<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended September 30, 1998
------------------
Transition report under Section 13 or 15(d) of the Exchange Act
- ---
For the transition period from to
--------------- ----------------
Commission File No. 0-28280
GREATER ROME BANCSHARES, INC.
-----------------------------
(Exact Name of Small Business Issuer as
Specified in its Charter)
Georgia 58-2117940
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 5271, 1490 Martha Berry Blvd., Rome, Georgia 30162-5271
----------------------------------------------------------------
(Address of Principal Executive Offices)
(706) 295-9300
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
700,400 shares of common stock, $.01 par value per share, were issued and
outstanding as of October 31, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements of Greater Rome Bancshares, Inc. (the
"Company") are set forth on the following pages. All adjustments have been made
which, in the opinion of management, are necessary in order to make the
financial statements not misleading.
2
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GREATER ROME BANCSHARES, INC. and subsidiary
Consolidated Balance Sheets
(Unaudited)
September 30, 1998 and December 31, 1997
Assets
------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and due from banks $ 1,078,192 1,530,896
Federal funds sold and other short-term bank deposits 2,296,119 1,433,528
Cash and cash equivalents 3,374,311 2,964,424
----------- ----------
Securities available for sale 4,867,260 2,690,808
(amortized cost of $4,846,267 and $2,686,023)
Securities held to maturity 6,861,066 6,325,869
(market value $6,902,757 and $6,317,936)
Loans 40,091,150 30,202,967
Allowance for loan losses (609,977) (480,544)
Net loans 39,481,173 29,722,423
----------- ----------
Premises and equipment, net 2,750,799 2,271,350
Accrued interest receivable and other assets 721,873 721,703
----------- ----------
$58,056,482 44,696,577
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 5,748,818 4,414,480
Interest bearing demand 3,573,871 2,987,988
Savings 7,338,065 4,780,996
Time 29,423,574 21,382,715
----------- ----------
Total deposits 46,084,328 33,566,179
Federal Home Loan Bank advances 4,000,000 4,000,000
Securities sold under repurchase agreements 1,000,000 500,000
Accrued interest payable and other liabilities 346,522 207,373
----------- ----------
Total liabilities 51,430,850 38,273,552
----------- ----------
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; 700,400 and 700,000 shares, respectively,
issued and outstanding 7,004 7,000
Additional paid-in capital 6,934,113 6,930,117
Accumulated deficit (328,509) (518,877)
Accumulated other comprehensive income:
Unrealized gain/(loss) on securities available for sale 13,024 4,785
----------- ----------
Total stockholder's equity 6,625,632 6,423,025
----------- ----------
$58,056,482 44,696,577
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GREATER ROME BANCSHARES, INC. and subsidiary
Consolidated Statement of Operations and Comprehensive Income
(Unaudited)
For each of the Nine and Three Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including loan fees $2,648,297 1,526,258 974,692 637,627
Investment securities, including dividends 464,684 349,394 161,927 123,084
Federal funds sold and deposits in other banks 118,442 75,363 39,030 11,451
---------- --------- --------- -------
Total interest income 3,231,423 1,951,015 1,175,649 772,162
---------- --------- --------- -------
Interest expense:
Time deposits 1,144,882 659,459 416,636 267,543
Savings deposits 187,091 117,062 71,931 44,800
Interest bearing demand deposits 46,933 42,120 17,240 13,196
Other 175,941 30,092 59,913 17,080
---------- --------- --------- -------
Total interest expense 1,554,847 848,733 565,720 342,619
---------- --------- --------- -------
Net interest income 1,676,576 1,102,282 609,929 429,543
Provision for loan losses 176,640 271,968 56,300 106,900
---------- --------- --------- -------
Net interest income after provision 1,499,936 830,314 553,629 322,643
---------- --------- --------- -------
Other income:
Service charges 110,205 67,192 37,452 25,866
Other 85,379 43,533 42,626 23,038
---------- --------- --------- -------
Total other income 195,584 110,725 80,078 48,904
---------- --------- --------- -------
Other expenses:
Salaries and employee benefits 756,833 551,178 275,275 194,523
Occupancy and equipment expense 218,900 175,321 85,884 60,054
Other operating 439,680 305,924 170,617 111,140
---------- --------- --------- -------
Total non-interest expenses 1,415,413 1,032,423 531,776 365,717
---------- --------- --------- -------
Income (loss) before income taxes 280,107 (91,384) 101,930 5,830
Income tax expense 89,739 - 39,320 -
---------- --------- --------- -------
Net earnings (loss) $ 190,368 (91,384) 62,611 5,830
---------- --------- --------- -------
Other comprehensive income before tax:
Unrealized gain (loss) on securities available for
sale arising during the period 16,208 (1,459) 17,495 3,313
Income tax expense (benefit) on other
comprehensive income 7,969 - 6,641 -
---------- --------- --------- -------
Other comprehensive income (loss) net of tax 8,239 (1,459) 10,854 3,313
---------- --------- --------- -------
Comprehensive income (loss) 198,607 (92,842) 73,465 9,143
========== ========= ========= =======
Net earnings (loss) per share $ 0.27 (0.13) 0.09 0.01
========== ========= ========= =======
Diluted net earnings (loss) per share 0.27 (0.13) 0.09 0.01
========== ========= ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GREATER ROME BANCSHARES, INC. and subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For each of the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 190,368 (91,384)
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation, amortization and accretion 139,166 101,067
Provision for loan losses 176,640 271,968
Change in:
Interest receivable and other assets (18,071) (105,382)
Interest payable and other liabilities 139,148 (116,365)
------------ -----------
