly, or through a subsidiary,
acquire or retain any corporate debt security not of investment
grade ("junk bond"). The Bank does not hold any junk bonds in its
investment portfolio.
In addition, the FDIC has regulatory authority to further limit the
activities of savings associations, either individually or collectively,
including the power to: (i) issue rules, regulations and orders to prevent
actions that pose a serious threat to the insurance fund; and (ii) promulgate
regulations applying generally to savings institutions that prohibit these
institutions from directly engaging in any activities (whether permissible or
impermissible for federal institutions) determined to pose a serious threat to
SAIF.
Qualified Thrift Lender Test. The purpose of the QTL Test is to focus
----------------------------
savings association activities on housing related assets. FIRREA and the
Federal Deposit Insurance Corporation Improvement Act of 1991 (the "Improvement
Act") changed the QTL Test. An insured savings association is required to
maintain at least 65% of its assets in so called "qualified thrift investments."
This 65% is broken down into two groups of 45% and 20%. Of the institution's
total assets, at least 45% must consist of single-family and multi-family
mortgages, construction loans, home improvement loans, home equity loans,
manufactured housing loans, mortgage-backed securities, and FHLB stock.
Investments that may not exceed 20% of assets include half the dollar amount of
residential mortgages originated and sold within ninety days, investments in
service corporations heavily involved in residential real estate, twice the
dollar amount of loans for starter homes in low and moderate income
neighborhoods or for the acquisition and improvement of certain facilities in
areas designated by the Director of OTS, and Federal Home Loan Mortgage
Corporation and Federal National Mortgage Association stock. Consumer loans and
educational loans can only represent up to ten percent of the portfolio assets.
Penalties may be imposed on savings associations that fail to comply with the
QTL Test as follows: the institution will either have to convert to a bank
charter or it will have limits placed on its activities, branching authority,
FHLB borrowing authority, and dividend payments. The Bank qualified under the
current QTL Test at June 30, 1996.
A savings association that does not meet a QTL Test must either
convert to a bank charter or comply with the following restrictions on its
operations: (i) the savings association may not engage in any new activity or
make any new investment, directly or indirectly, unless such activity or
investment is permissible for a national bank; (ii) the branching powers of the
savings association shall be restricted to those of a national bank; (iii) the
savings association shall not be eligible to obtain any advances from its FHLB;
and (iv) payment of dividends by the savings association shall be subject to the
rules regarding payment of dividends by a national bank. Upon the expiration of
three years from the date the savings association ceases to be a QTL, it must
cease any activity and not retain any investment not permissible for a national
bank and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Insurance of Accounts. The Bank's deposit accounts are insured by the
---------------------
SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). FIRREA, enacted in 1989, gave the FDIC the authority, should it
initiate proceedings to terminate an institution's deposit
-13-
<PAGE>
insurance, to suspend the insurance of any such institution without tangible
capital. However, if a savings association has positive capital when it
includes qualifying intangible assets, the FDIC cannot suspend deposit insurance
unless capital declines materially, the institution fails to enter into and
remain in compliance with an approved capital plan or the institution is
operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of the Bank is unaware of any practice, condition or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
The risk-related assessment program provided a transition period between the
prior flat-rate system and the final risk-related system that took effect on
January 1, 1994, in accordance with the FDICIA. Under this interim system
(which has been continued without substantial change as the permanent system), a
bank or thrift pays within a range of 23 cents to 31 cents per $100 of domestic
deposits, depending upon the institution's risk classification. This risk
classification is based on an institution's capital group and supervisory
subgroup assignment. In addition, the FDIC is authorized to increase such
deposit insurance rates on a semi-annual basis if it determines that such action
is necessary to cause the balance in the SAIF to reach the designated reserve
ratio of 1.25% of SAIF-insured deposits within a reasonable period of time. In
addition, under the FDICIA, the FDIC may impose special assessments on SAIF
members to repay amounts borrowed from the U.S. Treasury or for any other reason
deemed necessary by the FDIC. The Bank's federal deposit insurance premium
expense for the year ended June 30, 1996 amounted to approximately $201,000.
Tax Returns. The Bank has filed all required state and federal tax
-----------
returns since its opening. The Bank's federal tax returns have not been audited
by the Internal Revenue Service.
Loans To One Borrower. All savings associations are subject to the
---------------------
same restrictions as national banks for loans to one borrower with certain
exceptions. Basically, the limitation states that loans and extensions of
credit to any one borrower which are not fully secured cannot exceed 15% of the
unimpaired capital and unimpaired surplus of the institution. Additional loans
and extensions of credit to one borrower fully secured by readily marketable
collateral cannot exceed 10% of the institution's unimpaired capital and
unimpaired surplus. The OTS has defined "unimpaired capital and unimpaired
surplus" for thrifts to include:
A. Common stock, capital surplus, and perpetual preferred stock, plus
undivided profits, reserves for contingencies, other capital reserves, FHLB
net worth certificates, minority interests in consolidated subsidiaries,
general allowance for loan and lease losses, and purchased mortgage
servicing rights, minus all intangible assets.
-14-
<PAGE>
B. Mandatory convertible debt and other indebtedness to the extent
of 20% of A. above.
C. To the extent of 50% of the sum of A. and B. above, mandatory
convertible debt not included in B. above, limited life preferred stock, and
subordinated notes and debentures.
Exceptions to the loans to one borrower limitation include a loan:
1. For any purpose provided it does not exceed $500,000;
2. To develop residential housing provided it does not exceed
$30,000,000 or 30% of the savings association's unimpaired
capital and unimpaired surplus, whichever is less, if these
conditions exist:
* The purchase price of each of the houses does not exceed
$500,000;
* The savings association is in, and continues to be in,
compliance with the fully phased in capital requirements;
* The director of the OTS permits the investment; and
* The total loans made under this exception do not exceed
150% of the savings association's unimpaired capital and
unimpaired surplus; and
3. To finance the sale of property acquired by foreclosure
(subject to an overall cap of 50 percent of the institution's
unimpaired capital and unimpaired surplus).
Loans To Insiders. Extensions of credit and loans to executive
-----------------
officers, directors, and shareholders who hold 10% or more of the institution's
outstanding capital stock are limited by the Federal Reserve Act. The director
of OTS also can impose additional restrictions on these extensions. Loans to
any executive officer, director and 10% or more shareholder or their related
interests are also subject to the limits on loans to one borrower. The loans to
insiders must be at market rates and terms. If the Bank violates any provisions
governing transactions with affiliates and loans to insiders, it may be subject
to Section 8 of the Federal Deposit Insurance Act, which deals with removal of
deposit insurance.
Lending Guidelines. Effective March 19, 1993, all financial
------------------
institutions were required to adopt and maintain comprehensive written real
estate lending policies that are consistent with safe and sound banking
practices. These lending policies must reflect consideration of the Interagency
Guidelines for Real Estate Lending Policies adopted by the federal banking
agencies, including the OTS and FDIC, in December 1992 ("Guidelines"). The
Guidelines set forth, pursuant to the
-15-
<PAGE>
mandates of FDICIA, uniform regulations prescribing standards for real estate
lending. Real estate lending is defined as the extension of credit secured by
liens on interests in real estate or made for the purpose of financing the
construction of a building or other improvements to real estate, regardless of
whether a lien has been taken on the property.
The policies must address certain lending considerations set forth in
the Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards, and
documentation, approval and reporting requirements. These policies must also be
appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with a LTV ratio being
the total amount of credit to be extended divided by the appraised value of the
property at the time the credit is originated, must be established for each
category of real estate loans. If not a first lien, the lender must combine all
senior liens when calculating this ratio. The Guidelines, among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%); construction (commercial, multifamily and nonresidential) (80%); improved
property (85%) and one- to four-family residential (owner occupied) (no maximum
ratio, however any LTV ratio in excess of 90% should require appropriate
insurance or readily marketable collateral).
Certain institutions can make real estate loans that do not conform
with the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one-to-four family residential
properties should not exceed 30% of total capital. An institution will come
under increased supervisory scrutiny as the total of such loans approaches these
levels. Certain loans are exempt from the LTV ratios (e.g., those guaranteed by
a government agency, loans to facilitate the sale of real estate owned, loans
renewed, refinanced or restructured by the original lender(s) to the same
borrower(s) where there is no advancement of new funds, etc.).
Transactions With Affiliates. Generally, restrictions
----------------------------
on transactions with affiliates require that transactions between a savings
association or its subsidiaries and its affiliates be on terms as favorable to
the Bank as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the Bank's
capital; collateral in specified amounts must usually be provided by affiliates
to receive loans from the Bank. Affiliates of the Bank include the Company and
any company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate which is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Federal Deposit Insurance Corporation Improvement Act of 1991.
-----------------------------------------------------------------
FDICIA, enacted into law on December 19, 1991, provides for, among other
matters, addressing the safety and soundness of deposit insurance funds, prompt
regulatory corrective action by federal agencies when an insured financial
institution begins to experience difficulties that may threaten loss to the
FDIC, revised
-16-
<PAGE>
limitations on borrowings by insiders of banks and the application of those
restrictions to federal savings associations, their parent holding companies and
their affiliates, limited guarantees of capital restoration by holding companies
of their subsidiary financial institutions, and new provisions for depository
institution conversions. The Improvement Act also amended the amount of
qualified thrift investments which savings associations must maintain to meet
the QTL Test and the manner in which such institutions must determine their
compliance with that test. The Office of Thrift Supervision (the "OTS") has
adopted regulations which, among other matters, implement provisions of the
Improvement Act that require or permit the OTS to take specific supervisory
actions when FDIC-insured savings associations come within one of five specific
capital categories. The five capital categories are designated as (1) well
capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly
undercapitalized, and (5) critically undercapitalized. The full effects of this
legislation will only be known over time.
The OTS regulations implementing the system of prompt corrective
action require certain corrective measures for institutions that fall within the
undercapitalized, significantly undercapitalized or critically undercapitalized
categories. A savings association is deemed to be undercapitalized if it has
(i) a total risk-based capital ratio that is less than 8.0 percent, or (ii) a
Tier 1 risk-based capital ratio that is less than 4.0 percent or (iii) a
leverage ratio that is less than 4.0 percent (or less than 3.0 percent if the
savings association is rated composite 1 under the MACRO rating system in the
most recent examination of the savings association). Lower capital ratios would
cause a savings association to fall within the significantly or critically
undercapitalized categories.
New Legislation. Additionally, the United States Congress
---------------
periodically considers and adopts legislation that results in, and could further
result in, deregulation, among other matters, of financial institutions. Such
legislation could modify or eliminate restrictions and current prohibitions on
financial institutions.
Congress has recently passed legislation, known as the "Riegle
Community Development and Regulatory Improvement Act of 1994," designed to
reduce administrative requirements for insured depository institutions to
facilitate the establishment of community development financial institutions and
other matters.
A number of legislative proposals have been introduced recently in
both the United States House and the Senate that contain provisions to
recapitalize the SAIF by means of a one-time assessment on the deposits of all
depository institutions the accounts of which are insured by the SAIF. Each of
the separate legislative proposals would resolve the current premium disparity
between the SAIF and the Bank Insurance Fund and contemplate the merger of the
two Funds following the recapitalization. As a SAIF-insured institution, the
Bank would be subject to the one-time assessment should any of the legislative
proposals be enacted.
In addition to recapitalization of the SAIF, other legislative
proposals are pending that provide for the elimination of all federal savings
association charters as of varying dates. The effect of such legislative
proposals would be to require all savings associations to convert to either a
-17-
<PAGE>
national bank or state bank charter by a specified date with any related holding
company required to become a bank holding company, subject to the limitations
regarding permitted activities of the Bank Holding Company Act of 1956. In
addition, other legislative proposals are pending, the effect of which would
reform the Glass-Stegall Act as well as to effect regulatory relief for
financial institutions. The regulatory relief provisions contained in several
bills are proposed to eliminate or reduce and simplify disclosure and reporting
requirements contained in current statutes and regulations. The likelihood of
enactment of any of the pending or proposed legislation is unknown.
