U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-KSB

(Mark One)

[ X ] **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(FEE REQUIRED)	**
For the fiscal year ended September 30, 2002
[ ]**TRANSITION REPORT PURSUANT TO SECTION****13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	(NO FEE REQUIRED)	**
For the transition period _____________ to _____________

Commission file number: 0-16657
FIRST GEORGIA HOLDING, INC.

(Name of Small Business Issuer)

Georgia
58-1781773
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)

 

1703 Gloucester Street, Brunswick, GA 31521

(Address of principal executive offices)

Registrant's telephone number, including area code:
(912) 267-7283
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00

 

Check whether the issuer (1) has filed all reports required to be filed by section 12 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 60 days.		Yes [ X ]		No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-K. [ X ]

State issuer's revenues for its most recent fiscal year	$19,125,903
State the aggregate market value of the voting stock held by non-affiliates of the registrant as of December 1, 2002:

5,233,056 Shares of Common Stock, $1.00 par value -- $19,623,960 based upon approximate market value of $3.75 per share at December 1, 2002.

State the number of shares outstanding of each of the issuer's classes of common stock, as of December 1, 2002: Common Stock, $1.00 par value - 7,751,712 shares
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement (the "Proxy Statement") for the Annual Meeting of Shareholders scheduled to be held January 21, 2003 are incorporated by reference into Part I and Part III.

Portions of the Company's Annual Report (the "Annual Report") to Shareholders for the year ended September 30, 2002 are incorporated by reference into Part I, Part II and Part III.

 ** 
FIRST GEORGIA HOLDING, INC.

FORM 10-KSB

INDEX**

 
 
 **Part 1
 **Page
Item 1.
Business
3
Item 2.
Description of Properties
28
Item 3.
Legal Proceedings
28
Item 4.
Submission of Matters to a Vote of Security Holders
28**Part II
 
 
Item 5.
Market for Common Equity and Related Stockholder Matters
29
Item 6
Management's Discussion and Analysis or Plan of Operations
29
Item 7.
Financial Statements
29
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
29**Part III
 
 
Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
30
Item 10.
Executive Compensation
30
Item 11.
Security Ownership of Certain Beneficial Owners and Management
30
Item 12.
Certain Relationships and Related Transactions
30
Item 13.
Exhibits and Reports on Form 8-K
30
Item 14.
Control and Procedures
30
Signatures
 
31
Section 906 
Certifications of Chief Executive Officer and Chief Financial Officer
33
Exhibit Index
 
35
** 

 **PART I**
Item 1. DESCRIPTION OF BUSINESS
**Business of the Company

First Georgia Holding, Inc. (the Company), was incorporated as a Georgia corporation on December 16, 1987, for the purpose of acquiring all of the issued and outstanding shares of First Georgia Bank, F.S.B. (formerly known as First Georgia Savings Bank, F.S.B.)(the Bank) pursuant to a plan of reorganization. The reorganization of the Bank into a holding company structure became effective on April 30, 1988, and the Bank is now a wholly-owned subsidiary of the Company.

Other than its ownership of the Bank, the Company has not engaged in any material operations to date and management of the Company has no immediate plans to engage in any non-banking activities.

The holding company structure provides the Company with the ability to expand and diversify its financial services beyond those currently offered through the Bank. As a holding company, the Company has greater flexibility than the Bank to diversify its business activities, through existing or newly-formed subsidiaries, or through an acquisition or merger. Commencement of non-banking operations by subsidiaries, if they are organized, will be contingent upon approval by the Board of Directors of the Company and by regulatory authorities as appropriate. While the Company has no plans, arrangements, agreements or understandings regarding diversification through acquisition or development of other businesses, the Board of Directors believes that the holding company structure offers significant advantages.

The Company may, in the future, enter into a management agreement for the purpose of rendering certain services to the Bank. No proposal and no terms of such agreement, however, have been considered as yet and it has not been decided that such an agreement will be made. Certain restrictions on the total compensation under management and similar agreements are imposed by federal regulation and, under certain circumstances, regulatory approval may be required.

Except for the officers of the Bank who presently serve as officers of the Company, the Company does not have any employees.

The Company's executive office is located at 1703 Gloucester Street, Brunswick, Georgia 31520. At the present time the Company does not have any plans to establish additional offices.
**Business of the Bank

The Bank is a state-chartered commercial bank headquartered in Brunswick, Georgia. It was chartered as a federal stock savings bank in 1983 and opened for business on January 31, 1984 with approximately $8.6 million of acquired deposits. On August 19, 2002 the bank converted from a federal savings bank to a state-chartered commercial bank. The Bank's business consists primarily of residential and consumer lending and retail banking. To a lesser extent the Bank engages in commercial real estate lending and construction lending.

The Bank's retail banking operation consists of attracting deposits and making commercial and consumer loans. It attracts deposits by offering a wide array of banking services, including checking accounts, overdraft protection, various savings programs, IRAs, and five automated teller machines. Similarly, the Bank offers a full range of commercial loans, including short-term loans for working capital purposes, seasonal loans, lines of credit, accounts receivable loans and inventory loans, as well as a full range of consumer loans, including automobile, boat, home improvement and other similar loans.

Commercial real estate and construction lending includes construction and permanent loans on multi-family apartment buildings, shopping centers, office buildings and other income producing properties located mainly in the Bank's primary market area.

The principal executive offices of the Bank are located at 1703 Gloucester Street, Brunswick, Georgia 31520 and the telephone number at that address is (912) 267-7283.

Summary of Financial Results

First Georgia Holding, Inc. reported net income of $1,567,239 in 2002, a decrease of $440,547 over 2001. Net interest income after provision for loan losses decreased a total of $794,294 to $8,724,334 in 2002 compared to $9,518,628 in 2001. Other income increased by a total of $169,406 to a total of $3,074,293 in 2002 compared to $2,904,887 in 2001. Other expenses increased to $9,372,484, an increase of $87,976 over 2001.

Return on Average Assets and Equity

Return on average assets for the year ended September 30, 2002 was .67% as compared to .82% for the year ended September 30, 2001. Return on average equity for the year ended September 30, 2002 was 7.50% compared to 10.37% for the year ended September 30, 2001. These decreases were due primarily to a decrease in the net interest margin. 

SELECTED STATISTICAL INFORMATION
Years Ended September 30,
2002
2001
2000
Return on Average Assets
0.62%
0.82%
0.61%
Return on Average Equity
7.70%
10.37%
7.79%
Average Equity to Average Assets
8.10%
7.91%
7.88%
Dividend Payout Ratio
24.73%
34.58%
41.66%
The following tables set forth certain statistical information and should be read in conjunction with the consolidated financial statements of the Company and Bank.

**SELECTED STATISTICAL INFORMATION**AVERAGE BALANCE SHEETS
September 30,
2002
 
2001
 
2000
Cash and due from banks
$ 9,129,910 
$ 9,980,225 
$ 7,489,826 
Federal funds sold
2,313,250 
9,589,543 
7,063,256 
Interest-bearing deposits in other banks
238,298 
181,098 
128,385 
Investment securities held to maturity
27,492,858 
21,025,726 
15,475,183 
Loans receivable, net
201,304,937 
192,918,574 
193,018,305 
Real estate owned
826,028 
746,898 
214,331 
Federal Home Loan Bank stock
1,017,500 
967,300 
898,600 
Premises and equipment, net
5,396,027 
5,519,487 
5,372,000 
Intangible assets, net
442,258 
537,886 
633,514 
Accrued interest receivable
1,203,015 
1,436,636 
1,399,704 
Other assets
1,692,875 
2,035,805 
1,557,480 
$ 251,056,956 
$ 244,939,177 
$ 233,250,584 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
$ 221,621,389 
$ 217,023,856 
$ 204,835,129 
Federal Home Loan Bank advances
5,375,000 
3,500,000 
5,550,000 
Other borrowed money
2,300,000 
2,700,000 
1,960,000 
Accrued expenses and other liabilities
1,418,286 
2,350,040 
2,512,144 
230,714,675 
225,573,896 
214,857,273 
Stockholders' equity
20,342,281 
19,365,281 
18,373,311 
Total liabilities and stockholders' equity
$ 251,056,956 
$ 244,939,177 
$ 233,230,584 
 

 

Years Ended September 30,
2002
 
2001
 
2000
Interest earned on:
Loans
$ 14,093,395 
$ 18,141,655 
$ 18,489,668 
Investment securities
1,897,539 
1,650,762 
1,045,580 
Other
60,678 
459,503 
396,951 
Total interest income
16,051,612 
20,251,920 
19,932,199 
Interest paid on:
Deposits
6,850,530 
9,918,978 
9,036,423 
Federal Home Loan Bank advances and 

other borrowings
356,744 
379,314 
498,612 
Total Interest expense
7,207,274 
10,298,292 
9,535,035 
NET INTEREST EARNED
$ 8,844,338 
$ 9,953,628 
$ 10,397,164 
Average percentage earned on:
Loans
7.00%
9.40%
9.58%
Taxable investment securities
6.90%
7.30%
6.76%
Other
2.38%
4.70%
5.52%
Total interest earning assets
6.94%
9.05%
9.24%
Average percentage paid on:
Deposits
3.09%
4.57%
5.73%
Federal Home Loan Bank advances and 

other borrowings
4.65%
6.12%
6.64%
Total interest bearing liabilities
3.14%
4.61%
4.49%
NET YIELD ON INTEREST EARNING ASSETS
3.80%
4.44%
4.75%
"Management's Discussion and Analysis of Financial Condition and Results of Operations - Yields Earned and Rates Paid" in the Company's Annual Report is incorporated by reference herein.
**Lending Activities

General

The Bank's legal lending limits are 15% of its statutory capital base for unsecured loans and 25% of its statutory capital base for loans fully secured by good collateral. The Bank's statutory capital base is the lower of the sum of its common stock, paid-in capital, appropriated retained earnings, and capital debt, or the amount of the Bank's net assets. As of September 30, 2002, the Bank's legal lending limits were approximately $3.1 million for unsecured loans and approximately $5.2 million for secured loans. While the Bank generally employs more conservative lending limits, the Board of Directors has discretion to lend up to the legal lending limits as described above.
Loan Portfolio Analysis

The Bank's net loan portfolio totaled approximately $212,870,000 at September 30, 2002, representing approximately 82% of its total assets. On that date, approximately 63% of its total outstanding loans were secured by mortgages on residential property. The balance of the Bank's outstanding loans at that date consisted of commercial real estate loans, construction loans, consumer loans and commercial loans.

The Bank extends credit to customers throughout its market area with a concentration in real estate mortgage loans. The real estate loan portfolio is substantially secured by properties located throughout Southeast Georgia. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers' ability to repay such loans is dependent upon the economy in the Bank's market area.

Set forth in the following table is selected data relating to the composition of the Bank's loan portfolio by type of loan and type of security on the dates indicated.
**LOAN ANALYSIS**

2002
 
2001
 
2000
 
1999
 
1998**Loans by Type of Security:
(In Thousands)
Real Estate Loans:
Residential:
One-four family:
Conventional
$ 133,645 
62.78%
$ 106,776 
56.94%
$ 114,014 
58.88%
$ 92,969 
53.68%
$ 88,002 
58.18%
FHA-VA
139 
0.07%
- 
0.00%
- 
0.00%
494 
0.29%
245 
0.16%
Multi-family conventional
482 
0.22%
175 
0.09%
402 
0.21%
3,003 
1.73%
1,761 
1.16%
Total residential
134,266 
63.07%
106,951 
57.03%
114,416 
59.09%
96,466 
55.70%
90,008 
59.51%
Commercial property
34,841 
16.37%
34,192 
18.23%
34,736 
17.94%
26,402 
15.24%
24,492 
16.19%
Land development and other
14,346 
6.74%
16,663 
8.89%
14,758 
7.62%
19,546 
11.29%
15,438 
10.21%
Total real estate loans
183,453 
86.18%
157,806 
84.15%
163,910 
84.65%
142,414 
82.23%
129,938 
85.91%
Consumer Loans
16,842 
7.91%
17,454 
9.31%
17,089 
8.82%
14,801 
8.55%
11,830 
7.82%
Commercial Loans
14,941 
7.02%
14,824 
7.91%
15,285 
7.89%
17,481 
10.09%
10,593 
7.00%
Unearned interest income
(7)
0.00%
(25)
-0.01%
(63)
-0.03%
(61)
-0.04%
(56)
-0.04%
Allowances for loan losses
(2,241)
-1.05%
(2,414)
-1.29%
(2,365)
-1.22%
(1,236)
-0.71%
(969)
-0.64%
Deferred loan (fees) cost
(118)
-0.06%
(119)
-0.06%
(212)
-0.11%
(203)
-0.12%
(83)
-0.05%
Total
$ 212,870 
100.00%
$ 187,526 
100.00%
$ 193,644 
100.00%
$ 173,196 
100.00%
$ 151,253 
100.00%
** 

 
**LOAN ANALYSIS (Continued)**

September 30,
2002
2001
2000
1999
1998
Loans by Type of Loan:
(In Thousands)
Real Estate Loans:
Loans on existing property:
Fixed rate
$ 34,261
16.09%
$ 41,520
22.14%
$ 32,182
16.62%
$ 33,049
19.08%
$ 25,996
17.19%
One year ARM and variable rate(1)
117,267
55.09%
81,217
43.31%
94,794
48.95%
82,017
47.36%
76,005
50.25%
Three year ARM
2,358
1.11%
866
0.46%
1,063
0.55%
664
0.38%
828
0.55%
Construction loans
29,567
13.89%
34,203
18.24%
35,871
18.52%
26,684
15.41%
27,109
17.92%
Total real estate loans
183,453
86.18%
157,806
84.15%
163,910
84.65%
142,414
82.23%
129,938
85.91%
Consumer loans
16,842
7.91%
17,454
9.31%
17,089
8.82%
14,801
8.55%
11,830
7.82%
Commercial and other loans
14,941
7.02%
14,824
7.91%
15,285
7.89%
17,481
10.09%
10,593
7.00%
Unearned interest income
(7)
0.00%
(25)
-0.01%
(63)
-0.03%
(61)
-0.04%
(56)
-0.04%
Allowance for loan losses
(2,241)
-1.05%
(2,414)
-1.29%
(2,365)
-1.22%
(1,236)
-0.71%
(969)
-0.64%
Deferred loan (fees) cost
(118)
-0.06%
(119)
-0.06%
(212)
-0.11%
(203)
-0.12%
(83)
-0.05%
Total
$ 212,870
100.00%
$ 187,526
100.00%
$ 193,644
100.00%
$ 173,196
100.00%
$ 151,253
100.00%

(1) An ARM is an adjustable rate mortgage
**LOAN MATURITY SCHEDULE**
The following table sets forth certain information at September 30, 2002 regarding the dollar amounts of loans maturing in the Bank's portfolio based on their contractual terms to maturity. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts, are reported as due in one year or less. This table does not consider the repricing of loans to be maturities. Interest rate sensitivity is incorporated herein by reference from the Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management in the Annual Report to Shareholders for 2002.

Maturities
Real Estate Mortgage
Real Estate Construction
Consumer
Commercial and Other
Total
(In Thousands)
Within 1 year
$ 52,241
$ 24,922
$ 5,660
$ 8,048
$ 90,871
After 1 through 5 years
46,024
4,645
6,601
6,366
63,636
After 5 through 10 years
10,776
-
4,449
528
15,753
After 10 Years
44,845
-
131
-
44,976
Total
$ 153,886
$ 29,567
$ 16,841
$ 14,942
$ 215,236
Less:
Unearned interest income
(7)
Allowance for loan losses
(2,241)
Deferred Loan Fees
(118)
$ 212,870
The following table sets forth the dollar amount of all loans due more than one year after September 30, 2002 which have predetermined interest rates and which have floating or adjustable interest rates.

 

 
Real Estate Mortgage
Real Estate Construction
Consumer
Commercial and other
Total
Predetermined rates
$ 24,260
$ - 
$10,507
$4,543
$39,310
Floating or adjustable rates
77,385
4,645
674
2,351
85,055
Total
$101,645
$4,645
$11,181
$6,894
$124,365
Lending Policies

Regulations limit the amount which state chartered institutions may lend in relation to the appraised value of the real estate securing the loan, as determined by an appraisal at the time of loan origination. Those regulations permit a maximum loan-to-value ratio of 100% for real estate loans. The Bank's lending policies generally limit the maximum loan-to-value ratio on residential mortgage loans to 90% of the lesser of the appraised value or purchase price. Multi-family residential and commercial real estate loans and unimproved real estate loans generally do not exceed 75% of value. The loan-to-value ratio, maturity and other provisions of the loans made by the Bank generally reflect the policy of making less than the maximum loan permissible under applicable regulations in accordance with sound lending practices, market conditions and underwriting standards established by the Bank.

In an effort to keep the yields on its loan portfolio and investments more interest rate sensitive, the Bank has implemented a number of measures including: (a) generally originating long-term fixed rate mortgage loans for brokerage to other financial institutions; (b) emphasizing origination of ARMs on residential and commercial properties when market conditions permit; (c) originating construction loans secured by residential properties generally for a 12-month period at interest rates determined by reference to the Bank's prime rate; and (d) originating consumer and commercial loans having either adjustable rates or relatively short maturities.

Single Family Residential Loans

One of the lending activities of the Bank has been the origination of single family residential loans through its mortgage lending operation. Through arrangements with other financial institutions, the Bank brokers substantially all of its fixed rate single- family residential loans. This allows the Bank to offer a broader base of financing alternatives than would be possible if the Bank were structuring all of its loans to sell to the Federal Home Loan Mortgage Corporation (FHLMC) or the Federal National Mortgage Association (FNMA). 

State chartered institutions are authorized to make home loans on which the interest rate, loan balance or maturity may be adjusted, provided that the adjustments are tied to specified indices. The rate adjustments are determined by reference to cost of funds and Treasury securities indices and are limited generally to 1.5-2.0% per adjustment period and 5-6% over the life of the loan.

Commercial Real Estate Loans

Current regulations permit state institutions to invest up to 400% of their capital in commercial real estate loans. At September 30, 2002, the Bank had 196% of its capital invested in commercial real estate loans. The commercial real estate loans originated by the Bank are primarily secured by multi-family apartment buildings, shopping centers, office buildings and other income-producing properties. The interest rates on commercial real estate loans presently offered by the Bank generally adjust every one to three years. The rate is generally determined by reference to money center banks' prime rates. The Bank's commercial real estate loans have various terms, with the payments based on a 15 to 25 year amortization schedule, and have balloon maturities of 5 to 7 years. The Bank generally requires that such loans have a minimum debt service coverage of 1.15 and a loan-to-value ratio of not more than 90%.

Commercial real estate lending entails significant additional risks compared to residential lending. Commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience of such loans typically depends upon the successful operation of the real estate project. These risks can be significantly affected by supply and demand conditions in the market for office and retail space and for apartments, and as such may be subject, to a greater extent than residential real estate loans, to adverse conditions in the economy. In dealing with these risk factors, the Bank generally limits itself to a real estate market or to borrowers with which it is familiar and participates portions of its commercial real estate loans when necessary. The Bank concentrates on originating commercial real estate loans secured by properties generally located within its primary market area, although the Bank will continue, on a limited basis, to originate commercial real estate loans secured by properties located in other parts of Georgia and in other states.

Construction Loans

The Bank originates construction loans on single family residences. Such construction loans generally have a term of 12 months. The interest rates charged by the Bank on construction loans are determined by reference to the prime rate charged by money center banks and vary depending upon the type of property, the loan amount and the credit worthiness of the borrower. The Bank generally requires personal guarantees of payment from the principals of the borrowing entities for the full amount of the loan, and it is the policy of the Bank to enforce guarantees in the event of non-payment of the loan.

