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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, 1997 033-90742
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 $5,822,477.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 1, 1998 was $ 6,876,960 based on an estimated market price
of $ 15.00 per share, although there is no established trading market.
The number of shares outstanding of issuer's class of common stock at
March 1, 1998 was 584,228 shares of common stock.
Documents Incorporated By Reference: Portions of the Proxy Statement for the
1998 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 52
Exhibit Index on Page 51
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TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS.............................................1
ITEM 2. DESCRIPTION OF PROPERTIES..........................................11
ITEM 3. LEGAL PROCEEDINGS..................................................12
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 ... ..........................................32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................50
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT..............................................50
ITEM 10. EXECUTIVE COMPENSATION.............................................50
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................................50
ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.............................................50
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................51
SIGNATURES..................................................................52
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PART I
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Result of Operations" and
elsewhere in this Annual Report on Form 10-K may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
and as such may involve known and unknown risk, uncertainties and other factors
which may cause the actual results, performance or achievements of Georgia
Bancshares, Inc. (the "Company") to be materially different from future results
described in such forward-looking statements. Actual results may differ
materially from the results anticipated in these forward looking statements due
to a variety of factors, including, without limitation: the effects of future
economic conditions; governmental monetary and fiscal policies, as well as
legislative and regulatory changes; the risks of changes in interest rates on
the level and composition of deposits, loan demand, and the values of loan
collateral, and interest rate risks; the effects of competition from other
commercial banks, thrifts, consumer finance companies, and other financial
institutions operating in the Company's market area and elsewhere. All forward
looking statements attributable to the Company are expressly qualified in their
entirety by these Cautionary Statements. The Company disclaims any intent or
obligation to update these forward-looking statements, whether as a result of
new information, future events or otherwise.
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 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").
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(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 4797 Highway 29, Lilburn,
Georgia.
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 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.
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, 1997, contains approximately 14.5%
real estate construction loans, 51.6% real estate mortgage loans, 26.9%
commercial loans and 7.0% consumer loans. The Bank's loan to deposit ratio at
December 31, 1997 was approximately 61.7% with management's goal to increase
this loan to deposit ratio to approximately 72.0% 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
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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 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 legislation provided that 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. If a bank is part of a bank holding company,
all affiliates are treated as one, and the bank holding company organization is
limited to only three counties for branching. On July 1, 1998, full statewide
branching goes into effect and Georgia banks may establish new branches in any
county in the state with prior approval of the appropriate regulatory
authorities.
The FDIC adopted risk-based capital guidelines that went into effect on December
31, 1990 for all FDIC insured state chartered banks that are not members of the
Federal Reserve System. Beginning December 31, 1992, all banks were 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)
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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 4 percent if
the FDIC determines that the institution is 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, 1997, 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, 1997.
Capital Adequacy
(Dollars in thousands)
December 31, 1997
Leverage Ratio Amount Percent
------ -------
Actual $6,728,352 10.3%
Minimum Required (1) $2,613,320 4.0%
Risk-Based Capital:
Tier 1 Capital
Actual $6,728,352 12.0%
Minimum Required $2,246.680 4.0%
Total Capital
Actual $7,421,031 13.2%
Minimum Required $4,493,360 8.0%
(1) Represents the 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.
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
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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 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. An
"undercapitalized" bank is defined As one that has a total risk-based capital
ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less than 4%,
or (iii) a leverage ratio of less than 3%, and it is "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" and subject the 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,
1997, 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 such as orders to sell
sufficient 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,
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has complied with applicable laws, regulations, rules and supervisory directives
and has not engaged in any insider dealing, speculative practice or other
abusive activity.
FDIC Insurance Assessments
The FDIC adopted regulations amending the deposit insurance assessments
applicable to the Banks. The regulations provide for a risk-based premium system
which requires higher assessment rates for banks which the FDIC determines pose
greater risks to the BIF.
Under the regulations, banks pay an assessment depending upon risk
classification. Although the regulations were adopted by the FDIC as final
regulations, the Board of the FDIC will consider whether changes in economic and
industry conditions require adjustments in the range of assessment rates to be
charged in future years.
To arrive at risk-based assessments, the FDIC places each bank in one of nine
risk categories using a two step process based on capital ratios and on other
relevant information. Each bank is assigned to one of three groups (well
capitalized, adequately capitalized, or under capitalized) based on its capital
ratios. The FDIC has also assigned each bank to one of three subgroups based
upon an evaluation of the risk posed by the bank. The three subgroups include
(i) banks that are financially sound with only a few minor weaknesses, (ii)
those banks with weaknesses which, if not corrected, could result in significant
deterioration of the bank and increased risk to the BIF, and (iii) those banks
that pose a substantial probability of loss to the BIF unless corrective action
is taken. These supervisory evaluations modify premium rates within each of the
three capital groups with the result being the nine risk categories and
assessment rates based on a summary multiplier.
The Bank has been informed by the FDIC that the Bank have been classified as
well capitalized and in the lowest risk category and will be assessed
accordingly for 1998.
The Bank is also subject to, among other things, the provisions of the Equal
Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"), both
of which prohibit discrimination based on race or color, religion, national
origin, sex, and familial status in any aspect of a consumer or commercial
credit or residential real estate transaction. In April 1994, the Department of
Housing and Urban Development, the Department of Justice (the "DOJ"), and all of
the federal banking agencies issued an Interagency Policy Statement on
discrimination in Lending in order to provide guidance to financial institutions
as to what the agencies consider in determining whether discrimination exists,
how the agencies will respond to lending discrimination, and what steps lenders
might take to prevent discriminatory lending practices.
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
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is required to file with the Federal Reserve Board (the "Federal Reserve")
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, 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.
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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, since 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 that date. 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 the Interstate Banking Act, the Company may become a candidate for
acquisition by, or may itself seek to acquire, banking organizations located in
other states.
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.
Federal Reserve policy requires a bank holding company to act as a source of
financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding
company has more than one bank or thrift subsidiary, each of the bank holding
company's subsidiary depository institutions are responsible any losses to the
Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated
depository institution's failure. As a result, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or other
instruments which qualify as capital under regulatory rules. However, any loans
from the holding company to such subsidiary banks likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of the
bank. In addition, a bank holding company may be required to provide additional
capital to any additional banks it acquires as a condition to obtaining
approvals and consents of regulatory authorities in connection with such
acquisitions.
On February 20, 1997, the Federal Reserve adopted, effective April 21, 1997,
amendments to its Regulation Y implementing certain provisions of The Economic
Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA"), which was
signed into law on September 30, 1996. Among other things, these amendment to
Federal Reserve Regulation Y reduce the notice and application requirements
applicable to bank and nonbank acquisitions and de novo expansion by
well-capitalized and well-managed bank holding companies; expand the list of
nonbanking activities permitted under Regulation Y; reduce certain limitations
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on previously permitted activities; and amend Federal Reserve anti-tying
restrictions to allow banks greater flexibility to package products and services
with their affiliates.
The Company and the Bank are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA") and the federal banking
agencies' regulations issued thereunder. Under the CRA, all banks and thrifts
have a continuing and affirmative obligation, consistent with its safe and sound
operation to help meet the credit needs for their entire communities, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions, nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular community, consistent with the
CRA. The CRA requires a depository institution's primary federal regulator, in
connection with its examination of the institution, to assess the institution's
record of assessing and meeting the credit needs of the community served by that
institution, including low- and moderate-income neighborhoods. The regulatory
agency's assessment of the institution's record is made available to the public.
In the case of a bank holding company applying for approval to acquire a bank or
other bank holding company, the Federal Reserve will assess the records of each
subsidiary depository institution of the applicant bank holding company, and
such records may be the basis for denying the application.
The evaluation system used to judge an institution's CRA performance consists of
three tests: a lending test; an investment test; and a service test. Each of
these tests will be applied by the institution's primary federal regulatory
taking into account such factors as: (i) demographic data about the community;
(ii) the institution's capacity and constraints; (iii) the institution's product
offerings and business strategy; and (iv) data on the prior performance of the
institution and similarly-situated lenders.
