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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year Commission file number
ended December 31 33-90742
Georgia Bancshares, Inc.
(Name of small business issuer in its charter)
Georgia 58-2176047
(State of Incorporation) (I.R.S. Employer
Identification No.)
3333 Lawrenceville Highway
Tucker, Georgia 30084
(Address of principal executive offices) (Zip Code)
(770) 491-3333
(Issuer's telephone number)
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act: Common stock,
par value $4.00
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [ ]
Issuer's revenues for its most recent fiscal year were $4,493,443.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 1, 1997 was $7,302.850 based on an estimated
market price of $12.50 per share, although there is no established
trading market.
The number of shares outstanding of issuer's class of common stock
at March 1, 1997 was 584,228 shares of common stock.
Documents Incorporated By Reference: Portions of the Proxy
Statement for the 1997 Annual Meeting of Shareholders to be filed
with the Securities and Exchange Commission within 120 days of
the Registrant's fiscal year end are incorporated by reference into Part III.
Page 1 of 61
Exhibit Index on Page 60
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TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 14
ITEM 7. FINANCIAL STATEMENTS 31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 59
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT 59
ITEM 10. EXECUTIVE COMPENSATION 59
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 60
ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 60
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 60
SIGNATURES 62
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Georgia Bancshares, Inc. (the "Company"), Tucker, Georgia, was
incorporated as a Georgia business corporation on February 15, 1995, for
the purpose of becoming a bank holding company by acquiring all of
the common stock of DeKalb State Bank, Tucker, Georgia. On September
16, 1996, the name of DeKalb State Bank was changed to Community
Bank of Georgia (the "Bank"). The Company filed applications to the
Board of Governors of the Federal Reserve System (the "Board") and the
Georgia Department of Banking and Finance (the "DBF") for prior
approval to become a bank holding company. The Company received
Board approval on June 21,1995, and the DBF approval on June 22,
1995. The Company became a bank holding company within the meaning
of the Federal Bank Holding Company Act (the "Act") and the Georgia
Bank Holding Company Law (the "Georgia Act") upon the acquisition of all
of the Common Stock of the Bank on August 5, 1995.
The Bank currently is the sole operating subsidiary of the Company. The
Bank was incorporated under the laws of the State of Georgia on May 4,
1989 for the purpose of conducting the business of commercial banking. The
Bank commenced commercial banking operations on August 5, 1991.
The deposits at the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
(b) Business of Issuer
The Bank conducts a general commercial banking business in its primary
service area, emphasizing the banking needs of individuals and small- to
medium-sized businesses. The Company and the Bank conduct business
from the main office of the Bank located at 3333 Lawrenceville Highway,
Tucker, Georgia 30084. The Bank also conducts business from its branch
located at 4794 Highway 29,Lilburn, Georgia30247.
The Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable Federal regulatory restrictions on the
activities of bank holding companies. The Company was formed for the
purpose of becoming a holding company to own 100% of the stock of the
Bank. The holding company structure provides the Company with greater
flexibility than the Bank. While the Company has no present plans to
engage actively in any nonbanking business activities, management
anticipates studying the feasibility of establishing or acquiring
subsidiaries to engage in other business activities to the extent
permitted by law.
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The principal business of the Bank is to accept deposits from the
public and to make loans and other investments in and around DeKalb and
Gwinnett Counties, Georgia, its primary service area. The Bank offers a
full range of deposit services that are typically available from financial
institutions, including NOW accounts, demand, savings and other time
deposits. In addition, retirement accounts such as Individual Retirement
Accounts are available. All deposit accounts are insured by the FDIC up
to the maximum amount currently permitted by law.
The Bank offers a full range of commercial and personal loans. The Bank
makes loans to individuals for purposes such as home mortgage financing,
personal vehicles and various consumer purchases, and other personal and
family needs. The Bank makes commercial loans to businesses primarily in
the primary service area for purposes such as providing equipment and
machinery purchases, commercial real estate purchases and working
capital.
The Bank's lending philosophy is to make loans, taking into consideration
the safety of the Bank's depositors' funds, the preservation of the Bank's
liquidity, the interest of the Company's shareholders, and the welfare of
the community. Interest income from the Bank's lending operations is the
principal component of the Bank's income, so therefore prudent lending is
essential for the prosperity of the Bank.
The Bank's loan portfolio at December 31, 1996, contains approximately
11.3% real estate construction loans, 54.8% real estate mortgage loans,
26.6% commercial loans and 7.3% consumer loans. The Bank's loan to
deposit ratio at December 31, 1996 was approximately 60% with
management's goal to increase this loan to deposit ratio to approximately
70% consistent with the Bank's lending practices.
The principal sources of income for the Bank are interest and fees
collected on loans, interest on investment securities and service charges on
deposit accounts. The principal expenses of the Bank are interest paid on
deposits, employee compensation, office expenses, and other overhead
expenses.
The Bank's business plan for its initial years of operation relies principally
upon local advertising and promotional activity and upon personal contacts by
its directors, officers and shareholders to attract business and to acquaint
potential customers with the Bank's personalized services. The Bank intends
to emphasize a high degree of personalized client service in order to be able
to provide for each customer's banking needs. The Bank's marketing
approach will emphasize the advantages of dealing with an independent,
locally-owned and managed state chartered bank to meet the particular needs
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of individuals, professionals and small-to- medium-size businesses in the
community. All banking services will be continually evaluated with
regard to their profitability and efforts will be made to modify the Bank's
business plan if the plan does not prove successful. The Bank does not
currently offer trust or permissible securities services.
Supervision and Regulation
Regulation of the Bank. The operations of the Bank are subject to state
and federal statutes applicable to state chartered banks whose deposits are
insured by the FDIC and the regulations of the DBF and the FDIC. Such
statutes and regulations relate to, among other things, required reserves,
investments, loans, mergers and consolidations, issuances of securities,
payment of dividends, establishment of branches and other aspects of the
Bank's operations. Under the provisions of the Federal Reserve Act, the
Bank is subject to certain restrictions on any extensions of credit to the
Company or, with certain exceptions, other affiliates, and on the taking of
such stock or securities as collateral on loans to any borrower. In addition,
the Bank is prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or the providing of any property or
service.
The Bank, as a state chartered bank, will be permitted to branch only to
the extent that banks are permitted to branch under Georgia law. In
January 1996, the Georgia legislature passed a bill designed to eliminate
Georgia's current intra-county branching restrictions. The new legislation
provides that effective after July 1, 1996, banks in Georgia, with prior
approval of the DBF (and the appropriate federal regulatory authority),
may establish additional branches in up to three new counties in the state
per year. On July 1, 1998, full statewide branching goes into effect as
Georgia banks may establish new branches in any county in the state with
prior approval of the appropriate regulatory authorities.
The FDIC adopted final risk-based capital guidelines for all FDIC insured
state chartered banks that are not members of the Federal Reserve System
effective December 31, 1990. As of December 31, 1992, all banks are
required to maintain a minimum ratio of total capital to risk weighted assets
of 8 percent (of which at least 4 percent must consist of Tier 1
capital). Tier 1 capital of state chartered banks (as defined in regulations)
generally consists of (i) common stockholders equity; (ii) noncumulative
perpetual preferred stock and related surplus; and (iii) minority interests in
the equity accounts of consolidated subsidiaries.
In addition, the FDIC adopted a minimum ratio of Tier 1 capital to total
assets of banks. This capital measure is generally referred to as the
leverage capital ratio. The FDIC has established a minimum leverage
capital ratio of 3 percent if the FDIC determines that the institution is
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not anticipating or experiencing significant growth and has well-
diversified risk, including no undue interest rate exposure, excellent asset
quality, high liquidity, good earnings and, in general, is considered a
strong banking organization, rated Composite 1 under the Uniform
Financial Institutions Rating System. Other financial institutions are
expected to maintain leverage capital at least 100 to 200 basis points above
the minimum level. At December 31, 1996, the Bank exceeded the
minimum Tier 1, risk-based and leverage capital ratios. The table which
follows set forth certain capital information for the Bank as of
December 31, 1996.
Capital Adequacy
(Dollars in thousands)
December 31, 1996
Amounts Percent
Leverage Ratio:
Actual $ 6,205,721 11.9%
Minimum Required (1) $ 2,091,285 4.0%
Risk-Based Capital:
Tier 1 Capital
Actual $ 6,205,721 15.6%
Minimum Required $ 1,588,920 4.0%
Total Capital
Actual $ 6,665,104 16.8%
Minimum Required $ 3,177,840 8.0%
(1) Represents the highest regular minimum requirement. Institution that
are contemplating acquisitions or anticipating or experiencing significant
growth may be required to maintain a substantially higher leverage ratio.
