<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
June 30, 1998 0-24113
ROCKDALE NATIONAL BANCSHARES, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-2292563
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 82030, Conyers, Georgia 30013
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (770) 785-7880
---------------------------------------------------
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the 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 90 days.
Yes X No
------------- -------------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $1.00 Par Value 676,188
----------------------------- ---------------------------------
Class Outstanding as of August 17, 1998
Transitional Small Business Disclosure Format:
Yes No X
------------- -------------
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------ --------------------
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1998 December 31,
ASSETS (Unaudited) 1997
- ------ ----------- ------------
<S> <C> <C>
Cash and due from banks.................................... $ 4,071,921 $ 1,344,29
Federal funds sold......................................... 90,000 4,290,000
Investment securities:
Securities available-for-sale,
at market value....................................... 10,848,586 5,325,870
Other investments.......................................... 180,000 180,000
Loans, net................................................. 11,278,126 3,599,142
Premises and equipment, net................................ 1,637,227 1,663,678
Accrued interest receivable................................ 269,768 101,073
Other assets............................................... 144,090 166,014
----------- -----------
Total assets.......................................... $28,519,718 $16,670,074
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits
Noninterest-bearing demand............................ $ 3,460,870 $ 1,568,410
Interest-bearing demand and money market.............. 14,869,646 6,478,310
Savings............................................... 418,284 629,190
Time deposits of $100,000 or more..................... 1,860,416 1,205,719
Other time deposits................................... 1,418,929 511,002
----------- -----------
Total deposits................................... 22,028,145 10,392,631
Federal funds purchased............................... 560,000 -
Accrued interest payable.............................. 10,571 6,380
Other liabilities..................................... 20,400 6,000
----------- -----------
Total liabilities................................ 22,619,116 10,405,011
----------- -----------
(Continued)
</TABLE>
Refer to notes to the consolidated unaudited financial statements.
2
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(CONTINUED)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Shareholders' Equity:
Common stock, $1.00 par value,
10,000,000 shares authorized,
676,188 shares issued and outstanding................. 676,188 676,188
Surplus.................................................... 6,051,196 6,060,196
Retained earnings (deficit)................................ (818,389) (468,628)
Accumulated other comprehensive income (loss).............. (8,393) (2,693)
----------- -----------
Total Shareholders' Equity............................ 5,900,602 6,265,063
Commitments and contingent liabilities..................... - -
----------- -----------
Total Liabilities and
Shareholders' Equity............................. $28,519,718 $16,670,074
=========== ===========
</TABLE>
Refer to notes to the consolidated unaudited financial statements.
3
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED JUNE 30, 1998
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
THROUGH JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three-Months Six-Months ended
ended June 30, June 30,
------------------ ---------------------------
1998 1998 1997
------------------ ------------- ------------
<S> <C> <C> <C>
Interest income
Loans, including fees.............................. $244,492 $390,994 $ -
Investment securities:
U.S. Treasury Securities......................... - - -
U.S. Government agencies and corporations........ 181,640 293,702 -
Other investments................................ - - -
Federal funds sold................................. 21,485 81,147 -
--------- --------- --------
Total interest income............................ 447,617 765,843 -
--------- --------- --------
Interest expense
Interest bearing demand and money market........... 166,630 300,144 -
Savings............................................ 1,751 2,822 -
Time deposits of $100,000 or more 24,376 49,965 -
Other time deposits................................ 16,134 25,597 -
Federal funds purchased............................ 540 540 -
--------- --------- --------
Total interest expense........................... 209,431 379,068 -
--------- --------- --------
Net interest income.............................. 238,136 386,775 -
Provision for possible loan losses.................... 48,083 90,581 -
--------- --------- --------
Net interest income after provision
for possible loan losses........................... 190,103 296,194 -
--------- --------- --------
Other income
Service charges on deposit accounts................ 31,824 42,391 -
Investment securities gains, net................... (12) (12) -
Other income....................................... (2,412) 6,017 -
--------- --------- --------
Total other income............................... 29,400 48,396 -
--------- --------- --------
Other expense
Salaries and other compensation.................... 141,767 286,747 -
Employee benefits.................................. 10,061 20,422 -
Net occupancy and equipment expense................ 57,289 114,142 -
</TABLE>
(Continued)
Refer to notes to the consolidated unaudited financial statements
4
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED JUNE 30, 1998
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
THROUGH JUNE 30, 1997
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Three-Months Six-Months ended
ended June 30 June 30,
------------- -----------------------
1998 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Professional and other outside services............ 129,270 253,044 -
Other expense...................................... 16,253 19,985 3,831
--------- --------- -------
Total other expenses............................. 354,640 694,340 3,831
--------- --------- -------
Net income (loss) before taxes........................ (135,137) (349,750) (3,831)
Income taxes.......................................... - - -
--------- --------- -------
Net income (loss)..................................... $(135,137) $(349,750) $(3,831)
========= ========= =======
Basic income (loss) per share......................... $ (.20) $ (.52) $ -
========= ========= =======
</TABLE>
Refer to notes to the consolidated unaudited financial statements.
