<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1999
------------------------------------
Commission File Number 0-28496
-------------------------------------------
Community Financial Group, Inc.
- -------------------------------------------------------------------------------
(Name of registrant as specified in its charter)
Tennessee 62-1626938
- ---------------------------------- --------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
401 Church Street Nashville, Tennessee 37219-2213
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 271-2000
--------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $6 per share
- -------------------------------------------------------------------------------
(Title of Class)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value (price at which the stock sold) of Community
Financial Group, Inc., voting common stock held by non-affiliates as of March
9, 2000, was $42,159,137.
<PAGE> 2
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class March 15, 2000
--------- --------------
<S> <C>
Common stock $6 par value 3,831,191 shares
</TABLE>
Documents Incorporated by Reference:
<TABLE>
<CAPTION>
Document from which portions Part of Form 10-K to
are incorporated by reference which incorporated
----------------------------- --------------------
<S> <C> <C>
1. Annual Report to Shareholders for year Part I - Item 1
ended December 31, 1999 Part II - Items 5, 7
7A, and 8
2. Proxy Statement dated April 10, 2000 Part III - Items 10,
to be filed with the Securities and 11, 12 and 13
Exchange Commission within 120 days
after the fiscal year ended December
31, 1999
</TABLE>
<TABLE>
<CAPTION>
Referenced
Form 10-K
<S> <C> <C>
Item 1. Description of Business 3
Item 2. Description of Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
PART II
Item 5. Market for Common Equity and Related
Shareholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis 13
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, List and Reports on Form 8-K 14
Signatures 19
</TABLE>
-2-
<PAGE> 3
ITEM 1 - DESCRIPTION OF BUSINESS
On December 13, 1995, Community Financial Group, Inc. ("CFGI"), was
incorporated as a Tennessee Corporation. CFGI also filed an application with
the Board of Governors of the Federal Reserve System for prior approval to
become a one bank holding company pursuant to Section 3(a)(1) of the Bank
Holding Company Act of 1956, as amended. This application was filed on January
22, 1996, and approval was received on March 29, 1996. The holding company
began operations April 30, 1996, following approval of a majority of the
shareholders of The Bank of Nashville.
As of December 31, 1999, CFGI owned The Bank of Nashville (The Bank) and its
subsidiaries Machinery Leasing Company of North America (BON Leasing) and TBON
- - Mooreland Joint Venture. CFGI and The Bank, including its subsidiaries, are
collectively referred to herein as "the Company".
The Bank was incorporated under the laws of the State of Tennessee, on July 10,
1989. The Bank was approved as a State Bank, is a member of the Federal Reserve
System, and is insured by the Federal Deposit Insurance Corporation. The
initial business day for the Bank was November 20, 1989. The Company now has a
total of 80 employees. The Bank formed TBON-Mooreland Joint Venture on April 9,
1999 and on June 18, 1999 purchased a majority interest in BON Leasing.
The present area and scope of the Company's activities include providing a full
range of banking and related financial services, including commercial banking,
consumer banking, financial and investment services, real estate finance, lease
financing and title services. The Company has four traditional locations with
its Main Office at 401 Church Street, the Green Hills office at 3770 Hillsboro
Pike, the Brentwood office at 5105 Maryland Way and the Hendersonville office
at 100 Maple Drive North. Additionally, these locations are complemented by the
Company's "Bank on Call" mobile branches which operate throughout the market
area with "at your office" banking convenience. LMFP, Inc., a subsidiary of
Legg Mason Wood Walker, Inc., operates Investment Centers in the Company's Main
Office and Green Hills locations which provide bank customers with convenient
access to a wide array of investment products and fiduciary services.
The Company is well capitalized as demonstrated by a total risk-based capital
ratio of 22.4%, tier 1 risk-based capital ratio of 21.1% and tier 1 leverage
ratio was 16.1% at December 31, 1999. Additionally, at year end 1999, the
Bank's capital ratios reflected total risk based capital ratio at 14.1%, tier 1
risk-based capital ratio at 12.8% and tier 1 leverage ratio at 10.2%. These
capital ratios exceed the current regulatory minimum requirements.
The Company is focused on serving small/mid-sized businesses and individuals in
the middle Tennessee market, with a primary service area of the Metro
Nashville-Davidson County Metropolitan Statistical Area (MSA). Nashville,
located in the north central part of the State, is the State's largest MSA.
Situated midway between the Mississippi delta to the west, and the Great Smokey
-3-
<PAGE> 4
Mountains to the east, Metropolitan Nashville covers 533 square miles. Over
half of the population of the United States is located within a 600 mile radius
of the city, and the central location has contributed to the emergence of
Nashville as an important transportation, tourism, and distribution center.
Diversity is a key element of the Nashville economy with printing and
publishing, healthcare, automobile manufacturing, financial services, real
estate development and construction, education, government, entertainment,
tourism, hospitality, manufacturing, warehousing, and various service sectors,
all being major contributors to the economic vitality of the area.
The activities in which the Company engages are very competitive. Generally,
the Company competes with other banks and nonbank financial institutions
located primarily in the Middle Tennessee market area. The principal methods of
competition center around such aspects as interest rates on loans and deposits,
decision making relationship management, customer services, and other service
oriented fee based products. Most of the Company's competitors are regional and
national corporations with substantially more assets and personnel than the
Company.
The Company actively competes for loans and deposits with other commercial
banks, brokerage firms, leasing companies and credit unions. Consumer finance
companies, department stores, mortgage brokers, and insurance companies are
also significant competitors for various types of loans. There is also active
competition for various types of fiduciary and investment business from other
banks, trust companies, brokerage firms, investment companies, and others.
The Company is headquartered in the downtown central business district of
Nashville. The Company occupies space in the lower level, the second floor, the
third floor and twenty-third floor of the L & C Tower, located at 401 Church
Street, a location which serves as the Bank's Main Office. The Company now
operates ATM's and cash dispensers in various locations throughout its market,
serving local businesses and individuals as well as tourists. In 1996, the
Company received regulatory approval to establish a mobile branch. The mobile
branch brings traditional banking services to the Company's customers at their
locations. Other full service branch offices, include the Green Hills office
which opened in January 1997, the Brentwood office located in Maryland Farms in
Brentwood, Tennessee which opened in September 1998, and the Hendersonville
office which opened in May, 1999. If deemed appropriate, additional offices may
be established subject to regulatory approval.
During 1999, the Company declared dividends of $.46 per share which resulted in
a dividend payout ratio of 53.49%. Other information relating to current
banking issues and the regulatory environment are addressed in the 1999 Annual
Report to Shareholders.
-4-
<PAGE> 5
The following schedules are provided in accordance with Guide 3 "Statistical
Disclosure by Bank Holding Companies." All schedules, except those noted below,
have been omitted since the required information is either not applicable or is
incorporated by reference in the Company's 1999 Annual Report.
- Schedule III-A - Types of Loans
- Schedule III-B - Maturities and Sensitivities of Loans to
Changes in Interest Rates
- Schedule III-C - Risk Elements
- Schedule IV-A - Analysis of the Allowance for Loan Losses
Schedule IV-B - Allocation of the Allowance for Loan
Losses
- Schedule VI - Return on Equity and Assets
- Schedule VII - Short-term Borrowings
-5-
<PAGE> 6
III. LOAN PORTFOLIO
The following table presents a summary of loan types (net of unearned
income) by categories for the last five years.
SCHEDULE III-A
TYPES OF LOANS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Loans (net of
unearned
income of
$2,171, $295,
$297, $256
and $203
respectively)
Commercial $ 70,166 $ 51,970 $ 38,571 $ 35,721 $40,657
Real estate -
mortgage
loans 102,476 79,455 71,055 58,763 48,648
Real estate -
construction 19,688 14,667 9,426 9,467 5,952
Consumer 5,870 6,583 3,697 3,937 3,083
Lease
financing 7,311 -- -- -- --
-------- -------- -------- -------- -------
$205,511 $152,675 $122,749 $107,888 $98,340
======== ======== ======== ======== =======
</TABLE>
Most of the Company's loan activity is with customers located in the Middle
Tennessee region while leasing activities are nationwide. Generally, loans are
secured by real estate, inventory, accounts receivable, stock, time
certificates, or other assets and leases are secured by equipment. The
loans/leases are expected to be repaid from cash flow or proceeds from the sale
of selected assets of the borrowers. Real estate mortgage and construction
loans reflected in the preceding schedule are comprised primarily of loans to
commercial borrowers.
At December 31, 1999, funded and unfunded commitments as classified by Standard
Industry Classification codes include borrowers in the real estate industry
approximating $27.3 million and $6.4 million, respectively, and loans to
building contractors approximating $14.5 million and $11.3 million,
respectively. At December 31, 1998, funded and unfunded loan commitments to
borrowers in the real estate industry were approximately $27.2 million and $5.2
million, respectively, and loans to building contractors were approximately
$8.8 million and $10.1 million, respectively.
-6-
<PAGE> 7
The following table presents the maturity distribution of loan categories at
December 31, 1999 (in thousands).
SCHEDULE III-B
TYPES OF LOANS
MATURITIES AND SENSITIVITIES OF LOANS TO
CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
One After One After
Year But Within Five
(In Thousands) Or Less Five Years Years Total
----------------------------------------------------------------
<S> <C> <C> <C> <C>
(Net of Unearned
Income)
Commercial $33,649 $32,451 $ 4,066 $ 70,166
Real estate -
mortgage 20,061 28,962 53,453 102,476
Real estate -
construction 6,538 2,490 10,660 19,688
Consumer 3,418 2,398 54 5,870
Lease financing 282 7,029 - 7,311
------- ------- ------- --------
$63,948 $73,330 $68,233 $205,511
======= ======= ======= ========
For maturities
over one year:
Fixed $64,134
Floating 77,429
</TABLE>
The following table list risks elements from the loan portfolio for the last
five years.
SCHEDULE III-C
RISK ELEMENTS
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $291 $408 $1,094 $579 $451
Past due ninety days
and still accruing None None None None None
Restructured loans None None None None None
</TABLE>
-7-
<PAGE> 8
SCHEDULE IV - A
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table represents a recap of activity in the allowance for loan
losses during the past five years.
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN
LOSSES, JANUARY 1 $ 3,646 $ 3,128 $ 2,878 $ 3,034 $ 2,841
LOAN CHARGED OFF:
Commercial (608) (41) (169) (450) (344)
Real estate (129) (38) -- (243) --
Consumer (20) (5) -- (4) (1)
Lease financing (15) -- -- -- --
--------- --------- --------- --------- --------
Total charge-offs (772) (84) (169) (697) (345)
--------- --------- --------- --------- --------
RECOVERIES OF LOANS
PREVIOUSLY CHARGED OFF:
Commercial 988 222 317 494 929
Real estate -- 2 -- 46 129
Consumer 2 250 2 1 --
--------- --------- --------- --------- --------
Total recoveries 990 474 319 541 1,058
--------- --------- --------- --------- --------
NET RECOVERIES
(CHARGE-OFFS) 218 390 150 (156) 713
PROVISION CHARGED
(CREDITED)TO
OPERATIONS 106 128 100 -- (520)
PURCHASED RESERVE
OF BON LEASING 92 -- -- -- --
--------- --------- --------- --------- --------
ALLOWANCE FOR LOAN
LOSSES, DECEMBER 31 $ 4,062 $ 3,646 $ 3,128 $ 2,878 $ 3,034
========= ========= ========= ========= ========
LOANS, net of unearned
income
Year-end $ 205,511 $ 152,675 $ 122,749 $ 107,888 $ 98,340
Average during
year $ 176,027 $ 133,660 $ 114,835 $ 102,895 $ 89,522
Allowance for loan
losses to year-end
loans, net of
unearned income 1.98% 2.39% 2.55% 2.67% 3.09%
Provision (credit)
for loan losses to
average loans, net
of unearned income .06% .10% .09% -- (.58)%
Net recoveries
(charge-offs) to
average loans, net
of unearned income .12% .29% .09% (.15)% .80%
</TABLE>
-8-
<PAGE> 9
SCHEDULE IV - B
ALLOCATION OF THE ALLOWANCE LOAN FOR LOSES
The following table presents the allocation of the allowance for loan losses
for the past five years.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
(In Thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE APPLICABLE TO:
Commercial $1,663 $ 918 $ 916 $ 775 $ 735
Real estate -
mortgage loans 1,160 1,006 967 900 730
Real estate -
construction loans 212 133 128 140 55
Consumer 54 47 79 58 80
Lease financing 103 -- -- -- --
Unallocated 870 1,542 1,038 1,005 1,434
------ ------ ------ ------ ------
$4,062 $3,646 $3,128 $2,878 $3,034
====== ====== ====== ====== ======
PERCENT OF TOTAL
ALLOCATION
Commercial 41.0% 25.2% 29.3% 26.9% 24.2%
Real estate -
mortgage loans 28.6 27.6 30.9 31.3 24.1
Real estate -
construction loans 5.2 3.6 4.1 4.9 1.8
Consumer 1.3 1.3 2.5 2.0 2.6
Lease financing 2.5 -- -- -- --
Unallocated 21.4 42.3 33.2 34.9 47.3
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
-9-
<PAGE> 10
The following table presents the company's return on average equity and average
assets for the last three years.
SCHEDULE VI
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.30% 1.23% 1.08%
Return on average shareholders' equity
(excluding accumulated other
comprehensive income) 7.09 9.56 9.05
Dividend payout ratio 53.49 22.22 21.51
Average equity to average assets
(excluding accumulated other
comprehensive income) 18.34 12.88 11.92
Net interest margin 4.65 4.28 3.96
</TABLE>
SCHEDULE VII
SHORT-TERM BORROWINGS
The following table details information on the Company's short-term borrowings
for the last three years.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding end of period $ 5,000 $ 8,000 $ --
Weighted average rate period end 5.25% 4.84% N/A
Month-end maximum during the period 18,100 10,000 7,800
Period average $ 3,102 $ 574 $ 473
Weighted average rate paid 5.05% 5.11% 5.50%
</TABLE>
The above mentioned borrowings represent federal funds overnight borrowings
from correspondent banks. The term of the borrowings was for one day at the
applicable overnight rate.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company, located at 401 Church Street, Nashville, Tennessee, occupies a
total of 15,296 square feet on four floors of the L&C Tower, a 31-story office
building. The L&C Tower has a total of 158,907 gross square footage and is
located on .391 acres. The Company's space is leased from LC Tower, L.L.C. (the
"Landlord"). The lease, dated August 4, 1989, has an initial term of twenty
years with three five-year renewal options.
The Company occupies 4,670 square feet in the Glendale Shopping Center located
at 3770 Hillsboro Pike, Nashville, Tennessee. The Company's space is leased
from Coleman Partners, a Tennessee Partnership, with the lease, dated August 1,
1996, having an initial term of five years with three five-year renewal
options.
-10-
<PAGE> 11
The Company occupies 4,000 square feet in The Bank of Nashville Building
located at 5105 Maryland Way, Brentwood, Tennessee. The Company's space is
leased from Graystone, LLC. The lease, dated August 4, 1997, and has an initial
term of ten years with three five-year renewal options.
The Company occupies 3,800 square feet in the newly constructed building
located at 100 Maple Drive North in Hendersonville, Tennessee. The company owns
the land and building, having purchased the land in June, 1998 and completed
construction in April, 1999.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The following portion of the Company's 1999 Annual Report to Shareholders is
incorporated herein by reference:
Common Stock Information Page 50
-11-
<PAGE> 12
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands
except per share) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 20,975 $ 16,591 $ 15,260 $ 12,899 $ 12,247
Interest expense 9,053 8,035 7,956 6,446 6,642
--------- --------- --------- --------- ---------
Net interest income 11,922 8,556 7,304 6,453 5,605
Provision for
loan losses 106 128 100 -- (520)
--------- --------- --------- --------- ---------
Net interest income
after provision for
loan losses 11,816 8,428 7,204 6,453 6,125
Non-interest income 2,675 1,805 1,421 927 722
Non-interest expense 8,845 6,071 5,236 4,665 4,301
--------- --------- --------- --------- ---------
Income before
income taxes 5,646 4,162 3,389 2,715 2,546
Income tax expense 2,145 1,581 1,331 168 32
--------- --------- --------- --------- ---------
Net income $ 3,501 $ 2,581 $ 2,058 $ 2,547 $ 2,514
========= ========= ========= ========= =========
Per Common Share:
Earnings diluted $ 0.85 $ 0.78 $ 0.89 $ 1.15 $ 1.14
Earnings basic 0.86 1.08 0.93 1.16 1.15
Dividends paid 0.46 0.24 0.20 0.16 --
Market Price:
High $ 18.13 $ 17.06 $ 15.13 $ 11.75 $ 10.75
Low 11.00 11.81 10.75 9.75 6.75
Close 12.75 12.63 15.00 11.25 10.75
Book value
(excluding accumulated
other comprehensive income) 12.31 12.06 10.74 10.00 9.00
Average Balances:
Total Assets $ 269,137 $ 209,501 $ 190,766 $ 158,615 $ 149,008
Earning assets 256,648 200,245 184,257 154,503 145,377
Loans 176,027 133,660 114,835 102,895 89,522
Deposits 199,089 167,294 152,640 132,853 128,835
Long-term debt 15,376 12,144 12,651 2,745 --
Shareholders'
equity 49,200 27,313 22,846 20,964 18,337
At December 31:
Total Assets $ 308,106 $ 238,185 $ 204,887 $ 166,679 $ 152,800
Earnings assets 294,785 225,291 198,293 161,150 147,264
Loans 205,511 152,675 122,749 107,888 98,340
Allowance for
loan losses 4,062 3,646 3,128 2,878 3,034
Deposits 229,141 162,553 164,099 133,270 130,534
Long-term debt 24,500 14,500 14,500 9,500 --
Shareholders'
equity 47,315 51,717 24,052 22,085 20,012
</TABLE>
-12-
<PAGE> 13
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following portions of the 1999 Annual Report are herein incorporated by
reference.
Management's Discussion and Analysis of Results of
Operations and Financial Condition on pages 8
through 27.
ITEM 7A - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following portions of the 1999 Annual Report are herein incorporated by
reference.
Management's Discussion and Analysis of Results of
Operations and Financial Condition on pages 8
through 27.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following portions of the 1999 Annual Report are incorporated herein by
reference.
Financial Statements and Report of Independent
Auditors on pages 28 through 46 and page 48.
Quarterly Results of Operations on page 49.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and the information regarding executive
officers called for by this item is contained in the sections entitled
"Election of Directors" and "Executive Officers" in the Company's proxy
statement for its 2000 Annual Meeting of Shareholders, dated April 10, 2000,
and is incorporated herein by reference.
-13-
<PAGE> 14
ITEM 11 - EXECUTIVE COMPENSATION
The information called for by this item is contained in the section entitled
"Compensation of Management and Other Information" in the Company's proxy
statement for its 2000 Annual Meeting of Shareholders, dated April 10, 2000,
and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is contained in the section entitled
"Stock Ownership" in the Company's proxy statement for its 2000 Annual Meeting
of Shareholders dated April 10, 2000, and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is contained in the section entitled
"Transactions with Directors and Executive Officers" in the Company's proxy
statement for its 2000 Annual Meeting of Shareholders dated April 10, 2000, and
is incorporated herein by reference.
ITEM 14 - EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following consolidated financial statements and
the Report of KPMG LLP, Independent Auditors, are
on pages 28 through 46 and page 48 of the 1999
Annual Report and are incorporated herein by reference.
- Consolidated Balance Sheets at December 31, 1999
and 1998
- Consolidated Statements of Income for the Years
Ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Shareholders' Equity
and Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997
- Notes to Consolidated Financial Statements
-14-
<PAGE> 15
(2) Exhibits
<TABLE>
<S> <C>
1. Not required.
2. Plan of acquisition, reorganization, arrangement,
liquidation or succession. None
3. Articles of Incorporation and By-Laws, incorporated
by reference to Exhibit 3 to the Registrant's Annual
Report Form 10-KSB for the year ended December 31,
1996.
4. Instruments defining the rights of security holders,
including indentures.
4.02 Form of specimen Certificate of Common Stock,
incorporated by reference to Exhibit 4.02 to the
Registrant's Annual Report Form 10-KSB for the year
ended December 31, 1996.
4.04 Community Financial Group, Inc. and Registrar and
Transfer Company, as Rights Agent, Shareholders
Rights Agreement Dated as of January 21, 1998.
Incorporated by reference to Exhibit 4.1 to the
Registrant's Form 8-A dated January 26, 1998.
5. Not required.
6. Not required.
7. Not required.
8. Not required.
9. Voting Trust Agreement. None.
10. Material Contracts.
10.03 Option Agreements between The Bank of Nashville and
Mack S. Linebaugh, Jr. dated September 2, 1992 and
July 27, 1993, and Option Agreement dated July 16,
1996 between Community Financial Group, Inc., and
Mack S. Linebaugh, Jr. Incorporated by reference to
Exhibit 10.03 to the Registrant's Annual Report Form
10-KSB for the year ended December 31, 1996.
10.04 Option Agreements between The Bank of Nashville and
Julian C. Cornett dated October 13, 1992 and October
13, 1993, and Option Agreement dated July 16, 1996
between Community Financial Group, Inc., and Julian
C. Cornett. Incorporated by reference to Exhibit
10.04 to the Registrant's Annual Report Form 10-KSB
for the year ended December 31, 1996.
</TABLE>
-15-
<PAGE> 16
(2) Exhibits - Continued
<TABLE>
<S> <C>
10.05 Lease Agreement dated July 19, 1989 between The Bank
of Nashville and Metropolitan Life Insurance
Company. Incorporated by reference to Exhibit 10.05
to the Registrant's Annual Report Form 10-KSB for
the year ended December 31, 1996. Metropolitan Life
Insurance Company has been succeeded as landlord by
LC Tower, L.L.C.
10.06 Lease Agreement dated August 1, 1996 between The
Bank of Nashville and Coleman Partners, a Tennessee
Partnership. Incorporated by reference to Exhibit
10.06 to the Registrant's Annual Report Form 10-KSB
for the year ended December 31, 1996.
10.07 The Bank of Nashville Retirement Savings Plan.
Incorporated by reference to Exhibit 10.07 to the
Registrant's Annual Report Form 10-KSB for the year
ended December 31, 1996.
10.08 Community Financial Group, Inc.'s Associates' Stock
Purchase Plan. Incorporated by reference to Exhibit
10.08 to the Registrant's Annual Report Form 10-KSB
for the year ended December 31, 1996.
10.09 Community Financial Group, Inc. 1997 Nonstatutory
Stock Option Plan Incorporated by reference to
Exhibit 10.9 to the Registrant's Form S-2 (SEC file
333-24309)dated April 1, 1997.
10.10 Lease Agreement dated August 4, 1997 between The
Bank of Nashville and Graystone, LLC. Incorporated
by reference to Exhibit 10.10 to the Registrant's
Annual Report Form 10KSB for the year ended December
31, 1997.
10.12 Financial Advisor Agreement dated May 1, 1998
between The Bank of Nashville and Harold J. Castner.
Incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report Form 10KSB for the year
ended December 31, 1998.
10.13 Financial Advisor Agreement dated May 1, 1998
between The Bank of Nashville and Pamela F. Morris.
Incorporated by reference to Exhibit 10.13 to the
Registrant's Annual Report Form 10KSB for the year
ended December 31, 1998.
</TABLE>
-16-
<PAGE> 17
(2) Exhibits - Continued
<TABLE>
<S> <C>
10.14 Financial Advisor Promissory Note Repayment
Agreement dated July 24, 1998 between The Bank of
Nashville and Harold J. Castner, and Exhibit A
Promissory Note. Incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report Form
10KSB for the year ended December 31, 1998.
10.15 Financial Advisor Promissory Note Repayment
Agreement dated July 24, 1998 between The Bank of
Nashville and Pamela F. Morris and Exhibit A
Promissory Note. Incorporated by reference to
Exhibit 10.15 to the Registrant's Annual Report Form
10KSB for the year ended December 31, 1998.
10.18 Executive Employment Agreement between Community
Financial Group, Inc., The Bank of Nashville and
Mack S. Linebaugh, Jr. dated September 14, 1999.
10.19 Executive Employment Agreement between Community
Financial Group, Inc., The Bank of Nashville and
Julian C. Cornett dated September 14, 1999.
10.20 Executive Employment Agreement between Community
Financial Group, Inc., The Bank of Nashville and
Anne J. Cheatham dated September 14, 1999.
10.21 Executive Employment Agreement between Community
Financial Group, Inc., The Bank of Nashville and T.
Wayne Hood dated September 14, 1999.
10.22 Executive Employment Agreement between Community
Financial Group, Inc., The Bank of Nashville and
Joan B. Marshall dated September 14, 1999.
10.23 First Amendment to the Lease Agreement dated April
13, 1999 between The Bank of Nashville and LC Tower,
LLC.
11. Statement re computation of per share earnings.
12. Statement re computation of ratios. Not applicable.
13. 1999 Annual Report to Shareholders.
14. Not required.
</TABLE>
-17-
<PAGE> 18
(2) Exhibits - Continued
<TABLE>
<S> <C>
15. Not required.
16. Letter re change in certifying accountant.
Not applicable.
17. Not required.
18. Letter re change in accounting principles.
Not applicable.
19. Not required.
20. Not required.
21. Subsidiaries of the registrant.
22. Published report regarding matters submitted to
vote of security holders. None.
23. Consent of KPMG LLP
24. Power of Attorney. None.
25. Not required.
26. Not required.
27. Financial Data Schedule.
28. Information from reports furnished to state
insurance regulatory authorities. Not
applicable.
99. Additional Exhibits. None.
</TABLE>
-18-
<PAGE> 19
(b) Reports on Form 8-K
None
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE BANK OF NASHVILLE
By: /s/ Mack S. Linebaugh, Jr. Date: March 28, 2000
--------------------------
Mack S. Linebaugh, Jr.
Chairman of the Board,
President, Chief Executive
Officer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons or behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Mack S. Linebaugh, Jr. /s/ L. Leon Moore
- -------------------------- -----------------
Mack S. Linebaugh, Jr. L. Leon Moore
Chairman of the Board, Director
President, Chief
Executive Officer Dated March 28, 2000
and Chief Financial
Officer
Dated March 28, 2000
/s/ J. B. Baker, Jr. /s/ Perry W. Moskovitz
- -------------------------- ----------------------
J. B. Baker, Jr. Perry W. Moskovitz
Director Director
Dated March 28, 2000 Dated March 28, 2000
/s/ Jo D. Federspiel /s/ C. Norris Nielsen
- -------------------------- ---------------------
Jo D. Federspiel C. Norris Nielsen
Director Director
Dated March 28, 2000 Dated March 28, 2000
-20-
<PAGE> 21
SIGNATURES - Continued
/s/ Richard H. Fulton /s/ David M. Resha
- -------------------------- ------------------
Richard H. Fulton David M. Resha
Director Director
Dated March 28, 2000 Dated March 28, 2000
/s/ Edgar Thornton
- ------------------
G. Edgar Thornton
Director
Dated March 28, 2000
-21-
<PAGE> 1
EXHIBIT 10.18
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement entered into this 14 day of
September, 1999 by and among Community Financial Group, Inc., a Tennessee
corporation (the "Company"), The Bank of Nashville, a banking corporation
organized under the laws of the State of Tennessee (the "Bank"), and Mack S.
Linebaugh, Jr. (the "Executive").
WITNESSETH:
WHEREAS, the Company is a one-bank holding company which owns one
hundred per cent (100%) of the outstanding stock of the Bank;
WHEREAS, the Company and the Bank desire to retain the services of
Executive on the terms and conditions set forth herein and, for purposes of
effecting the same, the Boards of Directors of the Company and the Bank have
approved this Employment Agreement and authorized its execution and delivery to
the Executive on behalf of the Company and the Bank;
WHEREAS, the Executive serves as the Chairman of the Board, President
and Chief Executive Officer and a Director of the Company and, as such, is a key
executive officer of the Company whose continued dedication, availability,
advice and counsel to the Company is deemed important to the Company, the Board
of Directors of the Company, and the present and future stockholders of the
Company;
WHEREAS, the Executive serves as the Chairman of the Board, President
and Chief Executive Officer and a Director of the Bank and, as such, is a key
executive officer of the Bank whose continued dedication, availability, advice
and counsel to the Bank is deemed important to the Board of Directors of the
Bank, the Bank and the Company;
WHEREAS, the Company and the Bank wish to attract and retain
well-qualified executives, and it is in the best interests of the Company, the
Bank and the Executive, notwithstanding any change in control of the Company or
the Bank, to secure the services of the Executive, whose experience and
knowledge of the affairs of the Company and the Bank, and whose reputation and
contacts in the industry, are extremely valuable to the Company and the Bank;
and
WHEREAS, the Company and the Bank consider the establishment and
maintenance of a sound and vital management team to be part of their overall
corporate strategy and to be essential to protecting and enhancing the best
interests of the Bank, the Company, and its stockholders.
NOW, THEREFORE, to assure the Company and the Bank of the Executive's
continued dedication, the availability of Executive's advice and counsel to the
Boards of Directors of the Company and the Bank, the availability of Executive's
management skills to the Company and the Bank, and to induce the Executive to
remain and continue in the employ of the Company and the Bank in Executive's
current capacities, and for other good and valuable consideration, the receipt
and adequacy of which each party hereby acknowledged, the Company, the Bank and
the Executive hereby agree as follows:
1. EMPLOYMENT. The Company and the Bank agree to, and do hereby, employ
Executive and Executive agrees to, and does hereby, accept such employment, all
upon the terms and conditions hereinafter set forth.
-22-
<PAGE> 2
2. TERM: The initial term of employment under this Agreement shall be
for a period of one (1) year, commencing on the date first above written and
ending at the close of business one year from said date. This Agreement shall be
automatically renewed for succeeding terms of one (1) year each, unless either
party shall, at least thirty (30) days, but not more than one hundred eighty
(180) days, prior to the expiration of any term, give written notice of his or
its intention not to renew this Agreement.
3. EMPLOYMENT; DUTIES, AUTHORITY, AND RESPONSIBILITIES:
(a) During the term of employment of the Executive by the Company
and the Bank, the Executive shall devote Executive's full business time and
attention to the rendition of services as Chairman, President and Chief
Executive Officer and Director of the Company and as Chairman, President and
Chief Executive Officer and Director of the Bank, and to the furtherance of the
best interests of the Company and the Bank, and shall exert Executive's best
efforts in the rendition of such services. The Executive agrees that in the
rendition of such services and in all aspects of such employment Executive will
comply with the policies, standards and regulations of the Company and the Bank
as from time to time established by their respective Boards of Directors. The
expenditure by the Executive of reasonable amounts of time for charitable,
professional and similar activities is encouraged and shall not be deemed a
breach of this Agreement provided such activities do not materially interfere
with the services to be rendered to the Company and the Bank hereunder.
(b) As Chairman, President and Chief Executive Officer of the
Company, the Executive shall have the general powers and duties of supervision
and management of the Company (the Company includes any and all subsidiaries,
ventures and related business) which usually pertain to such offices and shall
perform all such other duties as are properly required of Executive by the Board
of Directors of the Company. In performing the services hereunder, the Executive
shall be responsible to and shall report only to the Board of Directors of the
Company.
(c) The Board of Directors of the Company hereby grants the
Executive the necessary authority and responsibility for the day-to-day
operations of the Company and the implementation of the policies set by the
Board of Directors of the Company. All officers of the Company shall be
supervised by, be responsible to, and shall report, directly or indirectly, to
the Executive pursuant to such reporting structure as shall be established from
time to time by the Executive. A material reduction or limitation in these
duties and responsibilities by the Company shall constitute a breach of this
Agreement by the Company. In the event of any breach of any provision of this
Agreement by the Company which breach is not cured within ten (10) days after
written notice of the breach to the Company by the Executive shall entitle the
Executive to terminate his employment by the Company pursuant to this Agreement
by not less than sixty (60) days written notice to the Board of Directors of the
Company and, at the option of Executive, to terminate his employment by the Bank
pursuant to this Agreement by not less than sixty (60) days written notice to
the Board of Directors of the Bank. Any such termination by the Executive of his
employment by the Bank hereunder resulting from a breach of the terms of this
Agreement shall be treated the same as a termination by the Bank without cause
and governed by Section 9 below, unless such breach occurs in Contemplation of a
Change of Control or within twelve (12) months after a Change of Control, and
constitutes Good Reason for the Executive to terminate Executive's employment,
in which case it shall be governed by Section 15 below.
(d) As Chairman, President and Chief Executive Officer of the Bank,
the Executive shall have the general powers and duties of supervision and
management of the Bank (the Bank includes any and all subsidiaries, ventures and
related business) which usually pertain to such offices and shall perform all
such other duties as are properly required of him by the Board of Directors. In
performing the services hereunder, the Executive shall be responsible to and
shall report only to the Board of Directors of the Bank.
-23-
<PAGE> 3
(e) The Board of Directors of the Bank hereby grants the Executive
the necessary authority and responsibility for the day-to-day operations of the
Bank and the implementation of the policies set by the Board of Directors of the
Bank. All officers of the Bank shall be supervised by, be responsible to, and
shall report, directly or indirectly, to the Executive pursuant to such
reporting structure as shall be established from time to time by the Executive.
A material reduction or limitation in these duties and responsibilities by the
Bank shall constitute a breach of this Agreement by the Bank. In the event of
any breach of any provision of this agreement by the Bank which breach is not
cured within ten (10) days after written notice of the breach to the Bank by the
Executive shall entitle the Executive to terminate his employment by the Bank
pursuant to this Agreement by not less than sixty (60) days written notice to
the Board of Directors of the Bank and, at the option of Executive, to terminate
his employment by the Company pursuant to this Agreement by not less than sixty
(60) days written notice to the Board of Directors of the Company. Any such
termination by the Executive of his employment by the Bank hereunder resulting
from a breach of the terms of this Agreement shall be treated as a termination
by the Bank without cause and governed by Section 9 below, unless such breach
occurs in Contemplation of a Change of Control or within twelve (12) months
after a Change of Control, and constitutes Good Reason for the Executive to
terminate Executive's employment, in which case it shall be governed by Section
15 below.
4. COMPENSATION: The Bank agrees to pay Executive, and Executive agrees
to accept, as compensation for all services rendered by him to the Company, the
Bank and their affiliates during the period of his employment under this
Agreement, base compensation at the annual rate of not less than $200,000, which
shall be payable in accordance with the normal payroll policies of the Bank and
shall be subject to all appropriate withholding taxes.
5. PARTICIPATION IN BENEFIT PLANS, REIMBURSEMENT OF BUSINESS EXPENSES
AND MOVING EXPENSES:
(a) During the term of this Agreement, Executive shall be entitled
to participate in all pension, group insurance, hospitalization, deferred
compensation, Company paid life insurance, or incentive plans, and any other
benefit plan of the Company or the Bank presently in effect or hereafter adopted
by the Company or the Bank and generally available to all employees of either
organization of senior executive status (the "Benefit Plans").
(b) During the term of this Agreement, to the extent that such
expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company or the Bank for federal income tax purposes and are
substantiated by the Executive as required by the Internal Revenue Service and
policies of the Company and the Bank, the Bank shall reimburse the Executive
promptly for all expenditures (including travel, entertainment, parking,
business meetings, and the monthly costs, including dues, of maintaining
memberships at appropriate clubs, including, but not limited to, Nashville City
Club) made in accordance with rules and policies established from time to time
by the Board of Directors of the Bank in pursuance and furtherance of the
Company's and the Bank's business and good will.
(c) During the term of this Agreement, in the event that the Company
or the Bank relocates its principal executive offices to a location more than
one hundred (100) miles from Nashville, Tennessee, or the Board of Directors of
either the Company or the Bank requires the Executive to be based anywhere more
than one hundred (100) miles from the Bank's principal executive offices, the
Bank shall pay (or reimburse the Executive for) all reasonable moving expenses
incurred by Executive relating to a change of Executive's principal residence in
connection with such relocation, provided that the Executive furnishes the Bank
with adequate records and documentary evidence for the substantiation of such
reimbursement.
-24-
<PAGE> 4
6. ILLNESS: In the event Executive is unable to perform Executive's
duties under this Agreement on a full-time basis for a period of six (6)
consecutive months by reason of illness or other physical or mental disability,
and at or before the end of such period Executive does not return to work on a
full-time basis, the Company and the Bank may jointly terminate Executive's
Employment pursuant to this Agreement without further or additional compensation
being due the Executive from the Bank pursuant to this Agreement, except that
the Executive shall be paid Executive's base compensation from the Bank at the
rate in effect at the time of Executive's termination for a period of twelve
(12) months from the date of the commencement of the Executive's inability to
perform his duties, less any disability payments payable during such time under
any disability plans maintained and paid for by the Bank, and Executive shall
continue to participate in all Benefit Plans in effect at the time of
Executive's termination for a period of twelve (12) months from the date of the
commencement of the Executive's inability to perform his duties.
7. DEATH: In the event of the Executive's death during the term of this
Agreement, Executive's estate, legal representatives or named beneficiaries (as
directed by the Executive in writing) shall be paid Executive's base
compensation from the Bank at the rate in effect at the time of the Executive's
death under this Agreement for the period of twelve (12) months from the date of
the Executive's death, less any amounts payable to Executive's estate or
beneficiaries under life insurance policies on the life of Executive maintained
and paid for by Bank.
8. TERMINATION BY COMPANY: Notwithstanding the provisions of Section 2
above, the Board of Directors of the Company may, in its sole discretion,
terminate the Executive's employment with the Company under this Agreement at
any time in any lawful manner by not less than thirty (30) days written notice
to the Executive, in which event the Executive shall be entitled to elect to
have such termination likewise constitute a termination of Executive's
employment by the Bank. If Executive so elects, then unless such termination is
for Cause as defined in Section 10 of this Agreement or unless the Executive's
employment is terminated in Contemplation of a Change of Control or within
twelve (12) months after a Change of Control, Executive shall be entitled to the
compensation provided for in Section 9 below.
9. TERMINATION BY BANK: Notwithstanding the provisions of Section 2 of
this Agreement, the Board of Directors of the Bank may, in its sole discretion,
terminate the Executive's employment with the Bank under this Agreement at any
time in any lawful manner by not less than thirty (30) days written notice to
the Executive (or, at the Bank's option, pay for such thirty days in lieu of
notice) and in such event, unless the Bank terminates the Executive's employment
with the Bank for Cause as defined in with Section 10 of this Agreement or,
unless the Executive's employment is terminated in Contemplation of a Change of
Control or within twelve (12) months after a Change of Control, the Executive
shall be paid, during the twelve (12) months following such termination at such
times as payment was theretofore made, the base compensation that the Executive
would have been entitled to receive during such period of time had such
termination not occurred, such payments to be in addition to any payment in lieu
of notice. Furthermore, the Bank shall pay to the Executive in equal monthly
payments an amount sufficient to fully fund any Benefit Plans of the Bank, with
respect to the Executive, commencing at the beginning of the first month
following termination of Executive's employment with the Bank pursuant to this
paragraph, and ending twelve (12) months after such termination. In the event
that a payment made with respect to any benefit plan or program would otherwise
violate the terms of the plan or program, an equivalent amount shall be paid
directly to Executive. Executive shall owe no duty to mitigate these payments,
and shall not be required to obtain or attempt to obtain alternate employment
during such twelve (12) month period. If Executive obtains other gainful
employment during such twelve (12) month period, the compensation and benefits
received by Executive during said period from such other employment shall not
reduce the payments otherwise due to Executive pursuant to this section.
