SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File Number _________
COMMUNITY FIRST BANCORPORATION
(Exact Name of Small Business Issuer in its Charter)
South Carolina 58-2322486
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
3685 Blue Ridge Boulevard, Walhalla, South Carolina 29691
(Address of Principal Executive Office, Zip Code)
Issuer's Telephone Number, Including Area Code: (864) 638-2105
Securities Registered Pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock (no par value)
(Title of Class)
Check whether the issuer (1) has filed all the reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 [_]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year. $ 8,099,848
The aggregate market value of the voting and non-voting common equity
held by non-affiliates on March 1, 1998, was approximately $8,985,114. As of
March 1, 1998, there were 888,009 shares of the Registrant's Common Stock, no
par value, outstanding. For purposes of the foregoing calculation only, all
directors and executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to the Stockholders for the year ended
December 31, 1997 - Parts I and II
(2) Portions of the Registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders - Part III
Transitional Small Business Disclosure Format.
Yes __ No X
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10-KSB CROSS REFERENCE INDEX
Part I Page
Item 1 Description of Business ........................................ 1
Item 2 Description of Property ........................................ 9
Item 3 Legal Proceedings .............................................. 10
Item 4 Submission of Matters to a Vote of Security Holders ............ None
Part II
Item 5 Market for Common Equity and Related Stockholder Matters ....... 11
Item 6 Management's Discussion and Analysis or Plan of Operation ...... 11
Item 7 Financial Statements ........................................... 11
Item 8 Changes In and Disagreements with Accountants ..................
on Accounting and Financial Disclosure ....................... None
Part III
Item 9 Directors and Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act ..... *
Item 10 Executive Compensation ......................................... *
Item 11 Security Ownership of Certain Beneficial Owners and Management . *
Item 12 Certain Relationships and Related Transactions ................. *
Part IV
Item 13 Exhibits and Reports on Form 8-K
* Incorporated by reference to the Registrant's Proxy Statement for the
1998 Annual Meeting of Shareholders
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PART I
This Annual Report on Form 10-KSB contains forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements should be read with the cautionary statements and
important factors included in this Form 10-KSB. (See Item 6. - Management's
Discussion and Analysis of Financial Condition and Results of Operations, Safe
Harbor for Forward-Looking Statements.) Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts. Such forward- looking statements may be
identified, without limitation, by the use of the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts," "projects," and similar
expressions. The Company's expectations, beliefs and projections are expressed
in good faith and are believed by the Company to have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in the Company's records and other data available from
third parties, but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or accomplished.
Item 1. Description of Business
FORM OF ORGANIZATION
Community First Bancorporation (the "Company") is a South Carolina
corporation and a bank holding company incorporated May 23, 1997. The Company
commenced operations on October 16, 1997, upon effectiveness of the acquisition
of Community First Bank (the "Bank") as a wholly owned subsidiary. The principal
business of the Company is ownership and operation of the Bank.
BUSINESS OF BANKING
General
The Bank is a South Carolina state bank which was incorporated in
December, 1988, and commenced operations as a commercial bank in March, 1990.
The Bank operates from its offices in Walhalla and Seneca, South Carolina. The
main office is located at 3685 Blue Ridge Boulevard, in Walhalla, South
Carolina, and the Seneca office is located at 1600 Sandifer Boulevard in Seneca,
South Carolina.
Services and Products Offered
The Bank offers a full array of commercial bank services. Deposit
services include business and personal checking accounts, NOW accounts, savings
accounts, money market accounts, various term certificates of deposit, IRA
accounts, and other deposit services. Most of the Bank's deposits are attracted
from individuals and small businesses. The Bank does not offer trust services,
and does not accept brokered deposits.
The Bank offers secured and unsecured, short-to-intermediate term
loans, with floating and fixed interest rates for commercial and consumer
purposes. Consumer loans include generally car loans, home equity improvement
loans (secured by first and second mortgages), personal expenditure loans,
education loans, and overdraft lines of credit. Commercial loans include
generally short term unsecured loans, short and intermediate term real estate
mortgage loans, loans secured by listed stocks, loans secured by equipment
inventory, and accounts receivable. Management believes that the credit staff
possesses knowledge of the community and lending skills sufficient to enable the
Bank to maintain a sufficient volume of high quality loans.
Management of the Bank believes that the loan portfolio is adequately
diversified. There are no significant concentrations of loans in any particular
individuals, industries or groups of related individuals or industries and the
Bank has no foreign loans. The loan portfolio consists primarily of extensions
of credit to businesses and individuals in its service area within Oconee
County, South Carolina. The economy of this area is diversified and does not
depend on any one industry or group of related industries. Management has
established loan policies and practices
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that include set limitations on loan-to-collateral value for different types of
collateral, requirements for appraisals, obtaining and maintaining current
credit and financial information on borrowers, and credit approvals.
Other services offered by the Bank include residential mortgage loan
origination services, safe deposit boxes, night depository service, VISA and
MasterCard charge cards, tax deposits, sale of U.S. Treasury bonds, notes and
bills and other U.S. government securities (through a correspondent), travelers
checks, and twenty-four hour automated teller service. The ATM is part of the
Cirrus network.
As of December 31, 1997, local governmental deposits comprised
approximately 33% of the Bank's total deposits. These deposits are concentrated
among a few local governmental entities and are somewhat volatile. Management of
the Bank has, however, taken steps that it believes are sufficient to minimize
to the greatest extent possible the impact of such volatibility on the Bank's
liquidity position, including maintaining the ratio of average loans to average
total deposits at 67.6% in 1997, and concentrating these funds in short-term
investments and securities available-for-sale.
Employees
At December 31, 1997, the Company employed 32 people.
Competition
The banking laws of South Carolina allow statewide branching, and,
therefore, commercial banking in the state is highly competitive. South Carolina
law also permits bank holding companies in other states with reciprocal laws to
acquire depository institutions in South Carolina, and most of the other
financial institutions in the Oconee County area are branch offices of large,
regional banks. Further, Congress has enacted the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994, which has increased the ability of bank
holding companies and banks to operate across state lines.
Banks generally compete with other financial institutions through the
banking services and products offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal concern with which services are offered. The Bank
encounters strong competition from most of the financial institutions in the
Bank's market area, which generally encompasses Oconee County and the
immediately surrounding area. The Bank's primary competitors in its market area
are eleven other banks and branches of banks and six savings and loan
associations and branches. Additionally, in the conduct of certain banking
business, the Bank also competes with credit unions, consumer finance companies,
insurance companies, money market mutual funds, and other financial
institutions, some of which are not subject to the same degree of regulation and
restrictions imposed upon the Bank. Many of these competitors have substantially
greater resources and lending limits than the Bank and offer certain services,
such as international banking and trust services, that the Bank does not
provide. The Bank believes, however, that its relatively small size permits it
to offer more personalized services than many of its competitors. The Bank
attempts to compensate for its lower lending limits by participating larger
loans with other institutions.
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EFFECT OF GOVERNMENT REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to such statutes and regulations. Any change in applicable law or
regulation may have a material effect on the business of the Holding Company and
the Bank.
General
As a bank holding company registered under the Bank Holding Company Act
("BHCA"), the Company is subject to supervision, and to regular inspection by
the Federal Reserve. The Company is also subject to regulation by the State
Board. The Bank is a state bank subject to regulation by the State Board and the
FDIC. The following discussion summarizes certain aspects of those laws and
regulations that affect the Company and the Bank. Proposals to change the laws
and regulations governing the banking industry are frequently raised in
Congress, the state legislature and before the various bank regulatory agencies.
The likelihood and timing of any changes and the impact such changes might have
on the Company and the Bank are difficult to determine.
Under the BHCA, the Company's activities and those of its subsidiaries
are limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. The BHCA prohibits the
Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or from
merging or consolidating with another bank holding company without prior
approval of the Federal Reserve. In making such determinations, the Federal
Reserve is required to consider whether the performance of such activities by a
bank holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased competition or
gains in efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
Additionally, the BHCA prohibits the Company from engaging in, or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in, a non-banking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto.
In addition to registration with the Federal Reserve under the BHCA,
all South Carolina bank holding companies must register with the State Board
under the South Carolina Bank Holding Company Act (the "South Carolina Act"). A
registered bank holding company must provide the State Board with information
with respect to the financial condition, operations, management, and
inter-company relationships of the holding company and its subsidiaries. The
State Board may also require such other information as is necessary to keep
itself informed about whether the provisions of South Carolina law and the
regulations and orders issued thereunder by the State Board have been complied
with, and the State Board may make examinations of any bank holding company and
its subsidiaries.
Obligations of the Company to its Subsidiary Bank
Under the policy of the Federal Reserve with respect to bank holding
company operations, a bank holding company is required to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("1991 Banking Law"), to avoid receivership of its insured
depository institution subsidiary, a bank holding company is required to
guarantee the compliance of any insured depository institution subsidiary that
may become "undercapitalized" with the terms of any capital restoration plan
filed by such subsidiary with its appropriate federal banking agency up to the
lesser of (i) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized, or (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards
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as of the time the institution fails to comply with such capital restoration
plan. Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act, as amended ("FDIA"), require insured depository institutions
under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated by either the Savings Association Insurance Fund ("SAIF") or the
Bank Insurance Fund ("BIF") of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Bank.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. 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 subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Adequacy Guidelines for Bank Holding Companies and State Banks
The various federal bank regulators, including the Federal Reserve and
the FDIC, have adopted risk-based capital requirements for assessing bank
holding company and bank capital adequacy. These standards define what qualifies
as capital and establish minimum capital standards in relation to assets and
off-balance sheet exposures, as adjusted for credit risks. Capital is classified
into two tiers. For bank holding companies, Tier 1 or "core" capital consists
primarily of common shareholders' equity, perpetual preferred stock (subject to
certain limitations) and minority interests in the common equity accounts of
consolidated subsidiaries, and is reduced by goodwill and certain investments in
other corporations ("Tier 1 Capital"). Tier 2 capital consists of the allowance
for possible loan losses (subject to certain limitations), and certain
subordinated debt, "hybrid capital instruments", subordinated and perpetual debt
and intermediate term and other preferred stock ("Tier 2 Capital"). A minimum
ratio of total capital to risk- weighted assets of 8.00% is required and Tier 1
capital must be at least 50% of total capital. The Federal Reserve also has
adopted a minimum leverage ratio of Tier 1 Capital to total assets (not
risk-weighted) of 3%. The 3% Tier 1 Capital to total assets ratio constitutes
the leverage standard for bank holding companies, and will be used in
conjunction with the risk-based ratio in determining the overall capital
adequacy of banking organizations.
The Federal Reserve and the FDIC have emphasized that the foregoing
standards are supervisory minimums and that an institution would be permitted to
maintain such levels of capital only if it had a composite rating of "1" under
the regulatory rating systems for bank holding companies and banks. All other
bank holding companies are required to maintain a leverage ratio of 3% plus at
least 1% to 2% of additional capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
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organization's Tier 1 Capital less all intangibles, to total assets, less all
intangibles. The Bank's December 31, 1997 ratios are set forth in the Annual
Report to Shareholders for the year ended December 31, 1997 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources."
Bank regulators from time to time indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. However, the managements of the Company and the Bank are unable to
predict whether and when higher capital requirements would be imposed and, if
so, at what levels and on what schedule.
Recent Regulations and Proposals Relating to Capital Adequacy
The 1991 Banking Law required each federal banking agency, including
the Federal Reserve, to revise its risk-based capital standards to ensure that
those standards take adequate account of interest rate risk, concentration of
credit risk and the risks of non-traditional activities, as well as reflect the
actual performance and expected risk of loss on multi-family mortgages. The
Federal Reserve, the FDIC and the Office of the Comptroller of the Currency (the
"OCC") have issued a joint rule amending the capital standards to specify that
the banking agencies will include in their evaluations of a bank's capital
adequacy an assessment of the exposure to declines in the economic value of the
bank's capital due to changes in interest rates. The agencies have also issued a
joint policy statement that provides bankers guidance on sound practices for
managing interest rate risk. The policy statement identifies the key elements of
sound interest rate risk management and describes prudent principles and
practices for each element, emphasizing the importance of adequate oversight by
a bank's board of directors and senior management and of a comprehensive risk
management process. The policy statement also outlines the critical factors that
will affect the agencies' evaluation of a bank's interest rate risk when making
a determination of capital adequacy. In adopting the policy statement, the
agencies have asserted their intention to continue to place significant emphasis
on the level of a bank's interest rate risk exposure and the quality of its risk
management process when evaluating a bank's capital adequacy.
The Federal Reserve, the FDIC, the OCC and the Office of Thrift
Supervision (the "OTS") have also issued joint rules amending the risk-based
capital guidelines to take into account concentration of credit risk and the
risk of non-traditional activities, and to incorporate a measure for exposure to
market risk. The rule relating to concentration of credit risk and risk of
non-traditional activities amends each agency's risk-based capital standards by
explicitly identifying concentration of credit risk and the risk arising from
activities that have not customarily been part of the banking business but have
been conducted as a result of developing technology and changes in financial
markets, as well as an institution's ability to manage these risks, as important
factors to be taken into account by the agency in assessing an institution's
overall capital adequacy. The rule relating to market risk amends each agency's
risk-based-capital standards to incorporate measures for market risk to cover
all positions located in a banking institution's trading account, foreign
exchange and commodity positions. The effect of the market risk rules is that
any bank or bank holding company regulated by the Federal Reserve, the FDIC, OCC
or the OTS that has significant exposure to market risk must measure that risk
using its own internal value-at-risk model and also hold a commensurate amount
of capital. "Market risk" means the risk of loss resulting from movements in
market prices. "Value-at-risk" is an estimate of potential changes in portfolio
value based on a statistical confidence interval of changes in market prices
that occur during some time intervals. The effective date of the market risk
rules is January 1, 1997, and compliance with the rules was mandatory January 1,
1998.
The Company is still assessing the impact these rules and proposed
policy statement would have on the capital requirements of the Bank or the
Company, but does not expect the impact to be material.
Payment of Dividends
The Company is a legal entity separate and distinct from its bank
subsidiary. Most of the revenues of the Company are expected to result from
dividends paid to the Company by the Bank. There are statutory and regulatory
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requirements applicable to the payment of dividends by subsidiary banks as well
as by the Company to its stockholders. It is not anticipated that the Company
will pay cash dividends in the near future.
Certain Transactions by the Company with its Affiliates
There are various legal restrictions on the extent to which bank
holding companies and their nonbank subsidiaries can borrow or otherwise obtain
credit from their bank subsidiaries. An insured bank and its subsidiaries are
limited in engaging in "covered transactions" with their nonbank affiliates to
the following amounts: (i) in the case of any such affiliate, the aggregate
amount of covered transactions of the insured bank and its subsidiaries will not
exceed 10% of the capital stock and surplus of the insured bank, and (ii) in the
case of all affiliates, the aggregate amount of covered transactions of the
insured bank and its subsidiaries will not exceed 20% of the capital stock and
surplus of the bank. "Covered transactions" are defined by statute to include a
loan or extension of credit, as well as a purchase of securities issued by an
affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve), the acceptance of securities issued by the affiliate as collateral for
a loan and the issuance of a guarantee, acceptance, or letter of credit on
behalf of an affiliate. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
FDIC Insurance Assessments
Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Under current law, the insurance
assessment to be paid by BIF-insured institutions is as specified in a schedule
issued by the FDIC that specifies, at semiannual intervals, target reserve
ratios designed to maintain the FDIC insurance funds' reserve ratios at 1.25% of
estimated insured deposits (or such higher ratio as the FDIC may determine in
accordance with the statute). Further, the FDIC is authorized to impose one or
more special assessments in any amount deemed necessary to enable repayment of
amounts borrowed by the FDIC from the United States Department of the Treasury
("Treasury Department").
The FDIC has implemented a risk-based assessment schedule, imposing
assessments ranging from 0.00% to 0.27% of an institution's average assessment
base. The actual assessment to be paid by each BIF member is based on the
institution's assessment risk classification, which is determined based on
whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized," as such terms have been defined in
applicable federal regulations, and whether such institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.
The FDIC may increase or decrease the assessment rates semiannually up to a
maximum increase or decrease of 5 basis points, as deemed necessary to maintain
the BIF reserve ratio at $1.25 per $100 of insured deposits.
The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized
the FICO to levy assessments on BIF- and SAIF-assessable deposits, and
stipulated that the BIF rate must equal one-fifth the SAIF rate through year-end
1999, or until the insurance funds are merged, whichever occurs first.
Thereafter, BIF and SAIF payers will be assessed pro rata for FICO. The FICO
assessment is based on deposit balances and will be adjusted quarterly to
reflect changes in the assessment bases of the respective funds based on
quarterly Call Report and Thrift Financial Report submissions.
Regulation of the Bank
The Bank is also subject to examination by the South Carolina state
bank examiners. In addition, the Bank is subject to various other state and
federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and laws relating to branch banking. The Bank's
loan operations are also subject to certain federal consumer credit laws and
regulations promulgated thereunder, including, but not limited to: the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to
provide certain information concerning their mortgage lending; the Equal
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Credit Opportunity Act and the Fair Housing Act, prohibiting discrimination on
the basis of certain prohibited factors in extending credit; the Fair Credit
Reporting Act, governing the use and provision of information to credit
reporting agencies; the Bank Secrecy Act, dealing with, among other things, the
reporting of certain currency transactions; and the Fair Debt Collection Act,
governing the manner in which consumer debts may be collected by collection
agencies. The deposit operations of the Bank are also subject to the Truth in
Savings Act, requiring certain disclosures about rates paid on savings accounts;
the Expedited Funds Availability Act, which deals with disclosure of the
availability of funds deposited in accounts and the collection and return of
checks by banks; the Right to Financial Privacy Act, which imposes a duty to
maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern 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.
The Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Subject to certain exceptions, the FDIC assesses the CRA performance of
a bank by applying lending, investment and service tests. The lending test
evaluates a bank's record of helping to meet the credit needs of its assessment
area through its lending activities by considering a bank's home mortgage, small
business, small farm, community development, and consumer lending. The
investment test evaluates a bank's record of helping to meet the credit needs of
its assessment area through qualified investments that benefit its assessment
area or a broader statewide or regional area that includes the bank's assessment
area. The service test evaluates a bank's record of helping to meet the credit
needs of its assessment area by analyzing both the availability and
effectiveness of a bank's systems for delivering retail banking services and the
extent and innovativeness of its community development services. The FDIC
assigns a rating to a bank of "outstanding," satisfactory," "needs to improve,"
or "substantial noncompliance" based on the bank's performance under the
lending, investment and service tests. To evaluate compliance with the tests,
subject to certain exceptions, banks will be required to collect and report to
the FDIC extensive demographic and loan data.
For banks with total assets of less than $250 million that are
affiliates of a holding company with banking and thrift assets of less than $1
billion, such as the Bank, the FDIC evaluates the bank's record of helping to
meet the credit needs of its assessment area pursuant to the following criteria:
(1) the bank's loan-to-deposit ratio, adjusted for seasonal variation and, as
appropriate, other lending-related activities, such as loan originations for
sale to the secondary markets, community development loans, or qualified
investments; (2) the percentage of loans and, as appropriate, other
lending-related activities located in the bank's assessment area; (3) the bank's
record of lending to and, as appropriate, engaging in other lending-related
activities for borrowers of different income levels and businesses and farms of
different sizes; (4) the geographic distribution of the bank's loans; and (5)
the bank's record of taking action, if warranted, in response to written
complaints about its performance in helping to meet credit needs in its
assessment area. Small banks may also elect to be assessed under the generally
applicable standards of the rule, but to do so a small bank must collect and
report extensive data.
A bank may also submit a strategic plan to the FDIC and be evaluated on
its performance under the plan.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad
powers under current federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized,"
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"significantly undercapitalized" or "critically undercapitalized." Under uniform
regulations defining such capital levels issued by each of the federal banking
agencies, a bank is considered "well capitalized" if it has (i) a total risk-
based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of
6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject
to any order or written directive to meet and maintain a specific capital level.
An "adequately capitalized" bank is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank that has a composite CAMEL rating of 1 and is not
experiencing or anticipating significant growth). A bank is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, or (ii) a Tier 2 risk-based capital ratio of less that 4%, and (iii) a
leverage ratio of less than 4% (or 3% in the case of a bank that has a composite
CAMEL rating of 1 and is not experiencing or anticipating significant growth);
(B) "significantly undercapitalized" if the bank has (i) a total risk-based
capital ratio of less than 6%, or (ii) a Tier 1 risk-based capital ratio of less
than 3%; or (iii) a leverage ratio of less than 3%; and (C) "critically
undercapitalized" if the bank has a ratio of tangible equity to total assets
equal to or less than 2%.
