<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-KSB
-----------------------
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
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Commission File Number 333-24435
ROCKDALE NATIONAL BANCSHARES, INC.
A Georgia Corporation
(IRS Employer Identification No. 58-2292563)
P.O. Box 82030
Conyers, Georgia 30013
(770) 785-7880
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Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
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Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
None
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ------
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1997: $182,055
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (520,438 shares) on March 15, 1998, was
$5,204,380. As of such date, no organized trading market existed for the Common
Stock of the Registrant. The aggregate market value was computed by reference
to the book value of the Common Stock of the Registrant as of December 31, 1997.
For the purposes of this response, directors, officers and holders of 5% or more
of the Registrant's Common Stock are considered the affiliates of the Registrant
at that date.
The number of shares outstanding of the Registrant's Common Stock, as of March
15, 1998: 673,188 shares of $1.00 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.
Transitional Small Business Disclosure Format (check one)
Yes No X
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<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Annual Report on Form 10-KSB contain "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, which statements generally can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "estimate,"
"anticipate," "believe," "target," "plan," "project," or "continue" or the
negatives thereof or other variations thereon or similar terminology, and are
made on the basis of management's plans and current analyses of the Company, its
business and the industry as a whole. These forward-looking statements are
subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory
and legislative changes. The above factors, in some cases, have affected, and
in the future could affect, the Company's financial performance and could cause
actual results for fiscal 1998 and beyond to differ materially from those
expressed or implied in such forward-looking statements. The Company does not
undertake to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
PART I
Item 1. Description of Business
- ------ ------------------------
General
Rockdale National Bancshares, Inc. (the "Company") was incorporated under
the laws of the State of Georgia on February 13, 1997 ("Inception") and owns
100% of the outstanding capital stock of Rockdale National Bank (the "Bank").
The Company was incorporated as a mechanism to enhance the Bank's ability to
serve its future customers' requirements for financial services. The holding
company structure provides flexibility for expansion of the Company's banking
business through acquisition of other financial institutions and provision of
additional banking-related services which the traditional commercial bank may
not provide under present laws. For example, banking regulations require that
the Bank maintain a minimum ratio of capital to assets. In the event that the
Bank's growth is such that this minimum ratio is not maintained, the Company may
borrow funds, subject to the capital adequacy guidelines of the Federal Reserve
Board, and contribute them to the capital of the Bank and otherwise raise
capital in a manner which is unavailable to the Bank under existing banking
regulations.
The Bank commenced operations on October 14, 1997 in a temporary facility
located at 1000 Georgia Highway 138 in Conyers, Georgia. Plans are underway for
the construction of a permanent facility at the same location which will, when
completed, contain approximately 11,200 square feet, 6800 square feet on the
main level and 4,400 square feet on the second level. The building will contain
a lobby, vault, eight offices, five teller stations, three drive-in windows, a
mortgage lending facility, a boardroom conference facility, a loan operations
area, and an area for the Bank's bookkeeping operations. In addition to its
temporary headquarters facility, the Bank operates a small branch office located
at 1600 Georgia Highway 20, Conyers, Georgia. This branch facility is located on
approximately 1.2 acres of land and contains a safe, one office, three teller
stations, and two drive-in windows.
The Bank is a full service commercial bank, without trust powers. The Bank
offers a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, money market accounts,
individual retirement accounts, regular interest bearing statement savings
accounts, certificates of deposit, commercial loans, real estate loans, home
equity loans and consumer/installment loans. In addition, the Bank provides
such consumer services as U.S. Savings Bonds, travelers checks, cashiers checks,
safe deposit boxes, bank by mail services, direct deposit and automatic teller
services.
<PAGE>
Market Area and Competition
The primary market area of the Bank in Conyers, Rockdale County, Georgia is
included in the Atlanta Metropolitan Statistical Area and is located
approximately 30 minutes east of Atlanta via Interstate 20. Rockdale County
includes industrial, business and service offices, government offices, free-
standing retail businesses, restaurants, and numerous strip shopping centers.
Principal residential areas are located in the southern portion of the county
while the majority of the business activities are in the middle and northern
portion of the county.
According to the 1990 U.S. Census, Rockdale County has a population of
54,091, representing an increase of 42.7% over the 1980 U.S. Census figure of
36,746. The Georgia Office of Planning and Budget indicated in a Georgia
Department of Labor Report that Rockdale County is estimated to have a
population of 74,432 by the year 2000.
Stability in the local Rockdale County economy principally evolves from a
large manufacturing base. Rockdale County has approximately 90 manufacturing
firms which produce a wide array of products, including apparel, lighting
fixtures, food processing, plastic cups, high tech robotics, and video
cassettes. The largest employers in Rockdale County include AT&T
Communications, Lithonia Lighting, Sweetheart Cups, Inc., Golden States Foods,
Maxell Corporation of America, Kysor-Warren, and Phoenix Refrigeration Systems,
Inc.
Competition among financial institutions in the Bank's primary service area
is intense. There are eight commercial banks with a total of seventeen branches
in Rockdale County and two credit unions with one branch office for each. The
largest banks are affiliated with four major bank holding companies. There are
no locally owned banks.
Financial institutions primarily compete with one another for deposits. In
turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. The Bank is competing with financial
institutions which have much greater financial resources than the Bank, and
which may be able to offer more and unique services and possibly better terms to
their customers. However, the management of the Bank believes that the Bank
will be able to attract sufficient deposits to enable the Bank to compete
effectively with other area financial institutions.
The Bank competes with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have recently been invading the traditional banking
markets. Due to the growth of Rockdale County, it is anticipated that
additional competition will continue from new entrants to the market.
-2-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential
The following is a presentation of the average consolidated balance sheet
of the Company for the period from Inception to December 31, 1997. This
presentation includes all major categories of interest earning assets and
interest bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Period from
Inception to
December 31, 1997
-----------------
Interest-bearing deposits........................ $ 49,203
Taxable securities............................... 1,305,569
Federal funds sold............................... 416,360
Net loans........................................ 555,673
----------
Total earning assets....................... 2,326,805
Other assets..................................... 2,712,826
----------
Total assets............................... $5,039,631
==========
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Period from
Inception to
December 31, 1997
-----------------
Non interest-bearing deposits.................... $ 396,025
NOW and money market deposits.................... 1,102,120
Savings deposits................................. 195,394
Time deposits.................................... 318,622
Other borrowings................................. 390,730
Other liabilities................................ 20,112
----------
Total liabilities............................ 2,423,003
Stockholders' equity............................. 2,616,628
----------
Total liabilities and
stockholders' equity......................... $5,039,631
==========
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<PAGE>
The following is a presentation of an analysis of the net interest earnings
of the Company for the period indicated with respect to each major category of
interest-earning asset and each major category of interest-bearing liability:
<TABLE>
<CAPTION>
Period from Inception to December 31, 1997
------------------------------------------
Average Interest Average
Assets Amount Earned Yield
------ ------------- ------------ -----------
<S> <C> <C> <C>
Interest-bearing deposits............ $ 49,203 $ 2,798 5.69%
Taxable securities................... 1,305,569 101,348 7.76
Federal funds sold................... 416,360 24,033 5.77
Net loans............................ 555,673/(1)/ 47,191/(2)/ 8.49
--------- ------- ----
Total earning assets................ $2,326,805 $175,370 7.54%
========= ======= ====
<CAPTION>
Average Interest Average
Liabilities Amount Expense Cost
------------ ------------- ------------ -----------
<S> <C> <C> <C>
NOW and money market deposits........ $1,102,120 $49,097 4.45%
Savings deposits..................... 195,394 5,310 2.72
Time deposits........................ 318,622 14,593 4.58
Other borrowings..................... 390,730 27,555 7.05
--------- ------ ----
Total interest-bearing liabilities.. $2,006,866 $96,555 4.81%
========= ====== ====
Net yield on earning assets..... 2.73%
====
</TABLE>
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/(1)/ During 1997, all loans were accruing interest.
/(2)/ Interest earned on net loans includes $17,858 in loan fees and loan
service fees.
Rate/Volume Analysis of Net Interest Income
The Rate/Volume Analysis of Net Interest Income cannot be produced as the
Company was non-existent at December 31, 1996. This fact precludes one from
comparing 1997 results to 1996 results.
Deposits
The Bank offers a full range of interest-bearing and non interest-bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, regular interest-bearing statement
savings accounts and certificates of deposit with fixed and variable rates and a
range of maturity date options. The sources of deposits are residents,
businesses and employees of businesses within the Bank's market area, obtained
through the personal solicitation of the Bank's officers and directors, direct
mail solicitation and advertisements published in the local media. The Bank
pays competitive interest rates on time and savings deposits up to the maximum
permitted by law or regulation. In addition, the Bank has implemented a service
charge fee schedule competitive with other financial institutions in the Bank's
market area, covering such matters as maintenance fees on checking accounts, per
item processing fees on checking accounts, returned check charges and the like.
-4-
<PAGE>
The following table presents, for the period indicated, the average amount
of and average rate paid on each of the following deposit categories:
Period from Inception to December 31, 1997
--------------------------------------------------------------------
Deposit Category Average Amount Average Rate Paid
---------------- -------------- -----------------
Non interest-bearing
demand deposits..... $ 396,025 Not Applicable
NOW and money
market deposits..... $1,102,120 4.45%
Savings deposits...... $ 195,394 2.72%
Time deposits......... $ 318,622 4.58%
The following table indicates amounts outstanding of time certificates of
deposit of $100,000 or more and respective maturities at December 31, 1997:
Time
Certificates
of Deposit
------------
3 months or less. $ 0
3-6 months....... 0
6-12 months...... 101,025
over 12 months... 1,104,694
---------
Total.......... $1,205,719
==========
Loan Portfolio
The Bank engages in a full complement of lending activities, including
commercial/industrial, consumer and real estate loans. As of December 31, 1997,
the Bank had a legal lending limit for unsecured loans of up to $847,350 to any
one person. See "Supervision and Regulation."
While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due to
factors beyond the Bank's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also
impact the relative risk in the Bank's real estate portfolio. Of the Bank's
target areas of lending activities, commercial loans are generally considered to
have greater risk than real estate loans or consumer installment loans.
Management of the Bank intends to originate loans and to participate with
other banks with respect to loans which exceed the Bank's lending limits.
Management of the Bank does not believe that loan participations necessarily
pose any greater risk of loss than loans which the Bank originates.
-5-
<PAGE>
The following is a description of each of the major categories of loans in
the Bank's loan portfolio:
Commercial, Financial and Agricultural Loans
Commercial lending is directed principally towards businesses whose demands
for funds fall within the Bank's legal lending limits and which are potential
deposit customers of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Particular emphasis is placed on loans to small and medium-
sized businesses. The primary repayment risk for commercial loans is the
failure of the business due to economic or financial factors. Although the Bank
typically looks to a commercial borrower's cash flow as the principal source of
repayment for such loans, many commercial loans are secured by inventory,
equipment, accounts receivable, and other assets.
Consumer Loans
The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit. This category of loans
also includes lines of credit and term loans secured by second mortgages on the
residences of borrowers for a variety of purposes including home improvements,
education and other personal expenditures. In evaluating these loans the Bank
reviews the borrower's level and stability of income and past credit history and
the impact of these factors on the ability of the borrower to repay the loan in
a timely manner. In addition, the Bank maintains a proper margin between the
loan amount and collateral value.
Real Estate Loans
The Bank's real estate loans consist of residential first and second
mortgage loans, residential construction loans and commercial real estate loans
to a limited degree. These loans are made consistent with the Bank's appraisal
policy and real estate lending policy which detail maximum loan-to-value ratios
and maturities. These loan-to-value ratios are sufficient to compensate for
fluctuations in the real estate market to minimize the risk of loss to the Bank.
