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 June 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 July 26, 1999, there were
3,282,054 shares issued and 2,599,860 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 June 30, 1999 (unaudited) and December
31, 1998
Consolidated Statements of Earnings for the Three and Six Months Ended June
30, 1999 and 1998 (unaudited)
Consolidated Statements of Comprehensive Income for the Three and Six
Months Ended June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the Six Months Ended June 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>
June 30, December 31,
Assets 1999 1998
(unaudited)
<S> <C> <C>
Cash and due from banks ........................... 11,531 10,883
Interest-bearing deposits in financial institutions 3,857 3,553
Federal funds sold ................................ 5,030 18,300
-------- --------
Cash & cash equivalents ........................ 20,418 32,736
Securities available for sale ..................... 62,966 71,702
Securities held to maturity ....................... 202 232
Other investments ................................. 1,029 2,328
Mortgage loans held for sale ...................... 521 199
Loans, net ........................................ 271,425 264,855
Premises and equipment net ........................ 7,844 8,160
Accrued interest receivable ....................... 2,608 2,558
Other real estate and repossessions ............... 855 5,479
Other assets ...................................... 5,240 3,737
-------- --------
Total assets ...................................... 373,108 391,986
======== ========
Liabilities and Stockholders' Equity
Deposits:
Demand .......................................... 18,646 13,611
Interest-bearing demand ......................... 54,187 52,644
Savings ......................................... 31,872 31,630
Time ............................................ 150,135 146,603
Time, over $100,000 ............................. 42,019 41,449
-------- --------
Total deposits ............................... 296,859 285,937
Note payable and other borrowings ................. 45,457 47,945
Subordinated debentures ........................... 900 900
Payable for branch sales .......................... - 27,461
Accrued interest payable and other liabilities .... 2,925 3,619
-------- --------
Total liabilities ............................ 346,141 365,862
-------- --------
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 ....................... 13,740 13,481
Unearned ESOP shares and stock awards ............ (2,153) (4,196)
Retained earnings ................................ 26,695 26,611
Treasury stock at cost ........................... (9,369) (9,021)
Accumulated other comprehensive income and (loss) (1,980) (785)
-------- --------
Total stockholders' equity ................... 26,967 26,124
-------- --------
Total liabilities & stockholders' equity ......... 373,108 391,986
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In thousands of dollars - except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans 6,322 6,485 12,574 13,090
Interest-bearing deposits and federal funds sold 131 268 310 632
Interest and dividends on investment securities:
U.S. Treasury 44 45 89 90
U.S. Govt. agency and mortgage-backed 918 1,315 1,855 2,182
State, county & municipals 29 29 58 59
Other 68 79 157 157
------------------- -----------------------
Total interest income 7,512 8,221 15,043 16,210
------------------- -----------------------
Interest Expense:
Interest on deposits:
Demand 281 356 553 710
Savings 163 295 328 595
Time 2,611 2,921 5,209 5,822
------------------- -----------------------
3,055 3,572 6,090 7,127
------------------- -----------------------
Interest on note payable and other borrowings 711 678 1,668 942
------------------- -----------------------
Total interest expense 3,766 4,250 7,758 8,069
------------------- -----------------------
------------------- -----------------------
Net interest income 3,746 3,971 7,285 8,141
------------------- -----------------------
Provision for loan losses 192 182 364 335
------------------- -----------------------
Net interest income after provision for loan losses 3,554 3,789 6,921 7,806
---------------------------------------------
Noninterest income:
Service charges on deposits 564 773 1,145 1,470
Gain (Loss) on sales and calls of securities
available for sale 46 452 46 503
Insurance commissions 166 112 361 364
Miscellaneous 141 321 385 510
------------------- -----------------------
Total noninterest income 917 1,658 1,937 2,847
------------------- -----------------------
Noninterest expenses:
Salaries and employee benefits 1,574 1,901 3,127 3,751
ESOP and MRP expense 1,973 825 2,343 1,250
Occupancy and equipment 340 539 714 1,098
Deposit insurance premiums 39 46 84 92
