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, 2002
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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
(229) 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
---------------------------------
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. [ ]
Revenue for the fiscal year ended December 31, 2002: $11,475,046
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (1,070,495 shares) on March 14, 2003 was
$22,480,395. 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 as reported in the over the counter pink sheets.
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.
The number of shares outstanding of the Registrant's common stock, as of
March 25, 2003: 1,443,558 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 2003 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
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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 2003 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
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GENERAL
Thomasville Bancshares, Inc., a Georgia corporation (the "Company"),
was formed in March 1995 to act as the holding company for Thomasville
National Bank (the "Bank"). The Bank opened for business in October 1995,
and presently operates two branches in Thomasville, Georgia. The Bank is a
full service commercial bank, with trust powers, and offers a full range of
interest-bearing and non-interest-bearing accounts, including commercial and
retail checking accounts, money market accounts, individual retirement and
Keogh accounts, regular interest-bearing statement savings accounts,
certificates of deposit, commercial loans, real estate loans, home equity
loans and consumer/ installment loans. In addition, the Bank provides such
consumer services as U.S. Savings Bonds, travelers checks, cashiers checks,
safe deposit boxes, bank by mail services, direct deposit and automatic
teller services.
The holding company structure was adopted as a mechanism to enhance the
Bank's ability to serve its future customers' requirements for financial
services. The Company provides flexibility for expansion of the banking
business through the 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, or raise capital otherwise in a manner which is
unavailable to the Bank under existing banking regulations.
On July 1, 2002, the Company acquired all of the issued and outstanding
capital stock of Joseph Parker & Company, Inc. ("JPC"), a Georgia
corporation and federally registered investment advisory firm located in
Thomasville, Georgia. JPC provides investment management services primarily
to individuals and businesses located in South Georgia, and managed
approximately $200 million in assets at December 31, 2002.
In September 2001, the Bank formed an operating subsidiary, TNB
Financial Services, Inc., Georgia corporation with trust powers. This
subsidiary provides asset management services to clients located primarily in
the Bank's market area. At December 31, 2002, TNB Financial Services managed
approximately $4 million in assets.
MARKET AREA AND COMPETITION
The market area of the Bank consists of Thomas County, Georgia and is
focused on Thomasville, the county seat. Thomas County has been experiencing
steady growth in both jobs and banking deposits in recent years. 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 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 Bank's market area includes 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 and four credit unions headquartered in Thomas County. These
institutions offer a full range of banking services and vigorously compete
with the Bank for all types of services, especially deposits. In addition,
the Bank also competes in certain aspects of its banking business with
credit unions, small loan companies, consumer finance companies, brokerage
houses, insurance companies, money market funds, and other financial
institutions which have recently been invading traditional banking markets.
The competition between these types of financial institutions and commercial
banks has increased significantly within the past few years as a result of
federal and state legislation which has, in several respects, deregulated
financial institutions. The full impact of this legislation and subsequent
laws that may continue to deregulate the financial services industry further
cannot be fully assessed or predicted.
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, 2002 and 2001. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities: ($ in 000's)
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Cash and due from banks $ 4,115 $ 3,968
-------- --------
Tax-exempt securities - - - -
Taxable securities 7,636 9,076
Federal funds sold 4,443 5,133
Net loans 146,018 119,552
-------- --------
Total interest-earning assets $ 158,097 $ 133,761
Other assets 8,255 5,390
-------- --------
Total assets $ 170,467 $ 143,119
======== ========
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Non-interest-bearing deposits $ 16,308 $ 14,356
NOW and money market deposits 67,648 57,151
Savings deposits 4,425 3,385
Time deposits 53,534 51,192
Other borrowings 12,230 2,924
Other liabilities 1,698 699
-------- --------
Total liabilities $ 155,843 $ 129,707
Stockholders' equity 14,624 13,412
-------- --------
Total liabilities
and stockholders' equity $ 170,467 $ 143,119
======== ========
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: ($ in 000's)
Year Ended December 31, 2002 Year Ended December 31, 2001
---------------------------- ----------------------------
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
Amount Paid Rate Amount Paid Rate
------ ---- ---- ------ ---- ----
Assets
------
Taxable securities $ 7,636 $ 403 5.28% $ 9,076 $ 588 6.48%
Federal funds sold 4,443 78 1.76% 5,133 191 3.71%
Net loans 146,018(1) 9,628(2) 6.59% 119,552(3) 9,760(4) 8.16%
------- ------ ------- ------
Total
earning assets $158,097 $10,109 6.39% $133,761 $10,539 7.88%
======= ====== ======= ======
Liabilities
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NOW and money
market deposits $ 67,648 $ 1,368 2.02% $ 57,151 $ 1,977 3.46%
Savings deposits 4,425 66 1.49% 3,385 93 2.75%
Time deposits 53,534 2,290 4.28% 51,192 3,000 5.86%
Other borrowings 12,230 522 4.27% 2,924 138 4.73%
------- ------ ------- ------
Total interest
bearing
liabilities $137,837 $ 4,246 3.08% $114,652 $ 5,208 4.54%
======= ====== ======= ======
Net yield on
earning assets 3.71% 3.99%
______________________
(1) At December 31, 2002, $188 in loans were not accruing interest.