The Interstate Banking Act allows bank holding companies to acquire
existing banks across state lines, regardless of state statutes. Further, under
the Interstate Banking Act, effective June 1, 1997, a bank holding company may
consolidate interstate bank subsidiaries into branches and a bank may merge with
an unaffiliated bank across state lines to the extent that the applicable states
have not "opted out" of interstate branching prior to such effective date.
States may elect to permit interstate mergers prior to June 1, 1997. The
Interstate Banking Act also permits de novo branching to the extent that a
particular state "opts into" the de novo branching provisions. The Interstate
Banking Act generally prohibits an interstate acquisition (other than an initial
entry into a state by a bank holding company), which would result in either the
control of more than (i) 10% of the total amount of insured deposits in the
United States, or (ii) 30% of the total insured deposits in the home state of
the target bank, unless such 30% limitations is waived by the home state on a
basis which does not discriminate against out-of-state institutions.
In August of 1996, President Clinton signed into law a bill containing
relief for savings institutions from recapture of bad debt reserves. The law's
provisions are effective for tax years beginning after December 31, 1995. The
new law eliminates the future use of the Internal Revenue Code Section 593
reserve method of accounting for bad debts by savings institutions; forgives
recapture of pre-1988 base year reserves; and requires the recapture of post-
1987 reserves ratably over a six-year period beginning with the 1996 taxable
year. The onset of recapture can be delayed for one or two years if an
institution meets a residential loan originations requirement in effect in 1996
and 1997. To qualify for a deferral each year, an institution will be required
to lend as much in dollar terms on residential real estate as in the average of
the most recent six years. The residential loan calculation does not include
refinancings and home equity loans.
The effect of this recent legislation and any other such legislation
on the business of the Bank cannot be accurately predicted. The Bank cannot
predict legislation that might be enacted or what other implementing regulations
might be adopted and, if enacted or adopted, the effect thereof.
-18-
<PAGE>
SELECTED STATISTICAL INFORMATION
The following statistical information is provided for GF Bancshares, Inc. for
the years ended June 30, 1996 and 1995. The data is presented using daily
average balances. This data should be read in conjunction with the financial
statements appearing elsewhere in this Annual Report.
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following tables set forth the amount of the Company's interest income or
interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net yield
on average interest-earning assets.
AVERAGE BALANCES. The condensed average balance sheets for the years indicated
are presented below.
<TABLE>
<CAPTION>
June 30,
1996 1995
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Assets
- ------
Interest-bearing deposits in banks $11,722 17,733
Taxable investment securities 3,700 4,264
Nontaxable investment securities 883 872
Loans(1) 75,403 68,145
------- -------
Total interest-earning assets 91,708 91,014
Cash and due from banks 539 629
Other assets 1,258 3,108
------- -------
$93,505 $94,751
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Interest-bearing deposits:
Interest-bearing demand $17,446 $19,284
Savings 3,974 4,096
Time 56,812 55,504
------- -------
Total interest-bearing deposits 78,232 78,884
Federal Home Loan Bank advances 21 --
------- -------
Total interest-bearing liabilities 78,253 78,884
Noninterest-bearing demand deposits 1,240 2,075
Other liabilities 1,477 1,250
------- -------
Total liabilities 80,970 82,209
------- -------
Shareholders' equity 12,535 12,542
------- -------
$93,505 $94,751
======= =======
</TABLE>
- ----------
(1) Average loans include nonaccrual loans.
-19-
<PAGE>
INTEREST INCOME AND INTEREST EXPENSE
The following table sets forth the Company's interest income and interest
expense for each category of interest-earning assets and interest-bearing
liabilities and the average interest rate for total interest-earning assets and
total interest-bearing liabilities, net interest spread and net yield on average
interest-earning assets.
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
---- ----
Interest Rate Interest Rate
-------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest income
Interest on loans(1) $6,960 9.23% $5,987 8.79%
Interest on taxable investments 218 5.89 265 6.21
Interest on nontaxable 40 4.53 38 4.36
investments(2)
Interest on deposits in banks 667 5.69 1,020 5.75
------ ------
7,885 8.60% 7,310 8.03%
------ ------
Interest expense
Interest on interest-bearing demand 531 3.04% 605 3.14%
Interest on savings 112 2.82 123 3.00
Interest on time deposits 3,435 6.05 2,938 5.29
Interest on Federal Home Loan
Bank advances 1 7.39 -- --
------ ------
4,079 5.21% 3,666 4.65%
------ ------
Net interest income $3,806 $3,644
====== ======
Net interest spread 3.39% 3.38%
==== ====
Net yield on average interest-earning 4.15% 4.00%
assets ==== ====
</TABLE>
- ----------
(1) Includes loan fees of $145 and $121, for 1996 and 1995 respectively.
(2) Yields were not computed on a tax equivalent basis.
-20-
<PAGE>
RATE AND VOLUME ANALYSIS. The following table reflects the changes in net
interest income resulting from changes in interest rates and from asset and
liability volume. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
Year Ended June 30,
1996 vs. 1995
(Dollars in Thousands)
Increase Change Due to
(Decrease) Rate Volume
--------- ---- ------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 973 $332 $ 641
Interest on taxable investments (47) (12) (35)
Interest on nontaxable investments 2 2 -
Interest on deposits in banks (353) (7) (346)
----- ---- -----
575 315 260
----- ---- -----
Interest expense
Interest on interest-bearing demand (74) (17) (57)
Interest on savings (11) (7) (4)
Interest on time deposits 497 432 65
Interest on Federal Home Loan Bank 1 - 1
advances ----- ---- ----
413 408 5
----- ---- ----
Net interest income $ 162 $(93) $ 255
===== ==== =====
</TABLE>
ASSET/LIABILITY MANAGEMENT. The following table sets forth the distribution of
the repricing of the Company's interest-earning assets and interest-bearing
liabilities as of June 30, 1996, the interest rate sensitivity gap (i.e.,
interest rate sensitive assets less interest rate sensitive liabilities), the
cumulative interest rate sensitivity gap, the interest rate sensitivity gap
ratio (i.e., interest rate sensitive assets divided by interest rate sensitive
liabilities) and the cumulative sensitivity gap ratio. The table also sets
forth the time periods in which earning assets and liabilities will mature or
may reprice in accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate movements on the
net interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of the Bank's
customers. In addition, various assets and liabilities indicated as repricing
within the same period may in fact reprice at different times within such period
and at different rates.
-21-
<PAGE>
<TABLE>
<CAPTION>
After After
Three One
Months Year But
Within But Within After
Three Within Five Five
Months One Year Years Years Total
------ -------- -------- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earning Assets:
Investment securities $ 0 $ 499 $ 1,829 $ 928 $ 3,256
Interest-bearing deposits in banks 5,002 - - - 5,002
Loans, net 23,211 28,552 14,128 10,791 76,682
------- ------- ------- ------- -------
28,213 29,051 15,957 11,719 84,940
------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits 19,238 - - - 19,238
Savings deposits 3,887 - - - 3,887
Time deposits 9,230 29,203 15,616 - 54,049
------- ------- ------- ------- -------
32,355 29,203 15,616 - 77,174
------- ------- ------- ------- -------
Interest rate sensitivity gap $(4,142) $ (152) $ 341 $11,719 $ 7,766
------- ------- ------- ------- -------
Cumulative interest rate sensitivity gap $(4,142) $(4,294) $(3,953) $ 7,766
------- ------- ------- -------
Interest rate sensitivity gap ratio (.87) (.99) 1.02 -
------- ------- ------- -------
Cumulative interest rate sensitivity gap ratio (.87) (.93) (.95) 1.10
------- ------- ------- -------
</TABLE>
The Company actively manages the mix of asset and liability maturities to
control the effects of changes in the general level of interest rates on net
interest income. Except for its effect on the general level of interest rates,
inflation does not have a material impact on the Company due to the rate
variability and short-term maturities of its earning assets. In particular,
approximately 75% of the loan portfolio is comprised of loans which are variable
rate terms or short-term obligations.
-22-
<PAGE>
INVESTMENT PORTFOLIO
TYPES OF INVESTMENTS. The amortized cost of investment securities and their
approximate fair values were as follows at June 30:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government and agency securities $2,021 $11 $ - $2,032
Mortgage-backed securities 356 6 (5) 357
State and municipal securities 879 - (3) 876
------ --- ----- ------
$3,256 $17 $ (8) $3,265
====== === ===== ======
1995
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------------------------------------------------------------
(Dollars in Thousands)
Securities Available for Sale:
Mortgage-backed securities $ 953 $ 1 $ (9) $ 945
====== === ===== ======
Securities Held to Maturity:
U.S. Government and agency securities $3,495 $41 $ - $3,536
Mortgage-backed securities 127 9 - 136
State and municipal securities 892 8 (12) 888
------ --- ----- ------
$4,514 $58 $ (12) $4,560
====== === ===== ======
</TABLE>
MATURITIES. The amounts of investment securities in each category at amortized
cost as of June 30, 1996 are shown in the following table according to maturity
classifications (1) one year or less, (2) after one year through five years,
(3) after five years through ten years and (4) after ten years.
<TABLE>
<CAPTION>
State and U.S. Treasury and
Political Other U.S. Government
Subdivisions Agencies
---------------------------- ---------------------------
Amount Amount
(Dollars in Yield (Dollars in Yield
Thousands) (1)(2) Thousands) (1)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity
One year or less $ - - $ 499 5.99%
After one year through five years 829 4.40% 1,000 6.49
After five years through ten years - - - -
After ten years 50 7.75 878 6.45
---- ---- ------ ----
$879 4.59% $2,377 6.37%
==== ==== ====== ====
</TABLE>
- ----------
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields were not computed on a tax equivalent basis.
-23-
<PAGE>
LOAN PORTFOLIO
TYPES OF LOANS. The amount of loans outstanding, including loans held for sale,
at the indicated dates is shown in the following table according to type of
loan. Also, see Note D of the consolidated financial statements for
concentrations of credit risk. Management is not aware of any additional
concentrations.
<TABLE>
<CAPTION>
June 30,
1996 1995
----- -------
<S> <C> <C>
(Dollars in Thousands)
Real estate-mortgage $ 64,132 $57,951
Real estate-construction 12,346 10,508
Commercial 2,448 883
Consumer installment and other 2,524 2,726
-------- -------
81,450 72,068
Deferred loan fees (158) (180)
Allowance for loan losses (688) (683)
-------- -------
Loans, net $ 80,604 $71,205
======== =======
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES. Total loans as of June
30, 1996 are shown in the following table according to maturity classifications
(1) one year or less, (2) after one year through five years and (3) after five
years.
<TABLE>
<CAPTION>
(Dollars in
Thousands)
Maturity
<S> <C>
One year or less $26,430
After one year through five years 4,854
After five years 50,166
-------
$81,450
=======
</TABLE>
The following table summarizes loans at June 30, 1996 with the due dates after
one year which (1) have predetermined interest rates and (2) have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
(Dollars in
Thousands)
<S> <C>
Predetermined interest rates $19,964
Floating or adjustable interest rates 35,056
-------
$55,020
=======
</TABLE>
-24-
<PAGE>
NONPERFORMING LOANS. The following table presents, at the dates indicated, the
aggregate of nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
June 30,
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis
("nonaccrual loans") $ 227 $ 22
Installment loans and term loans contractually
past due ninety days or more as to interest and
principal payments and still accruing 451 286
Loans, the terms of which have been renegotiated
to provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower ("restructured loans") 706 492
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayment terms 933 514
</TABLE>
In the opinion of management, any loans classified by regulatory authorities as
doubtful, substandard or special mention that have not been disclosed above do
not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources, or (ii) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms. Any
loans classified by regulatory authorities as loss have been charged off.