Other operating 879 1,045 1,864 2,329
------------------- -----------------------
Total noninterest expense 4,805 4,356 8,132 8,520
------------------- -----------------------
Earnings (loss) before income taxes (334) 1,091 726 2,133
Income tax expense (benefit) (201) 355 96 690
------------------- -----------------------
Net earnings (loss) (133) 736 630 1,443
=================== =======================
Basic earnings (loss) per share (.05) .19 .24 .36
Diluted earnings (loss) per share (.05) .18 .23 .34
Dividends per common share .115 .075 .225 .15
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY
Consolidated Statements of Comprehensive Income
(Unaudited - in thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings (133) 736 630 1,443
------------------------ ----------------------
Other comprehensive income, net of income taxes:
Unrealized gains (losses) on securities available for sale (1,569) (1,300) (1,974) 562
Income tax on gains (losses) (596) (442) (750) 191
------------------------ ----------------------
Unrealized gains (losses) arising during the period, net of tax (973) (858) (1,224) 371
------------------------ ----------------------
Less: Reclassification adjustment for gains included in net earnings 46 452 46 503
Income tax on reclassification on adjustments 17 154 17 171
------------------------ ----------------------
Reclassification adjustment for gains included in net earnings, net of tax 29 298 29 332
------------------------ ----------------------
Other comprehensive income (944) (560) (1,195) 39
------------------------ ----------------------
COMPREHENSIVE INCOME (1,077) 176 (565) 1,482
======================== ======================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY
Consolidated Statements of Cash Flows
(Unaudited - in thousands of dollars)
Six Months Ended
June 30,
1999 1998
---- ----
In thousands
<S> <C> <C>
Net earnings 630 1,443
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 538 768
Provision for loan losses 364 335
Deferred income tax benefit 644
Gain on calls and sales of securities available for sale (46) (503)
Gain on sale of other real estate (58) (178)
Loss (gain) on sales of premises and equipment, net (14) 27
ESOP and MRP compensation expense 2,339 1,264
Change in:
Mortgage loans held for sale (323) 80
Accrued interest receivable (51) (432)
Other assets (1,506) (571)
Accrued interest payable (7) 528
Other liabilities (687) 154
-------------------------
Net cash provided by operating activities 1,823 2,915
-------------------------
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale 8,284 16,301
Proceeds from maturities of securities held to maturity 29 109
Proceeds from maturities of securities available for sale 4,685
Proceeds from sales of other investments 619
Purchases of other investments (1,075) 60
Proceeds from sales of other investments 1,210
Purchases of securities available for sale (4,998) (56,934)
Net change in loans (6,932) 15,770
Proceeds from sale of real estate and repossessions 4,682 717
Proceeds from sales of premises and equipment 15 27
Purchases of premises and equipment (120) (738)
-------------------------
Net cash provided by (used in) investing activities 5,780 (24,069)
-------------------------
Cash flows from financing activities:
Net change in demand and savings deposits 6,820 3,050
Net change in time deposits 4,103 (3,082)
Payment of FHLB advances (24,238) (1,088)
Proceeds from FHLB advances 24,000 40,000
Change in payable for branch sales (27,461)
Payment of note payable (2,250) 5,000
Treasury stock purchased (348) (25,397)
Cash dividend paid (547) (548)
-------------------------
Net cash provided by (used in) financing activities (19,921) 17,935
-------------------------
Net change in cash and cash equivalents (12,318) (3,219)
Cash and cash equivalents at beginning of year 32,736 30,284
-------------------------
Cash and cash equivalents at quarter end 20,418 27,065
=========================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---- ----
In thousands
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for:
Interest 7,766 7,540
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 six months ended June 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 six month periods ended
June 30, 1999 and 1998 are presented based on the net earnings for the three and
six months divided by the weighted average number of shares outstanding, or
2,579,758 and 2,579,013 shares (three and six months ended June 30, 1999) and
3,795,864 and 3,955,122 shares (three and six months ended June 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 2,802,126
and 4,064,438 shares for the three months ended June 30, 1999 and 1998
respectively, and 2,788,380 and 4,208,648 for the six months ended June 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.