(2) Interest earned on net loans includes $373 in loan fees and loan service
fees.
(3) At December 31, 2001, $596 in loans were not accruing interest.
(4) Interest earned on net loans includes $261 in loan fees and loan service
fees.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect on interest income, interest expense and net interest income
during the periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate. ($ in 000's)
Year Ended Year Ended
December 31, 2002 December 31, 2001
compared with compared with
Year Ended Year Ended
December 31, 2001 December 31, 2000
----------------- -----------------
Increase (decrease) due to:
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest earned on:
Tax-exempt securities $ -- $ -- $ -- $ (4) $ -- $ (4)
Taxable securities (85) (100) (185) 102 45 147
Federal funds sold (23) (90) (113) 23 (34) (11)
Net loans 875 (1,007) (132) 1,322 (788) 534
----- ------ ----- ----- ----- -----
Total interest income 767 (1,197) (430) 1,443 (777) 666
----- ------ ----- ----- ----- -----
Interest paid on:
NOW deposits
and money market $ 481 $(1,090) $ (609) $ 365 $ (191) $ 174
Savings deposits 58 (85) (27) 1 -- 1
Time deposits 145 (855) (710) 436 (52) 384
Other borrowings 396 (12) 384 1 (22) (21)
----- ------ ----- ----- ----- -----
Total interest expense 1,080 (2,042) (962) 803 (265) 538
----- ------ ----- ----- ----- -----
Change in net
interest income $ (313) $ 845 $ 532 $ 640 $ (512) $ 128
===== ====== ===== ===== ===== =====
DEPOSITS
The Bank offers a full range of interest-bearing and non-interest-
bearing accounts, including commercial and retail checking accounts,
money market accounts, individual retirement and Keogh accounts, regular
interest-bearing statement savings accounts and certificates of deposit
with fixed and variable rates and a range of maturity date options. The
sources of deposits are residents, businesses and employees of businesses
within the Bank's market area, obtained through the personal solicitation
of the Bank's officers and directors, direct mail solicitation and
advertisements published in the local media. The Bank pays competitive
interest rates on time and savings deposits up to the maximum permitted
by law or regulation. In addition, the Bank has implemented a service
charge fee schedule competitive with other financial institutions in the
Bank's market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts and returned
check charges.
The following table presents, for the periods indicated, the
average amount of and average rate paid on each of the following deposit
categories: ($ in 000's)
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
---------------- ------ --------- ------ ---------
Non-interest-bearing
demand deposits $16,308 N/A $14,356 N/A
NOW and money market deposits 67,648 2.02% 57,151 3.46%
Savings deposits 4,425 1.49% 3,385 2.75%
Time deposits 53,534 4.28% 51,192 5.86%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective maturities at
December 31, 2002: ($ in 000's)
Time Certificates of Deposit At December 31, 2002
---------------------------- --------------------
3 months or less $ 9,132
3-6 months 5,011
6-12 months 3,454
over 12 months 4,100
------
Total $21,697
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LOAN PORTFOLIO
The Bank engages in a full complement of lending activities,
including commercial/industrial, consumer and real estate loans. As of
December 31, 2002, the Bank had a legal lending limit for unsecured loans
of up to $2,145,000 to any one person.
While risk of loss in the Bank's loan portfolio is primarily tied
to the credit quality of its 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.
The Bank participates with other banks with respect to loans
originated by the Bank 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 other loans.
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 as of the dates indicated and the total amount of
all loans for such periods: ($ in 000's)
As of As of
Type of Loan December 31, 2002 December 31, 2001
------------ ----------------- -----------------
Commercial, financial
and agricultural $ 34,841 $ 40,032
Real Estate - construction 11,588 6,334
Real Estate - mortgage 101,046 80,747
Installment and other
loans to individuals 9,147 8,788
------- -------
Subtotal 156,622 135,901
Less: allowance for possible
loan losses (1,722) (1,565)
------- -------
Total (net of allowances) $154,900 $134,336
======= =======
The following is a presentation of an analysis of maturities of
certain loans as of December 31, 2002: ($ in 000's)
Due Due
Due 1 After 1 to After
Type of Loan Year of Less 5 Years 5 Years Total
------------ ------------ ------- ------- -----
Commercial, financial
and agricultural $15,510 $14,936 $4,395 $34,841
Real Estate - construction 10,382 1,206 -- 11,588
------ ------ ----- ------
Total $25,892 $16,142 $4,395 $46,429
====== ====== ===== ======
For the above loans, the following is a presentation of an analysis
of sensitivities to changes in interest rates as of December 31, 2002:
($ in 000's)
Due Due
Due 1 After 1 to After
Interest Category Year of Less 5 Years 5 Years Total
----------------- ------------ ------- ------- -----
Predetermined interest rate $ 6,932 $10,145 $1,126 $18,203
Floating interest rate 18,960 5,997 3,269 28,226
------ ------ ----- ------
Total $25,892 $16,142 $4,395 $46,429
====== ====== ===== ======
At December 31, 2002 and 2001, the total recorded investment in
impaired loans, all of which had allowances determined in accordance with
FASB Statements No. 114 and No. 118, amounted to approximately $3,650,260
and $4,640,644, respectively. The average recorded investment in
impaired loans amounted to approximately $4,329,882 and $3,835,462 for
the years ended December 31, 2002 and 2001, respectively. The allowance
related to impaired loans amounted to approximately $320,451 and $934,727
at December 31, 2002 and 2001, respectively. The balance of the
allowance in excess of the above specific reserves is available to absorb
the inherent losses of all other loans. Interest income recognized on
impaired loans for the years ended December 31, 2002 and 2001 amounted to
$269,985 and $351,311, respectively. The amount of interest recognized
on impaired loans using the cash method of accounting was not material
for the years ended December 31, 2002 and 2001. Loans on non-accrual
status at December 31, 2002 and 2001 had outstanding balances of $188,122
and $595,646, respectively. Interest recognized on non-accruing loans at
December 31, 2002 and 2001 was not material. The Bank has no
commitments to lend additional funds to borrowers whose loans have been
modified.
