<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
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Commission File Number: 0-28496
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Community Financial Group, Inc.
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(Exact name of Registrant as specified in its charter)
Tennessee 62-1626938
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
401 Church Street, Nashville, Tennessee 37219-2213
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(Address of principal executive offices) (Zip Code)
(615) 271-2000 (Registrant's telephone number, including area code)
---------------
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 3,537,102 as of August 4, 2000.
<PAGE> 2
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
- Consolidated Balance Sheets - June 30, 2000 and December 31, 1999.. 1
- Consolidated Statements of Shareholders' Equity and Other
Comprehensive Income - Six Months Ended June 30, 2000 and 1999.. 2
- Consolidated Statements of Income - Three and Six Months Ended
June 30, 2000 and 1999.......................................... 3
- Consolidated Statements of Cash Flows
- Six Months Ended June 30, 2000 and 1999....................... 4-5
- Notes to Consolidated Financial Statements......................... 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 10-17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ....................................................... 14-15
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 18
ITEM 5. OTHER INFORMATION ................................................. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................... 19
Signatures ................................................................... 19
Exhibit 10.24 ................................................................... 20
Exhibit 11 ................................................................... 41
</TABLE>
<PAGE> 3
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,498 $ 11,483
Federal funds sold 1,300 14,300
Securities available for sale (amortized cost of $81,181 and $76,467, respectively) 79,469 74,877
Loans (net of unearned income of $2,570 and $2,171, respectively):
Commercial 72,781 70,166
Real estate - mortgage loans 127,666 102,476
Real estate - construction loans 13,400 19,688
Consumer 9,600 5,870
Leases financing 8,743 7,311
--------- ---------
Loans, net of unearned income 232,190 205,511
Less allowance for loan losses (4,412) (4,062)
--------- ---------
Total Net Loans 227,778 201,449
--------- ---------
Premises and equipment, net 3,451 3,529
Accrued interest and other assets 3,098 2,468
--------- ---------
Total Assets $ 327,594 $ 308,106
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Non-interest bearing demand deposits $ 24,118 $ 18,480
Interest-bearing deposits:
NOW accounts 17,223 16,019
Money market accounts 90,153 91,892
Time certificates less than $100,000 54,630 54,383
Time certificates $100,000 and greater 80,103 48,367
--------- ---------
Total Deposits 266,227 229,141
--------- ---------
Federal Home Loan Bank and other borrowings 16,319 24,500
Federal funds purchased -- 5,000
Accounts payable and accrued liabilities 2,756 2,150
--------- ---------
Total Liabilities 285,302 260,791
--------- ---------
Commitments and contingencies (Note G) -- --
Shareholders' equity:
Common stock, $6 par value; authorized 50,000,000 shares; issued and
outstanding shares, 3,551,243 in 2000 and 3,923,640 in 1999 21,307 23,542
Additional paid-in capital 14,296 17,381
Retained earnings 7,751 7,379
Accumulated other comprehensive loss, net of tax (1,062) (987)
--------- ---------
Total Shareholders' Equity 42,292 47,315
--------- ---------
Total Liabilities and Shareholders' Equity $ 327,594 $ 308,106
========= =========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE> 4
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER
COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive
Common Paid-In Retained Income(Loss),
Stock Capital Earnings Net of Tax Total
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 25,299 $ 19,773 $ 5,759 $ 340 $ 51,171
Comprehensive income:
Net income -- -- 1,615 -- --
Other comprehensive loss -- -- -- (785) --
Total comprehensive income -- -- -- -- 830
Issuance of Common Stock (5,867 shares) 35 38 -- -- 73
Repurchase of Common Stock (175,500 shares) (1,053) (1,358) -- -- (2,411)
Cash dividends - $.20 per share -- -- (844) -- (844)
-------- -------- ------- ------- --------
Balance, June 30, 1999 $ 24,281 $ 18,453 $ 6,530 $ (445) $ 48,819
======== ======== ======= ======= ========
Balance, January 1, 2000 $ 23,542 $ 17,381 $ 7,379 $ (987) $ 47,315
Comprehensive income:
Net income -- -- 1,683 -- --
Other comprehensive loss -- -- -- (75) --
Total comprehensive income -- -- -- -- 1,608
Issuance of Common Stock (73,603 shares) 441 272 -- -- 713
Repurchase of Common Stock (446,000 shares) (2,676) (3,357) -- -- (6,033)
Cash dividends - $.34 per share -- -- (1,311) -- (1,311)
-------- -------- ------- ------- --------
Balance, June 30, 2000 $ 21,307 $ 14,296 $ 7,751 $(1,062) $ 42,292
======== ======== ======= ======= ========
</TABLE>
-2-
<PAGE> 5
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS , EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ --------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,421 $ 3,706 $ 10,389 $ 6,957
Interest on federal funds sold 70 8 122 127
Interest on balances in banks 2 1 4 12
Interest on securities:
U.S. government agency obligations 1,176 1,008 2,349 1,965
States and political subdivisions, nontaxable 29 15 58 31
Other securities 82 65 120 103
---------- ----------- ----------- -----------
Total interest income 6,780 4,803 13,042 9,195
---------- ----------- ----------- -----------
Interest expense:
Interest bearing demand deposits 1,178 885 2,199 1,818
Savings and time deposits less than $100,000 859 348 1,621 694
Time deposits $100,000 and over 1,032 344 1,870 735
Federal Home Loan Bank and other borrowings 243 191 516 366
Federal funds purchased 52 145 68 156
---------- ----------- ----------- -----------
Total interest expense 3,364 1,913 6,274 3,769
