<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period June 30, 1998
-------------
Commission File Number: 0-28496
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Community Financial Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Tennessee 62-1626938
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
401 Church Street, Nashville, Tennessee 37219-2213
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(615) 271-2000 (Issuer's telephone number, including area code)
---------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common shares outstanding 2,457,432 as of August 3, 1998.
<PAGE> 2
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
- Consolidated Balance Sheet - June 30, 1998..................................... 1
- Consolidated Statement of Changes in Shareholders' Equity
- Six Months Ended June 30, 1998........................................... 2
- Consolidated Statements of Income
- Three and Six Months Ended June 30, 1998 and 1997........................ 3
- Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1998 and 1997.................................. 4 - 5
- Notes to Consolidated Financial Statements - June 30, 1998..................... 6 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................ 10 - 16
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ................................................................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 18 - 20
</TABLE>
<PAGE> 3
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 10,187
Interest-bearing balances with banks 113
Federal funds sold 15,500
Securities available for sale (amortized cost $56,829) 57,187
Loans (net of unearned income of $295):
Commercial 41,129
Real estate - mortgage loans 72,632
Real estate - construction loans 12,337
Consumer 6,912
---------
Loans, net of unearned income 133,010
Less allowance for possible loan losses (3,317)
---------
Total Net Loans 129,693
---------
Premises and equipment, net 1,652
Accrued interest and other assets 1,293
---------
Total Assets $ 215,625
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits $15,082
Interest-bearing deposits:
NOW accounts 10,385
Money market accounts 81,088
Time certificates less than $100,000 30,504
Time certificates $100,000 and greater 29,670
---------
Total Deposits 166,729
---------
Federal Home Loan Bank borrowings 9,500
Federal funds purchased 10,000
Accounts payable and accrued liabilities 1,736
---------
Total Liabilities 187,965
---------
Commitments and contingencies --
Shareholders' equity (Note F):
Common stock, $6 par value; authorized 50,000,000 shares; issued and
outstanding 2,429,679 shares 14,578
Additional paid-in capital 8,153
Retained earnings 4,707
Accumulated other comprehensive income, net of tax 222
---------
Total Shareholders' Equity 27,660
---------
Total Liabilities and Shareholders' Equity $ 215,625
=========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive
Common Paid-In Retained Income, Net
Stock Capital Earnings of Tax Total
------- ------ ------- ----- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $13,275 $6,736 $ 3,747 $ 294 $ 24,052
Comprehensive income:
Net income -- -- 1,229 --
Change in unrealized gain on securities
available for sale -- -- -- (72)
Total comprehensive income -- -- -- -- 1,157
Issuance of common stock - (217,259 shares) 1,303 1,417 -- -- 2,720
Cash dividends - $.12 per share -- -- (269) -- (269)
------- ------ ------- ----- --------
Balance, June 30, 1998 $14,578 $8,153 $ 4,707 $ 222 $ 27,660
======= ====== ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,049 $ 2,668 $ 5,935 $ 5,129
Interest on federal funds sold 113 31 190 147
Interest on balances in banks 1 4 3 9
Interest on securities:
U.S. Treasury securities 22 32 54 89
Other U.S. government agency obligations 886 1,045 1,897 1,831
States and political subdivisions 16 5 26 10
Other securities 45 36 73 55
---------- ---------- ---------- ----------
Total interest income 4,132 3,821 8,178 7,270
---------- ---------- ---------- ----------
Interest expense:
Interest bearing demand deposits 1,011 830 1,908 1,611
Savings and time deposits less than $100,000 459 530 941 987
Time deposits $100,000 and over 411 432 841 838
Interest on Federal Home Loan Bank borrowings 181 173 387 303
Federal funds purchased 1 19 4 26
---------- ---------- ---------- ----------
Total interest expense 2,063 1,984 4,081 3,765
---------- ---------- ---------- ----------
Net interest income 2,069 1,837 4,097 3,505
Provision for possible loan losses 39 25 78 50
---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses 2,030 1,812 4,019 3,455
Non-interest income:
Service fee income 133 100 258 196
Trust income 39 103 79 220
Investment Center income 64 29 90 51
Gain (loss) on sale of securities 52 2 52 2
Income from foreclosed assets -- 12 -- 15
Gain on sale of foreclosed assets 3 2 20 2
Other 68 64 156 112
---------- ---------- ---------- ----------
Total non-interest income 359 312 655 598
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits 742 657 1,395 1,348
Occupancy expense 198 177 384 367
Advertising 23 45 46 125
Audit, tax and accounting 47 54 94 116
Data processing expense 49 61 93 119
Other operating expenses 385 315 677 666
---------- ---------- ---------- ----------
Total non-interest expense 1,444 1,309 2,689 2,741
---------- ---------- ---------- ----------
Income before income taxes 945 815 1,985 1,312
Provision for income taxes 356 277 756 472
---------- ---------- ---------- ----------
Net income $ 589 $ 538 $ 1,229 $ 840
========== ========== ========== ==========
Net income per share - Note F
Basic $ .25 $ .24 $ .54 $ .38
========== ========== ========== ==========
Diluted $ .17 $ .24 $ .39 $ .38
========== ========== ========== ==========
Weighted average common shares
outstanding - Note F
Basic 2,362,790 2,204,323 2,288,329 2,203,711
Diluted 3,413,865 2,232,525 3,140,337 2,231,988
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 8,186 $ 7,079
Fees received 655 597
Interest paid (4,573) (3,371)
Cash paid to suppliers and associates (3,000) (3,151)
-------- --------
Net cash provided by operating activities 1,268 1,154
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 3,060 2,479
Maturities of securities available for sale 18,753 10,073
Purchases of securities available for sale (13,005) (28,325)
Loans (originated) repaid by customers, net (10,150) (9,314)
Capital expenditures (798) (439)
-------- --------
Net cash used by investing activities (2,140) (25,526)
-------- --------
Cash flows from financing activities:
Net increase demand deposits, NOW, money market accounts 9,623 3,749
Net increase (decrease) in certificates of deposit (6,993) 14,880
Advances (payments) on Federal Home Loan Bank borrowings (5,000) 5,000
Increase in Federal funds purchased 10,000 --
