<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-------------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-24113
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ROCKDALE NATIONAL BANCSHARES, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Georgia 58-2292563
- ---------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 82030, Conyers, Georgia 30013
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(770) 785-7880
------------------------------------------------
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
- ------------------------------- ------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $1.00 par value per share
----------------------------------------------
Title of class
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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. [ ]
Issuer's revenues for its most recent fiscal year. $1,940,728
--------------------
Aggregate market value of the voting and non-voting common equity held
by non-affiliates as of March 22, 1999:
$5,809,518 (528,138 shares)
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
676,188 shares of $1.00 par value Common Stock as of March 22, 1999
----------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's definitive proxy statement to be delivered to
shareholders in connection with the 1999 Annual Meeting of Shareholders
scheduled to be held on May 6, 1999 are incorporated by reference in response
to certain portions of Part III of this Report.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE> 2
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 1999 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. The Bank is
constructing a permanent facility at the same location which will contain
approximately 11,200 square feet (6,800 square feet on the main level and 4,400
square feet on the second level). When complete, 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
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
<PAGE> 3
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.
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, VISY Industries,
Kysor-Warren, and Hill Phoenix.
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.
Rockdale National Bank is the only locally-owned bank.
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.
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 year ended December 31, 1998 and the period from
Inception to December 31, 1997. This presentation includes all major categories
of interest earning assets and interest bearing liabilities:
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<PAGE> 4
AVERAGE CONSOLIDATED ASSETS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Interest-bearing deposits ... $ 0 $ 49,203
Taxable securities .......... 9,731,330 1,305,569
Federal funds sold .......... 2,111,671 416,360
Net loans ................... 11,063,873 555,673
----------- ----------
Total earning assets 22,906,874 2,326,805
Cash and due from banks ..... 1,945,671 1,011,210
Other assets ................ 1,976,709 1,701,616
----------- ----------
Total assets ............. $26,829,254 $5,039,631
=========== ==========
</TABLE>
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Non interest-bearing deposits ................ $ 3,300,277 $ 396,025
NOW and money market deposits ................ 13,014,173 1,102,120
Savings deposits ............................. 734,365 195,394
Time deposits ................................ 3,943,466 318,622
Other borrowings ............................. 54,247 390,730
Other liabilities ............................ 63,399 20,112
----------- ----------
Total liabilities ......................... 21,109,927 2,423,003
Stockholders' equity ......................... 5,719,327 2,616,628
----------- ----------
Total liabilities and stockholders' equity $26,829,254 $5,039,631
=========== ==========
</TABLE>
The following is a presentation of an analysis of the net interest
earnings of the Company for the periods indicated with respect to each major
category of interest-earning asset and each major category of interest-bearing
liability:
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<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------
AVERAGE INTEREST AVERAGE
ASSETS AMOUNT EARNED YIELD
------ ----------- ---------- -------
<S> <C> <C> <C>
Interest-bearing deposits .............. $ 0 $ 0 0%
Taxable securities ..................... 9,731,330 565,451 5.80
Federal funds sold ..................... 2,111,671 130,503 6.19
Net loans .............................. 11,063,873(1) 1,081,903(2) 9.78
----------- ---------- ----
Total earning assets ................... $22,906,874 $1,777,856 7.76%
=========== ========== ====
<CAPTION>
AVERAGE INTEREST AVERAGE
LIABILITIES AMOUNT EXPENSE YIELD
----------- ----------- ---------- -------
<S> <C> <C> <C>
NOW and money market deposits .......... $13,014,173 $ 536,297 4.12%
Savings deposits ....................... 734,365 24,567 3.35
Time deposits .......................... 3,943,466 221,966 5.63
Other borrowings ....................... 54,247 3,654 6.74
----------- ---------- ----
Total interest-bearing liabilities ..... $17,746,251 $ 786,484 4.43%
=========== ========== ====
Net yield on earning assets ........................................................... 3.33%
====
</TABLE>
- --------------------
(1) During 1998, all loans were accruing interest.
(2) Interest earned on net loans includes $121,409 in loan fees
and loan service fees.
<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>
- --------------------
(1) During 1997, all loans were accruing interest.
(2) Interest earned on net loans includes $17,858 in loan fees
and loan service fees.
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<PAGE> 6
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect on interest income, interest expense and net interest income
in the periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate. Because the Company was not in existence as of December 31, 1996,
a comparison of the 1997 results to 1996 has not been included.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
COMPARED WITH
PERIOD FROM INCEPTION TO DECEMBER 31, 1997
-----------------------------------------------------
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
----------- --------- -----------
<S> <C> <C> <C>
Interest earned on:
Interest-bearing deposits ... $ (2,798) $ 0 $ (2,798)
Taxable securities .......... 654,070 (190,967) 463,103
Federal funds sold .......... 97,856 8,614 106,470
Net loans ................... 892,418 142,613 1,035,031
----------- --------- -----------
Total interest income ............. 1,641,546 (39,740) 1,601,806
----------- --------- -----------
Interest paid on:
NOW deposits and money market 530,656 (43,456) 487,200
Savings deposits ............ 14,647 4,610 19,257
Time deposits ............... 166,019 41,354 207,373
Other borrowings ............ (23,729) (172) (23,901)
Other liabilities ........... -- -- --
----------- --------- -----------
Total interest expense ............ 687,592 2,337 689,929
----------- --------- -----------
Change in net interest income ..... $ 953,954 $ (42,077) $ 911,877
=========== ========= ===========
</TABLE>
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
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<PAGE> 7
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.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
DEPOSIT CATEGORY AMOUNT RATE PAID AMOUNT RATE PAID
- ---------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 3,300,277 N/A $ 396,025 N/A
NOW and money market deposits ...... $13,014,173 4.12 % $1,102,120 4.45%
Savings deposits ................... $ 734,365 3.35 % $ 195,394 2.72%
Time deposits ...................... $ 3,943,466 5.63 % $ 318,622 4.58%
</TABLE>
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and other time deposits and their respective
maturities at December 31, 1998:
<TABLE>
<CAPTION>
TIME CERTIFICATES
OF DEPOSIT
----------
<S> <C>
3 months or less ............. $ 966,786
3-6 months ................... 901,108
6-12 months .................. 2,941,560
over 12 months ............... 1,890,610
----------
Total ...................... $6,700,064
==========
</TABLE>
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including
commercial/industrial, consumer and real estate loans. As of December 31, 1998,
the Bank had a legal lending limit for unsecured loans of up to $853,242 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.
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<PAGE> 8
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/Installment 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 periods indicated and the total amount of all
loans for such periods:
<TABLE>
<CAPTION>
AS OF AS OF
TYPE OF LOAN DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------ ----------------- -----------------
<S> <C> <C>
Commercial, Financial and Agricultural ...... $ 2,624,532 $ 34,162
Real Estate - Construction .................. 3,714,502 177,801
Real Estate - Mortgage ...................... 7,439,822 1,692,889
Installment and Other Loans to Individuals .. 2,387,404 1,739,663
------------ -----------
Subtotal .................................... 16,166,260 3,644,515
Less: Allowance for possible loan losses .... (194,581) (45,373)
Net deferred loan fees ................ (29,670) (0)
------------ -----------
Total (net of allowances) .......... $ 15,942,009 $ 3,599,142
============ ===========
</TABLE>
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<PAGE> 9
The following is a presentation of an analysis of maturities of loans
as of December 31, 1998:
<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 ...... $1,410 $1,185 $ 30 $ 2,625
Real Estate - Construction .................. 3,186 178 351 3,715
Real Estate - Mortgage ...................... 220 4,932 2,288 7,440
Installment and Other Loans to Individuals .. 1,134 1,135 117 2,386
------ ------ ------ -------
Total ............................... $5,950 $7,430 $2,786 $16,166
====== ====== ====== =======
</TABLE>
For the above loans, the following is a presentation of an analysis
of sensitivities to changes in interest rates as of December 31, 1998:
<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 ................. $1,439 $7,024 $714 $ 9,177
Floating interest rate ...................... 6,044 945 0 6,989
------ ------ ---- -------
Total ................................ $7,483 $7,969 $714 $16,166
====== ====== ==== =======
</TABLE>
As of December 31, 1998, 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, 1998, 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 1998 all
loans had accrued interest.
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<PAGE> 10
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
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Balance at beginning of period ................ $ 45,373 $ 0
Charge-offs ................................... 0 0
Recoveries .................................... 0 0
Net Charge-offs ............................... 0 0
Additions charged to operations ............... 149,208 45,373
-------- -------
Balance at end of period ...................... $194,581 $45,373
======== =======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0% 0%
======== =======
</TABLE>
At December 31, 1998 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 ...... $ 24,000 16.26%
Real Estate - Construction .................. 34,500 23.02
Real Estate - Mortgage ...................... 69,000 46.11
Installment and Other Loans to Individuals .. 22,500 14.61
Unallocated ................................. 44,581 0
-------- ------
Total .............................. $194,581 100.00%
======== ======
</TABLE>
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 0.95%
Real Estate - Construction .................. 0 4.88
Real Estate - Mortgage ...................... 0 58.12
Installment and Other Loans to Individuals .. 0 36.05
Unallocated ................................. 45,373 0
------- ------
Total ................................ $45,373 100.00%
======= ======
</TABLE>
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<PAGE> 11
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, 1998,
16% 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, 87% of these commercial loans
at December 31, 1998 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 15% of outstanding
loans at December 31, 1998. At December 31, 1998 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 and construction loans constituted 69% of
outstanding loans at December 31, 1998. All loans in this category represent
residential real estate mortgages or construction loans 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, 1998, investment securities comprised
approximately 29% of the Bank's assets, federal funds sold comprised
approximately 5% of the Bank's assets, and net loans comprised approximately 47%
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.
The following table presents, for the period indicated, the book
value of the Bank's investments. All securities held at December 31, 1998 were
categorized as available-for-sale.
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<PAGE> 12
INVESTMENT CATEGORY
<TABLE>
<CAPTION>
AS OF AS OF
AVAILABLE-FOR-SALE: DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------ ----------------- -----------------
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. Agencies .. $9,753,621 $5,325,870
Federal Reserve Bank Stock ............................ 180,000 180,000
---------- ----------
Total ............................................ $9,933,621 $5,505,870
========== ==========
</TABLE>
The following table indicates for the year ended December 31, 1998 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:
INVESTMENT CATEGORY
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
AVAILABLE-FOR-SALE: AMOUNT YIELD(1)
- ------------------- ------ ----------------
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. Agencies:
0 - 1 year .................................. $1,612,404 5.65%
Over 1 through 5 years ...................... 7,746,874 5.59
Over 5 through 10 years ..................... 394,342 5.69
Over 10 years ............................... 0 0
Federal Reserve Bank Stock, no maturity ................ 180,000 3.00
---------- ----
Total ................................... $9,933,621 5.56%
========== ====
</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:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Loss on Average Assets .................. (2.20)% (9.30)%
Loss on Average Equity .................. (10.22)% (17.91)%
Average Equity to Average Assets Ratio .... 21.32% 51.92%
Dividend Payout Ratio ..................... 0% 0%
</TABLE>
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
-11-
<PAGE> 13
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, 1998 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.
YEAR 2000
As the year 2000 approaches, an important business issue has emerged
regarding existing application software programs and operating systems. To save
expensive disk space and computing time, many existing application software
products were designed to accommodate a two-digit year rather than a four-digit
year. For example, "98" is stored on the system and represents 1998 and "00"
represents 1900. As a result, software or equipment that is date dependent may,
for example, recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruption of operations, a temporary inability to process transactions, send
invoices, or engage in similar normal business activity.
Communications and information systems, including systems that monitor
deposit and lending accounts, are critical to the business of the Company and
the Bank. The Bank uses a third-party vendor for processing its primary banking
applications. During 1998, the Company developed a plan to address the Year 2000
issue, conduct a comprehensive review of the Company's systems and ensure that
the Company
-12-
<PAGE> 14
takes any necessary measures. This plan is based in part on FDIC guidelines for
financial institutions regarding Year 2000 compliance. The Company has completed
approximately 90% of its testing objectives and has begun remediation of
problems revealed by testing. Therefore, the Company believes that its systems,
those of the Bank and its data processing vendor will be Year 2000 compliant and
does not believe that material expenditures will be necessary to implement any
further modifications. As of December 31, 1998, the Company had spent
approximately $6,000 to help ensure that its systems would be Year 2000
compliant. The Company's data processing vendor has assured the Company that its
systems will be Year 2000 compliant well in advance of the Year 2000. However,
there can be no assurance that unforeseen difficulties or costs will not arise.
In addition, there can be no assurance that the systems of other companies on
which the Company's systems rely, such as the Bank's data processing vendor,
will be modified on a timely basis, or that the failure by another company to
properly modify its systems will not negatively impact the Company's systems or
operations. The Bank's contingency plan in the event of any Year 2000 problems
is to concentrate on maintaining its core services by manually processing
customer transactions. Due to the factors discussed above, management believes
there is a risk to the Bank of Year 2000 system failures, but is unable to
quantify its potential exposure to Year 2000 failures.