The Bank also originates construction loans on multi-family and commercial real estate. The interest rates on such loans presently offered by the Bank are also determined by reference to the prime rate charged by money center banks. Multi-family and commercial real estate construction financing generally exposes the lender to a greater risk of loss than long-term financing on improved, occupied real estate, due in part to the fact that the loans are underwritten on projected rather than historical income and rental results. The Bank's risk of loss on such loans depends largely upon the accuracy of the initial appraisal of the property's value at completion of construction and the estimated cost (including interest) of completion. If either estimate proves to have been inadequate and the borrower is unable to provide additional funds pursuant to his or her guarantee, the Bank either may be required to advance funds beyond the amount originally committed to permit completion of the development or be confronted at the maturity of the loan with a project whose value is insufficient to assure full repayment.

The Bank's underwriting criteria are designed to evaluate and to minimize the risks of each commercial real estate construction loan. The Bank considers evidence of the financial stability and reputation of both the borrower and the contractor, the amount of the borrower's cash equity in the project, independent evaluation and review of the building costs, local market conditions, pre-construction sales and leasing information based upon evaluation of similar projects, the use of independent engineers to examine plans and monitor construction and the borrower's cash flow projections upon completion. The Bank may require a performance bond in the amount of the construction contract based on management's evaluation of the project and the financial strength of the contractor and also requires personal guaranties of payment by the principals of any borrowing entity. At September 30, 2002, approximately $29,567,000 of the Bank's loan portfolio consisted of construction loans.

Consumer Loans

The Bank currently offers a wide variety of consumer loans including secured and unsecured personal loans (such as home improvement loans and loans secured by savings accounts), automobile, boat and other loans. Total consumer loans amounted to approximately $16,842,000 at September 30, 2002.

The Bank markets consumer loans in order to provide a full range of retail banking services to its customers and because of the shorter term and normally higher interest rates on such loans. The Bank's underwriting standards for consumer loans include a determination of the applicant's payment history on other debts and an assessment of his or her ability to meet existing obligations and to make payments on the proposed loan. Loan-to-value, cash equity and debt service-to-income ratios are also generally considered. Risks associated with consumer loans include, but are not limited to, fraud, deteriorated or non-existing collateral, general economic downturn, and customer financial problems.

Commercial Loans

Current regulations authorize state chartered institutions to make secured and unsecured loans for commercial, corporate, business and agricultural purposes, including issuing letters of credit. 

The Bank makes commercial loans primarily on a secured basis. Substantially all of such loans to date have 

interest rates which adjust with changes in the prime rate charged by money center banks. The Bank's commercial loans primarily consist of short-term loans for working capital purposes, seasonal loans, lines of credit, accounts receivable loans and inventory loans. The Bank customarily requires personal guaranties of payment by the principals of any borrowing entity and reviews the financial statements and income tax returns of the guarantors generally on an annual basis. At September 30, 2002, the Bank had approximately $14,941,000 outstanding in commercial loans. Risks associated with these loans can be significant. Risks include, but are not limited to, fraud, bankruptcy, deteriorated or non-existing collateral, general economic downturn, and changes in interest rates.

Loan Solicitation and Processing

The Bank actively solicits mortgage loan applications from existing customers, walk-ins, referrals, builders and real estate brokers. Commercial real estate loan applications are also obtained through direct solicitation.

Detailed loan applications are obtained to determine the borrower's ability to repay, and the more significant items on these applications are verified through the use of credit reports, financial statements and confirmations. After analysis of the loan applications and property or collateral involved, including an appraisal of the property by independent appraisers approved by the Bank's management, the lending decision is made in accordance with the underwriting guidelines of the Bank. With respect to commercial loans, the Bank also reviews the capital adequacy of the business, the ability of the borrower to repay the loan and honor its other obligations, and general economic and industry conditions. All applications for loans greater than $500,000 require the approval of the Bank's president and a mojority of the Bank's Loan Committee. 

Loan applicants are promptly notified of the decision of the Bank, together with the terms and conditions of the decision. In this regard, the Bank seeks to handle loan processing and origination faster than its competition. If approved, these terms and conditions include the amount of the loan, interest rate basis, amortization term, a brief description of the real estate to be mortgaged to the Bank, notification that insurance coverage must be maintained to protect the Bank's interest and any other special conditions.

It is the Bank's policy to obtain a title insurance policy insuring that the Bank has a valid first lien on the mortgaged real estate and that the property is free of encumbrances. Borrowers are also to obtain paid hazard insurance policies prior to closing and, when the property is in a flood plain as designated by the Department of Housing and Urban Development, paid flood insurance policies. It is the Bank's policy to require flood insurance for the full insurable value of the improvements for any such loan located in a designated flood hazard area. In certain coastal areas, however, there are limits on the amount of insurance available. Substantially all borrowers are also required to advance funds on a monthly basis, together with each payment of principal and interest, to a mortgage escrow account from which the Bank makes disbursements for items such as real estate taxes, hazard insurance premiums and private mortgage insurance premiums. 

Loan Originations, Sales and Purchases

It is a policy of the Bank not to originate for its own portfolio any fixed rate residential mortgage loans that exceed 15 years. The Bank instead originates long term fixed rate mortgages to be brokered out to various mortgage lenders. The Bank may sell its commercial real estate and construction loans, generally retaining a percentage of the loans in its own portfolio. Loan sales provide additional funds for lending, generate income for the Bank and generally reduce exposure to interest rate risk. The Bank generally continues to collect payments on the loans and otherwise to service the loans sold. The Bank retains a portion of the interest paid by the borrower on these loans as consideration for its servicing loans sold to others. At September 30, 2002, the Bank was servicing loans for others of approximately $2,700,000.

The Bank has purchased a number of loans in the past, and intends to consider future purchases of residential mortgage loans as market conditions warrant. The Bank has also sold loans as discussed above and, similarly, intends to consider future sales as conditions warrant.

It is the current intention of management to continue offering residential fixed rate mortgage loans through the Bank's brokerage lending arrangement and to continue offering adjustable rate instruments to be held in the Bank's portfolio.

Loan Commitments

Upon loan approval, short-term commitments of 45 days are issued to the applicant and in most cases provide for the loan to be closed at the prevailing rate of interest as of the date of approval. 

Loan Origination Fees

The Bank defers and amortizes loan origination fees, net of certain direct origination costs incurred, and recognizes such fees over the life of the related loan as a yield adjustment.

The Bank also receives other fees and charges relating to existing loans along with late charges and fees collected in connection with a change in borrower or other loan modifications.

Delinquencies and Asset Classifications

The Bank's collection procedures provide that when a loan is 15 days past due, the borrower will be contacted by mail and payment requested. If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower. In certain instances, the Bank may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs. If the loan continues in a delinquent status for 90 days or more, the Bank generally will initiate foreclosure proceedings, but there is no requirement that the Bank defer foreclosure proceedings or other enforcement action. Any property acquired as the result of foreclosure is classified as real estate acquired in settlement of loans until such time as it is sold or otherwise disposed of by the Bank to recover its investment.

As a measure of the soundness of a financial institution's loans, federal regulatory authorities have developed the concept of asset classification and have established four categories of problem assets: "Watch," "Substandard," "Doubtful" and "Loss". Assets designated "Watch" do not require that a bank take any specific action. For assets classified Substandard or Doubtful, a bank's examiner is authorized to direct the establishment of a general allowance for loan losses based on the assets classified and the overall quality of the bank's asset portfolio. This valuation allowance must be established in accordance with generally accepted accounting principles. For assets or portions of assets classified as loss, a bank is required either to establish specific allowances of 100% of the amount so classified, or to charge off such amount. These specific allowances or charge offs must also be established in accordance with generally accepted accounting principles. 

The Bank is responsible for determining the valuation and classification of its assets, subject to review by regulatory authorities. Portions of an asset may be classified in more than one category.

An asset will be designated Watch if it does not justify a classification of Substandard but does constitute undue and unwarranted credit risk to the Bank. An asset will be classified Substandard if it is determined to involve a distinct possibility that the Bank may sustain some loss if deficiencies associated with the loan, such as inadequate documentation, are not corrected. An asset will be classified as Doubtful if full collection is highly questionable or improbable. An asset will be classified as Loss if it is considered uncollectible, even if a partial recovery may be expected in the future.

The Bank closely monitors its classified loans and actively attempts to dispose of real estate acquired in settlement of loans. Real estate acquired through foreclosure is appraised when acquired and is recorded at the lower of cost or fair market value.

At September 30, 2002, the following amounts of loans were classified as follows:

Special Mention
$8,777,032
Substandard
8,910,205
Doubtful
-
Loss
-
$17,687,237
 

Non-accrual, Past Due and Restructured Loans

The Bank has approximately $5,477,000 of loans in non-accrual status at September 30, 2002. The Bank had approximately $3,541,000 of loans in non-accrual status at September 30, 2001. The Bank has had no restructured loans. ("Management's Discussion and Analysis of Financial Condition and Results of Operations - Provision for Loan Losses" in the Company's Annual Report is incorporated by reference herein.) Had all non-accrual loans at September 30, 2002 actually accrued interest for the full fiscal year, approximately $215,000 of additional interest income would have been added to fiscal earnings. 

Accrual of interest is discontinued when either principal or interest become 90 days past due unless, in management's opinion, the loan is well secured and in the process of collection.

Provision for Loan Losses

The provision for loan losses for the fiscal year ended September 30, 2002 totaled $120,000, decreasing $315,000 over the fiscal year 2001. The provision has continued to decrease to levels experienced prior to fiscal year 2000 as a result of the resolution of loans originated by a particular loan officer. The Bank experienced substantial charge-offs in 2000 primarily as a result of under collateralized loans made by a particular loan officer. During a six-month period, the loan officer made loans totaling approximately $3.3 million that were under collateralized. The loan officer provided falsified collateral information to the loan committee and granted a large number of small dollar loans that were under the scope of a loan review. Once it was determined that the loan officer was making under collateralized loans, he was immediately terminated and a suspicious activities report was filed with the Office of Thrift Supervision. Of the total loans charged-off in 2000, 84.70% or $1.4 million was related to the particular loan officer. Management felt it necessary to increase the allowance for loan losses in fiscal year 2000 as a result of the increased charge-offs and to allocate a portion of the reserve to loans remaining in the portfolio that were originated by the particular loan officer and thought to have a high risk of loss based upon the characteristics of the loan. Of the total provision at September 30, 2000 approximately 72.94% or $1.9 million related to loans remaining in the portfolio related to the particular loan officer. 

The Bank has made significant progress in resolving loan problems related to fiscal year 2000. Of the total allowance at September 30, 2002, approximately 16.83% or $378,000 relates to loans originated by the particular loan officer. The Bank has recovered approximately $116,000 of the $1.4 million charged-off in fiscal year 2000. Charge-offs for fiscal year ended September 30, 2002 totaled $768,476, of those $393,350, or 59.18% were related to the particular loan officer.

Management has taken additional precautions since that time to ensure that all loans are properly collateralized. The Company engaged an outside firm to conduct quarterly loan reviews of the loan portfolio in order to assist in identifying all loans originated by the particular loan officer and as a preventative measure to ensure timely recognition of under collateralized loans. The quarterly review process includes all loans, regardless of principal amount. The Company also hired a credit analyst to review and provide recommendations on larger loan applications.

Net interest income after the provision for loan losses at September 30, 2002 decreased $794,294, or 8.34% from the same period last year. The decrease is directly related to the decrease in loan interest income resulting from a decrease in interest rates. 

Allowance for Loan Losses

For a detailed analysis of the allowance for loan losses, Management's Discussion and Analysis of Financial Condition and Results of Operations - Provision for Loan Losses is incorporated by reference from the Annual Report to Shareholders herein.

The Company has allocated the allowance for loan losses according to the amount deemed to be reasonably necessary to provide for losses being incurred within the categories of loans set forth in the table below. This allocation is based on management's evaluation of the loan portfolio under current economic conditions, past loan loss experience, adequacy and nature of collateral, and such factors which, in the judgment of management, deserve recognition in estimating loan losses. Regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for probable losses on loans and real estate acquired through foreclosure and other non-performing assets. Such agencies may require the Company to make additions to the allowance based on their judgments about information available to them at the time of their examination. Because the allocation is based on estimates and subjective judgment, it is not necessarily indicative of the specific amounts or loan categories in which charge-offs may occur.

The allocation of the allowance for probable loan losses to the various loan categories and the ratio of each loan category to total loans outstanding at September 30, are presented in the following table. 

September 30,
2002
2001
2000
1999
1998
(In Thousands)
Amount
Amount
Amount
Amount
Amount
Balance at the end of the year applicable to:
Commercial, financial, and agricultural
$ 148 
6.92%
$ 185 
7.80%
$ 171 
8.71%
$ 196 
10.01%
$ 143 
6.95%
Real estate-construction
294 
13.75%
427 
17.99%
390 
18.26%
203 
19.26%
34 
17.79%
Real estate-mortgage
1,529 
71.52%
1,543 
65.03%
1,600 
65.24%
714 
62.26%
287 
67.49%
Consumer
167 
7.81%
218 
9.18%
134 
7.79%
61 
8.47%
38 
7.77%
Unallocated
103 
N/A
41 
N/A
70 
N/A
62 
N/A
467 
N/A
$ 2,241 
100.00%
$ 2,414 
100.00%
$ 2,365 
100.00%
$ 1,236 
100.00%
$ 969 
100.00%
 The percentage columns are the percentage of total loans in each category to total loans.

Loan Repayments

In addition to regularly scheduled repayments, loans are prepaid in full as properties are sold, or are refinanced by the Bank or other lenders, or are satisfied in full by the borrower. Loan repayments constitute a major source of funding for the Bank.

Other

The Company has no foreign operations and, accordingly, there are no assets or liabilities attributed to foreign operations.

At September 30, 2002, the Company had no concentration of loans exceeding 10% of total loans to borrowers engaged in any single industry.

Investment Activities

The Bank is required under federal regulations to maintain a minimum amount of liquid assets and is also permitted to make certain other securities investments. It is the intention of management to hold securities with short maturities in the Bank's investment portfolio in order to enable the Bank to match more closely the interest rate sensitivities of its assets and liabilities. All of the Bank's investments are subject to interest rate risk. Since some securities have fixed interest rates, as interest rates rise the value of the securities falls and as rates decline the value increases. In addition, mortgage-backed securities are subject to prepayment risk. As rates fall, prepayments increase and the amount of the security earning the coupon rate declines.

Investment decisions are made by senior officers of the Bank. The actions of the officers are within policies established by the Board of Directors. At September 30, 2002 the investment portfolio totaled approximately $25,852,000.

The following table sets forth the amortized cost, approximate fair value, and weighted average yield of the investment portfolio. The weighted average yield with respect to maturities is also presented.

**INVESTMENT SECURITIES ANALYSIS
Amortized Cost
Weighted Average Yield
Fair Value
September 30, 2002:
Investment securities:
Mortgage-backed securities and SBA's
$ 19,989,246 
6.43%
$ 20,672,751 
State and municipal bonds
5,862,273 
7.78%
5,857,269 
$ 25,851,519 
6.90%
$ 26,530,020 
Amortized Cost
Weighted Average Yield
Fair Value
September 30, 2001:
Investment securities:
Mortgage-backed securities and SBA's
$ 21,470,502 
6.63%
$ 21,933,542 
State and municipal bonds
4,480,175 
5.40%
4,525,520 
$ 25,950,677 
6.58%
$ 26,459,062 
Amortized Cost
Weighted Average Yield
Fair Value
September 30, 2000:
Investment securities:
Mortgage-backed securities and SBA's
$ 16,692,276 
6.46%
$ 16,291,054 
State and municipal bonds
1,185,845 
6.82%
1,184,626 
$ 17,878,121 
6.42%
$ 17,475,680 
A summary of investment and mortgage-backed securities by maturities as of September 30, 2002 follows:

Amortized Cost
Weighted Average Yield
Fair Value
Investment Securities:
Within 1 year
$ 101,129 
6.16%
$ 103,472 
After 1 year through 5 years
1,599,354 
6.13%
1,651,466 
After 5 years through 10 years
5,148,443 
5.30%
5,202,460 
After 10 years
19,002,593 
7.68%
19,572,622 
$ 25,851,519 
6.90%
$ 26,530,020 
Yields on tax-exempt securities are computed on tax equivalent basis.

INTEREST DIFFERENTIAL

The following table describes the extent to which changes in volume of interest-earning assets and interest-bearing liabilities and changes in interest rates have affected the Bank's interest income and expense during the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (a) change in volume (change in volume multiplied by old rate) and (b) change in rate (change in rate multiplied by old volume). The net change attributable to the combined impact of volume and rate has been allocated to both components in proportion to the relationship of the absolute dollar amounts of the change in each.

Year Ended September 30, 2002 vs. Year
Ended September 30, 2001
(In Thousands)
Total
Rate
Volume
Interest income:
Loans
$ (4,048)
$ (4,877)
$ 829 
Investment securities
246 
37 
209 
Interest-bearing deposits in other banks
399 
160 
239 
Total interest-earning assets
(3,403)
(4,680)
1,277 
Interest expense:
Deposits
(3,068)
(2,880)
(188)
Federal Home Loan Bank advances and
other borrowings
(22)
(2,002)
1,980 
Total interest-bearing liabilities
(3,090)
(4,882)
1,792 
Net interest income
$ (313)
$ 202 
$ (515)
Year Ended September 30, 2001 vs. Year
Ended September 30, 2000
(In Thousands)
Total
Rate
Volume
Interest income:
Loans
$ (348)
$ (12)
$ (336)
Investment securities
605 
216 
389 
Interest-bearing deposits in other banks
63 
(45)
108 
Total interest-earning assets
320 
159 
161 
Interest expense:
Deposits
883 
333 
550 
Federal Home Loan Bank advances and
other borrowings
(119)
(230)
111 
Total interest-bearing liabilities
764 
102 
662 
Net interest income
$ (444)
$ 57 
$ (501)
 

Retail Banking Activities and Sources of Funds

General

The Bank's retail banking activities consist of attracting deposits and making consumer and commercial loans. A principal objective of the Bank is to establish a total banking relationship, including a deposit relationship as well as a lending relationship, between the Bank and the customer.

Savings accounts and other types of deposits generated by the Bank's retail banking division are the primary source of the Bank's funds for use in lending and for other general business purposes. In addition to savings accounts, the Bank derives funds from loan repayments, FHLB advances, other borrowings and operations. Loan repayments are a relatively stable source of funds while deposit inflows and outflows vary widely and are influenced by prevailing interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in normal sources of funds such as deposit inflows at less than projected levels and may be used on a longer-term basis to support expanded lending activities. The Bank's sources of borrowings have been advances from the FHLB of Atlanta, obligations under repurchase agreements, and Federal funds purchased.

Deposits

Deposits in the Bank at September 30, 2002 were represented by the various types of programs described as follows:

**DEPOSITS AT SEPTEMBER 30, 2002**Type of Account**Term**Minimum Amount **Weighted Average Rate**Balance (Dollars in Thousands) **Percentage of Total Deposits
Easy Checking
$ - 
- 
$ 13,178 
5.83%
Commercial Checking
- 
- 
17,704 
7.83%
NOW Accounts
750 
0.50%
27,882 
12.34%
Super NOW and MMDA
1,000 
2.05%
26,549 
11.75%
Statement Savings
100 
1.25%
12,305 
5.45%
Certificate of deposit accounts:
Jumbo certificates:
30 days to 5 years
100,000 
3.98%
17,034 
7.54%
Other time deposits:
3 months
3-5 months
1,000 
2.02%
1,054 
0.47%
6 months
6-11 months
1,000 
2.48%
10,262 
4.54%
1 year
12-17 months
500 
3.08%
64,596 
28.59%
11/2 years
18-23 months
500 
6.18%
1,211 
0.54%
2 years
24--29 months
500 
3.07%
9,309 
4.12%
21/2 years
30-35 months
500 
5.01%
945 
0.42%
3 years
36-41 months
500 
5.97%
4,597 
2.03%
31/2 years
42-47 months
500 
6.01%
4 
0.00%
4 years
48-59 months
500 
5.57%
1,346 
0.60%
5 years
60 months
500 
6.48%
13,823 
6.12%
18 month IRA
18 months
500 
3.58%
4,077 
1.80%
Other
30 days
500 
1.75%
101 
0.03%
2.86%
$ 225,977 
100.00%
 

Deposits at September 30, 2001 and 2000 are represented on the following pages.

