SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
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Commission File Number 0-25929
THOMASVILLE BANCSHARES, INC.
A Georgia Corporation
(IRS Employer Identification No.58-2175800)
301 North Broad Street
Thomasville, Georgia 31792
(912) 226-3300
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Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
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Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, $1.00 par value
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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, 1999: $8,534,444
------------
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (1,088,352 shares) on March 24, was
$21,767,040. 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
24, 2000: 1,380,000 shares of $1.00 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's definitive Proxy Statement to be delivered to
shareholders in connection with its 2000 Annual Meeting of Shareholders are
incorporated by reference in response to Part III of this Report.
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 1999 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 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 1999
was $22,500 and the unemployment rate was 4% as of December 1999. 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 and 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.
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, 1999 and 1998. This
presentation includes all major categories of interest earning assets and
interest bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, December 31,
1999 1998
---- ----
Cash and due from banks $ 3,447,332 $ 2,548,585
Tax-exempt securities 500,000 500,000
Taxable securities 5,663,640 4,012,503
Federal funds sold 4,702,377 2,654,366
Net loans 81,613,939 63,128,467
----------- ----------
Total earning assets 92,479,956 70,295,336
Other assets 4,637,469 3,556,620
----------- ----------
Total assets $100,564,757 $76,400,451
=========== ==========
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, December 31,
1999 1998
---- ----
Non interest-bearing deposits $ 11,472,176 $ 9,595,481
NOW and money market deposits 34,275,892 22,533,367
Savings deposits 2,447,441 1,526,434
Time deposits 39,147,684 34,177,792
Other borrowing 1,659,585 313,277
Other liabilities 908,966 428,640
----------- -----------
Total liabilities $ 89,911,744 $ 68,574,991
Stockholders' equity 10,653,013 7,825,550
----------- -----------
Total liabilities
and stockholders' equity $100,564,757 $ 76,400,541
=========== ===========
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 $ 16,308 5.00%(3)
Taxable securities 5,663,640 325,763 5.75%
Federal funds sold 4,702,377 236,801 5.04%
Net loans 81,613,939(1) 7,340,869(2) 8.99%
---------- ---------
Total earning assets $92,479,956 $7,919,936 8.56%
========== =========
Average Interest Average
Liabilities Amount Paid Rate Paid
----------- ------- -------- ---------
NOW and money market deposits $34,275,892 $1,258,287 3.67%
Savings deposits 2,447,441 73,461 3.00%
Time deposits 39,147,684 2,165,128 5.53%
Other borrowings 1,659,585 83,656 5.04%
---------- ---------
Total interest-bearing liabilities $77,530,602 $3,580,532 4.62%
========== =========
Net yield on earning assets 4.69%
====
- ----------------------
(1) At December 31, 1999, $143,597 in loans were not accruing interest.
(2) Interest earned on net loans includes $225,419 in loan fees and loan
service fees.
(3) The average yield on tax-exempt securities is tax equivalent.
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 Paid Rate Paid
----------- ------- -------- ---------
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) At December 31, 1998, $104,826 in loans were not 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.
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, 1999
Compared to
Year Ended December 31, 1998
----------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
Interest earned on:
Tax-exempt securities $ -- $ 103 $ 103
Taxable securities 95,039 1,618 96,657
Federal funds sold 102,922 (3,102) 99,820
Net loans 1,645,025 (307,178) 1,337,847
--------- -------- ---------
Total interest income $1,842,986 $(308,559) $1,534,427
--------- -------- ---------
Interest paid on:
NOW and money market deposit 427,268 (48,354) 378,914
Savings deposits 26,677 (5,316) 21,361
Time deposits 261,591 (115,669) 145,922
Other borrowings 67,848 (307) 67,541
--------- -------- ---------
Total interest expense 783,384 (169,646) 613,738
--------- -------- ---------
Change in net interest income $1,059,602 $(138,913) $ 920,689
========= ======== =========
Year Ended December 31, 1998
Compared to
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 and money market deposit 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
========= ======== =========
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 resi-
dents, 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, 1999 December 31, 1998
--------------------- --------------------
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
---------------- ------- --------- ------- ---------
Non interest-bearing
demand deposits $11,472,176 N/A $ 9,595,481 N/A
NOW and money
market deposits 34,275,892 3.67% 22,533,367 3.90%
Savings deposits 2,447,441 3.00% 1,526,434 3.41%
Time deposits 39,147,684 5.53% 34,177,792 5.91%
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, 1999:
Time Certificate
of Deposits
----------------
3 months or less $ 5,067,110
3-6 months 6,225,069
6-12 months 3,588,408
over 12 months 1,958,438
----------
Total $16,839,025
==========
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including
commercial/industrial, consumer and real estate loans. As of December 31, 1999,
the Bank had a legal lending limit for unsecured loans of up to $1,601,212 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, 1999 December 31, 1998
- ------------ ----------------- -----------------
Commercial, financial and agricultural $23,337,703 $17,866,367
Real estate-construction 4,853,604 3,622,240
Real estate-mortgage 55,029,655 41,785,089
Installment and
other loans to individuals 8,011,645 6,464,344
---------- ----------
Subtotal 91,232,607 69,738,040
Less: Allowance for possible loan losses (1,109,707) (868,477)
---------- ----------
Total (net of allowances) $90,122,900 $68,869,563
========== ==========
The following is a presentation of an analysis of maturities of loans as
of December 31, 1999:
Due in 1 Due After 1 to Due After
Type of Loan Year of Less 5 Years 5 Years Total
- ------------ ------------ -------------- ---------- -----
(In thousands)
Commercial, financial
and agricultural $15,490 $7,327 $521 $23,338
Real estate-construction 4,705 149 -- 4,854
------ ----- --- ------
Total $20,195 $7,476 $521 $28,192
====== ===== === ======
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates as of December 31, 1999:
Due in 1 Due After 1 to Due After
Type of Loan Year of Less 5 Years 5 Years Total
- ------------ ------------ -------------- ---------- -----
(In thousands)
Predetermined interest rate $ 7,948 $4,421 $169 $12,538
Floating interest rate 12,247 3,055 352 15,654
------ ----- --- ------
Total $20,195 $7,476 $521 $28,192
====== ===== === ======
As of December 31, 1999 and 1998, $143,597 and $104,826 in loans,
respectively, were not accruing interest. At December 31, 1999 and 1998,
$791,039 and $104,826 in loans, respectively, were considered to be impaired.
Of the above impaired loans, six loans with a principal balance of $647,442 at
December 31, 1999 and zero loans at December 31, 1998 were defined as "troubled
debt restructuring." As of December 31, 1999, two loans amounting to
approximately $10,819 were contractually past due over 90 days as to principal
and interest payments. These loans are still accruing interest as they are well
secured and in the process of collection.
As of December 31, 1999, except for thirteen loans in the amount of
$906,122 which were criticized 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,
1999, two loans with a principal balance of $10,819 were over 90 days past due
but still accruing interest. There were no loans over 90 days past due and
still accruing interest at December 31, 1998.