Net cash provided by operating activities 627,251 59,904
------------ -----------
Cash flows from investing activities:
Purchases of securities available for sale (2,966,482) (1,442,614)
Purchases of securities held to maturity (4,799,563) (1,377,762)
Proceeds from maturities and calls of securities available for sale 796,198 -
Proceeds from maturities and calls of securities held to maturity 4,266,826 524,655
Net increase in loans (9,935,390) (13,599,337)
Purchases of premises and equipment (601,102) (307,745)
------------ -----------
Net cash used by investing activities (13,239,513) (16,202,803)
------------ -----------
Cash flows from financing activities:
Net change in demand and savings deposits 4,477,290 3,475,182
Net change in time deposits 8,040,859 8,393,733
Net change in borrowings 500,000 3,000,000
Common stock issued for options exercised 4,000 -
------------ -----------
Net cash provided by financing activities 13,022,149 14,868,915
------------ -----------
Change in cash and cash equivalents 409,887 (1,273,984)
Cash and cash equivalents at beginning of period 2,964,424 4,823,803
------------ -----------
Cash and cash equivalents at end of period $ 3,374,311 3,549,819
============ ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,526,925 817,856
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GREATER ROME BANCSHARES, INC. and subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
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.
Basis of Presentation and Reclassification
- ------------------------------------------
The accounting principles followed by the Company 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
6
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included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Loans, Loan Fees and Interest Income
- ------------------------------------
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity are reported at the principal amount outstanding, net
of the allowance for loan losses and any deferred fees or costs on originated
loans. Interest on all loans is calculated principally by using the simple
interest method on the daily balance of the principal amount outstanding.
A loan is considered 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 2 - 7 years
Income Taxes
- ------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely than
not. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the assets and
liabilities are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
7
<PAGE>
In the event the future tax consequences of differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities
results in deferred tax assets, an evaluation of the probability of being able
to realize the future benefits indicated by such asset is required. A valuation
allowance is provided for the portion of the deferred tax asset when it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies.
Net Earnings Per Share
- ----------------------
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" became effective for the Company for the year-ended December 31, 1997.
This new standard specifies the computation, presentation and disclosure
requirements for earnings per share and is designed to simplify previous
earnings per share standards and to make domestic and international practices
more compatible. Earnings per share are based on the weighted average number of
common shares outstanding during the period while the effects of potential
shares outstanding during the period are included in diluted earnings per share.
All earnings per share amounts have been restated to conform to the provisions
of SFAS No. 128.
SFAS No. 128 requires the presentation on the face of the statement of earnings
of earnings per share with and without the dilutive effects of potential common
stock issuances from instruments such as options, convertible securities and
warrants. Additionally, the new statement requires the reconciliation of the
amounts used in the computation of both "earnings per share" and "diluted
earnings per share" for the periods presented in the financial statements. For
the nine months and three months ended September 30, 1998, the per share amounts
were calculated as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 Three months ended September 30, 1998
---------------------------------------- ----------------------------------------
Net Common Per Share Net Common Per Share
Earnings Shares Amount Earnings Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per share $190,368 700,200 $0.2719 $62,611 700,400 $0.0894
Effect of stock options 9,414 10,799
Diluted earnings per share $190,368 709,614 $0.2683 $62,611 711,199 $0.0880
</TABLE>
With regard to the same periods in 1997, the effect of the stock options
would be anti-dilutive. There were 700,000 weighted average number of shares
outstanding for the nine months and three months ended September 30, 1997.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-QSB and the
exhibits hereto which are not statements of historical fact constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act (the "Act"). In addition, certain statements in future filings by
the Company with the Securities and Exchange Commission, in press releases, and
in oral and written statements made by or with the approval of the Company which
are not statements of historical fact constitute forward-looking statements
within the meaning of the Act. Examples of forward-looking statements include,
but are not limited to: (1) projections of revenues, income or loss, earnings
or loss per share, the payment or non-payment of dividends, capital structure
and other financial items; (2) statements of plans and objectives of the Company
or its management or Board of Directors, including those relating to products or
services; (3) statements of future economic performance; and (4) statements of
assumptions underlying such statements. Words such as "believes,"
"anticipates," "expects," "intends," "targeted," and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements.