A bank that is "undercapitalized" becomes subject to provisions of the
FDIA restricting payment of capital distributions and management fees; requiring
FDIC to monitor the condition of the bank; requiring submission by the bank of a
capital restoration plan; restricting the growth of the bank's assets and
requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the FDIC move promptly to take over
banks that are unwilling or unable to take such steps.
Brokered Deposits. Under current FDIC regulations, "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept brokered deposits with a waiver from the FDIC (subject to
certain restrictions on payment of rates), while "undercapitalized" banks may
not accept brokered deposits. The regulations provide that the definitions of
"well capitalized", "adequately capitalized" and "undercapitalized" are the same
as the definitions adopted by the agencies to implement the prompt corrective
action provisions of the 1991 Banking Law (described in the previous paragraph).
Operational and Managerial Standards. The federal banking agencies have
issued Interagency Guidelines Establishing Standards for Safety and Soundness,
which set forth general operational and managerial standards in the areas of
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. The Guidelines also prohibit payment of
excessive compensation as an unsafe and unsound practice. Compensation is
defined as excessive if it is unreasonable or disproportionate to the services
actually performed. Bank holding companies are not subject to the Guidelines.
The Guidelines contemplate that each federal agency will determine compliance
with these standards through the examination process, and if necessary to
correct weaknesses, require an institution to file a written safety and
soundness compliance plan.
Interstate Banking
In July 1994, South Carolina enacted legislation which effectively
provides that, after September 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other conditions, including
that the effect of the transaction not lessen competition and that the laws of
the state in which the out-of-state bank holding company filing the applications
has its principal place of business permit South Carolina bank holding companies
to acquire banks and bank holding companies in that state. Although such
legislation has increased takeover activity in South Carolina, the Bank does not
believe that such legislation will have a material impact on its competitive
position. However, no assurance of such fact may be given.
8
<PAGE>
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
has increased the ability of bank holding companies and banks to operate across
state lines. Under Riegle-Neal, the existing restrictions on interstate
acquisitions of banks by bank holding companies have been repealed, such that
the Company and any other bank holding company located in South Carolina can
acquire a bank located in any other state, and a bank holding company located
outside South Carolina could acquire any South Carolina-based bank, in either
case subject to certain deposit percentage and other restrictions. The
legislation also provides that, unless an individual state elects beforehand
either (i) to accelerate the effective date or (ii) to prohibit out-of-state
banks from operating interstate branches within its territory, on or after June
1, 1997, adequately capitalized and managed bank holding companies will be able
to consolidate their multistate bank operations into a single bank subsidiary
and to branch interstate through acquisitions. De novo branching by an
out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. South Carolina law was amended, effective July 1, 1996, to
permit such interstate branching but not de novo branching by an out-of-state
bank. The Company believes that this legislation will result in additional
acquisitions of South Carolina financial institutions by out-of-state financial
institutions. However, the Company does not presently anticipate that such
legislation will have a material impact on its operations or future plans.
Legislative Proposals
The Treasury Department has previously issued a proposal to consolidate
the federal bank regulatory agencies. Under this proposal, most of the
supervisory and regulatory oversight authority of the FDIC, the OCC, the OTS and
the Federal Reserve would be transferred to a new independent federal banking
agency. The FDIC would continue to have oversight over the deposit insurance
funds and the Federal Reserve would continue to carry out monetary and fiscal
policy, discount window operations and payments system functions. The Treasury
Department is expected to seek to introduce a bill in Congress providing for
such consolidation in the near future. Three bills providing for various
"modernizations" of the banking system are pending in Congress as well. Due to
the preliminary nature of these proposals and the potential for opposition by
industry groups and others, the Bank cannot determine at this time the effect of
any regulatory consolidation or other modernization.
Other proposed legislation which could significantly affect the
business of banking has been introduced or may be introduced in Congress from
time to time. Management of the Bank cannot predict the future course of such
legislative proposals or their impact on the Company and the Bank should they be
adopted.
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of the Company and the Bank are subject
to the influence of economic conditions generally, both domestic and foreign,
and also to the monetary and fiscal policies of the United States and its
agencies, particularly the Federal Reserve. The Federal Reserve regulates the
supply of money through various means, including open-market dealings in United
States government securities, the discount rate at which banks may borrow from
the Federal Reserve, and the reserve requirements on deposits. The nature and
timing of any changes in such policies and their impact on the Company and the
Bank cannot be predicted.
Item 2. Description of Property
The Bank owns in fee simple with no major encumbrances, real property
at 3685 Blue Ridge Boulevard, Walhalla, South Carolina, and real property at
1600 Sandifer Boulevard in Seneca, South Carolina, where its two offices are
located. Management of the Bank believes the Bank's facilities are suitable and
adequate for the Company's needs.
9
<PAGE>
Item 3. Legal Proceedings
The Bank is from time to time a party to various legal proceedings
arising in the ordinary course of business, but management of the Bank is not
aware of any pending or threatened litigation or unasserted claims or
assessments that are expected to result in losses, if any, that would be
material to the Bank's business and operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of the security holders during
the fourth quarter of 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information set forth under the caption "Market for Common Stock
and Dividends" and in Note H to the Company's Consolidated Financial Statements
under the caption "Restrictions on Subsidiary Dividends, Loans or Advances" in
the Annual Report to Shareholders for the year ended December 31, 1997 (the
"1997 Annual Report") is incorporated herein by reference. The information set
forth in Part I, Item 1 of this Form 10-KSB under the caption "Effect of
Government Regulation -- Payment of Dividends" is also incorporated herein by
reference.
In connection with its acquisition of all of the Common Stock of the
Bank, in 1997, the Company exchanged shares of the Company's Common Stock for
all of the outstanding stock of the Bank. The securities issued in this
transaction were exempt from registration pursuant to Section 3(a)(12) of the
Securities Act of 1933.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 1997 Annual
Report is incorporated herein by reference.
Item 7. Financial Statements
The Consolidated Financial Statements, including Notes thereto, set
forth in the 1997 Annual Report are incorporated herein by reference.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with or changes in accountants.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information set forth under the captions "Management of the
Company" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement to be used in conjunction with the 1998 Annual Meeting of
Shareholders (the "Proxy Statement"), which will be filed within 120 days of the
Corporation's fiscal year end, is incorporated herein by reference.
Item 10. Executive Compensation
The information set forth under the caption "Management Compensation"
in the Proxy Statement is incorporated herein by reference.
10
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners" and "Management of the Company" in the Proxy
Statement is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit No.(from Description
item 601 of
Regulation S-B)
3.1 Articles of Incorporation
3.2 By-laws
4 Specimen Stock certificate
10.1 Community First Bank 1989 Incentive
Stock Option Plan
10.2 Community First Bank Incentive Stock
Agreement with Frederick D.Shepherd, Jr.
13 Portions of the Annual Report to Shareholders
for the Year Ended December 31, 1997
21 Subsidiaries of the registrant
27 Financial data schedule
(b) No Reports on Form 8-K were filed during the year ended December 31, 1997.
11
<PAGE>
SIGNATURES
In accordance with 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.
COMMUNITY FIRST BANK
s/Frederick D. Shepherd, Jr.
Date: March 23, 1998 By:-------------------------------------------
Frederick D. Shepherd, Jr.
Its President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
_______________________________ Vice Chairman and Director March , 1998
--
(Larry S. Bowman)
_______________________________ Director and Secretary March , 1998
--
(William M. Brown)
s/Robert H. Edwards
- ------------------------------- Director March 23 , 1998
(Robert H. Edwards)
_______________________________ Director March , 1998
--
(B. Molgro England, Sr.)
_______________________________ Director March , 1998
--
(Blake L. Griffith)
s/John R. Hamrick
- ------------------------------- Director March 23, 1998
(John R. Hamrick)
s/R. Theo Harris, Sr.
- ------------------------------- Director March 23, 1998
(R. Theo Harris, Sr.)
s/James E. McCoy
- ------------------------------- Chairman and Director March 23, 1998
(James E. McCoy)
s/Frederick D. Shepherd, Jr.
- ------------------------------- Director, President, Chief March 23, 1998
(Frederick D. Shepherd, Jr.) Executive Officer, Treasurer and
Principal Financial Officer
s/Gary V. Thrift
- ------------------------------- Director March 23, 1998
(Gary V. Thrift)
s/James E. Turner
- ------------------------------- Director March 23, 1998
(James E. Turner)
s/Charles L. Winchester
- ------------------------------- Director March 23, 1998
(Charles L. Winchester)
</TABLE>
12
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation
3.2 By-laws
4 Specimen Stock certificate
10.1 Community First Bank 1989 Incentive Stock Option Plan
10.2 Community First Bank Incentive Stock Agreement with
Frederick D. Shepherd, Jr.
13 Portions of the Annual Report to Shareholders for
the Year Ended December 31, 1997
21 Subsidiaries of the registrant
27 Financial data schedule
13
EXHIBIT 3.1
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF INCORPORATION
1. The name of the proposed corporation is Community First Bancorporation
2. The initial registered office of the corporation is 3685 Blue Ridge
Boulevard, Walhalla, SC 29691 and the initial registered agent at such
address is Frederick D. Shepherd, Jr.
3. The corporation is authorized to issue shares of stock as follows:
Complete a or b, whichever is applicable: a. [x] If the corporation is
authorized to issue a single class of shares, the total number of
shares authorized is 5,000,000.
b. [] The corporation is authorized to issue more than one class of
shares:
Class of Shares Authorized No. of Each Class
--------------- ---------------------
-------------- ---------------------
The relative rights, preferences, and limitations of the shares of each
class, and of each series within a class, are as follows:
4. The existence of the corporation shall begin when these articles are
filed with the Secretary of State unless a delayed date is indicated
(See ss.33-1-230(b)) : effective at filing
5. The optional provisions which the corporation elects to include in the
articles of incorporation are as follows (See ss.33-2-102 and the
applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976
South Carolina Code):
(a) The number of Directors of the Corporation may be fixed by the
bylaws, but shall not be less than nine (9).
The Board of Directors shall be divided into three classes as
equal as may be feasible, with the term of office of one class expiring
each year. The members of the initial Board of Directors shall be
divided into three classes as hereinafter provided with directors of
the first class to hold office for a term expiring at the 1998 annual
meeting of shareholders, directors of the second class to hold office
for a term expiring at the 1999 annual meeting of shareholders, and
directors of the third class to hold office for the term expiring at
the 2000 annual meeting of shareholders. At each annual meeting of
shareholders, successors to the directors whose term shall then expire
shall be elected to hold office for terms expiring at the third
succeeding annual meeting. In case of any vacancies, by reason of an
increase in the number of directors of otherwise, each additional
director may be elected by the Board of Directors to hold office until
the next shareholders' meeting at which directors are elected and until
his successor shall have been elected and qualified. Directors shall
continue to hold office until others are chosen and qualified in their
stead. When the number of directors is changed, any newly created
directorships or any decrease in directorships shall be so assigned
among the classes by a majority of the directors then in office, though
less than a quorum, as to make all classes as equal in number as may be
feasible. No decrease in the number of directors shall shorten the term
of any incumbent director.
1
<PAGE>
Any director may be removed from office as a director, but
only for cause, by the affirmative vote at a meeting called as provided
in the bylaws for that purpose, of at least sixty-six and two-thirds
(66-2/3%) percent in interest of the holders of voting stock of the
corporation issued and outstanding.
(b) The number of directors constituting the initial Board of
Directors of the corporation shall be twelve (12) in number and the
names and addresses of the persons who are to serve as the initial
Board of Directors until the first, second and third annual meetings of
the shareholders or until their successors be elected and qualify are:
FIRST CLASS: Terms expiring at the Annual Meeting of Shareholders
in 1998 are:
Names: Addresses:
Robert H. Edwards s/Robert H. Edwards
Walhalla, S.C.
B. Molgro England, Sr. s/B. Molgro England, Sr.
Westminster, S.C.
Blake L. Griffith s/Blake L. Griffith
Walhalla, S.C.
Gary V. Thrift s/Gary V. Thrift
Seneca, S.C.
SECOND CLASS: Terms expiring at the Annual Meeting of
Shareholders in 1999 are:
R. Theo Harris, Jr. s/R. Theo Harris, Jr.
Westminster, S.C.
James E. McCoy s/James E. McCoy
Walhalla, S.C.
James E. Turner s/James E. Turner
Seneca, S.C.
Charles L. Winchester s/Charles L. Winchester
Sunset, S.C.
THIRD CLASS: Terms expiring at the Annual Meeting of Shareholders
in 2000 are:
Larry S. Bowman, M.D. s/Larry S. Bowman, M.D.
Seneca, S.C.
William M. Brown s/William M. Brown
Salem, S.C.
John R. Hamrick s/John R. Hamrick
Seneca, S.C.
Frederick D. Shepherd, Jr. s/Frederick D. Shepherd, Jr.
Walhalla, S.C.
(c) Shareholders shall not have the right to cumulate their votes for
directors.
(d) The Corporation elects not to have preemptive rights.
(e) The corporation shall indemnify and advance expenses to its
officers, directors, employees and agents to the full extent permitted
by the South Carolina Business Corporation Act of 1988.
2
<PAGE>
6. The name and address of each incorporator is as follows (only one is
required):
<TABLE>
<CAPTION>
Name Address Signature
<S> <C> <C>
Frederick D. Shepherd, Jr. 3685 Blue Ridge Blvd. s/Frederick D. Shepherd, Jr.
Walhalla, SC 29691
</TABLE>
7. I, Suzanne Hulst Clawson, an attorney licensed to practice in the State of
South Carolina, certify that the corporation, to whose articles of
incorporation this certificate is attached, has complied with the
requirements Chapter 2, Title 33 of the 1976 South Carolina Code relating
to the articles of incorporation.
Date May 22, 1997
Suzanne Hulst Clawson
(Type or Print Name)
Address Sinkler & Boyd, P.A.
Post Office Box 11889
Columbia, SC 29211
3
EXHIBIT 3.2
BY-LAWS
OF
COMMUNITY FIRST BANCORPORATION
ARTICLE I
OFFICES
The principal office of the Corporation in the State of South Carolina
shall be located in the City of Walhalla, in the County of Oconee, South
Carolina. The Board of Directors shall have the power to change the location of
the principal office to any other place within the limits of Oconee County,
South Carolina, without the approval of the shareholders but with the approval
of supervisory authorities. The Corporation may have such other offices or
branches, within the State of South Carolina as the Board of Directors may
designate or as the business of the Corporation may from time to time require,
without the approval of the shareholders but with the approval of supervisory
authorities.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. An annual meeting of shareholders of the
Corporation shall be held during each calendar year on such date and at such
time as shall be designated from time to time by the Board of Directors and
stated in the notice of meeting. At such meeting, the shareholders shall elect
directors and transact such other business as may properly be brought before the
meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the Shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the President or by a majority of the Board of Directors, and shall be called
by the President at the request of the holders of not less than ten per centum
(10%) of all the outstanding shares of the Corporation entitled to vote at the
meeting.
Section 3. PLACE OF MEETING. The Directors may designate any place,
either within or without the State, unless otherwise prescribed by statute, as
the place of meeting for any annual or for any special meeting called by the
Directors. A waiver of notice signed by all Shareholders entitled to vote at a
meeting may designate any place, either within or without the State, unless
otherwise prescribed by statute, as the place for holding such meeting. If no
designation is made or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the Corporation.
Section 4. NOTICE OF MEETING. Written or printed notice, stating the
place, day, and hour of the meeting, and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President or the
Secretary or the officer or persons calling the meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the Shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid.
When a meeting is adjourned, for whatever reason, for thirty (30) days
or more, notice of the adjourned meeting shall be given as provided by this
section. Notice of a meeting adjourned for less than thirty (30) days need not
be given if the time and place of the adjourned meeting are announced at the
meeting at which the adjournment is taken, and at the adjourned meeting the
Corporation may transact business which might have been transacted at the
meeting at which the adjournment was taken.
1
<PAGE>
Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors of the
Corporation may fix in advance a date as the record date for any such
determination of Shareholders, such date, in any case, to be not more than fifty
(50) days and, in case of a meeting of Shareholders, not less than ten (10) days
prior to the date on which the particular action, requiring such determination
of Shareholders, is to be taken. If no record date is fixed for the
determination of Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or Shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
Resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of Shareholders.
When a determination of Shareholders entitled to vote in any meeting of
Shareholders has been made, as provided in this Section, such determination
shall apply to any adjournment thereof, unless a new record date is fixed in
accordance with the provisions of this Section 5.
Section 6. VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall, in advance of each
meeting of Shareholders, prepare a complete list of the Shareholders entitled to
vote at any meeting of Shareholders or adjournment thereof. Such lists shall be
arranged in alphabetical order, with the address of and the number of shares
held by each Shareholder. The requirement of a list shall be satisfied, and no
list need be prepared, if the record of Shareholders readily shows, in
alphabetical order or by alphabetical index, and by classes or series, if any,
the information required to appear in a list of Shareholders. For a period
commencing upon the date when notice of the meeting is given, and, in no event,
less than ten (10) days prior to the date of the meeting, such list of
Shareholders shall be kept on file at the registered office of the Corporation
or at its principal place of business or at the office of its transfer agent or
registrar, and shall be subject to inspection by any Shareholder at any time
during usual business hours.
Section 7. NOMINATIONS FOR DIRECTOR. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any Shareholder
of any outstanding class of capital stock of the Corporation entitled to vote
for the election of Directors. Nominations, other than those made by or on
behalf of the existing management of the Corporation, shall be made in writing
and shall be delivered or mailed to the President of the Corporation, not less
than fourteen (14) days nor more than fifty (50) days prior to any meeting of
Shareholders called for the election of Directors; provided, however, that if
less than twenty-one (21) days' notice of the meeting is given to Shareholders,
such nomination shall be mailed or delivered to the President of the Corporation
not later than the close of business on the seventh (7th) day following the date
on which the notice of meeting was mailed. Such notification shall contain the
following information to the extent known to the notifying Shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the
Corporation that will be voted for each proposed nominee; (d) the name and
residence address of the notifying Shareholder; and (e) the number of shares of
capital stock of the Corporation owned by the notifying Shareholder. Nominations
not made in accordance herewith may, in his discretion, be disregarded by the
President of the meeting, and upon his instructions, the vote tellers may
disregard all votes cast for each such nominee.
Section 8. QUORUM. At any meeting of Shareholders, a majority of the
outstanding shares of the Corporation entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of Shareholders. If less than
said number of the outstanding shares are represented at a meeting, a majority
of the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The Shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Shareholders to leave less than a quorum.
Section 9. PROXIES. At all meetings of Shareholders, a Shareholder may
vote by proxy executed in writing by the Shareholder or his duly authorized
attorney in fact, but no officer or employee of this Corporation shall act as
proxy. Proxies shall be valid only for one meeting. Such proxy shall be dated
and filed with the
2
<PAGE>
Secretary of the Corporation before or at the time of the meeting. The Secretary
shall file all proxies in the records of this Corporation. No proxy shall be
valid after eleven (11) months from the date of its execution.
Section 10. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one (1) vote upon each matter submitted to a vote at a
meeting of Shareholders.
Section 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of a Shareholder-corporation may be voted by such officer, agent, or proxy,
as the by-laws of such Shareholder- corporation may prescribe, or, in the
absence of such provision, as the board of directors of such Shareholder-
corporation may determine. In the absence of any such designation, the chairman
of the board, president, any vice-president, secretary, and treasurer of the
Shareholder-corporation shall be presumed to possess, in that order, authority
to vote such shares, unless prior to such vote, it appears, by a certified copy
of the by-laws or other instrument of the Shareholder-corporation, that such
authority does not exist or is vested in some other officer or person. In case
of conflicting representation of the Shareholder-corporation, the shares shall
be voted by the senior officer, in the order stated.
Shares held by an administrator, executor, guardian, or committee may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Any other fiduciary, upon proof satisfactory to the Corporation
of his authority to vote, may vote shares which stand of record in the name of
the person for whom he is such fiduciary.
A minor may vote, in person or by proxy, shares which stand of record
in his name, and may not thereafter disaffirm or avoid such vote.
Shares held by a person as custodian for a minor under the South
Carolina Uniform Gifts to Minors Act may be voted by the custodian, subject to
applicable provisions of that act.
Shares held by or under the control of a trustee in bankruptcy or
receiver or liquidator, may be voted by him without the transfer thereof into
his name if authority to do so is conferred by statute or is authorized by the
court which appointed such trustee, receiver, or liquidator. An assignee for the
benefit of creditors may vote shares standing in the name of the assignor,
unless otherwise provided in the instrument of assignment.
A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred on the records of the Corporation
into the name of the pledgee or a nominee of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so long as they stand of record in
the pledgee's name.
Shares standing in the name of a partnership may be voted by any
partner and shares standing in the name of a limited partnership may be voted by
any general partner.