The following table sets forth interest income information for the indicated
categories of nonperforming loans for the year ended June 30, 1996:
<TABLE>
<CAPTION>
Nonaccrual loans Restructured loans
---------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
Gross interest income that would have been recorded
if the loans had been current in accordance with
their original terms and had been outstanding
throughout the year or since origination, if held
part of the year $ 13 $80
Interest income actually included in net income for
the year (1) (67)
--- ---
Interest income not recognized for the year $ 12 $ 13
=== ===
</TABLE>
The Company's policy for placing loans on nonaccrual status is to do so when it
does not expect payment in full of interest or principal, due to deterioration
in the financial position of the borrower and/or the value of the collateral
securing the loan. When a loan in default reaches 90 days in delinquency on
principal or interest, a determination is made regarding nonaccrual status.
LOAN CONCENTRATIONS. Most of the Company's business activity is with customers
located within Spalding County and the contiguous area. At June 30, 1996, the
Company had a concentration of credit risk totaling approximately $71.7 million
in loans secured by real estate.
-25-
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan loss experience, composition of the loan portfolio, evaluation of
possible future losses, current economic conditions, potential repurchases of
loans sold with recourse and other relevant factors. The Company's allowance
for loan losses was approximately $688,000 at June 30, 1996, .84% of the year
end total loans outstanding, including loans held for sale, compared with
$683,000 at June 30, 1995, .95% of year end total loans outstanding, including
loans held for sale. The allowance for loan losses is reviewed continuously
based on management's evaluation of current risk characteristics of the loan
portfolio, as well as the impact of prevailing and expected economic business
conditions. Management considers the allowance for loan losses adequate to
cover possible losses on the loans outstanding.
Management has not allocated the Company's allowance for loan losses to specific
categories of loans. Based on management's best estimate, the following
schedule reflects the breakdown of allowance for loan losses as of June 30,
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
Percentage of Percentage of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Balance at End of
Period Applicable to:
Real Estate Mortgage and
Construction Loans $588 94% $608 95%
Commercial Loans 50 3 25 1
Installment Loans to
Individuals and Other 50 3 50 4
---- --- ---- ---
$688 100% $683 100%
==== === ==== ===
</TABLE>
The following table presents an analysis of the Company's loan loss experience
for the periods indicated:
<TABLE>
<CAPTION>
June 30,
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Average amount of loans outstanding $74,403 $68,145
======= =======
Balance of reserve for possible loan losses,
beginning of period $ 683 $ 673
------- -------
Charge-offs:
Real estate-mortgage (16) (8)
Consumer installment (9) (2)
------- -------
Net Charge-offs (25) (10)
------- -------
Additions to reserve charged to
operating expenses 30 20
------- -------
Balance of reserve for possible loan losses, end of period $ 688 $ 683
======= =======
Ratio of net loan charge-offs to average loans .03% .01%
------ ---------
</TABLE>
-26-
<PAGE>
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand savings deposits
and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
----------------------- --------------------
Amount Rate Amount Rate
-------- ----- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 1,240 -.-% $ 2,075 -.-%
Interest-bearing demand deposits 17,446 3.04 19,284 3.14
Savings deposits 3,974 2.82 4,096 3.00
Time deposits 56,812 6.05 55,504 5.29
------- -------
Total deposits $79,472 $80,959
======= =======
</TABLE>
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of June 30, 1996 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months, (3) over six through twelve months and (4) over twelve months.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Three months or less $1,409
Over three through six months 972
Over six through twelve months 3,444
Over twelve months 1,802
------
Total $7,627
======
</TABLE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods indicated is presented
below.
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Return on assets(1) 1.09% .66%
Return on equity(2) 8.13 4.98
Dividend payout ratio(3) 83.51 119.18
Equity to assets ratio(4) 13.41 13.24
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
-27-
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES.
-------------------------
The Savings Bank conducts business from its main office and drive-in
facility in Griffin, Georgia location and from five loan production offices
Austell, Fayetteville/Peachtree City, Jonesboro, Savannah and Warner Robins,
Georgia. The Savings Bank owns its main office building which contains
approximately 10,985 square feet of space. The main office facility has four
fully equipped drive-in teller stations and one outside automatic teller
machine. The main office facility is owned by the Savings Bank pursuant to an
underlying real estate lease which expires in January 2020. The adjacent drive-
in facility and underlying real estate are owned by the Savings Bank. The
Savings Bank leases its loan production offices which contain approximately 300
to 6,100 square feet. These leases generally have a term of one to three years.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
Neither the Company nor the Bank is a party to any pending legal
proceedings, other than routine litigation incidental to the Bank's business,
which management believes would have a material effect upon the operations or
financial condition of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matter was submitted to a vote of security holders during the
Company's fourth quarter of the fiscal year ended June 30, 1996.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-28-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------
As of June 30, 1996, there were approximately 391 shareholders of
record of the Company's common stock. There is no established trading market
for the Company's common stock.
The Company declared a stock dividend payable on the basis of one
share of the Company's common stock for each twenty shares held by stockholders
of record as of September 1, 1996. The Company also declared and paid a cash
dividend of $0.55 per share of common stock for stockholders of record as of
September 1, 1996.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-29-
<PAGE>
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
Included below is a discussion of the Company's financial condition and recent
changes in its financial condition, cash flows and the results of operations.
Management is not aware of any trends, events or uncertainties that have had or
that are reasonably expected to have a material impact on the revenues or income
from continuing operations that have not been included in the discussion. Also,
management is not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources or operations.
LIQUIDITY AND CAPITAL RESOURCES
As a member of the FHLB System, the Savings Bank is required by current
regulations of the Office of Thrift Supervision (OTS) to maintain cash and
eligible liquid investments in an amount equal to five percent of net
withdrawable savings and borrowings payable in one year or less. The Savings
Bank has consistently exceeded the regulatory liquidity requirements.
The Savings Bank's principal sources of funds are deposits, loan repayments,
FHLB advances and retained earnings.
The Savings Bank had unfunded commitments to extend credit of approximately
$41,710,000 as of June 30, 1996. The Savings Bank's experience has been that
approximately 70% of such loan commitments are actually drawn upon by customers.
Of the amounts drawn, the majority represent loans originated for sale to
investors in the secondary market and are hence funded by those investors. The
remainder, which are retained by the Savings Bank, are funded through normal
operations from the sources of funds listed above.
Insured institutions, such as the Savings Bank, are required to maintain a
minimum level of regulatory capital as prescribed by the OTS, which include
three separate measurements of capital adequacy: (1) a tangible capital
standard, (2) a core capital standard, and (3) a risk-based capital standard.
The Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA),
required the standards to be no less stringent than the capital standards
applicable to national banks. FIRREA also required investments not meeting
certain requirements be deducted from the capital base. However, a transitional
rule which phases in the deduction from capital over a five-year period is
provided for a thrift's investment in and loans to a non-qualifying subsidiary
as of April 12, 1989.
As of June 30, 1996, the Savings Bank meets all capital standards as detailed
below:
<TABLE>
<CAPTION>
CAPITAL CURRENT
BASE REQUIRMENT EXCESS
------- ---------- ------
(Dollars in Thousands)
<S> <C> <C> <C>
Tangible Capital $ 11,082 $ 1,409 $ 9,673
Core Capital $ 11,082 $ 2,819 $ 8,263
Risk-based Capital $ 11,600 $ 6,199 $ 5,401
</TABLE>
If an institution fails to meet the minimum net capital requirement, the OTS may
require such institution to take certain corrective actions and may impose
sanctions in the form of operating and budgetary controls.
-30-
<PAGE>
RESULTS OF OPERATIONS
The Company's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Because
interest rates are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest income is
dependent upon the Bank's ability to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield.
The primary component of consolidated earnings is net interest income, or the
difference between interest income on earning assets and interest paid on
supporting liabilities. The net interest margin is net interest income
expressed as a percentage of average earning assets. Earning assets consist of
loans, investment securities and interest bearing deposits in banks. Supporting
liabilities consist of deposits and advances from the Federal Home Loan Bank.
The Company's net interest income before provision for loan losses increased to
$3,806,000 in 1996 as compared to $3,644,000 in 1995 representing an increase of
4.4%. The increase in net interest income is primarily attributable to
increased loan outstandings during the 1996 fiscal year. Investment securities
and interest-bearing deposits in other banks had a corresponding decrease in
outstandings, resulting in improved gross interest income, in that loans have a
higher yield than investment securities. This gain was largely offset by
increased interest expense, due to higher prevailing interest rates on time
deposits during the current year.
The net interest margin increased from 4.00% to 4.15% from 1995 to 1996. The
yield on average earning assets increased to 8.60% in 1996 compared to 8.03% in
1995, while the interest cost on average interest-bearing liabilities also
increased, to 5.21% in 1996, compared to 4.65% in 1995. While these increases
virtually offset in terms of the Company's net interest spread, 3.39% in 1996
vs. 3.38% in 1995, the net interest margin improvement resulted from a change in
the Company's asset mix, to increased loans and reduced investments and deposits
in banks. Average earning assets increased slightly from $91,014,000 in 1995 to
$91,708,000 in 1996. Average loans increased from $68,145,000 in 1995 to
$75,403,000 in 1996. At the same time, average interest-bearing deposits in
banks and investment securities decreased from a total of $22,869,000 in 1995
to $16,305,000 in 1996. Average interest-bearing liabilities decreased slightly
from $78,884,000 in 1995 to $78,253,000 in 1996.
The allowance for loan losses represents a reserve for potential losses in the
loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention, as well as potential repurchases of loans sold with recourse.
The provision for loan losses is a charge to current earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. The provision for loan losses increased to $30,000
in 1996 from $20,000 in 1995. The increase was the result of an increase in
nonperforming loans. Gross charge-offs for 1996 increased to $25,000 as compared
to $10,000 in 1995, with no recoveries. The allowance for loan losses as a
percentage of total loans excluding loans held for sale outstanding as of June
30, 1996 and 1995 was .90% and 1.03%, respectively. Net charge-offs to total
loans, excluding loans held for sale outstanding at June 30, 1996 and 1995, were
.03% and .01%, respectively.
Based upon its evaluation of the loan portfolio, management believes the reserve
for loan losses is adequate to absorb possible losses on existing loans that may
become uncollectible. This evaluation considers past loan loss experience, past
due and classified loans, underlying collateral value and current economic
conditions which may effect the borrower's ability to pay.
Other income for the Company is composed primarily of service charges and fees
on deposit accounts and from loan servicing, gains (losses) on the sale of
-31-
<PAGE>
mortgage loans originated in the Company's loan production offices, and gains
(losses) on sales of investment securities. Other income increased by $367,000,
or 117%, from $313,000 in 1995, to $680,000 in 1996. The largest component of
this improvement was the reduction of $791,000 in losses from loan production
office operations, from a loss of $863,000 in 1995, to a $72,000 loss in 1996.
Higher prevailing mortgage interest rates over the past two years have resulted
in a significant reduction in mortgage loan originations and resulting revenues
by the Company. In response to these changed market conditions, the Company has
moved to reduce the cost of its mortgage origination infrastructure, namely the
size of its loan production office network and related support functions. That
process was largely completed late in the 1995 fiscal year, but not before
significant operating losses were experienced. The relatively small loss in the
1996 fiscal year, reflected the down-sized structure through most of the year.
