SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-b(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
THOMASVILLE BANCSHARES, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
THOMASVILLE BANCSHARES, INC.
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
2003 ANNUAL FINANCIAL STATEMENTS
AND
REVIEW OF OPERATIONS
THOMASVILLE BANCSHARES, INC.
301 NORTH BROAD STREET
THOMASVILLE, GEORGIA 31792
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 2004
The Annual Meeting of Shareholders of Thomasville Bancshares, Inc. (the
"Company") will be held on Tuesday, May 18, 2004 at 5:00 p.m., at the principal
offices of the Company, 301 North Broad Street, Thomasville, Georgia, for the
following purposes:
(1) to elect five Class III directors, each to serve for a term of three
years and until his or her successor is elected and qualified;
(2) to ratify the appointment of Francis & Co., CPAs as independent
auditors for the Company for 2004; and
(3) to transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on March 23, 2004 will
be entitled to notice of and to vote at the Annual Meeting or any adjournments
or postponements thereof.
A proxy statement and a proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the proxy promptly. If you
attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote
in person.
By Order of the Board of Directors,
/s/ Stephen H. Cheney
Stephen H. Cheney
Chairman and Chief Executive Officer
Thomasville, Georgia
April 21, 2004
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT YOUR VOTE
MAY BE RECORDED AT THE MEETING IF YOU DO NOT ATTEND PERSONALLY.
THOMASVILLE BANCSHARES, INC.
301 NORTH BROAD STREET
THOMASVILLE, GEORGIA 31792
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2004
__________________________
PROXY STATEMENT
__________________________
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Thomasville Bancshares, Inc. (the
"Company") for use in voting at the Annual Meeting of Shareholders to be held
at 5:00 p.m. on Tuesday, May 18, 2004, at the Company's principal offices, 301
North Broad Street, Thomasville, Georgia and at any adjournments or
postponements of the Annual Meeting, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This proxy statement
and the accompanying proxy are first being mailed to shareholders on or about
April 23, 2004. The address of the principal executive offices of the Company
is 301 North Broad Street, Thomasville, Georgia 31792.
VOTING
VOTING AND THE REVOCABILITY OF PROXIES
When proxy cards are properly executed, dated and returned, the shares
they represent will be voted at the Annual Meeting in accordance with the
instructions of the shareholders. If no specific instructions are given the
shares will be voted FOR the election of the nominees for directors set forth
herein and FOR the ratification of Francis & Co. as independent auditors. In
addition, if other matters come before the Annual Meeting, the persons named in
the proxy card will vote in accordance with their best judgment with respect to
such matters. Any proxy given pursuant to this solicitation may be revoked by
any shareholder who attends the Annual Meeting and gives oral notice of his
election to vote in person, without compliance with any other formalities. In
addition, any proxy given pursuant to this solicitation may be revoked prior
to the Annual Meeting by delivering to the Secretary of the Company an
instrument revoking it or a duly executed proxy for the same shares bearing a
later date.
QUORUM; REQUIRED VOTE; ABSTENTIONS AND BROKER NON-VOTES
The presence at the Annual Meeting of the holders of a majority of the
outstanding shares of the Company's common stock as of the record date is
necessary to constitute a quorum. Shareholders will be counted as present at
the Annual Meeting if they are present in person at the Annual Meeting or if
they have properly submitted a proxy card. The affirmative vote of a plurality
of all votes cast at the Annual Meeting is required for the election of
directors. The affirmative vote of a majority of all votes cast at the Annual
Meeting is required for the ratification of Francis & Co. as independent
auditors and to approve any other business that may properly come before the
Annual Meeting. Abstentions and broker non-votes will not be counted as votes
either in favor of or against the matter with respect to which the abstention
or broker non-vote relates.
1
RECORD DATE AND SHARE OWNERSHIP
The record of shareholders entitled to vote at the Annual Meeting was taken
on March 23, 2004. On that date, the Company had outstanding and entitled to
vote 1,467,352 shares of common stock, with each share of common stock entitled
to one vote.
EXPENSES OF SOLICITATION
The expense of this solicitation, including the cost of preparing and
mailing this proxy statement, will be paid by the Company. In addition to
solicitations by mail, officers and regular employees of the Company, at no
additional compensation, may assist in soliciting proxies by telephone.
PROPOSALS TO BE VOTED ON
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Board of Directors of the Company, pursuant to the Company's Bylaws,
has set the number of directors to serve for the next year at thirteen, five
of whom are to be elected at the Annual Meeting. The Company's Articles of
Incorporation provide for a classified Board of Directors, whereby approximately
one-third of the Company's Board of Directors are elected each year at the
Company's annual meeting of shareholders, to serve a three-year term. Each of
the Company's four Class III directors is presently standing for re-election to
the Board of Directors. In addition, J. Mark Parker has been nominated for
election as a Class III director to fill the vacancy created by the increase in
the size of the board from twelve to thirteen members. If elected, each nominee
will serve for a term of three years and until his or her successor is elected
and qualified.
In the event that any nominee withdraws or for any reason is not able to
serve as a director, the proxy will be voted for such other person as may be
designated by the Board of Directors, but in no event will the proxy be voted
for more than five nominees. The Board of Directors recommends the election
of the five nominees listed below. Management of the Company has no reason to
believe that any nominee will not serve if not elected.
The following persons have been nominated for re-election to the Board
of Directors as Class III directors:
DAVID A. CONE, age 39, joined the Board of Directors of Thomasville
National Bank in May 1996 and was elected to the Company's Board of Directors
in May 1999. Mr. Cone has served as President of Cone Machinery, Inc., a
manufacturer of sawmill equipment, since 1993. He currently serves as President
of the Thomasville Y.M.C.A. and is also a member of the Thomasville Kiwanis
Club.
CHARLES W. MCKINNON, JR., age 69, has been a director of the Company
since March 1995. Mr. McKinnon is a broker with First Thomasville Realty, Ltd.,
one of the largest real estate companies in Southwest Georgia. He has been
actively involved in selling and developing shopping centers, food stores,
office buildings and warehouses. His civic and professional leadership roles,
past and present, include Thomasville City Commissioner, an advisory director
of NationsBank (now Bank of America), director of industrial development for
the City of Thomasville, director of the Thomasville/Thomas County Chamber of
Commerce, member of the Georgia Development Council, lifetime membership in
Thomasville Area Board's Million Dollar Club, Real Estate Leaders of America,
International Council of Shopping Centers, National Association of Realtors,
and Farm and Land Institute.
2
RANDALL L. MOORE, age 44, joined the Board of Directors of Thomasville
National Bank in May 1996 and was elected to the Company's Board of Directors
in May 1999. Mr. Moore is President and Co-owner of Moore & Porter Produce of
Thomasville, Inc., a wholesaler of vegetables. He is also Co-owner of S.M.P.
Marketing Co. of Benton Harbor, Michigan, and Big Buck Bean Co. of Americus,
Georgia. He currently serves on the Board of Directors of Glen Arven Country
Club.
COCHRAN A. SCOTT, JR., age 48, has served as a director of the Company
since 1995. Mr. Scott has served as President of Scott Hotels, Inc., a hotel
management and development company, since 1996. Mr. Scott is a former member
of the Advisory Board of Directors of Trust Company Bank of South Georgia.
In addition to the above directors nominated for re-election, the following
individual has been nominated for election to the Board of Directors as a Class
III director:
J. MARK PARKER, age 42, has served as President and Chief Executive Officer
of the Company's wholly owned subsidiary, Joseph Parker & Company, Inc., a
registered investment advisor, since 1996. He currently serves on the board
of the Thomasville Y.M.C.A. and the Thomasville Genealogical, History and Fine
Arts Library, Inc.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE NOMINEES LISTED ABOVE.
Each of the following persons is a member of the Board of Directors who is
not standing for election to the Board this year and whose term will continue
after the Annual Meeting:
Class I Directors, serving for a term expiring at the 2005 Annual Meeting
of Shareholders:
CHARLES A. BALFOUR, age 40, has been a director of the Company since March
1995. Mr. Balfour is President of Balfour Timber Company, Inc., where he has
served as president since 1994. Mr. Balfour is also President of Balfour Pole
Co., LLC, a manufacturer of utility poles and pilings. He currently serves on
the board of the Georgia Forestry Association.
STEPHEN H. CHENEY, age 46, has been President and Chief Executive Officer,
and a director of the Company since March 1995. In addition to his profession,
Mr. Cheney is currently President of Thomasville Team 2000. He is also past
President of the Thomasville YMCA, past member of the Thomasville Payroll
Development Authority, past Chairman of the Thomasville/Thomas County Chamber
of Commerce and former Vice Chairman of the Thomasville Housing Authority.
DAVID O. LEWIS, age 72, joined the Board of Directors of Thomasville
National Bank in September 1997 and was elected to the Company's Board of
Directors in May 1999. Mr. Lewis is a retired senior buyer for General
Electric. He is past president of the Minority Business and Professional
Association. He currently serves on the Board of Trustees of Thomas College
and is also a member of the Board of Directors of the Heritage Foundation.
Mr. Lewis is a member of the Thomasville City Council and is past President of
the Thomasville Boys and Girls Club.
RICHARD L. SINGLETARY, JR., age 44, has been a director of the Company
since March 1995. Mr. Singletary is the President of several real estate
development companies with interests in single-family homes and apartment
communities. He has been developing real estate since 1990, and his previous
work experience includes five years of banking with the First National Bank
of Atlanta. Mr. Singletary has served on the Thomasville City Council for
thirteen years and is Mayor of the City of Thomasville. He also serves on
3
the following boards of directors: John D. Archbold Memorial Hospital,
Thomasville/Thomas County Chamber of Commerce, and Thomasville Landmarks, Inc.
Class II Directors, serving for a term expiring at the 2006 Annual Meeting
of Shareholders:
CHARLES E. HANCOCK, M.D., age 44, has been a director of the Company since
March 1995. Dr. Hancock is an Orthopedic Surgeon in private practice in
Thomasville, Georgia at the Thomasville Orthopedic Center, where he has
practiced since 1991. Dr. Hancock is also affiliated with the Archbold Medical
Center. He is also Chairman of Affiliated Physicians, LLC a physicians practice
management company based in Thomasville.
CHARLES H. HODGES, III, age 39, has been a director of the Company since
March 1995. Mr. Hodges has also served as Executive Vice President of the
Company since its inception in January 1995. In addition, Mr. Hodges serves as
a board member of several key organizations, including the Thomasville Downtown
Development Authority. Mr. Hodges is also former Chairman of the
Thomasville/Thomas County Chamber of Commerce and President of the Thomasville
Music & Drama Troupe.
HAROLD L. JACKSON, age 55, has been a director of the Company since March
1995. Mr. Jackson is the President and General Manager of Petroleum Products,
Inc., a distributor of fuel and oil products to retail, industrial and
agricultural customers throughout South Georgia. Mr. Jackson is also Chief
Executive Officer of Jack Rabbit Foods, Inc. He currently serves as Chairman
of the Board of Directors of the South Georgia Fellowship of Christian Athletes,
and is director of the Georgia Oilman's Association. From 1992 to January 1995,
Mr. Jackson served as a member of the Advisory Board of Directors of Trust
Company Bank of South Georgia, N.A. He is also a member and Past president of
the Thomasville Shriners Club, a member of the Masonic Lodge and a member of the
Hasan Temple.
DIANE W. PARKER, age 63, joined the Board of Directors of Thomasville
National Bank in September 1997 and was elected to the Company's Board of
Directors in May 1999. Ms. Parker is the owner of The Gift Shop, Ltd. She is
also Vice President of Williams & Parker, LLC and The Williams Family Foundation
of Georgia. She is a past Vice Chairman of the Thomasville Antiques Show.
PROPOSAL NO. 2: RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee has approved the selection of Francis & Co., CPAs as
independent auditors of the Company for the year ending December 31, 2004,
subject to ratification of this appointment by the shareholders of the Company.
Francis & Co. is considered by management of the Company to be well qualified.
The Company has been advised by Francis & Co. that neither it nor any of its
members has any financial interest, direct or indirect, in either the Company
or any of the Company's subsidiaries in any capacity.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF FRANCIS & CO. AS
THE COMPANY'S INDEPENDENT AUDITORS.