---------- ----------- ----------- -----------
Net interest income 3,416 2,890 6,768 5,426
Provision for loan losses 237 3 447 48
---------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,179 2,887 6,321 5,378
Non-interest income:
Service fee income 228 205 433 410
Trust income -- 1 -- 13
Investment Center income 351 321 716 642
Loss on sale of securities -- (5) (34) (5)
Other 81 87 162 170
---------- ----------- ----------- -----------
Total non-interest income 660 609 1,277 1,230
---------- ----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits 1,356 1,105 2,661 2,122
Occupancy expense 335 331 717 607
Advertising expense 141 121 183 149
Audit, tax and accounting 58 70 113 134
Data processing expense 46 41 96 86
Other operating expenses 530 494 1,113 900
---------- ----------- ----------- -----------
Total non-interest expense 2,466 2,162 4,883 3,998
---------- ----------- ----------- -----------
Income before income taxes 1,373 1,334 2,715 2,610
Provision for income taxes 522 524 1,032 995
---------- ----------- ----------- -----------
Net income $ 851 $ 810 $ 1,683 $ 1,615
========== =========== =========== ===========
Net income per share
Basic $ .23 $ 0.20 $ .45 $ .39
========== =========== =========== ===========
Diluted $ .23 $ 0.19 $ .44 $ .38
========== =========== =========== ===========
Weighted average common shares outstanding
Basic 3,632,421 4,126,769 3,753,737 4,172,282
========== =========== =========== ===========
Diluted 3,649,111 4,178,208 3,784,693 4,214,723
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 6
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 12,922 $ 9,138
Fees received 1,277 1,230
Interest paid (5,854) (4,017)
Cash paid to suppliers and associates (6,325) (4,882)
-------- --------
Net cash provided by operating activities 2,020 1,469
-------- --------
Cash flows from investing activities:
Maturities of securities available for sale 6,074 43,650
Sales of securities available for sale 1,397 8,203
Purchases of securities available for sale (12,129) (40,028)
Net cash paid for BON leasing -- (1,250)
Loans originated by customers, net (26,404) (21,944)
Capital expenditures (217) (1,065)
-------- --------
Net cash used by investing activities (31,279) (12,434)
-------- --------
Cash flows from financing activities:
Net increase in demand deposits, NOW, and money market accounts 5,103 42,724
Net increase in certificates of deposit 31,983 10,016
Repayment of advance from Federal Home Loan Bank (10,000) (4,720)
Advance of other borrowings 1,819 --
Proceeds from issuance of common stock 713 73
Repurchase of common stock (6,033) (2,411)
Cash dividends paid (1,311) (844)
-------- --------
Net cash provided by financing activities 22,274 44,838
-------- --------
Net (decrease) increase in cash and cash equivalents (6,985) 33,873
Cash and cash equivalents - beginning of period 20,783 5,243
-------- --------
Cash and cash equivalents - end of period $ 13,798 $ 39,116
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 7
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $ 1,683 $ 1,615
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale securities 34 5
Depreciation and amortization 325 292
Provision for loan losses 447 48
Provision for deferred taxes (198) (107)
Gain on sale of foreclosed assets -- (7)
Stock dividend income (61) (86)
Changes in assets and liabilities:
Increase in accrued interest and other assets (840) (536)
Increase in accounts payable and accrued liabilities 630 245
------- -------
Net cash provided by operating activities $ 2,020 $ 1,469
======= =======
Supplemental Disclosure:
Non Cash Transactions:
Change in unrealized loss on securities available for sale, net of tax $ (75) $ (785)
======= =======
Cash paid for:
Income taxes $ 1,333 $ 1,136
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 8
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. HOLDING COMPANY INFORMATION AND PRINCIPLES OF CONSOLIDATION
Community Financial Group, Inc. (CFGI), a Tennessee corporation, is a
bank holding company operating according to federal bank holding
company law. It owns The Bank of Nashville (The Bank), TBON-Mooreland
Joint Venture, LLC and a majority interest in The Bank's subsidiary
Machinery Leasing Company of North America, Inc., (BON Leasing).
The accompanying unaudited consolidated financial statements include
the accounts of CFGI, The Bank and its subsidiaries Mooreland Title and
BON Leasing, the operations of which 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. 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 of interim
results have been included.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
The interim 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 1999
Annual Report to Shareholders. The results for the interim period are
not necessarily indicative of results to be expected for the complete
calendar year.
B. JOINT VENTURE AND BUSINESS COMBINATIONS
In April, 1999, The Bank formed TBON-Mooreland Joint Venture, LLC. The
new company, a joint venture of The Bank and Mooreland Title Company,
LLC, will provide title services within the office of Mooreland Title.
This new title agency has the ability to underwrite title insurance on
most real estate loan transactions. The Bank owns 100% of the title
agency and consolidates all of its operations, and participates in a
revenue sharing agreement with Mooreland for 50% of the revenue.
On June 18, 1999 The Bank of Nashville acquired 80% ownership in
Machinery Leasing Company of North America, Inc. for $1.3 million in
cash. The transaction has been accounted for using the purchase method
of accounting and closed in June 1999. The leasing company is included
in the consolidated financial statements of The Bank. The primary asset
acquired was the equipment lease portfolio of approximately $6.0
million. The total premium and goodwill recorded in the transaction was
$676,000. During the three and six month periods ended June 30, 2000
approximately $41,000 and $82,000 of amortization expense was recorded.
Minority interest expense of $13,000 and $23,000 is included in other
operating expenses for the three and six months ended June 30, 2000,
respectively.
