U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
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
(770) 834-1071
-------------------------------------------------------
(Address of Principal Executive Offices and Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 10, 1999, there
were 3,282,054 shares issued and 2,614,462 shares outstanding of the
Registrant's Common Stock, par value $.01 per share.
CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Earnings for the Three and Nine Months Ended
September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Comprehensive Income for the Three and Nine
Months Ended September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
COMMUNITY FIRST BANKING COMPANY
Consolidated Balance Sheets
(In thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
(unaudited)
<S> <C> <C>
Cash and due from banks .......................................... 8,133 10,883
Interest-bearing deposits in financial institutions .............. 777 3,553
Federal funds sold ............................................... 4,720 18,300
------ ------
Cash & cash equivalents ....................................... 13,630 32,736
Securities available for sale .................................... 67,222 71,702
Securities held to maturity ...................................... 189 232
Other investments ................................................ 3,038 2,328
Mortgage loans held for sale ..................................... 59 199
Loans, net ....................................................... 283,544 264,855
Premises and equipment net ....................................... 7,561 8,160
Accrued interest receivable ...................................... 2,833 2,558
Other real estate and repossessions .............................. 582 5,479
Other assets ..................................................... 5,123 3,737
------ ------
Total assets .................................................. 383,781 391,986
======= =======
Liabilities and Stockholders' Equity
Deposits:
Demand ......................................................... 15,210 13,611
Interest-bearing demand ........................................ 56,468 52,644
Savings ........................................................ 31,005 31,630
Time ........................................................... 148,928 146,603
Time, over $100,000 ............................................ 42,863 41,449
------ ------
Total deposits .............................................. 294,474 285,937
Note payable and other borrowings ................................ 58,392 47,945
Subordinated debentures .......................................... -- 900
Payable for branch sales.......................................... -- 27,461
Accrued interest payable and other liabilities ................... 3,751 3,619
------ ------
Total liabilities ........................................... 356,617 365,862
Stockholders' Equity:
Convertible preferred stock, par value $.01, 96,542 shares issued 1 1
Common stock, $.01 par, 10,000,000 authorized, 3,282,054 issued . 33 33
Additional paid in capital ...................................... 13,776 13,481
Unearned ESOP shares and stock awards ........................... (1,956) (4,196)
Retained earnings ............................................... 27,308 26,611
Treasury stock at cost .......................................... (9,369) (9,021)
Accumulated other comprehensive income and (loss) ............... (2,629) (785)
------ ------
Total stockholders' equity .................................. 27,164 26,124
Total liabilities & stockholders' equity ....................... 383,781 391,986
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY FIRST BANKING COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In thousands of dollars - except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ...................................... 6,387 6,480 18,960 19,570
Interest-bearing deposits and federal funds sold ............... 93 419 404 1,051
Interest and dividends on investment securities:
U.S. Treasury ................................................. -- 45 89 134
U.S. Govt. agency and mortgage-backed ......................... 1,035 1,106 2,890 3,288
State, county & municipals .................................... 1 29 60 88
Other ......................................................... 70 93 228 250
----- ----- ------ ------
Total interest income ....................................... 7,586 8,172 22,631 24,381
Interest Expense:
Interest on deposits:
Demand ........................................................ 302 399 855 1,109
Savings ....................................................... 163 250 491 844
Time .......................................................... 2,578 2,951 7,788 8,772
----- ----- ------ ------
3,043 3,600 9,134 10,725
Interest on note payable and other borrowings .................... 747 758 2,415 1,700
----- ----- ------ ------
Total interest expense ................................. 3,790 4,358 11,549 12,425
----- ----- ------ ------
Net interest income ................................... 3,796 3,814 11,082 11,956
----- ----- ------ ------
Provision for loan losses ........................................ 237 226 602 561
----- ----- ------ ------
Net interest income after provision for loan losses .... 3,559 3,588 10,480 11,395
Noninterest income:
Service charges on deposits ................................... 556 810 1,702 2,280
Gain (Loss) on calls and sales of securities available for sale -- 162 46 665
Insurance commissions ......................................... 176 134 537 498
Miscellaneous ................................................. 166 221 550 731
----- ----- ------ ------
Total noninterest income ............................... 898 1,327 2,835 4,174
Noninterest expenses:
Salaries and employee benefits ................................ 1,566 1,704 4,693 5,178
ESOP and MRP expense .......................................... 379 525 2,721 2,053
Occupancy and equipment ....................................... 321 548 1,035 1,647
Deposit insurance premiums .................................... 40 45 124 137
Other operating ............................................... 861 1,011 2,725 3,340
----- ----- ------ ------
Total noninterest expense ............................... 3,167 3,833 11,298 12,355
----- ----- ------ ------
