SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For fiscal year ended December 31, 1997
OR
-----------------
|_| Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to ____________
Commission file number 0-22543
Community First Banking Company
(Exact Name of Registrant as Specified in Its Charter)
Georgia 58-2309605
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
110 Dixie Street
Carrollton, Georgia 30117
- -----------------------------------------------------------------------
(Address of Principal Executive Offices) Zip Code)
(770) 834-1071
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant : (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of such common equity as of March 20, 1998: $76,842,432
Number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,154,094 shares of Common Stock at
March 20, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 are incorporated by reference into Part II.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders, scheduled to be held on April 23, 1998, are incorporated by
reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS OF THE COMPANY
GENERAL
Community First Banking Company (the "Company") was incorporated in the
State of Georgia on March 12, 1997, for the purpose of becoming a holding
company to own 100% of the outstanding capital stock of Carrollton Federal Bank,
FSB (the "Savings Bank"). The Savings Bank was organized on August 1, 1994 as a
federal savings bank subsidiary of CF Mutual Holdings (the "Mutual Holding
Company"), a federally chartered mutual holding company. Prior to that date, the
predecessor of the Savings Bank had operated as a mutual savings bank since
1929.
On June 27, 1997, a plan of conversion and reorganization (the
"Conversion") whereby the Company became the unitary holding company for the
Savings Bank and the dissolution of the Mutual Holding Company was completed.
On December 29, 1997, the Savings Bank converted from a federal savings
bank regulated by the Office of Thrift Supervision (the "OTS") to a Georgia
chartered state commercial bank regulated by the Georgia Department of Banking
and Finance (the "Georgia Department") and concurrently changed the name of the
institution to Community First Bank (the "Bank").
The Company is engaged primarily in the business of the directing,
planning and coordinating the activities of the Bank and its subsidiaries.
Accordingly, the information presented in this report relates primarily to the
Bank. The Bank is a community-oriented financial institution operating from 12
branch offices in western Georgia. These branches provide customary banking
services such as customer and commercial checking accounts, NOW accounts,
savings accounts, certificates of deposit, lines of credit and MasterCard and
VISA credit cards. Lending activities include the origination of consumer and
commercial business loans on a secured and unsecured basis, residential mortgage
and home-equity loans, and commercial real estate loans.
The Bank has three operating subsidiaries that broaden the services the
Bank offers to the community. The first, CFB Securities, Inc. offers traditional
brokerage services and products such as mutual funds, stocks and bonds through a
NASD member firm. CFB Securities, Inc. began operations in 1996 and is located
in space immediately adjacent to the Bank's main office lobby in Carrollton,
Georgia.
The second subsidiary of the Bank, CFB Financial Inc., began operations
in 1996 to service the loan needs of consumers traditionally associated with
consumer finance companies. CFB Financial, Inc., has six full-time employees
operating in its office in Villa Rica, Georgia, and the Bank's branch in
Douglasville, Georgia. This unit offers a wide range of small loans granted in
conformity with the Georgia Industrial Loan Act.
The third subsidiary, CFB Insurance Agency, Inc. began operations in
1997. Based in Bowdon, Georgia, CFB Insurance Agency, Inc. offers a full line of
insurance products to existing Bank customers as well as the general public.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information about the business of the
Company and the Bank.
COMPETITION
The Bank has operated in its local community since 1929. Management
estimates that the Bank has a 30% market share in Carroll County, a 20% market
share in each of Haralson and Heard Counties, and a 1% market share in each of
Coweta, Douglas, Fayette, Henry and Paulding Counties.
The Bank faces significant competition both in making loans and in
attracting deposits principally from national, regional and local commercial
banks, savings banks, savings and loan associations, credit unions,
broker-dealers, mortgage banking companies (including FNMA) and insurance
companies. Its most direct competition for deposits has historically come from
commercial banks, savings banks, savings and loan associations and credit
unions. The Bank faces additional competition for deposits from short-term money
market funds, other corporate and government securities funds and from other
financial institutions such as brokerage firms and insurance companies. In
addition, the Bank faces additional competition from commercial banks
headquartered outside of the State of Georgia as a result of the enactment of
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which
became fully effective on June 1, 1997. See "-Supervision and Regulation."
The Bank experiences strong competition for real estate loans
principally from other savings associations, commercial banks, and mortgage
banking companies. The Bank competes for loans principally through the interest
rates and loan fees it charges and the efficiency and quality of services it
provides borrowers. Competition may increase as a result of the continuing
reduction of restrictions on the interstate operations of financial
institutions.
EMPLOYEES
The Company and the Bank had 163 full-time employees and 19 part-time
employees at December 31, 1997. None of these employees is represented by a
collective bargaining agreement, and management believes that it enjoys good
relations with its personnel.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information related to the Company.
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and any non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (c) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Company, and any other bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, as of
June 1, 1997, national and state-chartered banks may now branch interstate
through acquisitions of banks in other states. By adopting legislation prior to
that date, a state has the ability either to "opt in" and accelerate the date
after which interstate branching is permissible or "opt out" and prohibit
interstate branching altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (i) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (ii) interstate acquisitions of
institutions located in Georgia will be permitted by institutions in states that
allow national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act, which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis as of July 1, 1996. Beginning July 1, 1998, the
number of de novo branches that may be established will no longer be limited.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
The Bank is a member of the Federal Deposit Insurance Corporation (the
"FDIC"), and as such, its deposits are insured by the FDIC to the maximum extent
provided by law. The Bank is also subject to numerous state and federal statutes
and regulations that affect its business, activities, and operations, and is
supervised and examined by one or more state or federal bank regulatory
agencies.
The FDIC and the Georgia Department of Banking and Finance (the "Georgia
Department") regularly examine the operations of the Bank and are given
authority to approve or disapprove mergers, consolidations, the establishment of
branches, and similar corporate actions. The FDIC and the Georgia Department
also have the power to prevent the continuance or development of unsafe or
unsound banking practices or other violations of law.
The Company is a legal entity separate and distinct from the Bank. The
principal sources of cash flow of the Company, including cash flow to pay
dividends to its shareholders, are dividends by the Bank. There are statutory
and regulatory limitations on the payment of dividends by the Bank to the
Company as well as by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
Under dividend restrictions imposed under federal and state laws, the
Bank, without obtaining governmental approvals, could declare aggregate
dividends to the Company of up to $667,830 (representing 50% of the previous
year's net income) in 1998.
The payment of dividends by the Company and the Bank may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
The Company and the Bank are required to comply with the capital
adequacy standards established by the Federal Reserve and the appropriate
federal banking regulator in the case of its banking subsidiaries. There are two
basic measures of capital adequacy for bank holding companies that have been
promulgated by the Federal Reserve: a risk-based measure and a leverage measure.
All applicable capital standards must be satisfied for a bank holding company to
be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1997, the
Company's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
25.0% and 24.0%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1997 was 17.7%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Bank is subject to risk-based and leverage capital requirements
adopted by the FDIC, which are substantially similar to those adopted by the
Federal Reserve for bank holding companies.
The Bank was in compliance with applicable minimum capital requirements
as of December 31, 1997. The Company has not been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it or its
subsidiary depository institutions.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its
off-balance-sheet position) in the evaluation of a bank's capital adequacy. The
bank regulatory agencies' methodology for evaluating interest rate risk requires
banks with excessive interest rate risk exposure to hold additional amounts of
capital against such exposures. . Under Federal Reserve policy, the Company is
expected to act as a source of financial strength for, and to commit resources
to support, the Bank. This support may be required at times when, absent such
Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its banking
subsidiaries are subordinate in right of payment to deposits and to certain
other indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
The capital levels established for each of the categories are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
========================== ==================== ========================= ====================== ===================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
========================== ==================== ========================= ====================== ===================
Well Capitalized 5% or more 10% or more 6% or more Not subject to a
capital directive
========================== -------------------- ------------------------- ---------------------- ===================
Adequately Capitalized 4% or more 8% or more 4% or more --
========================== -------------------- ------------------------- ---------------------- ===================
Undercapitalized less than 4% less than 8% less than 4% --
========================== -------------------- ------------------------- ---------------------- ===================
Significantly less than 3% less than 6% less than 3% --
Undercapitalized
========================== ==================== ========================= ====================== ===================
Critically 2% or less -- -- --
Undercapitalized tangible equity
========================== ==================== ========================= ====================== ===================
</TABLE>
For purposes of the regulation, the term "tangible equity" includes core
capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At December 31, 1997, the Bank had the requisite capital levels to
qualify as well capitalized.
FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a new
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. The new system, which went into effect on January 1,
1994, assigns an institution to one of three capital categories: (a) well
capitalized; (b) adequately capitalized; and (c) undercapitalized. These three
categories are substantially similar to the prompt corrective action categories
described above, with the "undercapitalized" category including institutions
that are undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for members of both the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") for
the first half of 1995, as they had during 1994, ranged from 23 basis points
(0.23% of deposits) for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning 1996, the deposit insurance premiums for 92% of all BIF members in the
highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates
had adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, in July 1995, the FDIC, the
Treasury Department, and the Office of Thrift Supervision released statements
outlining a proposed plan to recapitalize the SAIF, the principal feature of
which was a special one-time assessment on depository institutions holding
SAIF-insured deposits, which was intended to recapitalize the SAIF at a reserve
ratio of 1.25%. This proposal contemplated elimination of the disparity between
the assessment rates on BIF and SAIF deposits following recapitalization of the
SAIF.
A variation of this proposal designated the Deposit Insurance Funds Act
of 1996 (the "Funds Act") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by the Funds
Act, the FDIC implemented a special one-time assessment of approximately 65.7
basis points (0.657%) on a depository institution's SAIF-insured deposits held
as of March 31, 1995 (or approximately 52.6 basis points on SAIF deposits
acquired by banks in certain qualifying transactions). In addition, the FDIC has
implemented a revision in the SAIF assessment rate schedule that effected, as of
October 1, 1996 (a) a widening in the assessment rate spread among institutions
in the different capital and risk assessment categories, (b) an overall
reduction of the assessment rate range assessable on SAIF deposits of from 0 to
27 basis points, and (c) a special interim assessment rate range for the last
quarter of 1996 of from 18 to 27 basis points on institutions subject to
Financing Corporation ("FICO") assessments. Effective as of January 1, 1997,
assessments to help pay off the $780 million in annual interest payments on the
$8 billion FICO bonds issued in the late 1980s as part of the government rescue
of the thrift industry are imposed on both BIF- and SAIF-insured deposits in
annual amounts presently estimated at 1.29 basis points and 6.44 basis points,
respectively. Beginning in January 2000, BIF- and SAIF- insured institutions
will share the FICO interest costs at equal rates currently estimated 2.43 basis
points.
Under the FDIA, 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.
Proposed Legislation and Regulatory Action. New regulations and statutes
are regularly proposed that contain wide-ranging proposals for altering the
structures, regulations and competitive relationships of the nation's financial
institutions. It cannot be predicted whether or what form any proposed
regulation or statute will be adopted or the extent to which the business of the
Company may be affected by such regulation or statute.
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the
Company's properties at December 31, 1997.
LEASED/
DESCRIPTION/ADDRESS OWNED
Main Office 110 Dixie St., Carrollton, GA Owned
640 W. Bankhead Hwy, Villa Rica, GA Owned
207 W. College St., Bowdon, GA Owned
501 Alabama Ave., Bremen, GA Leased
505 Bankhead Hwy., Carrollton, GA (Grocery Store Branch) Leased
1201 Maple St., Suite A, Carrollton, GA Leased
1119 South Park St., Carrollton, GA Owned
9060 Hwy. 27, Franklin, GA Owned
2212 Atlanta Hwy, Hiram, GA (Wal*Mart Branch) Leased
5600 N. Henry Blvd. Suite A, Stockbridge, GA (Wal*Mart Branch) Leased
1025-A Bullsboro Dr., Newnan, GA (Wal*Mart Branch) Leased
125 Pavilion Parkway, Fayetteville, GA (Wal*Mart Branch) Leased
3218 Highway 5, Douglasville, GA Leased
664 W. Bankhead Hwy.,Villa Rica, GA Leased
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Shareholders held on December 29, 1997, the
Company's shareholders approved the Company's Management Recognition Plan and
its 1997 Stock Option Plan by the following votes:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Proposal to Approve 1,410,476 139,129 1,044 0
the Management
Recognition Plan
Proposal to Approve 1,449,862 88,991 2,019 9,777
the 1997 Stock
Option Plan
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Information regarding the quarterly high and low sales prices for the
Company's Common Stock, the number of record shareholders and the Company's
dividend policy is contained in the Company's Annual Report to Shareholders for
the year ended December 31, 1997 under the heading "Market for Stock and Related
Shareholder Matters" and is hereby incorporated herein by reference.
On June 27, 1997, the Registrant consummated an initial public offering
of 2,413,562 shares of Common Stock at an aggregate offering price of $48.3
million, or $20.00 per share, in a subscription offering managed by Trident
Securities, Inc., who received an underwriting discount of $1.4 million or $0.57
per share. The Company's use of proceeds was described in its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's Annual
Report to Shareholders for the year ended December 31, 1997 under the heading
"Selected Consolidated Financial Data" and is hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The responses to this item are included in the Company's Annual Report to
Shareholders for the year ended December 31, 1997 under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and are hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is incorporated herein by reference
from the Company's Annual Report to Shareholders for the year ended December 31,
1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14 are
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1997 under the headings "Financial Statements" and "Selected
Quarterly Financial Results" and are hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
headings "The Nomination and Election of Directors," "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance" and are incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
headings "Executive Compensation" and "The Nomination and Election of Directors
- - Director Compensation" and "- Compensation Committee Interlocks and Insider
Participation" and are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The responses to this item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
heading "Stock Owned by Management" and are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
heading "Certain Transactions" and are incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Earnings for the Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(b) Reports on Form 8-K:
None
(c) Exhibits
Exhibit Number
Exhibit
3.1 Articles of Incorporation (1), as amended.
3.2 Bylaws.(1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and Bylaws governing the
rights of holders of securities of the Company.
10.1* 1997 Stock Option Plan.
10.2* Management Recognition Plan.
10.3* Employee Stock Ownership Plan and Trust. (1)
10.4* Employee Stock Ownership Plan Trust Agreement. (1)
10.5(a)*Employment Agreement between Gary D. Dorminey and the
Bank dated September 1, 1994, with the first and second
amendments thereto, dated September 1, 1995 and
September 1, 1996, respectively. (1)
10.5(b)*Employment Agreement between Gary D. Dorminey, the
Company and the Bank, dated as of June 1, 1997. (1).
10.5(c)*Employment Agreement between D Lane Poston, the Company
and the Bank, dated as of June 1, 1997. (1)
10.5(d)*Employment Agreement between C. Lynn Gable, the Company
and the Bank, dated as of June 1, 1997.(1)
10.5(e)*Employment Agreement between Anyce C. Fox, the Company
and the Bank, dated as of June 1, 1997. (1)
10.6* Retirement Plan. (1)
10.7* 401(k) Retirement Plan. (1)
13.1 The following portions of the Company's 1997 Annual
Report to Shareholders that have been incorporated by
reference herein:
Market for Stock and Related Shareholder Matters
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Consolidated Financial Statements, the Notes thereto and
the Independent Auditors' Report thereon
Selected Quarterly Financial Results
23.1 Consent of Porter Keadle Moore LLP.
27.1 Financial Data Schedule (SEC use only).
- -----------
* Indicates a management compensation plan or agreement.
(1) Incorporated by reference to the exhibit of the same number contained in the
Registrant's Registration Statement on Form S-1 (Regis. No. 333-23533).
(d) Financial Statements
The financial statement schedules or which provision is made in the
applicable accounting regulations of the Commission are either not
required under the related instructions or are inapplicable and
have therefore been omitted.
<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 on March 26, 1998.
COMMUNITY FIRST BANKING COMPANY
By: /s/ Gary D. Dorminey
------------------------
Gary D. Dorminey
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1998.
Signature Title
/s/ Gary D. Dorminey President, Chief Executive Officer
Gary D. Dorminey and Director*
/s/ T. Aubrey Silvey Chairman of the Board
T. Aubrey Silvey
/s/ Anna L. Berry Director
Anna L. Berry
/s/ Gary M. Bullock Vice Chairman of the Board
Gary M. Bullock
/s/ Jerry L. Clayton Director
Jerry L. Clayton
/s/ Thomas E. Reeve Director
Thomas E. Reeve
/s/ Michael P. Steed Director
Michael P. Steed
/s/ Dean B. Talley Director
Dean B. Talley
/s/ Thomas S. Upchurch Director
Thomas S. Upchurch
/s/ C. Lynn Gable Senior Vice President and Chief
C. Lynn Gable Financial Officer**
- ------------------
* Principal Executive Officer
** Principal Accounting and Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Exhibit
Number
3.1 Articles of Incorporation (1), as amended.
3.2 Bylaws.(1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and Bylaws governing the rights of
holders of securities of the Company.
10.1* 1997 Stock Option Plan.
10.2* Management Recognition Plan.
10.3* Employee Stock Ownership Plan and Trust. (1)
10.4* Employee Stock Ownership Plan Trust Agreement. (1)
10.5(a)* Employment Agreement between Gary D. Dorminey and the Bank
dated September 1, 1994, with the first and second
amendments thereto, dated September 1, 1995 and September 1,
1996, respectively. (1)
10.5(b)* Employment Agreement between Gary D. Dorminey, the Company
and the Bank, dated as of June 1, 1997. (1).
10.5(c)* Employment Agreement between D Lane Poston, the Company and
the Bank, dated as of June 1, 1997. (1)
10.5(d)* Employment Agreement between C. Lynn Gable, the Company and
the Bank, dated as of June 1, 1997.(1)
10.5(e)* Employment Agreement between Anyce C. Fox, the Company and
the Bank, dated as of June 1, 1997. (1)
10.6* Retirement Plan. (1)
10.7* 401(k) Retirement Plan. (1)
13.1 The following portions of the Company's 1997 Annual Report
to Shareholders that have been incorporated by reference
herein:
Market for Stock and Related Shareholder Matters
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Consolidated Financial Statements, the Notes thereto and the
Independent Auditors' Report thereon
Selected Quarterly Financial Results
23.1 Consent of Porter Keadle Moore LLP.
27.1 Financial Data Schedule (SEC use only).
- -----------
* Indicates a management compensation plan or agreement.
(1) Incorporated by reference to the exhibit of the same number contained
in the Registrant's Registration Statement on Form S-1 (Regis. No.
333-23533).
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
COMMUNITY FIRST BANKING COMPANY
I.
The name of the corporation is COMMUNITY FIRST BANKING COMPANY
(hereinafter the "Corporation").
II.
The Articles of Incorporation of the Corporation are hereby amended by
adding the following paragraph to Article 4 of the Articles of Incorporation:
"(c) 96,542 shares of the Corporation's Preferred Stock, par value $.01 per
share, designated as "Series A Convertible Preferred Stock" ("Series A Preferred
Stock"), are authorized for issuance with the voting powers, preferences and
other special rights, qualifications, limitations and restrictions thereof set
forth below:
1. Dividends.
1.1. The holders of Series A Preferred Stock shall not be entitled to
receive dividends.
2. Liquidation. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the
holders of the shares of Series A Preferred Stock shall not
be entitled to any distribution or payment before such
distributions or payments are made to the holders of the
Common Stock. Upon any such liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation
shall be distributed ratably to the holders of the
Corporation's Common Stock and Series A Preferred Stock as a
single class.
3. Conversion.
3.1. Right to Convert. Subject to the terms and conditions
of subparagraphs 3.3, 3.4, 3.5 and 3.6 below, each
share of Series A Preferred Stock shall automatically
convert into one fully paid and nonassessable share of
Common Stock on the five-year anniversary of the date
on which such share of Series A Preferred Stock was
issued by the Corporation (the "Conversion Date"). At
such time the rights of the holder of such shares of
Series A Preferred Stock shall cease (with respect to
the shares of Series A Preferred Stock), and the person
or persons in whose name(s) any certificate(s) for
shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder(s)
of record of the shares represented thereby. No
consideration shall be required to be paid by any
holder of Series A Preferred Stock in order to effect
such conversion.
3.2. Surrender and Issuance of Certificates. Promptly
following the Conversion Date, the Corporation shall
notify the registered holder of the converted Series A
Preferred Stock and require the surrender of the
converted Series A Preferred Stock certificate(s) to
the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation
may designate by notice in writing to the holder or
holders of the Series A Preferred Stock), together with
a statement of the name or names (with address),
subject to compliance with applicable laws to the
extent such designation shall involve a transfer, in
which the certificate(s) for shares of Common Stock are
to be issued. Promptly following the receipt of such
materials, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder,
registered in such name or names as such holder may
direct, subject to compliance with applicable laws to
the extent such designation shall involve a transfer, a
certificate or certificates for the number of whole
shares of Common Stock issuable upon the conversion of
such shares of Series A Preferred Stock.
3.3. Fractional Shares; Dividends. No fractional shares
shall be issued upon conversion of the Series A
Preferred Stock into Common Stock and the number of
shares of Common Stock to be issued shall be rounded to
the nearest whole share, and no payment or adjustment
shall be made upon conversion on account of any cash
dividends declared or payable to holders of Common
Stock of record on a date prior to the date of
conversion.