Proceeds from issuance of common stock 2,720 24
Dividends paid (269) (221)
-------- --------
Net cash provided by financing activities 10,081 23,432
-------- --------
Net increase (decrease) in cash and cash equivalents 9,209 (940)
Cash and cash equivalents - beginning of period 16,591 12,953
-------- --------
Cash and cash equivalents - end of period $ 25,800 $ 12,013
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
------- -------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $ 1,229 $ 840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 183 198
Provision for possible loan losses 78 50
Provision for deferred taxes (13) 122
Gain on sale of foreclosed assets (20) (2)
(Gain) loss on sale of securities (52) (2)
Stock dividend income (55) (10)
Changes in assets and liabilities:
(Increase) decrease in accrued interest and other assets 361 (190)
Increase (decrease) in accounts payable and accrued liabilities (443) 148
------- -------
Net cash provided by operating activities $ 1,268 $ 1,154
======= =======
Supplemental Disclosure:
Non Cash Transactions:
Change in unrealized gain on securities available for sale, net of tax $ (72) $ (38)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 8
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
A. HOLDING COMPANY INFORMATION AND PRINCIPLES OF CONSOLIDATION
On April 16, 1996, the shareholders of The Bank of Nashville (The Bank)
approved the formation of a holding company. On April 30, 1996 The Bank
became a wholly-owned subsidiary of the holding company, Community
Financial Group, Inc. (CFGI), a Tennessee corporation. Each outstanding
share of The Bank's stock was exchanged for an outstanding share of
CFGI and each outstanding warrant and each option to purchase common
shares of The Bank became warrants and options to purchase shares of
CFGI.
The accompanying unaudited consolidated financial statements include
the accounts of CFGI and The Bank. The operations of CFGI and The Bank
are collectively referred herein as the Company. All significant
intercompany balances and transactions have been eliminated in the
accompanying consolidated financial statements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with general practices within the banking
industry and generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Regulation SB. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for
complete consolidated financial statements. In the opinion of
management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included.
Certain prior year amounts have been reclassified to conform with
current year presentation.
The consolidated financial statements should be read in conjunction
with the Summary of Significant Accounting Policies and the Notes to
the Financial Statements presented in the Company's 1997 Annual Report
to Shareholders. The results for the interim period are not necessarily
indicative of results to be expected for the complete calendar year.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," effective January
1, 1998. SFAS No. 130 establishes standards for reporting comprehensive
income. Comprehensive income includes net income and other
comprehensive income which is defined as non-owner related transactions
in equity.
B. SECURITIES
Securities with an aggregate fair market value of $27 million at June
30, 1998, were pledged to secure public deposits, Federal Home Loan
Bank borrowings and for other purposes as required or permitted by law.
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<PAGE> 9
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
C. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the changes in the allowance for possible loan losses
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
--------------- -------------
<S> <C> <C>
Balance, beginning of period $ 3,207 $ 3,128
Provision charged to operations 39 78
Loans charged off (3) (23)
Recoveries 74 134
------- -------
Balance, end of period $ 3,317 $ 3,317
======= =======
Allowance ratios are as follows:
Balance, to loans outstanding end of period 2.49% 2.49%
Net (charge-offs) recoveries to average loans .05% .09%
</TABLE>
D. IMPAIRED LOANS
At June 30, 1998, the Company recorded investment in impaired loans and
the related valuation allowance are $146,000 and $40,000, respectively.
This valuation allowance is included in the allowance for loan losses
on the consolidated balance sheet.
The average recorded investments in impaired loans for the three and
six months ended June 30, were $152,000 and $160,000, respectively.
Interest payments received on impaired loans are recorded as reductions
in principal outstanding or recoveries of principal previously charged
off. Once the entire principal has been collected any additional
payments received are recognized as interest income. No interest income
was recognized on impaired loans in the three and six month periods
ended June 30, 1998.
E. INCOME TAXES
Actual income tax expense for the three and six months ended June 30,
1998 differed from "expected" tax expense (computed by applying the
U.S. Federal corporate tax rate of 34% to income before income taxes)
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
--------------- -------------
<S> <C> <C>
Computed "expected" tax expense $ 321 $ 675
State tax expense, net of federal benefit 35 79
Other, net -- 2
------- -------
Total Income Tax Expense $ 356 $ 756
======= =======
</TABLE>
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<PAGE> 10
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
E. INCOME TAXES - CONTINUED
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the estimated future tax effects
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 1998, are presented below (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Deferred fees, principally due to timing differences in the recognition of income $ 145
Other 8
-----
Total gross deferred tax assets 153
-----
Deferred tax liabilities:
Discount on securities deferred for tax purposes (113)
Unrealized gain on securities available for sale (136)
Loans, principally due to provision for possible losses (145)
Premises and equipment, principally due to differences in depreciation methods (24)
Other (64)
-----
Total gross deferred tax liabilities (482)
-----
Net deferred tax liabilities $(329)
-----
</TABLE>
F. SHAREHOLDERS' EQUITY
The Company had outstanding stock options totaling 136,627 shares at
June 30, 1998.
At June 30, 1998, warrants to purchase 4,524,382 shares of the Company
common stock were outstanding. This exercise price of the warrants is
$12.50, and they expire on December 31, 1998.
Subsequent to June 30, 1998 and as of August 3, 1998, 27,300 shares of
common stock were issued as a result of the exercise of warrants. This
resulted in an increase in capital of $341,250.