5
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX-MONTHS ENDED JUNE 30, 1998
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
THROUGH JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the period ended
June 30,
-----------------------------
1998 1997
--------- -------
<S> <C> <C>
Net Loss......................................................... $(349,750) $(3,831)
Other comprehensive income, before tax:
Unrealized holding gains (losses) arising during period (12,716) -
Income tax benefit (expense).................................. 4,323 -
--------- -------
Comprehensive Loss............................................... $(358,143) $(3,831)
========= =======
</TABLE>
Refer to notes to the consolidated unaudited financial statements.
6
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED JUNE 30, 1998
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
THROUGH JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the period ended
June 30,
---------------------------------
1998 1997
------------ --------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $ (349,750) $ (3,831)
Adjustments to reconcile net loss to net cash used
by operating activities:
Net (accretion) amortization of investment
securities................................................. 11,715 -
Depreciation and amortization of premises
and equipment.............................................. 54,228 -
Provision for loan losses................................... 90,581 -
Deferred income tax benefit................................. - -
Amortization of organization costs.......................... 4,876 -
(Increases) decreases in other assets....................... 2,337 (66,131)
Increase in accrued interest
receivable............................................... (168,695) -
Increase in accrued interest payable........................ 4,191 -
Increase in other liabilities............................... 14,400 -
------------ --------
Net cash used by operating activities............. (336,117) (69,962)
------------ --------
Cash flows from investing activities:
Purchases of investment securities
available-for-sale.......................................... (8,394,725) -
Sales of investment securities AFS............................ 2,047,058 -
Calls of investment securities AFS............................ 607,026
Maturities of investment securities available-for-sale........ 206,210 -
Loans originated, net of principal repayments................. (7,769,565) -
Purchases of premises and equipment........................... (27,777) (10,000)
------------ --------
Net cash used by investing activities............. (13,331,773) (10,000)
------------ --------
Cash flows from financing activities:
Proceeds from loans by Organizers............................. - 85,000
Repayment of loans by Organizers.............................. - -
Sale of common stock.......................................... - -
Increase in deposits.......................................... 11,635,514 -
Increase in federal funds purchased........................... 560,000 -
------------ --------
Net cash provided from financing activities....... 12,195,514 85,000
------------ --------
Net (decrease) increase in cash and cash equivalents............. (1,472,376) 5,038
Cash and cash equivalents,
beginning of period........................................... 5,634,297 -
------------ --------
Cash and cash equivalents,
end of period................................................. $ 4,161,921 $ 5,038
============ ========
</TABLE>
Refer to notes to the consolidated unaudited financial statements.
7
<PAGE>
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-QSB. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For
further information, refer to the financial statements and footnotes included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.