As of December 31, 2002, 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.
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, 2002, two loans with an aggregate principal of $12,869 were
over 90 days past due but still accruing interest. As of December 31,
2002, one loan with an aggregate principal balance of $151,196 was
considered to be "troubled-debt restructured," and fourteen loans with an
aggregate balance of $188,122 were on non-accrual status.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Bank's loss experience is furnished in the
following table for the periods indicated, as well as a breakdown of the
allowance for possible loan losses: ($ in 000's)
Analysis of the Allowance for Possible Loan Losses
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Balance at beginning of period $1,565 $1,365
Charge-offs:
Real estate loans (51) (61)
Installments and
other loans to individuals (55) (119)
Commercial loans (39) (51)
Recoveries 62 16
----- -----
Net charge-offs (83) (215)
Additions charged to operations 240 415
----- -----
Balance at end of period $1,722 $1,565
===== =====
Ratio of net charge-offs during
the period to average loans
outstanding during the period .06% .18%
==== ====
At December 31, 2002 and 2001 the allowance was allocated as
follows: ($ in 000's)
At December 31, 2002 At December 31, 2001
-------------------- --------------------
Percent Percent
of loans of loans
in each in each
category category
to total to total
Amount loans Amount loans
------ -------- ------ --------
Commercial, Financial
and Agricultural $ 490 22.2% $ 510 29.5%
Real Estate - Construction 190 7.4% 103 4.7%
Real Estate - Mortgage 870 64.5% 771 59.3%
Installment and Other
Loans to Individuals 150 5.9% 146 6.5%
Unallocated 22 N/A 35 N/A
----- --- ----- ---
Total $1,722 100% $1,565 100%
===== === ===== ===
LOAN LOSS RESERVE
In considering the adequacy of the Bank's allowance for possible
loan losses, management has focused on the fact that as of December 31,
2002, 22.2% of 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 Bank's loan portfolio. However, 93.0%
of these commercial loans at December 31, 2002 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 Bank's consumer loan portfolio is also well secured. At
December 31, 2002, 94.0% of the Bank'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 64.5% of outstanding loans
at December 31, 2002. The loans in this category represent residential
and commercial real estate mortgages where the amount of the original
loan generally does not exceed 85% 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, 2002, investment securities comprised
approximately 4.1% of the Bank's assets and net loans comprised
approximately 83.5% 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 dates indicated, the book
value of the Bank's investments. All securities held at December 31,
2002 and 2001 were categorized as available-for-sale. ($ in 000's)
December 31,
--------------------
2002 2001
---- ----
Obligations of U.S.
Treasury and other U.S. Agencies $6,128 $5,793
Corporate equity 240 240
Other securities 450 466
Federal Reserve Bank and
Federal Home Loan Bank Stock 840 636
----- -----
Total $7,658 $7,135
===== =====
The following table indicates as of December 31, 2002 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:
At December 31, 2002
--------------------
Weighted
Average
Amount Yield
------ -------
Obligations of U.S.
Treasury and other U.S. Agencies:
0 - 1 year $ -- N/A
Over 1 through 5 years 5,311 4.71%
Over 5 through 10 years 817 5.68%
Other securities:
0 - 1 year 50 10.1%
Over 1 through 5 years 200 10.1%
Over 5 through 10 years 200 10.1%
Federal Reserve Bank and Federal
Home Loan Bank Stock, no maturity 840 5.46%
Corporate equity, no maturity 240 N/A
----- ----
Total $7,658 5.07%
===== ====
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated
equity for the periods indicated were as follows:
Year Ended
December 31,
--------------------
2002 2001
---- ----
Return on average assets 1.03% 1.18%
Return on average equity 12.0 % 12.5 %
Average equity to average assets ratio 8.6 % 9.4 %
Dividend payout ratio 32.5 % 29.0 %
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.
