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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended June 30, 1997
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___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 0-28280
GREATER ROME BANCSHARES, INC.
-----------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2117940
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(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 5271, 1490 Martha Berry Blvd., Rome, Georgia 30162-5271
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(Address of Principal Executive Offices)
(706) 295-9300
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
700,000 shares of common stock, $.01 par value per share, were issued
and outstanding as of July 28, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Total Pages:
1
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited financial statements of Greater Rome Bancshares, Inc. (the
"Company") are set forth on the following pages. All adjustments have been made
which, in the opinion of management, are necessary in order to make the
financial statements not misleading.
2
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GREATER ROME BANCSHARES, INC. and subsidiary
Consolidated Balance Sheets
(Unaudited)
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
Assets
------
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks $ 866,183 764,891
Federal funds sold 91,381 4,058,912
--------------- --------------
Cash and cash equivalents 957,564 4,823,803
Securities available for sale 2,532,428 1,489,375
(amortized cost of $2,535,540 and $1,487,715)
Securities held to maturity 5,227,122 4,748,925
(market value of $5,188,643 and $4,722,155)
Loans 22,758,458 13,228,943
Allowance for loan losses (286,626) (133,342)
--------------- --------------
Net loans 22,471,832 13,095,601
Premises and equipment, net 2,314,822 2,099,035
Accrued interest receivable and other assets 352,878 251,902
--------------- --------------
$ 33,856,646 26,508,641
=============== ==============
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
<S> <C> <C>
Demand $ 3,666,708 3,006,709
Interest bearing demand 2,906,073 1,692,466
Savings 4,362,104 3,479,435
Time 15,965,390 11,665,926
--------------- --------------
Total deposits 26,900,275 19,844,536
Federal funds purchased 550,000 -
Accrued interest payable and other liabilities 130,400 286,148
--------------- --------------
Total liabilities 27,580,674 20,130,684
Commitments
Stockholders' equity:
Preferred stock, par value $1.00 per share; 100,000 shares
authorized; no shares issued or outstanding
Common stock, par value $.01 per share; 10,000,000
shares authorized; 700,000 shares issued and
outstanding 7,000 7,000
Additional paid-in capital 6,930,117 6,930,117
Accumulated deficit (658,034) (560,820)
Unrealized gain/(loss) on securities available for sale (3,112) 1,660
--------------- --------------
Total stockholder's equity 6,275,971 6,377,957
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$ 33,856,646 26,508,641
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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GREATER ROME BANCSHARES, INC. and subsidiary
Consolidated Statements of Operations
(Unaudited)
For each of the Six and Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Interest income on:
Federal funds sold and deposits with other banks $ 63,912 103,807 20,182 49,661
Investment securities 226,311 110,911 118,682 65,222
Loans, including loan fees 888,630 99,918 510,578 92,847
---------------- ---------------- ---------------- ---------------
Total interest income 1,178,853 314,636 649,442 207,730
---------------- ---------------- ---------------- ---------------
Interest expense on deposits:
Demand 28,924 7,734 14,266 6,789
Savings 72,262 19,831 39,135 16,852
Time 391,916 28,717 216,291 26,751
Interest expense on other borrowings 13,012 - 10,669 -
---------------- ---------------- ---------------- ---------------
Total interest expense 506,114 56,282 280,361 50,392
---------------- ---------------- ---------------- ---------------
Net interest income 672,740 258,354 369,082 157,338
Provision for loan losses 165,068 30,407 90,490 25,326
---------------- ---------------- ---------------- ---------------
Net interest income after provision 507,672 227,947 278,592 132,012
Non-interest income 61,821 9,210 34,552 8,978
Salaries and employee benefits 356,655 235,110 186,400 128,650
Occupancy and equipment expense 115,267 68,690 58,017 46,387
Other operating 194,784 140,065 100,443 88,219
---------------- ---------------- ---------------- ---------------
Total non-interest expenses 666,706 443,865 344,860 263,256
---------------- ---------------- ---------------- ---------------
Net loss $ (97,214) (206,708) (31,717) (122,266)
================ ================ ================ ===============
