SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For fiscal year ended December 31, 1999 OR
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to ____________
Commission file number 0-22543
Community First Banking Company
(Exact Name of Registrant as Specified in Its Charter)
Georgia 58-2309605
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
110 Dixie Street
Carrollton, Georgia 30117
(Address of Principal Executive Offices) (Zip Code)
(770) 834-1071
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant : (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of such common equity as of March 22, 2000: $34,800,787.
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 2,751,715 shares of Common Stock at March 22,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1999 are incorporated by reference into Part II.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders, scheduled to be held on April 27, 2000, are incorporated by
reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS OF THE COMPANY
Community First Banking Company (the "Company") was incorporated in the
State of Georgia on March 12, 1997, for the purpose of becoming a holding
company to own 100% of the outstanding capital stock of Carrollton Federal Bank,
FSB (the "Savings Bank"). The Savings Bank was organized on August 1, 1994 as a
federal savings bank subsidiary of CF Mutual Holdings (the "Mutual Holding
Company"), a federally chartered mutual holding company. Prior to that date, the
predecessor of the Savings Bank had operated as a mutual savings bank since
1929.
On June 27, 1997, we completed a conversion and reorganization (the
"Conversion") whereby the Company became the unitary holding company for the
Savings Bank and the Mutual Holding Company was dissolved.
On December 29, 1997, the Savings Bank converted from a federal savings
bank regulated by the Office of Thrift Supervision (the "OTS") to a Georgia
chartered state commercial bank regulated by the Georgia Department of Banking
and Finance (the "Georgia Department") and concurrently changed its name to
Community First Bank (the "Bank").
The Company directs, plans and coordinates the activities of the Bank and
its subsidiaries. Accordingly, the information presented in this Annual Report
relates primarily to the Bank. The Bank is a community-oriented financial
institution operating from seven branch offices in western Georgia. These
branches provide customary banking services such as customer and commercial
checking accounts, NOW accounts, savings accounts, certificates of deposit,
lines of credit and MasterCard and VISA credit cards. Lending activities include
the origination of consumer and commercial business loans on a secured and
unsecured basis, residential mortgage and home equity loans, and commercial real
estate loans.
The Bank has three wholly owned operating subsidiaries that broaden the
services the Bank offers to the community. The first, CFB Securities, Inc.,
offers traditional brokerage services and products such as mutual funds, stocks
and bonds through an NASD member firm. CFB Securities, Inc. began operations in
1996 and is located in space immediately adjacent to the Bank's main office
lobby in Carrollton, Georgia.
The second subsidiary of the Bank, CFB Financial Inc., began operations in
1996 to service the loan needs of consumers traditionally associated with
consumer finance companies. CFB Financial, Inc. has nine full-time employees
operating in its offices in Villa Rica and Douglasville, Georgia, and at the
Bank's branch in Hiram, Georgia. This subsidiary offers a wide range of small
loans granted in conformity with the Georgia Industrial Loan Act.
The third subsidiary, CFB Insurance Agency, Inc., began operations in 1997.
Based in Bowdon, Georgia, CFB Insurance Agency, Inc. offers a full line of
insurance products to existing Bank customers as well as the general public.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information about the business of the
Company and the Bank.
COMPETITION
The Bank has operated in its local community since 1929. Management
estimates that the Bank has a 30% market share in Carroll County, a 20% market
share in each of Haralson and Heard Counties, and a 1% market share in each of
Douglas and Paulding Counties.
The Bank faces significant competition both in making loans and in
attracting deposits principally from national, regional and local commercial
banks, savings banks, savings and loan associations, credit unions,
broker-dealers, mortgage banking companies (including FNMA) and insurance
companies. Its most direct competition for deposits has historically come from
commercial banks, savings banks, savings and loan associations and credit
unions. The Bank faces additional competition for deposits from short-term money
market funds, other corporate and government securities funds and from other
financial institutions such as brokerage firms and insurance companies. In
addition, the Bank faces additional competition from commercial banks
headquartered outside of the State of Georgia.
The Bank experiences strong competition for real estate loans principally
from other savings associations, commercial banks, and mortgage banking
companies. The Bank competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions.
EMPLOYEES
The Company and the Bank had 133 full-time employees and 13 part-time
employees at December 31, 1999. None of these employees is represented by a
collective bargaining agreement, and management believes that it enjoys good
relations with its personnel.
SUPERVISION AND REGULATION
Both the Company and the Bank are subject to extensive state and federal
banking regulations that impose restrictions on and provide for general
regulatory oversight of our operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that applies to us.
The Company
Because the Company owns all of the capital stock of the Bank, it is a bank
holding company under the federal Bank Holding Company Act of 1956. As a result,
the Company is primarily subject to the supervision, examination, and reporting
requirements of the Bank Holding Company Act and the regulations of the Federal
Reserve.
Acquisitions of Banks. The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before:
o Acquiring direct or indirect ownership or control of any voting shares of
any bank if, after the acquisition, the bank holding company will directly
or indirectly own or control more than 5% of the bank's voting shares;
o Acquiring all or substantially all of the assets of any bank; or
o Merging or consolidating with any other bank holding company.
Under the Bank Holding Company Act, an adequately capitalized and
adequately managed bank holding company located in Georgia may purchase a bank
located outside of Georgia. Conversely, an adequately capitalized and adequately
managed bank holding company located outside of Georgia may purchase a bank
located inside Georgia. In each case, however, restrictions may be placed on the
acquisition of a bank which has only been in existence for a limited amount of
time or an acquisition which may result in specified concentrations of deposits.
Change in Bank Control. Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person or a company acquires 10% or more, but less than 25%, of any class
of voting securities and either the bank holding company has registered
securities under Section-12 of the Securities Act of 1934, or no other person
owns a greater percentage of that class of voting securities immediately after
the transaction.
Permitted Activities. Under the Bank Holding Company Act, a bank holding
company, which has not qualified or elected to become a financial holding
company is generally prohibited from engaging in or acquiring direct or indirect
control of more than 5% of the voting shares of any company engaged in
nonbanking activities unless prior to the enactment of the Gramm-Leach-Bliley
Act the Federal Reserve found those activities to be so closely related to
banking as to be a proper incident to the business of banking. Activities that
the Federal Reserve has found to be so closely related to banking to be a proper
incident to the business of banking include:
o factoring accounts receivable,
o acquiring or servicing loans,
o leasing personal property,
o conducting discount securities brokerage activities,
o performing selected data processing services,
o acting as agent or broker in selling credit life insurance and other types
of insurance in connection with credit transactions, and
o performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding company or
its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
On November 12, 1999 President Clinton signed the Gramm-Leach-Bliley Act,
which amends the Bank Holding Company Act and greatly expand the activities in
which bank holding companies and affiliates of banks are permitted to engage.
The Gramm-Leach-Bliley Act eliminates many federal and state law barriers to
affiliations among banks and securities firms, insurance companies, and other
financial service providers. The provisions of the Gramm-Leach-Bliley Act
relating to permitted activities of bank holding companies and affiliates of
banks became effective on March 11, 2000.
Generally, if the Company qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to a financial activity. Activities that the
Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance
activities, providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.
To qualify to become a financial holding company, the Bank and any other
depository institution subsidiary of the Company must be well capitalized and
well managed and must have a Community Reinvestment Act rating of at least
satisfactory. Additionally, the Company must file an election with the Federal
Reserve to become a financial holding company and must provide the Federal
Reserve with 30 days written notice prior to engaging in a permitted financial
activity. Although we are eligible to elect to become a financial holding
company, we currently have no plans to make such an election.
Support of Subsidiary Institutions. Under Federal Reserve policy, bank
holding companies are expected to act as a source of financial strength for, and
to commit resources to support, their depository institution subsidiaries. This
support may be required at times when, without this Federal Reserve policy, the
bank holding company might not be inclined to provide it. In addition, any
capital loans by a bank holding company to a bank will be repaid only after its
deposits and other indebtedness are repaid in full. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a banking subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
The Bank
The Bank is a commercial bank chartered under the laws of the State of
Georgia. Accordingly, the FDIC and the Georgia Department of Banking and Finance
regularly examine the operations of the Bank and have the authority to approve
or disapprove mergers, the establishment of branches, and similar corporate
actions. Both regulatory agencies also have the power to prevent the continuance
or development of unsafe or unsound banking practices or other violations of
law. Additionally, the Bank's deposits are insured by the FDIC to the maximum
extent provided by law. The Bank is also subject to numerous state and federal
statutes and regulations that affect its business, activities and operations,
and it is supervised and examined by one or more state or federal bank
regulatory agencies.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions. Under this
system, federal banking regulators have established five capital categories,
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, in which all institutions are
placed. The federal banking agencies have also specified by regulation the
relevant capital levels for each of the other categories. At December 31, 1999,
we qualified for the adequately capitalized category.
Federal banking regulators are required to take some mandatory supervisory
actions and are authorized to take other discretionary actions with respect to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a
receiver or conservator for an institution that is critically undercapitalized.
An institution in any of the undercapitalized categories is required to submit
an acceptable capital restoration plan to its appropriate federal banking
agency. A bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan up to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business, except under
an accepted capital restoration plan or with FDIC approval. The Federal Reserve
regulations also establish procedures for downgrading an institution to a lower
capital category based on supervisory factors other than capital.
FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment
system for determining an insured depository institutions' insurance assessment
rate. The system that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. An institution is
placed into one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized and critically
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subgroups based on a supervisory evaluation that the institution's
primary federal regulator provides to the FDIC and information that the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. Assessments range from 0 to 27 cents per
$100 of deposits, depending on the institution's capital group and supervisory
subgroup. In addition, the FDIC imposes assessments to help pay off the $780
million in annual interest payments on the $8 billion Financing Corporation
bonds issued in the late 1980s as part of the government rescue of the thrift
industry. This assessment rate is adjusted quarterly and ranged from 1.16 cents
to 1.22 cents per $100 of deposits in 1999.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Community Reinvestment Act. The Community Reinvestment Act requires the
appropriate federal regulator, in connection with their examinations of
financial institutions within their jurisdiction, to evaluate the record of each
financial institution in meeting the credit needs of its local community,
including low and moderate-income neighborhoods. The appropriate federal
regulator considers these factors in evaluating mergers, acquisitions, and
applications to open a branch or facility. Failure to adequately meet these
criteria could impose additional requirements and limitations on the Bank. Under
the Gramm-Leach-Bliley Act, banks with aggregate assets of not more than $250
million are subject to a Community Reinvestment Act examination only once every
60 months if the bank receives an outstanding rating, once every 48 months if it
receives a satisfactory rating and as needed if the rating is less than
satisfactory. Additionally, under the Gramm-Leach-Bliley Act, banks are required
to publicly disclose the terms of various Community Reinvestment Act-related
agreements.
Other Regulations. Interest and other charges collected or contracted for
by the Bank are subject to state usury laws and federal laws concerning interest
rates. The Bank's loan operations are also subject to federal laws applicable to
credit transactions, such as:
o The federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;
o The Home Mortgage Disclosure Act of 1975, requiring financial institutions
to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves;
o The Equal Credit Opportunity Act, prohibiting discrimination on the basis
of race, creed or other prohibited factors in extending credit;
o The Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies;
o The Fair Debt Collection Act, governing the manner in which consumer debts
may be collected by collection agencies; and
o The rules and regulations of the various federal agencies charged with the
responsibility of implementing these federal laws.
The deposit operations of the Bank are subject to:
o The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records; and
o The Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve to implement that act, which governs automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic
banking services.
Capital Adequacy
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve, in the case of the Company, and
FDIC and Georgia Department of Banking and Finance, in the case of the Bank. The
Federal Reserve has established a risk-based and a leverage measure of capital
adequacy for bank holding companies that is substantially similar to that
adopted by the FDIC for banks under its jurisdiction.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items,
such as letters of credit and unfunded loan commitments, are assigned to broad
risk categories, each with appropriate risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consists of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consists of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. At December 31, 1999, our consolidated ratio of total capital to
risk-weighted assets was 10.5% and our consolidated ratio of Tier 1 Capital to
risk-weighted assets was 9.4%.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. At December 31, 1999, our consolidated leverage ratio was 7.4%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. The Federal Reserve considers the leverage ratio and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
The Bank and the Company are also both subject to other capital guidelines
issued by the Georgia Department of Banking and Finance and the Federal Reserve,
respectively, which provide for minimum ratios of total capital to total assets.
Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and certain other restrictions on its business. As
described above, substantial additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "-Prompt Corrective Action."
Payment of Dividends
The Company is a legal entity separate and distinct from the Bank. The
principal source of the Company's cash flow, including cash flow to pay
dividends to its shareholders, is dividends that the Bank pays to it. Statutory
and regulatory limitations apply to the Bank's payment of dividends to the
Company as well as to the Company's payment of dividends to its shareholders.
If, in the opinion of the federal banking regulator, the Bank were engaged
in or about to engage in an unsafe or unsound practice, the federal banking
regulator could require, after notice and a hearing, that it cease and desist
from its practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991, a depository institution may not
pay any dividend if payment would cause it to become undercapitalized or if it
already is undercapitalized. Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings. See "-Prompt
Corrective Action" above.
The Georgia Department of Banking and Finance also regulates the Bank's
dividend payments and must approve dividend payments that would exceed 50% of
the Bank's net income for the prior year. Our payment of dividends may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
At December 31, 1999, the Bank was able to pay approximately $1.5 million
in dividends to the Company without prior regulatory approval.
Restrictions on Transactions with Affiliates
The Company and the Bank are subject to the provisions of Section 23A of
the Federal Reserve Act. Section 23A places limits on the amount of:
o loans or extensions of credit to affiliates;
o investment in affiliates;
o the purchase of assets from affiliates, except for real and personal
property exempted by the Federal Reserve;
o loans or extensions of credit to third parties collateralized by the
securities or obligations of affiliates; and
o any guarantee, acceptance or letter of credit issued on behalf of an
affiliate.
The aggregate of all of the above transactions is limited in amount, as to
any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. The Company must also comply
with certain provisions designed to avoid the taking of low-quality assets.
The Company and the Bank are also subject to the provisions of Section 23B
of the Federal Reserve Act which, among other things, prohibits an institution
from engaging in the above transactions with affiliates unless the transactions
are on terms substantially the same, or at least as favorable to the institution
or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.
The Bank is also subject to restrictions on extensions of credit to its
executive officers, directors, certain principal shareholders and their related
interests. These extensions of credit (1) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties, and (2) must not involve more
than the normal risk of repayment or present other unfavorable features.
Privacy
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market the institutions' own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing through electronic mail to the consumer.
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its agencies. The
Federal Reserve Bank's monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments and
deposits through its open market operating in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.
ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for hedging derivatives and for derivative instruments
including derivative instruments embedded in other contracts. It requires the
fair value recognition of derivatives as assets or liabilities in the financial
statements. The accounting for the changes in the fair value of a derivative
depends on the intended use of the derivative instrument at inception. Changes
in fair value for instruments used as fair value hedges are recorded in earnings
of the period simultaneous with accounting for the fair value change of the item
being hedged. Changes in fair value for cash flow hedges are recorded in
comprehensive income rather than earnings. Changes in fair value for derivative
instruments that are not intended as a hedge are recorded in earnings of the
period of the change. SFAS No. 133 is effective for all fiscal quarters
beginning after June 15, 2000, but initial application of the statement must be
made as of the beginning of the quarter. At the date of initial application, an
entity may transfer any held to maturity security into the available for sale or
trading categories without calling into question the entity's intent to hold
other securities to maturity in the future. The Company believes the adoption of
SFAS No. 133 will not have a material impact on its financial position, results
of operations or liquidity.
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the
Company's properties at December 31, 1999.
LEASED/
DESCRIPTION/ADDRESS OWNED
Main Office 110 Dixie St., Carrollton, GA Owned
640 W. Bankhead Hwy, Villa Rica, GA Owned
207 W. College St., Bowdon, GA Owned
501 Alabama Ave., Bremen, GA Leased
1119 South Park St., Carrollton, GA Owned
9060 Hwy. 27, Franklin, GA Owned
4166 Jimmy Lee Smith Parkway, Hiram, GA (Wal*Mart Branch) Leased
3218 Highway 5, Douglasville, GA Leased
664 W. Bankhead Hwy.,Villa Rica, GA Leased
3357 Jimmy Lee Smith Parkway, Hiram, GA Leased
119 South White Street, Carrollton, GA Owned
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Information regarding the quarterly high and low sales prices for the
Company's Common Stock, the number of record shareholders and the Company's
dividend policy is contained in the Company's Annual Report to Shareholders for
the year ended December 31, 1999 under the heading "Market for Common Stock and
Related Shareholder Matters" and is hereby incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's Annual
Report to Shareholders for the year ended December 31, 1999 under the heading
"Selected Consolidated Financial Data" and is hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The responses to this item are included in the Company's Annual Report to
Shareholders for the year ended December 31, 1999 under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and are hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's net interest income and the fair value of its financial
instruments (interest earning assets and interest bearing liabilities) are
influenced by changes in market interests rates. The Company actively manages
its exposure to interest rate fluctuations through policies established by its
Asset/Liability Committee (the "ALCO"). The ALCO meets regularly and is
responsible for approving asset/liability management policies, developing and
implementing strategies to improve balance sheet positioning and net interest
income and assessing the interest rate sensitivity of the Bank.
The Company utilizes an interest rate simulation model to monitor and
evaluate the impact of changing interest rates on net interest income. The
estimated impact on the Company's net interest income sensitivity over a
one-year time horizon is indicated in the table below, which assumes an
immediate and sustained parallel shift in interest rates of 100 basis points and
no change in the composition of the Company's balance sheet.
The Company's ALCO policy requires that a 100 basis point shift in interest
rates should not result in a decrease of net interest income of more than 5% of
capital. The information presented in Table 13 of the Company's 1999 Annual
Report is based on the same assumptions set forth in the ALCO policy.
Net Interest Income Sensitivity
(in thousands)
<TABLE>
<CAPTION>
Percent Increase (Decrease) in
Interest Income/Expense Given
Principal/Notional Immediate and Sustained
Amounts of Earning Parallel Interest Rate Shifts
Assets, Interest Bearing ---------------------------
Liabilities at Down 100 Up 100
December 31, 1999 Basis Points Basis Points
----------------- ------------ ------------
<S> <C> <C> <C>
Assets repricing in
One year or less $192,025
Over one year 171,434
Total $363,459 3.90% 3.50%
=======
Liabilities repricing in
One year or less $246,507
Over one year 109,909
Total $356,416 8.20% 9.80%
=======
Net interest sensitivity .04% (.41)%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14 are
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1999 under the headings "Report of Independent Certified Public
Accountants" and "Selected Quarterly Financial Results" and are hereby
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 27, 2000 under the
headings "Section 16(a) Beneficial Ownership Reporting Compliance", "Election of
Directors" and "Executive Officers" and are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 27, 2000 under the
headings "Executive Compensation" and "Election of Directors - Director
Compensation" and "Compensation Committee Interlocks and Insider Participation"
and are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The responses to this item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 27, 2000 under the
heading "Stock Owned by Management" and are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 27, 2000 under the
heading "Certain Transactions" and are incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Earnings for the Years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K:
None
(c) Exhibits
Exhibit
Number Exhibit
3.1 Articles of Incorporation (1), as amended (2).
3.2 Bylaws (1).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and Bylaws governing the rights of
holders of securities of the Company.