C. SECURITIES
Securities with an aggregate fair market value of $39.9 million at June
30, 2000, were pledged to secure public deposits, Federal Home Loan
Bank borrowings and for other purposes as required or permitted by law.
-6-
<PAGE> 9
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
2000 2000
------- -------
<S> <C> <C>
Balance, beginning of period $ 4,260 $ 4,062
Provision charged to operations 237 447
Loans charged off (117) (176)
Recoveries 32 79
------- -------
Balance, end of period $ 4,412 $ 4,412
======= =======
Allowance ratios are as follows:
Balance, to loans outstanding end of period 1.90% 1.90%
Net charge-offs to average loans .04% .05%
</TABLE>
E. INCOME TAXES
Actual income tax expense for the three and six months ended June 30,
2000 differed from "expected" tax expense (computed by applying the
U.S. Federal corporate tax rate of 34% to income before income taxes)
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------- -----------------
2000 1999 2000 1999
---- ---- ------ ----
<S> <C> <C> <C> <C>
Computed "expected" tax expense $467 $454 $ 923 $887
State tax expense, net of federal benefit 55 53 109 104
Other -- 17 -- 4
---- ---- ------ ----
Total Income Tax Expense $522 $524 $1,032 $995
==== ==== ====== ====
</TABLE>
-7-
<PAGE> 10
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
E. INCOME TAXES - Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 2000 and December 31, 1999, are presented below (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on securities available for sale $ 669 $ 604
Deferred fees, principally due to timing differences
in the recognition of income 224 207
Net operating loss carryforwards 241 195
Premises and equipment, principally due to
differences in depreciation methods 28 22
Other 102 12
------- -------
Total gross deferred tax assets 1,264 1,040
------- -------
Deferred tax liabilities:
Discount on securities deferred for tax purposes (76) (57)
Loans, principally due to provision for loan losses -- (57)
Leases, principally due to difference in basis acquired
and the recognition of income (219) (234)
Other (121) (104)
------- -------
Total gross deferred tax liabilities (416) (452)
------- -------
Net deferred tax asset $ 848 $ 588
======= =======
</TABLE>
-8-
<PAGE> 11
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
F. SHAREHOLDERS' EQUITY
The Company had outstanding stock options totaling 428,177 and 248,177
shares at June 30, 2000 and December 31, 1999, respectively. 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 Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income available to
common shareholders: $ 851,000 $ 810,000 $1,683,000 $1,615,000
========== ========== ========== ==========
Weighted average basic
common shares outstanding 3,632,421 4,126,769 3,753,737 4,172,282
Dilutive effect of Options 16,690 51,439 30,956 42,441
---------- ---------- ---------- ----------
Weighted average diluted
common shares outstanding 3,649,111 4,178,208 3,784,693 4,214,723
========== ========== ========== ==========
Antidilutive options 175,377 44,377 175,377 44,377
========== ========== ========== ==========
Net income per share:
Basic $ .23 $ .20 $ .45 $ .39
Diluted $ .23 $ .19 $ .44 $ .38
</TABLE>
Accumulated other comprehensive income consists solely of the
unrealized gain or loss on securities available for sale 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, 2000 and December 31, 1999, the Company had
unfunded commitments to extend credit totaling $69.8 million and $66.3
million, respectively. Additionally, the Company had standby letters of
credit of $4.3 million and $3.5 million as of June 30, 2000 and
December 31, 1999, respectively.
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 months period ended June 30, 2000, totaled
approximately $4,079,000 and $4,100,000, respectively. The required
balance at June 30, 2000 was $3,904,000.
-9-
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Community Financial Group, Inc. (CFGI), is a registered bank holding company
under the Federal Reserve Holding Company Act of 1956, as amended. CFGI owns The
Bank of Nashville (The Bank) and its subsidiaries, all of which are collectively
referred to as the Company. The Bank owns TBON-Mooreland Joint Venture, LLC and
a majority interest in Machinery Leasing Company of North America, Inc. (Bon
Leasing). The following discussion compares the Company's financial condition at
June 30, 2000 and December 31, 1999, and results of operations for the three
month and six month periods ended June 30, 2000, compared with the same periods
in 1999. The purpose of the 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), presented elsewhere in this report for an understanding of the
following discussion and analysis. The consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for fair
presentation of results of 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 1999 Annual Report for a
more complete discussion of factors that impact the results of 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
Security Litigation Reform Act of 1995. Such statements are based on
management's current expectations and the current economic environment. Actual
strategies and results of future periods may differ materially from those
currently expected due to various risks and uncertainties.
During the second quarter of 2000, the Company announced the election of J.
Hunter Atkins as President and Chief Executive Officer of both the Company and
The Bank. Mr. Atkins' election followed an announcement during first quarter of
2000 that the Company planned to pursue a management succession plan and expand
its management team. The Board of Directors then formed a search committee to
seek a highly qualified individual to assume the responsibilities of President
and Chief Executive Officer stating that Mack S. Linebaugh, Jr. would remain as
Chairman of the Board of Directors of both the Company and The Bank. Mr. Atkins
joined the Company on June 19, 2000. He has over 27 years of banking experience
in the Nashville community and most recently served as City President for
AmSouth Bank from 1994 through 1999 until his appointment as Consumer Banking
Manager for Amsouth Bank in Middle Tennessee. The addition of Mr. Atkins
strengthens the Company's management team and positions it to take advantage of
market opportunities to further expand existing lines of business while adding
appropriate new lines of business. During the remainder of 2000, there are plans
to expand or establish new lines of business including private banking, consumer
banking and residential lending. The Company has executed a lease to establish a
new branch office in the Cool Springs area at the corner of Baker Bridge Road
and Carothers Road which is expected to open in early 2001. The Company has
entered into a lease agreement to install an ATM cash dispenser in the new
downtown Hilton Suites Hotel scheduled for opening in September, 2000.