Net loss per common share $ (0.14) (0.30) (0.05) (0.17)
================ ================ ================ ===============
Weighted average number of shares outstanding 700,000 700,000 700,000 700,000
================ ================ ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GREATER ROME BANCSHARES, INC. and subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For each of the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (97,214) (206,708)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, amortization and accretion 66,235 26,005
Provision for loan losses 165,068 30,407
Change in:
Interest receivable and other assets (107,019) (173,885)
Interest payable and other liabilities (155,748) (42,878)
----------------- ---------------
Net cash used in operating activities (128,678) (367,059)
----------------- ---------------
Cash flows from investing activities:
Purchases of securities available for sale (1,045,014) (495,684)
Purchases of securities held to maturity (727,887) (3,247,901)
Proceeds from maturities and calls of securities held to maturity 250,000 -
Net increase in loans (9,541,299) (6,170,285)
Purchases of premises and equipment (279,100) (419,795)
----------------- ---------------
Net cash used by investing activities (11,343,300) (10,333,665)
----------------- ---------------
Cash flows from financing activities:
Net change in demand and savings deposits 2,756,275 5,110,777
Net change in time deposits 4,299,464 3,426,079
Net change in short term borrowings 550,000 -
----------------- ---------------
Net cash provided by financing activities 7,605,739 8,536,856
----------------- ---------------
Change in cash and cash equivalents (3,866,239) (2,163,868)
Cash and cash equivalents at beginning of period 4,823,803 5,423,506
----------------- ---------------
Cash and cash equivalents at end of period $ 957,564 3,259,638
================= ===============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 494,771 44,684
Change in unrealized gain/(loss) on securities available for sale $ (4,772) -
</TABLE>
See accompanying notes to consolidated financial statements.
5
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GREATER ROME BANCSHARES, INC. and subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
Organization
------------
Greater Rome Bancshares, Inc. (the "Company") is a bank holding company
whose business is conducted by its wholly-owned bank subsidiary, Greater
Rome Bank (the "Bank"). The Company is subject to regulation under the Bank
Holding Company Act of 1956.
The Bank is a commercial bank that serves Rome, Georgia, a community located
approximately 50 miles north of metropolitan Atlanta, and surrounding Floyd
County. The Bank is chartered and regulated by the State of Georgia
Department of Banking and Finance and is insured and subject to regulation
by the Federal Deposit Insurance Corporation.
Operations of the Company for the period from inception (June 17, 1994) to
February 26, 1996 related primarily to expenditures by the organizers for
incorporating and organizing the Bank including raising capital and securing
banking facilities.
Basis of Presentation and Reclassification
------------------------------------------
The accounting principles followed by Greater Rome Bancshares, Inc. and its
subsidiary, and the methods of applying these principles, conform with
generally accepted accounting principles ("GAAP") and with general practices
within the banking industry. In preparing financial statements in conformity
with GAAP, management is required to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results
could differ significantly from those estimates. Material estimates common
to the banking industry that are particularly susceptible to significant
change in the near term include, but are not limited to, the determination
of the allowance for loan losses and the valuation of real estate acquired
in connection with or in lieu of foreclosure on loans.
Cash and Cash Equivalents
-------------------------
For presentation purposes in the consolidated statements of cash flows, cash
and cash equivalents include cash on hand, amounts due from banks, interest-
bearing deposits with banks and federal funds sold.
Investment Securities
---------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for sale in the near term. Held to maturity securities are
those securities for which the Company has the ability and intent to hold
the security until maturity. All other securities not included in trading or
held to maturity are classified as available for sale. The Company's current
investment policy prohibits trading activity.
Held to maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holding gains or losses associated with transfers of securities
from held to maturity to available for sale are recorded as a separate
component of stockholders' equity.
