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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
for the fiscal year ended June 30, 1997
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 $9,233,600.
The aggregate market value of the voting stock held by non-affiliates of Issuer
at September 8, 1997 was $10,347,764 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
8, 1997 was 989,122 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.................................... 25
ITEM 3. LEGAL PROCEEDINGS............................................ 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.......................................... 25
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 26
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS........................................ 26
ITEM 7. FINANCIAL STATEMENTS......................................... 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................... 33
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT....................................... 33
ITEM 10. EXECUTIVE COMPENSATION....................................... 37
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................... 41
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.............................................. 43
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................. 44
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SIGNATURE
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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 entered into an Agreement and Plan of Merger with Regions
Financial Corporation ("Regions") dated as of May 29, 1997, whereby the Company
would be acquired in exchange for common stock of Regions subject to the
approvals of the stockholders of the Company, the Board of Governors of the
Federal Reserve System, the Office of Thrift Supervision and other applicable
federal and state regulatory authorities. Management anticipates a closing of
the transaction during the fourth quarter of the 1997 calendar year.
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 had five loan production offices in Fayetteville/Peachtree
City, McDonough, Savannah, Stockbridge and Warner Robins, Georgia, which made
construction loans, and residential loans for sale in the secondary market
during the fiscal year ended June 30, 1997.
The Bank had approximately $98 million in total assets, deposits of
approximately $79 million, and a net worth of approximately $13 million at June
30, 1997. 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
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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, 1997
totaled approximately $85 million, representing approximately 87% of its total
assets. Such loan portfolio was comprised of approximately 95% construction and
residential real estate loans, 3% consumer loans and 2% 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 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.
LOAN PORTFOLIO
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GENERAL
The Company, through the Savings Bank, concentrates 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
mortgages 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, 1997
adjustable rate mortgage loans represent approximately 71% 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
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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 requires property 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.
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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, such as the
Savings Bank, 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
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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. Original 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.
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
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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
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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
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addition to deposits, the Savings Bank obtains funds from loan repayments,
interest on investments, investment maturities, and other borrowed money.
DEPOSITS
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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
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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") Systems 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.
ASSET/LIABILITY MANAGEMENT
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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
procedure 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 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-
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sensitive assets and liabilities so as to minimize the impact of substantial
movements in market interest rates on the Bank's earnings.
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, 1997, the Bank employed 86 full-time employees and 3 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 subject to regulation,
examination, supervision and reporting requirements of the Office of Thrift
Supervision (the "OTS"). As a federally chartered savings association, the Bank
is subject to extensive regulation by the OTS. The lending activities and other
investments of the Bank must comply with various federal regulatory
requirements. The OTS periodically examines the Bank, and the Bank must file
periodic reports with the OTS describing its activities and financial condition.
The Bank is also subject to examination by the Federal Deposit Insurance
Corporation (the "FDIC") and must meet certain reserve requirements promulgated
by the Federal Reserve Board (the "FRB"). This supervision and examination is
intended primarily to determine compliance with various regulatory requirements
and for the protection of depositors.
A savings and loan holding company is required by the Home Owners' Loan Act
("HOLA") 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 or savings and loan holding company.
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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").
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 FRB as a bank holding company. Bank holding companies are generally
prohibited from engaging in any businesses that are not determined by the FRB 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 Georgia Department of Banking and Finance (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 DBF for approval of such acquisition.
The Company is an "affiliate" of the Bank within the meaning of HOLA, 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. Under HOLA and other federal statutes, the
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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 of
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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, to take action to assure that the Bank is operated in a
manner consistent with the FDIA.
Federal Home Loan Bank System. The Bank is a member of the Federal Home
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Loan Bank System, which consists of 12 regional Federal Home Loan Banks
("FHLB's"). 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, 1997 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 noninterest bearing 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 FRB regulations require savings associations to exhaust
all FHLB sources before borrowing from the Federal Reserve Bank.
Investment Limitations. The 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.
Liquidity Requirements. Savings associations are required to maintain
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average daily balances of liquid assets sufficient to meet the institution's
foreseeable cash needs. Specifically, a savings association must maintain
liquid assets (consisting of cash, certain time deposits, bankers acceptances,
highly rated corporate debt and commercial paper, securities and certain mutual
funds, and specific U.S. government, state or federal agency obligations) of not
less than 5% of the total
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amount of the savings association's net withdrawable savings deposits plus
short-term borrowings, and to maintain average daily balances of short-term
liquid assets of not less than 1% of such total amount. The liquidity of the
Bank at June 30, 1997 was 5.65% which exceeded the then applicable 5% liquidity
requirement.
FIRREA. The Financial Institutions Reform, Recovery, and Enforcement Act
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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. The capital standards applicable to savings
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associations consist of three components: (i) a leverage ratio requirement; (ii)
a tangible capital requirement; and (iii) a risk-based capital requirement. The
leverage ratio requirement requires a savings association to maintain "core
capital" of not less than 3% of adjusted total assets. "Core capital" generally
includes common stockholders' equity, noncumulative perpetual preferred stock
and related surplus, nonwithdrawable accounts, and minority interests in fully-
consolidated subsidiaries, less (i) investments in certain "non-includable"
subsidiaries (as determined by regulation) and (ii) certain intangible assets
(except for mortgage servicing rights and purchased credit card relationships).
The tangible capital requirement requires a savings association to maintain
"tangible capital" in an amount not less than 1.5% of adjusted total assets.
"Tangible capital" means core capital less any intangible assets (except for
mortgage servicing rights and purchased credit card relationships).
The risk-based capital requirement require savings associations to maintain
a ratio of total capital to total risk-weighted assets of not less than 8%.
Total capital, for purposes of the risk-based capital requirement, equals the
sum of core capital plus supplementary capital, which includes cumulative
preferred stock, mandatory convertible securities, subordinated debt, and the
allowance for loan and lease losses of up to 1.25% of total risk-weighted
assets. In determining total risk-weighted assets for purposes of the risk-
based capital requirements, (i) each off-balance sheet item must be converted to
an on-balance sheet credit equivalent amount by multiplying the face amount of
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the item); (ii) the credit equivalent amount of each off-
balance sheet item and each on-balance sheet asset must be multiplied by a risk
factor ranging from 0% to 100% (depending on the nature of the item); and (iii)
the resulting amounts are added together and constitute total risk-weighted
assets.
In addition, the OTS requires institutions with an above-normal degree of
interest rate risk to maintain an additional amount of capital. The test of
above-normal is determined by postulating a 200 basis point shift (increase or
decrease) in interest rates and determining the effect on the market value of an
institution's portfolio equity. If the decline is less than 2%, no addition to
risk-based capital is required (i.e., an institution has only a normal degree of
interest rate risk). If the decline is greater than 2%, the institution must
add additional capital equal to one-half the difference between its measured
interest rate risk and 2% multiplied by the market value of its assets.
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Management believes that the Bank was in compliance with regulatory capital
requirements at June 30, 1997. The following table presents the regulatory
capital positions of the Bank at June 30, 1997.
<TABLE>
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Current Minimum
Amount Requirement Excess
<S> <C> <C> <C>
Tangible Capital $11,056,000 $1,964,000 $9,092,000
Core Capital $11,056,000 $3,927,000 $7,129,000
Risk-Based Capital $11,608,000 $5,959,000 $5,649,000
</TABLE>
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 ratio 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 and does not meet the definition of "well capitalized," (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a leverage
capital ratio that is less than 4.0%, (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.
Qualified Thrift Lender Test. Unless a savings association qualifies as a
----------------------------
Qualified Thrift Lender, its borrowings from a FHLB may be restricted, and it
may be subject to other operating limitations. To satisfy the QTL Test, an
institution must maintain at least 65% of its assets in "Qualified Thrift
Investments," which under the regulations consist of (i) loans made to purchase,
refinance, construct, improve or repair domestic residential or manufactured
housing, (ii) home equity loans, (iii) securities backed by or representing an
interest in mortgages on domestic, residential, or manufactured housing, and
(iv) obligations issued by federal deposit insurance agencies. Subject to a 15%
of assets limitation, "Qualified Thrift Investments" may also include consumer
loans, investments in certain subsidiaries, loans for construction of schools,
churches,
-10-
<PAGE>
nursing homes and hospitals, and 200% of investments in loans for low-to-
moderate income housing and certain other community oriented investments.
In September 1996, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (the "Economic Growth Act of 1996") was signed into law and
contained provisions which significantly affected the QTL Test. The Economic
Growth Act of 1996 liberalized the QTL Test for savings associations by
permitting them to satisfy a similar, but different, 60% asset test under the
Internal Revenue Code. Alternatively, savings associations may meet the QTL Test
by satisfying a more liberal 65% asset test that allows an institution to
include small business, credit card and education loans as qualified investments
for purposes of the test. Furthermore, consumer loans now count as qualified
thrift investments up to 20% of portfolio assets. At June 30, 1997,
approximately 88% of the Bank's assets were invested in Qualified Thrift
Investments, as currently defined.
Insurance of Accounts. Deposits at the Bank are insured to a maximum of
---------------------
$100,000 for each insured depositor by the FDIC. The FDIC has the authority to
suspend or terminate insurance of deposits upon the finding that the institution
has engaged in unsafe or unsound practices, is operating in an unsafe or unsound
condition, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. If insurance of accounts is terminated by the
FDIC, the deposits in the institution will continue to be insured by the FDIC
for a period of two years following the date of termination. The FDIC requires
an annual audit by independent accountants and also periodically makes its own
examinations of insured institutions. The management of the Bank is unaware of
any practice, condition or violation that might lead to termination of its
deposit insurance.