Earnings before income taxes ............................ 1,290 1,082 2,017 3,214
Income tax expense ............................................... 397 339 493 1,028
----- ----- ------ ------
Net earnings ...................................... 893 743 1,524 2,186
===== ===== ===== =====
Basic earnings per common share .................................. 0.34 0.23 0.59 0.59
Diluted earnings per common share ................................ 0.32 0.22 0.55 0.55
Dividends per common share ....................................... 0.115 0.09 0.34 0.24
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY FIRST BANKING COMPANY
Consolidated Statements of Comprehensive Income
(Unaudited - in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings ................................................................. 893 743 1,524 2,186
------- ------- ------- -------
Other comprehensive income, net of income taxes:
Unrealized gains (losses) on securities available for sale ................. (1,046) (1,935) (3,020) (1,877)
Income tax on gains (losses) ............................................... (397) (658) (1,147) (638)
------- ------- ------- -------
Unrealized gains (losses) arising during the period, net of tax .......... (649) (1,277) (1,873) (1,239)
Less: Reclassification adjustment for gains included in net earnings ....... -- 162 46 665
Income tax on reclassification on adjustments ............................. -- 55 17 226
------- ------- ------- -------
Reclassification adjustment for gains included in net earnings, net of tax -- 107 29 439
------- ------- ------- -------
Other comprehensive income .............................................. (649) (1,384) (1,844) (1,678)
------- ------- ------- -------
COMPREHENSIVE INCOME ......................................................... 244 (641) (320) 508
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY FIRST BANKING COMPANY
Consolidated Statements of Cash Flows
(Unaudited - in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
In thousands
<S> <C> <C>
Net earnings ....................................................................... 1,524 2,186
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization and accretion ......................................... 726 973
Provision for loan losses ........................................................ 602 561
Deferred income tax benefit ...................................................... 1,130 --
Gain on calls and sales of securities available for sale ......................... (46) (665)
Gain on sale of other real estate ................................................ (87) (209)
Loss (gain) on sales of premises and equipment, net .............................. (14) 23
ESOP and MRP compensation expense ................................................ 2,721 2,045
Change in:
Mortgage loans held for sale ................................................... 140 615
Accrued interest receivable .................................................... (275) 243
Other assets ................................................................... (1,386) (425)
Accrued interest payable ....................................................... 101 1,057
Other liabilities .............................................................. 31 233
------- ------
Net cash provided by (used in) operating activities ......................... 5,167 6,637
------- ------
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale ................... 8,284 46,494
Proceeds from maturities of securities held to maturity .......................... 41 3,078
Proceeds from maturities of securities available for sale ........................ 6,055 --
Purchases of other investments ................................................... (1,920) (60)
Proceeds from sales of other investments ......................................... 1,210 974
Purchases of securities available for sale ....................................... (13,052) (69,071)
Net change in loans .............................................................. (19,291) 20,745
Proceeds from sale of real estate and repossessions .............................. 4,984 1,332
Proceeds from sales of premises and equipment .................................... 90 30
Purchases of premises and equipment .............................................. (121) (1,003)
------- ------
Net cash provided by (used in) investing activities ......................... (13,720) 2,519
------- ------
Cash flows from financing activities:
Net change in demand and savings deposits ........................................ 4,798 2,282
Net change in time deposits ...................................................... 3,739 (1,857)
Payment of FHLB advances ......................................................... (26,303) (1,153)
Proceeds from FHLB advances ..................................................... 41,000 40,000
Change in payable for branch sales ............................................... (27,461) --
Payment of note payable .......................................................... (4,250) 5,000
Payment of subordinated debentures ............................................... (900) --
Treasury stock purchased ......................................................... (348) (39,219)
Cash dividend paid ............................................................... (828) (801)
------- ------
Net cash provided by financing activities .................................... (10,553) 4,252
------- ------
Net change in cash and cash equivalents ...................................... (19,106) 13,408
------- ------
Cash and cash equivalents at beginning of year ..................................... 32,736 30,284
------- ------
Cash and cash equivalents at quarter end ........................................... 13,630 43,692
======= =======
Supplemental disclosure of cash flow information:
Cash paid for:
Interest 11,448 11,369
Income taxes 400 1,250
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY FIRST BANKING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. NATURE OF BUSINESS
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 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 to a Georgia chartered state
commercial bank regulated by the Georgia Department of Banking and Finance and
concurrently changed the name of the institution to Community First Bank (the
"Bank").
