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PROSPECTUS Registration No. 333-58545
Filed Pursuant to Rule 424(b)(3)
150,000 SHARES
COMMON STOCK
THOMASVILLE BANCSHARES, INC.
A BANK HOLDING COMPANY FOR
THOMASVILLE NATIONAL BANK
Thomasville Bancshares, Inc., a Georgia corporation (the "Company"),
hereby offers for sale 150,000 shares of its common stock, $1.00 par value per
share (the "Common Stock"), at an offering price of $15.00 per share (the
"Offering"). The shares are offered on an "any and all" basis, with a required
100 share minimum and a 1,000 share maximum per investor, by certain directors
and executive officers of the Company, who will receive no commissions for such
sales. By offering the shares on an "any and all" basis, after deducting
offering expenses, the Company will receive all of the proceeds from the
Offering. See "USE OF PROCEEDS." There are no escrow arrangements with respect
to the Offering. The Company may extend the Offering for three consecutive
90-day periods without notice to subscribers. Subscriptions obtained in the
Offering may be accepted or rejected in whole or in part by the Company for any
reason. Once a subscription has been accepted by the Company it may not be
withdrawn for any reason. Subscription funds paid to the Company will be
immediately available for use by the Company. See "TERMS OF THE OFFERING."
Prior to the Offering, there has been no established public market for
the Common Stock, and there can be no assurance that an established market for
such stock will develop. There are, however, occasional transactions in the
Common Stock as a result of private negotiations. The Company presently does not
intend to seek to list the Common Stock on a national securities exchange or to
qualify such Common Stock for quotation on the Nasdaq Stock Market. INVESTMENT
IN THE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2
FOR INFORMATION THAT SHOULD BE CONSIDERED BY EACH PROSPECTIVE INVESTOR.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE OFFERING WILL BE MADE ON AN "ANY AND ALL" BASIS, WITH NO MINIMUM OFFERING
CONDITIONS AND NO ESCROW ARRANGEMENTS.
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<CAPTION>
===================================================================================================================================
Price Underwriting
to Discounts and Proceeds to
Public Commissions(1) the Company(2)
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<S> <C> <C> <C>
Per Share(3)......................................... $15.00 $ 0 $15.00
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Total Minimum........................................ $0 $ 0 $ 0
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Total Maximum........................................ $2,250,000 $ 0 $2,250,000
===================================================================================================================================
</TABLE>
(1) The securities offered hereby will be sold on an "any and all" basis,
with a required 100 share minimum and a 1,000 share maximum per investor, by
certain directors and executive officers of the Company and no commissions
will be paid on such sales. See "TERMS OF THE OFFERING."
(2) Before deducting offering expenses, estimated to be $30,413 including
registration fees, legal and accounting fees, printing and other
miscellaneous expenses. See "USE OF PROCEEDS."
(3) Prior to the Offering, there has been no established market for the shares
of the Company's Common Stock. The offering price was arbitrarily determined
by the Board of Directors of the Company and does not bear any relationship
to the Company's assets, book value, net worth or any other recognized
criteria of value. In the event a market should develop for the Common Stock
after completion of the Offering, there can be no assurance that the market
price will equal or exceed the offering price herein.
The Company reserves the unqualified right to terminate the Offering to
the public at any time during its pendency for any reason whatsoever.
The date of this Prospectus is August 5, 1998.
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TABLE OF CONTENTS
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PAGE
<S> <C>
Prospectus Summary.................................................................................. 1
Risk Factors........................................................................................ 2
The Company......................................................................................... 5
Terms of the Offering............................................................................... 6
Use of Proceeds..................................................................................... 7
Market Price of and Dividends on Common Stock....................................................... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 8
Business of the Company............................................................................. 17
Business of the Bank................................................................................ 17
Supervision and Regulation.......................................................................... 32
Management.......................................................................................... 37
Security Ownership of Certain Beneficial Owners and Management...................................... 42
Certain Transactions................................................................................ 43
Description of Capital Stock........................................................................ 43
Legal Proceedings................................................................................... 45
Legal Matters....................................................................................... 45
Experts............................................................................................. 46
Additional Information.............................................................................. 46
Index to Financial Statements....................................................................... F-1
</TABLE>
Appendix A - Subscription Materials
NO DEALER, SALESMAN, ORGANIZER OF THE COMPANY OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON
STOCK TO WHICH IT RELATES, OR ANY OFFER OF SUCH SHARES OF COMMON STOCK TO ANY
PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED HEREIN OR THE DATE HEREOF. HOWEVER, DURING THE PERIOD
IN WHICH OFFERS OR SALES ARE BEING MADE HEREUNDER, THE COMPANY IS REQUIRED TO
UPDATE THE PROSPECTUS TO REFLECT ANY FACTS OR EVENTS ARISING AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WHICH REPRESENT A FUNDAMENTAL CHANGE IN THE INFORMATION SET FORTH IN
THE REGISTRATION STATEMENT.
UNTIL NOVEMBER 3, 1998 (90 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The Company intends to furnish its shareholders annual reports
containing audited financial statements.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read
in conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus.
THE COMPANY
Thomasville Bancshares, Inc. (the "Company") was organized 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 intends to
use the net proceeds of the Offering to support the growth of the Bank and to
fund expansion of banking facilities and for other general corporate purposes.
There are no escrow arrangements with respect to the Offering. Subscriptions
obtained in the Offering may be accepted or rejected in whole or in part by the
Company for any reason. Once a subscription has been accepted by the Company, it
may not be withdrawn. The Bank is located in Thomasville, Thomas County,
Georgia. The Company's mailing address is 301 North Broad Street, Thomasville,
Georgia 31792 and its telephone number is (912) 226-3300.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................ 150,000 shares
Common Stock to be Outstanding
after the Offering.................. 1,350,000 shares(1)(2)
Price............................... $15.00 per share
Expiration of the Offering.............. This Offering shall expire at 5:00 p.m. Eastern Time on
November 3, 1998 but may be extended for up to three
consecutive 90-day periods. See "TERMS OF THE
OFFERING."
Special Factors to be Considered The securities offered hereby may be deemed to be
speculative and involve certain risks. See "RISK
FACTORS."
</TABLE>
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(1) Prior to the Offering, there has been no established market for the
shares of the Common Stock and there can be no assurance that an
established public market will develop. There are, however, occasional
transactions in the Common Stock as a result of private negotiations.
See "RISK FACTORS."
(2) This number is estimated based on the sale of 100% of the Common Stock
offered. Because no minimum is required, the Common Stock outstanding
following the Offering could range from 1,200,000 shares, if no offers
are accepted, to 1,350,000, if 100% of the offers are accepted.
USE OF PROCEEDS
The proceeds of the Offering shall be used to support the growth of the
Bank and to fund expansion of banking facilities, to pay expenses incurred in
connection with the Offering, and for other corporate purposes. See "USE OF
PROCEEDS."
<PAGE> 4
RISK FACTORS
Certain statements contained or incorporated by reference in this
Prospectus are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements relating to
financial results, plans for future business development activities, capital
spending or financing sources, capital structure and the effects of regulation
and competition and are thus prospective. Such forward looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, competition and other uncertainties set
forth in this Prospectus, and particularly in this "Risk Factors" Section, as
well as risks and uncertainties detailed from time to time in the Company's
filings with the U.S. Securities and Exchange Commission (the "SEC").
INTENSE COMPETITION
With the exception that it has no trust powers, the Bank is a full
service commercial bank in Thomasville, Thomas County, Georgia. Competition
among financial institutions in the Bank's market area is intense and the Bank
competes with other state and national banks, savings and loan associations,
consumer financial companies, credit unions, money market mutual funds, and
other financial institutions which have far greater financial resources than
those available to the Bank. The Bank's size may impact its ability to compete
effectively with larger institutions in offering other services. If the Bank is
unable to compete for deposits effectively in its primary service area, such
inability would likely have an adverse effect on the Bank's potential for growth
and profitability.
NO ESTABLISHED PUBLIC MARKET
Presently, there is no established market for the Common Stock. There
can be no assurance that an established public market will develop for such
securities upon completion of the Offering or whether substantial trading
activity will occur for several years, if at all. As a result, investors who may
need or wish to dispose of all or part of their investment in the Common Stock
may not be able to do so except by private, direct negotiations with third
parties. Furthermore, it is unlikely that an established public market will
develop for such securities upon completion of the Offering because the Company
does not presently intend to seek to list the Common Stock on a national
securities exchange or to qualify such Common Stock for inclusion on the Nasdaq
Stock Market.
SUBSCRIPTION FUNDS ARE NON-REFUNDABLE
Once a subscription has been accepted by the Company it may not be
withdrawn. Because the Offering is being made on an "any and all" basis with no
minimum, an investor who has subscribed to purchase Common Stock may not
withdraw the subscription upon acceptance by the Company even if no other shares
of Common Stock are sold in the Offering.
ARBITRARY DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no established market for the
shares of the Common Stock. The offering price of $15.00 per share was
arbitrarily determined by the Board of Directors of the Company, and does not
bear any direct relationship to the Company's assets, book value, net worth or
other recognized criteria of value. In determining the offering price of the
Common Stock, past isolated
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sales transactions in the Common Stock, the Company's growth and future
prospects, and general market conditions for the sale of such securities were
considered. See "TERMS OF THE OFFERING." In the event an established public
market should develop for the Common Stock after completion of the Offering,
there can be no assurance that the market price will equal or exceed the
offering price herein.
ABSENCE OF PREEMPTIVE RIGHTS
No holder of the Common Stock has preemptive rights with respect to the
issuance of shares of that or any other class of Common Stock, and no holder of
the Common Stock is entitled to cumulative voting rights with respect to the
election of directors. The authorized Common Stock consists of 10,000,000 shares
of Common Stock, $1.00 par value per share. The Company's Board of Directors
could from time to time determine to issue additional shares of the authorized
Common Stock of the Company in addition to the shares offered hereby and, in
such event, the ownership interest of the subscribers in the Offering would be
diluted. See "DESCRIPTION OF CAPITAL STOCK."
UNPREDICTABLE ECONOMIC CONDITIONS
Commercial banks and other financial institutions are affected by
economic and political conditions, both domestic and international, and by
governmental monetary policies. Conditions such as inflation, recession,
unemployment, high interest rates, short money supply, scarce natural resources,
international disorders and other factors beyond the control of the Company may
adversely affect its profitability.
