SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-KSB
_______________________
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
________________________________________________
Commission File Number 33-36512
THOMASVILLE BANCSHARES, INC.
A Georgia Corporation
(IRS Employer Identification No.58-2175800)
301 North Broad Street
Thomasville, Georgia 31792
(912) 226-3300
________________________________________________
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
_______________________
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
None
_______________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__
No _____
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1998: $6,873,149
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (1,081,232 shares) on March 23, 1999, was
$21,624,640. As of such date, no organized trading market existed for the
Common Stock of the Registrant. The aggregate market value was computed
by reference to the fair market value of the Common Stock of the
Registrant based on recent sales of the Common Stock. For the purposes of
this response, directors, officers and holders of 5% or more of the
Registrant's Common Stock are considered the affiliates of the Registrant
at that date.
The number of shares outstanding of the Registrant's Common Stock, as of
March 23, 1999: 1,380,000 shares of $1.00 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
____________________________________________
None.
Transitional Small Business Disclosure Format (check one)
Yes _____ No __X__
PART I
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be
identified by the use of forward-looking terminology, such as "may,"
"will," "expect," "estimate," "anticipate," "believe," "target,"
"plan," "project," or "continue" or the negatives thereof or other
variations thereon or similar terminology, and are made on the basis of
management's plans and current analyses of the Company, its business and
the industry as a whole. These forward-looking statements are subject to
risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases,
have affected, and in the future could affect, the Company's financial
performance and could cause actual results for fiscal 1998 and beyond to
differ materially from those expressed or implied in such forward-looking
statements. The Company does not undertake to publicly update or revise
its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not
be realized.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Thomasville Bancshares, Inc. (the "Company") was incorporated under
the laws of the State of Georgia on March 30, 1995 and owns 100% of the
outstanding capital stock of Thomasville National Bank (the "Bank"). The
Company was incorporated as a mechanism to enhance the Bank's ability to
serve its future customers' requirements for financial services. The
holding company structure provides flexibility for expansion of the
Company's banking business through acquisition of other financial
institutions and provision of additional banking-related services which
the traditional commercial bank may not provide under present laws. For
example, banking regulations require that the Bank maintain a minimum
ratio of capital to assets. In the event that the Bank's growth is such
that this minimum ratio is not maintained, the Company may borrow funds,
subject to the capital adequacy guidelines of the Federal Reserve Board,
and contribute them to the capital of the Bank and otherwise raise capital
in a manner which is unavailable to the Bank under existing banking
regulations. On February 28, 1998, the Company declared a two-for-one
stock split to be effected in the form of a 100% stock dividend payable to
shareholders of record as of the close of business on January 31, 1998.
In August 1998, the Company completed a public offering of its Common
Stock in which the Company sold 180,000 shares of Common Stock at a price
of $15.00 per share.
The Bank commenced operations on October 2, 1995 in a temporary
facility located at 108 Washington Street in Thomasville, Georgia. On
January 6, 1997, the Bank moved into its permanent facility located at 301
North Broad Street. The permanent facility, the construction of which was
recently completed, contains approximately 8,500 square feet of finished
space and an additional 2,000 square feet of unfinished space which may be
built out in the future should the Bank require additional space for
expansion. The building contains a lobby, vault, eight offices, four
teller stations, three drive-in windows, a boardroom conference facility,
a loan operations area, and an area for the Bank's bookkeeping operations.
In October 1998, the Company opened a branch of the Bank at 1320
Remington Avenue in Thomasville, Georgia. The branch facility contains
2,400 square feet of space. The branch contains a lobby, four inside
teller stations, three drive-up windows and a drive-up ATM.
The Bank is a full service commercial bank, without trust powers.
The Bank offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement and Keogh accounts, regular interest
bearing statement savings accounts, certificates of deposit, commercial
loans, real estate loans, home equity loans and consumer/installment
loans. In addition, the Bank provides such consumer services as U.S.
Savings Bonds, travelers checks, cashiers checks, safe deposit boxes, bank
by mail services, direct deposit and automatic teller services.
MARKET AREA AND COMPETITION
The market area of the Bank in Thomasville, Thomas County, Georgia
has been experiencing steady growth in both jobs and banking deposits in
recent years. Thomasville is the county seat of Thomas County, and
contains one-half of the county's population. Thomasville is a regional
and commercial medical center for Southwest Georgia. Thomas County
maintains a steady industrial and agricultural base, which has been
expanding in recent years. The largest employers in the county include
the John D. Archbold Memorial Hospital, Sunnyland Food (a food processing
company) and Warners (foundation garments). Agricultural activities in
the county are supported by the second largest fresh vegetable market in
Georgia and a daily cash market for hogs, cattle and poultry.
The populations of Thomasville and Thomas County are approximately
22,500 and 42,500, respectively. The median household income in Thomas
County in 1997 was $22,500 and the unemployment rate was 4% 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 three commercial banks with a total of
ten branches in Thomasville and four additional branches in smaller
communities in Thomas County. In addition, there is one savings and loan
association in Thomasville. There are also five credit unions
headquartered in Thomas County.
Financial institutions primarily compete with one another for
deposits. In turn, a bank's deposit base directly affects such bank's
loan activities and general growth. Primary methods of competition
include interest rates on deposits and loans, service charges on deposit
accounts and the designing of unique financial services products. The
Bank is competing with financial institutions which have much greater
financial resources than the Bank, and which may be able to offer more and
unique services and possibly better terms to their customers. However,
the management of the Bank believes that the Bank will be able to attract
sufficient deposits to enable the Bank to compete effectively with other
area financial institutions.
The Bank competes with existing area financial institutions other
than commercial banks and savings and loan associations, including
insurance companies, consumer finance companies, brokerage houses, credit
unions and other business entities which have recently been invading the
traditional banking markets. Due to the growth of the Thomasville area,
it is anticipated that additional competition will continue from new
entrants to the market.
DEPOSITS
The Bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement and Keogh accounts, regular
interest bearing statement savings accounts and certificates of deposit
with fixed and variable rates and a range of maturity date options. The
sources of deposits are residents, businesses and employees of businesses
within the Bank's market area, obtained through the personal solicitation
of the Bank's officers and directors, direct mail solicitation and
advertisements published in the local media. The Bank pays competitive
interest rates on time and savings deposits up to the maximum permitted by
law or regulation. In addition, the Bank has implemented a service charge
fee schedule competitive with other financial institutions in the Bank's
market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check
charges and the like.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheet of the Company for the years ended December 31, 1998 and 1997. This
presentation includes all major categories of interest earning assets and
interest bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Cash and due from banks $ 2,548,585 $ 2,021,394
Tax-exempt securities 500,000 20,833
Taxable securities 4,012,503 3,453,476
Federal funds sold 2,654,366 3,410,003
Net loans 63,128,467 43,598,375
---------- ----------
Total earning assets $70,295,336 $50,482,687
Other assets 3,556,620 3,033,250
---------- ----------
Total assets $76,400,541 $55,537,331
========== ==========
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Non-interest bearing deposits $ 9,595,481 $ 7,706,697
NOW and money market deposits 22,533,367 17,021,767
Savings deposits 1,526,434 997,174
Time deposits 34,177,792 22,894,694
Other borrowings 313,277 391,695
Other liabilities 428,640 369,874
---------- ----------
Total liabilities $68,574,991 $49,381,901
Stockholders' equity 7,825,550 6,155,430
---------- ----------
Total liabilities and
stockholders' equity $76,400,541 $55,537,331
========== ==========
The following is a presentation of an analysis of the net interest
earnings of the Company for the periods indicated with respect to each
major category of interest earning asset and each major category of
interest bearing liability:
Year Ended December 31, 1998
----------------------------------------
Average Interest Average
Assets Amount Earned Yield
------ ----------- ---------- ---------
Tax-exempt securities $ 500,000 $ 16,400 4.97%(3)
Taxable securities 4,012,503 229,106 5.71%
Federal funds sold 2,654,366 136,981 5.16%
Net loans 63,128,467(1) 6,003,022(2) 9.51%
---------- ---------
Total earning assets $70,295,336 $6,385,509 9.08%
========== =========
Average Interest Average
Liabilities Amount Expense Cost
----------- ----------- ---------- -------
NOW and money market deposits $22,533,367 $ 879,373 3.90%
Savings deposits 1,526,434 52,100 3.41%
Time deposits 34,177,792 2,019,206 5.91%
Other borrowings 313,277 16,115 5.14%
---------- ----------
Total interest bearing
Liabilities $58,550,870 $ 2,966,794 5.07%
========== ==========
Net yield on earning assets 4.86%
====
(1) During 1998, all loans were accruing interest
(2) Interest earned on net loans includes $190,850 in loan fees and loan
service fees.
(3) The average yield on tax-exempt securities is tax equivalent.
Year Ended December 31, 1997
----------------------------------------
Average Interest Average
Assets Amount Earned Yield
------ ----------- ----------- -------
Tax-exempt securities $ 20,833 $ 1,019 4.89%
Taxable securities 3,453,476 200,271 5.80%
Federal funds sold 3,410,003 193,085 5.66%
Net loans 43,598,375(1) 4,175,214(2) 9.58%
----------- ---------
Total earning assets $ 50,482,687 $4,596,589 9.05%
=========== =========
Average Interest Average
Liabilities Amount Expense Cost
----------- ------------ ---------- -------
NOW and money market deposits $ 17,021,767 $ 650,368 3.82%
Savings deposits 997,174 34,740 3.48%
Time deposits 22,894,694 1,337,039 5.84%
Other borrowings 391,695 17,508 4.47%
----------- ---------
Total interest bearing liabilities $ 41,305,330 $2,039,655 4.94%
=========== =========
Net yield on earning assets 5.01%
====
____________________
(1) During 1997, all loans were accruing interest.
(2) Interest earned on net loans includes $145,624 in loan fees and loan
service fees.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect on interest income, interest expense and net interest
income in the periods indicated, of changes in average balance and rate
from the corresponding prior period is shown below. The effect of a
change in average balance has been determined by applying the average rate
in the earlier period to the change in average balance in the later
period, as compared with the earlier period. Changes resulting from
average balance/rate variances are included in changes resulting from
rate. The balance of the change in interest income or expense and net
interest income has been attributed to a change in average rate.