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
December 31,
----------------
1999 1998
---- ----
Balance at beginning of period $ 868,477 $644,913
--------- -------
Charge-offs:
Installment and other loans to individuals $ (50,451) $(32,817)
Commercial, financial, agricultural (76,060) --
Recoveries 2,741 3,292
--------- -------
Net charge-offs $ (123,770) $(27,436)
--------- -------
Additions charged to operations 365,000 251,000
--------- -------
Balance at end of period $1,109,707 $868,477
========= =======
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.15% 0.04%
===== =====
At December 31, 1999 the allowance was allocated as follows:
Percent of loans in each
Amount category to total loans
------ ------------------------
Commercial, financial
and agricultural $ 311,000 25.6%
Real estate-construction 88,000 5.3%
Real estate-mortgage 571,000 60.3%
Installment and other loans
to individuals 122,000 8.8%
Unallocated 17,707 N/A
--------- -----
Total $1,109,707 100.0%
========= ======
At December 31, 1998 the allowance was allocated as follows:
Percent of loans in each
Amount category 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%
========= ======
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, 1999, 25.6%
outstanding loans are in the category of commercial loans, which includes
commercial, industrial 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, 94.0% of these commercial loans at
December 31, 1999 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, 1999, 84% 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 60.6% of outstanding loans at
December 31, 1999. All loans in this category represent residential and
commercial 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 Office of the
Comptroller of the Currency (the "OCC"), also conducts an annual examination of
the loan portfolio. Upon completion, the OCC 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, 1999, investment securities comprised approximately
8.1% of the Bank's assets and net loans comprised approximately 80.3% 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, 1999 and
1998 were categorized as available-for-sale.
Investment Category December 31,
------------------- ------------
1999 1998
---- ----
Available-for-Sale:
- ------------------
Obligations for U.S. Treasury
and other U.S. Agencies $8,032,437 $5,050,066
Tax-exempt securities 500,000 500,000
Federal Reserve and
Federal Home Loan Bank stock 504,300 483,900
--------- ---------
Total $9,036,707 $6,033,966
========= =========
The following table indicates for the year ended December 31, 1999 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(1)
------------------- ------ ----------------
Available-for-Sale:
- ------------------
Tax-exempt securities(1):
Over 10 years $ 500,000 5.00%
Obligation of U.S. Treasury
and other U.S. Agencies:
0 - 1 years 4,184,156 5.73%
Over 1 through 5 years 3,848,281 5.61%
Federal Reserve Bank and Federal
Home Loan Bank Stock, no maturity 504,300 6.70%
---------
Total $9,036,707 5.69%
========= =====
- ------------------
(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:
Years ended December 31,
------------------------
1999 1998
---- ----
Return on Average Assets 1.22% 1.18%
Return on Average Equity 11.50% 11.50%
Average Equity to Average Assets Ratio 10.60% 10.20%
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 purchases 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, 1999, the Bank
had outstanding participations totaling $3,172,297.
DATA PROCESSING
As of August 1, 1999, the Bank terminated its data processing servicing
agreement with First National Bank of Grady County and began performing its data
processing services internally. The Bank performs a full range of data
processing services, including an automated general ledger, deposit accounting,
commercial, real estate and installment lending data processing, central
information file and ATM processing.
FACILITIES
On January 6, 1997, the Bank moved into a permanent facility located at
301 North Broad Street. The building contains approximately 8,500 square feet
of finished space which was constructed at a cost of approximately $1,050,000.
The building also contains an additional 2,000 square feet of unfinished space
which may be built out in the future should the Bank require additional space
for expansion. The building contains a lobby, a vault, eight offices, four
teller stations, three drive-in windows, a boardroom conference facility, a loan
operations area, and an area for the Bank's bookkeeping operations.
In 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.
EMPLOYEES
The Bank presently employs six persons on a part-time basis and 31 persons
on a full-time basis, including eight 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 regulatory agencies, including the Federal Reserve
Board, the Office of the Comptroller of the Currency ("OCC"), 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, the Company, or any other bank holding company located in Georgia, may
acquire a bank located in any other state, and a bank holding company located
outside Georgia may 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 has elected to prohibit out-of-state
banks from operating interstate branches within its territory, 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 is lawful 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 remains subject to applicable
state branching laws.
On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass-Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further, it allows for
the affiliation of banking, securities and insurance activities in new financial
services organizations.
A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the Company being the agency
which traditionally regulates the activity in which the Company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee banking
activities.
The principal provisions of the Financial Services Modernization Act will
permit the Company, if it meets the standards for a "well- managed" and "well-
capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. The Company,
if it satisfies the above criteria, can file a declaration of its status as a
"financial holding company" ("FHC") with the Federal Reserve, and thereafter
engage directly or through nonbank subsidiaries in the expanded range of
activities which the Financial Services Modernization Act identifies as
financial in nature. Further, the Company, if it elects FHC status, will be
able to pursue additional activities which are incidental or complementary in
nature to a financial activity, or which the Federal Reserve subsequently
determines to be financial in nature. The Financial Services Modernization Act
will also allow the Bank, with OCC approval, to control or hold an interest in a
"financial subsidiary" which may engage in, among other things, the activities
specified in the Financial Services Modernization Act as being financial in
nature. Such a subsidiary, though, is not permitted to engage in insurance
underwriting or annuity issuance, real estate development, investment
activities, or merchant banking activities. Further, any financial subsidiary
that the Bank created would generally be treated as an affiliate of the Bank,
rather than as a subsidiary for purposes of affiliate transaction restrictions
of Sections 23A and 23B of the Federal Reserve Act.
It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
A bank holding company which has not elected to become a FHC will
generally be 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, these non-FHC bank holding companies
will still be able to engage in 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.
These activities, including those listed below, are left unchanged by the
Financial Services Modernization Act which does not prohibit non-FHC bank
holding companies from engaging in these activities. The list of permissible
nonbanking activities, which includes the following activities: extending
credit and servicing loans; acting as investment or financial advisor to any
person, with certain limitations; leasing personal and real property or acting
as a broker with respect thereto; providing management and employee benefits
consulting advice and career counseling services to nonaffiliated banks and
nonbank depository institutions; operating certain nonbank depository
institutions; performing certain trust company functions; providing certain
agency transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and 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 check-guaranty, collection agency and credit bureau
services; engaging in asset management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
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 benefits to the
public, such 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 must obtain
approval of the Federal Reserve Board to engage in any activity not previously
approved by the Federal Reserve Board or to modify in any material respect as
activity for which Federal Reserve Board approval had been obtained.
The Company is also regulated by the Georgia Banking Department under the
Financial Institutions Code of Georgia, which requires a 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 has been in existence
and continuously operating as a bank for a period of five years or more prior to
the date of acquisition is either (i) a bank for purposes of the federal Bank
Holding Company Act of 1956 or (ii) 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. 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.
As a national bank, the Bank is subject to the supervision of the OCC and,
to a limited extent, the FDIC and the Federal Reserve Board. With respect to
expansion, a national bank situated in the State of Georgia is generally
prohibited from establishing branch offices or facilities outside of the county
in which such bank's main office is located, except 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.
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 such
person up to an additional 10% of its unimpaired capital and surplus, provided
that each loan or extension of credit is 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.
