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 Ended December 31, 1997
________________________________________________
Commission File Number 33-36512
THOMASVILLE BANCSHARES, INC.
A Georgia Corporation
(IRS Employer Identification No.58-2175800)
301 North Broad Street
Thomasville, Georgia 31792
(912) 226-3300
________________________________________________
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1997: $4,952,345
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (462,521 shares) on March 27, 1997, was
$4,985,976. As of such date, no organized trading market existed for the
Common Stock of the Registrant. The aggregate market value was computed by
reference to the book value of the Common Stock of the Registrant as of
December 31, 1997. For the purposes of this response, directors, officers and
holders of 5% or more of the Registrants Common Stock are considered the
affiliates of the Registrant at that date.
The number of shares outstanding of the Registrants Common Stock, as of
March 25, 1997: 600,000 shares of $1.00 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one)
Yes No X
PART I
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Annual Report on Form 10-KSB contain forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, which statements generally can be identified by the use of
forward-looking terminology, such as may, will, expect, estimate,
anticipate, believe, target, plan, project, or continue or the
negatives thereof or other variations thereon or similar terminology, and are
made on the basis of management's plans and current analyses of the Company,
its business and the industry as a whole. These forward-looking statements
are subject to risks and uncertainties, including, but not limited to,
economic conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases, have
affected, and in the future could affect, the Company's financial performance
and could cause actual results for fiscal 1998 and beyond to differ materially
from those expressed or implied in such forward-looking statements. The
Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any
projected results expressed or implied therein will not be realized.
Item 1. Description of Business
General
Thomasville Bancshares, Inc. (the Company) was incorporated under the
laws of the State of Georgia on March 30, 1995 and owns 100% of the
outstanding capital stock of Thomasville National Bank (the Bank). The
Company was incorporated as a mechanism to enhance the Bank's ability to serve
its future customers' requirements for financial services. The holding
company structure provides flexibility for expansion of the Company's banking
business through acquisition of other financial institutions and provision of
additional banking-related services which the traditional commercial bank may
not provide under present laws. For example, banking regulations require that
the Bank maintain a minimum ratio of capital to assets. In the event that the
Bank's growth is such that this minimum ratio is not maintained, the Company
may borrow funds, subject to the capital adequacy guidelines of the Federal
Reserve Board, and contribute them to the capital of the Bank and otherwise
raise capital in a manner which is unavailable to the Bank under existing
banking regulations. On February 28, 1998, the Company declared a two-for-one
stock split to be effected in the form of a 100% stock dividend payable to
shareholders of record as of the close of business on January 31, 1998.
The Bank commenced operations on October 2, 1995 in a temporary facility
located at 108 Washington Street in Thomasville, Georgia. On January 6, 1997,
the Bank moved into its permanent facility located at 301 North Broad Street.
The permanent facility, the construction of which was recently completed,
contains approximately 8,500 square feet of finished space and an additional
2,000 square feet of unfinished space which may be built out in the future
should the Bank require additional space for expansion. The building contains
a lobby, vault, eight offices, four teller stations, three drive-in windows, a
boardroom conference facility, a loan operations area, and an area for the
Bank's bookkeeping operations.
The Bank is a full service commercial bank, without trust powers. The
Bank offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement and Keogh accounts, regular interest bearing
statement savings accounts, certificates of deposit, commercial loans, real
estate loans, home equity loans and consumer/installment loans. In addition,
the Bank provides such consumer services as U.S. Savings Bonds, travelers
checks, cashiers checks, safe deposit boxes, bank by mail services, direct
deposit and automatic teller services.
Market Area and Competition
The market area of the Bank in Thomasville, Thomas County, Georgia has
been experiencing steady growth in both jobs and banking deposits in recent
years. Thomasville is the county seat of Thomas County, and contains one-half
of the county's population. Thomasville is a regional and commercial medical
center for Southwest Georgia. Thomas County maintains a steady industrial and
agricultural base, which has been expanding in recent years. The largest
employers in the county include the John D. Archbold Memorial Hospital,
Sunnyland Food (a food processing company) and Warners (foundation garments).
Agricultural activities in the county are supported by the second largest
fresh vegetable market in Georgia and a daily cash market for hogs, cattle and
poultry.
The population of Thomasville and Thomas County is approximately 18,000
and 40,000, respectively. The median household income in Thomas County in
1992 was $22,405 and the unemployment rate was 4.4% as of November, 1994.
Real estate values in the Bank's market area have appreciated over the last
five years.
Competition among financial institutions in the Bank's primary service
area is intense. There are six commercial banks with a total of nine branches
in Thomasville and five additional branches in smaller communities in Thomas
County. In addition, there is one savings and loan association in
Thomasville. There are also five credit unions headquartered in Thomas
County.
Financial institutions primarily compete with one another for deposits.
In turn, a bank's deposit base directly affects such bank's loan activities
and general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. The Bank is competing with financial
institutions which have much greater financial resources than the Bank, and
which may be able to offer more and unique services and possibly better terms
to their customers. However, the management of the Bank believes that the
Bank will be able to attract sufficient deposits to enable the Bank to compete
effectively with other area financial institutions.
The Bank competes with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and
other business entities which have recently been invading the traditional
banking markets. Due to the growth of the Thomasville area, it is anticipated
that additional competition will continue from new entrants to the market.
Deposits
The Bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement and Keogh accounts, regular interest
bearing statement savings accounts and certificates of deposit with fixed and
variable rates and a range of maturity date options. The sources of deposits
are residents, businesses and employees of businesses within the Bank's market
area, obtained through the personal solicitation of the Bank's officers and
directors, direct mail solicitation and advertisements published in the local
media. The Bank pays competitive interest rates on time and savings deposits
up to the maximum permitted by law or regulation. In addition, the Bank has
implemented a service charge fee schedule competitive with other financial
institutions in the Bank's market area, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
The following is a presentation of the average consolidated balance
sheet of the Company for the years ended December 31, 1997 and 1996. This
presentation includes all major categories of interest earning assets and
interest bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1997 December 31, 1996
Cash and due from bank $ 2,021,394 $ 1,318,633
Tax-exempt securities $ 20,833 $ --
Taxable securities 3,453,476 2,627,339
Federal funds sold 3,410,003 4,064,993
Net loans 43,598,375 23,506,716
Total earning assets $ 50,482,687 $ 30,199,048
Other assets 3,033,250 1,724,470
Total assets $ 55,537,331 $ 33,242,181
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1997 December 31, 1996
Non-interest bearing deposits $ 7,706,697 $ 5,569,694
NOW and money market deposits 17,021,767 9,387,399
Savings deposits 997,174 524,144
Time deposits 22,894,694 11,873,927
Other borrowings 391,695 --
Other liabilities 369,874 152,969
Total liabilities $ 49,381,901 $ 27,508,133
Stockholders' equity 6,155,430 5,734,048
Total liabilities and
stockholders' equity $ 55,537,331 $ 33,242,181
The following is a presentation of an analysis of the net interest
earnings of the Company for the periods indicated with respect to each major
category of interest earning asset and each major category of interest bearing
liability:
Year Ended December 31, 1997
Average Interest Average
Assets Amount Earned Yield
Tax-exempt securities $20,833 $1,019 4.89%
Taxable securities 3,453,476 200,271 5.80
Federal funds sold 3,410,003 193,085 5.66
Net loans 43,598,375 4,175,214 9.58
Total earning assets $50,482,687 $4,596,589 9.05%
Average Interest Average
Liabilities Amount Expense Cost
NOW and money
market deposits $17,021,767 $ 650,368 3.82%
Savings deposits 997,174 34,740 3.48
Time deposits 22,894,694 1,337,039 5.84
Other borrowings 391,695 17,508 4.47
Total interest
bearing liabilities $41,305,330 $2,039,655 4.94%
Net yield on earning assets 5.01%
____________________
(1) During 1997, all loans were accruing interest.
(2) Interest earned on net loans includes $145,624 in loan fees and
loan service fees.
Year Ended December 31, 1996
Average Interest Average
Assets Amount Earned Yield
Taxable securities $ 2,627,339 153,611 5.85
Federal funds sold 4,064,993 212,203 5.22
Net loans 23,506,716(1) 2,234,844(2) 9.51
Total earning assets $30,199,048 $2,600,658 8.61%
Average Interest Average
Liabilities Amount Expense Cost
NOW and money
market deposits $ 9,387,399 $ 316,501 3.37%
Savings deposits 524,144 18,326 3.50
Time deposits 11,873,927 682,218 5.75
Total interest
bearing liabilities $21,785,470 $1,017,045 4.67%
Net yield on earning assets 5.24%
____________________
(1) During 1996, all loans were accruing interest.
(2) Interest earned on net loans includes $102,230 in loan fees and
loan service fees.
Rate/Volume Analysis of Net Interest Income
The effect on interest income, interest expense and net interest income
in the periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in
interest income or expense and net interest income has been attributed to a
change in average rate.
Year ended December 31, 1997
compared with
Year Ended December 31, 1996
Increase (decrease) due to:
Volume Rate Total
Interest earned on:
Tax-exempt securities $ 1,019 $ --- $ 1,019
Taxable securities 47,964 (1,304) 46,660
Federal funds sold (40,091) 20,973 (19,118)
Net loans 1,923,802 16,568 1,940,370
Total interest income 1,932,694 36,237 1,968,931
Interest paid on:
NOW deposits and money
market 286,780 47,087 333,867
Savings deposits 16,519 (105) 16,414
Time deposits 643,961 10,860 654,821
Other borrowings 17,508 -- 17,508
Total interest expense 964,768 57,842 1,022,610
Change in net
interest income $967,926 $(21,605) $946,321
Year ended December 31, 1996
compared with
Year Ended December 31, 1995
Increase (decrease) due to:
Volume Rate Total
Interest earned on:
Funds with escrow agent $ (58,685) $ -- $ (58,685)
Taxable securities 83,041 44,559 127,600
Federal funds sold 143,641 (9,329) 134,312
Net loans 2,126,353 (81,113) 2,045,240
Total interest income 2,294,350 (45,883) 2,248,467
Interest paid on:
NOW deposits and money
market 201,945 73,692 275,637
Savings deposits 16,012 503 16,515
Time deposits 650,972 2,839 653,811
Other borrowings (5,299) -- (5,299)
Other liabilities -- -- --
Total interest expense 863,630 77,034 940,664
Change in net
interest income $1,430,720 $(122,917) $1,307,803
Deposits
The Bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement and Keogh accounts, regular interest
bearing statement savings accounts and certificates of deposit with fixed and
variable rates and a range of maturity date options. The sources of deposits
are residents, businesses and employees of businesses within the Bank's market
area, obtained through the personal solicitation of the Bank's officers and
directors, direct mail solicitation and advertisements published in the local
media. The Bank pays competitive interest rates on time and savings deposits
up to the maximum permitted by law or regulation. In addition, the Bank has
implemented a service charge fee schedule competitive with other financial
institutions in the Bank's market area, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
Year Ended Year Ended
December 31, 1997 December 31, 1996
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
Non-interest bearing
demand deposits $ 7,706,697 N/A $ 5,569,694 N/A
NOW and money
market deposits $17,021,767 3.82% $ 9,387,399 3.37%
Savings deposits $ 997,174 3.48% $ 524,144 3.50%
Time deposits $22,894,694 5.84% $11,873,927 5.75%
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities for the year ended
December 31, 1997:
Time
Certificates
of Deposit
3 months or less $ 3,157,132
3-6 months 4,550,656
6-12 months 3,290,868
over 12 months 1,507,914
Total $12,506,570
Loan Portfolio
The Bank engages in a full complement of lending activities, including
commercial/industrial, consumer and real estate loans. As of December 31,
1997, the Bank had a legal lending limit for unsecured loans of up to $898,188
to any one person. See Supervision and Regulation.
While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due to
factors beyond the Bank's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also
impact the relative risk in the Bank's real estate portfolio. Of the Bank's
target areas of lending activities, commercial loans are generally considered
to have greater risk than real estate loans or consumer installment loans.
Management of the Bank intends to originate loans and to participate
with other banks with respect to loans which exceed the Bank's lending limits.
Management of the Bank does not believe that loan participations necessarily
pose any greater risk of loss than loans which the Bank originates.
The following is a description of each of the major categories of loans
in the Bank's loan portfolio:
Commercial, Financial and Agricultural Loans
Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank. This category of loans includes
loans made to individual, partnership or corporate borrowers, and obtained for
a variety of business purposes. Particular emphasis is placed on loans to
small and medium-sized businesses. The primary repayment risk for commercial
loans is the failure of the business due to economic or financial factors.
Although the Bank typically looks to a commercial borrower's cash flow as the
principal source of repayment for such loans, many commercial loans are
secured by inventory, equipment, accounts receivable, and other assets.
Consumer Loans
The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit. This category of loans
also includes lines of credit and term loans secured by second mortgages on
the residences of borrowers for a variety of purposes including home
improvements, education and other personal expenditures. In evaluating these
loans the Bank reviews the borrower's level and stability of income and past
credit history and the impact of these factors on the ability of the borrower
to repay the loan in a timely manner. In addition, the Bank maintains a
proper margin between the loan amount and collateral value.