GOVERNMENT REGULATION AND LEGISLATION
The Company and the Bank operate in a highly regulated environment and
are subject to supervision by several governmental regulatory agencies,
including the Board of Governors of the Federal Reserve (the "Federal Reserve
Board"), the Office of the Comptroller of the Currency (the "OCC"), the Federal
Deposit Insurance Corporation (the "FDIC"), the Georgia Department of Banking
and Finance (the "Georgia Banking Department") and the Securities and Exchange
Commission (the "SEC"). The Company and the Bank are vulnerable to future
legislation and government policy, including bank deregulation and interstate
expansion, which could severely affect the banking industry as a whole including
the operations of the Company. See "SUPERVISION AND REGULATION."
NO FIRM UNDERWRITING OF THE OFFERING; ABILITY TO EXTEND OFFERING
The Offering is being made without the benefit of a "firm"
underwriting. Sales will be solicited on a "best efforts" basis by certain
directors and executive officers of the Company. Accordingly, there can be no
assurance that any of the securities offered hereby will be sold. The Company
may extend the Offering, without notice to subscribers, for three successive
periods of 90 days.
DIVIDENDS
The Company has never paid a cash dividend to its shareholders and has
no present plans to do so. Georgia law restricts the Company's payment of
dividends if, after such payment, the Company would be unable to meet its
obligations as they mature or the Company's liabilities would exceed its assets.
The Company's ability to pay dividends is dependent upon the Bank's ability to
provide funds to the Company through the payment of dividends. As a national
bank, the Bank is restricted in its
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<PAGE> 6
ability to pay dividends under the national banking laws and regulations of the
OCC. A dividend from the Company's banking subsidiary is its only source of cash
in which to distribute dividends to the Company's shareholders. Future dividend
policy will depend on the Bank's earnings, capital requirements, financial
condition and other factors considered relevant by the Company's Board of
Directors. See "DIVIDEND POLICY."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation contain provisions requiring
supermajority shareholder approval to effect certain extraordinary corporate
transactions which are not approved by the Board of Directors. The effect of
these provisions is to make it more difficult to effect a merger, sale of
control, or other similar transaction involving the Company even though a
majority of the Company's shareholders may vote in favor of such transaction. In
addition, the Company's Articles of Incorporation provide for a classified Board
of Directors, whereby one-third of the members of the Board of Directors shall
be elected each year and each director of the Company will serve for a term of
three years. The effect of these provisions is to make it more difficult to
effect a change in control of the Company through the acquisition of a large
block of the Company's Common Stock. The State of Georgia has statutory
provisions relating to business combinations with so-called "interested
shareholders" but these provisions are inapplicable to the Company because the
Company has elected not to be governed by these provisions in its bylaws. See
"DESCRIPTION OF COMMON STOCK."
INTEREST RATE SENSITIVITY
Interest-earning assets and interest-bearing liabilities may be
sensitive to changes in interest rates. A bank which has a greater amount of
interest-sensitive liabilities than interest-sensitive assets that either
reprice or mature in a given time interval is considered to be in a "negative
gap" position. The Bank will be in a negative gap position for the next twelve
months and in a positive gap position thereafter.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Results of Operations -- Liquidity & Interest Rate Sensitivity."
DEPENDENCE UPON KEY MANAGEMENT
The success of the Company's and its banking subsidiary's operations is
substantially dependent on the banking and management expertise of Stephen H.
Cheney, President and Chief Executive Officer of the Company and the Bank and
Charles H. Hodges, III, Executive Vice President of the Company and the Bank.
The death, disability or resignation of Mr. Cheney or Mr. Hodges may have a
material adverse impact on the Company and its future operations. The Company
presently does not have a "key man" insurance policy on Mr. Cheney or Mr.
Hodges. The Company has entered into employment agreements with Mr. Cheney and
Mr. Hodges. See "MANAGEMENT--Employment Agreements."
YEAR 2000
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
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<PAGE> 7
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.
THE COMPANY
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 stock split increased the number of
outstanding shares of Common Stock from 600,000 to 1,200,000.
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 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.
The Company serves as a registered bank holding company under the
federal Bank Holding Company Act of 1956, as amended. The current mailing
address of the Company is 301 North Broad Street, Thomasville, Georgia 31792,
and its telephone number is (912) 226-3300.
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TERMS OF THE OFFERING
GENERAL
The Company is offering hereunder 150,000 shares of its Common Stock
for cash at a price of $15.00 per share (the "Offering"). A minimum subscription
of 100 shares is required for each subscription hereunder. Investors may
subscribe to a maximum of 1,000 shares pursuant to the Offering. The minimum and
maximum subscription amounts may be waived by the Company in its sole
discretion. The purchase price of $15.00 per share shall be paid in full upon
execution and delivery of the Subscription Agreement attached hereto as Appendix
A. Subscription funds paid to the Company will be immediately available for use
by the Company. All subscriptions tendered by investors are subject to
acceptance by the Board of Directors of the Company, and the Company reserves
the absolute and unqualified right to reject or reduce any subscription for any
reason prior to acceptance. Once a subscription has been accepted by the
Company, it may not be withdrawn for any reason. Furthermore, the Company
reserves the unqualified right to terminate this offering at any time during its
pendency for any reason whatsoever.
Prior to the Offering there has been no established public market for
the shares of the Common Stock and there can be no assurance that an established
market for such stock will develop. There are, however, occasional transactions
in the Common Stock as a result of private negotiations. The offering price has
been arbitrarily determined and is not a reflection of the Company's book value,
net worth or any other such recognized criteria of value. In determining the
offering price of the Common Stock, past isolated transactions in the Common
Stock, the Company's growth and future prospects and general market conditions
for the sale of such securities were considered. There can be no assurance that,
if a market should develop for the Common Stock, the post-offering market price
will equal or exceed the offering price.
CONDITIONS OF THE OFFERING
The Offering will expire at 5:00 p.m. Eastern Time, on November 3, 1998
(the "Expiration Date"), unless such date is extended by the Company. The
Expiration Date may be extended by the Company without notice to subscribers for
up to three consecutive 90-day periods, or not later than August 5, 1999.
PLAN OF DISTRIBUTION
The Company may terminate the Offering for any reason at any time
during its pendency for any reason whatsoever.
Shares of the Common Stock will be marketed on an "any and all" basis,
with a required 100 share minimum and a 1,000 share maximum per investor,
exclusively through certain directors and executive officers of the Company,
none of whom will receive any commissions or other form of remuneration based on
the sale of the shares.
As soon as practicable, but no more than five business days after
receipt of a subscription, the Company will accept or reject such subscription.
Subscriptions not accepted by the Company within this five day period shall be
deemed rejected. Once a subscription is accepted by the Company, it cannot be
withdrawn by the subscriber.
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Subscriptions to purchase shares of Common Stock can be made by
completing the Subscription Agreement attached to this Prospectus and delivering
the same to the Company at 301 North Broad Street, Thomasville, Georgia 31792.
Full payment of the purchase price must accompany the subscription. Failure to
pay the full subscription price shall entitle the Company to disregard the
subscription. No Subscription Agreement is binding until accepted by the
Company, which may, in its sole discretion, refuse to accept any subscription
for shares, in whole or in part, for any reason whatsoever. Unless otherwise
agreed by the Company, all subscription amounts must be paid in United States
currency by check, bank draft or money order payable to "Thomasville Bancshares,
Inc." A subscription will be accepted in writing by the Company in the Form of
Acceptance attached to this Prospectus.
USE OF PROCEEDS
The gross proceeds from the sale of shares of Common Stock offered by
the Company are estimated to be $2,250,000, assuming the sale of 150,000 shares.
As the Offering is being made on an "any and all" basis, however, the net
proceeds to the Company will be reduced to the extent that any of the shares of
Common Stock being offered hereby remain unsold upon the completion of the
Offering.
Management and the Board of Directors have been analyzing the Company's
present operations and anticipated future operations to determine the most
effective strategy in accommodating anticipated future growth. Based upon this
analysis and other relevant factors, including but not limited to the prevailing
economic climate in the Bank's market area, management and the Board of
Directors are reviewing expansion opportunities, including the construction of
new branches. The Bank plans to open a branch facility in Thomasville by
September 1998 (the "Branch"). The Bank has purchased a parcel of land to be
used a site for the Branch and construction is underway. See "BUSINESS OF THE
BANK--Facilities." Management also continues to evaluate potential opportunities
to acquire other financial institutions or to acquire additional branch sites
for expansion.
Because there are no minimum offering conditions in connection with the
Offering and the shares are being sold on an "any and all" basis, there can be
no assurance that all the shares offered hereby will be sold. However, the
Company intends to use the net proceeds of the Offering to support the Company's
growth and expansion, including the planned opening of a branch facility as
described in the foregoing paragraph. The Company will pursue its plans for
growth and expansion only in accordance with all applicable laws and regulations
governing the operations of the Company and the Bank.
Except for the planned opening of the Branch, there are currently no
specific plans, arrangements or agreements between the Company and any other
person in connection with the acquisition or construction of additional banking
facilities or the acquisition of other financial institutions.
Pending application of the net proceeds as described above, the Company
intends to invest the proceeds in U.S. government securities, certificates of
deposit or other high grade, short term, interest-bearing securities.
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MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
There is currently no established public trading market for the Common
Stock. As of July 31, 1998, the approximate number of holders of record of the
Common Stock was 463.
To date, the Company has not paid any cash dividends on the Common
Stock. It will be the policy of the Board of Directors of the Company to
continue 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 Bank's 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 OCC. Pursuant to 12 U.S.C. ss.
56, a national bank may not pay dividends from its capital. In addition, no
dividends may be made in an amount greater than a national bank's undivided
profits, subject to other applicable provisions of law. Payments of dividends
out of undivided profits is further limited by 12 U.S.C. ss. 60(a), which
prohibits a bank from declaring a dividend on its shares of common stock until
its surplus equals its common capital, unless there has been transferred to
surplus not less than one-tenth 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. ss. 60(b), the approval of the OCC 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 or a fund for the retirement of
any preferred stock.
In December 1990, the OCC promulgated regulations concerning the level
of allowable dividend payments by national banks. The intended effect of these
regulations was to make the calculation of national banks' dividend-paying
capacity consistent with generally accepted accounting principles (GAAP). In
this regard, the allowance for loan and lease losses is not considered an
element of either "undivided profits then on hand" or "net profits." Further, a
national bank may be able to use a portion of its capital surplus account as
"undivided profits then on hand," depending on the composition of that account.
