U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
--- Act of 1934 For the quarterly period ended September 30, 2000
--- Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission File No. 0-28280
GREATER ROME BANCSHARES, INC.
-----------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2117940
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
1490 Martha Berry Blvd.
Rome, Georgia 30165
------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(706) 295-9300
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
700,326 shares of common stock, $.01 par value per share, were issued and
outstanding as of October 25, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
1
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited financial statements of Greater Rome Bancshares, Inc. (the
"Company") are set forth on the following pages. All adjustments have been made
which, in the opinion of management, are necessary in order to make the
financial statements not misleading.
2
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GREATER ROME BANCSHARES, INC.
Consolidated Balance Sheets
(Unaudited)
September 30, 2000 and December 31, 1999
Assets
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $226,000 in 2000 and $194,000 in 1999 $ 2,341,158 1,882,436
Federal funds sold 4,190,000 2,889,000
Interest bearing deposits 863,992 258,216
----------- ----------
Cash and cash equivalents 7,395,150 5,029,652
Securities available-for-sale 16,676,620 12,863,973
Securities held-to-maturity 1,879,510 1,878,932
Loans, net 68,677,359 55,090,512
Premises and equipment, net 3,185,170 2,811,150
Bank owned life insurance 1,253,915 1,208,251
Federal Home Loan Bank Stock 542,500 450,000
Accrued interest receivable and other assets 1,439,028 1,079,661
----------- ----------
$ 101,049,252 80,412,131
=========== ==========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 9,428,787 8,244,704
Interest bearing demand 5,987,408 5,396,309
Savings 12,233,730 9,560,218
Time 37,396,252 28,624,343
Time, over $100,000 15,237,223 11,397,949
----------- ----------
Total deposits 80,283,400 63,223,523
Federal Home Loan Bank borrowings 10,850,000 8,000,000
Securities sold under repurchase agreement 1,500,000 1,500,000
Accrued interest payable and other liabilities 562,841 388,875
----------- ----------
Total liabilities 93,196,241 73,112,398
----------- ----------
Commitments
Stockholders' equity:
Preferred stock, par value $1.00 per share; 100,000 shares
authorized; no shares issued or outstanding - -
Common stock, par value $.01 per share; 10,000,000
shares authorized; 700,326 shares issued and
outstanding in 2000 and 701,600 in 1999 7,003 7,016
Additional paid-in capital 6,941,834 6,946,101
Accumulated earnings 1,023,684 507,432
Accumulated other comprehensive loss (119,510) (160,816)
----------- ----------
Total stockholders' equity 7,853,011 7,299,733
----------- ----------
$ 101,049,252 80,412,131
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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GREATER ROME BANCSHARES, INC.
Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)
For each of the Nine and Three Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,379,108 3,259,783 1,627,968 1,173,870
Interest and dividends on investments 780,337 496,948 283,229 179,604
Interest on federal funds sold and deposits with other banks 165,920 151,077 55,267 60,026
--------- --------- --------- ---------
Total interest income 5,325,365 3,907,808 1,966,464 1,413,500
--------- --------- --------- ---------
Interest expense:
Time deposits 1,918,683 1,345,431 750,250 467,309
Savings deposits 322,694 217,652 124,988 80,000
Interest bearing demand deposits 90,003 66,109 30,069 24,867
Other 487,529 247,980 176,600 88,717
--------- --------- --------- ---------
Total interest expense 2,818,909 1,877,172 1,081,907 660,893
--------- --------- --------- ---------
Net interest income 2,506,456 2,030,636 884,557 752,607
Provision for loan losses 166,155 129,483 87,373 14,283
--------- --------- --------- ---------
Net interest income after provision for loans losses 2,340,301 1,901,153 797,184 738,324
--------- --------- --------- ---------
Other income:
Service charges 161,135 146,931 51,867 53,855
Other 154,398 159,351 62,195 52,894
--------- --------- --------- ---------
Total other income 315,533 306,282 114,062 106,749
--------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 994,757 808,567 334,369 274,965