In addition to the operating losses of the loan production offices, there were
also certain one time income and expense items associated with the closure of
some of the offices, resulting in a net loss of $157,000 in fiscal 1995,
compared to a net gain of $91,000 in fiscal 1996, for an improvement of
$248,000. A gain of $598,000 from the sale of Federal Home Loan Mortgage
Corporation stock was realized in fiscal 1995, partially offsetting the loss
from loan production office operations. However, there were no gains or losses
from securities sales in fiscal 1996.
Other expense for the Company is composed primarily of the operating expenses of
the full service banking office in Griffin, Georgia. The most significant
components are salaries and employee benefits, net occupancy expense, FDIC
insurance premiums, data processing expense, professional fees, other taxes
(non-income) and stationery and supplies. Other expense decreased $104,000, or
3%, to $2,905,000 in fiscal 1996 compared to $3,009,000 in fiscal 1995.
Salaries and benefits decreased $25,000 (2%), net occupancy decreased $27,000
(8%), professional fees decreased $85,000 (44%), other taxes decreased $12,000
(13%) and stationery and supplies decreased $3,000 (4%). Offsetting these
improvements were increased expenses, including FDIC insurance, up $1,000 (less
than 1%), and data processing expense, up $23,000 (15%). The decrease in
professional fees reflected non-recurring expenses related to the downsizing of
the loan production office network discussed under other income above. Other
decreases resulted from expense control measures implemented in fiscal 1996.
Income tax expense as a percentage of pretax income remained relatively stable,
increasing from 33% in fiscal 1995 to 34% in fiscal 1996.
The Company's net income was $1,019,000 for the year ending June 30, 1996,
compared to net income of $625,000 for the year ending June 30, 1995. The
primary factors in the improvement, which are discussed above, include improved
gross interest income from the changed asset mix (increased loans and reduced
securities), reduced loss on loan production office operations and reduced
operating expense.
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
-32-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
--------------------
The financial statements, notes thereto and auditor's report thereon
included on the following pages are incorporated herein by reference.
Index to Financial Statements
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report....................................... F-1
Consolidated Balance Sheets at
June 30, 1996 and 1995.......................................... F-2
Consolidated Statements of Income for the Years Ended
June 30, 1996 and 1995.......................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1996 and 1995............... F-6
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996 and 1995.................................... F-7
Notes to Consolidated Financial Statements......................... F-9
</TABLE>
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-33-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
The Company's Board of Directors replaced the Company's independent
auditors, Mauldin & Jenkins, on March 18, 1996, as a result of the election of a
relative of a partner in such accounting firm to the Board of Directors of the
Bank, and thereafter engaged Bricker & Melton, P.A., Certified Public
Accountants, to act as the Company's independent auditors. The reports prepared
by Mauldin & Jenkins on the financial statements of the Company for the fiscal
year ended June 30, 1995, did not contain an adverse opinion or disclaimer of
opinion, nor was the report modified as to audit scope or accounting principles.
There were no disagreements with Mauldin & Jenkins on any matter of accounting
principles or practices, financial statement disclosure, auditing scope or
procedures or any other matter requiring disclosure. The Company filed a Form
8-K with Securities and Exchange Commission as to this matter on March 19, 1996.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
----------------------------------------------------
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
-----------------------------------------------------------
Board of Directors
The members of the Board of Directors of the Company are elected by
the shareholders. The directorships of the Company are divided into three
classes, with the members of each class serving three-year terms and the
shareholders of the Company elect one class annually. The Board of Directors of
the Company presently consists of eight members who also serve as directors of
the Bank. In addition to the eight members of the Company who serve as
directors of the Bank, the following individuals serve as additional members of
the Board of Directors of the Bank: Tommy Barrett, John J. Dillon, Charles
William Jones and Dr. Walter L. Pyron. The members of the Board of Directors of
the Bank are elected annually by the Company, acting as the sole shareholder of
the Bank.
The following sets forth the name, age, year first elected as a
director of the Bank, and principal occupation and business experience of the
directors of the Company. All directors of the Company were initially elected
upon the organization of the Company in 1992.
-34-
<PAGE>
<TABLE>
<CAPTION>
Incumbent Directors Whose Terms Expire in 1996
Year First Principal Occupation;
Name Age Elected Business Experience
- ---- --- ---------- ---------------------
<S> <C> <C> <C>
James C. Owen, Jr. 76 1960 Chairman of the Board of the Company;
retired partner in the law firm of Beck,
Owen & Murray.
Scott H. Searcy, Sr. 61 1967 President of Searcy & Co., an
independent insurance agency and Vice
President and associate broker of Searcy
& Co. Realtors, a real estate brokerage
company.
Incumbent Directors Whose Terms Expire in 1997
Year First Principal Occupation;
Name Age Elected Business Experience
- ---- --- ---------- ---------------------
Ron J. Franklin 52 1988 President and Chief Executive of the
Bank.
William T. Ramsey 75 1967 Chairman of the Board of the Bank.
Frank A. Thomas 75 1960 Chief Executive Officer of Thomas
Packing Co., a meat processing
company; Treasurer of the Company.
Incumbent Directors Whose Terms Expire in 1998
Year First Principal Occupation;
Name Age Elected Business Experience
- ---- --- ---------- ---------------------
F. Dan Boyd 76 1967 Retired Owner and President of Boyd
Builders Supply.
Lee Roy Claxton 72 1967 Retired Pharmacist.
Robert H. Crossfield 76 1960 Owner of the Crossfield Company, a
rental investment company; Secretary of
the Company.
</TABLE>
-35-
<PAGE>
There are no arrangements or understandings between the Company and
any person pursuant to which any of the above persons have been or will be
elected a director. There are no family relations between any of the directors
or executive officers of the Company.
Meetings of the Board of Directors
The Board of Directors of the Company had 11 meetings during the
fiscal year ended June 30, 1996. Each director of the Company attended at least
75% of the board meetings and committee meetings of which such director was a
member. The Board of Directors of the Bank had 14 meetings during the fiscal
year ended June 30, 1996. Each director of the Bank attended at least 75% of
the total number of board meetings and committee meetings of which such director
was a member.
The Board of Directors of the Company has an Executive Committee and a
Compensation/Stock Option Plan Committee. The Board of Directors of the Bank
has an Executive Committee, Audit Committee, and Investment Committee.
Bank Management
William T. Ramsey became Chairman of the Board of Directors of the
Bank effective January 1, 1993. Mr. Ramsey had been the President of the Bank
since 1967. Other background information on Mr. Ramsey is set forth under the
prior heading "Board of Directors".
Ron J. Franklin became President and Chief Executive Officer of the
Bank effective January 1, 1993. Mr. Franklin had been the Executive Vice
President of the Bank since 1985. Mr. Franklin is a graduate of the University
of Alabama and Georgia State University. Other background information on Mr.
Franklin is set forth under the prior heading "Board of Directors".
Arthur H. Hammond, age 51, has been Executive Vice President and
Chief Financial Officer of the Bank since February 1996. Prior thereto, he was
chief financial officer of Cobb Wells, Inc., a communications company from 1995
to 1996. He was executive vice president of the Bank from November 1994 until
February 1995, and was employed by First Union National Bank of Georgia (and
predecessor companies) from 1974 until 1994, when he retired as president of the
Griffin, Georgia operations. Mr. Hammond is a certified public accountant and
is a graduate of the University of Georgia and Georgia State University.
Marvin Brooks, age 48, has been Executive Vice President of the Bank
since April 1995. From 1992 to 1995, he was senior vice president with Exchange
Bank in Milledgeville, Georgia. From 1985 to 1992, he was employed by Morris
State Bank in Dublin, Georgia, where he was president and chief operating
officer from January 1991 to April 1992. Mr. Brooks has more than 25 years of
commercial lending experience.
-36-
<PAGE>
Ralph B. Westmoreland, age 57, has been Senior Vice President in
charge of lending since 1988, and has been with the Bank since 1967. Mr.
Westmoreland attended the University of Georgia.
Lee Greeson, age 34, became Senior Vice President-Construction Lending
of the Bank in 1994, and has been with the Bank since 1989. From 1988 to 1989,
he was a construction loan officer at Bank South and from 1986 to 1988, he was a
commercial loan officer with the Trust Company Bank. Mr. Greeson is a graduate
of the University of Georgia.
Sandy Studle, age 46, has been Senior Vice President in charge of loan
servicing of the Bank since 1995. Prior thereto, she was Senior Vice President
in charge of training-compliance and has been with the Bank since 1980. She
attended Mercer University.
Elaine S. Kendrick, age 49, has been Senior Vice President/Controller
of the Bank since 1996. Prior thereto, she was Vice President/ Controller of
the Bank for 1990 to 1996. She was employed by First Union Bank for over
twenty-five years. Mrs. Kendrick is a graduate of the University of Georgia
Banking School.
Jodi Conner, age 42, became Senior Vice President/Operations Manager-
Loan Production Offices in 1996. Prior thereto, she was Vice
President/Operations Manager-Loan Production Offices from 1990 to 1996. She was
previously vice president with Commonwealth United for 13 years.
John S. Hobbs, age 49, has been Vice President in charge of
compliance/audit since 1995. Prior thereto, he was Vice President in charge of
loan servicing-operations of the Bank from 1989 to 1995. From 1980 to 1989,
Mr. Hobbs was vice president of credit review at First Union Bank of Georgia.
Mr. Hobbs has more than 18 years experience in the commercial banking business.
Mr. Hobbs is a graduate of Auburn University.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-37-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
----------------------
Executive Compensation
The following sets forth certain information concerning the
compensation of the Company's chief executive officer during fiscal years 1996,
1995 and 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------------
Name and Other Annual Securities All Other
Principal Fiscal Compensation Underlying Compensation
Position Year Salary ($) Bonus ($) ($)(1) Options ($)(2)
- ---------- ------ --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ron J. Franklin, 1996 111,875 250 8,625 -0- 10,068
President and 1995 98,750 -0- 8,000 -0- 15,000
Chief Executive 1994 90,596 15,750 8,000 -0- 9,200
Officer
</TABLE>
(1) The reported amount consists of director's fees. Compensation does not
include any perquisites and other personal benefits which may be derived
from business-related expenditures that in the aggregate do not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
such person.
(2) The reported amount consists of the Bank's contribution to the 401-K plan
and deferred compensation.
The following table sets forth certain information regarding the
exercise of stock options in the 1996 fiscal year by the person named in the
Summary Compensation Table and the value of options held by such person at the
end of such fiscal year.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options at In-the-Money Options
FY-End (#) at FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ron J. Franklin 2,250 28,170 23,387/0 159,493/0
</TABLE>
(1) The reported amount does not include 3,223 options received as a director
under the Directors Stock Option Plan.
-38-
<PAGE>
Director Compensation
The Company pays an annual retainer of $4,200 to each director. The
Chairman of the Board receives $300 per month and the Secretary and Treasurer of
the Company each receive $200 per month in addition to their annual retainer.
The Bank pays an annual retainer of $2,400 to each director, plus a
fee of $100 for each board meeting attended and $75 per hour or a fraction
thereof, for each committee meeting attended or for special meetings attended by
each director. The Chairman of the Board receives $300 per month in addition to
his annual retainer.
Bank Stock Option Plan
Prior to the organization of the Company, the Bank had a Stock Option
Plan (the "Plan") for granting of options to officers, directors and other
employees. The Plan served as an employee incentive and encouraged the
continued employment of key personnel by facilitating their purchase of an
equity interest in the Bank. The Plan was adopted by the Company as part of the
holding company formation.
As of September 16, 1996, 22,249 options remain outstanding under the
Plan. Of the outstanding options, all options are held by two incumbent
directors (Messrs. Ramsey and Franklin). Mr. Ramsey has been granted
nonqualified stock options to purchase 11,310 shares at an option price of $4.06
exercisable upon the earlier of January 21, 1998 or ninety days following the
date that the recipient ceases to be a director. Incentive stock options have
been granted to purchase 4,354 shares to Mr. Ramsey and 6,585 shares to Mr.