-8-
<PAGE> 11
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
F. SHAREHOLDERS' EQUITY - CONTINUED
In December 1997, the Company adopted SFAS No. 128, "Earnings Per
Share".
The following table is a reconciliation of net income and average
shares outstanding used in calculating basic and diluted earnings per
share.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income available to
common shareholders: $ 589,000 $ 538,000 $1,229,000 $ 840,000
========== ========== ========== ==========
Weighted average common
shares outstanding
Basic 2,362,790 2,204,323 2,288,329 2,203,711
Dilutive effect of
Options 48,859 28,202 45,093 28,277
Warrants 1,002,216 -- 806,915 --
---------- ---------- ---------- ----------
Weighted average common
shares outstanding
Diluted 3,413,865 2,323,525 3,140,337 2,231,988
========== ========== ========== ==========
Antidilutive securities
Warrants -- 4,744,742 -- 4,744,742
========== ========== ========== ==========
Net income per share:
Basic $ .25 $ .24 $ .54 $ .38
Diluted $ .17 $ .24 $ .39 $ .38
</TABLE>
All calculations of prior period earnings per share have been restated
to conform with SFAS No. 128.
Accumulated other comprehensive income consists solely of the
unrealized gain or loss on securities available for sales net of the
income tax effect.
G. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various commitments
outstanding to extend credit, such as the funding of undrawn lines of
credit or standby letters of credit, which generally accepted
accounting principles do not require to be recognized in the financial
statements. The Company, through regular reviews of these arrangements,
does not anticipate any material losses as a result of these
transactions. At June 30, 1998, the Company had unfunded commitments to
extend credit totaling $58 million consisting of unfunded lines of
credit and commitments to extend credit. Additionally, the Company had
standby letters of credit of $5.6 million as of June 30, 1998.
The Bank is required to maintain average balances with the Federal
Reserve Bank and in vault cash to meet its reserve requirements. The
average amount of these balances at the Federal Reserve Bank and vault
cash for the three and six month periods ended June 30, 1998, totaled
approximately $3,196,000 and $2,691,000, respectively. The required
balance at June 30, 1998 was $2,797,000.
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<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Community Financial Group, Inc. (CFGI), is a bank holding company and owns The
Bank of Nashville (The Bank), both of which are collectively referred to as the
Company. The following discussion compares the Company's financial condition at
June 30, 1998 and December 31, 1997, and results of operations for the three
month and six month periods ended June 30, 1998 compared with the same periods
in 1997. The purpose of this discussion is to focus on important factors
affecting the Company's financial condition and results of operations. Reference
should be made to the consolidated financial statements (including the notes
thereto), and the selected financial data presented elsewhere in this report for
an understanding of the following discussion and analysis. The quarterly
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary for fair presentation of results for interim
periods. The results for interim periods are not necessarily indicative of
results to be expected for the complete calendar year. References should also be
made to the Company's 1997 Annual Report for a more complete discussion of
factors that impact the results of the operations, liquidity and capital. To the
extent that statements in this discussion relate to the plans, objectives, or
future performance of the Company, these statements may be deemed to be forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are based on management's current
expectations and current economic environment; however, actual strategies and
results in future periods may differ materially from those currently expected
due to various risks and uncertainties.
OVERVIEW
For the quarter ended June 30, 1998, net income totaled $589,000, a $51,000 or
9.5% increase over the $538,000 of net income reported for the second quarter of
1997. Earnings in the second quarter of 1998 were impacted by start-up costs
related to staffing and other items for the Company's Brentwood office which is
expected to open late in the third quarter of 1998. Basic earnings per share
were $.25 in the second quarter of 1998, up 4.2% from $.24 for the same period
in 1997. Diluted earnings per share were $.17 in the second quarter of 1998,
compared to $.24 for the same period in 1997. Per share amounts reported are
computed in accordance with SFAS No. 128 which was effective for financial
statements issued after December 15, 1997. Earnings per share as of June 30,
1997 have been restated.
During the second quarter of 1998, the Company recorded $39,000 in provision for
possible loan losses, compared to $25,000 during the second quarter of 1997.
This increase was deemed appropriate based on growth in the Company's loan
portfolio. During the second quarter of 1998, the Company had net recoveries of
$71,000 compared to net recoveries of $22,000 in the second quarter of 1997. The
allowance for possible loan losses was 2.5% of loans at June 30, 1998, compared
with 2.6% for the same period in 1997.
The Company's annualized return on average assets was 1.13% for the second
quarter of 1998 compared to 1.15% for the second quarter of 1997. Annualized
return on average equity was 8.96% for the second quarter of 1998 and 9.61% for
the same period in 1997.
Net income for the six months ending June 30, 1998 was $1,229,000 compared with
net income of $840,000 during the first six months of 1997. Basic earnings per
share were $.54 for the six months ending June 30, 1998, up $.16 or 42%, from
$.38 for the same period in 1997. Diluted earnings per share were $.39 for the
six month period ending June 30, 1998, compared to $.38 for the same period in
1997. Net interest income increased $592,000, or 16.9%, during the first six
months of 1998 compared with the same period in 1997. Non-interest income
increased $57,000, or 9.5%, during the first six months of 1998 compared with
the same period in 1997. This increase in non-interest income resulted primarily
from increases in service fee income, investment center income and gain on sale
of securities. However, these increases were offset by a decrease in trust
income resulting from the decision in late 1997 to restructure investment
services offerings, discontinuing most traditional trust services and
redirecting efforts into an expanded investment services department provided in
conjunction with L. M. Financial Partners, Inc. The Company expanded its
investment services area with LM Financial Partners, Inc. during the second
quarter by establishing an investment center at the Company's Green Hills office
staffed by two financial advisors and support personnel. This decision relative
to trust and investment services has had the effect of reducing both
non-interest income and non-interest expense. Non-interest expense decreased
$52,000 during the first six months of 1998 compared to the same period in 1997.