In addition, a financial institution will have the option of having its CRA
performance evaluated based on a strategic plan of up to five years in length
that it had developed in cooperation with local community groups. In order to be
rated under a strategic plan, the institution will be required to obtain the
prior approval of its federal regulator.
The interagency CRA regulations provide that an institution evaluated under a
given test will receive one of five ratings for the test: outstanding, high
satisfactory, low satisfactory, needs to improve, or substantial non-compliance.
An institution will receive a certain number of points for its rating on each
test, and the points are combined to produce an overall composite rating of
either outstanding, satisfactory, needs to improve, or substantial
non-compliance. Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an overall
rating of at least "satisfactory", and no institution can receive an overall
rating of "satisfactory" unless it receives a rating of at least "low
satisfactory" on its lending test. In addition, evidence of discriminatory or
other illegal credit practices would adversely affect an institution's overall
rating. Under the new regulations, an institution's CRA rating would continue to
be taken into account by its primary federal regulator in considering various
types of applications. As a result of the Bank's most recent CRA examination in
August, 1995, the Bank received a "satisfactory" CRA rating.
<PAGE>12
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, executive 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 that conduct operations 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, 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
<PAGE>13
currently. Management believes that competitive pricing and personalized service
will provide it with a method to compete effectively in the primary service
area.
Monetary Policy
Earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve has an important impact
on the operating results of banks and other financial institutions through its
power to implement national monetary policy. The methods used by the Board
include setting the reserve requirements of banks, establishing the discount
rate on bank borrowings and conducting open market transactions in United States
Government securities.
Employees
As of December 31, 1997, the Bank employed 24 full-time employees and 5
part-time employees. 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 4797 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.
<PAGE>14
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 after consultation with legal counsel would have a material
effect upon the operations or financial condition of the Company or the Bank.
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, 1997.
[REMAINDER THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>15
PART II
ITEM 5. MARKET FOR ISSUER'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of December 31, 1997, there were approximately 685 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 193 private trades during
the 1997 fiscal year at prices ranging from $12.00 to $13.00 per share. The
Company paid cash dividends to shareholders in the amount of $.20 per share
($116,846 in the aggregate) in the year ended December 31, 1997. 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>16
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 - 1997 vs. 1996
Total assets increased by $21,005,842 (36.0%) from December 31, 1996 to December
31, 1997. The increase is primarily due to an increase in net loans of
$13,468,312 (43.2%) and in total investments of $2,964,895 (18.7%). These
increases were funded by growth in deposits of $20,371,474 (39.1%) during 1997.
The composition of the deposit portfolio changed significantly during 1997.
During the year, the Company had significant increases in time deposits due to
management's approach to relationship banking and increasing deposit rates. The
time deposit category increased $14,058,306 (50.4%) during 1997. The level of
savings accounts declined by $560,022 (10.2%) during 1997. Non-interest bearing
and interest bearing demand deposits grew by $2,330,903 (28.4%) and $3,422,243
(33.1%) respectively during 1997. Since the increase in interest-bearing
deposits was offset by growth in loans, the net interest margin was not impacted
significantly.
The total of nonperforming assets which includes nonaccruing loans, repossessed
collateral and loans for which payments are more than 90 days past due,
increased from $159,964 at December 31, 1996 to $547,869 at December 31, 1997.
There were no related party loans which were considered nonperforming at
December 31, 1997.
The Bank was most recently examined by its primary regulatory authority in July
1997. 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.
Results of Operations - 1997 vs. 1996
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.
<PAGE>17
Net earnings before taxes increased by $199,315 (26.2%) to $960,880 in 1997 from
$761,565 in 1996. Net earnings after taxes for 1997 was $621,998, an increase of
$86,541 compared to $535,457 in 1996. The return on average assets was .94% and
1.02% for the year ended December 31, 1997 and 1996, respectively.
Net interest income for 1997 was $2,940,320, an increase of $647,939 (28.3%),
compared to $2,292,381 in 1996. Interest income for 1997 was $5,368,677,
representing an increase of $1,248,484 (30.3%) for 1996. The growth in interest
income was primarily due to the increase of funds available for loans and
investments. Interest expense for 1997 increased $600,545 (32.9%) compared to
1996. The growth in interest expense was almost equal to the growth in interest
income primarily due to the significant growth of time deposits. The net
interest spread increased 18 basis points from 4.14% in 1996 to 4.32% in 1997.
The provision for loan losses for 1997 was $235,500 compared to $90,000 in 1996.
The increase is primarily attributable to the growth in loans outstanding and
the increase in non-performing loans. The allowance for loan losses represented
approximately 1.5% of total loans as of December 31, 1997. The net amount of
recoveries was $1,796 in 1997 compared to net charge-offs of $32,047 in 1996.
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 1997 was $453,800, an increase of $80,550 from $373,250 in
1996. The majority of the increase was due to increased income from cash value
life insurance policies of $26,093 and charges such as safe deposit box rental,
merchant deposit fees and ATM surcharges. The Bank sold one SBA loan during 1997
for a gain of $14,424.
Other expenses for 1997 was $2,197,740 an increase of $383,674 (21.1%) compared
to $1,814,066 in 1996. Approximately $284,535, or 74.16% of the increase in
other expenses is related to the branch addition.
The Bank recognized income tax expense of $338,882 and $226,108 in 1997 and
1996, respectively. 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
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 secured and unsecured federal funds lines available from commercial
banks of $1,500,000 and $2,400,000, respectively.
<PAGE>18
Cash and cash equivalents totaled $10,963,565 and $6,583,556 at December 31,
1997 and 1996, respectively. Cash inflows from operations totaled $996,732 in
1997, while outflows from investing activity totaled $16,871,351 which were
primarily a net increase in loans. Inflows from financing activities totaled
$20,254,628 which resulted from increases in deposits. A complete analysis of
cash flows is presented later in the audited financial statements.
Capital Resources
The Company's ratios of stockholders' equity to total assets were 8.4% and 10.4%
at December 31, 1997 and 1996, respectively. The Company is required to maintain
minimum amounts of capital to total "risk weighted" assets, as defined by the
banking regulators. At December 31, 1997, the Company was required to have Tier
I and Total Capital to "risk weighted" assets ratios of 4% and 8%, respectively.
The Company's ratios as of December 31, 1997 were 12.0% and 13.3% for Tier I and
Total Capital ratios, respectively. Additionally, the Company is required to
maintain a leverage ratio of at least 3%. At December 31, 1997, the Company's
leverage ratio was 10.4%. While the current level of capital sufficiently meets
the regulatory requirements, and the Company's current and foreseeable needs,
management will continue to evaluate the capital needs of the Company.
Year 2000
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and conversion to new software, the Year 2000 problem will not
pose significant operational problems for the Company's computer systems or the
third parties computer systems with whom the Company relies upon. However, if
such modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company. A recent
assessment of the Bank's operations in regards to the Year 2000 issues indicates
the costs associated with modifying computer systems and converting to new
systems to be between $30,000 and $60,000.
Interest Rate Sensitivity
The objective of the Bank's asset-liability management policy is to minimize 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.