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, and loans or extensions of credit which have the approval of
the OCC and which are made to a financial institution or to any agent in charge
of the business and property of the financial institution.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the OCC. The Federal
Reserve Board and the OCC have issued 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, as well as to state member banks. The OCC'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 at least 8% of risk-weighted 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, while a risk weight
of 50% is assigned to loans secured by owner-occupied one to four family
residential mortgages provided that certain conditions are met. The aggregate
amount of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are added
together to determine total risk-weighted assets. Both the Federal Reserve
Board and the OCC have also implemented 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 must maintain a ratio of at least 3% "Tier 1" capital to total
weighted risk assets (net of goodwill, certain intangible assets, and certain
deferred tax assets). 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. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have well-
diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. The OCC requires that all but
the most highly-rated banks and all banks with high levels of risk or
experiencing or anticipating significant growth will maintain ratios at least
100 to 200 basis points above the stated minimums. The Federal Reserve Board
requires bank holding companies without a BOPEC-1 rating to maintain a ratio of
at least 4% Tier 1 capital to total assets; furthermore, banking organizations
with supervisory, financial, operational, or managerial weaknesses, as well as
organizations that are anticipating or experiencing significant growth, are
expected to maintain capital ratios well above the 3% and 4% minimum levels.
The FDIC adopted a rule substantially similar to that issued by the
Federal Reserve Board, establishing a minimum leverage ratio of 3% and
providing that FDIC-regulated banks with anything less than a CAMELS-1 rating
must maintain a ratio of at least 4%. In addition, the FDIC rule specifies
that a depository institution operating with less than the applicable minimum
leverage capital requirement will be deemed to be operating in an unsafe and
unsound manner unless the institution is in compliance with a plan, submitted
to and approved by the FDIC, to increase the ratio to an appropriate level.
Finally, the FDIC requires any insured depository institution with a leverage
ratio of less than 2% to enter into and be in compliance with a written
agreement between it and the FDIC (or the primary regulator, with the FDIC as
a party to the agreement). Such an agreement will nearly always contemplate
immediate efforts to acquire the capital required to increase the ratio to an
appropriate level. Institutions that fail to enter into or maintain
compliance with such an agreement will be subject to enforcement action by the
FDIC.
The OCC'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") are retained as a part of Tier 1 capital. The OCC has modified
the list of qualifying intangibles, currently including only purchased credit
card relationships and mortgage and non-mortgage servicing assets, whether
originated or purchased and excluding any interest-only strips receivable
related thereto. Furthermore, the OCC's guidelines formerly provided that the
amount of such qualifying intangibles that may be included in Tier 1 capital
was limited to a maximum of 50% of total Tier 1 capital. The OCC has amended
its guidelines to increase the limitation on such qualifying intangibles from
50% to 100% of Tier 1 capital, of which no more than 25% may consist of
purchased credit card relationships and non-mortgage servicing assets.
Furthermore, banks may now deduct from Tier 1 capital disallowed servicing
assets on a basis that is net of any associated deferred tax liability.
Deferred tax liabilities netted this way may not also be netted against
deferred tax assets when determining the amount of deferred tax assets that
are dependent upon future taxable income.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those 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 risk-based capital guidelines of the OCC, the Federal Reserve Board
and the FDIC explicitly include provisions regarding a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
to 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. 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 OCC, the Federal Reserve Board and the FDIC recently added a provision
to the risk-based capital guidelines that supplements and modifies the usual
risk-based capital calculations to ensure that institutions with significant
exposure to market risk maintain adequate capital to support that exposure.
Market risk is the potential loss to an institution resulting from changes in
market prices. The modifications are intended to address two types of market
risk: general market risk, which includes changes in general interest rates,
equity prices, exchange rates, or commodity prices, and specific market risk,
which includes particular risks faced by the individual institution, such as
event and default risks. The provision defines a new category of capital, Tier
3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, beginning no later than January 1,
1999, covered institutions must "backtest," comparing the actual net trading
profit or loss for each of its most recent 250 days against the corresponding
measures generated by the statutory model. Once per quarter, the institution
must identify the number of times the actual net trading loss exceeded the
corresponding measure and must then apply a statutory multiplication factor
based on that number for the next quarter's capital charge for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for 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 FDICIA 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 FDICIA creates five "capital categories"
("well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized") which are
defined in the FDICIA 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., a holding company) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the institution 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's capital levels decline, 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.
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%
- ---------------------------
(1) An institution must meet all three minimums.
(2) 33% 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.
The FDICIA also provides that each Federal banking agency must prescribe
safety and soundness standards in certain areas of banking practice. In order
to comply with the FDICIA, the Federal Reserve Board, the OCC and the FDIC have
adopted regulations defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits.
Both the capital standards and the safety and soundness standards which
the FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
As a national bank, the Bank is subject to examination and review by the
OCC. This examination is typically completed on-site every eighteen months and
is subject to off-site review at call. The OCC, at will, can access quarterly
reports of condition, as well as such additional reports as may be required by
the national banking laws.
The State of Georgia has 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. Establishment of de novo bank branches in Georgia by out-of-state
financial institutions is not permitted under Georgia law.
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, 1999
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 24, 2000, the number of holders of record of the
Company's Common Stock was 765.
C. Dividends
To date, the Company has not paid any cash dividends on its Common Stock.
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. 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.
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. 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, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, assets grew and earnings improved.
Total assets increased by 28.1% from $87,609,812 in 1998 to $112,253,119 in
1999. Net loans increased from $68,869,563 in 1998, to $90,122,900 in 1999 due
to strong loan demand coupled with a focused marketing effort. Net charge-offs
for 1999 were $123,770 compared to $27,436 in 1998, an increase of $96,334. At
December 31, 1999, the Bank's loan loss reserve ratio was 1.23% of total loans,
slightly below the 1.26% attained at December 31, 1998.
Deposits increased for the same period by $21,016,407 or 27.2%, from
$77,134,879 in 1998 to $98,151,286 in 1999. The majority of the increase was
attributable to marketing efforts. The Bank's investment portfolio increased
$3,002,771, or 49.8%, from $6,033,966 in 1998 to $9,036,737 in 1999.
The Bank's loan to deposit ratio was 91.8% for 1999, compared to 89.3% in
1998. Despite the slight increase in the above ratio, earnings increased
significantly in 1999 because of higher levels of average earning assets, from
$70.3 million in 1998 to $92.5 million 1999. Non-interest expense increased by
$534,177 from $2,071,193 for 1998 to $2,605,370 for 1999. This increase was the
result of an increase in personnel expenses, data processing, depreciation and
other overhead expenses. Non-interest income increased by $126,868 from
$417,640 for 1998 to $614,508 for 1999. 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 income increased by $319,980, or 35.4%, from $902,562 in
1998 to $1,222,542 in 1999.
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 income
increased by $340,905, or 60.7%, from $561,657 in 1997 to $902,562 in 1998.
