<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _______________
COMMISSION FILE NUMBER 0-19030
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
(Name of small business issuer in its charter)
Georgia 58-1856582
(State of incorporation) (I.R.S. Employer
Identification No.)
1784 ATLANTA HIGHWAY, HIRAM, GEORGIA 30141
(Address of principal executive offices)(Zip Code)50,
(770) 445-1014
(Issuer's telephone number including area code)
_______________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 par value
(Title of Class)
_______________________
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Revenues for the Registrant's fiscal year ended December 31, 1996, total
$8,000,151.
The aggregate market value of the Registrant's outstanding Common Stock held by
nonaffiliates of the Registrant on March 13, 1997 was $7,694,508. There were
839,264 shares of Common Stock outstanding as of March 13, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Company's 1996 Annual Report are incorporated by reference in
Part II hereof, and portions of the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders to be held on April 16, 1997 are incorporated by
reference in Part III hereof.
Transitional Small Business Disclosure Format (check one): Yes ____; No X
-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
----------------------------------------------
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
PART I
<S> <C>
1. Description of Business............................. 2
2. Description of Property............................. 35
3. Legal Proceedings................................... 36
4. Submission of Matter to a Vote of
Security Holders.................................... 36
4(A). Executive Officers of the Company
and the Bank........................................ 36
PART II
5. Market for Common Equity and
Related Stockholder Matters......................... 37
6. Management's Discussion and Analysis
or Plan of Operation................................ 38
7. Financial Statements................................ 38
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 38
PART III
9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act................... 38
10. Executive Compensation.............................. 39
11. Security Ownership of Certain Beneficial Owners
and Management...................................... 39
12. Certain Relationships and Related Transactions...... 39
13. Exhibits and Reports on Form 8-K.................... 39
Signatures.......................................... 42
Index of Exhibits................................... 44
</TABLE>
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
- --------------------------------
THE COMPANY
Community Trust Financial Services Corporation (the "Company") was
incorporated under the laws of the State of Georgia on October 17, 1988 at the
direction of Community Trust Bank (the "Bank") for the purpose of becoming a
bank holding company for the Bank. Prior to February 22, 1991, the Company's
business consisted only of taking the actions necessary to effectuate the
holding company reorganization, and the Company conducted no active business
operations. On February 22, 1991, following the receipt of all requisite
corporate and regulatory approvals, CTFS Interim Corporation, a wholly-owned
subsidiary of the Company, was merged with and into the Bank, and the Company
issued shares of its Common Stock to shareholders of the Bank in exchange for
all of the outstanding Common Stock of the Bank. As a result, the Bank became a
wholly-owned subsidiary of the Company, and the shareholders of the Bank became
shareholders of the Company, with the same proportional interests in the Company
as they previously held in the Bank (excluding the nominal effect on their
ownership interests of the exercise of dissenter's rights by certain
shareholders of the Bank) (the "Reorganization"). Following the Reorganization,
the Bank has continued its business operations as a Georgia-chartered commercial
bank under the same name, articles of incorporation and bylaws.
As a bank holding company, the Company is intended to facilitate the Bank's
ability to serve its customers' requirements for financial services. The
holding company structure provides flexibility for expansion through the
possible acquisition of other financial institutions and the provision of
additional banking-related services which a traditional commercial bank may not
provide under present laws. The holding company structure also affords
additional flexibility in terms of capital formation and financing
opportunities. Nevertheless, the primary activity of the Company currently is,
and is expected to remain for the foreseeable future, the ownership and
operation of the Bank.
In May 1992, the Federal Reserve Bank of Atlanta and the Georgia Department
of Banking and Finance (the "Georgia Department") approved the Company's
formation and operation of a non-bank subsidiary for the purpose of performing
appraisals of real and personal property for the Bank as well as other entities,
such as financial institutions, mortgage companies and insurance companies. The
subsidiary's name is Metroplex Appraisals, Inc. ("Metroplex") and it is located
in Hiram, Georgia. The performance of real and personal property appraisals is
a permissible activity for a bank holding company under applicable Federal
Reserve regulations. Since Metroplex represents less than 5% of the Company's
consolidated assets and consolidated net earnings, the financial data analyzed
herein is not significantly affected by the operations of Metroplex. Management
anticipates that Metroplex will have only a minimal impact on the Company's
earnings and performance during 1997.
In August 1995, the Federal Reserve Bank of Atlanta and the Georgia
Department approved the Company's formation and operation of Community Loan
Company ("CLC"), a non-bank subsidiary, for the purpose of engaging in the
consumer finance business. CLC is structured as a joint venture with the
Company as majority owner of 75% of its outstanding capital stock. The remaining
25% of the subsidiary's outstanding capital stock is owned by an individual who
is employed as President of the subsidiary. CLC's first office began operations
in September 1995 in Woodstock, Georgia, and two additional consumer finance
offices were acquired April
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<PAGE>
1, 1996 in Rockmart, Georgia, and Rossville, Georgia, respectively. Since CLC
represents less than 5% of consolidated assets and consolidated net earnings,
the financial data analyzed herein is not significantly affected by the
operations of CLC.
The Company is currently negotiating with a potential joint venture partner
for the purpose of establishing a non-bank subsidiary that would engage in the
business of selling, leasing, or servicing automated teller machines that
provide cash or cash equivalents. No definitive agreement concerning this joint
venture has yet been entered into. While the Company may seek in the future to
acquire additional banks or bank holding companies or to engage in other
activities appropriate for bank holding companies under appropriate
circumstances as permitted by law, the Company currently has no plans,
understandings or agreements concerning any other activities other than as
described above. The results of operations and financial condition of the
Company for the foreseeable future, therefore, will be determined primarily by
the results of operations and financial condition of the Bank.
The Bank is a Georgia-chartered commercial bank headquartered in Hiram,
Paulding County, Georgia. The Bank was chartered on February 18, 1987 and
opened for business on February 2, 1988.
The Bank's business consists primarily of attracting deposits from the
general public and, with these and other funds, making real estate loans,
consumer loans, business loans, residential and commercial construction loans
and other investments. In addition to deposits, sources of funds for the Bank's
loans and other investments include amortization and prepayment of loans, sales
of loans or participations in loans, and sales of investment securities. The
principal sources of income for the Bank are interest and fees collected on
loans, fees collected on deposit accounts and interest and dividends collected
on other investments. The principal expenses of the Bank are interest paid on
deposits, employee compensation and benefits, office expenses and other overhead
expenses.
The Company's earnings depend primarily on the Bank's "net interest
income," which is the difference between the interest income it receives from
its assets (primarily its loans and other investments) and the interest expense
(or "cost of funds") which it pays on its liabilities (primarily its deposits).
Net interest income is a function of (I) the difference between rates of
interest earned on interest-earning assets and rates of interest paid on
interest-bearing liabilities (the "interest rate spread" or "net interest
spread") and (ii) the relative amounts of its interest-earning assets and
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. The Bank adheres to an asset and liability
management strategy which is intended to control the impact of interest rate
fluctuations upon the Company's earnings and to make the yields on its loan
portfolio and other investments more responsive to its cost of funds, in part by
more closely matching the maturities of its interest-earning assets and its
interest-bearing liabilities, while still maximizing net interest income.
Nevertheless, the Bank is and will continue to be affected by changes in the
levels of interest rates and other factors beyond its control.
For the fiscal years ended December 31, 1996 and 1995, the Company's
weighted average rate earned on all interest-earning assets was 9.63% and 9.30%,
respectively, and the Company's weighted average rate paid on all interest-
bearing liabilities for the same years was 4.41% and 4.32%, respectively. The
Company's interest rate spread for the years ended December 31, 1996 and 1995
therefore was 5.22% and 4.98%, respectively, and its net interest income for
such years was $4,187,352 and $3,395,024, respectively. For fiscal 1996, the
Company recorded net income of $1,057,884 or $1.23 primary earnings per share as
compared with net income of $885,407 or $1.04 primary earnings per share for
fiscal 1995. The increase in net income was due primarily
-3-
<PAGE>
to the growth in CLC's loan portfolio as a percentage of the Company's average
earning assets, and the interest income produced by those assets. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unless specifically noted below, the following information is presented on
a consolidated basis reflecting the Company's performance as a whole.
The table below sets forth certain additional measures of the Company's
performance for the periods indicated. Average balances in the table, as well
as all average balances presented elsewhere in this report, were derived based
on daily balances whenever possible. However, some average balances which
require data from the Company or CLC, as opposed to the Bank, were derived based
on month-end balances since the data processing systems for those entities do
not provide daily average balance information. The use of month-end averages
does not materially alter any information given, and all averages are still
representative of the operations of the Company.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net Interest Margin (Net interest
income divided by average interest-
earning assets) 5.89% 5.66% 5.29%
Return on Average Assets
(Net income divided by average
total assets)................................... 1.36% 1.37% 1.12%
Return on Average Equity
(Net income divided by
average equity)................................. 16.65% 15.85% 13.52%
Equity-to-Assets (Average equity
divided by average total assets)................ 8.18% 8.66% 8.31%
Return on Average Daily
Deposits (Net income divided
by average daily total deposits)................ 1.52% 1.51% 1.25%
Loans to Deposits (Average
loans divided by average
daily deposits)................................. 65.94% 62.31% 60.13%
Dividend Payout Ratio (Dividends
declared by the Company divided by net income).. 19.77% 23.58% 24.65%
</TABLE>
NET INTEREST INCOME
- -------------------
The following table sets forth information with respect to interest income
from average interest-earning assets, expressed both in dollars and yields, and
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates, for the periods indicated. The table includes loan yields
which reflect the discount accretion attributable to the amortization of
deferred loan origination and commitment fees. Interest income from investment
securities includes the accretion of discounts and amortization of premiums.
-4-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
1996 1995
------------------------------------ -----------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense(1) Rate Balance Expense(1) Rate
----------- -------------- ------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1)(2).............. $46,043,727 5,462,059 11.86% $36,660,129 $4,307,281 11.69%
Investment securities
Taxable................. 18,508,042 1,051,039 5.68% 17,834,704 984,611 5.52%
Tax-exempt(3)........... 2,404,861 114,474 4.76% 1,784,584 79,363 4.45%
Interest-earning deposits
in other banks......... -0- -0- - -0- -0- -
Federal funds sold....... 4,163,525 221,396 5.32% 3,291,110 192,222 5.84%
----------- ----------- ----- ----------- ----------
Total interest-earning
assets.................... 71,120,155 6,848,968 9.63% 59,570,527 5,563,477 9.30%
Cash and other assets...... 6,533,382 4,983,549
----------- -----------
Total assets.......... $77,653,537 $64,554,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits
NOW accounts............ $ 8,728,202 $ 194,491 2.23% $ 6,949,988 $ 179,261 2.58%
Money market
accounts............... 7,747,518 216,441 2.79% 7,014,853 216,839 3.09%
Savings deposits........ 12,200,662 375,845 3.08% 12,064,705 436,236 3.62%
Time deposits, $100,000
and
over................... 11,321,593 663,640 5.86% 7,698,395 409,190 5.32%
Time deposits, other.... 19,834,342 1,173,908 5.92% 16,442,425 926,137 5.63%
----------- ----------- ----- ----------- ---------- -------
Total deposits........ $59,832,317 $2,624,325 4.39% $50,170,366 $2,167,663 4.32%
Other interest-bearing
liabilities............ 489,934 37,291 7.61% 11,507 790 6.87%
----------- ----------- ----- ----------- ---------- -------
Total interest-bearing
liabilities.......... $60,322,251 $ 2,661,616 4.41% $50,181,873 $2,168,453 4.32%
<CAPTION>
-------------------------------------------
1994
-------------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate
----------- ------------- --------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1)(2).............. $32,517,178 $3,337,710 10.26%
Investment securities
Taxable................. 17,316,015 799,860 4.62%
Tax-exempt(3)........... 1,847,404 83,363 4.51%
Interest-earning deposits
in other banks......... 98,630 3,779 3.83%
Federal funds sold....... 2,460,055 104,068 4.23%
----------- ---------- ------
Total interest-earning
assets.................... 54,239,282 4,328,780 7.98%
Cash and other assets...... 4,972,691
-----------
Total assets.......... $59,211,973
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits
NOW accounts............ $ 6,107,872 $ 140,573 2.30%
Money market
accounts............... 6,828,961 173,900 2.55%
Savings deposits........ 13,078,779 406,842 3.11%
Time deposits, $100,000
and
over................... 4,851,713 267,962 5.52%
Time deposits, other.... 15,738,371 465,315 2.96%
----------- ---------- -------
Total deposits........ $46,605,696 $1,454,592 3.12%
Other interest-bearing
liabilities............ 5,565 262 4.71%
----------- ---------- -------
Total interest-bearing
liabilities.......... $46,611,261 $1,454,854 3.12%
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other liabilities:
Demand deposits.......... $ 9,991,772 $ 8,593,281 - -
Accrued interest payable
and
other liabilities....... 985,766 - - 574,520 - -
----------- -----------
Total other
liabilities.......... 10,977,538 - - 9,167,801 - -
Total liabilities.. $71,299,789 - - $59,349,674 - -
Stockholders' equity....... 6,353,748 - - 5,204,402 - -
Total liabilities
and stockholders'
equity................ $77,653,537 - - $64,554,076 - -
=========== ===========
Excess of interest-earning
assets over interest-
bearing liabilities........ $10,797,904 - - $ 9,388,654 - -
Ratio of interest-earning
assets
to interest-bearing
liabilities.............. 117.90% 118.71%
Net interest income........ $ 4,187,352 $3,395,024
Interest rate spread
(difference
between rate earned on
interest-
earning assets and rate
paid on
interest-bearing
liabilities)............. 5.22% 4.98%
Net interest margin (net
interest
income divided by average
interest-earning assets).. 5.89% 5.66%
<CAPTION>
<S> <C> <C> <C>
Other liabilities:
Demand deposits.......... $ 7,510,088 - -
Accrued interest payable
and
other liabilities....... 204,032 - -
-----------
Total other
liabilities.......... 7,714,120 - -
Total liabilities.. $54,325,381 - -
Stockholders' equity....... 4,886,592 - -
Total liabilities
and stockholders'
equity................ $59,211,973 - -
===========
Excess of interest-earning
assets over interest-
bearing liabilities........ $ 7,628,021 - -
Ratio of interest-earning
assets
to interest-bearing
liabilities.............. 116.26%
Net interest income........ $ 2,873,926
Interest rate spread
(difference
between rate earned on
interest-
earning assets and rate
paid on
interest-bearing
liabilities)............. 4.86%
Net interest margin (net
interest
income divided by average
interest-earning assets).. 5.29%
</TABLE>
_________________
(1) Interest income on loans includes amortization of deferred loan fees
and other discounts of $763,558, $549,535, and $436,796, for the
fiscal years ended December 31, 1996, 1995, and 1994 respectively.
(2) Nonperforming loans are included in the computation of average loan
balances, and interest income on such loans is recognized on a cash
basis.
(3) The average yield computed on tax-exempt securities is computed using
actual yields rather than tax-equivalent yields.
-6-
<PAGE>
The following table sets forth information regarding the weighted average
contractual yields earned on the Company's interest-earning assets and the
weighted average interest rates paid on the Company's interest-bearing
liabilities outstanding at December 31, 1996. Investment securities are shown
at the carrying value, which is the fair market value for securities held
available for sale, and the amortized cost for securities held to maturity.
<TABLE>
<CAPTION>
Average
Amount Yield/Rate
------ ----------
<S> <C> <C>
Interest-earning assets:
Loans..................................... $49,425,713 11.74%
Investment securities
Taxable securities...................... 19,701,854 5.48%
Tax-exempt securities................... 2,716,836 4.73%
Federal funds sold........................ 7,020,000 5.25%
----------- -----
Total interest-earning assets......... $78,864,403 9.31%
Interest-bearing liabilities:
Demand deposits........................... $ 9,731,471 0.00%
NOW accounts.............................. 8,757,099 1.89%
Money market accounts..................... 8,454,539 2.88%
Savings deposits.......................... 15,546,932 3.17%
Time deposits............................. 20,541,854 4-6%
13,933,444 6-8%
15,245 8-10%
Total certificates of deposit............. 34,490,543 5.91%
----------- ----
Total deposits.......................... $76,897,761 4.35%
Other interest-bearing liabilities........ 360,884 7.45%
Total Interest-bearing liabilities...... $77,258,645 4.36%
</TABLE>
Changes in interest income and interest expense are attributable to three
factors: (I) a change in volume or amount of an asset or liability; (ii) a
change in interest rates; or (iii) a change caused by the combination of changes
in volume and interest rates. The following table describes the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
expense during the periods indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided as to changes
attributable to change in volume (change in volume multiplied by old rate) and
change in rates (change in rate multiplied by old volume). The net change
attributable to changes in both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
-7-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
----------------------------------- ---------------------------------
1996 Compared to 1995 1995 Compared to 1994
----------------------------------- ---------------------------------
Rate/ Net Rate/ Net
Volume Yield Change Volume Yield Change
---------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans(1)(2)......................... $1,112,767 $ 42,011 $1,154,778 $454,058 $515,513 $ 969,571
Investment securities(3)............ 71,522 30,017 101,539 21,451 159,300 180,751
Interest-earning deposits........... 0 0 0 (3,779) 0 (3,779)
Federal funds sold.................. 47,543 (18,369) 29,174 41,449 46,705 88,154
Total interest income............ $1,231,831 $ 53,660 $1,285,491 $513,179 $721,518 $1,234,697
Interest expense:
NOW accounts...................... 41,791 (26,561) 15,230 20,629 18,059 38,688
Money market accounts............. 21,513 (21,911) (398) 4,848 38,091 42,939
Savings deposits.................. 4,864 (65,255) (60,391) (33,200) 62,594 29,394
Time deposits, $100,000 and over.. 208,832 45,618 254,450 151,665 (10,437) 141,228
Time deposits, other.............. 198,837 48,934 247,771 21,703 439,119 460,822
Total deposits...................... $ 475,838 ($19,176) $ 456,662 $165,645 $547,426 $ 713,071
Other interest-bearing liabilities.. 36,406 95 36,501 369 159 528
Total interest expense........... 512,244 (19,081) 493,163 166,014 547,585 713,599
Net interest income
(expense)......................... $719,587 $72,741 $792,328 $347,165 $173,933 $521,098
</TABLE>
____________
(1) Loan amounts include nonaccruing loans.
(2) Interest income includes the portion of loan fees recognized in the
respective periods.
(3) Changes due to rate and volume on investment securities have been
computed using actual yields on tax-exempt securities rather than tax-
equivalent yields. Yields are computed on the carrying value of the
securities.
The following table sets forth the repricing of the Company's interest-
earning assets and interest-bearing liabilities as of December 31, 1996. The
time periods in the table represent the period, following December 31, 1996,
during which an asset or liability matures or can be repriced. This interest
sensitivity gap table is designed to monitor the Company's interest rate risk
exposure within the designated time period. In order to control interest rate
risk, management regularly monitors the volume of interest sensitive assets
relative to interest sensitive liabilities over specific time intervals. The
Company's interest rate management policy is to attempt to maintain a relatively
stable net interest margin in periods of interest rate fluctuations. The
Company's policy is to attempt to maintain a ratio of cumulative gap to total
interest sensitive
-8-
<PAGE>
assets of negative 10.00% to positive 10.00% in the time period of one year or
less. The following table reflects that the Company's interest-earning assets
and interest-bearing liabilities which reprice in the time period of one year or
less are closely matched and within the Company's policy guidelines.
<TABLE>
<CAPTION>
0 to 3 4 to 6 7 to 12 1 to 5 Over 5
Months Months Months Years Years Total
----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Sensitive Assets
- -------------------------
Fed Funds Sold........................ 7,020,000 -0- -0- -0- -0- 7,020,000
Investment Securities
Taxable (1)........................ 3,573,480 983,840 1,489,179 12,765,424 889,931 19,701,854
Tax-exempt (1)..................... 45,088 -0- 105,770 1,035,840 1,530,138 2,716,836
Loans
Fixed rate......................... 3,088,741 2,303,983 633,117 81,154 -0- 6,106,995
Adjustable rate.................... 22,213,062 892,145 337,981 610,218 -0- 24,053,406
Scheduled payments................. 2,218,228 2,310,085 4,324,665 10,504,280 66,832 19,424,090
Total Interest-Sensitive Assets....... 38,158,599 6,490,053 6,890,712 24,996,916 2,486,901 79,023,181
Interest Sensitive Liabilities
- ------------------------------
NOW................................... 8,757,099 -0- -0- -0- -0- 8,757,099
Money Market.......................... 8,454,539 -0- -0- -0- -0- 8,454,539
Savings............................... 15,546,737 -0- -0- -0- -0- 15,546,737
Time Deposits......................... 5,189,754 3,914,906 5,509,729 6,666,588 -0- 21,280,977
Time, in excess of $100,000........... 3,923,863 2,671,508 3,788,609 2,825,584 -0- 13,209,564
Other interest-bearing liabilities.... -0- 50,000 -0- 310,884 -0- 360,884
Total Interest Sensitive Liabilities.. 41,871,992 6,636,414 9,298,338 9,803,056 -0- 67,609,800
Interest Sensitivity Gap.............. (3,713,393) (146,361) (2,407,626) 15,193,860 2,486,901 11,413,381
Cumulative Gap........................ (3,713,393) (3,859,754) (6,267,380) 8,926,480 11,413,381
Ratio of cumulative gap to total
interest sensitive assets.......... (4.70)% (4.88)% (7.93)% 11.30% 14.44%
</TABLE>
____________
(1) All investment securities are shown at the carrying value.
LENDING ACTIVITIES
- ------------------
GENERAL
The Company's loan portfolio consists of real estate loans, consumer loans
to individuals, business loans, construction loans and acquisition and
development loans. At December 31, 1996, the Company's loan portfolio
constituted approximately 58.01% of the Company's total assets. The following
table sets forth the composition of the Company's gross loan portfolio at the
indicated dates.
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<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1996 1995
--------------------------- --------------------------
Amount Percent Amount Percent
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Real estate loans:
Residential and agricultural
real estate...................... $11,030,936 22.56% $10,899,163 28.36%
Non-farm nonresidential
real estate...................... 16,512,202 33.76% 11,978,903 31.17%
Total real estate loans............. $27,543,138 56.32% $22,878,066 59.53%
Business loans (secured by
various collateral)................ 5,495,398 11.24% 4,926,363 12.82%
Consumer loans...................... 9,305,786 19.03% 5,683,990 14.79%
Construction loans and acquisition
and development loans.............. 7,274,577 14.87% 5,525,507 14.38%
Gross loans receivable.......... $49,618,899 $39,013,926
=========== ===========
Less:
Allowance for loan losses........ (713,518) (1.46%) (583,306) (1.52%)
Total net loans................ $48,905,381 100.00% $38,430,620 100.00%
=========== ===========
</TABLE>
The following table sets forth certain information as of December 31, 1996
regarding gross loans in the Company's loan portfolio with fixed interest rates
and with floating or adjustable interest rates. All loans with floating or
adjustable interest rates reprice at least annually based upon changes in a
"prime" interest rate or other specified index.
<TABLE>
<CAPTION>
Fixed-Rate Floating or Adjustable Rate
-------------------------- -----------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Real estate loans................... $11,440,352 23.06% $16,102,786 32.45%
Business loans (secured by various
non-real estate collateral)........ 3,443,398 6.94% 2,052,000 4.14%
Consumer loans...................... 8,318,173 16.76% 987,613 1.99%
Construction loans and acquisition
and development loans.............. 2,306,691 4.65% 4,967,886 10.01%
Total........................... $25,508,614 51.41% $24,110,285 48.59%
=========== ===== =========== =====
</TABLE>
-10-
<PAGE>
At December 31, 1996, the total amount of loans due after one year which
had fixed rates of interest was $14,658,592, while the total amount of loans due
after one year with floating or adjustable rates of interest was $13,870,227.
The following table sets forth the scheduled maturities of the gross loans
in the Company's loan portfolio as of December 31, 1996 based on their
contractual terms to maturity. Overdrafts are reported as due in less than one
year. Loans unpaid at maturity are renegotiated based on current market rates
and terms.
<TABLE>
<CAPTION>
Loans Maturing
-------------------------------------------------
Less Than One to Five More than
One Year Years Five Years Total
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Real estate loans................... $ 7,626,856 $ 8,738,461 $11,177,821 $27,543,138
Business loans (secured by various
non-real estate collateral)........ 2,279,079 2,259,384 956,935 5,495,398
Consumer loans...................... 3,909,568 5,386,314 9,904 9,305,786
Construction and acquisition
and development loans.............. 7,274,577 0 0 7,274,577
Total........................... $21,090,080 $16,384,159 $12,144,660 $49,618,899
=========== =========== =========== ===========
</TABLE>
TYPES OF LOANS
--------------
Real Estate Loans
- -----------------
At December 31, 1996, real estate loans totaled approximately $27,543,138
or 55.51% of the Company's loan portfolio. All real estate loans are held in
the Bank's loan portfolio. Of this amount, approximately $10,618,807 or 21.40%
of the Company's loan portfolio was comprised of loans secured by one to four
family residential properties, including home equity loans (loans secured by the
equity in the borrower's residence but not necessarily for the purpose of home
improvement). Most of these home equity loans are made at fixed interest rates
for terms of one to three years with balloon payment provisions and amortized
over a 10-15 year period. Another product called the "Community Equity Line" is
offered by the Bank which allows consumers to borrow with low closing costs on
the equity in their homes. This product is a variable rate revolving line of
credit, having an outside maturity of 15 years with 2% of the principal plus all
accrued interest due monthly. The Bank's experience indicates that real estate
loans normally remain outstanding for much shorter periods (seven years on
average) than their stated maturity because the borrowers repay the loans in
full either upon the sale of the secured property or upon the refinancing of the
original loan.