10.1* 1997 Stock Option Plan. (2)
10.2* Management Recognition Plan. (2)
10.2(a)* Form of Restricted Stock Award
10.2(b)* Form of First Amendment to Restricted Stock Award
Agreement for Employees
10.3* Employee Stock Ownership Plan and Trust. (1)
10.4* Employee Stock Ownership Plan Trust Agreement. (1)
10.4(a)* First Amendment to the Community First Banking Company
Employee Stock Ownership Plan
10.4(b)* Second Amendment to the Community First Banking Company
Employee Stock Ownership Plan
10.4(c)* Third Amendment to the Community First Banking Company
Employee Stock Ownership Plan
10.5(a) [Reserved]
10.5(b)* Employment Agreement between Gary D. Dorminey, the
Company and the Bank dated as of June 1, 1997 (1).
10.5(c)* Employment Agreement between D. Lane Poston, the Company
and the Bank dated as of June 1, 1997 (1).
10.5(d)* Employment Agreement between C. Lynn Gable, the Company
and the Bank dated as of June 1, 1997 (1).
10.5(e)* Employment Agreement between Anyce C. Fox, the Company
and the Bank dated as of June 1, 1997 (1).
10.6* Retirement Plan (1).
10.7* 401(k) Retirement Plan (1).
13.1 The following portions of the Company's 1999 Annual Report
to Shareholders have been incorporated by reference herein:
Market for Stock and Related Shareholder Matters
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated Financial Statements, the Notes thereto and the
Independent Auditors' Report thereon
Selected Quarterly Financial Results
23.1 Consent of Porter Keadle Moore, LLP.
27.1 Financial Data Schedule (SEC use only).
* Indicates a management compensation plan or agreement.
(1) Incorporated by reference to the exhibit of the same
number contained in the Registrant's Registration Statement
on Form S-1 (Regis. No. 333-23533).
(2) Incorporated by reference to the exhibit of the same
number contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 (File No.
0-22543).
(d) Financial Statements
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not
required under the related instructions or are inapplicable and have
therefore been omitted.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 27, 2000.
COMMUNITY FIRST BANKING COMPANY
By: /s/ Gary D. Dorminey
------------------------
Gary D. Dorminey
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 2000.
Signature Title
/s/ Gary D. Dorminey President, Chief Executive Officer
Gary D. Dorminey and Director*
/s/ T. Aubrey Silvey Chairman of the Board
T. Aubrey Silvey
/s/ Anna L. Berry Director
Anna L. Berry
/s/ Gary M. Bullock Vice Chairman of the Board
Gary M. Bullock
/s/ Jerry L. Clayton Director
Jerry L. Clayton
/s/ W. Lamar Moody Director
W. Lamar Moody
/s/ Thomas E. Reeve Director
Thomas E. Reeve
/s/ Michael P. Steed Director
Michael P. Steed
/s/ Dean B. Talley Director
Dean B. Talley
/s/ Thomas S. Upchurch Director
Thomas S. Upchurch
/s/ C. Lynn Gable Senior Vice President and Chief
C. Lynn Gable Financial Officer**
* Principal Executive Officer
** Principal Accounting and Financial Officer
COMMUNITY FIRST BANKING COMPANY
RESTRICTED STOCK AWARD
THIS AWARD is made as of this ____ day of January, 1998 (the "Award Date"),
by COMMUNITY FIRST BANKING COMPANY (the "Company"), a Georgia corporation, in
favor of ____________________________________ (the "Employee").
Background
A. The Company adopted the Community First Banking Company Management
Recognition Plan (the "Plan") for the purpose of securing and retaining the
services of key employees and directors of the Company, by promoting and
increasing their personal interests in the welfare of the Company and by
providing incentive to those who are primarily responsible for the operations of
the Company and for shaping and carrying out the long-range plans of the Company
and aiding in its continued growth and financial success.
B. The committee of the Board of Directors administering the Plan (the
"Committee") has authorized the grant to Employee of a restricted stock award
under Section 2.3 of the Plan to purchase shares of Series A Convertible
Preferred Stock, $.01 par value per share (the "Preferred Stock"), of the
Company.
C. The Company wishes to confirm herein the terms, conditions and
restrictions of the restricted stock award.
For and in consideration of the premises and other good and valuable
consideration, the Company hereby issues the Award described below:
Section 1
Award of Shares
1.1 Award of Shares. Subject to the terms, restrictions, limitations and
conditions stated herein and in the Plan, the Company hereby awards to Employee
________ shares of Preferred Stock (the "Restricted Shares").
1.2 Vesting of Restricted Shares. Employee shall become vested in the
Restricted Shares at a rate of five percent (5%) as of the last day of each
calendar quarter commencing with the first calendar quarter ending after the
Award Date and will continue for each calendar quarter thereafter for nineteen
(19) consecutive calendar quarters during which the Employee is employed by the
Company or its affiliates; provided, however, that any Restricted Shares that
have not become vested in accordance with the foregoing schedule shall become
vested upon the first to occur of any of the following:
(a) the effective date of a Termination of Service due to death or
Disability;
(b) the effective date of a Termination of Service initiated by the
Employee for Good Reason;
(c) the effective date of a Termination of Service initiated by the
Company other than for Cause; or
(d) the date of a Change in Control of the Company.
The last day of each calendar quarter following the Award Date and the events
described in clauses (a), (b), (c) or (d) above are referred to herein
individually as a "Vesting Date" and, collectively, as "Vesting Dates." The
Restricted Shares which have become vested pursuant to this Section are herein
referred to as the "Vested Shares."
1.3 Additional Condition to Restricted Shares. In order to not forfeit the
Restricted Shares, Employee must deliver to the Company, either within thirty
(30) days of the earlier of (a) the occurrence of a Vesting Date, pursuant to
which all or any portion of the Restricted Shares become Vested Shares, or (b)
the making of an election pursuant to Section 83(b) of the Internal Revenue Code
of 1986, as amended (the "Code"), as to all or any portion of the Award Shares,
either (i)-cash or a certified check payable to the Company in the amount of all
withholding tax obligations (whether federal, state or local), imposed on the
Company by reason of the vesting of the Restricted Shares or the making of the
election, as applicable; or (ii)-such authorization as the Company determines is
acceptable for the satisfaction of such tax withholding obligations from
compensation otherwise payable to the Employee.
1.4 Restricted Shares Held by the Share Custodian. Employee hereby
authorizes and directs the Company to deliver to the Secretary of the Company or
such other officer of the Company as may be designated by the Committee (the
"Share Custodian") any stock certificate issued by the Company to evidence
Restricted Shares, as well as any stock certificate issuable to the Employee due
to an event described in Section 3.1 below. The Share Custodian shall hold any
such stock certificates and shall deliver same to either the Employee or the
Company, as indicated below, upon the first to occur of (i)-a Vesting Date; or
(ii)-a Termination of Service:
(a) to the Employee, immediately following the occurrence of a Vesting
Date and satisfaction of all withholding tax obligations (whether federal,
state or local) imposed on the Company by reason of the vesting of the
Restricted Shares in the manner contemplated by Section 1.3; or
(b) to the Company, immediately after a Termination of Service, but
only if the Restricted Shares have not become Vested Shares as a result of
the Termination of Service.
Employee hereby irrevocably appoints the Share Custodian, and any successor
thereto, as the true and lawful attorney-in-fact of Employee with full power and
authority to execute any stock transfer power or other instrument necessary to
transfer the Restricted Shares and any other stock certificates held by the
Share Custodian to the Company in the name, place and stead of Employee. The
term of such appointment shall commence on the Award Date and shall continue
until the first to occur of the events described in clauses (a) or (b) above.
The Employee shall complete an irrevocable stock power in favor of the Share
Custodian in substantially the form of Exhibit A attached hereto to effect the
provisions of this Section 1.4.
1.5 Rights as Stockholder. Employee shall have no rights as a stockholder
with respect to any Restricted Shares until a stock certificate for the shares
is issued in Employee's name. Once any such stock certificate is issued and
delivered to the Share Custodian, during the period that the Share Custodian
holds the Restricted Shares, Employee shall be entitled to all rights associated
with ownership of the Restricted Shares, except as follows: (a)-if additional
shares of Preferred Stock become issuable to Employee due to an event described
in Section 3.1 below, any stock certificate representing such shares shall be
delivered to the Share Custodian and those shares of Preferred Stock shall be
subject to forfeiture to the same extent as the shares of Restricted Shares to
which they relate; and (b)-the Employee shall have no rights inconsistent with
the terms of this Award, such as the restrictions on transfer described in
Section 2.2 below.
1.6 Investment Representations. Employee hereby represents, warrants,
covenants, and agrees with the Company as follows:
(a) The Restricted Shares being acquired by Employee will be acquired
for Employee's own account without the participation of any other person,
with the intent of holding the Restricted Shares for investment and without
the intent of participating, directly or indirectly, in a distribution of
the Restricted Shares and not with a view to, or for resale in connection
with, any distribution of the Restricted Shares, nor is Employee aware of
the existence of any distribution of the Restricted Shares;
(b) Employee is not acquiring the Restricted Shares based upon any
representation, oral or written, by any person with respect to the future
value of, or income from, the Restricted Shares but rather upon an
independent examination and judgment as to the prospects of the Company;
(c) The Restricted Shares were not offered to Employee by means of
publicly disseminated advertisements or sales literature, nor am I aware of
any offers made to other persons by such means;
(d) Employee is able to bear the economic risks of the investment in
the Restricted Shares, including the risk of a complete loss of my
investment therein;
(e) Employee understands and agrees that the Restricted Shares will be
issued and sold to Employee without registration under any state law
relating to the registration of securities for sale, and will be issued and
sold in reliance on the exemptions from registration under the Securities
Act of 1933 (the "1933 Act"), provided by Sections 3(b) and/or 4(2) thereof
and the rules and regulations promulgated thereunder;
(f) The Restricted Shares cannot be offered for sale, sold or
transferred by Employee other than pursuant to: (A)-an effective
registration under the 1933 Act or in a transaction otherwise in compliance
with the 1933 Act; and (B)-evidence satisfactory to the Company of
compliance with the applicable securities laws of other jurisdictions. The
Company shall be entitled to rely upon an opinion of counsel satisfactory
to it with respect to compliance with the above laws;
(g) The Company will be under no obligation to register the Restricted
Shares or to comply with any exemption available for sale of the Restricted
Shares without registration or filing, and the information or conditions
necessary to permit routine sales of securities of the Company under Rule
144 of the 1933 Act are not now available and no assurance has been given
that it or they will become available. The Company is under no obligation
to act in any manner so as to make Rule 144 available with respect to the
Restricted Shares;
(h) Employee has and has had complete access to and the opportunity to
review and make copies of all material documents related to the business of
the Company, including, but not limited to, contracts, financial
statements, tax returns, leases, deeds, and other books and records.
Employee has examined such of these documents as Employee has wished and is
familiar with the business and affairs of the Company. Employee realizes
that the purchase of the Restricted Shares is a speculative investment and
that any possible profit therefrom is uncertain;
(i) Employee has had the opportunity to ask questions of and receive
answers from the Company and any person acting on its behalf and to obtain
all material information reasonably available with respect to the Company
and its affairs. Employee has received all information and data with
respect to the Company which Employee has requested and which Employee has
deemed relevant in connection with the evaluation of the merits and risks
of Employee's investment in the Company;
(j) Employee has such knowledge and experience in financial and
business matters that Employee is capable of evaluating the merits and
risks of the purchase of the Restricted Shares hereunder and Employee is
able to bear the economic risk of such purchase; and
(k) The agreements, representations, warranties, and covenants made by
Employee herein extend to and apply to all of the Restricted Shares of the
Company issued to Employee pursuant to this restricted stock award.
Acceptance by Employee of the certificate representing such Restricted
Shares shall constitute a confirmation by Employee that all such
agreements, representations, warranties, and covenants made herein shall be
true and correct at that time.
1.7 Cash Award. The Employee shall receive, in addition to the Restricted
Shares, such additional compensation as necessary to place the Employee in the
same after-tax position the Employee would have been in had no federal, state or
local taxes resulted from the award or vesting of the Restricted Shares or the
receipt of the cash award described herein. The cash compensation awarded to the
Employee pursuant to this Section 1.7 shall be paid either to the Employee or to
appropriate federal or state tax depositories with respect to the Employee in
such portions and at such times as the Company shall determine in its sole
discretion; provided such payment is made before any tax penalties would
otherwise apply.
Section 2
Forfeiture and Restrictions upon Restricted Shares
2.1 Forfeiture Upon Termination of Service. Notwithstanding anything to the
contrary herein, at any time prior to a Vesting Date, upon a Termination of
Service (a) initiated by the Employee for any reason other than the Employee's
death, Disability, or Good Reason; or (b) initiated by the Company for Cause,
all Restricted Shares shall be forfeited, effective upon the effective date of
the Termination of Service.
For purposes of this Award, the term "Good Reason" shall mean the
occurrence during the term of this Award of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any act or
failure to act described below, such act or failure to act is corrected prior to
the Termination of Service:
(a) any material diminution in the Employee's authorities or
responsibilities (including reporting responsibilities) which were in
effect as of the Award Date or in the Employee's status, title, position or
responsibilities (including reporting responsibilities) which were in
effect as of the Award Date without the Employee's consent to accept any
such change; the assignment to the Employee of any duties or work
responsibilities which are inconsistent with such status, title, position
or work responsibilities; or any removal of the Employee from or failure to
reappoint the Employee to any of such positions, except if any such changes
are because of Disability, death or Termination of Service;
(b) a reduction by the Company in the Employee's base salary as in
effect on the date hereof or as the same may be increased from time to time
except for across-the-board salary reductions similarly affecting all
employees of the Company; or
(c) a breach of the terms of any employment agreement to which the
Employee and the Company are parties by the Company; provided the Employee
has given the Company an opportunity to cure the breach by the provision of
at least thirty (30) days' prior written notice of same.
2.2 Restrictions on Transfer of Restricted Shares. Employee shall effect no
Disposition of shares of Restricted Shares prior to the date the shares are
delivered to the Employee by the Share Custodian; provided, however, that this
provision shall not preclude (a) a transfer by will or the laws of descent and
distribution in the event of the death of the Employee; or (b) a transfer to the
Employee's spouse or children or a family trust or partnership established for
the benefit of the Employee, the Employee's spouse and/or children; provided,
however, that the Restricted Shares shall remain forfeitable following any such
transfer contemplated by this Section 2.2(b) and any new stock certificate
issued reflecting the Restricted Shares following such a transfer shall continue
to be held by the Share Custodian and shall bear an appropriate legend as
described in Section 2.3.
2.3 Legends. Any stock certificate representing the Restricted Shares
issued to the Share Custodian shall be endorsed with the following legend and
Employee shall not effect any transfer of the Restricted Shares without first
complying with the restrictions on transfer described in such legend:
TRANSFER IS RESTRICTED
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER SET FORTH IN A RESTRICTED STOCK AWARD DATED ___________________, A
COPY OF WHICH IS AVAILABLE FROM THE COMPANY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, OR HYPOTHECATED UNLESS (1)-THERE IS AN EFFECTIVE REGISTRATION
UNDER SUCH ACT COVERING SUCH SECURITIES, (2)-THE TRANSFER IS MADE IN
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR (3)-THE ISSUER
RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT.
Employee agrees that the Company may also endorse any other legends
required by applicable federal or state securities laws.
The Company need not register a transfer of the Restricted Shares, and may
also instruct its transfer agent, if any, not to register the transfer of the
Restricted Shares unless the conditions specified in the foregoing legends are
satisfied.
2.4 Removal of Legend and Transfer Restrictions.
(a) The restrictions described in the first sentence of the legend set
forth in Section 2.3 above and any related stop transfer instructions may
be removed and the Company shall issue necessary replacement certificates
without that portion of the legend to the Employee (or permitted
transferee) as of the date the Share Custodian is otherwise authorized to
deliver the Restricted Shares to the Employee (or a permitted transferee).
(b) The restrictions described in the second sentence of the legend
set forth in Section 2.3 above and any related stop transfer instructions
may be removed and the Company shall issue necessary replacement
certificates without that portion of the legend to the Employee if the
shares of Preferred Stock represented by the certificates: (a)-are
registered under the 1933 Act and a prospectus meeting the requirements of
Section 10 of the 1933 Act is available; (b)-at such time as permitted by
Rule 144(k) promulgated under the 1933 Act; or (c)-upon receipt of an
opinion of counsel, reasonably satisfactory to the Company stating that
such sale, transfer, assignment or hypothecation is exempt from the
requirements of the 1933 Act.
Section 3
General Provisions
3.1 Change in Capitalization. The Restricted Shares shall be converted into
common stock of the Company in accordance with the terms of the Preferred Stock.
3.2 Governing Laws. This Award shall be construed, administered and
enforced according to the laws of the State of Georgia; provided, however, no
Restricted Shares shall be issued except, in the reasonable judgment of the
Committee, in compliance with exemptions under applicable state securities laws
of the state in which Employee resides, and/or any other applicable securities
laws.
3.3 Successors. This Award shall be binding upon and inure to the benefit
of the heirs, legal representatives, successors, and permitted assigns of the
parties.
3.4 Notice. Except as otherwise specified herein, all notices and other
communications under this Award shall be in writing and shall be deemed to have
been given if personally delivered or if sent by registered or certified United
States mail, return receipt requested, postage prepaid, addressed to the
proposed recipient at the last known address of the recipient. Any party may
designate any other address to which notices shall be sent by giving notice of
the address to the other parties in the same manner as provided herein.
3.5 Severability. In the event that any one or more of the provisions or
portion thereof contained in this Award shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, the same shall not invalidate
or otherwise affect any other provisions of this Award, and this Award shall be
construed as if the invalid, illegal or unenforceable provision or portion
thereof had never been contained herein.
3.6 Entire Award. Subject to the terms and conditions of the Plan, this
Award expresses the entire understanding and agreement of the parties with
respect to the subject matter.
3.7 Violation. Any Disposition of the Restricted Shares or any portion
thereof shall be a violation of the terms of this Award and shall be void and
without effect.
3.8 Headings and Capitalized Terms. Paragraph headings used herein are for
convenience of reference only and shall not be considered in construing this
Award. Capitalized terms used, but not defined, herein shall be given the
meaning ascribed in the Plan.
3.9 Specific Performance. In the event of any actual or threatened default
in, or breach of, any of the terms, conditions and provisions of this Award, the
party or parties who are thereby aggrieved shall have the right to specific
performance and injunction in addition to any and all other rights and remedies
at law or in equity, and all such rights and remedies shall be cumulative.
3.10 No Employment Rights Created. Neither the establishment of the Plan
nor the award of Restricted Shares hereunder shall be construed as giving
Employee the right to continued employment with the Company or any of its
affiliates.
