U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2000
Transition report under Section 13 or 15(d) of the Exchange Act
--- For the transition period from to
--------------- ---------------
Commission File No. 0-28280
GREATER ROME BANCSHARES, INC.
-----------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2117940
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
1490 Martha Berry Blvd
Rome, Georgia 30165
---------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(706) 295-9300
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
699,550 shares of common stock, $.01 par value per share, were issued and
outstanding as of July 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited financial statements of Greater Rome Bancshares, Inc. (the
"Company") are set forth on the following pages. All adjustments have been made
which, in the opinion of management, are necessary in order to make the
financial statements not misleading.
2
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Balance Sheets
(Unaudited)
June 30, 2000 and December 31, 1999
Assets
------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $238,000 in 2000 and $194,000 in 1999 $ 1,826,117 1,882,436
Federal funds sold 3,415,000 2,889,000
Interest bearing deposits 105,837 258,216
---------- ----------
Cash and cash equivalents 5,346,954 5,029,652
Securities available for sale 14,848,684 12,863,973
Securities held to maturity 1,879,328 1,878,932
Loans, net 60,338,796 55,090,512
Premises and equipment, net 2,942,108 2,811,150
Bank owned life insurance 1,238,694 1,208,251
Federal Home Loan Bank Stock 500,000 450,000
Accrued interest receivable and other assets 1,224,990 1,079,661
---------- ----------
$ 88,319,554 80,412,131
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 8,847,969 8,244,704
Interest bearing demand 5,445,518 5,396,309
Savings 10,999,816 9,560,218
Time 32,901,406 28,624,343
Time, over $100,000 10,085,006 11,397,949
---------- ----------
Total deposits 68,279,715 63,223,523
Federal Home Loan Bank borrowings 10,000,000 8,000,000
Securities sold under repurchase agreement 2,000,000 1,500,000
Accrued interest payable and other liabilities 475,021 388,875
---------- ----------
Total liabilities 80,754,736 73,112,398
---------- ----------
Commitments
Stockholders' equity:
Preferred stock, par value $1.00 per share; 100,000 shares
authorized; no shares issued or outstanding - -
Common stock, par value $.01 per share; 10,000,000
shares authorized; 699,550 shares issued and
outstanding in 2000 and 701,600 in 1999 6,996 7,016
Additional paid-in capital 6,925,806 6,946,101
Accumulated earnings 849,028 507,432
Accumulated other comprehensive income (loss) (217,012) (160,816)
---------- ----------
Total stockholders' equity 7,564,818 7,299,733
---------- ----------
$ 88,319,554 80,412,131
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
For each of the Six and Three Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 2,751,140 2,085,913 1,426,472 1,074,660
Interest and dividends on investments 497,107 317,344 260,452 149,820
Interest on federal funds sold and deposits with other banks 110,653 91,051 50,523 63,046
--------- --------- --------- ---------
Total interest income 3,358,900 2,494,308 1,737,447 1,287,526
--------- --------- --------- ---------
Interest expense:
Time deposits 1,168,433 878,122 604,909 446,058
Savings deposits 197,705 137,652 108,939 71,936
Interest bearing demand deposits 59,934 41,242 29,992 22,233
Other 310,929 159,263 169,346 89,733
--------- --------- --------- ---------
Total interest expense 1,737,001 1,216,279 913,186 629,960
--------- --------- --------- ---------
Net interest income 1,621,899 1,278,029 824,261 657,566
Provision for loan losses 78,782 115,200 47,172 57,600
--------- --------- --------- ---------
Net interest income after provision for loans losses 1,543,117 1,162,829 777,089 599,966
--------- --------- --------- ---------
Other income:
Service charges 109,268 93,076 58,481 49,863
Other 92,204 106,457 52,055 49,131
--------- --------- --------- ---------
Total other income 201,472 199,533 110,536 98,994
--------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 660,389 533,602 329,996 264,883
Occupancy 177,719 169,608 89,939 81,620
Other operating 405,642 327,344 199,712 169,375
--------- --------- --------- ---------
Total other expenses 1,243,750 1,030,554 619,647 515,878
--------- --------- --------- ---------
Income before income taxes 500,839 331,808 267,978 1 83,082
Income tax expense 151,859 101,682 80,727 53,144
--------- --------- --------- ---------
Net earnings $ 348,980 230,126 187,251 129,938
========= ========= ========= =========
Other comprehensive income (loss):