It is expected that non-interest expenses will increase in future periods as the
Company implements its expansion plans. These plans include the opening of an
office to be located at 5105 Maryland Way in Brentwood, the construction of an
office in Hendersonville 100 Maple Drive, North (property purchased during the
second quarter of 1998) as well as further expansion in the Company's mobile
branching service.
-10-
<PAGE> 13
The Company's annualized return on average assets was 1.21% for the six months
ended June 30, 1998 and .93% for the same period in 1997. Annualized return on
average equity was 9.84% for the first six months of 1998 compared with 7.6% for
the same period in 1997.
NET INTEREST INCOME
Net interest income is the principal component of the Company's income stream
and represents the difference or spread between interest generated from earning
assets and interest paid on interest bearing liabilities. Fluctuations in
interest rates, as well as volume and mix changes in earning assets and interest
bearing liabilities, materially impact net interest income.
Net interest income before provision for possible loan losses for the second
quarter of 1998 was $2.1 million, an increase of $.2 million or 12.6% compared
to the second quarter of 1997. The increase in net interest income resulted from
a 9.7% increase in the volume of average earning assets and a decline of 29
basis points in the average rate paid on interest bearing liabilities. These
factors were partially offset by a decline in the average rate earned on earning
assets of 11 basis points and an increase of 9.9% in the average volume of
interest bearing liabilities. The increase in the volume of average earning
assets may be attributed to an $18.1 million increase in average loans
outstanding and a $6.0 million increase in the average volume of federal funds
sold. These increases were partially offset by a $6.3 million decline in average
investments and a $.1 million decline in average due from bank balances. The mix
of these assets changed somewhat as the percentage of average investments to
earning assets decreased from 36.4% during the second quarter of 1997 to 30.0%
for the same period in 1998. Average loans represented 65.6% of average earning
assets in the second quarter of 1998 compared to 62.1% for the same period in
1997. Net interest income was also impacted by a shift in the mix of interest
bearing liabilities during the second quarter of 1998 compared to the same
period in 1997. The average volume of money market accounts increased $18.4
million, or 29.0% and the average volume of NOW accounts increased $3.5 million,
or 53.6%, while certificates of deposit less than $100,000 declined $4.5
million, or 12.3%, and certificates of deposit $100,000 or greater declined $1.3
million, or 4.4%. Additionally, average borrowed funds were $12.0 million during
the second quarter of 1998, compared with $13.4 million for the same period in
1997. These average borrowed funds were primarily comprised of Federal Home Loan
Bank borrowings. The average rate paid on borrowed funds increased 29 basis
points while rates declined by 88 basis points on NOW accounts, 27 basis points
on money market accounts, 7 basis points on certificates of deposit less than
$100,000 and 4 basis points on certificates of deposit $100,000 or greater. The
decline in both volume and rate of certificates of deposit less than $100,000
and those $100,000 or greater reflected the maturity of higher rate certificates
offered in conjunction with the grand opening of the Company's Green Hills
Office in early 1997 as well as current economic conditions.
Total interest income increased $311,000, or 8.1%, in the second quarter of 1998
compared to the same period in 1997. This increase was primarily the result of
the increase of 9.7% in the average volume of earning assets, which was
partially offset by a decline in the average rate earned on those assets of 11
basis points. Total interest expense increased $79,000, or 4.0%, in the second
quarter of 1998 compared to the same period in 1997. This increase resulted from
an increase in the average volume of interest bearing liabilities, which was
generally offset by a decline in rates paid on these liabilities.
The net interest margin (net interest income expressed as a percentage of
average earning assets) was 4.1% and 4.0% for the quarters ended June 30, 1998
and 1997, respectively. Fluctuations in net interest margins were also affected
by differences in the interest rate sensitivity of the Company's earnings assets
and interest bearing liabilities.
Net interest income for the first six months of 1998 was $4.1 million, an
increase of 16.9%, compared to $3.5 million during the first six months of 1997.
The increase in net interest income during the first six months of 1998 resulted
from an increase of 12.0% in the volume of average earning assets, a decline of
22 basis points in rates paid on interest bearing liabilities and an increase of
5 basis points in the average rate earned on average earning assets. These items
were partially offset by a 13.2% increase in the volume of in the volume of
average interest bearing liabilities. Net interest income was also impacted by a
shift in the mix of average earning assets that reflected loans increasing by
15.1%, federal funds sold increasing 20.9% and investments increasing 5.8%. A
shift in the mix of average interest bearing liabilities also contributed to the
improvement in net interest income as funds grew more significantly in money
market accounts, NOW accounts, and other borrowings while declining in higher
rate certificates of deposit. This shift in the mix of average interest bearing
liabilities was comprised of increases of 64.4% in NOW accounts, 23.2% in money
market accounts and 14.3% in Federal Home Loan Bank
-11-
<PAGE> 14
and other borrowings. These increases in average balances were partially offset
by decreases of 3.5% in certificates of deposit less than $100,000 and .1% in
certificates of deposit $100,000 or greater. The reduction in certificates of
deposit reflects the maturity of certain higher rate certificates opened in
conjunction with the opening of the Company's Green Hills location in January of
1997. The increases in money market accounts and NOW accounts resulted primarily
from the Company's business development efforts and expansion into consumer
markets. Movement of funds into money market accounts and NOW accounts, both of
which are liquid transaction accounts, allows this money to reprice more rapidly
in a changing interest rate environment.
The net interest margin (net interest income expressed as a percentage of
average earning assets) was 4.2% for the six-month period ended June 30, 1998,
compared to 4.0% for the same period in 1997. The increase in net interest
margin resulted primarily from certain repricing strategies designed to reduce
the cost of interest bearing liabilities. The Company has continued its
implementation of an asset liability management strategy, approved and monitored
by the Company's Board of Directors, which consists of matching Federal Home
Loan Bank borrowings to fund the purchase of additional investment securities.