-25-
<PAGE> 5
10. TERMINATION FOR CAUSE:
(a) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Company may, in its sole discretion, terminate the Executive's
employment with the Company for Cause. For the purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder:
(i) because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses), willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Bank terminates
the employment of Executive with the Bank for Cause pursuant to subsection (c)
of this Section 10. For purposes of this paragraph, no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith or without reasonable belief that his action
or omission was in the best interest of the Company; provided that any act or
omission to act on the Executive's behalf in reliance upon an opinion of counsel
to either the Company or the Bank shall not be deemed to be "willful."
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been a resolution
approved by a majority of the non-officer members of the Board of Directors of
the Company finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which is deemed to be Cause within the meaning
of this paragraph, after notice to the Executive and an opportunity for him,
together with his counsel, to be heard before such majority (with the Company
Board retaining the right to deliberate without the Executive and his counsel
present before and/or after such hearing).
(b) If the Company terminates the Executive's employment with the
Company for Cause in accordance with Section 10(a) of this Agreement, the
Company shall have no obligation to make any further payments to or provide
benefits for the Executive, provided that the Executive shall be entitled to
receive any accrued compensation or benefits, insured or otherwise, that he
would otherwise have been eligible to receive under any Benefit Plans of the
Company through the date of such termination.
(c) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Bank may, in its sole discretion, terminate the Executive's
employment with the Bank for Cause. For the purposes of this Agreement, the Bank
shall have "Cause" to terminate the Executive's employment hereunder: (i)
because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses) , willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, the imposition of any sanction
upon the Executive by any such regulatory agency, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Company
terminates Executive's employment with the Company for Cause pursuant to
subsection (a) of this Section 10. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith or without reasonable
belief that his action or omission was in the best interest of the Bank;
provided that any act or omission to act on the Executive's behalf in reliance
upon an opinion of counsel to either the Company or the Bank shall not be deemed
to be "willful." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
a resolution approved by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such majority,
the Executive was guilty of conduct which is deemed to be Cause within the
meaning of this paragraph, after notice to the Executive and an opportunity for
him, together with his counsel to be heard before such majority (with the Bank
Board retaining the right to deliberate without the Executive and his counsel
present before and/or after such hearing).
-26-
<PAGE> 6
(d) If the Bank terminates the Executive's employment with the Bank
for Cause in accordance with Section 10(c) of this Agreement, the Bank shall
have no obligation to make any further payments to or provide benefits for the
Executive, provided that the Executive shall be entitled to receive any accrued
compensation or benefits, insured or otherwise, which Executive would otherwise
have been eligible to receive under any Benefit Plans of the Bank through the
date of such termination.
11. TERMINATION BY THE EXECUTIVE: The Executive may terminate the
Executive's employment with the Company or with the Bank hereunder at any time
upon sixty (60) days written notice to the affected entity. If the Executive
terminates the Executive's employment with either the Company or the Bank other
than for breach of this Agreement as provided in Section 3, for Good Reason, in
Contemplation of a Change of Control or within twelve (12) months after a Change
of Control, Executive shall be deemed to have voluntarily terminated Executive's
employment with both the Company and the Bank ("Voluntary Termination"), and
thereupon the Company and the Bank shall have no obligation to make any further
payments to or provide benefits for the Executive, provided that the Executive
shall be entitled to receive any accrued compensation and benefits, insured or
otherwise, that he would otherwise have been eligible to receive under any
Benefit Plans of the Company or the Bank through the date of such termination.
12. DEFINITION OF CHANGE OF CONTROL OF THE COMPANY: A "Change of
Control" of the Company shall mean a change of control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act") or
such item thereof which may hereafter pertain to the same subject; provided
that, and notwithstanding the foregoing, a Change of Control shall be deemed to
have occurred if (i) any person (as that term is used in Sections 13(d) and
14(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing thirty-five percent (35%)
or more of the combined voting power of the Company's then outstanding
securities, or (ii) the Company shall cease to be a publicly owned corporation,
as defined in the Exchange Act.
13. DEFINITION OF CHANGE OF CONTROL OF THE BANK: A "Change of Control"
of the Bank shall mean any Change of Control of the Company, or any change or
series of changes in circumstances which result in the Company ceasing to own,
control, and vote an absolute majority of the voting securities of the Bank.
14. TERMINATION BY COMPANY OR BANK AFTER CHANGE IN CONTROL: If a Change
of Control of the Company or a Change of Control of the Bank shall have
occurred, this Agreement shall continue in full force and effect. If the
Executive's Employment is terminated by the Company or the Bank within twelve
(12) months after a Change of Control of the Company, as defined in Section 12
above, or a Change of Control of the Bank, as defined in Section 13 above, or in
Contemplation of a Change of Control of either, as defined below, Executive
shall be entitled to be paid an amount equal to two and ninety-nine hundredths
(2.99) times the sum of Executive's annual base cash compensation plus the
annual value of Executive's participation in all Benefit Programs in effect at
the time of such termination. At Executive's option, the sums payable pursuant
to this Section will be paid in full in a lump sum and without discount within
thirty (30) days of the termination of Executive's employment, or in equal
monthly installments over twelve (12) months. Any termination of Executive's
employment hereunder during any period of time when the Board of Directors of
the Company has formed an intent to offer the Bank for sale or to promote an
acquisition of or merger of the Company or the Bank, or when the Company has
knowledge that any person(s), entity or concern has taken steps reasonably
calculated to effect a Change of Control of the Company shall constitute a
termination of Executive's employment "In Contemplation of a Change of Control".
The period of Contemplation of Change of Control shall continue until the Board
of Directors of the Company no longer intends to promote an acquisition of or
merger of the
-27-
<PAGE> 7
Company or the Bank, or until in the opinion of the Company's Board of
Directors, the person(s), concern or entity has abandoned or terminated its
efforts to effect a Change of Control of the Company, as applicable. Any good
faith determination by the Company's Board of Directors that Board no longer has
such an intent, or that the person(s), concern or entity has abandoned or
terminated its efforts to effect a Change of Control of the Company shall be
conclusive and binding on the Executive. Such determination shall be promptly
communicated to the Executive in writing by the Chairman of the Compensation
Committee or Vice Chairman of the Board of the Company. Notwithstanding the
foregoing, any termination of the Executive by the Company or by the Bank within
ninety (90) days prior to a Change of Control of the Company shall be
conclusively presumed to have been in Contemplation of Change of Control.
15. TERMINATION BY EXECUTIVE FOR GOOD REASON; During the term of
Executive's employment hereunder, the Executive may terminate his employment
with both the Company and the Bank if the Executive has Good Reason, as defined
below. Termination by the Executive of Executive's employment with either entity
shall be deemed termination with both. For purposes of this Agreement, "Good
Reason" shall mean:
(i) The assignment of duties to the Executive by the Company
or the Bank which (1) are significantly different from the Executive's duties
immediately prior to the Change of Control, or (2) result in the Executive
having significantly less authority and/or responsibility than Executive had as
an executive officer of the Company or the Bank prior to the Change of Control,
without the express written consent of Executive;
(ii) The removal of the Executive from or any failure to
re-elect Executive to the positions set forth in Section 3 above, except in
connection with a termination of his employment by the Company or the Bank for
Cause or Executive's resignation other than for Good Reason.
(iii) A reduction of the Executive's base salary as in effect
on the date of the Change of Control, unless the reduction in the Executive's
salary is waived in writing by the Executive;
(iv) The failure of the Company and the Bank collectively to
provide the Executive with substantially the same fringe benefits (including
paid vacations) that were provided to Executive immediately prior to the Change
of Control, or with a package of fringe benefits that, though one or more of
such benefits may vary from those in effect immediately prior to such Change of
Control, is substantially comparable in all material respects to such fringe
benefits taken as a whole; or
(v) Requiring the Executive to perform a significant part of
Executive's duties in locations more than one hundred (100) miles from
Nashville, Tennessee.
Further, and notwithstanding any other provision of this Agreement, the
Executive may terminate his employment without Good Reason at any time within
ninety (90) days after a Change of Control shall have occurred.
16. PAYMENTS ON TERMINATION: Upon termination of Executive's employment
by the Company or the Bank, the Company and the Bank shall have the following
payment obligations to Executive:
(a) If the Executive's Employment is terminated due to illness of
the Executive, the provisions of Section 6 shall apply.
(b) If the Executive's Employment is terminated due to the death of
the Executive, the provisions of Section 7 shall apply.
-28-
<PAGE> 8
(c) If the Executive's Employment is terminated by the Company other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 8 shall apply, and therefore the payment
provisions of Section 9 apply.
(d) If the Executive's Employment is terminated by the Bank other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 9 shall apply.
(e) If the Executive's Employment is terminated by the Company for
Cause, or by the Bank for Cause, the provisions of Section 10 shall apply.
(f) If the Executive's Employment is terminated by the Executive as
a result of a breach of the agreement by the Company or the Bank, the provisions
of Section 3 apply, and therefore the payment provisions of Section 9 apply.
(g) In the event of a Voluntary Termination of Executive's
Employment as defined in Section 11, the provisions of Section 11 apply.
(h) If the Executive's Employment is terminated by the Company or
the Bank within twelve (12) months after a Change of Control of the Company, as
defined in Section 12 above, or a Change of Control of the Bank, as defined in
Section 13 above, or in Contemplation of a Change of Control of either, as
defined in Section 14, the provisions of Section 14 shall apply.
(i) If the Executive's Employment is terminated by the Executive for
Good Reason, as defined in Section 15 above, the Executive's employment with the
Company and with the Bank shall be deemed to have been terminated without Cause
by the Company and by the Bank at the time of such termination by Executive for
Good Reason. If such termination is during a period of Contemplation of Change
of Control, or within twelve (12) months after a Change of Control, the
provisions of Section 14 shall apply.
(j) Termination of Executive's Employment by the Company or by the
Bank or by the Executive shall be communicated by written Notice of Termination
to the other parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision(s) in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
17. CONFIDENTIALITY: In the course of the Executive's employment, the
Company and the Bank may disclose or make known to the Executive, and the
Executive may be given access to or may become acquainted with, certain
information, including but not limited to confidential information which relates
to or is useful in the businesses of the Company and the Bank and which is not
available from public records or other generally available sources
(collectively, "Confidential Information"), and which the Company or the Bank
consider proprietary and desire to maintain confidential. During the term of
this Agreement and at all times thereafter, the Executive shall not in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person or firm, except to legal counsel for the Company or the Bank or otherwise
to or for the benefit of the Company or the Bank as directed by the Company or
the Bank, and except to the Executive's legal counsel in connection with the
resolution of any dispute between the Executive and the Company or the Bank
under this Agreement, any of the Confidential Information which Executive may
have acquired in the course of or as an incident to Executive's employment by
the Company or the Bank, the parties agreeing that such Confidential Information
affects the successful and effective conduct of the business and their goodwill
of the Company and the Bank, and that any material breach of the terms of this
Section 17 is a material breach of this Agreement.
-29-
<PAGE> 9
18. COVENANT NOT TO COMPETE. During the Term of this Agreement and, if
Executive terminates Executive's employment in a Voluntary Termination or for
Good Reason, or if the Company or the Bank terminate Executive's employment in
Contemplation of a Change of Control, or within twelve (12) months after a
Change of Control, or for Cause, for the period of twelve (12) months following
the termination of Executive's employment with the Company or the Bank,
Executive agrees that Executive will not directly or indirectly own, become
interested in, or become involved in any manner whatsoever in any business which
is similar or competitive with any aspect of the business of the Company or the
Bank as conducted at the time of such termination. Without limiting the
foregoing, Executive agrees during the applicable period not to engage in the
Banking or Leasing businesses, whether as an owner, partner, director, officer,
employee, consultant, stockholder, agent, salesman, or in any other capacity for
any person, partnership, firm, corporation or other entity without the express
written consent of the President of the Company. Executive specifically
acknowledges and agrees that the foregoing restriction on competition with the
Company and the Bank will not prevent Executive from obtaining gainful
employment following termination of Executive's employment with the Company and
the Bank, and is a reasonable restriction upon Executive's ability to compete
with the Company and the Bank, given the economic benefits afforded to Executive
under this Agreement.
19. NO ENTICEMENT OF EMPLOYEES. Executive agrees that Executive will
not, directly or indirectly, entice or induce, or attempt to entice or induce
any employee of the Company or Bank to leave the employ of the Company or the
Bank during the period covered by the Non-Competition provisions of Section 18
above.
20. NO SOLICITATION. Executive will not, directly or indirectly,
solicit, entice or induce, or attempt to entice or induce any customer or user
of the products or services of the Bank or the Company during the period covered
by the Non-Competition provisions of Section 18 above.
21. REMEDIES. Executive acknowledges and agrees that the breach or
threatened breach of any of the provisions of Sections 17, 18, 19 and 20 of this
Agreement will cause irreparable harm to the Company and the Bank, and cannot be
adequately compensated by the payment of damages. Accordingly, Executive
covenants and agrees that the Company and the Bank, in addition to any other
rights or remedies which they may have, will be entitled to such equitable and
injunctive relief as may be available from any court of competent jurisdiction
to restrain Executive from breaching or threatening to breach any of the
provisions of this Sections 17, 18, 19 and 20, without posting bond or other
surety. Such right to obtain injunctive relief may be exercised at the option of
the Company or the Bank in addition to, concurrently with, prior to, after, or
in lieu of the exercise of any other rights or remedies which the Company or the
Bank may have as a result of any such breach or threatened breach. In addition
to all other remedies, in the event of the breach or threatened breach of any of
the provisions of Sections 17, 18, 19 or 20 of this Agreement, the Company and
Bank shall be relieved of any obligation to continue payments to the Executive
pursuant to the provisions of this agreement.
-30-
<PAGE> 10
22. NOTICES: For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Community Financial Group, Inc.
401 Church Street, 2nd Floor
Nashville, TN 37219
Attention: Chairman of Compensation Committee
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
If to the Bank:
The Bank of Nashville
401 Church Street
Nashville, TN 37219
Attention: Chairman of Compensation Committee
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
If to the Executive:
Mack S. Linebaugh, Jr.
400 Wilsonia Avenue
Nashville, TN 37205
with a copy to:
Gerrish & McCreary, P.C.
Washington Square
222 Second Avenue North, Suite 424
Nashville, TN 37201
Attn: J. Franklin McCreary, Esq.
or at such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
-31-
<PAGE> 11
23. MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Executive, and on behalf of
the Company by such officer as may be specifically designated by the Board of
Directors of the Company after approval of the modification by the Board of
Directors, and on behalf of the Bank by such officer as may be specifically
designated by the Board of Directors of the Bank after approval of the
modification by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Tennessee.
24. INVALIDITY; ENFORCEABILITY: The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
25. ASSIGNMENTS: This Agreement is personal to the Executive, who may
not assign his obligations hereunder.
26. SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, the Bank, its
successors and assigns and upon the Executive, and his personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would still be payable
to him hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to his devisee, legatee or
other designee or, if there is no such designee, to his estate.
27. HEADINGS: Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
28. ARBITRATION: Any dispute, controversy or claim arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Nashville, Tennessee, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Unless otherwise provided in the rules of the American Arbitration
Association, the arbitrators shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys' fees and
expenses of the parties, as well as the arbitrator's fees and expenses, in such
proportions as the arbitrators deem just.
29. ENTIRE AGREEMENT: This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes or amends all other agreements,
negotiations, understandings and representations (if any) made by and between
the parties hereto; provided, however, that nothing herein shall affect in any
way agreements granting or evidencing the Executive's options to acquire shares
of the Company.
-32-
<PAGE> 12
30. REGULATORY AND OTHER PROCEEDINGS: The provisions of this Section 30
shall control as to continuing rights and obligations under this Agreement,
notwithstanding any other provision of this Agreement, for as long as they are
required to be included in employment contracts between an institution insured
by the FDIC and its officers and as long as the Bank is such an insured
institution.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank or the Company by a
Notice served under applicable Federal or State statutes or regulations, the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank and the Company shall pay the Executive all of the
compensation withheld while their obligations hereunder were suspended and
reinstate their obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank or the Company by an
order issued under applicable Federal or State statutes or regulations, all
obligations of the Company and the Bank under this Agreement shall terminate as
of the effective date of the order, provided that vested rights of the
contracting parties shall not be affected.
(c) If the Company or the Bank become insolvent or taken over by
regulatory entities, all obligations under this Agreement shall terminate as of
the date of default, provided that this paragraph shall not affect any vested
rights of the contracting parties.
(d) All obligations under this Agreement may be terminated, except
to the extent determined that continuation thereof is necessary for the
continued operation of the Company or the Bank, by the FDIC at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank or
approves a supervisory merger to resolve problems related to operation of the
Bank, provided that any rights of the parties that have already vested shall not
be affected by such action.
31. SURVIVAL. This agreement shall remain in effect notwithstanding the
termination of Executive's employment hereunder, and in any case, the provisions
of Sections 18, 19, and 20 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
Executive:
/s/ Mack S. Linebaugh, Jr.
-----------------------------------------
Mack S. Linebaugh, Jr.
Community Financial Group, Inc.
By: /s/ Julian B. Baker
-----------------------------------------
Name: Julian B. Baker
Title: Chairman, Compensation Committee
of the Board of Directors
The Bank of Nashville
By: /s/ Julian B. Baker
-----------------------------------------
Name: Julian B. Baker
Title: Chairman, Compensation Committee
of the Board of Directors
-33-
<PAGE> 1
EXHIBIT 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement entered into this 14th day of
September, 1999 by and among Community Financial Group, Inc., a Tennessee
corporation (the "Company"), The Bank of Nashville, a banking corporation
organized under the laws of the State of Tennessee (the "Bank"), and Julian C.
Cornett (the "Executive").
WITNESSETH:
WHEREAS, the Company is a one-bank holding company which owns one
hundred per cent (100%) of the outstanding stock of the Bank;
WHEREAS, the Company and the Bank desire to retain the services of
Executive on the terms and conditions set forth herein and, for purposes of
effecting the same, the Boards of Directors of the Company and the Bank have
approved this Employment Agreement and authorized its execution and delivery to
the Executive on behalf of the Company and the Bank;
WHEREAS, the Executive serves as the Executive Vice President - Credit
Administration of the Company and, as such, is a key executive officer of the
Company whose continued dedication, availability, advice and counsel to the
Company is deemed important to the Company, the Board of Directors of the
Company, and the present and future stockholders of the Company;
WHEREAS, the Executive serves as the Executive Vice President - Credit
Administration of the Bank and, as such, is a key executive officer of the Bank
whose continued dedication, availability, advice and counsel to the Bank is
deemed important to the Board of Directors of the Bank, the Bank and the
Company;
WHEREAS, the Company and the Bank wish to attract and retain
well-qualified executives, and it is in the best interests of the Company, the
Bank and the Executive, notwithstanding any change in control of the Company or
the Bank, to secure the services of the Executive, whose experience and
knowledge of the affairs of the Company and the Bank, and whose reputation and
contacts in the industry, are extremely valuable to the Company and the Bank;
and
WHEREAS, the Company and the Bank consider the establishment and
maintenance of a sound and vital management team to be part of their overall
corporate strategy and to be essential to protecting and enhancing the best
interests of the Bank, the Company, and its stockholders.
NOW, THEREFORE, to assure the Company and the Bank of the Executive's
continued dedication, the availability of Executive's advice and counsel to the
Boards of Directors of the Company and the Bank, the availability of Executive's
management skills to the Company and the Bank, and to induce the Executive to
remain and continue in the employ of the Company and the Bank in Executive's
current capacities, and for other good and valuable consideration, the receipt
and adequacy of which each party hereby acknowledged, the Company, the Bank and
the Executive hereby agree as follows:
1. EMPLOYMENT. The Company and the Bank agree to, and do hereby, employ
Executive and Executive agrees to, and does hereby, accept such employment, all
upon the terms and conditions hereinafter set forth.
-34-
<PAGE> 2
2. TERM: The initial term of employment under this Agreement shall be
for a period of one (1) year, commencing on the date first above written and
ending at the close of business one year from said date. This Agreement shall be
automatically renewed for succeeding terms of one (1) year each, unless either
party shall, at least thirty (30) days, but not more than one hundred eighty
(180) days, prior to the expiration of any term, give written notice of his or
its intention not to renew this Agreement.
3. EMPLOYMENT; DUTIES, AUTHORITY, AND RESPONSIBILITIES:
(a) During the term of employment of the Executive by the Company
and the Bank, the Executive shall devote Executive's full business time and
attention to the rendition of services as Executive Vice President - Credit
Administration of the Company and as Executive Vice President - Credit
Administration of the Bank, and to the furtherance of the best interests of the
Company and the Bank, and shall exert Executive's best efforts in the rendition
of such services. The Executive agrees that in the rendition of such services
and in all aspects of such employment Executive will comply with the policies,
standards and regulations of the Company and the Bank as from time to time
established by their respective Boards of Directors. The expenditure by the
Executive of reasonable amounts of time for charitable, professional and similar
activities shall not be deemed a breach of this Agreement provided such
activities do not materially interfere with the services to be rendered to the
Company and the Bank hereunder.
(b) As Executive Vice President - Credit Administration of the
Company and the Bank, the Executive shall have the general powers and duties of
supervision which usually pertain to such office and shall perform all such
duties as are properly required of Executive by the Chief Executive Officer of
the Company and the Bank.
(c) If after a Change of Control occurs, a material reduction or
limitation of the duties of the Executive that were in effect immediately prior
to the Change of Control occurs, this action shall be considered a breach of
this Agreement by the Company and the Bank. In the event of any breach of any
provision of this Agreement by the Bank which breach is not cured within ten
(10) days after written notice of the breach to the Bank by the Executive shall
entitle the Executive to terminate his employment by the Bank pursuant to this
Agreement by not less than sixty (60) days written notice to the Board of
Directors of the Bank and, at the option of Executive, to terminate his
employment by the Company pursuant to this Agreement by not less than sixty (60)
days written notice to the Board of Directors of the Company. Any such
termination by the Executive of his employment by the Bank hereunder resulting
from a breach of the terms of this Agreement shall be treated as a termination
by the Bank without cause and governed by Section 9 below, unless such breach
occurs in Contemplation of a Change of Control or within twelve (12) months
after a Change of Control, and constitutes Good Reason for the Executive to
terminate Executive's employment, in which case it shall be governed by Section
15 below.
4. COMPENSATION: The Bank agrees to pay Executive, and Executive agrees
to accept, as compensation for all services rendered by him to the Company, the
Bank and their affiliates during the period of his employment under this
Agreement, base compensation at the annual rate of not less than $152,000, which
shall be payable in accordance with the normal payroll policies of the Bank and
shall be subject to all appropriate withholding taxes.
5. PARTICIPATION IN BENEFIT PLANS, REIMBURSEMENT OF BUSINESS EXPENSES
AND MOVING EXPENSES:
(a) During the term of this Agreement, Executive shall be entitled
to participate in all pension, group insurance, hospitalization, deferred
compensation, Company paid life insurance, or incentive plans, and any other
benefit plan of the Company or the Bank presently in effect or hereafter adopted
by the Company or the Bank and generally available to all employees of either
organization of senior executive status (the "Benefit Plans").
-35-
<PAGE> 3
(b) During the term of this Agreement, to the extent that such
expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company or the Bank for federal income tax purposes and are
substantiated by the Executive as required by the Internal Revenue Service and
policies of the Company and the Bank, the Bank shall reimburse the Executive
promptly for all expenditures (including travel, entertainment, parking,
business meetings, and the monthly costs, including dues, of maintaining
memberships at appropriate clubs, including, but not limited to, Nashville City
Club) made in accordance with rules and policies established from time to time
by the Board of Directors of the Bank in pursuance and furtherance of the
Company's and the Bank's business and good will.
(c) During the term of this Agreement, in the event that the Company
or the Bank relocates its principal executive offices to a location more than
one hundred (100) miles from Nashville, Tennessee, or the Board of Directors of
either the Company or the Bank requires the Executive to be based anywhere more
than one hundred (100) miles from the Bank's principal executive offices, the
Bank shall pay (or reimburse the Executive for) all reasonable moving expenses
incurred by Executive relating to a change of Executive's principal residence in
connection with such relocation, provided that the Executive furnishes the Bank
with adequate records and documentary evidence for the substantiation of such
reimbursement.
6. ILLNESS: In the event Executive is unable to perform Executive's
duties under this Agreement on a full-time basis for a period of six (6)
consecutive months by reason of illness or other physical or mental disability,
and at or before the end of such period Executive does not return to work on a
full-time basis, the Company and the Bank may jointly terminate Executive's
Employment pursuant to this Agreement without further or additional compensation
being due the Executive from the Bank pursuant to this Agreement, except that
the Executive shall be paid Executive's base compensation from the Bank at the
rate in effect at the time of Executive's termination for a period of twelve
(12) months from the date of the commencement of the Executive's inability to
perform his duties, less any disability payments payable during such time under
any disability plans maintained and paid for by the Bank, and Executive shall
continue to participate in all Benefit Plans in effect at the time of
Executive's termination for a period of twelve (12) months from the date of the
commencement of the Executive's inability to perform his duties.
7. DEATH: In the event of the Executive's death during the term of this
Agreement, Executive's estate, legal representatives or named beneficiaries (as
directed by the Executive in writing) shall be paid Executive's base
compensation from the Bank at the rate in effect at the time of the Executive's
death under this Agreement for the period of twelve (12) months from the date of
the Executive's death, less any amounts payable to Executive's estate or
beneficiaries under life insurance policies on the life of Executive maintained
and paid for by Bank.
8. TERMINATION BY COMPANY: Notwithstanding the provisions of Section 2
above, the Board of Directors of the Company may, in its sole discretion,
terminate the Executive's employment with the Company under this Agreement at
any time in any lawful manner by not less than thirty (30) days written notice
to the Executive, in which event the Executive shall be entitled to elect to
have such termination likewise constitute a termination of Executive's
employment by the Bank. If Executive so elects, then unless such termination is
for Cause as defined in Section 10 of this Agreement or unless the Executive's
employment is terminated in Contemplation of a Change of Control or within
twelve (12) months after a Change of Control, Executive shall be entitled to the
compensation provided for in Section 9 below.
-36-
<PAGE> 4
9. TERMINATION BY BANK: Notwithstanding the provisions of Section 2 of
this Agreement, the Board of Directors of the Bank may, in its sole discretion,
terminate the Executive's employment with the Bank under this Agreement at any
time in any lawful manner by not less than thirty (30) days written notice to
the Executive (or, at the Bank's option, pay for such thirty days in lieu of
notice) and in such event, unless the Bank terminates the Executive's employment
with the Bank for Cause as defined in with Section 10 of this Agreement or,
unless the Executive's employment is terminated in Contemplation of a Change of
Control or within twelve (12) months after a Change of Control, the Executive
shall be paid, during the twelve (12) months following such termination at such
times as payment was theretofore made, the base compensation that the Executive
would have been entitled to receive during such period of time had such
termination not occurred, such payments to be in addition to any payment in lieu
of notice. Furthermore, the Bank shall pay to the Executive in equal monthly
payments an amount sufficient to fully fund any Benefit Plans of the Bank, with
respect to the Executive, commencing at the beginning of the first month
following termination of Executive's employment with the Bank pursuant to this
paragraph, and ending twelve (12) months after such termination. In the event
that a payment made with respect to any benefit plan or program would otherwise
violate the terms of the plan or program, an equivalent amount shall be paid
directly to Executive. Executive shall owe no duty to mitigate these payments,
and shall not be required to obtain or attempt to obtain alternate employment
during such twelve (12) month period. If Executive obtains other gainful
employment during such twelve (12) month period, the compensation and benefits
received by Executive during said period from such other employment shall not
reduce the payments otherwise due to Executive pursuant to this section.
10. TERMINATION FOR CAUSE:
(a) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Company may, in its sole discretion, terminate the Executive's
employment with the Company for Cause. For the purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder:
(i) because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses), willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Bank terminates
the employment of Executive with the Bank for Cause pursuant to subsection (c)
of this Section 10. For purposes of this paragraph, no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith or without reasonable belief that his action
or omission was in the best interest of the Company; provided that any act or
omission to act on the Executive's behalf in reliance upon an opinion of counsel
to either the Company or the Bank shall not be deemed to be "willful."
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been a resolution
approved by a majority of the non-officer members of the Board of Directors of
the Company finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which is deemed to be Cause within the meaning
of this paragraph, after notice to the Executive and an opportunity for him,
together with his counsel, to be heard before such majority (with the Company
Board retaining the right to deliberate without the Executive and his counsel
present before and/or after such hearing).
(b) If the Company terminates the Executive's employment with the
Company for Cause in accordance with Section 10(a) of this Agreement, the
Company shall have no obligation to make any further payments to or provide
benefits for the Executive, provided that the Executive shall be entitled to
receive any accrued compensation or benefits, insured or otherwise, that he
would otherwise have been eligible to receive under any Benefit Plans of the
Company through the date of such termination.
-37-
<PAGE> 5
(c) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Bank may, in its sole discretion, terminate the Executive's
employment with the Bank for Cause. For the purposes of this Agreement, the Bank
shall have "Cause" to terminate the Executive's employment hereunder: (i)
because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses) , willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, the imposition of any sanction
upon the Executive by any such regulatory agency, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Company
terminates Executive's employment with the Company for Cause pursuant to
subsection (a) of this Section 10. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith or without reasonable
belief that his action or omission was in the best interest of the Bank;
provided that any act or omission to act on the Executive's behalf in reliance
upon an opinion of counsel to either the Company or the Bank shall not be deemed
to be "willful." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
a resolution approved by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such majority,
the Executive was guilty of conduct which is deemed to be Cause within the
meaning of this paragraph, after notice to the Executive and an opportunity for
him, together with his counsel to be heard before such majority (with the Bank
Board retaining the right to deliberate without the Executive and his counsel
present before and/or after such hearing).
(d) If the Bank terminates the Executive's employment with the Bank
for Cause in accordance with Section 10(c) of this Agreement, the Bank shall
have no obligation to make any further payments to or provide benefits for the
Executive, provided that the Executive shall be entitled to receive any accrued
compensation or benefits, insured or otherwise, which Executive would otherwise
have been eligible to receive under any Benefit Plans of the Bank through the
date of such termination.
11. TERMINATION BY THE EXECUTIVE: The Executive may terminate the
Executive's employment with the Company or with the Bank hereunder at any time
upon sixty (60) days written notice to the affected entity. If the Executive
terminates the Executive's employment with either the Company or the Bank other
than for breach of this Agreement as provided in Section 3, for Good Reason, in
Contemplation of a Change of Control or within twelve (12) months after a Change
of Control, Executive shall be deemed to have voluntarily terminated Executive's
employment with both the Company and the Bank ("Voluntary Termination"), and
thereupon the Company and the Bank shall have no obligation to make any further
payments to or provide benefits for the Executive, provided that the Executive
shall be entitled to receive any accrued compensation and benefits, insured or
otherwise, that he would otherwise have been eligible to receive under any
Benefit Plans of the Company or the Bank through the date of such termination.
12. DEFINITION OF CHANGE OF CONTROL OF THE COMPANY: A "Change of
Control" of the Company shall mean a change of control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act") or
such item thereof which may hereafter pertain to the same subject; provided
that, and notwithstanding the foregoing, a Change of Control shall be deemed to
have occurred if (i) any person (as that term is used in Sections 13(d) and
14(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing thirty-five percent (35%)
or more of the combined voting power of the Company's then outstanding
securities, or (ii) the Company shall cease to be a publicly owned corporation,
as defined in the Exchange Act.
-38-
<PAGE> 6
13. DEFINITION OF CHANGE OF CONTROL OF THE BANK: A "Change of Control"
of the Bank shall mean any Change of Control of the Company, or any change or
series of changes in circumstances which result in the Company ceasing to own,
control, and vote an absolute majority of the voting securities of the Bank.
14. TERMINATION BY COMPANY OR BANK AFTER CHANGE IN CONTROL: If a Change
of Control of the Company or a Change of Control of the Bank shall have
occurred, this Agreement shall continue in full force and effect. If the
Executive's Employment is terminated by the Company or the Bank within twelve
(12) months after a Change of Control of the Company, as defined in Section 12
above, or a Change of Control of the Bank, as defined in Section 13 above, or in
Contemplation of a Change of Control of either, as defined below, Executive
shall be entitled to be paid an amount equal to two (2) times the sum of
Executive's annual base cash compensation plus the annual value of Executive's
participation in all Benefit Programs in effect at the time of such termination.
At Executive's option, the sums payable pursuant to this Section will be paid in
full in a lump sum and without discount within thirty (30) days of the
termination of Executive's employment, or in equal monthly installments over
twelve (12) months. Any termination of Executive's employment hereunder during
any period of time when the Board of Directors of the Company has formed an
intent to offer the Bank for sale or to promote an acquisition of or merger of
the Company or the Bank, or when the Company has knowledge that any person(s),
entity or concern has taken steps reasonably calculated to effect a Change of
Control of the Company shall constitute a termination of Executive's employment
"In Contemplation of a Change of Control." The period of Contemplation of Change
of Control shall continue until the Board of Directors of the Company no longer
intends to promote an acquisition of or merger of the Company or the Bank, or
until in the opinion of the Company's Board of Directors, the person(s), concern
or entity has abandoned or terminated its efforts to effect a Change of Control
of the Company, as applicable. Any good faith determination by the Company's
Board of Directors that Board no longer has such an intent, or that the
person(s), concern or entity has abandoned or terminated its efforts to effect a
Change of Control of the Company shall be conclusive and binding on the
Executive. Such determination shall be promptly communicated to the Executive in
writing by the Chief Executive of the Company or Chairman of the Board of the
Company. Notwithstanding the foregoing, any termination of the Executive by the
Company or by the Bank within ninety (90) days prior to a Change of Control of
the Company shall be conclusively presumed to have been in Contemplation of
Change of Control.
15. TERMINATION BY EXECUTIVE FOR GOOD REASON; During the term of
Executive's employment hereunder, the Executive may terminate his employment
with both the Company and the Bank if the Executive has Good Reason, as defined
below. Termination by the Executive of Executive's employment with either entity
shall be deemed termination with both. For purposes of this Agreement, "Good
Reason" shall mean:
(i) The assignment of duties to the Executive by the Company
or the Bank which (1) are significantly different from the Executive's duties
immediately prior to the Change of Control, or (2) result in the Executive
having significantly less authority and/or responsibility than Executive had as
an executive officer of the Company or the Bank prior to the Change of Control,
without the express written consent of Executive;
(ii) The removal of the Executive from or any failure to
re-elect Executive to the positions set forth in Section 3 above, except in
connection with a termination of his employment by the Company or the Bank for
Cause or Executive's resignation other than for Good Reason.
(iii) A reduction of the Executive's base salary as in effect
on the date of the Change of Control, unless the reduction in the Executive's
salary is waived in writing by the Executive;
-39-
<PAGE> 7
(iv) The failure of the Company and the Bank collectively to
provide the Executive with substantially the same fringe benefits (including
paid vacations) that were provided to Executive immediately prior to the Change
of Control, or with a package of fringe benefits that, though one or more of
such benefits may vary from those in effect immediately prior to such Change of
Control, is substantially comparable in all material respects to such fringe
benefits taken as a whole; or
(v) Requiring the Executive to perform a significant part of
Executive's duties in locations more than one hundred (100) miles from
Nashville, Tennessee.
Further, and notwithstanding any other provision of this Agreement, the
Executive may terminate his employment without Good Reason at any time within
ninety (90) days after a Change of Control shall have occurred.
16. PAYMENTS ON TERMINATION: Upon termination of Executive's employment
by the Company or the Bank, the Company and the Bank shall have the following
payment obligations to Executive:
(a) If the Executive's Employment is terminated due to illness of
the Executive, the provisions of Section 6 shall apply.
(b) If the Executive's Employment is terminated due to the death of
the Executive, the provisions of Section 7 shall apply.
(c) If the Executive's Employment is terminated by the Company other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 8 shall apply, and therefore the payment
provisions of Section 9 apply.
(d) If the Executive's Employment is terminated by the Bank other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 9 shall apply.
(e) If the Executive's Employment is terminated by the Company for
Cause, or by the Bank for Cause, the provisions of Section 10 shall apply.
(f) If the Executive's Employment is terminated by the Executive as
a result of a breach of the agreement by the Company or the Bank, the provisions
of Section 3 apply, and therefore the payment provisions of Section 9 apply.
(g) In the event of a Voluntary Termination of Executive's
Employment as defined in Section 11, the provisions of Section 11 apply.
(h) If the Executive's Employment is terminated by the Company or
the Bank within twelve (12) months after a Change of Control of the Company, as
defined in Section 12 above, or a Change of Control of the Bank, as defined in
Section 13 above, or in Contemplation of a Change of Control of either, as
defined in Section 14, the provisions of Section 14 shall apply.
(i) If the Executive's Employment is terminated by the Executive for
Good Reason, as defined in Section 15 above, the Executive's employment with the
Company and with the Bank shall be deemed to have been terminated without Cause
by the Company and by the Bank at the time of such termination by Executive for
Good Reason. If such termination is during a period of Contemplation of Change
of Control, or within twelve (12) months after a Change of Control, the
provisions of Section 14 shall apply.
-40-
<PAGE> 8
(j) Termination of Executive's Employment by the Company or by the
Bank or by the Executive shall be communicated by written Notice of Termination
to the other parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision(s) in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
17. CONFIDENTIALITY: In the course of the Executive's employment, the
Company and the Bank may disclose or make known to the Executive, and the
Executive may be given access to or may become acquainted with, certain
information, including but not limited to confidential information which relates
to or is useful in the businesses of the Company and the Bank and which is not
available from public records or other generally available sources
(collectively, "Confidential Information"), and which the Company or the Bank
consider proprietary and desire to maintain confidential. During the term of
this Agreement and at all times thereafter, the Executive shall not in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person or firm, except to legal counsel for the Company or the Bank or otherwise
to or for the benefit of the Company or the Bank as directed by the Company or
the Bank, and except to the Executive's legal counsel in connection with the
resolution of any dispute between the Executive and the Company or the Bank
under this Agreement, any of the Confidential Information which Executive may
have acquired in the course of or as an incident to Executive's employment by
the Company or the Bank, the parties agreeing that such Confidential Information
affects the successful and effective conduct of the business and their goodwill
of the Company and the Bank, and that any material breach of the terms of this
Section 17 is a material breach of this Agreement.
18. COVENANT NOT TO COMPETE. During the Term of this Agreement and, if
Executive terminates Executive's employment in a Voluntary Termination or for
Good Reason, or if the Company or the Bank terminate Executive's employment in
Contemplation of a Change of Control, or within twelve (12) months after a
Change of Control, or for Cause, for the period of twelve (12) months following
the termination of Executive's employment with the Company or the Bank,
Executive agrees that Executive will not directly or indirectly own, become
interested in, or become involved in any manner whatsoever in any business which
is similar or competitive with any aspect of the business of the Company or the
Bank as conducted at the time of such termination. Without limiting the
foregoing, Executive agrees during the applicable period not to engage in the
Banking or Leasing businesses, whether as an owner, partner, director, officer,
employee, consultant, stockholder, agent, salesman, or in any other capacity for
any person, partnership, firm, corporation or other entity without the express
written consent of the President of the Company. Executive specifically
acknowledges and agrees that the foregoing restriction on competition with the
Company and the Bank will not prevent Executive from obtaining gainful
employment following termination of Executive's employment with the Company and
the Bank, and is a reasonable restriction upon Executive's ability to compete
with the Company and the Bank, given the economic benefits afforded to Executive
under this Agreement.