NOTE 2 - ORGANIZATION OF THE BUSINESS
Rockdale National Bancshares, Inc., Conyers, Georgia (the "Company"), was
incorporated under the laws of the State of Georgia on February 13, 1997, for
the purpose of becoming a bank holding company for a proposed national bank,
Rockdale National Bank (the "Bank"). On August 26, 1997, the Company completed
an initial public offering of its common stock, $1.00 par value per share. Each
share of common stock was sold for $10.00 per share and 676,188 shares were
sold. Proceeds from the stock offering amounted to $6,736,384, net of selling
expenses. The Company injected $6.0 million into the Bank's capital accounts
upon opening on October 14, 1997.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated unaudited
------------------------------------------
financial statements include the accounts of the Company and the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Accounting. The accounting and reporting policies of the Company
-------------------
conform to generally accepted accounting principles and to general practices
within the banking industry. The Company uses the accrual basis of accounting
by recognizing revenues when earned and expenses when incurred, without
regarding the time of receipt or payment of cash.
Organizational Costs. In accordance with the Financial Accounting
--------------------
Standards Board ("FASB") Statement No. 7, the Company and the Bank capitalized
all direct organizational costs that were incurred in the expectation that they
would generate future revenues or otherwise be of benefit after the Bank opened
for business. These capitalized costs are amortized over a sixty-month period
using the straight line method. As of June 30, 1998, total organizational
costs, net of accumulated amortization, were $74,066.
In 1998, the Accounting Standards Executive Committee issued a Statement of
Position (SOP) number 98-5, "Reporting on the Costs of Start-Up Activities."
This SOP requires that the costs of start-up activities, including organization
costs, be expensed as incurred. The SOP is effective for fiscal years beginning
after December 15, 1998, with earlier application encouraged for fiscal years
for which an annual financial statement has not been issued. Management
anticipates expensing these deferred costs prior to March 31, 1999.
8
<PAGE>
Investment Securities. The Company adopted Statement of Financial
---------------------
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115") on February 13, 1997. SFAS 115 requires
investments in equity and debt securities to be classified into three
categories:
1. Held-to-maturity securities: These are securities which the Company
has the ability and intent to hold until maturity. These securities
are stated at cost, adjusted for amortization of premiums and the
accretion of discounts.
2. Trading securities: These are securities which are bought and held
principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement.
3. Available-for-sale securities: These are securities which are not
classified as either held-to-maturity or as trading securities. These
securities are reported at fair market value. Unrealized gains and
losses are reported, net of tax, as separate components of
shareholders' equity. Unrealized gains and losses are excluded from
the income statement.
Federal Reserve Bank stock is reported at cost. Earnings are reported when
interest is accrued or when dividends are received.
Premium and discount on all investment securities are amortized (deducted)
and accredited (added), respectively, to interest income on the effective yield
method over the period to the maturity of the related securities.
Gains or losses on disposition are computed by the specific identification
method for all securities.
Property and Equipment. Furniture and equipment are stated at cost, net of
----------------------
accumulated depreciation. Depreciation is computed using the straight line
method over the estimated useful lives of the related assets. Maintenance and
repairs are charged to operations, while major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and gain or loss
is included in income from operations.
Income Taxes. The consolidated unaudited financial statements have been
------------
prepared on the accrual basis. When income and expenses are recognized in
different periods for financial reporting purposes and for purposes of computing
income taxes currently payable, deferred taxes are provided on such temporary
differences.
Effective February 13, 1997, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been recognized in the financial
statements or tax return. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and
-----------------------
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
9
<PAGE>
Net Income Per Share. Net income per share was calculated using 676,188 as
--------------------
the weighted average number of shares outstanding for the period ended June 30,
1998. For the six-month period ended June 30, 1998 net income (loss) per share
was $(.52).
Accounting for Transfers and Servicing of Financial Assets and
--------------------------------------------------------------
Extinguishment of Liabilities. SFAS 125 is effective for transfers and
- -----------------------------
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996, and is to be applied prospectively. Earlier or retroactive
application is not permitted. However, in December 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 127 ("SFAS 127"), "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125." This statement defers the effective date of certain
provisions for one year (December 31, 1997). The deferred provisions relate to
repurchase agreements, dollar-roll transactions, securities lending, and similar
transactions. The effective date for all other transfers and servicing of
financial assets is unchanged. The adoption of SFAS 125 did not have a material
impact on the Company's financial statements.