Year Ended December 31, 1998
compared with
Year Ended December 31, 1997
------------------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
Interest earned on:
Tax-exempt securities $ 15,370 $ 11 $ 15,381
Taxable securities 31,892 (3,057) 28,835
Federal funds sold (40,136) (15,968) (56,104)
Net loans 1,858,117 (30,309) 1,827,808
--------- -------- ---------
Total interest income 1,865,243 (49,323) 1,815,920
--------- -------- ---------
Interest paid on:
NOW deposits and money market 215,094 13,911 229,005
Savings deposits 18,044 (684) 17,360
Time deposits 665,970 16,197 682,167
Other borrowings (5,542) 4,149 (1,393)
--------- -------- ---------
Total interest expense 893,566 33,573 927,139
--------- -------- ---------
Change in net
interest income $ 971,677 $ (82,896) $ 888,781
========= ======== =========
Year Ended December 31, 1997
compared with
Year Ended December 31, 1996
------------------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
Interest earned on:
Tax-exempt securities $ 1,019 $ -- $ 1,019
Taxable securities 47,964 (1,304) 46,660
Federal funds sold 40,091 20,973 (19,118)
Net loans 1,923,802 16,568 1,940,370
--------- -------- ---------
Total interest income 1,932,694 36,237 1,968,931
--------- -------- ---------
Interest paid on:
NOW deposits and money market 286,780 47,087 333,867
Savings deposits 16,519 (105) 16,414
Time deposits 643,961 10,860 654,821
Other borrowings 17,508 -- 17,508
--------- -------- ---------
Total interest expense 964,768 57,842 1,022,610
--------- -------- ---------
Change in net
interest income $ 967,926 $ (21,605) $ 946,321
========= ======== =========
DEPOSITS
The Bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement and Keogh accounts, regular
interest bearing statement savings accounts and certificates of deposit
with fixed and variable rates and a range of maturity date options. The
sources of deposits are residents, businesses and employees of businesses
within the Bank's market area, obtained through the personal solicitation
of the Bank's officers and directors, direct mail solicitation and
advertisements published in the local media. The Bank pays competitive
interest rates on time and savings deposits up to the maximum permitted by
law or regulation. In addition, the Bank has implemented a service charge
fee schedule competitive with other financial institutions in the Bank's
market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check
charges and the like.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit
categories:
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- --------------------
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
- ---------------- ------- --------- ------- ---------
Non-interest bearing
demand deposits $ 9,595,481 N.A. $ 7,706,697 N.A.
NOW and money
market deposits $ 22,533,367 3.90% $17,021,767 3.82%
Savings deposits $ 1,526,434 3.41% $ 997,174 3.48%
Time deposits $ 34,177,792 5.91% $22,894,694 5.84%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective maturities for
the year ended December 31, 1998:
Time
Certificates
of Deposit
------------
3 months or less $ 3,967,369
3-6 months 4,775,510
6-12 months 5,165,705
over 12 months 1,789,441
-----------
Total $ 15,698,025
===========
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities,
including commercial/industrial, consumer and real estate loans. As of
December 31, 1998, the Bank had a legal lending limit for unsecured loans
of up to $1,413,000 to any one person. See "Supervision and Regulation."
While risk of loss in the Bank's loan portfolio is primarily tied to
the credit quality of the various borrowers, risk of loss may also
increase due to factors beyond the Bank's control, such as local, regional
and/or national economic downturns. General conditions in the real estate
market may also impact the relative risk in the Bank's real estate
portfolio. Of the Bank's target areas of lending activities, commercial
loans are generally considered to have greater risk than real estate loans
or consumer installment loans.
Management of the Bank intends to originate loans and to participate
with other banks with respect to loans which exceed the Bank's lending
limits. Management of the Bank does not believe that loan participations
necessarily pose any greater risk of loss than loans which the Bank
originates.
The following is a description of each of the major categories of
loans in the Bank's loan portfolio:
Commercial, Financial and Agricultural Loans
Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which
are potential deposit customers of the Bank. This category of loans
includes loans made to individual, partnership or corporate borrowers, and
obtained for a variety of business purposes. Particular emphasis is
placed on loans to small and medium-sized businesses. The primary
repayment risk for commercial loans is the failure of the business due to
economic or financial factors. Although the Bank typically looks to a
commercial borrower's cash flow as the principal source of repayment for
such loans, many commercial loans are secured by inventory, equipment,
accounts receivable, and other assets.
Consumer Loans
The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including
automobile loans to individuals and pre-approved lines of credit. This
category of loans also includes lines of credit and term loans secured by
second mortgages on the residences of borrowers for a variety of purposes
including home improvements, education and other personal expenditures.
In evaluating these loans the Bank reviews the borrower's level and
stability of income and past credit history and the impact of these
factors on the ability of the borrower to repay the loan in a timely
manner. In addition, the Bank maintains a proper margin between the loan
amount and collateral value.
Real Estate Loans
The Bank's real estate loans consist of residential first and second
mortgage loans, residential construction loans and commercial real estate
loans to a limited degree. These loans are made consistent with the
Bank's appraisal policy and real estate lending policy which detail
maximum loan-to-value ratios and maturities. These loan-to-value ratios
are sufficient to compensate for fluctuations in the real estate market to
minimize the risk of loss to the Bank.
The following table presents various categories of loans contained
in the Bank's loan portfolio for the periods indicated and the total
amount of all loans for such periods:
As of As of
Type of Loan December 31, 1998 December 31, 1997
- ------------ ----------------- -----------------
Commercial, Financial
and Agricultural $17,866,367 $16,487,930
Real Estate - Construction 3,622,240 1,777,493
Real Estate - Mortgage 41,785,089 29,825,224
Installment and Other Loans to
Individuals 6,464,344 5,661,179
---------- ----------
Subtotal $69,738,040 $54,111,826
Less: Allowance for possible
loan losses (868,477) (644,913)
---------- ----------
Total (net of allowances) $68,869,563 $53,466,913
========== ==========
The following is a presentation of an analysis of maturities of
loans as of December 31, 1998:
Due in 1 Due After 1 to Due After
Type of Loan Year or Less 5 Years 5 Years Total
- ------------ ------------ -------------- --------- -----
(In thousands)
Commercial, Financial
and Agricultural $ 11,027 $ 6,525 $ 314 $17,866
Real Estate - Construction 3,622 -- -- 3,622
-------- ------- ----- ------
Total $ 14,649 $ 6,525 $ 314 $21,488
======== ======= ===== ======
For the above loans, the following is a presentation of an analysis
of sensitivities to changes in interest rates as of December 31, 1998:
Due in 1 Due After 1 to Due After
Interest Category Year or Less 5 Years 5 Years Total
- ------------ ------------ -------------- --------- -----
(In thousands)
Predetermined interest rate $ 3,612 $ 4,183 $ 102 $ 7,897
Floating interest rate 11,037 2,342 212 13,591
-------- ------- ----- ------
Total $ 14,649 $ 6,525 $ 314 $21,488
======== ======= ===== ======
As of December 31, 1998 and 1997, all loans were accruing interest
and no loans were defined as "troubled debt restructurings." As of
December 31, 1998, one loan amounting to approximately $7,000 was
contractually past due over 90 days as to principal and interest payments.
This loan is still accruing interest as it is well secured and in the
process of collection.
As of December 31, 1998, except for three loans in the amount of
$104,826 which were classified as special mention, there were no loans not
disclosed above that are classified for regulatory purposes as doubtful,
substandard or special mention which (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources, or (ii) represent
material credits about which management is aware of any information which
causes management to have serious doubts as to the ability of such borrowers
to comply with the loan repayment terms. There are no loans not disclosed
above where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of such borrowers
to comply with the present loan repayment terms.
Accrual of interest is discontinued on a loan when management of the
Bank determines upon consideration of economic and business factors
affecting collection efforts that collection of interest is doubtful. At
December 31, 1998, all loans were accruing interest.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Bank's loss experience is furnished in the
following table for the periods indicated, as well as a breakdown of the
allowance for possible loan losses:
Analysis of the Allowance for Possible Loan Losses
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Balance at beginning of period $ 644,913 $ 447,626
Charge-offs:
Installments and other
loans to individuals (32,817) (31,005)
Recoveries 5,381 3,292
-------- --------
Net charge-offs (27,436) (27,713)
-------- --------
Additions charged to operations 251,000 225,000
-------- --------
Balance at end of period $ 868,477 $ 644,913
======== ========
Ratio of net charge-offs during the
period to average loans outstanding
during the period .04% .06%
=== ===
At December 31, 1998 the allowance was allocated as follows:
Percent of loans
in each category
Amount to total loans
---------- ----------------
Commercial, Financial and Agricultural $ 278,000 25.6%
Real Estate - Construction 66,000 5.2%
Real Estate - Mortgage 401,000 59.9%
Installment and Other Loans to Individuals 105,000 9.3%
Unallocated 18,477 N/A
--------- -----
Total $ 868,477 100.0%
========= =====
At December 31, 1997 the allowance was allocated as follows:
Percent of loans
in each category
Amount to total loans
---------- ----------------
Commercial, Financial and Agricultural $ 215,000 31.1%
Real Estate - Construction 28,000 3.3%
Real Estate - Mortgage 295,000 55.1%
Installment and Other Loans to Individuals 78,000 10.5%
Unallocated 28,913 N/A
--------- -----
Total $ 644,913 100.0%
========= =====
LOAN LOSS RESERVE
In considering the adequacy of the Company's allowance for possible
loan losses, management has focused on the fact that as of December 31,
1998, 25.6% of outstanding loans are in the category of commercial loans,
which includes commercial real estate loans and agricultural loans.
Commercial loans are generally considered by management as having greater
risk than other categories of loans in the Company's loan portfolio.
However, 92% of these commercial loans at December 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 any
risk of loss inherently present in commercial loans.
The Company's consumer loan portfolio is also well secured. At
December 31, 1998 the majority of the Company's consumer loans were
secured by collateral primarily consisting of automobiles, boats and other
personal property. Management believes that these loans involve less risk
than commercial loans.
Real estate mortgage loans constituted 59.9% of outstanding loans
at December 31, 1998. All loans in this category represent residential
real estate mortgages where the amount of the original loan generally does
not exceed 80.0% of the appraised value of the collateral. These loans
are considered by management to be well secured with a low risk of loss.
A review of the loan portfolio by an independent firm is conducted
annually. The purpose of this review is to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses.
The review includes analyses of historical performance, the level of non-
conforming and rated loans, loan volume and activity, review of loan files
and consideration of economic conditions and other pertinent information.
Upon completion, the report is approved by the Board and management of
the Bank. In addition to the above review, the Bank's primary regulator,
the Comptroller of the Currency, also conducts an annual examination of
the loan portfolio. Upon completion, the Comptroller of the Currency
presents its report of findings to the Board and management of the Bank.
Information provided from the above two independent sources, together
with information provided by the management of the Bank and other
information known to members of the Board, are utilized by the Board to
monitor, on a quarterly basis, the loan portfolio. Specifically, the
Board attempts to identify risks inherent in the loan portfolio (e.g.,
problem loans, potential problem loans and loans to be charged off),
assess the overall quality and collectibility of the loan portfolio, and
determine amounts of the allowance for loan losses and the provision for
loan losses to be reported based on the results of their review.
INVESTMENTS
As of December 31, 1998, investment securities comprised
approximately 6.9% of the Bank's assets and net loans comprised
approximately 78.6% of the Bank's assets. The Bank invests primarily in
direct obligations of the United States, obligations guaranteed as to
principal and interest by the United States, obligations of agencies of
the United States and certificates of deposit issued by commercial banks.
In addition, the Bank enters into Federal Funds transactions with its
principal correspondent banks, and acts as a net seller of such funds.
The sale of Federal Funds amounts to a short-term loan from the Bank to
another bank.