See below regarding the consequences of failing to meet specified capital
standards.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to
add an interest rate risk component to risk-based capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991,
enacted in December 1991 ("FDICIA"), specifies, among other things, the
following five capital standard categories for depository institutions:
(i) well capitalized, (ii) adequately capitalized, (iii) undercapitalized, (iv)
significantly undercapitalized and (v) critically undercapitalized. FDICIA
imposes progressively more restrictive constraints on operations,
management and capital distributions depending on the category in which
an institution is classified. Each of the federal banking agencies has issued
final uniform regulations that became effective December 19, 1992, which,
among other things, define the capital levels described above. Under the
final regulations, a bank is considered "well capitalized" if it (i) has a
total risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-
based capital ratio of 6% or greater, (iii) has a leverage ratio of 5% or
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greater, and (iv) is not subject to any order or written directive to meet
and maintain a specific capital level for any capital measure. An
"adequately capitalized" bank is defined as one that has (i) a total risk-
based capital ratio for 8% or greater, (ii) a Tier 1 risk-based capital ratio
of 4% or greater and (iii) a leverage ratio of 4% or greater, or (iii) a
leverage ratio of less than 3%, and "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets equal to or less than
2%.The applicable federal regulatory agency for a bank that is "well
capitalized" may reclassify it as "adequately capitalized" or
"undercapitalized" institution to the supervisory actions applicable to the
next lower capital category, if it determines that the Bank is in an unsafe
or unsound condition or deems the bank to be engaged in an unsafe or
unsound practice and not to have corrected the deficiency. As of
December 31, 1996, the Bank met the definition of a "well capitalized"
institution.
"Undercapitalized" depository institutions, among other things, are
subject to growth limitations, are prohibited, with certain exceptions, from
making capital distributions, are limited in their ability to obtain
funding from a Federal Reserve Bank and are required to submit a
capital restoration plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the
plan is based on realistic assumptions and is likely to succeed in restoring
the depository institution's capital. In addition, for a capital restoration
plan to be acceptable, the depository institution's parent holding company
must guarantee that the institution will comply with such capital
restoration plan and provide appropriate assurances of performance. If a
depository institution fails to submit an acceptable plan, including if the
holding company refuses or is unable to make the guarantee described in
the previous sentence, it is treated as if it is "significantly
undercapitalized".
Failure to submit or implement an acceptable capital plan also is grounds
for the appointment of a conservator or a receiver. "Significantly
undercapitalized" depository institutions may be subject to a number
of additional requirements and restrictions, inclucient voting stock to
become adequately capitalized, requirements to reduce total assets
and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions, among other things, are
prohibited from making any payments of principal and interest
on subordinated debt, and are subject to the appointment of a receiver
or conservator.
Under FDICIA, the FDIC is permitted to provide financial assistance to an
insured bank before appointment of a conservator or receiver only if (i)
such assistance would be the least costly method of meeting the FDIC's
insurance obligations, (ii) grounds for appointment of a conservator or a
receiver exist or are likely to exist, (iii) it is unlikely that the bank can
meet all capital standards without assistance and (iv) the bank's
management has been competent, has complied with applicable laws,
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regulations, rules and supervisory directives and has not engaged in any
insider dealing, speculative practice or other abusive activity.
Regulation of the Company. The Company is a bank holding company
within the meaning of the Federal Bank Holding Company Act (the "Act")
and the Georgia Bank Holding Company Law (the "Georgia Act"). As a
bank holding company, the Company is required to file with the Federal
Reserve Board (the "Board") an annual report and such additional
information as the Board may require pursuant to the Act. The Board may
also make examinations of the Company and each of its subsidiaries.
Bank holding companies are required by the Act to obtain approval from
the Board prior to acquiring, directly or indirectly, ownership or control
of more than 5% of the voting shares of a bank.
The Act also prohibits bank holding companies, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is
not a bank and from engaging in any nonbanking business (other than a
business closely related to banking as determined by the Board) or from
managing or controlling banks and other subsidiaries authorized by the Act or
furnishing services to, or performing services for, its subsidiaries
without the prior approval of the Board. The Board is empowered to
differentiate between activities that are initiated de novo by a bank holding
company or a subsidiary and activities commenced by acquisition of a
going concern. The Company has no present intention to engage in
nonbanking activities.
As a bank holding company, the Company is subject to capital adequacy
guidelines as established by the Board. The Board established risk based
capital guidelines for bank holding companies effective March 15, 1989.
Beginning on December 31, 1992, the minimum required ratio for total
capital to risk weighted assets became 8 percent (of which at least 4 percent
must consist of Tier 1 capital). Tier 1 capital (as defined in
regulations of the Board) consists of common and qualifying preferred
stock and minority interests in equity accounts of consolidated
subsidiaries, less goodwill and other intangible assets required to be
deducted under the Board's guidelines. The Board's guidelines apply on a
consolidated basis to bank holding companies with total consolidated
assets of $150 million or more. For bank holding companies with less
than $150 million in total consolidated assets (such as the Company), the
guidelines will be applied on a bank only basis, unless the bank holding
company is engaged in nonbanking activity involving significant leverage
or has significant amount of debt outstanding that is held by the general
public. The Board has stated that risk based capital guidelines establish
minimum standards and that bank holding companies generally are
expected to operate well above the minimum standards.
The Company is also a bank holding company within the meaning of the
Georgia Act, which provides that, without the prior approval of the DBF,
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it is unlawful (i) for any bank holding company to acquire direct or
indirect ownership or control of more than 5% of the voting shares of any
bank, (ii) for any bank holding company or subsidiary thereof, other than
a bank, to acquire all or substantially all of the assets of a bank, or (iii)
for any bank holding company to merge or consolidate with any other
bank holding company.
It also is unlawful for any company to acquire direct or indirect ownership
or control of more than 5% of the voting shares of any bank in Georgia
unless such bank has been in existence and continuously operating or
incorporated as a bank for a period of five years or more prior to the date of
application to the DBF for approval of such acquisition. Bank holding
companies themselves are prohibited from acquiring another bank until the
initial bank in the bank holding company has been incorporated for a
period of twenty-four months.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"), subject to certain restrictions, allows
adequately capitalized and managed bank holding companies to acquire
existing banks across state lines, regardless of state statutes that would
prohibit acquisitions by out-of-state institutions. Further, effective June 1,
1997, a bank holding company may consolidate interstate bank
subsidiaries into branches and a bank may merge with an unaffiliated bank
across state lines to the extent that the applicable states have not "opted
out" of interstate branching prior to such effective date. Some states may
elect to permit interstate mergers prior to June 1, 1997. The Interstate
Banking Act generally prohibits an interstate acquisition (other than
the initial entry into a state by a bank holding company) that would result
in either the control of more than (i) 10% of the total amount of
insured deposits in the United States, or (ii) 30% of the total insured
deposits in the home state of the target bank, unless such 30% limitation
is waived by the home state on a basis which does not discriminate
against out-of-state institutions. As a result of this legislation, the
Company may become a candidate for acquisition by, or may itself
seek to acquire, banking organizations located in other states.
The Riegle Community Development and Regulatory Improvement Act of
1994 (the "Improvement Act") provides for the creation of a community
development financial institutions' fund to promote economic revitalization
in community development. Banks and thrift institutions are allowed to
participate in such community development banks. The Improvement Act
also contains (i) provisions designed to enhance small business capital
formation and to enhance disclosure with regard to high cost mortgages
for the protection of consumers, and (ii) more than 50 regulatory relief
provisions that apply to banks and thrift institutions, including the
coordination of examinations by various federal agencies, coordination of
frequency and types of reports financial institutions are required to file and
reduction of examinations for well capitalized institutions.
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Bank holding companies may be compelled by bank regulatory authorities
to invest additional capital in the event a subsidiary bank experiences
either significant loan losses or rapid growth of loans or deposits. In
addition, the Company may be required to provide additional capital to
any additional banks it acquires as a condition to obtaining the approvals
and consents of regulatory authorities in connection with such
acquisitions.
The Company and the Bank are subject to the Federal Reserve Act,
Section 23A, which limits a bank's "covered transactions" (generally, any
extension of credit) with any single affiliate to no more than 10% of a
bank's capital and surplus. Covered transactions with all affiliates
combined are limited to no more than 20% of a bank's capital and surplus.
All covered and exempt transactions between a bank and its affiliates must
be on terms and conditions consistent with safe and sound banking
practices, and a bank and its subsidiaries are prohibited from purchasing
low quality assets from the bank's affiliates. Finally, Section 23A requires
that all of a bank's extensions of credit to an affiliate be appropriately
secured by collateral. The Company and the Bank are also subject to
Section 23B of the Federal Reserve Act, which further limits transactions
among affiliates. Sections 22(g) and 22(h) of the Federal Reserve Act and
implementing regulations also prohibit extensions of credit by a state non-
member bank (such as the Bank) to its directors, officers and controlling
shareholders on terms which are more favorable than those afforded other
borrowers, and impose limits on the amounts of loans to individual
affiliates and all affiliates as a group. The United States Congress and the
Georgia General Assembly periodically consider and adopt legislation that
results in, and could further result in, deregulation, among other matters,
of banks and other financial institutions. Such legislation could modify or
eliminate geographic restrictions on banks and bank holding companies
and current prohibitions with other financial institutions, including mutual
funds, securities brokerage firms, insurance companies, banks from other
states and investment banking firms. The effect of any such legislation on
the business of the Company or the Bank cannot be accurately predicted.
The Company cannot predict what legislation might be enacted or what
other implementing regulations might be adopted, and if enacted or
adopted, the effect thereof.
Competition
The banking business is highly competitive. The Bank competes with
other commercial banks in its primary service area.