3.4. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides its outstanding
shares of Common Stock into a greater number of shares
or declares or pays a dividend on its outstanding
shares of Common Stock payable in shares of Common
Stock, the number of shares of Common Stock into which
each share of Series A Preferred Stock may be converted
immediately prior to such subdivision shall be
proportionately increased, and conversely, in case the
outstanding shares of Common Stock of the Corporation
are combined into a smaller number of shares, the
number of shares of Common Stock into which each share
of Series A Preferred Stock may be converted
immediately prior to such combination shall be
proportionately reduced.
3.5. Change of Control. In the event of a Change in Control
(as defined below), each outstanding share of Series A
Preferred Stock shall, immediately prior to the
effective time of such Change of Control, automatically
convert into one fully paid and non-assessable share of
Common Stock, subject to adjustment as described in
subparagraph 3.3 and 3.4 above. A Change of Control is
defined as any one of the following events:
(a) the acquisition by any person or persons acting in
concert of the Corporation's then outstanding voting
securities if, after the transaction, the acquiring
person (or persons) owns, controls or holds with power
to vote 25% or more of any class of voting securities
of the Corporation or such other transaction as may be
described under 12 C.F.R. Section 225.41(b)(1) or any
successor thereto;
(b) within any 12-month period, the persons who were
directors of the Corporation immediately before the
beginning of such 12-month period (the "Incumbent
Directors") shall cease to constitute at least a
majority of the Board of Directors; provided that any
director who was not a director as of June 27, 1997
shall be deemed to be an Incumbent Director if that
director was elected to the Board of Directors by, or
on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as
Incumbent Directors, and provided further that no
director whose initial assumption of office is in
connection with an actual or threatened election
contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities
Exchange Act of 1934 relating to the election of
directors of the Corporation, shall be deemed to be an
Incumbent Director; or
(c) the approval by the shareholders of the Corporation of
a reorganization, merger or consolidation with respect
to which persons who were shareholders of the
Corporation immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter,
own more than 50% of the combined voting power entitled
to vote in the election of directors of the
reorganized, merged or consolidated company's then
outstanding voting securities.
3.6. Stock to be Reserved. The Corporation must at all times
reserve and keep available out of its authorized but
unissued Common Stock, solely for the purpose of
issuance upon the conversion of the Series A Preferred
Stock as herein provided, such number of shares of
Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Series A
Preferred Stock. All shares of Common Stock which shall
be so issued shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens
and charges arising out of or by reason of the issue
thereof. The Corporation will take all such action
within its control as may be necessary on its part to
assure that all such shares of Common Stock may be so
issued without violation of any applicable law or
regulation, or of any requirement of any national
securities exchange upon which the Common Stock of the
Corporation may be listed. The Corporation will not
take any action that would cause the total number of
shares of Common Stock issued and outstanding and
thereafter issuable upon exercise of all outstanding
options and conversion of the Series A Preferred Stock
and any other securities convertible into Common Stock
to exceed the total number of shares of Common Stock
then authorized by the Corporation's Articles of
Incorporation. If at any time the number of authorized
but unissued shares of Common Stock is insufficient to
effect the conversion of all of the then outstanding
shares of Series A Preferred Stock, the Corporation
shall take such corporate action as may be necessary to
increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient
for such purposes.
3.7. No Reissuance of Series A Preferred Stock. Shares of
Series A Preferred Stock that are converted into shares
of Common Stock as provided herein shall not be
reissued.
3.8. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of the Series A Preferred
Stock shall be made without charge to the holders
thereof for any applicable issuance tax in respect
thereof, provided that the Corporation shall not be
required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the
holder of the Series A Preferred Stock which is being
converted.
4. Voting. Except as otherwise provided by law, the holders of
Series A Preferred Stock shall have no voting rights
whatsoever, and no holder of Series A Preferred Stock shall
be entitled by virtue of such ownership to otherwise
participate in any proceeding in which actions shall be
taken by the Corporation or the shareholders thereof or be
entitled to notification as to any meeting of the Board of
Directors or the shareholders.
5. Restrictions on Transfer. The transfer or assignment of
shares of Series A Preferred Stock may be restricted
pursuant to an agreement or agreements between the
Corporation and any holder of Series A Preferred Stock to
the extent permitted by law.
6. Redemption. No right of redemption shall exist in favor of
the Corporation with respect to the shares of Series A
Preferred Stock, although such shares may be redeemed or
repurchased by the Corporation to the extent permitted by
law pursuant to the terms of an agreement between the
Corporation and any holder of the Series A Preferred Stock.
7. Amendments. At any time when shares of Series A Preferred
Stock are outstanding, and in addition to any other vote of
shareholders required by law or by the Corporation's
Articles of Incorporation, without the prior consent of the
holders of 66 2-3% of the outstanding Series A Preferred
Stock, given in person or by proxy, either in writing or at
a special meeting called for that purpose, at which meeting
the holders of the shares of such Series A Preferred Stock
shall vote together as a class, the Corporation will not
amend, alter or repeal the Corporation's Articles of
Incorporation or Bylaws in any manner, or file any
directors' resolutions pursuant to the Georgia Business
Corporation Code containing any provision, which adversely
affects the rights of the holders of the Series A Preferred
Stock."
[Remainder of this page is intentionally left blank]
<PAGE>
III.
All other provisions of the Articles of Incorporation shall remain in full
force and
effect.
IV.
The foregoing amendment was duly adopted by the Board of Directors of the
Corporation at a meeting held on December 29, 1997.
[Signatures appear on the next page]
<PAGE>
IN WITNESS WHEREOF, the undersigned does hereby set his hand effective
this 29th day of December, 1997.
COMMUNITY FIRST BANKING COMPANY
By: /s/ Gary D. Dorminey
Gary D. Dorminey
President and Chief Executive Officer
ATTEST:
/s/ D. Lane Poston
D. Lane Poston
Executive Vice President, Chief Operating
Officer and Secretary
<PAGE>
EXHIBIT 10.1
COMMUNITY FIRST BANKING COMPANY
1997 STOCK OPTION PLAN
<PAGE>
COMMUNITY FIRST BANKING COMPANY
1997 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS......................................................28
1.1 Definitions...................................................28
SECTION 2 THE STOCK OPTION PLAN............................................31
2.1 Purpose of the Plan...........................................31
2.2 Stock Subject to the Plan.....................................31
2.3 Administration of the Plan....................................31
2.4 Eligibility and Limits........................................32
SECTION 3 GENERAL TERMS OF OPTIONS.........................................32
3.1 General Terms and Conditions..................................32
3.2 Other Terms and Conditions of Options.........................33
3.3 Treatment of Awards Upon Termination of Service...............34
SECTION 4 GENERAL PROVISIONS...............................................34
4.1 Withholding...................................................34
4.2 Changes in Capitalization; Merger; Liquidation................35
4.3 Cash Awards...................................................36
4.4 Compliance with Code..........................................36
4.5 Right to Terminate Service....................................36
4.6 Restrictions on Delivery and Sale of Shares; Legends..........36
4.7 Non-alienation of Benefits....................................36
4.8 Termination and Amendment of the Plan.........................36
4.9 Stockholder Approval..........................................37
4.10 Indemnification of Committee.................................37
4.11 Choice of Law................................................37
4.12 Effective Date of Plan.......................................37
4.13 Paramount Provisions.........................................37
APPENDIX A...............................................................A-39
<PAGE>
COMMUNITY FIRST BANKING COMPANY
1997 STOCK OPTION PLAN
SECTION 1
DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or
is under common control with, a specified person.
(b) "Board of Directors" means the board of directors of the
Company.
(c) "Cause" has the same meaning as provided in the employment
agreement between the Participant and the Company or, if applicable,
any affiliate of the Company on the date of Termination of Service, or
if no such definition or employment agreement exists, "Cause" means
conduct amounting to (1) fraud or dishonesty against the Company or
its affiliates, (2) Participant's willful misconduct, repeated refusal
to follow the reasonable directions of the board of directors of the
Company or its affiliates, or knowing violation of law in the course
of performance of the duties of Participant's service with the Company
or its affiliates, (3) repeated absences from work without a
reasonable excuse, (4) repeated intoxication with alcohol or drugs
while on the Company or affiliates' premises during regular business
hours, (5) a conviction or plea of guilty or nolo contendere to a
felony or a crime involving dishonesty, or (6) a breach or violation
of the terms of any agreement to which Participant and the Company or
its affiliates are party.
(d) "Change in Control" means any one of the following events
which first occurs after June 27, 1997:
(1) the acquisition by any person or persons acting in
concert of the Company's then outstanding voting securities if,
after the transaction, the acquiring person (or persons) owns,
controls or holds with power to vote twenty-five percent (25%) or
more of any class of voting securities of the Company or such
other transaction as may be described under 12 C.F.R. Section
225.41(b)(1) or any successor thereto;
(2) within any twelve-month period (beginning on or after
June 27, 1997) the persons who were directors of the Company
immediately before the beginning of such twelve-month period (the
"Incumbent Directors") shall cease to constitute at least a
majority of the Board of Directors; provided that any director
who was not a director as of June 27, 1997, shall be deemed to be
an Incumbent Director if that director was elected to the Board
of Directors by, or on the recommendation of or with the approval
of, at least two-thirds of the directors who then qualified as
Incumbent Directors; and provided further that no director whose
initial assumption of office is in connection with an actual or
threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities
Exchange Act of 1934 relating to the election of directors of the
Company, shall be deemed to be an Incumbent Director; or
(3) the approval by the stockholders of the Company of a
reorganization, merger or consolidation with respect to which
persons who were the stockholders of the Company immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty percent (50%) of the
combined voting power entitled to vote in the election of
directors of the reorganized, merged or consolidated company's
then outstanding voting securities.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Plan Section 2.3.
(g) "Company" means Community First Banking Company, a Georgia
corporation.
(h) "Disability" has the same meaning as provided in the
long-term disability plan or policy maintained or, if applicable, most
recently maintained, by the Company or, if applicable, any affiliate
of the Company for the Participant. If no long-term disability plan or
policy was ever maintained on behalf of the Participant or, if the
determination of Disability relates to an Incentive Stock Option,
Disability shall mean that condition described in Code Section
22(e)(3), as amended from time to time. In the event of a dispute, the
determination of Disability shall be made by the Board of Directors
and shall be supported by advice of a physician competent in the area
to which such Disability relates.
(i) "Disposition" means any conveyance, sale, transfer,
assignment, pledge or hypothecation, whether outright or as security,
inter vivos or testamentary, with or without consideration, voluntary
or involuntary.
(j) "Fair Market Value" refers to the determination of value of a
share of Stock. If the Stock is actively traded on any national
securities exchange or any Nasdaq quotation or market system, Fair
Market Value shall mean the closing price at which sales of Stock
shall have been sold on the most recent trading date immediately prior
to the date of determination, as reported by any such exchange or
system selected by the Committee on which the shares of Stock are then
traded. If the shares of Stock are not actively traded on any such
exchange or system, Fair Market Value shall mean the arithmetic mean
of the bid and asked prices for the shares of Stock on the most recent
trading date within a reasonable period prior to the determination
date as reported by such exchange or system. If there are no bid and
asked prices within a reasonable period or if the shares of Stock are
not traded on any exchange or system as of the determination date,
Fair Market Value shall mean the fair market value of a share of Stock
as determined by the Committee taking into account such facts and
circumstances deemed to be material by the Committee to the value of
the Stock in the hands of the Participant; provided that, for purposes
of granting awards other than Incentive Stock Options, Fair Market
Value of a share of Stock may be determined by the Committee by
reference to the average market value determined over a period certain
or as of specified dates, to a tender offer price for the shares of
Stock (if settlement of an award is triggered by such an event) or to
any other reasonable measure of fair market value and provided further
that, for purposes of granting Incentive Stock Options, Fair Market
Value of a share of Stock shall be determined in accordance with the
valuation principles described in the regulations promulgated under
Code Section 422.
(k) "Incentive Stock Option" means an incentive stock option, as
defined in Code Section 422, described in Plan Section 3.2.
(l) "Non-Qualified Stock Option" means a stock option, other than
an option qualifying as an Incentive Stock Option, described in Plan
Section 3.2.
(m) "Option" means a Non-Qualified Stock Option or an Incentive
Stock Option.
(n) "Over 10% Owner" means an individual who at the time an
Incentive Stock Option is granted owns Stock possessing more than 10%
of the total combined voting power of the Company or one of its
Parents or Subsidiaries, determined by applying the attribution rules
of Code Section 424(d).
(o) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, with
respect to Incentive Stock Options, at the time of granting of the
Option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(p) "Participant" means an individual who receives an Option
hereunder.
(q) "Plan" means the Community First Banking Company 1997 Stock
Incentive Plan.
(r) "Stock" means the Company's common stock, $.01 par value per
share.
(s) "Stock Incentive Agreement" means an agreement between the
Company and a Participant or other documentation evidencing an award
of an Option.
(t) "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if,
with respect to Incentive Stock Options, at the time of the granting
of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in the chain.
(u) "Termination of Service" means the termination of the service
relationship, whether employment or otherwise, between a Participant
and the Company and its affiliates, regardless of the fact that
severance or similar payments are made to the Participant for any
reason, including, but not by way of limitation, a termination by
resignation, discharge, death, Disability or retirement. The Committee
shall, in its absolute discretion, determine the effect of all matters
and questions relating to Termination of Service, including, but not
by way of limitation, the question of whether a leave of absence
constitutes a Termination of Service, or whether a Termination of
Service is for Cause.
SECTION 2
THE STOCK OPTION PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive
to employees and directors of the Company and its affiliates to stimulate their
efforts toward the continued success of the Company and to operate and manage
the business in a manner that will provide for the long-term growth and
profitability of the Company; (b) encourage stock ownership by employees and
directors by providing them with a means to acquire a proprietary interest in
the Company by acquiring shares of Stock; and (c) provide a means of obtaining
and rewarding key personnel.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
Section 4.2, 241,356 shares of Stock, $.01 par value, (the "Maximum Plan
Shares") are hereby reserved exclusively for issuance pursuant to Options. At no
time shall the Company have outstanding Options and shares of Stock issued in
respect of Options in excess of the Maximum Plan Shares. The shares of Stock
attributable to the nonvested, unpaid, unexercised, unconverted or otherwise
unsettled portion of any Option that is forfeited or cancelled or expires or
terminates for any reason without becoming vested, paid, exercised, converted or
otherwise settled in full shall again be available for purposes of the Plan.
2.3 Administration of the Plan. The Plan shall be administered by the
Committee. The Committee shall have full authority in its discretion to
determine the officers, employees and directors of the Company or its affiliates
to whom Options shall be granted and the terms and provisions of Options,
subject to the Plan. Subject to the provisions of the Plan, the Committee shall
have full and conclusive authority to interpret the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine the terms
and provisions of the respective Stock Incentive Agreements and to make all
other determinations necessary or advisable for the proper administration of the
Plan. The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated). The
Committee's decisions shall be final and binding on all Participants.
As to any matter involving a Participant who is not a "reporting
person" for purposes of Section 16 of the Securities Exchange Act of 1934, the
Committee may delegate to any member of the Board of Directors or officer of the
Company the administrative authority to (a) interpret the provisions of the
Participant's Stock Incentive Agreement and (b) determine the treatment of
Options upon a Termination of Service, as contemplated by Plan Section 3.3.
The Committee shall consist of at least two members of the Board of
Directors and, during those periods that the Company is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, the Board of
Directors shall consider the advisability of whether each such appointee shall
qualify as a "non-employee director," as that term is defined in Rule 16b-3 as
then in effect under the Securities Exchange Act of 1934, and, during those
periods that the Company has issued equity securities required to be registered
under Section 12 of the Securities Exchange Act of 1934, the Board of Directors
shall consider the advisability of whether each such appointee shall separately
qualify as an "outside director," within the meaning of Code Section 162(m) and
the regulations promulgated thereunder. Each member of the Committee shall serve
at the pleasure of the Board of Directors, and the Board of Directors may from
time to time remove members from or add members to the Committee. Vacancies on
the Committee shall be filled by the Board of Directors. The Committee shall
select one of its members as Chairman and shall hold meetings at the times and
in the places as it may deem advisable. Acts approved by a majority of the
Committee in a meeting at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee.
2.4 Eligibility and Limits. Options may be granted only to employees
and directors of the Company or an affiliate; provided, however, that an
Incentive Stock Option may only be granted to an employee of the Company or any
Parent or Subsidiary. In the case of Incentive Stock Options, the aggregate Fair
Market Value (determined as at the date an Incentive Stock Option is granted) of
stock with respect to which stock options intended to meet the requirements of
Code Section 422 become exercisable for the first time by an individual during
any calendar year under all plans of the Company and its Parents and
Subsidiaries shall not exceed $100,000; provided further, that if the limitation
is exceeded, the Incentive Stock Option(s) which cause the limitation to be
exceeded shall be treated as Non-Qualified Stock Option(s); except as the terms
of the Stock Incentive Agreement may expressly provide otherwise. To the extent
required under Code Section 162(m) and regulations thereunder for compensation
to be treated as qualified performance-based compensation, the maximum number of
shares of Stock with respect to which Options may be granted during any single
fiscal year of the Company to any Participant shall not exceed 100,000, subject
to adjustment as provided in Section 4.2.
SECTION 3
GENERAL TERMS OF OPTIONS
3.1 General Terms and Conditions.
(a) The number of shares of Stock as to which an Option shall
be granted shall be determined by the Committee in its sole discretion,
subject to the provisions of Section 2.2 as to the total number of
shares available for grants under the Plan. If a Stock Incentive
Agreement so provides, a Participant may be granted a new Option to
purchase a number of shares of Stock equal to the number of previously
owned shares of Stock tendered in payment of the Exercise Price (as
defined below) for each share of Stock purchased pursuant to the terms
of the Stock Incentive Agreement.
(b) Each Option shall be evidenced by a Stock Incentive
Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine is appropriate. Each Stock
Incentive Agreement shall be subject to the terms of the Plan and any
provision in a Stock Incentive Agreement that is inconsistent with the
Plan shall be null and void.
(c) The date an Option is granted shall be the date on which
the Committee has approved the terms and conditions of the Stock
Incentive Agreement and has determined the recipient of the Option and
the number of shares covered by the Option and has taken all such other
action necessary to complete the grant of the Option.
(d) The Committee may provide in any Stock Incentive Agreement
that, in the event of a Change in Control, the Option shall or may be
cashed out on the basis of any price not greater than the highest price
paid for a share of Stock in any transaction reported by any market or
system selected by the Committee on which the shares of Stock are then
actively traded during a specified period immediately preceding or
including the date of the Change in Control or offered for a share of
Stock in any tender offer occurring during a specified period
immediately preceding or including the date the tender offer commences;
provided that, in no case shall any such specified period exceed one
(1) year (the "Change in Control Price"). For purposes of this
Subsection, the cash-out of an Option shall be on the basis of the
excess, if any, of the Change in Control Price (but not more than the
Fair Market Value of the Stock on the date of the cash-out in the case
of Incentive Stock Options) over the Exercise Price with or without
regard to whether the Option may otherwise be exercisable only in part.
(e) Options shall not be transferable or assignable except by
will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the
Participant; in the event of the Disability of the Participant, by the
legal representative of the Participant; or in the event of the death
of the participant, by the personal representative of the Participant's
estate or if no personal representative has been appointed, by the
successor in interest determined under the Participant's will.
3.2 Other Terms and Conditions of Options. Each Option granted under
the Plan shall be evidenced by a Stock Incentive Agreement. At the time any
Option is granted, the Committee shall determine whether the Option is to be an
Incentive Stock Option or a Non-Qualified Stock Option, and the Option shall be
clearly identified as to its status as an Incentive Stock Option or a
Non-Qualified Stock Option. At the time any Incentive Stock Option is exercised,
the Company shall be entitled to place a legend on the certificates representing
the shares of Stock purchased pursuant to the Option to clearly identify them as
shares of Stock purchased upon exercise of an Incentive Stock Option. An
Incentive Stock Option may only be granted within ten (10) years from the
earlier of the date the Plan is adopted by the Board of Directors or approved by
the Company's stockholders.
(a) Option Price. Subject to adjustment in accordance with
Section 4.2 and the other provisions of this Section 3.2, the exercise
price (the "Exercise Price") per share of Stock purchasable under any
Option shall be as set forth in the applicable Stock Incentive
Agreement. With respect to each grant of an Incentive Stock Option to a
Participant who is not an Over 10% Owner or to each grant of any Option
to a Participant who is then a Covered Employee, the Exercise Price per
share shall not be less than the Fair Market Value on the date the
Option is granted. With respect to each grant of an Incentive Stock
Option to a Participant who is an Over 10% Owner, the Exercise Price
shall not be less than 110% of the Fair Market Value on the date the
Option is granted.
(b) Option Term. The term of an Option shall be as specified
in the applicable Stock Incentive Agreement; provided, however that any
Incentive Stock Option granted to a Participant who is not an Over 10%
Owner shall not be exercisable after the expiration of ten (10) years
after the date the Option is granted and any Incentive Stock Option
granted to an Over 10% Owner shall not be exercisable after the
expiration of five (5) years after the date the Option is granted.