As an insurer, the FDIC issues regulations, conducts examinations and
generally supervises the operations of its insured members. FDICIA directed the
FDIC to establish a risk-based premium system under which each premium assessed
against the Bank would generally depend upon the amount of the Bank's deposits
and the risk that it poses to the SAIF. The FDIC was further directed to set
semiannual assessments for insured depository institutions to maintain the
reserve ratio of the SAIF at 1.25% of estimated insured deposits. The FDIC may
designate a higher reserve ratio if it determines there is a significant risk of
substantial future loss to the SAIF. Under the FDIC's risk-related insurance
regulations, an institution is classified according to capital and supervisory
factors. Institutions are assigned to one of three capital groups: well
capitalized, adequately capitalized or undercapitalized. Within each capital
group, institutions are assigned to one of three supervisory subgroups. There
are nine combinations of groups and subgroups (or assessment risk
classifications) to which varying assessment rates are applicable. The rate
assessed for SAIF insured deposits range from $.23 per $100 of domestic deposits
to $.31 per $100 of domestic deposits. The Bank's federal deposit insurance
expenses for the fiscal year ended June 30, 1997 amounted to $118,256.
On September 30, 1996, the President signed the Deposit Insurance Funds Act
of 1996 ("DIFA") which was part of the omnibus spending bill enacted by Congress
at the end of its 1996 session. DIFA mandated that the FDIC impose a one-time
special assessment on the SAIF-assessable deposits of each insured depository
institution at a rate applicable to all such institutions that the FDIC
determined would cause the SAIF to achieve its designated reserve ratio of 1.25%
as of October 1, 1996. The assessment was based on the amount of SAIF-insured
deposits owned by each institution as of March 31, 1995, the record date
established in the original drafts of the legislation. DIFA allowed the FDIC to
exempt any insured institution that it determined to be weak
-11-
<PAGE>
from paying the special assessment if the FDIC determined that the exemption
would reduce the risk to the SAIF. DIFA provides that the FDIC may not set
semi-annual assessments with respect to SAIF or BIF in excess of the amount
needed to maintain the 1.25% designated reserve ratio or, if the reserve ratio
is less than the designated reserve ratio, to increase the reserve ratio to the
designated reserve ratio. On October 10, 1996, the FDIC adopted a Final Rule
governing the payment of the SAIF special assessment. The FDIC imposed a
special assessment in the amount of 65.7 basis points. The SAIF special
assessment was due by November 27, 1996. The Bank's portion of this special
assessment amounted to $552,850.
In addition, DIFA mandates the merger of the SAIF and BIF, effective
January 1, 1999, but only if no insured depository institution is a savings
association on that date. The combined deposit insurance fund would be called
the "deposit insurance fund" or "DIF."
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.
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;
-12-
<PAGE>
* 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 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).
-13-
<PAGE>
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 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.
Legislation has been introduced that would eliminate the federal savings
association charter. If such legislation is enacted, the Bank would be required
to convert its federal savings bank charter
-14-
<PAGE>
to either a national bank charter or to a state depository institution charter.
Various legislative proposals also may result in the restructuring of federal
regulatory oversight, including, for example, consolidation of the OTS into
another agency, or creation of a new federal banking agency to replace the
various agencies which presently exist.
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.
-15-
<PAGE>
SELECTED STATISTICAL INFORMATION
The following statistical information is provided for GF Bancshares, Inc. for
the years ended June 30, 1997 and 1996. 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,
1997 1996
---- ----
(Dollars in Thousands)
Assets
- ------
<S> <C> <C>
Interest-bearing deposits in banks $ 4,361 11,722
Taxable investment securities 3,019 3,700
Nontaxable investment securities 952 883
Loans/1/ 86,009 75,403
------- -------
Total interest-earning assets 94,341 91,708
Cash and due from banks 551 539
Other assets 1,935 1,258
------- -------
$96,827 $93,505
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Interest-bearing deposits:
Interest-bearing demand $18,484 $17,446
Savings 3,646 3,974
Time 54,353 56,812
------- -------
Total interest-bearing deposits 76,483 78,232
Federal Home Loan Bank advances 5477 21
------- -------
Total interest-bearing liabilities 81,960 78,253
Noninterest-bearing demand deposits 1,251 1,240
Other liabilities 808 1,477
------- -------
Total liabilities 84,019 80,970
Shareholders' equity 12,808 12,535
------- -------
$96,827 $93,505
======= =======
</TABLE>
__________________________________
/1/ Average loans include nonaccrual loans.
-16-
<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,
1997 1996
---- ----
Interest Rate Interest Rate
-------- ---- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest income
Interest on loans/1/ $7,809 9.08% $6,960 9.23%
Interest on taxable investments 221 7.32 218 5.89
Interest on nontaxable investments/2/ 45 4.73 40 4.53
Interest on deposits in banks 224 5.14 667 5.69
------ ------
8,299 8.80% 7,885 8.60%
------ ------
Interest expense
Interest on interest-bearing demand 535 2.89% 531 3.04%
Interest on savings 110 3.02 112 2.82
Interest on time deposits 3,222 5.86 3,435 6.05
Interest on Federal Home Loan
Bank advances 313 5.73 1 7.39
------ ------
4,180 5.08% 4,079 5.21%
------ ------
Net interest income $4,119 $3,806
------ ------
Net interest spread 3.72% 3.39%
---- ----
Net yield on average interest-earning assets 4.37% 4.15%
---- ----
</TABLE>
_______________________________
/1/ Includes loan fees of $309 and $145, for 1997 and 1996 respectively.
/2/ Yields were not computed on a tax equivalent basis.
-17-
<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,
1997 vs. 1996
Increase Change Due to
(Decrease) Rate Volume
---------- ---- ------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 849 $(129) $ 978
Interest on taxable investments 3 43 (40)
Interest on nontaxable investments 5 2 3
Interest on deposits in banks (443) (24) (419)
----- ----- -----
414 (108) 522
----- ----- -----
Interest expense
Interest on interest-bearing demand 4 (28) 32
Interest on savings (2) 7 (9)
Interest on time deposits (230) (104) (126)
Interest on Federal Home Loan Bank advances 313 (90) 03
----- ----- -----
85 (215) 300
----- ----- -----
Net interest income $ 329 $ 107 $ 222
===== ===== =====
</TABLE>
<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 advances 1 - 1
----- ---- -----
413 408 5
----- ---- -----
Net interest income $ 162 $(93) $ 255
===== ==== =====
</TABLE>
-18-
<PAGE>
ASSET/LIABILITY MANAGEMENT. The following table sets forth the distribution of
the repricing of the Company's interest-earning assets and interest-bearing
liabilities as of June 30, 1997, 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.
<TABLE>
<CAPTION>
After
Three After 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 $ 1,517 $ 566 $ 844 $ 2,927
Interest-bearing deposits in banks 5,170 - - - 5,170
Loans, net 28,385 25,495 16,798 11,534 82,212
------- ------- ------- ------- -------
33,555 27,012 17,364 12,378 90,309
------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits 18,257 - - - 18,257
Savings deposits 3,644 - - - 3,644
Time deposits 9,064 28,254 18,686 - 56,004
------- ------- ------- ------- -------
30,965 28,254 18,686 - 77,905
------- ------- ------- ------- -------
Interest rate sensitivity gap $ 2,590 $(1,242 $(1,322) $12,378 $12,404
------- ------- ------- ------- -------
Cumulative interest rate sensitivity gap $ 2,590 $ 1,348 $ 26 $12,404
------- ------- ------- -------
Interest rate sensitivity gap ratio 1.08 (.96) (.93) -
------- ------- ------- -------
Cumulative interest rate
sensitivity gap ratio 1.08 1.02 1.00 1.16
------- ------- ------- -------
</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.
-19-
<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>
1997
-------------------------------------------------------
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 $1,522 $14 $ - $1,536
Mortgage-backed securities 304 10 (3) 311
State and municipal securities 1,101 4 - 1,105
------ --- --- ------
$2,927 $28 $(3) $2,952
====== === === ======
</TABLE>
<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
====== === === ======
</TABLE>
MATURITIES. The amounts of investment securities in each category at amortized
cost as of June 30, 1997 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 through ten years.
<TABLE>
<CAPTION>
State and U.S. Treasury and Other
Political 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 $ 517 4.59% $1,000 6.35%
After one year through five years 400 4.21 166 6.11
After five years through ten years 50 7.75 587 7.14
After ten years 134 5.15 73 5.53
------ ---- ------ ----
$1,101 4.66% $1,826 6.55%
====== ==== ====== ====
</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.
-20-
<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 E of the consolidated financial statements for
concentrations of credit risk. Management is not aware of any additional
concentrations.
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Real estate-mortgage $64,470 $64,132
Real estate-construction 16,953 12,346
Commercial 1,863 2,448
Consumer installment and other 2,788 2,524
------- -------
86,074 81,450
Deferred loan fees (127) (158)
Allowance for loan losses (740) (688)
------- -------
Loans, net $85,207 $80,604
======= =======
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES. Total loans as of June
30, 1997 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
Maturity Thousands)
<S> <C>
One year or less $26,138
After one year through five years 12,454
After five years 47,482
-------
$86,074
=======
</TABLE>
The following table summarizes loans at June 30, 1997 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 $26,397
Floating or adjustable interest rates 33,539
-------
$59,936
=======
</TABLE>
-21-
<PAGE>
NONPERFORMING LOANS. The following table presents, at the dates indicated, the
aggregate of nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 1,380 $ 227
("nonaccrual loans")
Installment loans and term loans contractually 310 451
past due ninety days or more as to interest and
principal payments and still accruing
Loans, the terms of which have been renegotiated 598 706
to provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower ("restructured loans")
Loans now current about which there are serious 0 0
doubts as to the ability of the borrower to comply
with present loan repayment terms
</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, 1997:
<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 $ 142 $ 61
Interest income actually included in net income for
the year (66) (43)
-------- --------
Interest income not recognized for the year $ 76 $ 18
======== ========
</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, 1997 the
Company had a concentration of credit risk totaling approximately $77.6 million
in loans secured by real estate.
