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, 1999
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. $5,882,096
----------
The aggregate market value of the voting stock as of March 10, 2000, held by
non-affiliates is $6,420,687 computed by reference to the price of the most
recent trades of the Company.
As of March 10, 2000, the Company had 701,600 shares of common stock issued and
outstanding.
Portions of the following documents are incorporated by reference: (1) 1999
Annual Report to Shareholders, into Part II; (2) Proxy Statement (the "Proxy
Statement") for the Annual Meeting of Shareholders to be held May 11, 2000, into
Part III.
Transitional Small Business Disclosure Format (check one). Yes No X
--- ---
<PAGE>
PART I
Item 1. Description of Business
- --------------------------------
FORWARD LOOKING STATEMENTS
Various statements contained in this Annual 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 and acceptance of new products and service 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.
Such forward-looking statements speak only as of the date on which they are
made. The Company undertakes 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.
General
Greater Rome Bancshares, Inc. (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 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.
2
<PAGE>
Location and Service Area
The Bank provides general commercial banking services within Floyd County,
emphasizing the needs of individuals and small- to medium-sized businesses.
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 miles east of Birmingham, Alabama. The 1990
census indicated Floyd County had a population of 81,251. Recent estimates
indicate that Floyd County has a current population of approximately 84,009 with
a median family income of $30,743 per household. Rome is reached via U.S. 411,
which connects to Interstate 75 at Cartersville just 25 miles southeast of Rome.
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.
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, money market accounts and time deposits. The
transaction accounts and time certificates of deposit 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 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. All loans to directors or
executive officers of the Bank are approved by the Bank's board of directors and
are made on terms no more favorable than would be available to a person not
affiliated with the Bank. See "Lending Activities."
The Bank also engages 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.
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 various 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 the following:
- risks with respect to the period of time over which loans may be repaid;
- risks resulting from changes in economic and industry conditions;
- risksinherent 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 these 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. Various 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 underwritten 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.
The Bank also originates 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 for 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 market investor and receiving the
investor's underwriting approval prior to closing the loan.
4
<PAGE>
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 borrowers. The risk associated with commercial loans varies with many
factors including the economy in the Bank's lending area. In addition many of
the Bank's 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 90-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
terminate 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 loan decreases.
5
<PAGE>
Lending Limit
Under the Financial Institutions Code of Georgia, 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.
At December 31, 1999, the Bank's lending limit was approximately $975,000 for
loans not fully secured plus an additional $650,000 (or an aggregate of
approximately $1.625 million) for loans fully secured. These limits will
increase and decrease as the Bank's statutory capital base increases and
decreases. If a borrower's credit needs exceeds these limits, the Bank seeks to
sell participations in the loan to the extent necessary to maintain these
lending limits.
Competition
The Bank competes with other commercial banks, savings and loan associations,
credit unions and money market mutual funds operating in Floyd County and
elsewhere. As of June 1999, nine FDIC-insured institutions were operating in
Floyd County. 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
various services, such as extensive and established branch networks and trust
services, which the Bank does not now provide. Management believes that the Bank
can compete effectively with these institutions but cannot assure that it will
do so.
Employees
The Bank had 34 equivalent full-time employees on December 31, 1999. 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 compensation for
their services to the Company. The Company reimburses the Bank for management
services performed by the Bank's officers. The Company conducts no business
other than serving as the holding company for the Bank. The Company currently
has three officers:
o Thomas D. Caldwell, III, President and Chief Executive Officer;
o Robert L. Berry, Secretary; and
o E. Grey Winstead, III, Chief Financial Officer.
6
<PAGE>
STATISTICAL INFORMATION
The following tables set forth statistical information and should be read in
conjunction with the financial statements of Greater Rome Bancshares, Inc.
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differential
<TABLE>
<CAPTION>
1999 1998 1999 1998 1999 1998
Average Average Income/ Income/ Yield Yield
Balance Balance (Expense) (Expense) (Rate Paid) (Rate Paid)
------- ------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 47,646,549 36,596,138 4,557,789 3,659,279 9.57% 10.00%
Taxable investment securities 9,951,091 10,247,085 609,413 625,781 6.12% 6.11%
Non-taxable investment
securities 2,207,439 294,164 91,956 12,183 4.17% 4.14%
Interest bearing deposits
in other banks 1,344,290 706,613 65,032 37,611 4.84% 5.32%
Federal funds sold 2,911,982 2,118,499 146,460 114,510 5.03% 5.41%
---------------------------------------------------------------------------
Average earning assets $ 64,061,351 49,962,499 5,470,650 4,449,364 8.54% 8.91%
---------------------------------------------------------------------------
Cash & due from banks 1,507,451 1,140,369
Premises and
equipment 2,720,743 2,569,013
Other assets 1,640,006 699,191
-----------------------
Average total assets $ 69,929,551 54,371,072
-----------------------
Interest bearing demand deposits 4,483,770 3,381,823 (92,527) (64,355) -2.06% -1.90%
Savings and money market
deposits 9,031,565 6,736,847 (309,925) (261,753) -3.43% -3.89%
Time deposits 35,489,652 27,189,134 (1,865,575) (1,573,504) -5.26% -5.79%
Borrowed funds 6,423,165 4,399,261 (363,439) (247,622) -5.66% -5.63%
--------------------------------------------------------------------------
Average interest bearing
liabilities $ 55,428,152 41,707,065 (2,631,466) (2,147,234) -4.75% -5.15%
--------------------------------------------------------------------------
Non-interest bearing deposits 6,510,773 5,261,746
Other liabilities 306,446 293,186
Stockholders' equity 7,067,426 6,618,419
----------------------
Average total liabilities
and equity $ 69,312,797 53,880,416
-----------------------
--------------------------------------------------------------------------
Net interest income yield on
average earning assets $ 64,061,351 49,962,499 2,839,184 2,302,130 4.43% 4.61%
--------------------------------------------------------------------------
</TABLE>
Notes:
1. Non-accruing loans are included in the average balances. Average non-accruing
loans were $77,811 in 1999 and were $88,014 in 1998.
2. Loan fees are included in the interest income computation and were $94,754 in
1999 and $187,642 in 1998.
7
<PAGE>
The following table sets forth a summary of the changes in interest income and
interest expense resulting from changes in volume and rates from 1998 to 1999.
<TABLE>
<CAPTION>
Increase/(Decrease)
-------------------
Net Due to Due to
Change Rate (1) Volume (1)
------ -------- ----------
<S> <C> <C> <C>
Interest Earning Assets
Loans $ 898,510 (164,562) 1,063,072
Taxable investment securities (16,368) 1,755 (18,123)
Non-taxable investment securities 79,773 72 79,701
Interest bearing deposits in other banks 27,421 (3,711) 31,132
Federal funds sold 31,950 (8,426) 40,376
--------- --------- ---------
Total Interest Income 1,021,286 (174,872) 1,196,158
========= ========= =========
Interest Bearing Liabilities
Interest bearing demand deposits 28,172 22,375
Savings and money market deposits 48,172 (33,232) 81,404
Time deposits 292,071 (154,431) 446,502
Borrowed funds 115,817 1,306 114,511
--------- --------- ---------
Total Interest Expense 484,232 (180,560) 664,792
--------- --------- ---------
Net Interest Income $ 537,054 5,688 531,366
========= ========= =========
</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 1999 Annual Report, which is incorporated herein by
reference.
The weighted average tax equivalent yield of investment securities maturing in
one year or less as of December 31, 1999 was 5.95%. The weighted average tax
equivalent yield of investment securities maturing from one to five years as of
December 31, 1999 was 6.18%. The weighted average tax equivalent yield of
investment securities maturing in greater than five years as of December 31,
1999 was 6.05%
8
<PAGE>
III. Loan Portfolio
<TABLE>
<CAPTION>
12/31/99 12/31/98
Loan Types Balance Balance
---------- ------- -------
<S> <C> <C>
Commercial $ 13,438,239 $ 11,518,652
Real estate - construction 2,534,684 1,226,296
Real estate - mortgage 27,356,312 19,271,316
Consumer loans 12,490,147 9,960,566
----------- ----------
Total $ 55,819,382 $ 41,976,830
========== ==========
</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 $ 5,514,072 1,589,617 5,515,759 733,773 85,018 -
Real estate -
construction 2,390,544 41,197 102,943 - - -
Real estate -
mortgage 5,940,125 2,747,588 18,022,298 315,002 850 330,448
Consumer loans 6,030,639 320,185 5,716,792 303,342 72,540 13,068
----------- ----------- ----------- ----------- ----------- -----------
Total $ 19,875,380 4,698,587 29,357,792 1,352,117 158,408 343,516
=========== =========== =========== =========== =========== ===========
</TABLE>
The maturity distribution is less than the total at year-end by the amount of
non-accrual loans totaling $33,582.
Risk Elements
<TABLE>
<CAPTION>
1999 1998
---- ----
Nonaccrual, Past Due and Restructured Loans
- -------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 33,582 150,599
Accruing loans contractually past due 90 days or more $ - -
Troubled debt restructurings $ 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 $4,204 in 1999 and $9,434 in 1998. The amount of interest that was
included in interest income on the above loans was $883 in 1999 and $8,572 in
1998.
The Bank's policy is to place loans on non-accrual status when it appears that
the collection of principal and interest in accordance with the terms of the
loan is doubtful. Any loan that becomes 90 days past due as to principal or
interest is automatically placed on non-accrual, unless corrective action is
certain and imminent.