(c) Payment. Payment for all shares of Stock purchased
pursuant to exercise of an Option shall be made in any form or manner
authorized by the Committee in the Stock Incentive Agreement or by
amendment thereto, including, but not limited to, cash or, if the Stock
Incentive Agreement provides, (i) by delivery to the Company of a
number of shares of Stock which have been owned by the holder for at
least six (6) months prior to the date of exercise having an aggregate
Fair Market Value of not less than the product of the Exercise Price
multiplied by the number of shares the Participant intends to purchase
upon exercise of the Option on the date of delivery; (ii) in a cashless
exercise through a broker; (iii) by having a number of shares of Stock
withheld, the Fair Market Value of which as of the date of exercise is
sufficient to satisfy the Exercise Price; or (iv) any combination of
the foregoing. Payment shall be made at the time that the Option or any
part thereof is exercised, and no shares shall be issued or delivered
upon exercise of an option until full payment has been made by the
Participant. The holder of an Option, as such, shall have none of the
rights of a stockholder.
(d) Conditions to the Exercise of an Option. Each Option
granted under the Plan shall be exercisable by whom, at such time or
times, or upon the occurrence of such event or events, and in such
amounts, as the Committee shall specify in the Stock Incentive
Agreement; provided, however, that subsequent to the grant of an
Option, the Committee, at any time before complete termination of such
Option, may accelerate the time or times at which such Option may be
exercised in whole or in part, including, without limitation, upon a
Change in Control and may permit the Participant or any other
designated person to exercise the Option, or any portion thereof, for
all or part of the remaining Option term notwithstanding any provision
of the Stock Incentive Agreement to the contrary.
(e) Termination of Incentive Stock Option. With respect to an
Incentive Stock Option, in the event of the Termination of Service of a
Participant, the Option or portion thereof held by the Participant
which is unexercised shall expire, terminate, and become unexercisable
no later than the expiration of three (3) months after the date of
Termination of Service; provided, however, that in the case of a holder
whose Termination of Service is due to death or Disability, one (1)
year shall be substituted for such three (3) month period. For purposes
of this Subsection (e), Termination of Service of the Participant shall
not be deemed to have occurred if the Participant is employed by
another corporation (or a parent or subsidiary corporation of such
other corporation) which has assumed the Incentive Stock Option of the
Participant in a transaction to which Code Section 424(a) is
applicable.
(f) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section 3.2, any
Option issued in substitution for an option previously issued by
another entity, which substitution occurs in connection with a
transaction to which Code Section 424(a) is applicable, may provide for
an exercise price computed in accordance with such Code Section and the
regulations thereunder and may contain such other terms and conditions
as the Committee may prescribe to cause such substitute Option to
contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained
in the previously issued option being replaced thereby.
3.3 Treatment of Awards Upon Termination of Service. Except as
otherwise provided by Plan Section 3.2(e), any award under this Plan to a
Participant who suffers a Termination of Service may be cancelled, accelerated,
paid or continued, as provided in the Stock Incentive Agreement or, in the
absence of such provision, as the Committee may determine. The portion of any
award exercisable in the event of continuation or the amount of any payment due
under a continued award may be adjusted by the Committee to reflect the
Participant's period of service from the date of grant through the date of the
Participant's Termination of Service or such other factors as the Committee
determines are relevant to its decision to continue the award.
SECTION 4
GENERAL PROVISIONS
4.1 Withholding. The Company shall deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. A Participant may pay the
withholding tax in cash, or, if the applicable Stock Incentive Agreement
provides, a Participant may elect to have the number of shares of Stock he is to
receive reduced by the smallest number of whole shares of Stock which, when
multiplied by the Fair Market Value of the shares of Stock determined as of the
Tax Date (defined below), is sufficient to satisfy federal, state and local, if
any, withholding taxes arising from exercise or payment of an Option (a
"Withholding Election"). A Participant may make a Withholding Election only if
both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the
date on which the amount of tax required to be withheld is determined
(the "Tax Date") by executing and delivering to the Company a properly
completed notice of Withholding Election as prescribed by the
Committee; and
(b) Any Withholding Election made will be irrevocable;
however, the Committee may in its sole discretion disapprove and give
no effect to the Withholding Election.
4.2 Changes in Capitalization; Merger; Liquidation.
(a) The number of shares of Stock reserved for the grant of
Options; the number of shares of Stock reserved for issuance upon the
exercise or payment, as applicable, of each outstanding Option; and the
Exercise Price of each outstanding Option shall be proportionately
adjusted for any increase or decrease in the number of issued shares of
Stock resulting from a subdivision or combination of shares or the
payment of an ordinary stock dividend in shares of Stock to holders of
outstanding shares of Stock or any other increase or decrease in the
number of shares of Stock outstanding effected without receipt of
consideration by the Company.
(b) In the event of any merger, consolidation, extraordinary
cash or stock dividend (including a spin-off), reorganization or other
change in the corporate structure of the Company or its Stock or tender
offer for shares of Stock, the Committee, in its sole discretion, may
make such adjustments with respect to awards and take such other action
as it deems necessary or appropriate to reflect or in anticipation of
such merger, consolidation, extraordinary dividend, reorganization,
other change in corporate structure or tender offer, including, without
limitation, the substitution of new awards, the termination or
adjustment of outstanding awards, the acceleration of awards or the
removal of restrictions on outstanding awards, all as may be provided
in the applicable Stock Incentive Agreement or, if not expressly
addressed therein, as the Committee subsequently may determine in the
event of any such merger, consolidation, extraordinary dividend
(including a spin-off), reorganization or other change in the corporate
structure of the Company or its Stock or tender offer for shares of
Stock. Any adjustment pursuant to this Section 4.2 may provide, in the
Committee's discretion, for the elimination without payment therefor of
any fractional shares that might otherwise become subject to any
Options.
(c) The existence of the Plan and the Options granted pursuant
to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification,
reorganization or other change in its capital or business structure,
any merger or consolidation of the Company, any issue of debt or equity
securities having preferences or priorities as to the Stock or the
rights thereof, the dissolution or liquidation of the Company, any sale
or transfer of all or any part of its business or assets, or any other
corporate act or proceeding.
4.3 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of an Option the right to receive, at such times and in such
amounts as determined by the Committee in its discretion, a cash amount which is
intended to reimburse such person for all or a portion of the federal, state and
local income taxes imposed upon such person as a consequence of the receipt of
the Option or the exercise of rights thereunder.
4.4 Compliance with Code. All Incentive Stock Options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all Incentive Stock Options granted hereunder shall be construed in
such manner as to effectuate that intent.
4.5 Right to Terminate Service. Nothing in the Plan or in any Stock
Incentive Agreement shall confer upon any Participant the right to continue as
an employee, officer or director of the Company or any of its affiliates or
affect the right of the Company or any of its affiliates to terminate the
Participant's service at any time.
4.6 Restrictions on Delivery and Sale of Shares; Legends. Each Option
is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Option upon any securities exchange or under any
state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Option or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to such Option may
be withheld unless and until such listing, registration or qualification shall
have been effected. If a registration statement is not in effect under the
Securities Act of 1933 or any applicable state securities laws with respect to
the shares of Stock purchasable or otherwise deliverable under Options then
outstanding, the Committee may require, as a condition of exercise of any Option
or as a condition to any other delivery of Stock pursuant to an Option, that the
Participant or other recipient of an Option represent, in writing, that the
shares received pursuant to the Option are being acquired for investment and not
with a view to distribution and agree that the shares will not be disposed of
except pursuant to an effective registration statement, unless the Company shall
have received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable state securities
laws. The Company may include on certificates representing shares delivered
pursuant to an Option such legends referring to the foregoing representations or
restrictions or any other applicable restrictions on resale as the Company, in
its discretion, shall deem appropriate.
4.7 Non-alienation of Benefits. Other than as specifically provided
with regard to the death of a Participant, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
4.8 Termination and Amendment of the Plan. The Board of Directors at
any time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of an Option shall adversely affect
the rights of the Participant under such Option.
4.9 Stockholder Approval. The Plan shall be submitted to the
stockholders of the Company for their approval within twelve (12) months before
or after its adoption by the Board of Directors. If such stockholder approval is
not obtained as provided herein, the Plan and any and all Options issued
thereunder shall be rendered null and void.
4.10 Indemnification of Committee. In addition to such other rights of
indemnification that they may have as directors of the Company or as members of
the Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence in the
performance of his duties; provided that within 60 days after institution of any
such action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
4.11 Choice of Law. The laws of the State of Georgia shall govern the
Plan, to the extent not preempted by federal law.
4.12 Effective Date of Plan. The Plan shall become effective upon the
date the Plan is approved by the Board of Directors, but any Options granted
hereunder following approval by the Board of Directors shall be conditioned upon
receipt of stockholder approval within twelve (12) months of the date of
approval by the Board of Directors.
4.13 Paramount Provisions. Notwithstanding any foregoing terms and
conditions of the Plan, the Plan will be governed by Appendix A to the extent
Appendix A becomes applicable.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
this 29th day of December, 1997.
COMMUNITY FIRST BANKING COMPANY
By: /s/ Gary D. Dorminey
------------------------
Title: President and Chief Executive Officer
Attest:
/s/ D. Lane Poston
------------------
Secretary
[CORPORATE SEAL]
<PAGE>
APPENDIX A
Paramount Provisions
If and to the extent Community First Banking Company is subject to the
authority or supervision of the Office of Thrift Supervision of the United
States Department of the Treasury ("Office of Thrift Supervision") at the time
an Option is granted pursuant to the Plan, then any such Option shall be
governed by the following conditions regardless of any other provision of the
Plan to the contrary:
(1) No Option shall vest other than in equal increments over a period
of less than five years.
(2) No acceleration of a vesting schedule shall be permitted other than
in the case of the death or Disability of the Participant.
(3) No terms of any Option shall grant a cash award in favor of a
Participant.
(4) No Participant shall continue to participate in the Plan following
a Termination of Service.
(5) Any amendment to the Plan shall be submitted to the stockholders of
the Company for approval.
(6) The Committee shall not award to a Participant who is a member of
management of the Company an Option to acquire more than 25% of the shares of
Stock awarded pursuant to the Plan without first obtaining the approval of the
Regional Director of the Office of Thrift Supervision.
(7) The Committee shall not award to a Participant who is a director
but not an employee of the Company an Option to acquire more than 5% of the
shares of Stock awarded pursuant to the Plan without first obtaining the
approval of the Regional Director of the Office of Thrift Supervision.
(8) The Committee shall not award in the aggregate to all the
Participants who are directors but not employees of the Company Options to
acquire more than 30% of the shares of Stock awarded pursuant to the Plan
without first obtaining the approval of the Regional Director of the Office of
Thrift Supervision.
<PAGE>
EXHIBIT 10.2
COMMUNITY FIRST BANKING COMPANY
MANAGEMENT RECOGNITION PLAN
<PAGE>
COMMUNITY FIRST BANKING COMPANY
MANAGEMENT RECOGNITION PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1 DEFINITIONS...........................................................................................42
1.1 Definitions.........................................................................................42
SECTION 2 THE MANAGEMENT RECOGNITION PLAN........................................................................44
2.1 Purpose of the Plan.................................................................................44
2.2 Stock Subject to the Plan...........................................................................44
2.3 Administration of the Plan..........................................................................44
SECTION 3 GENERAL TERMS OF STOCK AWARDS..........................................................................45
3.1 General Terms and Conditions........................................................................45
3.2 Other Terms and Conditions of Stock Awards..........................................................46
3.3 Treatment of Awards Upon Termination of Service.....................................................46
SECTION 4 RESTRICTIONS ON STOCK.................................................................................46
4.1 Escrow of Shares....................................................................................46
4.2 Forfeiture of Shares................................................................................47
4.3 Restrictions on Transfer............................................................................47
SECTION 5 GENERAL PROVISIONS.....................................................................................47
5.1 Withholding.........................................................................................47
5.2 Changes in Capitalization; Merger; Liquidation......................................................47
5.3 Cash Awards.........................................................................................48
5.4 Right to Terminate Service..........................................................................48
5.5 Restrictions on Delivery and Sale of Shares; Legends................................................48
5.6 Non-alienation of Benefits..........................................................................49
5.7 Termination and Amendment of the Plan Termination and Amendment of the Plan.........................49
5.8 Stockholder Approval................................................................................49
5.9 Indemnification of Committee........................................................................49
5.10 Choice of Law......................................................................................49
5.11 Effective Date of Plan.............................................................................49
5.12 Paramount Provisions...............................................................................49
APPENDIX A.......................................................................................................52
</TABLE>
COMMUNITY FIRST BANKING COMPANY
MANAGEMENT RECOGNITION PLAN
SECTION 1.........
DEFINITIONS
1.1......Definitions. Whenever used herein, the masculine pronoun shall
be deemed to include the feminine, and the singular to include the plural,
unless the context clearly indicates otherwise, and the following capitalized
words and phrases are used herein with the meaning thereafter ascribed:
.........(a) "Affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified person.
.........(b) "Board of Directors" means the board of directors of the
Company. ------------------
.........(c) "Cause" has the same meaning as provided in the employment
agreement between the Participant and the Company or, if applicable, any
affiliate of the Company on the date of Termination of Service, or if no such
definition or employment agreement exists "Cause" means conduct amounting to (1)
fraud or dishonesty against the Company or its affiliates, (2) Participant's
willful misconduct, repeated refusal to follow the reasonable directions of the
board of directors of the Company or its affiliates, or knowing violation of law
in the course of performance of the duties of Participant's service with the
Company or its affiliates, (3) repeated absences from work without a reasonable
excuse, (4) repeated intoxication with alcohol or drugs while on the Company or
affiliates' premises during regular business hours, (5) a conviction or plea of
guilty or nolo contendere to a felony or a crime involving dishonesty, or (6) a
breach or violation of the terms of any agreement to which Participant and the
Company or its affiliates are party.
.........(d) "Change in Control" means any one of the following events
which first occurs ----------------- after June 27, 1997:
......... (1) the acquisition by any person or persons acting in
concert of the Company's then outstanding voting securities if, after the
transaction, the acquiring person (or persons) owns, controls or holds with
power to vote twenty-five percent (25%) or more of any class of voting
securities of the Company or such other transaction as may be described under 12
C.F.R. Section 225.41(b)(1) or any successor thereto;
......... (2) within any twelve-month period (beginning on or after
June 27, 1997,) the persons who were directors of the Company immediately before
the beginning of such twelve-month period (the "Incumbent Directors") shall
cease to constitute at least a majority of the Board of Directors; provided that
any director who was not a director as of June 27, 1997, shall be deemed to be
an Incumbent Director if that director was elected to the Board of Directors by,
or on the recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors; and provided further that
no director whose initial assumption of office is in connection with an actual
or threatened election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934 relating to
the election of directors of the Company, shall be deemed to be an Incumbent
Director; or
......... (3) the approval by the stockholders of the Company of a
reorganization, merger or consolidation with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than fifty percent
(50%) of the combined ..voting power entitled to vote in the election of
directors of the reorganized, merged or consolidated company's then outstanding
voting securities.
......... (e) "Code" means the Internal Revenue Code of 1986, as
amended. ----
......... (f) "Committee" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Plan Section 2.3.
......... (g) "Company" means Community First Banking Company, a
Georgia ------- corporation.
......... (h) "Disability" has the same meaning as provided in the
long-term ---------- disability plan or policy maintained or, if applicable,
most recently maintained, by the Company or, if applicable, any affiliate of the
Company for the Participant. If no long-term disability plan or policy was ever
maintained on behalf of the Participant, Disability shall mean that condition
described in Code Section 22(e)(3), as amended from time to time. In the event
of a dispute, the determination of Disability shall be made by the Board of
Directors and shall be supported by advice of a physician competent in the area
to which such Disability relates.
......... (i) "Disposition" means any conveyance, sale, transfer,
assignment, pledge or hypothecation, whether outright or as security, inter
vivos or testamentary, with or without consideration, voluntary or involuntary.
......... (j) "Fair Market Value" refers to the determination of value
of a share of Stock. If the Stock is actively traded on any national securities
exchange or any Nasdaq quotation or market system, Fair Market Value shall mean
the closing price at which sales of Stock shall have been sold on the most
recent trading date immediately prior to the date of determination, as reported
by any such exchange or system selected by the Committee on which the shares of
Stock are then traded. If the shares of Stock are not actively traded on any
such exchange or system, Fair Market Value shall mean the arithmetic mean of the
bid and asked prices for the shares of Stock on the most recent trading date
within a reasonable period prior to the determination date as reported by such
exchange or system. If there are no bid and asked prices within a reasonable
period or if the shares of Stock are not traded on any exchange or system as of
the determination date, Fair Market Value shall mean the fair market value of a
share of Stock as determined by the Committee taking into account such facts and
circumstances deemed to be material by the Committee to the value of the Stock
in the hands of the Participant. In that regard, Fair Market Value of a share of
Stock may be determined by the Committee by reference to the average market
value determined over a period certain or as of specified dates, to a tender
offer price for the shares of Stock (if settlement of an award is .........
triggered by such an event) or to any other reasonable measure of fair market
value.
.........(k) "Participant" means an individual who receives a Stock
Award hereunder. -----------
.........(l) "Plan" means the Community First Banking Company
Management ---- Recognition Plan.
.........(m) "Stock" means the Company's common stock, $.01 par value
per share. -----
.........(n) "Stock Award" means an award of shares of Stock granted
pursuant to Section ----------- 3 below.
.........(o) "Stock Incentive Agreement" means an agreement between the
Company and a Participant or other documentation evidencing the grant of a Stock
Award.
.........(p) "Termination of Service" means the termination of the
service relationship, whether employment or otherwise, between a Participant and
the Company and its affiliates, regardless of the fact that severance or similar
payments are made to the Participant for any reason, including, but not by way
of limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee shall, in its absolute discretion, determine the
effect of all matters and questions relating to Termination of Service,
including, but not by way of limitation, the question of whether a leave of
absence constitutes a Termination of Service, or whether a Termination of
Service is for Cause.
SECTION 2.........
THE MANAGEMENT RECOGNITION PLAN
2.1......Purpose of the Plan. The Plan is intended to (a) provide
incentive to employees and directors of the Company and its affiliates to
stimulate their efforts toward the continued success of the Company and to
operate and manage the business in a manner that will provide for the long-term
growth and profitability of the Company; (b) encourage stock ownership by
employees and directors by providing them with a means to acquire a proprietary
interest in the Company by acquiring shares of Stock; and (c) provide a means of
obtaining and rewarding key personnel.
2.2......Stock Subject to the Plan. Subject to adjustment in accordance
with Section 4.2, 96,542 shares of Stock, $.01 par value, (the "Maximum Plan
Shares") are hereby reserved exclusively for issuance pursuant to Stock Awards.
At no time shall the Company have outstanding Stock Awards issued in respect of
shares of Stock in excess of the Maximum Plan Shares. The shares of Stock
attributable to the nonvested, unpaid, unconverted or otherwise unsettled
portion of any Stock Award that is forfeited or cancelled or expires or
terminates for any reason without becoming vested, paid, converted or otherwise
settled in full shall again be available for purposes of the Plan.
2.3......Administration of the Plan. The Plan shall be administered by
the Committee. The Committee shall have full authority in its discretion to
determine the officers, employees and directors of the Company or its affiliates
to whom Stock Awards shall be granted and the terms and provisions of the Stock
Awards, subject to the Plan. Subject to the provisions of the Plan, the
Committee shall have full and conclusive authority to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the respective Stock Incentive Agreements
and to make all other determinations necessary or advisable for the proper
administration of the Plan. The Committee's determinations under the Plan need
not be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). The Committee's decisions shall be final and binding on all
Participants.
As to any matter involving a Participant who is not a "reporting
person" for purposes of Section 16 of the Exchange Act, the Committee may
delegate to any member of the Board of Directors or officer of the Company the
administrative authority to (a) interpret the provisions of the Participant's
Stock Incentive Agreement and (b) determine the treatment of Stock Awards upon a
Termination of Service, as contemplated by Plan Section 3.3.
The Committee shall consist of at least two members of the Board of
Directors and, during those periods that the Company is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, the Board of
Directors shall consider the advisability of whether each such appointee shall
qualify as a "non-employee director," as that term is defined in Rule 16b-3 as
then in effect under the Securities Exchange Act of 1934, and, during those
periods that the Company has issued equity securities required to be registered
under Section 12 of the Securities Exchange Act of 1934, the Board of Directors
shall consider the advisability of whether each such appointee shall separately
qualify as an "outside director," within the meaning of Code Section 162(m) and
the regulations promulgated thereunder. Each member of the Committee shall serve
at the pleasure of the Board of Directors, and the Board of Directors may from
time to time remove members from or add members to the Committee. Vacancies on
the Committee shall be filled by the Board of Directors. The Committee shall
select one of its members as Chairman and shall hold meetings at the times and
in the places as it may deem advisable. Acts approved by a majority of the
Committee in a meeting at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee.
2.4......Eligibility and Limits. Stock Awards may be granted only to
employees and directors of the ----------------------- Company or an affiliate.
SECTION 3.........
GENERAL TERMS OF STOCK AWARDS
3.1......General Terms and Conditions.
.........(a) The number of shares of Stock as to which a Stock Award
shall be granted shall be determined by the Committee in its sole discretion,
subject to the provisions of Section 2.2 as to the total number of shares
available for grants under the Plan.
.........(b) Each Stock Award shall be evidenced by a Stock Incentive
Agreement in such form and containing such terms, conditions and restrictions as
the Committee may determine is appropriate. Each Stock Incentive Agreement shall
be subject to the terms of the Plan and any provision in a Stock Incentive
Agreement that is inconsistent with the Plan shall be null and void.