Unrealized losses on securities available for sale arising
during period, net of tax benefit of $34,384, $58,133,
$10,801 and $50,442 respectively (56,196) (95,010) (17,651) (82,440)
--------- --------- --------- ---------
Comprehensive income $ 292,784 135,116 169,600 47,498
========= ========= ========= =========
Basic earnings per share $ 0.50 0.33 0.27 0.19
========= ========= ========= =========
Diluted net earnings per share $ 0.48 0.32 0.26 0.18
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GREATER ROME BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For each of the Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 348,980 230,126
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 82,274 106,068
Provision for loan losses 78,782 115,200
Change in:
Interest receivable and other assets (141,388) (90,125)
Interest payable and other liabilities 86,146 (24,400)
--------- ---------
Net cash provided by operating activities 454,794 336,869
--------- ----------
Cash flows from investing activities:
Proceeds from maturities and calls of securities available for sale 768,912 1,970,043
Proceeds from maturities and calls of securities held to maturity - 531,687
Purchases of securities available for sale (2,827,520) (1,911,868)
Purchase of FHLB stock (50,000) -
Redemption of FHLB stock - 209,200
Purchase of bank owned life insurance - (350,000)
Net increase in loans (5,327,065) (5,132,870)
Purchases of premises and equipment (230,310) (36,047)
--------- ---------
Net cash used by investing activities (7,665,983) (4,719,855)
--------- ---------
Cash flows from financing activities:
Net change in demand and savings deposits 2,092,071 2,614,965
Net change in time deposits 2,964,120 3,957,029
Net change in FHLB borrowings 2,000,000 1,000,000
Net change in securities sold under repurchase agreements 500,000 -
Net change in federal funds purchased - (500,000)
Common stock repurchased and retired (27,700) -
--------- ---------
Net cash provided by financing activities 7,528,491 7,071,994
--------- ---------
Net change in cash and cash equivalents 317,302 2,689,008
Cash and cash equivalents at beginning of period 5,029,652 4,509,810
--------- ---------
Cash and cash equivalents at end of period $ 5,346,954 7,198,818
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,712,776 1,240,131
Income taxes $ 146,246 118,064
Transfer of held-to-maturity securities to
available-for-sale - 4,391,683
Non cash investing and financing activities:
Change in unrealized gain on sale of securities available for sale$ (90,580) (153,143)
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GREATER ROME BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Summary of Significant Accounting Policies
Organization
------------
Greater Rome Bancshares, Inc. (the "Company") is a bank holding company whose
business is conducted by its wholly owned bank subsidiary, Greater Rome Bank
(the "Bank"). The Company is subject to regulation under the Bank Holding
Company Act of 1956.
The Bank is a commercial bank that serves Floyd County, including Rome, Georgia,
a community located approximately 50 miles north of metropolitan Atlanta. The
Bank is chartered and regulated by the State of Georgia Department of Banking
and Finance and is insured and subject to regulation by the Federal Deposit
Insurance Corporation.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company and
the Bank. All intercompany accounts and transactions have been eliminated in
consolidation.
The accounting principles followed by 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.
6
<PAGE>
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to the yield. Realized gains and losses for securities
classified as available-for-sale and held-to-maturity are included in earnings
and are derived using the specific identification method for determining the
cost of securities sold.
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity are reported at the principal amount outstanding, net
of the allowance for loan losses and any deferred fees or costs on originated
loans. Interest on all loans is calculated principally by using the simple
interest method on the daily balance of the principal amount outstanding.
A loan is considered impaired when, based on current information and events, it
is probable that all amounts due according to the contractual terms of the loan
agreement will not be collected. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price, or at the fair value of
the collateral of the loan if the loan is collateral dependent. Interest income
from impaired loans is recognized using a cash basis method of accounting during
the time within that period in which the loans were impaired.