9
<PAGE>
IV. Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Allowance for possible loan losses 1999 1998
---------------------------------- ---- ----
<S> <C> <C>
Balance at the beginning of the period $ 569,185 480,544
Charge-offs:
Commercial - 107,607
Real estate - mortgage - 2,924
Consumer loans 63,025 77,925
---------- ----------
Total 63,025 188,456
---------- ----------
Recoveries:
Consumer loans 37,210 21,457
---------- ----------
Total 37,210 21,457
---------- ----------
Net charge-offs: 25,815 166,999
Additions charged to operations 140,761 255,640
---------- ----------
Balance at end of period $ 684,131 569,185
========== ==========
Average loans outstanding $ 47,646,549 36,596,138
Ratio of net charge-offs to average loans 0.05% 0.46%
Ratio of allowance to average loans 1.44% 1.56%
</TABLE>
The provision for loan losses was $140,761 for 1999, down $114,879 from 1998.
Until the fourth quarter of 1998, the provision for loan losses was primarily
determined by reference to a target ratio. Management had used this method, by
reference to peer information, in order to build the loss reserve for the Bank's
new loan portfolio. More traditional methods of determining loan loss provisions
are based on historical loan portfolio performance, including analysis of
historical charge-offs and recoveries, detailed loan reviews and portfolio
reviews, loan growth and changing economic conditions. Under the revised policy,
management and the board evaluate the adequacy of the loan loss reserve on a
quarterly basis. 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, management
evaluates the composite risk ratings in a model that assesses the adequacy of
the current allowance for loan losses, and management presents this evaluation
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. Management also reviews past due
loans weekly and large loans are reviewed periodically. Management may change
risk ratings if it appears that new loans may not have received the proper
initial grading or, if on existing loans, credit conditions have improved or
worsened.
The amounts charged to operations in the provision for loan losses are based on
an annual budget that is developed from the most recent monthly and quarterly
reviews. These amounts may be adjusted in any period based on the results of
more current evaluations that indicate that the allowance might be inadequate or
excessive.
10
<PAGE>
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 year-end allowance
adequate to cover potential losses in the loan portfolio.
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
----- ----------------
<S> <C>
1 Total absence of credit risk
2 Minimal credit risk
3 Average credit risk
4 Acceptable, but more than average credit risk
5 Greater than normal credit risk
6 Excessive credit risk
7 Potential loss
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 for 2000 by risk grade
assigned at the time of loan origination is:
<TABLE>
<CAPTION>
Projected
Grade Charge-offs
----- -----------
<S> <C>
1 $ -
2 92
3 32,008
4 31,661
5 8,622
6 8,637
7 -
8 -
------
Total 81,019
======
</TABLE>
11
<PAGE>
V. Deposits
<TABLE>
<CAPTION>
Average Average Average Average
Balance Balance Rate Rate
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 6,510,773 5,261,746
Interest bearing demand deposits 4,483,770 3,381,823 2.06% 1.90%
Savings and money market deposits 9,031,565 6,736,847 3.43% 3.89%
Time deposits 35,489,652 27,189,134 5.26% 5.79%
--------------------------------------------
Total average deposits $ 55,515,760 42,569,550 4.09% 4.46%
============================================
</TABLE>
As of December 31, 1999 the amount outstanding of time certificates of deposit
of $100,000 or more was $11,397,949. Amounts by time remaining until maturity on
time deposits of $100,000 or more were:
<TABLE>
<S> <C>
3 months or less $ 1,856,702
over 3 through 6 months 3,886,641
over 6 through 12 months 3,575,701
over 12 months 2,078,905
----------
$ 11,397,949
==========
</TABLE>
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Return on average assets 0.95% 0.69%
Return on average equity 9.23% 5.65%
Dividend payout ratio 0.00% 0.00%
Average equity to average asset ratio 10.29% 12.17%
</TABLE>
12
<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 anybank; 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.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act, the
restrictions on interstate acquisitions of banks by bank holding companies were
repealed. As a result, 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, in either case subject to deposit-percentage, aging requirements, and
other restrictions.
The legislation provides that unless an individual state has elected to prohibit
out-of-state banks from operating interstate branches within its territory,
adequately capitalized and managed bank holding companies will be able to
consolidate their multistate banking operations into a single bank subsidiary
and to branch interstate through acquisitions. De novo branching by an
out-of-state bank is permitted only if it is expressly permitted by the laws of
the host state. Georgia does not permit de novo branching by an out-of-state
bank. Therefore, the only method by which an out-of-state bank or bank holding
company may enter Georgia is through an acquisition. Georgia has adopted an
interstate banking statute that removes the existing restrictions on the ability
of banks to branch interstate through mergers, consolidations and acquisitions.
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 the Federal Reserve
determines to be closely related to banking or managing or controlling banks.
13
<PAGE>
The Gramm-Leach-Bliley Act has added additional financial related activities
that may be conducted by a bank holding company that qualifies as a financial
holding company. See "-Gramm-Leach-Bliley Act" below. 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. The BHC Act does not place territorial
limitations on permissible non-banking activities of bank holding companies.
Despite prior approval, the Federal Reserve may order a holding company or its
subsidiaries to terminate any activity or to terminate its ownership or control
of any subsidiary when the Federal Reserve has reasonable cause to believe that
the holding company's continued activity, ownership or control constitutes a
serious risk to the financial safety, soundness, or stability of any of its bank
subsidiaries.
The bank's deposits are insured by the FDIC to the maximum extent provided by
law. The bank 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 have the 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.
Gramm-Leach-Bliley Act
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act which implements major changes to the statutory framework for providing
banking and other financial services in the United States. The
Gramm-Leach-Bliley Act, among other things, eliminates many of the restrictions
on affiliations among banks and securities firms, insurance firms, and other
financial service providers. A Bank holding company that qualifies as a
financial holding company will be permitted to engage in activities that are
financial in nature or incidental or complimentary to a financial activity. The
activities that the Gramm-Leach-Bliley Act expressly lists as financial in
nature include insurance activities, providing financial and investment advisory
services, underwriting securities and limited merchant banking activities.
To become eligible for these expanded activities, a bank holding company must
qualify as a financial holding company. To qualify as a financial holding
company, each insured depository institution controlled by the bank holding
company must be well-capitalized, well-managed, and have at least a satisfactory
rating under the Community Reinvestment Act. In addition, the bank holding
company must file a declaration with the federal Reserve of its intention to
become a financial holding company. Presently, we have no plans to become a
financial holding company.
Although considered to be one of the most significant banking laws since
Depression-era statutes were enacted, we do not expect the Gramm-Leach-Bliley
Act to materially affect our products, services or other business activities. To
the extent the Gramm-Leach-Bliley Act allows banks, securities firms, and
insurance firms to affiliate, the financial services industry may experience
further consolidation. The Gramm-Leach-Bliley Act may have the result of
increasing the amount of competition we face from larger financial institutions
and other companies offering financial products and services, many of which have
substantially greater financial resources.
14
<PAGE>
Payment of Dividends
The Company is a legal entity separate and distinct from the bank. The principal
sources of the Company's cash flow, including cash flow to pay dividends to its
shareholders, are dividends that the Bank pays to the Company. Statutory and
regulatory limitations apply to the Bank's payment of dividends to the Company
as well as to the Company's payment of dividends to its shareholders.
If, in the opinion of the FDIC, the Bank was engaged in or about to engage in an
unsafe or unsound practice, the FDIC could require, after notice and hearing,
that the Bank 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, a
depository institution may not pay any dividend if payment would cause it to
become undercapitalized or if it already is undercapitalized. 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. See "-- Prompt Corrective Action."
At December 31, 1999, under dividend restrictions imposed under federal and
state laws, the maximum amount of dividends that could be paid by the Bank was
$218,214.
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 in the case of the Company, and the
FDIC in the case of Bank. The Federal Reserve has established two basic measures
of capital adequacy for bank holding companies: a risk-based measure and a
leverage measure. Above holding company must satisfy all applicable capital
standards 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 ratio of total capital to risk-weighted assets is 8%. At least half
of total capital or "Tier 1 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. The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves. At December 31, 1999, the Company's consolidated
total risk-based capital ratio and its Tier 1 risk-based capital ratio were 13%
and 12%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and 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 1% to 2%. The Company's leverage ratio at December 31,
1999 was 9%. 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
15
<PAGE>
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, 1999.
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 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 Reserve and the FDIC are required to consider interest rate risk in
the evaluation of a bank's capital adequacy when the interest rate sensitivity
of an institution's assets does not match the sensitivity of its liabilities or
its off-balance-sheet position. 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. These rules did not apply to the Company or the Bank
in 1999.
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, the Bank. This
support may be required at times when, absent this Federal Reserve policy, the
Company may not be inclined to provide it. In addition, any capital loans by the
Company to the Bank will be repaid only after the Bank's deposits and certain
other indebtedness are repaid in full. 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.
Prompt Corrective Action
The federal banking regulators are required to establish five capital categories
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized) and are required to take
mandatory supervisory actions, and are authorized to take other discretionary
actions, with respect to institutions in the three undercapitalized categories.
The severity of the action will depend upon the capital category in which the
institution is placed. Generally, subject to a narrow exception, the banking
regulator must appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.