Additionally, the Company has executed a lease to expand its presence in
downtown Nashville through the addition of 11,123 square feet of contiguous
space in the building adjacent to L&C Tower which formerly housed the Nashville
Area Chamber of Commerce. During the first half of 2000, the Company continued
the expansion of its leasing business through Bon Leasing and of its investment
services through its relationship with LMFP, Inc. The Bank operates from its
Main Office at 401 Church Street in Nashville as well as three full-service
traditional branches, one located at the Glendale Center in Green Hills, one at
Maryland Farms in Brentwood and the other on Gallatin Road in Hendersonville.
The addition of a Cool Springs Office will bring the total number of traditional
banking locations to five. Management plans to continue to seek attractive
branch locations to further expand its delivery systems and increase its market
share. Additional branch services are provided through full-service mobile
branches, "Bank-on-Call", which was established in 1996 and which has expanded
in each subsequent year. Bank-on-Call provides the convenience of "at your door"
banking service to customers. Additionally, The Bank has expanded its delivery
systems through full-service ATMs, cash dispensers, cash management services and
"Bank-on-Line" Internet banking service. The Company has offered Internet
banking services to its consumer clients since early 1999 and recently
introduced a complete array of Internet banking services for commercial
customers that includes basic Internet banking, bill payment services as well as
full cash management services including ACH origination.
During 1999 and 2000, the Company approved and implemented two separate stock
repurchase plans. As of June 30, 2000, the Company had repurchased 350,500
shares pursuant to the second repurchase agreement approved by the Board of
Directors on March 15, 2000. This brings the total number of shares repurchased
as of June 30, 2000 to 750,500 shares with an additional 149,500 shares
remaining as approved for repurchase under the second agreement which expires
December 31, 2000.
-10-
<PAGE> 13
PERFORMANCE OVERVIEW
For the quarter ended June 30, 2000, net income totaled $851,000, a $41,000 or
5.1% increase over the $810,000 of net income reported the second quarter of
1999. Earnings in the second quarter of 2000 were positively impacted by income
from BON Leasing, earnings on investments and increased income from investment
services offered in conjunction with LMFP, Inc. Earnings were further impacted
by increased expenses resulting from a $234,000 increase in provision expense
for loan losses, $20,000 additional advertising expense and $251,000 in
additional salaries and employee benefit expense resulting from increased number
of personnel. Basic earnings per share were $.23 in the second quarter of 2000,
compared to $.20 for the same period in 1999. Diluted earnings per share were
$.23 in the second quarter 2000, compared to $.19 for the same period in 1999.
The increase in earnings per share resulted from an increase in net income and a
reduction in the number of shares outstanding due to the Company's stock
repurchase plans. Reference should be made to Note F regarding computation of
earnings per common share.
During the second quarter of 2000, the Company recorded $237,000 in provision
for loan losses, compared to $3,000 during the second quarter of 1999. This
increased provision was appropriate considering the Company's overall growth in
loans outstanding. The Company recorded net charge-offs of $85,000 in the second
quarter of 2000, compared to net recoveries of $155,000 for same period in 1999.
The allowance for loan losses was 1.90% of loans at June 30, 2000, compared with
2.13% for the same period in 1999.
The Company's annualized return on average assets was 1.08% for the second
quarter of 2000, compared to 1.30% for the second quarter of 1999. The decline
in return on average assets was the result of a $66.4 million increase in
average assets during the second quarter of 2000 compared to the same period in
1999. Annualized return on average equity was 7.79% for the second quarter of
2000 and 6.48% for the same period in 1999. The increase in return on average
equity resulted from a $7.5 million decrease in average equity resulting from
the Company's stock repurchase plans, an increase of $.04 per share in the
dividend paid and a increase of $41,000 in net income for the second quarter of
2000 compared with the same period in 1999.
The Company's non-performing assets were $1,122,000 at June 30, 2000, compared
to $464,000 at June 30, 1999 and $291,000 December 31, 1999. Total loans, net of
unearned income, were $232.2 million at June 30, 2000, an increase of $51.3
million or 28.4% from June 30, 1999, and an increase of $26.7 million, or 13.0%,
from December 31, 1999.
Net income for the six months ended June 30, 2000, was $1,683,000 compared with
net income of $1,615,000 during the first six months of 1999. Basic earnings per
share were $.45 for the six months ended June 30, 2000, up $.06 or 15.4%, from
$.39 for the same period in 1999. Diluted earnings per share were $.44 for the
six month period ended June 30, 2000, compared to $.38 for the same period in
1999. Net interest income increased $1,342,000, or 24.7%, during the first six
months of 2000 compared with the same period in 1999. The increase in net
interest income reflected the Company's loan growth and increased yields on
investment securities and loans. The increase was partially offset by an
increased reliance on interest bearing liabilities as capital declined due to
the Company's stock repurchase plans as well as an increased cost of funds that
resulted from a rising rate environment. Non-interest income increased $47,000,
or 3.8%, during the first six months of 2000, compared with the same period in
1999. The increase in non-interest income resulted primarily from increases in
investment center income and service fee income. These increases in non-interest
income were partially offset by decreases in trust income and losses on sales of
securities compared to 1999. Non-interest expense increased $885,000 during the
first six months of 2000, compared to the same period in 1999. Increases in
non-interest expense occurred in salaries and employee benefits, occupancy
expense, advertising expense, data processing and other operating expense. These
increases were partially offset by a slight decline in audit tax and accounting
expense which were higher during 1999 due to Year 2000 related audit expense. It
is expected that non-interest expense will continue to increase in future
periods as the Company implements its strategic plan which includes the
expansion of its banking services through additional locations, new products and
services as well as continuing to consider entering additional related lines of
business, as appropriate. The Company's annualized return on average assets was
1.09% for the six months ended June 30, 2000, and 1.32% for the same period in
1999. Annualized return on average equity was 7.39% for the six months ended
June 30, 2000, compared with 6.42% for the same period in 1999. The increase in
annualized return on average equity reflected the Company's increased net income
and a reduction in average equity that resulted from the Company's stock
repurchase plans.