Shares standing in the name of a person as life tenant may be voted by
him, either in person or by proxy.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the Shareholders or any other action which may be taken at
a meeting of the Shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
Shareholders entitled to vote with respect to the subject matter thereof, and is
filed with the Secretary of the Corporation as part of the corporate records.
3
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors. Except as expressly limited by law,
all corporate powers of this Corporation shall be vested in and may be exercised
by the Board of Directors. The Directors shall, in all cases, act as a board,
and they may adopt such rules and regulations for the conduct of their meetings
and the management of the Corporation as they may deem proper, not inconsistent
with these By-laws, and the laws of this State.
Section 2. NUMBER AND ELECTION OF DIRECTORS. The number of directors of
the Corporation shall range from a minimum of nine (9) to a maximum of
twenty-five (25). The number of directors may be fixed or changed within the
minimum and maximum number by a majority vote of the Board of Directors, but no
decrease in the number of directors shall shorten an incumbent director's term.
The terms of directors in the first group of directors provided for in the
Articles of Incorporation of the Corporation shall expire at the first annual
shareholders meeting after their election; the terms of the second group shall
expire at the second annual shareholders meeting after their election; and the
terms of the third group shall expire at the third annual shareholders meeting
after their election. At each annual shareholders meeting held thereafter,
directors are chosen for a term of three years to succeed those directors whose
terms expire.
Section 3. REGULAR MEETINGS. A regular meeting of the Directors shall
be held, without other notice than this By-law, immediately after and at the
same place as the annual meeting of Shareholders. The Directors may provide, by
Resolution, the time and place for the holding of additional regular meetings
without other notice than such Resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Directors may be
called by or at the request of the President of the Corporation or by a majority
of the Directors. The person or persons authorized to call special meetings of
the Directors may fix the place for holding any special meeting of the Directors
called by them.
Section 5. NOTICE. Notice of any special meeting shall be given at
least ten (10) days previously thereto by written notice delivered personally or
by telegram or mailed to each Director at his business address. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Notice of a meeting of Directors need not be given to a
Director who signs a waiver of notice, either before or after the meeting.
Attendance of a Director at a meeting shall, of itself, constitute a waiver of
notice of such meeting, except where a Director attends a meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.
Section 6. QUORUM. A majority of the number of Directors fixed by
Section 2 of this Article III then in office shall constitute a quorum for the
transaction of business at any meeting of the Board of directors.
Section 7. MANNER OF ACTING. The vote of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. ACTION WITHOUT A MEETING. Action taken without a meeting by
a majority of the Directors shall be deemed action of the Board of Directors if
all Directors execute, either before or after the action is taken, a written
consent thereto and the consent is filed with the records of the Corporation.
Section 9. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created
Directorships resulting from an increase in the number of Directors and
vacancies occurring in the Board of Directors for any reason, except the removal
of Directors without cause, may be filled by a vote of a majority of the
Directors then
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in office, although less than a quorum exists. Vacancies occurring by reason of
the removal of Directors without cause shall be filled by vote of the
Shareholders. A Director elected to fill a vacancy caused by resignation, death,
or removal shall be elected to hold office until the next shareholders' meeting
at which directors are elected.
Section 10. REMOVAL OF DIRECTORS. Any director may be removed from
office as a director, but only for cause, by the affirmative vote at a meeting
called in accordance with these bylaws for that purpose, of at least sixty-six
and two-thirds (66-2/3%) percent in interest of the holders of voting stock of
the corporation issued and outstanding.
Section 11. RESIGNATION. A Director may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board of Directors
or the Corporation. Unless otherwise specified in the notice, the resignation
shall take effect upon receipt thereof by the Board of Directors or such officer
and the acceptance of the resignation shall not be necessary to make it
effective.
Section 12. COMPENSATION. By Resolution of the Board of Directors a sum
may be set as compensation for directors and/or, a fixed sum and expenses for
actual attendance at each regular or special meeting of the Board of Directors
may be authorized. All compensation due to Directors as directors shall be in
such form as determined by the Board of Directors. Nothing herein contained
shall be construed to preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor. The Board of Directors may
also authorize compensation for service on committees.
Section 13. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
Section 14. COMMITTEES. The President of the Corporation may designate
from among members of the Board of Directors an Executive Committee to be
composed of not less than two (2) Directors, and other committees. Such
committees and members thereof shall serve at the pleasure of the Board of
Directors and exercise such functions as committed to them by a majority of the
Board of Directors.
ARTICLE IV
OFFICERS
Section 1. GENERAL. Any two (2) or more offices may be held by the same
person, but no officer may act in more than one (1) capacity when action by two
(2) or more officers is required. All active officials and employees of the
Corporation shall be bonded. The bonds shall be reviewed and approved or
disapproved in writing annually by the Board of Directors.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
to be elected by the Directors shall be elected annually at the first meeting of
the Directors held after each annual meeting of the Shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent elected or appointed by the
Directors may be removed by the Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby, but such
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<PAGE>
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the
Directors for the unexpired portion of the term; and any vacancy occurring in
the Office of President shall be filled promptly by the Board of Directors.
Section 5. PRESIDENT. The Board of Directors shall appoint one of its
members to be President of the Corporation. The President shall be the principal
executive officer of the Corporation and, subject to the control of the
Directors, shall, in general, supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside at all meetings of
the Shareholders and of the Directors. He may sign, with the Secretary or any
other proper officer of the Corporation thereunto authorized by the Directors,
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the Directors have authorized to be
executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Directors or by these By-laws to some other officer
or agent of the Corporation or shall be required by law to be otherwise signed
or executed; and, in general, shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Directors from time
to time.
Section 6. VICE-PRESIDENT. The Board of Directors may appoint one or
more Vice-Presidents. One Vice-President shall be designated by the Board of
Directors, in the absence of the President or in the event of his death or
inability or refusal to act, to perform the duties of the President and, when so
acting, shall have the powers of and be subject to all the restrictions upon the
President. Each Vice-President shall have such powers and duties as from time to
time may be assigned to him by the President or by the Directors.
Section 7. SECRETARY. The Board of Directors shall appoint a Secretary,
Cashier, or other designated officer who shall be the Secretary of the Board of
Directors and of the Corporation. The Secretary shall (a) keep the minutes of
the Shareholders' and Directors' meetings in one (1) or more books provided for
that purpose, (b) see that all notices are duly given in accordance with the
provisions of these By-laws or as required by law, (c) be custodian of the
corporate records and of the Seal of the Corporation and see the Seal of the
Corporation is affixed to all documents, the execution of which, on behalf of
the Corporation under its Seal, is duly authorized, (d) keep a register of the
post office address of each Shareholder which shall be furnished to the
Secretary by Shareholder, (e) sign, with the President, certificates for shares
of the Corporation, the issuance of which shall have been authorized by
Resolution of the Board of Directors, and (f) in general, perform all duties
incident to the office of Cashier or Secretary and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors.
Section 8. OTHER OFFICERS. The Board of Directors may appoint a
Chairman and Vice Chairman of the Board of Directors and one or more Assistant
Vice Presidents, one or more Executive Vice Presidents, one or more Senior Vice
Presidents, one or more Trust Officers, one or more Assistant Secretaries, one
or more Assistant Cashiers, one or more Managers and Assistant Managers of
branches and such other officers and attorneys-in-fact as from time to time may
appear to the Board of Directors to be required or desirable to transact the
business of the Corporation. Such officers shall respectively exercise such
powers and perform such duties as pertain to their several offices, or as may be
conferred upon, or assigned to, them by the Board of Directors, or the
President.
Section 9. SALARIES. The salaries of the President, all Vice Presidents
and above shall be fixed from time to time by the Directors; the salaries of all
other officers shall be fixed from time to time by the President (or his
designee) within guidelines established by the Board of Directors; and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a Director of the Corporation.
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<PAGE>
ARTICLE V
EXECUTION OF INSTRUMENTS
Section 1. EXECUTION OF INSTRUMENTS. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents that have been duly authorized to be executed on behalf of the
Corporation by action of the Board of Directors may be signed, executed,
acknowledged, verified, delivered or accepted in behalf of the Corporation by
the President, or any Vice President, or the Secretary or the Cashier, or, if in
connection with exercise of fiduciary powers of the Corporation, by any of said
officers or by any Trust Officer, by their manual or facsimile signatures. Any
such instruments may also be executed in such other manner and by such other
officers as the Board of Directors may from time to time direct. The provisions
of this Article V are supplementary to any other provision of these By-laws.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary, Assistant Secretary, Cashier or Assistant Cashier or by such other
officer authorized by law and by the Board of Directors so to do and sealed with
the corporate seal. Each certificate representing shares shall have stated upon
the face thereof:
a. That the Corporation is organized under the laws of the State of
South Carolina;
b. The name of the person to whom issued;
c. The number and class and the designation of the series, if any,
which such certificate represents; and
d. The par value of each share represented by such certificate or a
statement that the shares are without par value.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number or
shares shall have been surrendered and cancelled, except that, in case of a
lost, destroyed, or mutilated certificate, a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
Section 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation. Title to a
certificate and to the shares in the Corporation represented thereby can be
transferred only (a) by delivery of the certificate endorsed either in blank or
to a specified person by the person appearing by the certificate to be the owner
of the shares represented thereby; or (b) by delivery of the certificate and a
separate document containing a written assignment of the certificate or a power
of attorney to sell, assign, or transfer the same or the shares represented
thereby. Such assignment or power of attorney may be either in blank or to a
specified person. The person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January in each year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and, its Articles of Incorporation.
ARTICLE IX
SEAL
The Board of Directors shall provide a corporate Seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the State of incorporation, year of incorporation, and the words "Corporate
Seal".
ARTICLE X
WAIVER OF NOTICE
Unless otherwise provided by Law, whenever any notice is required to be
given to any Shareholder or Director of the Corporation under the provisions of
these By-laws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI
BY-LAWS
Section 1. AMENDMENTS. The holders of a majority of the shares entitled
to vote to elect Directors may alter, amend, or repeal these By-laws or adopt
new by-laws, provided that the Board of Directors may alter, amend, or repeal
these By-laws or adopt new by-laws, subject always to the right of the
Shareholders as above to alter, amend, or repeal these By-laws or adopt new
by-laws.
Section 2. INSPECTION. A copy of the By-laws, with all amendments
thereto, shall at all times be kept in a convenient place at the Main Office of
the Corporation, and shall be open for inspection to all Shareholders, during
banking hours.
8
Exhibit 4
SHARES
Number Common Stock
COMMUNITY FIRST BANCORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF SOUTH CAROLINA
CUSIP 203916 10 1
This is to certify that (SEE REVERSE FOR CERTAIN DEFINITIONS)
is the owner of
FULLY PAID AND NON-ASSESSABLE OF COMMON STOCK SHARES, NO PAR VALUE OF
COMMUNITY FIRST BANCORPORATION
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
Witness the facsimile seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
COMMUNITY FIRST
BANCORPORATION ------------------ -------------------------------------
CORPORATE Secretary President and Chief Executive Officer
SEAL
1997
SOUTH CAROLINA
1
<PAGE>
COMMUNITY FIRST BANCORPORATION
<TABLE>
<CAPTION>
Where abbreviations are used -
<S> <C> <C> <C>
TEN COM means as tenants in common CUST -- UNIF
TEN ENT " as tenants by the entireties GIFT MIN ACT -- means as custodian for (minor)
JT TEN " as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants of (state)
in common Additional abbreviations may also be used.
</TABLE>
For value received, __________________ hereby sell, assign and transfer unto
<TABLE>
<CAPTION>
PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE PLEASE INSERT SOCIAL SECURITY OR OTHER
Name IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------------------------------------------
Street
SHARES
- --------------------------------------------------------------------------------------------------------------------
City, State and Zip Code
- ---------------------------------------------------------------------------------------------------------------------
PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE PLEASE INSERT SOCIAL SECURITY OR OTHER
Name IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------------------------------------------
Street
SHARES
- --------------------------------------------------------------------------------------------------------------------
City, State and Zip Code
- ---------------------------------------------------------------------------------------------------------------------
PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE PLEASE INSERT SOCIAL SECURITY OR OTHER
Name IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------------------------------------------
Street
SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
City, State and Zip Code
- ------------------------------------------------------------------------------- ------------------------------------
</TABLE>
of the capital stock represented by the within Certificate and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the
books of the within-named Corporation with full power of substitution in the
premises.
Dated:
Signature(s) guaranteed by: ------------------------------------------
Owner
------------------------------------------
Signature of Co-Owner, if any
(THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN
EVERY PARTICULAR.)
THE SIGNATURE GUARANTEE MUST BE WITHOUT RESTRICTION, CONDITION OR QUALIFICATION.
The Corporation will furnish to any shareholder upon request and without charge,
a full statement of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued and, if the
Corporation is authorized to issue any preferred or special class in series, the
variations in the relative rights, preferences and limitations between the
shares or each such series so far as the same have been fixed and determined,
and the authority of the board of directors to fix and determine the relative
rights and preferences of other series.
2
Exhibit 10.1
COMMUNITY FIRST BANK
1989 INCENTIVE STOCK OPTION PLAN
1. PURPOSE
The purpose of the Community First Bank 1989 Incentive Stock Option
Plan (the "Plan) is to encourage and enable eligible directors, officers and key
employees of Community First Bank (the "Bank") and its subsidiaries to acquire
proprietary interests in the Bank through the ownership of Common Stock of the
Bank. The Company believes that directors, officers and key employees who
participate in the Plan will have a closer identification with the Bank by
virtue of their ability as stockholders to participate in the Bank's growth and
earnings. The Plan also is designed to provide motivation for participating
directors, officers and key employees to remain in the employ of and to give
greater effort on behalf of the Bank. It is the intention of the Bank to have
the Plan qualify as an "incentive stock option plan" under Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder. Accordingly, the provisions of the Plan shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean an Incentive stock option agreement
between the Bank and an Eligible Employee pursuant to the terms
of this Plan.
(b) "Bank" shall mean Community First Bank.
(c) "Board of Directors" shall mean the Board of Directors of the
Bank or the Executive Committee of such Board.
(d) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan.
(e) "Common Stock," "Shares" or "Stock" shall mean the $5.00 par
value Common Stock of the Bank.
(f) "Eligible Employee(s)" shall mean a person or persons regularly
employed by the Bank or a Subsidiary, including officers and
other key employees.
(g) "Optionee" shall mean an Eligible Employee having a right to
purchase Common Stock under an Agreement.
(h) "Option(s)" shall mean the right or rights granted to Eligible
Employees to purchase Common Stock under an offering made under
the Plan.
(i) "Plan" shall mean this Incentive Stock Option Plan.
(j) "Subsidiary" shall mean any corporation or association, If the
Bank owns or controls, directly or indirectly, more than a
majority of the voting stock of such corporation or association.
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(k) "Ten Percent Owner" shall mean an individual who, at the time an
Option is granted, owns directly or indirectly more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Bank.
3. EFFECTIVE DATE
The Effective Date of the Plan shall be the date the Plan is adopted by
the Board of Directors or the date the Plan is approved by the stockholders of
the Bank, whichever is earlier. The Plan must be approved by the affirmative
vote of not less than a majority of the votes entitled to be cast thereon, which
shareholder vote must be taken within twelve (12) months after the date the Plan
is adopted by the Board of Directors. Such shareholder vote shall not alter the
Effective Date of the Plan. In the event shareholder approval of the adoption of
the Plan is not obtained within the aforesaid twelve (12) month period, then any
Options granted in the intervening period shall be void.
4. SHARES RESERVED FOR PLAN
The shares of the Bank's Common Stock to be sold to Eligible Employees
under the Plan may at the election of the Board of Directors be either treasury
shares or shares originally issued for such purpose. The maximum number of
shares which shall be reserved and made available for sale under the Plan shall
be 100,000. Any shares subject to an Option which for any reason expires or is
terminated unexercised may again be subject to an Option under the Plan.
In the event of a subdivision or combination of the Bank's shares, the
maximum number of shares that may thereafter be issued and sold under the Plan
and the number of shares under option will be proportionately increased or
decreased, the terms relating to the price at which shares under option will be
sold will be approximately adjusted, and such other action will be taken as in
the opinion of the Board of Directors is appropriate under the circumstances. In
case of a reclassification or other change in the Bank's shares, the Board of
Directors also will make appropriate adjustments.
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The Committee shall be
comprised of not less than three (3) members appointed by the Board of Directors
of the Bank from among its members. No member of the Board of Directors shall be
appointed or serve as a member of the Committee, and any such appointment or
service immediately and automatically shall terminate, in the event that (i)
such person is, or becomes, an Eligible Employee (as described in Section 2 of
this Plan), (ii) such person is, or becomes, eligible for the allocation of
stock or the grant of any option or stock appreciation right under any other
plan of the Bank or any of its affiliates.
Within the limitations described herein, the Committee shall administer
the Plan, select the Eligible Employees to whom Options will be granted,
determine the number of shares to be optioned to each Eligible Employee and
interpret, construe and implement the provisions of the Plan. Committee members
shall be reimbursed for out-of-pocket expenses reasonably incurred in the
administration of the Plan.
The Committee shall select one of Its members as chairman and shall
hold its meetings at such times and places, and pursuant to such rules
consistent with the Plan, as it may determine. A majority of the members of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved In writing
by a majority of the members of the Committee, shall be the acts of the
Committee.
6. ELIGIBILITY
Options may be granted only to Eligible Employees.
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<PAGE>
7. DURATION OF TYPE PLAN
The Plan shall remain in effect until all shares subject or which may
become subject to the Plan shall have been purchased pursuant to Options granted
under the Plan provided that Options under the Plan must be granted within ten
(10) years from the Effective Date of the Plan.
8. QUALIFIED INCENTIVE OPTIONS
It is intended that Options granted under the Plan shall be qualified
incentive stock options under the provisions of Section 422A of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder or
corresponding provisions of subsequent revenue laws and regulations in effect at
the time such Options are granted. Such Options shall be evidenced by stock
option agreements in such form and not inconsistent with this Plan as the
Committee shall approve from time to time, which agreements shall contain In
substance the following terms and conditions:
(a) Price. The purchase price for shares purchased upon exercise an
Option will be the fair market value of the Stock on the day the Option is
granted, as determined by the Committee, but in no case less than the par value
of such stock; provided further that the purchase price of Stock deliverable
upon the exercise of an Option granted to a Ten Percent Owner shall be not less
than one hundred ten percent (110%) of the fair market value of the Stock on the
day the Option is granted, as determined by the Committee, but in no case less
than the par value of such stock. Any Option granted to a Ten Percent Owner must
by Its terms be exercisable within five (5) years from the date it is granted.
(b) Number of Shares. The Agreement shall specify the number of shares
which the Optionee may purchase under such Option.
(c) Exercise of Options. The shares subject to Option may be purchased
in whole or In part by the Optionee from time to time after shareholder approval
of the Plan and upon such terms and conditions as shall be determined by the
Committee, but in no event later than ten (10) years from the date of grant of
the Option. No partial exercise may be less than one hundred (100) shares of the
Common Stock of the Bank, or its equivalent.
(d) Medium and Time of Payment. Stock purchased pursuant to an
Agreement shall be paid for in full at the time of purchase. Payment of the
purchase price shall be in cash or shares of the Common Stock of the Bank, or a
combination of cash and shares of the Common Stock of the Bank. Upon receipt of
payment, the Bank shall, without transfer or issue tax, deliver to the Optionee
(or other person entitled to exercise the Option) a certificate or certificates
for such shares.
(e) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any shares covered by an Option until the date of
issuance of the stock certificate to the Optionee for such shares. Except as
otherwise expressly provided In the Plan, no adjustments shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
(f) Nonassignability of Option. No Option shall be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution. During the lifetime of the Optionee, the Option shall be
exercisable only by him or her.
(g) Effect of Termination of Employment or Death. In the event that an
Optionee during his or her lifetime ceases to be an employee of the Bank or any
Subsidiary of the Bank for any reason other than disability, retirement or
death, all unexercised Options held by such Optionee shall terminate at the date
of termination of employment. In the event that an Optionee during his or her
lifetime ceases to be an employee of the Bank or any Subsidiary of the Bank for
reasons of disability or retirement, any unexercisable portion of the Option
shall immediately become exercisable, and together with the portion thereof
which was otherwise exercisable on the date of termination of
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<PAGE>
employment, shall expire unless exercised within a period of three (3) months
from the date the Optionee ceased to be an employee, but in no event after the
expiration of ten (10) years from the date the Option was granted. In the event
of the death of an Optionee during the option period, the entire Option shall
immediately become exercisable and shall be exercisable by his or her legal
representative, heirs or legatees within a period of twelve (12) months from the
date on which the Optionee died, but in no event after the expiration of ten
(10) years from the date the Option was granted.
