<PAGE>
================================================================================
U.S. 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 December 31, 1996
Commission File No. 0-28280
GREATER ROME BANCSHARES, INC.
------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Georgia 58-2117940
----------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1490 Martha Berry Blvd.
Rome, Georgia 30162-5271
------------------------------------ -----------
(Address of Principal Executive Offices) (Zip Code)
(706) 295-9300
------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.01 par value
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___
-----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will 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. [ X ]
State issuer's revenues for its most recent fiscal year. $1,110,142
----------
The aggregate market value of the voting stock as of March 28, 1997, held by
non-affiliates computed by reference to the price at which the stock was sold is
$4,914,380.
Seven hundred thousand (700,000) shares of the issuer's common stock were issued
and outstanding as of March 28, 1997.
Portions of the following documents are incorporated by reference: (1) 1996
Annual Report to Shareholders, into Part II; (2) Proxy Statement (the "Proxy
Statement") for the Annual Meeting of Shareholders to be held May 15, 1997,
into Part III.
Transitional Small Business Disclosure Format (check one). Yes___ No X
----
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Page 1 of __
Exhibit Index on Page __
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
- --------------------------------
GENERAL
Greater Rome Bancshares, Inc. (the "Registrant" or the "Company") was
incorporated as a Georgia corporation on June 17, 1994, primarily to own and
control all of the capital stock of Greater Rome Bank (the "Bank"). The Company
concluded its initial public offering (the "Offering") on September 30, 1995 by
selling 700,000 shares of its common stock, $0.01 par value per share (the
"Common Stock"), at a price of $10.00 per share, pursuant to its prospectus
dated October 28, 1994, as supplemented by Supplement No. 1 dated April 6, 1995
(the "Prospectus").
The Company filed an application to charter the Bank as a state nonmember bank
with the Georgia Department of Banking and Finance ("DBF") on July 8, 1994. The
Company received preliminary approval of its application to charter the Bank
from the DBF on January 13, 1995. Receipt of final approval from the DBF was
conditioned upon certain matters including raising $6.5 million in initial
capital for the Bank through completion of the Offering and the completion of
various organizational tasks. The Bank made application to the Federal Deposit
Insurance Corporation ("FDIC") for deposit insurance on July 8, 1994. On
February 10, 1995, the FDIC approved the Company's application for deposit
insurance for the Bank subject to a number of conditions including the
requirement that the beginning capital of the Bank be not less than $6.5
million. The Company made application to the Board of Governors of the Federal
Reserve System ("Federal Reserve Board") and the DBF to become a bank holding
company on January 31, 1995. The Federal Reserve Board and DBF approved the
Company's applications subject to a number of conditions related primarily to
the completion of various organizational tasks by the Company and Bank. All
conditions required by the DBF, FDIC and Federal Reserve Board were satisfied by
February 23, 1996. The Bank opened for business on Monday, February 26, 1996
and the Company became a one bank holding company on that date. SEE
"SUPERVISION AND REGULATION."
The Bank was organized as a state chartered bank under the laws of the State of
Georgia and engages in the commercial banking business from a main office
location in its primary service area, Rome, Georgia with deposits insured by the
FDIC.
LOCATION AND SERVICE AREA
The Bank conducts general commercial banking services within its service area,
with emphasis on the needs of individuals and small to medium sized businesses.
The Bank began operations in a temporary modular building located on Bank
property at 1490 Martha Berry Boulevard. Construction of the new Bank building
began in Spring 1996 at the same location and was substantially completed by
October 12, 1996. Operations were moved out of the temporary facilities and into
the new building during the weekend of October 12th and normal banking
operations were resumed on October 15th in the new 9,000 square foot facility.
SEE "ITEM 2. DESCRIPTION OF PROPERTIES." The Bank has obtained most of its
customer deposits from, and has made most of its loans to, customers who reside
within the Bank's primary service area of Floyd County.
Floyd County is located in northwest Georgia, almost directly in the center of
what is referred to as the "ABC" (Atlanta, Birmingham, Chattanooga) triangle.
Rome, the county seat of Floyd County, and the only major incorporated area of
the County, is located 60 miles northwest of Atlanta, 62 miles south of
Chattanooga, Tennessee and 123 east of Birmingham, Alabama. The 1990 census
indicated Floyd County had a population of 81,251. Recent estimates indicate
Floyd County to have a current population of approximately 82,300 with a median
effective buying income of $28,500 per household. Rome is reached via U.S. 411
which connects to Interstate 75 just 25 miles southeast of Rome at Cartersville.
It is also served by major rail carriers and by the Richard B. Russell Airport
which is located just 7 miles north of the Bank and maintains a 6,000 foot
instrument runway with ILS and VOR approaches. Rome is home to several
institutes of higher learning including: Berry College (undergraduate and
graduate), Shorter College (private) and Floyd College (a two year unit of the
University System of Georgia). Technical training is available through one of
Georgia's most advanced training
2
<PAGE>
schools, Coosa Valley Technical Institute. Rome is also home to one of the
state's most prestigious private schools, The Darlington School, which offers
kindergarten thru 12th grade and attracts students from throughout the United
States and many foreign countries.
The principal area of growth in Floyd County during recent years has been in the
health care industry. Presently approximately 5,500 jobs are centered around
health care because there are several major providers within the community and
Rome has grown to become a major regional medical center. Floyd Medical Center
(one of the largest employers in the County), a publicly owned 305 bed hospital
employs 1,572; Redmond Regional Medical Center, a proprietary care hospital
completed a $30 million expansion in 1996 and employs 1,150. Northwest Georgia
Regional Hospital, a State of Georgia Public Hospital operated primarily as a
mental and tubercular treatment center, has 340 beds and employs 750; The Harbin
Clinic, a proprietary care out-patient clinic which completed a $10 million
expansion in December 1995, employs 62 physicians and 425 other support
personnel. The remaining jobs in health care are support staff for the 82 other
practicing physicians and employees of the 4 nursing and 2 intermediate care
facilities located in Floyd County.
Other major employers in Floyd County include: Floyd County School System; Rome
City School System; General Electric Corporation; Inland-Rome Corporation;
Lindale Mills; Galey & Lord; Container Corporation of America; WADA Metals;
Oglethorpe Power Co.; Georgia Power Co.; Katsushiro of Rome and Hopton
Technologies. A new 80 room Hampton Inn opened in 1996. Construction of a new
Best Western hotel began in 1996 and is scheduled to open in spring of 1997.
Land has been purchased for a new Econo Lodge but a completion date has not been
announced. An article appearing recently in the Atlanta Business Chronicle,
--------------------------
referred to Floyd County as a "sleeping giant" and opined as to how Rome is
located in the center of an area that, into the 21st century, would be one of
the fastest growing areas of the nation (referring to the northwest quadrant of
Georgia).
BANKING SERVICES
The Bank offers a full range of deposit services that are typically available in
most banks and savings and loan associations, including checking accounts, NOW
accounts, savings accounts and other time deposits of various types, ranging
from daily money market accounts to longer-term certificates of deposit. The
transaction accounts and time certificates are tailored to the Bank's principal
market area at rates competitive to those offered in the area. In addition, the
Bank offers Individual Retirement Accounts (IRAs). All deposit accounts are
insured by the FDIC up to the maximum amount allowed by law (generally, $100,000
per depositor subject to aggregation rules). The Bank solicits these accounts
from individuals, businesses, associations and organizations, and governmental
entities.
The Bank offers a full range of short-to-medium term commercial and personal
loans. Commercial loans include both secured and unsecured loans for working
capital (including inventory and receivables), business expansion (including
acquisition of real estate and improvements), and purchase of equipment and
machinery. Consumer loans include secured and unsecured loans for financing
automobiles, other consumer goods, home improvements, education and personal
investments. Additionally, the Bank offers loans for the purpose of community
development and/or improvement. The Bank also originates and holds or sells into
the secondary market fixed and variable rate mortgage loans and real estate
construction and acquisition loans. The Bank's lending activities are subject to
a variety of lending limits imposed by state law. While differing limits apply
in certain circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to the Bank), in general, the Bank is
subject to a loan-to-one-borrower limit of an amount equal to 15% of the Bank's
statutory capital base. In no event, however, may the amount loaned to any
borrower exceed 25% of the Bank's statutory capital base. The Bank may not make
any loans to any director or executive officer of the Bank unless the loan is
approved by the Bank's board of directors and is made on terms not more
3
<PAGE>
favorable to such person than would be available to a person not affiliated with
the Bank. SEE "LENDING ACTIVITIES."
The Bank may also engage in investment activities. It is authorized to invest
without limit in obligations of the United States or any state or territorial
government or any agency of such governments or in any securities that are
guaranteed as to principal and interest by such governments. Subject to
limitations, the Bank may also invest in investment grade securities issued by
political subdivisions, in deposits in other financial institutions, and in
certain types of commercial paper. The Bank concentrates its investment
activities primarily in intermediate term government and agency securities.
Other bank services include cash management services, safe deposit boxes,
travelers checks, direct deposit of payroll and social security checks, and
automatic drafts for various accounts. The Bank is a member of a shared
network of automated teller machines that may be used by Bank customers
throughout Georgia and other regions.
The Bank does not plan to exercise trust powers during its initial years of
operation. The Bank may in the future offer a full-service trust department,
but cannot do so without prior regulatory approval.
LENDING ACTIVITIES
General. The Bank offers a range of lending services, including real estate,
commercial and consumer loans, to individuals and small-to-medium-sized
businesses and professional concerns that are located in or conduct a
substantial portion of their business in the Bank's market area.
Credit Risk. There are certain risks inherent in making all loans. A principal
economic risk inherent in making loans is the creditworthiness of the borrower.
Other risks inherent in making loans include risks with respect to the period of
time over which loans may be repaid, risks resulting from changes in economic
and industry conditions, risks inherent in dealing with individual borrowers
and, in the case of a collateralized loan, risks resulting from uncertainties as
to the future value of the collateral. Management maintains an allowance for
loan losses based on, among other things, an evaluation of economic conditions
and regular reviews of delinquencies and loan portfolio quality. Based upon
such factors, management makes various assumptions and judgments about the
ultimate collectibility of the loan portfolio and provides an allowance for
potential loan losses based upon a percentage of the outstanding balances and
for specific loans when their ultimate collectibility is considered
questionable. Certain specific risks with regard to each category of loans are
described under the separate subheading for each type of loan below.
Real Estate Loans. Loans secured generally by first or second mortgages on real
estate are one of the primary components of the Bank's loan portfolio. These
loans consist of commercial real estate loans, construction and development
loans, residential real estate loans and home equity loans. Loan terms generally
are limited to five years and often do not exceed three years, although
installment payments may be structured on a fifteen-year amortization basis.
Interest rates may be fixed or adjustable, and tend to be fixed in the case of
three-year term loans and adjustable in the case of five-year term loans. The
Bank generally charges an origination fee. Management attempts to reduce credit
risk in the commercial real estate portfolio by emphasizing loans on owner-
occupied office and retail buildings where the loan-to-value ratio, established
by qualified appraisals, will generally not exceed 80%. In addition, the Bank
typically requires personal guarantees of the principal owners of the property
backed with a review by the Bank of the principal owner's personal financial
statements. A number of the loans that are classified as commercial real estate
loans are actually commercial loans for which a security interest in real estate
is taken as additional collateral. These loans are subject to underwriting as
commercial loans as described below. The principal economic risk associated with
each category of anticipated
4
<PAGE>
loans, including real estate loans, is the creditworthiness of the Bank's
borrowers. The risk associated with real estate loans varies with many factors
including employment levels and fluctuations in the value of real estate.
In the future, the Bank may originate real estate loans for sale into the
secondary market. The Bank intends to limit interest rate and credit risk on
these loans by locking in the interest rate for each loan with the secondary
investor and receiving the investor's underwriting approval prior to originating
the loan.