In the case of owner occupied single family residences, real estate loans
are made for up to 80% of the value of the property securing the loan, based
upon a certified appraisal if the loan amount is over $25,000. When the loan is
secured by real estate containing a non-owner occupied dwelling of one to four
family units, loans generally are made for up to 75% of the value, based upon a
certified appraisal if the loan amount is over $25,000. The Bank also requires
title
-11-
<PAGE>
insurance to insure the priority of the property lien on its real estate loans
over $25,000 and requires fire and casualty insurance on all of its loans.
The real estate loans originated by the Bank contain a "due-on-sale" clause
which provides that the Bank may declare the unpaid balance of the loan
immediately due and payable upon the sale of the mortgaged property. Such
clauses are an important means of reducing the average loan life and increasing
the yield on existing fixed-rate real estate loans, and it is the Bank's policy
to enforce due-on-sale clauses.
At December 31, 1996, the remainder of the real estate loan portfolio,
approximately $16,924,331 or 34.11% of the Company's loan portfolio, was
comprised of non-farm nonresidential real estate loans (including commercial
real estate loans and loans secured by raw land).
Business Loans
Business loans (including non-real estate loans for agricultural purposes
but excluding commercial construction loans) totaled approximately $5,495,398 or
11.08% of the Company's loan portfolio at December 31, 1996. All business loans
are held in the Bank's loan portfolio. These loans consist of loans and lines of
credit to individuals, partnerships and corporations for a variety of business
purposes, such as accounts receivable and inventory financing, equipment
financing, business expansion and working capital. The terms of the Bank's
business loans generally range from three months to seven years, and the loans
generally carry interest rates which adjust in accordance with changes in the
prime rate. Substantially all of the Bank's business loans are secured.
Loans secured by marketable equipment are required to be amortized over a
period not to exceed 84 months. Generally, loans secured by current assets such
as inventory or accounts receivable are revolving loans with annual maturities,
however, loans made for permanent working capital and secured by inventory or
accounts receivable are required to be amortized over a period not to exceed 60
months. Loans secured by chattel mortgages and accounts receivable may not
exceed 80% of their market value. Loans secured by listed stocks, bonds and
mutual funds may not exceed 75% of their market value. Unsecured short-term
loans and lines of credit must be supported by a satisfactory balance sheet and
earnings statement. All business loans must be supported by an adequate
projected cash flow to meet loan payments. All loans in excess of $10,000 must
be supported by current financial statements, and such financial statements must
be updated annually. Business loans generally entail a greater credit risk than
residential mortgage loans but also provide a higher yield than residential
mortgage loans and add diversity to the loan portfolio.
Consumer Loans
At December 31, 1996, consumer loans totaled approximately $9,305,786 or
18.75% of the Company's loan portfolio. Approximately $8,036,147 of these loans
are held in the Bank's loan portfolio, with the remainder held in CLC's loan
portfolio.
The Bank makes both secured and unsecured consumer loans for a variety of
personal and household purposes. Most of the Bank's consumer loans are
automobile loans, boat loans, property improvement loans and loans to depositors
on the security of their certificates of deposit. These loans are made for terms
of up to seven years at fixed interest rates. The Bank considers consumer loans
to involve a relatively high credit risk compared to real estate loans.
Consumer loans, therefore, generally yield a relatively high return to the Bank
and provide a relatively short
-12-
<PAGE>
maturity. The Bank believes that the generally higher yields and the shorter
terms available on various types of consumer loans tend to offset the relatively
higher risk associated with such loans, and contribute to a profitable spread
between the Bank's average yield on earning assets and the Bank's cost of funds.
At December 31, 1996, consumer loans held in CLC's loan portfolio totaled
approximately $1,269,639 or 2.56% of the Company's loan portfolio. CLC, a
consumer finance company, makes loans for up to $3,000 with original maturities
of up to three years under the Georgia Industrial Loan Act ("GILA"). The
Company considers these loans to involve a relatively high credit risk compared
to other loans in the Company's portfolio. These consumer loans generally yield
a higher return to the Company than consumer loans originated by the Bank. The
Company believes that the generally higher yields on CLC's loan portfolio offset
the higher risk associated with such loans and contribute to a profitable spread
between the Company's yield on earning assets and the Company's cost of funds.
In May 1996, the Bank began to issue MasterCard and VISA credit cards to
applicants who meet the Bank's credit standards. The credit approval policy is
similar to that which the Bank uses for any consumer loan customer. As of
December 31, 1996, credit card loans totaled approximately $953,204, or 1.92% of
the Company's gross loan portfolio. The Bank considers credit card loans to
involve a relatively high credit risk compared to other types of loans offered
by the Bank, even though management considers its credit approval policy to be
conservative. Credit card loans, therefore, generally yield a relatively high
return to the Bank. The Bank believes that the generally higher yields
available on credit card loans tend to offset the relatively higher risk
associated with such loans, and contribute to a profitable spread between the
Bank's average yield on earning assets and the Bank's cost of funds.
Construction Loans and Acquisition and Development Loans
Approximately $7,274,577 or 14.66% of the Company's loans outstanding at
December 31, 1996 were construction loans and acquisition and development loans.
All construction and acquisition and development loans are held in the Bank's
loan portfolio. The Bank makes residential construction loans to owner-
occupants and to persons building residential properties for resale. The
majority of the Bank's construction loans are made to residential real estate
developers for speculative single-family residential properties. Construction
loans are usually variable rate loans made for terms of six months, but
extensions are permitted if construction has continued satisfactorily and if the
loan is current and other circumstances warrant the extension. Construction
loans are limited to 75% of the appraised value of the lot and the completed
value of the proposed structure. In response to competitive conditions, the
Bank permits a portion of its single family residential construction loans
extended to builders to be made without commitments for "take-out" or permanent
financing from third parties.
Construction financing generally is considered to involve a higher degree
of credit risk than permanent mortgage financing of residential properties, and
this additional risk usually is reflected in higher interest rates. The higher
risk of loss on construction loans is attributable in large part to the fact
that loan funds are estimated and advanced upon the security of the project
under construction, which is of uncertain value prior to the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages and
other unpredictable contingencies, it is relatively difficult to accurately
evaluate the total loan funds required to complete a project and to accurately
evaluate the related loan-to-value ratios. If the estimates of construction
costs and the salability of the property upon completion of the project prove to
be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project.
-13-
<PAGE>
If the estimate of value proves to be inaccurate, the Bank may be confronted, at
or prior to the maturity of the loan, with a project with a value which is
insufficient to assure full repayment.
The Bank's underwriting criteria are designed to evaluate and minimize the
risk of each construction loan. Among other items, the Bank considers evidence
of the availability of permanent financing or a take-out commitment to the
borrower, the financial strength and reputation of the borrower, an independent
appraisal and review of cost estimates, and, if applicable, the amount of the
borrower's equity in the project, pre-construction sale or leasing information
and cash flow projections of the borrower.
ORIGINATION, PURCHASE AND SALE OF LOANS
The Bank originates loans primarily in Paulding County, Georgia. According
to 1996 U.S. census figures, Paulding County had a population of approximately
65,000.
Loans are originated by eight loan officers who operate from the Bank's
offices in Hiram and Dallas, Georgia. These loan officers actively solicit loan
applications from existing customers, local manufacturers and retailers,
builders, real estate developers, real estate agents and others. The Bank also
receives numerous loan applications as a result of customer referrals and walk-
ins to its offices.
Upon receipt of a loan application and all required supporting information
from a prospective borrower, the Bank obtains a credit report and verifies
specific information relating to the loan applicant's employment, income and
creditworthiness. In most cases, a certified appraisal of any real estate
intended to secure the proposed loan is undertaken by an independent appraiser
approved by the Bank. The Bank's loan officers then analyze the loan
applications and any collateral involved.
The Bank's loan approval process is intended to be conservative but also
responsive to customer needs. Loans are approved in accordance with the Bank's
written loan policy, which provides for several tiers of approval authority,
based on a borrower's aggregate debt with the Bank. The President, the
Executive Vice President, the Senior Vice-President of Asset Quality, and the
Vice-President have the authority to approve loans of up to $50,000. All other
loan officers have the authority to approve loans of up to $25,000. There is a
Loan Committee comprised of the senior officers of the Bank which must approve
any loan that is above an individual officer's limit, but that is not more than
$100,000. The Loan Committee of the Board of Directors, comprised of the
President and five non-employee Directors, must approve all loans over $100,000,
and all lending relationships where a borrower's aggregate indebtedness to the
Bank exceeds $100,000.
From time to time, the Bank may participate in loans with other financial
institutions by either buying or selling part of a loan. The purchase of a loan
participation allows the Bank to expand its loan portfolio and increase
profitability while still maintaining the high credit standards which are
applied to all extensions of credit made by the Bank. The sale of loan
participations allows the Bank to make larger loans which it otherwise would be
unable to make due to capital or other funding considerations. For 1996 and
1995, the bank sold loan participations of approximately $1,230,200 and
approximately $2,285,220 respectively, and purchased loan participations of
approximately $400,000 and $1,207,542, respectively.
CLC originates loans primarily in Cherokee, Polk, and Walker Counties,
which are all located in northwest Georgia. Loans are originated by ten lenders
who operate from CLC's offices in Rockmart, Georgia, Rossville, Georgia, and
Woodstock, Georgia. These lenders
-14-
<PAGE>
actively solicit loan applications from existing customers. CLC also originates
loans through a conditional sales contract program with one retailer at this
time; however, CLC intends to expand the program with similar arrangements
through other retailers. All loans made through this program must meet CLC's
ordinary credit standards. CLC receives numerous loan applications as a result
of customer referrals and walk-ins to its offices.
LOAN FEE INCOME
In addition to interest earned on loans, the Bank receives origination fees
for making loans, commitment fees for making certain loans, and other fees for
miscellaneous loan-related services. Such fee income varies with the volume of
loans made, prepaid or sold, and the rates of fees vary from time to time
depending on the supply of funds and competitive conditions.
Commitment fees are charged by the Bank to the borrower for certain loans
and are calculated as a percentage of the principal amount of the loan. These
fees normally are deducted from the proceeds of the loan and generally range
from 1/2% to 2% of the principal amount, depending on the type and volume of
loans made and market conditions such as the demand for loans, the availability
of money and general economic conditions.
The Bank also receives miscellaneous fee income from late payment charges,
overdraft fees, property inspection fees, and miscellaneous services related to
its existing loans. For the year ended December 31, 1996, the Bank recognized
origination, commitment and other loan fees totaling $651,219, which equaled
15.55% of the Company's net interest income for such year. For the years ended
December 31, 1995 and 1994, the Bank recognized origination, commitment and
other loan fees totaling $537,630 and $436,796, which equaled 15.84% and 15.20%,
respectively, of the Company's net interest income for such years.
CLC receives miscellaneous fee income from late payment charges, loan fees,
maintenance fees, and miscellaneous services related to its existing loans. For
the year ended December 31, 1996, CLC recognized loan fees totaling $186,010,
which equaled 4.44% of the Company's net interest income for such year. For the
year ended December 31, 1995, CLC recognized loan fees totaling $8,835, which
equaled 0.26% of the Company's net interest income for such year.
PROBLEM LOANS AND ALLOWANCE FOR LOAN LOSSES
Problem Loans
In originating loans, the Company recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the guaranty of the security for
the loan. The Company has instituted measures at both the Bank and CLC which
are designed to reduce the risk of, and monitor exposure to, credit losses.
The Bank's loan portfolio is periodically reviewed by the Bank's management
to identify deficiencies and to take corrective actions as necessary. As
discussed below, each of the Bank's loans is assigned a rating in accordance
with the Bank's internal loan rating system and is reviewed monthly to update
its rating in accordance with the performance of the loan. All past due loans
are reviewed weekly by the Bank's senior lending officers and monthly by the
Loan Committee of the Board of Directors, and all loans classified as
substandard or doubtful, as well as any "special mention" loans, are reviewed at
least monthly by the Loan Committee. In addition, all loans to a particular
borrower are reviewed, regardless of classification, each time such borrower
requests a renewal or extension of any loan or requests an additional loan. All
-15-
<PAGE>
lines of credit are reviewed annually prior to renewal. Such reviews include,
but are not limited to, the ability of the borrower to repay the loan, the loan
to value ratio, the value of any collateral and the estimated loss to the Bank,
if any.
The Bank's internal problem loan rating system establishes three
classifications for problem assets: substandard, doubtful and loss.
Additionally, in connection with regulatory examinations of the Bank, federal
and state examiners have authority to identify problem assets and, if
appropriate, require the Bank to classify them. Substandard assets have one or
more defined weaknesses and are characterized by the distinct possibility that
the Bank will sustain some loss if the deficiencies are not corrected. Doubtful
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently existing facts, conditions and values, highly
questionable and improbable. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the Bank
is not warranted. Consequently, such assets are charged-off in the month they
are classified as loss. Federal regulations also designate a "special mention"
category, described as assets which do not currently expose the Bank to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require the Bank to establish
general allowances for loan losses. If an asset or portion thereof is
classified as loss, the Bank must either establish specific allowances for loan
losses in the amount of 100% of the portion of the asset classified as loss or
charge off such amount. General loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included,
up to certain limits, in determining the Bank's regulatory capital, while
specific valuation allowances for loan losses do not qualify as regulatory
capital.
The Bank's collection procedures provide that when a loan becomes 10 days
delinquent, the borrower is contacted by mail and payment is requested. If the
delinquency continues, subsequent efforts are made to contact and request
payment from the delinquent borrower. Most loan delinquencies are cured within
60 days and no legal action is required. In certain circumstances, the Bank,
for a fee, may modify the loan, grant a limited moratorium on loan payments or
revise the payment schedule to enable the borrower to restructure his or her
financial affairs. Generally, the Bank stops accruing interest on delinquent
loans when payment is in arrears for 90 days (unless the obligation is both well
secured and in the process of collection) or when collection otherwise becomes
doubtful. If the delinquency exceeds 120 days and is not cured through the
Bank's normal collection procedures or through a restructuring, the Bank will
institute measures to enforce its remedies resulting from the default, including
commencing a foreclosure, repossession or collection action. In certain cases,
the Bank will consider accepting a voluntary conveyance of collateral in lieu of
foreclosure or repossession. Real property acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as "real estate
owned" until it is sold and is carried at the lower of cost (defined as fair
value at foreclosure) or fair value less estimated costs to dispose. Accounting
standards define fair value as the amount that is expected to be received in a
current sale between a willing buyer and seller other than in a forced or
liquidation sale. Fair values at foreclosure are based on appraisals. Losses
arising from the acquisition of foreclosed properties are charged against the
allowance for loan losses. Subsequent writedowns are provided by a charge to
income through the allowance for losses on other real estate in the period in
which the need arises.
The Bank attempts to sell real estate owned promptly after foreclosure, and
it sold approximately $102,841 of its real estate owned due to loan foreclosures
during the year ended December 31, 1996. The book value of real estate owned
that was sold by the Bank during the
-16-
<PAGE>
year ended December 31, 1996 totaled approximately $100,510. As of December 31,
1996, there was no real estate owned as a result of foreclosure.
CLC's loan portfolio is periodically reviewed by CLC's management to
identify deficiencies and to take corrective actions as necessary. All past due
loans are reviewed by each CLC Office Manager daily and monthly by CLC's
President. CLC's Board of Directors reviews the total loans considered over 90
days delinquent in their bi-monthly meetings. The Board compares delinquency
rates on an office-by-office basis. CLC's collection procedures provide that
when a loan becomes 5 days delinquent, the borrower is contacted by mail and
payment is requested. If the delinquency continues, subsequent efforts are made
to contact and request payment from the delinquent borrower. Most loan
delinquencies are cured within 90 days and no legal action is required.
Generally, when an account reaches 90 to 120 days past due, notice will be
mailed to the customer stating that CLC is taking legal action against them
unless the account is brought to a current status within 10 days. If the
customer does not respond within that time frame, CLC typically will file suit
against the parties involved in the local Magistrate Court. CLC's policy is to
charge off any loan which becomes 6 months past due. CLC's loans which are past
due 90 days or more total approximately $92,202 as of December 31, 1996, as
compared to $16,602 as of December 31, 1995. This increase in past due loans is
primarily attributable to the significant increase in CLC's gross loan portfolio
to $1,074,882 as of December 31, 1996, as compared to $194,757 as of December
31, 1995, due to the purchase of two existing loan companies in Rossville,
Georgia, and Rockmart, Georgia.
The following table sets forth information regarding the Company's
delinquent and nonperforming assets as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Accruing loans which are contractually
past due 90 days or more
Real estate loans....................... $ 37,365 $142,079
Business loans.......................... -0- -0-
Consumer loans.......................... 99,283 1,857
Construction and acquisition and
development loans...................... -0- -0-
-------- --------
Total................................. $136,648 $143,936
Ratio of delinquent but accruing loans to:
Total loans........................... .28% .37%
Total assets.......................... .16% .21%
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-------------------
1996 1995
-------- ---------
<S> <C> <C>
Nonaccruing loans:
Real estate loans......................... $ 432 $154,291
Business loans............................ 23,850 -0-
Consumer loans............................ 5,955 21,222
Construction and acquisition and
development loans........................ -0- -0-
------- --------
Total................................. $30,237 $175,513
Real estate acquired through foreclosure.... $ -0- $ 97,458
Property acquired through repossession...... $ 3,000 $ 725
Ratio of nonperforming assets to:
Total loans and real estate acquired
through foreclosure and repossessions.. .07% .70%
Total assets........................... .04% .41%
</TABLE>
The Bank recorded interest income on the nonaccruing loans listed above for
the fiscal year ended December 31, 1996 of approximately $1,207. The gross
interest income that would have been recorded during the fiscal year ended
December 31, 1996 if the nonaccruing loans listed above had been current in
accordance with their original terms would have been approximately $2,926.
Allowance for Loan Losses
The allowance or reserve for possible loan losses is a means of absorbing
future losses which could be incurred from the current loan portfolio. Both the
Bank and CLC maintain an allowance for possible loan losses, and management
adjusts the general allowances monthly by charges to income in response to
changes to outstanding loan balances.
The Bank maintains a general allowance equal to approximately 1.50% of the total
principal amount of loans outstanding (less the total principal amount of loans
outstanding that are secured by certificates of deposit), and management adjusts
the general allowance monthly by charges or credits to income in response to
changes in the outstanding loan balance. Management also may establish specific
loan loss allowances for specific loans after considering such factors as past
delinquencies on the loan, the value of the underlying collateral and the size
of the loan. The Bank began a special allowance in 1996 equal to 4% of the
outstanding balances in its credit card portfolio, in acknowledgment of the risk
related with this type of credit product. As of December 31, 1996 management
was not aware of any specific loan problems which necessitated a specific loan
loss reserve. A loan or portion thereof is charged off against the general
allowance when management has determined that losses on such loans are probable.
Recoveries on any loans charged off in prior fiscal periods are credited to the
allowance. It is the opinion of the Bank's management that the balance in the
general allowance for loan losses as of December 31, 1996 is adequate to absorb
possible losses from loans currently in the portfolio.
-18-
<PAGE>
CLC maintains a general allowance for possible loan losses, in addition to
the fact that a majority of the loans in CLC's portfolio are insured in case of
default by the borrower. CLC may be reimbursed for any covered loan balance
which goes into default. Management is reviewing the general allowance for loan
loss on a quarterly basis to review its adequacy in covering any future losses
that may be sustained by CLC.
The following table summarizes the Company's loan loss experience for the
periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Average loans.......................... $46,043,727 $36,660,129
Allowance for possible loan losses,
beginning of the period............... 583,306 444,368
Charge-offs for the period:
Real estate loans.................... -0- -0-
Business loans....................... 1,092 31,482
Consumer loans....................... 89,171 29,393
Construction loans and acquisition
and development loans................ -0- -0-
Total charge-offs.................... $ 90,263 $ 60,875
Recoveries for the period:
Real estate loans.................... $ 1,613 $ 1,075
Business loans....................... 1,318 3,805
Consumer loans....................... 19,703 8,288
Construction loans and acquisition
and development loans................ -0- -0-
Total recoveries..................... $ 22,634 $ 13,168
Net charge-offs for the period..... $ 67,629 $ 47,707
Provision for loan losses.............. $ 197,841 186,645
Allowance for possible loan losses,
end of the period.................... $ 713,518 $ 583,306
Ratio of allowance for loan losses to
total average loans outstanding...... 1.44% 1.59%
Ratio of net charge-offs during
the period to average loans
outstanding during the period........ .14% .13%
</TABLE>
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<PAGE>
In addition to the Bank's loan rating system for problem assets described
above (see Problem Loans, above), the Bank has established a loan rating system
for all categories of loans which assists management and the Board of Directors
in determining the adequacy of the Bank's allowance for loan losses. Each loan
in the Bank's portfolio is assigned a rating which is reviewed by management
periodically to ensure its continued suitability. An exception is made in the
case of (I) monthly installment loans which are grouped together by delinquency
status such as over ten, thirty, sixty, or ninety days past due and (ii) problem
assets which are rated as substandard, doubtful, or loss as discussed above.
All other loans are assigned a rating of excellent, good, or moderate. The
total amount of loans in each of these loan rating categories is weighted by a
factor that management believes reasonably reflects losses that can be
anticipated with respect to loans in each of these categories. Based on these
weightings, management establishes an allowance for loan losses that is reviewed
by the Board each month.
INVESTMENT ACTIVITIES
- ---------------------
Interest earned on investments in securities, on interest-bearing deposits
in other banks and on federal funds sold provides the second largest source of
revenues for the Company after interest on loans, constituting $1,386,909 or
17.34% of total interest and other income for the year ended December 31, 1996.
The Company's investment portfolio totaled approximately $29,693,690 or 34.85%
of total assets at December 31, 1996. The entire investment portfolio is held
by the Bank. The portfolio is designed to enhance liquidity while providing
acceptable rates of return. Bank policy limits securities investments to
securities having a rating of no less than "BAA" by Moody's Investors Service,
Inc. or "BBB" by Standard and Poor's Corporation.
The following table sets forth the carrying value of the Bank's investments
at the dates indicated. All securities held available for sale are carried at
fair market value, and all securities held to maturity are carried at amortized
cost.
<TABLE>
<CAPTION>
At December 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
U.S. Government and agency
obligations............................... $19,701,827 $18,826,654
Other bonds, notes, debentures
and securities............................ 255,000 50,000
States & political subdivisions tax-exempt.. 2,716,863 1,764,406
Federal funds............................... 7,020,000 1,680,000
----------- -----------
Total.................................... $29,693,690 $22,321,060
=========== ===========
</TABLE>
The following table sets forth the carrying value of the Bank's investments
at December 31, 1996, the weighted average yields on the Bank's investments at
December 31, 1996 and the periods to maturity of the Bank's investments from
December 31, 1996.
-20-
<PAGE>
<TABLE>
<CAPTION>
Periods to Maturity from December 31, 1996
----------------------------------------------------------------------------------------------
1 year or less 1 - 5 years 5 - 10 years Over 10 years
-------------------- ---------------- ---------------- -----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
------ --------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
and agency
obligations.............. $ 3,470,310 5.20% $13,495,540 5.95% $ 70,647 3.51% $2,665,358 6.10%
Tax-exempt
Municipal bonds........... 150,857 4.69%(1) 1,035,841 4.58%(1) 415,367 4.51%(1) 1,114,772 5.40%
Other bonds, notes, de-
bentures, and securities.. 255,000 6.04% -0- -.0- -0- -.0- -0- -.0-
Federal funds............. 7,020,000 5.32% -0- -.0- -0- -.0- -0- -.0-
----------- ---- ----------- ---- -------- ---- ---------- ----
Total.................. $10,896,167 5.29% $14,531,380 5.85% $486,013 4.36% $3,780,130 5.89%
</TABLE>
____________
(1) The weighted average yields have been computed using actual yields on
tax-exempt securities rather than tax-equivalent yields.
The following table sets forth, as of December 31, 1996, the aggregate
amortized cost value and the aggregate estimated fair market value of the
securities of issuers in which the aggregate amortized cost value of the
Company's investment exceeds 10% of the Company's stockholders' equity.
<TABLE>
<CAPTION>
Aggregate Estimated
Amortized Aggregate
Cost Fair Market
Value Value
----------- -----------
<S> <C> <C>
Federal Farm Credit Bank.................... $1,216,845 $1,218,547
Federal Home Loan Bank...................... 3,493,454 3,459,080
Federal National Mortgage Association....... 3,841,072 3,822,038
Federal Home Loan Mortgage Corporation...... 1,944,207 1,930,617
Small Business Administration............... 1,008,578 1,009,170
U. S. Treasuries............................ 7,739,666 7,769,621
Georgia Bankers Bank - Agent Federal Funds.. 7,020,000 7,020,000
</TABLE>
SOURCES OF FUNDS
- ----------------
GENERAL
Time, money market, savings and demand deposits are the major source of the
Company's funds for lending and other investment purposes. All deposits are
held by the Bank. In addition, the Company obtains funds from loan principal
repayments and proceeds from sales of loan participations and investment
securities. Loan repayments are a relatively stable source of funds,
-21-
<PAGE>
while deposit inflows and outflows and sales of loan participations and
investment securities are significantly influenced by prevailing interest rates,
economic conditions and the Company's asset and liability management strategies.
In addition, borrowings may be used on a short-term basis to compensate for
reductions in the availability of other sources of funds or on a longer term
basis to support expanded lending activities and for other general business
purposes.
DEPOSITS
The Bank offers several types of deposit accounts, with the principal
differences relating to the minimum balances required, the time period the funds
must remain on deposit and the interest rate. Deposits are obtained primarily
from the Bank's Paulding County market area. The Bank does not advertise for
deposits outside of this area, and as a result an insignificant amount of the
Bank's deposits are from out-of-state sources. The Bank does not solicit funds
from brokers, nor does it rely upon any single person or group of related
persons for a material portion of its deposits.
A principal source of deposits for the Bank consists of short-term money
market and other accounts which are highly responsive to changes in market
interest rates. Accordingly, the Bank, like all financial institutions, is
subject to short-term fluctuations in deposits in response to customer actions
due to changing short-term market interest rates. The ability of the Bank to
attract and maintain deposits and the Bank's cost of funds have been and will
continue to be significantly affected by money market conditions.
The following table sets forth the composition of deposits for the Company,
excluding accrued interest payable, by type of account and interest rate
category at the dates indicated.