19. NO ENTICEMENT OF EMPLOYEES. Executive agrees that Executive will
not, directly or indirectly, entice or induce, or attempt to entice or induce
any employee of the Company or Bank to leave the employ of the Company or the
Bank during the period covered by the Non-Competition provisions of Section 18
above.
20. NO SOLICITATION. Executive will not, directly or indirectly,
solicit, entice or induce, or attempt to entice or induce any customer or user
of the products or services of the Bank or the Company during the period covered
by the Non-Competition provisions of Section 18 above.
-41-
<PAGE> 9
21. REMEDIES. Executive acknowledges and agrees that the breach or
threatened breach of any of the provisions of Sections 17, 18, 19 and 20 of this
Agreement will cause irreparable harm to the Company and the Bank, and cannot be
adequately compensated by the payment of damages. Accordingly, Executive
covenants and agrees that the Company and the Bank, in addition to any other
rights or remedies which they may have, will be entitled to such equitable and
injunctive relief as may be available from any court of competent jurisdiction
to restrain Executive from breaching or threatening to breach any of the
provisions of this Sections 17, 18, 19 and 20, without posting bond or other
surety. Such right to obtain injunctive relief may be exercised at the option of
the Company or the Bank in addition to, concurrently with, prior to, after, or
in lieu of the exercise of any other rights or remedies which the Company or the
Bank may have as a result of any such breach or threatened breach. In addition
to all other remedies, in the event of the breach or threatened breach of any of
the provisions of Sections 17, 18, 19 or 20 of this Agreement, the Company and
Bank shall be relieved of any obligation to continue payments to the Executive
pursuant to the provisions of this agreement.
22. NOTICES: For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Community Financial Group, Inc.
401 Church Street, 2nd Floor
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
If to the Bank:
The Bank of Nashville
401 Church Street
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
-42-
<PAGE> 10
If to the Executive:
Julian C. Cornett
9311 Chesapeake Drive
Brentwood, TN 37027
or at such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
23. MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Executive, and on behalf of
the Company by such officer as may be specifically designated by the Board of
Directors of the Company after approval of the modification by the Board of
Directors, and on behalf of the Bank by such officer as may be specifically
designated by the Board of Directors of the Bank after approval of the
modification by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Tennessee.
24. INVALIDITY; ENFORCEABILITY: The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
25. ASSIGNMENTS: This Agreement is personal to the Executive, who may
not assign his obligations hereunder.
26. SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, the Bank, its
successors and assigns and upon the Executive, and his personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would still be payable
to him hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to his devisee, legatee or
other designee or, if there is no such designee, to his estate.
27. HEADINGS: Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
28. ARBITRATION: Any dispute, controversy or claim arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Nashville, Tennessee, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Unless otherwise provided in the rules of the American Arbitration
Association, the arbitrators shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys' fees and
expenses of the parties, as well as the arbitrator's fees and expenses, in such
proportions as the arbitrators deem just.
-43-
<PAGE> 11
29. ENTIRE AGREEMENT: This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes or amends all other agreements,
negotiations, understandings and representations (if any) made by and between
the parties hereto; provided, however, that nothing herein shall affect in any
way agreements granting or evidencing the Executive's options to acquire shares
of the Company.
30. REGULATORY AND OTHER PROCEEDINGS: The provisions of this Section 30
shall control as to continuing rights and obligations under this Agreement,
notwithstanding any other provision of this Agreement, for as long as they are
required to be included in employment contracts between an institution insured
by the FDIC and its officers and as long as the Bank is such an insured
institution.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank or the Company by a
Notice served under applicable Federal or State statutes or regulations, the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank and the Company shall pay the Executive all of the
compensation withheld while their obligations hereunder were suspended and
reinstate their obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank or the Company by an
order issued under applicable Federal or State statutes or regulations, all
obligations of the Company and the Bank under this Agreement shall terminate as
of the effective date of the order, provided that vested rights of the
contracting parties shall not be affected.
(c) If the Company or the Bank become insolvent or taken over by
regulatory entities, all obligations under this Agreement shall terminate as of
the date of default, provided that this paragraph shall not affect any vested
rights of the contracting parties.
(d) All obligations under this Agreement may be terminated, except
to the extent determined that continuation thereof is necessary for the
continued operation of the Company or the Bank, by the FDIC at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank or
approves a supervisory merger to resolve problems related to operation of the
Bank, provided that any rights of the parties that have already vested shall not
be affected by such action.
-44-
<PAGE> 12
31. SURVIVAL. This agreement shall remain in effect notwithstanding the
termination of Executive's employment hereunder, and in any case, the provisions
of Sections 18, 19, and 20 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
Executive:
/s/ Julian C. Cornett
------------------------------------------
Julian C. Cornett
Community Financial Group, Inc.
By: /s/ Mack S. Linebaugh, Jr.
------------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
By: /s/ Mack S. Linebaugh, Jr.
------------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
-45-
<PAGE> 1
EXHIBIT 10.20
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement entered into this 14th day of
September, 1999 by and among Community Financial Group, Inc., a Tennessee
corporation (the "Company"), The Bank of Nashville, a banking corporation
organized under the laws of the State of Tennessee (the "Bank"), and Anne J.
Cheatham (the "Executive").
WITNESSETH:
WHEREAS, the Company is a one-bank holding company which owns one
hundred per cent (100%) of the outstanding stock of the Bank;
WHEREAS, the Company and the Bank desire to retain the services of
Executive on the terms and conditions set forth herein and, for purposes of
effecting the same, the Boards of Directors of the Company and the Bank have
approved this Employment Agreement and authorized its execution and delivery to
the Executive on behalf of the Company and the Bank;
WHEREAS, the Executive serves as the Senior Vice President - Bank
Administration of the Company and, as such, is a key executive officer of the
Company whose continued dedication, availability, advice and counsel to the
Company is deemed important to the Company, the Board of Directors of the
Company, and the present and future stockholders of the Company;
WHEREAS, the Executive serves as the Senior Vice President - Bank
Administration of the Bank and, as such, is a key executive officer of the Bank
whose continued dedication, availability, advice and counsel to the Bank is
deemed important to the Board of Directors of the Bank, the Bank and the
Company;
WHEREAS, the Company and the Bank wish to attract and retain
well-qualified executives, and it is in the best interests of the Company, the
Bank and the Executive, notwithstanding any change in control of the Company or
the Bank, to secure the services of the Executive, whose experience and
knowledge of the affairs of the Company and the Bank, and whose reputation and
contacts in the industry, are extremely valuable to the Company and the Bank;
and
WHEREAS, the Company and the Bank consider the establishment and
maintenance of a sound and vital management team to be part of their overall
corporate strategy and to be essential to protecting and enhancing the best
interests of the Bank, the Company, and its stockholders.
NOW, THEREFORE, to assure the Company and the Bank of the Executive's
continued dedication, the availability of Executive's advice and counsel to the
Boards of Directors of the Company and the Bank, the availability of Executive's
management skills to the Company and the Bank, and to induce the Executive to
remain and continue in the employ of the Company and the Bank in Executive's
current capacities, and for other good and valuable consideration, the receipt
and adequacy of which each party hereby acknowledged, the Company, the Bank and
the Executive hereby agree as follows:
1. EMPLOYMENT. The Company and the Bank agree to, and do hereby, employ
Executive and Executive agrees to, and does hereby, accept such employment, all
upon the terms and conditions hereinafter set forth.
2. TERM: The initial term of employment under this Agreement shall be
for a period of one (1) year, commencing on the date first above written and
ending at the close of business one year from said date. This Agreement shall be
automatically renewed for succeeding terms of one (1) year each, unless either
party shall, at least thirty (30) days, but not more than one hundred eighty
(180) days, prior to the expiration of any term, give written notice of her or
its intention not to renew this Agreement.
-46-
<PAGE> 2
3. EMPLOYMENT; DUTIES, AUTHORITY, AND RESPONSIBILITIES:
(a) During the term of employment of the Executive by the Company
and the Bank, the Executive shall devote Executive's full business time and
attention to the rendition of services as Senior Vice President - Bank
Administration of the Company and as Senior Vice President - Bank Administration
of the Bank, and to the furtherance of the best interests of the Company and the
Bank, and shall exert Executive's best efforts in the rendition of such
services. The Executive agrees that in the rendition of such services and in all
aspects of such employment Executive will comply with the policies, standards
and regulations of the Company and the Bank as from time to time established by
their respective Boards of Directors. The expenditure by the Executive of
reasonable amounts of time for charitable, professional and similar activities
shall not be deemed a breach of this Agreement provided such activities do not
materially interfere with the services to be rendered to the Company and the
Bank hereunder.
(b) As Senior Vice President - Bank Administration of the Company
and the Bank, the Executive shall have the general powers and duties of
supervision which usually pertain to such office and shall perform all such
duties as are properly required of Executive by the Chief Executive Officer of
the Company and the Bank.
(c) If after a Change of Control occurs, a material reduction or
limitation of the duties of the Executive that were in effect immediately prior
to the Change of Control occurs, this action shall be considered a breach of
this Agreement by the Company and the Bank. In the event of any breach of any
provision of this Agreement by the Bank which breach is not cured within ten
(10) days after written notice of the breach to the Bank by the Executive shall
entitle the Executive to terminate her employment by the Bank pursuant to this
Agreement by not less than sixty (60) days written notice to the Board of
Directors of the Bank and, at the option of Executive, to terminate her
employment by the Company pursuant to this Agreement by not less than sixty (60)
days written notice to the Board of Directors of the Company. Any such
termination by the Executive of her employment by the Bank hereunder resulting
from a breach of the terms of this Agreement shall be treated as a termination
by the Bank without cause and governed by Section 9 below, unless such breach
occurs in Contemplation of a Change of Control or within twelve (12) months
after a Change of Control, and constitutes Good Reason for the Executive to
terminate Executive's employment, in which case it shall be governed by Section
15 below.
4. COMPENSATION: The Bank agrees to pay Executive, and Executive agrees
to accept, as compensation for all services rendered by her to the Company, the
Bank and their affiliates during the period of her employment under this
Agreement, base compensation at the annual rate of not less than $102,000, which
shall be payable in accordance with the normal payroll policies of the Bank and
shall be subject to all appropriate withholding taxes.
5. PARTICIPATION IN BENEFIT PLANS, REIMBURSEMENT OF BUSINESS EXPENSES
AND MOVING EXPENSES:
(a) During the term of this Agreement, Executive shall be entitled
to participate in all pension, group insurance, hospitalization, deferred
compensation, Company paid life insurance, or incentive plans, and any other
benefit plan of the Company or the Bank presently in effect or hereafter adopted
by the Company or the Bank and generally available to all employees of either
organization of senior executive status (the "Benefit Plans").
-47-
<PAGE> 3
(b) During the term of this Agreement, to the extent that such
expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company or the Bank for federal income tax purposes and are
substantiated by the Executive as required by the Internal Revenue Service and
policies of the Company and the Bank, the Bank shall reimburse the Executive
promptly for all expenditures (including travel, entertainment, parking,
business meetings, and the monthly costs, including dues, of maintaining
memberships at appropriate clubs, including, but not limited to, Nashville City
Club) made in accordance with rules and policies established from time to time
by the Board of Directors of the Bank in pursuance and furtherance of the
Company's and the Bank's business and good will.
(c) During the term of this Agreement, in the event that the Company
or the Bank relocates its principal executive offices to a location more than
one hundred (100) miles from Nashville, Tennessee, or the Board of Directors of
either the Company or the Bank requires the Executive to be based anywhere more
than one hundred (100) miles from the Bank's principal executive offices, the
Bank shall pay (or reimburse the Executive for) all reasonable moving expenses
incurred by Executive relating to a change of Executive's principal residence in
connection with such relocation, provided that the Executive furnishes the Bank
with adequate records and documentary evidence for the substantiation of such
reimbursement.
6. ILLNESS: In the event Executive is unable to perform Executive's
duties under this Agreement on a full-time basis for a period of six (6)
consecutive months by reason of illness or other physical or mental disability,
and at or before the end of such period Executive does not return to work on a
full-time basis, the Company and the Bank may jointly terminate Executive's
Employment pursuant to this Agreement without further or additional compensation
being due the Executive from the Bank pursuant to this Agreement, except that
the Executive shall be paid Executive's base compensation from the Bank at the
rate in effect at the time of Executive's termination for a period of twelve
(12) months from the date of the commencement of the Executive's inability to
perform her duties, less any disability payments payable during such time under
any disability plans maintained and paid for by the Bank, and Executive shall
continue to participate in all Benefit Plans in effect at the time of
Executive's termination for a period of twelve (12) months from the date of the
commencement of the Executive's inability to perform her duties.
7. DEATH: In the event of the Executive's death during the term of this
Agreement, Executive's estate, legal representatives or named beneficiaries (as
directed by the Executive in writing) shall be paid Executive's base
compensation from the Bank at the rate in effect at the time of the Executive's
death under this Agreement for the period of twelve (12) months from the date of
the Executive's death, less any amounts payable to Executive's estate or
beneficiaries under life insurance policies on the life of Executive maintained
and paid for by Bank.
8. TERMINATION BY COMPANY: Notwithstanding the provisions of Section 2
above, the Board of Directors of the Company may, in its sole discretion,
terminate the Executive's employment with the Company under this Agreement at
any time in any lawful manner by not less than thirty (30) days written notice
to the Executive, in which event the Executive shall be entitled to elect to
have such termination likewise constitute a termination of Executive's
employment by the Bank. If Executive so elects, then unless such termination is
for Cause as defined in Section 10 of this Agreement or unless the Executive's
employment is terminated in Contemplation of a Change of Control or within
twelve (12) months after a Change of Control, Executive shall be entitled to the
compensation provided for in Section 9 below.
-48-
<PAGE> 4
9. TERMINATION BY BANK: Notwithstanding the provisions of Section 2 of
this Agreement, the Board of Directors of the Bank may, in its sole discretion,
terminate the Executive's employment with the Bank under this Agreement at any
time in any lawful manner by not less than thirty (30) days written notice to
the Executive (or, at the Bank's option, pay for such thirty days in lieu of
notice) and in such event, unless the Bank terminates the Executive's employment
with the Bank for Cause as defined in with Section 10 of this Agreement or,
unless the Executive's employment is terminated in Contemplation of a Change of
Control or within twelve (12) months after a Change of Control, the Executive
shall be paid, during the twelve (12) months following such termination at such
times as payment was theretofore made, the base compensation that the Executive
would have been entitled to receive during such period of time had such
termination not occurred, such payments to be in addition to any payment in lieu
of notice. Furthermore, the Bank shall pay to the Executive in equal monthly
payments an amount sufficient to fully fund any Benefit Plans of the Bank, with
respect to the Executive, commencing at the beginning of the first month
following termination of Executive's employment with the Bank pursuant to this
paragraph, and ending twelve (12) months after such termination. In the event
that a payment made with respect to any benefit plan or program would otherwise
violate the terms of the plan or program, an equivalent amount shall be paid
directly to Executive. Executive shall owe no duty to mitigate these payments,
and shall not be required to obtain or attempt to obtain alternate employment
during such twelve (12) month period. If Executive obtains other gainful
employment during such twelve (12) month period, the compensation and benefits
received by Executive during said period from such other employment shall not
reduce the payments otherwise due to Executive pursuant to this section.
10. TERMINATION FOR CAUSE:
(a) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Company may, in its sole discretion, terminate the Executive's
employment with the Company for Cause. For the purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder:
(i) because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses), willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Bank terminates
the employment of Executive with the Bank for Cause pursuant to subsection (c)
of this Section 10. For purposes of this paragraph, no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by her not in good faith or without reasonable belief that her action
or omission was in the best interest of the Company; provided that any act or
omission to act on the Executive's behalf in reliance upon an opinion of counsel
to either the Company or the Bank shall not be deemed to be "willful."
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been a resolution
approved by a majority of the non-officer members of the Board of Directors of
the Company finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which is deemed to be Cause within the meaning
of this paragraph, after notice to the Executive and an opportunity for her,
together with her counsel, to be heard before such majority (with the Company
Board retaining the right to deliberate without the Executive and her counsel
present before and/or after such hearing).
(b) If the Company terminates the Executive's employment with the
Company for Cause in accordance with Section 10(a) of this Agreement, the
Company shall have no obligation to make any further payments to or provide
benefits for the Executive, provided that the Executive shall be entitled to
receive any accrued compensation or benefits, insured or otherwise, that she
would otherwise have been eligible to receive under any Benefit Plans of the
Company through the date of such termination.
-49-
<PAGE> 5
(c) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Bank may, in its sole discretion, terminate the Executive's
employment with the Bank for Cause. For the purposes of this Agreement, the Bank
shall have "Cause" to terminate the Executive's employment hereunder: (i)
because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses) , willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, the imposition of any sanction
upon the Executive by any such regulatory agency, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Company
terminates Executive's employment with the Company for Cause pursuant to
subsection (a) of this Section 10. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by her not in good faith or without reasonable
belief that her action or omission was in the best interest of the Bank;
provided that any act or omission to act on the Executive's behalf in reliance
upon an opinion of counsel to either the Company or the Bank shall not be deemed
to be "willful." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
a resolution approved by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such majority,
the Executive was guilty of conduct which is deemed to be Cause within the
meaning of this paragraph, after notice to the Executive and an opportunity for
her, together with her counsel to be heard before such majority (with the Bank
Board retaining the right to deliberate without the Executive and her counsel
present before and/or after such hearing).
(d) If the Bank terminates the Executive's employment with the Bank
for Cause in accordance with Section 10(c) of this Agreement, the Bank shall
have no obligation to make any further payments to or provide benefits for the
Executive, provided that the Executive shall be entitled to receive any accrued
compensation or benefits, insured or otherwise, which Executive would otherwise
have been eligible to receive under any Benefit Plans of the Bank through the
date of such termination.
11. TERMINATION BY THE EXECUTIVE: The Executive may terminate the
Executive's employment with the Company or with the Bank hereunder at any time
upon sixty (60) days written notice to the affected entity. If the Executive
terminates the Executive's employment with either the Company or the Bank other
than for breach of this Agreement as provided in Section 3, for Good Reason, in
Contemplation of a Change of Control or within twelve (12) months after a Change
of Control, Executive shall be deemed to have voluntarily terminated Executive's
employment with both the Company and the Bank ("Voluntary Termination"), and
thereupon the Company and the Bank shall have no obligation to make any further
payments to or provide benefits for the Executive, provided that the Executive
shall be entitled to receive any accrued compensation and benefits, insured or
otherwise, that she would otherwise have been eligible to receive under any
Benefit Plans of the Company or the Bank through the date of such termination.
12. DEFINITION OF CHANGE OF CONTROL OF THE COMPANY: A "Change of
Control" of the Company shall mean a change of control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act") or
such item thereof which may hereafter pertain to the same subject; provided
that, and notwithstanding the foregoing, a Change of Control shall be deemed to
have occurred if (i) any person (as that term is used in Sections 13(d) and
14(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing thirty-five percent (35%)
or more of the combined voting power of the Company's then outstanding
securities, or (ii) the Company shall cease to be a publicly owned corporation,
as defined in the Exchange Act.
-50-
<PAGE> 6
13. DEFINITION OF CHANGE OF CONTROL OF THE BANK: A "Change of Control"
of the Bank shall mean any Change of Control of the Company, or any change or
series of changes in circumstances which result in the Company ceasing to own,
control, and vote an absolute majority of the voting securities of the Bank.
14. TERMINATION BY COMPANY OR BANK AFTER CHANGE IN CONTROL: If a Change
of Control of the Company or a Change of Control of the Bank shall have
occurred, this Agreement shall continue in full force and effect. If the
Executive's Employment is terminated by the Company or the Bank within twelve
(12) months after a Change of Control of the Company, as defined in Section 12
above, or a Change of Control of the Bank, as defined in Section 13 above, or in
Contemplation of a Change of Control of either, as defined below, Executive
shall be entitled to be paid an amount equal to one (1) times the sum of
Executive's annual base cash compensation plus the annual value of Executive's
participation in all Benefit Programs in effect at the time of such termination.
At Executive's option, the sums payable pursuant to this Section will be paid in
full in a lump sum and without discount within thirty (30) days of the
termination of Executive's employment, or in equal monthly installments over
twelve (12) months. Any termination of Executive's employment hereunder during
any period of time when the Board of Directors of the Company has formed an
intent to offer the Bank for sale or to promote an acquisition of or merger of
the Company or the Bank, or when the Company has knowledge that any person(s),
entity or concern has taken steps reasonably calculated to effect a Change of
Control of the Company shall constitute a termination of Executive's employment
"In Contemplation of a Change of Control." The period of Contemplation of Change
of Control shall continue until the Board of Directors of the Company no longer
intends to promote an acquisition of or merger of the Company or the Bank, or
until in the opinion of the Company's Board of Directors, the person(s), concern
or entity has abandoned or terminated its efforts to effect a Change of Control
of the Company, as applicable. Any good faith determination by the Company's
Board of Directors that Board no longer has such an intent, or that the
person(s), concern or entity has abandoned or terminated its efforts to effect a
Change of Control of the Company shall be conclusive and binding on the
Executive. Such determination shall be promptly communicated to the Executive in
writing by the Chief Executive of the Company or Chairman of the Board of the
Company. Notwithstanding the foregoing, any termination of the Executive by the
Company or by the Bank within ninety (90) days prior to a Change of Control of
the Company shall be conclusively presumed to have been in Contemplation of
Change of Control.
15. TERMINATION BY EXECUTIVE FOR GOOD REASON; During the term of
Executive's employment hereunder, the Executive may terminate her employment
with both the Company and the Bank if the Executive has Good Reason, as defined
below. Termination by the Executive of Executive's employment with either entity
shall be deemed termination with both. For purposes of this Agreement, "Good
Reason" shall mean:
(i) The assignment of duties to the Executive by the Company
or the Bank which (1) are significantly different from the Executive's duties
immediately prior to the Change of Control, or (2) result in the Executive
having significantly less authority and/or responsibility than Executive had as
an executive officer of the Company or the Bank prior to the Change of Control,
without the express written consent of Executive;
(ii) The removal of the Executive from or any failure to
re-elect Executive to the positions set forth in Section 3 above, except in
connection with a termination of her employment by the Company or the Bank for
Cause or Executive's resignation other than for Good Reason.
(iii) A reduction of the Executive's base salary as in effect
on the date of the Change of Control, unless the reduction in the Executive's
salary is waived in writing by the Executive;
-51-
<PAGE> 7
(iv) The failure of the Company and the Bank collectively to
provide the Executive with substantially the same fringe benefits (including
paid vacations) that were provided to Executive immediately prior to the Change
of Control, or with a package of fringe benefits that, though one or more of
such benefits may vary from those in effect immediately prior to such Change of
Control, is substantially comparable in all material respects to such fringe
benefits taken as a whole; or
(v) Requiring the Executive to perform a significant part of
Executive's duties in locations more than one hundred (100) miles from
Nashville, Tennessee.
Further, and notwithstanding any other provision of this Agreement, the
Executive may terminate her employment without Good Reason at any time within
ninety (90) days after a Change of Control shall have occurred.
16. PAYMENTS ON TERMINATION: Upon termination of Executive's employment
by the Company or the Bank, the Company and the Bank shall have the following
payment obligations to Executive:
(a) If the Executive's Employment is terminated due to illness of
the Executive, the provisions of Section 6 shall apply.
(b) If the Executive's Employment is terminated due to the death of
the Executive, the provisions of Section 7 shall apply.
(c) If the Executive's Employment is terminated by the Company other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 8 shall apply, and therefore the payment
provisions of Section 9 apply.
(d) If the Executive's Employment is terminated by the Bank other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 9 shall apply.
(e) If the Executive's Employment is terminated by the Company for
Cause, or by the Bank for Cause, the provisions of Section 10 shall apply.
(f) If the Executive's Employment is terminated by the Executive as
a result of a breach of the agreement by the Company or the Bank, the provisions
of Section 3 apply, and therefore the payment provisions of Section 9 apply.
(g) In the event of a Voluntary Termination of Executive's
Employment as defined in Section 11, the provisions of Section 11 apply.
(h) If the Executive's Employment is terminated by the Company or
the Bank within twelve (12) months after a Change of Control of the Company, as
defined in Section 12 above, or a Change of Control of the Bank, as defined in
Section 13 above, or in Contemplation of a Change of Control of either, as
defined in Section 14, the provisions of Section 14 shall apply.
(i) If the Executive's Employment is terminated by the Executive for
Good Reason, as defined in Section 15 above, the Executive's employment with the
Company and with the Bank shall be deemed to have been terminated without Cause
by the Company and by the Bank at the time of such termination by Executive for
Good Reason. If such termination is during a period of Contemplation of Change
of Control, or within twelve (12) months after a Change of Control, the
provisions of Section 14 shall apply.
-52-
<PAGE> 8
(j) Termination of Executive's Employment by the Company or by the
Bank or by the Executive shall be communicated by written Notice of Termination
to the other parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision(s) in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
17. CONFIDENTIALITY: In the course of the Executive's employment, the
Company and the Bank may disclose or make known to the Executive, and the
Executive may be given access to or may become acquainted with, certain
information, including but not limited to confidential information which relates
to or is useful in the businesses of the Company and the Bank and which is not
available from public records or other generally available sources
(collectively, "Confidential Information"), and which the Company or the Bank
consider proprietary and desire to maintain confidential. During the term of
this Agreement and at all times thereafter, the Executive shall not in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person or firm, except to legal counsel for the Company or the Bank or otherwise
to or for the benefit of the Company or the Bank as directed by the Company or
the Bank, and except to the Executive's legal counsel in connection with the
resolution of any dispute between the Executive and the Company or the Bank
under this Agreement, any of the Confidential Information which Executive may
have acquired in the course of or as an incident to Executive's employment by
the Company or the Bank, the parties agreeing that such Confidential Information
affects the successful and effective conduct of the business and their goodwill
of the Company and the Bank, and that any material breach of the terms of this
Section 17 is a material breach of this Agreement.
18. COVENANT NOT TO COMPETE. During the Term of this Agreement and, if
Executive terminates Executive's employment in a Voluntary Termination or for
Good Reason, or if the Company or the Bank terminate Executive's employment in
Contemplation of a Change of Control, or within twelve (12) months after a
Change of Control, or for Cause, for the period of twelve (12) months following
the termination of Executive's employment with the Company or the Bank,
Executive agrees that Executive will not directly or indirectly own, become
interested in, or become involved in any manner whatsoever in any business which
is similar or competitive with any aspect of the business of the Company or the
Bank as conducted at the time of such termination. Without limiting the
foregoing, Executive agrees during the applicable period not to engage in the
Banking or Leasing businesses, whether as an owner, partner, director, officer,
employee, consultant, stockholder, agent, salesman, or in any other capacity for
any person, partnership, firm, corporation or other entity without the express
written consent of the President of the Company. Executive specifically
acknowledges and agrees that the foregoing restriction on competition with the
Company and the Bank will not prevent Executive from obtaining gainful
employment following termination of Executive's employment with the Company and
the Bank, and is a reasonable restriction upon Executive's ability to compete
with the Company and the Bank, given the economic benefits afforded to Executive
under this Agreement.
19. NO ENTICEMENT OF EMPLOYEES. Executive agrees that Executive will
not, directly or indirectly, entice or induce, or attempt to entice or induce
any employee of the Company or Bank to leave the employ of the Company or the
Bank during the period covered by the Non-Competition provisions of Section 18
above.
20. NO SOLICITATION. Executive will not, directly or indirectly,
solicit, entice or induce, or attempt to entice or induce any customer or user
of the products or services of the Bank or the Company during the period covered
by the Non-Competition provisions of Section 18 above.
-53-
<PAGE> 9
21. REMEDIES. Executive acknowledges and agrees that the breach or
threatened breach of any of the provisions of Sections 17, 18, 19 and 20 of this
Agreement will cause irreparable harm to the Company and the Bank, and cannot be
adequately compensated by the payment of damages. Accordingly, Executive
covenants and agrees that the Company and the Bank, in addition to any other
rights or remedies which they may have, will be entitled to such equitable and
injunctive relief as may be available from any court of competent jurisdiction
to restrain Executive from breaching or threatening to breach any of the
provisions of this Sections 17, 18, 19 and 20, without posting bond or other
surety. Such right to obtain injunctive relief may be exercised at the option of
the Company or the Bank in addition to, concurrently with, prior to, after, or
in lieu of the exercise of any other rights or remedies which the Company or the
Bank may have as a result of any such breach or threatened breach. In addition
to all other remedies, in the event of the breach or threatened breach of any of
the provisions of Sections 17, 18, 19 or 20 of this Agreement, the Company and
Bank shall be relieved of any obligation to continue payments to the Executive
pursuant to the provisions of this agreement.
22. NOTICES: For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Community Financial Group, Inc.
401 Church Street, 2nd Floor
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
If to the Bank:
The Bank of Nashville
401 Church Street
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
-54-
<PAGE> 10
If to the Executive:
Anne J. Cheatham
111 Robin Springs Road
Nashville, TN 37220
or at such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
23. MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Executive, and on behalf of
the Company by such officer as may be specifically designated by the Board of
Directors of the Company after approval of the modification by the Board of
Directors, and on behalf of the Bank by such officer as may be specifically
designated by the Board of Directors of the Bank after approval of the
modification by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Tennessee.
24. INVALIDITY; ENFORCEABILITY: The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
25. ASSIGNMENTS: This Agreement is personal to the Executive, who may
not assign her obligations hereunder.
26. SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, the Bank, its
successors and assigns and upon the Executive, and her personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would still be payable
to her hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to her devisee, legatee or
other designee or, if there is no such designee, to her estate.
27. HEADINGS: Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
28. ARBITRATION: Any dispute, controversy or claim arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Nashville, Tennessee, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Unless otherwise provided in the rules of the American Arbitration
Association, the arbitrators shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys' fees and
expenses of the parties, as well as the arbitrator's fees and expenses, in such
proportions as the arbitrators deem just.
-55-
<PAGE> 11
29. ENTIRE AGREEMENT: This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes or amends all other agreements,
negotiations, understandings and representations (if any) made by and between
the parties hereto; provided, however, that nothing herein shall affect in any
way agreements granting or evidencing the Executive's options to acquire shares
of the Company.
30. REGULATORY AND OTHER PROCEEDINGS: The provisions of this Section 30
shall control as to continuing rights and obligations under this Agreement,
notwithstanding any other provision of this Agreement, for as long as they are
required to be included in employment contracts between an institution insured
by the FDIC and its officers and as long as the Bank is such an insured
institution.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank or the Company by a
Notice served under applicable Federal or State statutes or regulations, the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank and the Company shall pay the Executive all of the
compensation withheld while their obligations hereunder were suspended and
reinstate their obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank or the Company by an
order issued under applicable Federal or State statutes or regulations, all
obligations of the Company and the Bank under this Agreement shall terminate as
of the effective date of the order, provided that vested rights of the
contracting parties shall not be affected.
(c) If the Company or the Bank become insolvent or taken over by
regulatory entities, all obligations under this Agreement shall terminate as of
the date of default, provided that this paragraph shall not affect any vested
rights of the contracting parties.
(d) All obligations under this Agreement may be terminated, except
to the extent determined that continuation thereof is necessary for the
continued operation of the Company or the Bank, by the FDIC at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank or
approves a supervisory merger to resolve problems related to operation of the
Bank, provided that any rights of the parties that have already vested shall not
be affected by such action.
-56-
<PAGE> 12
31. SURVIVAL. This agreement shall remain in effect notwithstanding the
termination of Executive's employment hereunder, and in any case, the provisions
of Sections 18, 19, and 20 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
Executive:
/s/ Anne J. Cheatham
------------------------------------------
Anne J. Cheatham
Community Financial Group, Inc.
By: /s/ Mack S. Linebaugh, Jr.
------------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
By: /s/ Mack S. Linebaugh, Jr.
------------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
-57-
<PAGE> 1
EXHIBIT 10.21
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement entered into this 14th day of
September, 1999 by and among Community Financial Group, Inc., a Tennessee
corporation (the "Company"), The Bank of Nashville, a banking corporation
organized under the laws of the State of Tennessee (the "Bank"), and T. Wayne
Hood (the "Executive").
WITNESSETH:
WHEREAS, the Company is a one-bank holding company which owns one
hundred per cent (100%) of the outstanding stock of the Bank;
WHEREAS, the Company and the Bank desire to retain the services of
Executive on the terms and conditions set forth herein and, for purposes of
effecting the same, the Boards of Directors of the Company and the Bank have
approved this Employment Agreement and authorized its execution and delivery to
the Executive on behalf of the Company and the Bank;
WHEREAS, the Executive serves as the Senior Vice President and Trust
Officer of the Company and, as such, is a key executive officer of the Company
whose continued dedication, availability, advice and counsel to the Company is
deemed important to the Company, the Board of Directors of the Company, and the
present and future stockholders of the Company;
WHEREAS, the Executive serves as the Senior Vice President and Trust
Officer of the Bank and, as such, is a key executive officer of the Bank whose
continued dedication, availability, advice and counsel to the Bank is deemed
important to the Board of Directors of the Bank, the Bank and the Company;
WHEREAS, the Company and the Bank wish to attract and retain
well-qualified executives, and it is in the best interests of the Company, the
Bank and the Executive, notwithstanding any change in control of the Company or
the Bank, to secure the services of the Executive, whose experience and
knowledge of the affairs of the Company and the Bank, and whose reputation and
contacts in the industry, are extremely valuable to the Company and the Bank;
and
WHEREAS, the Company and the Bank consider the establishment and
maintenance of a sound and vital management team to be part of their overall
corporate strategy and to be essential to protecting and enhancing the best
interests of the Bank, the Company, and its stockholders.
NOW, THEREFORE, to assure the Company and the Bank of the Executive's
continued dedication, the availability of Executive's advice and counsel to the
Boards of Directors of the Company and the Bank, the availability of Executive's
management skills to the Company and the Bank, and to induce the Executive to
remain and continue in the employ of the Company and the Bank in Executive's
current capacities, and for other good and valuable consideration, the receipt
and adequacy of which each party hereby acknowledged, the Company, the Bank and
the Executive hereby agree as follows:
1. EMPLOYMENT. The Company and the Bank agree to, and do hereby, employ
Executive and Executive agrees to, and does hereby, accept such employment, all
upon the terms and conditions hereinafter set forth.
2. TERM: The initial term of employment under this Agreement shall be
for a period of one (1) year, commencing on the date first above written and
ending at the close of business one year from said date. This Agreement shall be
automatically renewed for succeeding terms of one (1) year each, unless either
party shall, at least thirty (30) days, but not more than one hundred eighty
(180) days, prior to the expiration of any term, give written notice of his or
its intention not to renew this Agreement.
-58-
<PAGE> 2
3. EMPLOYMENT; DUTIES, AUTHORITY, AND RESPONSIBILITIES:
(a) During the term of employment of the Executive by the Company
and the Bank, the Executive shall devote Executive's full business time and
attention to the rendition of services as Senior Vice President and Trust
Officer of the Company and as Senior Vice President and Trust Officer of the
Bank, and to the furtherance of the best interests of the Company and the Bank,
and shall exert Executive's best efforts in the rendition of such services. The
Executive agrees that in the rendition of such services and in all aspects of
such employment Executive will comply with the policies, standards and
regulations of the Company and the Bank as from time to time established by
their respective Boards of Directors. The expenditure by the Executive of
reasonable amounts of time for charitable, professional and similar activities
shall not be deemed a breach of this Agreement provided such activities do not
materially interfere with the services to be rendered to the Company and the
Bank hereunder.
(b) As Senior Vice President and Trust Officer of the Company and
the Bank, the Executive shall have the general powers and duties of supervision
which usually pertain to such offices and shall perform all such duties as are
properly required of Executive by the Chief Executive Officer of the Company and
the Bank.
(c) If after a Change of Control occurs, a material reduction or
limitation of the duties of the Executive that were in effect immediately prior
to the Change of Control occurs, this action shall be considered a breach of
this Agreement by the Company and the Bank. In the event of any breach of any
provision of this Agreement by the Bank which breach is not cured within ten
(10) days after written notice of the breach to the Bank by the Executive shall
entitle the Executive to terminate his employment by the Bank pursuant to this
Agreement by not less than sixty (60) days written notice to the Board of
Directors of the Bank and, at the option of Executive, to terminate his
employment by the Company pursuant to this Agreement by not less than sixty (60)
days written notice to the Board of Directors of the Company. Any such
termination by the Executive of his employment by the Bank hereunder resulting
from a breach of the terms of this Agreement shall be treated as a termination
by the Bank without cause and governed by Section 9 below, unless such breach
occurs in Contemplation of a Change of Control or within twelve (12) months
after a Change of Control, and constitutes Good Reason for the Executive to
terminate Executive's employment, in which case it shall be governed by Section
15 below.
4. COMPENSATION: The Bank agrees to pay Executive, and Executive agrees
to accept, as compensation for all services rendered by him to the Company, the
Bank and their affiliates during the period of his employment under this
Agreement, base compensation at the annual rate of not less than $84,500, which
shall be payable in accordance with the normal payroll policies of the Bank and
shall be subject to all appropriate withholding taxes.
5. PARTICIPATION IN BENEFIT PLANS, REIMBURSEMENT OF BUSINESS EXPENSES
AND MOVING EXPENSES:
(a) During the term of this Agreement, Executive shall be entitled
to participate in all pension, group insurance, hospitalization, deferred
compensation, Company paid life insurance, or incentive plans, and any other
benefit plan of the Company or the Bank presently in effect or hereafter adopted
by the Company or the Bank and generally available to all employees of either
organization of senior executive status (the "Benefit Plans").
-59-
<PAGE> 3
(b) During the term of this Agreement, to the extent that such
expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company or the Bank for federal income tax purposes and are
substantiated by the Executive as required by the Internal Revenue Service and
policies of the Company and the Bank, the Bank shall reimburse the Executive
promptly for all expenditures (including travel, entertainment, parking,
business meetings, and the monthly costs, including dues, of maintaining
memberships at appropriate clubs, including, but not limited to, Nashville City
Club) made in accordance with rules and policies established from time to time
by the Board of Directors of the Bank in pursuance and furtherance of the
Company's and the Bank's business and good will.
(c) During the term of this Agreement, in the event that the Company
or the Bank relocates its principal executive offices to a location more than
one hundred (100) miles from Nashville, Tennessee, or the Board of Directors of
either the Company or the Bank requires the Executive to be based anywhere more
than one hundred (100) miles from the Bank's principal executive offices, the
Bank shall pay (or reimburse the Executive for) all reasonable moving expenses
incurred by Executive relating to a change of Executive's principal residence in
connection with such relocation, provided that the Executive furnishes the Bank
with adequate records and documentary evidence for the substantiation of such
reimbursement.