.........(c) The date a Stock Award is granted shall be the date on
which the Committee has approved the terms and conditions of the Stock Incentive
Agreement and has determined the recipient of the Stock Award and the number of
shares covered by the Stock Award and has taken all such other action necessary
to complete the grant of the Stock Award.
.........(d) The Committee may provide in any Stock Incentive Agreement
for the waiver of any restrictions or conditions contained therein in the event
of a Change in Control.
.........(e) A Stock Award shall not be transferable or assignable;
provided, however, the shares of Stock subject to any Stock Award may be
transferred or assigned on such express terms and conditions as set forth in the
Stock Incentive Agreement.
3.2......Other Terms and Conditions of Stock Awards. The Stock
Incentive Agreement reflecting any Stock Award shall contain all restrictions
and conditions to which the Stock Award is subject and the certificate for the
shares of Stock subject to the Stock Award shall bear evidence of those
restrictions and conditions. Subsequent to the date of a grant of a Stock Award,
the Committee shall have the power to permit, in its discretion, an acceleration
of the expiration of an applicable restriction period with respect to any part
or all of the shares of Stock to which the Stock Award is subject. The Committee
may require a cash payment from the Participant in an amount no greater than the
aggregate Fair Market Value of the shares of Stock awarded, determined at the
date of grant, or may grant a Stock Award without the requirement of a cash
payment. The Stock Incentive Agreement also shall specify the extent to which a
Participant may enjoy dividend and voting rights attendant to shares of Stock
subject to a Stock Award.
3.3......Treatment of Awards Upon Termination of Service. Any Stock
Award to a Participant who suffers a Termination of Service may be cancelled,
accelerated, paid or continued, as provided in the Stock Incentive Agreement or,
in the absence of such provision, as the Committee may determine.
SECTION 4.........
RESTRICTIONS ON STOCK
4.1......Escrow of Shares. Any certificates representing the shares of
Stock issued under the Plan shall be issued in the Participant's name, but, if
the applicable Stock Incentive Agreement or Stock Incentive Program so provides,
the shares of Stock shall be held by a custodian designated by the Committee
(the "Custodian"). Each applicable Stock Incentive Agreement providing for
transfer of shares of Stock to the Custodian shall appoint the Custodian as the
attorney-in-fact for the Participant for the term specified in the applicable
Stock Incentive Agreement, with full power and authority in the Participant's
name, place and stead to transfer, assign and convey to the Company any shares
of Stock held by the Custodian for such Participant, if the Participant forfeits
the shares under the terms of the applicable Stock Incentive Agreement. During
the period that the Custodian holds the shares subject to this Section, the
Participant shall be entitled to all rights, except as provided in the
applicable Stock Incentive Agreement, applicable to shares of Stock not so held.
Any dividends declared on shares of Stock held by the Custodian shall, as the
Committee may provide in the applicable Stock Incentive Agreement, be paid
directly to the Participant or, in the alternative, be retained by the Custodian
until the expiration of the term specified in the applicable Stock Incentive
Agreement and shall then be delivered, together with any proceeds, with the
shares of Stock to the Participant or to the Company, as applicable.
4.2......Forfeiture of Shares. In the event that the Participant
violates a noncompetition agreement as set forth in the Stock Incentive
Agreement or otherwise, notwithstanding any provision in the Stock Incentive
Agreement to the contrary, the Committee may forfeit all Stock Incentives and
shares of Stock issued to the holder pursuant to the Plan; provided, however,
that the Company shall return to the holder the lesser of any consideration paid
by the Participant in exchange for Stock issued to the Participant pursuant to
the Plan or the then Fair Market Value of any Stock forfeited hereunder.
4.3......Restrictions on Transfer. The Participant shall not have the
right to make or permit to exist any Disposition of the shares of Stock issued
pursuant to the Plan except as provided in the Plan or the applicable Stock
Incentive Agreement. Any Disposition of the shares of Stock issued under the
Plan by the Participant not made in accordance with the Plan or the applicable
Stock Incentive Agreement shall be void. The Company shall not recognize, or
have the duty to recognize, any Disposition not made in accordance with the Plan
and the applicable Stock Incentive Agreement, and the shares so transferred
shall continue to be bound by the Plan and the applicable Stock Incentive
Agreement.
SECTION 5.........
GENERAL PROVISIONS
5.1......Withholding. The Company shall have the right to require a
Participant to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to or at any time after the
delivery of any certificate or certificates in connection with the grant of a
Stock Award. A Participant may pay the withholding tax in cash, or, if the
applicable Stock Incentive Agreement provides, a Participant may elect to have
the number of shares of Stock he is to receive reduced by the smallest number of
whole shares of Stock which, when multiplied by the Fair Market Value of the
shares of Stock determined as of the Tax Date (defined below), is sufficient to
satisfy federal, state and local, if any, withholding taxes arising from grant
or vesting of a Stock Award (a "Withholding Election"). A Participant may make a
Withholding Election only if both of the following conditions are met:
.........(a) The Withholding Election must be made on or prior to the
date on which the amount of tax required to be withheld is determined (the "Tax
Date") by executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
.........(b) Any Withholding Election made will be irrevocable;
however, the Committee may in its sole discretion disapprove and give no effect
to the Withholding Election.
5.2......Changes in Capitalization; Merger; Liquidation.
.........(a) The number of shares of Stock subject to a Stock Award
shall be proportionately ..adjusted for any increase or decrease in the number
of issued shares of Stock resulting from a subdivision or combination of shares
or the payment of an ordinary stock dividend in shares of Stock to holders of
outstanding shares of Stock or any other increase or decrease in the number of
shares of Stock outstanding effected without receipt of consideration by the
Company.
.........(b) In the event of any merger, consolidation, extraordinary
cash or stock dividend (including a spin-off), reorganization or other change in
the corporate structure of the Company or its Stock or tender offer for shares
of Stock, the Committee, in its sole discretion, may make such adjustments with
respect to awards and take such other action as it deems necessary or
appropriate to reflect or in anticipation of such merger, consolidation,
extraordinary dividend, reorganization, other change in corporate structure or
tender offer, including, without limitation, the substitution of new awards, the
termination or adjustment of outstanding awards, the acceleration of awards or
the removal of restrictions on outstanding awards, all as may be provided in the
applicable Stock Incentive Agreement or, if not expressly addressed therein, as
the Committee subsequently may determine in the event of any such merger,
consolidation, extraordinary dividend (including a spin-off), reorganization or
other change in the corporate structure of the Company or its Stock or tender
offer for shares of Stock.
.........(c) The existence of the Plan and the Stock Awards granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
5.3...... Cash Awards. The Committee may, at any time and in its
discretion, grant to any holder of a Stock Award the right to receive, at such
times and in such amounts as determined by the Committee in its discretion, a
cash amount which is intended to reimburse such person for all or a portion of
the federal, state and local income taxes imposed upon such person as a
consequence of the receipt or vesting of a Stock Award.
5.4......Right to Terminate Service. Nothing in the Plan or in any
Stock Incentive Agreement shall confer upon any Participant the right to
continue as an employee, officer or director of the Company or any of its
affiliates or affect the right of the Company or any of its affiliates to
terminate the Participant's service at any time.
5.5......Restrictions on Delivery and Sale of Shares; Legends. Each
Stock Award is subject to the condition that if at any time the Committee, in
its discretion, shall determine that the listing, registration or qualification
of the shares covered by such Stock Award upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Award or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to such Stock
Award may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock deliverable under the Stock Awards then
outstanding, the Committee may require, as a condition of any delivery of Stock
pursuant to a Stock Award, that the Participant represent, in writing, that the
shares received pursuant to the Stock Award are being acquired for investment
and not with a view to distribution and agree that the shares will not be
disposed of except pursuant to an effective registration statement, unless the
Company shall have received an opinion of counsel that such disposition is
exempt from such requirement under the Securities Act of 1933 and any applicable
state securities laws. The Company may include on certificates representing
shares delivered pursuant to a Stock Award such legends referring to the
foregoing representations or restrictions or any other applicable restrictions
on resale as the Company, in its discretion, shall deem appropriate.
5.6......Non-alienation of Benefits. Other than as specifically
provided with regard to the death of a Participant, no benefit under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge; and any attempt to do so shall be
void. No such benefit shall, prior to receipt by the Participant, be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the Participant.
5.7......Termination and Amendment of the Plan. The Board of Directors
at any time may amend or terminate the Plan without stockholder approval;
provided, however, that the Board of Directors may condition any amendment on
the approval of stockholders of the Company if such approval is necessary or
advisable with respect to tax, securities or other applicable laws. No such
termination or amendment without the consent of the holder of a Stock Award
shall adversely affect the rights of the Participant under such Stock Award.
5.8......Stockholder Approval. The Plan shall be submitted to the
stockholders of the Company for their approval within twelve (12) months before
or after its adoption by the Board of Directors. If such stockholder approval is
not obtained as provided herein, the Plan and any and all Stock Awards issued
thereunder shall be rendered null and void.
5.9......Indemnification of Committee. In addition to such other rights
of indemnification that they may have as directors of the Company or as members
of the Committee, the members of the Committee shall be indemnified by the
Company against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Stock Award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence in the
performance of his duties; provided that within 60 days after institution of any
such action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
5.10.....Choice of Law. The laws of the State of Georgia shall govern
the Plan, to the extent not -------------- preempted by federal law.
5.11.....Effective Date of Plan. The Plan shall become effective upon
the date the Plan is approved by the Board of Directors, but any Stock Awards
granted hereunder following approval by the Board of Directors shall be
conditioned upon receipt of stockholder approval within twelve (12) months of
the date of approval by the Board of Directors.
5.12.....Paramount Provisions. Notwithstanding any foregoing terms and
conditions of the Plan, the Plan will be governed by Appendix A to the extent
Appendix A becomes applicable.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
this 29th day of December, 1997.
......... COMMUNITY FIRST BANKING COMPANY
......... By: /s/ Gary D. Dorminey
-------------------------
......... Title: President and Chief Executive Officer
---------------------------------------
ATTEST:
/s/ D. Lane Poston
- ------------------
Secretary
[CORPORATE SEAL]
<PAGE>
APPENDIX A
Paramount Provisions
If and to the extent Community First Banking Company is subject to the
authority or supervision of the Office of Thrift Supervision of the United
States Department of the Treasury ("Office of Thrift Supervision") at the time a
Stock Award is granted pursuant to the Plan, then any such Stock Award shall be
governed by the following conditions regardless of any other provision of the
Plan to the contrary:
(1) .....No Stock Award shall vest other than in equal increments over
a period of less than five years.
(2)......No acceleration of a vesting schedule shall be permitted other
than in the case of the death or Disability of the Participant.
(3)......No transfer of shares obtained pursuant to any Stock Award
shall be permitted until the shares become vested in accordance with its vesting
schedule.
(4)......No voting rights shall be exercisable nor dividends payable
with respect to the unvested portion of shares of Stock subject to a Stock
Award.
(5)......No Stock Award shall grant a cash award in favor of a
Participant.
(6)......No Participant shall continue to participate in the Plan
following a Termination of Service.
(7) .....Any amendment to the Plan shall be submitted to the
stockholders of the Company for approval.
(8) The Committee shall not award to a Participant who is a member of
management of the Company more than 25% of the shares of Stock awarded pursuant
to the Plan without first obtaining the approval of the Regional Director of the
Office of Thrift Supervision.
(9) The Committee shall not award to a Participant who is a director
but not an employee of the Company more than 5% of the shares of Stock awarded
pursuant to the Plan without first obtaining the approval of the Regional
Director of the Office of Thrift Supervision.
(10) The Committee shall not award in the aggregate to all the
Participants who are directors but not employees of the Company more than 30% of
the shares of Stock awarded pursuant to the Plan without first obtaining the
approval of the Regional Director of the Office of Thrift Supervision.
EXHIBIT 13.1
COMMUNITY FIRST BANKING COMPANY
1997 ANNUAL REPORT
<PAGE>
Dear Fellow Shareholders:
On behalf of the Board of Directors and employees of Community First
Banking Corporation (CFBC) and its wholly owned subsidiary, Community First Bank
(CFB), we are pleased to present to you our first annual report.
1997 was an eventful year for CFBC. Our conversion from mutual to stock
ownership was completed on June 27, 1997 and our conversion from a federal
thrift to a state banking charter was effective December 29, 1997. The operating
numbers contained in this report reflect both events and the positioning of CFB
to operate as a commercial bank going forward.
An overwhelming response to our subscription stock offering was both
gratifying and challenging: gratifying in that investors felt enough confidence
to invest $48 million with CFBC; challenging in that putting $48 million to work
in a prudent and orderly method requires meticulous planning and execution.
Community First Bank is well into a ten year plan to become a high
performance bank on par with our best peers. We recognize that to do this, our
high equity ratio has to be addressed. We have previously announced an
aggressive stock repurchase plan. We believe a systematic repurchase plan,
coupled with other methods of rationalizing our capital, is more beneficial to
our stockholders than a one time return of capital.
1997 was indeed a year of transition and preparation for the future. Only
CFBC's employee/owners could have effectively handled so much change so
successfully. Community First Bank has enjoyed an honored past. Because of our
people's goodwill, dedication and energy, so will CFBC's future be bright. The
entire board of directors and the employee/owners are dedicated to long term
viability of the CFB family of companies and thus the long term enhancement of
shareholder value.
We look forward to 1998!
Sincerely,
/s/ T. Aubrey Silvey /s/ Gary D. Dorminey
Chairman President and CEO
<PAGE>
BUSINESS OF THE COMPANY
Community First Banking Company (the "Company") was incorporated in the
State of Georgia on March 12, 1997, for the purpose of becoming a holding
company to own 100% of the outstanding capital stock of Carrollton Federal Bank,
FSB (the "Savings Bank"). The Savings Bank was organized on August 1, 1994 as a
federal savings bank subsidiary of CF Mutual Holdings (the "Mutual Holding
Company"), a federally chartered mutual holding company. Prior to that date, the
predecessor of the Savings Bank had operated as a mutual savings bank since
1929.
On June 27, 1997, a plan of conversion and reorganization (the
"Conversion") whereby the Company became the unitary holding company for the
Savings Bank and the dissolution of the Mutual Holding Company was completed.
On December 29, 1997, the Savings Bank converted from a federal savings
bank regulated by the Office of Thrift Supervision (the "OTS") to a Georgia
chartered state commercial bank regulated by the Georgia Department of Banking
and Finance (the "Georgia Department") and concurrently changed the name of the
institution to Community First Bank (the "Bank").
The Company is engaged primarily in the business of the directing, planning
and coordinating the activities of the Bank and its subsidiaries. Accordingly,
the information presented in this Annual Report relates primarily to the Bank.
The Bank is a community-oriented financial institution operating from 12 branch
offices in western Georgia. These branches provide customary banking services
such as customer and commercial checking accounts, NOW accounts, savings
accounts, certificates of deposit, lines of credit and MasterCard and VISA
credit cards. Lending activities include the origination of consumer and
commercial business loans on a secured and unsecured basis, residential mortgage
and home-equity loans, and commercial real estate loans.
The Bank has three operating subsidiaries that broaden the services the
Bank offers to the community. The first, CFB Securities, Inc., offers
traditional brokerage services and products such as mutual funds, stocks and
bonds through a NASD member firm. CFB Securities, Inc. began operations in 1996
and is located in space immediately adjacent to the Bank's main office lobby in
Carrollton, Georgia.
The second subsidiary of the Bank, CFB Financial Inc., began operations in
1996 to service the loan needs of consumers traditionally associated with
consumer finance companies. CFB Financial, Inc., has six full-time employees
operating in its office in Villa Rica, Georgia, and the Bank's branch in
Douglasville, Georgia. This unit offers a wide range of small loans granted in
conformity with the Georgia Industrial Loan Act.
The third subsidiary, CFB Insurance Agency, Inc. began operations in 1997.
Based in Bowdon, Georgia, CFB Insurance Agency, Inc. offers a full line of
insurance products to existing Bank customers as well as the general public.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected consolidated financial data
of Community First Banking Company and other data regarding the Mutual Holding
Company and the Savings Bank. The data at December 31, 1996, 1995 and 1994, and
for the years then ended, have been derived from audited consolidated financial
statements of CF Mutual Holdings and subsidiaries. The data at December 31, 1993
and for the year then ended have been derived from audited financial statements
of the Carrollton Federal Bank, FSB and subsidiary.
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (YEAR END)
Loans, gross 286,391 272,435 273,171 283,476 262,154
Earning assets 361,675 326,443 314,706 330,801 292,047
Assets 394,293 352,532 334,477 353,351 312,109
Deposits 315,531 307,756 289,288 289,328 269,624
Stockholders' equity 69,038 25,258 25,030 22,083 19,700
Common shares outstanding 2,239,785 N/A N/A N/A N/A
STATEMENT OF EARNINGS DATA
Net interest income 16,132 13,409 13,217 13,224 13,418
Provision for loan losses 2,067 1,143 250 99 822
Noninterest income 3,690 3,244 3,119 2,137 2,003
Noninterest expense (1) 17,670 15,276 11,764 12,325 10,986
Income taxes (benefit) (28) (14) 1,375 553 1,175
Net earnings 113 248 2,947 2,384 2,438
PER COMMON SHARE
Basic .05 N/A N/A N/A N/A
Diluted .05 N/A N/A N/A N/A
Cash Dividends declared .30 N/A N/A N/A N/A
Book Value 30.82 N/A N/A N/A N/A
KEY PERFORMANCE RATIOS
Return on average assets .03% 0.07% 0.86% 0.72% 0.78%
Return on average equity .02% 0.99% 12.51% 11.41% 13.19%
Net interest margin to average earning assets 4.53% 4.21% 4.07% 4.15% 3.97%
Average equity to average assets 12.61% 7.32% 6.85% 6.28% 6.02%
Noninterest expense to average assets (1) 4.61% 4.45% 3.42% 3.70% 3.64%
Efficiency ratio (1)(2) 89.14% 91.73% 72.01% 80.23% 72.42%
OTHER DATA
Number of full service offices 12 12 7 8 8
<FN>
(1) Includes one-time SAIF assessment of $1,722,575 in 1996.
(2) The efficiency ratio is calculated by dividing noninterest expense by the
sum of net interest income plus noninterest income.
</FN>
</TABLE>
<TABLE>
SELECTED QUARTERLY FINANCIAL RESULTS
(in thousands of dollars)
<CAPTION>
4th 3rd 2nd 1st
Year Ended December 31, 1997 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest income 8,110 8,360 7,710 7,273
Interest expense 3,768 3,797 3,959 3,797
Net interest income 4,342 4,563 3,751 3,476
Provision for loan losses 1,443 320 209 95
Net interest income after provision for loan losses 2,899 4,243 3,542 3,381
Noninterest income 873 1,079 958 780
Noninterest expense 6,547 3,973 3,546 3,605
Earnings (loss) before income taxes (2,775) 1,349 954 556
Income tax expense (benefit) (966) 432 317 188
Net earnings (loss) (1,809 917 637 368
Basic earnings per share (1) (.81) .41 .29 .17
Diluted earnings per share (1) (.81) .41 .29 .17
<FN>
(1) Earnings (loss) per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings (loss) per share do not
necessarily equal the total for the year.
</FN>
</TABLE>
In December 1997, the Company recorded certain adjustments resulting in
$3.7 million in year end charges. The charges included $1.1 million in
additional reserves for loan losses to reflect the continuing change from a
thrift to a commercial portfolio; $1.9 million in a non-recurring compensation
charge in connection with the approval of the Management Recognition Plan; $.6
million of a non-recurring charge related to the closing of two unprofitable
branches and the obsolescence of certain computer equipment associated with the
Year 2000 compliance; and $.1 million in charges associated with the conversion
to a state banking charter.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As a bank holding company, the Company's financial condition and results of
operations are primarily dependent upon its wholly owned subsidiary, the Bank.
Consequently, this section discusses principally the operations of the Bank,
which directly affect the Company's financial condition and results of
operations.
The Company's profitability depends primarily on net interest income, which
is the difference between interest and dividend income on interest-earning
assets, principally loans and investment securities, and interest expense on
interest-bearing deposits and other interest bearing liabilities. Net earnings
also are dependent, to a lesser extent, on the level of provision for loan
losses, non-interest income and non-interest expenses, such as salaries and
related benefits, occupancy and equipment, deposit insurance premiums, and
miscellaneous other expenses, as well as provisions for federal and state income
tax.
The Bank historically operated as a traditional savings and loan, raising
money by offering savings products of relatively short duration and lending this
money for the purpose of home financing. As regulations affecting the savings
and loan industry changed, the Bank began offering primarily adjustable rate
mortgages (ARM's) in 1981. Additional authority for checking accounts and
consumer and commercial loans also allowed the Bank to offer additional services
to its traditional customer base. On December 29, 1997, the Bank converted from
a federal savings bank to a Georgia chartered state bank and thereby gained
additional opportunities to diversify its products and services.
The change in the Bank's loan portfolio from primarily mortgage loans in
the 1980s to a mix of approximately 43% mortgage, 33% commercial and 24%
consumer at December 31, 1997 has allowed management to better manage asset and
liability maturities and increase net interest margin. In addition, the
institution's emphasis on shorter term consumer lending and prime rate based
commercial lending, along with one-year ARMs tied to an index, has significantly
reduced its interest rate risk. The change from a traditional thrift investing
in mortgages to a financial institution offering a wider array of financial
services has also been necessary to counteract increasing competition from
government-sponsored entities for mortgage loans and has lessened the
institution's exposure to any single economic cycle. At the same time, the
Bank's products and services have become more closely tied to the customer's
financial needs.