 

**DEPOSITS AT SEPTEMBER 30, 2001**Type of Account**Term**Minimum Amount **Weighted Average Rate**Balance (Dollars in Thousands) **Percentage of Total Deposits
Easy Checking
$ - 
- 
$ 14,699 
6.71%
Commercial Checking
- 
- 
13,752 
6.28%
NOW Accounts
750 
1.00%
24,091 
11.00%
Super NOW and MMDA
1,000 
2.00%
10,657 
4.87%
Statement Savings
100 
1.50%
12,352 
5.64%
Certificate of deposit accounts:
Jumbo certificates:
30 days to 5 years
100,000 
6.34%
16,497 
7.53%
Other time deposits:
3 months
3-5 months
1,000 
2.60%
787 
0.36%
6 months
6-11 months
1,000 
4.05%
8,453 
3.86%
1 year
12-17 months
500 
5.58%
78,941 
36.05%
11/2 years
18-23 months
500 
6.18%
1,285 
0.59%
2 years
24--29 months
500 
6.43%
12,964 
5.92%
21/2 years
30-35 months
500 
5.88%
1,079 
0.49%
3 years
36-41 months
500 
5.97%
4,133 
1.89%
31/2 years
42-47 months
500 
6.93%
54 
0.02%
4 years
48-59 months
500 
5.90%
1,520 
0.69%
5 years
60 months
500 
6.49%
13,298 
6.07%
18 month IRA
18 months
500 
5.45%
4,379 
2.00%
Other
30 days
500 
1.75%
42 
0.02%
4.06%
$ 218,983 
100.00%
 

 

**DEPOSITS AT SEPTEMBER 30, 2000**Type of Account**Term**Minimum Amount **Weighted Average Rate**Balance (Dollars in Thousands) **Percentage of Total Deposits
Easy Checking
$ - 
- 
$ 10,338 
4.40%
Commercial Checking
- 
- 
13,640 
6.37%
NOW Accounts
750 
1.00%
20,326 
9.50%
Super NOW and MMDA
1,000 
2.35%
17,177 
8.02%
Statement Savings
100 
2.30%
9,925 
4.64%
Certificate of deposit accounts:
Jumbo certificates:
30 days to 5 years
100,000 
6.36%
14,659 
6.85%
Other time deposits:
3 months
3-5 months
1,000 
4.01%
821 
0.38%
6 months
6-11 months
1,000 
4.98%
3,643 
1.70%
1 year
12-17 months
500 
6.28%
84,635 
39.54%
11/2 years
18-23 months
500 
6.16%
1,663 
0.78%
2 years
24--29 months
500 
6.03%
10,672 
4.99%
21/2 years
30-35 months
500 
6.18%
2,556 
1.19%
3 years
36-41 months
500 
6.93%
4,556 
2.13%
31/2 years
42-47 months
500 
6.24%
50 
0.02%
4 years
48-59 months
500 
6.09%
1,789 
0.84%
5 years
60 months
500 
6.44%
13,066 
6.10%
18 month IRA
18 months
500 
5.78%
5,126 
2.39%
Other
30 days
500 
2.75%
331 
0.15%
4.58%
$ 214,973 
100.00%
The Bank has a number of different programs designed to attract both short-term and long-term savings of the general public. The programs include commercial demand deposits (checking), NOW accounts, money market deposits accounts (MMDA), traditional passbook savings, time deposits in a minimum amount of $100,000 (Jumbo Certificates), other certificates of deposits and individual retirement accounts (IRAs).

The minimum amount required to open a certificate of deposit for other than retirement accounts ranges from $500 to $100,000, depending on the type of deposit. Rates on certificates of deposit are determined weekly by the Bank, based upon local market rates, national money market rates and yields on assets of the same maturity.

The variety of deposit accounts offered by the Bank allows it to be competitive in obtaining new funds, although the threat of disintermediation (the flow of funds away from the Bank into direct investment vehicles, such as mutual funds and government and corporate securities) still exists. The ability of the Bank to attract and retain deposits and the Bank's cost of funds have been, and will continue to be, significantly affected by capital and money market conditions.

The Bank attempts to control the flow of deposits by pricing its accounts to remain generally competitive with other financial institutions in its market area.

The Bank has generated Jumbo Certificates from both local individuals and businesses and from out-of-town individuals and businesses who have ties to its market area. In addition, the Bank accepts public deposits. The Bank responds to requests for rate information but does not accept deposits for which a broker's commission must be paid. As with other deposits, rates on Jumbo Certificates are set in a manner to be competitive in the Bank's market area.

The following table sets forth the composition of deposits, excluding accrued interest payable, by type and interest rate at the dates indicated.

September 30,
2002
2001
2000
Access accounts:
(In Thousands)
Commercial checking - 0.00%
$ 30,882 
$ 28,450 
$ 23,978 
NOW accounts - 1.25%
27,882 
24,091 
20,326 
Money Market deposit account - varable rate
26,549 
10,658 
17,177 
Statement savings - 2.30% 
12,305 
12,352 
9,925 
Certificates of deposits:
1.25% - 2.74%
26,017 
- 
- 
2.75% - 5.00%
75,980 
36,843 
5,608 
5.01% - 7.00%
24,027 
99,296 
130,210 
7.01% - 9.00%
2,335 
7,293 
7,749 
Subtotal
225,977 
218,983 
214,973 
Accrued interest
375 
641 
719 
Total
$ 226,352 
$ 219,624 
$ 215,692 
 

**TIME DEPOSIT MATURITIES 
Balances at September 30, 
Interest Rates
2002
2003
2004
2005
Thereafter
Total
(In Thousands) 
1.25% - 2.74%
$ 24,835 
1,182 
- 
- 
- 
26,017 
2.75% - 5.00%
66,583 
4,762 
3,523 
519 
593 
75,980 
5.01% - 7.00%
13,203 
8,909 
1,179 
736 
- 
24,027 
7.01% - 9.00%
714 
338 
1,283 
- 
- 
2,335 
$ 105,335 
15,191 
5,985 
1,255 
593 
128,359 
 

 

JUMBO CD MATURITIES
Maturity
September 30, 2002
 
(In Thousands)
Three months or less
$ -
Three to six months
2,214
Six to twelve months
9,311
Over twelve months
5,509
Total
$ 17,034
 

**AVERAGE DEPOSITS BY TYPE
September 30,
2002
2001
2000
Average 

Balance 
Weighted 

Average 

Rate 
Average 

Balance 
Weighted 

Average 

Rate 
Average 

Balance 
Weighted 

Average 

Rate 
(In Thousands) 
Non-interest bearing deposits
$ 27,521 
- 
$ 27,195 
- 
$ 23,073 
- 
NOW's
26,553 
0.50%
24,180 
1.00%
19,770 
1.00%
MMDA's
19,715 
2.05%
12,755 
2.35%
15,531 
2.35%
Savings
12,557 
1.25%
12,128 
2.30%
9,368 
2.30%
Time Deposits
133,595 
3.76%
140,766 
5.86%
137,093 
6.00%
Total average deposits
$ 219,941 
2.86%
$ 217,024 
4.57%
$ 204,835 
5.73%
 

Borrowings

Savings deposits are the primary source of funds for the Bank's lending and investment activities and for its general business purposes. The Bank has, however, used advances from the FHLB of Atlanta and other borrowings to supplement its supply of funds available for lending. Advances from the FHLB are typically secured by a portion of the Bank's first mortgage loans. A summary of the Bank's borrowings from the FHLB is set forth below:

2002
2001
Due During Year Ending
Weighted
Weighted
September 30, 
Amount
Average Rate
Amount
Average Rate
2002
$ - 
- %
$ 500,000 
7.90%
2003
7,500,000 
2.17 
- 
- 
2005
1,000,000 
5.90 
- 
- 
2006
500,000 
5.18 
1,000,000 
5.90 
2008
2,000,000 
5.51 
2,000,000 
5.51 
$ 11,000,000 
5.96%
$ 3,000,000 
5.96%
The FHLB System functions as a central reserve bank providing credit for financial institutions. As a member of the FHLB of Atlanta, the Bank is required to own capital stock in the FHLB of Atlanta and is authorized to apply for advances on the security of its home mortgage loans and other assets (primarily, securities which are obligations of, or are guaranteed by, the United States) provided certain standards related to creditworthiness have been met.

The FHLB offers several different credit programs each with its own interest rate and term. It prescribes the acceptable uses for advances as well as size limitations. The FHLB periodically reviews its credit limitations and standards. Under its current policies, the FHLB limits its advances based on a member institution's net worth or the FHLB's assessment of the institution's creditworthiness. The following table sets forth certain information regarding borrowings by the Bank at the end of and during the periods indicated:

 **FEDERAL HOME LOAN BANK ADVANCES**
At September 30,
2002
2001
2000
Balance outstanding
$ 11,000,000 
$ 3,500,000 
$ 2,500,000 
Weighted average rate
5.96%
5.96%
5.99%
Maximum amount of short-term borrowings at any month end
$ 11,000,000 
$ 3,500,000 
$ 8,100,000 
Approximate average short-term borrowings outstanding
$ 7,500,000 
$ 3,500,000 
$ 3,896,995 
Approximate weighted average paid on short-term borrowings(1)
2.17%
5.50%
5.50%The average method used is the average end of month totals.

First Georgia Holding, Inc. obtained a line of credit for up to $3,000,000 from the Bankers Bank in March 2000. The interest is payable quarterly at Prime minus 50 basis points (4.0% at September 30, 2002). All of the issued and outstanding shares of capital stock of First Georgia Bank are pledged as collateral for this line of credit. As of September 30, 2002, the Company had borrowed $2,000,000 against this line of credit which matures on March 31, 2012. The Bank did not draw any additional funds on this line of credit during the period ended September 30, 2002. The maximum amount of borrowings at any month end was $2,000,000. The following table sets forth information regarding the Bankers Bank advance at the end of and during the periods indicated.

**Bankers Bank Line Of Credit
2002
2001
2000
Balance Outstanding
$ 2,000,000
$ 2,000,000
$ 2,000,000
Weighted average rate
4.25%
6.45%
7.50%
Maximum amount of borrowings at any month end
$ 2,000,000
$ 2,000,000
$ 2,000,000
Approximate average borrowings outstanding
$ 2,000,000
$ 2,000,000
$ 1,506,849
Approximate weighted average paid on borrowings
4.40%
6.38%
7.40%
(1) The average method used is the average end of month totals.

Employees

At September 30, 2002, the Bank employed 136 full-time equivalent employees. Management considers relations with its employees to be excellent. The Bank currently maintains a comprehensive employee benefits program including, among other benefits, hospitalization and major medical insurance, life insurance, dental insurance, long term disability, a 401(k) plan and educational assistance. Management considers these benefits to be generally competitive with those offered by competing financial institutions in its market area. The Bank's employees are not represented by any collective bargaining group.

Competition

The Bank's primary market area is southeastern Georgia. The Bank competes for loans primarily through referrals and quality of the services it provides to borrowers and home builders. It competes for savings by offering depositors a wide variety of savings accounts, checking accounts, NOW accounts, convenient office locations, tax-deferred retirement programs and other services.

Federal deregulation of financial institutions has contributed to the dramatic increase in competition for savings dollars between financial institutions and other types of investment vehicles, such as money market mutual funds, U.S. Treasury securities and municipal bonds, as well as an increase in competition with commercial banks for loans, checking accounts and other types of financial services. In addition, large conglomerates and investment banking firms have entered the market for financial services. Accordingly, the Bank, like other institutions, faces increased competition in the future in attracting and retaining customers for the services it offers.

Forward Looking Statements

This Annual Report on Form 10-KSB, other periodic reports filed by the Company under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of the Company may include forward looking statements which reflect the Company's current views with respect to future events and financial performance. Such forward looking statements are based on general assumptions and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to:

(a)	Possible changes in economic and business conditions that may affect the prevailing interest rates, the prevailing rates of inflation or the amount of growth, stagnation or recession in the global, U.S. and southeastern U.S. economies, the value of investments, collectibility of loans, and the profitability of business entities;

(b)	Possible changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations;

(c)	The effects of easing of restrictions on participants in the financial services industry, such as banks, securities brokers and dealers, investment companies and finance companies, and attendant changes in patterns and effects of competition in the financial services industry. 

(d)	The cost and other effects of legal and administrative cases and proceedings, claims, settlements and judgments;

(e)	The ability of the Company to achieve the earnings expectations related to the continued growth of the markets in which the Company operates consistent with recent historical experience, and the Company's ability to expand into new markets and to maintain profit margins in the face of pricing pressures.

The words "believe," "expect," "anticipate," "project" and similar expressions signify forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements made by or on behalf of the Company. Any such statements speak only as of the date the statement was made. The Company undertakes no obligation to update or revise any forward looking statements. 
**Supervision and Regulation**
Both the Company and the Bank are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws are generally intended to protect depositors and not shareholders. The following discussion describes the material elements of the regulatory framework that applies to us.
**The Company**
Since the Company owns all of the capital stock of the Bank, it is a bank holding company under the federal Bank Holding Company Act of 1956. As a result, the Company is primarily subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve.
***Acquisitions of Banks. The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve's prior approval before:
- acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank's voting shares; 
- acquiring all or substantially all of the assets of any bank; or 
- merging or consolidating with any other bank holding company.

Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to create a monopoly or, substantially lessen competition or otherwise function as a restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve's consideration of financial resources generally focuses on capital adequacy, which is discussed below.

 Under the Bank Holding Company Act, if adequately capitalized and adequately managed, the Company or any other bank holding company located in Georgia may purchase a bank located outside of Georgia. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Georgia may purchase a bank located inside Georgia. In each case, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. 

For example, Georgia law prohibits a bank holding company from acquiring control of a financial institution until the target financial institution has been incorporated for five years. Because the Bank has been incorporated for more than five years, this limitation does not apply to the Company or the Bank.

	***Change in Bank Control.*****Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring "control" of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either: - the bank holding company has registered securities under Section 12 of the Securities Act of 1934; or 
- no other person owns a greater percentage of that class of voting securities immediately after the transaction. 

Our common stock is registered under the Securities Exchange Act of 1934. The regulations provide a procedure for challenge of the rebuttable control presumption.

	***Permitted Activities*. Generally, bank holding companies are prohibited under the Bank Holding Company Act, from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in any activity other than:- banking or managing or controlling banks; and 
- an activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:
- factoring accounts receivable; 
- making, acquiring, brokering or servicing loans and usual related activities; 
- leasing personal or real property; 
- operating a non-bank depository institution, such as a savings association; 
- trust company functions; 
- financial and investment advisory activities; 
- conducting discount securities brokerage activities; 
- underwriting and dealing in government obligations and money market instruments; 
- providing specified management consulting and counseling activities; 
- performing selected data processing services and support services; 
- acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and 
- performing selected insurance underwriting activities.

Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

	A bank holding company that qualifies and elects to become a financial holding company is permitted to engage in activities that are financial in nature or incidental or complementary to financial activity. The Bank Holding Company Act expressly lists the following activities as financial in nature: 
- lending, trust and other banking activities; 
- insuring, guaranteeing, or indemnifying against loss or harm, or providing and issuing annuities, and acting as principal, agent, or broker for these purposes, in any state; 
- providing financial, investment, or advisory services; 
- issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; 
- underwriting, dealing in or making a market in securities; 
- other activities that the Federal Reserve may determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or controlling banks; 
- foreign activities permitted outside of the United States if the Federal Reserve has determined them to be usual in connection with banking operations abroad; 
- merchant banking through securities or insurance affiliates; and 
- insurance company portfolio investments.

To qualify to become a financial holding company, the Bank and any other depository institution subsidiary of the Company must be well capitalized and well managed and must have a Community Reinvestment Act rating of at least satisfactory. Additionally, the Company must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days' written notice prior to engaging in a permitted financial activity. Although we are eligible to elect to become a financial holding company, we currently have no plans to make such an election.
***Support of Subsidiary Institutions. Under Federal Reserve policy, the Company is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve policy, the Company might not be inclined to provide it. In addition, any capital loans made by the Company to the Bank will be repaid only after its deposits and various other obligations are repaid in full. In the unlikely event of the Company's bankruptcy, any commitment by it to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
**The Bank**
Since the Bank is a commercial bank chartered under the laws of the State of Georgia, it is primarily subject to the supervision, examination and reporting requirements of the FDIC and the Georgia Department of Banking and Finance. The FDIC and Georgia Department of Banking and Finance regularly examine the Bank's operations and have the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions. Both regulatory agencies have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Additionally, the Bank's deposits are insured by the FDIC to the maximum extent provided by law. The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations. 
***Branching. Under current Georgia law, the Bank may open branch offices throughout Georgia with the prior approval of the Georgia Department of Banking and Finance. In addition, with prior regulatory approval, the Bank may acquire branches of existing banks located in Georgia. The Bank and any other national or state-chartered bank generally may branch across state lines by merging with banks in other states if allowed by the applicable states' laws. Georgia law, with limited exceptions, currently permits branching across state lines through interstate mergers. 

Under the Federal Deposit Insurance Act, states may "opt-in" and allow out-of-state banks to branch into their state by establishing a new start-up branch in the state. Currently, Georgia has not opted-in to this provision. Therefore, interstate merger is the only method through which a bank located outside of Georgia may branch into Georgia. This provides a limited barrier of entry into the Georgia banking market, which protects us from an important segment of potential competition. However, because Georgia has elected not to opt-in, our ability to establish a new start-up branch in another state may be limited. Many states that have elected to opt-in have done so on a reciprocal basis, meaning that an out-of-state bank may establish a new start-up branch only if their home state has also elected to opt-in. Consequently, until Georgia changes its election, the only way we will be able to branch into states that have elected to opt-in on a reciprocal basis will be through interstate merger. 
***Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories-well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized-in which all institutions are placed. The federal banking agencies have also specified by regulation the relevant capital levels for each of the other categories. 

Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. 

An institution in any of the undercapitalized categories is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company's obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary's assets at the time it became undercapitalized or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital. 
***FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories: (1) well capitalized; (2) adequately capitalized; and (3) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institution's primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the institution's capital group and supervisory subgroup. In addition, the FDIC imposes assessments to help pay off the $780 million in annual interest payments on the $8 billion Financing Corporation bonds issued in the late 1980s as part of the government rescue of the thrift industry. This assessment rate is adjusted quarterly and is set at 1.82 cents per $100 of deposits for the first quarter of 2002.

The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
***Community Reinvestment Act. The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve or the FDIC shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank and the Company. Since our aggregate assets are not more than $250 million, under the Gramm-Leach-Bliley Act, we are subject to a Community Reinvestment Act examination only once every 60 months if we receive an outstanding rating, once every 48 months if we receive a satisfactory rating and as needed if our rating is less than satisfactory. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.
***Other Regulations. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. For example, under the Soldiers' and Sailors' Civil Relief Act of 1940, a lender is generally prohibited from charging an annual interest rate in excess of 6% on any obligation for which the borrower is a person on active duty with the United States military.