Banks generally compete with other financial institutions through the
banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the
degree of expertise and the personal manner in which services are offered.
The Bank encounters strong competition from most of the financial
institutions in the Bank's primary service area. In the conduct of certain
areas of its banking business, the Bank also competes with credit unions,
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consumer finance companies, insurance companies, money market mutual
funds and other financial institutions, some of which are not subject to the
same degree of regulation and restrictions imposed upon the Bank. Many
of these competitors have substantially greater resources and lending limits
than the Bank has and offer certain services, such as trust services, that the
Bank does not provide presently.
Moreover, many of these competitors have branch offices and other
facilities in the primary service area, a competitive advantage that the
Bank does not have currently. Management believes that competitive
Pricing and personalized service will provide it with a method to compete
effectively in the primary service area.
Employees
As of December 31, 1996, the Bank employed 26 full-time employees and
1 part-time employee. Except for the officers of the Bank who presently
serve as officers of the Company, the Company does not have any
employees. Neither the Company nor the Bank is a party to any collective
bargaining agreement, and management believes the Bank enjoys
satisfactory relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The operations of the Company and the Bank are conducted in a bank
building located at 3333 Lawrenceville Highway, Tucker, Georgia. The
Bank owns the bank building and the property upon which the building is
located.
The Bank's building is a traditional style, two-story, brick veneer
building containing approximately 9,700 square feet on a 1.75 acre site
at the intersection of Lawrenceville Highway and Cooledge Road.
The Bank's offices have six inside teller stations, three outside
drive-in teller stations, a safe deposit vault and one outside automatic
teller machine.
On October 1, 1996, the Bank opened its sole branch located at 4794
Highway 29 in Lilburn, Georgia. The branch contains approximately
2,800 square feet on a 1.4 acre site. The branch has three inside teller
stations, three outside drive-in teller stations, and one outside automatic
teller machine.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal
proceedings, other than routine litigation incidental to the Bank's business,
which management believes would have a material effect upon the
operations or financial condition of the Company or the Bank.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
Company's fourth quarter of the fiscal year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR ISSUER'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of December 31, 1996, there were approximately 715 shareholders of
record of the Company's common stock. Although there is no established
trading market for the Company's common stock, the Company is aware
of 189 private trades during the 1996 fiscal year at prices ranging from
$11.50 to $12.00 per share. The Company paid cash dividends to
shareholders in the amount of $.15 per share ($87,634 in the aggregate) in
the year ended December 31, 1996. The only source of funds presently
available to the Company for the payment of cash dividends is dividends
from the Bank. Certain regulatory requirements restrict the amount of
dividends that can be paid to the Company by the Bank without obtaining
the prior approval of the DBF. No assurance can be given that any further
dividends will be declared by the Company, or if declared, what the
amount of the dividends will be.
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ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS
OR PLAN OF OPERATIONS
Introduction
The Company is a one-bank holding company providing a full range of
banking services to individual and corporate customers in DeKalb and
Gwinnett Counties and surrounding areas through its wholly-owned bank
subsidiary, the Bank. The Bank operates under a state charter granted by
the DBF and serves its customers from its main banking facility in Tucker,
Georgia and its branch located in Lilburn, Georgia. The following
discussion of the Company's financial condition and results of operations
should be read in conjunction with the Company's consolidated financial
statements and related notes presented in another section of this Annual
Report on Form 10-KSB.
Financial Condition - 1996 vs. 1995
Total assets increased by $10,961,309 (23.1%) from December 31, 1995
to December 31, 1996. The increase is primarily due to an increase in net
loans of $5,960,114 (23.6%) and in total investments of $2,038,340
(14.7%). These increases were funded by growth in deposits of
$10,576,810 (25.5%) during 1996. The composition of the deposit
portfolio changed significantly during 1996. During the year, the
Company had significant increases in the interest-bearing demand
deposits. The interest-bearing demand category increased $4,071,099
(65.0%) during 1996. The level of savings accounts continued to decline
by $1,039,161 (15.7%) during 1996. Non-interest bearing deposits and
certificate of deposits grew by $785,199 (10.6%) and $6,759,673 (32.0%)
respectively during 1996. Since the increase in interest-bearing deposits
was offset by growth in loans, the net interest margin was not impacted
significantly.
On October 31, 1996, the Bank opened a branch office in Lilburn,
Georgia. The Company invested approximately $890,000 in bank
premises and equipment. As of December 31, 1996, the Branch had loans
and deposits totaling $797,400 and $1,083,299, respectively.
The total of nonperforming assets which includes nonaccruing loans,
repossessed collateral and loans for which payments are more than 90 days
past due, decreased from $230,219 at December 31, 1995 to $159,964 at
December 31, 1996. There were no related party loans which were
considered nonperforming at December 31, 1996.
The Bank was most recently examined by its primary regulatory authority
in July 1996. There were no recommendations by the regulatory
authority that in management's opinion will have material effects on the
Bank's liquidity, capital resources or operations.
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Results of Operations - 1996 vs. 1995
The results of operations of the Company is dependent on net interest
income, which is the difference between interest earned on earning assets
and the interest paid on interest-bearing liabilities, and the ability to
minimize loan losses and to control operating expenses.
Net earnings before taxes increased by $116,178 (18.0%) to $761,565 in
1996 from $645,387 in 1995. During 1995, the Company reduced the
majority of its deferred tax valuation allowance due to the utilization of net
operating loss carryforwards. The reduction of the deferred tax valuation
allowance increased income for 1995 by $505,071. Net earnings after
taxes for 1996 was $535,457, a decrease of $419,377 compared to $954,834
in 1995. The return on average assets was 1.02% and 2.17%
for the year ended December 31, 1996 and 1995, respectively.
Net interest income for 1996 was $2,292,381, an increase of $288,134
(14.4%), compared to $2,004,247 in 1995. Interest income for 1996 was
$4,120,193, representing an increase of $565,949 (15.9%) in 1995. The
growth in interest income was primarily due to the increase of funds
available for loans and investments. During the first quarter of 1996, the
prime rate dropped .50 basis points. The reduction of prime had a
negative impact on interest income since approximately $16,867,000
(34.3%) of loans fluctuate based upon the prime interest rate. Interest
expense for 1996 increased $277,815 (17.9%) compared to 1995. The
growth in interest expense was almost equal to the growth in interest
income primarily due to the significant growth of interest-bearing deposits.
The net interest spread increased 2 basis points from 4.12% in 1995 to
4.14% in 1996. The provision for loan losses for 1996 was $90,000
compared to $126,900 in 1995. The decrease is primarily attributable to
the reduction in net charge-offs. The allowance for loan losses represented
approximately 1.5% of total loans as of December 31, 1996. The net
amount of charge-offs was $32,047 in 1996 compared to $50,827 in 1995.
Management believes that the level of the allowance for loan losses is
appropriate based upon the Bank's portfolio and the current economic
conditions.
Other income for 1996 was $373,250, an increase of $71,850 from
$301,400 in 1995. The majority of the increase was due to increased fee
activity on deposit accounts of $49,475 and charges such as safe deposit
box rental, merchant deposit fees and ATM surcharges of $11,343.
Other expenses for 1996 was $1,814,066 an increase of $280,706 (18.3%)
compared to $1,533,360 in 1995. This increase is primarily attributable to
an increase in salary and personnel expenses of $165,625 associated with
hiring additional staff and merit salary increases which was slightly offset
by an decrease of $12,351 in net occupancy and equipment expense related to
<PAGE> 16
general decreases in insurance, repairs and maintenance, and
utilities. Also, the Federal Deposit Insurance Corporation reduced the
assessment rates that it charges banks during 1995. The reduction in
premium rates caused a decrease of $38,792 in regulatory agency
assessments in 1996 compared to 1995.
The Bank recognized income tax (expense) benefits of $(226,108) and
$309,447 in 1996 and 1995, respectively. The Bank did not realize any
income tax benefits or expenses prior to 1995. In prior years, the Bank had
recorded a deferred tax valuation allowance since the realization of
the deferred tax benefits was heavily dependent on future earnings. The
deferred tax valuation allowance was reduced by $35,271 and $505,071,
in 1996 and 1995, respectively, because it was more likely than not that
future taxable income will be sufficient to realize substantially all of the
tax benefits for temporary differences including loss carryfowards.
Liquidity
The Bank must maintain a certain portion of its assets in funds that are
readily available to pay on deposit withdrawals and to meet expected loan
demands. Additionally, the Bank maintains relationships with
correspondent banks to provide lines of credit for short-term funds on an
as-needed basis. Presently, the Bank has unsecured federal funds lines
available from commercial banks of $1,400,000.
Cash and cash equivalents totaled $ 6,583,556 and $4,325,395 at
December 31, 1996 and 1995, respectively. Total investments also
increased by $2,038,340 from December 31, 1995 to December 31,
1996. Cash inflows from operations totaled $767,957 in 1996, while
outflows from investing activity totaled $8,998,972 which were primarily
a net increase in loans. Inflows from financing activities totaled
$10,489,176 in 1996 which resulted from increases in deposits.