In addition, the OCC's regulations clarify that dividends on preferred stock are
not subject to the limitations of 12 U.S.C. ss. 56, while explicitly making such
dividends subject to the constraints of 12 U.S.C. ss. 60. The regulations do not
diminish or impair a well-capitalized bank's ability to make cash payments to
its shareholders in the form of a return of capital.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's and the Bank's financial
condition and results of operations should be read in conjunction with the
Company's and the Bank's financial statements, related notes and statistical
information included elsewhere herein.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total consolidated assets increased by $6.6 million to $71.5 million
during the three-month period ended March 31, 1998. The increase was generated
through a $6.1 million increase in deposits, and
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<PAGE> 11
$300,000 and $200,000 increases in payables and retained profits, respectively.
The funds were used to increase loans by $5.8 million, cash and cash equivalents
by $600,000 and other assets by $200,000.
Results of Operations
Net income for the three-month period ended March 31, 1998 amounted to
$213,281, or $.17 per diluted share. These results compare favorably to the
March 31, 1997 net income of $98,128, or $.08 per diluted share. The primary
reasons for the increase in net income are discussed below.
Average total earning assets increased from $41.6 million at March 31,
1997 to $63.3 million at March 31, 1998. The net increase of $21.7 million
represents a 52.2% increase over a twelve-month period. There can be no
assurances, however, that this level of growth can be maintained.
As a consequence to the increase in earning assets, interest income,
the most significant of all revenue items, increased from $903,250 for the
three-month period ended March 31, 1997 to $1,417,512 for the three-month period
ended March 31, 1998. The increase of $514,262 represents a 56.9% increase over
a twelve-month period. Again, there can be no assurances that the Company can
continue to maintain this level of growth.
Net interest income represents the difference between interest received
on interest-earning assets and interest paid on interest-bearing liabilities.
The following presents, in a tabular form, the main components of
interest-earning assets and interest-bearing liabilities for the three-month
period ended March 31, 1998.
<TABLE>
<CAPTION>
Interest
Earning Assets/ Average Interest Yield/
Bearing Liabilities Balance income/Cost Cost
------------------- ------- ----------- ----
<S> <C> <C> <C>
Federal funds sold $ 1,753,485 $ 23,109 5.27%
Securities 4,207,180 57,422 5.46%
Loans 57,317,141 1,336,981 9.33%
----------- ---------- ----
Total $63,277,806 $1,417,512 8.96%
----------- ---------- ----
Deposits and borrowings $61,167,973 $ 652,667 4.27%
----------- ---------- ----
Net interest income $ 764,845
==========
Net yield on earning assets 4.83%
====
</TABLE>
Net interest income increased from $505,566 for the three-month period
ended March 31, 1997 to $764,845 for the three-month period ended March 31,
1998, a net increase of $259,279, or 51.3%.
Other income increased from $77,042 for the three-month period ended
March 31, 1997 to $110,145 for the three-month period ended March 31, 1998. This
increase is primarily due to the increase in the volume of transaction accounts.
Other income as a percentage of total assets, however, decreased from .63% for
the three-month period ended March 31, 1997 to .62% for the three-month period
ended March 31, 1998.
-9-
<PAGE> 12
Total operating expenses increased from $375,980 for the three-month
period ended March 31, 1997 to $457,109 for the three-month period ended March
31, 1998. Despite the increase, however, total operating expenses as a percent
of total assets declined from 3.07% to 2.56% over the one year span from March
31, 1997 to March 31, 1998. The decline in the above ratio is an indication of
an increased efficiency attained largely due to economies of scale.
At December 31, 1997, the allowance for loan losses amounted to
$644,913. By March 31, 1998, the allowance had grown to $690,596. Despite the
increase, however, the allowance for loan losses, as a percentage of gross
loans, declined from 1.19% to 1.15% during the three-month period ended March
31, 1998. Management considers the allowance for loan losses to be adequate and
sufficient 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 Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customer. The March
31, 1998 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $4.7 million, representing 6.5% of
total assets. Investment securities, which amounted to $4.2 million or 5.9% of
total assets, provide a secondary source of liquidity because they can be
converted into cash in a timely manner. In addition, the Company's ability to
maintain and expand its deposit base and borrowing capabilities are a source of
liquidity. For the three-month period ended March 31, 1998, total deposits
increased from $58.0 million to $64.1 million, representing an annualized
increase of 42.1%. There are no assurances, however, that this level of growth
can be maintained. The Company's management closely monitors and maintains
appropriate levels of interest-earning assets and interest-bearing liabilities
so that maturities of assets are such that adequate funds are provided to meet
customer withdrawals and loan demand. There are no trends, demands, commitments,
events or uncertainties that will result in or are reasonably likely to result
in the Company's liquidity increasing or decreasing in any material way.
The Bank maintains an adequate level of capitalization as measured by
the following capital ratios and the respective minimum capital requirements by
the Bank's primary regulator, the OCC.
<TABLE>
<CAPTION>
Bank's Minimum required
March 31, 1998 by regulator
-------------- -----------------
<S> <C> <C>
Leverage ratio 9.1% 4.0%
Risk weighted ratio 11.6% 8.0%
</TABLE>
As evidenced above, the Bank's capital ratios are well above the OCC's
required minimums.
Recent Developments
On February 28, 1998, the Company declared a two-for-one stock split to
be effected in the form of a 100% common stock dividend. The new shares were
distributed to shareholders of record as of the close of business on January 31,
1998. The stock split increased the number of outstanding shares of
-10-
<PAGE> 13
Common Stock from 600,000 to 1,200,000. All earnings per share amounts have been
restated to reflect the above stock split.
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 Bank's 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 Bank's 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, or $.20 per share, in 1996 to
$561,657, or $.46 per share, in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company was incorporated on March 30, 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 $.30 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 $.20 per share.
Net Interest Income
The Company's 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 Company's ability to maintain an adequate spread between
the rate earned on earning assets and
-11-
<PAGE> 14
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.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
-------------------------------- ----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Cost Balance Income/Expense Cost
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
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%
==== ====
</TABLE>
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 for the year ended December 31, 1996 to $2,529,934 for the year
ended December 31, 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 years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Service fees on deposit accounts $269,808 $148,977
Miscellaneous, other 112,948 43,738
-------- --------
Total non-interest income $382,756 $192,715
======== ========
</TABLE>
-12-
<PAGE> 15
Non-Interest Expense
Non-interest expense increased from $1,179,129 for the year ended
December 31, 1996 to $1,720,027 for the year ended December 31, 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 ended December 31, 1997 and
1996.
Non-Interest Expense
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The allowance for loan losses increased from $447,626 for the year
ended December 31, 1996 to $644,913 for the year ended December 31, 1997. The
allowance for loan losses as a percentage of gross loans decreased from 1.33%
for the year ended December 31, 1996 to 1.19% for the year ended December 31,
1997. Net charge-offs for the year ended December 31, 1997 amounted to $27,713,
or .05% of loans. Net charge-offs for the year ended December 31, 1996 amounted
to $8,374, or .02% of loans. Net charge-offs for 1997 and 1996 are significantly
lower than peer averages.
Liquidity and Interest Rate Sensitivity
Net interest income, the Company's 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
Company's 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 December 31, 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
-13-
<PAGE> 16
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.
<TABLE>
<CAPTION>
After After
three six After
Within months months one year After
three but within but within but within five
months six months one year five years years Total
--------- ---------- --------- ---------- ------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 Bank's Asset/Liability Committee meets on a
quarterly basis and develops management's 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
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<PAGE> 17
attracting new deposits. The Company's primary source of liquidity comes from
its ability to maintain and increase deposits through the Bank. Deposits grew by
$20.3 million during the year ended December 31, 1997 and by $22.3 million
during the year ended December 31, 1996.
Below are the pertinent liquidity balances and ratios for the years
ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents........................... $4,029,952 $5,628,235
Securities.......................................... 4,192,219 2,652,000
CD's, over $100,000 to total deposits ratio......... 21.6% 25.2%
Loan to deposit ratio............................... 92.2% 87.8%
Brokered deposits................................... -- --
</TABLE>
At December 31, 1997, large denomination certificates accounted for
21.6% of total deposits. Large denomination CD's are generally more volatile
than other deposits. As a result, management continually monitors the
competitiveness of the rates it pays on its large denomination CD's and
periodically adjusts its rates in accordance with market demands. Significant
withdrawals of large denomination CD's may have a material adverse effect on the
Bank's 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
Bank's 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
Company's 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 bank's
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
-15-
<PAGE> 18
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.
In 1996, a new rule was adopted by the Federal Reserve Board, the
OCC and the FDIC that added 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 bank's 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 bank's 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 Bank's and Company's regulatory
capital ratios at December 31, 1997:
<TABLE>
<CAPTION>
Minimum
December 31, regulatory
1997 requirement
------------ -------------
<S> <C> <C> <C>
Bank
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%
---- =====
</TABLE>
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.
-16-
<PAGE> 19
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.
BUSINESS OF THE COMPANY
GENERAL
The Company was incorporated under the laws of the State of Georgia on
March 30, 1995 for the purpose of operating as a bank holding company and owns
100% of the outstanding capital stock of the Bank. The Company was organized as
a mechanism to enhance the Bank's ability to serve its future customers'
requirements for financial services. The holding company structure will provide
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.
The Company has no present plans to acquire any operating subsidiaries;
however, it is expected that the Company may make acquisitions in the event such
acquisitions are deemed to be in the best interests of the Company and its
shareholders. Such acquisitions, if any, will be subject to certain regulatory
approvals and requirements. See "SUPERVISION AND REGULATION."
PREMISES
The Company's main office is located in the same building as the Bank's
facilities. See "BUSINESS OF THE BANK - Facilities."
BUSINESS OF THE BANK
BACKGROUND
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 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,
-17-
<PAGE> 20
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
approximately 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 18,500
and 42,500, respectively. The median household income in Thomas County in 1997
was $22,500 and the unemployment rate was 4.0% as of December, 1997. 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.
-18-
<PAGE> 21
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
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Cash and due from banks............................... $ 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
=========== ===========
<CAPTION>
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
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
=========== ===========
</TABLE>
-19-
<PAGE> 22
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:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------
Average Interest Average
Assets Amount Earned Yield
----------- ---------- -------
<S> <C> <C> <C>
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%
=========== ========== ====
</TABLE>
<TABLE>
<CAPTION>
Average Interest Average
Liabilities Amount Expense Cost
----------- ---------- --------
<S> <C> <C> <C>
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%
----
</TABLE>
- -----------------------
(1) During 1997, all loans were accruing interest.