-22-
<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 $740,000 at June 30, 1997, .86% of the year
end total loans outstanding, including loans held for sale, compared with
$688,000 at June 30, 1996, .84% 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>
1997 1996
---- ----
(Dollars in Thousands)
Percentage of Percentage of
Loans in Each Loans in Each
Balance at End of Category to Category to
Period Applicable to: Amount Total Loans Amount Total Loans
------------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Real Estate Mortgage and
Construction Loans $640 86 % $588 94 %
Commercial Loans 50 7 50 3
Installment Loans to Individuals and Other 50 7 50 3
---- ---- ---- ----
$740 100 % $688 100 %
==== ==== ==== ====
</TABLE>
The following table presents an analysis of the Company's loan loss experience
for the periods indicated:
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Average amount of loans outstanding $86,009 $75,403
------- -------
Balance of reserve for possible loan losses,
beginning of period $ 688 $ 683
------- -------
Charge-offs:
Real estate-mortgage (7) (16)
Consumer installment (8) (9)
------- -------
Net Charge-offs (15) (25)
------- -------
Additions to reserve charged to operating expenses 67 30
------- -------
Balance of reserve for possible loan losses, end of period $ 740 $ 688
======= =======
Ratio of net loan charge-offs to average loans .02% .03%
------- -------
</TABLE>
-23-
<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,
1997 1996
---- ----
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Noninterest-bearing demand deposits $ 1,251 -.-% $ 1,240 -.-%
Interest-bearing demand deposits 18,484 2.89 17,446 3.04
Savings deposits 3,646 3.02 3,974 2.82
Time deposits 54,728 5.86 56,812 6.05
------- -------
Total deposits $78,109 $79,472
======= =======
</TABLE>
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of June 30, 1997 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 $1,123
Over three through six months 1,161
Over six through twelve months 4,516
Over twelve months 2,681
------
Total $9,481
======
</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,
1997 1996
---- ----
<S> <C> <C>
Return on assets/1/ 1.04% 1.09%
Return on equity/2/ 7.85 8.13
Dividend payout ratio/3/ 101.94 100.00
Equity to assets ratio/4/ 13.23 13.41
</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.
-24-
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES.
-------------------------
The Savings Bank conducts business from its main office and drive-in
facility in Griffin, Georgia location and had five loan production offices in
Fayetteville/Peachtree City, McDonough, Savannah, Stockbridge and Warner Robins,
Georgia during the fiscal year ended June 30, 1997. 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 leased its loan production offices
which contained 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, 1997.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-25-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------
As of June 30, 1997, there were approximately 402 shareholders of record of
the Company's common stock. There is no established trading market for the
Company's common stock.
The Company declared and paid a cash dividend of $0.55 per share of common
stock for stockholders of record as of September 1, 1997.
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS.
See following pages.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
$49,867,000 as of June 30, 1997. 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, 1997, the Savings Bank meets all capital standards as detailed
below:
<TABLE>
<CAPTION>
CAPITAL CURRENT
BASE REQUIREMENT EXCESS
---- ----------- ------
(Dollars in Thousands)
<S> <C> <C> <C>
Tangible Capital $ 11,056 $ 1,964 $ 9,092
Core Capital $ 11,056 $ 3,927 $ 7,129
Risk-based Capital $ 11,608 $ 5,959 $ 5,649
</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.
-27-
<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.
Fiscal Year Ended June 30, 1997 Compared to June 30, 1996
- ---------------------------------------------------------
The Company's net interest income before provision for loan losses increased to
$4,119,000 in 1997 as compared to $3,806,000 in 1996 representing an increase of
8%. The increase in net interest income is primarily attributable to increased
average loan outstandings during the 1997 fiscal year. Average outstandings of
investment securities and interest-bearing deposits in other banks had
corresponding decreases, resulting in improved gross interest income, in that
loans have a higher yield than investment securities. This gain was partially
offset by a net increase in interest expense, due to increased advances from the
FHLB during the current year.
The net interest margin increased from 4.15% to 4.37% from 1996 to 1997. The
yield on average earning assets increased to 8.80% in 1997 compared to 8.60% in
1996, while the interest cost on average interest-bearing liabilities decreased,
to 5.08% in 1997, compared to 5.21% in 1996. 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 from $91,708,000 in 1996 to $94,341,000 in 1997. Average loans
increased from $75,403,000 in 1996 to $86,009,000 in 1997. At the same time,
average interest-bearing deposits in banks and investment securities decreased
from a total of $16,305,000 in 1996 to $8,332,000 in 1997. Average interest-
bearing liabilities increased from $78,253,000 in 1996 to $81,960,000 in 1997.
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 $67,000
in 1997 from $30,000 in 1996. The increase was the result of an increase in
nonperforming loans. Net charge-offs for 1997 decreased to $15,000 as compared
to $25,000 in 1996. The allowance for loan losses as a percentage of total
loans including loans held for sale outstanding as of June 30, 1997 and 1996 was
.86% and .84%, respectively. Net charge-offs to total loans, excluding loans
held for sale outstanding at June 30, 1997 and 1996, were .02% and .03%,
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.
-28-
<PAGE>
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
mortgage loans originated in the Company's loan production offices, and gains
(losses) on sales of investment securities. Other income increased by $255,000,
or 38%, from $680,000 in 1996, to $935,000 in 1997. This improvement was due to
the improvement in income from loan production office operations, from a loss of
$72,000 in 1996, to a gain of $220,000 in 1997. Following the end of the
mortgage refinance boom of the early 1990's, there was a significant reduction
in mortgage loan originations and resulting revenues by the Company. In
response to these changed market conditions, the Company 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. The profit
in the 1997 fiscal year reflected the completion of this business adjustment.
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, and no such items occuring in
fiscal 1997.
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, SAIF
special assessment, merger expenses, FDIC insurance premiums, data processing
expense, professional fees, other taxes (non-income) and stationery and
supplies. Other expense increased $581,000, or 20%, to $3,486,000 in fiscal
1997 compared to $2,905,000 in fiscal 1996. The increase was due almost
entirely to the one - time SAIF special assessment of $553,000, discussed
elsewhere in this filing, and merger expenses of $95,000 related to the pending
merger of the Company with a regional bank holding company. Exclusive of these
two items, other expenses decreased a net of $68,000 (2%). Components of this
decrease were salaries and benefits (up $14,000 or 1%), occupancy expense (up
$38,000 or 12%), FDIC insurance premium (down $83,000 or 41%), data processing
expense (up $41,000 or 23%), professional fees (down $3,000 or 3%), other taxes
(down $8,000 or 10%), and stationery and supplies expense (down $19,000 or 23%.)
The relatively small increase in salaries and benefits as well as the decreases
in professional fees and stationery and supplies expense were the result of
ongoing expense control measures implemented by management. The increase in
occupancy expense related primarily to certain repairs to the Company's main
office building. The decrease in FDIC insurance premiums was due to the reduced
premium rate following, and a direct result of, the SAIF special assessment.
Data processing expense increased due to additional back - office functions
outsourced to the Company's data processing vendor during the 1997 fiscal year.
Income tax expense as a percentage of pretax income remained relatively stable,
decreasing from 34% in fiscal 1996 to 33% in fiscal 1997.
The Company's net income was $1,006,000 for the year ending June 30, 1997,
compared to net income of $1,019,000 for the year ending June 30, 1996.
Exclusive of the SAIF special assessment and merger expenses, net of tax effect,
which aggregated $403,000, net income from continuing operations increased from
$1,019,000 in fiscal 1996 to $1,409,000 in fiscal 1997. 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),
increased income on loan production office operations and reduced operating
expenses.
Fiscal Year Ended June 30, 1996 Compared to June 30, 1995
- ---------------------------------------------------------
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%. 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
-29-
<PAGE>
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. Net charge-offs for 1996 increased to $25,000 as compared
to $10,000 in 1995. The allowance for loan losses as a percentage of total
loans including loans held for sale outstanding as of June 30, 1996 and 1995 was
.84% and .95%, 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
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.
Refer to discussion above comparing FY 1997 to FY 1996 for further information
relative to the change from FY 1995 to FY 1996. 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.
-30-
<PAGE>
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)
-31-
<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, 1997 and 1996................................... F-2
Consolidated Statements of Income for the Years Ended
June 30, 1997, 1996 and 1995............................. F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1997, 1996 and 1995.. F-6
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1997, 1996 and 1995....................... F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-32-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
-----------------------------------
None.
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.
-33-
<PAGE>
Incumbent Directors Whose Terms Expire in 1997
<TABLE>
<CAPTION>
Year First Principal Occupation;
Name Age Elected Business Experience
---- --- ------- -------------------
<S> <C> <C> <C>
Ron J. Franklin 53 1988 President and Chief Executive of the
Bank.
William T. Ramsey 76 1967 Chairman of the Board of the Bank.
Frank A. Thomas 76 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 77 1967 Retired Owner and President of Boyd
Builders Supply.
Lee Roy Claxton 73 1967 Retired Pharmacist.
Robert H. Crossfield 77 1960 Owner of the Crossfield Company, a
rental investment company; Secretary of
the Company.
Incumbent Directors Whose Terms Expire in 1999
Year First Principal Occupation;
Name Age Elected Business Experience
---- --- ------- -------------------
James C. Owen, Jr. 77 1960 Chairman of the Board of the Company;
retired partner in the law firm of Beck,
Owen & Murray.
Scott H. Searcy, Sr. 62 1967 President of Searcy & Co., an
independent insurance agency and Vice
President and associate broker of Searcy
& Co. Realtors, a real estate brokerage
company.