4
CORPORATE GOVERNANCE AND BOARD MATTERS
MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors presently consists of twelve members. The
Board of Directors held twelve meetings during 2003. Each director attended at
least 75% of the aggregate number of meetings held by the Board of Directors and
the Committees of the Board of Directors on which he or she served, with the
exception of Diane W. Parker, who attended an aggregate of 42%. It is the
policy of the Company that the Company's directors attend the annual meetings
of shareholders, and all but one of the Company's directors attended the 2003
annual meeting of shareholders.
BOARD INDEPENDENCE
The Board has determined that each of its members other than Mr. Cheney,
the Company's President and Chief Executive Officer, and Mr. Hodges, the
Company's Executive Vice President, has no material relationship with the
Company (either directly or as a partner, shareholder or officer of an
organization that has a relationship with the Company) and is independent within
the meaning of the National Association of Securities Dealers' listing
standards, as currently in effect.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has a standing Audit Committee. The
Board of Directors of the Company does not have a Compensation Committee, as
each of the officers of the Company is compensated solely by the Company's
wholly owned subsidiary, Thomasville National Bank (the "Bank"). However, the
Board of Directors of the Bank has a Compensation Committee, which is described
below.
The Audit Committee, which met two times during 2003, reviews the affairs
of the Company with the Company's independent auditors, including a review of
the accounts of the Company and the overall financial condition of the Company.
The committee also examines the Company's internal controls to determine whether
adequate safeguards are in place, and determines whether officers and employees
of the Company have provided adequate cooperation and assistance to the
Company's independent auditors. The Audit Committee reviews and pre-approves
all audit and non-audit services performed by the Company's auditing
accountants, or other accounting firms, other than as may be allowed by
applicable law. The Audit Committee's members are Messrs. Balfour, Hancock,
Lewis, Scott and Singletary. The Audit Committee does not have an "audit
committee financial expert," as defined by SEC rules. The Board believes that
the current members of the Audit Committee, as a whole based on their
experiences and backgrounds, are qualified to effectively carry out the duties
and responsibilities of the Audit Committee. Each Audit Committee member has
significant experience in accounting and audit functions, internal controls and
budget preparation and has an understanding of generally accepted accounting
principles and financial statements. The Board of Directors has not adopted an
Audit Committee Charter.
The Compensation Committee of the Bank, which met one time during 2003, is
responsible for reviewing and making recommendations to the Board of Directors
of the Bank with respect to compensation of officers of the Company and the
Bank. The Compensation Committee's members are Messrs. Cheney, Cone, Hancock,
Hodges, McKinnon and Singletary.
5
NOMINATION OF DIRECTORS
The Company does not have a Nominating Committee or a charter governing
the nominating process. Director selection and review is conducted by the
entire Board of Directors. The Company believes that this is adequate for a
small community financial institution. Each member of the Board of Directors
has a long-standing relationship with the Company as a director, and the Company
believes that these directors acting as a group are capable of evaluating the
performance of the current Board, the qualifications of proposed director
nominees and of determining the need for additional directors. A description
of the nominating process, including director nominees recommended by
shareholders, is below.
It is the policy of the Board of Directors to seek and retain highly
qualified directors who have sufficient time to attend to their substantial
duties and responsibilities to the Company. The Board seeks a diverse group
of candidates who posses the background, skills and expertise to make
significant contributions to the Board, the Company and its shareholders.
Desired qualities to be considered include:
Experience (in one or more of the following):
----------
* High-level leadership experience in business or administrative
activities;
* Breadth of knowledge about issues affecting the Company and its
subsidiaries;
* The ability and willingness to contribute special competencies to Board
activities; and
* The ability to read and understand financial statements.
Personal Attributes
-------------------
* Personal integrity;
* Loyalty to the Company and concern for its success and welfare;
* Willingness to apply sound and independent business judgment;
* Awareness of a director's vital role in the Company's good corporate
citizenship and its corporate image;
* Availability for meetings and consultation on Company matters;
* Contacts within the community; and
* The willingness to assume Board and fiduciary responsibilities.
Qualified candidates for membership on the Board will be considered without
regard to race, color, religion, sex, ancestry, national origin or disability.
Nominations by the Board. In the case of incumbent directors whose terms
are set to expire, the remaining directors on the Board will review such
directors' overall service to the Company during their term, including the
number of meetings attended, their level of participation, quality of their
performance and any transactions between such directors and the Company during
their term in determining whether or not such incumbent directors should be
nominated for re-election to the Board. In the case of new director candidates,
the Board will seek candidates meeting the criteria set forth above from the
Board's network of contacts. However, if and when deemed appropriate by the
Board, a professional search firm may also be utilized to identify qualified
candidates.
Nominations by Shareholders. The Board will consider director candidates
recommended by shareholders, provided the following procedures are followed by
shareholders in submitting recommendations:
6
* Shareholder nominations must be delivered in writing to the Secretary
of the Company;
* Submissions must include sufficient biographical information regarding
the recommended candidate including age, his or her employment history
for at least the previous five years (including employer names and a
description of their business) and such person's other board
memberships, if any; and
* The submission must be accompanied by a written consent of the
individual to stand for election if nominated by the Board of Directors
and to serve if elected by the shareholders.
Submissions should be delivered to the Secretary of the Company not less
than 60 days prior to the first anniversary of the date on which the Company
first mailed its proxy materials for the prior year's annual shareholders
meeting. Any submissions received after such date will not be considered until
the following year's annual shareholder meeting.
The Board does not intend to alter the manner in which it evaluates
candidates, including the minimum criteria set forth above, based on whether the
candidate was recommended by a shareholder or not.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
The Board of Directors has implemented a process for shareholders to send
communications to the Board. Shareholders who wish to communicate directly
with the Board of Directors or any particular director should deliver any such
communications in writing to the Secretary of the Company. The Secretary will
compile any communications he or she receives from shareholders and deliver them
periodically to the Board or the specific directors requested. The Secretary
of the Company will not screen or edit such communications, but will deliver
them in the form received from the shareholder.
SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
The deadline for submission of shareholder proposals for inclusion in the
Company's proxy statement for the 2005 Annual Meeting of Shareholders is
December 22, 2004. Additionally, the Company must receive notice of any
shareholder proposal to be submitted at the 2005 Annual Meeting of Shareholders
(but not required to be included in the Company's proxy statement) by March 9,
2005, or such proposal will be considered untimely and the persons named in the
proxies solicited by management may exercise discretionary voting authority
with respect to such proposal.
COMPENSATION OF DIRECTORS
The Board of Directors of the Company has adopted a deferred compensation
plan (the "2000 Directors' Plan") for the Company's directors providing for
grants of restricted stock to directors as compensation for each Board meeting
and Committee meeting attended. The 2000 Directors' Plan provides that each
director is deemed to have earned shares of restricted stock in the amount of
20 shares of the Company's common stock for each Bank and each Company Committee
meeting attended and 30 shares for each Bank and each Company Board of Directors
meeting attended. The shares of restricted stock earned pursuant to the terms
of the 2000 Directors' Plan do not vest and will not be issued until the earlier
to occur of either (i) the retirement, resignation or removal of the director
from the Company's Board of Directors or (ii) a change in control of the
Company.
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CODE OF ETHICS
The Company has adopted a Code of Ethics applicable to its Chief Executive
Officer and its senior financial officers, a copy of which was filed as Exhibit
14.1 to the Company's Form 10-KSB for the year ended December 31, 2003.
NO FAMILY RELATIONSHIPS AMONG DIRECTORS AND OFFICERS
There are no family relationships between any director or executive officer
of the Company or the Bank and any other director or executive officer of the
Company or the Bank.
EXECUTIVE OFFICERS
Executive officers of the Company are appointed by the Board of Directors
of the Company and hold office at the pleasure of the Board. The executive
officers of the Company are as follows:
NAME POSITION WITH THE COMPANY
---- -------------------------
Stephen H. Cheney President and Chief Executive Officer
Charles H. Hodges, III Executive Vice President
Biographical information for Messrs. Cheney and Hodges is in the section
titled "Election of Directors," above.
EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
The following table provides certain summary information for the fiscal
years ended December 31, 2003, 2002, and 2001 concerning compensation paid or
accrued by the Company or the Bank to or on behalf of the executive officers
of the Company:
Summary Compensation Table
Annual Long-Term
Compensation Compensation
----------------- ----------------
Restricted
Stock
Awards(1)
----------------
Name and
Principal
Position Year Salary Bonus Shares Value
-------- ---- ------ ----- ------ -----
Stephen H. Cheney 2003 $147,500 $44,250 640 $ 9,600
President and 2002 $135,000 $40,500 640 $ 9,600
Chief Executive 2001 $124,000 $24,800 1,145 $21,325
Officer
Charles H. Hodges, III 2003 $120,000 $20,000 620 $ 9,300
Executive Vice 2002 $110,000 $33,000 620 $ 9,300
President 2001 $103,000 $20,600 985 $18,290
_______________
(1) Represents earned but unissued shares of restricted stock granted
pursuant to the directors' deferred compensation plan and as part of
the bonus plan for executive officers. See " - Compensation of
Directors."
8
EMPLOYMENT AGREEMENTS
On January 1, 2001, the Company and the Bank entered into a four-year
employment agreement with Stephen H. Cheney, pursuant to which Mr. Cheney is
paid a minimum annual salary of $124,000, which may be increased at the
discretion of the Board of Directors of the Bank based on the performance of
the Bank as determined by a formula as set forth in Mr. Cheney's employment
agreement.
Mr. Cheney's employment agreement further provides that Mr. Cheney is
entitled to receive the use of an automobile and such other benefits as the
Company generally makes available to its senior executives.
Mr. Cheney's employment agreement also contains a non-compete and non-
solicitation provision which provides that through the actual date of
termination of the employment agreement and for a period of five years
thereafter, Mr. Cheney shall not, without the prior written consent of the
Company, be employed in the banking business in any capacity within Thomas
County, Georgia. Mr. Cheney has also agreed that during such period, he will
not, without the prior written consent of the Bank, employ or attempt to employ
any employees of the Bank or cause an employee of the Bank to work elsewhere.
The employment agreement provides that the Company may terminate Mr.
Cheney's employment agreement for any reason upon majority vote of the Board
of Directors of the Company and the Bank.
On January 1, 2001, the Company and the Bank also entered into a four-year
employment agreement with Charles H. Hodges, III, containing identical
provisions to the employment agreement entered into with Mr. Cheney, except
that Mr. Hodges receives a minimum annual salary of $103,000.
STOCK OPTIONS
No stock options were granted to the Company's executive officers during
2003. The following table presents information regarding the exercise of
options during 2003. At December 31, 2003, the Company's executive officers
did not hold any options to purchase shares of the Company's common stock.
Shares Acquired Value
Name on Exercise Realized(1)
---- --------------- -----------
Stephen H. Cheney -- --
Charles H. Hodges, III 15,000 $225,000
___________________
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Company's common stock at December
31, 2003 and the exercise price of such options. The fair market value
was determined by reference to the most recent closing price of the common
stock on the over-the-counter pink sheets at December 31, 2003 ($22.00 per
share).
9
EQUITY COMPENSATION PLAN INFORMATION
The Company maintains two equity compensation plans: (i) the Company's 2000
Directors' Plan, under which members of the Company's Board of Directors receive
shares of common stock as consideration for attending board and committee
meetings, and (ii) the Company's bonus plan for executive officers (the "Bonus
Plan"), under which the Company's executive officers are eligible to receive
bonuses in the form of shares of the Company's common stock. For additional
information regarding the 2000 Directors' Plan, see "Compensation of Directors,"
above. The Company has also granted a number of options to executive officers
and employees, which are not governed by a plan. The following table sets
forth, as of December 31, 2003, the number of shares to be issued upon the
exercise of outstanding options (column (a)) and the weighted average exercise
price of those options (column (b)), and the number of securities reserved for
issuance under the 2000 Directors' Plan (column (c)). There is no set number of
shares reserved for issuance under the Bonus Plan. Neither the 2000 Directors'
Plan, the Bonus Plan, nor the individual option grants have been approved by the
Company's shareholders.
Number
of securities
available for
Number of Weighted- future issuance
securities average under equity
to be issued exercise compensation
upon exercise price of plans
of outstanding outstanding (excluding
options, options, securities
warrants warrants reflected in
and rights and rights in column (a))
Plan category (a) (b) (c)
------------- -------------- ------------ --------------
Equity compensation plans
approved by security holders 0 -- 0
Equity compensation plans not
approved by security holders 9,600 $16.77 11,470
----- ------ ------
Total 9,600 $16.77 11,470
===== ====== ======
RELATED PARTY TRANSACTIONS
The Bank extends loans from time to time to certain of the Company's and
the Bank's directors, their associates and members of the immediate families
of the directors and executive officers of the Company and the Bank. These
loans are made in the ordinary course of business on substantially the same
terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with persons not affiliated
with the Company or the Bank, and do not involve more than the normal risk of
collectibility or present other unfavorable features.