(2) Interest earned on net loans includes $145,624 in loan fees and loan
service fees.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------
Average Interest Average
Assets Amount Earned Yield
------ ----------- ---------- -------
<S> <C> <C> <C>
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%
=========== ========== ----
</TABLE>
-20-
<PAGE> 23
<TABLE>
<CAPTION>
Average Interest Average
Liabilities Amount Expense Cost
----------- ---------- -------
<S> <C> <C> <C>
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%
====
</TABLE>
- --------------------
(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 following presentation illustrates the effect of changes in the
Bank's average balances and rates on the Bank's interest income, interest
expense and net interest income for the years therein indicated.
RATE/VOLUME VARIANCE ANALYSIS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 vs. 1996 1996 vs. 1995
Increase (Decrease) Increase (Decrease)
------------------- -------------------
Due to Due to
------ ------
Volume Rate Total Volume Rate Total
--------- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Funds with escrow agent........ $ -- $ -- $ -- $ (58,685) -- $ (58,685)
Tax-exempt securities.......... 1,019 -- 1,019 -- -- --
Taxable securities............. 47,964 (1,304) 46,660 83,041 44,559 127,600
Federal funds sold............. (40,091) 20,973 (19,118) 143,641 (9,329) 134,312
Net loans...................... 1,923,802 16,568 1,940,370 2,126,353 (81,113) 2,045,240
---------- -------- ---------- ---------- --------- ----------
Total interest income.............. $1,932,694 $ 36,237 $1,968,931 $2,294,350 $ (45,883) $2,248,467
========== ======== ========== ========== ========= ==========
Interest paid on:
NOW deposits and money
market......................... $286,780 $ 47,087 $ 333,867 $ 201,945 $ 73,692 $ 275,637
Savings deposits............... 16,519 (105) 16,414 16,012 503 16,515
Time deposits.................. 643,961 10,860 654,821 650,972 2,839 653,811
Other borrowings............... 17,508 -- 17,508 (5,299) -- (5,299)
---------- -------- ---------- ---------- --------- ----------
Total interest expense............. $ 964,768 $ 57,842 $1,022,610 $ 863,630 $ 77,034 $ 940,664
========== ======== ========== ========== ========= ==========
Change in net interest
income............................. $ 967,926 $(21,605) $ 946,321 $1,430,720 $(122,917) $1,307,803
========== ======== ========== ========== ========= ==========
</TABLE>
DEPOSITS
The Bank offers a wide range of commercial and consumer interest
bearing and non-interest bearing deposit accounts, including checking accounts,
money market accounts, negotiable order of with drawal ("NOW") accounts,
individual retirement accounts, certificates of deposit and regular savings
-21-
<PAGE> 24
accounts. 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. 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 tables detail the average balances of various types of
deposit accounts for the years ended December 31, 1997 and 1996.
Interest-Bearing Deposits
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Average Percentage Total Average
Balance of Total Interest Cost
------- ---------- -------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 7,707 15.9% $ -- --
NOW and money market deposits 17,022 35.0% 650 3.82%
Savings deposits 997 2.1% 35 3.48%
Time deposits 22,895 47.0% 1,337 5.84%
------- ----- ------ ----
Total deposits $48,621 100.0% $2,022 4.16%
======= ===== ====== ====
<CAPTION>
Year Ended December 31, 1996
----------------------------
Average Percentage Total Average
Balance of Total Interest Cost
------- ---------- -------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 5,570 20.4% $ -- --
NOW and money market deposits 9,387 34.3% 317 3.37%
Savings deposits 524 1.9% 18 3.50%
Time deposits 11,874 43.4% 682 5.75%
------- ----- ------ ----
Total deposits $27,355 100.0% $1,017 3.72%
======= ===== ====== ====
</TABLE>
-22-
<PAGE> 25
The maturities of certificates of deposit and individual retirement
accounts of $100,000 or more as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Three months or less $ 3,157
Over three months through six months 4,551
Over six months through twelve months 3,291
Over twelve months 1,508
-------
Total $12,507
=======
</TABLE>
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including
commercial, consumer/ installment and real estate loans. As of March 31, 1998,
the Bank's loan portfolio consisted of 30.9% commercial and agricultural loans,
10.6% consumer/installment loans and 58.5% real estate loans (3.3% construction
and 55.2% mortgage).
The following is a description of each of the major categories of loans
in the Bank's loan portfolio:
Commercial 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 loans in this category are short
term, usually 90-days to 1 year in length. The Bank's commercial loans are
secured by various types of collateral, including: equipment, inventory,
commercial real estate and personal endorsements. Commercial loans are generally
considered by management as having greater risk than other categories of loans
in the Bank's portfolio. Management believes, however, that the secured
condition of the preponderant portion of its commercial loan portfolio greatly
reduces the risk of loss inherently present in commercial loans. Accordingly,
the Bank, because of the risks associated with commercial lending, requires a
higher percentage of equity in the collateral. For inventory and equipment, the
loan to value ratio is 75%. To further mitigate the risks associated with this
category of loans, the Bank maintains current credit files on all borrowers with
loans that are personally endorsed. These files consist of current financial
statements, credit reports and tax returns.
Real Estate - Construction. These loans are made for the construction
of single family residences in the Bank's market area. The term of the
construction loan is usually 120 days, with permanent financing for purchase or
refinancing available. The risk in construction lending is dependent upon the
performance of the builder in building the project to the plans and
specifications of the borrower and the Bank's ability to administer and control
all phases of the construction disbursements. Due to such risks, these loans are
closely monitored by lending personnel and require a loan to value ratio of 80%.
Real Estate - Mortgage. This loan category consists of residential
first and second mortgage loans, granted to qualified individuals for the
purpose of purchasing or refinancing single family homes. Due to the knowledge
that the Bank's lending personnel have of the borrowers and of the local
residential real estate market, this type of loan represents very little risk to
the Bank. Loan to value ratios on residential real estate loans average 80%, but
the Bank's loan policy allows for a maximum of 90% loan to value on loans
secured by first mortgages.
-23-
<PAGE> 26
Consumer/Installment Loans. These loans are granted to individuals for
consumer purposes including automobile financing, personal household uses,
recreation and short term residential real estate financing. These loans are
generally granted for periods ranging between one and five years and require
monthly payments by the borrower. The maximum loan to value ratio for automobile
financing is 80%. The Bank considers such consumer purpose monthly payment loans
to be both a useful product to attract customers, as well as a profitable
earning asset. Loss or decline of income by the borrower due to layoffs, divorce
or unexpected medical expenses represent unplanned occurrences that may
represent risk of default to the Bank. Such risks of consumer lending, however,
are mitigated by the extensive experience that the Bank's lending personnel have
in this area of lending. Included in the Bank's lending personnel is Mr. Hodges,
who has 11 years of experience and Mr. Lutes, who has 20 years of experience.
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. Such risks, however, are
mitigated by the fact that the Bank's lending personnel have extensive
experience in the Bank's primary market area of Thomas County, Georgia, coupled
with the fact that the economy of Thomas County has been stable with slow
economic growth.
Management of the Bank originates loans and participates 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. See "--Correspondent
Banking."
Major classifications of loans as of December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------- ------------------------
Amount % Total Loans Amount % Total Loans
-------- ------------- -------- -------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural ................................... $ 16,848 31.1% $ 16,484 49.2%
Real estate-construction ....................... 1,778 3.3% 1,135 3.4%
Real estate-mortgage ........................... 29,825 55.1% 11,749 35.0%
Installment and other loans to
individuals .................................... 5,661 10.5% 4,172 12.4%
-------- ----- -------- -----
Subtotal ....................................... 54,112 100.0% 33,539 100.0%
Allowance for loan losses ...................... (645) -- (447) --
-------- ----- -------- -----
Total Loans (net of allowances) ................ $ 53,467 100.0% $ 33,092 100.0%
======== ===== ======== =====
</TABLE>
-24-
<PAGE> 27
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The table below presents the maturities and repricing schedule of
commercial, financial and agricultural loans as well as real estate construction
loans outstanding as of December 31, 1997 and 1996. At maturity, loans
periodically may be renewed with principal reductions at interest rates
appropriate at the time of renewal.
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Fixed rate loans with a remaining maturity of:
One year or less .......................................... $ 7,080 $ 6,271
Over one year through five years .......................... 4,828 4,609
Over five years ........................................... -- --
------- -------
Total fixed rate loans ...................... $11,908 $10,880
------- -------
Floating rate loans with a repricing frequency of:
One year or less ......................................... $ 3,948 $ 3,843
Over one year through five years ......................... 2,432 2,636
Over five years .......................................... 337 620
------- -------
Total floating rate loans ................... 6,717 6,739
------- -------
Total loans $18,625 $17,619
======= =======
</TABLE>
NON-ACCRUAL AND PAST DUE LOANS
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.
-25-
<PAGE> 28
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.
Unless the Board of Directors of the Bank approves otherwise, it is
the policy of the Bank that loans past due 90 days or more, or those involved in
bankruptcy proceedings, be placed in non-accrual status. In order to receive the
Board of Directors' approval not to place a loan in non-accrual status, the loan
must be well secured by readily marketable collateral with sufficient
liquidation value to protect the Bank from loss and the loan must be in the
process of collection.
SUMMARY OF LOAN LOSS EXPERIENCE
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1996
--------- ---------
(Dollar amounts in thousands)
<S> <C> <C>
Balance, beginning of period ...... $ 447,626 $ 110,000
--------- ---------
Charge-offs:
Installments and other
loans to individuals .............. (31,005) (8,374)
Recoveries ........................ 3,292 --
--------- ---------
Net charge-offs ................... (27,713) (8,374)
Additions charged to operations ... 225,000 346,000
--------- ---------
Balance, end of period ............ $ 644,913 $ 447,626
========= =========
Ratio of net charge-offs during the
period to average loans outstanding
during the period ................. .06% .04%
========= =========
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
In considering the adequacy of the Bank's allowance for possible loan
losses, management has focused on the fact that as of March 31, 1998, 30.9% 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 most other
categories of loans in the Bank's loan portfolio. However, over 91% of these
commercial loans as of March 31, 1998 were made on a secured basis. Management
believes that the secured condition of the preponderant portion of its
commercial loan portfolio greatly reduces the risk of loss inherently present in
commercial loans.
-26-
<PAGE> 29
The Bank's consumer loan portfolio, which comprised 10.6% of the Bank's
total loan portfolio as of March 31, 1998, is also well secured. As of March 31,
1998, the majority of the Bank's consumer loans were secured by collateral
primarily consisting of automobiles, and other personal property. Management
believes that these loans involve less risk than other categories of loans.
