<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, 1997
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. $2,997,083
----------
The aggregate market value of the voting stock as of March 27, 1998, held by
non-affiliates computed by reference to the price at which the stock was sold is
$5,371,498.
Seven hundred thousand (700,000) shares of the issuer's common stock were issued
and outstanding as of March 27, 1998.
Portions of the following documents are incorporated by reference: (1) 1997
Annual Report to Shareholders, into Part II; (2) Proxy Statement (the "Proxy
Statement") for the Annual Meeting of Shareholders to be held May 14, 1998, into
Part III.
Transitional Small Business Disclosure Format (check one). Yes No X
--- ---
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<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. The Company acquired the Bank
on February 26, 1996 and the Bank opened for business on the same date. The
Bank is chartered under the laws of the State of Georgia and engages in the
commercial banking business from a main office location in Rome Georgia with
deposits insured by the Federal Deposit Insurance Corporation ("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, and 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 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 through 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 on 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) is a publicly owned hospital. Redmond
Regional Medical Center, a proprietary care hospital, completed a $30 million
expansion in 1996. Northwest Georgia Regional Hospital is a State of Georgia
Public Hospital operated primarily as a mental and tubercular treatment center.
The Harbin Clinic is a proprietary care outpatient clinic, which completed a $10
million expansion in December 1995. The remaining jobs in health care are
support staff for the 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; Inland-Rome Corporation; Lindale Mills; Galey & Lord;
Container Corporation of America; WADA Metals;
2
<PAGE>
Oglethorpe Power Co.; Georgia Power Co.; Katsushiro of Rome and Hopton
Technologies. An 80 room Hampton Inn opened in 1996. A new Best Western was
opened in the summer of 1997. An article appearing 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 intended to be 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
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.
3
<PAGE>
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 up to 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 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 1997, the Bank began originating one-to-four family residential real estate
loans for sale into the secondary market. This provides long term home
financing for qualified customers and generates origination fee income to the
Bank. The Bank limits 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 closing 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 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
4
<PAGE>
of the Bank's commercial loans are 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 exceed 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 authority 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 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 Department of Banking and Finance
("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 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 recent 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 3.0% per year from June
1993 to June 1997 and was 6.5% from June 1996 to June 1997. 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, which the Bank does not expect to provide in the
foreseeable future. As a result of
5
<PAGE>
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 can 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 23 equivalent full-time employees on December 31, 1997. 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 three officers,
Thomas D. Caldwell, III, President and Chief Executive Officer, Robert L. Berry,
Secretary, and E. Grey Winstead, III, Chief Financial Officer and Principal
Accounting Officer.
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. Information for 1996 reflects 10 full months of bank
operations.
I. Distribution of Assets, Liabilities, and Stockholders Equity; Interest Rates
and Interest Differential
<TABLE>
<CAPTION>
1997 1996 1997 1996 1997 1996
Average Average Income/ Income/ Yield Yield
Balance Balance (Expense) (Expense) (Rate Paid) (Rate Paid)
------- ------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 22,517,410 6,035,929 2,255,079 605,126 10.01% 10.03%
Taxable investment securities 7,791,229 4,502,533 482,641 280,826 6.19% 6.24%
Federal funds sold 1,858,945 3,326,058 100,499 175,449 5.41% 5.27%
--------------------------------------------------------------------------------
Average earning assets $ 32,167,584 13,864,520 2,838,219 1,061,401 8.82% 7.66%
--------------------------------------------------------------------------------
Cash & due from banks 872,616 448,566
Fixed assets 2,274,665 971,300
Other assets 317,356 168,702
-----------------------------
Average total assets $ 35,632,221 15,453,088
-----------------------------
Interest bearing demand deposits 2,810,804 1,068,875 (55,224) (26,066) -1.96% -2.44%
Savings and money market deposits 4,424,565 2,076,121 (160,563) (75,701) -3.63% -3.65%
Time deposits 16,518,978 3,902,904 (963,689) (211,831) -5.83% -5.43%
Borrowed funds 1,367,814 475 (79,841) (26) -5.84% -5.47%
--------------------------------------------------------------------------------
Average interest bearing liabilities $ 25,122,161 7,048,375 (1,259,317) (313,624) -5.01% -4.45%
--------------------------------------------------------------------------------
Non-interest bearing deposits 3,733,515 1,723,249
Other liabilities 158,381 103,562
Stockholders' equity 6,320,840 6,577,902
-----------------------------
Average total liabilities and equity $ 35,334,897 15,453,088
-----------------------------
Net interest income yield on --------------------------------------------------------------------------------
average earning assets $ 32,167,584 13,864,520 1,578,902 747,777 4.91% 5.39%
--------------------------------------------------------------------------------
</TABLE>
Notes:
1 Non-accruing loans are included in the average balances. Average non-accruing
loans were $38,547 in 1997 and were less than $1,000 in 1996.
2 Loan fees are included in the interest income computation and were $123,908
in 1997 and $33,163 in 1996.
<PAGE>
STATISTICAL INFORMATION, continued
The following table sets forth a summary of the changes in interest income and
interest expense resulting from changes in volume and rates from 1996 to 1997.
<TABLE>
<CAPTION>
Increase/(Decrease)
--------------------------------------------
Net Due to Due to
Change Rate (1) Volume (1)
------ -------- ----------
<S> <C> <C> <C>
Interest Earning Assets
Loans $ 1,649,953 (639) 1,650,592
Taxable investment securities 201,815 (1,922) 203,737
Federal funds sold (74,950) 4,263 (79,213)
--------------------------------------------
Total Interest Income 1,776,818 1,702 1,775,116
--------------------------------------------
Interest Bearing Liabilities
Interest bearing demand deposits 29,158 (5,945) 35,103
Savings and money market deposits 84,862 (362) 85,224
Time deposits 751,858 17,018 734,840
Borrowed funds 79,815 2 79,813
--------------------------------------------
Total Interest Expense 945,693 10,713 934,980
--------------------------------------------
Net Interest Income $ 831,125 (9,011) 840,136
============================================
</TABLE>
(1) The changes in interest income and expense not due solely to rate or
volume have been allocated proportionately to the rate and volume amounts
calculated before allocation.
II. Investment Portfolio
Refer to note (2) Investment Securities of the Notes to Consolidated
Financial Statements included in the 1997 Annual Report, which is
incorporated herein by reference.
The weighted average yield of investment securities maturing in one year
or less as of December 31, 1997 was 6.24%. The weighted average yield of
investment securities maturing from one to five years as of December 31,
1997 was 6.14%.