(h) Reorganization. In case the Bank is merged or consolidated with
another corporation or association and the Bank is not the surviving entity, or
in case the property or stock of the Bank is acquired by another corporation or
association, or in case of a separation, reorganization, recapitalization or
liquidation of the Bank, the Board of Directors of the Bank, or the Board of
Directors of any corporation or association assuming the obligations of the Bank
hereunder, shall either (I) make appropriate provision for the protection of any
outstanding Options by the substitution on an equitable basis of appropriate
stock of the Bank, or of the merged, consolidated or otherwise reorganized
corporation or association which will be issuable in respect of the shares of
Common Stock of the Bank, provided only that the excess of the aggregate fair
market value of the Shares subject to Option immediately after such substitution
over the purchase price thereof is not more than the excess of the aggregate
fair market value of the Shares subject to Option immediately before such
substitution over the purchase price thereof, or (Ii) upon written notice to the
Optionee provide that the Option must be exercised within sixty (60) days of the
date of such notice or it will be terminated.
(i) General Restriction. Each Option shall be subject to the
requirement that if at any time the Board of Directors shall determine, In its
discretion, that the listing, registration or qualification of the Shares
subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issue or purchase of shares thereunder, such Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors.
9. AMENDMENT OF THE PLAN
The Plan may at any time or from time to time be terminated, modified
or amended by the affirmative vote of not less than a majority of the votes
entitled to be cast thereon by the Bank's shareholders. The Board of Directors
may at any time and from time to time terminate, modify or amend the Plan in any
respect, except that without shareholder approval the Board of Directors may not
(i) increase the maximum number of shares for which Options may be granted under
the Plan either in the aggregate or to any Eligible Employee (other than
increases due to changes in capitalization as referred to In Section 4 hereof),
or (ii) reduce the option price or waiting period under Section 422A of the
Internal Revenue Code (except as otherwise expressly provIded in the Plan in the
case of a reorganization of the Company as referred to in Section 8(h) hereof),
or (iii) extend the period during which Options may be granted or exercised, or
(iv) change the class of employees eligible for incentive stock options under
Section 6 hereof, or (v) otherwise materially modify the requirements as to
eligibility for participation in the Plan, or (vi) otherwise materially increase
the benefit accruing to participants under the Plan. The termination or any
modification or amendment of the Plan shall not, without the consent of an
Optionee, affect his or her rights under an Option or right previously granted
to him or her. With the consent of the Optionee affected, the Committee may
amend outstanding option Agreements in a manner not inconsistent with the Plan.
Without employee consent, the Board of Directors may at any time and from time
to time modify or amend outstanding option Agreements in such respects as it
shall deem necessary In order that Options granted hereunder shall comply with
the appropriate provisions of the Internal Revenue Code of 1986, as amended, and
regulations thereunder which are in effect from time to time respecting
qualified incentive stock options.
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10. LIMITATION ON NUMBER OF SHARES THAT MAY BE PURCHASED
The aggregate fair market value (determined at the time the Option is
granted) of the shares with respect to which Incentive stock options are
exercisable for the first time by an Optionee during any calendar year (under
all Incentive stock option plans of the Bank) shall not exceed $100,000.
11. BINDING EFFECT
All decisions of the Board of Directors or the Committee involving the
implementation, administration or operation of the Plan or any offering under
the Plan shall be binding on the Bank, all Eligible Employees participating in
the Plan, and on all persons eligible or who become eligible to participate in
the Plan.
[SIGNATURES OMITTED]
5
Exhibit 10.2
COMMUNITY FIRST BANK
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT ("AGREEMENT"), MADE AND ENTERED
INTO THIS 9th DAY OF MAY, 1990, BY AND BETWEEN COMMUNITY FIRST BANK,
(HEREINAFTER REFERRED TO AS THE "BANK"), AND FREDERICK D. SHEPHERD, JR.,
(HEREINAFTER REFERRED TO AS THE "OPTIONEE"):
W I T N E S S E T H:
WHEREAS, the Bank has adopted the 1989 Incentive Stock Option Plan
(hereinafter referred to as the "Plan") in order that selected officers and key
employees of the Bank may acquire a proprietary interest in the Bank upon
favorable terms; and
WHEREAS, the Stock Option Committee of the Board of Directors (the
"Committee") has selected Optionee to participate in the Plan, and desires to
grant to Optionee an option to purchase shares of the Common Stock of the Bank;
NOW, THEREFORE, for and in consideration of the mutual promises,
agreements, and covenants hereinafter set forth and other good and valuable
consideration, the receipt, adequacy, and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION
Subject to the terms and conditions of the Plan and of this Agreement,
the Bank hereby irrevocably grants to Optionee the right and option (hereinafter
referred to as the "Option") to purchase 25,000 shares of the $5.00 par value
Common Stock of the Bank, subject to reduction and exercisable only in
accordance with paragraph 4 of this Agreement.
2. DATE OF OPTION
The Option hereby granted to Optionee shall be effective as of the date
of this Agreement.
3. OPTION PRICE
The purchase price of each share of Common Stock upon exercise of this
Option shall be $10.00, which price represents the fair market value of each
share of Common Stock of the Bank as of the date of this Agreement. If Optionee
is a Ten Percent Owner as defined in the Plan, then the purchase price
represents 110% of the fair market value of each share.
4. EXERCISE OF OPTION
The Option hereby granted to Optionee shall be exercisable as follows:
(a) Optionee may exercise options for 10,000 of the 25,000 shares for
the first time beginning on the date of this Agreement;
(b) Optionee may exercise options for an additional 10,000 of the
25,000 shares for the first time beginning on the date of the first
anniversary of this Agreement; and
1
<PAGE>
(c) Optionee may exercise options for the remaining 5,000 of the
25,000 shares for the first time beginning on the date of the second
anniversary of this Agreement.
The South Carolina State Board of Financial Institutions requires that
the option granted to Optionee hereunder must be exercised in full prior to the
expiration of the sixth year after the date of grant or the aggregate number of
shares with respect to which this option may be exercised will thereafter be
reduced as follows:
(a) Optionee may not exercise options with respect to more than 20,000
shares during the period beginning on the date of the sixth anniversary of
this Agreement and ending on the day before the date of the seventh
anniversary of this Agreement;
(b) Optionee may not exercise options with respect to more than 15,000
shares during the period beginning on the date of the seventh anniversary
of this Agreement and ending on the day before the date of the eighth
anniversary of this Agreement;
(c) Optionee may not exercise options with respect to more than 10,000
shares during the period beginning on the date of the eighth anniversary of
this Agreement and ending on the day before the date of the ninth
anniversary of this Agreement.
This Option shall terminate ten (10) years after the date of this
Agreement; provided, however, (a) that no partial exercise of the Option may be
for less than one hundred (100) shares of the number of remaining shares subject
to option hereunder, and (b) that the Option shall not be exercisable prior to
approval of the Plan by the shareholders of the Bank.
5. MANNER OF EXERCISE
The person entitled to exercise the Option may do so by delivering
notice of exercise in a form approved by the Bank, addressed and mailed,
certified mail, post prepaid, to the Bank at its principal office, to the
attention of its cashier. Such notice shall specify the number of shares to be
purchased, the purchase price of each share, and the aggregate purchase price
for all shares being purchased under said notice. Such notice shall be signed by
such person and shall be accompanied by payment in full for such aggregate
purchase price. The Bank, in the event of exercise by a person other than
Optionee, may require proof of the right of such person to exercise the Option.
Upon receipt of the aforementioned notice to purchase, the Bank shall
cause to be issued to the person entitled to purchase the shares subject to
Option under this Agreement stock certificates for the number of shares of the
Bank's Common Stock, fully paid and nonassessable, specified in such notice.
Until such issuance, the Purchaser shall have no rights as a shareholder of the
Bank with respect to the unissued shares.
6. PERSON WHO MAY EXERCISE OPTION
During the lifetime of Optionee, the Option shall be exercisable only
by Optionee. Upon his or her death or legal incapacity, the Option may be
exercised by the Optionee's legal representative, or by a person who acquired
the right to exercise such Option by bequest or inheritance, or by reason of the
death of Optionee.
7. EARLIER TERMINATION OF OPTION
As used herein, "Termination Date" is the date Optionee ceases to be an
employee of the Bank or one of its Subsidiaries.
Notwithstanding the provisions of paragraph 4 hereof, this Option, to
the extent that it is exercisable on the Termination Date, shall terminate on
the date on which the Optionee ceases to be an employee of the Bank or of one of
its Subsidiaries for any other reason other than disability or retirement. This
Option, to the extent that it is
2
<PAGE>
exercisable on the Termination Date, shall terminate upon the expiration of
ninety (90) days after the date on which the Optionee ceases to be an employee
of the Bank or of one of its Subsidiaries for reasons of disability or
retirement. The Option granted herein may be exercised by Optionee's legal
representative, appointed by reason of the death of Optionee, or by a person who
acquired the right to exercise such Option by bequest or inheritance, or by
reason of the death of Optionee, within twelve (12) months after Optionee's
death; and, further provided, that in no event shall the Option be exercisable
after ten (10) years from the date of this Agreement.
8. TRANSFERABILITY OF OPTION
This Agreement and all option rights hereunder shall be nontransferable
and nonassignable by Optionee or by any other person entitled hereunder to
exercise said Option; provided, however, that upon the death of Optionee the
same shall be transferable by testamentary instrument or, in the event that he
or she shall die intestate, the same may pass by the laws of descent and
distribution of the applicable jurisdiction.
9. ADJUSTMENT OF OPTIONED SHARES
In the event that, after the date of this Agreement, the outstanding
shares of the Common Stock of the Bank shall be increased or decreased or
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Bank, or of another corporation or association, as a
result of a reorganization, merger, consolidation, recapitalization, stock
split, combination of shares, or stock split-up effected in the form of a stock
dividend (but not a true stock dividend as determined in accordance with
generally accepted accounting principles), the Committee shall make
proportionate adjustment in the number or kind of shares (to the nearest
possible full share) that shall be subject to Option hereunder or price per
share thereof, or both, in order to preserve Optionee's proportionate interest,
or in order to maintain unchanged the aggregate option price, or both, and such
adjustment shall be effective and binding upon the Bank and Optionee.
10. INCORPORATION OF PLAN PROVISIONS
This Agreement shall be subject to the provisions of the Plan. All
provisions of the Plan are hereby incorporated into this Agreement by reference.
All terms used herein shall be as defined in the Plan.
11. HEIRS AND SUCCESSORS
This Agreement and all terms and conditions hereof shall be binding
upon the parties hereto, and their successors, heirs, legal representatives, and
legatees.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by its President and its corporate seal to be hereto affixed and attested by its
Cashier; and Optionee has executed this Agreement under his or her seal, all as
of the date and year first above written.
[SIGNATURES OMITTED]
3
EXHIBIT 13
PORTIONS OF COMMUNITY FIRST BANCORPORATION 1997 ANNUAL REPORT TO SHAREHOLDERS
INCORPORATED BY REFERENCE INTO THE ANNUAL REPORT ON
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997
Market for Common Stock and Dividends
Community First Bancorporation (the "Company") was incorporated on May
23, 1997 as a bank holding company to effect a plan of corporate reorganization
in which Community First Bank became its wholly-owned subsidiary on October 16,
1997. The discussion and figures in this section present information regarding
the Company since the date of reorganization and information and figures of
Community First Bank prior to that date. Per share information prior to the
reorganization is presented in terms of the current equivalent of the number of
shares of the Company's common stock outstanding.
Although the common stock of the Company is traded from time to time on
an individual basis, no established trading market has developed and none is
expected to develop in the near future. The common stock is not traded on the
NASDAQ National Market System, nor are there any market makers known to
management. During 1997, management was aware of a few transactions in which the
Company's common stock traded in a price range from $13.91 to $15.65 per share
(per share prices have been adjusted to reflect a 15% stock dividend effective
December 30, 1997). During the period January 1, to February 28, 1998,
management is aware of a few transactions in which the Company's common stock
has traded in a range of $18.00 to $18.25 per share. However, management has not
ascertained that these transactions are the result of arm's length negotiations
between the parties, and because of the limited number of shares involved, these
prices may not be indicative of the market value of the common stock.
As of February 28, 1998, there were approximately 744 holders of record
of the Company's common stock, excluding individual participants in security
position listings.
There have been no cash dividends declared or paid since the Company's
or Community First Bank's inception. In order to support the Company's continued
capital growth, management does not expect to pay such dividends in the near
future.
The Board of Directors declared a 15% stock dividend effective December
30, 1997 and a 5% stock dividend effective May 1, 1996. As a result, 114,451 and
35,724 shares of the Company's common stock were issued to shareholders in 1997
and 1996, respectively. Cash payments totaling $4,323 and $6,109 were made in
1997 and 1996, respectively, in lieu of fractional shares.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This discussion is intended to assist in understanding the consolidated
financial condition and results of operations of Community First Bancorporation
and its wholly-owned subsidiary, Community First Bank, which are collectively
referred to as the "Company". The information should be reviewed in conjunction
with the consolidated financial statements and related notes contained elsewhere
in this report. Per share net income and net income, assuming dilution, reflect
the required adoption in 1997 of a change in accounting principle regarding the
computation and display of earnings per share. Prior year per share information
has been restated on a comparable basis. All per share amounts have also been
adjusted to reflect a 15% stock dividend effective December 30, 1997, and 5%
stock dividends effective May 1, 1996 and May 1, 1995.
-1-
<PAGE>
Safe Harbor for Forward-Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be and are hereby identified as "forward looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the Securities and Exchange
Commission.
Earnings Performance
1997 Compared with 1996
For the year ended December 31, 1997, the Company recorded net income
of $1,405,000, an increase of $253,000, or 22.0%, over net income of $1,152,000
for 1996. Net income per share for 1997 was $1.60 compared with $1.32 for 1996.
Per share net income, assuming dilution for unexercised employee stock options,
was $1.55 for 1997 compared with $1.28 for 1996. Return on average assets for
1997 was 1.38% compared with 1.19% for 1996, and return on average shareholders'
equity increased to 12.64% from 11.97%.
Net income continues to increase, primarily as a result of a $681,000
increase in net interest income in 1997. This increase was largely the result of
steady loan growth which has been achieved with neither a significant reduction
in the Company's loan yield nor a significant increase in the degree of risk
assumed in funding loan requests. A secondary factor contributing to increased
net interest income is a somewhat lower interest expense associated with
deposits. In 1997, the Company's interest expense was $31,000 less than in 1996.
Noninterest income increased by $180,000 in 1997 to $522,000. Approximately
one-half of this increase was from deposit account service charges. Noninterest
expenses also increased during 1997, totaling $1,909,000, or $350,000 more than
in 1996. Salaries and employee benefits increased by $149,000.
1996 Compared with 1995
The Company achieved net income of $1,152,000 or $1.32 per share for
the year ended December 31, 1996, compared with net income of $857,000 or $.98
per share for 1995. Net income per share, assuming dilution, was $1.28 for 1996
compared with $.96 for 1995. Return on average assets for 1996 was 1.19%
compared with 1.04% for 1995, and return on average shareholders' equity
increased to 11.97% from 9.94%.
The 34.4% increase in net income for 1996 was caused primarily by a
$485,000 increase in net interest income resulting from significant deposit
growth and a related increase in the volume of interest earning assets. The
provision for loan losses increased $70,000 in 1996 because of higher net loan
charge-offs and loan growth. Noninterest income increased $55,000 for 1996,
while noninterest overhead
-2-
<PAGE>
expense increased only $10,000. The industry-wide decrease in FDIC insurance
premium expense contributed substantially to the low rate of increase in
noninterest expenses for 1996.
Net Interest Income
Net interest income is the amount of interest earned on interest
earning assets (loans, securities, time deposits in other banks and federal
funds sold), less the interest expense incurred on interest bearing liabilities
(primarily interest bearing deposits), and is the principal source of the
Company's earnings. Net interest income is affected by the level of interest
rates, the volume and mix of interest earning assets and interest bearing
liabilities, and the relative funding of these assets.
Net interest income was $3,914,000, $3,233,000 and $2,748,000 for 1997,
1996 and 1995, respectively. The $681,000 growth in net interest income for 1997
was attributable primarily to increased loan volume and higher levels of
interest-free funding sources. These funding sources included noninterest
bearing demand deposits and equity capital.
During 1997, the Company experienced strong, steady loan growth. Gross
loans as of December 31, 1997 totaled $65,838,000 representing an increase of
$11,180,000 or 20.5% over the amount as of December 31, 1996. Average loans
during 1997 were $60,707,000, an increase of $10,755,000 or 21.5% over the 1996
average. In 1997, average loans were 62.1% of average interest earning assets,
representing a significant increase over the 53.8% component ratio for 1996. At
the same time, the average yield on loans was 8.89% for 1997, only 6 basis
points lower than the average yield for 1996. Growth in the other components of
average interest earning assets during 1997 was negative, as management funded
most of the loan growth by reducing its federal funds sold position. Through
this strategy, the Company has shifted from more liquid, but lower yielding
assets to less liquid, but higher yielding assets. As a result, the average
yield on interest earning assets increased by 29 basis points in 1997 as
compared with 1996.
Growth in average interest bearing liabilities totaled only $654,000
during 1997 and was concentrated mainly in time deposits of $100,000 and over.
Average time deposits of $100,000 and over for 1997 totaled $21,889,000, an
increase of $2,329,000 or 11.9% over the average of such deposits for 1996. The
average rate on these deposits increased by 24 basis points to 5.49% in 1997.
Because of lower rates paid on other categories of interest bearing deposits,
however, the average rate on all interest bearing deposits in 1997 decreased 9
basis points to 4.88%. Further, average noninterest bearing demand deposits
increased by $3,144,000, or 27.0%, over their 1996 level.
The combined effects of these factors resulted in a 38 basis point
increase in the interest rate spread (earning assets yield less rate on interest
bearing liabilities) and a 52 basis point increase in the net yield on earning
assets (net interest income divided by average interest earning assets).
Net interest income for 1996, as compared with 1995, was influenced
positively by growth in earning assets and interest bearing liabilities. The
positive effects of larger volumes of net earning assets were only partially
offset by higher rates paid on interest bearing liabilities.
The table, "Average Balances, Yields and Rates", provides a detailed
analysis of the effective yields and rates on the categories of average interest
earning assets and interest bearing liabilities for the years ended December 31,
1997, 1996 and 1995.
-3-
<PAGE>
Average Balances, Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
----------------------------- ------------------------------ -----------------------------
Interest Interest Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances(1) Expense Rates Balances(1) Expense Rates Balances(1) Expense Rates
---------- ------- ----- ---------- ------- ----- ---------- ------- ------
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ - $ - - $ - $ - - $ 33 $ 2 6.06%
Taxable securities 27,024 1,646 6.09% 25,895 1,544 5.96% 22,437 1,286 5.73%
Federal funds sold 10,001 534 5.34% 16,990 911 5.36% 14,930 867 5.81%
Other investments 19 - - - - - - - -
Loans (2),(3) 60,707 5,398 8.89% 49,952 4,473 8.95% 40,956 3,764 9.19%
-------- -------- -------- -------- -------- --------
Total interest earning assets 97,751 7,578 7.75% 92,837 6,928 7.46% 78,356 5,919 7.55%
Cash and due from banks 2,088 2,091 1,803
Allowance for loan losses (790) (636) (521)
Premises and equipment 1,725 1,551 1,585
Other assets 982 656 820
-------- -------- --------
Total assets $101,756 $ 96,499 $ 82,043
======== ======== ========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction
accounts 10,639 414 3.89% $ 10,460 $ 378 3.61% $ 7,627 $ 284 3.72%
Savings 16,448 596 3.62% 18,801 738 3.93% 17,243 698 4.05%
Time deposits $100M and over 21,889 1,201 5.49% 19,560 1,026 5.25% 16,319 885 5.42%
Other time deposits 26,065 1,452 5.57% 25,573 1,553 6.07% 22,217 1,303 5.86%
-------- -------- -------- -------- -------- --------
Total interest bearing
deposits 75,041 3,663 4.88% 74,394 3,695 4.97% 63,406 3,170 5.00%
Short-term borrowing 7 1 14.29% - - - - - -
Obligation under capital lease - - - - - 4 1 8.10%
-------- -------- -------- -------- -------- --------
Total interest bearing
liabilities 75,048 3,664 4.88% 74,394 3,695 4.97% 63,410 3,171 5.00%
Noninterest bearing demand
deposits 14,790 11,646 9,337
Other liabilities 799 835 678
Shareholders' equity 11,119 9,624 8,618
-------- -------- --------
Total liabilities and
shareholders' equity $101,756 $ 96,499 $ 82,043
======== ======== ========
Interest rate spread (4) 2.87% 2.49% 2.55%
Net interest income and net yield
on earning assets (5) $ 3,914 4.00% $ 3,233 3.48% $ 2,748 3.51%
Interest free funds supporting
earning assets (6) $ 22,703 $ 18,443 $ 14,946
</TABLE>
(1) Average balances are computed on a daily basis.