An area of concern to the Company and the Bank is the effect of Year
2000 issues on the Bank's loan customers. Failure to address Year 2000 related
issues could have significant impact on the ability of certain customers to
continue operations. The Bank's loan portfolio could be negatively impacted if
customers are unable to honor loan agreements and defaults occur as a result of
failure to address Year 2000. These customer relationships are being monitored
to ensure that the necessary systems modifications will be made on a timely
basis. In addition, the Bank reviews Year 2000 related issues as part of its
normal underwriting criteria and loan approved process. Nevertheless, there can
be no assurance that these customers will be Year 2000 compliant. Failure of
certain customers to adequately address these issues could result in loan
defaults which would negatively impact the Bank's earnings.
FACILITIES
The Bank operates out of a temporary facility located at 1000 Georgia
Highway 138 in Conyers, Georgia. A permanent facility is being constructed at
the same location which will contain approximately 6800 square feet on the main
level and 4,400 square feet upstairs. Once completed, the building will contain
a boardroom conference facility, a loan operations area, and an area for the
Bank's bookkeeping operations. Construction costs for this facility are
estimated at approximately $1,595,000. In addition to its 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
As of December 31, 1998, the Bank employed 2 persons on a part-time
basis and 14 persons on a full-time basis, including 6 officers. The Bank will
hire additional persons as needed, including additional tellers, financial
service representatives, and operations personnel.
-13-
<PAGE> 15
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.
REGISTRAR AND TRANSFER AGENT
Reliance Trust Company serves as the Transfer Agent and Registrar for
the Common Stock.
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 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 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, the Company, or any other bank holding company located in Georgia, may
acquire a bank located in any other state, and a bank holding company located
outside Georgia may acquire any Georgia-based bank, in either case subject to
certain deposit percentage and other restrictions. In addition, adequately
capitalized and managed bank holding companies may consolidate their multi-state
bank operations into a single bank subsidiary and may branch interstate through
acquisitions unless an individual state has elected to prohibit out-of-state
banks from operating interstate branches within its territory. De novo branching
by an out-of-state bank is lawful 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 remains subject to applicable state branching laws.
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
-14-
<PAGE> 16
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 any person, with
certain limitations; 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 asset 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
benefits to the public, such 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 must
obtain approval of the Federal Reserve Board to engage in any activity not
previously approved by the Federal Reserve Board or to modify in any material
respect as activity for which Federal Reserve Board approval had been obtained.
The Company is also regulated by the Georgia Banking Department under
the Financial Institutions Code of Georgia, which requires a Georgia bank
holding company to obtain the prior approval 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 has been in existence and
continuously operating as a bank for a period of five years or more prior to the
date of acquisition is either (i) a bank for purposes of the federal Bank
Holding Company Act of 1956 or (ii) 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.
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, a national bank situated in the State of Georgia is
generally prohibited from establishing branch offices or facilities outside of
the county in which such bank's main office is located, except 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
-15-
<PAGE> 17
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 such
person up to an additional 10% of its unimpaired capital and surplus, provided
that each loan or extension of credit is 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.
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, and loans or extensions of credit which have the approval of
the Comptroller and which are made to a financial institution or to any agent in
charge of the business and property of the financial institution.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller. The
Federal Reserve Board and the Comptroller have issued 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, as well as to state member banks. 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 must have capital equivalent to at least 8% of risk-weighted
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, while 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 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 must maintain a ratio of at least 3% "Tier 1" capital to total
weighted risk assets (net of goodwill, certain intangible assets, and certain
deferred tax assets). 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. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong
-16-
<PAGE> 18
banking organizations, rated composite 1 under the CAMELS rating system of banks
or the BOPEC rating system of bank holding companies. The Comptroller requires
that all but the most highly-rated banks and all banks with high levels of risk
or experiencing or anticipating significant growth will maintain ratios at least
100 to 200 basis points above the stated minimums. The Federal Reserve Board
requires bank holding companies without a BOPEC-1 rating to maintain a ratio of
at least 4% Tier 1 capital to total assets; furthermore, banking organizations
with supervisory, financial, operational, or managerial weaknesses, as well as
organizations that are anticipating or experiencing significant growth, are
expected to maintain capital ratios well above the 3% and 4% minimum levels.
The FDIC adopted a rule substantially similar to that issued by the
Federal Reserve Board, establishing a minimum leverage ratio of 3% and providing
that FDIC-regulated banks with anything less than a CAMELS-1 rating must
maintain a ratio of at least 4%. In addition, the FDIC rule specifies that a
depository institution operating with less than the applicable minimum leverage
capital requirement will be deemed to be operating in an unsafe and unsound
manner unless the institution is in compliance with a plan, submitted to and
approved by the FDIC, to increase the ratio to an appropriate level. Finally,
the FDIC requires any insured depository institution with a leverage ratio of
less than 2% to enter into and be in compliance with a written agreement between
it and the FDIC (or the primary regulator, with the FDIC as a party to the
agreement). Such an agreement will nearly always contemplate immediate efforts
to acquire the capital required to increase the ratio to an appropriate level.
Institutions that fail to enter into or maintain compliance with such an
agreement will be subject to enforcement action by the FDIC.
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") are retained as a part of Tier 1 capital. The
Comptroller has modified the list of qualifying intangibles, currently including
only purchased credit card relationships and mortgage and non-mortgage servicing
assets, whether originated or purchased and excluding any interest-only strips
receivable related thereto. Furthermore, the Comptroller's guidelines formerly
provided that the amount of such qualifying intangibles that may be included in
Tier 1 capital was limited to a maximum of 50% of total Tier 1 capital. The
Comptroller has amended its guidelines to increase the limitation on such
qualifying intangibles from 50% to 100% of Tier 1 capital, of which no more than
25% may consist of purchased credit card relationships and non-mortgage
servicing assets. Furthermore, banks may now deduct from Tier 1 capital
disallowed servicing assets on a basis that is net of any associated deferred
tax liability. Deferred tax liabilities netted this way may not also be netted
against deferred tax assets when determining the amount of deferred tax assets
that are dependent upon future taxable income.
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 risk-based capital guidelines of the Comptroller, the Federal
Reserve Board and the FDIC explicitly include provisions regarding a bank's
exposure to declines in the economic value of its capital due to changes in
interest rates to 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. 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
-17-
<PAGE> 19
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 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 Comptroller, the Federal Reserve Board and the FDIC recently added
a provision to the risk-based capital guidelines that supplements and modifies
the usual risk-based capital calculations to ensure that institutions with
significant exposure to market risk maintain adequate capital to support that
exposure. Market risk is the potential loss to an institution resulting from
changes in market prices. The modifications are intended to address two types of
market risk: general market risk, which includes changes in general interest
rates, equity prices, exchange rates, or commodity prices, and specific market
risk, which includes particular risks faced by the individual institution, such
as event and default risks. The provision defines a new category of capital,
Tier 3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, beginning no later than January 1,
1999, covered institutions must "backtest," comparing the actual net trading
profit or loss for each of its most recent 250 days against the corresponding
measures generated by the statutory model. Once per quarter, the institution
must identify the number of times the actual net trading loss exceeded the
corresponding measure and must then apply a statutory multiplication factor
based on that number for the next quarter's capital charge for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for 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 FDICIA 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 FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA 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., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the institution is limited to the lesser of
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<PAGE> 20
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's capital levels decline, 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.
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-Based Tier 1 Risk-Based Tier 1
Capital Ratio Capital Ratio Leverage Ratio
---------------- ----------------- --------------
<S> <C> <C> <C>
Well capitalized(1) >=10% >= 6% >= 5%
Adequately Capitalized(1) >= 8% >= 4% >= 4%(2)
Undercapitalized(4) < 8 < 4 < 4
Significantly Undercapitalized(4) < 6 < 3 < 3
Critically Undercapitalized - - <= 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) < 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.
The FDICIA also provides that each Federal banking agency must
prescribe safety and soundness standards in certain areas of banking practice.
In order to comply with the FDICIA, 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.
The capital standards and the safety and soundness standards which
the FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
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.
The State of Georgia has 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
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<PAGE> 21
financial institutions in the Bank's market area and in the State of Georgia
generally. Establishment of de novo bank branches in Georgia by out-of-state
financial institutions is not permitted under Georgia law.
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 out
of an approximately 2,200 square foot temporary facility at that location, which
it leases at a monthly rental of $3,500 pursuant to a month-to-month lease.
In addition to its 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,
1998 to a vote of security holders of the Company.
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<PAGE> 22
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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.
HOLDERS OF COMMON STOCK
As of March 15, 1999, the number of holders of record of the Company's
Common Stock was 620.
DIVIDENDS
To date, the Company has not paid any dividends on its Common Stock. 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. ss. 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. ss. 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. ss. 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
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM INCEPTION TO
DECEMBER 31, 1997
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
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<PAGE> 23
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 $6,727,384 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. During 1998, total assets of the Company grew
from $16.6 million at December 31, 1997 to $34.1 million at December 31, 1998.
For the year ended December 31, 1998, net loss amounted to $548,404 or $.87 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 periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM INCEPTION
DECEMBER 31, 1998 TO DECEMBER 31, 1997
-------------------------------- ------------------------------
(IN THOUSANDS) (IN THOUSANDS)
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
------- -------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 0 $ 0 0% $ 49 $ 3 5.69%
Federal funds sold 2,112 131 6.18 416 24 5.77
Securities 9,731 565 5.80 1,306 101 7.76
Loans, net 11,064 1,082 9.78 556 47 8.49
------- ------ ---- ------ ---- ----
Total earning assets $22,907 $1,778 7.76 % $2,327 $175 7.54%
======= ====== ==== ====== ==== ====
Interest bearing deposits $17,692 $ 782 4.42% $1,616 $ 69 4.27%
Other borrowings 54 4 6.74 391 28 7.05
------- ------ ---- ------ ---- ----
Total interest-bearing liabilities $17,746 $ 786 4.43% $2,007 $ 97 4.81%
======= ====== ==== ====== ==== ====
Net yield on earning assets 3.33% 2.73%
==== ====
</TABLE>
Net yield on earning assets for the years ended December 31, 1998 and
1997 were 3.33% and 2.73%, respectively. The increase in net yield during 1998
is primarily attributed to lower lost of funds and higher loan volume. Net
interest income has increased from $78,815 for the year ended December 31, 1997
to $991,372 for the year ended December 31, 1998. This increase is attributed to
the significant increase in earning assets during 1998 and to the fact that the
Company engaged in banking for only ten weeks during 1997 and for the full year
during 1998.
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<PAGE> 24
NON-INTEREST INCOME
Non-interest income for the year ended December 31, 1998 and the period
from Inception to December 31, 1997 amounted to $162,872 and $6,685,
respectively. As a percentage of average assets, non-interest income increased
from 0.13% in 1997 to 0.61% in 1998. The increase in non-interest income during
1998 is attributed to the increase in the number of deposit accounts, as well as
transactional volume, and to a higher fee structure.
The following table summarizes the major components of non-interest
income for the year ended December 31, 1998 and for the period from Inception to
December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service fees on deposit accounts $114,346 $5,717
Miscellaneous, other 48,526 968
-------- ------
Total non-interest income $162,872 $6,685
======== ======
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense increased from $508,755 during 1997 to $1,511,847
in 1998. As a percent of total average assets, non-interest expenses decreased
from 10.1% to 5.64%. The primary reason for the increase in non-interest expense
is due to the fact that during 1997 the Company was fully operational for only
ten weeks, while during 1998 it was operational for the entire year. Below are
the components of non-interest expense for the years 1998 and 1997.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Salaries and benefits $ 660,738 $169,107
Supplies and printing 37,868 36,451
Advertising and public relations 44,882 7,126
Legal and professional 139,215 145,916
Other operating expenses 629,144 150,155
---------- --------
Total non-interest expense $1,511,847 $508,755
========== ========
</TABLE>
During 1998, the allowance for loan losses grew from $45,373 to
$194,581. During 1998, the allowance for loan losses as a percent of gross loans
decreased from 1.25% to 1.21%. There were no charge-offs during 1997 or 1998. As
of December 31, 1998, 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.
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<PAGE> 25
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 1998 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.