The following table presents various categories of loans contained in the
Bank's loan portfolio for the period indicated and the total amount of all loans
for such period:
As of
Type of Loan December 31, 1997
------------ -----------------
Commercial, Financial and Agricultural.............. $ 34,686
Real Estate - Construction.......................... 177,801
Real Estate - Mortgage.............................. 2,118,306
Installment and Other Loans
to Individuals.................................. 1,313,722
---------
Subtotal....................................... 3,644,515
Less: Allowance for
possible loan losses..................... 45,373
---------
Total (net of allowances)................ $3,599,142
=========
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<PAGE>
The following is a presentation of an analysis of maturities of loans as of
December 31, 1997:
<TABLE>
<CAPTION>
Due in 1 Due after 1 to Due After
Type of Loan Year or Less 5 Years 5 Years Total
------------ ------------ -------------- --------- -------
(In thousands)
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural.......... $ 34 $ 0 $ 0 $ 34
Real Estate - Construction...................... 178 0 0 178
Real Estate - Mortgage.......................... 804 1,272 43 2,119
Installment and Other Loans
to Individuals............................... 952 340 21 1,313
------ ------- ------ ------
Total....................................... $1,968 $ 1,612 $ 64 $3,644
====== ======= ====== ======
</TABLE>
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates as of December 31, 1997:
<TABLE>
<CAPTION>
Due in 1 Due after 1 to Due After
Interest Category Year or Less 5 Years 5 Years Total
----------------- ------------ -------------- --------- -------
(In thousands)
<S> <C> <C> <C> <C>
Predetermined interest rate..................... $ 431 $ 1,612 $ 64 $2,107
Floating interest rate.......................... 1,537 0 0 1,537
------ ------- ------ ------
Total....................................... $1,968 $ 1,612 $ 64 $3,644
====== ======= ====== ======
</TABLE>
As of December 31, 1997, all loans were accruing interest, no accruing
loans were contractually past due 90 days or more as to principal and interest
payments and no loans were defined as "troubled debt restructurings."
As of December 31, 1997, there were no loans not disclosed above that are
classified for regulatory purposes as doubtful, substandard or special mention
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms. There
are no loans not disclosed above where known information about possible credit
problems of borrowers causes management to have serious doubts as to the ability
of such borrowers to comply with the present loan repayment terms.
Accrual of interest is discontinued on a loan when management of the Bank
determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. During 1997 all
loans had accrued interest.
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<PAGE>
Summary of Loan Loss Experience
An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated, as well as a breakdown of the allowance for
possible loan losses:
Analysis of the Allowance for Possible Loan Losses
Period from Inception to
December 31, 1997
-----------------
Balance at beginning of period................... $ 0
Charge-offs:
Commercial, Financial and Agricultural....... --
Real Estate -- Construction.................. --
Real Estate -- Mortgage...................... --
Installments and Other Loans to Individuals.. --
-------
Total.............................. 0
-------
Recoveries
Commercial, Financial and Agricultural........ --
Real Estate - Construction.................... --
Real Estate - Mortgage........................ --
Installment and Other Loans to Individuals....
-------
Total.............................. 0
-------
Net charge-offs.................................. 0
Additions charged to operations.................. 45,373
-------
Balance at end of period......................... $45,373
=======
Ratio of net charge-offs during the period to
average loans outstanding during the period... 0%
=======
At December 31, 1997 the allowance was allocated as follows:
<TABLE>
<CAPTION>
Percent of
loans
in each
category
Amount to total loans
-------- --------------
<S> <C> <C>
Commercial, Financial and Agricultural........ $ 0 0 %
------- ------
Real Estate - Construction.................... 0 0
------- ------
Real Estate - Mortgage........................ 0 0
------- ------
Installment and Other Loans to Individuals.... 0 0
------- ------
Unallocated................................... 45,373 100
------- ------
Total.................................... $ 45,373 100.0 %
======= ======
</TABLE>
-8-
<PAGE>
Loan Loss Reserve
In considering the adequacy of the Company's allowance for possible loan
losses, management has focused on the fact that as of December 31, 1997, 6% of
outstanding loans are in the category of commercial loans, which includes
commercial real estate loans and agricultural loans. Commercial loans are
generally considered by management as having greater risk than other categories
of loans in the Company's loan portfolio. However, 99% of these commercial
loans at December 31, 1997 were made on a secured basis. Management believes
that the secured condition of the preponderant portion of its commercial loan
portfolio greatly reduces any risk of loss inherently present in commercial
loans.
The Company's consumer loan portfolio constitutes 36% of outstanding loans
at December 31, 1997. At December 31, 1997 the majority of the Company's
consumer loans were secured by collateral primarily consisting of automobiles,
boats and other personal property. Management believes that these loans involve
less risk than commercial loans.
Real estate mortgage loans constituted 58% of outstanding loans at
December 31, 1997. All loans in this category represent residential real estate
mortgages where the amount of the original loan generally does not exceed 80% of
the appraised value of the collateral. These loans are considered by management
to be well secured with a low risk of loss.
A review of the loan portfolio by an independent firm is conducted
annually. The purpose of this review is to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses. The
review includes analyses of historical performance, the level of non-conforming
and rated loans, loan volume and activity, review of loan files and
consideration of economic conditions and other pertinent information. Upon
completion, the report is approved by the Board and management of the Bank. In
addition to the above review, the Bank's primary regulator, the Comptroller of
the Currency, also conducts an annual examination of the loan portfolio. Upon
completion, the Comptroller of the Currency presents its report of findings to
the Board and management of the Bank. Information provided from the above two
independent sources, together with information provided by the management of the
Bank and other information known to members of the Board, are utilized by the
Board to monitor, on a quarterly basis, the loan portfolio. Specifically, the
Board attempts to identify risks inherent in the loan portfolio (e.g., problem
loans, potential problem loans and loans to be charged off), assess the overall
quality and collectibility of the loan portfolio, and determine amounts of the
allowance for loan losses and the provision for loan losses to be reported based
on the results of their review.
Investments
As of December 31, 1997, investment securities comprised approximately 34%
of the Bank's assets, federal funds sold comprised approximately 26% of the
Bank's assets, and net loans comprised approximately 22% of the Bank's assets.
The Bank invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States,
obligations of agencies of the United States and certificates of deposit issued
by commercial banks. In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and acts as a net seller of
such funds. The sale of Federal Funds amounts to a short-term loan from the Bank
to another bank.
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<PAGE>
The following table presents, for the period indicated, the book value of
the Bank's investments. All securities held at December 31, 1997 were
categorized as available-for-sale.
<TABLE>
<CAPTION>
Investment Category
-------------------
As of
Available-for-Sale: December 31, 1997
------------------- -----------------
<S> <C>
Obligations of U.S. Treasury
and other U.S. Agencies.................. $ 5,325,870
States of the U.S........................ 0
Federal Reserve Bank Stock............... 180,000
-----------
Total.................... $ 5,505,870
===========
</TABLE>
The following table indicates for the year ended December 31, 1997 the
amount of investments due by contractual maturity in (i) one year or less, (ii)
one to five years, (iii) five to ten years, and (iv) over ten years:
<TABLE>
<CAPTION>
Investment Category
-------------------
Weighted
Average
Amount Yield/(1)/
------ -----------
Available-for-Sale:
-------------------
<S> <C> <C>
Obligations of U.S. Treasury
and other U.S. Agencies:
0 - 1 year........................ $ 701,971 5.55%
Over 1 through 5 years............ 4,623,899 6.00
Over 5 through 10 years........... 0 0
Over 10 years..................... 0 0
Federal Reserve Bank Stock,
no maturity....................... 180,000 6.00
---------- ----
Total.......................... $5,505,870 5.85%
========== ====
</TABLE>
- -------------------
/(1)/ The Company has not invested in any tax-exempt obligations.
Return on Equity and Assets
Returns on average consolidated assets and average consolidated equity for
the periods indicated are as follows:
Period from Inception to
December 31
1997
--------
Return on Average Assets.................. (9.30)%
Return on Average Equity.................. (17.91)%
Average Equity to Average Assets Ratio.... 51.92 %
Dividend Payout Ratio..................... --
-10-
<PAGE>
Asset/Liability Management
It is the objective of the Bank to manage assets and liabilities to provide
a satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain of
the officers of the Bank are responsible for monitoring policies and procedures
that are designed to ensure acceptable composition of the asset/liability mix,
stability and leverage of all sources of funds while adhering to prudent banking
practices. It is the overall philosophy of management to support asset growth
primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships and corporations. Management of the
Bank seeks to invest the largest portion of the Bank's assets in commercial,
consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a monthly
report reflecting interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the Bank's Board of Directors. The objective of
this policy is to control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on the Bank's
earnings.
Correspondent Banking
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, coin and currency supplies, overline
and liquidity loan participations and sales of loans to or participations with
correspondent banks. Such correspondent arrangements are governed, in part, by
the provisions of 12 C.F.R. 32.107 and O.C.C. Banking Circular 181 (Rev.)
(August 2, 1984).
The Bank sells loan participations to correspondent banks with respect to
loans which exceed the Bank's lending limit. As compensation for services
provided by a correspondent, the Bank may maintain certain balances with such
correspondents in non-interest bearing accounts. At December 31, 1997 the Bank
had no outstanding participations.
Data Processing
The Bank has entered into a data processing servicing agreement with FiServ
Solutions, Inc. d/b/a FiServ Atlanta. This servicing agreement provides for the
Bank to receive a full range of data processing services, including an automated
general ledger, deposit accounting, commercial, real estate and installment
lending data processing, central information file and ATM processing.
Investment portfolio accounting is provided by Compass Bank located in
Birmingham, Alabama, and payroll processing is provided by ExpressPay, Inc.,
located in Alpharetta, Georgia.
The Company is currently evaluating its computer systems, as well as those
of its data processing vendor, to determine whether modifications and
expenditures will be necessary to make its systems, as well as those of its
vendor, compliant with Year 2000 requirements. These requirements have 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." The
Company believes that its systems are currently Year 2000 compliant and does not
believe that material expenditures will be necessary to implement software and
hardware modifications. However, there can be no assurance that unforeseen
difficulties or costs will
-11-
<PAGE>
not arise. In addition, there can be no assurance that the systems of other
companies on which the Company's systems rely 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.
Facilities
The Bank currently operates out of a temporary facility located at 1000
Georgia Highway 138 in Conyers, Georgia. Plans are underway for construction of
a permanent facility at the same location. The building, when completed, will
contain approximately 6800 square feet on the main level and 4,400 square feet
upstairs. The building will contain a lobby, vault, eight offices, five teller
stations, three drive-in windows, a mortgage lending facility, a boardroom
conference facility, a loan operations area, and an area for the Bank's
bookkeeping operations. In addition to its temporary headquarters facility, the
Bank operates a small branch office located at 1600 Georgia Highway 20, Conyers,
Georgia. This branch facility is located on approximately 1.2 acres of land and
was acquired for a purchase price of approximately $385,000. This facility
contains a safe, one office, three teller stations, and two drive-in windows.
Employees
The Bank presently employs 1 person on a part-time basis and 16 persons on
a full-time basis, including 5 officers. The Bank will hire additional persons
as needed, including additional tellers and financial service representatives.
Monetary Policies
The results of operations of the Bank will be affected by credit policies
of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of federal regulatory agencies, including the Federal
Reserve Board, the Comptroller of the Currency ("Comptroller"), the Georgia
Department of Banking and Finance (the "Georgia Banking Department") and the
Federal Deposit Insurance Corporation ("FDIC").
The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act, which requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before acquiring more than 5% of
the voting shares of any bank or all or substantially all of the assets of a
bank, and before merging or consolidating with another bank holding company.