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, 1999 December 31, 1998
----------------- -----------------
(Dollars in Thousands)
Interest Interest
Average Income/ Yield Average Interest Yield
Balance Expense Cost Balance Expense Cost
------- ------- ----- ------- -------- -----
Federal funds sold $ 4,702 $ 237 5.04% $ 2,654 $ 137 5.16%
Securities 6,164 342 5.55% 4,513 246 5.65%
Loans, net 81,614 7,341 8.99% 63,128 6,003 9.51%
------ ----- ---- ------ ----- ----
Total earning assets $92,480 $7,920 8.56% $70,295 $6,386 9.08%
====== ===== ==== ====== ===== ====
Interest bearing deposits $75,870 $3,497 4.60% $58,238 $2,951 5.07%
Other borrowings 1,660 84 5.04% 313 16 5.11%
------ ----- ---- ------ ----- ----
Total interest-
bearing liabilities $77,530 $3,581 4.62% $58,551 $2,967 5.07%
====== ===== ==== ====== ===== ====
Net yield on
earning assets 4.69% 4.86%
==== ====
Net yield on earning assets for the years ended December 31, 1999 and 1998
were 4.69% and 4.86%, respectively. The decline in the net yield during 1999 is
primarily attributed to the fact that the rate of decline in earning assets
yields outpaced the rate of decline in the cost of funds, resulting in a
narrower net interest yield. Despite the lower net yield on earning assets, net
interest income has increased from $3,418,715 in 1998 to $4,339,404 for 1999 due
to a $14.9 million increase in average earning assets in 1999.
NON-INTEREST INCOME
Non-interest income for the years ended December 31, 1999 and 1998
amounted to $614,508 and $487,640, respectively. As a percentage of average
assets, non-interest income decreased from .63% in 1998 to .61% in 1999. The
increase in non-interest income during 1999 is attributable to the increase in
the number of transaction accounts.
The following table summarizes the major components of non-interest income
for the year ended December 31, 1999 and 1998.
Year Ended December 31,
-----------------------
1999 1998
---- ----
Service fees on deposit accounts $510,226 $383,023
Miscellaneous, other 104,282 104,617
------- -------
Total non-interest income $614,508 $487,640
======= =======
NON-INTEREST EXPENSE
Non-interest expense increased from $2,071,193 in 1998 to $2,605,370 in
1999. As a percentage of total average assets, non-interest expenses decreased
from 2.71% in 1998 to 2.59% in 1999. Management attributes the decrease in the
ratio of non-interest expense to average assets to numerous programs and
procedures undertaken during 1999 to attain higher operational efficiencies.
Year Ended December 31,
-----------------------
Non-Interest Expense 1999 1998
-------------------- ---- ----
Salaries and benefits $1,353,321 $1,076,160
Data processing, ATM 180,086 109,430
Advertising and public relations 147,958 163,932
Depreciation and amortization 257,295 173,672
Other operating expenses 666,710 547,999
--------- ---------
Total non-interest expense $2,605,370 $2,071,193
========= =========
During 1999, the allowance for loan losses increased from $868,477 to
$1,109,707. During 1999, the allowance for loan losses as a percent of gross
loans decreased from 1.26% to 1.23%. Net charge-offs during 1999 amounted to
$123,770, or .15% of average loans. 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 increased from 1.19% to 1.26%. Net charge-offs
during 1998 amounted to $27,436, or .04% of average loans. As of December 31,
1999, 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
months six
but months After one
Within within but year but After
three six within within five
months months one year five years years Total
------ ------ -------- ---------- ----- -----
(In Thousands)
EARNING ASSETS
Loans $36,610 $ 4,036 $ 8,124 $39,615 $ 2,848 $ 91,233
Available-for-sale
securities 2,485 502 1,198 3,848 1,004 9,037
Federal funds sold 519 -- -- -- -- 519
------ ------- ------- ------ ------ -------
Total earning assets $39,614 $ 4,538 $ 9,322 $43,463 $ 3,852 $100,759
====== ======= ======= ====== ====== =======
SUPPORTING SOURCE OF FUNDS
Interest-bearing demand
deposits and savings $43,829 $ -- $ -- $ -- $ -- $ 43,829
Certificates,
less than $100M 6,392 5,207 6,215 5,456 753 24,023
Certificates,
$100M and over 5,067 6,225 3,588 1,959 -- 16,839
------ ------- ------- ------ ------ -------
Total interest-
bearing liabilities $55,288 $ 11,432 $ 9,803 $ 7,415 $ 753 $ 84,691
====== ======= ======= ====== ====== =======
Interest rate
sensitivity gap $(15,674) $ (6,894) $ (481) $36,048 $ 3,099 $16,098
Cumulative gap $(15,674) $(22,568) $(23,049) $12,999 $16,098 $16,098
Interest rate
sensitivity gap ratio 0.72 0.40 0.95 5.86 5.12 1.19
Cumulative interest rate
sensitivity gap ratio 0.72 0.66 0.70 1.15 1.19 1.19
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 $21.0 million during 1999 and by $19.1 million in 1998.
Below are the pertinent liquidity balances and ratios for the years ended
December 31, 1999 and 1998.
December 31,
----------------------
1999 1998
---- ----
Cash and cash equivalents $7,583,110 $8,410,920
Securities 9,036,737 6,033,966
CDs,over $100,000 to total deposits ratio 17.2% 20.4%
Loan to deposit ratio 91.8% 89.3%
Brokered deposits -- --
At December 31, 1999, large denomination certificates accounted for 17.2%
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, 1999, cash and cash equivalents amounted to $7.6 million,
representing 6.7% of total assets. Securities available for sale provide a
secondary source of liquidity. Approximately $4.2 million of the $9.0 million
in the Bank's securities portfolio is scheduled to mature in 2000.
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, 1999, 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, 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, 1999:
Minimum
Regulatory
December 31, 1999 Requirement
----------------- -----------
Bank
----
Tier 1 Capital 12.6% 4.0%
Tier 2 Capital 1.2% N/A
----
Total risk-based capital ratio 13.8% 8.0%
==== ===
Leverage ratio 9.7% 3.0%
==== ===
Company - Consolidated
----------------------
Tier 1 Capital 13.9% 4.0%
Tier 2 Capital 1.2% N/A
----
Total risk-based capital ratio 15.1% 8.0%
==== ===
Leverage ratio 10.3% 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, 1999 and 1998
Consolidated Statement of Income for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statement of Changes in Shareholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
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, 1999 and 1998, and the related consolidated statements of income, changes
in shareholders' equity and cash flows for the two years in the period ended
December 31, 1999. 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, 1999
and 1998, and the consolidated results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Francis & Co., CPAs
Atlanta, Georgia
February 28, 2000
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Balance Sheets
ASSETS
------
As of December 31,
---------------------
1999 1998
---- ----
Cash and due from banks $ 7,064,353 $ 3,145,678
Federal funds sold, net (Note 3) 518,757 5,265,242
----------- -----------
Total cash and cash equivalents $ 7,583,110 $ 8,410,920
Securities: (Notes 2 & 4)
Available-for-sale at fair value 9,036,737 6,033,966
Loans, net [includes loans of $4,773,288
(1999) and $3,413,779 (1998) to insiders]
(Notes 2, 5, 6 & 14) 90,122,900 68,869,563
Property and equipment, net (Notes 2 & 7) 3,581,025 3,455,659
Other real estate owned (Note 2) 787,229 - -
Other assets 1,142,118 839,704
----------- -----------
Total Assets $112,253,119 $87,609,812
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 13,460,400 $10,470,065
Interest bearing deposits 84,690,886 66,664,814
----------- -----------
Total deposits (Note 10) $ 98,151,286 $77,134,879
Borrowings (Note 9) 2,395,136 - -
Other liabilities 394,949 365,709
----------- -----------
Total Liabilities $100,941,371 $77,500,588
----------- -----------
Commitments and Contingencies (Note 8)
Shareholders' Equity: (Notes 1, 14 & 16)
Common stock, 1.00 par value, 10,000,000
shares authorized; 1,380,000 shares issued