Franklin at option price of $4.06 exercisable upon the earlier of January 21,
1998 or ninety days following the date the recipient ceases to be a director.
Employee Benefit Plans
The Savings Bank implemented on July 1, 1994 a contributory 401(k)
employee savings plan available to all eligible employees, subject to certain
minimum age and service requirements. For the fiscal year ended June 30, 1996,
the Savings Bank's contribution to such plan was $32,951 of which $29,677 was
contributed for employees (other than executive officers) and the balance of
contributions made for all executive officers totaled $3,274.
Directors Stock Option Plan
- ---------------------------
The Company's shareholders approved in October 1993, a Directors Stock
Option Plan (the "Directors Plan") for the granting of options to purchase
shares of the Company's common stock to the directors of the Company and its
subsidiary, the Bank. Following approval of the Directors Plan, an option to
purchase 2,785 shares of the Company's common stock was granted to each of the
eight incumbent directors for previous Board service. As a result of stock
dividends issued by the Company, each of these options now represent the right
to purchase 3,223 shares. In October 1995,
-39-
<PAGE>
four new directors of the Bank were each granted options to purchase 2,273
shares of the Company's common stock. As a result of stock dividends issued by
the Company, each of these options now represent the right to purchase 2,386
shares.
The exercise price for each option granted under the Directors Plan
shall in no event be less than 100% of the fair market value of the Company's
common stock on the date of grant, and no option shall be exercisable after the
expiration of ten years from the date of grant. An option granted under the
Directors Plan shall be transferable only by will or by the laws of descent and
distribution, and during the recipient's lifetime shall be exercisable only by
the recipient to whom the option is granted.
The Directors Plan will remain in effect for five years from the date
the Company's shareholders approved it or until termination by the Board,
whichever occurs first. The Directors Plan is administered and interpreted by
the Board of Directors of the Company.
Employee Stock Option Plan
- --------------------------
The Company's shareholders approved in October 1993, an Employee Stock
Option Plan (the "Employee Plan") for the granting of options to purchase shares
of the Company's common stock to the employees of the Company and its
subsidiary, the Bank.
The Employee Plan provides for the granting of both "incentive stock
options" under Section 422A of the Internal Revenue Code and "unqualified stock
options." The exercise price for each option granted under the Employee Plan
shall in no event be less than 100% of the fair market value of the Company's
common stock on the date of grant, and no option shall be exercisable after the
expiration of ten years from the date of grant. An option granted under the
Employee Plan shall be transferable only by will or by the laws of descent and
distribution, and during the recipient's lifetime shall be exercisable only by
the recipient to whom the option is granted. As of June 30, 1996, the Company
had 30,932 incentive stock options issued and outstanding to eligible employees
under the Employee Plan.
The Employee Plan will remain in effect for ten years from the date
the Company's shareholders approved it or until termination by the Board,
whichever occurs first. The Employee Plan is administered and interpreted by
the Board of Directors of the Company.
Special Termination Agreements
The Bank has previously entered into special termination agreements
with Messrs. Ramsey, Franklin and Westmoreland providing that in the event of a
"change in control" of the Bank resulting in the involuntary or voluntary
termination of employment of such individuals, other than for cause, they would
receive severance payments of between one-half and two times their respective
average annual salary for the past three years, plus an accelerated retirement
benefit, continued health insurance for between six and twenty-four months and
reimbursement for any legal expenses
-40-
<PAGE>
incurred. The term "change in control" is defined to occur when conclusive
control determinations as set forth in 12 C.F.R. 574.4(a) occur (i.e., ownership
of more than 25% of voting stock) or upon ownership of 20% or more of voting
stock, or as a result of a proxy contest against management's recommendation
resulting in a merger or similar transaction, or change in a majority of the
Board of Directors, or any material change in the employee's function, duties or
responsibilities which would cause the employee's position to become one of
lesser responsibility, importance or scope from what it was before the
occurrence of a change in control. The reorganization of the Bank into a
holding company structure was not be deemed a change in control. The agreements
define "cause" to include personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of certain laws, rules and regulations
or final cease-and-desist order, or a material breach of any provisions of an
employment agreement. The Internal Revenue Code provides that certain
termination severance payments could constitute excess parachute payments,
resulting in the imposition of an excise tax on the recipient and a denial of a
deduction for such excess amounts to Bank. If a change in control had occurred
on June 30, 1996, Messrs. Ramsey, Franklin and Westmoreland would have received
severance payments of approximately $50,400, $271,200, and $102,480,
respectively, under the terms of these agreements. Management believes that at
this time such payments would not constitute excess parachute payments.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-41-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT.
-----------
The following table sets forth certain information regarding the
shares of common stock of the Company owned as of September 16, 1996 (i) by each
person who beneficially owns more than 5% of shares of common stock of the
Company, (ii) by each of the Company's directors and (iii) by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name of Number Percentage
Beneficial Owner(1) of Shares(2) Ownership(3)
- ------------------- ------------ ------------
<S> <C> <C>
Jerry L. Savage(4) 79,425 8.4%
James C. Owen, Jr. 35,916(5) 3.8
Director
William T. Ramsey(6) 45,203(7) 4.7
Director
Ron J. Franklin 44,844(8) 4.6
President, Chief Executive
Officer and Director
Robert H. Crossfield 25,491(9) 2.7
Director
Frank A. Thomas 22,565(10) 2.4
Director
F. Dan Boyd 26,064(11) 2.7
Director
Lee Roy Claxton 33,879 3.6
Director
Scott H. Searcy, Jr. 32,303(12) 3.4
Director
All directors and executive
officers as a group
(16 persons) 407,586 40.2
</TABLE>
________________
-42-
<PAGE>
(1) Except as otherwise indicated, the persons named in the above
table have sole voting and investment power with respect to all shares shown as
beneficially owned by them. The information as to beneficial ownership has been
furnished by the respective persons listed in the above table.
(2) Includes shares deemed to be beneficially owned through the right
to exercise of stock options within 60 days of the record date.
(3) Based upon 945,730 outstanding as of the record date and as
adjusted for stock options exercisable within 60 days of the record date.
Shares which are subject to stock options are deemed to be outstanding for the
purpose of computing the percentage of outstanding shares owned by such person
or group but are not deemed outstanding for the purpose of computing the
percentage of outstanding shares owned by any other person or group.
(4) Mr. Savage's address is 425 Audubon Circle, Griffin, Georgia
30223.
(5) Includes 3,223 stock options exercisable within 60 days of the
record date.
(6) Mr. Ramsey's address is 1106 Lake Placid Drive, Griffin, Georgia
30223.
(7) Includes 18,888 stock options exercisable within 60 days of the
record date.
(8) Includes 24,642 stock options exercisable within 60 days of the
record date.
(9) Includes 3,223 stock options exercisable within 60 days of the
record date.
(10) Includes 3,223 stock options exercisable within 60 days of the
record date.
(11) Includes 3,223 stock options exercisable within 60 days of the
record date.
(12) Includes 3,223 stock options exercisable within 60 days of the
record date.
-43-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
Certain of the executive officers and directors of the Company and the
Bank, and principal shareholders of the Company and affiliates of such persons
have, from time to time, engaged in banking transactions with the Bank and are
expected to continue such relationships in the future. All loans or other
extensions of credit made by the Bank to such individuals were made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated parties and were believed by management to not
involve more than the normal risk of collectability or present other unfavorable
features. As of June 30, 1996 loans to executive officers and directors of the
Company and the Bank, and principal shareholders of the Company and affiliates
of such persons amounted to approximately $1,441,000 in the aggregate.
James C. Owen, Jr., a retired partner in the law firm of Beck, Owen &
Murray, is a Director of the Company and the Chairman of the Board of Directors
of the Bank. The Bank paid Mr. Owen's law firm approximately $109,000 for legal
services rendered during the fiscal year ended June 30, 1996.
Scott H. Searcy, Jr., the president of Searcy & Co., an independent
insurance agency, is a director of the Company and the Bank. The Bank paid
Searcy & Co. approximately $45,000 in premiums for bond and property insurance
policies during the fiscal year ended June 30, 1996.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-44-
<PAGE>
PART IV
-------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(A) 1. FINANCIAL STATEMENTS.
- --- -------------------------
The consolidated financial statements, notes thereto and auditor's
report thereon, filed as part hereof, are listed in the Index to Item 7 of this
Report.
2. FINANCIAL STATEMENT SCHEDULES.
----------------------------------
All schedules have been omitted as the required information is not
applicable.
3. EXHIBITS.
-------------
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation*
3.2 By-Laws*
4.1 Specimen Stock Certificate*
10.1 Employee Stock Option Plan**
10.2 Directors Stock Option Plan**
21.1 Subsidiaries of the Registrant***
27.1 Financial Data Schedule****
*Exhibits 3.1, 3.2 and 4.1 were previously filed by the Company as exhibits
(with the same exhibit number) to a Registration Statement on Form S-4 (File No.
33-52930), and each document is incorporated herein by reference.
**Exhibits 10.1 and 10.2 were previously filed by the Company as part of Exhibit
20 to Form 10-KSB for the fiscal year ended June 30, 1993, and each document is
incorporated herein by reference.
-45-
<PAGE>
***Exhibit 21.1 was previously filed by the Company as an exhibit (with the same
exhibit number) to Form 10-KSB for the fiscal year ended June 30, 1994, and such
document is incorporated herein by reference.
****Filed herewith.
(B) REPORTS ON FORM 8-K.
-------------------
No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-46-
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized on September 25, 1996.
GF Bancshares, Inc.
By: /s/ Ron J. Franklin
----------------------------
Ron J. Franklin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on September 25, 1996.
SIGNATURE TITLE
- --------- -----
/s/ J. C. Owen, Jr. Chairman of the Board
- ------------------------
J. C. Owen, Jr.
/s/ W. T. Ramsey Vice Chairman of the Board
- ------------------------
W. T. Ramsey
/s/ Ron J. Franklin President (Principal Executive Officer)
- ------------------------
Ron J. Franklin
/s/ Arthur H. Hammond Executive Vice President and Chief Financial Officer
- ------------------------ (Principal Financial Officer)
Arthur H. Hammond
/s/ Frank A. Thomas Treasurer and Director
- ------------------------
Frank A. Thomas
/s/ Robert H. Crossfield Secretary and Director
- ------------------------
Robert H. Crossfield
/s/ F. Dan Boyd Director
- ------------------------
F. Dan Boyd
Director
- ------------------------
Lee Roy Claxton
/s/ Scott H. Searcy Director
- ------------------------
Scott H. Searcy
-47-
<PAGE>
[LETTERHEAD OF MAULDIN & JENKINS APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
G F BANCSHARES, INC.
AND SUBSIDIARY
GRIFFIN, GEORGIA
We have audited the accompanying consolidated balance sheet of
G F BANCSHARES, INC. AND SUBSIDIARY as of June 30, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of G F Bancshares, Inc. and subsidiary for the year ended June 30, 1994 were
audited by other auditors whose report, dated August 19, 1994, expressed an
unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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
G F Bancshares, Inc. and subsidiary as of June 30, 1995, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Mauldin & Jenkins
- ---------------------
MAULDIN & JENKINS
Atlanta, Georgia
August 15, 1995
F-A
<PAGE>
[LETTERHEAD OF BRICKER & MELTON, P.A. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
G F Bancshares, Inc. and Subsidiary
Griffin, Georgia
We have audited the accompanying consolidated balance sheet of G F Bancshares,
Inc. and subsidiary as of June 30, 1996, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of G F
Bancshares, Inc.'s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The consolidated
financial statements of G F Bancshares, Inc. and subsidiary as of June 30, 1995,
and for the year then ended, were audited by other auditors whose report, dated
August 15, 1995, expressed an unqualified opinion on those statements.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 consolidated financial position of
G F Bancshares, Inc. and subsidiary as of June 30, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ BRICKER & MELTON, P.A.