Real Estate Loans
The Bank's real estate loans consist of residential first and second
mortgage loans, residential construction loans and commercial real estate
loans to a limited degree. These loans are made consistent with the Bank's
appraisal policy and real estate lending policy which detail maximum loan-to-
value ratios and maturities. These loan-to-value ratios are sufficient to
compensate for fluctuations in the real estate market to minimize the risk of
loss to the Bank.
The following table presents various categories of loans contained in
the Bank's loan portfolio for the periods indicated and the total amount of
all loans for such periods:
As of As of
Type of Loan December 31, 1997 December 31, 1996
Commercial, Financial and Agricultural $ 16,847,930 $16,484,185
Real Estate - Construction 1,777,493 1,134,858
Real Estate - Mortgage 29,825,224 11,748,699
Installment and Other Loans
to Individuals 5,661,179 4,171,502
Subtotal $ 54,111,826 $33,539,244
Less: Allowance for
possible loan losses (644,913) (447,626)
Total (net of allowances) $ 53,466,913 $33,091,618
The following is a presentation of an analysis of maturities of loans as
of December 31, 1997:
Due in 1 Due After 1 to Due After
Type of Loan Year or Less 5 Years 5 Years Total
(In thousands)
Commercial, Financial
and Agricultural $ 9,552 $ 6,959 $ 337 $ 16,848
Real Estate - Construction 1,476 301 -- 1,777
Total $11,028 $7,260 $337 $ 18,625
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates as of December 31, 1997:
Due in 1 Due After 1 to Due After
Interestm Category Year or Less 5 Years 5 Years Total
(In thousands)
Predetermined
interest rate $7,080 $4,828 $ -- $11,908
Floating interest rate 3,948 2,432 337 6,717
Total $11,028 $7,260 $337 $18,625
As of December 31, 1997 and 1996 all loans were accruing interest, no
accruing loans were contractually past due 90 days or more as to principal and
interest payments and no loans were defined as troubled debt restructurings.
As of December 31, 1997, except for nine loans in the amount of $680,000
which were classified as special mention, there were no loans not disclosed
above that are classified for regulatory purposes as doubtful, substandard or
special mention which (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. There are no loans not disclosed above where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms.
Accrual of interest is discontinued on a loan when management of the
Bank determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. At December 31,
1997, all loans were accruing interest.
Summary of Loan Loss Experience
An analysis of the Bank's loss experience is furnished in the
following table for the periods indicated, as well as a breakdown of the
allowance for possible loan losses:
Analysis of the Allowance for Possible Loan Losses
Year Ended Year ended
Dec 31, 1997 Dec 31, 1996
Balance at beginning of period $447,626 $110,000
Charge-offs:
Installments and other
loans to individuals (31,005) (8,374)
Recoveries 3,292 0
Net charge-offs (27,713) (8,374)
Additions charged to operations 225,000 346,000
Balance at end of period $ 644,913 $ 447,626
Ratio of net charge-offs during the
period to average loans outstanding
during the period .06% .04%
At December 31, 1997 the allowance was allocated as follows:
Percent of loans
in each category
Amount to total loans
Commercial, Financial and Agricultural $ 215,000 31.1%
Real Estate - Construction 28,000 3.3
Real Estate - Mortgage 295,000 55.1
Installment and Other Loans to
Individuals 78,000 10.5
Unallocated 28,913 N/A
Total $ 644,913 100.0%
At December 31, 1996 the allowance was allocated as follows:
Percent of loans
in each category
Amount to total loans
Commercial, Financial and Agricultural $ 246,200 49.1%
Real Estate - Construction 22,400 3.4
Real Estate - Mortgage 125,300 35.0
Installment and Other Loans to
Individuals 49,200 12.5
Lease financing -- --
Unallocated 4,526 --
Total $ 447,626 100.0%
Loan Loss Reserve
In considering the adequacy of the Company's allowance for possible
loan losses, management has focused on the fact that as of December 31, 1997,
31.1% of outstanding loans are in the category of commercial loans, which
includes commercial real estate loans and agricultural loans. Commercial
loans are generally considered by management as having greater risk than other
categories of loans in the Company's loan portfolio. However, 91% of these
commercial loans at December 31, 1997 were made on a secured basis.
Management believes that the secured condition of the preponderant portion of
its commercial loan portfolio greatly reduces any risk of loss inherently
present in commercial loans.
The Company's consumer loan portfolio is also well secured. At
December 31, 1997 the majority of the Company's consumer loans were secured by
collateral primarily consisting of automobiles, boats and other personal
property. Management believes that these loans involve less risk than
commercial loans.
Real estate mortgage loans constituted 55.1% of outstanding loans at
December 31, 1997. All loans in this category represent residential real
estate mortgages where the amount of the original loan generally does not
exceed 80.0% of the appraised value of the collateral. These loans are
considered by management to be well secured with a low risk of loss.
A review of the loan portfolio by an independent firm is conducted
annually. The purpose of this review is to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses. The
review includes analyses of historical performance, the level of non-
conforming and rated loans, loan volume and activity, review of loan files and
consideration of economic conditions and other pertinent information. Upon
completion, the report is approved by the Board and management of the Bank.
In addition to the above review, the Bank's primary regulator, the Comptroller
of the Currency, also conducts an annual examination of the loan portfolio.
Upon completion, the Comptroller of the Currency presents its report of
findings to the Board and management of the Bank. Information provided from
the above two independent sources, together with information provided by the
management of the Bank and other information known to members of the Board,
are utilized by the Board to monitor, on a quarterly basis, the loan
portfolio. Specifically, the Board attempts to identify risks inherent in the
loan portfolio (e.g., problem loans, potential problem loans and loans to be
charged off), assess the overall quality and collectibility of the loan
portfolio, and determine amounts of the allowance for loan losses and the
provision for loan losses to be reported based on the results of their review.
Investments
As of December 31, 1997, investment securities comprised approximately
6.5% of the Bank's assets and net loans comprised approximately 82.4% of the
Bank's assets. The Bank invests primarily in direct obligations of the United
States, obligations guaranteed as to principal and interest by the United
States, obligations of agencies of the United States and certificates of
deposit issued by commercial banks. In addition, the Bank enters into Federal
Funds transactions with its principal correspondent banks, and acts as a net
seller of such funds. The sale of Federal Funds amounts to a short-term loan
from the Bank to another bank.
The following table presents, for the period indicated, the book value
of the Bank's investments. All securities held at December 31, 1997 and 1996
were categorized as available-for-sale.
Investment Category December 31,
Available-for-Sale: 1997 1996
Obligations of U.S. Treasury
and other U.S. Agencies $3,529,219 $2,487,000
Tax-exempt securities 500,000 --
Federal Reserve Bank Stock 165,000 165,000
Total $4,194,219 $2,652,000
The following table indicates for the year ended December 31, 1997 the
amount of investments due in (i) one year or less, (ii) one to five years,
(iii) five to ten years, and (iv) over ten years:
Investment Category
Weighted
Average
Amount Yield
Available-for-Sale:
Tax-exempt securities(1)
over 10 years 500,000 7.41%
Obligations of U.S. Treasury
and other U.S. Agencies:
0 - 1 year $ 696,469 5.76%
Over 1 through 5 years 2,832,750 5.90%
Federal Reserve Bank Stock,
no maturity 165,000 6.0%
Total $4,194,219 6.06%
____________________
(1) The yield on tax-exempt securities is tax-equivalent.
Return on Equity and Assets
Returns on average consolidated assets and average consolidated equity
for the periods indicated are as follows:
December 31,
1997 1996
Return on Average Assets 1.01 % .73%
Return on Average Equity 9.1 % 4.2%
Average Equity to Average Assets Ratio 11.1 % 17.2%
Dividend Payout Ratio -- --
Asset/Liability Management
It is the objective of the Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies.
Certain of the officers of the Bank are responsible for monitoring policies
and procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of
the Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a
monthly report reflecting interest-sensitive assets and interest-sensitive
liabilities being prepared and presented to the Bank's Board of Directors.
The objective of this policy is to control interest-sensitive assets and
liabilities so as to minimize the impact of substantial movements in interest
rates on the Bank's earnings.
Correspondent Banking
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal
Funds, security safekeeping, investment services, coin and currency supplies,
overline and liquidity loan participations and sales of loans to or
participations with correspondent banks. Such correspondent arrangements are
governed, in part, by the provisions of 12 C.F.R. 32.107 and O.C.C. Banking
Circular 181 (Rev.) (August 2, 1984).
The Bank sells loan participations to correspondent banks with respect
to loans which exceed the Bank's lending limit. As compensation for services
provided by a correspondent, the Bank may maintain certain balances with such
correspondents in non-interest bearing accounts. At December 31, 1997 the
Bank had outstanding participations totaling $3,043,389.
Data Processing
The Bank has entered into a data processing servicing agreement with
First National Bank of Grady County. This servicing agreement provides for
the Bank to receive a full range of data processing services, including an
automated general ledger, deposit accounting, commercial, real estate and
installment lending data processing, payroll, central information file and ATM
processing and investment portfolio accounting.
The Company is currently evaluating its computer systems as well as
those of its data processing vendor to determine whether modifications and
expenditures will be necessary to make its systems as well as those of its
vendor compliant with Year 2000 requirements. These requirements have arisen
due to the widespread use of computer programs that rely on two-digit date
codes to perform computations or decision-making functions. Many of these
programs may fail as a result of their inability to properly interpret date
codes beginning January 1, 2000. For example, such programs may misinterpret
"00" as the year 1900 rather than 2000. In addition, some equipment, being
controlled by microprocessor chips, may not deal appropriately with the year
"00." The Company believes that its systems are currently Year 2000 compliant
and does not believe that material expenditures will be necessary to implement
any further modifications. However, there can be no assurance that unforeseen
difficulties or costs will not arise. In addition, there can be no assurance
that the systems of other companies on which the Company's systems rely will
be modified on a timely basis, or that the failure by another company to
properly modify its systems will not negatively impact the Company's systems
or operations.
Facilities
Until January 6, 1997, the Bank operated out of a temporary facility
located at 108 Washington Street in Thomasville, Georgia. On January 6, 1997,
the Bank moved to its recently constructed permanent facility located at 301
North Broad Street. The building contains approximately 8,500 square feet of
finished space which was constructed at a cost of approximately $1,050,000.
The building also contains an additional 2,000 square feet of unfinished space
which may be built out in the future should the Bank require additional space
for expansion. The building contains a lobby, a vault, eight offices, four
teller stations, three drive-in windows, a boardroom conference facility, a
loan operations area, and an area for the Bank's bookkeeping operations.
Employees
The Bank presently employs four persons on a part-time basis and 25
persons on a full-time basis, including five officers. The Bank will hire
additional persons as needed, including additional tellers and financial
service representatives.
Monetary Policies
The results of operations of the Bank will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and
administrative policies. The business activities of the Company and the Bank
are closely supervised by a number of federal regulatory agencies, including
the Federal Reserve Board, the Comptroller of the Currency ("Comptroller"),
the Georgia Department of Banking and Finance (the "Georgia Banking
Department") and the Federal Deposit Insurance Corporation ("FDIC").
The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act, which requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before acquiring more than 5%
of the voting shares of any bank or all or substantially all of the assets of
a bank, and before merging or consolidating with another bank holding company.
The Federal Reserve Board (pursuant to regulation and published policy
statements) has maintained that a bank holding company must serve as a source
of financial strength to its subsidiary banks. In adhering to the Federal
Reserve Board policy, the Company may be required to provide financial support
to a subsidiary bank at a time when, absent such Federal Reserve Board policy,
the Company may not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, which became effective in November 1994, the restrictions on interstate
acquisitions of banks by bank holding companies were repealed on September 29,
1995, such that the Company and any other bank holding company located in
Georgia is able to acquire a bank located in any other state, and a bank
holding company located outside Georgia can acquire any Georgia-based bank, in
either case subject to certain deposit percentage and other restrictions. The
legislation also provides that, unless an individual state elects beforehand
either (i) to accelerate the effective date or (ii) to prohibit out-of-state
banks from operating interstate branches within its territory, on or after
June 1, 1997, adequately capitalized and managed bank holding companies will
be able to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions. De novo branching
by an out-of-state bank would be permitted only if it is expressly permitted
by the laws of the host state. The authority of a bank to establish and
operate branches within a state will continue to be subject to applicable
state branching laws. Pursuant to the Riegle-Neal Interstate Banking and
Branching Efficiency Act, the State of Georgia has recently adopted an
interstate banking statute that, beginning on June 1, 1997, removes the
existing restrictions on the ability of banks to branch interstate through
mergers, consolidations and acquisitions.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to
be so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies, including the following activities:
acting as investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with
respect thereto; providing management consulting advice to nonaffiliated banks
and nonbank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing
and data transmission services; acting as an insurance agent or underwriter
with respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligations of the United
States, the states and their political subdivisions. In determining whether
an activity is so closely related to banking as to be permissible for bank
holding companies, the Federal Reserve Board is required to consider whether
the performance of such activities by a bank holding company or its
subsidiaries can reasonably be expected to produce such benefits to the
public as greater convenience, increased competition and gains in efficiency
that outweigh such possible adverse effects as undue concentration of
resources, decreased or unfair competition, conflicts of interest and unsound
banking practices. Generally, bank holding companies are required to obtain
prior approval of the Federal Reserve Board to engage in any new activity not
previously approved by the Federal Reserve Board.