The following table presents, for the period indicated, the book
value of the Bank's investments. All securities held at December 31, 1998
and 1997 were categorized as available-for-sale.
Investment Category December 31,
------------------- ---------------------------
1998 1997
---- ----
Available-for-Sale:
- ------------------
Obligations of U.S. Treasury
and other U.S. Agencies $ 5,050,066 $ 3,529,219
Tax-exempt securities 500,000 500,000
Federal Reserve Bank and Federal
Home Loan Bank Stock 483,900 165,000
---------- ----------
Total $ 6,033,966 $ 4,194,219
========== ==========
The following table indicates for the year ended December 31, 1998
the amount of investments due in (i) one year or less, (ii) one to five
years, (iii) five to ten years, and (iv) over ten years:
Weighted
Average
Investment Category Amount Yield
------------------- ----------- --------
Available for Sale:
- ------------------
Tax-exempt securities(1)
Over 10 years $ 500,000 4.97%
Obligations of U.S. Treasury and other
U.S. Agencies:
0 - 1 year 3,195,284 5.01%
Over 1 through 5 years 1,854,782 5.90%
Federal Reserve Bank and Federal Home
Loan Bank Stock, no maturity 483,900 6.70%
----------
Total $ 6,033,966 5.41%
==========
____________________
(1) The yield on tax-exempt securities is tax-equivalent.
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated
equity for the periods indicated are as follows:
December 31,
------------------
1998 1997
---- ----
Return on Average Assets 1.18% 1.01%
Return on Average Equity 11.50% 9.10%
Average Equity to Average Assets Ratio 10.20% 11.10%
Dividend Payout Ratio -- --
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing and capital
policies. Certain of the officers of the Bank are responsible for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix, stability and leverage of all
sources of funds while adhering to prudent banking practices. It is the
overall philosophy of management to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by
individuals, partnerships and corporations. Management of the Bank seeks
to invest the largest portion of the Bank's assets in commercial, consumer
and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a
monthly report reflecting interest-sensitive assets and interest-sensitive
liabilities being prepared and presented to the Bank's Board of Directors.
The objective of this policy is to control interest-sensitive assets and
liabilities so as to minimize the impact of substantial movements in
interest rates on the Bank's earnings.
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank
to another bank which cannot provide that service for itself from an
economic or practical standpoint. The Bank is required to purchase
correspondent services offered by larger banks, including check
collections, purchase of Federal Funds, security safekeeping, investment
services, coin and currency supplies, overline and liquidity loan
participations and sales of loans to or participations with correspondent
banks. Such correspondent arrangements are governed, in part, by the
provisions of 12 C.F.R. 32.107 and O.C.C. Banking Circular 181 (Rev.)
(August 2, 1984).
The Bank sells loan participations to correspondent banks with
respect to loans which exceed the Bank's lending limit. As compensation
for services provided by a correspondent, the Bank may maintain certain
balances with such correspondents in non-interest bearing accounts. At
December 31, 1998 the Bank had outstanding participations totaling
$3,649,321.
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 Bank's executive management allocated resources in February 1998
for the purpose of forming a Year 2000 committee. The committee was
charged with developing and carrying out a comprehensive project plan to
address Year 2000 issues. The committee reports progress to the Board of
Directors on a monthly basis. The project plan incorporates guidelines
set forth by the OCC, FRB and FFIEC. The awareness and assessment phases
are complete. During the assessment phase, a comprehensive inventory of
all hardware, software, systems, service providers, vendors,
correspondents and embedded chips systems utilized by the Bank was
performed, with mission-critical areas given the highest priority. Due
diligence is being performed and will continue to be an on-going process
with each area to ensure vendor readiness. Renovation of vendor products
is substantially complete. The core bank processing vendor has provided
the Company with Year 2000 software warranty. In addition, the above
vendor provided the Company with a copy of a certificate which it obtained
from the Information Technology Association of America ("ITAA") stating
that it is in compliance with ITAA guidelines and procedures relating to
Year 2000 issues. Contingency plans, such as the selection of other
vendors, have been formulated in the event that a vendor is not able to
provide a Year 2000 compliant product within the Bank's established
timeframes. The Company will participate in user group testing with the
core bank processing vendor. The Company will test the remaining mission-
critical products where feasible. The Bank has implemented a process to
assess and respond to large customer risk.
The Bank has budgeted $25,000 for expenses associated with Year 2000
compliance. Less than $2,500 of the budgeted amount has been incurred to
date. However, there can be no assurances that unforseen difficulties or
costs will not arise. In addition, there can be no assurance that systems
of other companies on which the Company's systems rely, such as the Bank's
data processing vendor, will be modified on a timely basis, or that the
failure by another company to properly modify its systems will not
negatively impact the Company's systems or operations.
FACILITIES
Until January 6, 1997, the Bank operated out of a temporary facility
located at 108 Washington Street in Thomasville, Georgia. On January 6,
1997, the Bank moved to its permanent facility located at 301 North Broad
Street. The building contains approximately 8,500 square feet of finished
space which was constructed at a cost of approximately $1,050,000. The
building also contains an additional 2,000 square feet of unfinished space
which may be built out in the future should the Bank require additional
space for expansion. The building contains a lobby, a vault, eight
offices, four teller stations, three drive-in windows, a boardroom
conference facility, a loan operations area, and an area for the Bank's
bookkeeping operations.
EMPLOYEES
The Bank presently employs seven persons on a part-time basis and 29
persons on a full-time basis, including seven 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.
REGISTRAR AND TRANSFER AGENT
SunTrust Bank, Atlanta serves as the Transfer Agent and Registrar
for the Common Stock.
SUPERVISION AND REGULATION
The Company and the Bank operate in a highly regulated environment,
and their business activities are governed by statute, regulation and
administrative policies. The business activities of the Company and the
Bank are closely supervised by a number of federal regulatory agencies,
including the Federal Reserve Board, the Comptroller of the Currency
("Comptroller"), the Georgia Department of Banking and Finance (the
"Georgia Banking Department") and the Federal Deposit Insurance
Corporation ("FDIC").
The Company is regulated by the Federal Reserve Board under the
federal Bank Holding Company Act, which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or
substantially all of the assets of a bank, and before merging or
consolidating with another bank holding company. The Federal Reserve
Board (pursuant to regulation and published policy statements) has
maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve
Board policy, the Company may be required to provide financial support to
a subsidiary bank at a time when, absent such Federal Reserve Board
policy, the Company may not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, which became effective in November 1994, the restrictions on
interstate acquisitions of banks by bank holding companies were repealed
on September 29, 1995, such that the Company and any other bank holding
company located in Georgia is able to acquire a bank located in any other
state, and a bank holding company located outside Georgia can acquire any
Georgia-based bank, in either case subject to certain deposit percentage
and other restrictions. The legislation also provides that, unless an
individual state elects beforehand either (i) to accelerate the effective
date or (ii) to prohibit out-of-state banks from operating interstate
branches within its territory, on or after June 1, 1997, adequately
capitalized and managed bank holding companies will be able to consolidate
their multistate bank operations into a single bank subsidiary and to
branch interstate through acquisitions. De novo branching by an out-of-
state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. Pursuant to the Riegle-Neal Interstate Banking and
Branching Efficiency Act, the State of Georgia has adopted an interstate
banking statute that, as of June, 1997, removed existing restrictions on
the ability of banks to branch interstate through mergers, consolidations
and acquisitions.
A bank holding company is generally prohibited from acquiring
control of any company which is not a bank and from engaging in any
business other than the business of banking or managing and controlling
banks. However, there are certain activities which have been identified
by the Federal Reserve Board to be so closely related to banking as to be
a proper incident thereto and thus permissible for bank holding companies,
including the following activities: acting as investment or financial
advisor to subsidiaries and certain outside companies; leasing personal
and real property or acting as a broker with respect thereto; providing
management consulting advice to nonaffiliated banks and nonbank depository
institutions; operating collection agencies and credit bureaus; acting as
a futures commission merchant; providing data processing and data
transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligations of the
United States, the states and their political subdivisions. In
determining whether an activity is so closely related to banking as to be
permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
such benefits to the public as greater convenience, increased competition
and gains in efficiency that outweigh such possible adverse effects as
undue concentration of resources, decreased or unfair competition,
conflicts of interest and unsound banking practices. Generally, bank
holding companies are required to obtain prior approval of the Federal
Reserve Board to engage in any new activity not previously approved by the
Federal Reserve Board.
The Company is also regulated by the Georgia Banking Department
under the Georgia Bank Holding Company Act, which requires every Georgia
bank holding company to obtain the prior approval of the Georgia
Commissioner of Banking before acquiring more than 5% of the voting shares
of any bank or all or substantially all of the assets of a bank, or before
merging or consolidating with any other bank holding company. A Georgia
bank holding company is generally prohibited from acquiring ownership or
control of 5% or more of the voting shares of any bank unless the bank
being acquired is either a bank for purposes of the federal Bank Holding
Company Act of 1956, or a federal or state savings and loan association or
a savings bank or federal savings bank whose deposits are insured by the
federal deposit insurance program and such bank has been in existence and
continuously operating as a bank for a period of five years or more prior
to the date of acquisition.
As a national bank, the Bank is subject to the supervision of the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve
Board. With respect to expansion, national banks situated in the State of
Georgia are generally prohibited from establishing branch offices or
facilities outside of the county in which such main office is located,
except (i) in adjacent counties in certain situations, or (ii) by means of
a merger, consolidation or sale of assets. The Georgia Legislature has
adopted legislation which reduces the limitations imposed on banks
situated in the State of Georgia to establish branch offices. As of July
1, 1998, a bank located in the State of Georgia will be permitted to
establish new or additional branch banks anywhere in the state by
relocation of the parent bank or another branch bank, or by merger,
consolidation, or purchase of assets and assumption of liabilities
involving another parent bank or branch bank.