Allowance for Loan Losses
-------------------------
The Bank's provision for loan losses is based upon management's continuing
review and evaluation of the loan portfolio and is intended to create an
allowance adequate to absorb losses on loans outstanding as of the end of each
reporting period. For individually significant loans, management's review
consists of evaluations of the financial strength of the borrowers and the
related collateral. The review of groups of loans, which are individually
insignificant, is based upon delinquency status of the group, lending policies,
and collection experience.
We believe that the allowance for loan losses is adequate. While we use
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require us
to recognize additions to the allowance based on their judgments of information
available to them at the time of their examination.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation. Major
additions and improvements are charged to the asset accounts while maintenance
and repairs that do not improve or extend the useful lives of the assets are
expensed currently. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any gain
or loss is reflected in earnings for the period.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Building 40 years
Land improvements 20 years
Furniture, fixtures and equipment 2-12 years
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are expected to
7
<PAGE>
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities
results in deferred tax assets, an evaluation of the probability of being able
to realize the future benefits indicated by such asset is required. A valuation
allowance is provided for the portion of the deferred tax asset when it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies.
Net Earnings Per Share
----------------------
Basic earnings per share are based on the weighted average number of common
shares outstanding during the period while the effects of potential shares
outstanding during the period are included in diluted earnings per share. The
reconciliation of the amounts used in the computation of both "basic earnings
per share" and "diluted earnings per share" for the periods presented in the
financial statements were calculated as follows:
<TABLE>
<CAPTION>
Six months ended June 30, 2000 Three months ended June 30, 2000
------------------------------ --------------------------------
Net Common Per Share Net Common Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $348,980 701,225 $0.50 $187,251 700,850 $0.27
Effect of stock options 30,328 32,810
------ ------
Diluted earnings per share $348,980 731,553 $0.48 $187,251 733,660 $0.26
======== ======= ===== ======== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1999 Three months ended June 30, 1999
------------------------------ --------------------------------
Net Common Per Share Net Common Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $230,126 701,600 $0.33 $129,938 701,600 $0.19
Effect of stock options 16,674 16,674
------ ------
Diluted earnings per share $230,126 718,274 $0.32 $129,938 718,274 $0.18
======== ======= ===== ======== ======= =====
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD LOOKING STATEMENTS
Various statements contained in this report, which are not statements of
historical fact, constitute forward-looking statements. Examples of
forward-looking statements include, but are not limited to:
(1) projections of revenues, income or loss, earnings or loss per share,
the payment or non-payment of dividends, capital structure and other
financial items;
(2) statements of plans and objectives of the Company or its management or
board of directors, including those relating to products or services;
(3) statements of future economic performance; and
(4) statements of assumptions underlying these statements.
Words such as "believes," "anticipates," "expects," "intends," "targeted," and
similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties, which may cause
actual results to differ materially from the results in the forward-looking
statements. Facts that could cause actual results to differ from those discussed
in the forward-looking statements include, but are not limited to:
(1) the strength of the U.S. economy in general and the strength of the
local economies in which operations are conducted;
(2) the effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the
Federal Reserve System;
(3) inflation, interest rate, market and monetary fluctuations;
(4) the timely development of and acceptance of new products and services
and perceived overall value of these products and services by users;
(5) changes in consumer spending, borrowing and saving habits;
(6) technological changes;
(7) acquisitions;
(8) the ability to increase market share and control expenses;
(9) the effect of changes in laws andregulations (including laws and
regulations concerning taxes, banking, securities and insurance) with
which the Company and its subsidiary must comply;
(10) the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as the Financial Accounting
Standards Board;
(11) changes in the Company's organization, compensation and benefit plans;
(12) the costs and effects of litigation and of unexpected or adverse
outcomes in such litigation; and
(13) the Company's success at managing the risks involved in the foregoing.
Forward-looking statements speak only as of the date on which they are made. We
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made to reflect
the occurrence of unanticipated events.