Earnings Per Share. The Financial Accounting Standards Board has issued
------------------
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share." This statement is effective for financial statements issued for periods
ending after December 15, 1997. This statement supersedes Accounting Principles
Board Opinion No. 15 ("APB 15"), "Earnings Per Share," and simplifies earnings
per share computations by replacing primary earnings per share with basic
earnings per share, which shows no effects from dilutive securities. Entities
with complex capital structures will have to show diluted earnings per share,
which is similar to the fully diluted earnings per share computation under APB
15. The adoption of SFAS 128 did not have a significant impact on the financial
condition or results of operations of the Company.
Disclosure of Information About Capital Structure. The Financial
-------------------------------------------------
Accounting Standards Board has issued Statement of Financing Accounting
Standards No. 129 ("SFAS 129"), "Disclosure of Information About Capital
Structure." This statement is effective for financial statements issued for
periods ending after December 15, 1997. This statement consolidates existing
disclosure requirements on capital structure. The adoption of SFAS 129 did not
have a significant impact on the financial condition or results of operations of
the Company.
Reporting Comprehensive Income. The Financial Accounting Standards Board
------------------------------
has issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income." SFAS 130 is effective July 1, 1998. Under
SFAS 130, a company will begin showing changes in assets and liabilities in a
new comprehensive income statement or alternative presentation as opposed to
showing some of the items as transactions in shareholders' equity accounts.
Upon adoption, all comparative annual and interim financial statements will
present a comprehensive income statement or alternative disclosure, for all
years presented. The adoption of SFAS 130 did not have a significant impact on
the financial condition or results of operations of the Company.
Pending Accounting Pronouncements. The Financial Accounting Standards
---------------------------------
Board has issued Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Relation Information."
SFAS 131 is effective July 1, 1998, and requires disclosure of certain financial
information by segments of a company's business. The adoption of SFAS 131 is
not expected to have a significant impact on the financial condition or results
of operations of the Company.
10
<PAGE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about
Pensions and other Postretirement Benefits." SFAS 132 is effective for fiscal
years beginning after December 31, 1997. The adoption of SFAS 132 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
NOTE 4 - OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) is compiled of the following:
Unrealized
Gains (Losses)
on Securities
--------------
Beginning balance - January 1, 1998 $ (2,693)
Current - period change (7,786)
--------
Ending balance - June 30, 1998 $(10,479)
========
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
-------------
Rockdale National Bancshares, Inc. (the "Company") was incorporated in
Georgia on February 13, 1997 to become a bank holding company and to own and
control all of the outstanding shares of a de novo bank, Rockdale National Bank,
Conyers, Georgia (the "Bank"). In a public offering conducted during 1997, the
Company sold and issued 676,188 shares of its own $1.00 par value common stock
at $10.00 per share. Proceeds from the stock offering amounted to $6,736,384,
net of selling expenses. The Company purchased 100% of the Bank's common stock
by injecting $6.0 million into the Bank's capital accounts immediately prior to
commencement of banking operations on October 14, 1997.
Total consolidated assets increased by $11,849,644 from $16,670,074 at
December 31, 1997 to $28,519,718 during the six-month period ended June 30,
1998. The increase was generated primarily through a $11,635,514 increase in
deposits.
Financial Condition
-------------------
Management continuously monitors the financial condition of the Bank in
order to protect depositors, increase retained earnings and protect current and
future earnings. Further discussion of significant items affecting the Bank's
financial condition are discussed in detail below.
Asset Quality
- -------------
A major key to long-term earnings growth is the maintenance of a high-
quality loan portfolio. The Bank's directive in this regard is carried out
through its policies and procedures for extending credit to the Bank's
customers. The goal and result of these policies and procedures is to provide a
sound basis for a new credit extensions and an early recognition of problem
assets to allow the most flexibility in their timely disposition.