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 by the same amount.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998
On June 30, 1999 the Company had total assets of $373.1 million compared to
$392.0 million at December 31, 1998. This decrease in assets of $18.9 million or
4.8% is primarily due to a decrease in cash and cash equivalents of $12.3
million (37.6%); a decrease in available for sale securities of $9.9 million
(13.8%); and a decrease in other real estate of $4.6 (84.4%) million. These
decreases were partially offset by an increase in net loans of $6.6 million
(2.5%).
The decrease in available for sale securities resulted from sales by the Bank of
$7.2 million, maturities of $4.7 million, and a mark to market decrease in value
of $1.9 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 $5 million.
The increase in loans of $6.6 million (2.5%) is primarily the result of an
increase in commercial loans of $11.2 million partially offset by a decrease in
mortgage loans of $3.9 million, a decrease in credit card loans of $.5 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. The sales price was approximately
$4.4 million and no gain or loss was recognized on the sale.
Other assets increased $1.5 million primarily from an increase in deferred tax
asset ($733,000) resulting from an increase in the unrealized loss on available
for sale securities, and an increase in receivables ($475,000) due from the sale
of three Wal*Mart branches on December 31, 1998. This receivable was funded to
the Bank on July 2, 1999.
Total deposit liabilities increased $10.9 million (3.8%) from December 31, 1998
to June 30, 1999. Certificate of deposits increased $4.1 million (2.2%) while
demand deposits and savings increased $6.8 million (9.9%). 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 decreased $2.5 million during the period
December 31, 1998 to June 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. The Company paid $2.3 million on
the line of credit owed to another financial institution during the six months
ended June 30, 1999.
Stockholders equity increased $843,000 during the six months ended June 30,
1999. Additional paid in capital increased $259,000 from the market value
adjustment of the ESOP shares committed to be released. Amortization of unearned
ESOP shares and MRP awards increased equity by $2.0 million during the six
months ended June 30, 1999. On June 17 , 1999 the Compensation Committee (the
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 by
the same amount. The 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 $84,000 from earnings of $630,000 less dividends paid of
$546,000. Treasury stock increased $348,000 from the purchase of 17,418 shares
at an average price of $19.98 per share during the six months ended June 30,
1999. Accumulated other comprehensive loss increased $1.2 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 JUNE 30, 1999 AND
1998
GENERAL. The Company had a net loss of $133,000 for the three months ended June
30, 1999, a decrease of $869,000 over the $736,000 earned in the same three
months 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. Had the additional MRP expense not been
recognized in the quarter ended June 30, 1999 the quarterly earnings would have
been $763,000. This would have been an increase of $27,000 (3.7%) over the same
three months in 1998.
NET INTEREST INCOME. Net interest income for the three months ended June 30,
1999 decreased $225,000 or 5.7% compared to the same three-month period in 1998.
Total interest income decreased $709,000 or 8.6%, while interest expense
decreased $484,000 or 11.4%. The decrease in earnings on interest bearing assets
was caused by lower average interest earning assets which decreased by $42.3
million for the three month ended June 30, 1999 compared to the same three
months average in 1998. Interest bearing liabilities decreased $20.6 million in
three months ended June 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 second quarters of 1999 and 1998 were as follows:
Average Balances
Three Months Ended
June 30,
1999 1998
---- ----
(In thousands)
Mortgage loans 113,040 115,189
Consumer loans 54,275 61,508
Credit card loans 3,145 3,718
Commercial loans 101,859 92,247
------- -------
272,319 272,662
======= =======
Interest and fee income on loans decreased $163,000 or 2.5% in the second
quarter of 1999 compared to the same quarter in 1998, while the average balance
of loans decreased $2.9 million or 1.06%. Interest income on federal funds sold
and interest bearing deposits decreased $137,000 or 51.1% for the three months
ended June 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 applied to reduce debt of the Bank and Company.
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 June 30, 1999 and
1998 was 4.02% and 3.52% respectively. This 50 basis point increase in the
spread resulted primarily from the lower rates paid on all deposits. This was
offset by a decrease in rates earned on interest bearing assets. Average yields
paid on total funding sources decreased by 29 basis points for the quarter ended
June 30, 1999 compared to the same quarter in 1998, and average rates earned on
interest bearing assets increased by 21 basis points.