16
<PAGE>
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 Capitalized 4% or more 8% or more 4% or more --
- -------------------------- -------------------- ------------------------- ---------------------- -------------------
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. 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 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 may treat an undercapitalized depository institution in the same manner
as it treats a significantly undercapitalized institution if it determines that
those actions are necessary.
At December 31, 1999, the Bank had the requisite capital levels to qualify as
well capitalized.
17
<PAGE>
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 undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action purposes. The FDIC also
assigns an institution 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). The FDIC then determines an institution's
insurance assessment rate based on the institution's capital category and
supervisory category to which it is assigned. Under the risk-based assessment
system there are nine combinations of capital groups and supervisory subgroups
to which different assessment rates are applied. Assessment rates range from 0
to 27 cents per $100 of deposits, depending on the institution's capital group
and supervisory subgroup.
The FDIC may terminate insurance of deposits if it finds 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.
Based on the Bank's risk classification, the Bank was not required to pay an
assessment for deposit insurance in 1999, nor will it be required to pay a
deposit insurance assessment in 2000. The Bank was required to pay the special
interim Bank Insurance Fund Financing Corporation ("FICO") assessment in 1999
and will also be required to pay this assessment in 2000. During the fourth
quarter of 1999, the rate of this assessment was $.00520 per $100 of Bank
deposits.
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
- -------------------------------
Main Office
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 teller
lanes, six stand-up teller windows, and a security vault with safe deposit
boxes. The Bank owns the building and the 2.29 acres of graded land on which it
is located.
18
<PAGE>
The Bank plans to begin construction on a 4,000 square foot main office
expansion in the fourth quarter of 2000. The cost of the expansion, including
furniture, fixtures and equipment is expected to be approximately $482 thousand.
As of first quarter 2000, the board had not solicited any bids for construction
of the main office expansion.
East Rome Office
The Bank also operates an 1,820 square foot branch at 800 East Second Avenue in
Rome, approximately two miles south of the Bank's main office. The East Rome
Office opened for business in the first week of June 1998. It is a full service
office with three drive-up banking lanes and has a drive-up ATM.
West Rome Office
In the third quarter of 1999, the Bank acquired a site in West Rome to begin
construction of an additional branch. It will be a full service office of
approximately 1,600 square feet with two drive-up banking lanes and a drive-up
ATM. The site is located approximately four miles west of the Bank's main
office. Construction on the new facility began in the first quarter of 2000.
The West Rome site was acquired for $185 thousand. The total cost of the
facility, including land, site work, furniture, fixtures and equipment is
expected to be approximately $576 thousand. Management projects that the new
office should be making a contribution to earnings after twenty-four months of
operations and should position the Bank to more fully serve the greater Rome
market.
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.
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 1999 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 1999 Annual
Report is incorporated herein by reference.
Item 7. Financial Statements
- ----------------------------
The consolidated balance sheets of the Company as of December 31, 1999 and 1998,
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, 1999, and the report
19
<PAGE>
issued thereon by the Company's independent public accountants, which appear in
the 1999 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 "Related Party Transactions" in the
Proxy Statement is incorporated herein by reference.
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 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
20
<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. Board of Directors Compensation Program,
dated October 14, 1999.
13.1 1999 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, 1999.
21
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
By:/s/ Thomas D. Caldwell, III
---------------------------
Thomas D. Caldwell, III, President
Date: March 26, 2000
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, 2000
- -------------------
Robert L. Berry
/s/ Frank A. Brown, Jr. Director March 27, 2000
- -----------------------
Frank A. Brown, Jr.
/s/ Thomas D. Caldwell, III Chairman, CEO and President March 27, 2000
- ---------------------------
Thomas D. Caldwell, III (Principal Executive Officer)
/s/ Gene G. Davidson Director March 27, 2000
- --------------------
Gene G. Davidson
/s/ Henry Haskell Perry Director March 27, 2000
- -----------------------
Henry Haskell Perry
/s/ Bradford Lee Riddle Director March 27, 2000
- -----------------------
Bradford Lee Riddle
/s/ M. Wayne Robinson Director March 27, 2000
- ---------------------
M. Wayne Robinson
/s/ Dale G. Smith Director March 27, 2000
- -----------------
Dale G. Smith
/s/ Paul E. Smith Director March 27, 2000
- -----------------
Paul E. Smith
/s/ W. Fred Talley Director March 27, 2000
- ------------------
W. Fred Talley
/s/ Martha Berry Walstad Director March 27, 2000
- ------------------------
Martha Berry Walstad
/s/ E. Grey Winstead, III Chief Financial Officer March 27, 2000
- -------------------------
E. Grey Winstead, III (Principal Financial and Accounting
Officer)
</TABLE>
22
<PAGE>
GREATER ROME BANCSHARES, INC.
Form 10-KSB Annual Report for the Fiscal Year ended December 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Sequential 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. Board of Directors Compensation Program, dated October 14,
1999.
13.1 1999 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). N/A
27.1 Financial Data Schedule (for S.E.C. use only).
</TABLE>
- ------------------
* Indicates a management contract or compensatory arrangement.
23
GREATER ROME BANCSHARES, INC.
<TABLE>
<CAPTION>
DIRECTORS STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1 DEFINITIONS............................................................................................1
SECTION 2 THE STOCK INCENTIVE PLAN...............................................................................1
2.1 PURPOSE OF THE PLAN......................................................................................1
-------------------
2.2 ADMINISTRATION OF THE PLAN...............................................................................2
--------------------------
2.3 EFFECTIVE DATE...........................................................................................2
--------------
SECTION 3 ELIGIBILITY............................................................................................2
SECTION 4 SHARES SUBJECT TO PLAN.................................................................................2
SECTION 5 STOCK AWARDS...........................................................................................2
5.1 DIRECTOR FEES ELECTION...................................................................................2
----------------------
5.2 DEFERRED FEES ACCOUNT....................................................................................2
---------------------
5.3 PAYMENT IN STOCK.........................................................................................2
----------------
5.4 PAYMENT IN CASH..........................................................................................3
---------------
5.5 TERMINATION OF DIRECTORSHIP..............................................................................3
---------------------------
SECTION 6 TERM OF PLAN...........................................................................................3
SECTION 7 GENERAL PROVISIONS.....................................................................................3
7.1 AMENDMENT AND TERMINATION OF THE PLAN....................................................................3
-------------------------------------
7.2 CHANGES IN CAPITALIZATION................................................................................3
-------------------------
7.3 RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS.....................................................4
----------------------------------------------------
7.4 NO RIGHT TO CONTINUED RETENTION..........................................................................4
-------------------------------
7.5 NON-ALIENATION OF BENEFITS...............................................................................4
--------------------------
7.6 CHOICE OF LAW............................................................................................4
-------------
</TABLE>
<PAGE>
GREATER ROME BANCSHARES, INC.
DIRECTORS STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
Definitions. Wherever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following words and phrases
shall, when used herein, have the meanings set forth below:
(a) "Bank" means Greater Rome Bank, a bank organized under the laws of the
----
State of Georgia.
(b) "Bank Board" means the Board of Directors of the Bank.
----------
(c) "Company" means Greater Rome Bancshares, Inc., a bank holding company
-------
organized under the laws of the State of Georgia as a bank holding company.
(d) "Company Board" means the Board of Directors of the Company.
-------------
(e) "Deferred Fees Account" means the bookkeeping account established under the
---------------------
Plan for each Eligible Director, as described in Plan Section 5.2.
(f) "Director" means a member of the Bank Board.
--------
(h) "Director Fees" means, with respect to each Election Period (or portion
--------------
thereof while the Plan is in effect), the retainer and meeting fees for
regularly scheduled Bank Board and Bank Board committee meetings for
such period.
(i) "Election Period" refers to each successive, twelve-month period, commencing
---------------
July 1. The first Election Period shall commence July 1, 1999.
(j) "Eligible Director" means any Director of the Bank Board.
-----------------
(k) "Fair Market Value" refers to the fair market value of a share of Stock as
of a given date, as determined by the Company Board in good faith.
(l) "Plan" means the Greater Rome Bancshares, Inc. Directors Stock Incentive
----
Plan.
(m) "Stock" means the common stock of the Company, $.01 par value per share.
-----
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended (a) to provide Eligible
--------------------
Directors with the opportunity to elect to receive payment for Director Fees
either in cash or in shares of Stock; and (b) to further align the interests of
those individuals who are responsible for shaping and carrying out the policies
and the long term plans of the Company with the interests of shareholders
generally.
<PAGE>
2.2 Administration of the Plan. The Plan shall be administered by the
----------------------------
Company Board. The Company Board shall have the authority in its sole discretion
to interpret the Plan, to make all other determinations and to take all other
actions it deems necessary or advisable for the implementation and
administration of the Plan. All actions of the Company Board shall be final,
conclusive, and binding. No member of the Company Board shall be liable for any
action taken or decision made in good faith relating to the Plan.
2.3 Effective Date. The Plan shall be effective as of July 1, 1999.
--------------
SECTION 3 ELIGIBILITY
Eligible Directors may elect pursuant to Section 5 of the Plan to
receive cash or Stock as payment for Director Fees on the terms and subject to
the restrictions hereinafter set forth.
SECTION 4 SHARES SUBJECT TO PLAN
Subject to adjustment in accordance with Section 7.2, 50,000 shares of
Stock are hereby reserved exclusively for issuance pursuant to elections by
Eligible Directors to receive Stock pursuant to elections under Section 5.