Available for sale securities consist of investment securities not
classified as trading securities or held to maturity securities and are
recorded at fair value. Unrealized holding gains and losses, net of the
related tax effect, on securities available for sale are excluded from
earnings and are reported as a separate component of stockholders' equity
until realized.
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A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity are reported at the principal amount outstanding,
net of the allowance for loan losses and any deferred fees or costs on
originated loans. Interest on all loans is calculated principally by using
the simple interest method on the daily balance of the principal amount
outstanding.
The Bank accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan" as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure." A
loan is impaired when, based on current information and events, it is
probable that all amounts due according to the contractual terms of the loan
agreement will not be collected. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price, or at the
fair value of the collateral of the loan if the loan is collateral
dependent. Interest income from impaired loans is recognized using a cash
basis method of accounting during the time within that period in which the
loans were impaired.
Allowance for Loan Losses
-------------------------
The Bank's provision for loan losses is based upon management's continuing
review and evaluation of the loan portfolio and is intended to create an
allowance adequate to absorb losses on loans outstanding as of the end of
each reporting period. For individually significant loans, management's
review consists of evaluations of the financial strength of the borrowers
and the related collateral. The review of groups of loans, which are
individually insignificant, is based upon delinquency status of the group,
lending policies, and collection experience.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the
time of their examination.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives of
the assets are expensed currently. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is reflected in earnings for the period.
7
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Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Buildings 40 years
Land improvements 20 years
Furniture, fixtures and equipment 3-7 years
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely
than not. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the assets
and liabilities are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the probability
of being able to realize the future benefits indicated by such asset is
required. A valuation allowance is provided for the portion of the deferred
tax asset when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. In assessing the realizability of
the deferred tax assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income, and tax planning
strategies.
Net Loss Per Share
------------------
Net loss per share is based on the weighted average number of shares
actually outstanding during each year. Stock options are considered to be
common stock equivalents. These options are not included in the computation
of net loss per share as the effect of inclusion is anti-dilutive.
Recent Accounting Pronouncements
--------------------------------
During 1997, the Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
SFAS 128 simplifies current standards by eliminating the presentation of
primary earnings per share and requiring the presentation of basic earnings
per share (EPS), which includes no potential common shares and thus no
dilution. The Statement also requires entities with complex capital
structures to present basic and diluted EPS on the face of the income
statement and also eliminates the modified treasury stock method of
computing potential common shares. The Statement is effective for financial
statements issued for periods ending after December 15, 1997. Early
application is not permitted. Upon adoption, restatement of all prior-period
EPS data presented is required. Based upon the current capital structure of
the Company, this Statement should have no effect on the present EPS
calculation.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FINANCIAL CONDITION
As of June 30, 1997, the Company had concluded sixteen months of banking
operations with $33.9 million in total assets, up $7.4 million over year end
1996. Total deposits had increased $7.1 million over year end to $26.9 million.
Total loans outstanding had increased $9.6 million over year end to $22.8
million. The Bank's loan-to-deposit ratio at June 30, 1997 was 84.6%, as
compared to 66.7% at year end 1996. During the second quarter of this year,
the Bank continued to benefit from strong loan demand in the local market.
Deposit growth, although strong, did not keep pace with loan demand, despite
competitively priced investment products and banking services.
As the equity markets continue to reach record performance levels, local deposit
dollars (similar to the national bank deposit markets) are being increasingly
diverted from insured bank deposits to mutual funds and other forms of equity
investments. In the current market environment, management has found that the
Bank can borrow term funds from wholesale resources, such as the Federal Home
Loan Bank, at rates which are less than the cost of local certificates of
deposit. As a result, in the second quarter, the Bank's Asset/Liability
Management Committee changed certain of the financial guidelines in its
policies, to make funding sources other than local market deposits more
acceptable. Management will be placing less emphasis on the Bank's loan-to-
deposit ratio, and more emphasis on the Bank's loan-to-asset ratio and net-non-
core-fund-dependence ratio. The net-non-core-fund-dependence ratio calculates
the percentage of long term earning assets that are funded by short term
borrowed funds and certificates greater than one hundred thousand dollars after
deducting the Bank's short term investments. This shift in emphasis should
allow the Bank to continue to meet the local market's credit demands and provide
the flexibility to obtain funding from various sources at optimum rates. While
this policy shift opens up greater funding flexibility, in the long run the Bank
will continue to place primary funding emphasis on local deposit growth. At
June 30, 1997 the Bank's loan-to-asset ratio was 67.8%, up from 50.5% at year
end 1996. The Bank's net-non-core-fund-dependence ratio was 16.6%, up from 0.3%
at year end 1996.