(2) No taxable equivalent adjustment has been made because the Company has no
material amounts of non-taxable interest income.
(3) Nonaccruing loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(4) Total interest bearing assets yield less the total interest bearing
liabilities rate.
(5) Net interest income divided by total interest earning assets.
(6) Total interest earning assets less total interest bearing liabilities.
-4-
<PAGE>
The table, "Volume and Rate Variance Analysis", provides a summary of
changes in net interest income resulting from changes in volumes of interest
earning assets and interest bearing liabilities, and the rates earned and paid
on such assets and liabilities. As reflected in the table, increased volumes
accounted for $575,000 of the growth in net interest income for 1997, which was
augmented by a $106,000 increase due to lower rates paid for funding sources.
Increased volumes were responsible for $573,000 of the growth in net interest
income for 1996, which was partially offset by an $88,000 decrease due to
changes in rates.
Volume and Rate Variance Analysis
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
---------------------------- ------------------------
Volume(1) Rate (1) Total Volume(1) Rate (1) Total
--------- -------- ----- --------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ - $ - $ - $ (2) $ - $ (2)
Taxable securities 69 33 102 205 53 258
Federal funds sold (373) (4) (377) 99 (55) 44
Loans (2) 956 (31) 925 803 (94) 709
------ ------ ------ ------ ------ ------
Total interest income 652 (2) 650 1,105 (96) 1,009
------ ------ ------ ------ ------ ------
Interest bearing deposits
Interest bearing transaction accounts 7 29 36 102 (8) 94
Savings (88) (54) (142) 60 (20) 40
Time deposits $100M and over 126 49 175 169 (28) 141
Other time deposits 31 (132) (101) 202 48 250
Short-term borrowing 1 - 1 - - -
Obligation under capital lease - - - (1) - (1)
------ ------ ------ ------ ------ ------
Total interest expense 77 (108) (31) 532 (8) 524
------ ------ ------ ------ ------ ------
Net interest income $ 575 $ 106 $ 681 $ 573 $ (88) $ 485
====== ====== ====== ====== ====== ======
</TABLE>
(1) The rate/volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of rate or volume variance to the sum of the two absolute variances except
in categories having balances in only one period. In such cases, the entire
variance is attributed to volume differences.
(2) No taxable equivalent adjustment has been made because the Company has no
material amounts of non-taxable interest income.
During 1998, management expects that interest rates will move within a
narrow range, and management has not identified any factors that would cause
interest rates to increase sharply in a short period of time. Therefore, any
improvements in net interest income for 1998 are expected to be largely the
result of increases in the volume of interest earning assets and liabilities.
Management expects to continue to use aggressive marketing strategies to
increase the Company's market share for both deposits and quality loans within
its service area in Oconee County, South Carolina. These strategies involve
offering attractive interest rates and continuing the Company's commitment to
providing outstanding customer service.
Interest Rate Sensitivity
Interest rate sensitivity measures the timing and magnitude of the
repricing of assets compared with the repricing of liabilities and is an
important part of asset/liability management. The objective of interest rate
sensitivity management is to generate stable growth in net interest income, and
to control the risks associated with interest rate movements. Management
constantly reviews interest rate risk exposure and the expected interest rate
environment so that adjustments in interest rate sensitivity can be timely made.
-5-
<PAGE>
The table, "Interest Sensitivity Analysis", indicates that, on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at the end of 1997
of $37,691,000, and a cumulative gap ratio of .48. When interest sensitive
assets exceed interest sensitive liabilities for a specific repricing "horizon",
a positive interest sensitivity gap results. The gap is negative when interest
sensitive liabilities exceed interest sensitive assets, as was the case at the
end of 1997 with respect to the one year time horizon. For a bank with a
negative gap, falling interest rates would be expected to have a positive effect
on net interest income and rising rates would be expected to have the opposite
effect.
The table below reflects the balances of interest earning assets and
interest bearing liabilities at the earlier of their repricing or maturity
dates. Amounts of fixed rate loans are reflected at the loans' final maturity
dates. Variable rate loans are reflected at the earlier of their contractual
maturity date or the date at which the loans may be repriced contractually.
Deposits in other banks and debt securities are reflected at the earlier of each
instrument's ultimate maturity or contractual repricing date. Overnight federal
funds sold are reflected in the earliest contractual repricing interval due to
the immediately available nature of these funds. Interest bearing liabilities
with no contractual maturity, such as interest bearing transaction accounts and
savings deposits are reflected in the earliest repricing interval due to
contractual arrangements which give management the opportunity to vary the rates
paid on these deposits within a thirty-day or shorter period. However, the
Company is under no obligation to vary the rates paid on those deposits within
any given period. Fixed rate time deposits, principally certificates of deposit,
are reflected at their contractual maturity dates. Variable rate time deposits,
principally individual retirement accounts, are reflected at the earlier of
their next repricing or maturity dates.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
Within 4-12 Over 1-5 Over 5
3 Months Months Years Years Total
-------- ------ ----- ----- -----
(Dollars in thousands)
Interest earning assets
Taxable securities
<S> <C> <C> <C> <C> <C>
Fixed rate $ 1,531 $ 1,933 $ 15,718 $ 3,368 $ 22,550
Variable rate 1,988 972 - - 2,960
Other investments 335 - - - 335
Federal funds sold 6,510 - - - 6,510
Loans(1) 15,801 5,397 38,841 5,636 65,675
-------- -------- -------- -------- --------
Total interest earning assets 26,165 8,302 $ 54,559 $ 9,004 $ 98,030
-------- -------- ======== ======== ========
Interest bearing liabilities
Interest bearing deposits
Interest bearing transaction accounts $ 10,106 $ - $ - $ - $ 10,106
Savings 16,191 - - - 16,191
Time deposits $100M and over 18,807 3,423 816 - 23,046
Other time deposits 9,061 14,570 2,816 - 26,447
-------- -------- -------- -------- --------
Total interest bearing liabilities 54,165 17,993 $ 3,632 $ - $ 75,790
-------- -------- ======== ======== ========
Interest sensitivity gap $(28,000) $ (9,691)
Cumulative interest sensitivity gap $(28,000) $(37,691)
Gap ratio .48 .46
Cumulative gap ratio .48 .48
</TABLE>
(1) Loans are net of nonaccruing loans totaling $163,000.
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<PAGE>
During 1998, management plans to reduce the Company's liability
sensitive position by attempting to increase the mix of variable versus fixed
rate loans and extend the maturities of fixed rate time deposits. This strategy
is designed to provide a stable net interest spread and soften the negative
effects of any increase in interest rates that might occur.
Provision for Loan Losses
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. Provisions for loan losses were $315,000, $223,000, and
$153,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
The increased provision in 1997 is due to higher net loan charge-offs and growth
in loan volume. The allowance for loan losses as a percentage of loans was 1.35%
at the end of 1997 compared with 1.29% at the end of 1996. Net loan charge-offs
were $130,000 in 1997 compared with $93,000 and $38,000 for 1996 and 1995,
respectively. See "Impaired Loans" and "Allowance for Loan Losses" for a
discussion of the factors management considers in its review of the adequacy of
the allowance and provision for loan losses.
Other Income
Noninterest income for 1997 increased $180,000 or 52.6% compared with
an increase of $55,000 or 19.2% for 1996. Service charges on deposit accounts
increased $94,000 in 1997 and $23,000 in 1996. These increases were primarily
due to increased chargeable account activity. Credit life insurance commission
income was up $15,000 in 1997 after increasing by only $2,000 in 1996. There
were no realized securities gains or losses in 1997, 1996 or 1995. Other
noninterest income increased $71,000 in 1997, including gains on the sale of
other real estate totaling $44,000, a $13,000 increase in wire transfer fees and
a $9,000 increase in ATM fee income. Other noninterest income increased $31,000
in 1996 due to additional fees on merchants' credit card deposits, official
check fees, safe deposit box rentals and other service fees.
Other Expenses
Noninterest expenses for 1997 increased $350,000 or 22.5%, compared
with an increase of only $10,000 or .6% for 1996. Salaries and employee benefits
increased $149,000 in 1997 and $72,000 in 1996. The 1997 increase included a new
incentive bonus totaling $81,000 which was divided among all employees.
Retirement plan expense increased $16,000 in 1997 as employee participation in
the Company's 401(k) plan expanded. The 1996 increase was due mainly to hiring
additional staff needed to enable the Company to maintain a high level of
customer service in response to the rapid growth of the Company's customer base.
Net occupancy and furniture and equipment expenses combined for a 1997 increase
of $19,000 or 7.7%, and a $3,000 or 1.2% increase for 1996. The 1997 increase is
attributable to higher depreciation expense related to the Company's acquisition
of a new mainframe computer system and other peripheral equipment. Other
noninterest expenses increased a net total of $181,000 or 40.1% in 1997 compared
with 1996. Included in this net increase in expenses were: stationery, printing
and postage - $21,000 increase, advertising and promotion - $3,000 increase,
FDIC insurance - $6,000 increase, and expenses incurred in connection with the
reorganization of Community First Bank into the present bank holding company
structure totaling approximately $44,000. Expenses associated with holding other
real estate totaled $32,000 in 1997 while there were no such expenses in 1996.
In 1996, other noninterest expenses decreased $65,000 or 12.6% compared with
1995. The 1996 decrease included a decrease of $76,000 in FDIC insurance
expense.
-7-
<PAGE>
Noninterest overhead expenses for 1998 are not expected to rise sharply
as compared with 1997 in most categories. Furniture and equipment expense is
expected to increase, however, because of higher depreciation, amortization and
maintenance related to new mainframe computer equipment and software that was
placed in service during 1997. The Company's FDIC insurance rates are assessed
based on the lowest rate available under regulations and are expected to
continue at relatively low levels for the near future. Also, the increased
expenses incurred in connection with the Company's 1997 corporate reorganization
are not expected to recur in 1998. Increases in noninterest expenses are closely
monitored and cost control will continue to be emphasized by management where
possible in order to achieve profitability objectives and attain the goal of
growth in the Company's market share in Oconee County.
Income Taxes
For 1997, federal and state income tax expense increased to $807,000
from $641,000 in 1996. This increase was due to higher earnings. The effective
income tax rate (income tax expense divided by income before income taxes) was
36.5% for 1997 compared with 35.8% for 1996.
Securities
The following table summarizes the carrying value amounts of securities
held by the Company at each of the dates indicated.
Securities Portfolio Composition
December 31,
------------
1997 1996 1995
---- ---- ----
Available- Available- Available-
for-Sale for-Sale for-Sale
-------- -------- --------
(Dollars in thousands)
U.S. Treasury $ 2,003 $ 5,025 $ 5,034
U.S. Government agencies 18,932 16,355 14,214
Mortgage-backed securities 4,575 5,145 3,714
---------- ---------- ----------
Total $ 25,510 $ 26,525 $ 22,962
========== ========== ==========
The following table presents maturities and weighted average yields of
securities at December 31, 1997.
Securities Portfolio Maturities and Yields
December 31, 1997
----------------------
Available-
for-Sale Yield
-------- -----
(Dollars in thousands)
U.S. Treasury
Within one year $ 2,003 6.47%
----------
U.S. Government agencies
Within one year 3,962 4.42%
After one through five years 12,472 6.26%
After five through ten years 2,498 6.95%
----------
18,932 5.97%
Mortgage-backed securities
Within one year 459 5.50%
After one through five years 3,245 6.56%
After five through ten years 871 6.36%
----------
4,575 6.42%
Total
Within one year 6,424 5.14%
After one through five years 15,717 6.32%
After five through ten years 3,369 6.80%
----------
Total $ 25,510 6.01%
==========
-8-
<PAGE>
In December 1995, securities classified as held-to-maturity with an
amortized cost of $9,752,318 and an estimated fair value of $9,874,270 were
transferred on a one-time basis to the available-for-sale category in accordance
with provisions of the Special Report on Implementation of Statement of
Financial Accounting Standards No. 115 issued by the Financial Accounting
Standards Board. During 1997 and 1996, there were no sales or transfers of
held-to-maturity securities.
On an ongoing basis, management assigns securities upon purchase into
one of the categories designated by Statement of Financial Accounting Standards
No. 115 (trading, available-for-sale or held-to-maturity) based on intent,
taking into consideration other factors including expectations for changes in
market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements. The Company has never held securities for
trading purposes.
All mortgage-backed securities held by the Company were issued by the
Federal Home Loan Mortgage Corporation.
Loan Portfolio
Management believes the loan portfolio is adequately diversified. There
are no significant concentrations of loans in any particular individuals or
industry or group of related individuals or industries, and there are no foreign
loans.
The amounts of loans outstanding at December 31, 1997, 1996, and 1995
are shown in the following table according to type of loan:
Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
Amount % Amount % Amount %
(Dollars in thousands)
Commercial, financial and industrial
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 9,685 14.7% $ 7,600 13.9% $ 6,901 15.6%
Purchasing or carrying securities 79 .1% 66 .1% 71 .2%
Real estate - construction 78 .1% 146 .3% 178 .4%
Real estate - mortgage
1-4 family residential 29,835 45.3% 24,423 44.7% 20,356 46.1%
Multifamily (5 or more) residential 104 .2% 198 .4% 379 .9%
Nonfarm, nonresidential 11,357 17.3% 10,300 18.8% 7,478 16.9%
Consumer installment
Credit card and checking credit 838 1.3% 766 1.4% 584 1.3%
Other 13,862 21.0% 11,159 20.4% 8,228 18.6%
-------- ------- -------- ------- -------- -------
Total loans $ 65,838 100.0% $ 54,658 100.0% $ 44,175 100.0%
======== ======= ======== ======= ======== =======
</TABLE>
A certain degree of risk taking is inherent in the extension of credit.
Management has established loan and credit policies designed to control both the
types and amounts of risks assumed and to ultimately minimize losses. Such
policies include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices and collection procedures, and nonaccrual and charge-off
guidelines.
Commercial and industrial loans primarily represent loans made to
businesses, and may be made on either a secured or an unsecured basis. When
taken, collateral consists of liens on receivables, equipment, inventories,
furniture and fixtures. Unsecured business loans are generally short-term with
emphasis on repayment strengths and low debt-to-worth ratios. During 1997, total
commercial and industrial loans increased $2,085,000 or 27.4%. Also, loans
mainly for business purposes that are secured by real estate (nonfarm,
nonresidential) increased by $1,057,000 or 10.3% during 1997. Commercial lending
involves significant risk because repayment usually depends on the cash flows
generated by a borrower's business, and the debt service capacity of a business
can deteriorate because of downturns in national and local
-9-
<PAGE>
economic conditions. To control risk, more in-depth initial and continuing
financial analysis of a borrower's cash flows and other financial information is
generally required.
Real estate construction loans generally consist of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan- to-cost ratios are limited to 75% and permanent financing
commitments are usually required prior to the advancement of loan proceeds.
Loans secured by real estate mortgages comprised approximately 63% and
64% of the Company's loan portfolio at the end of 1997 and 1996, respectively.
Real estate mortgage loans of all types grew $6,375,000 during 1997. Residential
real estate loans consist mainly of first and second mortgages on single family
homes, with some multifamily loans. Loan-to-value ratios for these instruments
are generally limited to 80%. Nonfarm, nonresidential loans are secured by
business and commercial properties with loan-to-value ratios generally limited
to 70%. The repayment of both residential and business real estate loans is
dependent primarily on the income and cash flows of the borrowers, with the real
estate serving as a secondary or liquidation source of repayment.
Maturity Distribution of Loans
The following table sets forth the maturity distribution of the
Company's loans, by type, as of December 31, 1997, as well as the type of
interest requirement on such loans.
<TABLE>
<CAPTION>
December 31, 1997
-----------------
1 Year 1-5 5 Years
or Less Years or More Total
------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and industrial $ 5,582 $ 3,720 $ 462 $ 9,764
Real estate - construction - - 78 78
Real estate - mortgage 5,644 12,049 23,602 41,295
Consumer installment loans 3,554 10,457 690 14,701
-------- -------- -------- --------
Total loans $ 14,780 $ 26,226 $ 24,832 $ 65,838
======== ======== ======== ========
Predetermined rate, maturity
greater than one year $ 22,805 $ 5,560 $ 28,365
======== ======== ========
Variable rate or maturity
within one year $ 14,780 $ 3,421 $ 19,272 $ 37,473
======== ======== ======== ========
</TABLE>
Impaired Loans
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Statement No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended. This standard modified the accounting for impaired loans,
defined as those loans on which, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The adoption of this Statement, as
amended, did not have a material effect on the Company's financial position or
results of operations.
-10-
<PAGE>
Loans which management has identified as impaired generally are
nonperforming loans. Nonperforming loans include nonaccrual loans or loans which
are 90 days or more delinquent as to principal or interest payments. Following
is a summary of the Company's impaired loans:
Nonaccrual and Past Due Loans
December 31,
------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Nonaccrual loans $ 163 $ 249 $ 92
Accruing loans 90 days or more past due 1 - -
------ ------ ------
Total $ 164 $ 249 $ 92
====== ====== ======
Percent of total loans .2% .5% .2%
When an impaired loan is 90 days past due as to interest or principal
or there is serious doubt as to ultimate collectibility, the accrual of interest
income is generally discontinued. Previously accrued interest on loans placed in
a nonaccrual status is reversed against current income, and subsequent interest
income is recognized on a cash basis when received. When the collectibility of a
significant amount of principal is in serious doubt, collections are credited
first to the remaining principal balance on a cost recovery basis. An impaired
nonaccrual loan is not returned to accrual status unless principal and interest
are current and the borrower has demonstrated the ability to continue making
payments as agreed. The effects of interest income accrued and collected on
impaired loans were immaterial to the consolidated financial statements for
1997, 1996 and 1995.
As of December 31, 1997, there were no commitments to lend additional
funds to debtors owing amounts on nonaccrual loans.
Potential Problem Loans
Management has identified and maintains a list of potential problem
loans. These are loans that are not included in impaired loans (nonaccrual or
past due 90 days or more and still accruing). A loan is added to the potential
problem list when management becomes aware of information about possible credit
problems of borrowers that causes doubts as to the ability of such borrowers to
comply with the current loan repayment terms. The total amount of loans
outstanding at December 31, 1997 determined by management to be potential
problem loans was $473,000. This amount does not represent management's estimate
of potential losses since a large proportion of such loans is secured by various
types of collateral. The following table presents information about the
categories and types of collateral with respect to potential problem loans as of
December 31, 1997.
December 31, 1997
-----------------
Amount %
------ ------
(Dollars in thousands)
Commercial and industrial
Inventory and accounts receivable $ 46 9.7%
Real estate - mortgage
1-4 family residential 236 49.9%
Consumer installment
Vehicles 95 20.1%
Other secured 35 7.4%
Unsecured 61 12.9%
---------- --------
Total $ 473 100.0%
========== ========
-11-
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management has determined that it is more likely than not such
loans have become uncollectible. Recoveries of previously charged off loans are
credited to the allowance. The table, "Summary of Loan Loss Experience",
summarizes loan balances at the end of each period indicated, averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category, and additions to the allowance which have been charged to expense.
In reviewing the adequacy of the allowance for loan losses at each year
end, management took into consideration the historical loan losses experienced
by the Company, current economic conditions affecting the borrowers' ability to
repay, the volume of loans, the trends in delinquent, nonaccruing, and potential
problem loans, and the quality of collateral securing nonperforming and problem
loans. After charging off all known losses, management considers the allowance
for loan losses adequate to cover its estimate of possible future loan losses
inherent in the loan portfolio as of December 31, 1997.
In calculating the amount required in the allowance for loan losses,
management applies a consistent methodology that is updated monthly. The
methodology utilizes a loan risk grading system and detailed loan reviews to
assess credit risks and the overall quality of the loan portfolio, as well as
other off-balance-sheet credit risks such as loan commitments and standby
letters of credit. Also, the calculation provides for management's assessment of
trends in national and local economic conditions that might affect the general
quality of the loan portfolio. Management's calculation of the allowance for
loan losses does not provide an allocation by individual loan categories.
The Company has not historically allocated its allowance for loan
losses to individual loan categories. Management believes that its stringent
loan charge-off policy, along with its limited historic net charge-off
experience, makes an aggregate evaluation that emphasizes individual loan risk
grades and specific problem loan allocations more meaningful. Management's
analysis of historical net charge-offs and the composition of the loan portfolio
at the end of 1997 did not reflect any material change from the prior years, nor
is management aware of any significant degree of increased exposure, risk of
collection or other adverse features toward any particular category of loans.
Consequently, management has not estimated future charge-offs related to
individual loan categories or subcategories.
