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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
COMMISSION FILE NO. 000-25227
CAPITOL CITY BANCSHARES, INC.
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(Exact Name of Bank as Specified in its Charter)
A GEORGIA CORPORATION
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(State or Other Jurisdiction of Incorporation or Organization)
58-1994305
---------------------------------
(IRS Employer Identification No.)
562 Lee Street, S.W.
Atlanta, Georgia 30311
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(Address of Principal Office) (Zip Code)
(404) 752-6067
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(Bank's Telephone No., Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: $6.00 par value
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common stock
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment of this Form 10-KSB. [ ]
The Registrant's revenues for its most recent fiscal year ended
December 31, 1998 were $4,354,818.
The aggregate market value of the common stock of the Registrant held
by nonaffiliates of the Registrant on March 24, 1999, was $3,498,011. The
aggregate market value of the common stock held by nonaffiliates was computed by
reference to the price at which the common stock was sold on the average price,
as of a specified date within the past 60 days prior to the date of filing. For
the purpose of this response, directors, executive offices 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 24, 1999, was 532,088 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
Transitional Small Business Disclosure Format (check one): Yes No X
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CAPITOL CITY BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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Item Page
Number Number
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PART I
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1. Description of Business............................................................ 3
2. Description of Property............................................................15
3. Legal Proceedings..................................................................15
4. Submission of Matters to a Vote of Security Holders................................15
PART II
5. Market for Registrant's Common Stock and Related Security Holder Matters...........16
6. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................18
7. Consolidated Financial Report......................................................35
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................................63
PART III
9. Directors and Principal Officers of the Registrant.................................63
10. Executive Compensation.............................................................66
11. Security Ownership of Certain Beneficial Owners and Management.....................67
12. Certain Relationships and Related Transactions.....................................69
PART IV
13. Exhibits and Reports on Form 8-K...................................................70
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PART I
ITEM ONE. DESCRIPTION OF BUSINESS.
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Business Overview.
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On April 14, 1998, Capitol City Bancshares, Inc. ( the "Company") was
incorporated under the laws of the State of Georgia for the purpose of serving
as a bank holding company for Capitol City Bank and Trust Company (the "Bank").
The Company's common stock was initially authorized and issued in
connection with the acquisition of 100% of the stock of the Bank, a wholly-owned
subsidiary of the Company, on December 22, 1998.
In connection with that acquisition, the Company filed a Registration
Statement under the Securities Act of 1933 as a successor issuer to the Bank,
and filed a Form 8-A pursuant to Section 12(g) of the Securities Exchange Act of
1934 for registration of the Company's common stock under the 1934 Act.
Capitol City Bank & Trust Company (the "Bank") is a state banking
institution chartered under the laws of the State of Georgia on June 30, 1994.
Since opening on October 3, 1994, the Bank has continued a general banking
business and presently serves its customers from four locations: the main office
located at 562 Lee Street, S.W., Atlanta, Georgia 30310; and service branches
located at 2358 Cascade Road, Atlanta, Georgia 30311; Hartsfield International
Airport, Atlanta, Georgia; and 5674 Memorial Drive, Stone Mountain, Georgia
30083.
The Bank was organized to serve the inner city of Atlanta and its
customer base is primarily the African-American community in south and west
downtown Atlanta, Georgia.
The Bank operates a full-service banking business and engages in a
broad range of commercial banking activities, including accepting customary
types of demand and timed deposits, making individual, consumer, commercial, and
installment loans, money transfers, safe deposit services, and making
investments in U. S. government and municipal services. The Bank also offers
trust services.
The data processing work of the Bank is processed with Intercept of
Thomson, Georgia. The Bank does not presently issue credit cards. The Bank
offers its customers a variety of checking and savings accounts. The installment
loan department makes both direct consumer loans and also purchases retail
installment contracts from sellers of consumer goods.
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The Bank serves the residents of Atlanta, Fulton and DeKalb Counties.
Atlanta and Fulton Counties have populations of approximately 450,000 and
1,250,000, respectively. Atlanta and Fulton County have a diverse commerce,
including manufacturing, financial and service sector economies. Atlanta also
serves as the capitol of the State of Georgia, with a significant number of
residents employed in government.
As of December 31, 1998, the Bank had correspondent relationships with
SunTrust Bank of Atlanta, Georgia and First Union Bank of Georgia. The
correspondent bank provides certain services to the Bank, such as investing its
excess funds, processing checks and other items, buying and selling federal
funds, handling money fund transfers and exchanges, shipping coins and currency,
providing security and safekeeping of funds and other valuable items, handling
loan participation and furnishing management investment advice on the Bank's
securities portfolio.
Bank Operations.
Capitol City Bancshares, Inc.
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Capitol City Bancshares, Inc. (the "Company") owns 100% of the
capital stock of the Bank. The principal role of the Company
is to supervise and coordinate the activities of its subsidiary.
Capitol City Bank and Trust Company
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The Bank's main office is located at 562 Lee Street, S.W., Atlanta,
Georgia 30310. The main office, which is owned by the Bank, consists of
approximately 7,000 square feet, four drive-in windows and adjacent parking lot.
Banking operations are also conducted from a branch located at 2358 Cascade
Road, Atlanta, Georgia 30311. This branch is owned by the Bank and has been in
continuous operation since it opened in October 3, 1994. The branch is a single
story building with approximately 3,000 square feet, one drive-in window and an
adjacent parking lot. The Bank also maintains a branch at Hartsfield
International Airport. The Hartsfield branch has two teller windows and a
customer service desk. The branch is approximately 450 square feet , and is open
seven days a week. The Bank in November 1998, opened an additional branch
facility at 5674 Memorial Drive, Stone Mountain, Georgia. The two-story facility
was purchased for $711,679 and has approximately 4,706 square feet of space.
The bank offers demand accounts, savings accounts, money market
accounts, certificates of deposit and IRA accounts to customers. Loans are made
to consumers and small businesses. Approximately 60% of the loan portfolio are
loans to small business and
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include loans made through the Small Business Administration. Consumer loans
include first and second mortgage loans, home equity loans, auto loans and
signature loans.
Competition
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The banking business in Atlanta, Fulton and DeKalb County is highly
competitive. The Bank competes with numerous other financial institutions in the
market it represents. In Atlanta, there are branches of NationsBank, Bank South,
South Trust, Wachovia, and First Union. In addition to these banks (and branches
of regional banks), there are many finance companies, credit union offices, and
other non-traditional providers of service that compete in the Bank's market.
Employees
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As of December 31, 1998, the Company had 31 full-time employees and 7
part-time employees. In the opinion of management, the Company enjoys an
excellent relationship with its employees. The Company is not a party to any
collective bargaining agreements.
Supervision and Regulation.
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Bank holding companies and banks are regulated under both federal and
state law. The following is a brief summary of certain statutes and rules and
regulations affecting the Company, the Bank, and to a more limited extent the
Company's subsidiaries.
This summary is qualified in its entirety by reference to the
particular statute and regulatory provision referred to and is not intended to
be an exhaustive description of the statutes or regulations applicable to the
business of the Company and its subsidiaries. The scope of regulation and
permissible activities of the Company and its subsidiaries is subject to change
by future federal and state legislation. Supervision, regulation and examination
of the Company and the Bank by the bank regulatory agencies are intended
primarily for the protection of depositors rather than shareholders of the
Company.
Regulation of the Company.
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The Company is a registered holding company under the Federal Bank
Holding Company Act and the Georgia Bank Holding Company Act and is regulated
under such Act by the Federal Reserve and by the Georgia Department of Banking
and Finance (the "Georgia Department"), respectively.
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Reporting and Examination.
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As a bank holding company, the Company is required to file annual
reports with the Federal Reserve and the Georgia Department and provide such
additional information as the applicable regulator may require pursuant to the
Federal and Georgia Bank Holding Company Acts. The Federal Reserve and the
Georgia Department may also conduct examinations of the Company to determine
whether the Company is in compliance with Bank Holding Company Acts and
regulations promulgated thereunder.
Acquisitions.
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The Federal Bank Holding Company Act requires every bank holding
company to obtain the prior approval of the Federal Reserve before: (1)
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any bank; (2) acquiring all or substantially all of the assets of a
bank; and (3) before merging or consolidating with another bank holding company.
The Georgia Department requires similar approval prior to the
acquisition of any additional banks from every Georgia 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 a bank unless the bank being
acquired is either a bank for purposes of the Federal Bank Holding Company Act,
or a federal or state savings and loan association or savings bank or federal
savings bank whose deposits are insured by the Federal Savings and Loan
Insurance Corporation and such bank has been in existence and continuously
operating as a bank for a period of five years or more prior to the date of
application to the Department for approval of such acquisition.
Source of Strength to Subsidiary Banks.
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The Federal Reserve (pursuant to regulation and published 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 policy, the
Company may be required to provide financial support to the Bank at a time when,
absent such Federal Reserve policy, the Company may not deem it advisable to
provide such assistance. Similarly, the Federal Reserve also monitors the
financial performance and prospects of non-bank subsidiaries with an inspection
process to ascertain whether such non-banking subsidiaries enhance or detract
from the Company's ability to serve as a source of strength for the Bank.
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Capital Requirements.
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The holding company is subject to regulatory capital requirements
imposed by the Federal Reserve applied on a consolidated basis with the bank
owned by the holding company. Bank holding companies must have capital (as
defined in the rules) equal to eight (8) percent of risk-weighted assets. The
risk weights assigned to assets are based primarily on credit risk. For example,
securities with an unconditional guarantee by the United States government are
assigned the least risk category. A risk weight of 50% is assigned to loans
secured by owner-occupied one-to-four family residential mortgages. 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.
The Federal Reserve also requires the maintenance of minimum capital
leverage ratios to be used in tandem with the risk-based guidelines in assessing
the overall capital adequacy of bank holding companies. The guidelines define
capital as either Tier 1 (primarily shareholder equity) or Tier 2 (certain debt
instruments and a portion of the allowance for loan losses). Tier 1 capital for
banking organizations includes common equity, minority interest in the equity
accounts of consolidated subsidiaries, qualifying noncumulative perpetual
preferred stock and qualifying cumulative perpetual preferred stock. (Cumulative
perpetual preferred stock is limited to 25 percent of Tier 1 capital.) Tier 1
capital excludes goodwill; amounts of mortgage servicing assets, nonmortgage
servicing assets, and purchased credit card relationships that, in the
aggregate, exceed 100 percent of Tier 1 capital; nonmortgage servicing assets
and purchased credit card relationships that in the aggregate, exceed 25 percent
of Tier 1 capital; all other identifiable intangible assets; and deferred tax
assets that are dependent upon future taxable income, net of their valuation
allowance, in excess of certain limitations.
Effective June 30, 1998, the Board has established a minimum ratio of
Tier 1 capital to total assets of 3.0 percent for strong bank holding companies
(rated composite "1" under the BOPEC rating system of bank holding companies),
and for bank holding companies that have implemented the Board's risk-based
capital measure for market risk. For all other bank holding companies, the
minimum ratio of Tier 1 capital to total assets is 4.0 percent. 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
minimum levels. Higher capital ratios may be required for any bank holding
company if warranted by its particular circumstances or risk profile. Bank
holding companies are required to hold capital commensurate with the level and
nature of the risks, including the volume and severity of problem loans, to
which they are exposed.
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As of December 31, 1998, the Company maintained Tier 1 and Total
Risk-Based Capital Ratios of 19.89% and 20.90%, respectively. For a more
detailed analysis of the Company and the Bank's regulatory requirements see Note
10. to the Notes to Consolidated Financial Statements.
The Riegle-Neal Interstate Banking and Branching Efficiency Act.
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Prior to the enactment of the Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), interstate expansion of bank
holding companies was prohibited, unless such acquisition was specifically
authorized by a statute of the state in which the target bank was located.