and outstanding $ 1,380,000 $ 1,380,000
Paid-in-capital 8,002,961 7,955,261
Retained earnings 1,966,766 744,224
Unrealized gain/(loss) on securities, net (37,979) 29,739
----------- -----------
Total Shareholders' Equity $ 11,311,748 $10,109,224
----------- -----------
Total Liabilities and
Shareholders' Equity $112,253,119 $87,609,812
=========== ===========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Income
For the Years Ended December 31,
--------------------------------
Interest Income: 1999 1998
- --------------- ---- ----
Interest and fees on loans (Note 2) $ 7,340,869 $ 6,003,022
Interest on investment securities 342,266 245,506
Interest on federal funds sold 236,801 136,981
----------- ----------
Total interest income $ 7,919,936 $ 6,385,509
Interest Expense:
- ----------------
Interest on deposits
and borrowings (Note 11) 3,580,532 2,966,794
----------- ----------
Net interest income $ 4,339,404 $ 3,418,715
Provision for possible loan losses (Note 6) 365,000 251,000
----------- ----------
Net interest income after provision
for possible loan losses $ 3,974,404 $ 3,167,715
----------- ----------
Other Income:
- ------------
Service fees on deposit accounts $ 510,226 $ 383,023
Miscellaneous, other 104,282 104,617
----------- ----------
Total other income $ 614,508 $ 487,640
----------- ----------
Other Expenses:
- --------------
Salaries $ 1,099,460 $ 831,622
Employee benefits 253,861 244,538
Data processing and ATM 180,086 109,430
Advertising and public relations 147,958 163,932
Depreciation and amortization 257,295 173,672
Other operating expenses (Note 12) 666,710 547,999
----------- ----------
Total other expenses $ 2,605,370 $ 2,071,193
----------- ----------
Income before income tax $ 1,983,542 $ 1,584,162
Income tax (Notes 2 & 13) 761,000 681,600
----------- ----------
Net income $ 1,222,542 $ 902,562
=========== ==========
Basic earnings per share (Note 2) $ .89 $ .72
=========== ==========
Diluted earnings per share (Note 2) $ .85 $ .69
=========== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Changes in Shareholders' Equity
For the Years ended December 31, 1998 and 1999
Accumulated
Other
Number Common Paid Compre-
Of Stock -in- Retained hensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
December 31,
1997 1,200,000 $1,200,000 $5,418,801 $(158,338) $ 7,930 $ 6,468,393
--------- --------- --------- --------- -------- ----------
Stock options,
restricted
stock -- -- 40,094 -- -- 40,094
Sale of stock,
1998 180,000 180,000 2,496,366 -- -- 2,676,366
Comprehensive income:
Net income,
1998 -- -- -- 902,562 -- 902,562
Unrealized
gains,
securities -- -- -- -- 21,809 21,809
--------- --------- --------- --------- -------- ----------
Balance,
December 31,
1998 1,380,000 $1,380,000 $7,955,261 $ 744,224 $ 29,739 $10,109,224
Stock options,
restricted
stock -- -- 47,700 -- -- 47,700
Comprehensive income:
Net income,
1999 -- -- -- 1,222,542 -- 1,222,542
Unrealized
loss,
securities -- -- -- -- (67,718) (67,718)
--------- --------- --------- --------- -------- ----------
Balance,
December 31,
1999 1,380,000 $1,380,000 $8,002,961 $1,966,766 $ (37,979) $11,311,748
========= ========= ========= ========= ======== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Statements of Cash Flows
For the Years Ended December 31,
--------------------------------
Cash flows from operating activities: 1999 1998
- ------------------------------------ ---- ----
Net income $ 1,222,542 $ 902,562
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for loan losses $ 365,000 $ 251,000
Depreciation and amortization 257,295 173,672
Net accretion on securities (18,936) (9,190)
(Increase) in receivables and other assets (314,242) (132,502)
Increase in payables and other liabilities 29,240 (57,975)
----------- -----------
Net cash provided by operating activities $ 1,540,899 $ 1,127,567
----------- -----------
Cash flows from investing activities:
Purchase of securities, AFS $ (6,976,725) $ (2,508,748)
Maturity of securities, AFS 3,925,172 700,000
Increase in other real estate owned (787,229) - -
(Increase) in loans, net (21,618,337) (15,653,650)
Purchase of premises and equipment (370,833) (1,133,128)
----------- -----------
Net cash used in investing activities $(25,827,952) $(18,595,526)
----------- -----------
Cash flows from financing activities:
Sale of common stock $ - - $ 2,676,366
Options, restricted stock 47,700 40,094
Increase in deposits 21,016,407 19,132,467
Increase in borrowed funds 2,395,136 - -
----------- ------------
Net cash provided by financing activities $ 23,459,243 $ 21,848,927
----------- ------------
Net (decrease) in cash and cash equivalents $ (827,810) $ 4,380,968
Cash and cash equivalents, beginning of period 8,410,920 4,029,952
----------- ------------
Cash and cash equivalents, end period $ 7,583,110 $ 8,410,920
=========== ============
Supplemental Information:
Income taxes paid $ 811,000 $ 671,588
=========== ============
Interest paid $ 3,522,850 $ 2,917,995
=========== ============
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 is primarily engaged in the business of
obtaining deposits and providing commercial consumer and real estate loans to
the general public. The Bank's deposits are each insured up to $100,000 by
the Federal Deposit Insurance Corporation (the "FDIC") subject to certain
limitations imposed by the FDIC.
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.
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 financial
statements and income and expenses during the reporting 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 foreclosure proceedings.
INVESTMENT SECURITIES. Investment securities that the Company has the
positive intent and ability to hold to maturity are classified as held to
maturity and are reported at amortized cost. Investment securities held for
current resale are classified as trading securities and are reported at fair
value, with unrealized gains and losses included in earnings. Investment
securities not classified either as securities held to maturity or trading
securities are classified as available for sale and reported at fair value;
net unrealized gains or losses (net of related taxes) are excluded from
earnings and are reported as accumulated other comprehensive income/(loss)
within shareholders' equity. The classification of investment securities as
held to maturity, trading or available for sale is determined at the date of
purchase.
Realized gains and losses from sales of investment securities are
determined based upon the specific identification method. Premiums and
discounts are amortized as an adjustment to yield over the remaining lives of
the securities using the level-yield method.
Management periodically evaluates investment securities for other than
temporary declines in value and records losses, if any, through an adjustment
to earnings.
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.
Impaired loans are (i) non-performing loans that have been placed on
nonaccrual status and (ii) loans which are performing according to all
contractual terms of the loan agreement, but may have substantive indication
of potential credit weakness. Accounting standards require impaired loans to
be measured based on (a) the present value of expected future cash flows
discounted at the loan's original effective interest rate, or (b) the loan's
observable market price, or (c) the fair value of the collateral if the loan
is collateral dependent.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses (the
"Allowance") is established through provisions charged to operations. Loans
deemed to be uncollectible are charged against the Allowance, and subsequent
recoveries, if any, are credited to the Allowance. The adequacy of the
Allowance is 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. The evaluation for
the adequacy of the Allowance is inherently subjective as it requires material
estimates, including the amounts and timing of future cash flows expected to
be received on impaired loans that may be susceptible to significant change.
