<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-24113
-------------------
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
------------------- -------------------------
None Not Applicable
------------ --------------
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. [ ]
Revenue for the fiscal year ended December 31, 1999: $96,027
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (676,188 shares) on March 1, 2000 was
$8,452,350. As of such date, no organized trading market existed for the Common
Stock of the Registrant. The aggregate market value was computed by reference
to the fair market value of the Common Stock of the Registrant based on recent
sales of the Common Stock. For the purposes of this response, directors,
officers and holders of 5% or more of the Registrant's Common Stock are
considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's Common Stock, as of March
1, 2000: 676,188 shares of $1.00 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements in this Annual Report on Form 10-KSB contain "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, which statements generally can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "estimate,"
"anticipate," "believe," "target," "plan," "project," or "continue" or the
negatives thereof or other variations thereon or similar terminology, and are
made on the basis of management's plans and current analyses of the Company, its
business and the industry as a whole. These forward-looking statements are
subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory
and legislative changes. The above factors, in some cases, have affected, and
in the future could affect, the Company's financial performance and could cause
actual results for fiscal 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 constructed a
permanent facility at the same location which contains approximately 11,200
square feet (6,800 square feet on the main level and 4,400 square feet on the
second level). The building contains a lobby, vault, nine offices, five teller
stations, two drive-in windows, 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 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, foreign currency
exchange, basic internet banking services and automatic teller services.
<PAGE>
Market Area and Competition
The primary market area of the Bank in Conyers, Rockdale County, Georgia is
included in the Atlanta Metropolitan Statistical Area and is located
approximately 30 minutes east of Atlanta via Interstate 20. Rockdale County
includes industrial, business and service offices, government offices, free-
standing retail businesses, restaurants, and numerous strip shopping centers.
Principal residential areas are located in the southern portion of the county
while the majority of the business activities are in the middle and northern
portion of the county.
According to the 1990 U.S. Census, Rockdale County has a population of
54,091, representing an increase of 42.7% over the 1980 U.S. Census figure of
36,746. The Georgia Office of Planning and Budget indicated in a Georgia
Department of Labor Report that Rockdale County is estimated to have a
population of 74,432 by the year 2000.
Stability in the local Rockdale County economy principally evolves from a
large manufacturing base. Rockdale County has approximately 90 manufacturing
firms which produce a wide array of products, including apparel, lighting
fixtures, food processing, plastic cups, high tech robotics, and video
cassettes. The largest employers in Rockdale County include AT&T, 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 nine commercial banks with a total of twenty branches in
Rockdale County and one credit union with one branch office. The largest banks
are affiliated with five major bank holding companies. Rockdale National Bank
is the only locally-owned bank in Rockdale County.
Financial institutions primarily compete with one another for deposits. In
turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. The Bank is competing with financial
institutions which have much greater financial resources than the Bank, and
which may be able to offer more and unique services and possibly better terms to
their customers. However, the management of the Bank believes that the Bank
will be able to attract sufficient deposits to enable the Bank to compete
effectively with other area financial institutions.
The Bank competes with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have recently been invading the traditional banking
markets. Due to the growth of Rockdale County, it is anticipated that
additional competition will continue from new entrants to the market.
-2-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential
The following is a presentation of the average consolidated balance sheet
of the Company for the years ended December 31, 1999 and December 31, 1998.
This presentation includes all major categories of interest earning assets and
interest bearing liabilities:
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Interest-bearing deposits.................... $ 601,318 $ 0
Taxable securities........................... 10,645,843 9,731,330
Federal funds sold........................... 2,563,321 2,111,671
Net loans.................................... 28,122,976 11,063,873
----------- -----------
Total earning assets.................... 41,933,458 22,906,874
Cash and due from banks...................... 3,069,806 1,945,671
Other assets................................. 3,239,906 1,976,709
----------- -----------
Total assets................................ $48,243,170 $26,829,254
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1999 December 31, 1998
---------------------- ------------------------
<S> <C> <C>
Non interest-bearing deposits................ $ 7,571,770 $ 3,300,277
NOW and money market deposits................ 18,161,365 13,014,173
Savings deposits............................. 1,105,291 734,365
Time deposits................................ 14,759,472 3,943,466
Other borrowings............................. 910,054 54,247
Other liabilities............................ 167,855 63,399
Total liabilities........................... 42,675,807 21,109,927
Stockholders' equity......................... 5,567,363 5,719,327
----------- -----------
Total liabilities and stockholders' equity. $48,243,170 $26,829,254
=========== ===========
</TABLE>
-3-
<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
--------------------------------------------------------
Assets Average Interest Average
------ Amount Earned Yield
-------------------- ------------------ -----------
<S> <C> <C> <C>
Interest-bearing deposits.................. $ 601,318 $ 31,821 5.29%
Taxable securities......................... 10,645,843 605,285 5.69%
Federal funds sold......................... 2,563,321 132,437 5.17%
Net loans.................................. 28,122,976(1) 2,704,719(2) 9.62%
-------------- ------------- ----
Total earning assets....................... $ 41,933 ,458 $ 3,474,260 8.29%
============== ============= ====
Liabilities Average Interest Average
----------- Amount Expense Yield
------------------- -------------- -------------
NOW and money market deposits.............. $ 18,161,365 $ 555,940 3.06%
Savings deposits........................... 1,105,291 23,858 2.16%
Time deposits.............................. 14,759,472 796,635 5.40%
Other borrowings........................... 910,054 46,419 5.10%
-------------- ------------- ----
$ 34,936,182 $ 1,422,852 4.07%
Total interest-bearing liabilities......... ============== ============= ====
Net yield on earning assets................ 4.22%
====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------
Average Interest Average
Assets Amount Earned Yield
------ ------------------ ------------ ---------
<S> <C> <C> <C>
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 $ 1,777,857 7.76%
============= ============ ====
Average Interest Average
Liabilities Amount Expense Yield
----------- ----------------- ---------------- ------------
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 1999 and 1998, all loans were accruing interest.
(2) Interest earned on net loans for the years ended December 31, 1999 and
1998 includes loan fees and loan service fees in the amount of $315,639 and
$121,409, respectively.
-4-
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
compared with the
Year Ended December 31, 1998
----------------------------------------------------
Increase (decrease) due to:
Volume Rate Total
---------------- ---------------- ----------------
Interest earned on:
<S> <C> <C> <C>
Interest-bearing deposits............... $ -- $ 31,820 $ 31,820
Taxable securities...................... 53,139 (13,303) 39,836
Federal funds sold...................... 27,912 (25,978) 1,934
Net loans............................... 1,668,159 (45,345) 1,622,814
---------- ---------- ---------
Total interest income......................... $1,749,210 $ (52,806) $1,696,404
========== ========= ==========
Interest paid on:
NOW deposits and money market........... $ 212,109 $(192,466) $ 19,643
Savings deposits........................ 12,409 (13,118) (709)
Time deposits........................... 608,801 (34,132) 574,669
Other borrowings........................ 57,646 (14,881) 42,765
---------- --------- ---------
Total interest expense........................ $ 890,965 $(254,597) $ 636,368
---------- --------- ---------
Change in net interest income................. $ 858,245 $(201,791) $1,060,036
========== ========== =========
</TABLE>
-5-
<PAGE>
<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........................ 687,593 2,336 689,929
---------- --------- ----------
Change in net interest income................. $ 953,953 $ (42,076) $ 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 fixed and variable rate certificates of deposit with a
range of maturity date options. The sources of deposits are residents,
businesses and employees of businesses within the Bank's market area, obtained
through the personal solicitation of the Bank's officers and directors, direct
mail solicitation and advertisements published in the local media. The Bank
pays competitive interest rates on time and savings deposits up to the maximum
permitted by law or regulation. In addition, the Bank has implemented a service
charge fee schedule competitive with other financial institutions in the Bank's
market area, covering such matters as maintenance fees on checking accounts, per
item processing fees on checking accounts, returned check charges and the like.
-6-
<PAGE>
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>
Year Ended Year Ended
December 31, 1999 December 31, 1998
--------------------------- -------------------------
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
- ------------------------------------ --------------------------- --------------------------
<S> <C> <C>
Non-interest bearing demand deposits $ 7,571,770 N/A $ 3,300,277 N/A
NOW and money market deposits $ 18,161,365 3.06% $ 13,014,173 4.12%
Savings deposits $ 1,105,291 2.16% $ 734,365 3.35%
Time deposits $ 14,759,472 5.40% $ 3,943,466 5.63%
</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, 1999:
Time Certificates
of Deposit
-----------------
3 months or less......... $ 1,818,116
3-6 months............... 5,056,236
6-12 months.............. 12,655,303
over 12 months........... 3,237,144
-------------
Total $22,766,799
===========
Loan Portfolio
The Bank engages in a full complement of lending activities, including
commercial/industrial, consumer and real estate loans. As of December 31, 1999,
the Bank had a legal lending limit for loans of up to $876,300 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.