Pursuant to the Riegle-Neal Act, effective September 29, 1995 an adequately
capitalized and adequately managed holding company may acquire a bank across
state lines, without regard to whether such acquisition is permissible under
state law. A bank holding company is considered to be "adequately capitalized"
if it meets all applicable federal regulatory capital standards.
While the Riegle-Neal Act precludes a state from entirely insulating
its banks from acquisition by an out-of-state holding company, a state may still
provide that a bank may not be acquired by an out-of-state company unless the
bank has been in existence for a specified number of years, not to exceed five
years. Additionally, the Federal Reserve is directed not to approve an
application for the acquisition of a bank across state lines if: (i) the
applicant bank holding company, including all affiliated insured depository
institutions, controls or after the acquisition would control, more than ten
(10) percent of the total amount of deposits of all insured depository
institutions in the United States (the "ten percent concentration limit") or
(ii) the acquisition would result in the holding company controlling thirty (30)
percent or more of the total deposits of insured depository institutions in any
state in which the holding company controlled a bank or branch immediately prior
to the acquisition (the "thirty percent concentration limit"). States may waive
the thirty percent concentration limit, or may make the limits more or less
restrictive, so long as they do no discriminate against out-of-state bank
holding companies.
The Riegle-Neal Act also provides that, beginning on June 1, 1997,
banks located in different states may merge and operate the resulting
institution as a bank with interstate branches. However, a state may (i) prevent
interstate branching through mergers by passing a law prior to June 1, 1997 that
expressly prohibits mergers involving out-of-state banks, or (ii) permit such
merger transactions prior to June 1, 1997. Under the Riegle-Neal Act, an
interstate merger transaction may involve the acquisition of a branch of an
insured bank without the acquisition of the bank itself, but only if the law of
the state in which the branch is located permits this type of transaction.
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Under the Riegle-Neal Act, a state may impose certain conditions on a
branch of an out-of-state bank resulting from an interstate merger so long as
such conditions do not have the effect of discriminating against out-of-state
banks or bank holding companies, other than on the basis of a requirement of
nationwide reciprocal treatment. The ten (10) percent concentration limit and
the thirty (30) percent concentration limit described above, as well as the
rights of the states to modify or waive the thirty (30) percent concentration
limit, apply to interstate bank mergers in the same manner as they apply to the
acquisition of out-of-state banks.
A bank resulting from an interstate merger transaction may retain and
operate any office that any bank involved in the transaction was operating
immediately before the transaction. After completion of the transaction, the
resulting bank may establish or acquire additional branches at any location
where any bank involved in the transaction could have established or acquired a
branch. The Riegle-Neal Act also provides that the appropriate federal banking
agency may approve an application by a bank to establish and operate an
interstate branch in any state that has in effect a law that expressly permits
all out-of-state banks to establish and operate such a branch.
In response to the Riegle-Neal Act, effective June 1, 1997, Georgia
permitted interstate branching, although only through merger and acquisition. In
addition, Georgia law provides that a bank may not be acquired by an
out-of-state company unless the bank has been in existence for five years.
Georgia has also adopted the thirty percent concentration limit, but permits
state regulators to waive it on a case-by-case basis.
Regulation of the Bank.
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As a state-chartered bank, the Bank is examined and regulated by the
Federal Deposit Insurance Corporation ("FDIC") and the Georgia Department.
The major functions of the FDIC with respect to insured banks include
paying depositors to the extent provided by law in the event an insured bank is
closed without adequately providing for payment of the claim of depositors,
acting as a receiver of state banks placed in receivership when so appointed by
state authorities, and preventing the continuance or development of unsound and
unsafe banking practices. In addition, the FDIC also approves conversions,
mergers, consolidations, and assumption of deposit liability transactions
between insured banks and noninsured banks or institutions to prevent capital or
surplus diminution in such transactions where the resulting, continued or
assumed bank is an insured nonmember state bank.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Bank Holding Company Act on any extension of
credit to the bank
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holding company or any of its subsidiaries, on investment in the stock or other
securities thereof and on the taking of such stock or securities as collateral
for loans to any borrower. In addition, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in-arrangements in
connection with any extension of credit or provision of any property or
services.
The Georgia Department regulates all areas of the banks banking
operations, including mergers, establishment of branches, loans, interest rates,
and reserves. The Bank must have the approval of the Commissioner to pay cash
dividends, unless at the time of such payment:
1. the total classified assets at the most recent examination of such
bank do not exceed 80% of Tier 1 capital plus Allowance for Loan Losses as
reflected at such examination;
2. the aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed 50% of the net profits, after
taxes but before dividends, for the pervious calendar year; and
3. the ratio of Tier 1 Capital to Adjusted Total Assets shall not be
less than six (6) percent.
The Bank is also subject to State of Georgia banking and usury laws
restricting the amount of interest which it may charge in making loans or other
extensions of credit.
Expansion through Branching, Merger or Consolidation.
With respect to expansion, the Bank was previously prohibited from
establishing branch offices or facilities outside of the county in which its
main office was located, except:
(i) in adjacent counties in certain situations, or
(ii) by means of merger or consolidation with a bank which has been in
existence for at least five years.
In addition, in the case of a merger or consolidation, the acquiring bank must
have been in existence for at least 24 months prior to the merger. However,
effective July 1, 1996, Georgia permits the subsidiary bank(s) of any bank
holding company then engaged in the banking business in the State of Georgia to
establish, de novo, upon receipt of required regulatory approval, an aggregate
of up to three additional branch banks in any county within the State of
Georgia. Effective July 1, 1998, this same Georgia law permits, with required
regulatory approval, the establishment of de novo branches in an unlimited
number of
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counties within the State of Georgia by the subsidiary bank(s) of bank
holding companies then engaged in the banking business in the State of Georgia.
This law may result in increased competition in the Bank's market area.
Capital Requirements.
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The FDIC adopted risk-based capital guidelines that went into effect on
December 31, 1990 for all FDIC insured state chartered banks that are not
members of the Federal Reserve System. Beginning December 31, 1992, all banks
were required to maintain a minimum ratio of total capital to risk weighted
assets of eight (8) percent of which at least four (4) percent must consist of
Tier 1 capital. Tier 1 capital of state chartered banks (as defined by the
regulation) generally consists of: (i) common stockholders equity; (ii)
qualifying noncumulative perpetual preferred stock and related surplus; and
(iii) minority interests in the equity accounts of consolidated subsidiaries. In
addition, the FDIC adopted a minimum ratio of Tier 1 capital to total assets of
banks, referred to as the leverage capital ratio of three (3) percent if the
FDIC determines that the institution is not anticipating or experiencing
significant growth and has well-diversified risk, including no undue interest
rate exposure, excellent asset quality, high liquidity, good earnings and, in
general is considered a strong banking organization, rated Composite "1" under
the Uniform Financial Institutions Rating System (the CAMEL rating system)
established by the Federal Financial Institutions Examination Council. All other
financial institutions are required to maintain leverage ratio of four (4)
percent.
Effective October 1, 1998, the FDIC amended its risk-based and leverage
capital rules as follows: (1) all servicing assets and purchase credit card
relationships ("PCCRs") that are included in capital are each subject to a
ninety (90) percent of fair value limitation (also known as a "ten (10) percent
haircut"); (2) the aggregate amount of all servicing assets and PCCRs included
in capital cannot excess 100% of Tier I capital; (3) the aggregate amount of
nonmortgage servicing assets ("NMSAs") and PCCRS included in capital cannot
exceed 25% of Tier 1 capital; and (4) all other intangible assets (other than
qualifying PCCRS must be deducted from Tier 1 capital.
Amounts of servicing assets and PCCRs in excess of the amounts
allowable must be deducted in determining Tier 1 capital. Interest-only Strips
receivable, whether or not in security form, are not subject to any regulatory
capital limitation under the amended rule.
FDIC Insurance Assessments.
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The Federal Deposit Insurance Corporation Improvement Act of 1991
("FIDICIA"), enacted in December, 1991, provided for a number of reforms
relating to the safety and soundness of the deposit insurance system,
supervision of domestic and foreign depository
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institutions and improvement of accounting standards. One aspect of the Act is
the requirement that banks will have to meet certain safety and soundness
standards. In order to comply with the Act, the Federal Reserve and the FDIC
implemented regulations defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, director and officer compensation, fees and benefits,
asset quality, earnings and stock valuation.
The regulations provide for a risk based premium system which requires
higher assessment rates for banks which the FDIC determines pose greater risks
to the Bank Insurance Fund ("BIF"). Under the regulations, banks pay an
assessment depending upon risk classification.
To arrive at risk-based assessments, the FDIC places each bank in one
of nine risk categories using a two step process based on capital ratios and on
other relevant information. Each bank is assigned to one of three groups: (i)
well capitalized, (ii) adequately capitalized, or (iii) under capitalized, based
on its capital ratios. The FDIC also assigned each bank to one of three
subgroups based upon an evaluation of the risk posed by the bank. The three
subgroups include (i) banks that are financially sound with only a few minor
weaknesses, (ii) banks with weaknesses which, if not corrected, could result in
significant deterioration of the bank and increased risk to the BIF, and (iii)
those banks that pose a substantial probability of loss to the BIF unless
corrective action is taken. FDICIA imposes progressively more restrictive
constraints on operations management and capital distributions depending on the
category in which an institution is classified. As of December 31, 1998, the
Bank met the definition of a well-capitalized institution, and will be assessed
accordingly for 1998.
Under FDICIA insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.
Community Reinvestment Act.
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The Company and the Bank are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA") and the federal banking
agencies' regulations issued thereunder. Under the CRA, all banks and thrifts
have a continuing and affirmative obligation, consistent with its safe and sound
operation to help meet the credit needs for their entire communities, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions, nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular community, consistent with the
CRA.
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The CRA requires a depository institution's primary federal regulator,
in connection with its examination of the institution, to assess the
institution's record of assessing and meeting the credit needs of the community
served by that institution, including low- and moderate-income neighborhoods.
The regulatory agency's assessment of the institution's record is made available
to the public. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
The evaluation system used to judge an institution's CRA performance
consists of three tests: (1) a lending test; (2) an investment test; and (3) a
service test. Each of these tests will be applied by the institution's primary
federal regulator taking into account such factors as: (i) demographic data
about the community; (ii) the institution's capacity and constraints; (iii) the
institution's product offerings and business strategy; and (iv) data on the
prior performance of the institution and similarly-situated lenders.
In addition, a financial institution will have the option of having its
CRA performance evaluated based on a strategic plan of up to five years in
length that it had developed in cooperation with local community groups. In
order to be rated under a strategic plan, the institution will be required to
obtain the prior approval of its federal regulator.
The interagency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for the test: (1)
outstanding; (2) high satisfactory; (3) low satisfactory; (4) needs to improve;
and (5) substantial noncompliance. An institution will receive a certain number
of points for its rating on each test, and the points are combined to produce an
overall composite rating. Evidence of discriminatory or other illegal credit
practices would adversely affect an institution's overall rating. As a result of
the Bank's most recent CRA examination Bank received a "satisfactory" CRA
rating.
Proposed Legislation.
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Legislation is regularly considered and adopted by both the United
States Congress and the Georgia General Assembly. Such legislation could result
in regulatory changes and changes in competitive relationships for banks and
bank holding companies. The effect of such legislation on the business of the
Company and the Bank cannot be predicted.
Monetary Policy.
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The results of operations of the Company and the Bank are affected by
credit policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. Government
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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 the
changing conditions in the foreign and national economy, as well as the effect
of policies and actions taken by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and earnings of the
Company.
Year 2000 Project.
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The Bank relies heavily upon computers for the daily conduct of its
business and will commit all resources necessary to achieve a satisfactory and
timely solution to computer based problems related to the year 2000 and beyond.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.
In accordance with sound management policy and directives from
regulatory agencies, the bank began the Year 2000 review of hardware and
software in 1997. The review included not only computer and information systems
but heating and cooling systems, alarms, vaults, elevators and other office
equipment, and was completed in 1998. Items that were found not Year 2000
compliant were slated for upgrade or replacement.