Occupancy 282,428 252,354 104,709 82,746
Other operating 623,310 507,715 217,668 180,371
--------- --------- --------- ---------
Total other expenses 1,900,495 1,568,636 656,746 538,082
--------- --------- --------- ---------
Income before income taxes 755,339 638,799 254,500 306,991
Income tax expense 224,593 206,677 72,734 104,995
--------- --------- --------- ---------
Net earnings $ 530,746 432,122 181,766 201,996
========= ========= ========= =========
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale
arising during period, net of tax expense (benefit) of
$25,274, $(73,878), $59,658 and $(15,745) respectively 41,306 (120,745) 97,502 (25,735)
--------- --------- --------- ---------
Comprehensive income $ 572,052 311,377 279,268 176,261
========= ========= ========= =========
Basic earnings per share $ 0.76 0.62 0.26 0.29
========= ========= ========= =========
Diluted earnings per share $ 0.72 0.60 0.25 0.28
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GREATER ROME BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For each of the Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 530,746 432,122
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation, amortization and accretion 121,977 156,818
Provision for loan losses 166,155 129,483
Change in:
Interest receivable and other assets (430,304) (138,575)
Interest payable and other liabilities 173,965 84,619
---------- ----------
Net cash provided by operating activities 562,539 664,467
---------- ----------
Cash flows from investing activities:
Proceeds from maturities and calls of securities available for sale 1,435,124 2,559,735
Proceeds from maturities and calls of securities held to maturity - 531,687
Purchases of securities available for sale (5,151,560) (5,308,392)
Purchases of securities held to maturity - (494,219)
Purchase of FHLB stock (92,500) -
Redemption of FHLB stock - 209,200
Purchase of bank owned life insurance - (350,000)
Net increase in loans (13,753,002) (8,831,427)
Purchases of premises and equipment (526,206) (260,754)
---------- ----------
Net cash used by investing activities (18,088,144) (11,944,170)
---------- ----------
Cash flows from financing activities:
Net change in demand and savings deposits 4,448,695 4,952,432
Net change in time deposits 12,611,182 4,936,767
Net change in FHLB borrowings 2,850,000 1,000,000
Net change in federal funds purchased - 1,000,000
Stock issued to directors under incentive plan 31,401 -
Common stock repurchased and retired (50,175) -
----------- ----------
Net cash provided by financing activities 19,891,103 11,889,199
----------- ----------
Net change in cash and cash equivalents 2,365,498 609,496
Cash and cash equivalents at beginning of period 5,029,652 4,509,810
----------- ----------
Cash and cash equivalents at end of period $ 7,395,150 5,119,306
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,727,397 1,907,497
Income taxes $ 245,170 161,174
Transfer of held-to-maturity securities to
available-for-sale $ - 4,387,335
Non cash investing and financing activities:
Change in unrealized gain (loss) on sale of securities available
for sale $ 66,580 (194,623)
See accompanying notes to consolidated financial statements.
</TABLE>
5
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GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Summary of Significant Accounting Policies
Organization
------------
Greater Rome Bancshares, Inc. (the "Company") is a bank holding company whose
business is conducted by its wholly owned bank subsidiary, Greater Rome Bank
(the "Bank"). The Company is subject to regulation under the Bank Holding
Company Act of 1956.
The Bank is a commercial bank that serves Floyd County, including Rome, Georgia,
a community located approximately 50 miles north of metropolitan Atlanta. The
Bank is chartered and regulated by the State of Georgia Department of Banking
and Finance and is insured and subject to regulation by the Federal Deposit
Insurance Corporation.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company and
the Bank. All intercompany accounts and transactions have been eliminated in
consolidation.
The accounting principles followed by the Company, 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 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.
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.
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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.