6. ILLNESS: In the event Executive is unable to perform Executive's
duties under this Agreement on a full-time basis for a period of six (6)
consecutive months by reason of illness or other physical or mental disability,
and at or before the end of such period Executive does not return to work on a
full-time basis, the Company and the Bank may jointly terminate Executive's
Employment pursuant to this Agreement without further or additional compensation
being due the Executive from the Bank pursuant to this Agreement, except that
the Executive shall be paid Executive's base compensation from the Bank at the
rate in effect at the time of Executive's termination for a period of twelve
(12) months from the date of the commencement of the Executive's inability to
perform his duties, less any disability payments payable during such time under
any disability plans maintained and paid for by the Bank, and Executive shall
continue to participate in all Benefit Plans in effect at the time of
Executive's termination for a period of twelve (12) months from the date of the
commencement of the Executive's inability to perform his duties.
7. DEATH: In the event of the Executive's death during the term of this
Agreement, Executive's estate, legal representatives or named beneficiaries (as
directed by the Executive in writing) shall be paid Executive's base
compensation from the Bank at the rate in effect at the time of the Executive's
death under this Agreement for the period of twelve (12) months from the date of
the Executive's death, less any amounts payable to Executive's estate or
beneficiaries under life insurance policies on the life of Executive maintained
and paid for by Bank.
8. TERMINATION BY COMPANY: Notwithstanding the provisions of Section 2
above, the Board of Directors of the Company may, in its sole discretion,
terminate the Executive's employment with the Company under this Agreement at
any time in any lawful manner by not less than thirty (30) days written notice
to the Executive, in which event the Executive shall be entitled to elect to
have such termination likewise constitute a termination of Executive's
employment by the Bank. If Executive so elects, then unless such termination is
for Cause as defined in Section 10 of this Agreement or unless the Executive's
employment is terminated in Contemplation of a Change of Control or within
twelve (12) months after a Change of Control, Executive shall be entitled to the
compensation provided for in Section 9 below.
9. TERMINATION BY BANK: Notwithstanding the provisions of Section 2 of
this Agreement, the Board of Directors of the Bank may, in its sole discretion,
terminate the Executive's employment with the Bank under this Agreement at any
time in any lawful manner by not less than thirty (30) days written notice to
the Executive (or, at the Bank's option, pay for such thirty days in lieu of
notice) and in such event, unless the Bank terminates the Executive's employment
with the Bank for Cause as defined in with Section 10 of this Agreement or,
unless the Executive's employment is terminated in
-60-
<PAGE> 4
Contemplation of a Change of Control or within twelve (12) months after a Change
of Control, the Executive shall be paid, during the twelve (12) months following
such termination at such times as payment was theretofore made, the base
compensation that the Executive would have been entitled to receive during such
period of time had such termination not occurred, such payments to be in
addition to any payment in lieu of notice. Furthermore, the Bank shall pay to
the Executive in equal monthly payments an amount sufficient to fully fund any
Benefit Plans of the Bank, with respect to the Executive, commencing at the
beginning of the first month following termination of Executive's employment
with the Bank pursuant to this paragraph, and ending twelve (12) months after
such termination. In the event that a payment made with respect to any benefit
plan or program would otherwise violate the terms of the plan or program, an
equivalent amount shall be paid directly to Executive. Executive shall owe no
duty to mitigate these payments, and shall not be required to obtain or attempt
to obtain alternate employment during such twelve (12) month period. If
Executive obtains other gainful employment during such twelve (12) month period,
the compensation and benefits received by Executive during said period from such
other employment shall not reduce the payments otherwise due to Executive
pursuant to this section.
10. TERMINATION FOR CAUSE:
(a) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Company may, in its sole discretion, terminate the Executive's
employment with the Company for Cause. For the purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder:
(i) because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses), willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Bank terminates
the employment of Executive with the Bank for Cause pursuant to subsection (c)
of this Section 10. For purposes of this paragraph, no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith or without reasonable belief that his action
or omission was in the best interest of the Company; provided that any act or
omission to act on the Executive's behalf in reliance upon an opinion of counsel
to either the Company or the Bank shall not be deemed to be "willful."
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been a resolution
approved by a majority of the non-officer members of the Board of Directors of
the Company finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which is deemed to be Cause within the meaning
of this paragraph, after notice to the Executive and an opportunity for him,
together with his counsel, to be heard before such majority (with the Company
Board retaining the right to deliberate without the Executive and his counsel
present before and/or after such hearing).
(b) If the Company terminates the Executive's employment with the
Company for Cause in accordance with Section 10(a) of this Agreement, the
Company shall have no obligation to make any further payments to or provide
benefits for the Executive, provided that the Executive shall be entitled to
receive any accrued compensation or benefits, insured or otherwise, that he
would otherwise have been eligible to receive under any Benefit Plans of the
Company through the date of such termination.
-61-
<PAGE> 5
(c) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Bank may, in its sole discretion, terminate the Executive's
employment with the Bank for Cause. For the purposes of this Agreement, the Bank
shall have "Cause" to terminate the Executive's employment hereunder: (i)
because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses) , willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, the imposition of any sanction
upon the Executive by any such regulatory agency, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Company
terminates Executive's employment with the Company for Cause pursuant to
subsection (a) of this Section 10. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith or without reasonable
belief that his action or omission was in the best interest of the Bank;
provided that any act or omission to act on the Executive's behalf in reliance
upon an opinion of counsel to either the Company or the Bank shall not be deemed
to be "willful." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
a resolution approved by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such majority,
the Executive was guilty of conduct which is deemed to be Cause within the
meaning of this paragraph, after notice to the Executive and an opportunity for
him, together with his counsel to be heard before such majority (with the Bank
Board retaining the right to deliberate without the Executive and his counsel
present before and/or after such hearing).
(d) If the Bank terminates the Executive's employment with the Bank
for Cause in accordance with Section 10(c) of this Agreement, the Bank shall
have no obligation to make any further payments to or provide benefits for the
Executive, provided that the Executive shall be entitled to receive any accrued
compensation or benefits, insured or otherwise, which Executive would otherwise
have been eligible to receive under any Benefit Plans of the Bank through the
date of such termination.
11. TERMINATION BY THE EXECUTIVE: The Executive may terminate the
Executive's employment with the Company or with the Bank hereunder at any time
upon sixty (60) days written notice to the affected entity. If the Executive
terminates the Executive's employment with either the Company or the Bank other
than for breach of this Agreement as provided in Section 3, for Good Reason, in
Contemplation of a Change of Control or within twelve (12) months after a Change
of Control, Executive shall be deemed to have voluntarily terminated Executive's
employment with both the Company and the Bank ("Voluntary Termination"), and
thereupon the Company and the Bank shall have no obligation to make any further
payments to or provide benefits for the Executive, provided that the Executive
shall be entitled to receive any accrued compensation and benefits, insured or
otherwise, that he would otherwise have been eligible to receive under any
Benefit Plans of the Company or the Bank through the date of such termination.
12. DEFINITION OF CHANGE OF CONTROL OF THE COMPANY: A "Change of
Control" of the Company shall mean a change of control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act") or
such item thereof which may hereafter pertain to the same subject; provided
that, and notwithstanding the foregoing, a Change of Control shall be deemed to
have occurred if (i) any person (as that term is used in Sections 13(d) and
14(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing thirty-five percent (35%)
or more of the combined voting power of the Company's then outstanding
securities, or (ii) the Company shall cease to be a publicly owned corporation,
as defined in the Exchange Act.
-62-
<PAGE> 6
13. DEFINITION OF CHANGE OF CONTROL OF THE BANK: A "Change of Control"
of the Bank shall mean any Change of Control of the Company, or any change or
series of changes in circumstances which result in the Company ceasing to own,
control, and vote an absolute majority of the voting securities of the Bank.
14. TERMINATION BY COMPANY OR BANK AFTER CHANGE IN CONTROL: If a Change
of Control of the Company or a Change of Control of the Bank shall have
occurred, this Agreement shall continue in full force and effect. If the
Executive's Employment is terminated by the Company or the Bank within twelve
(12) months after a Change of Control of the Company, as defined in Section 12
above, or a Change of Control of the Bank, as defined in Section 13 above, or in
Contemplation of a Change of Control of either, as defined below, Executive
shall be entitled to be paid an amount equal to one (1) times the sum of
Executive's annual base cash compensation plus the annual value of Executive's
participation in all Benefit Programs in effect at the time of such termination.
At Executive's option, the sums payable pursuant to this Section will be paid in
full in a lump sum and without discount within thirty (30) days of the
termination of Executive's employment, or in equal monthly installments over
twelve (12) months. Any termination of Executive's employment hereunder during
any period of time when the Board of Directors of the Company has formed an
intent to offer the Bank for sale or to promote an acquisition of or merger of
the Company or the Bank, or when the Company has knowledge that any person(s),
entity or concern has taken steps reasonably calculated to effect a Change of
Control of the Company shall constitute a termination of Executive's employment
"In Contemplation of a Change of Control." The period of Contemplation of Change
of Control shall continue until the Board of Directors of the Company no longer
intends to promote an acquisition of or merger of the Company or the Bank, or
until in the opinion of the Company's Board of Directors, the person(s), concern
or entity has abandoned or terminated its efforts to effect a Change of Control
of the Company, as applicable. Any good faith determination by the Company's
Board of Directors that Board no longer has such an intent, or that the
person(s), concern or entity has abandoned or terminated its efforts to effect a
Change of Control of the Company shall be conclusive and binding on the
Executive. Such determination shall be promptly communicated to the Executive in
writing by the Chief Executive of the Company or Chairman of the Board of the
Company. Notwithstanding the foregoing, any termination of the Executive by the
Company or by the Bank within ninety (90) days prior to a Change of Control of
the Company shall be conclusively presumed to have been in Contemplation of
Change of Control.
15. TERMINATION BY EXECUTIVE FOR GOOD REASON; During the term of
Executive's employment hereunder, the Executive may terminate his employment
with both the Company and the Bank if the Executive has Good Reason, as defined
below. Termination by the Executive of Executive's employment with either entity
shall be deemed termination with both. For purposes of this Agreement, "Good
Reason" shall mean:
(i) The assignment of duties to the Executive by the Company
or the Bank which (1) are significantly different from the Executive's duties
immediately prior to the Change of Control, or (2) result in the Executive
having significantly less authority and/or responsibility than Executive had as
an executive officer of the Company or the Bank prior to the Change of Control,
without the express written consent of Executive;
(ii) The removal of the Executive from or any failure to
re-elect Executive to the positions set forth in Section 3 above, except in
connection with a termination of his employment by the Company or the Bank for
Cause or Executive's resignation other than for Good Reason.
(iii) A reduction of the Executive's base salary as in effect
on the date of the Change of Control, unless the reduction in the Executive's
salary is waived in writing by the Executive;
-63-
<PAGE> 7
(iv) The failure of the Company and the Bank collectively to
provide the Executive with substantially the same fringe benefits (including
paid vacations) that were provided to Executive immediately prior to the Change
of Control, or with a package of fringe benefits that, though one or more of
such benefits may vary from those in effect immediately prior to such Change of
Control, is substantially comparable in all material respects to such fringe
benefits taken as a whole; or
(v) Requiring the Executive to perform a significant part of
Executive's duties in locations more than one hundred (100) miles from
Nashville, Tennessee.
Further, and notwithstanding any other provision of this Agreement, the
Executive may terminate his employment without Good Reason at any time within
ninety (90) days after a Change of Control shall have occurred.
16. PAYMENTS ON TERMINATION: Upon termination of Executive's employment
by the Company or the Bank, the Company and the Bank shall have the following
payment obligations to Executive:
(a) If the Executive's Employment is terminated due to illness of
the Executive, the provisions of Section 6 shall apply.
(b) If the Executive's Employment is terminated due to the death of
the Executive, the provisions of Section 7 shall apply.
(c) If the Executive's Employment is terminated by the Company other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 8 shall apply, and therefore the payment
provisions of Section 9 apply.
(d) If the Executive's Employment is terminated by the Bank other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 9 shall apply.
(e) If the Executive's Employment is terminated by the Company for
Cause, or by the Bank for Cause, the provisions of Section 10 shall apply.
(f) If the Executive's Employment is terminated by the Executive as
a result of a breach of the agreement by the Company or the Bank, the provisions
of Section 3 apply, and therefore the payment provisions of Section 9 apply.
(g) In the event of a Voluntary Termination of Executive's
Employment as defined in Section 11, the provisions of Section 11 apply.
(h) If the Executive's Employment is terminated by the Company or
the Bank within twelve (12) months after a Change of Control of the Company, as
defined in Section 12 above, or a Change of Control of the Bank, as defined in
Section 13 above, or in Contemplation of a Change of Control of either, as
defined in Section 14, the provisions of Section 14 shall apply.
(i) If the Executive's Employment is terminated by the Executive for
Good Reason, as defined in Section 15 above, the Executive's employment with the
Company and with the Bank shall be deemed to have been terminated without Cause
by the Company and by the Bank at the time of such termination by Executive for
Good Reason. If such termination is during a period of Contemplation of Change
of Control, or within twelve (12) months after a Change of Control, the
provisions of Section 14 shall apply.
-64-
<PAGE> 8
(j) Termination of Executive's Employment by the Company or by the
Bank or by the Executive shall be communicated by written Notice of Termination
to the other parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision(s) in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
17. CONFIDENTIALITY: In the course of the Executive's employment, the
Company and the Bank may disclose or make known to the Executive, and the
Executive may be given access to or may become acquainted with, certain
information, including but not limited to confidential information which relates
to or is useful in the businesses of the Company and the Bank and which is not
available from public records or other generally available sources
(collectively, "Confidential Information"), and which the Company or the Bank
consider proprietary and desire to maintain confidential. During the term of
this Agreement and at all times thereafter, the Executive shall not in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person or firm, except to legal counsel for the Company or the Bank or otherwise
to or for the benefit of the Company or the Bank as directed by the Company or
the Bank, and except to the Executive's legal counsel in connection with the
resolution of any dispute between the Executive and the Company or the Bank
under this Agreement, any of the Confidential Information which Executive may
have acquired in the course of or as an incident to Executive's employment by
the Company or the Bank, the parties agreeing that such Confidential Information
affects the successful and effective conduct of the business and their goodwill
of the Company and the Bank, and that any material breach of the terms of this
Section 17 is a material breach of this Agreement.
18. COVENANT NOT TO COMPETE. During the Term of this Agreement and, if
Executive terminates Executive's employment in a Voluntary Termination or for
Good Reason, or if the Company or the Bank terminate Executive's employment in
Contemplation of a Change of Control, or within twelve (12) months after a
Change of Control, or for Cause, for the period of twelve (12) months following
the termination of Executive's employment with the Company or the Bank,
Executive agrees that Executive will not directly or indirectly own, become
interested in, or become involved in any manner whatsoever in any business which
is similar or competitive with any aspect of the business of the Company or the
Bank as conducted at the time of such termination. Without limiting the
foregoing, Executive agrees during the applicable period not to engage in the
Banking or Leasing businesses, whether as an owner, partner, director, officer,
employee, consultant, stockholder, agent, salesman, or in any other capacity for
any person, partnership, firm, corporation or other entity without the express
written consent of the President of the Company. Executive specifically
acknowledges and agrees that the foregoing restriction on competition with the
Company and the Bank will not prevent Executive from obtaining gainful
employment following termination of Executive's employment with the Company and
the Bank, and is a reasonable restriction upon Executive's ability to compete
with the Company and the Bank, given the economic benefits afforded to Executive
under this Agreement.
19. NO ENTICEMENT OF EMPLOYEES. Executive agrees that Executive will
not, directly or indirectly, entice or induce, or attempt to entice or induce
any employee of the Company or Bank to leave the employ of the Company or the
Bank during the period covered by the Non-Competition provisions of Section 18
above.
20. NO SOLICITATION. Executive will not, directly or indirectly,
solicit, entice or induce, or attempt to entice or induce any customer or user
of the products or services of the Bank or the Company during the period covered
by the Non-Competition provisions of Section 18 above.
-65-
<PAGE> 9
21. REMEDIES. Executive acknowledges and agrees that the breach or
threatened breach of any of the provisions of Sections 17, 18, 19 and 20 of this
Agreement will cause irreparable harm to the Company and the Bank, and cannot be
adequately compensated by the payment of damages. Accordingly, Executive
covenants and agrees that the Company and the Bank, in addition to any other
rights or remedies which they may have, will be entitled to such equitable and
injunctive relief as may be available from any court of competent jurisdiction
to restrain Executive from breaching or threatening to breach any of the
provisions of this Sections 17, 18, 19 and 20, without posting bond or other
surety. Such right to obtain injunctive relief may be exercised at the option of
the Company or the Bank in addition to, concurrently with, prior to, after, or
in lieu of the exercise of any other rights or remedies which the Company or the
Bank may have as a result of any such breach or threatened breach. In addition
to all other remedies, in the event of the breach or threatened breach of any of
the provisions of Sections 17, 18, 19 or 20 of this Agreement, the Company and
Bank shall be relieved of any obligation to continue payments to the Executive
pursuant to the provisions of this agreement.
22. NOTICES: For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Community Financial Group, Inc.
401 Church Street, 2nd Floor
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
If to the Bank:
The Bank of Nashville
401 Church Street
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
-66-
<PAGE> 10
If to the Executive:
T. Wayne Hood
408 Honeysuckle Circle
Franklin, TN 37067
or at such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
23. MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Executive, and on behalf of
the Company by such officer as may be specifically designated by the Board of
Directors of the Company after approval of the modification by the Board of
Directors, and on behalf of the Bank by such officer as may be specifically
designated by the Board of Directors of the Bank after approval of the
modification by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Tennessee.
24. INVALIDITY; ENFORCEABILITY: The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
25. ASSIGNMENTS: This Agreement is personal to the Executive, who may
not assign his obligations hereunder.
26. SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, the Bank, its
successors and assigns and upon the Executive, and his personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would still be payable
to him hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to his devisee, legatee or
other designee or, if there is no such designee, to his estate.
27. HEADINGS: Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
28. ARBITRATION: Any dispute, controversy or claim arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Nashville, Tennessee, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Unless otherwise provided in the rules of the American Arbitration
Association, the arbitrators shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys' fees and
expenses of the parties, as well as the arbitrator's fees and expenses, in such
proportions as the arbitrators deem just.
-67-
<PAGE> 11
29. ENTIRE AGREEMENT: This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes or amends all other agreements,
negotiations, understandings and representations (if any) made by and between
the parties hereto; provided, however, that nothing herein shall affect in any
way agreements granting or evidencing the Executive's options to acquire shares
of the Company.
30. REGULATORY AND OTHER PROCEEDINGS: The provisions of this Section 30
shall control as to continuing rights and obligations under this Agreement,
notwithstanding any other provision of this Agreement, for as long as they are
required to be included in employment contracts between an institution insured
by the FDIC and its officers and as long as the Bank is such an insured
institution.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank or the Company by a
Notice served under applicable Federal or State statutes or regulations, the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank and the Company shall pay the Executive all of the
compensation withheld while their obligations hereunder were suspended and
reinstate their obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank or the Company by an
order issued under applicable Federal or State statutes or regulations, all
obligations of the Company and the Bank under this Agreement shall terminate as
of the effective date of the order, provided that vested rights of the
contracting parties shall not be affected.
(c) If the Company or the Bank become insolvent or taken over by
regulatory entities, all obligations under this Agreement shall terminate as of
the date of default, provided that this paragraph shall not affect any vested
rights of the contracting parties.
(d) All obligations under this Agreement may be terminated, except
to the extent determined that continuation thereof is necessary for the
continued operation of the Company or the Bank, by the FDIC at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank or
approves a supervisory merger to resolve problems related to operation of the
Bank, provided that any rights of the parties that have already vested shall not
be affected by such action.
-68-
<PAGE> 12
31. SURVIVAL. This agreement shall remain in effect notwithstanding the
termination of Executive's employment hereunder, and in any case, the provisions
of Sections 18, 19, and 20 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
Executive:
/s/ T. Wayne Hood
-------------------------------------------
T. Wayne Hood
Community Financial Group, Inc.
By: /s/ Mack S. Linebaugh, Jr.
-------------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
By: /s/ Mack S. Linebaugh, Jr.
-------------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
-69-
<PAGE> 1
EXHIBIT 10.22
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement entered into this 14th day of
September, 1999 by and among Community Financial Group, Inc., a Tennessee
corporation (the "Company"), The Bank of Nashville, a banking corporation
organized under the laws of the State of Tennessee (the "Bank"), and Joan B.
Marshall (the "Executive").
WITNESSETH:
WHEREAS, the Company is a one-bank holding company which owns one
hundred per cent (100%) of the outstanding stock of the Bank;
WHEREAS, the Company and the Bank desire to retain the services of
Executive on the terms and conditions set forth herein and, for purposes of
effecting the same, the Boards of Directors of the Company and the Bank have
approved this Employment Agreement and authorized its execution and delivery to
the Executive on behalf of the Company and the Bank;
WHEREAS, the Executive serves as the Senior Vice President and
Corporate Secretary of the Company and, as such, is a key executive officer of
the Company whose continued dedication, availability, advice and counsel to the
Company is deemed important to the Company, the Board of Directors of the
Company, and the present and future stockholders of the Company;
WHEREAS, the Executive serves as the Senior Vice President and
Corporate Secretary of the Bank and, as such, is a key executive officer of the
Bank whose continued dedication, availability, advice and counsel to the Bank is
deemed important to the Board of Directors of the Bank, the Bank and the
Company;
WHEREAS, the Company and the Bank wish to attract and retain
well-qualified executives, and it is in the best interests of the Company, the
Bank and the Executive, notwithstanding any change in control of the Company or
the Bank, to secure the services of the Executive, whose experience and
knowledge of the affairs of the Company and the Bank, and whose reputation and
contacts in the industry, are extremely valuable to the Company and the Bank;
and
WHEREAS, the Company and the Bank consider the establishment and
maintenance of a sound and vital management team to be part of their overall
corporate strategy and to be essential to protecting and enhancing the best
interests of the Bank, the Company, and its stockholders.
NOW, THEREFORE, to assure the Company and the Bank of the Executive's
continued dedication, the availability of Executive's advice and counsel to the
Boards of Directors of the Company and the Bank, the availability of Executive's
management skills to the Company and the Bank, and to induce the Executive to
remain and continue in the employ of the Company and the Bank in Executive's
current capacities, and for other good and valuable consideration, the receipt
and adequacy of which each party hereby acknowledged, the Company, the Bank and
the Executive hereby agree as follows:
1. EMPLOYMENT. The Company and the Bank agree to, and do hereby, employ
Executive and Executive agrees to, and does hereby, accept such employment, all
upon the terms and conditions hereinafter set forth.
2. TERM: The initial term of employment under this Agreement shall be
for a period of one (1) year, commencing on the date first above written and
ending at the close of business one year from said date. This Agreement shall be
automatically renewed for succeeding terms of one (1) year each, unless either
party shall, at least thirty (30) days, but not more than one hundred eighty
(180) days, prior to the expiration of any term, give written notice of her or
its intention not to renew this Agreement.
-70-
<PAGE> 2
3. EMPLOYMENT; DUTIES, AUTHORITY, AND RESPONSIBILITIES:
(a) During the term of employment of the Executive by the Company
and the Bank, the Executive shall devote Executive's full business time and
attention to the rendition of services as Senior Vice President and Corporate
Secretary of the Company and as Senior Vice President and Corporate Secretary of
the Bank, and to the furtherance of the best interests of the Company and the
Bank, and shall exert Executive's best efforts in the rendition of such
services. The Executive agrees that in the rendition of such services and in all
aspects of such employment Executive will comply with the policies, standards
and regulations of the Company and the Bank as from time to time established by
their respective Boards of Directors. The expenditure by the Executive of
reasonable amounts of time for charitable, professional and similar activities
shall not be deemed a breach of this Agreement provided such activities do not
materially interfere with the services to be rendered to the Company and the
Bank hereunder.
(b) As Senior Vice President and Corporate Secretary of the Company
and the Bank, the Executive shall have the general powers and duties of
supervision which usually pertain to such offices and shall perform all such
duties as are properly required of Executive by the Chief Executive Officer of
the Company and the Bank.
(c) If after a Change of Control occurs, a material reduction or
limitation of the duties of the Executive that were in effect immediately prior
to the Change of Control occurs, this action shall be considered a breach of
this Agreement by the Company and the Bank. In the event of any breach of any
provision of this Agreement by the Bank which breach is not cured within ten
(10) days after written notice of the breach to the Bank by the Executive shall
entitle the Executive to terminate her employment by the Bank pursuant to this
Agreement by not less than sixty (60) days written notice to the Board of
Directors of the Bank and, at the option of Executive, to terminate her
employment by the Company pursuant to this Agreement by not less than sixty (60)
days written notice to the Board of Directors of the Company. Any such
termination by the Executive of her employment by the Bank hereunder resulting
from a breach of the terms of this Agreement shall be treated as a termination
by the Bank without cause and governed by Section 9 below, unless such breach
occurs in Contemplation of a Change of Control or within twelve (12) months
after a Change of Control, and constitutes Good Reason for the Executive to
terminate Executive's employment, in which case it shall be governed by Section
15 below.
4. COMPENSATION: The Bank agrees to pay Executive, and Executive agrees
to accept, as compensation for all services rendered by her to the Company, the
Bank and their affiliates during the period of her employment under this
Agreement, base compensation at the annual rate of not less than $75,000, which
shall be payable in accordance with the normal payroll policies of the Bank and
shall be subject to all appropriate withholding taxes.
5. PARTICIPATION IN BENEFIT PLANS, REIMBURSEMENT OF BUSINESS EXPENSES
AND MOVING EXPENSES:
(a) During the term of this Agreement, Executive shall be entitled
to participate in all pension, group insurance, hospitalization, deferred
compensation, Company paid life insurance, or incentive plans, and any other
benefit plan of the Company or the Bank presently in effect or hereafter adopted
by the Company or the Bank and generally available to all employees of either
organization of senior executive status (the "Benefit Plans").
-71-
<PAGE> 3
(b) During the term of this Agreement, to the extent that such
expenditures meet the requirements of the Internal Revenue Code for
deductibility by the Company or the Bank for federal income tax purposes and are
substantiated by the Executive as required by the Internal Revenue Service and
policies of the Company and the Bank, the Bank shall reimburse the Executive
promptly for all expenditures (including travel, entertainment, parking,
business meetings, and the monthly costs, including dues, of maintaining
memberships at appropriate clubs, including, but not limited to, Nashville City
Club) made in accordance with rules and policies established from time to time
by the Board of Directors of the Bank in pursuance and furtherance of the
Company's and the Bank's business and good will.
(c) During the term of this Agreement, in the event that the Company
or the Bank relocates its principal executive offices to a location more than
one hundred (100) miles from Nashville, Tennessee, or the Board of Directors of
either the Company or the Bank requires the Executive to be based anywhere more
than one hundred (100) miles from the Bank's principal executive offices, the
Bank shall pay (or reimburse the Executive for) all reasonable moving expenses
incurred by Executive relating to a change of Executive's principal residence in
connection with such relocation, provided that the Executive furnishes the Bank
with adequate records and documentary evidence for the substantiation of such
reimbursement.
6. ILLNESS: In the event Executive is unable to perform Executive's
duties under this Agreement on a full-time basis for a period of six (6)
consecutive months by reason of illness or other physical or mental disability,
and at or before the end of such period Executive does not return to work on a
full-time basis, the Company and the Bank may jointly terminate Executive's
Employment pursuant to this Agreement without further or additional compensation
being due the Executive from the Bank pursuant to this Agreement, except that
the Executive shall be paid Executive's base compensation from the Bank at the
rate in effect at the time of Executive's termination for a period of twelve
(12) months from the date of the commencement of the Executive's inability to
perform her duties, less any disability payments payable during such time under
any disability plans maintained and paid for by the Bank, and Executive shall
continue to participate in all Benefit Plans in effect at the time of
Executive's termination for a period of twelve (12) months from the date of the
commencement of the Executive's inability to perform her duties.
7. DEATH: In the event of the Executive's death during the term of this
Agreement, Executive's estate, legal representatives or named beneficiaries (as
directed by the Executive in writing) shall be paid Executive's base
compensation from the Bank at the rate in effect at the time of the Executive's
death under this Agreement for the period of twelve (12) months from the date of
the Executive's death, less any amounts payable to Executive's estate or
beneficiaries under life insurance policies on the life of Executive maintained
and paid for by Bank.
8. TERMINATION BY COMPANY: Notwithstanding the provisions of Section 2
above, the Board of Directors of the Company may, in its sole discretion,
terminate the Executive's employment with the Company under this Agreement at
any time in any lawful manner by not less than thirty (30) days written notice
to the Executive, in which event the Executive shall be entitled to elect to
have such termination likewise constitute a termination of Executive's
employment by the Bank. If Executive so elects, then unless such termination is
for Cause as defined in Section 10 of this Agreement or unless the Executive's
employment is terminated in Contemplation of a Change of Control or within
twelve (12) months after a Change of Control, Executive shall be entitled to the
compensation provided for in Section 9 below.
9. TERMINATION BY BANK: Notwithstanding the provisions of Section 2 of
this Agreement, the Board of Directors of the Bank may, in its sole discretion,
terminate the Executive's employment with the Bank under this Agreement at any
time in any lawful manner by not less than thirty
-72-
<PAGE> 4
(30) days written notice to the Executive (or, at the Bank's option, pay for
such thirty days in lieu of notice) and in such event, unless the Bank
terminates the Executive's employment with the Bank for Cause as defined in with
Section 10 of this Agreement or, unless the Executive's employment is terminated
in Contemplation of a Change of Control or within twelve (12) months after a
Change of Control, the Executive shall be paid, during the twelve (12) months
following such termination at such times as payment was theretofore made, the
base compensation that the Executive would have been entitled to receive during
such period of time had such termination not occurred, such payments to be in
addition to any payment in lieu of notice. Furthermore, the Bank shall pay to
the Executive in equal monthly payments an amount sufficient to fully fund any
Benefit Plans of the Bank, with respect to the Executive, commencing at the
beginning of the first month following termination of Executive's employment
with the Bank pursuant to this paragraph, and ending twelve (12) months after
such termination. In the event that a payment made with respect to any benefit
plan or program would otherwise violate the terms of the plan or program, an
equivalent amount shall be paid directly to Executive. Executive shall owe no
duty to mitigate these payments, and shall not be required to obtain or attempt
to obtain alternate employment during such twelve (12) month period. If
Executive obtains other gainful employment during such twelve (12) month period,
the compensation and benefits received by Executive during said period from such
other employment shall not reduce the payments otherwise due to Executive
pursuant to this section.
10. TERMINATION FOR CAUSE:
(a) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Company may, in its sole discretion, terminate the Executive's
employment with the Company for Cause. For the purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder:
(i) because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses), willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Bank terminates
the employment of Executive with the Bank for Cause pursuant to subsection (c)
of this Section 10. For purposes of this paragraph, no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by her not in good faith or without reasonable belief that her action
or omission was in the best interest of the Company; provided that any act or
omission to act on the Executive's behalf in reliance upon an opinion of counsel
to either the Company or the Bank shall not be deemed to be "willful."
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been a resolution
approved by a majority of the non-officer members of the Board of Directors of
the Company finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which is deemed to be Cause within the meaning
of this paragraph, after notice to the Executive and an opportunity for her,
together with her counsel, to be heard before such majority (with the Company
Board retaining the right to deliberate without the Executive and her counsel
present before and/or after such hearing).
(b) If the Company terminates the Executive's employment with the
Company for Cause in accordance with Section 10(a) of this Agreement, the
Company shall have no obligation to make any further payments to or provide
benefits for the Executive, provided that the Executive shall be entitled to
receive any accrued compensation or benefits, insured or otherwise, that she
would otherwise have been eligible to receive under any Benefit Plans of the
Company through the date of such termination.
-73-
<PAGE> 5
(c) Notwithstanding the provisions of this Agreement, the Board of
Directors of the Bank may, in its sole discretion, terminate the Executive's
employment with the Bank for Cause. For the purposes of this Agreement, the Bank
shall have "Cause" to terminate the Executive's employment hereunder: (i)
because of the Executive's personal dishonesty, incompetence, willful
misconduct, gross negligence, willful breach of fiduciary duty (including
involving personal profit), failure to substantially perform stated duties
described in Section 3 of this Agreement, willful violation of any material law,
rule, regulation (other than traffic violations or similar offenses) , willful
violation of any final cease-and-desist order issued by any regulatory agency
having jurisdiction over the Company or the Bank, the imposition of any sanction
upon the Executive by any such regulatory agency, or material breach by the
Executive of any provision of this Agreement or any related agreement entered
into by the Executive; or (ii) if the Board of Directors of the Company
terminates Executive's employment with the Company for Cause pursuant to
subsection (a) of this Section 10. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by her not in good faith or without reasonable
belief that her action or omission was in the best interest of the Bank;
provided that any act or omission to act on the Executive's behalf in reliance
upon an opinion of counsel to either the Company or the Bank shall not be deemed
to be "willful." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
a resolution approved by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such majority,
the Executive was guilty of conduct which is deemed to be Cause within the
meaning of this paragraph, after notice to the Executive and an opportunity for
her, together with her counsel to be heard before such majority (with the Bank
Board retaining the right to deliberate without the Executive and her counsel
present before and/or after such hearing).
(d) If the Bank terminates the Executive's employment with the Bank
for Cause in accordance with Section 10(c) of this Agreement, the Bank shall
have no obligation to make any further payments to or provide benefits for the
Executive, provided that the Executive shall be entitled to receive any accrued
compensation or benefits, insured or otherwise, which Executive would otherwise
have been eligible to receive under any Benefit Plans of the Bank through the
date of such termination.
11. TERMINATION BY THE EXECUTIVE: The Executive may terminate the
Executive's employment with the Company or with the Bank hereunder at any time
upon sixty (60) days written notice to the affected entity. If the Executive
terminates the Executive's employment with either the Company or the Bank other
than for breach of this Agreement as provided in Section 3, for Good Reason, in
Contemplation of a Change of Control or within twelve (12) months after a Change
of Control, Executive shall be deemed to have voluntarily terminated Executive's
employment with both the Company and the Bank ("Voluntary Termination"), and
thereupon the Company and the Bank shall have no obligation to make any further
payments to or provide benefits for the Executive, provided that the Executive
shall be entitled to receive any accrued compensation and benefits, insured or
otherwise, that she would otherwise have been eligible to receive under any
Benefit Plans of the Company or the Bank through the date of such termination.
12. DEFINITION OF CHANGE OF CONTROL OF THE COMPANY: A "Change of
Control" of the Company shall mean a change of control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act") or
such item thereof which may hereafter pertain to the same subject; provided
that, and notwithstanding the foregoing, a Change of Control shall be deemed to
have occurred if (i) any person (as that term is used in Sections 13(d) and
14(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing thirty-five percent (35%)
or more of the combined voting power of the Company's then outstanding
securities, or (ii) the Company shall cease to be a publicly owned corporation,
as defined in the Exchange Act.
-74-
<PAGE> 6
13. DEFINITION OF CHANGE OF CONTROL OF THE BANK: A "Change of Control"
of the Bank shall mean any Change of Control of the Company, or any change or
series of changes in circumstances which result in the Company ceasing to own,
control, and vote an absolute majority of the voting securities of the Bank.
14. TERMINATION BY COMPANY OR BANK AFTER CHANGE IN CONTROL: If a Change
of Control of the Company or a Change of Control of the Bank shall have
occurred, this Agreement shall continue in full force and effect. If the
Executive's Employment is terminated by the Company or the Bank within twelve
(12) months after a Change of Control of the Company, as defined in Section 12
above, or a Change of Control of the Bank, as defined in Section 13 above, or in
Contemplation of a Change of Control of either, as defined below, Executive
shall be entitled to be paid an amount equal to one (1) times the sum of
Executive's annual base cash compensation plus the annual value of Executive's
participation in all Benefit Programs in effect at the time of such termination.
At Executive's option, the sums payable pursuant to this Section will be paid in
full in a lump sum and without discount within thirty (30) days of the
termination of Executive's employment, or in equal monthly installments over
twelve (12) months. Any termination of Executive's employment hereunder during
any period of time when the Board of Directors of the Company has formed an
intent to offer the Bank for sale or to promote an acquisition of or merger of
the Company or the Bank, or when the Company has knowledge that any person(s),
entity or concern has taken steps reasonably calculated to effect a Change of
Control of the Company shall constitute a termination of Executive's employment
"In Contemplation of a Change of Control." The period of Contemplation of Change
of Control shall continue until the Board of Directors of the Company no longer
intends to promote an acquisition of or merger of the Company or the Bank, or
until in the opinion of the Company's Board of Directors, the person(s), concern
or entity has abandoned or terminated its efforts to effect a Change of Control
of the Company, as applicable. Any good faith determination by the Company's
Board of Directors that Board no longer has such an intent, or that the
person(s), concern or entity has abandoned or terminated its efforts to effect a
Change of Control of the Company shall be conclusive and binding on the
Executive. Such determination shall be promptly communicated to the Executive in
writing by the Chief Executive of the Company or Chairman of the Board of the
Company. Notwithstanding the foregoing, any termination of the Executive by the
Company or by the Bank within ninety (90) days prior to a Change of Control of
the Company shall be conclusively presumed to have been in Contemplation of
Change of Control.
15. TERMINATION BY EXECUTIVE FOR GOOD REASON; During the term of
Executive's employment hereunder, the Executive may terminate her employment
with both the Company and the Bank if the Executive has Good Reason, as defined
below. Termination by the Executive of Executive's employment with either entity
shall be deemed termination with both. For purposes of this Agreement, "Good
Reason" shall mean:
(i) The assignment of duties to the Executive by the Company
or the Bank which (1) are significantly different from the Executive's duties
immediately prior to the Change of Control, or (2) result in the Executive
having significantly less authority and/or responsibility than Executive had as
an executive officer of the Company or the Bank prior to the Change of Control,
without the express written consent of Executive;
(ii) The removal of the Executive from or any failure to
re-elect Executive to the positions set forth in Section 3 above, except in
connection with a termination of her employment by the Company or the Bank for
Cause or Executive's resignation other than for Good Reason.
-75-
<PAGE> 7
(iii) A reduction of the Executive's base salary as in effect
on the date of the Change of Control, unless the reduction in the Executive's
salary is waived in writing by the Executive;
(iv) The failure of the Company and the Bank collectively to
provide the Executive with substantially the same fringe benefits (including
paid vacations) that were provided to Executive immediately prior to the Change
of Control, or with a package of fringe benefits that, though one or more of
such benefits may vary from those in effect immediately prior to such Change of
Control, is substantially comparable in all material respects to such fringe
benefits taken as a whole; or
(v) Requiring the Executive to perform a significant part of
Executive's duties in locations more than one hundred (100) miles from
Nashville, Tennessee.
Further, and notwithstanding any other provision of this Agreement, the
Executive may terminate her employment without Good Reason at any time within
ninety (90) days after a Change of Control shall have occurred.
16. PAYMENTS ON TERMINATION: Upon termination of Executive's employment
by the Company or the Bank, the Company and the Bank shall have the following
payment obligations to Executive:
(a) If the Executive's Employment is terminated due to illness of
the Executive, the provisions of Section 6 shall apply.