-11-
<PAGE> 14
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 loan losses for the second quarter of
2000 was $3.4 million, an increase of $.5 million or 18.2% compared to the
second quarter in 1999. The increase in net interest income resulted from a
change in the mix of earning assets, a 27.0% increase in the volume of average
earning assets and an increase of 89 basis points in the average rate on average
earning assets. These changes were somewhat offset by a 38.2% increase in
average interest bearing liabilities and an increase of 116 basis points in the
average rate paid on these liabilities. The increase in the volume of average
earning assets may be attributed to a $55.3 million increase in average loans
outstanding, an increase of $6.0 million in average investments and an increase
of $3.2 million in the average volume of federal funds sold. The mix of assets
changed during the second quarter of 2000, compared to the same period in 1999,
as the percentage of average loans (the Company's highest yielding asset) to
average earning assets increased from 70.8% to 74.0%. Average investments
represented 24.6% of average earning assets in the second quarter of 2000
compared to 28.7% for the same period in 1999. Net interest income was also
impacted by a shift in the mix of interest bearing liabilities during the second
quarter of 2000 compared to the same period in 1999. The average volume of NOW
accounts increased $4.5 million, or 34.7%, certificates of deposit less than
$100,000 increased $30.5 million, or 113.7%, certificates of deposit $100,000 or
greater increased $41.2 million, or 153.5 %, while federal funds purchased
decreased $8.3 million, or 73.0%. The increase in average certificates of
deposit was a result of the Company's successful advertising campaign during the
summer of 1999 as well as customers increasing their investments in certificates
of deposit due to higher yields available in a rising rate environment. During
the second quarter of 2000, compared with the same period in 1999, the average
rate on certificates of deposit $100,000 or greater increased 93 basis points,
average rate on certificates of deposit less than $100,000 increased 80 basis
points, average rate on money market accounts increased 116 basis points,
average rate on NOW accounts increased 39 basis points, average rate on Federal
Home Loan Bank and other borrowings increased 111 basis points and the average
rate on federal funds purchased increased 171 basis points. The increases in
rates paid on interest bearing liabilities as well as the increases in the
average yield on average earnings assets reflect actions taken by the Federal
Reserve Bank to increase interest rates and slow the growth of the economy.
The net interest margin (net interest income expressed as a percentage of
average earning assets) was 4.52% and 4.86% for the quarters ended June 30, 2000
and 1999, respectively. The decline in net interest margin resulted primarily
from the Company increasing its reliance on interest-bearing liabilities as a
source of funding subsequent to lowering its capital as a result of the
Company's stock repurchase plans. Fluctuations in net interest margin were also
affected by the differences in the interest rate sensitivity of the Company's
earning assets and interest bearing liabilities.
Net interest income for the first six months of 2000 was $6.8 million, an
increase of 24.7%, compared to $5.4 million during the first six months of 1999.
The increase in net interest income during the first six months of 2000 resulted
from an increase of 26.4% in the volume of average earning assets, a change in
the mix of earning assets and an increase of 96 basis points in the average rate
earned on average earning assets. Net interest income was also impacted by an
increase of 36.9% in the average volume of interest bearing liabilities and an
increase of 93 basis points on the average rate paid on interest bearing
liabilities. The change in the mix of earning assets reflected loans increasing
by 35.5%, investments increasing by 9.6% while federal funds sold declined
29.1%. Further impacting net interest income was a shift in the mix of average
interest bearing liabilities which reflected an increase of 119.1% in higher
rate certificates of deposit $100,000 or greater, 109.8% in certificates of
deposit less than $100,000, 25.7% in NOW accounts, 17.1% in Federal Home Loan
Bank and other borrowings while federal funds purchased declined 65.9%. The
shift in the mix of the Company's deposit products from lower rate money market
and NOW accounts to higher rate certificates of deposit reflected results of a
certificate of deposit advertising campaign conducted during the summer of 1999,
increased interest by consumers in investing in certificates of deposit in a
rising rate environment and a reduction in the Company's equity capital as a
result of the stock repurchase plans.
-12-
<PAGE> 15
The net interest margin (net interest income expressed as percentage of average
earning assets) was 4.59% for the six month period ended June, 2000, compared to
4.65% for the same period in 1999. The decline in net interest margin resulted
primarily from the need to utilize interest bearing liabilities for funding
sources as capital decreased while The Bank implemented its stock repurchase
plans. The Asset Liability Committee (ALCO) of the Board of Directors and
management of the Company continued to review various strategies to improve net
interest income including the implementation of future leveraging strategies, if
deemed appropriate. Average borrowings remained relatively level during the
first 6 months of 2000 compared to the same period in 1999; however, it is
anticipated that there will be increased levels of borrowed funds in the future
to support the Company's loan growth. 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, 2000, the Company had borrowings from the Federal
Home Loan Bank which totaled $14.5 million.