Because principal banking operations commenced on October 14, 1997,
management is not yet in a position to determine the composition of non-
performing assets. Additions to the allowance for loan losses will be made
periodically to maintain the allowance at an appropriate level based upon
management's analysis of potential risk in the loan portfolio. The amount of
the loan loss provision is determined by an evaluation of the level of loans
outstanding, the level of non-performing loans, historical loan loss experience,
delinquency trends, the amount of actual losses charged to the reserve in a
given period, and assessment of present and anticipated economic conditions.
Liquidity and Sources of Capital
- --------------------------------
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The June
30, 1998 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $4.1 million, representing 15% of
total assets. Investment securities amounted to $11.0 million, representing 39%
of total assets; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. Note that the Company's
ability to maintain and expand its deposit base and borrowing capabilities are a
source of liquidity. For the six-month period ended June 30, 1998, total
deposits increased from $10.4 million at December 31, 1997 to $22.6 million,
representing an annualized increase of 240%. Note, however, that the Company
does not expect to maintain or duplicate this growth rate. The Company's
management closely monitors and maintains appropriate levels of interest earning
assets
12
<PAGE>
and interest bearing liabilities so that maturities of assets are such that
adequate funds are provided to meet customer withdrawals and loan demand. There
are no trends, demands, commitments, events or uncertainties that will result
in, or are reasonably likely to result in, the Company's liquidity increasing or
decreasing in any material way.
Management is committed to maintaining capital at a level sufficient to
protect depositors, provide for reasonable growth, and fully comply with all
regulatory requirements. Management's strategy to achieve this goal is to
retain sufficient earnings while providing a reasonable return on equity.
The table below illustrates the Bank's and Company's regulatory capital
ratios at June 30, 1998:
<TABLE>
<CAPTION>
Minimum
June 30, regulatory
1998 requirement
------- -----------
<S> <C> <C>
Bank
- ----
Tier 1 Capital 33.1% 4.0%
Tier 2 Capital .8% -
---- ---
Total risk-based capital ratio 34.1% 8.0%
==== ===
Leverage ratio 19.0% 3.0%
==== ===
Company - Consolidated
- ----------------------
Tier 1 Capital 35.6% 4.0%
Tier 2 Capital -% -
---- ---
Total risk-based capital ratio 35.6% 8.0%
==== ===
Leverage ratio 18.7% 3.0%
==== ===
</TABLE>
Note that with respect to the leverage ratio, the OCC expects a minimum of
5.0 percent to 6.0 percent ratio for banks that are not rated CAMEL 1. Although
the Bank is not rated CAMEL 1, its leverage ratio of 19.0% is well above the
required minimum.
Results Of Operations
---------------------
Since principal banking operations only commenced on October 14, 1997, a
comparison of the June 30, 1998 results (when banking operations were in
progress) to those of June 30, 1997 (when banking operations had not commenced)
is not meaningful. This discussion will therefore concentrate on the June 30,
1998 results.
Net income (loss) for the three-month period ended June 30, 1998 amounted
to $(135,137), or $(.20) per share. Net income (loss) for the six-month period
ended June 30, 1998 amounted to $(349,750), or $(.52) per share. The following
is a brief discussion of the more significant components of net income:
13
<PAGE>
a. Net interest income represents the difference between interest
received on interest earning assets and interest paid on interest
bearing liabilities. The following presents, in a tabular form, the
main components of interest earning assets and interest bearing
liabilities.