(b) If the Executive's Employment is terminated due to the death of
the Executive, the provisions of Section 7 shall apply.
(c) If the Executive's Employment is terminated by the Company other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 8 shall apply, and therefore the payment
provisions of Section 9 apply.
(d) If the Executive's Employment is terminated by the Bank other
than for Cause, and not In Contemplation of a Change of Control of the Company
or the Bank or within twelve months after a Change of Control of the Company or
the Bank, the provisions of Section 9 shall apply.
(e) If the Executive's Employment is terminated by the Company for
Cause, or by the Bank for Cause, the provisions of Section 10 shall apply.
(f) If the Executive's Employment is terminated by the Executive as
a result of a breach of the agreement by the Company or the Bank, the provisions
of Section 3 apply, and therefore the payment provisions of Section 9 apply.
(g) In the event of a Voluntary Termination of Executive's
Employment as defined in Section 11, the provisions of Section 11 apply.
(h) If the Executive's Employment is terminated by the Company or
the Bank within twelve (12) months after a Change of Control of the Company, as
defined in Section 12 above, or a Change of Control of the Bank, as defined in
Section 13 above, or in Contemplation of a Change of Control of either, as
defined in Section 14, the provisions of Section 14 shall apply.
-76-
<PAGE> 8
(i) If the Executive's Employment is terminated by the Executive for
Good Reason, as defined in Section 15 above, the Executive's employment with the
Company and with the Bank shall be deemed to have been terminated without Cause
by the Company and by the Bank at the time of such termination by Executive for
Good Reason. If such termination is during a period of Contemplation of Change
of Control, or within twelve (12) months after a Change of Control, the
provisions of Section 14 shall apply.
(j) Termination of Executive's Employment by the Company or by the
Bank or by the Executive shall be communicated by written Notice of Termination
to the other parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision(s) in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
17. CONFIDENTIALITY: In the course of the Executive's employment, the
Company and the Bank may disclose or make known to the Executive, and the
Executive may be given access to or may become acquainted with, certain
information, including but not limited to confidential information which relates
to or is useful in the businesses of the Company and the Bank and which is not
available from public records or other generally available sources
(collectively, "Confidential Information"), and which the Company or the Bank
consider proprietary and desire to maintain confidential. During the term of
this Agreement and at all times thereafter, the Executive shall not in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person or firm, except to legal counsel for the Company or the Bank or otherwise
to or for the benefit of the Company or the Bank as directed by the Company or
the Bank, and except to the Executive's legal counsel in connection with the
resolution of any dispute between the Executive and the Company or the Bank
under this Agreement, any of the Confidential Information which Executive may
have acquired in the course of or as an incident to Executive's employment by
the Company or the Bank, the parties agreeing that such Confidential Information
affects the successful and effective conduct of the business and their goodwill
of the Company and the Bank, and that any material breach of the terms of this
Section 17 is a material breach of this Agreement.
18. COVENANT NOT TO COMPETE. During the Term of this Agreement and, if
Executive terminates Executive's employment in a Voluntary Termination or for
Good Reason, or if the Company or the Bank terminate Executive's employment in
Contemplation of a Change of Control, or within twelve (12) months after a
Change of Control, or for Cause, for the period of twelve (12) months following
the termination of Executive's employment with the Company or the Bank,
Executive agrees that Executive will not directly or indirectly own, become
interested in, or become involved in any manner whatsoever in any business which
is similar or competitive with any aspect of the business of the Company or the
Bank as conducted at the time of such termination. Without limiting the
foregoing, Executive agrees during the applicable period not to engage in the
Banking or Leasing businesses, whether as an owner, partner, director, officer,
employee, consultant, stockholder, agent, salesman, or in any other capacity for
any person, partnership, firm, corporation or other entity without the express
written consent of the President of the Company. Executive specifically
acknowledges and agrees that the foregoing restriction on competition with the
Company and the Bank will not prevent Executive from obtaining gainful
employment following termination of Executive's employment with the Company and
the Bank, and is a reasonable restriction upon Executive's ability to compete
with the Company and the Bank, given the economic benefits afforded to Executive
under this Agreement.
19. NO ENTICEMENT OF EMPLOYEES. Executive agrees that Executive will
not, directly or indirectly, entice or induce, or attempt to entice or induce
any employee of the Company or Bank to leave the employ of the Company or the
Bank during the period covered by the Non-Competition provisions of Section 18
above.
-77-
<PAGE> 9
20. NO SOLICITATION. Executive will not, directly or indirectly,
solicit, entice or induce, or attempt to entice or induce any customer or user
of the products or services of the Bank or the Company during the period covered
by the Non-Competition provisions of Section 18 above.
21. REMEDIES. Executive acknowledges and agrees that the breach or
threatened breach of any of the provisions of Sections 17, 18, 19 and 20 of this
Agreement will cause irreparable harm to the Company and the Bank, and cannot be
adequately compensated by the payment of damages. Accordingly, Executive
covenants and agrees that the Company and the Bank, in addition to any other
rights or remedies which they may have, will be entitled to such equitable and
injunctive relief as may be available from any court of competent jurisdiction
to restrain Executive from breaching or threatening to breach any of the
provisions of this Sections 17, 18, 19 and 20, without posting bond or other
surety. Such right to obtain injunctive relief may be exercised at the option of
the Company or the Bank in addition to, concurrently with, prior to, after, or
in lieu of the exercise of any other rights or remedies which the Company or the
Bank may have as a result of any such breach or threatened breach. In addition
to all other remedies, in the event of the breach or threatened breach of any of
the provisions of Sections 17, 18, 19 or 20 of this Agreement, the Company and
Bank shall be relieved of any obligation to continue payments to the Executive
pursuant to the provisions of this agreement.
22. NOTICES: For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Community Financial Group, Inc.
401 Church Street, 2nd Floor
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
If to the Bank:
The Bank of Nashville
401 Church Street
Nashville, TN 37219
Attention: Chief Executive Officer
with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P. O. Box 198062
Nashville, TN 37219
Attention: Patrick L. Alexander, Esq.
-78-
<PAGE> 10
If to the Executive:
Joan B. Marshall
88 Blue Ridge Trace
Hendersonville, TN 37075
or at such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
23. MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Executive, and on behalf of
the Company by such officer as may be specifically designated by the Board of
Directors of the Company after approval of the modification by the Board of
Directors, and on behalf of the Bank by such officer as may be specifically
designated by the Board of Directors of the Bank after approval of the
modification by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Tennessee.
24. INVALIDITY; ENFORCEABILITY: The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
25. ASSIGNMENTS: This Agreement is personal to the Executive, who may
not assign her obligations hereunder.
26. SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, the Bank, its
successors and assigns and upon the Executive, and her personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would still be payable
to her hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to her devisee, legatee or
other designee or, if there is no such designee, to her estate.
27. HEADINGS: Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
28. ARBITRATION: Any dispute, controversy or claim arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Nashville, Tennessee, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Unless otherwise provided in the rules of the American Arbitration
Association, the arbitrators shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys' fees and
expenses of the parties, as well as the arbitrator's fees and expenses, in such
proportions as the arbitrators deem just.
-79-
<PAGE> 11
29. ENTIRE AGREEMENT: This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes or amends all other agreements,
negotiations, understandings and representations (if any) made by and between
the parties hereto; provided, however, that nothing herein shall affect in any
way agreements granting or evidencing the Executive's options to acquire shares
of the Company.
30. REGULATORY AND OTHER PROCEEDINGS: The provisions of this Section 30
shall control as to continuing rights and obligations under this Agreement,
notwithstanding any other provision of this Agreement, for as long as they are
required to be included in employment contracts between an institution insured
by the FDIC and its officers and as long as the Bank is such an insured
institution.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank or the Company by a
Notice served under applicable Federal or State statutes or regulations, the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank and the Company shall pay the Executive all of the
compensation withheld while their obligations hereunder were suspended and
reinstate their obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank or the Company by an
order issued under applicable Federal or State statutes or regulations, all
obligations of the Company and the Bank under this Agreement shall terminate as
of the effective date of the order, provided that vested rights of the
contracting parties shall not be affected.
(c) If the Company or the Bank become insolvent or taken over by
regulatory entities, all obligations under this Agreement shall terminate as of
the date of default, provided that this paragraph shall not affect any vested
rights of the contracting parties.
(d) All obligations under this Agreement may be terminated, except
to the extent determined that continuation thereof is necessary for the
continued operation of the Company or the Bank, by the FDIC at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank or
approves a supervisory merger to resolve problems related to operation of the
Bank, provided that any rights of the parties that have already vested shall not
be affected by such action.
-80-
<PAGE> 12
31. SURVIVAL. This agreement shall remain in effect notwithstanding the
termination of Executive's employment hereunder, and in any case, the provisions
of Sections 18, 19, and 20 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
Executive:
/s/ Joan B. Marshall
----------------------------------------
Joan B. Marshall
Community Financial Group, Inc.
By: /s/ Mack S. Linebaugh, Jr.
----------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
By: /s/ Mack S. Linebaugh, Jr.
----------------------------------------
Name: Mack S. Linebaugh, Jr.
Title: President
The Bank of Nashville
-81-
<PAGE> 1
EXHIBIT 10.23
FIRST AMENDMENT TO LEASE AGREEMENT
THE BANK OF NASHVILLE
L & C TOWER
NASHVILLE, TENNESSEE
APRIL 13, 1999
This First Amendment to the Lease Agreement ("First Amendment") dated
and effective this 13th day of April, 1999 by and between The Bank of Nashville
("Tenant") and LC Tower, LLC, successor in interest to Metropolitan Life
Insurance Company ("Landlord") is hereby made a part thereof of the Lease
Agreement dated July 19, 1989 as previously amended by the Letter Agreement
dated March 29, 1993 ("Lease") by and between Landlord and Tenant.
WHEREAS, Landlord and Tenant entered into the Lease for certain
premises located on the second and third floor and basement consisting of
approximately 15,296 Square Feet Net Rentable Areas ("Premises") in the building
commonly known as the L&C Tower located at 401 Church Street, Nashville,
Tennessee 37219 ("Building"); and
WHEREAS, Tenant desires to expand its Premises on the third floor and
twenty-third floor in the Building; and
WHEREAS, Tenant desires to amend and extend its Lease Term for the
period September 1, 1999 through August 31, 2009; and
WHEREAS, Landlord is willing to amend and extend the Lease under
certain terms and conditions. Unless specifically defined herein, the terms used
in the First Amendment to Lease will have the meanings defined in the Lease.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, and for other mutual benefits as noted
herein, the receipt and sufficiency, LC Tower, LLC, as Landlord and The Bank of
Nashville, as Tenant wish to amend said Lease as follows:
1. The second paragraph of Article 1. LEASED PREMISES of the Lease is
amended effective September 1, 1999 by deleting the existing language
in its entirety and replacing with the following:
Space on the Lower, Second, Third, and Twenty-third floor levels
of the Building indicated as being part of the Leased Premises on
the Floor Plans attached hereto as Exhibit A, which shall be
deemed to contain a total of 21,536 square feet of Net Rentable
Area (SF NRA) consisting of 6,865 SF NRA on the Second Floor
("Second Floor Premises"), 6,768 SF NRA on the Third Floor
("Third Floor Premises"), 3,713 SF NRA on the Lower
Level/Basement ("Basement Premises") and effective November 1,
1999
-82-
<PAGE> 2
The Bank of Nashville
First Amendment to Lease
Page 2
- ------------------------
on the twenty-third floor 4,190 SF NRA ("Twenty-third Floor
Premises"). The Second Floor Premises, Third Floor Premises and
Twenty-third Floor Premises shall collectively be referred to as
"Tower Premises". The Tower Premises and Basement Premises shall
collectively be referred to as "Premises" or "Leased Premises".
2. Article 2. TERM, of the Lease is amended and extended as follows:
TERM. Beginning September 1, 1999, this Lease shall be extended
for an additional term of ten (10) years, commencing on the 1st
day of September, 1999 and ending on the 31st day of August, 2009
for the Basement Premises, Second Floor Premises and Third Floor
Premises (hereinafter sometimes referred to as the "Leased Term"
or "Term"), unless sooner terminated or extended as provided
herein. The Twenty-third Floor Premises shall be for the term of
nine (9) years ten (10) months, commencing on the 1st day of
November, 1999 and ending on the 31st day of August, 2009, unless
sooner terminated or extended as provided herein.
If the Landlord is unable to give possession of the Twenty-third
Floor Premises on the date of the commencement of the aforesaid
Lease Term by reason of holding over of any prior tenant or
tenants or for any other reasons, an abatement or diminution of
the rent to be paid hereunder shall be allowed Tenant under such
circumstances until possession is given to Tenant, but nothing
herein shall operate to extend the initial Term of the Lease
beyond the agreed expiration date, and said abatement in rent
shall be the full extent of Landlord's liability to Tenant for
any loss or damage to Tenant on account of said delay in
obtaining possession of the Twenty-third Floor Premises.
3. Article 38. TEMPORARY RELOCATION OF TENANT, of the Lease is deleted in
its entirety.
4. Article 45. BROKERAGE, of the Lease is deleted in its entirety and
replaced with the following:
Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction and
that no broker, agent or other person brought about this
transaction, other than First Management Services, Inc., and
Grubb & Ellis / Centennial, Inc., and Tenant agrees to indemnify
and hold Landlord harmless from and against any claims by any
other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Tenant
with regard to this leasing transaction. The provision of this
paragraph shall survive the termination of this Lease.
-83-
<PAGE> 3
The Bank of Nashville
First Amendment to Lease
Page 3
- ------------------------
5. Article 48. ENVIRONMENTAL HAZARDS, of the Lease is deleted in its
entirety.
6. Appendix A THE PREMISES of the Lease is amended effective
September 1, 1999 by deleting the existing language and replacing with
the following (see attached floor plans):
Basement Floor Premises of the L&C Tower
3,713 SF NRA
3% common area factor included
Second Floor Premises of the L&C Tower
6,865 SF NRA
3% common area factor included
Third Floor Premises of the L&C Tower
6,768 SF NRA
3% common area factor included
Twenty-third Floor Premises of the L&C Tower
4,190 SF NRA
12.5% common area factor included
7. Appendix B-1 RATE SCHEDULE of the Lease is amended to provide for the
base rent beginning September 1, 1999:
<TABLE>
<CAPTION>
2nd Floor 3rd Floor 23rd Floor Basement
Premises Premises Premises Premises
--------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
09/01/99 - 08/31/00 Yr 1 $17.40/RSF $15.00/RSF $13.50/RSF* $7.00/RSF
09/01/00 - 08/31/01 Yr 2 $17.75/RSF $15.30/RSF $13.77/RSF $7.00/RSF
09/01/01 - 08/31/02 Yr 3 $18.10/RSF $15.61/RSF $14.05/RSF $7.00/RSF
09/01/02 - 08/31/03 Yr 4 $18.47/RSF $15.92/RSF $14.33/RSF $7.00/RSF
09/01/03 - 08/31/04 Yr 5 $18.83/RSF $16.24/RSF $14.61/RSF $7.00/RSF
09/01/04 - 08/31/05 Yr 6 $19.21/RSF $16.56/RSF $14.91/RSF $7.00/RSF
09/01/05 - 08/31/06 Yr 7 $19.60/RSF $16.89/RSF $15.20/RSF $7.00/RSF
09/01/06 - 08/31/07 Yr 8 $19.99/RSF $17.23/RSF $15.51/RSF $7.00/RSF
09/01/07 - 08/31/08 Yr 9 $20.39/RSF $17.57/RSF $15.82/RSF $7.00/RSF
09/01/08 - 08/31/09 Yr 10 $20.79/RSF $17.93/RSF $16.13/RSF $7.00/RSF
</TABLE>
*The Twenty-third Floor Premises' rent commencing, November 1, 1999
shall increase to the next Lease Year's rate on September 1 of each
subsequent Lease Year.
-84-
<PAGE> 4
The Bank of Nashville
First Amendment to Lease
Page 4
- ------------------------
8. Appendix B-2 OPTION SPACE of the Lease is amended effective September
1, 1999 by deleting the existing language and replacing with the
following FIRST RIGHT OF OPTION (AVAILABILITY) FOR FOURTH FLOOR
PREMISES:
Tenant shall have a one-time First Right of Option for the
Fourth Floor Tower (6,768 RSF) should the existing tenant as
of this lease amendment signing (State of Tennessee) choose
not to renew ("Option Space"). Upon the State of Tennessee's
notice of non-renewal, Landlord shall first offer to Tenant
the right to lease the Option Space at the then current rate
for the Twenty-third Floor Premises. Tenant shall have
twenty (20) business days after receipt of written notice of
the availability within which to notify Landlord (a) if it
will lease the Option Space at the then current rates for
the Twenty-third Floor Premises, and (b) if Tenant exercises
its option to take the Option Space, whether it will give
back the Twenty-third Floor Premises. If Tenant exercises
its option to take the Option Space, Tenant shall occupy the
Option Space within forty-five (45) days after the State of
Tennessee vacates the fourth floor. If Tenant exercises its
option to give back the Twenty-third Floor Premises, Tenant
shall vacate the Twenty-third Floor Premises and return it
to Landlord in "broom clean" condition upon occupying the
Option Space. Landlord and Tenant agree that Tenant shall be
responsible for all relocation costs and all tenant
improvement costs to the Option Space; Tenant shall accept
the Option Space in "as-is" condition. No written response
from Tenant within twenty (20) business days after receipt
of written notice of the availability shall be deemed to
mean that Tenant has waived its First Right of Option and
Tenant shall keep the Twenty-third Floor Premises and not
take the Fourth Floor Option Space.
9. Appendix C OPTIONS of the Lease is amended effective September 1, 1999
by deleting the existing language for Option to Extend, Option to
Expand, Right of First Refusal, and Basement Vault and Anteroom in its
entirety and replacing with the following OPTION TO RENEW:
Provided Tenant is not in default, Tenant shall have the
right to three (3) five-year renewal options at a rate which
shall be mutually determined by Landlord and Tenant as
follows: If Tenant desires to exercise its Option to Renew,
it shall notify Landlord no later than twelve (12) months
prior to the expiration of the then current Term. Within one
(1) month after such notification, Landlord shall notify
Tenant of its determination of the current rate, which will
include the Base Rent. If Tenant agrees with such
determination, it shall so notify Landlord. If Tenant does
not agree, then during the thirty (30) day period following
Landlord's notice to Tenant of the rate, Landlord and Tenant
shall negotiate to determine a mutually acceptable rate. If
such parties are unable to reach agreement as to such rate
within said thirty (30) day period, this renewal option will
be of no
-85-
<PAGE> 5
The Bank of Nashville
First Amendment to Lease
Page 5
- ------------------------
force or effect and the Lease will terminate. If the parties
do reach agreement as to such rate within said period, then
the Term shall be extended for the appropriate period, upon
the same terms and conditions set forth in the Lease, except
that the Base Rent shall be as mutually determined and
except that there shall be no Tenant Improvement Allowance
(unless such items are agreed to by Landlord and Tenant).
10. Appendix E ANYTIME TELLER MACHINE AND NIGHT DEPOSITORY of the Lease is
amended effective September 1, 1999 by deleting the existing language
in its entirety and replacing with the following:
Tenant shall keep its anytime teller machine and night
depository ("ATM") at its current location of the Building
as noted on the attached first floor plan "Appendix E".
There shall be no rental cost. The ATM shall remain the sole
property of the Tenant and shall be removed by Tenant at the
expiration of the term of this Lease, with the building's
interior and exterior being restored to its condition
existing prior to the installation of the ATM at Tenant's
cost.
11. Appendix G BASEMENT STORAGE of the Lease is amended effective September
1, 1999 by deleting the existing language in its entirety and replacing
with the following:
BASEMENT STORAGE. Landlord will provide, at no cost to
Tenant, space in the basement for storing paper as required
by regulation. That space is designated as Appendix "G".
12. Appendix H DAMAGES of the Lease is deleted in its entirety.
13. Appendix I LOADING DOCK SECURITY of the Lease is deleted in its
entirety.
14. Appendix J (SPACE PLANNING) of the Lease is deleted in its entirety.
15. Appendix K (POTENTIAL CONTRACTORS) of the Lease is deleted in its
entirety.
16. Appendix L (BLANK) of the Lease is deleted in its entirety.
17. Exhibit A of the Lease is amended effective September 1, 1999 by
replacing the existing floor plans with the attached floor plans
initialed by both parties for the Basement Premises, Second Floor
Premises, Third Floor Premises and Twenty-third Floor Premises.
18. Landlord shall renovate Third Floor Premises Restrooms to a finish
standard comparable to restrooms on the floors occupied by the State
of Tennessee, to
-86-
<PAGE> 6
The Bank of Nashville
First Amendment to Lease
Page 6
- ------------------------
include new sinks, counters, mirrors, water closets, urinals, floor
tile, ceramic tile and paint grade finish on walls.
19. Exhibit B of the Lease and referenced meeting notes from the original
construction are amended effective September 1, 1999 by deleting the
existing language in its entirety and replacing with the following
Work Letter:
WORK LETTER.
A. Initial Plan. Tenant will perform certain leasehold improvement
work in the Tower Premises in substantial accordance with the plans to
be prepared by Infrastructure, Inc. (collectively "Initial Plan"), a
copy of which shall be attached as Schedule 1. Such work, as shown in
the Initial Plan and as more fully detailed in the Working Drawings
(as defined and described in Paragraph B below), shall be hereinafter
referred to as the "Work". All plans, drawings, specifications and
other details describing the Work which have been or are hereafter
furnished by or on behalf of Tenant shall be subject to Landlord's
approval, which Landlord agrees shall not be unreasonably withheld,
delayed or conditioned. Landlord shall not be deemed to have acted
unreasonably if it withholds its approval of any plans,
specifications, drawings, or other details or of any Additional Work
(as defined in Paragraph E below) because, in Landlord's reasonable
opinion, the Work, as described in any such item, or the Additional
Work, as the case may be: (a) is likely to adversely affect the
Building systems, the structure of the Building or the safety of the
Building and/or its occupants; (b) might impair Landlord's ability to
furnish services to Tenant or other tenants in the building; (c) would
increase the cost of operating the building; (d) would violate any
governmental laws, rules or ordinances (or interpretations thereof);
(e) contains or uses hazardous or toxic materials or substances; (f)
would adversely affect the appearance of the building; (g) might
adversely affect another tenant's premises; (h) is prohibited by any
ground lease affecting the Building or any mortgage, trust deed or
other instrument encumbering the Building; or (i) is likely to be
substantially delayed because of unavailability or shortage of labor
or materials necessary to perform such work or the difficulties or
unusual nature of such work. The foregoing reasons, however, shall not
be the only reasons for which Landlord may withhold its approval,
whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Landlord of the Work or the Initial
Plan or any other plans, drawings, specifications or other items
associated with the Work nor Landlord's monitoring of the Work shall
constitute any warranty by Landlord to Tenant of the adequacy of the
design for Tenant's intended use of the Premises.
B. Working Drawings; performance of the Work.
(1) If not included as part of the Initial Plan attached
hereto, Tenant shall prepare or cause to be prepared final working
drawings and
-87-
<PAGE> 7
The Bank of Nashville
First Amendment to Lease
Page 7
- ------------------------
specifications for the Work (the "Working Drawings") based on and
consistent with the Initial Plan and the other plans, drawings,
specifications, finish details and other information furnished by
Tenant to Landlord and approved by Landlord pursuant to Paragraph A
above. The Working Drawings shall incorporate final mechanical,
electrical and plumbing plans, and shall include a final telephone
layout and special electrical connections, if any. So long as the
Working Drawings are consistent with the Initial Plan, Landlord shall
approve the Working Drawings within five (5) days after receipt of
same from Tenant by initialing and returning to Tenant each sheet of
the Working Drawings or by executing Landlord's approval form then in
use, whichever method of approval Landlord may designate.
(2) The parties acknowledge that Landlord is not an architect
or engineer, and that the Work will be designed and performed by
independent architects, engineers and contractors, selected by Tenant,
subject to Landlord's prior written approval. Accordingly, Landlord
shall have no liability to Tenant under the Lease for any errors or
omissions in the Initial Plan and the Working Drawings and for any
defects in the Work. In the event of such errors, omissions, or
defects, Landlord shall cooperate in any action Tenant desires to
bring any architects, engineers or contractors.
(3) Upon Landlord's approval, Tenant shall promptly commence
with the construction of the Work and thereafter diligently prosecute
the same to completion. All Work shall be in full compliance with the
Americans with Disabilities Act and with any and all applicable local
building codes and regulations. Except as may be otherwise provided in
the Initial Plan or Working Drawings, the Work will be performed using
materials, quantities and procedures which are then generally in use
by Landlord as building standards, or better.
(4) Notwithstanding any other provision of this Work Letter,
Landlord and Tenant agree as follows:
(a) Tenant's contractors must perform in such a manner as
to not cause or permit to be caused a material default or breach
of any term, condition, rule or regulation of the Lease or this
Work Letter by Tenant.
(b) Tenant and Tenant's contractors shall maintain at all
times during the construction for the Work and for the benefit of
Landlord, its officers and employees, such insurance as Landlord
may reasonably require, including, without limitation, such
hazard, builder's risk, worker's compensation and other similar
insurance as is required under the laws of the State of Tennessee
or any political subdivision thereof.
(c) Tenant shall deliver or cause to be delivered to
Landlord prior to the commencement of construction of any of the
-88-
<PAGE> 8
The Bank of Nashville
First Amendment to Lease
Page 8
- ------------------------
Work, (i) certificates of such insurance as is required hereunder
and such certificates shall name Landlord as an additional
insured and contain provisions that the policies shall not be
cancelled without thirty (30) days prior written notice to
Landlord: (ii) evidence that any and all governmental permits and
licenses required for the construction of the Work have been duly
secured and remain in full force and effect; and (iii) such other
similar assurances which Landlord may reasonably require from
time to time.
(d) To the extent that Tenant pays directly, or causes to
be paid, any contractors, supplier or materialmen, Landlord may
from time to time require from evidence of payment to all such
parties during the course of construction of the Work and at the
completion, Tenant shall deliver to Landlord a waiver of or
release of liens signed by all contractors, suppliers, or
materialmen.
(5) During the construction period, Landlord shall have the
right, but not the obligation to inspect the Premises, and all
improvements made to the Premises comprising the Work to reasonably
determine whether the Work is satisfactory. If any Work does not
comply with the Working Drawings, Landlord shall, within twenty-four
(24) hours of Landlord's inspection, notify Tenant in writing of such
noncompliance, including the specifics thereof, whereupon Landlord may
require non-complying portions of the Work to be removed and
reconstructed to so comply. No such inspection by Landlord, or failure
to inspect by Landlord, shall make Landlord liable in any manner to
Tenant under the Lease for any defects, errors or omissions in
connection with the Work or any errors or omissions in the Initial
Plan or Working Drawings.
C. Landlord's Contribution. "Cost of the Work" means all costs and
expenses of the Work, including, without limitation, (i) the cost of
the Initial Plan and Working Drawings, (ii) the cost of all labor
(including overtime) and materials constituting the Work, (iii)
general conditions (including rubbish removal, hoisting permits,
temporary facilities, safety and protection, cleaning, tools,
blueprints and reproduction, telephone, temporary power, field
supervision and the like); (iv) the cost of premiums for worker's
compensation, public liability, casualty and other insurance charged
by contractors; (v) contractors' charges for overhead and fees; and
(vi) architectural and engineering fees.
(1) Provided that Tenant has satisfied the requirements set
forth above and below and is not in default under the Lease or the
Workletter, Landlord shall make a contribution, on the terms
hereinafter set forth, equal to One Hundred Forty-two Thousand Five
Hundred Eighty-four and no/100
-89-
<PAGE> 9
The Bank of Nashville
First Amendment to Lease
Page 9
- ------------------------
Dollars ($142,584.00) (based upon $8.00 per square foot of rentable
area of the Tower Premises (the "Landlord's Contribution")) toward the
Cost of the Work under the Workletter. Subject to the limitations
hereinafter set forth, Landlord's contribution shall also be applied
towards Tenant's cost for architectural design and mechanical
drawings. Landlord shall not be liable for more than the Landlord's
Contribution. Any amount of the tenant allowance not utilized by the
Tenant in the improvement of the Tower Premises shall be applied to
base rent. There shall be no tenant improvement allowance for the
Basement Premises.
(2) Landlord shall make periodic progress payments (usually
monthly) of the Landlord's Contribution toward the Cost of the Work as
work progresses under the Workletter, within thirty (30) days after
presentation by Tenant to Landlord of invoices for the Cost of the
Work and duly executed waivers of liens from all contractors,
subcontractors and materialmen furnishing labor, equipment or
materials for the performance of the Work.
(3) After payment of any amounts toward the Cost of the Work
under the Workletter, Landlord may pay the Landlord's Contribution to
Tenant, or Landlord may, in its discretion, make or cause to be made
(through the construction escrow or otherwise) payment directly to
Tenant's contractors or vendors or jointly with Tenant, in progress
payments as described above. Landlord may use the Landlord's
Contribution to reimburse or pay itself amounts owed by Tenant
pursuant to the provisions of the Workletter.
(4) Notwithstanding any other provision of this Lease, the
payment of the Landlord's Contribution shall be subject to Landlord's
right to set-off.
D. Lease Provisions. The terms and provisions of the Lease, insofar as
they are applicable to this Workletter, are hereby incorporated herein
by reference.
E. Miscellaneous.
(1) Except as herein expressly set forth in the Work Letter or
in the Lease, Landlord has no agreement with Tenant and has no
obligation to do any other work with respect to the Premises. Any
additional work or alterations to the Premises desired by Tenant after
the Commencement Date shall be subject to the provisions of the Lease.
This Work Letter sets forth the entire agreement of Tenant and
Landlord regarding the Work.
(2) If final working drawings and specifications are included
as part of the Initial Plan attached hereto, then whenever the term
"Working Drawings" is used in this Agreement such term shall be deemed
to refer to
-90-
<PAGE> 10
The Bank of Nashville
First Amendment to Lease
Page 10
- ------------------------
the Initial Plan and all supplemental plans and specifications
approved by Landlord.
(3) If the Initial Plan or Working Drawings for the Work
require the construction and installation of more fire hose cabinets,
telephone closets, or electrical closets than the number regularly
provided Landlord in the core of the Building, then Tenant will pay to
Landlord all costs and expenses incurred by Landlord for the
construction and installation of such additional fire hose cabinets,
telephone closets, or electrical closets.
(4) Landlord or Landlord's beneficiary is entitled to all
available investment tax credits, if any, for Work paid for and
property acquired by Landlord pursuant to the Lease and this Work
Letter. Nothing in the Lease or this Work Letter shall be construed as
agreement by Landlord to pass any investment tax credits through to
Tenant.
(5) Time is of the essence of this Work Letter.
(6) Tenant's failure to pay when due any amounts owed by Tenant
under this Work Letter, or Tenant's failure to perform any other
obligation of Tenant under this Work Letter, will constitute a default
by Tenant under the Lease, and Landlord will have all the rights and
remedies granted to Landlord under the Lease for failure by Tenant to
perform its obligations under the Lease. Landlord's failure to pay
when due any amounts owed by Landlord under this Work Letter, or
Landlord's failure to perform any other obligation of Landlord under
this Work Letter, will constitute a default by Landlord under the
Lease, and Tenant will have all the rights and remedies granted to
Tenant under the Lease for failure by Landlord to perform its
obligations under the Lease.
(7) All words and phrases in this Work Letter have the same
meanings given to them in the Lease, unless otherwise specifically
stated in this Work Letter.
(8) All representations, warranties, covenants, and conditions
contained in this Work Letter shall survive the completion of the Work
and the payment by Landlord of the Cost of Work and Landlord's
Contribution.
All other terms and conditions in the Lease dated July 19, 1989 and the Letter
Agreement dated March 29, 1993 not amended by this First Amendment shall remain
in full force and effect and shall apply to the Premises.
-91-
<PAGE> 11
The Bank of Nashville
First Amendment to Lease
Page 11
- ------------------------
IN WITNESS WHEREOF, the parties hereto, have executed this Agreement in
triplicate on the date and year first above written.
WITNESS: LANDLORD:
LC TOWER, L.L.C.
a Delaware limited liability company
By: PERIDOT, INC. MANAGER
/s/ Marija Tatic By: /s/ Craig Caffareili, V.P.
- --------------------------- ---------------------------------
WITNESS: TENANT:
THE BANK OF NASHVILLE
/s/ Anne J. Cheatham By: /s/ Mack S. Linebaugh, Jr.
- --------------------------- ---------------------------------
Mack S. Linebaugh, Jr.
Chairman and President
-92-
<PAGE> 12
EXHIBIT "A-1"
Design Collective Incorporated
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
(Floor Plans)
BANK OF NASHVILLE 3605 S.F.
-------------------------------
GROSS USABLE 3605 S.F.
BASEMENT LEVEL
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-93-
<PAGE> 13
EXHIBIT "A-2"
Design Collective Incorporated
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
(Floor Plans)
BANK OF NASHVILLE 6665 S.F.
-------------------------------
GROSS USABLE 6665 S.F.
2nd FLOOR
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-94-
<PAGE> 14
EXHIBIT "A-3"
Design Collective Incorporated
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
(Floor Plans)
BANK OF NASHVILLE 4643 S.F.
EXPANSION 1928 S.F.
-------------------------------
GROSS USABLE 6571 S.F.
3rd FLOOR
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-95-
<PAGE> 15
EXHIBIT "A-4"
Design Collective Incorporated
- --------------------------------------------------------------------------------
L & C Tower consultants for space planning
Nashville, TN and interior design
DCI NO. 93508.00
(Floor Plans)
23RD FLOOR PLAN First Management Services
Building Stacking Plan
-96-
<PAGE> 16
APPENDIX "A-1"
Design Collective Interiors
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
(Floor Plans)
BANK OF NASHVILLE 3605 S.F.
-------------------------------
GROSS USABLE 3605 S.F.
BASEMENT LEVEL
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-97-
<PAGE> 17
APPENDIX "A-2"
Design Collective Incorporated
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
(Floor Plans)
BANK OF NASHVILLE 6665 S.F.
-------------------------------
GROSS USABLE 6665 S.F.
2nd FLOOR
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-98-
<PAGE> 18
APPENDIX "A-3"
Design Collective Incorporated
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
(Floor Plans)
BANK OF NASHVILLE 4643 S.F.
EXPANSION 1928 S.F.
-------------------------------
GROSS USABLE 6571 S.F.
3rd FLOOR
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-99-
<PAGE> 19
APPENDIX "A-4"
Design Collective Interiors
- --------------------------------------------------------------------------------
L & C Tower consultants for space planning
Nashville, TN and interior design
DCI NO. 93508.00
(Floor Plans)
23RD FLOOR PLAN First Management Services
Building Stacking Plan
-100-
<PAGE> 20
APPENDIX "G"
Design Collective Incorporated
- --------------------------------------------------------------------------------
consultants for architecture, interiors and graphic design.
A National Design Alliance
Nashville, TN
Columbus, OH
Cleveland, OH
Storage for Storing Paper
(Floor Plans)
BANK OF NASHVILLE 3605 S.F.
-------------------------------
GROSS USABLE 3605 S.F.
BASEMENT LEVEL
L & C Tower First Management Services
- --------------------------------------------------------------------------------
MARCH 1993 NOT TO SCALE
-101-
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMMUNITY FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
--------- ---------- -----------
<S> <C> <C> <C>
Income Per Common Share
- -----------------------
Basic (1)
-----
Net income (in thousands) $ 3,501 $ 2,581 $ 2,058
========== ========= ==========
Net income per share $ .86 $ 1.08 $ .93
---------- ---------- ----------
Weighted average common
shares outstanding 4,067,522 2,393,576 2,205,043
========== ========== ==========
Income Per Common Share,
- ------------------------
Diluted (2)
-------
Net income (in thousands) $ 3,501 $ 2,581 $ 2,058
========== ========== ===========
Net income per share $ .85 $ .78 $ .89
========== ========== ===========
Weighted average common share
Outstanding 4,129,069 3,321,228 2,323,580
========== ========== ===========
</TABLE>
(1) Basic net income per share has been computed using the weighted
average number of common shares outstanding during each year
presented. See Note L to the Company's consolidated financial
statements included in the Annual Report to Shareholders for the year
ended December 31, 1999 incorporated herein by reference.
(2) Diluted net income per share has been computed using the weighted
average number of common shares outstanding and the dilutive effect of
stock options and warrants outstanding during the years presented. See
Note L to the Company's consolidated financial statements included in
the Annual Report to Shareholders for the year ended December 31, 1999
incorporated herein by reference.
-102-
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
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 The Bank's subsidiary company Machinery
Leasing Company of North America, Inc., (BON Leasing). The Bank is a
state-chartered bank incorporated in 1989 under the laws of the state of
Tennessee. On April 30, 1996, CFGI executed a plan of exchange with The Bank,
whereby CFGI became the parent holding company of The Bank. In January, 1998,
the Company's Board of Directors adopted a shareholder 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 fifteen percent 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 fifteen percent or more of the
common stock. The rights are designed to ensure 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. The holding company's
structure provides flexibility for expansion of the Company's banking business
through acquisition of other financial institutions and for the addition of
banking related services. During 1998, the Company expanded its arrangement
with LMFP to offer certain investment services while discontinuing most
traditional trust services. During 1999, the Company created a title agency
through a joint venture with Mooreland Title Company, LLC of Brentwood,
Tennessee (TBON-Mooreland Joint Venture, LLC), and purchased a majority
interest in Machinery Leasing Company of North America, Inc. The Company
experienced a significant change in its capital structure during 1998 as it
received $25 million in new capital from the exercise of warrants.
The accompanying consolidated financial statements and notes are considered to
be an integral part of this analysis and should be read in conjunction with the
narrative. This discussion and analysis is intended to supplement and highlight
information contained in the accompanying consolidated financial statements and
the selected financial highlights presented elsewhere in this report. To the
extent that the 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 the current economic environment. Actual strategies
and results of future periods may differ materially from those currently
expected due to various risks and uncertainties.
The Company's primary base of operation is located in the L & C Tower at 401
Church Street, Nashville, Tennessee, 37219. The Bank has three full service,
traditional branches; one located in the Glendale Center in Green Hills, which
opened in January, 1997; one located in Maryland Farms in Brentwood, which
opened in September, 1998; and the other located on Maple Drive North in
Hendersonville, which opened in April, 1999. Additional branch services are
provided through full service mobile branching, "Bank-on-Call", which was
established in September 1996 and expanded in each subsequent year.
Bank-on-Call provides the convenience of "at your door" banking service to
commercial customers. Additionally, the Company has expanded its delivery
systems through full service ATM's, cash dispensers, cash management services
and its "Bank on Line" Internet banking service. The Company offers a full
array of commercial and consumer banking services as well as leasing and
investment services.