The Federal Reserve Board (pursuant to regulation and published policy
statements) has maintained that a bank holding company must serve as a source of
financial strength to its subsidiary banks. In adhering to the Federal Reserve
Board policy, the Company may be required to provide financial support to a
subsidiary bank at a time
-12-
<PAGE>
when, absent such Federal Reserve Board policy, the Company may not deem it
advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, which became effective in November 1994, the restrictions on interstate
acquisitions of banks by bank holding companies were repealed on September 29,
1995, such that the Company and any other bank holding company located in
Georgia is able to acquire a bank located in any other state, and a bank holding
company located outside Georgia can acquire any Georgia-based bank, in either
case subject to certain deposit percentage and other restrictions. Effective
June 1, 1997, the legislation provides that, unless an individual state has
elected to prohibit out-of-state banks from operating interstate branches within
its territory, adequately capitalized and managed bank holding companies will be
able to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions. De novo branching by
an out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act, the State of Georgia has recently adopted an interstate banking
statute that, effective June 1, 1997, removed the existing restrictions on the
ability of banks to branch interstate through mergers, consolidations and
acquisitions.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies. Effective April 21, 1997, the Federal
Reserve Board revised and expanded the list of permissible nonbanking
activities, which includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to subsidiaries and
certain outside companies; leasing personal and real property or acting as a
broker with respect thereto; providing management and employee benefits
consulting advice and career counseling services to nonaffiliated banks and
nonbank depository institutions; operating certain nonbank depository
institutions; performing certain trust company functions; providing certain
agency transactional services, including securities brokerage services; riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to limited types of
insurance; performing real estate appraisals; arranging commercial real estate
equity financing; providing check-guaranty, collection agency and credit bureau
services; engaging in assets management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as to
be permissible for bank holding companies, the Federal Reserve Board is required
to consider whether the performance of such activities by a bank holding company
or its subsidiaries can reasonably be expected to produce such benefits to the
public as greater convenience, increased competition and gains in efficiency
that outweigh such possible adverse effects as undue concentration of resources,
decreased or unfair competition, conflicts of interest and unsound banking
practices. Generally, bank holding companies are required to obtain prior
approval of the Federal Reserve Board to engage in any new activity not
previously approved by the Federal Reserve Board.
The Company is also regulated by the Georgia Banking Department under the
Georgia Bank Holding Company Act, which requires every Georgia bank holding
company to obtain the prior approval
-13-
<PAGE>
of the Georgia Commissioner of Banking before acquiring more than 5% of the
voting shares of any bank or all or substantially all of the assets of a bank,
or before merging or consolidating with any other bank holding company. A
Georgia bank holding company is generally prohibited from acquiring ownership or
control of 5% or more of the voting shares of any bank unless the bank being
acquired is either a bank for purposes of the federal Bank Holding Company Act
of 1956, or a federal or state savings and loan association or a savings bank or
federal savings bank whose deposits are insured by the federal deposit insurance
program and such bank has been in existence and continuously operating as a bank
for a period of five years or more prior to the date of acquisition.
As a national bank, the Bank is subject to the supervision of the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board.
With respect to expansion, national banks situated in the State of Georgia are
generally prohibited from establishing branch offices or facilities outside of
the county in which such main office is located, except (i) in adjacent counties
in certain situations, or (ii) by means of a merger, consolidation or sale of
assets. Effective July 1, 1996, the Georgia Legislature enacted legislation
which reduces the limitations imposed on banks situated in the State of Georgia
to establish branch offices. As of July 1, 1996, the new law permits a Georgia
bank to establish three new or additional branch banks, de novo, in any county
within the State of Georgia, in addition to establishing branch offices or
facilities in adjacent counties and by merger or consolidation. Moreover,
beginning on July 1, 1998, a bank located in the State of Georgia will be
permitted to establish new or additional branch banks anywhere in the state by
relocation of the parent bank or another branch bank, or by merger,
consolidation, or purchase of assets and assumption of liabilities involving
another parent bank or branch bank.
The Bank is also subject to the Georgia banking and usury laws restricting
the amount of interest which it may charge in making loans or other extensions
of credit. In addition, the Bank, as a subsidiary of the Company, is subject to
restrictions under federal law in dealing with the Company and other affiliates,
if any. These restrictions apply to extensions of credit to an affiliate,
investments in the securities of an affiliate and the purchase of assets from an
affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
In addition, a national bank may grant loans and extensions of credit to a
single person up to 10% of its unimpaired capital and surplus, provided that the
transactions are fully secured by readily marketable collateral having a market
value determined by reliable and continuously available price quotations, at
least equal to the amount of funds outstanding. This 10% limitation is separate
from, and in addition to, the 15% limitation for unsecured loans. Loans and
extensions of credit may exceed the general lending limit if they qualify under
one of several exceptions. Such exceptions include certain loans or extensions
of credit arising from the discount of commercial or business paper, the
purchase of bankers' acceptances, loans secured by documents of title, loans
secured by U.S. obligations and loans to or guaranteed by the federal
government.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller. In 1989,
both the Federal Reserve Board and the Comptroller issued new risk-based capital
guidelines for bank holding companies and banks which make regulatory capital
requirements more sensitive to differences in risk profiles of various banking
organizations. The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies on a consolidated basis with the
banks owned by the holding company. The Comptroller's risk capital guidelines
apply directly to national banks regardless of whether they are a subsidiary of
a bank holding company. Both agencies' requirements (which are substantially
similar), provide that banking organizations
-14-
<PAGE>
must have capital equivalent to 8% of weighted risk assets. The risk weights
assigned to assets are based primarily on credit risks. Depending upon the
riskiness of a particular asset, it is assigned to a risk category. For example,
securities with an unconditional guarantee by the United States government are
assigned to the lowest risk category. A risk weight of 50% is assigned to loans
secured by owner-occupied one to four family residential mortgages, provided
that certain conditions are met. The aggregate amount of assets assigned to each
risk category is multiplied by the risk weight assigned to that category to
determine the weighted values, which are added together to determine total risk-
weighted assets. Both the Federal Reserve Board and the Comptroller have also
implemented new minimum capital leverage ratios to be used in tandem with the
risk-based guidelines in assessing the overall capital adequacy of banks and
bank holding companies. Under these rules, banking institutions are required to
maintain a ratio of 3% "Tier 1" capital to total assets (net of goodwill). Tier
1 capital includes common shareholders equity, noncumulative perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
high asset quality, high liquidity, good earnings and in general, have to be
considered strong banking organizations, rated composite 1 under the CAMEL
rating system for banks. Institutions with lower ratings and institutions with
high levels of risk or experiencing or anticipating significant growth would be
expected to maintain ratios 100 to 200 basis points above the stated minimums.
The Comptroller has amended the risk-based capital guidelines applicable to
national banks in an effort to clarify certain questions of interpretation and
implementation, specifically with regard to treatment of originated and
purchased mortgage servicing rights and other intangible assets. The
Comptroller's guidelines provide that intangible assets are generally deducted
from Tier 1 capital in calculating a bank's risk-based capital ratio. However,
certain intangible assets which meet specified criteria ("qualifying
intangibles") such as mortgage servicing rights are retained as a part of Tier 1
capital. The Comptroller currently maintains that only mortgage servicing
rights and purchased credit card relationships meet the criteria to be
considered qualifying intangibles. The Comptroller's guidelines formerly
provided that the amount of such qualifying intangibles that may be included in
Tier 1 capital was strictly limited to a maximum of 25% of total Tier 1 capital.
The Comptroller has amended its guidelines to increase the limitation on such
qualifying intangibles from 25% to 50% of Tier 1 capital and further to permit
the inclusion of purchased credit card relationships as a qualifying intangible
asset.
In addition, the Comptroller has adopted rules which clarify treatment of
asset sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital guidelines.
The Comptroller, the Federal Reserve Board and the FDIC recently adopted
final regulations revising their risk-based capital guidelines to further ensure
that the guidelines take adequate account of interest rate risk. Interest rate
risk is the adverse effect that changes in market interest rates may have on a
bank's financial condition and is inherent to the business of banking. Under
the new regulations, when evaluating a bank's capital adequacy, the agency's
capital standards now explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates. The exposure of
a bank's economic value generally represents the change in the present value of
its assets, less the change in the value of its liabilities, plus the change in
the value of its interest rate off-balance sheet contracts. Concurrently, the
agencies issued a joint policy statement to bankers, effective June 26, 1996,
to provide guidance on sound practices for managing interest rate risk. In the
policy statement, the agencies
-15-
<PAGE>
emphasize the necessity of adequate oversight by a bank's Board of Directors and
senior management and of a comprehensive risk management process. The policy
statement also describes the critical factors affecting the agencies'
evaluations of a bank's interest rate risk when making a determination of
capital adequacy. The agencies' risk assessment approach used to evaluate a
bank's capital adequacy for interest rate risk relies on a combination of
quantitative and qualitative factors. Banks that are found to have high levels
of exposure and/or weak management practices will be directed by the agencies to
take corrective action.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Act"), enacted on December 19, 1991, provides for a number of reforms relating
to the safety and soundness of the deposit insurance system, supervision of
domestic and foreign depository institutions and improvement of accounting
standards. One aspect of the Act involves the development of a regulatory
monitoring system requiring prompt action on the part of banking regulators with
regard to certain classes of undercapitalized institutions. While the Act does
not change any of the minimum capital requirements, it directs each of the
federal banking agencies to issue regulations putting the monitoring plan into
effect. The Act creates five "capital categories" ("well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized") which are defined in the Act and which will
be used to determine the severity of corrective action the appropriate regulator
may take in the event an institution reaches a given level of
undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., holding companies) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the holding company is limited to the
lesser of five percent of the institution's total assets or the amount which is
necessary to bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution drops to lower capital levels, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board, the
Comptroller and the FDIC have adopted regulations defining operational and
managerial standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits.
Both the capital standards and the safety and soundness standards which the
Act seeks to implement are designed to bolster and protect the deposit insurance
fund.
-16-
<PAGE>
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act. The
following table reflects the capital thresholds:
<TABLE>
<CAPTION>
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
------------- ------------- --------
<S> <C> <C> <C>
Well capitalized/(1)/ 10% 6% 5%
Adequately Capitalized/(1)/ 8% 4% 4%/(2)/
Undercapitalized/(4)/ less than 8% less than 4% less than 4%/(3)/
Significantly
Undercapitalized/(4)/ less than 6% less than 3% less than 3%
Critically Undercapitalized - - less than or
equal to 2%/(5)/
</TABLE>
- ---------------------------
/(1)/ An institution must meet all three minimums.
/(2)/ 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
/(3)/ less than 3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
/(4)/ An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
---
/(5)/ Ratio of tangible equity to total assets.
As a national bank, the Bank is subject to examination and review by
the Comptroller. This examination is typically completed on-site every eighteen
months and is subject to off-site review at call. The Comptroller, at will, can
access quarterly reports of condition, as well as such additional reports as may
be required by the national banking laws.
On July 1, 1995, the State of Georgia enacted an interstate banking
statute which authorizes bank holding companies located throughout the United
States to acquire banks and bank holding companies located in Georgia under
certain conditions. Such legislation has had the effect of increasing
competition among financial institutions in the Bank's market area and in the
State of Georgia generally.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation. In
addition, regulators sometimes require higher capital levels on a case-by-case
basis based on such factors as the risk characteristics or management of a
particular institution. The Company and the Bank are not aware of any attributes
of their operating plan that would cause regulators to impose higher
requirements.
Item 2. Description of Property
- ------ -----------------------
On February 4, 1997, the Company entered into a contract with a party
unaffiliated with any officer or director of the Company to acquire a 2.5 acre
tract of land located at the intersection of Highway 138 and Miller's Chapel
Road for a total purchase price of $424,160. The Company currently operates
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<PAGE>
out of offices in a modular bank facility also located at the intersection of
Highway 138 and Miller's Chapel Road. The Company leases the approximately 2,200
square feet facility pursuant to a month-to-month lease at a monthly rental of
$3,500. Plans are underway for construction of a permanent facility at the same
location which will, when completed, contain approximately 6800 square feet on
main the level and 4,400 square feet on the second level.
In addition to its temporary headquarters facility, the Bank operates a
small branch office located at 1600 Georgia Highway 20, Conyers, Georgia. This
branch facility is located on approximately 1.2 acres of land and was acquired
for a purchase price of approximately $385,000.
Item 3. Legal Proceedings
- ------ -----------------
There are no material pending legal proceedings to which the Company or
the Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the Company,
pending or contemplated, in which any director, officer or affiliate or any
principal security holder of the Company, or any associate of any of the
foregoing is a party or has an interest adverse to the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
No matter was submitted during the fourth quarter ended December 31,
1997 to a vote of security holders of the Company.