Commercial Loans. The Bank makes loans for commercial purposes in various lines
of businesses. Equipment loans are typically made for a term of up to five
years (more typically three years) at fixed or variable rates, with the loan
fully amortized over the term and secured by the financed equipment with a loan-
to-value ratio of 80% or less. Working capital loans are made for a term
typically not exceeding one year, and are usually secured by accounts
receivable, inventory and/or personal guarantees of the principals of the
business, and bear interest at floating rates which are payable monthly, or less
typically, quarterly. In the case of the loans secured by accounts receivable
or inventory, principal is repaid as the assets securing the loan are converted
into cash, and in other cases, principal is due at maturity. The principal
economic risk associated with each category of anticipated loans, including
commercial loans, is the creditworthiness of the Bank's borrowers. The risk
associated with commercial loans varies with many factors including the economy
in the Bank's lending area. In addition many of the Bank's anticipated
commercial loans will likely be made to small-to-medium sized businesses and
professionals who may be less able to withstand competitive, economic and
financial conditions than larger borrowers.
Consumer Loans. The Bank makes a variety of loans to individuals for personal
and household purposes, including secured and unsecured installment and term
loans, home equity loans and lines of credit and revolving lines of credit.
These loans typically carry balances of less than $35,000 and, in the case of
non-revolving loans, are either amortized over a period not exceeding 60 months
or are ninety-day term loans, and in each case bear interest at a fixed rate.
The revolving loans bear interest at a fixed or variable rate and require
monthly payments of interest and a portion of the principal balance (typically
2-3% of the outstanding balance). The underwriting criteria in the case of home
equity loans and lines of credit, is the same as applied by the Bank when making
a first mortgage loan, as described above, and home equity lines of credit
typically expire ten years after their origination. As with the other categories
of loans, the principal economic risk associated with consumer loans is the
creditworthiness of the Bank's borrowers.
Loan Approval and Review. The Bank's loan approval policies provide for various
levels of officer lending authority. When the aggregate outstanding loans to a
single borrower exceeds that individual officer's lending authority, the loan
request requires prior approval of the President or senior loan officer. Any
loan in excess of the President's or senior loan officer's authorization
requires prior approval by the loan committee of the Bank's board of directors.
The Bank has a continuous loan review procedure involving several Bank officers.
The procedures are designed to provide early identification of credit quality
problems. All loan officers are charged with the responsibility of rating each
of their loans and reviewing those loans on a periodic basis, the frequency of
which will increase as the quality of the loans decreases.
Lending Limit. Under the Financial Institutions Code of Georgia (the "Financial
Institutions Code"), the Bank is limited in the amount it can loan to a single
borrower (including the borrower's related interests) by the amount of the
Bank's statutory capital base. The limit is 15% of the statutory capital base
unless each loan in excess of the 15% is approved by the Bank's board of
directors and the entire amount of the loan is secured by good collateral or
other ample security. In no event may the amount loaned to any borrower exceed
25% of the Bank's statutory capital base. Based on the initial capitalization
of the Bank at a level of $6.5 million as required by the DBF and FDIC and the
statutory method of calculating the lending limit requirements, the Bank's
lending limit is approximately $900,000 for loans not fully secured plus an
additional $600,000 (or an aggregate of approximately $1.5 million) for loans
for which the entire amount is properly secured. These limits will increase
5
<PAGE>
and decrease as the Bank's statutory capital base increases and decreases. Most
of the Bank's expected loan demand will be from borrowers who will not require
loans in excess of these limits. In the event that a borrower's credit needs
would exceed these limits, the Bank may seek to sell participations in the loan
to the extent necessary to maintain these lending limits.
COMPETITION
The banking business is highly competitive. Management believes that the sale of
three locally-owned financial institutions (First Rome Bank, Georgia State Bank
of Rome and Home Federal Savings Bank, Rome) in the past two years to out-of-
state holding companies, supports the need for a locally owned, community bank
in Rome. Deposit growth in Floyd County has averaged 3.67% per year from June
1991 to June 1996 and was 3.68% from June 1995 to June 1996. The Bank competes
as a financial intermediary with other commercial banks, savings and loan
associations, credit unions and money market mutual funds operating in Floyd
County and elsewhere. As of June 1996, there were 30 existing financial
institution offices in Floyd County representing a total of 13 commercial banks,
savings associations and credit unions. A number of these competitors are well
established in the Floyd County area. Most of them have substantially greater
resources and lending limits and may have a lower cost of funds than the Bank.
These banks offer certain services, such as extensive and established branch
networks and trust services, that the Bank does not expect to provide in the
foreseeable future. As a result of these competitive factors, the Bank may have
to pay higher rates of interest and provide superior customer service in order
to attract deposits. Management believes that the Bank will be able to compete
effectively with these institutions but cannot assure that it will do so.
EMPLOYEES
The Bank commenced operations on February 26, 1996 with 14 full-time employees
and had 18 equivalent full-time employees on December 31, 1996. The Bank's
employees are not subject to a collective bargaining agreement. The Company has
no employees other than its officers, none of whom receive remuneration for
their services to the Company. The Company conducts no business other than that
of the being a bank holding company. The Company currently has two officers,
Thomas D. Caldwell, III, President and Chief Executive Officer and Robert L.
Berry, Secretary.
6
<PAGE>
STATISTICAL INFORMATION
The following tables set forth certain statistical information and should
be read in conjunction with the financial statements of Greater Rome
Bancshares, Inc. The Company became a bank holding company on February 26,
1996, when the Bank commenced operations, therefore statistical information
is shown only for the year ended December 31, 1996.
I. DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
Average Interest
Balance Earned/Paid Yield
------- ----------- -----
<S> <C> <C> <C>
Loans $ 6,035,929 605,126 10.03%
Taxable investment 4,502,533 280,826 6.24%
Federal funds sold 3,326,058 175,449 5.27%
-----------------------------------
Average earning assets $ 13,864,520 1,061,401 7.66%
-----------------------------------
Cash & due from banks 448,566
Fixed assets 971,300
Other assets 168,702
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Average total assets $ 15,453,088
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Interest bearing demand deposits 1,068,875 26,066 2.44%
Savings and money market deposits 2,076,121 75,701 3.65%
Time deposits 3,902,904 211,831 5.43%
Short term borrowings 475 26 5.47%
-----------------------------------
Average interest bearing Liabilities $ 7,048,375 313,624 4.45%
-----------------------------------
Non-interest bearing deposits 1,723,249
Other liabilities 103,562
Stockholders' equity 6,577,902
-------------
Average total liabilities and equity $ 15,453,088
-------------
-----------------------------------
Net interest income yield on average earning assets $ 13,864,520 747,777 5.39%
-----------------------------------
</TABLE>
Notes:
1 Non-accruing loans are included in the average balances. For 1996,
average non-accruing loans were less than $1,000.
2 Loan fees are included in the interest income computation and were
$33,163.
7
<PAGE>
STATISTICAL INFORMATION, continued
II. INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
12/31/96
Book Value
----------
<S> <C>
Investment securities available for sale
U.S. Treasuries $ 1,239,141
U.S. Government agencies 250,234
------------
1,489,375
Investment securities held to maturity
U.S. Government agencies 4,748,925
------------
Total investments $ 6,238,300
============
</TABLE>
As of December 31, 1996, all of the above securities have contractual maturities
after one year and less than five years. The weighted average yield of the
portfolio is 6.20%.
<PAGE>
STATISTICAL INFORMATION, CONTINUED
III.LOAN PORTFOLIO
<TABLE>
<CAPTION>
12/31/96
LOAN TYPES Balance
---------- -------
<S> <C>
Commercial $ 4,155,632
Real estate-construction 355,635
Real estate-mortgage 5,112,913
Consumer loans 3,656,887
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Total $ 13,281,067
==========
</TABLE>
<TABLE>
<CAPTION>
MATURITY AND REPRICING BY TYPE
-------------------------------------------------------------------------------------
due in 1 year due from 1 through 5 years due after 5 years
-------------------------------------------------------------------------------------
Fixed rate Variable rate Fixed rate Variable rate Fixed rate Variable rate
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 462,727 843,111 1,558,460 1,291,334 - -
Real estate - construction 269,121 61,700 24,814 - - -
Real estate - mortgage 762,496 447,881 3,697,453 130,543 74,540 -
Consumer loans 1,583,539 123,331 1,810,039 138,197 - -
-------------------------------------------------------------------------------------
Total $ 3,077,883 1,476,023 7,090,766 1,560,074 74,540 -
-------------------------------------------------------------------------------------
</TABLE>
The maturity distribution is less than the total at year end by the amount of
non-accrual loans totaling $1,781.
<TABLE>
<CAPTION>
RISK ELEMENTS 12/31/96
-------------
Balance
-------
<S> <C>
Nonaccrual, Past Due and Restructured Loans
- -------------------------------------------
Non-accrual loans $ 1,781
Accruing loans contractually past due 90 days or more -
Troubled debt restructurings -
</TABLE>
The amount of interest that would have been included income on the above
nonaccrual loan if it had been current in accordance with its original terms was
$63. The amount of interest that was included in the interest on the above loan
for 1996 was $57.
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
loans is doubtful. Any loan which becomes 90 days past due as to principal or
interest is automatically placed on nonaccrual.
Potential Problem Loans
- -----------------------
Management expects to incurr losses on loans 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 year end allowance
adequate to cover potential losses in the loan portfolio.
9
<PAGE>
STATISTICAL INFORMATION, CONTINUED
IV. SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Allowance for possible loan losses at the beginning of the year $ -
Charge-offs:
Commercial -
Real estate - construction -
Real estate - mortgage -
Consumer loans 658
Leases -
--------------
Total 658
--------------
Recoveries -
--------------
Net charge-offs: 658
Additions charged to operations 134,000
--------------
Balance at end of year $ 133,342
--------------
Average loans outstanding, net of unearned income $ 6,035,929
==============
Ratio of net-charge-offs during the period to average loans
outstanding during the period 0.01%
==============
</TABLE>
Management takes a number of factors into consideration when determining
the additions to be made to the loan loss allowance. Since the Bank is
approaching the end of its first year of operations, it does not have a
sufficient history of portfolio performance on which to base additions.
Additions to the reverse are primarily based on achieving a targeted ratio
of 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
ratios which reflect average ratios of .99% (national peer) and 1.50%
(Georgia). The Georgia data includes more mature banks and management feels
that, absent any meaningful historical data on the Bank's loan portfolio,
1.50% is a more conservative target. 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.
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.
10
<PAGE>
STATISTICAL INFORMATION, CONTINUED
V. DEPOSITS
<TABLE>
<CAPTION>
Average
Balance Average
1996 Rate
---- ----
<S> <C> <C>
Non-interest bearing deposits $ 1,723,249
Interest bearing demand deposits 1,068,875 2.44%
Savings and money market deposits 2,076,121 3.65%
Time deposits 3,902,904 5.43%
--------------------------
Total average deposits $ 8,771,149 3,58%
==========================
</TABLE>
As of December 31, 1996 the amount outstanding of time certificates of
deposit of $100,000 or more was $3,738,334. Amounts by time remaining
until maturity on time deposits of $100,000 or more were:
<TABLE>
<S> <C>
3 months or less $ 559,691
over 3 through 6 months 614,939
over 6 through 12 months 2,463,704
over 12 months 100,000
-----------
$ 3,738,334
===========
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1996
----
<S> <C>
Return on average assets -2.57%
Return on average equity -6.03%
Dividend payout ratio 0.00%
Average equity to average asset ratio 42.57%
</TABLE>
11
<PAGE>
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). As such, the Company and its
non-bank subsidiaries are subject to the supervision, examination, and reporting
requirements of the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before: (a) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than 5% of the
voting shares of the bank; (b) it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of any bank; or (c) it may
merge or consolidate with any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking
Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company, and any other bank holding company located in
Georgia may now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any Georgia-based bank,
regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provides that, after June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks in
other states. By adopting legislation prior to that date, a state has the
ability either to "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and prohibit interstate branching
altogether.