SECTION 5 STOCK AWARDS
5.1 Director Fees Election. With respect to each Election Period (or
------------------------
applicable portion thereof), each Eligible Director may elect in writing and in
such form and at such time as the Company Board may direct, to receive payment
of Director Fees earned by the Eligible Director for that Election Period either
(a) in cash, or (b) in shares of Stock having a Fair Market Value equal to the
cash amount that would otherwise be payable. Once made, an election by an
Eligible Director under this Section 5.1 is irrevocable, except as provided in
Section 5.5 below.
5.2 Deferred Fees Account. A Deferred Fees Account shall be established
----------------------
for each Eligible Director. The Deferred Fees Account shall be credited monthly
with the amount of Director Fees earned by an Eligible Director for that month,
as of the close of the last business day of the month. The Deferred Fees Account
shall be credited with interest on amounts credited to the Deferred Fees Account
during an Election Period from and after the date the Director Fees are
credited. The earnings credit shall be based upon an annual percentage rate of
return equal to seven percent (7%), until revised by further action of the
Company Board.
5.3 Payment In Stock. An Eligible Director electing to receive Stock as
-----------------
payment for Director Fees for an Election Period will receive a number of shares
of Stock equal to the result, rounded up to the nearest whole number, obtained
by dividing the amount credited to the Eligible Director's Deferred Fees Account
for the Election Period by the Fair Market Value of a share of Stock as of the
last day of the Election Period during which the Director Fees were earned. The
Stock will be issued to such Eligible Director as soon as practicable after the
end of that Election Period.
2
<PAGE>
5.4 Payment In Cash. An Eligible Director electing to receive cash as
----------------
payment for Director Fees will receive payment of the amount credited to the
Deferred Fees Account as soon as practicable after the end of the Election
Period during which the Director Fees were earned.
5.5 Termination of Directorship. In the event an Eligible Director
------------------------------
ceases to be a Director for any reason prior to the end of the Election Period
to which such election applies, such Director will receive payment in cash of
amounts credited to such Director's Deferred Fees Account as of the date the
Director ceases to be an Eligible Director. Payments made pursuant to this
Section 5.5 shall be made at the same time as other cash amounts due for the
same Election Period in accordance with section 5.4 (or at such earlier time as
the Company Board may determine in its sole discretion).
SECTION 6 TERM OF PLAN
The Plan shall continue until terminated by the Company Board pursuant
to Section 7.1 hereof or, if earlier, until there are not a sufficient number of
shares of Stock to issue to all electing Eligible Directors for an Election
Period. If the Plan is terminated, any amounts remaining credited to Deferred
Fees Accounts shall become payable to Eligible Directors in a cash lump sum
payment as soon as practicable after the Plan is terminated.
SECTION 7 GENERAL PROVISIONS
7.1 Amendment and Termination of the Plan. The Company Board at any
-----------------------------------------
time may amend or terminate the Plan without shareholder approval; provided,
however, that the Company Board may condition any amendment on the approval of
the shareholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws to which the Company, this
Plan, or Eligible Directors are subject. No amendment or termination of the Plan
shall adversely affect the rights of an Eligible Director without his consent
with respect to Stock previously acquired under the Plan.
7.2 Changes in Capitalization.
-------------------------
(a) The number of shares of Stock reserved for issuance under
the Plan shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Stock resulting from a subdivision or combination
of shares or the payment of an ordinary stock dividend in shares of Stock to
holders of outstanding shares of Stock or any other increase or decrease in the
number of shares of Stock outstanding effected without receipt of consideration
by the Company.
(b) In the event of any merger, consolidation, extraordinary
dividend (including a spin-off), reorganization or other change in the corporate
structure of the Company or its Stock or tender offer for shares of Stock, the
Company Board, in its sole discretion, may take action with respect to Deferred
Fees Accounts as it deems necessary or appropriate to reflect or in anticipation
of such merger, consolidation, extraordinary dividend (including a spin-off),
reorganization, other change in corporate structure or tender offer, including,
but not limited to, the payment of Deferred Fees Accounts in cash.
3
<PAGE>
(c) The existence of the Plan granted pursuant to the Plan
shall not affect in any way the right or power of the Company to make or
authorize any adjustment, reclassification, reorganization or other change in
its capital or business structure, any merger or consolidation of the Company,
any issue of debt or equity securities having preferences or priorities as to
the Stock or the rights thereof, the dissolution or liquidation of the Company,
any sale or transfer of all or any part of its business or assets, or any other
corporate act or proceeding.
7.3 Restrictions on Delivery and Sale of Shares; Legends. Each share of
-----------------------------------------------------
Stock is subject to the condition that if at any time the Company, in its
discretion, shall determine that the listing, registration or qualification of
the shares of Stock upon any securities exchange or under any state or federal
law is necessary or desirable as a condition of or in connection with the
granting of such Stock, the delivery of any or all shares of Stock may be
withheld unless and until such listing, registration or qualification shall have
been effected. If a registration statement is not in effect under the Securities
Act of 1933 or any applicable state securities laws with respect to the shares
of Stock, the Company may require, as a condition to the issuance of any Stock,
that the Eligible Director or other recipient of Stock represent, in writing,
that the shares received are being acquired for investment and not with a view
to distribution and agree that the shares will not be disposed of except
pursuant to an effective registration statement, unless the Company shall have
received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable state securities
laws. The Company may include on certificates representing shares of Stock such
legends referring to the foregoing representations or restrictions or any other
applicable restrictions on resale as the Company, in its discretion, shall deem
appropriate.
7.4 No Right to Continued Retention. Nothing in the Plan shall confer
---------------------------------
upon any Eligible Director the right to continue as a member of the Company
Board or Bank Board or affect the right of the Company or any affiliate to
terminate an Eligible Director's directorship at any time.
7.5 Non-Alienation of Benefits. No benefit under the Plan shall be
-----------------------------
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt by the Eligible Director, be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the Eligible Director.
7.6 Choice of Law. The laws of the State of Georgia shall govern the
-------------
Plan, to the extent not preempted by federal law.
[Remainder of the Page Intentionally Left Blank]
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Plan to be executed as
of the 14th day of October 1999.
GREATER ROME BANCSHARES, INC.
By:
---------------------------
Title:
-----------------------
ATTEST:
- ---------------------------
Title:
--------------------
[CORPORATE SEAL]
5
GREATER ROME BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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, 1999 and 1998, and the
related consolidated statements of earnings and comprehensive income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
February 18, 2000
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets
------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $194,000 in 1999 and $108,000 in 1998 $ 1,882,436 1,240,284
Federal funds sold 2,889,000 2,132,000
Interest bearing deposits 258,216 1,137,526
---------- ----------
Cash and cash equivalents 5,029,652 4,509,810
Securities available for sale 12,863,973 4,834,617
Securities held to maturity 1,878,932 6,307,534
Loans, net 55,090,512 41,352,500
Premises and equipment, net 2,811,150 2,726,188
Accrued interest receivable 541,491 462,949
Bank owned life insurance 1,208,251 350,000
Federal Home Loan Bank Stock 450,000 509,200
Other assets 538,170 389,044
---------- ----------
$ 80,412,131 61,441,842
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 8,244,704 6,009,623
Interest - bearing demand 5,396,309 3,579,780
Savings 9,560,218 7,733,706
Time 28,624,343 24,830,666
Time, over $100,000 11,397,949 6,704,185
---------- ----------
Total deposits 63,223,523 48,857,960
Federal Home Loan Bank borrowings 8,000,000 5,000,000
Securities sold under repurchase agreement 1,500,000 -
Federal funds purchased - 500,000
Accrued interest payable 144,166 101,204
Other liabilities 244,709 170,725
---------- ----------
Total liabilities 73,112,398 54,629,889
---------- ----------
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;
701,600 and 701,600 shares issued and outstanding 7,016 7,016
Additional paid-in capital 6,946,101 6,946,101
Accumulated earnings (deficit) 507,432 (144,640)
Accumulated other comprehensive (loss) income (160,816) 3,476
---------- ----------
Total stockholders' equity 7,299,733 6,811,953
---------- ----------
$ 80,412,131 61,441,842
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings and Comprehensive Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,557,789 3,659,279 2,255,079
Interest and dividends on investments 701,369 637,964 482,641
Interest on federal funds sold and deposits with other banks 211,492 152,121 100,499
--------- --------- ---------
Total interest income 5,470,650 4,449,364 2,838,219
--------- --------- ---------
Interest expense:
Time deposits 1,865,575 1,573,504 963,689
Savings deposits 309,925 261,753 160,563
Interest bearing demand deposits 92,527 64,355 55,224
Other 363,439 247,622 79,841
--------- --------- ---------
Total interest expense 2,631,466 2,147,234 1,259,317
--------- --------- ---------
Net interest income 2,839,184 2,302,130 1,578,902
Provision for loan losses 140,761 255,640 433,694
--------- --------- ---------
Net interest income after provision for loan losses 2,698,423 2,046,490 1,145,208
--------- --------- ---------
Other income:
Service charges 195,588 147,718 97,380
Other 215,858 143,569 61,484
--------- --------- ---------
Total other income 411,446 291,287 158,864
--------- --------- ---------
Other expenses:
Salaries and employee benefits 1,109,797 953,984 834,413
Occupancy 334,699 308,027 255,629
Other operating 696,389 604,323 420,370
--------- --------- ---------
Total other expenses 2,140,885 1,866,334 1,510,412