10
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's 2003 audited
financial statements with management. The Audit Committee has discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). The Audit
Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and has discussed with the
independent accountant the independent accountant's independence. Based on
the review and discussions referred to above, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-KSB for 2003 for filing with the SEC.
Respectfully submitted,
The Audit Committee
Charles A. Balfour
Charles E. Hancock, M.D.
David O. Lewis
Cochran A. Scott, Jr.
Richard L. Singletary, Jr.
11
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 2004
with respect to ownership of the outstanding common stock of the Company by (i)
each director and executive officer of the Company, (ii) all directors and
executive officers of the Company, as a group, and (iii) all persons known to
the Company to own beneficially more than 5% of the outstanding shares of the
Company's common stock:
Shares Percent of Outstanding
Name Beneficially Owned(1) Shares(2)
---- --------------------- ----------------------
Charles A. Balfour 22,440(3) 1.5%
Stephen H. Cheney 76,419(4) 5.2%
David A. Cone 7,305(5) *
Charles E. Hancock, M.D. 29,975(6) 2.0%
Charles H. Hodges, III 44,797(7) 3.0%
Harold L. Jackson 14,595(8) *
David O. Lewis 2,500(9) *
Charles W. McKinnon, Jr. 28,525(10) 1.9%
Randall L. Moore 31,800(11) 2.2%
Diane W. Parker 22,820(12) 1.6%
Cochran A. Scott, Jr. 37,100(13) 2.5%
Richard L. Singletary, Jr. 73,476(14) 5.0%
All executive officers
and directors as a
group (12 persons) 391,752(15) 26.1%
______________________________
* Less than 1%.
(1) Except as otherwise indicated, each person named in this table possesses
sole voting and investment power with respect to the shares beneficially
owned by such person. "Beneficial ownership" includes shares for which
an individual, directly or indirectly, has or shares voting or investment
power or both and also includes options which are exercisable within
sixty days of the date hereof. Beneficial ownership as reported in the
above table has been determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934.
(2) The percentages are based upon 1,467,352 shares outstanding, except for
certain parties who hold presently exercisable options to purchase
shares. The percentages for those parties who hold presently exercisable
options are based upon the sum of 1,467,352 shares plus the number of
shares subject to presently exercisable options held by them, as
indicated in the following notes.
(3) Includes 5,000 shares held by Mr. Balfour as custodian for his children
and 1,440 shares earned pursuant to the 2000 Directors' Plan.
(4) Includes 722 shares held in Mr. Cheney's wife's individual retirement
account, 30,000 shares held in Mr. Cheney's father's individual
retirement account for the benefit of Mr. Cheney, 3,800 shares earned
pursuant to the 2000 Directors' Plan, and 2,593 shares earned pursuant to
the Bonus Plan. Mr. Cheney's address is 301 N. Broad Street, Thomasville,
Georgia 31792.
(5) Includes 1,705 shares earned pursuant to the 2000 Directors' Plan.
(6) Includes 2,010 shares earned pursuant to the 2000 Directors' Plan.
(7) Includes 1,534 shares held by Mr. Hodges as custodian for his children,
3,430 shares earned pursuant to the 2000 Directors' Plan, and 1,878
shares earned pursuant to the Bonus Plan.
(8) Includes 1,595 shares earned pursuant to the 2000 Directors' Plan.
12
(9) Includes 1,800 shares earned pursuant to the 2000 Directors' Plan.
(10) Includes 12,200 shares held in Mr. McKinnon's individual retirement
account and 3,570 shares earned pursuant to the 2000 Directors' Plan.
(11) Includes 1,800 shares earned pursuant to the 2000 Directors' Plan.
(12) Shares are held in trust in the name of Central Memphis Company, c/o
First Tennessee Bank Trust Division. Includes 1,320 shares earned
pursuant to the 2000 Directors' Plan.
(13) Includes 24,000 shares held by Mr. Scott as custodian for his children
and 2,200 shares earned pursuant to the 2000 Directors' Plan.
(14) Includes 5,246 shares held in Mr. Singletary's individual retirement
account, 10,000 shares owned by Mr. Singletary's wife and 4,489 shares
held in Mr. Singletary's wife's individual retirement account and
includes 3,860 shares earned pursuant to the 2000 Directors' Plan. Mr.
Singletary's address is 102 Chukkars Drive, Thomasville, Georgia 31792.
(15) Includes 28,530 shares earned pursuant to the 2000 Directors' Plan and
4,471 shares awarded pursuant to the Bonus Plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of the
outstanding common stock of the Company to file with the Securities and Exchange
Commission reports of changes in ownership of the common stock of the Company
held by such persons. Officers, directors and greater than 10% shareholders
are also required to furnish the Company with copies of all forms they file
under this regulation. To the Company's knowledge, based solely on a review
of the copies of such reports furnished to the Company and representations that
no other reports were required, during the year ended December 31, 2003, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% shareholders were complied with.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee, has approved the selection of Francis & Co., CPAs,
which served as the Company's independent public accountants for the year ended
December 31, 2003, as the Company's independent public accountants to audit the
books of the Company for the current fiscal year, to report on the consolidated
balance sheets and related statements of income, changes in shareholders'
equity and cash flows of the Company and to perform such other appropriate
accounting services as may be required by the Company.
Representatives of Francis & Co. are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions.
Audit Fees. The aggregate fees billed for professional services rendered
by Francis & Co. for the audit of the Company's annual financial statements and
review of the financial statements included in the Company's quarterly reports
on Form 10-QSB were $69,200 for 2003 and $55,700 for 2002.
Audit-Related Fees. The aggregate fees billed by Francis & Co. for audit-
related services were $9,700 for 2003 and $0 for 2002. These fees related to
additional audit services in connection with securities and banking regulatory
filings.
Tax Fees. The aggregate fees billed for professional services rendered by
Francis & Co. for tax compliance, tax advice and tax planning were $4,100 for
2003 and $3,900 for 2002. These fees related to the preparation of federal,
state and local tax returns.
All Other Fees. The aggregate fees billed by Francis & Co., other than
for services reported above, were $17,280 in 2003 and $36,176 in 2002. These
fees related to services provided in connection with securities and banking
regulatory filings.
13
All services described above were pre-approved by the Audit Committee.
OTHER MATTERS
ANNUAL REPORT TO SHAREHOLDERS AND REPORT ON FORM 10-KSB
Additional information concerning the Company, including financial
statements, is provided in the Company's 2003 Annual Report to Shareholders
that accompanies this proxy statement. The Company's Annual Report on Form
10-KSB for the year ended December 31, 2003, as filed with the Securities and
Exchange Commission, is available to shareholders who make a written request
therefor to Ms. Hollie Lloyd, Senior Operations Officer, at the offices of the
Company, 301 North Broad Street, Thomasville, Georgia 31792. Copies of exhibits
filed with that report or referenced therein will be furnished to shareholders
of record upon request and payment of the Company's expenses in furnishing such
documents.
OTHER BUSINESS
The Board of Directors knows of no other matters to be brought before the
2004 Annual Meeting. However, if other matters should come before the Annual
Meeting it is the intention of the persons named in the enclosed form of proxy
to vote the proxy in accordance with their judgment of what is in the best
interest of the Company.
By Order of The Board of Directors,
/s/ Stephen H. Cheney
Stephen H. Cheney
Chairman and Chief Executive Officer
Thomasville, Georgia
April 21, 2004
14
FINANCIAL APPENDIX
------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations A-1
Report of Independent Accountants A-9
Consolidated Financial Statements
Consolidated Balance Sheets A-10
Consolidated Statements of Income A-11
Consolidated Statements of Changes in Shareholders' Equity A-12
Consolidated Statements of Cash Flows A-13
Notes to Consolidated Financial Statements A-14
Market for Registrant's Common Equity and Related
Stockholder Matters A-45
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 and related notes included elsewhere herein.
OVERVIEW
The Company's results of operations are largely dependent on interest
income, which is the difference between the interest earned on loans and
securities and interest paid on deposits and borrowings. The results of
operations are also affected by the level of income/fees from loans, deposits,
borrowings, as well as operating expenses, the provision for loan losses, the
impact of federal and state income taxes, and the relative levels of interest
rates and economic activity.
For 2003, the Company anticipated a higher net interest income as the Bank
continued to expand its base of earning assets. While it was evident early on
that interest rates would not increase, management was confident in its ability
to reduce the Bank's cost of funds faster than the reduction in the yield on
earning assets. This coupled with an expansion in earning assets would
compensate for the anticipated compression in the net yield on earning assets.
To mitigate the impact of a declining interest rate environment, the
Company focused on non-interest income opportunities, especially fee income
from Joseph Parker & Company, Inc. ("JPC") and TNB Financial Services, Inc.
("TNBF"). The Company also focused on reducing its cost of funds as rates
continued to decline. Management believes that it was successful on both
fronts, as fee income increased by $709,000 to $2,075,000, and interest expense
was reduced by $672,000 to $3,574,000.
Looking ahead to 2004, the Company expects continued compression in the
net yield on earning assets. Management plans to mitigate the impact of the
continued compression with prudent asset growth, non-interest income growth
generation, and expense control. Additionally, there are a number of
initiatives that are expected to contribute to 2004 and beyond. These
initiatives include:
* combining the operations of JPC with TNBF to achieve higher
productivity and lower costs; and
* investment in additional new business development capabilities and
process improvements within the lending area.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. The
A-1
Company believes that the most critical accounting policies upon which its
financial condition depends, and which involve the most complex or subjective
decisions or assessments are as follows:
Allowance for Loan Losses. Arriving at an appropriate level of allowance
for loan losses involves a high degree of judgment. The Company's allowance
for loan losses provides for probable losses based upon evaluations of known
and inherent risks in the loan portfolio. Management uses historical
information to assess the adequacy of the allowance for loan losses as well
as the prevailing business environment; as it is affected by changing economic
conditions and various external factors, which may impact the portfolio in ways
currently unforeseen. The allowance is increased by provisions for loan losses
and by recoveries of loans previously charge-off and reduced by loans charged-
off. For a full discussion of the Company's methodology of assessing the
adequacy of the allowance for loan losses, see the "Allowance for Loan Losses"
discussion below, as well as Note 2 in the Company's consolidated financial
statements included in this Report.
Income Taxes. The Company estimates income tax expense based on the amount
it expects to owe various tax authorities. Taxes are discussed in more detail
in Note 13 of the consolidated financial statements. Accrued taxes represent
the net estimated amount due to or to be received from taxing authorities. In
estimating accrued taxes, management assesses the relative merits and risks of
the appropriate tax treatment of transactions taking into account statutory,
judicial and regulatory guidance in the context of its tax position. Although
the Company uses available information to record accrued income taxes,
underlying estimates and assumptions can change over time as a result of
unanticipated events or circumstances such as changes in tax laws influencing
the Company's overall tax position.
Valuation of Goodwill/Intangible Assets and Analysis for Impairment. In its
endeavor to enhance shareholders' value, the Company acquired JPC in July 2002.
JPC is a well established money management firm with approximately $200 million
under management. The Company utilized the purchase method to reflect the
acquisition of JPC. Accordingly, the Company was required to record assets
acquired and liabilities assumed at their fair value which is an estimate
determined by the use of internal or other valuation techniques. These
valuation estimates result in goodwill and other intangible assets. Goodwill
is subject to ongoing periodic impairment tests and is evaluated using various
fair value techniques including multiples of price/equity and price/earnings
ratios.
RESULTS OF OPERATIONS
For 2003, total assets grew by $20.1 million to $205.5 million. Cash and
cash equivalents decreased by $7.0 million to $6.5 million; securities grew by
$1.8 million to $9.4 million; loans expanded by $24.8 million to $179.7 million;
and all remaining assets grew by $.5 million to $9.8 million.
To fund the growth in assets, the Company was able to increase deposits
by $11.6 million to $165.5 million; borrowings grew by $4.7 million to $19.9
A-2
million; federal funds purchased grew by $2.3 million to $2.3 million; and the
equity accounts expanded by $1.5 million to $17.3 million.