NON-INTEREST INCOME
Non-interest income was $660,000 for the second quarter of 2000, compared with
$609,000 for the same period in 1999. Non-interest income, excluding losses on
sale of securities, increased $46,000 during the second quarter of 2000 compared
with the same period of 1999. There were no gains or losses on sale of
securities during the second quarter of 2000, compared to losses on sale of
securities of $5,000 for the same period in 1999. During the second quarter of
2000, compared to the same period in 1999, service charge income increased
$23,000 and investment center income increased $30,000. These increases were
slightly offset by a decline in other income.
Total non-interest income was $1,277,000 for the first 6 months of 2000,
compared with $1,230,000 for the same period in 1999. Non-interest income,
excluding losses on sale of securities of ($34,000) in 2000 and ($5,000) in
1999, increased $76,000 for the first six months of 2000, compared with the same
period in 1999. This increase resulted from an increase of $74,000 in investment
center income and $23,000 in service fee income. These increases were partially
offset by declines of $13,000 in trust income and $8,000 in other income. The
increase in investment center income reflects the Company's continued efforts to
expand its investment services. It is anticipated that additional emphasis will
be placed in this area in future periods and further expansions may be
anticipated. Additionally, the Company has plans to establish a new branch
office in the Cool Springs area in late 2000 or early 2001 and additional branch
offices maybe opened in future periods.
NON-INTEREST EXPENSE
Total non-interest expense increased $304,000, or 14.1%, during the second
quarter of 2000, compared with the second quarter of 1999. This increase was the
result of increases of $251,000 in salaries and employee benefits, $4,000
occupancy expense, $20,000 in advertising expense, $5,000 in data processing
expense and $36,000 in other operating expense. These increases were partially
offset by a decline of $12,000 in audit tax and accounting expense primarily
related to 1999 expenses for Year 2000. The increases in salaries and employee
benefits and occupancy expense resulted from the Company's expansion of its
number of employees, primarily in the loan area. Increased advertising expenses
resulted from an advertising campaign conducted during the second quarter of
2000. As the Company continues its expansion and growth plans within The Bank,
additional expenses are anticipated in these and other areas.
Total non-interest expense increased $885,000, or 22.1%, during the first six
months of 2000, compared with the same period of 1999. This increase in
non-interest expense consisted of an increase of $539,000 in salaries and
employee benefits, $110,000 in occupancy expense, $34,000 in advertising
expense, $10,000 in data processing expense and $213,000 in other operating
expense. There was a reduction of $21,000 in audit tax and accounting expense
during the first six months of 2000, compared to the same period in 1999. The
increase in other operating expenses resulted primarily from an increase of
$112,000 in expenses related to expansion of the Company's business accounts
receivable financing and home equity loan programs. At June 30, 2000, the
Company had 90 employee's (one employee per $3.6 million in assets), compared
with 71 employees (one employee per $4 million in assets) at June 30, 1999.
Plans for the remainder of year 2000 include continued expansion in lending and
support areas of the Company's commercial banking activities, expansion of
consumer banking services, and further expansion of the Company's investment
center services. It is expected that the Company's non-interest expense will
also increase during the remainder of 2000 due to technology investments. It
should be noted that economic conditions and other factors in the market could
further impact non-interest expense.
-13-
<PAGE> 16
INCOME TAXES
During the second quarter of 2000, the Company recorded provision for income
taxes of $522,000, compared to $524,000 during the same period in 1999.
During the first six months of 2000, the Company recorded provisions for income
taxes of $1,032,000, an increase of $37,000, or 3.7%, compared to $995,000
recorded for the same period of 1999. The effective tax rate for each period was
38%.
NON-PERFORMING ASSETS AND RISK ELEMENTS
Non-performing assets, which include non-accrual loans, restructured loans and
other real-estate owned, were $1,122,000 at June 30, 2000, compared with
$291,000 at December 31, 1999 and $464,000 at June 30, 1999. The increase in
non-performing assets includes two loans placed on non-accrual in the first six
months of 2000. The Company maintains an allowance for 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.
Consideration in establishing the allowance includes historical net charge-offs,
changes in the credit risk, mix and volume of the loan portfolio, and other
relevant factors, such as the risk of loss on particular loans or leases, the
level of non-performing assets and current and forecasted economic conditions.
The Company recorded expense for provision for loan losses during the second
quarter of 2000 in the amount of $237,000 compared to $3,000 during the same
period of 1999. Due to significant growth in the loan portfolio and an increase
in the level of non-performing assets, it was deemed appropriate to make an
increased provision for loan losses during the second quarter of 2000. Net
charge-offs during the second quarter of 2000 were $85,000 compared with net
recoveries of $155,000 during the same period in 1999. During the second quarter
of 1999 there was one recovery of $450,000 from a loan charged-off in a prior
period that resulted in the Company experiencing net recoveries for the period.
There were no loans 90 days or more past due and still accruing interest at June
30, 2000 or June 30, 1999.
Other potential problem loans at June 30, 2000 totaled approximately $392,000
compared with $513,000 at June 30, 1999, and $349,000 at December 31, 1999.
Other potential problem loans consist of loans that are currently not considered
non-performing, but where information about possible credit problems has caused
the Company to have concerns as to the ability of the borrower to fully comply
with present repayment terms. Depending on economic changes and future events,
these loans and others, which may not be presently identified, could become
future non-performing assets. The composition of non-performing assets at June
30, 2000, was 100% in non-accrual loans compared to 100% in non-accrual loans at
December 31, 1999 and 88.8% in non-accrual loans and 11.2% in other real estate
owned at June 30, 1999. The allowance for loan losses was $4.4 million at June
30, 2000, compared with $3.9 million at June 30, 1999, and $4.1 million at
December 31, 1999. The level of this 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
amount of the allowance at any future date. As of June 30, 2000, the allocated
and unallocated portions of the allowance were $3.4 million and $1.0 million,
respectively. The unallocated portion of the reserve represented 22% at June 30,
2000 compared to 24% at March 31, 2000 and is deemed appropriate considering the
current level of loans and overall asset quality reflected in the portfolio.