The Bank is also subject to the Georgia banking and usury laws
restricting the amount of interest which it may charge in making loans or
other extensions of credit. In addition, the Bank, as a subsidiary of the
Company, is subject to restrictions under federal law in dealing with the
Company and other affiliates, if any. These restrictions apply to
extensions of credit to an affiliate, investments in the securities of an
affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to
legal lending limitations. Under federal law, a national bank may grant
unsecured loans and extensions of credit in an amount up to 15% of its
unimpaired capital and surplus to any person if the loans and extensions
of credit are not fully secured by collateral having a market value at
least equal to their face amount. In addition, a national bank may grant
loans and extensions of credit to a single person up to 10% of its
unimpaired capital and surplus, provided that the transactions are fully
secured by readily marketable collateral having a market value determined
by reliable and continuously available price quotations, at least equal to
the amount of funds outstanding. This 10% limitation is separate from,
and in addition to, the 15% limitation for unsecured loans. Loans and
extensions of credit may exceed the general lending limit if they qualify
under one of several exceptions. Such exceptions include certain loans or
extensions of credit arising from the discount of commercial or business
paper, the purchase of bankers' acceptances, loans secured by documents of
title, loans secured by U.S. obligations and loans to or guaranteed by the
federal government.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller. In
1989, both the Federal Reserve Board and the Comptroller issued new risk-
based capital guidelines for bank holding companies and banks which make
regulatory capital requirements more sensitive to differences in risk
profiles of various banking organizations. The capital adequacy
guidelines issued by the Federal Reserve Board are applied to bank holding
companies on a consolidated basis with the banks owned by the holding
company. The Comptroller's risk capital guidelines apply directly to
national banks regardless of whether they are a subsidiary of a bank
holding company. Both agencies' requirements (which are substantially
similar), provide that banking organizations must have capital equivalent
to 8% of weighted risk assets. The risk weights assigned to assets are
based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example,
securities with an unconditional guarantee by the United States government
are assigned to the lowest risk category. A risk weight of 50% is
assigned to loans secured by owner-occupied one to four family residential
mortgages, provided that certain conditions are met. The aggregate amount
of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are
added together to determine total risk-weighted assets. Both the Federal
Reserve Board and the Comptroller have also implemented new minimum
capital leverage ratios to be used in tandem with the risk-based
guidelines in assessing the overall capital adequacy of banks and bank
holding companies. Under these rules, banking institutions are required
to maintain a ratio of 3% "Tier 1" capital to total assets (net of
goodwill). Tier 1 capital includes common shareholders equity,
noncumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements, applicable only to top-rated banking institutions.
Institutions operating at or near these levels are expected to have well-
diversified risk, high asset quality, high liquidity, good earnings and in
general, have to be considered strong banking organizations, rated
composite 1 under the CAMELS rating system for banks. Institutions with
lower ratings and institutions with high levels of risk or experiencing or
anticipating significant growth would be expected to maintain ratios 100
to 200 basis points above the stated minimums.
The Comptroller has amended the risk-based capital guidelines
applicable to national banks in an effort to clarify certain questions of
interpretation and implementation, specifically with regard to treatment
of originated and purchased mortgage servicing rights and other intangible
assets. The Comptroller's guidelines provide that intangible assets are
generally deducted from Tier 1 capital in calculating a 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 Comptroller currently maintains
that only mortgage servicing rights and purchased credit card
relationships meet the criteria to be considered qualifying intangibles.
The Comptroller'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 Comptroller has
amended its guidelines to increase the limitation on such qualifying
intangibles from 25% to 50% of Tier 1 capital and further to permit the
inclusion of purchased credit card relationships as a qualifying
intangible asset.
In addition, the Comptroller has adopted rules which clarify
treatment of asset sales with recourse not reported on a 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 transactions are treated as asset sales for bank Call
Report purposes, those assets will still be subject to a capital charge
under the risk-based capital guidelines.
The Comptroller, the Federal Reserve Board and the FDIC have 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.
The Act also provides that banks have to meet new safety and
soundness standards. In order to comply with the Act, the Federal Reserve
Board, the Comptroller and the FDIC have adopted regulations defining
operational and managerial standards relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits.
Both the capital standards and the safety and soundness standards
which the Act seeks to implement are designed to bolster and protect the
deposit insurance fund.
In response to the directive issued under the Act, the regulators
have established regulations which, among other things, prescribe the
capital thresholds for each of the five capital categories established by
the Act. The following table reflects the capital thresholds:
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
------------- ------------- --------
Well capitalized(1) 10% 6% 5%
Adequately Capitalized(1) 8% 4% 4%(2)
Undercapitalized(4) < 8% < 4% < 4%(3)
Significantly
Undercapitalized(4) < 6% < 3% < 3%
Critically
Undercapitalized -- -- <= 2%(5)
___________________________
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) < 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
As a national bank, the Bank is subject to examination and review
by the Comptroller. This examination is typically completed on-site at
least annually and is subject to off-site review at call. The
Comptroller, at will, can access quarterly reports of condition, as well
as such additional reports as may be required by the national banking
laws.
On July 1, 1995, the State of Georgia enacted an interstate banking
statute which authorizes bank holding companies located throughout the
United States to acquire banks and bank holding companies located in
Georgia under certain conditions. Such legislation has had the effect of
increasing competition among financial institutions in the 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.
The scope of regulation and permissible activities of the Company
and the Bank is subject to change by future federal and state legislation.
In addition, regulators sometimes require higher capital levels on a
case-by-case basis based on such factors as the risk characteristics or
management of a particular institution. The Company and the Bank are not
aware of any attributes of their operating plan that would cause
regulators to impose higher requirements.
ITEM 2. DESCRIPTION OF PROPERTY
In January 1997, the Company completed construction of its
headquarters building on a 1.1 acre tract of land located at 301 North
Broad Street. The building contains approximately 9,500 square feet of
finished space at a cost of approximately $1,125,000. The building also
contains an additional 1,000 square feet of unfinished space which may be
built out in the future should the Bank require additional space for
expansion. The building contains a lobby, a vault, eight offices, four
teller stations, three drive-in windows, a boardroom conference facility,
a loan operations area, and an area for the Bank's bookkeeping operations.
In October 1998, the Company opened its branch facility which is
located at 1320 Remington Avenue in Thomasville, Georgia. The branch
facility contains approximately 2,400 square foot of space. The branch
contains a lobby, four inside teller stations, three drive-up windows and
a drive-up ATM.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Company or the Bank is a party or of which any of their properties are
subject; nor are there material proceedings known to the Company to be
contemplated by any governmental authority; nor are there material
proceedings known to the Company, pending or contemplated, in which any
director, officer or affiliate or any principal security holder of the
Company, or any associate of any of the foregoing is a party or has an
interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended
December 31, 1998 to a vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Market Information
During the period covered by this report and to date, there has
been no established public trading market for the Company's Common Stock.
B. Holders of Common Stock
As of March 9, 1999, the number of holders of record of the
Company's Common Stock was 786.
C. Dividends
To date, the Company has not paid any cash dividends on its Common
Stock. As the Company and the Bank are both start-up operations, it is
the policy of the Board of Directors of the Company to reinvest earnings
for such period of time as is necessary to ensure the success of the
operations of the Company and of the Bank. There are no current plans to
initiate payment of cash dividends, and future dividend policy will depend
on the 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 Comptroller. Pursuant to
12 U.S.C. Section 56, a national bank may not pay dividends from its capital.
All dividends must be paid out of undivided profits, subject to other
applicable provisions of law. Payments of dividends out of undivided
profits is further limited by 12 U.S.C. Section 60(a), which prohibits a bank
from declaring a dividend on its shares of common stock until its surplus
equals its stated capital, unless there has been transferred to surplus
not less than 1/10 of the Bank's net income of the preceding two
consecutive half-year periods (in the case of an annual dividend).
Pursuant to 12 U.S.C. Section 60(b), the approval of the Comptroller is
required if the total of all dividends declared by the Bank in any calendar
year exceeds the total of its net income for that year combined with its
retained net income for the preceding two years, less any required
transfers to surplus.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements, related notes and statistical
information included elsewhere herein.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, assets and earnings improved.
Total assets increased by 35.0% from $64,894,489 in 1997 to $87,609,812 in
1998. Net loans increased from $53,466,913 in 1997, to $68,869,563 in
1998 due to strong loan demand coupled with a focused marketing effort.
Net charge-offs for 1998 were $27,436 compared to $27,713 in 1997, a
decrease of $277 despite a 28.8% increase in loans. At December 31, 1998,
the Bank's loan loss reserve ratio was 1.25% of total loans, slightly
above the 1.19% attained at December 31, 1997.
Deposits increased for the same period by $19,132,467 or 33.0%,
from $58,002,412 in 1997 to $77,134,879 in 1998. The majority of the
increase was attributable to marketing efforts. The Bank's investment
portfolio increased $1,839,747, or 43.9%, from $4,194,219 in 1997 to
$6,033,966 in 1998.
The Bank's loan to deposit ratio was 89.3% for 1998, compared to
92.2% in 1997. Despite the slight decrease in the above ratio, earnings
increased significantly in 1998 because of higher levels of average
earning assets, from $50.5 million in 1997 to $70.3 million 1998. Non-
interest expense increased by $351,166 from $1,720,027 for 1997 to
$2,071,193 for 1998. This increase was the result of an increase in
personnel expenses and other overhead expenses. Non-interest income
increased by $104,884 from $382,756 for 1997 to $487,640 for 1998. This
increase was due to higher levels and transactions relating to deposit
accounts. As a consequence to the increase in net interest margin and
non-interest income and despite the increase in overhead expense, net
interest income increased by $340,905, or 60.7%, from $561,657 in 1997 to
$902,562 in 1998.
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 in
1996 to $561,657 in 1997.
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
the rate paid on interest-bearing liabilities, such as deposits and
borrowings. Thus, net interest income is the key performance measure of
income.
Presented below are various components of assets and liabilities,
interest income and expense as well as their yield/cost for the period
indicated.
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------------ ------------------------
Interest Interest
Average Income Yield/ Average Income Yield/
Balance /Expense Cost Balance /Expense Cost
------- -------- ------ ------- -------- -----
(Dollars in thousands)
Federal funds sold $ 2,654 $ 137 5.16% $ 3,410 $ 193 5.66%
Securities 4,513 246 5.65% 3,474 201 5.79%
Loans, net 63,128 6,003 9.51% 43,598 4,175 9.58%
------ ----- ------ -----
Total earning assets $70,295 $6,386 9.08% $50,482 $4,569 9.05%
====== ===== ====== =====
Interest bearing
deposits $58,238 $2,951 5.07% $40,913 $2,022 4.94%
Other borrowings 313 16 5.11% 392 18 4.47%
------ ----- ------ -----
Total interest-
bearing liabilities $58,551 $2,967 5.07% $41,305 $2,040 4.94%
====== ===== ====== =====
Net yield on earning assets 4.86% 5.01%
==== ====
Net yield on earning assets for the years ended December 31, 1998
and 1997 were 4.86% and 5.01%, respectively. The decline in the net yield
during 1998 is primarily attributed to a higher cost of funds, mainly in
transactional accounts such as NOW, money market accounts and time
deposits. In order to keep pace with loan demand, management bid up the
rates on deposits to generate higher deposit levels. Despite the lower
net yield on earning assets, net interest income has increased from
$2,529,934 in 1997 to $3,418,715 for 1998 due to a $19.8 million increase
in average earning assets in 1998.
NON-INTEREST INCOME
Non-interest income for the years ended December 31, 1998 and 1997
amounted to $487,640 and $382,756, respectively. As a percentage of
average assets, non-interest income decreased from .69% in 1997 to .63% in
1998. The decrease in non-interest income during 1998 is attributable to
management's decision to increase service charges in order to attract
deposit accounts needed to fund loans.
The following table summarizes the major components of non-interest
income for the year ended December 31, 1998 and 1997.
1998 1997
---- ----
Service fees on deposit accounts $ 383,023 $ 269,808
Miscellaneous, other 104,617 112,948
-------- --------
Total non-interest income $ 487,640 $ 382,756
======== ========
NON-INTEREST EXPENSE
Non-interest expense increased from $1,720,027 in 1997 to
$2,071,193 in 1998. As a percentage of total average assets, non-interest
expenses decreased from 3.10% in 1997 to 2.71% in 1998. Management
attributes this significant decrease in the ratio of non-interest expense
to average assets to numerous programs and procedures undertaken during
1998 to attain higher operational efficiencies.