The following table presents average balances and associated rates earned and
paid for all interest earning assets and interest bearing liabilities for the
three months ended June 30, 1999 and 1998. (dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended June 30, 1999 Quarter ended June 30, 1998
Average Interest Effective Average Interest Effective
Balance Yield Rate Balance Yield Rate
<S> <C> <C> <C> <C> <C> <C>
Loans Net 266,952 6,322 9.50% 269,818 6,485 9.64%
Interest Bearing Deposits & FF Sold 10,318 131 5.09% 19,037 268 5.65%
Securities 71,082 1,059 5.98% 101,783 1,468 5.78%
- ---------------------------------------------------------------------------- ----------------------------------------
348,352 7,512 8.65% 390,638 8,221 8.44%
- ---------------------------------------------------------------------------- ----------------------------------------
Demand Deposits 52,117 281 2.16% 56,382 356 2.53%
Savings 32,045 163 2.04% 38,998 295 3.03%
Certificates of Deposit 192,469 2,611 5.44% 204,154 2,921 5.74%
Borrowings 49,542 711 5.76% 47,192 678 5.76%
- ---------------------------------------------------------------------------- ----------------------------------------
326,173 3,766 4.63% 346,726 4,250 4.92%
- ---------------------------------------------------------------------------- ----------------------------------------
Net interest income & spread 3,746 4.02% 3,971 3.52%
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $192,000 for the
three months ended June 30, 1999 compared to $182,000 for the three months
ended June 30, 1998. At June 30, 1999, the loan loss reserve was $3.1 million
or 1.1% of total loans compared to $2.8 million or 1.0% of total loans at June
30, 1998. Management deemed the allowance for loan losses adequate at June 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 $2.1 million or .5% of total assets at June 30,
1999, and $6.9 million or 1.7% of total assets at June 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 and
no gain or loss was recorded on the sale.
OTHER INCOME. Total noninterest income decreased $741,000, or 44.7%, for the
three months ended June 30, 1999 versus the same three months in 1998. Service
charges on deposits decreased $209,000 or 27.0% for the second 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. Gains on sales of securities available for sale decreased by $406,000 for
the three months ended June 30, 1999 compared to the same three months in 1998.
The securities sold in the three months ended June 30, 1998 were sales of equity
securities with gains totaling $452,000 which were owned by the Company and sold
to help fund the purchase of a block of 238,700 shares of the Company's common
stock on June 2, 1998. The gains on sale of securities available for sale in the
same three months of 1999 were gains recognized on securities sold to shorten
the securities portfolio maturity and increase yields by purchasing new higher
yielding investments. Income from insurance commissions increased $54,000 or 54%
for the three months ended June 30, 1999 versus the same three months in 1998.
The increase in insurance commissions results primarily from the insurance
subsidary of the Bank. Miscellaneous income decreased $180,000 for the quarter
ended June 30, 1999 compared to the same three months in 1998 primarily because
the recognition of the gain on sale of other real estate owned totaling $172,000
in the three months ended June 30, 1998. There were no gains on sale of real
estate in the same three months of 1999.
NONINTEREST EXPENSES. Total noninterest expenses increased $449,000 or 10.3% for
the three months ended June 30, 1999 as compared to the same three months in
1998. This increase was primarily the result of the MRP shares being fully
vested at June 30, 1999 and the related expense recorded in the second quarter
of 1999. During the three months ended June 30, 1998 the Company allocated
17,586 shares of stock to the employee ESOP accounts rather than the normal
9,654 shares per quarter. This caused ESOP expense in the second quarter of 1998
to be increased by $371,000 above what it would have been for the quarter had
the normal allocation shares been allocated. Salaries, occupancy and other
operating expense were lower for the three months ended June 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.