CHANGES IN FINANCIAL CONDITION
At December 31, 1997, the Company's consolidated assets totaled $394
million, as compared to $353 million at December 31, 1996. This increase in
assets is primarily due to increases in investment securities ($13.5 million,
33.1% increase) and loans ($13.8 million, 5.1% increase) and was funded
primarily by proceeds from the stock offering. Total deposits grew $7.8 million,
or 2.5%, in 1997 as compared to 6.4% in 1996. Advances from the the Federal Home
Loan Bank decreased $10.8 million or 66.3%. Other liabilities grew marginally in
1997. Total equity at December 31, 1997 was $69.0 million, as compared to $25.3
million at December 31, 1996, primarily due to the net proceeds of $46.8 million
resulting from the Company's initial public offering of common stock.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Net earnings totaled approximately $113,000 for 1997, a decrease of 54.4%
from the $248,000 earned in 1996, which represented a decrease of 92% from the
$2.9 million earned in 1995. Return on average assets and return on average
equity for the year ended December 31, 1997 were .03% and .02%, respectively, as
compared to .07% and .99%, respectively, at December 31, 1996, and .86% and
12.51%, respectively, at December 31, 1995. The 1997 change is attributable to
$1.1 million in additional reserves for loan losses to reflect the continuing
change from a thrift to a commercial bank portfolio; $1.9 million in a
non-recurring compensation charge in connection with the approval of the
Management Recognition Plan; $.6 million of a non-recurring charge related to
the closing of two unprofitable branches and the obsolescence of certain
computer equipment associated with the Year 2000 compliance; and $.1 million in
charges associated with the conversion to a state banking charter. The 1996
decrease in income is attributable to the $1.7 million increase in deposit
insurance premiums during 1996. The premium increase was primarily due to the
special one-time Savings Association Insurance Fund (SAIF) assessment of 65.7
cents per $100 of assessable SAIF deposits effective September 30, 1996. An
$893,000 increase in the provision for loan losses during 1996 also contributed
to the reduction in earnings in 1996, as well as additional expenses due to the
opening of four new branch locations during 1996.
NET INTEREST INCOME
Net interest income (the difference between interest earned on assets and
the interest paid on deposits and liabilities) is the single largest component
of operating income. Management actively manages this income source to provide
the largest possible amount of income while balancing interest rate, credit and
liquidity risks.
Net interest income, on a taxable equivalent basis, was $16.2 million in
1997, compared to $13.5 million in 1996 and $13.2 million in 1995. The 20%
increase in 1997 was primarily the result of an increase in interest income on
investment securities funded by proceeds from the stock offering and an increase
in loan volume and increases in yields on loans as the loan portfolio shifted
from mortgage loans to higher yielding commercial and consumer loans. The 2%
increase in 1996 was the result of the reinvestment of maturing investments and
mortgage loans into higher yielding investments and commercial and consumer
loans, slightly offset by increases in the cost of funds that were primarily due
to promotions offered as part of the opening of the four new branches in
Wal*Mart stores during 1996. Total interest income increased 11.6% and 1.7% in
1997 and 1996, respectively.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents for the periods indicated the total dollar
amount of interest from average interest-earning assets and the resultant yield,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. Dividends
received are included as interest income. Average balances for 1997 are average
daily balances while average balances for 1996 and 1995 are based on month-end
balances. Management believes that the use of average month balances is
representative of its operations.
<PAGE>
TABLE 1 CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------------
Average Interest Yield/Rate Average Interest Yield/Rate
Balances Income/Expense Balances Income/Expense
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest earning deposits and fed funds sold $ 19,268 1,064 5.55 % $ 15,158 822 5.42 %
Investment securities:
Taxable 51,584 3,653 7.08 30,387 2,411 7.93
Nontaxable 2,099 164 7.81 1,236 127 10.28
---------- ----- --------- -------- -----
Total investment securities 53,683 3,817 7.11 31,623 2,538 8.03
Loans (including loan fees) (1) 283,723 26,628 9.39 272,786 24,874 9.12
---------- ------ --------- -------- ----
Total interest-earning assets 356,674 31,509 8.83 319,567 28,234 8.84
Allowance for loan losses (2,193) (2,446)
Cash and due from banks 8,980 9,005
Premises and equipment 9,750 8,327
Other assets 9,763 9,322
----- -----
Total assets $ 382,974 $ 343,775
========== =========
Liabilities and equity:
Interest bearing liabilities:
Deposits:
Demand $ 48,745 1,501 3.08 % $ 46,821 1,386 2.96 %
Savings 39,223 1,157 2.95 32,991 889 2.69
Time 208,849 11,848 5.67 202,641 11,338 5.60
Other borrowings 13,465 815 6.05 18,650 1,169 6.27
-------- ---- --------- -------- ----
Total interest bearing liabilities 310,282 15,321 4.94 301,103 14,782 4.91
======== =========
Non-interest bearing demand deposits 21,588 15,635
Other liabilities 2,820 1,893
Equity 48,284 25,144
---------- ---------
Total liabilities and equity $ 382,974 $ 343,775
========== =========
Excess of interest-bearing assets over $ 46,393 $ 18,464
interest-bearing liabilities
Ratio of interest-bearing assets to interest-bearing 114.95% 106.13%
liabilities
Net interest income 16,188 13,452
====== ========
Net interest rate spread 3.89 % 3.93 %
====== ======
Net interest margin (2) 4.53 % 4.21 %
Tax equivalent adjustments
Investment securities (56) (43)
Net interest income 16,132 13,409
====== ========
</TABLE>
<PAGE>
TABLE 1 CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES (continued)
<TABLE>
<CAPTION>
1995
-----------------------------
Average Interest Yield/Rate
Balances Income/Expense
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Interest earning deposits and fed funds sold $ 7,993 473 5.92 %
Investment securities:
Taxable 36,076 2,652 7.35
Nontaxable 0 0 0
--------- ------------ ------
Total investment securities 36,076 2,652 7.35
Loans (including loan fees) (1) 280,613 24,588 8.76
--------- ------------ ------
Total interest-earning assets 324,682 27,713 8.54
Allowance for loan losses (2,341)
Cash and due from banks 7,857
Premises and equipment 7,782
Other assets 5,649
-----
Total assets $ 343,629
==========
Liabilities and equity:
Interest bearing liabilities:
Deposits:
Demand $ 47,566 1,366 2.87 %
Savings 33,280 828 2.49
Time 195,200 10,444 5.35
Other borrowings 30,555 1,858 6.08
---------- ------------ -----
Total interest bearing liabilities 306,601 14,496 4.73
==========
Non-interest bearing demand deposits 11,104
Other liabilities 2,367
Equity 23,557
----------
Total liabilities and equity $ 343,629
==========
Excess of interest-bearing assets over $ 18,081
interest-bearing liabilities
Ratio of interest-bearing assets to interest-bearing 105.90%
liabilities
Net interest income 13,217
============
Net interest rate spread 3.81 %
==========
Net interest margin (2) 4.07 %
Tax equivalent adjustments
Investment securities 0
Net interest income 13,217
============
<FN>
(1) Average balances include nonaccrual loans.
(2) Excludes provision for loan losses.
</FN>
</TABLE>
<PAGE>
RATE/VOLUME ANALYSIS
The banking industry often utilizes two key ratios to measure relative
profitability of net interest income. The net interest rate spread measures the
difference between the average yield on earning assets and the average rate paid
on interest bearing sources of funds. The interest rate spread eliminates the
impact of noninterest bearing deposits and gives a direct perspective on the
effect of market interest rate movements. The net interest margin is defined as
net interest income as a percent of average total earning assets and takes into
account the positive impact of investing noninterest bearing deposits.
The net interest spread was 3.89% in 1997, 3.93% in 1996 and 3.81% in 1995,
while the net interest margin was 4.53% in 1997, 4.21% in 1996 and 4.07% in
1995. The decrease in the spread during 1997 was primarily due to a larger
percentage of interest bearing assets being in investment securities (funded by
the stock conversion), which have a lower yield than loans. The increase in the
margin in 1997 resulted from the greater amount of interest bearing assets
funded primarily by the stock conversion proceeds. The increase in the margin
and spread during 1996 was primarily due to reinvestment of maturing mortgage
loans into higher yielding commercial and consumer loans. The table below shows
the change in net interest income for the past two years due to changes in
volume and rate, on a tax equivalent basis (assuming a 34% tax rate).
TABLE 2 RATE / VOLUME VARIANCE ANALYSIS
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
--------------------- ---------------------
Increase (decrease) Increase (decrease)
due to changes in due to changes in
---------------------------- -----------------------------
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest earning deposits and
federal funds sold $ 442 (200) 242 392 (43) 349
Investment securities:
Taxable 1,268 (26) 1,242 (439) 198 (241)
Nontaxable 72 (35) 37 127 -- 127
Loans (including loan fees) 1,074 680 1,754 (697) 983 286
------- ------- ------- ------- ------- -------
Total interest income 2,856 419 3,275 (617) 1,138 521
Interest expense on:
Deposits:
Demand 155 (40) 115 (22) 42 20
Savings 169 99 268 (7) 68 61
Time 382 128 510 402 492 894
Other borrowings (303) (51) (354) (745) 56 (689)
------- ------- ------- ------- ------- -------
Total interest expense 403 136 539 (372) 658 286
------- ------- ------- ------- ------- -------
Net interest income 2,453 283 2,736 (245) 480 235
======= ======= ======= ======= ======= =======
</TABLE>
NONINTEREST INCOME
Noninterest income consists primarily of revenues generated from service
charges and fees on deposit accounts and profits earned through sales of credit
life insurance. In addition, gains or losses realized from the sale of
investment portfolio securities are included in noninterest income. Total
noninterest income for 1997 increased 13.7% or $446,000 above that for 1996. The
primary contributor to noninterest income growth in 1997 was the continued
growth in service charges on deposits resulting from an increase in the number
of transaction accounts. Income from insurance sold increased by $97,000 or 23%
in 1997. This increase is attributable to the sales and marketing efforts of CFB
Financial, Inc., the finance company subsidiary of the Bank. Total noninterest
income for 1996 increased 4% or $125,000 above that for 1995. The primary
contributor to noninterest income growth in 1996 was the continued growth in
service charges on deposits resulting from an increase in the number of
transaction accounts.
The growth in noninterest income was the result of management's
continuing efforts to build stable sources of fee income, which includes service
charges on deposits and loans and sales of credit life insurance. This growth is
being accomplished through expansion of the Bank's locations.
Fee income from service charges on deposit accounts increased $380,000 or
16% in 1997 and increased $344,000 or 17% in 1996. This increase is due
primarily to the increase in the number of demand deposit accounts. The number
of demand deposit accounts increased by 3,044 or 14% from December 31, 1996 to
1997. Continued emphasis on low cost checking account services, appropriate
pricing for transaction deposit accounts and fee collection practices for other
deposit services contributed to the increased level of income for 1997.
Net gains on sales of securities available for sale decreased $198,000
during 1997 and $189,000 in 1996. Management periodically liquidates securities
available for sale to meet loan demand and other liquidity needs.
NONINTEREST EXPENSE
Noninterest expense for 1997 increased $2,394,000 or 15.7% and increased
30% in 1996. Salaries and employee benefits for 1997 increased $3,190,000 or
49.4% and increased $1,106,000 or 21% during 1996. The increase in 1997 is due
partially to a $1,853,000 bonus accrued in 1997 to reimburse recipients for the
tax liability relating to preferred stock awards granted to the directors and
certain executive officers. Salaries and wages increased $767,000 in 1997 or 16%
primarily due to staffing needs at the Wal*Mart branches that were opened from
March through September 1996 and were open throughout the entire year of 1997.
One additional branch was opened in July 1997 on Maple Street in Carrollton,
Georgia. The Carrollton Kroger in store branch operations and personnel were
transferred to a newly constructed branch office in the new McIntosh shopping
center when it opened in July 1997. Retirement contributions increased by
$647,000 or 563% due to the implementation of an Employee Stock Ownership Plan
(ESOP) as part of the stock conversion. Net occupancy expense increased $299,000
or 18.6% in 1997 and increased $114,000 or 7.6% in 1996. The 1997 change was due
to the four Wal*Mart branches being opened for the full year in 1997 and the two
new branch locations opened in 1997. The 1996 increase was due primarily to
increased depreciation related to new banking facilities and costs to operate
new branches.
Deposit insurance premiums decreased $2.2 million in 1997 from 1996. This
decrease is attributed primarily to a one-time assessment to all SAIF
institutions which was $1.7 million for the Company for the year ended December
31,1996 and to a significant reduction in the rate of deposit insurance
assessment.
The provision of $505,000 for the loss on abandonment of premises and
equipment relates to the closing of two unprofitable branches and the
obsolescence of certain computer equipment associated with Year 2000 compliance.
Other operating expenses, including advertising, office supplies, and data
processing increased 12% in 1997 and 13.7% in 1996. Management continues to
emphasize the importance of expense management and productivity in order to
further decrease the cost of providing expanded banking services to a growing
market base.
INCOME TAXES
An income tax benefit of $28,000 was recognized for the year ended December
31, 1997 and an income tax benefit of $14,000 was recognized for the year ended
December 31, 1996. The effective tax rate for 1997 differed from the expected
34% federal rate applied to earnings before income taxes primarily due to tax
exempt interest income. See Note (8) of the Notes to Consolidated Financial
Statements.
INVESTMENT SECURITIES
The Company classifies its securities in one of three categories: trading,
available for sale or held to maturity. There were no trading securities at
December 31, 1997 and 1996. Securities held to maturity are those securities for
which the Company has the ability and intent to hold to maturity. All other
securities are classified as available for sale. Securities available for sale
are recorded at fair value. Securities held to maturity are recorded at cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses, net of the related tax effect, on securities available
for sale are excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
At December 31, 1997, approximately 3.85% of the Company's investment
securities and other investments were comprised of mortgage-backed securities
that are insured or guaranteed by the Federal Home Loan Mortgage Corporation
(FHLMC), (FNMA) or Government National Mortgage Association (GNMA).
Collateralized Mortgage Obligations (CMOs) not insured or guaranteed by FHLMC,
FNMA or GNMA comprised 15.23% of the investment portfolio, U.S. government
agency obligations comprised 56.31%, preferred stock of FNMA comprised 3.56%,
FHLB stock comprised 3.91%, municipal securities comprised 5.28% and common
stock comprised 11.86% of such portfolio at December 31, 1997.
The Company's securities portfolio is managed in accordance with the
Company's Investment Policy adopted by the Board of Directors and administered
by the Asset/Liability Committee, which consists of an outside director, the
President and Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, and Senior Vice President. The policy lists specific areas of
permissible investments consistent with the Company's investment strategy. Under
the Company's policy, at the time of purchase of an investment security,
management designates the security as either held for maturity or available for
sale based on the Company's investment objectives, operational needs and intent.
The Company does not maintain a trading account portfolio. Investment activities
are monitored to ensure that they are consistent with established guidelines and
objectives.
The following table sets forth certain information regarding the
classifications of the Company's investment securities at December 31, 1997,
1996 and 1995. Securities classified as available for sale are carried at their
estimated fair value at December 31, 1997. There were no securities available
for sale at December 31, 1995. Securities held to maturity are carried at
amortized cost at all respective dates. There were no trading securities at
December 31, 1997, 1996 or 1995.
<PAGE>
TABLE 3 CARRYING VALUE OF INVESTMENTS
<TABLE>
Securities available for sale:
<CAPTION>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
U.S. Treasuries $ 3,013 $ --
U.S. Government agencies 23,248 18,830
State, county and municipals 2.159 2,231
Mortgage-backed securities 11,552 12,866
Equity securities 9,520 --
---------- -----------
$ 49,492 $ 33,927
========== ===========
</TABLE>
<TABLE>
Securities held to maturity:
<CAPTION>
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
U.S. Treasuries $ -- 500 1,251
U.S. Government agencies 5,669 6,216 7,142
State, county and municipals 115 115 115
Mortgage-backed securities 222 933 1,870
------- ------- -------
$ 6,006 7,764 10,378
------- ------- -------
Total investment securities $55,498 41,691 10,378
======= ======= =======
</TABLE>
The following table presents the expected maturity of the total investment
securities portfolio by maturity date and average yields based upon amortized
cost, (for all obligations on a fully taxable basis assuming a 34% tax rate) at
December 31, 1997. It should be noted that the composition and
maturity/repricing distribution of the investment portfolio is subject to change
depending upon rate sensitivity, capital needs and liquidity needs.
<PAGE>
TABLE 4 EXPECTED MATURITY OF INVESTMENT SECURITIES
<TABLE>
Expected Maturity of Investment Securities
<CAPTION>
After one After five
Within one year but within five years but within ten years After ten years
Amount Yield Amount Yield Amount Yield Amount Yield Totals
---------------- -------------------- ------------------- ---------------- -------
Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury Securities - - - - - - - - -
U.S. Government Agencies 2,669 6.57% - - 3,000 6.84% - - 5,669
State, county and municipals - - 115 4.55% - - - - 115
Mortgage-backed securities 45 5.34% 61 8.67% 116 7.31% - - 222
-- ------ -- ----- --- ----- - - ------
2,714 6.55% 176 5.98% 3,116 7.31% - - 6,006
===== ====== ===== ===== ====== ===== ====== ===== ======
Securities available for sale:
U.S. Treasury Securities - - 2,995 5.97% - - - - 2,995
U.S. Government Agencies - - 2,001 6.95% 11,958 7.31% 9,162 8.00% 23,121
State, county and municipals - - 157 6.73% - - 1,927 8.67% 2,084
Mortgage-backed securities - - - - 1,930 6.86% 9,460 7.27% 11,390
Equity securities:
FNMA Preferred Stock 2,018 - - - - - - - 2,018
Common Stock (Banks) 6,715 - - - - - - - 6,715
----- ----- ----- ----- ------ ----- ------ ----- -----
8,733 - 5,153 6.40% 13,888 7.25% 20,549 7.73% 48,323
===== ====== ===== ===== ====== ===== ====== ===== ======
</TABLE>
<PAGE>
LENDING ACTIVITIES
The Bank has general authority to originate and purchase loans secured by
real estate, secured or unsecured loans for commercial, corporate, business, or
agricultural purposes, loans for personal, family, or household purposes, and
may issue credit cards and extend credit in connection therewith. While not
restricted by law, the Bank limits its lending activities mainly to the counties
in which it has offices.
At December 31, 1997, the Bank's loans-to-one borrower limit was $5.8
million and its five largest loans or groups of loans-to-one borrower, including
related entities, were $5.0 million, $3.8 million, $2.9 million, $2.8 million
and $2.6 million. The $5.0 million loan is a development loan secured by a 228
lot residential subdivision and an 18 hole golf course. The $3.8 million loan
was to purchase a clothing manufacturing business secured by real estate and
equipment, inventory, furniture, fixtures, and accounts receivable. The $2.9
million is a commercial installment loan secured by five convenience stores and
gas stations. The $2.8 million is a single pay note secured by undeveloped
commercial real estate and the $2.6 million is commercial installment note
secured by a restaurant, motel and adjacent real estate. Both of these notes
($2.8 and $2.6 million) represent the Bank's participation with other lenders on
these credits.
Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated.
TABLE 5 LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995 1994 1993
Amount % Amount % Amount % Amount % Amount %
-------------- ------------------ ----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans $122,969 43% $146,577 54% $175,039 64% $196,761 69% $195,682 75%
Real estate construction loans 334 * 34 * 2,348 1 1,451 1 866 *
Commercial loans 95,182 33 57,786 21 43,944 16 38,755 14 27,759 11
Consumer(1) and other installment loans 67,906 24 68,038 25 51,840 19 46,509 16 37,846 14
------ ------ ------ ------ ------
Total loans 286,391 100% 272,435 100% 273,171 100% 283,476 100% 262,153 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Less: Allowance for loan losses 2,789 2,601 2,291 2,392 2,686
----- ----- ----- ----- -----
Loans, net $283,602 $269,834 $270,880 $281,084 $259,467
======== ======== ======== ======== ========
- ---------------------
*Indicates less than one percent.
<FN>
(1) Includes home equity loans secured by residential real estate, as well as
other consumer loans.
</FN>
</TABLE>
<PAGE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES
The following table sets forth certain information at December 31, 1997
regarding the dollar amount of loans maturing or repricing in the Bank's
portfolio based on the contractual terms to maturity, before giving effect to
net items. Demand loans, loans having no stated schedule of repayments and no
stated maturity or repricing and overdrafts are reported as due in one year.
TABLE 6 LOAN PORTFOLIO MATURITIES
<TABLE>
<CAPTION>
1 year
Less Than through Over
Loan Type 1 year 5 years 5 years Total
- --------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage (1) $66,925 $24,646 $31,398 $122,969
Construction 334 - - 334
--- - - ---
Total $67,259 $24,646 $31,398 $123,303
======= ======= ======= ========
- --------------
<FN>
(1) Includes second mortgage loans on one-to-four family residential properties
of $17,437.
</FN>
</TABLE>
The following table sets forth, as of December 31, 1997, the dollar amount
of all loans, before net items, maturing or repricing after one year from
December 31, 1997 that have fixed interest rates or that have adjustable
interest rates.