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, 2003 December 31, 2002
----------------- -----------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ----
(Dollars in thousands)
Federal funds sold $ 5,405 $ 56 1.04% $ 4,443 $ 78 1.76%
Securities 8,022 298 3.71% 7,636 403 5.28%
Loans, net 166,639 10,091 6.06% 146,018 9,628 6.59%
------- ------ ------- ------
Total earning assets $180,066 $10,445 5.80% $158,097 $10,109 6.39%
======= ====== ======= ======
Interest bearing deposits $140,765 $ 2,877 2.04% $125,607 $ 3,724 2.96%
Other borrowings 16,595 697 4.20% 12,230 522 4.27%
------- ------ ------- ------
Total interest
-bearing liabilities $157,360 $ 3,574 2.27% $137,837 $ 4,246 3.08%
======= ====== ======= ======
Net yield on earning assets 3.82% 3.71%
Net yield on interest-earning assets for 2003 and 2002 was 3.82% and 3.71%,
respectively. The Company was able to increase its net yield on earning assets
despite a general decline in the interest rate environment. This was achieved
primarily due to a robust loan demand, and management's ability to reduce the
cost of funds faster than the reduction in the yield on earning assets.
A-3
Non-Interest Income
Non-interest income for 2003 and 2002 amounted to $2,074,606 and
$1,365,950, respectively. As a percent of average assets, non-interest income
increased from .80% in 2002 to 1.07% in 2003. The increase in non-interest
income is primarily due to fee income generated by JPC for money management
services, as well as fee income generated by TNBF for financial planning,
trusts, wills, estates, and investments. The Bank was also able to increase
service charges and other fees on deposit accounts.
The following table summarizes the major components of non-interest income
for the years ended December 31, 2003 and 2002.
Year ended December 31,
-----------------------
2003 2002
---- ----
(In thousands)
Fees, money management $ 918 $ 497
Service fees on deposit accounts 662 541
Miscellaneous, other 495 328
------- -------
Total non-interest income $ 2,075 $ 1,366
======= =======
Non-Interest Expense
Non-interest expense increased from $4,388,752 in 2002 to $5,499,396 in
2003. As a percent of total average assets, non-interest expense increased
from 2.57% in 2002 to 2.86% in 2003. The increase is primarily due to costs
associated with the expansion of TNBF and JPC. Management expects these costs
to stabilize in 2004.
The following table summarizes the major components of non-interest expense
for 2003 and 2002.
2003 2002
---- ----
(In thousands)
Salaries and benefits $ 3,035 $ 2,261
Data processing, ATM 193 201
Advertising and public relations 243 204
Depreciation, amortization 430 353
Other operating expenses 1,598 1,370
------- -------
Total non-interest expense $ 5,499 $ 4,389
======= =======
Allowance for Loan Losses
During 2003, the allowance for loan losses increased from $1,722,097 to
$1,960,822. As a percent of gross loans, the allowance for loan losses declined
from 1.10% in 2002 to 1.08% in 2003. Net charge-offs during 2003 amounted to
A-4
$181,275, or .11% of average loans. During 2002, the allowance for loan losses
increased from $1,564,769 to $1,722,097. As a percent of gross loans, the
allowance for loan losses declined from 1.15% in 2001 to 1.10% in 2002. Net
charge-offs during 2002 amounted to $83,000, or .06% of average loans. As of
December 31, 2003, management considers the allowance for loan losses to be
adequate to absorb 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 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, 2003 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.
A-5
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
------ ------ -------- -------- ----- -----
(Dollars in thousands)
EARNING ASSETS
Loans $ 81,373 $ 16,005 $ 10,048 $70,646 $ 3,639 $181,711
Available-for-sale
securities -- 709 1,656 3,919 3,127 9,411
Federal funds sold 390 -- -- -- -- 390
------- ------- ------- ------ ------ -------
Total earning assets $ 81,763 $ 16,714 $ 11,704 $74,565 $ 6,766 $191,512
======= ======= ======= ====== ====== =======
SUPPORTING SOURCE OF FUNDS
Federal funds
purchased $ 2,264 $ -- $ -- $ -- $ -- $ 2,264
Interest-bearing demand
deposits and savings 93,082 -- -- -- -- 93,082
Certificates,
less than $100M 14,115 7,388 4,822 5,375 -- 31,700
Certificates,
$100M and over 6,710 3,110 4,187 4,718 -- 18,725
Borrowings 83 357 167 6,442 12,845 19,894
------- ------- ------- ------ ------ -------
Total interest-
bearing liabilities $116,254 $ 10,855 $ 9,176 $16,535 $12,845 $165,665
====== ======= ======= ====== ====== =======
Interest rate
sensitivity gap $(34,491) $ 5,859 $ 2,528 $58,030 $(6,079) $25,847
Cumulative gap $(34,491) $(28,632) $(26,104) $31,926 $25,847 $25,847
Interest rate
sensitivity gap ratio 0.70 1.54 1.28 4.51 0.53 1.16
Cumulative interest rate
sensitivity gap ratio 0.70 0.77 0.81 1.21 1.16 1.16
As evidenced by the table above, at December 31, 2003, 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. This 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
A-6
attracting new deposits. The Company's primary source of liquidity is its
ability to maintain and increase deposits through the Bank. Deposits grew by
$11.6 million during 2003 and by $21.2 million in 2002.
Below are the pertinent liquidity balances and ratios at December 31, 2003
and 2002:
December 31, 2003 December 31, 2002
----------------- -----------------
(Dollars in thousands)
Cash and cash equivalents $ 6,531 $13,542
Securities 9,411 7,658
CDs, over $100,000
to total deposits ratio 11.3% 14.1%
Loan to deposit ratio 108.6% 100.6%
Brokered deposits -- --
Cash and cash equivalents are the primary source of liquidity. At December
31, 2003, cash and cash equivalents amounted to $6.5 million, representing 3.2%
of total assets. Securities available for sale provide a secondary source of
liquidity. At December 31, 2003, total securities amounted to $9.4 million,
representing 4.6% of total assets.
At December 31, 2003, large denomination certificates accounted for 11.3%
of total deposits. As a percent of total deposits, large denomination
certificates declined from 14.1% in 2002 to 11.3% in 2003. 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 large denomination CDs 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, 2003,
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.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Bank enters into certain off-balance
sheet transactions that are connected with meeting the financing needs of its
customers. These off-balance sheet arrangements consist of letters of credit
and commitments to extend credit.
A-7
At December 31, 2003 and 2002, the Company had unused loan commitments
of approximately $21.2 million and $17.6 million, respectively. Additionally,
standby letters of credit of approximately $2,732,500 and $988,000 were
outstanding at December 31, 2003 and 2002, respectively. The majority of these
commitments are collateralized by various assets. No material losses are
anticipated as a result of these transactions.
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.
The table below illustrates the Bank's and Company's regulatory capital
ratios at December 31, 2003:
Minimum
Regulatory
December 31, 2003 Requirement
----------------- -----------
Bank
----
Tier 1 Capital 9.9% 4.0%
Tier 2 Capital 1.3% N/A
Total risk-based capital ratio 11.2% 8.0%
Leverage ratio 8.1% 3.0%
Company - Consolidated
----------------------
Tier 1 Capital 10.5% 4.0%
Tier 2 Capital 1.2% N/A
Total risk-based capital ratio 11.7% 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.
A-8
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
Board of Directors and Shareholders
Thomasville Bancshares, Inc.
Thomasville, Georgia
We have audited the accompanying consolidated balance sheets of Thomasville
Bancshares, Inc., (the "Company"), and subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2003. 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 auditing standards generally
accepted in the United States. 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 subsidiaries at December 31, 2003 and 2002,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.
/s/Francis & Co., CPAs
Atlanta, Georgia
March 6, 2004
A-9
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
Consolidated Balance Sheets
As of December 31,
----------------------------------
2003 2002
------------- -------------
ASSETS
------
Cash and due from banks $ 6,142,076 $ 11,827,153
Federal funds sold, net 389,703 1,714,481
------------ ------------
Total cash and cash equivalents $ 6,531,779 $ 13,541,634
Securities:
Available-for-sale at fair value 9,410,892 7,658,460
Loans, net 179,749,910 154,899,944
Property and equipment, net 4,281,826 4,168,044
Goodwill 3,417,259 3,417,259
Other assets 2,098,506 1,703,006
------------ ------------
Total Assets $ 205,490,172 $ 185,388,347
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 21,993,126 $ 22,324,716
Interest bearing deposits 143,506,633 131,595,672
------------ ------------
Total deposits $ 165,499,759 $ 153,920,388
Federal funds purchased 2,264,000 - -
Borrowings 19,893,654 15,150,845
Other liabilities 531,253 608,374
------------ ------------
Total Liabilities $ 188,188,666 $ 169,679,607
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, 1.00 par value, 10,000,000
shares authorized; 1,467,038 (2003) and
1,443,558 (2002) shares issued
and outstanding $ 1,467,038 $ 1,443,558
Paid-in-capital 9,082,318 8,761,714
Retained earnings 6,759,183 5,452,079
Accumulated other comprehensive income (7,033) 51,389
------------ ------------
Total Shareholders' Equity $ 17,301,506 $ 15,708,740
------------ ------------
Total Liabilities
and Shareholders' Equity $ 205,490,172 $ 185,388,347
============ ============
Refer to notes to the consolidated financial statements.
A-10
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
----------------------------------------
Interest Income: 2003 2002 2001
--------------- ---- ---- ----
Interest and fees on loans $ 10,090,619 $ 9,627,721 $ 9,760,452
Interest on investment securities 298,329 403,476 588,166
Interest on federal funds sold 55,557 77,899 190,606
------------ ------------ ------------
Total interest income $ 10,444,505 $ 10,109,096 $ 10,539,224
Interest Expense:
----------------
Interest on deposits and borrowings 3,573,702 4,245,679 5,208,018
------------ ------------ ------------
Net interest income $ 6,870,803 $ 5,863,417 $ 5,331,206
Provision for possible loan losses 420,000 240,000 415,000
------------ ------------ ------------
Net interest income after provision
for possible loan losses $ 6,450,803 $ 5,623,417 $ 4,916,206
------------ ------------ ------------
Other Income:
------------
Fees, money management $ 918,069 $ 496,420 $ - -
Service fees on deposit accounts 662,128 541,302 547,325
Miscellaneous, other 494,409 328,228 263,002
------------ ------------ ------------
Total other income $ 2,074,606 $ 1,365,950 $ 810,327
------------ ------------ ------------
Other Expenses:
--------------
Salaries and benefits $ 3,034,607 $ 2,260,889 $ 1,711,444
Data processing and ATM 193,374 201,463 157,617
Advertising and public relations 242,983 203,889 136,623
Depreciation and amortization 430,461 352,509 298,327
Professional fees 290,735 293,313 136,623
Other operating expenses 1,307,236 1,076,689 753,452
------------ ------------ ------------
Total other expenses $ 5,499,396 $ 4,388,752 $ 3,194,086
------------ ------------ ------------
Income before income tax $ 3,026,013 $ 2,600,615 $ 2,532,447
Income tax 1,069,308 843,647 850,420
------------ ------------ ------------
Net income $ 1,956,705 $ 1,756,968 $ 1,682,027
============ ============ ============
Basic earnings per share $ 1.36 $ 1.23 $ 1.21
============ ============ ============
Diluted earnings per share $ 1.35 $ 1.19 $ 1.16
============ ============ ============
Weighted average number of
shares outstanding:
Basic 1,443,830 1,433,866 1,395,000
============ ============ ============
Diluted 1,446,081 1,480,223 1,447,372
============ ============ ============
Refer to notes to the consolidated financial statements.
