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, 1999
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
(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
(Bank's Telephone No., Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$6.00 PAR VALUE 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 [ ]
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, 1999 were $5,305,992.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant on March 6, 2000, was $7,981,320. 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 6, 2000, 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, 1999
Item Page
Number Number
PART I
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.
Business Overview.
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 Provesa 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, 1999, 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.
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
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 has 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
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
As of December 31, 1999, the Company had 35 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.
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.
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.
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.
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.
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.
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, 1999, the Company maintained Tier 1 and Total
Risk-Based Capital Ratios of 17.08% and 15.84%, respectively. For a more
detailed analysis of the Company and the Bank's regulatory requirements see Note
12 to the Notes to Consolidated Financial Statements.
The Riegle-Neal Interstate Banking and Branching Efficiency Act.
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.
The Gramm-Leach-Bliley Act of 1999
The Gramm-Leach-Bliley Act (the "GLB Act") dramatically increases the
ability of eligible banking organizations to affiliate with insurance,
securities, and other financial firms and insured depository institutions. The
GLB Act permits eligible banking organizations to engage in activities and to
affiliate with nonbank firms engaged in activities that are financial in nature
or incidental to such financial activities, and also includes some additional
activities that are complementary to such financial activities.
The definition of activities that are financial in nature is handled by
the GLB Act in two ways. First, there is a laundry list of activities that are
designated as financial in nature. Second, the authorization of new activities
as financial in nature or incidental to a financial activity requires a
consultative process between the Federal Reserve Board and the Secretary of the
Treasury with each having the authority to veto proposals of the other. The
Federal Reserve Board has the discretion to determine what activities are
complementary to financial activities.
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The precise scope of the authority to engage in these new financial
activities, however, depends on the type of banking organization, whether it is
a holding company, a subsidiary of a national bank, or a national bank's direct
conduct. The GLB Act repealed two sections of the Glass-Stegall Act, Sections 20
and 32, which restricted affiliations between securities firms and banks. The
GLB Act authorizes two types of banking organizations to engage in expanded
securities activities. The GLB Act authorizes a new type of bank holding company
called a financial holding company to have a subsidiary company that engages in
securities underwriting and dealing without limitation as to the types of
securities involved. The GLB Act also permits a national bank to control a
financial subsidiary that can engage in many of the expanded securities
activities permitted for financial holding companies. However, additional
restrictions apply to national bank financial subsidiaries.
Since the Bank Holding Company Act of 1956, and its subsequent amendments,
federal law has limited the types of activities that are permitted for a bank
holding company, and it is has also limited the types of companies that a bank
holding company can control. The GLB Act retains the bank holding company
regulatory framework, but adds a new provision that authorizes enlarged
authority for the new financial holding company form of organization to engage
in any activity of a financial nature or incidental thereto. A new Section 4(k)
of the Bank Holding Company Act provides that a financial holding company may
engage in any activity, and may acquire and retain shares of any company engaged
in any activity, that the Federal Reserve Board in coordination with the
Secretary of the Treasury determines by regulation or order to be financial in
nature or incidental to such financial activities, or is complementary to
financial activities.
The GLB Act also amends the Bank Holding Company Act to prescribe
eligibility criteria for financial holding companies, defines the scope of
activities permitted for bank holding companies that do not become financial
holding companies, and establishes consequences for financial holding companies
that cease to maintain the status needed to qualify as a financial holding
company.
There are three special criteria to qualify for the enlarged activities
and affiliation. First, all the depository institutions in the bank holding
company organization must be well- capitalized. Second, all of the depository
institutions of the bank holding company must be well managed. Third, the bank
holding company must have filed a declaration of intent with the Federal Reserve
Board stating that it intends to exercise the expanded authority under the GLB
Act and certify to the Federal Reserve Board that the bank holding company's
depository institutions meet the well-capitalized and well managed criteria. The
GLB Act also requires the bank to achieve a rating of satisfactory or better in
meeting community credit needs at the most recent examination of such
institution under the Community Reinvestment Act.
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Once a bank holding company has filed a declaration of its intent to be a
financial holding company, as long as there is no action by the Federal Reserve
Board giving notice that it is not eligible, the company may proceed to engage
in the activities and enter into the affiliations under the large authority
conferred by the GLB Act's amendments to the Bank Holding Company Act. The
holding company does not need prior approval from the Federal Reserve Board to
engage in activities that the GLB Act identifies as financial in nature or that
the Federal Reserve Board has determined to be financial in nature or incidental
thereto by order or regulation.
The GLB Act retains the basic structure of the Bank Holding Company Act.
Thus, a bank holding company that is not eligible for the expanded powers of a
financial holding company is now subject to the amended Section 4(c)(8) of the
Bank Holding Company Act which freezes the activities that are authorized and
defined as closely related to banking activities. Under this Section, a bank
holding company is not eligible for the expanded activities permitted under new
Section 4(k) and is limited to those specific activities previously approved by
the Federal Reserve Board.
The GLB Act also addresses the consequences when a financial holding
company that has exercised the expanded authority fails to maintain its
eligibility to be a financial holding company. The Federal Reserve Board may
impose such limitations on the conduct or activities of a noncompliant financial
holding company or any affiliate of that company as the Board determines to be
appropriate under the circumstances and consistent with the purposes of the Act.
The GLB Act is essentially a dramatic liberalization of the restrictions
placed on banks, especially bank holding companies, regarding the areas of
financial businesses in which they are allowed to compete.
Regulation of the Bank.
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
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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 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,
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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 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.
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.
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FDIC Insurance Assessments.
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 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, 1999, the
Bank met the definition of a well-capitalized institution, and will be assessed
accordingly for 1999.
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.
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
-14-
<PAGE>
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.
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.
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.
-15-
<PAGE>
Monetary Policy.
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 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.
Competition.
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.
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
-16-
<PAGE>
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 10 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, 1999.
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.
-17-
<PAGE>
YEAR HIGH SELLING LOW SELLING
PRICE PRICE
1999
First Quarter $12.50 $10.00
Second Quarter $12.50 $10.00
Third Quarter $12.50 $10.00
Fourth Quarter $12.50 $10.00
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
As of December 31, 1999, 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 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 1998 or 1999.
-18-
<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 securities portfolio, 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
During 1999, the Company continued to experience moderate growth in total
assets, total interest-earning assets, and total deposits. As of December 31,
1999, the Company reported total assets of $57.6 million, an increase of 20.4%
over 1998. Total interest-earning assets and total deposits increased during
1999 by $9.4 million, or 21.7% and $9.7 million, or 23.5%, respectively. Net
income remained flat at $512,000 for the year ended December 31, 1999 as
compared to $513,000 for 1998.
<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, 1999, 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, 1999, the Company's short-term investments were
adequate to cover any reasonably anticipated immediate need for funds.
At December 31, 1999, the Company's capital to asset ratios were considered
adequate based on guidelines established by the regulatory authorities. During
1999, total equity of the Company decreased by $21,000. This decrease consists
of net income of $512,000 reduced by unrealized losses on securities
available-for-sale, net of tax, of $533,000. Management has not specifically
identified any securities for sale in future periods which, if so designated,
would require a charge to operations if the market value would not be reasonably
expected to recover prior to the time of sale. At December 31, 1999, total
capital of the Company amounted to approximately $6,028,000 and is considered
well-capitalized based on regulatory requirements.
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.
YEAR 2000
Based on a review of the Bank's and the Company's business since January 1,
2000, the Company has not experienced any material effects of the Year 2000
problem. Although the Company has not been informed of any material risks
associated with the Year 2000 problem from third parties, there can be no
assurance that the Company will not be impacted in the future. The Company will
continuously monitor its business applications and maintain contact with its
third party vendors and key business partners to resolve Year 2000 problems that
may arise in the future.
<PAGE>
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.
BALANCE SHEETS
Total assets increased approximately $9.7 million or 20.4% from 1998 to 1999
compared to an increase of $12.0 million for the year ended December 31, 1998.
The majority of the increase in assets is the net of an increase in loans of
$11.7 million and a decrease in Federal funds sold of $2.8 million. The single
most significant increase by type of loans was an increase in real estate loans
of $7.1 million.
The increase in assets and loans was funded primarily by an increase in deposits
of approximately $9.7 million or 23.5% as compared to a $11.2 million increase
in 1998. The net increase was made up of an increase in noninterest-bearing
demand deposits of $1.9 million, an increase in savings of $870,000, an increase
in time deposits of $3.9 million, and an increase in interest-bearing demand of
$3.0 million.
During 1999 and 1998, the Company incurred expenses related to the formation of
the holding company as well as expenses related to one unsuccessful bank
acquisition and two other potential acquisitions which were unsuccessful. These
expenses are reported as expenses of the holding company and were funded by
advances on the note payable. The repayment of the note payable will be funded
through dividends from the Bank to the Company. The note payable is scheduled to
mature in the second quarter of 2000.
The Company will continue to explore opportunities to expand its operations
through mergers and acquisitions. Currently, there are no mergers or
acquisitions being considered.
Average total assets increased $12.3 million from 1998 to 1999. Average
interest-earning assets increased $10.5 million from 1998 to 1999. Average loans
increased in 1999 by $8.8 million, or 46.0% while total average securities
increased $3.0 million, or 18.8%. Average interest-bearing liabilities increased
during 1999 by $8.3 million from $24.9 million to $33.2 million.
Average noninterest-bearing demand deposits increased by $3.5 million, or 31.2%,
and average interest-bearing and savings and time deposits increased by $2.9
million and $5.3 million, respectively, for the year ended 1999.
<PAGE>
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
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.
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 of interest-bearing deposits and note
payable.
The yield on interest-earning assets decreased by 18 basis points in 1999 as
compared to 1998 to 8.14%. The net yield on interest-earning assets decreased 13
basis points to 5.07% during 1999 from 5.20% during 1998. The yield on
interest-bearing liabilities decreased 29 basis points from 4.80% in 1998 to
4.51% in 1999. The decrease in net yield on average interest-earning assets is
primarily the result of the decrease in yield on loans, which decreased by 27
basis points. This decrease in loan yield contributed to the overall decrease in
yield on interest-earning assets. Average loans represented 57% and 50% of total
interest-earning assets at December 31, 1999 and 1998, respectively. During
1999, the overall yield on interest-bearing liabilities decreased by 29 basis
points which minimized the effect of the reduction of income due to the decline
in interest rates. The net effect on net interest income was an increase of
$482,000, or 24.2% as compared to 1998. This net increase is attributable to the
increase in interest-earning assets, which were partially funded by an increase
of $3.5 million in noninterest-bearing liabilities.
<PAGE>
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.
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 increased in 1999 from $113,000 to $339,000, or by $226,000.
Actual loan charge-offs increased by 48% from $178,000 in 1998 to $263,000 for
the year ended 1999, while recoveries increased from $92,000 to $133,000
resulting in net charge-offs of $130,000 and $86,000 for the years ended
December 31, 1999 and 1998, respectively. The change in net charge-offs of
$44,000 represents a net charge-off to average loans ratio of .47% in 1999 as
compared to .45% in 1998.
The Company's allowance for loan loss was $508,000 at December 31, 1999 compared
to $299,000 at December 31, 1998. The allowance as a percentage of total loans
increased from 1.36% in 1998 to 1.50% in 1999. The increase in the provision for
loan losses and the allowance to total loan ratio is due to: 1) the increase in
volume of loans; 2) the increase in total and net loan charge-offs. At December
31, 1999, there were no impaired or nonaccrual loans. As of December 31, 1998,
there were $56,000 of nonaccrual loans.
Other income increased $166,000 or 14.2% in 1999 compared to an increase of
$205,000 in 1998. These increases consist primarily of increases in service
charges on deposit accounts of $254,000 and $181,000, 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 63% and 57%, respectively,
of the service charge income is generated from insufficient funds charges for
the years ended December 31, 1999 and 1998. Other operating income reported for
the year ended December 31, 1998 included $48,000 of one-time income for
operating the airport branch. The Company recorded income in 1999 of $13,000 as
final payment under the Airport branch agreement.
Other expenses increased $542,000 or 23.1% during 1999 compared to $497,000 in
1998. The change is due partially to an increase in salaries and employee
benefits of $215,000. The increase in salaries and employee benefits is due to
increases in overall employee salaries, benefits, and normal increases. The
number of employees increased in 1999 from 31 to 39. Occupancy and equipment
expenses increased by a combined total of $129,000 as compared to $110,000 in
1998. The significant increase in 1999 was due to increased maintenance
expenses, increased depreciation expense related to equipment purchased, and
increased property taxes. Other operating expenses increased $198,000 in 1999 as
compared to 1998. This change is due to the overall growth in loans and
deposits, and the related increases in expenses such as supplies, forms,
postage, telephone, courier service, and data processing. The Bank, since its
inception, has experienced and processes an extremely high volume of
transactions due to its locations and overall philosophy, which is to provide
full service banking to the communities in which they are located. The high
volume is directly related to the service charge income and other expenses.