<PAGE>
STATISTICAL INFORMATION, continued
III. Loan Portfolio
<TABLE>
<CAPTION>
12/31/97 12/31/96
Loan types Balance Balance
---------- ------- -------
<S> <C> <C>
Commercial $ 7,527,458 $ 4,155,632
Real estate -- construction 475,431 355,635
Real estate -- mortgage 14,976,035 5,112,913
Consumer loans 7,310,351 3,656,887
--------------- -----------------
Total $ 30,289,275 $ 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 $ 2,065,322 1,520,142 2,166,220 1,775,774 - -
Real estate -- construction 342,560 99,423 33,448 - - -
Real estate -- mortgage 1,930,104 1,326,214 10,763,936 935,781 - -
Consumer loans 3,057,303 301,070 3,747,653 143,563 49,957 -
-----------------------------------------------------------------------------------------------
Total $ 7,395,289 3,246,849 16,711,257 2,855,118 49,957 -
===============================================================================================
</TABLE>
The maturity distribution is less than the total at year end by the amount
of non-accrual loans totaling $30,805.
<TABLE>
<CAPTION>
Risk Elements 12/31/97 12/31/96
------------- Balance Balance
-------- --------
Nonaccrual, Past Due and Restructured Loans
-------------------------------------------
<S> <C> <C>
Non-accrual loans $ 30,805 $ 1,781
Accruing loans contractually past due 90 days or more $ - $ -
Troubled debt restructurings $ - $ -
</TABLE>
The amount of interest that would have been included in income on the
above nonaccrual loans if they had been current in accordance with their
original terms was $63 in 1996 and $1,127 in 1997. The amount of interest
that was included in interest on the above loans was $57 in 1996 and
$1,994 in 1997.
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.
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.
<PAGE>
<TABLE>
<CAPTION>
STATISTICAL INFORMATION, continued
IV. Summary of Loan Loss Experience
12/31/97 12/31/96
-------- --------
<S> <C> <C>
Allowance for possible loan losses at the beginning of the year $ 133,342 $ -
Charge-offs:
Commercial - -
Real estate - construction - -
Real estate - mortgage - -
Consumer loans 87,254 658
----------------- ----------------
Total 87,254 658
----------------- ----------------
Recoveries:
Commercial - -
Real estate - construction - -
Real estate - mortgage - -
Consumer loans 762 -
----------------- ----------------
Total 762 -
----------------- ----------------
Net charge-offs: 86,492 658
Additions charged to operations 433,694 134,000
----------------- ----------------
Balance at end of year $ 480,544 $ 133,342
================= ================
Average loans outstanding, net of unearned income $ 22,517,410 $ 6,035,929
================= ================
Ratio of net charge-offs during the period to average loans
outstanding during the period 0.38% 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 second year of operations, it does not have a sufficient history
of portfolio performance on which to base additions. 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
1.46% (national peer) and 1.45% (Georgia). 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.
<PAGE>
STATISTICAL INFORMATION, continued
V. Deposits
<TABLE>
<CAPTION>
Average Average Average Average
Balance Balance Rate Rate
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 3,733,515 1,723,249
Interest bearing demand deposits 2,810,804 1,068,875 1.96% 2.44%
Savings and money market deposits 4,424,565 2,076,121 3.63% 3.65%
Time deposits 16,518,978 3,902,904 5.83% 5.43%
-----------------------------------------------------------
Total average deposits $ 27,487,862 8,771,149 4.29% 3.58%
===========================================================
</TABLE>
As of December 31, 1997 the amount outstanding of time certificates of
deposit of $100,000 or more was $5,583,231. Amounts by time remaining
until maturity on time deposits of $100,000 or more were:
3 months or less $ 577,264
over 3 through 6 months 932,050
over 6 through 12 months 3,264,591
over 12 months 809,326
------------------
$ 5,583,231
==================
VI. Return on Equity and Assets
1997 1996
---- ----
Return on average assets 0.12% -2.57%
Return on average equity 0.66% -6.03%
Dividend payout ratio 0.00% 0.00%
Average equity to average asset ratio 17.74% 42.57%
<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, if
applicable, 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 had 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 response to the Interstate Banking Act, the Georgia General Assembly adopted
the Georgia Interstate Banking Act, which was effective on July 1, 1995. The
Georgia Interstate Banking Act provides that (a) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (b) interstate acquisitions of institutions
located in Georgia will be permitted by institutions in states that allow
national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia Assembly adopted the Georgia
Interstate Branching Act which permits 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
12
<PAGE>
banks to establish de novo branches on a limited basis as of July 1, 1996.
Beginning July 1, 1998, the number of de novo branches which may be established
will no longer be limited.
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, 1997, 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, 1997, 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 21.4% and 20.1%,
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, 1997 was 15.1%. 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, 1997. 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' methodology for evaluating
interest rate risk requires banks with excessive interest rate risk exposure to
hold additional amounts of capital against such exposures. The market risk
rules 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.
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
15
<PAGE>
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.
At December 31, 1997, the Bank had the requisite capital levels to qualify as
well capitalized.
FDIC Insurance Assessments
Pursuant to FDICIA, the FDIC adopted a 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 system
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
16
<PAGE>
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 risk-based assessment 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 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
in 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, 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 has implemented 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 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 Financing Corporation ("FICO") assessments. Effective
January 1, 1997, assessments to help pay off the $780 million in annual interest
payments on the $8 billion FICO bonds issued in the late 1980's as part of the
government rescue of the thrift industry were 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 at 2.43 basis points.
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.
17
<PAGE>
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that 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-through tellers, six
stand up teller positions, and a security vault with safe deposit boxes. The
Bank owns the 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 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.
In November 1997, the Bank received regulatory approval to build a 1,820 square
foot branch banking office on the site. The estimated cost of the site work, the
building, furniture, fixtures and equipment is $360,000. Bids have been
accepted on $298,000 of this amount. Approximately $62,000 in furniture,
fixtures and computer equipment remains to be contracted. The Branch is
expected to be completed and operational in the second quarter of 1998.
The street address of the Branch is 800 East Second Ave. After evaluating the
market potential for this area known as East Rome, management decided that a
Branch was necessary to service banking customers who consider our current
location to be inconvenient. Financial projections for the new Branch show that
it will not contribute to earnings until 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 1997 Annual Report is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
- ---------------------
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 1997 Annual
Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The consolidated balance sheets of the Company as of December 31, 1997 and 1996,
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 three years in the period ended December 31, 1997, and the report
issued thereon by the Company's independent public accountants, which appear in
the 1997 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).
10.1 *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).
13.1 1997 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1
of the Company's Annual Report on Form 10-KSB for the year ended December
31, 1996).
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, 1997.