The Bank's loan operations are also subject to federal laws applicable to credit transactions, such as:
- The federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; 
- The Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; 
- The Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; 
- The Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; 
- The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; 
- Soldiers' and Sailors' Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; and 
- The rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

The deposit operations of the Bank are subject to:
- The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and 
- The Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services.
**Capital Adequacy**
The Company and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve, in the case of the Company, and the FDIC and Georgia Department of Banking and Finance, in the case of the Bank. The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies. The Bank is also subject to risk-based and leverage capital requirements adopted by the FDIC, which are substantially similar to those adopted by the Federal Reserve for bank holding companies.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common shareholders' equity, minority interests in the equity accounts of consolidated subsidiaries, qualifying non-cumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock and trust preferred securities, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock and hybrid capital and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital. At September 30, 2002 our consolidated ratio of total capital to risk-weighted assets was 11.48% and our consolidated ratio of Tier 1 Capital to risk-weighted assets was 10.35%. 

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve's risk-based capital measure for market risk. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At September 30, 2002, our consolidated leverage ratio was 7.88%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets. The Federal Reserve considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

The Bank and the Company are also both subject to leverage capital guidelines issued by the Georgia Department of Banking and Finance, which provide for minimum ratios of Tier 1 capital to total assets. These guidelines are substantially similar to those adopted by the Federal Reserve in the case of the Company and those adopted by the FDIC in the case of the Bank.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. As described above, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements. See "-Prompt Corrective Action."
**Payment of Dividends**
The Company is a legal entity separate and distinct from the Bank. The principal source of the Company's cash flow, including cash flow to pay dividends to its shareholders, is dividends that the Bank pays to it. Statutory and regulatory limitations apply to the Bank's payment of dividends to the Company as well as to the Company's payment of dividends to its shareholders.

If, in the opinion of the federal banking regulator, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulator could require, after notice and a hearing, that it cease and desist from its practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. See "-Prompt Corrective Action" above.

The Georgia Department of Banking and Finance also regulates the Bank's dividend payments and must approve dividend payments that would exceed 50% of the Bank's net income for the prior year. Our payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.
**Restrictions on Transactions with Affiliates**
	The Company and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:
loans or extensions of credit to affiliates; 
investment in affiliates; 
the purchase of assets from affiliates, except for real and personal property exempted by the Federal Reserve; 
loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and 
any guarantee, acceptance or letter of credit issued on behalf of an affiliate.

	The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank's capital and surplus and, as to all affiliates combined, to 20% of a bank's capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Company must also comply with other provisions designed to avoid the taking of low-quality assets.
	The Company and the Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies. 

The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.
**Privacy

Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers. 
**Anti-Terrorism Legislation**
In the wake of the tragic events of September 11th, on October 26, 2001, the President signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and "know your customer" standards in their dealings with foreign financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures, and controls generally require financial institutions to take reasonable steps: 
- to conduct enhanced scrutiny of account relationships to guard against money laundering and report any suspicious transaction; 
- to ascertain the identity of the nominal and beneficial owners of, and the source of funds deposited into, each account as needed to guard against money laundering and report any suspicious transactions; 
- to ascertain for any foreign bank, the shares of which are not publicly traded, the identity of the owners of the foreign bank, and the nature and extent of the ownership interest of each such owner; and 
- to ascertain whether any foreign bank provides correspondent accounts to other foreign banks and, if so, the identity of those foreign banks and related due diligence information.

Under the USA PATRIOT Act, financial institutions were given 180 days from enactment to establish anti-money laundering programs. The USA PATRIOT Act sets forth minimum standards for these programs, including:
- the development of internal policies, procedures, and controls; 
- the designation of a compliance officer; 
- an ongoing employee training program; and 
- an independent audit function to test the programs.

In addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to adopt rules increasing the cooperation and information sharing between financial institutions, regulators, and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institution complying with these rules will not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed above.
**Proposed Legislation and Regulatory Action**
New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nation's financial institutions operating in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.
**Effect of Governmental Monetary Polices**
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Bank's monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

Item 2.	DESCRIPTION OF PROPERTIES

The executive office of the Company and Bank is located at 1703 Gloucester Street, Brunswick, Georgia 31520, and its telephone number at that office is (912) 267-7283. The Bank also has six full-service branch offices. The following table sets forth the addresses of the aforementioned offices, their net book value and the expiration dates of the leases applicable to the offices not owned by the Bank.

**Office**Lease Expiration Date**Net Book Value**Executive Office
 
 
1703 Gloucester Street Brunswick, GA 31520
owned
$947,450**Full Service Offices
 
 **Altama Avenue Office 4510 Altama Avenue Brunswick, GA 31520
7/28/08
$150,259**Demere Village 2461 Demere Road St. Simons Island, GA 31522
owned
$244,397**North Brunswick Office

2001 Commercial Drive South Brunswick, GA 31525
owned
$422,322**Colonial Mall Office 109 Scranton Connector Brunswick, GA 
owned
$814,617**Waycross 1010 Plant Avenue Waycross, GA31501
owned
$165,148

Refer to the Lending Activities section of Item 1 contained herein for a description of investment policies related to investments in real estate mortgages.

Item 3.	LEGAL PROCEEDINGS

Neither the Company nor the Bank is a party to, nor is any of their property the subject of, any material pending legal proceedings, other than ordinary routine litigation incidental to their business, and no such proceedings are known to be contemplated by governmental authorities.

Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

PART II

Item 5.	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Information concerning common stock, shareholders and dividends appears in the Annual Report under the heading "Shareholder Information" and is incorporated by reference herein. On March 11, 2002, Fred Coolidge, III exercised his previously granted option to purchase 37,979 shares of Company common stock at a price of $.66 per share, for an aggregate purchase price of $25,066.14. The shares issued to Mr. Coolidge were unregistered.

Item 6.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Management's discussion and analysis of the Company's financial condition and its results of operations appears in the Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated by reference herein.

Item 7.	FINANCIAL STATEMENTS

The consolidated financial statements of the Company and the Bank as of September 30, 2002 and 2001 and for each of the years in the three year periods ended September 30, 2002, 2001, and 2000, and the report issued thereon by the Company's independent certified public accountant, appear in the Annual Report and are incorporated herein by reference.

Item 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; Compliance with Section 16(a) of the Exchange Act

	Information concerning the Company's and the Bank's Directors and Executive Officers appears in the Proxy Statement under the heading "Election of Directors", "Executive Officers", "Ownership of Stock", and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is incorporated by reference herein.

Item 10. EXECUTIVE COMPENSATION

	Information concerning the compensation of the Company's and the Bank's Management appears in the Proxy Statement under the heading "Executive Compensation" and is incorporated by reference herein.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

	Information concerning beneficial owners of more than 5% of the Company's common stock appears in the Proxy Statement under the heading "Ownership of Stock - Principal Holders of Stock" and is incorporated by reference herein.

	Information concerning the common stock owned by the Company's management appears in the Proxy Statement under the heading "Ownership of Stock - Stock Owned by Management" and is incorporated by reference herein.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

	Information concerning certain relationships and related transactions appears in the Proxy Statement under the heading "Executive Compensation - Certain Other Transactions" and is incorporated by reference herein. 

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits

	The list of documents set forth on the Exhibit Index that immediately follows the last signature page hereof is incorporated herein by reference, and such documents are filed as exhibits to this report on Form 10-KSB.

(b)	Reports on Form 8-K:

	Form 8-K dated October 31, 2002 reporting First Georgia Holding, Inc.'s Board of Director's approval of a change in fiscal year end from September 30 to December 31. 

Item 14. CONTROLS AND PROCEDURES

	Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) that is required to be included in the Company's periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect those internal controls subsequent to the date the Company carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies and material weaknesses.

SIGNATURES

	In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 FIRST GEORGIA HOLDING, INC.

(Registrant)

 

BY: **/s/** Henry S. Bishop

        President, Chief Executive Officer

Date:  December 16, 2002

 **POWER OF ATTORNEY**
	KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Henry S. Bishop and G.F. Coolidge III, and each of them, the person's attorneys-in-fact, each with full power of substitution, for the person in his or her name, place and stead, in any and all capacities, to sign any amendment to this Report on form 10-KSB, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and hereby ratifies and confirms all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signatures
Title
Date
/s/ Henry S. Bishop
President and Director (principal executive officer)
December 16, 2002
/s/ B.W. Bowie
Director
December 16, 2002
/s/ Terry Driggers
Director
December 16, 2002
/s/ Roy K. Hodnett
Director
December 16, 2002
/s/ E. Raymond Mock
Director
December 16, 2002
/s/ James D. Moore
Director
December 16, 2002
/s/ D. Lamont Shell
Director
December 16, 2002
/s/ William J. Stembler
Director
December 16, 2002
/s/ G.F. Coolidge, III
Chief Operating Officer (principal financial and accounting officer)
December 16, 2002
 
**Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
 I, G. F. Coolidge III, Chief Financial Officer, certify that:
I have reviewed this annual report on Form 10-KSB of First Georgia Holding, Inc.;

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

The registrant's other certifying officers and I have indicated in this annual report if there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: December 16, 2002	

/s/ G. F. Coolidge III

Chief Financial Officer

 
**Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
 I, Henry S. Bishop, Chief Executive Officer, certify that:
I have reviewed this annual report on Form 10-KSB of First Georgia Holding, Inc.; 

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

The registrant's other certifying officers and I have indicated in this annual report if there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: December 16, 2002

/s/ Henry S. Bishop

Chief Executive Officer

 

  **EXHIBIT INDEX****Exhibit No.**Document**Page
3.1
Articles of Incorporation of First Georgia Holding, Inc. incorporated by reference herein By reference to Appendix B to the Proxy Statement and Prospectus included in the Registration statement on Form S-4 (SEC No. 33-19150), filed December 18, 1987 ("Form S-4"), as amended on December 31, 1987 ("Amendment No. 1") First Georgia Savings Bank, F.S.B. is now known as First Georgia Bank, F.S.B.
N/A
3.2
Amended By-Laws of First Georgia Holding, Inc. incorporated by reference to Exhibit 3.2 of the Form 10-KSB for the year ended September 30, 1994 (the "1994 10-KSB")
N/A
 *10.1
First Georgia Holding, Inc. 1995 Stock Incentive Plan incorporated by reference to Exhibit 10.1 of the Form 10-KSB for the year ended September 30, 1995 (the "1995 10-KSB")
N/A
 *10.2
First Georgia Holding, Inc. Employee Stock Purchase Plan incorporated by reference to Exhibit 10.2 of the 1995 10-KSB
N/A
*10.3
Qualified 401 (k) Standardized Profit Sharing Plan, Adoption Agreement, First Georgia Savings Bank, F.S.B., incorporated herein by reference to Exhibit 10.3 of the Form 10-K for the year ended September 30, 1992 (the "1992 10-K")
N/A
*10.4
Qualified Retirement Plan, Basic Plan Document, First Georgia Savings Bank, F.S.B., incorporated herein by reference to Exhibit 10.4 of the 1992 10-K
N/A
*10.5
Amendment to the First Georgia Holding, Inc. 1995 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.5 of the Form 10-KSB for the year ended September 30, 1999 
N/A
*10.6
First Georgia Holding, Inc. 2000 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.6 of the Form 10-KSB for the year ended September 30, 2000
N/A
13
First Georgia Holding, Inc. 2002 Annual Report
N/A
21
Subsidiaries of First Georgia Holding, Inc. incorporated by reference to Exhibit 21.6 of the Form 10-KSB for the year ended September 30, 1993 (the "1993 10-KSB)
 N/A
23
Consent of Deloitte & Touche LLP
37
24
A power of attorney is set forth on the signature pages to this Form 10-KSB
31
99
Certification of Chief Executive Officer and Chief Financial Officer
38
 
**EXHIBIT 13**
 **ANNUAL REPORT
First Georgia

Its Mission and Markets

First Georgia Holding, Inc. owns 100% of the stock of First Georgia Bank. The Bank is a state chartered commercial bank and began operation in 1984. First Georgia develops and provides a full range of financial services encompassing retail banking, real estate, commercial and consumer lending and a host of related financial products. The Bank currently operates six full service offices in two Georgia counties.

First Georgia's PRIMARY MISSION is to maximize stockholder value in a prudent manner. We will concentrate on the following principles:

We will maintain high levels of asset quality through conservative lending policies, a vigorous comprehensive credit administration system and a diversified portfolio of earning assets. Interest rate risk will be thoroughly evaluated and controlled.

Our long-term goals for return on equity and assets will be set at upper levels of peer bank comparisons. We will strive to maintain a strong capital base supported by adequate loan loss reserves.

We will continue to attract and retain exceptional people. We will deliver the best quality customer service available in the banking industry. This high level of personal service is what separates us from our competitors.

Our officers and employees will be encouraged to provide leadership and support in civic and economic development activities. We will also strive to assess and serve the credit needs of each community in which we are located.

We are committed to the overall success of First Georgia. The proper implementation of these principles will continue to maximize the value of the Company.

**TABLE OF CONTENTS
PRESIDENT'S MESSAGE
1
INDEPENDENT AUDITORS' REPORT
3
CONSOLIDATED FINANCIAL STATEMENTS
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
SELECTED FINANCIAL AND OTHER DATA
29
MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
30
DIRECTORS AND OFFICERS
43
 

Dear Stockholders:

 

The year 2002 brought many positive changes to your Company. It was a year in which we changed a number of the ways in which we do business. First, we converted from a Federal Thrift Charter to a State Banking Charter, which occurred on August 19, 2002. We believe that the change to a state bank charter will allow us to better position ourselves for future growth and opportunities within our market place. Also, we have opted to change our fiscal year-end from September 30 to December 31. This will put our Company on a more comparable basis with other banking companies, most of which carry a December 31 year-end. 
***Net Income for the year was down slightly because of a declining ***Net Interest Margin*. ***Net Income*decreased $440,547, or 21.94%. However, ***Total Assets* grew by $15,404,709, or 6.28%. Much of this growth came from an increase in ***Total Deposits*, which amounted to $6,995,065, or 3.19%. Our asset quality remains good and is a high priority with Management. We know that this is the basis for so much of our future earnings. 
We look forward to the coming year with eager anticipation, and believe we are positioned to continue to increase our earnings, assets and deposits. 

As always, we extend our sincere gratitude and appreciation for your support.

Sincerely,

 

/s/ Henry S. Bishop

Chairman, President and CEO

 
**FIRST GEORGIA HOLDING, INC.

C O N S O L I D A T E D

F I N A N C I A L

S T A T E M E N T S
*September 30, 2002 and 2001 (With Independent Auditors' Report Thereon)*

 

 

 

The Board of Directors and Stockholders

First Georgia Holding, Inc.

Brunswick, Georgia

 

We have audited the accompanying consolidated balance sheets of First Georgia Holding, Inc. and subsidiary (the "Company") as of September 30, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2002 in conformity with accounting principles generally accepted in the United States of America.

 

/s/Deloitte & Touche LLP

Certified Public Accountants

Jacksonville, Florida

November 22, 2002

 

 

**CONSOLIDATED BALANCE SHEETS
First Georgia Holding, Inc. and subsidiary**September 30,**Assets**2002**2001
Cash and cash equivalents:
Cash and due from banks
$ 7,704,464
$ 8,972,134
Federal funds sold
3,975,000
10,759,000
Interest bearing deposits in other banks
166,850
220,179
Total cash and cash equivalents
11,846,314
19,951,313
Investment securities held to maturity, fair value $26,530,020

and $26,459,062 at September 30, 2002 and 2001, 

respectively (note 2)
25,851,519
25,950,677
Loans receivable, net of allowance for loan loss of $2,240,312 and

$2,414,477 at September 30, 2002 and 2001, respectively (note 3)
212,869,728
187,526,158
Real estate owned
578,913
928,739
Federal Home Loan Bank stock, at cost 
1,025,900
992,300
Premises and equipment, net (note 4)
5,329,773
5,616,054
Accrued interest receivable (note 5)
1,172,251
1,328,007
Intangible assets, net
406,397
502,025
Deferred income taxes, net (note 9)
585,421
686,327
Other assets
1,206,529
1,986,436**Total Assets
$ 260,872,745
$ 245,468,036**Liabilities and Stockholders' Equity**Liabilities:
Deposits (note 6)
$ 225,977,853
$ 218,982,788
Federal Home Loan Bank advances (note 7)
11,000,000
3,500,000
Other borrowed funds (note 7)
2,000,000
2,000,000
Accrued interest payable
375,206
644,192
Obligations under capital lease (note 10)
150,260
172,959
Accrued expenses and other liabilities 
450,999
498,937
Total liabilities
239,954,318
225,798,876**Commitments and contingencies (notes 10 and 15)**Stockholders' Equity (note 8):
Common stock, $1 par value; 10,000,000 shares authorized; 

7,751,712 and 7,713,733 shares issued and outstanding

at September 30, 2002 and 2001, respectively
7,751,712
7,713,733
Additional paid-in capital
427,931
396,297
Retained earnings
12,738,784
11,559,130
Total stockholders' equity
20,918,427
19,669,160**Total Liabilities and Stockholders' Equity
$ 260,872,745
$ 245,468,036
See accompanying notes to consolidated financial statements.
 

 

**CONSOLIDATED STATEMENTS OF OPERATIONS
First Georgia Holding, Inc. and subsidiary**Years Ended September 30,**2002**2001**2000**Interest Income:
Loans
$ 14,093,394
$ 18,141,655
$ 18,489,668
Mortgage-backed securities
1,592,047
1,448,729
947,405
Investment securities
305,492
202,033
98,175
Other
60,677
459,503
396,951 
Total interest income
16,051,610
20,251,920
19,932,199 **Interest Expense:
Deposits (note 6)
6,850,532
9,918,978
9,036,423 
Advances and other borrowings
356,744
379,314
498,612 
Total interest expense
7,207,276
10,298,292
9,535,035 
Net interest income
8,844,334
9,953,628
10,397,164 **Provision for Loan Losses (note 3)
120,000
435,000
2,640,000 
Net interest income after provision 
for loan losses
8,724,334
9,518,628
7,757,164 **Other Income:
Loan fees
565,194
568,471
562,736 
Deposit service charges
2,047,364
2,035,355
1,937,686 
Other operating income
461,735
301,061
206,274 
Total other income
3,074,293
2,904,887
2,706,696 **Other Expenses:
Salaries and employee benefits
4,841,082
4,577,347
3,959,488 
Net occupancy expense
1,677,087
1,860,489
1,691,623 
Data processing expenses
181,032
104,196
89,613 
Postage
176,405
151,613
239,813 
Office supplies
234,673
247,879
260,355 
Amortization of intangibles
95,628
95,628
95,628 
Federal insurance premiums
54,097
79,715
54,019 
Other operating expenses
2,112,480
2,167,642
1,732,515 
Total other expenses
9,372,484
9,284,509
8,123,054 
Income before income taxes
2,426,143
3,139,006
2,340,806 **Income Tax Expense (note 9)
858,904
1,131,220
909,151 **Net Income
$ 1,567,239
$ 2,007,786
$ 1,431,655 **Net Income Per Share (Note 13):
Basic
$ 0.20
$ 0.26
$ 0.20 
Diluted
$ 0.20
$ 0.26
$ 0.19 
See accompanying notes to consolidated financial statements.
 

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
First Georgia Holding, Inc. and subsidiary**Common Stock**Additional Paid-in Capital**Treasury Stock**Retained Earnings**Total Stockholders' Equity**Balance, September 30, 1999
$ 7,198,371 
$ 715,740 
$ 9,410,400 
$ 17,324,511 
Purchase of treasury stock
 - 
 - 
$ (713,813) 
 - 
(713,813) 
Reissuance of treasury stock 
and simultaneous exercise of 
stock options
363,487 
(363,487) 
713,813 
 - 
713,813 
Exercise of stock options
151,875 
44,044 
 - 
 - 
195,919 
Net income
 - 
 - 
 - 
1,431,655 
1,431,655 
Cash dividends, $0.08 per share
 - 
 - 
 - 
(596,479) 
(596,479) **Balance, September 30, 2000
7,713,733 
396,297 
 - 
10,245,576 
18,355,606 
Net income
 - 
- 
 - 
2,007,786 
2,007,786 
Cash dividends, $0.08 per share
 - 
- 
 - 
(694,232) 
(694,232) **Balance, September 30, 2001
7,713,733 
396,297 
 - 
11,559,130 
19,669,160 
Exercise of stock options
37,979 
(12,914) 
 - 
 - 
25,065 
Income tax benefit resulting from
exercise of stock options
 - 
44,548 
 - 
 - 
44,548 
Net income
 - 
- 
 - 
1,567,239 
1,567,239 
Cash dividends, $0.05 per share
 - 
- 
 - 
(387,585) 
(387,585) **Balance, September 30, 2002
$ 7,751,712 
$ 427,931 
$ - 
$ 12,738,784 
$ 20,918,427 
See accompanying notes to consolidated financial statements.
 