During 1999, the Company recognized income tax expense of $73,000 compared to
$193,000 in 1998. The effective tax rate was 13% and 27% for the years ended
December 31, 1999 and 1998, respectively. The significant reduction in the
effective tax rate in 1999 as compared to 1998 is due to the Company's
investment in tax-free securities. The result of these investments reduced the
Company's statutory taxes by $127,000 and $45,000 for 1999 and 1998,
respectively. The Company will continue to invest in tax-free securities as long
as the tax equivalent yields are comparable to taxable securities.
<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.(1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
---- ----
(Dollars in Thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,820 $ 1,878
Taxable securities 9,706 11,910
Nontaxable securities 9,257 4,052
Unrealized gains (losses) on securities available-for-sale (170) 116
Federal funds sold 1,933 3,200
Loans (2)(3) 27,927 19,123
Allowance for loan losses (266) (282)
Other assets 3,170 2,111
-------- --------
$ 54,377 $ 42,108
======== ========
Total interest-earning assets $ 48,823 $ 38,285
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 14,595 $ 11,121
Interest-bearing demand and savings 9,153 6,191
Time 23,995 18,693
-------- --------
Total deposits 47,743 36,005
Note payable 70 --
Other liabilities 402 298
-------- --------
Total liabilities 48,215 36,303
-------- --------
Stockholders' equity (4) 6,162 5,805
-------- --------
$ 54,377 $ 42,108
======== ========
Total interest-bearing liabilities $ 33,218 $ 24,884
======== ========
</TABLE>
(1) Average balances were determined using the daily average balances.
(2) Nonaccrual loans of $5,000 and $53,000 are included in the average
balances of loans for 1999 and 1998, respectively.
(3) Loans are net of deferred loan fees and unearned interest.
(4) Includes net unrealized gains (losses) on securities available-for-sale
<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,
1999 1998
---------------------- ---------------------
AVERAGE AVERAGE
INTEREST RATE INTEREST RATE
----------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans(1) $2,929 10.49% $2,057 10.76%
Interest on taxable securities 545 5.62 761 6.38
Interest on nontaxable securities(2) 398 4.30 197 4.86
Interest on Federal funds sold 101 5.23 172 5.38
------- ------
Total interest income $3,973 8.14% $3,187 8.32%
------- ------
INTEREST EXPENSE:
Interest on interest-bearing demand
and savings deposits 271 2.96% 219 3.54%
Interest on time deposits 1,222 5.09 976 5.22
Interest on note payable 6 7.89 -- --
------- ------
Total interest expense $1,499 4.51% $1,195 4.80%
------- ------
NET INTEREST INCOME $2,474 $1,992
======= ======
Net interest spread 3.63% 3.52%
======= ======
Net yield on average interest-earning assets 5.07% 5.20%
======= ======
</TABLE>
(1) Interest on loans includes $274,742 and $196,268 of loan fee income for
the years ended December 31, 1999 and 1998, 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.
<PAGE>
<TABLE>
<CAPTION>
1999 VS. 1998
CHANGES DUE TO:
---------------
INCREASE
RATE VOLUME (DECREASE)
---- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Interest on loans (51) $ 923 $ 872
Interest on taxable securities (80) (136) (216)
Interest on nontaxable securities (20) 221 201
Interest on Federal funds sold (5) (66) (71)
--- --- ---
Total interest income (156) 942 786
==== === ===
Interest on interest-bearing
demand and savings deposits (27) 79 52
Interest on time deposits (23) 269 246
Interest on note payable -- 6 6
--- --- ---
Total interest expense (50) 354 304
--- --- ---
-----
Net interest income (106) 588 482
==== === ===
</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.
<PAGE>
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 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, 1999, the Company's cumulative one year interest rate
sensitivity gap ratio was 80%. 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, 1999, 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.
<PAGE>
<TABLE>
<CAPTION>
AFTER AFTER
THREE ONE
MONTHS YEAR BUT
WITHIN BUT WITHIN AFTER
THREE WITHIN FIVE FIVE
MONTHS ONE YEAR YEARS YEARS TOTAL
------ -------- ----- ----- -----
(Dollars in Thousands)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 540 $-- $-- $-- $ 540
Securities 4,229 375 4,378 8,981 17,963
Loans 17,394 2,388 10,143 4,044 33,969
-------- -------- -------- -------- --------
$ 22,163 $ 2,763 $ 14,521 $ 13,025 $ 52,472
-------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand
deposits and savings 10,723 -- -- -- 10,723
Certificates, less than
$ 100,000 2,773 4,258 1,629 1,455 10,115
Certificates, $100,000
and over 7,831 5,406 1,760 100 15,097
Other borrowings 115 -- -- -- 115
-------- -------- -------- -------- --------
$ 21,442 $ 9,664 $ 3,389 $ 1,555 $ 36,050
-------- -------- -------- -------- --------
INTEREST RATE SENSITIVITY GAP $ (721) $ (6,901) $ 11,132 $ 11,470 $ 16,422
======== ======== ======== ======== ========
CUMULATIVE INTEREST RATE
SENSITIVITY GAP $ (721) $ (6,180) $ 4,952 $ 16,422
======== ======== ======== ========
INTEREST RATE SENSITIVITY
GAP RATIO 1.03 .29 4.28 8.38
======== ======== ======== ========
CUMULATIVE INTEREST RATE
SENSITIVITY GAP RATIO 1.03 .80 1.14 1.46
======== ======== ======== ========
</TABLE>
<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 after 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 58% 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:
DECEMBER 31,
1999 1998
---- ----
(Dollars in Thousands)
U.S. Treasury and government agencies $ 8,132 $9,741
State and municipal securities 9,831 7,996
------- ------
$17,963$ 17,737
====== ======
<PAGE>
MATURITIES
The amounts of securities in each category as of December 31,1999 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>
One year or less $ -- -- % $ 814 4.50%
After one year through five years 2,126 5.81 1,944 5.54
After five through ten years 2,216 6.28 5,606 5.11
Greater than ten years 3,790 6.09 1,467 4.57
------ ------
$8,132 6.07% $9,831 5.06%
====== ======
</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.
DECEMBER 31,
1999 1998
---- ----
(Dollars in Thousands)
Commercial $10,716 $ 8,050
Real estate-construction 1,465 581
Real estate-mortgage 17,513 10,364
Consumer 3,981 2,963
Other 294 65
------- -------
$33,969 $22,023
======= =======
The Company currently does not specifically allocate the allowance for loan
losses by category, therefore, no allocations are presented.
<PAGE>
MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
Total loans as of December 31, 1999 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.
Dollars in Thousands
One year or less $ 8,668
After one year through five years 14,730
After five years 10,571
------
$33,969
======
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, 1999 with the due dates
after one year which have predetermined floating or adjustable interest rates.
Dollars in Thousands
Predetermined interest rates $21,807
Floating or adjustable interest rates 3,494
-------
$25,301
=======
RISK ELEMENTS
The following table presents, at the dates indicated, the aggregate of
nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $-- $56
Installment loans and term loans contractually
past due ninety days or more as to interest
or principal payments and still accruing 19 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 60,531 32
</TABLE>
<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, 1999 and 1998.
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 and standby letters of
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, 1999 and 1998.
1999 1998
---- ----
(Dollars in Thousands)
Commitments to extend credit $4,546 $2,207
Standby letters of credit 62 -
----- ------
$4,608 $2,207
===== ======
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.
<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,
1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
Average balance of loans outstanding $ 27,927 $ 19,123
======== ========
Balance of allowance for loan losses at
beginning of period 299 272
Charge-offs:
Installment (173) (178)
Commercial (37) --
Real estate (53) --
-------- --------
(263) (178)
-------- --------
Recoveries:
Installment 108 91
Commercial 25 1
-------- --------
133 92
-------- --------
Net charge-offs (130) (86)
-------- --------
Addition to allowance charged to operating expenses 339 113
-------- --------
Balance of allowance for loan losses $ 508 $ 299
======== ========
Ratio of net loan charge-offs to average loans 0.47% 0.45%
======== ========
</TABLE>
<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>
YEARS ENDED DECEMBER 31,
1999 1998
---- ----
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C>
Noninterest-bearing demand $14,595 --% $11,121 --%
Interest-bearing demand and savings 9,153 2.96 6,191 3.54
Time deposits 23,995 5.09 18,693 5.22
------ ------
Total $47,743 4.50 $36,005 4.80
====== ======
</TABLE>
The following table presents the maturities of time deposits of $100,000 or more
as of December 31, 1999 for the periods indicated.
(Dollars in Thousands)
Three months or less $ 7,831
Over three through twelve months 5,406
Over twelve months 1,860
-------
Total $ 15,097
======
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,
1999 1998
---- ----
Return on assets .89% 1.22%
Return on equity 8.49 8.84
Dividend payout -- --
Equity to assets 10.47 13.79
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Company and its
subsidiaries are included in 6this Annual Report on Form 10-KSB.
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999 and 1998
Consolidated Statements of Comprehensive Income (Loss) - Years ended
December 31, 1999 and 1999
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and
1998
Notes to Consolidated Financial Statements
<PAGE>
CAPITOL CITY BANCSHARES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999 and 1998
Consolidated Statements of Comprehensive Income (Loss) - Years ended
December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1999 and 1999
Consolidated Statements of Cash Flows - Years ended December 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ON THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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, 1999 and
1998, and the related consolidated statements of income, comprehensive income
(loss), 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, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
March 20, 2000
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,378,710 $ 2,136,219
Federal funds sold 540,000 3,326,000
Securities available-for-sale 17,963,043 17,736,878
Loans 33,857,305 21,945,017
Less allowance for loan losses 508,036 299,425
----------- -----------
Loans, net 33,349,269 21,645,592
----------- -----------
Premises and equipment 2,476,526 2,483,124
Other assets 864,160 502,311
----------- -----------
TOTAL ASSETS $57,571,708 $47,830,124
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $15,135,688 $13,262,505
Interest-bearing demand 7,012,674 3,962,667
Savings 3,710,103 2,839,754
Time, $100,000 and over 15,097,177 13,674,750
Other time 10,114,883 7,613,013
----------- -----------
Total deposits 51,070,525 41,352,689
Note payable 115,475 0
Other liabilities 357,936 428,523
----------- -----------
TOTAL LIABILITIES 51,543,936 41,781,212
----------- -----------
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 1,137,338 625,448
Accumulated other comprehensive income (loss) -430,446 102,584
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,027,772 6,048,912
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,571,708 $47,830,124
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans $2,928,759 $2,056,873
Taxable securities 545,067 761,092
Nontaxable securities 397,817 197,339
Federal funds sold 101,215 172,226
---------- ----------
TOTAL INTEREST INCOME 3,972,858 3,187,530
---------- ----------
INTEREST EXPENSE
Deposits 1,493,401 1,194,964
Other borrowings 5,547 0
---------- ----------
TOTAL INTEREST EXPENSE 1,498,948 1,194,964
---------- ----------
NET INTEREST INCOME 2,473,910 1,992,566
PROVISION FOR LOAN LOSSES 339,000 113,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,134,910 1,879,566
---------- ----------
OTHER INCOME
Service charges on deposit accounts 1,256,623 1,003,090
Other fees and commissions 58,450 88,012
Net realized gains on sale of securities available-for-sale 149 14,953
Other operating income 17,912 61,233
---------- ----------
TOTAL OTHER INCOME 1,333,134 1,167,288
---------- ----------
OTHER EXPENSES
Salaries and employee benefits 1,355,865 1,140,763
Equipment expenses 335,436 271,362
Occupancy expenses 214,081 149,617
Other operating expenses 977,423 779,324
---------- ----------
TOTAL OTHER EXPENSES 2,882,805 2,341,066
---------- ----------
INCOME BEFORE INCOME TAXES 585,239 705,788
INCOME TAX EXPENSE 73,349 193,174
---------- ----------
NET INCOME $ 511,890 $ 512,614
========== ==========
BASIC EARNINGS PER COMMON SHARE $ 0.96 $ 0.96
========== ==========
DILUTED EARNINGS PER SHARE $ 0.95 $ 0.96
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
NET INCOME $ 511,890 $512,614
--------- --------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during period, net
of tax (benefits) of $(274,542) and $42,573, respectively -532,932 82,642
Reclassification adjustment for gains realized
in net income, net of tax of $51 and $5,084,
respectively -98 -9,869
--------- --------
OTHER COMPREHENSIVE INCOME (LOSS) -533,030 72,773
--------- --------
COMPREHENSIVE INCOME (LOSS) $ -21,140 $585,387
========= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------------ CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES PAR VALUE SURPLUSE EARNINGS INCOME (LOSS) EQUITY
--------- ------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 532,088 $ 3,192,528 $ 2,128,352 $ 112,834 $ 29,811 $ 5,463,525
Net income 0 0 0 512,614 0 512,614
Other comprehensive income 0 0 0 0 72,773 72,773
--------- ------------ ------------ ------------ ---------- ------------
BALANCE, DECEMBER 31, 1998 532,088 3,192,528 2,128,352 625,448 102,584 6,048,912
Net income 0 0 0 511,890 0 511,890
Other comprehensive loss 0 0 0 0 -533,030 -533,030
--------- ------------ ------------ ------------ ---------- ------------
BALANCE, DECEMBER 31, 1999 532,088 $ 3,192,528 $ 2,128,352 $ 1,137,338 $-430,446 $ 6,027,772
========= ============ ============ ============ ========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 511,890 $ 512,614
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 242,992 141,790
Amortization 4,364 5,818
Provision for loan losses 339,000 113,000
Deferred taxes -76,558 29,487
Loss on disposal of premises and equipment 0 72,894
Net realized gains on sale of securities available-for-sale -149 -14,953
Increase in interest receivable -82,765 -83,394
Increase in interest payable 143,690 39,311
Other operating activities -146,574 88,460
------------- --------------
Net cash provided by operating activities 935,890 905,027
------------- --------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale -7,728,069 -12,223,437
Proceeds from sales of securities available-for-sale 2,687,816 2,268,984
Proceeds from maturities of securities available-for-sale 4,006,614 7,077,650
Net (increase) decrease in Federal funds sold 2,786,000 -1,553,000
Net increase in loans -12,042,677 -6,116,187
Purchase of premises and equipment -236,394 -1,347,073
------------- --------------
Net cash used in investing activities -10,526,710 -11,893,063
------------- --------------
FINANCING ACTIVITIES
Net increase in deposits 9,717,836 11,210,178
Proceeds from note payable 115,475 0
------------- --------------
Net cash provided by financing activities 9,833,311 11,210,178
------------- --------------
Net increase in cash and due from banks 242,491 222,142
Cash and due from banks at beginning of year 2,136,219 1,914,077
------------- --------------
Cash and due from banks at end of year $ 2,378,710 $ 2,136,219
============= ==============
SUPPLEMENTAL DISCLOSURE Cash paid for:
Interest $ 1,355,258 $ 1,155,653
Income taxes 283,358 62,656
NONCASH TRANSACTION
Unrealized (gains) losses on securities available-for-sale $ 807,623 $ -110,263
</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 as of the
balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan
losses and deferred tax assets.