</TABLE>
-34-
<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 12 meetings during the fiscal
year ended June 30, 1997. 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 12 meetings during the fiscal year ended
June 30, 1997. 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
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 52, 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 49, 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.
Ralph B. Westmoreland, age 58, 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.
Sandy Studle, age 47, 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.
-35-
<PAGE>
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 50, has been Vice President in charge of
automation/operations since 1997. Prior thereto, he was Vice President in charge
of compliance/audit and loan servicing operations of the Bank from 1989 to 1997.
From 1980 to 1989, Mr. Hobbs was vice president of credit review at First Union
Bank of Georgia. Mr. Hobbs is a graduate of Auburn University.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-36-
<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 1997, 1996 and 1995.
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, 1997 121,539 -0- 8,475 -0- 11,329
President and 1996 111,875 250 8,625 -0- 10,068
Chief Executive 1995 98,750 -0- 8,000 -0- 15,000
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 $50,000 or 10% of the total annual salary and bonus reported for
such person.
(2) The reported amount consists of the Bank's contribution to the 401-K plan
and deferred compensation.
The following table sets forth certain information regarding the exercise
of stock options in the 1997 fiscal year by the person named in the Summary
Compensation Table and the value of options held by such person at the end of
such fiscal year.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options at In-the-Money Options
FY-End (#) at FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ron J. Franklin 3,100 39,494 24,522/0 148,852/0
</TABLE>
(1) The reported amount does not include 3,223 options received as a director
under the Directors Stock Option Plan.
-37-
<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.
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, 1997, the Savings
Bank's contribution to such plan was $26,999 of which $19,485 was contributed
for employees (other than executive officers) and the balance of contributions
made for all executive officers totaled $7,514.
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, 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.
-38-
<PAGE>
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, 1997, the Company
had 21,734 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.
Employment Matters
Ron J. Franklin is employed by the Company as President and Chief Executive
Officer and as President and Chief Executive Officer of the Savings Bank,
pursuant to an employment agreement. The term of employment is for 36 calendar
months and the term is extended for an additional 12 month period, provided the
Board of Directors of the Company and the Savings Bank annually determines that
the performance of Mr. Franklin has met the Board's requirements and standards.
Mr. Franklin currently receives a base salary of $120,000 per annum, accrued
deferred compensation of $9,000 per annum, and an automobile plus reimbursement
of expenses for operating and maintenance of the automobile. The employment
agreement also contains a provision pertaining to the change of control (as
defined) whereby if within one year immediately following a change in control or
within six months immediately prior to such change in control: (i) Mr.
Franklin's employment is terminated or (ii) the status, character, capacity and
circumstances of Mr. Franklin's employment have been materially altered and Mr.
Franklin voluntarily terminates his employment for that reason, then Mr.
Franklin shall be entitled to receive a lump sum payment equal to three times
his average annual compensation for the most recent five taxable years ending
before the change in control; or (iii) in the event of the voluntary termination
of employment by Mr. Franklin, then Mr. Franklin shall be entitled to receive a
lump sum payment equal to his average annual compensation for the most recent
five taxable years ending before the change in control.
Ralph B. Westmoreland is employed by the Savings Bank as Senior Vice
President of Mortgage Lending pursuant to an employment agreement. The term of
employment is for 36 calendar months and the term is extended for an additional
12 month period, provided the Board of
-39-
<PAGE>
Directors of the Savings Bank annually determines that the performance of Mr.
Westmoreland has met the Board's requirements and standards. Mr. Westmoreland
currently receives a base salary of $62,000 per annum. The employment agreement
also contains a provision pertaining to change in control (as defined), whereby
if within one year immediately following a change in control or within six
months immediately prior to a change in control: (i) Mr Westmoreland's
employment is terminated or (ii) the status, character, capacity and
circumstances of Mr. Westmoreland's employment have been materially altered and
Mr. Westmoreland voluntarily terminates his employment for that reason, then Mr.
Westmoreland shall be entitled to receive a lump sum payment equal to two times
his average annual compensation for the most recent five taxable years ending
before the change in control; or (iii) in the event of the voluntary termination
of employment by Mr. Westmoreland, then Mr. Westmoreland shall be entitled to
receive a lump sum payment equal to his average annual income for the most
recent five taxable years ending before the change in control.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-40-
<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 8, 1997 (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 7.7%
James C. Owen, Jr. 35,916 3.5
Director
William T. Ramsey 45,003 4.3
Director
Ron J. Franklin 44,724(5) 4.3
President, Chief Executive
Officer and Director
Robert H. Crossfield 23,691 2.3
Director
Frank A. Thomas 22,565 2.2
Director
F. Dan Boyd 26,064 2.5
Director
Lee Roy Claxton 33,879 3.3
Director
Scott H. Searcy, Jr. 32,303(6) 3.1
Director
All directors and executive
officers as a group
(14 persons) 380,430 36.7
</TABLE>
________________
(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
-41-
<PAGE>
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 989,122 shares 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 18,056 stock options exercisable within 60 days of the record
date.
(6) Includes 3,223 stock options exercisable within 60 days of the record
date.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-42-
<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, 1997 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 $1,508,692 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 $17,680 for legal
services rendered during the fiscal year ended June 30, 1997.
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 $85,392 in premiums for bond and property insurance
policies during the fiscal year ended June 30, 1997.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-43-
<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.
-44-
<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]
-45-
<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 26, 1997.
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 26, 1997.
--
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
- -------------------------
Arthur H. Hammond Chief Financial Officer (Principal Financial
Officer)
/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
/s/ Lee Roy Claxton Director
- -------------------------
Lee Roy Claxton
/s/ Scott H. Searcy Director
- -------------------------
Scott H. Searcy
-46-
<PAGE>
[LOGO AND LETTERHEAD OF B&M 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 sheets of G F
Bancshares, Inc. and subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the two years ended June 30, 1997. 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 audits. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
G F Bancshares, Inc. and subsidiary as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements as of and for the year
ended June 30, 1997, have been prepared assuming G F Bancshares, Inc. will
continue in existence in its current corporate structure and its subsidiary
retain a thrift charter. As discussed in Note B, on May 29, 1997, G F
Bancshares, Inc. entered into a definitive agreement to be merged into a
regional bank. These consolidated financial statements do not include any
adjustments that might result from G F Bancshares being merged into or acquired
by another entity.
/s/ BRICKER & MELTON, P.A.
August 13, 1997
Duluth, Georgia
F-1
<PAGE>
G F BANCHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=========================================================================================================
June 30,
----------------------------
1997 1996
------------ -----------
ASSETS
<S> <C> <C>
Cash and due from banks (Note C) $ 561,388 $ 813,597
Interest-bearing deposits in other banks 5,169,734 5,002,348
Investment securities available for sale (Note D) 2,951,887 3,265,107
Federal Home Loan Bank stock 944,200 944,200
Mortgage loans held for sale 3,862,253 4,767,777
Loans, net (Notes E, L and M) 81,345,192 75,836,457
Premises and equipment, net (Note F) 1,112,169 1,234,811
Real estate owned, net (Note G) 504,069 500,015
Accrued interest receivable 1,242,609 1,215,952
Other assets (Note L) 745,730 578,803
------------ ------------
TOTAL ASSETS $ 98,439,231 $ 94,159,067
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 1,474,585 $ 1,315,932
Interest-bearing demand and money market 18,257,241 19,237,672
Savings 3,643,434 3,887,485
Time (Note J) 56,003,955 54,048,892
------------ ------------
Total Deposits 79,379,215 78,489,981
Federal Home Loan Bank advances (Note K) 4,553,332 1,250,000
Unremitted escrow funds from borrowers 225,668 281,677
Unremitted interest on loans serviced for others 555,541 575,235
Accrued interest payable 296,705 297,379
Other liabilities (Note H) 627,255 538,503
------------ ------------
TOTAL LIABILITIES 85,637,716 81,432,775
------------ ------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
G F BANCHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, (Continued)
<TABLE>
<CAPTION>
=========================================================================================================
June 30,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Note N)
Preferred stock, 2,000,000 shares authorized, none
issued and outstanding $ -- $ --
Common stock, par value $1; 8,000,000 shares
authorized, 948,316 and 895,946 shares issued and
outstanding 948,316 895,946
Surplus 7,152,571 6,385,508
Retained earnings (Note L) 4,685,434 5,438,940
Unrealized gains on investment securities available for
sale (Note D) 15,194 5,898
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 12,801,515 12,726,292
------------ -----------
Commitments and contingent liabilities (Notes E, L, O and P)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 98,439,231 $ 94,159,067
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
G F BANCHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
=========================================================================================================
For the years ended June 30,
------------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 7,809,281 $ 6,926,148 $ 5,987,354
Investment securities 265,966 292,378 302,470
Interest-bearing deposits in other banks 223,536 666,610 1,020,258
----------- ---------- ----------
TOTAL INTEREST INCOME 8,298,783 7,885,136 7,310,082
----------- ---------- ----------
INTEREST EXPENSE
Interest-bearing demand and money market deposits 535,300 530,586 604,966
Savings deposits 109,828 112,232 123,459
Time deposits 3,221,649 3,435,229 2,937,869
Federal Home Loan Bank advances (Note K) 313,408 1,514 --
----------- ---------- ----------
TOTAL INTEREST EXPENSE 4,180,185 4,079,561 3,666,294
----------- ---------- ----------
NET INTEREST INCOME 4,118,598 3,805,575 3,643,788
PROVISION FOR LOAN LOSSES (Note E) 67,000 29,550 20,023
----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,051,598 3,776,025 3,623,765
----------- ---------- ----------
OTHER INCOME
Service charges and fees 570,382 594,283 657,061
Net gain (loss) on sale of loans 220,290 (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 D) -- -- 598,411
