SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-25929
THOMASVILLE BANCSHARES, INC.
----------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-2175800
---------------------- ---------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
301 North Broad Street, Thomasville, Georgia 31792
-----------------------------------------------------------
(Address of Principal Executive Offices)
(229) 226-3300
-------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
-------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practicable date.
Common stock, $1.00 par value per share 2,939,183 shares issued and
outstanding as of May 12, 2005.
Transitional small business disclosure format (check one):
Yes No X
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2005 2004
ASSETS (Unaudited) (Unaudited)
- ------ ----------- -----------
Cash and due from banks $ 4,835,991 $ 5,963,843
Federal funds sold 9,494,184 662,263
------------ ------------
Total cash and cash equivalents $ 14,330,175 $ 6,626,106
------------ ------------
Investment securities:
Securities available-for-sale,
at market value $ 13,053,618 $ 18,421,154
Loans, net 205,045,771 204,328,320
Property & equipment, net 4,805,136 4,815,924
Goodwill 3,372,259 3,372,259
Other assets 2,886,536 2,320,074
------------ ------------
Total Assets $243,493,495 $239,883,837
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 25,654,476 $ 26,063,129
Interest bearing deposits 176,962,737 173,143,434
------------ ------------
Total deposits $202,617,213 $199,206,563
Subordinated debentures 4,000,000 - -
Federal funds purchased - - 1,097,000
Borrowings 15,442,263 19,376,107
Other liabilities 1,165,928 682,627
------------ ------------
Total Liabilities $223,225,404 $220,362,297
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $1.00 par value, 10
million shares authorized, 2,937,832
(2005) and 2,937,625 (2004)
shares issued & outstanding $ 2,937,832 $ 2,937,625
Paid-in-capital 7,911,245 7,872,245
Retained earnings 9,544,527 8,739,226
Accumulated other
comprehensive (loss) (125,513) (27,556)
------------ ------------
Total Shareholders' Equity $ 20,268,091 $ 19,521,540
------------ ------------
Total Liabilities and
Shareholders' Equity $243,493,495 $239,883,837
============ ============
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the three months
ended March 31,
---------------------------
2005 2004
---- ----
Interest income $3,391,186 $2,730,747
Interest expense 1,093,986 836,086
---------- ----------
Net interest income $2,297,200 $1,894,661
Provision for possible loan losses 105,000 105,000
---------- ----------
Net interest income after provision
for possible loan losses $2,192,200 $1,789,661
---------- ----------
Other income
Service charges on deposit accounts $ 151,780 $ 154,745
Fees, money management 255,000 265,999
Trust services 165,622 105,922
Other income and fees 105,614 82,447
---------- ----------
Total other income $ 678,016 $ 609,113
---------- ----------
Operating expenses
Salaries and benefits $ 864,402 $ 773,425
Advertising and public relations 88,582 64,625
Depreciation 97,847 105,585
Regulatory fees and assessments 26,810 24,549
Other operating expenses 540,024 432,375
---------- ----------
Total operating expenses $1,617,665 $1,400,559
---------- ----------
Net income before taxes $1,252,551 $ 998,215
Income taxes 447,250 351,366
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Net income $ 805,301 $ 646,849
========== ==========
Basic income per share $ .27 $ .22
========== ==========
Diluted income per share $ .26 $ .22
========== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------
2005 2004
---- ----
Cash flows from operating activities: $ 945,005 $ 1,197,950
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets $ (87,059) $ (106,524)
(Increase) in loans (822,451) (6,326,101)
Purchase of securities, AFS - - (3,011,250)
Maturities, calls, paydowns, AFS 5,249,561 - -
----------- -----------
Net cash provided by/
(used in) investing activities $ 4,340,051 $(9,443,875)
----------- -----------
Cash flows from financing activities:
(Decrease) in borrowings
and federal funds purchased $(1,030,844) $ 8,907,186
Increase in deposits 3,410,650 (2,460,616)
401K plan stock funding -2,907 6,820
Options, restricted stock 36,300 33,834
----------- -----------
Net cash provided by financing activities $ 2,419,013 $ 6,487,224
----------- -----------
Net increase/(decrease) in cash