Forward-looking statements involve risks and uncertainties, which may cause
actual results to differ materially from those in such statements. Facts that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (1) the strength of the U.S.
economy in general and the strength of the local economies in which operations
are conducted; (2) the effects of and changes in trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors of
the Federal Reserve System; (3) inflation, interest rate, market and monetary
fluctuations; (4) the timely development of and acceptance of new products and
services and perceived overall value of these products and services by users;
(5) changes in consumer spending, borrowing and saving habits; (6) Year 2000
issues and technological changes; (7) acquisitions; (8) the ability to increase
market share and control expenses; (9) the effect of changes in laws and
regulations (including laws and regulations concerning taxes, banking,
securities and insurance) with which the Company and its subsidiary must comply;
(10) the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as the Financial Accounting Standards
Board; (11) changes in the Company's organization, compensation and benefit
plans; (12) the costs and effects of litigation and of unexpected or adverse
outcomes in such litigation; and (13) the success of the Company at managing the
risks involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
FINANCIAL CONDITION
ASSETS
As of September 30, 1998, the Company had concluded thirty-one months of banking
operations with $58.1 million in total assets, up $13.4 million over year-end
1997. Total deposits had increased $12.5 million over year-end 1997 to $46.1
million. Total loans outstanding had increased $9.9 million over year-end 1997
to $40.1 million. The Bank's loan-to-asset ratio at September 30, 1998 was
69.4%, as compared to 68.1% at year-end 1997.
Loan growth in the first nine months of 1998 exceeded budget by approximately
$300 thousand. Deposit growth in the first nine months of 1998 exceeded budget
by approximately $500 thousand. All of the Bank's
9
<PAGE>
growth in deposits and loans has come from the local market. Management
attributes this growth to a relatively stable local economy combined with
competitive banking services delivered by a locally owned and operated community
bank. The Bank has established itself as one of only two locally owned and
operated community banks in its market, which has been dominated by regional
banks and fragmented by credit unions over the past several years.
In the second quarter of 1998, the Bank finished construction of a branch
banking facility at 800 East Second Avenue in Rome (the "East Rome Office"),
approximately two miles south of the Bank's main office. The East Rome Office
opened for business in the first week of June 1998. It is a full service branch
office with three drive-up banking lanes and has a drive-up ATM.
The East Rome site was acquired for $211 thousand in the first quarter of 1997.
The cost of the East Rome Office building and site work was originally estimated
to be approximately $360 thousand. The actual cost of the facility, including
site work, furniture, fixtures and equipment was $523 thousand. Most of the cost
overruns were related to site-work, landscaping and retaining walls, all
required for proper drainage, and fencing on the retaining walls which was
required for public safety. Despite the cost overruns, management projects that
the new office should be making a contribution to earnings after twelve months
of operations and should position the Bank to more fully service the greater
Rome market. Deposit growth at the East Rome Office was $2.3 million through
September 30, 1998, slightly ahead of budget.
The banking industry continues to experience stiff competition from non-banks
for deposit and investment type products. Competition for local deposit dollars
continues to put upward pressure on the cost of deposits. In the current
market environment, management has found that the Bank can borrow term funds
from wholesale resources at rates that are less than the cost of local
certificates of deposit. The Bank's Asset/Liability Management Committee has
adopted policies designed to diversify funding sources in the event that local
market deposits become even more costly. Within limits, the Bank may obtain
funding from brokered certificates of deposit and other forms of wholesale
borrowing, such as the Federal Home Loan Bank and term repurchase agreements.
These policies should allow the Bank to continue to meet the local market's
credit demands and provide the flexibility to obtain funding from various
sources at optimum rates. In the long run the Bank will continue to place
primary funding emphasis on local deposit growth.
CAPITAL
At September 30, 1998, the Bank's capital position was in excess of FDIC
guidelines to qualify as "well capitalized". Based on the level of the Bank's
risk weighted assets at quarter end, the Bank had $2.6 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.
Assuming the Bank continues to grow with a risk-weighted asset mix consistent
with its historical experience, and that it has reasonable earnings and
maintains asset quality, the Bank's capital will approach the minimum limits for
well-capitalized when its assets are approximately $100 million. While there
are no assurances that the Bank will continue to grow at the rate it has grown
over the past two years, management must anticipate such growth and make plans
for sufficient capital to support such growth. Management and the Board are
currently developing capital growth strategies.
LIQUIDITY
Management monitors its liquidity position daily and the Asset Review Committee
reviews a liquidity management report on a weekly basis, which reflects the
Bank's results against policy guidelines and the Bank's unfunded commitments and
capital position. The reports reflect funding capacity projections based on
capital limits and policy limits assuming no further local market deposit growth
(a worst case scenario).
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As of September 30, 1998, the Bank had unfunded loan commitments, primarily on
commercial lines of credit, totaling $4.5 million.
The Bank intends to manage its loan growth such that deposit flows will provide
the primary funding for all loans as well as cash reserves for working capital
and short to intermediate term marketable investments. Management will continue
to seek cost effective alternative funding sources for both the short and long
term, in the event that local deposit growth does not keep pace with local loan
demand. Such funding sources may include institutional certificates of deposit
("CD's"), local market CD's and brokered CD's.