<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
-------- ---------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS (In thousands of dollars)
Loans $ 6,882 $ 616 $ 1,567 $ 6,933 $ 168 $16,166
US Government and agency
securities 300 501 811 7,747 574 9,933
Federal funds sold 2,970 0 0 0 0 2,970
-------- ------- ------- ------- ------ -------
Total earning assets $ 10,152 $ 1,117 $ 2,378 $14,680 $ 742 $29,069
======== ======= ======= ======= ====== =======
SUPPORTING SOURCES OF FUNDS
Interest-bearing demand
deposits and savings $ 16,036 $ 0 $ 874 $ 0 $ 0 $16,910
Certificates, less than $100M 540 700 1,619 625 0 3,484
Certificates, $100M and over 427 200 1,323 1,266 0 3,216
-------- ------- ------- ------- ------ -------
Total interest-bearing liabilities $ 17,003 $ 900 $ 3,816 $ 1,891 $ 0 $23,610
======== ======= ======= ======= ====== =======
Interest-sensitivity gap $ (6,851) $ 217 $(1,438) $12,789 $ 742 $ 5,459
Cumulative interest-sensitivity gap $ (6,851) $(6,634) $(8,072) $ 4,717 $5,459 N/A
Interest-sensitivity gap ratio (23.57) 0.75 (4.95) 44.00 2.55 18.78
Cumulative interest-sensitivity gap ratio (23.57) (22.82) (27.77) 16.23 18.78 N/A
</TABLE>
As evidenced by the table above, the Company is cumulatively liability
sensitive at one year. 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 lower earnings while a decline in interest rates will increase 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
$17.9 million during 1998 and by $10.4 million in 1997. Below are the pertinent
liquidity balances and ratios for the year ended December 31, 1998 and for the
period from Inception to December 31, 1997.
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<PAGE> 26
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Cash and cash equivalents ...................... $5,939,184 $5,634,297
Securities ..................................... 9,933,621 5,505,870
CDs, over $100,000 to total deposits ratio ..... 11% 12%
Loan to deposit ratio .......................... 56% 35%
Brokered deposits .............................. 0 0
</TABLE>
At December 31, 1998, large denomination certificates accounted for
11.4% 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, 1998, cash and cash equivalents amounted to $5.9 million,
representing 17.4% of total assets. Securities available for sale provide a
secondary source of liquidity. Approximately $1.6 million of the $9.9 million in
the Bank's securities portfolio is scheduled to mature in 1999.
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, 1998, 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, certain
intangible assets, and certain deferred tax assets are 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 average assets.
For banks that are not rated CAMELS-1 by their primary regulator (which includes
the subsidiary Bank), the minimum leverage ratio should be 4.0% plus an
additional cushion of at least 1 to 2 percent, depending upon risk profiles and
other factors.
-25-
<PAGE> 27
The Federal Reserve Board, the OCC and the FDIC have adopted a rule
that adds a measure of interest rate risk to the determination of supervisory
capital adequacy. In connection with this rule, the agencies have implemented 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 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, 1998:
<TABLE>
<CAPTION>
MINIMUM
DECEMBER 31, REGULATORY
BANK 1998 REQUIREMENT
---- ------------ -----------
<S> <C> <C>
Tier 1 Capital 24.6% 4.0%
Tier 2 Capital 1.0% -
---- ----
Total risk-based capital ratio 25.6% 8.0%
==== ====
Leverage ratio 16.8% 4.0%
==== ====
COMPANY - CONSOLIDATED
----------------------
Tier 1 Capital 26.9% 4.0%
Tier 2 Capital 1.0 -
---- ----
Total risk-based capital ratio 27.9% 8.0%
==== ====
Leverage ratio 21.1% 4.0%
==== ====
</TABLE>
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
Basis of Presentation and Reclassification. The consolidated audited
financial statements include the accounts of the Company and the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Accounting. The accounting and reporting policies of the
Company conform to generally accepted accounting principles and to general
practices within the banking industry. The Company uses the accrual basis of
accounting by recognizing revenues when earned and expenses when incurred,
without regarding the time of receipt or payment of cash.
Organizational Costs. In 1998, the Accounting Standards Executive
Committee issued a Statement of Position (SOP) number 98-5, "Reporting on the
Costs of Start-Up Activities." This SOP requires that the costs of start-up
activities, including organization costs, be expensed as incurred. The SOP is
effective for fiscal years beginning after December 15, 1998, with earlier
application encouraged for fiscal years for which an annual financial statement
has not been issued. Management expensed these deferred costs in the year ended
December 31, 1998, and the cumulative effect of the change in an accounting
principle was $78,000, pre tax.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115") on February 13, 1997 ("Inception"). SFAS 115
requires investments in equity and debt securities to be classified into three
categories:
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<PAGE> 28
1. Held-to-maturity securities: These are securities which the Company
has the ability and intent to hold until maturity. These securities are stated
at cost, adjusted for amortization of premiums and the accretion of discounts.
2. Trading securities: These are securities which are bought and held
principally for the purpose of selling in the near future. Trading securities
are reported at fair market value, and related unrealized gains and losses are
recognized in the income statement.
3. Available-for-sale securities: These are securities which are not
classified as either held-to-maturity or as trading securities. These securities
are reported at fair market value. Unrealized gains and losses are reported, net
of tax, as separate components of shareholders' equity. Unrealized gains and
losses are excluded from the income statement.
Federal Reserve Bank stock is reported at cost. Earnings are reported
when interest is accrued or when dividends are received.
Premium and discount on all investment securities are amortized
(deducted) and accredited (added), respectively, to interest income on the
effective yield method over the period to the maturity of the related
securities.
Gains or losses on disposition are computed by the specific
identification method for all securities.
Premises and Equipment. Furniture and equipment are stated at cost, net
of accumulated depreciation. Depreciation is computed using the straight line
method over the estimated useful lives of the related assets. Maintenance and
repairs are charged to operations, while major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and gain or loss
is included in income from operations.
Income Taxes. At Inception, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been recognized in the financial
statements or tax return. Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be realized or settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
Earnings Per Common Share. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share." This statement is effective for financial statements
issued for periods ending after December 15, 1997. This statement supersedes
Accounting Principles Board Opinion No. 15 ("APB 15"), "Earnings Per Share," and
simplifies earnings per share computations by replacing primary earnings per
share with basic earnings per share, which shows no effects from dilutive
securities. Entities with complex capital structures will have to show diluted
earnings per share, which is similar to the fully diluted earnings per share
computation under APB 15.
Stock-based Compensation. The Company accounts for stock options under
Accounting Principles Board option No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Under APB 25, because the exercise price of the Company's
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Effective January 1, 1998, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." As provided by SFAS 123, the Company
has elected to continue applying the provisions of APB 25 in determining its net
income relative to stock-based compensation. The Company has adopted the SFAS
123 requirement that a company disclose the pro
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<PAGE> 29
forma net income and pro forma earnings per share, as if the alternative
fair-value-based accounting method in SFAS 123 had been used in determining net
income. The adoption of SFAS 123 did not have a significant impact on the
financial condition or results of operations of the Company.
Disclosure of Information About Capital Structure. The Financial
Accounting Standards Board has issued Statement of Financing Accounting
Standards No. 129 ("SFAS 129"), "Disclosure of Information About Capital
Structure." This statement is effective for financial statements issued for
periods ending after December 15, 1997. This statement consolidates existing
disclosure requirements on capital structure. The adoption of SFAS 129 did not
have a significant impact on the financial condition or results of operations of
the Company.
Reporting Comprehensive Income. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income." SFAS 130 became effective July 1, 1998.
Under SFAS 130, a company will begin showing changes in assets and liabilities
in a new comprehensive income statement or alternative presentation as opposed
to showing some of the items as transactions in shareholders' equity accounts.
Upon adoption, all comparative annual and interim financial statements will
present a comprehensive income statement or alternative disclosure, for all
years presented. The adoption of SFAS 130 did not have a significant impact on
the financial condition or results of operations of the Company.
Employer Disclosure About Pension And Other Post Retirement Benefits.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Relation Information." SFAS 131 became effective July 1, 1998,
and requires disclosure of certain financial information by segments of a
company's business. The adoption of SFAS 131 did not have a significant impact
on the financial condition or results of operations of the Company.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pension
and Other Benefits." SFAS 132 standardizes the disclosure requirements for
pensions and other post-retirement benefits.
Pending Accounting Pronouncements. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
is effective for fiscal years beginning after June 15, 1999. Under SFAS 133, a
company will recognize all free-standing derivative instruments in the statement
of financial position as either assets or liabilities and will measure them at
fair value. The difference between a derivative's previous carrying amount and
its fair value shall be reported as a transition adjustment presented in net
income or other comprehensive income, as appropriate, in a manner similar to the
cumulative effect of a change in accounting principle. This statement also
determines the accounting for the changes in fair value of a derivative,
depending on the intended use of the derivative and resulting designation. The
adoption of SFAS 133 is not expected to have a significant impact on the
consolidated financial condition or results of operations of the Company.
In October 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 134 ("SFAS 134"), "Accounting
for Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise." SFAS 134 is effective for
the first fiscal quarter after December 15, 1998, and amends Statement of
Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities," which revises the accounting for retained securities and beneficial
interests. The adoption of SFAS 134 is not expected to have a significant impact
on the consolidated financial condition or results of operations of the Company.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Report of Independent Certified Public Accountants
Balance Sheets--December 31, 1998 and 1997
Statements of Loss--Year Ended December 31, 1998 and Period from
Inception (February 13, 1997) to December 31, 1997
Statements of Changes in Stockholders' Equity--Year Ended December 31,
1998 and Period from Inception (February 13, 1997) to December 31, 1997
Statements of Cash Flows--Year Ended December 31, 1998 and Period from
Inception (February 13, 1997) to December 31, 1997
Notes to Financial Statements
-28-
<PAGE> 30
ROCKDALE NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
CONYERS, GEORGIA
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998 AND PERIOD FROM
INCEPTION (FEBRUARY 13, 1997) TO DECEMBER 31, 1997
-29-
<PAGE> 31
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets 3
Statements of loss 4-5
Statements of changes in stockholders' equity 6
Statements of cash flows 7
Notes to financial statements 8-28
</TABLE>
-30-
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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, 1998, and the related
consolidated statements of loss, changes in stockholders' equity and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of Rockdale National Bancshares, Inc. and
subsidiary for the period from inception (February 13, 1997) to December 31,
1997, were audited by Bricker & Melton, P.A., whose practice has been combined
with our Firm and whose report dated January 30, 1998, expressed an unqualified
opinion on those statements.
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 consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Rockdale National Bancshares, Inc. and subsidiary as of December 31, 1998, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, Rockdale
National Bancshares, Inc. and subsidiary changed their method of accounting for
deferred organization costs in 1998.