and cash equivalents $ 7,704,069 $(1,758,701)
Cash and cash equivalents,
beginning of period 6,626,106 6,531,799
----------- -----------
Cash and cash equivalents,
end of period $14,330,175 $ 4,773,098
=========== ===========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2005
Accumulated
Common Stock Other
------------------- Paid in Retained Comprehensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
Dec 31,
2003 2,934,076 $ 2,934,076 $ 7,615,280 $6,759,183 $ (7,033) $17,301,506
--------- ---------- ---------- --------- -------- ----------
Comprehensive Income:
- --------------------
Net income,
three-month
period ended
Mar. 31, 2004 - - - - - - 646,849 - - 646,849
Net unrealized
gain on
securities,
three-month
period ended
Mar. 31, 2004 - - - - - - - - 43,705 43,705
--------- ---------- ---------- --------- -------- ----------
Total comprehensive
income - - - - - - 646,849 43,705 690,554
Sale of
628 shares
to employee
401K plan 628 628 5,878 - - - - 6,820
Stock options,
restricted
stock
(3,230
options) - - - - 33,834 - - - - 33,834
--------- ---------- ---------- --------- -------- ----------
Balance,
Mar. 31,
2004 2,934,704 $ 2,934,704 $ 7,655,306 $7,406,032 $ 36,672 $18,032,714
========= ========== ========== ========= ======== ==========
- -----------------------------------------------------
Balance,
Dec 31,
2004 2,937,625 $ 2,937,625 $ 7,872,245 $8,739,226 $ (27,556) $19,521,540
--------- ---------- ---------- --------- -------- ----------
Comprehensive Income:
- --------------------
Net income,
three-month
period ended
Mar. 31, 2005 - - - - - - 805,301 - - 805,301
Net unrealized
(loss) on
securities,
three-month
period ended
Mar. 31, 2005 - - - - - - - - (97,957) (97,957)
--------- ---------- ---------- --------- -------- ----------
Total comprehensive
income - - - - - - 805,301 (97,957) 707,344
Sale of
207 shares
to employee
401K plan 207 207 2,700 - - - - 2,907
Stock options,
restricted
stock
(2,740
options) - - - - 36,300 - - - - 36,300
--------- ---------- ---------- --------- -------- ----------
Balance,
Mar. 31,
2005 2,937,832 $ 2,937,832 $ 7,911,245 $9,544,527 $(125,513) $20,268,091
========= ========== ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
THOMASVILLE BANCSHARES, INC.
THOMASVILLE, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three-
month period ended March 31, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005. These statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in Form 10-KSB for the year ended December 31, 2004.
NOTE 2 - SUMMARY OF ORGANIZATION
Thomasville Bancshares, Inc., Thomasville, Georgia (the "Company"), was
organized in January 1995 for a then proposed de novo bank, Thomasville
National Bank, Thomasville, Georgia (the "Bank"). The Bank commenced
operations in October 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 also offers trust services. The Bank operates
from two banking offices, both in Thomasville, Georgia. The Bank's depositors
are each insured up to $100,000 by the Federal Deposit Insurance Corporation,
subject to certain limitations imposed by the FDIC. In addition to the Bank,
the Company has two other subsidiaries, TNB Financial Services, Inc. ("TNBFS"),
through which the Company provides investment advisory services, and Thomasville
Capital Trust I ("TCTI") which issued $4.0 million in trust preferred securities
to unrelated investors.
NOTE 3 - INVESTMENT SERVICES
Information pertaining to securities with gross unrealized losses at
March 31, 2005, aggregated by investment category and further segregated by
the length of time (less than or over twelve months) that the securities have
been in a continuous loss position follows:
Less than Over
Twelve Months Twelve Months Total
------------------ ------------------ ------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Description Value Loss Value Loss Value Loss
- ----------- ----- ---- ----- ---- ----- ----
U.S. Agency and
Government
Corporations $3,570,044 $(131,341) $6,949,087 $(59,331) $10,519,131 $(190,672)
========= ======== ========= ======= ========== ========
At March 31, 2005, unrealized losses in the securities portfolio amounted
to $190,672, representing 1.46% of the total portfolio. All of the unrealized
losses relate to U.S. Agency securities and securities of U.S. government
corporations. These unrealized losses were caused by fluctuations in market
interest rates, rather than concerns over the credit quality of the issuers.