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<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------ --------------------------------------------------------
A. Market Information
During the period covered by this report and to date, there has been no
established public trading market for the Company's Common Stock.
B. Holders of Common Stock
As of March 15, 1998, the number of holders of record of the Company's
Common Stock was 662.
C. Dividends
To date, the Company has not paid any dividends on its Common Stock. As
the Company and the Bank are both start-up operations, it is the policy of the
Board of Directors of the Company to reinvest earnings for such period of time
as is necessary to ensure the success of the operations of the Company and of
the Bank. There are no current plans to initiate payment of cash dividends, and
future dividend policy will depend on the Bank's earnings, capital requirements,
financial condition and other factors considered relevant by the Board of
Directors of the Company.
The Bank is restricted in its ability to pay dividends under the
national banking laws and by regulations of the Comptroller. Pursuant to 12
U.S.C. (S) 56, a national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits, subject to other applicable
provisions of law. Payments of dividends out of undivided profits is further
limited by 12 U.S.C. (S) 60(a), which prohibits a bank from declaring a dividend
on its shares of common stock until its surplus equals its stated capital,
unless there has been transferred to surplus not less than one-tenth of the
Bank's net income of the preceding two consecutive half-year periods (in the
case of an annual dividend). Pursuant to 12 U.S.C. (S) 60(b), the approval of
the Comptroller is required if the total of all dividends declared by the Bank
in any calendar year exceeds the total of its net income for that year combined
with its retained net income for the preceding two years, less any required
transfers to surplus.
Item 6. Management's Discussion and Analysis or Plan of Operation
- ------ ---------------------------------------------------------
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements, related notes and statistical information
included elsewhere herein.
Results of Operations
The Company was organized on February 13, 1997 to serve as a holding
company for a proposed national bank. For approximately the first seven months
of operation, the main activities centered on seeking, interviewing and
selecting a cohesive group of organizers/directors; applying for a national bank
charter; applying to become a bank holding company; and filing a Registration
Statement (the "Registration Statement") with the Securities and Exchange
Commission pursuant to which the Company registered 800,000 shares of its Common
Stock at an offering price of $10.00 per share. Upon the Registration
Statement's effectiveness, the organizers/directors focused their efforts on the
sale of such Common Stock and, by late August 1997, had completed all selling
activities. Net of selling expenses, the Company raised
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<PAGE>
$6,706,384 in the offering. From late August to the end of September 1997,
management engaged in activities resulting in the opening of the Bank. During
the development stage, from February 13, 1997 ("Inception") to October 14, 1997
(the "Bank Opening"), net loss amounted to $114,565. Net loss from the Bank
Opening to December 31, 1997 amounted to $350,561. Losses from Inception to
December 31, 1997 amounted to $468,628, or $.70 per share.
Net Interest Income
The Company's results of operations are determined by its ability to
manage effectively interest income and expense, to minimize loan and investment
losses, to generate non-interest income and to control non-interest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the Company's ability to maintain an adequate spread between
the rate earned on earning assets and the rate paid on interest-bearing
liabilities, such as deposits and borrowings. Thus, net interest income is the
key performance measure of income.
Presented below are various components of assets and liabilities,
interest income and expense as well as their yield/cost for the period
indicated.
Period From Inception
to December 31, 1997
-------------------------------------
(In thousands)
Average Interest Yield/
Balance Income/Expense Cost
------- -------------- ----
Interest-bearing deposits $ 49 $ 3 6.12%
Federal funds sold 416 24 5.77
Securities 1,306 101 7.73
Loans, net 556 47 8.45
------ ---- ----
Total earning assets $2,327 $175 7.54%
====== ==== ====
Interest-bearing deposits $1,616 $ 69 4.27%
Other borrowings 391 28 7.05
------ ---- ----
Total interest-bearing liabilities $2,007 $ 97 4.81%
====== ==== ====
Net yield on earning assets 2.73%
====
As reflected above, average yield on earning assets amounted to 7.54%,
while the average cost of funds amounted to 4.81%. Net interest yield is
computed by subtracting interest expense from interest income and dividing the
resulting figure by average interest-earning assets. Net interest yield for the
period ended December 31, 1997 amounted to 3.35%.
Non-Interest Income
Non-interest income for the period ended December 31, 1997 amounted to
$6,685 and represented 0.13% of average assets. Management expects non-interest
income as a percentage of average assets to improve significantly in 1998.
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<PAGE>
Non-Interest Expense
Non-interest expense from Inception to December 31, 1997 amounted to
$508,755. As a percent of total average assets, non-interest expense amounted
to 10%. Below are the components of non-interest expense for 1997.
Salaries and benefits $169,107
Supplies and printing 36,451
Advertising and public relations 7,126
Legal and professional 145,916
Other operating expenses 150,155
-------
Total non-interest expense $508,755
=======
During 1997, $45,373 was provided to the allowance for loan losses. There
were no charge-offs during 1997. As of December 31, 1997, management considers
the allowance for loan losses to be adequate 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.
Liquidity and Interest Rate Sensitivity
Net interest income, the Company's primary source of earnings, fluctuates
with significant interest rate movements. To lessen the impact of these margin
swings, the balance sheet should be structured so that repricing opportunities
exist for both assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these repricing
opportunities at any point in time constitute interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to changes in market interest rates. The rate sensitive
position, or gap, is the difference in the volume of rate sensitive assets and
liabilities, at a given time interval. The general objective of gap management
is to manage actively rate sensitive assets and liabilities so as to reduce the
impact of interest rate fluctuations on the net interest margin. Management
generally attempts to maintain a balance between rate sensitive assets and
liabilities as the exposure period is lengthened to minimize the Company's
overall interest rate risks.
The asset mix of the balance sheet is continually evaluated in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. To effectively manage the liability mix of the balance sheet, there
should be a focus on expanding the various funding sources. The interest rate
sensitivity position at year-end 1997 is presented in the following table. The
difference between rate sensitive assets and rate sensitive liabilities, or the
interest rate sensitivity gap, is shown at the bottom of the table. Since all
interest rates and yields do not adjust at the same velocity, the gap is only a
general indicator of rate sensitivity.
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<PAGE>
<TABLE>
<CAPTION>
After After
three six After
Within months months one year After
three but within but within but within five
months six months one year five years years Total
--------- ------------ ------------ ----------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans $ 1,204 $ 71 $ 693 $1,612 $ 64 $ 3,644
US Government and agency securities 0 200 502 4,624 0 5,326
Federal funds sold 4,290 0 0 0 0 4,290
------ ------- ------- ------ ------ -------
Total earning assets $ 5,494 $ 271 $ 1,195 $6,236 $ 64 $13,260
====== ====== ====== ===== ===== ======
SUPPORTING SOURCES OF FUNDS
Demand deposits,
Interest-bearing demand
and savings $ 8,676 $ 0 $ 0 $ 0 $ 0 $ 8,676
Certificates, less than $100M 61 88 359 3 0 511
Certificates, $100M and over 0 0 101 1,105 0 1,206
------ ------ ------ ----- ----- ------
Total interest-bearing liabilities $ 8,737 $ 88 $ 460 $1,108 $ 0 $10,393
====== ====== ====== ===== ===== ======
Interest-sensitivity gap $(3,243) $ 183 $ 735 $5,128 $ 64 $ 2,867
Cumulative interest-sensitivity gap $(3,243) $(3,060) $(2,325) $2,803 $2,867 $ 2,867
Interest-sensitivity gap ratio (24.44%) 1.37% 5.54% 3.61% .48% 21.62%
Cumulative interest-sensitivity gap ratio (24.44%) (23.07%) (17.53%) 21.14% 21.62% 21.62%
</TABLE>
As evidenced by the table above, the Company is cumulatively liability
sensitive. In a declining interest rate environment, a liability sensitive
position (a gap ratio of less than 1.0) is generally more advantageous since
liabilities are repriced sooner than assets. Conversely, in a rising interest
rate environment, an asset sensitive position (a gap ratio over 1.0) is
generally more advantageous as earning assets are repriced sooner than the
liabilities. With respect to the Company, an increase in interest rate would
result in higher earnings while a decline in interest rates will reduce income.
This, however, assumes that all other factors affecting income remain constant.
As the Company continues to grow, management will continuously structure
its rate sensitivity position to best hedge against rapidly rising or falling
interest rates. The Bank's Asset/Liability Committee meets on a quarterly basis
and develops management's strategy for the upcoming period. Such strategy
includes anticipations of future interest rate movements.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits. The Company's primary source of liquidity comes from
its ability to maintain and increase deposits through the Bank. Deposits grew
by $10.4 million in 1997. Below are the pertinent liquidity balances and ratios
for the period from Inception to December 31, 1997.
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<PAGE>
Cash and cash equivalents .................... $5,634,297
Securities ................................... 5,505,870
CDS, over $100,000 to total deposits ratio ... 12%
Loan to deposit ratio ........................ 35%
Brokered deposits ............................ N/A
At December 31, 1997, large denomination certificates accounted for 12% of
total deposits. Large denomination CDS are generally more volatile than other
deposits. As a result, management continually monitors the competitiveness of
the rates it pays on its large denomination CDS and periodically adjusts its
rates in accordance with market demands. Significant withdrawals of large
denomination CDS may have a material adverse effect on the Bank's liquidity.
Management believes that since a majority of the above certificates were
obtained from Bank customers residing in Rockdale County, Georgia, the
volatility of such deposits is lower than if such deposits were obtained from
depositors residing outside of Rockdale County, as outside depositors are more
likely to be interest rate sensitive.
Cash and cash equivalents are the primary source of liquidity. At
December 31, 1997, cash and cash equivalents amounted to $5.6 million,
representing 34% of total assets. Securities available for sale provide a
secondary source of liquidity. Approximately $1.0 million of the $5.5 million
in the Bank's securities portfolio is scheduled to mature in 1998.
Brokered deposits are deposit instruments, such as certificates of
deposit, deposit notes, bank investment contracts and certain municipal
investment contracts that are issued through brokers and dealers who then offer
and/or sell these deposit instruments to one or more investors. As of December
31, 1997, the Company had no brokered deposits in its portfolio.
Management knows of no trends, demands, commitments, events or
uncertainties that should result in or are reasonably likely to result in the
Company's liquidity increasing or decreasing in any material way in the
foreseeable future.
Capital Adequacy
There are now two primary measures of capital adequacy for banks and bank
holding companies: (i) risk-based capital guidelines and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's required
capital in relation to the degree of risk perceived in its assets and its off-
balance sheet items. Note that under the risk-based capital guidelines, capital
is divided into two "tiers." Tier 1 capital consists of common shareholders'
equity, non-cumulative and cumulative (bank holding companies only) perpetual
preferred stock and minority interest. Goodwill is subtracted from the total.
Tier 2 capital consists of the allowance for loan losses, hybrid capital
instruments, term subordinated debt and intermediate term preferred stock.
Banks are required to maintain a minimum risk-based capital ratio of 8.0%, with
at least 4.0% consisting of Tier 1 capital.
The second measure of capital adequacy relates to the leverage ratio. The
OCC has established a 3.0% minimum leverage ratio requirement. Note that the
leverage ratio is computed by dividing Tier 1 capital into total assets. For
banks that are not rated CAMEL 1 by their primary regulator, (which includes the
subsidiary Bank), the minimum leverage ratio should be 3.0% plus an additional
cushion of at least 1 to 2 percent, depending upon risk profiles and other
factors.
A new rule was recently adopted by the Federal Reserve Board, the OCC and
the FDIC that adds a measure of interest rate risk to the determination of
supervisory capital adequacy. In connection with this new rule, the agencies
have also proposed a measurement process to measure interest rate risk. Under
this proposal, all items reported on the balance sheet, as well as off-balance
sheet items, would be reported according to maturity, repricing dates and cash
flow characteristics. A bank's reporting position would be multiplied by
duration-based risk factors and weighted according to rate sensitivity. The net
risk
-23-
<PAGE>
weighted position would be used in assessing capital adequacy. The objective of
this complex proposal is to determine the sensitivity of a bank to various
rising and declining interest rate scenarios.