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (except for
statements of financial condition on December 31, 1998, which are audited) have
been prepared in accordance with instructions to Form 10Q. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (none of which were other than normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations for the periods presented have been included. Certain
amounts in the prior year's financial statements have been reclassified to
conform with the 1999 presentation. These reclassifications had no effect on net
income. The accompanying consolidated financial statements include the accounts
of the Company and the Bank. All significant intercompany items have been
eliminated.
The results of operations for the three and nine months ended September 30, 1999
are not necessarily indicative of the results of operations that may be expected
for the year ended December 31, 1999. The accompanying consolidated financial
statements and related notes of Community First Banking Company and subsidiary
should be read in conjunction with the audited consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
NOTE 3. EARNINGS PER COMMON SHARE
On January 21, 1999, the Company's Board of Directors declared a two-for-one
common stock split to be effected in the form of a 100% stock dividend to be
distributed on February 16, 1999 to holders of record on February 1, 1999.
Accordingly, all references to common shares outstanding and per share data
throughout the consolidated financial statements (except data related to
treasury shares) have been restated to reflect the stock split.
Earnings per common share calculations for the three and nine month periods
ended September 30, 1999 and 1998 are presented based on the net earnings for
the three and nine months divided by the weighted average number of shares
outstanding, or 2,599,860 and 2,586,442 shares (three and nine months ended
September 30, 1999) and 3,206,166 and 3,700,872 shares (three and nine months
ended September 30, 1998). Diluted earnings per common share takes into account
the effect of dilution from the assumed exercise of all outstanding stock
options and awards. Diluted earnings per common share is calculated by dividing
net earnings by the average number of common shares outstanding adjusted for the
incremental shares resulting from the exercise of dilutive options during the
period, or 2,792,944 and 3,430,931 shares for the three months ended September
30, 1999 and 1998 respectively, and 2,784,643 and 3,945,215 for the nine months
ended September 30, 1999 and 1998 respectively.
NOTE 4. DIVIDENDS DECLARED
On March 18, 1999 the Board of Directors of the Company approved a cash dividend
of $.11 per share which was paid April 1, 1999 to stockholders of record on
March 18, 1999. On June 17, 1999 the Board of Directors of the Company approved
a cash diuidend of $.115 per share to be paid July 1, 1999 to stockholders of
record on June 18, 1999. On September 16, 1999 the Board of Directors of the
Company approved a cash diuidend of $.115 per share to be paid October 1, 1999
to stockholders of record on September 17, 1999.
NOTE 5. EMPLOYEE BENEFITS
On June 17 , 1999 the Compensation Committee of the Board of Directors of the
Company voted to accelerate the vesting of the Management Recognition Plan (MRP)
so that the Restricted Stock Awards be fully vested as of June 30, 1999. This
resulted in a charge to compensation expense of $1.4 million and a reduction in
unearned stock awards of the same amount.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
On September 30, 1999 the Company had total assets of $383.8 million compared to
$392.0 million at December 31, 1998. This decrease in assets of $8.2 million or
2.1% is primarily due to a decrease in cash and cash equivalents of $19.1
million (58.4%); a decrease in available for sale securities of $4.5 million
(6.2%); and a decrease in other real estate of $4.9 million (89.4%). These
decreases were partially offset by an increase in net loans of $18.7 million
(7.1%).
The decrease in available for sale securities resulted from sales by the Bank of
$7.1 million, maturities and amortization of premiums of $6.3 million, and a
mark to market decrease in value of $3.0 million. The Company received a $1.1
million cash distribution in the form of a non-taxable return of capital on
equity securities on June 25, 1999. These decreases were offset by purchases by
the Bank of $13.0 million.
The increase in loans of $18.7 million (7.1%) is primarily the result of an
increase in commercial loans of $24.0 million. This increase was partially
offset by a decrease in mortgage loans of $1.3 million, a decrease in consumer
and credit card loans of $3.8 million and an increase in the loan loss reserve
of $.2 million.
Other real estate and repossessions decreased primarily from the sale of a
parcel of undeveloped land on April 30, 1999 for $4.4 million and the sale of a
single family residence on September 22, 1999 for $298,000. No gain or loss was
recognized on either sale.
Other assets increased $1.4 million primarily from an increase in deferred tax
asset ($1.1 million) resulting from an increase in the unrealized loss on
available for sale securities.
Total deposit liabilities increased $8.5 million (3.0%) from December 31, 1998
to September 30, 1999. Certificate of deposits increased $3.7 million (2.0%)
while demand deposits and savings increased $4.8 million (4.9%). These increases
resulted primarily from offering a new certificate of deposit product, and
increased marketing efforts of demand deposit accounts through increased
advertising and employee incentives.