The Bank's internal and external liquidity resources are considered by
management to be adequate to handle expected growth and normal cash flow demands
from existing deposits and loans. For the nine months ended September 30, 1998,
deposit growth exceeded loan growth by $2.6 million. Securities held to maturity
increased $535 thousand over year-end to $6.9 million. Securities available for
sale increased $2.2 million to $4.9 million. Investment securities were
purchased in order to improve the yield on the Bank's internal liquidity
resources. At September 30, 1998, the average life of the Bank's securities
portfolio was 3.9 years with an average yield of 6.04%.
At September 30, 1998, the Bank had $4.0 million in advances from the Federal
Home Loan Bank ("FHLB") of Atlanta. These advances were obtained to improve the
Bank's cost of funds and to improve interest rate risk exposure. They are
secured by the Bank's investment in first mortgage real estate loans and FHLB
stock. The following table summarizes the terms of the advances:
<TABLE>
<CAPTION>
Advance Amount Rate Features Maturity Date Next Call Date
-------------- ---- -------- ------------- --------------
<S> <C> <C> <C> <C>
$2,000,000 5.66% fixed rate, one time call option at 2 9-24-2002 9-24-1999
years
$1,000,000 5.45% fixed rate, callable quarterly after 9-08-2000 12-08-1998
3-8-98
$1,000,000 5.40% fixed rate, one time call option at 2 6-18-2003 6-18-2000
years
</TABLE>
At September 30, 1998, securities sold under a repurchase agreement with a
maturity of October 5, 1998 totaled $1.0 million at a rate of 5.65%. This short
term financing was replaced in October with a $1.0 million two-year fixed rate
advance from the FHLB at a rate of 4.97%.
If call options are exercised on any of the advances, they will be converted
into a three-month LIBOR-based floating rate advance at three-month LIBOR. The
most likely reason for the advances to be called would be if interest rates rose
sufficiently to present better investment alternatives for the FHLB. In the
event of a call, management will evaluate its funding alternatives, given its
interest rate risk profile at the time.
Net deposit growth, federal funds sold and marketable securities provide the
primary liquidity resource for loan disbursements and Bank working capital. The
Bank's investment securities portfolio provides liquidity in the form of
financing through master repurchase agreements executed with the Bank's
correspondent banks. At quarter end the funds available for liquidity purposes
consisted of $10.1 million in securities (eligible for sale under repurchase
agreements), plus Federal funds sold and other short-term bank deposits of $2.3
million, for a total of $12.4 million. Under these repurchase agreements,
margin requirements range from 3% to 10% of the current market value of the
underlying security, and the borrowing rate tends to have a spread of
approximately 25 to 40 basis points over the Federal funds sold rate. The
repurchase agreements allow the Bank to raise funds out of its total securities
portfolio without being forced to sell the securities and recognize gains or
losses as a result of the sale. In addition to these sources of funds, the Bank
has unsecured Federal funds purchase lines of credit totaling $4.5 million, all
of which were available at quarter end. The correspondent banks may revoke
these lines at any time.
The Bank became a member of the Federal Home Loan Bank of Atlanta in September
of 1997. FHLB membership provides an additional source of liquidity through
credit programs, which can provide term
11
<PAGE>
funding for up to 10 years and, in certain qualified programs, up to 20 years.
The Bank's first mortgage loans are assigned as collateral for such financing.
The Bank has $6.3 million in eligible residential first mortgage loans that have
been assigned to the FHLB. These loans provide approximately $5.1 million in
lendable value. The Bank also has $7.2 million in commercial mortgage loans that
may qualify as collateral for advances with the FHLB.
RESULTS OF OPERATIONS
The Company had net earnings of $190,368 ($0.27 per share) for the nine months
ended September 30, 1998 and $62,611 ($0.09 per share) for the three months
ended September 30, 1998. This compares to a net loss of $91,384 ($0.13 per
share) for the nine months ended September 30, 1997 and net income of $5,830
($0.01 per share) for the three months ended September 30, 1997.
NET INTEREST INCOME
Net interest income increased 52% to $1,676,576 for the nine months ended
September 30, 1998 and increased 42% to $609,929 for the three months ended
September 30, 1998, as compared to the same periods in the prior year. Average
earning assets increased 62% to $48.0 million for the nine months ended
September 30, 1998 as compared to the same period in the prior year. For the
nine months ended September 30, 1998, the net yield on average earning assets,
before the provision for loan losses, was 4.63% for 1998. This compares to
4.96% for the same period in 1997.