While there have been no additional borrowings during 1998 and the Company
reduced these loans during the latter part of the second quarter of 1998, this
strategy continues to contribute to increasing net interest income while also
having the effect of lowering the Company's net interest margin. Managing and
regularly monitoring the interest rate risk associated with this and other
strategies are the responsibility of both management and the Company's Board of
Directors. Liquidity and asset liability strategies include the utilization of
borrowings from the Federal Home Loan Bank or drawing on lines of credit
established with correspondent banks to satisfy liquidity or funding needs. At
June 30, 1998, the Company had borrowings totaling $19.5 million, $9.5 million
from the Federal Home Loan Bank and $10.0 million in Federal funds purchased
from correspondent banks. The Company had $14.5 million in borrowed funds at
June 30, 1997.
NON-INTEREST INCOME
Non-interest income was $359,000 for the second quarter of 1998, compared with
$312,000 for the same period in 1997. Non-interest income, excluding gains
(losses) on sale of securities and foreclosed assets and income from foreclosed
assets, increased $8,000 during the second quarter of 1998 compared with the
same period of 1997. Gains on sale of securities were $52,000 during the second
quarter of 1998 compared to $2,000 for the same period in 1997. Non-interest
income during 1998 has been impacted by a decision made in late 1997 to
restructure how investment services offerings discontinuing most traditional
trust services and redirecting efforts into an expanded investment services
department provided in conjunction with L. M. Financial Partners, Inc. This
decision impacted both non-interest income and non-interest expense. During the
second quarter of 1998, compared with the same period in 1997, trust department
income decreased $64,000. Increases of $33,000 in service fee income and $35,000
in investment center income offset this decrease.
Total non-interest income was $655,000 for the first six months of 1998,
compared with $598,000 for the same period in 1997. Non-interest income,
excluding gains (losses) on sale of securities and foreclosed assets and income
on foreclosed assets of $72,000 in 1998 and $19,000 in 1997, increased $4,000
for the first six months of 1998 compared with the same period in 1997. This
small increase reflected the decision to restructure investment services as
previously discussed. Increases in 1998 compared to 1997 include $62,000 in
service fee income, $39,000 in investment center income and $44,000 in other
miscellaneous income categories and were offset by a decrease of $141,000 in
trust income.
NON-INTEREST EXPENSE
Total non-interest expense increased $135,000, or 10.3%, during the second
quarter of 1998, compared with the second quarter of 1997. This increase was the
result of increases of $85,000 in salaries and employee benefits, $21,000 in
occupancy expense and $70,000 in other miscellaneous operating expenses. These
increases were partially offset by decreases by $22,000 in advertising expense,
$12,000 in data processing expense and $7,000 in audit, tax and accounting
expense. The increase in salaries and employee benefits is partially attributed
to the employment of staff for the Company's planned Brentwood location as well
as the addition of a new investment center located in the Green Hills office;
however, these increases were partially offset by declines in trust department
salary and employee benefit expense.
Total non-interest expenses declined $52,000, or 1.9%, during the first six
months of 1998 compared with the same period of 1997. This decline is attributed
to additional expenses incurred during the first six months of 1997 related to
the opening of the Company's Green Hills location. At June 30, 1998, the Company
had 59 employees (one employee per $3.7 million in assets) compared with 52
employees (one employee per $3.7 million in assets) at June 30, 1997 and 47
employees (one employee per $4.4 million in assets) at December 31, 1997.
-12-
<PAGE> 15
The Company plans two additional branch locations as well as further expansion
in its mobile branching services. A location in the Maryland Farms area of
Brentwood, Tennessee is planned to open in the third quarter of 1998.
Additionally, the Company purchased property in Hendersonville during the second
quarter of 1998 with plans to begin construction immediately on a new branch
office. Other planned expenses related to the expansion of the Company's
delivery systems and service locations include additional mobile branch service
employees and equipment and an investment in an Internet banking system.
Management anticipates growth in several non-interest expense categories during
the remainder of 1998 resulting from planned expansions in the Company's
delivery systems and service locations as well as the purchase and installation
of a document imaging system and planned computer upgrades. Discontinuing most
services offered through the Trust Department while expanding the investment
services area provided through L. M. Financial Partners, Inc. should continue to
positively impact non-interest expense but will also reduce non-interest income.
The addition of two investment advisors and their support staff at the Green
Hills location to offer L. M. Financial Partners, Inc. investment services
during the second quarter of 1998 further impacted the Company's non-interest
expense. Additionally, it is expected that the Company's non-interest expense
will increase somewhat during the remainder of 1998 and during 1999 due to
expenses related to the Year 2000 issue. The costs related to Year 2000 have
been projected and are not expected to exceed $100,000 annually in either 1998
or 1999. A more detailed discussion of Year 2000 issues is presented under the
caption, "Non-Performing Assets and Risks Elements". It should be noted that
economic conditions and other factors in the market could also impact
non-interest expense.
INCOME TAXES
During the second quarter of 1998, the Company recorded provision for income
taxes of $356,000 compared to $277,000 during the same period in 1997.
During the first six months of 1998, the Company reported provisions for income
taxes of $756,000 an increase of $284,000, or 60.2%, compared to $472,000
recorded for the same period of 1997.