A complete discussion of the Company's remediation efforts and the
approximate costs are discussed in Item 6. Management's Discussion and Analysis
of Financial Condition and Resulting Operation -- Year 2000 Disclosures.
Competition.
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The banking industry is highly competitive. Banks generally compete
with other financial institutions through the banking products and services
offered, the pricing of services, the level of service provided, the convenience
and availability of services, and the degree of expertise and the personal
manner in which services are offered. The Bank encounters competition from most
of the financial institutions in the Bank's primary service area. In the conduct
of certain areas of its banking business, the Bank also competes with credit
unions, consumer finance companies, insurance companies, money market mutual
funds and other financial institutions, some of which are not subject to the
same degree of regulation and restrictions imposed upon the Bank.
-14-
<PAGE>
Management believes that competitive pricing and personalized service
will provide it with a method to compete effectively in the primary service
area.
ITEM TWO. DESCRIPTION OF PROPERTY.
- -------- -----------------------
The Company's main offices are located at 562 Lee Street, S.W.,
Atlanta, Georgia 30310. The main office, which is owned by the Bank, consists of
approximately 7,000 square feet, four drive-in windows and adjacent parking lot.
Banking operations are also conducted from a branch located at 2358
Cascade Road, Atlanta, Georgia 30311. This branch is owned by the Bank and has
been in continuous operation since it opened in October 3, 1994. The branch is a
single story building with approximately 3,000 square feet, one drive-in window
and an adjacent parking lot.
The Bank maintains a branch at Hartsfield International Airport. The
Hartsfield branch has two teller windows and a customer service desk. The branch
is approximately 475 square feet, and is open seven days a week. The Bank leases
the space for the Hartsfield branch from the airport. With regard to the
Hartsfield lease, see also Note 8 to Financial Statements, located in Item 7 of
this Form 10-KSB, below.
The Bank also maintains a branch it owns at 5674 Memorial Drive, Stone
Mountain, Georgia 30083. The building is a two-story building with 4,706 square
feet with a drive-in window.
ITEM THREE. LEGAL PROCEEDINGS.
- ---------- -----------------
The Company is not a party to any pending legal proceeding, other than
ordinary routine litigation incidental to the business. To the knowledge of the
management of the Company, no such proceedings are contemplated or threatened
against the Company. Further, no director, nominee director, principal officer
or securities holder owning beneficially more than five percent (5%) of the
Company's stock is a party adverse to the Company or has a material interest
adverse to the Company.
ITEM FOUR. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- --------- ---------------------------------------------------
No matter was submitted to a vote of the Company's shareholders during
the fourth quarter ended December 31, 1998.
-15-
<PAGE>
PART II
ITEM FIVE. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
-------------------------------------------------------------
HOLDER MATTERS.
--------------
The common stock of the Company is not traded in the over-the-counter
market or on any stock exchange, nor is the Company's common stock actively
traded. There is thus no established trading market for the Company's common
stock. The Company has maintained records of share prices based on actual
transactions when such information has been disclosed by persons either
purchasing or selling the Company's common stock. These records reflect prices
for transactions in the Company's common stock to the best knowledge of
management.
The following table reflects the high and low trades of shares of the
Company for each quarterly period during the last two years based on such
limited available information.
<TABLE>
<CAPTION>
=============================================================================
YEAR HIGH SELLING LOW SELLING
PRICE PRICE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1998
First Quarter $12.50 $10.00
- -----------------------------------------------------------------------------
Second Quarter $12.50 $10.00
- -----------------------------------------------------------------------------
Third Quarter $12.50 $10.00
- -----------------------------------------------------------------------------
Fourth Quarter $12.50 $10.00
- -----------------------------------------------------------------------------
1997
First Quarter $12.00 $10.00
- -----------------------------------------------------------------------------
Second Quarter $12.00 $10.00
- -----------------------------------------------------------------------------
Third Quarter $12.00 $10.00
- -----------------------------------------------------------------------------
Fourth Quarter $12.00 $10.00
=============================================================================
</TABLE>
As of December 31, 1998, the Company had approximately 900 shareholders of
record of the Company's common stock.
Under the Financial Institutions Code of Georgia, the Bank may from
time to time declare and thereupon pay dividends on its outstanding shares in
cash, property or its own shares unless, after giving effect to such
distribution, the Bank would not be able to pay its debts as they become due in
the usual course of business or the Bank would have insufficient
-16-
<PAGE>
cash market value assets to pay liabilities to depositors and other creditors.
Moreover, the Bank may declare and pay dividends in cash or property only out of
the retained earnings of the Bank, the Bank may not declare and pay dividends at
any time the Bank does not have paid-in capital and appropriated retained
earnings equal or exceeding 20% of its capital stock, the Bank may not declare
and pay dividends in excess of 50% of net profits after taxes for the previous
fiscal year without the prior approval of the Georgia Department of Banking and
Finance. The Bank is also allowed to declare and pay dividends in authorized but
unissued shares of its stock, provided there is transferred to capital stock an
amount equal to the value of the shares distributed and provided further that
after payment of the dividend the Bank continues to maintain required levels of
paid-in capital and appropriated retained earnings. The Bank paid no cash,
property or stock dividends in 1997 or 1998.
-17-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The purpose of this discussion is to focus on information about the Company's
financial condition and results of operations which are not otherwise apparent
from the consolidated financial statements included in this Annual Report.
Reference should be made to those statements and the selected financial data
presented elsewhere in this report for an understanding of the following
discussion and analysis. Historical results of operations and any trends which
may appear, are not necessarily indicative of the results to be expected in
future years.
Forward-Looking Statements
This annual report contains certain forward-looking statements which are based
on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area,
and accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
Summary
The year ended December 31, 1998 marks the Bank's fourth full year of operations
and the Bank's most profitable year since the inception of the Bank. As of
December 31, 1998, the Company had total assets of $47.8 million, an increase of
33.6% over 1997. Net income improved to $513,000 as compared to $502,000 for the
same period. On December 22, 1998, Capitol City Bancshares, Inc. acquired all of
the outstanding common stock of the Bank in exchange for 532,088 shares of $6
par value common stock. The acquisition has been accounted for as a pooling of
interests.
18
<PAGE>
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company to meet those needs. The Company seeks to
meet liquidity requirements primarily through management of Federal funds sold,
securities available-for-sale, monthly amortizing loans, and the repayment of
maturing single payment loans. The Company also maintains relationships with
correspondent banks which could provide funds on short notice.
The liquidity and capital resources of the Company are monitored on a periodic
basis by management and state and Federal regulatory authorities. At December
31, 1998, the Company's liquidity ratio was considered satisfactory by
management. Management reviews liquidity on a periodic basis to monitor and
adjust liquidity as necessary. Management has the ability to adjust liquidity by
selling securities available for sale, selling participations in loans generated
by the Company and accessing available funds through various borrowing
arrangements. At December 31, 1998, the Company's short-term investments were
adequate to cover any reasonably anticipated immediate need for funds.
At December 31, 1998, the Company's capital to asset ratios were considered
adequate based on guidelines established by the regulatory authorities. During
1998, the Company increased its capital by retaining net earnings of
approximately $513,000. The unrealized gains on securities available-for-sale
increased by $73,000. At December 31, 1998, total capital of the Company
amounted to approximately $6,049,000 and is considered well-capitalized based on
regulatory requirements.
Except for uncertainties related to the Year 2000 issue (see Year 2000
Disclosures), management is not aware of any other known trends, events, or
uncertainties that will have or that are reasonably likely to have a material
effect on its liquidity, capital resources, or operations. Management is also
not aware of any current recommendations by the regulatory authorities which, if
they were implemented, would have such an effect.
Effects of Inflation
The impact of inflation on banks differs from its impact on non-financial
institutions. Banks, as financial intermediaries, have assets which are
primarily monetary in nature and which tend to fluctuate in concert with
inflation. A bank can reduce the impact of inflation if it can manage its rate
sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the rate
sensitivity gap, thereby seeking to minimize the potential effects of inflation.
For information on the management of the Company's interest rate sensitive
assets and liabilities, see the "Asset/Liability Management" section.
-19-
<PAGE>
BALANCE SHEETS
Total assets increased approximately $12.0 million or 33.6% from 1997 to 1998
compared to an increase of $8.5 million for the year ended December 31, 1997.
The increase in assets consist primarily of an increase in securities of $3.0
million and an increase in loans of $6.0 million. These increases are consistent
with management's expectations.
The most significant increase by type of loans was an increase in real estate
loans of $9.7 million. This increase was offset by a decrease of $3.7 million in
commercial loans. The increase in real estate loans is partly attributable to
the local economy and the attractive mortgage rates for most of 1998.
The increase in assets was funded by an increase in deposits of approximately
$11.2 million or 37.2% as compared to a $7.9 million increase in 1997. The net
increase was made up of an increase in noninterest-bearing demand deposits of
$5.2 million, an increase in savings of $188,000, an increase in time deposits
of $4.7 million, and an increase in interest-bearing demand of $1.1 million.
The most significant increase in deposits was the increase in
noninterest-bearing demand deposits. These deposits provide the Company with
funds with no interest related costs. These deposits have no maturity, however
management considers the majority of these funds to be core deposits. The second
largest increase was in time deposits which are the highest yielding deposits
offered by the Company.
Average total assets increased $12.2 million from 1997 to 1998. Average
interest-earning assets increased $11.5 million from 1997 to 1998. Average loans
increased in 1998 by $5.0 million, or 35.1% while total average investment
securities increased $5.1 million, or 47.3%. Average interest-bearing
liabilities increased during 1998 by $7.0 million from $17.9 million to $24.9
million.
Average noninterest-bearing demand deposits increased by $4.4 million, or 65.5%,
and average interest-bearing and savings and time deposits increased by $561,000
and $6.4 million, respectively, for the year ended 1998.
Premises and equipment increased by $1.1 million for the year ended December 31,
1998. This increase is attributable to the opening of a new branch in 1998. The
branch is a freestanding building in Stone Mountain, Georgia.
The specific economic and credit risks associated with the Company's loan
portfolio, especially the real estate portfolio, include, but are not limited
to, a general downturn in the economy which could affect unemployment rates in
the Company's market area, general real estate market deterioration, interest
rate fluctuations, deteriorated or non-existing collateral, title defects,
inaccurate appraisals, financial deterioration of borrowers, fraud, and any
violation of banking protection laws. Construction lending can also present
other specific risks to the lender such as whether developers can find builders
to buy lots for home construction, whether the builders can obtain financing for
-20-
<PAGE>
the construction, whether the builders can sell the home to a buyer, and whether
the buyer can obtain permanent financing. Currently, real estate values and
employment trends in the Company's market area are stable with no indications of
a significant downturn in the general economy. Additionally, the Company has
risk associated with its loan portfolio as it relates to the Year 2000 issue.
(See Year 2000 Disclosures.)
The Company attempts to reduce these economic and credit risks not only by
adherence to loan to value guidelines, but also by investigating the
creditworthiness of the borrower and monitoring the borrower's financial
position. Also, the Company establishes and periodically reviews its lending
policies and procedures. State banking regulations limit exposure by prohibiting
secured loan relationships that exceed 25% of the Bank's statutory capital and
unsecured loan relationships that exceed 15% of the Bank's statutory capital.
RESULTS OF OPERATIONS
The Company's profitability is determined by its ability to effectively manage
interest income and expense, to minimize loan and securities losses, to generate
noninterest income, and to control noninterest 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 obtain an adequate spread between the rate earned on
interest-earning assets and the rate paid on interest-bearing liabilities. Thus,
the key performance measure for net interest income is the interest margin or
net yield, which is net interest income divided by average earning assets.
Interest-earning assets consisted of loans, securities, and Federal funds sold.
Interest-bearing liabilities consisted solely of interest-bearing deposits.