TABLE 7 RATE STRUCTURE FOR LOANS MATURING OVER ONE YEAR
<TABLE>
<CAPTION>
Adjustable
Fixed Rates Rates Total
(In Thousands)
<S> <C> <C> <C>
Mortgage $51,936 $4,108 $56,044
Construction - - -
------- ------ -------
Total $51,936 $4,108 $56,044
======= ====== =======
</TABLE>
Scheduled contractual amortization of loans does not reflect the actual
term of the Bank's loan portfolio. The average life of loans is substantially
less than their contractual terms because of prepayments and due-on-sales
clauses, which give the Bank the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Bank manages asset quality and controls risk through diversification of
the loan portfolio and the application of policies designed to foster sound
underwriting and loan monitoring practices. The Bank's loan administration
function is charged with monitoring asset quality, establishing credit policies
and procedures, and enforcing the consistent application of these policies and
procedures across the Bank.
The provision for loan losses is the annual cost of providing an adequate
allowance for anticipated potential future losses on loans. The amount each year
is dependent upon many factors including loan growth, net charge-offs, changes
in the composition of the loan portfolio, delinquencies, management's assessment
of loan portfolio quality, the value of collateral, and economic factors and
trends.
Reviews of non-performing, past due loans and larger credits, designed to
identify potential charges to the allowance for loan losses, as well as
determine the adequacy of the allowance, are made on a regular basis during the
year.
These reviews are made by the responsible lending officers, as well as a
separate credit review department, and consider such factors as the financial
strength of borrowers, the value of the applicable collateral, past loan loss
experience, anticipated loan losses, growth in the loan portfolio, and other
factors, including prevailing and anticipated economic conditions.
Whenever a loan, or portion thereof, is considered by management to be
uncollectible, it is charged against the allowance for loan losses. Management
believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowance for loan losses. Such agencies may
require the Banks to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
The provision for loan losses increased 81% in 1997 compared to a 357%
increase in 1996. The allowance for loan losses as a percentage of total loans
increased to .97% in 1997 from .95% at year end 1996.
Net loan chargeoffs for 1997 were higher than 1996 because the Company
chose to write down certain loans in preparation for conversion to a state
chartered commercial bank. These write downs were the result of higher
deficiency balances associated with consumer loans and credit card loans as well
as write downs taken upon the foreclosure of real estate. The Bank does not
currently allocate the allowance for loan losses to the various loan categories.
TABLE 8 ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 2,601 $ 2,291 $ 2,392 $ 2,687 $ 2,027
Provisions 2,067 1,143 250 99 822
Charge-offs
Mortgage loans 351 32 82 277 165
Commercial loans 95 117 59 - -
Consumer loans 1,768 776 307 181 88
----- --- --- --- --
Total charge-offs 2,214 925 448 458 253
Recoveries
Mortgage loans 42 25 7 40 64
Commercial loans - - - - -
Consumer loans 293 67 90 24 25
--- -- -- -- --
Total Recoveries 335 97 97 64 91
Net charge-offs 1,879 833 351 394 162
Allowance at end of period $2,789 $2,601 $2,291 $2,392 $2,687
====== ====== ====== ====== ======
Allowance for loan losses to total
non-performing loans at end of period 254.00% 41.66% 99.61% 76.64% 72.06%
Allowance for loan losses to average loans at
end of period 1.00% 0.95% 0.82% 0.88% 1.04%
Net charge-offs to average loans outstanding
during the period 0.67% 0.31% 0.13% 0.14% 0.06%
Average gross loans (1) $279,412 $272,803 $278,323 $272,815 $259,189
<FN>
(1) Beginning and ending annual period balances were used to calculate average
gross loans.
</FN>
</TABLE>
<PAGE>
ASSET QUALITY
At December 31, 1997, non-performing assets, comprised of nonaccrual loans,
other real estate owned and loans for which payments are more than 90 days past
due totaled $7.7 million compared to $6.4 million at year end 1996. The increase
from 1996 is primarily attributable to the foreclosure of five real estate
construction loans in the fourth quarter of 1997 totaling $1.1 million.
It is the general policy of the Bank to stop accruing interest income and
place the recognition of interest on a cash basis when a loan is placed on
nonaccrual status and any interest previously accrued but not collected is
reversed against current income. Loans made by the Bank to facilitate the sale
of other real estate are made on terms comparable to loans of similar risk.
There were no commitments to lend additional funds on nonaccrual loans at
December 31, 1997. Table 9 summarizes the Bank's non-performing assets for each
of the last five years.
TABLE 9 - RISK ELEMENTS
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Mortgage 674 943 1,203 1,411 2,239
Construction 199 - - - -
Commercial 78 3,900 582 245 39
Consumer 147 1,400 515 1,465 1,451
Accruing loans greater
than 90 days delinquent:
Mortgage - - - - -
Construction - - - - -
Commercial - - - - -
Consumer - - - - -
--------- --------- ---------- ---------- ---------
-
Total non-performing loans 1,098 6,243 2,300 3,121 3,729
Real estate owned(1) 6,628 180 253 968 801
--------- --------- ---------- ---------- ---------
Total non-performing assets 7,726 6,423 2,553 4,089 4,530
Total non-performing loans as a
percentage of total net loans 0.39% 2.31% 0.85% 1.11% 1.72%
Total non-performing assets as
a percentage of total assets 1.96% 1.82% 0.76% 1.16% 1.45%
<FN>
(1) Consists of real estate acquired by foreclosure.
</FN>
</TABLE>
RISK ELEMENTS
There may be additional loans within the Bank's portfolio that may become
classified as conditions dictate; however, management was not aware of any such
loans that are material in amount at December 31, 1997.
This section of the Annual Report contains forward-looking statements
involving risks and uncertainties. Results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, risks involving the potential
adverse effect of changes in interest rates and the current interest rate
environment, costs relating to Year 2000 compliance, loan losses and the
adequacy of the Company's loan loss reserve, changes in regulation and
legislation, and competition. See the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 for additional information.
SOURCE OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from loan principal repayments, principal, interest and dividend payments
on investments and other sources. Loan repayments are a relatively stable source
of funds, while deposit inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They may also be used on a longer term basis for general business
purposes.
DEPOSITS. The Bank's deposits are attracted principally from within the
Bank's primary market area through the offering of a wide selection of deposit
instruments, including NOW accounts, money market accounts, regular savings
accounts, and term certificate accounts. Included among these deposit products
are individual retirement account certificates of approximately $47.4 million at
December 31, 1997. Deposit account terms vary, with the principal references
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. As of December 31, 1997, the certificates of
deposit with principal amounts of $100,000 or more totaled $45.9 million.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by the Bank on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals and federal regulations.
The Bank does not advertise for deposits outside its local market area
or utilize the services of deposit brokers. A listing on the Internet has been
established primarily for people relocating to the Bank's primary market area.
<PAGE>
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Bank at the dates indicated.
TABLE 10 DEPOSITS
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
----------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Amount Interest Rate Amount Interest Rate Amount Interest Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits $207,326 5.72 % $210,488 5.6 % $198,870 5.6 %
Savings accounts 38,273 3.17 34,077 3.0 31,737 2.6
Transaction accounts
NOW and money
market accounts 51,198 2.09 47,288 2.6 46,626 2.5
Non-interest
bearing accounts 18,734 15,903 12,055
------ -------- -----------
Total transaction
accounts 69,932 63,191 58,681
------ -------- -----------
Total deposits $315,531 $307,756 $289,288
======== ======== ===========
</TABLE>
The following table sets forth the maturities of the Bank's certificates of
deposit having principal amounts of $100,000 or more at December 31, 1997.
TABLE 11 MATURITIES OF CERTIFICATES OF DEPOSIT OVER $100,000
CERTIFICATES OF DEPOSIT
MATURING IN: (In Thousands)
Less than three months $ 7,640
Three to six months 13,444
Six to 12 months 10,319
Over 12 months 14,492
-------
Total certificates of deposit with
balances of $100,000 or more $45,895
BORROWINGS. The Bank may obtain advances from the FHLB of Atlanta upon the
security of its FHLB of Atlanta stock and certain of the Bank's residential
mortgage loans, provided certain standards related to creditworthiness have been
met. Such advances are made pursuant to several credit programs, each of which
has its own interest rate and range of deposit accounts and to permit increased
lending.
The Bank had $5.5 million FHLB advances outstanding at December 31, 1997.
All were fixed rate advances and had a weighted average rate of 5.73%.
The following table sets forth the maximum month-end balance and average
balance of the Bank's FHLB advances during the periods indicated. See also Note
(6) to the Consolidated Financial Statements.
TABLE 12 FHLB ADVANCES
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum balance $16,295 $20,236 $40,277
Average balance 12,071 16,514 28,257
Weighted average interest rate
during year 5.70 % 5.56 % 6.81 %
Balance outstanding at year-end $5,495 $16,295 $15,595
Weighted average interest rate
at year-end 5.73 % 5.90 % 6.05 %
</TABLE>
The following table sets forth certain information as to the Bank's
long-term (terms to maturity in excess of 90 days) and short-term (terms to
maturity of 90 days or less) FHLB advances at the dates indicated.
TABLE 13 LONG-TERM AND SHORT TERM FHLB ADVANCES
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB long-term advances $5,120 $ 6,295 $7,095
Weighted average interest rate 5.72 % 5.68 % 5.64 %
FHLB short-term advances $375 $10,000 $8,500
Weighted average interest rate 5.84 % 5.49 % 7.78 %
</TABLE>
<PAGE>
INTEREST RATE SENSITIVITY MANAGEMENT
The absolute level and volatility of interest rates can have a significant
impact on the Company's profitability. The objective of interest rate risk
management is to identify and manage the sensitivity of net interest income to
changing interest rates, in order to achieve the Company's overall financial
goals. Based on economic conditions, asset quality and various other
considerations, management establishes tolerance ranges for interest rate
sensitivity and manages within these ranges.
During 1997, the Company used no derivative financial instruments for
interest rate risk management, although interest rate caps have been used to a
limited degree in prior years. The Company anticipates continued limited use of
derivative interest rate contracts when appropriate in its asset-liability rate
management.
The Company uses income simulation modeling as the primary tool in
measuring interest rate risk and managing interest rate sensitivity. Simulation
modeling considers not only the impact of changing market rates of interest on
future net interest income, but also such other potential causes of variability
as earning asset volume, mix, yield curve relationships, customer preferences
and general market conditions.
Interest rate sensitivity is a function of the repricing characteristics of
the Company's portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity during the life of the instruments. Interest rate
sensitivity management focuses on the maturity structure of assets and
liabilities and their repricing characteristics during periods of changes in
market interest rates. Effective interest rate sensitivity management seeks to
ensure that both assets and liabilities respond to changes in interest rates
within an acceptable timeframe, thereby minimizing the effect of interest rate
movements on net interest income. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in the Company's
current portfolio that are subject to repricing at various time horizons:
immediate, one to three months, four to twelve months, one to five years, over
five years, and on a cumulative basis. The differences are known as interest
sensitivity gaps. Table 14 shows interest sensitivity gaps for these different
intervals as of December 31, 1997.
<PAGE>
TABLE 14 INTEREST RATE SENSITIVITY ANALYSIS
(in thousands of dollars)
<TABLE>
<CAPTION>
Immediate Four Through One Through
Through Three Twelve Five Over
Months Months Years Five Years Totals
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits and federal funds sold 19,517 - - - 19,517
Investment securities - 12,234 5,355 37,909 55,498
Other investments 2,269 - - - 2,269
Loans (including mortgage loans held for sale) 86,221 96,511 77,593 24,066 284,391
------ ------ ------ ------ -------
Total interest-earning assets 108,007 108,745 82,948 61,975 361,675
Interest-bearing demand and savings deposits 11,771 35,313 42,387 - 89,471
Time deposits 50,078 99,522 57,504 222 207,326
FHLB advances 375 1,575 643 2,902 5,495
Subordinated debt - - 900 - 900
------ ------ ------ ------ -------
Total interest-bearing liabilities 62,224 136,410 101,434 3,124 303,192
Interest sensitivity gap per period 45,783 (27,665) (18,486) 58,851
Cumulative interest sensitivity gap 45,783 18,118 (368) 58,483
Cumulative gap as a percentage of total
interest-earning assets 12.65% 5.01% (0.10%) 16.17%
Cumulative interest-earning assets as a percentage
of cumulative interest-bearing liabilities 173.58% 109.13% 99.88% 119.29%
</TABLE>
As seen in the preceding table, for the first 365 days 65.5% of earning
asset funding sources will reprice compared to 59.9% of all interest earning
assets. Changes in the mix of earning assets or supporting liabilities can
either increase or decrease the net interest margin without affecting interest
rate sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and the liability remains the same, thus impacting net interest
income. This characteristic is referred to as basis risk and generally relates
to the possibility that the repricing characteristics of short-term assets tied
to the Company's prime lending rate are different from those of short-term
funding sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest rate sensitivity analysis report. These prepayments may have
significant effects on the Company's net interest margin. Because of these
factors an interest sensitivity gap report may not provide a complete assessment
of the Company's exposure to changes in interest rates.
Table 14 indicates the Company is in a slightly asset sensitive or positive
gap position at twelve months. This asset sensitive position would generally
indicate that the Company's net interest income would increase should interest
rates rise and would decrease should interest rates fall. Due to the factors
cited previously, current simulation results indicate only minimal sensitivity
to parallel shifts in interest rates. Management also evaluates the condition of
the economy, the pattern of market interest rates and other economic data to
determine the appropriate mix and repricing characteristics of assets and
liabilities required to produce an optimal net interest margin.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure that sufficient funding
is available, at reasonable cost, to meet the ongoing operational cash needs of
the Company and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of the bank to maintain a high level of
liquidity in all economic environments. Liquidity is defined as the ability of a
company to convert assets into cash or cash equivalents without significant loss
and to raise additional funds by increasing liabilities. Liquidity management
involves maintaining the Company's ability to meet the day to day cash flow
requirements of the Companys' customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs. Without
proper liquidity management, the Company would not be able to perform the
primary functions of a financial intermediary and would, therefore, not be able
to meet the needs of the communities it serves.
The primary function of asset and liability management is not only to
assure adequate liquidity in order for the Company to meet the needs of its
customer base, but to maintain an appropriate balance between interest-sensitive
assets and interest-sensitive liabilities so that the Company can also meet the
investment returns anticipated by its shareholders. Daily monitoring of the
sources and use of funds is necessary to maintain an acceptable cash position
that meets both requirements. In a banking environment, both assets and
liabilities are considered sources of liquidity funding and both are, therefore,
monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments, maturities of investment securities and, to a lesser
extent, sales of securities. Installment loan payments are becoming an
increasingly important source of liquidity for the Company as this portfolio
continues to grow. Loans that mature or reprice in one year or less amounted to
$153 million at December 31, 1997. Investment securities maturing in the same
time frame totaled $2.7 million. Other short-term investments such as federal
funds sold and maturing interest bearing deposits with other banks are
additional sources of liquidity funding.
The liability portion of the balance sheet provides liquidity through
various customers' interest bearing and non-interest bearing deposit accounts.
These sources of liquidity are short-term in nature and are used as necessary to
fund asset growth and meet short-term liquidity needs. Liquidity is also
provided by advances from the FHLB of Atlanta.
As disclosed in the Company's Consolidated Statements of Cash Flows
included in the Consolidated Financial Statements, net cash provided by
operating activities increased $5.3 million primarily due to the increases in
noncash expenses - depreciation and amortization and provision for loan losses.
Net cash used in investing activities of $36.7 million consisted primarily of
net loans originated of $22.4 million and securities purchased of $27.2 million
funded largely by sales, maturities and paydowns of investment securities of
$15.1 million. Net cash provided by financing activities provided the remainder
of funding sources for 1997. The $38.2 million of net cash provided consisted
primarily of $46.8 million in net proceeds from the issuance of common stock and
a $7.8 million increase in deposit accounts, coupled with payments of FHLB
advances of $10.8 million and the purchase of ESOP stock of $3.9 million.
Management considers the Company's liquidity position at the end of 1997 to
be sufficient to meet its foreseeable cash flow requirements for the next 12
months. Reference should be made to the Consolidated Statements of Cash Flows
appearing in the Consolidated Financial Statements for a three-year analysis of
the changes in cash and cash equivalents resulting from operating, investing and
financing activities.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. SFAS
No. 131 specifies the presentation and disclosure of operating segment
information reported in the annual report and interim reports issued to
stockholders. The provisions of both statements are effective for fiscal years
beginning after December 15, 1997. The management of the Company believes that
the adoption of these statements will not have a material impact on the
reporting of the Company's financial position, results of operations or
liquidity.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Company's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than does the
effect of inflation.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including among
other things a temporary inability to process transactions, produce statements
or engage in similar normal banking activities. The Company's Board of Directors
and executive management has acknowledged the possibility of this problem. They
have assigned a member of senior management to be responsible for oversight of
identification and correction of Year 2000 issues within the Company.
The Company has identified all hardware and software that need
date-sensitive testing to comply with the Year 2000 issue. Vendors and suppliers
have been contacted for information concerning their products and company's
readiness for the Year 2000 issue. The Company is utilizing both inside and
outside resources for testing of all hardware and software. The Company's main
supplier of core processing software and our core processing service provider
will begin testing of their products during the second and third quarters of
1998. The Company internally has begun testing hardware and should have internal
software testing starting during the second quarter of 1998. All testing and
corrective processes for Year 2000 problems should be completed by December 31,
1998.
The total budget for the Year 2000 efforts has not been completed. To date,
$252,000 has been set aside to address hardware replacement and upgrades. All
expenses associated with year 2000 corrections will be expensed in the year
incurred and will be funded through normal operating cash flow.