Capital Resources
The Bank's ratios of stockholders' equity to total assets were 10.4% and
12.1% at December 31, 1996 and 1995, respectively. The Bank is
required to maintain minimum amounts of capital to total "risk weighted"
assets, as defined by the banking regulators. At December 31, 1996, the
Bank was required to have Tier I and Total Capital to "risk weighted"
assets ratios of 4% and 8%, respectively. The Bank's ratios as of
December 31, 1996 were 15.6% and 16.8% for Tier I and Total Capital
ratios, respectively. Additionally, the Bank is required to maintain a
leverage ratio of at least 3%. At December 31, 1996, the Bank's leverage
ratio was 11.9%. While the current level of capital sufficiently meets the
regulatory requirements, and the Bank's current and foreseeable needs,
management will continue to evaluate the capital needs of the Bank.
<PAGE>17
Interest Rate Sensitivity
The objective of the Bank's asset-liability management policy is to the
effect of interest rate changes on the Bank's net interest margin. The Bank
has an Asset-Liability Committee consisting of certain officers and directors
of the Bank. The Committee's responsibility is to monitor the
policies and procedures that have been formulated to ensure the
appropriate composition of the Bank's asset/liability mix in order to
properly manage the interest rate risks of the Bank's balance sheet and to
ensure a consistent level of profitability.
The following table summarizes the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 3, 1996 that are to
mature, prepay or reprice in each of the future time periods shown.
Except as stated below, the amount of assets or liabilities that mature or
reprice in a particular period was determined in accordance with the
contractual terms of the asset or liability. Adjustable rate loans are
included in the period in which interest rates are next scheduled to adjust
rather than in the period in which they are due. The fixed rate loans are
included in the periods in which they are anticipated to be repaid based on
scheduled maturities. Estimates of projected repayments of loans with
specified characteristics and investment securities with callable features
are presented in the period of the anticipated call. Community Bank of
Georgia's savings accounts and interest-bearing demand accounts (NOW
and money market accounts), which are generally subject to immediate
withdrawal, are included in the "Three Months or Less" category.
<PAGE> 18
Interest Rate Sensitivity, continued
At December 31, 1996
Maturing or Repricing in
Over Over 1
Three Months Year
Months Through Though Over 5
of Less 1 Year 5 Years Years Totals
(Dollars in Thousands)
Interest-earning assets:
Loans $ 13,248 2,905 12,043 3,444 31,640
Investment
securities:
Taxable 2,036 3,759 8,652 1,423 15,870
Federal Funds Sold 5,140 -- -- -- 5,140
Total Interest-earning
assets $ 20,424 6,664 20,695 4,867 52,650
Interest-bearing
liabilities:
Deposits:
Interest-bearing
demand 10,331 -- -- -- 10,331
Savings 5,588 -- -- -- 5,588
Time 8,586 14,073 5,249 -- 27,908
Total interest-bearing
liabilities $ 24,505 14,073 5,249 -- 43,827
Interest sensitivity
difference per
period (4,081) (7,409) 5,446 4,867
Cumulative interest
sensitivity
difference $(4,081) (11,490) 3,956 8,823
Cumulative difference to
total assets (6.99%) (19.69%) 6.78% 15.12%
<PAGE> 19
SELECTED STATISTICAL INFORMATION
The following section presents statistical information for the Company
which supplements the financial data discussed elsewhere herein.
Index to Selected Statistical Information
Table 1 Average Balance Sheets
Table 2 Volume-Rate Analysis
Table 3 Investment Portfolio
Table 4 Loan Portfolio
Table 5 Allowance for Loan Losses
Table 6 Deposits
Table 7 Selected Financial Data
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 20
Table 1
Average Balance Sheets
The table below shows the average balance sheets, including significant
categories of interest-earning assets and interest-bearing liabilities for
1996 and 1995, and the average rate of interest earned or paid thereon.
1996 1995
Interest Interest
Average Income/ Yield Average Income/ Yield
Balances Expenses Rate Balances Expenses Rate
(Amounts are presented in Thousands
Assets:
Interest-earning assets
Loans (including
loan fees) $ 27,606 $ 2,958 10.72% $ 23,810 $ 2,557 10.74%
Investment
securities:
Taxable 14,444 922 6.38% 12,085 751 6.21%
Interest earning
deposits 190 10 5.26% 446 26 5.83%
Federal funds
sold 4,311 230 5.34% 3,819 220 5.76%
Total interest
earning assets 46,551 4,120 8.85% 40,160 3,554 8.85%
Other non-interest
earning assets 5,720 3,847
Total assets 5,720 3,847
Liabilities and stockholders' equity:
Interest bearing liabilities:
Deposits:
Interest bearing
demand and
savings $ 14,953 $ 441 2.95% $ 14,503 $ 467 3.22%
Time 23,821 1,386 5.81% 18,217 1,075 5.90%
Other borrowing 37 1 2.70% 78 8 0.26%
Total interest
bearing
liabilities 38,811 1,828 4.71% 32,798 1,550 4.73%
Other non-interest
bearing liabilities 7,660 6,190
Stockholders' equity 5,800 5,019
Total liabilities
and stockholders'
equity 52,271 44,007
<PAGE> 21
Table 1
Average Balance Sheets - Continued
1996 1995
Interest Interest
Average Income/ Yield Average Income/ Yield
Balances Expenses Rate Balances Expenses Rate
(Amounts are presented in Thousands
Excess of interest
earning assets
over interest bearing
liabilities $ 7,740 $ 7,362
Ratio of interest
earning assets to
interest bearing
liabilities 119.94% 122.45%
Net interest income 2,292 2,004
Net interest spread 4.14% 4.12%
Net interest yield on
interest bearing assets 4.92% 4.99%
Nonaccrual loans and the interest which was recorded on these loans (both
prior and subsequent to the time loans were placed on nonaccrual status, if
any) are included in the yield calculation for all loans in all periods
reported.
<PAGE> 22
Table 2
Volume-Rate Analysis
The following table shows a summary of the changes in interest income
and interest expense resulting from changes in volume and changes in
rates for each major category of interest-earning assets and interest
- -bearing liabilities for 1996 over 1995.
1996 over 1995
Increase (decrease) due to changes in:
(Amounts are presented in thousands)
Volume Rate Total
Interest income on:
Loans (including
loan fees) $ 406 (5) 401
Investment securities:
Taxable 150 21 171
Federal funds sold 26 (16) 10
Interest on deposits
in Banks (14) (2) (16)
Total interest-
earning assets $ 568 (2) 566
Interest expense on:
Deposits:
Interest-bearing demand
and savings $ 13 (39) (26)
Time 327 (16) 311
Other borrowings (7) -- (7)
Total interest-
bearing liabilities $ 333 (55) 278
Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
<PAGE> 23
Table 2
Volume-Rate Analysis, Continued
The following table shows a summary of the changes in interest income
and interest expense resulting from changes in volume and changes in rates
for each major category of interest-earning assets and interest-bearing
liabilities for 1995 over 1994.
1995 over 1994
Increase (decrease) due to changes in:
(Amounts are presented in thousands)
Volume Rate Total
Interest income on:
Loans (including
loan fees) $ 33 540 573
Investment securities:
Taxable 118 65 183
Federal funds sold 32 51 83
Interest on deposits
in Banks (2) 3 1
Total interest-
earning assets $ 181 659 840
Interest expense on:
Deposits:
Interest-bearing demand
and savings $ (82) (4) (86)
Time 368 158 526
Other borrowings (1) 3 2
Total interest-
bearing liabilities $ 333 (55) 278
Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
<PAGE> 24
Table 3
Investment Portfolio
The following table presents the investments by category at December
31,1996 and 1995 (amounts are represented in thousands):
1996 1995
Amortized Estimated Amortized Estimated
Costs Fair Value Costs Fair Value
U.S. Treasury $ 1,415 1,413 1,409 1,415
U.S. Government agencies 12,457 12,388 10,160 10,200
Mortgage-backed securities 2,100 2,069 2,233 2,216
Totals $ 15,972 15,870 13,802 13,831
The amortized costs and weighted average yields for investments at
December 31, 1996 are shown below (amounts are represented in
thousands):
Weighted
U.S. U.S. Mortgage Average
Treasury Agencies Backed Yields
Within 1 year $ 100 332 180 5.58%
After 1 through 5 years 1,315 7,876 639 6.40%
After 5 through 10 years -- 3,349 687 6.75%
After 10 years -- 900 594 6.61%
Totals $ 1,415 12,457 2.100 6.57%
<PAGE> 25
Table 4
Loan Portfolio
The following table presents loans by type at the end of 1996 and 1995
(amounts are presented in thousands):
December 31
1996 1995
Commercial, financial and agricultural $ 8,423 6,684
Real estate - construction 3,597 3,018
Real estate - mortgage 17,331 13,408
Installment loans to individuals 2,289 2,512
$ 31,640 25,622
As of December 31, 1996, the maturities of loans in the indicated
classifications were as follows (amounts are presented in thousands):
Commercial,
Financial
and Real Estate Real Estate
Maturity Agricultural Construction Mortgage Consumer Total
Within 1 yr $ 3,937 3,316 1,908 893 10,054
1 to 5 yrs 3,063 281 1,704 1,396 6,444
After 5 yrs 1,423 -- 13,719 -- 15,142
Totals $ 8,423 3,597 17,331 2,289 31,640
<PAGE> 26
Table 4
Loan Portfolio, Continued
As of December 31, 1996, the interest terms of loans in the indicated
classifications for the indicated maturity ranges are as follows (amounts are
presented in thousands):
Fixed Variable
Interest Rates Interest Rates Total
Commercial, financial
and agricultural:
Less than one year $ 948 2,989 3,937
1 to 5 years maturity 796 2,267 3.063
After 5 years maturity 1,101 322 1,423
2,845 5,578 8,432
Real estate - construction:
Less than one year -- 3,316 3,316
1 to 5 years maturity -- 281 281
After 5 years maturity -- -- --
-- 3,597 3,597
Real estate - mortgage:
Less than one year 305 1,603 1,908
1 to 5 years maturity 1,615 89 1,704
After 5 years maturity 712 13,007 13,719
2,632 14,699 17,331
Consumer:
Less than one year 647 246 893
1 to 5 years maturity 1,389 7 1,396
After 5 years maturity -- -- --
2,632 14,699 17,331
Totals $ 7,513 24,127 31,640
<PAGE> 27
Table 4
Loan Portfolio, Continued
The following summarizes past due and non-accrual loans and other real
estate as of December 31, 1996 and 1995 (amounts are presented in
thousands):
1996 1995
Other real estate and repossessions $ 148 221
Accruing loans 90 days or more past due -- --
Non-accrual loans 11 10
A loan is placed on non-accrual status when, in management's judgment, the
collection of interest appears doubtful. As a result of management's ongoing
review of the loan portfolio, loans are classified as non-accrual generally
when they are past due in principal or interest payments for more than 90
days or it is otherwise not reasonable to expect collection of principal and
interest under the original terms. Exceptions are allowed for 90-day past
due loans when such loans are well secured and in process of collection.