FINANCIAL CONDITION
As of June 30, 2000, the Company had $88.3 million in total assets, up $7.9
million over year-end 1999. Total deposits increased $5.1 million over year-end
1999 to $68.3 million. Net loans outstanding increased $5.2 million over
year-end 1999 to $60.3 million. All of the Bank's growth in deposits and loans
9
<PAGE>
has come from the local market. We attribute this growth to a relatively stable
local economy combined with competitive banking services delivered by a locally
owned and operated community bank. The Bank is the only locally owned and
operated community bank in its market, which has been dominated by regional
banks and fragmented by credit unions over the past several years.
In the second quarter of 2000, the Bank finished construction of its second
branch banking facility, the West Rome office, at 2518 Shorter Avenue in Rome.
The West Rome office opened for business in May 2000. It is 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 our
main office.
The West Rome site was acquired for $185 thousand. The total cost of the
building and site work was originally estimated to be approximately $576
thousand. The actual cost of the facility, including site work, furniture,
fixtures and equipment was $580 thousand. We project 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, we also plan to begin construction
on a 4,265 square foot main office expansion in the fourth quarter of 2000. The
cost of the expansion, including furniture, fixtures and equipment and
modification of existing facilities is expected to be approximately $600
thousand. Bids for construction of the main office expansion are currently being
solicited.
The banking industry continues to experience competition from non-banks for
deposit and investment type products. Competition for local deposit dollars
continues to put upward pressure on the cost of deposits. In the current market
environment, management has found that the Bank can borrow term funds from
wholesale resources at rates that are competitive with the cost of local
certificates of deposit. Our asset/liability management committee has adopted
policies designed to diversify funding sources if local market deposits become
less available and even more costly. Within limits, the Bank may obtain funding
from brokered certificates of deposit and other forms of wholesale borrowing,
such as the Federal Home Loan Bank and term repurchase agreements. These
policies should allow us to continue to meet the local market's credit demands
while providing the flexibility to obtain funding from various sources at
optimum rates. While this policy provides greater funding flexibility, we
continue to place primary funding emphasis on local deposit growth. As of June
30, 2000, the Bank had no brokered deposits.
Capital
At June 30, 2000, the Bank's capital position was in excess of FDIC guidelines
to qualify as "well capitalized". Based on the level of the Bank's risk weighted
assets at quarter end, we had $1.6 million more capital than necessary to
satisfy the "well-capitalized" criteria. The Bank's capital adequacy is
monitored quarterly by the asset/liability committee. At these quarterly
meetings, the committee develops strategies for the Bank's asset and liability
growth, mix and pricing.
We continue to evaluate opportunities to deploy this excess capital in order to
improve shareholder returns. As a routine part of our business, we evaluate
opportunities with other financial institutions. Thus, at any time, discussions,
negotiations and due diligence activities concerning potential transactions may
occur.
From time to time, the Company may also purchase stock from shareholders who
have indicated a desire to sell their stock. Given the Company's excess capital
levels, such transactions not only provide liquidity for the Company's stock,
but also improve the returns for all remaining shareholders. During the second
quarter of 2000, the Company had purchased and retired 2,050 shares of stock
from shareholders.
Assuming that the Bank continues to grow with a risk-weighted asset mix
consistent with its historical experience, and that it has reasonable earnings
and maintains asset quality, our capital will approach the minimum limits to be
10
<PAGE>
well capitalized when our assets are approximately $109 million. While there are
no assurances that we will continue to experience rapid growth, we must
anticipate such growth and make plans for sufficient capital to support it. We
have developed capital growth plans that anticipate establishing a $2.0 million
credit facility in 2000. In July 2000, the Company received a commitment from
one of its correspondent banks for a $2.0 million credit line with a two-year
revolving period and a five-year even amortization thereafter. Interest will be
paid quarterly for the first two years. After the second year, principal and
interest will be paid quarterly. As capital is required at the bank level to
support asset growth, the Company will borrow sufficient funds against the
credit facility and contribute them to the Bank to maintain its
"well-capitalized" status for at least the next 12 months.
Liquidity
We monitor the Bank's 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 June 30,
2000, we had unfunded loan commitments totaling $5.5 million.