Various regulatory agencies, as an integral part of their examination process,
periodically review the Company's Allowance. 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 proceedings. 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 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 the sale of the property and any
subsequent adjustments to reflect changes in fair value of the property are
reflected in the income statement. Recoverable costs relating to the
development and improvement of the property are capitalized whereas routine
holding costs are charged to expense.
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.
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.
STOCK OPTIONS AND WARRANTS. There are two major accounting standards
that address the accounting for stock options/warrants. Entities are allowed
to freely choose between the two distinct standards. The first standard, APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") measures
stock options/warrants by the intrinsic value method. Under the above method,
if the exercise price is the same or above the quoted market price at the date
of grant, no compensation expense is recognized. The second standard, SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), may recognize
a compensation expense even in cases where the exercise price is the same or
above the quoted market price. SFAS 123 takes into account the time value of
the options/warrants; that is, the value of being able to defer a decision on
whether or not to exercise the option/warrants until the expiration date. The
Company follows the accounting standards of APB 25. Had the Company followed
the accounting standards of SFAS 123, net income for the years ended December
31, 1999 and 1998 would have been reduced by $7,643 and $6,114, respectively.
On a per share basis, basic and diluted earnings per share would have been
reduced in each of the above years by $.01.
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, 1999, basic EPS and diluted EPS were
computed as follows :
Basic EPS Diluted EPS
--------- -----------
Numerator Denominator Numerator Denominator
--------- ----------- --------- -----------
Net income $1,222,542 - - $1,222,542 - -
Weighted average shares - - 1,380,000 - - 1,380,000
Options, warrants - - - - - - 56,415
--------- --------- --------- ---------
Totals $1,222,542 1,380,000 $1,222,542 1,436,415
========= ========= ========= =========
EPS $.89 $.85
=== ===
For the year ended December 31, 1998, basic EPS and diluted EPS were
computed as follows :
Basic EPS Diluted EPS
--------- -----------
Numerator Denominator Numerator Denominator
Net income $ 902,562 - - $ 902,562 - -
Weighted average shares - - 1,260,000 - - 1,260,00
Options, warrants - - - - - - 39,272
---------- --------- --------- ---------
Totals $ 902,562 1,260,000 $ 902,562 1,299,272
========== ========= ========= =========
EPS $.72 $.69
=== ===
RECENT ACCOUNTING PRONOUNCEMENTS. In March 1998, the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 provides guidance for capitalizing and expensing the
costs of computer software developed or obtained for internal use. SOP 98-1
is effective for financial statements for fiscal years beginning after
December 15, 1998. The adoption of SOP 98-1 did not have a material impact on
the accompanying consolidated financial statements.
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. Since the
Company does not invest in derivative instruments, SFAS 133 will not have a
material impact on the Company's financial statements.
SFAS 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" amends prior accounting standards, primarily SFAS 65, with respect
to the classification of retained interests, such as mortgage-backed
securities, following a securitization of mortgage loans held for sale. This
statement became effective for the first quarter of 1999. Since the Company
does not securitize mortgage loans, no financial statement impact has resulted
from adopting this statement.
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, 1999 and 1998,
the Bank sold $518,757 and $5,265,242, 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, 1999 follow:
Gross
Unrealized
Amortized ---------- Estimated
Description Costs Gains Losses Market Values
- ----------- ----------- ----- ------ -------------
U.S. Treasury $2,705,164 $ 1,277 $ (11,067) $ 2,695,374
U.S. Agency 5,384,817 487 (48,241) 5,337,063
FRB and FHLB stock 504,300 - - - - 504,300
Tax-exempt 500,000 - - - - 500,000
--------- ------ --------- -----------
Total securities $9,094,281 $ 1,764 $ (59,308) $ 9,036,737
========= ====== ========= ===========
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, 1998 follow:
Gross
Unrealized
Amortized ---------- Estimated
Description Costs Gains Losses Market Values
- ----------- ---------- ----- ------ -------------
U.S. Treasury $3,514,718 $52,060 $ (2,762) $ 3,564,016
U.S. Agency 1,490,289 - - (4,239) 1,486,050
FRB and FHLB stock 483,900 - - - - 483,900
Tax-exempt 500,000 - - - - 500,000
--------- ------ --------- ----------
Total securities $5,988,907 $52,060 $ (7,001) $ 6,033,966
========= ====== ========= ==========
The amortized costs and estimated market values of securities available-
for-sale at December 31, 1999, 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 $ 4,186,445 $ 4,184,156
Due after one through five years 3,903,536 3,848,281
Due after ten years 500,000 500,000
FRB & FHLB stock (no maturity) 504,300 504,300
----------- -----------
Total securities $ 9,094,281 $ 9,036,737
=========== ===========
There were no sales of securities during 1999 and 1998. At December 31,
1999 and 1998, there were $5,300,000 and $4,710,000, 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,
1999 and 1998, follows:
December 31,
-------------------
1999 1998
---- ----
Commercial, financial, agricultural $ 23,337,703 $ 17,866,367
Real estate - construction 4,853,604 3,622,240
Real estate - mortgage 55,029,655 41,785,089
Installment 8,011,645 6,464,344
----------- -----------
Loans, gross $ 91,232,607 $ 69,738,040
Deduct:
Allowance for loan losses (1,109,707) (868,477)
----------- -----------
Loans, net $ 90,122,900 $ 68,869,563
=========== ===========
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 $791,039
and $104,826 at December 31, 1999 and 1998, respectively. These loans had
related allowances for loan losses of approximately $118,700 and $15,700 at
December 31, 1999 and 1998, respectively. Non-accruing loans, a loan category
which is part of impaired loans, amounted to $143,597 and $104,826 at December
31, 1999 and 1998, respectively. Had interest been accrued on these loans at
their originally contracted rates, interest income would have been increased
by approximately $3,021 and $2,727 in the year ended December 31, 1999 and
1998, respectively. Loans past due 90 days or more and still accruing
interest at December 31, 1999 and 1998 aggregated approximately $10,819 and
zero, respectively,
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 account for the years ended December 31,
1999 and 1998 follows:
Years ended December 31,
------------------------
1999 1998
---- ----
Balance, beginning of year $ 868,477 $ 644,913
Add: Provision for loan losses 365,000 251,000
Add: Recoveries of previously
charged off amounts 2,741 5,381
---------- ----------
Total $ 1,236,218 $ 901,294
Deduct: Amount charged-off (126,511) (32,817)
---------- ----------
Balance, end of year $ 1,109,707 $ 868,477
========== ==========
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, 1999 and 1998 follow:
December 31,
-------------------
1999 1998
---- ----
Land $ 747,023 $ 747,023
Building 2,145,686 2,134,547
Furniture, equipment 1,213,955 903,406
---------- ----------
Property and equipment, gross $ 4,106,664 $ 3,784,976
Deduct:
Accumulated depreciation (525,639) (329,317)
---------- ----------
Property and equipment, net $ 3,581,025 $ 3,455,659
========== ==========
Depreciation expense for the years ended December 31, 1999 and 1998
amounted to $245,467 and $162,448, 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 14 concerning warrants and options earned by
directors and executive officers.
Please refer to Note 15 concerning financial instruments with off-
balance sheet risk.