Non-Interest Expense
--------------------
December 31, December 31,
1998 1997
---------- ---------
Salaries and benefits $1,076,160 $ 878,641
Data Processing, ATM 109,430 60,809
Advertising and public relations 163,932 210,625
Depreciation, amortization 173,672 145,314
Other operating expenses 547,999 424,638
--------- ---------
Total non-interest expense $2,071,193 $1,720,027
========= =========
During 1998, the allowance for loan losses increased from $644,913
to $868,477. During 1998, the allowance for loan losses as a percent of
gross loans decreased from 1.19% to 1.25%. Net charge-offs during 1998
amounted to $27,436, or .04% of average loans. Net charge-offs in 1997
amounted to $27,713, or .06% of average loans. Net charge-offs for 1998
and 1997 are significantly lower than peer averages. As of December 31,
1998, management considers the allowance for loan losses to be adequate to
absorb possible future losses. However, there can be no assurance that
charge-offs in future periods will not exceed the allowance for loan
losses or that additional provisions to the allowance will not be
required.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Net interest income, the 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 year-end 1998 is
presented in the following table. The difference between rate sensitive
assets and rate sensitive liabilities, or the interest rate sensitivity
gap, is shown at the bottom of the table. Since all interest rates and
yields do not adjust at the same velocity, the gap is only a general
indicator of rate sensitivity.
After
three After six
months months After one
Within but but year but After
three within within within five
months one year one year five years years Total
------- ------- -------- ------- ------- -------
EARNING ASSETS (Dollars in Thousands)
Loans $29,901 $ 4,776 $ 7,442 $26,887 $ 732 $69,738
Available for sale
securities 1,486 1,205 504 1,855 984 6,034
Federal funds sold 5,625 -- -- -- -- 5,265
------ ------ ------- ------ ------ ------
Total earning assets $36,652 $ 5,981 $ 7,946 $28,742 $ 1,716 $81,037
====== ====== ======= ====== ====== ======
SUPPORTING SOURCES OF FUNDS
Interest-bearing demand
deposit and savings $27,638 $ -- $ -- $ -- $ -- $27,638
Certificates,
less than $100M 5,253 3,982 5,140 8,225 729 23,329
Certificates,
$100M and over 3,967 4,776 5,166 1,789 -- 15,698
------ ------ ------- ------ ------ ------
Total interest-
bearing liabilities $36,858 $ 8,758 $ 10,306 $10,014 $ 729 $66,665
====== ====== ======= ====== ====== ======
Interest rate
sensitivity gap $ (206) $(2,777) $ (2,360) $18,728 $ 987 $14,372
Cumulative gap $ (206) $(2,983) $ (5,343) $13,385 $14,372 $14,372
Interest rate
sensitivity gap ratio 0.99 0.68 0.77 2.87 2.35 1.22
Cumulative interest rate
sensitivity gap ratio 0.99 0.93 0.90 1.20 1.22 1.22
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 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 $19.1 million during 1998 and by $20.3 million
in 1997.
Below are the pertinent liquidity balances and ratios for the years
ended December 31, 1998 and 1997.
December 31, December 31,
1998 1997
---------- ----------
Cash and cash equivalents $8,410,920 $4,029,952
Securities 6,033,966 4,192,219
CDs, over $100,000 to total deposits ratio 20.4% 21.6%
Loan to deposit ratio 89.3% 92.2%
Brokered deposits -- --
At December 31, 1998, large denomination certificates accounted
for 20.4% of total deposits. Large denomination CDs are generally more
volatile than other deposits. As a result, management continually
monitors the competitiveness of the rates it pays on its large
denomination CDs and periodically adjusts its rates in accordance with
market demands. Significant withdrawals of large denomination CDs may
have a material adverse effect on the 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, 1998, cash and cash equivalents amounted to $8.4 million,
representing 9.6% of total assets. Securities available for sale provide
a secondary source of liquidity. Approximately $3.2 million of the $6.0
million in the Bank's securities portfolio is scheduled to mature in 1999.
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, 1998, 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 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 CAMELS 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 adds a measure of interest rate risk to the
determination of supervisory capital adequacy. In connection with this
new rule, those three agencies issued a joint policy statement to bankers,
effective June 26, 1996, to provide guidance on sound practices for
managing interest rate risk. In the policy statement, the agencies
emphasize the necessity of adequate oversight by a 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, 1998:
Minimum
December 31, regulatory
Bank 1998 requirement
- ---- ------------ -----------
Tier 1 Capital 14.7% 4.0%
Tier 2 Capital 1.2% --
---- ---
Total risk-based capital ratio 15.9% 8.0%
==== ===
Leverage ratio 12.3% 3.0%
==== ===
Company - Consolidated
- ----------------------
Tier 1 Capital 15.7% 4.0%
Tier 2 Capital 1.3% --
---- ---
Total risk-based capital ratio 17.0% 8.0%
==== ===
Leverage ratio 13.1% 3.0%
==== ===
The above ratios indicate that the capital positions of the Company
and the Bank are sound and that the Company is well positioned for future
growth.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1998 and 1997
Consolidated Statement of Income for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statement of Changes in Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
Board of Directors
Thomasville Bancshares, Inc.
Thomasville, Georgia
We have audited the accompanying consolidated balance sheets of
Thomasville Bancshares, Inc., (the "Company"), and subsidiary as of December 31,
1998 and 1997, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the two years in the period ended
December 31, 1998. 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, 1998 and 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, 1998, in conformity with
generally accepted accounting principles.
Atlanta, Georgia
March 2, 1999
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Balance Sheets
ASSETS As of December 31,
1998 1997
---- ----
Cash and due from banks $ 3,145,678 $ 2,447,683
Federal funds sold, net (Note 3) 5,265,242 1,582,269
---------- ----------
Total cash and cash equivalents $ 8,410,920 $ 4,029,952
Securities: (Notes 2 & 4)
Available-for-sale at fair value 6,033,966 4,194,219
Loans, net [includes loans of $3,413,779
(1998) and $3,066,426 (1997) to insiders]
(Notes 2, 5, 6 & 13) 68,869,563 53,466,913
Property and equipment, net (Notes 2 & 7) 3,455,659 2,484,979
Other assets 839,704 718,426
---------- ----------
Total Assets $87,609,812 $64,894,489
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $10,470,065 $ 9,334,294
Interest bearing deposits 66,664,814 48,668,118
---------- ----------
Total deposits (Note 9) $77,134,879 $58,002,412
Other liabilities 365,709 423,684
---------- ----------
Total Liabilities $77,500,588 $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; 1,380,000 (1998) and
1,200,000 (1997) shares issued and outstanding $ 1,380,000 $ 1,200,000
Paid-in-capital 7,955,261 5,418,801
Retained earnings/(deficit) 744,224 (158,338)
Unrealized gain on securities, net 29,739 7,930
---------- ----------
Total Shareholders' Equity $10,109,224 $ 6,468,393
---------- ----------
Total Liabilities and Shareholders' Equity $87,609,812 $64,894,489
========== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Income
For the Years Ended
December 31,
-------------------------
1998 1997
Interest Income: ---- ----
Interest and fees on loans (Note 2) $ 6,003,022 $ 4,175,214
Interest on investment securities 245,506 201,290
Interest on federal funds sold 136,981 193,085
---------- ----------
Total interest income $ 6,385,509 $ 4,569,589
Interest Expense:
Interest on deposits and borrowings (Note 10) 2,966,794 2,039,655
---------- ----------
Net interest income $ 3,418,715 $ 2,529,934
Provision for possible loan losses (Note 6) 251,000 225,000
---------- ----------
Net interest income after provision for
possible loan losses $ 3,167,715 $ 2,304,934
---------- ----------
Other Income:
Service fees on deposit accounts $ 383,023 $ 269,808
Miscellaneous, other 104,617 112,948
---------- ----------
Total other income $ 487,640 $ 382,756
---------- ----------
Other Expenses:
Salaries $ 831,622 $ 636,051
Employee benefits 244,538 242,590
Data processing and ATM 109,430 60,809
Advertising and public relations 163,932 210,625
Depreciation and amortization 173,672 145,314
Other operating expenses (Note 11) 547,999 424,638
---------- ----------
Total other expenses $ 2,071,193 $ 1,720,027
---------- ----------
Income before income tax $ 1,584,162 $ 967,663
Income tax (Notes 2 & 12) 681,600 406,006
---------- ----------
Net income $ 902,562 $ 561,657
Other comprehensive income, net of tax
Unrealized holding gains, securities 21,809 14,085
---------- ----------
Comprehensive income $ 924,371 $ 575,742
========== ==========
Basic earnings per share (Note 2) $ .72 $ .47
========== ==========
Diluted earnings per share (Note 2) $ .69 $ .46
========== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Changes in Shareholders' Equity
From December 31, 1995 to December 31, 1998
Number Common Paid Unrealized
Of Stock -in- Retained Gain,
Shares Par Value Capital Earnings Securities Total
------ --------- ------- -------- ---------- -----
Balance,
December 31,
1995 600,000 $ 600,000 $5,372,407 $ (361,193) $10,626 $5,621,840
------- --------- --------- --------- ------ ---------
Net income,
1996 - - - - - - 241,198 - - 241,198
Net unrealized
(losses)
- securities - - - - - - - - (16,781) (16,781)
------- --------- --------- --------- ------ ---------
Balance,
December 31,
1996 600,000 $ 600,000 $5,372,407 $ (119,995) $(6,155) $5,846,257
------- --------- --------- --------- ------ ---------
Net income,
1997 - - - - - - 561,657 - - 561,657
Net unrealized
gains
- securities - - - - - - - - 14,085 14,085
Stock split,
1997 600,000 600,000 - - (600,000) - - - -
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,
1998 - - - - - - 902,562 - - 902,562
Sale of stock 180,000 180,000 2,496,366 - - - - 2,676,366
Net unrealized
gains
- securities - - - - - - - - 21,809 21,809
Stock options
Restricted stock - - - - 40,094 - - - - 40,094
--------- --------- --------- --------- ------ ---------
Balance,
December 31,
1998 1,380,000 $1,380,000 $7,955,261 $ 744,224 $29,739 $10,109,224
========= ========= ========= ========= ====== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
---------------------------
1998 1997
Cash flows from operating activities: ---- ----
Net income $ 902,562 $ 561,657
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for loan losses $ 251,000 $ 225,000
Depreciation and amortization 173,672 145,314
Net accretion on securities (9,190) (5,196)
(Increase) in receivables and other assets (132,502) (263,143)
(Decrease) in payables and other liabilities (57,975) 215,295
----------- -----------
Net cash provided by operating activities $ 1,127,567 $ 878,927
----------- -----------
Cash flows from investing activities:
Purchase of securities, AFS $ (2,508,748) $ (2,222,938)
Maturity of securities, AFS 700,000 700,000
(Increase) in loans, net (15,653,650) (20,600,295)
Purchase of premises and equipment (1,133,128) (705,264)
----------- -----------
Net cash used in investing activities $(18,595,526) $(22,828,497)
----------- -----------
Cash flows from financing activities:
Sale of common stock $ 2,676,366 $ - -
Options, restricted stock 40,094 46,394
Increase in deposits 19,132,467 20,304,893
----------- -----------
Net cash provided by financing activities $ 21,848,927 $ 20,351,287
----------- -----------
Net increase in cash and cash equivalents $ 4,380,968 $ (1,598,283)
Cash and cash equivalents, beginning of period 4,029,952 5,628,235
----------- -----------
Cash and cash equivalents, end period $ 8,410,920 $ 4,029,952
=========== ===========
Supplemental Information:
Income taxes paid $ 671,588 $ 452,400
=========== ===========
Interest paid $ 2,917,995 $ 1,957,072
=========== ===========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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 commenced banking operations on
October 2, 1995. During the first calendar quarter of 1998, the Company
declared a two-for-one stock split, effected in the form of a 100% stock
dividend, thereby increasing the number of shares issued and outstanding
to 1,200,000. During the fourth calendar quarter of 1998, the Company
completed the sale of 180,000 shares of common stock for 2,676,366 net
of selling expenses, thereby increasing the number of shares issued and
outstanding to 1,380,000. 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 the aggregate balance
of shareholders' equity. Amounts concerning earnings per share and the
number of shares issued and outstanding were restated for 1997 to
reflect the two-for-one stock split effected during the first calendar
quarter of 1998.