In February 1996, the Georgia Legislature adopted the "Georgia Interstate
Branching Act" effective June 1, 1997. The Georgia Interstate Branching Act will
permit Georgia-based banks and bank holding companies owning or acquiring banks
outside of Georgia and all non-Georgia banks and bank holding companies owning
or acquiring banks in Georgia to merge any lawfully acquired bank into an
interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branches on a limited basis beginning July 1, 1996.
Beginning July 1, 1998, the number of de novo branches which may be established
will no longer be limited.
12
<PAGE>
The BHC Act generally prohibits the Company from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public, such
as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices. For example, factoring accounts receivable, acquiring or servicing
loans, leasing personal property, conducting discount securities brokerage
activities, performing certain data processing services, acting as agent or
broker in selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. The BHC Act does not place
territorial limitations on permissible non-banking activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
holding company or its subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
The bank subsidiary of the Company is a member of the Federal Deposit Insurance
Corporation (the "FDIC"), and as such, its deposits are insured by the FDIC to
the maximum extent provided by law. Such subsidiary is also subject to numerous
state and federal statutes and regulations that affect its business, activities,
and operations, and it is supervised and examined by one or more state or
federal bank regulatory agencies.
The FDIC and the Georgia Department of Banking and Finance (the "Georgia
Department") regularly examine the operations of the Bank and is given authority
to approve or disapprove mergers, consolidations, the establishment of branches,
and similar corporate actions. The FDIC and the Georgia Department also have the
power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking subsidiary.
The principal sources of cash flow of the Company, including cash flow to pay
dividends to its shareholders, are dividends by the Bank. There are statutory
and regulatory limitations on the payment of dividends by the Bank to the
Company as well as by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository institution
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying dividends
that deplete a depository institution's capital base to an inadequate level
would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
13
<PAGE>
At December 31, 1996, under dividend restrictions imposed under federal and
state laws, and the conditions included in the Georgia Department's approval of
the Bank's charter application, the Bank could not declare dividends to the
Company.
The payment of dividends by the Company and the Bank may also be affected or
limited by other factors, such as the requirement to maintain adequate capital
above regulatory guidelines.
CAPITAL ADEQUACY
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve and the appropriate federal banking
regulator in the case of Bank. There are two basic measures of capital adequacy
for bank holding companies that have been promulgated by the Federal Reserve: a
risk-based measure and a leverage measure. All applicable capital standards must
be satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio") of
total capital ("Total Capital") to risk-weighted assets (including certain off-
balance-sheet items, such as standby letters of credit) is 8%. At least half of
Total Capital must comprise common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves ("Tier 2 Capital"). At December 31, 1996, the Company's consolidated
Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio (i.e.,
the ratio of Tier 1 Capital to risk-weighted assets) were 39.32% and 38.47%,
respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1996 was 41.46%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Bank is subject to risk-based and leverage capital requirements adopted by
the FDIC, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies.
The Bank was in compliance with applicable minimum capital requirements as of
December 31, 1996. The Company has not been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it or its
subsidiary depository institution.
14
<PAGE>
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels. In
this regard, the Federal Reserve and the FDIC have, pursuant to FDICIA, recently
adopted final regulations, which will become mandatory on January 1, 1998,
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance-sheet position) in the evaluation of a bank's
capital adequacy. The bank regulatory agencies have concurrently proposed a
methodology for evaluating interest rate risk which would require banks with
excessive interest rate risk exposure to hold additional amounts of capital
against such exposures. The market risk rules will apply to any bank or bank
holding company whose trading activity equals 10% or more of its total assets,
or whose trading activity equals $1 billion or more.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength for, and to commit resources to support, each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, the Company may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness of
such banks. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the
capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(a) the default of a commonly controlled FDIC-insured depository institution or
(b) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
subsidiary depository institutions of the Company are subject to these cross-
guarantee provisions. As a result, any loss suffered by the FDIC in respect of
these subsidiaries would likely result in assertion of the cross-guarantee
provisions, the assessment of such estimated losses against the depository
institution's banking affiliates, and a potential loss of the Company's
investment in such other subsidiary depository institutions.
15
<PAGE>
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the problems
of undercapitalized institutions. Under this system, which became effective in
December 1992, the federal banking regulators are required to establish five
capital categories (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized) and to take
certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon the capital
category in which the institution is placed. Generally, subject to a narrow
exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
The capital levels established for each of the categories are as follows:
<TABLE>
<CAPTION>
===============================================================================================================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
===============================================================================================================
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not subject to
a capital
directive
--------------------------------------------------------------------------------------------------------------
Adequately 4% or more 8% or more 4% or more --
Capitalized
--------------------------------------------------------------------------------------------------------------
Undercapitalized less than 4% less than 8% less than 4% --
--------------------------------------------------------------------------------------------------------------
Significantly less than 3% less than 6% less than 3% --
Undercapitalized
- ---------------------------------------------------------------------------------------------------------------
Critically 2% or less -- -- --
Undercapitalized tangible equity
===============================================================================================================
</TABLE>
For purposes of the regulation, the term "tangible equity" includes core capital
elements counted as Tier 1 Capital for purposes of the risk-based capital
standards, plus the amount of outstanding cumulative perpetual preferred stock
(including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
16
<PAGE>
At December 31, 1996, the Bank had the requisite capital levels to qualify as
well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, assigns an institution to one
of three capital categories: (a) well capitalized; (b) adequately capitalized;
and (c) undercapitalized. These three categories are substantially similar to
the prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are undercapitalized,
significantly undercapitalized, and critically undercapitalized for prompt
corrective action purposes. An institution is also assigned by the FDIC to one
of three supervisory subgroups within each capital group. The supervisory
subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's insurance assessment rate is then determined based
on the capital category and supervisory category to which it is assigned. Under
the final risk-based assessment system, as well as the prior transitional
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied. Assessment rates for members of both the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF") for the first half
of 1995, as they had during 1994, ranged from 23 basis points (0.23% of
deposits) for an institution in the highest category (i.e., "well capitalized"
and "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of
time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC reduced
the assessment rate applicable to BIF deposits in two stages, so that, beginning
1996, the deposit insurance premiums for 92% of all BIF members in the highest
capital and supervisory categories were set at $2,000 per year, regardless of
deposit size. The FDIC elected to retain the existing assessment rate range of
23 to 31 basis points for SAIF members for the foreseeable future given the
undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates had
adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, on July 28, 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the disparity
between the assessment rates on BIF and SAIF deposits following recapitalization
of the SAIF.
A variation of this proposal designated the Deposit Insurance Funds Act of 1996
(the "Funds Act") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by the Funds
Act, the FDIC implemented a special one-time assessment of approximately 65.7
basis points (0.657%) on a depository institution's SAIF-insured deposits held
as of March 31, 1995 (or approximately 52.6 basis points on SAIF deposits
acquired by banks in certain qualifying transactions).
In addition, the FDIC proposed a revision in the SAIF assessment rate schedule
that effected, as of October 1, 1996 (a) a widening in the assessment rate
spread among institutions in the different capital and risk assessment
categories, (b) an overall reduction of the assessment rate range assessable on
SAIF deposits of
17
<PAGE>
from 0 to 27 basis points, and (c) a special interim assessment rate range for
the last quarter of 1996 of from 18 to 27 basis points on institutions subject
to FICO assessments. Effective January 1, 1997, FICO assessments will be imposed
on both BIF- and SAIF-insured deposits in annual amounts presently estimated at
1.29 basis points and 6.44 basis points, respectively. Beginning in January,
2000, BIF- and SAIF- insured institutions will share the FICO interest costs at
equal rates currently estimated 2.43 basis points. The Funds Act further
provides that BIF and SAIF are to be merged, creating the "Deposit Insurance
Fund," on January 1, 1999, provided that bank and savings association charters
are combined by that date.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed which contain wide-ranging
proposals for altering the structures, regulations and competitive relationships
of the nation's financial institutions. It cannot be predicted whether or what
form any proposed regulation or statute will be adopted or the extent to which
the business of the Company may be affected by such regulation or statute.
ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------
The principal place of business of both the Company and the Bank is located at
1490 Martha Berry Blvd., Rome, Georgia 30165-1618. Construction of a new, one -
story, 9,000 square foot brick, traditional bank building was completed in
October 1996. It includes office space for administration, lending, customer
service and new accounts, operations facilities, four drive-thru tellers, six
stand up teller positions, and a security vault with safe deposit boxes. The
Bank owns the new building and the 2.29 acres of graded land on which the
building sits. Prior to completion and occupancy of the building, the Bank was
operated out of two modular office units on the bank site which provided 2,608
square feet of office space and banking facilities.
On March 11, 1997, the Bank acquired a two adjacent parcels of land,
approximately one acre in size on a corner at the intersection of Second Avenue
and East Eighth St., next to the YMCA, in East Rome. The cost of the lots was
$211,231. The Bank purchased the lots as a future branch site but has no
immediate plans for establishing a branch. Management estimates that a branch
might be established on the site sometime in 1998 or 1999.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
There are no material legal proceedings to which the Company or the Bank or any
of their properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
- ------------------------------------------------------------
No matter was submitted to a vote of security-holders during the fourth quarter
of the fiscal year covered by this report.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The information set forth under the caption "Market for Common Equity and
Related Stockholder Matters" in the 1996 Annual Report is incorporated herein by
reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- -----------------------------------------------------------------
The information set forth under the caption "Management's Discussion and
Analysis or Plan of Operation" in the 1996 Annual Report is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS
- ----------------------------
The consolidated balance sheets of the Company as of December 31, 1996 and 1995,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows, and notes to the consolidated financial statements for
each of the two years in the period ended December 31, 1996, and the report
issued thereon by the Company's independent public accountants, which appear in
the 1996 Annual Report are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
No change in accountants has taken place in any period subsequent to the date of
the most recent financial statements. The Company had no disagreement with
accountants with respect to accounting principles or practices or financial
statement disclosures or auditing scope or procedure, or disagreements with
regard to reportable events. The Company has had the same independent accounting
firm since its inception.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ---------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
The information set forth under the caption "Election of Directors" in the Proxy
Statement is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------
The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information set forth under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by reference.
19
<PAGE>
ITEM 13. EXHIBITS, LIST 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).
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).
10.2 Option to Purchase Property (Incorporated by reference to Exhibit 10.2 to
the Company's Registration Statement No. 33-82858 on Form SB-2).
10.3 Escrow Agreement between the Company and The Bankers Bank (Incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement No. 33-
82858 on Form SB-2).
10.4 Line of Credit Note to The Bankers Bank (Incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement No. 33-82858 on Form
SB-2).
10.5 Subscription Agreement (Incorporated by reference to Exhibit A to Part I
of the Company's Registration Statement No. 33-82858 on Form SB-2).
10.6 Line of Credit Note to First Rome Bank dated December 12, 1994
(Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994).
10.7 Note payable by Bradford L. Riddle to Thomas D. Caldwell, III dated April
27, 1994 (Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994).
10.8 Contract between the Company and B&S Construction, Inc. dated October 27,
1994.(Incorporated by reference to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1994).
10.9 Contract between the Company and H. Lloyd Hill, Architect. (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994).
10.10 * 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).
10.11 Mobile Modular Office Unit Lease between the Company and GE Capital
Modular Space, a division of Transport International Pool, Inc. dated
February 27, 1995 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994).
20
<PAGE>
10.12 * 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).
10.13 * Form of Incentive Stock Option Agreement
13.1 1996 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant.
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 fourth quarter of the
year ended December 31, 1996.
21
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) 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.
By:/s/ Thomas D. Caldwell, III
-------------------------------------------
Thomas D. Caldwell, III, President
Date: March 28, 1997
-----------------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Berry
- --------------------------------- Director March 28, 1997
Robert L. Berry
/s/ Frank A. Brown, Jr Director March 28, 1997
- ---------------------------------
Frank A. Brown, Jr.