The Company is also regulated by the Georgia Banking Department under
the Georgia Bank Holding Company Act, which requires every Georgia bank
holding company to obtain the prior approval of the Georgia Commissioner of
Banking before acquiring more than 5% of the voting shares of any bank or all
or substantially all of the assets of a bank, or before merging or
consolidating with any other bank holding company. A Georgia bank holding
company is generally prohibited from acquiring ownership or control of 5% or
more of the voting shares of any bank unless the bank being acquired is either
a bank for purposes of the federal Bank Holding Company Act of 1956, or a
federal or state savings and loan association or a savings bank or federal
savings bank whose deposits are insured by the federal deposit insurance
program and such bank has been in existence and continuously operating as a
bank for a period of five years or more prior to the date of acquisition.
As a national bank, the Bank is subject to the supervision of the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board.
With respect to expansion, national banks situated in the State of Georgia
are generally prohibited from establishing branch offices or facilities
outside of the county in which such main office is located, except (i) in
adjacent counties in certain situations, or (ii) by means of a merger,
consolidation or sale of assets. The Georgia Legislature has recently adopted
legislation which reduces the limitations imposed on banks situated in the
State of Georgia to establish branch offices. The new law permits a Georgia
bank to establish three new or additional branch banks, de novo, in any county
within the State of Georgia beginning on July 1, 1996, in addition to
establishing branch offices or facilities in adjacent counties and by merger
or consolidation. Moreover, beginning on July 1, 1998, a bank located in the
State of Georgia will be permitted to establish new or additional branch banks
anywhere in the state by relocation of the parent bank or another branch bank,
or by merger, consolidation, or purchase of assets and assumption of
liabilities involving another parent bank or branch bank.
The Bank is also subject to the Georgia banking and usury laws
restricting the amount of interest which it may charge in making loans or
other extensions of credit. In addition, the Bank, as a subsidiary of the
Company, is subject to restrictions under federal law in dealing with the
Company and other affiliates, if any. These restrictions apply to extensions
of credit to an affiliate, investments in the securities of an affiliate and
the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired
capital and surplus to any person if the loans and extensions of credit are
not fully secured by collateral having a market value at least equal to their
face amount. In addition, a national bank may grant loans and extensions of
credit to a single person up to 10% of its unimpaired capital and surplus,
provided that the transactions are fully secured by readily marketable
collateral having a market value determined by reliable and continuously
available price quotations, at least equal to the amount of funds outstanding.
This 10% limitation is separate from, and in addition to, the 15% limitation
for unsecured loans. Loans and extensions of credit may exceed the general
lending limit if they qualify under one of several exceptions. Such
exceptions include certain loans or extensions of credit arising from the
discount of commercial or business paper, the purchase of bankers'
acceptances, loans secured by documents of title, loans secured by U.S.
obligations and loans to or guaranteed by the federal government.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller. In
1989, both the Federal Reserve Board and the Comptroller issued new risk-based
capital guidelines for bank holding companies and banks which make regulatory
capital requirements more sensitive to differences in risk profiles of various
banking organizations. The capital adequacy guidelines issued by the Federal
Reserve Board are applied to bank holding companies on a consolidated basis
with the banks owned by the holding company. The Comptroller's risk capital
guidelines apply directly to national banks regardless of whether they are a
subsidiary of a bank holding company. Both agencies' requirements (which are
substantially similar), provide that banking organizations must have capital
equivalent to 8% of weighted risk assets. The risk weights assigned to assets
are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example, securities
with an unconditional guarantee by the United States government are assigned
to the lowest risk category. A risk weight of 50% is assigned to loans
secured by owner-occupied one to four family residential mortgages, provided
that certain conditions are met. The aggregate amount of assets assigned to
each risk category is multiplied by the risk weight assigned to that category
to determine the weighted values, which are added together to determine total
risk-weighted assets. Both the Federal Reserve Board and the Comptroller have
also implemented new minimum capital leverage ratios to be used in tandem with
the risk-based guidelines in assessing the overall capital adequacy of banks
and bank holding companies. Under these rules, banking institutions are
required to maintain a ratio of 3% "Tier 1" capital to total assets (net of
goodwill). Tier 1 capital includes common shareholders equity, noncumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements, applicable only to top-rated banking institutions.
Institutions operating at or near these levels are expected to have well-
diversified risk, high asset quality, high liquidity, good earnings and in
general, have to be considered strong banking organizations, rated composite 1
under the CAMEL rating system for banks. Institutions with lower ratings and
institutions with high levels of risk or experiencing or anticipating
significant growth would be expected to maintain ratios 100 to 200 basis
points above the stated minimums.
The Comptroller has amended the risk-based capital guidelines applicable
to national banks in an effort to clarify certain questions of interpretation
and implementation, specifically with regard to treatment of originated and
purchased mortgage servicing rights and other intangible assets. The
Comptroller's guidelines provide that intangible assets are generally deducted
from Tier 1 capital in calculating a banks risk-based capital ratio.
However, certain intangible assets which meet specified criteria (qualifying
intangibles) such as mortgage servicing rights are retained as a part of Tier
1 capital. The Comptroller currently maintains that only mortgage servicing
rights and purchased credit card relationships meet the criteria to be
considered qualifying intangibles. The Comptrollers guidelines formerly
provided that the amount of such qualifying intangibles that may be included
in Tier 1 capital was strictly limited to a maximum of 25% of total Tier 1
capital. The Comptroller has amended its guidelines to increase the
limitation on such qualifying intangibles from 25% to 50% of Tier 1 capital
and further to permit the inclusion of purchased credit card relationships as
a qualifying intangible asset.
In addition, the Comptroller has adopted rules which clarify treatment
of asset sales with recourse not reported on a banks balance sheet. Among
assets affected are mortgages sold with recourse under Fannie Mae, Freddie Mac
and Farmer Mac programs. The rules clarify that even though those
transactions are treated as asset sales for bank Call Report purposes, those
assets will still be subject to a capital charge under the risk-based capital
guidelines.
The Comptroller, the Federal Reserve Board and the FDIC recently adopted
final regulations revising their risk-based capital guidelines to further
ensure that the guidelines take adequate account of interest rate risk.
Interest rate risk is the adverse effect that changes in market interest rates
may have on a banks financial condition and is inherent to the business of
banking. Under the new regulations, when evaluating a bank's capital
adequacy, the agency's capital standards now explicitly include a bank's
exposure to declines in the economic value of its capital due to changes in
interest rates. The exposure of a banks economic value generally represents
the change in the present value of its assets, less the change in the value of
its liabilities, plus the change in the value of its interest rate off-balance
sheet contracts. Concurrently, the agencies issued a joint policy statement
to bankers, effective June 26, 1996, to provide guidance on sound practices
for managing interest rate risk. In the policy statement, the agencies
emphasize the necessity of adequate oversight by a banks Board of Directors
and senior management and of a comprehensive risk management process. The
policy statement also describes the critical factors affecting the agencies'
evaluations of a bank's interest rate risk when making a determination of
capital adequacy. The agencies' risk assessment approach used to evaluate a
banks capital adequacy for interest rate risk relies on a combination of
quantitative and qualitative factors. Banks that are found to have high
levels of exposure and/or weak management practices will be directed by the
agencies to take corrective action.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
Act), enacted on December 19, 1991, provides for a number of reforms
relating to the safety and soundness of the deposit insurance system,
supervision of domestic and foreign depository institutions and improvement of
accounting standards. One aspect of the Act involves the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the Act does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The Act creates five capital categories (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) which are defined in the
Act and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given
level of undercapitalization. For example, an institution which becomes
undercapitalized must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution
ss
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., holding companies) must guarantee compliance with
the plan until the institution has been adequately capitalized for four
consecutive calendar quarters. The liability of the holding company is
limited to the lesser of five percent of the institution's total assets or the
amount which is necessary to bring the institution into compliance with all
capital standards. In addition, undercapitalized institutions will be
restricted from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth restrictions and will
be required to obtain prior approval from the appropriate regulator to open
new branches or expand into new lines of business.
As an institution drops to lower capital levels, the extent of action to
be taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board, the
Comptroller and the FDIC have adopted regulations defining operational and
managerial standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits.
Both the capital standards and the safety and soundness standards which
the Act seeks to implement are designed to bolster and protect the deposit
insurance fund.
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act.
The following table reflects the capital thresholds:
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
Well capitalized(1) 10% 6% 5%
Adequately Capitalized(1) 8% 4% 4%(2)
Undercapitalized(4) <8% <4% <4%(3)
Significantly
Undercapitalized(4) <6% <3% <3%
Critically
Undercapitalized -- -- <=2%(5)
___________________________
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) < 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
As a national bank, the Bank is subject to examination and review by
the Comptroller. This examination is typically completed on-site at least
annually and is subject to off-site review at call. The Comptroller, at will,
can access quarterly reports of condition, as well as such additional reports
as may be required by the national banking laws.
On July 1, 1995, the State of Georgia enacted an interstate banking
statute which authorizes bank holding companies located throughout the United
States to acquire banks and bank holding companies located in Georgia under
certain conditions. Such legislation has had the effect of increasing
competition among financial institutions in the Banks market area and in the
State of Georgia generally.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation. In
addition, regulators sometimes require higher capital levels on a case-by-case
basis based on such factors as the risk characteristics or management of a
particular institution. The Company and the Bank are not aware of any
attributes of their operating plan that would cause regulators to impose
higher requirements.
Item 2. Description of Property
In January 1997, the Company completed construction of its
headquarters building on a 1.1 acre tract of land located at 301 North Broad
Street. The building contains approximately 9,500 square feet of finished
space at a cost of approximately $1,125,000. The building also contains an
additional 1,000 square feet of unfinished space which may be built out in the
future should the Bank require additional space for expansion. The building
contains a lobby, a vault, eight offices, four teller stations, three drive-in
windows, a boardroom conference facility, a loan operations area, and an area
for the Banks bookkeeping operations.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company
or the Bank is a party or of which any of their properties are subject; nor
are there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the
Company, pending or contemplated, in which any director, officer or affiliate
or any principal security holder of the Company, or any associate of any of
the foregoing is a party or has an interest adverse to the Company or the
Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter ended December 31,
1997 to a vote of security holders of the Company.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
A. Market Information
During the period covered by this report and to date, there has been
no established public trading market for the Company's Common Stock.
B. Holders of Common Stock
As of March 27, 1998, the number of holders of record of the Company's
Common Stock was 491.
C. Dividends
To date, the Company has not paid any dividends on its Common Stock.
As the Company and the Bank are both start-up operations, it is the policy of
the Board of Directors of the Company to reinvest earnings for such period of
time as is necessary to ensure the success of the operations of the Company
and of the Bank. There are no current plans to initiate payment of cash
dividends, and future dividend policy will depend on the Banks earnings,
capital requirements, financial condition and other factors considered
relevant by the Board of Directors of the Company.
The Bank is restricted in its ability to pay dividends under the
national banking laws and by regulations of the Comptroller. Pursuant to 12
U.S.C. Section 56, a national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits, subject to other applicable
provisions of law. Payments of dividends out of undivided profits is further
limited by 12 U.S.C. Section 60(a), which prohibits a bank from declaring a
dividend on its shares of common stock until its surplus equals its stated
capital, unless there has been transferred to surplus not less than 1/10 of the
Bank's net income of the preceding two consecutive half-year periods (in the
case of an annual dividend). Pursuant to 12 U.S.C. Section 60(b), the approval
of the Comptroller is required if the total of all dividends declared by the
Bank in any calendar year exceeds the total of its net income for that year
combined with its retained net income for the preceding two years, less any
required transfers to surplus.
Item 6. Management's Discussion and Analysis or Plan of Operation
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, related notes and statistical information
included elsewhere herein.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
For the year ended December 31, 1997, assets and earnings improved.
Total assets increased by 48.3% from $43,752,165 in 1996 to $64,894,489 in
1997. Net loans increased from $33,091,618 in 1996, to $53,466,913 in 1997
due to strong loan demand coupled with a focused marketing effort. Net
charge-offs for 1997 were $27,713 compared to $8,374 in 1996, an increase of
$19,339. For the year ended December 31, 1997, the Banks loan loss reserve
ratio was 1.19% to total loans.
Deposits increased for the same period by $20,304,893 or 53.9%, from
$37,697,519 in 1996 to $58,002,412 in 1997. The majority of the increase was
attributable to marketing efforts. The Bank's investment portfolio increased
$1,542,219, or 58.1%, from $2,652,000 in 1996 to $4,194,219 in 1997.