<PAGE> 28
Table 5
Allowance for Loan Losses
The following table summarizes information concerning the allowance for
loan losses (amounts are presented in thousands):
December 31
1996 1995
Balance at beginning of year $ 401 325
Charge-offs:
Commercial, financial and agricultural 10 --
Real estate 40 --
Installment loans to individuals -- --
Total Charge-offs 50 71
Recoveries:
Commercial, financial and agricultural 11 20
Real estate -- --
Installment loans to individuals 7 --
Total Recoveries 18 20
Net Charge-offs 32 51
Additions charged to operations 90 127
Balance at end of year $ 459 401
Ratio of net charge-offs
during the period to average
loans outstanding during the
period .12% .21%
Management's policy is to assign a risk rating based upon underlying
collateral, the borrower's ability to repay, and the economic conditions and
other factors relevant to the loan. The allowance for loan losses is provided
based upon the risk ratings assigned or specific losses identified. An
assessment of the adequacy of the allowance for loan losses is made
monthly.
<PAGE> 29
Table 6
Deposits
The average balance of deposits and the average rates paid on such deposits
are summarized for the periods indicated in the following table (amounts are
presented in thousands):
1996 1995
Amount Rate Amount Rate
Demand deposits:
Non-interest bearing $ 7,267 --% 5,844 --%
Interest-bearing demand
and savings 14,953 2.95% 14,503 3.22%
Time deposits 23,821 5.81% 18,217 5.90%
Totals $ 46,041 38,564
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1996 are summarized as follows (amounts are presented in
thousands):
Within 3 months $ 3,507
After 3 through 6 months 2,209
After 6 through 12 months 1,801
After 12 months 1,489
Totals $ 9,006
<PAGE> 30
Table 7
Selected Financial Data
(Dollars in thousands, except per share amounts)
The following represents selected financial data for the years ended
December 31, 1996, 1995 and 1994. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes included elsewhere in this report.
1996 1995 1994
Interest income $ 4,120 3,554 2,714
Interest expense $ 1,828 1,550 1,108
Net interest expense $ 2,292 2,004 1,606
Provision for loan losses $ 90 127 115
Net earnings $ 535 955 316
Net earnings per share $ .92 1.63 0.54
Total average stockholders' equity $ 5,800 5,019 4,548
Total average assets $ 52,271 44,007 38,074
Total assets at end of year $ 58,350 47,389 39,693
Ratios:
Net earnings to average assets 1.02% 2.17% 0.83%
Net earnings to average stockholders'
equity 9.22% 19.03% 6.95%
Average stockholders' equity
to average assets 11.10% 11.41% 11.95%
<PAGE> 31
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements, notes thereto and independent
auditors' report thereon included on the following pages are incorporated
herein by reference.
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1996 and 1995. F-2
Consolidated Statements of Earnings for the
Years Ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements -
December 31, 1996, 1995 and 1994 F-8
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Georgia Bancshares, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
Georgia Bancshares, Inc. and subsidiary as of December 31, 1996 and
1995, and the related statements of earnings, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. 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 Georgia
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
January 13, 1997
F - 1
<PAGE> 33
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets
1996 1995
Cash and due from banks, including
reserve requirements of $197,000
and $107,000 $ 1,443,556 1,253,113
Federal funds sold 5,140,000 3,072,282
Cash and cash equivalents 6,583,556 4,325,395
Interest-bearing deposits in other banks - 299,000
Investment securities available for sale 15,870,086 13,831,746
Loans, net 31,180,593 25,220,479
Premises and equipment, net 2,980,313 1,958,272
Accrued interest receivable and other assets 1,735,929 1,754,276
$ 58,350,477 47,389,168
Liabilities and Stockholders' Equity
Deposits:
Demand $ 8,216,142 7,430,943
Interest-bearing demand 10,331,424 6,260,325
Savings 5,587,536 6,626,697
Time 27,907,923 21,148,250
Total deposits 52,043,025 41,466,215
Accrued interest payable and other liabilities 211,684 193,256
Total liabilities 52,254,709 41,659,471
Commitments
Stockholders' equity:
Common stock, $4 par value; authorized
3,000,000 shares; 584,228 issued and
outstanding 2,336,912 2,336,912
Additional paid-in capital 3,536,659 3,536,659
Retained earnings (accumulated deficit) 391,139 (56,684)
Net unrealized losses on securities
available for sale, net of tax (168,942) (87,190)
Total stockholders' equity 6,095,768 5,729,697
$ 58,350,477 47,389,168
See accompanying notes to consolidated financial statements.
F - 2
<PAGE> 34
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Interest income:
Interest and fees on loans $ 2,957,699 2,557,559 1,984,269
Interest on federal funds sold 229,793 220,168 136,513
Interest on deposits in other banks 10,721 25,954 24,715
Interest and dividends on
investment securities:
U.S. Treasuries and
Government agencies 785,191 524,968 318,185
Mortgage backed securities
and collateralized
mortgage obligations 136,789 225,595 249,476
Other - - 629
Total interest income 4,120,193 3,554,244 2,713,787
Interest expense:
Interest-bearing demand 227,149 196,244 136,331
Savings 213,720 270,703 417,374
Time 1,385,576 1,074,854 549,038
Other 1,367 8,196 5,595
Total interest expense 1,827,812 1,549,997 1,108,338
Net interest income 2,292,381 2,004,247 1,605,449
Provision for loan losses 90,000 126,900 115,000
Net interest income after
provision for loan losses 2,202,381 1,877,347 1,490,449
Other income:
Service charges and fees on deposits 296,890 247,415 245,120
Gain(loss) on sales of investment
securities - (10,941) 1,733
Other 76,360 64,926 51,805
Total other income 373,250 301,400 298,658
F - 3
<PAGE> 35
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Other expenses:
Salaries and employee benefits 924,253 758,628 707,600
Occupancy 265,856 278,207 254,309
Other 623,957 496,525 511,260
Total other expenses 1,814,066 1,533,360 1,473,169
Earnings before income taxes 761,565 645,387 315,938
Income tax (expense) benefit (226,108) 309,447 -
Net earnings $ 535,457 954,834 315,938
Net earnings per common share $ .92 1.63 .54
Weighted average common
shares outstanding 584,228 584,228 584,228
See accompanying notes to consolidated financial statements.
F - 4
<PAGE> 36
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
Net
Unrealized
Gains
(Losses)
Retained On
Common Stock Additional Earnings Securities
Number Paid-In (Accumulated Available
of Shares Amount Capital Deficit) for Sale Total
Balance,
December 31,
1993 584,228 $2,336,912 3,536,659 (1,327,456) - 4,546,115
Cumulative effect
of accounting
change for certain
investment
securities - - - 64,320 - 64,320
Net earnings - - - 315,938 - 315,938
Changes in
unrealized gains
(losses) on
securities
available for sale - - - - (375,851) (375,851)
Balance,
December 31,
1994 584,228 2,336,912 3,536,659 (1,011,518) (311,531) 4,550,522
Net earnings - - - 954,834 - 954,834
Changes in
unrealized gains
(losses) on
securities
available for sale - - - - 224,341 224,341
Balance,
December 31,
1995 584,228 2,336,912 3,536,659 (56,684) (87,190) 5,729,697
<PAGE> 37
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
Net
Unrealized
Gains
(Losses)
Retained On
Common Stock Additional Earnings Securities
Number Paid-In (Accumulated Available
of Shares Amount Capital Deficit) for Sale Total
Net earnings - - - 535,457 - 535,457
Dividends paid - - - (87,634) - (87,634)
Changes in
unrealized gains
(losses) on
securities
available for sale - - - - (81,752) (81,752)
Balance,
December 31,
1996 584,228 $2,336,912 3,536,659 391,139 (168,942) 6,095,768
See accompanying notes to consolidated financial statements.