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS
First Georgia Holding, Inc. and subsidiary**Years Ended September 30,**2002**2001**2000**Operating Activities
Net income
$ 1,567,239 
$ 2,007,786 
$ 1,431,655 
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
120,000 
435,000 
2,640,000 
Depreciation and amortization
708,959 
756,221 
763,765 
(Accretion) amortization of (discounts) premiums
on investments, net
(434,928) 
(456,693) 
(17,700) 
Amortization of intangibles
95,628 
95,628 
95,628 
Amortization of net deferred loan fees 
(148,345) 
(191,133) 
(249,286) 
Gain on sale of real estate owned
(52,394) 
(82,124) 
(16,315) 
Loss on sale of repossessed assets
200 
3,700 
- 
(Gain) loss on sale of premises and equipment
(10,453) 
532 
7,205 
Gain on sale of securities
- 
(2,900) 
- 
Deferred income tax expense (benefit) 
100,906 
109,714 
(384,031) 
Decrease (increase) in accrued interest receivable
155,756 
179,685 
(302,093) 
Decrease (increase) in other assets
954,824 
(597,972) 
(251,582) 
(Decrease) increase in accrued interest receivable
(268,986) 
(75,010) 
201,463 
(Decrease) increase in accrued expenses
and other liabilities
(47,938) 
55,367 
(230,622) 
Net cash provided by operating activities
2,740,468 
2,237,801 
3,688,087 **Investing Activities
Principal payments received on mortgage-backed
Securities
2,380,164 
2,075,528 
1,754,133 
Maturities of investment securities
5,079,234 
3,689,618 
325,000 
Purchase of investment securities
(6,925,312) 
(13,378,109) 
(5,497,496) 
Loan originations, net of principal repayments
(26,309,079) 
3,388,640 
(22,955,322) 
Purchase of premises and equipment
(447,503) 
(816,724) 
(1,450,877) 
Proceeds from sale of real estate owned
1,099,588 
1,842,446 
5,000 
Proceeds from sale of repossessed assets
165,917 
116,988 
29,100 
Proceeds from sale of premises and equipment
35,278 
13,675 
10,750 
Purchase of FHLB stock
(33,600) 
(100,000) 
(54,800) 
Net cash used in investing activities
(24,955,313) 
(3,167,938) 
(27,834,512) 
 

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
First Georgia Holding, Inc. and subsidiary**Years Ended September 30,**2002**2001**2000**Financing Activities
Net increase in deposits
6,995,065 
4,009,758 
40,866,111 
Proceeds from other borrowed funds
- 
- 
2,000,000 
Proceeds from FHLB advances
20,000,000 
6,000,000 
- 
Repayment of FHLB advances
(12,500,000) 
(5,000,000) 
(6,100,000) 
Principal payments on obligations under
capital lease
(22,699) 
(20,836) 
(18,425) 
Net decrease in federal funds purchased
- 
- 
(2,860,000) 
Net proceeds from exercise of stock options
25,065 
- 
195,919 
Dividends 
(387,585) 
(694,232) 
(596,479) 
Net cash provided by financing activities
14,109,846 
4,294,690 
33,487,126 
(Decrease) increase in cash and cash equivalents
(8,104,999) 
3,364,553 
9,340,701 
Cash and cash equivalents at beginning of year
19,951,313 
16,586,760 
7,246,059 
Cash and cash equivalents at end of year
$ 11,846,314 
$ 19,951,313 
$ 16,586,760 
Supplemental disclosure of cash paid during year for:
Interest
$ 7,476,000 
$ 10,373,000 
$ 9,334,000 
Income taxes
$ 702,000 
$ 925,000 
$ 1,649,000 
 

Supplemental disclosure of non-cash activities:

 

Loans receivable of approximately $1,676,000, $2,779,000 and $758,000 were transferred to real estate owned during the years ended September 30, 2002, 2001, and 2000, respectively.

 

Loans receivable of approximately $292,000, $97,000 and $37,000 were transferred to repossessed assets during the years ended September 30, 2002, 2001, and 2000, respectively.

 

Sales of real estate owned totaling approximately $1,085,000, $583,000 and $757,000 for the years ended September 30, 2002, 2001, and 2000, respectively, were financed by the Bank.

 

See accompanying notes to consolidated financial statements.

 
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

First Georgia Holding, Inc. and subsidiary

Years Ended September 30, 2002, 2001 and 2000
Summary of Significant Accounting Policies

First Georgia Holding, Inc. (the "Company") was incorporated on December 16, 1987 for the purpose of acquiring all of the issued and outstanding stock of First Georgia Bank, F.S.B. (the "Bank"). On August 19, 2002, the Bank converted from a federal savings bank to a state chartered commercial bank. The accounting and reporting policies of First Georgia Holding, Inc. and subsidiary conform to accounting principles generally accepted in the United States of America. The following is a description of the more significant of those policies which the Company follows in preparing and presenting its consolidated financial statements.
**Basis of Financial Statement Presentation**
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and real estate acquired through foreclosure, management obtains independent appraisals on underlying collateral and reviews available market data such as comparable sales and recent market trends through discussions with local real estate professionals.

The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.
**(b) Cash and Cash Equivalents**
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and Federal funds sold. Generally, Federal funds sold are held for one day.
**(c) Investment Securities Held to Maturity**
The Company has classified all its investments in securities as held to maturity based upon positive intent and ability to hold those securities until maturity.

Held to maturity securities are recorded at cost adjusted for the amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted over the life of the related investment security using a method which approximates the interest method. Purchase premiums and discounts on mortgage-backed securities are amortized and accreted to interest income using a method which approximates the interest method, over the remaining lives of the securities taking into consideration assumed prepayment patterns.
**(d) Loans Receivable and the Allowance for Loan Losses**
Loans are reported at principal amounts outstanding, less unearned income and the allowance for loan losses. Interest income is accrued on the unpaid balance.

Loans are placed on a nonaccrual basis when reasonable doubt exists as to the full, timely collection of interest and principal or they become contractually in default for 90 days or more as to either interest or principal unless they are both well secured and in the process of collection.

Additions to the allowance for loan losses are charged to operations based upon management's evaluation of the probable losses in its loan portfolio. This evaluation considers the estimated value of the underlying collateral and such other factors as, in management's judgment, deserve recognition under existing economic conditions. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for losses on loans and real estate owned. Such agencies may require the Bank to recognize additions to the allowances based on their judgments of information available to them at the time of their examination. 

A loan is considered impaired when it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank's impaired loans include nonaccrual loans, troubled debt restructurings, and large loans more than 90 days delinquent in which full payment of principal and interest is not expected. Cash receipts on impaired loans are used to reduce principal balances. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Impairment losses are measured by the present value of expected future cash flows discounted at the loan's effective interest rate, or at either the loan's observable market price or the fair value of the collateral. Adjustment to impairment losses due to changes in the fair value of an impaired loan's underlying collateral are included in the provision for losses. Upon disposition of an impaired loan, any related valuation allowance is reversed through a charge-off to the allowance for loan losses.

Large groups of smaller balance homogeneous loans (consumer loans) are collectively evaluated for impairment. Commercial loans and larger balance real estate and other loans are individually evaluated for impairment.
**(e) Loan Origination and Commitment Fees**
Loan origination fees, net of certain direct origination costs, are deferred and amortized on a basis that approximates the interest method over the contractual lives of the underlying loans. In addition, fees for a commitment to originate or purchase loans are offset against direct loan origination costs incurred to make such commitments. The net amounts are deferred and, if the commitment is exercised, recognized over the life of the related loan as a yield adjustment or, if the commitment expires unexercised, recognized as income upon expiration of the commitment.
**(f) Real Estate Owned**
Real estate owned represents real estate acquired through foreclosure or deed in lieu of foreclosure and is reported at lower of cost or fair value, adjusted for 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 recorded as a loan loss. Gain or loss on sale and any subsequent permanent decline in fair value is recorded to operations.
**(g) Federal Home Loan Bank Stock**
Investment in stock of the Federal Home Loan Bank is carried at cost and is required of those institutions who utilize its services. No ready market exists for the stock, and it has no quoted value.**(h) Premises and Equipment**
Premises and equipment are carried at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets.
**(i) Intangible Assets**
Intangible assets consist of core deposit premiums and cost in excess of net assets acquired resulting from the Company's branch acquisitions in 1987. Such amounts are amortized using the straight-line method over the estimated life (19 years) of the customer deposit base. The Company writes off the unamortized balance of the intangible assets upon the disposition of the related branches. Intangible 
**Summary of Significant Accounting Policies (Cont'd)**
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. In the event that facts and circumstances indicate that the carrying value of the intangible asset may be impaired, an evaluation of their recoverability would be performed and any resulting impairment loss recorded.
**(j) Income Taxes**
The Company files consolidated income tax returns with its subsidiary. 

Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 
**(k) Net Income Per Share**
Basic net income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per share includes the potential dilutive securities that could share in the earnings.
**(l) Stock Options**
The Company has elected to account for its stock options under the intrinsic value based method with pro forma disclosures of net earnings and net earnings per share, as if the fair value based method of accounting defined in SFAS No. 123, "Accounting for Stock Based Compensation" had been applied. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.
**(m) Reclassification**
Certain reclassifications have been made to the 2001 and 2000 consolidated financial statements to conform with the presentation adopted in 2002.
**(n) Recent Accounting Pronouncements**
In July of 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 established accounting and reporting standards for business combinations. This Statement eliminates the use of the pooling-of-interests method of accounting for business combinations, requiring future business combinations to be accounted for using the purchase method of accounting. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method of accounting for which the date of acquisition is July 1, 2001 or later. Adoption of 

SFAS No. 141 had no impact on the Company's consolidated financial position and consolidated results of operations. 

SFAS No. 142 established accounting and reporting standards for goodwill and other intangible assets. With the adoption of this Statement, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value based test. SFAS No. 142 is required to be adopted for fiscal years beginning after December 31, 2001. Adoption of SFAS No. 142 did not have a material impact on the Company's consolidated financial position and consolidated results of operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and requires that the amount recorded as a liability be capitalized by increasing the carrying amount of the related long-lived assets. Subsequent to initial measurement, the liability is accreted to the ultimate amount anticipated to be paid, and is also adjusted for revisions to the timing or amount of estimated cash flows. The capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is required to be adopted for fiscal years beginning after June 15, 2002, with earlier application encouraged. The adoption of SFAS No. 143 will not have an effect on the Company's consolidated financial position and results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 did not have an effect on the Company's consolidated financial position and results of operations.

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers". This Statement amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted SFAS No. 145 on July 1, 2002. The statement did not have a material impact on the consolidated financial position or results of operations.

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This Statement nullifies Emerging Issues Task force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under Issue 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. It does not appear that this statement will have a material effect on the financial position, operations or cash flows of the Company.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions". This statement removes acquisitions of financial institutions (other than transactions between two or more mutual enterprises) from the scope of SFAS No. 72 "Accounting for Certain Acquisitions of Banking or Thrift Institutions" and FASB Interpretation No. 9, "Applying APB Opinions 16 and 17 When a Savings and Loan or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method". These types of transactions are now accounted for under SFAS 141 and 142. In addition, this Statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", to include in its scope long-term customer relationship intangible assets of financial institutions. The provisions of this Statement are effective October 1, 2002, with earlier adoption permitted. The Company adopted the provisions of this statement on October 1, 2002, which had no material impact on the Company's consolidated financial position and consolidated results of operations.
**(2) Investment Securities Held to Maturity**
Investment securities held to maturity consist of the following:

**Amortized Cost**Unrealized Gains**Unrealized Losses**Fair Value
September 30, 2002:
Mortgage-backed securities and SBA's
$ 19,989,246 
$ 1,019,468 
$ (335,963) 
$ 20,672,751 
State and municipal
5,862,273 
65,432 
(70,436) 
5,857,269 
$ 25,851,519 
$ 1,084,900 
$ (406,399) 
$ 26,530,020 
September 30, 2001:
Mortgage-backed securities and SBA's
$ 21,470,502 
$ 635,972 
$ (172,932) 
$ 21,933,542 
State and municipal
4,480,175 
64,117 
(18,772) 
4,525,520 
$ 25,950,677 
$ 700,089 
$ (191,704) 
$ 26,459,062 
A summary of investment and mortgage-backed securities by maturity as of September 30, 2002 is shown below. The entire principal amount of mortgage-backed securities is shown in the year of contractual maturity. Expected maturities will differ from the maturities shown because borrowers have the right to prepay obligations without prepayment penalties, and principal is paid down over the contractual life of the mortgage-backed securities.

**Amortized Cost**Fair Value
Due within 1 year
$ 101,129 
$ 103,472 
Due after 1 year through 5 years
1,599,354 
1,651,466 
Due after 5 years through 10 years
5,148,443 
5,202,460 
Due after 10 years
19,002,593 
19,572,622 
$ 25,851,519 
$ 26,530,020 
At September 30, 2002 and 2001, the Company had pledged approximately $11,076,000 and $13,340,000, respectively, of its securities to government and municipal depositors.
**(3) Loans Receivable**
Loans receivable at September 30, are summarized as follows:

**2002**2001
Real estate mortgage loans
$153,885,801 
$123,603,340 
Real estate construction loans
29,567,026 
34,202,379 
Consumer loans
16,841,699 
17,454,671 
Commercial and other loans
14,941,148 
14,823,605 
215,235,674 
190,083,995 
Less:
Deferred loan fees and 
costs, net
(118,371)
(119,042)
Unearned interest income
(7,263)
(24,318)
Allowance for loan losses
(2,240,312)
(2,414,477)
$212,869,728 
$187,526,158 
 

An analysis of the activity in the allowance for loan losses is as follows:

**2002**2001**2000
Balance at beginning of year
$ 2,414,477 
$ 2,364,704 
$ 1,235,566 
Provision for loan losses
120,000 
435,000 
2,640,000 
Recoveries
474,311 
325,298 
142,448 
Charge-offs
(768,476)
(710,525)
(1,653,310)
Balance at end of year
$ 2,240,312 
$ 2,414,477 
$ 2,364,704 
The Bank extends credit to customers throughout its market area with a concentration in real estate mortgage loans. The real estate loan portfolio is substantially secured by properties located throughout Southeast Georgia. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers' ability to repay such loans is dependent upon the economy in the Bank's market area.

At September 30, 2002 and 2001, the Bank had nonaccrual loans aggregating approximately $5,477,000 and $3,541,000, respectively. The effects of carrying nonaccrual loans during 2002, 2001 and 2000 resulted in a reduction of interest income of approximately $215,000, $183,000, and $136,000, respectively.

The following is a summary of information pertaining to impaired loans:

**September 30,**2002**2001
Impaired loans with a valuation allowance
$1,639,662 
$1,195,238 
Impaired loans without a valuation allowance
- 
-
Total impaired loans
$1,639,662 
$1,195,238 
Valuation allowance related to impaired loans
$ 655,924 
$ 711,000 
 
**(3) Loans Receivable (Cont'd)**
**Years ended September 30,**2002**2001**2000
Average investment in impaired loans
$1,417,450 
$798,529 
$1,668 
Interest income recognized on impaired loans
$ - 
$ - 
$ - 
Interest income recognized on a cash basis on impaired loans
$ 143,281 
$ 83,738 
$ - 
 No additional funds are committed to be advanced in connection with impaired loans.

At September 30, 2002 and 2001, the Bank had no loans held for sale.

The Bank has direct and indirect loans outstanding to certain directors and executive officers. All of these loans were made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal credit risk or present other unfavorable features. The following is a summary of such loans outstanding and the activity in these loans for 2002 and 2001:

**2002**2001
Balance at beginning of year
$ 5,581,212 
$ 4,802,788 
New borrowings
9,624,005 
4,929,244 
Repayments
(7,428,972)
(4,150,820)
Balance at end of year
$ 7,776,245 
$ 5,581,212 
At September 30, 2002, 2001, and 2000, the Bank was servicing loans for others under a participation agreement, aggregating approximately $2,700,000, $10,856,000, and $11,652,000, respectively. 

At September 30, 2002 and 2001, the Company had pledged specific residential real estate mortgage loans amounting to approximately $21,578,000 and $10,441,000, respectively, as collateral for Federal Home Loan Bank advances.
**(4) Premises and Equipment**
Premises and equipment at September 30 are summarized as follows:

**2002**2001
Land
$ 893,410 
$ 893,410 
Buildings and improvements
3,830,362 
3,814,488 
Buildings under capital lease
403,466 
403,466 
Furniture, equipment, and automobiles
5,969,516 
5,598,813 
11,096,754 
10,710,177 
Less accumulated depreciation
and amortization
(5,766,981)
(5,094,123)
Premises and equipment, net
$ 5,329,773 
$ 5,616,054 
 

Depreciation expense for the years ended September 30, 2002, 2001 and 2000 amounted to approximately $709,000, $756,000 and $764,000, respectively.
**(5) Accrued Interest Receivable**
Accrued interest receivable at September 30 is summarized as follows:

**2002**2001
Loans
$ 953,140 
$ 1,089,240 
Investment securities
72,393 
71,437 
Mortgage-backed securities
146,718 
167,330 
$ 1,172,251 
$ 1,328,007 **(6) Deposits

Deposits are summarized at September 30 as follows:

**2002**2001
Weighted
Weighted
Average
Average
Balance
Rate
Balance
Rate
Non-interest demand deposits
$ 30,882,093 
$ 28,450,103 
Negotiable orders of withdrawal
27,882,433 
0.50%
24,090,739 
0.75%
Money market deposit accounts
26,548,611 
2.05%
10,657,545 
2.00%
Savings deposits
12,305,218 
1.25%
12,352,185 
1.75%
Certificates of deposits:
Certificates less than $100,000
111,325,224 
3.65%
126,935,300 
5.75%
Jumbo certificates
17,034,274 
3.98%
16,496,916 
5.94%
$225,977,853 
2.86%
$218,982,788 
4.06%
Interest expense on deposits is summarized below:

**2002**2001**2000
Negotiable orders of withdrawal
$ 200,546 
$ 249,088 
$ 189,363 
Money market deposit accounts
474,820 
410,710 
543,966 
Savings deposits
146,945 
221,289 
190,971 
Certificates of deposit:
Certificates less than $100,000
5,323,685 
8,044,949 
7,195,245 
Jumbo certificates
742,911 
1,017,524 
949,261 
Less:
Early withdrawal penalties
(38,375)
(24,582)
(32,383)
$ 6,850,532 
$ 9,918,978 
$ 9,036,423 
 

At September 30, 2002, the rates on deposits were as follows:

Negotiable orders of withdrawal		.50%

Money market deposit accounts		2.05%

Savings deposits			1.25%

Certificates of deposits			1.75-7.52%

As of September 30, 2002, and 2001, the Bank had no brokered deposits.
**(6) Deposits (Cont'd)**
The amount and maturities of certificates of deposits at September 30, 2002 are as follows:

**Year Ending September 30,**Amount
2003
$105,335,095 
2004
15,191,487 
2005
5,984,627 
2006
1,254,980 
After 2006
593,309 
$128,359,498 ** 

(7) Federal Home Loan Bank Advances And Other Borrowed Funds

Advances from the Federal Home Loan Bank at September 30 are summarized as follows:

**2002**2001
Due During Year Ending
Weighted
Weighted
September 30,
Amount
Average Rate
Amount
Average Rate
2002
$ - 
- 
$ 500,000 
7.90%
2003
7,500,000 
2.17%
- 
- 
2005
1,000,000 
5.90%
- 
- 
2006
500,000 
5.18%
1,000,000 
5.90%
2008
2,000,000 
5.51%
2,000,000 
5.51%
$11,000,000 
3.25%
$3,500,000 
5.96%
The Bank has the ability to borrow additional funds from the Federal Home Loan Bank. The advances and any future borrowings are collateralized by certain qualifying real estate loans under a security agreement with the Federal Home Loan Bank. Additionally, all stock of the Federal Home Loan Bank is pledged as collateral for the advances.