20
<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 27, 1998
-----------------------
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 27, 1998
- -------------------------------
Robert L. Berry
/s/ Frank A. Brown, Jr. Director March 27, 1998
- -------------------------------
Frank A. Brown, Jr.
/s/ Thomas D. Caldwell, III Chairman, CEO and President March 27, 1998
- ------------------------------- (Principal Executive Officer)
Thomas D. Caldwell, III
/s/ Gene G. Davidson Director March 27, 1998
- -------------------------------
Gene G. Davidson
/s/ Henry Haskell Perry Director March 27, 1998
- -------------------------------
Henry Haskell Perry
/s/ Bradford Lee Riddle Director March 27, 1998
- -------------------------------
Bradford Lee Riddle
/s/ M. Wayne Robinson Director March 27, 1998
- -------------------------------
M. Wayne Robinson
/s/ Dale G. Smith Director March 27, 1998
- -------------------------------
Dale G. Smith
/s/ Paul E. Smith Director March 27, 1998
- -------------------------------
Paul E. Smith
/s/ W. Fred Talley Director March 27, 1998
- -------------------------------
W. Fred Talley
/s/ Martha Berry Walstad Director March 27, 1998
- -------------------------------
Martha Berry Walstad
/s/ E. Grey Winstead, III (Principal Financial and Accounting March 27, 1998
- ------------------------------- Officer)
E. Grey Winstead, III
</TABLE>
21
<PAGE>
GREATER ROME BANCSHARES, INC.
Form 10-KSB Annual Report for the Fiscal Year ended December 31, 1997
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page
- ------ ----------- ----
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
13.1 1997 Annual Report to Shareholders. N/A
21.1 Subsidiaries of the Registrant (Incorporated by
reference to Exhibit 21.1 of the Company's Annual
Report on Form 10-KSB for the year ended December
31, 1996). N/A
27.1 Financial Data Schedule (for S.E.C. use only). N/A
- -----------------------------------
* Indicates a management contract or compensatory arrangement.
22
<PAGE>
GREATER ROME BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(with Independent Accountants' Report thereon)
<PAGE>
[LOGO OF PORTER KEADLE MOORE, LLP APPEARS HERE]
Porter Keadle Moore, LLP
------------------------
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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 23, 1998
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
------
1997 1996
---- ----
Cash and due from banks $ 1,530,896 764,891
Federal funds sold 1,433,528 4,058,912
---------- ----------
Cash and cash equivalents 2,964,424 4,823,803
Securities available for sale 2,690,808 1,489,375
Securities held to maturity 6,325,869 4,748,925
Loans, net 29,722,423 13,095,601
Premises and equipment, net 2,271,350 2,099,035
Accrued interest receivable 356,295 192,802
Other assets 365,408 59,100
---------- ----------
$ 44,696,577 26,508,641
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 4,414,480 3,006,709
Interest - bearing demand 2,987,988 1,692,466
Savings 4,780,996 3,479,435
Time 15,799,484 8,481,592
Time, over $100,000 5,583,231 3,184,334
---------- ----------
Total deposits 33,566,179 19,844,536
Federal Home Loan Bank borrowings 4,000,000 --
Securities sold under repurchase agreement 500,000 --
Accrued interest payable 76,586 38,515
Other liabilities 130,787 247,633
---------- ----------
Total liabilities 38,273,552 20,130,684
---------- ----------
Commitments (note 13)
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 (518,877) (560,820)
Unrealized gain on securities available for sale 4,785 1,660
---------- ----------
Total stockholders' equity 6,423,025 6,377,957
---------- ----------
$ 44,696,577 26,508,641
========== ==========
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Statements of Operations
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 2,255,079 605,126 --
Interest on federal funds sold and deposits with other banks 100,499 175,449 184,160
Interest and dividends on investments 482,641 280,826 --
--------- --------- -------
Total interest income 2,838,219 1,061,401 184,160
--------- --------- -------
Interest expense:
Interest bearing demand deposits 55,224 26,066 --
Savings deposits 160,563 75,701 --
Time deposits 963,689 211,831 --
Other 79,841 26 34,883
--------- --------- -------
Total interest expense 1,259,317 313,624 34,883
--------- --------- -------
Net interest income 1,578,902 747,777 149,277
Provision for loan losses 433,694 134,000 --
--------- --------- -------
Net interest income after provision for loan losses 1,145,208 613,777 149,277
--------- --------- -------
Other income:
Service charges 97,380 26,254 --
Other 61,484 22,487 --
--------- --------- -------
Total other income 158,864 48,741 --
--------- --------- -------
Other expenses:
Salaries and employee benefits 834,413 544,925 119,865
Occupancy 255,629 167,716 16,448
Other operating 420,370 346,351 120,755
--------- --------- -------
Total other expenses 1,510,412 1,058,992 257,068
--------- --------- -------
Loss before income taxes (206,340) (396,474) (107,791)
--------- --------- -------
Income tax benefit 248,283 -- --
--------- --------- -------
Net earnings (loss) $ 41,943 (396,474) (107,791)
========= ========= =======
Net earnings (loss) per share $ .06 (.57) (.15)
========= ========= =======
Diluted net earnings (loss) per share $ .06 (.57) (.15)
========= ========= =======
</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, 1997, 1996 and 1995
<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>
Balance, December 31, 1994 1 49 (56,555) -- (56,505)
Redemption of organization
shares (1) (49) -- -- (50)
Issuance of 700,000 shares at
$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
Change in unrealized gain
on investment securities -- -- -- 3,125 3,125
available for sale
Net earnings -- -- 41,943 -- 41,943
----- --------- -------- ----- ---------
Balance, December 31, 1997 7,000 6,930,117 (518,877) 4,785 6,423,025
===== ========= ======== ===== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 41,943 (396,474) (107,791)
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation, amortization and accretion 147,050 59,725 4,961
Provision for loan losses 433,694 134,000 --
Provision for deferred income taxes (248,283) -- --
Change in:
Interest receivable (163,493) (192,803) --
Other assets (65,471) (8,034) (9,579)
Interest payable 38,071 38,574 (4,498)
Other liabilities (116,846) 157,994 65,579
=========== =========== ==========
Net cash used by operating activities 66,665 (207,018) (51,328)
----------- ----------- ----------
Cash flows from investing activities:
Proceeds from maturities and calls of securities
available for sale 249,709 500,000 --
Proceeds from maturities and calls of securities
held to maturity 801,890 -- --
Purchases of securities available for sale (1,442,653) (1,986,289) --
Purchases of securities held to maturity (2,377,684) (3,748,672) (1,000,000)
Net increase in loans (17,060,516) (13,229,601) --
Purchases of premises and equipment (318,433) (1,772,659) (169,790)
Organization cost -- -- (2,451)
Deferred offering expense -- -- 49,156
=========== =========== ==========
Net cash used by investing activities (20,147,687) (20,237,221) (1,123,085)
----------- ----------- ----------
Cash flows from financing activities:
Net change in demand and savings deposits 4,004,854 8,178,610 --
Net change in time deposits 9,716,789 11,665,926 --
Federal Home Loan Bank advances 4,000,000 -- --
Securities sold under repurchase agreements 500,000 -- --
Payment of note payable to organizer -- -- (150,739)
Net change in lines of credit -- -- (195,820)
Proceeds from the sale of common stock,
net of offering costs -- -- 6,937,117
Redemption of organization shares -- -- (50)
----------- ----------- ----------
Net cash provided by financing activities 18,221,643 19,844,536 6,590,508
----------- ----------- ----------
Net change in cash and cash equivalents (1,859,379) (599,703) 5,416,095
Cash and cash equivalents at beginning of year 4,823,803 5,423,506 7,411
----------- ----------- ----------
Cash and cash equivalents at end of year $ 2,964,424 4,823,803 5,423,506
=========== =========== ==========
</TABLE>
-6-
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,221,246 275,050 39,529
Non cash investing and financing activities:
Change in unrealized gain on securities available for sale $ 3,125 1,600 -
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<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.