--------- --------- ---------
Income (loss) before income taxes 968,984 471,443 (206,340)
Income tax (expense) benefit (316,912) (97,206) 248,283
--------- --------- ---------
Net earnings $ 652,072 374,237 41,943
========= ========= =========
Other comprehensive income before tax:
Unrealized gains (losses) on securities available for sale
arising during the period, net of (benefit) tax of $(100,525), $ (164,292) (1,309) 3,125
$2,127 and $0 --------- --------- ---------
Comprehensive income $ 487,780 372,928 45,068
========= ========= =========
Net earnings per share $ 0.93 0.53 0.06
========= ========= =========
Diluted net earnings per share $ 0.90 0.53 0.06
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additional Accumulated Accumulated Other
Common Paid-In (Deficit) Comprehensive
Stock Capital Earnings Income Total
----- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 $ 7,000 6,930,117 (560,820) 1,660 6,377,957
Change in unrealized gain on
investment securities available for sale - - - 3,125 3,125
Net earnings - - 41,943 - 41,943
----- --------- -------- ------- ---------
Balance, December 31, 1997 7,000 6,930,117 (518,877) 4,785 6,423,025
Exercise of stock options 16 15,984 - - 16,000
Change in unrealized gain on investment
securities available for sale, net of tax - - - (1,309) (1,309)
Net earnings - - 374,237 - 374,237
----- --------- -------- ------- ---------
Balance, December 31, 1998 7,016 6,946,101 (144,640) 3,476 6,811,953
Change in unrealized loss on
investment securities available for sale - - - (164,292) (164,292)
Net earnings - - 652,072 - 652,072
----- --------- -------- ------- ---------
Balance, December 31, 1999 $ 7,016 6,946,101 507,432 (160,816) 7,299,733
===== ========= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 652,072 374,237 41,943
Adjustments to reconcile net earnings to net cash used by operating
activities:
Depreciation, amortization and accretion 208,490 174,806 147,050
Provision for loan losses 140,761 255,640 433,694
Provision for deferred income taxes - (3,758) (248,283)
Change in:
Interest receivable (78,542) (106,654) (163,493)
Other assets (86,854) 4,170 (65,471)
Interest payable 42,962 24,618 38,071
Other liabilities 73,984 13,764 (116,846)
---------- ---------- ----------
Net cash provided by operating activities 952,873 736,823 66,665
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from maturities and calls of securities available for sale 3,200,802 1,104,440 249,709
Proceeds from maturities and calls of securities held to maturity 536,036 5,304,286 801,890
Purchases of securities available for sale (7,120,580) (3,742,598) (952,453)
Purchases of securities held to maturity (494,219) (5,284,954) (2,377,684)
Redemption (Purchase) of FHLB stock 59,200 (19,000) (490,200)
Purchase of bank owned life insurance (820,000) (350,000) --
Net increase in loans (13,878,773) (11,885,717) (17,060,516)
Purchases of premises and equipment (281,060) (625,675) (318,433)
---------- ---------- ----------
Net cash used by investing activities (18,798,594) (15,499,218) (20,147,687)
Cash flows from financing activities:
Net change in deposits 14,365,563 15,291,781 13,721,643
Federal Home Loan Bank advances 3,000,000 1,000,000 4,000,000
Change in securities sold under repurchase agreements 1,500,000 (500,000) 500,000
Change in federal funds purchased (500,000) 500,000 -
Proceeds from stock options exercised - 16,000 -
---------- ---------- ----------
Net cash provided by financing activities 18,365,563 16,307,781 18,221,643
---------- ---------- ----------
Net change in cash and cash equivalents 519,842 1, 545,386 (1,859,379)
---------- ---------- ----------
Cash and cash equivalents at beginning of year 4,509,810 2,964,424 4,823,803
---------- ---------- ----------
Cash and cash equivalents at end of year $ 5,029,652 4,509,810 2,964,424
========== ========== ==========
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,588,504 2,053,095 1,221,246
Taxes $ 299,461 78,000 -
Non cash investing and financing activities:
Transfer of held to maturity securities to available for sale $ 4,387,335 - -
Change in unrealized (loss) gain on securities available for sale $ (164,292) (1,309) 3,125
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
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.
Basis of Presentation and Reclassification
------------------------------------------
The consolidated financial statements include the accounts of the Company
and the Bank. All intercompany accounts and transactions have been
eliminated in consolidation. Certain 1998 and 1997 amounts have been
reclassified to conform to the 1999 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 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.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
7
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at the principal amount
outstanding, net of the allowance for loan losses and any deferred fees or
costs on originated loans. Interest on all loans is calculated principally
by using the simple interest method on the daily balance of the principal
amount outstanding.
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:
Building 40 years
Land improvements 20 years
Furniture, fixtures and equipment 2-7 years
8
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
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
----------------------
The Company presents earnings per share with and without the dilutive
effects of potential common stock issuances from instruments such as
options, convertible securities and warrants on the statement of earnings.
Additionally, the reconciliation of the amounts used in the computation of
both "earnings per share" and "diluted earnings per share" for the years
ended December 31, 1999, 1998 and 1997 are presented:
<TABLE>
<CAPTION>
For the year ended December 31, 1999 Net Common Per Share
Earnings Share Amount
-------- ----- ------
<S> <C> <C> <C>
Earnings per share $ 652,072 701,600 0.93
Effect of stock options - 19,467 -
------- ------- ----
Diluted earnings per share $ 652,072 721,067 0.90
======= ======= ====
For the year ended December 31, 1998 Net Common Per Share
Earnings Share Amount
-------- ----- -----
Earnings per share $ 374,237 700,309 0.53
Effect of stock options - 10,529 -
------- ------- ----
Diluted earnings per share $ 374,237 710,838 0.53
======= ======= ====
For the year ended December 31, 1997 Net Common Per Share
Earnings Share Amount
-------- ------ ---------
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>
9
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 establishes
accounting and reporting standards for hedging activities and for
derivative instruments including derivative instruments embedded in other
contracts. It requires the fair value recognition of derivatives as assets
or liabilities in the financial statements. The accounting for the changes
in the fair value of derivatives depends on the intended use of the
derivative instruments at inception. Instruments used as fair value hedges
account for the change in fair value in the earnings of the period
simultaneous with accounting for the fair value change of the item being
hedged. Cash flow hedges account for the change in fair value of the
effective portion in comprehensive income rather than earnings and foreign
currency hedges are accounted for in comprehensive income as part of the
translation adjustment. Derivative instruments that are not intended as a
hedge account for the change in fair value in the earnings of the period
of the change. In 1999, Statement No. 137 was issued, which deferred
implementation of SFAS 133 to become effective for all fiscal quarters
beginning after June 15, 2000, but initial application of the statement
must be made as of the beginning of the quarter. At the date of initial
application, an entity may transfer any held to maturity security into the
available for sale or trading categories without calling into question the
entity's intent to hold other securities to maturity in the future.
In June of 1999, management made the one-time election under SFAS 133 to
reclassify $4,387,335 in held-to-maturity securities to
available-for-sale. At the time of the reclassification, the related
investments had an unrealized loss of $65,355. While the Company has no
derivative instruments or hedging activity, this pronouncement permits the
reclassification made by management, which is expected to improve the
flexibility for managing the interest rate risk and cash flow of the
Bank's investment portfolio.
(2) Investment Securities
Investment securities at December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
Securities Held to Maturity December 31, 1999
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 494,533 - 12,456 482,077
State, county and municipalities 1,384,399 - 74,718 1,309,681
--------- --- ------ ---------
$ 1,878,932 87,174 1,791,758
========= === ====== =========
December 31, 1998
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government agencies $ 4,649,962 33,074 125 4,682,911
State, county, and municipals 1,384,299 6,119 2,713 1,387,705
Mortgage-backed securities 273,273 1,362 - 274,635
--------- ------ ----- ---------
$ 6,307,534 40,555 2,838 6,345,251
========= ====== ===== =========
</TABLE>
10
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
Investment Securities, continued
<TABLE>
<CAPTION>
Securities Available for Sale December 31, 1999
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government agencies $ 5,018,821 - 98,715 4,920,106
State, county, and municipals 1,700,498 263 69,034 1,631,727
Mortgage-backed securities 6,403,868 223 91,951 6,312,140
---------- --- ------- ----------
$ 13,123,187 486 259,700 12,863,973
========== === ======= ==========
<CAPTION>
December 31, 1998
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasuries $ 1,699,949 5,973 - 1,705,922
Mortgage-backed securities 3,129,066 5,874 6,245 3,128,695
--------- ----- ----- ---------
$ 4,829,015 11,847 6,245 4,834,617
========== ====== ===== =========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities of certain securities will differ from contractual maturities
because borrowers may have the right to call or prepay certain obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available Securities Held
for Sale to Maturity
-------------------- ---------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies:
Within 1 year $ - - - -
1 to 5 years 4,649,226 4,551,903 - -
5 to 10 years - - 494,533 482,077
Greater than 10 years 369,595 368,203 - -
--------- --------- --------- -------
5,018,821 4,920,106 494,533 482,077
--------- --------- --------- -------
State, county and municipal:
Within 1 year 275,000 275,262 - -
1 to 5 years 249,274 249,274 - -
5 to 10 years 557,352 546,706 1,384,399 1,309,681
Greater than 10 years 618,872 560,485 - -
--------- --------- --------- ---------
1,700,498 1,631,727 1,384,399 1,309,681
--------- --------- --------- ---------
Mortgage-backed securities 6,403,868 6,312,140 - -
--------- --------- --------- ---------
Total $ 13,123,187 12,863,973 1,878,932 1,791,758
========== ========== ========= =========
</TABLE>
At December 31, 1999, securities totaling $1,575,781 were pledged under
short-term repurchase agreements with a correspondent bank.