IN WITNESS WHEREOF, the officers of the Company have signed and sealed this
Award on the day and year first set forth above
Community First Banking Company
By:_________________________________
Title:_______________________________
ATTEST:_____________________________
Title:______________________________
<PAGE>
EXHIBIT A
TO
COMMUNITY FIRST BANKING COMPANY
RESTRICTED STOCK AWARD
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto____________________________________________________________________,
___________________________________ shares of the Preferred Stock, par value
$_____ per share, of Community First Banking Company registered in the name of
the undersigned on the stock transfer records of Community First Banking Company
and represented by Stock Certificate No. _______________________________ of
Community First Banking Company and the undersigned does hereby irrevocably
constitute and appoint [Share Custodian] his/her attorney-in-fact to transfer
the aforesaid shares on the books of Community First Banking Company, with full
power of substitution; and the undersigned does hereby ratify and confirm all
that said attorney-in-fact lawfully shall do by virtue hereof.
Date:_____________ _____________________________
(Print Name)
_____________________________
(Signature)
IN THE PRESENCE OF:
___________________________________
(Print Name)
___________________________________
(Signature)
FIRST AMENDMENT
TO RESTRICTED STOCK AWARD AGREEMENT
FOR EMPLOYEES
This FIRST AMENDMENT TO RESTRICTED STOCK AWARD AGREEMENT by and between
COMMUNITY FIRST BANKING COMPANY, a bank holding company incorporated under the
laws of the State of Georgia (the "Company"), and _______________ (the
"Employee") is made as of June 30, 1999.
STATEMENT OF BACKGROUND INFORMATION
A. The Company and the Employee entered into a restricted stock award
agreement, dated January 8, 1998 (the "Agreement"), to reflect the terms of an
award made to the Employee under the Community First Banking Company Management
Recognition Plan.
B. The Company and Employee now desire to amend the Agreement to provide
that all of the shares of restricted stock subject to the Agreement shall be
fully vested as of June 30, 1999.
STATEMENT OF AGREEMENT
NOW THEREFORE, in consideration of the foregoing, the mutual covenants and
promises herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
amend the Agreement, effective as of June 30 1999, by deleting the existing
Section 1.2 and substituting therefor the following:
"1.2 Vesting of Restricted Shares. Employee shall become vested in the
Restricted Shares at a rate of five percent (5%) as of the last day of each
calendar quarter commencing with the first calendar quarter ending after
the Award Date and will continue to vest at that five percent (5%) rate as
of the end of each calendar quarter thereafter until June 30, 1999, upon
which date the Employee shall become one-hundred percent (100%) vested in
the Restricted Shares.
The last day of each calendar quarter following the Award Date prior
to June 30, 1999 and the date of June 30, 1999 shall be referred to herein
individually as a 'Vesting Date,' and collectively as 'Vesting Dates.' The
Restricted Shares which have become vested pursuant to this Section are
herein referred to as the 'Vested Shares.'"
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date first above stated.
COMMUNITY FIRST BANKING COMPANY
By: ___________________________
Title: ___________________________
ATTEST:
______________________________
Title: _______________________
[CORPORATE SEAL]
EMPLOYEE
______________________________
FIRST AMENDMENT TO THE
COMMUNITY FIRST BANKING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
THIS FIRST AMENDMENT is made on this 30th day of July, 1998, by Community
First Banking Company, a corporation duly organized and existing under the laws
of the State of Georgia (the "Primary Sponsor").
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Community First Banking Company
Employee Stock Ownership Plan (the "Plan"), which was originally established by
indenture effective as of June 17, 1997; and
WHEREAS, the Board of Directors of the Primary Sponsor has approved
amendments to the Plan to enhance its vesting provisions and to add other
provisions to address developments in the law concerning both an increase in the
mandatory cash-out limits, as permitted by the Taxpayer Relief Act of 1997, and
a change to the allocation methodology involving any potential sale of pledged
stock from the loan suspense account.
NOW, THEREFORE, the Plan is hereby amended, effective January 1, 1998,
except as otherwise provided herein, as follows:
1. By deleing existing Subsections (c), (d) and (f) from Section 4.3 in their
entirety and by substituting therefor the following:
"(c) Any shares of Company Stock which have been released from the
Loan Suspense Account by reason of the payment of a cash dividend on
Company Stock held in the Loan Suspense Account which is used to make a
payment of an Acquisition Loan shall be allocated to ESOP Accounts in the
manner set forth in Plan Section 4.1.
(d) As of the date of any cash sale of shares of Company Stock from
the Loan Suspense Account, the Plan shall first apply the proceeds to the
payment of principal and interest on any Exempt Loan. As of the date of any
sale of shares of Company Stock from the Loan Suspense Account in exchange
for stock other than Company Stock (determined as of the date immediately
prior to such exchange), the shares acquired may be sold with the cash
proceeds first applied to the payment of principal and interest on any
Acquisition Loan. To the extent either shares of Company Stock or shares of
stock other than Company Stock are sold from the Loan Suspense Account, any
proceeds in excess of the amount necessary to repay the Acquisition Loan
shall be allocated to each Member's ESOP account in the proportion that the
balance of the Member's ESOP Account as of the immediately preceding
Valuation Date bears to the total value of all Members' ESOP Accounts as of
the immediately preceding Valuation Date."
2. By deleting, effective for Plan distributions made on or after January 1,
1999, the dollar amount of "$3,500" each time the same appears in Subsections
(a) and (b) of Section 6.1 and by substituting therefor the dollar amount of
"$5,000".
3. By deleting existing Section 6.2 in its entirety and by substituting therefor
the following:
"6.2 That portion of a Member's Account in which he is vested shall be
that part of his ESOP Account computed according to the following vesting
schedule taking into account any Vesting Service through the date of the
Member's Termination of Employment:
Full Years of Percentage
Vesting Service Vested
Less than 2 0%
2 25%
3 50%
4 75%
5 or more 100%"
4. By deleting, effective for Plan distributions made on or after January 1,
1999, the dollar amount of "$3,500" each time the same appears in Subsections
(a) and (b) of Section 7.1 and by substituting therefor the dollar amount of
"$5,000".
5. By deleting the last sentence of Section 10.1 and by substituting therefor
the following:
"For the last year in which a Member may make an election, this Section
shall be applied by substituting '50%' for '25%' where the latter term
appears in clause (a) of this Section 10.1."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this First Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the day and year first above written.
COMMUNITY FIRST BANKING COMPANY
By: /s/ Gary D. Dorminey
Title: President
ATTEST:
/s/ Lane Poston
Title: Secretary
[CORPORATE SEAL]
SECOND AMENDMENT TO THE
COMMUNITY FIRST BANKING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
THIS SECOND AMENDMENT is made on this 25th day of February, 1999, by
Community First Banking Company, a corporation duly organized and existing under
the laws of the State of Georgia (the "Primary Sponsor").
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Community First Banking Company
Employee Stock Ownership Plan (the "Plan"), which was originally established by
indenture effective as of June 17, 1997 and last amended on July 30, 1998; and
WHEREAS, the Primary Sponsor desires to amend the Plan to add language in
accordance with the requirements of the Uniformed Service Employment and
Reemployment Rights Act of 1994.
NOW, THEREFORE, the Plan is hereby amended, effective December 12, 1994, by
adding the following new Section 3.3:
"3.3 Notwithstanding any other provision of the Plan, contributions,
benefits and service credit with respect to qualified military service will
be provided in accordance with Code Section 414(u)."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this Second Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed as of the day and year first above written.
COMMUNITY FIRST BANKING COMPANY
By: /s/ Gary D. Dorminey
Title: President and CEO
ATTEST:
/s/ D. Lane Poston
Title: Secretary
[CORPORATE SEAL]
THIRD AMENDMENT TO THE
COMMUNITY FIRST BANKING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
THIS THIRD AMENDMENT is made on this 16th day of December, 1999, by
Community First Banking Company, a corporation duly organized and existing under
the laws of the State of Georgia (the "Primary Sponsor").
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Community First Banking Company
Employee Stock Ownership Plan (the "Plan"), which was originally established by
indenture effective as of June 17, 1997 and last amended on February 25, 1999;
and
WHEREAS, the Primary Sponsor desires to amend the Plan to modify the
eligibility requirements and the provisions relating to the timing of benefit
distributions.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective December 31, 1999, by adding the following new Section 2.4 to
the Plan:
"2.4 Notwithstanding the foregoing provisions of this Section 2, any
Eligible Employee employed by a Plan Sponsor as of December 31, 1999 will
become a Member of the Plan as of the later of January 1, 1999 or his date
of hire for all purposes under the Plan, including, but not limited to, for
purposes of determining Annual Compensation under Plan Section 1.4(b). For
all other Eligible Employees other than those described in this Section
2.4, the requirements of Section 2.1 will continue to apply."
2. Effective January 1, 1999, by deleting existing Section 6.1(a) and
substituting therefor the following:
"(a) In the event of a Termination of Employment, a Member whose
vested Account exceeds $5,000 may request, at any time after the
Member's Termination of Employment, payment of his vested Account
which shall be made in cash or in kind at the Member's election, in a
lump sum payment. Payment will be made as soon as practicable after
the Member requests a distribution in writing; provided, however, that
no such distribution shall be made earlier than as soon as
administratively practicable following the close of the Plan Year in
which the Termination of Employment occurs. No distribution of the
Member's Account will be made without a Member's request prior to
Normal Retirement Age."
3. Effective January 1, 1999, by deleting existing Section 7.1(a) and
substituting therefor the following:
"(a) A retired Member whose Account exceeds $5,000 may request
payment of his vested Account at any time after the Member's
Retirement Date occurs. Based upon the election of the Member, all
payments will be made in a lump sum either in cash or in kind. Payment
will be made as soon as practicable after the Member requests a
distribution in writing; provided, however, that no such distribution
shall be made earlier than as soon as administratively practicable
following the close of the Plan Year in which the Retirement Date
occurs. No distribution of the Member's Account will be made without a
Member's request prior to Normal Retirement Age."
4. By deleting the existing Plan Section 8(a) and substituting therefor the
following:
"(a) If a Member dies prior to a Termination of Employment, his
Beneficiary shall receive the Member's Account in a lump sum, either
in cash or in kind, at the election of the Beneficiary, as soon as
practicable following last day of the Plan Year in which the Member
dies. If a Member dies following a Termination of Employment but prior
to receiving a distribution of his Account, the Member's Beneficiary
shall receive the Member's vested Account in a lump sum, either in
cash or in kind at the election of the Beneficiary, as soon as
practicable after the Member's death."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this Third Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed as of the day and year first above written.
COMMUNITY FIRST BANKING COMPANY
By: /s/ T. Aubrey Silvey
Title: Chairman
ATTEST:
/s/ D. Lane Poston
Title: Executive Vice President
[CORPORATE SEAL]
EXHIBIT 13.1 ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
Letter to Shareholders ........................................... 1
Business of the Company .......................................... 2
Selected Consolidated Financial Data ............................. 3
Selected Quarterly Financial Results ............................. 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 5
Report of Independent Certified Public Accountants ............... 34
Market for Common Stock and Related Shareholder Matters .......... 60
Directors ........................................................ 60
Corporate Information ............................................ 61
Annual Meeting ................................................... 61
<PAGE>
Dear Shareholders:
On behalf of the Board of Directors and employees of Community First
Banking Company and its wholly owned subsidiary, Community First Bank, we are
pleased to present to you our 1999 Annual Report.
1999 was an excellent year for CFBC. We have continued the shift in the
loan mix to higher yielding commercial loans to protect net interest margins.
Our efforts to control expenses and boost non-interest revenues continue to
positively impact core earnings. We believe we will see significant
contributions in 2000 from our non-traditional sources such as consumer finance,
brokerage services and insurance. All of these factors bode well for earnings in
2000 and beyond.
Our 1999 results, as presented in this report, were impacted by certain
one-time non-cash charges to earnings related to certain employee benefit plans.
The majority of these charges were the result of the prepayment of the loan that
originally funded our Employee Stock Ownership Plan. Without the employee
benefit plan related expenses totaling $3.9 million net of income taxes, net
income for 1999 would have been approximately $4.4 million or $1.56 per fully
diluted share. Beginning on January 1, 2000, we can now report our operating
performance to our shareholders and potential investors without these
non-cash expenses.
Sincerely,
T. Aubrey Silvey Gary D. Dorminey
Chairman President and CEO
<PAGE>
BUSINESS OF THE COMPANY
Community First Banking Company (the "Company") was incorporated in the
State of Georgia on March 12, 1997, for the purpose of becoming a holding
company to own 100% of the outstanding capital stock of Carrollton Federal Bank,
FSB (the "Savings Bank"). The Savings Bank was organized on August 1, 1994 as a
federal savings bank subsidiary of CF Mutual Holdings (the "Mutual Holding
Company"), a federally chartered mutual holding company. Prior to that date, the
predecessor of the Savings Bank had operated as a mutual savings bank since
1929.
On June 27, 1997, we completed a conversion and reorganization (the
"Conversion") whereby the Company became the unitary holding company for the
Savings Bank and the Mutual Holding Company was dissolved.
On December 29, 1997, the Savings Bank converted from a federal savings
bank regulated by the Office of Thrift Supervision (the "OTS") to a Georgia
chartered state commercial bank regulated by the Georgia Department of Banking
and Finance (the "Georgia Department") and concurrently changed its name to
Community First Bank (the "Bank").
The Company directs, plans and coordinates the activities of the Bank and
its subsidiaries. Accordingly, the information presented in this Annual Report
relates primarily to the Bank. The Bank is a community-oriented financial
institution operating from seven branch offices in western Georgia. These
branches provide customary banking services such as customer and commercial
checking accounts, NOW accounts, savings accounts, certificates of deposit,
lines of credit and MasterCard and VISA credit cards. Lending activities include
the origination of consumer and commercial business loans on a secured and
unsecured basis, residential mortgage and home equity loans, and commercial real
estate loans.
The Bank has three wholly owned operating subsidiaries that broaden the
services the Bank offers to the community. The first, CFB Securities, Inc.,
offers traditional brokerage services and products such as mutual funds, stocks
and bonds through an NASD member firm. CFB Securities, Inc. began operations in
1996 and is located in space immediately adjacent to the Bank's main office
lobby in Carrollton, Georgia.
The second subsidiary of the Bank, CFB Financial Inc., began operations in
1996 to service the loan needs of consumers traditionally associated with
consumer finance companies. CFB Financial, Inc. has nine full-time employees
operating in its offices in Villa Rica and Douglasville, Georgia, and at the
Bank's branch in Hiram, Georgia. This subsidiary offers a wide range of small
loans granted in conformity with the Georgia Industrial Loan Act.
The third subsidiary, CFB Insurance Agency, Inc., began operations in 1997.
Based in Bowdon, Georgia, CFB Insurance Agency, Inc. offers a full line of
insurance products to existing Bank customers as well as the general public.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected consolidated financial data
of Community First Banking Company and other data regarding the Mutual Holding
Company and the Savings Bank. The data at December 31, 1996 and 1995, and for
the years then ended, have been derived from audited consolidated financial
statements of CF Mutual Holdings and subsidiaries.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA (YEAR END) (in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Loans, gross ............................... 294,183 267,735 286,391 272,435 273,171
Earning assets ............................. 360,030 361,169 361,675 326,443 314,706
Assets ..................................... 386,048 391,986 393,881 352,532 334,477
Deposits ................................... 295,387 285,937 315,531 307,756 289,288
Stockholders' equity ....................... 27,199 26,124 69,038 25,258 25,030
Common shares outstanding .................. 2,789,448 2,578,074 4,479,570 N/A N/A
STATEMENT OF EARNINGS DATA
Net interest income ........................ 15,121 15,574 16,132 13,409 13,217
Provision for loan losses .................. 1,015 782 2,067 1,143 250
Noninterest income ......................... 3,753 5,597 3,690 3,244 3,119
Noninterest expense (1) .................... 17,576 16,038 17,670 15,276 11,764
Income taxes (benefit) ..................... (191) 1,348 (28) (14) 1,375
Net earnings ............................... 474 3,003 113 248 2,947
PER COMMON SHARE
Basic ....................................... .18 0.87 0.03 N/A N/A
Diluted ..................................... .17 0.82 0.03 N/A N/A
Cash dividends declared ..................... .5125 0.35 0.15 N/A N/A
Book value .................................. 9.75 10.14 15.41 N/A N/A
KEY PERFORMANCE RATIOS
Return on average assets .................... 0.12% 0.73% 0.03% 0.07% 0.86%
Return on average equity .................... 1.76% 6.31% 0.02% 0.99% 12.51%
Net interest margin to average earning assets 4.22% 4.11% 4.53% 4.21% 4.07%
Average equity to average assets ............ 7.09% 11.62% 12.61% 7.32% 6.85%
Noninterest expense to average assets (1) ... 4.62% 3.92% 4.61% 4.45% 3.42%
Efficiency ratio (1)(2) ..................... 93.12% 75.75% 89.14% 91.73% 72.01%
Dividend payout ratio ....................... 284.72% 40.23% 500.0% N/A N/A
OTHER DATA
Number of full service offices .............. 7 7 12 12 7
</TABLE>
(1) Includes one-time SAIF assessment of $1,723 in 1996.
(2) The efficiency ratio is calculated by dividing noninterest expense by the
sum of net interest income plus noninterest income.
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL RESULTS
(in thousands except per share data)
4th 3rd 2nd 1st
Year Ended December 31, 1999 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest income ........................................................ 7,927 7,586 7,512 7,531
Interest expense ....................................................... 3,887 3,790 3,766 3,992
Net interest income .................................................... 4,040 3,796 3,746 3,539
Provision for loan losses .............................................. 414 237 192 172
Net interest income after provision for loan losses .................... 3,626 3,559 3,554 3,367
Noninterest income ..................................................... 917 898 917 1,021
Noninterest expense (2)................................................. 6,276 3,167 4,805 3,328
Earnings before income taxes ........................................... (1,733) 1,290 (334) 1,060
Income tax expense ..................................................... (684) 397 (201) 297
Net earnings ........................................................... (1,049) 893 (133) 763
Basic earnings per share (1) ........................................... (.41) .34 (.05) .30
Diluted earnings per share (1) ......................................... (.38) .32 (.05) .28
4th 3rd 2nd 1st
Year Ended December 31, 1998 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest income ........................................................ 7,839 8,171 8,222 7,988
Interest expense ....................................................... 4,220 4,357 4,251 3,818
Net interest income .................................................... 3,619 3,814 3,971 4,170
Provision for loan losses .............................................. 221 226 181 154
Net interest income after provision for loan losses .................... 3,398 3,588 3,790 4,016
Noninterest income ..................................................... 1,423 1,327 1,672 1,175
Noninterest expense (3)................................................. 3,684 3,834 4,371 4,149
Earnings before income taxes ........................................... 1,137 1,081 1,091 1,042
Income tax expense ..................................................... 320 338 355 335
Net earnings ........................................................... 817 743 736 707
Basic earnings per share (1) ........................................... .30 .23 .19 .17
Diluted earnings per share (1) ......................................... .28 .22 .18 .16
</TABLE>
(1) Earnings (loss) per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings (loss) per share does
not necessarily equal the total for the year.