Basis of Presentation and Reclassification
------------------------------------------
The 1997 and 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 financial statements
include the accounts of the Company only, as the Bank did not open for
business until February 26, 1996. Certain 1996 and 1995 amounts have been
reclassified to conform to the 1997 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 on securities
available for sale are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
-8-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Investment Securities, continued
--------------------------------
A decline in the market value of any available for sale or held to
maturity investment below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at the principal amount
outstanding, net of the allowance for loan losses and any deferred fees or
costs on originated loans. Interest on all loans is calculated principally
by using the simple interest method on the daily balance of the principal
amount outstanding.
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 3-7 years
-9-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Future tax benefits, such as net operating loss carryforwards,
are recognized to the extent that realization of such benefits is more
likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which the assets and liabilities are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income tax expense in the period that includes the
enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by such
asset is required. A valuation allowance is provided for the portion of
the deferred tax asset when it is more likely than not that some portion
or all of the deferred tax asset will not be realized. In assessing the
realizability of the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies.
Net 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 year ended
December 31, 1997:
<TABLE>
<CAPTION>
Net Common Per Share
Earnings Share Amount
-------- ----- ------
<S> <C> <C> <C>
Earnings per share $ 41,943 700,000 0.06
Effect of stock options - 5,713 -
------ ------- ----
Diluted earnings per share $ 41,943 705,713 0.06
====== ======= ====
</TABLE>
With regard to 1996, the effect of the stock options would be anti
dilutive. There were no stock options outstanding at December 31, 1995.
There were 700,000 weighted average number of shares outstanding for the
years ending December 31, 1996 and 1995.
Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 130
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. SFAS No. 131 specifies the presentation and disclosure of
operating segment information reported in the annual report and interim
reports issued to stockholders. The provisions of both statements are
effective for fiscal years beginning after December 15, 1997. The
management of the Company believes that the adoption of these statements
will not have a material impact on the Company's financial position,
results of operations, or liquidity.
-10-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(2) Investment Securities
Investment securities at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Securities Held to Maturity December 31, 1997
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 5,865,453 5,292 (14,305) 5,856,440
Mortgage-backed securities 460,416 1,306 (226) 461,496
--------- ----- ------ ---------
$ 6,325,869 6,598 (14,531) 6,317,936
========= ===== ====== =========
<CAPTION>
December 31, 1996
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 4,748,925 6,011 (32,781) 4,722,155
========= ===== ====== =========
<CAPTION>
Securities Available for Sale December 31, 1997
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 2,195,823 5,771 (986) 2,200,608
FHLB Stock 490,200 - - 490,200
--------- ----- ------ ---------
$ 2,686,023 5,771 (986) 2,690,808
========= ===== ====== =========
<CAPTION>
December 31, 1996
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
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>
-11-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
The amortized cost and estimated fair value of investment securities at
December 31, 1997, 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 Estimate Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries
Within 1 year $ 498,776 500,781 -- --
1 to 5 years 1,697,049 1,699,827 -- --
--------- --------- --------- ---------
2,195,825 2,200,608 -- --
--------- --------- --------- ---------
U.S. Government agencies
1 to 5 years -- -- 5,865,453 5,856,440
--------- --------- --------- ---------
-- -- 5,865,453 5,856,440
--------- --------- --------- ---------
Total securities other than mortgage-back securities:
Within 1 year 498,776 500,781 -- --
1 to 5 years 1,697,047 1,699,827 5,865,453 5,856,440
FHLB stock 490,200 490,200 -- --
Mortgage-backed securities -- -- 460,416 461,496
--------- --------- --------- ---------
$ 2,686,023 2,690,808 6,325,869 6,317,936
========= ========= ========= =========
</TABLE>
Investment securities with a fair value of approximately $658,000 as of December
31, 1997, were pledged to secure short term borrowings. FHLB advances were
secured by the FHLB stock with a value of $490,200 in addition to qualifying
first mortgage loans totaling $5,613,148.
-12-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(3) Loans
Major classifications of loans at December 31, 1997 and 1996 are presented
below.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial $ 7,527,458 4,155,632
Real estate - mortgage 14,976,036 5,112,913
Real estate - construction 475,430 355,635
Installment and other consumer 7,310,351 3,656,887
----------- ----------
Total loans 30,289,275 13,281,067
Less: Unearned fees 86,308 52,124
Allowance for loan losses 480,544 133,342
----------- ----------
Total net loans $29,722,423 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 years
ended December 31, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year $ 133,342 --
Provision charged to operations 433,694 134,000
Loans charged off (87,254) (658)
Recoveries 762 --
--------- -------
Balance at end of year $ 480,544 133,342
========= =======
</TABLE>
(4) Premises and Equipment
Premises and equipment at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 524,669 313,438
Land improvements 133,506 115,287
Buildings and improvements 1,268,270 1,254,155
Furniture, fixtures and equipment 482,265 448,153
Construction in progress 5,066 --
--------- ---------
2,413,776 2,131,033
Less: Accumulated depreciation 142,426 31,998
--------- ---------
$2,271,350 2,099,035
========= =========
</TABLE>
Depreciation expense was $146,118 and $49,318 for the years ended December
31, 1997 and 1996, respectively. No depreciation expense was charged to
operations in 1995. During the first quarter of 1998, the Company
commenced construction of a branch which has resulted in contract
commitments of approximately $300,000.