The Company believes that the U.S. Agencies and government corporations will
continue to honor their interest payments on time as well as the full debt at
maturity. Because the unrealized losses are due to fluctuations in the interest
rate, and no credit-worthiness factors exist, the Company believes that the
investments are not considered other-than-temporarily impaired.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
EXCHANGES OF NONMONETARY ASSETS: In December 2004, the FASB issued SFAS
153, "Exchanges of Nonmonetary Assets", an amendment to APB Opinion No. 29,
"Accounting for Nonmonetary Transactions." This statement amends the principle
that exchanges of nonmonetary assets should be measured based on the fair value
of the assets exchanged and more broadly provides for exceptions regarding
exchanges of nonmonetary assets that do not have commercial substance. This
Statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of this standard is not
expected to have a material impact on the Company's financial condition, results
of operations, or liquidity.
SHARE-BASED PAYMENT: In December 2004, the FASB issued Statement No.
123(R), "Share-Based Payment." Statement No. 123(R) requires companies to
recognize in the income statement the grant-date fair value of stock options
and other equity-based compensation issued to employees. The revised Statement
generally requires that companies account for these share-based transaction
using the fair-value-based method, and eliminates a company's ability to account
for these transactions using the intrinsic value method of accounting in APB
Opinion No. 25. For small business issuers, Statement No. 123(R) is effective
as of the beginning of the first interim or annual reporting period that begins
after December 15, 2005. The Company has not yet determined the exact impact
the new standard will have on its consolidated financial statements. The above
disclosures, as required by FASB Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123,"
provide detail as to its results of operations as if it had applied the fair
value based method and recognition provisions of Statement No. 148 to stock-
based employee compensation to the current reporting periods.
MEANING OF OTHER THAN TEMPORARY IMPAIRMENT: In March 2004, the Financial
Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) released
Issue 03-01, "Meaning of Other Than Temporary Impairment," which addressed
other-than-temporary impairment for certain debt and equity investments. The
recognition and measurement requirements of Issue 03-01, and other disclosure
requirements not already implemented, were effective for periods beginning after
June 15, 2004. In September 2004, the FASB staff issued FASB Staff Position
(FSP) EITF 03-1-1, which delayed the effective date for certain measurement and
recognition guidance contained in Issue 03-01. The FSP requires the application
of pre-existing other-than-temporary guidance during the period of delay until
a final consensus is reached. Management does not anticipate the issuance of
the final consensus will have a material impact on the Company's financial
condition, results of operations, or liquidity.
LOAN COMMITMENTS: On March 9, 2004, the SEC issued Staff Accounting
Bulletin 105 (SAB 105), "Application of Accounting Principles to Loan
Commitment" stating that the fair value of loan commitments is to be accounted
for as a derivative instrument under SFAS 133, but the valuation of such
commitment should not consider expected future cash flows related to servicing
of the future loan.
The Company adopted the provisions of SAB 105 as of January 1, 2004.
Adoption of SAB 105 did not result in a material impact on the Company's
financial condition, results of operations, or liquidity.
ACCOUNTING FOR CERTAIN LOANS OR DEBT SECURITIES ACQUIRED IN A TRANSFER:
In December 2003, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 03-3, "Accounting for Certain Loans or Debt
Securities Acquired in a Transfer." SOP 03-3 requires acquired loans, including
debt securities, to be recorded at the amount of the purchaser's initial
investment and prohibits carrying over valuation allowances from the seller for
those individually-evaluated loans that have evidence of deterioration in credit
quality since origination, and it is probable all contractual cash flows on the
loan will be unable to be collected. SOP 03-3 also requires the excess of all
undiscounted cash flows expected to be collected at acquisition over the
purchaser's initial investment to be recognized as interest income on a level-
yield basis over the life of the loan. Subsequent increases in cash flows
expected to be collected are recognized as impairment. Loans carried at fair
value, mortgage loans held for sale, and loans to borrowers in good standing
under revolving credit agreements are excluded from the scope of SOP 03-3. The
guidance is effective for loans acquired in fiscal years beginning after
December 15, 2004 and is not expected to have a material impact on the Company's
financial condition, results of operations, or liquidity.
ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY: In May 2003, the FASB issued SFAS 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." This statement establishes standards for classifying and measuring
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. The provisions of SFAS 150
became effective June 1, 2003, for all financial instruments created or modified
after May 31, 2003, and otherwise became effective as of July 1, 2003. The
adoption of this standard did not have a material impact on the Company's
financial condition, results of operations, or liquidity.
In December 2003, the FASB deferred for an indefinite period the
application of the guidance in SFAS 150 to noncontrolling interest that are
classified as equity in the financial statement of a subsidiary but would be
classified as a liability in the parent's financial statements under SFAS 150.