The Banks loan to deposit ratio was 92.2% for 1997, compared to 87.8%
in 1996, which contributed to an increase in net interest income of $946,321
from 1996 to 1997. Non-interest expense increased by $540,898 from $1,179,129
for 1996 to $1,720,027 for 1997. This increase was the result of an increase
in personnel expenses and other overhead expenses. Consequently, net income
increased $320,459, or 132.9%, from $241,198 in 1996 to $561,657 in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company was organized on January 15, 1995 to serve as a holding
company for a proposed national bank. For approximately the first six months,
the main activities centered in seeking, interviewing and selecting a cohesive
group of organizers/directors; applying for a national bank charter; applying
to become a bank holding company; and filing a Registration Statement with the
Securities and Exchange Commission. Once the Registration Statement became
effective, the organizers/directors focused their efforts on stock sale. By
mid-August 1995, 600,000 shares of common stock were sold for $5,972,407, net
of selling expenses. From mid-August to the end of September 1995, management
engaged in activities resulting in the opening of the Bank. During the
development stage, from January 15, 1995 (Inception) to October 2, 1995 (the
Bank Opening), net loss amounted to $119,200. Net loss from the Bank
Opening to December 31, 1995 amounted to $241,993. Losses from Inception to
December 31, 1995 amounted to $361,193, or $.60 per share. During 1996, total
assets of the Company grew from $21.1 million to $43.8 million. For the year
ended December 31, 1996, net income amounted to $241,198, or $.40 per share.
Net Interest Income
The Companys results of operations are determined by its ability to
manage effectively interest income and expense, to minimize loan and
investment losses, to generate non-interest income and to control non-interest
expense. Since interest rates are determined by market forces and economic
conditions beyond the control of the Company, the ability to generate net
interest income is dependent upon the Companys ability to maintain an
adequate spread between the rate earned on earning assets and the rate paid on
interest-bearing liabilities, such as deposits and borrowings. Thus, net
interest income is the key performance measure of income.
Presented below are various components of assets and liabilities,
interest income and expense as well as their yield/cost for the period
indicated.
Year Ended Year Ended
December 31, 1997 December 31, 1996
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Cost Balance Income/Expense Cost
(Dollars in Thousands)
Federal funds sold $ 3,410 $ 193 5.66% $ 4,065 $ 212 5.22%
Securities 3,474 201 5.79 2,627 154 5.85
Loans, net 43,598 4,175 9.58 23,507 2,235 9.51
Total earning
assets $ 50,482 $ 4,569 9.05% $30,199 $2,601 8.61%
Interest
bearing deposits $40,913 $ 2,022 4.94% $21,785 $1,017 4.67%
Other borrowings 392 18 4.47% -- --
Total interest-bearing
liabilities $ 41,305 $ 2,040 4.94% $21,785 $1,017 4.67%
Net yield on earning assets 5.01% 5.24%
Net yield on earning assets for the years ended December 31, 1997 and
1996 were 5.01% and 5.24%, respectively. The decline in the net yield during
1997 is primarily attributed to a higher cost of funds, mainly in
transactional accounts such as NOW and money market accounts. In order to
keep pace with loan demand, management bid up the rates on transactional
accounts to generate higher deposits. Transactional accounts are generally a
more stable source of funding. Despite the lower net yield on earning assets,
net interest income has increased from $1,583,623 (1996) to $2,529,934 (1997)
due to a $20.3 million increase in average earning assets in 1997.
Non-Interest Income
Non-interest income for the years ended December 31, 1997 and 1996
amounted to $382,756 and $192,715, respectively. As a percentage of average
assets, non-interest income increased from .58% in 1996 to .69% in 1997. The
increase in non-interest income during 1997 is attributed to the increase in
the number of deposit accounts, as well as transactional volume, and to a
higher fee structure.
The following table summarizes the major components of non-interest
income for the year ended December 31, 1997 and 1996.
1997 1996
Service fees on deposit accounts $ 269,808 $ 148,977
Miscellaneous, other 112,948 43,738
Total non-interest income $382,756 $ 192,715
Non-Interest Expense
Non-interest expense increased from $1,719,129 in 1996 to $1,720,027
in 1997. As a percentage of total average assets, non-interest expenses
decreased from 3.55% in 1996 to 3.10% in 1997. During 1997, the Company's
assets increased by 48.3% over the 1996 assets. Because of higher economies
of scale, however, non-interest expense in 1997, as compared to 1996, grew by
only 45.9%. Below are the components of non-interest expense for the years
1997 and 1996.
Non-Interest Expense
December 31, December 31,
1997 1996
Salaries and benefits $ 878,641 $ 581,101
Supplies and printing 52,669 56,089
Advertising and public relations 210,625 80,652
Legal and professional 67,167 56,844
Other operating expenses 510,925 404,443
Total non-interest expense $1,720,027 $1,179,129
During 1997, the allowance for loan losses increased from $447,626 to
$644,913. During 1997, the allowance for loan losses as a percent of gross
loans decreased from 1.33% to 1.19%. Net charge-offs during 1997 amounted to
$27,713, or .05% of loans. Net charge-offs in 1996 amounted to $8,374, or
.02%. Net charge-offs for 1997 and 1996 are significantly lower than peer
averages. As of December 31, 1997, management considers the allowance for
loan losses to be adequate to absorb possible future losses. However, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional provisions to the allowance will
not be required.
Liquidity and Interest Rate Sensitivity
Net interest income, the Companys primary source of earnings,
fluctuates with significant interest rate movements. To lessen the impact of
these margin swings, the balance sheet should be structured so that repricing
opportunities exist for both assets and liabilities in roughly equivalent
amounts at approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest rate
sensitivity.
Interest rate sensitivity refers to the responsiveness of interest
bearing assets and liabilities to changes in market interest rates. The rate
sensitive position, or gap, is the difference in the volume of rate sensitive
assets and liabilities, at a given time interval. The general objective of
gap management is to manage actively rate sensitive assets and liabilities so
as to reduce the impact of interest rate fluctuations on the net interest
margin. Management generally attempts to maintain a balance between rate
sensitive assets and liabilities as the exposure period is lengthened to
minimize the Companys overall interest rate risks.
The asset mix of the balance sheet is continually evaluated in terms
of several variables: yield, credit quality, appropriate funding sources and
liquidity. To effectively manage the liability mix of the balance sheet,
there should be a focus on expanding the various funding sources. The
interest rate sensitivity position at year-end 1997 is presented in the
following table. The difference between rate sensitive assets and rate
sensitive liabilities, or the interest rate sensitivity gap, is shown at the
bottom of the table. Since all interest rates and yields do not adjust at the
same velocity, the gap is only a general indicator of rate sensitivity.
After After
three six After
Within months months one year After
three but within but within but within five
months six mos one year five years years Total
(In Thousands)
EARNING ASSETS
Loans $22,583 $ 2,292 $5,114 $ 23,057 $ 1,066 $54,112
Available-for-sale
securities -- -- 696 2,833 665 4,194
Federal funds sold 1,582 -- -- -- -- $1,582
Total earning assets $24,165 $ 2,292 $5,810 $ 25,890 $ 1,731 $59,888
SUPPORTING SOURCES OF FUNDS
Interest bearing demand
deposits and savings $22,491 $ -- $ -- $ -- $ -- $22,491
Certificates,
less than $100M 3,676 2,670 4,408 2,206 711 13,671
Certificates,
$100M and over 3,157 4,551 3,291 1,508 -- 12,507
Total interest
bearing liabilities $29,324 $7,221 $7,699 $3,714 $ 711 $48,669
Interest rate
sensitivity gap $(5,159) $(4,929) $(1,889) $ 22,176 $1,020 $11,219
Cumulative gap $(5,159)$(10,088)$(11,977) $ 10,199 $1,219 $11,219
Interest rate
sensitivity gap
ratio .82 .32 .75 6.98 2.43 1.23
Cumulative interest rate
sensitivity gap ratio .82 .72 .73 1.21 1.23 1.23
As evidenced by the table above, the Company is liability sensitive up
to one year, and asset sensitive thereafter. In a declining interest rate
environment, a liability sensitive position (a gap ratio of less than 1.0) is
generally more advantageous since liabilities are repriced sooner than assets.
Conversely, in a rising interest rate environment, an asset sensitive
position (a gap ratio over 1.0) is generally more advantageous as earning
assets are repriced sooner than the liabilities. With respect to the Company,
an increase in interest rate would reduce income for one year and increase
income thereafter. Conversely, a decline in interest rate would increase
income for one year and decrease income thereafter. This, however, assumes
that all other factors affecting income remain constant.
As the Company continues to grow, management will continuously
structure its rate sensitivity position to best hedge against rapidly rising
or falling interest rates. The Banks Asset/Liability Committee meets on a
quarterly basis and develops managements strategy for the upcoming period.
Such strategy includes anticipations of future interest rate movements.
Liquidity represents the ability to provide steady sources of funds
for loan commitments and investment activities, as well as to maintain
sufficient funds to cover deposit withdrawals and payment of debt and
operating obligations. These funds can be obtained by converting assets to
cash or by attracting new deposits. The Companys primary source of liquidity
comes from its ability to maintain and increase deposits through the Bank.
Deposits grew by $ 20.3 million during 1997 and by $22.3 million in 1996.
Below are the pertinent liquidity balances and ratios for the years
ended December 31, 1997.
December 31, December 31,
1997 1996
Cash and cash equivalents $4,029,952 $5,628,235
Securities 4,192,219 2,652,000
CDs, over $100,000 to total deposits ratio 21.6% 25.2%
Loan to deposit ratio 92.2% 87.8%
Brokered deposits -- --
At December 31, 1997, large denomination certificates accounted for
21.6% of total deposits. Large denomination CDs are generally more volatile
than other deposits. As a result, management continually monitors the
competitiveness of the rates it pays on its large denomination CDs and
periodically adjusts its rates in accordance with market demands. Significant
withdrawals of large denomination CDs may have a material adverse effect on
the Banks liquidity. Management believes that since a majority of the above
certificates were obtained from Bank customers residing in Thomas County,
Georgia, the volatility of such deposits is lower than if such deposits were
obtained from depositors residing outside of Thomas County, as outside
depositors are more likely to be interest rate sensitive.
Cash and cash equivalents are the primary source of liquidity. At
December 31, 1997, cash and cash equivalents amounted to $4.0 million,
representing 6.2% of total assets. Securities available for sale provide a
secondary source of liquidity. Approximately $700,000 of the $4.2 million in
the Banks securities portfolio is scheduled to mature in 1998.
Brokered deposits are deposit instruments, such as certificates of
deposit, deposit notes, bank investment contracts and certain municipal
investment contracts that are issued through brokers and dealers who then
offer and/or sell these deposit instruments to one or more investors. As of
December 31, 1997, the Company had no brokered deposits in its portfolio.
Management knows of no trends, demands, commitments, events or
uncertainties that should result in or are reasonably likely to result in the
Companys liquidity increasing or decreasing in any material way in the
foreseeable future.
Capital Adequacy
There are now two primary measures of capital adequacy for banks and
bank holding companies: (i) risk-based capital guidelines and (ii) the
leverage ratio.
Risk-based capital guidelines measure the amount of a banks required
capital in relation to the degree of risk perceived in its assets and its off-
balance sheet items. Note that under the risk-based capital guidelines,
capital is divided into two tiers. Tier 1 capital consists of common
shareholders equity, non-cumulative and cumulative (bank holding companies
only) perpetual preferred stock and minority interest. Goodwill is subtracted
from the total. Tier 2 capital consists of the allowance for loan losses,
hybrid capital instruments, term subordinated debt and intermediate term
preferred stock. Banks are required to maintain a minimum risk-based capital
ratio of 8.0%, with at least 4.0% consisting of Tier 1 capital.
The second measure of capital adequacy relates to the leverage ratio.
The OCC has established a 3.0% minimum leverage ratio requirement. Note that
the leverage ratio is computed by dividing Tier 1 capital into total assets.
For banks that are not rated CAMEL 1 by their primary regulator, (which
includes the subsidiary Bank), the minimum leverage ratio should be 3.0% plus
an additional cushion of at least 1 to 2 percent, depending upon risk profiles
and other factors.
A new rule was recently adopted by the Federal Reserve Board, the OCC
and the FDIC that adds a measure of interest rate risk to the determination of
supervisory capital adequacy. In connection with this new rule, those three
agencies issued a joint policy statement to bankers, effective June 26, 1996,
to provide guidance on sound practices for managing interest rate risk. In
the policy statement, the agencies emphasize the necessity of adequate
oversight by a banks Board of Directors and senior management and of a
comprehensive risk management process. The policy statement also describes
the critical factors affecting the agencies evaluations of a banks interest
rate risk when making a determination of capital adequacy. The agencies risk
assessment approach used to evaluate a banks capital adequacy for interest
rate risk relies on a combination of quantitative and qualitative factors.