Gain on sale of real estate owned 16,068 -- --
Other income 128,077 66,819 77,081
----------- ---------- ----------
TOTAL OTHER INCOME 934,817 679,677 313,236
----------- ---------- ----------
OTHER EXPENSE
Salaries and employee benefits (Note H) 1,508,044 1,493,663 1,519,033
Net occupancy expense (Note F) 349,983 311,864 339,452
SAIF special assessment (Note Q) 552,850 -- --
Merger expenses 95,407 -- --
Other expense (Note Q) 979,501 1,099,576 1,150,085
----------- ---------- ----------
TOTAL OTHER EXPENSE 3,485,785 2,905,103 3,008,570
----------- ---------- ----------
</TABLE>
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
G F BANCHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME, (Continued)
<TABLE>
<CAPTION>
=========================================================================================================
For the years ended June 30,
------------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES $ 1,500,630 $ 1,550,599 $ 928,431
INCOME TAX EXPENSE (Note L) 494,633 531,746 303,397
----------- ---------- ----------
NET INCOME $ 1,005,997 $ 1,018,853 $ 625,034
=========== ========== ==========
EARNINGS PER SHARE (Note N) $ 1.03 $ 1.05 $ .66
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
G F BANCHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
=========================================================================================================
For the years ended June 30, 1997, 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
Net income -- -- 1,005,997 -- 1,005,997
Cash dividends paid, $1.05 per
share -- -- (993,754) -- (993,754)
Stock dividend--5 percent 44,849 717,584 (765,749) -- (3,316)
Proceeds from exercise of
stock options 7,521 49,479 -- -- 57,000
Net change in unrealized gains
(losses) on investment
securities available for sale -- -- -- 9,296 9,296
--------- ----------- ------------ ---------- -----------
BALANCE AT JUNE 30, 1997 $ 948,316 $ 7,152,571 $ 4,685,434 $ 15,194 $ 12,801,515
========= =========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
G F BANCHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=========================================================================================================
For the years ended June 30,
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,005,997 $ 1,018,853 $ 625,034
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 223,980 338,525 560,916
Amortization of mortgage servicing rights 5,369 -- --
Provision for loan losses 67,000 29,550 20,023
Deferred income taxes (102,022) (76,404) (80,586)
Gain on sales of investment securities available
for sale, net -- -- (598,411)
(Gain) loss on sales of premises and equipment, net (4,254) 176,500 156,595
Additions to mortgage servicing rights (70,732) -- --
Decrease in mortgage loans held for sale 905,524 1,095,532 542,809
(Increase) decrease in other assets (21,019) 347,079 366,000
(Increase) decrease in interest receivable (26,657) 104,661 (475,958)
Increase (decrease) in interest payable (674) (27,706) 83,163
Decrease in unremitted interest on loans serviced
for others (19,694) (77,645) (1,195,090)
Increase (decrease) in other liabilities 143,208 12,941 (514,361)
------------ ------------ -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 2,106,026 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 (100,000) (500,000) (522,081)
Proceeds from maturities of investment securities
available for sale 404,283 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 (5,786,439) (10,793,133) (6,039,932)
Proceeds from sales of other real estate 215,199 261,022 --
Capital expenditures for real estate owned (23,295) -- --
Purchases of premises and equipment (97,084) (266,238) (73,474)
------------ ------------ -----------
NET CASH USED BY INVESTING
ACTIVITIES (5,387,336) (2,087,816) (15,814,268)
------------ ------------ -----------
</TABLE>
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
================================================================================
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, money market and
savings accounts $ (1,065,829) $ 2,513,973 $ (5,729,606)
Net increase (decrease) in time deposits 1,955,063 (4,837,388) 5,022,687
Proceeds from Federal Home Loan Bank advances 39,400,000 1,250,000 --
Repayment of Federal Home Loan Bank advances (36,096,668) -- --
Net increase (decrease) in unremitted escrow funds
from borrowers (56,009) 23,777 (26,104)
Proceeds from exercise of stock options 57,000 27,093 50,725
Cash dividends paid (993,754) (851,149) (737,247)
Stock dividend payment for fractional shares (3,316) (3,085) (3,210)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 3,196,487 (1,876,779) (1,422,755)
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (84,823) (1,022,709) (17,746,889)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,815,945 6,838,654 24,585,543
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,731,122 $ 5,815,945 $ 6,838,654
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest $ 4,164,405 $ 4,107,267 $ 3,583,131
=========== ============ ============
Income taxes $ 645,500 $ 735,900 $ 11,333
=========== ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 195,958 $ 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 are reported at cost. Interest
income is recognized based on the simple interest method for principal amounts
outstanding. At June 30, 1997 and 1996, these deposits represent the Bank's
overnight deposit account at the Federal Home Loan Bank and are 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)
MORTGAGE LOANS HELD FOR SALE
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. These gains or losses are included in noninterest
income.
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.
ALLOWANCE FOR LOAN LOSSES
The Company adopted Statement of Financial Accounting Standards No. 114
(SFAS 114), "Accounting by Creditors for Impairment of a Loan," as amended by
Statement of Financial Accounting Standards No. 118 (SFAS 118), "Accounting by
Creditors for Impairment of a Loan--Income Recognition Disclosure," on July 1,
1995. Under the new standards, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Uncollateralized loans are measured
for impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all collateral-
dependent loans are measured for impairment based on the fair value of the
collateral. Smaller balance homogeneous loans, which consist of residential
mortgages and consumer loans, are evaluated collectively, and reserves are
established based on historical loss experience. The adoption of SFAS 114 and
118 resulted in no additional provision for credit losses at July 1, 1995.
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. Increases and decreases in the allowance
due to changes in the measurement of the impaired loans are included in the
provision for loan losses. Loans continue to be classified as impaired unless
they are brought fully current and the collection of scheduled interest and
principal is considered probable. When a loan or portion of a loan is determined
to be uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
estimated value of any underlying collateral, and an analysis of current
economic conditions. While management believes that it has established the
allowance in accordance with generally accepted accounting principles and has
taken into account the views of its regulators and the current economic
environment, there can be no assurance that in the future the Bank's regulators
or its economic environment will not require further increases in the allowance.
F-10
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well collateralized and in
the process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less than 90
days may also be classified as nonaccrual if repayment in full of principal
and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time and there is a sustained period of
repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
When a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case of
the loans with scheduled amortizations in which the payment is generally applied
to the oldest payment due. When the future collectibility of the recorded loan
balance is expected, interest income may be recognized on a cash basis. In the
case where a nonaccrual loan has been partially charged off, recognition of
interest on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses until
prior charge-offs have been fully recovered. Interest income recognized on a
cash basis was immaterial for the years ended June 30, 1997, 1996 and 1995.
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 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. Subsequent write-downs and gains or losses recognized
on the sale of these properties are included in noninterest income.
F-11
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
LONG-LIVED ASSETS
The Company adopted 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," on July 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
the entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the future undiscounted cash flows expected to result from the
use of the asset and its eventual disposition are less than the carrying amount
of the asset, an impairment loss is recognized. This statement also requires
that long-lived assets and certain intangibles to be disposed of be reported at
the lower of carrying amount or fair value less cost to sell. The adoption of
SFAS 121 did not have a material impact on the Company's financial statements.
MORTGAGE SERVICING RIGHTS
The Company adopted Statement of Financial Accounting Standards No. 122
(SFAS 122), "Accounting for Mortgage Servicing Rights," on July 1, 1996. This
statement amends certain provisions of Statement of Financial Accounting
Standards No. 65 to substantially eliminate the accounting distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions. SFAS
122 requires that the right to service mortgage loans for others be recognized
as an asset. The statement requires an allocation of the total cost of mortgage
loans held for sale to mortgage servicing rights and mortgage loans held for
sale (without mortgage servicing rights) based on their relative fair values.
Prior to adoption of SFAS 122, only purchased mortgage servicing rights could be
recognized as an asset; therefore, the Company recognized mortgage servicing
income only when received.
Mortgage servicing rights are being amortized as noninterest expense
primarily using an accelerated method in proportion to the estimated net
servicing income from the related loans, which approximates a level yield
method. The amortization period represents management's best estimate of the
remaining loan lives.
The carrying values of the mortgage servicing rights are evaluated for
impairment based on their fair values categorized by year of origination or
acquisition with any impairment recognized through a valuation allowance. Fair
values of servicing rights are determined by estimating the present value of
future net servicing income considering the average interest rate and the
average remaining lives of the related mortgage loans being serviced. At June
30, 1997, the Company had mortgage servicing and excess servicing rights with a
net book value of $65,362. The estimated combined fair value of these assets is
approximately $65,600.
Mortgage servicing fees are deducted from the monthly payments on mortgage
loans and are recorded as income when earned. Fees from investors for servicing
their portfolios of residential loans generally range from 1/4 of 1 percent to
1/2 of 1 percent per year on the outstanding principal balance.
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 were met, as specified by the Internal Revenue
Service, the Bank was 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 the years ended June 30,
1996 and 1995. In the year ended June 30, 1997, the Bank utilized the specific
experience method. The Company files its income tax returns on a consolidated
basis. (See Note L.)
F-12
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This statement utilizes the
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
However, in December 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 127 (SFAS 127), "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." This statement
defers the effective date of certain provisions for one year (December 31,
1997). The deferred provisions relate to repurchase agreements, dollar-roll
transactions, securities lending, and similar transactions. The effective date
for all other transfers and servicing of financial assets is unchanged.