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 recorded at amortized
cost. All other securities are classified as
available-for-sale and recorded at fair value with net
unrealized gains and losses reported in other comprehensive
income (loss).
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES (CONTINUED)
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.
LOANS
Loans are reported at their outstanding principal balances
less unearned income, net deferred loan fees and the
allowance for loan losses. Interest income on loans is
accrued based on the principal balance outstanding.
Loan origination fees and direct costs of most loans are
recognized at the time the loan is recorded. Loan
origination fees for other 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 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.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential
losses in the loan portfolio. Loan losses are charged
against the allowance when management believes the
uncollectibility of a loan is confirmed. Subsequent
recoveries are credited to the allowance. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
A loan is considered impaired when it is probable the
Company will be unable to collect all principal and
interest payments due in accordance with the contractual
terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of
expected payments, using the contractual loan rate as the
discount rate, the loan's observable market price, or the
fair value of the collateral if the loan is collateral
dependent. 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
Land is carried at cost. Premises and equipment are carried
at cost less accumulated depreciation 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 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.
<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
were originally recorded in other assets and were being
amortized 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 became effective
for financial statements for fiscal years beginning after
December 15, 1998. During 1999, the Company wrote off
$32,144 of unamortized organization costs upon adoption of
SOP 98-5.
EARNINGS PER COMMON SHARE
Basic earnings per share are computed by dividing net
income by the weighted-average number of shares of common
stock outstanding. Diluted earnings per common share are
computed by dividing net income by the sum of the
weighted-average number of shares of common stock
outstanding and potential common shares. Potential common
shares consist of stock options.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No.
130 describes comprehensive income as the total of all
components of comprehensive income, including net income.
Other comprehensive income (loss) refers to revenues,
expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income
(loss) but excluded from net income. Currently, the
Company's other comprehensive income (loss) consists of
unrealized gains and losses on available-for-sale
securities.
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The effective date of this
statement has been deferred by SFAS No. 137 until fiscal
years beginning after June 15, 2000. 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, 2001. 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.
There are no other recent accounting pronouncements that
have had, or are expected to have, a material effect on the
Company's financial statements.
<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, 1999:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 2,710,218 $ - $ (94,092) $ 2,616,126
STATE AND MUNICIPAL SECURITIES 10,171,311 - (340,334) 9,830,977
MORTGAGE-BACKED SECURITIES 5,733,706 - (217,766) 5,515,940
----------- --------- ----------- ------------
$18,615,235 $ - $(652,192) $ 17,963,043
=========== ========= =========== ============
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
=========== ========= =========== ============
</TABLE>
Gross gains and losses on sales of securities
available-for-sale consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
------- --------
<S> <C> <C>
Gross gains $ 2,146 $15,063
Gross losses (1,997) (110)
------- -------
Net realized gains $ 149 $14,953
======= =======
</TABLE>
Securities with a carrying value of $10,902,675 and
$10,188,241 at December 31, 1999 and 1998, respectively, were
pledged to secure public deposits and for other purposes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities as of
December 31, 1999 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 $ 815,067 $ 814,534
Due from one to five years 4,177,539 4,068,438
Due from five to ten years 6,318,539 6,097,439
Due after ten years 1,570,384 1,466,692
Mortgage-backed securities 5,733,706 5,515,940
----------- -----------
$18,615,235 $17,963,043
=========== ===========
</TABLE>
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Commercial $10,716,000 $ 8,050,000
Real estate - construction 1,465,000 581,000
Real estate - mortgage 17,513,000 10,364,000
Consumer 3,981,000 2,963,000
Other 294,345 64,507
----------- -----------
33,969,345 22,022,507
Unearned income (5,627) (5,361)
Net deferred loan fees (106,413) (72,129)
Allowance for loan losses (508,036) (299,425)
----------- -----------
Loans, net $33,349,269 $21,645,592
=========== ===========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Balance, beginning of year $ 299,425 $ 271,689
Provision for loan losses 339,000 113,000
Loans charged off (263,195) (177,616)
Recoveries of loans previously charged off 132,806 92,352
--------- ---------
Balance, end of year $ 508,036 $ 299,425
========= =========
</TABLE>
The following is a summary of information pertaining to
impaired loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
---- -------
<S> <C> <C>
Impaired loans without a valuation allowance $ - $65,426
Impaired loans with a valuation allowance - -
------ -------
Total impaired loans $ - $65,426
====== =======
Valuation allowance related to impaired loans $ - $ -
====== =======
Average investment in impaired loans $5,463 $53,307
====== =======
Interest recognized on impaired loans $ 88 $ 1,545
====== =======
</TABLE>
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, 1999 are as follows:
Balance, beginning of year $ 1,740,759
Advances 1,942,339
Repayments (524,953)
Change in directors (59,656)
-----------
Balance, end of year $ 3,098,489
===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land $ 400,000 $ 400,000
Buildings 1,605,538 1,569,694
Equipment 1,012,237 813,041
----------- -----------
3,017,775 2,782,735
Accumulated depreciation (541,249) (299,611)
----------- -----------
$ 2,476,526 $ 2,483,124
=========== ===========
</TABLE>
NOTE 5. DEPOSITS
At December 31, 1999, the scheduled maturities of time
deposits are as follows:
2000 $20,231,018
2001 2,196,776
2002 1,231,749
2003 957,515
2004 595,002
-----------
$25,212,060
===========
NOTE 6. NOTE PAYABLE
The note payable consists of the following at December 31,
1999:
<TABLE>
<S> <C>
Note payable to bank, interest due quarterly at prime
minus .50%, or 8.00% at December 31, 1999,
unsecured, matures May 21, 2000. $115,475
========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. EMPLOYEE BENEFIT PLAN
STOCK OPTION PLANS
On July 13, 1999, the Board of Directors approved a Stock
Option Plan in which the Company can grant to directors,
emeritus directors, and employees options for an aggregate
of 159,000 shares of the Company's common stock. For
incentive stock options, the option price shall be not less
than the fair market value of such shares on the date the
option is granted. If the optionee owns shares of the
Company representing more than 10% of the total combined
voting power, then the price shall not be less than 110% of
the fair market value of such shares on the date the option
is granted. With respect to nonqualified stock options, the
option price shall be set in the Board's sole and absolute
discretion. The option period will not exceed ten years
from date of grant. Other pertinent information related to
the options is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998
------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Under option, beginning of year - $ - - $-
Granted 105,000 10.00 - -
Exercised - - - -
------- ---
Under option, end of year 105,000 $10.00 - $-
======= ===
Weighted-average fair value of
options granted during the year $ 4.45 $-
</TABLE>
Information pertaining to options outstanding at December
31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------------------ --------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$10.00 105,000 9.5 years $ 10.00 105,000 $ 10.00
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. EMPLOYEE BENEFIT PLAN (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The Company applies APB Opinion 25 and related
Interpretations in accounting for the stock option plan.
Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock option plan been determined
based on the fair value at the grant dates for awards under
the plan consistent with the method prescribed by SFAS No.
123, net income and earnings per share would have been
adjusted to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1999 1998
--------- -----------
<S> <C> <C>
Net income As reported $ 511,890 $ 512,614
Pro forma $ 203,744 $ 512,614
Earnings per share As reported $ 0.96 $ 0.96
Pro forma $ 0.38 $ 0.96
Earnings per share - As reported $ 0.95 $ 0.96
assuming dilution Pro forma $ 0.38 $ 0.96
</TABLE>
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
1999
--------------------------
<S> <C>
Dividend yield 0.00%
Expected life 10 years
Expected volatility 0.01%
Risk-free interest 5.969%
rate
</TABLE>
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. Contributions to the plan charged to
expense for the years ended December 31, 1999 and 1998
amounted to $48,353 and $37,391, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Current $149,907 $163,687
Deferred taxes (76,558) 39,408
Change in valuation allowance - (9,921)
-------- --------
Income tax expense $ 73,349 $193,174
======== ========
</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>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998
------------------- --------------------
AMOUNT PERCENT Amount Percent
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 198,982 34 % $239,968 34 %
Change in valuation allowance - - (9,921) (2)
Tax-free income (127,325) (22) (45,083) (6)
Disallowed interest expense 17,298 3 5,753 1
Other items, net (15,606) (2) 2,457 -
--------- -------- -------- ---------
Income tax expense $ 73,349 13 % $193,174 27 %
========= ======== ======== =========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- -----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 97,926 $ 34,762
Preopening expense amortization 8,725 12,611
Securities available-for-sale 221,745 -
--------- ------------
328,396 47,373
--------- ------------
Deferred tax liabilities:
Depreciation 46,226 42,493
Accrual to cash method of accounting for tax purposes 51,786 72,799
Securities available-for-sale - 52,847
--------- ------------
98,012 168,139
--------- ------------
Net deferred tax assets (liabilities) $ 230,384 $ (120,766)
========= ============
</TABLE>
NOTE 9. EARNINGS PER COMMON SHARE
Diluted earnings per common share were computed by dividing
net income by the weighted average number of shares of common
stock and common stock equivalents outstanding. The number of
common shares was increased by the number of shares issuable
upon the exercise of the stock options described in Note 7.
This theoretical increase in the number of common shares was
reduced by the number of common shares which are assumed to
have been repurchased for the treasury with the proceeds from
the exercise of the options; these purchases were assumed to
have been made at the price per share that approximates
average market price. The treasury stock method for
determining the amount of dilution of stock options is based
on the concept that common shares which could have been
purchased with the proceeds of the exercise of common stock
options at market price are not actually outstanding common
shares.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. EARNINGS PER COMMON SHARE (CONTINUED)
Presented below is a summary of the components used to
calculate basic and diluted earnings per share for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $511,890 $512,614
======== ========
Weighted average common shares outstanding 532,088 532,088
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the year $ 4,472 $ -
-------- --------
Total weighted average common shares and
common stock equivalents outstanding 536,560 532,088
======== ========
Diluted earnings per share $ 0.95 $ 0.95
======== ========
</TABLE>
NOTE 10. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. 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,
--------------------------
1999 1998
------------ ----------
<S> <C> <C>
Standby letters of credit $ 61,750 $ -
Commitments to extend credit 4,546,000 2,207,000
------------ ----------
$ 4,607,750 $2,207,000
============ ==========
</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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
LEASE COMMITMENT
In June 1996, the Company 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 Company's
obligations under the sublease with the exception of the
Company'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, 1999 and
1998 was $4,928 and $20,195, respectively.