F - 5
<PAGE> 38
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net earning $ 535,457 954,834 315,938
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation, amortization
and accretion 133,724 117,284 167,340
Deferred tax benefit 21,664 (309,447) -
Provision for loan losses 90,000 126,900 115,000
Provision for other real
estate losses 32,118 25,000 -
Loss (gain) on sales of
investment securities - 10,491 (1,733)
Loss on disposal of fixed assets 11,689 - -
Change in:
Accrued interest receivable
and other assets (75,123) (193,124) (109,055)
Accrued interest payable
and other liabilities 18,428 (2,662) (65,473)
Net cash provided by
operating activities 767,957 729,276 422,017
Cash flows from investing activities:
Proceeds from sales, paydowns,
and maturities of investment
securities-HTM - 1,164,938 1,317,403
Proceeds from sales, paydowns,
and maturities of investment
securities-AFS 4,076,110 3,638,302 1,390,526
Purchases of investment
securities-HTM - - (3,452,963)
Purchases of investment
securities-AFS (6,207,614) (7,104,735) (1,098,594)
Net change in interest-
bearing deposits in other banks 299,000 496,000 (596,000)
Net change in loans (6,050,114) (3,836,323) (3,526,891)
F - 6
<PAGE> 39
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Purchase of cash value life
insurance policies - (800,000) -
Purchases of premises and equipment (1,183,111) (19,222) (28,588)
Proceeds from other real estate sales 66,757 - -
Improvements to other real estate - (14,098) -
Net cash used by investing
activities (8,998,972) (6,475,138)(5,995,107)
Cash flows from financing activities:
Payment of dividends (87,634) - -
Net change in deposits 10,576,810 6,520,095 4,699,378
Net cash provided by
financing activities 10,489,176 6,520,095 4,699,378
Net change in cash and
cash equivalents 2,258,161 774,233 (873,712)
Cash and cash equivalents
at beginning of year 4,325,395 3,551,162 4,424,874
Cash and cash equivalents
at end of year $ 6,583,556 4,325,395 3,551,162
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,801,418 1,535,606 1,131,644
Income taxes paid $ 175,924 - -
Noncash investing
and financing activities:
Transfers from loans to
other assets $ - 56,399 175,021
Transfer of securities held to
maturity to securities
available for sale $ - 4,109,996 -
Securities transferred,
at amortized cost, to
securities available for sale $ - - 6,506,850
Change in unrealized loss
on securities available for
sale, net of tax $ (81,752) 224,341 (311,531)
See accompanying notes to consolidated financial statements.
F -7
<PAGE> 40
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Reorganization
On May 18, 1995, stockholders of Community Bank of Georgia (formerly
known as DeKalb State Bank) (the Bank) approved a plan of
reorganization whereby, a bank holding company would be formed by
exchanging one share of Bank stock for one share of Georgia Bancshares,
Inc. (the Company) stock. The reorganization transaction was accounted
for similar to a pooling interests. All the Company's activities are
currently conducted by its wholly-owned subsidiary, Community Bank of
Georgia. Bank is a community oriented commercial bank with emphasis
on retail banking and offers such customary banking services as consumer
and commercial checking accounts, savings accounts, certificates of
deposit, commercial and consumer loans, money transfers and a variety of
other banking services. The Bank has two offices, one office in Tucker
(DeKalb County) and one office in Lilburn (Gwinnett County), both
suburbs of metropolitan Atlanta, Georgia, and conducts its banking
activities primarily in these counties.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accounting principles followed by Georgia 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, the valuation of real
estate acquired in connection with or in lieu of foreclosure on loans,
and valuation allowances associated with deferred tax assets, the
recognition of which are based on future taxable income.
F - 8
<PAGE> 41
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Investment Securities
Effective January 1, 1994, the Bank adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS No. 115
the Bank classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term. Held to
maturity securities are those securities for which the Bank has the
ability and intent to hold the security until maturity. All other
securities not included in trading or held to maturity are classified as
available for sale. At December 31, 1996 and 1995, there were no
trading or held to maturity securities.
Available for sale (AFS) securities are recorded at fair value. Held to
maturity securities (HTM) are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding
gains and losses, net of the related tax effect, on securities available
for sale are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. 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. The unrealized holding gains or
losses included in the separate component of stockholders' equity for
securities transferred from available for sale to held to maturity are
maintained and amortized into earnings over the remaining life of the
security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the associated
security.
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 .
F - 9
<PAGE> 42
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Loans, Loan Fees and Interest Income on Loans
Loans are stated at the principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by using
the simple interest method on daily balances of the principal
amount outstanding.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that collection
of interest is doubtful. When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is charged to interest
income on loans. Generally, payments on nonaccrual loans are applied to
principal.
Loan fees, net of certain origination costs, have been deferred and are
being amortized over the lives of the respective loans.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" as amended by
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." A loan is impaired when, based on
current information and events, it is probable that all amounts due
according to the contractual terms of the loan 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 the fair value of the collateral if
the loan is collateral dependent. The adoption of SFAS No. 114 and
No. 118 had no significant impact on the consolidated financial
statements.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collection of the principal
is unlikely. The allowance represents an amount which, in management's
F - 10
<PAGE> 43
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
judgment, will be adequate to absorb probable losses on existing loans
that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the probability of collection of loans. These
evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality, and
review of specific problem loans.
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, regulatory agencies, as an integral part
of their examination process, periodically review the allowance for loan
losses. Such regulators may require 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 carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related asset. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs which do not
improve or extend the useful life of the respective asset is charged to
income as incurred, whereas significant renewals and improvements are
capitalized. The range of estimated useful lives for premises and
equipment are:
Buildings and improvements 31 years
Equipment, furniture and fixtures 5 - 20 years
F - 11
<PAGE> 44
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Other Real Estate
Properties acquired through foreclosure are carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs
to dispose. Accounting literature define fair value as the amount that is
expected to be received in a current sale between a willing buyer and
seller other than in a forced or liquidation sale. Fair values at
foreclosure are based on appraisals. Losses arising from the
acquisition of foreclosed properties are charged against the allowance
for loan losses. Subsequent writedowns are provided by a charge to
income through an allowance for losses on other real estate in the
period in which the need arises.
Income Taxes
The Company uses the liability method of accounting for income taxes
which requires the recognition of deferred tax assets and liabilities for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Additionally, this method requires the
recognition of future tax benefits, such as net operating loss
carryforwards, 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, management evaluates the
probability of being able to realize the future benefits indicated by such
asset. 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 realization of
the deferred tax assets, management considers the scheduled reversals
of deferred tax liabilities, projected future taxable income, and tax
planning strategies
F - 12
<PAGE> 45
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Net Earnings Per Common Share
The impact of outstanding stock options has no significant effect on net
earnings per common share and accordingly, net earnings per common
share is determined by dividing net earnings by the weighted average
number of common shares outstanding.
Statement of Cash Flows
For purposes of reporting cash flows, the Company includes cash and due
from banks and federal funds sold.
(2) INVESTMENT SECURITIES
Investment securities available for sale at December 31, 1996 and 1995,
are as follows:
December 31, 1996
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasuries
and U.S.
Government
agencies $ 13,871,668 26,501 97,438 13,800,731
Mortgage-backed
securities and
collateralized
mortgage
obligations 2,099,999 8,268 38,912 2,069,355
Total $ 15,971,667 34,769 136,350 15,870,086
F - 13
<PAGE> 46
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(2) INVESTMENT SECURITIES, continued
December 31, 1996
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasuries
and U.S.
Government
agencies $ 11,568,144 86,862 39,364 11,615,642
Mortgage-backed
securities and
collateralized
mortgage
obligations 2,233,409 19,845 37,150 2,216,104
Total $ 13,801,553 106,707 76,514 13,831,746
The amortized cost and fair value of securities available for sale at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have
the right to call or prepay obligations with or without call or prepayment
penalties.
Amortized Estimated
Cost Fair Value
U.S. Treasury and U.S.
Government agencies:
Within 1 year $ 499,941 499,592
1 to 5 years 9,122,478 9,089,082
5 to 10 years 4,249,249 4,212,057
13,871,668 13,800,731
Mortgage-backed
securities and collateralized
mortgage obligations 2,099,999 2,069,355
$ 15,971,667 15,870,086
Proceeds from sales of securities available for sale during 1995 were
$1,976,450. Gross gains of $89,780 and gross losses of $100,721 were
realized on those 1995 sales. There were no sales of securities during
1996 or 1994.
F - 14
<PAGE> 47
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(2) INVESTMENT SECURITIES, continued
Securities with a carrying value of approximately $700,000 and $200,000
at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits as required by law.
At December 31, 1996 and 1995, the Bank has no outstanding derivative
financial instruments such as swaps, options, futures, or forward
contracts.