Note payable and other borrowings increased $10.4 million during the period
December 31, 1998 to September 30, 1999. On January 4, 1999 the Bank borrowed
$24 million from the FHLB on a daily rate credit to help fund the payable for
the sale of the Wal*Mart branches that was effective December 31, 1998. The Bank
repaid $10 million to the FHLB during the first quarter of 1999 and repaid the
remaining $14 million, of the $24 million credit borrowed on January 4, 1999,
during the three months ended June 30, 1999. During the three months ended
September 30, 1999 the bank borrowed $15 million from the FHLB Atlanta of daily
rate credit loans. On September 28, 1999 the bank converted $10 million of daily
rate credit to fixed rate credit with a two year maturity. The Company paid $4.3
million on the line of credit owed to another financial institution during the
nine months ended September 30, 1999.
Stockholders equity increased $1.0 million during the nine months ended
September 30, 1999. Additional paid in capital increased $295,000 from the
market value adjustment of the ESOP shares committed to be released.
Amortization of unearned ESOP shares and MRP awards increased equity by $2.2
million during the nine months ended September 30, 1999. As discussed in NOTE 5
of the financial statements, the MRP plan became fully vested on June 30, 1999
resulting in an increase in equity by reducing unearned stock awards by $1.4
million. The Company's Compensation Committee believes that continued
compensation expense charges against the Company's earnings over the vesting
period of the MRP negatively affects the value of the common stock and the
acceleration of the vesting will improve the future financial position of the
Company. Retained earnings increased $697,000 from earnings of $1.5 million less
dividends paid of $828,000. Treasury stock increased $348,000 from the purchase
of 17,418 shares at an average price of $19.98 per share during January 1999.
Accumulated other comprehensive loss increased $1.8 million as the result of the
market value adjustment of available for sale securities caused by a rising
interest rate environment.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
GENERAL. The Company had a net income of $893,000 for the three months ended
September 30, 1999, an increase of $150,000 over the $743,000 earned in the same
three months in 1998. This increase in income resulted primarily from lower
non-interest expenses that were caused by the sale of three Wal*Mart branches on
December 31, 1998.
NET INTEREST INCOME. Net interest income for the three months ended September
30, 1999 decreased $18,000 or 0.5% compared to the same three-month period in
1998. Total interest income decreased $586,000 or 7.2%, while interest expense
decreased $568,000 or 13.0%.
The decrease in earnings on interest bearing assets was caused by lower average
interest earning assets which decreased by $26.5 million for the three months
ended September 30, 1999 compared to the same three months average in 1998.
Interest bearing liabilities decreased $20.8 million in three months ended
September 30, 1999 compared to the same three months in 1998.
The loan portfolio mix continues to move away from residential mortgage loans
and into higher yielding commercial loans. The average balance of loans by type
for the third quarters of 1999 and 1998 were as follows:
Average Balances
Three Months Ended
September 30,
1999 1998
---- ----
(In thousands)
Mortgage loans 112,371 117,241
Consumer loans 54,921 59,053
Credit card loans 2,955 3,542
Commercial loans 110,206 87,558
------- -------
280,453 267,394
======= =======
Interest and fee income on loans decreased $93,000 or 1.4% in the third quarter
of 1999 compared to the same quarter in 1998, while the average balance of loans
increased $13.1 million or 4.9%. Interest income on federal funds sold and
interest bearing deposits decreased $326,000 or 77.8% for the three months ended
September 30, 1999 compared to the same three months of 1998. This decrease in
income on fed funds and deposits resulted from use of funds not needed for
liquidity being used to fund loans.
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 net interest rate spread for the quarters ended September 30, 1999
and 1998 was 4.27% and 3.91% respectively.