-13-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(5) Time Deposits
The scheduled maturities of time deposits as of December 31, 1997 are as
follows:
1998 $ 17,191,361
1999 2,759,399
2000 1,372,780
2001 59,175
------------
$ 21,382,715
============
(6) Income Taxes
The components of income tax benefit for the year ended December 31, 1997
is as follows:
Currently payable $ -
Deferred tax benefit (30,988)
Change in valuation allowance (217,295)
--------
$ (248,283)
========
The differences between the income tax benefit and the amount computed by
applying the statutory federal income tax rate to the loss before income
taxes for the years ended December 31, 1997, 1996 and 1995 relate
primarily to the benefit of net operating loss carryforwards not
recognized and changes in the valuation allowance.
The following summarizes the sources and expected tax consequences of
future taxable deductions which comprise the net deferred taxes:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred pre-opening expenses $ 54,046 71,574
Allowance for loan losses 159,640 40,795
Operating loss carryforwards 53,951 112,669
Other 1,712 8,483
-------- --------
Total gross deferred tax assets 269,349 233,521
Less valuation allowance -- (217,295)
-------- --------
Net deferred tax assets 269,349 16,226
Deferred tax liability:
Premises and equipment (21,066) (16,226)
-------- --------
Net deferred taxes $ 248,283 --
======== ========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. As of December 31, 1997, based
upon the projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely
than not that the benefits of these deductible differences will be
realized.
At December 31, 1997, the Company had a federal net operating loss
carryforward and state net operating loss carryforward for tax purposes of
approximately $234,000 and $784,000, respectively, which will begin to
expire in 2009 if not previously utilized.
-14-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(7) Lines of Credit
At December 31, 1997 the Bank had advances outstanding from the Federal
Home Loan Bank (FHLB) of Atlanta amounting to $4,000,000. There were no
outstanding amounts outstanding in 1996. The following advances require
monthly interest payments:
<TABLE>
<CAPTION>
Advance Interest Rate Maturity Call Feature
------- ------------- -------- --------------------------------------
<S> <C> <C> <C>
$ 1,000,000 5.93% 7/16/98 -
$ 2,000,000 5.66% 9/24/02 Callable September 24, 1999
$ 1,000,000 5.45% 9/8/00 Callable quarterly after March 8, 1998
</TABLE>
The FHLB advances are secured by the Bank's stock in the FHLB and its 1-4
family first mortgage loans. As of December 31, 1997, the Bank has pledged
$5,613,148 of the portfolio related to the FHLB borrowings. There were no
amounts outstanding in 1996. If called, the advances will be converted
into a three month LIBOR-based floating rate advance at three month LIBOR
flat.
(8) 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, 1997, 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.
(9) 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. Incentive
stock options were granted to employees 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.
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 ten
years from the date of grant.
A summary status of the Company's stock plans as of December 31, 1997 and
1996, and changes during the years, are presented below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding, beginning of year 63,000 $ 10.00 -
Granted during the year 37,000 $ 10.00 63,000 $ 10.00
Forfeited during the year (1,000) $ 10.00 -
====== ======
Outstanding, end of year 99,000 $ 10.00 63,000 $ 10.00
====== ======
Options exercisable at year end 17,200 $ 10.00 - -
====== ======
Weighted average fair value of options
granted during the year $ 3.79 $ 4.12
===== ======
</TABLE>
-15-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(9) Stock Incentive Plan, continued
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 over the vesting period or immediately
if only subject to a service requirement and the award is expected to
vest. The Company has chosen not to adopt the cost recognition principles
of this statement. No compensation expense has been recognized in 1997 or
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 and net earnings per share would have been reduced to the
proforma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net earnings (loss) As reported $ 41,943 (396,474)
Proforma $ (42,649) (557,401)
Earnings (loss) per share As reported $ .06 (.57)
Proforma $ (.06) (.80)
Diluted earnings (loss) per share As reported $ .06 (.57)
Proforma $ (.06) (.79)
</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 1997 and 1996: no dividend yield, a risk
free interest rate of 5% and 6%, respectively, and an expected life of 10
years for both years. For disclosure purposes, the Company immediately
recognized the expense assuming that all awards will vest.
(10) 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. There were no contributions
for the year ended December 31, 1997.
(11) Related Party Transactions
At December 31, 1997 and 1996, deposits from directors, executive officers
and their related interests aggregated approximately $3,999,000 and
$3,622,000, respectively. 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 1997:
Beginning balance $ 308,041
New loans 1,364,348
Repayments (1,122,562)
---------
Ending balance $ 549,827
=========
-16-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(12) 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, 1997, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1997, 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, 1997:
Total Capital
(to Risk Weighted Assets) $ 6,456,000 20.4% $ 2,534,000 8.0% $ 3,167,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $ 6,059,000 19.1% $ 1,267,000 4.0% $ 1,900,000 6.0%
Tier 1 Capital
(to Average Assets) $ 6,059,000 14.3% $ 1,691,000 4.0% $ 2,114,000 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $ 6,177,000 39.3% $ 1,257,000 8.0% $ 1,571,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $ 6,043,000 38.5% $ 628,000 4.0% $ 943,000 6.0%
Tier 1 Capital
(to Average Assets) $ 6,043,000 41.5% $ 583,000 4.0% $ 729,000 5.0%
</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.
-17-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(13) 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, 1997 and 1996.
Approximate
Contract Amount
---------------
1997 1996
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 3,949,000 1,111,000
Standby letters of credit $ 182,000 25,000
Credit card guarantees $ 80,500 -
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.