We believe that the allowance for loan losses is adequate. While we use
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 us
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:
Building 40 years
Land improvements 20 years
Furniture, fixtures and equipment 2-12 years
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are expected to
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<PAGE>
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
----------------------
Basic 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. The
reconciliation of the amounts used in the computation of both "basic earnings
per share" and "diluted earnings per share" for the periods presented in the
financial statements were calculated as follows:
<TABLE>
<CAPTION>
Nine months ended Sept. 30, 2000 Three months ended Sept. 30, 2000
-------------------------------- ---------------------------------
Net Common Per Share Net Common Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $530,746 700,861 $0.76 $181,766 700,134 $0.26
Effect of stock options 34,123 41,713
------- -------
Diluted earnings per share $530,746 734,984 $0.72 $181,766 741,847 $0.25
======== ======= ===== ======== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Sept. 30, 1999 Three months ended Sept. 30, 1999
-------------------------------- ---------------------------------
Net Common Per Share Net Common Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $432,122 701,600 $0.62 $201,996 701,600 $0.29
Effect of stock options 16,674 16,674
------- -------
Diluted earnings per share $432,122 718,274 $0.60 $201,996 718,274 $0.28
======== ======= ===== ======== ======= =====
</TABLE>
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD LOOKING STATEMENTS
Various statements contained in this report, which are not statements of
historical fact, constitute forward-looking statements. Examples of
forward-looking statements include, but are not limited to:
(1) projections of revenues, income or loss, earnings or loss per share, the
payment or non-payment of dividends, capital structure and other financial
items;
(2) statements of plans and objectives of the Company or its management or
board of directors, including those relating to products or services;
(3) statements of future economic performance; and
(4) statements of assumptions underlying these statements.
Words such as "believes," "anticipates," "expects," "intends," "targeted," and
similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties, which may cause
actual results to differ materially from the results in the forward-looking
statements. Facts that could cause actual results to differ from those discussed
in the forward-looking statements include, but are not limited to:
(1) the strength of the U.S. economy in general and the strength of the local
economies in which operations are conducted;
(2) the effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the
Federal Reserve System;
(3) inflation, interest rate, market and monetary fluctuations;
(4) the timely development of and acceptance of new products and services and
perceived overall value of these products and services by users;
(5) changes in consumer spending, borrowing and saving habits;
(6) technological changes;
(7) acquisitions;
(8) the ability to increase market share and control expenses;
(9) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities and insurance) with
which the Company and its subsidiary must comply;
(10) the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as the Financial Accounting
Standards Board;
(11) changes in the Company's organization, compensation and benefit plans;
(12) the costs and effects of litigation and of unexpected or adverse outcomes
in such litigation; and
(13) the Company's success at managing the risks
involved in the foregoing.
Forward-looking statements speak only as of the date on which they are made. We
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made to reflect
the occurrence of unanticipated events.
FINANCIAL CONDITION
As of September 30, 2000, the Company had $101.0 million in total assets, up
$20.6 million over year-end 1999. Total deposits increased $17.1 million over
year-end 1999 to $80.3 million. Net loans outstanding increased $13.6 million
over year-end 1999 to $68.7 million. All of the Bank's growth in loans has come
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from the local market. We attribute this growth to a relatively stable local
economy combined with competitive banking services delivered by a locally owned
and operated community bank. The Bank is the only locally owned and operated
community bank in its market, which has been dominated by regional banks and
fragmented by credit unions over the past several years.
In October 2000, the Bank purchased an office building adjacent to the main
office located on Martha Berry Blvd. in Rome. The purchase price of the facility
was $340,000. After the planned modifications to the facility are complete,
deposit operations, items processing, network administration and general
accounting will be relocated to the new offices. This will make more space
available in the main office for customer service and support. The move is
expected to be complete before the end of the first quarter of 2001. Management
originally planned to begin construction of a 4,265 square foot main office
expansion in the fourth quarter of 2000. However, after careful analysis, we
determined cost of purchasing an existing facility to be a more favorable
alternative. The expansion of the main office remains a future possibility as
the Bank continues to grow.