11
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(3) Loans
Major classifications of loans at December 31, 1999 and 1998 are presented
below.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial $ 13,438,239 11,518,652
Real estate - mortgage 27,356,312 19,271,316
Real estate - construction 2,534,684 1,226,296
Installment and other consumer 12,490,147 9,960,566
---------- ---------
Total loans 55,819,382 41,976,830
Less: Unearned fees 44,739 55,145
Allowance for loan losses 684,131 569,185
---------- ----------
Total net loans $ 55,090,512 41,352,500
========== ==========
</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. FHLB advances are secured by the FHLB stock with a value of
$450,000 in addition to qualifying first mortgage loans totaling
$14,238,300.
An analysis of the activity in the allowance for loan losses for the years
ended December 31, 1999, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 569,185 480,544 133,342
Provision charged to operations 140,761 255,640 433,694
Loans charged off (63,025) (188,456) (87,254)
Recoveries 37,210 21,457 762
------- ------- -------
Balance at end of year $ 684,131 569,185 480,544
======= ======= =======
</TABLE>
(4) Premises and Equipment
Premises and equipment at December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 774,651 589,669
Land improvements 235,065 235,065
Buildings and improvements 1,470,100 1,472,842
Furniture, fixtures and equipment 819,932 735,292
Construction in progress 6,250 -
--------- ---------
3,305,998 3,032,868
Less: Accumulated depreciation 494,848 306,680
--------- ---------
$ 2,811,150 2,726,188
========= =========
</TABLE>
Depreciation expense was $196,099, $170,881 and $146,118 for the years
ended December 31, 1999, 1998 and 1997, respectively.
12
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(5) Time Deposits
The scheduled maturities of time deposits as of December 31, 1999 are as
follows:
2000 $ 33,110,915
2001 5,765,682
2002 1,143,632
2003 2,063
----------
$ 40,022,292
==========
(6) Income Taxes
The components of income tax expense (benefit) for the years ended
December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Currently payable $ 316,912 100,964 -
Deferred tax (benefit) - (3,758) (30,988)
Change in valuation allowance - - (217,295)
------- ------- -------
$ 316,912 97,206 (248,283)
======= ======= =======
</TABLE>
The differences between the income tax expense or benefit and the amount
computed by applying the statutory federal income tax rate to the income
or loss before income taxes for the years ended December 31, 1999 and 1998
relate primarily to tax exempt interest income on municipal investments
and bank owned life insurance. Such differences in 1997 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>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred pre-opening expenses $ 22,871 44,987
Allowance for loan losses 216,917 176,609
Operating loss carryforwards 9,006 29,924
Net unrealized loses on securities available for sale 98,398 -
Deferred compensation 7,891 28,470
Other 42,234 12,505
------- -------
Total gross deferred tax assets 397,317 292,495
------- -------
Deferred tax liability:
Premises and equipment (46,878) (40,454)
Net unrealized gains on securities available for sale - (2,127)
------- -------
(46,878) (42,581)
------- -------
Net deferred taxes $ 350,439 249,914
======= =======
</TABLE>
At December 31, 1999, the Company had a state net operating loss
carryforward for tax purposes of approximately $227,424, which will begin
to expire in 2009 if not previously utilized.
13
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(7) Lines of Credit
At December 31, 1999, the Bank had fixed rate advances outstanding from
the Federal Home Loan Bank (FHLB) of Atlanta amounting to $8,000,000. The
following advances required monthly or quarterly interest payments:
<TABLE>
<CAPTION>
Advance Interest Rate Maturity Call Feature
------- ------------- -------- ------------
<S> <C> <C> <C>
$ 3,000,000 6.19% 12/06/04 Callable 12/6/01
2,000,000 5.71% 9/28/04 Callable 9/28/01
1,000,000 5.01% 4/22/04 Callable 4/22/01
1,000,000 5.40% 6/18/03 Callable 6/18/00
1,000,000 4.97% 10/16/00 -
</TABLE>
At December 31, 1998, the Bank had fixed rate advances outstanding from
the FHLB of Atlanta amounting to $5,000,000. The following advances
required monthly or quarterly interest payments:
<TABLE>
<CAPTION>
Advance Interest Rate Maturity Call Feature
------- ------------- -------- ------------
<S> <C> <C> <C>
$ 2,000,000 5.66% 9/24/02 Callable 9/24/99
1,000,000 5.45% 9/08/00 Callable quarterly after 3/8/98
1,000,000 5.40% 6/18/03 Callable 6/18/00
1,000,000 4.97% 10/16/00 -
</TABLE>
The FHLB advances are secured by the Bank's stock in the FHLB and its
investments in first mortgage loans. As of December 31, 1999 and 1998 the
Bank pledged $14,238,300 and $6,778,077, respectively, as collateral to
the FHLB borrowings. If called, the advances will be converted into
three-month LIBOR-based floating rate advances at three-month LIBOR flat.
Additionally, at December 31, 1999, the Bank had unused lines of credit
totaling $4,500,000 which represents credit for overnight borrowings from
financial institutions.
(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, 1999, the maximum amount of
dividends that could be paid by the Bank was $218,214.
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 are granted to employees at exercise prices not less than
fair market value at the date of grant. The options vest evenly over
three, four and five year periods and are exercisable no later than ten
years from the date of grant. At December 31, 1999, 11,500 options were
available for distribution.
14
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(9) Stock Incentive Plan, continued
During 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. Each of the ten non-employee
directors was awarded an option to purchase 3,500 shares at an exercise
price of $10, which was equal to the 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. During 1999
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. Each of the ten non-employee directors was awarded
an option to purchase 3,500 shares at an exercise price of $12, which was
equal to the fair market value at the date of grant. The options vest
evenly over a five-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, 1999,
1998 and 1997, and changes during the years, are presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 107,000 $ 10.13 99,000 $ 10.00 63,000 $10.00
Granted during the year 54,900 $ 12.00 14,000 $ 11.00 37,000 $10.00
Exercised during the year - - (1,600) $ 10.00 - -
Forfeited during the year - - (4,400) $ 10.00 (1,000) $10.00
------- ----- ------ ------
Outstanding, end of year 161,900 $ 10.76 107,000 $ 10.13 99,000 $10.00
======= ======= ======
Options exercisable at year end 56,100 $ 10.04 35,000 $ 10.00 17,200 $10.00
======== ======= ======
Weighted average fair value of
options granted during the year $6.34 $4.98 $ 3.79
===== ===== ====
Range of exercise prices $10 to $12
Weighted average remaining
contractual lives (years) 8.43
</TABLE>
The Company is encouraged, but not required, 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 these cost recognition principles. No compensation
expense has been recognized in 1999, 1998 and 1997 related to the stock
option plan. Had compensation cost been determined based upon the fair
value of the options at the grant dates, the Company's net earnings and
net earnings per share would have been reduced to the proforma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) As reported $ 652,072 374,237 41,943
Proforma $ 436,132 304,525 (42,649)
Earnings (loss) per share As reported $ 0.93 0.53 .06
Proforma $ 0.62 0.47 (.06)
Diluted earnings (loss) per share As reported $ 0.90 0.53 .06
Proforma $ 0.60 0.47 (.06)
</TABLE>
15
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(9) Stock Incentive Plan, continued
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 1999, 1998 and 1997: no dividend yield, a
risk free interest rate of 6.9%, 4.7% and 5.0%, respectively, and an
expected life of 10 years for all years. For disclosure purposes, the
Company immediately recognized the expense assuming that all awards will
vest.
(10) Bank Owned Life Insurance Policies
The Company sponsors a defined contribution post retirement benefit plan
to provide retirement benefits to certain of the Company's executive
officers and to provide death benefits for the designated beneficiaries.
Under this plan, split dollar whole life insurance contracts were
purchased on certain executive officers. The increase in the cash
surrender value of the contracts, less the Bank's cost of funds,
constitutes the Company's contribution to the plan each year. In the event
the insurance contracts fail to produce positive returns, the Company has
no obligation to contribute to the plan. At December 31, 1999 and 1998 the
Company incurred expenses of $20,787 and $0, respectively.
(11) Related Party Transactions
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.
At December 31, 1999, the Company had deposits for related parties
totaling approximately $5,007,000.
Additionally, the following table summarizes related party loan activity
during 1999:
Beginning balance $ 1,201,550
New loans 1,119,384
Repayments (1,233,367)
---------
Ending balance $ 1,087,567
=========
(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, 1999, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1999, 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.
16
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(12) Regulatory Matters, continued
The Bank's actual capital amounts and ratios are also presented below.
Risk weighted assets are as of December 31. Average assets are for the
fourth quarter of the year. 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, 1999:
Total Capital
(to Risk Weighted Assets) $ 7,871,000 13% $4,821,000 8% $ 6,027,000 10%
Tier 1 Capital
(to Risk Weighted Assets) $ 7,187,000 12% $2,411,000 4% $ 3,013,000 6%
Tier 1 Capital
(to Average Assets) $ 7,187,000 9% $3,102,000 4% $ 3,878,000 5%
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $ 7,074,000 16% $ 3,607,000 8% $ 4,509,000 10%
Tier 1 Capital
(to Risk Weighted Assets) $ 6,510,000 14% $ 1,804,000 4% $ 2,706,000 6%
Tier 1 Capital
(to Average Assets) $ 6,510,000 11% $ 2,386,000 4% $ 2,983,000 5%
</TABLE>
(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, 1999 and 1998.