The net yield on interest-earning assets decreased by 83 basis points in 1998 as
compared to 1997. The average yield on interest-earning assets decreased 64
basis points to 8.32% during 1998 from 8.96% during 1997. The average yield on
interest-bearing liabilities increased 42 basis points from 4.38% in 1997 to
4.80% in 1998. The decrease in the net yield on interest-earning assets is due
to several components of net interest income. First, the yield on loans
decreased by 62 basis points from 11.38% in 1997 to 10.76% in 1998. Second, the
rate paid on interest-bearing demand and savings increased 66 basis points to
3.54% and the rate paid in time deposits increased 15 basis points to 5.22%. The
net effect on net interest income was an increase of $377,000, or 23.4% as
compared to 1997. This net increase is attributable to the significant increase
in interest-earning assets, which were partially funded with increases in
noninterest-bearing liabilities.
The allowance for loan losses represents an allowance for potential losses in
the loan portfolio. The adequacy of the allowance is evaluated periodically by
management based on a review of all significant loans, nonaccrual loans, past
due loans, and other loans which management believes require attention.
-21-
<PAGE>
The provision for loan losses is a charge to operations which management
determines is necessary to adequately fund the allowance for loan losses. It is
based on a number of factors including the growth of the loan portfolio, net
charge-offs incurred, peer group averages, past experience, and management's
review and evaluation of potential losses in the loan portfolio. The provision
for loan losses decreased in 1998 from $162,000 to $113,000.
Actual loan charge-offs decreased significantly from $206,000 during 1997 to
$178,000 during 1998, while recoveries on loans previously charged off decreased
from $164,000 to $92,000 resulting in net charge-offs of $85,000 and $42,000 for
the years ended December 31, 1998 and 1997, respectively. The change in net
charge-offs of $44,000 represents a net charge-off to average loans ratio of
.45% in 1998 as compared to .30% in 1997.
The Company's allowance for loan loss was $299,000 at December 31, 1998 compared
to $272,000 at December 31, 1997. The allowance as a percentage of total loans
decreased from 1.71% in 1997 to 1.36% in 1998. The decrease in the ratio of
allowance to total loans is due to a combination of an overall improvement in
the loan portfolio, partly the result of charge-offs during 1997 and 1998, a
slight decrease in nonaccrual loans, and the continued improvement in the
Company's lending environment. The ratio of the allowance for loan loss to
nonaccrual loans improved to 534% compared to 367% in 1997.
Other operating income increased $205,000 or 21.3% in 1998 compared to an
increase of $255,000 in 1997. These increases consist primarily of increases in
service charges on deposit accounts of $181,000 and $160,000, respectively. The
increase in service charges on deposit accounts continues to result from the
growth in the number of deposit accounts. Service charges on deposit accounts
include monthly service charges on transaction accounts, insufficient funds
charges, and other miscellaneous maintenance fees. Approximately 57% and 66%,
respectively, of the service charge income is generated from insufficient funds
charges for the years ended December 31, 1998 and 1997.
Other expenses increased $497,000 or 26.9% during 1998 compared to $338,000 in
1997. The change is due primarily to an increase in salaries and employee
benefits of $262,000. The increase in salaries and employee benefits is due to
increases in overall employee costs. The number of employees remained consistent
with 1997. Occupancy and equipment expenses increased by a combined total of
$110,000 as compared to $10,000 in 1997. The significant increase in 1998 was
due to increased maintenance expenses, increased depreciation expense related to
equipment purchased, and increased property taxes. Other operating expenses
increased $124,000 in 1998 as compared to 1997. This change is due to the
overall growth in loans and related increases in expenses such as supplies,
forms, postage, telephone, courier service, and data processing.
-22-
<PAGE>
During 1998, the Company recognized an income tax expense of $193,000 compared
to $70,000 in 1997. The effective tax rate of 27% is due to the Company's
investment in tax-free securities in 1998. These investments resulted in a
decrease of approximately $45,000 in current tax expense as compared to $1,000
in 1997.
Year 2000 Disclosures
In accordance with sound management policy and directives from various
regulatory agencies, the Company began the Year 2000 review of hardware and
software in 1997. The review included not only computer and information systems
but heating, air conditioning, alarms, vaults, elevators and other office
equipment and was completed in 1998. The Company engaged Malgeri and Associates
of Marietta, Georgia to develop a plan to be Year 2000 compliant. The plan has
been completed and it identifies items that were not Year 2000 compliant and
categorized items as either mission critical or not mission critical. All
mission critical items that were noncompliant were slated for upgrade or
replacement.
Mission critical items are those that allow us to process deposits and
withdrawals to deposit accounts and payments or draws to loan accounts, and the
ability to maintain accurate customer account information. Items that are not
mission critical do not affect customer accounts or are easily replaced with
less technical items.
Upon the conclusion of this review, it was determined that the loan program
software, teller software, item processing equipment and software would need
replacement and that the Bank's core system, "Caption," provided by Intercept
would need upgrading. The "Caption" system has been upgraded by Intercept
installing PC Bank Pac a Y2K compliant system. The item processing equipment
will be replaced in June 1999 with Year 2000 compliant hardware and software.
To interface with the Intercept system a Windows NT Network was installed, a
loan software program, "CoPilot" was installed and a new teller system was
installed in August 1998.
The testing phase on the PC Bank Pac system upgrade is ongoing. The
Company is participating in User Group or Proxy testing. The Company and
independent third parties are in the process of reviewing the results of these
tests.
The Company has contacted and remains in discussions with suppliers, large
loan customers and large depositors regarding their year 2000 readiness.
Management does not currently expect any Year 2000 issue to have a material
impact on the condition of the Company.
Thus far, the Company has incurred approximately $225,000 in costs related
to the Year 2000 issue. The majority of this cost was spent replacing hardware
and software and consulting fees. The old equipment was sold or written off and
the resulting effect of the change in depreciation is not material. This
equipment would have been replaced in the normal course of business regardless
of the Year 2000 issue, but may not have occurred in 1998. Other items were
directly expensed and did not have a material impact on the financial condition
of the Company.
The Company has budgeted for an additional $100,000 in costs to complete
the Company's Year 2000 Project, primarily to replace the proof machine in June
1999.
In the normal course of business, the Company manages many types of risks.
Because the risks associated with the Year 2000 issue are unique, the Company
has adjusted its risk management process and its contingency plans to consider
the most probable Year 2000 effects. Although, it is not possible to predict
what failures may occur, the Company believe that planning, communication and
coordination will mitigate potential material disruption.
A formal contingency plan will be completed by mid-year for backup plans
for all mission critical systems. This includes emergency response teams and
offsite recovery centers. The plan will be reviewed and tested annually for
effectiveness. Testing and training are ongoing.
-23-
<PAGE>
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The tables and schedules on the following pages set forth certain significant
financial information and statistical data with respect to: the distribution of
assets, liabilities and stockholders' equity; interest rates and interest
differentials; interest rate sensitivity gap ratios; the investment portfolio;
the loan portfolio, including types of loans, maturities and sensitivities to
changes in interest rates and risk elements; summary of the loan loss experience
and allowance for loan losses; types of deposits; and the return on equity and
assets.
Average Balances
The condensed average balance sheets for the periods included are presented
below.
Years Ended December 31,
1998 1997
--------- --------
(Dollars in Thousands)
ASSETS
Cash and due from banks $ 1,878 $ 1,600
Taxable securities 11,910 10,803
Nontaxable securities 4,052 36
Unrealized gains on securities available-for-sale 116 2
Federal funds sold 3,200 1,781
Loans (2)(3) 19,123 14,153
Allowance for loan losses (282) (198)
Other assets 2,111 1,758
-------- --------
$ 42,108 $ 29,935
======== ========
Total interest-earning assets $ 38,285 $ 26,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 11,121 $ 6,720
Interest-bearing demand and savings 6,191 5,630
Time 18,693 12,249
-------- --------
Total deposits 36,005 24,599
Other liabilities 298 103
-------- --------
Total liabilities 36,303 24,702
-------- --------
Stockholders' equity 5,805 5,233
-------- --------
$ 42,108 $ 29,935
======== ========
Total interest-bearing liabilities $ 24,884 $ 17,879
======== ========
(1) Average balances were determined using the daily average balances.
(2) Nonaccrual loans are included in the average balances of loans.
(3) Loans are net of deferred loan fees and unearned interest.
-24-
<PAGE>
Interest Income and Interest Expense
The following table sets forth the amount of the Company's interest income or
interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
---- ----
Average Average
Interest Rate Interest Rate
----------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans(1) $2,057 10.76% $1,610 11.38%
Interest on taxable securities 761 6.38 689 6.38
Interest on nontaxable securities(2) 197 4.86 3 8.33
Interest on Federal funds sold 172 5.38 96 5.39
------ ------
Total interest income $3,187 8.32% $2,398 8.96%
------ ------
INTEREST EXPENSE:
Interest on interest-bearing demand
and savings deposits 219 3.54% 162 2.88%
Interest on time deposits 976 5.22 621 5.07
------ ------
Total interest expense $1,195 4.80% $ 783 4.38%
------ ------
NET INTEREST INCOME $1,992 $1,615
====== ======
Net interest spread 3.52% 4.58%
==== ====
Net yield on average interest-earning assets 5.20% 6.03%
==== ====
</TABLE>
(1) Interest on loans includes $196,268 and $181,775 of loan fee income for the
years ended December 31, 1998 and 1997, respectively.
(2) Yields on nontaxable securities are not presented on a tax-equivalent basis.
Rate and Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense during the year
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) change in
volume (change in volume multiplied by old rate); (2) change in rate (change in
rate multiplied by old volume); and (3) a combination of change in rate and
change in volume. The changes in interest income and interest expense
attributable to both volume and rate have been allocated proportionately to the
change due to volume and the change due to rate.
-25-
<PAGE>
<TABLE>
<CAPTION>
1998 vs. 1997
Changes Due To:
--------------
Increase
Rate Volume (Decrease)
-----------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Interest on loans (92) $ 539 $ 447
Interest on taxable securities 0 72 72
Interest on nontaxable securities (1) 195 194
Interest on Federal funds sold 0 76 76
--- --- ---
Total interest income (93) 882 789
=== === ===
Interest on interest-bearing
demand and savings deposits 40 17 57
Interest on time deposits 19 336 355
--- --- ---
Total interest expense 59 353 412
--- --- ---
Net interest income (160) 527 377
=== === ===
</TABLE>
Asset/Liability Management
The Company's objective is to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, and capital policies. Certain officers are
charged with the responsibility for monitoring policies and procedures that are
designed to ensure acceptable composition of the asset/liability mix. It is the
overall philosophy of management to support asset growth primarily through
growth of core deposits of all categories deposited by individuals and
corporations in the Company's primary market area.
The Company's asset/liability mix is monitored on a regular basis. The objective
of this policy is to monitor interest rate sensitive assets and liabilities so
as to minimize the impact of substantial movements in interest rates on
earnings. An asset or liability is considered to be interest rate-sensitive if
it will reprice or mature within the time period analyzed, usually one year or
less. The interest rate-sensitivity gap is the difference between the
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive when the amount of
interest rate-sensitive assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of interest
rate-sensitive liabilities exceeds the interest rate-sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income, while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
Company's assets and liabilities were equally flexible and move concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate indicator
of how net interest income will be affected by changes in interest rates.
Accordingly, the Company
-26-
<PAGE>
also evaluates how the repayment of particular assets and liabilities is
impacted by changes in interest rates. Income associated with interest-earning
assets and costs associated with interest-bearing liabilities may not be
affected uniformly by changes in interest rates. In addition, the magnitude and
duration of changes in interest rates may have a significant impact on net
interest income. For example, although certain assets and liabilities may have
similar maturities or periods of repricing, they may react in different degrees
to changes in market interest rates. Interest rates on certain types of assets
and liabilities fluctuate in advance of changes in general market rates, while
interest rates on other types may lag behind changes in general market rates. In
addition, certain assets, such as adjustable rate mortgage loans, have features
(generally referred to as "interest rate caps and floors") which limit the
amount of changes in interest rates. Prepayment and early withdrawal levels also
could deviate significantly from those assumed in calculating the interest rate
gap. The ability of many borrowers to service their debts also may decrease
during periods of rising interest rates.