The banking industry continues to experience 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 competitive with the cost of local
certificates of deposit. Our asset/liability management committee has adopted
policies designed to diversify funding sources if local market deposits become
less available and even more costly. Within limits, the Bank may obtain funding
from brokered certificates of deposit and other forms of wholesale borrowing,
such as the Federal Home Loan Bank and term repurchase agreements. These
policies should allow us to continue to meet the local market's credit demands
while providing the flexibility to obtain funding from various sources at
optimum rates. While this policy provides greater funding flexibility, we
continue to place primary funding emphasis on local deposit growth. As of
September 30, 2000, the Bank had brokered deposits totaling $5.0 million and
depository institution certificates of deposit totaling $2.6 million.
Capital
At September 30, 2000, 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, we had $956,000 more capital than necessary
to satisfy the "well-capitalized" criteria. The Bank's capital adequacy is
monitored quarterly by the asset/liability committee. At these quarterly
meetings, the committee develops strategies for the Bank's asset and liability
growth, mix and pricing.
We continue to evaluate opportunities to deploy this excess capital in order to
improve shareholder returns. As a routine part of our business, we evaluate
opportunities with other financial institutions. Thus, at any time, discussions,
negotiations and due diligence activities concerning potential transactions may
occur.
From time to time, the Company may also purchase stock from shareholders who
have indicated a desire to sell their stock. Such transactions not only provide
liquidity for the Company's stock, but generally also improve the returns for
all remaining shareholders. Through the third quarter of 2000, the Company had
purchased and retired 4,850 shares of stock from shareholders.
Assuming that the Bank continues to grow with a risk-weighted asset mix
consistent with its historical experience, and that it has reasonable earnings
and maintains asset quality, our capital will approach the minimum limits to be
well capitalized when our assets are approximately $113.5 million. While there
are no assurances that we will continue to experience rapid growth, we must
anticipate such growth and make plans for sufficient capital to support it. The
Company has received a commitment from one of its correspondent banks for a $2.0
million credit line with a two-year revolving period and a five-year even
amortization thereafter. Interest will be paid quarterly for the first two
years. After the second year, principal and interest will be paid quarterly. If
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<PAGE>
capital is required at the bank level to support asset growth, the Company will
borrow sufficient funds against the credit facility and contribute them to the
Bank to maintain its "well-capitalized" status for at least the next 12 months.
This loan is scheduled to be closed in the fourth quarter of 2000.
Liquidity
The Bank's liquidity position is monitored on daily management reports and the
Asset Review Committee reviews the Bank's liquidity position against policy
ratios on a weekly basis. The Board of Directors reviews policy ratios against
actual performance in the monthly board reports.
We intend to manage loan growth so that net deposit growth will provide the
primary funding for net loan growth as well as cash reserves for working
capital. To the extent that net deposit growth from the local community (core
funding) is inadequate to support the loan demand, alternative short-term and
long-term funding sources are available.
Short-term funding is provided by the Bank's investment in federal funds sold,
and the marketable securities in its investment portfolio. Marketable securities
may be sold or used as collateral for short-term repurchase agreements with the
Bank's correspondent banks.
Long-term funding is available through loans from the Federal Home Loan Bank
("FHLB") that are collateralized by the Bank's investment in real estate loans
or marketable securities. Other long-term funding sources include non-local
institutional certificates of deposit that are obtained through direct
advertising on the Internet and brokered deposits placed through approved
brokers in the national markets. We will continue to seek cost effective
alternative funding sources for both the short and long term, if local deposit
growth does not keep pace with local loan demand. At times, term borrowings from
the FHLB and even brokered deposits can be obtained at rates more favorable that
local market term deposits. As long as policy limits will allow, management will
use non-core funding sources that have lower costs relative to local market term
deposits.
The Bank's liquidity and asset/liability policies place limits on these non-core
funding sources, which are monitored on a weekly basis by management and a
monthly basis by the board. These limits are designed to place emphasis on local
deposit growth and limit the Bank's ability to grow solely from non-core funding
sources.
For the nine months ended September 30, 2000, deposit growth exceeded loan
growth by $3.5 million. This deposit growth included $2.6 million in non-local
institutional certificates of deposits and $5.0 million in brokered certificates
of deposit. Securities held-to-maturity remained unchanged at $1.9 million.