A-11
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
Accumulated
Other
Common Stock Paid Compre-
------------------ -in- Retained hensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
December 31,
2000 1,395,000 $1,395,000 $8,112,061 $3,071,334 $ 1,853 $12,580,248
--------- --------- --------- --------- -------- ----------
Comprehensive income:
Net income,
2001 -- -- -- 1,682,027 -- 1,682,027
Net unrealized
gain,
securities -- -- -- -- 26,241 26,241
--------- --------- --------- --------- -------- ----------
Total
comprehensive
income -- -- -- 1,682,027 26,241 1,708,268
Stock options,
restricted
stock -- -- 88,847 -- -- 88,847
Dividends
paid -- -- -- (488,250) -- (488,250)
--------- --------- --------- --------- -------- ----------
Balance,
December 31,
2001 1,395,000 $1,395,000 $8,200,908 $4,265,111 $ 28,094 $13,889,113
--------- --------- --------- --------- -------- ----------
Comprehensive income:
Net income,
2002 -- -- -- 1,756,968 -- 1,756,968
Net unrealized
gain,
securities -- -- -- -- 23,295 23,295
--------- --------- --------- --------- -------- ----------
Total
comprehensive
income -- -- -- 1,756,968 23,295 1,780,263
Stock options,
restricted
stock -- -- 88,204 -- -- 88,204
Purchase of
stock (36,442) (36,442) (692,398) -- -- (728,840)
Sale of
treasury
stock 36,442 36,442 692,398 -- -- 728,840
Exercise of
options 30,000 30,000 120,000 -- -- 150,000
Issuance of
stock 18,558 18,558 352,602 -- -- 371,160
Dividends
paid -- -- -- (570,000) -- (570,000)
--------- --------- --------- --------- -------- ----------
Balance,
December 31,
2002 1,443,558 $1,443,558 $8,761,714 $5,452,079 $ 51,389 $15,708,740
--------- --------- --------- --------- -------- ----------
Comprehensive income:
Net income,
2003 -- -- -- 1,956,705 -- 1,956,705
Net unrealized
(loss),
securities -- -- -- -- (58,422) (58,422)
--------- --------- --------- --------- -------- ----------
Total
comprehensive
income -- -- -- 1,956,705 (58,422) 1,898,283
Issuance
of stock 23,480 23,480 216,654 -- -- 240,134
Restricted
stock -- -- 103,950 -- -- 103,950
Dividends
paid -- -- -- (649,601) -- (649,601)
--------- --------- --------- --------- -------- ----------
Balance,
December 31,
2003 1,467,038 $1,467,038 $9,082,318 $6,759,183 $ (7,033) $17,301,506
========= ========= ========= ========= ======== ==========
Refer to notes to the consolidated financial statements.
A-12
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
----------------------------------------
Cash flows from operating activities: 2003 2002 2001
------------------------------------ ---- ---- ----
Net income $ 1,956,705 $ 1,756,968 $ 1,682,027
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provisions for loan losses 420,000 240,000 415,000
Depreciation 430,461 352,509 298,327
Net (accretion), securities (62,592) 110,383 (78,208)
Deferred asset 103,950 88,204 88,847
(Increase) in receivables
and other assets (395,500) (180,223) 142,270
Increase in payables
and other liabilities 2,186,879 (57,832) 32,585
------------ ------------ ------------
Net cash provided by
operating activities $ 4,639,903 $ 2,310,009 $ 2,580,848
------------ ------------ ------------
Cash flows from investing activities:
------------------------------------
Purchase of equity, JPC $ - - $ (79,066) $ - -
Purchase of subsidiary, goodwill - - (3,417,259) - -
Purchase of securities, AFS (7,028,262) (6,131,320) (12,394,650)
Maturity and calls
of securities, AFS 5,280,000 5,600,000 17,000,000
Decrease in other
real estate owned - - - - 137,844
(Increase) in loans, net (25,269,966) (20,804,205) (27,632,273)
Purchase of premises
and equipment (544,243) (825,739) (558,716)
------------ ------------ ------------
Net cash used in investing activities $(27,562,471) $(25,657,589) $(23,447,795)
------------ ------------ ------------
Cash flows from financing activities:
------------------------------------
Exercise of stock options $ 165,000 $ 150,000 $ - -
Issuance of stock 75,134 371,160 - -
Increase in deposits 11,579,371 21,207,331 6,819,262
Increase in borrowed funds 4,742,809 9,150,845 4,000,000
Dividends paid (649,601) (570,000) (488,250)
------------ ------------ ------------
Net cash provided
by financing activities $ 15,912,713 $ 30,309,336 $ 10,331,012
------------ ------------ ------------
Net increase/(decrease) in cash
and cash equivalents $ (7,009,855) $ 6,961,756 $(10,535,935)
Cash and cash equivalents,
beginning of period 13,541,634 6,579,878 17,115,813
------------ ------------ ------------
Cash and cash equivalents, end period $ 6,531,779 $ 13,541,634 $ 6,579,878
============ ============ ============
Supplemental Information:
Income taxes paid $ 1,038,778 $ 820,617 $ 843,500
============ ============ ============
Interest paid $ 3,627,448 $ 4,409,382 $ 5,160,637
============ ============ ============
Refer to notes to the consolidated financial statements.
A-13
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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"). The Company
commenced banking operations on October 2, 1995. 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 operates out of two banking
offices, both in Thomasville, Georgia. 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. In 2001, the Bank formed a subsidiary,
TNB Financial Services, Inc. (the "TNBF"). TNBF commenced operations in early
2002 by providing financial services, such as financial planning, investments,
trusts, wills and estates. In mid 2002, the Company acquired Joseph Parker &
Co., Inc. (the "JPC"), a well established local money management firm with
approximately $200 million under management. Following the acquisition, JPC
became a wholly-owned subsidiary of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND RECLASSIFICATION. The consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior years' amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no impact on net
income or shareholders' equity.
BASIS OF ACCOUNTING. The accounting and reporting policies of the Company
conform to accounting principles generally accepted in the United States 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 periods. 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 possible loan losses and the valuation of
real estate acquired in connection with foreclosure proceedings.
A-14
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
CASH AND DUE FROM BANKS. The Company maintains deposit relationships
with other banks which deposits amounts, at times, may exceed federally insured
limits. The Company has not experienced any material loss from such deposit
relationships.
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. Generally, in the available-
for-sale category are securities that are held to meet investment objectives
such as interest rate risk, liquidity management and asset-liability management
strategies among others. Available-for-sale securities are reported at fair
market with unrealized holding gains and losses reported in a separate component
of accumulated other comprehensive income, net of applicable deferred income
taxes. 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 recognized in interest income using the level-yield method over
the period to maturity.
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 reported at their
outstanding principal balance adjusted for charge-off, unearned discount,
unamortized loan fees and the allowance for possible loan losses. Interest
income is recognized over the term of the loan based on the principal amount
outstanding. Non-refundable loan fees 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.
Impaired loans are loans that based upon current information, it is deemed
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the agreement. Impaired loans may include accruing as
well as non-accruing loans. 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.
A-15
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Accrual of interest on loans is discontinued either when (i) reasonable
doubt exists as to the full or timely collection of interest or principal,
(ii) a loan becomes contractually past due by 90 days or more with respect to
interest or principal, or (iii) the terms of the loan have been renegotiated
due to a serious weakening of the borrower's financial condition. When a loan
is placed on non-accrual status, all interest previously accrued but not
collected is reversed against current period interest income, and the loan is
accounted for on the cash or cost recovery method. 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.
Restructured loans are those loans on which concessions in terms have been
granted because of the borrower's financial or legal difficulties. Interest
is generally accrued on such loans in accordance with the renegotiated terms.
ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan
losses (the "Allowance") represents management's estimate of probable losses
inherent in the loan portfolio. 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. Land is carried at cost. 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 operations. The Company had
no capitalized lease obligations at December 31, 2003 and 2002.
A-16
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
OTHER REAL ESTATE. Other real estate represents property acquired by the
Company in satisfaction of a loan. 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. Deferred income taxes (included in other assets) are
provided for temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements at the statutory
tax rate. The components of other comprehensive income included in the
consolidated statements of shareholders' equity have been computed based upon
a 34% effective tax rate.
CASH AND CASH EQUIVALENTS. 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. The
cash equivalents are readily convertible to known amounts of cash and present
insignificant risk of changes in value due to maturity dates of 90 days or less.
OPERATING SEGMENTS. The Company's business activities are currently
confined to two segments: (i) community/urban banking, including traditional
banking services (through the Bank) and other enhanced services, such as
financial planning, investments, trusts (through TNBF), and; (ii) money
management services (through JPC).
INCOME PER SHARE. Basic income per share is determined by dividing net
income by the weighted-average number of common shares outstanding. Diluted
income per share is determined by dividing net income by the weighted average
number of common shares outstanding increased by the number of common shares
that would be issued assuming the exercise of stock options. This also assumes
that only options with an exercise price below the existing market price will
be exercised. In computing net income per share, the Company uses the treasury
stock method.
A-17
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
TRUST AND MONEY MANAGEMENT ASSETS AND INCOME. Property and funds held by
the Company and its subsidiaries in a fiduciary or other capacity for the
benefit of its customers are not included in the accompanying consolidated
financial statements since such items are not assets of the Company. Income
earned from fees charged against trust assets, including money management
services, are recognized in the Company's consolidated income statements.
STOCK-BASED COMPENSATION. The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and related interpretations, in accounting for its employee
stock options rather than the alternative fair value accounting allowed by SFAS
No. 123, "Accounting for Stock-Based Compensation." APB No. 25 provides that
the compensation expense relative to the Company's employee stock options is
measured based on the intrinsic value of the stock option. SFAS No. 123
requires companies that continue to follow APB No. 25 to provide a pro-forma
disclosure of the impact of applying the fair value method of SFAS No. 123.
The following is a reconciliation of reported and pro-forma net income
and net income per share for the periods below:
Year Ended December 31,
------------------------------------
2003 2002 2001
---- ---- ----
Net income, as reported $1,956,705 $1,756,968 $1,682,027
Stock-based compensation expense 5,899 7,597 11,669
--------- --------- ---------
Pro-forma (fair value) net income $1,950,806 $1,749,371 $1,670,358
========= ========= =========
Basic income per share:
As reported $ 1.36 $ 1.23 $ 1.21
========= ========= =========
Pro-forma $ 1.35 $ 1.22 $ 1.20
========= ========= =========
Diluted income per share:
As reported $ 1.35 $ 1.19 $ 1.16
========= ========= =========
Pro-forma $ 1.35 $ 1.18 $ 1.15
========= ========= =========
Pro-forma value of option $ 3.00 $ N/A $ 7.70
========= ========= =========
A-18
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The pro-forma (fair value) was estimated at the date of grant using the
Black-Scholes option pricing model ("BLSC Model"). Note, however, that no
options were granted during calendar year 2002. BLSC Model requires the input
of highly subjective assumptions, including the expected stock price volatility,
and risk-free interest rates. Since changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, existing
models (such as the BLSC Model) do not necessarily provide a reliable single
measure of the fair value of the Company's options.
Below are details concerning the input assumptions utilized in conjunction
with BLSC Model to produce the estimates for pro-forma (fair value) income for
the periods below.
Year Ended December 31,
------------------------------------
2003 2002 2001
---- ---- ----
Risk-free interest rate 3.95% 3.96% 5.0%
Dividend yield 2.1 % 2.0 % 2.3%
Volatility factor 15.5 % 23.0 % 18.8%
Weighted average life of option 10 yrs 10 yrs 10 yrs
GOODWILL AND OTHER INTANGIBLES. Goodwill represents the excess of the
cost of an acquisition over the fair value of the net assets acquired in
business combinations. On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets",
("SFAS No. 142") and, on October 1, 2002, adopted Statement of Financial
Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions"
("SFAS No. 147"), which applies specifically to branch purchases that qualify
as business combinations. Under SFAS No. 142 and No. 147, goodwill is no longer
amortized but is subject to an annual impairment test. Under SFAS No. 142, the
goodwill impairment assessment is performed at least annually. Based upon this
assessment of the fair value of the reporting unit, the Company concluded the
recorded value of goodwill was not impaired as of December 31, 2003.
RECENT ACCOUNTING PRONOUNCEMENTS. In January 2003, the Financial
Accounting Standards Board ("FASB") issued Consolidation of Variable Interest
Entities, an interpretation of Accounting Research Bulletin No. 51 (the
Interpretation), FASB Interpretation No. 46 ("FIN 46"). The purpose of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interest in
A-19
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
an entity will need to consolidate that entity if the company's interest in the
VIE is such that the company will absorb a majority of the VIE's expected losses
and or receive a majority of the VIE's expected residual returns, if they occur.
As of December 31, 2003, management believes that the Company does not have any
VIE's which would be consolidated under the provisions of FIN 46.
In December 2003, the FASB issued a revision of FIN 46. The Revised
Interpretation codifies both the proposed modifications and other decisions
previously issued through certain FASB Staff Positions (FSPs) and supersedes
the original Interpretation to include: (1) deferring the effective date of
the Interpretation's provisions for certain variable interests, (2) providing
additional scope exceptions for certain other variable interests, (3) clarifying
the impact of troubled debt restructurings on the requirement to reconsider
(a) whether an entity is a VIE or (b) which party is the primary beneficiary of
a VIE, and (4) revising Appendix B of the Interpretation to provide additional
guidance on what constitutes a variable interest. The revised Interpretation
is effective for financial statements of periods ending after March 15, 2004.