Construction loans are generally considered by management as having the
greatest amount of risk. Comprising 5.6% of the Bank's real estate loan
portfolio as of March 31, 1998, construction loans represent a relatively small
proportion of the total Bank's loan portfolio. All of the Bank's construction
loans are made on a secured basis. Management believes that the secured
condition of these loans mitigates the risk of loss inherent in construction
loans.
Real estate mortgage loans constituted 94.4% of the Bank's real estate
loan portfolio as of March 31, 1998. All loans in this category represent real
estate mortgages where the amount of the original loan generally does not exceed
80% of the appraised value of the collateral. These loans are considered by
management to be well secured with a low risk of loss.
The Board of Directors of the Bank monitors the loan portfolio
quarterly to enable it to evaluate the adequacy of the allowance for loan
losses. The loans are rated and the reserve established based on the assigned
rating. The provision for loan losses charged to operating expenses is based on
this established reserve. Factors considered by the Board of Directors of the
Bank in rating the loans include delinquent loans, underlying collateral value,
payment history and local and general economic conditions affecting
collectibility.
As of December 31, 1997, the loan loss reserve was allocated as
follows:
<TABLE>
<CAPTION>
Amount % Total Loans
------ -------------
(Dollar amounts in thousands)
<S> <C> <C>
Commercial, financial and
agricultural (Primarily Single Payment)...................... $215,000 31.1%
Consumer (Primarily Installment) .............................. 78,000 10.5
Real Estate - Construction .................................... 28,000 3.3
Real Estate - Mortgage ........................................ 295,000 55.1
Unallocated ................................................... 28,913 N/A
-------- -----
Total.................. $644,913 100.0%
======== =====
</TABLE>
INVESTMENTS
As of March 31, 1998, federal funds and investment securities comprised
approximately 10.2% of the Bank's assets, with gross loans comprising
approximately 84.1% of the Bank's assets. The Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States, mortgage backed securities and obligations, other
taxable securities and in certain obligations of states and municipalities. The
Bank also enters into Federal funds transactions with its principal
correspondent banks, and primarily 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.
-27-
<PAGE> 30
The amortized cost and estimated market values of investments in debt
securities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Securities
Available for Sale
--------------------
December 31, 1997 December 31, 1996
---------------------- --------------------
Estimated Percent Estimated Percent
Market of Market of
Value Total Value Total
---------- ------- --------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Obligations of U.S
Treasury and other U.S. agencies ............... $ 3,529 84 $ 2,487 93.8%
Tax-exempt securities ............................ 500 11.9% -- --
Federal Reserve Bank Stock ....................... 165 3.9 165 6.2%
---------- ---- ------- -----
Total $ 4,194 100 $ 2,652 100.0%
========== ==== ======= =====
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
The following is summary of maturities of securities available-for-sale
as of December 31, 1997:
<TABLE>
<CAPTION>
Securities
Available for Sale
-------------------
Amortized Fair Average
Maturity Cost Value Yields
-------- ------ ------ ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Federal Reserve Bank Stock, no maturity ... $ 165 $ 165 6.0%
------ ------ ----
Obligations of U.S. Treasury and other U.S.
agencies:
0-1 year ......................... 696 696 5.76
Over 1 through 5 years ........... 2,821 2,833 5.90
------ ------ ----
Total Treasury and U.S. agency securities . 3,517 3,529 5.87
------ ------ ----
Tax-exempt securities:
Over 10 years .................... 500 500 7.41%
------ ------ ----
Total .......... $4,182 $4,194 6.06%
====== ====== ====
</TABLE>
As of December 31, 1997, the Bank had not identified any of its
securities as held to maturity. In addition, and with the exception of the U.S.
Treasury and U.S. government agencies securities shown
-28-
<PAGE> 31
above, the Bank did not have investments with a single issuer exceeding, in the
aggregate, 10% of the Bank's stockholders' equity.
RETURN ON EQUITY AND ASSETS
The following table presents certain profitability, return and capital
ratios as of the end of the past two fiscal years.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
Ratio 1997 1996
----- ---- ----
<S> <C> <C>
Return on Average Assets 1.01% .73%
Return on Average Equity 9.1% 4.2%
Dividend Payout -- --
Equity to Assets 11.1% 17.2%
</TABLE>
SHORT TERM BORROWINGS
There was no category of short term borrowings for which the average
balance outstanding during the years ended December 31, 1997 and 1996 exceeded
30% of stockholders' equity.
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 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.
In March 1997, the Bank purchased property for a branch office on the
northeast side of Thomasville. Construction is underway on a 2,400 square foot
facility and is expected to be completed in September 1998. The building will
contain four teller stations, three drive-in windows and a drive-up automated
teller machine as well as sufficient office space for a manager and customer
service representatives.
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.
-29-
<PAGE> 32
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.
YEAR 2000
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.
-30-
<PAGE> 33
EMPLOYEES
The Bank presently employs four persons on a part-time basis and 25
persons on a full-time basis, including six 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.
-31-
<PAGE> 34
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 OCC, the Georgia Banking Department and the 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, removed 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
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<PAGE> 35
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 OCC
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
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<PAGE> 36
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 OCC. In 1989, both the
Federal Reserve Board and the OCC 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 OCC
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 OCC 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 bank's 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 OCC currently maintains that only mortgage servicing rights and
purchased credit card relationships meet the criteria to be considered
qualifying intangibles. The OCC's 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 OCC 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 OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's 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
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<PAGE> 37
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 OCC, 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 bank's
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 bank's
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 bank's 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 bank's 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's
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.
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<PAGE> 38
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 OCC
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:
<TABLE>
<CAPTION>
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
------------- ------------- ---------
<S> <C> <C> <C>
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)
-
</TABLE>
- ---------------------------
(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 OCC. This examination is typically completed on-site at least annually and
is subject to off-site review at call. The OCC, 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 Bank's 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.
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<PAGE> 39
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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and the Bank are as follows:
<TABLE>
<CAPTION>
Position with
Name Company
- ---------------------------------------- -----------------------------------------
<S> <C>
Charles A. Balfour Class I Director
Clifford S. Campbell, Jr. Class I Director
Stephen H. Cheney President, Chief Executive Officer and
Class I Director
David A. Cone Bank 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
David O. Lewis Bank Director
Charles W. McKinnon, Jr. Class III Director
Randall L. Moore Bank Director
Diane W. Parker Bank Director
Cochran A. Scott, Jr. Class III Director
Richard L. Singletary, Jr. Class III Director
</TABLE>
The Company has a classified Board of Directors whereby one-third of
the members will be elected each year at the Company's Annual Meeting of
Shareholders. Upon such election, each director of the Company will serve for a
term of three years. The Company's 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.
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<PAGE> 40
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 Chairman of the Board of the Thomasville
Y.M.C.A., President of Thomasville Team 2000 and a member of the Thomasville
Payroll Development Authority. He is also past Chairman of the
Thomasville/Thomas County Chamber of Commerce and former Vice Chairman of the
Thomasville Housing Authority.
DAVID A. CONE, age 33 is the President of Cone Machinery, Inc., a
manufacturer of sawmill equipment. He has served as President of this company
for eight years, previously serving as Vice President and Sales Manager. He
joined the Board of Directors of Thomasville National Bank in May 1996. He
currently serves on the Board of Directors of the Thomasville/Thomas County
Chamber of Commerce, the YMCA, and is a member of the Thomasville Kiwanis Club.
He is also on the Thomasville/Thomas County Recreation Advisory Board.
CHARLES E. HANCOCK, M.D., age 38, is a Board Certified Orthopedic
Surgeon in private practice in Thomasville, Georgia at the Thomasville
Orthopedic Center. 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 is also Chairman and CEO of Affiliated
Physicians, a physicians practice management company based in Thomasville.
CHARLES H. HODGES, III, age 33, has served as Executive Vice
President of the Company since its inception in March 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, and Thomasville/Thomas
County Chamber of Commerce.
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.
DAVID O. LEWIS, age 67, joined the Board of Directors of Thomasville
National Bank in September 1997. Mr. Lewis is a retired senior buyer for
General Electric. He is past President of the
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<PAGE> 41
Minority Business and Professional Association. He currently serves on the Board
of Trustees of Thomas College and is also a member of the Board of the
Thomasville Cultural Center, the Historical Society, the Humane Society and the
Heritage Foundation.
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 Board's
Million Dollar Club, Real Estate Leaders of America, International Council of
Shopping Centers, National Association of Realtors, and Farm and Land Institute.
RANDALL MOORE, age 38 is the President of Moore and Porter of
Thomasville, Inc., a wholesaler of fruits and vegetables. He has served in the
capacity for 10 years. He joined the Board of Directors of Thomasville National
Bank in May 1996. He currently serves on the Board of Governors of Glen Arven
Country Club.
DIANE W. PARKER, age 57, is the owner of The Gift Shop, Ltd. She
joined the Board of Directors of Thomasville National Bank in September 1997.
She is also Vice-President of Williams & Parker LLC and The Williams Family
Foundation of Georgia. She is a past Vice-Chairman of the Thomasville Antiques
Show and Thomasville Antiques Show Foundation, Inc. Board member.
COCHRAN A. SCOTT, JR., age 42, has served as President of Scott
Hotels, Inc., a hotel management and development company, 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, City of
Thomasville Contractor Board and the Board of Governors of Glen Arven Country
Club.
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. Currently, 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 requirements of Section 16 of the
Securities Exchange Act of 1934, as amended.
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<PAGE> 42
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 Company's Chief Executive Officer.
Certain information contained in the table has been restated to give effect to
the two-for-one common stock split paid on February 28, 1998 (the "Split"). 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
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------ ------------------------
Restricted Number of
Name and Principal Stock Options All Other
Position Year Salary Bonus Awards Awarded Compensation(1)
- ------------------ ---- ------- ------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen H. Cheney 1997 $82,500 $25,500 $2,264(2)(3) -- $2,910
President and Chief 1996 75,000 15,000 1,899(2)(4) -- 1,250
Executive Officer 1995 65,500 -- 450(2) 15,000 --
</TABLE>
- ------------------
(1) Represents matching contributions under the Company's 401(k) plan.
(2) Represents earned but unissued shares, as adjusted for the Split, 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 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 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 Common Stock in its
initial public offering completed in 1995. See "--Compensation of
Directors."
(3) During fiscal 1997, Mr. Cheney earned, as adjusted for the Split, an
aggregate of 420 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 Common Stock, fair market value was calculated by reference
to the book value of the Common Stock as of December 31, 1997 ($5.39 per
share as adjusted for the Split). See "--Compensation of Directors."