The table below illustrates the Bank's and Company's regulatory capital
ratios at December 31, 1997:
Minimum
December 31, regulatory
Bank 1997 requirement
---- ----------- ------------
Tier 1 Capital 65.6% 4.0%
Tier 2 Capital .5% --
---- ---
Total risk-based capital ratio 66.1% 8.0%
==== ===
Leverage ratio 35.2% 3.0%
==== ===
Company - Consolidated
----------------------
Tier 1 Capital 72.5% 4.0%
Tier 2 Capital -- --
---- ---
Total risk-based capital ratio 72.5% 8.0%
==== ===
Leverage ratio 37.5% 3.0%
==== ===
The above ratios indicate that the capital positions of the Company and the
Bank are sound and that the Company is well positioned for future growth.
Accounting Matters
Effective February 13, 1997, the Company adopted 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.
Effective February 13, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125 ("SFAS 125"), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 125 is
effective for such transactions entered into subsequent to December 31, 1996,
and for certain excess servicing rights recorded at December 31, 1996. Under
SFAS 125, a company recognizes the financial and servicing assets it controls
and the liabilities it has incurred and derecognizes financial assets when
control has been surrendered and liabilities when extinguished. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 127 ("SFAS 127"), "Deferral of the Effective Date of FASB
Statement No. 125," which delays the effective date of certain provisions of
SFAS 125 until 1998. The adoption of SFAS 125 and SFAS 127 did not have a
significant impact on the financial condition or results of operations of the
Company.
-24-
<PAGE>
Effective February 13, 1997, the Company adopted Statement of Financial
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.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 is effective January 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 disclosure for all years presented. The adoption of SFAS 130 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments
of an Enterprise and Related Information." SFAS 131 is effective January 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.
Item 7. Financial Statements
- ------ --------------------
The following financial statements are filed with this report:
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1997
Consolidated Statement of Income - Period from Inception (February 13,
1997) to December 31, 1997
Consolidated Statement of Changes in Shareholders' Equity - Period from
Inception (February 13, 1997) to December 31, 1997
Consolidated Statement of Cash Flows - Period from Inception (February
13, 1997) to December 31, 1997
Notes to Consolidated Financial Statements
-25-
<PAGE>
[Bricker & Melton Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Rockdale National Bancshares, Inc.
and Subsidiary
Conyers, Georgia
We have audited the accompanying consolidated balance sheet of Rockdale
National Bancshares, Inc. and subsidiary as of December 31, 1997, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the period from inception (February 13, 1997) to December 31,
1997. These consolidated financial statements are the responsibility of Rockdale
National Bancshares, Inc.'s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Rockdale National Bancshares, Inc. and subsidiary, and the results of their
operations and their cash flows for the period from inception (February 13,
1997) to December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ BRICKER & MELTON, P.A.
January 30, 1998
Duluth, Georgia
-26-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
=======================================================================
December 31, 1997
-----------------
ASSETS
Cash and due from banks (Note B) $ 1,344,297
Federal funds sold 4,290,000
Investment securities available for sale (Note C) 5,325,870
Other investments (Note C) 180,000
Loans, net (Notes D and I) 3,599,142
Premises and equipment, net (Note E) 1,663,678
Accrued interest receivable 101,073
Other assets (Note G) 136,014
-----------
TOTAL ASSETS $ 16,640,074
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits: (Note H)
Noninterest-bearing demand $ 1,568,410
Interest-bearing demand and money market 6,478,310
Savings 629,190
Time deposits of $100,000 or more 1,205,719
Other time deposits 511,002
-----------
Total Deposits 10,392,631
Accrued interest payable 6,380
Other liabilities (Notes F and G) 6,000
-----------
TOTAL LIABILITIES 10,405,011
-----------
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
-27-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (Continued)
=======================================================================
December 31, 1997
-----------------
STOCKHOLDERS' EQUITY (Note J)
Common stock, par value $1.00; 10,000,000 shares
authorized, 673,188 shares issued and outstanding $ 673,188
Surplus 6,033,196
Retained earnings (deficit) (468,628)
Market valuation reserve on investment securities
available for sale (Note C) (2,693)
-----------
TOTAL STOCKHOLDERS' EQUITY 6,235,063
-----------
Commitments and contingent liabilities (Note K)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,640,074
===========
The accompanying notes are an integral part of these consolidated financial
statements.
-28-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
========================================================================
For the period
from inception to
December 31, 1997
-----------------
INTEREST INCOME
Loans, including fees $ 47,191
Investment securities:
U.S. Treasury securities 61,385
U.S. Government agencies and corporations 37,616
Other investments 5,145
Federal funds sold 24,033
--------
TOTAL INTEREST INCOME 175,370
--------
INTEREST EXPENSE
Interest-bearing demand and money market 49,097
Savings 5,310
Time deposits of $100,000 or more 10,111
Other time deposits 4,482
Other borrowings (Note F) 27,555
--------
TOTAL INTEREST EXPENSE 96,555
--------
NET INTEREST INCOME 78,815
PROVISION FOR LOAN LOSSES (Note D) 45,373
--------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 33,442
--------
OTHER INCOME
Service charges on deposit accounts 5,717
Investment securities gains, net (Note C) --
Other income 968
--------
TOTAL OTHER INCOME 6,685
--------
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
-29-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Continued)
======================================================================
For the period
from inception to
December 31, 1997
-----------------
OTHER EXPENSE
Salaries and other compensation $ 146,446
Employee benefits 22,661
Net occupancy and equipment expense 57,094
Professional and other outside services 145,916
Other expense 136,638
--------
TOTAL OTHER EXPENSE 508,755
--------
LOSS BEFORE INCOME TAXES (468,628)
INCOME TAX BENEFIT (Note G) --
--------
NET LOSS $(468,628)
========
BASIC LOSS PER COMMON SHARE (Note A) $ (.70)
========
The accompanying notes are an integral part of these consolidated financial
statements.
-30-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
For the period from inception to December 31, 1997
------------------------------------------------------------------------------
Retained Market
Common Earnings Valuation
Stock Surplus (Deficit) Reserve Total
--------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at Inception $ 50 $ 450 $ -- $ -- $ 500
Proceeds from sale of capital stock 673,188 6,033,196 -- -- 6,706,384
Net loss -- -- (468,628) -- (468,628)
Repurchase of organization shares (50) (450) -- -- (500)
Market valuation adjustment--net -- -- -- (2,693) (2,693)
--------- ----------- --------- --------- ----------
Balance at December 31, 1997 $ 673,188 $ 6,033,196 $(468,628) $ (2,693) $6,235,063
========= =========== ========= ========= ==========
</TABLE>
The accompanying note are an integral part of these consolidated financial
statements.
-31-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
For the period
from inception to
December 31, 1997
---------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (468,628)
Adjustments to reconcile net loss to net cash used by operating
activities:
Net (accretion) amortization of investment securities (64,802)
Depreciation and amortization of premises and equipment 26,812
Provision for loan losses 45,373
Deferred income tax benefit 1,388
Amortization of organization costs 1,968
Increase in other assets (137,982)
Increase in accrued interest receivable (101,073)
Increase in accrued interest payable 6,380
Increase in other liabilities 6,000
--------------
NET CASH USED BY OPERATING ACTIVITIES (684,564)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale (11,613,202)
Purchases of other investments (180,000)
Maturities of investment securities available for sale 6,348,053
Loans originated, net of principal repayments (3,644,515)
Purchases of premises and equipment (1,690,490)
--------------
NET CASH USED BY INVESTING ACTIVITIES (10,780,154)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of capital stock 6,706,384
Net increase in demand, money market and savings deposits 8,675,910
Time deposits accepted, net of repayments 1,716,721
Proceeds from other borrowings 1,258,051
Repayment of other borrowings (1,258,051)
Proceeds from sale of organization shares 500
Repurchase of organization shares (500)
Proceeds from loans by Organizers 85,000
Repayment of loans by Organizers (85,000)
--------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,099,015
--------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
-32-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS, (Continued)
================================================================================
<TABLE>
<CAPTION>
For the period
from inception to
December 31, 1997
-----------------------
<S> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 5,634,297
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
--
-------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,634,297
=============
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest $ 90,175
=============
Income taxes $ --
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-33-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rockdale National Bancshares, Inc. provides a full range of banking and bank-
related services to individual and corporate customers through its bank
subsidiary located in Rockdale County, Georgia. Rockdale National Bancshares,
Inc. and subsidiary are subject to intense competition from other financial
institutions and are also subject to the regulations of certain government
agencies and, therefore, undergo periodic examinations by those regulatory
authorities.
The accounting and reporting policies of Rockdale National Bancshares, Inc.
and subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. The following is a summary of the
more significant of these policies.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. For instance, material estimates that
are particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses. Management believes that the
allowance for loan losses is adequate. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the allowance for loan losses. Such agencies
may require the recognition of additions to the allowance based on their
judgments about information available to them at the time of their examination.
Basis of Presentation
Rockdale National Bancshares, Inc. (the Parent Company) was incorporated under
the laws of the State of Georgia on February 13, 1997, to operate as a bank
holding company pursuant to the federal Bank Holding Company Act of 1956, as
amended, and the Georgia Bank Holding Company Act to purchase 100 percent of the
issued and outstanding capital stock of Rockdale National Bank (the Bank), an
association organized under the laws of the United States, which began as a
general banking business on October 14, 1997. The consolidated financial
statements include the accounts of the Parent Company and its wholly-owned
subsidiary, the Bank, collectively known as the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Investment Securities
Investment securities held to maturity are reported at amortized cost.
Investment securities available for sale are reported at fair market value, with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of the related tax effect. Other investments are reported at cost
and, accordingly, earnings are reported when interest is accrued or when
dividends are received.
-34-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premium and discount on all investment securities are amortized (deducted) and
accreted (added), respectively, to interest income on the straight-line and
interest methods over the period to the maturity of the related securities.
Premium and discount on mortgage-backed securities are amortized (deducted) and
accreted (added), respectively, to interest income using a method which
approximates a level yield over the period to maturity of the related
securities, taking into consideration assumed prepayment patterns.
Gains or losses on disposition are computed by the specific identification
method for all securities.
Loans
Loans are reported at the gross amount outstanding, less a valuation allowance
for loan losses. Interest income on all other loans is recognized over the terms
of the loans based on the principal amount outstanding. If the collectibility of
interest appears doubtful, the accrual thereof is discontinued. Accrued interest
which appears doubtful of collection is reversed to the interest income account
if accrued in the current year or charged to the allowance for loan losses if
accrued in prior years.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. Management's judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans
and takes into consideration such factors as the balance of impaired loans
(which are defined as all nonperforming loans except residential mortgages and
groups of small homogeneous loans), changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality and review of specific problem loans. Periodic
revisions are made to the allowance when circumstances which necessitate such
revisions become known. Specific provision for loan losses is made for impaired
loans based on a comparison of the recorded carrying value in the loan to either
the present value of the loan's expected cash flow, the loan's estimated market
price or the estimated fair value of the underlying collateral. Recognized
losses are charged to the allowance for loan losses, while subsequent recoveries
are added to the allowance.
Premises and Equipment
Premises and equipment are reported at cost less accumulated depreciation and
amortization. For financial reporting purposes, depreciation and amortization
are computed using primarily straight-line methods over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged to
operations as incurred, while major renewals and betterments are capitalized.
When property is disposed of, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in income. For
federal tax reporting purposes, depreciation and amortization are computed using
primarily accelerated methods.
-35-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The tax effects of transactions are recorded at current tax rates in the
periods the transactions are reported for financial statement purposes. Deferred
income taxes is established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. The Company files its income tax returns on a consolidated basis.
Basic Earnings Per Common Share
Basic earnings per common share is based on the weighted average number of
common shares outstanding during the period, which totaled 673,188 shares for
the period from inception (February 13, 1997) to December 31, 1997.
Effective February 13, 1997, the Company adopted 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.