/s/ Thomas D. Caldwell, III Chairman, CEO and President March 28, 1997
- --------------------------------- (Principal Executive Officer)
Thomas D. Caldwell, III
/s/ Gene G. Davidson Director March 28, 1997
- ---------------------------------
Gene G. Davidson
/s/ Henry Haskell Perry Director March 28, 1997
- ----------------------------------
Henry Haskell Perry
/s/ Bradford Lee Riddle Director March 28, 1997
- ---------------------------------
Bradford Lee Riddle
/s/ M. Wayne Robinson Director March 28, 1997
- ---------------------------------
M. Wayne Robinson
/s/ Dale G. Smith Director March 28, 1997
- ---------------------------------
Dale G. Smith
/s/ Paul E. Smith Director March 28, 1997
- ---------------------------------
Paul E. Smith
/s/ W. Fred Talley Director March 28, 1997
- ---------------------------------
W. Fred Talley
/s/ Martha Berry Walstad Director March 28, 1997
- ---------------------------------
Martha Berry Walstad
/s/ E. Grey Winstead, III (Principal Financial and Accounting March 28, 1997
- --------------------------------- Officer)
E. Grey Winstead, III
</TABLE>
22
<PAGE>
GREATER ROME BANCSHARES, INC.
FORM 10-KSB ANNUAL REPORT FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Page
- ------ Description ---------
-----------
<C> <S> <C>
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the N/A
Company's Registration Statement No. 33-82858 on Form SB-2).
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Registration N/A
Statement No. 33-82858 on Form SB-2).
4.1 Provisions of Company's Articles of Incorporation and Bylaws Defining the Rights N/A
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 N/A
Company's Registration Statement No. 33-82858 on Form SB-2).
10.2 Option to Purchase Property (Incorporated by reference to Exhibit 10.2 to the N/A
Company's Registration Statement No. 33-82858 on Form SB-2).
10.3 Escrow Agreement between the Company and The Bankers Bank (Incorporated by N/A
reference to Exhibit 10.3 to the Company's Registration Statement No. 33-82858 on
Form SB-2).
10.4 Line of Credit Note to The Bankers Bank (Incorporated by reference to Exhibit 10.4 N/A
to the Company's Registration Statement No. 33-82858 on Form SB-2).
10.5 Subscription Agreement (Incorporated by reference to Exhibit A to Part I of the N/A
Company's Registration Statement No. 33-82858 on Form SB-2).
10.6 Line of Credit Note to First Rome Bank dated December 12, 1994 (Incorporated by N/A
reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994).
10.7 Note payable by Bradford L. Riddle to Thomas D. Caldwell, III dated April 27, 1994 N/A
(Incorporated by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
10.8 Contract between the Company and B&S Construction, Inc. dated October 27, 1994 N/A
(Incorporated by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
10.9 Contract between the Company and H. Lloyd Hill, Architect (Incorporated by N/A
reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994).
10.10 * Employment Agreement between the Company and Thomas D. Caldwell, III dated January N/A
3, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994).
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
10.11 Mobile Modular Office Unit Lease between the Company and GE Capital Modular Space, N/A
a division of Transport International Pool, Inc. dated February 27, 1995
(Incorporated by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
10.12 * Greater Rome Bancshares, Inc. 1996 Stock Incentive Plan N/A
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.13 * Form of Incentive Stock Option Agreement.
13.1 1996 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule (for S.E.C. use only).
</TABLE>
_______________________________
*Indicates a management contract or compensactory arrangement.
24
<PAGE>
INCENTIVE STOCK OPTION AWARD
PURSUANT TO GREATER ROME BANCSHARES, INC.
1996 STOCK INCENTIVE PLAN
THIS AWARD is made as of the Grant Date by GREATER ROME BANCSHARES, INC.
(the "Company") to _________________________________________ (the "Optionee").
Upon and subject to the Terms and Conditions attached hereto and
incorporated herein by reference, the Company hereby awards as of the Grant Date
to Optionee an incentive stock option (the "Option"), as described below, to
purchase the Option Shares.
A. Grant Date:.____________________
B. Type of Option: Incentive Stock Option.
C. Plan under which granted: Greater Rome Bancshares, Inc. 1996 Stock
Incentive Plan.
D. Option Shares: All or part of ___________ shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), subject
to adjustment as provided in the attached Terms and Conditions.
E. Exercise Price: $_______ per share, subject to adjustment as provided
in the attached Terms and Conditions. The Exercise Price is, in the
judgment of the Committee, not less than 100% of the Fair Market Value
of a share of Common Stock as of the Grant Date or, in the case of an
Over 10% Owner, not less than 110% of the Fair Market Value of a share
of Common Stock on the Grant Date.
F. Option Period: The Option may be exercised only during the Option
Period which commences on the Grant Date and ends on the earliest of
(a) the tenth (10th) anniversary of the Grant Date (unless the
Optionee is an Over 10% Owner, in which case the fifth (5th)
anniversary of the Grant Date); (b) the later of the date (i) 30 days
following the date the Optionee ceases to be an employee of the
Company or any Subsidiary for any reason other than retirement at age
65, death or Disability or (ii) nine months following the date the
Optionee ceases to be an employee of the Company or any Subsidiary due
to retirement at age 65, death or Disability; or (c) the date of any
cash-out of the Option, as contemplated by Section 7 B of the attached
Terms and Conditions; provided that the Option may be exercised as to
no more than the vested Option Shares, determined pursuant to the
Vesting Schedule. Note that other limitations to exercising the
Option, as described in the attached Terms and Conditions, may apply.
G. Vesting Schedule: The Option Shares shall become vested in accordance
with the attached Vesting Schedule. All or a portion of the Option
Shares may become vested on an earlier date as provided in the
attached Terms and Conditions.
IN WITNESS WHEREOF, the Company has executed and sealed this Award as of
the Grant Date set forth above.
GREATER ROME BANCSHARES, INC.
By:_____________________________________
Title:__________________________________
Page 1 of 5
<PAGE>
TERMS AND CONDITIONS
TO THE
INCENTIVE STOCK OPTION AWARD
PURSUANT TO GREATER ROME BANCSHARES, INC.
1996 STOCK INCENTIVE PLAN
1. Exercise of Option. Subject to the provisions provided herein or in
------------------
the Award made pursuant to the Greater Rome Bancshares, Inc. 1996 Stock
Incentive Plan:
A. the Option may be exercised with respect to all or any portion of
the vested Option Shares at any time during the Option Period by the
delivery to the Company, at its principal place of business, of a written
notice of exercise in substantially the form attached hereto as Exhibit 1,
which shall be actually delivered to the Company no earlier than thirty
(30) days and no later than ten (10) days prior to the date upon which
Optionee desires to exercise all or any portion of the Option.
B. payment to the Company of the Exercise Price multiplied by the
number of Option Shares being purchased (the "Purchase Price") as provided
in Section 2; and
C. payment of any tax withholding liability, to the extent the
Option is treated as a nonqualified option pursuant to Section 4 below.
Upon acceptance of such notice and receipt of payment in full of the Purchase
Price and any tax withholding liability, the Company shall cause to be issued a
certificate representing the Option Shares purchased.
2. Purchase Price. Payment of the Purchase Price for all Option Shares
--------------
purchased pursuant to the exercise of an Option shall be made in cash or
certified check or, alternatively, as follows:
A. by delivery to the Company of a number of shares of Common Stock
which have been owned by the Optionee for at least six (6) months prior to
the date of the Option's exercise having a fair market value, as determined
under the Plan, on the date of exercise either equal to the Purchase Price
or in combination with cash or a certified check to equal the Purchase
Price; or
B. if and when the Common Stock becomes traded by brokers, whether
on a national securities exchange or otherwise, by receipt of the Purchase
Price in cash from a broker, dealer or other "creditor" as defined by
Regulation T issued by the Board of Governors of the Federal Reserve System
following delivery by the Optionee to the Committee of instructions in a
form acceptable to the Committee regarding delivery to such broker, dealer
or other creditor of that number of Option Shares with respect to which the
Option is exercised.
3. Vested Option Shares. The Option Shares shall become vested in the
--------------------
manner provided in the Vesting Schedule attached hereto; provided, however, that
all Option Shares shall become vested
Page 2 of 5
<PAGE>
no later than the date of a Change in Control, or any earlier date specified by
the Committee in writing to the Optionee subsequent to or contemporaneously with
a determination by the Committee that a Change in Control is imminent.
4. Incentive Stock Option Status. In the event the aggregate Fair Market
-----------------------------
Value (determined as of the applicable option grant date) of shares of Common
Stock subject to options (under all plans of the Company and its Subsidiaries)
that first become exercisable in favor of the Optionee during any calender year
by an amount that exceeds $100,000, then such options in excess of the
limitation shall not be incentive stock options. To the extent such options
include this Option, that portion of the Option that does not constitute an
incentive stock option shall be treated as a nonqualified stock option and shall
be subject to the remaining provisions of this Award and its related Terms and
Conditions.
5. Rights as Shareholder. Until the stock certificates reflecting the
---------------------
Option Shares accruing to the Optionee upon exercise of the Option are issued to
the Optionee, the Optionee shall have no rights as a shareholder with respect to
such Option Shares. The Company shall make no adjustment for any dividends or
distributions or other rights on or with respect to Option Shares for which the
record date is prior to the issuance of that stock certificate, except as the
Plan or the attached Award otherwise provides.
6. Restriction on Transfer of Option and of Option Shares. The Option
------------------------------------------------------
evidenced hereby is nontransferable other than by will or the laws of descent
and distribution and shall be exercisable during the lifetime of the Optionee
only by the Optionee (or in the event of his disability, by his personal
representative) and after his death, only by his legatee or the executor of his
estate.
7. Changes in Capitalization.
-------------------------
A. Except as provided in Subsection B below, if the number of
shares of Common Stock shall be increased or decreased by reason of a
subdivision or combination of shares of Common Stock, the payment of an
ordinary stock dividend in shares of Common Stock or any other increase of
decrease in the number of shares of Common Stock outstanding effected
without receipt of consideration by the Company, an appropriate adjustment
shall be made by the Committee, in a manner determined in its sole
discretion, in the number and kind of Option Shares and in the Exercise
Price.
B. In the event of a merger, consolidation, reorganization,
extraordinary dividend or other change in the corporate structure of the
Company, including a Change in Control, or tender offer for shares of
Common Stock, shall provide for an appropriate adjustment to the Option or
provide for the substitution of a new option which adjustment of
substitution shall be consistent with the event requiring the adjustment of
substitution; provided, however, in the event the Company will not be the
surviving entity as a result of the event and the surviving entity does not
agree to the adjustment or substitution, the Committee may elect to
terminate the Option Period as of the date of the Change in Control in
consideration of the payment to the Optionee of the sum of the difference
between the then Fair Market Value of the Common
Page 3 of 5
<PAGE>
Stock and the Exercise Price for each Option Share as to which the Option
has not been exercised as of the date of the Change in Control.
C. The existence of the Plan and the Option granted pursuant to this
Agreement shall not affect in any way the right or power of the Company to
make or authorize any adjustment, reclassification, reorganization or other
change in its capital or business structure, any merger or consolidation of
the Company, any issue of debt or equity securities having preferences or
priorities as to the Common Stock or the rights thereof, the dissolution or
liquidation of the Company, any sale or transfer of all or any part of its
business or assets, or any other corporate act or proceeding. Any
adjustment pursuant to this Section may provide, in the Committee's
discretion, for the elimination without payment therefor of any fractional
shares that might otherwise become subject to any Option.