In the first quarter of 1997, two additional loan officers were hired to help
respond to the growing loan demand at the Bank and to provide further
specialization in the consumer installment lending and commercial lending areas.
At June 30, 1997, the loan mix consisted of 45.7% in loans secured by real
estate, including commercial and residential, 26.9% in commercial and industrial
loans and 27.4% in consumer loans. The deposit mix was 59.3% time deposits,
13.6% non-interest bearing deposits and the remainder in interest bearing
savings and transaction accounts.
Capital
At June 30, 1997, the Bank's capital position was in excess of FDIC guidelines
to meet the definition of "well capitalized". Based on the level of the Bank's
risk weighted assets at quarter end, the Bank had $3.8 million more capital than
necessary to satisfy the "well-capitalized" criteria. The Bank's capital
adequacy is monitored quarterly by the Bank's Asset/Liability Committee, as
asset and liability growth, mix and pricing strategies are developed.
Liquidity
The Bank's internal and external liquidity resources are considered by
management to be adequate to handle expected growth and normal cash flow demands
from existing deposits and loans. For the six months ended June 30, 1997, loan
growth exceeded deposit growth by $2.5 million. This excess growth was funded
by a reduction in federal funds sold. Given the steepness in the yield curve
for U.S. Treasuries and Agencies, in the first quarter of the year, the
securities held to maturity were increased $500 thousand over year end to $5.2
million, and the securities available for sale were increased $1.0 million to
$2.5 million. During
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the first quarter, investment securities were purchased by reducing the
investment in Federal funds sold in order to improve the yield on the Bank's
internal liquidity resources. U.S. Treasury and government agency securities
with final maturities under five years were purchased with yields 75 to 100
basis points greater than Federal funds sold at the time of purchase. At June
30, 1997, the average life of the Bank's security portfolio was 3.0 years with
an average yield of 6.20%. The average yield obtained by the Bank on Federal
funds sold was 5.46%. At June 30, 1997, the Bank was borrowing $550 thousand in
unsecured overnight federal funds purchased at a cost of 5.75%.
Net deposit growth and federal funds sold provide the primary liquidity resource
for loan disbursements and Bank working capital. The Bank's entire investment
securities portfolio provides additional liquidity in the form of financing
through master repurchase agreements executed with the Bank's correspondent
banks. At quarter end the funds available for liquidity purposes consisted of
$7.76 million in securities (eligible for sale under repurchase agreements),
plus Federal funds sold of $91 thousand, for a total of $7.8 million. Under
these repurchase agreements, margin requirements range from 3% to 10% of the
current market value of the underlying security, and the borrowing rate tends to
have a spread of approximately 25 to 40 basis points over the Federal funds sold
rate. The repurchase agreements allow the Bank to raise funds out of its total
securities portfolio without being forced to sell the securities and recognize
gains or losses as a result of the sale. In addition to these sources of funds,
the Bank has unsecured Federal funds purchase lines of credit totaling $3.0
million with $2.45 million available at June 30, 1997. These lines may be
revoked at any time by the correspondent banks.
Given the potential need to use its securities to raise liquidity, the Bank's
current investment practices limit securities to final maturities not exceeding
five years from the date of purchase settlement and to U.S. Treasuries and
triple A rated government agency securities.