<PAGE>19
The following table summarizes the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 1997 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>20
<TABLE>
<CAPTION>
At December 31, 1997
Maturing or Repricing in
Over 3 Over 1
Three Months Year
Months Through Through Over 5
or Less 1 Year 5 Years Years Total
------- ------ ------- ----- -----
(Dollars in Thousand)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 24,943 3,194 16,364 845 45,346
Investment securities:
Taxable 2,832 1,086 7,568 6,540 18,026
Tax-Exempt -- -- -- 809 809
Federal funds sold 7,436 -- -- -- 7,436
------ ----- ------ ----- ------
Total interest-eaning assets $ 35,211 4,280 23,932 8,194 71,617
====== ===== ====== ===== ======
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 13,754 -- -- -- 13,754
Savings 6,148 -- -- -- 6,148
Time 7,610 27,711 6,637 8 41,966
------ ------ ----- - ------
Total interest-bearing liabilities $ 27,512 27,711 6,637 8 61,868
====== ====== ===== = ======
Interest sensitive difference per
period 7,699 (23,431) 17,295 8,186
----- -------- ------ -----
Cumulative interest sensitivity
difference $ 7,699 (15,732) 1,563 9,749
===== ======== ===== =====
Cumulative difference to total
assets 9.70% (19.83)% 1.97% 12.29%
===== ======== ===== ======
</TABLE>
<PAGE>21
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
<PAGE>22
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 1997
and 1996, and the average rate of interest earned or paid thereon:
<TABLE>
<CAPTION>
1997 1996
---- ----
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Rate Balances Expense Rate
(Amounts are presented in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (including loan fees) $ 38,512 4,108 10.67% $ 27,606 $ 2,958 10.72%
Investment securities:
Taxable 15,200 997 6.56% 14,444 922 6.38%
Nontaxable 145 8 5.52% -- -- --%
Interest earning deposits -- -- --% 446 10 5.26%
Federal funds sold 4,546 256 5.63% 4,311 230 5.34%
----- ----- ------ ------ ----- -----
Total interest earning assets 58,403 5,369 9.19% 46,551 4,120 8.85%
Other non-interest earning
assets 7,631 5,720
----- -----
Total assets $ 66,034 $ 52,271
====== ======
Liabilities and stockholders'
equity:
Interest bearing liabilities:
Deposits:
Interest bearing demand
and savings $ 15,713 461 2.94% $ 14,953 441 2.95%
Time 34,133 1,964 5.75% 23,821 1,386 5.81%
Other borrowings 40 3 7.50% 37 1 2.70%
------ ----- ----- ------ ----- -----
Total interest bearing
liabilities 49,886 2,428 4.87% 38,811 1,828 4.71%
Other non-interest bearing
liabilities 10,180 7,660
Stockholders' equity 5,968 5,800
----- -----
Total liabilities and
stockholders' equity $ 66,034 $ 52,271
====== ======
Excess of interest earning assets
over interest bearing liabilities $ 8,517 $ 7,740
===== =====
Ratio of interest earning assets
to interest bearing liabilities 117.07% 119.94%
======= =======
Net interest income 2,941 2,292
===== =====
Net interest spread 4.32% 4.14%
===== =====
Net interest yield on interest
bearing assets 5.03% 4.92%
===== =====
</TABLE>
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>23
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
1997 over 1996:
<TABLE>
<CAPTION>
1997 over 1996
Increase (decrease) due to changes in:
(Amounts are presented in thousands)
<S> <C> <C> <C>
Volume Rate Total
Interest income on:
Loans (including loan fees) $ 1,164 (14) 1,150
Investment securities:
Taxable 49 26 75
Nontaxable 8 -- 8
Federal funds sold 13 13 26
Interest on deposits in banks (10) -- (10)
------ ---- ------
Total interest-earning assets $ 1,224 25 1,249
===== == =====
Interest expense on:
Deposits:
Interest-bearing demand and savings $ 21 (1) 20
Time 592 (14) 578
Other borrowings 2 -- 2
--- ---- ---
Total interest-bearing liabilities $ 615 (15) 600
=== ==== ===
</TABLE>
Rate/volume variances were allocated between rate variances and volume variances
using a weighted average allocation method.
<PAGE>24
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
1996 over 1995:
<TABLE>
<CAPTION>
1996 over 1995
Increase (decrease) due to changes in:
(Amounts are presented in thousands)
Volume Rate Total
<S> <C> <C> <C>
Interest income on:
$ 406 (5) 401
Loans (including loan fees) Investment securities:
150 21 171
Taxable
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:
$ 13 (39) (26)
Interest-bearing demand and savings
Time 327 (16) 311
Other borrowings (7) -- (7)
----- ---- -----
Total interest-bearing liabilities $ 333 (55) 278
===== ==== =====
</TABLE>
Rate/volume variances were allocated between rate variances and volume variances
using a weighted average allocation method.
<PAGE>25
Table 3
Investment Portfolio
The following table presents the investments by category at December 31, 1997
and 1996 (amounts are represented in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury $ 881 891 1,415 1,413
U.S. Government agencies 10,799 10,790 12,457 12,388
Obligations of state and
political subdivisions 804 809 -- --
Mortgage-backed securities 6,372 6,345 2,100 2,069
----- ----- ------ ------
Totals $ 18,856 18,835 15,972 15,870
====== ====== ====== ======
</TABLE>
The amortized costs and weighted average yields for investments at
December 31, 1997 are shown below (amounts are represented in thousands):
<TABLE>
<CAPTION>
Obligations
of states and Weighted
U.S. U.S. political Mortgage Average
Treasury Agencies subdivions Backed Yields
<S> <C> <C> <C> <C> <C>
Within 1 year $ 200 400 -- -- 5.33%
After 1 through 5 years 200 6,158 -- 1,700 6.56%
After 5 through 10 years -- 4,241 -- 336 6.54%
After 10 years 481 -- 804 4,336 6.19%
---- --- --- --- -----
Totals $ 881 10,799 804 6,372 6.40%
=== ====== === ===== ====
</TABLE>
<PAGE>26
Table 4
Loan Portfolio
The following table presents loans by type at the end of 1997 and 1996 (amounts
are presented in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and
agricultural $ 12,181 8,423
Real estate - construction 6,587 3,597
Real estate - mortgage 23,393 17,331
Installment loans to
individuals 3,185 2,289
----- -----
$ 45,346 31,640
====== ======
</TABLE>
As of December 31, 1997, the maturities of loans in the indicated
classifications were as follows (amounts are presented in thousands):
<TABLE>
<CAPTION>
Commercial,
Financial and Real Estate Real Estate
Maturity Agricultural Construction Mortgage Consumer Total
- -------- ------------ ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C>
Within 1 yr $ 6,271 6,587 4,651 998 18,507
1 to 5 yrs 4,324 -- 2,846 2,187 9,357
After 5 yrs 1,586 -- 15,896 -- 17,482
----- ---- ------ ----- ------
Totals $ 12,181 6,587 23,393 3,185 45,346
====== ===== ====== ===== ======
</TABLE>
<PAGE>27
Table 4
Loan Portfolio, Continued
As of December 31, 1997, the interest terms of loans in the indicated
classifications for the indicated maturity ranges are as follows (amounts are
presented in thousands):
<TABLE>
<CAPTION>
Fixed Variable
Interest Rates Interest Rates Total
<S> <C> <C> <C>
Commercial, financial and agricultural:
Less than one year $ 1,969 4,302 6,271
1 to 5 years maturity 2,906 1,418 4,324
After 5 years maturity 112 1,474 1,586
--- ----- -----
4,987 7,194 12,181
----- ----- ------
Real estate - construction:
Less than one year -- 6,587 6,587
1 to 5 years maturity -- -- --
After 5 years maturity -- -- --
---- ---- ----
-- 6,587 6,587
---- ----- -----
Real estate - mortgage:
Less than one year 909 3,742 4,651
1 to 5 years maturity 1,745 1,101 2,846
After 5 years maturity 578 15,318 15,896
--- ------ ------
3,232 20,161 23,393
----- ------ ------
Consumer:
Less than one year 834 164 998
1 to 5 years maturity 2,068 118 2,187
After 5 years maturity -- -- --
---- ---- ----
2,902 282 3,185
----- --- -----
$ 11,121 34,224 45,346
====== ====== ======
</TABLE>
<PAGE>28
Table 4
Loan Portfolio, Continued
The following summarizes past due and non-accrual loans and other real estate as
of December 31, 1997 and 1996 (amounts are presented in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Other real estate and repossessions $ 310 148
Accruing loans 90 days or more past due 24 --
Non-accrual loans 214 11
</TABLE>
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>29
Table 5
Allowance for Loan Losses
The following table summarizes information concerning the allowance for loan
losses (amounts are presented in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year $ 459 401
Charge-offs:
Commercial, financial and agricultural -- 10
Real estate -- 40
Installment loans to individuals 4 --
--- ----
4 50
--- ----
Recoveries:
Commercial, financial and agricultural -- 11
Real estate -- --
Installment loans to individuals 6 7
---- ----
6 18
---- ----
Net charge-offs (2) 32
Additions charged to operations 236 90
--- ---
Balance at end of year $ 697 459
=== ===
Ration of net charge-offs during the period to average
loans outstanding during the period .(01)% .12%
</TABLE>
<PAGE>30
Table 6
Allocation of the Allowance for Loan Losses
The following tables summarizes information concerning the allocation of the
allowance for loan losses as of December 31, 1997:
<TABLE>
<CAPTION>
Balance at End of Period Percent of Loans in Each
Applicable to : Amount Category to Total Loans
<S> <C> <C>
Domestic
Commercial, financial $ 29 26.9%
and agricultural
Real Estate - Construction 39 14.5%
Real Estate - Mortgage 108 51.6%
Installment loans to individuals 9 7.0%