Off-Balance-Sheet Financial Instruments
In the normal course of business, the Company originates financial instruments
with off-balance-sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These commitments involve varying degrees of risk in excess of the
amounts recognized in the consolidated balance sheet. Commitments to extend
credit represent legally binding agreements to lend to a customer with fixed
expiration dates or other termination clauses. Since many commitments expire
without being funded, total commitment amounts do not necessarily represent
future liquidity requirements. The amount of collateral obtained is based on
management's credit evaluation of the customer. Collateral held varies but may
include accounts receivable; inventory; and property, plant and equipment.
Standby letters of credit are conditional commitments issued by the Company
guaranteeing the performance of a customer to a third party.
Fair Values of Financial Instruments
The Company uses the following methods and assumptions in estimating fair
values of financial instruments (see Note M):
Cash and cash equivalents--The carrying amount of cash and cash equivalents
approximates fair value.
-36-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment securities--The fair value of investment securities held to
maturity and available for sale is estimated based on bid quotations received
from independent pricing services. The carrying amount of other investments
approximates fair value.
Loans--For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For all other
loans, fair values are calculated by discounting the contractual cash flows
using estimated market discount rates which reflect the credit and interest rate
risk inherent in the loan, or by using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposits--The fair value of deposits with no stated maturity, such as demand,
NOW and money market, and savings accounts, is equal to the amount payable on
demand at year-end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities.
Accrued interest--The carrying amount of accrued interest receivable and
payable approximates fair value.
Off-balance-sheet instruments--The fair value for off-balance sheet lending
commitments is equal to the amount of commitments outstanding at December 31,
1997. This is based on the fact that the Company generally does not offer
lending commitments or standby letters of credit to its customers for long
periods, and therefore, the underlying rates of the commitments approximate
market rates.
New Accounting Pronouncements
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
Effective February 13, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 125 is
effective for such transactions entered into subsequent to December 31, 1996,
and for certain excess servicing rights recorded at December 31, 1996. Under
SFAS 125, a company recognizes the financial and servicing assets it controls
and the liabilities it has incurred and derecognizes financial assets when
control has been surrendered and liabilities when extinguished. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 127 (SFAS 127), "Deferral of the Effective Date of FASB
Statement No. 125," which delays the effective date of certain provisions of
SFAS 125 until 1998. The adoption of SFAS 125 and SFAS 127 did not have a
significant impact on the financial condition or results of operations of the
Company.
-37-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Disclosure of Information About Capital Structure
Effective February 13, 1997, the Company adopted Statement of Financial
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.
Pending Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS
130 is effective January 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 disclosure for all years presented. The adoption of SFAS 130 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 is effective January 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.
NOTE B--CASH AND DUE FROM BANKS
The Federal Reserve Board requires that banks maintain reserve balances with
the Federal Reserve Bank or in cash on hand. At December 31, 1997, the Bank's
reserve requirement had not been required to be computed or reported to the
Federal Reserve Bank.
-38-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE C--INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities
available for sale are as follows at December 31:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
U.S. Government agencies and
corporations $ 5,329,951 $ 1,474 $ 5,555 $ 5,325,870
=========== ======= ======= ===========
</TABLE>
Other investments consists of common stock in the Federal Reserve Bank
of Atlanta.
In 1997, the unrealized loss on available for sale securities, net of
the related deferred taxes of $1,388, is $2,693 and is included as a separate
component of stockholders' equity.
The amortized cost and estimated market value of investment securities
available for sale at December 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
Investment Securities
Available for Sale
-------------------------
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 702,436 $ 701,971
Due after one year through three years 3,210,643 3,206,829
Due after three years through five years 1,416,872 1,417,070
----------- -----------
$ 5,329,951 $ 5,325,870
=========== ===========
</TABLE>
There were no sales of investment securities in 1997.
At December 31, 1997, there were no investment securities required to be
pledged to secure public funds and certain other deposits as required by law.
At December 31, 1997, the Bank has no outstanding off-balance-sheet derivative
financial instruments such as swaps, options, futures or forward contracts.
-39-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
===========================================================================
NOTE D--LOANS
Major classifications of loans are as follows at December 31:
1997
-----------
Commercial $ 475,289
Real estate - individual 453,825
Real estate - commercial 1,374,801
Individual - installment and simple interest 1,335,907
Other 4,693
-----------
Total loans 3,644,515
Less: Allowance for loan losses 45,373
-----------
Loans, net $ 3,599,142
===========
Most of the Bank's business activity is with customers located within
Rockdale County and the surrounding area. As of December 31, 1997, the Bank had
approximately $1,828,626 of its loan portfolio secured by real estate.
At December 31, 1997, the Bank has no nonaccrual loans or loans which are
considered impaired.
The following is a summary of transactions in the allowance for loan
losses for the period from inception to December 31:
1997
--------
Balance, beginning of year $ --
Provision charged to expense 45,373
Loans charged off --
Recoveries of loans previously charged off --
--------
Balance, end of year $ 45,373
========
-40-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
===========================================================================
NOTE E--PREMISES AND EQUIPMENT
Premises and equipment are composed of the following at December 31:
1997
-----------
Land $ 609,160
Buildings and ground improvements 493,539
Furniture, fixtures and equipment 587,791
-----------
1,690,490
Less accumulated depreciation and amortization (26,812)
-----------
Premises and equipment, net $ 1,663,678
===========
Depreciation and amortization expense totaled $26,812 for 1997.
The Company operates out of offices in a modular bank facility pursuant
to a month-to-month operating lease at a monthly rental of $3,500 and also has
certain equipment leased under various operating leases. Rental expense was
$12,945 in 1997.
NOTE F--SHORT-TERM AND OTHER BORROWINGS
On April 2, 1997, the Organizers obtained a $450,000 line of credit from
a bank at .50 percent below adjustable prime rate, or 8.00 percent. The line of
credit was unsecured and required interest-only payments on a quarterly basis,
with total principal plus interest due at maturity on July 2, 1998. Personal
guarantees of the Organizers, up to $100,000 each, were required by the lender.
This line of credit was intended to fund the branch building purchase and
renovations. Approximately $438,300 was drawn against this line of credit in
1997 and was repaid in full on September 9, 1997.
On April 4, 1997, the Organizers obtained a $300,000 line of credit from
a bank at .50 percent below adjustable prime rate, or 8.00 percent. The line of
credit was unsecured and required interest-only payments on a quarterly basis,
with total principal plus interest due at maturity on April 4, 1998. Personal
guarantees of the organizers, up to $66,667 each, were required by the lender.
This line of credit has been used to repay (without interest) the Organizer's
initial funding of the Company and to provide additional operating funds until
permanent funding was obtained. Approximately $295,900 was drawn against this
line of credit in 1997 and was repaid in full on September 9, 1997.
On June 17, 1997, the Organizers obtained a $625,000 line of credit from
a bank at .50 percent below adjustable prime rate, or 8.00 percent. The line of
credit was unsecured and required interest-only payments on a quarterly basis,
with total principal plus interest due at maturity on June 17, 1998. This line
of credit was intended to fund the main office land and building purchase.
Approximately $523,800 was drawn against this line of credit in 1997 and was
repaid in full on September 9, 1997.
-41-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
===========================================================================
NOTE F--SHORT-TERM AND OTHER BORROWINGS (Continued)
The Bank may utilize short-term borrowings as needed for liquidity
purposes in the form of federal funds purchased. The Bank has unsecured lines of
credit for federal funds purchased from other banks totaling $3,500,000 at
December 31, 1997. During the period from inception to December 31, 1997, there
were no amounts outstanding under these lines.
NOTE G--INCOME TAXES
The following are the components of income tax expense as provided for
the period from inception to December 31:
1997
------
Current income tax provision $ --
Deferred income tax benefit --
------
$ --
======
A reconciliation of income taxes computed at the federal statutory income
tax rate to total income taxes is as follows for the period from inception to
December 31:
1997
----------
Pretax loss $ (468,628)
==========
Income tax benefit computed at federal statutory tax rate $ (159,334)
Increase (decrease) resulting from:
Nondeductible meals and entertainment 2,300
State income tax benefit, net of federal tax benefit (20,014)
Valuation reserve 177,048
----------
$ --
==========
-42-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
===========================================================================
NOTE G--INCOME TAXES (Continued)
The following summarizes the tax effects of temporary differences which
compose net deferred tax assets at December 31:
1997
----------
Deferred income tax assets:
Allowance for loan losses $ 17,224
Accumulated depreciation 10,178
Net operating loss carryforward 154,120
Unrealized loss on investment securities
available for sale 1,388
----------
Total deferred income tax assets 182,910
----------
Deferred income tax liabilities:
Other, net (4,474)
----------
Total deferred income tax liabilities (4,474)
----------
Valuation reserve (177,048)
----------
Net deferred income tax asset $ 1,388
==========
NOTE H--TIME DEPOSITS
The aggregate amount of time deposits with a minimum denomination of
$100,000 was approximately $1,206,000 at December 31, 1997.
At December 31, 1997, the scheduled maturities of time deposits of
$100,000 or more and other time deposits are as follows:
Years ended December 31,
1998 $ 539,163
1999 172,865
Thereafter 1,004,693
----------
$ 1,716,721
==========
-43-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
===========================================================================
NOTE I--RELATED PARTY TRANSACTIONS
At December 31, 1997, the Bank had direct and indirect loans which
aggregated $1,259,461, outstanding to or for the benefit of certain of the
Bank's officers, directors and their related interests. During 1997, $1,259,536
of such loans were made and repayments totaled $75.00. These loans were made in
the ordinary course of business in conformity with normal credit terms,
including interest rates and collateral requirements prevailing at the time for
comparable transactions with other borrowers. These individuals and their
related interests also maintain customary demand and time deposit accounts with
the Bank.
NOTE J--STOCKHOLDERS' EQUITY
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 possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. The regulations require the
Bank to meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is 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 Tier 1 capital (as defined in the regulations) to total
average assets (as defined), and minimum ratios of Tier 1 and total capital (as
defined) to risk-weighted assets (as defined). To be considered well capitalized
and adequately capitalized (as defined) under the regulatory framework for
prompt corrective action, the Bank must maintain minimum Tier 1 leverage, Tier 1
risk-based, and total risk-based ratios as set forth in the table. The Bank's
actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------------------
Well Adequately
Capitalized Capitalized
Requirement Requirement Actual
Amount (Ratio) Amount (Ratio) Amount (Ratio)
------------------------------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average Assets) $ greater than greater than
or equal to 513,750 or equal to 5.0% $ 411,000 4.0% $ 5,645,000 54.9%
Tier 1 Capital (to Risk Weighted Assets) $ greater than greater than
or equal to 516,120 or equal to 6.0% $ 344,080 4.0% $ 5,645,000 65.6%
Total Capital (to Risk Weighted Assets) $ greater than greater than
or equal to 860,200 or equal to 10.0% $ 688,160 8.0% $ 5,690,000 66.1%
</TABLE>
Management believes, as of December 31, 1997, that the Bank meets all
capital requirements to which it is subject.
-44-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
===========================================================================
NOTE J--STOCKHOLDERS' EQUITY (Continued)
Dividends paid by the Bank are the primary source of funds available to
the Company. Banking regulations limit the amount of dividends which the Bank
may pay without obtaining prior regulatory approval. These restrictions are
based on the level of regulatory classified assets, the prior years' net
earnings, and the ratio of equity capital to total assets. At December 31, 1997,
total stockholders' equity of the Bank was $5,646,745 and was not available for
dividends.
NOTE K--OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Bank is a party to 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. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The contract
amounts of these instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amounts of these instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
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. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. At December 31, 1997, commitments to extend
credit totaled approximately $1,084,000. The Bank's experience has been that
approximately 90 percent of loan commitments are drawn upon by customers.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank, upon
extension of credit is based on management's credit evaluation of the other
party. Collateral held varies but may include accounts receivable; inventory;
property, plant and equipment; and income-producing commercial properties on
those commitments for which collateral is deemed necessary.
The Company entered into a letter of employment with the President and
Chief Executive Officer of the Bank. The letter of employment continues for
three years and provides for an annual base salary, plus medical insurance
premiums, and such other benefits which are generally made available to other
senior executives of the Company and the Bank. The letter of employment also
provides for granting a stock option to purchase 1 percent of the amount of
common stock sold in the Company's initial public offering at a purchase price
of $10.00 per share, and vesting percentages at various criteria completed.