The lower net yield for 1998 was primarily due to the higher funding cost
associated with 83.2% of average earning assets being funded by interest bearing
deposits. For 1997, 77.4% of average earning assets were funded by interest
bearing deposits. In 1998 average time deposits and other borrowings, the most
expensive components of the Bank's funding, were 63.1% of average earning
assets. This compares to 53.4% for the same period in 1997. For the nine months
ended September 30, 1998, average loans comprised 73.0% of average earning
assets. For the same period in 1997, average loans were 68.4% of average earning
assets.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<S> <C> <C> <C> <C>
Nine months Nine months Three months Three months
ended ended ended ended
Allowance for possible loan losses 9/30/98 9/30/97 9/30/98 9/30/97
- ---------------------------------------- ----------- ----------- ------------ ------------
Balance at the beginning of the period $ 480,544 133,342 574,510 286,626
Charge-offs:
Real estate - mortgage 2,924 - - -
Consumer loans 60,894 18,628 28,175 6,704
Total 63,818 18,628 28,175 6,704
-------------------------------------------------------------------
Recoveries:
Real estate mortgage - - - -
Consumer loans 16,611 762 7,342 622
Total 16,611 762 7,342 622
-------------------------------------------------------------------
Net charge-offs: 47,207 17,866 20,833 6,082
Additions charged to operations 176,640 271,968 56,300 106,900
Balance at end of period $ 609,977 387,444 609,977 387,444
===================================================================
Average loans outstanding $35,063,082 20,341,239 38,363,568 25,237,038
Ratio of net charge-offs to average loans 0.13% 0.09% 0.05% 0.02%
</TABLE>
12
<PAGE>
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. The Bank does not have
sufficient history in its portfolio performance on which to base additions.
Accordingly, additions to the reserve are primarily based on maintaining a
targeted ratio for the allowance for loan losses to total loans equal to at
least 1.50%. This target is based on national peer group ratios and Georgia
banking industry ratios. Under this methodology, charge-offs will increase the
amount of additions to the allowance and recoveries will reduce additions.
In addition, management performs an on-going loan review process. All new loans
are risk rated under loan policy guidelines. On a monthly basis, the composite
risk ratings are evaluated in a model that 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 weekly Asset Review Committee meeting. Large loans are
reviewed periodically. Risk ratings may be changed if it appears that new loans
may not have received the proper initial grading or, if on existing loans,
credit conditions have improved or worsened.
The Bank's policy is to place loans on non-accrual status when it appears that
the collection of principal and interest in accordance with the terms of the
loan is doubtful. Any loan that becomes 90 days past due as to principal or
interest is automatically placed on non-accrual, unless corrective action is
certain and imminent.
As the Bank matures, the additions to the loan loss allowance will be based more
on historical performance, the detailed loan review and allowance adequacy
evaluation. Management expects to incur losses on loans from time to time when
borrowers' financial conditions deteriorate. Where feasible, loans charged down
or charged off will continue to be collected. Management considers the quarter
end allowance adequate to cover potential losses in the loan portfolio.
<TABLE>
<CAPTION>
RISK ELEMENTS
Nonaccrual, Past Due and Restructured Loans Sept 30, 1998 Sept 30, 1997
- ------------------------------------------- --------------- -----------------
<S> <C> <C>
Nonaccrual loans $31,951 79,708
Accruing loans contractually past due 90 days or more $ - -
Troubled debt restructurings $ - -
</TABLE>
All of the non-accrual loans at September 30, 1998 and 1997 were consumer.
Interest that was not accrued on non-accrual loans in the nine months ended
September 30, 1998 totaled $1,777. No interest was collected and recorded in
income on non-accrual loans in the nine months ended September 30, 1998.
NON-INTEREST INCOME AND EXPENSES
Non-interest income increased 77% to $195,584 for the nine months ended
September 30, 1998 and increased 64% to $80,078 for the three months ended
September 30, 1998, as compared to the same periods in the prior year. Service
charges on deposit accounts increased 64% to $110,205 for the nine months ended
September 30, 1998 and increased 45% to $37,452 for the three months ended
September 30, 1998, as compared to the same periods in the prior year. This
increase is primarily due to the increased volume of services used on the Bank's
transaction accounts, on which average balances increased by 30% from the first
nine months of 1997 compared to 1998. Other income increased 96% to $85,379 for
the nine months ended September 30, 1998 and increased 85% to $42,626 for the
three months ended September 30, 1998, as compared to the same periods in the
prior year. Other income consists primarily of mortgage origination fee income
and credit life and disability income earned. In mid 1997 the Bank expanded its
residential real estate lending program to include mortgage loan programs
available through the secondary mortgage markets. No mortgage fees were
13
<PAGE>
earned in the first half of 1997. Mortgage origination fee income for the
first nine months of 1998 was $53,741.
Non-interest expenses increased 37% to $1,415,413 for the nine months ended
September 30, 1998 and increased 45% to $531,776 for the three months ended
September 30, 1998, as compared to the same periods in the prior year. Average
earning assets increased 62% for the nine months ended September 30, 1998, as
compared to the same period in the prior year. The lower growth rate of non-
interest expenses relative to the earning asset growth rate indicates that the
Bank's operating efficiencies continue to improve.
Salaries and benefits increased 37% to $756,833 for the nine months ended
September 30, 1998 and increased 42% to $275,275 for the three months ended
September 30, 1998, as compared to the same periods in the prior year. This is
due to the growth in the number of full-time-equivalent employees and increases
in the costs of employee benefits. The number of employees grew from 21 at
September 30, 1997 to 30 at September 30, 1998.