(3) LOANS
Major classifications of loans are summarized as follows:
1996 1995
Commercial $ 8,422,757 6,684,350
Real estate - mortgage 17,331,685 13,407,937
Real estate - construction
and land development 3,596,614 3,018,045
Consumer 2,288,920 2,511,577
31,639,976 25,621,909
Less: Allowance for loan losses 459,383 401,430
Net loans $ 31,180,593 25,220,479
The Bank grants loans and extensions of credit to individuals and a
variety of firms and corporations located primarily in DeKalb County,
Georgia. Although the Bank has a diversified loan portfolio, a substantial
portion of the loan portfolio is collateralized by improved and
unimproved real estate and is dependent upon the real estate market.
An analysis of the activity in the allowance for loan losses is presented
below:
1996 1995 1994
Balance at beginning of year $ 401,430 325,357 211,080
Provision for loan losses 90,000 126,900 115,000
Loans charged off (49,966) (70,562) (789)
Recoveries on loans
charged off 17,919 19,735 66
Balance at end of year $ 459,383 401,430 325,357
F - 15
<PAGE> 48
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(4) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
1996 1995
Land $ 1,334,914 864,618
Buildings and improvements 1,150,819 931,105
Equipment, furniture and fixtures 993,340 681,374
3,479,073 2,477,097
Less accumulated depreciation 498,760 518,825
$ 2,980,313 1 958,272
Depreciation expense was approximately $149,000, $131,000 and
$128,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(5) EMPLOYEE AND DIRECTOR BENEFIT PLANS
In November 1995, the Bank purchased life insurance contracts to
provide benefits to its directors under Executive Supplemental Income
plan agreements. Under these agreements, the Bank is obligated to pay
death benefits to the beneficiaries of its directors. These death benefits
are funded through the purchase of split-dollar whole life insurance
policies on the lives of each Director. The increase in cash surrender
value of the contracts, less the Bank's cost of funds, constitutes the Bank
contributions to the plan each year. In the event the insurance contracts
fail to produce certain returns, the Bank has no obligation to contribute
to the plan. At December 31, 1996 and 1995, the cash surrender value of
the insurance contracts was approximately $816,000 and $800,000, and is
included as a component of other assets. No expenses were incurred for
benefits relating to this plan through December 31, 1996. Income related
to the insurance policies of $16,000 was included in other income for the
year ended December 31, 1996.
F - 16
<PAGE> 48
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(5) EMPLOYEE AND DIRECTOR BENEFIT PLANS, continued
The Company also has a defined contribution plan intended to comply
with the requirements of section 401(K) of the Internal Revenue Code,
covering substantially all employees subject to certain minimum age and
service requirements. Contributions to the plan are determined annually
by the Board of Directors. There were no Company contributions to the
plan during 1996, 1995 or 1994.
(6) DEPOSITS
At December 31, 1996, maturities of time deposits are as follows:
Maturing In:
1997 $ 22,661,669
1998 2,325,583
1999 1,140,444
2000 704,469
2001 1,068,152
Thereafter 7,606
$ 27,907,923
Deposits from related parties totaled approximately $2,111,000 and
$1,296,000 at December 31, 1996 and 1995. Time deposits of $100,000
or more were approximately $9,006,000 and $5,690,000 at December 31,
1996 and 1995.
(7) INCOME TAXES
The Bank had no income tax expense or benefit for the year ended
December 31, 1994 as net operating loss carryforwards were used to
offset currently payable tax expense and financial statement deferred tax
benefits remained unrecorded as their realization was heavily dependent
on future taxable income. In 1995 the Company reduced the deferred tax
valuation allowance by approximately $505,000 because it was more
likely than not that future taxable income will be sufficient to realize
substantially all of the tax benefits for deductible temporary differences
including loss carryforwards.
F - 17
<PAGE> 49
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(7) INCOME TAXES, continued
The consolidated income tax expense (benefit) is summarized as follows:
1996 1995 1994
Current tax expense $ 204,444 - -
Deferred tax expense 56,935 195,624 -
Reduction in deferred tax
valuation allowance (35,271) (505,071) -
$ 226,108 (309,447) -
Income tax expense at the statutory federal income tax rate is reconciled
to the Company's actual benefit as follows:
1996 1995 1994
Tax provision at statutory rate $ 258,932 219,432 107,419
Reduction in deferred tax valuation
allowance (35,271) (505,071) -
Benefit of net operating loss
carryforward - - (108,944)
Other 2,447 (23,808) 1,525
$ 226,108 (309,447) -
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred
taxes.
1996 1995
Deferred income tax assets:
Allowance for loan losses 21,786 97,612
Unrealized losses on securities
available for sale 38,560 -
Organizational costs - 28,320
Deferred loan fees 14,252 21,378
Operating loss and credit
carryforwards 55,711 90,037
Other 18,925 34,403
Total gross deferred income
tax assets 249,234 271,750
Less valuation allowance - (35,271)
Net deferred income tax
asset 249,234 236,479
F - 18
<PAGE> 50
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(7) INCOME TAXES, continued
1996 1995
Deferred income tax liabilities:
Unrealized gains on securities
available for sale - (11,461)
Premises and equipment (28,814) (32,953)
Total gross deferred
income tax liabilities (28,814) (44,414)
Net deferred income taxes $ 220,420 192,065
At December 31, 1996, the Bank has remaining loss carryforwards of
approximately $1,045,000 for state income tax purposes, which begin to
expire in 2006.
(8) DIVIDEND RESTRICTIONS
Dividends paid by the Bank are the primary source of funds available to
the Company for payment of dividends to its shareholders and other
needs. Banking regulations restrict the amount of dividends which the
Bank may pay without obtaining prior approval. In addition to the formal
statutes and regulations, regulatory authorities also consider the adequacy
of the Bank's total capital in relation to its assets, deposits and other
such items. Capital adequacy considerations could further limit the
availability of dividends from the Bank. At December 31, 1996, the Bank
could have declared dividends without prior approval of regulatory
authorities of approximately $273,000.
(9) STOCK OPTIONS
In May 1996, the Company adopted the Directors Stock Option Plan.
This plan provides for the issuance of stock options for up to 40,000
shares of the Company's common stock. Options under this plan are
granted at a rate of 815 shares per year for each director who meets
specific attendance standards. Options under the plan are at an option
price equal to the book value per share as of December 31, of the fiscal
year for which the options are granted. The options are exercisable any
time after the date of grant, and expire ten years from date of the grant.
During 1996 the Company granted options on 5,705 shares at a price of
$9.81 per share under the Directors Stock Option Plan. No options were
exercised in 1996.
F - 19
<PAGE> 51
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(9) STOCK OPTIONS, continued
Additionally, in May 1996, the Company adopted the Employee Incentive
Stock Option Plan. This plan provides for the issuance of stock options
for up to 40,000 shares of the Company's common stock. Options under
this plan are granted at the discretion of the Company's Board of
Directors. Options under the plan are at an option price not less than the
fair value of the Company's common stock at the date of grant. The
options are exercisable any time after the date of the grant, subject to
restrictions determined by the Board, and expire ten years from date of the
grant. No options have been granted under this plan in 1996.
SFAS No. 123, "Accounting for Stock Based Compensation," became
effective for the Company January 1, 1996. This statement encourages but
does not require entities to compute the fair value of options at the date
of grant and to recognize such costs as compensation expense immediately
if there is no vesting period or ratably over the vesting period of the
options. The Company has chosen not to adopt the cost recognition
principles of this statement. No compensation expense has been
recognized in 1996 related to the stock option plan. Had compensation
cost been determined based upon the fair value of the options at the grant
dates consistent with the method of the new statement, the Company's
1996 net earnings and net earnings per share would have been reduced to
the proforma amounts indicated below.
Net earnings As reported $ 535,457
Proforma $ 527,110
Earnings per share As reported $ 0.92
Proforma $ 0.90
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following weighted average
assumptions used for grants in 1996: dividend yield of 2%; risk free
interest rates of 5.11%, and an expected life of 5 years.
F - 20
<PAGE> 52
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(10) RELATED PARTY TRANSACTIONS
The Bank conducts transactions with directors and officers, including
companies in which they have beneficial interest, in the normal course of
business. It is the policy of the Bank that loan transactions with
directors and officers be made on substantially the same terms as those
prevailing at the time for comparable loans to other persons. The
following is a summary of activity for related party loans for 1996:
Beginning balance $ 992,647
Loans advanced 344,902
Repayments (1,010,411)
Ending balance $ 327,138
(11) 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, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The contract amounts of
those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written 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.
F - 21
<PAGE> 53
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(11) COMMITMENTS, continued
In most cases, the Bank requires collateral or other security to support
financial instruments with credit risk.
December 31
Approximate
Contract Amount
1996 1995
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 10,005,000 9,208,000
Standby letters of credit and
financial guarantees written $ 124,000 17,000
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 and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to local
businesses. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Bank holds certificates of deposit as collateral supporting
those commitments for which collateral is deemed necessary. The extent
of collateral held for those commitments varies. All letters of credit were
collateralized at December 31, 1996 and 1995.