The Federal Home Loan Bank has the option to convert both the $1,000,000 and $2,000,000 advances outstanding at September 30, 2001 into a three-month LIBOR-based floating rate advance effective November 10, 2001 and March 26, 2003, respectively, and any payment date thereafter with at least two business days prior notice to the Company.

If the Federal Home Loan Bank elects to convert this advance, then the Company may elect, with at least two business days prior written notice, to terminate in whole or part this transaction without payment of a termination amount on any subsequent payment date. The Company may elect to terminate the advance and pay a prepayment penalty, with two days prior written notice, if the Federal Home Loan Bank does not elect to convert this advance.

First Georgia Holding, Inc. obtained a line of credit for up to $3,000,000 from the Bankers Bank in March 2000. Interest is payable quarterly at the Prime rate minus 50 basis points (4.25% at September 30, 2002). All of the issued and outstanding shares of capital stock of First Georgia Bank are pledged as collateral for this line of credit. As of September 30, 2002 and 2001, the Company had borrowed $2,000,000 against this line of credit. The line of credit matured on March 31, 2002 but the Company elected to extend the maturity date until March 31, 2012.
** (8) Stockholders' Equity and Regulatory Matters**
The Bank is subject to various regulatory capital requirements administered by the 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 Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practice. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.****
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) of tangible capital (as defined) to tangible assets (as defined) and of Core capital (as defined) to adjusted tangible assts (as defined). Management believes, as of September 30, 2002 and 2001, that the Bank met all capital adequacy requirements to which it is subject.

On August 19, 2002, the Bank became a state chartered commercial bank, subject to examination by the FDIC and the Georgia State Department of Banking and Finance. The Bank's primary regulatory agency up to this point was the Office of Thrift Supervision ("OTS").

As of September 30, 2002, the most recent notification date from the FDIC, the Bank was categorized as "Well Capitalized" under the regulatory framework for prompt corrective action. To be categorized as "Well Capitalized", the Bank must maintain minimum core, and total capital and Tier 1 capital ratios of at least 5%, 10%, and 6%, respectively. There are no conditions or events since that notification that management believes have changed the Bank's category.

Actual
For Capital Adequacy Purposes
To be Well Capitalized Under Prompt CorrectiveAction Provisions
As of September 30, 2002
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total capital
(to risk-weighted assets)
First Georgia Holding, Inc.
$ 22,753,000 
11.48%
$ 15,850,000 
8.00%
N/A
N/A
First Georgia Bank
24,679,000 
12.46%
15,850,320 
8.00%
$ 19,813,000 
10.00%
Tier 1 capital
(to risk-weighted assets)
First Georgia Holding, Inc.
20,512,000 
10.35%
7,925,160 
4.00%
N/A
N/A
First Georgia Bank
22,438,000 
11.32%
7,925,160 
4.00%
11,887,740 
6.00%
Tier 1 capital
(to average assets)
First Georgia Holding, Inc.
20,512,000 
7.88%
10,418,640 
4.00%
N/A
N/A
First Georgia Bank
22,438,000 
8.61%
10,418,640 
4.00%
13,023,300 
5.00%
 

 

Actual
For Capital Adequacy Purposes (For OTS Purposes)
To Be Categorized as "Well Capitalized" Under Prompt Corrective Action Provisions
As of September 30, 2001
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tangible Capital
$ 21,126,000 
8.62%
$ 3,674,000 
1.50%
N/A
N/A
(to tangible assets)
Core Capital
21,628,000 
8.81%
9,819,000 
4.00%
$ 12,273,000 
5.00%
(to adjusted tangible assets)
Total Capital
22,920,000 
11.17%
16,421,000 
8.00%
20,526,000 
10.00%
(to risk-weighted assets)
Tier 1 Capital
21,628,000 
10.54%
N/A
N/A
12,316,000 
6.00%
(to risk-weighted assets)** 
- Income Taxes

The components of income tax expense are as follows:

**2002**2001**2000
Federal: Current
$698,313 
$ 909,140 
$1,143,255 
Deferred
84,957 
92,160 
(323,395)
783,270 
1,001,300 
819,860 
State: Current
59,685 
112,366 
149,927 
Deferred
15,949 
17,554 
(60,636)
75,634 
129,920 
89,291 
$858,904 
$1,131,220 
$ 909,151 
The difference between the actual provision for income taxes and income taxes computed at the Federal statutory rate of 34% is as follows:

**2002**2001**2000
Federal taxes at statutory rate
$824,888 
$1,067,259 
$795,874 
Increase (decrease) resulting from:
State income taxes, net
42,069 
48,193 
52,217 
Amortization of intangibles
8,686 
8,686 
8,686 
Tax exempt income
(82,796)
(32,788)
(6,828)
Other, net
66,057 
39,870 
59,202 
$858,904 
$1,131,220 
$909,151 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of September 30, 2002 and 2001 are presented below:

 **2002**2001
Deferred tax assets:
Allowance for loan losses
$ 739,642 
$ 808,522 
Deferred loan costs
44,934 
45,188 
Total gross deferred tax assets
784,576 
853,710 
Less valuation allowance
- 
- 
Net deferred tax assets
784,576 
853,710 
Deferred tax liabilities:
FHLB stock dividends
127,763 
127,763 
Depreciation
71,392 
39,620 
Total deferred tax liabilities
199,155 
167,383 
Net deferred tax assets 
$ 585,421 
$ 686,327 
Prior to January 1, 1996, under the Internal Revenue Code (the "Code"), the Company was allowed a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses. The provisions of the Code permitted the Company to deduct from taxable income an allowance for bad debts based on the greater of a percentage of taxable income before such deductions or actual loss experience. Retained earnings at September 30, 2002 and 2001 include approximately $248,000 for which no deferred Federal income tax liability has been recognized. The amount represents an allocation of income for bad debt deductions for tax purposes only. Reduction of amount so allocated for purposes other than tax bad debt losses or adjustments arising from carry back of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate.
**(10) Leases**
On September 28, 1987, the Bank entered into a sale-leaseback of one of its branches. The facility has been capitalized and the related obligation is recorded as a liability in the accompanying financial statements based on the present value of future minimum lease payments. The lease term expires August 28, 2007. Premises and equipment includes buildings under capital leases of $403,466 at September 30, 2002 and 2001 and accumulated amortization of $290,943 and $270,243 at September 30, 2002 and 2001, respectively.

The present value of future minimum capital lease payments as of September 30, 2002, is:

Year ending September 30,
2003
$ 36,711 
2004
36,711 
2005
36,711 
2006
36,711 
2007
36,711 
Total minimum lease payments
183,555 
Less amount representing interest at 10%
(33,295)
Present value of future minimum capital lease payments
$150,260 
 During the year ended September 30, 2000, the Bank terminated its operating lease for an operating facility that was replaced by a new, permanent branch facility. The balance of the lease was paid off based on the net present value of the future lease payments which was approximately $32,000. There was no additional penalty for this transaction and no further liability exists.

Total rent expense was approximately $89,000 for the year ended September 30, 2000.
**(11) Employee Benefit Plans**
The Company has a 401(k) Profit Sharing Plan (the "Plan") which covers substantially all of its employees. The Company matches 75% of employee contributions to the Plan, up to 6% of an employee's salary. The Company contributed approximately $104,000, $103,000, and $69,000 to the Plan during the years ended September 30, 2002, 2001, and 2000, respectively.

Also, the Company has an Employee Stock Purchase Plan which covers substantially all of its employees. Employees pay 85% of the price at which the Company buys its stock in the open market. During the years ended September 30, 2002, 2001 and 2000, approximately 21,000, 19,000 and 16,000 shares, respectively, were purchased by employees. As a result of such employee stock purchases, the Company incurred employee benefits expense of approximately $18,000, $18,000 and $15,000 for the years ended September 30, 2002, 2001 and 2000, respectively.
**(12) Stock Option Plan**
During 2001, the Board of Directors and the Stockholders of the Company adopted the 2000 Stock Incentive Plan (the "2000 Option Plan"). The Company has reserved 825,000 shares of common stock for issuance under the 2000 Option Plan. There were no options granted under the 2000 Option Plan for the years ended September 30, 2002 and 2001.

During 1995, the Company adopted a nonqualified Stock Option Plan (the "1995 Option Plan"). The Company has reserved 1,033,125 shares of common stock for issuance under the 1995 Option Plan. The Company also has a nonqualified Stock Option Plan (the "Option Plan") adopted prior to 1995. For the year ended September 30, 2002, the remaining 37,970 options outstanding under this plan were exercised. The Company has no remaining options outstanding under this plan.

Outstanding options, consisting of five-year incentive stock options, vest and become exercisable over a five-year period from the date of grant. The outstanding options expire five years from the date of grant or upon retirement from the Company, and are contingent upon continued employment during the applicable five-year period.

Options for a total of 360,000 shares were granted on September 23, 1998. Under SFAS No. 123, for pro forma disclosure purposes, the fair value of such options of $663,722 is to be expensed over the vesting period of five years. There were no stock options granted in the years ended September 30, 2002, 2001 or 2000.

If compensation cost for stock option grants had been determined based on the fair value at the grant dates for 2002, 2001 and 2000 consistent with the method prescribed by SFAS No. 123, the Company's net earnings and earnings per share would have been the pro forma amounts indicated below:

 **September 30,****2002**2001**2000
Net Income
As Reported
$1,567,239 
$2,007,786 
$1,431,655 
Pro forma
1,492,292 
1,914,452 
1,376,494 
Net Income Per Share - Basic
As Reported
0.20 
0.26 
0.20 
Pro forma
0.19 
0.25 
0.19 
Net Income Per Share - Diluted
As Reported
0.20 
0.26 
0.19 
Pro forma
0.19 
0.25 
0.18 
A summary of the status of fixed stock option grants under the Company's stock-based compensation plans as of September 30, 2002, 2001 and 2000, and changes during the years ending on those dates is presented below.

**2002**2001**2000
Weighted Average
Weighted Average
Weighted Average
Options
Exercise Price
Options
Exercise Price
Options
Exercise Price
Outstanding - October 1
397,970 
$ 5.68 
397,970 
$ 5.68 
1,056,095 
$ 3.00 
Exercised
(37,970)
$ 0.66 
-
-
(658,125)
$ 1.38 
Forfeited
(60,000)
$ 5.92 
Outstanding - September 30
300,000 
$ 6.27 
397,970 
$ 5.68 
397,970 
$ 5.68 
Options exercisable at year end
240,000 
$ 6.21 
232,970 
$ 5.21 
127,970 
$ 4.36 ** 

(12) Stock Option Plan (Cont'd)

The following table summarizes information about fixed stock options outstanding at September 30, 2002:

Exercise
Options
Options
Weighted Average
Price
Outstanding
Exercisable
Remaining Life
$ 5.92 
120,000 
120,000 
0.98
6.51 
180,000 
120,000 
0.98
300,000 
240,000 
Remaining non-exercisable options as of September 30, 2002 become exercisable in 2003.
**(13) Net Income Per Share**
Following is a reconciliation of the denominator used in the computation of basic and diluted earnings per common share for the years ended September 30:

 

**Weighted Average**Shares**Earnings Per**Net Income**Outstanding**Share**2002
Basic
$1,567,239 
7,734,752 
$ 0.20 
Effect of Dilution:
Stock Options
13,921 
Diluted
$1,567,239 
7,748,673 
$ 0.20 **2001
Basic
$2,007,786 
7,713,733 
$ 0.26 
Effect of Dilution:
Stock Options
31,892 
Diluted
$2,007,786 
7,745,625 
$ 0.26 **2000
Basic
$1,431,655 
7,315,984 
$ 0.20 
Effect of Dilution:
Stock Options
267,196 
Diluted
$1,431,655 
7,583,180 
$ 0.19 
The incremental shares from the assumed conversion of stock options were determined using the treasury stock method under which the assumed proceeds were equal to the amount that the Company would receive upon the exercise of the options. The assumed proceeds are used to purchase outstanding common shares at the average market price during the period.

For the years ended September 30, 2002, 2001 and 2000, 300,000, 360,000 and 360,000 stock options, respectively, were excluded from the computation of diluted earnings per share due to their antidilutive effect.
**(14) Condensed Financial Information of First Georgia Holding, Inc. (Parent Only)**
First Georgia Holding, Inc., was organized December 16, 1987. The following represents parent company only condensed financial information.

**September 30, **Condensed Balance Sheets**2002**2001
Assets
Cash
$ 73,002 
$ 39,522 
Investment in subsidiary
22,845,425 
21,629,638 
Total assets
$22,918,427 
$21,669,160 
Liabilities and Stockholders' Equity
Other borrowed funds
$ 2,000,000 
$ 2,000,000 
Stockholders' Equity
Common stock
7,751,712 
7,713,733 
Additional paid-in capital
427,931 
396,297 
Retained earnings
12,738,784 
11,559,130 
Total liabilities and stockholders' equity
$22,918,427 
$21,669,160 
 

 

**Years Ended September 30, **Condensed Statements of Operations**2002**2001**2000
Dividends from Bank
$ 485,000 
$ 795,000 
$ 555,000 
Expenses
(89,000)
(154,562)
(91,715)
Income before equity in undistributed income of Bank
396,000 
640,438 
463,285 
Equity in undistributed income of Bank
1,171,239 
1,367,348 
968,370 
Net income
$1,567,239 
$2,007,786 
$1,431,655 
 

**Years Ended September 30, **Condensed Statements of Cash Flows**2002**2001**2000
Operating Activities:
Net income
$1,567,239 
$2,007,786 
$1,431,655 
Adjustments to reconcile net income to net 
cash provided by operating activities:
Equity in undistributed income of Bank
(1,171,239)
(1,367,348)
(968,370)
Net cash provided by operating activities
396,000 
640,438 
463,285 
Investing Activities:
Distribution of capital to subsidiary
- 
- 
(2,000,000)
Financing Activities:
Dividends paid on common stock
(387,585)
(694,232)
(596,479)
Net proceeds from exercise of stock options
25,065 
- 
195,919 
Proceeds from other borrowed funds
- 
- 
2,000,000 
Net cash (used in) provided by financing activities
(362,520)
(694,232)
1,599,440 
Increase (decrease) in cash and cash equivalents
33,480 
(53,794)
62,725 
Cash and cash equivalents at beginning of year
39,522 
93,316 
30,591 
Cash and cash equivalents at end of year
$ 73,002 
$ 39,522 
$ 93,316 
 
**(14) Condensed Financial Information of First Georgia Holding, Inc. (Parent Only) (Cont'd)**
The primary source of funds available to the Company to pay stockholder dividends and other expenses is dividends from its Bank. Regulatory agencies impose restrictions on the amount of dividends that may be declared by the Bank and require maintenance of minimum capital amounts. For the years ended September 30, 2002, 2001 and 2000 all dividends declared by the Bank were approved by its primary regulatory agency.
**(15) Commitments and Contingencies**
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the Company's consolidated financial statements or results of operations.
**(16) Fair Value of Financial Instruments**
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. 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. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions would significantly affect the estimates. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments.
*Cash and due from banks, interest-bearing deposits in other banks, Federal funds sold and accrued interest receivable: The carrying amounts approximate those assets' fair values because of their short-terms to maturity.
*Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
*Loans receivable: For variable-rate loans that reprice frequently and are of normal credit risk, fair values are considered to approximate carrying values. The fair values for all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
*Off-balance sheet instruments: Fair values for the Company's off-balance sheet instruments are based on a comparison with terms, including interest rate and commitment periods currently being offered in similar agreements, taking into account credit worthiness of the counter parties. The contract amount and fair values of off-balance-sheet instruments at September 30, 2002, are the same based on the fact that the Company generally does not offer lending commitments to its customers for long periods and, therefore, the underlying rates of the commitments approximate market rates.

 **(16) Fair Value of Financial Instruments (Cont'd)***Deposits: Fair values for fixed-rate certificates of deposits are estimated using a discounted cash flow calculation that considers interest rates currently being offered on certificates of similar terms to maturity. The carrying amounts of all other deposits, due to their nature, approximate their fair value.
*Federal Home Loan Bank advances: Fair values for fixed-rate borrowings from the Federal Home Loan Bank are estimated using a discounted cash flow calculation that considers interest rates currently being offered on advances of similar terms to maturity. 
*Other borrowed funds: For variable rate borrowings that reprice frequently, fair values approximate carrying values.

The following is a summary of the Company's Financial instruments as of September 30, 2002 and 2001:

**2002**2001**Carrying **Estimated **Carrying **Estimated **Value **Fair Value **Value **Fair Value 
Assets 
Cash and due from banks 
$ 7,704,000 
$ 7,704,000 
$ 8,972,000 
$ 8,972,000 
Interest bearing deposits in other 
financial institutions 
167,000 
167,000 
220,000 
220,000 
Federal funds sold 
3,975,000 
3,975,000 
10,759,000 
10,759,000 
Investment securities 
25,852,000 
26,530,000 
25,951,000 
26,459,000 
Loans 
212,870,000 
218,175,000 
187,526,000 
196,996,000 
Liabilities 
Deposits: 
Non-interest bearing 
30,882,000 
30,882,000 
28,450,000 
28,450,000 
Interest-bearing demand and savings 
66,736,000 
66,736,000 
47,100,000 
47,100,000 
Certificates of deposit 
128,359,000 
126,869,000 
143,432,000 
148,527,000 
Federal Home Loan Bank advances 
11,000,000 
11,625,000 
3,500,000 
3,496,000 
Other borrowed funds 
2,000,000 
2,000,000 
2,000,000 
2,000,000 **(17) Off-Balance Sheet Activities

The Company is a party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company's exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.
** As of September 30, 2002 and 2001, the following financial instruments were outstanding whose contract amounts represent credit risk:

**Contract Amount**2002**2001**(approximately)
Unfunded commitments under lines of credit
$29,049,000 
$36,413,000 
Commercial and standby letters of credit
166,000 
781,000 
Available credit card lines
2,681,000 
2,959,000 
 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management's credit evaluation of the customer.

Unfunded commitments under commercial lines-of-credit, revolving credit lines and overdraft protection agreements, are commitments for possible future extensions of credit to existing customers. These lines-of-credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Bank is committed.