<TABLE>
<CAPTION>
Increase(Decrease)
During the
At December 31, Twelve-Month
---------------------------------------------------------------
1996 1995 Period Ended
------------------------------ -----------------------------
Interest Interest December 31,
Type of Account Rate Amount Percent Rate Amount Percent 1996
- --------------- -------- ------ ------- -------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Demand deposits..... -0- 9,648,648 12.55% -0- 9,139,735 14.93% 508,913
NOW accounts........ 1.89% 8,757,099 11.39% 2.38% 7,216,412 11.78% 1,540,687
Savings deposits.... 3.17% 15,546,932 20.22% 3.48% 10,915,179 17.82% 4,631,753
Money market
deposits........... 2.88% 8,454,539 10.99% 3.04% 6,857,125 11.20% 1,597,414
Certificates of
deposit............ 2-4% -0- -0- 2-4% 498,050 .81% (498,050)
............ 4-6% 20,541,854 26.71% 4-6% 13,375,536 21.85% 7,166,318
............ 6-8% 13,933,444 18.12% 6-8% 13,170,104 21.51% 763,340
............ 8-10% 15,245 .02% 8-10% 63,148 .10% (47,903)
Total time
deposits.......... 5.91% 34,490,543 44.85% 5.97% 27,106,838 44.27% 7,383,705
---- ----------- ---- ----------- -----------
Total
deposits.......... 4.35% $76,897,761 100.00% 4.55% $61,235,289 100% $15,662,472
</TABLE>
-22-
<PAGE>
The following table sets forth information with respect to the Company's
interest expense on deposits and the daily average deposit balances for the
periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1996 1995
--------------------------------- ------------------------------
Average Average
Average Interest Rate Average Interest Rate
Balance Expense Paid(1) Balance Expense Paid(1)
----------- ---------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
NOW accounts..................... $ 8,728,202 194,491 2.23% $ 6,949,988 $ 179,261 2.58%
Money market
accounts........................ 7,747,518 216,441 2.79% 7,014,853 216,839 3.09%
Savings deposits................. 12,200,662 375,845 3.08% 12,064,705 436,236 3.62%
Time deposits, $100,000 and
over............................ 11,321,593 663,640 5.86% 7,698,395 409,190 5.32%
Time deposits,
other........................... 19,834,342 1,173,908 5.92% 16,442,425 926,127 5.63%
----------- ---------- ---- ----------- ---------- ----
Total interest-bearing deposits.. $59,832,317 $2,624,325 4.39% $50,170,366 $2,167,663 4.32%
=========== ========== ==== =========== ========== ====
</TABLE>
____________
The following table sets forth the amount of time deposits maturing in the
periods indicated at December 31, 1996.
<TABLE>
<CAPTION>
Amount Maturing
----------------------------------------------------------------
Within Within Within After
1 Year 2 Years 3 Years 3 Years Total
---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
4% - 6%.......... 19,079,327 1,193,373 242,040 27,114 20,541,854
6% - 8%.......... 5,941,425 2,060,445 2,420,838 3,510,736 13,933,444
8% - 10%.......... -0- -0- -0- 15,245 15,245
</TABLE>
The following table sets forth the maturity distribution of negotiable time
deposits of $100,000 or more and other time deposits of $100,000 or more at
December 31, 1996.
<TABLE>
<CAPTION>
Negotiable Other
Time Time
Deposits Deposits
---------- -----------
<S> <C> <C>
3 months or less................. $-0- $ 3,923,863
Over 3 months through 6 months... -0- 2,671,508
Over 6 months through 12 months.. -0- 3,788,609
Over 12 months................... -0- 2,825,584
Total outstanding............. $-0- $13,209,564
</TABLE>
BORROWINGS
The Bank has not borrowed any funds to date, although the Bank has
available two term federal funds lines of credit with correspondent banks, in
the amounts of $2,000,000 and
-23-
<PAGE>
$1,000,000, respectively. In addition, the Bank has the right to borrow from the
Federal Reserve Bank of Atlanta if necessary to supplement its supply of funds
available for lending and to meet deposit withdrawal requirements. Additionally,
in order to enhance liquidity at the holding company holding level, the Company
has obtained a $2,500,000 revolving credit facility. No amounts have been drawn
under this facility to date.
RETAIL SERVICES
- ---------------
The Bank provides its customers with a variety of retail banking services.
The Bank is a member of the HONOR(R) and CIRRUS(R) systems of automatic tellers
and point of sale terminals, which provide Bank customers with access to
HONOR(R) and CIRRUS(R) services at approximately 670,000 locations throughout
the world. The Bank maintains two full-service automatic teller machines
("ATMs"), one at its Kroger branch and one at its Brownsville branch, and
fifteen Mini-ATM locations throughout its market area. These Mini-ATMs issue
scrip, instead of cash, which may be redeemed by the customer only at the
establishment where the Mini-ATM is located. The Bank also provides (in
addition to the lending and deposit services described above) a variety of
checking accounts, savings programs, night depository services, safe deposit
facilities and credit card plans (MasterCard and VISA).
SECURITIES BROKERAGE SERVICES
- -----------------------------
The Bank makes securities brokerage execution services available to its
customers through PrimeVest Financial Services, Inc. at commissions which are up
to 50% less than ordinary brokerage commissions.
COMPETITION
Based on total assets of approximately $83,630,785 at December 31, 1996,
the Bank is one of the smaller financial institutions with offices in Paulding
County as of said date. The Bank faces strong competition for deposits and
loans from five other financial institutions, two of which are community banks
that expanded their services from adjacent Cobb County into Paulding County in
1996. Two of the larger financial institutions have greater resources and
lending limits than the Bank, and have several branch offices. A federal credit
union owned by the employees of a local public utility company has also opened a
branch in Paulding, and has become aggressive in promoting membership with any
resident who purchases electricity from that utility company. Competition from
credit unions is very strong since membership is easily available to almost
anyone through the so-called "common bond" rule. Also, since credit unions are
not subject to income taxes in the way that commercial banks are taxed, credit
unions have an advantage in offering competitive rates to potential customers.
The Bank also competes for deposits and loans with commercial banks and thrift
institutions in Atlanta and other surrounding areas, some of which are
affiliated with large regional financial institutions. The Bank also faces
competition in certain areas of its business from mortgage banking companies,
consumer finance companies, insurance companies, money market mutual funds and
investment banking firms, some of which are not subject to the same degree of
regulation as the Bank.
The Bank competes for deposits principally by offering depositors a variety
of deposit programs with competitive interest rates, quality service and
convenient locations and hours. The Bank competes for loans by offering
competitive interest rates and loan fees, timely processing and quality service.
The Bank believes that its relatively small size permits it to offer more
personalized services than its competitors.
-24-
<PAGE>
The competitive pressures among commercial banks, thrift institutions and
other entities have increased significantly in recent years and are expected to
continue to do so. The establishment of money market accounts and the
elimination of rate controls for interest rates paid on deposits in the early
1980s, for example, have increased the competition for deposits and tend to
increase the Bank's cost of funds, especially during periods of high interest
rates.
Within Georgia, competition among financial institutions is increasing due
to a number of factors including, but not limited to, the acquisition of
Georgia-based financial institutions by out-of-state financial institutions.
With regard to interstate transactions, recently enacted federal legislation
permits interstate bank acquisitions, without regard to conflicting state laws
which purport to restrict or prohibit such acquisitions. See "Recent
Legislation" below. Additionally, the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") amended the federal Bank Holding Company
Act of 1956 (the "BHCA") to permit the acquisition of healthy savings
institutions by bank holding companies. Prior to FIRREA, bank holding companies
could acquire only troubled thrifts. As a result of FIRREA, Georgia-based
thrift institutions may now be acquired by bank holding companies headquartered
in Georgia or out-of-state.
In addition to facing increased competition from out-of-state financial
institutions, Georgia-based financial institutions are now likely to face
increased competition from other Georgia-based banks. The Georgia legislature
recently enacted legislation which, effective July 1, 1996, permits Georgia-
based banks to branch into up to three counties in addition to the county in
which their main office is located. Under this legislation, multiple banks
owned by a single holding company are treated as though they were one bank,
thereby permitting the holding company to expand its banking operations into
only three additional counties. This same legislation will eliminate all
branching restrictions, thereby permitting unrestricted state-wide branching,
effective July 1, 1998.
Consolidations of Georgia banking or thrift institutions with out-of-state
institutions could increase the presence in Georgia of out-of-state financial
institutions with substantially greater assets and resources than the Bank.
Additionally, the erosion of state law restrictions on intrastate branching may
result in the opening of branch banks in Paulding County by banks that
previously had been prohibited from doing so. Similarly, federal savings
institutions, with which the Bank competes for loans and deposits, are permitted
to branch statewide. One such institution has recently opened a Paulding County
branch.
EMPLOYEES
- ---------
As of December 31, 1996, the Bank had 49 full-time and 22 part-time
employees, Metroplex had one full-time employee, and CLC had ten full-time and 1
part-time employees. No employees are covered by collective bargaining
agreements, and the Company considers its relationship with its employees to be
excellent.
SUPERVISION AND REGULATION
- --------------------------
GENERAL
As a bank holding company, the Company is subject to regulation by the
Board of Governors of the Federal Reserve (the "Federal Reserve") pursuant to
the BHCA and by the Georgia Department pursuant to the Georgia Bank Holding
Company Act (the "GBHCA"). The Company also is required to file certain reports
with, and otherwise comply with the rules and regulations of, the Securities and
Exchange Commission (the "Commission") under federal securities laws.
-25-
<PAGE>
The Bank is a state bank and is subject to the supervision of, and is
regularly examined by, the Georgia Department. In addition, the Bank's deposit
accounts are insured up to applicable limits by the bank insurance fund of the
Federal Deposit Insurance Corporation (the "FDIC") and the Bank, therefore, is
subject to regulation by the FDIC.
FIRREA was signed into law on August 9, 1989. FIRREA primarily affected
the regulation of savings associations ("thrifts") and savings and loan holding
companies rather than the regulation of state banks and bank holding companies
such as the Bank and the Company. However, FIRREA did contain certain provisions
affecting banks and bank holding companies, including without limitation,
provisions affecting deposit insurance premiums, acquisitions of thrifts by
banks and bank holding companies, liability of commonly controlled depository
institutions, receivership and conservatorship rights and procedures and
substantially increased penalties for violation of banking statutes, regulations
and orders.
Additionally, on December 19, 1991, the FDIC Improvement Act of 1991
("FDICIA") became law which resulted in extensive changes to the federal banking
laws. The primary purpose of the law was to authorize additional borrowings by
the FDIC in order to provide funds for the resolution of failing financial
institutions. However, the law also instituted certain changes to the
supervisory process and contained various provisions affecting the operations of
banks and bank holding companies like the Bank and the Company. Certain of
these changes are discussed below under the caption "Enactment of FDICIA."
To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
or regulations may have a material effect on the business and prospects of the
Company and the Bank.
REGULATION OF THE COMPANY
General. As the bank holding company for the Bank, the Company is subject
to the supervision and regulation of the Federal Reserve and the Georgia
Department. As a bank holding company, the Company is required to file with the
Federal Reserve an annual report and such additional information as the Federal
Reserve may require pursuant to the BHCA. The Federal Reserve and the Georgia
Department also may make examinations of the Company and each of its
subsidiaries.
Regulatory Capital Requirements. The Federal Reserve has adopted risk-based
capital adequacy guidelines for use in its examination and regulation of bank
holding companies. Under the Federal Reserve's risk-based standards, an
entity's assets and off-balance sheet activities are categorized into one of
four risk categories, with either a 0%, 20%, 50% or 100% amount of capital to be
held against those assets. In addition, the guidelines divide capital
instruments into Tier 1 (core) capital and Tier 2 (supplemental) capital. The
risk-based capital adequacy guidelines require that: (I) Tier 2 capital may not
exceed 100% of Tier 1 capital, although certain Tier 2 capital elements are
subject to additional limitations; (ii) assets and off balance sheet items be
weighted according to risk; and (iii) the total capital to risk-weighted assets
ratio must be at least 8%. At December 31, 1996, the Company was in compliance
with these risk-based capital guidelines. See "Capital Resources and Liquidity"
in the Management's Discussion and Analysis section of the Company's 1996 Annual
Report to Shareholders.
If the capital of a bank holding company falls below minimum required
levels, the bank holding company may be denied approval to acquire or establish
additional banks or non-bank businesses, as discussed below. Bank holding
companies may be compelled by bank regulatory
-26-
<PAGE>
authorities to invest additional capital in a bank subsidiary in the event the
subsidiary bank experiences either significant loan losses or rapid growth of
loans or deposits. In addition, the company may be required to provide
additional capital to any additional banks it acquires as a condition to
obtaining the approvals and consents of regulatory authorities in connection
with such acquisitions.
Change of Control and Permissible Activities. Bank holding companies are
required by the BHCA to obtain approval from the Federal Reserve prior to
acquiring, directly or indirectly, ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any bank or bank holding
company.
The BHCA also prohibits bank holding companies, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank, and from engaging in any business other than banking or managing or
controlling banks or other permissible subsidiaries. The Federal Reserve is
authorized to approve, among other things, the ownership of shares by a bank
holding company in any company the activities of which the Federal Reserve has
determined to be so closely related to banking or to managing or controlling
banks as to be a proper incident thereto. Additionally, the Federal Reserve, by
regulation, has deemed certain nonbanking activities to be permissible
activities and has exempted such activities from the prior approval
requirements, although notice to and review by the Federal Reserve of such
activities would be necessary before the Company could engage de novo in such
activities. The Federal Reserve is empowered to differentiate between
activities that are initiated de novo by a bank holding company or a subsidiary
and activities commenced by acquisition of a going concern.
Additionally, the Federal Change in Bank Control Act ("CIBCA") requires 60
days' prior written notice to the appropriate federal bank regulatory agency
before any person may acquire "control" of a bank or bank holding company. The
appropriate federal bank regulatory agency with respect to acquisitions of
control of a state non-member bank, such as the Bank, is the FDIC, and the
appropriate federal bank regulatory agency with respect to acquisitions of
control of a bank holding company, such as the Company, is the Federal Reserve.
Under existing Federal Reserve regulations, "control" is presumed to exist
where the acquiring party (which includes a group "acting in concert") (a) owns,
controls, or holds with power to vote 25% or more of any class of voting
securities of the institution, or (b) owns, controls, or holds with power to
vote 10% or more of any class of voting securities of the institution, if (I)
the institution has registered securities under Section 12 of the Securities
Exchange Act of 1934, or (ii) no other person will own a greater percentage of
that class of voting securities immediately following the transaction.
The activities of the Company also are restricted by the provisions of the
Glass-Steagall Act of 1933 (the "Act"). The Act restricts the ability of the
Company to own subsidiaries engaged principally in the issue, flotation,
underwriting, public sale or distribution of securities. The interpretation,
scope and application of the provisions of the Act currently are being reviewed
by regulators and legislators. The outcome of the current examination and
appraisal of the provisions in the Act and the effect of such outcome on the
ability of bank holding companies to engage in securities-related activities
cannot be predicted.
Supervisory and Enforcement Powers. The Federal Reserve has been granted
enforcement powers over bank holding companies and non-banking subsidiaries to
forestall activities that represent unsafe or unsound practices or constitute
violations of law. These powers may be exercised through the issuance of cease-
and-desist orders or other actions. The Federal Reserve also is empowered to
assess civil money penalties against companies or individuals who violate
-27-
<PAGE>
the BHCA or orders or regulations thereunder, to order termination of non-
banking activities of non-banking subsidiaries of bank holding companies and to
order termination of ownership and control of a non-banking subsidiary by a bank
holding company. Certain violations may also result in criminal penalties.
The status of the Company as a registered bank holding company under the
BHCA does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
Restrictions on Transactions with Affiliates. The Bank and the Company are
"affiliated" within the meaning of the Federal Reserve Act. Certain provisions
of the Federal Reserve Act establish standards for the terms of, limit the
amount of and establish collateral requirements with respect to any loans or
extensions of credit to, and investments in, affiliates by the Bank, as well as
set arms-length criteria for such transactions and for certain other
transactions (including payment by the Bank for services and under any contract)
between the Bank and its affiliates. In addition, related provisions of the
Federal Reserve Act and the Federal Reserve regulations limit the amounts of,
and establish required procedures and credit standards with respect to, loans
and other extensions of credit to officers, directors and principal shareholders
of the Bank, the Company and any subsidiary of the Company, and to related
interests of such persons.
Miscellaneous. Under Section 106(b) of the Bank Holding Company Act
Amendments of 1970 (12 U.S.C. (S) 1972), the Bank is prohibited from extending
credit, selling or leasing property or furnishing any service to any customer on
the condition or requirement that the customer (I) obtain any additional
property, service or credit from the Company, the Bank (other than a loan,
discount, deposit, or trust service) or any other subsidiary of the Company,
(ii) refrain from obtaining any property, credit or service from any competitor
of the Company, the Bank or any subsidiary of the Company or (iii) provide any
credit, property or service to the Company, the Bank (other than those related
to and usually provided in connection with a loan, discount, deposit or trust
service) or any subsidiary of the Company.
Most bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of their outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of the bank holding
company's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal constitutes an unsafe
or unsound practice, would violate any law, regulation, Federal Reserve order or
directive or any condition imposed by, or written agreement with, the Federal
Reserve. The prior notice requirement does not apply to certain "well-
capitalized" bank holding companies that meet specified criteria.
In November 1985, the Federal Reserve adopted its Policy Statement on Cash
Dividends Not Fully Covered by Earnings. The Policy Statement sets forth
various guidelines that the Federal Reserve believes that a bank holding company
should follow in establishing its dividend policy. In general, the Federal
Reserve stated that bank holding companies should not pay dividends except out
of current earnings and unless the prospective rate of earnings retention by the
holding company appears consistent with its capital needs, asset quality and
overall financial condition.
Georgia Law. The Company also is a bank holding company within the meaning
of the GBHCA, which provides without limitation that, without the prior approval
of the Georgia Department, it is unlawful (I) for any action to be taken that
causes a company to become a bank holding company, (ii) for any bank holding
company to acquire direct or indirect ownership or
-28-
<PAGE>
control of more than 5% of the voting shares of any bank, (iii) for any bank
holding company or subsidiary thereof, other than a bank, to acquire all or
substantially all of the assets of a bank, (iv) for any action to be taken that
causes a bank to become a subsidiary of a bank holding company or (v) for any
bank holding company to merge or consolidate with any other bank holding
company. It also is unlawful for any company to acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank in Georgia
unless such bank has been in existence and continuously operating as a bank for
a period of five years or more prior to the date of application to the Georgia
Department for approval of such acquisition. One bank holding companies, such as
the Company, are prohibited from acquiring another bank until their initial bank
subsidiary has been incorporated for a period of at least two years.
In addition, the Georgia Department has established a minimum level of
capital to total assets of 5%, with certain adjustments, on a consolidated basis
for bank holding companies. The capital guidelines assume adequate liquidity
and a moderate degree of risk in the loan and investment portfolios as well as
any off balance sheet activities. In assessing compliance with the guidelines,
therefore, the Georgia Department reviews the relationship of on and off balance
sheet risks to capital and requires those institutions with high or inordinate
levels of risk to adhere to higher capital standards. Bank holding companies
whose operations involve, or are exposed to, high or inordinate degrees of risk
are expected to hold additional capital to compensate for such risks. In
addition, bank holding companies engaging in significant nonbanking activities
typically require higher capital ratios than do banks alone.
REGULATION OF THE BANK
General. The Bank is a commercial bank chartered under the laws of the
State of Georgia and its deposit accounts are insured up to applicable limits by
the Bank Insurance Fund ("BIF") of the FDIC. The Bank is subject to the
regulation, examination and supervision of the Georgia Department and the FDIC.
Both the Georgia Department and the FDIC issue regulations and require the
filing of reports describing the activities and financial condition of the banks
under their jurisdiction. Each agency conducts periodic examinations to test
compliance with various regulatory requirements and generally supervises the
operation of such banks. This supervision and regulation is intended primarily
for the protection of depositors. As an FDIC-insured, state-chartered bank, the
Bank may not enter into certain transactions unless applicable regulatory tests
are met or it obtains the prior approval of the regulatory agencies. For
instance, the approval of the Georgia Department and the FDIC are required prior
to any merger or consolidation or the establishment of an office at which
banking business is conducted. The Bank also is regulated in certain respects
by the Federal Reserve.
Georgia Law. The Bank derives its lending and investment authority
primarily from the applicable provisions of the Financial Institutions Code of
Georgia and the rules and regulations promulgated thereunder by the Georgia
Department. Under these laws and regulations, commercial banks, including the
Bank, may invest in real estate mortgages, commercial and consumer loans,
certain types of securities, including certain corporate debt and equity
securities, asset backed securities, and obligations of federal, state and local
governments and agencies, and certain other assets. A Georgia chartered bank's
lending powers generally are subject to certain restrictions, including limits
on amounts loaned to one borrower. Additionally, the exercise by an FDIC
insured commercial bank of the lending and investment powers of a commercial
bank under the Financial Institutions Code may be limited by FDIC regulations.
Under the Financial Institutions Code, the maximum interest rate a bank may
charge on a loan depends on the amount of the loan. If the principal amount of
the loan is $3,000 or less, banks may charge a maximum of 16% per annum simple
interest, unless the loan is made pursuant
-29-
<PAGE>
to another law. Borrowers and banks may agree in writing on any rate of
interest, expressed in simple interest terms, on loans of more than $3,000 but
less than $250,000. In addition, banks and borrowers may agree in writing on any
rate of interest, expressed in simple interest terms or otherwise, on loans of
$250,000 or more, provided that all charges to be paid by the borrower are
disclosed in a written agreement. There is, however, a criminal penalty for
charging interest rates greater than 5% per month.
Georgia commercial banks also have the power to invest in subsidiaries. A
commercial bank may use this power to invest in corporations that engage in
various service activities that banks are authorized to carry on, plus
additional activities authorized by the Georgia Department. Additional
activities may from time to time be authorized by the Georgia Department.
Investment by a bank in the stock of such corporations engaged in activities
described above is limited to the lesser of 10% of the bank's total assets or
100% of the bank's statutory capital base, and such investments must be approved
by the Georgia Department.
Currently, a Georgia chartered bank may establish additional offices within
the county in which its main office is located and in up to three additional
counties. Recent legislation enacted by the Georgia legislature will eliminate
all branching restrictions, thereby permitting unrestricted state-wide banking
effective July 1, 1998. See "Recent Legislation" below.
Georgia commercial banks may, with the approval of the Georgia Department,
merge or consolidate with another bank, trust company or other corporation as
long as the resulting institution is a bank or trust company engaged only in the
business of a bank or trust company. Additionally, a bank may sell, lease,
exchange or otherwise dispose of all or substantially all of its property and
assets with the approval of the Georgia Department.
The Financial Institutions Code prohibits the payment of dividends by a
state chartered bank if such bank is insolvent or would thereby be rendered
insolvent, if such dividend is contrary to restrictions contained in the bank's
articles of incorporation, if the dividend would be paid from other than
retained earnings or if the bank does not have the required amount of paid-in
capital and appropriated retained earnings. In addition, pursuant to
regulations adopted by the Georgia Department, a Georgia-chartered bank must
have the approval of the Georgia Department to pay cash dividends, unless at the
time of such payment (I) the total classified assets at the most recent
examination of the bank do not exceed 80% of the bank's equity capital and
reserves as reflected by such examination; (ii) the aggregate amount of
dividends declared or anticipated to be declared in the calendar year does not
exceed 50% of the net profits, after taxes but before dividends, of the bank for
the previous calendar year; and (iii) the ratio of the bank's equity capital, as
defined, to adjusted total assets, as defined, is not less than 6%. The Georgia
Department also requires the Bank to maintain a ratio of capital, as defined in
the Georgia Department's statement of policy on capital adequacy, to adjusted
total assets of not less than 8% during the first three years of operations.
Under the Financial Institutions Code, the Georgia Department may issue
orders to a Georgia chartered bank to submit to an investigation by the Georgia
Department, to discontinue unauthorized or unsafe practices or to keep
prescribed books and accounts. If the Georgia Department finds that any
director or officer of any banking organization has violated any law or duly
enacted regulation, or has continued unauthorized or unsafe practices in
conducting the business of the banking organization after being notified by the
Georgia Department to discontinue such practices, or has been indicted for any
crime involving moral turpitude or breach of trust, or has filed for bankruptcy
protection from creditors, the Georgia Department may remove such director or
officer from office. No director or officer of the Bank has been found by the
Georgia
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Department to have engaged in, or has been investigated by the Georgia
Department with respect to, any of such activities.
REGULATION OF CLC
As a consumer finance company, CLC is subject to regulation by the
Commissioner of Insurance of the State of Georgia, also known as the Georgia
Industrial Loan Commissioner, (the "Commissioner") pursuant to the Georgia
Industrial Loan Act (the "GILA"). CLC is required to file certain reports and
such additional information as the Commissioner may require pursuant to the
GILA, and is subject to periodic examinations of its books, accounts, and
records by the Commissioner's duly authorized representatives. Each office of
CLC is licensed by the Commissioner separately, and, if CLC wishes to move an
office within a county, written notice must be given to the Commissioner
supplying facts and circumstances showing how the removal to a new location will
promote the convenience and advantage of that community. Licenses must be
renewed on an annual basis. CLC may loan any sum of money not to exceed $3,000
for a period not to exceed 36 months and 15 days and may charge, contract for,
collect, and receive interest and fees on said loans, pursuant to the GILA.
As a subsidiary of the Company, CLC also is subject to examination by the
Federal Reserve pursuant to the BHCA and by the Georgia Department pursuant to
the GBHCA. The Federal Reserve and the Georgia Department also may make
examinations of CLC.