The following table presents average balances, associated rates earned and paid
for all interest earning assets and interest bearing liabilities, and variances
caused by volume and rates for the three months ended September 30, 1999 and
1998. (dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
Compared to Same Three
Months of 1998
Quarter Ended September 30, 1999 Quarter Ended September 30, 1998 Increase (Decrease) Due To
Average Interest Effective Average Interest Effective Volume Rate Total
Balance Yield Rate Balance Yield Rate Variance Variance Variance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Net 277,226 6,387 9.24% 263,986 6,480 9.85% 329 (423) (94)
Interest Bearing Deposits & FF Sold 6,537 93 5.71% 28,739 419 5.85% (327) (2) (330)
Securities 67,168 1,106 6.60% 84,687 1,273 6.03% (266) 97 (169)
- -------------------------------------------------------------------- ---------------------------------- ------------------------
350,931 7,586 8.67% 377,412 8,172 8.68% (265) (328) (592)
- -------------------------------------------------------------------- ---------------------------------- ------------------------
Demand Deposits 70,830 302 1.71% 74,536 399 2.15% (20) (78) (98)
Savings 31,563 163 2.07% 37,064 250 2.71% (38) (50) (88)
Certificates of Deposit 191,174 2,578 5.41% 204,348 2,951 5.79% (192) (185) (377)
Borrowings 51,857 747 5.78% 50,272 758 6.05% 24 (35) (11)
- -------------------------------------------------------------------- ---------------------------------- ------------------------
345,424 3,790 4.40% 366,220 4,358 4.77% (226) (348) (574)
- -------------------------------------------------------------------- ---------------------------------- ------------------------
Net interest income & spread 3,796 4.27% 3,814 3.91%
Change (18)
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $237,000 for the
three months ended September 30, 1999 compared to $226,000 for the three months
ended September 30, 1998. At September 30, 1999, the loan loss reserve was $3.1
million or 1.1% of total loans compared to $2.9 million or 1.1% of total loans
at September 30, 1998. Management deemed the allowance for loan losses adequate
at September 30, 1999.
NONPERFORMING ASSETS AND PAST DUE LOANS. Nonperforming assets, comprised of
non-accrual loans (loans on which payments are more than 90 days past due) and
other real estate owned totaled $1.3 million or .3% of total assets at September
30, 1999, and $5.9 million or 1.5% of total assets at September 30, 1998. On
April 30, 1999, the sale of a large parcel of undeveloped land, formerly
recorded as other real estate, was completed. The sales price was approximately
$4.4 million. On September 30, 1999 a single family residence formerly recorded
as other real estate was sold for $298,000. No gain or loss was recorded on
either of these sales.
OTHER INCOME. Total noninterest income decreased $429,000, or 32.3%, for the
three months ended September 30, 1999 compared to the same three months in 1998.
Service charges on deposits decreased $254,000 or 31.4% for the third quarter of
1999 verses the same period in 1998 primarily because of the reduction in demand
deposit accounts related to the sale of three Wal*Mart branches on December 31,
1998. There were no sales of securities for the three months ended September 30,
1999. During the three months ended September 30, 1998 the Bank and Company had
gains on the sale and calls of securities totaling $162,000. Income from
insurance commissions increased $42,000 or 31.3% for the three months ended
September 30, 1999 versus the same three months in 1998. The increase in
insurance commissions results primarily from the insurance commissions earned by
insurance agency subsidary of the Bank. Miscellaneous income decreased $55,000
for the quarter ended September 30, 1999 compared to the same three months in
1998 primarily because of the sale of the three Wal*Mart branches on December
31, 1998.
NONINTEREST EXPENSES. Total noninterest expenses decreased $666,000 or 17.4% for
the three months ended September 30, 1999 as compared to the same three months
in 1998. Salaries, occupancy and other operating expense were lower for the
three months ended September 30, 1999 compared to the same three months of 1998
because of the sale of three Wal*Mart branches on December 31, 1998 in addition
to the continuation of cost saving measures initiated during 1998. ESOP and MRP
expense was lower for the three months ended September 30, 1999 compared to the
same three months of 1998 because the MRP shares were fully vested at June 30,
1999 as mentioned in note 5 above of the financial statements. Normal
amortization of the MRP expense prior to fully vesting the shares on June 30,
1999 was $103,000 per quarter. ESOP expense was lower because the average market
value of the Company's stock was lower during the three months ended September
30, 1999 ($19.03) compared to the same three months of 1998 ($21.26).
INCOME TAXES. Income tax expense for the quarter ended September 30, 1999 was
$397,000 (30.8%) on a pretax income of $1,290,000. The Company uses marginal
federal and state tax rate of 37.96%. The Bank uses a combined rate of 34%
applied to financial income adjusted for any permanent differences between
financial and taxable income. The Bank generates state business license and
occupation tax credits against state income tax. The bank currently has business
and occupation tax carry forward credits so that no state taxes are due for the
current year so no amount is added to the 34% federal tax rate for the Bank.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
GENERAL. Net earnings totaled $1.5 million for the nine months ended September
30, 1999, a decrease of 30.3% from the $2.2 million earned in the same nine
month period in 1998. This decrease is primarily the result of the recognition
of the remaining unamortized MRP expense ($1.4 million) in the quarter ended
June 30, 1999. The MRP shares were originally to vest at a rate of five percent
(5%) per quarter beginning with the quarter ended March 31, 1998. The
Compensation Committee of the Company believes that acceleration of the vesting
of the MRP shares will improve the future financial position of the Company and
will not affect the Company's ability to retain the services of the employees
and directors who received the awards. Net interest income decreased $874,000 or
7.3%. Non-interest income decreased $1.3 million or 32.1% and non-interest
expense decreased $1.1 million or 8.6%. These and other significant fluctuations
are discussed below.