Changes in interest rates also affect the Company's liquidity position. The
Company currently prices deposits in response to market rates and it is
management's intention to continue this policy. If deposits are not priced in
response to market rates, a loss of deposits could occur which would negatively
affect the Company's liquidity position.
At December 31, 1998, the Company's cumulative one year interest rate
sensitivity gap ratio was 89%. The Company's targeted ratio is 80% to 120% in
this time horizon. This indicates that the Company's interest-earning assets
will reprice during this period at a rate slower than the Company's
interest-bearing liabilities.
The following table sets forth the distribution of the repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1998, as well as the interest rate sensitivity gap (i.e., interest
rate sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e.,
interest rate sensitive assets divided by interest rate sensitive liabilities)
and the cumulative interest rate sensitivity gap ratio. The table also sets
forth the time periods in which interest-earning assets and interest-bearing
liabilities will mature or may reprice in accordance with their contractual
terms. However, the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive pressures
and the needs of the Company's customers. In addition, various assets and
liabilities indicated as repricing within the same period may in fact reprice at
different times within such period and at different rates.
-27-
<PAGE>
<TABLE>
<CAPTION>
After After
Three Months One Year Within After
Within Three But Within But Within Five
Months(1) One Year Five Years Years Total
--------- -------- ---------- ----- -----
(Dollars in Thousands)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 3,326 $ -- $ -- $ -- $ 3,326
Securities 4,310 698 5,187 7,541 17,736
Loans 12,514 1,116 5,197 3,196 22,023
-------- -------- -------- -------- --------
$ 20,150 $ 1,814 $ 10,384 $ 10,737 $ 43,085
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposits and savings 6,803 -- -- -- 6,803
Certificates, less than
$100,000 2,218 2,747 2,648 -- 7,613
Certificates, $100,000
and over 8,564 4,315 796 -- 13,675
-------- -------- -------- -------- --------
$ 17,585 $ 7,062 $ 3,444 $ -- $ 28,091
-------- -------- -------- -------- --------
Interest rate sensitivity gap $ 2,565 $ (5,248) $ 6,940 $ 10,737 $ 14,994
======== ======== ======== ======== ========
Cumulative interest rate
sensitivity gap $ 2,565 $ (2,683) $ 4,257 $ 14,994
======== ======== ======== ========
Interest rate sensitivity
gap ratio 1.15 .26 3.02 --
======== ======== ======== ========
Cumulative interest rate
sensitivity gap ratio 1.15 .89 1.15 1.53
======== ======== ======== ========
</TABLE>
(1) Nonaccrual loans are included as repricing within three months.
-28-
<PAGE>
The table above indicates that the Company is within its target range and
liability sensitive within one year and asset sensitive after one year. The
effect on the Company of being liability sensitive is that in a rising interest
rate environment, the interest-bearing liabilities will reprice more rapidly
than interest-earning assets, therefore having a negative effect on net interest
income. In a decreasing interest rate environment, a liability sensitive
position would positively affect net interest income.
The Company has included all interest-bearing demand deposits and savings
deposits in the three month maturity category. These deposits can be withdrawn
immediately and reprice immediately. However, based on the Company's experience,
the majority of these deposits are expected to remain in the Company regardless
of interest rate movements. The Company could also sell participations in loans
and securities available-for-sale from the other one year time horizon and
reinvest those proceeds in a rising interest rate environment.
The Company actively manages the mix of asset and liability maturities to
control the effects of changes in the general level of interest rates on net
interest income. Except for its effect on the general level of interest rates,
inflation does not have a material impact on the Company due to the rate
variability and short-term maturities of its earning assets. In particular,
approximately 67% of the loan portfolio is comprised of loans that mature or
reprice within one year.
SECURITIES PORTFOLIO
Types of Securities
The carrying value of securities at the dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
U.S. Treasury and government agencies $ 9,741 $ 13,795
State and municipal securities 7,996 940
--------- ---------
$ 17,737 $ 14,735
========= ==========
</TABLE>
-29-
<PAGE>
Maturities
The amounts of securities in each category as of December 31,1998 are shown in
the following table according to contractual maturity classifications (1) one
year or less, (2) after one year through five years and (3) after five years
through ten years.
<TABLE>
<CAPTION>
U.S. Treasury and State and
Government Agencies Municipal
Amount Yield (1) Amount Yield (1)
------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Maturity:
One year or less $ 756 6.87% $ -- --%
After one year through five years 4,731 6.16 455 4.91
After five through ten years -- -- 6,485 4.40
Greater than ten years 4,254 5.96 1,056 4.30
------ -----
$ 9,741 6.13% $ 7,996 4.42%
====== =====
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion
or subtracting premium amortization, as appropriate, on a ratable basis
over the life of each security. The weighted average yield for each
maturity range was computed using the acquisition price of each
security in that range.
LOAN PORTFOLIO
Types of Loans
The amount of loans outstanding at the indicated dates is shown in the following
table according to type of loans.
<TABLE>
December 31,
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
Commercial $ 8,050 11,717
Real estate-construction 581 --
Real estate-mortgage 10,364 1,281
Consumer 2,963 2,436
Other 65 538
----------- ------
$ 22,023 15,972
=========== ======
</TABLE>
-30-
<PAGE>
Maturities and Sensitivities to Changes in Interest Rates
Total loans as of December 31, 1998 are shown in the following table according
to maturity classifications (1) one year or less (2) after one year through five
years and (3) after five years.
<TABLE>
Dollars in Thousands
<S> <C>
One year or less $ 13,630
After one year through five years 5,197
After five years 3,196
--------------
22,023
==============
</TABLE>
Records were not available to present the above information by each type of loan
listed above and could not be reconstructed without undue burden and cost to the
Company.
The following table summarizes loans at December 31, 1998 with the due dates
after one year which have predetermined interest rates.
<TABLE>
Dollars in Thousands
<S> <C>
Predetermined interest rates $ 7,234
Floating or adjustable interest rates 1,159
--------------
$ 8,393
==============
</TABLE>
Risk Elements
The following table presents, at the dates indicated, the aggregate of
nonperforming loans for the categories indicated.
<TABLE>
December 31,
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 56 $ 74
Installment loans and term loans contractually past due ninety days or more
as to interest or principal payments and still accruing 9 --
Loans, the terms of which have been renegotiated to provide a reduction or
deferral of interest or principal because of deterioration in the
financial position of the borrower -- --
Loans now current about which there are serious doubts as to the ability of
the borrower to comply with present loan repayment terms -- --
</TABLE>
-31-
<PAGE>
A loan is placed on nonaccrual status when, in management's judgment, the
collection of interest income appears doubtful. Interest on loans that are
classified as nonaccrual is recognized when received. In some cases, where
borrowers are experiencing financial difficulties, loans may be restructured to
provide terms significantly different from the original contractual terms.
There was no significant reduction in interest income associated with nonaccrual
and renegotiated loans for the years ended December 31, 1998 and 1997.
In the opinion of management, any loans classified by regulatory authorities as
doubtful, substandard or special mention that have not been disclosed above do
not (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. Any loans
classified by regulatory authorities as loss have been charged off.
Commitments and Lines of Credit
In the ordinary course of business, the Company has entered into off balance
sheet financial instruments which are not reflected in the financial statements.
These instruments include commitments to extend credit. Such financial
instruments are recorded in the financial statements when funds are disbursed or
the instruments become payable. The Company uses the same credit policies for
these off balance sheet financial instruments as they do for instruments that
are recorded in the financial statements.
Following is an analysis of the significant off balance sheet financial
instruments at December 31, 1998 and 1997.
<TABLE>
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
Commitments to extend credit $ 2,207 $ 842
</TABLE>
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitment amounts expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in extending
loans to customers.
-32-
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense
are: composition of the loan portfolio, evaluation of possible future losses,
current economic conditions, past experience, and other relevant factors. The
allowance for loan losses is reviewed periodically based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on the loans outstanding.
Management has not allocated the Company's allowance for loan losses to specific
categories of loans.
The following table summarizes average loan balances for each year determined
using the daily average balances during the year; changes in the allowance for
loan losses arising from loans charged off; additions to the allowance which
have been charged to operating expense; and the ratio of net charge-offs during
the period to average loans.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
Average balance of loans outstanding $ 19,123 $ 14,153
====== ======
Balance of allowance for loan losses at
beginning of period 272 152
Charge-offs:
Installment (178) (13)
Consumer -- (143)
Commercial -- (50)
------ -------
(178) (206)
------ -------
Recoveries:
Installment 91 152
Commercial 1 12
------ -------
92 164
------ -------
Net charge-offs (86) (42)
------- --------
Addition to allowance charged to operating expenses 113 162
------ -------
Balance of allowance for loan losses $ 299 $ 272
======== ========
Ratio of net loan charge-offs to average loans 0.45% 0.30%
==== =====
</TABLE>
-33-
<PAGE>
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the period indicated is presented below.
<TABLE>
<CAPTION>
1998 1997
---- ----
Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing demand $ 11,121 --% $ 6,720 --%
Interest-bearing demand and savings 6,191 3.54 5,630 2.88
Time deposits 18,693 5.22 12,249 5.07
------ ----------
Total $ 36,005 4.80 $ 24,599 4.38
====== ==========
</TABLE>
The following table presents the maturities of time deposits of $100,000 or more
as of December 31, 1998 for the periods indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Three months or less $ 8,014
Over three through twelve months 5,031
Over twelve months 630
-------
Total $ 13,675
======
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table shows return on assets (net income divided by average total
assets), return on equity (net income divided by average stockholders' equity),
dividend payout ratio (dividends declared per share divided by net income per
share) and stockholders' equity to assets ratio (average stockholders' equity
divided by average total assets) for the periods indicated.