Duluth, Georgia
January 29, 1999
-31-
<PAGE> 33
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 2) $ 2,969,184 $ 1,344,297
Federal funds sold 2,970,000 4,290,000
Investment securities available for sale (Note 3) 9,753,621 5,325,870
Other investments (Note 3) 180,000 180,000
Loans, net of allowance for loan losses of $194,581 in 1998 and
$45,373 in 1997 (Notes 4 and 11) 15,942,009 3,599,142
Premises and equipment, net (Note 5) 1,926,958 1,663,678
Accrued interest receivable 247,573 101,073
Other assets 66,856 136,014
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 34,056,201 $ 16,640,074
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits: (Notes 9 and 10)
Noninterest-bearing demand $ 4,691,963 $ 1,568,410
Interest-bearing demand and money market 16,035,788 6,478,310
Savings 873,773 629,190
Time deposits of $100,000 or more 3,216,087 1,205,719
Other time deposits 3,483,977 511,002
- -------------------------------------------------------------------------------------------------------------------
Total deposits 28,301,588 10,392,631
Accrued interest payable 19,754 6,380
Other liabilities 46,576 6,000
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 28,367,918 10,405,011
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 5 and 13)
STOCKHOLDERS' EQUITY (Note 12)
Common stock, par value $1.00; 10,000,000 shares
authorized, 676,188 and 673,188 shares issued and
outstanding, respectively 676,188 673,188
Capital surplus 6,051,196 6,033,196
Accumulated deficit (1,053,032) (468,628)
Accumulated other comprehensive income (loss) - market
valuation reserve on investment securities available for sale
(Note 3) 13,931 (2,693)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,688,283 6,235,063
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,056,201 $ 16,640,074
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-32-
<PAGE> 34
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,081,903 $ 47,191
Investment securities:
U.S. Treasury securities -- 61,385
U.S. Government agencies and corporations 560,050 37,616
Other investments 5,400 5,145
Federal funds sold 130,503 24,033
- --------------------------------------------------------------------------------------------------------------
Total interest income 1,777,856 175,370
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing demand and money market 536,297 49,097
Savings 24,567 5,310
Time deposits of $100,000 or more 118,046 10,111
Other time deposits 103,920 4,482
Other borrowings (Note 6) 3,654 27,555
- --------------------------------------------------------------------------------------------------------------
Total interest expense 786,484 96,555
- --------------------------------------------------------------------------------------------------------------
Net interest income 991,372 78,815
PROVISION FOR LOAN LOSSES (Note 4) 149,208 45,373
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 842,164 33,442
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 114,346 5,717
Investment securities losses, net (Note 3) (423) --
Other income 48,949 968
- --------------------------------------------------------------------------------------------------------------
Total other income 162,872 6,685
- --------------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Salaries and other compensation 557,923 146,446
Employee benefits 102,815 22,661
Net occupancy and equipment expense 256,368 57,094
Professional and other outside services 139,215 145,916
Other expense 455,526 136,638
- --------------------------------------------------------------------------------------------------------------
Total other expense 1,511,847 508,755
- --------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT (506,811) (468,628)
INCOME TAX BENEFIT (Note 8) -- --
- --------------------------------------------------------------------------------------------------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $ (506,811) $ (468,628)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
-33-
<PAGE> 35
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF LOSS (Continued)
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $ (506,811) $ (468,628)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION COSTS,
NET OF TAX (NOTE 16) (77,593) --
- ----------------------------------------------------------------------------------------------------------------
NET LOSS $ (584,404) $ (468,628)
================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE:
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ (.75) $ (.70)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION
COSTS (NOTE 16) (.12) --
- ----------------------------------------------------------------------------------------------------------------
BASIC LOSS PER COMMON SHARE $ (.87) $ (.70)
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-34-
<PAGE> 36
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Comprehensive
Income Accumulated Income-Market Common
Total (Loss) Deficit Valuation Reserve Stock Surplus
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION $ 500 $ -- $ -- $ 50 $ 450
Proceeds from sale of
capital stock 6,706,384 -- -- 673,188 6,033,196
Repurchase of organization
shares (500) -- -- (50) (450)
Comprehensive income
Net loss (468,628) $(468,628) (468,628) -- -- --
Other comprehensive
income (loss), net of
tax:
Market valuation
adjustment on
securities
available for
sale (2,693) (2,693) -- (2,693) -- --
---------
Comprehensive income
(loss) $(471,321)
=========
-------------------------------------------------------------------------------- --------------------------------------------
BALANCE AT
DECEMBER 31, 1997 6,235,063 (468,628) (2,693) 673,188 6,033,196
Proceeds from sale of
capital stock 21,000 -- -- 3,000 18,000
Comprehensive income
Net loss (584,404) $(584,404) (584,404) -- -- --
Other comprehensive
income (loss), net of
tax:
Market valuation
adjustment on
securities
available for
sale 16,624 16,624 -- 16,624 -- --
---------
Comprehensive income
(loss) $(567,780)
=========
-------------------------------------------------------------------------------- --------------------------------------------
BALANCE AT
DECEMBER 31, 1998 $5,688,283 $(1,053,032) $13,931 $676,188 $6,051,196
================================================================================ ============================================
</TABLE>
See accompanying notes to consolidated financial statements.
-35-
<PAGE> 37
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (584,404) $ (468,628)
Adjustments to reconcile net loss to net cash used by operating
activities:
Net amortization (accretion) of investment securities 27,153 (64,802)
Net loss on sale of investment securities available for sale 423 --
Depreciation and amortization of premises and equipment 112,340 26,812
Provision for loan losses 149,208 45,373
Cumulative effect of change in accounting for organization
costs 77,593 --
Deferred income tax (expense) benefit (30,868) 1,388
Amortization of organization costs -- 1,968
Increase in deferred loan fees (29,670) --
Decrease (increase) in other assets 13,867 (137,982)
Increase in accrued interest receivable (146,500) (101,073)
Increase in accrued interest payable 13,374 6,380
Increase in other liabilities 40,576 6,000
- --------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (356,908) (684,564)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale (11,383,186) (11,613,202)
Purchases of other investments -- (180,000)
Maturities of investment securities available for sale 485,072 6,348,053
Sales of investment securities available for sale 2,917,977 --
Calls of investment securities available for sale 3,550,000 --
Loans originated, net of principal repayments (12,462,405) (3,644,515)
Purchases of premises and equipment (400,394) (1,690,490)
Sale of premises and equipment 24,775 --
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (17,268,161) (10,780,154)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of capital stock 21,000 6,706,384
Net increase in demand, money market and savings deposits 12,925,614 8,675,910
Time deposits accepted, net of repayments 4,983,342 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 17,929,956 17,099,015
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 304,887 5,634,297
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,634,297 --
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,939,184 $ 5,634,297
====================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH PAID
Interest $ 773,110 $ 90,175
Income taxes -- --
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-36-
<PAGE> 38
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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.
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.
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.
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 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.
-37-
<PAGE> 39
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 net deferred loan fees
and a valuation allowance for loan losses. Interest income on 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 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. Recognized losses are charged to the allowance for loan
losses, while subsequent recoveries are added to the allowance.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments are
received.
A loan is impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan or
lease agreement. Individually identified impaired loans are measured based on
the present value of payments expected to be received, using the contractual
loan rate as the discount rate. Alternatively, measurement may be based on
observable market prices, or for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the measure
of fair value, a valuation allowance is established as a component of the
allowance for loan losses. Changes to the valuation allowance are recorded as a
component of the provision for loan losses.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on their
judgement about information available to them at the time of their examinations.
-38-
<PAGE> 40
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SALE OF LOANS
The Bank originates and sells loans and participations in certain loans. The
amount of gain on the sale of a specific loan is equal to the percentage
resulting from determining the fair value of the portion of the loan sold
relative to the fair value of the entire loan. Any gain that is materially in
excess of or less than the net premium received is deferred and amortized into
income (expense) over the term of the portion of the loan not sold. Losses are
recognized at the time the loan is identified as available for sale and the
loan's carrying value exceeds its fair value.
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.
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.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards and tax credits
will be realized. A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not occur in the near
term.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
EARNINGS PER COMMON SHARE
Earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding during each
year. Shares issued during the year are weighted for the portion of the year in
which they were outstanding. Diluted loss per share is calculated in a manner
consistent with that of basic loss per share, while giving effect to all
dilutive potential common shares that were outstanding during the period. Basic
and diluted losses per share are based upon 675,448 shares for the year ended
December 31, 1998, and 673,188 shares for the year ended December 31, 1997.
There were 26,360 potential weighted average common shares outstanding during
1998 related to common stock options. These shares were not included in the
computation of the diluted per share amount because the Company was in a net
loss position and, thus, any potential common shares were antidilutive.
STOCK-BASED COMPENSATION
-39-
<PAGE> 41
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
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 15):
Cash and cash equivalents - The carrying amount of cash and cash equivalents
approximates fair value.
Investment securities - The fair value of investment securities 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,
1998. 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.
-40-
<PAGE> 42
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 financial statements to
conform with the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
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.
REPORTING COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." Under SFAS 130,
a company is required to show 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 stockholders' equity accounts. The
adoption of SFAS 130 did not have a significant impact on the consolidated
financial condition or results of operations of the Company.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 establishes standards for the disclosure of
segment information about services, geographic areas, and major customers. The
Company acts as an independent community financial services provider and offers
traditional banking services to individual, commercial, and government
customers. Because the Company views the Bank as one versus multiple segments
for financial reporting purposes, no segmentation of bank operations between
services, types of customers, and market areas is provided. Parent Company only
financial information is provided in Note 17.
EMPLOYER DISCLOSURE ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosures about Pension and Other
Benefits." SFAS 132 standardizes the disclosure requirements for pensions and
other postretirement benefits.
-41-
<PAGE> 43
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 is effective for fiscal years beginning after
June 15, 1999. Under SFAS 133, a company will recognize all free-standing
derivative instruments in the statement of financial position as either assets
or liabilities and will measure them at fair value. The difference between a
derivative's previous carrying amount and its fair value shall be reported as a
transition adjustment presented in net income or other comprehensive income, as
appropriate, in a manner similar to the cumulative effect of a change in
accounting principle. This statement also determines the accounting for the
changes in fair value of a derivative, depending on the intended use of the
derivative and resulting designation. The adoption of SFAS 133 is not expected
to have a significant impact on the consolidated financial condition or results
of operations of the Company.
In October 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 134 (SFAS 134), "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS 134 is effective for the
first fiscal quarter after December 15, 1998, and amends Statement of Financial
Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities," which revises the accounting for retained securities and beneficial
interests. The adoption of SFAS 134 is not expected to have a significant impact
on the consolidated financial condition or results of operations of the Company.
2. 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, based on the institution's deposit
balances. At December 31, 1998, the Bank's reserve requirement had not been
required to be computed or reported to the Federal Reserve Bank.
3. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities available
for sale are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies and
corporations $9,732,512 $37,485 $16,376 $9,753,621
=====================================================================================================================
<CAPTION>
Amortized Unrealized Unrealized Market
December 31, 1997 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>
-42-
<PAGE> 44
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other investments consists of common stock in the Federal Reserve Bank of
Atlanta.
In 1998, the unrealized gain on available-for-sale securities, net of the
related deferred taxes of $7,177, is $13,931 and is included as a separate
component of stockholders' equity. 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, 1998, by contractual maturity, are shown as follows.
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
DECEMBER 31, 1998 COST VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $1,608,730 $1,612,404
Due after one year through three years 5,725,688 5,744,854
Due after three years through five years 2,398,094 2,396,363
----------------------------------------------------------------------------------------------------------------------
$9,732,512 $9,753,621
======================================================================================================================
</TABLE>
Proceeds from sales of investment securities available for sale during 1998 were
$2,917,977 with gross gains of $99 and gross losses of $2,091. Maturities and
principal repayments of investment securities available for sale during 1998
were $485,072. Gross gains realized from calls of available-for-sale securities
during 1998 were $1,569. There were no sales, calls, maturities, or principal
paydowns in 1997.
Investment securities having carrying values of approximately $5,897,755 at
December 31, 1998, were pledged to secure public funds on deposit. The Bank's
pledged securities are held in safekeeping. There were no pledged investment
securities at December 31, 1997.
At December 31, 1998 and 1997, the Bank had no outstanding off-balance-sheet
derivative financial instruments, such as swaps, options, futures, or forward
contracts.
-43-
<PAGE> 45
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 2,624,532 $ 34,162
Real estate--construction 3,714,502 177,801
Real estate--mortgage 7,439,822 1,692,889
Individual--Installment and simple interest 2,387,404 1,739,663
-----------------------------------------------------------------------------------------------------------------------
Total loans 16,166,260 3,644,515
Less: Net deferred loan fees (29,670) --
Allowance for loan losses (194,581) (45,373)
-----------------------------------------------------------------------------------------------------------------------
Loans, net $15,942,009 $3,599,142
=======================================================================================================================
</TABLE>
Most of the Bank's business activity is with customers located within Rockdale
County and the surrounding area. As of December 31, 1998 and 1997, the Bank had
approximately $9,978,927 and $1,828,626, respectively, of its loan portfolio
secured by real estate.
At December 31, 1998 and 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:
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 45,373 $ --
Provision charged to expense 149,208 45,373
Loans charged off -- --
Recoveries of loans previously charged off -- --
-----------------------------------------------------------------------------------------------------------------------
Balance, end of year $194,581 $45,373
=======================================================================================================================
</TABLE>
-44-
<PAGE> 46
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 585,542 $ 609,160
Buildings and ground improvements 520,920 493,539
Furniture, fixtures and equipment 588,728 587,791
Construction in process 370,920 --
----------------------------------------------------------------------------------------------------------------------
2,066,110 1,690,490
Less accumulated depreciation and amortization (139,152) (26,812)
----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net $1,926,958 $1,663,678
======================================================================================================================
</TABLE>
Depreciation and amortization expense totaled $112,340 and $26,812 for 1998 and
1997, respectively.
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
$56,479 and $12,945 in 1998 and 1997, respectively.
Construction in process relates to the construction of the new main office
facility. The estimated total cost of the facility is $1,595,000, and the Bank
plans to occupy it in April 1999.
6. SHORT-TERM BORROWINGS
The Bank utilizes 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,
1998. There were no amounts outstanding under these lines at December 31, 1998.
The maximum and daily average amounts of federal funds purchased during 1998
were approximately $3,000,000 and $54,000, respectively. The average interest
rate paid on the federal funds purchased in 1998 was 6.74 percent.
7. EMPLOYEE BENEFIT PLANS
The Bank has a contributory 401(k) employee profit sharing plan, subject to
certain minimum age and service requirements. Under the provisions of the plan,
employees may contribute from 1 to 15 percent of their salaries, up to the legal
contribution limit, and the Bank matches 10 percent of the employees'
contributions, up to a maximum of 6 percent. Amounts expensed in the year ended
December 31, 1998, as a result of the Bank's contributions to the plan, totaled
$3,228.
In 1998, the Company entered into a split-dollar life insurance plan with its
executive officer. In 1998, the insurance policy premiums expensed totaled
$2,224 and the increase in cash surrender value recorded in income totaled
$3,836. As of December 31, 1998, other assets included a cash surrender value
receivable of $3,836.