8. Special Limitation on Exercise. No purported exercise of the Option
------------------------------
shall be effective without the approval of the Committee, which may be withheld
to the extent that the exercise, either individually or in the aggregate
together with the exercise of other previously exercised stock options and/or
offers and sales pursuant to any prior or contemplated offering of securities,
would, in the sole and absolute judgment of the Committee, require the filing of
a registration statement with the United States Securities and Exchange
Commission or with the securities commission of any state. If a registration
statement is not in effect under the Securities Act of 1933 or any applicable
state securities law with respect to shares of Common Stock purchasable or
otherwise deliverable under the Option, the Optionee (a) shall deliver to the
Company, prior to the exercise of the Option or as a condition to the delivery
of Common Stock pursuant to the exercise of an Option exercise, such
information, representations and warranties as the Company may reasonably
request in order for the Company to be able to satisfy itself that the Option
Shares are being acquired in accordance with the terms of an applicable
exemption from the securities registration requirements of applicable federal
and state securities laws and (b) shall agree that the shares of Common Stock so
acquired will not be disposed of except pursuant to an effective registration
statement, unless the Company shall have received an opinion of counsel that
such disposition is exempt from such requirement under the Securities Act of
1933 and any applicable state securities law.
9. Legend on Stock Certificates. Certificates evidencing the Option
----------------------------
Shares, to the extent appropriate at the time, shall have noted conspicuously on
the certificates a legend intended to give all persons full notice of the
existence of the conditions, restrictions, rights and obligations set forth
herein and in the Plan.
10. Governing Laws. This Award and the Terms and Conditions shall be
--------------
construed, administered and enforced according to the laws of the State of
Georgia.
11. Successors. This Award and the Terms and Conditions shall be binding
----------
upon and inure to the benefit of the heirs, legal representatives, successors
and permitted assigns of the Optionee and the Company.
Page 4 of 5
<PAGE>
12. Notice. Except as otherwise specified herein, all notices and other
------
communications under this Award shall be in writing and shall be deemed to have
been given if personally delivered or if sent by registered or certified United
States mail, return receipt requested, postage prepaid, addressed to the
proposed recipient at the last known address of the recipient. Any party may
designate any other address to which notices shall be sent by giving notice of
the address to the other parties in the same manner as provided herein.
13. Severability. In the event that any one or more of the provisions or
------------
portion thereof contained in the Award and these Terms and Conditions shall for
any reason be held to be invalid, illegal or unenforceable in any respect, the
same shall not invalidate or otherwise affect any other provisions of the Award
and these Terms and Conditions, and the Award and these Terms and Conditions
shall be construed as if the invalid, illegal or unenforceable provision or
portion thereof had never been contained herein.
14. Entire Agreement. Subject to the terms and conditions of the Plan,
----------------
the Award and the Terms and Conditions express the entire understanding of the
parties with respect to the Option.
15. Violation. Any transfer, pledge, sale, assignment, or hypothecation
---------
of the Option or any portion thereof shall be a violation of the terms of the
Award or these Terms and Conditions and shall be void and without effect.
16. Headings and Capitalized Terms. Section headings used herein are for
------------------------------
convenience of reference only and shall not be considered in construing the
Award or these Terms and Conditions. Capitalized terms used, but not defined,
in either the Award or the Terms and Conditions shall be given the meaning
ascribed to them in the Plan.
17. Specific Performance. In the event of any actual or threatened
--------------------
default in, or breach of, any of the terms, conditions and provisions of the
Award and these Terms and Conditions, the party or parties who are thereby
aggrieved shall have the right to specific performance and injunction in
addition to any and all other rights and remedies at law or in equity, and all
such rights and remedies shall be cumulative.
18. No Right to Continued Employment. Neither the establishment of the
--------------------------------
Plan nor the award of Option Shares hereunder shall be construed as giving the
Optionee the right to continued employment with the Company or any Subsidiary.
Page 5 of 5
<PAGE>
EXHIBIT 1
---------
NOTICE OF EXERCISE OF
STOCK OPTION TO PURCHASE
COMMON STOCK OF
GREATER ROME BANCSHARES, INC.
Name____________________________________
Address_________________________________
________________________________________
Date____________________________________
Greater Rome Bancshares, Inc.
1490 Martha Berry Boulevard
Rome, Georgia 30162-5271
Attn: Corporate Secretary
Re: Exercise of Incentive Stock Option
Gentlemen:
Subject to acceptance hereof by Greater Rome Bancshares, Inc. (the
"Company") pursuant to the provisions of the Greater Rome Bancshares, Inc. 1996
Stock Incentive Plan (the "Plan") I hereby give notice of my election to
exercise options granted to me to purchase ___________ shares of Common Stock of
the Company under the Incentive Stock Option Award (the "Award") dated as of
_______. The purchase shall take place as of __________, 19_____ (the "Exercise
Date").
On or before the Exercise Date, I will pay the applicable purchase price as
follows:
[_] by delivery of cash or a certified check for $_____ for the full
purchase price payable to the order of Greater Rome Bancshares, Inc.
[_] by delivery of cash or a certified check for $______ representing a
portion of the purchase price with the balance to consist of shares of
Common Stock that I have owned for at least six months and that are
represented by a stock certificate I will surrender to the Company
with my endorsement. If the number of shares of Common Stock
represented by such stock certificate exceed the number to be applied
against the purchase price, I understand that a new stock certificate
will be issued to me reflecting the excess number of shares.
EXHIBIT 1 to Incentive Stock Option Award - Page 1
<PAGE>
[_] by delivery of a stock certificate representing shares of Common Stock
that I have owned for at least six months which I will surrender to
the Company with my endorsement as payment of the purchase price. If
the number of shares of Common Stock represented by such certificate
exceed the number to be applied against the purchase price, I
understand that a new certificate will be issued to me reflecting the
excess number of shares.
[_] by delivery of the purchase price by ______________________, a broker,
dealer or other "creditor" as defined by Regulation T issued by the
Board of Governors of the Federal Reserve System. I hereby authorize
the Company to issue a stock certificate for the number of shares
indicated above in the name of said broker, dealer or other creditor
or its nominee pursuant to instructions received by the Company and to
deliver said stock certificate directly to that broker, dealer or
other creditor (or to such other party specified in the instructions
received by the Company from the broker, dealer or other creditor)
upon receipt of the purchase price.
The required federal, state and local income tax withholding obligations,
if any, on the exercise of the Award shall also be paid on or before the
Exercise Date in the manner provided in the Withholding Election previously
tendered or to be tendered to the Company no later than the Exercise Date.
As soon as the stock certificate is registered in my name, please deliver
it to me at the above address.
If the Common Stock being acquired is not registered for issuance to and
resale by the Optionee pursuant to an effective registration statement on Form
S-8 (or successor form) filed under the Securities Act of 1933, as amended (the
"1933 Act"), I hereby represent, warrant, covenant, and agree with the Company
as follows:
The shares of the Common Stock being acquired by me will be acquired
for my own account without the participation of any other person, with the
intent of holding the Common Stock for investment and without the intent of
participating, directly or indirectly, in a distribution of the Common
Stock and not with a view to, or for resale in connection with, any
distribution of the Common Stock, nor am I aware of the existence of any
distribution of the Common Stock;
I am not acquiring the Common Stock based upon any representation,
oral or written, by any person with respect to the future value of, or
income from, the Common Stock but rather upon an independent examination
and judgment as to the prospects of the Company;
EXHIBIT 1 to Incentive Stock Option Award - Page 2
<PAGE>
The Common Stock was not offered to me by means of publicly disseminated
advertisements or sales literature, nor am I aware of any offers made to other
persons by such means;
I am able to bear the economic risks of the investment in the Common Stock,
including the risk of a complete loss of my investment therein;
I understand and agree that the Common Stock will be issued an sold to me
without registration under any state law relating to the registration of
securities for sale, and will be issued and sold in reliance on the exemptions
from registration under the 1933 Act, provided by Sections 3(b) and/or 4(2)
thereof and the rules and regulations promulgated thereunder;
The Common Stock cannot be offered for sale, sold or transferred by me
other than pursuant to: (A) an effective registration under the 1933 Act or in a
transaction otherwise in compliance with the 1933 Act; and (B) evidence
satisfactory to the Company of compliance with the applicable securities laws of
other jurisdictions. The Company shall be entitled to rely upon an opinion of
counsel satisfactory to it with respect to compliance with the above laws;
The Company will be under no obligation to register the Common Stock or to
comply with any exemption available for sale of the Common Stock without
registration or filing, and the information or conditions necessary to permit
routine sales of securities of the Company under Rule 144 under the 1933 Act are
now available and no assurance has been given that it or they will become
available. The Company is under no obligation to act in any manner so as to make
Rule 144 available with respect to the Common Stock;
I have and have had complete access to and the opportunity to review and
make copies of all material documents related to the business of the Company,
including, but not limited to, contracts, financial statements, tax returns,
leases, deeds and other books and records. I have examined such of these
documents as I wished and am familiar with the business and affairs of the
Company. I realize that the purchase of the Common Stock is a speculative
investment and that any possible profit therefrom is uncertain;
I have had the opportunity to ask questions of and receive answers from the
Company and any person acting on its behalf and to obtain all material
information reasonably available with respect to the Company and its affairs. I
have received all information and data with respect to the Company which I have
requested and which I have deemed relevant in connection with the evaluation of
the merits and risks of my investment in the Company;
I have such knowledge and experience in financial and business matters that
I am capable of evaluating the merits and risks of the purchase of the Common
Stock hereunder and I am able to bear the economic risk of such purchase; and
EXHIBIT 1 to incentive Stock option Award - Page 3
<PAGE>
The agreements, representations, warranties and covenants made by me
herein extend to and apply to all of the Common Stock of the Company issued
to me pursuant to this Award. Acceptance by me of the certificate
representing such Common Stock shall constitute a confirmation by me that
all such agreements, representations, warranties and covenants made herein
shall be true and correct at that time.
I understand that the certificates representing the shares being purchased
by me in accordance with this notice shall bear a legend referring to the
foregoing covenants, representations and warranties and restrictions on
transfer, and I agree that a legend to that effect may be placed on any
certificate which may be issued to me as a substitute for the certificates being
acquired by me in accordance with this notice.
Very truly yours,
________________________________________
AGREED TO AND ACCEPTED:
GREATER ROME BANCSHARES, INC.
By:_____________________
Title:__________________
Number of Shares
Exercised:______________
Number of Shares
Remaining:______________ Date:__________________________________.
________________________
EXHIBIT 1 to Incentive Stock Option Award - Page 4
<PAGE>
SCHEDULE I
TO GREATER ROME BANCSHARES, INC.
INCENTIVE STOCK OPTION AWARD
Vesting Schedule
----------------
"Vested Shares" means only that percentage of the number of shares of
Common Stock subject to the Option as to which the Option becomes exercisable
following completion of the year of service indicated in the schedule below.
Percentage of Shares Years of Service
Which are Vested Shares after Grant Date
----------------------- ----------------
20% 0
40% 1
60% 2
80% 3
100% 4
Notwithstanding the foregoing Vesting Schedule, the Option shall become fully
vested and exercisable during the Option Period if and when the Optionee retires
on or after age 65.
______________
1. Construction. (a) For purposes of the Vesting Schedule, Optionee shall
------------
be granted a year of service for each consecutive twelve-consecutive-month
period following the Grant Date and during which Optionee continues, at all
times, as an employee of the Company or a Subsidiary.
(b) The right of Optionee to vest in Common Stock shall cease upon the
termination of his or her service as an employee of the Company or a Subsidiary,
whether by reason of death, Disability or otherwise and, thereafter, no further
shares shall become Vested Shares; the and Option shall be exercisable during
the Option Period specified in the Award.
<PAGE>
GREATER ROME BANCSHARES, INC.
1996 ANNUAL REPORT
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Greater Rome Bancshares, Inc.