The Bank became a member of the Federal Home Loan Bank of Atlanta ("FHLBA") in
June of this year. FHLBA membership provides an additional source of liquidity
through FHLBA credit programs which can provide term funding for up to 10 years
and, in certain qualified programs, up to 20 years. The Bank's first mortgage
loans are assigned as collateral for such financing. The Bank has approximately
$4.0 million in eligible residential first mortgage loans which have been
assigned to the FHBLA. These loans provide approximately $3.1 million in
lendable value. The Bank also has $3.7 million in commercial first mortgage
loans which may qualify as collateral for advances with the FHLBA. In July the
Bank obtained a $1.0 million fixed rate advance at a rate of 5.93% for one year.
This advance is secured by the assigned residential first mortgage loans.
Approximately $2 million of lendable value remains in the pool of loans already
assigned to the FHLBA.
Management monitors its liquidity position daily and the officers' loan
committee reviews a liquidity management report on a weekly basis which reflects
the Bank's results against policy guidelines and the Bank's unfunded commitments
and capital position. The reports reflect funding capacity projections based on
capital limits and policy limits assuming no further local market deposit growth
(a worst case scenario). As of June 30, 1997, the Bank had unfunded loan
commitments, primarily on commercial lines of credit, totaling $2.1 million, and
the Bank's pending loan report reflected $2.0 million in loans which would
probably close in the next 60 days.
The Bank intends to manage its loan growth such that deposit flows will provide
the primary funding for all loans as well as cash reserves for working capital
and short to intermediate term marketable investments. Management will continue
to seek cost effective alternative funding sources for both the short and long
term, in the event that local deposit growth does not keep pace with local loan
demand. Such funding sources may include institutional certificates of deposit
("CD's"), local market CD's and brokered CD's.
10
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RESULTS OF OPERATIONS
The Company had a net loss of $97,214 ($0.14 per share) in the first half of
1997 and a net loss of $31,717 ($0.05 per share) in the second quarter of 1997.
This compares to a net loss of $206,708 ($0.30 per share) in the first half of
1996 and a net loss of $122,266 ($0.17 per share) in the second quarter of 1996.
Net interest income increased from $258,354 in the first half of 1996 to
$672,740 in the first half of 1997. This was due to the increase in average
earning assets from $9.5 million in the first half of 1996 to $27.6 million in
the first half of 1997 and the improvement in the earning asset mix. In the
first half of 1997, loans comprised 65% of average earning assets. In the
first half of 1996, loans were only 21% of average earning assets. The high
growth rate in earning assets and the significant improvement in earning asset
mix are primarily due to the fact that the Bank opened for business on February
26, 1996. Prior to that date it had no loans and no deposits. The yield on
average earning assets, before the provision for loan losses, was 4.92% in the
first half of 1997 as compared to 5.47% in the first half of 1996. The higher
yield in 1996 was primarily due to the lower funding cost associated with almost
70% of average earning assets being funded by the Bank's capital and non-
interest bearing deposits. In the first half of 1997, 24% of average earning
assets were funded by capital and non-interest bearing deposits.
The provision for loan losses was $165,068 in the first half of 1997, up from
$30,407 in the same period last year. Second quarter 1997 was $90,490, up from
$25,326 in the same period last year. This increase was due to the growth in
the Bank's loan portfolio. At June 30, 1997 the allowance for loan losses was
$286,626 representing 1.26% of total loans. At year end 1996, the allowance was
$133,342, which was 1.00% of total loans. Total loans charged off in the first
quarter of 1997 were $4,204 (0.03% of average loans outstanding during the
quarter) and were all consumer loans. Total loans charged off in the second
quarter of 1997 were $7,720 (0.04% of average loans outstanding during the
quarter) and were all consumer loans. At quarter end, the Bank had ten loans
totaling $47,025, all of which were consumer loans, in non-accrual status.
Other than non-accrual loans, no loans were in a past-due status more than 90
days. The Bank had no troubled debt restructurings. For the same periods last
year, the Bank had no charged off loans, no non-accrual loans and no loans past-
due more than 90 days.