Securities available-for-sale increased by $3.8 million to $16.7 million. All of
the Bank's investment securities are eligible as collateral for borrowings under
either repurchase agreements with our correspondent banks or advances from the
Federal Home Loan Bank. At September 30, 2000, securities totaling $1.6 million
were pledged as collateral for $1.5 million borrowed under master repurchase
agreements with the Bankers Bank and securities totaling $2.1 million were
pledged as collateral for FHLB advances. As of September 30, 2000, we had
unfunded loan commitments totaling $6.2 million and unfunded securities purchase
commitments totaling $500,000.
At quarter end, the funds available for liquidity purposes consisted of $14.7
million in marketable securities (eligible for sale under repurchase
agreements), plus Federal funds sold and other short-term bank deposits of $5.1
million, for a total of $19.8 million. 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 us to raise funds out of the total securities portfolio without being
11
<PAGE>
forced to sell the securities and recognize gains or losses as a result of the
sale. In addition to these sources of funds, the Bank has unsecured Federal
funds purchase lines of credit totaling $4.5 million, all of which were
available at quarter end. Our correspondent banks may revoke these lines at any
time.
FHLB membership provides an additional source of liquidity through credit
programs, which can provide term funding for up to 10 years and, in qualified
programs, up to 20 years. At September 30, 2000, the Bank had a total of $10.9
million in advances outstanding with the FHLB. We have assigned $15.7 million in
eligible residential first mortgage and commercial real estate loans and $2.1
million in marketable securities to the FHLB as collateral for this financing.
The FHLB currently has call options on $6.0 million of its advances to the Bank.
If call options are exercised on any of the advances, they will be converted
into a three-month LIBOR-based floating rate advance at the three-month LIBOR
rate. The most likely reason that the FHLB would call the advances would be if
interest rates rose sufficiently to present better investment alternatives for
the FHLB. In the event of a call, we evaluate funding alternatives in light of
the Bank's interest rate risk profile at the time.
RESULTS OF OPERATIONS
The Company had net earnings of $530,746 ($.76 per share) for the nine months
ended September 30, 2000 and $181,766 ($0.26 per share) for the three months
ended September 30, 2000. This compares to net earnings of $432,122 ($.62 per
share) for the nine months ended September 30, 1999 and $201,996 ($0.29 per
share) for the three months ended September 30, 1999. Income before income taxes
in the first nine months of 2000 improved over the same period in 1999 by
$116,540 (18%) to $755,339.
Net Interest Income
Net interest income increased $475,820 (23%) to $2,506,456 for the nine months
ended September 30, 2000 and increased $131,950 (18%) to $884,557 for the three
months ended September 30, 2000, as compared to the same periods in the prior
year. Net interest income increased because of an increase in average earning
assets, partially offset by a decrease in the net yield on these assets. Average
earning assets increased 30% to $79.8 million in the first nine months of 2000
as compared to the same period in 1999. The net yield on average earning assets,
before the provision for loan losses, was 4.18% for the nine months ended
September 30, 2000. This compares to 4.43% for the same period in 1999. The
Bank's cost of funds has risen 61 basis points while the yield on earning assets
rose 36 basis points in the first nine months of 2000 as compared to the same
period in 1999. The percentage of average earning assets funded by interest
bearing liabilities increased 1.5% to 88.2%, and loans as a percent of earning
assets increased 0.5% to 74.9%.