Occupancy costs increased 25% to $218,900 for the nine months ended September
30, 1998 and increased 43% to $85,884 for the three months ended September 30,
1998, as compared to the same periods in the prior year. The higher growth
rate in the third quarter of 1998 is primarily attributable to opening the new
office in East Rome in June.
Other operating expenses increased 44% to $439,680 for the nine months ended
September 30, 1998 and increased 54% to $170,617 for the three months ended
September 30, 1998, as compared to the same periods in the prior year. Most of
this increase is due to the higher volume of business associated with business
development and marketing costs, collection expenses and data processing costs.
Management continues to focus on improving operating expense efficiencies,
through the use of current banking technologies, outsourcing solutions and human
resource training and development. In the first quarter of 1998, the Bank
implemented its telephone banking service, which provides customers with access
to their account information 24 hours a day, seven days a week, and allows the
customers to initiate certain transactions such as funds transfers. A drive-up
ATM was installed at the East Rome office in the third quarter of 1998.
INTEREST RATE SENSITIVITY
Improvement in the earnings of the Company depends upon continued earning asset
growth, good asset quality and a relatively stable economic environment.
Management feels it is reasonable for the Bank to continue to experience steady
earning asset growth as long as interest rates remain relatively stable. The
Bank is liability sensitive from the three-month to one-year time horizon
(meaning that falling rates tend to be beneficial) and asset sensitive (meaning
that rising rates tend to be beneficial) in the immediately repricing category
and in all time horizons after one year.
The Bank uses a third party, interest rate risk analysis product, which
quantifies the amount of risk to the net interest margin and to the current
market value of equity. It produces a composite analysis of several approaches
including GAP analysis, rate shocks in 100 point increments, up and down 400
basis points and simulation modeling. Based on the most recent analysis, the
Bank was determined to be within tolerance of its interest rate risk policy
limits.
As with any model, many assumptions have to be made about the repricing
attributes of the Bank's assets and liabilities. Where industry experience
seems appropriate, such assumptions are used. Given the extremely competitive
market for the public's investing and savings dollars, the "basis risk", or lack
of correlation between changes in the yields on U.S. Treasury securities and
customer deposit rates, seems to be getting greater. In simpler terms, if the
one-year T-bill falls in yield by 100 basis points, it is quite unlikely that
one-year time deposits will roll down by 100 basis points at maturity.
Management, throughout the banking industry, is continually challenged by the
changing nature of financial services and the investing public's
14
<PAGE>
quest for greater returns. Such uncertainty increases the uncertainty about the
conclusiveness of the interest rate risk models.
YEAR 2000 PROCESSING RISK
The Board and management consider the Year 2000 ("Y2K") computer processing risk
to be a serious risk for all businesses that depend on computer hardware and
software to perform the critical functions of their businesses. Year 2000
computer processing risk is defined as the risk associated with computer
hardware or software that fails to process data or operate in the manner for
which it was designed as a result of century date changes. This risk encompasses
hardware and software owned, leased, licensed or otherwise used (1) by the
Company or (2) by vendors upon which the Company depends for its mission
critical functions or (3) by customers with which the Company has a material
relationship. In the third quarter of 1997, the Board established a Y2K Policy
and Y2K Compliance Committee to address this risk. The Committee is headed by
senior management, meets monthly, and reports monthly to the full Board.
THE COMPANY'S STATE OF READINESS
The Company and Bank do not use proprietary computer hardware or software. (The
Company has no hardware or software dependencies other than through the Bank;
hence, all further corporate references in this section will be to the Bank.)
The Bank depends upon outsourced data processing services, third party software
and PC hardware technology. Management has identified all mission critical
hardware and software applications and is following the general guidelines
promulgated by the Federal Financial Institutions Examination Council ("FFIEC")
to assure that such applications will be renovated, with testing substantially
completed by December 31, 1998, or contingency plans will be in the process of
implementation.
The Bank has replaced all non-compliant hardware and software associated with
the basic operation of its local area networks, wide area network and
workstations and has completed testing and documentation of compliance for these
systems. The Bank has no other mission critical hardware at its facilities,
except for its phone system, which has been tested and documented to be Y2K
ready.
Various software is licensed to the Bank and maintained at its offices. It is
used for new account platforms, teller transactions, network administration,
office administration, ACH settlement reporting, cash letter settlement
reporting, wires, ATM and debit card reporting, accounts receivable financing,
accounts payable and telephone banking. Eleven vendors provide this software and
periodic updates. To date, all versions of this software currently used at the
Bank have been reported by the vendors as Y2K compliant, except for the teller
software. The teller software is expected to be modified to be Y2K ready in the
fourth quarter of 1998. The Bank is in the process of testing and documenting
compliance on its licensed software. The Bank expects to substantially conclude
its testing of licensed software and compliance documentation by December 31,
1998.
The Bank's core processing, which maintains all customer record keeping, general
ledger accounting and financial management information systems, is handled by
Fiserv, Inc., an international data processing company, which specializes in
financial institution data processing and serves 15% of all of the banks, credit
unions and savings institutions in the U.S. Thousands of financial institutions
with over fifty million customer accounts are processed on its systems.