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, 2002, the Bank had outstanding participations totaling
$6,798,369.
DATA PROCESSING
The Bank performs a full range of data processing services
internally, including an automated general ledger, deposit accounting,
commercial, real estate and installment lending data processing, central
information file and ATM processing.
EMPLOYEES
At March 15, 2003, the Bank employed 42 persons on a full-time
basis, including 12 officers, and 2 persons on a part-time basis.
The Bank plans to hire additional persons as needed, including additional
tellers and financial service representatives.
MONETARY POLICIES
The results of operations of the Bank are 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 Company's common stock.
SUPERVISION AND REGULATION
The following discussion is only intended to provide brief summaries of
significant statutes and regulations that affect the banking industry and
therefore is not a complete description of those statutes and regulations.
Changes in applicable laws or regulations, and in the policies of regulators,
may have a material effect on the Company's business and prospects. Management
cannot accurately predict the nature or extent of the effects on the Company's
business and earnings that fiscal or monetary policies, or new federal or state
laws, may have in the future.
THE COMPANY
GENERAL. As a bank holding company, the Company is subject to the Bank
Holding Company Act of 1956, which places the Company under the
supervision of the Board of Governors of the Federal Reserve. The
Company must file annual reports with the Federal Reserve and must
provide it with such additional information as it may require. In
addition, the Federal Reserve periodically examines the Company and the
Bank.
BANK HOLDING COMPANY REGULATION. In general, the Bank Holding Company
Act limits bank holding company business to owning or controlling banks
and engaging in other banking-related activities. Bank holding companies
must obtain the Federal Reserve Board's approval before they:
* acquire direct or indirect ownership or control of any voting shares of
any bank that results in total ownership or control, directly or
indirectly, of more than 5% of the voting shares of such bank;
* merge or consolidate with another bank holding company; or
* acquire substantially all of the assets of any additional banks.
Subject to certain state laws, a bank holding company that is adequately
capitalized and adequately managed may acquire the assets of both in-
state and out-of-state banks. Under the Gramm-Leach-Bliley Act, a bank
holding company meeting certain qualifications may apply to the Federal
Reserve Board to become a financial holding company, and thereby engage
(directly or through a subsidiary) in certain activities deemed financial
in nature, such as securities brokerage and insurance underwriting.
With certain exceptions, the Bank Holding Company Act prohibits bank
holding companies from acquiring direct or indirect ownership or control
of voting shares in any company that is not a bank or a bank holding
company unless the Federal Reserve Board determines such activities are
incidental or closely related to the business of banking.
The Change in Bank Control Act of 1978 requires a person (or group of
persons acting in concert) acquiring "control" of a bank holding company
to provide the Federal Reserve Board with 60 days' prior written notice
of the proposed acquisition. Following receipt of this notice, the
Federal Reserve Board has 60 days (or up to 90 days if extended) within
which to issue a notice disapproving the proposed acquisition. In
addition, any "company" must obtain the Federal Reserve Board's approval
before acquiring 25% (5% if the "company" is a bank holding company) or
more of the outstanding shares or otherwise obtaining control over the
Company.
FINANCIAL SERVICES MODERNIZATION. The laws and regulations that affect
banks and bank holding companies recently underwent significant changes
as a result of the Financial Services Modernization Act of 1999, also
known as the Gramm-Leach-Bliley Act of 1999. Generally, the act (i)
repealed the historical restrictions on preventing banks from affiliating
with securities firms, (ii) provided a uniform framework for the
activities of banks, savings institutions and their holding companies,
(iii) broadened the activities that may be conducted by national banks
and banking subsidiaries of bank holding companies, (iv) provided an
enhanced framework for protecting the privacy of consumers' information
and (v) addressed a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of
financial institutions.
Bank holding companies may now engage in a wider variety of financial
activities than permitted under previous law, particularly insurance and
securities activities. In addition, in a change from previous law, a bank
holding company may be owned, controlled or acquired by any company
engaged in financially related activities, so long as such company meets
certain regulatory requirements. The act also permits national banks (and
certain state banks), either directly or through operating subsidiaries,
to engage in certain non-banking financial activities.
TRANSACTIONS WITH AFFILIATES. The Company and the Bank are deemed
affiliates within the meaning of the Federal Reserve Act, and
transactions between affiliates are subject to certain restrictions.
Generally, the Federal Reserve Act limits the extent to which a financial
institution or its subsidiaries may engage in "covered transactions" with
an affiliate. It also requires all transactions with an affiliate,
whether or not "covered transactions," to be on terms substantially the
same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of a guarantee and other
similar types of transactions.
TIE-IN ARRANGEMENTS. The Company and the Bank cannot engage in certain
tie-in arrangements in connection with any extension of credit, sale or
lease of property or furnishing of services. For example, with certain
exceptions, neither the Company nor the Bank may condition an extension
of credit on either a requirement that the customer obtain additional
services provided by either of the Company or the Bank, or an agreement
by the customer to refrain from obtaining other services from a
competitor. The Federal Reserve Board has adopted exceptions to its
anti-tying rules that allow banks greater flexibility to package products
with their affiliates. These exceptions were designed to enhance
competition in banking and non-banking products and to allow banks and
their affiliates to provide more efficient, lower cost service to their
customers.