-45-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE L--SUPPLEMENTAL FINANCIAL DATA
Components of other expense in excess of 1 percent of total income are as
follows at December 31:
1997
----
Supplies and forms $ 36,451
Consulting fees 91,773
NOTE M--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows at December 31:
1997
--------------------------
Carrying Estimated
Value Fair Value
----------- ------------
Financial assets:
Cash and cash equivalents $ 5,634,297 $ 5,634,297
Investment securities available for sale 5,325,870 5,325,870
Other investments 180,000 180,000
Loans 3,644,515 3,488,521
Accrued interest receivable 101,073 101,073
Financial liabilities:
Noncontractual deposits $ 8,675,910 $ 8,675,910
Contractual deposits 1,716,721 1,697,039
Accrued interest payable 6,380 6,380
Off-balance-sheet instruments:
Undisbursed credit lines $ 1,084,193
-46-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE N--CONDENSED FINANCIAL INFORMATION OF ROCKDALE NATIONAL BANCSHARES, INC.
CONDENSED BALANCE SHEET
(Parent Only)
December 31, 1997
-----------------
ASSETS
Cash on deposit with subsidiary $ 529,606
Deferred organization costs 57,073
Investment in subsidiary 5,646,745
Other assets 1,639
--------------
TOTAL ASSETS $ 6,235,063
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Other liabilities $ --
--------------
TOTAL LIABILITIES --
--------------
STOCKHOLDERS' EQUITY
Common stock 673,188
Surplus 6,033,196
Retained earnings (deficit) (468,628)
Market valuation reserve on investment securities
available for sale (2,693)
--------------
TOTAL STOCKHOLDERS' EQUITY 6,235,063
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,235,063
==============
-47-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE N--CONDENSED FINANCIAL INFORMATION OF ROCKDALE NATIONAL BANCSHARES, INC.
(Continued)
CONDENSED STATEMENT OF INCOME
(Parent Only)
For the period
from inception to
December 31, 1997
-----------------
OPERATING INCOME
Dividends from subsidiary $ --
Interest income 56,774
-----------
TOTAL OPERATING INCOME 56,774
-----------
OPERATING EXPENSE
Consulting fees 91,773
Interest expense on other borrowings 27,555
Amortization of organization costs 1,968
Legal and accounting fees 8,639
Other expense 44,905
-----------
TOTAL OPERATING EXPENSE 174,840
-----------
LOSS BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED LOSS OF SUBSIDIARY (118,066)
INCOME TAX BENEFIT --
-----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED LOSS OF
SUBSIDIARY (118,066)
EQUITY IN UNDISTRIBUTED LOSS OF SUBSIDIARY (350,562)
-----------
NET LOSS $ (468,628)
===========
-48-
<PAGE>
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from Inception to December 31, 1997
================================================================================
NOTE N--CONDENSED FINANCIAL INFORMATION OF ROCKDALE NATIONAL BANCSHARES, INC.
(Continued)
CONDENSED STATEMENT OF CASH FLOWS
(Parent Only)
For the period
from inception to
December 31, 1997
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (468,628)
Equity in undistributed loss of bank subsidiary 350,562
Amortization of organization costs 1,968
Increase in other assets (60,680)
-----------
NET CASH USED BY OPERATING ACTIVITIES (176,778)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Contribution of capital to bank subsidiary (6,000,000)
-----------
NET CASH USED BY FINANCING ACTIVITIES (6,000,000)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of organization shares 500
Repurchase of organization shares (500)
Proceeds from loans by Organizers 85,000
Repayment of loans by Organizers (85,000)
Proceeds from other borrowings 1,258,051
Repayment of other borrowings (1,258,051)
Proceeds from sale of capital stock 6,706,384
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,706,384
-----------
NET INCREASE IN CASH 529,606
CASH, BEGINNING OF YEAR --
-----------
CASH, END OF YEAR $ 529,606
===========
-49-
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
There has been no occurrence requiring a response to this Item.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ------ -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The directors and executive officers of the Company are as follows:
Position with
Name Company
- ----------------------------- --------------------------------------
C. Dean Alford Class I Director
William L. Daniel President, Chief Executive Officer and
Class I Director
Sandra L. Davis Chief Financial Officer
Hazel E. Durden Class I Director
John A. Fountain, M.D. Class II Director
Michael P. Jones Chairman, Class II Director
Julia W. Morgan Secretary, Class III Director
R. Flynn Nance, D.V.M. Class II Director
Michael R. Potts Jr. Class III Director
Arthur J. Torsiglieri, M.D. Class III Director
William R. Walker II Senior Lending Officer
Each of the above directors has been a director of the Company since
February 1997. The Company has a classified Board of Directors whereby one-
third of the members will be elected each year at the Company's Annual Meeting
of Shareholders. Upon such election, each director of the Company will serve
for a term of three years. The Company's officers are appointed by the Board of
Directors and hold office at the will of the Board.
C. Dean Alford, age 44, has served as President and Chief Executive
Officer of A&C Intercom, Inc. since 1977. Mr. Alford is presently Chairman of
Rockdale Health Systems, a director of the Rockdale Rotary Club, The Boy Scouts
of America (and a 1997 recipient of the Silver Beaver Award from the Atlanta
Area Council of The Boy Scouts of America), Conyers/Rockdale Boys & Girls Club,
Conyers/Rockdale Chamber of Commerce, and the Center for the Visually Impaired.
Mr. Alford is also the Chairman of the Georgia Tech School of Electrical and
Computer Engineering Advisory Board, and is Chairman of the Transition Team and
the Recreation Committee at Rockdale Baptist Church.
William L. Daniel, age 48, began his banking career at Citizens & Southern
National Bank ("C&S") in 1972 ultimately rising to the level of Senior Vice
President when he left C&S in 1986. From December 1986 until September 1988,
Mr. Daniel served as an organizer, President and Chief Executive
-50-
<PAGE>
Officer of the Enterprise National Bank, Atlanta, Georgia. From December 1988
until March 1996, Mr. Daniel served in various executive positions with Bank
South Corporation, ending with the position of Regional President supervising
the bank's 24 branches in Rockdale, South DeKalb, South Fulton, Clayton and
Fayette counties. After the acquisition of Bank South Corporation by
NationsBank, Mr. Daniel became Executive Vice President of First Newton Bank,
Covington, Georgia in April 1996. In October 1996, Mr. Daniel left the
employment of First Newton Bank to begin recruiting and advising the Company's
organizers and, on January 1, 1997, began devoting his full time to the
organization of the Company and the chartering of the Bank. Mr. Daniel currently
serves as President and Chief Executive Officer of the Company and the Bank. Mr.
Daniel is active in the Good Shepherd Episcopal Church and is a director of the
Rockdale County Water and Sewage Authority. Mr. Daniel is also Leadership
Chairman of the Partners for Tomorrow Initiative and Chairman of the Rockdale
County 1997 March of Dimes Walk America campaign.
Hazel E. Durden, age 67, owns and operates Realty Metro, a real estate
company she founded in 1972. Mrs. Durden is a member of the Conyers/Rockdale
Chamber of Commerce, the American Business Woman Association, and the
Conyers/Rockdale Pilot Club. Mrs. Durden is also a former member of the
Grievance Committee of Ethics and Relations of the Rockdale Board of Realtors.
John A. Fountain, M.D., age 44, has maintained a medical practice
specializing in dermatology in Conyers, Georgia since 1983. Dr. Fountain is a
member of the Medical Association of Georgia, American Academy of Dermatology,
American Society of Dermatology Surgeons, and serves as Clinical Associate
Professor of Dermatology at Emory University School of Medicine. Dr. Fountain
is a former director of the Conyers/Rockdale Chamber of Commerce and is the
Technical Director of boys soccer for the Rockdale County School System. Dr.
Fountain has also served as Honorary Chairman for the Rockdale Emergency Relief
Fund and is a life member of the Georgia Master 4-H Club and the Georgia 4-H
Counselor Association.
Michael P. Jones, age 51, is Managing Partner of Jones & McKnight, P.C.,
Certified Public Accountants, which Mr. Jones founded in 1976. Mr. Jones has
served as an advisory director for Bank South, Conyers, Georgia from 1988 to
1995 and has served as Chairman of the Conyers/Rockdale Chamber of Commerce.
Mr. Jones is a member of the American Institute of CPAs and the Georgia Society
of CPAs. Mr. Jones is also a 1993 Alumnus of the Regional Leadership Institute
and has held numerous leadership positions with several Rockdale County youth
sports organizations. Mr. Jones serves on the Administrative Board and is
Chairman of Stewardship of the Salem United Methodist Church.
Julia W. Morgan, age 69, is presently Chief Executive Officer of Ed Morgan
& Associates, Inc., a corporation which she has owned and operated since 1981.
Ms. Morgan served as a director of First Bank of Conyers until that bank merged
with Bank South in 1987, at which time she became an advisory director for Bank
South and served as a director for its parent corporation, Bank South
Corporation, until 1996 when the bank merged with NationsBank. Ms. Morgan is
currently serving on the Executive Committee of the Board of Trustees of the
University of Georgia Education Foundation and is director of the University of
Georgia National Alumni Association. Ms. Morgan is also a member of the
American Society of Life Underwriters and the Conyers/Rockdale Chamber of
Commerce. Further, Ms. Morgan currently serves on the Rockdale County
Impoundment Authority and the Rockdale County Water and Sewer Authority.
R. Flynn Nance, D.V.M, age 42, has since 1987 served as the President and
owner of Honey Creek Veterinary Hospital, Inc., which is a veterinary medical
facility offering medical and surgical care of companion animals in Conyers,
Georgia. Dr. Nance is a member of Conyers/Rockdale Chamber of Commerce, the
American Veterinary Medical Association, the American Heartworm Society, the
Greater
-51-
<PAGE>
Atlanta Veterinary Medical Association, and the Georgia Veterinary Medical
Association. Dr. Nance is also a charter member of the Rotary Club of Rockdale
County.
Michael R. Potts, age 43, is the founder and President of Potts General
Contractors, Inc., a general commercial construction contracting firm started by
Mr. Potts in 1986. Mr. Potts is a member of the Georgia Chapter of Associate
General Contractors. Mr. Potts is also currently serving and has served since
1992 as Director of Construction for the Rockdale County Board of Commissioners.
He is a former Board member and Executive Committee member of the
Conyers/Rockdale Chamber of Commerce, and is an active charter member of the
Haven Fellowship Church.
Arthur J. Torsiglieri, Jr., M.D., age 37, has since June 1990 been a
physician in Conyers, Georgia specializing in ear, nose and throat illnesses and
is President of ENT Specialists, P.C., and is affiliated with Honey Creek
Medical Association, Inc. and Wellbrook Association, Conyers, Georgia. Dr.
Torsiglieri is also a clinical instructor, Department of Surgery, Division of
Otolaryngology at Emory University, Atlanta, Georgia. Dr. Torsiglieri is a
Fellow of the American Academy of Otolaryngology and the American College of
Surgeons. Dr. Torsiglieri is a charter member of the Rotary Club of Rockdale
and serves on the Eagles Board of Review for the Boy Scouts of America in
Rockdale and Newton Counties.
Executive Officers
Sandra L. Davis, age 50, has served as Chief Financial Officer of the
Company since October 1997. Prior to her service with the Company, Ms. Davis
served as Manager of National Time Deposits Services with NationsBank from 1994
to 1997 and as Manager of National Customer and Product Support from 1992 to
1994. Ms. Davis has over 30 years of experience in the banking industry and
served in various management positions with Citizens & Southern National Bank
before it was acquired by NationsBank in 1991.
William R. Walker II, age 31, has served as Senior Lending Officer of the
Company since September 1997. Prior to his service with the Company, Mr. Walker
served as a commercial lender with NationsBank from January 1996 to September
1997. Mr. Walker also served in various management positions with Bank South
from 1989 to 1996, prior to its acquisition by NationsBank. Most recently, Mr.