-45-
<PAGE> 47
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
The following are the components of income tax expense as provided:
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current income tax provision $ -- $ --
Deferred income tax benefit -- --
----------------------------------------------------------------------------------------------------------------------
$ -- $ --
======================================================================================================================
</TABLE>
A reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes is as follows:
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pretax income (loss) $(584,404) $(468,628)
======================================================================================================================
Income tax (benefit) computed at federal statutory tax rate $(198,697) $(159,334)
Increase (decrease) resulting from:
Nondeductible meals and entertainment 2,075 2,300
Cash value income (1,456) --
State income tax benefit, net of federal tax benefit (37,121) (20,014)
Valuation allowance 235,199 177,048
----------------------------------------------------------------------------------------------------------------------
$ -- $ --
======================================================================================================================
</TABLE>
-46-
<PAGE> 48
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the tax effects of temporary differences which comprise
net deferred tax assets:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 60,785 $ 17,224
Accumulated depreciation -- 10,178
Net operating loss carryforward 366,532 154,120
Unrealized (gain) loss on investment securities available for
sale (8,761) 1,388
Deferred organizational costs 29,005 --
Deferred loan fees 11,263 --
----------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 458,824 182,910
----------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Accumulated depreciation (55,338) --
Other, net -- (4,474)
----------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities (55,338) (4,474)
----------------------------------------------------------------------------------------------------------------------
Valuation allowance (412,247) (177,048)
----------------------------------------------------------------------------------------------------------------------
Net deferred income tax (liability) asset $ (8,761) $ 1,388
======================================================================================================================
</TABLE>
As of December 31, 1998 and 1997, the Company had cumulative net operating loss
carryforwards of $1,075,506 and $461,864, respectively, for financial reporting
purposes, and $965,575 and $489,519, respectively, for tax purposes. The 1998
and 1997 net operating loss carryforwards of $476,056 and $489,519 are subject
to 20-year and 15-year carryforward limitations, respectively.
9. DEPOSIT CONCENTRATION
In 1998, the Bank agreed to provide banking services to the Rockdale County
municipality. The deposits will be collateralized by pledging investment
securities as required by state law. At December 31, 1998, the Bank had
approximately $3,901,000 in deposits from Rockdale County.
-47-
<PAGE> 49
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. TIME DEPOSITS
The aggregate amount of time deposits with a minimum denomination of $100,000
was approximately $3,216,000 and $1,206,000, respectively, at December 31, 1998
and 1997.
At December 31, 1998, the scheduled maturities of time deposits of $100,000 or
more and other time deposits are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
----------------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $4,809,454
2000 1,184,937
Thereafter 705,673
----------------------------------------------------------------------------------------------------------------------
$6,700,064
======================================================================================================================
</TABLE>
11. RELATED PARTY TRANSACTIONS
At December 31, 1998 and 1997, the Bank had direct and indirect loans which
aggregated $1,498,662 and $1,259,461, respectively, outstanding to or for the
benefit of certain of the Bank's officers, directors and their related
interests. During 1998 and 1997, $384,276 and $1,259,536 of such loans were made
and repayments totaled $145,075 and $75, respectively. 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.
12. 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 tables) 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 tables. The Bank's
actual capital amounts and ratios are also presented in the tables.
-48-
<PAGE> 50
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ADEQUATELY
WELL CAPITALIZED CAPITALIZED
DECEMBER 31, 1998 REQUIREMENT REQUIREMENT ACTUAL
------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to
Average Assets)
Bank > $1,532,650 > 5.0% $1,226,120 4.0% $5,155,000 16.8%
- -
Consolidated > $1,341,460 > 5.0% $1,073,170 4.0% $5,661,000 21.1%
- -
Tier 1 Capital (to Risk
Weighted Assets)
Bank > $1,256,520 > 6.0% $ 837,680 4.0% $5,155,000 24.6%
- -
Consolidated > $1,263,900 > 6.0% $ 842,600 4.0% $5,666,500 26.9%
- -
Total Capital (to Risk
Weighted Assets)
Bank > $2,094,200 > 10.0% $1,675,360 8.0% $5,350,000 25.6%
- -
Consolidated > $2,106,500 > 10.0% $1,685,200 8.0% $5,877,000 27.9%
- -
<CAPTION>
Adequately
Well Capitalized Capitalized
December 31, 1997 Requirement Requirement Actual
------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Bank Only
---------
Tier 1 Capital (to
Average Assets) > $ 513,750 > 5.0% $ 411,000 4.0% $5,645,000 54.9%
- -
Tier 1 Capital (to Risk
Weighted Assets) > $ 516,120 > 6.0% $ 344,080 4.0% $5,645,000 65.6%
- -
Total Capital (to Risk
Weighted Assets) > $ 860,200 > 10.0% $ 688,160 8.0% $5,690,000 66.1%
- -
</TABLE>
Management believes that, as of December 31, 1998, the Bank and Company meet all
capital requirements to which they are subject.
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, 1998 and 1997,
total stockholders' equity of the Bank was $5,171,919 and $5,646,745,
respectively, and was not available for dividends.
-49-
<PAGE> 51
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTIONS
During 1998, the Company's Board of Directors approved a fixed stock option
plan, which allows for a total of 100,000 common stock options to be granted to
members of the Board of Directors. The exercise price for each option shall be
the average market price of a share of stock on the date of grant. Options are
to be granted annually, based on Board service, and expire ten years after the
date of grant. Summarized information related to these options is as follows at
December 31, 1998:
<TABLE>
<CAPTION>
Exercise Weighted Average
Shares Price Exercise Price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 -- $ -- $ --
Granted 40,000 10.00 10.00
Exercised -- -- --
Expired -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 40,000 $10.00 $10.00
======================================================================================================================
Options exercisable at December 31, 1998 40,000 $10.00
Weighted average fair value of options granted
during 1998 $ 4.73
======================================================================================================================
</TABLE>
During 1998, the Board of Directors approved a stock option plan which allows
for a total of 100,000 common stock options to be granted to eligible directors,
officers and key employees. Stock options granted under this plan may be
incentive stock options or nonqualified stock options. The Board of Directors
may grant incentive stock options or nonqualified stock options to any director,
officer, or other employee, including an employee who is a director of the
Parent Company. Such shares may be treasury, or authorized, but unissued, shares
of common stock of the Parent Company. The options granted vest ratably over a
three-year period.
The exercise price for common stock granted as either an incentive stock option
or as a nonqualified stock option must be equal to 100 percent of the market
price on the day the option is granted, as determined by the Board of Directors.
The exercise price under an incentive stock option granted to a person owning
stock representing more than 10 percent of common stock must equal at least 110
percent of the fair market value at the date of the grant, but in no case less
than par value, and such option is not exercisable after five years from the
date the incentive stock option is granted. Summarized information related to
the incentive stock options is as follows:
-50-
<PAGE> 52
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Exercise Weighted Average
Shares Price Exercise Price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 -- $ -- $ --
Granted 19,462 10.00 10.00
Exercised -- -- --
Expired -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 19,462 $10.00 $10.00
======================================================================================================================
Options exercisable at December 31, 1998 8,499 $10.00
Weighted average fair value of options granted
during 1998 $ 4.61
======================================================================================================================
</TABLE>
The Board of Directors may, at its discretion, provide that an option not be
exercisable, in whole or in part, for any period or periods of time, as
specified in the option agreements. No option may be exercised after the
expiration of ten years from the date it was granted. Summarized information
regarding outstanding stock options at December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------------------
Weighted Number of
Average Options
Number Remaining Exercisable at
Exercise Outstanding at Contractual December 31,
Price December 31, 1998 Life 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.00 40,000 9.5 40,000
10.00 19,462 9.1 8,499
----------------------------------------------------------------------------------------------------------------------
59,462 9.4 48,499
======================================================================================================================
</TABLE>
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," was implemented in 1997. As permitted by SFAS 123,
the Bank accounts for stock compensation by applying the provisions of APB 25.
If the accounting provisions of SFAS 123 had been adopted, net loss and loss per
share would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C>
Net loss
As reported $(584,404)
Pro forma (735,136)
Basic and diluted loss per common share
As reported $ (.87)
Pro forma (1.09)
</TABLE>
-51-
<PAGE> 53
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998: dividend yield of 0 percent, expected
volatility of 1.0 percent, risk-free interest rates of 4.97 percent and 4.98
percent, and expected lives of nine to ten years.
13. 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
consolidated 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, 1998 and 1997, commitments
to extend credit totaled approximately $17,959,000 and $1,084,000, respectively.
The Bank's experience has been that approximately 45 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 two more
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 as certain events occur. In 1998, options to
purchase 6,762 shares of common stock were granted.
-52-
<PAGE> 54
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUPPLEMENTAL FINANCIAL DATA
Components of other expense in excess of 1 percent of total income are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Organization costs $ 28,655 $ 1,080
Marketing expense 34,318 3,463
Supplies and forms 37,868 36,451
Telecommunication 36,782 8,110
Data processing expense 127,484 6,453
Directors fees 28,800 6,000
Correspondent bank fees 20,483 --
</TABLE>
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- -------------------------------
CARRYING ESTIMATED Carrying Estimated
December 31, VALUE FAIR VALUE Value Fair Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,939,189 $ 5,939,184 $5,634,297 $5,634,297
Investment securities
available for sale 9,753,621 9,753,621 5,325,870 5,325,870
Other investments 180,000 180,000 180,000 180,000
Loans 15,942,009 16,048,787 3,599,142 3,443,148
Accrued interest receivable 247,572 247,572 101,073 101,073
Financial liabilities:
Noncontractual deposits $21,601,523 $21,601,523 $8,675,910 $8,675,910
Contractual deposits 6,700,066 6,627,347 1,716,721 1,697,039
Accrued interest payable 19,754 19,754 6,380 6,380
Off-balance-sheet instruments:
Undisbursed credit lines $10,477,433 $1,084,193
</TABLE>
-53-
<PAGE> 55
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. CHANGE IN ACCOUNTING PRINCIPLE--DEFERRED ORGANIZATION COSTS
Effective January 1, 1998, the Company changed its method of accounting for
organization costs in order to expense these costs in the period incurred. Prior
to 1998, the Company capitalized organization costs and amortized them to
expense over a five-year period. This change in accounting method was made in
order for the Company to be in compliance with AICPA Statement of Position 98-5
(SOP 98-5), which states that the costs of start-up activities, which include
organization costs, be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998; however the Company elected early
adoption, which is encouraged. The Company recorded an after tax charge of
approximately $78,000, or $.12 per share, in 1998 as the cumulative effect of
this accounting change. Of this amount, approximately $21,000 was related to the
Bank and approximately $57,000 was related to the Parent Company. This change
also increased 1998 total costs and expenses by approximately $23,000, or $.03
per share.
-54-
<PAGE> 56
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. CONDENSED FINANCIAL INFORMATION OF ROCKDALE NATIONAL BANCSHARES, INC.
CONDENSED BALANCE SHEETS
(PARENT ONLY)
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash on deposit with other financial institutions $ 97,103 $ 529,606
Investment securities available for sale 394,342 --
Deferred organization costs -- 57,073
Investment in subsidiary 5,171,919 5,646,745
Accrued interest receivable 3,120 --
Other assets 21,799 1,639
----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,688,283 $6,235,063
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Total liabilities $ -- $ --
----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 676,188 673,188
Capital surplus 6,051,196 6,033,196
Accumulated deficit (1,053,032) (468,628)
Accumulated other comprehensive income - market valuation
reserve on investment securities available for sale 13,931 (2,693)
----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,688,283 6,235,063
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,688,283 $6,235,063
======================================================================================================================
</TABLE>
-55-
<PAGE> 57
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF LOSS
(PARENT ONLY)
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING INCOME
Dividends from subsidiary $ -- $ --
Interest income:
Investments available for sale 12,064 56,774
Federal funds sold 14,727 --
Other income 18,576 --
----------------------------------------------------------------------------------------------------------------------
Total operating income 45,367 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 57,116 8,639
Other professional fees 4,003 --
Other expense 17,054 44,905
----------------------------------------------------------------------------------------------------------------------
Total operating expense 78,173 174,840
----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT AND EQUITY IN UNDISTRIBUTED LOSS
OF SUBSIDIARY (32,806) (118,066)
INCOME TAX BENEFIT -- --
----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EQUITY IN UNDISTRIBUTED LOSS OF SUBSIDIARY (32,806) (118,066)
EQUITY IN UNDISTRIBUTED LOSS OF SUBSIDIARY (494,525) (350,562)
----------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (527,331) (468,628)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN ACCOUNTING
PRINCIPLE FOR DEFERRED ORGANIZATION COSTS, NET OF TAX (57,073) --
----------------------------------------------------------------------------------------------------------------------
NET LOSS $(584,404) $(468,628)
======================================================================================================================
</TABLE>
-56-
<PAGE> 58
ROCKDALE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)
<TABLE>
<CAPTION>
For the period
FOR THE YEAR ENDED from inception to
DECEMBER 31, 1998 December 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(584,404) $ (468,628)
Equity in undistributed loss of subsidiary 494,525 350,562
Cumulative effect of change in accounting for organization
costs 57,073 --
Amortization of organization costs -- 1,968
Decrease in other assets (18,577) (60,680)
Increase in accrued interest receivable (3,120) --
----------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (54,503) (176,778)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities available for sale (799,000) --
Calls of investment securities available for sale 400,000 --
Contribution of capital to subsidiary -- (6,000,000)
----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (399,000) (6,000,000)
----------------------------------------------------------------------------------------------------------------------
NET CASH 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 21,000 6,706,384
----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 21,000 6,706,384
----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH (432,503) 529,606
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 529,606 --
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 97,103 $ 529,606
======================================================================================================================
</TABLE>
-57-
<PAGE> 59
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:
<TABLE>
<CAPTION>
Position with
Name Company
- --------------------------------- -------------------------------------------------------
<S> <C>
C. Dean Alford Class I Director
Troy A. Athon Class I Director
William L. Daniel President, Chief Executive Officer and Class I Director
Brian D. Hawkins 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
</TABLE>
With the exception of Mr. Athon, each of the above directors has been a
director of the Company since February 1997. Mr. Athon was appointed to the
Board of Directors in January 1999. 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 45, 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.