The costs and completion dates for testing and corrections of Year 2000
problems are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those plans. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer programs, and similar uncertainties.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Community First Banking Company
We have audited the accompanying consolidated balance sheets of Community First
Banking Company and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall 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 Community First
Banking Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/PORTER KEADLE MOORE, LLP
Atlanta, Georgia
February 27, 1998
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
1997 1996
(in thousands)
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $1,949,000 and $1,658,000 $ 10,767 11,061
Interest-bearing deposits in financial institutions 1,862 3,356
Federal funds sold 17,655 8,680
------ -----
Cash and cash equivalents 30,284 23,097
Securities available for sale 49,492 33,927
Securities held to maturity 6,006 7,764
Other investments 2,269 2,600
Mortgage loans held for sale 789 282
Loans, net 283,602 269,834
Premises and equipment, net 9,095 9,289
Accrued interest receivable 3,169 2,688
Other real estate 6,628 165
Other assets 2,959 2,886
----- -----
$ 394,293 352,532
======= =======
Liabilities and Stockholders' Equity
Deposits:
Demand $ 18,734 15,903
Interest-bearing demand 51,198 47,288
Savings 38,273 34,077
Time 161,431 163,258
Time, over $100,000 45,895 47,230
-------- ------ ------
Total deposits 315,531 307,756
Federal Home Loan Bank advances 5,495 16,295
Subordinated debentures 900 2,000
Accrued interest payable and other liabilities 3,329 1,223
------- -------
Total liabilities 325,255 327,274
------- -------
Stockholders' equity:
Convertible preferred stock, par value $.01, authorized 96,542
shares, no shares issued or outstanding - -
Common stock, par value $.01, authorized 10,000,000 shares,
issued 2,413,562 shares, outstanding 2,239,785 shares 24 -
Additional paid-in capital 47,040 -
Unearned ESOP shares (173,777 shares) (3,476) -
Retained earnings 24,725 25,278
Unrealized gain (loss) on securities available for sale, net of tax 725 (20)
------ ------
Total stockholders' equity 69,038 25,258
------ ------
$ 394,293 352,532
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 26,628 24,874 24,588
Interest-bearing deposits and federal funds sold 1,064 822 473
Interest and dividends on investment securities:
U.S. Treasury 107 44 57
U.S. Government agencies and mortgage-backed 3,375 2,133 2,327
State, county and municipals 108 83 -
Other 171 234 268
-------- -------- --------
Total interest income 31,453 28,190 27,713
-------- -------- --------
Interest expense:
Interest on deposits:
Demand 1,501 1,386 1,366
Savings 1,157 889 828
Time 11,848 11,338 10,444
-------- -------- --------
14,506 13,613 12,638
Interest on FHLB advances and subordinated debentures 815 1,168 1,858
-------- -------- --------
Total interest expense 15,321 14,781 14,496
-------- -------- --------
Net interest income 16,132 13,409 13,217
Provision for loan losses 2,067 1,143 250
-------- -------- --------
Net interest income after provision for loan losses 14,065 12,266 12,967
-------- -------- --------
Noninterest income:
Service charges on deposits 2,730 2,350 2,006
Gain (loss) on sales of securities available for sale (20) 178 367
Insurance commissions 523 426 165
Miscellaneous 457 290 581
-------- ------- -------
Total noninterest income 3,690 3,244 3,119
-------- -------- --------
Noninterest expenses:
Salaries and employee benefits 9,643 6,453 5,347
Occupancy and equipment 1,907 1,608 1,494
Deposit insurance premiums 160 2,340 636
Loss on abandonment of premises and equipment 505 - -
Other operating 5,455 4,875 4,287
-------- -------- --------
Total noninterest expense 17,670 15,276 11,764
-------- -------- --------
Earnings before income tax (benefit) expense 85 234 4,322
Income tax (benefit) expense (28) (14) 1,375
-------- -------- --------
Net earnings $ 113 248 2,947
======== ========== =======
Basic earnings per share $ .05 N/A N/A
======== ========== =======
Diluted earnings per share $ .05 N/A N/A
======== ========== =======
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Additional Unearned Securities
Common Stock Paid-in ESOP Retained Available for Sale,
Shares Amount Capital Shares Earnings Net of Tax Total
------ ------ ------- ------ -------- ---------- -----
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- $ -- -- -- 22,083 -- 22,083
Net earnings -- -- -- -- 2,947 -- 2,947
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 -- -- -- -- 25,030 -- 25,030
Net earnings -- -- -- -- 248 -- 248
Change in unrealized loss
on securities available
for sale, net of tax -- -- -- -- -- (20) (20)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 -- -- -- -- 25,278 (20) 25,258
Net proceeds from issuance
of common stock 2,413,562 24 46,794 -- -- -- 46,818
Common stock acquired by ESOP (193,085) -- -- (3,862) -- -- (3,862)
Cash dividends declared
($.30 per share) -- -- -- -- (666) -- (666)
Release of ESOP shares 19,308 -- 246 386 -- -- 632
Change in unrealized gain (loss)
on securities available for
sale, net of tax -- -- -- -- -- 745 745
Net earnings -- -- -- -- 113 -- 113
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 2,239,785 $ 24 47,040 (3,476) 24,725 725 69,038
========== ========== ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 113 248 2,947
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, amortization and accretion 1,296 1,117 1,020
Provision for loan losses 2,067 1,143 250
Deferred income tax benefit (1,494) (947) (244)
Loss (gain) on sales of securities available for sale 20 (178) (367)
Loss on abandonment of premises and equipment 505 -- --
Loss (gain) on sales of premises and equipment, net 51 (67) (404)
Change in:
Mortgage loans held for sale (507) 2,809 (3,091)
Accrued interest receivable (481) (290) 73
Other assets (43) (88) (636)
Accrued interest payable 635 (241) 215
Other liabilities 3,141 (143) 425
-------- -------- --------
Net cash provided by operating activities 5,303 3,363 188
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 3,843 4,918 19,419
Proceeds from sales of other investments 219 760 --
Proceeds from maturities of securities available for sale 9,220 240 --
Proceeds from maturities of securities held to maturity 1,785 2,664 15,970
Proceeds from maturities of other investments -- -- 10,000
Purchases of other investments -- (112) (10,056)
Purchases of securities available for sale (27,277) (38,903) --
Purchases of securities held to maturity -- -- (115)
Net change in loans (22,437) (79) 10,182
Proceeds from sales of real estate 139 80 462
Proceeds from sales of premises and equipment 35 302 1,328
Purchases of premises and equipment (1,778) (3,362) (1,131)
Organization costs (30) -- --
-------- -------- --------
Net cash provided (used) by investing activities (36,281) (33,492) 46,059
-------- -------- --------
Cash flows from financing activities:
Net change in demand and savings deposits 10,937 6,851 (10,176)
Net change in time deposits (3,162) 11,618 10,136
Proceeds from FHLB advances -- 10,000 5,000
Payments of FHLB advances (10,800) (9,300) (27,175)
Cash dividends paid (666) -- --
Purchase of ESOP shares (3,862) -- --
Proceeds from issuance of common stock 46,818 -- --
Payments of subordinated debentures (1,100) -- --
-------- -------- --------
Net cash provided (used) by financing activities 38,165 19,169 (22,215)
-------- -------- --------
Net change in cash and cash equivalents 7,187 (10,960) 24,032
Cash and cash equivalents at beginning of year 23,097 34,057 10,025
-------- -------- --------
Cash and cash equivalents at end of year $ 30,284 23,097 34,057
======== ======== ========
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 14,686 15,022 14,281
Income taxes $ 935 935 1,175
Noncash investing and financing activities:
Real estate acquired through foreclosure $ 7,602 402 428
Loans to facilitate sales of real estate $ 1,000 420 609
Transfer of securities held to maturity to available for sale $ - - 19,052
Release of ESOP shares $ 632 - -
Change in unrealized gain (loss) on securities
available for sale, net of tax $ 745 (20) -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Community First Banking Company (the "Company") was organized in March
1997 to become the holding company for Carrollton Federal Bank pursuant
to a Plan of Conversion and Reorganization (the "Conversion"). As part
of the Conversion, CF Mutual Holdings ("Mutual") was converted from a
federally chartered mutual holding company to an interim federal savings
bank and simultaneously merged with and into Carrollton Federal Bank,
pursuant to which Mutual ceased to exist and Carrollton Federal Bank
became a wholly owned subsidiary of the Company. The Conversion was
accounted for at historical cost in a manner similar to a pooling of
interests.
On June 27, 1997, the Conversion to a stock holding company organized
under the laws of Georgia, the issuance of common stock, and the
dissolution of Mutual were completed. In connection therewith, the
Company sold 2,413,562 shares of common stock, par value $.01 per share,
at an initial price of $20 per share in a subscription offering. Costs
associated with the Conversion were approximately $1,453,000, including
underwriting fees.
On December 29, 1997, Carrollton Federal Bank, a federally chartered
stock savings bank, converted its charter to the Georgia Department of
Banking and Finance and concurrently changed its name to Community First
Bank (the "Bank"). The Bank will subsequently be regulated by the
Georgia Department of Banking and Finance and is insured and subject to
the regulation of the Federal Deposit Insurance Corporation. As part of
the charter conversion, the Company became a member of the Federal
Reserve System and, accordingly, is subject to the regulation by the
Federal Reserve under the Bank Holding Company Act.
The Bank continues to provide a full range of customary banking services
throughout Carroll, Coweta, Douglas, Fayette, Heard, Haralson, Paulding
and Henry counties in Georgia.
Basis of Presentation and Reclassification
------------------------------------------
The consolidated financial statements include the accounts of the
Company, the Bank, CFB Insurance Agency, Inc., CFB Financial, Inc. and
CFB Securities, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current year
presentation.
The accounting principles followed by the Company and its subsidiaries,
and the methods of applying these principles, conform with generally
accepted accounting principles ("GAAP") and with general practices
within the banking industry. In preparing financial statements in
conformity with GAAP, management is required to make estimates and
assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from those
estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include,
but are not limited to, the determination of the allowance for loan
losses, the valuation of real estate acquired in connection with or in
lieu of foreclosure on loans, the valuation allowance for mortgage
servicing rights and valuation allowances associated with the
realization of deferred tax assets which are based on future taxable
income.
Cash and Cash Equivalents
-------------------------
Cash equivalents include amounts due from banks, interest-bearing
deposits in financial institutions and federal funds sold. Generally,
federal funds are sold for one-day periods.
Investment Securities
-----------------------
The Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. There were no trading
securities at December 31, 1997 and 1996. Securities held to maturity
are those securities for which the Bank has the ability and intent to
hold to maturity. All other securities are classified as available for
sale.
Securities available for sale are recorded at fair value. Securities
held to maturity are recorded at cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses,
net of the related tax effect, on securities available for sale are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer.
Unrealized holding gains or losses associated with transfers of
securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Investment Securities, continued
---------------------
A decline in the market value of any available for sale or held to
maturity investment below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and
losses are included in earnings and the cost of securities sold are
derived using the specific identification method.
Other Investments
-----------------
Other investments include Federal Home Loan Bank ("FHLB") stock and
other equity securities with no readily determinable fair value. These
investment securities are carried at cost and include stock dividends.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or market value. The amount
by which cost exceeds market value is accounted for as a valuation
allowance. Changes, if any, in the valuation allowance are included in
the determination of net earnings in the period in which the change
occurs. Gains and losses from the sale of loans are determined using the
specific identification method.
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at their outstanding
unpaid principal balances, net of the allowance for loan losses,
deferred fees or costs on originated loans and unamortized premiums or
discounts on purchased loans.
Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized in interest income using the
level-yield method over the contractual lives of the loans, adjusted for
estimated prepayments based on the Bank's historical prepayment
experience. Commitment fees and costs relating to commitments whose
likelihood of exercise is remote are recognized over the commitment
period on a straight-line basis. If the commitment is subsequently
exercised during the commitment period, the remaining unamortized
commitment fee at the time of exercise is recognized over the life of
the loan as an adjustment to the yield. Premiums and discounts on
purchased loans are amortized over the remaining lives of the loans
using the level-yield method. Fees arising from servicing loans for
others are recognized as earned.
A loan is considered impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. Impaired loans are
measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate or at the loan's
observable market price, or the fair value of the collateral of the loan
if the loan is collateral dependent. Interest income from impaired loans
is recognized using the cash basis method of accounting.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through provisions for loan
losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collection of the
principal is unlikely. The allowance is an amount which, in management's
judgment, will be adequate to absorb losses on existing loans that may
become uncollectible. The allowance is established through consideration
of such factors as changes in the nature and volume of the portfolio,
adequacy of collateral, delinquency trends, loan concentrations,
specific problem and individually significant loans, and economic
conditions that may affect the borrower's ability to pay.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Other Real Estate
-----------------
Real estate acquired through foreclosure is carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated
costs to dispose. Generally accepted accounting principles define fair
value as the amount that is expected to be received in a current sale
between a willing buyer and seller other than in a forced or liquidation
sale. Fair values at foreclosure are based on appraisals. Losses arising
from the acquisition of foreclosed properties are charged against the
allowance for loan losses. Subsequent writedowns are provided by a
charge to earnings through the allowance for losses on other real estate
in the period in which the need arises.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives
of the assets are expensed currently. When assets are retired or
otherwise disposed, the cost and related accumulated depreciation are
removed from the accounts, and any gain or loss is reflected in earnings
for the period.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Land improvements 15-40 years
Buildings and improvements 15-40 years
Furniture and equipment 3-10 years
Mortgage Servicing Rights
-------------------------
The Bank accounts for mortgage servicing rights in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities." The Bank recognizes the rights to service mortgage loans
as an asset regardless of whether the servicing rights are acquired
through either purchase or origination. Additionally, the Bank performs
an impairment analysis of mortgage servicing rights, regardless of
whether purchased or originated.
The Bank's mortgage servicing rights represent the unamortized cost of
purchased and originated contractual rights to service mortgages for
others in exchange for a servicing fee and ancillary loan administration
income. Mortgage servicing rights are amortized over the period of
estimated net servicing income and are periodically adjusted for actual
and anticipated prepayments of the underlying mortgage loans. An
impairment analysis is performed after stratifying the rights by
interest rate. Impairment, defined as the excess of the asset's carrying
value over its current fair value, is recognized through a valuation
allowance. At December 31, 1997 and 1996, no valuation allowances were
required for the mortgage servicing rights.
Core Deposit Intangible
-----------------------
The core deposit intangible is amortized using the straight-line method
over the estimated average life of the deposit base acquired (fifteen
years) and is included as a component of other assets. Amortization
expense approximated $74,000 for each of the three years in the period
ended December 31, 1997. On an ongoing basis, management reviews the
valuation and amortization periods to determine if events and
circumstances require the remaining lives to be reduced.
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which the assets and liabilities are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income tax expense in the period that
includes the enactment date.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes, continued
-----------------------
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, the Company performs an
evaluation of the probability of being able to realize the future
benefits indicated by such assets. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income and tax
planning strategies.
A deferred tax liability is not recognized for portions of the allowance
for loan losses for income tax purposes in excess of the financial
statement balance, as described in note 8. Such a deferred tax liability
will only be recognized when it becomes apparent that those temporary
differences will reverse in the foreseeable future.
Net Earnings Per Common Share
-----------------------------
SFAS No. 128 "Earnings Per Share" became effective for the Company for
the year ended December 31, 1997. This new standard specifies the
computation, presentation and disclosure requirements for earnings per
share and is designed to simplify previous earnings per share standards
and to make domestic and international practices more compatible. Basic
earnings per common share is based on the weighted average number of
common shares outstanding during the period while the effects of
potential common shares outstanding during the period are included in
diluted earnings per share. Net earnings per common share is based on
the weighted average number of shares outstanding during the year of
2,222,910 (assuming the Company was a public company since January 1,
1997) including consideration of allocated shares of the Company's
Employee Stock Ownership Plan ("ESOP"). Unearned ESOP shares are not
considered outstanding for purposes of calculating earnings per share.
SFAS No. 128 requires the presentation on the face of the statement of
earnings of net earnings per common share with and without the dilutive
effects of potential common stock issuances from instruments such as
options, convertible securities and warrants. Additionally, the new
statement requires the reconciliation of the amounts used in the
computation of both basic earnings per share and diluted earnings per
share. Basic earnings per share and diluted earnings per share are the
same since the exercise price of options granted during 1997 exceeded
the average market price of the common stock during the period. Earnings
per share is not presented in periods prior to the Conversion due to the
mutual form of ownership.
Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 130
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. SFAS No. 131 specifies the presentation and disclosure of
operating segment information reported in the annual report and interim
reports issued to stockholders. The provisions of both statements are
effective for fiscal years beginning after December 15, 1997. The
management of the Company believes the adoption of these statements will
not have a material impact on the reporting of the Company's financial
position, results of operations or liquidity.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1997 and 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available for Sale: Cost Gains Losses Value
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,995 18 - 3,013
U.S. Government agencies 23,121 127 - 23,248
State, county and municipals 2,084 75 - 2,159
Equity securities 8,733 787 - 9,520
Mortgage-backed securities 11,390 173 11 11,552
------ ----- -- ------
$ 48,323 1,180 11 49,492
====== ===== == ======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held to Maturity: Cost Gains Losses Value
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 5,669 18 25 5,662
State, county and municipals 115 2 - 117
Mortgage-backed securities 222 2 1 223
-------- --- --- ---
$ 6,006 22 26 6,002
======= == == =====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available for Sale: Cost Gains Losses Value
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 18,867 47 84 18,830
State, county and municipals 2,199 34 2 2,231
Mortgage-backed securities 12,892 25 51 12,866
------ ---- ---- ------
$ 33,958 106 137 33,927
====== === === ======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held to Maturity: Cost Gains Losses Value
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 500 - - 500
U.S. Government agencies 6,216 35 91 6,160
State, county and municipals 115 1 - 116
Mortgage-backed securities 933 2 12 923
-------- --- ---- ------
$ 7,764 38 103 7,699
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) INVESTMENT SECURITIES, continued
The amortized cost and estimated fair value of securities available for
sale and securities held to maturity at December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available Securities Held
for Sale to Maturity
-------------------- ----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---------- ----------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Within one year $ - - 2,669 2,684
One to five years 5,153 5,072 - -
Five to ten years 11,958 12,160 3,115 3,095
More than ten years 11,089 11,188 - -
Equity securities 8,733 9,520 - -
Mortgage-backed securities 11,390 11,552 222 223
------ ------ ------ ------
$ 48,323 49,492 6,006 6,002
====== ====== ===== =====
</TABLE>
There were no sales of securities held to maturity during 1997, 1996 and
1995. Proceeds from sales of securities available for sale during 1997,
1996 and 1995 totalled approximately $3,843,000, $4,918,000 and
$19,419,000, respectively. Gross gains of $8,000, $178,000 and $367,000
were realized on those sales. Gross losses of $28,000 were realized on
1997 sales.
Securities and interest-bearing deposits with a carrying value of
approximately $2,974,000 and $2,517,000 at December 31, 1997 and 1996,
respectively, were pledged to secure U.S. government and other public
deposits.
(3) LOANS
Major classifications of loans at December 31, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate mortgage loans $ 122,969 146,577
Real estate construction loans 334 34
Commercial loans 95,182 57,786
Consumer and other installment loans 67,906 68,038
-------- --------
Total loans 286,391 272,435
Less allowance for loan losses 2,789 2,601
--------- ---------
Loans, net $ 283,602 269,834
======= =======
</TABLE>
The Bank concentrates its lending activities in the origination of
permanent residential mortgage loans, commercial mortgage loans,
commercial business loans and consumer installment loans. The majority
of the Bank's real estate loans are collateralized by real property
located in Carroll County, Georgia and surrounding counties.
The Bank has recognized impaired loans of approximately $971,000 and
$5,680,000 at December 31, 1997 and 1996. There was no allowance for
loan losses related to these amounts at December 31, 1997. The total
allowance for loan losses related to these loans was $243,000 at
December 31, 1996. Interest income on impaired loans of approximately
$73,000 and $68,000 was recognized for cash payments received in 1997
and 1996, respectively.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) LOANS, continued
Activity in the allowance for loan losses is summarized as follows for
the years ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 2,601 2,291 2,392
Provisions charged to expense 2,067 1,143 250
Loans charged off (2,214) (925) (448)
Recoveries of loans previously charged off 335 92 97
------ ------- ------
Balance at end of year $ 2,789 2,601 2,291
===== ===== =====
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. Unpaid principal balances of these
loans at December 31, 1997 and 1996 approximate $54,560,000 and
$53,061,000, respectively.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and land improvements $ 1,595 1,131
Buildings and improvements 5,967 5,582
Furniture and equipment 8,650 7,936
Construction in progress 49 115
------- --------
16,261 14,764
Less: Accumulated depreciation 6,661 5,475
Reserve for abandoned property and equipment 505 -
--------
$ 9,095 9,289
======= =======
</TABLE>
Depreciation expense approximated $1,381,000, $1,203,000 and $1,038,000
at December 31, 1997, 1996 and 1995, respectively.
In December 1997, the Company announced a plan to close two branch
locations and replace certain obsolete computer equipment. In connection
with this plan, the Company determined that the carrying value of such
assets exceeded their fair values. Accordingly, an unrealized loss of
$504,500 has been charged to expense as a separate component of
noninterest expenses.
(5) TIME DEPOSITS
At December 31, 1997, contractual maturities of time deposits are
summarized as follows (in thousands):
Year ending December 31,
1998 $ 149,468
1999 38,739
2000 7,249
2001 4,763
2002 and thereafter 7,107
---------
$ 207,326
==============
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) FHLB ADVANCES
The interest rates for FHLB advances at December 31, 1997 ranged from
4.75% to 6.82% , respectively. FHLB advances are collateralized by FHLB
stock and first mortgage loans. Advances from FHLB outstanding at
December 31, 1997 mature as follows (in thousands):
Year Ending December 31,
1998 $ 2,550
1999 600
2000 600
2001 386
2002 386
Thereafter 973
------
$ 5,495
============
(7) SUBORDINATED DEBENTURES
The Company has issued Series A fixed rate subordinated debentures to
various executive officers and members of the Board of Directors in an
aggregate principal amount of $2,000,000. The subordinated debentures
bear interest at a simple interest rate per annum of 7.25%, which is
payable quarterly, and mature on September 30, 1999. The payment of the
principal is subordinate and junior in right of payment to the claims of
creditors of the Company. The entire proceeds of the offering were used
to increase the capitalization of the Bank. During 1997, $1,100,000 of
the debentures were paid off.
(8) INCOME TAXES
The following is an analysis of the components of income tax (benefit)
expense for the years ended December 31, 1997, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 1,466 933 1,619
Deferred (1,494) (947) (478)
Utilization of state operating loss carryforwards - - 234
-------- ----- -----
Income tax (benefit) expense $ (28) (14) 1,375
======= ===== =====
</TABLE>
The differences between income tax (benefit) expense and the amount
computed by applying the statutory federal income tax rate to earnings
before taxes for the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Pretax income at statutory rate $ 29 80 1,469
Add (deduct):
Tax-exempt interest income (67) (91) (84)
Other, net 10 (3) (10)
------ ----- -------
Income tax (benefit) expense $ (28) (14) 1,375
========= === =====
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) INCOME TAXES, continued
The following summarizes the net deferred tax asset which is included as
a component of other assets at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 682 515
Allowance for real estate held for development and sale 68 124
Deferred compensation 796 77
Other 58 53
State tax credits 269 232
Unrealized loss on securities available for sale - 11
-------- -------
Total gross deferred tax assets 1,873 1,012
Deferred tax liabilities:
Net deferred loan fees - 364
FHLB stock 144 227
Premises and equipment 144 335
Unrealized gain on securities available for sale 444 -
Other 18 2
------- --------
Total gross deferred tax liabilities 750 928
------ ------
Net deferred tax asset $ 1,123 84
===== =======
</TABLE>
Effective January 1, 1996, the Bank computes its tax bad debt reserves
under the rules, which apply to commercial banks. In years prior to
1996, the Bank obtained tax bad debt deductions approximating $5.8
million in excess of its financial statement allowance for loan losses
for which no provision for federal income tax was made. These amounts
were then subject to federal income tax in future years if used for
purposes other than to absorb bad debt losses. Effective January 1,
1996, approximately $1.0 million of the excess reserve is no longer
subject to recapture under any circumstances and approximately $4.8
million of the excess reserve is subject to recapture only if the Bank
ceases to qualify as a bank as defined in the Internal Revenue Code.
(9) STOCKHOLDERS' EQUITY
On June 27, 1997, the Company completed an initial public offering of
common stock. Proceeds from the offering totaled $46.8 million, net of
$1.5 million in related expenses. Half of the net proceeds from the
offering were injected into the Bank as additional capital while the
other half were used for general corporate purposes.
On December 29, 1997, the Board of the Directors of the Company
authorized the issuance of 96,542 shares of $.01 par value convertible
preferred stock to be used as part of the Company's Management
Recognition Plan ("MRP") to provide a means of rewarding its key
personnel. The preferred stock is automatically convertible into one
share of common stock on the five-year anniversary date on which such
shares are issued. The preferred shares are not entitled to receive
dividends, have no liquidation preference, no voting rights, limited
rights to transfer and no right of redemption.