Unallocated 512 N/A
--- -----
$ 697 100.0%
==== ======
</TABLE>
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>31
Table 7
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):
<TABLE>
<CAPTION>
1997 1996
---- ----
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing $ 9,409 --% 7,267 --%
Interest-bearing
demand and savings 15,713 2.94% 14,953 2.95%
Time deposits 34,133 5.75% 23,821 5.81%
------ ------
Totals $ 59,255 46,041
====== ======
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1997 are summarized as follows (amounts are presented in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Within 3 months $ 2,334
After 3 through 6 months 9,277
After 6 through 12 months 2,918
After 12 months 1,932
------
Totals $ 16,461
======
</TABLE>
<PAGE>32
Table 7
Selected Financial Data
(Dollars in thousands, except per share amounts)
The following represents selected financial data for the years ended December
31, 1997, 1996 and 1995. 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.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income $ 5,368 4,120 3,554
Interest expense $ 2,428 1,828 1,550
Net interest expense $ 2,940 2,292 2,004
Provision for loan losses $ 236 90 127
Net earnings $ 622 535 955
Net earnings per share $ 1.06 .92 1.63
Total average stockholders' equity $ 5,968 5,800 5,019
Total average assets $ 66,034 52,271 44,007
Total assets at end of year $ 79,356 58,350 47,389
Ratios:
Net earnings to average assets .94% 1.02% 2.17%
Net earnings to average
stockholders' equity 10.42% 9.22% 19.03%
Average stockholders' equity to
average assets 9.04% 11.10% 11.41%
</TABLE>
<PAGE>33
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
Report of Certified Public Accountants...................................F-1
Consolidated Balance Sheets - December 31, 1997 and 1996.................F-2
Consolidated Statements of Earnings for the
Years Ended December 31, 1997, 1996 and 1995.............................F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............................F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995...................................F-5
Notes to Consolidated Financial Statements ..............................F-6
<PAGE>34
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, 1997 and 1996, 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, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Georgia Bancshares,
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
\s\PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 4, 1998
<PAGE>35
<TABLE>
<CAPTION>
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $269,000 and $197,000 $ 3,527,565 1,443,556
Federal funds sold 7,436,000 5,140,000
---------- -----------
Cash and cash equivalents 10,963,565 6,583,556
Investment securities available for sale 18,834,981 15,870,086
Loans, net 44,648,905 31,180,593
Premises and equipment, net 2,853,414 2,980,313
Accrued interest receivable and other assets 2,055,454 1,735,929
---------- -----------
$ 79,356,319 58,350,477
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 10,547,045 8,216,142
Interest-bearing demand 13,753,667 10,331,424
Savings 6,147,558 5,587,536
Time 41,966,229 27,907,923
---------- ----------
Total deposits 72,414,499 52,043,025
Accrued interest payable and other liabilities 291,043 211,684
-------- -------
Total liabilities 72,705,542 52,254,709
---------- ----------
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 896,291 391,139
Net unrealized losses on securities
available for sale, net of tax (119,085) (168,942)
-------- --------
Total stockholders' equity 6,650,777 6,095,768
---------- ----------
$ 79,356,319 58,350,477
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>36
<TABLE>
<CAPTION>
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,107,629 2,957,699 2,557,559
Interest on federal funds sold 256,095 229,793 220,168
Interest on deposits in other banks - 10,721 25,954
Interest and dividends on investment securities:
U.S. Treasuries and Government agencies 785,352 785,191 524,968
Mortgage backed securities and collateralized
mortgage obligations 211,568 136,789 225,595
Obligations of state and political subdivisions 8,033 - -
-------- --------- ---------
Total interest income 5,368,677 4,120,193 3,554,244
--------- --------- ---------
Interest expense:
Interest-bearing demand 264,759 227,149 196,244
Savings 196,754 213,720 270,703
Time 1,963,919 1,385,576 1,074,854
Other 2,925 1,367 8,196
--------- --------- ---------
Total interest expense 2,428,357 1,827,812 1,549,997
--------- --------- ---------
Net interest income 2,940,320 2,292,381 2,004,247
Provision for loan losses 235,500 90,000 126,900
--------- ----------- ----------
Net interest income after provision for 2,704,820 2,202,381 1,877,347
--------- ----------- ----------
Losses
Other income:
Service charges and fees on deposits 305,965 296,890 247,415
Gain (loss) on sales of investment securities (2,774) - (10,941)
Other 150,609 76,360 64,926
--------- ----------- -----------
Total other income 453,800 373,250 301,400
--------- ---------- ----------
Other expenses:
Salaries and employee benefits 1,098,957 924,253 758,628
Occupancy 323,592 265,856 278,207
Other 775,191 623,957 496,525
--------- ---------- ----------
Total other expenses 2,197,740 1,814,066 1,533,360
--------- --------- ---------
Earnings before income taxes 960,880 761,565 645,387
Income tax expense (benefit) 338,882 226,108 (309,447)
--------- ---------- ---------
Net earnings $ 621,998 535,457 954,834
========= ========== ==========
Earnings per common share $ 1.06 .92 1.63
==== === ====
Earnings per common share - assuming dilution $ 1.05 .91 1.63
==== === ====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>37
<TABLE>
<CAPTION>
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
Net
Unrealized
Gains
(Losses)
Related On
Common Stock Additional Earnings Securities
Number Paid-In (Accumulated Available
of Shares Amount Capital Deficit) for Sale Total
<S> <C> <C> <C> <C> <C> <C>
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
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
Net earnings - - - 621,998 - 621,998
Dividends paid - - - (116,846) - (116,846)
Changes in unrealized gains
(losses) on securities
available for sale - - - 49,857 49,857
---- -------- --------- ------ -------- ----------
Balance, December 31, 1997 584,228 $ 2,336,912 3,536,659 896,291 (119,085) 6,650,777
======= ========= ========= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>38
<TABLE>
<CAPTION>
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 621,998 535,457 954,834
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion 177,732 133,724 117,284
Deferred tax benefit (91,675) 21,664 (309,447)
Provision for loan losses 235,500 90,000 126,900
Provision for other real estate losses - 32,118 25,000
Loss (gain) on sales of investment securities 2,774 - 10,491
Loss on disposal of fixed assets - 11,689 -
Change in:
Accrued interest receivable and other assets (28,956) (75,123) (193,124)
Accrued interest payable and other liabilities 79,359 18,428 (2,662)
--------- ------- -------
Net cash provided by operating activities 996,732 767,957 729,276
--------- ------- -------
Cash flows from investing activities:
Proceeds from sales, paydowns, and maturities of
investment securities-HTM - - 1,164,938
Proceeds from sales, paydowns, and maturities of
investment securities-AFS 10,191,714 4,076,110 3,638,302
Purchases of investment securities-AFS (13,076,772) (6,207,614) (7,104,735)
Net change in interest-bearing deposits in other banks - 299,000 496,000
Net change in loans (13,912,344) (6,050,114) (3,836,323)
Purchase of cash value life insurance policies - - (800,000)
Purchases of premises and equipment (73,949) (1,183,111) (19,222)
Proceeds from other real estate sales - 66,757 -
Improvements to other real estate - - (14,098)
---------- ---------- ---------
Net cash used by investing activities (16,871,351) (8,998,972) (6,475,138)
---------- ---------- ---------
Cash flows from financing activities:
Payment of dividends (116,846) (87,634) -
Net change in deposits 20,371,474 10,576,810 6,520,095
---------- ---------- ---------
Net cash provided by financing activities 20,254,628 10,489,176 6,520,095
---------- ---------- ---------
Net change in cash and cash equivalents 4,380,009 2,258,161 774,233
Cash and cash equivalents at beginning of year 6,583,556 4,325,395 3,551,162
---------- ----------- ---------
Cash and cash equivalents at end of year $ 10,963,565 6,583,556 4,325,395
========== =========== =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,369,631 1,801,418 1,535,606
Income taxes paid $ 448,661 175,924 -
Noncash investing and financing activities:
Transfers from loans to other assets $ 208,532 - 56,399
Transfer of securities held to maturity to
securities available for sale $ - - 4,109,996
Change in unrealized loss on securities
available for sale, net of tax $ 49,857 (81,752) 224,341
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>39
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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 of interests. All of the Company's activities are currently
conducted by its wholly-owned subsidiary, Community Bank of Georgia. The
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.