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. Since the Bank has just
concluded its first sixteen months of operations, it does not have sufficient
history of portfolio performance on which to base additions. Accordingly,
additions to the reserve are primarily based on achieving a targeted ratio for
the allowance for loan losses to total loans of 1.50% by the end of 1997. This
target is based on national peer group ratios and Georgia banking industry
ratios. Under this methodology, charge-offs will increase the amount of
additions to the allowance and recoveries will reduce additions.
In addition, management performs an on-going loan review process. All new loans
are risk rated under loan policy guidelines. On a monthly basis, the composite
risk ratings are evaluated in a model which assesses the adequacy of the current
allowance for loan losses, and this evaluation is presented to the Board of
Directors each month. On a weekly basis, loan reviews are performed on new
loans and presented in the officers weekly loan meeting. Large loans are
reviewed periodically. Risk ratings may be changed if it appears that new
loans may not have received the proper initial grading or, if on existing loans,
credit conditions have improved or worsened.
The Bank's policy is to place loans on nonaccrual status when it appears that
the collection of principal and interest in accordance with the terms of the
loan is doubtful. Any loan which becomes 90 days past due as to principal or
interest is automatically placed on nonaccrual.
As the Bank matures, the additions to the loan loss allowance will be based more
on historical performance, the detailed loan review and allowance adequacy
evaluation. Management expects to incur losses on loans
11
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from time to time when borrowers' financial conditions deteriorate. Where
feasible, loans charged down or charged off will continue to be collected.
Management considers the quarter end allowance adequate to cover potential
losses in the loan portfolio.
Non-interest income in the first half of 1997 was $61,821 ($34,552 in the second
quarter of 1997), up from $9,210 ($8,978 in the second quarter of 1996) in the
same period of 1996. This consists primarily of service charges on deposit
accounts totaling $41,326 ($24,756 in the second quarter) and credit life and
disability insurance premium income which was $9,876 ($5,746 in the second
quarter). Non-interest income is significantly greater in the first half of
1997 over the same period in 1996 due to the opening of the Bank on February
26,1996. No deposit or loan accounts, on which to assess service charges or fee
income, were opened prior to that date. Service charges on deposit accounts
are evaluated annually against service charges from other banks in the local
market and against the Bank's own cost structure in providing the deposit
services. This income should grow with the growth in the Bank's demand deposit
account base. The credit life and disability insurance premium income is sold
primarily on consumer installment debt and should grow with the growth in the
Bank's consumer loan portfolio.
Non-interest expenses were up 50% at $666,706 in the first half of 1997
($344,860 in the second quarter; up 31%), as compared to $443,865 in the first
half of 1996 ($263,256 in the second quarter). While non-interest expenses
increased 50%, average earning assets increased 191% from the first half of 1996
to the same period in 1997. This indicates that the Bank's operating
efficiencies are improving. Part of this increase is due to the fact that the
Bank was operational only four months out of the first half of 1996.
Salaries and benefits in 1997 increased by 52% and included 22 employees while
1996 included 15 employees. Occupancy costs in 1997 increased 68% over 1996.
In the fourth quarter of 1996, the Bank moved from modular office units,
containing 2,600 square feet of leased office space and leased furniture, to its
newly constructed bank building containing 9,000 square feet of office space as
well as purchased furniture, fixtures and equipment. Other operating expenses
increased 39% in the first six months of 1997 over the same period in 1996. The
first half of 1997 included expenses for a full six months necessary to the
operations of an established bank, such as data processing services, business
development and marketing expenses, professional fees, postage and
communications costs, whereas, the same period in 1996 included banking
operations for four out of six months, as the Bank was just becoming
operational.
Interest Rate Sensitivity
Improvement in earnings of the Company depends upon continued earning asset
growth, good asset quality and a relatively stable economic environment.