MARKET RISK MANAGEMENT
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk results primarily from interest rate risk 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 on interest rates on its net interest
income using several tools. At least quarterly, the Asset Liability Committee
(ALCO) of the Board of Directors reviews interest rate risk considering results
compared to policy, current rate and economic outlook, loan and deposit demand
levels, pricing and maturity of assets and liabilities, impact on net interest
income under varying rate scenarios, regulatory developments, comparison of
modified duration of both assets and liabilities as well as any
-14-
<PAGE> 17
appropriate strategies to counteract adverse interest rate projections. The
Company's imbalance between the duration of assets and liabilities is limited to
under one year and generally should not exceed one-half year. One measure of the
Company's exposure to changes in interest rates between assets and liabilities
is shown in the Company's June 30, 2000 gap table below:
<TABLE>
<CAPTION>
Expected Repricing or Maturity Date
-----------------------------------------------------------------
Within One Three After
One to Three to Five Five
(Dollars In Thousands) Year Years Years Year Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Securities $ 19,764 $ 17,411 $15,088 $27,206 $ 79,469
Average rate 6.80% 6.76% 6.76% 6.71% 6.75%
Loans 137,561 34,059 45,309 15,261 232,190
Average rate 9.66% 8.78% 8.33% 8.36% 9.19%
Federal funds sold and cash 1,442 -- -- -- 1,442
Average rate 6.30% -- -- -- 6.30%
----------------------------------------------------------------------------------------------------
Total interest-earning assets 158,767 51,470 60,397 42,467 313,101
Liabilities
Deposits 228,015 14,094 -- -- 242,109
Average rate 5.54% 6.20% -- -- 5.58%
Federal Home Loan
Bank and other borrowings 16,319 -- -- -- 16,319
Average rate 6.38% -- -- -- 6.38%
----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 244,334 14,094 -- -- 258,428
----------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (85,567) $ 37,376 $60,397 $42,467
====================================================================================================
Cumulative interest rate
sensitivity gap $ (85,567) $(48,191) $12,206 $54,673
====================================================================================================
</TABLE>
In the table shown above the carrying amount of interest rate sensitive assets
and liabilities is presented in the periods in which they next reprice to market
or mature and is summed to show the interest rate sensitivity gap. To reflect
anticipated prepayments, certain investments are included in the table based on
estimated rather than contractual maturity dates.
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 maximum change in annual pre-tax net interest income with a
200 basis point change in rates to 15% while establishing a maximum change
allowable in pre-tax market value of equity to 16% 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, 2000, financial statements, a 200 basis point change in rates would
produce net interest income variations of a 2.3% increase assuming rising rates
and a 1.2% increase assuming falling rates. Additionally, the 200 basis point
rate shock would produce changes in the market value of equity reflecting a
decrease of 8.1% assuming rising rates and 8.8% increase assuming falling rates.
-15-
<PAGE> 18
BALANCE SHEET
The Company's total assets at June 30, 2000, were $327.6 million, an increase of
$19.5 million, or 6.3%, from December 31, 1999. This increase was due to a $26.7
million increase in total loans outstanding, a $4.6 million increase in
securities, and a $.6 million increase in accrued interest and other assets.
These increases were partially offset by decreases of $13.0 million in federal
funds sold and $.1 million in premises and equipment. Total deposits at June 30,
2000, were $266.2 million, an increase of $37.1 million, or 16.2%, from $229.1
million at December 31, 1999. The increase in deposits was comprised of a $31.7
million increase in time certificates $100,000 or greater, a $5.6 million
increase in non-interest bearing demand deposits, a $1.2 million increase in NOW
accounts, and a $.2 million increase in time certificates less than $100,000.
These increases were slightly offset by a decline in money market accounts of
$1.7 million. Borrowed funds decreased $13.2 million at June 30, 2000 from
December 31, 1999. This decrease was comprised primarily of Federal Home Loan
Bank borrowings.
Shareholder's equity decreased $5.0 million to $42.3 at June 30, 2000, from
$47.3 at December 31, 1999. This decrease is discussed further in the section
entitled Capital Adequacy and Liquidity. Unrealized losses on securities
available for sale, net of income taxes, were $1.1 million dollars at June 30,
2000, compared to unrealized losses on securities available for sale, net of
income taxes, of $1.0 million at December 31, 1999. Changes in unrealized
gains/losses on securities available for sale are the result of adjustments for
SFAS No. 115 reflecting current fair value on investment securities classified
as available for sale.
CAPITAL ADEQUACY AND LIQUIDITY
The Company's capital position continued to remain strong during the first six
months of 2000. Shareholders equity (excluding other comprehensive income) at
June 30, 2000, was $43.4 million, or 13.2% of total assets, which compares with
$48.3 million, or 15.7% of total assets at December 31, 1999. This calculation,
when conducted after the effect of the Company's adoption of Statement of
Financial Accounting Standards (SFAS) No. 115, was $42.3 million, or 12.9%, at
June 30, 2000, which compares with $47.3 million, or 15.4% of total assets at
December 31, 1999. The decrease in total equity during 2000 primarily resulted
from the Company having repurchased shares of its stock under stock repurchase
plans authorized by the Board of Directors. The decline in capital as a
percentage of total assets resulted from this repurchase of stock, dividends
paid, and a growth of 6.3% in total assets during the first 6 months of 2000.