INCOME TAXES. Income tax benefit for the quarter ended June 30, 1999 was
$201,000 on a pretax loss of $334,000. This large benefit results from a
marginal federal and state tax rate of 37.96% being used by the parent which
recorded the MRP expense during the three months ended June 30, 1999. 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 SIX MONTHS ENDED JUNE 30, 1999 AND
1998
GENERAL. Net earnings totaled $630,000 for the six months ended June 30, 1999, a
decrease of 56.3% from the $1.4 million earned in the same six-month period in
1998. This decrease is primarily the result of the recognition of the remaining
unamortized MRP expense ($1.4 million) at June 30, 1999 which was discussed in
the results of operations for the three months ended June 30. Net interest
income decreased $885,000 or 11.3%. Non-interest income decreased $910,000 or
32.0% and non-interest expense decreased $388,000 or 4.6%. These and other
significant fluctuations are discussed below.
NET INTEREST INCOME. Total interest income decreased $1.2 million or 7.2%, and
total interest expense decreased $311,000 or 3.9% for the six months ended June
30, 1999 compared to the same six months in 1998. The following is a rate volume
analysis for the six months ended June 30, 1999 and 1998 showing the average
balances, yields and variances caused by volume and yields.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
Compared To Same Six Months in 1998
Six Months ended June 30, 1999 Six Months ended June 30, 1998 Increase (Decrease) due to change in
Average Interest Effective Average Interest Effective Volume Rate Total
Balance Yield Rate Balance Yield Rate Variance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Net 269,321 12,574 9.41% 273,865 13,090 9.64% (217) (299) (516)
Interest Bearing Deposits 12,266 310 5.10% 22,137 632 5.76% (282) (40) (322)
Securities 72,840 2,159 5.98% 83,634 2,488 6.00% (321) (8) (329)
- --------------------------------------------------------- --------------------------------- --------------------------------
354,427 15,043 8.56% 379,636 16,210 8.61% (1,076) (91) (1,167)
- --------------------------------------------------------- --------------------------------- --------------------------------
Demand Deposits 51,562 553 2.16% 55,144 710 2.60% (46) (111) (157)
Savings 32,081 328 2.06% 39,007 595 3.08% (106) (161) (267)
Certificates of Deposit 191,030 5,209 5.50% 204,649 5,822 5.74% (387) (226) (613)
Borrowings 59,687 1,668 5.64% 32,969 942 5.76% 763 (37) 726
- --------------------------------------------------------- --------------------------------- --------------------------------
334,360 7,758 4.68% 331,769 8,069 4.90% 63 (374) (311)
- --------------------------------------------------------- --------------------------------- --------------------------------
Net interest income & spread 7,285 3.88% 8,141 3.71%
Change In Net Interest Income(856)
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $364,000 for the
six months ended June 30, 1999 compared to $335,000 for the six months ended
June 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 $910,000, or 32.0%, for the six
months ended June 30, 1999 versus the same six months in 1998. Service charges
on deposits decreased $325,000 or 22.1% primarily, as a result of the sale of
the three Wal*Mart branches on December 31, 1998. Gains on sales of securities
were lower in the six months ended June 30, 1999 compared to the same six months
in 1998. These gains were discussed in the results operations for the three
months ended June 30, 1999. Miscellaneous income decreased $125,000 or 24.5%
primarily from less gains recognized on sales of real estate for the six months
end June 30, 1999 compared to the same six months in 1998. Gains on sales of
real estate totaled $184,000 for the six months ended June 30, 1998 and $68,000
for the same period in 1999.
NONINTEREST EXPENSES. Total noninterest expense decreased $388,000 or 4.6% for
the six months ended June 30, 1999 as compared to the same six 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 and a reduction in ESOP expense for
the six months ended June 30, 1999, as discussed in the results of operations
for the three months ended June 30, 1999. The reduction of expenses associated
with the sale of the Wal*Mart branches and lower ESOP expense in the six months
ended June 30, 1999 were partially offset by the increase in MRP expense ($1.4
million) discussed in the results of operations for the three months ended June
30, 1999 above. Salaries and employee benefits decreased $624,000 (16.6%)and
occupancy and equipment expense decreased $384,000 (35.0%) for the six months
ended June 30, 1999 compared to the same period in 1998. These decreases relate
to the Wal*Mart branch sales. Other expenses decreased $465,000 (20.0%) for the
six months ended June 30, 1999 compared to the same period in 1998. This
decrease in other expenses was caused primarily by the reduction of real estate
owned and the costs associated with carrying these non-earnng assets and the
sale of the Wal*Mart branches.