NON-PERFORMING ASSETS AND RISKS ELEMENTS
Non-performing assets, which include non-accrual loans, restructured loans and
other real estate owned, were $739,000 at June 30, 1998, a decrease of $488,000
from $1,227,000 at December 31, 1997 and an increase of $224,000 from the
$515,000 reported at June 30, 1997. The Company maintains an allowance for
possible loan losses at a level which, in management's evaluation, is adequate
to cover estimated losses on loans based on available information at the end of
each reporting period. Considerations in establishing the allowance include
historical net charge-offs, changes in the credit risks, mix and volume of the
loan portfolio, and other relevant factors, such as the risk of loss of
particular loans, the level of non-performing assets and current and forecasted
economic conditions. In the second quarter of 1998, the Company recorded $39,000
in expense related to the provision for possible loan losses compared with
$25,000 for the same period in 1997. The provision for possible loan losses was
deemed appropriate due to the growth in the loan portfolio. Net recoveries
during the second quarter of 1998 were $71,000 compared to $22,000 in the second
quarter of 1997. There were no loans ninety days or more past due and still
accruing interest at June 30, 1998 or June 30, 1997. Other potential problem
loans at June 30, 1998 totaled approximately $163,000 compared with $164,000 at
June 30, 1997 and $177,000 at December 31, 1997. Other potential problem loans
consist of loans that are currently not considered non-performing, that where
information about possible credit problems has caused the Company to have
serious doubts as to the borrower's ability to fully comply with present
repayment terms. Depending on future economic conditions and other events, these
loans and others that may not be presently identified, could become future
non-performing assets. The composition of non-performing assets at June 30, 1998
and June 30, 1997, was 100% in non-accrual loans. The allowance for possible
loan losses was $3.3 million at June 30, 1998, compared with $3.0 million at
June 30, 1997, and $3.1 million at December 31, 1997. Loan and valuation
reserves as a percentage of total non-performing assets were 449% at June 30,
1998, 584% at June 30, 1997, and 255% at December 31, 1997. The level of the
allowance and the amount of the provision are determined on a quarter by quarter
basis, and, given the inherent uncertainties in the estimation process, no
assurance can be given as to the allowance at any future date.
-13-
<PAGE> 16
Management and the Board of Directors has established a Year 2000 (Y2K) Task
Force which includes members of Senior Management, adopted a comprehensive
project plan, prepared budgets, developed a Y2K test plan, and established
timetables for both conversion and testing. The Y2K issue refers to the process
of converting computer programs to recognize more than two digits identifying a
year in any date field. The Company recognizes the potential technological and
financial risks to both the Company and its customers as the new millennium
approaches. Assuring that internal systems and external vendors upon whom the
Company is reliant are Y2K compliant is and will continue to be a major focus of
management. Initial assessments have been completed with budgets and plans
established to test, renovate and/or replace systems, as appropriate. Systems
are currently being tested on an independent basis as they are delivered in a
Y2K compliant manner. The costs related to this project have been projected and
are not expected to exceed $100,000 annually in either 1998 or 1999. The
Company incurred approximately $42,000 of expenses related to Y2K in the six
months ended June 30, 1998. In addition to assessing internal systems,
electronic interfaces, and vendors, the Company is cognizant of the potential
impact of Y2K on its borrowing customers and large depositors and has therefore,
implemented a process to address these relationships as well. A series of
newsletter articles has been sent to all customers, a Y2K seminar has been
conducted for customers, Y2K credit risks are being assessed on all loans above
a predetermined amount, Y2K language is being incorporated into contracts and
loan agreements, and the Company continues to train all officers and employees
to be attuned to the potential risks associated with the Year 2000.
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risks arise primarily from interest rate risks inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest rate risk exposure. The Company's
profitability is affected by fluctuations in interest rates. A sudden and
substantial movement in interest rates may adversely impact the Company's
earnings to the extent that the interest rates borne by assets and liabilities
do not change at the same speed, to the same extent, or on the same basis. The
Company monitors the impact of changes in interest rates on its net interest
income using several tools. One measure of the Company's exposure to changes in
interest rates between assets and liabilities is shown in the Company's June 30,
1998 gap table below:
<TABLE>
<CAPTION>
Expected Repricing or Maturity Date
---------------------------------------------------------------------------------
Within One Two After
One to Two to Five Five
(Dollars In Thousands) Year Years Years Year Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Debt and equity securities $ 22,650 $ 18,576 $14,682 $ 1,279 $ 57,187
Average rate 6.42% 6.85% 6.79% 6.45% 6.66%
Net interest-earning loans 95,435 7,466 18,639 11,470 133,010
Average rate 9.29% 9.59% 9.01% 9.21% 9.26%
Other 15,613 -- -- -- 15,613
Average rate 5.91% -- -- -- 5.91%
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing assets 133,698 26,042 33,321 12,749 205,810
Liabilities
Deposits 140,676 8,649 2,322 -- 151,647
Average rate 4.83% 5.98% 6.06% -- 4.92%
Federal Home Loan
Bank borrowings 9,500 -- -- -- 9,500
Average rate 5.62% -- -- -- 5.62%
Federal funds purchased 10,000 -- -- -- 10,000
Average rate 6.38% -- -- -- 6.38%
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 160,176 8,649 2,322 -- 171,147
- -----------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (26,478) $ 17,393 $30,999 $12,749
=======================================================================================================================
Cumulative interest rate
sensitivity gap $ (26,478) $ (9,085) $21,914 $34,663
=======================================================================================================================
</TABLE>
-14-
<PAGE> 17
Management recommends appropriate levels of interest rate risk to be assumed
within limits approved by the Board of Directors regarding the maximum
fluctuations acceptable in the market value of equity and in earnings, assuming
sudden rate movements (rising or falling) up to 200 basis points. The Company's
policy establishes a 10% maximum change in annual pre-tax net interest income
with a 200 basis point change in rates while establishing the maximum change
allowable in pre-tax market value of equity at 12% in the same assumed rate
environment. The Company's primary objective in managing interest rate risk is
to minimize the adverse impact of changes in interest rates on the Company's net
interest income and capital while structuring the Company's assets and
liabilities to obtain the maximum yield-cost spread. The Company relies
primarily on its asset liability structure to control interest rate risk. Based
on June 30, 1998 financial data, a 200 basis point change in rates would produce
net interest income variations of a 1.2% increase assuming falling rates and a
4.2% decrease assuming rising rates. Additionally, the 200 basis point rate
shock would produce changes in the market value of equity of a decrease of 8.4%
assuming rising rates and a 7.8% increase assuming falling rates.