<TABLE>
<CAPTION>
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- -------- ------
<S> <C> <C> <C>
Federal funds sold $ 2,465,414 $ 81,147 6.58%
Securities 10,120,254 293,702 5.80%
Loans 7,822,588 390,994 10.00%
----------- -------- -----
Total $20,408,256 $765,843 7.51%
=========== ======== =====
Deposits $18,157,588 $378,528 4.17%
Federal funds purchased 17,404 540 5.50%
----------- -------- -----
Total $18,174,992 $379,068 4.17%
=========== ======== =====
Net interest income $386,775 3.34%
======== =====
Net yield on earning assets 3.79%
=====
</TABLE>
b. Other income for the three-month and six-month periods ended June 30,
1998 amounted to $29,400 and $48,396, respectively. On an annualized
basis, these amounts represent .22% and .34% of total assets for the
three-months and six-months ended June 30, 1998, respectively. This
figure is relatively low because in order to attract new banking
relationships, the Bank's fee structure and charges are low when
compared to other banks. The above fees and charges may increase in
the future.
c. Operating expenses for the three-month and six-month period ended June
30, 1998 amounted to $354,640 and $694,340, respectively. On an
annualized basis, these amounts represent 2.50% and 4.87% of total
assets for the three-months and six-months ended June 30, 1998,
respectively. In the future this percentage may increase due to costs
and expenses associated with the new facility.
At December 31, 1997, the allowance for loan losses amounted to $45,373.
By June 30, 1998, the allowance had grown to $135,954. The allowance for loan
losses, as a percentage of total gross loans, decreased from 1.25% for the year
ended December 31, 1997 to 1.11% during the six-month period ended June 30,
1998, primarily due to new loan growth. Management considers the allowance for
loan losses to be adequate and sufficient to absorb possible future losses;
however, there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional provisions to the
allowance will not be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources, or results of operations.
14
<PAGE>
Year 2000
- ---------
A critical issue affecting companies that rely extensively on electronic
data processing systems, such as the Company, is the Year 2000 issue. The Year
2000 issue has arisen due to the widespread use of computer programs that rely
on two-digit date codes to perform computations or decision-making functions.
Many of these programs may fail as a result of their inability to properly
interpret date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, some
equipment, being controlled by microprocessor chips, may not deal appropriately
with the year "00." This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities.
The Bank uses a third-party vendor for processing its primary banking
applications. During 1998, the Company developed a plan to address the Year
2000 issue, conduct a comprehensive review of the Company's systems and ensure
that the Company takes any necessary measures. The Company believes that its
systems, those of the Bank and its data processing vendor are currently Year
2000 compliant and does not believe that material expenditures will be necessary
to implement any further modifications. As of June 30, 1998, the Company had
spent approximately $6,000 to help ensure that its systems would be Year 2000
compliant. The Company's data processing vendor has assured the Company that
its systems are Year 2000 compliant now or will be well in advance of the Year
2000. However, there can be no assurance that unforeseen difficulties or costs
will not arise. In addition, there can be no assurance that the systems of
other companies on which the Company's systems rely, such as the Bank's data
processing vendor, will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively impact the
Company's systems or operations.
Cautionary Note Regarding Forward-Looking Statements
- ----------------------------------------------------
The Company may, from time to time, make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders. Such forward-looking statements are made based on management's
belief as well as assumptions made by, and information currently available to,
management pursuant to "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results may differ
materially from the results anticipated in these forward-looking statements due
to a variety of factors, including governmental monetary and fiscal policies,
deposit levels, loan demand, loan collateral values, securities portfolio values
and interest rate risk management; the effects of competition in the banking
business from other commercial banks, savings and loan associations, mortgage
banking firms, consumer finance companies, credit unions, securities brokerage
firms, insurance companies, money market mutual funds and other financial
institutions operating in the Company's market area and elsewhere, including
institutions operating through the Internet; changes in government regulations
relating to the banking industry, including regulations relating to branching
and acquisitions; failure of assumptions underlying the establishment of
reserves for loan losses, including the value of collateral underlying
delinquent loans, and other factors. The Company cautions that such factors are
not exclusive. The Company does not undertake to update any forward-looking
statements that may be made from time to time by, or on behalf of, the Company.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 20, 1998 By: /s/ William L. Daniel
-----------------------------------------
William L. Daniel, President and
Chief Executive Officer
(principal executive officer)
Date: August 20, 1998 By: /s/ Sandra L. Davis
--------------------------------------
Sandra L. Davis, Chief Financial Officer
(principal financial and accounting officer)
16