-103-
<PAGE> 2
The primary service area of the Company is centered around Nashville, Tennessee
and encompasses an eight county area. The Company competes with existing area
commercial banks and other area financial institutions, insurance companies,
consumer finance companies, brokerage firms, credit unions and other business
entities which have been active in pursuing traditional banking markets. Due to
the rapid economic growth of the Company's market area and consolidation in the
financial services industry, additional competition is expected to continue
from new entrants to the Company's market. Although the Company has fewer
physical locations than many of its competitors, it has continued its
commitment to providing customers maximum convenience by allowing consumers to
access their accounts through competitors' ATM's throughout the state of
Tennessee at no charge. This is accomplished through a program whereby the
Company rebates any surcharges imposed on its customers by ATM providers within
the state of Tennessee when accounts are accessed by a Bank of Nashville ATM or
MasterMoney card.
The Company's assets were $308.1 million at December 31, 1999, compared to
$238.2 million at December 31, 1998, representing an increase of 29.4%.
Shareholders' equity decreased $3.9 million from $51.2 million at December 31,
1998 to $47.3 million at December 31, 1999. A majority of the decrease in
shareholders' equity resulted from the Company having repurchased 304,500
shares in a Stock Repurchase Plan authorized by the Company's Board of
Directors in March, 1999. During 1999, shareholders were paid dividends of $.46
per share compared to dividends totaling $.24 per share in 1998. The Company
reported net income of $3.5 million, up 36% from $2.6 million reported in 1998.
Basic earnings per share were $.86 per share in 1999 compared to $1.08 in 1998
while diluted earnings per share in 1999 were $.85 compared to $.78 in 1998.
The decrease in basic earnings per share in 1999 compared to 1998 resulted from
an increased number of shares outstanding due to the exercise of warrants which
occurred primarily in late 1998, the impact of which was partially offset by
the implementation of the Stock Repurchase Plan during 1999.
Return on average shareholders' equity (exclusive of other comprehensive
income) was 7.09% in 1999 compared to 9.56% in 1998, reflecting the increase in
equity due to the exercise of warrants in late 1998. Return on average assets
for the year ended December 31, 1999 was 1.30% compared to 1.23% in 1998.
During 1999, the Company continued its expansion and growth plans by internal
growth within The Bank and expansions into related lines of business. This
growth included opening the Hendersonville branch location and expanding its
lending activities. During 1999, the Company continued its focus on asset
quality while expanding its lending activities in accordance with its long-term
strategic plan. The maintenance of an adequate level for the allowance for loan
losses was reflected by a provision for losses of $106,000 reported in 1999, a
period in which net recoveries were $218,000. This provision expense was deemed
appropriate considering the Company's loan growth and comprehensive analysis of
the allocated and unallocated portions of the loan loss reserve in conjunction
with a detailed analysis of the quality of the Company's loan portfolio.
Nonperforming assets as a percentage of loans and foreclosed properties
declined from .30% in 1998 to .14% in 1999. During 1999, net nonperforming
assets decreased $169,000, or 36.7%, to $291,000 at December 31, 1999, from
$460,000 at year end 1998, while total loans increased $52.8 million, or 34.6%,
from $152.7 million at December 31, 1998 to $205.5 million at year end 1999. A
more detailed analysis of nonperforming assets and the provision for loan
losses is presented under the caption, "Provision for Loan Losses" and
"Nonperforming Assets and Risk Elements". During 1999, deposits increased $66.6
million, or 41.0%, to $229.1 million at December 31, 1999 from $162.6 million
at December 31, 1998. Average deposits increased $31.8 million, or 19.0%, in
1999 compared to 1998. All categories of deposits increased at December 31,
1999, compared to December 31, 1998 with money market accounts and time
certificates of deposit reflecting the largest increases. The net loan to
deposit ratio at December 31, 1999 was 89.7% compared to 93.9% at December 31,
1998 while net loans to assets ratio was 66.7% at year end 1999 compared to
64.1% at December 31, 1998. The Company's high capital ratio continues to make
it appropriate to maintain a higher than average loan to deposit ratio when
considering the overall net loans to assets ratio.
-104-
<PAGE> 3
NET INTEREST INCOME
Fluctuations in interest rates, as well as volume and mix changes in earning
assets and interest-bearing liabilities, can materially impact net interest
income.
Net interest income increased 39.3% to $11.9 million in 1999 from $8.6 million
in 1998. Total interest income increased $4.4 million, or 26.4%, in 1999
compared to 1998, while total interest expense increased $1.0 million, or
12.7%, in 1999 compared to 1998. The increase in total interest income is
attributable primarily to a 28.2% increase in average earning assets and a
shift in the mix of these assets as the growth was comprised primarily of a
$42.4 million increase in average loans and leases. Additionally, average
investment securities increased $9.3 million while average interest earning
cash and federal funds sold increased $4.7 million in 1999 compared to 1998.
The rate earned on average earning assets in 1999 declined 11 basis points when
compared to 1998. During 1999, the average rate paid on interest-bearing
liabilities declined 34 basis points when compared to the prior year. The
volume of average interest-bearing liabilities increased $34.4 million, or
21.0%, in 1999 compared to 1998. This increase in average interest-bearing
liabilities was comprised of a $14.1 million increase in average money market
accounts, $6.1 million increase in certificates of deposit less than $100,000,
$5.4 million increase in certificates of deposit $100,000 or greater, $5.8
million increase in Federal Home Loan Bank and other borrowings, and a $3.0
million increase in average NOW accounts. The declines reflected in rates paid
on average interest-bearing liabilities during 1999 is not expected to continue
as declines were primarily a result of a lower rate environment during the
first half of 1999 while the last six months of 1999 reflected rate increases
which have resulted in higher costs of funds. The following two schedules
present an analysis of net interest income and the detail of income due to the
fluctuations in volumes and rates.
-105-
<PAGE> 4
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
1999 1998
---------------------------------- -----------------------------------
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (net of unearned income):
Commercial $ 60,245 $ 5,382 8.93% $ 43,137 $ 3,983 9.32%
Real Estate - mortgage 89,321 8,018 8.98 72,627 6,649 9.15
Real Estate - construction 16,586 1,525 9.19 12,288 1,132 9.21
Consumer 5,854 609 10.40 5,608 627 11.18
Lease financing 4,021 461 11.46 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total loans (net of
unearned income) 176,027 15,995 9.09 133,660 12,391 9.27
- ------------------------------------------------------------------------------------------------------------------------
Securities 68,421 4,374 6.39 59,117 3,833 6.48
Federal funds sold and cash 12,200 626 5.13 7,468 384 5.14
========================================================================================================================
Total earning assets $ 256,648 $ 20,995 8.18% $200,245 $16,608 .29%
Allowance for loan losses (3,945) (3,389)
Cash and due from banks 11,032 9,449
Premises and equipment, net 3,324 1,670
Accrued interest and other assets 2,078 1,526
- ------------------------------------------------------------------------------------------------------------------------
Total assets $ 269,137 $209,501
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 14,222 $ 413 2.90% $ 11,190 $ 367 3.28%
Money market accounts 92,059 3,783 4.11 77,982 3,463 4.44
Time certificates less
than $100,000 37,687 2,031 5.39 31,551 1,809 5.73
Time certificates
$100,000 and greater 35,533 1,894 5.33 30,162 1,692 5.61
Federal Funds Purchased 3,102 156 5.05 574 29 5.11
Federal Home Loan Bank and
other debt 15,376 776 5.04 12,144 675 5.56
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $ 197,979 $ 9,053 4.57% $163,603 $ 8,035 4.91%
Non-interest bearing demand
deposits 19,588 16,409
Accounts payable and accrued
liabilities 2,370 2,176
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 219,937 182,188
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 49,200 27,313
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 269,137 $209,501
- ------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets* 8.18% 8.29%
Interest expense/earning assets 3.53 4.01
- ------------------------------------------------------------------------------------------------------------------------
Net interest margin* 4.65% 4.28%
========================================================================================================================
</TABLE>
*Fully taxable equivalent basis.
Nonaccrual loans are included in average loans and average earning assets.
Consequently, yields on these items are lower than they would have been if all
loans had earned at their contractual rate of interest. Had nonaccrual loans
earned income at the contractual rate, interest income of $10,000, $29,000 and
$32,000 would have been recognized during 1999, 1998 and 1997, respectively.
-106-
<PAGE> 5
<TABLE>
<CAPTION>
1997
-----------------------------------------------
Interest Average
Average Income/ Yields/
Balance Expense* Rates*
-----------------------------------------------
<S> <C> <C>
$ 36,889 $ 3,438 9.32%
65,102 6,002 9.22
9,102 849 9.33
3,742 435 11.62
-- -- --
-----------------------------------------------
114,835 10,724 9.34
-----------------------------------------------
61,587 4,128 6.70
8,105 417 5.14
-----------------------------------------------
$184,527 $15,269 8.27%
(3,006)
6,633
1,040
1,572
-----------------------------------------------
$190,766
===============================================
$ 6,856 $ 253 3.69%
67,216 3,205 4.77
35,186 2,061 5.86
29,294 1,693 5.78
473 26 5.50
12,651 718 5.68
-----------------------------------------------
$151,676 $ 7,956 5.25%
14,088
2,156
-----------------------------------------------
167,920
-----------------------------------------------
22,846
-----------------------------------------------
$190,766
===============================================
8.27%
4.31
-----------------------------------------------
3.96%
===============================================
</TABLE>
-107-
<PAGE> 6
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase(Decrease)Due to Increase(Decrease)Due to
(In Thousands)(1) Rate Volume Net Rate Volume Net
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $(250) $3,854 $ 3,604 $ (78) $ 1,745 $ 1,667
Securities (50) 596 546 (131) (164) (295)
Federal funds sold and cash 5 238 243 1 (34) (33)
- --------------------------------------------------------------------------------------------------------------------
Total Interest Income (295) 4,688 4,393 (208) 1,547 1,339
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW accounts (45) 91 46 (31) 145 114
Money market accounts (272) 592 320 (231) 489 258
Time certificates under $100,000 (113) 336 223 (45) (207) (252)
Time certificates $100,000
and over (88) 290 202 (50) 49 (1)
Federal funds purchased (1) 128 127 6 (2) 4
Federal Home Loan Bank
and other debt (66) 167 101 (28) (16) (44)
- --------------------------------------------------------------------------------------------------------------------
Total Interest Expense (585) 1,604 1,019 (379) 458 79
- --------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 290 $3,084 $ 3,374 $ 171 $ 1,089 $ 1,260
====================================================================================================================
</TABLE>
(1) Changes in net interest income are attributed to either changes in
average balances (volume change) or changes in average rates (rate
change) for earning assets and sources of funds on which interest is
received or paid. These rates are calculated on a fully taxable
equivalent basis. Volume change is calculated as change in volume
multipled by the old rate while rate change is change in rate multipled
by the old volume. The rate/volume change is allocated between volume
change and rate change at the ratio each component bears to the absolute
value of their total. Nonaccrual and 90 days or more past due loans are
included in average loans for which changes due to rates and volume are
computed.
Trends in net interest income are commonly evaluated in terms of average rates,
using the net interest margin and the net interest spread. The net interest
margin, or the net yield on earning assets, is computed by dividing net
interest income by average earning assets. This ratio represents the difference
between the average yield on average earning assets and average rate paid for
all funds used to support those assets, including both interest-bearing and
non-interest-bearing sources of funds. The Company's net interest margin
increased by 37 basis points to 4.65% in 1999, primarily resulting from an
increase in the volume of average earning assets and a shift in the mix of
earning assets from investments to higher yielding loans combined with an
overall decrease in rates paid during 1999 on deposits. A higher average loan
to deposit ratio also contributed to the overall improvement in the net
interest margin in 1999 compared to 1998.
Changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly, while the timing for repricing of
both the asset and liability remain the same; both impact net interest income.
It should be noted, therefore, that a matched interest sensitivity position, by
itself, will not ensure maximum net interest income. Management continually
evaluates the condition of the economy, the pattern of market interest rates
and other economic data to determine the types of investments that should be
made and at what maturity. Using this analysis, management from time to time
assumes calculated interest sensitivity gap positions in an effort to maximize
net interest income based upon short and long term anticipated movements in
general level of interest rates. The Company's current "negative gap" position
in the short-term (one year or less) creates some exposure to higher rates but
positions it to benefit in a declining interest rate
-108-
<PAGE> 7
environment. Negative gap is used to describe the interest sensitivity position
when a company's rate sensitive liabilities are repricing faster than its rate
sensitive assets. See "Liquidity and Asset/Liability Management" section.
The interest rate spread measures the difference between the average yield on
earning assets and average rate paid on interest-bearing sources of funds. The
interest rate spread eliminates the impact of non-interest-bearing funds and
gives a direct perspective on the effect of the market interest rate movement.
During 1999, the Company's interest rate spread increased compared with 1998.
The following table presents an analysis of the Company's interest rate spread
and net yield on earning assets.
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rate earned on interest earning assets 8.18% 8.29%
Rate paid on interest-bearing liabilities 4.57% 4.91%
Interest rate spread 3.61% 3.38%
Net yield on earning assets 4.65% 4.28%
</TABLE>
The increased level of earning assets and the decline in the average rate paid
on interest-bearing liabilities together with a shift in the mix of earning
assets resulted in a higher level of net interest income in 1999 compared to
1998. The positive impact of the increased level of earning assets,
particularly in the area of loans, was somewhat offset by growth in
interest-bearing liabilities.
PROVISION FOR LOAN LOSSES
The Company maintains an allowance for loan losses at a level, which, in
management's evaluation, is adequate to cover estimated losses on loans/leases
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 risk, mix and volume of the loan portfolio,
and other relevant factors, such as the risk of loss on particular loans, the
level of nonperforming assets, and current and forecasted economic conditions.
A more detailed discussion of nonperforming assets is presented under the
caption "Nonperforming Assets and Risk Elements".
In 1999, the Company recorded $106,000 in expense for provision for loan
losses, compared with $128,000 in 1998. Despite a decline in nonperforming
assets and net recoveries for 1999, this provision was deemed appropriate due
to the growth in the portfolio. Net recoveries were $218,000 in 1999 compared
to $390,000 in 1998. The allowance for loan losses was 2.0% of loans/leases at
December 31, 1999, compared to 2.4% at the same date in 1998. Nonperforming
assets as a percent of loans and foreclosed properties declined from .3% at
year end 1998 to .1% at December 31, 1999. Net recoveries of $218,000 in 1999
resulted from charge-offs of $772,000 and recoveries of $990,000 reflecting
continued collection efforts on loans charged-off in prior periods. In 1998,
net recoveries of $390,000 were the result of charge-offs of $84,000 and
recoveries of $474,000.
Management will continue to evaluate the level of the allowance for loan losses
and will determine what additional adjustments, if any, are necessary.
Continued growth in the loan portfolio will be a factor in this evaluation, as
well as the quality of the portfolio and other external and internal factors.
The level of the allowance and the amount of the provision are determined on a
quarter by quarter basis and, given the inherent uncertainties involved in the
estimation process, no assurance can be given as to the amount of the provision
and the level of the allowance at any future date. Management anticipates that
there will be increased provision expense in 2000 due primarily to growth in
the portfolio; however, the specific amount will be determined on a quarter by
quarter basis as all factors are evaluated. Changes in circumstances affecting
the various factors considered by the Company in establishing the level of the
allowance could significantly affect the amount of the provision deemed to be
warranted.
-109-
<PAGE> 8
As a financial institution that assumes lending and credit risks as a principal
element of its business, the Company anticipates that credit losses will be
experienced in the normal course of business. Accordingly, the Company
consistently applies a comprehensive methodology and procedural discipline
which is updated on a quarterly basis at the subsidiary bank and leasing
company level to determine both the adequacy of the allowance for loan losses
and the necessity for charging provisions against earnings. The allowance for
loan losses is based on assessments of the probable estimated losses inherent
in the portfolios. The allowance for loan losses is comprised of an allocated
and unallocated portion. Both portions of the allowance are available to
support inherent losses in the portfolios. The allocated allowance is
determined for each classification of both performing and nonperforming
loans/leases within the portfolios. This methodology includes:
- The application of allowance allocations for commercial
loans, consumer loans, leases, and real estate loans is
calculated by using weighted average loss rates over a
defined time horizon based upon the analysis of the Company's
historical averages of actual net loan charge-offs incurred
within the portfolios by credit quality grade. The Company
has established minimum loss factors for certain credit grade
categories.
- A detailed review of all criticized, nonperforming, and
impaired loans/leases is performed to determine if any
specific allowance allocations are required on an individual
credit where management has identified significant conditions
or circumstances exist that indicate the probability that a
loss may be incurred in excess of the amount determined by
the application of the historical loss methodology.
The unallocated allowance is established for loss exposure that exists in the
remainder of the portfolios but has yet to be identified and to compensate for
the uncertainty in estimating loan losses, including the possibility of changes
in risk ratings of credits. The unallocated allowance is based upon
management's evaluation of various conditions, the effects of which are not
directly measured in determining the allocated allowance. The evaluation of the
inherent loss related to these conditions involves a higher degree of
uncertainty because they are not associated with specific problem credits or
portfolio segments. The unallocated allowance represents prudent recognition of
the fact that allowance estimates, by definition, lack precision. The
conditions evaluated in connection with the unallocated allowance include the
following conditions as of the balance sheet date:
- Changes in interest rates
- Changes in lending policy and procedure
- National and local economic conditions
- Trends in loan volumes and terms of loans in the portfolio
- Changes in the experience of personnel
- Recent levels of, and trends in, delinquencies and nonaccruals
- Loan review evaluation of the credit process
- Credit concentrations and changes in the mix of the loan
portfolio
- Competition, legal, and regulatory requirements
- Peer comparisons
Management reviews these conditions quarterly in discussion with its loan
officers. If any of the conditions is evidenced by a specifically identified
problem loan or portfolio segment as of the evaluation date, management's
estimate of the effect of this condition may be reflected in the allocated
allowance applicable to the credit or portfolio segment. Where a specifically
identifiable problem credit or portfolio segment as of the evaluation does not
evidence any of these conditions, management's evaluation of the probable loss
concerning this condition is reflected in the unallocated allowance. Management
believes that, in most instances, the impact of these events on the
collectibility of the applicable credit has not yet
-110-
<PAGE> 9
been reflected in the level of nonperforming loans/leases or in the internal
risk grading process regarding these credits. Accordingly, our evaluation of
the probable losses related to these factors is reflected in the unallocated
allowance.
The Company does not weigh the unallocated allowance among segments of the
portfolio. The following specific factors are reflected in management's
estimate of the unallocated allowance:
- Concentration of real estate dependent loans o Continued
concern in health care related industries
- Improved geographic diversity of the portfolio resulting from
the acquisition of Machinery Leasing Company in 1999
- A gradually changing mix of loans which reflects more
consumer products being offered through the Company's branch
network
- Credit quality remains strong, with nonperforming assets and
delinquencies maintained at a low level
- As the Company has experienced growth, additional support
staff has been added and the management of credit risk
continues to be refined
- The local economic environment is strong and continues to
outperform national trends in terms of job growth, low
unemployment, housing sales, start-up businesses and
corporate relocations
Primarily due to growth in the loan portfolio, the allocated portion of the
reserves has increased, and the unallocated portion of the reserves has
declined. The total allowance as a percentage of loans and leases has decreased
from 2.4% at the end of 1998 to 2.0% at the end of 1999 but continues to remain
higher than The Bank's peer group. Nonperforming assets as a percent of loans
has decreased over the past three years from 1.0% in 1997 to .30% in 1998 to
.14% in 1999 reflecting the overall quality of the portfolio that has been
maintained during periods of significant loan growth. While total charge-offs
increased in 1999 and recoveries declined, delinquencies continue to be
extremely moderate. Although it is unlikely that future recoveries will match
the rate of recent years, management believes that the allowance for loan
losses is appropriate due to the strength of the local economy, minimal
delinquencies, and the overall strength in the credit quality of the portfolio.
Management is aware that the Company has been operating in an extremely
beneficial economic environment. The Company will continue to evaluate both the
allocated and unallocated portions of the reserves maintaining an awareness
that, by virtue of its high capital level, the Company has the ability to make
larger loans, thereby increasing the possibility of a loan having a larger
adverse impact than may be the case in peer group companies. Management will
continue to carefully evaluate the unallocated allowance and will ensure that
it remains prudent and consistent with regulatory requirements.
After completion of the process discussed above, the Company's Board of
Directors evaluates the adequacy of the allowance and establishes the provision
level for the current quarter. The Company believes that the procedural
discipline, systematic methodology and comprehensive documentation of this
quarterly process is in full compliance with all regulatory requirements and
provides appropriate support for accounting and reporting purposes. The Company
believes that the allocation of its allowance for loan losses is reasonable.
-111-
<PAGE> 10
The following table represents a recap of activity in the allowance for loan
losses during the past two years.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(In Thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES, JANUARY 1 $3,646 $ 3,128
LOANS CHARGED OFF:
Commercial (608) (41)
Real estate (129) (38)
Consumer (20) (5)
Lease financing (15) --
- ------------------------------------------------------------------------------------------------------------
Total charge-offs (772) (84)
- ------------------------------------------------------------------------------------------------------------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF:
Commercial 988 222
Real estate -- 2
Consumer 2 250
- ------------------------------------------------------------------------------------------------------------
Total recoveries 990 474
- ------------------------------------------------------------------------------------------------------------
NET RECOVERIES 218 390
- -----------------------------------------------------------------------------------------------------------
PROVISION CHARGED TO OPERATIONS 106 128
- ------------------------------------------------------------------------------------------------------------
PURCHASED RESERVE OF BON LEASING 92 --
- ------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES, DECEMBER 31 $ 4,062 $ 3,646
- ------------------------------------------------------------------------------------------------------------
Loans, net of unearned income
Year-end $ 205,511 $ 152,675
Average during year $ 176,027 $ 133,660
Allowance for loan losses to year-end
loans, net of unearned income 2.0% 2.4%
Provision for loan losses to average
loans, net of unearned income .1% .1%
Net recoveries to average loans, net of unearned income .1% .3%
</TABLE>
The following table presents the allocation of the allowance for loan losses
for the past two years
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE LOAN FOR LOSSES
(In Thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
BALANCE APPLICABLE TO:
<S> <C> <C>
Commercial $ 1,663 $ 918
Real estate - mortgage loans 1,160 1,006
Real estate - construction loans 212 133
Consumer 54 47
Lease financing 103 --
Unallocated 870 1,542
- ------------------------------------------------------------------------------------------------------------
$ 4,062 $ 3,646
============================================================================================================
PERCENT OF TOTAL ALLOCATION
Commercial 41.0% 25.2%
Real estate - mortgage loans 28.6 27.6
Real estate - construction loans 5.2 3.6
Consumer 1.3 1.3
Lease financing 2.5 --
Unallocated 21.4 42.3
============================================================================================================
100.0% 100.0%
============================================================================================================
</TABLE>
-112-
<PAGE> 11
NON-INTEREST INCOME
Total non-interest income was $2.7 million in 1999, reflecting an increase of
48.2% from $1.8 million reported in 1998. Non-interest income, less
non-recurring income (gains/losses on sale of securities and other real estate
owned), increased $927,000, or 53.8% from 1998. Investment center income
increased $683,000, or 103.2%, during 1999 compared to the prior year. This
increase reflected the Company's expansion of its arrangement with LMFP,
Inc.(LMFP) that occurred in mid-1998 and its continued emphasis on offering
certain investment services at the Main Office and Green Hills Office through
this arrangement. This increase in investment center income was partially
offset by a decline in trust income of $131,000 during 1999 compared to 1998
which occurred as the Company continued the implementation of its decision to
discontinue most traditional trust services and redirect those efforts into the
expanded investment services department provided in conjunction with LMFP.
Service fee income increased $330,000 during 1999 compared to 1998 primarily as
a result of increased numbers of transaction accounts generated through the
Company's branches. Additionally, other non-interest income increased $42,000
in 1999 compared to 1998.
The Company reported a net loss on the sale of securities available for sale of
$5,000 in 1999 compared to a net gain on sale of securities available for sale
of $52,000 in 1998. These transactions resulted from balance sheet management
strategies to adjust the estimated average maturities of the Company's
securities portfolio. Gains on sale of other real estate owned were $29,000 in
both 1999 and 1998.
NON-INTEREST EXPENSE
During 1999, the Company expanded its services evidenced by a 29.4% growth in
total assets. A new branch location was established in the Hendersonville area,
continued expansion of investment services provided in conjunction with LMFP,
expansion of "Bank on Call" mobile branching, expansion of lending activities
through the addition of lending and support staff, the Company's introduction
of Internet banking and the acquisition of BON Leasing contributed to the
increases in non-interest expenses in 1999. Total non-interest expense
increased $2.8 million, or 45.7%, from $6.1 million in 1998 to $8.8 million in
1999. Total non-interest expense represented 3.3% of average total assets in
1999, compared to 2.9% in 1998. The non-interest expense to assets ratio is an
industry measure of the Company's ability to control its overhead. Growth in
the investment center area which impacts both non-interest income and
non-interest expense does not result in increased average assets. Control of
non-interest expense is essential to profit maximization; therefore, all
non-interest expense categories have been and will continue to be closely
managed through strategic and financial planning, as well as being monitored by
management through regular measurements. However, management will continue to
implement its strategic plan, expanding geographic locations and product lines,
as appropriate, as well as emphasizing internal growth and the expansion of the
investment services area to provide greater future opportunities. Effective
management of expenses while expanding business lines and experiencing growth
in traditional service offerings is a focus of the Company's management. During
1999, salaries and employee benefits increased $1.3 million, or 39.6%,
primarily due to additional personnel employed to deliver investment services
and staff branch locations. Non-interest expense in both 1999 and 1998 included
expenses related to the Company's Year 2000 efforts. Occupancy expense
increased $468,000, or 56.4% in 1999 compared to 1998 as a result of a full
year of expenses related to the Company's Brentwood Office and the
establishment of the Hendersonville Office in April, 1999 as well as an
increase in the leased space at the Company's Main Office in the L & C Tower.
Other operating expenses increased $976,000 during the 1999 compared to 1998.
Included in these increases was an increase of $192,000 in advertising,
$182,000 in NSF and other losses resulting from fraudulent deposit activity,
$121,000 in expense related to new loan products, $86,000 in telephone and
network access expenses, $66,000 in audit, tax and accounting expense related
primarily to Year 2000 and the acquisition of BON Leasing and $59,000 in
security and protection expense. Non-interest expense, other than salaries and
employee benefits, increased $1.4 million, or 53.2%, during 1999 compared to
1998, while assets grew $69.9 million.
-113-
<PAGE> 12
During the second quarter of 1999, the Company opened its Hendersonville
location and in September, 1999 the Company expanded its leased facilities in
the L & C Tower to further accommodate growth. Other planned expenses relate to
the expansion of the Company's delivery systems and service locations and
include additional mobile branch service employees and equipment, an investment
in Internet banking systems for commercial customers and Internet cash
management as well as consulting and legal expenses related to expansion of
additional lines of business. Other than these planned expenses, management
anticipates only minimal growth in most non-expense categories during 2000.
During 1999, costs related to Year 2000 were approximately $120,000 and it is
expected that there will be only minimal expense related to this project during
Year 2000. It should be noted that economic conditions and other factors in the
market could further impact non-interest expense in future periods.
INCOME TAXES
During the 1999, the Company recorded income tax expense of $2.1 million
compared to $1.6 million during 1998. The effective tax rate was approximately
38% for both 1999 and 1998. The Company continues to explore strategies which
would lower the effective tax rate while being consistent with its profit
goals.
EARNING ASSETS
Average earning assets increased $56.4 million, or 28.2% in 1999 from 1998.
This increase was comprised of a $42.4 million increase in loans, $9.3 million
increase in investments and a $4.7 million increase in federal funds sold.
These changes reflected both the growth in loans and the subsequent change in
the mix of average earning assets which occurred during 1999 when compared to
1998. During 1999, the mix of average assets reflected loans at 68.6%,
investment securities at 26.7%, and federal funds sold at 4.7%. This compares
with the mix in 1998 which reflected loans at 66.8%, investments at 29.5% and
federal funds sold at 3.7%. The shift in mix of earning assets during 1999 from
investments to higher-yielding loans contributed to higher net interest income
as the percentage of loans to total earning assets increased. The positive
impact of this shift was partially offset by an increase in federal funds sold
which yield a lower rate than investments. The increase in federal funds sold
during 1999 resulted primarily from the implementation of the Company's Year
2000 liquidity plan. The mix of earning assets is monitored on a continuous
basis with adjustments made in other areas based on the availability of quality
loans. An analysis of the 31.7% increase in average total loans outstanding in
1999 compared to 1998 reflects a 24.7% increase in average real estate mortgage
and real estate construction loans, a 39.7% increase in commercial loans, a
4.4% increase in consumer loans and the addition of $4.0 million in BON
Leasing. The loan portfolio table below shows the classification of loans by
major categories at December 31, 1999 and 1998. Real estate mortgage and
construction loans are primarily commercial as opposed to one to four family
residential.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31 Change from Prior Year
(Dollars In Thousands) 1999 %Total 1998 %Total Amount %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LOAN CATEGORIES
Commercial $ 70,166 34.1% $ 51,970 34.0% $ 18,196 35.0%
Real Estate/
Mortgage Loans 102,476 49.9 79,455 52.1 23,021 29.0
Real Estate/
Construction Loans 19,688 9.6 14,667 9.6 5,021 34.2
Consumer 5,870 2.9 6,583 4.3 (713)
Lease financing 7,311 3.5 -- -- 7,311 N/A
----------------------------------------------------------------------------------------
Total Loans $205,511 100.0% $152,675 100.0% $ 52,836 34.6%
========================================================================================
</TABLE>
-114-
<PAGE> 13
The loan portfolio mix continues to reflect the Company's efforts to service
its target market of small and mid-sized businesses in its community; however,
with the addition of branch locations and BON Leasing, consumer loans and
leases have been increasing as well. The condition of the economy and
competitive environment of the Company's market, as well as management focus on
asset quality, impact the Company's ability to increase loans. Both economic
conditions and loan growth remained strong during 1999; however, the market
continued to be very competitive as its supply of available credit often
outpaced quality loan demand. At December 31, 1999, both loan demand and the
local economy remained relatively strong.
The Company has not invested in loans, which would be considered highly
leveraged transactions ("HLT") as defined by the Federal Reserve Board and
other regulatory agencies. Loans made by companies for recapitalization or
acquisition (including acquisitions by management or employees) which result in
a material change in the financial structure to highly leveraged condition are
considered HLT loans. The Company has no foreign loans.
The Company's securities are held as available for sale and provide for
liquidity needs while contributing to profitability. During 1999, the Company
discontinued a leveraging strategy which was begun in 1996; however, in late
1999, the Board of Directors approved an additional leveraging strategy which
had not been implemented at year end. Leveraging strategies utilized by the
Company are comprised of Federal Home Loan Bank secured borrowings used to fund
matched investments of U. S. Government and Municipal securities. Such
strategies require careful monitoring and measurement of the interest rate
risk, but have the potential for providing significant contributions to net
interest income. See the "Liquidity and Asset/Liability Management" section.
The composition of the securities portfolio reflects an investment strategy of
maximizing portfolio yields commensurate with risk and liquidity
considerations. The primary objective of the Company's investment strategy is
to maintain an appropriate level of liquidity and to provide a tool to assist
in controlling the Company's interest rate position while, at the same time,
producing adequate levels of interest income. Securities held as available for
sale are carried on the Company's balance sheet at estimated fair value. As a
result, the Company recognized a decrease in equity of $987,000 for unrealized
losses on securities held as available for sale, net of tax, at December 31,
1999, which compares with an increase of $340,000 for unrealized gains on these
securities at year end 1998. During 1999, gross securities sales were
$8,203,000 and pay-downs, including pre-payments, were $52,153,000,
representing 12.0% and 76.2%, respectively, of the average total investment
portfolio for the year. Net losses associated with the sale of securities
available for sale during 1999 were $5,000 compared with net gains of $52,000
during 1998. Total average investments increased $9.3 million, or 15.7%, during
1999 compared to 1998, while total securities at year end 1999 were $74.9
million compared to $71.7 million at year end 1998. The average yield on
investment securities was 6.39% in 1999 and 6.48% in 1998. The following table
contains the carrying amount of the securities portfolio at the end of each of
the last two years.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31
(In Thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government agencies $36,514 $35,900
Securities of states and political subdivisions 2,200 1,309
Collateralized mortgage obligations 33,307 31,721
Equity securities 2,856 2,732
- -----------------------------------------------------------------------------------------------------------------------
Total $74,877 $71,662
=======================================================================================================================
</TABLE>
-115-
<PAGE> 14
The maturities and average weighted yield of the Company's investment portfolio
at the end of 1999 are presented in the following table using primarily the
estimated expected life. The average stated maturity of the collateralized
mortgage obligations was 10.4 years and the estimated life was 3.2 years at
year end 1999. All securities were held as available for sale.
DEBT SECURITIES AVAILABLE FOR SALE MATURITY SCHEDULE
<TABLE>
<CAPTION>
December 31, 1999
- ------------------------------------------------------------------------------------------------------
Within After 1 But After 5 But
1 Year Within 5 Years Within 10 Years
(Dollars In Thousands) Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of U.S.
Government agencies $4,866 7.0% $23,350 6.8% $ 8,298 7.0%
Securities of states and
political subdivisions -- -- 366 5.5 1,834 5.3
- ------------------------------------------------------------------------------------------------------
Total $4,866 7.0% $23,716 6.8% $10,132 6.7%
======================================================================================================
</TABLE>
The previous table excludes collateralized mortgage obligations at an estimated
fair value of $33.3 million and investments in equity securities which have no
stated maturity. Maturities of collateralized mortgage obligations can be
expected to differ from scheduled maturities due to the pre-payment or early
call privileges of the issuer. Average federal funds sold increased from $7.5
million in 1998 to $12.2 million in 1999 as the Company implemented its Year
2000 liquidity plan. Federal funds sold represent a short-term investment used
primarily for liquidity purposes in the Company's asset liability management
strategy.
DEPOSITS
During 1999, the Company's volume and mix of liabilities shifted as average
shareholders' equity increased $21.9 million, or 80.1%, and average other
borrowings increased $5.8 million, or 45.3%. The portion of average liabilities
and shareholders' equity represented by deposits, the primary source of funding
for the Company, was 74.0% in 1999, a decrease from 79.9% during 1998. This
decrease resulted from additional shareholders' equity. Average deposits
increased $31.8 million, or 19.0%, in 1999 compared to 1998. At December 31,
1999, total deposits were $229.1 million, an increase of $66.6 million, or
41.0%, from the $162.6 million reported at December 31, 1998. Growth was
reflected in all deposit categories at year end 1999 compared to December 31,
1998. At December 31, 1999, compared to the same period in 1998,
non-interest-bearing demand deposits increased $.5 million or 2.8%, NOW
accounts increased $2.7 million, or 19.8%, money market accounts increased
$20.6 million, or 28.9%, time certificates less than $100,000 increased $26.6
million, or 95.9%, and time certificates $100,000 or greater increased $16.2
million, or 50.3%. The shift in the mix of deposits reflects the Company's
branch expansion as consumer NOW accounts, money market accounts and time
certificates increased during 1999. This shift also reflected the successful
results of an advertising campaign in the summer of 1999 promoting time
certificates of deposit. The Company has opened a new branch location in each
of the last three years, which together with the expansion of mobile branching
services and Internet banking has provided additional opportunities for the
expansion of both commercial and consumer banking relationships. The average
rate paid on all deposit categories declined during 1999 compared to 1998;
however, rates increased significantly during the last six months of 1999
compared to the first six months of 1999.
-116-
<PAGE> 15
The deposit mix at December 31, 1999 reflects the changes that occurred during
the year as well as temporary year end fluctuations with non-interest-bearing
deposits at 8.1%, NOW accounts at 7.0%, money market accounts at 40.1%, time
certificates less than $100,000 at 23.7% and time deposits $100,000 or greater
at 21.1%. This compares to a deposit mix at year end 1998 which reflected
non-interest-bearing accounts at 11.1%, NOW at 8.2%, money market accounts at
43.8%, time deposits less than $100,000 at 17.1% and time deposits $100,000 or
greater at 19.8%. The shift in the mix of the Company's deposit base reflects
its branch expansions and the certificate of deposit campaigns which were
conducted during 1999, resulting in additional consumer deposits in NOW
accounts and certificates of deposit as well as the expansion of the Company's
commercial deposit base. Maturities of time deposits of $100,000 or more issued
by the Company at December 31, 1999 are summarized in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 AND OVER
<TABLE>
<CAPTION>
(In Thousands)
-------------------------------------------------------------------------------
<S> <C>
Three months or less $11,268
Over three through six months 13,868
Over six through twelve months 17,003
Over twelve months 6,228
-------------------------------------------------------------------------------
Total $48,367
-------------------------------------------------------------------------------
</TABLE>
At year end 1999, the Company had total borrowings of $29.5 million comprised
of $24.5 million in Federal Home Loan Bank borrowings and $5.0 million in
federal funds purchased. This compares with borrowings of $22.5 million at year
end 1998, which were comprised of $14.5 million in Federal Home Loan Bank
borrowings and $8.0 million in federal funds purchased. The average volume of
these borrowings during 1999 was $18.5 million compared to $12.7 million during
1998 with an average rate paid on borrowed funds during 1999 of 5.04% compared
to 5.54% in 1998. The average rate paid on average total interest-bearing
liabilities was 4.57% in 1999 compared with 4.91% in 1998.
The ratio of average loans, net of unearned income, to average total deposits
was 88.4% in 1999, compared with 79.9% in 1998. This higher average loan to
average deposit ratio reflected the increase average loans, which occurred
during 1999. A significant increase in average shareholders' equity during 1999
compared to 1998 made it appropriate for the Company to have a higher loan to
average deposit ratio. The loan to deposit ratio at December 31, 1999 was 89.7%
compared to 93.9% at year end 1998. Most financial institutions manage the loan
to deposit ratio considering also the capital to assets ratio. The Company's
management has considered its capital ratio in conjunction with maintaining a
higher average loan to deposit ratio.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The Company's asset liability management process actively involves the Board of
Directors and members of senior management. The asset liability committee of
Board of Directors meets at least quarterly to review strategies and the volume
and mix of assets as well as funding sources. Decisions relative to different
types of securities are based upon the assessment of various economic and
financial factors, including, but not limited to interest rate risk, liquidity
and capital adequacy. Interest rate sensitivity is a function of the repricing
characteristics of the Company's portfolio of earning assets and
interest-bearing liabilities. These repricing characteristics are the time
frames within which interest-bearing assets and liabilities are subject to a
change in interest rate either by replacement, repricing or maturity of the
instrument. Interest rate sensitivity management focuses on the maturity
structure of assets and liabilities and their repricing characteristics during
periods of change in market interest rates. Effective interest rate management
seeks to ensure that both assets and liabilities respond to changes in interest
rate movements similarly to minimize the effect on net interest income by these
fluctuations. Management utilizes computer interest rate simulation models and
analysis to determine the Company's interest rate sensitivity. Management also
evaluates the condition of the economy, the pattern of market interest rates
and other economic data to determine the appropriate mix and repricing
characteristics of assets and liabilities.
-117-
<PAGE> 16
In addition to ongoing monitoring of interest rate sensitivity, the Company
may, from time to time, enter into various interest rate contracts to augment
the management of the Company's interest sensitivity. The Company also utilizes
certain leveraging strategies within risk tolerance guidelines established by
its Board of Directors for the purpose of increasing net income. Such
strategies involve the utilization of borrowings to fund investment securities
with similar maturities or repricing characteristics which result in an
acceptable interest rate spread. Although the Company discontinued a leveraging
strategy during the early part of 1999, the Board of Directors approved an
additional strategy in the fall of 1999 which has yet to be implemented.