STATE LAW RESTRICTIONS. As a Georgia business corporation, the Company
may be subject to certain limitations and restrictions under applicable
Georgia corporate law. In addition, although the Bank is a national bank
and therefore primarily regulated by the Office of the Comptroller of the
Currency, Georgia banking law may restrict certain activities of the
Bank.
THE BANK
GENERAL. The Bank, as a national banking association, is subject to
regulation and examination by the OCC. The federal laws that apply to
the Bank regulate, among other things, the scope of its business, its
investments, its reserves against deposits, the timing of the
availability of deposited funds and the nature and amount of and
collateral for loans. The laws and regulations governing the Bank
generally have been promulgated to protect depositors and not to protect
shareholders of the Company or the Bank.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within
their jurisdiction, the Office of the Comptroller of the Currency
evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those
banks. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility.
INSIDER CREDIT TRANSACTIONS. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit
to executive officers, directors, principal shareholders, or any related
interests of such persons. Extensions of credit must be made on
substantially the same terms, including interest rates and collateral,
and follow credit underwriting procedures that are not less stringent
than those prevailing at the time for comparable transactions with
persons not covered above and who are not employees. Also, such
extensions of credit must not involve more than the normal risk of
repayment or present other unfavorable features.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 each federal
banking agency has prescribed, by regulation, noncapital safety and
soundness standards for institutions under its authority. These standards
cover internal controls, information systems, and internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and
managerial standards as the agency determines to be appropriate, and
standards for asset quality, earnings and stock valuation. Management
believes that the Bank meets all such standards.
INTERSTATE BANKING AND BRANCHING. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 permits nationwide interstate banking
and branching under certain circumstances. This legislation generally
authorizes interstate branching and relaxes federal law restrictions on
interstate banking. Currently, bank holding companies may purchase banks
in any state, and states may not prohibit such purchases. Additionally,
banks are permitted to merge with banks in other states as long as the
home state of neither merging bank has "opted out." The Interstate Act
requires regulators to consult with community organizations before
permitting an interstate institution to close a branch in a low-income
area. Under recent Federal Deposit Insurance Corporation regulations,
banks are prohibited from using their interstate branches primarily for
deposit production. The Federal Deposit Insurance Corporation has
accordingly implemented a loan-to-deposit ratio screen to ensure
compliance with this prohibition.
Georgia has "opted in" to the Interstate Act and allows in-state banks to
merge with out-of-state banks subject to certain requirements. Georgia
law generally authorizes the acquisition of an in-state bank by an out-
of-state bank by merger with a Georgia financial institution that has
been in existence for at least 3 years prior to the acquisition. With
regard to interstate bank branching, out-of-state banks that do not
already operate a branch in Georgia may not establish de novo branches in
Georgia.
DEPOSIT INSURANCE. The deposits of the Bank are currently insured to a
maximum of $100,000 per depositor through a fund administered by the
Federal Deposit Insurance Corporation. All insured banks are required to
pay semi-annual deposit insurance premium assessments to the Federal
Deposit Insurance Corporation.
CAPITAL ADEQUACY. Federal bank regulatory agencies use capital adequacy
guidelines in the examination and regulation of bank holding companies
and banks. If capital falls below minimum guideline levels, the holding
company or bank may be denied approval to acquire or establish additional
banks or nonbank businesses or to open new facilities.
The Federal Deposit Insurance Corporation and Federal Reserve use risk-
based capital guidelines for banks and bank holding companies. These are
designed to make such capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding
liquid assets. Assets and off-balance sheet items are assigned to broad
risk categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the
Federal Reserve has noted that bank holding companies contemplating
significant expansion programs should not allow expansion to diminish
their capital ratios and should maintain ratios well in excess of the
minimum. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital
ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1
capital for bank holding companies includes common shareholders' equity,
certain qualifying perpetual preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less intangibles except as
described above.
The Federal Reserve also employs a leverage ratio, which is Tier 1
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the
leverage ratio is to constrain the maximum degree to which a bank holding
company may leverage its equity capital base. The Federal Reserve
requires a minimum leverage ratio of 3%. However, for all but the most
highly rated bank holding companies and for bank holding companies
seeking to expand, the Federal Reserve expects an additional cushion of
at least 1% to 2%.
The Federal Deposit Insurance Corporation Improvement Act created a
statutory framework of supervisory actions indexed to the capital level
of the individual institution. Under regulations adopted by the Federal
Deposit Insurance Corporation, an institution is assigned to one of five
capital categories depending on its total risk-based capital ratio, Tier
1 risk-based capital ratio, and leverage ratio, together with certain
subjective factors. Institutions which are deemed to be
"undercapitalized" depending on the category to which they are assigned
are subject to certain mandatory supervisory corrective actions.