Banks that are found to have high levels of exposure and/or weak management
practices will be directed by the agencies to take corrective action.
The table below illustrates the Banks and Companys regulatory
capital ratios at December 31, 1997:
Minimum
December 31, regulatory
Bank 1997 requirement
Tier 1 Capital 10.8% 4.0%
Tier 2 Capital 1.1% --
Total risk-based capital ratio 11.9% 8.0%
Leverage ratio 11.1% 3.0%
Company - Consolidated
Tier 1 Capital 11.5% 4.0%
Tier 2 Capital 1.1% --
Total risk-based capital ratio 12.6% 8.0%
Leverage ratio 11.8% 3.0%
The above ratios indicate that the capital positions of the Company and the
Bank are sound and that the Company is well positioned for future growth.
Accounting Matters
Statement of Financial Accounting Standard No. 128, Earnings per Share
(SFAS 128) establishes standards for computing and presenting earnings per
share (EPS). SFAS 128 simplifies the previous standards for computing and
presenting EPS and makes the new standards comparable to international EPS
standards. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997; it also requires restatement of all prior
period EPS data presented. The Company has adopted SFAS 128. The adoption of
SFAS 128 did not have a significant impact on the Company's consolidated
financial condition or results of operations.
Item 7. Financial Statements
The following financial statements are filed with this report:
Independent Auditors Report
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Statement of Income for the Years Ended December 31, 1997, 1996
and the Period from January 15, 1995 through December 31, 1995
Consolidated Statement of Changes in Shareholders Equity for the Years Ended
December 31, 1996, 1995 and the Period from January 15, 1995 through
December 31, 1995
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996,
1995 and the Period from January 15, 1995 through December 31, 1995
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There has been no occurrence requiring a response to this Item.
TABLE OF CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets. 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Shareholders Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements
Report of Independent Accountants
Board of Directors
Thomasville Bancshares, Inc.
Thomasville, Georgia
We have audited the accompanying consolidated balance sheets of
Thomasville Bancshares, Inc., (the Company), and subsidiary as of December
31, 1997 and 1996, and the related consolidated statements of income, changes
in shareholders equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial
position of Thomasville Bancshares, Inc., and subsidiary at December 31, 1997
and 1996, and the consolidated results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Atlanta, Georgia
February 12, 1998
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Balance Sheets
ASSETS
As of December 31,
1997 1996
Cash and due from banks $ 2,447,683 $ 1,801,255
Federal funds sold, net (Note 3) 1,582,269 3,826,980
Total cash and cash equivalents $ 4,029,952 $ 5,628,235
Securities: (Notes 2 & 4)
Available-for-sale at fair value 4,194,219 2,652,000
Loans, net (includes loans of
$3,066,426 (1997) and $2,177,384
(1996) to insiders) (Notes 2, 5,
6 & 13) 53,466,913 33,091,618
Property and equipment, net (Notes 2 & 7) 2,484,979 1,913,536
Other assets 718,426 466,776
Total Assets $ 64,894,489 $ 43,752,165
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 9,334,294 $ 6,815,217
Interest bearing deposits 48,668,118 30,882,302
Total deposits (Note 9) $ 58,002,412 $ 37,697,519
Other liabilities 423,684 208,389
Total Liabilities $ 58,426,096 $ 37,905,908
Commitments and Contingencies (Note 8)
Shareholders Equity: (Notes 1, 13 & 15)
Common stock, 1.00 par value,
10,000,000 shares authorized;
600,000 shares issued and outstanding $ 600,000 $ 600,000
Paid-in-capital 5,418,801 5,372,407
Retained earnings 441,662 (119,995)
Unrealized gain/(loss) on securities, net 7,930 (6,155)
Total Shareholders Equity $ 6,468,393 $5,846,257
Total Liabilities and
Shareholders' Equity $ 64,894,489 $43,752,165
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
Interest Income: 1997 1996
Interest and fees on loans (Note 2) $ 4,175,214 $ 2,234,844
Interest on investment securities 201,290 153,611
Interest on federal funds sold 193,085 212,203
Total interest income $ 4,569,589 $ 2,600,658
Interest Expense:
Interest on deposits
and borrowings (Note 10) $ 2,039,655 $ 1,017,045
Net interest income 2,529,934 1,583,613
Provision for possible
loan losses (Note 6) 225,000 346,000
Net interest income after provision for
possible loan losses $ 2,304,934 $ 1,237,613
Other Income:
Service fees on deposit accounts $ 269,808 $ 148,977
Miscellaneous, other 112,948 43,738
Total other income $ 382,756 $ 192,715
Other Expenses:
Salaries $ 636,051 $ 451,919
Employee benefits 242,590 129,182
Supplies and printing 52,669 56,089
Advertising and public relations 210,625 80,652
Legal and professional 67,167 56,844
Depreciation and amortization 145,314 88,035
Other operating expenses (Note 11) 365,611 316,408
Total other expenses $ 1,720,027 $ 1,179,129
Income before income tax $ 967,663 $ 251,199
Income tax (Notes 2 & 12) 406,006 10,001
Net Income $ 561,657 $ 241,198
Basic earnings per share (Note 2) $ .94 $ .40
Diluted earnings per share (Note 2) $ .92 $ .40
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Changes in Shareholders Equity
From Inception, January 15, 1995 to December 31, 1997
Unrealized
Common Stock Paid-In- Retained Securities
Shares Par Value Capital Earnings Gains Total
Balance,
January 15, 1995
-- $ -- $ -- $ -- $ -- $ --
Sale of Stock 600,000 600,000 5,372,407 -- -- 5,972,407
Net income (loss) from
Inception, January 15, 1995 to
December 31, 1995
-- -- -- (361,193) -- (361,193)
Net unrealized
gains, securities -- -- -- -- 10,626 10,626
Balance,
December 31, 1995
600,000 $ 600,000 $ 5,372,407 $ (361,193) $ 10,626 $ 5,621,840
Net income, 1996 -- -- -- 241,198 -- 241,198
Net unrealized losses,
securities -- -- -- -- (16,781) (16,781)
Balance,
December 31, 1996
600,000 $ 600,000 $ 5,372,407 $ (119,995) $(6,155) $ 5,846,257
Net income, 1997 -- -- -- 561,657 -- 561,657
Net unrealized gains,
securities -- -- -- -- 14,085 14,085
Stock options, restricted stock
-- -- 46,394 -- -- 46,394
Balance, December 31, 1997
600,000 $ 600,000 $ 5,418,801 $ 441,662 $ 7,930 $ 6,468,393
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Cash Flows
Years Ended December 31,
Cash flows from operating activities: 1997 1996
Net income $ 561,657 $ 241,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for loan losses $ 225,000 $ 346,000
Depreciation and amortization $ 145,314 $ 88,035
Net accretion on securities (5,196) 5,804
(Increase) in receivables and other assets (263,143) (288,086)
Increase in payables and other liabilities 215,295 149,867
Net cash provided by operating activities $ 878,927 $ 542,818
Cash flows from investing activities:
Purchase of securities $ (2,222,938) $ (1,020,179)
Maturity of securities 700,000 1,000,000
(Increase) in loans, net (20,600,295) (22,605,081)
Purchase of premises and equipment (705,264) (1,346,620)
Net cash used in investing activities $ (22,828,497) $ (23,971,880)
Cash flows from financing activities:
Options, restricted stock $ 46,394 $ --
Increase in deposits 20,304,893 22,289,053
Net cash provided by financing activities $ 20,351,287 $ 22,289,053
Net (decrease) in cash and cash equivalents $ (1,598,283) $ (1,140,009)
Cash and cash equivalents, beginning of period 5,628,235 6,768,244
Cash and cash equivalents, end period $ 4,029,952 $ 5,628,235
Supplemental Information:
Income taxes paid $ 452,400 $ 10,001
Interest paid $ 1,957,072 $ 920,719
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
Note 1 - Organization of the Business
Thomasville Bancshares, Inc., Thomasville, Georgia (the Company) was
organized in January, 1995 to serve as a holding company for a proposed de
novo bank, Thomasville National Bank, Thomasville, Georgia (the Bank). In a
public offering conducted during 1995, the Company sold and issued 600,000
shares of its own $1.00 par value common stock. Proceeds from such sale
amounted to $5,972,407, net of selling expenses. The Company purchased 100
percent of the Banks shares by injecting $4.8 million into the Banks capital
accounts immediately prior to commencement of banking operations on October 2,
1995. Subsequently, the Company injected an additional $700,000 into the
Banks capital accounts. The Banks deposits are each insured up to $100,000
by the Federal Deposit Insurance Corporation.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year presentation. Such reclassifications had no impact on net income or
shareholders equity.
Basis of Accounting. The accounting and reporting policies of the
Company conform to generally accepted accounting principles and to general
practices in the banking industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investment in Debt and
Equity Securities (SFAS 115). SFAS 115 requires investments in equity and
debt securities to be classified into three categories:
1. Held-to-maturity securities. These are securities which the Company
has the ability and intent to hold until maturity. These securities
are stated at cost, adjusted for amortization of premiums and the
accretion of discounts. As of December 31, 1997 and 1996, the
Company had no securities in this category.
2. Trading securities. These are securities which are bought and held
principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement. As of
December 31, 1997 and 1996, the Company had no securities in this
category.
3. Available-for-sale securities. These are securities which are not
classified as either held-to-maturity or as trading securities.
These securities are reported at fair market value. Unrealized gains
and losses are reported, net of tax, as separate components of
shareholders equity. Unrealized gains and losses are excluded from
the income statement.
A decline below cost in the fair value of any available-for-sale or
held-to-maturity security that is deemed other than temporary results in a
charge to income and the establishment of a new cost basis for the security.
Purchase premiums and discounts on investment securities are amortized
and accreted to interest income using the level yield method on the
outstanding principal balances. In establishing the accretion of discounts
and amortization of premiums, the Company utilizes market based prepayment
assumptions. Interest and dividend income are recognized when earned.
Realized gains and losses for securities sold are included in income and are
derived using the specific identification method for determining the costs of
securities sold.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan fees and
the allowance for possible loan losses are deducted from total loans in the
statement of condition. Interest income is recognized over the term of the
loan based on the principal amount outstanding. Points on real estate loans
are taken into income to the extent they represent the direct cost of
initiating a loan. The amount in excess of direct costs is deferred and
amortized over the expected life of the loan.
Accrual of interest on loans is discontinued either when reasonable
doubt exists as to the full or timely collection of interest or principal or
when a loan becomes contractually past due by 90 days or more with respect to
interest or principal. When a loan is placed on non-accrual status, all
interest previously accrued but not collected is reversed against current
period interest income. Income on such loans is then recognized only to the
extent that cash is received and where the future collection of principal is
probable. Loans are returned to accruing status only when they are brought
fully current with respect to interest and principal and when, in the judgment
of management, the loans are estimated to be fully collectible as to both
principal and interest.
The Company adopted the provisions of SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting
for Impairment of a Loan - Income Recognition and Disclosure. These
standards require impaired loans to be measured based on the present value of
expected future cash flows discounted at the loans original effective
interest rate, or at the loans observable market price, or the fair value of
the collateral if the loan is collateral dependent. A loan is considered
impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the note agreement. Cash receipts on impaired loans
which are accruing interest are applied to principal and interest under the
contractual terms of the loan agreement. Cash receipts on impaired loans for
which the accrual of interest has been discontinued are applied to reduce the
principal amount of such loans until the principal has been recovered and are
recognized as interest income thereafter.
Allowance for Loan Losses. The allowance for loan losses is
established through provisions charged to operations. Such provisions are
based on managements evaluation of the loan portfolio under current economic
conditions, past loan loss experience, adequacy of underlying collateral,
changes in the nature and volume of the loan portfolio, review of specific
problem loans, and such other factors which, in managements judgment, deserve
recognition in estimating loan losses. Loans are charged off when, in the
opinion of management, such loans are deemed to be uncollectible. Subsequent
recoveries are added to the allowance.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses of loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Companys allowance
for loan losses. Such agencies may require the Company to recognize additions
to the allowance based on their judgments about information available to them
at the time of their examination.
Property and Equipment. Building, furniture and equipment are stated at
cost, net of accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements
are capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
Other Real Estate. Other real estate represents property acquired
through foreclosure or in satisfaction of loans. Other real estate is carried
at the lower of: (i) cost; or (ii) fair value less estimated selling costs.
Fair value is determined on the basis of current appraisals, comparable sales
and other estimates of value obtained principally from independent sources.
Any excess of the loan balance at the time of foreclosure or acceptance in
satisfaction of loans over the fair value of the real estate held as
collateral is treated as a loan loss and charged against the allowance for
loan losses. Gain or loss on sale and any subsequent adjustments to reflect
changes in fair value and selling costs are recorded as a component of income.
Costs of improvements to other real estate are capitalized, while costs
associated with holding other real estate are charged to operations.