On January 8, 1998, 96,542 shares of convertible preferred stock were
granted to key employees and directors, valued at $21.38 per share. The
preferred shares vest at the rate of 5% as of the last day of each
calendar quarter commencing with the first calendar quarter after the
grant date.
On December 29, 1997, the Board of Directors of the Company authorized a
stock repurchase program whereby the Company intends to purchase up to
600,000 shares of its common stock through open market purchases.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) EMPLOYEE AND DIRECTOR BENEFIT PLANS
All qualifying employees of the Bank are included in a qualified
multiemployer noncontributory defined benefit pension plan sponsored by
the Financial Institutions Retirement Fund. The Bank's policy is to fund
pension costs accrued. No pension expense was incurred during 1997, 1996
or 1995. At June 30, 1997, the date of the latest actuarial valuation,
the market value of the plan's net assets exceeded the actuarially
computed value of accumulated plan benefits.
Effective January 1, 1993, the Bank established a retirement plan
qualified pursuant to Internal Revenue Code section 401(k) ("Plan"). The
Plan allows eligible employees to defer a portion of their income by
making contributions into the Plan on a pretax basis. The Bank's
matching contribution vests based on length of service. The Bank matches
50% of employee contributions up to 6% of the employees' compensation.
On August 1, 1997, the Plan was amended to discontinue matching of
employee contributions. During the years ended December 31, 1997, 1996
and 1995, the Bank recognized $53,000, $94,000 and $92,000 in expense
related to its obligations under the Plan.
The Bank has a defined contribution postretirement benefit plan to
provide retirement benefits to its Board of Directors and to provide
death benefits for their designated beneficiaries. Under the plan, the
Bank purchased split-dollar whole life insurance contracts on the lives
of each Director. The increase in cash surrender value of the contracts,
less the Bank's cost of funds, constitutes the Bank's contribution to
the plan each year. In the event the insurance contracts fail to produce
positive returns, the Bank has no obligation to contribute to the Plan.
At December 31, 1997 and 1996, the cash surrender value of the insurance
contracts was approximately $1,071,000 and $969,000, respectively, and
is included as a component of other assets. Expenses incurred for
benefits were approximately $77,000 and $14,000 during 1997 and 1996,
respectively. No expenses were incurred during 1995.
As part of the Conversion, the Company adopted an ESOP and purchased
193,085 shares via a loan from the Company. The plan covers
substantially all employees subject to certain minimum age and service
requirements. The Company makes contributions to the ESOP as determined
annually by the Board of Directors. Contributions to the ESOP will, at a
minimum, be applied to meet the ESOP's debt service requirements. As the
ESOP debt is repaid, shares are released and allocated to active
employees, based on the proportion of debt service paid during the year.
Accordingly, the debt incurred by the ESOP is recorded as a note payable
and the shares purchased with the debt proceeds are reported as unearned
ESOP shares in the consolidated balance sheet. As the debt is repaid,
the Company records compensation expense equal to the current market
price of the shares released, and the shares become outstanding for
purposes of earnings per share computations. Compensation expense
related to the ESOP of $727,000 was recognized during 1997.
ESOP shares are summarized as follows at December 31, 1997:
Allocated shares 19,308
Unearned shares 173,777
-------
Total ESOP shares 193,085
-------
Fair value of unreleased shares $ 6,886,000
=========
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) EMPLOYEE AND DIRECTOR BENEFIT PLANS, continued
On December 29, 1997, the Board of Directors of the Company approved the
1997 Stock Option Plan whereby 241,356 shares of common stock have been
reserved for employees and directors. These options will allow employees
and directors to purchase shares of common stock at a price not less than
fair market value at the date of grant and are exercisable no later than
ten years from the date of grant. All options vest at the rate of 5% of
the number of shares subject to the option as of the last day of each
calendar quarter of service commencing with the first calendar quarter
ending after the grant date.
The Company granted options to purchase 236,580 shares at an exercise
price of $39.625 per share. Options to purchase 11,829 shares were
exercisable at December 31, 1997 and no options had been exercised at that
date. The estimated fair value of the options granted in 1997 was $13.79
per share.
The Stock Option Plan is accounted for under Accounting Principles Board
Opinion No. 25 and related Interpretations. Accordingly, no compensation
cost has been recognized. Had compensation cost been determined based upon
the fair value of the options at the grant dates and in accordance with
the vesting schedule consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings and
net earnings per share as of December 31, 1997 would have been reduced to
the proforma amounts indicated below (in thousands, except per share
data).
Net earnings As reported $ 113
Proforma $ 12
Basic earnings per share As reported $ .05
Proforma $ .01
Diluted earnings per share As reported $ .05
Proforma $ .01
The fair value of each option is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions used for grants in 1997: volatility of 18%, 1.5% dividend
yield, a risk free interest rate of 5.90%, and an expected life of 10
years.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) REGULATORY MATTERS
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
assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgements by the
regulators about components, risk weightings and other factors.
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 1 capital (as defined) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined) . Management believes, as of December 31, 1997 and
1996, the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1997 and 1996, 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 1 risk-based and Tier 1 leverage ratios as set
forth in the following table. There are no conditions or events since
that notification that management believes have changed the
institution's category.
The Company's and the Bank's actual capital amounts and ratios are
presented below (in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 73,616 25.0% 23,592 8.0% N/A N/A
Bank $ 50,021 17.5% 22,850 8.0% 28,563 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $ 70,825 24.0% 11,796 4.0% N/A N/A
Bank $ 47,231 16.6% 11,425 4.0% 17,138 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $ 70,825 17.7% 16,051 4.0% N/A N/A
Bank $ 47,231 12.3% 15,332 4.0% 19,165 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 25,568 10.8% 18,912 8.0% N/A N/A
Bank $ 25,612 10.9% 18,889 8.0% 23,612 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $ 22,967 9.7% 9,456 4.0% N/A N/A
Bank $ 23,588 10.0% 9,445 4.0% 14,167 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $ 22,967 6.7% 13,724 4.0% N/A N/A
Bank $ 23,588 6.9% 13,972 4.0% 17,465 5.0%
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) REGULATORY MATTERS, continued
Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions
are based on the level of regulatory classified assets, the prior year's
net earnings, and the ratio of equity capital to total assets. At
December 31, 1997, the Bank could declare dividends up to approximately
$124,000 without prior regulatory consent.
(12) COMMITMENTS
The Bank leases certain banking facilities under operating lease
arrangements expiring through 2012. Future minimum payments required for
all operating leases with remaining terms in excess of one year are
presented below (in thousands):
Year Ending December 31,
1998 $ 265
1999 266
2000 241
2001 178
2002 114
Thereafter 670
------
$ 1,734
Total rent expense was approximately $341,000, $229,000 and $127,000 for
the years ended December 31, 1997, 1996 and 1995.
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers and to manage its cost of funds. These financial instruments
include commitments to originate first mortgage loans and to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amounts
recognized in the consolidated statements of financial condition. The
contract amounts of these instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments.
Commitments to originate first mortgage loans and to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of
a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counterparty. Collateral
typically includes residential and other real properties, automobiles,
savings deposits, accounts receivable, inventory and equipment.
Standby letters of credit are written conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. Most letters of credit extend for less than one
year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) COMMITMENTS, continued
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to originate first mortgage loans $ 181 128
Commitments to extend credit $ 33,937 20,840
Standby letters of credit $ 404 108
</TABLE>
(13) OTHER OPERATING EXPENSES
Components of other operating expenses in excess of 1% of interest and
other income for the years ended December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Advertising $ 313 470 225
Data processing expense $ 664 649 507
Office supplies $ 225 329 214
</TABLE>
(14) COMMUNITY FIRST BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
Parent company only information for 1997 is presented for the Company
since its inception in March 1997. Information as of and for the years
ended December 31, 1996 and 1995 is presented for Mutual prior to the
Conversion.
Balance Sheets
December 31, 1997 and 1996
(in thousands)
Assets
<TABLE>
<CAPTION>
1997 1996
-----------------
<S> <C> <C>
Cash and cash equivalents $ 1,149 1,327
Securities available for sale 9,019 -
Investment in subsidiaries 48,432 25,874
Due from the Bank 11,901 -
Other assets 38 223
------ ------
$ 70,539 27,424
====== ======
Liabilities and Stockholders' Equity
Subordinated debentures $ - 2,000
Accounts payable and accrued expenses 1,501 166
Stockholders' equity 69,038 25,258
------ ------
$ 70,539 27,424
====== ======
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(14) COMMUNITY FIRST BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL
INFORMATION, continued
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Dividend income from the Bank $ -- 814 752
Interest income 544 30 --
Other -- 2 --
------- ------- -------
Total income 544 846 752
------- ------- -------
Operating expenses:
Interest expense -- 145 147
Compensation expense 2,156 -- --
Other 90 55 51
------- ------- -------
Total operating expenses 2,246 200 198
------- ------- -------
Earnings (loss) before income tax benefit and equity in
undistributed earnings of subsidiaries (1,702) 646 554
Income tax benefit 576 59 67
------- ------- -------
Earnings (loss) before equity in undistributed earnings of
subsidiaries or dividends received in excess of earnings
of subsidiaries (1,126) 705 621
Dividends received in excess of earnings of subsidiaries -- (457) --
Equity in undistributed earnings of subsidiaries 1,239 -- 2,326
------- ------- -------
Net earnings $ 113 248 2,947
======= ======= =======
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(14) COMMUNITY FIRST BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL
INFORMATION, continued
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 113 248 2,947
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization 3 42 42
Dividends received in excess of earnings of
subsidiaries -- 457 --
Equity in undistributed earnings of subsidiaries (1,239) -- (2,326)
Change in other assets and liabilities 1,923 (172) (3)
-------- -------- --------
Net cash provided by operating activities 800 575 660
-------- -------- --------
Cash flows from investing activities:
Purchase of securities available for sale (6,603) -- --
Due from the Bank (11,901) -- --
Contributions of capital to the Bank (23,634) -- --
Organization costs (30) -- --
-------- -------- --------
Net cash used in investing activities (42,168) -- --
-------- -------- --------
Cash flows from financing activities:
Payments of subordinated debentures (1,100) -- --
Net proceeds from issuance of common stock 46,818 -- --
Dividends paid (666) -- --
Purchase of ESOP shares (3,862) -- --
-------- -------- --------
Net cash provided by financing activities 41,190 -- --
-------- -------- --------
Net change in cash (178) 575 660
Cash at beginning of year 1,327 752 92
-------- -------- --------
Cash at end of year $ 1,149 1,327 752
======== ======== ========
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The assumptions used in the estimation of the fair value of the
Company's financial instruments are detailed below. Where quoted prices
are not available, fair values are based on estimates using discounted
cash flows and other valuation techniques. The use of discounted cash
flows can be significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. The following
disclosures should not be considered a surrogate of the liquidation
value of the Company or its subsidiaries, but rather a good-faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination or issuance.
Cash And Cash Equivalents
For cash, due from banks, federal funds sold and interest-bearing
deposits with other banks, the carrying amount is a reasonable estimate
of fair value.
Investment Securities
Fair values for securities held to maturity and securities available for
sale are based on quoted market prices.
Other Investments
The carrying value of other investments approximates fair value.
Loans And Mortgage Loans Held For Sale
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
Deposits
The fair value of demand deposits, savings accounts, NOW accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of deposit
is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities.
Fhlb Advances
The fair value of the FHLB fixed rate borrowings are estimated using
discounted cash flows, based on the current incremental borrowing rates
for similar types of borrowing arrangements.
Subordinated Debentures
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments To Originate First Mortgage Loans, Commitments To Extend
Credit And Standby Letters Of Credit
Because commitments to originate first mortgage loans, commitments to
extend credit and standby letters of credit are made using variable
rates, the contract value is a reasonable estimate of fair value.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on many judgments. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, deferred income taxes, premises and
equipment, real estate owned and purchased core deposit intangible. In
addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------- ------------------------
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 30,284 30,284 23,097 23,097
Securities available for sale 49,492 49,492 33,927 33,927
Securities held to maturity 6,006 6,002 7,764 7,699
Other investments 2,269 2,269 2,600 2,600
Loans, net 283,602 285,461 269,834 270,435
Mortgage loans held for sale 789 789 282 282
Liabilities:
Deposits 315,531 316,364 307,756 308,235
FHLB advances 5,495 5,246 16,295 15,855
Subordinated debentures 900 885 2,000 1,947
Unrecognized financial instruments:
Commitments to originate first
mortgage loans 181 181 128 128
Commitments to extend credit 33,937 33,937 20,840 20,840
Standby letters of credit 404 404 108 108
</TABLE>
<PAGE>
MARKET FOR COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The common stock of Community First Banking Company is traded on The
Nasdaq Stock Market ("Nasdaq") under the symbol CFBC. At December 31, 1997, CFBC
had 956 shareholders of record. The following table sets forth on a per share
basis the high and low sales prices of the Company's common stock and the cash
dividends paid by the Company on a quarterly basis since July 1, 1997, the date
on which the common stock was first traded on Nasdaq.
Quarter Ended High Low Dividend
June 30, 1997 N/A N/A N/A
September 30, 1997 $37.75 $30.00 $.15
December 31, 1997 $44.50 $35.50 $.15
<PAGE>
DIRECTORS
The following individuals serve as directors of Community First Banking
Company and Community First Bank:
<TABLE>
<CAPTION>
Name Principal Occupation
---- --------------------
<S> <C>
T. Aubrey Silvey, Chairman of the Board Chairman and CEO of Aubrey
Silvey Enterprises
Gary D. Dorminey President and Chief Executive
Officer of the Company and Bank
Anna L. Berry Treasurer of Southwire Company,
a major manufacturer of wire products
Gary M. Bullock, Vice Chairman of the Board President and CEO of Carroll
Electric Membership Corporation
Jerry L. Clayton Owner of Clayton Pharmacy
Thomas E. Reeve, Jr. Retired Physician
Michael P. Steed President and Owner of Steed
Company, a manufacturer of fabric labels
Dean B. Talley Physician
Thomas S. Upchurch President of the Georgia
Partnership for Excellence in Education
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EMPLOYEES
<S> <C> <C>
Mike Adams Anyce Fox Madeline Pasch
Joy Agan Lynn Gable Linda Patterson
Doyle Akins Stacey Gable Tracey Paynter
Lealon Anderson Lytha Gibson Martha Pierce
Krista Arrington Staci Gilley Dave Pollard
Marsha Bailey Joan Graham Vickie Posey
Sharon Bailey Judy Greene Lane Poston
Denise Barrett Dave Griffin Tammy Powell
Matt Barrington Keith Hagen Wendy Prater
Teri Barrington Susan Hale Jackie Preston
Kathy Barton Stacy Hall Debbie Prince
Debbie Bates Mandy Hammond Cindy Putzek
Myra Bates Pam Hannah Christine Reeves
Deena Bauer Beth Hanson Beth Roberson
Steve Beam Melanie Hanson Kay Roberts
Patricia Bell Melissa Hardegree Jodi Rogers
LaDean Benefield Carol Harrington Vicki Rogers
Martha Blackmon Sue Hatchett Bobby Sanders
Medra Blackwell Gretel Haynes Debbie Sanders
Katherine Brannon Kay Herring Jeff Sanders
Betty Branson Freda Hickey Susan Shadrix
Lisa Brimer Jennifer Hindman Paul Shimp
Brenda Brooks Mary House Sandra Sims
Elton Brooks Pam House Kim Slaughter
Kim Brown Tammy Hulsey Deborah Smith
Carey Bruning Bryan Jenkins Kathy Smith
Claude Bryan Tina Jenkins Sandy Standish
Tammie Burns Amber Jones Gina Steenstra
Sammy Burson Tiffany Keith Martha Striplin
Barbara Burton Sandra Koch Kelly Sullivan
Ann Butler Brandi Lambert Rob Tallent
Amy Carroll Gayle Lane Brenda Taylor
Susan Chandler Lisa Lawson Sheri Taylor
Cheryl Charette Christie Ledbetter Krista Teague
Amy Coffman Janis Lee Susanne Thomas
Christy Cole Lisa Lee Niecey Thomas
Summer Colquitt Susan Lee Sonya Thomason
Judy Cooley Kristin Lehr Chuck Thompson
Mark Cooley Channa Little Kelly Thompson
Lorraine Coontz Barbara Lively Leslie Torok
Sheri Cooper Cheryl Mathis Christy Traylor
Jennifer Corn Steve McCord Edna Traylor
Marnie Cowart Cheryl McDonald Janice Turner
Render Crook Penny McDonald Susan Wade
Matt Dailey Sherryl McDonald Melanie Wagoner
Holly Daniel Renee McLarty Pam Walker
Eula Mae Deese Cyndi Meade Tommy Wallace
Jan Deese Melba Milam-Allen Melanie Ward
Steven Deese Teresa Miller Jay Warnick
Sheila Denton Sheila Moore Suzanne Washington
Sylvie DeLoach Joni Morris Jackie White
Richard Dobbs Jo Nast Bill Whorton
Gary Dorminey Larry Navarre Glenn Williams
Lori Downey Wayne Nelson Susan Williams
Donny Duggar Toni Noble Tresa Williams
Tina Ethridge Keith Nolen Natalie Wilson
Stacey Fincher Carla Paris Pam Wilson
Melissa Foster Terri Parks Becky Winkles
Sundrea Foster Glenda Parmer Sandra Worley
</TABLE>
<PAGE>
CORPORATE HEADQUARTERS
Community First Banking Company
110 Dixie Street
Carrollton, Georgia 30117
(770) 834-1071
NOTICE OF ANNUAL MEETING
The Annual Meeting of
Shareholders will be
held on Thursday, April
23, 1998, at 2:00 p.m.
at Community First
Bank, 110 Dixie Street,
Carrollton, Georgia
30117.
SHAREHOLDER SERVICE
Shareholders desiring to change the name, address, or
ownership of stock, to report lost certificates, or to
consolidate accounts, should contact the Transfer Agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
1-800-368-5948
STOCK TRADING
Community First Banking
Company common stock is
traded on The Nasdaq
Stock Market under the
symbol CFBC.
PRIMARY MARKET MAKERS
Trident Securities, Inc.
Friedman Billings Ramsey & Co.
Interstate/Johnson Lane Corporation
The Robinson Humphrey Company, Inc.
SHAREHOLDERS OF RECORD
Community First Banking
Company had 956
shareholders of record
as of December 31,
1997.
<PAGE>
ANNUAL REPORT ON FORM 10-K
The Company will furnish without charge a copy of its
Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the fiscal year ended December
31,1997, including financial statements and schedules, to
any record or beneficial owner of its common stock as of
March 20, 1998, who requests a copy of such report.
Requests should be in writing addressed to:
C. Lynn Gable
Chief Financial Officer
Community First Banking Company
110 Dixie Street
Carrollton, GA 30117
FINANCIAL INFORMATION
Analysts, investors, news media and others seeking
financial information should contact:
C. Lynn Gable
Chief Financial Officer
Community First Banking Company
110 Dixie Street
Carrollton, Georgia 30117
(770) 838-7271)
INDEPENDENT PUBLIC ACCOUNTANTS
Porter Keadle Moore LLP
Atlanta, Georgia
Community First Banking
Company and its
subsidiaries are equal
opportunity employers.
Community First Banking
is a member of the
Federal Deposit
Insurance Corporation.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 27, 1998, accompanying the consolidated
financial statements incorporated by reference in the Annual Report of Community
First Banking Company on Form 10-K for the year ended December 31, 1997. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of Community First Banking Company on Form S-8 (File No.
333-46987, effective February 27, 1998).
/s/PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001035903
<NAME> COMMUNITY FIRST BANKING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 8,104
<INT-BEARING-DEPOSITS> 1,862
<FED-FUNDS-SOLD> 17,655
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,492
<INVESTMENTS-CARRYING> 6,006
<INVESTMENTS-MARKET> 6,002
<LOANS> 284,391
<ALLOWANCE> 2,789
<TOTAL-ASSETS> 394,293
<DEPOSITS> 315,531
<SHORT-TERM> 2,550
<LIABILITIES-OTHER> 3,329
<LONG-TERM> 3,845
0
0
<COMMON> 24
<OTHER-SE> 69,014
<TOTAL-LIABILITIES-AND-EQUITY> 394,293
<INTEREST-LOAN> 26,628
<INTEREST-INVEST> 3,761
<INTEREST-OTHER> 1,064
<INTEREST-TOTAL> 34,453
<INTEREST-DEPOSIT> 14,506
<INTEREST-EXPENSE> 15,321
<INTEREST-INCOME-NET> 16,132
<LOAN-LOSSES> 2,067
<SECURITIES-GAINS> (20)
<EXPENSE-OTHER> 17,670
<INCOME-PRETAX> 85
<INCOME-PRE-EXTRAORDINARY> 85
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<YIELD-ACTUAL> 4.52
<LOANS-NON> 1,098
<LOANS-PAST> 0
<LOANS-TROUBLED> 785
<LOANS-PROBLEM> 852
<ALLOWANCE-OPEN> 2,601
<CHARGE-OFFS> 2,214
<RECOVERIES> 335
<ALLOWANCE-CLOSE> 2,789
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,789
</TABLE>