F - 22
<PAGE> 54
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(12) SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total interest
and other income for the years ended December 31, 1996, 1995 and 1994
are as follows:
1996 1995 1994
Regulatory agency
assessments $ 11,182 49,974 82,081
Professional fees $ 55,467 67,388 85,038
Advertising and marketing $ 63,026 45,937 52,863
Stationery and supplies $ 62,065 41,915 38,862
Data processing fees $ 63,650 38,737 31,483
Postage and courier $ 47,587 40,090 33,915
(13) GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
Balance Sheets
December 31, 1996 and 1995
Assets
1996 1995
Cash $ 20,001 26,426
Investment in bank subsidiary 6,036,779 5,659,932
Other assets 38,988 43,339
6,095,768 5,729,697
Stockholders' Equity
Stockholders' equity $ 6,095,768 5,729,697
F - 23
<PAGE>55
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION, continued
Statements of Earnings
For the Years Ended December 31, 1996 and 1995
1996 1995
Income:
Interest income $ 608 -
Dividends from bank subsidiary 87,634 75,000
88,242 75,000
Interest expense - 1,287
Other operating expenses 19,633 3,948
19,633 5,235
Earnings before income taxes
and equity in undistributed earnings
of bank subsidiary 68,609 69,765
Income tax benefit 8,248 -
Earnings before equity in
undistributed earnings of bank
subsidiary 76,857 69,765
Equity in undistributed earnings of
bank subsidiary 458,600 885,069
Net earnings $ 535,457 954,834
F - 24
<PAGE>56
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION, continued
Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net earnings $ 535,457 954,834
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Equity in undistributed earnings
of bank subsidiary (458,600) (885,069)
Amortization and depreciation 9,382 3,849
Change in other assets (5,030) (47,188)
Net cash provided by
operating activities 81,209 26,426
Cash flows from financing activities:
Proceeds from notes payable - 26,426
Payment of notes payable - (26,426)
Payments of dividends (87,634) -
Net Cash used by financing activities (87,634) -
Net change in cash (6,425) 26,426
Cash at beginning of the period 26,426 -
Cash at end of period $ 20,001 26,426
Supplemental disclosure of noncash
investing activities:
Exchange of Bank common stock for
Company common stock $ - 4,550,522
Change in unrealized loss on investment
securities available for sale of bank
subsidiary, net of tax (81,752) 224,341
F - 25
<PAGE> 57
(GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
14) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by state and federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action the Company must meet specific capital
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company'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 Company to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1
capital (as defined, to average assets (as defined). Management believes,
as of December 31, 1996 and 1995, that the Company meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996 the most recent notification from the various
regulators categorized the Company and 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, and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category.
F - 26
<PAGE> 58
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
14) REGULATORY MATTERS, continued
The Company's and the Bank's actual capital amounts and ratios along
with the minimum amounts and ratios under capital adequacy and prompt
corrective action are presented in the table below.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
Total Capital (to
Risk Weight Assets):
Consolidated $ 6,724,093 16.9% 3,180,760 8.0% N/A N/A
Bank only $ 6,665,104 16.8% 3,177,840 8.0% 3,972,300 10.0%
Tier 1 Capital (to
Risk Weighted Assets):
Consolidated $ 6,264,710 15.8% 1,590,380 4.0% N/A N/A
Bank only $ 6,205,721 15.6% 1,588,920 4.0% 2,383,390 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $ 6,264,710 12.0% 2,092,805 4.0% N/A N/A
Bank only $ 6,205,721 11.9% 2,091,285 4.0% 2,614,106 5.0%
As of December 31, 1995
Total Capital (to
Risk Weighted Assets):
Consolidated $ 6,218,317 19.3% 2,578,960 8.0% N/A N/A
Bank only $ 6,148,551 19.1% 2,577,040 8.0% 3,221,300 10.0%
Tier 1 Capital (to
Risk Weighted Assets):
Consolidate $ 5,816,887 18.0% 1,289,480 4.0% N/A N/A
Bank only $ 5,747,121 17.8% 1,288,520 4.0% 1,932,780 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $ 5,816,887 13.2% 1,760,854 4.0% N/A N/A
Bank only $ 5,747,121 13.1% 1,760,374 4.0% 2,200,468 5.0%
F - 27
<PAGE> 59
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There are no changes in or disagreements with accountants on accounting and
financial disclosure.
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" and
"Bank Management" in the Proxy Statement to be utilized in connection with
the Company's 1997 Annual Shareholders Meeting is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained under the caption "Compensation of Executive
Officers and Directors" in the Proxy Statement to be utilized in connection
with the Company's 1997 Annual Shareholders Meeting is incorporated
herein by reference.
<PAGE> 60
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information contained under the caption "Principal Shareholders" in the
Proxy Statement to be utilized in connection with the Company's 1997
Annual Shareholders Meeting is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information contained under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement to be utilized in connection
with the Company's 1997 Annual Shareholders Meeting is incorporated
herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The consolidated financial statements, notes thereto and independent
auditors' report thereon, filed as part hereof, are listed in Item 7.
2. Financial Statement Schedules
All schedules have been omitted as the required information is not applicable.
3. Exhibits
Exhibit Numbers
3.1* Articles of Incorporation
3.2* Bylaws
10.1* Employment Contract between Ted A. Murphy and DeKalb State
Bank
10.2** Georgia Bancshares, Inc. Employee Incentive Stock Option Plan
10.3*** Georgia Bancshares, Inc. Directors Stock Option Plan
21.1 Subsidiaries of the Company. The sole subsidiary of the Company
is Community Bank of Georgia, Tucker, Georgia, which is wholly
owned by the Company.
23 Consents of Experts and Counsel
*Items 3.1 through 10.1, as listed above, were previously filed by the
Company as Exhibits (with the same respective Exhibit Numbers as indicated
herein) to the Company's Registration Statement (Registration No. 33-90742)
and such documents are incorporated herein by reference.
**Item 10.2 listed above was previously filed by the Company as Exhibit 4 to a
Registration Statement on Form S-8 (File No. 333-09827) and such document is
incorporated herein by reference.
***Item 10.3 listed above was previously filed by the Company as Exhibit 4 to a
Registration Statement on Form S-8 (File No. 333-09829) and such document is
incorporated herein by reference.
<PAGE> 61
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-, CONTINUED
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the fourth quarter of the
year ended December 31, 1996.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized on
March 20, 1997.
GEORGIA BANCSHARES, INC.
By: /s/ Ted A. Murphy
Ted A. Murphy
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 20, 1997.
Signature Title
/s/ Ted A. Murphy President (Principal Executive
Ted A. Murphy Officer) and Director
/s/ Eugene L. Argo Director
Eugene L. Argo
/s/ James L. Armstrong, Jr. Director
James L. Armstrong, Jr.
/s/ Thomas M. Carnes Director
Thomas M. Carnes
/s/ H. E. Norton Director
H. E. Norton
/s/ Robert C. Pittard Director
Robert C. Pittard
/s/ David L. Edgar Principal Financial Officer
David L. Edgar and Principal Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,443,556
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,140,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,870,086
<INVESTMENTS-CARRYING> 15,870,086
<INVESTMENTS-MARKET> 15,870,086
<LOANS> 31,180,593
<ALLOWANCE> 459,383
<TOTAL-ASSETS> 58,350,477
<DEPOSITS> 52,043,025
<SHORT-TERM> 0
<LIABILITIES-OTHER> 211,684
<LONG-TERM> 0
0
0
<COMMON> 2,336,912
<OTHER-SE> 3,758,856
<TOTAL-LIABILITIES-AND-EQUITY> 58,350,477
<INTEREST-LOAN> 2,957,699
<INTEREST-INVEST> 921,980
<INTEREST-OTHER> 240,514
<INTEREST-TOTAL> 4,120,193
<INTEREST-DEPOSIT> 1,826,445
<INTEREST-EXPENSE> 1,827,812
<INTEREST-INCOME-NET> 2,292,381
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,814,066
<INCOME-PRETAX> 761,565
<INCOME-PRE-EXTRAORDINARY> 535,457
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 535,457
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<YIELD-ACTUAL> 4.92
<LOANS-NON> 11,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,562,794
<ALLOWANCE-OPEN> 401,430
<CHARGE-OFFS> 49,966
<RECOVERIES> 17,919
<ALLOWANCE-CLOSE> 459,383
<ALLOWANCE-DOMESTIC> 459,383
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 459,383
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report, dated January 13, 1997, accompanying the consoli-
dated financial statements incorporated by reference in the Annual Report of
Georgia Bancshares, Inc. on Form-10KSB for the year ended December 31, 1996.
We hereby consent to the incorporation by reference of said report in the
Registration Statement of Georgia Bancshares, Inc. on Form S-8 (File No.
333-09827, effective August 9, 1996).
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
Successor to the practice of:
Evans, Porter, Bryan & Co.
Atlanta, Georgia
March 28, 1997
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated, January 13, 1997, accompanying the consoli-
dated financial statements incorporated by reference in the Annual Report of
Georgia Bancshares, Inc on Form-10KSB for the year ended December 31, 1996.
We hereby consent to the incorporation by reference of said report in the
Registration Statement of Georgia Bancshares, Inc. on Form S-8 (File No.
333-09829, effective August 9, 1996).
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
Successor to the practice:
Evans, Porter, Bryan & Co.