(2) In the second quarter of 1999 the Board of Directors of the Company voted to
accelerate the vesting of the Management Recognition Plan (MRP) so that the
Restricted Stock Awards became fully vested as of June 30, 1999. This resulted
in a non-cash charge to compensation expense of $1.4 million and a reduction in
unearned stock awards by the same amount. In the fourth quarter of 1999 the
Board of Directors of the Comapny voted to prepay the balance of the ESOP loan,
resulting in a non-cash charge to ESOP expense of $3.0 million and a credit to
unearned ESOP shares for the same amount.
(3) In the second quarter of 1998, the Company increased the number of ESOP
shares committed to be released from 9,654 to 17,585 shares for the quarter
ended June 30, 1998. This resulted in an increase in ESOP expense of $371,000
for the second quarter of 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As a bank holding company, the Company's financial condition and results of
operations are primarily dependent upon its wholly owned subsidiary, the Bank.
Consequently, this section discusses principally the operations of the Bank,
which directly affect the Company's financial condition and results of
operations.
The Company's profitability depends primarily on net interest income, which
is the difference between interest and dividend income on interest-earning
assets, principally loans and investment securities, and interest expense on
interest-bearing deposits and other interest-bearing liabilities. Net earnings
also are dependent, to a lesser extent, on the level of provision for loan
losses, non-interest income and non-interest expenses, such as salaries and
related benefits, occupancy and equipment, deposit insurance premiums, and
miscellaneous other expenses, as well as provisions for federal and state income
tax.
The Bank historically operated as a traditional savings and loan, raising
money by offering savings products of relatively short duration and lending this
money for the purpose of home financing. As regulations affecting the savings
and loan industry changed, the Bank began offering primarily adjustable rate
mortgages (ARM's) in 1981. Additional authority for checking accounts and
consumer and commercial loans also allowed the Bank to offer additional services
to its traditional customer base. On December 29, 1997, the Bank converted from
a federal savings bank to a Georgia chartered state bank and thereby gained
additional opportunities to diversify its products and services.
Simultaneous to the Bank's conversion, certain adjustments were made at
year-end 1997 in preparation for its first year of operation as a state
chartered commercial bank. Included in these adjustments were an additional
provision for loan losses to bring the allowance for loan losses to 1.0 % of
loans outstanding at December 31, 1997, certain non-recurring charges related to
the Management Recognition Plan (MRP), closing of unprofitable branches and
computer equipment obsolescence associated with the Year 2000 compliance issue.
The declining interest rate environment during 1998 placed significant
pressure on the Bank's net interest margin. The slight decline in net interest
income for 1998 was offset by the improvements realized in noninterest income
and noninterest expense. In keeping with management's focus on cost control and
profitability, the decision was made in late 1998 to sell three of our four
branches located in Wal*Mart Superstores in the south metro-Atlanta area. This
sale was completed in December 1998.
In 1999, the Company prepaid the balance of the ESOP loan, which generated
a total non-cash expense in 1999 of $4.6 million on a pre-tax basis. Also in
1999, the Company recognized the balance of the unamortized MRP, which added a
total of $1.5 million in non-operating expense for the year ended December 31,
1999. The Company has now recognized all expenses related to the benefit
programs adopted in connection with the Conversion.
Another facet of the conversion process was management's efforts to achieve
optimal capital levels. Under common stock repurchase plans approved by the
Board of Directors beginning in 1998, the Company has purchased on the open
market 2,037,676 shares of its common stock at an aggregate purchase price of
$46.3 million through December 31, 1999. Of the 2,037,676 total shares
repurchased, 1,545,070 shares have been retired and 492,606 shares are held in
treasury for issuance under the Company's employee benefits plans.
FORWARD-LOOKING STATEMENTS
This annual report, both in the Management's Discussion and Analysis
section and elsewhere, contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although the Company believes that the assumptions underlying the
forward-looking statements contained in the discussion are reasonable, any of
the assumptions could be inaccurate, and therefore, no assurance can be made
that any of the forward-looking statements included in this discussion will be
accurate. Factors that could cause actual results to differ from results
discussed in forward-looking statements include, but are not limited to:
economic conditions (both generally and in the markets where the Company
operates); competition from other providers of financial services offered by the
Company; government regulation and legislation; changes in interest rates;
material unforeseen changes in the financial stability and liquidity of the
Company's credit customers; and other risks detailed in the Company's filings
with the Securities and Exchange Commission, all of which are difficult to
predict and which may be beyond the control of the Company. The Company
undertakes no obligation to revise forward-looking statements to reflect events
or changes after the date of this discussion or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Net earnings totaled $474,000 for 1999 as compared to $3.0 million for 1998
and $113,000 for 1997. The $2.5 million decrease in net earnings during 1999
compared to 1998 was primarily attributable to the increase in ESOP and MRP
expenses of $3.6 million. The Company completed recognition of all expenses
associated with the ESOP and MRP during 1999. The costs of these benefit plans,
which had originally been scheduled for amortization over a five-year term, have
now been fully recognized in two and one-half years. This will enable the
Company to more clearly demonstrate its earnings abilities. More importantly,
this marks the culmination of the gradual process, begun years ago, of
transforming Community First Banking Company from a depositor-owned savings and
loan association to a publicly traded commercial bank. All of the investments
associated with that process have been made, and the Company can now report its
operating performance without these expenses.
NET INTEREST INCOME
Net interest income (the difference between interest earned on assets and
the interest paid on deposits and liabilities) is the single largest component
of operating income. Management actively manages this income source to provide
the largest possible amount of income while balancing interest rate, credit and
liquidity risks.
Net interest income, on a taxable equivalent basis, was $15.1 million in
1999, compared to $15.6 million in 1998, and $16.2 million in 1997. The decrease
of 3.1% in 1999 was primarily the result of lower yields on loans and interest
bearing deposits and federal funds sold. These lower yields were partially
offset by higher yields on taxable investment securities and lower cost of funds
on interest-bearing liabilities. The decrease of 3.4% in 1998 was primarily the
result of the decrease in yields on investment securities and increases in other
borrowings.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents for the periods indicated the total dollar amount
of interest from average interest-earning assets and the resultant yield, as
well as the interest expense on average interest-bearing liabilities, expressed
both in dollars and rates, and the net interest margin. Dividends received are
included as interest income. Average balances are average daily balances.
<PAGE>
TABLE 1 CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------------
Average Interest Yield Average Interest Yield
Balance /Rate Balance /Rate
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits and federal funds sold $ 8,309 440 5.30% $ 25, 533 1,436 5.62%
Investment securities:
Taxable 69,990 4,349 6.21 80,128 4,764 5.94
Nontaxable 1,192 92 7.72 2,270 177 7.80
----- --- ----- ----- --- -----
Total investment securities 71,182 4,441 6.24 82,398 4,941 6.00
Loans (including loan fees) (1) 278,929 25,706 9.22 272,055 25,903 9.52
------- ------ ---- ------- ------ ----
Total interest-earning assets 358,420 30,587 8.53 379,986 32,280 8.50
Allowance for loan losses (3,067) (2,895)
Cash and due from banks 7,624 10,316
Premises and equipment 7,817 9,036
Other assets 9,612 13,038
------ ------
Total assets $ 380,406 $ 409,481
========= =========
Liabilities and equity:
Interest-bearing liabilities:
Deposits:
Demand $ 53,588 1,165 2.17% $ 56,842 1,463 2.57%
Savings 31,566 649 2.06 37,902 1,069 2.82
Time 190,949 10,333 5.41 204,932 11,720 5.72
Other borrowings 57,641 3,288 5.70 41,197 2,394 5.81
------ ----- ---- ------ ----- ----
Total interest bearing liabilities 333,744 15,435 4.62 340,873 16,646 4.88
Non-interest bearing demand deposits 15,406 15,942
Other liabilities 4,304 5,087
Equity 26,952 47,579
------ ------
Total liabilities and equity $ 380,406 $ 409,481
========= =========
Excess of interest-bearing assets over
interest-bearing liabilities 24,676 39,113
Ratio of interest-bearing assets to
interest-bearing liabilities 107.39% 111.47%
Net interest income 15,152 15,634
Net interest rate spread 3.91% 3.62%
===== =====
Net interest margin (2) 4.22% 4.11%
===== =====
Tax equivalent adjustments
Investment securities (31) (60)
Net interest income 15,121 15,574
====== ======
</TABLE>
<PAGE>
TABLE 1 CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES (continued)
<TABLE>
<CAPTION>
1997
--------------------------
Average Interest Yield
Balance /Rate
(dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits and federal funds sold $19,268 1,064 5.55%
Investment securities:
Taxable 51,584 3,653 7.08
Nontaxable 2,099 164 7.81
----- --- -----
Total investment securities 53,683 3,817 7.11
Loans (including loan fees) (1) 283,723 26,628 9.39
------- ------ ----
Total interest-earning assets 356,674 31,509 8.83
Allowance for loan losses (2,193)
Cash and due from banks 8,980
Premises and equipment 9,750
Other assets 9,763
-----
Total assets $382,974
========
Liabilities and equity:
Interest-bearing liabilities:
Deposits:
Demand $ 48,745 1,501 3.08%
Savings 39,223 1,157 2.95
Time 208,849 11,848 5.67
Other borrowings 13,465 815 6.05
------ --- ----
Total interest bearing liabilities 310,282 15,321 4.94
Non-interest bearing demand deposits 21,588
Other liabilities 2,820
Equity 48,284
------
Total liabilities and equity $382,974
========
Excess of interest-bearing assets over
interest-bearing liabilities 46,393
Ratio of interest-bearing assets to
interest-bearing liabilities 114.95%
Net interest income 16,188
Net interest rate spread 3.89%
=====
Net interest margin (2) 4.53%
=====
Tax equivalent adjustments
Investment securities (56)
Net interest income 16,132
======
</TABLE>
(1) Average balances include nonaccrual loans and mortgage loans held for sale.
(2) Excludes provision for loan losses.
<PAGE>
RATE/VOLUME ANALYSIS
The banking industry often utilizes two key ratios to measure relative
profitability of net interest income. The net interest rate spread measures the
difference between the average yield on earning assets and the average rate paid
on interest-bearing sources of funds. The interest rate spread eliminates the
impact of noninterest-bearing deposits and gives a direct perspective on the
effect of market interest rate movements. The net interest margin is defined as
net interest income as a percent of average total earning assets and takes into
account the positive impact of investing noninterest-bearing deposits.
The net interest spread was 3.91% in 1999, 3.62% in 1998 and 3.89% in 1997,
while the net interest margin was 4.22% in 1999, 4.11% in 1998 and 4.53% in
1997. The increase in spread in 1999 was primarily due to lower rates paid on
interest-bearing liabilities. The decrease in the spread during 1998 was
primarily due to lower average loan balances, higher average investment
securities with lower yields and higher average borrowings. The table below
shows the change in net interest income for the past two years due to changes in
volume and rate, on a tax equivalent basis (assuming a 34% tax rate). Variances
resulting from a combination of changes in rate and volume are allocated in
proportion to the absolute dollar amounts of the change in each category.
<PAGE>
TABLE 2 RATE/ VOLUME VARIANCE ANALYSIS
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
--------------------- ---------------------
Increase (decrease) Increase (decrease)
due to changes in due to changes in
------------------------------------ --------------------------------------
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest-earning deposits and
federal funds sold (969) (27) (996) 359 13 372
Investment securities:
Taxable (603) 188 (415) 2,023 (912) 1,111
Nontaxable (84) (1) (85) 13 0 13
Loans (including loan fees) 654 (851) (197) (1,095) 370 (725)
----- --- ----- ------- --- -----
Total interest income (1,002) (691) (1,693) 1,300 (529) 771
------ ---- ------ ----- ---- ---
Interest expense on:
Deposits:
Demand (84) (214) (298) 250 (288) (38)
Savings (179) (241) (420) (39) (49) (88)
Time (800) (587) (1,387) (229) 101 (128)
Other borrowings 956 (62) 894 1,679 (100) 1,579
----- ---- ----- ----- ----- -----
Total interest expense (107) (1,104) (1,211) 1,661 (336) 1,325
---- ------ ------ ----- ---- -----
Net interest income (895) 413 (482) (361) (193) (554)
===== === ===== ===== ===== =====
</TABLE>
NONINTEREST INCOME
Noninterest income consists primarily of revenues generated from service
charges and fees on deposit accounts and profits earned through sales of credit
life insurance. In addition, gains or losses realized from the sale of
investment portfolio securities are included in noninterest income. Noninterest
income decreased $1.8 million or 33.0% in 1999 compared to 1998. Service charges
on deposits decreased $813,000 or 26.6% primarily because of the loss of deposit
accounts associated with the sale of three Wal*Mart branches on December 31,
1998. Gain on the sale of securities was down $820,000 in 1999 compared to 1998
due to limited sales of investment securities. Management periodically
liquidates securities available for sale to meet loan demand and other liquidity
needs. Insurance commissions were up $111,000 or 18.2% primarily due to the
increased sales volume of the insurance subsidary of the Bank. Miscellaneous
income decreased $322,000 or 30.2% in 1999 compared to 1998 primarily because of
lower gains on sales of real estate in 1999 ($93,000 for 1999 vs. $294,000 in
1998) and an insurance settlement of $250,000 received in 1998.
Total noninterest income for 1998 increased 51.7% or $1.9 million as
compared to 1997. In addition to increases in all categories of fee based
income, the largest component of noninterest income growth during 1998 was the
net gain on sale of available for sale securities totaling $860,000. Fees on
transaction accounts were increased during 1998 as the result of an independent
review of the Bank's fee structure that was performed in the fourth quarter of
1997 and implemented in 1998. Miscellaneous income increased $610,000 or 133%
for the year ended December 31, 1998 as compared to 1997. This increase resulted
primarily from three items: an insurance settlement of $250,000; net gain on
sale of other assets, including other real estate of $294,000 for 1998 compared
to a net loss in 1997 of $51,000; and the gain on the sale of three branches
located in Wal*Mart Superstores of $100,000 in 1998. Income from insurance sold
increased by $86,000 or 16.4% in 1998.
NONINTEREST EXPENSE
Noninterest expense increased $1.5 million or 9.6% for the year ended
December 31, 1999 compared to 1998. This increase was primarily the result of
recognition of the remaining ESOP and MRP expenses in 1999 that were originally
to be amortized over five years. ESOP and MRP expense was $3.6 million more in
the year ended December 31, 1999 than 1998. All other noninterest expense items
decreased for the twelve months ended December 31, 1999 compared to the same
twelve months of 1998. Other noninterest expenses including salaries and
employee benefits decreased $501,000 or 7.4%, occupancy and equipment expense
decreased $682,000 or 33.6%, deposit insurance premiums decreased $15,000 or
8.4%, and other operating expense decreased $862,000 or 19.1%. These decreases
in noninterest expenses resulted primarily from the sale of three branches
located inside Wal*Mart superstores on December 31, 1998.
Noninterest expense decreased $1.6 million or 9.2% for the year ended
December 31, 1998 as compared to 1997. Approximately half of these cost savings
relate to the closing of two unprofitable branches in February 1998. Expenses
associated with other real estate also decreased by $194,000 and losses related
to branch operations were reduced by $182,000. The year ended December 31, 1997,
had a one time charge of $505,000 for the loss on abandonment of premises and
equipment relating to the closing of two branches and the obsolescence of
certain computer equipment associated with Year 2000 compliance.
INCOME TAXES
An income tax benefit of $191,000 was recognized for the year ended
December 31, 1999. Income tax expense of $1.3 million was recognized for the
year ended December 31, 1998 and an income tax benefit of $28,000 was recognized
for the year ended December 31, 1997. The effective tax rate differed from the
expected 34% federal rate applied to earnings before income taxes primarily due
to tax-exempt interest income and the dividends received deduction. Additional
information regarding the Company's income taxes can be found in Note (8) of the
Notes to Consoldiated Financial Statements.
CHANGES IN FINANCIAL CONDITION
The Company's consolidated assets at December 31, 1999 totaled $386
million, compared to $392 million at December 31, 1998. This represents a 1.5%
decrease in total assets at year-end 1999. The average balance sheet (Table 1)
reflects a $29.1 million or 7.1% decrease in average total assets from 1998 to
1999. Average interest-earning deposits and federal funds sold decreased $17.2
million or 67.5%. Average investment securities for 1999 decreased $11.2 million
in 1999. Average loans increased $6.9 million or 2.5% from 1998 to 1999. Average
interest bearing deposits decreased $23.6 million or 7.9%. This decrease in
average deposits was partially offset by an increase in average other borrowings
of $16.4 million or 39.9%.
INVESTMENT SECURITIES
The Company classifies its securities in one of three categories: trading,
available for sale or held to maturity. There were no trading securities at
December 31, 1999, 1998 or 1997. Securities held to maturity are those
securities for which the Company has the ability and intent to hold to maturity.
All other securities are classified as available for sale. Securities available
for sale are recorded at fair value. Securities held to maturity are recorded at
cost, adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses, net of the related tax effect, on
securities available for sale are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
At December 31, 1999, approximately 58.6% of the Company's investment
securities and other investments were comprised of mortgage-backed securities
that are insured or guaranteed by the Federal Home Loan Mortgage Corporation
(FHLMC), Federal National Mortgage Association (FNMA), or Government National
Mortgage Association (GNMA). Collateralized Mortgage Obligations (CMOs) not
insured or guaranteed by FHLMC, FNMA or GNMA comprised 5.8% of the investment
portfolio, U.S. Government agency obligations comprised 10.0%, preferred stock
of FNMA, FHLMC and Student Loan Mortgage Association (SLMA) comprised 16.8%,
Federal Home Loan Bank (FHLB) stock comprised 4.6%, municipal securities
comprised .2% and common stock comprised 4.0% of such portfolio at December 31,
1999.
The Company's securities portfolio is managed in accordance with the
Company's Investment Policy adopted by the Board of Directors and administered
by the Asset/Liability Committee, which consists of two outside directors, the
President and Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, and Senior Vice President Management Services. The policy lists
specific areas of permissible investments consistent with the Company's
investment strategy. Under the Company's policy, at the time of purchase of an
investment security, management designates the security as either held for
maturity or available for sale based on the Company's investment objectives,
operational needs and intent. The Company does not maintain a trading account
portfolio. Investment activities are monitored to ensure that they are
consistent with established guidelines and objectives.
<PAGE>
The following table sets forth certain information regarding the
classifications of the Company's investment securities at December 31, 1999,
1998 and 1997. Securities classified as available for sale are carried at their
estimated fair value at December 31, 1999. Securities held to maturity are
carried at amortized cost at all respective dates. There were no trading
securities at December 31, 1999, 1998 or 1997.
TABLE 3 CARRYING VALUE OF INVESTMENTS
<TABLE>
<CAPTION>
Securities available for sale: 1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
U.S. Treasuries -- 3,049 3,013
U.S. Government agencies 6,828 1,005 23,248
State, county and municipal -- 2,184 2,159
Mortgage-backed securities 43,717 51,646 11,552
Equity securities 14,120 13,818 9,520
-------- ------- -------
64,665 71,702 49,492
-------- ------- -------
Securities held to maturity:
U.S. Government agencies -- -- 5,669
State, county and municipals 115 115 115
Mortgage-backed securities 69 117 222
--- --- ---
184 232 6,006
------ --- ------
Total investment securities 64,849 71,934 55,498
====== ====== ======
</TABLE>
The following table presents the expected maturity of the total investment
securities portfolio by maturity date and average yields based upon amortized
cost (for all obligations on a fully taxable basis assuming a 34% tax rate) at
December 31, 1999. It should be noted that the composition and
maturity/repricing distribution of the investment portfolio is subject to change
depending upon rate sensitivity, capital needs and liquidity needs.