(4) During fiscal 1996, Mr. Cheney earned, as adjusted for the Split, an
aggregate of 390 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 Common Stock, fair market value was calculated by reference
to the book value of the Common Stock as of December 31, 1996 ($4.87 per
share as adjusted for the Split). See "--Compensation of Directors."
EMPLOYMENT AGREEMENTS
On January 14, 1998, the Company and the Bank entered into a four-year
employment agreement with Stephen H. Cheney, pursuant to which Mr. Cheney is
paid an annual salary of $101,000, which may be increased at the discretion of
the Board of Directors of the Bank based on the performance of the Bank as
determined by a formula as set forth in Mr. Cheney's employment agreement. The
employment agreement provides for the grant of stock options to acquire 30,000
shares of Common Stock at a purchase price equal to $5.00 per share. Such
options will become exercisable at the rate of 6,000 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.
Mr. Cheney's employment agreement further 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.
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<PAGE> 43
Mr. Cheney's employment agreement also contains a non-compete and
non-solicitation provision which provide that through the actual date of
termination of the Employment Agreement and for a period of five years
thereafter, Mr. Cheney shall not, without the prior written consent of the
Company. be employed in the banking business in any capacity within Thomas
County, Georgia. 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.
In addition, Mr. Cheney's employment agreement provides that the
Company may terminate Mr. Cheney's employment agreement for any reason upon
majority vote of the Board of Directors of the Company and the Bank.
On January 14, 1998, the Company and the Bank entered into a four-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 $82,000 per year, which will be increased at the
discretion of the Board of Directors of the Bank based on the performance of the
Bank as determined by a formula set forth in Mr. Hodges' employment agreement.
All the other provisions of Mr. Hodges' employment agreement are identical to
Mr. Cheney's.
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 Company's 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 (10 shares as adjusted for the Split) of the
Company's Common Stock for each Bank and each Company Committee meeting attended
and ten shares (20 shares as adjusted for the Split) 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 Company's Board of Directors or a change in control of the Company. One of
the Company's 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 3,000 shares (as
adjusted for the Split) 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.
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<PAGE> 44
<TABLE>
<CAPTION>
Number of
Unexercised Options Value of Unexercised
at FY-End In-the-Money Options
(#) at FY-End
------------------ -------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
- ---- ------------------ -------------------
<S> <C> <C>
Stephen H. Cheney 18,000/12,000 $7,020/$4,680
President and Chief
Executive Officer
</TABLE>
- --------------------
(1) Dollar values calculated by determining the difference between the estimated
fair market value of the Company's Common Stock at December 31, 1997 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
($5.39 per share as adjusted for the Split).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 31, 1998
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.
<TABLE>
<CAPTION>
Name of Number of Percent of
Beneficial Owner Shares(1) Total
------------------------------------ -------------- ----------
<S> <C> <C>
Charles A. Balfour 20,000 (2) 1.7%
Clifford S. Campbell, Jr. 2,300 (3) *
Stephen H. Cheney 58,026 (4) 4.8%
Charles E. Hancock, M.D. 20,000 3.1%
Charles H. Hodges, III 37,722 (5) 2.6%
Harold L. Jackson 20,000 1.7%
Charles W. McKinnon, Jr. 20,000 (6) 1.7%
Cochran A. Scott, Jr. 31,300 (7) 2.6%
Richard L. Singletary, Jr. 80,400 (8) 6.7%
------- ----
All Directors and Officers
as a Group (9 persons) 289,748 24.2%
</TABLE>
* Less than 1% of outstanding shares.
- ---------------
(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
-42-
<PAGE> 45
13d-3 of the Securities Exchange Act of 1934. The percentages are based upon
1,200,000 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 1,200,000
shares plus the number of shares subject to presently exercisable options
held by them, as indicated in the following notes.
(2) Includes 4,000 shares held by Mr. Balfour as custodian for his children.
(3) Represents shares held in Mr. Campbell's individual retirement account.
(4) Includes 18,000 shares subject to presently exercisable stock options, 5,904
shares held in Mr. Cheney's individual retirement account, 722 shares held
in Mr. Cheney's wife's individual retirement account and 30,000 shares held
in Mr. Cheney's father's individual retirement account for the benefit of
Mr. Cheney.
(5) Includes 18,000 shares subject to presently exercisable stock options,
10,088 shares held in Mr. Hodges' individual retirement account, 1,654
shares held by Mr. Hodges as custodian for his children and 5,800 shares
owned jointly with his wife.
(6) Includes 12,200 shares held in Mr. McKinnon's individual retirement account.
(7) Includes 21,300 shares held by Mr. Scott as custodian for his children and
10,000 shares held in Mr. Scott's individual retirement account.
(8) Includes 5,246 shares held in Mr. Singletary's individual retirement
account, 7,800 shares held as custodian for his children, 10,000 shares
owned by Mr. Singletary's wife and 9,486 shares held in Mr. Singletary's
wife's individual retirement account. Mr. Singletary's address is 102
Chukkars Drive, Thomasville, Georgia 31792.
CERTAIN TRANSACTIONS
The Bank extends loans from time to time to certain of its directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans are made in the ordinary
course of business, are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with persons not affiliated with the Bank and do not involve more
than the normal risks of collectibility or present other unfavorable features.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, $1.00 par value of which 1,200,000 shares are presently
issued and outstanding.
COMMON STOCK
The holders of Common Stock are entitled to elect the members of the
Board of Directors of the Company and such holders are entitled to vote as a
class on all matters required or permitted to be submitted to the shareholders
of the Company. No holder of any class of stock of the Company has preemptive
rights with respect to the issuance of shares of that or any other class of
stock and the Common Stock is not entitled to cumulative voting rights with
respect to the election of directors.
The holders of Common Stock are entitled to dividends and other
distributions if, as, and when declared by the Board of Directors out of assets
legally available therefor. Upon the liquidation, dissolution or winding up of
the Company, the holder of each share of Common Stock will be entitled to share
equally in the distribution of the Company's assets. The holders of Common Stock
are not entitled to the benefit of any sinking fund provision. The shares of
Common Stock of the Company are not subject to any redemption provisions, nor
are they convertible into any other security or property of the Company. All
outstanding shares of each class of Common Stock are, and the shares to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
-43-
<PAGE> 46
CERTAIN ANTI-TAKEOVER PROVISIONS IN ARTICLES OF INCORPORATION
Classified Board of Directors. The Board of Directors of the Company
presently consists of nine directors. The directors are divided into three
classes, designated Class I, Class II and Class III. Each class will consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. The term of the Company's Class I
directors expires at the Company's 1999 annual meeting of shareholders; the term
of the Company's Class II directors expires at the Company's 2000 annual meeting
of shareholders; and the term of the Company's Class III directors expires at
the Company's 2001 annual meeting of shareholders. At each annual meeting of
shareholders, successors to the class of directors whose term expires at the
annual meeting will be elected for a three-year term. If the number of directors
is changed, an increase or decrease will be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class will hold office for a term that will coincide
with the remaining term of that class, but in no event will a decrease in the
number of directors shorten the term of any incumbent director. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors will have the same remaining term as that of his predecessor. Except
in the case of removal from office, any vacancy on the Board of Directors, will
be filled by a majority vote of the remaining directors then in office.
Because the Company has a classified Board of Directors, as many as two
consecutive annual meetings of shareholders may be required to replace a
majority of the number of the Company's Board of Directors and thus gain control
of the Company. As a consequence, the classified Board of Directors makes it
more difficult for a person, entity or group to effect a change in control of
the Company through the acquisition of a large block of the Company's voting
stock.
Requirement for Supermajority Approval of Transactions. The Company's
Articles of Incorporation contain provisions requiring supermajority approval to
effect certain extraordinary corporate transactions which are not approved by
the Board of Directors. The Articles of Incorporation require the affirmative
vote or consent of the holders of at least two-thirds (662/3%) of the shares of
each class of common stock of the Company entitled to vote in elections of
directors to approve any merger, consolidation, disposition of all or a
substantial part of the assets of the Company or a subsidiary of the Company,
exchange of securities requiring shareholder approval or liquidation of the
Company ("Covered Transaction"), if any person who together with his affiliates
and associates owns beneficially 5% or more of any voting stock of the Company
("Interested Person") is a party to the transaction; provided that such approval
is not required if three-fourths (75%) of the entire Board of Directors of the
Company has approved the transaction. In addition, the Articles of Incorporation
require the separate approval by the holders of at least two-thirds (662/3%) of
the shares of each class of stock of the Company entitled to vote in elections
of directors which are not beneficially owned, directly or indirectly, by an
Interested Person, of any merger, consolidation, disposition of all or a
substantial part of the assets of the Company or a subsidiary of the Company, or
exchange of securities requiring shareholder approval ("Business Combination"),
if an Interested Person is a party to such transaction; provided, that such
approval is not required if (a) the consideration to be received by the holders
of the stock of the Company meets certain minimum levels determined by a formula
contained in the Articles of Incorporation (generally the highest price paid by
the Interested Person for any shares which he has acquired), (b) there has been
no reduction in the average dividend rate from that which obtained prior to the
time the Interested Person became such, and (c) the consideration to be received
by shareholders who are not Interested Persons shall be paid in cash or in the
same form as the Interested Person previously paid for shares of such class of
stock. These Articles of the Company's Articles of Incorporation may be amended,
altered or repealed
-44-
<PAGE> 47
only by the affirmative vote or consent of the holders of not less than
two-thirds (662/3%) of the shares of each class of stock of the Company entitled
to vote in elections of directors.
Constituency Considerations. The Company's Articles of Incorporation
provide for the right of the Company Board to consider the interests of various
constituencies, including employees, customers, suppliers and creditors of the
Company as well as the communities in which the Company is located, in addition
to the interests of the Company and its shareholders, in discharging its duties
in determining what is in the Company's best interests.
The effect of these provisions is to make it more difficult for a
person, entity or group to effect a change in control of the Company through the
acquisition of a large block of the Company's voting stock.
The State of Georgia has statutory provisions relating to business
combinations between a Georgia corporation and an "interested shareholder" that
outline the statutory requirements to effect such transactions. However, the law
provides that these sections only apply if the corporation specifically provides
in its bylaws that such requirements are applicable. The Company has not so
provided in its bylaws and, therefore, these statutory anti-takeover provisions
do not apply to the Company.