Basis of Accounting. The accounting and reporting policies of the
Company conform to generally accepted accounting principles and to
general practices in the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for
loan losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment in
Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires
investments in equity and debt securities to be classified into three
categories:
1. Held-to-maturity securities. These are securities which the
Company has the ability and intent to hold until maturity.
These securities are stated at cost, adjusted for amortization
of premiums and the accretion of discounts. As of December 31,
1998 and 1997, 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, 1998 and 1997, the
Company had no securities in this category.
3. Available-for-sale securities. These are securities which are
not classified as either held-to-maturity or as trading
securities. These securities are reported at fair market
value. Unrealized gains and losses are reported, net of tax,
as separate components of shareholders' equity. Unrealized
gains and losses are excluded from the income statement.
A decline below cost in the fair value of any available-for-sale
or held-to-maturity security that is deemed other than temporary results
in a charge to income and the establishment of a new cost basis for the
security.
Purchase premiums and discounts on investment securities are
amortized and accreted to interest income using the level yield method
on the outstanding principal balances. In establishing the accretion of
discounts and amortization of premiums, the Company utilizes market
based prepayment assumptions. Interest and dividend income are
recognized when earned. Realized gains and losses for securities sold
are included in income and are derived using the specific identification
method for determining the costs of securities sold.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan fees
and the allowance for possible loan losses are deducted from total loans
in the statement of condition. Interest income is recognized over the
term of the loan based on the principal amount outstanding. Points on
real estate loans are taken into income to the extent they represent the
direct cost of initiating a loan. The amount in excess of direct costs
is deferred and amortized over the expected life of the loan.
Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full or timely collection of interest
or principal or when a loan becomes contractually past due by 90 days or
more with respect to interest or principal. When a loan is placed on
non-accrual status, all interest previously accrued but not collected is
reversed against current period interest income. Income on such loans
is then recognized only to the extent that cash is received and where
the future collection of principal is probable. Loans are returned to
accruing status only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal and
interest.
The Company adopted the provisions of SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting for Impairment of a Loan - Income Recognition and
Disclosure." These standards require impaired loans to be measured
based on the present value of expected future cash flows discounted at
the 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.
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. Income tax expense consists of current and deferred
taxes. Current income tax provisions approximate taxes to be paid or
refunded for the applicable year. Deferred tax assets and liabilities
are recognized on the temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as reported in
the financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or liabilities between
periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax benefit
associated with certain temporary differences, tax operating loss
carryforwards, and tax credits will be realized. A valuation allowance
is recorded for those deferred tax items for which it is more likely
than not that realization will not occur.
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, 1998 and 1997 were
approximately $424,000 and $507,000, 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, 1998, basic EPS and diluted EPS
were computed as follows :
Year Ended December 31, 1998
--------------------------------------------------
Basic EPS Diluted EPS
----------------------- -----------------------
Numerator Denominator Numerator Denominator
--------- ----------- --------- -----------
Net income $ 902,562 $ 902,562
Weighted average shares 1,260,000 1,260,000
Dilutive options,
warrants, net 39,272
-------- --------- -------- ---------
Totals $ 902,562 1,260,000 $ 902,562 1,299,272
======== ========= ======== =========
EPS $.72 $.69
=== ===
Year Ended December 31, 1997
--------------------------------------------------
Basic EPS Diluted EPS
----------------------- -----------------------
Numerator Denominator Numerator Denominator
--------- ----------- --------- -----------
Net income $ 561,657 $ 561,657
Weighted average shares 1,200,000 1,200,000
Dilutive options,
warrants, net 22,080
-------- --------- -------- ---------
Totals $ 561,657 1,200,000 $ 561,657 1,222,080
======== ========= ======== =========
EPS $.47 $.46
=== ===
Recent Accounting Pronouncements. Beginning January 1, 1998, the
Company adopted the provisions of SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective
for annual and interim periods beginning after December 15, 1997. This
Statement establishes standards for the method that public entities are
to use when reporting information about operating segments in annual
financial statements and requires that those enterprise reports be
issued to shareholders, beginning with annual financial statements in
1998 and for interim and annual financial statements thereafter. SFAS
131 also established standards for related disclosures about products
and services, geographic areas and major customers.
SFAS 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" revises and standardizes certain disclosures
which were required under SFAS 87, 88 and 106. Generally, the new
Statement uses a separate but parallel format, eliminates less useful
information, requires additional data deemed useful by analysts, and
allows some aggregation of presentation. This Statement was adopted by
the Company during 1998.
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998 and is effective for all calendar-
year entities beginning in January, 2000. This Statement applies to all
entities and requires that all derivatives be recognized as assets or
liabilities in the balance sheet, at fair values. Gains and losses of
derivative instruments not designated as hedges will be recognized in
the income statement. The Company has not made an assessment of the
expected impact that SFAS 133 will have on its financial statements.
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,
1998 and 1997, the Bank sold $5,265,242 and $1,582,269, 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, 1998 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market Values
- ----------- ----- ----- ------ -------------
U.S. Treasury securities $ 3,514,718 $ 52,060 $ (2,762) $ 3,564,016
U.S. Agency securities 1,490,289 - - (4,239) 1,486,050
FRB stock & FHLB stock 483,900 - - - - 483,900
Tax exempt securities 500,000 - - - - 500,000
---------- ------- ------- ----------
Total securities $ 5,988,907 $ 52,060 $ (7,001) $ 6,033,966
========== ======= ======= ==========
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. Also, no ready
market exists for FHLB stock. Accordingly, the FHLB stock is reported
at cost.
The amortized costs and estimated market values of securities
available-for-sale as of December 31, 1997 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market Values
- ----------- ----- ----- ------ -------------
U.S. Treasury securities $ 3,517,204 $ 13,074 $ (1,059) $ 3,529,219
FRB stock 165,000 - - - - 165,000
Tax exempt securities 500,000 - - - - 500,000
---------- ------- ------- ----------
Total securities $ 4,182,204 $ 13,074 $ (1,059) $ 4,194,219
========== ======= ======= ==========
The amortized costs and estimated market values of securities
available-for-sale at December 31, 1998, by contractual maturity,
are shown in the following chart. Expected maturities may
differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Costs Market Values
----- -------------
Due in one year or less $ 3,194,700 $ 3,195,284
Due after one through five years 1,810,307 1,854,782
Due after ten years 500,000 500,000
FRB & FHLB stock (no maturity) 483,900 483,900
---------- ----------
Total securities $ 5,988,907 $ 6,033,966
========== ==========
There were no sales of securities during 1998 and 1997. At
December 31, 1998 and 1997, there were $4,710,000 and $2,600,000,
respectively, in securities pledged as collateral to secure public
funds.
Note 5 - Loans
The composition of net loans by major loan category, as of
December 31, 1998 and 1997, follows:
December 31,
-------------------------
1998 1997
---- ----
Commercial, financial, agricultural $17,866,367 $16,847,930
Real estate - construction 3,622,240 1,777,493
Real estate - mortgage 41,785,089 29,825,224
Installment 6,464,344 5,661,179
---------- ----------
Loans, gross $69,738,040 $54,111,826
Deduct:
Allowance for loan losses (868,477) (644,913)
---------- ----------
Loans, net $68,869,563 $53,466,913
========== ==========
The Company had no loans which it considered to be impaired other
than loans which were restructured or on which the accrual of interest
had been discontinued. The total recorded investment in impaired loans
was $104,826 and zero at December 31, 1998 and 1997, respectively.
These loans had related allowances for loan losses of approximately
$15,700 and zero at December 31, 1998 and 1997, respectively. The
average recorded investment in impaired loans for 1998 and 1997 was
$45,209 and zero, respectively. There was no significant amount of
interest income recognized on impaired loans in 1998 or 1997.
Note 6 - Allowance for Possible Loan Losses
The allowance for possible loan losses is a valuation reserve
available to absorb future loan charge-offs. The allowance is increased
by provisions charged to operating expenses and by recoveries of loans
which were previously written-off. The allowance is decreased by the
aggregate loan balances, if any, which were deemed uncollectible during
the year.
Activity within the allowance for loan losses account for the years
ended December 31, 1998 and 1997 follows:
Year ended December 31,
------------------------
1998 1997
---- ----
Balance, beginning of year $ 644,913 $ 447,626
Add: Provision for loan losses 251,000 225,000
Add: Recoveries of previously charged
off amounts 5,381 3,292
--------- ---------
Total $ 901,294 $ 675,918
Deduct: Amount charged-off (32,817) (31,005)
--------- ---------
Balance, end of year $ 868,477 $ 644,913
========= =========
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, 1998 and 1997 follow:
December 31,
------------------------
1998 1997
---- ----
Land $ 747,023 $ 582,983
Building 2,134,547 1,476,921
Furniture, equipment 903,406 609,482
--------- ---------
Property and equipment, gross $3,784,976 $2,669,386
Deduct:
Accumulated depreciation (329,317) (184,407)
--------- ---------
Property and equipment, net $3,455,659 $2,484,979
========= =========
Depreciation expense for the years ended December 31, 1998 and
1997 amounted to $162,448 and $134,090, respectively. Depreciation is
charged to operations over the estimated useful lives of the assets.
The estimated useful lives and methods of depreciation for the principal
items follow:
Type of Asset Life in Years Depreciation Method
------------- ------------- -------------------
Furniture and equipment 3 to 7 Straight-line
Building 39 Straight-line
Note 8 - Commitments and Contingencies
Please refer to Note 13 concerning warrants and options earned by
directors and executive officers.