NOTE 11. 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-six 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 statutory as defined, which amounted to
approximately $1,330,000 at December 31, 1999.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. 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, 1999, approximately $288,000 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 capital amounts and classification
are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank
holding companies.
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, 1999, the Company and
the Bank met all capital adequacy requirements to which they
are subject.
As of December 31, 1999, the most recent notification from the
Federal Deposit Insurance Corporation 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (CONTINUED)
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>
AS OF DECEMBER 31, 1999:
TOTAL CAPITAL TO RISK WEIGHTED ASSETS
CONSOLIDATED $6,966 16.95% $3,288 8% $ N/A N/A
BANK $7,034 17.11% $3,288 8% $4,110 10%
TIER I CAPITAL TO RISK WEIGHTED ASSETS
CONSOLIDATED $6,458 15.71% $1,644 4% $ N/A N/A
BANK $6,526 15.88% $1,644 4% $2,466 6%
TIER I CAPITAL TO AVERAGE ASSETS
CONSOLIDATED $6,458 11.88% $2,174 4% $ N/A N/A
BANK $6,526 12.01% $2,174 4% $2,717 5%
As of December 31, 1998:
Total Capital to Risk Weighted Assets
Consolidated $6,245 21.02% $2,377 8% $2,971 10%
Bank $6,249 21.03% $2,377 8% $2,971 10%
Tier I Capital to Risk Weighted Assets
Consolidated $5,946 20.01% $1,188 4% $1,783 6%
Bank $5,950 20.03% $1,188 4% $1,783 6%
Tier I Capital to Average Assets
Consolidated $5,946 12.40% $1,919 4% $2,398 5%
Bank $5,950 12.40% $1,919 4% $2,398 5%
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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, 1999 and 1998. 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.
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.
NOTE PAYABLE:
The carrying amount of the note payable approximates its
fair value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their
fair values.
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 estimated fair values and related carrying amounts of
the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------- ----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks
and Federal funds sold $ 2,918,710 $ 2,918,710 $ 5,462,219 $ 5,462,219
Securities available-for-sale 17,963,043 17,963,043 17,736,878 17,736,878
Loans 33,349,269 33,897,935 21,645,592 22,067,967
Accrued interest receivable 482,383 482,383 399,618 399,618
Financial liabilities:
Deposits 51,070,525 51,155,285 41,352,689 41,408,369
Note payable 115,475 115,475 - -
Accrued interest payable 255,197 255,197 111,507 111,507
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of
total revenue are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
-------- ---------
<S> <C> <C>
Legal and professional $ 42,995 $ 78,445
Security 128,106 97,115
Courier 80,696 49,404
Other losses 13,903 64,527
Office supplies 74,137 36,241
Federal Reserve Bank processing fees 64,582 45,400
</TABLE>
NOTE 15. 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 year ended December 31,
1999 and as of and for the period from December 22, 1998, date
of inception, to December 31, 1998:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash $ 29,035 $ -
Investment in subsidiary 6,095,439 6,052,340
Other assets 60,778 35,885
----------- ------------
Total assets $ 6,185,252 $ 6,088,225
=========== ============
OTHER LIABILITIES $ 157,480 $ 39,313
STOCKHOLDERS' EQUITY 6,027,772 6,048,912
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,185,252 $ 6,088,225
=========== ============
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Interest expense $ 5,547 $ -
Other expenses 105,006 5,193
--------- ---------
Loss before income tax benefit and
equity in undistributed income of subsidiary (110,553) (5,193)
Income tax benefit 46,313 1,766
--------- ---------
Loss before equity in undistributed
income of subsidiary (64,240) (3,427)
Equity in undistributed income of subsidiary 576,130 42,032
--------- ---------
Net income $ 511,890 $ 38,605
========= =========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Operating Activities
Net income $ 511,890 $ 38,605
Adjustments to reconcile net income to net cash
used in operating activities:
Undistributed income of subsidiary (576,130) (42,032)
Other operating activities (22,200) 3,427
--------- --------
Net cash used in operating activities (86,440) -
--------- --------
Financing Activities
Proceeds from note payable 115,475 -
--------- --------
Net increase in cash $ 29,035 $ -
Cash at beginning of period - -
--------- --------
Cash at end of year $ 29,035 $ -
========= ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. 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 was
accounted for as a pooling of interests, and, accordingly, all
prior financial statements were restated to reflect the
combination. Income of the subsidiary prior to acquisition on
December 22, 1998 was $474,009, which was included in the
consolidated statement of income.
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ON THE SUPPLEMENTARY INFORMATION
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
CAPITAL CITY BANCSHARES, INC. AND SUBSIDIARY
ATLANTA, GEORGIA
Our audits were performed for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The consolidating
supplementary information on pages 31 through 32 as of and for the year ended
December 31, 1999 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
consolidated statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.
Atlanta, Georgia
March 21, 2000
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITOL CITY CAPITOL CITY
BANK BANCSHARES,
ASSETS & TRUST INC. ELIMINATIONS CONSOLIDATED
------ -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 2,378,710 $ 29,035 $ -29,035 $ 2,378,710
Federal funds sold 540,000 0 0 540,000
Securities available-for-sale 17,963,043 6,095,439 -6,095,439 17,963,043
Loans 33,857,305 0 0 33,857,305
Less allowance for loan losses 508,036 0 0 508,036
--------------- --------------- --------------- --------------
Loans, net 33,349,269 0 0 33,349,269
--------------- --------------- --------------- --------------
Premises and equipment 2,476,526 0 0 2,476,526
Other assets 834,569 60,778 -31,187 864,160
--------------------------------------------------- --------------
$ 57,542,117 $ 6,185,252 $ -6,155,661 $ 57,571,708
=============== =============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 15,164,723 $ 0 $ -29,035 $ 15,135,688
Interest-bearing demand 7,012,674 0 0 7,012,674
Savings 3,710,103 0 0 3,710,103
Time, $100,000 and over 15,097,177 0 0 15,097,177
Other time 10,114,883 0 0 10,114,883
--------------- --------------- --------------- --------------
Total deposits 51,099,560 0 -29,035 51,070,525
Note payable 0 115,475 0 115,475
Other liabilities 347,118 42,005 -31,187 357,936
--------------- --------------- --------------- --------------
TOTAL LIABILITIES 51,446,678 157,480 -60,222 51,543,936
--------------- --------------- --------------- --------------
Stockholders' equity
Common stock 3,192,528 3,192,528 -3,192,528 3,192,528
Capital surplus 2,128,352 2,128,352 -2,128,352 2,128,352
Retained earnings 1,205,005 1,137,338 -1,205,005 1,137,338
Accumulated other
comprehensive loss -430,446 -430,446 430,446 -430,446
--------------- --------------- --------------- --------------
6,095,439 6,027,772 -6,095,439 6,027,772
--------------- --------------- --------------- --------------
$ 57,542,117 $ 6,185,252 $ -6,155,661 $ 57,571,708
=============== =============== =============== ==============
</TABLE>
<PAGE>
CAPITOL CITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATING STATEMENT OF INCOME
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITOL CITY CAPITOL CITY
BANK BANCSHARES,
& TRUST INC. ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- ------------
<S> <C> <C> <C> C>
INTEREST INCOME
Loans $ 2,928,759 $ 0 $ 0 $ 2,928,759
Taxable securities 545,067 0 0 545,067
Nontaxable securities 397,817 0 0 397,817
Federal funds sold 101,215 0 0 101,215
-------------- ------------- -------------- ------------
3,972,858 0 0 3,972,858
-------------- ------------- -------------- ------------
INTEREST EXPENSE
Deposits 1,493,401 0 0 1,493,401
Other borrowings 0 5,547 0 5,547
-------------- ------------- -------------- ------------
TOTAL INTEREST EXPENSE 1,493,401 5,547 0 1,498,948
-------------- ------------- -------------- ------------
NET INTEREST INCOME 2,479,457 -5,547 0 2,473,910
PROVISION FOR LOAN LOSSES 339,000 0 0 339,000
-------------- ------------- -------------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,140,457 -5,547 0 2,134,910
-------------- ------------- -------------- ------------
OTHER INCOME
Service charges on deposit accounts 1,256,623 0 0 1,256,623
Other fees and commissions 58,450 0 0 58,450
Net realized gains on sales of
securities available-for-sale 149 0 0 149
Other operating income 17,912 576,130 -576,130 17,912
-------------- ------------- -------------- ------------
1,333,134 576,130 -576,130 1,333,134
-------------- ------------- -------------- ------------
OTHER EXPENSES
Salaries and employee benefits 1,355,865 0 0 1,355,865
Equipment expense 335,436 0 0 335,436
Occupancy expense 214,081 0 0 214,081
Other operating expenses 872,417 105,006 0 977,423
-------------- ------------- -------------- ------------
2,777,799 105,006 0 2,882,805
-------------- ------------- -------------- ------------
Income before income taxes 695,792 465,577 -576,130 585,239
Income tax (benefit) expense 119,662 -46,313 0 73,349
-------------- ------------- -------------- ------------
NET INCOME $ 576,130 $ 511,890 $ -576,130 $ 511,890
============== ============= ============== ============
</TABLE>
<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
Officer Age Elected or Principal Officers
<S> <C> <C> <C>
George G. Andrews 48 1994 President, Chief Executive
Officer; formerly with Trust
Company Bank
Dr. Gloria Campbell-D'Hue 52 1994 Director; Physician
J. Al Cochran 69 1994 Director, General Counsel;
Attorney-at-Law
Keith E. Evans 54 1995 Director; Physical Therapist,
Atlanta Human Performance
Center
Leon Goodrum 58 1994 Chairman; Operator,
McDonald's Restaurant
<PAGE>
Charles W. Harrison 68 1994 Director; Insurance
Executive, Harrison
Insurance Agency
Robert A. Holmes 56 1995 Director; University
Administrator, Clark Atlanta
University
Moses M. Jones 49 1995 Director; Physician
Marian S. Jordan 54 1995 Director; Teacher, Atlanta
Board of Education and
Parents' Choice Day Care
Kaneta R. Lott 49 1994 Director; Dentist, Children's
Dentistry, P.C.
Donald F. Marshall 62 1994 Director; Dentist
George C. Miller, Jr. 51 1995 Director; President,
Spectrum Consulting
Associates, Inc.
Elvin R. Mitchell, Sr. 86 1995 Director; Contractor, E. R.
Mitchell Construction
Company
Roy W. Sweat 72 1995 Director; Chiropractor
William Thomas 55 1995 Director; President, Thomas
Cleaning Service, Inc.
Cordy T. Vivian 74 1995 Director; President, Basic,
Inc. (relations)
</TABLE>
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 1999.
<PAGE>
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 1999 and Form 5 and
amendments thereto furnished to the Company during 1999, no person who, at any
time during 1999, 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 1999 fiscal year or
previously.
<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 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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 1999 $95,000 $10,000 $2,601(1) - - - $9,263(2)
CEO, President, 1998 $90,000 $ 7500 $1,800(1) - - - $5,793(3)
Director 1997 $81,900 $ 1500 $1,800(1) - - - -
</TABLE>
- --------
(1) Representing membership dues paid on Mr. Andrews' behalf.
(2) Company matching contributions to the Company's 401(k) Plan on behalf
of Mr. Andrews.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
Name # of Securities Underlying % of Total Options/SARs Granted Exercise or Base
Options/SARs Granted to Employees in Fiscal Year Price ($/Share) Expiration Date
<S> <C> <C> <C> <C>
CEO - George G. Andrews 10,000 9.52% $10.00 July 13, 2009
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Name Shares Acquired Number of Securities Underlying Value of Unexercised in-the-money
On Exercise (A) Value Realized Unexercised Options/SARs at Options/SARs at FY-End
FY-End (Exercisable/Unexercisable) (Exercisable/Unexercisable)
<S> <C> <C> <C> <C>
CEO - George G. Andrews - - 10,000/0(2) $25,000/0(1)
</TABLE>
No stock options were exercised by the listed individuals and there were
no outstanding SARs during fiscal year 1999.
The Company does not have any Long Term Incentive Plans in effect.