INSURANCE OF ACCOUNTS
Deposits of the Bank are insured by the FDIC to a maximum of $100,000 for
each insured depositor through the Bank Insurance Fund ("BIF"), one of the two
deposit insurance funds established by FIRREA. As an insurer, the FDIC issues
regulations, conducts examinations and generally supervises the operations of
its insured institutions (institutions insured by the FDIC hereinafter are
referred to as "insured institutions"). Any insured institution which does not
operate in accordance with or conform to FDIC regulations, policies and
directives may be sanctioned for non-compliance. For example, proceedings may
be instituted against an insured institution if the institution or any director,
officer or employee thereof engages in unsafe and unsound practices, is
operating in an unsafe or unsound condition, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. If insurance of
accounts is terminated by the FDIC, the deposits in the institution will
continue to be insured by the FDIC for a period of two years following the date
of termination. The FDIC requires an annual audit by independent accountants
and also periodically makes its own examinations of insured institutions. The
FDIC may revalue assets of an institution, based upon appraisals, and require
establishment of specific reserves in amounts equal to the difference between
such reevaluation and the book value of the assets.
On September 15, 1992, the FDIC approved final regulations adopting a risk-
related deposit insurance system. The risk-related regulations, which became
effective January 1, 1993, resulted in a significant spread between the highest
and lowest deposit insurance premiums. Under the risk-related insurance
regulations, each insured depository institution is assigned to one of three
risk classifications: "well capitalized," "adequately capitalized," or "under
capitalized". Within each risk classification, there are three subgroups. Each
insured depository institution is assigned to one of these subgroups within its
risk classification based upon supervisory evaluations submitted to the FDIC by
the institution's primary federal regulator. Depending upon a BIF member's risk
classification and subgroup, applicable regulations provide that its deposit
insurance premium may be as low as .04% of insured deposits or as high as .31%
of insured deposits. Additionally, because the BIF has exceeded its designated
reserve ratio, the FDIC has now
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reduced to zero the assessment rate that is applicable to the most highly rated
BIF members. The Bank has been notified that, based on its risk classification
and supervisory subgroup, its BIF assessment rate is zero percent of insured
deposits for the period from January 1, to June 30, 1997. This is the most
favorable assessment rate applicable to any insured institution. However, the
Deposit Insurance Funds Act of 1996 ("DIFA") requires that a Financing
Corporation ("FICO") assessment be paid by the Bank in 1997. The annual FICO
assessment rate for banks is .01296% of deposits.
The Bank paid approximately $2,000 in deposit insurance assessments, which
was the minimum set by the FDIC for that period, during the year ended December
31, 1996.
Subsequent to the enactment of FIRREA, the FDIC issued risk-based bank
capital guidelines which went into effect in stages through 1992. In accordance
with the FDIC's risk-based standards, an institution's assets and off-balance
sheet activities are categorized into one of four risk categories, with either a
0%, 20%, 50%, or 100% amount of capital to be held against these assets. In
addition, the guidelines divide capital instruments into Tier 1 (core) capital
and Tier 2 (supplementary) capital. The risk-based capital adequacy guidelines
require that (I) Tier 1 capital equal or exceed 4% of risk-weighted assets; (ii)
Tier 2 capital may not exceed 100% of Tier 1 capital, although certain Tier 2
capital elements are subject to additional limitations; (iii) assets and off-
balance sheet items be weighted according to risk; and (iv) the total capital to
risk-weighted assets ratio must be at least 8.0%. The FDIC's current leverage
capital requirement requires banks receiving the highest regulatory rating based
upon the FDIC's routine examination process, to maintain Tier 1 capital equal to
3.0% of the bank's total assets. Banks receiving lower regulatory ratings are
required to maintain Tier 1 capital in an amount that is at least 100 to 200
basis points higher than 3.0% of total assets.
At December 31, 1996, the Bank had Tier 1 capital of $5,342,676, or 6.41%
of total average assets.
Certain provisions of the Federal Reserve Act, made applicable to the Bank
by Section 18(j) of the Federal Deposit Insurance Act (12 U.S.C. (S)1828(j)) and
administered with respect to the Bank by the FDIC, establish standards for the
terms of, limit the amount of and establish collateral requirements with respect
to any loans or extensions of credit to, and investments in, affiliates by the
Bank as well as set arms-length criteria for such transactions and for certain
other transactions (including payment by the Bank for services) between the Bank
and its affiliates. In addition, related provisions of the Federal Reserve Act
and the Federal Reserve regulations (also administered with respect to the Bank
by the FDIC) limit the amounts of, and establish required procedures and credit
standards with respect to, loans and other extensions of credit to officers,
directors and principal shareholders of the Bank and to related interests of
such persons.
The FDIC may impose sanctions on any insured bank that does not operate in
accordance with FDIC regulations, policies and directives. Proceedings may be
instituted against any insured bank or any director, officer or employee of the
bank that is believed by the FDIC to be engaged in unsafe or unsound practices,
including violation of applicable laws and regulations. The FDIC may revalue
assets of an institution, based upon appraisals, and may require the
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets. The FDIC also is empowered
to assess civil penalties against companies or individuals who violate certain
federal statutes, orders or regulations. In addition, the FDIC has the
authority to terminate insurance of accounts, after notice and hearing, upon a
finding by the FDIC that the insured institution is or has engaged in any unsafe
or unsound practice that has not been corrected, or is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
rule or order of, or condition imposed by, the FDIC. The Bank does
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not know of any past or current practice, condition or violation that might lead
to termination of its deposit insurance or to any proceeding by the FDIC against
the Bank or any of its directors, officers or employees.
Federal Reserve. Although the Bank is not a member of the Federal Reserve
System, it is subject to Federal Reserve regulations that require it to maintain
reserves against its transaction accounts (primarily checking accounts).
Because reserves generally must be maintained in cash or in non-interest bearing
accounts, the effect of the reserve requirements is to increase the Bank's cost
of funds. The Federal Reserve Board regulations currently require that average
daily reserves be maintained against transaction accounts in the amount of 3% of
the aggregate of such net transaction accounts up to $49.3 million, plus 10% of
the total in excess of $49.3 million.
ENACTMENT OF FDICIA
On December 19, 1991, then President Bush signed FDICIA into law, which
resulted in extensive changes to the federal banking laws. The primary purpose
of the law was to authorize additional borrowings by the FDIC in order to
provide funds for the resolution of failing financial institutions. The law
instituted certain changes to the supervisory process and contained various
provisions that may affect the operations of financial institutions like the
Bank. Certain of these changes are discussed below.
Prompt Corrective Regulatory Action. FDICIA requires the federal banking
regulators to take prompt corrective action if an institution fails to satisfy
certain minimum capital requirements. Under FDICIA, capital requirements
include a leverage limit, a risk-based capital requirement, and any other
measure of capital deemed appropriate by the federal banking regulators for
measuring the capital adequacy of an insured depository institution. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (I)
subject to increased monitoring by the appropriate federal banking regulator;
(ii) required to submit an acceptable capital restoration plan within 45 days;
(iii) subject to asset growth limits; and (iv) required to obtain prior
regulatory approval for acquisitions, branching and new lines of businesses.
The capital restoration plan must include a guarantee by the institution's
holding company that the institution will comply with the plan until it has been
adequately capitalized on average for four consecutive quarters, under which the
holding company would be liable up to the lesser of 5% of the institutions's
total assets or the amount necessary to bring the institution into capital
compliance as of the date it failed to comply with its capital restoration plan.
A "significantly undercapitalized" institution, as well as any undercapitalized
institution that does not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities, possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution. Any company controlling the
institution may also be required to divest the institution. The senior
executive officers of the institution could not receive bonuses or increases in
compensation without prior approval and the institution would be prohibited from
making payments of principal or interest on its subordinated debt. If an
institution's ratio of tangible capital to total assets falls below a level
established by the appropriate federal banking regulator, which may not be less
than 2% tangible equity nor more than 65% of the minimum leverage capital level
otherwise required (the "critical capital level"), the institution will be
subject to conservatorship or receivership within 90 days unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance fund. Unless appropriate findings and certifications are
made
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<PAGE>
by the appropriate federal bank regulatory agencies, a critically
undercapitalized institution must be placed in receivership if it remains
critically undercapitalized on average during the calendar quarter beginning 270
days after the date it became undercapitalized.
Conservatorship and Receivership Amendments. FDICIA amended the grounds
for the appointment of a conservator or receiver for any insured depository
institution to include the following events: (I) consent by the board of
directors of the institution; (ii) cessation of the institution's status as an
insured depository institution; (iii) the institution is undercapitalized and
has no reasonable prospects of becoming adequately capitalized when required to
do so, fails to submit an acceptable capital plan or materially fails to
implement an acceptable capital plan; or (iv) the institution is critically
undercapitalized or otherwise has substantially insufficient capital. FDICIA
provides that an institution's directors shall not be liable to its stockholders
or creditors for acquiescing in or consenting to the appointment of the FDIC or
RTC as receiver or conservator or to a supervisory acquisition of the
institution.
Standards for Safety and Soundness. FDICIA also required the federal bank
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions and depository institution holding companies relating
to, among other things,: (I) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; and (vi) compensation, fees and
benefits.
Other Deposit Insurance Reforms. FDICIA amended the Federal Deposit
Insurance Act to prohibit insured depository institutions that are not well-
capitalized from accepting brokered deposits unless a waiver has been obtained
from the FDIC. Deposit brokers are required to register with the FDIC. FDICIA
authorized the FDIC to privately reinsure up to 10% of its risk of loss with
respect to an institution and base its assessment on the cost of such
reinsurance. With certain exceptions, state chartered banks are limited to the
activities of national banks. The federal bank regulatory agencies are required
to biannually review risk-based capital standards to ensure that they adequately
address interest rate risk, concentration of credit risk and risks from non-
traditional activities.
Consumer Protection Provisions. FDICIA also sought to encourage
enforcement of existing consumer protection laws and enacted new consumer
oriented provisions including a requirement of notice to regulators and
customers for any proposed branch closing and provisions intended to encourage
the offering of "lifeline" banking accounts and lending in distressed
communities. FDICIA also required depository institutions to make additional
disclosures to depositors with respect to the rate of interest and the terms of
their deposit accounts.
RECENT LEGISLATION
In September 1994, the federal Riegle-Neal Interstate Banking and Branching
Efficiency Act was enacted. The Act allows bank holding companies, beginning
one year following enactment of the legislation, to acquire existing banks
across state lines, regardless of state statutes. Beginning in June 1997, a
bank may consolidate interstate subsidiaries into branches and merge with a bank
across state lines to the extent that the applicable states have not "opted out
of interstate branching" prior to the effectiveness of the branching provisions.
States may elect to permit interstate mergers prior to June 1997. The Act also
would permit de novo branching to the extent that a particular state opts into
the de novo branching provisions. The Act provides a concentration limitation
with a nationwide limitation of 10% of total deposits of insured depository
institutions in the United States and 30% of total deposits of insured
depository institutions in a specific state.
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<PAGE>
The Riegle Community Development and Regulatory Improvement Act of 1994
also was enacted in September 1994, and provides for the creation of a community
development financial institutions fund to promote economic revitalization in
community development. Banks and savings institutions are allowed to
participate in such community development banks. The Act also contains
provisions designed to enhance small business capital formation and to enhance
disclosure with regard to high cost mortgages for the protection of consumers.
The Act also contains more than 50 regulatory relief provisions that apply to
banks and savings institutions including the coordination of examinations by
various federal agencies, coordination of frequency and types of reports
financial institutions are required to file and reduction of examinations for
well-capitalized institutions.
The Georgia legislature recently enacted legislation which, effective July
1, 1996, allows Georgia-based banks to branch into up to three counties in
addition to the county in which their main office is located. Under this
legislation, multiple banks owned by a single holding company are treated as
though they were one bank, thereby permitting the holding company to expand its
banking operations into only three additional counties. This same legislation
will eliminate all branching restrictions, thereby permitting unrestricted
state-wide branching, effective July 1, 1998.
ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------
The Company and the Bank operate from a main office and two branch offices
in Paulding County, Georgia. The main office, built in 1988 and located at 1784
Atlanta Highway in Hiram, Georgia, contains approximately 16,000 square feet.
The Bank owns the land and the building at this location. The Company uses the
premises, equipment and furniture of the Bank without payment of any fees to the
Bank. Metroplex rents office space in this building and pays a monthly rent
which is intended to approximate a fair rental value for the space utilized by
Metroplex. CLC leases office space in Woodstock, Georgia, Rockmart, Georgia, and
Rossville, Georgia.
The Bank opened a full service branch office at 100 Hardee Street, Dallas,
Paulding County, Georgia in June 1991. The Bank leases the land and owns the
building at this location, which contains approximately 1,150 square feet and
includes three teller stations and two drive-in window teller stations. The
lease on this property has been extended until June 1997. In December 1991, the
Bank also opened a full service office located in the Kroger grocery store of
the Paulding Commons Shopping Center, 2205 Atlanta Highway in Hiram, Georgia.
The Bank leases its office space in the grocery store and owns the furniture,
fixtures and equipment used in the Bank office. In January 1996, the Bank
opened a full service office at 5860 Brownsville Road, Powder Springs, Georgia
which is located in the Brownsville Crossing Shopping Center. The Bank leases
its office space in the shopping center and owns the furniture, fixtures, and
equipment used in the Bank office.
At December 31, 1996, the cost of office properties and equipment (less
allowances for depreciation and amortization) owned by the Company was
$2,296,111. Data processing services are provided by an outside service bureau.
The Company believes that its facilities are adequate and suitable for the
Company's current business and its anticipated business for the foreseeable
future.
The Company is unaware of any potential environmental liability that it may
incur in connection with any properties or other assets owned by it.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
There are no material legal proceedings to which the Company or the Bank is
a party or to which any of their properties is subject. The Bank is
periodically involved as a plaintiff or defendant in various legal actions in
the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the Company's fiscal year ended December 31, 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY AND BANK
- ------------------------------------------------------
Set forth below is information as of January 31, 1997 regarding the
executive officers of the Company and the Bank:
Principal Occupation
Name Age During The Past Five Years
---- --- --------------------------
Ronnie L. Austin 47 Mr. Austin is a Director and the President and
Chief Executive Officer of the Company and the
Bank. He has served as the President and Chief
Executive Officer of the Company since its
organization in October 1988. Before assuming
his position as President and Chief Executive
Officer of the Bank in December 1986, Mr.
Austin served as Executive Vice President and
Senior Loan Officer of the Peoples Bank of
Bartow County from January 1985 to November
1986 and as Vice President and Senior Loan
Officer of the First National Bank of Paulding
County from June 1975 to January 1985 .
Angel J. Byrd 41 Ms. Byrd has served as Senior Vice President
and Chief Financial Officer of the Bank and
Comptroller of the Company since April 1996,
having served as Vice President and Chief
Financial Officer of the Bank and Assistant
Secretary of the Company since December 1991.
She has served as Cashier of the Bank since
October 1987. Prior to her employment by the
Bank, she served as Loan Accounting Supervisor
of Barnett Bank, N.A. in Marietta from March
1986 to October 1987 and as Operations Officer
of The Citizens Bank in Dallas, Georgia from
May 1985 to March 1986.
Genevieve B. Cole 41 Ms. Cole has served as Executive Vice President
and Chief Administrative Officer of the Bank
since April 1996, having served as Vice
President and Chief Administrative Officer
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<PAGE>
of the Bank since July 1995. She served as Vice
President and Chief Lending Officer of the Bank
since August 1988 and as Assistant Secretary of
the Company since July 1991. Prior to her
employment by the Bank, she was Assistant Vice
President and Senior Loan Officer of First
National Bank in Dallas, Georgia from December
1987 to August 1988; Assistant Vice President
of First National Bank from March 1986 to
December 1987; and Loan Officer of First
National Bank from September 1983 to March
1986.
Michael Low 39 Mr. Low has served as Senior Vice President
and Chief Credit Officer of the Bank since
April 1996, having served as Vice President
and Chief Lending Officer of the Bank since
September 1995. Prior to his employment with
the Bank, he served as Vice President
Commercial Lending from 1991 and Commercial
Lender and Special Asset Manager from 1989 with
West Georgia National Bank in Carrollton,
Georgia. From 1980 until 1989, he served at the
Jasper Banking Company in Jasper, Georgia, as
Vice President, Lending Officer, and
Collections Manager, Collateral Manager, and
Collector.
The executive officers of the Company and the Bank are elected annually by
the respective Boards of Directors for terms of one year or until their
successors are elected and qualified, subject to removal by the respective
Boards of Directors at any time.
PART II
-------
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------
Information relating to the market for, holders of and dividends paid on
the Company's Common Stock is set forth under the captions "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on pages 9 through 15 of the
Company's 1996 Annual Report. Such information is incorporated herein by
reference.
The Company's ability to pay dividends is dependent on dividends paid by
the Bank, if any. Additionally, Georgia law imposes certain restrictions on the
payment of cash dividends by the Bank. See "Item 1. Business - Supervision and
Regulation."
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
Selected consolidated financial data for the Company for each of the five
fiscal years ending December 31, 1996, 1995, 1994, 1993 and 1992 are set forth
under the caption "Selected Consolidated Financial Data" on page 6 of the
Company's 1996 Annual Report. Such information is incorporated herein by
reference. A discussion of the Company's financial condition and results of
operations at and for the dates and periods covered by the consolidated
financial statements of the Company and the Bank set forth in the Company's 1996
Annual Report is set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 10 through
15 of the Company's 1996 Annual Report. Such discussion is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The following consolidated financial statements of the Company, together
with the Report of Independent Certified Public Accountants thereon, which are
set forth on pages 17 through 36 of the Company's 1996 Annual Report, are
incorporated herein by reference:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
The Company is not required to furnish the supplementary financial
information specified by Item 302 of Regulation S-K.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Neither the Company nor the Bank had any change in accountants or
disagreements with accountants on accounting and financial disclosure during the
two most recent fiscal years or subsequently.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
Information relating to the Directors of the Company is set forth under the
caption "Proposal 3 - Election of Directors" on pages 7 through 10 of the Proxy
Statement for the Company's 1997 Annual Meeting of Shareholders ("1997 Proxy
Statement"). Such information is incorporated herein by reference. Pursuant to
Instruction 3 of Item 401(b) of Regulation S-K and General Instruction G(3) of
Form 10-K, information relating to the executive officers of the
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<PAGE>
Company is set forth in Item 4(A) of this report under the caption "Executive
Officers of the Company and the Bank." Such information is incorporated herein
by reference. To the knowledge of the Company, each person who, at any time
during the year ended December 31, 1996, was a Director, executive officer, or
beneficial owner of more than ten percent of the Company's Common Stock filed,
on a timely basis, all reports required to be filed by them, during such year,
pursuant to Section 16(a) of the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
Information relating to executive compensation is set forth under the
caption "Proposal 3 -Election of Directors - Compensation of Directors" on page
11 of the 1997 Proxy Statement and under the caption "Proposal 3 - Election of
Directors - Executive Compensation" on pages 12 and 13 of the 1997 Proxy
Statement. Such information is incorporated herein by reference. Because the
Company qualifies as a "small business issuer" (as defined by Item 10(a)(1) of
Regulation S-B), pursuant to Item 402(a) of Regulation S-K, the Company has
provided only that information required by Regulation S-K Item 402(b), (c)(1),
(c)(2)(I)-(v), (d), (e), (g), (h), (I)(1) and (I)(2).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information regarding ownership of the Company's $2.50 par value Common
Stock by certain persons is set forth under the captions "Voting - Principal
Stockholders" and "Proposal 3 - Election of Directors - Nominees" on pages 7
through 10 of the 1997 Proxy Statement. Such information is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information regarding certain transactions between the Company and
Directors, executive officers and certain shareholders, and their affiliates, is
set forth under the caption "Proposal 3 - Election of Directors - Transactions
of Management with Community Trust Bank" on page 13 of the 1997 Proxy Statement.
Such information is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Documents Filed as Part of This Report.
1. Financial Statements
The following consolidated financial statements of the Company,
together with the Report of Independent Certified Public
Accountants thereon, are set forth on pages 11 through 31 of the
Company's 1996 Annual Report and are incorporated herein by
reference:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended
December 31, 1996, 1995 and 1994
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<PAGE>
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All financial statement schedules for which provision is made in
the Securities and Exchange Commission's Regulation S-X have been
omitted because such schedules are not required under the related
instructions or are inapplicable or because the information
required is included in the above-referenced financial statements
or notes thereto.
3. Exhibits
The following exhibits are filed as a part of or incorporated by
reference in this report:
Exhibit No. Description
----------- -----------
3.1* Articles of Incorporation of the Company
3.2+ Bylaws of the Company as amended through October 1996
3.3* Articles of Incorporation of the Bank
3.4* Bylaws of the Bank
10.1*@ 1988 Stock Option Plan and related specimen copy of option
10.2@ 1992 Employee Stock Option Plan
(Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1992)
10.3@ 1992 Directors Stock Option Plan
(Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1992)
10.4* Agreement and Plan of Merger and Reorganization dated October 7,
1990 among the Company, the Bank and CTFS Interim Corporation, as
amended by the First Amendment to Agreement and Plan of Merger
and Reorganization dated October 24, 1990
10.5 Lease dated June 9, 1989 by and between First Baptist Church of
Dallas, Georgia and the Bank relating to lease of real property
(Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-
k for the year ended December 31, 1992)
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<PAGE>
10.6 License and Equipment Purchase Agreement dated as of July 27,
1991 by and between Bank South, National Association and
Community Trust Bank relating to branch in Paulding Commons
Kroger store (Filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992)
10.7 Lease dated May 25, 1995 by and between Brock Investments, Inc.,
of Hiram, Georgia and the Bank relating to lease of real property
(Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-
K for The year ended December 31, 1995)
10.8+ Lease Extension Agreement dated September 30, 1996 by and between
First Baptist Church of Dallas, Georgia and the Bank relating to
lease of real property
13+ 1996 Annual Report**
21+ Subsidiaries
22+ Proxy Statement for 1997 Annual Meeting of Stockholders
24+ Powers of Attorney
_________
*Incorporated herein by reference to the exhibit of the same number in the
Company's Registration Statement on Form S-4, as amended (No. 33-37601).
** Certain sections of the Company's 1996 Annual Report, as indicated in this
report, are incorporated herein by reference. Other than as noted herein, the
Company's 1996 Annual Report is furnished to the Commission solely for its
information and is not deemed to be "filed" with the Commission or subject to
the liabilities of Section 18 of the Securities Exchange Act of 1934.
+ Filed herewith.
@ The referenced exhibit is a compensatory management contract, plan, or
arrangement.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company with the
Commission during the quarter ended December 31, 1996.
-41-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
(Registrant)
Date: March 25, 1997 By: /s/Ronnie L. Austin
-------------------------------------------
Ronnie L. Austin
President and Chief
Executive Officer
By: /s/Angel J. Byrd
-------------------------------------------
Angel J. Byrd
Comptroller
(principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 25, 1997.
Signature Title
--------- -----
*W. A. Foster III Chairman of the Board
- ---------------------------
W. A. Foster III
/s/Ronnie L. Austin President, Chief Executive Officer and
- ---------------------------
Ronnie L. Austin Director (principal executive officer and
principal financial officer)
*Tommie R. Graham Secretary/Treasurer and Director
- ---------------------------
Tommie R. Graham
-42-
<PAGE>
*R. Alan Bullock Director
- ----------------------------
R. Alan Bullock
*Bobbie P. Cooper Director
- ----------------------------
Bobbie P. Cooper
*J. Calvin Earwood Director
- ----------------------------
J. Calvin Earwood
*John C. Helms Director
- ----------------------------
John C. Helms
*C. D. Rampley Director
- ----------------------------
C. D. Rampley
* By /s/Ronnie L. Austin
-----------------------
Ronnie L. Austin
as attorney-in-fact
-43-
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit No. Description Page No.
- ----------- ----------- --------
3.1* Articles of Incorporation of the Company
3.2+ Bylaws of the Company as amended through October 1996
3.3* Articles of Incorporation of the Bank
3.4* Bylaws of the Bank
10.1*@ 1988 Stock Option Plan and related specimen
copy of option
10.2@ 1992 Employee Stock Option Plan
(Filed as Exhibit 10.2 to the Company's Annual Report on
Form 10K for the year ended December 31, 1992)
10.3@ 1992 Directors Stock Option Plan
(Filed as Exhibit 10.3 to the Company's Annual Report on
Form 10K for the year ended December 31, 1992)
10.4* Agreement and Plan of Merger and Reorganization
dated October 7, 1990 among the Company, the
Bank and CTFS Interim Corporation, as amended
by the First Amendment to Agreement and Plan of
Merger and Reorganization dated October 24, 1990
10.5 Lease dated June 9, 1989 by and between First
Baptist Church of Dallas, Georgia and the Bank
relating to lease of real property
(Filed as Exhibit 10.5 to the Company's Annual Report on
Form 10K for the year ended December 31, 1992)
10.6 License and Equipment Purchase Agreement dated as
of July 27, 1991 by and between Bank South,
National Association and Community Trust Bank
relating to branch in Paulding Commons Kroger store
(Filed as Exhibit 10.6 to the Company's Annual Report on
Form 10K for the year ended December 31, 1992)
10.7 Lease dated May 25, 1995 by and between
Brock Investments, Inc., of Hiram, Georgia and
the Bank relating to lease of real property
10.8+ Lease Extension Agreement dated September 30, 1996 by and between
First Baptist Church of Dallas, Georgia and the Bank relating to
lease of real property
13+ 1996 Annual Report**
-44-
<PAGE>
21+ Subsidiaries
22+ Proxy Statement for 1997 Annual Meeting of Stockholders
24+ Powers of Attorney
__________
*Incorporated herein by reference to the exhibit of the same number in the
Company's registration statement on Form S-4, as amended, No. 33-37601.
** Certain sections of the Company's 1996 Annual Report, as indicated in this
report, are incorporated herein by reference. Other than as noted herein, the
Company's 1996 Annual Report is furnished to the Commission solely for its
information and is not deemed to be "filed" with the Commission or subject to
the liabilities of Section 18 of the Securities Exchange Act of 1934.
+ Filed herewith.
@ The referenced exhibit is a compensatory management contract, plan, or
arrangement.