Year Ended December 31,
1998 1997
---- ----
Return on assets 1.22% 1.68%
Return on equity 8.84 9.59
Dividend payout -- --
Equity to assets 13.79 17.48
-34-
<PAGE>
ITEM SEVEN: CONSOLIDATED FINANCIAL REPORT
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
-35-
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT...........................................................37
FINANCIAL STATEMENTS
Consolidated balance sheets.......................................................38
Consolidated statements of income.................................................39
Consolidated statements of comprehensive income...................................40
Consolidated statements of stockholders' equity...................................41
Consolidated statements of cash flows.............................................42
Notes to consolidated financial statements.....................................43-62
</TABLE>
-36-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
Capitol City Bancshares, Inc. and Subsidiary
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Capitol
City Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 financial position of Capitol City
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
March 5, 1999
-37-
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
------ ---------------- ----------------
<S> <C> <C>
Cash and due from banks $ 2,136,219 $ 1,914,077
Federal funds sold 3,326,000 1,773,000
Securities available-for-sale 17,736,878 14,734,859
Loans 21,945,017 15,914,094
Less allowance for loan losses 299,425 271,689
---------------- ----------------
Loans, net 21,645,592 15,642,405
---------------- ----------------
Premises and equipment 2,483,124 1,350,735
Other assets 502,311 389,854
---------------- ----------------
Total assets 47,830,124 35,804,930
================ ================
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Deposits
Noninterest-bearing demand $ 13,262,505 $ 8,044,596
Interest-bearing demand 3,962,667 8,871,828
Savings 2,839,754 2,652,249
Time, $100,000 and over 13,674,750 11,239,933
Other time 7,613,013 5,333,905
---------------- ----------------
Total deposits 41,352,689 30,142,511
Other liabilities 428,523 198,894
---------------- ----------------
Total liabilities 41,781,212 30,341,405
---------------- ----------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $6; 5,000,000 shares
authorized, 532,088 issued and outstanding 3,192,528 3,192,528
Capital surplus 2,128,352 2,128,352
Retained earnings 625,448 112,834
Accumulated other comprehensive income 102,584 29,811
---------------- ----------------
Total stockholders' equity 6,048,912 5,463,525
---------------- ----------------
Total liabilities and stockholders' equity 47,830,124 35,804,930
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Interest income
Loans $ 2,056,873 $ 1,609,861
Taxable securities 761,092 688,548
Nontaxable securities 197,339 3,457
Federal funds sold 172,226 96,036
---------------- ----------------
Total interest income 3,187,530 2,397,902
Interest expense on deposits 1,194,964 782,728
---------------- ----------------
Net interest income 1,992,566 1,615,174
Provision for loan losses 113,000 161,500
---------------- ----------------
Net interest income after provision
for loan losses 1,879,566 1,453,674
---------------- ----------------
Other income
Service charges on deposit accounts 1,003,090 821,821
Net realized gains on sale of securities available-for-sale 14,953 5,050
Other operating income 149,245 135,577
---------------- ----------------
Total other income 1,167,288 962,448
---------------- ----------------
Other expenses
Salaries and employee benefits 1,140,763 878,631
Equipment expenses 271,362 209,926
Occupancy expenses 149,617 100,792
Other operating expenses 779,324 655,110
---------------- ----------------
Total other expenses 2,341,066 1,844,459
---------------- ----------------
Income before income taxes 705,788 571,663
Income tax expense 193,174 69,760
---------------- ----------------
Net income $ 512,614 $ 501,903
================ ================
Basic earnings per common share $ 0.96 $ 0.94
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Net income $ 512,614 $ 501,903
---------------- ----------------
Other comprehensive income:
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during period,
net of tax of $42,573 and $17,074, respectively 82,642 6,424
Reclassification adjustment for gains realized
in net income, net of tax of $5,084 and $1,717,
respectively (9,869) (3,333)
---------------- ----------------
Other comprehensive income 72,773 3,091
---------------- ----------------
Comprehensive income $ 585,387 $ 504,994
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
-40-
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
----------------------------- Capital Retained Comprehensive Stockholders'
Shares Par Value Surplus Earnings Income Equity
------------ --------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996 532,088 3,192,528 2,128,352 (389,069) 26,720 4,958,531
Net income -- -- -- 501,903 -- 501,903
Other comprehensive income -- -- -- 3,091 3,091
------------ --------------- ------------- ------------ ------------- -------------
Balance, December 31,
1997 532,088 3,192,528 2,128,352 112,834 29,811 5,463,525
Net income -- -- -- 512,614 -- 512,814
Other comprehensive income -- -- -- -- 72,773 72,773
------------ --------------- ------------- ------------ ------------- -------------
Balance, December 31,
1998 532,088 3,192,528 2,128,352 625,448 102,584 6,048,912
============ =============== ============= ============ ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
-41-
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 512,614 $ 501,903
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 141,790 97,104
Amortization 5,818 5,818
Provision for loan losses 113,000 161,500
Deferred taxes 29,487 38,432
Loss on disposal of premises and equipment 72,894 --
Net realized gains on sale of securities available-for-sale (14,953) (5,050)
Increase in interest receivable (83,394) (90,433)
Increase in interest payable 39,311 27,585
Other operating activities 88,460 27.024
---------------- ----------------
Net cash provided by operating activities 905,027 763,883
---------------- ----------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (12,223,437) (10,257,987)
Proceeds from sales of securities available-for-sale 2,268,984 857,311
Proceeds from maturities of securities available-for-sale 7,077,650 3,822,971
Net (increase) decrease in Federal
funds sold (1,553,000) 431,000
Net increase in loans (6,116,187) (3,396,383)
Purchase of premises and equipment (1,347,073) (234,127)
---------------- ----------------
Net cash used in investing activities (11,893,063) (8,777,215)
---------------- ----------------
FINANCING ACTIVITIES
Net increase in deposits 11,210,178 7,874,372
---------------- ----------------
Net cash provided by financing activities 11,210,178 7,874,372
---------------- ----------------
Net increase (decrease) in cash and due from banks $ 222,142 $ (138,960)
Cash and due from banks at beginning of year 1,914,077 2,053,037
---------------- ----------------
Cash and due from banks at end of year $ 2,136,219 $ 1,914,077
================ ================
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest $ 1,155,653 $ 755,143
Income taxes 62,656 --
NONCASH TRANSACTION
Unrealized gains on securities available-for-sale $ (110,263) $ (18,448)
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Capitol City Bancshares, Inc. (the "Company") is a bank holding
company whose business is conducted by its wholly-owned subsidiary,
Capitol City Bank & Trust (the "Bank"). The Bank is a commercial bank
located in Atlanta, Fulton County, Georgia with one branch located in
Atlanta, one located at Hartsfield International Airport, and one
branch located in Stone Mountain, Georgia. The Bank provides a full
range of banking services in its primary market area of Fulton County
and the metropolitan Atlanta area. In addition to its geographical
market area, the Bank actively markets to minority groups throughout
the southeastern United States.
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Due From Banks
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
Securities
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability
to hold to maturity would be classified as held-to-maturity and
reported at amortized cost. All other securities are classified as
available-for-sale and carried at fair value with net unrealized
gains and losses included in stockholders' equity, net of taxes.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sale of securities are determined
using the specific identification method.
-43-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans
Loans are carried at their principal amounts outstanding less
unearned income, net deferred loan fees and the allowance for loan
losses. Interest income on most loans is credited to income based on
the principal amount outstanding. Interest on some loans is credited
to income based on the sum-of-months-digits method, the results of
which are not materially different from generally accepted accounting
principles.
Loan origination fees and direct costs of most loans are recognized
at the time the loan is recorded. Loan origination fees for real
estate loans in excess of $1,000 net of direct costs are deferred and
recognized into income over the life of the loans as an adjustment of
the yield. The results of operations are not materially different
than the results which would be obtained by accounting for all loan
fees and costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio.
This evaluation is inherently subjective as it requires material
estimates that are susceptible to significant change including the
amounts and timing of future cash flows expected to be received on
impaired loans. In addition, regulatory agencies, as an integral part
of their examination process, periodically review the Bank's
allowance for loan losses, and may require the Bank to record
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
The accrual of interest on 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.
-44-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
A loan is considered to be 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.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the assets.
Income Taxes
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred income tax assets and liabilities are
determined using the balance sheet method. Under this method, the net
deferred tax asset or liability is determined based on the tax
effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
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 would be recorded for those deferred tax items for which it
is more likely than not that realization would not occur.
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.
-45-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Organizational Costs
Certain legal and other costs incurred in connection with the
organization and chartering of the Company and the Bank have been
deferred and are being amortized using the straight-line method over
sixty months.
In April of 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start
Up Activities". SOP 98-5 requires that costs of start-up activities
and organization costs be expensed as incurred. SOP 98-5 becomes
effective for financial statements for fiscal years beginning after
December 15, 1998. As of December 31, 1998, the Company had remaining
capitalized organization costs totaling $36,800 which will be
expensed January 1999.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares of common stock outstanding.
Diluted earnings per share would be computed by dividing net income
by the sum of the weighted-average number of shares of common stock
outstanding and potential common shares. There were no potential
common shares outstanding at December 31, 1998 or 1997. The weighted-
average number of shares outstanding for the years ended December 31,
1998 and 1997 was 532,088.
-46-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
In 1998, the Company adopted Statement of Financial Standards
("SFAS") No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive
income and its components in the financial statements. This statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal
prominence with the other financial statements. The Company has
elected to report comprehensive income in a separate financial
statement titled "Consolidated Statements of Comprehensive Income".
SFAS No. 130 describes comprehensive income as the total of all
components of comprehensive income including net income. This
statement uses other comprehensive income to refer to revenues,
expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net
income. Currently, the Company's other comprehensive income consists
of items previously reported directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
As required by SFAS No. 130, the financial statements for the prior
year have been reclassified to reflect application of the provisions
of this statement. The adoption of this statement did not affect the
Company's financial position, results of operations or cash flows.
Recent Developments
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement is required to be adopted for fiscal
years beginning after June 15, 1999. However, the statement permits
early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt this statement effective
January 1, 2000. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance sheet at
fair value. For derivatives that are not designated as hedges, the
gain or loss must be recognized in earnings in the period of change.
For derivatives that are designated as hedges, changes in the fair
value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings, depending on the
nature of the hedge. The ineffective portion of a derivative's change
in fair value must be recognized in earnings immediately. Management
has not yet determined what effect the adoption of SFAS No. 133 will
have on the Company's earnings or financial position.
-47-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities available-for-sale are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1998:
U. S. Government and agency
securities $ 5,446,482 $ 39,790 $ (1,001) $ 5,485,271
State and municipal securities 7,881,334 126,167 (11,038) 7,996,463
Mortgage-backed securities 4,253,631 6,737 (5,224) 4,255,144
----------------- -------------- -------------- -----------------
$ 17,581,447 $ 172,694 $ (17,263) $ 17,736,878
================= ============== ============== =================
December 31, 1997:
U. S. Government and agency
securities $ 13,482,817 $ 50,387 $ (6,667) $ 13,526,537
State and municipal securities 940,000 - - 940,000
Mortgage-backed securities 266,874 1,448 - 268,322
----------------- -------------- -------------- -----------------
$ 14,689,691 $ 51,835 $ (6,667) $ 14,734,859
================= ============== ============== =================
</TABLE>
Gross gains and losses on sales of securities available-for-sale
consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Gross gains $ 15,063 $ 6,808
Gross losses (110) (1,758)
----------------- -----------------
Net realized gains $ 14,953 $ 5,050
================= =================
</TABLE>
-48-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31,
1998 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid with or
without penalty. Therefore, these securities are not included in the
maturity categories in the following summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------- ----------------
<S> <C> <C>
Due in one year or less $ 748,602 $ 754,375
Due from one year to five years 5,145,808 5,186,591
Due from five years to ten years 6,385,127 6,484,809
Due after ten years 1,048,279 1,055,959
Mortgage-backed securities 4,253,631 4,255,144
---------------- ----------------
================ ================
$ 17,581,447 $ 17,736,878
================ ================
</TABLE>
Securities with a carrying value of $10,188,241 and $5,136,957
at December 31, 1998 and 1997, respectively, were pledged to
secure public deposits and for other purposes.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Commercial $ 8,050,000 $ 11,717,000
Real estate - construction 581,000 -
Real estate - mortgage 10,364,000 1,281,000
Consumer 2,963,000 2,436,000
Other 64,507 538,280
----------------- -----------------
22,022,507 15,972,280
Unearned income (5,361) (9,679)
Net deferred loan fees (72,129) (48,507)
Allowance for loan losses (299,425) (271,689)
----------------- -----------------
Loans, net $ 21,645,592 $ 15,642,405
================= =================
</TABLE>
-49-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses for the periods ended
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Balance, beginning of year $ 271,689 $ 152,244
Provision for loan losses 113,000 161,500
Loans charged off (177,616) (206,234)
Recoveries of loans previously charged off 92,352 164,179
----------------- ----------------
Balance, end of year $ 299,425 $ 271,689
================= ================
</TABLE>
The total recorded investment in impaired loans was $65,426 and
$73,926 at December 31, 1998 and 1997, respectively. There were no
impaired loans at December 31, 1998 or 1997 in which there had been a
specific reserve determined in accordance with generally accepted
accounting principles. The average recorded investment in impaired
loans for 1998 and 1997 was $53,307 and $75,459, respectively.
Interest income recognized on impaired loans was immaterial for the
years ended December 31, 1998 and 1997.