RECENT SIGNIFICANT CHANGES IN BANKING LAWS AND REGULATIONS
SARBANES-OXLEY ACT OF 2002. On July 30, 2002, the Sarbanes-Oxley Act of
2002 (the "Act") was enacted to address corporate and accounting fraud. The Act
establishes a new accounting oversight board that will enforce auditing
standards and restricts the scope of services that accounting firms may
provide to their public company audit clients. Among other things, it
also (i) requires chief executive officers and chief financial officers
to certify to the accuracy of periodic reports filed with the Securities
and Exchange Commission (the "SEC"); (ii) imposes new disclosure
requirements regarding internal controls, off-balance-sheet transactions,
and pro forma (non-GAAP) disclosures; (iii) accelerates the time frame
for reporting of insider transactions and periodic disclosures by certain
public companies; and (iv) requires companies to disclose whether or not
they have adopted a code of ethics for senior financial officers and
whether the audit committee includes at least one "audit committee
financial expert."
The Act requires the SEC, based on certain enumerated factors, to
regularly and systematically review corporate filings. To deter
wrongdoing, the Act, (i) subjects bonuses issued to top executives to
disgorgement if a restatement of a company's financial statements was due
to corporate misconduct; (ii) prohibits an officer or director from misleading
or coercing an auditor; (iii) prohibits insider trades during pension
fund "blackout periods"; (iv) imposes new criminal penalties for fraud
and other wrongful acts; and (v) extends the period during which certain
securities fraud lawsuits can be brought against a company or its
officers.
ITEM 2. DESCRIPTION OF PROPERTY
------- -----------------------
The Bank's main office is located at 301 North Broad Street in
Thomasville, Georgia. The building contains approximately 8,500 square
feet of finished space and 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.
The Bank also operates a branch office at 1320 Remington Avenue in
Thomasville, Georgia. The branch facility consists of 2,400 square feet
of space and contains of a lobby, four inside teller stations, three
drive-up windows and a drive-up ATM.
JPC leases an approximately 2,800 square foot office space located in
Thomasville, Georgia.
TNB Financial Services owns an approximately 3,000 square foot office
building located adjacent to the main office of the Bank.
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 quarter ended December 31, 2002
to a vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------- --------------------------------------------------------
MARKET INFORMATION
Since January 2002, the Company's common stock has been quoted in the
over the counter pink sheets. Prior to January 2002, there was no
established public trading market for the Company's common stock. The
following table sets forth the high and low bid prices for the Company's
common stock during 2002, as reported in the pink sheets:
High Low
---- ---
First quarter 17.00 14.50
Second quarter 22.00 15.00
Third quarter 21.25 18.00
Fourth quarter 22.00 18.00
HOLDERS OF COMMON STOCK
As of March 15, 2003, the number of holders of record of the Company's
common stock was 676.
DIVIDENDS
During the last two years, the Company paid a cash dividend of $0.40
per share in the second quarter of 2002 and a cash dividend of $0.35 per
share in the second quarter of 2001.
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 OCC regulations. 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), OCC approval 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, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
For the year ended December 31, 2002, total assets grew by $32.1
million to $185.4 million. More specifically, cash and cash equivalents
grew by $7.0 million to $13.5 million; securities grew by $.5 million to
$7.7 million; loans expanded by $20.6 million to $154.9 million; and all
remaining assets grew by $4.0 million to $9.3 million.
To fund the growth in assets, the Company was able to increase
deposits by $21.2 million to $153.9 million; borrowings grew by $9.1
million to $15.1 million; and the equity accounts expanded by $1.8
million to $15.7 million.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
For the year ended December 31, 2001, total assets grew by $12,160,712,
from $141,107,664 at December 31, 2000 to $153,268,376 at December 31,
2001. The growth in loans, the Company's primary source of income,
outpaced the growth in assets, 24.4% to 8.6%. Despite the decline in
economic activities during calendar year 2001, the Company was able to
increase its loans and reduce net charge-offs, from $254,650 for calendar
year 2000 to $215,288 for calendar year 2001.
To fund the growth in loans, the Company was able to increase its deposit
base by $6,819,262 and borrowings from the Federal Home Loan Bank by
$4,000,000. The growth in loans enabled the Company to increase its net
interest income from $5,203,226 in 2000 to $5,331,206 in 2001, despite
the severe declines in interest rates experienced in 2001. The Company's
net operating expense increased 6.3% during 2001 as compared to 2000,
from $2,242,979 to $2,383,759.