-7-
<PAGE>
The following is a description of each of the major categories of loans in
the Bank's loan portfolio:
Commercial, Financial and Agricultural Loans
Commercial lending is directed principally towards businesses whose demands
for funds fall within the Bank's legal lending limits and which are potential
deposit customers of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Particular emphasis is placed on loans to small and medium-
sized businesses. The primary repayment risk for commercial loans is the
failure of the business due to economic or financial factors. Although the Bank
typically looks to a commercial borrower's cash flow as the principal source of
repayment for such loans, many commercial loans are secured by inventory,
equipment, accounts receivable, and other assets.
Consumer/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, 1999 December 31, 1998
- ------------ ----------------- -----------------
<S> <C> <C>
Commercial, Financial and Agricultural.. $ 5,634,393 $ 2,624,532
Real Estate - Construction.............. 12,093,066 3,714,502
Real Estate - Mortgage.................. 20,881,418 7,439,822
Installment and Other Loans to 2,899,493 2,387,404
Individuals............................ ----------- -----------
Subtotal................................ 41,508,370 16,166,260
Less: Allowance for possible loan losses (531,024) (194,581)
Net deferred loan fees......... (93,227) (29,670)
----------- -----------
Total (net of allowances) $40,884,119 $15,942,009
=========== ===========
</TABLE>
-8-
<PAGE>
The following is a presentation of an analysis of maturities of loans as of
December 31, 1999:
<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.......... $ 2,921 $ 2,685 $ 30 $ 5,636
Real Estate - Construction...................... 8,924 2,151 1,018 12,093
Real Estate - Mortgage.......................... 2,491 15,110 3,280 20,881
Installment and Other Loans to Individuals...... 1,031 1,763 104 2,898
------- ------- ------ -------
Total....................................... $15,367 $21,709 $4,432 $41,508
======= ======= ====== =======
</TABLE>
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates as of December 31, 1999:
<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.................... $ 6,638 $18,394 $285 $25,317
Floating interest rate......................... 14,761 1,430 0 16,191
------- ------- ---- -------
Total..................................... $21,399 $19,824 $285 $41,508
======= ======= ==== =======
</TABLE>
As of December 31, 1999, 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, 1999, 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. At December 31,
1999, all loans were accruing interest.
-9-
<PAGE>
Summary of Loan Loss Experience
An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated, as well as a breakdown of the allowance for
possible loan losses:
Analysis of the Allowance for Possible Loan
Losses
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------------- ---------------------
<S> <C> <C>
Balance at beginning of period......................... $194,581 $ 45,373
Charge-offs............................................ 25,000 0
Recoveries............................................. 0 0
-------- --------
Net Charge-offs........................................ 25,000 0
-------- --------
Additions charged to operations........................ 361,443 149,208
-------- --------
Balance at end of period............................... $531,024 $194,581
======== ========
Ratio of net charge-offs during the period to 0.09 % 0%
average loans outstanding during the period ======== ========
</TABLE>
At December 31, 1999 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....................... $100,000 19%
Real Estate - Construction................................... 50,000 9%
Real Estate - Mortgage....................................... 175,000 33%
Installment and Other Loans to Individuals................... 50,000 9%
Unallocated.................................................. $156,024 30%
---
Total..................................................... $531,024 100%
======== ===
</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...................... $ 0 0%
Real Estate - Construction.................................. 0 0%
Real Estate - Mortgage...................................... 0 0%
Installment and Other Loans to Individuals.................. 0 0%
Unallocated................................................. 194,581 100%
-------- ---
Total.................................................... $194,581 100%
======== ===
</TABLE>
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, 1999, 13.6%
of outstanding loans are in the category of commercial loans, which includes
commercial real estate loans and agricultural loans. Commercial loans are
generally considered by management as having greater risk than other categories
of loans in the Company's loan portfolio. However, 85.56% of these commercial
loans at December 31, 1999 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.
-10-
<PAGE>
The Company's consumer loan portfolio constitutes 7.0% of outstanding
loans at December 31, 1999. At December 31, 1999 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 79.4% of
outstanding loans at December 31, 1999. 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 Office of the
Comptroller of the Currency, also conducts an annual examination of the loan
portfolio. Upon completion, the Office of 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
At December 31, 1999, investment securities comprised approximately 17.4%
of the Bank's assets, Federal Funds sold comprised approximately 2.4 % of the
Bank's assets, and net loans comprised approximately 67.8% 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.
-11-
<PAGE>
The following table presents, for the periods indicated, the book value of
the Bank's investments. All securities held at December 31, 1999 and 1998 were
categorized as available-for-sale.
Investment Category
- -------------------
<TABLE>
<CAPTION>
As of As of
Available-for-Sale: December 31, 1999 December 31, 1998
- -------------------------------------------- ----------------- ------------------
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. $10,217,921 $9,753,621
Agencies...................................
Federal Home Loan Bank Stock................ 125,000 -0-
Federal Reserve Bank Stock.................. 180,000 180,000
----------- ----------
Total..................................... $10,522,921 $9,933,621
=========== ==========
</TABLE>
The following table indicates for the year ended December 31, 1999 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)
- ------------------------------------------------ ------ ----------------
Obligations of U.S. Treasury and other U.S.
Agencies:
<S> <C> <C>
0 - 1 year................................ $ 5,499,205 5.43%
Over 1 through 5 years.................... 3,366,615 5.88%
Over 5 through 10 years................... 970,785 7.00%
U.S. Agencies Mortgage-Backed Securities 381,316 5.44%
Federal Home Loan Bank Stock, no maturity 125,000 7.75%
Federal Reserve Bank Stock, no maturity......... 180,000 6.00%
----------- ----
$10,522,921 5.77%
Total................................ =========== ====
</TABLE>
(1) The Company has not invested in any tax-exempt obligations.
-12-
<PAGE>
Return on Equity and Assets
Return on average consolidated assets and average consolidated equity for
the periods indicated as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Gain (Loss) on Average Assets............... 0.20% (2.20)%
Gain (Loss) on Average Equity............... 1.72% (10.22)%
Average Equity to Average Assets Ratio...... 11.54% 21.32%
Dividend Payout Ratio....................... 0% 0%
</TABLE>
Gain (loss) on Average Assets is calculated by dividing net income by
year-to-date average assets. Gain (loss) on Average Equity is calculated by
dividing net income by year-to-date average equity. Average Equity to Average
Assets is calculated by dividing year-to-date Average Equity to year-to-date
Average Assets. The Dividend Payout Ratio is calculated by dividing the
dividends paid during the year by 1999 net income.
Asset/Liability Management
It is the objective of the Bank to manage assets and liabilities to provide
a satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain of
the officers of the Bank are responsible for monitoring policies and procedures
that are designed to ensure acceptable composition of the asset/liability mix,
stability and leverage of all sources of funds while adhering to prudent banking
practices. It is the overall philosophy of management to support asset growth
primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships and corporations. Management of
the Bank seeks to invest the largest portion of the Bank's assets in commercial,
consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a
quarterly 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 purchases 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
-13-
<PAGE>
certain balances with such correspondents in non-interest bearing accounts. At
December 31, 1999, the Bank had $1,842,610 in 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 of March 1, 2000, neither the Company nor the Bank has experienced any
operational problems related to the Year 2000 issue.
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 takes any necessary measures. This plan is based in part on
FDIC guidelines for financial institutions regarding Year 2000 compliance. The
Company believes that its systems, those of the Bank and its data processing
vendor are Year 2000 compliant and does not believe that material expenditures
will be necessary to implement any further modifications. As of December 31,
1999, the Company had spent approximately $12,546 to help ensure that its
systems would be Year 2000 compliant. The Company's data processing vendor has
not experienced any significant problems as a result of the Year 2000 issue.
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 have been 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 in the future.
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 the
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. As of March 1, 2000, none of the Bank's customers have reported
operational problems related to the Year 2000 issue. Nevertheless, there can be
no assurance that all of its 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.
-14-
<PAGE>
Employees
As of December 31, 1999, the Bank employed 1 person on a part-time basis
and 20 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.
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.
Transfer Agent and Common Stock Registrar
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 Office of the Comptroller of the Currency ("OCC"), 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. The legislation also
provides that, unless an individual state has elected to prohibit out-of-state
banks from operating interstate branches within its territory, adequately
capitalized and managed bank holding companies will be able to consolidate their
multistate bank operations into a single bank subsidiary and to branch
interstate through acquisitions.
-15-
<PAGE>
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.
On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass-Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further, it allows for
the affiliation of banking, securities and insurance activities in new financial
services organizations.
A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the Company being the agency
which traditionally regulates the activity in which the Company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee banking
activities.
The principal provisions of the Financial Services Modernization Act will
permit the Company, if it meets the standards for a "well-managed" and "well-
capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. The Company,
if it satisfies the above criteria, can file a declaration of its status as a
"financial holding company" ("FHC") with the Federal Reserve, and thereafter
engage directly or through nonbank subsidiaries in the expanded range of
activities which the Financial Services Modernization Act identifies as
financial in nature. Further, the Company, if it elects FHC status, will be
able to pursue additional activities which are incidental or complementary in
nature to a financial activity, or which the Federal Reserve subsequently
determines to be financial in nature. The Financial Services Modernization Act
will also allow the Bank, with OCC approval, to control or hold an interest in a
"financial subsidiary" which may engage in, among other things, the activities
specified in the Financial Services Modernization Act as being financial in
nature. Such a subsidiary, though, is not permitted to engage in insurance
underwriting or annuity issuance, real estate development, investment
activities, or merchant banking activities. Further, any financial subsidiary
that the Bank created would generally be treated as an affiliate of the Bank,
rather than as a subsidiary for purposes of affiliate transaction restrictions
of Sections 23A and 23B of the Federal Reserve Act.