We intend to manage loan growth so that deposit flows will provide the primary
funding for all loans as well as cash reserves for working capital. We will
continue to seek cost effective alternative funding sources for both the short
and long term, if local deposit growth does not keep pace with local loan
demand. These funding sources include non-local institutional certificates of
deposit. At June 30, 2000, non-local institutional certificates of deposits
totaled $803 thousand.
We consider 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 the six months ended June 30, 2000, loan growth exceeded deposit
growth by $200 thousand. Securities held-to-maturity remained unchanged at $1.9
million. Securities available-for-sale increased by $2.0 million to $14.8
million. At June 30, 2000, the weighted average life of our securities portfolio
was 5.2 years with a weighted average tax equivalent yield of 6.26%. All of the
Bank's investment securities are eligible as collateral for borrowings under
either repurchase agreements with our correspondent banks or advances from the
Federal Home Loan Bank ("FHLB"). At June 30, 2000, securities totaling $2.1
million were pledged as collateral for $2.0 million borrowed through the master
repurchase agreement with the Bankers Bank.
Net deposit growth, federal funds sold and marketable securities provide the
primary liquidity resource for loan disbursements and Bank working capital. The
Bank's investment securities portfolio provides liquidity in the form of
financing through master repurchase agreements executed with correspondent
banks. At quarter end, the funds available for liquidity purposes consisted of
$12.5 million in securities (eligible for sale under repurchase agreements),
plus Federal funds sold and other short-term bank deposits of $3.5 million, for
a total of $16.0 million. Under these repurchase agreements, margin requirements
range from 3% to 10% of the current market value of the underlying security, and
the borrowing rate tends to have a spread of approximately 25 to 40 basis points
over the Federal funds sold rate. The repurchase agreements allow us to raise
funds out of the total securities portfolio without being forced to sell the
securities and recognize gains or losses as a result of the sale. In addition to
these sources of funds, the Bank has unsecured Federal funds purchase lines of
credit totaling $4.5 million, all of which were available at quarter end. Our
correspondent banks may revoke these lines at any time.
FHLB membership provides an additional source of liquidity through credit
programs, which can provide term funding for up to 10 years and, in qualified
programs, up to 20 years. At June 30, 2000, the Bank had a total of $10.0
million in advances outstanding with the FHLB. We have assigned $15.2 million in
eligible residential first mortgage and commercial real estate loans and $2.1
million in marketable securities to the FHLB as collateral for this financing.
11
<PAGE>
The FHLB currently has call options on $6.0 million of its advances to the Bank.
If call options are exercised on any of the advances, they will be converted
into a three-month LIBOR-based floating rate advance at the three-month LIBOR
rate. The most likely reason that the FHLB would call the advances would be if
interest rates rose sufficiently to present better investment alternatives for
the FHLB. In the event of a call, we evaluate funding alternatives, in light of
the Bank's interest rate risk profile at the time. In June 2000, the FHLB
exercised its call option on one of the Bank's advances of $1 million. The Bank
replaced that advance with a $1 million daily rate credit advance that matures
in third quarter 2000.
RESULTS OF OPERATIONS
The Company had net earnings of $348,980 ($.50 per share) for the six months
ended June 30, 2000 and $187,251 ($0.27 per share) for the three months ended
June 30, 2000. This compares to net earnings of $230,126 ($.33 per share) for
the six months ended June 30, 1999 and $129,938 ($0.19 per share) for the three
months ended June 30, 1999. Income before income taxes in the first six months
of 2000 improved over the same period in 1999 by $169,031 (51%) to $500,839.
Net Interest Income
Net interest income increased $343,870 (27%) to $1,621,899 for the six months
ended June 30, 2000 and increased $166,695 (25%) to $824,261 for the three
months ended June 30, 2000, as compared to the same periods in the prior year.