NET INTEREST INCOME. Total interest income decreased $1.8 million or 7.2%, and
total interest expense decreased $876,000 or 7.1% for the nine months ended
September 30, 1999 compared to the same nine months in 1998. The following is a
rate volume analysis for the nine months ended September 30, 1999 and 1998
showing the average balances, yields and variances caused by volume and yields.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999 Compared
Nine Months Ended Nine Months Ended to Same Nine Months of 1998
September 30, 1999 September 30, 1998 Increase (Decrease) Due To
Average Interest Effective Average Interest Effective Volume Rate Total
Balance Yield Rate Balance Yield Rate Variance Variance Variance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Net 271,758 18,960 9.33% 270,066 19,570 9.69% 123 (733) (610)
Interest Bearing Deposits & FF Sold 10,356 404 5.22% 24,338 1,051 5.77% (604) (43) (647)
Securities 69,015 3,267 6.33% 82,415 3,760 6.10% (611) 118 (493)
- ---------------------------------------------------------------- ------------------------------- -------------------------------
351,129 22,631 8.62% 376,819 24,381 8.65% (1,662) (88) (1,750)
- ---------------------------------------------------------------- ------------------------------- -------------------------------
Demand Deposits 68,263 855 1.67% 72,175 1,109 2.05% (60) (194) (254)
Savings 31,908 491 2.06% 38,359 844 2.94% (142) (211) (353)
Certificates of Deposit 191,079 7,788 5.45% 204,549 8,772 5.73% (578) (406) (984)
Borrowings 57,077 2,415 5.66% 38,736 1,700 5.87% 805 (90) 715
- ---------------------------------------------------------------- ------------------------------- -------------------------------
348,327 11,549 4.43% 353,819 12,425 4.70% (193) (683) (876)
- ---------------------------------------------------------------- ------------------------------- -------------------------------
Net interest income & spread 11,082 4.18% 11,956 3.96%
Change in net interest income (874)
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $602,000 for the
nine months ended September 30, 1999 compared to $561,000 for the nine months
ended September 30, 1998. This increase has been deemed appropriate by
management to reflect the higher risk associated with the change in loan
portfolio mix to a higher percentage of commercial loans as previously
discussed.
OTHER INCOME. Total noninterest income decreased $1.3 million, or 32.1%, for the
nine months ended September 30, 1999 versus the same nine months in 1998.
Service charges on deposits decreased $578,000 or 25.4% primarily, as a result
of the sale of the three Wal*Mart branches on December 31, 1998. Gains on sales
of securities were only $46,000 for the nine months ended September 30, 1999
compared to $665,000 in the same nine months of 1998. The gains on sale of
securities available for sale in the nine months ended September 30, 1999 were
gains recognized on securities sold to shorten the securities portfolio maturity
and increase yields by purchasing new higher yielding investments. Gains on the
sales and calls of available for sale securities for the nine months ended
September 30, 1998 were from the sale of equity securities owned by the Company
and the sale and call of securities owned by the Bank. The Company's investments
were sold to help fund the purchase of a block of 238,700 shares of the
Company's common stock on June 2, 1998. Income from insurance commissions
increased $39,000 for the first nine months of 1999 compared to the same nine
months of 1998 because of the insurance subsidary of the Bank. Miscellaneous
income decreased $181,000 or 24.8% primarily from less gains recognized on sales
of real estate for the nine months ended September 30, 1999 compared to the same
nine months in 1998. Gains on sales of real estate totaled $197,000 for the nine
months ended September 30, 1998 and $96,000 for the same period in 1999.
NONINTEREST EXPENSES. Total noninterest expense decreased $1.1 million or 8.6%
for the nine months ended September 30, 1999 as compared to the same nine months
in 1998. This decrease is primarily the result of reduced expenses caused by the
sale of three Wal*Mart branches on December 31, 1998. Salaries and employee
benefits were $485,000 less (9.4%) for the nine months ended September 30, 1999
compared to the same nine months of 1998. ESOP and MRP expense was $668,000
higher for the first nine months of 1999 compared to the same period in 1998.