(1) The dollar values have been calculated by determining the difference
between the estimated fair market value of the Company's common stock at March
6, 2000 ($12.50) and the exercisable prices of the options ($10.00).
(2) On July 13, 1999, Mr. Andrews was granted the option to purchase
10,000 shares of common stock at $10.00 per share, expiring on July 13, 2009.
<PAGE>
As of December 31, 1999, 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, 1999, 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 Class
Beneficial Ownership(1)
=============================== =========================== ====================
<S> <C> <C>
George G. Andrews 18,000(2) 2.89%
Dr. Gloria Campbell-D'Hue 15,000(3) 2.41%
J. Al Cochran 15,000 2.41%
</TABLE>
- --------
(1)Included in the number of shares listed above, each Director, excluding Mr.
Andrews, are options granted under the Capitol City Bancshares, Inc.
Nonqualified Stock Option Plan to purchase 5,000 shares of common stock at
$10.00 per share, expiring on July 13, 2009.
(2) Includes 4,000 shares owned by Mr. Andrews, 4,000 shares held jointly with
Mr. Andrews' spouse, and 10,000 options to purchase common stock granted under
the Capitol City Bancshares, Inc. Incentive Stock Option Plan. These 10,000
options are exercisable at $10.00 per share and expire on July 13, 2009.
(3) Includes 4,150 shares owned by Dr. D'Hue and 5,250 shares owned by her
child.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Keith E. Evans 12,500 2.01%
Leon Goodrum 15,000 2.41%
Agnes H. Harper 15,175(4) 2.44%
Charles W. Harrison 15,600(5) 2.51%
Robert A. Holmes 13,000 2.09%
Moses M. Jones 10,000 1.61%
Marian S. Jordan 15,250(6) 2.45%
Kaneta R. Lott 17,000(7) 2.73%
Donald F. Marshall 15,000 2.41%
George C. Miller, Jr. 10,500(8) 1.69%
Elvin Mitchell, Sr. 20,400(9) 3.28%
Roy W. Sweat 20,000 3.21%
William Thomas 36,555(10) 5.88%
Cordy T. Vivian 15,000 2.41%
=============================== =========================== ===============
</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 10,000 shares owned by Ms. Jordan and 250 shares held by Ms.
Jordan's children.
(7) Includes 5,000 shares held jointly with Dr. Lott's spouse, 2,000 shares held
by Dr. Lott's children and 5,000 shares held by Childrens Dentistry Profit
Sharing Plan.
(8) Includes 4,500 shares owned by Mr. Miller and 1,000 shares held by Spectrum
Consulting Associates, Inc., an affiliated corporation.
(9) 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.
(10) Includes 14,000 shares owned by Mr. Thomas and 17,555 shares held by Thomas
Cleaning Service, Inc., an affiliated corporation.
<PAGE>
The Company's common stock beneficially owned by all directors and principal
officers as a group as of December 31, 1999, (17 persons) totaled 278,980
shares, representing 44.85% of the Company's common stock.
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.
<PAGE>
ITEM THIRTEEN. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<S> <C>
A. Exhibits
2.1 Plan of Reorganization and Agreement of Merger, dated April
14, 1998, by and between Capitol City Bancshares, Inc.,
Capitol City Bank and Trust, and Capitol 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 (incorporated by reference as Exhibit 2.1 to the
Registrant's 10-KSB filed on March 31, 1999).
3.1 Articles of Incorporation of Registrant (incorporated by
reference as Exhibit 3.1 to the Registrant's 10-KSB filed on
March 31, 1999).
3.2 Bylaws of Registrant (incorporated by reference as Exhibit 3.2
to the Registrant's 10-KSB filed on March 31, 1999).
10.1 Capitol City Bancshares, Inc. Stock Option Plan, executed July 13,
1999.
10.2 Stock Option Agreement under the Capitol City Bancshares, Inc. Stock
Option Plan between Capitol City Bancshares, Inc. and George
Andrews, executed July 13, 1999.
10.3 Stock Option Agreement under the Capitol City Bancshares, Inc. Stock
Option Plan between Capitol City Bancshares, Inc. and J. Al Cochran,
executed July 13, 1999 that is a sample of the option agreements issued
to all directors.
24. Power of Attorney (on signature page).
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.
</TABLE>
<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
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George G. Andrews and J. Al Cochran, and each of
them, his or her attorney-in-fact, each with full power of substitution, for him
or her in his or her name, place and stead, in any and all capacities, to sign
any amendment to this Annual Report on Form 10-KSB, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratifies and confirms all that
said attorneys-in-fact, or his or her substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 28, 2000.
Signature Title
/s/ George G. Andrews
- -------------------------------
George G. Andrews Director, Chief Executive Officer
and Chief Financial Officer
/s/ Dr. Gloria Campbell-D'Hue
- -------------------------------
Dr. Gloria Campbell-D'Hue Director
/s/ J. Al Cochran
- -------------------------------
J. Al Cochran Director
/s/ Keith E. Evans
- -------------------------------
Keith E. Evans Director
/s/ Leon Goodrum
- -------------------------------
Leon Goodrum Chairman
/s/ Agnes H. Harper
- -------------------------------
Agnes H. Harper Director
/s/ Charles W. Harrison
- --------------------------------
Charles W. Harrison Director
[REMAINING SIGNATURES ON NEXT PAGE]
<PAGE>
/s/ Robert A. Holmes
- ----------------------------
Robert A. Holmes Director
/s/ Moses M. Jones
- ----------------------------
Moses M. Jones Director
/s/ Marian S. Jordan
- ----------------------------
Marian S. Jordan Director
/s/ Kaneta R. Lott
- ---------------------------
Kaneta R. Lott Director
/s/ Donald F. Marshall
- ---------------------------
Donald F. Marshall Director
/s/ George C. Miller, Jr.
- ---------------------------
George C. Miller, Jr. Director
/s/ Elvin Mitchell, Sr.
- ---------------------------
Elvin Mitchell, Sr. Director
/s/ Roy W. Sweat
- ---------------------------
Roy W. Sweat Director
/s/ William Thomas
- ----------------------------
William Thomas Director
/s/ Cordy T. Vivian
- ----------------------------
Cordy T. Vivian Director
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
10.1 Capitol City Bancshares, Inc. Stock Option Plan,
executed July 13, 1999.
10.2 Stock Option Agreement under the Capitol City
Bancshares, Inc. Stock Option Plan between
Capitol City Bancshares, Inc. and George
Andrews, executed July 13, 1999.
10.3 Stock Option Agreement under the Capitol City
Bancshares, Inc. Stock Option Plan between
Capitol City Bancshares, Inc. and J. Al Cochran,
executed July 13, 1999 that is a sample of the
option agreement issued to all directors.
27 Financial Data Schedule
EXHIBIT 10.1
CAPITOL CITY BANCSHARES, INC.
STOCK OPTION PLAN
ARTICLE I - PURPOSE OF PLAN
1.1 PURPOSE OF PLAN. The purposes of this Plan are to encourage the stock
ownership of Capitol City Bankshares, Inc. by key employees, officers
and directors of the Company and its Bank subsidiary, to provide an
incentive for such individuals to improve profitability, and to assist
the Company and subsidiary in attracting and retaining key employees
and directors through the grant of Options.
ARTICLE II - DEFINITIONS
2.1 AWARD means Options granted hereunder.
2.2 Bank means Capitol City Bank & Trust Company, a financial institution
organized under the laws of the State of Georgia.
2.3 BOARD means the Board of Directors of the Company.
2.4 CODE means the Internal Revenue Code of 1986, as amended. Reference in
this Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations
promulgated thereunder.
2.5 COMPANY means Capitol City Bancshares, Inc., a Georgia business
corporation registered as a bank holding company under the Bank Holding
Company Act of 1956, or any successors as described in Article XI.
2.6 DATE OF DISABILITY means the date on which a Participant is classified
as Disabled.
2.7 DEATH means a Participant's death while holding Options granted under
this Plan.
2.8 DIRECTOR means a member of the Board or Emeritus Director who is not
also employed by the Company or the Bank as an employee.
2.9 DISABILITY OR DISABLED means the permanent inability of a Participant
to perform the duties and responsibilities for which he was employed by
the Company or the Bank due to reasons of health or mental incapacity.
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2.10 ELIGIBLE EMPLOYEE means any person employed by the Company or the Bank
on a full-time, salaried basis who satisfies all of the requirements of
Article VI.
2.11 FAIR MARKET VALUE means the fair market value of the Stock, as
determined by the Board; provided, however, that (i) if the Stock is
admitted to quotation on the National Association of Securities Dealers
Quotation system on the date that the Option is granted, Fair Market
Value shall not be less than the average of the highest bid and lowest
asked prices of the Stock on such system on such date, or (ii) if the
Stock is admitted to trading on a national securities exchange on the
date the Option is granted, Fair Market Value shall not be less than
the last sale price reported for the Stock on such exchange on such
date or, in the absence of such a reported sale price, on the last date
preceding such date on which a sale was reported.
2.12 INCENTIVE STOCK OPTION means an Option that is an incentive stock
option within the meaning of Section 422 of the Code and that is
granted under Article VII.
2.13 NONQUALIFIED STOCK OPTION means an Option that is not an Incentive
Stock Option and that is granted under Article VII.
2.14 OPTION means either a Nonqualified Stock Option or an Incentive Stock
Option granted under Article VII.
2.15 PARTICIPANT means a Director or Eligible Employee who has been granted
an Award under this Plan.
2.16 PLAN means this Capitol City Bancshares, Inc. Stock Option Plan.
2.17 RETIREMENT means normal retirement by an employee from the Company
under a retirement plan maintained by the Company.
2.18 RETIREMENT DATE is the employee's date of Retirement.
2.19 STOCK means the common stock, par value $6.00 per share, of the
Company.
2.20 STOCK OPTION AGREEMENT means an agreement with respect to Options as
described in Article VIII.
2.21 TERMINATION means (i) in the case of an Eligible Employee, the
resignation or discharge from employment with the Company, except in
the event of Death, Disability, or Retirement, and (ii) in the case of
a Director, the resignation or removal from, or the expiration of the
term of service on, the Board.
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2.22 VESTED OPTION means, at any date, an Option that a Participant is then
entitled to exercise pursuant to the terms of a Stock Option Agreement.
ARTICLE III - EFFECTIVE DATE AND DURATION
3.1 EFFECTIVE DATE. Except as provided to the contrary herein, this Plan
shall be effective as of July 13, 1999.
3.2 PERIOD FOR GRANTS OF AWARDS. Awards may be made as provided herein for
a period of ten (10) years after the initial effective date of the
Plan.
3.3 SHAREHOLDER APPROVAL. The Plan shall be submitted to the shareholders
of the Company for approval within 12 months after the date the Plan is
adopted by the Board.
3.4 TERMINATION. This Plan shall be terminated as provided in Article XII,
but shall continue in effect until all matters relating to the payment
of Awards and the administration of the Plan have been settled.
ARTICLE IV - ADMINISTRATION
4.1 ADMINISTRATION. This Plan shall be administered by the Board. All
questions of interpretation and application of this Plan, or of the
terms and conditions pursuant to which Awards are granted, exercised,
or forfeited under the provisions hereof, shall be subject to the
determination of the Board. Such determination shall be final and
binding upon all parties affected thereby. A majority vote of the
members of the Board shall be required for all of its actions.
ARTICLE V - GRANT OF AWARDS AND LIMITATIONS ON NUMBER OF SHARES OF STOCK AWARDED
5.1 GRANT OF AWARDS: NUMBER OF SHARES. The Board may, from time to time,
grant Awards of Options to one or more Directors and/or Eligible
Employees; provided that:
(a) Subject to any adjustment pursuant to Article X or Article XI,
the aggregate number of shares of Stock subject to Awards
under this Plan may not exceed One Hundred Fifty Nine Thousand
Six Hundred (159,600) shares;
(b) Except with respect to shares that are the subject of Options
repurchased pursuant to Section 7.4, to the extent that an
Award lapses or the rights of the
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Participant to whom it was granted terminate, or to the
extent that the Award is canceled by mutual agreement of the
Board and the Participant (which cancellation opportunities
may be offered by the Board to Participants from time to
time), any shares of Stock subject to such Award shall again
be available for the grant of the Award hereunder;
(c) Shares of Stock ceasing to be subject to an Award because of
the exercise of an option shall no longer be available for the
grant of an Award hereunder;
(d) Directors shall not be eligible to receive awards of Incentive
Stock Options hereunder; and
(e) Shares of Stock that are the subject of grants of Options
under this Plan shall be set aside out of authorized but
unissued shares of Stock not reserved for other purposes.