Limitation of Directors' Liability. The Company's Articles of
Incorporation eliminate, subject to certain exceptions, the personal liability
of directors to the Company or its shareholders for monetary damages for
breaches of such directors' duty of care or other duties as a director. The
Articles of Incorporation do not provide for the elimination of or any
limitation on the personal liability of a director for (i) any appropriation, in
violation of the director's duties, of any business opportunity of the Company,
(ii) acts or omissions that involve intentional misconduct or a knowing
violation of law, (iii) unlawful corporate distributions or (iv) any transaction
from which the director received an improper benefit. In addition, the Company's
Bylaws provide broad indemnification rights to directors and officers so long as
the director or officer acted in a manner believed in good faith to be in, or
not opposed to, the best interests of the Company, and with respect to criminal
proceedings, if the director had no reasonable cause to believe his or her
conduct was unlawful. These provisions of the Articles of Incorporation and
Bylaws generally limit the remedies available to a shareholder who is
dissatisfied with a decision by the Company protected by these provisions.
Insofar as indemnification for liability arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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.
-45-
<PAGE> 48
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock
offered hereby will be passed upon for the Company by Smith, Gambrell & Russell,
LLP Atlanta, Georgia, counsel to the Company.
EXPERTS
The financial statements of Thomasville Bancshares, Inc. for the fiscal
years ended December 31, 1997 and 1996 included herein and elsewhere in the
Registration Statement have been included herein and in the Registration
Statement in reliance upon the reports of Francis & Co. CPAs, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 (herein, together with all amendments thereto, called the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the shares of Common Stock offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all of the information
included in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement and the
exhibits and schedules thereto, which may be inspected, without change, at the
public reference facilities of the Commission maintained by the Commission at
its principal office located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at Seven World
Trade Center, New York, New York 10048 and the Chicago Regional Office located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission, upon payment of
prescribed fees. Such material also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are necessarily summaries of such
documents. All material elements of the contracts and documents referenced
herein are disclosed in the Prospectus. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
-46-
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THOMASVILLE BANCSHARES, INC.
Independent Auditors' Report......................................................................... F-2
Balance Sheets, March 31, 1998 and December 31, 1997................................................. F-3
Consolidated Statements of Income, March 31, 1998 and 1997 and
December 31, 1997 and 1996...................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity From Inception
December 31, 1995 to March 31, 1998............................................................. F-5
Consolidated Statements of Cash Flows, March 31, 1998 and 1997 and
December 31, 1997 and 1996...................................................................... F-6
Notes to Financial Statements........................................................................ F-7
</TABLE>
F-1
<PAGE> 50
FRANCIS & CO., CPAS [LOGO]
Report of Independent Accountants
Board of Directors
Thomasville Bancshares, Inc.
Thomasville, Georgia
We have audited the accompanying consolidated balance sheet of
Thomasville Bancshares, Inc., (the "Company"), and subsidiary as of December 31,
1997, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's 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 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 /s/ FRANCIS & CO., CPAS
February 12, 1998
F-2
<PAGE> 51
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 1,611,332 $ 2,447,683
Federal funds sold, net (Note 3) 3,043,071 1,582,269
-------------- -----------------
Total cash and cash equivalents $ 4,654,403 $ 4,029,952
Securities: (Notes 2 & 4)
Available-for-sale at fair value 4,201,125 4,194,219
Loans, net (includes loans of $3,112,417 (March 31, 1998)
and $3,066,426 (December 31, 1997) to insiders)
(Notes 2, 5, 6 & 13) 59,225,720 53,466,913
Property and equipment, net (Notes 2 & 7) 2,460,254 2,484,979
Other assets 935,636 718,426
-------------- -----------------
Total Assets $ 71,477,138 $ 64,894,489
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 9,639,758 $ 9,334,294
Interest bearing deposits 54,467,292 48,668,118
-------------- -----------------
Total deposits (Note 9) $ 64,107,050 $ 58,002,412
Other liabilities 683,118 423,684
-------------- -----------------
Total Liabilities $ 64,790,168 $ 58,426,096
-------------- -----------------
Commitments and Contingencies (Note 8)
Shareholders' Equity: (Notes 1, 13 & 15)
Common stock, 1.00 par value, 10,000,000 shares
authorized; 1,200,000 shares issued and outstanding $ 1,200,000 $ 1,200,000
Paid-in-capital 5,418,801 5,418,801
Retained earnings/(deficit) 54,943 (158,338)
Unrealized gain/(loss) on securities, net 13,226 7,930
-------------- -----------------
Total Shareholders' Equity $ 6,686,970 $ 6,468,393
-------------- -----------------
Total Liabilities and Shareholders' Equity $ 71,477,138 $ 64,894,489
============== =================
</TABLE>
Refer to notes to the consolidated financial statements.
F-3
<PAGE> 52
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three months For the year ended
ended March 31, December 31,
1998 1997 1997 1996
---------- ---------- ---------- ----------
Interest Income: (Unaudited)
<S> <C> <C> <C> <C>
Interest and fees on loans (Note 2) $1,336,981 $ 824,448 $4,175,214 $2,234,844
Interest on investment securities 57,422 40,880 201,290 153,611
Interest on federal funds sold 23,109 37,922 193,085 212,203
---------- ---------- ---------- ----------
Total interest income $1,417,512 $ 903,250 $4,569,589 $2,600,658
Interest Expense:
Interest on deposits and borrowings (Note 10) $ 652,667 $ 397,684 $2,039,655 $1,017,045
---------- ---------- ---------- ----------
Net interest income 764,845 505,566 2,529,934 1,583,613
Provision for possible loan losses (Note 6) 45,000 36,000 225,000 346,000
---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses $ 719,845 $ 469,566 $2,304,934 $1,237,613
---------- ---------- ---------- ----------
Other Income:
Service fees on deposit accounts $ 18,531 $ 12,596 $ 269,808 $ 148,977
Miscellaneous, other 91,614 64,446 112,948 43,738
---------- ---------- ---------- ----------
Total other income $ 110,145 $ 77,042 $ 382,756 $ 192,715
---------- ---------- ---------- ----------
Other Expenses:
Salaries $ 194,407 $ 139,316 $ 636,051 $ 451,919
Employee benefits 55,427 41,234 242,590 129,182
Supplies and printing 11,573 19,151 52,669 56,089
Advertising and public relations 23,526 66,950 210,625 80,652
Legal and professional 1,394 0 67,167 56,844
Depreciation and amortization 38,955 15,106 145,314 88,035
Other operating expenses (Note 11) 131,827 94,223 365,611 316,408
---------- ---------- ---------- ----------
Total other expenses $ 457,109 $ 375,980 $1,720,027 $1,179,129
---------- ---------- ---------- ----------
Income before income tax $ 372,881 $ 170,628 $ 967,663 $ 251,199
Income tax (Notes 2 & 12) 159,600 72,500 406,006 10,001
---------- ---------- ---------- ----------
Net Income $ 213,281 $ 98,128 $ 561,657 $ 241,198
========== ========== ========== ==========
Basic earnings per share (Note 2) $ .18 $ .08 $ .47 $ .20
========== ========== ========== ==========
Diluted earnings per share (Note 2) $ .17 $ .08 $ .46 $ .20
========== ========== ========== ==========
</TABLE>
Refer to notes to the consolidated financial statements.
F-4
<PAGE> 53
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FROM DECEMBER 31, 1995 TO MARCH 31, 1998
<TABLE>
<CAPTION>
Unrealized
Common Stock Paid-In- Retained Securities
Shares Par Value Capital Earnings Gains Total
--------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,200,000 $1,200,000 $5,372,407 $(961,193) $ 10,626 $5,621,840
--------- ---------- ---------- --------- ---------- ----------
Net income, 1996 -- -- -- 241,198 -- 241,198
Net unrealized losses, securities -- -- -- -- (16,781) (16,781)
--------- ---------- ---------- --------- ---------- ----------
Balance, December 31, 1996 1,200,000 $1,200,000 $5,372,407 $(719,995) $ (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 1,200,000 $1,200,000 $5,418,801 $(158,338) $ 7,930 $6,468,393
--------- ---------- ---------- --------- ---------- ----------
Net income, Jan-Mar, `98 (Unaudited) -- -- -- 213,281 -- 213,281
Net unrealized gains, sec. (Unaudited) -- -- -- -- 5,296 5,296
--------- ---------- ---------- --------- ---------- ----------
Balance, March 31, 1998 (Unaudited) 1,200,000 $1,200,000 $5,418,801 $ 54,943 $ 13,226 $6,686,970
========= ========== ========== ========= ========== ==========
</TABLE>
Refer to notes to the consolidated financial statements.
F-5
<PAGE> 54
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended For the year ended
March 31, December 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 213,281 $ 98,128 $ 561,657 $ 241,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses $ 45,000 $ 36,000 $ 225,000 $ 346,000
Depreciation and amortization 38,955 15,106 145,314 88,035
Net accretion on securities (4,415) 4,140 (5,196) 5,804
(Increase) in receivables and other assets (217,210) (68,361) (263,143) (288,086)
Increase in payables and other liabilities 259,434 423,202 215,295 149,867
------------ ------------ ------------ ------------
Net cash provided by operating activities $ 335,045 $ 508,215 $ 878,927 $ 542,818
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of securities $ -- $ (1,014,063) $ (2,222,938) $ (1,020,179)
Maturity of securities -- -- 700,000 1,000,000
(Increase) in loans, net (5,803,807) (4,537,989) (20,600,295) (22,605,081)
Purchase of premises and equipment (11,425) (516,033) (705,264) (1,346,620)
------------ ------------ ------------ ------------
Net cash used in investing activities $ (5,815,232) $ (6,068,085) $(22,828,497) $(23,971,880)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Options, restricted stock $ -- $ -- $ 46,394 $ --
Increase in deposits 6,104,638 4,793,222 20,304,893 22,289,053
------------ ------------ ------------ ------------
Net cash provided by financing activities $ 6,104,638 $ 4,793,222 $ 20,351,287 $ 22,289,053
------------ ------------ ------------ ------------
Net (decrease) in cash and cash equivalents $ 624,451 $ (766,648) $ (1,598,283) $ (1,140,009)
Cash and cash equivalents, beginning of period 4,029,952 5,628,235 5,628,235 6,768,244
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 4,654,403 $ 4,861,587 $ 4,029,952 $ 5,628,235
============ ============ ============ ============
Supplemental Information:
Income taxes paid $ -- $ -- $ 452,400 $ 10,001
Interest paid $ 687,167 $ 465,065 $ 1,957,072 $ 920,719
</TABLE>
Refer to notes to the consolidated financial statements.
F-6
<PAGE> 55
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
Bank's shares by injecting $4.8 million into the Bank's capital accounts
immediately prior to commencement of banking operations on October 2, 1995.