TROY A. ATHON, age 61, has been involved in the adult care industry for
his entire professional career. Since 1997 he has been Vice President of
Government Relations for Care More Management Company. He was CEO of Geriatric
Health Services from 1980 to 1996. Prior to joining the Company's Board of
Directors, he served as Chairman of the Board of Rockdale Community Bank, which
opened in 1988 and was purchased by Regions
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<PAGE> 60
Bank in August of 1996. In addition, he served on the Conyers City Council for
three terms and in the Georgia State House of Representatives for four terms.
WILLIAM L. DANIEL, age 49, 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 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 68, 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 45, 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 52, 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 70, 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 43, 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 Atlanta Veterinary Medical Association, and the Georgia Veterinary
Medical Association. Dr. Nance is also a charter member of the Rotary Club of
Rockdale County.
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<PAGE> 61
MICHAEL R. POTTS, age 44, 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 38, has since June 1990 been a
physician in Conyers, Georgia, specializing in ear, nose and throat illnesses.
Dr. Torsiglieri 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 in the 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
BRIAN D. HAWKINS, age 31, has served as Chief Financial Officer of the
Company since October 13, 1998. Prior to his service with the company, Mr.
Hawkins served as Senior Accountant with Main Street Bank from April 1996 to
October 1998. Mr. Hawkins served as a Human Resources Administrator/Specialist
with SunTrust Banks, Inc. in Atlanta from 1991 to 1995 and as a Financial
Analyst with SunTrust, Chattanooga in 1995 and 1996.
WILLIAM R. WALKER II, age 32, 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information relating to the Section 16(a) beneficial ownership
reporting compliance of directors and executive officers of the Company
contained in the Company's definitive proxy statement to be delivered to
shareholders in connection with the 1999 Annual Meeting of Shareholders
scheduled to be held May 6, 1999 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years ended December 31, 1998 and 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 $100,000 during the last fiscal year.
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<PAGE> 62
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
----------------------------- ---------------------------------------------
Number of
Name and Restricted Stock Options All Other
Principal Position Year Salary Bonus Awards ($) Awarded Compensation
- ------------------ ---- ------ ----- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Daniel 1998 $100,000 $ - 0 - $ - 0 - 9,262 $14,729(2)
President and
Chief Executive Officer 1997 $ 93,200(1) $ - 0 - $ - 0 - - 0 - $ - 0 -
</TABLE>
- ---------------------------
(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.
(2) Includes $8,400 for auto insurance premiums and $6,329 for life
insurance premiums.
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
(6,762 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.
STOCK OPTION PLANS
On January 27, 1998, the Company's Board of Directors adopted 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 was approved by the stockholders of the Company
at their annual meeting held on May 5, 1998. The Plan
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<PAGE> 63
provides 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 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. 100,000 shares have been reserved for
issuance under the Plan. During fiscal 1998, an aggregate of 19,462 stock
options were granted under the Plan. At December 31, 1998, 8,499 stock options
were exercisable.
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 $300 per
month per director are expected to commence.
On August 24, 1998 (the "Effective Date"), the Board of Directors of
the Company approved a deferred compensation plan (the "Directors' Plan") to
help retain the services of those Company directors who do not hold a management
position (the "Eligible Directors.") The Directors' Plan provides that each
Eligible Director serving on the Board of Directors as of the Effective Date
shall be granted an option to purchase 5,000 shares of the Company's Common
Stock. The Directors' Plan further provides for the grant, at the end of each
fiscal year, of an option to purchase 500 shares of Common Stock to each
Eligible Optionee who continues to serve on the Board of Directors as of the
last business day of that fiscal year. Options granted pursuant to the
Directors' Plan become fully exercisable as of the date of grant. Such options
expire on the earlier of (i) the tenth anniversary of the date of grant or (ii)
the first anniversary of the date that the Optionee ceases service on the Board
of Directors for reasons other than death or disability. 100,000 shares have
been reserved for issuance under the Directors' Plan. During fiscal 1998, an
aggregate of 40,000 stock options were granted under the Directors' Plan.
STOCK OPTIONS
The following table presents information regarding grants to the named
person of options to purchase shares of the Common Stock during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO EMPLOYEES DURING
UNDERLYING OPTIONS THE YEAR ENDED EXERCISE OR EXPIRATION
NAME GRANTED (#) DECEMBER 31, 1998 BASE PRICE ($/SH) DATE
---- ------------- ------------------- ----------------- -----
<S> <C> <C> <C> <C>
William L. Daniel 9,262 47.6% $10.00 July 2, 2008
</TABLE>
-62-
<PAGE> 64
The following table presents information regarding the value of
unexercised options held at December 31, 1998 by William L. Daniel. No stock
options were exercised and there were no SARs outstanding during fiscal 1998.
<TABLE>
<CAPTION>
Number of
Unexercised Options Value of Unexercised
at FY-End In-the-Money Options
(#) at FY-End
------------------------- -----------------------------
Exercisable/Unexercisable Exercisable (1)/Unexercisable
------------------------- -----------------------------
<S> <C> <C>
NAME
----
William L. Daniel 5,904/3,358 $5,904/$3,358
</TABLE>
- --------------------
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Company's Common Stock at December 31,
1998 ($11.00) and the exercise price of such options. Because no organized
trading market exists for the Common Stock of the Company, the fair market
value was computed by reference to recent sales of the Company's Common
Stock.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 15, 1999
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.
<TABLE>
<CAPTION>
Number of Percent of
Name of Beneficial Owner Shares(1) Total
- ------------------------ --------- ----------
<S> <C> <C>
C. Dean Alford ............................. 32,500(2) 4.8%
Troy A. Athon .............................. 0 *
William L. Daniel .......................... 20,904(3) 3.1%
Hazel E. Durden ............................ 15,500(4) 2.3%
John A. Fountain, M.D ...................... 17,500(5) 2.6%
Brian Hawkins .............................. 0 *
Michael P. Jones ........................... 24,500(6) 3.6%
Julia W. Morgan ............................ 30,250(7) 4.4%
R. Flynn Nance, D.V.M ...................... 15,800(8) 2.3%
Michael R. Potts ........................... 22,000(9) 3.2%
Arthur J. Torsiglieri, Jr., M.D ............ 20,500(10) 3.0%
William R. Walker .......................... 2,333(11) *
------- -------
All Directors and Officers (12 persons) 201,787 27.7%(12)
* Less than 1% of shares outstanding.
</TABLE>
- ---------------
(1) Except as 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
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<PAGE> 65
upon 676,188 shares outstanding. The percentages for each of those parties
who hold presently exercisable options are based upon the sum of 676,188
shares plus the number of shares subject to presently-exercisable options
held by each such party, as indicated in the following notes. All persons
above have a business address of P.O. Box 82030, Conyers, Georgia 30013.
(2) Mr. Alford shares voting and investment power with respect to 25,000
shares. The number of shares includes 5,500 shares subject to
presently-exercisable stock options. The number of shares also includes
2,000 held in an irrevocable trust, with respect to which Mr. Alford
disclaims beneficial ownership.
(3) Includes 5,904 shares subject to presently-exercisable stock options.
(4) Ms. Durden shares voting and investment power with respect to 10,000
shares. Number of shares includes 5,500 shares subject to
presently-exercisable stock options.
(5) Dr. Fountain shares voting and investment power with respect to 10,000
shares. Number of shares includes 5,500 shares subject to
presently-exercisable stock options.
(6) Includes 18,000 shares owned by Mr. Jones' wife, Meta B. Jones. Number of
shares includes 5,500 shares subject to presently-exercisable stock
options.
(7) Includes 22,000 shares held in a trust as to which Ms. Morgan has sole
voting and investment power. Number of shares includes 5,500 shares subject
to presently-exercisable stock options.
(8) Dr. Nance shares voting and investment power with respect to 10,000 shares.
Number of shares includes 5,500 shares subject to presently-exercisable
stock options. Number of shares also includes 300 held in trust for Dr.
Nance's children in the name of Dr. Nance's mother, Harriett L. Nance, with
respect to which Dr. Nance disclaims beneficial ownership.
(9) Mr. Potts shares voting and investment power with respect to 4,400 shares.
Number of shares includes 5,500 shares subject to presently-exercisable
stock options.
(10) Dr. Torsiglieri shares voting and investment power with respect to 15,000
shares. Number of shares includes 5,500 shares subject to
presently-exercisable stock options.
(11) Number of shares includes 1,333 shares subject to presently-exercisable
stock options.
(12) Includes 51,237 shares subject to presently-exercisable options.
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.
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)
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<PAGE> 66
*4.1 - Specimen Common Stock Certificate (SB-2)
*10.1 - Employment Agreement dated February 21, 1997 between the
Company and William L. Daniel (SB-2)
*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)
10.4 - Rockdale National Bancshares, Inc. Stock Option Plan
10.5 - Rockdale National Bancshares, Inc. Non-Management
Directors' Stock Option Plan
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 1998.
-65-
<PAGE> 67
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 31, 1999 By: /s/ William L. Daniel
-----------------------------------------
William L. Daniel
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 31, 1999 By: /s/ Brian D. Hawkins
-----------------------------------------
Brian D. Hawkins
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael P. Jones Chairman and Director March 31, 1999
- -----------------------------------------
Michael P. Jones
/s/ William L. Daniel President and Chief Executive Officer (Principal March 31, 1999
- ----------------------------------------- Executive Officer) and Director
William L. Daniel
/s/ C. Dean Alford Director March 31, 1999
- -----------------------------------------
C. Dean Alford
/s/ Troy A. Athon Director March 31, 1999
- -----------------------------------------
Troy A. Athon
/s/ Hazel E. Durden Director March 31, 1999
- -----------------------------------------
Hazel E. Durden
/s/ John A. Fountain, M.D. Director March 31, 1999
- -----------------------------------------
John A. Fountain, M.D.
/s/ Julia W. Morgan Secretary and Director March 31, 1999
- -----------------------------------------
Julia W. Morgan
/s/ R. Flynn Nance, D.V.M. Director March 31, 1999
- -----------------------------------------
R. Flynn Nance, D.V.M.
/s/ Michael R. Potts Director March 31, 1999
- -----------------------------------------
Michael R. Potts
/s/ Arthur J. Torsiglieri, Jr., M.D. Director March 31, 1999
- -----------------------------------------
Arthur J. Torsiglieri, Jr., M.D.
</TABLE>
<PAGE> 68
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> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description
------- --------------------------
<S> <C>
10.4 Rockdale National Bancshares, Inc. 1998 Stock Option Plan
10.5 Rockdale National Bancshares, Inc. Non-Management Directors'
Stock Option Plan
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 10.4
ROCKDALE NATIONAL BANCSHARES, INC.
1998 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Rockdale National Bancshares, Inc. 1998 Stock Option
Plan (the "Plan") is to encourage and enable eligible directors, officers and
key employees of Rockdale National Bancshares, Inc. (the "Company") to acquire
proprietary interests in the Company through the ownership of Common Stock of
the Company. The Company believes that directors, officers and key employees who
participate in the Plan will have a closer identification with the Company by
virtue of their ability as shareholders to participate in the Company's growth
and earnings. The Plan also is designed to provide motivation for participating
directors, officers and key employees to remain in the employ of and to give
greater effort on behalf of the Company. It is the intention of the Company that
the Plan provide for the award of incentive stock options qualified under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations promulgated thereunder, as well as the award of nonqualified
stock options. Accordingly, the provisions of the Plan related to incentive
stock options shall be construed so as to extend and limit participation in a
manner consistent with the requirements of Section 422 of the Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean a stock option agreement between the
Company and an Eligible Employee or Eligible Participant pursuant to the terms
of this Plan.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which the Board of Directors deems to
be harmful to the business or reputation of the Company or any Subsidiary.