(14) Supplemental Financial Data
Components of other operating expenses in excess of 1% of total interest
and other income for the years ended December 31, 1997, 1996 and 1995 are
as follows:
1997 1996 1995
---- ---- ----
Professional fees 87,142 55,098 68,207
Advertising and marketing 50,156 64,861 9,346
Processing fees 96,508 71,417 1,021
Supplies 36,156 43,819 10,748
-18-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(15) Greater Rome Bancshares, Inc. (Parent Company Only) Financial Information
Balance Sheets
December 31, 1997 and 1996
Assets
------
1997 1996
---- ----
Cash and cash equivalents $ 75,863 286,582
Securities available for sale 200,844 -
Investment in Bank 6,077,548 6,063,451
Other assets 70,834 27,924
--------- ---------
$ 6,425,089 6,377,957
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 2,064 -
Stockholders' equity 6,423,025 6,377,957
--------- ---------
$ 6,425,089 6,377,957
========= =========
Statements of Operations
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Interest income $ 15,852 15,742 147,703
Interest expense -- -- (34,883)
------ ------- -------
Net interest income 15,852 15,742 112,820
------ ------- -------
Other expenses:
Salaries and employee benefits -- -- 69,863
Occupancy -- 305 12,696
Other operating 31,653 9,319 102,435
------ ------- -------
Total expenses 31,653 9,624 184,994
------ ------- -------
(Loss) earnings before income tax
benefit and undistributed
earnings (loss) of Bank (15,801) 6,118 (72,174)
Income tax benefit 46,072 -- --
------ ------- -------
Earnings (losses) before equity in
undistributed earnings (losses)
of Bank 30,271 6,118 (72,174)
Equity in undistributed earnings
(losses) of Bank 11,672 (402,592) (35,617)
------ ------- -------
Net earnings (loss) $ 41,943 (396,474) (107,791)
====== ======= =======
-19-
<PAGE>
GREATER ROME BANCSHARES, INC.
Notes to Consolidated Financial Statements, continued
(15) Greater Rome Bancshares, Inc. (Parent Company Only) Financial Information,
continued
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 41,943 (396,474) (107,791)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Equity in undistributed earnings (losses) of Bank (11,672) 402,591 35,618
Depreciation and amortization 7,490 7,448 3,805
Other (48,292) (60,489) 31,991
------- ------- ---------
Net cash used in operating activities (10,531) (46,924) (36,377)
------- ------- ---------
Cash flows from investing activities:
Purchase of securities available for sale (200,188) -- --
Infusion of capital into Bank -- -- (6,500,000)
Transfer of premises and equipment to Bank -- -- 207,058
Transfer of organization cost to Bank -- -- 15,750
Deferred offering expenses 49,156
------- ------- ---------
Net cash used in investing activities (200,188) -- (6,228,036)
Cash flows from financing activities:
Payment of note payable - organizer -- -- (150,739)
Net change in lines of credit -- -- (195,820)
Proceeds from the sale of common stock,
net of offering costs -- -- 6,937,117
Redemption of organization shares -- -- (50)
------- ------- ---------
Net cash provided by financing activities -- -- 6,590,508
------- ------- ---------
Net change in cash and cash equivalents (210,719) (46,924) 326,095
Cash and cash equivalents at beginning of period 286,582 333,506 7,411
======= ======= =========
Cash and cash equivalents at end of period $ 75,863 286,582 333,506
======= ======= =========
Noncash investing and financing activities:
Change in unrealized gain on securities available
for sale of Bank $ 2,425 1,660 --
</TABLE>
-20-
<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 682 shareholders. The Company
has not had any unregistered sales of equity securities since its organization
(June 17, 1994).
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FINANCIAL CONDITION
As of December 31, 1997, the Company had concluded twenty-two months of banking
operations with $44.7 million in total assets, up $18.2 million over year-end
1996. Total deposits had increased $13.7 million over year-end 1996 to $33.6
million. Total loans outstanding had increased $16.6 million over year-end 1996
to $29.7 million. The Bank's loan-to-deposit ratio at December 31, 1997 was
90.0%, as compared to 66.7% at year-end 1996. The Bank has continued to benefit
from strong loan demand in the local market, which has produced steady loan
growth over the year. In 1997 deposit growth, although strong, did not keep pace
with loan demand, despite competitively priced deposit products and banking
services.
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 less available and 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. While this policy shift opens up greater
funding flexibility, in the long run the Bank will continue to place primary
funding emphasis on local deposit growth.
Capital
At December 31, 1997, 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 $3.3 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
At December 31, 1997, the Bank's loan-to-asset ratio was 68.1%, up from 50.5% at
year-end 1996. The Bank's net-non-core-fund-dependence ratio was 21.2%, up from
0.3% at year-end 1996. The net-non-core-fund-
<PAGE>
Management's Discussion and Analysis, continued
dependence ratio calculates the percentage of long term earning assets that are
funded by short term borrowed funds and certificates greater than one hundred
thousand dollars after deducting the Bank's short-term investments. Liquidity
management guidelines are established to maintain the loan-to-asset ratio
between 65% and 70% and to maintain the net-non-core-fund-dependence ratio not
to exceed 25%. These ratios are reviewed weekly by the Asset Review Committee
along with projections of funding needs and available funding capacity within
these guidelines. From time to time management will limit new loan development
to assure that liquidity objectives are achieved. As of February 28, 1998 the
Bank's loan-to-asset ratio was 67.2% and the net-non-core-fund-dependence ratio
was 13.7%.
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 1997, loan growth exceeded deposit growth
by $2.9 million. Securities held to maturity increased $1.6 million to $6.3
million, and the securities available for sale increased $1.2 million to $2.7
million. Investment securities were purchased in order to improve the yield on
the Bank's internal liquidity resources. U.S. Treasury and government agency
securities with final maturities under five years were purchased with yields 75
to 100 basis points greater than Federal funds sold at the time of purchase. At
December 31, 1997, the average life of the Bank's security portfolio was 2.8
years with an average yield of 6.22%. All of the Bank's investment securities
are available as collateral for borrowings under either repurchase agreements
with its correspondent banks or advances from the Federal Home Loan Bank
("FHLB").
During 1997, the Bank borrowed $4 million from the FHLB of Atlanta to improve
its cost of funds and to reduce its interest rate risk exposure. One million
dollars were borrowed at a fixed rate of 5.93% for one year maturing in July of
1998. Two million dollars were borrowed at a fixed rate of 5.66% for five years
maturing in September 2002, with a one-time call option in September 1999. One
million dollars were borrowed at a fixed rate of 5.45% for almost three years,
with a quarterly call option beginning March 8, 1998. These borrowings are
secured by first mortgage real estate loans and the Bank's stock in the FHLB.
The callable advances, if called, will be converted into three-month LIBOR-based
floating rate advances at three month LIBOR flat, or the Bank may pay out the
advances. In comparison, at the time these advances were received, the Bank
paid more than 6.0% for one-year time deposits in the local market and more than
6.2% for two year time deposits in the local market. The Bank's interest rate
risk is reduced with this longer term, fixed rate funding. The Bank has over
$8.3 million in loans, which reprice from three to five years beyond December
31, 1997.
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 year end the funds available for liquidity purposes
consisted of $7.9 million in securities (eligible for sale under repurchase
agreements) plus Federal funds sold of $1.4 million, for a total of $9.3
million. At year end, investment securities with a fair value of approximately
$658,000 were pledged to secure $500 thousand in short term borrowings and the
FHLB stock with a value of $490,200 was pledged as security against the $4.0
million in FHLB advances.