Walker served as a commercial lender in the Conyers and Atlanta areas from 1994
to 1996.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
The Company is not subject to the requirement of Section 16 of the
Securities Exchange Act of 1934, as amended.
Item 10. Executive Compensation
- ------- ----------------------
The following table provides certain summary information for the fiscal
year ended December 31, 1997 concerning compensation paid or accrued by the
Company to or on behalf of the Company's Chief Executive Officer. None of the
other executive officers of the Company had total annual salary and bonus which
exceeded $100,000 during the last fiscal year.
-52-
<PAGE>
Summary Compensation Table
Annual Compensation
------------------------------------
Name and
Principal Position Year Salary Bonus
- ---------------------- ---- ------------ -------
William L. Daniel 1997 $93,200/(1)/ $ - 0 -
President and
Chief Executive
Officer
- ---------------------------
/(1)/ Includes (i) consulting fees of $7,500 per month made prior to the
Company's commencement of operations and (ii) pro-rated annual salary
payments of $21,950 made subsequent to the Company's commencement of
operations.
Employment Agreement
On February 21, 1997, the organizers of the Company entered into an
employment agreement (the "Employment Agreement") with William L. Daniel
pursuant to which Mr. Daniel was paid $7,500 per month as a consultant to such
organizers for the purpose of assisting in the organization of the Company and
its wholly-owned subsidiary, Rockdale National Bank ("the Bank"). With the Bank
now open for business, the Employment Agreement provides that Mr. Daniel shall
be employed as President and Chief Executive Officer of the Bank for a period
ending on February 21, 2000, and shall be entitled to receive an annual base
salary of $100,000, which may be increased at the discretion of the Board of
Directors of the Bank at the end of the calendar quarter in which total deposits
equal or exceed $20 million. Beginning on the second anniversary of the Bank's
opening for business, Mr. Daniel is also eligible to receive a bonus in an
amount determined by the Bank's Board of Directors. The Employment Agreement
also provides for the grant of stock options to Mr. Daniel in the amount of 1%
of the Common Stock of the Company sold in the Company's initial public offering
(6,732 shares) at a purchase price of $10.00 per share (the current market price
of one share of Company Common Stock) pursuant to the Company's 1998 Incentive
Stock Option Plan. Once granted, one-half of these options will vest
immediately, and one-quarter of such options shall vest on each of the first and
second anniversaries of the Bank's opening for business (October 1998 and 1999,
respectively). All such options shall be exercisable for a period of seven
years.
The Employment Agreement also provides that Mr. Daniel shall receive an
automobile allowance of $700 per month and such other benefits, such as health,
hospitalization, disability and term life insurance generally made available to
other senior executives of the Company and the Bank.
The Employment Agreement contains non-compete and non-solicitation
provisions pursuant to which Mr. Daniel has agreed that through the actual date
of termination of the Employment Agreement and for a period of 12 months
thereafter, he shall not, without the prior written consent of the Bank, within
the primary service area of the Bank either directly or indirectly serve as an
executive officer of any bank, bank holding company, or other financial
institution.
The Employment Agreement provides that the Bank may terminate the
employment of Mr. Daniel for any reason, and, in such event, Mr. Daniel shall be
entitled to the payment of his base salary for a period of six months and for
reimbursement of up to $3,000 in fees incurred in connection with outplacement
services.
-53-
<PAGE>
No other officers or directors of the Company have received any cash
compensation for services to the Company.
Stock Option Plans
The Company's Board of Directors will adopt an Incentive Stock Option Plan
(the "Plan") to cover Mr. Daniel's options and for employees who are
contributing significantly to the management or operation of the business of the
Company or its subsidiaries as determined by the committee administering the
Plan. The Plan will be contingent upon approval by the stockholders of the
Company. The Plan will provide for the grant of options at the discretion of a
committee designated by the Board of Directors to administer the Plan. No
person may serve as a member of the committee who is then eligible for a grant
of options under the Plan or has been so eligible for a period of one year prior
to his service on the committee. The option exercise price must be at least
100% (110% in the case of a holder of 10% or more of the Common Stock) of the
fair market value of the stock on the date the option is granted and the options
are exercisable by the holder thereof in full at any time prior to their
expiration in accordance with the terms of the Plan. Stock options granted
pursuant to the Plan will expire on or before (1) the date which is the tenth
anniversary of the date the option is granted, or (2) the date which is the
fifth anniversary of the date the option is granted in the event that the option
is granted to a key employee who owns more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary of the Company.
It is anticipated that approximately 100,000 shares will be reserved for
issuance under the Plan.
The Board of Directors may, at the Company's first Annual Meeting of
Shareholders after the Bank opens for business, propose for shareholder approval
a directors stock option plan, which will be designed to provide incentive
compensation to directors in the event that the Company's Common Stock increases
in value during the term of such options. The details of this directors option
plan have not yet been determined, but these details will be disclosed to
shareholders in the Company's Proxy Statement issued in connection with
solicitation of shareholder approval of such plan. Further, it is anticipated
that approximately 100,000 shares will be reserved for issuance under the
directors stock option plan. No stock options were granted during the fiscal
year ended December 31, 1997.
Compensation of Directors
The Bank is currently accruing director's fees at the rate of $300 per month
per director. At such time as the Bank becomes profitable, all accrued
director's fees, without interest, will be paid and regular payments of $300 per
month per director are expected to commence.
-54-
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information as of March 15,
1998 with respect to ownership of the outstanding Common Stock of the Company by
(i) all persons known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock of the Company, (ii) each director of the
Company, (iii) each executive officer of the Company and (iv) all executive
officers and directors of the Company as a group.
Name of Number of Percent of
Beneficial Owner Shares/(1)/ Total
---------------- ----------- ----------
C. Dean Alford 25,000 3.71%
William L. Daniel 12,500 1.86%
Sandra L. Davis 0 0
Hazel E. Durden 10,000 1.49%
John A. Fountain, M.D. 15,000 2.23%
Michael P. Jones 22,000 3.27%
Julia W. Morgan 24,750 3.68%
R. Flynn Nance, D.V.M. 10,000 1.49%
Michael R. Potts 17,500 2.60%
Arthur J. Torsiglieri, Jr., M.D . 15,000 2.23%
William R. Walker II 1,000 *
------- -----
All Directors and Officers 152,750 22.69%
as a Group (11 persons)
* Less than 1% of shares outstanding.
- ---------------
/(1)/ Except as otherwise indicated, each person named in this table possesses
sole voting and investment power with respect to the shares beneficially
owned by such person. "Beneficial Ownership" includes shares for which an
individual, directly or indirectly, has or shares voting or investment
power or both and also includes options which are exercisable within sixty
days of the date hereof. Beneficial ownership as reported in the above
table has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934. The percentages are based upon 673,188 shares
outstanding.
Item 12. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
The Bank extends loans from time to time to certain of the Company's
directors, their associates and members of the immediate families of the
directors and executive officers of the Company. These loans are be made in the
ordinary course of business on substantially the same terms, including interest
rates, collateral and repayment terms, as those prevailing at the time for
comparable transactions with persons not affiliated with the Company or the
Bank, and do not involve more than the normal risk of collectibility or present
other unfavorable features.
-55-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits. The following exhibits are filed with or incorporated
--------
by reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from a Registration Statement on Form SB-2 under the Securities Act of 1933 for
the Company, Registration Number 333-24435 (referred to as "SB-2"). The exhibit
numbers correspond to the exhibit numbers in the referenced document.
Exhibit No. Description of Exhibit
----------- -----------------------------------------------------
*3.1 - Articles of Incorporation of the Company (SB-2)
*3.2 - Articles of Incorporation of the Company, as amended
(SB-2)
*3.3 - Amended and Restated Articles of Incorporation of the
Company (SB-2)
*3.4 - Bylaws of the Company (SB-2)
*4.1 - Specimen Common Stock Certificate (SB-2)
*10.1 - Employment Agreement dated February 21, 1997
William L. Daniel (SB-2) between the Company and
*10.2 - Option Agreement together with Contract of Sale of
Property dated February 4, 1997 by and between the
Company and Fred Eugene Smith for the property
located at the intersection of Highway 138 and
Miller's Chapel Road, Conyers, Georgia (SB-2)
*10.3 - Option Agreement together with Purchase and Sale
Agreement dated January 14, 1997 by and between the
Company and Colony Properties for the property
located at 1600 Highway 20 North, Conyers, Georgia
(SB-2)
21.1 - Subsidiaries of the Registrant
27.1 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were required to be
-------------------
filed for the fourth quarter of 1997.
-56-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROCKDALE NATIONAL BANCSHARES, INC.
Dated: March 25, 1998 By: /s/ William L. Daniel
--------------------------------------
William L. Daniel
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 25, 1998 By: /s/ Sandra L. Davis
--------------------------------------
Sandra L. Davis
Chief Financial Officer (Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Michael P. Jones Chairman and Director March 25, 1998
- ------------------------------------
Michael P. Jones
/s/ William L. Daniel President and Chief March 25, 1998
- ------------------------------------ Executive Officer
William L. Daniel (Principal Executive
Officer) and Director
/s/ C. Dean Alford Director March 25, 1998
- ------------------------------------
C. Dean Alford
/s/ Hazel E. Durden Director March 25, 1998
- ------------------------------------
Hazel E. Durden
/s/ John A. Fountain, M.D. Director March 25, 1998
- ------------------------------------
John A. Fountain, M.D.
/s/ Julia W. Morgan Secretary and Director March 25, 1998
- ------------------------------------
Julia W. Morgan
/s/ R. Flynn Nance, D.V.M. Director March 25, 1998
- ------------------------------------
R. Flynn Nance, D.V.M.
/s/ Michael R. Potts Director March 25, 1998
- ------------------------------------
Michael R. Potts
/s/ Arthur J. Torsiglieri, Jr., M.D. Director March 25, 1998
- ------------------------------------
Arthur J. Torsiglieri, Jr., M.D.
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders
as of the date of filing this report. An annual report and proxy materials will
be furnished to security holders subsequent to the filing of this Annual Report
on Form 10-KSB, and the Registrant will furnish copies of such material to the
Commission when they are sent to security holders.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No Description Page
------- ---------------------------- ----
21.1 Subsidiaries of Registrant
23.1 Consent of Bricker & Melton, P.A.
27.1 Financial Data Schedule (for SEC use only)
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Rockdale National Bank, a national bank organized under the laws of the
United States.
<PAGE>
EXHIBIT 23.1
- ------------
[LETTERHEAD OF BRICKER & MELTON, P.A.]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rockdale National Bancshares, Inc.
We consent to the use in this Form 10-KSB of our report dated January
30, 1998, relating to the consolidated statements of financial condition of
Rockdale National Bancshares, Inc. and the related consolidated statements of
income (loss), shareholders' equity, and cash flows for the period from
inception to December 31, 1997.
/s/ Bricker & Melton, P.A.
Bricker & Melton, P.A.
Duluth, Georgia
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ROCKDALE NATIONAL BANCSHARES, INC. FOR THE PERIOD FROM
INCEPTION (FEBRUARY 13, 1997) TO DECEMBER 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-13-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,344,297
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,290,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,325,870
<INVESTMENTS-CARRYING> 180,000
<INVESTMENTS-MARKET> 0
<LOANS> 3,644,515
<ALLOWANCE> 45,373
<TOTAL-ASSETS> 16,640,074
<DEPOSITS> 10,392,631
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12,380
<LONG-TERM> 0
0
0
<COMMON> 673,188
<OTHER-SE> 5,561,875
<TOTAL-LIABILITIES-AND-EQUITY> 16,640,074
<INTEREST-LOAN> 47,191
<INTEREST-INVEST> 104,146
<INTEREST-OTHER> 24,033
<INTEREST-TOTAL> 175,370
<INTEREST-DEPOSIT> 69,000
<INTEREST-EXPENSE> 96,555
<INTEREST-INCOME-NET> 78,815
<LOAN-LOSSES> 45,373
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 508,755
<INCOME-PRETAX> (468,628)
<INCOME-PRE-EXTRAORDINARY> (468,628)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (468,628)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> (.70)
<YIELD-ACTUAL> 2.73
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