-45-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
ARTICLE ONE
-----------
SHARE CERTIFICATES
1.1 Each shareholder shall be entitled to a certificate certifying the
number of shares of the corporation owned by him. Share certificates shall be
issued in consecutive order and shall be numbered in the order in which they are
issued. They shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary, and the seal of the corporation shall be
affixed thereto. A record of each share certificate shall be kept in the books
of the corporation, and on such record shall be entered the name of the person
owning the shares represented by that certificate, the number of shares
represented by that certificate, and the date of issue. In addition, the
corporation shall maintain at its principal place of business or registered
office a record of the names and addresses of its shareholders and the total
number of shares held by each.
1.2 Transfers of shares of the corporation shall be made only upon the
books of the corporation, which transfer shall be made only at the direction of
the shareholder designated on the certificate or at the direction of his
attorney, lawfully constituted in writing, and upon surrender of the properly
endorsed certificate or certificates for such shares. Each share
-1-
<PAGE>
certificate exchanged or returned to the corporation shall be canceled by the
Secretary or by an Assistant Secretary and shall be placed with its stub in the
books of the corporation.
1.3 The Board of Directors shall fix a record date as of which the
corporation shall determine the shareholders who are entitled to notice of or to
vote at any meeting of stockholders, to consent to corporation action in writing
without a meeting, to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any other lawful right of stockholders.
1.4 In the event that a share certificate is lost, stolen or destroyed,
another certificate may be issued in its place pursuant to such regulations as
the Board of Directors may establish concerning proof of such loss, theft, or
destruction and concerning the giving of satisfactory bond or bonds of
indemnity.
1.5 The issue, transfer, conversion, and registration of stock
certificates shall be governed by such other regulations as the Board of
Directors may establish.
ARTICLE TWO
-----------
SHAREHOLDERS' MEETINGS
2.1 The annual meeting of shareholders of the corporation shall be held
during the first four (4) months after the end of each fiscal year of the
corporation at such time and place, within or without the State of Georgia, as
the Board of Directors
-2-
<PAGE>
may from time to time determine.
2.2 Special meetings of the shareholders may be called at anytime by the
Board of Directors, the President, or any holder or holders of twenty-five
percent (25%) or more of the outstanding shares of the corporation. Special
meetings of the shareholders shall be held at such time and place, within or
without the State of Georgia, as may be designated by the person or persons
calling the meeting.
2.3 The Secretary or an Assistant Secretary shall deliver, either
personally or by first class mail, a written notice of the place, day, and time
of all meetings of shareholders, not less than ten (10) nor more than fifty (50)
days before the date of the meeting to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder at his
address as it appears on the share transfer records of the corporation, with
first class postage thereon prepaid. The notice of any special meeting of
shareholders shall state the purpose or purposes for which the meeting is
called. Notice of any meeting of shareholders need not be given to any
shareholder who signs a waiver of notice, either before or after the meeting.
No such waiver of notice of a shareholder's meeting with respect to a plan of
merger or a plan of consolidation shall be effective unless the provisions of
Paragraph (1) of subsection (d) of Section 14-2-113 of the Official Code of
Georgia Annotated are followed. Attendance of a
-3-
<PAGE>
shareholder at a meeting, either in person or by proxy, shall constitute waiver
of notice of such meeting and a waiver of any and all objections to the place of
the meeting, the time of the meeting, and the manner in which the meeting has
been called or convened unless a shareholder states at the beginning of the
meeting any such objection or objections to the transaction of business at the
meeting.
2.4 At all meetings of the shareholders, each holder of shares of the
corporation shall be entitled to cast one vote, either in person or by written
proxy, for each share standing in his name on the books of the corporation as of
the record date determined under Section 1.3 of these bylaws.
2.5 At all meetings of shareholders, a majority of the outstanding shares
of the corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum for the transaction of business. Except as otherwise
required by law or by Article Seven of these bylaws, all resolutions adopted and
all business transacted shall require the favorable vote of a majority of the
shares represented at the meeting and entitled to vote. The holders of a
majority of the shares represented at a meeting, whether or not a quorum is
present, may adjourn such meeting from time to time.
-4-
<PAGE>
ARTICLE THREE
-------------
BOARD OF DIRECTORS
3.1 Subject to these bylaws and any lawful agreement between the
shareholders, the full and entire management of the affairs and business of the
corporation shall be vested in the Board of Directors, which shall have and may
exercise all of the powers that the corporation may exercise.
3.2 The Board of Directors shall consist of at least one (1), but not more
than ten (10) members, the precise number to be fixed by resolution of the
directors from time to time. If all of the shares of the corporation are owned
beneficially and of record by less than three (3) shareholders, the number of
directors may be less than three (3), but not less than the number of
shareholders; provided, however, the Board of Directors may at any time consist
of only one (1) member, if at least fifty-one percent (51%) of the stock of the
corporation is held by one (1) person. Directors shall be elected at the annual
meeting of the shareholders and shall serve for a term of one year and until
their successors are elected and qualified. A majority of the members of the
Board of Directors shall constitute a quorum for the transaction of business.
Except as otherwise provided in these bylaws, all resolutions adopted and all
business transacted by the Board of Directors shall require the affirmative vote
of a majority of the directors present at the meeting.
-5-
<PAGE>
3.3 Any vacancy occurring in the Board of Directors by reason of death,
resignation, or incapacity to serve may be filled by a person selected by the
affirmative vote of a majority of the remaining directors or by the sole
remaining director, as the case may be, or, if the vacancy is not so filled or
if no director remains, by the shareholders. The directors may fill a vacancy
created by an increase in the number of directors resulting from an amendment of
Section 3.2 of these bylaws pursuant to Article Seven of these bylaws, but only
for a term of office continuing until the next annual election of directors by
the shareholders and the election and qualification of his successor.
3.4 The directors shall meet annually, without notice, immediately
following the annual meeting of the shareholders. The President or any director
may call a special meeting of the directors at any time by giving each director
forty-eight hours notice. Such notice may be given personally or by first class
mail, telegram, or cablegram and shall be deemed given twenty-four hours after
it is mailed or at the time the telegram or cablegram is sent, addressed to the
director at his address as it appears on the share records of the corporation
or, if he is not a shareholder, addressed to his business address. A director
may waive notice of any such meeting by a written instrument, either before or
after the meeting. Attendance of director at a meeting shall constitute a
waiver of notice of such meeting and a waiver of any and all objections to the
place of the meeting, the time
-6-
<PAGE>
of the meeting, and the manner in which it has been called or convened unless a
director states at the beginning of the meeting any such objection or objections
to the transaction of business at that meeting. Any meeting of the Board of
Directors may be held within or without the State of Georgia at any place the
person or persons calling the meeting designates.
3.5 Any action required to be taken at a meeting of the directors or any
action that may be taken at a meeting of the directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all the directors, which consent shall be filed with the minutes of
the proceedings of the directors.
3.6 Any one or more directors may be removed from office, with or without
cause, at any meeting of shareholders by the affirmative vote of the holder or
holders of a majority of the shares of the corporation.
ARTICLE FOUR
------------
OFFICERS
4.1 The Board of Directors shall elect a President, a Secretary, and a
Treasurer and may elect a Chairman of the Board and one or more Vice Presidents
or assistant officers. Any person may hold two or more offices, except that no
person may hold both the offices of President and Secretary.
4.2 The President shall be the chief executive officer of the corporation
and shall be responsible for the administration
-7-
<PAGE>
of the corporation, including general supervision of the policies of the
corporation and general and active management of the financial affairs of the
corporation. He shall execute bonds, mortgages, or other contracts under the
seal of the corporation. The President shall have the authority to institute or
defend legal proceedings when the directors are deadlocked.
4.3 The Secretary shall keep minutes of all meetings of the shareholders
and directors and shall have charge of the minute books, share books, and seal
of the corporation and shall perform such other duties and exercise such other
powers as the President or a majority of the Board of Directors may from time to
time designate.
4.4 The Treasurer shall be charged with the management of the financial
affairs of the corporation. He shall perform such duties as treasurers usually
perform and shall perform such other duties and shall exercise such other powers
as the President or a majority of the Board of Directors may from time to time
designate.
4.5 The Vice Presidents, if any, shall perform such duties as vice
presidents usually perform and shall perform such other duties and shall
exercise such other powers as the President or a majority of the Board of
Directors may from time to time designate. In the absence of the President or
in the event of his death or inability to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the
-8-
<PAGE>
absence of any designation, then in the order of their election) shall perform
the duties of the President and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
4.6 The Board of Directors or the President may appoint one or more Vice
Presidents and such other officers, assistant officers, and agents as, in the
judgment of the Board of Directors or the President, will be in the best
interests of the corporation. Any Vice President so appointed shall perform the
duties described in Section 4.5 of these bylaws. Any other officers or
assistant officers so appointed shall perform such duties as elected officers or
assistant officers having the same title usually perform and shall perform such
other duties and shall exercise such other powers as the President or majority
of the Board of Directors may from time to time designate.
4.7 The Board of Directors may remove any officer, assistant officer, or
agent elected or appointed by it whenever in the Board's judgment the best
interests of the corporation will be served thereby. The President or the Board
of Directors may remove any officer, assistant officer, or agent appointed by
the President whenever in his or its judgment the best interests of the
corporation will be served thereby.
-9-
<PAGE>
ARTICLE FIVE
------------
SEAL
The seal of the corporation shall be in such form as the Board of Directors
may from time to time determine. In the event that use of the seal is at any
time inconvenient, the signature of the corporation followed by the word "SEAL"
enclosed in parenthesis or scroll shall be deemed the seal of the
corporation. The seal of the corporation shall remain in the custody of the
Secretary, and he shall affix it on the share certificates and such other papers
as the law, these bylaws, or the Board of Directors may direct.
ARTICLE SIX
-----------
INDEMNIFICATION, INSURANCE, AND REIMBURSEMENT
6.1 Each person who is or was a director, officer, employee, or agent of
the corporation (including the heirs, executors, administrators, or estate of
such person) or who is or was serving, at the request of the corporation, as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise shall by right be indemnified by the
corporation, to the full extent permitted or authorized by the present and
future laws of the State of Georgia, against any liability, cost, payment, or
expense asserted against him or paid or incurred by him in his capacity as such
a director, officer, employee, or agent, whether asserted, paid, or incurred
during or after his service as such a
-10-
<PAGE>
director, officer, employer, or agent. The corporation may purchase and
maintain, at its expense, insurance to protect itself and any such person
against any such liability, cost, payment, or expense. The foregoing right of
indemnification shall not be deemed exclusive of any other right to which those
indemnified or seeking indemnification may be entitled both as to action in
their official capacities and as to action in another capacity while holding
such offices, and the corporation may provide such additional rights to its
directors, officers, employees, and agents.
6.2 Any payments made to any director, officer, employees or shareholder
of the corporation, including, without limitation, payments as salaries,
commissions, bonuses, fees, interest, rents, or entertainment expenses, which
payments, after having been deducted for income tax purposes by the corporation,
shall have been disallowed in whole or in part as a deductible expense by the
Internal Revenue Service or the Georgia Department of Revenue, shall be
reimbursed by such director, officer, employee, or shareholder to the
corporation to the full extent of such disallowance. It shall be the duty of
the Board of Directors to enforce the reimbursement of all such amounts so
disallowed. In the event any such director, officer, employee, or shareholder
fails or refuses to reimburse such amounts upon demand made by the corporation,
the corporation may, without limiting any other remedies it may have, withhold
from future payments due and owing to such director, officer, employee, or
shareholder, an amount or
-11-
<PAGE>
amounts sufficient to reimburse the corporation to the full extent of such
disallowance. All directors, officers, employees, and shareholders receiving any
such payment as aforesaid shall, upon demand made by the corporation and as a
condition to receiving any such payment, acknowledge and agree in writing that
in the event such payment or any portion thereof is disallowed by the Internal
Revenue Service or the Georgia Department of Revenue as a deductible expense,
the amount of all such payments, to the extent of such disallowance, shall be
returned to the corporation.
ARTICLE SEVEN
-------------
AMENDMENT
These bylaws may be amended at any meeting of the shareholders by the
affirmative vote of a majority of the issued and outstanding shares of the
corporation, or at any meeting of the directors of the corporation by an
affirmative vote of a majority of all directors then holding office, provided,
that the shareholders may provide by resolution that any bylaw provision
repealed, amended, adopted or altered by them may not be repealed, amended,
adopted or altered by the Board of Directors.
-12-
<PAGE>
EXHIBIT 10.8
STATE OF GEORGIA
COUNTY OF PAULDING
LEASE EXTENSION AGREEMENT
-------------------------
WHEREAS, the undersigned FIRST BAPTIST CHURCH of Dallas, Georgia
(hereinafter referred to as "the Church") and the undersigned COMMUNITY TRUST
BANK, Hiram, Georgia (hereinafter referred to as "the Bank") have previously
entered into a lease agreement whereby the Church leased to the Bank, for a
three year period ending June 30, 1997, certain real property in the City of
Dallas, Georgia (a copy of such lease being attached hereto as "Exhibit A"), and
WHEREAS, said parties desire to extend such lease agreement for an
additional three-year period,
NOW, THEREFORE, for and in consideration of the agreements made herein, the
parties agree as follows:
-1-
The term of the lease agreement previously entered into between the parties
(Exhibit A) is hereby extended through June 30, 2000, at midnight.
-2-
The Bank shall further have the option of renewing such lease agreement for
an additional period of two years beginning July 1, 2000, and ending June 30,
2002, at midnight. Such option shall be exercised by written notice delivered
to the Office of the Church not later than 60 days prior to June 30, 2000.
-3-
As consideration for this agreement the Bank agrees to pay all Ad Valorem
Property Taxes due to the State of Georgia, Paulding County, and the city of
Dallas for the years 1996, 1997, 1998, 1999, and 2000, and in the event that the
Bank exercises its option to renew the lease as provided in paragraph 2 hereof,
for the years 2001, and 2002.
-4-
All other terms of the previous lease agreement between the parties,
including the monthly rental, shall remain unchanged during the renewal period
or periods.
IN WINESS WHEREOF the parties have caused this agreement to be executed by
their duly authorized officers this 30/th/ day of September, 1996.
------- ---------
FIRST BAPTIST CHURCH OF COMMUNITY TRUST BANK,
DALLAS, GEORGIA HIRAM, GEORGIA
By:_______________________________ By:____________________________
John H. Henderson, Ronnie L. Austin,
Trustee President
By:_______________________________
J. Franklin Welch,
Trustee
By:_______________________________
Thomas C. Sanders,
Trustee
<PAGE>
STATE OF GEORGIA
COUNTY OF PAULDING
LEASE EXTENSION AGREEMENT
-------------------------
WHEREAS, the undersigned FIRST BAPTIST CHURCH of Dallas, Georgia
(hereinafter referred to as "the Church") and the undersigned COMMUNITY TRUST
BANK, Hiram, Georgia (hereinafter referred to as "the Bank") have previously
entered into a lease agreement whereby the Church leased to the Bank, for a
three year period ending June 30, 1997, certain real property in the City of
Dallas, Georgia (a copy of such lease being attached hereto as "Exhibit A"), and
WHEREAS, said parties desire to extend such lease agreement for an
additional three-year period,
NOW, THEREFORE, for and in consideration of the agreements made herein, the
parties agree as follows:
-1-
The term of the lease agreement previously entered into between the parties
(Exhibit A) is hereby extended through June 30, 2000, at midnight.
-2-
The Bank shall further have the option of renewing such lease agreement for
an additional period of two years beginning July 1, 2000, and ending June 30,
2002, at midnight. Such option shall be exercised by written notice
<PAGE>
delivered to the Office of the Church not later than 60 days prior to June 30,
2000.
-3-
As consideration for this agreement the Bank agrees to pay all Ad Valorem
Property Taxes due to the State of Georgia, Paulding County, and the city of
Dallas for the years 1996, 1997, 1998, 1999, and 2000, and in the event that the
Bank exercises its option to renew the lease as provided in paragraph 2 hereof,
for the years 2001, and 2002.
-4-
All other terms of the previous lease agreement between the parties,
including the monthly rental, shall remain unchanged during the renewal period
or periods.
IN WITNESS WHEREOF the parties have caused this agreement to be executed by
their duly authorized officers this 30 day of September, 1996.
-- ---------
FIRST BAPTIST CHURCH OF COMMUNITY TRUST BANK,
DALLAS, GEORGIA HIRAM, GEORGIA
By: /s/ John H. Henderson By: /s/ Ronnie L. Austin
--------------------------- ------------------------------
John H. Henderson, Ronnie L. Austin,
Trustee President
By: /s/ J. Franklin Welch
---------------------------
J. Franklin Welch,
Trustee
By: /s/ Thomas C. Sanders
---------------------------
Thomas C. Sanders,
Trustee
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below under the headings
"Income Statement Data" and "Balance Sheet Data" are derived from the audited
consolidated financial statements of the Company and its subsidiaries. The
information below should be read in conjunction with the audited financial
statements and related notes and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" set forth elsewhere herein.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income Statement Data
Total interest income $ 6,848,968 5,563,477 4,328,780 3,886,584 3,802,298
Total interest expense 2,661,616 2,168,453 1,454,854 1,398,768 1,804,137
Net interest income 4,187,352 3,395,024 2,873,926 2,487,816 1,998,161
Provision for loan losses 197,841 186,645 243,000 218,061 279,503
Total other income 1,151,183 838,882 816,385 811,034 658,235
Total other expenses 3,563,814 2,764,321 2,477,119 2,322,022 2,088,053
Provision for income taxes 507,639 397,533 292,825 231,205 76,386
Net earnings $ 1,057,884 885,407 677,367 532,333 212,454
Earnings per common share $1.26 1.06 .81 .64 .25
Balance Sheet Data
Total assets $85,203,618 68,230,620 62,835,550 63,825,313 54,776,103
Loans (net of unearned fees and
allowances for loan losses) 48,712,195 38,314,857 34,477,171 29,647,200 26,990,158
Deposits 76,897,761 61,235,289 57,289,105 58,560,335 49,899,077
Stockholders' equity 6,877,876 6,031,906 4,943,152 4,824,210 4,375,377
Other Data:
Earning asset yield 9.63% 9.30% 7.98% 7.62% 8.56%
Net interest margin 5.89% 5.66% 5.29% 4.90% 4.54%
Loan accounts 2,334 2,055 1,999 1,990 1,770
Deposit accounts 10,359 9,367 8,950 8,796 8,012
</TABLE>
Common Stock Information
There currently is no established trading market for the Company's Common Stock,
and trading of the Company's Common Stock is generally confined to the Paulding
County, Georgia area. During the year ended December 31, 1996, the Company
believes that the trading prices of the Company's Common Stock have ranged
between $10.00 and $14.00 per share.
The Company paid cash dividends on its Common Stock of $.25 per share to
stockholders of record as of March 11, 1996, and the Company has declared a
dividend of $.25 per share payable to stockholders of record as of March 10,
1997. The payment of dividends by the Company, however, is in the discretion of
the Board of Directors and is effectively limited by federal and state statutes
and regulations.
The Company had 730 shareholders of record as of February 1, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Results of Operations and Financial Condition
Overview
Management's discussion and analysis of financial condition and results of
operations analyzes the material changes in the consolidated balance sheets and
statements of earnings presented herein for Community Trust Financial Services
Corporation (the Company). Unless otherwise indicated, the term Company
includes Community Trust Bank (the Bank), Metroplex Appraisals, Inc.
(Metroplex), and Community Loan Company (CLC). Metroplex, located in Hiram,
Georgia, is a wholly-owned non-bank subsidiary of the Company which performs
appraisals of real and personal property. CLC is a majority-owned non-bank
subsidiary which is engaged in the consumer finance business with offices in
Woodstock, Georgia; Rockmart, Georgia; and Rossville, Georgia. The Company owns
75% of CLC's outstanding capital stock, and the remaining 25% of the
subsidiary's outstanding capital stock is owned by an individual who is employed
as President of CLC. Since Metroplex and CLC represent less than 5% of
consolidated assets and consolidated net earnings, the financial data analyzed
herein is not significantly affected by the operations of Metroplex or CLC.
Management anticipates that neither Metroplex nor CLC will have a significant
impact on the Company's earnings and performance during 1997. Accordingly, the
following discussion of such financial statements presents consolidated Company
information for each of 1996, 1995 and 1994.
On December 31, 1996, the Company had total assets of $85,203,618 as compared to
total assets of $68,230,620 for the year ended December 31, 1995. Total
deposits increased approximately 25.58% to $76,897,761 and stockholders' equity
increased approximately 14.02% to $6,877,876 or $8.22 per share as compared to
total deposits of $61,235,289 and stockholders' equity of $6,031,906 or $7.21
per share for the year ended December 31, 1995. Stockholders' equity increased
as a result of increased net earnings of the Company for the year 1996.
Additionally, the Company recorded a change in unrealized gain on investments
held available for sale, net of tax, of $17,560 for the year 1996, resulting in
an unrealized loss on investments available for sale net of tax, of $4,434 as of
December 31, 1996. For the year ended December 31, 1996, the Company generated
net earnings of $1.26 per share (based on the average number of shares
outstanding during the year), as compared to $1.06 per share for the year ended
December 31, 1995. Net earnings increased approximately 19.48% to $1,057,884
for the year ended December 31, 1996, as compared to $885,407 for the year ended
December 31, 1995. The increase in average earning assets to $71,120,155 for
the year ended December 31, 1996, as compared to $59,570,527 for the year ended
December 31, 1995, was the primary factor in the growth in net earnings for
1996.
Results of Operation
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Interest Income
The Company's earnings depend primarily on its net interest income, which is the
difference between the interest income it receives from its assets (primarily
its loans and other investments) and the interest expense it pays on its
liabilities (primarily its deposits). Net interest income is a function of (1)
the difference between rates of interest earned on interest-earning assets and
rates of interest paid on interest-bearing liabilities (the "interest rate
spread") and (2) the relative amounts of interest-earning assets and interest-
<PAGE>
bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income.
Net interest income increased approximately 23.34% to $4,187,352 for the year
ended December 31, 1996, as compared to $3,395,024 for the year ended December
31, 1995. Interest income increased approximately 23.11% to $6,848,968 for
1996, as compared to $5,563,477 for 1995, due primarily to an approximate 25.60%
increase in the average loan portfolio for 1996 as compared to 1995. Interest
expense increased approximately 22.74% to $2,661,616 for 1996, as compared to
$2,168,453 for 1995, due primarily to an approximate 19.28% increase in the
average amount of deposits on which the Company pays interest.
At December 31, 1996, the Company held $2,470,822, or 11.02%, of its securities
portfolio in mortgage-backed securities which are available for sale. These
mortgage-backed securities are subject to being prepaid in part or in whole.
Because a premium was paid for purchase of some of these securities, an
accelerated payback can decrease earnings through faster amortization of the
premium. Mortgage-backed securities also may be subject to a slow-down in
prepayments, especially in a rising rate environment. This type of risk, called
extension risk, is not significant since the majority of the mortgage-backed
securities owned by the Company are either variable rate securities or have
maturities of five years or less. Management monitors the pre-payment risk and
extension risk associated with the Company's investments in mortgage-backed
securities in order to maintain an overall acceptable level of risk.
The Company's average earning assets for the year ended December 31, 1996 were
$71,120,155, having a weighted average yield of 9.63%, resulting in a net
interest margin of 5.89% for 1996. This compares to average earning assets for
the year ended December 31, 1995 of $59,570,527, having a weighted average yield
of 9.30%, resulting in a net interest margin of 5.66% for 1995. The increase in
net interest margin is attributable primarily to the growth in CLC's loan
portfolio as a percentage of the Company's average earning assets, and the
interest income produced by those assets. For the year ended December 31, 1996,
CLC's average earning assets were $815,042. For the year ended December 31,
1995, CLC's average earning assets were negligible because CLC did not commence
business until September 1, 1995. Loans made by CLC typically have a higher
yield than those carried in the Bank's loan portfolio.
Provision for Loan Losses
The Georgia Department of Banking and Finance, the Bank's primary regulatory
authority, requires the Bank to maintain a loan loss allowance of not less than
one percent of all outstanding loans. This allowance is used to cover future
loan losses. During 1996, the Company sustained $67,629 in net loan losses as
compared to $47,707 in net losses in 1995. The increase in net loan losses
from 1995 to 1996 was attributable primarily to the loan losses of CLC, since
1996 was that subsidiary's first full year of operation. As of December 31,
1996, the Company's loan loss allowance was $713,518, or 1.44% of outstanding
loans.
The Company's non-performing assets totaled $33,237, or .04% of total assets as
December 31, 1995. The decrease in non-performing assets from 1995 to 1996 was
attributable primarily to a loan which was paid in full by the customer and to
the sale by the Bank of two residential properties. At December 31, 1996, the
<PAGE>
Company had classified loans of $765,529 or approximately .90% of total assets,
as compared to $702,750 or approximately 1.03% of total assets at December 31,
1995.
Other Income
Total other income, consisting of service charges on deposits, appraisal fees,
credit life insurance commissions, securities gains and other miscellaneous
income, increased approximately 37.23% to $1,151,183 for the year ended December
31, 1996, as compared to total other income of $838,882 for the year ended
December 31, 1995, primarily due to increased insurance commissions and service
charges and fees. Insurance commissions increased approximately $158,475, or
593.32%, during the year ended December 31, 1996, as compared to the same period
in 1995 primarily due to income derived from the subsidiary CLC. Consumer
finance companies typically sell credit life and automobile liability insurance
to many of their customers. Service charges and fee income increased
approximately $96,475, or 13.16%, during the year ended December 31, 1996, as
compared to the same period in 1995, primarily due to a 10.59% increase in the
number of the Bank's deposit accounts.
Other Expenses
Other expenses, consisting of salaries and employee benefits, occupancy and
other miscellaneous expenses, increased approximately 28.92% to $3,563,813 for
1996, as compared to $2,764,321 for 1995. This increase is attributable
primarily to an increase in salaries and employee benefits caused by the (i)
Bank's need for additional human resources due to the growing customer base of
the Bank, (ii) salary and benefit cost of CLC, and (iii) routine salary
increases. Occupancy expense increased by approximately $98,107, or 21.92%, for
the year ended December 31, 1996, as compared to the same period in 1995,
primarily due to the addition of the Bank's Brownsville branch and CLC's three
offices.