-12-
<PAGE>
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding at end of period $ 65,838 $ 54,658 $ 44,175 $ 37,185 $ 30,039
Average amount of loans outstanding 60,707 49,952 40,956 33,553 28,322
Balance of allowance for loan losses - beginning $ 705 $ 575 $ 460 $ 338 $ 295
-------- -------- -------- -------- --------
Loans charged off
Commercial and industrial 37 11 14 34 56
Real estate - mortgage 31 29 - - -
Consumer installment 72 69 26 19 19
-------- -------- -------- -------- --------
Total charge-offs 140 109 40 53 75
-------- -------- -------- -------- --------
Recoveries of loans previously charged off
Commercial and industrial 3 1 - - -
Real estate - mortgage - 5 - - -
Consumer installment 7 10 2 2 -
-------- -------- -------- -------- --------
Total recoveries 10 16 2 2 -
-------- -------- -------- -------- --------
Net charge-offs 130 93 38 51 75
-------- -------- -------- -------- --------
Additions to allowance charged to expense 315 223 153 173 118
-------- -------- -------- -------- --------
Balance of allowance for loan losses - ending $ 890 $ 705 $ 575 $ 460 $ 338
======== ======== ======== ======== ========
Ratios
Net charge-offs to average loans .21% .19% .09% .15% .26%
Net charge-offs to loans at end of period .20% .17% .09% .14% .25%
Allowance for loan losses to average loans 1.47% 1.41% 1.40% 1.37% 1.19%
Allowance for loan losses to loans at end of period 1.35% 1.29% 1.30% 1.24% 1.13%
Net charge-offs to allowance for loan losses 14.61% 13.19% 6.61% 11.09% 22.19%
Net charge-offs to provision for loan losses 41.27% 41.70% 24.84% 29.48% 63.56%
</TABLE>
Deposits
The average amounts and percentage composition of deposits held by the
Company for the years ended December 31, 1997, 1996 and 1995, are summarized
below:
Average Deposits
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $ 14,790 16.5% $ 11,646 13.5% $ 9,337 12.8%
Interest bearing transaction accounts 10,639 11.8% 10,460 12.2% 7,627 10.5%
Savings 16,448 18.3% 18,801 21.9% 17,243 23.7%
Time deposits $100M and over 21,889 24.4% 19,560 22.7% 16,319 22.4%
Other time 26,065 29.0% 25,573 29.7% 22,217 30.6%
-------- ------- -------- ------- -------- -------
Total deposits $ 89,831 100.0% $ 86,040 100.0% $ 72,743 100.0%
======== ======= ======== ======= ======== =======
</TABLE>
As of December 31, 1997, there were $23,046,000 in time deposits of
$100,000 or more with approximately $18,687,000 maturing within three months,
$1,244,000 maturing over three through six months, $2,299,000 maturing over six
through twelve months and $816,000 maturing after one year. This level of large
time deposits, as well as the growth in other deposits, can be attributed to
planned growth by management. The vast majority of time deposits $100,000 and
over are acquired from customers within the Company's service area in the
ordinary course of business. The Company does not purchase brokered deposits.
While most of the large time deposits are acquired from customers with standing
banking relationships, it is a common industry practice not to consider these
types of deposits as core deposits because their retention can be expected to be
heavily influenced by rates offered, and therefore such deposits have the
characteristics of shorter-term purchased funds. Certificates of deposit
$100,000 and over involve the maintenance of an appropriate matching of maturity
distribution and a diversification of sources to achieve an appropriate level of
liquidity.
-13-
<PAGE>
Return on Equity and Assets
The following table shows the return on assets (net income divided by
average total assets), return on equity, (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to assets ratio (average equity divided by average total
assets) for each period indicated.
Years Ended December 31,
1997 1996 1995
Return on assets 1.38% 1.19% 1.04%
Return on equity 12.64% 11.97% 9.94%
Dividend payout ratio - - -
Equity to assets ratio 10.93% 9.97% 10.50%
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost (amounts due from banks and federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within the Company's service area. Core deposits (total
deposits less time deposits of $100,000 and over) provide a relatively stable
funding base, and the average of these deposits represented 66.8% of average
total assets during 1997 compared with 68.9% during 1996. Deposits of several
local governmental entities comprised approximately 33% and 28% of total
deposits at the end of 1997 and 1996, respectively. Because of the potentially
volatile nature of this funding source, as well as an increase in the ratio of
average loans to average total deposits to 67.6% in 1997 from 58.1% in 1996,
management in 1997 secured membership in the Federal Home Loan Bank of Atlanta
("FHLB") in order to gain access to its credit programs. As of December 31,
1997, the banking subsidiary is eligible to borrow up to $6,700,000 from the
FHLB. Such borrowings, if utilized, would be secured by a lien on its investment
in FHLB stock and all first mortgage residential loans held. Assets potentially
subject to this lien totaled approximately $27,984,000 as of December 31, 1997.
In addition, the banking subsidiary has available an unused short-term line of
credit to purchase up to $1,000,000 of federal funds from an unrelated
correspondent institution. The line is available on a one to seven day basis.
Asset liquidity is provided from several sources, including amounts due from
banks and federal funds sold. Securities, particularly those available-for-sale
and those maturing within one year, also provide a secondary source of
liquidity. In addition, funds from maturing loans are a source of liquidity.
Community First Bancorporation's ability to meet its cash obligations
or to pay any possible future cash dividends is dependent primarily on the
successful operation of the subsidiary bank and its ability to pay cash
dividends to the parent company. All of the banking subsidiary's cash dividends
are subject to the prior approval of the South Carolina Commissioner of Banking
and are generally payable only from its undivided profits. At December 31, 1997,
the banking subsidiary's available undivided profits totaled $2,786,032. Under
Federal Reserve Board regulations, the amounts of loans or advances from the
banking subsidiary to the parent company are also restricted. During 1997, the
parent company received a $250,000 cash dividend from its banking subsidiary.
Management believes that the overall liquidity sources of the Company
and its banking subsidiary are adequate to meet their operating needs.
-14-
<PAGE>
Understanding the changes in the Company's financial condition and
liquidity is enhanced by reviewing the changes in the size and composition of
the various categories of earning and non-earning assets due to cash flows and
the sources of cash for those changes. The table, "Sources and Uses of Cash", is
closely related to the consolidated statement of cash flows appearing in the
financial statements and related notes contained elsewhere in this report. The
information in this table focuses on changes in year end balances between 1997
and 1996, and between 1996 and 1995, caused by cash flows.
As shown in the table, core deposits provided only 2.5% of total
funding sources in 1997 compared with 70.6% in 1996. Certificates of deposit
$100,000 and over provided 32.8% of the total funding sources for 1997 compared
with 14.5% for 1996. For 1997, 83.1% of the total funding sources was employed
in the higher yielding loan portfolio compared with 66.9% for 1996. Reductions
in securities and federal funds sold provided a total of 52.4% of total funding
sources in 1997.
Sources and Uses of Cash
<TABLE>
<CAPTION>
Increase (Decrease) December 31,
--------------------------------
1997 % 1996 %
---- ------ ---- -----
(Dollars in thousands)
Sources of cash
Core deposits
<S> <C> <C> <C> <C>
Noninterest bearing demand $ 6,149 45.0% $ (183) (1.2)%
Interest bearing transaction accounts (2,702) (19.8)% 4,998 31.5%
Savings (2,005) (14.7)% 3,155 19.9%
Time deposits under $100M (1,097) (8.0)% 3,235 20.4%
-------- ------- -------- -------
Total core deposits 345 2.5% 11,205 70.6%
-------- ------- -------- -------
Time deposits $100M and over 4,486 32.8% 2,314 14.6%
-------- ------- -------- -------
Shareholders' equity
Sales of common stock 52 .4% 52 .3%
Payment in lieu of fractional shares (4) (.1)% (6) (.1)%
Operating activities 1,584 11.6% 1,402 8.8%
-------- ------- -------- -------
Total shareholders' equity 1,632 11.9% 1,448 9.0%
-------- ------- -------- -------
Earning assets
Federal funds sold 6,025 44.1% - -
Securities 1,126 8.3% - -
-------- ------- -------- ------
Total earning assets 7,151 52.4% - -
-------- ------- -------- ------
Non-earning assets
Cash and due from banks - - 915 5.8%
Sales of other real estate 44 .4% - -
-------- ------- -------- ------
Total non-earning assets 44 .4% 915 5.8%
-------- ------- -------- -------
Total sources of cash $ 13,658 100.0% $ 15,882 100.0%
======== ======= ======== =======
Uses of cash
Earning assets
Securities $ - - $ 3,666 23.1%
Federal funds sold - - 1,270 8.0%
Other investments 335 2.4% - -
Loans made to customers 11,348 83.1% 10,628 66.9%
-------- ------- -------- -------
Total earning assets 11,683 85.5% 15,564 98.0%
-------- ------- -------- -------
Non-earning assets
Cash and due from banks 1,952 14.3% - -
Premises and equipment 23 .2% 318 2.0%
-------- ------- -------- -------
Total non-earning assets 1,975 14.5% 318 2.0%
-------- ------- -------- -------
Total uses of cash $ 13,658 100.0% $ 15,882 100.0%
======== ======= ======== =======
</TABLE>
Capital Resources
Shareholders' equity increased by $1,515,000 and $1,110,000 during 1997
and 1996, respectively. During 1997, net income increased shareholders' equity
$1,405,000, and the exercise of employee stock options provided a $52,000
increase. In 1997, shareholders' equity increased $62,000 from the change in
unrealized holding gains and losses on available-for-sale securities, net of
income tax effect.
-15-
<PAGE>
During 1997, the Company's Board of Directors declared a 15% stock
dividend effective December 30, 1997. In 1996 and 1995, the Board of Directors
declared 5% stock dividends effective May 1 of each year. These actions resulted
in the issuance of 114,451, 35,724 and 34,021 additional shares of the Company's
common stock to shareholders in 1997, 1996 and 1995, respectively. Cash payments
totaling $4,000, $6,000 and $4,000, respectively, were made in lieu of issuing
fractional shares in each of these years.
The Company and its banking subsidiary are each subject to regulatory
risk-based capital adequacy standards. Under these standards, bank holding
companies and banks are required to maintain certain minimum ratios of capital
to risk-weighted assets and average total assets. Under the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), federal
bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank or
bank holding company. If the capital position of an affected institution were to
fall below certain levels, increasingly stringent regulatory corrective actions
are mandated. Unrealized holding gains and losses on available-for-sale
securities are generally excluded for purposes of calculating regulatory capital
ratios. However, the extent of any unrealized appreciation or depreciation on
securities will continue to be a factor that regulatory examiners consider in
their overall assessment of capital adequacy.
Quantitative measures established by regulation to ensure capital
adequacy require both the Company and Community First Bank to maintain minimum
amounts and ratios set forth in the table below of Total and Tier I capital, as
defined in the regulations, to risk weighted assets, as defined, and of Tier I
capital, as defined, to average assets, as defined. Management believes, as of
December 31, 1997 and 1996, that the Company and Community First Bank exceeded
all capital adequacy minimum requirements to which they were subject.
To be categorized as well capitalized, the Company and Community First
Bank must maintain minimum Total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. The federal regulators may also
categorize the Company or Community First Bank as less than well capitalized
based on subjective criteria. There are no conditions or events that management
believes would cause the Company's or Community First Bank's category to be
other than that resulting from meeting the minimum ratio requirements.
<TABLE>
<CAPTION>
Minimum Minimum to
for Capital be Well
Actual Adequacy Capitalized
------ -------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
December 31, 1997
The Company
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets $12,646 20.3% $4,994 8.0% $6,242 10.0%
Tier I capital to risk weighted assets $11,866 19.0% $2,497 4.0% $3,745 6.0%
Tier I capital to average assets (leverage) $11,866 12.0% $2,959 3.0% $4,932 5.0%
Community First Bank
Total capital to risk weighted assets $12,407 19.9% $4,993 8.0% $6,242 10.0%
Tier I capital to risk weighted assets $11,620 18.6% $2,497 4.0% $3,745 6.0%
Tier I capital to average assets (leverage) $11,620 11.8% $2,958 3.0% $4,930 5.0%
December 31, 1996
Community First Bank
Total capital to risk weighted assets $11,102 20.1% $4,411 8.0% $5,514 10.0%
Tier I capital to risk weighted assets $10,413 18.9% $2,205 4.0% $3,308 6.0%
Tier I capital to average assets (leverage) $10,413 10.8% $2,901 3.0% $4,834 5.0%
</TABLE>
-16-
<PAGE>
Year 2000 Compliance
The end of the century presents a technological problem to
computer-dependent organizations such as a bank. Because of the high costs of
electronic storage and memory, early computer programmers adopted a convention
of using only two digits to designate the year in a date. Accuracy of data
processing and calculations depends on the correct recognition of dates. Unless
appropriate systems testing and corrective measures are undertaken, the
viability of banking operations could be seriously jeopardized.
The Company's management is aware of the importance of the year 2000
issue. All of the banking subsidiary's data processing equipment and software is
potentially susceptible to failure due to this cause. Certain other non-computer
equipment and systems, such as vault doors and telephone systems, may also be
affected. Management has appointed a committee of senior officers and other
personnel to carefully review potentially affected systems and equipment. The
committee is responsible for initiating the actions necessary to ensure the
correct, uninterrupted functioning of these devices across the millennial
threshold.
The banking subsidiary's primary federal regulator, the Federal Deposit
Insurance Corporation ("FDIC") is also concerned with this issue. The FDIC has
issued policy statements which require all banks to consider adequately the
responses needed to ensure that systems are able to make the year 2000
transition successfully. The FDIC has established time frames for completion of
various elements of a bank's review and implementation process and intends to
perform examinations of institutions specifically to evaluate progress toward
achieving year 2000 readiness. The FDIC is also concerned that systems failures
in the businesses of commercial loan customers of banks could impair their
ability to repay loans.
Management has determined that the banking subsidiary's new mainframe
computer equipment acquired in 1997 is year 2000 compliant, and has been assured
by the primary application software vendors that any and all changes needed to
achieve or maintain such compliance will be made in a timely manner. Testing of
the mainframe equipment and related software is planned to be completed during
the fourth quarter of 1998. Other microcomputer equipment and software have been
or will be tested for year 2000 readiness well in advance of that date. Other
potentially vulnerable systems and devices are expected to be tested before the
end of 1998.
Management continues to evaluate the estimated costs associated with
the year 2000 compliance efforts based on developing information. While these
efforts will involve additional costs, management currently believes that it
will be able to manage the year 2000 transition without any material adverse
effect on the Company's financial condition, business operations or customer
service.
Inflation
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses which have large investments in plant
and inventories, it does have an effect. During periods of high inflation, there
are normally corresponding increases in the money supply, and banks will
normally experience above-average growth in assets, loans and deposits. Also
general increases in the prices of goods and services will result in increased
operating expenses.
-17-
<PAGE>
DONALD G. JONES AND COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
7812 WINNSBORO RD.
COLUMBIA, S.C. 29203
TELEPHONE
(803) 786-9963
FACSIMILE
(803) 786-9910
MEMBER MEMBER
SOUTH CAROLINA AMERICAN INSTITUTE OF
ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS DIVISION FOR CPA FIRMS
SECPS AND PCPS
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of Community First Bancorporation
We have audited the accompanying consolidated balance sheet of Community
First Bancorporation and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Community First
Bancorporation and subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note H to the consolidated financial statements, the
Company changed its method of accounting for earnings per share for the year
ended December 31, 1997, with restatement of prior years' figures on a
comparable basis.
/s/Donald G. Jones and Company, P.A.
Columbia, South Carolina
January 9, 1998
-18-
<PAGE>
Consolidated Balance Sheet
Community First Bancorporation
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Assets
<S> <C> <C>
Cash and due from banks (Note C) $ 4,833,659 $ 2,881,646
Federal funds sold 6,510,000 12,535,000
Securities available-for-sale (Note D) 25,510,524 26,524,649
Other investments 335,000
Loans (Note E) 65,837,908 54,657,929
Allowance for loan losses (890,125) (705,000)
------------ ------------
Loans - net 64,947,783 53,952,929
Premises and equipment - net (Note F) 1,675,492 1,782,425
Accrued interest receivable 792,715 718,240
Other real estate 25,000
Other assets 362,966 253,528
------------ ------------
Total assets $104,968,139 $ 98,673,417
============ ============
Liabilities
Deposits (Note G)
Noninterest bearing $ 16,501,066 $ 10,351,628
Interest bearing 75,789,506 77,108,286
------------ ------------
Total deposits 92,290,572 87,459,914
Accrued interest payable 772,105 818,705
Other liabilities 55,741 60,111
------------ ------------
Total liabilities 93,118,418 88,338,730
------------ ------------
Commitments and contingent liabilities (Note L)
Shareholders' equity (Notes B and H)
Common stock - no par value for 1997,
$5.00 par value for 1996; 5,000,000
shares authorized; issued and outstanding
886,140 for 1997 and 764,554 for 1996 10,479,137 3,822,770
Capital surplus 4,658,603
Retained earnings 1,387,121 1,932,061
Unrealized holding gains and losses
on available-for-sale securities (16,537) (78,747)
------------ ------------
Total shareholders' equity 11,849,721 10,334,687
------------ ------------
Total liabilities and shareholders' equity $104,968,139 $ 98,673,417
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-19-
<PAGE>
Consolidated Statement of Income
Community First Bancorporation
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Interest income
<S> <C> <C> <C>
Loans, including fees $5,397,962 $4,473,299 $3,764,026
Time deposits in other banks 2,720
Securities - taxable 1,645,718 1,543,986 1,285,615
Federal funds sold 534,153 910,946 867,099
---------- ---------- ----------
Total interest income 7,577,833 6,928,231 5,919,460
---------- ---------- ----------
Interest expense
Time deposits $100,000 and over 1,201,135 1,026,257 885,435
Other deposits 2,462,426 2,668,609 2,285,409
Short-term borrowings 649
Obligation under capital lease 838
---------- ---------- ----------
Total interest expense 3,664,210 3,694,866 3,171,682
---------- ---------- ----------
Net interest income 3,913,623 3,233,365 2,747,778
Provision for loan losses (Note E) 315,183 223,075 152,746
---------- ---------- ----------
Net interest income after provision 3,598,440 3,010,290 2,595,032
---------- ---------- ----------
Other income
Service charges on deposit accounts 306,435 212,879 190,280
Credit life insurance commissions 38,827 23,512 21,978
Other income 176,753 105,518 74,935
---------- ---------- ----------
Total other income 522,015 341,909 287,193
---------- ---------- ----------
Other expenses (Notes I and K)
Salaries and employee benefits 1,008,265 858,916 787,301
Net occupancy expense 100,605 97,802 96,244
Furniture and equipment expense 166,612 150,257 148,533
Other expense 633,020 451,958 517,271
---------- ---------- ----------
Total other expenses 1,908,502 1,558,933 1,549,349
---------- ---------- ----------
Income before income taxes 2,211,953 1,793,266 1,332,876
Income tax expense (Note J) 806,903 640,825 475,658
---------- ---------- ----------
Net income (Note O) $1,405,050 $1,152,441 $ 857,218
========== ========== ==========
Per share (Note H)*
Net income $ 1.60 $ 1.32 $ .98
Net income, assuming dilution 1.55 1.28 .96
</TABLE>
- ------------------------------
*Per share figures have been retroactively adjusted to reflect a 15% stock
dividend effective December 30, 1997 and 5% stock dividends effective May 1,
1996, and May 1, 1995.
See accompanying notes to the consolidated financial statements.