Leveraging strategies are carefully monitored by the Company's Board of
Directors who have established parameters for matching investment purchases
with Federal Home Loan Bank borrowings. During periods when these strategies
are implemented, a matched investment income report is reviewed monthly by the
Company's Board of Directors in an effort to manage risk. Additionally, the
Asset Liability Committee of the Company's Board of Directors has established a
maximum level of borrowing/investment at present of $10,000,000. While
leveraging strategies contribute to increases in net interest income, they also
have the effect of lowering the net interest margin and increasing the
Company's exposure to interest rate risk. Managing and regularly monitoring
interest rate risk associated with leveraging strategies are the responsibility
of both management and the Company's Board of Directors. At December 31, 1999,
the Company had borrowings totaling $29.5 million compared to $22.5 million at
December 31, 1998. None of the borrowings reflected at December 31, 1999, were
used to fund investment securities.
The following interest rate gap table reflects the Company's rate sensitivity
position at December 31, 1999. The carrying amount of interest rate sensitive
assets and liabilities is presented in the periods in which they next reprice
to market rate or mature and is summed to show the interest rate sensitivity
gap. To reflect anticipated pre-payments, certain investments are included in
the table based on estimated rather than contractual maturity dates.
<TABLE>
<CAPTION>
Expected Repricing or Maturity Date
--------------------------------------------------------------------------
Within One Two After
One to Two to Five Five
Year Years Years Years Total
(Dollars In Thousands) 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Securities $ 6,603 $ 12,953 $38,756 $ 16,565 $ 74,877
Average rate 7.03% 6.78% 6.67% 6.67% 6.72%
Net loans $ 144,964 $ 9,457 $37,594 $ 13,496 $205,511
Average rate 8.92% 8.88% 8.62% 8.46% 8.83%
Federal funds sold and cash $ 14,397 $ -- $ -- $ -- $ 14,397
Average rate 5.13% -- -- -- 5.13%
- -------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 165,964 $ 22,410 $76,350 $ 30,061 $294,785
Liabilities
Deposits $ 195,827 $ 8,242 $ 6,590 $ 2 $210,661
Average rate 4.64% 5.68% 5.99% 4.95% 4.73%
Federal Home Loan Bank
and other debt $ 24,500 $ 5,000 $ -- $ -- $ 29,500
Average rate 6.01% 4.45% -- -- 5.75%
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $ 220,327 $ 13,242 $ 6,590 $ 2 $240,161
- -------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (54,363) $ 9,168 $69,760 $ 30,059 $ 54,624
=========================================================================================================================
Cumulative interest rate
sensitivity gap $ (54,363) $(45,195) $24,565 $ 54,624
=========================================================================================================================
</TABLE>
-118-
<PAGE> 17
Liquidity is the ability of the financial institution to meet the needs of its
customers and creditors. High levels of liquidity reduce earnings as liquidity
is normally obtained at a net interest cost as a result of generally lower
yields on short-term, interest-earning assets and the higher interest expense
usually associated with the extension of deposit maturities. During the last six
months of 1999, the Company maintained a significantly higher liquidity position
than would normally be the case as a part of its Year 2000 liquidity plan. 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 8.3 years at December 31, 1999
compared to 7.0 years at December 31, 1998. Securities available for sale were
$74.9 million at December 31, 1999, compared to $71.7 million at December 31,
1998. The Company had net federal funds sold at December 31, 1999 of $9.3
million compared to federal funds purchased of $8.0 million at December 31,
1998. Core deposits, a relatively stable funding base, represented 78.9% of
total deposits at December 31, 1999, and 80.2% total deposits at year end 1998.
Core deposits are defined as total deposits, less time certificates of deposit
$100,000 or greater. Liquidity is strengthened and reinforced by maintaining a
relatively stable funding base which is achieved by providing relationship
banking, extending contractual maturities of liabilities and reducing reliance
on volatile short-term purchase funds. Maintaining acceptable levels of
liquidity has been an ongoing consideration of the Company's Asset Liability
Committee and is regularly monitored and adjusted, as appropriate. It is
recognized that maintaining an acceptable level of liquidity becomes even more
important during periods of economic uncertainty and volatile financial markets.
Due to the uncertainty of the Year 2000 Event, the Company maintained additional
liquidity during the last quarter of 1999.
Due to the commercial nature of the Company's target market, liabilities and
loans are evaluated relative to industry concentration and volatility. At
December 31, 1999, approximately 17.1% of deposits were related to the
construction industry, 5.6% were related to the insurance industry, while 3.5%
were related to local governments and public utilities and 3.1% to real estate
development/investment industries. These areas are the Company's largest deposit
concentrations and represent significant industries within the Company's market.
These deposits are primarily reflected in the Company's demand deposits and
interest-bearing money market accounts and are deposits of relationship
commercial customers which, by their nature, are concentrated in a fewer number
of customer relationships than would be the case for consumer deposit funding
sources.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages 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 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 gap table under the "Liquidity and Asset/Liability Management"
caption.
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 forecasts, 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
those assets and liabilities as well as any 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.
-119-
<PAGE> 18
Management recommends the appropriate levels of interest rate risk to be assumed
within limits approved by the ALCO and the Board of Directors as to the maximum
fluctuations acceptable in the market value of equity and in earnings assuming
sudden interest rate movements (rising or falling) up to 200 basis points. The
Company's policy establishes the maximum change in annual pre-tax interest
income with a 200 basis point change in rates to 15% while establishing the
maximum change allowable in pre-tax market value of capital 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 asset/liability structure to
obtain the maximum yield-cost spread. The Company relies primarily on its
asset/liability structure to control interest rate risk.
Based on December 31, 1999 financial data, a 200 basis point change in rates
would produce net interest income variations of a .8% increase assuming falling
rates and a 2.5% decrease assuming rising rates. Additionally, the 200 basis
point rate shock would produce changes in the market value of equity of a
decrease of 9.4% assuming rising rates and a 9.1% increase assuming falling
rates. The Company continually evaluates interest rate risk management
opportunities, including the use of derivative financial instruments. Management
believes that hedging instruments currently available are not cost effective to
the Company, and therefore, has focused its efforts on increasing the Company's
yield-cost spread through growth opportunities.
The following table shows the Company's financial instruments that are sensitive
to change in interest rates, categorized by expected maturity and the
instrument's fair value at December 31, 1999. Market risk sensitive instruments
are generally defined as derivatives and other financial instruments both on
balance sheet and off balance sheet.
<TABLE>
<CAPTION>
Average Expected Maturity/Principal Repayment
Interest -------------------------------------
Rate There- Total Fair
(Dollars In Millions) 2000 2001 2002 2003 2004 After Balance Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Sensitive
Assets:
Fed funds sold and
cash 5.13% $ 14.4 $ -- $ -- $ -- $ -- $ -- $ 14.4 $ 14.4
Loans (1) 8.83 145.0 9.5 10.4 7.4 19.7 13.5 205.5 204.2
Investment Securities 6.48 6.6 13.0 11.6 23.6 3.5 16.6 74.9 74.9
Interest-Sensitive
Liabilities:
Deposits 4.73 195.8 8.2 5.7 .6 .4 -- 210.7 211.8
FHLB and other debt 5.75 24.5 5.0 -- -- -- -- 29.5 29.5
Interest-Sensitive
Off balance sheet
Items: (2)
Commitments to extend
credit 8.69 66.3 *
Unused lines of credit 12.13 3.5 *
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loans are not reduced for the allowance for loan losses.
(2) Total balance equals the notional amount of off-balance sheet items and
interest rates are the weighted average interest rates of the underlying
loans or commitments.
*The estimated fair value of these items was not significant.
-120-
<PAGE> 19
Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturities, projected repayments, and estimated prepayments of principal. The
actual maturities of these instruments could vary substantially if future
prepayments differ from the Company's historical experience.
NONPERFORMING ASSETS AND RISK ELEMENTS
Nonperforming assets, which include nonaccrual loans, restructured loans, and
other real estate owned, were $291,000 at December 31, 1999, compared with
$460,000 at December 31, 1998. The following table represents the composition of
nonperforming assets at December 31, 1999 and 1998.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31
(Dollars In Thousands) 1999 1998
NONPERFORMING ASSETS:
<S> <C> <C>
Nonaccrual loans $291 $408
Restructured loans -- --
Other real estate owned -- 52
------------------------------------------------------------------------------------
Total $291 $460
------------------------------------------------------------------------------------
Nonperforming assets as a percent of
total loans plus other real estate owned .14% .30%
------------------------------------------------------------------------------------
</TABLE>
There were no loans 90 days or more past due at December 31, 1999 and 1998 that
were not included in the nonaccrual category. During 1999, $928,000 of loans
were transferred from earning status to nonaccrual status and there were no
advances made on nonaccrual loans. This compares to $925,000 of loans
transferred from earning status to nonaccrual status in 1998. In 1999 and 1998
there were $1,045,000 and $1,611,000, respectively, of loans transferred from
nonaccrual status primarily due to the repayment of principal. In 1999, there
were no loans removed from nonaccrual status and placed in other real estate
owned compared to one loan removed from nonaccrual status and placed in other
real estate owned during 1998. The Company had no other real estate owned at
December 31, 1999 compared to $52,000 in other real estate owned at December 31,
1998. During 1999, loans totaling $772,000 were charged-off with recoveries
reported of $990,000 compared to charge-offs of $84,000 and recoveries of
$474,000 in 1998. These charge-offs and recoveries resulted in net recoveries
during 1999 of $218,000 compared to net recoveries in 1998 of $390,000. The
Company evaluates the credit risk of each customer on an individual and ongoing
basis and, where deemed appropriate, obtains collateral. Collateral values are
monitored to ensure that they are maintained at appropriate levels. The largest
component of the Company's credit risk relates to the loan portfolio. During
1999, the Company continued its emphasis on underwriting standards and loan
review procedures. As discussed in the section, "Provision for Loan Losses",
asset quality and loan charge-offs and recovery experience impact the level of
the allowance for loan losses maintained.
At December 31, 1999 and 1998, other potential problem loans totaled $349,000
and $256,000, respectively. Other potential problem loans consist of loans that
are currently not considered nonperforming, 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 nonperforming assets. The composition of
nonperforming assets at December 31, 1999 was 100% in nonaccrual loans which
compares with 11.3% in other real estate owned and 88.7% in nonaccrual loans at
December 31, 1998. The largest nonaccrual loan at December 31, 1999 was
$218,000.
-121-
<PAGE> 20
At December 31, 1999, the Company's allowance for loan losses was $4.1 million,
or 2.0%, of total loans compared with $3.6 million, or 2.4%, at December 31,
1998. The level of the allowance for loan losses is monitored regularly by
management and the Company's Board of Directors.
YEAR 2000 (Y2K)
During 1999, management and the Board of Directors continued its emphasis on
Year 2000, carefully monitoring all systems as well as investments and large
customer relationships to ensure the Company was not exposed to risks that could
negatively impact the Company as a result of the century date change. The
Company's diligence in recognizing and addressing technological and financial
risk to both the Company and its customers in relation to the approach of a new
millennium resulted in a successful year end with no Y2K reportable events.
During the first quarter of 2000, the Company is continuing the implementation
of its Year 2000 plan by conducting post-Y2K event activities which include
further assessments of Y2K impact on customers and monitoring additional dates
in internal systems. The costs related to Year 2000 during 1999 were
approximately $120,000 and there is little financial impact expected during Year
2000. Throughout 1999, the Company continued its Y2K customer awareness and
communications program.
CAPITAL STRENGTH
The Company experienced a significant change in its capital structure in 1998 as
2.0 million warrants were exercised resulting in a $25.0 million increase in
capital. There are no remaining warrants outstanding. This additional capital
was employed during 1999 in investment securities and to implement a stock
repurchase plan authorized by the Board of Directors as well as in internal
growth and investments in other longer-term business strategies.
SHAREHOLDERS' EQUITY
Shareholders' equity (excluding other comprehensive income) at December 31,
1999, was $48.3 million, or 15.7% of total assets, which compares with $50.8
million, or 21.3% of total assets at December 31, 1998. This calculation, when
considered after the effect of the Company's adoption of Statement of Financial
Accounting Standards (SFAS) No. 115, was $47.3 million, or 15.4%, at December
31, 1999, which compares with $51.2 million, or 21.5% of total assets at
December 31, 1998. The decrease in total equity during 1999 primarily resulted
from the Company having repurchased 304,500 shares of its stock under a Stock
Repurchase Plan authorized by the Board of Directors in March, 1999. The decline
in capital as a percentage of total assets resulted from this re-purchase of
stock, dividends paid and a growth of 29.4% in total assets during 1999. These
factors were partially offset by increased earnings. Certain capital statistics
are shown in the following chart:
CAPITAL STATISTICS
<TABLE>
<CAPTION>
December 31
(Dollars In Thousands) 1999 1998
<S> <C> <C>
Total assets $308,106 $238,185
- ------------------------------------------------------------------------------------------
Total shareholders' equity 47,315 51,171
- ------------------------------------------------------------------------------------------
Total shareholders' equity to total assets 15.4% 21.5%
- ------------------------------------------------------------------------------------------
</TABLE>
The additional capital generated in 1998 provided opportunities for the Company
during 1999 and will continue to do so in future years. However, the increased
number of shares outstanding in 1999 reduced basic earnings per share on a
comparative basis and will continue to do so until the Company has the
opportunity to fully deploy the additional capital effectively through continued
expansion of its basic businesses and investments in other appropriate
longer-term business opportunities.
-122-
<PAGE> 21
The Company's capital ratios continue to exceed all regulatory requirements and
currently its ratios indicate 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 in 1999 of
$1,881,000 which compares with dividend payments in 1998 of $569,000. Total
dividend payments made in 1999 were $.46 per share compared to total dividend
payments in 1998 of $.24 per share. In January, the Company announced an
increase of $.04 per share in the quarterly dividend payment to $.17 per share,
to be paid the first quarter of 2000.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". Statement 133
established reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts. Under SFAS No. 133, the
Company would recognize all derivatives as either assets or liabilities,
measured at fair value, in the statement of financial position. In July, 1999,
SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities
Deferral of Effective Date of FASB No. 133, an amendment of FASB Statement 133"
was issued deferring the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000. The pronouncement did not impact the presentation of the
Company's consolidated financial statements or disclosure.
MANAGEMENT'S DISCUSSION AND ANALYSIS 1998 VS. 1997
The narrative which follows is management's discussion and analysis of 1998
results of operations of the Company compared to 1997.
Net income for 1998 was $2.6 million, or basic earnings per share of $1.08 in
1998 compared to $2.1 million, or $.93 basic earnings per share in 1997. Diluted
earnings per share were $.78 in 1998 compared to $.89 in 1997. The decrease in
diluted earnings per share resulted from warrants outstanding during 1998, all
of which were either exercised or expired at December 31, 1998. The Company
experienced a significant change in its capital structure in 1998 as 2.0 million
warrants, each representing the right to acquire a common share at a price of
$12.50, were exercised. In 1998, proceeds generated from the exercise of
warrants totaled $25.0 million and the Company ended the year with 4.2 million
common shares outstanding. The increased number of shares outstanding resulting
from the exercise of warrants will continue to reduce basic earnings per share
on comparative basis until the Company has the opportunity to more effectively
employ the additional capital to enhance profitability. Return on average
shareholders' equity (exclusive of other comprehensive income) was 9.56% in 1998
compared to 9.05% in 1997, while the return on average assets for 1998 and 1997
were 1.23% and 1.08%, respectively. During 1998, the Company continued its focus
on asset quality while expanding its service locations and product lines in
accordance with its long-term strategic plan. The maintenance of an adequate
level for the allowance for loan losses was reflected by a provision for loan
losses of $128,000 being reported in 1998, a period in which net recoveries were
$390,000. This provision expense was deemed to be prudent in light of the
Company's loan growth despite a decline of $767,000 in the level of
nonperforming assets at year end 1998 when compared to the same period in 1997.
The Company reported $100,000 in 1997 for provision for loan losses a period in
which net recoveries were $150,000.
-123-
<PAGE> 22
In January 1998, the Company's Board of Directors adopted a Shareholder's 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 exercised 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 ensure 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.
The Company's assets were $238.2 million at December 31, 1998, compared to
$204.9 million at December 31, 1997, representing an increase of 16.3%.
Shareholders' equity increased $27.1 million, an increase of 112.8% from the
$24.1 million at December 31, 1997. This increase included $25.0 million in
equity capital resulting from the exercise of warrants during 1998. Loans, net
of unearned income, increased $29.9 million, or 24.4%, at year end 1998 compared
to the same period in 1997. At December 31, 1998, total deposits were $162.6
million, a decline of .9% from the $164.1 million reflected at December 31,
1997. The slight decline in deposits at year end 1998 compared to 1997 was the
result of a temporary decline in money market accounts combined with a decline
in time certificates of deposit that resulted from a strategic decision to
utilize additional shareholders' equity rather than higher rate certificates of
deposit to fund earning assets. The ratio of average loans, net of unearned
income, to average total deposits was 79.9% in 1998, compared to 75.2% in 1997.
This higher loan to deposit ratio reflected the increase in average loans, which
occurred in 1998. The loan to deposit ratio at December 31, 1998 was 93.9%
compared to 74.8% year end 1997. The Company's management considered its capital
ratio in its determination to maintain a higher loan to deposit ratio.
NET INTEREST INCOME
Net interest income increased 17.1% to $8.6 million in 1998 from $7.3 million in
1997. Total interest income increased $1.3 million, or 8.7% in 1998 compared to
1997, while total interest expense increased $.1 million, or 1.0% compared to
1997. The increase in total interest income is attributable primarily to an 8.5%
increase in average earning assets and a shift in the mix of these assets as the
growth was comprised primarily of an $18.8 million increase in average loans.
This increase in loans was partially offset by a decline of $2.5 million in the
volume of average investments and $.6 million in other earning asset categories.
Additionally, the rate earned on average earning assets in 1998 increased 2
basis points compared to 1997, reflecting a shift in the mix of these assets as
loans, the Company's highest yielding asset, reflected an increase while other
categories declined. Average interest-bearing liabilities increased $11.9
million, or 7.9%, in 1998 compared to 1997. This increase in average
interest-bearing liabilities was comprised of a $10.8 million increase in
average money market accounts, $4.3 million increase in average NOW accounts and
a $.9 million increase in CD's $100,000 or greater, while CD's less that
$100,000 declined $3.6 million and Federal Home Loan Bank and other borrowings
declined $.4 million. The average rate paid on interest-bearing liabilities
decreased 34 basis points in 1998 compared to 1997. The decline in rates paid
was reflected in all categories of interest-bearing liabilities. The Company's
net interest margin increased by 32 basis points to 4.28% in 1998, primarily as
a result of the shift in the mix of earning assets from investments to higher
yielding loans combined with an overall decrease in the deposit rates paid
during 1998. A higher average loan to average deposit ratio also contributed to
the improvement in the net interest margin in 1998 compared to 1997. The
interest rate spread increased to 3.38% in 1998 from 3.02% in 1997. The shift in
the mix of earning assets together with the increased level of earning assets
and the decline in the average rate paid on interest-bearing liabilities
resulted in a higher level of net interest income. The positive impact of the
increased level of earning assets particularly in the area of loans was somewhat
offset by growth in interest-bearing liabilities.
-124-
<PAGE> 23
PROVISION FOR LOAN LOSSES
In 1998, the Company recorded $128,000 in expense for provision for loan losses,
compared with $100,000 in 1997. This provision for loan losses was deemed
appropriate due to the growth in the loan portfolio despite net recoveries for
1998 and decline in nonperforming assets. The allowance for loan losses was 2.4%
of loans at December 31, 1998, compared to 2.5% of loans at the same date in
1997. This decline in percentage resulted from a 24.4% increase in the loan
portfolio. Net recoveries of $390,000 in 1998 resulted from charge-offs of
$84,000 and recoveries of $474,000 reflecting continued collection efforts on
loans charged-off in prior periods. In 1997, net recoveries of $150,000 were the
result of charge-offs of $169,000 and recoveries of $319,000. The level of the
allowance and the amount of the provision are determined on a quarter by quarter
basis and, given the inherent uncertainties involved in the estimation process,
no assurance can be given as to the amount of the provision or the level of the
allowance at any future date.
NON-INTEREST INCOME
Total non-interest income was $1.8 million in 1998, reflecting an increase of
27.0% from $1.4 million reported in 1997. Non-interest income, less
non-recurring income (gains/losses on sale of securities and other real estate),
increased $311,000, or 22.0%, from 1997. Investment center income increased
$555,000 as the Company expanded its arrangement with LM Financial Partners,
Inc. to offer certain investment services through the addition of two investment
advisors at the Green Hills Office in May, 1998. Service fee income increased
$128,000 due primarily to an increased number of transaction accounts.
Additionally, other income increased $49,000 in 1998 compared to 1997. These
increases were partially offset by decreases of $313,000 in trust income and
$108,000 in income from previously foreclosed assets. Both the increases in
investment center income and the decline in trust income resulted from a
decision made in late 1997 to restructure how investment services were offered
by discontinuing most traditional trust services and redirecting the Company's
efforts into an expanded investment services department provided in conjunction
with LM Financial Partners, Inc. This decision impacted both non-interest income
and non-interest expense. The Company reported a net gain on sale of securities
available for sale of $52,000 in 1998 compared with $2,000 in 1997. Gains on
sale of other real estate owned were $29,000 in 1998 and $6,000 in 1997.
NON-INTEREST EXPENSE
A new branch location established in the Maryland Farms area of Brentwood,
Tennessee, expansion of investment services provided in conjunction with LM
Financial Partners, Inc., expansion of Bank-on-Call mobile branching, upgrades
of the Company's computer systems and expenses related to the Company's Year
2000 project contributed to increases in non-interest expenses in 1998. Total
non-interest expense increased 15.9% from $5.2 million in 1997 to $6.1 million
in 1998. Non-interest expense represented 2.9% of average total assets in 1998
compared to 2.7% in 1997. During 1998, salaries and employee benefits increased
$684,000, or 25.6%, primarily due to the additional personnel employed to
deliver investment services, staffing of the Company's Brentwood location,
expansion of the Company's mobile branch service and the addition of personnel
in the technology and operations area, some of whom were actively involved in
the Year 2000 project. Occupancy expense increased $119,000, or 16.7%, in 1998
compared to 1997 as a result of the establishment of the Company's Brentwood
Office in September, 1998. Other operating expenses increased $117,000 during
1998 compared to 1997. These increases in non-interest expense were partially
offset by decreases in other non-interest expense categories. Advertising and
marketing expense declined $47,000, or 24.6%, in 1998 compared to 1997 as a
result of reduced utilization of media expense related to the opening of the
Brentwood Office compared to the media expense incurred with the opening of the
Green Hills Office in 1997. Audit tax and accounting expense and data processing
expenses declined $7,000 and $18,000, respectively, in 1998 compared to 1997
primarily as a result of the Company's decision to discontinue its trust
department. Non-interest expense, other than salaries and benefits, increased
$151,000, or 5.9% during 1998 compared to 1997, while assets grew $33.3 million.
During the second quarter of 1998, the Company
-125-
<PAGE> 24
purchased property in Hendersonville, Tennessee and began construction of the
new branch office scheduled to open in the spring of 1999. Other than planned
expenses related to the expansion of locations and additional lines of business,
only minimal growth in most non-interest expense categories is anticipated in
1999. During 1998, costs related to Year 2000 were approximately $115,000 and
were projected to be approximately $135,000 during 1999.
INCOME TAXES
During 1998, the Company recorded provision for income taxes of $1.6 million
compared to $1.3 million during 1997. During 1998, reported earnings were
impacted by a franchise tax accrual of $63,000 resulting largely from additional
capital generated by the exercise of the Company's warrants during the fourth
quarter of 1998. The effective tax rate was approximately 38.0% for 1998 and
39.0% for 1997.
CAPITAL STRENGTH
The Company experienced a material change in its capital structure in 1998 as
2.0 million warrants, each representing the right to acquire a common share at a
price of $12.50, were exercised resulting in the addition of $25.0 million in
new equity capital. Since all warrants had an expiration date of December 31,
1998, there are no remaining warrants outstanding. Management and the Board of
Directors have recognized the potential for additional capital and have reviewed
both long-term and short-term strategies considering the appropriate deployment
of additional capital. The majority of the additional capital was received
during the last week of 1998; therefore, management implemented its short-term
investment strategy and with the Board of Directors began evaluating appropriate
longer-term business opportunities.
SHAREHOLDERS' EQUITY
Shareholders' equity (excluding other comprehensive income) at December 31,
1998, was $50.8 million, or 21.3% of total assets, which compares with $23.8
million, or 11.6% of total assets at December 31, 1997. The increase in total
equity during 1998 primarily resulted from the proceeds ($25.0 million) from the
issuance of common stock as warrants were exercised; however, 1998 earnings, net
of dividends paid, as well as the slight increase ($46,000) in the unrealized
gain on securities available for sale at year end 1998 compared with year end
1997 further contributed to the increase in total equity. The Company's capital
ratios are significantly in excess of industry standards and Federal Deposit
Insurance Corporation Improvement Act ("FDICIA") minimum ratios.
-126-
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(Dollars In Thousands) 1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,483 $ 13,243
Federal funds sold 14,300 --
Securities:
Available for sale (amortized cost of $76,467
and $71,113, respectively) 74,877 71,662
Loans (net of unearned income of $2,171 and $295,
respectively):
Commercial 70,166 51,970
Real estate - mortgage loans 102,476 79,455
Real estate - construction loans 19,688 14,667
Consumer 5,870 6,583
Lease financing 7,311 --
- -----------------------------------------------------------------------------------------
Loans, net of unearned income 205,511 152,675
Less allowance for loan losses (4,062) (3,646)
- -----------------------------------------------------------------------------------------
Total net loans 201,449 149,029
- -----------------------------------------------------------------------------------------
Premises and equipment, net 3,529 2,726
Accrued interest and other assets 2,468 1,525
- -----------------------------------------------------------------------------------------
Total Assets $308,106 $238,185
- -----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Non-interest-bearing demand deposits $18,480 $ 17,980
Interest-bearing deposits
NOW accounts 16,019 13,368
Money market accounts 91,892 71,263
Time certificates less than $100,000 54,383 27,757
Time certificates of $100,000 and greater 48,367 32,185
- -----------------------------------------------------------------------------------------
Total Deposits 229,141 162,553
- -----------------------------------------------------------------------------------------
Federal Home Loan Bank borrowings 24,500 14,500
Federal funds purchased 5,000 8,000
Accounts payable and accrued liabilities 2,150 1,961
- -----------------------------------------------------------------------------------------
Total Liabilities 260,791 187,014
- -----------------------------------------------------------------------------------------
Commitments and contingencies (Notes F, I, J, K and M)
SHAREHOLDERS' EQUITY:
Common stock, $6 par value; authorized
50,000,000 shares; issued and outstanding
3,923,640 in 1999 and 4,216,531 in 1998 23,542 25,299
Additional paid-in capital 17,381 19,773
Retained earnings 7,379 5,759
Accumulated other comprehensive (loss) income,
net of tax (987) 340
- -----------------------------------------------------------------------------------------
Total Shareholders' Equity 47,315 51,171
- -----------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $308,106 $238,185
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-127-
<PAGE> 26
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
(In Thousands, Except Per Share Data) 1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 15,995 $12,391 $10,724
Interest on federal funds sold 611 374 398
Interest on balances with banks 15 10 19
Interest on securities:
U.S. Treasury securities -- 54 151
Other U.S. government agency obligations 4,101 3,557 3,825
States and political subdivisions
- nontaxable 67 57 20
Other securities 186 148 123
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 20,975 16,591 15,260
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest-bearing demand deposits 4,196 3,830 3,458
Time deposits less than $100,000 2,031 1,809 2,061
Time deposits $100,000 and over 1,894 1,692 1,693
Federal funds purchased 156 29 26
Federal Home Loan Bank borrowings 776 675 718
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 9,053 8,035 7,956
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 11,922 8,556 7,304
Provision for loan losses 106 128 100
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 11,816 8,428 7,204
NON-INTEREST INCOME:
Service fee income 879 549 421
Trust income 93 224 537
Investment Center income 1,345 662 107
Gain (loss) on sale of
securities, net (5) 52 2
Income from foreclosed assets 3 -- 108
Gain on sale of other real estate owned 29 29 6
Other 331 289 240
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,675 1,805 1,421
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,687 3,357 2,673
Occupancy expense 1,298 830 711
Audit, tax and accounting 262 196 203
Advertising expense 336 144 191
Data processing expense 175 187 205
Other operating expenses 2,087 1,357 1,253
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 8,845 6,071 5,236
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,646 4,162 3,389
Income tax expense 2,145 1,581 1,331
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,501 $ 2,581 $ 2,058
- -----------------------------------------------------------------------------------------------------------------------------
Net income per share
- -----------------------------------------------------------------------------------------------------------------------------
Basic $ .86 $ 1.08 $ .93
Diluted .85 .78 .89
Weighted average common shares
outstanding
- -----------------------------------------------------------------------------------------------------------------------------
Basic 4,068 2,394 2,205
Diluted 4,129 3,321 2,324
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-128-
<PAGE> 27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive
Common Paid-In Retained (Loss) Income,
Stock Capital Earnings Net Of Tax Total
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1997 $ 13,215 $ 6,676 $ 2,130 $ 64 $ 22,085
Comprehensive Income:
Net Income -- -- 2,058 --
Other comprehensive
income -- -- -- 230
Total Comprehensive
Income -- -- -- -- 2,288
Issuance of Common
Stock (9,947 shares) 60 60 -- -- 120
Cash dividends - $.20
per share -- -- (441) -- (441)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, December 31,
1997 13,275 6,736 3,747 294 24,052
Comprehensive Income:
Net Income -- -- 2,581 --
Other comprehensive
income -- -- -- 46
Total Comprehensive
Income -- -- -- -- 2,627
Issuance of common
stock (2,004,111
shares) 12,024 13,037 -- -- 25,061
Cash dividends -
$.24 per share -- -- (569) -- (569)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
1998 25,299 19,773 5,759 340 51,171
Comprehensive Income:
Net Income -- -- 3,501 --
Other comprehensive
loss -- -- -- (1,327)
Total Comprehensive
Income -- -- -- -- 2,174
Issuance of Common
Stock (11,829 shares) 70 85 -- -- 155
Repurchase of common
stock (304,500 shares) (1,827) (2,477) -- -- (4,304)
Cash dividends - $.46
per share -- -- (1,881) -- (1,881)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
1999 $ 23,542 $ 17,381 $ 7,379 $ (987) $ 47,315
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-129-
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
(In Thousands) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 20,809 $ 16,487 $ 15,020
Fees received 2,675 1,805 1,419
Interest paid (8,469) (8,476) (7,422)
Cash paid to suppliers and associates (10,869) (6,982) (6,488)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 4,146 2,834 2,529
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities:
Available for sale 8,203 3,102 2,479
Maturities of securities:
Available for sale 52,153 33,599 19,404
Purchase of securities:
Available for sale (65,648) (42,252) (41,235)
Net cash paid for BON Leasing (1,250) -- --
Loans originated to customers, net (46,541) (29,484) (14,578)
Capital expenditures (1,361) (2,093) (469)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by
investing activities (54,444) (37,128) (34,399)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, and
money market deposits 23,780 5,679 15,206
Net (decrease) increase in time
certificates 42,808 (7,225) 15,623
Advance from Federal Home Loan Bank 10,000 5,000 5,000
Repayment of advance from Federal
Home Loan Bank and other debt (4,720) (5,000) --
Proceeds from issuance of common stock 155 25,061 120
Repurchase of common stock (4,304) -- --
Dividends paid (1,881) (569) (441)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by
financing activities 65,838 22,946 35,508
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents 15,540 (11,348) 3,638
Cash and cash equivalents at
beginning of year 5,243 16,591 12,953
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 20,783 $ 5,243 $ 16,591
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-130-
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31
(In Thousands) 1999 1998 1997
<S> <C> <C> <C>
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 3,501 $ 2,581 $ 2,058
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 695 404 399
Provision for loan losses 106 128 100
Provision for deferred income taxes (161) (15) 124
(Gain) loss on sale of securities 5 (52) (2)
Loss on disposal of equipment -- 26 --
Gain on sale of other real estate owned (29) (29) (6)
Stock dividend income (117) (112) (87)
Changes in assets and liabilities:
Increase (decrease) in accrued
interest and other assets (1,064) 192 (508)
Increase (decrease) in accounts
payable and accrued liabilities 1,210 (289) 451
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating
activities $ 4,146 $ 2,834 $ 2,529
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosures:
Change in unrealized gain (loss) on
securities available for sale, net
of taxes $ (1,327) $ 46 $ 230
Foreclosures of loans during the year -- 52 133
Cash paid for:
Income taxes $ 2,186 $ 1,516 $ 1,211
Interest $ 8,468 $ 8,476 $ 7,422
</TABLE>
See accompanying notes to consolidated financial statements.
-131-
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description 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 100% of
TBON-Mooreland Joint Venture, LLC and an 80% interest in
Machinery Leasing Company of North America, Inc. (BON
Leasing). The Bank is a state-chartered bank incorporated in
1989 under the laws of the state of Tennessee. On April 30,
1996, CFGI executed a plan of exchange with The Bank, whereby
CFGI became the parent holding company of The Bank.
The Bank primarily provides commercial banking services to
small business customers located in the Metropolitan
Nashville, Tennessee market. The Bank competes with numerous
financial institutions within its market place.
BON Leasing buys, sells and leases machinery and equipment.
TBON-Mooreland Joint Venture underwrites title insurance on
The Bank's loans.
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
CFGI and The Bank and its subsidiaries BON Leasing and
TBON-Mooreland Joint Venture (collectively the Company) after
elimination of material intercompany accounts and
transactions.
The accounting and reporting policies of the Company conform
to generally accepted accounting principles and to general
practices within the banking industry. Management has made a
number of estimates and assumptions relating to the reporting
of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
Following is a summary of the more significant accounting
policies of the Company.
Cash and Cash Equivalents
Cash and highly liquid investments with maturities of three
months or less when purchased are considered to be cash and
cash equivalents. Cash and cash equivalents consist primarily
of cash and due from banks and federal funds sold net of
federal funds purchased.
Securities
Securities are designated as held to maturity, available for
sale, or trading at the time of acquisition. Held to maturity
securities are carried at amortized cost and adjusted for
amortization of premiums and accretion of discounts using a
method that approximates the level-yield method. Trading
account securities are carried at fair value with gains and
losses, determined using the specific identification method,
recognized currently in the income statement. The Company does
not have securities designated as trading securities or as
held to maturity. As of December 31, 1999 and 1998, the
Company has classified its entire securities portfolio as
available for sale. Available for sale securities are reported
at fair value. If a decline in value is considered to be
-132-
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
other than temporary, the securities are written down to fair
value and the amount of the writedown is included in earnings.
Unrealized gains and losses on securities available for sale
are reflected in a separate shareholders' equity account, net
of applicable income taxes, and in other comprehensive income.
The adjusted cost of a specific security sold is used to
compute the gain or loss on the sale of that security.
Security purchases and sales are recorded on their trade date.
Gains and losses on the sale of securities available for sale
are included in non-interest income. Purchased premiums and
discounts are amortized and accreted into interest income on a
constant yield over the life of the securities taking into
consideration current prepayment assumptions.
During 1998, the Company purchased stock as an equity
investment in American Growth Finance, Inc., a factoring
company. This investment is carried as an equity security
available for sale at cost which approximates fair value.
Loans
Loans are carried at the principal amount outstanding net of
unearned income. Interest income on loans and amortization of
unearned income is computed by methods which result in level
rates of return on principal amounts outstanding. Management,
considering current information and events regarding the
borrowers' ability to repay their obligations, considers a
loan to be impaired when it is probable that the Company will
be unable to collect all amounts due according to contractual
terms of the loan agreement. When a loan is considered
impaired, the amount of the impairment is based on the present
value of the expected future cash flows at the loan's
effective interest rate, at the loan's market price or fair
value of collateral if the loan is collateral-dependent.
Impairment losses are included in the allowance for loan
losses through a charge to provision for loan losses.
Interest income is accrued on loans except when doubt as to
collectability exists, in which case the respective loans are
placed on nonaccrual status. The decision to place a loan on
nonaccrual status is based on an evaluation of the borrower's
financial condition, collateral liquidation value, and other
factors that affect the borrower's ability to pay. At the time
a loan is placed on nonaccrual status, the accrued but unpaid
interest is charged against current income. Thereafter,
interest on nonaccrual loans is recognized as interest income
only as received, unless the collectability of outstanding
principal is doubtful, in which case such interest received is
applied as a reduction of principal until the principal has
been recovered, and is recognized as interest income
thereafter.
Loan origination, commitment fees and certain direct
origination costs are deferred and amortized over the
contractual life of the related loans, adjusted for
prepayments, as a yield adjustment.
BON Leasing generally leases machinery under noncancelable,
full payment leases which provide, through rentals, for full
recovery of the cost of the machinery leased. For financial
statement purposes, such leases are accounted for as direct
financing leases whereby the contracts receivable and unearned
interest income are recorded when lease contracts become
effective. Unearned income for this type of lease is computed
on the aggregate rentals less the cost of the machinery and is
recognized as income over the life of the lease by the
interest method. For income tax purposes, the Company reports
lease income under the operating
-133-
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Loans - Continued
lease method or under the installment sales method, depending
on the terms of the contract. When the operating lease method
is used, depreciation is computed by the declining-balance or
MACRS method. The allowance for possible losses is provided to
cover losses incurred in the collection of existing contracts
receivable and the disposal of the related machinery.
Allowance for Loan Losses
An allowance for loan losses reflects an amount which, in
management's judgment, is adequate to provide for estimated
loan losses. Management's evaluation of the loan portfolio
consists of evaluating current delinquencies, the adequacy of
underlying collateral, current economic conditions, risk
characteristics, and management's internal credit review
process. The allowance is established through a provision
charged against earnings. Loans are charged off as soon as they
are determined to be uncollectible. Recoveries of loans
previously charged off are added to the allowance. While
management uses available information to recognize losses on
loans, future adjustments in the allowance may be necessary
based on changes in economic conditions. In addition, various
regulatory agencies, as part of their examinations,
periodically review the Company's allowance for loan losses.
Such agencies may require the Company to adjust the allowance
based on their judgment and information available to them at
the time of their examinations.
Other Real Estate Owned
Other real estate owned includes property acquired in
situations in which the Company has physical possession of a
debtor's assets (collateral). Such assets are carried at the
lower of cost or fair value less estimated cost to sell and are
included in other assets. Cost includes the fair value of the
property at the time of foreclosure, foreclosure expense and
expenditures for subsequent improvements. Losses arising from
the acquisition of such property are charged against the
allowance for loan losses. Declines in value subsequent to
foreclosure are recorded as a valuation allowance. Provisions
for subsequent declines or losses from disposition of such
property are recognized in non-interest expense.