Investment Securities
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, 1997 and 1996 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.
<PAGE>40
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Investment Securities, continued
A decline in the market value of any available for sale or held to
maturity investment below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Loans, Loan Fees and Interest Income 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.
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. 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. The
Bank has no material amounts of impaired loans at December 31, 1997 and
1996.
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
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.
<PAGE>41
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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
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 defines 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.
Statement of Cash Flows
For purposes of reporting cash flows, the Company includes cash and due
from banks and federal funds sold.
Net Earnings Per Common Share
Statement of Financial Accounting Standards (FASB) No. 128 "Earnings Per
Share" became effective for the Company for the year ended December 31,
1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to
simplify previous earnings per share standards and to make domestic and
international practices more compatible. Earnings per common share are
based on the weighted average number of common shares outstanding during
the period while the effects of potential common shares outstanding
during the period are included in diluted earnings per share. All
earnings per common share amounts have been restated to conform to the
provisions of FASB No. 128.
<PAGE>42
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Net Earnings Per Common Share, continued
FASB No. 128 requires the presentation on the face of the earnings
statement of earnings per common share with and without the dilutive
effects of potential common stock issuances from instruments such as
options, convertible securities and warrants. Additionally, the new
statement requires the reconciliation of the amounts used in the
computation of both "earnings per common share" and "earnings per common
share - assuming dilution." Earnings per common share amounts for the
years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
<S> <C> <C> <C>
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
Earnings per common share $ 621,998 584,228 $ 1.06
====
Effects of dilutive stock options - 5,468
------- -------
Earnings per common share - assuming
dilution $ 621,998 589,696 $ 1.05
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Earnings per common share: $ 535,457 584,228 $ 0.92
====
Effects of dilutive stock options - 2,795
------- -----
Earnings per common share - assuming $ 535,457 587,023 $ 0.91
dilution ======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Earnings per common share $ 954,834 584,228 $ 1.63
====
Effects of dilutive stock options - -
------ ------
Earnings per common share - assuming
dilution $ 954,834 584,228 $ 1.63
======= ======= ====
</TABLE>
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125" ("SFAS 127"), Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
and Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 127
simply defers, until January 1, 1998, the effective date of selected
provisions of a previously issued accounting and disclosure standard. SFAS
130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. SFAS 131 specifies the presentation and disclosure of operating
segment information reported in the annual report and interim reports
issued to stockholders. The provisions of SFAS 130 and 131 are effective
for fiscal years beginning after December 15, 1997. The management of the
Company believes that the adoption of these statements will not have a
material impact on the Company's financial position, results of operations,
or liquidity.
<PAGE>43
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) INVESTMENT SECURITIES
Investment securities available for sale at December 31, 1997 and 1996,
are as follows:
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
Government agencies $ 11,680,106 25,782 25,049 11,680,839
Mortgage-backed securities
and collateralized mortgage
obligations 6,372,133 8,869 36,280 6,344,722
State and Municipal Securities 803,961 5,459 - 809,420
------------ ------- ---------- ------------
Total $ 18,856,200 40,110 61,329 18,834,981
========== ====== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
========== ====== ======= ==========
</TABLE>
The amortized cost and fair value of securities available for sale at
December 31, 1997, 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.
<TABLE>
<CAPTION>
Amortized Estimated
Costs Fair Value
<S> <C> <C>
Within 1 year $ 599,929 599,260
1 to 5 years 6,358,150 6,353,419
5 to 10 years 4,241,147 4,238,359
Over 10 years 1,284,841 1,299,221
Mortgage-backed securities and collateralized
mortgage obligations 6,372,133 6,344,722
----------- -----------
$ 18,856,200 18,834,981
========== ==========
</TABLE>
Proceeds from sales of securities available for sale during 1997 and 1995
were $4,510,305 and $1,976,450, respectively. Gross gains of $2,587 and
$89,780 and gross losses of $5,361 and $100,721 were realized on those
sales in 1997 and 1995, respectively. There were no sales of securities
during 1996.
Securities with a carrying value of approximately $700,000 at
December 31, 1997 and 1996, were pledged to secure public deposits as
required by law.
At December 31, 1997 and 1996, the Bank has no outstanding derivative
financial instruments such as swaps, options, futures, or forward
contracts.
<PAGE>44
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(3) LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial $ 12,181,292 8,422,757
Real estate - mortgage 23,392,894 17,331,685
Real estate - construction and land development 6,586,647 3,596,614
Consumer 3,184,751 2,288,920
--------- ---------
45,345,584 31,639,976
Less: Allowance for loan losses 696,679 459,383
------- -------
Net loans $ 44,648,905 31,180,593
========== ==========
</TABLE>
The Bank grants loans and extensions of credit to individuals and a
variety of firms and corporations located primarily in the Georgia
counties of DeKalb and Gwinnett. 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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 459,383 401,430 325,357
Provision for loan losses 235,500 90,000 126,900
Loans charged off (4,374) (49,966) (70,562)
Recoveries on loans charged off 6,170 17,919 19,735
-------- -------- --------
Balance at end of year $ 696,679 459,383 401,430
======= ======= =======
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 1,334,914 1,334,914
Buildings and improvements 1,157,414 1,150,819
Equipment, furniture and fixtures 1,045,461 993,340
--------- ----------
3,537,789 3,479,073
Less: Accumulated depreciation 684,375 498,760
---------- ----------
$ 2,853,414 2,980,313
========= =========
</TABLE>
Depreciation expense was approximately $201,000, $149,000 and
$131,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>45
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(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, 1997 and 1996, the cash surrender value of
the insurance contracts was approximately $858,000 and $816,000, and is
included as a component of other assets. Expenses totaling $19,216 were
incurred for benefits relating to this plan during 1997. Income related
to the insurance policies of $42,249 and $16,156 was included in other
income for the years ended December 31, 1997 and 1996, respectively.
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 1997, 1996 or 1995.
(6) DEPOSITS
At December 31, 1997, maturities of time deposits are as follows:
<TABLE>
<CAPTION>
<S> <C>
Maturing In:
1998 $ 35,321,649
1999 2,186,297
2000 1,367,070
2001 1,204,624
2002 1,878,671
Thereafter 7,918
---------
$ 41,966,229
==========
</TABLE>
Deposits from related parties totaled approximately $1,279,000 and
$2,111,000 at December 31, 1997 and 1996. Time deposits of $100,000 or
more were approximately $16,461,000 and $9,006,000 at December 31, 1997
and 1996.
(7) INCOME TAXES
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.