-20-
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
Community First Bancorporation
<TABLE>
<CAPTION>
Unrealized
Holding
Gains and
Common Stock Losses on
Number Available-
of Capital Retained for-Sale
Shares Amount Surplus Earnings Securities Total
------ ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 686,299 $ 3,431,495 $ 3,962,000 $ 944,854 $ (250,560) $ 8,087,789
Issuance of 5% stock dividend,
including cash payment for
fractional shares 34,021 170,105 306,189 (480,483) (4,189)
Exercise of employee stock options 2,305 11,525 12,485 24,010
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income taxes
of $145,463 259,724 259,724
Net income 857,218 857,218
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 722,625 3,613,125 4,280,674 1,321,589 9,164 9,224,552
Issuance of 5% stock dividend,
including cash payment for
fractional shares 35,724 178,620 357,240 (541,969) (6,109)
Exercise of employee stock options 6,205 31,025 20,689 51,714
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income tax
benefit of $49,236 (87,911) (87,911)
Net income 1,152,441 1,152,441
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1996 764,554 3,822,770 4,658,603 1,932,061 (78,747) 10,334,687
Issuance of 15% stock dividend,
including cash payment for
fractional shares 114,451 1,945,667 (1,949,990) (4,323)
Exercise of employee stock options 7,135 50,767 1,330 52,097
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income taxes
of $34,841 62,210 62,210
Exchange of no par value common stock
of Community Fist Bancorporation
for all of the outstanding shares
of Community First Bank (Note B) 4,659,933 (4,659,933)
Net income 1,405,050 1,405,050
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 886,140 $10,479,137 $ $ 1,387,121 $ (16,537) $ 11,849,721
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-21-
<PAGE>
Consolidated Statement of Cash Flows
Community First Bancorporation
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
------------ ------------ ------------
Operating activities
<S> <C> <C> <C>
Net income $ 1,405,050 $ 1,152,441 $ 857,218
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 315,183 223,075 152,746
Depreciation 129,703 97,338 99,498
Deferred income taxes (49,529) (36,161) (6,313)
Amortization of net loan fees and costs 37,959 26,717 22,315
Amortization of organizational costs 281
Securities accretion and
premium amortization (14,705) (32,860) (63,618)
Writedowns of other real estate 25,000 18,300
Gain on sale of other real estate (44,547) (17,075)
Increase in interest receivable (74,475) (80,135) (91,943)
(Decrease) increase in interest payable (46,600) 17,439 384,750
(Increase) decrease in prepaid expenses (94,750) 3,350 (34,477)
(Decrease) increase in other
accrued expenses (4,370) 31,107 (203,906)
------------ ------------ ------------
Net cash provided by
operating activities 1,583,919 1,402,311 1,117,776
------------ ------------ ------------
Investing activities
Net decrease in time deposits
in other banks 200,000
Purchases of available-for-sale securities (7,999,531) (13,434,774) (5,478,718)
Maturities of available-for-sale securities 9,125,412 9,768,227 5,522,742
Purchases of held-to-maturity securities (6,019,019)
Maturities of held-to-maturity securities 3,290,331
Purchase of other investments (335,000)
Net increase in loans made to customers (11,347,996) (10,628,127) (7,049,746)
Proceeds from sale of other real estate 44,547 137,075
Purchases of premises and equipment (22,770) (317,713) (52,157)
------------ ------------ ------------
Net cash used by investing activities (10,535,338) (14,612,387) (9,449,492)
------------ ------------ ------------
Financing activities
Net increase (decrease) in demand deposits,
interest bearing transaction accounts and
savings accounts 1,442,368 7,970,374 (1,125,887)
Net increase in certificates of
deposit and other time deposits 3,388,290 5,549,239 7,978,782
Principal payments on capital lease obligation (27,833)
Payment of cash in lieu of fractional
shares for stock dividend (4,323) (6,109) (4,189)
Exercise of employee stock options 52,097 51,714 24,010
------------ ------------ ------------
Net cash provided by
financing activities 4,878,432 13,565,218 6,844,883
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents (4,072,987) 355,142 (1,486,833)
Cash and cash equivalents, beginning 15,416,646 15,061,504 16,548,337
------------ ------------ ------------
Cash and cash equivalents, ending $ 11,343,659 $ 15,416,646 $ 15,061,504
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
Notes to Consolidated Financial Statements
Community First Bancorporation
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Community First Bancorporation (the "Company"), a bank holding
company, and its wholly-owned subsidiary, Community First Bank, are engaged in
providing domestic commercial banking services from their headquarters office in
Walhalla and a second office in Seneca, South Carolina. The Company is a South
Carolina Corporation and its banking subsidiary is a state chartered commercial
bank with its deposits insured by the Federal Deposit Insurance Corporation
("FDIC"). Therefore, the Company and its subsidiary operate under the
supervision, rules and regulations of the Federal Reserve Board, FDIC and South
Carolina State Board of Financial Institutions. The holding company was
incorporated on May 23, 1997 pursuant to a plan of reorganization as described
in Note B to the consolidated financial statements. Community First Bank was
organized on December 1, 1988, and received its charter and commenced operations
on March 12, 1990.
The subsidiary Community First Bank is a community-oriented institution offering
a full range of traditional banking services, with the exception of trust
services. Substantially all of its loans are made to individuals and businesses
within its Oconee County, South Carolina market. Also, substantially all of its
deposits are acquired within its local market area and no brokered deposits are
accepted.
Principles of Consolidation and Basis of Presentation - The consolidated
financial statements include the accounts of the parent company and its banking
subsidiary after elimination of all significant intercompany balances and
transactions. The accounting and reporting policies of the Company and its
subsidiary are in conformity with generally accepted accounting principles and
general practices within the banking industry.
Securities - Equity securities that have readily determinable fair values and
all debt securities are classified generally at the time of purchase into one of
three categories: held-to-maturity, trading or available-for-sale. Debt
securities which the Company has the positive intent and ability to hold to
ultimate maturity are classified as held-to-maturity and accounted for at
amortized cost. Debt and equity securities that are bought and held primarily
for sale in the near term are classified as trading and are accounted for on an
estimated fair value basis, with unrealized gains and losses included in other
income. However, the Company has never held any securities for trading purposes.
Securities not classified as either held-to-maturity or trading are classified
as available-for-sale and are accounted for at estimated fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded from
earnings and recorded in a separate account included in shareholders' equity,
net of applicable income tax effects. Dividend and interest income, including
amortization of any premium or accretion of discount arising at acquisition, is
included in earnings for all three categories of securities. Realized gains and
losses on all categories of securities are included in other operating income,
based on the amortized cost of the specific certificate on a trade date basis.
Other Investments - Other investments consist of restricted securities which are
carried at cost. Management periodically evaluates these securities for
impairment, with any appropriate downward valuation adjustments being made when
necessary. Other investments at December 31, 1997 consisted of Federal Home Loan
Bank stock with the carrying amount approximating estimated fair value.
-23-
<PAGE>
Loans and Interest Income - Loans are carried at principal amounts outstanding
increased or reduced by deferred net loan costs or fees. Interest income on
loans is recognized using the interest method based upon the principal amounts
outstanding. Loan origination and commitment fees and certain direct loan
origination costs (principally salaries and employee benefits) are being
deferred and amortized as an adjustment of the related loan's yield. Generally,
these amounts are being amortized over the contractual life of the related loans
or commitments.
A loan is considered to be impaired when, in management's judgment based on
current information and events, it is probable that the obligation's principal
or interest will not be collectible in accordance with the terms of the original
loan agreement. Impaired loans, when not material, are carried in the balance
sheet at a value not to exceed their observable market price or the fair value
of the collateral if the repayment of the loan is expected to be provided solely
by the underlying collateral. The carrying value of any material impaired loans
are measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate, which is the contractual interest rate
adjusted for any deferred loan fees or costs, premium or discount existing at
the inception or acquisition of the loan. Generally, the accrual of interest is
discontinued on impaired loans and any previously accrued interest on such loans
is reversed against current income. Any subsequent interest income is recognized
on a cash basis when received unless collectibility of a significant amount of
principal is in serious doubt. In such cases, collections are credited first to
the remaining principal balance on a cost recovery basis. An impaired loan is
not returned to accrual status unless principal and interest are current and the
borrower has demonstrated the ability to continue making payments as agreed.
Allowance for Loan Losses - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay and the underlying collateral value of the
loans. When management determines that a loan will not perform substantially as
agreed, a review of the loan is initiated to ascertain whether it is more likely
than not that a loss has occurred. If it is determined that a loss is likely,
the estimated amount of the loss is charged off and deducted from the allowance.
The provision for possible loan losses and recoveries on loans previously
charged off are added to the allowance.
Premises and Equipment - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed using the
straight-line method. Rates of depreciation are generally based on the following
estimated useful lives: buildings - 40 years; furniture and equipment - 5 to 25
years. The cost of assets sold or otherwise disposed of, and the related
allowance for depreciation is eliminated from the accounts and the resulting
gains or losses are reflected in the income statement. Maintenance and repairs
are charged to current expense as incurred and the costs of major renewals and
improvements are capitalized.
Other Real Estate - Other real estate includes properties acquired through
foreclosure or acceptance of a deed in lieu of foreclosure. Other real estate is
initially recorded at the lower of cost or the estimated fair market value less
estimated selling costs. Loan losses arising from the acquisition of such
property are charged to the allowance for loan losses. An allowance for losses
on other real estate is maintained for subsequent downward valuation
adjustments.
Retirement Plans - In 1996, the Company adopted a profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code as more fully described in Note
K. Prior to 1996, the Company did not have any pension or profit-sharing
retirement plans in effect. The Company does not sponsor any postretirement or
postemployment benefits.
-24-
<PAGE>
Deferred Income Taxes - The Company uses an asset and liability approach for
financial accounting and reporting of deferred income taxes. Deferred tax assets
and liabilities are determined based on the difference between the financial
statement and income tax bases of assets and liabilities as measured by the
currently enacted tax rates which are assumed will be in effect when these
differences reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
Deferred income tax expense or credit is the result of changes in deferred tax
assets and liabilities.
Statement of Cash Flows - The statement of cash flows reports net cash provided
or used by operating, investing and financing activities and the net effect of
those flows on cash and cash equivalents. Cash equivalents include amounts due
from banks and federal funds sold and securities purchased under agreements to
resell.
During 1997, 1996 and 1995, interest paid on deposits and other borrowings
amounted to $3,710,810, $3,677,427 and $2,786,932, respectively. Income tax
payments of $864,056, $679,072 and $683,661 were made during 1997, 1996, and
1995, respectively. Noncash transfers from undivided profits of $1,945,667,
$535,860 and $476,294 were made as the result of stock dividends declared in
1997, 1996 and 1995, respectively. As a result, common stock in 1997, 1996 and
1995 increased $1,945,667 $178,620 and $170,105, respectively, and capital
surplus increased $357,240 and $306,189 in 1996 and 1995, respectively.
Effective October 16, 1997, Community First Bancorporation acquired all of the
then outstanding 764,702 shares of Community First Bank's $5.00 par value common
stock in exchange for 764,702 shares of Community First Bancorporation's no par
value common stock. As a result, a non-cash transfer of $4,659,933 was made from
capital surplus to common stock. During 1997, 1996 and 1995, noncash valuation
adjustments totaling $97,051, $137,147 and $405,187 were made which increased,
decreased and increased, respectively, the carrying amount of available-
for-sale securities. In 1997, a related shareholders' equity account increased
$62,210 and deferred tax assets decreased $34,841; in 1996, the related
shareholders' equity account decreased $87,911 and deferred tax assets increased
$49,236; and in 1995, the related shareholders' equity account increased
$259,724 and deferred tax assets decreased $145,463. Held-to-maturity securities
with an amortized cost of $9,752,318 were transferred to the available-for-sale
category in 1995. In 1996, a loan with a carrying amount of $25,000 was
transferred to other real estate as the result of a foreclosure.
Fair Value Estimates - Fair value estimates are made at a specific point in time
based on relevant market 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 active trading market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
management's judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. 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 assets or liabilities include net deferred tax assets and
premises and equipment. In addition, the income 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.
-25-
<PAGE>
For cash and due from banks, federal funds sold and accrued interest receivable
and payable, the carrying amount approximates fair value because these
instruments generally mature in 90 days or less and do not present unanticipated
credit concerns.
NOTE B - CORPORATE REORGANIZATION
On May 20, 1997, the shareholders of Community First Bank approved a plan of
corporate reorganization under which Community First Bank would become a
wholly-owned subsidiary of Community First Bancorporation. As a result,
Community First Bancorporation was organized on May 23, 1997 at the direction of
Community First Bank's management. The authorized common stock of Community
First Bancorporation was 5,000,000 shares with no par value per share. Pursuant
to the reorganization, the parent company issued 764,702 shares of its common
stock in exchange for all of the 764,702 then outstanding common shares of
Community First Bank.
The reorganization was effected on October 16, 1997 and accounted for as if it
were a pooling-of-interests. As a result, the financial statements for the year
ended December 31, 1997 are presented as if the reorganization had occurred on
January 1, 1997. Except for per share data, the financial statements for the
years ended December 31, 1996 and 1995 are unchanged from the amounts previously
reported by Community First Bank. Per share data for 1996 and 1995, presented in
terms of the current equivalent of the number of shares outstanding, have been
adjusted for the 15% stock dividend effective December 30, 1997 and restated
because of a change in accounting principle for the computation and display of
earnings per share.
NOTE C - CASH AND DUE FROM BANKS
Banks are generally required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amount of the cash
reserve balances at December 31, 1997 and 1996, were approximately $475,000 and
$491,000, respectively.
NOTE D - SECURITIES
The aggregate amortized cost and estimated fair values of securities, as well as
gross unrealized gains and losses of securities were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------------------- -----------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized Estimated
Amortized Holding Holding Fair Amortized Holding Holding Fair
Cost Gains Losses Value Cost Gains Losses Value
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
Available-for-sale
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 2,000,550 $ 2,810 $ 2,003,360 $ 4,999,976 $ 24,644 $ 5,024,620
U.S. Government
agencies 18,980,911 19,963 $ 68,899 18,931,975 16,484,225 33,567 $ 162,372 16,355,420
Mortgage-backed
securities 4,554,862 22,698 2,371 4,575,189 5,163,298 9,737 28,426 5,144,609
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $25,536,323 $ 45,471 $ 71,270 $25,510,524 $26,647,499 $ 67,948 $ 190,798 $26,524,649
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
-26-
<PAGE>
The amortized cost and estimated fair value of securities by contractual
maturity are shown below:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
Available-for-sale
<S> <C> <C> <C> <C>
Due in one year or less $ 6,001,296 $ 5,965,560 $ 3,995,063 $ 3,997,900
Due after one through five years 12,483,764 12,472,275 16,993,422 16,893,000
Due after five through ten years 2,496,401 2,497,500 495,716 489,140
----------- ----------- ----------- -----------
20,981,461 20,935,335 21,484,201 21,380,040
Mortgage-backed securities 4,554,862 4,575,189 5,163,298 5,144,609
----------- ----------- ----------- -----------
Total $25,536,323 $25,510,524 $26,647,499 $26,524,649
=========== =========== =========== ===========
</TABLE>
The fair value of U.S. Treasury and U.S. Government agencies debt securities is
estimated based on published closing quotations. Fair value for mortgage-backed
securities is estimated primarily using dealers' quotes. All of the Company's
mortgage-backed securities held at December 31, 1997 and 1996 were issued by the
Federal Home Loan Mortgage Corporation.
There were no sales of available-for-sale and securities in 1997, 1996 or 1995.
At December 31, 1997, securities with an amortized cost of $21,990,882, and an
estimated fair value of $21,966,454 were pledged as collateral to secure public
deposits. The amortized cost and estimated fair value of such pledged securities
was $25,462,289 and $25,352,556, respectively, at the end of 1996.
In December 1995, securities classified as held-to-maturity with an amortized
cost of $9,752,318 and an estimated fair value of $9,874,270 were transferred on
a one-time basis to the available-for-sale category. The transfer was made in
accordance with provisions of the Special Report on Implementation of Statement
of Financial Accounting Standards No. 115 issued by the Financial Accounting
Standards Board. During 1997 and 1996, there were no sales or transfers of
held-to-maturity securities.
NOTE E - LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Commercial, financial and industrial $ 9,763,982 $ 9,627,061 $ 7,665,315 $ 7,544,559
Real estate - construction 78,318 77,318 145,606 143,686
Real estate - mortgage 41,294,769 40,931,053 34,921,984 34,508,760
Consumer installment 14,700,839 14,571,074 11,925,024 11,766,606
----------- ----------- ----------- -----------
Total 65,837,908 65,206,506 54,657,929 53,963,611
Allowance for loan losses (890,125) (705,000)
----------- ----------- ----------- -----------
Loans - net $64,947,783 $65,206,506 $53,952,929 $53,963,611
=========== =========== =========== ===========
</TABLE>
Net deferred loan costs of $13,834 and net deferred loan fees of $3,650 have
been allocated to the various loan categories as of December 31, 1997 and 1996,
respectively.
Fair values are estimated for loan categories with similar financial
characteristics. Within each category, the fair value of loans is calculated by
discounting estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain categories of loans, such as variable rate loans, credit
card receivables, and other lines of credit, the carrying amount, adjusted for
credit risk, is a reasonable estimate of fair value because there is no
contractual maturity or because the Company has the ability to reprice the loans
as interest rate shifts occur. Since the discount rates are based on current
loan rates offered as well as management's
-27-
<PAGE>
estimates, the fair values presented may not necessarily be indicative of the
value negotiated in an actual sale.
Loans which management has identified as impaired generally are nonperforming
loans. Nonperforming loans include nonaccrual loans or loans which are 90 days
or more delinquent as to principal or interest payments. Following is a summary
of activity regarding the Company's impaired loans:
December 31,
------------
1997 1996
---- ----
Investment in impaired loans
Nonaccrual $ 162,032 $ 248,745
Accruing 90 days and over past due 1,468 -
---------- ----------
Total $ 163,500 $ 248,745
========== ==========
Average total investment in impaired loans during year $ 303,875 $ 299,436
Allowance for loan losses on impaired loans 16,890 16,625
There were no outstanding commitments at December 31, 1997, to lend additional
funds to debtors owing amounts on impaired loans.
As of December 31, 1997 and 1996, there were no significant concentrations of
credit risk in any single borrower or groups of borrowers. The Company's loan
portfolio consists primarily of extensions of credit to businesses and
individuals in its market area within Oconee County, South Carolina. The economy
of this area is diversified and does not depend on any one industry or group of
related industries. Management has established loan policies and practices that
include set limitations on loan-to- collateral value for different types of
collateral, requirements for appraisals, obtaining and maintaining current
credit and financial information on borrowers, and credit approvals.
Transactions in the allowance for loan losses are summarized below:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Balance at January 1 $ 705,000 $ 575,000 $ 460,000
Provision charged to expense 315,183 223,075 152,746
Recoveries 10,146 15,589 2,063
Charge-offs (140,204) (108,664) (39,809)
---------- ---------- ----------
Balance at December 31 $ 890,125 $ 705,000 $ 575,000
========== ========== ==========
Certain officers and directors of the Company and its subsidiary, their
immediate families and business interests were loan customers of, and had other
transactions with the banking subsidiary in the normal course of business.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans was $4,604,451 and
$3,801,918 at December 31, 1997 and 1996, respectively. During 1997, $3,004,619
of new loans were made and repayments totaled $2,202,086.
-28-
<PAGE>
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
------------
1997 1996
---- ----
Land $ 384,773 $ 384,773
Buildings and land improvements 966,417 963,696
Furniture and equipment 848,366 828,317
---------- ----------
Total 2,199,556 2,176,786
Accumulated depreciation 524,064 394,361
---------- ----------
Premises and equipment - net $1,675,492 $1,782,425
========== ==========
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
$129,703, $97,338 and $99,498, respectively.
NOTE G - DEPOSITS
A summary of deposits follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Noninterest bearing demand $16,501,066 $16,501,066 $10,351,628 $10,351,628
Interest bearing transaction accounts 10,106,001 10,106,001 12,807,794 12,807,794
Savings 16,190,880 16,190,880 18,196,157 18,196,157
Time deposits $100,000 and over 23,046,080 23,048,468 18,560,388 18,560,388
Other time deposits 26,446,545 26,454,311 27,543,947 27,560,468
----------- ----------- ----------- -----------
Total deposits $92,290,572 $92,300,726 $87,459,914 $87,476,435
=========== =========== =========== ===========
</TABLE>
As of December 31, 1997 and 1996, local governmental deposits comprised
approximately 33% and 28%, respectively, of total deposits.
The fair value of deposits with no stated maturity (noninterest bearing demand,
interest bearing transaction accounts and savings) is equal to the amount
payable on demand, or carrying amount, as of December 31, 1997 and 1996. The
fair value of time deposits is estimated based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered as of December 31, 1997 and 1996, for deposits of similar remaining
maturities.
At December 31, 1997, the scheduled maturities of time deposits are as follows:
Year Amount
---- -------------
1998 $ 45,761,413
1999 3,512,621
2000 144,732
2001 73,859
2002 and thereafter -
-29-
<PAGE>
NOTE H - SHAREHOLDERS' EQUITY
Restrictions on Subsidiary Dividends, Loans or Advances - South Carolina
regulations restrict the amount of dividends that banks can pay to shareholders.
All of the banking subsidiary's dividends to the parent company are subject to
the prior approval of the South Carolina Commissioner of Banking and are
generally payable only from its undivided profits. At December 31, 1997, the
banking subsidiary's available undivided profits totaled $2,786,032. Under
Federal Reserve Board regulations, the amounts of loans or advances from the
banking subsidiary to the parent company are also restricted.
Stock Dividends - The Company's Board of Directors declared a 15% stock dividend
effective December 30, 1997 and 5% stock dividends effective May 1, 1996 and
1995.
Earnings per Share - As required, the Company adopted the provisions of
Statement of Accounting Standards No. 128, "Earnings per Share", for the year
ended December 31, 1997. This Statement mandates certain changes in the
computation and display of earnings per share for 1997, and requires the
restatement of prior years' figures on a comparable basis. According to
Statement No. 128, basic earnings per common share is computed by dividing net
income applicable to common shares by the weighted average number of common
shares outstanding. Diluted earnings per common share are based on dividing
applicable net income by the weighted average number of common shares
outstanding and any dilutive potential common shares and dilutive stock options.