Rome, Georgia
We have audited the accompanying consolidated balance sheets of Greater Rome
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 financial position of Greater Rome
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
February 14, 1997
<PAGE>
GREATER ROME BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 764,891 13,506
Federal funds sold 4,058,912 3,410,000
---------- ---------
Cash and cash equivalent 4,823,803 5,423,506
Securities available for sale 1,489,375 -
Securities held to maturity 4,748,925 1,000,000
Loans, net 13,095,601 -
Premises and equipment, net 2,099,035 375,694
Accrued interest receivable and other assets 251,902 63,151
---------- ---------
$26,508,641 6,862,351
---------- ---------
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
Deposits:
Demand $ 3,006,709 -
Interest - bearing demand 1,692,466 -
Savings 3,479,435 -
Time 11,665,926 -
---------- ---------
Total deposits 19,844,536 -
Accrued interest payable and other liabilities 286,148 89,580
---------- ---------
Total liabilities 20,130,684 89,580
---------- ---------
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 (560,820) (164,346)
Unrealized gain on securities available for sale 1,660 -
---------- ---------
Total stockholders' equity 6,377,957 6,772,771
---------- ---------
$26,508,641 6,862,351
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
GREATER ROME BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 605,126 - -
Interest on federal funds sold and deposits with other banks 175,449 184,160 -
Interest and dividends on investments:
U.S. Government agencies 260,907 - -
U.S. Treasuries 19,919 - -
--------- -------- -------
Total interest income 1,061,401 184,160 -
--------- -------- -------
Interest expense on deposits:
Demand 26,066 - -
Savings 75,701 - -
Time 211,831 - -
Other 26 34,883 9,144
--------- -------- -------
Total interest expense 313,624 34,883 9,144
--------- -------- -------
Net interest income (expense) 747,777 149,277 (9,144)
Provision for loan losses 134,000 - -
--------- -------- -------
Net interest income (expense) after provision for loan losses 613,777 149,277 (9,144)
--------- -------- -------
Other income 48,741 - -
--------- -------- -------
Other expenses:
Salaries and employee benefits 544,925 119,865 31,535
Occupancy 167,716 16,448 -
Other operating 346,351 120,755 15,876
--------- -------- -------
Total other expenses 1,058,992 257,068 47,411
--------- -------- -------
Net loss $ (396,474) (107,791) (56,555)
========= ======== =======
Net loss per share $ (.57) (.15) (.08)
========= ======== =======
Weighted average number of shares outstanding 700,000 700,000 700,000
========= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
GREATER ROME BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
Gain on
Investment
Additional Securities
Common Paid-In Accumulated Available
Stock Capital Deficit for Sale Total
-------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Proceeds from the sale of
organization shares $ 1 49 - - 50
Net loss - - (56,555) - (56,555)
------- ---------- --------- ------ ----------
Balance, December 31, 1994 1 49 (56,555) - (56,505)
Redemption of organization
shares (1) (49) - - (50)
Issuance of 700,000 shares at $10
$10 per share, net of offering
costs of $62,883 7,000 6,930,117 - - 6,937,117
Net loss - - (107,791) - (107,791)
------- ---------- --------- ------ ----------
Balance, December 31, 1995 7,000 6,930,117 (164,346) - 6,772,771
Change in unrealized gain
on investment securities
available for sale - - - 1,660 1,660
Net loss - - (396,474) - (396,474)
------- ---------- --------- ------ ----------
Balance December 31, 1996 $ 7,000 6,930,117 (560,820) 1,660 6,377,957
======= ========== ========= ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
GREATER ROME BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (396,474) (107,791) (56,555)
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation, amortization and accretion 59,725 4,961 -
Provision for loan losses 134,000 - -
Change in:
Interest receivable (192,803) - -
Other assets (8,034) (9,579) -
Interest payable 38,574 (4,498) -
Other liabilities 157,994 65,579 28,498
-------------- ----------- ---------
Net cash used by operating activities 207,018 (51,328) (28,057)
-------------- ----------- ---------
Cash flows from investing activities:
Proceeds from maturities and calls of securities
available for sale 500,000 - -
Purchases of securities available for sale (1,986,289) - -
Purchase of securities held to maturity (3,748,672) (1,000,000) -
Net increase in loans (13,229,601) - -
Purchases of premises and equipment (1,772,659) (169,790) (58,264)
Organization cost - (2,451) (52,982)
Deferred offering expense - 49,156 (49,156)
-------------- ----------- ---------
Net cash used by investing activities (20,237,221) (1,123,085) (160,402)
-------------- ----------- ---------
Cash flows from financing activities:
Net change in demand and savings deposits 8,178,610 - -
Net change in time deposits 11,665,926 - -
Payment of note payable organizer - (150,739) -
Net change in lines of credit - (195,820) 195,820
Proceeds from the sale of common stock,
net of offering cost - 6,937,117 -
Proceeds from the sale (redemption) of
organization shares - (50) 50
-------------- ----------- ---------
Net cash provided by financing activities 19,844,536 6,590,508 195,870
-------------- ----------- ---------
Net change in cash and cash equivalents (599,703) 5,416,095 7,411
Cash and cash equivalents at the beginning of year 5,423,506 7,411 -
-------------- ----------- ---------
Cash and cash equivalents at the end of the year $ 4,823,803 5,423,506 7,411
============== ----------- ---------
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest $ 275,050 39,529 4,498
Non cash investing and financing activities:
Purchase of land, and related
note payable to organizer $ - - 150,739
Change in unrealized gain on securities available for sale $ 1,600 - -
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. The Company was reported on as a developmental
stage entity as of December 31, 1995.
Basis of Presentation and Reclassification
------------------------------------------
The 1996 consolidated financial statements include the accounts of the
Company and the Bank. All intercompany accounts and transactions have been
eliminated in consolidation. The 1995 and 1994 financial statements include
the accounts of the Company only, as the Bank did not open for business
until February 26, 1996. Certain 1995 and 1994 amounts have been
reclassified to conform to the 1996 presentation.
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.
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.
-7-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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 difference 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.
-8-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
(2) INVESTMENT SECURITIES
Investment securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
AT DECEMBER 31, 1996: Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 4,748.925 6.011 32.781 4,722.155
--------- ----- ------ ---------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
AT DECEMBER 31, 1995: Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 1,000.000 - - 1,000.000
--------- ----- ------ ---------
</TABLE>
Investment securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
AT DECEMBER 31, 1996: Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 1,238,125 4,296 3,280 1,239,141
U.S. Government agencies 249,590 644 - 250,234
--------- ----- ------ ---------
$ 1,487,715 4,940 3,280 1,489,375
--------- ----- ------ ---------
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities of certain securities will differ from contractual maturities
because borrowers may have the right to call or prepay certain obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available Securities Held
for Sale to Maturity
------------------------ ---------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
U.S. Treasuries
1 to 5 years $ 1,238.125 1,239.141 - -
--------- --------- --------- ---------
U.S. Government agencies
1 to 5 years $ 249,590 250,234 4,748,925 4,722,155
--------- --------- --------- ---------
Total securities:
1 to 5 years $ 1,487.715 1,489.375 4,748.925 4,722.155
--------- --------- --------- ---------
</TABLE>
There were no sales of investment securities during 1996 and 1995.
-9-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS
Major classifications of loans at December 31, 1996 are presented below.
<TABLE>
<CAPTION>
<S> <C>
Commercial $ 4,156,632
Real estate - mortgage 5,112,913
Real estate - construction 355,635
Installment and other consumer 3,656,887
-----------
Total loans 13,281,067
Less: Allowance for loan losses 133,342
Unearned fees 52,124
-----------
Total net loans $ 13,095,601
===========
</TABLE>
The Bank grants loans and extensions of credit to individuals and a variety
of firms and corporations located primarily in Floyd County, Georgia.
Although the Bank has a diversified loan portfolio, a substantial portion
of the loan portfolio is collateralized by improved and unimproved real
estate and is dependent upon the real estate market.
An analysis of the activity in the allowance for loan losses for the year
ended December 31, 1996 is presented below:
<TABLE>
<CAPTION>
<S> <C>
Balance at beginning of year $ -
Provision charged to operations 134,000
Loans charged off (658)
-------
Balance at end of year $ 133,342
=======
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 313,438 313,438
Land improvements 115,287 3,471
Buildings and improvements 1,254,155 -
Furniture, fixtures and equipment 448,153 10,221
Construction in progress - 51,663
----------- ---------
2,131,033 378,793
Less: Accumulated depreciation 31,998 3,099
----------- ---------
$ 2,099,035 375,694
=========== =========
</TABLE>
Depreciation expense was $49,318 and $3,099 for the years ended December
31, 1996 and 1995, respectively. No depreciation expense was charged to
operations in 1994.
-10-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) TIME DEPOSITS
Time deposits exceeding $100,000 totaled $3,138,334 at December 31, 1996.
Additionally, the scheduled maturities of time deposits as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 $ 11,403,878
1998 221,915
1999 24,654
2000 15,479
----------
$ 11,665,926
----------
</TABLE>
(6) INCOME TAXES
At December 31, 1996, the Company had a Federal net operating loss
carryforward and state net operating loss carryforward for tax purposes of
approximately $297,000 and $493,000, respectively which will begin to
expire in 2009 if not previously utilized. No income tax expense or benefit
was recorded for the period ended December 31, 1996, 1995 or 1994 due to
this loss carryforward.
The following summarizes the sources and expected tax consequences of
future deductions which comprise the net deferred taxes.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred pre-opening expenses $ 71,574 43,212
Allowance for loan losses 40,795 -
Premises and equipment - 982
Operating loss carryforwards 112,669 16,593
Other 8,483 -
------- ------
Total gross deferred tax assets 233,521 60,787
Less valuation allowance (217,295) (60,787)
------- ------
Net deferred tax assets 16,226 -
Deferred tax liability consisting of premises and equipment (16,226) -
------- ------
Net deferred taxes $ - -
------- ------
</TABLE>
The future tax consequences of the differences between the financial
reporting and tax bases of the Company's assets and liabilities resulted in
a net deferred tax asset. A valuation allowance was established for the net
deferred tax asset, as the realization of these deferred tax assets is
dependent on future taxable income.
(7) STOCKHOLDERS' EQUITY
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions
are based on the level of regulatory capital and retained net earnings in
prior years. At December 31, 1996, the Bank could not pay the Company a
dividend without obtaining prior regulatory approval.
Shares of preferred stock may be issued from time to time in one or more
series as may be established by resolution of the board of directors of the
Company. Each resolution shall include the number of shares issued,
preferences, dividend provisions, special rights and limitations as
determined by the board.
-11-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) STOCK INCENTIVE PLAN
The Company has a Stock Incentive Plan whereby 105,000 shares of common
stock have been reserved for issuance pursuant to the plan, which may
include options, stock appreciation rights, stock awards, dividend
equivalent rights, performance unit awards, or phantom shares. During 1996,
incentive stock options were granted to employee at exercise prices not
less than fair market value at the date of grant. The options vest evenly
over four and five year periods and are exercisable no later than ten years
from the date of grant.
A summary status of the Company's incentive stock plan as December 31,
1996, and changes during the year, is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Outstanding, beginning of Year - -
Granted during the year 63,000 $ 10.00
------ -----
Outstanding, end of year 63,000 $ 10.00
====== =====
Options exercisable at year end 10,400 $ 10.00
====== =====
Weighted average fair value of options
granted during the year $ 4.12
=====
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
January 1, 1996. This statement encourages, but does not require, entities
to compute the fair value of options at the date of grant and to recognize
such costs as compensation expense immediately if there is no vesting
period or ratably over the vesting period of the options. The Company has
chosen not to adopt the cost recognition principles of this statement. No
compensation expense has been recognized in 1996 related to the stock
option plan. Had compensation cost been determined based upon the fair
value of the options at the grant dates consistent with the method of the
new statement, the Company's net earnings per share would have been reduced
to the proforma amounts indicated below:
<TABLE>
<S> <C> <C>
Net loss As reported $ 396,474
Proforma $ 439,322
Loss per share As reported $ .57
Proforma $ .63
</TABLE>
The fair value of each option is estimated on the date of grant using the
Minimum Value pricing model with the following weighted average assumptions
used for grants in 1996: no dividend yield, a risk free interest rate of 6%
and an expected life of 10 years.