It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
A bank holding company which has not elected to become a FHC will generally
be 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, these non-FHC bank holding companies will still be
able to engage in certain activities which have been identified by the Federal
Reserve Board to be so closely related to banking as to be a proper incident
thereto and thus permissible for bank holding companies.
These activities, including those listed below, are left unchanged by the
Financial Services Modernization Act which does not prohibit non-FHC bank
holding companies from engaging in these activities. The list of permissible
nonbanking activities includes the following activities: extending credit
-16-
<PAGE>
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 Banking Department before
(i) acquiring 5% or more of the voting shares of any bank; or (ii) all or
substantially all of the assets of a bank; or (iii) before merging or
consolidating with any other bank holding company; or (iv) taking any action
that causes any company to become a bank holding company; or (v) taking any
action that causes a bank to become a subsidiary of a 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 "savings
and loan," a "state savings and loan," a "savings bank," or a "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 OCC 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 must obtain the
prior approval of the Georgia Banking Department before establishing any branch
offices or bank facilities. The Bank is also subject to Georgia banking and
usury laws restricting the amount of interest which it may charge in making
loans or other extensions of credit. In addition, the Bank, as a subsidiary of
the Company, is subject to restrictions under federal law in dealing with the
company and other affiliates, if any. These restrictions apply to extensions of
credit to an affiliate, investments in the securities of an affiliate and the
purchase of assets from an affiliate.
-17-
<PAGE>
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 OCC 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 OCC. The Federal
Reserve Board and the OCC 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 OCC'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 OCC 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 banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. The OCC 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
-18-
<PAGE>
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 OCC'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 OCC 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 OCC'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 OCC 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 OCC 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 OCC, 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 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
-19-
<PAGE>
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 OCC, 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, 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 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.
-20-
<PAGE>
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)/ less than 8% lees than 4% less than 4%/(3)/
Significantly Undercapitalized/(4)/ less than 6% less than 3% less than 3%
Critically Undercapitalized - - less than or equal to 2%/(5)/
</TABLE>
- --------------------------
/(1)/ An institution must meet all three minimums.
/(2)/ >/= 3% for composite 1-rated institutions, subject
to appropriate federal banking agency guidelines.
/(3)/ less than 3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
/(4)/ An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
---
/(5)/ Ratio of tangible equity to total assets.
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 OCC and the FDIC have
adopted regulations defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits.
Both the capital standards and the safety and soundness standards which
the 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
OCC. This examination is typically completed on-site every eighteen months and
is subject to off-site review at call. The OCC, 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
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.
-21-
<PAGE>
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
- ------ -----------------------
Facilities
In April, 1999, the Bank moved into a $1.89 million facility located at
1000 Georgia Highway 138 in Conyers, Georgia. The building contains 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
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.
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, 1999
to a vote of security holders of the Company.
-22-
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------ --------------------------------------------------------
A. Market Information
During the period covered by this report and to date, there has been no
established public trading market for the Company's Common Stock.
B. Holders of Common Stock
As of March 1, 2000, the number of holders of record of the Company's
Common Stock was 618.
C. 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 OCC. Pursuant to 12 U.S.C. (s) 56, a
national bank may not pay dividends from its capital. All dividends must be
paid out of undivided profits, subject to other applicable provisions of law.
Payments of dividends out of undivided profits is further limited by 12 U.S.C.
(s) 60(a), which prohibits a bank from declaring a dividend on its shares of
common stock until its surplus equals its stated capital, unless there has been
transferred to surplus not less than one-tenth of the Bank's net income of the
preceding two consecutive half-year periods (in the case of an annual dividend).
Pursuant to 12 U.S.C. (s) 60(b), the approval of the OCC 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.
-23-
<PAGE>
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, 1999 Compared to Year Ended December 31, 1998
For the year ended December 31, 1999, assets and earnings improved. Total
assets increased by 77% from $34,056,201 in 1998 to $60,319,214 in 1999. Net
loans increased from $15,942,009 in 1998, to $40,884,119 in 1999 due to strong
loan demand coupled with a focused marketing effort. Net charge-offs for 1999
were $25,000 compared to $0 in 1998. At December 31, 1999, the Bank's loan loss
reserve ratio was 1.28% of total loans, slightly above the 1.21% at December 31,
1998.
Deposits increased for the same period by $23,931,240 or 85%, from
$28,301,588 in 1998 to $52,232,828 in 1999. The majority of the increase was
attributable to marketing efforts. The Bank's investment portfolio increased
$464,300, or 5%, from $9,753,621 in 1998 to $10,217,921 in 1999 as the Bank used
most increases in funding sources to meet loan demand.
The Bank's loan to deposit ratio was 79% for 1999, compared to 57% in
1998. Combined with the increase in the above ratio, earnings increased
significantly in 1999 because of higher levels of average earning assets, from
$22.9 million in 1998 to $41.9 million in 1999. As a consequence to the
increase in net interest margin and higher levels of earning assets, net
interest income increased by $1,060,036, or 107%, from $991,372 in 1998 to
$2,051,408 in 1999. Non-interest expense increased by $405,556 from $1,511,847
for 1998 to $1,917,403 for 1999. This increase was the result of an increase in
personnel expenses and other overhead expenses. Non-interest income increased
by $160,593 from $162,872 for 1998 to $323,465 for 1999. This increase was due
to higher levels of transactions relating to deposit accounts.
-24-
<PAGE>
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
Statement's effectiveness, the organizers/directors focused on 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.
For the year ended December 31, 1998, assets and earnings improved. Total
assets increased by 105% from $16,640,074 in 1997 to $34,056,201 in 1998. Net
loans increased from $3,599,142 in 1997, to $15,942,009 in 1998 due to strong
loan demand coupled with a focused marketing effort. At December 31, 1998, the
Bank's loan loss reserve ratio was 1.21% of total loans, slightly below the
1.24% attained at December 31, 1997.
Deposits increased for the same period by $17,908,957 or 172%, from
$10,392,631 in 1997 to $28,301,588 in 1998. The majority of the increase was
attributable to marketing efforts. The Bank's investment portfolio increased
$4,427,751, or 83%, from $5,325,870 in 1997 to $9,753,621 in 1998.
The Bank's loan to deposit ratio was 57% for 1998, compared to 35% in
1997. Non-interest expense increased by $1,003,092 from $508,755 for 1997 to
$1,511,847 for 1998. Non-interest income increased by $156,187 from $6,685 for
1997 to $162,872 for 1998. This increase was due to higher levels and
transactions relating to deposit accounts. As a consequence to the increase in
net interest margin and higher levels of earning assets, net interest income
increased by $915,557, or 1,167%, from $78,815 in 1997 to $991,372 in 1998.
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.
-25-
<PAGE>
Presented below are various components of assets and liabilities, interest
income and expense as well as their yield/cost for the years indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------------------ -------------------------------
(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 $ 601 $ 32 5.29% $ 0 $ 0 0%
Federal funds sold 2,563 132 5.17% 2,112 131 6.18%
Securities 10,646 605 5.69% 9,731 565 5.81%
Loans, net 28,123 2,704 9.62% 11,064 1,082 9.78%
------- ------ ------- ------ ----
Total earning assets $41,933 $3,474 8.29% $22,907 $1,778 7.76%
======= ====== ==== ======= ====== ====
Interest bearing deposits $34,026 1,376 4.04% $17,692 $ 782 4.42%
Other borrowings 910 46 5.10% 54 4 6.74%
------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities $34,936 $1,422 4.07% $17,746 $ 786 4.43%
======= ====== ==== ======= ====== ====
Net yield on earning assets 4.22% 3.33%
==== ====
</TABLE>
Net yield on earning assets for the years ended December 31, 1999 and 1998
were 4.22% and 3.33%, respectively. The increase in net yield during 1999 is
primarily attributed to lower cost of funds and higher loan volume. Net
interest income increased from $991,372 for the year ended December 31, 1998 to
$2,051,408 for the year ended December 31, 1999. This increase is primarily
attributable to 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.
Non-Interest Income
Non-interest income for the year ended December 31, 1999 and December 31,
1998 amounted to $323,465 and $162,872, respectively. As a percentage of
average assets, non-interest income increased from 0.61% in 1998 to 0.67% in
1999. The increase in non-interest income during 1999 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 years ended December 31, 1999 and December 31, 1998.