Premises and Equipment
Premises and equipment is stated at cost less accumulated
depreciation and amortization. For financial reporting
purposes, depreciation and amortization are computed using the
straight-line method over the estimated lives of those assets.
Leasehold improvements are amortized over the lease terms or
the estimated lives, whichever is less. The estimated lives are
as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold improvements 3 - 20
Furniture and equipment 3 - 10
</TABLE>
-134-
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Goodwill
For business combinations accounted for as purchases, the net
assets have been adjusted to their estimated fair values as of
the respective acquisition dates and are amortized over the
life of the specific asset. The excess of the purchase price
over the net assets acquired (goodwill) is recorded in other
assets and is being amortized on a straight-line basis over 15
years.
The carrying value of the excess of the purchase price over net
assets acquired is periodically reviewed for impairment. If
this review indicates that the goodwill will not be
recoverable, as determined based on the undiscounted cash flows
of the entity acquired over the remaining amortization period,
the Company's carrying value of the goodwill will be reduced by
the estimated shortfall of the discounted cash flows with a
corresponding charge to earnings.
Income Taxes
The Company accounts for income taxes in accordance with the
asset and liability method of accounting. Under such 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.
Earnings Per Common Share (EPS)
Basic EPS is computed by dividing net income available to
common shareholders (numerator) by the weighted average number
of common shares outstanding (denominator). The denominator
used in computing diluted EPS reflects the dilutive effect of
options and warrants outstanding.
Business Segments
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise
and Related Information" on December 31, 1998. The Statement
establishes standards for the way public business enterprises
report information about operating segments in annual financial
statements. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial
information is available that is regularly evaluated by the
chief operating decision maker in deciding how to allocate
resources and assess performance. The Company operates in one
business segment, commercial banking, and has no additional
individually significant business segments.
Stock-Based Compensation
The Company accounts for all stock-based compensation plans
under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost
for stock-based awards is measured by the excess, if any, of
the fair market value of the stock, at the time the option is
granted, over the amount the employee is required to pay.
Compensation cost for the Company is measured at the grant date
as all options are fixed awards.
-135-
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Financial Instruments
The Company enters into interest rate floor agreements as part
of its asset/liability management program. Fees paid upon
inception of these agreements are deferred and amortized over
the life of the agreements. Income or expense derived from
these agreements is recognized in interest income during the
period earned.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income" on January 1, 1998. SFAS No. 130 establishes standards
for reporting comprehensive income which includes net income
and other comprehensive income, non-owner related transactions
in equity. SFAS No. 130 requires only additional disclosures in
the consolidated financial statements. During 1999, 1998 and
1997 the only component of comprehensive income, other than net
income, is unrealized gains or losses on securities available
for sale, net of taxes.
Reclassifications
Certain reclassifications have been made in the consolidated
financial statements for prior years to conform with the 1999
presentation.
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 acquired 80% ownership in Machinery
Leasing Company of North America, Inc ("BON Leasing") for $1.3
million in cash. The transaction has been accounted for using
the purchase method of accounting and 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 excess of the purchase price
over the fair value of the net assets acquired was $215,000 and
was recorded as goodwill. During 1999, the company recorded
amortization of $8,000.
C. CASH RESTRICTIONS
The Company is required to maintain reserves in the form of
average vault cash and balances with the Federal Reserve Bank.
The average amounts of these balances maintained during the
years ended December 31, 1999 and 1998, were $4,254,000 and
$3,204,000, respectively. The required balance at December 31,
1999 was $4,599,000.
-136-
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. SECURITIES
The amortized cost, gross unrealized gains and losses, and
estimated fair values of securities at December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
Available for Sale
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands) 1999
<S> <C> <C> <C> <C>
U.S. Treasury Securities
and Obligations of U.S.
Government agencies $ 37,219 $ 64 $ 769 $ 36,514
Collateralized mortgage
obligations 34,102 13 808 33,307
Securities of states and
political subdivisions 2,290 6 96 2,200
Equity securities 2,856 -- -- 2,856
-----------------------------------------------------------------------------------------------------------------
$ 76,467 $ 83 $ 1,673 $ 74,877
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands) 1998
<S> <C> <C> <C> <C>
U.S. Treasury Securities
and Obligations of U.S.
Government agencies $ 35,356 $ 544 $ -- $ 35,900
Collateralized mortgage
obligations 31,758 85 122 31,721
Securities of states and
political subdivisions 1,267 42 -- 1,309
Equity securities 2,732 -- -- 2,732
------------------------------------------------------------------------------------------------------------------
$ 71,113 $ 671 $ 122 $ 71,662
==================================================================================================================
</TABLE>
Proceeds from sales of debt securities during 1999, 1998, and
1997 were $8.2 million, $3.1 million and $2.5 million,
respectively. Gross gains of $16 thousand, $52 thousand and $5
thousand and gross losses of $21 thousand, zero and $3 thousand
were realized on those sales in 1999, 1998 and 1997,
respectively.
The amortized cost and fair value of debt securities by
contractual maturity at December 31, 1999, are shown in the
following table. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
-137-
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
D. SECURITIES - CONTINUED
Collateralized mortgage obligations with a weighted average
effective yield of 6.64% are disclosed as a separate line item
due to staggered maturity dates. Investments in equity
securities are excluded as they have no stated maturity date.
<TABLE>
<CAPTION>
Available for Sale
--------------------------------
Estimated
Amortized Fair
Cost Value
(In Thousands) December 31, 1999
<S> <C> <C>
Due in one year or less $ 1,025 $ 1,024
Due after one year through five years 21,616 21,519
Due after five years through ten years 5,478 5,324
Due after ten years 11,390 10,847
--------------------------------------------------------------------------------------------------
39,509 38,714
Collateralized mortgage obligations 34,102 33,307
--------------------------------------------------------------------------------------------------
$ 73,611 $ 72,021
==================================================================================================
</TABLE>
Securities with an aggregate amortized cost of approximately
$31.0 million and $35.7 million were pledged to secure public
deposits, Federal Home Loan Bank borrowings and for other
purposes as required by law at December 31, 1999 and 1998,
respectively.
E. LOANS AND ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
(In Thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, January 1 $ 3,646 $ 3,128 $ 2,878
Provision charged to operations 106 128 100
Purchased allowance of BON Leasing 92 -- --
Loans charged off, net of recoveries
of $990, $474 and $319, in 1999,
1998, and 1997, respectively 218 390 150
-------- -------- --------
Balance, December 31 $ 4,062 $ 3,646 $ 3,128
======== ======== ========
</TABLE>
At December 31, 1999 and 1998, loans on nonaccrual status
amounted to $291,000 and $408,000, respectively. The effect of
nonaccrual loans was to reduce interest income by approximately
$10,000 in 1999, $29,000 in 1998, and $32,000 in 1997. There
were no material commitments to lend additional funds to
customers whose loans were classified as nonaccrual at December
31, 1999 and 1998.
The Company had no impaired loans at December 31, 1999. The
Company's recorded investment in impaired loans and the related
valuation allowance were $108,000 and $17,000, respectively, at
December 31, 1998. The valuation allowance is included in the
allowance for loan losses on the consolidated balance sheets.
At December 31, 1998 there were no impaired loans without an
accompanying valuation allowance.
-138-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
E. LOANS AND ALLOWANCE FOR LOAN LOSSES - CONTINUED
The average recorded investment in impaired loans for the years
ended December 31, 1999, 1998 and 1997 was $83,000, $143,000
and $390,000, 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 1999 or 1998.
In the ordinary course of business, the Company makes loans to
directors, executive officers, and principal shareholders,
including related interests. In management's opinion, these
loans are made on substantially the same terms, including
interest and collateral, as those prevailing at the time for
comparable transactions with other borrowers and they did not
involve more than the normal risk of uncollectability or
present other unfavorable features at the time such loans were
made. During 1999, $1.7 million of new loans were made while
repayments and other reductions totaled $1.6 million.
Outstanding loans to executive officers and directors,
including their associates and affiliated companies, were $5.5
million and $5.4 million at December 31, 1999 and 1998,
respectively. Unfunded lines to executive officers and
directors were $6.4 million and $4.0 million at December 31,
1999 and 1998, respectively.
The directors, executive officers and principal shareholders
also maintain deposits with the Company. The terms of these
deposit contracts are comparable to those available to other
depositors. The amount of these deposits totaled $2.0 million
and $2.5 million at December 31, 1999 and 1998, respectively.
F. PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31
(In Thousands) 1999 1998
<S> <C> <C>
Land $ 638 $ 638
Leasehold improvements 967 978
Furniture and equipment 2,641 2,023
Building and improvements 1,039 298
---------------------------------------------------------------------------------------------------
5,285 3,937
Less accumulated depreciation and amortization (1,756) (1,211)
---------------------------------------------------------------------------------------------------
Premises and equipment, net $ 3,529 $ 2,726
===================================================================================================
</TABLE>
The Company occupies space under noncancelable operating
leases. The leases provide annual escalating rents for periods
through 2009 with options for renewals. Rent expense is
recognized in equal monthly amounts over the lease term. Rent
expense was $357,000, $345,000 and $284,000 for 1999, 1998 and
1997, respectively.
-139-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
F. PREMISES AND EQUIPMENT
Future lease payments under noncancelable operating leases at
December 31, 1999 are payable as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
2000 $ 543
2001 486
2002 414
2003 366
2004 333
----------------------------------------------
$2,142
==============================================
</TABLE>
G. INCOME TAXES
Actual income tax expense for the years ended December 31,
1999, 1998 and 1997 differed from an "expected" tax expense
(computed by applying the U.S. Federal corporate tax rate of
34% to income before income taxes)as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
<S> <C> <C> <C>
Computed "expected" tax expense $1,928 $1,415 $1,152
State taxes, net of federal benefit 215 163 135
Other 2 3 44
--------------------------------------------------------------------------------------------
Total income tax expense $2,145 $1,581 $1,331
============================================================================================
</TABLE>
The components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
Current income tax expense (benefit):
<S> <C> <C> <C>
Federal $ 1,947 $ 1,347 $ 1,107
State 359 249 100
--------------------------------------------------------------------------------------------
2,306 1,596 1,207
--------------------------------------------------------------------------------------------
Deferred income tax expense (benefit):
Federal (127) (13) 20
State (34) (2) 104
--------------------------------------------------------------------------------------------
(161) (15) 124
--------------------------------------------------------------------------------------------
Total income tax expense $ 2,145 $ 1,581 $ 1,331
============================================================================================
</TABLE>
-140-
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G. INCOME TAXES- CONTINUED
Significant temporary differences and carryforwards that give
rise to the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31
(In Thousands) 1999 1998
<S> <C> <C>
Deferred tax assets:
Unrealized loss on securities
available for sale $ 604 $ --
Deferred fees, principally due to timing
differences in the recognition of income 207 141
Net operating loss carryforwards 195 --
Premises and equipment, principally due to
differences in depreciation methods 22 --
Other 12 4
-----------------------------------------------------------------------------------------
Total gross deferred tax assets 1,040 145
=========================================================================================
Deferred tax liabilities:
Unrealized gain on securities
available for sale -- (209)
Discount on securities deferred
for tax purposes (57) (130)
Loans, principally due to provision for
loan losses (57) (126)
Leases, principally due to differences in
basis acquired and the recognition of income (234) --
Premises and equipment, principally due to
differences in depreciation methods -- (17)
Other (104) (63)
-----------------------------------------------------------------------------------------
Total gross deferred tax liabilities (452) (545)
-----------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 588 $ (400)
=========================================================================================
</TABLE>
It is more likely than not that the results of the Company's
future operations will generate sufficient taxable income to
realize the deferred tax assets.
H. LONG TERM DEBT AND LINES OF CREDIT
The Bank maintains an arrangement with the Federal Home Loan
Bank of Cincinnati to provide for certain borrowing needs of
The Bank. The arrangement requires The Bank to hold stock in
the Federal Home Loan Bank and requires The Bank to pledge
investment securities or loans, to be held by the Federal Home
Loan Bank, as collateral. During 1999, $10,000,000, with
interest payable at 6.0% was advanced under this agreement.
During 1998, loans totaling $5,000,000 were advanced and
repaid. At December 31, 1999 and 1998 indebtedness under the
arrangement totaled $24,500,000 and $14,500,000, respectively.
Advances of $10,000,000 mature in February, 2000, $9,500,000
mature in September, 2001 and $5,000,000 mature in November
2003. The interest rate on $9,500,000 of the advances is tied
to the one-month LIBOR rate and adjusts periodically. Interest
on the $5,000,000 advance is at 4.45% for two years and then
adjusts quarterly to the three month LIBOR rate.
-141-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. LONG TERM DEBT AND LINES OF CREDIT - CONTINUED
Interest is payable monthly. The maximum advances outstanding
were $24,500,000 and $14,500,000, the average balances
outstanding were $15,158,000 and $12,144,000 and the weighted
average rates were 5.56% and 5.00% for the years ended 1999 and
1998, respectively. The Bank has pledged investment securities
with a fair market value of approximately $14.8 million at
December 31, 1999 as collateral under terms of the loan
agreement.
On December 31, 1999 and 1998, the Company had available for
its use $34.5 million and $26.5 million, respectively, of
unsecured short-term bank lines of credit. Such short-term
lines serve as backup for loan and investment needs. There are
no compensating balance requirements. These lines facilitate
federal funds borrowings and bear a rate equal to the current
lending rate for federal funds purchased. Amounts outstanding
under these lines of credit at December 31, 1999 and 1998 were
$5.0 million and $8.0 million, respectively.
I. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amount recognized on the balance sheets. The contract
amounts of those instruments reflect the extent of involvement
and the related credit risk the Company has in particular
classes of financial instruments. The Company, through regular
reviews of these arrangements, does not anticipate any material
losses as a result of these transactions.
At December 31, 1999 and 1998 unused lines of credit were
approximately $66.3 million and $58.2 million, respectively,
with the majority generally having terms at origination of one
year. Additionally, the Company had standby letters of credit
of $3,516,000 and $4,832,000 at December 31, 1999 and 1998,
respectively.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a
case-by-case basis. The amounts of collateral obtained, if
deemed necessary by the Company, upon extension of credit is
based on management's credit evaluation of the customer.
Standby letters of credit are commitments issued by the Company
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper,
bond financing, and similar transactions. Most guarantees
extend from one to two years. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
-142-
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers
located in the Middle Tennessee region. Generally, loans are
secured by stocks, real estate, time certificates, or other
assets. The loans are expected to be repaid from cash flow or
proceeds from the sale of selected assets of the borrowers. The
Company grants residential, consumer, and commercial loans to
customers throughout the Middle Tennessee region. Real estate
mortgage and construction loans reflected in the accompanying
consolidated balance sheets are comprised primarily of loans to
commercial borrowers.
At December 31, 1999, funded and unfunded commitments as
classified by Standard Industry Classification codes include
borrowers in the real estate industry of approximating $27.3
million and $6.4 million, respectively, and to building
contractors of approximately $14.5 million and $11.3 million,
respectively. At December 31, 1998 funded and unfunded loan
commitments to borrowers in the real estate industry were
approximately $27.2 million and $5.2 million, respectively, and
to building contractors were approximating $8.8 million and
$10.1 million, respectively.
K. EMPLOYEE BENEFITS
The Company maintains for its employees an Associates Stock
Purchase Plan and a Retirement Savings Plan 401(K).
The Retirement Savings Plan 401(K) provides for the maximum
deferral of employee compensation allowable by the IRS under
provisions of Section 401(A) and 401(K). The Plan is available
to all associates who meet the plan eligibility requirements.
The Company provides various levels of employer matching of
contributions up to 4% of the associate's compensation.
Employer contributions are invested exclusively in the
Company's common stock. Associates fully vest in the employer's
contributions after three years of service as defined in the
Plan. Total plan expense for 1999, 1998 and 1997 was
approximately $119,000, $88,000 and $77,000, respectively.
In 1997, the Board of Directors adopted the 1997 Nonstatutory
Stock Option Plan which reserved 150,000 shares of the
Company's common stock for use under the Plan (plus 10% of any
additional shares of stock issued after the effective date of
the Plan). Stock issued pursuant to the Plan may be either
authorized but unissued shares or shares held in the treasury
of the Company. Options are granted at an option price of no
less than the fair market value of the stock immediately
preceding the date of grant. Each grant of an option shall be
evidenced by a stock option agreement specifying the number of
shares, the exercise price, and a vesting schedule. During
1999, 1998 and 1997, 106,900 options, 45,177 options, and
22,450 options, respectively, were granted under the Plan.
The Associates Stock Purchase Plan (ASPP), under which 100,000
shares of the Company's common stock may be issued, allows
associates to purchase the Company's common stock through
payroll deductions at 84% of the existing market value, not to
fall below par value. The difference between the purchase price
and the market value on the date of issue is recorded as
compensation expense. Compensation expense of $25,000, $16,000
and $9,000 was recorded in 1999, 1998 and 1997, respectively.
Incidental expenses regarding the administration of the plan
are paid by the Company.
-143-
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
K. EMPLOYEE BENEFITS - CONTINUED
As of December 31, 1999, the Company's Board of Directors had
approved the issuance of stock options to purchase 249,527
shares of the Company's common stock. Compensation expense was
not recorded in connection with the issuance of these options
as the option price was equal to or exceeded the market price
of the Company's common stock at the date of grant. The
following table presents information on stock options:
<TABLE>
<CAPTION>
Total Weighted
Option Exercisable Option Average
Shares Options Price Range Price
------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Options outstanding at
January, 1, 1997 75,000 57,000 $6.00-10.125 $ 7.26
Granted 22,450 4,490 $ 11.625 $ 11.625
Options that became
exercisable -- 9,000 $7.00-10.125 $ 8.10
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at
December 31, 1997 97,450 70,490 $6.00-11.625 $ 8.28
Granted 45,177 9,035 $ 14.75 $ 14.75
Options that became
exercisable -- 7,490 $7.125-11.625 $ 11.02
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at
December 31, 1998 142,627 87,015 $6.00-14.75 $ 10.32
Granted 106,900 21,380 $12.42-12.88 $ 12.71
Options that became
exercisable -- 16,525 $10.625-11.625 $ 13.06
Options exercised (220) (220) $11.625-11.625
Options expired (1,130) (430) $11.625-14.75 $ 13.84
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at
December 31, 1999 248,177 124,270 $6.00-14.75 $ 11.33
</TABLE>
The stock options have five year vesting schedules and become
exercisable in full in the event of a merger, sale or change in
majority control of the Company. The options expire during the
years 2002 through 2009. The weighted average price of the
options at December 31, 1999 was $11.33 and the weighted
average remaining life was approximately 7.3 years.
The Company accounts for its stock option plan and ASPP in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense
related to stock options would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. Had the Company used the
provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, the Company would have recognized, as expense
over the vesting period, the fair value of all stock-based
awards on the date of grant. The Company has elected to
continue to apply the provisions of APB No. 25. As such,
proforma disclosures of net income and earnings per share as if
the fair value based method of SFAS No. 123 had been used, are
as follows:
-144-
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
K. EMPLOYEE BENEFITS - CONTINUED
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income - as reported $3,501,000 $2,581,000 $2,058,000
Net income - proforma $3,401,000 $2,543,000 $2,045,000
Earnings per share:
Basic
As reported $ .86 $ 1.08 $ .93
Proforma $ .84 $ 1.06 $ .93
Diluted
As reported $ .85 $ .78 $ .89
Proforma $ .82 $ .77 $ .88
======================================================================================================
</TABLE>
The weighted average fair values of options granted during
1999, 1998 and 1997 were $5.09, $5.79 and $3.95 per share,
respectively. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected dividend yield 3.61% 2.13% 1.78%
Expected stock price volatility 25% 22% 20%
Risk-free interest rate 5.07% 5.66% 6.64%
Expected life of options(years) 5 5 5
======================================================================================================
</TABLE>
L. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The Company can issue common stock pursuant to various plans
such as employee stock purchase, contributions to the 401(K)
plan, and payment of directors' fees. Under these plans,
11,609, 7,304 and 4,417 shares were issued during 1999, 1998
and 1997, respectively.
At December 31, 1997, warrants to purchase 4,739,397 shares of
CFGI's common stock at a price of $12.50 per share were
outstanding. During 1998 and 1997, warrants for 1,996,807
shares and 5,530 shares were exercised with proceeds of
$24,960,087 and $69,125, respectively. The unexercised warrants
expired on December 31, 1998.
-145-
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE - CONTINUED
The following table is a reconciliation of net income and
average shares outstanding used in calculating basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in Thousands,
Except Per Share Data) 1999 1998 1997
<S> <C> <C> <C>
Net income available to common
shareholders $ 3,501 $ 2,581 $ 2,058
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding
Basic 4,067,522 2,393,576 2,205,043
Dilutive effect of:
Options 61,547 40,090 30,687
Warrants* -- 887,562 87,850
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding
Diluted 4,129,069 3,321,228 2,323,580
===========================================================================================================================
Net income per share:
Basic $ .86 $ 1.08 $ .93
Diluted $ .85 $ .78 $ .89
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The warrants were dilutive beginning in the fourth quarter of 1997.
In January, 1998, the Company's Board of Directors adopted a
Shareholder 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 would result in ownership by a person or
group of 15% or more of the common stock. The rights are
designed to assure 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 takeovers,
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 its holder to
purchase, at the right's 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, each right would
entitle its holder (other than the acquiring person or members
of the acquiring group) to purchase, at the rights then current
exercise price, 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% or more of the common
stock, the Board of Directors would 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.
-146-
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE - CONTINUED
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.
M. RESTRICTIONS ON RETAINED EARNINGS, REGULATORY MATTERS AND LITIGATION
In order to declare dividends The Bank must transfer a minimum
of ten percent of current net income from retained earnings to
additional paid-in capital until additional paid-in capital
equals common stock. The Bank transferred $290,000 and $258,000
from retained earnings to surplus during 1999 and 1998,
respectively. At December 31, 1999, approximately $8.5 million
of The Bank's retained earnings were available for dividend
declaration and payment to its shareholder CFGI (parent
company), without regulatory approval. Accordingly,
approximately $19,884,000 of the Company's investment in The
Bank is restricted as to the payment of dividends.
CFGI and The Bank are subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional discretionary -
actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
and The Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and The Bank's assets,
liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's and The
Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and The Bank to maintain
minimum amounts and ratios (set forth in the following table)
of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes
the Company and The Bank meet all capital adequacy requirements
to which it is subject as of December 31, 1999.
As of December 31, 1999, the most recent notification from the
Federal Reserve Bank categorized The Bank as well capitalized
under the regulatory framework for prompt corrective action. To
be categorized as adequately capitalized, The Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management
believes have changed The Bank's category.
-147-
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
M. RESTRICTIONS ON RETAINED EARNINGS, REGULATORY MATTERS
AND LITIGATION - CONTINUED
The Company's and The Bank's actual capital amounts and ratios
are also presented in the table.
CAPITAL RATIOS
<TABLE>
<CAPTION>
CFGI The Bank
December 31 December 31
(Dollars In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
CAPITAL COMPONENTS
TIER 1 CAPITAL:
Shareholders' equity $ 47,315 $ 51,171 $ 28,380 $ 26,474
Unrealized loss (gain) on securities 987 (340) 824 (340)
Goodwill (207) -- (207) --
Minority interest 168 -- 168 --
- --------------------------------------------------------------------------------------------------------------------------
Total Tier 1 capital 48,263 50,831 29,165 26,134
TIER 2 CAPITAL:
Allowable allowance for
loan losses 2,872 2,113 2,854 2,107
Total capital $ 51,135 $ 52,944 $ 32,019 $ 28,241
- --------------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets $ 228,552 $ 167,527 $ 227,092 $ 166,997
Quarterly average assets $ 299,219 $ 220,645 $ 284,740 $ 220,398
</TABLE>
<TABLE>
<CAPTION>
Regulatory CFGI The Bank
Minimum December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL RATIOS
Total risk-based capital ratio 8% 22.4% 31.6% 14.1% 16.9%
Tier 1 risk-based capital ratio 4% 21.1% 30.3% 12.8% 15.6%
Tier 1 leverage ratio 4% 16.1% 23.0% 10.2% 11.9%
</TABLE>
There are from time to time legal proceedings pending against
the Company. In the opinion of management, liabilities, if any,
arising from such proceedings presently pending would not have
a material adverse effect on the consolidated financial
statements of the Company.
-148-
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information
about financial instruments for both on and off-balance sheet
assets and liabilities for which it is practicable to estimate
fair value. The techniques used for this valuation are
significantly affected by the assumptions used, including the
amount and timing of future cash flows and the discount rate.
Such estimates involve uncertainties and matters of judgment
and, therefore, cannot be determined with precision. In that
regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets.
Accordingly, the aggregate fair value amounts presented are not
meant to represent the underlying value of the Company.
The following table presents the carrying amounts and the
estimated fair value of the Company's financial instruments at
December 31:
<TABLE>
<CAPTION>
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands) 1999 1998
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks,
and federal funds sold $ 25,783 $ 25,783 $ 13,243 $ 13,243
Investment securities 74,877 74,877 71,662 71,662
Loans, net of unearned
income 205,511 204,228 152,675 153,113
Financial liabilities:
Deposits 229,141 230,094 162,553 162,893
Federal Home Loan
Bank and other
borrowings 29,500 29,502 22,500 22,676
---------------------------------------------------------------------------------------------------------
Contractual Contractual
or Estimated or Estimated
Notional Fair Notional Fair
Amounts Value Amounts Value
------- -------
(In Thousands) 1999 1998
Off-balance items:
Interest rate floors
Commitments to
extend credit $66,299 * $58,207 *
Standby letters
of credit 3,516 * 4,832 *
---------------------------------------------------------------------------------------------------------
</TABLE>
* The estimated fair value of these items was not significant
at December 31, 1999 or 1998.
-149-
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents the methodologies and
assumptions used to estimate the fair value of the Company's
financial instruments presented above.
Cash, Due from Banks and Federal Funds Sold
For cash, due from banks and federal funds sold, the carrying
amount is a reasonable estimate of fair value. These
instruments expose the Company to limited credit risk and carry
interest rates which approximate market.
Investment Securities
In estimating fair values, management makes use of prices or
dealer quotes for U.S. Treasury securities, other U.S.
government agency securities, and collateralized mortgage
obligations, securities of states and political subdivisions,
and equity securities. As required, securities available for
sale are recorded at fair value.
Loans
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings for the same
remaining maturities adjusted for differences in loan
characteristics. The risk of default is measured as an
adjustment to the discount rate, and no future interest income
is assumed for nonaccrual loans.
The fair value of loans does not include the value of the
customer relationship or the right to fees generated by the
account.
Deposit Liabilities
The fair value of deposits with no stated maturities (which
includes demand deposits, NOW accounts, and money market
deposits) is the amount payable on demand at the reporting
date. The fair value of fixed-rate certificates of deposit is
estimated using a discounted cash flow model based on the rates
currently offered for deposits of similar maturities. The fair
value of variable rate certificates of deposit would
approximate their carrying value because these investments
reprice with market rates.
SFAS No. 107 requires deposit liabilities with no stated
maturity to be reported at the amount payable on demand without
regard for the inherent funding value of these instruments. The
Company believes that significant value exists in this funding
source.
Federal Home Loan Bank and Other Borrowings
The fair value of Federal Home Loan Bank borrowings is
estimated using discounted cash flows, based on current
incremental borrowing rates for similar types of borrowing
arrangements.
-150-
<PAGE> 49
O. OTHER COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" was adopted by
the Company on 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 nonowner related transactions in equity. Prior
periods have been reclassified to reflect the provisions of
SFAS No. 130. The statement requires the Company's unrealized
gains and losses (net of tax) on securities available for sale
to be included in other comprehensive income. The amounts of
other comprehensive income included in equity along with the
related tax effect are set forth in the following table:
<TABLE>
<CAPTION>
Tax
Gain (Loss) Expense Net of
Before Tax (Credit) Tax
(Dollars In Thousands)
<S> <C> <C> <C>
Year ended December 31, 1999
Net unrealized loss on securities
available for sale arising
during 1999 $ (2,134) $ (810) (1,324)
Less: Reclassification adjustment
for net losses included in
net income (5) (2) (3)
------------------------------------------------------------------------------------------
Other comprehensive income $ (2,139) $ (812) $ (1,327)
------------------------------------------------------------------------------------------
Year ended December 31, 1998
Net unrealized gain on securities
available for sale arising
during 1998 $ 127 $ 49 $ 78
Less: Reclassification adjustment
for net gains included in
net income 52 20 32
------------------------------------------------------------------------------------------
Other comprehensive income $ 75 $ 29 $ 46
------------------------------------------------------------------------------------------
Year ended December 31, 1997
Net unrealized gain on securities
available for sale arising
during 1997 $ 373 $ 142 $ 231
Less: Reclassification adjustment
for net gains included in
net income 2 1 1
------------------------------------------------------------------------------------------
Other comprehensive income $ 371 $ 141 $ 230
------------------------------------------------------------------------------------------
</TABLE>
-151-
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Community Financial Group,
Inc., (Parent Company only) as of December 31, 1999 and 1998,
and for the years ended December 31, 1999, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31
(In thousands) 1999 1998
<S> <C> <C>
Assets
Cash $ 7,783 $ 14,229
Investment in bank subsidiary, at cost
adjusted for equity in earnings 28,380 26,474
Securities available for sale
(Amortized cost of $11,166 and $10,490,
respectively) 10,903 10,490
Other assets 298 24
--------------------------------------------------------------------------------------------------
Total Assets $ 47,364 $ 51,217
--------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Other liabilities $ 49 $ 46
--------------------------------------------------------------------------------------------------
Total Liabilities 49 46
Total Shareholders' Equity 47,315 51,171
--------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 47,364 $ 51,217
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Income Statements
Year Ended Year Ended Year Ended
December 31 December 31 December 31
(In Thousands) 1999 1998 1997
<S> <C> <C> <C>
Income
Dividends from bank subsidiary $ -- $ 133 $ 530
Interest income 919 1 --
---------------------------------------------------------------------------------------------------
Total income 919 134 530
---------------------------------------------------------------------------------------------------
Expenses
Other expenses 225 186 165
Total expenses 225 186 165
---------------------------------------------------------------------------------------------------
Income (loss) before income taxes 694 (52) 365
Increase(decrease) to consolidated
income taxes arising from parent
company taxable income 264 (70) (63)
Equity in undistributed earnings
of subsidiary bank 3,071 2,563 1,630
---------------------------------------------------------------------------------------------------
Net income $ 3,501 $ 2,581 $ 2,058
---------------------------------------------------------------------------------------------------
</TABLE>
-152-
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. PARENT COMPANY FINANCIAL INFORMATION - CONTINUED
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31 December 31 December 31
(In Thousands) 1999 1998 1997
<S> <C> <C> <C>
Operating activities
Net income $ 3,501 $ 2,581 $ 2,058
Adjustments to reconcile net
income to net cash provided
by operating activities:
Undistributed earnings of
bank subsidiary (3,071) (2,563) (1,630)
Loss on sale of securities 20 -- --
Depreciation and
amortization 56 -- --
Decrease (increase) in
other assets (270) 9 28
Increase (decrease) in
other liabilities 3 45 (17)
-----------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 239 72 439
-----------------------------------------------------------------------------------------------------
Investment activities
Proceeds from sales of
securities:
Available for sale 5,126 -- --
Purchases of securities
Available for sale (30,832) (10,490) --
Maturities of securities:
Available for sale 25,051 -- --
-----------------------------------------------------------------------------------------------------
Cash used by investing
activities (655) (10,490) --
-----------------------------------------------------------------------------------------------------
Financing activities
Repurchase of Company's
common stock (4,304) -- --
Proceeds from issuance of
common stock 155 25,061 120
Cash dividends paid (1,881) (569) (441)
-----------------------------------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities (6,030) 24,492 (321)
-----------------------------------------------------------------------------------------------------
Increase (decrease) in cash (6,446) 14,074 118
Cash beginning of year 14,229 155 37
-----------------------------------------------------------------------------------------------------
Cash end of year $ 7,783 $ 14,229 $ 155
-----------------------------------------------------------------------------------------------------
</TABLE>
-153-
<PAGE> 52
REPORT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Community Financial Group, Inc. and subsidiaries (the
Company) is responsible for preparing the accompanying consolidated financial
statements in accordance with generally accepted accounting principles. The
amounts therein are based on management's best estimates and judgments.
Management has also prepared other information in the annual report and is
responsible for its accuracy and consistency with the consolidated financial
statements.
The Company maintains a system of internal accounting control which it
believes, taken as a whole, is sufficient to provide reasonable assurance that
assets are properly safeguarded and that transactions are executed in
accordance with proper authorization and are recorded and reported properly. In
establishing and maintaining any system of internal accounting control,
estimates and judgments are required to assess the relative costs and expected
benefits. The Company also maintains a program that independently assesses the
effectiveness of their internal controls.
The Company's consolidated financial statements have been audited by
independent certified public accountants. Their Independent Auditors' Report,
which follows, is based on an audit made in accordance with generally accepted
auditing standards and expresses an opinion as to the fair presentation of the
Company's consolidated financial statements. In performing their audit, the
Company's independent certified public accountants consider the Company's
internal control to the extent they deem necessary in order to issue their
opinion on the consolidated financial statements.
The Board of Directors pursues its oversight role for the consolidated
financial statements through the Audit Committee, which consists solely of
outside directors. The Audit Committee meets periodically with both management
and the independent auditors to assure that each is carrying out its
responsibilities.
/s/Mack S. Linebaugh, Jr.
- -------------------------
Mack S. Linebaugh, Jr.
Chairman of the Board
President and CEO
-154-
<PAGE> 53
Independent Auditors' Report
The Board of Directors and Shareholders
Community Financial Group, Inc.:
We have audited the accompanying consolidated balance sheets of Community
Financial Group, Inc. and subsidiaries (the Company) as of December 31, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community Financial Group, Inc. and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/KPMG LLP
Nashville, Tennessee
January 26, 2000
-155-
<PAGE> 54
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1999
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------
(In Thousands,
except per share data) December 31 September 30 June 30 March 31
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $6,163 $5,617 $4,803 $4,392
Interest expense 2,781 2,503 1,913 1,856
- ---------------------------------------------------------------------------------------------------------------
Net interest income 3,382 3,114 2,890 2,536
Provision for loan losses 52 6 3 45
Non-interest income 752 693 609 621
Non-interest expense 2,367 2,480 2,162 1,836
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 1,715 1,321 1,334 1,276
Provision for income taxes 640 510 524 471
- ---------------------------------------------------------------------------------------------------------------
Net income $1,075 $ 811 $ 810 $ 805
- ---------------------------------------------------------------------------------------------------------------
Income per share:
Basic $ .27 $ .20 $ .20 $ .19
Diluted .27 .20 .19 .19
- ---------------------------------------------------------------------------------------------------------------
Weighted Average Common
Shares Outstanding
Basic 3,930 3,996 4,127 4,218
Diluted 3,991 4,096 4,178 4,296
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-156-
<PAGE> 55
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1998
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------
(In Thousands,
except per share data) December 31 September 30 June 30 March 31
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,251 $4,162 $4,132 $4,046
Interest expense 1,981 1,973 2,063 2,018
- ---------------------------------------------------------------------------------------------------------------
Net interest income 2,270 2,189 2,069 2,028
Provision for loan losses 25 25 39 39
Non-interest income 572 578 359 296
Non-interest expense 1,687 1,695 1,444 1,245
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 1,130 1,047 945 1,040
Provision for income taxes 422 403 356 400
- ---------------------------------------------------------------------------------------------------------------
Net income $ 708 $ 644 $ 589 $ 640
- ---------------------------------------------------------------------------------------------------------------
Income per share:
Basic $ .28 $ .26 $ .25 $ .29
Diluted .17 .23 .17 .22
- ---------------------------------------------------------------------------------------------------------------
Weighted Average Common
Shares Outstanding
Basic 2,540 2,457 2,363 2,214
Diluted 4,250 2,754 3,414 2,867
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-157-
<PAGE> 56
COMMON STOCK INFORMATION
The common stock of Community Financial Group, Inc., is traded on Nasdaq Stock
Market(R) under the symbol CFGI. As of December 31, 1999, there were 432
shareholders of record of CFGI common stock.
The following table sets forth the Company's high and low prices during each
quarter for the past two years.
<TABLE>
<CAPTION>
Market Price Dividends
------------------------------------------------------------------------------
1999 High Low
------------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $16.38 $11.00 $.07
Second quarter 18.13 12.75 .13
Third quarter 15.25 14.00 .13
Fourth quarter 16.63 12.75 .13
</TABLE>
<TABLE>
<CAPTION>
Market Price Dividends
------------------------------------------------------------------------------
1998 High Low
------------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $15.00 $13.69 $.06
Second quarter 17.00 14.00 .06
Third quarter 15.00 12.06 .06
Fourth quarter 12.88 11.81 .06
</TABLE>
Quarterly stock price quotations were provided by the Nasdaq Stock Market(R),
and reflect prices without retail markup, markdown or commissions and may not
reflect actual transactions.
-158-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Name Under Which
Subsidiary Incorporation Does Business
---------- ------------- -----------------
<S> <C> <C>
The Bank of Nashville Tennessee The Bank of Nashville
Subsidiaries of the Bank
TBON-Mooreland Joint TBON-Mooreland Joint
Venture Tennessee Venture
Machinery Leasing Company BON Leasing
of North America, Inc. Tennessee
</TABLE>
-159-
<PAGE> 1
Exhibit 23
KPMG LLP
1900 Nashville City Center
Nashville, TN 37219-1735
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors
Community Financial Group, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-24309) on Form S-3 as amended of Community Financial Group, Inc. of our
report dated January 11, 2000, relating to the consolidated balance sheets of
Community Financial Group, Inc. as of December 31, 1999, and 1998, and the
related consolidated statements of income, shareholders' equity and comprehenive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999 which report appears in the December 31, 1999 annual report on
Form 10-K of Community Financial Group, Inc.
/s/ KPMG LLP
Nashville, Tennessee
March 28, 2000
-160-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,483
<INT-BEARING-DEPOSITS> 97
<FED-FUNDS-SOLD> 14,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,877
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 205,511
<ALLOWANCE> 4,062
<TOTAL-ASSETS> 308,106
<DEPOSITS> 229,141
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 2,150
<LONG-TERM> 24,500
0
0
<COMMON> 23,542
<OTHER-SE> 23,773
<TOTAL-LIABILITIES-AND-EQUITY> 308,106
<INTEREST-LOAN> 15,995
<INTEREST-INVEST> 4,354
<INTEREST-OTHER> 626
<INTEREST-TOTAL> 20,975
<INTEREST-DEPOSIT> 8,121
<INTEREST-EXPENSE> 9,053
<INTEREST-INCOME-NET> 11,922
<LOAN-LOSSES> 106
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 8,845
<INCOME-PRETAX> 5,646
<INCOME-PRE-EXTRAORDINARY> 5,646
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,501
<EPS-BASIC> .86
<EPS-DILUTED> .85
<YIELD-ACTUAL> 4.65
<LOANS-NON> 291
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 349
<ALLOWANCE-OPEN> 3,646
<CHARGE-OFFS> 772
<RECOVERIES> 990
<ALLOWANCE-CLOSE> 4,062
<ALLOWANCE-DOMESTIC> 3,192
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 870
</TABLE>