Subsequently, the Company injected an additional $700,000 into the Bank's
capital accounts. The Bank's 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.
Unaudited Financial Statements. The financial statements as of March
31, 1998 and for the three - month periods ended March 31, 1998 and 1997 are
unaudited. However, in the opinion of management the above financial statements
include all adjustments considered necessary to a fair presentation. Operating
results for the three - month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
F-7
<PAGE> 56
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Stock Dividend. During the first calendar quarter of 1998, the Company
declared and effected a 100% stock dividend. All historical presentations
concerning earnings per share and number of shares outstanding were restated to
reflect the above stock dividend.
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.
F-8
<PAGE> 57
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 loan's original effective interest rate, or
at the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent. A loan is 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
management's 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 management's 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.
F-9
<PAGE> 58
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 Company's 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.
F-10
<PAGE> 59
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 :
<TABLE>
<CAPTION>
Basic EPS Diluted EPS
--------------------------- ----------------------------
Numerator Denominator Numerator Denominator
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net income $ 561,657 -- $ 561,657 --
Weighted average shares -- 1,200,000 1,200,000
Options, warrants 22,080
--------- ----------- --------- -----------
Totals $ 561,657 1,200,000 $ 561,657 1,222,080
========= =========== ========= ===========
EPS $ .47 $ .46
========= =========
</TABLE>
F-11
<PAGE> 60
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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
Bank's 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:
<TABLE>
<CAPTION>
Gross
Unrealized
Amoritized ------------------------- Estimated
Description Costs Gains Losses Market Values
- ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
========== ========== ========== =============
</TABLE>
The amortized costs and estimated market values of securities
available-for-sale as of December 31, 1996 follow:
<TABLE>
<CAPTION>
Gross
Unrealized
Amoritized ------------------------- Estimated
Description Costs Gains Losses Market Values
- ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $2,496,325 $ 852 $ (10,177) $ 2,487,000
FRB stock 165,000 -- -- $ 165,000
---------- ---------- ---------- -------------
Total securities $2,661,325 $ 852 $ (10,177) $ 2,652,000
========== ========== ========== =============
</TABLE>
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.
F-12
<PAGE> 61
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Amortized Estimated
Costs Market Values
---------- -------------
<S> <C> <C>
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
========== =============
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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.
F-13
<PAGE> 62
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Activity within the allowance for loan losses account for the years
ended December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
F-14
<PAGE> 63
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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:
<TABLE>
<CAPTION>
Type of Asset Life in Years Depreciation Method
------------- ------------- -------------------
<S> <C> <C>
Furniture and equipment 3 to 7 Straight-line
Building 39 Straight-line
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
F-15
<PAGE> 64
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 10 - INTEREST ON DEPOSITS AND BORROWINGS
A summary of interest expense for the years ended December 31, 1997 and
1996 follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
NOTE 11 - OTHER OPERATING EXPENSES
A summary of other operating expenses for the years ended December 31,
1997 and 1996 follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
F-16
<PAGE> 65
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 12 - INCOME TAXES
As of December 31, 1997 and 1996, the Company's provision for income
taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current $ 457,500 $ 107,896
Deferred (51,494) (97,895)
------------- -------------
Federal income tax expense $ 406,006 $ 10,001
============= =============
</TABLE>
Deferred income taxes consist of the following:
<TABLE>
1997 1996
------------- -------------
<S> <C> <C>
Provision for loan losses $ (47,603) $ --
Net operating loss carry forward -- (97,895)
Other (3,891) --
------------- -------------
Total $ (51,494) $ (97,895)
============= =============
</TABLE>
The Company's 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
Company's actual income tax provision follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996
------------ -------------
<S> <C> <C>
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
============ ============
</TABLE>
F-17
<PAGE> 66
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
The tax effects of the temporary differences that comprise the net
deferred tax assets at December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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 Bank's president and
executive vice president provide for the grant of stock options for each to
acquire 15,000 shares of the Company's common stock upon the Bank's 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.
F-18
<PAGE> 67
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 Bank's 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 Bank's pretax
profits based on a formula determined by the Bank's 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
Bank's directors which grants to each member restricted shares of the Company's
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 Company's 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.
F-19
<PAGE> 68
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A summary of loan transactions with directors, including their
affiliates, and executive officers during 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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 Company's 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 customer's 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 management's 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.
F-20
<PAGE> 69
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 Company's
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 Company's 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 Company's 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.
F-21
<PAGE> 70
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 Company's capital
category. The actual capital amounts and rations are also presented in the table
below:
<TABLE>
<CAPTION>
Minimum Regulatory Capital Guidelines for Banks
-----------------------------------------------------------
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
-------------- ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
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
- -
</TABLE>
F-22
<PAGE> 71
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Minimum Regulatory Capital Guidelines for Banks
-----------------------------------------------------------
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
-------------- ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
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
-
</TABLE>
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 Bank's 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 Company's 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.
F-23
<PAGE> 72
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Parent Company Balance Sheets
<TABLE>
<CAPTION>
December 31,
Assets: ------------------------------
- ------- 1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
Parent Company Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
Revenues: ------------------------------
- --------- 1997 1996
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
F-24
<PAGE> 73
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Parent Company Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
Cash flows from operating activities: 1997 1996
- ------------------------------------- ------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
F-25
<PAGE> 74
APPENDIX "A"
THOMASVILLE BANCSHARES, INC.
SUBSCRIPTION AGREEMENT
To: Thomasville Bancshares, Inc.
301 North Broad Street
Thomasville, Georgia 31792
Gentlemen:
You have informed me that Thomasville Bancshares, Inc., a Georgia
corporation (the "Company"), is offering 150,000 shares of its $1.00 par value
common stock (the "Common Stock") at a price of $15.00 per share as described in
and offered pursuant to the Prospectus furnished to the undersigned herewith
(the "Prospectus"). In addition, you have informed me that the minimum
subscription is 100 shares and the maximum subscription is 1,000 shares.
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment in United
States currency by check, bank draft or money order payable to "Thomasville
Bancshares, Inc." or any other consideration satisfactory to the Company (the
"Funds"), representing the payment of $15.00 per share for the number of shares
of the Common Stock indicated below.
2. ACCEPTANCE OF SUBSCRIPTION. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company shall reject this subscription,
if at all, in writing within five business days after receipt of this
subscription. The Company may reduce the number of shares for which the
undersigned has subscribed, indicating acceptance of less than all of the shares
subscribed on its written form of acceptance.
3. ACKNOWLEDGMENTS. The undersigned hereby acknowledges that he has
received a copy of the Prospectus and agrees to be bound by the terms of this
Agreement.
4. REVOCATION. The undersigned agrees that once this Subscription
Agreement is accepted by the Company, it may not be withdrawn by him. Therefore,
until the earlier of the expiration of five business days after receipt by the
Company of this Subscription Agreement or acceptance of this Subscription
Agreement by the Company, the undersigned may withdraw his or her subscription
and receive a full refund of the subscription price. The undersigned agrees
that, except as provided in this Section 4, he shall not cancel, terminate or
revoke this Subscription Agreement or any agreement of the undersigned made
hereunder and that this Subscription Agreement shall survive the death or
disability of the undersigned.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER IS NOT WAIVING
ANY RIGHTS HE MAY HAVE UNDER FEDERAL SECURITIES LAWS, INCLUDING THE SECURITIES
ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934.
A-1
<PAGE> 75
Please fill in the information requested below, make your check payable
to "Thomasville Bancshares, Inc." and mail Subscription Agreement, Stock
Certificate Registration Instructions and check to the attention of Stephen H.
Cheney, President and Chief Executive Officer, Thomasville Bancshares, Inc., 301
North Broad Street, Thomasville, Georgia 31792.
- ----------------------------------- ----------------------------------------
No. of Shares Subscribed (Signature of Subscriber)
$
- ----------------------------------- ----------------------------------------
Funds Tendered ($15.00 Name (Please Print or Type)
per share subscribed)
Date:
-----------------------------------
Phone Number:
(Home)
----------------------------------
(Office)
--------------------------------
Residence Address:
----------------------------------------
----------------------------------------
----------------------------------------
City, State and Zip Code
----------------------------------------
Social Security Number or other
Taxpayer Identification Number
A-2
<PAGE> 76
STOCK CERTIFICATE REGISTRATION INSTRUCTIONS
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Additional Name if Tenant in Common or Joint Tenant
Mailing Address:_______________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Social Security Number or other Taxpayer Identification Number
----------------
Number of Shares to be registered in above name(s):
----------------------------
Legal form of ownership:
___ Individual ___ Joint Tenants with Rights of Survivorship
___ Tenants in Common ___ Uniform Gift to Minors
___ Other _____________________
INFORMATION AS TO BANKING INTERESTS
1. As a prospective stockholder I would be interested in the following services
checked below:
<TABLE>
<CAPTION>
PERSONAL BUSINESS
<S> <C> <C>
(a) Checking Account ___ ___
(b) Savings Account ___ ___
(c) Certificates of Deposit ___ ___
(d) Individual Retirement Accounts ___ ___
(e) Checking Account Overdraft
Protection ___ ___
(f) Consumer Loans (Auto, etc.) ___ ___
(g) Commercial Loans ___ ___
(h) Equity Line of Credit ___ ___
(i) Mortgage Loans ___ ___
(j) Revolving Personal Credit Line ___ ___
(k) Safe Deposit Box ___ ___
(l) Automatic Teller Machines (ATM's) ___ ___
</TABLE>
2. I would like our new bank to provide the following additional services:
(a)
(b)
A-3
<PAGE> 77
FORM OF ACCEPTANCE
Thomasville Bancshares, Inc.
301 North Broad Street
Thomasville, Georgia 37192
To:
Dear Subscriber:
Thomasville Bancshares, Inc. (the "Company") acknowledges receipt of
your subscription for _____ shares of its $1.00 par value Common Stock and your
check for $__________.
The Company hereby accepts your subscription for the purchase of _____
shares of its Common Stock, at $15.00 per share, for an aggregate of
$__________, effective as of the date of this letter.
Your stock certificate(s) representing shares of Common Stock duly
authorized and fully paid will be issued to you as soon as practicable.
If this acceptance is for a lesser number of shares than that number
subscribed by you as indicated in your Subscription Agreement, your payment for
shares of Common Stock in excess of the number of shares accepted hereby will be
refunded to you by mail, without interest, within ten (10) days of the date
hereof.
Very Truly Yours,
THOMASVILLE BANCSHARES, INC.
By:
---------------------------------------
Stephen H. Cheney
President and Chief Executive Officer
A-4