Income Taxes. The consolidated financial statements have been prepared
on the accrual basis. When income and expenses are recognized in different
periods for financial reporting purposes and for purposes of computing income
taxes currently payable, deferred taxes are provided on such temporary
differences. The Company files a consolidated income tax return. Taxes are
accounted for in accordance with Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary differences
are expected to be realized or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Restriction on cash and due from banks: The Bank is required to
maintain reserve funds in cash or on deposits with the Federal Reserve System.
The required reserves at December 31, 1997 and 1996 were approximately
$507,000 and $235,000, respectively.
Statement of Cash Flows: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal
funds sold. Generally, federal funds are purchased or sold for one day
periods.
Earnings Per Share (EPS): The Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128
establishes standards for computing and presenting EPS. Because the Company
has a complex capital structure, it is required to report: (i) basic EPS;
and (ii) diluted EPS. Basic EPS is defined as the amount of earnings
available to each share of common stock outstanding during the reporting
period. Diluted EPS is defined as the amount of earnings available to each
share of common stock outstanding during the reporting period and to each
share that would have been outstanding assuming the issuance of common stock
for all dilutive potential common stock outstanding during the reporting
period.
Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
during the period. Diluted EPS is computed assuming the conversion of all
warrants and options.
For the year ended December 31, 1997, basic EPS and diluted EPS were
computed as follows :
Basic EPS Diluted EPS
Numerator Denominator Numerator Denominator
Net income $ 561,657 - - $ 561,657 - -
Weighted average shares - - 600,000 - - 600,000
Options, warrants 11,040
Totals $ 561,657 600,000 $ 561,657 611,040
EPS $.94 $.92
Note 3 Federal Funds Sold
The Bank is required to maintain legal cash reserves computed by
applying prescribed percentages to its various types of deposits. When the
Banks cash reserves are in excess of the required amount, the Bank may lend
the excess to other banks on a daily basis. At December 31, 1997 and 1996,
the Bank sold $1,582,269 and $3,826,980, respectively, to other banks through
the federal funds market.
Note 4 Securities Available-for-Sale
The amortized costs and estimated market values of securities available-
for-sale as of December 31, 1997 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market
Values
U.S. Treasury securities $ 3,517,204 $ 13,074 $ (1,059) $ 3,529,219
FRB stock 165,000 -- -- 165,000
Tax exempt securities 500,000 -- -- 500,000
Total securities $ 4,182,204 $ 13,074 $ (1,059) $ 4,194,219
The amortized costs and estimated market values of securities available-
for-sale as of December 31, 1996 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market
Values
U.S. Treasury securities $ 2,496,322 $ 852 $ (10,177) $ 2,487,000
FRB stock 165,000 -- -- 165,000
Total securities $ 2,661,322 $ 852 $ (10,177) $ 2,652,000
All national banks are required to hold FRB stock. No ready market
exists for the FRB stock nor does the stock have a quoted market value.
Accordingly, the FRB stock is reported at cost.
The amortized costs and estimated market values of securities available-
for-sale at December 31, 1997, by contractual maturity , are shown in
the following chart. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Amortized Estimated
Costs Market
Values
Due in one year or less $ 696,440 $ 696,469
Due after one through five years 2,820,764 2,832,750
Due after ten years 500,000 500,000
FRB stock (no maturity) 165,000 165,000
Total securities $ 4,182,204 $ 4,194,219
There were no sales of securities during 1997 and 1996. At December 31,
1997 and 1996, there were $2,600,000 and $903,000, respectively, in U.S.
Treasury securities pledged as collateral to secure public funds.
Note 5 Loans
The composition of net loans by major loan category, as of December 31,
1997 and 1996, follows:
December 31,
1997 1996
Commercial, financial, agricultural $16,847,930 $16,484,185
Real estate construction 1,777,493 1,134,858
Real estate mortgage 29,825,224 11,748,699
Installment 5,661,179 4,171,502
Loans, gross $54,111,826 $33,539,244
Deduct:
Allowance for loan losses (644,913) (447,626)
Loans, net $53,466,913 $33,091,618
As of December 31, 1997 and 1996, all loans were accruing interest
and none of the loans was impaired.
Note 6 Allowance for Possible Loan Losses
The allowance for possible loan losses is a valuation reserve available
to absorb future loan charge-offs. The allowance is increased by provisions
charged to operating expenses and by recoveries of loans which were previously
written-off. The allowance is decreased by the aggregate loan balances, if
any, which were deemed uncollectible during the year.
Activity within the allowance for loan losses account for the years
ended December 31, 1997 and 1996 follows:
Years ended December 31,
1997 1996
Balance, beginning of year $ 447,626 $ 110,000
Add: Provision for loan losses 225,000 346,000
Add: Recoveries of previously charged
off amounts 3,292 -
-
Total $ 675,918 $ 456,000
Deduct: Amount charged-off ( 31,005) (8,374)
Balance, end of year $ 644,913 $ 447,626
Note 7 Property and Equipment
Building, furniture and equipment are stated at cost less accumulated
depreciation. Components of property and equipment included in the
consolidated balance sheets at December 31, 1997 and 1996 follow:
December 31,
1997 1996
Land $ 582,983 $ 582,983
Building 1,476,921 85,988
Furniture, equipment 609,482 224,317
Construction in progress - - 1,077,695
Property and equipment, gross $ 2,669,386 $1,970,983
Deduct:
Accumulated depreciation (184,407) (57,447)
Property and equipment, net $2,484,979 $1,913,536
Depreciation expense for the years ended December 31, 1997 and 1996
amounted to $134,090 and $ 76,811, respectively. Depreciation is charged to
operations over the estimated useful lives of the assets. The estimated
useful lives and methods of depreciation for the principal items follow:
Type of Asset Life in Years Depreciation Method
Furniture and equipment 3 to 7 Straight-line
Building 39 Straight-line
Note 8 Commitments and Contingencies
Please refer to Note 13 concerning warrants and options earned by
directors and executive officers.
Please refer to Note 14 concerning financial instruments with off-
balance sheet risk.
Note 9 Deposits
The following details deposit accounts at December 31, 1997 and 1996:
December 31,
1997 1996
Non-interest bearing deposits $ 9,334,294 $ 6,815,217
Interest bearing deposits:
NOW accounts 7,282,203 4,372,728
Money market accounts 14,014,321 7,841,663
Savings 1,193,986 693,560
Time, less than $100,000 13,671,038 8,492,621
Time, $100,000 and over 12,506,570 9,481,730
Total deposits $58,002,412 $37,697,519
Note 10 Interest on Deposits and Borrowings
A summary of interest expense for the years ended December 31, 1997 and
1996 follows:
December 31,
1997 1996
Interest on NOW accounts $ 148,381 $ 103,902
Interest on money market accounts 501,987 212,599
Interest on savings accounts 34,740 18,326
Interest on CDs under $100,000 694,213 314,958
Interest on CDs $100,000 and over 642,826 367,260
Interest, other borrowings 17,508 -
-
Total interest on deposits
and borrowings $2,039,655 $1,017,045
Note 11 Other Operating Expenses
A summary of other operating expenses for the years ended December 31,
1997 and 1996 follows:
December 31,
1997 1996
Postage and delivery $ 32,924 $ 25,087
Data processing 33,519 24,749
Regulatory assessments 31,548 19,053
Taxes & insurance 45,685 23,007
Utilities & telephone 36,241 19,100
ATM fees 27,290 21,153
Repairs, maint. & service contracts 65,030 29,928
All other operating expenses 93,374 154,331
Total other operating expenses $ 365,611 $ 316,408
Note 12 Income Taxes
As of December 31, 1997 and 1996, the Companys provision for income
taxes consisted of the following:
December 31,
1997 1996
Current $ 457,500 $ 107,896
Deferred (51,494) (97,895)
Federal income tax expense $ 406,006 $ 10,001
Deferred income taxes consist of the following:
1997 1996
Provision for loan losses $ (47,603) $ - -
Net operating loss carry forward - - (97,895)
Other (3,891) - -
Total $ (51,494) $ (97,895)
The Companys provision for income taxes differs from the amounts
computed by applying the federal income tax statutory rates to income before
income taxes. A reconciliation of federal statutory income taxes to the
Companys actual income tax provision follows:
Years ended December 31,
1997 1996
Income taxes at statutory rate $ 329,005 $ 100,864
State tax, net of Federal benefits 48,316 9,316
Change in valuation allowance 14,753 (97,895)
Other 13,932 (2,284)
Total $ 406,006 $ 10,001
The tax effects of the temporary differences that comprise the net
deferred tax assets at December 31, 1997 and 1996 are presented below:
1997 1996
Deferred tax assets:
Allowance for loan losses $ 99,467 $ 32,389
Contributions -- 2,861
Unrealized gain, securities (4,085) 3,170
Deferred asset, depreciation 7,691 2,591
Valuation reserve (52,594) (37,841)
Net deferred tax asset $ 50,479 $ 3,170
There was a net change in the valuation allowance during 1996 and 1997.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projection for future taxable
income over the periods which the temporary differences resulting in the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of those deductible
differences, net of the existing valuation allowance at December 31, 1997.
Note 13 Related Party Transactions
Stock Options. The Employment agreements with the Banks president and
executive vice president provide for the grant of stock options for each to
acquire 15,000 shares of the Companys common stock upon the Banks
commencement of business at a purchase price equal to $10.00 per share. Such
options will become exercisable at the rate of 3,000 shares per year and shall
remain exercisable for ten years after the date of initial grant, so long as
each remains employed by the Bank.
Employment Agreements. On March 7 ,1995, the Company entered into
employment agreements with two of its directors who serve as the president and
executive vice president of the Bank. Each agreement is for a three-year
term. The agreements provide for health and disability insurance, other
customary benefits and, as discussed above, the granting of stock options.
The agreement with the president provides for an annual base salary of
$75,000 increasing to $85,000 per year when the Bank becomes profitable on a
cumulative basis. The employment agreement provides that during its term, the
president will be entitled to an annual bonus of 5% of the Banks pretax
profits based on a formula determined by the Bank's Board of Directors;
provided, however, that the bonus may not exceed 30% of his annual salary.
The agreement with the executive vice president provides for an annual base
salary of $65,000 increasing to $75,000 per year when the Bank becomes
profitable on a cumulative basis. The employment agreement provides that
during its term, the executive vice president will be entitled to an annual
bonus of 5% of the Banks pretax profits based on a formula determined by the
Banks Board of Directors; provided, however, that the bonus shall not exceed
30% of his annual salary. For the year ended December 31, 1997, the Company
incurred expenses for salary and benefits as follows: (i) for the president:
$122,884; and (ii) for the executive vice president: $110,584.
Compensation of Directors. In March 1996, the Board of Directors of the
Company approved a deferred compensation plan (the "Plan") for the Company's
and Banks directors which grants to each member restricted shares of the
Companys common stock as follows: (a) five shares for each Bank or Company
committee meeting attended; and (b) ten shares for each Bank or Company Board
of Directors meeting attended. Shares of restricted stock granted pursuant to
the Plan shall not vest until the earlier to occur of: (a) the retirement of a
director from the Companys Board of Directors; or (b) a change in control of
the Company. As of December 31, 1997 there were 3,040 shares of restricted
stock outstanding. The 1997 income statement includes a charge for $32,498
reflecting the above grants.
Borrowings and Deposits by Directors and Executive Officers. Certain
directors, executive officers and companies with which they are affiliated,
are customers of and have banking transactions with the Bank in the ordinary
course of business. As of December 31, 1997 and 1996, loans outstanding to
directors, their related interests and executive officers aggregated
$3,066,426 and $2,177,384, respectively. These loans were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers during 1997 and 1996 follows:
1997 1996
Balance, beginning of year $2,177,384 $ 635,770
New loans 2,105,040 1,654,140
Less: principal reductions (1,215,998) (112,526)
Balance, end of year $ 3,066,426 $ 2,177,384
Deposits by directors and their related interests, at December 31, 1997
and 1996, approximated $3,638,443 and $4,205,433, respectively.
Note 14 Financial Instruments with Off-Balance Sheet Risk
In the ordinary course of business, and to meet the financing needs of
its customers, the Company is a party to various financial instruments with
off-balance sheet risk. These financial instruments, which include
commitments to extend credit and standby letters of credit, involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the balance sheets. The contract amount of those
instruments reflects the extent of involvement the Company has in particular
classes of financial instruments.
The Companys 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 is represented by the contractual amounts of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any material condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. At December 31,
1997 and 1996, unfunded commitments to extend credit were $7,153,104 and
$5,430,822, respectively. The Company evaluates each customers credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
managements credit evaluation of the borrower. Collateral varies, but may
include accounts receivable, inventory, property, plant and equipment, farm
products, livestock and income producing commercial properties.
At December 31, 1997 and 1996, commitments under letters of credit
aggregated approximately $172,435 and $143,500, respectively. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral varies but may include
accounts receivable, inventory, equipment, marketable securities and property.
Since most of the letters of credit are expected to expire without being
drawn upon, they do not necessarily represent future cash requirements.