This was caused by the accelerated vesting of the MRP shares on June 30, 1999 as
discussed in Note 5 of the Financial Statements above. The increase in MRP
expense in 1999 was partially offset by a decrease in ESOP expense of $475,000
for the nine months ended September 30, 1999 compared to the same nine months of
1998. This decrease in ESOP expense was the result of a lower average stock
price for the Company's stock for the first nine months of 1999 ($20.02)
compared to the same nine months of 1998 ($22.23), and fewer ESOP shares vesting
in the first nine months of 1999 (29,403 shares) compared to the number of ESOP
shares vested in the same nine months of 1998 (36,894 shares). Occupany and
equipment expense decreased $612,000 or 37.2% because of the sale of the
Wal*Mart branches on December 31, 1998. Deposit insurance premiums decreased
slightly ($13,000) because of the lower deposit balances caused by the Wal*Mart
branch sales. Other operating expense decreased $615,000 or 18.4% for the nine
months ended September 30, 1999 compared to the same nine months in 1998 because
of the Wal*Mart branch sales and reduced cost of carrying other real estate
which was sold in the first nine months of 1999.
INCOME TAXES. Income tax expense for the nine months ended September 30, 1999
was $493,000 or 24.4% of income before tax and $1.0 million or 31.9% of income
before tax for the same nine month period in 1998. The difference between these
rates and the statutory rate is the result of interest income on tax exempt
securities and the dividend received deduction on some preferred stock
dividends. Because the income from these permanent differences between book and
tax income is such a high percentage of the total income (because of the
recognition of the MRP expense in June of 1999) the tax as a percent of pretax
income is low compared to statutory rates. The fact that the Bank has state tax
credit carry forwards (as discussed in the results of operations for the three
months ended September 30, 1999) also contributes to a lower income tax rate as
a percent of pretax income.
LIQUIDITY AND CAPITAL RESOURCES. The Company's liquidity, represented by cash
and cash equivalents, is a product of its operating, investing and financing
activities. The Company's primary sources of funds are deposits, amortization,
prepayments and maturities of outstanding loans, maturities of investment
securities, mortgage-backed securities and other short-term investments and
funds provided from operations. While scheduled loan amortization and maturing
investment securities, mortgage-backed securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. The Company manages the pricing of its deposits to maintain a
steady deposit balance. In addition, the Company invests excess funds in
overnight deposits and other short-term interest-earning assets which provide
liquidity to meet lending requirements. The Company has generally been able to
generate enough cash through the retail deposit market, its traditional funding
source, to offset the cash utilized in investing activities. As an additional
source of funds, the Bank may borrow from the FHLB of Atlanta. At September 30,
1999, the Bank had outstanding advances from the FHLB of Atlanta in the amount
of $57.6 million. Such advances were used in the Bank's normal operations and
investing activities.
As of September 30, 1999 the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At September 30, 1999, the Bank's total
risk-based capital, tier 1 risk-based capital and tier 1 leverage ratios
amounted to 10.11%, 9.09% and 7.41%, respectively, compared to regulatory
requirements of 8.0%, 4.0% and 4.0%, respectively.
YEAR 2000 ISSUES. The Company continues to review the many areas affected by the
Year 2000 computer issue. The Year 2000 Plan (Plan) tasks, approved by the Board
of Directors, which addresses whether our computer, communications and other
operating systems will operate accurately after December 31, 1999 are
substantially complete. The Plan addressed internal and external interfaces with
third party computer systems that communicate with our system as well as other
risks associated with the date change. A committee, chaired by a member of
senior management, has monitored compliance with the Plan.
The Federal Financial Institutions Examination Council (FFIEC) established key
milestones for completion of Year 2000 testing and implementation. The Company's
status toward meeting those milestones are as follows:
06/30/98 Institutions should complete the development of written testing
strategies and plans. 100% COMPLETE
09/01/98 Testing of internal mission-critical systems should have started.
100% COMPLETE
12/31/98 Testing of internal mission-critical systems should be
substantially complete. Service providers should be ready to test with
customers. 100% COMPLETE (Service providers have completed proxy testing of
mission critical systems)
03/31/99 Testing with service providers should be substantially complete.
Testing with other third parties should be underway. 100% COMPLETE
06/30/99 Testing and implementation of all mission-critical systems should
be complete. 100% COMPLETE
The original budget for expenses associated with Year 2000 upgrades and
implementation has remained feasible. All mission critical hardware and software
necessary to bring the Company into Y2K compliance has been purchased and
tested. All of this equipment has been installed.