NET INTEREST INCOME
The Company's results of operations are determined by its ability
to effectively manage interest income and expense, minimize loan and
investment losses, generate non-interest income, and 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, 2002 December 31, 2001
----------------- -----------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ----
(Dollars in thousands)
Federal funds sold $ 4,443 $ 78 1.76% $ 5,133 $ 191 3.71%
Securities 7,636 403 5.28% 9,076 588 6.48%
Loans, net 146,018 9,628 6.59% 119,552 9,760 8.16%
------- ------ ------- ------
Total earning assets $158,097 $10,109 6.39% $133,761 $10,539 7.88%
======= ====== ======= ======
Interest bearing deposits $125,607 $ 3,724 2.96% $111,729 $ 5,070 4.53%
Other borrowings 12,230 522 4.27% 2,923 138 4.73%
------- ------ ------- ------
Total interest
-bearing liabilities $137,837 $ 4,246 3.08% $114,652 $ 5,208 4.54%
======= ====== ======= ======
Net yield on earning assets 3.71% 3.99%
Net yield on interest-earning assets for the years ended December
31, 2002 and 2001 was 3.71% and 3.99%, respectively. The decline in the
net yield on interest earning assets is attributed to the Federal Reserve
Board's aggressive rate reductions during years 2001 and 2002. In addition,
a generally weak economy resulted in limited demand for funds. In
response to the Federal Reserve Board's actions, and to stay competitive
in the local banking market, the Bank matched the Federal Reserve
Board's rate reductions in a timely manner. The Bank, however, was
unable to reduce its cost of funds deeply and quickly enough to keep its
interest rate margin constant. For the year ended December 31, 2002, the yield
on earning assets declined 149 basis points to 6.39% while the cost of funds
declined 146 basis points to 3.08%.
NON-INTEREST INCOME
Non-interest income for the years ended December 31, 2002 and 2001
amounted to $1,365,950 and $810,327, respectively. As a percentage of
average assets, non-interest income increased from .57% in 2001 to .80%
in 2002. The increase in non-interest income is primarily due to the
introduction of money management fees through a new subsidiary, JPC.
The following table summarizes the major components of non-interest
income for the years ended December 31, 2002 and 2001. ($ in 000's)
Year ended December 31,
-----------------------
2002 2001
---- ----
Service fees on deposit accounts $ 497 $ --
Miscellaneous, other 541 547
Miscellaneous, other 328 263
------- -------
Total non-interest income $ 1,366 $ 810
======= =======
NON-INTEREST EXPENSE
Non-interest expense increased from $3,194,086 in 2001 to
$4,388,752 in 2002. As a percentage of total average assets, non-
interest expenses increased from 2.23% in 2001 to 2.57% in 2002. The
above increase is primarily due to expenses associated with the purchase
of JPC.
The following table summarizes the major components of non-interest
expense for the years ended December 31, 2002 and 2001. ($ in 000's)
December 31, December 31,
2002 2001
---- ----
Salaries and benefits $ 2,261 $ 1,711
Data processing, ATM 201 158
Advertising and public relations 204 137
Depreciation, amortization 353 298
Other operating expenses 1,370 890
------- -------
Total non-interest expense $ 4,389 $ 3,194
======= =======
ALLOWANCE FOR LOAN LOSSES
During 2002, the allowance for loan losses increased from
$1,564,769 to $1,722,097. During 2002, the allowance for loan losses as
a percent of gross loans declined from 1.15% to 1.10%. Net charge-offs
during 2002 amounted to $83,000, or .06% of average loans. During 2001,
the allowance for loan losses increased from $1,365,057 to $1,564,769.
During 2001, the allowance for loan losses as a percent of gross loans
declined from 1.26% to 1.15%. Net charge-offs during 2001 amounted to
$215,288, or .18% of average loan. As of December 31, 2002, management
considers the allowance for loan losses to be adequate to absorb anticipated
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.
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-
earning assets and interest-bearing 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 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 risk.
The asset mix of the balance sheet is continually evaluated in
terms of several variables: yield, credit quality, appropriate funding
sources and liquidity. To effectively manage the liability mix of the
balance sheet, there should be a focus on expanding the various funding
sources. The interest rate sensitivity position at December 31, 2002 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 pace, the gap is only a general
indicator of rate sensitivity.
After
three After After
months six one
but months year but
Within within but within After
three six within five five
months months one year years years Total
------ ------ -------- -------- ----- -----
(In thousands, except ratios)
EARNING ASSETS
Loans $ 72,150 $ 6,382 $ 12,391 $59,471 $ 6,228 $156,622
Available-for-sale
securities -- -- 50 5,511 2,097 7,658
Federal funds sold 1,714 -- -- -- -- 1,714
------- ------- ------- ------ ------ -------
Total earning assets $ 73,864 $ 6,382 $ 12,441 $64,982 $ 8,325 $164,994
======= ======= ======= ====== ====== =======
SUPPORTING SOURCE OF FUNDS
Interest-bearing demand
deposits and savings $ 81,109 $ -- $ -- $ -- $ -- $ 81,109
Certificates,
less than $100M 10,211 6,280 6,152 6,147 -- 28,790
Certificates,
$100M and over 9,132 5,011 3,454 4,100 -- 21,697
Borrowings 1,008 1,008 1,016 5,959 6,160 15,151
------- ------- ------- ------ ------ -------
Total interest-
bearing liabilities $101,460 $ 12,299 $ 10,622 $16,206 $ 6,160 $146,747
====== ======= ======= ====== ====== =======
Interest rate
sensitivity gap $(27,596) $ (5,917) $ 1,819 $48,776 $ 2,165 $19,247
Cumulative gap $(27,596) $(33,513) $(31,694) $17,082 $19,247 $19,247
Interest rate
sensitivity gap ratio 0.73 0.52 1.17 4.01 1.35 1.13
Cumulative interest rate
sensitivity gap ratio 0.73 0.71 0.75 1.12 1.13 1.13
As evidenced by the table above, at December 31, 2002, the Company was
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 rates would reduce
income for one year and increase income thereafter. Conversely, a decline in
interest rates 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
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 is its
ability to maintain and increase deposits through the Bank. Deposits grew by
$21.2 million during 2002 and by $6.8 million in 2001.