In determining the size of Awards, the Board may take into account a
Participant's responsibility level, performance potential, cash
compensation level, the Fair Market Value of the Stock at the time of
awards, and such other considerations as it deems appropriate.
ARTICLE VI - ELIGIBILITY
6.1 ELIGIBLE INDIVIDUALS. Full-time, salaried officers and other key
employees of the Company (including officers or employees who are
members of the Board) and Directors shall be eligible to receive Awards
under this Plan; provided they are residents of the State of Georgia.
Subject to the provisions of this Plan; the Board shall from time to
time select from such eligible persons those to whom Awards shall be
granted and determine the size of the Awards. A Participant may hold
more than one Option at any one time. No Director, officer, or employee
of the Company shall have any right to be granted an Award under this
Plan, as all Awards granted hereunder are granted in the sole and
absolute discretion of the Board, as provided herein.
ARTICLE VII - OPTIONS
7.1 GRANTS OF OPTIONS. Awards shall be granted to Participants in the form
of Options to purchase Stock.
7.2 TYPE OF OPTION. The board may choose to grant a Participant who is a
Director Nonqualified Stock Options and it may choose to grant a
Participant who is an
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Eligible Employee either Incentive Stock Options or Nonqualified Stock
Options or both, subject to the limitations contained herein.
7.3 INCENTIVE STOCK OPTION DOLLAR LIMITATIONS. If the Board grants
Incentive Stock Options, the aggregate Fair Market Value (determined at
the time the Option is granted) of any such Options plus an incentive
stock options qualified under Section 422 of the Code and granted under
any other plans of the Company that shall be first exercisable by any
one Participant during any one calendar year shall not exceed $100,000,
or such other dollar limitation as may be provided in the Code.
7.4 BOARD LIMITATIONS AND COMPANY REPURCHASE OF OPTIONS. Grants of Options
hereunder shall be subject to guidelines adopted by the Board with
respect to the timing and size of such Options. In addition, the Board
may, in its discretion, provide that an Option may not be exercised in
whole or in part for any period of periods specified by the Board. In
the discretion of the Board, the Company may agree to repurchase
Options for cash.
ARTICLE VIII - TERMS AND CONDITIONS OF STOCK OPTION AGREEMENTS
8.1 STOCK OPTION AGREEMENTS. Awards shall be evidenced by Stock Option
agreements in such form as the Board shall, from time to time, approve.
Such Stock Option agreements, which need not be identical, shall comply
with and be subject to the following terms and conditions:
(a) METHOD OF PAYMENT. Upon exercise of the Option, the Option
price shall be payable in United States dollars in cash or by
certified check, bank draft, money order payable to the order
of the Company, or Stock, or combination thereof.
(b) NUMBER OF SHARES. The Stock Option Agreement shall state the
total number of shares to which it pertains.
(c) OPTION PRICE. With respect to Incentive Stock Options, the
Option price shall be not less than the Fair Market Value of
such shares on the date of granting of the Option (or one
hundred ten percent (110%) of such amount if the Option is
granted to an individual owning stock possessing more than ten
percent (10%) of the total combined voting power of all
classes of stock of the Company). With respect to Nonqualified
Stock Options, the Option price shall be set in the Board's
sole and absolute discretion.
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(d) TERM OF OPTION. Each Nonqualified and Incentive Stock Option
granted under this Plan shall expire not more than ten (10)
years from the date the Option is granted, except that each
Incentive Stock Option granted under the plan to an individual
owning stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the
Company shall expire not more than five (5) years from the
date the Option is granted.
(e) DATE OF EXERCISE. Except for such limitations as may be
provided by the Board in its discretion pursuant to Article
VII, any Vested Option may be exercised in whole at any time
during its term or in part from time to time during its term.
(f) EXERCISE OF OPTION OR FORFEITURE. Except as otherwise provided
in any employment agreement or other written agreement with
the Participant, if a Participant ceases employment with the
Company or ceases to be a Director, as the case may be, prior
to exercise of the Participant's Options, such Options shall
be exercised or forfeited as follows:
(i) Termination. Upon the Termination of participant who
is an Eligible Employee, the Participant's Vested
Options shall be exercisable within three (3) months
(or such shorter period as the Code or the terms of
the particular Options may require) of the
Participant's Termination. In default of such timely
exercise, all Options of the Participant shall be
forfeited.
(ii) Retirement. Upon the Retirement of a Participant who
is an Eligible Employee, the Participant's Options
(which shall become Vested Options as of the
Participant's Retirement Date) shall be exercisable
within three (3) months (or such shorter period as
the Code or the Terms of the particular Options may
require) of the Participant's Retirement Date. In
default of such timely exercise, all Options of the
Participant shall be forfeited.
(iii) Termination of Director Status. In the case of a
Participant who is a Director and who ceases to be a
Director or Emeritus Director for a reason other than
Death, the Participant's Options shall be exercisable
within three (3) months (or such shorter period as
the Code or the terms of the particular Options may
require) of the termination.
(iv) Disability. Upon the Disability of a Participant, the
Participant's Options (which shall become Vested
Options as of the Participant's
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Date of Disability) shall be exercisable within three
(3) months (or such shorter period as the Code or the
terms of the particular Options may require) of the
Participant's Date of Disability. In default of such
timely exercise, all Options of the Participant shall
be forfeited.
(v) Death. If the Participant dies while in the
employment of the Company, while serving as a
Director, or within the period of time after
Retirement during which the Participant would have
been entitled to exercise his or her option rights,
the Participant's estate, personal representative, or
beneficiary (as applicable) shall have the right to
exercise such Options (which shall become Vested
Options as of the date of the Participant's Death)
within one (1) year from the date of the
Participant's death (or such shorter period as the
Code or the terms of the particular Options may
require).
(g) AGREEMENT AS TO SALE OF SECURITIES. If, at the time of the
exercise of any Option, in the opinion of counsel for the
Company, it is necessary or desirable, in order to comply with
any applicable laws or regulations relating to the sale of
securities, that the Participant exercising the Option shall
agree to purchase the shares that are subject to the Option
for investment only and not with respect to any present
intention to resell the same and that the Participant will
dispose of such shares only in compliance with such laws and
regulations, the Participant will, upon the request of the
Company, execute and deliver to the Company an agreement to
such effect. The Participant shall agree to comply with the
right of first refusal and other provisions of his or her
Stock Option Agreement and to become a party to an
shareholder's agreement in effect among the Company and its
stockholders.
(h) MINIMUM NUMBER OF SHARES. The minimum number of shares with
respect to which an Option may be exercised at any one time
shall be five hundred (500) shares, unless the number is the
total number at the time available for exercise under the
Award.
(i) REQUIRED AMENDMENTS. Each Award shall be subject to any
provision necessary to ensure compliance with federal and
state securities laws.
(j) LIMITATION OF PARTICIPANT RIGHTS. A Participant shall not be
deemed to be the holder of, or to have the rights of a holder
with respect to, any shares of stock subject to such Option
unless and until the Option shall have been exercised pursuant
to the terms thereof, the Company shall have issued and
delivered the shares to the Participant, and the Participant's
name shall have been entered
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as a stockholder of record on the books of the Company.
Thereafter, the Participant shall have full voting, dividend,
and other ownership rights with respect to such shares of
Stock.
ARTICLE IX - GRANTS IN SUBSTITUTION FOR OPTIONS GRANTED BY OTHER CORPORATIONS.
9.1 SUBSTITUTE AWARDS. Awards may be granted under this Plan from time to
time in substitution for similar awards held by employees of the
Company or the Bank as the result of merger or consolidation of the
employing corporation with the Company or the Bank, or the acquisition
by the Company of fifty percent (50%) or more of the stock of the
employing corporation, or the acquisition by the Company of the assets
of the employing corporation, or the acquisition by the Company of
fifty percent (50%) or more of the stock of the employing corporation
causing it to become a subsidiary. The terms and conditions of the
substitute awards so granted may vary from the terms and conditions set
forth in this Plan to such extent as the Board at the time of the Grant
may deem appropriate to conform, in whole or in part, to the provisions
of the options in substitution for which they are granted.
ARTICLE X - CHANGES IN CAPITAL STRUCTURE
10.1 CAPITAL STRUCTURE CHANGES
(a) If the outstanding shares of the Company's Stock as a whole
are increased, decreased, changed into, or exchanged for a
different number or kind of shares or securities of the
Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of
shares, change in corporate structure, or the like, an
appropriate and proportionate adjustment shall be made in the
number and kinds of shares subject to the plan and in the
number, kinds, and per share exercise price of shares subject
to unexercised Options or portions thereof granted prior to
any such change. Any such adjustment in an outstanding Option,
however, shall be made without a change in the total price
applicable to the unexercised portion of the Option but with a
corresponding adjustment in the price for each share of Stock
covered by the Option.
(b) Upon dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation in which the Company
is not the surviving corporation, or upon the sale of
substantially all of the assets of the Company to another
corporation, the Plan and the Options issued thereunder shall
terminate, unless provision is made in connection with such
transaction for the
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assumption of Options theretofore granted or the substitution
for such Options of new options of the successor employer
corporation or a parent or subsidiary thereof, with
appropriate adjustment as to the number and kinds of shares
and the per share exercise prices. In the event of such
termination, all outstanding Options shall be exercisable in
full for at least thirty (30) days prior to the termination
date whether or not otherwise exercisable during such period.
(c) In the event of a change in the Stock which is limited to a
change in the designation thereof to "capital stock" or other
similar designation, or in par value or no par value, without
increase or decrease in the number of issued shares, the
shares resulting from any such change shall be deemed to be
Stock within the meaning of this Plan.
(d) Adjustments under this Section shall be made by the Board,
whose determination as to what adjustment shall be made, and
the extent thereof, shall be conclusive. The Board shall have
the discretion and power in any such event to determine and to
make effective provision for the acceleration of time during
which the Option may be exercised, notwithstanding the
provisions of the Option setting forth the date or dates on
which all or any part of it may be exercised. No fractional
shares of Stock shall be issued under the Plan on account of
any adjustment specified above.
ARTICLE XI - COMPANY SUCCESSORS
11.1 IN GENERAL. If the Company shall be the surviving or resulting
corporation in any merger, sale of assets or sale of stock,
consolidation, or corporate reorganization (including a reorganization
in which the holders of Stock receive securities of another
corporation), any Award granted hereunder shall pertain to and apply to
the securities to which a holder of Stock would have been entitled. The
Board shall make such appropriate determinations and adjustments as it
deems necessary so as to substantially preserve the rights and
benefits, both as to the number of shares and otherwise, or
Participants under this Plan.
ARTICLE XII - AMENDMENT
12.1 AMENDMENTS AND TERMINATION. The Plan shall terminate on the tenth
(10th) anniversary of the initial effective date of the Plan and, in
addition, the Board may at any time and from time to time alter, amend,
suspend, or terminate this Plan in whole or in part, except (i) without
such stockholder approval as may be required by law and the Company's
charger, no such action may be taken which changes the minimum Option
price, increases the maximum term of Options, materially increases
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the benefits accruing to Participants hereunder, materially increases
the number of securities that may be issued pursuant to this Plan
(except as provided in Article X), extends the period of granting
Awards hereunder, or materially modifies the requirements as to
eligibility for participation hereunder, and (ii) without the consent
of the Participant to whom any Award shall theretofore have been
granted, no such action may be taken that adversely affects the rights
of such Participant concerning such Award, except as such termination
or amendment of this Plan is required by statute, or rules and
regulations promulgated thereunder, or as otherwise permitted
hereunder.
ARTICLE XIII - MISCELLANEOUS PROVISIONS
13.1 NONTRANSFERABILITY. Except by the laws of descent and distribution, no
benefit provided hereunder shall be subject to alienation, assignment,
or transfer by a Participant (or by any person entitled to such benefit
pursuant to the terms of this Plan), nor shall it be subject to
attachment or other legal process of whatever nature, and any attempted
alienation, assignment, attachment, or transfer shall be void and of no
effect whatsoever and upon any such attempt, the benefit shall
terminate and be of no force or effect. During participant's lifetime,
Options granted to the Participant shall be exercisable only by the
Participant. Share of stock shall be delivered only into the hands of
the Participant entitled to receive the same or into the hands of the
Participant's authorized legal representative.
13.2 NO EMPLOYMENT RIGHT. Neither this Plan nor any action taken hereunder
shall be construed as giving any right to any individual to be retained
as a director, officer, or employee of the Company.
13.3 TAX WITHHOLDING. The Company shall have the right to deduct from all
Awards paid by any federal, state, local, or employment taxes that it
deems are required by law to be withheld with respect to such payments.