Please refer to Note 14 concerning financial instruments with off-
balance sheet risk.
Note 9 - Deposits
The following details deposit accounts at December 31, 1998 and
1997:
December 31,
-------------------------
1998 1997
---- ----
Non-interest bearing deposits $10,470,065 $ 9,334,294
Interest bearing deposits:
NOW accounts 11,641,974 7,282,203
Money market accounts 14,103,448 14,014,321
Savings 1,892,150 1,193,986
Time, less than $100,000 23,329,217 13,671,038
Time, $100,000 and over 15,698,025 12,506,570
---------- ----------
Total deposits $77,134,879 $58,002,412
========== ==========
Note 10 - Interest on Deposits and Borrowings
A summary of interest expense for the years ended December 31,
1998 and 1997 follows:
December 31,
------------------------
1998 1997
---- ----
Interest on NOW accounts $ 221,245 $ 148,381
Interest on money market accounts 658,128 501,987
Interest on savings accounts 52,100 34,740
Interest on CDs under $100,000 1,144,186 694,213
Interest on CDs $100,000 and over 875,020 642,826
Interest, other borrowings 16,115 17,508
--------- ---------
Total interest on despoits
and borrowings $2,966,794 $2,039,655
========= =========
Note 11 - Other Operating Expenses
A summary of other operating expenses for the years ended December
31, 1998 and 1997 follows:
December 31,
----------------------
1998 1997
---- ----
Postage and delivery $ 50,988 $ 32,924
Supplies and printing 78,269 52,669
Regulatory assessments 36,810 31,548
Taxes & insurance 63,243 45,685
Utilities & telephone 49,010 36,241
Professional fees 73,061 67,167
Repairs, maint. & service contracts 74,626 65,030
All other operating expenses 121,992 93,374
------- -------
Total other operating expenses $547,999 $424,638
======= =======
Note 12 - Income Taxes
As of December 31, 1998 and 1997, the Company's provision for
income taxes consisted of the following:
December 31,
----------------------
1998 1997
---- ----
Current $617,758 $457,500
Deferred 63,842 (51,494)
------- -------
Federal income tax expense $681,600 $406,006
======= =======
Deferred income taxes consist of the following:
1998 1997
---- ----
Provision for loan losses $ 72,012 $(47,603)
Other (8,170) (3,891)
------- -------
Total $ 63,842 $(51,494)
======= =======
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:
Year ended December 31,
-----------------------
1998 1997
---- ----
Income taxes at statutory rate $ 538,615 $ 329,005
State tax, net of Federal benefits 69,833 48,316
Change in valuation allowance 76,012 14,753
Other (2,860) 13,932
-------- --------
Total $ 681,600 $ 406,006
======== ========
The tax effects of the temporary differences that comprise the net
deferred tax assets at December 31, 1998 and 1997 are presented below:
1998 1997
---- ----
Deferred tax assets:
Allowance for loan losses $ 175,479 $ 99,467
Unrealized gain, securities (15,320) (4,085)
Deferred asset, depreciation (479) 7,691
Valuation reserve (128,606) (52,594)
-------- --------
Net deferred tax asset $ 31,074 $ 50,479
======== ========
There was a net change in the valuation allowance during 1998 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,
1998.
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 30,000 shares of the Company's common stock
upon the Bank's commencement of business at a purchase price equal to
$5.00 per share. Such options will become exercisable at the rate of
6,000 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.
Benefit Plans. The Company has a profit sharing plan as well as a
savings plan administered under the provisions of the Internal Revenue
Code Section 401(K). During 1998 and 1997, the Company contributed
$88,450 and $73,218, respectively, to the above plans.
Employment Agreements. On January 14, 1998, 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 four-year term. The agreements provide for health and disability
insurance, other customary benefits and, as discussed above, the
granting of stock options. Each agreement also contains a non-compete
and non-solicitation provision which provides that through the actual
date of termination of the agreements and for a period of five years
thereafter, the president and executive vice president shall not,
without written consent of the Company, be employed in the banking
business in any capacity within Thomas County, Georgia. Additionally,
each agreement provides that the Company may terminate the president's
and the executive vice president's employment for any reason upon
majority vote of the Board.
The agreements with the president and the executive vice president
provide for an annual base salary of $101,000 and $82,000, respectively.
These salaries may be increased at the discretion of the Board based on
the performance of the Bank. For the years ended December 31, 1998 and
1997, the Company incurred expenses for salary and benefits as follows:
(i) for the president: $130,419 (1998) and $122,884 (1997); and (ii)
for the executive vice president: $110,445 (1998) and $110,584 (1997).
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) ten
shares for each Bank or Company committee meeting attended; and (b)
twenty 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, 1998 and 1997 there were 9,050 and 6,080
shares of restricted stock outstanding, respectively. The 1998 and 1997
income statements include a charge for $40,095 and $32,498,
respectively, reflecting the annual 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, 1998
and 1997, loans outstanding to directors, their related interests and
executive officers aggregated $3,413,779 and $3,066,426, respectively.
These loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers during 1998 and 1997 follows:
1998 1997
---- ----
Balance, beginning of year $ 3,066,426 $ 2,177,384
New loans 2,369,282 2,105,040
Less: principal reductions (2,021,929) (1,215,998)
---------- ----------
Balance, end of year $ 3,413,779 $ 3,066,426
========== ==========
Deposits by directors and their related interests, at December 31,
1998 and 1997, approximated $2,464,559 and $3,638,443, 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, 1998 and 1997, unfunded commitments to extend credit were
$11,847,306 and $7,153,104, 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.
At December 31, 1998 and 1997, commitments under letters of credit
aggregated approximately $326,892 and $172,435, 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, 1998, that the Company and the Bank meet
all capital adequacy requirements to which they are subject.
As of December 31, 1998, 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:
Minimum Regulatory Capital Guidelines for Banks
-----------------------------------------------
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
--------------- --------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1998:
Total capital-risk-based
(to risk-weighted assets):
Bank $ 10,208 15.9% $5,131 >= 8% $6,413 >= 10%
Consolidated 10,882 17.0% 5,132 >= 8% N/A >= N/A
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $ 9,406 14.7% $2,565 >= 4% $3,848 >= 6%
Consolidated 10,079 15.7% 2,566 >= 4% N/A >= N/A
Tier 1 capital-leverage
(to average assets):
Bank $ 9,406 21.3% $3,056 >= 4% $3,820 >= 5%
Consolidated 10,079 13.1% 3,063 >= 4% N/A >= N/A
Minimum Regulatory Capital Guidelines for Banks
-----------------------------------------------
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
--------------- --------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 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
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.
During 1998 and 1997, the Company did not pay cash dividends to its
shareholders.
Note 17 - Parent Company Financial Information
This information should be read in conjunction with the other
notes to the consolidated financial statements.
Parent Company Balance Sheets
December 31,
--------------------------
1998 1997
Assets: ---- ----
Cash $ 643,273 $ 258,094
Investment in Bank 9,450,414 5,995,856
Property equipment - - 181,957
Other assets 44,820 53,819
---------- ----------
Total Assets $10,138,507 $ 6,489,726
========== ==========
Liabilities and Shareholders' Equity:
Accounts payable $ 29,283 $ 21,333
---------- ----------
Total Liabilities $ 29,283 $ 21,333
---------- ----------
Common stock $ 1,380,000 $ 1,200,000
Paid-in-capital 7,955,261 5,418,801
Retained earnings 744,224 (158,338)
Unrealized gain on securities 29,739 7,930
---------- ----------
Total Shareholders' equity $10,109,224 $ 6,468,393
---------- ----------
Total Liabilities and Shareholders' equity $10,138,507 $ 6,489,726
========== ==========
Parent Company Statements of Income
Years Ended December 31,
--------------------------
1998 1997
Revenues: ---- ----
Interest income $ 9,411 $ 4,798
Rental income 16,200 21,648
---------- ----------
Total revenues $ 25,611 $ 26,446
---------- ----------
Expenses:
Depreciation and amortization $ 4,987 $ 4,581
Other expenses 50,812 36,037
---------- ----------
Total expenses $ 55,799 $ 40,618
---------- ----------
(Loss) before equity in undistributed
earnings of Bank $ (30,188) $ (14,172)
Equity in undistributed earnings
of Bank 932,750 575,829
---------- ----------
Net income $ 902,562 $ 561,657
========== ==========
Parent Company Statements of Cash Flows
Years Ended December 31,
------------------------
1998 1997
Cash flows from operating activities: ---- ----
Net income $ 902,562 $ 561,657
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of the Bank (932,750) (575,829)
Depreciation and amortization 4,987 4,581
Decrease in other asset 6,299 (46,394)
Increase in payables 7,950 (1,883)
---------- ---------
Net cash provided by operating activities $ (10,952) $ (57,868)
---------- ---------
Cash flows from investing activities:
Investment in Bank $(2,500,000) $ - -
Sale of property 179,671 - -
---------- ---------
Net cash provided by financing activities $(2,320,329) $ - -
---------- ---------
Cash flows from financing activities:
Sale of stock $ 2,676,366 $ - -
Options, restricted stock 40,094 46,394
---------- ---------
Net cash used by financing activities $ 2,716,460 $ 46,394
---------- ---------
Net increase in cash and cash equivalents $ 385,179 $ (11,474)
Cash and cash equivalents, beginning of the year 258,094 269,568
---------- ---------
Cash and cash equivalents, end of year $ 643,273 $ 258,094
========== =========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this Item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company and the Bank
are as follows:
Name Position with Company
---------------------------- ---------------------
Charles A. Balfour Class I Director
Clifford S. Campbell, Jr. Class I Director
Stephen H. Cheney President, Chief Executive Officer and
Class I Director
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
Each of the above persons, except those persons who are listed as
Bank Directors, has been a director of the Company since March 31, 1995.
The Company has a classified Board of Directors whereby one-third of the
members will be elected each year at the 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 35, served as Vice President of Balfour
Pulpwood Company, Inc., a family-owned business, from 1989 to 1994 and
since 1994, has served as President. Mr. Balfour is also Executive Vice
President of Balfour Lumber Company. Mr. Balfour serves on the Vestry of
St. Thomas Episcopal Church, of which he is currently Treasurer. Mr.
Balfour also serves on the Board of the Georgia Forestry Association.
From 1992 to January 1995, he served on the Advisory Board of Directors of
Trust Company Bank of South Georgia, N.A.
Clifford S. Campbell, Jr., age 70, 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 41, 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 Cone, age 34, is the President of Cone Machinery, Inc., a
manufacturer of sawmill equipment. He has served as President of Cone
Machinery 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 and 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 39, is a Board Certified Orthopedic
Surgeon in private practice in Thomasville, Georgia at the Thomasville
Orthopedic Center where he has practiced since 1991. 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 Chief Executive Officer of Affiliated
Physicians, a physicians practice management company based in Thomasville.