On January 9, 1997 the Board of Directors of the Company granted options to
purchase shares of common stock in the Company to the non-employee
directors of the Company and the Bank subject to the approval by
shareholders at the 1997 annual meeting. Each of the ten non-employee
directors was awarded an option to purchase 3,500 shares at an exercise
price not less than fair market value at the date of grant. The options
vest evenly over a four year period and are exerciseable no later than
years from the date of Grant.
(9) DEFINED CONTRIBUTION PLAN
The Company adopted a 401(K) profit sharing plan, effective January 1,
1997, covering substantially all employees subject to certain minimum age
and service requirements. Employer contributions to the plan are determined
annually by the Board of Directors.
-12-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) RELATED PARTY TRANSACTIONS
At December 31, 1996, deposits from directors, executive officers and their
related interests aggregated approximately $3,622,000. These deposits were
taken in the normal course of business at market interest rates.
The Bank conducts transactions with directors and executive officers,
including companies in which they have beneficial interest, in the normal
course of business. It is the policy of the Bank that loan and deposit
transactions with directors and executive officers be made on substantially
the same terms as those prevailing at the time for comparable loans and
deposits to other persons.
The following table summarizes related party loan activity during 1996:
<TABLE>
<S> <C>
Beginning balance $ -
New Loans 678.233
Repayments (370,192)
-------
Ending balance $ 308,041
=======
</TABLE>
(11) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum 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. Under certain adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets and of Tier 1 capital to average assets.
Management believes, as of December 31, 1996, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total risk-
based, Tier 1 risk-based, Tier 1 leverage ratios as set forth below. There
are no conditions or events since that notification that management
believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented below.
Consolidated amounts do not materially differ from Bank - only capital
amounts and ratios:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital
(to Risk Weighted Assets) $ 6,176,572 39.32% $ 1,256,800 8.00% $ 1,571,000 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $ 6,043,230 38.47% $ 628,400 4.00% $ 942,600 6.00%
Tier 1 Capital
(to Average Assets) $ 6,043,230 41.46% $ 583,022 4.00% $ 782,777 5.00%
</TABLE>
As a condition to the Bank's charter approval, the Georgia Department of
Banking and Finance has also required that the Bank maintain a ratio of equity
capital to adjusted assets of not less than 8% during the first three years of
the Bank's operation and that the Bank not declare dividends to the Company
until the Bank is cumulatively profitable.
-13-
<PAGE>
GREATER ROME BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) COMMITMENTS
The Bank is a 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. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized on the consolidated balance sheets. The contractual amounts of
those 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 non-performance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
In most cases, the Bank requires collateral or other security to support
financial instruments with credit risk.
The following summarizes commitments as of December 31, 1996. There were no
commitments at December 31, 1995.
<TABLE>
<CAPTION>
Approximate
Contract
Amount
------------
<S> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 1,111,000
Standby letters of credit $ 25,000
</TABLE>
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 may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. 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. Collateral held varies
but may include unimproved and improved real estate, certificates of
deposit or personal property.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
(13) SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total interest
and other income for the years ended December 31, 1996, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Professional Fees $ 55,098 68,207 6,202
Advertising and marketing $ 64,861 9,346 848
Processing Fees $ 71,417 1,021 -
Supplies $ 43,819 10,748 640
Telecommunications $ 11,972 5,086 796
Automobile expenses $ 17,280 1,799 3,805
</TABLE>
-14-
<PAGE>
GREATER ROME BANCSHARES,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) GREATER ROME BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets
------
1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents $ 286,582 333,506
Investment in Bank 6,063,451 6,464,382
Other assets 27,924 35,372
--------- ---------
$ 6,377,957 6,833,260
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ - 60,489
Stockholders' equity 6,377,957 6,772,771
--------- ---------
$ 6,377,957 6,833,260
========= =========
</TABLE>
Statements of Operations
For the Years Ended December 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income $ 15,742 147,703 -
Interest expense - (34,883) (9,144)
------- ------- -------
Net interest income (expense) 15,742 112,820 (9,144)
------- ------- -------
Other expenses:
Salaries and employee benefits - 69,863 31,535
Occupancy 305 12,696 -
Other operating 9,319 102,435 15,876
------- ------- -------
Total expenses 9,624 184,994 47,411
------- ------- -------
Earnings (losses) before equity in
undistributed losses of Bank 6,118 (72,174) (56,555)
Equity in undistributed losses of Bank (402,592) (35,617) -
------- ------- -------
Net loss $ (396,474) (107,791) (56,555)
======== ======= ======
</TABLE>
-15-
<PAGE>
GREATER ROME BANCSHARES,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) GREATER ROME BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
CONTINUED
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (396,474) (107,791) (56,555)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in undistributed losses of Bank 402,591 35,618 -
Depreciation and amortization 7,448 3,805 -
Other (60,489) 31,991 28,498
---------- ------------- ----------
Net cash used in operating activities (46,924) (36,377) (28,057)
---------- ------------- ----------
Cash flows from investing activities:
Infusion of capital into Bank - (6,500,000) -
Purchases of premises and equipment - - (58,264)
Transfer of premises and equipment to Bank - 207,058 -
Organization costs - - (52,982)
Transfer of organization cost to Bank - 15,750 -
Deferred offering expenses - 49,156 (49,156)
---------- ------------- ----------
Net cash used in investing activities - (6,228,036) (160,402)
---------- ------------- ----------
Cash flows from financing activities:
Payment of note payable - organizer - (150,739) -
Net change in lines of credit - (195,820) 195,820
Proceeds from the sale of common stock,
net of offerings costs - 6,937,117 -
Proceeds from the sale (redemption) of
organization shares - (50) 50
---------- ------------- ----------
Net cash provided by financing activities - 6,590,508 195,870
---------- ------------- ----------
Net change in cash and cash equivalents (46,924) 326,095 7,411
Cash and cash equivalents at beginning of period 333,506 7,411 -
---------- ------------- ----------
Cash and cash equivalents at end of period $ 286,582 333,506 7,411
========== ============= ==========
</TABLE>
-16-
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Articles of Incorporation authorize it to issue up to 10,000,000
shares of Common Stock, par value $.01 per share ("Common Stock"), of which
700,000 shares have been issued. The Company has not declared or paid any
dividends. All shares of the Company's Common Stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Company's board of directors. The Company does not plan to
declare any dividends in the immediate future. The source of funds for the
payment of dividends by the Company is the payment of dividends by the Bank to
the Company. A condition to the approval by the Georgia Department of Banking
and Finance (the "DBF") of the Bank's charter application and the Company's
application for approval to become a bank holding company is that the Bank will
not pay any dividends without the DBF's prior approval until the Bank has made a
cumulative profit.
There is currently no market for the Common Stock and there are no present plans
for the Company's Common Stock to be traded on any stock exchange or in the over
the counter market. As a result, investors who need or wish to dispose of all or
part of their Common Stock may be unable to do so except in private, directly
negotiated sales. The Company has approximately 686 shareholders. The Company
has not had any unregistered sales of equity securities since its organization
(June 17, 1994).
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company was organized on June 17, 1994 (the "Inception Date"). From the
Inception Date to September 30, 1995, the Company's principal activities related
to its organization, the conducting of its initial public offering, the pursuit
of approvals from the DBF and FDIC of its application to charter the Bank, and
the pursuit of approvals from the Federal Reserve Board for the Company to
acquire control of the Bank.
On September 30, 1995, the Company completed its offering of shares of the
Company's Common Stock by receiving subscriber deposits for 700,000 shares, the
maximum number authorized to be sold, at $10.00 per share. Deferred offering
expenses which reduced Paid-in capital totaled $62,883. The Company was
capitalized with $7,000 of Common stock, par value $.01 per share and $6,930,117
of Paid-in capital on November 17, 1995. On that date, the Company invested
$6,500,000 in exchange for 650,000 shares of Common stock of the Bank, and the
Bank was capitalized with $3,250,000 in Common stock, par value $5.00 per share,
$2,750,000 Paid-in capital and a Reserve for initial operating losses of
$500,000, as required by the DBF.
On February 26, 1996, the Bank commenced operations after receiving all
regulatory approvals and insurance on its deposits from the FDIC.
USE OF PROCEEDS
The following table sets forth the use of the net proceeds of the Offering as
was described in the Supplement to the Company's Registration Statement dated
April 6, 1995, and compares it to the actual use as of December 31, 1996.
<PAGE>
Management's Discussion and Analysis, continued
USE OF PROCEEDS BY THE COMPANY
<TABLE>
<CAPTION>
Amount Under Maximum Actual
DBF Condition Offering Proceeds Use
------------- ------------ -------------
<S> <C> <C> <C>
Net Proceeds from Offering $6,500,000 $6,880,000 $6,937,117 (a)
Investment in Stock of the Bank (6,500,000) (6,500,000) (6,500,000)
Remaining Proceeds -- 380,000 437,117
Reimbursement of the Company for Amounts
Advanced by the Company to the Bank
to Pay Organizational and Pre-opening
expenses of the Bank -- 205,000 378,186 (b)
Repayment of Advances under Line of
Credit and Loans to Company -- (50,000) (687,527) (c)
------- -------
Remaining working capital retained by the
Company -- 535,000 127,776 (d)
======= =======
</TABLE>
____________________
(a) The Company sold the maximum allowable number of shares, 700,000 shares,
which produced gross proceeds of $7,000,000. This was a non-underwritten public
offering and the offering expenses were $62,883. The original estimates of
offering expenses ($120,000) included amounts for possible underwriting
discounts and commissions.
(b) The expected reimbursement of the Company by the Bank includes $63,012 in
organizational and pre-opening expenses of the Bank plus $315,174 for the Bank
site, site preparation and improvements. The Registration Statement estimated
organizational and pre-opening expenses of the Bank, which were expected to be
paid by the Company, at $205,000. The actual amount was $141,988 higher because
the Offering took longer than expected. Salaries and benefits which were
originally planned to be devoted to preopening bank activities were, in fact,
committed towards the effort of selling the stock to form the Company. The
Offering was originally scheduled to be completed by February 28, 1995 and was
actually completed on September 30, 1995.
The Bank site and site preparation as described in the Company's Registration
Statement was to be initially funded by the Bank. Instead, the Company purchased
and improved the site prior to the completion of the Offering, since the
offering time frame had become extended. When the Company acquired the Bank's
Common Stock, the Bank purchased the improved site at the Company's book value
in the improved land of $315,174.
(c) The amount of the repayment of advances under the Line of Credit and Loans
by Organizers to the Company is significantly higher than stated in the
Registration Statement due to the extended time frame of the Offering and the
purchase of the Bank site and improvements by the Company prior to
capitalization of the Bank. The working capital line of $400,000 was used to
fund operating costs, primarily salaries, benefits and offering expenses. On
November 17, 1995, this line which had an outstanding balance of $355,500 was
repaid. The Company had a note payable to a local bank for $332,027 which was
used to pay off the $150,739 note from an organizer to purchase the Bank site
and to fund the improvements to the Bank site. The Company repaid this note when
the Bank was capitalized and had purchased the Bank site from the Company.
(d) The remaining proceeds have been used to provide working capital for the
Company and may be used to provide additional capital to the Bank in the future,
if necessary. This amount is less than that projected under the maximum offering
assumption in the Registration Statement primarily due to the extended time
frame to complete the Offering and the associated costs.