Year Ended December 31,
1999 1998
----------- ------------
Service fees on deposit accounts $250,748 $114,346
Miscellaneous, other 72,717 48,526
-------- --------
Total non-interest income $323,465 $162,872
======== ========
-26-
<PAGE>
Non-Interest Expense
Non-interest expense increased from $1,511,847 during 1998 to $1,917,403 in
1999. As a percent of total average assets, non-interest expenses decreased
from 5.64% to 3.97%. Management attributes this decrease in the ratio of non-
interest expense to average assets to increased coverage of overhead expenses
from earning assets and an expense control initiative taken in 1999. Below are
the components of non-interest expense for the years ended December 31,1999 and
1998.
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Salaries and other compensation....... $ 732,148 $ 557,923
Employee benefits..................... 150,823 102,815
Net occupancy and equipment expense... 322,100 256,368
Professional and other outside
services............................. 160,019 139,215
Other expense......................... 552,313 455,526
---------- ----------
Total non-interest expense....... $1,917,403 $1,511,847
========== ==========
During 1999, the allowance for loan losses grew from $194,581 to $531,024.
During 1999, the allowance for loan losses as a percent of gross loans increased
from 1.21% to 1.28%. There were no charge-offs during 1998 and $25,000 in
charge-offs during 1999. As of December 31, 1999, 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.
-27-
<PAGE>
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 1999 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
------ ---------- ---------- ---------- ------- -------
EARNINGS ASSETS (In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest Bearing Deposits $ 140 $ 0 $ 0 $ 0 $ 0 $ 140
Loans 14,928 2,201 4,269 19,825 285 41,508
US Government and agency securities 1,121 495 3,883 3,748 1,276 10,523
Federal funds sold 1,450 0 0 0 0 1,450
------- ------- -------- ------- ------- -------
Total earning assets $17,639 $ 2,696 $ 8,152 $23,573 $ 1,561 $53,621
======= ======= ======== ======= ======= =======
SUPPORTING SOURCE OF FUNDS
Interest-bearing demand deposits and savings $18,303 $ 0 $ 0 $ 0 $ 0 $18,303
Certificates, less than $100M 1,246 4,343 8,572 2,311 0 16,472
Certificates, $100M and over 572 713 4,083 927 0 6,295
FHLB Advance 2,500 0 0 0 0 2,500
------- ------- -------- ------- ------- -------
Total interest-bearing liabilities $22,621 $ 5,056 $ 12,655 $ 3,238 $ 0 $43,570
======= ======= ======== ======= ======= =======
Interest-sensitivity gap (4,982) (2,360) (4,503) 20,335 1,561 10,051
Cumulative interest-sensitivity gap (4,982) (7,342) (11,845) 8,490 10,051 N/A
Interest-sensitivity gap ratio (9.29) (4.40) (8.40) 37.92 2.91 18.74
Cumulative interest-sensitivity gap ratio (9.29) (13.69) (22.09) 15.83 18.74 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
-28-
<PAGE>
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 $23.9 million during 1999 and by $17.9 million in 1998. Below are the
pertinent liquidity balances and ratios for the years ended December 31, 1999
and December 31, 1998.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Cash and cash equivalents................... $ 4,839,459 $5,939,184
Securities.................................. 10,522,921 9,933,621
CDs over $100,000 to total deposits ratio... 12% 11%
Loan to deposit ratio....................... 79% 57%
Brokered deposits........................... 0 0
</TABLE>
At December 31, 1999, large denomination certificates accounted for 12% of
total deposits. Large denomination CDS are generally more volatile than other
deposits. As a result, management continually monitors the competitiveness of
the rates it pays on its large denomination CDS and periodically adjusts its
rates in accordance with market demands. Significant withdrawals of large
denomination CDS may have a material adverse effect on the Bank's liquidity.
Management believes that since a majority of the above certificates were
obtained from Bank customers residing in Rockdale County, Georgia, the
volatility of such deposits is lower than if such deposits were obtained from
depositors residing outside of Rockdale County, as outside depositors are more
likely to be interest rate sensitive.
Cash and cash equivalents are the primary source of liquidity. At
December 31, 1999, cash and cash equivalents amounted to $4.8 million,
representing 8.0% of total assets. Securities available for sale provide a
secondary source of liquidity. Approximately $5.5 million of the $10.5 million
in the Bank's securities portfolio is scheduled to mature, or subject to call,
in 2000.
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, 1999, 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.
-29-
<PAGE>
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.
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, 1999:
Minimum
December 31, regulatory
Bank 1999 requirement
- ---- ------------ -----------
Tier 1 Capital 11.4% 4.0%
Tier 2 Capital 1.2% -
---- ---
Total risk-based capital ratio 12.6% 8.0%
==== ===
Leverage ratio 11.1% 4.0%
==== ===
Company-Consolidated
- --------------------
Tier 1 Capital 12.4% 4.0%
Tier 2 Capital 1.1% -
---- ---
Total risk-based capital ratio 13.5% 8.0%
==== ===
Leverage Ratio 12.0% 4.0%
==== ===
-30-
<PAGE>
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.
Item 7. Financial Statements
- ------ --------------------
The following financial statements are filed with this report:
Report of Independent Certified Public Accountants
Balance--Sheets December 31, 1999 and 1998
Statements of Loss--Years Ended December 31, 1999 and December 31, 1998
Statements of Changes in Stockholders' Equity--Years Ended December 31, 1999 and
December 31, 1998
Statements of Cash Flows--Years Ended December 31, 1999 and December 31, 1998
Notes to Financial Statements
-31-
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
There has been no occurrence requiring a response to this Item.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ------ -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
----------------------------- -------------------
The directors and executive officers of the Company are as follows:
Position with
Name Company
- ---- --------------
C. Dean Alford Class I Director
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
With the exception of Mr. Athon, each of the above directors has been a
director of the Company since February 1997. Mr. Athon was elected 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 46, has served as President and Chief Executive
Officer of Allied Utility Network since 1998. 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
-32-
<PAGE>
Chairman of the Georgia Tech School of Electrical and Computer Engineering
Advisory Board, and is a member of Rockdale Baptist Church.
Troy A. Athon, age 62, 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 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 50, 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 serves on the Rockdale County Development
Authority and is active in a umber of local civic organizations.
Hazel E. Durden, age 69, 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 46, 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. 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. Also, Dr. Fountain is head coach of women's soccer at Oxford
College at Emory University, and an Elder at Conyers Presbyterian Church
Michael P. Jones, age 53, 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.
-33-
<PAGE>
Julia W. Morgan, age 71, 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 44, 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, the Georgia State Board of
Veterinary Medicine, and the Georgia Veterinary Medical Association. Dr. Nance
is also a charter member of the Rotary Club of Rockdale County.
Michael R. Potts, age 45, is the founder and President of Potts General
Contractors, Inc., a general commercial construction contracting firm started by
Mr. Potts in 1986, and The Potts Company, a construction management firm which
was formed in 1999. Mr. Potts is a member of the Georgia Chapter of Associate
General Contractors, the Georgia Utilities Contractors Association, Construction
Management Association of America, and the American Waterworks Association. 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 41, 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 32, 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 33, 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.
-34-
<PAGE>
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
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, certain of the Company's officers and persons who own more
than 10% of the outstanding Common Stock of the Company to file with the
Securities and Exchange Commission reports of changes in ownership of the Common
Stock of the Company held by such person. Officers, directors, and greater than
10% stockholders are also required to furnish the Company with copies of all
forms they file under this regulation. To the Company's knowledge, based solely
on a review of copies of such reports furnished to the Company and
representations that no other reports were required, all Section 16(a) filing
requirements applicable to its officers, directors, and 10% stockholders were
complied with during the year ended December 31, 1999, except for Dr. R. Flynn
Nance, a director of the Company, who failed to file, on a timely basis, one
report relating to one transaction.
Item 10. Executive Compensation
- ------- ----------------------
The following table provides certain summary information for the fiscal
years ended December 31, 1999, 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 $100,000 during the last fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------------------------------------------------------
Annual Compensation Long Term Compensation
---------------------------- -------------------------------------------
Number of
Name and Restricted Stock Options All Other
Principal Position Year Salary Bonus Awards ($) Awarded Compensation
- ------------------ ---- ------ ----- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Daniel 1999 $103,000 $- 0 - $- 0 - $- 0 - $21,867(1)
President and 1998 $100,000 $- 0 - $- 0 - 9,262 $14,729(2)
Chief Executive 1997 $ 93,200 $- 0 - $- 0 - - 0 - $ - 0 -
Officer
</TABLE>
- -------------------
(1) Includes $8,400 in travel allowances and $13,407 in life insurance
premiums.
(2) Includes $8,400 in travel allowances and $6,329 in 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"). 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
-35-
<PAGE>
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 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 1999, an aggregate of 7,436 stock options were granted
under the Plan. At December 31, 1999, 12,596 stock options were exercisable.
Compensation of Directors
The Bank is currently paying director's fees at the rate of $400 per month
per director.