<TABLE>
<CAPTION>
Approximate
Contract Amount
---------------
1999 1998
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit
risk:
Commitments to extend credit $ 3,926,000 4,192,000
Standby letters of credit $ 52,000 30,000
Credit card guarantees $ 159,000 130,000
</TABLE>
17
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
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 31,1999,1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Professional fees $ 118,504 109,381 87,142
Advertising and marketing $ 81,611 72,122 50,156
Processing fees $ 203,679 150,500 96,508
Supplies $ 52,053 43,685 36,156
</TABLE>
18
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(15) Greater Rome Bancshares, Inc. (Parent Company Only) Financial Information
Balance Sheets
December 31, 1999 and 1998
Assets
-----
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash $ 1,929 3,555
Federal funds sold 60,000 70,000
Securities available for sale 189,860 201,156
Investment in Bank 7,029,114 6,514,416
Other assets 24,046 30,526
--------- ---------
$ 7,304,949 6,819,653
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 5,216 7,700
Stockholders' equity 7,299,733 6,811,953
--------- ---------
$ 7,304,949 6,819,653
========= =========
</TABLE>
<TABLE>
<CAPTION>
Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income $ 14,299 15,877 15,852
Other operating expenses 55,505 72,912 31,653
------- ------- ------
Loss before income taxes and equity in undistributed
earnings of Bank (41,206) (57,035) (15,801)
Income tax (expense) benefit 15,642 (5,155) 46,072
------- ------- ------
Earnings (losses) before equity in undistributed
earnings of Bank (25,564) (62,190) 30,271
Equity in undistributed earnings of Bank 677,636 436,427 11,672
------- ------- ------
Net earnings $ 652,072 374,237 41,943
======= ======= ======
</TABLE>
19
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
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, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 652,072 374,237 41,943
Adjustments to reconcile net earnings to net
cash used in operating activities:
Equity in undistributed earnings of Bank (677,636) (436,427) (11,672)
Depreciation and amortization - 20,542 7,490
Other 2,642 23,340 (48,292)
------- ------- -------
Net cash used in operating activities (22,922) (18,308) (10,531)
------- ------- -------
Cash flows from investing activities:
Maturities of securities available for sale 210,445 - -
Purchase of securities available for sale (199,149) - (200,188)
------- ------- -------
Net cash (used) provided by investing activities 11,296 - (200,188)
------- ------- -------
Cash flows from financing activities, consisting of
proceeds from exercise of stock options - 16,000 -
------- ------- -------
Net change in cash and cash equivalents (11,626) (2,308) (210,719)
Cash and cash equivalents at beginning of period 73,555 75,863 286,582
------- ------- -------
Cash and cash equivalents at end of period $ 61,929 73,555 75,863
======= ======= =======
Noncash investing and financing activities:
Change in unrealized (loss) gain on securities available
for sale $ (4,953) (1,309) 3,125
</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, of which 701,600 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 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.
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 680 shareholders.
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;
21
<PAGE>
(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 risksinvolved in the foregoing.
Forward-looking statements speak only as of the date on which they are made. The
Company undertakes 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 December 31, 1999, the Company had $80.4 million in total assets, up $19.0
million (30.9%) over year-end 1998. Total deposits increased $14.4 million
(29.4%) over year-end 1998 to $63.2 million. Net loans outstanding increased
$13.7 million (33.2%) over year-end 1998 to $55.1 million. The Bank's
loan-to-asset ratio at December 31, 1999 was 69.8%, compared to 68.7% at
year-end 1998. All of the Bank's growth in deposits and loans has come from the
local market. Management attributes this growth to a relatively stable local
economy combined with competitive banking services delivered by a locally owned
and operated community bank. The Bank 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 the third quarter of 1999, the Bank acquired a site in West Rome to begin
construction of a second branch banking facility. It will be a full service
branch office of approximately 1,600 square feet with two drive-up banking lanes
and a drive-up ATM. The site is located approximately four miles west of the
Bank's main office. Construction on the new facility began in the first quarter
of 2000.
The West Rome site was acquired for $185 thousand. The total cost of the
facility, including land, site work, furniture, fixtures and equipment is
expected to be approximately $576 thousand. Management projects that the new
office should be making a contribution to earnings after twenty-four months of
operations and should position the Bank to more fully service the greater Rome
market.
In addition to the West Rome branch facility, the Bank also plans to begin
construction on a 4,000 square foot main office expansion in the fourth quarter
of 2000. The cost of the expansion, including furniture, fixtures and equipment
is expected to be approximately $482 thousand. As of first quarter 2000, the
board had not solicited any bids for construction of the main office expansion.
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. The Bank's 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 the Bank 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, the Bank continues to place primary funding emphasis on local
deposit growth. As of December 31, 1999, the Bank had no brokered deposits.
22
<PAGE>
Capital
At December 31, 1999, the Bank's capital position was in excess of FDIC minimum
guidelines to qualify as "well capitalized". Based on the level of the Bank's
risk weighted assets at year end, the Bank had $1.8 million more capital than
necessary to satisfy the "well-capitalized" criteria. The Bank's capital
adequacy is monitored quarterly by the Bank's asset/liability management
committee. At these quarterly meetings, the committee develops strategies for
the Bank's asset and liability growth, mix and pricing.
Assuming the Bank continues to grow with a risk-weighted asset mix consistent
with its historical experience, and that it has reasonable earnings and
maintains asset quality, the Bank's capital will approach the minimum limits to
be well-capitalized when its assets are approximately $100 million. While there
are no assurances that the Bank will continue to experience rapid growth,
management must anticipate such growth and make plans for sufficient capital to
support it. Management and the board have developed capital growth plans that
anticipate establishing a $3.5 million credit facility in 2000. As capital is
required at the bank level to support asset growth, the Company will borrow
sufficient funds against the credit facility to maintain the Bank's
"well-capitalized" status for at least the next 12 months. Each of the Company's
correspondent banks has expressed an interest in providing this credit facility,
however terms have not been negotiated.
Liquidity
Management monitors its liquidity position daily, and the asset review committee
reviews a liquidity management report on a weekly basis. The liquidity
management report reflects the Bank's results against policy guidelines and the
Bank's unfunded commitments and capital position. The reports reflect funding
capacity projections based on capital limits and policy limits assuming no
further local market deposit growth (a worst case scenario). As of December 31,
1999, the Bank had unfunded loan commitments totaling $4.1 million.
The Bank intends to manage its loan growth so 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, if local deposit growth does not keep pace with local loan demand. These
funding sources may include institutional certificates of deposit.
Management considers the Bank's internal and external liquidity resources to be
adequate to handle expected growth and normal cash flow demands from existing
deposits and loans. For 1999, deposit growth exceeded loan growth by $628
thousand. Securities held-to-maturity decreased $4.4 million from year-end 1998
to $1.9 million. Securities available-for-sale increased $8.0 million to $12.9
million. In June of 1999, management made the one-time election under FAS 133 to
reclassify $4.4 million in held-to-maturity securities to available-for-sale.
While the Company has no derivative instruments or hedging activity, this
pronouncement permits the reclassification made by management, which is expected
to improve the flexibility for managing the interest rate risk and cash flow of
the Bank's investment portfolio.
At December 31, 1999, the weighted average life of the Bank's security portfolio
was 5.8 years with a weighted average tax equivalent yield of 6.15%. All of the
Bank's investment securities are available as collateral for borrowings under
repurchase agreements with its correspondent banks or advances from the Federal
Home Loan Bank ("FHLB"). At December 31, 1999, securities totaling $1.6 million
were pledged under short-term repurchase agreements with a correspondent bank.
Net deposit growth, federal funds sold and marketable securities provide the
primary liquidity resource for loans 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 $12.7
million in securities (eligible for sale under repurchase agreements), plus
Federal funds sold and other short-term bank deposits of $3.1 million, for a
total of $15.8 million. Under these repurchase agreements, margin requirements
range from 3% to 10% of the current market value of the underlying security, and
the borrowing rate tends to have a spread of approximately 40 to 50 basis points
over the Federal funds sold rate. The repurchase agreements allow the Bank to
raise funds out of its total securities portfolio without being forced to sell
the securities and recognize gains or losses as a result of the sale. At
December 31, 1999, the Bank had total borrowings under repurchase agreements of
$1.5 million. 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 year-end. The correspondent banks may revoke these lines at any
time.
23
<PAGE>
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. The Bank has assigned $14.2 million in eligible
residential first mortgage and commercial real estate loans to the FHLB as
collateral for this financing. These loans provide approximately $9.0 million in
lendable value. At December 31, 1999, the Bank had borrowed $8.0 million from
the FHLB.
The FHLB has call options on $7.0 million of its loans 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, management will evaluate its funding alternatives, in
light of its interest rate risk profile at the time.
RESULTS OF OPERATIONS
The Company had net earnings of $652,072 ($0.93 per share) for 1999 as compared
to net earnings of $374,237 ($0.53 per share) for 1998.