INCOME TAXES. Income tax expense for the six months ended June 30, 1999 was
$96,000 or 13.2% of income before tax and $690,000 or 32.3% of income before tax
for the same six 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 June 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 June 30,
1999, the Bank had outstanding advances from the FHLB of Atlanta in the amount
of $42.7 million. Such advances were used in the Bank's normal operations and
investing activities.
As of June 30, 1999 the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At June 30, 1999, the Bank's total
risk-based capital, tier 1 risk-based capital and tier 1 leverage ratios
amounted to 11.4%, 10.3% and 7.84, 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 six months ended June 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
(a) Annual meeting of shareholders was held on April 29, 1999.
(b) Matters voted upon at the Annual Meeting on April 29, 1999
included the following items and the number of votes cast
included:
Votes
Election of Class I Directors Votes For Withheld
T. E. Reeve, Jr. 2,318,824 2,970
Michael P. Steed 2,318,394 3,400
Thomas S. Upchurch 2,318,994 2,800
Directors not up for re-election and continuing in office:
T. Aubrey Silvey
Gary D. Dorminey
Anna L. Berry
Gary M. Bullock
Jerry L. Clayton
Dean B. Talley
Votes
Ratification of Auditor Votes For Against Abstentions
Porter Keadle Moore, LLP 2,312,666 3,112 6,016
There were no broker non-votes, as no discretionary issues were
presented for approval.
ITEM 5. OTHER INFORMATION
Pursuant to Rule 14a-4(c)(1) promulated under the Securities
Exchange Act of 1934, as amended, shareholders desiring to
present a proposal for consideration at the Company's 2000 Annual
Meeting of Shareholders must notify the Company in writing at its
principal office, 110 Dixie Street, Carrollton, Georgia 30117,
attn: Corporate Secretary, of the contents of such proposal no
later than February 9, 2000. Failure to timely submit such a
proposal will enable the proxies appointed by management to
exercise their discretionary voting authority when the proposal
is raised at the Annual Meeting of Shareholders without any
discussion of the matter in the proxy statement.
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
March 31, 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: August 6, 1999 /s/ Gary D. Dorminey
----------------------
Gary D. Dorminey
President
(Principal Executive Officer)
Date: August 6, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,531
<INT-BEARING-DEPOSITS> 3,857
<FED-FUNDS-SOLD> 5,030
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,966
<INVESTMENTS-CARRYING> 202
<INVESTMENTS-MARKET> 204
<LOANS> 275,030
<ALLOWANCE> 3,084
<TOTAL-ASSETS> 373,108
<DEPOSITS> 296,859
<SHORT-TERM> 4,250
<LIABILITIES-OTHER> 2,925
<LONG-TERM> 42,107
0
1
<COMMON> 33
<OTHER-SE> 26,933
<TOTAL-LIABILITIES-AND-EQUITY> 373,108
<INTEREST-LOAN> 12,574
<INTEREST-INVEST> 2,159
<INTEREST-OTHER> 310
<INTEREST-TOTAL> 15,043
<INTEREST-DEPOSIT> 6,090
<INTEREST-EXPENSE> 7,758
<INTEREST-INCOME-NET> 7,285
<LOAN-LOSSES> 364
<SECURITIES-GAINS> 46
<EXPENSE-OTHER> 8,132
<INCOME-PRETAX> 726
<INCOME-PRE-EXTRAORDINARY> 630
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 630
<EPS-BASIC> .24
<EPS-DILUTED> .23
<YIELD-ACTUAL> 0
<LOANS-NON> 1,223
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 442
<ALLOWANCE-OPEN> 2,880
<CHARGE-OFFS> 315
<RECOVERIES> 174
<ALLOWANCE-CLOSE> 3,084
<ALLOWANCE-DOMESTIC> 3,084
<ALLOWANCE-FOREIGN> 0
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</TABLE>