Accordingly, the Bank's expect Fiserv to satisfy all regulatory requirements
imposed upon bank data processors.
The Bank's Fiserv service center has reported that it has concluded its
renovations and has implemented Y2K compliant software. Proxy tests, as defined
by the FFIEC, have been concluded by representative client banks, and Fiserv has
reported that it will deliver independently reviewed reports in the fourth
quarter of 1998 to all of its clients. These reports are to be used for the
purpose of limiting the scope, extent and cost of integrated testing expected to
be performed by individual bank clients, such as the Bank. Members of the
15
<PAGE>
Y2K Committee have attended training conducted by Fiserv for the purpose of
designing integrated test plans and test scripts with Fiserv. Integrated testing
is scheduled to begin on November 12, 1998 and should be substantially completed
by December 31, 1998. Fiserv has reported that it will keep the test environment
available throughout 1999 to allow clients to refine test scripts and trouble-
shoot product interfaces.
Based on the results of tests performed to date by the Bank and representations
from the servicing vendors, substantially all of the Bank's mission critical
hardware and software applications are Y2K ready. The Bank expects to conclude
its integrated testing and compliance documentation in the first quarter of 1999
to validate that these solutions work in the Bank's operating environment.
Management has completed its assessment of the Bank's significant commercial
loan relationships to determine how much Y2K risk may exist in the Bank's
customer base. To the extent that such risk has been identified, management is
requiring those customers to keep the Bank informed of their progress.
Management's current plans are to help the Bank's customers understand the risks
involved, to share the Bank's strategies and to encourage those customers to
satisfy their compliance requirements on time lines that are consistent with
those of the Bank. The Bank's loan agreements and credit review processes have
been modified to address this risk. The Bank's contingency plans for customers
who fail to adequately address this risk may include, but will not be limited
to, requiring such customers to pay off their loans.
Other third parties, with which the Bank has material relationships that may be
adversely impacted by Y2K risks, include its correspondent banks and the utility
companies.
The Bank's primary correspondent bank provides numerous services, including cash
letter settlements, federal funds sold and purchase lines, securities
safekeeping services, securities settlements, wire settlements, ACH settlements,
and ATM/debit card settlements. The Federal Home Loan Bank of Atlanta provides
overnight investments and secured term financing. Two other correspondent banks
provide federal funds sold and purchase lines. The Bank has received limited
communications from these correspondent banks regarding their Y2K efforts. In
the first quarter of 1999, more explicit communications will be requested as to
their current state of readiness, their remediation plans and their contingency
plans.
The Bank's electric, gas, phone, water and sewer utility companies have provided
limited information on their Y2K efforts. The electric, gas and phone vendors
have indicated that they have assessed their systems and have plans for
renovation, but no target dates have been provided and no information is
available yet, as to the success of their efforts or completion status. The
Bank is continuing to request further information from the utilities.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The resource commitments and costs of implementing Y2K solutions on mission
critical systems are currently estimated to be approximately $118,000.
Approximately $94,000 of this will be incurred in 1998 with the balance incurred
in 1999. At this time, the costs of implementing Y2K solutions on mission
critical hardware and software are not expected to have a material impact on the
results of operations.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
There can be no assurances that all hardware and software that the Bank will
use, or that the Bank's customers, other vendors and utility companies will use,
will be Year 2000 compliant. The Bank's customers, other vendors and utility
companies may be negatively affected by the Year 2000 issue, and any
difficulties incurred by them in solving Year 2000 issues could negatively
affect their ability to perform their agreements with the Bank.
16
<PAGE>
Currently, the most reasonably likely worst case Year 2000 scenario for the Bank
appears to be one in which electrical service or phone service were disrupted to
the community for an extended period. As noted above, the management of the risk
associated with the Bank's computer hardware and software, its commercial
customer risk and its correspondent bank risk is progressing as planned. The
most likely source of problems currently appears to be with the utility
companies, whose communications have been vague. Electrical service is the most
critical of the utilities. While the Bank cannot operate its systems without a
continuous supply of electricity, short-term disruptions, such as occur with
electrical storms, can be managed in the ordinary course of business.
Even if the Bank does not incur significant direct costs in connection with
responding to the Year 2000 issue, there can be no assurance that the failure or
delay of the Bank's customers, vendors or other third parties in addressing the
Year 2000 issue or the costs involved in such process will not have a material
adverse effect on the Bank's business, financial condition and results of
operations.
THE COMPANY'S CONTINGENCY PLANS
The Board of Directors has approved a Disaster Recovery Policy and a Y2K
Contingency Plan (collectively, the "Plans"). The Disaster Recovery Policy is
designed to achieve a level of emergency preparedness that is broad in its
scope, encompassing the risk of loss or business disruption resulting from
unexpected events ranging from equipment failure to natural disasters. It is
designed to: enable management continuity, designate alternative facilities,
provide for alternative administrative, communication and data processing
support, establish policies for data backup, record retention and retrieval,
reinforce security policies, require reasonable levels of insurance, reinforce
financial risk management policies, and establish organizational responsibility.