The Company has granted loans to certain related parties including
directors, executive officers, and their related entities. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Changes in related party
loans for the year ended December 31, 1998 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year $ 437,931
Advances 1,095,386
Repayments (33,696)
-----------------
Balance, end of year $ 1,499,621
=================
</TABLE>
-50-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Land $ 400,000 $ 100,000
Buildings 1,569,694 915,579
Equipment 813,041 490,541
Construction in progress - 156,693
------------------ ------------------
2,782,735 1,662,813
Accumulated depreciation (299,611) (312,078)
------------------ ------------------
$ 2,483,124 $ 1,350,735
================== ==================
</TABLE>
NOTE 5. DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
1999 $ 17,823,423
2000 1,101,622
2001 374,997
2002 1,101,234
2003 886,487
------------------
$ 21,287,763
==================
-51-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. 401(k) PROFIT-SHARING PLAN
The Company has a contributory 401(k) profit-sharing plan covering all
employees, subject to certain minimum age and service requirements. The
Company contributed $37,391 and $34,023 to the plan for the years ended
December 31, 1998 and 1997, respectively.
NOTE 7. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
Current $ 163,687 $ 184,741
Deferred taxes 39,408 153,171
Benefit of net operating loss carryforward - (153,413)
Change in valuation allowance (9,921) (114,739)
----------------- ------------------
Income tax expense $ 193,174 $ 69,760
================= ==================
</TABLE>
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before income
taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997
------------------------ ------------------------
Amount Percent Amount Percent
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 239,968 34 % $ 194,365 34 %
Change in valuation allowance (9,921) (2) (114,739) (20)
Tax-free income (45,083) (6) (1,175) -
Disallowed interest expense 5,753 1 - -
Other items, net 2,457 - (8,691) (2)
------------- -------- ------------- --------
Income tax expense $ 193,174 27 % $ 69,760 12 %
============= ======== ============= ========
</TABLE>
-52-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 34,762 $ 34,344
Preopening expense amortization 12,611 29,426
Other - 1,179
----------------- -----------------
47,373 64,949
Valuation allowance - (9,921)
----------------- -----------------
47,373 55,028
----------------- -----------------
Deferred tax liabilities:
Depreciation 42,493 29,757
Accrual to cash method of accounting for tax purposes 72,799 63,703
Securities available-for-sale 52,847 15,357
----------------- -----------------
168,139 108,817
----------------- -----------------
Net deferred tax liabilities $ (120,766) $ (53,789)
================= =================
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance sheet financial instruments which are not reflected in the
financial statements. These financial instruments may include
commitments to extend credit and standby letters of credit. Such
financial instruments are included in the financial statements when
funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the consolidated balance sheet.
-53-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's commitments is
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Commitments to extend credit $ 2,207,000 $ 842,553
================= =================
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending loans
to customers. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies
but may include real estate and improvements, marketable securities,
accounts receivable, inventory, equipment, and personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to
customers. Collateral held varies as specified above and is required in
instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
-54-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Systems that do not properly recognize the year "2000" could generate
erroneous data or cause systems to fail. The Company is heavily
dependent on computer processing and telecommunication systems in the
daily conduct of business activities. In addition, the Company must
rely on intermediaries, vendors and customers to appropriately modify
their systems in order that all may continue normal operations and
operate without significant disruptions. The Company has conducted a
review of its computer systems to identify the systems that could be
affected by the Year 2000 issue. The Company presently believes that,
with modifications to its computer systems and conversions to new
systems, the Year 2000 issue will not pose significant operational
problems for the Company or have a material adverse effect on future
operating results. However, absolute assurance cannot be given that;
(1) the modifications and conversions will remedy all deficiencies, (2)
failure of any of the Company's systems will not have a material impact
on operations, or (3) failure of any other companies' systems with whom
the Company conducts business will not have a material impact on
operations.
Lease Commitment
In June 1996, the Company, subleasee, entered into a five-year
operating sublease agreement for the rental of a branch banking
facility at William B. Hartsfield Atlanta International Airport. The
sublease agreement covers approximately 475 square feet of space
located in the main terminal of the airport.
In 1997, the Company exercised its right of termination. Upon notice of
termination, the sublessor offered to renegotiate the lease under terms
acceptable to both parties. Effective June 1998, the sublessor agreed
to pay all of the subleasee's obligations under the sublease with the
exception of the subleasee's pro rata share of actual maintenance and
operating costs for the Bank center (currently estimated at $25 per
square foot per year).
Total rental expense for the years ended December 31, 1998 and 1997 was
$20,195 and $15,766, respectively.
-55-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in Fulton County, metropolitan Atlanta, and to
various minority groups throughout the southeastern United States. The
ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in the
metropolitan Atlanta area. Fifty percent of the Company's loan
portfolio is concentrated in loans secured by real estate, of which a
substantial portion is secured by real estate in the Company's primary
market area. Accordingly, the ultimate collectibility of the loan
portfolio is susceptible to changes in market conditions in the
Company's primary market area. The other concentrations of credit by
type of loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 25% of
the of the total capital and surplus as defined, which amounted to
approximately $1,330,000 at December 31, 1998.
The Company has a concentration of funds on deposit at its principal
correspondent bank at December 31, 1998 as follows:
<TABLE>
<S> <C>
Noninterest-bearing accounts and Federal funds sold $ 4,090,162
=================
</TABLE>
NOTE 10. Regulatory Matters
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31,
1998, approximately $258,000 of retained earnings were available for
dividend declaration without regulatory approval.
The Company and the Bank are 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 financial
statements . Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of
the assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
-56-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. Regulatory MatterS (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1998, the Company and the Bank meet all capital adequacy
requirements to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum Total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the following table. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
---------------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ---------- ------------- ------- --------------- -------
(Dollars in Thousands)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 6,209 20.90% $ 2,377 8% $ 2,971 10%
Bank $ 6,245 21.02% $ 2,377 8% $ 2,971 10%
Tier I Capital
(to Risk Weighted Assets)
Consolidated $ 5,910 19.89% $ 1,188 4% $ 2,971 6%
Bank $ 5,945 20.01% $ 1,188 4% $ 1,783 6%
Tier I Capital
(to Average Assets)
Consolidated $ 5,910 12.32% $ 1,919 4% $ 2,398 5%
Bank $ 5,945 12.39% $ 1,919 4% $ 2,398 5%
</TABLE>
-57-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. Regulatory Matters (Continued)
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
---------------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ---------- ------------- ------- --------------- -------
(Dollars in Thousands)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $ 5,689 26.81% $ 1,698 8% $ 2,122 10%
Tier I Capital
(to Risk Weighted Assets) $ 5,424 25.56% $ 849 4% $ 1,273 6%
Tier I Capital
(to Average Assets) $ 5,424 15.62% $ 1,389 4% $ 1,737 5%
</TABLE>
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models are
significantly affected by the assumptions used, including the discount
rates and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1998
and 1997. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
Cash, Due From Banks, and Federal Funds Sold:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
-58-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Securities Available-For-Sale:
Fair values for securities available-for-sale are based on
available quoted market prices.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow models, using current market interest rates
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the
underlying collateral.
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow models, using current market interest
rates offered on certificates with similar remaining maturities.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
-59-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks
and Federal funds sold $ 5,462,219 $ 5,462,219 $ 3,687,077 $ 3,687,077
Securities available-for-sale 17,736,878 17,736,878 14,734,859 14,734,859
Loans 21,645,592 22,067,967 15,642,405 15,903,178
Accrued interest receivable 399,618 399,618 316,224 316,224
Financial liabilities:
Deposits 41,352,689 41,408,369 30,142,511 30,169,994
Accrued interest payable 111,507 111,507 72,196 72,196
</TABLE>
NOTE 12. SUPPLEMENTAL FINANCIAL DATA
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Legal and professional $ 78,445 $ 53,367
Security 97,115 81,217
Courier 49,404 32,719
Other losses 64,527 17,897
</TABLE>
-60-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet,
statement of income, and cash flows of Capitol City Bancshares, Inc.,
as of and for the period ended December 31, 1998:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
December 31, 1998
<S> <C>
Assets
Investment in subsidiary $ 6,052,340
Other assets 35,885
----------------------
Total assets $ 6,088,225
======================
Other liabilities $ 39,313
Stockholders' equity 6,048,912
----------------------
Total liabilities and stockholders' equity $ 6,088,225
======================
<CAPTION>
CONDENSED STATEMENT OF INCOME
December 22, 1998, Date of Inception, to December 31, 1998
Other expenses $ 5,193
----------------------
Loss before income tax benefit and
equity in undistributed income of subsidiary (5,193)
Income tax benefit 1,766
----------------------
Loss before equity in undistributed
income of subsidiary (3,427)
Equity in undistributed income of subsidiary 42,032
----------------------
Net income $ 38,605
======================
</TABLE>
-61-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
December 22, 1998, Date of Inception, to December 31, 1998
<S> <C>
Operating Activities
Net income $ 38,605
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiary (42,032)
Other operating activities 3,427
------------------------
Net cash provided by operating activities 0
------------------------
Cash at end of year $ 0
========================
</TABLE>
NOTE 14. BUSINESS COMBINATION
On December 22, 1998, the Company acquired all of the outstanding
common stock of the Bank in exchange for 532,088 shares of $6 par value
common stock. The acquisition has been accounted for as a pooling of
interests, and, accordingly, all prior financial statements have been
restated to reflect the combination. Income of the subsidiary prior to
acquisition on December 22, 1998 was $474,009, which is included in the
consolidated statement of income.
-62-
<PAGE>
ITEM EIGHT. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
The Company and the Bank did not have any changes in or disagreements
with its principal independent accountant, Mauldin & Jenkins, during the three
most recent fiscal years.
PART III
ITEM NINE. DIRECTORS AND PRINCIPAL OFFICERS OF THE REGISTRANT.
- --------- --------------------------------------------------
The following table lists the name and ages of all directors, nominee
directors and executive officers of the Company, indicates all positions and
offices with the Company held by each such person, states the term of office as
a director or principal officer and the period during which such person has
served, and briefly describes the business experience of each director, nominee
director or executive officer. There are no arrangements or understandings
between such persons and any other person pursuant to which that person was
elected as a director or executive officer.
<TABLE>
<CAPTION>
===================================================================================================================
Name of Director or Principal Year Information about Directors or
Officer Age Elected Principal Officers
===================================================================================================================
<S> <C> <C> <C>
George G. Andrews 47 1994 President, Chief Executive Officer; and
Chief Financial Officer
formerly with Trust Company Bank
- -------------------------------------------------------------------------------------------------------------------
Dr. Gloria Campbell-D'Hue 51 1994 Director; Physician
- -------------------------------------------------------------------------------------------------------------------
J. Al Cochran 68 1994 Director, General Counsel;
Attorney-at-Law
- -------------------------------------------------------------------------------------------------------------------
Keith E. Evans 53 1995 Director; Physical Therapist, Atlanta
Human Performance Center
- -------------------------------------------------------------------------------------------------------------------
Leon Goodrum 57 1994 Chairman; Operator, McDonald's
Restaurant
- -------------------------------------------------------------------------------------------------------------------
Agnes H. Harper 53 1995 Director; Retired Agent, New York Life
Insurance Company
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-63-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Name of Director or Principal Year Information about Directors or
Officer Age Elected Principal Officers
===================================================================================================================
<S> <C> <C> <C>
Charles W. Harrison 67 1994 Director; Insurance Executive,
Harrison Insurance Agency
- -------------------------------------------------------------------------------------------------------------------
Robert A. Holmes 55 1995 Director; University Administrator,
Clark Atlanta University
- -------------------------------------------------------------------------------------------------------------------
Maurice Jones, Sr. 47 1995 Director; retired, formerly of
Kimberly-Clark
- -------------------------------------------------------------------------------------------------------------------
Moses M. Jones 48 1995 Director; Physician
- -------------------------------------------------------------------------------------------------------------------
Marian S. Jordan 53 1995 Director; Teacher, Atlanta Board of
Education and Parents' Choice Day Care
- -------------------------------------------------------------------------------------------------------------------
Thomas J. Locke, III 43 1995 Director; Physician
- -------------------------------------------------------------------------------------------------------------------
Kaneta R. Lott 48 1994 Director; Secretary, Dentist, Childrens
Dentistry, P.C.