<PAGE>
TABLE 4 EXPECTED MATURITY OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
After one but After five but
Within one year within five years within ten years After ten years
Amount Yield Amount Yield Amount Yield Amount Yield Totals
------ ----- ------ ----- ------ ----- ------ ----- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
State, county and municipals $ - - 115 4.55% - - - - 115
Mortgage-backed securities - - 69 7.82% - - - - 69
-- ----- -- - - - - ---
$ - - 184 5.78% - - - - 184
== ===== === = = ===
Securities available for sale:
U.S. Government agencies $ 6,083 7.50% 1,000 6.54% - - - - 7,083
State, county and municipals - - - - - - - - -
Mortgage-backed securities - - - - 1,893 6.86% 44,599 6.50% 46,492
Equity securities:
FNMA preferred stock 2,018 - - - - - - - 2,018
SLMA preferred stock 5,732 - - - - - - - 5,732
FHLMC preferred stock 5,009 - - - - - - - 5,009
Common Stock 3,995 - - - - - - - 3,995
----- ----- ----- ----- ------ ----- ------ ----- -----
$ 22,837 7.50% 1,000 6.54% 1,893 6.86% 44,599 6.50% 70,329
====== ===== ===== ====== ======
</TABLE>
LENDING ACTIVITIES
The Bank has general authority to originate and purchase loans secured by
real estate, secured or unsecured loans for commercial, corporate, business, or
agricultural purposes and loans for personal, family, or household purposes, and
may issue credit cards and extend credit in connection therewith. While not
restricted by law, the Bank limits its lending activities mainly to the counties
in which it has offices.
At December 31, 1999, the Bank's loans-to-one borrower limit was $6.9
million for amply secured loans (25% of statutory capital base) and $4.1 million
for unsecured loans (15% of statutory capital). Its five largest loans or groups
of loans-to-one borrower, including related entities, at December 31, 1999 were
$5.7 million, $4.3 million, $3.8 million, $3.7 million and $3.6 million. The
$5.7 million loan is to fund the purchase of a clothing manufacturing business
secured by real estate and equipment, inventory, furniture, fixtures, and
accounts receivable. The $4.3 million loan is a commercial installment note
secured by a restaurant, motel and adjacent real estate. The $3.8 million loan
is to an assisted living retirement home in Tennessee. The $3.7 million loan is
to a 228 lot residential subdivision and an 18 hole golf course.The $3.6 million
loan is a construction and permanent financing on a 240 unit apartment complex
in Chattanooga, Tennessee, which represents a participation with other lenders.
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated.
TABLE 5 LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
Amount % Amount % Amount % Amount % Amount %
------------- ------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans(1) $179,080 61% $197,182 74% $209,836 73% $203,799 75% $225,481 83%
Real estate construction loans 34,072 11 18,853 7 18,016 6 10,760 4 5,052 2
Commercial loans 52,894 18 20,905 8 16,507 6 10,293 4 8,643 3
Consumer and other installment loans 28,137 10 30,795 11 42,032 15 47,583 17 33,995 12
------ -- ------ -- ------ -- ------ -- ------ --
Total loans 294,183 100% 267,735 100% 286,391 100% 272,435 100% 273,171 100%
Less: Allowance for loan losses 3,379 2,880 2,789 2,601 2,291
----- ----- ----- ----- -----
Loans, net $290,804 $264,855 $283,602 $269,834 $270,880
======== ======== ======== ======== ========
(1)Real estate mortgage loans contain commercial loans secured by real estate in
the following amounts:
1999 1998 1997 1996 1995
$ 69,959 $ 74,237 $ 78,675 $ 47,493 $ 35,301
</TABLE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table sets
forth certain information at December 31, 1999 regarding the dollar amount of
loans maturing or repricing in the Bank's portfolio based on the contractual
terms to maturity, before giving effect to net items. Demand loans, loans having
no stated schedule of repayments and no stated maturity or repricing and
overdrafts are reported as due in one year.
TABLE 6 LOAN PORTFOLIO MATURITIES
<TABLE>
<CAPTION>
1 year
Less Than through Over
Loan Type 1 year 5 years 5 years Total
- --------- ------ ------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial $16,845 $25,189 $10,860 $52,894
Construction 25,249 6,375 2,448 34,072
------ ----- ----- ------
Total $42,094 $31,564 $13,308 $86,966
======= ======= ====== =======
</TABLE>
<PAGE>
The following table sets forth, as of December 31, 1999, the dollar amount
of all loans, before net items, maturing or repricing after one year from
December 31, 1999 that have fixed interest rates or that have adjustable
interest rates.
TABLE 7 RATE STRUCTURE FOR LOANS MATURING OVER ONE YEAR
<TABLE>
<CAPTION>
Fixed Adjustable
Loan Type Rates Rates Total
- --------- ----- ----- -----
(in thousands)
<S> <C> <C> <C>
Commercial $32,021 $4,028 $36,049
Construction 6,524 2,299 8,823
----- ----- -----
Total $38,545 $6,327 $44,872
======= ====== =======
</TABLE>
Scheduled contractual amortization of loans does not reflect the actual
term of the Bank's loan portfolio. The average life of loans is substantially
less than their contractual terms because of prepayments and due-on-sale
clauses, which give the Bank the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Bank manages asset quality and controls risk through diversification of
the loan portfolio and the application of policies designed to foster sound
underwriting and loan monitoring practices. The Bank's Asset Review Committee is
charged with monitoring asset quality, establishing credit policies and
procedures, and enforcing the consistent application of these policies and
procedures across the Bank. Loan review specialists are charged with credit
reviews and reporting deviation from policy, or any change in the quality of a
credit, to the Asset Review Committee and the Executive Committee of the Board
of Directors.
The provision for loan losses is the annual cost of providing an adequate
allowance for anticipated potential future losses on loans. The amount each year
is dependent upon many factors including loan growth, net charge-offs, changes
in the composition of the loan portfolio, delinquencies, management's assessment
of loan portfolio quality, the value of collateral, and economic factors and
trends.
Reviews of non-performing and past due loans and larger credits, designed
to identify potential charges to the allowance for loan losses, as well as
determine the adequacy of the allowance, are made on a regular basis during the
year.
These reviews are made by the responsible lending officers, as well as a
separate credit review department, and consider such factors as the financial
strength of borrowers, the value of the applicable collateral, past loan loss
experience, anticipated loan losses, growth in the loan portfolio, and other
factors, including prevailing and anticipated economic conditions.
Whenever a loan, or portion thereof, is considered by management to be
uncollectible, it is charged against the allowance for loan losses. Management
believes the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowance for loan losses. Such agencies may
require the Banks to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
The provision for loan losses increased by $233,000 in 1999 compared to
1998. The allowance for loan losses as a percentage of total loans increased to
1.15% in 1999 from 1.08% at year end 1998. The loan loss provision was higher
for 1999 than 1998 because of the change in the loan portfolio away from real
estate mortgage loans toward higher risk commercial and construction loans, and
an increase in the Bank's consumer finance subsidary's loan portfolio by over
$1.9 million in 1999. In 1997, the Company chose to charge-off certain loans in
preparation for conversion to a state chartered commercial bank. These
charge-offs were the result of higher deficiency balances associated with
consumer loans and credit card loans as well as charge-offs taken upon the
foreclosure of real estate. The Bank does not currently allocate the allowance
for loan losses to the various loan categories.
<PAGE>
TABLE 8 ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 2,880 $2,789 $2,601 $ 2,291 $ 2,392
Provisions 1,015 782 2,067 1,143 250
Charge-offs
Mortgage loans 69 199 351 32 82
Commercial loans 110 33 95 117 59
Consumer loans 636 962 1,768 776 307
--- --- ----- --- ---
Total charge-offs 815 1,194 2,214 925 448
Recoveries
Mortgage loans 8 - 42 25 7
Commercial loans - - - - -
Consumer loans 291 503 293 67 90
--- --- --- -- --
Total recoveries 299 503 335 92 97
Net charge-offs 516 691 1,879 833 351
--- --- ----- --- ---
Allowance at end of period $3,379 $2,880 $2,789 $2,601 $2,291
====== ====== ====== ====== ======
Allowance for loan losses to total non-performing
loans at end of period 267.33% 260.87% 254.00% 41.66% 99.61%
Allowance for loan losses to average loans at end
of period 1.20% 1.04% 1.00% 0.95% 0.82%
Net charge-offs to average loans outstanding
during the period 0.18% 0.25% 0.67% 0.31% 0.13%
Average gross loans(1) $280,959 $277,063 $279,412 $272,803 $278,323
</TABLE>
(1) Beginning and ending annual period balances were used to calculate average
gross loans.
ASSET QUALITY AND RISK ELEMENTS
At December 31, 1999, non-performing assets, comprised of nonaccrual loans,
other real estate owned and loans for which payments are more than 90 days past
due, totaled $1.8 million compared to $6.6 million at year end 1998. On April
30, 1999, the sale of a large parcel of undeveloped land, recorded as other real
estate at December 31, 1998, 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.
It is the general policy of the Bank to stop accruing interest income and
place the recognition of interest on a cash basis when a loan is placed on
nonaccrual status and any interest previously accrued but not collected is
reversed against current income. Loans made by the Bank to facilitate the sale
of other real estate are made on terms comparable to loans of similar risk.
There were no commitments to lend additional funds on nonaccrual loans at
December 31, 1999. Table 9 summarizes the Bank's non-performing assets for each
of the last five years.
<PAGE>
TABLE 9 RISK ELEMENTS
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Mortgage $ 686 1,014 752 4,843 1,785
Construction - - 199 - -
Commercial - - - - -
Consumer 578 90 147 1,400 515
Accruing loans greater than 90 days delinquent:
Mortgage - - - - -
Construction - - - - -
Commercial - - - - -
Consumer - - - - -
----- ----- ----- ----- -----
Total non-performing loans 1,264 1,104 1,098 6,243 2,300
Real estate owned(1) 528 5,479 6,628 180 253
----- ----- ----- ----- -----
Total non-performing assets $ 1,792 6,583 7,726 6,423 2,553
===== ===== ===== ===== =====
Total non-performing loans as a
percentage of total net loans 0.43% 0.42% 0.39% 2.31% 0.85%
Total non-performing assets as
a percentage of total assets 0.46% 1.68% 1.96% 1.82% 0.76%
</TABLE>
(1) Consists of real estate acquired by foreclosure.
There may be additional loans within the Bank's portfolio that may
become classified as conditions dictate; however, management was not aware of
any such loans that are material in amount at December 31, 1999.
SOURCE OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from loan principal repayments, principal, interest and dividend payments on
investments and other sources. Loan repayments are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by
general interest rates and market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They may also be used on a longer term basis for general business
purposes.
DEPOSITS. The Bank's deposits are attracted principally from within the
Bank's primary market area through the offering of a wide selection of deposit
instruments, including NOW accounts, money market accounts, regular savings
accounts, and term certificate accounts. Included among these deposit products
are individual retirement account certificates of approximately $44.1 million at
December 31, 1999. Deposit account terms vary, with the principal references
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. As of December 31, 1999, the certificates of
deposit with principal amounts of $100,000 or more totaled $53.0 million.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by the Bank on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals and federal regulations.
The Bank does not advertise for deposits outside its local market area. A
listing on the Internet has been established primarily for people relocating to
the Bank's primary market area.
In December 1999, the Bank obtained brokered deposits in the amount of $9.0
million which will mature June 30, 2000. The Bank may use brokered
deposits,often a cheaper source of funds compared to other available sources of
borrowed money, on a limited basis to satisfy temporary liquidity needs in the
future.
<PAGE>
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Bank at the dates indicated.
TABLE 10 DEPOSITS
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
------------------------- -------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Amount Interest Rate Amount Interest Rate Amount Interest Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits $197,382 5.4 % $188,052 5.6% $207,326 5.7%
Savings accounts 29,552 2.1 31,630 2.3 38,273 3.2
Transaction accounts
NOW and money
market accounts 55,424 2.2 52,644 2.2 51,198 2.1
Noninterest-
bearing accounts 13,029 - 13,611 - 18,734 -
--------- ------ ------
Total transaction
accounts 68,453 66,255 69,932
--------- ------ ------
Total deposits $295,387 $285,937 $315,531
======== ======== ========
</TABLE>
The following table sets forth the maturities of the Bank's certificates of
deposit having principal amounts of $100,000 or more at December 31, 1999.
TABLE 11 MATURITIES OF CERTIFICATES OF DEPOSIT OVER $100,000
<TABLE>
<CAPTION>
Certificates of deposit maturing in: (in thousands)
<S> <C>
Less than three months $ 11,123
Three to six months 17,302
Six to 12 months 12,047
Over 12 months 12,563
------
Total certificates of deposit with
balances of $100,000 or more $ 53,035
======
</TABLE>
<PAGE>
BORROWINGS. The Bank may obtain advances from the FHLB of Atlanta upon the
security of its FHLB of Atlanta stock and certain of the Bank's residential
mortgage loans, provided certain standards related to creditworthiness have been
met. Such advances are made pursuant to several credit programs, each of which
has its own interest rate and range of deposit accounts, and to permit increased
lending.
The Bank had $52.3 million FHLB advances outstanding at December 31, 1999.
All were fixed rate advances and had a weighted average rate of 5.54%.
The following table sets forth the maximum month-end balance and average
balance of the Bank's FHLB advances during the periods indicated. See also Note
(6) to the Consolidated Financial Statements.
TABLE 12 FHLB ADVANCES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Maximum balance $42,945 $45,055 $16,295
Average balance 53,498 37,564 12,071
Weighted average interest rate
during year 5.43% 5.45% 5.70%
Balance outstanding at year-end $52,345 $42,945 $5,495
Weighted average interest rate
at year-end 5.54% 5.37% 5.73%
</TABLE>
The Bank was extended a federal funds accommodation (Accommodation) by
another financial institution on September 1, 1999 for a period of one year in
the amount of $7.0 million. Advances under the Accommodation are advances of
federal funds at the lending institution's federal funds rate paid to its
respondent banks plus .25% with a maturity of the next banking day. The
Accommodation may be terminated by the financial institution at its sole
discretion. At Decemember 31, 1999 the Bank had advances under this
Accommodation of $5.0 million.
The Company also borrowed $5 million on June 2, 1998 from another financial
institution and pledged all the issued and outstanding shares of capital stock
owned of the Bank. The original note matured on December 2, 1999, and a new
promissory note was executed on the same date. At December 31, 1999 the
outstanding principal balance was $3.0 million. The note payable bears interest
at prime less one percent payable quarterly with the entire outstanding balance
due December 2, 2001.
INTEREST RATE SENSITIVITY MANAGEMENT
The absolute level and volatility of interest rates can have a significant
impact on the Company's profitability. The objective of interest rate risk
management is to identify and manage the sensitivity of net interest income to
changing interest rates in order to achieve the Company's overall financial
goals. Based on economic conditions, asset quality and various other
considerations, management establishes tolerance ranges for interest rate
sensitivity and manages within these ranges.
On February 27, 1998 the Bank purchased an interest rate cap. This interest
rate cap was purchased as part of an arbitrage transaction where the Bank
borrowed $40 million of FHLB 7 yr./2 yr. callable advances, and purchased $40
million in bonds. The Company anticipates continued limited use of derivative
interest rate contracts when appropriate in its asset-liability rate management.
The Company uses income simulation modeling as the primary tool in
measuring interest rate risk and managing interest rate sensitivity. Simulation
modeling considers not only the impact of changing market rates of interest on
future net interest income, but also such other potential causes of variability
as earning asset volume, mix, yield curve relationships, customer preferences
and general market conditions.
Interest rate sensitivity is a function of the repricing characteristics of
the Company's portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity during the life of the instruments. Interest rate
sensitivity management focuses on the maturity structure of assets and
liabilities and their repricing characteristics during periods of changes in
market interest rates. Effective interest rate sensitivity management seeks to
ensure that both assets and liabilities respond to changes in interest rates
within an acceptable timeframe, thereby minimizing the effect of interest rate
movements on net interest income. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in the Company's
current portfolio that are subject to repricing at various time horizons:
immediate through three months, four to twelve months, one to five years, over
five years, and on a cumulative basis. The differences are known as interest
sensitivity gaps. Table 13 shows interest sensitivity gaps for these different
intervals as of December 31, 1999.
<PAGE>
TABLE 13 INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Immediate Four Through One Through
Through Three Twelve Five Over
Months Months Years Five Years Totals
------ ------ ----- ---------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits and federal funds sold 1,145 - - - 1,145
Investment securities 2,258 8,451 13,656 26,364 50,729
Other investments 17,293 - - - 17,293
Loans (including mortgage loans held for sale) 83,948 78,930 100,806 30,608 294,292
------- ------- ------- ------- -------
Total interest-earning assets 104,644 87,381 114,462 56,972 363,459
Interest-bearing demand and savings deposits 14,701 43,122 40,182 - 98,005
Time deposits 41,475 101,524 54,383 - 197,382
Note payable & other borrowings 45,685 - 15,344 - 61,029
------- ------- ------- ------- -------
Total interest-bearing liabilities 101,861 144,646 109,909 - 356,416
Interest sensitivity gap per period 2,783 (57,265) 4,553 56,972
Cumulative interest sensitivity gap 2,783 (54,482) (49,929) 7,043
Cumulative gap as a percentage of total
interest-earning assets 0.77% (14.99)% (13.74)% 1.94%
Cumulative interest-earning assets as a percentage
of cumulative interest-bearing liabilities 102.73% 77.90%% 85.99% 101.98%
</TABLE>
As seen in the preceding table, for the first 365 days, 69.2% of earning
asset funding sources will reprice compared to 52.8% of all interest-earning
assets. Changes in the mix of earning assets or supporting liabilities can
either increase or decrease the net interest margin without affecting interest
rate sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and the liability remains the same, thus impacting net interest
income. This characteristic is referred to as basis risk and generally relates
to the possibility that the repricing characteristics of short-term assets tied
to the Company's prime lending rate are different from those of short-term
funding sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest rate sensitivity analysis report. These prepayments may have
significant effects on the Company's net interest margin. Because of these
factors an interest sensitivity gap report may not provide a complete assessment
of the Company's exposure to changes in interest rates.