12
<PAGE>
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Nine months Nine months Three months Three months
ended ended ended ended
Allowance for possible loan losses 9/30/00 9/30/99 9/30/00 9/30/99
---------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at the beginning of the period $ 684,131 569,185 744,724 675,772
Charge-offs:
Real estate - mortgage - - - -
Consumer loans 61,793 49,464 25,146 19,630
------- ------- ------- -------
Total 61,793 49,464 25,146 19,630
------- ------- ------- -------
Recoveries:
Real estate - mortgage - - - -
Consumer loans 23,073 30,404 4,615 9,183
------- ------- ------- -------
Total 23,073 30,404 4,615 9,183
------- ------- ------- -------
Net charge-offs (recoveries): 38,720 19,060 20,531 10,447
Additions charged to operations 166,155 129,483 87,373 14,283
------- ------- ------- -------
Balance at end of period $ 811,566 679,608 811,566 679,608
======= ======= ======= =======
Average loans outstanding $ 59,776,595 45,627,731 64,768,237 48,444,763
Ratio of net charge-offs to average loans 0.06% 0.04% 0.03% 0.02%
</TABLE>
The provision for loan losses was $166,155 in the first nine months of 2000,
representing a $36,672 increase from the provision for the same period in 1999.
On a quarterly basis, we evaluate the history of the Bank's loan charge-offs and
review the credit risk in the Bank's loan portfolio. Based on the results of
these reviews, we evaluate the adequacy of the allowance for possible loan
losses. This evaluation considers historical loan losses by risk grade under
each major category of loans, i.e., commercial, real estate and consumer. It
also considers current portfolio risk, industry concentrations and the
uncertainty associated with changing economic conditions.
In addition, management performs an on-going loan review process. All new loans
are risk rated under loan policy guidelines. On a monthly basis, we evaluate the
composite risk ratings in a model that assesses the adequacy of the current
allowance for loan losses. This evaluation is presented to the board of
directors each month. Management performs loan reviews for compliance with
underwriting policy on new loans and presents the review results in the weekly
asset review committee meeting. Past due loans are reviewed weekly, and 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.
We expect 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. We consider the quarter end allowance adequate to
cover potential losses in the loan portfolio.
13
<PAGE>
Allocation of the Allowance for Loan Losses
-------------------------------------------
Under the Bank's credit risk Loan Grading Policy, each loan in the portfolio is
assigned one of the following risk grades:
<TABLE>
<CAPTION>
Grade Short Definition Grade Short Definition
----- ---------------- ----- ----------------
<S> <C> <C> <C>
1 Negligible credit risk 5 Greater than normal credit risk
2 Minimal credit risk 6 Excessive credit risk
3 Average credit risk 7 Potential loss
4 Acceptable, but more than average credit risk 8 Uncollectable
</TABLE>
The policy provides more explicit guidance on the application of risk grades. On
a monthly basis, loan balances are aggregated for each grade and a loan loss
allowance is calculated using factors that represent management's estimate of
the allowance applicable to each grade. These factors are compared to historical
charge-offs for reasonableness and adjusted, as necessary.
The approximate anticipated amount of charge-offs before recoveries in the next
12 months by risk grade assigned at the time of loan origination is:
Projected
Grade Charge-offs
----- -----------
1 -
2 -
3 6,452
4 5,574
5 68,946
6 -
7 -
8 -
-------
Total 120,972
=======
Risk Elements
<TABLE>
<CAPTION>
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
Nonaccrual, Past Due and Restructured Loans
-------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 279,265 38,202
Accruing loans contractually past due 90 days or more $ - -
Troubled debt restructurings $ 102,037 165,583
</TABLE>
The amount of interest that would have been included in income on the above
non-accrual loans if they had been current in accordance with their original
terms was $8,789 in 2000 and $3,542 in 1999. The amount of interest that was
included in interest income on the above loans was $1,754 in 2000 and $336 in
1999.
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 placed on non-accrual, unless corrective action is certain and
imminent.