The deferral is limited to mandatorily redeemable noncontrolling interest
associated with finite-lived subsidiaries. Management does not believe any
such applicable entities exist as of March 31, 2005, but will continue to
evaluate the applicability of this deferral to entities which may be
consolidated as a result of FASB Interpretation No. 46 (FIN 46), "Consolidation
of Variable Interest Entities."
CONSOLIDATION OF VARIABLE INTEREST ENTITIES: In January 2003, the FASB
issued FIN 46, which provides guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, noncontrolling
interests, and the results of operations of a VIE are to be included in an
entity's consolidated financial statements. A VIE exists when either the total
equity investment is at risk is not sufficient to permit the entity to finance
its activities itself, or the equity investors lack one of three characteristics
associated with owning a controlling financial interest. Those characteristics
include the direct and indirect ability to make decisions about the entity's
activities through voting rights or similar rights, the obligation to absorb the
expected losses of an entity if they occur, or the right to receive the expected
residual returns of the entity if they occur.
In December 2003, the FASB reissued FIN 46 with certain modifications and
clarifications. Application of this guidance was effective for interests in
certain VIEs commonly referred to as special-purpose entities (SPEs) as of
December 31, 2003. Application for all other types of entities was required as
of March 31, 2004, unless previously applied. TCTI meets the definition of
an SPE.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
OVERVIEW
--------
Thomasville Bancshares, Inc., a Georgia corporation (the "Company"), was
formed in March 1995 to organize and act as the holding company for Thomasville
National Bank (the "Bank"), a national banking association. The Bank opened for
business in October 1995, and presently operates two branches in Thomasville,
Georgia. The Bank is a full service commercial bank, with trust powers, and
offers a full range of interest-bearing and non-interest-bearing accounts,
including commercial and retail checking accounts, money market accounts,
individual retirement and Keogh accounts, regular interest-bearing statement
savings accounts, certificates of deposit, commercial loans, real estate loans,
home equity loans and consumer/installment loans. In addition, the Bank
provides such consumer services as U.S. Savings Bonds, travelers checks,
cashiers checks, safe deposit boxes, bank by mail services, internet banking,
direct deposit and automatic teller services.
In September 2001, the Bank formed an operating subsidiary, TNB Financial
Services, Inc., a Georgia corporation with trust powers. On March 31, 2004,
TNB Financial Services was liquidated, with all of its operations being
transferred to TNB Trust Services, a division of the Bank.
In July 2002, the Company acquired all of the issued and outstanding
capital stock of Joseph Parker & Company, Inc. ("JPC"), a Georgia corporation
and federally registered investment advisory firm located in Thomasville,
Georgia. In July 2004, JPC's name was changed to TNB Financial Services, Inc.
("TNBFS").
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.
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
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. The allowance is increased by provisions for
loan losses and by recoveries of loans previously charged-off and reduced by
loans charged-off.
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. The
Company utilized the purchase method to reflect its 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
reviews and is evaluated using various fair value techniques including multiples
of price/equity and price/earnings ratios.
Additional information regarding these critical accounting policies is set
forth in the notes to the Company's financial statements included in the
Company's Form 10-KSB for the year ended December 31, 2004.
FINANCIAL CONDITION
Total consolidated assets increased by $3.6 million, to $243.5 million,
during the three-month period ended March 31, 2005. Cash and cash equivalents
increased by $7.7 million, to $14.3 million; investment securities decreased by
$5.4 million, to $13.0 million; loans increased by $0.7 million, to $205.0
million; and other assets increased by $0.6 million, to $11.1 million. To fund
the growth in assets, deposits increased by $3.4 million, to $202.6 million;
borrowings decreased by $1.0 million, to $19.5 million; other liabilities
increased by $0.5 million, to $1.2 million; and the capital accounts increased
by $0.7 million, to $20.3 million.
Liquidity and Capital Resources
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The
March 31, 2005 financial statements evidence a satisfactory liquidity
position as total cash and cash equivalents amounted to $14.3 million,
representing 5.9% of total assets. Investment securities, which amounted
to $13.1 million, or 5.4% of total assets, provide a secondary source of
liquidity because they can be converted into cash in a timely manner. The
Company's management closely monitors and maintains appropriate levels of
interest earning assets and interest bearing liabilities so that maturities
of assets are such that adequate funds are provided to meet customer
withdrawals and loan demand. The Company is not aware of any trends, demands,
commitments, events or uncertainties that will result in or are reasonably
likely to result in the Company's liquidity increasing or decreasing in any
material way.