The consolidated income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current tax expense $ 430,557 204,444 -
Deferred tax expense (91,675) 56,935 195,624
Reduction in deferred tax valuation
allowance - (35,271) (505,071)
------- ------- -------
$ 338,882 226,108 (309,447)
======= ======= =======
</TABLE>
<PAGE>46
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(7) INCOME TAXES, continued
Income tax expense at the statutory federal income tax rate is reconciled
to the Company's actual benefit as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision at statutory rate $ 326,699 258,932 219,432
Reduction in deferred tax valuation allowance - (35,271) (505,071)
Other 12,183 2,447 (23,808)
------ ----- -------
$ 338,882 226,108 (309,447)
======= ======= ========
</TABLE>
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred taxes.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 211,182 121,786
Unrealized losses on securities available for sale 8,055 38,560
Deferred compensation 17,472 -
Deferred loan fees 7,125 14,252
Gain on foreclosure 29,094 17,000
Operating loss and credit carryforwards 36,820 55,711
Other - 1,925
----- -----
Total gross deferred income tax assets 309,748 249,234
------- -------
Deferred income tax liabilities consisting of
premises and equipment (28,158) (28,814)
-------- --------
Net deferred income taxes $ 281,590 220,420
======= =======
</TABLE>
At December 31, 1997, the Bank had remaining loss carryforwards of
approximately $286,000 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, 1997, the Bank
could have declared dividends without prior approval of regulatory
authorities of approximately $320,000.
<PAGE>47
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(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
1997 and 1996 the Company granted options on 4,890 and 5,705 shares at a
price of $10.43 and $9.81 per share under the Directors Stock Option
Plan, respectively. No options were exercised in 1997 or 1996. The total
number of options outstanding under the Directors Stock Option Plan at
December 31, 1997 were 10,595 shares.
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.
During 1997, the Company granted options on 1,900 shares at a price of
$12.50 per share under the Employee Stock Option Plan. No options were
exercised in 1997.
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 1997, 1996 or 1995 related to the stock option plan. Had compensation
cost been determined based upon the fair value of the options at the
grant dates consistent with the method of the new statement, the
Company's net earnings and net earnings per share would have been reduced
to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings As reported $ 621,998 535,457 954,834
Proforma $ 610,138 527,110 954,834
Earnings per common share
As reported $ 1.06 .92 1.63
Proforma $ 1.04 .90 1.63
Earnings per common share - assuming dilution
As reported $ 1.05 .91 1.63
Proforma $ 1.03 .90 1.63
</TABLE>
The weighted average grant-date fair value of all options granted
in 1997 and 1996 was 2.82 and 2.36, respectively.
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 1997 and 1996, respectively: dividend
yield of 2%; risk free interest rates of 6.00% and 5.11%, and an expected
life of 5 years.
<PAGE>48
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(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 1997:
<TABLE>
<S> <C>
Beginning balance $ 327,138
Loans advanced 400,298
Repayments 104,770
-------
Ending balance $ 622,666
=======
</TABLE>
(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.
In most cases, the Bank requires collateral or other security to support
financial instruments with credit risk.
<TABLE>
<CAPTION>
December 31,
Approximate
Contract Amount
1997 1996
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 16,086,000 10,005,000
Standby letters of credit and
financial guarantees written $ 59,000 124,000
</TABLE>
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, 1997 and 1996.
<PAGE>49
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(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, 1997, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Regulatory agency assessments $ 15,554 11,182 49,974
Professional fees $ 58,290 55,467 67,388
Advertising and marketing $ 56,408 63,026 45,937
Stationery and supplies $ 75,190 62,065 41,915
Data processing fees $ 106,250 63,650 38,737
Postage and courier $ 46,590 47,587 40,090
</TABLE>
<TABLE>
<CAPTION>
(13) GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
<S> <C> <C>
Cash $ 11,515 20,001
Investment in bank subsidiary 6,609,267 6,036,779
Other assets 29,995 38,988
------ ------
6,650,777 6,095,768
Stockholders' Equity
Stockholders' equity $ 6,650,777 6,095,768
========= =========
</TABLE>
<TABLE>
<CAPTION>
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Interest income $ 341 608 -
Dividends from bank subsidiary 116,844 87,634 75,000
------- ------ ------
117,185 88,242 75,000
------- ------ ------
Other operating expenses 26,824 19,633 5,235
------ ------ -----
Earnings before income taxes and equity in
undistributed earnings of bank subsidiary 90,361 68,609 69,765
Income tax benefit 9,004 8,248 -
----- ----- -----
Earnings before equity in undistributed earnings
of bank subsidiary 99,365 76,857 69,765
Equity in undistributed earnings of bank subsidiary 522,633 458,600 885,069
------- ------- -------
Net earnings $ 621,998 535,457 954,834
======= ======= =======
</TABLE>
<PAGE>50
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
continued
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 621,998 535,457 954,834
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in undistributed earnings of bank (522,633) (458,600) (885,069)
subsidiary
Amortization and depreciation 9,892 9,382 3,849
Change in other assets (899) (5,030) (47,188)
-------- -------- -------
Net cash provided by operating activities 108,358 81,209 26,426
------- -------- ------
Cash flows from financing activities:
Proceeds from notes payable - - 26,426
Payment of notes payable - - (26,426)
Payments of dividends (116,844) (87,634) -
------- -------- -----
Net cash used by financing activities (116,844) (87,634) -
------- -------- -----
Net change in cash (8,486) (6,425) 26,426
Cash at beginning of the period 20,001 26,426 -
-------- -------- ------
Cash at end of period $ 11,515 20,001 26,426
======= ======== ======
Supplemental disclosure of noncash investing activities:
Exchange of Bank common stock for Company common stock $ - - 4,550,222
====== ===== =========
Change in unrealized loss on investment securities available
for sale of bank subsidiary, net of tax $ 49,857 (81,752) 224,341
======= ======= ========
</TABLE>
(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, 1997 and 1996, that the Company meets all capital adequacy
requirements to which it is subject.
<PAGE>51
GEORGIA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(14) REGULATORY MATTERS, continued
As of December 31, 1997 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, 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.
The Company's actual capital amounts and ratios are also presented in the
table below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997
Total Capital
(to Risk Weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Consolidated $ 7,462,542 13.3% 4,495,694 >8.0% N/A N/A
-
Bank only $ 7,421,031 13.2% 4,493,360 >8.0% 5,616,700 >10.0%
- -
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated $ 6,769,863 12.0% 2,247,847 >4.0% N/A N/A
-
Bank only $ 6,728,352 12.0% 2,246,680 >4.0% 3,370,020 >6.0%
- -
Tier 1 Capital
(to Average Assets):
Consolidated $ 6,769,863 10.4% 2,615,220 >4.0% N/A N/A
-
Bank only $ 6,728,352 10.3% 2,613,320 >4.0% 3,266,650 >5.0%
- -
As of December 31, 1996
Total Capital
(to Risk Weighted 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%
- -
</TABLE>
<PAGE>52
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 1998 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 1998 Annual Shareholders Meeting is incorporated herein by reference.
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 1998 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 1998 Annual Shareholders Meeting is incorporated herein by reference.
[REMAINDER THIS PAGE LEFT INTENTIONALLY BLANK]
<PAGE>53
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 Employment Contract between Ted A. Murphy and Community Bank
of Georgia dated as of January 1, 1998.
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.
*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.
(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, 1997.
<PAGE>54
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 19, 1998.
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 19, 1998.
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/ Dean T. Teusaw Director
Dean T. Teusaw
/s/ David L. Edgar Principal Financial Officer
David L. Edgar and Principal Accounting Officer
<PAGE>55
INDEX OF EXHIBITS
Exhibit
Numbers Description of Exhibit
10.2 Employment Contract between Ted A. Murphy and Community Bank
of Georgia dated as of January 1, 1998.
<PAGE>1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the
1st day of January, 1998, between TED A. MURPHY, ("Executive"), and COMMUNITY
BANK OF GEORGIA, a state-chartered Georgia banking institution whose principal
place of business is located at 3333 Lawrenceville Highway, Tucker, Georgia,
("Employer").