- --------------------------
August 23, 1996
Duluth, Georgia
F-1
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
=======================================================================================================================
<CAPTION>
June 30,
--------------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note B) $ 813,597 $ 348,854
Interest-bearing deposits in other banks 5,002,348 6,489,800
Interest-bearing time deposits in other banks -- 6,500,000
Investment securities available for sale (Note C) 3,265,107 944,962
Investment securities held to maturity (fair value of $4,560,045)
(Note C) -- 4,513,841
Federal Home Loan Bank stock 944,200 944,200
Loans held for sale 4,767,777 5,863,309
Loans, net (Notes D, L and K) 75,836,457 65,342,127
Premises and equipment, net (Note E) 1,234,811 1,483,598
Real estate owned, net (Note F) 500,015 491,784
Accrued interest receivable 1,215,952 1,320,613
Other assets (Note K) 578,803 855,203
------------- -------------
TOTAL ASSETS $ 94,159,067 $ 95,098,291
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 1,315,932 $ 2,532,439
Interest-bearing demand and money market 19,237,672 15,352,131
Savings 3,887,485 4,042,546
Time (Note I) 54,048,892 58,886,280
------------- -------------
Total Deposits 78,489,981 80,813,396
Federal Home Loan Bank advances (Note J) 1,250,000 --
Unremitted funds from borrowers for taxes and insurance 281,677 257,900
Unremitted funds on loans serviced for others 575,235 652,880
Accrued interest payable 297,379 325,085
Other liabilities 538,503 525,562
------------- -------------
TOTAL LIABILITIES 81,432,775 82,574,823
------------- -------------
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, (Continued)
=======================================================================================================================
<CAPTION>
June 30,
--------------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Note M)
Preferred stock, 2,000,000 shares authorized, none issued and
outstanding $ -- $ --
Common stock, par value $1; 8,000,000 shares authorized, 895,946
and 847,410 shares issued and outstanding 895,946 847,410
Surplus 6,385,508 5,705,932
Retained earnings (Note K) 5,438,940 5,975,340
Unrealized gains (losses) on investment securities available for sale
(Note C) 5,898 (5,214)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 12,726,292 12,523,468
---------------- ---------------
Commitments and contingent liabilities (Notes D and N)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 94,159,067 $ 95,098,291
================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
=======================================================================================================================
<CAPTION>
For the years
ended June 30,
---------------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 6,959,777 $ 5,987,354
Investment securities 258,749 302,470
Interest-bearing deposits in other banks 666,610 1,020,258
-------------- -------------
TOTAL INTEREST INCOME 7,885,136 7,310,082
-------------- -------------
INTEREST EXPENSE
Interest-bearing demand and money market deposits 530,586 604,966
Savings deposits 112,232 123,459
Time deposits 3,435,229 2,937,869
Federal Home Loan Bank advances (Note J) 1,514 --
-------------- ------------
TOTAL INTEREST EXPENSE 4,079,561 3,666,294
-------------- ------------
NET INTEREST INCOME 3,805,575 3,643,788
PROVISION FOR LOAN LOSSES (Note D) 29,550 20,023
-------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 3,776,025 3,623,765
-------------- -------------
OTHER INCOME
Service charges and fees 594,283 657,061
Loss on loan production office operations (72,425) (862,722)
Net gain (loss) on closure of loan operations offices 91,000 (156,595)
Gain on sales of investment securities available for sale, net (Note C) -- 598,411
Other income 66,819 77,081
-------------- -------------
TOTAL OTHER INCOME 679,677 313,236
-------------- -------------
OTHER EXPENSE
Salaries and employee benefits (Note G) 1,493,663 1,519,033
Net occupancy expense (Note E) 311,864 339,452
Other expense (Note O) 1,099,576 1,150,085
-------------- -------------
TOTAL OTHER EXPENSE 2,905,103 3,008,570
-------------- -------------
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME, (Continued)
=======================================================================================================================
<CAPTION>
For the years
ended June 30,
--------------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
INCOME BEFORE INCOME TAXES $ 1,550,599 $ 928,431
INCOME TAX EXPENSE (Note K) 531,746 303,397
---------------- ---------------
NET INCOME $ 1,018,853 $ 625,034
================ ===============
EARNINGS PER SHARE (Note M) $ 1.12 $ 0.69
================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
===========================================================================================================
<CAPTION>
For the years ended June 30, 1996 and 1995
------------------------------------------------------------------------
Unrealized
Common Retained Gains
Stock Surplus Earnings (Losses) Total
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 $ 796,581 $ 4,982,742 $ 6,814,057 $ -- $ 12,593,380
Net income -- -- 625,034 -- 625,034
Cash dividends paid, $0.87 per
share -- -- (737,247) -- (737,247)
Stock dividend--5 percent 40,183 683,111 (726,504) -- (3,210)
Proceeds from exercise of
stock options 10,646 40,079 -- -- 50,725
Net change in unrealized gains
(losses) on investment
securities available for sale -- -- -- (5,214) (5,214)
---------- ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1995 847,410 5,705,932 5,975,340 (5,214) 12,523,468
Net income -- -- 1,018,853 -- 1,018,853
Cash dividends paid, $0.95 per
share -- -- (851,149) -- (851,149)
Stock dividend--5 percent 42,486 658,533 (704,104) -- (3,085)
Proceeds from exercise of
stock options 6,050 21,043 -- -- 27,093
Net change in unrealized gains
(losses) on investment
securities available for sale -- -- -- 11,112 11,112
---------- ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1996 $ 895,946 $ 6,385,508 $ 5,438,940 $ 5,898 $ 12,726,292
========== ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
=======================================================================================================================
<CAPTION>
For the years
ended June 30,
--------------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,018,853 $ 625,034
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation 338,525 560,916
Provision for loan losses 29,550 20,023
Deferred income taxes (76,404) (80,586)
Gain on sales of investment securities available for sale, net -- (598,411)
Loss on sales of premises and equipment, net 176,500 156,595
Decrease in mortgage loans held for sale 1,095,532 542,809
Decrease in other assets 347,079 366,000
(Increase) decrease in interest receivable 104,661 (475,958)
Increase (decrease) in interest payable (27,706) 83,163
Decrease in unremitted funds on loans serviced for others (77,645) (1,195,090)
(Increase) decrease in other liabilities 12,941 (514,361)
---------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 2,941,886 (509,866)
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing time deposits in other banks 6,500,000 (6,500,000)
Purchases of investment securities available for sale (500,000) (522,081)
Proceeds from maturities of investment securities available for sale 1,707,966 150,637
Proceeds from sales of investment securities available for sale -- 643,578
Purchases of investment securities held to maturity (500,000) (4,042,148)
Proceeds from maturities of investment securities held to maturity 1,502,567 569,152
Net increase in loans (10,793,133) (6,039,932)
Proceeds from sales of other real estate 261,022 --
Purchases of premises and equipment (266,238) (73,474)
---------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (2,087,816) (15,814,268)
---------------- ---------------
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
=======================================================================================================================
<CAPTION>
For the years
ended June 30,
--------------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, money market and savings
accounts $ 2,513,973 $ (5,729,606)
Net increase (decrease) in time deposits (4,837,388) 5,022,687
Proceeds from Federal Home Loan Bank advances 1,250,000 --
Net increase (decrease) in unremitted funds for taxes and insurance 23,777 (26,104)
Proceeds from exercise of stock options 27,093 50,725
Cash dividends paid (854,234) (740,457)
---------------- ---------------
NET CASH USED BY FINANCING ACTIVITIES (1,876,779) (1,422,755)
---------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,022,709) (17,746,889)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,838,654 24,585,543
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,815,945 $ 6,838,654
================ ===============
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest $ 4,107,267 $ 3,583,131
================ ===============
Income taxes $ 735,900 $ 11,333
================ ===============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 269,253 $ 293,602
================ ===============
Transfer of investment securities to available for sale $ 3,511,274 $ --
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
G F Bancshares, Inc. and subsidiary provide a full range of banking services
in Spalding County and the surrounding area.
The accounting and reporting policies of G F Bancshares, Inc. and subsidiary
conform to generally accepted accounting principles and to general practices
within the financial institution industry. The following is a summary of the
more significant of these policies.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate, for example, to the
determination of the allowance for loan losses, and the valuation of other real
estate acquired in connection with foreclosures or in satisfaction of loans.
Management believes that the allowance for loan losses is adequate and the
valuation of other real estate is appropriate. 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 allowance for loan losses and valuation of other real
estate. Such agencies may require the recognition of additions to the allowance
or valuation adjustments to other real estate based on their judgments about
information available to them at the time of their examination.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of G F Bancshares,
Inc. (Parent Company) and its wholly-owned subsidiary, Griffin Federal Savings
Bank (Bank), collectively known as the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
INTEREST-BEARING DEPOSITS IN OTHER BANKS
Interest-bearing deposits in other banks consists of the Bank's overnight
deposit account at the Federal Home Loan Bank and is in excess of amounts
insured by the Federal Deposit Insurance Corporation.
INVESTMENT SECURITIES
Investment securities which management has the ability and intent to hold to
maturity are reported at cost, adjusted for amortization of premium and
accretion of discount. Investment securities available for sale are reported at
fair value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related tax effect. Federal Home Loan Bank
stock is reported at cost. Earnings are reported when interest is accrued or
when dividends are received.
Premium and discount on all investment securities are amortized (deducted) and
accreted (added), respectively, to interest income on the effective yield method
over the period to the maturity of the related securities. Premium and discount
on mortgage-backed securities are amortized (deducted) and accreted (added),
respectively, to interest income using a method which approximates a level yield
over the period to maturity of the related securities taking into consideration
assumed prepayment patterns.
Gains or losses on disposition are computed by the specific identification
method for all securities.
F-9
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
LOANS
Loans are reported at the gross amount outstanding less deferred loan fees and
a valuation allowance for loan losses. Interest income on all loans is
recognized over the terms of the loans based on the unpaid daily principal
amount outstanding. If the collectibility of interest appears doubtful, the
accrual thereof is discontinued. Loan origination fees, net of direct loan
origination costs, are deferred and recognized as income over the life of the
related loan on a level-yield basis.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 114 (SFAS 114) on accounting by creditors for
impairment of a loan. SFAS 114, as amended by SFAS 118, requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's fair value if
the loan is collateral dependent. The provisions of SFAS 114 were effective for
the Company beginning in fiscal 1996. At June 30, 1996, the Bank has no loans
which are considered impaired under SFAS 114.
Loans held for sale represent loans originated for sale in the secondary
market and are reported at the lower of cost or estimated market value in the
aggregate. Gains and losses on sales of loans are recognized at the time of
sale, as determined by the difference between the net sales proceeds and the
fair value of the loans sold.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. Management's judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans
and takes into consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem loans.
Periodic revisions are made to the allowance when circumstances which
necessitate such revisions become known. Recognized losses are charged to the
allowance for loan losses, while subsequent recoveries are added to the
allowance.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation. For
financial reporting purposes, depreciation is computed using primarily straight-
line methods over the estimated useful lives of the assets. Expenditures for
maintenance and repairs are charged to operations as incurred, while major
renewals and betterments are capitalized. When property is disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in income. For Federal tax reporting purposes,
depreciation and amortization are computed using primarily accelerated methods.