NOTE 9 - FHLB BORROWINGS
Advances from FHLB totaled $2.0 million at December 31, 1999 and zero at
December 31, 1998. The $2.0 million advance will mature as follows: $1.0
million on April 22, 2004 and the remaining $1.0 million on April 21, 2009.
The two advances have a variable rate of interest which, at December 31, 1999,
averaged 5.13%. At December 31, 1999, the Company had pledged all of its FHLB
stock and entered into a security agreement with a blanket floating lien
pledging all of its real estate loans to secure potential borrowings. Under
an agreement with FHLB, the Company must have unencumbered collateral with
principal balances, when discounted at 75% of the unpaid principal, at least
equal to 100% of the Company's FHLB advances.
NOTE 10 - DEPOSITS
The following details deposit accounts at December 31, 1999 and 1998:
December 31,
----------------------
1999 1998
---- ----
Non-interest bearing deposits $ 13,460,400 $ 10,470,065
Interest bearing deposits:
NOW accounts 18,734,557 11,641,974
Money market accounts 22,057,548 14,103,448
Savings 3,036,839 1,892,150
Time, less than $100,000 24,022,917 23,329,217
Time, $100,000 and over 16,839,025 15,698,025
----------- ------------
Total deposits $ 98,151,286 $ 77,134,879
=========== ============
NOTE 11 - INTEREST ON DEPOSITS AND BORROWINGS
A summary of interest expense for the years ended December 31, 1999 and
1998 follows:
December 31,
------------------
1999 1998
---- ----
Interest on NOW accounts $ 332,699 $ 221,245
Interest on money market accounts 925,588 658,128
Interest on savings accounts 73,461 52,100
Interest on CDs under $100,000 1,262,557 1,144,186
Interest on CDs $100,000 and over 902,571 875,020
Interest, other borrowings 83,656 16,115
--------- ---------
Total interest on deposits and borrowings $3,580,532 $2,966,794
========= =========
NOTE 12 - OTHER OPERATING EXPENSES
A summary of other operating expenses for the years ended December 31,
1999 and 1998 follows:
December 31,
--------------------
1999 1998
---- ----
Postage and delivery $ 56,784 $ 50,988
Supplies and printing 90,658 78,269
Regulatory assessments 49,124 36,810
Taxes & insurance 87,487 63,243
Utilities & telephone 71,721 49,010
Professional fees 76,202 73,061
Repairs, maint. & service contracts 85,736 74,626
All other operating expenses 148,998 121,992
------- -------
Total other operating expenses $666,710 $547,999
======= =======
NOTE 13 - INCOME TAXES
As of December 31, 1999 and 1998, the Company's provision for income
taxes consisted of the following:
December 31,
------------------------
1999 1998
---- ----
Current $ 663,139 $ 617,758
Deferred 97,861 63,842
-------- --------
Federal income tax expense $ 761,000 $ 681,600
======== ========
Deferred income taxes consist of the following:
1999 1998
Provision for loan losses $ 82,018 $ 72,012
Other 15,843 (8,170)
-------- --------
Total $ 97,861 $ 63,842
======== ========
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:
Years ended December 31,
------------------------
1999 1998
---- ----
Income taxes at statutory rate $ 674,404 $ 538,615
State tax, net of Federal benefits 61,611 67,826
Change in valuation allowance 82,018 72,012
Tax-exempt income (30,730) (6,007)
Other (26,303) 9,154
--------- ---------
Total $ 761,000 $ 681,600
========= =========
The tax effects of the temporary differences that comprise the net
deferred tax assets at December 31, 1999 and 1998 are presented below:
1999 1998
---- ----
Deferred tax assets:
Allowance for loan losses $ 257,497 $ 175,479
Unrealized gain, securities 19,565 (15,320)
Deferred asset, depreciation 15,364 (479)
Valuation reserve (210,624) (128,606)
--------- ---------
Net deferred tax asset $ 81,802 $ 31,074
========= =========
There was a net change in the valuation allowance during 1999 and 1998.
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, 1999.
NOTE 14 - 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. As of December 31, 1999, all of the above
stock options were vested and outstanding.
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 1999 and 1998, the Company contributed $24,599 and
$88,450, 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, 1999 and 1998, the
Company incurred expenses for salary and benefits as follows: (i) for the
president: $138,832 (1999) and $130,419 (1998); and (ii) for the executive
vice president: $116,336 (1999) and $110,445 (1998).
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, 1999 and 1998 there were
11,415 and 9,050 shares of restricted stock outstanding, respectively. The
1999 and 1998 income statements include a charge for $47,700 and $40,095,
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, 1999
and 1998, loans outstanding to directors, their related interests and
executive officers aggregated $4,773,288 and $3,413,779, 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 1999 and 1998 follows:
1999 1998
---- ----
Balance, beginning of year $ 3,413,779 $ 3,066,426
New loans 2,643,732 2,369,282
Less: principal reductions (1,284,223) (2,021,929)
---------- ----------
Balance, end of year $ 4,773,288 $ 3,413,779
========== ==========
Deposits by directors and their related interests, at December 31,
1999 and 1998, approximated $4,370,715 and $2,464,559, respectively.
NOTE 15 - 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,
1999 and 1998, unfunded commitments to extend credit were $15,662,373 and
$11,847,306, 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, 1999 and 1998, commitments under letters of credit
aggregated approximately $453,211 and $326,892, 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 16 - 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, 1999, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1999, the Bank was considered to be 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, 1999:
Total capital-risk-based
(to risk-weighted assets):
Bank $11,725 13.9% $6,755 >= 8% $8,443 >= 10%
Consolidated 12,400 14.7% 6,757 >= 8% N/A >= N/A
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $10,669 12.6% $3,377 >= 4% $5,066 >= 6%
Consolidated 11,344 13.4% 3,378 >= 4% N/A >= N/A
Tier 1 capital-leverage
(to average assets):
Bank $10,669 9.7% $4,394 >= 4% $5,493 >= 5%
Consolidated 11,344 10.3% 4,396 >= 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, 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 12.3% $3,056 >= 4% $3,820 >= 5%
Consolidated 10,079 13.1% 3,063 >= 4% N/A >= N/A
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose the fair value of its financial
instruments where it is practical to estimate that value. The fair value
estimates are made at a specific point in time based on relevant market
information. Where available, quoted market prices are used to determine fair
value. However, since numerous financial instruments lack quoted market
prices, the Company utilized various estimation methodologies to determine the
fair value. These estimation methodologies incorporate a significant number
of assumptions based on judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in the assumptions could significantly affect the estimates.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999. Such amounts
have not been revalued for purposes of these financial statements since
December 31, 1999 and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS WITH BANKS AND
FEDERAL FUNDS SOLD. The carrying amounts of cash and due from banks,
interest-bearing deposits with banks, and Federal funds sold approximate their
fair value.
AVAILABLE FOR SALE SECURITIES. Fair values for securities are based on
quoted market prices.
LOANS. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
For other loans, the fair values are estimated using discounted cash flow
methods, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for impaired loans
are estimated using discounted cash flow methods or underlying collateral
values.
DEPOSITS. The carrying amounts of demand deposits and savings deposits
approximate their fair values. Fair values for certificates of deposit are
estimated using discounted cash flow methods, using interest rates currently
being offered on certificates.