RECITALS
WHEREAS, the Board of Directors of the Employer recognizing the
experience and knowledge of the Executive in the banking industry, determines
that it is in the best interests of the Employer to arrange terms of employment
for Executive so as to induce Executive to remain in his capacity with the
Employer for the term as set forth in this Employment Agreement (the
"Agreement"); and
WHEREAS, Executive is willing to provide services to Employer in
accordance with the terms and conditions hereinafter set forth.
THEREFORE, in the consideration of the mutual promises and agreements
in these premises and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
SECTION 1. EMPLOYMENT
a. Employer employs Executive on the terms and conditions hereafter
stated as Employer's President and Chief Executive Officer to perform such
services and duties as the Board of Directors may, from time to time, designate
during the term hereof. Executive will also serve as President and Chief
Executive Officer of Georgia Bancshares, Inc., ("Bancshares") Tucker, Georgia,
the Employer's parent bank holding company. Subject to the terms and conditions
hereof, Executive will perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the direction of the Board of Directors.
b. Executive accepts such employment and shall devote his full time,
attention, and best efforts to the diligent performance of his duties herein
specified.
SECTION 2. TERM OF EMPLOYMENT.
a. Executive's employment under this Agreement shall commence
immediately on January 1, 1998. Such employment shall continue for a period of
thirty-six full calendar months commencing January 1, 1998.
<PAGE>2
b. Executive's employment pursuant to this Agreement shall be
terminated by the first to occur of any of the following:
i) The death of the Executive;
ii) The Complete Disability of Executive. "Complete
Disability" as used herein shall mean the inability of Executive, due to
illness, accident, or any other physical or mental incapacity, to completely
fulfill his obligations hereunder for an aggregate of ninety (90) days within
any period of 180 consecutive days during the term hereof;
iii) The discharge of Executive by Employer for cause.
(1) "Cause" as used herein shall mean: dishonesty;
theft; conviction of a crime (other than minor traffic violations)
which is either a felony or a misdemeanor involving moral turpitude;
unethical business conduct; gross or repeated negligence in carrying
out Executive's duties. In all instances other than dishonesty, theft
or conviction of a crime, written notice of said activity, negligence
or violation shall be provided by Employer to Executive along with a
reasonable period of time, which shall be not less than ninety (90)
days, in which to correct the deficiency.
(2) Discharge for "Cause" shall require a two-thirds
majority vote of the entire Board of Directors of Employer excluding
the Executive from voting on the discharge.
iv) Sixty (60) days after Executive has given written notice
to Employer of his intent to terminate his employment hereunder.
c. Termination of Executive's employment shall constitute his
resignation as an employee, director and executive officer of Employer (and as a
director and executive officer of Bancshares) effective upon acceptance by
Employer of that tender.
SECTION 3. COMPENSATION.
For all services which Executive may render to Employer during the term hereof
Employer shall pay to Executive, subject to such deductions as may be required
by law, according to the schedule set out below:
a. Annual Base Salary. From January 1, 1998, through December 31, 1998,
Executive shall receive a salary payable based on an annual rate of $138,400,
payable in equal monthly installments. The annual base salary for the calendar
year 1999 will be increased by five percent (5%) to $145,320, payable in equal
monthly installments. The annual base salary for the calendar year 2000 will be
increased by five percent (5%) to $152,586, payable in equal monthly
installments.
<PAGE>3
b. Performance Bonus. In addition to the Executive's annual
base salary, the Employer shall pay to Executive a performance bonus.
The right to receive an annual performance bonus is based upon meeting
or exceeding established goals with respect to (i) return on average assets
("ROAA"), (ii) return on average equity ("ROE"), and (iii) average past due
loans. No performance bonus shall be earned in any year in which the Bank's
composite C-A-M-E-L-S rating is less than "2".
Three levels of bonus are available hereunder. A Level I bonus is equal
to 10% of annual base salary, a Level II bonus is equal to 15% of annual base
salary and a Level III bonus is equal to 20% of annual base salary. In order to
receive a Level I bonus, the Executive must achieve either (i) at least 2 of the
Level I performance goals, or (ii) at least 1 of the Level I performance goals
and 1 of the Level II or Level III performance goals. In order to receive Level
II bonus, the employee must achieve either (i) at least 2 of the Level II
performance goals, or (ii) at least 1 of the Level II performance goals and 1 of
the Level III performance goals. In order to receive a Level III bonus, the
Executive must achieve at least 2 of the Level III performance goals. Operation
of the performance bonus criteria is as follows:
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- --------------------------- ============================
BONUS AVG. PAST
LEVEL ROAA ROE DUE LOANS
- ----------------------------- ----------------------------- --------------------------- ============================
<S> <C> <C> <C>
============================ ----------------------------- --------------------------- ============================
Level I 1% 10% 2%
but less than but less than but more than
1.25% 12% 1.5%
============================= ----------------------------- --------------------------- ============================
Level II 1.25% 12% 1.5%
but less than but less than but more than
1.5% 15% 1.25%
============================= ============================= =========================== ============================
Level III 1.5% or greater 15% or greater 1.25% or less
============================= ============================= =========================== ============================
</TABLE>
c. Election to Defer Performance Bonus. Prior to the end of any
contract year, Executive shall be permitted to make an election to defer receipt
of all or a portion of any annual performance based bonus that otherwise becomes
payable for such year. The election to defer receipt of any such performance
bonus shall be made in writing on a Deferred Compensation Election Form
(Attachment "A") provided by the Employer. Any such election shall be subject to
the provisions of the Executive's Deferred Compensation Election Form.
<PAGE>4
d. Severance Compensation. If the Executive's employment is terminated
during the term of this Agreement for reasons other than those stated in
paragraphs 2(b)(iii) or (iv), Employer shall pay Executive as Severance
Compensation, without set off, reduction, or diminution for other compensation
which Executive may receive from sources other than Employer, a sum equal to the
gross monthly compensation which would then be payable to Executive under the
terms and conditions of this Agreement without reduction for taxes except as
required by law and payable for twenty-four (24) consecutive months or the
remainder of the term of this Agreement whichever is greater ("Severance
Compensation"). Said Severance Compensation shall be payable on the first day of
each month following Executive's termination of employment. Notwithstanding the
foregoing, if mutually agreed between Employer and Executive, the Severance
Compensation may be paid in one lump sum or other equal payments. Employer shall
maintain Executive's full medical and disability benefits for Executive and his
family at no expense to Executive for twenty-four months subsequent to said
termination or the remainder of the term of this Agreement whichever is greater.
Thereafter, Executive shall be eligible to secure such medical and dental
benefits as may be available pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") at Executive's expense.
SECTION 4. OTHER BENEFITS
During the term of Executive's employment hereinafter, on and after the
effective dates, as noted, Employer shall furnish to Executive the following
benefits.
a. A group health and hospitalization insurance policy covering the
Executive and immediate family.
b. A monthly car allowance covering depreciation, insurance and all
operating costs in an amount of $1,000 per month.
c. In lieu of the foregoing car allowance, the Employer and Executive
may mutually agree that Executive will be provided use of an automobile owned or
leased by Employer with reimbursement to Executive for all out of pocket
expenses incurred by Executive for the use and upkeep of said automobile,
including taxes, if any, which may become due and payable by Executive based
upon such arrangement.
d. All expenses for attendance of the Executive and his spouse at the
annual convention of the Community Banker's Association of Georgia and the
Georgia Banker's Association.
e. Initiation fees, membership fees and monthly dining room charges at
a golf, dining or country club of Executive's choosing in an aggregate annual
amount not to exceed $7,500.
<PAGE>5
f. All reasonable expenses shall be reimbursed on a monthly basis,
however these expenses are subject to review and approval of the Chairman of the
Employer's Board of Directors or the Vice Chairman.
g. A fully paid vacation of twenty (20) working days per year for the
duration and any continuance of this contract. Time for such vacation/vacations
shall be determined solely by the Executive provided Executive shall give the
Chairman of Employer's Board of Directors or the Vice Chairman, reasonable prior
notice of the Executive's scheduled vacation days.
h. An Executive Assistance Program ("EAP") for Executive and immediate
family to help resolve the problems which may include, but are not limited to,
stress, marital, family, child rearing, drugs, alcohol, prescription drugs,
legal, financial, health or any other problems that may be of concern. Referral
by EAP to an outside agency may involve additional charges which may be covered
in part by the Employer's health plans.