-36-
<PAGE>
On August 24, 1998 (the "Effective Date"), the Board of Directors of the
Company approved a deferred compensation plan (the "Directors' Plan") to help
retain the services of those Company directors who do not hold a management
position (the "Eligible Directors"). The Directors' Plan provides that each
Eligible Director serving on the Board of Directors as of the Effective Date
shall be granted an option to purchase 5,000 shares of the Company's Common
Stock. The Directors' Plan further provides for the grant, at the end of each
fiscal year, of an option to purchase 500 shares of Common Stock to each
Eligible Optionee who continues to serve on the Board of Directors as of the
last business day of that fiscal year. Options granted pursuant to the
Directors' Plan become fully exercisable as of the date of grant. Such options
expire on the earlier of (i) the tenth anniversary of the date of grant or (ii)
the first anniversary of the date that the Optionee ceases service on the Board
of Directors for reasons other than death or disability. 100,000 shares have
been reserved for issuance under the Directors' Plan. During fiscal 1999, an
aggregate of 4,000 stock options were granted under the Directors' Plan.
Stock Options
The following table presents information regarding grants to the named
person of options to purchase shares of the Common Stock during the year ended
December 31, 1999:
<TABLE>
<CAPTION>
% of Total Options
Number of Securities Granted to Employees
Underlying Options during the year ended Exercise or Expiration
Name Granted (#) December 31, 1999 Base Price ($/sh) Date
---- -------------------- --------------------- ------------------ ------------
<S> <C> <C> <C> <C>
William L. Daniel - 0 - - 0 - N/A N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following table presents information regarding the value of
unexercised options held at December 31, 1999 by William L. Daniel. No stock
options were exercised and there were no SARs outstanding during fiscal 1999.
<TABLE>
<CAPTION>
Number of
Unexercised Options Value of Unexercised
at FY-End In-the-Money Options
(#) at FY-End
-------------------------------- -------------------------------
Name Exercisable/Unexercisable Exercisable (1)/Unexercisable
- ------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
William L. Daniel 9,262 / 0 $18,524 / $0
</TABLE>
- --------------------
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Company's Common Stock at December 31,
1999 ($12.00) 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, 2000
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
-37-
<PAGE>
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......................................... 33,000/(2)/ 4.5%
Troy A. Athon.......................................... 600 *
William L. Daniel...................................... 24,262/(3)/ 3.3%
Hazel E. Durden........................................ 16,000/(4)/ 2.2%
John A. Fountain, M.D.................................. 21,000/(5)/ 2.8%
Brian Hawkins.......................................... 800/(6)/ *
Michael P. Jones....................................... 25,000/(7)/ 3.4%
Julia W. Morgan........................................ 30,750/(8)/ 4.2%
R. Flynn Nance, D.V.M.................................. 19,300/(9)/ 2.6%
Michael R. Potts....................................... 22,500/(10)/ 3.0%
Arthur J. Torsiglieri, Jr., M.D........................ 21,000/(11)/ 2.8%
William R. Walker...................................... 3,668/(12)/ *
All Directors and Officers (12 persons)........... 217,880 29.4%
</TABLE>
* Less than 1% of shares outstanding.
- ---------------
/(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 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 and his spouse hold joint voting and investment power with
respect to 25,000 shares. The number of shares includes 2,000 shares in
an irrevocable trust, with respect to which Mr. Alford disclaims
beneficial ownership and 6,000 shares subject to presently-exercisable
stock options.
/(3)/ Includes 9,262 shares subject to presently-exercisable stock options.
/(4)/ Ms. Durden holds joint voting and investment power with respect to 10,000
shares, including 1,000 shares with Natelie Brook Elmore, 1,000 with
Garrett Austin Elmore, and 8,000 with Gary E. Elmore. Number of shares
includes 6,000 shares subject to presently-exercisable stock options.
/(5)/ Dr. Fountain and his wife hold joint voting and investment power with
respect to 10,000 shares. Number of shares includes 6,000 shares subject
to presently-exercisable stock options.
/(6)/ Number of shares include 800 in presently exercisable stock options.
/(7)/ Includes 18,000 shares owned by Mr. Jones' wife, Meta B. Jones. Number of
shares includes 6,000 shares subject to presently-exercisable stock
options.
/(8)/ Includes 22,000 shares held in a trust as to which Ms. Morgan has sole
voting and investment power. Number of shares includes 6,000 shares
subject to presently-exercisable stock options.
/(9)/ Dr. Nance and his wife hold joint voting and investment power with
respect to 10,000 shares. Number of shares includes 6,000 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. Number of shares includes 1,000 shares owned by Dr.
Nance's wife, and each of his three children.
/(10)/ Mr. Potts and his wife have joint voting and investment power with
respect to 4,400 shares. Number of shares includes 6,000 shares subject
to presently-exercisable stock options.
/(11)/ Dr. Torsiglieri and his wife have joint voting and investment power with
respect to 15,000 shares. Number of shares includes 6,000 shares subject
to presently-exercisable stock options.
/(12)/ Mr. Walker and his spouse have joint voting and investment power with
respect to 1,000 shares. Number of shares includes 2,668 shares subject
to presently-exercisable stock options.
/(12)/ Includes 71,285 shares subject to presently-exercisable options.
-38-
<PAGE>
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 the Company's: (i) Registration Statement on Form SB-2 under the Securities
Act of 1933 for the Company, Registration Number 333-24435 (referred to as "SB-
2"); and Annual Report on Form 10-KSB for the year ended December 31, 1998
("1998 10-KSB"). The exhibit numbers correspond to the exhibit numbers in the
referenced document.
Exhibit No. Description of
----------- ---------------------------------------------
*3.1 - Articles of Incorporation of the Company (SB-2)
*3.2 - Articles of Incorporation of the Company, as amended (SB-2)
*3.3 - Amended and Restated Articles of Incorporation of the Company
(SB-2)
*3.4 - Bylaws of the Company (SB-2)
*4.1 - Specimen Common Stock Certificate (SB-2)
*10.1 - Employment Agreement dated February 21, 1997 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 (1998 10-
KSB)
*10.5 - Rockdale National Bancshares, Inc. Non-Management Directors'
Stock Option Plan (1998 10-KSB)
-39-
<PAGE>
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 1999.
-40-
<PAGE>
Rockdale National Bancshares, Inc.
and Subsidiary
Conyers, Georgia
Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Contents
Report of Independent Certified Public Accountants 2
Consolidated Financial Statements
Balance sheets 3
Statements of income 4-5
Statements of changes in stockholders' equity 6
Statements of cash flows 7
Notes to financial statements 8-26
<PAGE>
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 sheets of Rockdale
National Bancshares, Inc. and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years 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
audits.
We conducted our audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Rockdale National Bancshares, Inc. and subsidiary as of December 31, 1999 and
1998, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
January 20, 2000
2
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (Note 2) $ 3,389,459 $ 2,969,184
Federal funds sold 1,450,000 2,970,000
Investment securities available for sale (Note 3) 10,217,921 9,753,621
Other investments (Note 3) 305,000 180,000
Loans, net of allowance for loan losses of $531,024 in 1999
and $194,581 in 1998 (Notes 4 and 11) 40,884,119 15,942,009
Premises and equipment, net (Note 5) 3,119,418 1,926,958
Accrued interest receivable 406,245 247,573
Other assets 547,052 66,856
- -----------------------------------------------------------------------------------------------------------
Total Assets $60,319,214 $34,056,201
- -----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities
Deposits: (Note 10)
Noninterest-bearing demand $11,162,952 $ 4,691,963
Interest-bearing demand and money market 16,909,820 16,035,788
Savings 1,393,257 873,773
Time deposits of $100,000 or more 6,295,089 3,216,087
Other time deposits 16,471,710 3,483,977
- -----------------------------------------------------------------------------------------------------------
Total deposits 52,232,828 28,301,588
Accrued interest payable 66,271 19,754
Other liabilities 105,150 46,576
Other borrowings (Note 7) 2,500,000 -
- -----------------------------------------------------------------------------------------------------------
Total liabilities 54,904,249 28,367,918
- -----------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 13)
Stockholders' equity (Note 12)
Common stock, par value $1.00; 10,000,000 shares
authorized, 676,188 shares issued and outstanding 676,188 676,188
Capital surplus 6,051,196 6,051,196
Accumulated deficit (957,005) (1,053,032)
Accumulated other comprehensive income (loss) - market
valuation reserve on investment securities available for
sale (Note 3) (355,414) 13,931
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,414,965 5,688,283
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $60,319,214 $34,056,201
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Rockdale National Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
Years ended December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income
Loans, including fees $2,704,717 $1,081,903
Investment securities:
U.S. Government agencies and corporations 578,974 560,050
Other investments 58,132 5,400
Federal funds sold 132,437 130,503
- -------------------------------------------------------------------------------------------------------------
Total interest income 3,474,260 1,777,856
- -------------------------------------------------------------------------------------------------------------
Interest expense
Interest-bearing demand and money market 555,940 536,297
Savings 23,858 24,567
Time deposits of $100,000 or more 204,521 118,046
Other time deposits 592,114 103,920
Other borrowings (Notes 6 and 7) 46,419 3,654
- -------------------------------------------------------------------------------------------------------------
Total interest expense 1,422,852 786,484
- -------------------------------------------------------------------------------------------------------------
Net interest income 2,051,408 991,372
Provision for loan losses (Note 4) 361,443 149,208
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,689,965 842,164
- -------------------------------------------------------------------------------------------------------------
Other income
Service charges on deposit accounts 250,748 114,346
Investment securities losses, net (Note 3) 2,046 (423)
Other income 70,671 48,949
- -------------------------------------------------------------------------------------------------------------
Total other income 323,465 162,872
- -------------------------------------------------------------------------------------------------------------
Other expense
Salaries and other compensation 732,148 557,923
Employee benefits 150,823 102,815
Net occupancy and equipment expense 322,100 256,368
Professional and other outside services 160,019 139,215
Other expense 552,313 455,526