Management does not believe that the adoption of SFAS 125 will have a material
impact on the Company's financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." This statement is
effective for financial statements issued for periods ending after December 15,
1997. This statement supercedes Accounting Principles Board Opinion No. 15 (APB
15), "Earnings Per Share," and simplifies earnings per share computations by
replacing primary earnings per share with basic earnings per share, which shows
no effects from dilutive securities. Entities with complex capital structures
will have to show diluted earnings per share, which is similar to the fully
diluted earnings per share computation under APB 15. Had SFAS 128 been effective
on June 30, 1997, the Company would have had basic earnings per share of $1.06
and $1.08 and diluted earnings per share of $1.03 and $1.05 for the years ended
June 30, 1997 and 1996, respectively.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 129 (SFAS 129), "Disclosure of Information About
Capital Structure." This statement is effective for financial statements issued
for periods ending after December 15, 1997. This statement consolidates existing
disclosure requirements on capital structure. The adoption of SFAS 129 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS
130 is effective July 1, 1998. Under SFAS 130, a company will begin showing
changes in assets and liabilities in a new comprehensive income statement or
alternative presentation as opposed to showing some of the items as transactions
in shareholders' equity accounts. Upon adoption, all comparative annual and
interim financial statements will present a comprehensive income statement or
alternative disclosure, for all years presented. The adoption of SFAS 130 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 is effective July 1, 1998, and
requires disclosure of certain financial information by segments of a company's
business. The adoption of SFAS 131 is not expected to have a significant impact
on the financial condition or results of operations of the Company.
F-13
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
EARNINGS PER SHARE
Earnings per share has been computed based on the weighted average number
of shares and common stock equivalents outstanding during the period after
retroactive consideration of any stock dividends authorized, which totaled
972,092, 968,513 and 945,650 shares for the years ended June 30, 1997, 1996 and
1995, respectively. Stock options, as described in Note N, are considered to be
common stock equivalents for purposes of calculating earnings per share.
STOCK-BASED COMPENSATION
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Under APB
25, because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Effective July 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." As provided by SFAS 123, the Company has elected to
continue applying the provisions of APB 25 in determining its net income
relative to stock-based compensation. The Company has adopted the SFAS 123
requirement that a company disclose the pro forma net income and pro forma
earnings per share for the years ending June 30, 1997 and 1996, as if the
alternative fair-value-based accounting method in SFAS 123 had been used in
determining net income. The adoption of SFAS 123 did not have a significant
impact on the financial condition or results of operations of the Company.
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. (See Note R.)
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 the estimated fair value.
Interest-bearing deposits in other banks--The carrying amount of interest-
bearing deposits in other banks approximates the estimated 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.
Mortgage loans held for sale--For these short-term instruments, the fair
value is determined from quoted current market rates.
F-14
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
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. The carrying amount of accrued interest reported
approximates the estimated fair value.
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 of the fixed rate advances
are estimated using discounted cash flow analyses based on the current borrowing
rate for similar types of credit instruments. For variable rate advances that
reprice frequently, fair values are based on carrying 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 as
interest-bearing deposits with the Federal Home Loan Bank.
RECLASSIFICATIONS
Certain reclassifications have been made in the financial statements for
the years ended June 30, 1996 and 1995, to conform with the presentation for the
year ended June 30, 1997.
NOTE B--MERGER
On May 29, 1997, the Company and Regions Financial Corporation executed a
definitive agreement (Agreement) to merge the two companies. The merger will be
accounted for as a purchase under generally accepted accounting principles. The
merger is subject to regulatory and shareholder approval and is expected to be
consummated in the fourth quarter of 1997.
These financial statements have been prepared on the basis of the Company
retaining its present corporate structure and ownership and the Bank retaining
its thrift charter. No adjustments have been made to reflect the tax
consequences of the Company being acquired, including recapture of tax loan loss
reserves; penalties for cancellation of existing contracts with vendors;
commissions or fees payable to the investment banker or other parties (other
than fee for fairness opinion); the effects of any changes in accounting
policies, principles or practices of the acquiror which differ from that of the
Company; or any other expenses of the acquisition which were not actual
liabilities as of June 30, 1997.
F-15
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE C--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, 1997 and 1996, was approximately $338,000 and $343,000,
respectively. The Bank maintained cash balances which were adequate to meet this
requirement.
NOTE D--INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost of investment securities and their approximate fair
values were as follows at June 30:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government and agency securities $ 1,522,088 $ 13,617 $ -- $ 1,535,705
Mortgage-backed securities 304,344 10,154 (3,691) 310,807
State and municipal securities 1,100,949 4,426 -- 1,105,375
------------ --------- --------- ------------
$ 2,927,381 $ 28,197 $ (3,691) $ 2,951,887
============ ========= ========= ============
1996
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair 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>
The unrealized gain on investment securities available for sale, net of the
related deferred taxes of $9,312 and $3,039, is $15,194 and $5,898 at June 30,
1997 and 1996, respectively, and is included as a separate component of
stockholders' equity.
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, 1997, by contractual maturity are shown in the following table.
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.
F-16
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE D--INVESTMENT SECURITIES AVAILABLE FOR SALE, (Continued)
<TABLE>
<CAPTION>
Available for Sale
----------------------------
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 1,516,511 $ 1,521,270
Due from one year to five years 565,980 568,704
Due from five years to ten years 636,787 655,844
Due after ten years 208,103 206,069
------------ ------------
$ 2,927,381 $ 2,951,887
============ ============
</TABLE>
Proceeds from sales of investment securities available for sale during the
years ended June 30, 1997, 1996 and 1995, were $0, $0 and $643,578,
respectively, with gross gains of $0, $0 and $598,411 and gross losses of $0, $0
and $0 realized on those sales. Maturities of investment securities available
for sale during the years ended June 30, 1997, 1996 and 1995 were $404,283,
$1,707,966 and $150,637, respectively.
Investment securities with amortized costs of $102,354 and $118,157 and
approximate fair values of $106,802 and $121,197 at June 30, 1997 and 1996,
respectively, were pledged to secure public funds and certain other deposits as
required by law.
At June 30, 1997, the Company has no outstanding derivative financial
instruments such as swaps, options, futures or forward contracts.
NOTE E--LOANS
A summary of loans by type is as follows at June 30:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Real estate--mortgage $ 60,608,089 $ 59,364,656
Real estate--construction 16,953,456 12,346,179
Commercial 1,862,657 2,447,710
Consumer installment and other loans 2,787,975 2,523,784
------------- -------------
82,212,177 76,682,329
Less: Deferred loan fees (127,069) (158,210)
Allowance for loan losses (739,916) (687,662)
------------- -------------
Loans, net $ 81,345,192 $ 75,836,457
============= =============
</TABLE>
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, 1997 and
1996, the Bank had a concentration of credit risk totaling approximately
$79,100,000 and $71,700,000, respectively, in loans secured by real estate.
F-17
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE E--LOANS, (Continued)
Nonaccrual and restructured loans at June 30, 1997 and 1996, totaled
approximately $1,977,561 and $933,000, respectively. If these loans had been
accruing interest in accordance with their contractual terms, interest income
for the years ended June 30, 1997 and 1996, respectively, would have been
approximately $94,000 and $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 for the year ended June 30, 1995.
The following is a summary of transactions in the allowance for loan losses
for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year $ 687,662 $ 682,825 $ 672,421
Provision charged to operations 67,000 29,550 20,023
Loans charged off (14,746) (24,713) (9,619)
---------- ---------- ----------
Balance, end of year $ 739,916 $ 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 $36,911,000 and $52,166,000 at June 30, 1997 and 1996,
respectively. At June 30, 1997 and 1996, the cumulative outstanding balance of
repurchased loans totaled approximately $1,600,000 and $1,400,000.
At June 30, 1997 and 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 totaled $1,530,571
and $0, respectively, and these loans had a corresponding valuation allowance of
$119,476 and $0, respectively. The impaired loans were measured for impairment
based primarily on the value of underlying collateral. For the years ended June
30, 1997 and 1996, the average recorded investment in impaired loans was
approximately $765,286 and $0, respectively. The Company recognized no interest
on impaired loans during the portion of the year that they were impaired in the
year ended June 30, 1997 and 1996, respectively.
The Company uses several factors in determining if a loan is impaired under
SFAS 114. Generally, nonaccrual loans as well as loans classified by internal
loan review are reviewed for impairment. The internal asset classification
procedures include a thorough review of significant loans and lending
relationships and include the accumulation of related data. This data includes
loan payment status, borrowers' financial data, and borrowers' operating factors
such as cash flows, operating income or loss, etc.
F-18
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE F--PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows at June 30:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Land $ 42,961 $ 42,961
Buildings 1,064,026 1,050,857
Furniture, fixtures and equipment 1,729,313 1,757,584
------------- -------------
2,836,300 2,851,402
Less: Accumulated depreciation (1,724,131) (1,616,591)
------------- -------------
Premises and equipment, net $ 1,112,169 $ 1,234,811
============= =============
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1997,
1996 and 1995 was $223,980, $338,525 and $560,916, respectively.
The Bank is obligated under several noncancellable 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, 1997:
Years ended June 30,
1998 $ 49,313
1999 49,313
2000 49,313
2001 25,313
2002 25,313
Thereafter 455,634
-----------
$ 654,199
===========
Rental expense for the years ended June 30, 1997, 1996 and 1995 was
$179,607, $195,284 and $357,954, respectively.
NOTE G--OTHER REAL ESTATE
The following is a summary of transactions in the reserve for losses on
other real estate for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $ 25,400 $ 32,000 $ 32,000
Provision charged to expense -- -- --
Losses charged off -- (6,600) --
-------- -------- --------
Balance, end of year $ 25,400 $ 25,400 $ 32,000
======== ======== ========
</TABLE>
F-19
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE G--OTHER REAL ESTATE, (Continued)
Net income from other real estate leased totaled $17,368, $17,185 and
$9,137 for 1997, 1996 and 1995, respectively.