SECTION 5. POST TERMINATION COVENANTS.
a. Executive hereby expressly covenants and agrees that during the term
of his employment whether or not pursuant to this Agreement and for a period of
twelve (12) months following the termination of his employment with Employer, if
said termination is pursuant to Section 2(b)(iv), Executive shall not engage in
rendering or providing executive managerial services as chief executive officer
or serve as chief executive officer of or to any National Bank or State Bank
Institution located within an area of ten (10) miles of Community Bank of
Georgia's main office or its branches without the express permission of the
Employer. This covenant shall not be effective against Executive in the event of
termination of Executive for any other reason, actual, or constructive as
provided herein below.
SECTION 6. CHANGE IN CONTROL.
So long as this Agreement is in effect, in the event of a Change in Control (as
that term is defined below) of Employer and/or Bancshares, if the duties of
Executive are changed (as defined below) within two (2) years after such Change
in Control, and the Executive so notifies Employer in writing within six (6)
months thereof, such change in duties shall constitute a termination of
Executive's employment hereunder by Employer for reasons other than those stated
in paragraphs 2(b)(iii) and (iv). In that event, Executive shall be entitled to
receive all of the Severance Compensation due and payable to Executive under
Section 3(d) this Agreement without set off, reduction, or diminution for other
compensation which Executive may receive from sources other than Employer.
<PAGE>6
a. "Change in Duties"shall mean any one or more of the following:
i) a significant change in the nature or scope of the
Executive's authorities (including a change in title) or duties from those
applicable to him immediately prior to the date on which a Change of Control
occurs;
ii) a reduction in the Executive's Annual Base Salary
from that provided for under this Agreement;
iii) any diminution in the Executive's eligibility to
participate or level of participation in bonus, stock option and other
compensation plans which provide opportunities to receive compensation, from the
greater of:
-the opportunities provided by the Bank for executives with
comparable duties; or
-the opportunities under any such plans under which he was
participating immediately prior to the date on which a Change
of Control occurs including as set forth in Section 3(b) of
this Agreement;
iv) a diminution in Executive benefits (including but not
limited to medical, dental, life insurance and long-term disability plans) and
perquisites applicable to Executive, from the greater of:
-the Executive benefits and perquisites provided by the
Bank to executives with comparable duties; or
-the Executive benefits and perquisites to which he was
entitled immediately prior to the date on which a Change in
Control occurs;
v) a change in the location of the Executive's principal place
of employment by the Bank (more than 50 miles from the location where he was
principally employed immediately prior to the date on which a Change of Control
occurs) to which Executive has not agreed;
b. A "Change of Control" shall be deemed to have occurred if:
i) any person, including a "group" as determined in accordance
with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act") (other than Bancshares, or any Executive benefit plan, as defined in
ERISA, of any of the foregoing) is or becomes the beneficial owner, directly or
indirectly, of securities of Bancshares representing 25% or more of the combined
voting power of Bancshares's then outstanding securities;
<PAGE>7
ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Bank and Bancshares before
the Transaction shall cease to constitute a majority of the Board of Directors
of the Bank or Bancshares or any successor to the Bank or Bancshares;
iii) the Bank or Bancshares is merged or consolidated with
another corporation and as a result of the merger or consolidation less than 51%
of the outstanding voting securities of the surviving or resulting corporation
shall then be owned in the aggregate by the former, shareholders of Bancshares,
other than (x) affiliates within the meaning of the Exchange Act or (y) any
party to the merger or consolidation;
iv) a tender offer or exchange offer is made and consummated
for the ownership of securities of Bancshares representing 50% or more of the
combined voting power of Bancshares's then outstanding voting securities; or
v) the Bank transfers substantially all of its assets
to another corporation which is not a wholly-owned subsidiary of Bancshares.
SECTION 7. CONFLICTS OF INTEREST.
Executive shall not, while employed by Employer, accept employment with any
other individual, corporation, partnership, governmental authority or other
entity, or engage in any other venture for profit which the Employer's Board of
Directors may consider by majority vote of all of the directors then serving
with Executive abstaining to be in conflict with the Employer's best interest or
to be in competition with the performance of his duties hereunder. This
restriction does not preclude Executive from owning or being involved in real
estate or other investments, so long as such does not create a conflict of
interest on the part of the Executive as to his duties and obligations to
Employer as set forth herein. In addition, the Executive may be a Board member
of companies not in competition with the Employer. Notwithstanding the
foregoing, Executive may not be involved in any of these activities without
first making a full disclosure to the Employer of the details of each proposed
endeavor.
SECTION 8. WAIVER OF PROVISIONS.
Failure by any of the parties hereto to insist, in one or more instances, on
performance by the other in strict accordance with the terms and conditions of
this Agreement shall not be deemed a waiver or relinquishment of any right
granted hereunder or of the obligation of future performance of any such term or
condition or any other term or condition of this Agreement, unless such waiver
is contained in a writing signed by or on behalf of all the parties.
<PAGE>8
SECTION 9. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia. If for any reason any provision of this
Agreement shall be held by a court of competent jurisdiction to be void or
unenforceable, the same shall not affect the remaining provisions hereof.
SECTION 10. MODIFICATION AND AMENDMENT.
This Agreement contains the sole and entire agreement among the parties hereto
and supersedes all prior discussions and agreements among the parties, and any
such prior agreements shall, from and after the date hereof, be null and void;
except, nothing herein shall cause the Agreement by and between Executive and
Employer dated as of September 13, 1994, to terminate other that upon its
Initial Termination Date of December 31, 1997. This Agreement shall not be
modified or amended except by an instrument in writing signed by or on behalf of
all parties hereto.
SECTION 11. NOTICE AND MAILING THEREOF.
Whenever in this Agreement notice is required to be given to either of the
parties hereto, such notice shall be effective only if delivered to the parties
as follows by hand delivery or first class United States Mail:
If to Employer: Chairman of the Board
Community Bank of Georgia
3333 Lawrenceville Highway
Tucker, Georgia 30084
If to Executive: Ted A. Murphy
1761 East Gate Drive
Stone Mountain, Georgia 30087
SECTION 12. RECITALS, COUNTERPARTS AND HEADINGS.
The Recitals appearing above are incorporated into this Agreement as fully and
completely as if set forth expressly herein and are an integral part of this
Agreement. This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this Agreement.
<PAGE>9
SECTION 13. SUCCESSORS.
This Agreement shall inure to the benefit of and be binding upon the Employer,
its successors and assigns and upon the Executive, and his heirs and personal
representatives. Neither this Agreement nor performance hereunder may be
assigned by Executive.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered as of the day and year first above written.
EXECUTIVE: EMPLOYER:
COMMUNITY BANK OF GEORGIA
/s/ Ted A. Murphy By: /s/Eugene L. Argo
Ted A. Murphy Chairman of Board of Directors
ATTEST:
/s/James L. Armstrong, Jr.
Ted A. Murphy Chairman, Compensation Committee
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<FED-FUNDS-SOLD> 7,436,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,834,981
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<LOANS> 44,648,905
<ALLOWANCE> 696,679
<TOTAL-ASSETS> 79,356,319
<DEPOSITS> 72,414,499
<SHORT-TERM> 0
<LIABILITIES-OTHER> 291,043
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0
0
<COMMON> 2,336,912
<OTHER-SE> 4,313,865
<TOTAL-LIABILITIES-AND-EQUITY> 79,356,319
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<INTEREST-TOTAL> 5,368,677
<INTEREST-DEPOSIT> 2,425,432
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<INTEREST-INCOME-NET> 2,940,320
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<SECURITIES-GAINS> (2,774)
<EXPENSE-OTHER> 2,197,740
<INCOME-PRETAX> 960,880
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 621,998
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 5.03
<LOANS-NON> 213,887
<LOANS-PAST> 24,014
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