<PAGE>
Management's Discussion and Analysis, continued
USE OF PROCEEDS BY THE BANK
<TABLE>
<CAPTION>
As Described Actual
In the Offering Proceeds Use
--------------- ------------
<S> <C> <C>
Investment by the Company in the Bank's Common Stock $6,500,000 $6,500,000
Reimbursement of the Company for Amounts Advanced
by the Company to Pay Organizational and Pre-
opening Expenses of the Bank:
Purchase of Bank Site & Site Preparation (253,000) (315,174) (e)
For organizational & other expenses (205,000) (63,012) (f)
------- -------
Total Reimbursed (458,000) (378,186)
------- -------
Furniture, fixtures & equipment (278,000) (448,153) (g)
Construction of Bank's Permanent Facility (1,200,000) (1,254155) (h)
Bank Site Improvements (113,551) (i)
--------- ---------
Remainder $4,564,000 $4,305,955
========= =========
</TABLE>
___________________
(e) The actual cost of the Bank site improvements was higher than expected, due
primarily to grading and drainage work.
(f) See note (b), above.
(g) Initial plans for office furniture and fixtures were based on estimates
made in 1994. These estimates were developed under the assumption that the Bank
would not open until the Bank building was finished, and therefore would open
with minimal staff and equipment requirements. Instead, the Bank has began
operations on February 26, 1996 in temporary facilities with rented furniture.
When the Building was completed in October 1996, the Bank had completed almost
eight months of operations and needed additional furniture and equipment to
support a growing staff and operations. As of September 30, 1996, earning assets
had reached $16.5 million, exceeding budget by $1 million.
(h) The construction of the building cost $1,137,000 and architectural fees
exceeded $110,000 for design work and construction supervision and follow-up.
(i) Site improvement costs included the construction of a deceleration lane
on Martha Berry Blvd. in front of the Bank and additional grading
and storm sewer work for drainage of the site. The deceleration lane was
required by the Georgia Department of Transportation and the storm sewer work
was required by the city. These expenses were not anticipated in the initial
proposal.
FINANCIAL CONDITION
At December 31, 1996, the Company had concluded ten months of
banking operations with $26,508,641 in total assets as compared to
$6,862,351 at the end of 1995
At year end total deposits had grown to $19,844,536 and total loans had grown to
$13,095,601. The Bank's loan to deposit ratio at year end was 66.9%, but during
the year had reached as high as 84%. Management's long term target for this
ratio is 75%, but given the Bank's strong capital position and available
liquidity, the Bank's net interest margin is benefited by higher loan to deposit
ratios.
CAPITAL
At December 31, 1996, the Bank's capital position was well in excess of FDIC
guidelines to meet the definition of "well capitalized". Based on
the level of the Bank's risk weighted assets at year end, the Bank had $4.6
<PAGE>
Management's Discussion and Analysis, continued
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. At December 31, 1996, the securities held to
maturity had grown from $1,000,000 to $4,748,925 and securities available for
sale were $1,489,375. Federal funds sold were $4,058,912, down from $5,410,000
at the end of the prior year.
Net deposit growth and federal funds sold provide the primary liquidity resource
for loan disbursements and Bank working capital. If deposit growth were to
diminish or temporarily cease, the Bank would fund loan and working capital
demands in the short term with Federal funds purchase lines of credit which have
been established at each of its correspondent banks. These lines total
$3,000,000, are unsecured and may be revoked at any time by the correspondent
banks. In addition to these unsecured lines, the Bank has established master
repurchase agreements with its correspondent banks under which the Bank's
investment securities may be temporarily pledged to raise funds for longer
terms. Under these repurchase agreements, margin requirements tend to be less
than 10% of the current market value of the underlying security and the
borrowing rate tends to have a spread of between 25 and 50 points over the
comparable U.S. Treasury rate. The repurchase agreements allow the Bank to raise
funds out of its total securities portfolio ($5.5 million at year end) without
being forced to sell the securities.
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 date of purchase settlement and to U.S. Treasuries and triple A
rated government agency securities. In early 1997, the Bank will apply to the
Federal Home Loan Bank of Atlanta ("FHLBA") for membership. FHLBA membership
will provide an additional source of liquidity through FHLBA credit programs
which can provide term funding for up to 10 years and in certain qualified
program up to 20 years. The Bank's first mortgage loans would be used as
collateral for such financings.
Despite the anticipated losses in the first years of operations, the Company
expects earnings from loans and investments and other banking services as well
as steady deposit growth to provide sufficient liquidity for both the short and
long term. 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.
RESULTS OF OPERATIONS
The Company had a net loss of $396,474 ($0.57 per share) for 1996 as compared to
a net loss of $107,791 ($0.15 per share) for 1995.
The 1995 losses resulted from expenses incurred in connection with activities
related to the organization of the Company and the Bank. These activities
included (without limitation) the preparation and filing of an application with
the DBF and the FDIC to charter the Bank, the preparation and filing of an
application with the Federal Reserve Board for approval for the Company to
acquire the Bank, responding to questions and providing additional information
to the DBF, the FDIC and the Federal Reserve Board in connection with the
application process, the selling of the Company's Common Stock in the Offering,
meetings and discussions among various organizers regarding application
information, target markets, and capitalization issues, and planning and
organizing for the opening of the Bank. Because the Company was in the
organizational stage through the end of 1995, it had no operations from which to
generate revenues, and its only source of revenues, which amounted
<PAGE>
Management's Discussion and Analysis, continued
to $184,160, were associated with the short term investment of the funds
provided by the subscribers' deposits which subsequently formed the Company's
capital.
The 1996 loss included the first ten months of operations of the Bank. Interest
income from loans and investments, including loan fees of $33,163, was
$1,061,401, representing a yield of 7.66% on average earning assets of
$13,864,520. Interest expense was $313,624, representing a cost of 4.45% on
average interest bearing liabilities of $7,048,375. Net interest income was
$747,777, producing a net yield of 5.39% on average earning assets.
The provision for loan losses in 1996 was $134,000. Total loan charge-offs were
$658 and were related to the Bank's consumer loan portfolio. At December 31,
1996, the Bank had no loans past due 90 days or more and had one non-accrual
loan totaling $1,781. The allowance for loan losses at year end was $133,342,
representing 1.00% of total loans.
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. Since the Bank is approaching
the end of its first year of operations, it does not have a sufficient history
of portfolio performance on which to base additions. Accordingly, additions to
the reserve are primarily based on achieving a targeted ratio of 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 ratios which reflect average ratios of
0.99% (national peer) and 1.50% (Georgia). The Georgia data includes more mature
banks and management feels that, absent any meaningful historical data on the
Bank's loan portfolio, 1.50% is a more conservative target. 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.
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.
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.
Non-interest income in 1996 was $48,741. This consisted primarily of service
charges on deposit accounts which were $26,256 and credit life and disability
insurance premium income which was $13,664. 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 grew to $1,058,992 in 1996 as compared to $257,068 in
1995. The expenses in 1995, as mentioned earlier, were primarily related to pre-
opening activities while expenses in 1996 included 10 months of Bank operations.
Salaries and benefits were $544,925 in 1996 as compared to $119,865 in 1995.
Until September 1995, the Company had only two employees. In February 1996, the
Bank opened with 14 employees
<PAGE>
Management's Discussion and Analysis, continued
and at year end had 18 full-time equivalent employees. Occupancy costs were
$167,716 in 1996 as compared to $16,448 in 1995. Occupancy costs were up in 1996
with operations occurring in two mobile office units (approximately 2,600 square
feet) while the permanent bank building was under construction. In 1995, one
mobile office unit (approximately 600 square feet) was used for organizational
and preopening efforts. Other operating expenses were $346,351 in 1996 as
compared to $120,755 in 1995. The current year included many expenses necessary
to run a bank which were not necessary in 1995, such as data processing
services, business development and marketing expenses, professional fees,
postage and communications costs.
INTEREST RATE SENSITIVITY
Improvement in earnings of the Company are dependent 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) to the Bank's net interest
margin. 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.
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS OF DIRECTORS OF
GREATER ROME BANCSHARES, INC. GREATER ROME BANK
<S> <C>
Thomas D. Caldwell, III Thomas D. Caldwell, III
Chairman of the Board Chairman of the Board
President and Chief Executive Officer President and Chief Executive Officer
Bradford Lee Riddle Bradford Lee Riddle
Vice Chairman of the Board Vice Chairman of the Board
President and Director of Riddle, Inc. President and Director of Riddle, Inc.
(Office Supplies) (Office Supplies)
Robert L. Berry Robert L. Berry
Corporate Secretary Partner of Brinson, Askew, Berry, Seigler,
Partner of Brinson, Askew, Berry, Seigler, Richardson & Davis
Richardson & Davis (attorneys)
(attorneys)
Frank A. Brown, Jr. Frank A. Brown, Jr.
Chairman of the Board and President of Chairman of the Board and President of
Cooper, Brown & Currie, Inc. Cooper, Brown & Currie, Inc.
(insurance agency) (insurance agency)
Gene G. Davidson, M.D. Gene G. Davidson, M.D.
President of Northwest Georgia Internal Medicine President of Northwest Georgia Internal Medicine
Associates, P.C. Associates, P.C.
Henry Haskell Perry Henry Haskell Perry
CEO of North Georgia Equipment Co. CEO of North Georgia Equipment Co.
(Heating and air contractor) (Heating and air contractor)
M. Wayne Robinson M. Wayne Robinson
President of M. Wayne Robinson Builder President of M. Wayne Robinson Builder
Developer, Inc. Developer, Inc.
Dale G. Smith Dale G. Smith
Financial Manager Financial Manager
Paul E. Smith Paul E. Smith
Representative, District 12, Georgia Legislature Representative, District 12, Georgia Legislature
W. Fred Talley W. Fred Talley
President, Fred Talley's Parkview Chapel President, Fred Talley's Parkview Chapel
Funeral Home Funeral Home
Martha B. Walstad Martha B. Walstad
Real Estate Agent Real Estate Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF EXECUTIVE OFFICERS OF
GREATER ROME BANCSHARES, INC. GREATER ROME BANK
<S> <C>
Thomas D. Caldwell, III Thomas D. Caldwell, III
Chairman of the Board Chairman of the Board
President and Chief Executive Officer President and Chief Executive Officer
Bradford Lee Riddle Bradford Lee Riddle
Vice Chairman of the Board Vice Chairman of the Board
President and Director of Riddle, Inc. President and Director of Riddle, Inc.
(Office Supplies) (Office Supplies)
E. Grey Winstead, III
Robert L. Berry Senior Vice President
Corporate Secretary Chief Financial Officer
Partner of Brinson, Askew, Berry, Seigler, Corporate Secretary
Richardson & Davis
(attorneys)
John W. Branam
Vice President
Chief Credit Officer
Senior Loan Officer
</TABLE>
Shareholders may obtain, without charge, a copy of Greater Rome Bancshares, Inc.
1996 Annual Report to the Securities and Exchange Commission on Form 10-KSB.
Written requests should be addressed to: Robert L. Berry, Corporate Secretary,
Greater Rome Bancshares, Inc., P.O. Box 5271, Rome, Georgia 30162-5271.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Greater Rome Bank, incorporated under the laws of the State of Georgia.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 764,891
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,058,912
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,487,375
<INVESTMENTS-CARRYING> 4,748,925
<INVESTMENTS-MARKET> 0
<LOANS> 13,228,943
<ALLOWANCE> 133,342
<TOTAL-ASSETS> 26,508,641
<DEPOSITS> 19,844,536
<SHORT-TERM> 0
<LIABILITIES-OTHER> 286,148
<LONG-TERM> 0
0
0
<COMMON> 7,000
<OTHER-SE> 6,370,957
<TOTAL-LIABILITIES-AND-EQUITY> 26,508,641
<INTEREST-LOAN> 605,126
<INTEREST-INVEST> 456,275
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,061,401
<INTEREST-DEPOSIT> 313,598
<INTEREST-EXPENSE> 26
<INTEREST-INCOME-NET> 747,777
<LOAN-LOSSES> 134,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,058,992
<INCOME-PRETAX> (396,474)
<INCOME-PRE-EXTRAORDINARY> (396,474)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376,474)
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<YIELD-ACTUAL> 5.39
<LOANS-NON> 1,781
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 658
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 133,342
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 133,342
</TABLE>