OTHER REAL ESTATE
Other real estate represents property acquired through foreclosure or in
settlement of loans and is recorded at the lower of cost or fair value less
estimated selling expenses and a valuation allowance for losses. The allowance
represents an amount which, in management's judgement, will be adequate to
absorb probable losses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan losses at the time of
foreclosure. Provisions for subsequent devaluation of other real estate are
charged against the current period's
F-10
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
operations. Losses on the disposal of other real estate are charged to the
valuation allowance for losses. Costs associated with improving the property are
capitalized to the extent fair value less estimated selling expenses is not
exceeded. Holding costs for other real estate are expensed as incurred.
INCOME TAXES
The tax effect of transactions is recorded at current tax rates in the periods
the transactions are reported for financial statement purposes. Deferred income
taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. If certain conditions are met, as specified by the Internal Revenue
Service, the Bank is allowed a special bad-debt deduction based on a percentage
of taxable income (presently 8 percent) or specified experience formulas. The
Bank used the percentage of taxable income method in fiscal 1996 and 1995. The
Company files its income tax returns on a consolidated basis.
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is
required to implement SFAS 121 in fiscal 1997. The provisions of SFAS 121 will
require the Company to review long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The adoption is not expected to have a significant impact on
the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 122 (SFAS 122), "Mortgage Servicing Rights," as an
amendment to SFAS 65. The Company is required to implement SFAS 122 in fiscal
1997. The provisions of SFAS 122 eliminate the accounting distinction between
rights to service mortgage loans that are acquired through loan origination and
those acquired through purchase. The Company has not yet determined the impact
of adopting SFAS 122.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." The Company is required to implement SFAS 123 in fiscal 1997.
SFAS 123 establishes a method of accounting for stock compensation plans based
on fair value. Companies are permitted to continue to use the existing method of
accounting but are required to disclose pro forma net income and earnings per
share as if SFAS 123 had been used to measure compensation cost. The Company has
not yet determined the impact of adopting SFAS 123.
EARNINGS PER SHARE
Earnings per share has been computed based on the weighted average number of
shares outstanding during the period after retroactive consideration of any
stock dividends authorized, which totaled 906,284 and 900,801 shares for the
years ended June 30, 1996 and 1995, respectively. Stock options, as described in
Note M, are considered to be common stock equivalents for purposes of
calculating earnings per share.
F-11
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered into off-balance-
sheet financial instruments consisting of commitments to extend credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating fair
values of financial instruments:
Cash and cash equivalents--The carrying amount of cash and cash equivalents
approximates fair value.
Investment securities--The fair value of investment securities held to
maturity and available for sale is estimated based on quotes received from
independent pricing services. The carrying amount of Federal Home Loan Bank
stock approximates fair value.
Loans--For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For all other
loans, fair values are calculated by discounting the contractual cash flows
using estimated market discount rates which reflect the credit and interest rate
risk inherent in the loan, or by using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposits--The fair value of deposits with no stated maturity, such as demand,
NOW and money market, and savings accounts, is equal to the amount payable on
demand at year-end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities.
Federal Home Loan Bank advances--The fair value is estimated using discounted
cash flow analyses based on the current borrowing rate for similar types of
credit instruments. These advances were received on June 25, 1996; therefore,
the book value at year-end is a reasonable approximation of fair value.
Accrued interest--The carrying amount of accrued interest receivable and
payable approximates fair value.
Off-balance-sheet instruments--Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
borrowers' credit standing.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and amounts on overnight deposit with the
Federal Home Loan Bank.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 financial statements to
conform with the 1996 presentation.
F-12
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE B--CASH AND DUE FROM BANKS
A bank is required to maintain average reserve balances with the Federal
Reserve Bank, on deposit with national banks or in cash. The Bank's reserve
requirement at June 30, 1996, was approximately $343,000. The Bank maintained
cash balances which were adequate to meet this requirement.
NOTE C--INVESTMENT SECURITIES
The amortized cost of investment securities and their approximate fair values
were as follows at June 30:
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government and agency securities $ 2,021,037 $ 10,528 $ -- $ 2,031,565
Mortgage-backed securities 356,037 6,193 (4,498) 357,732
State and municipal securities 879,096 -- (3,286) 875,810
------------ ------------ ------------ -----------
$ 3,256,170 $ 16,721 $ (7,784) $ 3,265,107
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Mortgage-backed securities $ 952,862 $ 1,012 $ (8,912) $ 944,962
============ ============ ============ ===========
Securities Held to Maturity:
U.S. Government and agency securities $ 3,495,319 $ 40,628 $ -- $ 3,535,947
Mortgage-backed securities 126,947 8,766 -- 135,713
State and municipal securities 891,575 8,510 (11,700) 888,385
------------ ------------ ------------ -----------
$ 4,513,841 $ 57,904 $ (11,700) $ 4,560,045
============ ============ ============ ===========
</TABLE>
The unrealized gain (loss) on investment securities available for sale, net of
the related deferred taxes of $3,039 and $(2,686), is $5,898 and $(5,214) at
June 30, 1996 and 1995, respectively, and is included as a separate component of
stockholders' equity.
F-13
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE C--INVESTMENT SECURITIES, (Continued)
During December 1995, as permitted by generally accepted accounting
principles, the Bank transferred investment securities totaling $3,511,274 from
held to maturity to available for sale. The unrealized gain on these securities
at the time of transfer was $31,578.
The amortized cost and estimated fair value of investment securities at June
30, 1996, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations without call or prepayment penalties. Mortgage-backed
securities have been allocated based on stated maturity dates after considering
assumed prepayment patterns.
<TABLE>
<CAPTION>
Available for Sale
---------------------------
Amortized Fair
Cost Value
------------ -----------
<S> <C> <C>
Due in one year or less $ 498,955 $ 498,955
Due from one year to five years 1,829,096 1,830,055
Due from five years to ten years -- --
Due after ten years 928,119 936,097
------------ -----------
$ 3,256,170 $ 3,265,107
============ ===========
</TABLE>
There were no sales of investment securities during the year ended June 30,
1996. Proceeds from sales of investment securities available for sale during the
year ended June 30, 1995, were $643,578 on which gross gains of $598,411 were
realized.
Investment securities with amortized costs of $118,157 and $456,171 and
approximate fair values of $121,197 and $464,937 at June 30, 1996 and 1995,
respectively, were pledged to secure public funds and certain other deposits as
required by law.
At June 30, 1996, the Company has no outstanding derivative financial
instruments such as swaps, options, futures or forward contracts.
NOTE D--LOANS
A summary of loans by type is as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Real estate--mortgage $ 59,364,656 $ 52,087,649
Real estate--construction 12,346,179 10,508,153
Commercial 2,447,710 883,566
Consumer installment and other loans 2,523,784 2,725,784
------------- --------------
76,682,329 66,205,152
Less: Deferred loan fees (158,210) (180,200)
Allowance for loan losses (687,662) (682,825)
------------- --------------
Loans, net $ 75,836,457 $ 65,342,127
============= ==============
</TABLE>
F-14
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE D--LOANS, (Continued)
Most of the Bank's business activity is with customers located within its
market area of Spalding County and the surrounding area. At June 30, 1996 and
1995, the Bank had a concentration of credit risk totaling approximately
$71,700,000 and $62,600,000, respectively, in loans secured by real estate.
Nonaccrual and restructured loans at June 30, 1996, totaled approximately
$933,000. If these loans had been accruing interest in accordance with their
contractual terms, interest income during 1996 would have been approximately
$25,000 higher. Loans on which the accrual of interest has been discontinued or
reduced totaled approximately $22,000 at June 30, 1995. There was no significant
reduction in interest income associated with nonaccrual and renegotiated loans
in 1995.
Transactions in the allowance for loan losses are as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Balance, beginning of year $ 682,825 $ 672,421
Provision charged to operations 29,550 20,023
Loans charged off (24,713) (9,619)
---------- ---------
Balance, end of year $ 687,662 $ 682,825
========== =========
</TABLE>
The Bank has contracts with secondary market investors which contain various
recourse provisions for 30-120 days from the date loans are sold. Loans sold
with recourse which are not reflected in the consolidated balance sheets totaled
approximately $52,166,000 and $36,618,000 at June 30, 1996 and 1995,
respectively. At June 30, 1996, the outstanding balance of repurchased loans
totaled approximately $1,400,000.
NOTE E--PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Land $ 42,961 $ 42,961
Buildings 1,050,857 1,039,696
Furniture, fixtures and equipment 1,757,584 2,317,638
------------- ------------
2,851,402 3,400,295
Less: Accumulated depreciation (1,616,591) (1,916,697)
------------- ------------
Premises and equipment, net $ 1,234,811 $ 1,483,598
============= ============
</TABLE>
Depreciation expense for the years ended June 30, 1996 and 1995 was $338,525
and $560,916, respectively.
F-15
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE E--PREMISES AND EQUIPMENT, (Continued)
The Bank is obligated under several noncancelable operating leases with
remaining terms in excess of one year. Future minimum annual rentals required
under the terms of these leases are as follows at June 30, 1996:
<TABLE>
<CAPTION>
Years ended June 30,
<S> <C>
1997 $ 101,350
1998 93,397
1999 29,285
2000 25,313
2001 25,313
Thereafter 493,600
----------
$ 768,258
==========
</TABLE>
Rental expense for the years ended June 30, 1996 and 1995 was $195,284 and
$357,954, respectively.
NOTE F--OTHER REAL ESTATE
Transactions in the reserve for losses on other real estate are as follows at
June 30:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Balance, beginning of year $ 32,000
Provision charged to expense --
Losses charged off (6,600)
---------
Balance, end of year $ 25,400
=========
</TABLE>
Net income from other real estate totaled $17,185 and $9,137 for 1996 and
1995, respectively.
NOTE G--EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
The Bank has a contributory 401(k) employee savings plan available to all
eligible employees, subject to certain minimum age and service requirements.
Under the provisions of the plan, employees may contribute from 1 to 12 percent
of their salary up to the legal contribution limit; the Bank matches 50 percent
of the employees' contributions up to a maximum of 4 percent. Amounts expensed
in 1996 and 1995 as a result of the Bank's contributions to the plan totaled
$32,951 and $10,549, respectively.
The Bank maintains a deferred compensation plan for certain directors which
provides for the deferral of fees for those directors. Participants will
generally receive payment in monthly cash distributions upon reaching the age of
70 1/2. Amounts expensed under the plan totaled $24,609 and $24,898 in 1996 and
1995, respectively.
F-16
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE H--LOAN SERVICING
[C]
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The approximate unpaid principal balances of these
loans are as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Mortgage loan portfolios serviced for:
FHLMC $ 93,322,000 $ 100,973,000
Other investors 422,000 1,436,000
------------- -------------
$ 93,744,000 $ 102,409,000
============= =============
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing contracts were approximately $447,000 and $487,000 at June 30, 1996
and 1995, respectively.
NOTE I--TIME DEPOSITS
The aggregate amount of time deposits with a minimum denomination of $100,000
was approximately $7,627,000 and $10,248,000 at June 30, 1996 and 1995,
respectively.
Scheduled maturities of time deposits are as follows at June 30, 1996:
<TABLE>
<CAPTION>
Years ended June 30,
<S> <C>
1997 $ 38,423,025
1998 9,450,583
Thereafter 6,175,284
-------------
$ 54,048,892
=============
</TABLE>
NOTE J--FEDERAL HOME LOAN BANK ADVANCES
The Bank utilizes borrowings as needed for liquidity purposes in the form of
Federal Home Loan Bank advances. At June 30, 1996, the Bank had a credit line
for Federal home Loan Bank advances of $12,000,000. During 1996, the Bank
received Federal Home Loan Bank advances of $1,000,000 and $250,000. The
advances are payable in semiannual installments at fixed rates of 7.41 and 7.31
percent and mature on June 25, 2011 and June 25, 2006, respectively. The
advances are collateralized by one-to-four family residential mortgage loans.