In the case of Awards paid in Stock, the Participant receiving such
Stock may be required to pay the Company an Amount required to be
withheld with respect to such Stock. At the request of a Participant,
such sums as may be required for the payment of any estimated or
accrued income tax liability may be withheld and paid over to the
governmental entity entitled to receive same.
13.4 ACCELERATION. Except as otherwise provided hereunder, the Board may in
its discretion accelerate the time at which an Option granted hereunder
may be exercised.
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13.5 FRACTIONAL SHARES. Any fractional shares concerning Awards shall be
eliminated at the time of payment or payout by rounding down for
fractions of less than one half (1/2) and rounding up for fractions
equal to or more than one half (1/2).
13.6 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make
payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
government agencies as may be deemed necessary or appropriate by the
Board. If Stock awarded hereunder may in certain circumstances be
exempt from registration under the Securities Act of 1933, the Company
may restrict its transfer in such manner as it deems advisable to
ensure such exempt status.
13.7 INDEMNIFICATION. Each person who is or at any time serves as a member
of the Board shall be indemnified and held harmless by the Company
against and from (i) any loss, cost, liability, or expenses that may be
imposed upon or reasonably incurred by such person in connection with
or resulting from any claim, action, suit, or proceeding to which such
person may be a party or in which such person may be involved by reason
of any action or failure to act under this Plan; and (ii) any and all
amounts paid by such person in satisfaction of judgment in any such
action, suit, or proceeding relating to the Plan. Each person covered
by this indemnification shall give the Company an opportunity, at its
own expense, to handle and defend the same before such person
undertakes to handle and defend the same on such person's own behalf.
The foregoing right to indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled
under the charter or bylaws of the Company, as a matter of law, or
otherwise, or any power that the Company may have to indemnify such
person or hold such person harmless.
13.8 RELIANCE ON REPORTS. Each member of the Board shall be fully justified
in relying or acting in good faith upon any report made by the
independent public accountants of the Company, and upon any other
information furnished in connection with this Plan. In no event shall
any person who is or shall have been a member of the Board be liable
for any determination made or other action taken or any omission to act
in reliance upon any such report or information, or for any action
taken, including the furnishing of information, or failure to act, if
in good faith.
13.9 GOVERNING LAW. All matters relating to this Plan or to awards granted
hereunder shall be governed by the laws of the State of Georgia,
without regard to the principles of conflict of laws thereof, except to
the extent preempted by the laws of the United States.
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13.10 RELATIONSHIP TO OTHER BENEFITS. No payment under this Plan shall be
taken into account in determining any benefits under any pension,
retirement, profit sharing, or group insurance plan of the Company.
13.11 EXPENSES. The expenses of implementing and administering this Plan
shall be borne by the Company.
13.12 TITLES AND HEADINGS. The titles and headings of the Articles and
sections in this Plan are for convenience of reference only, and in the
event of any conflict, the text of this Plan, rather than such titles
or headings, shall control.
13.13 USE OF PROCEEDS. Proceeds from the sale of Stock pursuant to Options
granted under the Plan shall constitute general funds of the Company.
13.14 NONEXCLUSIVITY OF PLAN. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as crating any limitation on the power of
the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be applicable
either generally or only in specific cases.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer and its seal to be affixed hereto, effective, except
as specified to the contrary herein, as of July 13, 1999.
CAPITOL CITY BANCSHARES, INC. (SEAL)
BY:_____________________________________
As its:__________________________________
CAPITOL CITY BANK & TRUST COMPANY (SEAL)
BY:_____________________________________
As its:__________________________________
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EXHIBIT 10.2
STOCK OPTION AGREEMENT UNDER THE
CAPITOL CITY BANCSHARES, INC. STOCK OPTION PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") entered into this 13th
day of July, 1999, between CAPITOL CITY BANCSHARES, INC. (hereinafter called the
"Company"), a bank holding company incorporated under the laws of the State of
Georgia, and GEORGE G. ANDREWS (hereinafter called the "Employee"), a salaried
employee of Capitol City Bank and Trust Company, a wholly-owned subsidiary of
the Company (hereinafter called the "Bank").
W I T N E S S E T H:
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WHEREAS, on the date first above written, the Company granted to the
Employee the option hereinafter described pursuant to, subject to and upon the
terms and conditions set forth in the Capitol City Bancshares, Inc. Stock Option
Plan adopted by the Board of Directors of the Company on July 13, 1999 (a copy
of which is incorporated herein by reference thereto and hereinafter called the
"Plan"), and promptly thereafter notified the Employee of the grant of such
option, and
WHEREAS, the Company and the Employee desire to enter into this
Agreement to reduce their agreement relating to the grant of the option to
writing.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the good and valuable services rendered by the Employee to the Bank
in the past and to be rendered in the future, and for other good and valuable
consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereto, intending to be legally bound, agree as
follows:
1. GRANT OF OPTION. Pursuant to the Plan and action of the Board of
Directors of the Company on July 13, 1999, the Company does hereby irrevocably
grant to the Employee, as a matter of separate agreement and not in lieu of
salary or any other compensation for services, the right and option to purchase
ten thousand (10,000) shares (the "Shares") of the $6.00 par value common stock
of the Company as authorized at the date hereof (the "Common Stock") on the
terms and conditions herein set forth (hereinafter called the "Option").
2. PURCHASE PRICE. The purchase price of the Shares of Common Stock
subject to the Option shall be Ten Dollars ($10.00) per share, the fair market
value of the Common Stock on the date of grant.
<PAGE>
3. VESTING OF OPTION.
(a) This Option to purchase Shares shall be vested immediately
and may be exercised by said Employee at any time during the term of this Option
as to the number of Shares.
4. EXERCISE OF OPTION.
(a) The Option shall be exercisable in whole, at any time, or
in part, from time to time, during the term of the Option as to all or any of
the Shares then purchasable under the Option, but not as to less than 100 shares
(or the remaining Shares then covered by the Option if less than 100 shares) at
any one time. The term of the Option shall be ten (10) years from the date
hereof or such shorter period as is prescribed in Paragraphs 4(d), 4(e), 4(f),
4(g) and 4(h) hereof. Provided, however, if such Employee should breach any
covenant regarding proprietary information or other protective covenants of an
employment agreement with the Company or Bank following termination, then any
Option granted hereunder but not exercised as of the date of such breach shall
be immediately forfeited.
(b) Except as provided in said Paragraphs 4(d), 4(e), 4(f),
4(g) and 4(h), this Option shall not be exercisable unless the Employee shall,
at the time of exercise, be an employee of the Company or a subsidiary of the
Company. The holder of the Option shall have none of the rights of a stockholder
with respect to the Shares of Common Stock subject to the Option until such
Shares shall have been issued to him upon the exercise of the Option.
(c) At the discretion of the Board of Directors or the
Committee (as the case may be) the time within which the Options herein granted
may be exercised may be accelerated.
(d) In the event that the employment of Employee with the
Company or Bank is terminated, voluntarily or involuntarily, by reason of a
Change in Control or retirement, all vested and exercisable Options granted
hereunder to such Employee shall be exercisable until the earlier of the Option
Termination Date or the date three (3) months after the date of such Employee's
date of termination and if not exercised within said three-month period shall be
forfeited.
(e) In the event that the employment of Employee with the
Company or Bank is terminated by reason of such Employee's death, all vested and
exercisable Options granted hereunder to such Employee shall be exercisable
until the earlier of the Option Termination Date or the date one year after the
date of death of such Employee and if not exercised within said one (1) year
period shall be forfeited. Any such vested Option of a
-2-
<PAGE>
deceased Employee may be exercised prior to their expiration only by a personal
representative or a person or persons to whom such Employee's rights in the
Option pass by will or by the laws of descent and distribution.
(f) In the event that the employment of Employee with the
Company or Bank is terminated by reason of such Employee becoming Totally
Disabled, all vested and exercisable Options granted hereunder to such Employee
shall be exercisable until the earlier of the Option Termination Date or the
date one (1) year after the date of such Employee's Termination.
(g) In the event that the employment of Employee with the
Company or Bank is terminated for Cause, all vested and exercisable Options
granted hereunder to such Employee shall be exercisable until the earlier of the
Option Termination Date or the date thirty (30) days after Employee's date of
termination.
(h) In the event Employee is terminated for any reason other
than following a Change in Control, retirement, upon Employee's death or
becoming Totally Disabled, or for Cause, all vested and exercisable Options as
of such Employee's date of termination shall expire on the earlier of the Option
Termination Date or the date thirty (30) days after such Employee's date of
termination.
(i) A leave of absence approved in writing by the Board shall
not be deemed a termination of employment but no Option may be exercised during
any such leave of absence.
5. NONTRANSFERABILITY OF OPTION. The Option shall not be transferable
by the Employee otherwise than by will or the laws of descent and distributions,
and the Option is exercisable, during his lifetime, only by him. More
particularly (but without limiting the generality of the foregoing), the Option
may not be assigned, transferred (except as aforesaid), pledged or hypothecated
in any way (whether by operation of law or otherwise), and shall not be subject
to execution, attachment or similar process. In the event of any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, or the levy of any attachment or similar
process upon the Option, the Option shall be null and void and without effect.
6. CHANGE OF COMMON STOCK.
(a) In the event that the Common Stock of the Company, as
presently constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the corporation or of another
kind of shares of stock or other securities of the corporation or of another
corporation (whether by reason of merger,
-3-
<PAGE>
consolidation, recapitalization, reclassification, split up, combination of
shares, or otherwise) or if the number of such shares of stock shall be
increased through the payment of a stock dividend, then there shall be
substituted for or added to each share of Common Stock of the Company which was
theretofore appropriated, or which thereafter may be subject to an Option under
the plan, the number and kind of shares of stock or other securities into which
each outstanding share of the Company shall be so changed or for which each such
share shall be exchanged or to which each such share shall be entitled, as the
case may be. Outstanding options shall also be appropriately amended by the
Board, as defined in the Plan, as to price and other terms, as may be necessary
to reflect the foregoing events.
(b) If there shall be any other change in the number or kind
of the outstanding shares of Common Stock of the Company, or of any stock or
other securities into which such stock shall have been changed, or for which it
shall have been exchanged, and if the Board or the Committee (as the case may
be) shall, in its sole discretion, determine that such change equitably requires
an adjustment in any option which was heretofore granted or which may thereafter
be granted under the plan, then such adjustment shall be made in accordance with
such determination.
(c) Fractional shares of Common Stock resulting from any
adjustments in Options pursuant to this section shall be settled as the Board or
Committee shall determine. The grant of an Option pursuant to the plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganization or changes or its capital or business
structure, to merge, to consolidate, to dissolve, to liquidate or to sell or
transfer all or any parts of its business or assets.
7. MISCELLANEOUS.
(a) This Option Agreement does not confer upon the Employee
any right to continue in the employ of the Bank or of any parent corporation,
nor does it interfere in any way with the right of the Bank or of any such
parent corporation to terminate the employment of the Employee at any time.
(b) Subject to the terms and conditions of this Agreement, the
Option may be exercised by written notice to the Company at its corporate
headquarters in Atlanta, Georgia, Attention: Secretary of Capitol City
Bancshares, Inc. Such notice shall (a) state the election to exercise the Option
and the number of Shares in respect of which it is being exercised, and (b) be
signed by the person or persons so exercising the Option or, in the event the
Option is being exercised pursuant to Paragraph 4(e) hereof by any person or
persons other than the Employee, accompanied by appropriate proof of the right
of such person or persons other than the Employee to exercise the Option. Such
notice shall either (i) be accompanied by payment of the full purchase price of
such Shares, in which event the
-4-
<PAGE>
Company shall issue and deliver a certificate or certificates representing such
Shares as soon as practicable after the notice is received, or (ii) fix a date
(not less than five nor more than ten business days from the date such notice is
received by the Company for the payment of the full purchase price of such
Shares at the Company's principal office, against delivery of a certificate or
certificates representing such Shares. Payment of such purchase price shall, in
either case, be made by certified or bank cashier's check payable to the order
of "Capitol City Bancshares, Inc." or by delivery of shares of the Company owned
by the Director with a market value in the amount of the exercise price of the
Shares being purchased. All Shares issued as provided herein will be fully paid
and nonassessable.
(c) The Company shall at all times during the term of this
Option reserve and keep available such number of shares of Common Stock as will
be sufficient to satisfy the requirements of this Option Agreement, shall pay
all fees and expenses necessarily incurred by the Company in connection with the
issue of Shares pursuant hereto and will from time to time use its best efforts
to comply with all laws and regulations which, in the opinion of counsel for the
Company, shall be applicable thereto.
(d) As used herein, the term "parent corporation" shall mean
any present or future parent corporation of the Bank.