The Company makes commercial, agricultural, real estate and consumer
loans to individuals and businesses located in and around Thomas County,
Georgia. The Company does not have a significant concentration of credit risk
with any individual borrower. However, a substantial portion of the Companys
loan portfolio is collateralized by real estate located in and around Thomas
County, Georgia.
Note 15 Regulatory Matters
The Company and the Bank are subject to various regulatory capital
requirements administered by 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 Companys financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Companys assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weighting and other factors.
Qualitative measures established by regulation to ensure capital
adequacy require the Company and the Bank 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 to average assets (as defined). Management believes, as of December
31, 1997, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1997, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as Well Capitalized.
To be categorized as Adequately Capitalized or Well Capitalized, the Bank must
maintain minimum total risk based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table below. There are no conditions or events
since that notification that management believes have changed the Companys
capital category. The actual capital amounts and rations are also presented
in the table below:
Minimum Regulatory Capital Guidelines for Banks
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
Total capital-risk-based
(to risk-weighted assets):
Bank $6,647 11.9% $4,459 * 8% $5,574 * 10%
Consolidated 7,073 12.6% 4,474 * 8% N/A * N/A
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $6,002 10.8% $2,229 * 4% $3,344 * 6%
Consolidated 6,428 11.5% 2,237 * 4% N/A N/A
Tier 1 capital-leverage
(to average assets):
Bank $6,002 11.1% $2,164 * 4% $2,705 * 5%
Consolidated 6,428 11.8% 2,172 * 4% N/A N/A
Minimum Regulatory Capital Guidelines for Banks
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
Total capital-risk-based
(to risk-weighted assets):
Bank $5,843 16.9% $2,758 * 8% $3,447 * 10%
Consolidated 6,276 18.1% 2,770 * 8% N/A N/A
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $5,412 15.7% $1,379 * 4% $2,068 * 6%
Consolidated 5,852 16.9% 1,385 * 4% N/A N/A
Tier 1 capital-leverage
(to average assets):
Bank $5,412 12.4% $1,746 * 4% $2,182 * 5%
Consolidated 5,852 13.4% 1,747 * 4% N/A N/A
Note 16 Dividends
The primary source of funds available to the Company to pay shareholder
dividends and other expenses is from the Bank. Bank regulatory authorities
impose restrictions on the amounts of dividends that may be declared by the
Bank. Further restrictions could result from a review by regulatory
authorities of the Banks capital adequacy. The amount of cash dividends
available from the Bank for payment in 1998 is $829,010 plus 1998 net earnings
of the Bank. At December 31, 1997, $5,180,742 of the Companys investment in
the Bank is restricted as to dividend payments from the Bank to the Company.
During 1997 and 1996, the Company did not pay cash dividends to its
shareholders.
Note 17 Parent Company Financial Information
This information should be read in conjunction with the other notes to
the consolidated financial statements.
Parent Company Balance Sheets
December 31,
Assets:
1997 1996
Cash $ 258,094 $ 269,568
Investment in Bank 5,995,856 5,405,942
Property equipment 181,957 183,838
Other assets 53,819 10,125
Total Assets $ 6,489,726 $ 5,869,473
Liabilities and Shareholders Equity:
Accounts payable $ 21,333 $ 23,216
Total Liabilities $ 21,333 $ 23,216
Common stock $ 600,000 $ 600,000
Paid-in-capital 5,418,801 5,372,407
Retained earnings 441,662 (119,995)
Unrealized gain on securities 7,930 (6,155)
Total Shareholders equity $ 6,468,393 $ 5,846,257
Total Liabilities and
Shareholders' equity $ 6,489,726 $ 5,869,473
Parent Company Statements of Income
Years Ended December 31,
Revenues:
1997 1996
Interest income $ 4,798 $ 11,896
Rental income 21,648 18,281
Total revenues $ 26,446 $ 30,177
Expenses:
Depreciation and amortization $ 4,581 $ 4,850
Other expenses 36,037 37,310
Total expenses $ 40,618 $ 42,160
Income before equity in undistributed
earnings of Bank $ (14,172) $ (11,983)
Equity in undistributed earnings
of Bank 575,829 253,181
Net income $ 561,657 $ 241,198
Parent Company Statements of Cash Flows
Years Ended December 31,
Cash flows from operating activities: 1997 1996
Net income $ 561,657 $ 241,198
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of the Bank (575,829) (253,181)
Depreciation and amortization 4,581 4,850
(Increase) in other assets (46,394) 4,999
(Decrease) in payables ( 1,883) 12,943
Net cash provided by operating activities $ (57,868) $ 10,809
Cash flows from investing activities:
Purchase of building $ - - $ (185,988)
Purchase of stock - - (700,000)
Net cash provided by financing activities $ - - $ (885,988)
Cash flows from financing activities:
Options, restricted stock $ 46,394 $ - -
Net cash used by financing activities $ 46,394 $ - -
Net (decrease) in cash and cash equivalents $ (11,474 $ (875,179)
Cash and cash equivalents, beginning of the year 269,568 1,144,747
Cash and cash equivalents, end of year $ 258,094 $ 269,568
Note 18 Subsequent Events
Subsequent to December 31, 1997, and prior to the date of this report,
the Company declared a two-for-one stock split to be effected in the form of a
100% stock dividend.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act
The directors and executive officers of the Company are as follows:
Name Position with Company
Charles A. Balfour Class I Director
Clifford S. Campbell, Jr. Class I Director
Stephen H. Cheney President, Chief Executive
Officer and Class I Director
Charles E. Hancock, M.D. Class II Director
Charles H. Hodges, III Executive Vice President and
Class II Director
Harold L. Jackson Class II Director
Charles W. McKinnon, Jr. Class III Director
Cochran A. Scott, Jr. Class III Director
Richard L. Singletary, Jr. Class III Director
Each of the above persons has been a director of the Company since
March 31, 1995. The Company has a classified Board of Directors whereby one-
third of the members will be elected each year at the Companys Annual Meeting
of Shareholders. Upon such election, each director of the Company will serve
for a term of three years. The Companys officers are appointed by the Board
of Directors and hold office at the will of the Board.
Charles A. Balfour, age 34, served as Vice President of Balfour
Pulpwood Company, Inc., a family-owned business, from 1989 to 1994 and since
1994, has served as President. From 1992 to January 1995, he served on the
Advisory Board of Directors of Trust Company Bank of South Georgia, N.A. He
is presently a member of the Balfour Foundation, which supports a wide array
of community and charitable organizations.
Clifford S. Campbell, Jr., age 69, has been retired since 1989. From
1969 to 1989, he was the Chairman, President and Chief Executive Officer of
C&S Bank of Thomas County and subsequently C&S National Bank - Thomasville.
For fifteen years prior to 1969, Mr. Campbell held numerous positions with
both Trust Company Bank of Georgia in Atlanta and the C&S Bank of Albany. Mr.
Campbell remains active in numerous civic affairs. He is currently a member
of the Board of Directors and past Chairman of Archbold Medical Center. He
also serves on the Boards of Thomasville Rotary Club, Thomas County Historical
Society and the Thomasville/Thomas County Chamber of Commerce, each of which
he is past President. Mr. Campbell also served as a member of the Thomasville
City Board of Education.
Stephen H. Cheney, age 40, has served as President of the Company
since its inception in March 1995. Mr. Cheney joined Trust Company Bank of
South Georgia, N.A. in February 1985, and from 1987 to January 1995, served as
President of the Thomasville Division. From 1981 to 1985, Mr. Cheney spent
two years with an accounting firm and two years in private business. In
addition to his profession, Mr. Cheney is presently a member of the
Thomasville Payroll Development Authority, the Industrial Development
Committee and Thomasville Team 2000. He is also immediate past Chairman of
the Thomasville/Thomas County Chamber of Commerce and former Vice Chairman of
the Thomasville Housing Authority.
Charles E. Hancock, M.D., age 38, is a Board Certified Orthopedic
Surgeon in private practice in Thomasville, Georgia at the Thomasville
Orthopedic Center where he has practiced since 1991 and he is currently a
managing partner. He is a member of The American Academy of Orthopedic
Surgeons. Dr. Hancock is also affiliated with the Archbold Medical Center and
the Medical Association of Georgia. He currently serves on the Board of the
Thomasville Rotary Club and the Thomasville Y.M.C.A.
Charles H. Hodges, III, age 33, has served as Executive Vice President
of the Company since its inception in January 1995. Mr. Hodges joined C&S
National Bank (now NationsBank) in Atlanta, Georgia in March 1986, and was
promoted to Credit Manager in the Factoring Division where he served until
July 1987. From July 1987 to January 1995, he served as Vice President of the
Thomasville Division of Trust Company Bank of South Georgia, N.A. In
addition, Mr. Hodges serves as treasurer and board member of several key
organizations, including United Way, Downtown Development Authority,
Thomasville Ducks Unlimited, Thomasville Mainstreet, and Thomasville Music and
Drama Troupe.
Harold L. Jackson, age 49, is the President and General Manager of
Petroleum Products, Inc., a distributor of fuel and oil products to retail,
industrial and agricultural customers throughout South Georgia. From 1992 to
January 1995, Mr. Jackson served as a member of the Advisory Board of
Directors of Trust Company Bank of South Georgia, N.A. He is also a member
and past President of the Thomasville Shriners Club and is a member of the
Masonic Lodge.
Charles W. McKinnon, Jr., age 63, is the Owner/Broker of First
Thomasville Realty, Ltd., one of the largest real estate companies in
Southwest Georgia. He has been actively involved in selling and developing
shopping centers, food stores, office buildings and warehouses. His civic and
professional leadership roles, past and present, include City Commissioner,
director of NationsBank, director of Industrial Development for City of
Thomasville, director of Thomasville/Thomas County Chamber of Commerce, member
of Georgia Development Council, lifetime membership in Thomasville Area
Boards Million Dollar Club, Real Estate Leaders of America, International
Council of Shopping Centers, National Association of Realtors, and Farm and
Land Institute.
Cochran A. Scott, Jr., age 42, has served as President of Scott
Hotels, Inc. since 1996 and from 1987 to 1995 was the President of C.A. Scott
Construction Co., a commercial contracting firm specializing in roofing
systems. Mr. Scott served on the Advisory Board of Directors of Trust Company
Bank of South Georgia, N.A. for six years until resigning in January 1995. He
is presently a member of the Board of Directors of the Thomasville/Thomas
County Chamber of Commerce and City of Thomasville Contractor Board.
Richard L. Singletary, Jr., age 38, joined First National Bank of
Atlanta in 1982 where he advanced to Commercial Loan Officer before leaving to
work for Sing Oil Company in 1985. After Sing Oil Company was sold to Amoco
Oil Company in 1990, he began developing residential and multi-family real
estate in Tallahassee, Florida. Today, he is the President of four
development companies. Mr. Singletary is also a member of the Thomasville
City Council, The Brookwood School Board of Directors, and is a former member
of the Advisory Board of Directors of Trust Company Bank of South Georgia,
N.A.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
The Company is not subject to the requirement of Section 16 of the
Securities Exchange Act of 1934, as amended.
Item 10. Executive Compensation
The following table provides certain summary information for the
fiscal years ended December 31, 1997, 1996 and 1995 concerning compensation
paid or accrued by the Company to or on behalf of the Companys Chief
Executive Officer. None of the other executive officers of the Company had
total annual salary and bonus which exceeded $100,000 during the last fiscal
year.
Summary Compensation Table
Annual Compensation Long Term Compensation
Restricted Number of
Name and Stock Options All Other
Principal Position Year Salary Bonus Awards Awards Comp(1)
Stephen H. Cheney 1997 $82,500 $25,500 $2,264(2)(3) -- $2,910
President and 1996 75,000 15,000 1,899(2)(4) -- 1,250
Chief Executive 1995 65,500 -- 450(2) 15,000 --
Officer
(1) Represents matching contributions under the Companys 401(k) plan.
(2) Represents earned but unissued shares of restricted stock granted at
various times during fiscal 1997, 1996 and 1995 pursuant to the
directors deferred compensation plan. Because there is no organized
trading market for the Companys Common Stock, the dollar value of the
restricted stock awarded in 1997 and 1996 was computed by reference to
the average book value of the Companys Common Stock during the
respective year and the dollar value of the restricted stock awarded
in 1995 was computed by reference to the offering price per share of
the Companys Common Stock in its initial public offering completed in
1995. See Compensation of Directors.
(3) During fiscal 1997, Mr. Cheney earned an aggregate of 210 shares of
restricted Common Stock pursuant to the directors deferred
compensation plan, the fair market value of which was $2,264 as of
December 31, 1997. Because there is no organized trading market for
the Companys Common Stock, fair market value was calculated by
reference to the book value of the Companys Common Stock as of
December 31, 1997. See Compensation of Directors.
(4) During fiscal 1996, Mr. Cheney earned an aggregate of 195 shares of
restricted Common Stock pursuant to the directors deferred
compensation plan, the fair market value of which was $1,899 as of
December 31, 1996. Because there is no organized trading market for
the Companys Common Stock, fair market value was calculated by
reference to the book value of the Companys Common Stock as of
December 31, 1996. See Compensation of Directors.