Charles H. Hodges, III, age 34, has served as Executive Vice
President of the Company since its inception in January 1995. Mr. Hodges
joined C&S National Bank (now NationsBank) in Atlanta, Georgia in March
1986, and was promoted to Credit Manager in the Factoring Division where
he served until July 1987. From July 1987 to January 1995, he served as
Vice President of the Thomasville Division of Trust Company Bank of South
Georgia, N.A. In addition, Mr. Hodges serves as treasurer and board
member of several key organizations, including United Way, Downtown
Development Authority and Thomasville/Thomas County Chamber of Commerce.
Harold L. Jackson, age 50, 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 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 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 64, 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 39, is President and Co-Owner of Moore & Porter
Produce of Thomasville, Inc., a wholesaler of a full line of vegetables.
He joined the Board of Directors of Thomasville National Bank in May
1996. He currently serves on the Board of Directors of Glen Arven Country
Club.
Diane W. Parker, age 58, 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 is a Thomasville Antiques Show Foundation,
Inc. Board Member.
Cochran A. Scott, Jr., age 43, 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.
Richard L. Singletary, Jr., age 39, 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.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information for the
fiscal years ended December 31, 1998, 1997 and 1996 concerning
compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Officer and the other executive officers of the
Company or of the Bank whose total annual salary and bonus exceeded
$100,000 during the year ended December 31, 1998 (the "Named Executive
Officers").
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Number All
Restricted of Other
Name and Stock Options Compen-
Principal Position Year Salary Bonus Awards(1) Awarded sation(2)
- -------------------- ---- ------ ----- ---------- ------- -------
Stephen H. Cheney 1998 $101,000 $20,200 $7,600(3) -- $3,181
President and Chief 1997 82,500 25,500 2,264(4) -- 2,910
Executive Officer 1996 75,000 15,000 1,899(5) -- 1,250
Charles H. Hodges, III 1998 $ 82,000 $20,500 $7,400(6) -- $2,718
Executive Vice Pres. 1997 75,000 22,500 2,264(7) -- 2,588
1996 65,000 12,500 1,899(8) -- 1,083
(1) Represents earned but unissued shares of restricted stock granted
at various times during fiscal 1998, 1997 and 1996 pursuant to the
directors' deferred compensation plan. See "-Compensation of
Directors."
(2) Represents matching contributions under the Company's 401(k) plan.
(3) During fiscal 1998, Mr. Cheney earned an aggregate of 380 shares of
restricted Common Stock pursuant to the directors' deferred
compensation plan, the fair market value of which was $7,600 as of
December 31, 1998. Because there is no organized trading market
for the Company's Common Stock, fair market value was determined by
reference to recent sales of the Common Stock during 1998. See
"-Compensation of Directors."
(4) During fiscal 1997, Mr. Cheney earned an aggregate of 210 shares
of restricted Common Stock pursuant to the directors' deferred
compensation plan, the fair market value of which was $2,264 as of
December 31, 1997. Because there is no organized trading market
for the Company's Common Stock, fair market value was calculated
by reference to the book value of the Company's Common Stock as of
December 31, 1997. See "-Compensation of Directors."
(5) During fiscal 1996, Mr. Cheney earned an aggregate of 195 shares
of restricted Common Stock pursuant to the directors' deferred
compensation plan, the fair market value of which was $1,899 as of
December 31, 1996. Because there is no organized trading market
for the Company's Common Stock, fair market value was calculated
by reference to the book value of the Company's Common Stock as of
December 31, 1996. See "-Compensation of Directors."
(6) During fiscal 1998, Mr. Hodges earned an aggregate of 370 shares
of restricted Common Stock pursuant to the directors' deferred
compensation plan, the fair market value of which was $7,400.
Because there is no organized trading market for the Company's
Common Stock, fair market value was determined by reference to
recent sales of the Common Stock during 1998.
(7) During fiscal 1997, Mr. Hodges earned an aggregate of 210 shares of
Common Stock pursuant to the directors' deferred compensation plan,
the fair market value of which was $2,264 at December 31, 1997.
Because there is no organized trading market for the Company's Common
Stock, fair market value was determined by reference to the book value
of the Common Stock as of December 31, 1997. See "Compensation of
Directors."
(8) During fiscal 1996, Mr. Hodges earned an aggregate of 195 shares of
Common Stock pursuant to the directors' deferred compensation plan,
the fair market value of which was $1,899 at December 31, 1996.
Because there is no organized trading market for the Company's Common
Stock, fair market value was determined by reference to the book value
of the Common Stock as of December 31, 1996. 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.
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.
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.
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 10 shares of the
Company's Common Stock for each Bank and each Company Committee meeting
attended and 20 shares for each Bank and each Company Board of Directors
meeting attended. The shares of restricted stock earned pursuant to the
terms of the Directors' Plan do not vest and will not be granted until the
earlier to occur of either the retirement of the director from the
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 1998,
an aggregate of 2,970 shares of restricted stock were earned under the
Directors' Plan.
STOCK OPTIONS
No stock options were granted to any of the Named Executive
Officers during the fiscal year ended December 31, 1998. The following
table presents information regarding the value of unexercised options held
at December 31, 1998 by the Named Executive Officers. No stock options
were exercised and there were no SARs outstanding during fiscal 1998.
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at FY-End at FY-End
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
---- ------------------- --------------------
Stephen H. Cheney 24,000/6,000 $360,000/90,000
Charles H. Hodges III 24,000/6,000 $360,000/90,000
____________________
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Company's Common Stock at December
31, 1998 ($20.00) 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 determined by reference to recent sales of the
Common Stock during 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 23,
1999 with respect to ownership of the outstanding Common Stock of the
Company by (i) all persons known by the Company to beneficially own more
than 5% of the outstanding shares of Common Stock of the Company,
(ii) each director of the Company, and (iii) all executive officers and
directors of the Company as a group.
Name of Number of Percent of
Beneficial Owner Shares (1) Total
---------------- --------- ----------
Charles A. Balfour 21,000(2) 1.52%
Clifford S. Campbell, Jr. 2,300(3) *
Stephen H. Cheney 60,626(4) 4.32%
Charles E. Hancock, M.D. 15,000 1.09%
Charles H. Hodges, III 35,742(5) 2.55%
Harold L. Jackson 20,000 1.45%
Charles W. McKinnon, Jr. 21,000(6) 1.52%
Cochran A. Scott, Jr. 34,000(7) 2.46%
Richard L. Singletary, Jr. 81,400(8) 5.90%
------- -----
All Directors and Officers
as a Group (9 persons) 291,068(9) 20.38%
======= =====
* Less than 1% of shares outstanding.
_______________
(1) Except as otherwise indicated, each person named in this table possesses
sole voting and investment power with respect to the shares beneficially
owned by such person. "Beneficial Ownership" includes shares for
which an individual, directly or indirectly, has or shares voting or
investment power or both and also includes options which are exercisable
within sixty days of the date hereof. Beneficial ownership as reported
in the above table has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934. The percentages are based upon
1,380,000 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 1,380,000 shares plus the number of shares subject to presently
exercisable options held by them, as indicated in the following notes.
(2) Includes 5,000 shares held by Mr. Balfour as custodian for his children.
(3) Represents shares held in Mr. Campbell's individual retirement account.
(4) Includes 24,000 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 24,000 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.
(6) Includes 12,200 shares held in Mr. McKinnon's individual retirement
account.
(7) Includes 24,000 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.
(9) Includes 48,000 shares subject to presently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank extends loans from time to time to certain of the
Company's directors, their associates and members of the immediate
families of the directors and executive officers of the Company. These
loans are be made in the ordinary course of business on substantially the
same terms, including interest rates, collateral and repayment terms, as
those prevailing at the time for comparable transactions with persons not
affiliated with the Company or the Bank, and do not involve more than the
normal risk of collectibility or present other unfavorable features.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or
incorporated by reference into this report. The exhibits which are
denominated by an asterisk (*) were previously filed as a part of, and are
hereby incorporated by reference from (i) a Registration Statement on Form
SB-2 under the Securities Act of 1933 for the Company, Registration Number
33-91536 ("SB-2"); or (ii) a Registration Statement on Form SB-2 under
the Securities Act of 1933 for the Company, Registration Number 333-58545
("1998 SB-2"). The exhibit numbers correspond to the exhibit numbers in
the referenced document.
Exhibit No. Description of Exhibit
---------- ----------------------
*3.1 - Articles of Incorporation of the Company (SB-2)
*3.2 - Bylaws of the Company (SB-2)
*10.1 - Employment Agreement dated January 14, 1998 between
the Company and Stephen H. Cheney (1998 SB-2)
*10.2 - Employment Agreement dated January 14, 1998 between
the Company and Charles H. Hodges, III (1998 SB-2)
*10.3 - Purchase Agreement dated February 3, 1995 between
Carlos G. Gay, on the one hand, and Stephen H.
Cheney and Charles H. Hodges, III, on the other,
for the property located 301 North Broad Street,
Thomasville, Georgia (SB-2)
*10.4 - Amendment, dated May 11, 1995, to Purchase Agreement
dated February 3, 1995 between Carlos G. Gay, on
the one hand, and Stephen H. Cheney and Charles H.
Hodges, III, on the other, for the property located
at 301 North Broad Street, Thomasville, Georgia (SB-2)
21.1 - Subsidiaries of the Registrant
27.1 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were required to
be filed for the fourth quarter of 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THOMASVILLE BANCSHARES, INC.
Dated: March 31, 1999 By: /s/ Stephen H. Cheney
-------------------------------------
Stephen H. Cheney
President and Chief Executive Officer
(Principal Executive and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Stephen H. Cheney March 31, 1999
- ---------------------------- President and Chief Executive
Stephen H. Cheney Officer (Principal Executive
Accounting Officer) and Director
/s/ Charles H. Hodges, III
- ---------------------------- Executive Vice President and March 31, 1999
Charles H. Hodges, III Director
- ---------------------------- Director March 31, 1999
Charles A. Balfour
/s/ Clifford S. Campbell, Jr.
- ---------------------------- Director March 31, 1999
Clifford S. Campbell, Jr.
- ---------------------------- Director March 31, 1999
Charles E. Hancock, M.D.
/s/ Harold L. Jackson
- ---------------------------- Director March 31, 1999
Harold L. Jackson
- ---------------------------- Director March 31, 1999
Charles W. McKinnon, Jr.
/s/ Cochran A. Scott, Jr.
- ---------------------------- Director March 31, 1999
Cochran A. Scott, Jr.
- ---------------------------- Director March 31, 1999
Richard L. Singletary, Jr.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders
as of the date of filing this report. An annual report and proxy
materials will be furnished to security holders subsequent to the filing
of this Annual Report on Form 10-KSB, and the Registrant will furnish
copies of such material to the Commission when they are sent to security
holders.
EXHIBIT INDEX
Exhibit
No Description
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Thomasville National Bank, a national bank organized under the laws
of the United States.
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF THOMASVILLE BANCSHARES, INC. FOR
THE PERIOD FROM JANUARY 1, 1998 TO DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<PERIOD-START> JAN-1-1998
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,145,678
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,265,242
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,033,966
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0
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<COMMON> 1,380,000
<OTHER-SE> 8,729,224
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<INCOME-PRETAX> 1,584,162
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