Management feels it is reasonable for the Bank to continue to experience steady
earning asset growth as long as interest rates remain relatively stable. The
Bank is asset sensitive (meaning that rising rates tend to be beneficial) in the
near and long term and is liability sensitive at the one year time horizon
(meaning that falling rates tend to be beneficial). If interest rates were to
rise in excess of 200 basis points, the Bank could experience improved earnings
in the near term, but such a rate increase might significantly reduce the demand
for loans in the Bank's local market, thus diminishing the prospects for
improved earnings. If interest rates were to fall in excess of 200 basis
points, the Bank could experience a short term decline in net interest margin
and may even have difficulty retaining maturing certificates of deposit without
having to pay above market rates.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
12
<PAGE>
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 15, 1997 the Company held its second annual meeting of
shareholders. At that meeting the following items were voted upon with the
results of the votes tabulated below each item:
For Withheld/Against Abstentions/Non-votes
--- ---------------- ---------------------
(a) to elect eleven directors to the Board of Directors to serve
terms until the next annual meeting or until their successors are qualified and
elected.
<TABLE>
<CAPTION>
Director Nominee
- ----------------
<S> <C> <C> <C>
Robert L. Berry 429,771 2,300 none
Frank A. Brown, Jr. 429,771 2,300 none
Thomas D. Caldwell, III 429,771 2,300 none
Gene G. Davidson, MD 429,771 2,300 none
Henry Haskell Perry 429,771 2,300 none
Bradford Lee Riddle 429,771 2,300 none
M. Wayne Robinson 429,771 2,300 none
Dale G. Smith 429,771 2,300 none
Paul E. Smith 429,771 2,300 none
W. Fred Talley 429,771 2,300 none
Martha B. Walstad 429,771 2,300 none
</TABLE>
(b) to approve stock option grants to the non-employee directors to
purchase common stock in the Company.
417,351 11,420 3,300
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
13
<PAGE>
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-82858 on Form SB-2).
4.1 Provisions of Company's Articles of Incorporation and Bylaws Defining the
Rights of Shareholders (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
4.2 Form of Stock Certificate (Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
10.1 *Employment Agreement between the Company and Thomas D. Caldwell, III dated
January 3, 1995. (Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994).
10.2 *Greater Rome Bancshares, Inc. 1996 Stock Incentive Plan (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
10.3 *Form of Incentive Stock Option Agreement (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996).
10.4 *Form of Stock Option Award to Non-employee Directors (Incorporated by
reference to Appendix A to the Company's Proxy Statement for the 1997
Annual Meeting of the Shareholders held May 15, 1997).
27.1 Financial Data Schedule (for S.E.C. use only).
- -----------------------------------
* Indicates a management contract or compensatory arrangement.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
Date: August 6, 1997 By: /s/ Thomas D. Caldwell, III
-----------------------------------
Thomas D. Caldwell, III
President, Chief Executive Officer
By: /s/ E. Grey Winstead, III
-----------------------------------
E. Grey Winstead, III
Principal Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 866,183
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 91,381
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,532,428
<INVESTMENTS-CARRYING> 5,227,122
<INVESTMENTS-MARKET> 0
<LOANS> 22,758,458
<ALLOWANCE> 286,626
<TOTAL-ASSETS> 33,856,646
<DEPOSITS> 26,900,275
<SHORT-TERM> 550,000
<LIABILITIES-OTHER> 130,400
<LONG-TERM> 0
0
0
<COMMON> 7,000
<OTHER-SE> 6,268,971
<TOTAL-LIABILITIES-AND-EQUITY> 33,856,646
<INTEREST-LOAN> 888,630
<INTEREST-INVEST> 226,311
<INTEREST-OTHER> 63,912
<INTEREST-TOTAL> 1,178,853
<INTEREST-DEPOSIT> 493,102
<INTEREST-EXPENSE> 506,114
<INTEREST-INCOME-NET> 672,740
<LOAN-LOSSES> 165,068
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 666,706
<INCOME-PRETAX> (97,214)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,214)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<YIELD-ACTUAL> 5.24
<LOANS-NON> 47,025
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 133,342
<CHARGE-OFFS> 11,924
<RECOVERIES> 140
<ALLOWANCE-CLOSE> 286,626
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 286,626
</TABLE>