Employment Agreement
On March 7, 1995, the organizers of the Company entered into a three-
year Employment Agreement with Stephen H. Cheney, pursuant to which Mr. Cheney
will be paid an annual salary of $75,000, which will be increased to $85,000
per year by the Banks Board of Directors if the Bank becomes profitable on a
cumulative basis. The Employment Agreement provides that during its term, Mr.
Cheney will be entitled to an annual bonus of 5% of the Banks pretax profits
based on a formula determined by the Banks Board of Directors, such bonus not
to exceed 30% of his annual salary. The Employment Agreement provides for the
grant of stock options to acquire 15,000 shares of the Companys Common Stock
upon the Banks commencement of business at a purchase price equal to $10.00
per share. Such options will become exercisable at the rate of 3,000 shares
per year so long as Mr. Cheney remains employed by the Bank and shall remain
exercisable for ten years after the date of initial grant.
The Employment Agreement also provides that Mr. Cheney shall receive
the use of an automobile and such other benefits as the Company generally
makes available to its senior executives.
Mr. Cheney has agreed to a non-compete and non-solicitation provision,
pursuant to which he agrees that through the actual date of termination of the
Employment Agreement and for a period of five years thereafter, he shall not,
without the prior written consent of the Company, within Thomas County,
Georgia, be employed in the banking business in any capacity. Mr. Cheney has
also agreed that during such period, he will not, without the prior written
consent of the Bank, employ or attempt to employ any employees of the Bank or
cause an employee of the Bank to work elsewhere.
The Employment Agreement provides that the Company may terminate
Mr. Cheney for any reason upon majority vote of the Board of Directors of the
Company and the Bank.
On March 7, 1995, the organizers of the Company entered into a three-
year Employment Agreement with Charles H. Hodges, III, containing identical
provisions to the Employment Agreement entered into with Mr. Cheney, except
that Mr. Hodges annual salary is $65,000 per year, which will be increased to
$75,000 if the Bank becomes profitable on a cumulative basis. All the other
provisions of Mr. Hodges Employment Agreement are identical to Mr. Cheneys.
No other officers or directors of the Company have received any cash
compensation for services to the Company.
Compensation of Directors
In March 1996 the Board of Directors of the Company approved a
deferred compensation plan (the Directors Plan) for the Companys directors
calling for the issuance of restricted stock grants to directors to compensate
each director for each Board meeting and Committee meeting attended. The
Directors Plan provides that each director is deemed to have earned shares of
restricted stock in the amount of five shares of the Companys Common Stock
for each Bank and each Company Committee meeting attended and ten shares for
each Bank and each Company Board of Directors meeting attended. The shares of
restricted stock earned pursuant to the terms of the Directors Plan do not
vest and will not be granted until the earlier to occur of either the
retirement of the director from the Companys Board of Directors or a change
in control of the Company. One of the Companys directors has elected not to
participate in the Directors Plan and has elected to receive in lieu of
restricted stock $100 for each Bank and Company Board of Directors meeting
attended and $50 for each Bank and Company Committee meeting attended. During
fiscal 1997, an aggregate of 1,500 shares of restricted stock were earned
under the Directors Plan.
Stock Options
No stock options were granted to the Chief Executive Officer during
the fiscal year ended December 31, 1997. The following table presents
information regarding the value of unexercised options held at December 31,
1997 by Stephen H. Cheney. No stock options were exercised and there were no
SARs outstanding during fiscal 1997.
Number of
Unexercised Options Value of Unexercised
at FY-End In-the-Money Options
Name (#) at FY-End
Exercisable/ Exercisable (1)/
Unexercisable Unexercisable
Stephen H. Cheney 9,000/6,000 $7,020/$4,680
____________________
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Companys Common Stock at December 31,
1997 ($10.78) and the exercise price of such options. Because no organized
trading market exists for the Common Stock of the Company, the fair market
value was computed by reference to the book value of the Common Stock as of
December 31, 1997.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of December 31,
1997 with respect to ownership of the outstanding Common Stock of the Company
by (i) all persons known by the Company to beneficially own more than 5% of
the outstanding shares of Common Stock of the Company, (ii) each director of
the Company, and (iii) all executive officers and directors of the Company as
a group.
Name of Number of Percent of
Beneficial Owner Shares(1) Total
Charles A. Balfour 10,000 (2) 1.7%
Clifford S. Campbell, Jr. 1,150 (3) *
Stephen H. Cheney 26,013 (4) 4.3%
Charles E. Hancock, M.D. 10,000 1.7%
Charles H. Hodges, III 15,861(5) 2.6%
Harold L. Jackson 10,000 1.7%
Charles W. McKinnon, Jr. 10,000 (6) 1.7%
Cochran A. Scott, Jr. 15,650 (7) 2.3%
Richard L. Singletary, Jr. 40,200 (8) 6.7%
All Directors and
Officers as a Total (9 persons) 137,479 22.5%
* Less than 1% of shares outstanding.
_______________
(1) Except as otherwise indicated, each person named in this table
possesses sole voting and investment power with respect to the shares
beneficially owned by such person. Beneficial Ownership includes shares for
which an individual, directly or indirectly, has or shares voting or investment
power or both and also includes options which are exercisable within sixty
days of the date hereof. Beneficial ownership as reported in the above
table has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934. The percentages are based upon 600,000 shares
outstanding, except for certain parties who hold presently exercisable
options to purchase shares. The percentages for those parties who hold
presently exercisable options are based upon the sum of 600,000 shares plus
the number of shares subject to presently exercisable options held by them,
as indicated in the following notes.
(2) Includes 2,000 shares held by Mr. Balfour as custodian for his children.
(3) Represents shares held in Mr. Campbell's individual retirement account.
(4) Includes 6,000 shares subject to presently exercisable stock options,
2,952 shares held in Mr. Cheney's individual retirement account, 361 shares
held in Mr. Cheneys wifes individual retirement account and 15,000 shares
held in Mr. Cheneys fathers individual retirement account for the benefit
of Mr. Cheney.
(5) Includes 6,000 shares subject to presently exercisable stock options,
5,044 shares held in Mr. Hodges' individual retirement account, 827 shares
held by Mr. Hodges as custodian for his children and 2,900 shares owned
jointly with his wife.
(6) Includes 6,100 shares held in Mr. McKinnon's individual retirement
account.
(7) Includes 10,650 shares held by Mr. Scott as custodian for his children
and 5,000 shares held in Mr. Scotts individual retirement account.
(8) Includes 2,623 shares held in Mr. Singletarys individual retirement
account, 3,900 shares held as custodian for his children, 5,000 shares
owned by Mr. Singletarys wife and 4,743 shares held in Mr. Singletarys
wifes individual retirement account. Mr. Singletarys address is 102
Chukkars Drive, Thomasville, Georgia 31792.
Item 12. Certain Relationships and Related Transactions
The Bank extends loans from time to time to certain of the Companys
directors, their associates and members of the immediate families of the
directors and executive officers of the Company. These loans are be made in
the ordinary course of business on substantially the same terms, including
interest rates, collateral and repayment terms, as those prevailing at the
time for comparable transactions with persons not affiliated with the Company
or the Bank, and do not involve more than the normal risk of collectibility or
present other unfavorable features.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with or incorporated
by reference into this report. The exhibits which are denominated by an
asterisk (*) were previously filed as a part of, and are hereby incorporated
by reference from a Registration Statement on Form SB-2 under the Securities
Act of 1933 for the Company, Registration Number 33-91536 (referred to as SB-
2). The exhibit numbers correspond to the exhibit numbers in the referenced
document.
Exhibit No. Description of Exhibit
*3.1 - Articles of Incorporation of the Company (SB-2)
*3.2 - Bylaws of the Company (SB-2)
*10.1 - Employment Agreement dated March 7, 1995 between the
Company and Stephen H. Cheney (SB-2)
*10.2 - Employment Agreement dated March 7, 1995 between the
Company and Charles H. Hodges, III (SB-2)
*10.3 - Purchase Agreement dated February 3, 1995 between
Carlos G. Gay, on the one hand, and Stephen H. Cheney
and Charles H. Hodges, III, on the other, for the
property located 301 North Broad Street, Thomasville,
Georgia (SB-2)
*10.4 - Amendment, dated May 11, 1995, to Purchase Agreement
dated February 3, 1995 between Carlos G. Gay, on the
one hand, and Stephen H. Cheney and Charles H. Hodges,
III, on the other, for the property located at 301
North Broad Street, Thomasville, Georgia (SB-2)
21.1 - Subsidiaries of the Registrant
27.1 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were required to be
filed for the fourth quarter of 1996.
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.
THOMASVILLE BANCSHARES, INC.
Dated: March 30, 1998 By: /s/ Stephen H. Cheney
Stephen H. Cheney
President and Chief Executive Officer
(Principal Executive and
Accounting Officer)
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 and on the dates indicated:
Signature
Title
Date
/s/ Stephen H. Cheney
Stephen H. Cheney President and Chief March 30, 1998
Executive Officer
(Principal Executive
and Accounting
Officer) and Director
/s/ Charles H. Hodges, III
Charles H. Hodges, III Executive Vice March 30, 1998
President and
Director
/s/ Charles A. Balfour
Charles A. Balfour Director March 25, 1998
/s/ Clifford S. Campbell, Jr.
Clifford S. Campbell, Jr. Director March 30, 1998
/s/ Charles E. Hancock, M.D.
Charles E. Hancock, M.D. Director March 30, 1998
/s/ Harold L. Jackson
Harold L. Jackson Director March 30, 1998
/s/ Charles W. McKinnon, Jr.
Charles W. McKinnon, Jr. Director March 30, 1998
/s/ Cochran A. Scott, Jr.
Cochran A. Scott, Jr. Director March 30, 1998
/s/ Richard L. Singletary,
Jr.
Richard L. Singletary, Jr. Director March 30, 1998
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as
of the date of filing this report. An annual report and proxy materials will
be furnished to security holders subsequent to the filing of this Annual
Report on Form 10-KSB, and the Registrant will furnish copies of such material
to the Commission when they are sent to security holders.
EXHIBIT INDEX
Exhibit
No Description Page
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Thomasville National Bank, a national bank organized under the laws of
the United States.
Exhibit 27.1
Financial Data Schedule Submitted Under Item 601(a)(27) of Regulation S-B
This schedule contains summary financial information extracted from
Thomasville
Bancshares, Inc. unaudited consolidated financial statements for the period
ended December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
Item Number Item Description Amount
9-03(1) Cash and due from banks $ 2,447,683
9-03(2) Interest bearing deposits 0
9-03(3) Federal funds sold - purchased
securities for sale 1,582,269
9-03(4) Trading account assets 0
9-03(6) Investment and mortgage backed
securities held for sale 4,194,219
9-03(6) Investment and mortgage backed
securities held to maturity -
carrying value 0
9-03(6) Investment and mortgage backed
securities held to maturity -
market value 0
9-03(7) Loans 54,111,826
9-03(7)(2) Allowance for losses 644,913
9-03(11) Total assets 64,894,489
9-03(12) Deposits 58,002,412
9-03(13) Short-term borrowings 0
9-03(15) Other liabilities 423,684
9-03(16) Long-term debt 0
9-03(19) Preferred stock -
mandatory redemption 0
9-03(20) Preferred stock -
no mandatory redemption 0
9-03(21) Common stocks 600,000
9-03(22) Other stockholders' equity 5,868,393
9-03(23) Total liabilities and
stockholders' equity 64,894,489
9-04(1) Interest and fees on loans 4,175,214
9-04(2) Interest and dividends
on investments 394,375
9-04(4) Other interest income 0
9-04(5) Total interest income 4,569,589
9-04(6) Interest on deposits 2,022,147
9-04(9) Total interest expense 2,039,655
9-04(10) Net interest income 2,529,934
9-04(11) Provision for loan losses 225,000
9-04(13)(h) Investment securities gains/losses 0
9-04(14) Other expenses 1,720,027
9-04(15) Income/loss before income tax 967,663
9-04(17) Income/loss before
extraordinary items 967,663
9-04(18) Extraordinary items, less tax 0
9-04(19) Cumulative change in
accounting principles 0
9-04(20) Net income or loss 561,657
9-04(21) Earnings per share - primary .94
9-04(21) Earnings per share - fully diluted .92
I.B.5. Net yield - interest earning
assets - actual 5.01%
III.C.1(a) Loans on non-accrual 0
III.C.1(b) Accruing loans past due
90 days or more 0
III.C.1(c) Troubled debt restructuring 0
III.C.2. Potential problem loans 680,000
IV.A.1 Allowance for loan losses -
beginning of period 447,626
IV.A.2 Total chargeoffs 31,005
IV.A.3 Total recoveries 3,292
IV.A.4 Allowance for loan losses -
end of period 644,913
IV.B.1 Loan loss allowance allocated to
domestic loans 616,000
IV.B.2 Loan loss allowance allocated to
foreign loans 0
IV.B.3 Loan loss allowance - unallocated 28,913