NOTE H--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 the years ended June 30, 1997, 1996 and 1995 as a result of the Bank's
contributions to the plan totaled $26,999, $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 $21,593, $24,609 and $24,898 in
the years ended June 30, 1997, 1996 and 1995, respectively.
NOTE I--LOAN SERVICING
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>
1997 1996
------------- -------------
<S> <C> <C>
Mortgage loan portfolios serviced for:
FHLMC $ 88,163,000 $ 93,322,000
Other investors 875,000 422,000
------------- -------------
$ 89,038,000 $ 93,744,000
============= =============
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing contracts are not included in the accompanying consolidated balance
sheets and were approximately $444,000 and $447,000 at June 30, 1997 and 1996,
respectively.
NOTE J--TIME DEPOSITS
The aggregate amount of time deposits with a minimum denomination of
$100,000 was approximately $9,481,000 and $7,627,000 at June 30, 1997 and 1996,
respectively.
F-20
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE J--TIME DEPOSITS, (Continued)
Scheduled maturities of time deposits are as follows at June 30, 1997:
<TABLE>
<S> <C>
Years ended June 30,
1998 $ 37,321,551
1999 10,800,110
Thereafter 7,882,294
-------------
$ 56,003,955
=============
</TABLE>
NOTE K--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, 1997, the Bank had a credit line
for Federal Home Loan Bank advances of $20,000,000. During the year ended June
30, 1997, the Bank received Federal Home Loan Bank advances of $39,400,000 and
repaid advances of $36,096,668. The advances are collateralized by one-to-four
family residential mortgage loans.
The following Federal Home Loan Bank advances were outstanding as of June 30:
<TABLE>
<CAPTION>
Current Balance
-------------------------------
1997 1996
------------- --------------
<S> <C> <C>
$250,000 principal balance, 7.31 percent fixed rate, granted 6/25/96,
payable in semiannual installments of $12,500, interest payable monthly,
matures 6/26/06 $ 225,000 $ 250,000
$1,000,000 principal balance, 7.41 percent fixed rate, granted 6/25/96,
payable in semiannual installments of $33,333.33, interest payable
monthly, matures 6/27/11 933,332 1,000,000
$100,000 principal balance, 7.36 percent fixed rate, granted 10/2/96,
interest payable monthly, matures 10/5/06 100,000 --
$100,000 principal balance, 7.36 percent fixed rate, granted 10/2/96,
interest payable monthly, matures 10/2/06 95,000 --
$1,200,000 principal balance, 6.14 percent fixed rate, granted 10/7/96,
interest payable monthly, matures 11/9/98 1,200,000 --
$2,000,000 principal balance, 6.48 percent daily floating rate, granted
12/2/96, interest payable monthly, matures 12/2/97 2,000,000 --
------------ ------------
$ 4,553,332 $ 1,250,000
============ ============
</TABLE>
The average balance of Federal Home Loan Bank advances outstanding during
the year ended June 30, 1997 and 1996, were approximately $5,477,000 and
$20,000, respectively.
F-21
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE K--FEDERAL HOME LOAN BANK ADVANCES, (Continued)
The maximum amount of Federal Home Loan Bank advances outstanding at any
month-end during the years ended June 30, 1997 and 1996, was approximately
$10,950,000 and $1,250,000, respectively.
The principal amounts of Federal Home Loan Bank advances due during each of
the next five years are as follows as of June 30, 1997:
<TABLE>
<S> <C>
Years ended June 30,
1998 $ 2,101,667
1999 1,301,667
2000 101,667
2001 101,667
2002 101,667
Thereafter 844,997
------------
$ 4,553,332
============
</TABLE>
NOTE L--INCOME TAXES
The consolidated components of income tax expense consisted of the
following for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current--
Federal $ 552,905 $ 569,519 $ 383,983
State 43,750 38,631 --
---------- ---------- ----------
596,655 608,150 383,983
---------- ---------- ----------
Deferred--
Federal (85,896) (68,362) (69,893)
State (16,126) (8,042) (10,693)
---------- ---------- ----------
(102,022) (76,404) (80,586)
---------- ---------- ----------
$ 494,633 $ 531,746 $ 303,397
========== ========== ==========
</TABLE>
F-22
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE L--INCOME TAXES, (Continued)
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>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Pretax income $ 1,500,630 $ 1,550,599 $ 928,431
============ ============ ==========
Income tax at Federal statutory rate $ 510,214 $ 527,204 $ 315,667
Increase (decrease) resulting from:
Tax-exempt income, net of nondeductible interest (54,718) (11,407) (12,911)
State income taxes, net of Federal benefit 18,232 20,189 (7,057)
Other, net 20,905 (4,240) 7,698
------------ ------------ ----------
$ 494,633 $ 531,746 $ 303,397
============ ============ ==========
</TABLE>
The consolidated components of deferred income taxes are as follows at June
30:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 7,650 $ --
Deferred compensation 119,936 110,531
Deferred loan fees, net 48,286 60,120
Nonaccrual loan interest 28,830 --
Deferred expenses 36,255 --
Other 6,837 --
Accelerated tax depreciation -- 72,985
---------- ---------
Total deferred tax asset 247,794 243,636
---------- ---------
Deferred tax liabilities:
Accelerated tax depreciation 36,281 --
Allowance for possible loan losses -- 7,841
Unrealized gain on securities available for sale 9,312 3,039
Change in accounting method on loan fees -- 87,860
Other -- 48,941
---------- ---------
Total deferred tax liability 45,593 147,681
---------- ---------
Net deferred tax asset $ 202,201 $ 95,955
========== =========
</TABLE>
The net deferred tax asset is included as a component of other assets in
the consolidated balance sheets.
F-23
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE L--INCOME TAXES, (Continued)
The Company did not establish a valuation allowance related to the net
deferred tax asset due to taxes paid within the carryback period being
sufficient to offset future deductions resulting from the reversal of these
temporary differences.
The Bank was permitted under the prior 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.
In August of 1996, a bill was signed into law 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, which impacts the
Company's fiscal year ended June 30, 1997. 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 first post-1995 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 for the years ended June 30,
1997 and 1998. 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 refinancing and home equity loans. The Company has not yet determined
whether it qualifies for this deferral. However, it has determined that there
will not be a material effect on earnings resulting from the recapture, due to
the provision of deferred taxes in the years subsequent to 1987 when the tax
provisions for bad debts exceeds actual net loan charge-offs.
Under the present Internal Revenue Code, certain events, such as the
pending merger, may cause the Company's Bank subsidiary to become ineligible to
maintain the reserve discussed above and the post-1987 tax reserve. For the
thrift (Bank) merged into a bank or nonthrift entity in a nontaxable
transaction, the ineligibility year is the year of the merger. The thrift (Bank)
must restate its post-1987 bad debt reserve to zero and include its bad debt
reserves (defined to include qualifying, nonqualifying, and supplemental
reserves) in income ratably over a six-year period beginning in the
ineligibility year or a shorter period if it ceases to engage in business during
the six-year amortization period.
NOTE M--RELATED PARTY TRANSACTIONS
As of June 30, 1997 and 1996, the Bank had direct and indirect loans which
aggregated $1,508,692 and $1,441,193, respectively, outstanding to or for the
benefit of certain of the Company's officers, directors, and their related
interests. During the year ended June 30, 1997, $522,375 of such loans were made
and repayments totaled $454,876. 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.
F-24
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE N--STOCKHOLDERS' EQUITY, (Continued)
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 following table:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
Adequately
Well Capitalized Capitalized
Requirement Requirement Actual
Amount (Ratio) Amount (Ratio) Amount (Ratio)
-------------------- ------------------- ---------------------
<S> <C> <C> <C>
Tier 1 Leverage Capital (to Adjusted
Total Assets) $ 4,909,000 5.0% $ 3,927,000 4.0% $ 11,056,000 11.3%
Tier 1 Risk Based Capital (to Risk
Weighted Assets) $ 4,469,000 6.0% $ 2,980,000 4.0% $ 11,056,000 14.8%
Total Risk Based Capital (to Risk
Weighted Assets) $ 7,449,000 10.0% $ 5,959,000 8.0% $ 11,608,000 15.6%
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------
Adequately
Well Capitalized Capitalized
Requirement Requirement Actual
Amount (Ratio) Amount (Ratio) Amount (Ratio)
-------------------- --------------------- ---------------------
<S> <C> <C> <C>
Tier 1 Leverage Capital (to Adjusted
Total Assets) $ 4,698,000 5.0% $ 3,758,000 4.0% $ 11,682,000 11.8%
Tier 1 Risk Based Capital (to Risk
Weighted Assets) $ 4,649,000 6.0% $ 3,100,000 4.0% $ 11,088,000 14.3%
Total Risk Based Capital (to Risk
Weighted Assets) $ 7,749,000 10.0% $ 6,199,000 8.0% $ 11,600,000 15.0%
</TABLE>
Management believes that as of June 30, 1997, the Bank meets all capital
requirements to which it is subject.
F-25
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE N--STOCKHOLDERS' EQUITY, (Continued)
The Company has two stock compensation plans as of June 30, 1997. 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, 1997, 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. Prior to the
execution of the Agreement, the Board of Directors approved the immediate
vesting of all stock options held by the individual participants.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation plan.