(e) This Option Agreement has been entered into pursuant to
Article VIII of the Plan and the Option shall not be exercisable until all the
terms and conditions of such section have been met.
(f) The Option is effective as of the date hereof, subject as
to exercise of Paragraphs 4 and 7(h), but shall expire thirty (30) days after
the date of grant if the Employee does not execute and deliver a copy of this
Option Agreement to the Company on or prior to that date.
(g) Notwithstanding any other provision of this Agreement to
the contrary, it is the intention that the Option qualify as an "incentive stock
option" under said Section 422 of the Code and the Plan. This Agreement is also
deemed to contain such other terms or conditions as may be necessary (and not
contain any terms or conditions inconsistent with said Section 422) so that the
Option qualifies as an incentive stock option under said Section 422 of the
Code.
(h) As a condition to the exercise of an Option, the Board may
in its sole discretion, require the Employee to pay, in addition to the purchase
price of the Shares covered by the Option, an amount in cash or shares equal to
any federal, state and local taxes that may be required to be withheld in
connection with the exercise of such Option.
-5-
<PAGE>
(i) Employee will promptly give the Company written notice at
its corporate headquarters, now in Atlanta, Georgia, Attention: Secretary of
Capitol City Bancshares, Inc., of any sale of any Shares purchased pursuant to
the Option which is made within twelve months after the date of exercise of the
Option or twenty-four months from the date of grant.
(j) This Stock Option Agreement has been entered into pursuant
to and shall be governed by the laws of the State of Georgia.
(k) All capitalized terms in this Agreement not defined herein
shall have the same meaning as given such terms in the
Plan.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
exercised by its duly authorized officers, and the Employee has hereunto set his
hand and affixed his seal, the day and year first above written.
"COMPANY" "EMPLOYEE"
CAPITOL CITY BANCSHARES, INC.
BY:______________________________ _________________________________
Chairman GEORGE G. ANDREWS
ATTEST:__________________________
Secretary
EXHIBIT 10.3
STOCK OPTION AGREEMENT UNDER THE
CAPITOL CITY BANCSHARES, INC. STOCK OPTION PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") entered into this 13th
day of July, 1999, between CAPITOL CITY BANCSHARES, INC. (hereinafter called the
"Company"), a bank holding company incorporated under the laws of the State of
Georgia, and J. AL COCHRAN (hereinafter called the "Director"), a Director or
Emeritus Director of the Board of Directors of the Company or Capitol City Bank
and Trust Company, a wholly-owned subsidiary of the Company (hereinafter called
the "Bank").
W I T N E S S E T H:
-------------------
WHEREAS, on the date first above written, the Company granted to the
Director the option hereinafter described pursuant to, subject to and upon the
terms and conditions set forth in the Capitol City Bancshares, Inc. Stock Option
Plan adopted by the Board of Directors of the Company on July 13, 1999 (a copy
of which is incorporated herein by reference thereto and hereinafter called the
"Plan"), and promptly thereafter notified the Director of the grant of such
option, and
WHEREAS, the Company and the Director desire to enter into this
Agreement to reduce their agreement relating to the grant of the option to
writing.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the good and valuable services rendered by the Director to the Bank
in the past and to be rendered in the future, and for other good and valuable
consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereto, intending to be legally bound, agree as
follows:
1. GRANT OF OPTION. Pursuant to the Plan and action of the Board of
Directors of the Company on July 13, 1999, the Company does hereby irrevocably
grant to the Director, as a matter of separate agreement and not in lieu of
salary or any other compensation for services, the right and option to purchase
five thousand (5,000) shares (the "Shares") of the $6.00 par value common stock
of the Company as authorized at the date hereof (the "Common Stock") on the
terms and conditions herein set forth (hereinafter called the "Option").
2. PURCHASE PRICE. The purchase price of the Shares of Common Stock
subject to the Option shall be Ten Dollars ($10.00) per share, the fair market
value of the Common Stock on the date of grant.
<PAGE>
3. VESTING OF OPTION.
(a) This Option to purchase Shares shall become vested
immediately and may be exercised by said Director as to the number of Shares at
any time during the term of this Option.
4. EXERCISE OF OPTION.
(a) The Option shall be exercisable in whole, at any time, or
in part, from time to time, during the term of the Option as to all or any of
the Shares then purchasable under the Option, but not as to less than 100 shares
(or the remaining Shares then covered by the Option if less than 100 shares) at
any one time. The term of the Option shall be ten (10) years from the date
hereof or such shorter period as is prescribed in Paragraphs 4(d), 4(e), 4(f),
4(g) and 4(h) hereof.
(b) Except as provided in said Paragraphs 4(d), 4(e), 4(f),
4(g) and 4(h), this Option shall not be exercisable unless the Director shall,
at the time of exercise, be a Director or Director Emeritus of the Company or of
a subsidiary of the Company. The holder of the Option shall have none of the
rights of a stockholder with respect to the Shares of Common Stock subject to
the Option until such Shares shall have been issued to him upon the exercise of
the Option.
(c) At the discretion of the Board of Directors or the
Committee (as the case may be) the time within which the Options herein granted
may be exercised may be accelerated.
(d) In the event the Director or Director Emeritus is
terminated as a Director and Emeritus Director, voluntarily or involuntarily, by
reason of a Change in Control or retirement, all vested and exercisable Options
granted hereunder to such Director or Director Emeritus shall be exercisable
until the earlier of the Option Termination Date or the date three (3) months
after the date of such Director's or Director Emeritus' date of termination.
(e) In the event that the employment of Director with the
Company or Bank is terminated by reason of such Director's death, all vested and
exercisable Options granted hereunder to such Director shall be exercisable
until the earlier of the Option Termination Date or the date one (1) year after
the date of death of such Director and if not exercised within said one (1) year
period shall be forfeited. Any such vested Option of a deceased Director may be
exercised prior to their expiration only by the Director's personal
representative or a person or persons to whom such Director's rights in the
Option pass by will or by the laws of descent and distribution.
-2-
<PAGE>
(f) In the event that the employment of Director with the
Company or Bank is terminated by reason of such Director becoming Totally
Disabled, all vested and exercisable Options granted hereunder to such Director
shall be exercisable until the earlier of the Option Termination Date or the
date one (1) year after the date of such Director's Termination.
(g) In the event that the employment of Director with the
Company or Bank is terminated for Cause, all vested and exercisable Options
granted hereunder to such Director shall be exercisable until the earlier of the
Option Termination Date or the date thirty (30) days after Director's date of
termination.
(h) In the event Director is terminated for any reason other
than following a Change in Control, retirement, upon Director's death or
becoming Totally Disabled, or for Cause, all vested and exercisable Options as
of such Director's date of termination shall expire on the earlier of the Option
Termination Date or the date thirty (30) days after such Director's date of
termination.
(i) A leave of absence approved in writing by the Board shall
not be deemed a termination of employment for purposes of this Section, but no
Option may be exercised during any such leave of absence.
5. NONTRANSFERABILITY OF OPTION. The Option shall not be transferable
by the Director otherwise than by will or the laws of descent and distributions,
and the Option is exercisable, during his lifetime, only by him. More
particularly (but without limiting the generality of the foregoing), the Option
may not be assigned, transferred (except as aforesaid), pledged or hypothecated
in any way (whether by operation of law or otherwise), and shall not be subject
to execution, attachment or similar process. In the event of any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, or the levy of any attachment or similar
process upon the Option, the Option shall be null and void and without effect.
6. CHANGE OF COMMON STOCK.
(a) In the event that the Common Stock of the Company, as
presently constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the corporation or of another
kind of shares of stock or other securities of the corporation or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, split up, combination of shares, or otherwise) or if the
number of such shares of stock shall be increased through the payment of a stock
dividend, then there shall be substituted for or added to each share of Common
Stock of the Company which was theretofore appropriated, or which thereafter may
be subject to an
-3-
<PAGE>
Option under the plan, the number and kind of shares of stock or other
securities into which each outstanding share of the Company shall be so changed
or for which each such share shall be exchanged or to which each such share
shall be entitled, as the case may be. Outstanding options shall also be
appropriately amended by the Board, as defined in the Plan, as to price and
other terms, as may be necessary to reflect the foregoing events.
(b) If there shall be any other change in the number or kind
of the outstanding shares of Common Stock of the Company, or of any stock or
other securities into which such stock shall have been changed, or for which it
shall have been exchanged, and if the Board or the Committee (as the case may
be) shall, in its sole discretion, determine that such change equitably requires
an adjustment in any option which was heretofore granted or which may thereafter
be granted under the plan, then such adjustment shall be made in accordance with
such determination.
(c) Fractional shares of Common Stock resulting from any
adjustments in Options pursuant to this section shall be settled as the Board or
Committee shall determine. The grant of an Option pursuant to the plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganization or changes or its capital or business
structure, to merge, to consolidate, to dissolve, to liquidate or to sell or
transfer all or any parts of its business or assets.
7. MISCELLANEOUS.
(a) This Option Agreement does not confer upon the Director
any right to continue in the employ of the Bank or of any parent corporation,
nor does it interfere in any way with the right of the Bank or of any such
parent corporation to terminate the employment of the Director at any time.
(b) Subject to the terms and conditions of this Agreement, the
Option may be exercised by written notice to the Company at its corporate
headquarters in Atlanta, Georgia, Attention: Secretary of Capitol City
Bancshares, Inc. Such notice shall (a) state the election to exercise the Option
and the number of Shares in respect of which it is being exercised, and (b) be
signed by the person or persons so exercising the Option or, in the event the
Option is being exercised pursuant to Paragraph 4(e) hereof by any person or
persons other than the Director, accompanied by appropriate proof of the right
of such person or persons other than the Director to exercise the Option. Such
notice shall either (i) be accompanied by payment of the full purchase price of
such Shares, in which event the Company shall issue and deliver a certificate or
certificates representing such Shares as soon as practicable after the notice is
received, or (ii) fix a date (not less than five nor more than ten business days
from the date such notice is received by the Company for the payment of the full
purchase price of such Shares at the Company's principal office, against
delivery of
-4-
<PAGE>
a certificate or certificates representing such Shares. Payment of such purchase
price shall, in either case, be made by certified or bank cashier's check
payable to the order of "Capitol City Bancshares, Inc." or by delivery of shares
of the Company owned by the Director with a market value in the amount of the
exercise price of the Shares being purchased. All Shares issued as provided
herein will be fully paid and nonassessable.
(c) The Company shall at all times during the term of this
Option reserve and keep available such number of shares of Common Stock as will
be sufficient to satisfy the requirements of this Option Agreement, shall pay
all fees and expenses necessarily incurred by the Company in connection with the
issue of Shares pursuant hereto and will from time to time use its best efforts
to comply with all laws and regulations which, in the opinion of counsel for the
Company, shall be applicable thereto.
(d) As used herein, the term "parent corporation" shall mean
any present or future parent corporation of the Bank.
(e) This Option Agreement has been entered into pursuant to
Article VIII of the Plan and the Option shall not be exercisable until all the
terms and conditions of such section have been met.
(f) The Option is effective as of the date hereof, subject as
to exercise of Paragraphs 4 and 7(h), but shall expire thirty (30) days after
the date of grant if the Director does not execute and deliver a copy of this
Option Agreement to the Company on or prior to that date.
(g) Notwithstanding any other provision of this Agreement to
the contrary, it is the intention that the Option qualify as an "incentive stock
option" under said Section 422 of the Code and the Plan. This Agreement is also
deemed to contain such other terms or conditions as may be necessary (and not
contain any terms or conditions inconsistent with said Section 422) so that the
Option qualifies as an incentive stock option under said Section 422 of the
Code.
(h) As a condition to the exercise of an Option, the Board may
in its sole discretion, require the Director to pay, in addition to the purchase
price of the Shares covered by the Option, an amount in cash or shares equal to
any federal, state and local taxes that may be required to be withheld in
connection with the exercise of such Option.
(i) Director will promptly give the Company written notice at
its corporate headquarters, now in Atlanta, Georgia, Attention: Secretary of
Capitol City Bancshares, Inc., of any sale of any Shares purchased pursuant to
the Option which is made within twelve months after the date of exercise of the
Option or twenty-four months from the date of grant.
-5-
<PAGE>
(j) This Stock Option Agreement has been entered into pursuant
to and shall be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
exercised by its duly authorized officers, and the Director has hereunto set his
hand and affixed his seal, the day and year first above written.
"COMPANY" "DIRECTOR"
CAPITOL CITY BANCSHARES, INC.
BY:______________________________ _________________________________
Chairman J. AL COCHRAN
ATTEST:__________________________
Secretary
-6-
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
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<CASH> 2,379
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0
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