Under the 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 using its
securities portfolio as collateral, instead of being forced to sell the
securities and recognize gains or losses as a result of the sale. In addition
to these sources of funds, the Bank has unsecured Federal funds purchase lines
of credit totaling $3.0 million, all of which were available at December 31,
1997. The correspondent banks may revoke these lines at any time.
Given the potential need to use its securities to raise liquidity, the Bank's
current investment practices limit securities to final maturities not exceeding
five years from the date of purchase and to U.S. Treasuries and triple A rated
government agency securities.
<PAGE>
Management's Discussion and Analysis, continued
The Bank became a member of the Federal Home Loan Bank of Atlanta in June of
1997. FHLB membership provides an additional source of liquidity through credit
programs, which can provide term funding for up to 10 years and, in certain
qualified programs, up to 20 years. The Bank's first mortgage loans are
assigned as collateral for such financing. The Bank has $6.1 million in
eligible residential first mortgage loans that have been assigned to the FHLB.
These loans provide approximately $4.9 million in lendable value, $4 million of
which is already used. The Bank also has $6.7 million in commercial first
mortgage loans that may qualify as collateral for advances with the FHLB.
As of December 31, 1997, the Bank had unfunded loan commitments, primarily on
commercial lines of credit, totaling $4.2 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.
RESULTS OF OPERATIONS
The Company had net income of $41,943 ($0.06 per share) for 1997 as compared to
a net loss of $396,474 ($0.57 per share) for 1996. 1997 had 12 full months of
banking operations, whereas 1996 had only 10 full months. The Bank opened for
business on February 26, 1996.
Net interest income increased $831,125 in 1997 to $1,578,902. This was due to
the increase in average earning assets from $13.9 million for 1996 to $32.2
million for 1997 and the improvement in the average earning asset mix. For
1997, average loans comprised 70% of average earning assets. For 1996, average
loans were only 44% of average earning assets. The high growth rate in earning
assets and the significant improvement in earning asset mix are primarily due to
the fact that the Bank opened for business on February 26, 1996. Prior to that
date the Bank had no loans and no deposits. The net yield on average earning
assets, before the provision for loan losses, was 4.91% for 1997. This compares
to 5.39% for 1996. The higher yield for 1996 was primarily due to the lower
funding cost associated with 54% of average assets being funded by the Bank's
capital and non-interest bearing deposits. For 1997, 29% of average assets were
funded by capital and non-interest bearing deposits.
The provision for loan losses was $433,694 for 1997, up $299,694 from 1996.
This increase was due to the growth in the Bank's loan portfolio and
management's desire to have the allowance for loan losses at least at 1.50% of
total loans by year-end. At December 31, 1997 the allowance for loan losses was
$480,544 representing 1.59% of total loans. At year-end 1996, the allowance was
$133,342, which was 1.00% of total loans. Total loans charged off, net of
recoveries, for 1997 were $86,492 (0.38% of average loans outstanding) and were
all consumer loans. At December 31, 1997, the Bank had three loans totaling
$30,805 in non-accrual status. Other than non-accrual loans, no loans were in
a past-due status more than 90 days. The Bank had no troubled debt
restructurings. Total loans charged off in 1996 were $658 and were all consumer
loans. At December 31, 1996, the Bank had non-accrual loans totaling $1,781, no
loans past-due more than 90 days and no troubled debt restructurings.
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. Since the Bank has just
concluded twenty-two months of operations, it does not have sufficient history
in its portfolio performance on which to base additions. Accordingly, additions
to the reserve are primarily based on achieving a targeted ratio for the
allowance for loan losses to total loans of at least 1.50% by the end of 1997.
This target is based on national peer group ratios and Georgia banking industry
ratios. Under this methodology, charge-offs will increase the amount of
additions to the allowance and recoveries will reduce additions.
In addition, management performs an on-going loan review process. All new loans
are risk rated under loan policy
<PAGE>
Management's Discussion and Analysis, continued
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 to the Asset Review
Committee each week. 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.
Until historical trends begin to indicate potential losses that are inconsistent
with our current risk evaluation assumptions in the loan portfolio, management
expects the allowance for loan losses to be maintained at approximately 1.50% of
total loans.
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.
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 current
allowance adequate to cover potential losses in the loan portfolio.
Non-interest income for 1997 was $158,864 up $110,123 or 226% from 1996.
Service charges on deposit accounts increased $71,126 or 271% to $97,380.
Mortgage origination fees were $23,374. In 1997 the Bank expanded its
residential real estate lending program to include mortgage loan programs
available through the secondary mortgage markets. This expands the availability
of longer-term mortgage financing for our qualified customers and produces loan
origination fee income for the Bank. Credit life and disability insurance
income increased $7,967 or 58% to $21,631. The growth of non-interest income
for 1997 over 1996 was also due to the fact that 1996 had only 10 months of
banking operations. 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 is sold primarily on consumer installment debt and
should continue to grow with the growth in the Bank's consumer loan portfolio.
The mortgage origination fee income is less stable than the other service
income. It will tend to diminish with rising interest rates and can also be
reduced by competition from mortgage sources which are not local and may in fact
come from any part of the country due to the widespread nature of the secondary
mortgage markets in this country.
Non-interest expenses increased $451,420 or 43% to $1,510,412 for 1997 over
1996. Average earning assets for 1997 increased $18.3 million or 132% to $32.2
million over 1996. The Bank's operating efficiencies continue to improve.
Salaries and benefits for 1997 increased 289,488 or 53% to $834,413 over 1996.
This is due primarily to the growth in the number of full-time-equivalent
employees from 14 in the first quarter of 1996 to 23 in the fourth quarter of
1997. Occupancy costs for 1997 increased by $87,913 or 52% to $255,629 over
1996. In the fourth quarter of 1996, the Bank moved from modular office units,
containing 2,600 square feet of leased office space and leased furniture, to its
newly constructed bank building containing 9,000 square feet of office space as
well as purchased furniture, fixtures and equipment. Other operating expenses
increased in 1997 by $74,019 or 21% to $420,370. 1997 included expenses for a
full twelve months necessary to the operations of an established bank, such as
data processing services, business development and marketing expenses,
professional fees, postage and communications costs. The same period in 1996
included banking operations for ten months, as the Bank was just becoming
operational. The Bank's average earning asset growth in 1997 of 132% was over
six times the growth rate of other operating expenses at 21%. Management
continues to focus on improving operating expense efficiencies, through the use
of current banking technologies, out-sourcing solutions and human resource
training and development.