Adoption of the revised FIN 46 will not have an adverse effect on the
Company's financial position, results of operations, or liquidity.
SFAS NO. 149 "AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES." In April 2003, the FASB issued SFAS No. 149, which amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," resulting in more consistent reporting of contracts
as either derivatives or hybrid instruments. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and should be applied
prospectively. Adoption of SFAS No. 149 will not have a material impact on the
Company's financial position, results of operations or liquidity.
SFAS NO. 150 "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH
CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY." In May 2003, the FASB issued
SFAS No. 150, which establishes standards for how certain financial instruments
with characteristics of both liabilities and equity should be measured and
classified. Certain financial instruments with characteristics of both
liabilities and equity will be required to be classified as a liability. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and July 1, 2003 for all other financial instruments with the
exception of existing mandatorily redeemable financial instruments issued by
limited life subsidiaries that have been indefinitely deferred from the scope
A-20
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
of the statements. The Company does not believe the adoption of SFAS 150 will
have a material impact on the Company's financial position, results of
operations or liquidity.
STATEMENT OF POSITION 03-3 ("SOP 03-3"): "ACCOUNTING FOR CERTAIN LOANS OR
DEBT SECURITIES ACQUIRED IN A TRANSFER." In December 2003, the American
Institute of Certified Public Accountants ("AICPA") issued SOP 03-3. SOP 03-3
requires loans acquired through a transfer, such as a business combination,
where there are differences in expected cash flows and contractual cash flows
due in part to credit quality be recognized at their fair value. The excess
of contractual cash flows over expected cash flows is not to be recognized as
an adjustment of yield, loss accrual, or valuation allowance. Valuation
allowances cannot be created nor "carried over" in the initial accounting for
loans acquired in a transfer on loans subject to SFAS 114, "Accounting by
Creditors for Impairment of a Loan." This SOP is effective for loans acquired
after December 31, 2004, with early adoption encouraged. The Company does not
believe the adoption of SOP 03-3 will have a material impact on the Company's
financial position, results of operations or liquidity.
In December 2003, the FASB issued a revision of SFAS No. 132, Employer's
Disclosures about Pensions and Other Postretirement Benefits. Most of the
provisions of the revised statements are effective for fiscal years ending after
December 15, 2003. The Statement requires more detailed disclosures about plan
assets, investment strategies, benefit obligations, cash flows, and the
assumptions used in accounting for the plans. Adoption of the revision to SFAS
No. 132 will not have a material impact on the Company's financial position,
results of operations or liquidity.
On December 11, 2003, the SEC Staff announced its intention to release a
Staff Accounting Bulletin in order to clarify existing accounting practices
relating to the valuation of issued loan commitments, including interest rate
lock commitments, subject to Derivative Implementation Group Issue C-13, When
a Loan Commitment is included in Scope of Statement 133. The new guidance is
expected to require all registrants to begin accounting for these commitments
subject to SFAS No. 133 as written options that would be reported as liabilities
until they are exercised or expire. The provisions of this guidance are
expected to be effective for loan commitments entered into after March 31, 2004.
Management intends to adopt the provisions of this guidance effective April 1,
2004 and does not anticipate that the adoption will have a materially adverse
effect on the Company's financial position, results of operations or liquidity.
A-21
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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, 2003, the Bank was a net buyer
in the federal funds market, while it was a net seller at December 31, 2002.
Below is pertinent information:
December 31,
-----------------------------
2003 2002
---- ----
Federal funds sold $ 389,703 $1,714,481
Federal funds purchased (2,264,000) - -
---------- ---------
Federal funds sold, net $(1,874,297) $1,714,481
========== =========
NOTE 4 - SECURITIES AVAILABLE-FOR-SALE
The amortized costs and estimated market values of securities available-
for-sale as of December 31, 2003 follow:
Gross
Unrealized
Amortized ---------- Estimated
Description Costs Gains Losses Market Values
----------- ----------- ----- ------ -------------
U.S. Agency $ 7,701,553 $ 25,806 $(36,463) $ 7,690,896
GA Tax-Credit Fund 399,996 - - - - 399,996
Corporate equity 240,000 - - - - 240,000
FRB, FHLB stock 1,080,000 - - - - 1,080,000
------------ -------- -------- ------------
Total securities $ 9,421,549 $ 25,806 $(36,463) $ 9,410,892
============ ======== ======== ============
All national banks are required to hold FRB stock and all members of the
Federal Home Loan Bank are required to hold FHLB stock. Since no ready market
exists for either stock, both FRB and FHLB stocks are reported at cost.
A-22
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The amortized costs and estimated market values of securities available-
for-sale as of December 31, 2002 follow:
Gross
Unrealized
Amortized ---------- Estimated
Description Costs Gains Losses Market Values
----------- ----------- ----- ------ -------------
U.S. Agency $ 6,050,600 $ 77,860 $ - - $ 6,128,460
GA Tax-Credit Fund 450,000 - - - - 450,000
Corporate equity 240,000 - - - - 240,000
FRB, FHLB stock 840,000 - - - - 840,000
------------ -------- -------- ------------
Total securities $ 7,580,600 $ 77,860 $ - - $ 7,658,460
============ ======== ======== ============
The amortized costs and estimated market values of securities available-
for-sale at December 31, 2003, 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 $ 2,345,721 $ 2,364,464
Due after one through five years 3,955,832 3,919,369
Due after five through ten years 1,799,996 1,807,059
FRB, FHLB, corporate equity
(no maturity) 1,320,000 1,320,000
----------- -----------
Total securities $ 9,421,549 $ 9,410,892
=========== ===========
There were no sales of securities during the calendar years 2003, 2002,
and 2001. As of December 31, 2003 and 2002, securities with aggregate par
values of $4,657,000 and $4,125,000, respectively, were pledged to secure
public funds, repurchase agreements and for other purposes required or
permitted by law.
A-23
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 5 - LOANS
The composition of net loans by major loan category, as of December 31,
2003 and 2002, follows:
December 31,
-----------------------------
2003 2002
---- ----
Commercial, financial, agricultural $ 43,178,890 $ 34,841,078
Real estate - construction 9,834,263 11,587,729
Real estate - mortgage 117,166,686 101,045,677
Installment 11,530,893 9,147,557
------------- -------------
Loans, gross $ 181,710,732 $ 156,622,041
Deduct:
Allowance for loan losses (1,960,822) (1,722,097)
------------- -------------
Loans, net $ 179,749,910 $ 154,899,944
============= =============
The Company considers impaired loans to include all restructured loans,
loans on which the accrual of interest has been discontinued, loans that are
not performing in accordance with agreed upon terms, and all other loans that
are performing according to the loan agreement but may have substantive
indication of potential credit weakness. At December 31, 2003 and 2002, 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 $2,922,261 and $3,650,260, respectively. The average recorded
investment in impaired loans amounted to approximately $3,332,748 and $4,329,882
for the years ended December 31, 2003 and 2002, respectively. The Allowance
related to impaired loans amounted to approximately $340,885 and $320,451 at
December 31, 2003 and 2002, 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, 2003 and 2002 amounted to $184,326 and $269,985,
respectively. The amount of interest recognized on impaired loans using the
cash method of accounting was not material for the years ended December 31, 2003
and 2002. Loans on non-accrual status at December 31, 2003 and 2002 had
outstanding balances of $105,752 and $188,122, respectively. Interest
recognized on non-accruing loans at December 31, 2003 and 2002 was $4,228 and
$8,112, respectively. The company has no commitments to lend additional funds
to borrowers whose loans have been modified.
A-24
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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.
Individual consumer loans are predominantly undersecured, and the allowance
for possible losses associated with these loans has been established
accordingly. The majority of the non-consumer loan categories are generally
secured by real-estate, receivables, inventory, machinery, equipment, or
financial instruments. The amount of collateral obtained is based upon
management's evaluation of the borrower.
Activity within the Allowance account for the years ended December 31,
2003, 2002 and 2001 follows:
Years ended December 31,
-------------------------------------
2003 2002 2001
---- ---- ----
Balance, beginning of year $ 1,722,097 $ 1,564,769 $ 1,365,057
Add: Provision for loan losses 420,000 240,000 415,000
Add: Recoveries of previously
charged off amounts 10,658 61,989 15,690
----------- ----------- -----------
Total $ 2,152,755 $ 1,866,758 $ 1,795,747
Deduct: Amount charged-off (191,933) (144,661) (230,978)
----------- ----------- -----------
Balance, end of year $ 1,960,822 $ 1,722,097 $ 1,564,769
=========== =========== ===========
A-25
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 7 - PROPERTY AND EQUIPMENT
Buildings, furniture and equipment are stated at cost less accumulated
depreciation. Components of property and equipment included in the consolidated
balance sheets at December 31, 2003 and 2002 follow:
December 31,
-------------------------
2003 2002
---- ----
Land $ 943,862 $ 943,862
Buildings 2,698,214 2,596,818
Furniture, equipment 2,389,622 1,961,866
Construction in progress 16,399 1,308
----------- -----------
Property and equipment, gross $ 6,048,097 $ 5,503,854
Deduct:
Accumulated depreciation (1,766,271) (1,335,810)
----------- -----------
Property and equipment, net $ 4,281,826 $ 4,168,044
=========== ===========
Depreciation expense for the years ended December 31, 2003, 2002 and 2001
amounted to $430,461, $352,509 and $298,327, 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
As of December 31, 2003, management had no plans for significant capital
expenditures in the foreseeable future.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments
to extend credit in the form of unused loan commitments and standby letters of
credit that are not reflected in the consolidated financial statements. Since
commitments may expire without being exercised, these amounts do not necessarily
represent future funding requirements. The Company uses the same credit and
collateral policies in making commitments as those it uses in making loans.
A-26
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
At December 31, 2003 and 2002, the Company had unused loan commitments of
approximately $21.2 million and $17.6 million, respectively. Additionally,
standby letters of credit of approximately $2,732,500 and $988,000 were
outstanding at December 31, 2003 and 2002, respectively. The majority of these
commitments are collateralized by various assets. No material losses are
anticipated as a result of these transactions.
The Company and its subsidiaries are subject to claims and lawsuits which
arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Company and its subsidiary.
Please refer to Note 14 concerning stock options earned by directors and
executive officers.
A-27
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 9 - BORROWINGS
Borrowings from FHLB totaled $16,775,000 and $12,000,000 at December 31,
2003 and 2002, respectively. Below are additional details concerning these
borrowings:
First
Outstanding Borrowings Possible
December 31, Interest
------------------ Adjustment Principal Maturity
2003 2002 Rate or Call Date Amortizing Date
---- ---- ---- --------------- ---------- ----
$ 2,775,000 $ - - 4.08% N/A Yes 3-19-2013
1,000,000 1,000,000 5.26% 4-21-2004 No 4-21-2009
- - 1,000,000 4.41% N/A No 8-25-2003
1,000,000 1,000,000 3.33% N/A No 9-06-2011
2,000,000 2,000,000 4.70% 9-14-2006 No 9-14-2011
1,000,000 1,000,000 5.13% N/A No 1-22-2007
1,000,000 1,000,000 4.80% N/A No 1-23-2006
1,000,000 1,000,000 4.27% N/A No 1-24-2005
- - 1,000,000 2.53% N/A No 1-22-2003
1,000,000 1,000,000 4.62% N/A No 5-16-2005
- - 1,000,000 2.91% N/A No 5-14-2003
1,000,000 1,000,000 3.81% N/A No 11-19-2007
1,000,000 - - 2.35% N/A No 11-21-2005
1,000,000 - - 1.74% N/A No 11-19-2004
1,000,000 - - 1.83% N/A No 12-04-2004
1,000,000 - - 2.21% N/A No 6-04-2005
1,000,000 - - 2.57% N/A No 12-04-2005
---------- ---------- ----- --------- --- ---------
Total $16,775,000 $12,000,000 N/A N/A N/A N/A
========== ========== ===== ========= === =========
FHLB has the option to convert two of the above advances into other
adjustable instruments or demand full payment on the adjustment date indicated
above. These particular advances have an adjustment or call date. At December
31, 2003 and 2002, the above borrowings were secured by a blanket lien on all
residential first mortgages held by the Bank. At December 31, 2003 and 2002,
the balance on the above mortgages amounted to approximately $56.1 million and
$47.7 million, respectively. In addition, the above borrowings were also
secured by FHLB stock carried on the Company's balance sheets at $840,000 and
A-28
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
$600,000 at December 31, 2003 and 2002, respectively. Interest expense incurred
on FHLB borrowings for the calendar years 2003 and 2002 amounted to $573,590 and
$461,788, respectively.