Provision for Income Taxes
Total federal income tax expense for the year ended December 31, 1996 was
$507,639 as compared to $397,533 for the year ended December 31, 1995. This
increase in federal income tax expense was due primarily to the increase in the
Company's 1996 net earnings.
Results of Operation
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Earnings
Net earnings for 1995 were $885,407, an approximate 30.71% increase from net
earnings of $677,367 for 1994. The increase in net interest margin to 5.66% for
the year ended December 31, 1995, as compared to 5.29% for the year ended
December 31, 1994, was a significant factor in the growth in net earnings for
1995.
Net Interest Income
Net interest income increased approximately 18.1x3% to $3,395,024 for the year
<PAGE>
ended December 31, 1995, as compared to $2,873,926 for the year ended December
31, 1994. Interest income increased approximately 28.52% to $5,563,477 for
1995, as compared to $4,328,780 for 1994, due primarily to an approximate 12.78%
increase in the average loan portfolio, and an approximate 5.95% change in the
average investment portfolio, for 1995 as compared to 1994. The increase in
interest income was also attributable to an increase in 1995 market interest
yields on assets as compared to 1994 market interest yields. Interest expense
increased approximately 49.05% to $2,168,453 for 1995, as compared to $1,454,854
for 1994, due primarily to an increase in market interest rates paid in 1995.
Also, for the year 1995, there was an approximate 3.84% increase in the average
amount of deposits on which the Company pays interest.
The Bank's average earning assets for the year ended December 31, 1995 were
$59,570,527, having a weighted average yield of 9.30%, resulting in a net
interest margin of 5.66% for 1995. This compared to average earning assets for
the year ended December 31, 1994 of $54,189,282, having a weighted average yield
of 7.98%, resulting in a net interest margin of 5.29% for 1994. The increase in
net interest margin was attributable primarily to an increase in market interest
yields on the Bank's loan portfolio and its securities portfolio. Despite the
Bank's efforts to maintain a relatively low cost of funds in 1995, market
pressures caused the Bank's cost of funds to rise. This increase in cost of
funds was primarily the result of an increase in the rates paid by the Bank on
its interest bearing deposits.
Provision for Loan Losses
The Georgia Department of Banking and Finance, the Bank's primary regulatory
authority, requires the Bank to maintain a loan loss allowance of not less than
one percent of all outstanding loans. This allowance is used to cover future
loan losses. During 1995, the Bank sustained $47,707 in net loan losses as
compared to $173,671 in net losses in 1994. The 1994 net loan losses were
greatly affected by a $92,000 charge-off on the Bank's single largest classified
loan at that time. As of December 31, 1995, the Company's loan loss allowance
was $583,306, or 1.50% of outstanding loans.
The Bank's non-performing assets totaled $273,695, or .40% of total assets as of
December 31, 1995, as compared to $234,886, or .37% of total assets as of
December 31, 1994. At December 31, 1995, the Bank had classified loans of
$702,750 or approximately 1.03% of total assets, as compared to $786,362 or
approximately 1.25% of total assets at December 31, 1994. The decrease in
classified loans was attributable primarily to economic conditions which had
continued to improve in the Bank's market area in 1995, thereby resulting in
fewer delinquencies. Also during 1995, the Bank charged off $60,875 in loans,
which previously were shown as classified loans, as compared to $204,294 in
charge-offs during 1994.
Other Income
Total other income, consisting of service charges on deposits, appraisal fees,
credit life insurance commissions, securities gains and other miscellaneous
income, increased approximately 2.76% to $838,882 for the year ended December
31, 1995, as compared to total other income of $816,385 for the year ended
December 31, 1994. The increase was primarily attributable to fee income
<PAGE>
collected for usage of the Bank's ATM and scrip machines by customers of other
banks. The increase in other income was also attributable to an increase in
charges on deposit accounts and the 4.66% increase in deposit accounts.
Other Expenses
Other expenses, consisting of salaries and employee benefits, occupancy and
other miscellaneous expenses, increased approximately 11.59% to $2,764,321 for
1995, as compared to $2,477,119 for 1994. The difference was attributable
primarily to increased salary costs and to increased occupancy expense
associated with the Bank's Brownsville Branch. The increase in salary costs
resulted from a combination of routine salary increases and the hiring of
additional employees for both the Brownsville Branch and the Bank's main office.
Although the formation of CLC has contributed to other expenses through
additional legal costs, salaries, and occupancy expense, expenses incurred by
that subsidiary and Metroplex combined were less than 4% of total other
expenses.
Provision for Income Taxes
Total federal income tax expense for the year ended December 31, 1995 was
$397,533 as compared to $292,825 for the year ended December 31, 1994. This
increase in federal income tax expense was due primarily to the increase in the
Company's 1995 net earnings.
Capital Resources and Liquidity
The principal sources of funds for the Company are increases in deposits,
repayments of loans, other borrowings and cash received at maturity, and from
sales, of securities. Sales of loans and participations provide additional
sources of funds. In 1996 the Company received $15,662,472 in net increases of
demand, savings, and time deposits and $11,039,245 from maturities and sales of
securities.
Uses of funds in 1996 included $209,125 paid in dividends to Company
shareholders of record as of March 11, 1996, and $356,893 in additions to
premises and equipment. The net change in the Company's loans was an increase
of $10,595,179 for 1996 as compared to 1995, and $12,851,633 in securities were
purchased in 1996.
Increases in the Bank's core deposits are expected to be the major source of
funds provided during 1997. Management believes that deposit growth will
continue at a moderate pace due to the population growth in Paulding County and
the products offered by the Bank for consumers (including an automated voice-
response system, debit cards, credit cards, and mini-ATMs located throughout
Paulding County).
The Company is subject to regulatory capital requirements imposed by the Georgia
Department of Banking and Finance (the "Department") and by the Board of
Governors of the Federal Reserve System. The Department has established a
minimum level of capital to total assets of 5%, with certain adjustments, on a
consolidated basis for bank holding companies. At December 31, 1996, the
Company's ratio of capital to total average assets was 9.24%, using the
<PAGE>
Department's guidelines. Under federal law, the Company and the Bank are
required to maintain a ratio of total capital to risk weighted assets of at
least 8.0%, of which at least one-half must be so-called Tier One capital.
Under applicable federal regulations and interpretations thereof, the Bank's
ratio of total capital to risk weighted assets at December 31, 1996, was 10.90%,
and its ratio of Tier One capital to risk weighted assets was 9.65%. Under
applicable federal regulations and interpretations thereof, the Company's ratio
of total capital to risk weighted assets at December 31, 1996, was 12.82%, and
its ratio of Tier One capital to risk weighted assets was 11.57%. Additionally,
under federal law, all but the most highly rated banks and bank holding
companies are required to maintain a minimum ratio of Tier One capital to total
average assets (Tier One leverage ratio) of 4.0% to 5.0%, including the most
highly rated banks and bank holding companies that are anticipating or
experiencing significant growth. Three percent is the minimum Tier One leverage
ratio required for the most highly rated banks and bank holding companies with
no plans to expand. The Bank substantially exceeds its Tier One leverage ratio
requirement with a Tier One leverage ratio of 6.41% as of December 31, 1996.
The Company also substantially exceeds its Tier One leverage ratio requirement
with a Tier One leverage ratio of 7.96% as of December 31, 1996. Through its
policy of controlled growth, the Company intends to maintain capital in excess
of the required minimum in order to support future growth.
Liquidity represents the Company's ability to meet both loan commitments and
deposit withdrawals. The Department requires the Bank to maintain a minimum
liquidity ratio (defined as net cash, short-term assets, and marketable assets
divided by net deposits and short-term liabilities) of 30%. As of December 31,
1996, the Bank's liquidity ratio was 33.58%, as compared to 36.64% at December
31, 1995. The Bank maintains two lines of credit to borrow fed funds that total
$3,000,000 in order to enhance liquidity. Additionally, in order to enhance
liquidity at the holding company level, the Company has obtained a $2,500,000
revolving credit facility.
<PAGE>
- --------------------------------------------------------------------------------
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(with Independent Accountants' Report thereon)
- --------------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Community Trust Financial Services Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Community Trust
Financial Services Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Trust
Financial Services Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
--------------------------------
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
February 19, 1997
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets
------
1996 1995
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $534,000 and $388,000 $ 3,011,164 4,227,523
Federal funds sold 7,020,000 1,680,000
----------- ----------
Cash and cash equivalents 10,031,164 5,907,523
Securities available for sale 22,418,690 20,591,060
Loans, net 48,712,195 38,314,857
Premises and equipment 2,296,111 2,225,916
Accrued interest receivable and other assets 1,745,458 1,191,264
----------- ----------
$85,203,618 68,230,620
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 9,648,648 9,139,735
Interest-bearing demand 17,211,638 14,073,537
Savings 15,546,932 10,915,179
Time 21,280,978 18,317,443
Time, in excess of $100,000 13,209,565 8,789,395
----------- ----------
Total deposits 76,897,761 61,235,289
Accrued interest payable and other liabilities 1,420,233 963,425
----------- ----------
Total liabilities 78,317,994 62,198,714
----------- ----------
Commitments
Minority interest 7,748 -
----------- ----------
Stockholders' equity:
Common stock, par value $2.50, authorized 5,000,000
shares, issued and outstanding 839,164 and 836,499 2,097,910 2,091,247
Additional paid-in capital 2,101,401 2,091,293
Retained earnings 2,682,999 1,836,240
Unrealized gain (loss) on securities available for sale, net of tax (4,434) 13,126
----------- ----------
Total stockholders' equity 6,877,876 6,031,906
----------- ----------
$85,203,618 68,230,620
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,462,059 4,307,281 3,337,710
Interest on federal funds sold 221,396 192,222 104,068
Interest on investment securities:
U.S. Treasuries 164,666 142,771 163,118
U.S. Government agencies 873,567 837,399 630,817
State, county and municipal 114,474 79,363 83,363
Other 12,806 4,441 9,704
----------- --------- ---------
Total interest income 6,848,968 5,563,477 4,328,780
----------- --------- ---------
Interest expense:
Interest on deposits:
Demand 410,932 396,100 314,473
Savings 375,845 436,236 406,842
Time 1,173,908 926,137 465,315
Time in excess of $100,000 663,640 409,190 267,962
Other 37,291 790 262
----------- --------- ---------
Total interest expense 2,661,616 2,168,453 1,454,854
----------- --------- ---------
Net interest income 4,187,352 3,395,024 2,873,926
Provision for loan losses 197,841 186,645 243,000
----------- --------- ---------
Net interest income after provision for loan losses 3,989,511 3,208,379 2,630,926
----------- --------- ---------
Other income:
Service charges 829,701 733,226 684,332
Appraisal fees 88,565 77,435 65,804
Insurance commissions 185,185 26,710 25,961
Securities losses (9,851) (19,247) (17,589)
Miscellaneous 57,583 20,758 57,877
----------- --------- ---------
Total other income 1,151,183 838,882 816,385
----------- --------- ---------
Other expenses:
Salaries and employee benefits 1,902,662 1,355,069 1,206,422
Occupancy 545,604 447,497 388,842
Other operating 1,115,547 961,755 881,855
----------- --------- ---------
Total other expenses 3,563,813 2,764,321 2,477,119
----------- --------- ---------
Earnings before income taxes and minority interest 1,576,881 1,282,940 970,192
Income taxes 507,639 397,533 292,825
Minority interest in earnings of consolidated subsidiary 11,358 - -
=========== ========= =========
Net earnings $ 1,057,884 885,407 677,367
----------- --------- ---------
Net earnings per share:
Primary $1.23 1.04 0.80
=========== ========= =========
Fully diluted $1.22 1.03 0.80
=========== ========= =========
Weighted average number of shares and equivalent
shares outstanding:
Primary 862,713 852,919 843,994
=========== ========= =========
Fully diluted 867,372 858,684 847,551
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
On
Securities
Common Stock Additional Available
--------------------- Paid-In Retained For Sale
Shares Amount Capital Earnings Net of Tax Total
--------------------- ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 834,999 $ 2,087,497 2,087,498 649,215 - 4,824,210
Cumulative effect of
accounting change for
certain investment securities,
net of income taxes of $6,898 - - - - 13,389 13,389
Net earnings - - - 677,367 - 677,367
Cash dividends declared
($.20 per share) - - - (167,000) - (167,000)
Change in unrealized gain
(loss) on securities available
for sale, net of tax - - - - (404,814) (404,814)
------- ----------- --------- --------- -------- ---------
Balance, December 31, 1994 834,999 2,087,497 2,087,498 1,159,582 (391,425) 4,943,152
Net earnings - - - 885,407 - 885,407
Cash dividends declared
($.25 per share) - - - (208,749) - (208,749)
Exercise of stock options 1,500 3,750 3,795 - - 7,545
Change in unrealized gain (loss)
on securities available for
sale, net of tax - - - - 404,551 404,551
------- ----------- --------- --------- -------- ---------
Balance, December 31, 1995 836,499 2,091,247 2,091,293 1,836,240 13,126 6,031,906
Net earnings - - - 1,057,884 - 1,057,884
Cash dividends declared
($.25 per share) - - - (209,125) - (209,125)
Exercise of stock options 3,665 9,163 12,608 - - 21,771
Purchase and retirement of
stock ($7.00 per share) (1,000) (2,500) (2,500) (2,000) - (7,000)
Change in unrealized gain
(loss) on securities available
for sale, net of tax - - - - (17,560) (17,560)
------- ----------- --------- --------- -------- ---------
Balance, December 31, 1996 839,164 $ 2,097,910 2,101,401 2,682,999 (4,434) 6,877,876
======= =========== ========= ========= ======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,057,884 885,407 677,367
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, amortization and accretion 258,390 173,268 174,804
Provision for loan losses 197,841 186,645 243,000
Provision for deferred income taxes (34,885) (64,935) (36,860)
Minority interest in earnings of consolidated subsidiary 11,358 - -
Loss on sales of securities 9,851 19,247 17,589
Gain on sale of premises and equipment (1,422) (1,498) (28,117)
Loss (gain) on sales of other real estate (1,337) 4,212 4,000
Change in:
Interest receivable (39,440) (337,010) (64,072)
Other assets (594,100) (62,511) 137,767
Interest payable 216,603 278,620 86,608
Other liabilities 236,595 81,510 75,917
----------- ---------- -----------
Net cash provided by operating activities 1,317,338 1,162,955 1,288,003
----------- ---------- -----------
Cash flows from investing activities:
Net change in interest-bearing deposits in other banks - - 99,000
Proceeds from maturities of securities held to maturity - 50,000 65,000
Purchase of securities held to maturity - - (247,950)
Proceeds from sales of securities available for sale 3,111,819 3,458,909 1,182,412
Proceeds from maturities, calls and paydowns of securities
available for sale 7,927,426 3,613,539 6,324,386
Purchase of securities available for sale (12,851,633) (9,600,664) (5,945,426)
Net increase in loans (10,595,179) (4,114,543) (5,097,971)
Proceeds from sales of premises and equipment 3,850 4,000 66,700
Additions to premises and equipment (356,893) (320,977) (171,131)
Proceeds from sales of other real estate 98,795 50,172 4,000
----------- ---------- -----------
Net cash used by investing activities (12,661,815) (6,859,564) (3,720,980)
----------- ---------- -----------
Cash flows from financing activities:
Net change in deposits 15,662,472 3,946,184 (1,271,230)
Retirement of stock (7,000) - -
Exercise of stock options 21,771 7,545 -
Cash dividends paid (209,125) (208,749) (167,000)
----------- ---------- -----------
Net cash provided (used) by financing activities 15,468,118 3,744,980 (1,438,230)
----------- ---------- -----------
Net change in cash and cash equivalents 4,123,641 (1,951,629) (3,871,207)
Cash and cash equivalents at beginning of year 5,907,523 7,859,152 11,730,359
----------- ---------- -----------
Cash and cash equivalents at end of year $10,031,164 5,907,523 7,859,152
=========== ========== ===========
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplementary disclosures of cash flow
information:
Noncash investing and financing activities:
Transfers of loans to other real estate $ - 120,732 25,000
Financed sales of other real estate $ - 24,975 -
Financed sale of premises and equipment $ - 2,200 -
Transfers of investment securities, at amortized cost,
to securities available for sale $ - 1,758,676 17,864,389
Change in unrealized loss on securities available
for sale, net of tax $ 17,560 404,551 391,425
Cash paid during the year for:
Interest $ 2,445,013 1,889,833 1,368,246
Income taxes $ 690,000 460,000 318,600
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements for the years ended December 31, 1996 and
1995 include the accounts of Community Trust Financial Services Corporation (the
"Company"), its wholly-owned subsidiaries, Community Trust Bank (the "Bank") and
Metroplex Appraisals, Inc. ("Metroplex"), and a 75% owned subsidiary Community
Loan Company ("CLC"). The 1994 consolidated financial statements include the
accounts of the Company, the Bank and Metroplex.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
The Bank commenced business in 1988 upon receipt of its banking charter from the
State of Georgia Department of Banking and Finance (the "DBF"). The Bank is
primarily regulated by the DBF and the Federal Deposit Insurance Corporation and
undergoes periodic examinations by these regulatory agencies. The Bank provides
a full range of commercial and consumer banking services principally in Paulding
County, Georgia.
Metroplex was formed in 1992 as an appraisal service company working principally
for the Bank.
In September 1995, the Company acquired a 75% interest in CLC through the
purchase of $375 of newly issued shares. CLC was incorporated for the purpose of
acquiring and operating existing consumer finance companies under the direction
of the Company. In February 1996, the Company obtained approval from the DBF
and the Federal Reserve Bank to acquire two additional consumer finance company
offices through CLC. The purchase price related to these acquisitions was
approximately $921,000 and resulted in additional tangible assets of $775,000,
comprised principally of loans. The operations of CLC, located in Rockmart,
Rossville and Woodstock, are funded principally through a line of credit
arrangement with the Company.
The accounting and reporting policies of the Company and its subsidiaries, and
the methods of applying these principles, conform with generally accepted
accounting principles and with general practice within the banking industry. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and income and expenses for the year. Actual results
could differ significantly from those estimates. Material estimates common to
the banking industry that are particularly susceptible to significant change in
an operating cycle of one year include, but are not limited to, the
determination of the allowance for loan losses, the valuation of any real estate
acquired in connection with foreclosures or in satisfaction of loans, and
valuation allowances associated with the realization of deferred tax assets
which are based on future taxable income.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and federal funds sold.
Investment Securities
- ---------------------
The Bank classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Held to maturity
securities are those securities for which the Bank has the ability and intent to
hold the securities until maturity. All other securities not included in trading
or held to maturity are classified as available for sale. At December 31, 1996
and 1995, the Bank has classified all securities as available for sale.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Investment Securities, continued
- --------------------------------
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or accretion of
premiums or discounts. Unrealized holding gains and losses, net of the related
tax effect, on securities available for sale are excluded from earnings and are
reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with transfers
of securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity. The unrealized holding gains or
losses included in the separate component of stockholders' equity for securities
transferred from available for sale to held to maturity are maintained and
amortized into earnings over the remaining life of the security as an adjustment
to yield in a manner consistent with the amortization or accretion of premium or
discount on the associated security.
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to earnings
and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to the yield. Realized gains and losses for securities
classified as available for sale and held to maturity are included in earnings
and are derived using the specific identification method for determining the
cost of securities sold.
Loans, Loan Fees and Allowance for Loan Losses
- ----------------------------------------------
Loans are reported at principal amount outstanding, net of unearned interest and
the allowance for loan losses. Interest on all loans is calculated principally
by using the simple interest method on the daily balance of the principal amount
outstanding.
The Bank does not record interest income on loans for which reasonable doubt
exists as to the full, timely collection of interest and principle. Interest
previously accrued but not collected is reversed against current period interest
income when such loans are placed on nonaccrual status.
Loan fees, net of certain origination costs, are deferred and are being
amortized over the lives of the respective loans.
When the Bank sells the portion of a loan guaranteed by the U.S. Small Business
Administration, a portion of the premium associated with the sale is deferred
and amortized into interest income over the estimated life of the respective
loan as an adjustment to the yield of the remaining unguaranteed portion.
Effective January 1, 1995, the Company adopted Statement of SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure" in regards to accounting for impaired loans. A loan is impaired
when, based on current information and events, it is probable that all amounts
due according to the contractual terms of the loan agreement will not be
collected. Impaired loans are measured based on the present value of expected
future cash flows, discounted at the loan's effective interest rate, or at the
loan's observable market price, or at the fair value of the collateral of the
loan if the loan is collateral dependent. The adoption of these standards had no
material effect on the consolidated financial statements.
The Bank's provision for loan losses is based upon management's continuing
review and evaluation of the loan portfolio and is intended to create an
allowance adequate to absorb losses on loans outstanding as of the end of each
reporting period. For individually significant loans, management's review
consists of evaluations of the financial strength of the borrowers and the
related collateral. The review of groups of loans, which are individually
insignificant, is based upon delinquency status of the group, lending policies,
and collection experience.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans and Allowance for Loan Losses, continued
- ----------------------------------------------
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgements of information available to them at the time of their
examination.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts, and
any gain or loss is reflected in income for the period. The cost of maintenance
and repairs is charged to expense as incurred, whereas significant renewals and
improvements are capitalized. The range of estimated useful lives for premises
and equipment are:
Buildings and improvements 20 - 31 years
Furniture and equipment 3 - 10 years
Other Real Estate
- -----------------
Properties acquired through foreclosure are carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs to
dispose. Fair value is the amount that is expected to be received in a current
sale between a willing buyer and seller other than in a forced or liquidation
sale. Fair values at foreclosure are based on appraisals. Losses arising from
the acquisition of foreclosed properties are charged against the allowance for
loan losses. Subsequent writedowns are provided by a charge to income through
the allowance for losses on other real estate in the period in which the need
arises.
Income Taxes
- ------------
Deferred tax assets and liabilities are recorded for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities
results in deferred tax assets, an evaluation of the probability of being able
to realize the future benefits indicated by such asset is required. A valuation
allowance is provided for a portion of the deferred tax asset when it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies.
Net Earnings Per Share
- ----------------------
Net earnings per share is based on the weighted average number of shares
outstanding during each year including consideration of stock options and stock
warrants, which represent common stock equivalents. It is assumed that all
dilutive common stock equivalents are exercised at the beginning of the year and
that the proceeds are used to purchase shares of the Company's common stock.
The average market price during each year is used to compute equivalent shares
assumed to be acquired for primary earnings per share, whereas year end prices
are used for fully diluted per share amounts.
Reclassifications
- -----------------
Certain 1995 and 1994 amounts have been reclassified to conform with the 1996
presentation.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Investment Securities
Investment securities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 7,739,666 38,726 8,771 7,769,621
U.S. Government agencies 9,500,465 34,391 73,445 9,461,411
Mortgage-backed securities 2,501,897 10,780 41,855 2,470,822
State, county and municipal 2,683,811 39,049 6,024 2,716,836
----------- ------- ------- ----------
Total $22,425,839 122,946 130,095 22,418,690
=========== ======= ======= ==========
December 31, 1995
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 1,802,372 29,216 2,244 1,829,344
U.S. Government agencies 13,320,718 89,250 82,837 13,327,131
Mortgage-backed securities 3,688,134 11,119 29,074 3,670,179
State, county and municipal 1,758,676 17,013 11,283 1,764,406
----------- ------- ------- ----------
Total $20,569,900 146,598 125,438 20,591,060
=========== ======= ======= ==========
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
The amortized cost and estimated fair value of securities available for sale at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers have the right to call
or prepay certain obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
U.S. Treasuries:
Within 1 year $ 986,195 983,840
1 to 5 years 6,753,471 6,785,791
----------- ----------
$ 7,739,666 7,769,621
=========== ==========
U.S. Government Agencies:
Within 1 year $ 2,490,886 2,486,470
1 to 5 years 6,002,795 5,967,565
After 10 years 1,006,784 1,007,376
----------- ----------
$ 9,500,465 9,461,411
=========== ==========
State, county and municipal:
Within 1 year $ 150,000 150,856
1 to 5 years 1,025,000 1,035,841
5 to 10 years 418,811 415,340
After 10 years 1,090,000 1,114,799
----------- ----------
$ 2,683,811 2,716,836
=========== ==========
Total securities other than
mortgage-backed securities:
Within 1 year $ 3,627,081 3,621,166
1 to 5 years 13,781,266 13,789,187
5 to 10 years 418,811 415,340
After 10 years 2,096,784 2,122,175
Mortgage-backed securities 2,501,897 2,470,822
----------- ----------
$22,425,839 22,418,690
=========== ==========
</TABLE>
In December 1995, the Bank transferred securities with an amortized cost of
$1,758,676 from the held to maturity category to the available for sale
category. At the date of transfer, the unrealized gain related to these
securities amounted to $5,730. These transfers were made as the result of the
Bank's reassessment of the appropriateness of its securities classifications
without calling into question management's intent to hold future securities to
maturity as allowed by the Financial Accounting Standards Board's special report
"A Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities."
Proceeds from sales of securities available for sale during 1996, 1995 and 1994
were $3,111,819, $3,458,909 and $1,182,412. Gross losses of $9,851, $19,247 and
$17,589 were realized on 1996, 1995 and 1994 sales, respectively.