- -------------------------------------------------------------------------------------------------------------
Total other expense 1,917,403 1,511,847
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income tax (provision) benefit 96,027 (506,811)
Income tax (provision) benefit (Note 9) - -
- -------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of change in $ 96,027 $ (506,811)
accounting principle
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
(Continued)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Rockdale National Bancshares, Inc. and Subsidiary
Consolidated Statements of Income (Continued)
Years ended December 31, 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Income (loss) before cumulative effect of change in
accounting principle $96,027 $(506,811)
Cumulative effect on prior years of change in accounting
principle for deferred organization costs, net of tax - (77,593)
- ---------------------------------------------------------------------------------------
Net income (loss) $96,027 $(584,404)
- ---------------------------------------------------------------------------------------
Basic and diluted income (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle $ .14 $ (.75)
Cumulative effect on prior years of change in accounting
principle for deferred organization costs - (.12)
- ---------------------------------------------------------------------------------------
Basic income (loss) per common share $ .14 $ (.87)
- ---------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Rockdale National Bancshares, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Accumulated Other
Comprehensive Comprehensive
Income Accumulated Income-Market Common Capital
Total (Loss) Deficit Valuation Reserve Stock Surplus
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $6,235,063 $ (468,628) $ (2,693) $673,188 $6,033,196
Proceeds from sale of 21,000 - - 3,000 18,000
capital stock
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
Comprehensive income
Net income 96,027 $ 96,027 96,027 - - -
Other comprehensive loss:
Market valuation
adjustment on
securities available
for sale (369,345) (369,345) - (369,345) - -
---------
Comprehensive loss $(273,318)
=========
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1999 $5,414,965 $ (957,005) $(355,414) $676,188 $6,051,196
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Rockdale National Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 96,027 $ (584,404)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Net amortization of investment securities 67,778 27,153
Net (gain) loss on sale and call of investment securities
available for sale (2,046) 423
Depreciation and amortization of premises and equipment 177,046 112,340
Provision for loan losses 361,443 149,208
Cumulative effect of change in accounting for organization
costs - 77,593
Deferred income tax (expense) benefit - (30,868)
Gain on sale of fixed assets (50) -
Increase in deferred loan fees (63,557) (29,670)
Decrease (increase) in other assets (473,021) 13,867
Increase in accrued interest receivable (158,672) (146,500)
Increase in accrued interest payable 46,517 13,374
Increase in other liabilities 58,574 40,576
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used by) operating activities 110,039 (356,908)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of investment securities available for sale (3,317,658) (11,383,186)
Purchases of other investments (398,100) -
Maturities of investment securities available for sale 109,583 485,072
Sales of investment securities available for sale 486,080 2,917,977
Calls of investment securities available for sale 1,815,442 3,550,000
Calls of other investments 273,100 -
Loans originated, net of principal repayments (25,239,996) (12,462,405)
Purchases of premises and equipment (1,371,996) (400,394)
Sale of premises and equipment 2,540 24,775
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (27,641,005) (17,268,161)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from sales of capital stock - 21,000
Net increase in demand, money market and savings deposits 7,864,505 12,925,614
Time deposits accepted, net of repayments 16,066,736 4,983,342
Proceeds from other borrowings 2,500,000 -
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 26,431,241 17,929,956
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (1,099,725) 304,887
Cash and cash equivalents at beginning of year 5,939,184 5,634,297
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,839,459 $ 5,939,184
- ---------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash paid
Interest $ 1,376,335 $ 773,110
Income taxes - -
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
7
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Rockdale National Bancshares, Inc. (the Company) provides a full range of
banking and bank-related services to individual and corporate customers through
its bank subsidiary located in Rockdale County, Georgia. The Company and its
subsidiary are subject to 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
The 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. The Company began its general banking
business on October 14, 1997. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
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. Other investments are reported at cost and, accordingly, earnings are
reported when interest is accrued or when dividends are received.
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 and
8
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
accreted 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
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.
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.
9
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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 are 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 earnings (loss) per share is calculated in
a manner consistent with that of basic earnings (loss) per share, while giving
effect to all dilutive potential common shares that were outstanding during the
period. Basic and diluted earnings (losses) per share are based upon 676,188 and
687,506 shares, respectively, for the year ended December 31, 1999, and 675,448
shares for the year ended December 31, 1998.
Stock-Based Compensation
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.
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.
10
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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,
1999. 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.
Reclassifications
Certain reclassifications have been made in the 1998 financial statements to
conform with the 1999 presentation.
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, 2000. 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.
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, 1999 and 1998, the Bank's reserve requirement was met
by cash on hand.
11
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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, 1999 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies and
corporations $10,174,191 $ - $337,586 $ 9,836,605
Mortgage-backed securities 399,144 - 17,828 381,316
- ---------------------------------------------------------------------------------------------------------------
$10,573,335 $ - $355,414 $10,217,921
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<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
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Other investments consists of common stock in the Federal Reserve Bank of
Atlanta and the Federal Home Loan Bank of Atlanta.
In 1999, the unrealized loss on available-for-sale securities is $355,414 and is
included as a separate component of stockholders' equity. This unrealized loss
is not shown net of taxes since the Company is not cumulatively profitable at
December 31, 1999. In 1998, the unrealized gain on available-for-sale
securities, net of the related deferred taxes of $7,177, was $13,931.
The amortized cost and estimated market value of investment securities available
for sale at December 31, 1999, 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, 1999 Cost Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 5,679,502 $ 5,499,205
Due after one year through three years 1,798,871 1,757,273
Due after three years through five years 1,695,817 1,609,342
Due after five years 1,000,000 970,785
Mortgage-backed securities 399,143 381,316
- -------------------------------------------------------------------------------------------------------------
$10,573,333 $10,217,921
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Proceeds from sales of investment securities available for sale during 1999 and
1998 were $486,080 and $2,917,977 with gross gains of $1,584 and $99 and gross
losses of $0 and $2,091, respectively. Maturities and principal repayments of
investment securities available for sale during 1999 and 1998 were $109,583 and
$485,072, respectively. Gross gains realized from calls of available-for-sale
securities during 1999 and 1998 were $462 and $1,569, respectively.
Investment securities having carrying values of approximately $6,692,000 and
$5,898,000 at December 31, 1999 and 1998, respectively, were pledged to secure
public funds on deposit.
At December 31, 1999 and 1998, the Bank had no outstanding off-balance-sheet
derivative financial instruments, such as swaps, options, futures, or forward
contracts.
4. Loans
Major classifications of loans are as follows:
December 31, 1999 1998
- ------------ ----------- -----------
Commercial $ 5,634,000 $ 2,595,000
Loans secured by real estate
Construction 12,093,000 3,765,000
Individual mortgage 3,388,000 1,715,000
Commercial mortgage 17,494,000 5,739,000
Installment and simple interest 2,899,000 2,352,000
----------- -----------
Total loans 41,508,000 16,166,000
Less: Net deferred loan fees (93,000) (30,000)
Allowance for loan losses (531,000) (194,000)
----------- -----------
Loans, net $40,884,000 $15,942,000
=========== ===========
Most of the Bank's business activity is with customers located within Rockdale
County and the surrounding area. As of December 31, 1999 and 1998, the Bank's
loan portfolio had approximately $32,975,000 and $11,219,000, respectively,
secured by real estate.
At December 31, 1999 and 1998, the Bank has no nonaccrual loans or loans which
are considered impaired.
13
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The following is a summary of transactions in the allowance for loan losses:
Years ended December 31, 1999 1998
- ------------------------ -------- --------
Balance, beginning of year $194,581 $ 45,373
Provision charged to expense 361,443 149,208
Loans charged off (25,000) -
Recoveries of loans previously charged off - -
-------- --------
Balance, end of year $531,024 $194,581
======== ========
5. Premises and Equipment
Premises and equipment are comprised of the following:
December 31, 1999 1998
- ------------ ----------- -----------
Land $ 585,542 $ 585,542
Buildings and ground improvements 1,990,279 520,920
Furniture, fixtures and equipment 858,942 588,728
Construction in process - 370,920
----------- ----------
3,434,763 2,066,110
Less accumulated depreciation and amortization (315,345) (139,152)
---------- ----------
Premises and equipment, net $3,119,418 $1,926,958
========== ==========
Depreciation and amortization expense totaled $177,046 and $112,340 for 1999 and
1998, respectively.
The Company operated out of offices in a modular bank facility pursuant to a
month-to-month operating lease at a monthly rental of $3,500 until the new main
office facility was completed in April 1999. The Bank also has certain equipment
leased under various operating leases. Rental expense was $17,820 and $56,479 in
1999 and 1998, respectively.