(d) "Company" shall mean Rockdale National Bancshares, Inc., a
Company incorporated under the laws of the State of Georgia.
(e) "Eligible Employee(s)" shall mean key employees regularly
employed by the Company or a Subsidiary (including officers, whether or not they
are directors) as the Board of Directors shall select from time to time.
<PAGE> 2
(f) "Eligible Participant(s)" shall mean an Eligible Employee, a
Non-Employee Director or consultants or advisors who are not employees of the
Company or a Subsidiary but who are providing actual services to the Company or
a Subsidiary.
(g) "Market Price" shall mean the fair market value of the
Company's Common Stock as determined by the Board of Directors, acting in good
faith, under any method consistent with the Code, or Treasury Regulations
thereunder, which the Board of Directors shall in its discretion select and
apply at the time of the grant of the option concerned. Subject to the
foregoing, the Board of Directors, in fixing the market price, shall have full
authority and discretion and be fully protected in doing so.
(h) "Non-Employee Director(s)" means a member of the Board of
Directors or a member of the board of directors of a Subsidiary, in each case,
who is not a regular salaried employee of the Company or one of its
Subsidiaries. For the purpose of Section 9 of the Plan, "Non-Employee Director"
shall have the meaning set forth in Rule 16b-3(b)(3) under the Securities
Exchange Act of 1934, as amended.
(i) "Optionee" shall mean an Eligible Employee or Eligible
Participant having a right to purchase Common Stock pursuant to the Plan.
(j) "Option(s)" shall mean the right or rights granted to Eligible
Employees or Eligible Participants to purchase Common Stock under the Plan.
(k) "Permanent and total disability" shall be as defined in
Section 22(e)(3) of the Code.
(l) "Plan" shall mean this Rockdale National Bancshares, Inc. 1998
Stock Option Plan.
(m) "Shares," "Stock" or "Common Stock" shall mean shares of the
$1.00 par value common stock of the Company.
(n) "Subsidiary" shall mean any corporation, if the Company owns
or controls, directly or indirectly, more than a majority of the voting stock of
such corporation.
(o) "Ten Percent Owner" shall mean an individual who, at the time
an Option is granted, owns directly or indirectly (under the ownership
attribution rules of Code Section 424(d)) more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or a
Subsidiary.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board of Directors or the date the Plan is approved
by the shareholders of the Company, whichever is earlier. The Plan must be
approved by the affirmative vote of not less than a majority of the Shares
entitled to vote at a meeting at which a quorum is present, which shareholder
vote must be taken within twelve (12) months after the date the Plan is adopted
by the Board of
<PAGE> 3
Directors. Such shareholder vote shall not alter the Effective Date of the Plan.
In the event shareholder approval of the adoption of the Plan is not obtained
within the aforesaid twelve (12) month period, then any Options granted in the
intervening period shall be void.
4. SHARES RESERVED FOR PLAN
The Common Stock to be sold to Eligible Participants under the Plan may
at the election of the Board of Directors be either treasury shares or Shares
originally issued for such purpose. The maximum number of Shares which shall be
reserved and made available for sale under the Plan shall be 100,000; provided,
however, that such Shares shall be subject to the adjustments provided in
Section 8(h). Any Shares subject to an Option which for any reason expires or is
terminated unexercised may again be subject to an Option under the Plan.
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors.
Within the limitations described herein and except as otherwise provided
in the Plan, the Board of Directors shall administer the Plan, select the
Eligible Participants to whom Options will be granted, determine the number of
Shares to be optioned to each Eligible Participant and interpret, construe and
implement the provisions of the Plan. The Board of Directors shall also
determine the price to be paid for the Shares upon exercise of each Option, the
period within which each Option may be exercised, and the terms and conditions,
consistent with the terms of the Plan, of each Option granted pursuant to the
Plan. The members of the Board of Directors shall be reimbursed for
out-of-pocket expenses reasonably incurred in the administration of the Plan.
With respect to the administration of the Plan, by the Board of
Directors, a majority of the members of the Board of Directors shall constitute
a quorum, and the act of a majority of the members of the Board of Directors
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Board of Directors shall be the acts of the Board of
Directors.
6. ELIGIBILITY
Options granted pursuant to Section 8 shall be granted only to Eligible
Employees. Options granted pursuant to Section 9 may be granted to Eligible
Participants.
7. DURATION OF THE PLAN
The Plan shall expire on the tenth anniversary of the Effective Date,
but with respect to Options granted hereunder prior to such date, shall remain
in effect until all Shares subject to or which may become subject to the Plan
shall have been purchased pursuant to such Options; provided that Options under
the Plan must be granted within ten (10) years from the Effective Date.
<PAGE> 4
8. QUALIFIED INCENTIVE STOCK OPTIONS
It is intended that Options granted under this Section 8 shall be
qualified incentive stock options under the provisions of Section 422 of the
Code and the regulations thereunder or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such Options are granted.
Such Options shall be evidenced by Agreements in such form and not inconsistent
with this Plan as the Board of Directors shall approve from time to time, which
Agreements shall contain in substance the following terms and conditions:
(a) Price. The purchase price for Shares purchased upon exercise
will be equal to 100% of the Market Price on the day the Option is granted, as
determined by the Board of Directors; provided that the purchase price of Stock
deliverable upon the exercise of a qualified incentive stock option granted to a
Ten Percent Owner shall be not less than one hundred ten percent (110%) of the
Market Price on the day the Option is granted, as determined by the Board of
Directors, but in no case less than the par value of such Stock.
(b) Number of Shares. The Agreement shall specify the number of
Shares which the Optionee may purchase under such Option.
(c) Exercise of Options. The Shares subject to the Option may be
purchased in whole or in part by the Optionee in accordance with the terms of
the Agreement, from time to time after shareholder approval of the Plan, but in
no event later than ten (10) years from the date of grant of the Option.
Notwithstanding the foregoing, Shares subject to an Option granted to a Ten
Percent Owner shall be exercisable no later than five (5) years from the date of
grant of the Option.
(d) Medium and Time of Payment. Stock purchased pursuant to an
Agreement shall be paid for in full at the time of purchase. Payment of the
purchase price shall be in cash. Upon receipt of payment, the Company shall,
without transfer or issue tax, deliver to the Optionee (or other person entitled
to exercise the Option) a certificate or certificates for such Shares.
(e) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of the stock certificate to the Optionee for such Shares. Except as
otherwise expressly provided in the Plan, no adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
(f) Non-assignability of Option. No Option shall be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution. During the lifetime of the Optionee, the Option shall be
exercisable only by him or her.
(g) Effect of Termination of Employment or Death. In the event
that an Optionee during his or her lifetime ceases to be an employee of the
Company or of a Subsidiary for any reason (including retirement) other than
death or permanent and total disability, any Option or unexercised portion
thereof which was otherwise exercisable on the date of termination of employment
shall
<PAGE> 5
expire 90 days from the date of such termination, but in no event after the term
provided in the Optionee's Agreement. In the event that an Optionee ceases to be
an employee of the Company or a Subsidiary for any reason (including retirement)
other than death or permanent and total disability prior to the time that an
Option or portion thereof becomes exercisable, such Option or portion thereof
which is not then exercisable shall terminate and be null and void. Whether
authorized leave of absence for military or government service shall constitute
termination of employment for the purpose of this Plan shall be determined by
the Board of Directors, which determination shall be final and conclusive.
In the event that an Optionee ceases to be an employee of the Company or
a Subsidiary by reason of death or permanent and total disability, any Option or
unexercised portion thereof which was otherwise exercisable on the date such
Optionee ceased employment shall expire unless exercised within a period of one
(1) year from the date on which the Optionee ceased to be an employee, but in no
event after the term provided in the Optionee's Agreement. In the event that an
Optionee ceases to be an employee of the Company or a Subsidiary by reason of
death or permanent and total disability, any Option or portion thereof which was
not exercisable on the date such Optionee ceased employment shall become
immediately exercisable for a period of one (1) year from the date on which the
Optionee ceased to be an employee, but in no event after the term provided in
the Optionee's Agreement.
In the event of the death of an Optionee, the Option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
Notwithstanding the foregoing provisions of this subsection 8(g), in
the event that an Optionee ceases to be an employee of the Company by reason of
termination for Cause, any Option or unexercised portion thereof which was
otherwise exercisable on the date the Optionee was terminated for Cause shall
expire on the date of such termination.
(h) Recapitalization. In the event that dividends are payable in
Common Stock of the Company or in the event there are splits, subdivisions or
combinations of the Common Stock, the number of Shares available under the Plan
shall be increased or decreased proportionately, as the case may be, and the
number and Option exercise price of Shares deliverable upon the exercise
thereafter of any Option theretofore granted shall be increased or decreased
proportionately, as the case may be, as determined to be proper and appropriate
by the Board of Directors.
(i) Reorganization. In case the Company is merged or consolidated
with another corporation and the Company is not the surviving corporation, or in
case the property or stock of the Company is acquired by another corporation, or
in case of a separation, reorganization, recapitalization or liquidation of the
Company, the Board of Directors of the Company, or the Board of Directors of any
corporation assuming the obligations of the Company hereunder, shall either (i)
make appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to the Common Stock, provided only that the excess of the
aggregate fair market value of the Shares subject to Option immediately after
such substitution over the purchase price thereof is not more than the
<PAGE> 6
excess of the aggregate fair market value of the Shares subject to Option
immediately before such substitution over the purchase price thereof, or (ii)
upon written notice to the Optionee provide that the Option (including, in the
discretion of the Board of Directors, any portion of such Option which is not
then exercisable) must be exercised within sixty (60) days of the date of such
notice or it will be terminated. If any adjustment under this Section 8(i) would
create a fractional share of Stock or a right to acquire a fractional share,
such shall be disregarded and the number of Shares available under the Plan and
the number of Shares covered under any Options previously granted pursuant to
the Plan shall be the next lower number of Shares, rounding all fractions
downward. An adjustment made under this Section 8(i) by the Board of Directors
shall be conclusive and binding on all affected persons.
Except as otherwise expressly provided in this Plan, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation; and any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or prices of Common Stock subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(j) Annual Limitation. The aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which qualified
incentive stock options are exercisable for the first time by an Optionee during
any calendar year (under all incentive stock option plans of the Company) shall
not exceed $100,000. Any excess over such amount shall be deemed to be related
to and part of a nonqualified stock option granted pursuant to Section 9 of the
Plan.
(k) General Restriction. Each Option shall be subject to the
requirement that if at any time the Board of Directors shall determine, in its
discretion, that the listing, registration or qualification of the Shares
subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issue or purchase of Shares thereunder, such Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. Alternatively, such
Options shall be issued and exercisable only upon such terms and conditions and
with such restrictions as shall be necessary or appropriate to effect exemption
from such listing, registration, or other qualification requirement.
<PAGE> 7
9. NONQUALIFIED STOCK OPTIONS
(a) Within the limitations described in Section 9(b), the Board of
Directors may grant to Eligible Participants Options under the Plan which are
not qualified incentive stock options under the provisions of Section 422 of the
Code. Such nonqualified stock options shall be evidenced by Agreements in such
form and not inconsistent with this Plan as the Board of Directors shall approve
from time to time, which Agreements shall contain in substance the same terms
and conditions as set forth in Section 8 hereof with respect to qualified
incentive stock options (except that, with respect to Options awarded to
Non-Employee Directors, references to employment with the Company shall be
deemed to mean service on the Board of Directors); provided, however, that the
limitations set forth in Sections 8(a) and 8(c) with respect to Ten Percent
Owners shall not be applicable to nonqualified stock options granted to any Ten
Percent Owner, and the limitation set forth in Section 8(j) with respect to the
annual limitation of incentive stock options shall not be applicable to
nonqualified stock option grants; provided further, that nonqualified stock
options may be granted at a purchase price equal to not less than 75% of the
Market Price on the day the Option is granted.
(b) With respect to Non-Employee Directors, nonqualified stock
options may be granted pursuant to Section 9(a) of the Plan to such Non-Employee
Directors only upon authorization and approval by the Board of Directors or the
shareholders of the Company; provided that, where the Board of Directors
authorizes Option grants under this Section 9(b), the Non-Employee Director to
receive such Options shall not participate in the Board of Director's
authorization of such grant.