These factors were partially offset by increased earnings. Certain capital
statistics are shown in the following chart:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in Thousands) 2000 1999
--------------------- -------- --------
<S> <C> <C>
Total assets $327,594 $308,106
======== ========
Total shareholders' equity $ 42,292 $ 47,315
======= =======
Total shareholders' equity to total assets 12.9% 15.4%
==== ====
</TABLE>
The additional capital generated in 1998 from the exercise of warrants continues
to provide opportunities for the Company during 2000. During the past 2 years
the Company has experienced several changes in its capital structure as in
December 1998, 2.0 million warrants, each representing the right to acquire a
common share of stock at a price of $12.50, were exercised resulting in the
addition of $25.0 million in new equity capital and the implementation of Stock
Repurchase Plans in 1999 and 2000. At June 30, 2000, the Company has repurchased
750,500 shares under these plans. Additional capital was utilized in 1999 to
purchase the majority interest in Bon Leasing. Also, the Company continues to
expand internally as indicated by the expansion of loan area through the
addition of loan officers and support personnel, the addition of a Private
Banking area in June 2000, and current plans to establish additional branch
locations. The Company plans to continue the deployment of capital through
further expansion of its existing lines of businesses and by making investments
in other appropriate long term business opportunities.
-16-
<PAGE> 19
The Company's capital ratios continued to exceed all regulatory requirements
reflecting a significant amount of excess capital based on industry standards
and Federal Deposit Insurance Corporation Improvement Act ("FDICIA") minimum
ratios. The Company reported dividend payments of $1,311,000 during the first
six months of 2000 compared with $844,000 for the same period in 1999. The
quarterly dividend payments during the first and second quarters of 1999 were
$.07 and $.13 per share, respectively, which compares with quarterly dividend
payments of $.17 per share in each of the first two quarters of 2000. It should
be noted that increases in dividend payment amounts per share combined with the
reduction in shares outstanding as a result of the stock repurchase plan affect
the total amount of dividends paid. At June 30, 2000, the Company's Tier I and
total capital ratios to adjusted assets were 16.80% and 14.90%, respectively,
while its total risk based capital ratio was 18.05%. These ratios compare to
Tier I and total capital ratios to adjusted assets of 21.12% and 16.13%,
respectively, at December 31, 1999 and a risk based capital ratio at December
31, 1999 of 22.37%. Federal Deposit Insurance Corporation Improvement Act
minimum, primary and total capital ratios for "Well Capitalized" banks are 4%
and 8%, respectively.
The Company's principal sources of asset liquidity are marketable securities
available for sale and federal funds sold, as well as maturities of securities.
The estimated average maturity of securities was 5.45 years at June 30, 2000,
compared to 8.28 years at December 31, 1999. At June 30, 2000 and December 31,
1999, all securities were classified as available for sale.
Securities available for sale were $79.4 million at June 30, 2000, compared to
$74.9 million at December 31, 1999. Federal funds sold at June 30, 2000 were
$3.9 million compared to $14.3 million at December 31, 1999. Core deposits, a
relatively stable funding base, comprised 69.9% of total deposits at June 30,
2000, and 78.9% at December 31, 1999. The change in this percentage reflects
significant growth in non-core deposits resulting from a single large
transaction that occurred in June 2000 with one of the company's commercial
customers. It is expected that the balances maintained in Certificates of
Deposit $100,000 or greater (non-core deposits) by this business customers will
be reduced in future periods. Core deposits represent total deposits excluding
time certificates of $100,000 or greater.
-17-
<PAGE> 20
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 Tuesday, May 6, 2000 the
following items were voted on 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 II Directors: Jo D. Federspiel, Richard H.
Fulton; Perry W. Moskovitz
2. To transact such other business as may properly be brought 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>
1. 3,390,227
</TABLE>
* Included in the affirmative votes are negative votes against specific
Directors disclosed as follows:
<TABLE>
<S> <C>
Jo D. Federspiel 125,262
Richard H. Fulton 79,280
Perry W. Moskovitz 135,054
-------
339,596
=======
</TABLE>
<TABLE>
<CAPTION>
Affirmative Negative Abstain Non-Voting
----------- -------- ------- ----------
<S> <C> <C> <C> <C>
2. Transact other business 3,282,471 171,096 15,940 439,184
</TABLE>
ITEM 5. - OTHER INFORMATION
Management Changes
- Attilio Galli to become Senior Vice President and Chief
Financial Officer of both The Company and The Bank effective
August 21, 2000.
- Mack S. Linebaugh, Jr. resigns as an officer of both The
Company and The Bank effective September 13, 2000.
- Anne J. Cheatham resigns as Senior Vice President Bank
Administration of both The Company and The Bank effective
September 13, 2000.
- T. Wayne Hood resigns as Senior Vice President and General
Counsel of both The Company and The Bank effective September
13, 2000.
-18-
<PAGE> 21
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Description
----------- -----------
10.24 Second Amendment to the Lease Agreement dated June 20, 2000 between The
Bank of Nashville and LC Tower, LLC.
11 Statement regarding computation of earnings per share.
27 Financial Data Schedule (for SEC use only)
(B) The following reports on Form 8-K were filed during the quarter ended
June 30, 2000.
June 5, 2000 announcing J. Hunter Atkins as the new President and Chief
Executive Officer of The Bank of Nashville and Community Financial
Group, Inc.
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 11, 2000 /s/ J. Hunter Atkins
--------------- -------------------------------------------
Date J. Hunter Atkins
President, Chief Executive Officer
and Chief Financial Officer
-19-