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 $4,000,000 and $3,500,000 at
December 31, 1999 and 1998, respectively. There were no amounts outstanding
under these lines at December 31, 1999 and 1998. In 1999, the maximum and daily
average amounts of federal funds purchased were approximately $2,000,000 and
$74,000, respectively, while such amounts were approximately $3,000,000 and
$54,000, respectively, in 1998. The average interest rate paid on the federal
funds purchased in 1999 and 1998 was 5.65 percent and 6.74 percent,
respectively.
14
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
7. Long-Term Borrowings
The Bank also utilizes borrowings as needed for liquidity purposes in the form
of Federal Home Loan Bank (FHLB) advances. The advances are collateralized by
deposits held at the Federal Home Loan Bank. The following advances were
outstanding:
December 31, 1999
- -----------------
$2,500,000 principal balance, 5.00 percent fixed rate,
granted September 1, 1999, interest payable quarterly,
matures September 1, 2009 $2,500,000
==========
The FHLB has the option, beginning March 1, 2000, and continuing on each
quarterly payment date thereafter, to convert these advances into a three-month
LIBOR-based floating rate advance. If the FHLB elects not to convert this
advance, then the Bank may elect to terminate in whole this transaction on any
payment date with the payment of a prepayment fee to the FHLB. If the FHLB
elects to convert the advance, the Bank may elect to terminate this transaction
without payment of a prepayment fee on any subsequent date.
8. 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 years ended
December 31, 1999 and 1998, as a result of the Bank's contributions to the plan,
totaled $1,008 and $3,228, respectively.
9. Income Taxes
The following are the components of income tax expense as provided:
Years ended December 31, 1999 1998
- ------------------------ ----- -----
Current income tax provision $ - $ -
Deferred income tax benefit - -
----- -----
$ - $ -
===== =====
15
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
A reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- ------------------------ -------- ---------
<S> <C> <C>
Pretax income (loss) $ 96,027 $(584,404)
- -------------------- ======== =========
Income tax (benefit) computed at federal statutory tax rate $ 32,649 $(198,697)
Increase (decrease) resulting from:
Nondeductible meals and entertainment 1,688 2,075
Cash value income - (1,456)
State income tax provision (benefit), net of federal tax 3,803 (37,121)
benefit
Utilization of net operating loss carryforward (38,140) -
Valuation allowance - 235,199
-------- ---------
$ - $ -
======== =========
</TABLE>
The following summarizes the tax effects of temporary differences which comprise
net deferred tax assets:
December 31, 1999 1998
- ------------ --------- ---------
Deferred income tax assets:
Allowance for loan losses $ 184,790 $ 60,785
Net operating loss carryforward 171,779 366,532
Unrealized (gain) loss on investment securities 126,399 (8,761)
available for sale
Deferred organizational costs 9,883 29,005
Deferred compensation 7,592 -
Deferred loan fees 35,389 11,263
--------- ---------
Total deferred income tax assets 535,832 458,824
--------- ---------
Deferred income tax liabilities:
Accumulated depreciation (81,161) (55,338)
--------- ---------
Total deferred income tax liabilities (81,161) (55,338)
--------- ---------
Valuation allowance (454,671) (412,247)
--------- ---------
Net deferred income tax (liability) asset $ - $ (8,761)
========= =========
As of December 31, 1999 and 1998, the Company had cumulative net operating loss
carryforwards of $1,037,366 and $1,075,506, respectively, for financial
reporting purposes, and $452,582 and $965,575, respectively, for tax purposes.
The cumulative net operating loss carryforwards expire over 20 years in either
2017 or 2018.
16
<PAGE>
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 $6,295,000 and $3,216,000, respectively, at December 31, 1999
and 1998.
At December 31, 1999, the scheduled maturities of time deposits of $100,000 or
more are as follows:
Years ending December 31,
- -------------------------
2000 $5,368,092
2001 and 2002 412,716
Thereafter 514,281
----------
$6,295,089
==========
11. Related Party Transactions
At December 31, 1999 and 1998, the Bank had direct and indirect loans which
aggregated $2,383,840 and $1,498,662, respectively, outstanding to or for the
benefit of certain of the Bank's officers, directors and their related
interests. During 1999 and 1998, $1,536,957 and $384,276 of such loans were made
and repayments totaled $651,779 and $145,075, 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.
17
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Well Capitalized
Requirement
--------------------------------------------
December 31, 1999 Amount Ratio
--------------------------------------------
<S> <C> <C>
Tier 1 Capital (to
Average Assets)
Bank >/= $2,388,033 >/= 5.0%
Consolidated >/= $2,412,159 >/= 5.0%
Tier 1 Capital (to Risk
Weighted Assets)
Bank >/= $2,793,842 >/= 6.0%
Consolidated >/= $2,800,389 >/= 6.0%
Total Capital (to Risk
Weighted Assets)
Bank >/= $4,656,404 >/= 10.0%
Consolidated >/= $4,667,898 >/= 10.0%
</TABLE>
<TABLE>
<CAPTION>
Adequately
Capitalized
Requirement Actual
-------------------------------------------------------------
Amount Ratio Amount Ratio
------------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Tier 1 Capital (to $1,910,426 4.0% $5,310,450 11.1%
Average Assets) $1,929,727 4.0% $5,770,380 12.0%
Bank
Consolidated
Tier 1 Capital (to Risk $1,862,562 4.0% $5,310,450 11.4%
Weighted Assets) $1,867,038 4.0% $5,770,380 12.4%
Bank
Consolidated
Total Capital (to Risk $3,725,123 8.0% $5,841,474 12.6%
Weighted Assets) $3,734,076 8.0% $6,301,404 13.5%
Bank
Consolidated
</TABLE>
<TABLE>
<CAPTION>
Well Capitalized
Requirement
----------------------------------------
December 31, 1998 Amount Ratio
----------------- -----------------
<S> <C> <C>
Tier 1 Capital (to
Average Assets)
Bank >/= $1,532,650 >/= 5.0%
Consolidated >/= $1,341,460 >/= 5.0%
Tier 1 Capital (to Risk
Weighted Assets)
Bank >/= $1,256,520 >/= 6.0%
Consolidated >/= $1,263,900 >/= 6.0%
Total Capital (to Risk
Weighted Assets)
Bank >/= $2,094,200 >/= 10.0%
Consolidated >/= $2,106,500 >/= 10.0%
</TABLE>
<TABLE>
<CAPTION>
Adequately
Capitalized
December 31, 1998 Requirement Actual
- -----------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
------------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Tier 1 Capital (to
Average Assets)
Bank $1,226,120 4.0% $5,155,000 16.8%
Consolidated $1,073,170 4.0% $5,661,000 21.1%
Tier 1 Capital (to Risk
Weighted Assets)
Bank $ 837,680 4.0% $5,155,000 24.6%
Consolidated $ 842,600 4.0% $5,666,500 26.9%
Total Capital (to Risk
Weighted Assets)
Bank $1,675,360 8.0% $5,350,000 25.6%
Consolidated $1,685,200 8.0% $5,877,000 27.9%
</TABLE>
Management believes that, as of December 31, 1999, 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, 1999, total
stockholders' equity of the Bank was $5,090,780 and was not available for
dividends.
18
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Stock Options
During 1998, the Company's Board of Directors approved a 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, 1999:
<TABLE>
<CAPTION>
Exercise Price Weighted Average
Shares Range 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
Granted 4,000 11.00 11.00
Exercised - - -
Expired - - -
------- ---------------- ------
Balance at December 31, 1999 44,000 $10.00 - $11.00 $10.09
======= ================ ======
Options exercisable at December 31, 1999 44,000 $10.00 - $11.00
Options exercisable at December 31, 1998 40,000 10.00
Weighted average fair value of options granted
during 1999 $ 4.62
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
Company. Such shares may be treasury, or authorized, but unissued, shares of
common stock. 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 until five years from the
date the incentive stock option is granted. Summarized information related to
the incentive stock options is as follows:
19
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Exercise Price Weighted Average
Shares Range 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
Granted 7,436 $11.00 - 11.50 11.11
Exercised - - -
Expired (2,924) 10.00 - 11.50 10.08
------- ---------------- ------
Balance at December 31, 1999 23,974 $10.00 - $11.50 $10.33
======= ================ ======
Options exercisable at December 31, 1999 12,596 $10.00
Options exercisable at December 31, 1998 8,499 10.00
Weighted average fair value of options granted
during 1999 $ 4.71
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 is as follows:
<TABLE>
<CAPTION>
December 31, 1999
- --------------------------------------------------------------------------------------------------------------------
Outstanding Options Options Exercisable
----------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 1999 Life Price December 31, 1999 Price
-------- ----------------- ----------- -------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$10.00 - $11.00 44,000 8.59 $10.09 44,000 $10.09
10.00 - 11.50 23,974 8.41 10.33 12,596 10.00
- --------------- ------ ---- ------ ------ ------
67,974 8.53 $10.18 56,596 $10.07
====== ==== ====== ====== ======
</TABLE>
20
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Outstanding Options Options Exercisable
----------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 1999 Life Price December 31, 1999 Price
-------- ----------------- ----------- -------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$10.00 40,000 9.5 $10.00 40,000 $10.00
10.00 19,462 9.1 10.00 8,499 10.00
------ ------ --- ------ ------ ------
59,462 9.4 $10.00 48,499 $10.00
====== === ====== ====== ======
</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 income (loss) and
earnings (loss) per share would have been as follows:
Years ended December 31, 1999 1998
- ------------------------ --------------------
Net income (loss)
As reported $96,027 $(584,404)
Pro forma 54,515 (735,136)
Basic and diluted earnings (loss) per common share
As reported $ .14 $ (.87)
Pro forma .08 (1.09)
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 1999: dividend yield of 0 percent, expected
volatility of 15 percent, risk-free interest rates of 4.63 percent to 5.55
percent, and expected lives of nine to ten years. For 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.