On June 27, 2002, the Company executed, under a twelve-year line of credit
agreement (the "LOC"), a $4.0 million loan with an unrelated financial
institution. For the initial two years, only quarterly interest payments are
required; thereafter, a 10% annual principal reduction, together with quarterly
interest payments are required by the lender. The LOC carries a rate of prime
less 1%, and it is secured by the Bank's common stock. The LOC includes several
positive and negative covenants that, in effect, protect the lender in the event
the Company experiences financial reversals. At December 31, 2003 and 2002, the
principal balance outstanding on the above LOC was $2,728,840, and for the year
ended December 31, 2003 and 2002, the Company incurred $89,540 and $41,108,
respectively, in interest expense relating to the above LOC.
Prior to the Company's acquisition of JPC, JPC incurred a long-term
liability which remained on the books following the acquisition. The liability
is unsecured and requires a quarterly payment of principal and interest of
$16,250. At December 31, 2003 and 2002, the outstanding balance on the above
indebtedness was $389,814 and $422,000, respectively. Interest expense incurred
with respect to the above indebtedness amounted to $32,167 and $17,033,
respectively, for the years ended December 31, 2003 and 2002.
NOTE 10 - DEPOSITS
The following details deposit accounts at December 31, 2003 and 2002:
December 31,
-------------------------
2003 2002
---- ----
Non-interest bearing deposits $ 21,993,126 $ 22,324,716
Interest bearing deposits:
NOW accounts 36,814,651 33,048,097
Money market accounts 50,790,393 43,412,803
Savings 5,476,837 4,647,792
Time, less than $100,000 31,699,597 28,790,291
Time, $100,000 and over 18,725,155 21,696,689
------------ ------------
Total deposits $165,499,759 $153,920,388
============ ============
A-29
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
At December 31, 2003, the scheduled maturities of all certificates of
deposit were as follows:
Year Ended
December 31, Amount
------------ ------------
2004 $ 40,331,496
2005 5,211,360
2006 2,076,316
2007 1,465,411
2008 1,340,169
------------
Total $ 50,424,752
============
NOTE 11 - INTEREST ON DEPOSITS AND BORROWINGS
A summary of interest expense for the years ended December 31, 2003, 2002
and 2001 follows:
December 31,
-------------------------------------
2003 2002 2001
---- ---- ----
Interest on NOW accounts $ 265,528 $ 408,881 $ 702,317
Interest on money market accounts 914,406 959,642 1,274,185
Interest on savings accounts 52,648 65,720 93,218
Interest on CDs under $100,000 985,405 1,154,776 1,452,917
Interest on CDs $100,000 and over 658,647 1,134,607 1,547,119
Interest, other borrowings 697,068 522,053 138,262
----------- ----------- -----------
Total interest on
deposits and borrowings $ 3,573,702 $ 4,245,679 $ 5,208,018
=========== =========== ===========
A-30
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 12 - OTHER OPERATING EXPENSES
A summary of other operating expenses for the years ended December 31,
2003, 2002 and 2001 follows:
December 31,
-------------------------------------
2003 2002 2001
---- ---- ----
Postage and delivery $ 96,084 $ 81,301 $ 69,103
Supplies and printing 134,997 127,806 77,665
Regulatory assessments 87,851 81,317 70,681
Taxes & insurance 152,579 121,551 108,882
Utilities & telephone 121,595 91,222 81,675
Repairs & maintenance 125,771 138,181 86,521
Service contracts 134,482 128,471 83,992
Directors' fees 105,550 88,204 88,847
Other expenses 348,327 218,636 86,086
----------- ----------- -----------
Total other operating expenses $ 1,307,236 $ 1,076,689 $ 753,452
=========== =========== ===========
NOTE 13 - INCOME TAXES
As of December 31, 2003, 2002 and 2001, the Company's provision for income
taxes consisted of the following:
December 31,
-------------------------------------
2003 2002 2001
---- ---- ----
Current $ 988,141 $ 790,155 $ 805,778
Deferred 81,167 53,492 44,642
----------- ----------- -----------
Income tax expense $ 1,069,308 $ 843,647 $ 850,420
=========== =========== ===========
A-31
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The provisions for income taxes applicable to income before taxes for the
years ended December 31, 2003, 2002, and 2001 differ from amounts computed by
applying the statutory federal income tax rates to income before taxes. The
effective tax rate and the statutory federal income tax rate are reconciled as
follows:
December 31,
-------------------------------------
2003 2002 2001
---- ---- ----
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income tax,
net of Federal benefit 4.5% 4.0% 4.0%
Tax-exempt interest, net (2.5%) (3.1%) (3.8%)
Change in valuation allowance -- 1.7% 2.0%
Low-income tax credit (3.5%) (4.4%) (1.6%)
Other 2.8% 0.2% (1.0%)
----- ----- -----
Effective tax rate 35.3% 32.4% 33.6%
===== ===== =====
The tax effects of the temporary differences that comprise the net deferred
tax assets at December 31, 2003, 2002 and 2001 are presented below:
December 31,
-------------------------------------
2003 2002 2001
---- ---- ----
Deferred tax assets:
Allowance for loan losses $ 666,680 $ 585,513 $ 532,021
Unrealized (loss), securities 3,624 (26,472) (14,473)
Valuation reserve (539,119) (539,119) (485,627)
----------- ----------- -----------
Net deferred tax asset $ 131,185 $ 19,922 $ 31,921
=========== =========== ===========
There was a net change in the valuation allowance during calendar years
2002 and 2001. 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,
2003.
A-32
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 14 - RELATED PARTY TRANSACTIONS
STOCK OPTIONS. During the calendar years 2003, 2002 and 2001, the Company
granted 5,000, 0, and 3,400 stock options, respectively, to its employees. Upon
surrender with a cash consideration ranging from $15.00 to $20.00, each option
will convert into one share of the Company's common stock. These options are
vested equally over three years and have an expiration date of ten years from
the date of grant. As of December 31, 2003, 2002 and 2001, there were 9,600,
24,600 and 54,600 stock options outstanding, respectively. Pertinent
information concerning the options follows:
December 31,
------------------------------------
2003 2002 2001
---- ---- ----
Options granted 5,000 - - 6,200
Options forfeited - - - - - -
Options exercised (20,000) (30,000) - -
Options, beginning of year 24,600 54,600 48,400
------- ------- -------
Options, end of year 9,600 24,600 54,600
======= ======= =======
Range of exercise price of options granted $18.00 N/A $15 to $20
Average exercise price of options granted $18.00 N/A $17.26
Average exercise price
of options outstanding $16.46 $9.47 $7.01
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 the calendar years 2003, 2002 and 2001, the Company contributed
$226,506, $161,468 and $122,246, respectively, to the above plans.
COMPENSATION OF EXECUTIVE OFFICERS AND 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 (later increased to 20 shares), and (b)
twenty shares for each Bank or Company Board of Directors meeting attended
(later increased to 30 shares). 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. Since year-end 1998, the Board of Directors has granted restricted
shares to the Company's executive officers on an annual basis. These shares
vest only upon the officers' retirement or upon a change in control.
Respectively, as of December 31, 2003 and 2002, there were 35,152 and 28,222
A-33
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
shares of restricted stock outstanding for the benefit of directors and
executive officers. The income statements contain charges of $103,950, $88,204
and $88,847 reflecting the restricted stock grants for calendar years 2003,
2002, and 2001.
BORROWINGS AND DEPOSITS BY DIRECTORS AND EXECUTIVE OFFICERS. Certain
directors, principal 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, 2003 and 2002, loans outstanding to directors,
their related interests and executive officers aggregated $11,595,556 and
$10,272,046, respectively. These loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with unrelated parties. In the opinion of
management, loans to related parties did not involve more than normal credit
risk or present other unfavorable features.
A summary of the related party loan transactions during the calendar years
2003 and 2002 follows:
Insider Loan Transactions
-------------------------
2003 2002
---- ----
Balance, beginning of year $10,272,046 $10,155,584
New loans 4,374,505 2,132,235
Less: Principal reductions (3,050,995) (2,015,773)
---------- ----------
Balance, end of year $11,595,556 $10,272,046
========== ==========
Deposits by directors and their related interests, as of December 31,
2003 and 2002 approximated $8,020,981 and $8,061,558, respectively.
NOTE 15 - CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in Thomas County, Georgia, and surrounding counties. The
ability of the majority of the Company's customers to honor their contractual
loan obligations is dependent on economic conditions prevailing at the time in
Thomas County and the surrounding counties.
Approximately seventy percent of the Company's loan portfolio is
concentrated in loans secured by real estate, of which a substantial portion is
secured by real estate in the Company's primary market area. Accordingly, the
A-34
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
ultimate collectibility of the loan portfolio is susceptible to changes in
market conditions in the Company's primary market area. The other significant
concentrations of credit by type of loan are set forth under Note 5.
The Company, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 15% of the Bank's
statutory capital, or approximately $2,690,000.
NOTE 16 - REGULATORY MATTERS
The Company is governed by various regulatory agencies. Bank holding
companies and their nonbanking subsidiaries are regulated by the FRB. National
banks are primarily regulated by the OCC. All federally-insured banks are also
regulated by the FDIC. The Company's banking subsidiary includes a national
bank, which is insured by the FDIC.
Various requirements and restrictions under federal and state laws regulate
the operations of the Company. These laws, among other things, require the
maintenance of reserves against deposits, impose certain restrictions on the
nature and terms of the loans, restrict investments and other activities, and
regulate mergers and the establishment of branches and related operations. The
ability of the parent company to pay cash dividends to its shareholders and
service debt may be dependent upon cash dividends from its subsidiary bank. The
subsidiary bank is subject to limitations under federal law in the amount of
dividends it may declare. At December 31, 2003, approximately $830,000 of the
Bank's retained earnings was available for dividend declaration without prior
regulatory approval.
The banking industry is also affected by the monetary and fiscal policies
of regulatory authorities, including the FRB. Through open market securities
transactions, variations in the discount rate, the establishment of reserve
requirements and the regulation of certain interest rates payable by member
banks, the FRB exerts considerable influence over the cost and availability of
funds obtained for lending and investing. Changes in interest rates, deposit
levels and loan demand are influenced by the changing conditions in the national
economy and in the money markets, as well as the effect of actions by monetary
and fiscal authorities. Pursuant to the FRB's reserve requirements, the Bank
was required to maintain certain cash reserve balances with the Federal Reserve
System of approximately $1.0 million and $2.1 million at December 31, 2003 and
2002, respectively.
A-35
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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 possible 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 that the Company and the Bank,
as of December 31, 2003, meet all capital adequacy requirements to which they
are subject.
As of December 31, 2003, the Bank was considered to be Well Capitalized.
There are no conditions or events since December 31, 2003 that management
believes have changed the Bank's Well Capitalized category. To be categorized
as Adequately Capitalized or Well Capitalized, the Bank must maintain the
following capital ratios:
Adequately Well
Capitalized Capitalized
----------- -----------
Total risk-based capital ratio 8.0% 10.0%
Tier 1 risk-based capital ratio 4.0% 6.0%
Tier 1 leverage ratio 4.0% 5.0%
The Company's and the Bank's actual capital amounts and ratios are
presented in the following table:
A-36
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Minimum Regulatory Capital
Guidelines for Banks
----------------------------
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
------------- ------------- -------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
AS OF DECEMBER 31, 2003:
Total capital-risk-based
(to risk-weighted assets):
Bank $17,962 11.2% $12,853 >= 8% $16,066 >= 10%
Consolidated 19,268 11.7% 13,165 >= 8% N/A >= N/A
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $16,002 9.9% $6,426 >= 4% $ 9,640 >= 6%
Consolidated 17,338 10.5% 6,583 >= 4% N/A >= N/A
Tier 1 capital-leverage
(to average assets):
Bank $16,002 8.1% $7,926 >= 4% $ 9,907 >= 5%
Consolidated 17,338 8.6% 8,050 >= 4% N/A >= N/A
AS OF DECEMBER 31, 2002:
Total capital-risk-based
(to risk-weighted assets):
Bank $15,990 11.2% $11,358 >= 8% $14,198 >= 10%
Consolidated 17,379 11.9% 11,691 >= 8% N/A >= N/A
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $14,268 10.0% $5,679 >= 4% $ 8,519 >= 6%
Consolidated 15,657 10.7% 5,845 >= 4% N/A >= N/A
Tier 1 capital-leverage
(to average assets):
Bank $14,268 8.0% $7,147 >= 4% $ 8,934 >= 5%
Consolidated 15,657 8.6% 7,314 >= 4% N/A >= N/A
A-37
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that would
be exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument.