Table 13 indicates the Company is in an liability sensitive or negative gap
position at twelve months. This liability sensitive position would generally
indicate that the Company's net interest income would decrease should interest
rates rise and would increase should interest rates fall. Due to the factors
cited previously, current simulation results indicate only minimal sensitivity
to parallel shifts in interest rates. Management also evaluates the condition of
the economy, the pattern of market interest rates and other economic data to
determine the appropriate mix and repricing characteristics of assets and
liabilities required to produce an optimal net interest margin.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure that sufficient funding
is available, at reasonable cost, to meet the ongoing operational cash needs of
the Company and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of the bank to maintain a high level of
liquidity in all economic environments. Liquidity is defined as the ability of a
company to convert assets into cash or cash equivalents without significant loss
and to raise additional funds by increasing liabilities. Liquidity management
involves maintaining the Company's ability to meet the day to day cash flow
requirements of the Company's customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs. Without
proper liquidity management, the Company would not be able to perform the
primary functions of a financial intermediary and would, therefore, not be able
to meet the needs of the communities it serves.
The primary function of asset and liability management is not only to
assure adequate liquidity in order for the Company to meet the needs of its
customer base, but to maintain an appropriate balance between interest-sensitive
assets and interest-sensitive liabilities so that the Company can also meet the
investment returns anticipated by its shareholders. Daily monitoring of the
sources and use of funds is necessary to maintain an acceptable cash position
that meets both requirements. In a banking environment, both assets and
liabilities are considered sources of liquidity funding and both are, therefore,
monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments, maturities of investment securities and, to a lesser
extent, sales of securities. Installment loan payments are becoming an
increasingly important source of liquidity for the Company as this portfolio
continues to grow. Loans that mature or reprice in one year or less amounted to
$163 million at December 31, 1999. Investment securities maturing in the same
time frame totaled $28.0 million. Other short-term investments such as federal
funds sold and maturing interest bearing deposits with other banks are
additional sources of liquidity funding.
The liability portion of the balance sheet provides liquidity through
various customers' interest bearing and noninterest-bearing deposit accounts.
These sources of liquidity are short-term in nature and are used as necessary to
fund asset growth and meet short-term liquidity needs. Liquidity is also
provided by advances from the FHLB of Atlanta and federal funds accomodations
from other lending institutions.
As disclosed in the Company's Consolidated Statements of Cash Flows
included in the Consolidated Financial Statements, net cash provided by
operating activities was $6.2 million for the twelve months ended December 31,
1999 compared to $5.4 million for the same twelve months in 1998. Net cash used
of $20.3 million in 1999 by investing activities resulted primarily from the use
of cash to fund a net increase in loans of $27.0 million. Net proceeds from
sales, maturities and purchases of securities and other investments provided
$1.8 million net cash proceeds. The sale of real estate and other repossessions
provided $5.2 million in cash proceeds. Net financing activites used cash of
$8.2 million in 1999. Deposits increased $9.5 million, primarily from the
brokered deposit mentioned priviously. Proceeds from note payable and other
borrowings less payments on note payable and other borrowings provided $7.4
million in cash. This increase was from additional borrowings from FHLB by the
Bank of $9.4 million and payment of $2.0 million by the Company on borrowings
owed to another financial institution. Federal funds purchased from another
financial institution by the Bank provided $5.7 million of cash. Payment for
sale of branches of $27.5 million which related to the sale of three Wal*Mart
superstore branches sold December 31, 1998 was funded on January 4, 1999.
Management considers the Company's liquidity position at the end of 1999 to
be sufficient to meet its foreseeable cash flow requirements for the next 12
months. Reference should be made to the Consolidated Statements of Cash Flows
appearing in the Consolidated Financial Statements for a three-year analysis of
the changes in cash and cash equivalents resulting from operating, investing and
financing activities.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Company's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than does the
effect of inflation.
YEAR 2000 ISSUES
The Company was successful in its approach to the year 2000 computer
compliance project. The year-end transition from 1999 to year 2000 has not
presented any issues to date. Management feels that the majority of the year
2000 compliance project cost represents costs to migrate to a new personal
computer environment and to upgrade specific older automated teller machines,
both of which we might otherwise have implemented or replaced during the period
notwithstanding the year 2000 issue. Thus, that portion of year 2000 costs will
be amortized over the useful life of the equipment.
<PAGE>
COMMUNITY FIRST BANKING COMPANY
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(with Independent Accountants' Report thereon)
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Community First Banking Company
We have audited the accompanying consolidated balance sheets of Community First
Banking Company and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. The consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community First
Banking Company and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Atlanta, Georgia
February 4, 2000
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
1999 1998
---- ----
(in thousands)
Assets
------
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $2,119,000 and $2,624,000 ......................................... $ 9,252 10,883
Interest-bearing deposits in financial institutions ..................... 925 3,553
Federal funds sold ...................................................... 220 18,300
--- ------
Cash and cash equivalents ....................................... 10,397 32,736
Securities available for sale ........................................... 64,665 71,702
Securities held to maturity ............................................. 184 232
Other investments ....................................................... 3,173 2,328
Mortgage loans held for sale ............................................ 59 199
Loans, net .............................................................. 290,804 264,855
Premises and equipment, net ............................................. 7,516 8,160
Accrued interest receivable ............................................. 3,005 2,558
Other real estate and repossessions ..................................... 528 5,479
Other assets ............................................................ 5,717 3,737
----- -----
$ 386,048 391,986
========= =======
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand ............................................................... $ 13,029 13,611
Interest-bearing demand .............................................. 55,424 52,644
Savings .............................................................. 29,552 31,630
Time ................................................................. 144,347 146,603
Time, over $100,000 .................................................. 53,035 41,449
------ ------
Total deposits .................................................. 295,387 285,937
Note payable and other borrowings ....................................... 55,345 47,945
Federal funds purchased ................................................. 5,684 --
Subordinated debentures ................................................. -- 900
Payable for branch sales ................................................ -- 27,461
Accrued interest payable and other liabilities .......................... 2,433 3,619
----- -----
Total liabilities ............................................... 358,849 365,862
------- -------
Commitments
Stockholders' equity:
Convertible preferred stock, $.01 par value, 96,542 shares
authorized, issued and outstanding ................................ 1 1
Common stock, $.01 par value, 10,000,000 shares authorized,
3,282,054 shares issued, 2,789,448 and 2,578,073 shares outstanding 33 33
Additional paid-in capital ........................................... 14,663 13,481
Unearned ESOP and MRP shares ......................................... -- (4,196)
Retained earnings .................................................... 25,842 26,611
Accumulated other comprehensive loss, net of tax ..................... (3,514) (785)
------ ----
37,025 35,145
Less treasury stock at cost, 492,606 and 449,238 shares .............. (9,826) (9,021)
------- ------- ------ ------
Total stockholders' equity ...................................... 27,199 26,124
------ ------
$ 386,048 391,986
========= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans .................................. $ 25,706 25,903 26,628
Interest-bearing deposits and federal funds sold ............ 440 1,436 1,064
Interest and dividends on investment securities:
U.S. Treasury ............................................ 89 180 107
U.S. Government agencies and mortgage-backed ............. 3,945 4,249 3,375
State, county and municipals ............................. 61 117 108
Other .................................................... 315 335 171
--- --- ---
Total interest income ............................. 30,556 32,220 31,453
------ ------ ------
Interest expense:
Interest on deposits:
Demand ................................................... 1,165 1,463 1,501
Savings .................................................. 649 1,069 1,157
Time ..................................................... 10,333 11,720 11,848
------ ------ ------
12,147 14,252 14,506
Interest on note payable and other borrowings ............... 3,288 2,394 815
----- ----- ---
Total interest expense ............................ 15,435 16,646 15,321
------ ------ ------
Net interest income ............................... 15,121 15,574 16,132
Provision for loan losses ...................................... 1,015 782 2,067
----- --- -----
Net interest income after provision for loan losses 14,106 14,792 14,065
------ ------ ------
Noninterest income:
Service charges on deposits ................................. 2,248 3,061 2,730
Gain (loss) on sales of securities available for sale ....... 40 860 (20)
Insurance commissions ....................................... 720 609 523
Miscellaneous ............................................... 745 1,067 457
--- ----- ---
Total noninterest income .......................... 3,753 5,597 3,690
----- ----- -----
Noninterest expense:
Salaries and employee benefits .............................. 6,319 6,820 7,063
ESOP and MRP expense ........................................ 6,100 2,502 2,580
Occupancy and equipment ..................................... 1,349 2,031 1,907
Deposit insurance premiums .................................. 164 179 160
Loss on abandonment of premises and equipment ............... -- -- 505
Other operating ............................................. 3,644 4,506 5,455
----- ----- -----
Total noninterest expense ......................... 17,576 16,038 17,670
------ ------ ------
Earnings before income taxes ...................... 283 4,351 85
Income tax (benefit) expense ................................... (191) 1,348 (28)
---- ----- ---
Net earnings .......................................... $ 474 3,003 113
======== ===== ===
Basic earnings per share ....................................... $ 0.18 0.87 0.03
======== ==== ====
Diluted earnings per share ..................................... $ 0.17 0.82 0.03
======== ==== ====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Net earnings .............................................................. $ 474 3,003 113
------- ----- ---
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale ............ (4,442) (3,295) 1,221
Less income tax effect of gains (losses) .............................. (1,688) (1,252) 464
------ ------ ---
Unrealized gains (losses) arising during the year, net of tax ...... (2,754) (2,043) 757
------ ------ ---
Reclassification adjustment for gains (losses) included in net earnings 40 860 (20)
Less income tax effect of reclassification adjustments ................ 15 327 (8)
-- --- --
Reclassification adjustment for gains (losses) included in
net earnings, net of tax ....................................... 25 533 (12)
-- --- ---
Other comprehensive income (loss) ........................... (2,729) (1,510) 745
------ ------ ---
Comprehensive income (loss) ............................................... $(2,255) 1,493 858
======= ===== ===
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
Accumulated
Other
Additional Unearned Comprehensive
Preferred Common Paid-in ESOP and Retained Income (Loss), Treasury
Stock Stock Capital MRP Shares Earnings Net of Tax Stock Total
----- ----- ------- ---------- -------- ---------- ----- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 .................. $ -- -- -- -- 25,278 (20) -- 25,258
Net proceeds from issuance of common stock .. -- 24 46,794 -- -- -- -- 46,818
Common stock acquired by ESOP ............... -- -- -- (3,862) -- -- -- (3,862)
Cash dividends declared ($.15 per share) .... -- -- -- -- (666) -- -- (666)
Release of ESOP shares ...................... -- -- 246 386 -- -- -- 632
Change in accumulated other comprehensive
income (loss), net of tax ................ -- -- -- -- -- 745 -- 745
Net earnings ................................ -- -- -- -- 113 -- -- 113
--- --- --- --- --- --- --- ---
Balance, December 31, 1997 .................. -- 24 47,040 (3,476) 24,725 725 -- 69,038
Purchase of treasury stock .................. -- -- -- -- -- -- (45,435) (45,435)
Retirement of treasury stock ................ -- (8) (36,406) -- -- -- 36,414 --
Cash dividends declared ($.35 per share) .... -- -- -- -- (1,100) -- -- (1,100)
Issuance of preferred stock and grant
of MRP shares............................... 1 -- 2,063 (2,064) -- -- -- --
Release of ESOP and MRP shares,
net of tax of $440.......................... -- -- 784 1,344 -- -- -- 2,128
Change in accumulated other comprehensive
income (loss), net of tax ................ -- -- -- -- -- (1,510) -- (1,510)
Net earnings ................................ -- -- -- -- 3,003 -- -- 3,003
Retroactive restatement for 100% stock
dividend declared on January 21, 1999 ..... -- 17 -- -- (17) -- -- --
--- --- --- --- --- --- --- ---
Balance, December 31, 1998 .................. 1 33 13,481 (4,196) 26,611 (785) (9,021) 26,124
Purchase of treasury stock .................. -- -- -- -- -- -- (805) (805)
Cash dividends declared ($.5125 per share) .. -- -- -- -- (1,243) -- -- (1,243)
Release of ESOP and MRP shares,
net of tax of $843.......................... -- -- 1,182 4,196 -- -- -- 5,378
Change in accumulated other comprehensive
income (loss), net of tax ................ -- -- -- -- -- (2,729) -- (2,729)
Net earnings ................................ -- -- -- -- 474 -- -- 474
--- --- --- --- --- --- --- ---
Balance, December 31, 1999 .................. $ 1 33 14,663 -- 25,842 (3,514) (9,826) 27,199
====== == ====== == ====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................................. $ 474 3,003 113
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, amortization and accretion ............................... 1,125 954 1,296
Provision for loan losses .............................................. 1,015 782 2,067
ESOP and MRP compensation expense ...................................... 6,100 2,502 2,580
Deferred income tax expense (benefit) .................................. (1,588) 1,213 (1,406)
Loss (gain) on sales of securities available for sale .................. (40) (860) 20
Loss on abandonment of premises and equipment .......................... -- -- 505
Loss (gain) on sales of premises, equipment and other assets, net ...... (94) (294) 51
Gain on sale of branches ............................................... -- (100) --
Change in (net of effect of sale of branches in 1998):
Mortgage loans held for sale ....................................... 140 590 (507)
Accrued interest receivable ........................................ (447) 611 (481)
Other assets ....................................................... (1,767) (2,569) (43)
Accrued interest payable ........................................... 174 1,293 635
Other liabilities .................................................. 1,083 (1,730) 473
----- ------ ---
Net cash provided by operating activities ................... 6,175 5,395 5,303
----- ----- -----
Cash flows from investing activities (net of effect of sale of branches in 1998):
Proceeds from sales of securities available for sale ......................... 8,301 51,953 3,843
Proceeds from sales of other investments ..................................... -- -- 219
Proceeds from maturities of securities available for sale .................... 7,362 25,780 9,220
Proceeds from maturities of securities held to maturity ...................... 47 5,805 1,785
Purchases of other investments ............................................... (845) (59) --
Purchases of securities available for sale ................................... (13,113) (101,208) (27,277)
Net change in loans .......................................................... (26,993) 17,226 (22,437)
Proceeds from sales of real estate and repossessions ......................... 5,154 2,299 139
Improvements to other real estate and repossessions .......................... (82) (167) --
Proceeds from sales of premises and equipment ................................ 141 958 35
Purchases of premises and equipment .......................................... (298) (1,047) (1,778)
Organization costs ........................................................... -- -- (30)
----- ----- -----
Net cash provided (used) by investing activities ............ (20,326) 1,540 (36,281)
------- ----- -------
Cash flows from financing activities (net of effect of sale of branches in 1998):
Net change in deposits ....................................................... 9,450 (711) 7,775
Proceeds from note payable and other borrowings .............................. 10,000 45,000 --
Payments of note payable and other borrowings ................................ (2,600) (2,550) (10,800)
Proceeds from federal funds purchased ........................................ 5,684 -- --
Cash dividends paid .......................................................... (1,556) (787) (666)
Purchase of ESOP shares ...................................................... -- -- (3,862)
Net proceeds from issuance of common stock ................................... -- -- 46,818
Payments of subordinated debentures .......................................... (900) -- (1,100)
Payment for sale of branches ................................................. (27,461) -- --
Purchases of treasury stock .................................................. (805) (45,435) --
----- ----- -----
Net cash provided (used) by financing activities ............ (8,188) (4,483) 38,165
------ ------ ------
Net change in cash and cash equivalents ..................... (22,339) 2,452 7,187
Cash and cash equivalents at beginning of year .................................. 32,736 30,284 23,097
------ ------ ------
Cash and cash equivalents at end of year ........................................ $ 10,397 32,736 30,284
======== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ....................................................... $ 15,261 15,353 14,686
Income taxes ................................................... $ 1,534 1,250 935
Noncash investing and financing activities:
Real estate acquired through foreclosure .......................... $ 157 1,254 7,602
Loans to facilitate sales of real estate .......................... $ 129 531 1,000
Issuance of preferred stock and simultaneous grant of MRP shares .. $ -- 2,064 --
Retirement of treasury stock ...................................... $ -- 36,414 --
Payable for sale of branches ...................................... $ -- 27,461 --
Change in accumulated other comprehensive income (loss), net of tax $ 2,729 (1,510) 745
Change in dividend payable ........................................ $ (313) 313 --
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization
------------
Community First Banking Company (the "Company") was organized in March
1997 to become the holding company for Carrollton Federal Bank pursuant
to a Plan of Conversion and Reorganization (the "Conversion"). As part
of the Conversion, CF Mutual Holdings ("Mutual") was converted from a
federally chartered mutual holding company to an interim federal savings
bank and simultaneously merged with and into Carrollton Federal Bank,
pursuant to which Mutual ceased to exist and Carrollton Federal Bank
became a wholly owned subsidiary of the Company. The Conversion was
accounted for at historical cost in a manner similar to a pooling of
interests.
On June 27, 1997, the Conversion to a stock holding company organized
under the laws of the State of Georgia, the issuance of common stock,
and the dissolution of Mutual were completed. In connection therewith,
the Company sold 4,827,124 shares of common stock, par value $.01 per
share, at an initial price of $10 per share (after giving effect to 100%
stock dividend described in note 17) in a subscription offering. Costs
associated with the Conversion were approximately $1,453,000, including
underwriting fees.
On December 28, 1997, Carrollton Federal Bank, a federally chartered
stock savings bank, converted its charter to the Georgia Department of
Banking and Finance and concurrently changed its name to Community First
Bank (the "Bank"). The Bank will subsequently be regulated by the
Georgia Department of Banking and Finance and is insured and subject to
the regulation of the Federal Deposit Insurance Corporation. As part of
the charter conversion, the Company became a member of the Federal
Reserve System and, accordingly, is subject to the regulation by the
Federal Reserve under the Bank Holding Company Act.
The Bank continues to provide a full range of customary banking services
throughout Carroll, Douglas, Heard, Haralson and Paulding counties in
Georgia.
Basis of Presentation and Reclassification
------------------------------------------
The consolidated financial statements include the accounts of the
Company, the Bank, CFB Insurance Agency, Inc., CFB Financial, Inc. and
CFB Securities, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current year
presentation.
The accounting principles followed by the Company and its subsidiaries,
and the methods of applying these principles, conform with generally
accepted accounting principles ("GAAP") and with general practices
within the banking industry. In preparing financial statements in
conformity with GAAP, management is required to make estimates and
assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from those
estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include,
but are not limited to, the determination of the allowance for loan
losses, the valuation of real estate acquired in connection with or in
lieu of foreclosure on loans, the valuation allowance for mortgage
servicing rights and valuation allowances associated with the
realization of deferred tax assets which are based on future taxable
income.
Cash and Cash Equivalents
-------------------------
Cash equivalents include amounts due from banks, interest-bearing
deposits in financial institutions and federal funds sold. Generally,
federal funds are sold for one-day periods.
Investment Securities
---------------------
The Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. There were no trading
securities at December 31, 1999 and 1998. Securities held to maturity
are those securities for which the Bank has the ability and intent to
hold to maturity. All other securities are classified as available for
sale.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Investment Securities, continued
---------------------
Securities available for sale are recorded at fair value. Securities
held to maturity are recorded at cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses,
net of the related tax effect, on securities available for sale are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer.
Unrealized holding gains or losses associated with transfers of
securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity.
A decline in the market value of any available for sale or held to
maturity investment below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and
losses are included in earnings and the cost of securities sold are
derived using the specific identification method.
Other Investments
-----------------
Other investments include Federal Home Loan Bank ("FHLB") stock and
other equity securities with no readily determinable fair value. These
investment securities are carried at cost and include stock dividends.