It is assumed that all dilutive stock options are exercised at the beginning of
each year and that the proceeds are used to purchase shares of the Company's
common stock at the average market price during the year. All per share
information has been retroactively adjusted to give effect to stock dividends.
Prior to the issuance of Statement No. 128 in February, 1997, the number of
shares in the denominator used in computing the Company's single earnings per
share figure included the effect of dilutive stock options as common stock
equivalents. Under the new principle, a dual presentation of basic earnings per
share and earnings per share, assuming dilution, is used. For the years ended
December 31, 1996 and 1995, earnings per share, assuming dilution, corresponds
to the single earnings per share figures previously reported.
Net income per share and net income per share, assuming dilution, were computed
as follows:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Net income per share (basic)
Numerator - net income $1,405,050 $1,152,441 $ 857,218
========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding 879,108 871,940 870,539
========== ========== ==========
Net income per share (basic) $ 1.60 $ 1.32 $ .98
========== ========== ==========
Net income per share, assuming dilution
Numerator - net income $1,405,050 $1,152,441 $ 857,218
========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding 879,108 871,940 870,539
Effect of dilutive stock options 28,348 27,036 23,136
---------- ---------- ----------
Total shares 907,456 898,976 893,675
========== ========== ==========
Net income per share,
assuming dilution $ 1.55 $ 1.28 $ .96
========== ========== ==========
-30-
<PAGE>
Regulatory Capital - All bank holding companies and banks 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 Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, bank holding companies and banks must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification 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 its banking subsidiary to maintain minimum amounts and
ratios set forth in the table below of Total and Tier I capital, as defined in
the regulations, to risk weighted assets, as defined, and of Tier I capital, as
defined, to average assets, as defined. Management believes, as of December 31,
1997 and 1996, that the Company and its subsidiary bank exceeded all capital
adequacy minimum requirements.
As of December 31, 1997, the most recent notification from the FDIC categorized
Community First Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Company and
its banking subsidiary must maintain minimum Total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed Community First Bank's category. The Company's and Community First
Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
Minimum Minimum to
for Capital be Well
Actual Adequacy Capitalized
------ -------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
December 31, 1997
The Company
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets $12,646 20.3% $4,994 8.0% $6,242 10.0%
Tier I capital to risk weighted assets $11,866 19.0% $2,497 4.0% $3,745 6.0%
Tier I capital to average assets (leverage) $11,866 12.0% $2,959 3.0% $4,932 5.0%
Community First Bank
Total capital to risk weighted assets $12,407 19.9% $4,993 8.0% $6,242 10.0%
Tier I capital to risk weighted assets $11,620 18.6% $2,497 4.0% $3,745 6.0%
Tier I capital to average assets (leverage) $11,620 11.8% $2,958 3.0% $4,930 5.0%
December 31, 1996
Community First Bank
Total capital to risk weighted assets $11,102 20.1% $4,411 8.0% $5,514 10.0%
Tier I capital to risk weighted assets $10,413 18.9% $2,205 4.0% $3,308 6.0%
Tier I capital to average assets (leverage) $10,413 10.8% $2,901 3.0% $4,834 5.0%
</TABLE>
Stock Options - On May 9, 1990, the Company's shareholders approved the 1989
Incentive Stock Option Plan (the Plan). The Plan provides for the granting of
options to certain eligible employees and reserves 139,783 shares of the
Company's common stock for issuance upon the exercise of such options. The
exercise price of options granted under the Plan is the fair market value of the
Company's common stock on the date the option is granted, but in no event less
than $5.00 per share. For any person owning directly or indirectly more than 10%
voting control of the Company's outstanding shares, the option price may not be
less than 110% of fair market value of the shares. Options must be exercisable
within ten years from the date of grant (five years with respect to 10% owners).
The expiration of the options accelerates upon the optionee's termination of
employment with the Company or death in accordance with the provisions of the
Plan. Options awarded vest in accordance with provisions established by the
Board of Directors at their discretion. Options awarded during 1997, 1996 and
1995 provided for 20%
-31-
<PAGE>
vesting immediately upon award, with 20% vesting on the anniversary date of the
award for each of the four subsequent years.
As of January 1, 1996, the Company adopted only the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its Plan. Since the exercise price of
each option equals the market price of the Company's stock on the date of grant,
no compensation cost has been recognized for the Plan for any period. Had
compensation cost for the plan been determined based on the fair value of the
options at the grant dates consistent with the method of Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below.
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Net income
As reported $1,405,050 $1,152,441 $ 857,218
Pro forma 1,376,930 1,135,241 847,300
Net income per share
As reported $ 1.60 $ 1.32 $ .98
Pro forma 1.57 1.30 .97
Net income per share, assuming dilution
As reported $ 1.55 $ 1.28 $ .96
Pro forma 1.52 1.26 .95
The fair values of options granted during 1997, 1996 and 1995 were $7.36, $6.71
and $7.09 per share. Such fair value was estimated as of the date of the grant
using the minimum value option pricing method. The following assumptions were
used for grants in 1997, 1996 and 1995: dividend yield of 0%, an expected life
of 10 years, and risk-free interest rates of 6.57%, 6.87% and 5.77%,
respectively. The effects of applying Statement No. 123 may not be
representative of the effects on reported net income in future years.
Transactions under the Plan for the years ended December 31, 1997, 1996 and 1995
are summarized as follows:
Weighted
Average
Number of Exercise
Shares Price
------ -----
Options outstanding January 1, 1995 62,891 $ 10.51
Granted 7,700 15.00
Exercised (2,305) 10.42
Canceled (1,709) 12.63
Stock dividend 3,103
---------
Options outstanding December 31, 1995 69,680 10.48
Granted 5,000 15.00
Exercised (6,205) 8.33
Canceled (515) 14.29
Stock dividend 3,492
---------
Options outstanding December 31, 1996 71,452 10.45
Granted 7,250 16.00
Exercised (7,135) 7.30
Canceled (511) 15.21
Stock dividend 11,770
---------
Options outstanding December 31, 1997 82,826 9.70
=========
Options exercisable at year end
1997 66,898 $ 8.97
1996 66,231 8.45
1995 64,947 8.01
-32-
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------- -------------------
Number of Exercise Number of Exercise
Shares Price Shares Price
------ ----- ------ -----
Options at December 31, 1997 expire
<S> <C> <C> <C> <C>
December 31, 1998 6,990 $ 7.16 6,990 $ 7.16
December 31, 1999 6,991 7.16 6,991 7.16
May 9, 2000 6,293 7.16 6,293 7.16
December 31, 2000 6,991 7.16 6,991 7.16
January 22, 2001 2,104 7.76 2,104 7.76
March 1, 2001 3,495 7.76 3,495 7.76
April 27, 2002 7,135 9.30 7,135 9.30
October 1, 2002 4,194 9.66 4,194 9.66
January 25, 2003 2,858 10.02 2,858 10.02
January 18, 2004 11,981 10.15 9,582 10.15
June 1, 2004 1,778 10.65 1,416 10.65
December 21, 2005 8,272 12.43 4,952 12.43
July 25, 2006 5,750 13.04 2,300 13.04
January 16, 2007 7,994 13.91 1,597 13.91
</TABLE>
Included in the 82,826 outstanding options as of December 31, 1997, were options
to purchase 15,928 shares at an average price of $12.77 per share that had not
become exercisable. The number of shares, average exercise price and years in
which these options become exercisable are as follows: 7,168 shares at $12.00 in
1998, 4,410 shares at $13.13 in 1999, 2,750 shares at $13.55 in 2000, and 1,600
shares at $13.91 in 2001. Of the 139,783 authorized shares of the Company's
common stock originally reserved for issuance upon the exercise of options under
the Plan, 17,302 had not been awarded as of December 31, 1997.
The number of shares and average prices in this section have been adjusted to
reflect a 15% stock dividend effective December 30, 1997 and 5% stock dividends
effective May 1, 1996 and 1995.
NOTE I - OTHER EXPENSES
Operating expenses are summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Salaries and employee benefits $1,008,265 $ 858,916 $ 787,301
Net occupancy expense 100,605 97,802 96,244
Furniture and equipment expense 166,612 150,257 148,533
Other expense
Stationery, printing and postage 139,888 119,170 115,605
Telephone 20,578 22,138 19,458
Advertising and promotion 27,654 24,450 26,335
Professional services 77,038 32,641 30,614
Insurance 26,651 18,532 19,053
FDIC insurance assessment 7,760 2,000 77,627
Directors' fees 31,200 25,200 23,000
Other real estate costs and expenses, net 32,334 2,622
Data processing expenses 52,748 46,520 50,782
Other 217,169 161,307 152,175
---------- ---------- ----------
Total $1,908,502 $1,558,933 $1,549,349
========== ========== ==========
</TABLE>
-33-
<PAGE>
NOTE J - INCOME TAXES
Income tax expense consisted of:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Current
Federal $ 786,786 $ 621,981 $ 442,614
State 69,646 55,005 39,357
---------- ---------- ----------
Total current 856,432 676,986 481,971
---------- ---------- ----------
Deferred
Federal (45,555) (33,260) (5,807)
State (3,974) (2,901) (506)
---------- ---------- ----------
Total deferred (49,529) (36,161) (6,313)
---------- ---------- ----------
Total income tax expense $ 806,903 $ 640,825 $ 475,658
========== ========== ==========
The principal components of the deferred portion of income tax expense or
(credit) were:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Provision for loan losses $ (66,460) $ (46,670) $ (41,285)
Accelerated depreciation 10,870 4,308 9,363
Deferred net loan costs and fees 6,276 6,201 7,922
Capital lease 7,187
Other real estate (215) 7,790
Amortizable pre-operating expenses 2,710
---------- ---------- ----------
Total $ (49,529) $ (36,161) $ (6,313)
========== ========== ==========
Income before income taxes presented in the statement of income for the years
ended December 31, 1997, 1996 and 1995, included no foreign component. A
reconciliation between the income tax expense and the amount computed by
applying the federal statutory rate of 34% to income before income taxes
follows:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Tax expense at statutory rate $ 752,064 $ 609,710 $ 453,178
State income tax, net of federal
income tax benefit 43,344 34,389 25,642
Tax-exempt interest income (5,854) (5,625) (5,801)
Non-deductible interest expense to
carry tax-exempt instruments 480 540 564
Non-deductible corporate
reorganization expenses 15,069
Other, net 1,800 1,811 2,075
---------- ---------- ----------
Total $ 806,903 $ 640,825 $ 475,658
========== ========== ==========
-34-
<PAGE>
Deferred tax assets and liabilities included in the balance sheet consisted of
the following:
December 31,
------------
1997 1996
---- ----
Deferred tax assets
Allowance for loan losses $ 257,735 $ 191,275
Deferred net loan fees 1,310
Other real estate 8,975 8,760
Unrealized holding gains and losses on
available-for-sale securities 9,262 44,103
---------- ----------
Gross deferred tax assets 275,972 245,448
Valuation allowance - -
---------- ----------
Total 275,972 245,448
---------- ----------
Deferred tax liabilities
Accelerated depreciation 72,889 62,019
Deferred net loan costs 4,966
---------- ----------
Total deferred tax liabilities 77,855 62,019
---------- ----------
Net deferred income tax assets $ 198,117 $ 183,429
========== ==========
A portion of the change in net deferred tax assets or liabilities related to
unrealized holding gains and losses on available-for-sale securities is charged
or credited directly to a component of shareholders' equity. The balance of the
change in net deferred tax assets is charged or credited to income tax expense.
In 1997, 1996 and 1995, $34,841 was charged, $49,236 was credited, and $145,463
was charged to shareholders' equity, respectively. In 1997, 1996 and 1995,
$49,529, $36,161 and $6,313 were credited to income tax expense, respectively.
Management believes that the Company will fully realize the deferred tax assets
as of December 31, 1997 and 1996 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.
NOTE K - RETIREMENT PLAN
In 1996, the Company established the Community First Bank 401(k) Plan (the
"Plan") for the exclusive benefit of all eligible employees and their
beneficiaries. Employees are eligible to participate in the Plan with no minimum
age requirement after completing twelve months of service in which they are
credited with at least 501 hours of service. Employees are allowed to defer and
contribute up to 15% of their salary each year. The Company will match $.50 for
each dollar deferred up to 10% of total salary. The Board of Directors can also
elect to make discretionary contributions. Employees are fully vested in both
the matching and any discretionary contributions after five years of service.
The employer contributions to the Plan for 1997 and 1996 totaled $29,550 and
$13,286, respectively.
NOTE L - COMMITMENTS AND CONTINGENCIES
Commitments to Extend Credit - In the normal course of business, the banking
subsidiary is party to financial instruments with off-balance-sheet risk. These
financial instruments include commitments to extend credit and standby letters
of credit, and have elements of credit risk in excess of the amount recognized
in the balance sheet. The exposure to credit loss in the event of nonperformance
by the other parties to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual notional
amount of those instruments. Generally, the same credit policies used for
on-balance-sheet instruments, such as loans, are used in extending loan
commitments and standby letters of credit.
-35-
<PAGE>
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
December 31,
------------
1997 1996
---- ----
Loan commitments $6,172,000 $6,066,600
Standby letters of credit 374,577 314,700
Loan commitments involve 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 some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is the same as that involved in making loan
commitments to customers. As of December 31, 1997 and 1996, a majority of the
outstanding letters of credit were secured by real estate.
Statement of Financial Accounting Standards No. 107 requires the disclosure of
the estimated fair values of off-balance-sheet financial instruments for which
it is practicable to estimate fair value. The estimated fair values of such
off-balance- sheet financial instruments as loan commitments and standby letters
of credit are generally based upon fees charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' creditworthiness. The vast majority of the banking subsidiary's
loan commitments do not involve the charging of a fee, and fees associated with
outstanding standby letters of credit are not material. Therefore, as of
December 31, 1997, the estimated fair value of these off-balance-sheet financial
instruments is nominal. For loan commitments and standby letters of credit, the
committed interest rates are either variable or approximate current interest
rates offered for similar commitments. Management is not aware of any
significant change in the credit risk associated with these commitments.
Borrowing Commitments - At December 31, 1997, the banking subsidiary had an
unused short-term line of credit to purchase up to $1,000,000 of federal funds
from an unrelated correspondent financial institution and an unused line of
credit agreement with the Federal Home Loan Bank of Atlanta ("FHLB"). The
correspondent line is available on a one to seven day basis for general
corporate purposes of the banking subsidiary. The lender has reserved the right
to withdraw the line at its option. Under the terms of the FHLB agreement, the
banking subsidiary may borrow up to $6,700,000 for its general corporate
purposes. Borrowings under the line may bear interest at either a variable or
fixed rate established by the FHLB. The line is secured by FHLB capital stock
with a carrying value of $335,000, and a blanket lien on all 1-4 family
residential first lien mortgage loans held by the banking subsidiary. The
carrying value of such loans at December 31, 1997 was approximately $27,649,000.
-36-
<PAGE>
Litigation - The Company and its subsidiary were not involved as defendants in
any litigation at December 31, 1997. Management is not aware of any pending or
threatened litigation, or unasserted claims or assessments that are expected to
result in losses, if any, that would be material to the consolidated financial
statements.
Accounting Estimates - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses. In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation purposes which are not identified with any
specific loans and are derived from actual loss experience ratios, loan types,
loan volume, economic conditions and industry standards.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the banking subsidiary's allowance for
loan losses. Such agencies may require the recognition of additions to the
allowance based on their judgments about information available to them at the
time of their examination.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
Following is summary information on the estimated fair value of financial
instruments, cross-referenced to the location in the consolidated financial
statements and notes where more detailed information can be obtained:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
of Assets of Assets of Assets of Assets
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks (Note A) $ 4,833,659 $ 4,833,659 $ 2,881,646 $ 2,881,646
Federal funds sold (Note A) 6,510,000 6,510,000 12,535,000 12,535,000
Securities (Note D) 25,510,524 25,510,524 26,524,649 26,524,649
Other investments (Note A) 335,000 335,000
Loans (Note E) 64,947,783 65,206,506 53,952,929 53,963,611
Accrued interest receivable (Note A) 792,715 792,715 718,240 718,240
Deposits (Note G) (92,290,572) (92,300,726) (87,459,914) (87,476,435)
Accrued interest payable (Note A) (772,105) (772,105) (818,705) (818,705)
Loan commitments (Note L) (6,172,000) (6,066,600)
Standby letters of credit (Note L) (374,577) (314,700)
</TABLE>
-37-
<PAGE>
NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)
December 31,
1997
----
Condensed Balance Sheet
Assets
Cash $ 245,705
Investment in banking subsidiary 11,602,938
Other assets 2,370
------------
Total assets $ 11,851,013
============
Liabilities
Other liabilities $ 1,292
Shareholder's equity 11,849,721
------------
Total liabilities and
shareholders' equity $ 11,851,013
============
Year Ended
December 31,
1997
----
Condensed Statement of Income
Income
Dividends received from
banking subsidiary $ 250,000
------------
Expenses
Interest expense 649
Other expenses 50,642
------------
Total expenses 51,291
Income before income taxes and equity in
undistributed earnings of banking subsidiary 198,709
Income tax expense (credit) (2,370)
Equity in undistributed earnings
of banking subsidiary 1,203,971
------------
Net income $ 1,405,050
============
Year Ended
December 31,
1997
------------
Condensed Statement of Cash Flows
Operating activities
Net income $ 1,405,050
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed earnings
of banking subsidiary (1,203,971)
Increase in other assets (2,370)
Increase in other liabilities 1,292
------------
Net cash provided by
operating activities 200,001
------------
Financing activities
Exercise of employee stock options 50,027
Payment of cash in lieu of fractional
shares for stock dividend (4,323)
------------
Net cash provided by financing activities 45,704
------------
Increase in cash and cash equivalents 245,705
Cash and cash equivalents, beginning
------------
Cash and cash equivalents, ending $ 245,705
============
-38-
<PAGE>
NOTE O - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued its Statement of
Financial Accounting Standards No. 130, "Comprehensive Income". The provisions
of this Statement are to become effective for the Company beginning January 1,
1998, with reclassifications included for any earlier comparative accounting
periods presented after that date. Comprehensive income consists of net income
or loss for the current period and other comprehensive income -- income,
expenses, gains and losses that bypass the statement of income and are reported
directly in a separate component of shareholders' equity. The Statement requires
the Company to classify and report items of other comprehensive income by their
nature and report total comprehensive income in a financial statement and
display the accumulated balance of other comprehensive income separately in the
shareholders' equity section of the balance sheet.
Currently, the Company's only other comprehensive income item is the change in
unrealized holding gains and losses on available-for-sale securities, net of
income tax effects, which is presently accounted for in the consolidated
statement of changes in shareholder's equity. Had the Statement been applied to
the consolidated financial statements for the years ended December 31, 1997,
1996 and 1995, total shareholders' equity would remain unchanged and
consolidated comprehensive income would have been computed as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $1,405,050 $1,152,441 $ 857,218
---------- ---------- ----------
Other comprehensive income (loss)
Change in unrealized holding gains and
losses on available-for-sale securities 97,051 (137,147) 405,187
Income tax expense (benefit) on other
comprehensive income (loss) 34,841 (49,236) 145,463
---------- ---------- ----------
Total 62,210 (87,911) 259,724
---------- ---------- ----------
Comprehensive income $1,467,260 $1,064,530 $1,116,942
========== ========== ==========
</TABLE>
-39-
Exhibit 21
Subsidiaries of the Registrant
Community First Bank
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1997 and the Consolidated Statement
of Income for the year Ended December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,834
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,510
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,510
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 65,838
<ALLOWANCE> 890
<TOTAL-ASSETS> 104,968
<DEPOSITS> 92,291
<SHORT-TERM> 0
<LIABILITIES-OTHER> 828
<LONG-TERM> 0
0
0
<COMMON> 10,479
<OTHER-SE> 1,370
<TOTAL-LIABILITIES-AND-EQUITY> 104,968
<INTEREST-LOAN> 5,398
<INTEREST-INVEST> 1,646
<INTEREST-OTHER> 534
<INTEREST-TOTAL> 7,578
<INTEREST-DEPOSIT> 3,663
<INTEREST-EXPENSE> 3,664
<INTEREST-INCOME-NET> 3,914
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,909
<INCOME-PRETAX> 2,212
<INCOME-PRE-EXTRAORDINARY> 1,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,405
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 4.00
<LOANS-NON> 163
<LOANS-PAST> 1
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 473
<ALLOWANCE-OPEN> 705
<CHARGE-OFFS> 140
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 890
<ALLOWANCE-DOMESTIC> 890
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