BALANCE SHEET
The Company's total assets at June 30, 1998, were $215.6 million, an increase of
$10.7 million from December 31, 1997. This increase was due to a $10.3 million
increase in total loans outstanding and a $6.1 million increase in federal funds
sold. These increases were partially offset by a decrease of $8.9 million in
investment securities. Total deposits at June 30, 1998 were $166.7 million, an
increase of $2.6 million from $164.1 million at December 31, 1997. The increase
in deposits was comprised of a $6.0 million increase in money market deposits, a
$2.5 million increase in non-interest bearing demand deposits and an increase of
$1.1 million in NOW accounts. These increases were partially offset by decreases
of $3.7 million in time certificates less than $100,000 and $3.3 million in time
certificates of $100,000 or greater. Borrowed funds increased $5 million at June
30, 1998 from December 31, 1997. This increase was comprised of a $10 million
increase in federal funds purchased which was partially offset by a decrease of
$5 million in Federal Home Loan Bank borrowings.
Shareholders' equity (adjusted for SFAS No. 115) increased $3.6 million to
$27,660,000 at June 30, 1998, from $24,052,000 at December 31, 1997. This
increase is discussed further in the section entitled Capital Adequacy and
Liquidity. Unrealized gains on securities available for sale, net of income
taxes, were $222,000 at June 30, 1998, compared to $294,000 at December 31,
1997. Changes in unrealized gains/losses on securities available for sale are
the result of adjustments for SFAS No. 115 reflecting current market value on
these securities.
CAPITAL ADEQUACY AND LIQUIDITY
The Company's capital position continued to remain strong during the first six
months of 1998. Shareholders' equity (excluding SFAS No. 115 adjustments) at
June 30, 1998, was $27.4 million, or 12.7% of total assets, which compares with
$23.8 million, or 11.6% of total assets at December 31, 1997. Total
shareholders' equity, including adjustments for SFAS No. 115 at June 30, 1998
was $27.7 million, or 12.8% of total assets, which compares with $24.1 million,
or 11.7%, of total assets at December 31, 1997. The increase in capital during
the first six months of 1998 resulted from an increase of $2.7 million due to
the issuance of common stock from exercised warrants and purchases authorized
under the Company's Associate Stock Purchase Plan, and an increase of $1.2
million resulting from 1998 earnings. These increases were partially offset by a
decrease of $72,000 in the market value of securities available for sale as well
as the payment of dividends of $269,000 in the first six months of 1998. At June
30, 1998, the Company's primary and total capital ratios to adjusted assets were
14.6% and 14.6%, respectively, which are significantly in excess of the
applicable regulatory requirements of the Federal Reserve Board. In addition,
the Company's total risk based capital ratio was 19.5% at June 30, 1998,
compared with 18.8% at December 31, 1997.
The Company's principal sources of asset liquidity are marketable securities
available for sale and federal funds sold, as well as the maturity of
securities. The estimated average maturity of securities was 6.4 years at June
30, 1998, compared to 5.1 years at December 31, 1997. Securities available for
sale were $57.2 million at June 30, 1998, compared to $66.1 million at December
31, 1997. Federal funds sold were $15.5 million at June 30, 1998 compared with
$9.4 million at December 31, 1997. Core deposits, a relatively stable funding
base, reflected solid growth and comprised 82.3% of total deposits at June 30,
1998 compared to 80.0% at December 31, 1997. Core deposits represent total
deposits excluding time certificates of $100,000 or greater.
-15-
<PAGE> 18
It is anticipated that the Company's capital position could continue to
strengthen during the last half of 1998 should the registered owners of 4.5
million outstanding warrants elect to exercise those warrants to purchase shares
of the Company's stock at an exercise price of $12.50. All warrants outstanding
have an expiration date of December 31, 1998.
In January, 1998, the Company's Board of Directors adopted a Shareholders'
Rights Plan which authorizes the distribution of a dividend of one common share
purchase right for each outstanding share of CFGI's common stock. The rights
will be exercisable only if a person or group acquires 15% or more of CFGI's
common stock or announces a tender offer, the consummation of which will result
in ownership by a person or group of 15% or more of the common stock. The rights
are designed to insure that all of CFGI's shareholders receive fair and equal
treatment in the event of any proposed takeover of the Company and to guard
against partial tender offers, squeeze-outs, open market accumulations and other
abusive tactics to gain control of the Company without paying all shareholders
an appropriate control premium.
If the Company were acquired in a merger or other business combination
transaction, each right would entitle it's holder to purchase, at the rights
then current exercise price, a number of the acquiring company's common shares
having a market value of twice such a price. In addition, if a person or group
acquires 15% or more of CFGI's common stock, directly or through the purchase of
warrants exercisable for CFGI's common stock, each right would entitle it's
holder (other than the acquiring person or members of the acquiring group) to
purchase, at the rights then current exercisable rights, a number of CFGI's
common shares having a market value of twice that price. After a person or group
acquires beneficial ownership of 15% or more of CFGI's common stock and before
an acquisition of 50% of the common stock, the Board of Directors could exchange
the rights (other than rights owned by the acquiring person or group) in whole
or in part, at an exchange ratio of one share of common stock per right.
Until a person or group has acquired beneficial ownership of 15% or more of
CFGI's common stock, the rights will be redeemable for $.01 per right at the
option of the Board of Directors. The rights are intended to enable all CFGI's
shareholders to realize the long-term value of their investment in the Company.
The Company believes they will not prevent a takeover, but should encourage
anyone seeking to acquire the Company to negotiate with the Board prior to
attempting a takeover.