Investment securities with a fair value of approximately $12,333,000 and
$8,695,000 as of December 31, 1996 and 1995, respectively, were pledged to
secure public deposits as required by law or for other purposes.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) Loans
Major classifications of loans at December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 5,840,546 5,320,867
Real estate - construction 7,274,577 5,525,507
Real estate - mortgage 26,936,164 22,387,524
Consumer 9,374,426 5,664,265
----------- ----------
Total loans 49,425,713 38,898,163
Less: Allowance for loan losses 713,518 583,306
----------- ----------
Total net loans $48,712,195 38,314,857
=========== ==========
</TABLE>
The Bank grants loans and extensions of credit to individuals and a variety of
firms and corporations located in its trade area, primarily Paulding County,
Georgia. Although the Bank has a diversified loan portfolio, a substantial
portion of the loan portfolio is collateralized by improved and unimproved real
estate and is dependent upon the real estate market.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 583,306 444,368 375,039
Amounts charged off (90,263) (60,875) (204,294)
Recoveries on amounts previously charged off 22,634 13,168 30,623
Provision charged to operating expenses 197,841 186,645 243,000
---------- ------- --------
Balance at end of year $ 713,518 583,306 444,368
========== ======= ========
(4) Premises and Equipment
Premises and equipment at December 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Land $ 375,403 375,403
Land improvements 67,254 67,254
Buildings and improvements 1,693,638 1,677,545
Furniture and equipment 1,621,186 1,388,917
---------- ---------
3,757,481 3,509,119
Less: Accumulated depreciation 1,461,370 1,283,203
---------- ---------
$2,296,111 2,225,916
========== =========
</TABLE>
Depreciation expense was $222,138, $176,167 and $154,093 for the years ended
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Deposits
The aggregate amount of time deposits, each with a minimum denomination of
$100,000, was approximately $13,209,565 and $8,789,395 at December 31, 1996 and
1995, respectively.
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $24,998,370
1998 3,276,199
1999 2,662,878
2000 2,057,676
2001 and thereafter 1,495,420
-----------
$34,490,543
===========
</TABLE>
(6) Line of Credit
In May 1996, the Company obtained a commitment for a $2,500,000 line of credit
with another financial institution. The debt is to be secured by 100% of the
stock of the Bank and calls for interest to be paid quarterly at the prime rate
less 50 basis points. The balance is to be paid in 10 equal annual
installments. The loan agreement contains covenants relating to the level of
the allowance for loan losses, payments of dividends, regulatory capital
adequacy and return on average assets.
During 1996, the Bank entered into an agreement with the Federal Home Loan Bank
(FHLB) to provide the Bank credit facilities. Any amounts advanced by the FHLB
are secured under a blanket floating lien covered by all of the Bank's 1-4
family first mortgage loans. The Bank may draw advances up to 75% of the
outstanding balance of these loans based on the agreement with the FHLB. The
Bank has no borrowings from the FHLB outstanding as of December 31, 1996.
(7) Commitments
The Company leases certain facilities under operating lease arrangements. Future
minimum lease payments required for all operating leases having a remaining term
in excess of one year at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 80,255
1998 72,655
1999 68,000
2000 51,500
2001 35,000
Thereafter 200,000
--------
$507,410
========
</TABLE>
Rental expense for each of the three years in the period ended December 31, 1996
totaled $76,995, $58,000 and $44,350, respectively.
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance sheet.
The contract amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party for commitments to extend credit, standby letters of credit and financial
guarantees written is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(7) Commitments, continued
In most cases, the Bank requires collateral or other security to support
financial instruments with credit risk.
<TABLE>
<CAPTION>
Approximate
Contractual
Amount
----------------------
1996 1995
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $7,875,000 12,795,000
Standby letters of credit and
financial guarantees written $ 608,000 750,000
</TABLE>
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 may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank, upon extension of credit is based on management's credit evaluation.
Collateral held varies but may include unimproved and improved real estate,
certificates of deposit, or personal property.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Bank holds real estate and assignments of deposit accounts as collateral
supporting those commitments for which collateral is deemed necessary.
(8) Stockholders' Equity
During 1996, the Company repurchased and retired 1,000 shares of common stock
for $7,000. The excess of the cost of shares acquired over the par value
resulted in a reduction of additional paid-in capital based on the per share
amounts of additional paid-in capital for all shares, with the difference
charged to retained earnings.
(9) Regulatory Matters
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions for
the Bank are based on the level of regulatory classified assets, prior year's
earnings, and the ratio of equity capital to total assets. The Bank may declare
dividends of approximately $516,000 during 1997 without prior regulatory
approval.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, specific capital
guidelines that involve quantitative measures of the assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices must be met. The capital amounts and classification are also subject
to qualitative judgements 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 table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Regulatory Matters, continued
As of December 31, 1996, the most recent notification from Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
Bank's category.
The actual capital amounts and ratios are also presented in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated $7,254,000 12.8% $4,527,000 8.0% N/A N/A
Bank $6,035,000 10.9% $4,430,000 8.0% $5,538,000 10.0%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $6,546,000 11.6% $2,263,000 4.0% N/A N/A
Bank $5,343,000 9.7% $2,215,000 4.0% $3,323,000 6.0%
Tier 1 Capital (to Average Assets)
Consolidated $6,546,000 8.0% $3,291,000 4.0% N/A N/A
Bank $5,343,000 6.4% $3,334,000 4.0% $4,168,000 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets)
Consolidated $6,512,000 14.8% $3,509,000 8.0% N/A N/A
Bank $6,202,000 14.3% $3,480,000 8.0% $4,350,000 10.0%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $5,963,000 13.6% $1,754,000 4.0% N/A N/A
Bank $5,622,000 12.9% $1,740,000 4.0% $2,610,000 6.0%
Tier 1 Capital (to Average Assets)
Consolidated $5,963,000 8.5% $2,806,000 4.0% N/A N/A
Bank $5,622,000 8.0% $2,806,000 4.0% $3,508,000 5.0%
</TABLE>
(10) Employee and Director Benefit Programs
The Company has an Incentive Stock Option Plan whereby options to purchase up to
40,000 shares of stock can be granted to employees at the then fair value at the
discretion of the Board of Directors. The options are exercisable within ten
years of the grant date, contingent upon the employment of the optionee for one
year from the date of grant.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Employee and Director Benefit Programs, continued
The following is a summary of transactions for the incentive stock option plan:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 696 $5.00 2,196 $5.02 2,196 $5.02
Exercised during the year - (1,500) $5.03 -
------ ------ -----
Outstanding, end of year 696 $5.00 696 $5.00 2,196 $5.02
====== ====== =====
</TABLE>
All options are exercisable as of December 31, 1996 and 1995. At December 31,
1996, these options have a weighted average remaining contractual life of
approximately 6 years.
The Company also has an employee stock option plan and a director stock option
plan. The plans were adopted for the benefit of directors and key officers and
employees in order that they may purchase Company stock at a price equal to the
fair market value on the date of grant. A total of 300,000 shares were reserved
for possible issuance under these plans. The options vest over a three year
period and expire after ten years.
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
January 1, 1996. This statement encourages, but does not require, entities to
compute the fair value of options at the date of grant and to recognize such
costs as compensation expense immediately if there is no vesting period or
ratably over the vesting period of the options. The Company has chosen not to
adopt the cost recognition principles of this statement. No compensation
expense has been recognized in 1996, 1995 or 1994 related to the stock option
plan. Had compensation cost been determined based upon the fair value of the
options at the grant dates consistent with the method of the new statement, the
Company's net earnings and net earnings per share would have been reduced to the
proforma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net earnings As reported $1,057,884 885,407
Proforma $1,035,856 867,266
Primary earnings per share As reported $ 1.23 1.04
Proforma $ 1.20 1.02
Fully diluted earnings per share As reported $ 1.22 1.03
Proforma $ 1.19 1.01
</TABLE>
The fair value of each option is estimated on the date of grant using the
Minimum Value options-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
2% and 3%, respectively; risk free interest rate of 6%; and an expected life of
10 years.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Employee and Director Benefit Programs, continued
A summary of activity in these stock option plans is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 84,900 $ 7.14 75,000 $ 6.64 48,000 $5.95
Granted during the year 10,269 $ 11.57 14,000 $ 10.01 27,000 $7.88
Cancelled during the year (900) $ 7.88 (4,100) $ 7.88 -
Exercised during the year (3,665) $ 5.94 - -
------ ------ ------
Outstanding, end of year 90,604 $ 7.68 84,900 $ 7.14 75,000 $6.64
====== ====== ======
Number of shares exercisable 63,827 45,053 13,333
====== ====== ======
</TABLE>
The weighted average grant-date fair value of options granted in 1996 and 1995
was $3.46 and $2.09, respectively. For these employee and director stock
options, options outstanding at December 31, 1996 are exercisable at option
prices ranging from $5.78 to $11.57 as presented in the table above. Such
options have a weighted average remaining contractual life of approximately 8
years.
The Company has a 401(k) Profit Sharing Plan which is available to substantially
all employees subject to certain service requirements. The Company's
contribution is at the discretion of the Board of Directors and cannot exceed 6%
of the employee's compensation. The contribution by the Company for 1996, 1995
and 1994 was approximately $20,300, $21,500 and $22,800, respectively.
(11) Income Taxes
The components of income tax expense for the years ended December 31, 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current $542,524 462,468 329,685
Deferred (34,885) (38,204) 12,686
Change in valuation allowance - (26,731) (49,546)
-------- ------- -------
$507,639 397,533 292,825
======== ======= =======
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Income Taxes, continued
The differences between the provision for income taxes and the amount computed
by applying the statutory federal income tax rate to earnings before income
taxes and minority interest are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Pretax income at statutory rates $536,140 436,200 329,865
Add (deduct):
Tax-exempt interest income (49,700) (41,038) (40,029)
Non-deductible interest expense 5,646 5,090 3,935
State taxes, net of federal effect 22,973 - -
Other (7,420) (2,719) (946)
-------- ------- -------
$507,639 397,533 292,825
======== ======= =======
</TABLE>
The following summarizes the sources and expected tax consequences of future
taxable deductions (income) which comprise the net deferred tax asset which is
included as a component of other assets.
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred income tax assets:
Net unrealized loss on investments $ 2,714 -
Allowance for loan losses 188,790 130,142
State income tax credits - 10,016
Other - 9,973
-------- -------
Net deferred income tax assets 191,504 150,131
======== =======
Deferred income tax liabilities:
Premises and equipment (61,848) (58,074)
Net unrealized gain on investments - (8,031)
-------- -------
Total deferred income tax liabilities (61,848) (66,105)
-------- -------
Net deferred income tax asset $129,656 84,026
======== =======
</TABLE>
(12) Related Party Transactions
The Bank conducts transactions with directors and officers, including companies
in which they have beneficial interest, in the normal course of business. It is
the policy of the Bank that loan transactions with directors and officers be
made on substantially the same terms as those prevailing at the time for
comparable loans to other persons. The following is a summary of activity for
related party loans for 1996:
<TABLE>
<S> <C>
Beginning balance $ 437,449
Loans advanced 621,813
Repayments (793,770)
---------
Ending balance $ 265,492
=========
</TABLE>
The aggregate amount of deposits of directors and executive officers and their
affiliates amounted to approximately $2,089,000 at December 31, 1996.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(13) Supplemental Financial Data
Components of other operating expenses in excess of 1% of total interest income
and other income for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Printing and supplies $ 94,354 71,332 53,542
Data processing $128,702 123,293 75,544
FDIC assessment $ 2,000 64,146 121,598
Postage $ 67,718 54,597 57,215
Directors fees $ 81,950 73,300 73,775
Professional fees $143,265 58,032 64,986
</TABLE>
(14) Community Trust Financial Services Corporation (Parent Company Only)
Financial Information
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1996 and 1995
Assets
------
1996 1995
---------- ---------
<S> <C> <C>
Cash $ 285,402 169,769
Investment in subsidiaries 5,384,441 5,659,218
Loans to subsidiaries 1,089,764 250,000
Other assets 126,451 23,838
---------- ---------
$6,886,058 6,102,825
========== =========
Liabilities and Stockholders' Equity
Other liabilities $ 8,182 70,919
Stockholders' equity 6,877,876 6,031,906
---------- ---------
$6,886,058 6,102,825
========== =========
</TABLE>
Statements of Earnings
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------- -------
<S> <C> <C> <C>
Interest income $ 51,239 - -
Dividends from Bank 1,311,354 499,804 250,000
Dividends from Metroplex 25,000 - 500
Other operating expenses (81,774) (52,079) (31,741)
---------- ------- -------
Earnings before income taxes and equity
in undistributed earnings of subsidiaries 1,305,819 447,725 218,759
Income tax benefit 9,282 12,567 4,341
---------- ------- -------
Earnings before equity in undistributed
earnings of subsidiaries 1,315,101 460,292 223,100
Dividends paid in excess of earnings of subsidiaries (257,217) - -
Equity in undistributed earnings of subsidiaries - 425,115 454,267
---------- ------- -------
Net earnings $1,057,884 885,407 677,367
========== ======= =======
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(14) Community Trust Financial Services Corporation (Parent Company Only)
Financial Information, continued
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,057,884 885,407 677,367
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries 257,217 (425,115) (454,267)
Amortization 4,743 18,974 18,974
Other (170,093) (16,668) 80,735
---------- --------- ---------
Net cash provided by operating activities 1,149,751 462,598 322,809
---------- --------- ---------
Cash flows from investing activities:
Investment in CLC - (375) -
Loans to CLC (839,764) (250,000) -
---------- --------- ---------
Net cash used by investing activities (839,764) (250,375) -
---------- --------- ---------
Cash flows from financing activities:
Cash dividends paid (209,125) (208,749) (167,000)
Exercised stock option 21,771 7,545 -
Retirement of stock (7,000) - -
---------- --------- ---------
Net cash used by financing activities (194,354) (201,204) (167,000)
---------- --------- ---------
Net change in cash 115,633 11,019 155,809
Cash at beginning of the year 169,769 158,750 2,941
---------- --------- ---------
Cash at end of the year $ 285,402 169,769 158,750
========== ========== =========
Supplementary disclosures of cash flow information:
Non-cash investing and financing activities:
Change in unrealized loss on securities
available for sale, net of tax, of Bank $ 17,560 404,551 391,425
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
EXHIBIT 21 - SUBSIDIARIES
- -------------------------------------------------------------------------------
Name* Jurisdiction of Incorporation
- -------------------------------------------------------------------------------
Community Trust Bank Georgia
Metroplex Appraisals, Inc. Georgia
Community Loan Company Georgia
__________________________
*The legal name of the subsidiary is the name under which the subsidiary does
business.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 16, 1997
NOTICE HEREBY IS GIVEN that the 1997 Annual Meeting of Stockholders of
Community Trust Financial Services Corporation (the "Company") will be held in
the Community Room of Community Trust Bank (the "Bank"), 1784 Atlanta Highway,
Hiram, Georgia, on Wednesday, April 16, 1997 at 4:00 p.m., local time, for the
purpose of considering and voting upon:
1. A proposal to amend Section 3.2 of the Company's Bylaws.
2. A proposal to amend Section 3.3 of the Company's Bylaws.
3. A proposal to elect two Directors for terms ending in 1998, three
Directors for terms ending in 1999, and three Directors for terms ending
in 2000.
4. A proposal to ratify the appointment of Porter, Keadle, Moore, LLP as
independent accountants of the Company for the fiscal year ending
December 31, 1997.
5. Such other business as properly may come before the Annual Meeting or
any adjournments thereof.
Information relating to the above matters is set forth in the attached
Proxy Statement. Stockholders of record at the close of business on March 10,
1997 are entitled to receive notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
Tommie R. Graham, Jr.
Secretary
Hiram, Georgia
March 19, 1997
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY EXECUTE AND RETURN
THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY REVOKE THE PROXY CARD AND VOTE IN PERSON IF
YOU SO DESIRE.
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
1784 ATLANTA HIGHWAY
P. O. BOX 1700
HIRAM, GEORGIA 30141
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 16, 1997
This Proxy Statement is furnished to the stockholders of Community Trust
Financial Services Corporation (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company to be voted at
the 1997 Annual Meeting of Stockholders and at any adjournments thereof. The
Annual Meeting will be held on Wednesday, April 16, 1997 in the Community Room
of Community Trust Bank (the "Bank"), 1784 Atlanta Highway, Hiram, Georgia, at
4:00 p.m., local time.
The approximate date on which this Proxy Statement and the accompanying
proxy card are first being sent or given to stockholders is March 19, 1997.
VOTING
GENERAL
The securities which can be voted at the Annual Meeting consist of Common Stock
of the Company, $2.50 par value per share, with each share entitling its owner
to one vote on each matter submitted to the stockholders. The record date for
determining the holders of Common Stock who are entitled to notice of and to
vote at the Annual Meeting is March 10, 1997. On the record date, 839,264
shares of Common Stock were outstanding and eligible to be voted at the Annual
Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the outstanding shares
of Common Stock of the Company is necessary to constitute a quorum at the Annual
Meeting. The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock is required to approve the amendments to
Sections 3.2 and 3.3 of the Company's Bylaws. The affirmative vote of the
holders of a majority of the shares of Common Stock represented in person or by
proxy at the Annual Meeting is required to elect Directors and to ratify the
appointment of independent accountants. These matters are described in the
following sections of this Proxy Statement.
PROXIES
In voting on the amendments to Sections 3.2 and 3.3 of the Company's Bylaws,
stockholders may vote in favor of or against the proposals or may abstain from
voting. With regard to the election of Directors, stockholders may vote in
favor of all nominees, withhold their votes as to all nominees or withhold their
votes as to specific nominees. With regard to the proposal to ratify the
appointment of independent accountants, stockholders may vote in favor of or
against the proposal or may abstain from voting. Stockholders should specify
their choices on the accompanying proxy card. All properly executed proxy cards
delivered by stockholders to the Company in time to be voted at the Annual
Meeting and not revoked will be voted at the Annual Meeting in accordance with
the directions given. IF NO SPECIFIC INSTRUCTIONS ARE GIVEN WITH REGARD TO THE
MATTERS TO BE VOTED UPON, THE SHARES REPRESENTED BY A SIGNED PROXY CARD WILL BE
VOTED "FOR" PROPOSALS 1, 2, AND 4 AND "FOR" THE ELECTION OF THE EIGHT NOMINEES
NAMED IN PROPOSAL 3, ALL AS SET FORTH ON THE PROXY CARD. Additionally, if
Proposal 1 is not approved, neither
1
<PAGE>
Proposal 2 nor Proposal 3 will be submitted to a vote of stockholders at the
Annual Meeting. In that event, it is anticipated that a proposal will be
introduced from the floor, in lieu of Proposal 3, to elect each of the Directors
named as a nominee for a one year term expiring at the 1998 Annual Meeting of
stockholders. If such a proposal is introduced at the Annual Meeting, it is
expected that the persons named as proxies will vote all proxies in favor of the
proposal. If any other matters properly come before the Annual Meeting, the
persons named as proxies will vote upon such matters according to their
judgement. All proxy cards delivered pursuant to this solicitation are
revocable at any time before they are voted at the option of the persons
executing them by giving written notice to the Secretary of the Company, by
delivering a later dated proxy card or by voting in person at the Annual
Meeting.
All expenses incurred in connection with the solicitation of proxies will be
borne by the Company. Such costs include any charges by brokers, fiduciaries and
custodians for forwarding proxy materials to beneficial owners of stock held in
their names. Solicitation also may be undertaken by mail, telephone and
personal contact by Directors, officers and employees of the Company or the Bank
without additional compensation.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 1, 1997 regarding
the ownership of the Company's Common Stock by each person known to the Company
to be the beneficial owner of more than 5% of the Company's Common Stock and by
all the Directors and Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- -------------------------------------- ----------------- ----------------
<S> <C> <C>
John N. Bleakley
8485 Hay-Renside Circle
Dallas, Georgia 30132 45,558 5.43%
Jacquelyn Rogers Chandler
3175 Winding Lake Drive
Gainesville, Georgia 30504 50,572 6.03%
All Directors and Executive
Officers as a group
(12 persons)(2)(3)(4) 145,052 16.16%
- ---------------
</TABLE>
(1) The stock ownership information shown has been furnished to the Company by
the named persons and group. Beneficial ownership as reported in the table has
been determined in accordance with Securities and Exchange Commission
regulations and includes shares of the Company's Common Stock as to which a
person possesses sole or shared voting and/or investment power and shares which
may be acquired within 60 days upon the exercise of outstanding stock options.
Except as otherwise referenced in Note (2) below, the named persons and group
have sole voting and investment power with regard to the shares shown as owned
by them.
(2) The shares shown include 796 shares which are owned by the spouses of two
Directors, and 300 shares which are held by Directors as trustees for their
children.
(3) The shares shown include 6,049 shares which are subject to options held by
two Executive Officers, and 52,397 shares which are subject to options held by
the eight Directors, which such Executive Officers and Directors have the right
to acquire within 60 days from February 1, 1997.
(4) The shares shown include 5,000 shares held by one individual who is a
Director of the Bank and not of the Company.
2
<PAGE>
To the knowledge of the Company, each person who, at any time during the
year ended December 31, 1996, was a Director, Executive Officer, or beneficial
owner of more than ten percent of the Company's Common Stock filed, on a timely
basis, all reports required to be filed by them, during such year, pursuant to
Section 16(a) of the Securities Exchange Act of 1934.
PROPOSAL 1
ADOPTION OF AMENDMENT TO SECTION 3.2
OF THE COMPANY'S BYLAWS TO PROVIDE
FOR THE CLASSIFICATION OF THE
COMPANY'S BOARD OF DIRECTORS
In October, 1996, the Board of Directors amended Section 3.2 of the
Company's Bylaws to provide (i) that the Company's Board of Directors would
consist of between one (1) and ten (10) members and (ii) that the precise number
of directors would be fixed from time to time by the Board of Directors. Prior
to this amendment, Section 3.2 of the Company's Bylaws provided (i) that the
Board of Directors would consist of between one (1) and nine (9) members and
(ii) that the precise number of directors would be fixed from time to time by
the shareholders.
As a result of the October, 1996, amendment, Section 3.2 of the Company's
Bylaws currently reads as follows:
3.2 The Board of Directors shall consist of at least one (1), but not
more than ten (10) members, the precise number to be fixed by resolution of
the directors from time to time. If all of the shares of the corporation
are owned beneficially and of record by less than three (3) shareholders,
the number of directors may be less than three (3), but not less than the
number of shareholders; provided, however, the Board of Directors may at
any time consist of only one (1) member, if at least fifty-one percent
(51%) of the stock of the corporation is held by one (1) person. Directors
shall be elected at the Annual Meeting of the shareholders and shall serve
for a term of one year and until their successors are elected and
qualified. A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided in these bylaws, all resolutions adopted and all business
transacted by the Board of Directors shall require the affirmative vote of
a majority of the directors present at the meeting.
The Board of Directors, by unanimous vote, has recommended that the
stockholders approve a further amendment to Section 3.2 of the Company's Bylaws
to provide for (i) a minimum Board size consisting of three (3) members and (ii)
the division of the Company's Board of Directors into three classes, each of
which will contain approximately one-third of the whole number of the members of
the Board.
Under the proposed Bylaw amendment, the members of each class would be
elected for a term of three years and until their successors were elected and
qualified, with one class being elected by stockholder ballot annually. The
only exception to this would be the first election of directors following
adoption of the Bylaw amendment. At this first election, which is expected to
occur at the Annual Meeting, directors of one class would be elected for three
year terms, directors of the second class would be elected for two year terms
and directors of the third class would be elected for one year terms. At
subsequent Annual Meetings, the class of directors whose term is then expiring
will be filled with directors elected to three year terms.
3
<PAGE>
If the proposed amendment to Section 3.2 of the Company's Bylaws is adopted
by the Company's stockholders, the existing Section 3.2 of the Bylaws will be
deleted from the Bylaws in its entirety and a new Section 3.2 will be
substituted in lieu thereof. If approved by the stockholders, the new Section
3.2 will provide as follows:
3.2 The Board of Directors shall consist of at least three (3), but not
more than ten (10) members, the precise number to be fixed by resolution of
the Directors from time to time. The Board of Directors shall be divided
into three classes as nearly equal in number as possible. The members of
each class shall be elected for a term of three years and until their
successors are elected and qualified with one class of directors being
elected by ballot annually, except that at the first election of directors
following the effectiveness of this Section 3.2 : one class shall be
elected for terms of one year and until their successors are elected and
qualified; another class shall be elected for terms of two years and until
their successors are elected and qualified; and the third class shall be
elected for terms of three years and until their successors are elected and
qualified. A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided in these Bylaws, all resolutions adopted and all business
transacted by the Board of Directors shall require the affirmative vote of
a majority of the directors present at the meeting.
The proposed amendment to Section 3.2 of the Company's Bylaws is being
submitted to the stockholders for their consideration and approval, rather than
being approved by the Company's Board of Directors, because Georgia law requires
that a bylaw establishing staggered terms for directors may be adopted, amended
or repealed only be a corporation's stockholders. In considering the proposed
amendment to Section 3.2 of the Company's Bylaws, stockholders should be aware
that a classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors. Since the terms of only one-third of the incumbent directors would
expire each year, it would require at least two annual elections for the
stockholders to change a majority, whereas a majority of a non-classified board
may be changed in one year. The management of the Company believes that the
staggered election of directors will promote continuity of management because
only one-third of the Board of Directors will be subject to election each year.
Staggered terms will guarantee that in the ordinary course approximately two-
thirds of the directors, or more, at any one time, will have had at least one
year's experience as directors of the Company and will moderate the pace of
changes in the Board of Directors by extending the minimum time required to
elect a majority of directors from one to two years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO AMEND SECTION 3.2 OF THE COMPANY'S BYLAWS.
PROPOSAL 2
ADOPTION OF AMENDMENT TO SECTION 3.3 OF
THE COMPANY'S BYLAWS TO PROVIDE FOR THE
FILLING OF VACANCIES OCCURRING IN
THE COMPANY'S BOARD OF DIRECTORS
Section 3.3 of the Company's Bylaws provides for the filling of vacancies
that may occur from time to time in the Company's Board of Directors, whether as
a result of death, resignation or incapacity to
4
<PAGE>
serve of a director or as a result of an increase in the size of the Board of
Directors. Section 3.3 of the Company's Bylaws currently provides as follows:
3.3 Any vacancy occurring in the Board of Directors by reason of death,
resignation, or incapacity to serve may be filled by a person selected by
the affirmative vote of a majority of the remaining directors or by the
sole remaining director, as the case may be, or, if the vacancy is not so
filled or if no director remains, by the shareholders. The directors may
fill a vacancy created by an increase in the number of directors resulting
from an amendment of Section 3.2 of these bylaws pursuant to Article Seven
of these bylaws, but only for a term of office continuing until the next
annual election of directors by the shareholders and the election and
qualification of his successor.