The Y2K Contingency Plan is limited in scope to the Bank's computer hardware and
software alternatives in the event that the Y2K efforts do not meet time-line
expectations. Management believes that the Plans provide adequate guidance for
most emergency circumstances that might be reasonably expected for the Bank's
geographic location. These Plans do not encompass the loss of utility services
at both locations of the Bank, and currently may not be adequate in the event of
an extended power disruption at both locations.
As noted above, the Bank will attempt to obtain more information on the
readiness of the utilities in order to reduce the degree of uncertainty
surrounding the utility risk. To the extent that economically feasible
contingency plans for utility failures can be determined, management will
incorporate such plans in the Bank's policies.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material, pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Pursuant to Rule 14a-4(c)(1) promulgated under the Securities Exchange Act of
1934, as amended, shareholders desiring to present a proposal for consideration
at the Company's 1999 Annual Meeting of Shareholders must notify the Company in
writing at its principal office at 1490 Martha Berry Blvd., Rome, Georgia 30165,
of the contents of such proposal no later February 24, 1999. Failure to timely
submit such a proposal will enable the proxies appointed by management to
exercise their discretionary voting authority when the proposal is raised at the
Annual meeting of Shareholders without any discussion of the matter in the proxy
statement.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
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).
18
<PAGE>
4.2 Form of Stock Certificate (Incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement No. 33-82858 on Form SB-2).
10.1 *Employment Agreement between the Company and Thomas D. Caldwell, III
dated September 1, 1997. (Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1997).
10.2 *Greater Rome Bancshares, Inc. 1996 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.12 of the Company's Annual Report on Form 10-KSB
for the year-ended December 31, 1995).
10.3 *Form of Incentive Stock Option Agreement (Incorporated by reference to
Exhibit 10.13 of the Company's Annual Report on Form 10-KSB for the year-
ended December 31, 1996).
10.4 *Form of Stock Option Award to Non-employee Directors (Incorporated by
reference to Appendix A to the Company's Proxy Statement for the 1997
Annual Meeting of the Shareholders held May 15, 1997).
10.5 *Employment Agreement between the Company and E. Grey Winstead, III dated
September 1, 1997. (Incorporated by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-QSB for the quarter ended September
30, 1997).
27.1 Financial Data Schedule (for S.E.C. use only).
- ---------
* Indicates a management contract or compensatory arrangement.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
Date: November 2, 1998 By: /s/ Thomas D. Caldwell, III
---------------------------
Thomas D. Caldwell, III
President, Chief Executive Officer
By: /s/ E. Grey Winstead, III
---------------------------
E. Grey Winstead, III
Principal Financial and Accounting Officer
20
<PAGE>
GREATER ROME BANCSHARES, INC.
Form 10-QSB for the quarterly period ended September 30, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page
- ----- ---------------------------------------------------------------------------------------- ----------
<S> <C> <C>
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). N/A
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement
No. 33-82858 on Form SB-2). N/A
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). N/A
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). N/A
10.1 *Employment Agreement between the Company and Thomas D. Caldwell, III dated
September 1, 1997. (Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997). N/A
10.2 *Greater Rome Bancshares, Inc. 1996 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.12 of the Company's Annual Report on Form 10-KSB for
the year-ended December 31, 1995). N/A
10.3 *Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.13
of the Company's Annual Report on Form 10-KSB for the year-ended December 31, 1996). N/A
10.4 *Form of Stock Option Award to Non-employee Directors (Incorporated by reference to
Appendix A to the Company's Proxy Statement for the 1997 Annual Meeting of the
Shareholders held May 15, 1997). N/A
10.5 *Employment Agreement between the Company and E. Grey Winstead, III dated
September 1, 1997. (Incorporated by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997). N/A
27.1 Financial Data Schedule (for S.E.C. use only).
- ----------
* Indicates a management contract or compensatory arrangement.
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,078,192
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,296,119
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,867,260
<INVESTMENTS-CARRYING> 6,861,066
<INVESTMENTS-MARKET> 0
<LOANS> 40,091,150
<ALLOWANCE> (609,977)
<TOTAL-ASSETS> 58,056,482
<DEPOSITS> 46,084,328
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 346,522
<LONG-TERM> 4,000,000
7,004
0
<COMMON> 0
<OTHER-SE> 6,618,628
<TOTAL-LIABILITIES-AND-EQUITY> 58,056,482
<INTEREST-LOAN> 2,648,297
<INTEREST-INVEST> 464,684
<INTEREST-OTHER> 118,442
<INTEREST-TOTAL> 3,231,423
<INTEREST-DEPOSIT> 1,378,906
<INTEREST-EXPENSE> 175,941
<INTEREST-INCOME-NET> 1,676,576
<LOAN-LOSSES> 176,640
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,415,413
<INCOME-PRETAX> 280,107
<INCOME-PRE-EXTRAORDINARY> 280,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190,368
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 4.63
<LOANS-NON> 31,951
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 480,544
<CHARGE-OFFS> 63,818
<RECOVERIES> 16,611
<ALLOWANCE-CLOSE> 609,977
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 609,977
</TABLE>