Average earning assets increased 30% to $77.1 million in first six months of
2000 as compared to the same period in 1999. The net yield on average earning
assets, before the provision for loan losses, was 4.24% for the six months ended
June 30, 2000. This compares to 4.36% for the same period in 1999. The Bank's
cost of funds has risen 37 basis points in the first six months of 2000 as
compared to the same period in 1999. The percentage of average earning assets
funded by interest bearing liabilities increased 0.1% to 87.6%, while loans as a
percent of earning assets declined 0.5% to 74.2%.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
Allowance for possible loan losses 6/30/00 6/30/99 6/30/00 6/30/99
---------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at the beginning of the period $ 684,131 569,185 697,653 616,730
Charge-offs:
Real estate - mortgage - - - -
Consumer loans 36,647 29,834 14,057 9,641
------- ------- ------- -------
Total 36,647 29,834 14,057 9,641
------- ------- ------- -------
Recoveries:
Real estate - mortgage - - - -
Consumer loans 18,458 21,220 13,956 11,082
------- ------- ------- -------
Total 18,458 21,220 13,956 11,082
------- ------- ------- -------
Net charge-offs (recoveries): 18,189 8,614 101 (1,441)
Additions charged to operations 78,782 115,200 47,172 57,600
------- ------- ------- -------
Balance at end of period $ 744,724 675,771 744,724 675,771
======= ======= ======= =======
Average loans outstanding $ 57,253,347 44,219,215 59,001,991 45,749,107
Ratio of net charge-offs to average loans 0.03% 0.02% 0.00% 0.00%
</TABLE>
The provision for loan losses was $78,782 in the first six months of 2000,
representing a $36,418 decrease from the provision for the same period in 1999.
12
<PAGE>
On a quarterly basis, we evaluate the history of the Bank's loan charge-offs and
review the credit risk in the Bank's loan portfolio. Based on the results of
these reviews, we evaluate the adequacy of the allowance for possible loan
losses. This evaluation considers historical loan losses by risk grade under
each major category of loans, i.e., commercial, real estate and consumer. It
also considers current portfolio risk, industry concentrations and the
uncertainty associated with changing economic conditions.
In addition, management performs an on-going loan review process. All new loans
are risk rated under loan policy guidelines. On a monthly basis, we evaluate the
composite risk ratings in a model that assesses the adequacy of the current
allowance for loan losses. This evaluation is presented to the board of
directors each month. Management performs loan reviews for compliance with
underwriting policy on new loans and presents the review results in the weekly
asset review committee meeting. Past due loans are reviewed weekly, and large
loans are reviewed periodically. Risk ratings may be changed if it appears that
new loans may not have received the proper initial grading or, if on existing
loans, credit conditions have improved or worsened.
We expect to incur losses on loans from time to time when borrowers' financial
conditions deteriorate. Where feasible, loans charged down or charged off will
continue to be collected. We consider the quarter end allowance adequate to
cover potential losses in the loan portfolio.
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 32,007
4 31,661
5 8,622
6 8,637
7 -
8 -
------
Total 81,019
======
13
<PAGE>
Risk Elements
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
Nonaccrual, Past Due and Restructured Loans
-------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 322,417 79,250
Accruing loans contractually past due 90 days or more $ - -
Troubled debt restructurings $ 102,308 96,806
</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 $10,241 in 2000 and $3,492 in 1999. The amount of interest that was
included in interest income on the above loans was $0 in 2000 and $999 in 1999.
The Bank's policy is to place loans on non-accrual status when it appears that
the collection of principal and interest in accordance with the terms of the
loan is doubtful. Any loan that becomes 90 days past due as to principal or
interest is placed on non-accrual, unless corrective action is certain and
imminent.
Non-interest Income and Expenses
Non-interest income increased $1,939 (1%) to $201,472 for the six months ended
June 30, 2000 and increased $11,542 (12%) to $110,536 for the three months ended
June 30, 2000, as compared to the same periods of 1999. Service charges on
deposit accounts increased $16,192 (17%) to $109,268 for the first six months of
2000 and increased $8,618 (17%) to $58,481 for the three months ended June 30,
2000 as compared to the same period in 1999. Significant items in other income
are mortgage origination fees and bank-owned life insurance income. Mortgage
origination fees declined 52% for the first six months of 2000 to $28,203 as
compared to 1999. This was due primarily to the lack of demand for mortgage
loans caused by higher interest rates. However, for the three months ended June
30, 2000, mortgage demand increased from the first quarter and origination fees
were $23,288, which was a 5% decline from the same period in 1999. Bank-owned
life insurance income increased to $30,443 (72%) for the six months ended June
30, 2000 and increased $6,464 (74%) for the three months ended June 30, 2000.