While Section 3.3 explicitly states that vacancies created by an increase in
the size of the Board of Directors may be filled by the directors only until the
next annual election of directors by the stockholders, Section 3.3 currently is
silent as to the term that is to be served by directors who are appointed to
fill a vacancy occurring as a result of the death, resignation or removal of a
director. In light of the proposed amendment to Section 3.2 of the Company's
Bylaws which, if adopted, will result in directors serving three (3) year terms,
the Board of Directors believes that it also is desirable to amend Section 3.3
of the Bylaws. The proposed amendment to Section 3.3 will make it explicit that
a director who is selected to fill a vacancy will serve for the unexpired term
of his predecessor; provided, however, that when a vacancy results from an
increase in the size of the Board, such a vacancy will be filled by a director
whose term will expire at the next election of directors by the stockholders,
regardless of the class of directors to which such director has been appointed.
If the proposed amendment to Section 3.3 of the Company's Bylaws is adopted
by the Company's stockholders, the existing Section 3.3 of the Bylaws will be
deleted from the Bylaws in its entirety and a new Section 3.3 will be
substituted in lieu thereof. If approved by the stockholders, the new Section
3.3 will provide as follows:
3.3 Any vacancy occurring in the Board of Directors may be filled by a
person selected by the affirmative vote of a majority of the remaining
directors or, if the vacancy is not so filled or if only one (1) director
remains, by the shareholders. A director selected to fill a vacancy shall
serve for the unexpired term of such director's predecessor; provided,
however, that when the number of directors is increased, the directorships
to be filled by reason of such increase shall be filled by persons whose
terms shall expire at the next election of directors by the shareholders.
If the proposed amendment to Section 3.2 of the Bylaws is not approved by
the stockholders, the proposed amendment to Section 3.3 will not be submitted to
the stockholders for their consideration at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO AMEND SECTION 3.3 OF THE COMPANY'S BYLAWS.
5
<PAGE>
PROPOSAL 3 - ELECTION OF DIRECTORS
Nominees
Eight directors are to be elected at the Annual Meeting. If Proposal 1 is
approved by the stockholders at the Annual Meeting, three directors will be
elected to three year terms expiring in 2000, three directors will be elected to
two year terms expiring in 1999, and two directors will be elected to one year
terms expiring in 1998. The Board of Directors has nominated the eight persons
named below to serve as Directors until the term of each Director's Class has
expired and until their respective successors are elected. Each of the eight
nominees has served continuously as a member of the Board of Directors of the
Company since the organization of the Company in October 1988. Each of the
Directors has consented, if re-elected as a Director of the Company, to serve
until his or her term expires. However, if any of the nominees should become
unavailable to serve for any reason (which is not anticipated), the Board of
Directors, in its discretion, may designate a substitute nominee or nominees (in
which event the persons named in the enclosed proxy card will vote all valid
proxy cards for the election of such substitute nominee or nominees), allow the
vacancy or vacancies to remain open until a suitable candidate or candidates are
located or by resolution reduce the authorized number of Directors. If Proposal
1 is not approved, it is anticipated that a proposal will be introduced from the
floor, in lieu of Proposal 3, to elect each of the Directors named as a nominee
for a one year term expiring at the 1998 Annual Meeting of stockholders. If such
a proposal is introduced at the Annual Meeting, it is expected that the persons
named as proxies will vote all proxies in favor of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO ELECT THE EIGHT NOMINEES LISTED BELOW AS DIRECTORS OF THE
COMPANY TO HOLD OFFICE UNTIL THE EXPIRATION OF THE TERMS FOR WHICH THEY HAVE
BEEN NOMINATED AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
The following table sets forth certain information as of February 1, 1997
about each of the nominees.
AMOUNT AND NATURE OF
INFORMATION BENEFICIAL OWNERSHIP(1)
NAME AND AGE ABOUT NOMINEES (% OF CLASS)
- ------------ -------------- -------------------------
CLASS 1
FOR TERMS EXPIRING IN 2000
Ronnie L. Austin Mr. Austin is a Director and the 8,687 (2)
(47) President and Chief Executive (1.03%)
Officer of the Company and the
Bank. He has served as the President
and Chief Executive Officer of the
- --------------
(1) The stock ownership information shown has been furnished to the Company by
the named persons. Beneficial ownership as reported in the table has been
determined in accordance with Securities and Exchange Commission regulations and
includes shares of the Company's Common Stock as to which a person possesses
sole or shared voting and/or investment power and shares which may be acquired
within 60 days upon the exercise of outstanding stock options. Except as
otherwise referenced in Notes (2) through (7) below, the named persons have sole
voting and investment power with regard to the shares shown as owned by them.
(2) Shares shown include 100 shares owned by the named person's spouse, 557
shares owned by the named person's spouse in an Individual Retirement Account,
and 5,999 shares beneficially owned through a right to acquire additional
shares upon the exercise of outstanding stock options.
6
<PAGE>
Company since the organization of
the Company in October 1988. Before
assuming his position as President and
Chief Executive Officer of the Bank in
December 1986, Mr. Austin served as
Executive Vice President and Senior
Loan Officer of the Peoples Bank of
Bartow County from January 1985 to
November 1986 and as Vice President
and Senior Loan Officer of the First
National Bank of Paulding County
from June 1975 to January 1985.
R. Alan Bullock Mr. Bullock has served as Director of 16,999 (3)
(43) the Company since its organization in (2.01%)
October 1988. He served as a Director
of the Bank from 1987 until September
1996. He served as Chairman of the
Board of the Company and the Bank from
April 1991 to April 1992.
Mr. Bullock has been involved in real
estate finance since 1976 and is
currently senior partner of Bullock,
Terrell and Mannelly, a company based
in Atlanta, Georgia involved in
industrial development, real estate
finance and marketing, and property
management.
Bobbie P. Cooper Mrs. Cooper is a Director of 18,347 (3)
(58) the Company and the Bank and (2.17%)
previously served as Chairman of
the Board of the Company and the
Bank from April 1992 to April
1993. Mrs. Cooper was co-owner
of Three C's Clothing in Dallas,
Georgia from 1964 until 1992, and
currently is co-owner of Cooper
Rentals, which owns and manages
real estate.
CLASS 2
FOR TERMS EXPIRING IN 1999
J. Calvin Earwood Mr. Earwood is a Director of the 19,678 (3)
(55) Company and the Bank and served as (2.33%)
Chairman of the Board of the Bank
from April 1989 to April 1990.
- ---------------
(3) Shares shown include 6,999 shares beneficially owned by each Director
through a right to acquire additional shares upon the exercise of outstanding
stock options.
7
<PAGE>
Mr. Earwood has been owner and
President of Sunbelt Fasteners,
Inc. in Dallas, Georgia since 1983.
He also has served as Chairman of
the Board of Oglethorpe Power
Corporation since March 1989 and
as Vice Chairman of the Board of
Oglethorpe Power Corporation from
March 1984 to March 1989 and as director
of Oglethorpe Power Corporation since 1981.
Additionally, he has served as director of
Greystone Power Corporation since 1977.
W. A. Foster III Mr. Foster is a Director of the 28,254 (4)
(52) Company and the Bank and has served (3.34%)
as Chairman of the Board of the Company
and the Bank since April 1994. He pre-
viously served as Chairman of the Board
of the Company and the Bank from April
1990 to April 1991. Mr. Foster served as
District Attorney for the Tallapoosa Judicial
Circuit of the State of Georgia since 1978,
until he was appointed in 1992 as a Judge
of the Superior Court for the Tallapoosa
Circuit.
Tommie R. Graham, Jr. Mr. Graham has served as Director of the 7,299 (5)
(39) Company since its organization in October (*)
1988. He served as a Director of the Bank
from 1987 until September 1996. He has
served as Secretary-Treasurer of the
Company since October 1988.
Mr. Graham is Manager of
Jeriel Supply, LC, a building products
company. Mr. Graham served as
Executive Vice President of the Bank
from December 1986 to June 1991.
Mr. Graham was Vice President and
Controller of the Peoples Bank of Bartow
County from May 1985 to December 1986.
- ---------------
* Less than one percent.
(4) Shares shown include 139 shares owned by the named person's spouse in an
Individual Retirement Account, as to which he disclaims beneficial ownership,
and 6,999 shares beneficially owned through a right to acquire additional shares
upon the exercise of outstanding stock options.
(5) Shares shown include 200 shares held jointly with the named person's spouse
as custodian for their minor children, and 6,999 shares beneficially owned
through a right to acquire additional shares upon the exercise of outstanding
stock options.
8
<PAGE>
CLASS 3
FOR TERMS EXPIRING IN 1998
John Helms Mr. Helms is a Director of the 17,099 (6)
(67) Company and the Bank and previously (2.03%)
served as Chairman of the Board
of the Company and the Bank from April
1993 to April 1994. Mr. Helms owned
and operated Helms Brothers Well Boring
Company in Villa Rica, Georgia from
1958 until February 1990. He retired
in January 1993 as Chairman of the
Paulding County Commission in which
capacity he had served since January 1989.
C. D. Rampley Mr. Rampley is a Director of 14,999 (7)
(69) the Company and the Bank and (1.77%)
served as Chairman of the Board
of the Bank from February 1987
to April 1989. Mr. Rampley
retired in June 1989 as Executive
Director of the Coosa Valley Area
Planning and Development Commission,
in which capacity he had served
since 1976. He currently serves
as an independent business
consultant.
- --------------
(6) Shares shown include 10,000 shares held by the named person jointly with his
spouse, 100 shares held by him as trustee for his child, and 4,404 shares
beneficially owned through a right to acquire additional shares upon the
exercise of outstanding stock options.
(7) Shares shown include 8,000 shares held by the named person jointly with his
spouse, and 6,999 shares beneficially owned through a right to acquire
additional shares upon the exercise of outstanding stock options.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the full
Board and through committees of the Board, including an Audit Committee, a
Compensation Committee, and a Capital Planning Committee. During the fiscal
year ended December 31, 1996, the Board of Directors held eleven meetings, the
Audit Committee held four meetings, the Compensation Committee held six
meetings, and the Capital Planning Committee held one meeting. Each Director
attended at least 75% of all meetings of the full Board and of each committee of
which he is a member.
The Audit Committee is composed of Messrs. Bullock, Graham, Helms, and
Rampley. This committee is responsible for reviewing the Company's audit plan
with its independent accountants, the scope and results of their audit
engagement and the accompanying management letter, if any; reviewing the scope
and
9
<PAGE>
results of the Company's internal auditing procedures; consulting with the
independent accountants and management with regard to the Company's accounting
methods and the adequacy of its internal accounting controls; approving
professional services provided by the independent accountants; reviewing the
independence of the independent accountants; and reviewing the range of the
independent accountants' audit and non-audit fees.
The Compensation Committee consists of Messrs. Earwood, Foster, Graham, and
Mrs. Cooper. This committee reviews the performance of the President and other
executive officers of the Bank and determines the appropriate salaries and
bonuses of all officers of the Bank. This committee also administers the
Company's 1988 and 1993 Stock Option Plans, including the granting of options to
eligible employees thereunder.
The Capital Planning Committee, composed of Messrs. Austin, Bullock,
Earwood, Foster, and Graham, is responsible for long range planning to ensure
that the Company maintains an adequate capital position and remains in
compliance with applicable regulatory capital requirements imposed on the
Company by the Board of Governors of the Federal Reserve System and the Georgia
Department of Banking and Finance.
The Board of Directors as a whole functions as a nominating committee to
select management's nominees for election as Directors. The Board of Directors
will consider nominees recommended by stockholders if presented in writing to
the Board of Directors prior to formal action by the Board (which occurred on
February 19, 1997 with regard to the nominees for election at the 1997 Annual
Meeting).
COMPENSATION OF DIRECTORS
As compensation for serving as Directors of the Company, each non-employee
Director received $500 for each full Board meeting held in 1996. In addition,
each non-employee Director received $100 for each committee meeting attended.
Directors who also are employees of the Company or the Bank receive no fees for
attendance at meetings of the full Board or committees thereof.
On each January 1st that a non-employee Director serves as such, he or she
receives an option under the Company's 1993 Directors Stock Option Plan to
acquire 1,000 shares of Company Common Stock. New non-employee Directors who
join the Board also receive an option to acquire 1,000 shares on the date they
join. Each option granted under the 1993 Directors Stock Option Plan expires
ten years from the date the option is granted and is exercisable in increments
of 33% per year (cumulative), beginning after one full year from the date the
option is granted.
10
<PAGE>
EXECUTIVE COMPENSATION
CASH COMPENSATION. The following table sets forth, for the fiscal years
ended December 31, 1996, 1995, and 1994, the compensation paid to, or accrued by
the Company or Bank for, the Company's Chief Executive Officer. No other
executive officer of the Company or the Bank received compensation for any such
fiscal years which exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ---------------
NUMBER OF
NAME AND SECURITIES
PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------- ---------- --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Ronnie L. Austin 1996 $98,416 $12,344 1,000 $1,860
(Chief Executive 1995 $95,447 -0- 1,000 $1,860
Officer) 1994 $92,600 $12,964 1,000 $2,147
- ------------------
</TABLE>
(1) Compensation in this column consists of the dollar value of insurance
premiums paid by the Company during the year with respect to a disability
policy, and a life insurance policy payable to Mr. Austin or his beneficiaries.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/SH) DATE
- ------------------ ----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Ronnie L. Austin 1,000 (1) 14.29% $10.01 1/1/2006
- ----------------
</TABLE>
(1) Mr. Austin was awarded an option to acquire 1,000 shares of Company Common
Stock under the Company's 1993 Stock Option Plan. This option expires ten years
from the date the option was granted and is exercisable in increments of 33% per
year (cumulative), beginning after one full year from the date the option was
granted.
11
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDER- UNEXERCISED
LYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END ($)
SHARES ------------------ ------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------ ----------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Ronnie L .Austin 1,000 $4,390 5,999 / 1,001 $29,447 / $2,273 (1)
- ----------------
</TABLE>
(1) The value of in-the-money options at fiscal year-end is calculated by
subtracting the aggregate exercise price of such options from the aggregate
year-end market value of the securities underlying the options. The year-end
market value is determined by calculating a weighted average of the last three
months' stock transactions. If there are less than ten transactions in the
three months prior to year-end, the time period is extended up to one year in
order to have an adequate sample of transactions. If there have been no
transactions within the past year, the prior year-end market value is considered
representative of the present year-end market value. The Directors of the
Company may exclude from the calculation any transaction that they deem not
representative of the normal market for Company stock. Although the Company is
usually privy to the sale price concerning any transactions of Company stock,
stockholders may choose not to disclose this information. If such a transaction
occurs, it accordingly will not be recognized in the calculation of market value
of the Company stock.
No awards were made under any long-term incentive plan to any executive
officer of the Company or the Bank during the year ended December 31, 1996.
TRANSACTIONS OF MANAGEMENT WITH COMMUNITY TRUST BANK
The Bank has a policy of offering loans to Directors, Executive Officers,
principal stockholders and their affiliates at rates equal to the prime rate of
interest then offered by the Bank plus one per cent, which, as required by law,
in every instance is equal to or greater than the prevailing interest rate for
comparable loans to unaffiliated borrowers. For loans made to Directors,
executive officers, and principal stockholders or their affiliates which are
secured by certificates of deposit issued by the Bank ("CD Loans"), the Bank has
a policy of offering loans at the rate of one percent above the interest rate
yield on the CD, which is the prevailing rate for CD Loans to unaffiliated
borrowers. Loans by the Bank to affiliates of the Company or the Bank are made
in the ordinary course of business on the same terms, including collateral
requirements, as those of comparable loans made at the same time to unaffiliated
borrowers and do not involve more than the normal risk of collectibility or
contain other unfavorable features. All loans extended by the Bank to
Directors, Executive Officers, principal stockholders and their affiliates
during the year ended December 31, 1996 were made in accordance with the policy
set forth above.
PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Porter, Keadle, Moore, LLP,
formerly known as Evans, Porter, Bryan & Co., to continue as independent
accountants of the Company for the fiscal year ending December 31, 1997 and has
directed that such appointment be submitted to the stockholders of the Company
for ratification at the Annual Meeting. Porter, Keadle, Moore, LLP has served
as independent accountants of the Bank since 1987 and of the Company since 1991
and is considered by management of the Company and the Bank to be well
qualified. If the stockholders do not ratify the appointment of Porter, Keadle,
Moore, LLP, the Board of Directors will reconsider the appointment.
12
<PAGE>
Representatives of Porter, Keadle, Moore, LLP will be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO RATIFY THE APPOINTMENT OF PORTER, KEADLE, MOORE, LLP AS
INDEPENDENT ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997.
STOCKHOLDERS' PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be made in writing and received by the Company on
or before November 19, 1997 to be eligible for inclusion in the Company's proxy
statement and form of proxy relating to that meeting. All such proposals should
be submitted by certified mail, return receipt requested, to the Secretary of
the Company, 1784 Atlanta Highway, P. O. Box 1700, Hiram, Georgia 30141.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
Except as set forth in the immediately following sentence, the Board of
Directors of the Company knows of no matters other than those referred to in the
accompanying Notice of Annual Meeting of Stockholders which may properly come
before the Annual Meeting. In the event that Proposal 1 is not approved, it is
anticipated that a proposal will be introduced from the floor, in lieu of
Proposal 3, to elect each of the Directors named as a nominee for a one year
term expiring at the 1998 Annual Meeting of stockholders. If such a proposal is
introduced at the Annual Meeting, it is expected that the persons named as
proxies will vote all proxies in favor of the proposal. If any other matters
should be properly presented for consideration and voting at the Annual Meeting
or any adjournments thereof, it is the intention of the persons named as proxies
on the enclosed form of proxy card to vote the shares represented by all valid
proxy cards in accordance with their judgement of what is in the best interest
of the Company.
The Board of Directors urges each stockholder, whether or not he intends to
be present at the Annual Meeting, to vote "FOR" each of the proposals listed on
the enclosed proxy card and to complete, date, sign and return the proxy card as
promptly as possible.
By Order of the Board of Directors
W. A. Foster III
Chairman of the Board
Hiram, Georgia
March 19, 1997
--------------------------------
The Company's 1996 Annual Report, which includes audited financial
statements, is being mailed to stockholders of the Company with these proxy
materials. The Annual Report does not form any part of the material for the
solicitation of proxies.
13
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
THIS REVOCABLE PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE 1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints R. Alan Bullock, Bobbie Cooper and C.D.
Rampley, and each of them, proxies, with full powers of substitution, to act for
and in the name of the undersigned to vote all shares of common stock of
Community Trust Financial Services Corporation (the "Company") which the
undersigned is entitled to vote at the 1997 Annual Meeting of Stockholders, to
be held in the Community Room of Community Trust Bank, 1784 Atlanta Highway,
Hiram, Georgia, on Wednesday, April 16, 1997 at 4:00 p.m., local time, and at
any and all adjournments thereof, as indicated below.
The Board of Directors recommends a vote "FOR" each of the listed
proposals.
1. Proposal to amend Section 3.2 of the Company's Bylaws.
FOR AGAINST ABSTAIN
------ ------ ------
2. Proposal to amend Section 3.3 of the Company's Bylaws.
FOR AGAINST ABSTAIN
------ ------ ------
3. The election as Directors of the eight nominees listed below to serve until
the 2000, 1999, or 1998 Annual Meetings as indicated below, and until their
successors are elected and qualified.
FOR ALL NOMINEES Listed below (except as marked to the contrary
------ below).
WITHHOLD AUTHORITY to vote for all nominees listed below.
------
INSTRUCTION: To withhold your vote for any individual nominee, strike a
line through the nominee's name in the list below.
Class 1 - to serve until the 2000 Annual Meeting
Ronnie L. Austin R. Alan Bullock Bobbie P. Cooper
Class 2 - to serve until the 1999 Annual Meeting
J. Calvin Earwood W.A. Foster III Tommie R. Graham, Jr.
Class 3 - to serve until the 1998 Annual Meeting
John Helms C.D. Rampley
4. The ratification of the appointment of Porter, Keadle, Moore, LLP as
independent accountants of the Company for the fiscal year ending December
31, 1997.
FOR AGAINST ABSTAIN
------ ------ ------
In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the Annual Meeting and any adjournments
thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
(continued, and to be signed and dated, on the reverse side)
<PAGE>
(continued from other side)
This proxy card will be voted as directed. If no instructions are
specified, this proxy card will be voted in the discretion of the previous "FOR"
Proposals 1, 2, and 4, and "FOR" the election of all nominees named in Proposal
3. If any other business is presented at the Annual Meeting, this proxy card
will be voted by the proxies in accordance with their judgment of what is in the
best interest of the Company. At the present time, the Board of Directors knows
of no other business to be presented to a vote of the stockholders at the Annual
Meeting; provided, however, that if Proposal 1 is not approved by the
stockholders, it is anticipated that a proposal will be introduced from the
floor, in lieu of Proposal 3, to elect each of the nominees named in Proposal 3
for a one-year term expiring at the 1998 Annual Meeting of Stockholders. It is
expected that the persons named as proxies will vote all proxies in favor of
any such proposal.
If the undersigned elects to withdraw this proxy card at or before the time of
the Annual Meeting or any adjournments thereof and notifies the Secretary of the
Company at or prior to the Annual Meeting of the decision of the undersigned to
withdraw this proxy card, then the power of said proxies shall be deemed
terminated and of no further force and effect. If the undersigned withdraws this
proxy card in the manner described above and prior to the Annual Meeting does
not submit a duly executed and subsequently dated proxy card to the Company, the
undersigned may vote in person at the Annual Meeting all shares of Common Stock
of the Company owned by the undersigned as of the record date (March 10, 1997).
Please mark this proxy card on the reverse side and then date and sign this
proxy card below exactly as your name appears hereon. When shares are held
jointly, both holders should sign. When signing as attorney, executor,
administrator, trustee, custodian or guardian, please give your full title. If
the holder is a corporation or partnership, the full corporate or partnership
name should be signed by a duly authorized officer.
Signature
------------------------------------
Signature
------------------------------------
If shares held jointly
Date , 1997
-----------------------------------
Do you plan to attend the Annual Meeting?
YES NO
----------- ----------
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin and Tommie R. Graham, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead,, in any and all capacities, to sign the
Annual Report on Form 10-K of Community Trust Financial Services Corporation for
the fiscal year ended December 31, 1996, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 19th day of February 1997.
_____________________________
John C. Helms
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin and Tommie R. Graham, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead,, in any and all capacities, to sign the
Annual Report on Form 10-K of Community Trust Financial Services Corporation for
the fiscal year ended December 31, 1996, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 19th day of February 1997.
<PAGE>
_____________________________
Alan Bullock
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin and Tommie R. Graham, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead,, in any and all capacities, to sign the
Annual Report on Form 10-K of Community Trust Financial Services Corporation for
the fiscal year ended December 31, 1996, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 19th day of February 1997.
_____________________________
Bobbie P. Cooper
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin and Tommie R. Graham, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead,, in any and all capacities, to sign the
Annual Report on Form 10-K of Community Trust Financial Services Corporation for
the fiscal year ended December 31, 1996, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by
<PAGE>
virtue hereof.
This 19th day of February 1997.
_____________________________
William A. Foster, III
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin and Tommie R. Graham, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead,, in any and all capacities, to sign the
Annual Report on Form 10-K of Community Trust Financial Services Corporation for
the fiscal year ended December 31, 1996, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This 19th day of February 1996.
_____________________________
J. Calvin Earwood
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin and Tommie R. Graham, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead,, in any and all capacities, to sign the
Annual Report on Form 10-K of Community Trust Financial Services Corporation for
the fiscal year ended December 31, 1996, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary
<PAGE>
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
This 19th day of February 1997.
_____________________________
C. D. Rampley
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Tommie R. Graham, Jr., his true and lawful attorneys-in-fact and
agents, with full power of substitution, for him and in his name, place and
stead,, in any and all capacities, to sign the Annual Report on Form 10-K of
Community Trust Financial Services Corporation for the fiscal year ended
December 31, 1996, and any and all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This 19th day of February 1997.
_____________________________
Ronnie L. Austin
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Ronnie L. Austin, his true and lawful attorneys-in-fact and agents,
with full power of substitution, for him and in his name, place and stead,, in
any and all capacities, to sign the Annual Report on Form 10-K of Community
Trust Financial Services Corporation for the fiscal year ended December 31,
1996, and any and all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and
<PAGE>
authority to do and perform each and every act and thing requisite or necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
This 19th day of February 1997.
_____________________________
Tommie R. Graham, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,011,164
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,020,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,418,690
<INVESTMENTS-CARRYING> 22,418,690
<INVESTMENTS-MARKET> 22,418,690
<LOANS> 49,425,713
<ALLOWANCE> 713,518
<TOTAL-ASSETS> 85,203,618
<DEPOSITS> 76,897,761
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,420,233
<LONG-TERM> 0
0
0
<COMMON> 2,097,910
<OTHER-SE> 4,779,966
<TOTAL-LIABILITIES-AND-EQUITY> 85,203,618
<INTEREST-LOAN> 5,462,059
<INTEREST-INVEST> 1,165,513
<INTEREST-OTHER> 221,396
<INTEREST-TOTAL> 6,848,968
<INTEREST-DEPOSIT> 2,624,325
<INTEREST-EXPENSE> 2,661,616
<INTEREST-INCOME-NET> 4,187,352
<LOAN-LOSSES> 197,841
<SECURITIES-GAINS> (9,851)
<EXPENSE-OTHER> 3,563,813
<INCOME-PRETAX> 1,576,881
<INCOME-PRE-EXTRAORDINARY> 1,057,884
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,057,884
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 5.89
<LOANS-NON> 30,237
<LOANS-PAST> 136,648
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 765,529
<ALLOWANCE-OPEN> 583,306
<CHARGE-OFFS> 90,263
<RECOVERIES> 22,634
<ALLOWANCE-CLOSE> 713,518
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 713,518
</TABLE>