Accordingly, no compensation cost has been recognized. Had compensation cost for
the Company's stock-based compensation plan been determined based on the fair
value at the grant dates for awards under the plan consistent with the method of
SFAS 123, the Company's net income and earnings per share would have been the
pro forma amounts indicated below for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net income
As reported $ 1,005,997 $ 1,018,853
Pro forma $ 1,005,014 $ 1,011,232
Primary earnings per share
As reported $ 1.03 $ 1.05
Pro forma $ 1.03 $ 1.04
</TABLE>
The fair value of each option is estimated as of the date of grant using
the Black-Scholes Option Pricing Model and the following weighted average
assumptions for options granted in the years ended June 30:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Dividend yield 6.0% 6.0%
Risk-free interest rate 7.1% 7.9%
Expected lives 5 years 5 years
Volatility 6.2% 6.2%
</TABLE>
F-26
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE N--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 95,530 $ 4.26 - $15.50 79,635
Options canceled -- 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 90,267 4.26 - 15.50 71,130
Options canceled (9,717) 4.26 - 14.06 (4,694)
Options increased due to stock dividend 3,729 -- 2,922
Options that became exercisable -- 15.50 5,013
Options exercised (6,050) 4.48 (6,050)
Options granted 9,092 16.50 9,092
----------- -------------------- ------------
June 30, 1996 87,321 4.26 - 16.50 77,413
Options canceled (1,224) 13.39 - 15.42 --
Options increased due to stock dividend 4,452 -- 3,914
Options that became exercisable -- 13.39 - 16.19 9,222
Options exercised (7,521) 4.26 - 16.19 (7,521)
Options granted 6,575 16.19 - 17.00 6,575
----------- -------------------- ------------
June 30, 1997 89,603 4.06 - 16.19 89,603
=========== ==================== ============
</TABLE>
NOTE O--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.
The Bank's exposure to credit loss in the event of nonperformance by the
customer on the 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.
F-27
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE O--OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS, (Continued)
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, 1997 and 1996, unfunded
commitments to extend credit were approximately $49,867,000 and $41,710,000,
respectively. The Bank's experience has been that approximately 95 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
$75,000 and $170,000 in irrevocable standby letters of credit outstanding at
June 30, 1997 and 1996, respectively. The Bank was not required to perform on
any standby letters of credit during 1997.
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.
On February 14, 1996, the Company entered into an agreement with Robinson-
Humphrey. The Company agreed to pay Robinson-Humphrey a $90,000 fairness opinion
fee and an incremental success fee (to be paid at closing) equal to 5 percent of
the principal amount of any consideration paid that is above $20.00 per share.
This incremental success fee has been estimated to be approximately $0. However,
due to its contingency upon the merger being approved by the Company's
shareholders and its regulators and being consummated with no significant
changes in the market values of either company's stock, there has been no
provisions made in these June 30, 1997, consolidated financial statements.
The Company has entered into employment agreements with two executive
officers which create certain liabilities in the event of the termination, other
than a termination for cause, of a covered executive within one year following a
change of control of the Company, within six months immediately prior to such a
change of control or in the event of the death of the executive prior to the
expiration date of the agreement. However, due to the employment agreements'
contingency upon certain events occurring, no provisions have been made for
future salary payments in these June 30, 1997, consolidated financial
statements.
NOTE P--CONTINGENCIES
The Company is from time to time a defendant in legal actions from normal
business activities. Management does not anticipate that the ultimate liability
arising from litigation outstanding at June 30, 1997, will have a materially
adverse effect on the consolidated financial statements.
F-28
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE Q--SUPPLEMENTAL FINANCIAL DATA
In September of 1996, a bill was signed into law which provides for the
ultimate merger of the Savings Association Insurance Fund (SAIF) into the larger
and fully capitalized Bank Insurance Fund (BIF). This legislation requires the
Company and all other depository institutions having SAIF-insured deposits to
pay a one-time assessment to recapitalize the SAIF, which had become
undercapitalized due to claims against the fund. The obligations to pay the
special assessment became fixed on September 30, 1996, and was paid on November
27, 1996. On September 30, 1996, the Company recorded a charge to earnings in
the amount of $552,850 to provide for this obligation. The deposit insurance
expense recorded for the year ended June 30, 1997, was $671,106, reflecting the
one-time assessment, and the recurring premium expense of $118,256, and for the
years ended June 30, 1996 and 1995, the recurring premium expenses were $201,149
and $200,120, respectively. However, the legislation also provides for a
reduction in the recurring insurance premiums on SAIF-insured deposits following
the recapitalization. Based on its risk category, the Company anticipates a
significant reduction in its recurring deposit insurance expense in the future.
Components of other expense in excess of 1 percent of total income are as
follows at June 30:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
FDIC insurance premiums $ 118,256 $ 201,149 $ 200,120
Data processing 222,254 180,949 157,583
Professional fees 107,038 110,087 195,090
Other taxes 75,848 83,863 96,136
Stationary and supplies 61,637 80,369 83,412
</TABLE>
F-29
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE R--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows at June 30:
<TABLE>
<CAPTION>
1997 1996
----------------------------- --------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 561,388 $ 561,388 $ 813,597 $ 813,597
Interest-bearing deposits in other banks 5,169,734 5,169,734 5,002,348 5,002,348
Investment securities available for sale 2,951,887 2,951,887 3,265,107 3,265,107
Federal Home Loan Bank stock 944,200 944,200 944,200 944,200
Loans held for sale 3,862,253 3,917,793 4,767,777 4,828,926
Loans 82,212,178 82,516,591 76,682,329 77,154,045
Accrued interest receivable 1,242,609 1,242,609 1,215,952 1,215,952
Financial liabilities:
Noncontractual deposits $ 23,375,260 $ 23,375,260 $ 24,441,089 $ 24,441,089
Contractual deposits 56,003,955 55,930,939 54,048,892 53,731,736
Federal Home Loan Bank advances 4,553,332 4,545,659 1,250,000 1,250,000
Accrued interest payable 296,705 296,705 297,379 297,379
Off-balance-sheet instruments:
Undisbursed credit lines $ 50,051,508 $ 41,966,517
Standby letters of credit 75,278 171,046
</TABLE>
F-30
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE S--CONDENSED FINANCIAL INFORMATION OF G F BANCSHARES, INC.
CONDENSED BALANCE SHEETS
(PARENT ONLY)
<TABLE>
<CAPTION>
June 30,
-------------------------
1997 1996
---------- -----------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary $ 1,768,319 $ 1,606,309
Investment in subsidiary 10,983,166 11,088,162
Other assets 50,030 31,821
---------- -----------
TOTAL ASSETS $ 12,801,515 $ 12,726,292
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Common stock $ 948,316 $ 895,946
Surplus 7,152,571 6,385,508
Retained earnings 4,685,434 5,438,940
Unrealized gains on investment securities available for
sale 15,194 5,898
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,801,515 12,726,292
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 12,801,515 $ 12,726,292
========== ===========
</TABLE>
F-31
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE S--CONDENSED FINANCIAL INFORMATION OF G F BANCSHARES, INC., (Continued)
CONDENSED STATEMENTS OF INCOME
(PARENT ONLY)
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------
1997 1996 1995
--------- ----------- ------------
<S> <C> <C> <C>
Dividends from subsidiary $ 1,150,000 $ 875,400 $ 1,986,030
Expenses 47,920 48,530 43,015
--------- ----------- ------------
INCOME BEFORE INCOME TAX BENEFIT
AND EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY 1,102,080 826,870 1,943,015
Income tax benefit 18,209 16,500 --
--------- ----------- ------------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARY 1,120,289 843,370 1,943,015
Equity in undistributed earnings (distributions in excess
of earnings) of subsidiary (114,292) 175,483 (1,317,981)
--------- ----------- ------------
NET INCOME $ 1,005,997 $ 1,018,853 $ 625,034
========= =========== ============
</TABLE>
F-32
<PAGE>
G F BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE S--CONDENSED FINANCIAL INFORMATION OF G F BANCSHARES, INC., (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,005,997 $ 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 114,292 -- 1,317,981
Increase in other assets (18,209) (16,499) --
---------- ----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,102,080 826,871 1,943,015
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 57,000 27,093 50,725
Cash dividends paid (993,754) (851,149) (737,247)
Stock dividend payment for fractional shares (3,316) (3,085) (3,210)
---------- ----------- ----------
NET CASH USED BY FINANCING
ACTIVITIES (940,070) (827,141) (689,732)
---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH 162,010 (270) 1,253,283
CASH AT BEGINNING OF YEAR 1,606,309 1,606,579 353,296
---------- ----------- ----------
CASH AT END OF YEAR $ 1,768,319 $ 1,606,309 $ 1,606,579
========== =========== ==========
</TABLE>
F-33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF G F BANCSHARES, INC. AS OF AND FOR THE YEAR ENDED JUNE
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 561,388
<INT-BEARING-DEPOSITS> 5,169,734
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,951,887
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 85,947,361
<ALLOWANCE> 739,916
<TOTAL-ASSETS> 98,439,231
<DEPOSITS> 79,379,215
<SHORT-TERM> 3,200,000
<LIABILITIES-OTHER> 1,705,169
<LONG-TERM> 1,353,000
0
0
<COMMON> 948,316
<OTHER-SE> 11,853,199
<TOTAL-LIABILITIES-AND-EQUITY> 98,439,231
<INTEREST-LOAN> 7,809,281
<INTEREST-INVEST> 265,966
<INTEREST-OTHER> 223,536
<INTEREST-TOTAL> 8,298,783
<INTEREST-DEPOSIT> 3,866,777
<INTEREST-EXPENSE> 4,180,185
<INTEREST-INCOME-NET> 4,118,598
<LOAN-LOSSES> 67,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,485,785
<INCOME-PRETAX> 1,500,630
<INCOME-PRE-EXTRAORDINARY> 1,500,630
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,005,997
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 4.37
<LOANS-NON> 1,380,000
<LOANS-PAST> 310,000
<LOANS-TROUBLED> 598,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 687,662
<CHARGE-OFFS> 14,746
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 739,916
<ALLOWANCE-DOMESTIC> 739,916
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