This increase is due to the purchase of $470,000 of additional bank-owned life
insurance in the last quarter of 1999.
Non-interest expenses increased $213,195 (21%) to $1,243,750 for the six months
ended June 30, 2000 and $103,769 (20%) to $619,647 for the three months ended
June 30, 2000, from the same periods in 1999. The lower growth rate of
non-interest expenses relative to the earning asset growth rate of 30% indicates
that our operating efficiencies continue to improve.
Salaries and benefits for the six months ended June 30, 2000 increased $126,787
(24%) to $660,389 and increased $65,113 (25%) to $329,996 for the three months
ended June 30, 2000 from the same periods in 1999. This is due to the growth in
the number of full-time-equivalent employees and increases in the costs of
employee benefits. The number of employees grew from 31 at June 30, 1999 to 38
at June 30, 2000. Occupancy costs increased 5% to $177,719 for the first six
months of 2000, and 10% to $89,939 for the three months ended June 30, 2000 over
the same periods in 1999. Occupancy costs are expected to continue to increase
over the remainder of the year with the opening of the West Rome office.
Other operating expenses increased $78,298 (24%)to $405,642 for the six months
ended June 30, 2000, and $30,337 (18%) to $199,712 for the three months ended
June 30, 2000, as compared to the same periods in 1999. Under the terms of the
Directors Stock Incentive Plan approved in October 1999, board fees were $21,451
for the six months ended June 30, 2000, and the Company will issue the directors
2,326 shares of stock based on their election under the program. No board fees
were accrued in the first half of 1999. The remainder of the increase can be
attributed to the higher volume of business associated with advertising and
marketing costs, data processing costs, and supplies. We continue to focus on
improving operating expense efficiencies, through the use of current banking
technologies, outsourcing solutions and human resource training and development.
14
<PAGE>
Interest Rate Sensitivity
Improvement in the Company's earnings depends upon continued earning asset
growth, good asset quality and a relatively stable economic environment. We feel
it is reasonable for the Bank to continue to experience steady earning asset
growth as long as interest rates remain relatively stable.
We use a third party interest rate risk analysis product, which quantifies the
amount of risk to the net interest margin and to the current market value of
equity. It produces a composite analysis of several approaches including GAP
analysis, rate shocks in 100-point increments up and down 400 basis points, and
simulation modeling.
As with any model, many assumptions have to be made about the repricing
attributes of the Bank's assets and liabilities. Where industry experience seems
appropriate, such assumptions are used. Given the extremely competitive market
for the public's investing and savings dollars, the lack of correlation between
changes in the yields on government securities and customer deposit rates seems
to be increasing. This uncertainty increases the uncertainty about the
conclusiveness of the interest rate risk models.
The asset/liability committee monitors the Bank's exposure to interest rate risk
on a quarterly basis. As of its most recent review, the effect of an immediate
and simultaneous change in interest rates, either up or down by 200 basis
points, on our net interest income and on our economic value of equity was
calculated to be within policy limits. The net interest income policy limit
specifies that the amount of adverse impact to net interest income due to
interest rate risk is limited to no more than 10% of projected net interest
income for the following 12 months, assuming a 200 basis point change in
interest rates. The economic value of equity policy limit specifies that the
adverse effect of a similar rate change on the economic value of equity is
limited to no more than 25% of our current capital.
15
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material, pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
Item 2. Changes in Securities and Use of Proceeds.
(a) Not applicable.
(b) Not applicable.