Net Interest Income
Net interest income increased $537,053 in 1999 to $2,839,184. This was primarily
due to the increase in average earning assets from $50.0 million for 1998 to
$64.1 million for 1999. The net yield on average earning assets before the
provision for loan losses was 4.43% for 1999. This compares to 4.61% for 1998.
The lower yield for 1999 was primarily due to the increase in funding costs
attributable to the increase in interest bearing deposits as a percent of
earning assets. In 1999 average interest bearing funding was 87% of average
earning assets. In 1998 average interest bearing funding was 83% of average
earning assets.
24
<PAGE>
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
Allowance for possible loan losses 1999 1998
---------------------------------- ---- ----
<S> <C> <C>
Balance at the beginning of the period $ 569,185 480,544
Charge-offs:
Commercial - 107,607
Real estate - mortgage - 2,924
Consumer loans 63,025 77,925
---------- ----------
Total 63,025 188,456
---------- ----------
Recoveries:
Consumer loans 37,210 21,457
---------- ----------
Total 37,210 21,457
---------- ----------
Net charge-offs: 25,815 166,998
Additions charged to operations 140,761 255,640
---------- ----------
Balance at end of period $ 684,131 569,185
========== ==========
Average loans outstanding $ 47,646,549 36,596,138
Ratio of net charge-offs to average loans 0.05% 0.46%
Ratio of allowance to average loans 1.44% 1.56%
</TABLE>
The provision for loan losses was $140,761 for 1999, down $114,879 from 1998.
Until the fourth quarter of 1998, the provision for loan losses was primarily
determined by reference to a target ratio. Management had used this method, by
reference to peer information, in order to build the loss reserve for the Bank's
new loan portfolio. More traditional methods of determining loan loss provisions
are based on historical loan portfolio performance, including analysis of
historical charge-offs and recoveries, detailed loan reviews and portfolio
reviews, loan growth and changing economic conditions. Until the fourth quarter
of 1998, the Bank did not have sufficient history in its portfolio performance
on which to base additions.
In the fourth quarter of 1998, management evaluated the history of the Bank's
loan charge-offs and reviewed the credit risk in the Bank's loan portfolio.
Furthermore, an independent credit review was conducted in early January 1999,
to validate the credit risk classifications as of December 31, 1998. Based on
the results of these reviews, management and the board modified the loan loss
reserve policy to eliminate the target balance ratio method. Under the revised
policy, management and the board evaluate the adequacy of the loan loss reserve
on a quarterly basis. 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, management
evaluates the composite risk ratings in a model that assesses the adequacy of
the current allowance for loan losses, and management presents this evaluation
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. Management also reviews past due
loans weekly and large loans are reviewed periodically. Management may change
risk ratings 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.
25
<PAGE>
The amounts charged to operations in the provision for loan losses are based on
an annual budget that is developed from the most recent monthly and quarterly
reviews. These amounts may be adjusted in any period based on the results of
more current evaluations that indicate that the allowance might be inadequate or
excessive.
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 year-end allowance
adequate to cover potential losses in the loan portfolio.
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 for 2000 by risk grade
assigned at the time of loan origination is:
Projected
Grade Charge-offs
----- -----------
1 -
2 92
3 32,008
4 31,661
5 8,622
6 8,637
7 -
8 -
------
Total 81,019
======
Risk Elements
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Nonaccrual, Past Due and Restructured Loans
- -------------------------------------------
Nonaccrual loans $ 33,582 150,599
Accruing loans contractually past due 90 days or more $ - -
Troubled debt restructurings $ 165,583 -
</TABLE>
26
<PAGE>
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 $4,204 in 1999 and $9,434 in 1998. The amount of interest that was
included in interest income on the above loans was $883 in 1999 and $8,572 in
1998.
The Bank's policy is to place loans on non-accrual status when it appears that
the collection of principal and interest in accordance with the terms of the
loan is doubtful. Any loan that becomes 90 days past due as to principal or
interest is automatically placed on non-accrual, unless corrective action is
certain and imminent.
Non-interest Income and Expenses
Non-interest income increased $120,159 (41%) in 1999 to $411,446 from 1998.
Service charges on deposit accounts increased $47,870 (32%) to $195,588. This
increase is primarily due to the increased volume of services used on the Bank's
transaction accounts, on which average balances in 1999 increased by 27% from
1998. Other income increased 50% from 1998 to $215,858 for year-end 1999. Other
income consists primarily of mortgage origination fee income, credit life
premium income and income on bank owned life insurance. Mortgage origination fee
income increased $4,126 (4%) from 1999 to 1998. Credit life premium income
increased $12,452 (54%) in 1999 to $35,649 from 1998. Income accrued on bank
owned life insurance purchased in late December 1998 and January 1999 was
$38,251 at year-end 1999.
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 continues to grow with
the growth in the Bank's demand deposit account base.
Non-interest expenses increased $274,551 or 15% to $2,140,885 for 1999 over
1998. Average earning assets for 1999 increased $14.1 million or 28% to $64.1
million over 1999. The Bank's operating efficiencies continue to improve.
Salaries and benefits for 1999 increased $155,813 or 16% to $1,109,797 over
1998. The number of full-time-equivalent employees grew from 30 in the fourth
quarter of 1998 to 34 in the fourth quarter of 1999.
Occupancy costs for 1999 increased by $26,672 or 9% to $334,699 over 1998. This
increase is primarily due to the addition of the East Rome office in June 1998.
Other operating expenses increased in 1999 by $92,066 or 15% to $696,389. The
more significant items of other operating expenses were:
(1) account processing expenses, which increased 35% to $203,679;
(2) advertising and marketing expenses, which increased 13% to $81,611;
(3) professional fees, which increased 8% to $118,504; and
(4) supplies, which increased 19% to $52,053.
Most of these increases are due to the higher volume of business associated with
the Bank's growth. Management continues to focus on improving operating expense
efficiencies through the use of current banking technologies, outsourcing
solutions and human resource training and development. In the first quarter of
1998, the Bank implemented its telephone banking service, which provides
customers with access to their account information 24 hours a day, seven days a
week, and allows customers to initiate various transactions such as funds
transfers. A drive-up ATM was installed at the East Rome office in the third
quarter of 1998. In the third quarter of 1999, changes were made in the way
customer statements are processed that have significantly reduced the costs
associated with that function and improved the delivery times.
27
<PAGE>
Income before income taxes improved over 1998 by $497,541 to $968,984 in 1999.
The Company's earnings became fully taxable for federal income tax purposes in
1998, as a result of fully utilizing its federal net operating loss during the
year.
Interest Rate Sensitivity
Improvement in the Company's earnings 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 uses a third party interest rate risk analysis product, which
quantifies the amount of risk to the net interest margin and to the current
market value of equity. It produces a composite analysis of several approaches
including GAP analysis, rate shocks in 100 point increments up and down 400
basis points, and simulation modeling.
As with any model, many assumptions have to be made about the repricing
attributes of the Bank's assets and liabilities. Where industry experience seems
appropriate, such assumptions are used. Given the extremely competitive market
for the public's investing and savings dollars, the "basis risk", or lack of
correlation between changes in the yields on U.S. Treasury securities and
customer deposit rates, seems to be increasing. In other words, if the one-year
T-bill falls in yield by 100 basis points, it is unlikely that one-year time
deposits will roll down by 100 basis points at maturity. 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 the Bank's net interest income and on its 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 the Bank's current capital.
28
<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.
Retired Physician Retired Physician
Henry Haskell Perry Henry Haskell Perry
Retired Heating and Air Contractor Retired Heating and Air Contractor
M. Wayne Robinson M. Wayne Robinson
President of M. Wayne Robinson Builder Developer, Inc. President of M. Wayne Robinson Builder 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 Legislature Representative, District 12, Georgia Legislature
W. Fred Talley W. Fred Talley
President, Fred Talley's Parkview Chapel Funeral Home President, Fred Talley's Parkview Chapel 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>
29
<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.
1999 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.
30
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,882,436
<INT-BEARING-DEPOSITS> 258,216
<FED-FUNDS-SOLD> 2,889,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,863,973
<INVESTMENTS-CARRYING> 1,878,932
<INVESTMENTS-MARKET> 0
<LOANS> 55,774,643
<ALLOWANCE> 684,131
<TOTAL-ASSETS> 80,412,131
<DEPOSITS> 63,223,523
<SHORT-TERM> 1,500,000
<LIABILITIES-OTHER> 388,875
<LONG-TERM> 8,000,000
0
0
<COMMON> 7,016
<OTHER-SE> 7,292,717
<TOTAL-LIABILITIES-AND-EQUITY> 80,412,131
<INTEREST-LOAN> 4,557,789
<INTEREST-INVEST> 701,369
<INTEREST-OTHER> 211,492
<INTEREST-TOTAL> 5,470,650
<INTEREST-DEPOSIT> 2,268,027
<INTEREST-EXPENSE> 2,631,466
<INTEREST-INCOME-NET> 2,839,184
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,140,885
<INCOME-PRETAX> 968,984
<INCOME-PRE-EXTRAORDINARY> 968,984
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 652,072
<EPS-BASIC> .93
<EPS-DILUTED> .90
<YIELD-ACTUAL> 4.43
<LOANS-NON> 33,582
<LOANS-PAST> 0
<LOANS-TROUBLED> 165,583
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 569,185
<CHARGE-OFFS> 63,025
<RECOVERIES> 37,210
<ALLOWANCE-CLOSE> 684,131
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 684,131
</TABLE>