Management continues the review of all of the Bank's significant commercial loan
relationships to determine how much Y2K risk may exist in the Bank's customer
base. To the extent that such risk is identified, management will request such
customers to develop their own compliance strategy and will require those
customers to keep us informed of their progress. Management's current plans are
to help the Bank's customers understand the risks involved, to share the Bank's
strategies and to encourage those customers to satisfy their compliance
requirements on time lines that are consistent with those of the Bank. The
Bank's loan agreements and credit review processes have been modified to address
this risk. The Bank's contingency plans for customers who fail to adequately
address this risk may include but will not be limited to requiring such
customers to pay off their loans. The risk evaluation of these larger credits
has been reported to the Board of Directors and the Asset Review Committee.
As part of its normal business practices, the Company maintains contingency
plans in the event of emergency situations, some of which could arise from Y2K
related problems. The Company has formulated a detailed Y2K contingency plan
which assesses several possible scenarios to which the Company may be required
to react. However, the Company believes that it is not possible to know with
complete certainty all Y2K problems that could affect the Company.
The most reasonable likely worst case Y2K scenario would be one in which
electrical service or phone service is disrupted for an extended period of time.
As noted above, the Company's computer hardware and software, its commercial
customer risk and its third party vendors/supplier risk evaluation is
progressing as planned. However, the Company cannot accurately predict how many
failures related to the Y2K problem will occur with its suppliers, customers or
other third parties or the severity, duration or financial consequences of such
failures. As a result, it is possible the Company could suffer the following
consequences:
o A number of operational inconveniences and inefficiencies for the
Company, its service providers or its customers that may divert the
Company's time and attention and financial and human resources from
its ordinary business activities.
o System malfunctions that may require significant efforts by the
Company, its service providers or its customers to prevent or
alleviate material business disruptions.
Even if the Company does not incur significant costs in connection with
responding to Y2K issues, there can be no assurance that the failure or delay of
the Company's customers, vendors or other third parties in addressing these
issues or the costs involved in such process will not have a material adverse
effect on the Company's business, financial condition and results of operations.
The foregoing are forward-looking statements reflecting management's current
assessments and estimates with respect to the Company's Y2K compliance efforts
and the impact of Y2K issues on the Company's business and operations. Various
factors could cause actual plans and results to differ materially from those
contemplated by such assessments, estimates and forward-looking statements, many
of which are beyond the control of the Company. Some of these factors include,
but are not limited to, representations by the Company's vendors and customers,
technological advances, economic considerations and consumer perceptions. The
Y2K compliance program is an ongoing process involving continual evaluation and
may be subject to change in response to new developments.
The Company has also been subject to regulatory review of its overall Year 2000
Plan and will continue to be monitored by its regulators for its progress.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There was no material change for the three and nine months ended September 30,
1999 in the information about the Company's "Quantitative and Qualitative
Disclosures About Market Risk" as disclosed in the Form 10-K for the fiscal year
ended December 31, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
COMMUNITY FIRST BANKING COMPANY
Date: November 12, 1999 /s/ Gary D. Dorminey
----------------------
Gary D. Dorminey
President
(Principal Executive Officer)
Date: November 12, 1999 /s/ C. Lynn Gable
-------------------
C. Lynn Gable
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,133
<INT-BEARING-DEPOSITS> 777
<FED-FUNDS-SOLD> 4,720
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,222
<INVESTMENTS-CARRYING> 189
<INVESTMENTS-MARKET> 190
<LOANS> 283,603
<ALLOWANCE> 3,083
<TOTAL-ASSETS> 383,781
<DEPOSITS> 294,474
<SHORT-TERM> 6,350
<LIABILITIES-OTHER> 3,751
<LONG-TERM> 42,107
0
1
<COMMON> 33
<OTHER-SE> 27,130
<TOTAL-LIABILITIES-AND-EQUITY> 383,781
<INTEREST-LOAN> 18,960
<INTEREST-INVEST> 3,267
<INTEREST-OTHER> 404
<INTEREST-TOTAL> 22,631
<INTEREST-DEPOSIT> 9,134
<INTEREST-EXPENSE> 11,549
<INTEREST-INCOME-NET> 11,082
<LOAN-LOSSES> 602
<SECURITIES-GAINS> 46
<EXPENSE-OTHER> 11,298
<INCOME-PRETAX> 2,017
<INCOME-PRE-EXTRAORDINARY> 2,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,524
<EPS-BASIC> .59
<EPS-DILUTED> .55
<YIELD-ACTUAL> 0
<LOANS-NON> 760
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 442
<ALLOWANCE-OPEN> 2,880
<CHARGE-OFFS> 630
<RECOVERIES> 231
<ALLOWANCE-CLOSE> 3,083
<ALLOWANCE-DOMESTIC> 3,083
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