The Bank maintains an adequate level of capitalization as measured by the
following capital ratios and the respective minimum capital requirements
established by the Bank's primary regulator, the Office of the Comptroller of
the Currency ("OCC").
Bank's Minimum required
March 31, 2005 by regulator
-------------- ----------------
Leverage ratio 8.5% 4.0%
Risk weighted ratio 12.5% 8.0%
On March 30, 2005, the Company, through a newly formed Delaware statutory
trust, completed the sale of $4.0 million of trust preferred securities (the
"Trust Preferred Securities"). The Trust Preferred Securities have a maturity
of 30 years and are redeemable beginning in June 2010 or upon the occurrence of
certain other conditions. The Company used approximately $2.7 million of the
proceeds from the sale of the Trust Preferred Securities to repay holding
company indebtedness and the remaining approximately $1.3 million was
contributed as capital to the Bank. The Trust Preferred Securities pay
cumulative cash distributions accumulating from the date of issuance at an
annual rate of LIBOR plus 1.90% of the liquidation amount of $1,000 per
preferred security on March 31, June 30, September 30 and December 31 of each
year. The Trust Preferred Securities are recorded as subordinated debt on the
consolidated balance sheet, but, subject to certain limitations, will qualify
as Tier 1 capital for regulatory capital purposes.
Off-Balance Sheet Arrangements
In the ordinary course of business, the Bank may enter into off-balance
sheet financial instruments which are not reflected in the financial statements.
These instruments include commitments to extend credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when funds are disbursed or the instruments become payable.
Following is an analysis of significant off-balance sheet financial
instruments at March 31, 2005 and December 31, 2004.
At At
March 31, December 31,
2005 2004
---- ----
(In thousands)
Commitments to extend credit $ 37,104 $ 25,115
Standby letters of credit 5,306 4,420
------- -------
$ 42,410 $ 29,535
======= =======
RESULTS OF OPERATIONS
For the three-month periods ended March 31, 2005 and 2004, net income
amounted to $805,301 and $646,849, respectively. On a per share basis, basic
and diluted income for the three-month period ended March 31, 2005 amounted
to $.27 and $.26, respectively. For the three-month period ended March 31,
2004, both basic and diluted income per share amounted to $.22. The factors
primarily affecting the Company's results of operations for the first quarter
of 2005 as compared to the first quarter of 2004 are discussed below:
a. Interest income, the most significant revenue item, increased from
$2,730,747 for the three-month period ended March 31, 2004 to $3,391,186
for the three-month period ended March 31, 2005, representing an annual
growth rate of 24.2%. The increase was primarily due to the increase in
average earning assets and to higher yields. Average earning assets grew
from $195.6 million at March 31, 2004 to $226.5 million at March 31, 2005,
an increase of $30.9 million, or 15.8%.
b. The yield on earning assets increased from 5.59% for the three-month period
ended March 31, 2004 to 5.99% for the three-month period ended March 31,
2005. The cost of funds also increased, from 1.94% as of March 31, 2004 to
1.98% as of March 31, 2005.
c. Net interest income, representing the difference between interest received
on interest-earning assets and interest paid on interest bearing
liabilities, increased from $1,894,661 for the three-month period ended
March 31, 2004 to $2,297,200 for the three-month period ended March 31,
2005, a net increase of $402,539, or 21.2%. Net yield on earning assets
increased from 3.88% for the three-month period ended March 31, 2004 to
4.06% for the three-month period ended March 31, 2005.
The following presents, in a tabular form, the main components of
interest-earning assets and interest bearing liabilities for the three-month
period ended March 31, 2005.
(Dollars in 000's)
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- -------- ------
Federal funds sold $ 4,065 $ 25 2.46%
Securities 14,796 129 3.50%
Loans 207,608 3,237 6.24%
--------- -------- ----
Total $ 226,469 $ 3,391 5.99%
========= -------- ----
Deposits and borrowings $ 220,710 $ 1,094 1.98%
========= -------- ----
Net interest income $ 2,297
========
Net yield on earning assets 4.06%
====
d. Other income increased from $609,113 for the three-month period ended
March 31, 2004 to $678,016 for the three-month period ended March 31, 2005.