Below are the pertinent liquidity balances and ratios at December 31,
2002 and 2001: ($ in 000's)
December 31, 2002 December 31, 2001
----------------- -----------------
Cash and cash equivalents $13,542 $ 6,580
Securities 7,658 7,135
CDs, over $100,000
to total deposits ratio 14.1% 19.1%
Loan to deposit ratio 100.6% 101.2%
Brokered deposits -- --
Cash and cash equivalents are the primary source of liquidity. At
December 31, 2002, cash and cash equivalents amounted to $13.5 million,
representing 7.3% of total assets. Securities available for sale provide a
secondary source of liquidity. At December 31, 2002, total securities
amounted to $7.7 million, representing 4.1% of total assets.
At December 31, 2002, large denomination certificates accounted for
14.1% of total deposits. As a percent of total deposits, large denomination
certificates declined from 19.1% at December 31, 2001 to 14.1% at December 31,
2002. 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 believed to be more likely
to be interest rate sensitive.
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, 2002, 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 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. 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. The
leverage ratio is computed by dividing Tier 1 capital by 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.
The table below illustrates the Bank's and Company's regulatory capital
ratios at December 31, 2002:
Minimum
Regulatory
December 31, 2002 Requirement
----------------- -----------
Bank
----
Tier 1 Capital 10.0% 4.0%
Tier 2 Capital 1.2% N/A
Total risk-based capital ratio 11.2% 8.0%
Leverage ratio 8.0% 3.0%
Company - Consolidated
----------------------
Tier 1 Capital 10.7% 4.0%
Tier 2 Capital 1.2% N/A
Total risk-based capital ratio 11.9% 8.0%
Leverage ratio 8.6% 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 as Exhibit 99.1 to this
report and are incorporated herein by reference:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income for the Years Ended December 31, 2002,
2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
There has been no occurrence requiring a response to this Item.
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 2003 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 2003 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 2003 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 2003 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) the Registration Statement on Form
SB-2 under the Securities Act of 1933 for the Company, Registration
Number 33-91536 ("SB-2"); (ii) the Registration Statement on Form SB-2
under the Securities Act of 1933 for the Company, Registration Number
333-58545 ("1998 SB-2"); or (iii) the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000 ("2000 10-KSB"). 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 - 2000 Directors' Compensation Plan (2000 10-KSB)
21.1 - Subsidiaries of the Registrant
99.1 - Consolidated Financial Statements
99.2 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended December 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THOMASVILLE BANCSHARES, INC.
Dated: March 31, 2003 By: /s/ Stephen H. Cheney
--------------------------------------
Stephen H. Cheney
President and Chief Executive Officer
(principal executive, financial 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, Chief Executive March 31, 2003
Stephen H. Cheney Officer and Director
--------------------------------- Executive Vice President
Charles H. Hodges, III and Director
--------------------------------- Director
Charles A. Balfour
/s/ David A. Cone
--------------------------------- Director March 31, 2003
David A. Cone
--------------------------------- Director
Charles E. Hancock, M.D.
--------------------------------- Director
Harold L. Jackson
--------------------------------- Director
David O. Lewis
/s/ Charles W. McKinnon, Jr.
--------------------------------- Director March 31, 2003
Charles W. McKinnon, Jr.
/s/ Randall L. Moore
--------------------------------- Director March 31, 2003
Randall L. Moore
/s/ Diane W. Parker
--------------------------------- Director March 31, 2003
Diane W. Parker
/s/ Cochran A. Scott, Jr.
--------------------------------- Director March 31, 2003
Cochran A. Scott, Jr.
/s/ Richard L. Singletary, Jr.
--------------------------------- Director March 31, 2003
Richard L. Singletary, Jr.
CERTIFICATIONS PURSUANT TO RULE 13a-14 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
I, Stephen H. Cheney, President and Chief Exective Officer, certify that:
1. I have reviewed this Form 10-KSB of Thomasville Bancshares, Inc. (the
"Report");
2. Based on my knowledge, this Report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this Report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of
the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls, and
6. I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
March 31, 2003 /s/ Stephen H. Cheney
------------------------------
STEPHEN H. CHENEY
President/Chief Executive Officer
(principal executive, financial
and accounting officer)
EXHIBIT INDEX
Exhibit
No Description
------- -----------
21.1 Subsidiaries of Registrant
99.1 - Consolidated Financial Statements
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act