SFAS No. 107, "Disclosure about Fair Values of Financial Instruments", excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the
Company.
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 AND FEDERAL FUNDS SOLD. The carrying amounts of
cash and due from banks and federal funds sold approximate their fair value.
AVAILABLE-FOR-SALE SECURITIES. Fair values for securities are based on
quoted market prices. Fair value for FRB stock and FHLB stock approximate
their carrying values based on their redemption provisions.
LOANS. The fair values of the Company's loans and lease financing have
been estimated using two methods: (1) the carrying amounts of short-term and
variable rate loans approximate fair values excluding certain credit card loans
which are tied to an index floor; and (2) for all other loans, the discounting
of projected future cash flows. When using the discounting method, loans are
pooled in homogeneous groups with similar terms and conditions and discounted at
a target rate at which similar loans would be made to borrowers at year end. In
addition, when computing the estimated fair values for all loans, the allowance
for loan losses is subtracted from the calculated fair values for consideration
of credit issues.
ACCRUED INTEREST RECEIVABLE. The carrying amount of accrued interest
receivable approximates the fair value.
A-38
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
DEPOSITS. The carrying amounts of demand deposits and savings deposits
approximate their fair values. The methodologies used to estimate the fair
values of all other deposits are similar to the two methods used to estimate
the fair values of loans. Deposits are pooled in homogeneous groups and the
future cash flows of these groups are discounted using current market rates
offered for similar products at year end.
BORROWINGS. The fair value of borrowings are estimated by discounting
future cash flows using current market rates for similar types of borrowing
arrangements.
ACCRUED INTEREST PAYABLE. The carrying amount of accrued interest payable
approximates the fair value.
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.
A-39
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The following table presents the carrying amounts and fair values of the
specified assets and liabilities held by the Company at December 31, 2003 and
2002. The information presented is based on pertinent information available to
management as of December 31, 2003 and 2002. Although management is not aware
of any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued since that time, and the
current estimated fair value of these financial instruments may have changed
since that point in time.
December 31,2003 December 31, 2002
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and due from banks $ 6,142,076 $ 6,142,076 $ 11,827,153 $ 11,827,153
Federal funds sold 389,703 389,703 1,714,481 1,714,153
Securities
available-for-sale 9,410,892 9,410,892 7,658,460 7,658,460
Loans, net 179,749,910 180,630,064 154,899,944 155,779,122
Accrued interest
receivable 1,148,417 1,148,417 952,329 952,329
Financial liabilities:
Deposits $165,499,759 $166,213,912 $153,920,388 $154,718,961
FHLB borrowings 19,513,686 19,563,099 15,150,845 15,218,813
Accrued interest payable 253,191 253,191 306,937 306,937
NOTE 18 - SEGMENT REPORTING
Since the acquisition of JPC on July 1, 2002, the Company has operated in
two distinct lines of banking and financial services; (i) banking, including
enhanced product lines such as financial planning, investments, trusts, and (ii)
money management services. At December 31, 2003, the banking segment is the
principal operating segment of the Company. The money management operating
subsidiary, while a distinct segment, it does not meet segment reporting
criteria. Accordingly, separate reporting of financial segment information is
not considered necessary. However, segment data for calendar year 2003 has been
reflected below based on the current structure of the Company.
The Company's reportable segments are strategic units that offer different
services to different clients. They are managed separately because each segment
appeals to different markets and, accordingly, requires different strategies.
A-40
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The Company's primary source of revenue is from net interest income.
Therefore, the segments below are reported using net interest income. The
Company also evaluates performance based on non-interest income and non-interest
expense, which are also presented as measures of segment profit and loss. Note
that "All Other" column below includes JPC and the Parent Company.
Year Ended December 31, 2003
------------------------------------------
Bank All Other Total
---- --------- -----
Net interest income
after loan provisions $ 6,570,110 $ (119,307) $ 6,450,803
Non-interest income 1,156,537 918,069 2,074,606
Non-interest expense (1) 4,644,081 855,315 5,499,396
----------- ----------- -----------
Income/(loss) before tax $ 3,082,566 $ (56,553) $ 3,026,013
Income tax 1,000,000 69,308 1,069,308
----------- ----------- -----------
Net income/(loss) $ 2,082,566 $ (125,861) $ 1,956,705
=========== =========== ===========
Total Assets (2) $201,356,868 $ 4,133,304 $205,490,172
=========== =========== ===========
--------------------------------
1 Depreciation expense included in non-interest expense is $388,350 for Bank
and $42,111 for All Other. There is no amortization expense.
2 Total assets presented in All Other column includes goodwill in the amount
of $3,417,259; there is no goodwill in the Bank's column.
NOTE 19 - 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 calendar years 2003, 2002 and 2001,
dividends paid to shareholders amounted to $649,601, $570,000 and $488,250,
respectively.
A-41
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 20 - 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: 2003 2002
------ ---- ----
Cash $ 171,736 $ 298,575
Investment in Bank 15,995,427 14,370,881
Investment in JPC 221,521 115,632
Goodwill, JPC 3,417,259 3,417 259
Other investments 240,000 240,000
Other assets 128,933 210,936
------------ ------------
Total Assets $ 20,174,876 $ 18,653,283
============ ============
Liabilities and Shareholders' Equity:
------------------------------------
Accounts payable $ 144,530 $ 215,703
Note payable 2,728,840 2,728,840
------------ ------------
Total Liabilities $ 2,873,370 $ 2,944,543
------------ ------------
Common stock $ 1,467,038 $ 1,443,558
Paid-in-capital 9,082,318 8,761,714
Retained earnings 6,759,183 5,452,079
Accumulated other comprehensive income (7,033) 51,389
------------ ------------
Total Shareholders' equity $ 17,301,506 $ 15,708,740
------------ ------------
Total Liabilities and Shareholders' equity $ 20,174,876 $ 18,653,283
============ ============
A-42
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Parent Company Statements of Income
-----------------------------------
For the Years Ended December 31,
----------------------------------------
Revenues: 2003 2002 2001
-------- ---- ---- ----
Interest income $ 4,824 $ 14,541 $ 21,537
Dividend income 652,001 570,000 488,250
----------- ----------- -----------
Total revenues $ 656,825 $ 584,541 $ 509,787
----------- ----------- -----------
Expenses:
--------
Interest $ 89,540 $ 41,102 $ - -
Operating expenses 149,434 135,618 71,193
----------- ----------- -----------
Total expenses $ 238,974 $ 176,720 $ 71,193
----------- ----------- -----------
Income before equity in undistributed
earnings of Bank and JPC $ 417,851 $ 407,821 $ 438,594
Income tax benefit - - - - 12,580
Equity in undistributed earnings
of Bank and JPC 1,538,854 1,349,147 1,230,853
----------- ---------- -----------
Net income $ 1,956,705 $ 1,756,968 $ 1,682,027
=========== =========== ===========
A-43
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Parent Company Statements of Cash Flows
---------------------------------------
For the Years Ended December 31,
----------------------------------------
Cash flows from operating activities: 2003 2002 2001
------------------------------------ ---- ---- ----
Net income $ 1,956,705 $ 1,756,968 $ 1,682,027
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed
(earnings) of subsidiaries (1,538,854) (1,349,147) (1,230,853)
Deferred asset 103,950 88,204 88,847
Decrease in other asset 82,000 42,758 (50,896)
(Decrease) in payables (71,173) 72,504 6,349
------------ ------------ ------------
Net cash provided
by operating activities $ 532,628 $ 611,287 $ 495,474
------------ ------------ ------------
Cash flows from investing activities:
------------------------------------
Purchase of subsidiary, goodwill $ - - $ (3,417,259) $ - -
Investment in Bank (250,000) - - - -
Purchase of equity, JPC - - (79,066) - -
------------ ------------ ------------
Net cash used by financing activities $ (250,000) $ (3,496,325) $ - -
------------ ------------ ------------
Cash flows from financing activities:
------------------------------------
Issuance of stock $ 75,134 $ 371,160 $ - -
Increase in borrowings - - 2,728,840 - -
Exercise of options 165,000 150,000 - -
Cash dividends paid (649,601) (570,000) (488,250)
------------ ------------ ------------
Net cash used
by financing activities $ (409,467) $ 2,680,000 $ (488,250)
------------ ------------ ------------
Net decrease in cash
and cash equivalents $ (126,839) $ (205,038) $ 7,224
Cash and cash equivalents,
beginning of the year 298,575 503,613 496,389
------------ ------------ ------------
Cash and cash equivalents,
end of year $ 171,736 $ 298,575 $ 503,613
============ ============ ============
A-44
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted in the "pink sheets." The following
table sets forth the high and low bid prices for the Company's common stock
during 2003 and 2002, as reported in the pink sheets. These prices reflect
inter-dealer quotations without retail mark-ups, markdowns, or commissions and
may not necessarily represent actual transactions.
High Low
---- ---
2002
----
First quarter $17.00 $14.50
Second quarter 22.00 15.00
Third quarter 21.25 18.00
Fourth quarter 22.00 18.00
2003
----
First quarter $22.00 $19.00
Second quarter 22.00 19.50
Third quarter 22.00 20.00
Fourth quarter 22.00 21.00
HOLDERS OF COMMON STOCK
As of December 31, 2003, the number of holders of record of the Company's
common stock was 675.
DIVIDENDS
The Company paid a cash dividend of $0.40 per share in June 2002 and a cash
dividend of $0.45 per share in June 2003. 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. Section 56, a
national bank may not pay dividends from its capital. All dividends must be
paid out of undivided profits, subject to other applicable provisions of law.
Payments of dividends out of undivided profits is further limited by 12 U.S.C.
Section 60(a), which prohibits a bank from declaring a dividend on its shares
of common stock until its surplus equals its stated capital, unless there has
been transferred to surplus not less than 1/10 of the Bank's net income of the
preceding two consecutive half-year periods (in the case of an annual dividend).
Pursuant to 12 U.S.C. Section 60(b), 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.
A-45
THOMASVILLE BANCSHARES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT
THE 2004 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 18, 2004 AT 5:00 P.M.,
LOCAL TIME.
The undersigned hereby appoints Stephen H. Cheney and Charles H. Hodges,
III, and each of them, attorneys and proxies with full power to each of
substitution, to vote in the name of and as proxy for the undersigned at the
Annual Meeting of Shareholders of Thomasville Bancshares, Inc. (the "Company")
to be held on Tuesday, May 18, 2004 at 5:00 p.m. at the principal offices of
the Company, 301 North Broad Street, Thomasville, Georgia, and at any
adjournments or postponements thereof, according to the number of votes that
the undersigned would be entitled to cast if personally present.
(1) To elect five Class III directors to serve for a term of three years and
until their successors are elected and qualified:
David A. Cone, Charles W. McKinnon, Jr., Randall L. Moore,
Cochran A. Scott, Jr. and J. Mark Parker
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote
(except as indicated to the for all nominees
contrary below)
To withhold authority to vote for any individual nominee(s), write that
nominee's name(s) on the line below:
--------------------------------------------------------------------------------
(2) To ratify the appointment of Francis & Co., CPAs, as independent auditors
for the Company for 2004.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
PROPERLY EXECUTED PROXIES WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN, SUCH PROXIES WILL BE VOTED "FOR"
ALL NOMINEES REFERRED TO IN PARAGRAPH (1) AND "FOR" THE PROPOSITION REFERRED TO
IN PARAGRAPH (2).
The undersigned revokes any prior proxies
to vote the shares covered by this proxy.
__________________________________________
Signature
__________________________________________
Signature
Date:_______________________________, 2004
(When signing as attorney, executor,
administrator, trustee or guardian,
please give title as such. If shareholder
is a corporation, corporate name should
be signed by an authorized officer and
the corporate seal affixed. For joint
accounts, each joint owner should sign.)
IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE CHECK THE BOX BELOW:
[ ] Yes, I plan to attend the Annual Meeting of Shareholders.
PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED REPLY ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.