This increase is primarily due to fees charged by TNBFS for money
management and other advisory fees. As a percentage of average total
assets, other income decreased from 1.16% for the three-month period ended
March 31, 2004 to 1.12% for the three-month period ended March 31, 2005.
e. Total operating expenses increased from $1,400,559 for the three-month
period ended March 31, 2004 to $1,617,665 for the three-month period ended
March 31, 2005. As a percent of average total assets, total operating
expenses remained unchanged at 2.65% for the three-month periods ended
March 31, 2005 and 2004.
Allowance for Loan Losses
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At December 31, 2004, the allowance for loan losses amounted to
$2,224,845; at March 31, 2005, the allowance amounted to $2,331,853. The
allowance for loan losses, as a percent of gross loans, increased from 1.08%
to 1.12% during the three-month period ended March 31, 2005. Management
considers the allowance for loan losses to be adequate and sufficient to absorb
anticipated future losses; however, there can be no assurance that charge-offs
in future periods will not exceed the allowance for loan losses or that
additional provisions to the allowance will not be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if implemented, would have a material effect on the Company's
liquidity, capital resources, or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
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Management has developed and implemented a policy and procedures for
reviewing disclosure controls and procedures and internal controls over
financial reporting on a quarterly basis. Management, including the Chief
Executive Officer (the Company's principal executive and financial officer),
evaluated the effectiveness of the design and operation of disclosure controls
and procedures as of March 31, 2005 and, based on their evaluation, the
Company's Chief Executive Officer concluded that these controls and procedures
are operating effectively. Disclosure controls and procedures are the Company's
controls and other procedures that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files under the
Securities Exchange Act is accumulated and communicated to management, including
the principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
There were no changes in the Company's internal control over financial
reporting during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 5. OTHER INFORMATION.
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Effective as of January 1, 2005, the Company and the Bank entered into
employment agreements with the Company's and the Bank's President and Chief
Executive Officer, Stephen H. Cheney, and Executive Vice President, Charles H.
Hodges, III. Both employment agreements are for a term of four years. Under
the agreements, the Bank will pay Mr. Cheney and Mr. Hodges an annual base
salary of $170,000 and $135,000, respectively, and both officers will be
eligible for individual bonuses of up to 30% of base salary per year as
determined by the Compensation Committee of the Bank. Both officers are
eligible for annual increases in base salary at the discretion of the Bank's
Board of Directors and based upon the review of the Compensation Committee and
the financial performance of the Bank. In addition, each officer is entitled to
participate in benefit plans offered generally to other employees or to a class
of employees that includes senior executives, and each is entitled to receive
the use of an automobile and a family membership in the Glen Arven Country Club
located in Thomasville, Georgia.
The employment agreements are terminable by the majority vote of the Board
of Directors of the Company and the Bank upon written notice to the respective
officer. The agreements provide that loss of confidence by a Board of Directors
in the leadership abilities of an officer is sufficient cause for termination.
If either officer is terminated for any reason, the Company and the Bank shall
have no further obligation other than for amounts owed to the officer on the
date of termination. The employment agreements also contain noncompetion and
employee nonsolication provisions that generally apply for a period of five
years following the termination of employment. In the event such termination
occurs as a result of a change in control (as defined in the employment
agreements), the noncompetion and nonsolication provisions shall not apply.
The summary of the employment agreements above is qualified in its entirety
by reference to the text of the agreements, which are included as Exhibits 10.1
and 10.2 to this report.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
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The following exhibits are filed with this report:
Exhibit
Number Description
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3.1 Articles of Incorporation of the Company (incorporated
herein by referenced to the Company's Registration Statement
on Form SB-2 under the Securities Act of 1933, Registration
Number 33-91536)
3.2 Bylaws of the Company (incorporated herein by referenced to
the Company's Registration Statement on Form SB-2 under the
Securities Act of 1933, Registration Number 33-91536)
10.1 Employment agreement among the Company, the Bank and Stephen
H. Cheney
10.2 Employment agreement among the Company, the Bank and Charles
H. Hodges, III
31.1 Certification Pursuant to Rule 13a-14(a), As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act Of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act Of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOMASVILLE BANCSHARES, INC.
-------------------------------------
(Registrant)
Date: May 12, 2005 BY: /s/ Stephen H. Cheney
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Stephen H. Cheney
President and Chief Executive Officer
(Principal Executive, Financial and Accounting
Officer)