14
<PAGE>
Non-interest Income and Expenses
Non-interest income increased $9,251 (3%) to $315,533 for the nine months ended
September 30, 2000 and increased $7,313 (7%) to $114,062 for the three months
ended September 30, 2000, as compared to the same periods of 1999. Service
charges on deposit accounts increased $14,204 (10%) to $161,135 for the first
nine months of 2000 but decreased $1,988 (4%) to $51,867 for the three months
ended September 30, 2000 as compared to the same period in 1999. This decrease
is due to a decrease in the total fees collected for non-sufficient funds,
overdrafts and stop payments. Significant items in other income are mortgage
origination fees and bank-owned life insurance income. Mortgage origination fees
declined 43%to $49,377 for the first nine months of 2000 and declined 27% to
$21,174 for the three months ended September 30, 2000 as compared to 1999. This
was due primarily to the lack of demand for mortgage loans caused by higher
interest rates. Bank-owned life insurance income increased to $45,664 (74%) for
the nine months ended September 30, 2000 and increased $6,464 (74%) to $15,221
for the three months ended September 30, 2000. This increase is due to the
purchase of $470,000 of additional bank-owned life insurance in the last quarter
of 1999.
Non-interest expenses increased $331,859 (21%) to $1,900,495 for the nine months
ended September 30, 2000 and $118,664 (22%) to $656,746 for the three months
ended September 30, 2000, from the same periods in 1999. The lower growth rate
of non-interest expenses relative to the earning asset growth rate of 30.2%
indicates that our operating efficiencies continue to improve.
Salaries and benefits for the nine months ended September 30, 2000 increased
$186,190 (23%) to $994,757 and increased $59,404 (22%) to $334,369 for the three
months ended September 30, 2000 from the same periods in 1999. This is due to
the growth in the number of full-time-equivalent employees and increases in the
costs of employee benefits. The number of employees grew from 33 at September
30, 1999 to 42 at September 30, 2000. Occupancy costs increased $30,074 (12%) to
$282,428 for the first nine months of 2000, and $21,963 (27%) to $104,709 for
the three months ended September 30, 2000 over the same periods in 1999. The
increased costs are due mainly to opening of the West Rome office in second
quarter 2000.
Other operating expenses increased $115,595 (23%)to $623,310 for the nine months
ended September 30, 2000, and $37,297 (21%) to $217,668 for the three months
ended September 30, 2000, as compared to the same periods in 1999. Board fees
were $32,439 for the nine months ended September 30, 2000 as compared to $5,115
in the same period in 1999 because fees were accrued throughout 2000 but were
accrued for only the second half of 1999. No Directors Stock Incentive Plan
existed prior to July 1999. In August 2000, under the terms of the Directors
Stock Incentive Plan, the Company issued the directors a total of 2,326 shares
of stock based on their elections under the program. The remainder of the
increase can be attributed to the higher volume of business associated with
advertising and marketing costs, data processing costs, and supplies. We
continue to focus on improving operating expense efficiencies, through the use
of current banking technologies, outsourcing solutions and human resource
training and development.
Interest Rate Sensitivity
Improvement in the Company's earnings depends upon continued earning asset
growth, good asset quality and a relatively stable economic environment. We feel
it is reasonable for the Bank to continue to experience steady earning asset
growth as long as interest rates remain relatively stable.
We use a third party interest rate risk analysis product, which quantifies the
amount of risk to the net interest margin and to the current market value of
equity. It produces a composite analysis of several approaches including GAP
analysis, rate shocks in 100-point increments up and down 400 basis points, and
simulation modeling.
15
<PAGE>
As with any model, many assumptions have to be made about the repricing
attributes of the Bank's assets and liabilities. Where industry experience seems
appropriate, such assumptions are used. Given the extremely competitive market
for the public's investing and savings dollars, the lack of correlation between
changes in the yields on government securities and customer deposit rates seems
to be increasing. This uncertainty increases the uncertainty about the
conclusiveness of the interest rate risk models.
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, on our net interest income and on our economic value of equity was
calculated to be within policy limits. The net interest income policy limit
specifies that the amount of adverse impact to net interest income due to
interest rate risk is limited to no more than 10% of projected net interest
income for the following 12 months, assuming a 200 basis point change in
interest rates. The economic value of equity policy limit specifies that the
adverse effect of a similar rate change on the economic value of equity is
limited to no more than 25% of our current capital.