- -------------------------------------------------------------------------------------------------------------------
Donald F. Marshall 61 1994 Director; Dentist
- -------------------------------------------------------------------------------------------------------------------
George C. Miller, Jr. 50 1995 Director; President, Spectrum
Consulting Associates, Inc.
- -------------------------------------------------------------------------------------------------------------------
Elvin R. Mitchell, Sr. 85 1995 Director; Contractor, E. R. Mitchell
Construction Company
- -------------------------------------------------------------------------------------------------------------------
Sarah S. Sistrunk 50 1995 Director; Physician, Promina Paulding
Hospital
- -------------------------------------------------------------------------------------------------------------------
Roy W. Sweat 71 1995 Director; Chiropractor
- -------------------------------------------------------------------------------------------------------------------
William Thomas 54 1995 Director; President, Thomas Cleaning
Service, Inc.
- -------------------------------------------------------------------------------------------------------------------
Cordy T. Vivian 73 1995 Director; President, Basic, Inc.
(relations)
===================================================================================================================
</TABLE>
-64-
<PAGE>
J. Al Cochran serves as a director of Independence State Bank of Powder
Springs, Georgia, a company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 or subject to the requirement
of Section 15(d) of such Act or any company registered as an investment company
under the Investment Company of 1940.
Other than Mr. Cochran, no other director, executive officer, or
nominee for such positions held directorships in any reporting company other
than the Company during 1998.
There are no family relationships among directors, executive officers,
or persons nominated or chosen by the Company to become directors or executive
officers. The Company and the Bank do not separately compensate their directors.
The directors are not compensated for attending the monthly board meetings of
the Bank and various other committee meetings.
During the previous five years, no director or executive officer was
the subject of a legal proceeding (as defined below) that is material to an
evaluation of the ability or integrity of any director or executive officer. A
"legal proceeding" includes: (a) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive prior to that
time; (b) any conviction in a criminal proceeding or subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (c)
any order, judgment, or decree of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(d) any finding by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading Commission
of a violation of a federal or state securities or commodities law (such finding
having not been reversed, suspended or vacated).
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d) during 1998 and Form 5 and
amendments thereto furnished to the Company during 1998, no person who, at any
time during 1998, was a director, officer or beneficial owner of more than 10%
of any class of equity securities of the Company failed to file on a timely
basis any reports required by Section 16(a) during the 1998 fiscal year or
previously.
-65-
<PAGE>
ITEM TEN. EXECUTIVE COMPENSATION.
- -------- ----------------------
The following table sets forth the aggregate annual compensation for
the Bank's Chief Executive Officer. No individual earned in excess of $100,000
during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME AND OTHER ANNUAL RESTRICTED OPTION LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARs PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George G. Andrews 1998 $90,000 $7500 $1800(1) - - - $5,793(2)
CEO, President, 1997 $81,900 $1500 $1800(1) - - -
Director 1996 $78,000 - - - - -
</TABLE>
- -------------------
1 Representing membership dues paid on Mr. Andrews' behalf.
2 Company matching contributions to the Company's 401(k) Plan on behalf
of Mr. Andrews.
-66-
<PAGE>
No individual during 1998 for whom compensation information is
disclosed in the above summary compensation table received any option or stock
appreciation rights, exercised any option or stock appreciation rights, had
outstanding as of December 31, 1998 any unexercised options or stock
appreciation rights, or received any award under a long term incentive plan.
As of December 31, 1998 the directors of the Company receive no
compensation for each meeting of the Board of Directors attended. No director of
the Company was otherwise compensated during the Company's last fiscal year for
services as a director except as described herein.
The Company is not aware of any compensatory plan or arrangement with
respect to any individual named in the summary compensation table for the latest
fiscal year which will result from the resignation, retirement or other
termination of such individual's employment with the Company or from a change in
control of the Company or a change in the individual's responsibilities
following a change in control.
ITEM ELEVEN. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ----------- ---------------------------------------------------------------
As of December 31, 1998 the Company knows of no beneficial owner of
more than five percent (5%) of its $6.00 par value common stock, the only class
of voting securities of the Company.
The following table sets forth, as of the most recent practicable date
the common stock of the Company beneficially owned by all directors, executive
officers, nominee directors and significant employees. For purposes of this
table, beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934:
<TABLE>
<CAPTION>
=====================================================================================
Name of Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership Class
=====================================================================================
<S> <C> <C>
George G. Andrews 8,000(2) 1.50%
- -------------------------------------------------------------------------------------
Dr. Gloria Campbell-D'Hue 10,000(3) 1.88%
- -------------------------------------------------------------------------------------
J. Al Cochran 10,000 1.88%
- -------------------------------------------------------------------------------------
</TABLE>
2 Includes 4,000 shares owned by Mr. Andrews and 4,000 shares held
jointly with Mr. Andrews' spouse.
3 Includes 4,250 shares owned by Dr. D'Hue and 5,750 shares owned by
her child.
-67-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
Name of Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership Class
=====================================================================================
<S> <C> <C>
Keith E. Evans 7,500 1.41%
- -------------------------------------------------------------------------------------
Leon Goodrum 11,500 2.16%
- -------------------------------------------------------------------------------------
Agnes H. Harper 10,175(4) 1.91%
- -------------------------------------------------------------------------------------
Charles W. Harrison 10,600(5) 1.99%
- -------------------------------------------------------------------------------------
Robert A. Holmes 6,000 1.13%
- -------------------------------------------------------------------------------------
Maurice Jones, Sr. 4,357(6) .82%
- -------------------------------------------------------------------------------------
Moses M. Jones 10,200(7) 1.92%
- -------------------------------------------------------------------------------------
Marian S. Jordan 10,250(8) 1.93%
- -------------------------------------------------------------------------------------
Thomas J. Locke, III 10,000(9) 1.88%
- -------------------------------------------------------------------------------------
Kaneta R. Lott 12,000(10) 2.26%
- -------------------------------------------------------------------------------------
Donald F. Marshall 10,000 1.88%
- -------------------------------------------------------------------------------------
George C. Miller, Jr. 5,000(11) .94%
- -------------------------------------------------------------------------------------
Elvin Mitchell, Sr. 15,400(12) 2.89%
- -------------------------------------------------------------------------------------
</TABLE>
4 Includes 1,183 shares held by Mrs. Harper, 7,800 shares held jointly
with Mrs. Harper's spouse, and 1,192 shares held by Mrs. Harper's
spouse.
5 Includes 10,000 shares owned by Mr. Harrison, 600 shares held by Mr.
Harrison's children.
6 Includes 500 shares owned by Mr. Jones, 3,257 shares held by Mr.
Jones's children, 350 shares held by Mr. Jones's mother, and 250
shares held by Mr. Jones's mother-in-law.
7 Includes 7,600 shares owned by Mr. Jones and 2,600 shares held by Mr.
Jones's children.
8 Includes 10,000 shares owned by Ms. Jordan and 250 shares held by Ms.
Jordan's children.
9 Includes 2,400 shares owned by Mr. Locke and 7,600 shares held by Mr.
Locke's children.
10 Includes 8,000 held jointly with Dr. Lott's spouse, 2,000 shares held
by Dr. Lott's child and 2,000 shares held by Childrens Dentistry
Profit Sharing Plan.
11 Includes 4,500 shares owned by Mr. Miller and 500 shares held by
Spectrum Consulting Associates, Inc., an affiliated corporation.
12 Includes 14,250 shares owned by Mr. Mitchell, 1,000 held by Mr.
Mitchell's spouse, and 150 shares held by Mr. Mitchell's
grandchildren.
-68-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
Name of Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership Class
=====================================================================================
<S> <C> <C>
Sarah S. Sistrunk 10,00013 1.88%
- -------------------------------------------------------------------------------------
Roy W. Sweat 15,000 2.82%
- -------------------------------------------------------------------------------------
William Thomas 27,905(14) 5.24%
- -------------------------------------------------------------------------------------
Cordy T. Vivian 10,200(15) 1.92%
- -------------------------------------------------------------------------------------
</TABLE>
The Company's common stock beneficially owned by all directors and principal
officers as a group as of March 24, 1998, (20 persons) totaled 214,087
shares, representing 40.23% of the Company's common stock.
None of the persons listed in the above table have the right to acquire
beneficial ownership of any shares of the Company within the next sixty days.
There are no outstanding option warrants or other rights to acquire equity
securities of the Company.
The Company knows of no arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
ITEM TWELVE. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ----------- ----------------------------------------------
The Company's directors and executive officers, and certain business
organizations and individuals associated therewith, have been customers of and
have had banking transactions with the Company and are expected to continue such
relationships in the future. Pursuant to such transactions, the Bank's directors
and executive officers from time to time have borrowed funds from the Bank for
various business and personal reasons. Extensions of credit made by the Bank to
its directors and executive officers have been made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than a normal risk of collectibility or
present other unfavorable features.
- ------------------------
13 Includes 7,500 owned by Ms. Sistrunk and 2,500 shares by Ms.
Sistrunk's children.
14 Includes 10,200 shares owned by Mr. Thomas and 17,705 shares held by
Thomas Cleaning Service, Inc., an affiliated corporation.
15 Includes 9,700 shares owned by Mr. Vivian and 500 shares held by Mr.
Vivian's spouse.
-69-
<PAGE>
ITEM THIRTEEN. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------- --------------------------------
A. Exhibit
Number Description of Exhibits
------- -----------------------
2.1 Plan or Reorganization and Agreement of Merger, dated April
14, 1998, by and between Capital City Bancshares, Inc.,
Capital City Bank and Trust, and Capital City Interim, Inc.,
which Agreement is included as Appendix "A" to the Proxy
Statement included in this Registration Statement filed by
Registrant on Form S-4 on September 30, 1998 Registration No.
333-64789.
3.1 Articles of Incorporation of Registrant (incorporated by
reference as Exhibit 3.(a) to the Registrant's Form S-4 filed
by Capital City Bancshares, Inc. on September 30, 1998,
Registration No. 333-64789).
3.2 Bylaws of Registrant (incorporated by reference as Exhibit
3.(b) to the Registrant's Form S-4 filed by Capital City
Bancshares, Inc. on September 30, 1998, Registration No. 333-
64789).
27. Financial Data Schedule
B. Reports on Form 8-K. No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
-70-
<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.
CAPITOL CITY BANCSHARES, INC.
BY:/s/ GEORGE G. ANDREWS
--------------------------------
GEORGE G. ANDREWS, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
-71-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1998 FTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,136
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,326
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,737
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 21,945
<ALLOWANCE> 299
<TOTAL-ASSETS> 47,830
<DEPOSITS> 41,353
<SHORT-TERM> 0
<LIABILITIES-OTHER> 428
<LONG-TERM> 0
0
0
<COMMON> 3,193
<OTHER-SE> 2,856
<TOTAL-LIABILITIES-AND-EQUITY> 47,830
<INTEREST-LOAN> 2,057
<INTEREST-INVEST> 958
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 3,187
<INTEREST-DEPOSIT> 1,195
<INTEREST-EXPENSE> 1,195
<INTEREST-INCOME-NET> 1,192
<LOAN-LOSSES> 113
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 2,341
<INCOME-PRETAX> 706
<INCOME-PRE-EXTRAORDINARY> 706
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
<YIELD-ACTUAL> 5.20
<LOANS-NON> 56
<LOANS-PAST> 9
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 272
<CHARGE-OFFS> 178
<RECOVERIES> 92
<ALLOWANCE-CLOSE> 299
<ALLOWANCE-DOMESTIC> 299
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 299
</TABLE>