Commercial and standby letters-of-credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters-of-credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary.
**(18) Summarized Quarterly Data (Unaudited)**
Following is a summary of the quarterly results of operations for the years ended September 30, 2002 and 2001:**Fiscal Quarter**First**Second**Third**Fourth**Total
$ In Thousands Except Per Share Amounts**2002
Total interest income
$ 4,190,891 
$ 4,006,281 
$ 4,035,452 
$ 3,818,986 
$ 16,051,610 
Interest expense
2,149,827 
1,823,879 
1,672,988 
1,560,582 
7,207,276 
Net interest income
2,041,064 
2,182,402 
2,362,464 
2,258,404 
8,844,334 
Provision for loan losses
30,000 
30,000 
30,000 
30,000 
120,000 
Net interest income after provision
for loan losses
2,011,064 
2,152,402 
2,332,464 
2,228,404 
8,724,334 
Other income
822,690 
729,458 
799,614 
722,531 
3,074,293 
Other expense
2,295,720 
2,347,809 
2,392,706 
2,336,249 
9,372,484 
Income before income taxes
538,034 
534,051 
739,372 
614,686 
2,426,143 
Income tax expense
202,528 
185,913 
273,909 
196,554 
858,904 
Net income
$ 335,506 
$ 348,138 
$ 465,463 
$ 418,132 
$ 1,567,239 
Basic income per share
$ 0.04 
$ 0.05 
$ 0.06 
$ 0.05 
$ 0.20 
Diluted income per share
$ 0.04 
$ 0.05 
$ 0.06 
$ 0.05 
$ 0.20 **2001
Total interest income
$ 5,468,756 
$ 5,252,554 
$ 4,908,356 
$ 4,622,254 
$ 20,251,920 
Interest expense
2,638,394 
2,623,725 
2,578,569 
2,457,604 
10,298,292 
Net interest income
2,830,362 
2,628,829 
2,329,787 
2,164,650 
9,953,628 
Provision for loan losses
210,000 
210,000 
15,000 
- 
435,000 
Net interest income after provision
for loan losses
2,620,362 
2,418,829 
2,314,787 
2,164,650 
9,518,628 
Other income
711,385 
677,272 
723,708 
792,522 
2,904,887 
Other expense
2,320,341 
2,181,981 
2,302,325 
2,479,862 
9,284,509 
Income before income taxes
1,011,406 
914,120 
736,170 
477,310 
3,139,006 
Income tax expense
422,962 
347,648 
292,890 
67,720 
1,131,220 
Net income
$ 588,444 
$ 566,472 
$ 443,280 
$ 409,590 
$ 2,007,786 
Basic income per share
$ 0.08 
$ 0.07 
$ 0.06 
$ 0.05 
$ 0.26 
Diluted income per share
$ 0.08 
$ 0.07 
$ 0.06 
$ 0.05 
$ 0.26 ** (19) Subsequent Events

In November of 2002, the Company declared a $0.05 per share dividend to shareholders of record as of November 15, 2002 payable November 30, 2002. 

On October 21, 2002, the Company's Board of Directors approved a change in the fiscal year end from September 30 to December 31.
**SELECTED FINANCIAL AND OTHER DATA

First Georgia Holding, Inc.

Selected consolidated financial data is presented below as of and for each of the years in the five-year period ended September 30, 2002. 

(Dollars in thousands, except per share data) **September 30, **2002**2001**2000**1999**1998**Balance Sheet Data: 
Total assets 
$ 260,873 
$ 245,468 
$ 239,185 
$ 204,296 
$ 190,463 
Loans receivable, net 
212,870
187,526
193,645 
173,197 
151,253 
Total investments 
25,852 
25,951
17,878 
14,442 
11,565 
Deposits 
225,978 
218,983 
214,973 
173,174 
162,890 
Borrowings 
13,000 
5,500 
4,500 
11,460 
8,600 
Stockholders' equity 
20,918 
19,669 
18,356 
17,325 
15,681 
Book value per share 
2.70
2.55 
2.38 
2.41 
2.18 
Number of shares outstanding 
7,751,712 
7,719,733 
7,713,733 
7,198,371 
7,198,458 **Year Ended **September 30, **2002**2001**2000**1999**1998**Income Statement Data: 
Interest income 
$ 16,052 
$ 20,252 
$ 19,932 
$ 16,148 
$ 15,078 
Interest expense 
7,207 
10,298 
9,535 
7,905 
7,832 
Net interest income 
8,845 
9,954 
10,397 
8,243 
7,246 
Provision for loan losses 
120 
435 
2,640 
509 
6 
Other income 
3,074 
2,905 
2,707 
2,894 
1,997 
Other expense 
9,373 
9,285 
8,123 
6,986 
6,005 
Income before income taxes 
2,426 
3,139 
2,341 
3,642 
3,232 
Income tax expense 
859 
1,131 
909 
1,422 
1,218 
Net Income 
$ 1,567 
$ 2,008 
$ 1,432 
$ 2,220 
$ 2,014 
Net income per share:
Basic 
$ 0.20 
$ 0.26 
$ 0.20 
$ 0.31 
$ 0.28 
Diluted 
$ 0.20 
$ 0.26 
$ 0.19 
$ 0.29 
$ 0.27 **At or For **Year Ended **September 30, **2002**2001**2000**1999**1998**Other Data: 
Net income to average assets 
0.62%
0.82%
0.61%
1.11%
1.21%
Net income to average equity 
7.70%
10.37%
7.79%
13.59%
14.60%
Average equity to average assets 
8.10%
7.90%
7.87%
8.15%
8.29%
Number of full-service offices 
6
6
6
6
7** 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

First Georgia Holding, Inc. and subsidiary
**General

First Georgia Holding, Inc. (the Company) was organized in 1987 to acquire the outstanding common stock of First Georgia Bank, F.S.B. (the Bank or First Georgia). On April 30, 1988, the Company became the sole shareholder of the Bank and issued its stock to the former Bank shareholders. Management's Discussion and Analysis which follows, relates primarily to the Bank since the Company has not had material operations since it was organized.

First Georgia's net income depends on (a) its net interest income, which is the difference between its interest income from loans and investments and its interest expense on deposits and borrowings, (b) its non-interest income, which consists principally of fee income generated by First Georgia's retail banking operations, and (c) its non-interest expenses, such as employee salaries and benefits. Interest income on loans and investments (yield) is a function of the average balances outstanding during the period and the average rates earned. Interest expense (cost of funds) is a function of the average amount of deposits and borrowings outstanding during the period and average rates paid on such deposits and borrowings. Retail banking fee income, consisting mainly of recurring fees collected for deposit-related services rendered by the Bank, varies with the volume of the Bank's retail banking business. Non-interest expenses vary primarily with the number of employees, expansion of facilities and inflation.
**Capital Resources**
The following is reconciliation at September 30, 2002 of the Company's capital under generally accepted accounting principles to regulatory capital.

First Georgia Holding, Inc.
Stockholder's equity
$ 20,918,000 
Less:
Intangible assets
406,000 **Total Tier 1 capital
20,512,000 
Plus:
General allowance for loan losses
2,241,000 **Total Risk-based capital
$ 22,753,000 
Current regulations require financial institutions to have minimum regulatory tier 1 capital equal to 4.0% of risk-weighted assets, minimum tier 1 capital to average assets of 4% (the leverage ratio), and total risk-based capital to risk-adjusted assets of 8.0%. At September 30, 2002, the Company was in compliance with its minimum capital requirements.

The Company's regulatory capital and the required minimum amounts, at September 30, 2002, are summarized in the following table.

**Required**Excess**Capital**Minimum Amount**(Deficiency)
%
$
%
$
%
$**Total Risk-based capital
11.48 
22,753,000 
8.00 
15,850,000 
3.48 
6,903,000 **Tier 1 Risk-based capital
10.35 
20,512,000 
4.00 
7,925,000 
6.35 
12,587,000 **Leverage Ratio
7.88 
20,512,000 
4.00 
10,419,000 
3.88 
10,093,000 
 

 As of September 30, 2002, the Company exceeded all the required minimum capital amounts as demonstrated by the chart above. The Company had strong earnings during the year which helped to strengthen its capital position.

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires Federal banking agencies to take "prompt corrective action" with respect to institutions that do not meet minimum capital requirements. In addition to the ratios described above, FDICIA introduced an additional capital measurement, the Tier 1 risk-based capital ratio. The Tier 1 ratio is the ratio of Tier 1 or core capital to total risk-adjusted assets. FDICIA establishes five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." The five capital tiers established by FDICIA and the regulator's minimum requirements for each are summarized below.

 
Total

Risk-Based

Capital Ratio
Tier 1

Risk-Based

Capital Ratio
Leverage Ratio
Well Capitalized
10% or above
6% or above
5% or above
Adequately capitalized
8% or above
4% or above
4% or above
Undercapitalized
Less than 8%
Less than 4%
Less than 4%
Significantly undercapitalized
Less than 6%
Less than 3%
Less than 3%
Critically undercapitalized
-
-
2% or less
An institution may be deemed to be in a capitalization category lower than is indicated by its capital position based on safety and soundness considerations other than capital levels. 

At September 30, 2002, the Company's total risk-based ratio, tier 1 risk-based ratio, and leverage ratio were 11.48%, 10.35%, and 7.88%, respectively, placing the Company in the well-capitalized category under FDICIA for each ratio. 
**Liquidity**
First Georgia has traditionally maintained levels of liquidity in excess of levels required by regulatory authorities. As a member of the Federal Home Loan Bank system, the Bank is required to maintain a daily average balance of cash and eligible liquidity investments in an amount equal to a monthly average of 5% of withdrawable savings and short-term borrowings. The Bank's liquidity level was 12.88% and 9.51% at September 30, 2002 and 2001, respectively. 

The Bank's operational needs, demand for loan disbursements, and savings withdrawals can be met by loan principal and interest payments, new deposits and excess liquid assets. While significant loan demand, deposit withdrawal, increased delinquencies and increased foreclosed properties could alter this condition, the Bank has sufficient borrowing capacity through Federal Home Loan Bank advances and other short-term borrowings to manage such an occurrence. Management does not foresee any liquidity problems for fiscal 2003.
**Asset/Liability Management**
First Georgia has implemented a program of asset/liability management to limit the Bank's vulnerability to material and prolonged increases in interest rates (interest rate risk). The principal determinant of the exposure of the Bank's earnings to interest rate risk is the difference in the time between interest rate adjustments or maturities on interest-earning assets and interest rate adjustments or maturities of interest-bearing liabilities. If the maturities of the Bank's assets and liabilities were perfectly matched and if the interest rates earned on its assets and paid on its liabilities moved concurrently, which is not the case, the impact on net interest income of rapid increases or decreases in interest rates would be minimized. The Bank's asset/liability management policy seeks to increase the adjustability of the interest rates earned on its assets and paid on its liabilities and to match the maturities of its interest-earning assets and interest-bearing liabilities so that the Bank will be able to restructure and reprice its asset portfolio in a relatively short period to correspond to changes in its cost and flow of funds. The Bank's policy also seeks to encourage the flow of deposits into longer-term certificates during periods of lower interest rates and to emphasize shorter-term accounts during periods of high rates. During fiscal 2002, the Bank actively managed its interest rate risk by limiting its lending to short-term fixed rate balloon notes or adjustable rate loans and attempting to lengthen the maturity on its deposits.

It is a policy of First Georgia not to originate for its own portfolio any fixed-rate residential mortgage loans that exceed 15 years. This allows First Georgia to better match the maturities of its assets and liabilities, thereby limiting interest rate risk. Similarly, the Bank emphasizes the origination of commercial real estate loans, construction loans, consumer loans and commercial loans with either adjustable rates or short maturities.

The interest rate sensitivity of the Bank's assets and liabilities provides an indication of the extent to which the Bank's net interest income may be affected by interest rate movements. The concept of interest rate sensitivity recognizes that certain assets and liabilities have interest rates that are subject to change prior to maturity. One method of measuring the impact of interest rate changes on net interest income is to measure, in a number of time frames, the interest sensitivity gap by subtracting interest rate sensitive liabilities from interest rate sensitive assets. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income while a positive gap would result in an increase in net interest income, while conversely during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would negatively affect net interest income. To the extent that the gaps are close to zero, net interest income can be considered to be relatively immune from interest rate movements. The following table sets forth the Bank's interest-earning assets and interest-bearing liabilities at September 30, 2002. The information presented, however, may not be indicative of actual future trends of net interest income in rising or declining interest rate environments.

**Over One **Over Five **Over **One Year **Through **Through **Ten **or Less **Five Years **Ten Years **Years 
(in thousands) **Interest-earning assets (IEA's):
Investments
$ 101 
1,600 
5,149 
19,002 
Interest earning deposits and
federal funds sold
4,141 
- 
- 
- 
Loans
164,197 
41,726 
3,778 
- 
Total
168,440 
43,326 
8,927 
19,002 **Interest-bearing liabilities (IBL's):
Demand deposits
$ 27,882 
- 
- 
- 
Savings and money market deposits
38,854 
- 
- 
- 
Other time deposits
105,335 
23,024 
- 
- 
Debt
7,500 
1,500 
2,000 
- 
Total
179,571 
24,524 
2,000 
- 
Interest sensitivity gap
$ (11,131)
18,802 
6,927 
19,002 
Cumulative gap
$ (11,131)
7,670 
14,597 
33,599 
Ratio of IEA's to IBL's
0.94 
1.77 
4.46 
63,978.00 
Cumulative ratio of IEA's to IBL's
0.94 
1.04 
1.07 
1.16 
 **COMPARISON OF YEARS ENDED SEPTEMBER 30, 2002 AND 2001**
Results of Operations
**General**
First Georgia Holding, Inc. reported net income of $1,567,239, a decrease of $440,547. This decrease is due primarily to lower interest rates earned on loans. Net interest income after provision for loan losses decreased $794,294. Other income increased $169,406 and other expenses increased $87,975. Several factors discussed below contributed to the increases and decreases in these areas.
**Interest Income**
Total interest income decreased $4,200,310 for the year or 20.74%. Interest income on loans decreased $4,048,261 or 22.31%. Average loans for the year increased by more than $8,000,000 during the year ended September 30, 2002. However, interest rates earned on loans decreased from the prior year resulting in decreased interest income. The Bank increased its position in mortgage-backed securities, resulting in a $143,318 or 9.89% increase in the related interest income. Investment income increased by $103,459 or 51.21% for the year ended September 30, 2002 as compared to the same period last year. Because of increased loan growth, the average balance of federal funds sold decreased more than $7,000,000. These lower balances account for a $398,826, or 86.80% decrease in other interest income.
**Interest Expense**
Total interest expense decreased $3,091,016 or 30.01% for the year. The Bank experienced substantial deposit growth over the year. While most of this growth was in interest-free checking accounts, the Bank concentrated on managing the mix of deposits by lowering interest rates on certificates of deposits while also maintaining customers' total banking business, resulting in increased growth in money market accounts. Interest expense on deposits decreased $3,068,446, or 30.94%. Due to the increased deposit balances, the Bank was able to decrease its position in federal funds purchased. Interest expense on advances and other borrowings decreased $22,570, or 5.95% for the year ended September 30, 2002 as compared to the year ended September 30, 2001. The Bank was able to sell federal funds on a consistent basis during the year rather than purchase.
**Yields Earned and Rates Paid**
Net interest income is affected by (a) the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities (interest rate spread) and (b) the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. Financial institutions have traditionally used interest rate spreads as a measure of net interest income. Another indication of an institution's net interest income is its "net yield on interest-earning assets" which is net interest income divided by average interest- earning assets. The following table sets forth information with respect to weighted average contractual yields on loans, yields on investments and the cost of funds on deposits and borrowings for and as of the end of the periods indicated.

 
Year Ended September 30,
At September 30,
2002
2001
2000
2002
Weighted average yield on:
Loans
7.00%
9.40%
9.58%
6.62%
Investment securities
6.90 
6.58 
6.42 
6.16 
Interest earning deposits in other banks
2.38 
4.70 
5.52 
5.23 
Total weighted average yield on all 
interest earning assets
6.94 
9.05 
9.24 
6.59 
Weighted average rate paid on:
Deposits
3.09 
4.57 
5.73 
2.86 
Other borrowings
5.25 
6.12 
5.57 
4.25 
Federal Home Loan Bank advances
Short term advances
2.17 
5.50 
7.90 
2.17 
Long term advances
5.18 
5.90 
5.51 
5.57 
Total weighted average rate paid on all
interest-bearing liabilities
3.14 
4.61 
4.49 
3.02 
Weighted average interest rate spread
(spread between weighted average yield 
on all interest-earning assets and rate 
paid on all interest-earning liabilities)
3.80 
4.44 
4.75 
3.57 
Net yield on average interest-earning 
assets (net interest income as a percentage
of average interest-earning assets)
3.82 
4.44 
4.41 
N/A ** Provision for Loan Losses

The provision for loan losses for the fiscal year ended September 30, 2002 totaled $120,000, decreasing $315,000 over the fiscal year 2001. The provision has continued to decrease to levels experienced prior to fiscal year 2000 as a result of the resolution of loans originated by a particular loan officer. The Bank experienced substantial charge-offs in 2000 primarily as a result of under collateralized loans made by a particular loan officer. During a six-month period, the loan officer made loans totaling approximately $3.3 million that were under collateralized. The loan officer provided falsified collateral information to the loan committee and granted a large number of small dollar loans that were under the scope of a loan review. Once it was determined that the loan officer was making under collateralized loans, he was immediately terminated and a suspicious activities report was filed with the Office of Thrift Supervision. Of the total loan charged-off in 2000, 84.70% or $1.4 million was related to the particular loan officer. Management felt it necessary to increase the allowance for loan losses in fiscal year 2000 as a result of the increased charge-offs and to allocate a portion of the reserve to loans remaining in the portfolio that were originated by the particular loan officer and thought to have a high risk of loss based upon the characteristics of the loan. Of the total provision at September 30, 2000 approximately 72.94% or $1.9 million related to loans remaining in the portfolio related to the particular loan officer. 

The Bank has made significant progress in resolving loan problems related to fiscal year 2000. Of the total allowance at September 30, 2002, approximately 16.83% or $378,000 relates to loans originated by the particular loan officer. The Bank has recovered approximately $116,000 of the $1.4 million charged-off in fiscal year 2000. Charge-offs for fiscal year ended September 30, 2002 totaled $768,476, of those $393,350, or 59.18% were related to the particular loan officer.

Management has taken additional precautions since that time to ensure that all loans are properly collateralized. The Company engaged an outside firm to conduct quarterly loan reviews of the loan portfolio in order to assist in identifying all loans originated by the particular loan officer and as a preventative measure to ensure timely recognition of under collateralized loans. The quarterly review process includes all loans, 

regardless of principal amount. The Company also hired a credit analyst to review and provide recommendations on larger loan applications.

See "Allowance for Loan Losses" herein for a discussion of all factors considered in determining the provision for loan losses. 

Net interest income after the provision for loan losses at September 30, 2002 decreased $794,294, or 8.34% from the same period last year. The decrease is directly related to the decrease in loan interest income resulting from a decrease in interest rates. 
**Other Income**
Other income increased $169,406 or 5.83% for the year ended September 30, 2002 as compared to 2001. Deposit service charges increased $12,009, or 0.59% for the year ended September 30, 2002. This increase is attributable to the significant increase in deposit balances for the year. The increase in the number of deposits creates an increase in service charges and non-sufficient funds fees. Loan fees decreased $3,277 or 0.58%. The relatively small decrease is attributable to a decrease in late fees and other charges related to loan balances. Other operating income increased $160,674 or 53.37% which is primarily due to an approximate $160,000 increase in ATM fees. This increase in ATM fees is attributable to a new ATM machine installed at the main office location and increased usage of ATM machines by customers and non-customers. 
**Other Expenses**
Other expenses increased $87,976, or 0.95% for the year. Personnel related expenses had the largest increase, growing by $263,735 or 5.76%, for the year ended September 30, 2002. The increase in salary and employee benefits is attributable to annual salary increases and additional employees hired. Occupancy expense decreased by $183,402 or 9.86% for the year ended September 30, 2002. The decrease in occupancy expense is due primarily to decreased repairs and maintenance expenses of approximately $57,000 and a decrease in depreciation expense of approximately $40,000. The decrease in repairs and maintenance is attributable to costs incurred during last fiscal year associated with the new information technology location, which opened in April of fiscal year 2001. Office supplies decreased $13,206 or 5.33% during the year. This decrease reflects the continuing effect of a more stringent policy put into place for ordering supplies. Data processing expense increased $76,836 or 73.74% for the year. This increase is related to the deposit growth. Federal Insurance premiums decreased $25,618 or 32.14% because of increased capital balances. 
**Income Tax Expense**
The Company incurred $858,904 in income tax expense for the year based on applicable income tax rates at September 30, 2002.