16
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material, pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
Item 2. Changes in Securities and Use of Proceeds.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable
(d) Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Pursuant to Rule 14a-4(c)(1) promulgated under the Securities Exchange Act of
1934, as amended, shareholders desiring to present a proposal for consideration
at the Company's 2001 Annual Meeting of Shareholders must notify the Company in
writing at its principal office at 1490 Martha Berry Blvd., Rome, Georgia 30165,
of the contents of such proposal no later December 14, 2000. Failure to timely
submit such a proposal will enable the proxies appointed by management to
exercise their discretionary voting authority when the proposal is raised at the
Annual meeting of Shareholders without any discussion of the matter in the proxy
statement.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-82858 on Form SB-2).
4.1 Provisions of Company's Articles of Incorporation and Bylaws Defining the
Rights of Shareholders (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
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).
17
<PAGE>
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).
10.6 *Executive Supplemental Retirement Plan Agreement between the Bank and
Thomas D. Caldwell, III dated December 28, 1998. (Incorporated by reference
to Exhibit 10.6 of the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1999).
10.7 *Greater Rome Bancshares, Inc. Directors Stock Incentive Plan, dated
October 14, 1999. (Incorporated by reference to Exhibit 10.7 of the
Company's Annual Report on Form 10-KSB for the year-ended December 31,
1999).
10.8 *Executive Supplemental Retirement Plan Agreement between the Bank and E.
Grey Winstead, III dated January 13, 2000. (Incorporated by reference to
Exhibit 10.8 of the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2000).
27.1 Financial Data Schedule (for S.E.C. use only).
---------------------------------------------------
* Indicates a management contract or compensatory arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
Date: October 30, 2000 By: /s/ Thomas D. Caldwell, III
---------------------------
Thomas D. Caldwell, III
President, Chief Executive Officer
By: /s/ E. Grey Winstead, III
-------------------------
E. Grey Winstead, III
Principal Financial and
Accounting Officer
19
<PAGE>
GREATER ROME BANCSHARES, INC.
Form 10-QSB for the quarterly period ended September 30, 2000
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page
------ ----------- ----
<S> <C> <C>
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement No. 33-82858 on Form SB-2). N/A
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement
No. 33-82858 on Form SB-2). N/A
4.1 Provisions of Company's Articles of Incorporation and Bylaws Defining the Rights of
Shareholders (Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement No. 33-82858 on Form SB-2). N/A
4.2 Form of Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement No. 33-82858 on Form SB-2). N/A
10.1 *Employment Agreement between the Company and Thomas D.Caldwell,III dated September 1,
1997. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997). N/A
10.2 *Greater Rome Bancshares, Inc. 1996 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.12 of the Company's Annual Report on Form 10-KSB for the year ended December
31, 1995). N/A
10.3 *Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.13 of
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996). N/A
10.4 *Form of Stock Option Award to Non-employee Directors (Incorporated by reference to
Appendix A to the Company's Proxy Statement for the 1997 Annual Meeting of the Shareholders
held May 15, 1997). N/A
10.5 *Employment Agreement between the Company and E. Grey Winstead, III dated September 1,
1997. (Incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997). N/A
10.6 *Executive Supplemental Retirement Plan Agreement between the Bank and Thomas D. Caldwell,
III dated December 28, 1998. (Incorporated by reference to Exhibit 10.6 of the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999). N/A
10.7 *Greater Rome Bancshares, Inc. Directors Stock Incentive Plan, dated October 14, 1999.
(Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999). N/A
20
<PAGE>
10.8 *Executive Supplemental Retirement Plan Agreement between the Bank and E. Grey Winstead,
III dated January 13, 2000. (Incorporated by reference to Exhibit 10.8 of the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000). N/A
27.1 Financial Data Schedule (for S.E.C. use only).
</TABLE>
------------------------------------------------------
* Indicates a management contract or compensatory arrangement.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
Date: October 30, 2000 By:------------------------
Thomas D. Caldwell, III
President, Chief Executive Officer
By:------------------------
E. Grey Winstead, III
Principal Financial and Accounting Officer
22
<PAGE>