Interest Rate Cap Agreement
---------------------------
Interest rate cap agreements ("Caps"), which are used by the Company in
the management of interest rate exposure on certain interest-bearing
liabilities, are accounted for on an accrual basis. Premiums paid for
Caps are being amortized to interest expense over the terms of the Caps.
Unamortized premiums are included in other assets in the consolidated
balance sheet. Amounts to be received under the Caps are accounted for
on an accrual basis and are recognized as a reduction of interest
expense.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or market value. The amount
by which cost exceeds market value is accounted for as a valuation
allowance. Changes, if any, in the valuation allowance are included in
the determination of net earnings in the period in which the change
occurs. Gains and losses from the sale of loans are determined using the
specific identification method.
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at their outstanding
unpaid principal balances, net of the allowance for loan losses,
deferred fees or costs on originated loans and unamortized premiums or
discounts on purchased loans.
Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized in interest income using the
level-yield method over the contractual lives of the loans, adjusted for
estimated prepayments based on the Bank's historical prepayment
experience. Commitment fees and costs relating to commitments whose
likelihood of exercise is remote are recognized over the commitment
period on a straight-line basis. If the commitment is subsequently
exercised during the commitment period, the remaining unamortized
commitment fee at the time of exercise is recognized over the life of
the loan as an adjustment to the yield. Premiums and discounts on
purchased loans are amortized over the remaining lives of the loans
using the level-yield method. Fees arising from servicing loans for
others are recognized as earned.
A loan is considered impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. Impaired loans are
measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate or at the loan's
observable market price, or the fair value of the collateral of the loan
if the loan is collateral dependent. Interest income from impaired loans
is recognized using the cash basis method of accounting.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through provisions for loan
losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collection of the
principal is unlikely. The allowance is an amount which, in management's
judgment, will be adequate to absorb losses on existing loans that may
become uncollectible. The allowance is established through consideration
of such factors as changes in the nature and volume of the portfolio,
adequacy of collateral, delinquency trends, loan concentrations,
specific problem and individually significant loans, and economic
conditions that may affect the borrower's ability to pay.
Management believes the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives
of the assets are expensed currently. When assets are retired or
otherwise disposed, the cost and related accumulated depreciation are
removed from the accounts, and any gain or loss is reflected in earnings
for the period.
Depreciation expense is computed using the straight-line method over
the following estimated useful lives:
Land improvements 15-40 years
Buildings and improvements 15-40 years
Furniture and equipment 3-10 years
Other Real Estate and Repossessions
-----------------------------------
Other real estate and repossessions are carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated
costs to dispose. Generally accepted accounting principles define fair
value as the amount that is expected to be received in a current sale
between a willing buyer and seller other than in a forced or liquidation
sale. Fair values at foreclosure are based on appraisals. Losses arising
from the acquisition of other real estate and repossessions are charged
against the allowance for loan losses. Subsequent writedowns are
provided by a charge to earnings through a valuation allowance in the
period in which the need arises.
Mortgage Servicing Rights
-------------------------
The Bank recognizes the rights to service mortgage loans as an asset
regardless of whether the servicing rights are acquired through either
purchase or origination. Additionally, the Bank performs an impairment
analysis of mortgage servicing rights, regardless of whether purchased
or originated.
The Bank's mortgage servicing rights represent the unamortized cost of
purchased and originated contractual rights to service mortgages for
others in exchange for a servicing fee and ancillary loan administration
income. Mortgage servicing rights are amortized over the period of
estimated net servicing income and are periodically adjusted for actual
and anticipated prepayments of the underlying mortgage loans. An
impairment analysis is performed after stratifying the rights by
interest rate. Impairment, defined as the excess of the asset's carrying
value over its current fair value, is recognized through a valuation
allowance. At December 31, 1999 and 1998, no valuation allowances were
required for the mortgage servicing rights.
Core Deposit Intangible
-----------------------
The core deposit intangible is amortized using the straight-line method
over the estimated life of the deposit base acquired (fifteen years) and
is included as a component of other assets. Amortization expense
approximated $74,000 for each of the three years in the period ended
December 31, 1999. On an ongoing basis, management reviews the valuation
and amortization periods to determine if events and circumstances
require the current carrying amount or remaining life to be reduced.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which the assets and liabilities are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, the Company performs an
evaluation of the probability of being able to realize the future
benefits indicated by such assets. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income and tax
planning strategies.
A deferred tax liability is not recognized for portions of the allowance
for loan losses for income tax purposes in excess of the financial
statement balance, as described in note 8. Such a deferred tax liability
will only be recognized when it becomes apparent that those temporary
differences will reverse in the foreseeable future.
Treasury Stock
--------------
Treasury stock is accounted for by the cost method. Subsequent
reissuances are on a first-in, first-out basis.
Net Earnings Per Common Share
-----------------------------
Basic earnings per common share is based on the weighted average number
of common shares outstanding during the period while the effects of
potential common shares outstanding during the period are included in
diluted earnings per share. Net earnings per common share is based on
the weighted average number of shares outstanding (assuming the Company
was a public company since January 1, 1997) including consideration of
allocated shares of the Company's Employee Stock Ownership Plan
("ESOP"). Unearned ESOP shares are not considered outstanding for
purposes of calculating earnings per share. The reconciliation of the
amounts used in the computation of basic earnings per share and diluted
earnings per share for the years ended December 31, 1999, 1998 and 1997
is as follows:
For the Year Ended December 31, 1999
Net Common Per Share
Earnings Shares Amount
Basic earnings per share ..... $ 474,285 2,598,186 $0.18
=====
Effect of dilutive securities:
Stock options ............ -- --
MRP shares ............... -- 193,084
--------- ---------
Diluted earnings per share ... $ 474,285 2,791,270 $0.17
========= ========= =====
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Net Earnings Per Common Share, continued
-----------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
Net Common Per Share
Earnings Shares Amount
-------- ------ ------
<S> <C> <C> <C>
Basic earnings per share ............ $3,002,988 3,448,006 $ 0.87
====
Effect of dilutive securities:
Stock options ................... -- 38,371
MRP shares ...................... -- 193,084
------- -------
Diluted earnings per share .......... $3,002,988 3,679,461 $ 0.82
========== ========= ========
For the Year Ended December 31, 1997
Net Common Per Share
Earnings Shares Amount
-------- ------ ------
Basic earnings per share ............ $ 112,608 4,445,821 $ 0.03
====
Effect of dilutive securities:
Stock options ................... -- --
------- ---------
Diluted earnings per share .......... $ 112,608 4,445,821 $ 0.03
========= ========= ====
</TABLE>
The effect of stock options on net earnings per common share was
antidilutive in 1999 and 1997.
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for hedging derivatives and for
derivative instruments including derivative instruments embedded in other
contracts. It requires the fair value recognition of derivatives as
assets or liabilities in the financial statements. The accounting for the
changes in the fair value of a derivative depends on the intended use of
the derivative instrument at inception. Changes in fair value for
instruments used as fair value hedges are recorded in earnings of the
period simultaneous with accounting for the fair value change of the item
being hedged. Changes in fair value for cash flow hedges are recorded in
comprehensive income rather than earnings. Changes in fair value for
derivative instruments that are not intended as a hedge are recorded in
earnings of the period of the change. SFAS No. 133 is effective for all
fiscal quarters beginning after June 15, 2000, but initial application of
the statement must be made as of the beginning of the quarter. At the
date of initial application, an entity may transfer any held to maturity
security into the available for sale or trading categories without
calling into question the entity's intent to hold other securities to
maturity in the future. The Company believes the adoption of SFAS No. 133
will not have a material impact on its financial position, results of
operations or liquidity.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Investment Securities
Investment securities at December 31, 1999 and 1998 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available for Sale: Cost Gains Losses Value
------ --------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 7,083 - 255 6,828
Equity securities 16,754 - 2,634 14,120
Mortgage-backed securities 46,492 25 2,800 43,717
------ -- ----- ------
$ 70,329 25 5,689 64,665
====== == ===== ======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held to Maturity: Cost Gains Losses Value
----------- ----------- ------------ ---------
State, county and municipals $ 115 1 - 116
Mortgage-backed securities 69 - 1 68
-- -- -- ---
$ 184 1 1 184
=== = = ===
December 31, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available for Sale: Cost Gains Losses Value
------ --------- ----------- ----------
U.S. Treasury securities $ 2,996 53 - 3,049
U.S. Government agencies 1,000 5 - 1,005
State, county and municipals 2,081 103 - 2,184
Equity securities 14,943 80 1,205 13,818
Mortgage-backed securities 51,948 111 413 51,646
------ --- ----- ------
$ 72,968 352 1,618 71,702
====== === ===== ======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held to Maturity: Cost Gains Losses Value
---------- ----------- ------------ ---------
State, county and municipals $ 115 3 - 118
Mortgage-backed securities 117 1 - 118
--- - ----- ---
$ 232 4 - 236
=== = ===== ===
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
The amortized cost and estimated fair value of securities available for
sale and securities held to maturity at December 31, 1999, by
contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available Securities Held
for Sale to Maturity
----------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(in thousands)
<S> <C> <C> <C> <C>
One to five years $ - - 115 116
Five to ten years 4,000 3,841 - -
More than ten years 3,083 2,987 - -
Equity securities 16,754 14,120 - -
Mortgage-backed securities 46,492 43,717 69 68
------ ------ -- --
$ 70,329 64,665 184 184
====== ====== === ===
</TABLE>
There were no sales of securities held to maturity during 1999, 1998 and
1997. Proceeds from sales of securities available for sale during 1999,
1998 and 1997 totalled approximately $8,301,000, $51,953,000 and
$3,843,000, respectively. Gross gains of $46,000, $1,126,000 and $8,000
were realized on those sales. Gross losses of $6,000, $266,000 and
$28,000 were realized on 1999, 1998 and 1997 sales, respectively.
Securities and interest-bearing deposits with a carrying value of
approximately $1,959,000 and $2,039,000 at December 31, 1999 and 1998,
respectively, were pledged to secure U.S. government and other public
deposits.
(3) Loans
Major classifications of loans at December 31, 1999 and 1998 are
summarized as follows:
1999 1998
(in thousands)
Real estate mortgage loans $ 179,080 197,182
Real estate construction loans 34,072 18,853
Commercial loans 52,894 20,905
Consumer and other installment loans 28,137 30,795
------ ------
Total loans 294,183 267,735
Less allowance for loan losses 3,379 2,880
------- -------
Loans, net $ 290,804 264,855
======= =======
The Bank concentrates its lending activities in the origination of
permanent residential mortgage loans, commercial mortgage loans,
commercial business loans and consumer installment loans. The majority
of the Bank's real estate loans are collateralized by real property
located in Carroll County, Georgia and surrounding counties.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) Loans, continued
Activity in the allowance for loan losses is summarized as follows for
the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
(in thousands)
Balance at beginning of year $ 2,880 2,789 2,601
Provision 1,015 782 2,067
Loans charged off (815) (1,194) (2,214)
Recoveries of loans previously charged off 299 503 335
----- ----- -----
Balance at end of year $ 3,379 2,880 2,789
===== ===== =====
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. Unpaid principal balances of these
loans at December 31, 1999, 1998 and 1997 approximate $38,683,000,
$45,448,000 and $54,560,000, respectively.
(4) Premises and Equipment
Premises and equipment at December 31, 1999 and 1998 are summarized as
follows:
1999 1998
(in thousands)
Land and land improvements $ 1,595 1,595
Buildings and improvements 6,413 6,450
Furniture and equipment 5,842 5,512
Construction in progress - 214
----- --------
13,850 13,771
Less accumulated depreciation 6,334 5,611
------ ------
$ 7,516 8,160
======= ======
Depreciation expense approximated $802,000, $1,191,000 and $1,381,000 at
December 31, 1999, 1998 and 1997, respectively.
In December 1997, the Company announced a plan to close two branch
locations and replace certain obsolete computer equipment. In connection
with this plan, the Company determined that the carrying value of such
assets exceeded their fair values. Accordingly, an unrealized loss of
$504,500 was charged to expense as a separate component of noninterest
expense.
(5) Time Deposits
At December 31, 1999, contractual maturities of time deposits are
summarized as follows (in thousands):
Year ending December 31,
------------------------
2000 $ 84,498
2001 82,330
2002 4,188
2003 563
2004 25,803
-------
$ 197,382
=========
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Note Payable and Other Borrowings
In June 1998, the Company obtained a $5,000,000 line of credit with
another financial institution. The debt is collateralized by 100% of the
stock of the Bank and calls for interest to be paid at the prime rate
less 100 basis points. Principal and interest are due at maturity on
December 2, 2001. The loan agreement contains covenants relating to
regulatory capital adequacy and limits on other debt. The Company was in
compliance with all loan covenants at December 31, 1999.
The interest rates for FHLB advances at December 31, 1999 ranged from
4.55% to 6.82%. FHLB advances are collateralized by FHLB stock and first
mortgage loans. Advances from FHLB outstanding at December 31, 1999
mature as follows (in thousands):
Year Ending December 31,
------------------------
2000 $ 600
2001 10,386
2002 386
2003 973
2004 -
Thereafter 40,000
------
$ 52,345
=========
(7) Subordinated Debentures
The Company has issued Series A fixed rate subordinated debentures to
various executive officers and members of the Board of Directors in an
aggregate principal amount of $2,000,000. The subordinated debentures
bore interest at a simple interest rate per annum of 7.25%, which was
payable quarterly, and matured on September 30, 1999. The entire
proceeds of the offering were used to increase the capitalization of the
Bank. During 1997, $1,100,000 of the debentures was paid off, and the
remaining debentures were repaid in 1999.
(8) Income Taxes
The following is an analysis of the components of income tax expense
(benefit) for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
(in thousands)
Current $2,240 575 1,378
Current benefit credited to equity (843) (440) -
Deferred (1,588) 1,213 (1,406)
----- ----- -----
Income tax expense (benefit) $ (191) 1,348 (28)
====== ===== =====
The differences between income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate to earnings
before taxes for the years ended December 31, 1999, 1998 and 1997 are as
follows:
1999 1998 1997
---- ---- ----
(in thousands)
Pretax income at statutory rate $ 96 1,479 29
Add (deduct):
Tax-exempt interest income (45) (94) (67)
Dividends received deduction (167) (116) -
Other, net (75) 79 10
--- --- --
Income tax expense (benefit) $ (191) 1,348 (28)
==== ===== ==
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Income Taxes, continued
The following summarizes the net deferred tax asset which is included as
a component of other assets at December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,094 729
Allowance for real estate held for development and sale 26 70
Deferred compensation 103 241
State tax credits 185 297
Unrealized loss on securities available for sale 2,150 481
ESOP 527 -
Other 40 144
----- -----
Total gross deferred tax assets 4,125 1,962
----- -----
Deferred tax liabilities:
FHLB stock 28 357
Premises and equipment 93 138
ESOP and MRP awards - 720
--- ---
Total gross deferred tax liabilities 121 1,215
----- -----
Net deferred tax asset $ 4,004 747
===== =====
</TABLE>
Effective January 1, 1996, the Bank computes its tax bad debt reserves
under the rules which apply to commercial banks. In years prior to 1996,
the Bank obtained tax bad debt deductions approximating $5.8 million in
excess of its financial statement allowance for loan losses for which no
provision for federal income tax was made. These amounts were then
subject to federal income tax in future years if used for purposes other
than to absorb bad debt losses. Effective January 1, 1996, approximately
$1.0 million of the excess reserve is no longer subject to recapture
under any circumstances and approximately $4.8 million of the excess
reserve is subject to recapture only if the Bank ceases to qualify as a
bank as defined in the Internal Revenue Code.
(9) Stockholders' Equity
On December 29, 1997, the Board of the Directors of the Company
authorized the issuance of 96,542 shares of $.01 par value convertible
preferred stock to be used as part of the Company's Management
Recognition Plan ("MRP") to provide a means of rewarding its key
personnel. Those shares were granted on January 8, 1998 at a value of
$21.38 based upon an independent valuation. The preferred shares
originally vested at the rate of 5% as of the last day of each calendar
quarter of service commencing with the first calendar quarter after the
grant date. Effective June 30, 1999, the Board of Directors amended the
MRP to provide immediate full vesting for all participants. The
preferred stock is automatically convertible into two shares of common
stock on the five-year anniversary date on which such shares are issued.
The preferred shares are not entitled to receive dividends, have no
liquidation preference, no voting rights, no right to transfer and no
right of redemption.
During 1999 and 1998, the Company purchased on the open market 43,368
and 1,994,308 shares of its common stock. Of the 1,994,308 shares
repurchased during 1998, 1,545,070 shares were retired. Treasury shares
are held for issuance under the Company's employee benefit plans.
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 have been restated to reflect the stock split. The par value
of the additional shares of common stock issued in connection with the
stock split was credited to common stock and a like amount charged to
retained earnings in the 1998 consolidated financial statements.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Employee and Director Benefit Plans
All qualifying employees of the Bank are included in a qualified
multi-employer noncontributory defined benefit pension plan sponsored by
the Financial Institutions Retirement Fund. The Bank's policy is to fund
pension costs accrued. No pension expense was incurred during 1999, 1998
or 1997. At July 31, 1999 the date of the latest actuarial valuation,
the market value of the plan's net assets exceeded the actuarially
computed value of accumulated plan benefits.
Effective January 1, 1993, the Bank established a retirement plan
qualified pursuant to Internal Revenue Code section 401(k) (the "Plan").
The Plan allows eligible employees to defer a portion of their income by
making contributions into the Plan on a pretax basis. The Bank's
matching contribution vests based on length of service. The Bank matches
50% of employee contributions up to 6% of the employees' compensation.
On August 1, 1997, the Plan was amended to discontinue matching of
employee contributions. During the year ended December 31, 1997, the
Bank recorded $53,000 in expense related to its obligations under the
Plan. No expense was incurred during 1999 and 1998.
The Bank has a defined contribution postretirement benefit plan to
provide retirement benefits to its Board of Directors and to provide
death benefits for their designated beneficiaries. Under the plan, the
Bank purchased split-dollar whole life insurance contracts on the lives
of each Director. The increase in cash surrender value of the contracts,
less the Bank's cost of funds, constitutes the Bank's contribution to
the plan each year. In the event the insurance contracts fail to produce
positive returns, the Bank has no obligation to contribute to the Plan.
At December 31, 1999 and 1998, the cash surrender value of the insurance
contracts was approximately $1,300,000 and $1,179,000, respectively, and
is included as a component of other assets. Expenses incurred for
benefits were approximately $70,000, $70,000 and $77,000 during 1999,
1998 and 1997, respectively.