OFF-BALANCE SHEET INSTRUMENTS. Fair values of the Company's off-balance
sheet financial instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit and standby letters of
credit do not represent a significant value to the Company until such
commitments are funded. The Company has determined that these instruments do
not have a distinguishable fair value and no fair value has been assigned.
The estimated fair values of the Company's financial instruments were as
follows:
December 31, 1999
-----------------------
Carrying Fair
-------- ----
Financial assets:
Cash and due from banks $ 7,583,110 $ 7,583,110
Securities available for sale 9,036,737 9,036,737
Loans 90,122,900 89,674,627
Financial liabilities:
Deposits 98,151,286 98,589,167
Borrowings 2,395,136 2,395,136
NOTE 18 - 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 1999 and 1998, the Company
did not pay dividends to its shareholders.
NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION
This information should be read in conjunction with the other notes to
the consolidated financial statements.
Parent Company Balance Sheets
-----------------------------
December 31,
----------------------
Assets: 1999 1998
- ------ ---- ----
Cash $ 612,457 $ 643,273
Investment in Bank 10,636,769 9,450,414
Other assets 138,795 44,820
---------- ----------
Total Assets $11,388,021 $10,138,507
========== ==========
Liabilities and Shareholders' Equity:
Accounts payable $ 76,273 $ 29,283
---------- ----------
Total Liabilities $ 76,273 $ 29,283
---------- ----------
Common stock $ 1,380,000 $ 1,380,000
Paid-in-capital 8,002,961 7,955,261
Retained earnings 1,966,766 744,224
Unrealized gain on securities (37,979) 29,739
---------- ----------
Total Shareholders' equity $11,311,748 $10,109,224
---------- ----------
Total Liabilities and Shareholders' equity $11,388,021 $10,138,507
========== ==========
Parent Company Statements of Income
-----------------------------------
Years Ended December 31,
------------------------------
Revenues: 1999 1998
- -------- ---- ----
Interest income $ 29,069 $ 9,411
Rental income - - 16,200
---------- ----------
Total revenues $ 29,069 $ 25,611
---------- ----------
Expenses:
- --------
Depreciation and amortization $ 4,725 $ 4,987
Other expenses 55,875 50,812
---------- ----------
Total expenses $ 60,600 $ 55,799
---------- ----------
(Loss) before equity in undistributed
earnings of Bank $ (31,531) $ (30,188)
Equity in undistributed earnings
of Bank 1,254,073 932,750
---------- ----------
Net income $ 1,222,542 $ 902,562
========== ==========
Parent Company Statements of Cash Flows
---------------------------------------
Years Ended December 31,
------------------------
Cash flows from operating activities: 1999 1998
- ------------------------------------ ---- ----
Net income $ 1,222,542 $ 902,562
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of the Bank (1,254,073) (932,750)
Depreciation and amortization 4,725 4,987
(Increase) in other asset (98,700) 6,299
Increase in payables 46,990 7,950
---------- ----------
Net cash provided by operating activities $ (78,516) $ (10,952)
---------- ----------
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 47,700 40,094
---------- ----------
Net cash used by financing activities $ 47,700 $ 2,716,460
---------- ----------
Net (decrease) in cash and cash equivalents $ (30,816) $ 385,179
Cash and cash equivalents, beginning of the year 643,273 258,094
---------- ----------
Cash and cash equivalents, end of year $ 612,457 $ 643,273
========== ==========
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 information relating to directors and executive officers of the
Company contained in the Company's definitive Proxy Statement to be delivered
to shareholders in connection with the 2000 Annual Meeting of Shareholders is
incorporated herein by reference.
Item 10. Executive Compensation
- ------- ----------------------
The information relating to executive compensation contained in the
Company's definitive Proxy Statement to be delivered to shareholders in
connection with the 2000 Annual Meeting of Shareholders is incorporated herein
by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The information relating to security ownership of certain beneficial
owners and management contained in the Company's definitive Proxy Statement to
be delivered to shareholders in connection with the 2000 Annual Meeting of
Shareholders is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
The information relating to certain relationships and related
transactions contained in the Company's definitive Proxy Statement to be
delivered to shareholders in connection with the 2000 Annual Meeting of
Shareholders is incorporated herein by reference.
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 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THOMASVILLE BANCSHARES, INC.
Dated: March 30, 2000 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 President and Chief Executive March 30, 2000
- ---------------------- Officer (Principal Executive and
Stephen H. Cheney Accounting Officer) and Director
/s/ Charles H. Hodges, III Executive Vice President March 30, 2000
- -------------------------- and Director
Charles H. Hodges, III
Director March , 2000
- --------------------------
Charles A. Balfour
/s/ Clifford S. Campbell, Jr. Director March 30, 2000
- --------------------------
Clifford S. Campbell, Jr.
Director March , 2000
- --------------------------
David A. Cone
/s/ Charles E. Hancock, M.D. Director March 30, 2000
- --------------------------
Charles E. Hancock, M.D.
/s/ Harold L. Jackson Director March 30, 2000
- --------------------------
Harold L. Jackson
Director March , 2000
- --------------------------
David O. Lewis
/s/ Charles W. McKinnon, Jr. Director March 30, 2000
- --------------------------
Charles W. McKinnon, Jr.
/s/ Randall L. Moore Director March 30, 2000
- --------------------------
Randall L. Moore
Director March , 2000
- --------------------------
Diane W. Parker
Director March , 2000
- --------------------------
Cochran A. Scott, Jr.
/s/ Richard L. Singletary, Jr. Director March 30, 2000
- --------------------------
Richard L. Singletary, Jr.
EXHIBIT INDEX
-------------
Exhibit
No Description Page
------- ----------- ----
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
Exhibit 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Thomasville National Bank, a national bank organized under the laws of the
United States.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THOMASVILLE BANCSHARES, INC. FOR THE PERIOD FROM
JANUARY 1, 1999 TO DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<PERIOD-TYPE> YEAR
<CASH> 7,064,353
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 518,757
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,036,737
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 91,232,607
<ALLOWANCE> 1,109,707
<TOTAL-ASSETS> 112,253,119
<DEPOSITS> 98,151,286
<SHORT-TERM> 2,395,136
<LIABILITIES-OTHER> 394,949
<LONG-TERM> 0
0
0
<COMMON> 1,380,000
<OTHER-SE> 9,931,748
<TOTAL-LIABILITIES-AND-EQUITY> 112,253,119
<INTEREST-LOAN> 7,340,869
<INTEREST-INVEST> 579,067
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,919,936
<INTEREST-DEPOSIT> 3,496,876
<INTEREST-EXPENSE> 3,580,532
<INTEREST-INCOME-NET> 4,339,404
<LOAN-LOSSES> 365,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,605,370
<INCOME-PRETAX> 1,983,542
<INCOME-PRE-EXTRAORDINARY> 1,983,542
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,222,542
<EPS-BASIC> .89
<EPS-DILUTED> .85
<YIELD-ACTUAL> 4.69
<LOANS-NON> 143,597
<LOANS-PAST> 10,819
<LOANS-TROUBLED> 647,442
<LOANS-PROBLEM> 791,039
<ALLOWANCE-OPEN> 868,477
<CHARGE-OFFS> 126,511
<RECOVERIES> 2,741
<ALLOWANCE-CLOSE> 1,109,707
<ALLOWANCE-DOMESTIC> 1,092,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,707
</TABLE>