Financial Condition
**Assets**
Total assets of the Company increased $15,404,709 from September 30, 2001 to September 30, 2002. Increased loan demand was the driving force behind this increase, as loan receivable grew $25,343,570, or 13.51%. This increase is primarily attributable to the continued trend of decreased interest rates. This increase in loan balances also contributed to the decrease of approximately $6,784,000 or 63.05% in the federal funds sold account. Premises and equipment decreased $286,281, or 5.10%, primarily related to an approximate $423,000 increase in fixed assets offset by depreciation expense of approximately $709,000.
**Allowance for Loan Losses**
Management conducts an extensive review of the provision for loan losses on a monthly basis. Additions to the allowance for loan losses are charged to operations based upon management's evaluation of the probable losses in its loan portfolio. This evaluation considers the estimated value of the underlying collateral and such other factors as, in management's judgment, deserve recognition under existing economic conditions. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for losses on loans and real estate owned. Such agencies may require the Bank to recognize additions to the allowances based on their judgments of information available to them at the time of their examination.

Management determines the allowance for loan losses by establishing a general allowance by loan type determined for groups of smaller, homogenous loans possessing similar characteristics and non-homogeneous loans that are not impaired. All classified loans are reviewed on an individual basis. The Bank currently engages an outside firm to conduct a quarterly review of the loan portfolio to assist in determining specific allowances as well as identify trends in the loan portfolio.
*General Allowance*
The Company determines the general allowance by applying historical loss percentages to all loans not impaired. Historical loss percentages are calculated and applied to each category of loans by risk grade. Loans are grouped into categories based upon the specific characteristics of the loan such as type of collateral. The Company generally calculates the historical loss percentages using a six-year moving average. However, for the past year, the Company has moved to a two-year moving average. As a result of changes in the loan portfolio, a decline in the economy and a significant increase in charge-offs, management feels that the losses experienced in the past two years provides a more accurate estimate of losses occurring in the present. 

The Company may adjust the allowance determined by the method described above for qualitative factors that are probable to impact future loan losses. Management has reviewed various factors to determine the impact on the current loan portfolio. These adjustments reflect management's best estimate of the level of loan losses resulting from these factors. The following current qualitative factors were considered in this analysis:
- Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices. 
- Changes in the nature and volume of the portfolio. 
- Changes in the experience, ability, and depth of lending management and staff. 
- Changes in the volume and severity of past dues and classified loans; and the volume of non-accruals, troubled debt restructurings and other loan modifications 
- The existence and effect of any concentrations of credit, and changes in the level of such conditions. 
- The effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank's portfolio. 
- The effect of changes in national and local economic business. 
- Bank regulatory exam results
*Specific Allowances*
Management feels that given the small number of impaired loans, type of historical loan losses, and the nature of the underlying collateral, creating specific allowances for classified assets results in the most accurate and objective allowance. Should the number of these types of assets grow substantially, other methods may have to be considered. 

The method used in setting the specific allowance uses current appraisals as a starting point, based on the Bank's possible liquidation of the collateral. On assets other than real estate, which tend to depreciate rapidly, another current valuation is used. For instance, in the case of commercial loans collateralized by automobiles, the current NADA wholesale value is used. On collateral such as over-the-road equipment, trucks or heavy equipment, valuations are sought from firms or persons knowledgeable in the area, and adjusted for the probable condition of the collateral. Other collateral such as furniture, fixtures and equipment, accounts receivable, and inventory, are considered separately with more emphasis given to the borrower's financial condition and trends rather than the collateral support. The value of the collateral is then discounted for estimated selling cost. In addition, the allowance incorporates the results of measuring impaired loans as provided by Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans. 
*Summary*
The various methodologies included in this analysis take into consideration the historic loan losses and specific allowances. The analysis of the allowance indicated a historical allocation, adjusted for qualitative factors, of approximately $1.5 million and a specific allowance of $656,000 at September 30, 2002. The historical allocation decreased approximately $57,000 from fiscal year-end, primarily as a result of the decrease in charge-offs from the prior year. Net charge-offs to average loans outstanding decreased to 0.15% at September 30, 2002 compared to .20% at September 30, 2001. Net charge-offs have decreased primarily as a result of an increase in recoveries offset by a decrease in charge-offs. The bank has been successful in recovering loans that were charged-off related to events that occurred in fiscal year 2000 involving a particular loan officer. (See "Provision for Loan Losses" herein). Additionally, in determining the general allowance, management considered improvements in Georgia economic indicators such as unemployment rates and economic growth rates. Additionally, management considered the increase in non-accruing loans of approximately $1,936,000 from the end of fiscal year 2001. Non-accrual loans are examined on an individual basis to determine the appropriate action. Specific allowances decreased $55,076 from prior year as result of a decrease in impaired loans. The allowance for loan losses decreased $174,165 or 7.21% to $2,240,312 at September 30, 2002. The ratio of the allowance for loan losses to total loans was 1.04% at September 30, 2002 compared to 1.27% at September 30, 2001. 

The following tables illustrate the Bank's allowance for loan losses and its problem loans. When a loan has been past due ninety days or more, Management reevaluates the loan and its underlying risk elements to determine if it should be placed on non-accrual status. These loans are loans for which unpaid interest is not recognized into income. Past due loans are loans which are ninety days or more delinquent and still accruing interest.
** ANALYSIS OF NON-ACCRUING AND PAST DUE LOANS**
**Table 1**September 30, **2002**2001**2000**1999**1998
Non-accruing loans (1)
Real estate
Construction
$ 518,675 
$ 52,925 
$ 211,769 
$ - 
$ - 
First mortgage
2,861,019 
2,670,843 
3,204,748 
1,907,612 
2,225,603 
Second mortgage
1,171,226 
161,288 
182,759 
79,781 
117,619 
Consumer
926,446 
655,854 
121,057 
21,672 
21,214 
Total non-accruing loans (3)
5,477,366 
3,540,910 
3,720,333 
2,009,065 
2,364,436 
Past due loans (2)
Real estate
Construction
- 
- 
- 
- 
- 
First mortgage
- 
- 
- 
- 
- 
Second mortgage
- 
- 
- 
- 
- 
Consumer
- 
- 
- 
- 
- 
Total past due loans
- 
- 
- 
- 
- 
Total non-accruing and past due loans
$5,477,366 
$3,540,910 
$3,720,333 
$ 2,009,065 
$2,364,436 
Percentage of total loans
2.54%
1.86%
1.90%
1.16%
101.16%
Real estate acquired through foreclosure
$ 587,913 
$ 928,739 
$ 314,338 
$ 225,000 
$ 225,001 
Total non-accruing and past due loans
and nonperforming assets.
$6,065,279 
$4,469,649 
$4,034,671 
$ 2,234,065 
$2,589,437 Non-accruing loans are loans for which unpaid interest is not recognized into income. The effects of
carrying non-accrual loans during 2002 resulted in a reduction of income of approximately $215,000. Actual interest income received on non-accrual loans totaled approximately $331,000 for the year ended September 30, 2002.
Past due loans are 90 days or more delinquent for which interest is still accruing.

 
**ANALYSIS OF ALLOWANCE FOR LOAN LOSSES**

**Table 2**September 30,**2002**2001**2000**1999**1998
Beginning balance
$ 2,414,477 
$ 2,364,704 
$ 1,235,566 
$ 968,632 
$ 1,012,322 
Loans charged-off:
Real estate construction
- 
7,639 
- 
- 
- 
Real estate mortgage
365,713 
392,634 
540,371 
56,589 
179,995 
Consumer and other
402,763 
310,252 
1,112,939 
242,560 
63,762 
768,476 
710,525 
1,653,310 
299,149 
243,757 
Recoveries:
Real estate construction
- 
- 
- 
- 
- 
Real estate mortgage
282,745 
213,924 
11,344 
860 
78,084 
Consumer and other
191,566 
111,374 
131,104 
56,156 
115,820 
474,311 
325,298 
142,448 
57,016 
193,904 
Net charge-offs
294,165 
385,227 
1,510,862 
242,133 
49,853 
Provision charged to operations
120,000 
435,000 
2,640,000 
509,067 
6,163 
Balance at end of period
$ 2,240,312 
$ 2,414,477 
$ 2,364,704 
$ 1,235,566 
$ 968,632 
Ratio of net charge-offs to
average loans outstanding
0.15%
0.20%
0.78%
0.15%
0.03%
Ratio of allowance to total loans
1.04%
1.27%
1.21%
0.71%
0.64%**Liabilities

Total deposits increased $6,995,065, or 3.19%. Much of this increase was in non-interest bearing deposits, as the Bank offers free checking to its customers. The Bank is well positioned to take advantage of the growing local market. The balance of Federal Home Loan Bank advances increased $7,500,000 at September 30, 2002 as compared with September 30, 2001. The Bank borrowed additional funds during the last quarter of the fiscal year to meet increased loan volume. Due to the increased deposit levels the Bank was able to sell federal funds on a regular basis during the remainder of year.

Other borrowed funds remains at $2,000,000 for the year ended September 30, 2002. Due to the increase in Federal Home Loan Bank advances and deposit balances, the bank did not increase its position in other borrowed funds. 
**COMPARISON OF YEARS ENDED SEPTEMBER 30, 2001 AND 2000**
Results of Operations
**General**
First Georgia Holding, Inc. reported net income of $2,007,786, an increase of $576,131. This increase is due primarily to the decrease in the provision for loan losses of approximately $2,200,000 due to the reduction in net charge-offs and a reduction in loans outstanding. Net interest income after provision for loan losses increased $1,761,464. Other income increased $198,191 and other expenses increased $1,161,455. 

Several factors discussed below contributed to the increases and decreases in these areas.
**Interest Income**
Total interest income increased $319,721 for the year, or 1.60%. Interest income on loans decreased $348,013, or 1.88%. Average loans for the year decreased by more than $6,000,000 during the year ended September 30, 2001, resulting in decreased interest income. The Bank increased its position in mortgage-backed securities, resulting in a $501,324, or 52.92% increase in the related interest income. Investment income increased by $103,858 or 105.79% for the year ended September 30, 2001 as compared to the same period last year. Because of increased deposit growth, the average balance of federal funds sold increased more than $2,000,000. These higher balances account for a $62,552, or 15.76% increase in other interest income.
**Interest Expense**
Total interest expense increased $763,257, or 8.00% for the year. This is attributable to an increase in average deposits of approximately $13,000,000. The Bank experienced substantial deposit growth over the year, which is attributable to the introduction of more competitive deposit products. While most of this growth was in interest-free checking accounts, the Bank concentrated on obtaining customers' total banking business, resulting in increased growth in other interest-bearing deposits. Interest expense on deposits increased $882,555, or 9.77%. Due to the increased deposit balances, the Bank was able to decrease its position in federal funds purchased. Interest expense on advances and other borrowings decreased $119,298, or 23.93% for the year ended September 30, 2001 as compared to the year ended September 30, 2000. The Bank was able to sell federal funds on a consistent basis during the year rather than purchase.
**Other Income**
Other income increased $198,191, or 7.32% for the year ended September 30, 2001 as compared to 2000. Deposit service charges increased $97,669, or 5.04% for the year ended September 30, 2001. This increase is attributable to the significant increase in deposit balances for the year. The increase in the number of deposits creates an increase in service charges and non-sufficient funds fees. Loan fees increased $5,735, or 1.02%. The relatively small increase is attributable to late fees and other charges related to loan balances. Other operating income increased $94,787, which is primarily due to an $82,124 gain on the sale of real estate owned and a $5,340 increase in ATM fees.
**Other Expenses**
Other expenses increased $1,161,455, or 14.30% for the year. Personnel related expenses had the largest increase, growing by $617,859, or 15.60%, for the year ended September 30, 2001. The Bank added more employees to maintain a superior level of customer service in response to the Bank's continued growth. Occupancy expense also increased by $168,866, or 9.98%, for the year. The increase in occupancy expense is due primarily to increased repairs and maintenance expenses of approximately $32,000 and an increase in depreciation expense of approximately $62,000 related to the new information technology location, which opened in April of fiscal year 2001. Office supplies decreased $12,476 or 4.79% during the year. This decrease is attributable to a more stringent policy put into place for ordering supplies. Orders are limited to a select list of supplies carried by specific vendors the Bank does business with. Special requests are accepted on a case-by-case basis. Data processing expense increased $14,583, or 16.27% for the year. This increase is related to the deposit growth. Federal Insurance premiums increased 25,696 or 47.57% because of increased capital balances. 
**Income Tax Expense**
The Company incurred $1,131,220 in income tax expense for the year based on applicable income tax rates at September 30, 2001.

Financial Condition

Total assets of the Company increased $6,282,833 from September 30, 2000 to September 30, 2001. Increased investment balances were the driving force behind this increase, as the balances grew $8,072,556, or 45.15%. Loan demand decreased during the year. Loans receivable decreased $6,118,218 or 3.16%. This decrease is primarily attributable to the recent economic slow-down. The increased deposit balances resulted in an increase of $919,000 or 9.34% in the federal funds sold account. Premises and equipment increased $46,296, or .83%, primarily related to the purchase of new cubicle furniture for the Operations Department and the Loan Department located in the main branch on Gloucester Street.
Total deposits increased $4,009,758, or 1.87%. Much of this increase was in non-interest bearing deposits, as the Bank offers free checking to its customers. The Bank is well positioned to take advantage of the growing local market. The balance of Federal Home Loan Bank advances increased $1,000,000 at September 30, 2001 as compared with September 30, 2000. The Bank borrowed additional funds at the beginning of the fiscal year to meet increased loan volume. Due to the increased deposit levels the Bank was able to sell federal funds on a regular basis during the remainder of year.

Other borrowed funds remains at $2,000,000 for the year ended September 30, 2001. Due to the increase in Federal Home Loan Bank advances and deposit balances, the bank did not increase its position in other borrowed funds. 
**EFFECTS OF INFLATION AND CHANGING PRICES**
First Georgia's consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Non-interest expenses, however, do reflect general levels of inflation.
**Shareholder Information**
A limited trading market has developed in the Company's common stock which is quoted on the NASDAQ (National Association of Securities Dealers Automated Quotation) National Market System under the symbol "FGHC." Set forth below are the high and low sales prices of the Company's common stock for each full quarterly period since October 2000. Such prices reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions.

**Quarterly Period**High**Low
October 1 - December 31, 2000
$4.5
$3.63
January 1 - March 31, 2001
4.36
3.64
April 1 - June 30, 2001
6.24
3.40
July 1 - September 30, 2001
5.20
3.85
October 1 - December 31, 2001
4.25
3.66
January 1 - March 31, 2002
4.20
3.07
April 1 - June 30, 2002
4.25
2.50
July 1 - September 30, 2002
4.99
3.06
 

At November 15, 2002, the Company had 388 shareholders of record. The Company paid cash dividends of $0.05 per share in March 2002 and has declared a $0.05 per share dividend to shareholders of record as of November 15, 2002 payable November 30, 2002. The primary source of funds available to the Company is the payment of dividends by the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulators. Approximately $2,000,000 was available to be paid as dividends by the Bank to the Company at September 30, 2002 upon regulatory approval.

 

**OFFICES
1703 Gloucester Street

Brunswick, Georgia 31520

912-267-7283
4510 Altama Avenue

Brunswick, Georgia 31520

912-267-0010
2461 Demere Road

St. Simons Island, Georgia 31522

912-638-7118
109 Scranton Connector

Brunswick, Georgia 31525

912-262-0936
2001 Commercial Drive South

Brunswick, Georgia 31525

912-262-1500
1010 Plant Avenue

Waycross, Georgia 31501

912-287-2265
**OTHER INFORMATION**Transfer Agent:

First Georgia Bank

1703 Gloucester Street

Brunswick, Georgia 31520**Independent Auditors:

Deloitte & Touche LLP

Suite 2801, Independent Square

One Independent Drive

Jacksonville, Florida 32202**Legal Counsel:

James A. Bishop

Suite 40

First Federal Plaza

Brunswick, Georgia 31520**Special Counsel:

Powell, Goldstein, Frazer & Murphy

Sixteenth Floor

191 Peachtree Street, N.E.

Atlanta, Georgia 30303
**DIRECTORS AND OFFICERS
FIRST GEORGIA HOLDING, INC.
 **OFFICERS
 
HENRY S. BISHOP

Chairman and President, 

Chief Executive Officer
G. FRED COOLIDGE III

Secretary and Treasurer
WENDI O'CONNOR

Assistant Secretary and

Assistant Treasurer
 **DIRECTORS
 
HENRY S. BISHOP

Chairman of the Board, President First Georgia Bank
B.W. BOWIE

Retired Senior Vice President, General Manager, and Director Federal Paper Board Company
WILLIAM B. STEMBLER

Owner, Georgia Theater Company
TERRY DRIGGERS

President, Driggers Construction Company
ROY K. HODNETT

President, T.H.E. Island Group, T.H.E. Hotel Group, and T.H.E. IslandInn
E. RAYMOND MOCK

Owner, Piggly Wiggly food stores St. Simons and Nahunta, GA
JAMES D. MOORE

President, J.D. Moore, Inc.
 
D. LAMONT SHELL

President, Glynn Electric
**FIRST GEORGIA BANK, BRUNSWICK
HENRY S. BISHOP

Chairman, President, and CEO
G. FRED COOLIDGE

Executive Vice President, COO
MEL BAXTER

Senior Vice President
JUDY DIXON

Vice President
WENDI O'CONNOR

Assistant Vice President
LAURA FRIEND

Vice President
MARK WESTBERRY

Senior Vice President
CATHERINE BOYNE

Assistant Vice President
DIANE SHARPE

Vice President
GEORGE MCMANUS

Assistant Vice President
JODI TODD

Assistant Vice President
APRIL JONES

Assistant Vice President
TAMMY FLOWERS

Assistant Vice President
MEME HULSEY

Assistant Vice President
LAURA LEE

Assistant Vice President
ANGIE FERRA

Assistant Vice President
JAN WILDSMITH

Assistant Vice President
RITA BOATRIGHT

Assistant Vice President
ANN GARLAND

Assistant Vice President
JOE RICCIO

Assistant Vice President
JAMES C. DAVIS

Assistant Vice President
**FIRST GEORGIA BANK, ALTAMA
ELZIE JACOBS

Vice President
APRIL BECK

Assistant Vice President** 

**FIRST GEORGIA BANK, ST. SIMONS ISLAND
CHAD KIDWELL

Senior Vice President
SUSAN USSERY

Vice President
FELICIA SALTER

Assistant Vice President
**FIRST GEORGIA BANK , COLONIAL MALL
	MERLENE BURGESS

Vice President
DONNA GIBBS

Assistant Vice President
**FIRST GEORGIA BANK, NORTH BRUNSWICK
FRED ALEXANDER

Vice President
CHINITA DAVIS

Assistant Vice President
**FIRST GEORGIA BANK, WAYCROSS
PAM TAYLOR

Vice President
LINDA WALKER
Assistant Vice President
 
**EXHIBIT 23**
Consent of Deloitte & Touche LLP

Certified Public Accountants

INDEPENDENT AUDITORS' CONSENT

 

The Board of Directors

First Georgia Holding, Inc.

We consent to the incorporation by reference in Registration Statements (N0.33-62245 and No. 33-62249) of First Georgia Holding, Inc. on Form S-8 of our report dated November 22, 2002, appearing in and incorporated by reference in this Annual Report on 

Form 10-KSB of First Georgia Holding, Inc. for the year ended September 30, 2002.

/s/ Deloitte & Touche LLP

Certified Public Accountants

Jacksonville, Florida

December 27, 2002

 
**Exhibit 99.1**
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Annual Report on Form 10-KSB for the year ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

 

This 16th day of December, 2002.

/s/ Henry S. Bishop

Chief Executive Officer

 

/s/ G.F. Coolidge III

Chief Financial Officer

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