(c) Under the Greater Rome Bancshares, Inc. Directors Stock Incentive
Plan (the "Plan"), the Company's directors have the option to
receive shares of the Company's common stock, $.01 par value per
share, in lieu of a cash payment for accrued directors fees. All of
the Company's directors participating in the Plan have elected to
receive common stock of the Company for their directors fees
accrued as of June 30, 2000. As a result, under an exemption
provided by Section 4(2) of the Securities Act of 1933, the Company
will issue 2,326 shares of its common stock to its directors in
accordance with the terms of the Plan. The fair market value of the
Company's common stock as of June 30, 2000 was $13.50 per share,
and this price was used in calculating the number of shares to be
issued to the Company's directors under the Plan. The fair market
value of $13.50 per share was determined by the Company by
reference to recent trades known to the Company.
(d) Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 11, 2000 the Company held its 2000 annual meeting of shareholders. At
that meeting the following items were voted upon with the results of the votes
tabulated below each item:
(a) to elect eleven directors to the Board of Directors to serve terms until the
next annual meeting or until their successors are qualified and elected.
<TABLE>
<CAPTION>
Director Nominee For Withheld/Against Abstentions/Non-votes
---------------- --- ---------------- ---------------------
<S> <C> <C> <C>
Robert L. Berry 442,726 none none
Frank A. Brown, Jr. 442,726 none none
Thomas D. Caldwell, III 442,726 none none
Gene G. Davidson, MD 442,526 200 none
Henry Haskell Perry 442,726 none none
Bradford Lee Riddle 442,726 none none
M. Wayne Robinson 442,526 200 none
Dale G. Smith 442,726 none none
Paul E. Smith 442,726 none none
W. Fred Talley 442,726 none none
Martha B. Walstad 442,726 none none
</TABLE>
16
<PAGE>
Pursuant to Rule 14a-4(c)(1) promulgated under the Securities Exchange Act of
1934, as amended, shareholders desiring to present a proposal for consideration
at the Company's 2001 Annual Meeting of Shareholders must notify the Company in
writing at its principal office at 1490 Martha Berry Blvd., Rome, Georgia 30165,
of the contents of such proposal no later December 14, 2000. Failure to timely
submit such a proposal will enable the proxies appointed by management to
exercise their discretionary voting authority when the proposal is raised at the
Annual meeting of Shareholders without any discussion of the matter in the proxy
statement.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-82858 on Form SB-2).
4.1 Provisions of Company's Articles of Incorporation and Bylaws Defining the
Rights of Shareholders (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
4.2 Form of Stock Certificate (Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 33-82858 on Form SB-2).
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).
17
<PAGE>
10.7 *Greater Rome Bancshares, Inc. Board of Directors Compensation Program,
dated October 14, 1999. (Incorporated by reference to Exhibit 10.7 of the
Company's Annual Report on Form 10-KSB for the year-ended December 31,
1999).
10.8 *Executive Supplemental Retirement Plan Agreement between the Bank and E.
Grey Winstead, III dated January 13, 2000. (Incorporated by reference to
Exhibit 10.8 of the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2000).
27.1 Financial Data Schedule (for S.E.C. use only).
---------------------------------
* Indicates a management contract or compensatory arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2000.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
Date: July 31, 2000 By: /s/ Thomas D. Caldwell, III
---------------------------
Thomas D. Caldwell, III
President, Chief Executive Officer
By: /s/ E. Grey Winstead, III
-------------------------
E. Grey Winstead, III
Principal Financial and Accounting Officer
19
<PAGE>
GREATER ROME BANCSHARES, INC.
Form 10-QSB for the quarterly period ended March 31, 2000
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. (Incorporated by reference to Exhibit 10.7 of the
Company's Annual Report on Form 10-KSB for the year-ended December 31, 1999). N/A
20
<PAGE>
10.8 *Executive Supplemental Retirement Plan Agreement between the Bank and E.
Grey Winstead, III dated January 13, 2000. (Incorporated by reference to Exhibit
10.8 of the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2000). N/A
27.1 Financial Data Schedule (for S.E.C. use only).
</TABLE>
---------------------------------
* Indicates a management contract or compensatory arrangement.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREATER ROME BANCSHARES, INC.
Date: July 31, 2000 By:
------------------------
Thomas D. Caldwell, III
President, Chief Executive Officer
By:
------------------------
E. Grey Winstead, III
Principal Financial and Accounting Officer
22