<PAGE>
Management's Discussion and Analysis, continued
As of December 31, 1997, the Bank had experienced six months of positive
earnings that were consistently improving. The prospects for continued earnings
improvement on a month to month basis appears good, subject to a stable economic
environment and no significant deterioration of asset quality. Until 1997, the
Company had fully reserved for the deferred tax assets created primarily by net
operating losses and provisions for loan losses in excess of those allowed for
tax purposes. Management evaluated the likelihood of realizing its deferred tax
assets as of December 31, 1997, in accordance with FAS 109, and determined that
it was more likely than not that the benefits of its deferred tax assets would
be realized and that a valuation allowance would be inappropriate. Accordingly
an income tax benefit of $248,283 was recognized in the fourth quarter of 1997.
The Company's net loss before income tax benefits in 1997 includes provisions
for loan losses that are in excess of net charge-offs by $347,202. This amount
is not deductible in the current year for tax purposes. Eliminating this amount
from the reported loss before income taxes produces a taxable income amount,
before net operating losses and other timing differences, of approximately
$140,000. At this rate of taxable earnings, the net deferred tax assets as of
December 31, 1997 would be realized in less than six years. The net operating
loss carryforwards begin to expire in 2010.
Management chose to book provisions for loan losses well in excess of current
charge offs in order to achieve a target allowance for loan loss to total loans
ratio of 1.50% by December 31, 1997. The ratio of the 1997 provision to 1997
net charge-offs was five to one. Future provisions for loan losses in relation
to actual net charge-offs will be much lower, as long as asset quality is
sustained. Income for financial and tax reporting purposes should both
continue to increase and the difference between income reported for financial
and tax purposes should be reduced in future years.
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 out to the 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 long term. If interest rates were to rise
in excess of 200 basis points, the Bank could experience reduced earnings in the
near term, and 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 increase in net interest margin but may have
difficulty retaining maturing certificates of deposit without having to pay
above market rates.
The Asset/Liability Committee monitors the Bank's exposure to interest rate risk
on a quarterly basis. As of its most recent review, the effect of an immediate
and simultaneous change in interest rates, either up or down by 200 basis
points, was estimated to have less than a 10% impact on current net interest
income over the next twelve months. This estimate assumes that all repricing
assets and liabilities will be replaced by similar term instruments.
Year 2000 Processing Risk
The Board and management consider the Year 2000 ("Y2K") computer processing risk
to be a very serious risk for the banking and financial services industry in
particular and for all businesses which depend on computer hardware and software
to perform the critical functions of their businesses. In the third quarter of
1997, the Board established a Y2K Policy and Y2K Compliance Committee. The
Committee is headed by senior management, meets monthly and regularly reports to
the Audit and Compliance Committee of the Board and to the full Board.
The Company and Bank do not use proprietary computer hardware or software.
Therefore, they depend upon outsourced data processing services and third party
software. Management has identified all mission critical
<PAGE>
Management's Discussion and Analysis, continued
hardware and software applications and is following the general guidelines
promulgated by the FDIC to assure that all mission critical applications will be
renovated, with testing in progress, by December 31, 1998, or contingency plans
will be in the process of implementation. At this time, the servicing vendors
appear to have completed their assessments and have described to the Bank their
time lines for renovation and testing. Management has no reason to believe at
this time, that all mission critical applications for the Bank and Company will
not be adequately addressed by our vendors' plans.
The Bank's core processing, which maintains all customer record keeping 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 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,
Fiserv must satisfy all regulatory requirements imposed upon bank data
processors. The Bank's Fiserv service center has reported that it will begin
testing its program renovations in June of 1998.
Management is currently reviewing all 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 is identified, management will request such
customers to develop their own compliance strategy and will require those
customers to keep us 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 are being 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.
The costs of implementing Y2K solutions on mission critical systems have not
been fully determined as of the date of this report. The Bank's local area
computer network was already budgeted for upgrade in 1998 to workstations and
file-servers that will be Y2K ready. The budget for these upgrades is
approximately $30,000. Management expects that some of our mission critical
processing vendors will charge the Bank for conducting tests on renovated
systems. While management has requested that these vendors provide estimates of
any renovation or testing charges, none have been provided to date, citing that
such charges, if any, have not yet been determined. The Bank's core application
processor, Fiserv, has told us that we will not be charged for renovation work,
however, testing charges may be assessed.
<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 President of Northwest Georgia Internal
Medicine Associates, P.C. Medicine 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
Accountant, Whittington, McLemore, Land, Accountant, Whittington, McLemore, Land,
Davis, White and Givens, P.C. Davis, White and Givens, P.C.
(public accounting) (public accounting)
Paul E. Smith Paul E. Smith
Representative, District 12, Georgia Representative, District 12, Georgia
Legislature 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
Partner, Lake Toccoa Development Company Partner, Lake Toccoa Development Company
(real estate development and management) (real estate development and management)
</TABLE>
27
<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)
Robert L. Berry E. Grey Winstead, III
Corporate Secretary Senior Vice President
Partner of Brinson, Askew, Berry, Seigler, Chief Financial Officer
Richardson & Davis Corporate Secretary
(attorneys)
E. Grey Winstead, III John W. Branam
Chief Financial Officer and Senior Vice President
Principal Accounting Officer Senior Lending Executive
</TABLE>
Shareholders may obtain, without charge, a copy of Greater Rome Bancshares, Inc.
1997 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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,530,896
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,433,528
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,690,808
<INVESTMENTS-CARRYING> 6,325,869
<INVESTMENTS-MARKET> 0
<LOANS> 30,202,967
<ALLOWANCE> 480,544
<TOTAL-ASSETS> 44,696,577
<DEPOSITS> 33,566,179
<SHORT-TERM> 500,000
<LIABILITIES-OTHER> 207,373
<LONG-TERM> 4,000,000
7,000
0
<COMMON> 0
<OTHER-SE> 6,416,025
<TOTAL-LIABILITIES-AND-EQUITY> 44,696,577
<INTEREST-LOAN> 2,255,079
<INTEREST-INVEST> 482,641
<INTEREST-OTHER> 100,499
<INTEREST-TOTAL> 2,838,219
<INTEREST-DEPOSIT> 1,179,476
<INTEREST-EXPENSE> 79,841
<INTEREST-INCOME-NET> 1,578,902
<LOAN-LOSSES> 433,694
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,510,412
<INCOME-PRETAX> (206,340)
<INCOME-PRE-EXTRAORDINARY> (206,340)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,943
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
<YIELD-ACTUAL> 4.91
<LOANS-NON> 30,805
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 133,342
<CHARGE-OFFS> 87,254
<RECOVERIES> 762
<ALLOWANCE-CLOSE> 480,544
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 480,544
</TABLE>