10. AMENDMENT OF THE PLAN
The Plan may at any time or from time to time be terminated, modified or
amended by the affirmative vote of not less than a majority of the shares
present and voting thereon by the Company's shareholders at a meeting of the
shareholders at which a quorum is present. The Board of Directors may at any
time and from time to time modify or amend the Plan in any respect, except that
without shareholder approval the Board of Directors may not (1) increase the
maximum number of Shares for which Options may be granted under the Plan (other
than increases due to changes in capitalization as referred to in Section 8(h)
hereof), or (2) extend the maximum period during which Options may be granted or
exercised, or (3) change the class of persons eligible for Options under the
Plan, or (4) otherwise materially modify the requirements as to eligibility for
participation in the Plan. The termination or any modification or amendment of
the Plan shall not, without the written consent of an Optionee, affect his or
her rights under an Option or right previously granted to him or her. With the
written consent of the Optionee affected, the Board of Directors may amend
outstanding Agreements in a manner not inconsistent with the Plan. Without
employee consent, the Board of Directors may at any time and from time to time
modify or amend outstanding Agreements in such respects as it shall deem
necessary in order that incentive stock options granted hereunder shall comply
with the appropriate provisions of the Code and regulations thereunder which are
in effect from time to time respecting qualified incentive stock options. The
Board of Directors may also suspend the granting of Options pursuant to the Plan
at any time and may terminate the Plan at any time; provided, however, no such
suspension or termination shall modify or amend any Option granted before such
suspension or termination unless (a) the affected participant consents in
writing to such modification or amendment or (b) there is a dissolution or
liquidation of the Company.
<PAGE> 8
11. BINDING EFFECT
All decisions of the Board of Directors involving the implementation,
administration or operation of the Plan or any offering under the Plan shall be
binding on the Company and on all persons eligible or who become eligible to
participate in the Plan.
12. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options exercised hereunder will be used for general working
capital.
<PAGE> 1
EXHIBIT 10.5
ROCKDALE NATIONAL BANCSHARES, INC.
NON-MANAGEMENT DIRECTORS' STOCK OPTION PLAN
1. PURPOSE.
Rockdale National Bancshares, Inc., a Georgia corporation (the
"Company"), hereby adopts the Rockdale National Bancshares, Inc. Non-Management
Directors' Stock Option Plan (the "Plan") to secure and retain the services of
those directors of the Company who are not employed by the Company or any of its
affiliates (the "Eligible Optionees") by giving them an opportunity to invest in
the future success of the Company.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors") or a committee consisting of at least two of its
members (the "Committee").
Each member of the Committee shall serve at the pleasure of the Board of
Directors, which may fill any vacancy, however caused, in the Committee. The
Committee shall select one of its members as a chairman and shall hold meetings
at the times and in the places as it may deem advisable. All actions the
Committee takes shall be made by majority decision. Any action evidenced by a
written instrument signed by all of the members of the Committee shall be as
fully effective as if the Committee had taken the action by majority vote at a
meeting duly called and held.
The Board of Directors or the Committee shall have complete and
conclusive authority to (1) interpret the Plan, (2) prescribe, amend and rescind
rules and regulations relating to it, and (3) make all other determinations
necessary or advisable for the administration of the Plan. The Board of
Directors' or the Committee's determinations on these matters shall be
conclusive.
In addition to any other rights of indemnification that they may have as
directors of the Company or as members of the Committee, the directors of the
Company and members of the Committee shall be indemnified by the Company against
the reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of action taken or failure to act under or in connection with the Plan
or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided the settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in the action, suit or proceeding that the director or
Committee member is liable for negligence or misconduct in the performance of
his duties.
<PAGE> 2
3. GRANT OF OPTIONS.
(a) Initial Grants. Each Eligible Optionee serving as a member of the
Board of Directors on the Effective Date (as defined in Section 6 of the Plan)
shall be granted an option as of the Effective Date to purchase 5,000 shares of
common stock, $1.00 par value per share, of the Company (the "Stock").
(b) Subsequent Grants During Tenure as a Director. Each Eligible
Optionee shall be granted as of the last business day of each fiscal year of the
Company following the Effective Date an option to purchase 500 shares of Stock;
provided the Eligible Optionee continues to serve as a member of the Board of
Directors as of the last business day of that fiscal year.
(c) Conditions to Grants. No options under the Plan shall be granted to
an Eligible Optionee who is otherwise precluded from receiving a grant of the
Company's equity securities. In the event the remaining number of shares of
Stock reserved for issuance under the Plan are insufficient to grant options for
the appropriate number of shares of Stock to all Eligible Optionees as of any
grant date, then no options shall be granted as of that grant date.
4. STOCK SUBJECT TO PLAN.
The Company has authorized and reserved for issuance upon the exercise
of options pursuant to the Plan an aggregate of 100,000 shares of Stock. If any
option is canceled, expires or terminates without the respective optionee
exercising it in full, options with respect to those unpurchased shares of Stock
may be granted to that same optionee or to another eligible individual or
individuals under the terms of this Plan.
The Board of Directors or the Committee shall adjust the total number of
shares of Stock reserved for issuance under the Plan and any outstanding
options, both as to the number of shares of Stock and the option price, for any
increase or decrease in the number of outstanding shares of Stock resulting from
a stock split or a payment of a stock dividend on the Stock, a subdivision or
combination of the Stock, a reclassification of the Stock, a merger or
consolidation of the Stock or any other like changes in the Stock or in their
value; provided that any such adjustment shall be made in a manner consistent
with the reason for the adjustment and shall be effected uniformly among
optionees. Outstanding options shall not be adjusted for cash dividends or the
issuance of rights to subscribe for additional stock or securities of the
Company.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Board of Directors or the Committee in its
sole discretion. Any adjustment may provide for the elimination of any
fractional share of Stock which might otherwise become subject to an option.
2
<PAGE> 3
The grant of an option shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations, or changes
in its capital or business structure, or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets.
5. TERMS AND CONDITIONS OF ALL OPTIONS.
Each option granted pursuant to the Plan shall be evidenced by a stock
option agreement or other appropriate documentation (the "Agreement") in the
form and containing the terms and conditions as the Board of Directors or the
Committee from time to time may determine, provided that each Agreement will:
(a) state an exercise price per share which will be the Average
Market Price of a share of stock on the date of the grant. "Average Market
Price" shall mean the mean between the high "bid" and low "ask" prices as of the
close of business for the Company's shares of common stock in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System (or other national quotation service).
If the Company's common stock is not regularly traded in the over-the-counter
market but is listed on The Nasdaq Stock Market or is registered on a national
securities exchange, "Average Market Price" shall mean the closing price of the
Company's common stock on such stock market or national securities exchange. In
the event there shall be no public market for the shares of the Company's common
stock on such date, the fair market value of the shares of the Company's common
stock shall be determined in good faith by the Board of Directors;
(b) state the terms and conditions for payment, except as
otherwise provided by Section 7 of the Plan;
(c) state that the option shall expire on the earlier of the tenth
anniversary of the date of grant or the first anniversary of the date that the
optionee ceases to serve as a member of the Board of Directors for any reason
other than the death or disability (as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended (the "Code")) of the optionee;
(d) provide that an option granted pursuant to Section 3 of the
Plan shall become exercisable in full as to the shares subject thereto as of the
date of grant;
(e) provide that the option is not transferrable by the optionee
other than as provided by (1) the will of the optionee, or (2) the applicable
laws of descent and distribution, and is exercisable during the optionee's
lifetime only by the optionee except as provided in Subsection (f) of this
Section 5; and
(f) provide that if an optionee dies or becomes disabled (as
defined in Section 72(m)(7) of the Code) during the term of the option, the
option may be exercised by the optionee or (to the extent the optionee would
have been entitled to do so) by a legatee or legatees of the optionee under his
last will, or by his guardian.
3
<PAGE> 4
6. TERM OF PLAN.
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board of Directors.
The Plan shall remain in effect until all shares subject to, or which
may become subject to, the Plan shall have been purchased pursuant to options
granted under the Plan; provided that options under the Plan must be granted
within 10 years from the Effective Date.
7. EXERCISE OF OPTION.
The optionee may purchase shares of Stock subject to an option only upon
receipt by the Company of a notice in writing from the optionee of his intent to
purchase a specific number of shares of Stock and which notice contains such
representations regarding compliance with the federal and state securities laws
as the Board of Directors or the Committee may reasonably request. The purchase
price shall be paid in full upon the exercise of an option and no shares of
Stock shall be issued or delivered until full payment therefor has been made.
Payment of the purchase price for all shares of Stock purchased pursuant to the
exercise of an option shall be made by cash or certified check.
Until stock certificates reflecting shares of Stock accruing to the
optionee upon the exercise of the option are issued to the optionee, the
optionee shall have no rights as a shareholder with respect to such shares. The
Company shall make no adjustment to shares of Stock for any dividends or
distributions or other rights for which the record date is prior to the issuance
of that stock certificate, except as the Plan otherwise provides.
8. ASSIGNABILITY.
Except as set forth in Section 5 of the Plan, no option or any of the
rights and privileges thereof accruing to an optionee shall be transferred,
assigned, pledged or hypothecated in any way whether by operation of law or
otherwise, and no option, right or privilege shall be subject to execution,
attachment or similar process.
9. NO RIGHT TO CONTINUED SERVICE.
No provision in the Plan or any option shall confer upon any optionee
any right to continue performing services for or to interfere in any way with
the right of the shareholders of the Company to remove such optionee as a
director of the Board of Directors at any time for any reason.
10. AMENDMENT AND TERMINATION.
The Board of Directors at any time may amend or terminate the Plan in
any respect. Notwithstanding the foregoing, in no event shall the Board of
Directors amend the Plan more than
4
<PAGE> 5
once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder. No
amendment or termination of the Plan shall adversely affect the rights of an
optionee with regard to his options without his consent.
11. GENERAL RESTRICTION.
Each option is subject to the condition that if at any time the Company,
in its discretion, shall determine that the listing, registration or
qualification of the shares of Stock covered by such option upon any securities
exchange or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such option or the purchase
or delivery of shares of Stock thereunder, the delivery of any or all shares of
Stock pursuant to such option may be withheld unless and until such listing,
registration or qualification shall have been effected. If a registration
statement is not in effect under the Securities Act of 1933, as amended, or any
applicable state securities laws with respect to the shares of Stock purchasable
or otherwise deliverable under the option then outstanding, the Company may
require, as a condition of exercise of any option or as a condition to any other
delivery of shares of Stock pursuant thereto, that the optionee or the
optionee's representative represent, in writing, that the shares of Stock
received pursuant to the option are being acquired for investment and not with a
view to distribution and agree that the shares of Stock will not be disposed of
except pursuant to an effective registration statement, unless the Company shall
have received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933, as amended and any applicable
state securities laws. The Company may endorse on certificates representing
shares of Stock delivered pursuant to an option such legends referring to the
foregoing representations or restrictions or any other applicable restrictions
on resale as the Company, in its discretion, shall deem appropriate.
Options granted to persons subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") must comply with Rule
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
12. REORGANIZATION.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors, or the board of directors of any corporation assuming the
obligations of the Company hereunder, shall either (i) make appropriate
provision for the protection of any outstanding options by the substitution on
an equitable basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation which will be issuable in
respect to the shares of common stock of the Company, provided only that the
excess of
5
<PAGE> 6
the aggregate fair market value of the shares subject to option immediately
after such substitution over the purchase price thereof is not more than the
excess of the aggregate fair market value of the shares subject to option
immediately before such substitution over the purchase price thereof, or (ii)
upon written notice to the optionee, provide that the option (including the
shares not then exercisable) must be exercised within 60 days of the date of
such notice or it will be terminated.
13. CHOICE OF LAW.
The laws of the State of Georgia shall govern the Plan.
6
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Rockdale National Bank, a national bank organized under the laws of the
United States.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ROCKDALE NATIONAL BANCSHARES, INC. FOR THE
YEAR FROM JANUARY 1, 1998 THROUGH DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,969,184
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,970,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,753,621
<INVESTMENTS-CARRYING> 180,000
<INVESTMENTS-MARKET> 0
<LOANS> 16,136,590
<ALLOWANCE> (194,581)
<TOTAL-ASSETS> 34,056,201
<DEPOSITS> 28,301,588
<SHORT-TERM> 0
<LIABILITIES-OTHER> 66,330
<LONG-TERM> 0
0
0
<COMMON> 676,188
<OTHER-SE> 5,012,095
<TOTAL-LIABILITIES-AND-EQUITY> 34,056,201
<INTEREST-LOAN> 1,081,903
<INTEREST-INVEST> 565,450
<INTEREST-OTHER> 130,503
<INTEREST-TOTAL> 1,777,856
<INTEREST-DEPOSIT> 786,484
<INTEREST-EXPENSE> 786,484
<INTEREST-INCOME-NET> 991,372
<LOAN-LOSSES> 149,208
<SECURITIES-GAINS> (423)
<EXPENSE-OTHER> 1,511,847
<INCOME-PRETAX> (506,811)
<INCOME-PRE-EXTRAORDINARY> (506,811)
<EXTRAORDINARY> 0
<CHANGES> (77,593)
<NET-INCOME> (584,404)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (1.08)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 45,373
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 194,581
<ALLOWANCE-DOMESTIC> 150,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 44,581
</TABLE>