-16-
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on Wednesday, May 13, 1998,
the following items were voted on an are herein incorporated by reference to the
Proxy Statement for the annual meeting of shareholders previously filed with the
Commission.
1. Election of Directors
- Election of Class I Directors: L. Leon Moore; C. Norris Nielsen;
G. Edgar Thornton
- Election of Class II Directors: Jo D. Federspiel; Richard H.
Fulton; Perry W. Moskovitz
- Election of Class III Directors: J.B. Baker; Mack S., Linebaugh,
Jr.; David M. Resha
2. Charter amendment to provide for the classification of the Board of
Directors.
3. Charter amendment to provide for the removal of members of the Board of
Directors only for cause.
4. Charter amendment to provide that vacancies on the Board of Directors may
be filled only by the incumbent directors.
5. Charter amendment to provide that the aforementioned Charter Amendments, if
approved, may only be subsequently amended by a 3/4ths vote of the
shareholders.
6. To transact such other business as may properly be brought before the
Annual meeting or any adjournments thereof.
The following reflects the vote of the shareholders of the items noted above:
<TABLE>
<CAPTION>
Item # Affirmative Negative Abstain
------ ----------- -------- -------
<S> <C> <C> <C> <C>
1. 1,693,167
</TABLE>
* Included in the affirmative votes are negative votes against specific
Directors disclosed as follows:
J. B. Baker 10,735
Jo D. Federspiel 10,735
Richard H. Fulton 16,835
Mack S. Linebaugh, Jr. 10,838
Leon Moore 16,960
Perry W. Moskovitz 89,874
C. Norris Nielsen 68,259
David M. Resha 14,456
G. Edgar Thornton 64,259
-------
302,951
=======
<TABLE>
<CAPTION>
Affirmative Negative Abstain Non-Voting
----------- -------- ------- ----------
<S> <C> <C> <C> <C>
2. Charter Amendment 1,156,842 88,571 4,727 443,027
3. Charter Amendment 1,045,577 188,553 6,740 452,297
4. Charter Amendment 1,028,475 206,468 5,927 452,297
5. Charter Amendment 1,085,738 150,482 4,650 452,297
6. Transact other business 1,616,110 74,606 2,451 --
</TABLE>
-17-
<PAGE> 20
PART II
OTHER INFORMATION - CONTINUED
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Description
- ----------- -----------
11 Statement regarding computation of earnings per share.
27 Financial Data Schedule (for SEC use only)
(B) Reports on Form 8-K filed during the quarter ended June 30, 1998 was as
follows:
April 8, 1998 reported the election of David M. Resha to the
Board of Directors of Community Financial Group, Inc. and its
wholly owned subsidiary, The Bank of Nashville.
June 1, 1998 reported the common stock of Community Financial
Group, Inc. has been approved for listing on the National Market
System of the NASDAQ Stock Market. The Company's warrants will
continue to be listed on the NASDAQ Stock Market's Small Cap
System.
-18-
<PAGE> 21
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
COMMUNITY FINANCIAL GROUP, INC.
Registrant
August 13, 1998 /s/ Mack S. Linebaugh, Jr.
- ------------------------------- -------------------------------------
Date Mack S. Linebaugh, Jr.
President, Chairman of the Board,
Chief Executive Officer and Chief
Financial Officer
-19-
<PAGE> 1
EXHIBIT 11
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
STATEMENT REGARDING: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Basic Income Per Common Share (1)
---------------------------------
Net income (in thousands) $ 589 $ 538 $ 1,229 $ 840
========= ========= ========= =========
Net income per share $ .25 $ .24 $ .54 $ .38
========= ========= ========= =========
Weighted average common shares outstanding 2,362,790 2,204,323 2,288,329 2,203,711
========= ========= ========= =========
Diluted Income Per Common Share (2)
-----------------------------------
Net income (in thousands) $ 589 $ 538 $ 1,229 $ 840
========= ========= ========= =========
Net income per share $ .17 $ .24 $ .39 $ .38
========= ========= ========= =========
Weighted average common shares outstanding 3,413,865 2,232,525 3,140,337 2,231,988
========= ========= ========= =========
</TABLE>
(1) Basic net income per share has been computed using the weighted average
number of common shares outstanding during each period presented.
(2) Diluted net income per share has been computed using the weighted average
number of common share outstanding and the dilutive effect of stock options
and warrants outstanding during the period presented.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,187
<INT-BEARING-DEPOSITS> 113
<FED-FUNDS-SOLD> 15,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,187
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 133,010
<ALLOWANCE> 3,317
<TOTAL-ASSETS> 215,625
<DEPOSITS> 166,729
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 1,736
<LONG-TERM> 9,500
0
0
<COMMON> 14,578
<OTHER-SE> 13,082
<TOTAL-LIABILITIES-AND-EQUITY> 215,625
<INTEREST-LOAN> 5,935
<INTEREST-INVEST> 2,050
<INTEREST-OTHER> 193
<INTEREST-TOTAL> 8,178
<INTEREST-DEPOSIT> 3,690
<INTEREST-EXPENSE> 4,081
<INTEREST-INCOME-NET> 4,097
<LOAN-LOSSES> 78
<SECURITIES-GAINS> 52
<EXPENSE-OTHER> 2,689
<INCOME-PRETAX> 1,985
<INCOME-PRE-EXTRAORDINARY> 1,985
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,229
<EPS-PRIMARY> .54
<EPS-DILUTED> .39
<YIELD-ACTUAL> 4.16
<LOANS-NON> 739
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 163
<ALLOWANCE-OPEN> 3,128
<CHARGE-OFFS> 23
<RECOVERIES> 134
<ALLOWANCE-CLOSE> 3,317
<ALLOWANCE-DOMESTIC> 1,973
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,344
</TABLE>