As part of the Conversion, the Company adopted an ESOP, and the ESOP
purchased 386,170 common shares via a loan from the Company. The plan
covers substantially all employees subject to certain minimum age and
service requirements. The Company makes contributions to the ESOP as
determined annually by the Board of Directors. Contributions to the ESOP
are, at a minimum, be applied to meet the ESOP's debt service
requirements. Accordingly, the debt incurred by the ESOP was recorded as
a note payable and the shares purchased with the debt proceeds were
reported as unearned ESOP shares in the consolidated balance sheet. As
the debt is repaid, the Company records compensation expense equal to
the current market price of the shares released, and the shares become
outstanding for purposes of earnings per share computations. At December
31, 1999, substantially all of the ESOP note was repaid to the Company,
and the note was paid in full on January 5, 2000. Accordingly, all
shares are considered released from the loan as of December 31, 1999;
however, allocation of the stock to active employees will be over a
two-year period. Compensation expense related to the ESOP of $4,575,000,
$2,010,000 and $727,000 were recognized during 1999, 1998 and 1997,
respectively. ESOP shares are summarized as follows at December 31, 1999
and 1998:
1999 1998
---- ----
Shares released 386,170 131,715
Unearned shares - 254,455
------- -------
Total ESOP shares 386,170 386,170
======= =======
Fair value of unreleased shares $ - 5,079,000
======== =========
On December 29, 1997, the Board of Directors of the Company approved the
1997 Stock Option Plan whereby 482,712 shares of common stock have been
reserved for employees and directors. These options allow employees and
directors to purchase shares of common stock at a price not less than
fair market value at the date of grant and are exercisable no later than
ten years from the date of grant. All options vest at the rate of 5% of
the number of shares subject to the option as of the last day of each
calendar quarter of service commencing with the first calendar quarter
ending after the grant date.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Employee and Director Benefit Plans, continued
The following table summarizes activity in the 1997 Stock Option Plan
through December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ----------------------- ----------------------
Option Wtg. Avg. Option Wtg. Avg. Option Wtg. Avg.
Shares Option Price Shares Option Price Shares Option Price
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 479,160 $ 19.87 473,160 $ 19.81 - -
Options granted - - 8,000 $ 23.00 473,160 $ 19.81
Options surrendered - - (2,000) $ 19.81 - -
------- ------- -------
Balance, end of year 479,160 $ 19.87 479,160 $ 19.87 473,160 $ 19.81
======= ======= =======
</TABLE>
Options to purchase 212,099, 117,790 and 23,658 shares were exercisable
at December 31, 1999, 1998 and 1997, respectively. The estimated
grant-date fair values of the options granted in 1998 and 1997 were
$8.00 and $6.90 per share, respectively. The weighted-average remaining
contractual life of the options is approximately eight years at December
31, 1999.
The MRP and Stock Option Plan are accounted for under Accounting
Principles Board Opinion No. 25 and related Interpretations.
Compensation expense totaling $1,525,000, $492,000 and $1,853,000 for
1999, 1998 and 1997, respectively, was recognized related to the MRP and
is the same as the amount that would be recognized pursuant to SFAS No.
123. No compensation cost has been recognized under the Stock Option
Plan. Had compensation cost been determined based upon the fair value of
the options at the grant date and in accordance with the vesting
schedule consistent with the method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings and net earnings
per share as of December 31, 1999, 1998 and 1997 would have been reduced
to the proforma amounts indicated below (in thousands, except per share
data).
1999 1998 1997
---- ---- ----
Net earnings As reported $ 474 3,003 113
Proforma $ 70 2,598 12
Basic earnings per share As reported $ 0.18 0.87 0.03
Proforma $ 0.03 0.75 0.00
Diluted earnings per share As reported $ 0.17 0.82 0.03
Proforma $ 0.03 0.71 0.00
The fair value of each option is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted
average assumptions used for the grant in 1997: volatility of 0.1793,
1.5% dividend yield, a risk free interest rate of 5.90%, and an expected
life of ten years.
(11) Regulatory Matters
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk- weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets (all as defined). Management believes,
as of December 31, 1999 and 1998, the Company and the Bank meet all
capital adequacy requirements to which they are subject.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Regulatory Matters, continued
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the following table. As a result of prepaying the ESOP loan in December
1999, the Bank temporarily fell below one of the thresholds to be
categorized as well capitalized. Since the Bank was back above the well
capitalized threshold by the end of January 2000, management believes
this situation will not significantly impact the Bank or the Company.
The Company's and the Bank's actual capital amounts and ratios are
presented below.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets)
Consolidated $ 31,703 10.5% 24,086 8.0% N/A N/A
Bank $ 30,577 9.9% 24,649 8.0% 30,812 10.0%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated $ 28,324 9.4% 12,043 4.0% N/A N/A
Bank $ 27,198 8.8% 12,325 4.0% 18,487 6.0%
Tier 1 Capital (to Average Assets)
Consolidated $ 28,324 7.4% 15,283 4.0% N/A N/A
Bank $ 27,198 7.2% 15,131 4.0% 18,913 5.0%
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets)
Consolidated $ 27,674 9.9% 22,415 8.0% N/A N/A
Bank $ 32,918 11.8% 22,340 8.0% 27,924 10.0%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated $ 24,795 8.9% 11,207 4.0% N/A N/A
Bank $ 30,039 10.7% 11,170 4.0% 16,755 6.0%
Tier 1 Capital (to Average Assets)
Consolidated $ 24,795 6.1% 16,203 4.0% N/A N/A
Bank $ 30,039 7.6% 15,782 4.0% 19,728 5.0%
</TABLE>
Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions
are based on the level of regulatory classified assets, the prior year's
net earnings, and the ratio of equity capital to total assets.
(12) Commitments
The Bank leases certain banking facilities under operating lease
arrangements expiring through 2012. Future minimum payments required for
all operating leases with remaining terms in excess of one year are
presented below (in thousands):
Year Ending December 31,
2000 $ 138
2001 101
2002 104
2003 83
2004 71
Thereafter 516
------
$ 1,013
=======
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Commitments, continued
Total rent expense was approximately $180,000, $327,000 and $341,000 for
the years ended December 31, 1999, 1998 and 1997.
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to manage its cost of funds. These financial instruments
include commitments to originate first mortgage loans and to extend
credit, standby letters of credit and an interest rate cap agreement.
These instruments involve, to varying degrees, elements of credit risk
in excess of the amounts recognized in the consolidated balance sheet.
The contract or notional amounts of these instruments reflect the extent
of involvement the Bank has in particular classes of financial
instruments.
Commitments to originate first mortgage loans and to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of
a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counterparty. Collateral
typically includes residential and other real properties, automobiles,
savings deposits, accounts receivable, inventory and equipment.
Standby letters of credit are written conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. Most letters of credit extend for less than one
year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. A majority of the standby letters of credit are
collateralized by real estate, deposits or other personal assets at
December 31, 1999 and 1998.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
On February 27, 1998, the Company entered into a Cap to reduce the
potential impact of increases in interest rates on its interest-bearing
liabilities. The agreement entitles the Company to receive from a
counterparty, on a quarterly basis, the amounts, if any, by which the
3-month LIBOR rate exceeds the Cap rate of 6.5% on a notional amount of
$40,000,000 beginning on March 6, 2000. Notional amounts are used to
express the volume of these transactions, and they do not represent cash
flows. The primary risk of the Cap is nonperformance by the
counterparty; however, management believes this risk is minimal. No
amounts have been received by the Company through December 31, 1999. The
Cap agreement expires on March 4, 2003.
1999 1998
---- ----
(in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 46,828 41,585
Standby letters of credit $ 1,140 319
(13) Other Operating Expenses
Data processing expense of approximately $921,000, $1,153,000 and
$1,024,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, was the only component of other operating expenses in
excess of 1% of interest and other income
(14) Branch Sales
Effective December 31, 1998, the Bank sold substantially all the assets
and liabilities of three of its four Walmart branch locations
(Stockbridge, Fayetteville and Newnan) to The First Citizens Bank of
Newnan ("FCBN"). The disposition resulted in a cash payment to FCBN of
approximately $27,461,000 consisting of deposit liabilities of
approximately $28,884,000, net of certain other assets. The gain on the
sale of the branches of $100,000 is included in miscellaneous
noninterest income.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) Community First Banking Company (Parent Company Only) Financial
Information Parent company only information for 1999 and 1998 is
presented for the Company. Information for the year ended December 31,
1997 is presented for Mutual prior to the conversion in March 1997.
Balance Sheets
December 31, 1999 and 1998
(in thousands)
1999 1998
---- ----
Assets
------
Cash and cash equivalents $ 131 263
Securities available for sale 2,664 4,008
Investment in subsidiaries 26,059 30,855
Other assets 1,612 63
------- -------
$ 30,466 35,189
====== ======
Liabilities and Stockholders' Equity
------------------------------------
Due to subsidiaries $ - 4,011
Accounts payable and accrued expenses 267 54
Note payable 3,000 5,000
Stockholders' equity 27,199 26,124
------ ------
$ 30,466 35,189
====== ======
<TABLE>
<CAPTION>
Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
Dividend income from the Bank $5,150 21,190 -
Interest income 116 368 544
Gain (loss) on sale of securities available for sale (6) 141 -
----- ------ ----
Total income 5,260 21,699 544
----- ------ ----
Operating expenses:
Interest expense 406 351 -
ESOP and MRP expense 3,544 1,556 2,156
Other 69 53 90
----- ----- -----
Total operating expenses 4,019 1,960 2,246
----- ----- -----
Earnings (loss) before income tax benefit and equity in 1,241 19,739 (1,702)
undistributed earnings of subsidiaries
Income tax benefit 1,395 492 576
----- ----- -----
Earnings (loss) before equity in undistributed earnings of
subsidiaries or dividends received in excess of earnings
of subsidiaries 2,636 20,231 (1,126)
Dividends received in excess of earnings of subsidiaries (2,162) (17,228) -
Equity in undistributed earnings of subsidiaries - - 1,239
----- ----- -----
Net earnings $ 474 3,003 113
===== ===== =====
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) Community First Banking Company (Parent Company Only) Financial
Information, continued
<TABLE>
<CAPTION>
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 474 3,003 113
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization 6 6 3
ESOP and MRP expense 3,544 1,556 2,156
Loss (gain) on sale of securities available for sale 6 (141) -
Dividends received in excess of earnings of
subsidiaries 2,162 17,228 -
Equity in undistributed earnings of subsidiaries - - (1,239)
Change in other assets and liabilities 865 (517) (233)
----- ------ -----
Net cash provided by operating activities 7,057 21,135 800
----- ------ -----
Cash flows from investing activities:
Proceeds from sales of securities available for sale 1,183 11,937 -
Purchase of securities available for sale - (8,648) (6,603)
Change in due to subsidiaries (4,011) 15,912 (11,901)
Contributions of capital to the Bank - - (23,634)
Organization costs - - (30)
----- ------ ------
Net cash provided (used) by investing activities (2,828) 19,201 (42,168)
----- ------ ------
Cash flows from financing activities:
Payments of note payable (2,000) 5,000 -
Payments of subordinated debentures - - (1,100)
Net proceeds from issuance of common stock - - 46,818
Cash dividends paid (1,556) (787) (666)
Purchase of ESOP shares - - (3,862)
Purchase of treasury stock (805) (45,435) -
---- ------ -----
Net cash provided (used) by financing activities (4,361) (41,222) 41,190
----- ------ ------
Net change in cash (132) (886) (178)
Cash at beginning of year 263 1,149 1,327
----- ------ ------
Cash at end of year $ 131 263 1,149
======= ====== ======
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(16) Fair Value of Financial Instruments
The assumptions used in the estimation of the fair value of the
Company's financial instruments are detailed below. Where quoted prices
are not available, fair values are based on estimates using discounted
cash flows and other valuation techniques. The use of discounted cash
flows can be significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. The following
disclosures should not be considered a surrogate of the liquidation
value of the Company or its subsidiaries, but rather a good-faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination or issuance.
Cash and Cash Equivalents
-------------------------
For cash, due from banks, federal funds sold and interest-bearing
deposits with other banks, the carrying amount is a reasonable
estimate of fair value.
Investment Securities
---------------------
Fair values for securities held to maturity and securities available
for sale are based on quoted market prices.
Other Investments
-----------------
The carrying value of other investments approximates fair value.
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
Deposits
--------
The fair value of demand deposits, savings accounts, NOW accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of maturity certificates of deposit is
estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities.
Note Payable and Other Borrowings
---------------------------------
The fair value of fixed rate borrowings are estimated using discounted
cash flows, based on the current incremental borrowing rates for
similar types of borrowing arrangements. For variable rate borrowings,
the carrying amount is a reasonable estimate of fair value.
Subordinated Debentures
-----------------------
Rates currently available to the Company for debt with similar terms
and remaining maturities are used to estimate fair value of existing
debt.
Commitments to Originate First Mortgage Loans, Commitments to Extend
----------------------------------------------------------------------
Credit and Standby Letters of Credit Because commitments to originate
first mortgage loans, commitments to extend credit and standby letters
of credit are made using variable rates and/or are issued for short
commitment periods, the contract value is a reasonable estimate of
fair value.
Interest Rate Cap
-----------------
The fair value of the interest rate cap is determined by the
counterparty.
<PAGE>
COMMUNITY FIRST BANKING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(16) Fair Value of Financial Instruments, continued
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on many judgments. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance-sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
deferred tax asset, premises and equipment, real estate owned and the
purchased core deposit intangible. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered
in the estimates.
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 10,397 10,397 32,736 32,736
Securities available for sale $ 64,665 64,665 71,702 71,702
Securities held to maturity $ 184 184 232 236
Other investments $ 3,173 3,173 2,328 2,328
Loans, net $ 290,804 294,906 264,855 269,580
Mortgage loans held for sale $ 59 59 199 199
Interest rate cap $ 309 783 407 290
Liabilities:
Deposits $ 295,387 296,407 285,937 284,046
Note payable and other borrowings $ 55,345 55,595 47,945 47,432
Federal funds purchased $ 5,684 5,684 - -
Subordinated debentures $ - - 900 900
Unrecognized financial instruments:
Commitments to extend credit $ 46,828 46,828 41,585 41,585
Standby letters of credit $ 1,140 1,140 319 319
</TABLE>
<PAGE>
MARKET FOR COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The common stock of Community First Banking Company is traded on The Nasdaq
Stock Market ("Nasdaq") under the symbol CFBC. At December 31, 1999, CFBC had
shareholders of record. The following table sets forth on a per share basis the
high and low sales prices of the Company's common stock and the cash dividends
paid by the Company on a quarterly basis for the past two years.
Quarter Ended High Low Dividend
------------- ---- --- --------
March 31, 1998 $23.50 $20.72 $.075
June 30, 1998 $25.313 $22.25 $.075
September 30, 1998 $23.375 $19.375 $.09
December 31, 1998 $21.00 $18.625 $.11
Total dividends paid 1998 $.35
March 31, 1999 $22.00 $19.00 $.11
June 30, 1999 $23.75 $18.00 $.115
September 30, 1999 $20.375 $14.625 $.115
December 31, 1999 $18.625 $15.25 $.1725
Total dividends paid 1999 $.5125
DIRECTORS
The following individuals serve as directors of Community First Banking
Company and Community First Bank:
Name Principal Occupation
- ------------------------------------------- -------------------------------
T. Aubrey Silvey, Chairman of the Board Chairman and CEO of Aubrey
Silvey Enterprises
Gary D. Dorminey President and Chief Executive
Officer of the Company and Bank
Anna L. Berry Treasurer of Southwire Company,
a major manufacturer of wire
products
Gary M. Bullock, Vice Chairman of the Board President and CEO of Carroll
Electric Membership Corporation
Jerry L. Clayton Owner of Clayton Pharmacy
W. Lamar Moody Manager of the Villa Rica office
of Georgia Power
Thomas E. Reeve, Jr Retired Physician
Michael P. Steed President and Owner of Steed
Company, a manufacturer of fabric
labels
Dean B. Talley Physician
Thomas S. Upchurch President of the Georgia
Partnership for Excellence in
Education
CORPORATE HEADQUARTERS
Community First Banking Company
110 Dixie Street
Carrollton, Georgia 30117
(770) 834-1071
NOTICE OF ANNUAL MEETING
The Annual Meeting of
Shareholders will be
held on April 27, 2000 at 2:00 p.m. at
Community First Bank,
110 Dixie Street,
Carrollton, Georgia
30117.
SHAREHOLDER SERVICE
Shareholders desiring to change the name, address, or
ownership of stock, to report lost certificates, or to consolidate
accounts, should contact the Transfer Agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
1-800-368-5948
STOCK TRADING
Community First
Banking Company
common stock is
traded on The Nasdaq
Stock Market under
the symbol CFBC.
PRIMARY MARKET MAKERS
Trident Securities, Inc.
Sandler O'Neill & Partners
Friedman Billings Ramsey & Co.
The Robinson-Humphrey Co.
Wachovia Securities, Inc.
SHAREHOLDERS OF RECORD
Community First
Banking Company had
900 shareholders of
record as of December
31, 1999.
ANNUAL REPORT ON FORM 10-K The Company will furnish
without charge a copy of its
Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended December
31,1999, including financial statements and schedules, to any record
or beneficial owner of its common stock as of
March 11, 2000, who requests a copy of such report. Requests
should be in writing addressed to:
C. Lynn Gable
Chief Financial Officer
Community First Banking Company
110 Dixie Street
Carrollton, GA 30117
FINANCIAL INFORMATION
Analysts, investors, news media and others seeking
financial information should contact:
C. Lynn Gable
Chief Financial Officer
Community First Banking Company
110 Dixie Street
Carrollton, Georgia 30117
(770) 838-7271)
INDEPENDENT PUBLIC ACCOUNTANTS
Porter Keadle Moore, LLP
Atlanta, Georgia
Community First
Banking Company and
its subsidiaries are
equal opportunity
employers. Community
First Banking is a
member of the Federal
Deposit Insurance
Corporation.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 4, 2000, accompanying the consolidated
financial statements incorporated by reference in the Annual Report of Community
First Banking Company on Form 10-K for the year ended December 31, 1999. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of Community First Banking Company on Form S-8 (File No.
333-46987, effective February 27, 1998).
/s/PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001035903
<NAME> COMMUNITY FIRST BANKING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,484
<INT-BEARING-DEPOSITS> 925
<FED-FUNDS-SOLD> 220
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,665
<INVESTMENTS-CARRYING> 184
<INVESTMENTS-MARKET> 184
<LOANS> 290,863
<ALLOWANCE> 3,379
<TOTAL-ASSETS> 386,048
<DEPOSITS> 295,387
<SHORT-TERM> 6,285
<LIABILITIES-OTHER> 2,433
<LONG-TERM> 54,745
0
1
<COMMON> 33
<OTHER-SE> 27,165
<TOTAL-LIABILITIES-AND-EQUITY> 386,048
<INTEREST-LOAN> 25,692
<INTEREST-INVEST> 4,410
<INTEREST-OTHER> 454
<INTEREST-TOTAL> 30,556
<INTEREST-DEPOSIT> 12,147
<INTEREST-EXPENSE> 15,435
<INTEREST-INCOME-NET> 15,121
<LOAN-LOSSES> 1,015
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 17,576
<INCOME-PRETAX> 283
<INCOME-PRE-EXTRAORDINARY> 283
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174
<EPS-BASIC> .18
<EPS-DILUTED> .17
<YIELD-ACTUAL> 4.22
<LOANS-NON> 1,264
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 212
<ALLOWANCE-OPEN> 2,880
<CHARGE-OFFS> 815
<RECOVERIES> 299
<ALLOWANCE-CLOSE> 3,379
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,379
</TABLE>