The annual principal amount due on the advances during each of the next five
years is $91,667.
F-17
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE K--INCOME TAXES
The components of income tax expense are as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Current--
Federal $ 569,519 $ 383,983
State 38,631 --
---------- ---------
608,150 383,983
---------- ---------
Deferred--
Federal (68,362) (69,893)
State (8,042) (10,693)
---------- ---------
(76,404) (80,586)
---------- ---------
$ 531,746 $ 303,397
========== =========
</TABLE>
A reconciliation of income tax expense computed at the Federal statutory tax
rate to total income taxes is as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Income tax at Federal statutory rate $ 527,204 $ 315,667
Increase (decrease) resulting from:
Tax-exempt income (11,407) (12,911)
State income taxes, net of Federal benefit 20,189 (7,057)
Other, net (4,240) 7,698
---------- ----------
$ 531,746 $ 303,397
========== ==========
The components of deferred income taxes are as follows at June 30:
1996 1995
---------- ---------
Loan loss reserve $ (7,841) $ 39,504
Deferred compensation 110,531 106,234
Unrealized (gains) losses on investments (3,039) 2,686
Depreciation 72,985 4,530
Deferred loan fees (27,740) (107,245)
Other, net (48,941) (20,433)
---------- ---------
$ 95,955 $ 25,276
========== =========
</TABLE>
F-18
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE K--INCOME TAXES, (Continued)
The Bank is permitted under the Internal Revenue Code to deduct an annual
addition to the reserve for bad debts in determining taxable income, subject to
certain limitations. This addition differs from the provision for loan losses
used for financial reporting purposes. Deferred taxes have been provided on the
difference between the tax and financial statement reserves subsequent to June
30, 1988. No deferred taxes have been provided on the income tax reserves prior
to June 30, 1988 of $2,974,000. This tax reserve for bad debts is included in
taxable income of later years only if the bad debt reserve is used subsequently
for purposes other than to absorb bad debt losses. Because the Bank does not
intend to use the reserve for purposes other than to absorb losses, no deferred
income taxes have been provided.
NOTE L--RELATED PARTY TRANSACTIONS
As of June 30, 1996 and 1995, the Bank had direct and indirect loans which
aggregated $1,441,193 and $1,277,201, respectively, outstanding to or for the
benefit of certain of the Company's officers, directors, and their related
interests. During 1996, $840,996 of such loans were made and repayments totaled
$677,004. These loans were made in the ordinary course of business in conformity
with normal credit terms, including interest rates and collateral requirements
prevailing at the time for comparable transactions with other borrowers. These
individuals and their related interests also maintain customary demand and time
deposit accounts with the Bank.
NOTE M--STOCKHOLDERS' EQUITY
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 financial statements. The regulations require the Bank to meet specific
capital adequacy 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 classification is 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
following table) of core and tangible capital (as defined in the regulations) to
total assets (as defined), and minimum ratios of risk-based capital (as defined)
to risk-weighted assets (as defined). To be considered adequately capitalized
(as defined) under the regulatory framework for prompt corrective action, the
Bank must maintain minimum ratios as set forth in the table. The Bank's actual
capital amounts and ratios are also presented in the table.
F-19
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE M--STOCKHOLDERS' EQUITY, (Continued)
<TABLE>
<CAPTION>
1996
----------------------
Amount Percent
------------- -------
<S> <C> <C>
Core capital $ 11,082,000 11.8%
Minimum core capital requirement 2,819,000 3.0
------------- ----
Excess $ 8,263,000 8.8%
============= ====
Tangible capital $ 11,082,000 11.8%
Minimum tangible capital requirement 1,409,000 1.5
------------- ----
Excess $ 9,673,000 10.3%
============= ====
Risk-based capital $ 11,600,000 15.0%
Minimum risk-based capital requirement 6,199,000 8.0
------------- ----
Excess $ 5,401,000 7.0%
============= ====
1995
----------------------
Amount Percent
------------- -------
Core capital $ 10,907,000 11.5%
Minimum core capital requirement 2,852,000 3.0
------------- ----
Excess $ 8,055,000 8.5%
============= ====
Tangible capital $ 10,907,000 11.5%
Minimum tangible capital requirement 1,426,000 1.5
------------- ----
Excess $ 9,481,000 10.0%
============= ====
Risk-based capital $ 11,500,000 12.9%
Minimum risk-based capital requirement 4,228,000 8.0
------------- ----
Excess $ 7,272,000 4.9%
============= ====
</TABLE>
Management believes that as of June 30, 1996, that the Bank meets all capital
requirements to which it is subject.
The Company has two stock compensation plans as of June 30, 1996. The first
plan was implemented on January 21, 1988, granting options to purchase common
stock to directors and certain key officers. Stock options outstanding under
this plan at June 30, 1996, are currently exercisable and expire on the tenth
anniversary of the date of grant. The second plan was implemented on September
16, 1993. Stock options under this plan were granted to directors and key
officers and employees. The options for the directors are exercisable as of the
date of the grant. Stock options for key officers and employees become
exercisable based on the number of years of employment. The stock options under
this plan expire on the tenth anniversary of the date of grant.
F-20
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
NOTE M--STOCKHOLDERS' EQUITY, (Continued)
A summary of the status of the Company's stock compensation plans is as
follows at June 30:
<TABLE>
<CAPTION>
Outstanding Option Price Exercisable
Options Per Share Options
----------- ----------------- ----------
<S> <C> <C> <C>
June 30, 1994 111,674 $4.26 - $15.50 79,635
Options cancelled -- 4.70 - 4.94 (4,615)
Options increased due to stock dividend 5,383 - 3,479
Options that became exercisable -- 15.50 3,277
Options exercised (10,646) 4.70 - 4.88 (10,646)
Options granted -- - --
----------- ----------------- --------
June 30, 1995 106,411 4.26 - 15.50 71,130
Options cancelled (9,717) 4.26 - 14.06 (4,694)
Options increased due to stock dividend 4,836 - 2,922
Options that became exercisable -- 15.50 5,013
Options exercised (6,050) 4.48 (6,050)
Options granted -- 16.50 9,092
----------- ----------------- --------
June 30, 1996 95,480 $4.26 - $16.50 77,413
=========== ================= ========
</TABLE>
Dividends that may be paid by the Bank to the Parent Company are subject to
certain regulatory limitations. For the year ended June 30, 1996, the Bank paid
$875,400 in dividends for which prior regulatory approval was not required.
The Board of Directors authorized a 5 percent common stock dividend to
stockholders of record as of September 1, 1995, resulting in the issuance of
42,486 shares. Earnings per share for fiscal 1996 and 1995 have been presented
as if these shares were outstanding as of July 1, 1994.
NOTE N--OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
F-21
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
NOTE N--OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS, (Continued)
The Bank's exposure to credit loss in the event of nonperformance by the
customer on the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. At June 30, 1996 and 1995, unfunded
commitments to extend credit were approximately $41,710,000 and $46,627,000,
respectively. The Bank's experience has been that approximately 70 percent of
loan commitments are drawn upon by customers.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The Bank had approximately
$170,000 and $175,000 in irrevocable standby letters of credit outstanding at
June 30, 1996 and 1995, respectively. The Bank was not required to perform on
any standby letters of credit during 1996.
The Bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the obligor.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, and real estate for those commitments on which collateral
is deemed necessary.
NOTE O--SUPPLEMENTAL FINANCIAL DATA
Components of other expense in excess of 1 percent of total income are as
follows at June 30:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
FDIC insurance premiums $ 201,149 $ 200,120
Data processing 180,949 157,583
Professional fees 110,087 195,090
Other taxes 83,863 96,136
Stationary and supplies 80,369 83,412
</TABLE>
F-22
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE P--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows at June 30:
<TABLE>
<CAPTION>
1996
----------------------------
Estimated
Carrying Fair
Value Value
------------- ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,815,945 $ 5,815,945
Investment securities available for sale 3,265,107 3,265,107
Federal Home Loan Bank stock 944,200 944,200
Loans held for sale 4,767,777 4,828,926
Loans 76,682,329 77,154,045
Accrued interest receivable 1,215,952 1,215,952
Financial liabilities:
Noncontractual deposits $ 24,441,089 $ 24,441,089
Contractual deposits 54,048,892 53,731,736
Federal Home Loan Bank advances 1,250,000 1,250,000
Accrued interest payable 297,379 297,379
Off-balance-sheet instruments:
Undisbursed credit lines $ 41,966,517
Standby letters of credit 171,046
</TABLE>
F-23
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
============================================================================
NOTE Q--CONDENSED FINANCIAL INFORMATION OF G F BANCSHARES, INC.
CONDENSED BALANCE SHEETS
(PARENT ONLY)
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary $ 1,606,309 $ 1,606,579
Investment in subsidiary 11,088,162 10,901,568
Other assets 31,821 15,321
------------- ------------
TOTAL ASSETS $ 12,726,292 $ 12,523,468
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Common stock $ 895,946 $ 847,410
Surplus 6,385,508 5,705,932
Retained earnings 5,438,940 5,975,340
Unrealized gains (losses) on investment
securities available for sale 5,898 (5,214)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 12,726,292 $ 12,523,468
============= ============
</TABLE>
F-24
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE Q--CONDENSED FINANCIAL INFORMATION OF G F BANCSHARES, INC., (Continued)
CONDENSED STATEMENTS OF INCOME
(PARENT ONLY)
<TABLE>
<CAPTION>
For the years
ended June 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Dividends from subsidiary $ 875,400 $ 1,986,030
Expenses 48,530 43,015
------------ ------------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARY 826,870 1,943,015
Income tax benefit 16,500 --
------------ ------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY 843,370 1,943,015
Equity in undistributed earnings (distributions in excess of earnings) of
subsidiary 175,483 (1,317,981)
------------ ------------
NET INCOME $ 1,018,853 $ 625,034
============ ============
</TABLE>
F-25
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE Q--CONDENSED FINANCIAL INFORMATION OF G F BANCSHARES, INC., (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)
<TABLE>
<CAPTION>
For the years
ended June 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,018,853 $ 625,034
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary (175,483) --
Distributions in excess of earnings of subsidiary -- 1,317,981
Increase in other assets (16,500) --
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 826,870 1,943,015
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 27,093 50,725
Dividends paid (854,233) (740,454)
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES (827,140) (689,729)
------------ ------------
NET INCREASE (DECREASE) IN CASH (270) 1,253,286
CASH AT BEGINNING OF YEAR 1,606,579 353,293
------------ ------------
CASH AT END OF YEAR $ 1,606,309 $ 1,606,579
============ ============
</TABLE>
F-26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 813,597
<INT-BEARING-DEPOSITS> 5,002,348
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,265,107
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 81,291,896
<ALLOWANCE> 687,662
<TOTAL-ASSETS> 94,159,067
<DEPOSITS> 78,489,981
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,692,794
<LONG-TERM> 1,250,000
0
0
<COMMON> 895,946
<OTHER-SE> 11,830,346
<TOTAL-LIABILITIES-AND-EQUITY> 94,159,067
<INTEREST-LOAN> 6,959,777
<INTEREST-INVEST> 258,749
<INTEREST-OTHER> 666,610
<INTEREST-TOTAL> 7,885,136
<INTEREST-DEPOSIT> 4,078,047
<INTEREST-EXPENSE> 4,079,561
<INTEREST-INCOME-NET> 3,805,575
<LOAN-LOSSES> 29,550
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,905,103
<INCOME-PRETAX> 1,550,599
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,018,853
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 4.15
<LOANS-NON> 227,000
<LOANS-PAST> 451,000
<LOANS-TROUBLED> 706,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 683,000
<CHARGE-OFFS> 25,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 688,000
<ALLOWANCE-DOMESTIC> 688,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