21
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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, 1999 and 1998, commitments
to extend credit totaled approximately $8,678,000 and $10,477,000, respectively.
The Bank's experience has been that approximately 60 percent of loan commitments
are drawn upon by customers.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank, upon extension
of credit is based on management's credit evaluation of the other party.
Collateral held varies but may include accounts receivable; inventory; property,
plant and equipment; and income-producing commercial properties on those
commitments for which collateral is deemed necessary.
The Company entered into a letter of employment with the President and Chief
Executive Officer of the Bank. The letter of employment continues for three
years from the date the Bank opens for business and may be renewed by the Board
of Directors. The arrangement 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.
14. Supplemental Financial Data
Components of other expense in excess of 1 percent of total income are as
follows:
December 31, 1999 1998
- ------------ -------- --------
Supplies and forms $ 59,588 $ 37,868
Telecommunication 38,939 36,782
Data processing expense 149,540 127,484
Directors fees 32,400 28,800
Correspondent bank fees 36,279 20,483
22
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
15. Fair Values of Financial Instruments
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ------------------------
Carrying Estimated Carrying Estimated
December 31, Value Fair Value Value Fair Value
- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,839,459 $ 4,839,459 $ 5,939,184 $ 5,939,184
Investment securities
available for sale 10,217,921 10,217,921 9,753,621 9,753,621
Other investments 305,000 305,000 180,000 180,000
Loans 40,884,119 40,505,864 15,942,009 16,048,787
Accrued interest receivable 406,245 406,245 247,572 247,572
Financial liabilities:
Noncontractual deposits $29,466,029 $29,466,029 $21,601,524 $21,601,524
Contractual deposits 22,766,799 22,723,414 6,700,064 6,627,347
Accrued interest payable 66,271 66,271 19,754 19,754
Other borrowings 2,500,000 2,516,911 - -
Off-balance-sheet instruments:
Undisbursed credit lines $ 8,678,101 $10,477,433
</TABLE>
23
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
16. Condensed Financial Information of Rockdale National Bancshares, Inc.
Condensed Balance Sheets
(Parent Only)
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------ --------- -----------
<S> <C> <C>
Assets
Cash on deposit with other financial institutions $ 43,725 $ 97,103
Investment securities available for sale 376,560 394,342
Investment in subsidiary 4,977,616 5,171,919
Accrued interest receivable 3,120 3,120
Other assets 20,215 21,799
---------- -----------
Total Assets $5,421,236 $ 5,688,283
========== ===========
Liabilities and Stockholders' Equity
Liabilities
Total liabilities $ 6,271 $ -
---------- -----------
Stockholders' equity
Common stock 676,188 676,188
Capital surplus 6,051,196 6,051,196
Accumulated deficit (957,005) (1,053,032)
Accumulated other comprehensive income - market
valuation reserve on investment securities available
for sale (355,414) 13,931
---------- -----------
Total stockholders' equity 5,414,965 5,688,283
---------- -----------
Total Liabilities and Stockholders' Equity $5,421,236 $ 5,688,283
========== ===========
</TABLE>
24
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Condensed Statements of Income
(Parent Only)
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- ------------------------ ------- ---------
<S> <C> <C>
Operating income
Interest income:
Investment securities available for sale $ 21,739 $ 12,064
Federal funds sold 2,844 14,727
Other income - 18,576
-------- ---------
Total operating income 24,583 45,367
-------- ---------
Operating expense
Legal and accounting fees 60,935 57,116
Other professional fees 21,126 4,003
Other expense 2,032 17,054
-------- ---------
Total operating expense 84,093 78,173
-------- ---------
Loss before income tax benefit and equity in
undistributed income (loss) of subsidiary (59,510) (32,806)
Income tax benefit - -
-------- ---------
Loss before equity in undistributed income (loss) of
subsidiary (59,510) (32,806)
Equity in undistributed income (loss) of subsidiary 155,537 (494,525)
-------- ---------
Income (loss) before cumulative effect of change in
accounting principle 96,027 (527,331)
Cumulative effect on prior years of change in accounting
principle for deferred organization costs, net of tax - (57,073)
-------- ---------
Net income (loss) $ 96,027 $(584,404)
-------- ---------
</TABLE>
25
<PAGE>
Rockdale National Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Condensed Statements of Cash Flows
(Parent Only)
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- ------------------------ --------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 96,027 $(584,404)
Equity in undistributed income (loss) of subsidiary (155,537) 494,525
Cumulative effect of change in accounting for
organization costs - 57,073
Accretion of discount on investment (138) -
Increase in other liabilities 6,270 -
Decrease (increase) in other assets - (18,577)
Increase in accrued interest receivable - (3,120)
--------- ---------
Net cash used by operating activities (53,378) (54,503)
--------- ---------
Cash flows from investing activities
Purchase of investment securities available for sale - (799,000)
Calls of investment securities available for sale - 400,000
--------- ---------
Net cash used by investing activities - (399,000)
--------- ---------
Net cash from financing activities
Proceeds from sale of capital stock - 21,000
--------- ---------
Net cash provided by financing activities - 21,000
--------- ---------
Net decrease in cash (53,378) (432,503)
Cash and cash equivalents at beginning of year 97,103 529,606
--------- ---------
Cash and cash equivalents at end of year $ 43,725 $ 97,103
========= =========
</TABLE>
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROCKDALE NATIONAL BANCSHARES, INC.
Dated: 3/27/00 By: /s/ William L. Daniel
----------- --------------------------------------------
William L. Daniel
President and Chief Executive Officer
(Principal Executive Officer)
Dated: 3/27/00 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 3/27/00
- ------------------------------------------
Michael P. Jones
President and Chief Executive Officer
/s/ William L. Daniel (Principal Executive Officer) and Director 3/27/00
- ------------------------------------------
William L. Daniel
/s/ C. Dean Alford Secretary and Director 3/27/00
- ------------------------------------------
C. Dean Alford
/s/ Troy A. Athon Director 3/27/00
- ------------------------------------------
Troy A. Athon
/s/ Hazel E. Durden Director 3/27/00
- ------------------------------------------
Hazel E. Durden
/s/ Julia W. Morgan Vice Chairman and Director 3/27/00
- ------------------------------------------
Julia W. Morgan
/s/ R. Flynn Nance, D.V.M. Director 3/27/00
- ------------------------------------------
R. Flynn Nance, D.V.M.
/s/ Michael R. Potts Director 3/27/00
- ------------------------------------------
Michael R. Potts
Director 3/27/00
- ------------------------------------------
Arthur J. Torsiglieri, Jr., M.D.
/s/ John A. Fountain, M.D. Director 3/27/00
- ------------------------------------------
John A. Fountain, M.D.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No Description
- ------------- --------------------------
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Rockdale National Bank, a national bank organized under the laws of the
United States.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ROCKDALE NATIONAL BANCSHARES, INC. FOR THE
TWELVE-MONTH PERIOD FROM JANUARY 1, 1999 THROUGH DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,249,805
<INT-BEARING-DEPOSITS> 139,659
<FED-FUNDS-SOLD> 1,450,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,217,921
<INVESTMENTS-CARRYING> 305,000
<INVESTMENTS-MARKET> 0
<LOANS> 41,415,143
<ALLOWANCE> 531,024
<TOTAL-ASSETS> 60,319,214
<DEPOSITS> 52,232,828
<SHORT-TERM> 0
<LIABILITIES-OTHER> 171,421
<LONG-TERM> 2,500,000
0
0
<COMMON> 676,188
<OTHER-SE> 5,094,191
<TOTAL-LIABILITIES-AND-EQUITY> 60,314,214
<INTEREST-LOAN> 2,704,717
<INTEREST-INVEST> 637,106
<INTEREST-OTHER> 132,437
<INTEREST-TOTAL> 3,474,260
<INTEREST-DEPOSIT> 1,376,433
<INTEREST-EXPENSE> 1,422,852
<INTEREST-INCOME-NET> 2,051,408
<LOAN-LOSSES> 361,433
<SECURITIES-GAINS> 2,046
<EXPENSE-OTHER> 1,917,403
<INCOME-PRETAX> 96,027
<INCOME-PRE-EXTRAORDINARY> 96,027
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,027
<EPS-BASIC> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 194,581
<CHARGE-OFFS> 25,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 531,024
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
