<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
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.)
3844 ATLANTA HIGHWAY, HIRAM, GEORGIA 30141
------------------------------------------
(Address of principal executive offices)(Zip Code)
(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. [ ]
Revenues for the Registrant's fiscal year ended December 31, 1997, total
$8,834,375.
The aggregate market value of the Registrant's outstanding Common Stock held by
nonaffiliates of the Registrant on March 17, 1998 was $10,424,383. There were
842,008 shares of Common Stock outstanding as of March 17, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Company's 1997 Annual Report to Stockholders are incorporated by
reference in Part II hereof, and portions of the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders to be held on April 15, 1998 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-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
-----------------
ITEM PAGE
NUMBER NUMBER
- ------ ------
PART I
1. Description of Business.................................... 2
2. Description of Property.................................... 36
3. Legal Proceedings.......................................... 37
4. Submission of Matters to a Vote of
Security Holders........................................... 37
4(A). Executive Officers of the Company
and the Bank............................................... 37
PART II
5. Market for Common Equity and
Related Stockholder Matters..................... ............. 39
6. Management's Discussion and Analysis
or Plan of Operation.......................................... 39
7. Financial Statements.......................................... 40
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 40
PART III
9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act............................ 40
10. Executive Compensation....................................... 41
11. Security Ownership of Certain Beneficial Owners
and Management............................................... 41
12. Certain Relationships and Related Transactions............... 41
13. Exhibits and Reports on Form 8-K............................. 41
Signatures................................................... 44
Index of Exhibits............................................ 46
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
- --------------------------------
OVERVIEW
- --------
THE COMPANY
Community Trust Financial Services Corporation (the Company) was
incorporated under the laws of the State of Georgia at the direction of
Community Trust Bank (the Bank) for the purpose of becoming a bank holding
company for the Bank. On February 22, 1991, following the receipt of all
requisite corporate and regulatory approvals, 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 (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.
The primary activity of the Company currently is, and is expected to remain
for the foreseeable future, the ownership and operation of the Bank. 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 also provides flexibility for expansion through the possible
acquisition of other financial institutions and the provision of additional
banking-related services, as well as certain non-banking 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.
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 below. 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
The Bank's business consists primarily of attracting deposits from the
general public and, with these and other funds, originating real estate loans,
consumer loans, business loans, and residential and commercial construction
loans. Funds not invested in the loan portfolio are invested by the Bank
primarily in U.S. Government and agency obligations and obligations of various
states and their political subdivisions. 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 its
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. Management of the Bank currently
anticipates that the Bank will open a loan production office in Cobb County,
Georgia in the second quarter of 1998. While management expects that the
opening of this office will enhance the Bank's ability to originate loans,
management does not believe that the opening of the loan production office will
have a material effect on the Bank or the Company.
-2-
<PAGE>
OTHER SUBSIDIARIES
In addition to the Bank, the Company has invested in three non-bank
subsidiaries: Community Loan Company (CLC); Cash Transactions, LLC (CashTrans);
and Metroplex Appraisals, Inc. (Metroplex). These subsidiaries historically
have not had and, during 1998, are not expected to have, a significant effect on
the financial condition or results of operations of the Company.
In 1995, the Company established CLC as 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 CLC's outstanding
capital stock. The remaining 25% of CLC's outstanding capital stock is owned by
an individual who serves as President of CLC. CLC's first office began
operations in September 1995, in Woodstock, Georgia, and CLC acquired two
consumer finance offices on April 1, 1996, in Rockmart, Georgia and Rossville,
Georgia, respectively. CLC has entered into a definitive agreement to acquire a
consumer finance office located in Gainesville, Georgia.
In 1997, the Company participated in the establishment of CashTrans.
CashTrans is a limited liability company that is owned 49% by the Company and
51% by an individual who serves as Chairman of CashTrans. CashTrans is engaged
in the business of providing retail establishments (primarily convenience
stores) with automated teller machines that are owned by CashTrans and that
dispense cash or cash equivalents. CashTrans engages in this business in
Georgia, Florida, South Carolina and Alabama.
In 1992, the Company established Metroplex as 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. Metroplex is located in Dallas, Georgia. Since Metroplex
represents less than 5% of the Company's consolidated assets and consolidated
net earnings, the financial condition and results of operations of the Company
are not significantly affected by the operations of Metroplex.
BUSINESS OF THE COMPANY
- -----------------------
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 the Bank's
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.
Unless specifically noted below, the following information is presented on
a consolidated basis reflecting the Company's performance as a whole. The
Company's results of operations are dependent primarily upon the results of
operations of the Bank, but also are affected, although not significantly, by
the operations of CLC, CashTrans and Metroplex. The information hereinafter
set forth as it relates generally to the "Company's" interest-earning assets,
loans and interest income includes CLC's loans, or interest income attributable
to such loans. However, where such information specifically refers to the
"Bank" or refers to specific categories of the Company's interest-earning assets
other than consumer loans, it does not include loans held by CLC. Similarly,
-3-
<PAGE>
references generally to the "Company's" interest-bearing liabilities, interest
expense, non-interest income and non-interest expense include CLC and Metroplex
unless such references are specifically to the "Bank."
For the fiscal years ended December 31, 1997 and 1996, the Company's
weighted average rate earned on all interest-earning assets was 9.58% and 9.63%,
respectively, and the Company's weighted average rate paid on all interest-
bearing liabilities for the same years was 4.40% and 4.41%, respectively. The
Company's interest rate spread for the years ended December 31, 1997 and 1996
therefore was 5.17% and 5.23%, respectively, and its net interest income for
such years was $4,719,701 and $4,187,352, respectively. For fiscal 1997, the
Company recorded net income of $1,038,807 or $1.24 basic earnings per share as
compared with net income of $1,057,884 or $1.26 basic earnings per share for
fiscal 1996. The decrease in net income was due primarily to a 19.09% increase
in other expenses that resulted largely from an increase in salary and employee
benefits. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Net Interest Margin (Net interest
income divided by average interest-
earning assets) 5.93% 5.89% 5.66%
Return on Average Assets
(Net income divided by average
total assets)................................... 1.19% 1.39% 1.37%
Return on Average Equity
(Net income divided by
average equity)................................. 14.44% 16.65% 17.01%
Equity-to-Assets (Average equity
divided by average total assets)................ 8.27% 8.32% 8.06%
Loans to Deposits (Average
loans divided by average
daily deposits)................................. 67.75% 65.94% 62.31%
Dividend Payout Ratio (Dividends
declared by the Company divided by net income).. 20.20% 19.77% 23.58%
</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 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,
-----------------------------------------------------------------------------
1997 1996
------------------------------------ --------------------------------------
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).............. $52,395,119 $6,075,240 11.60% $46,043,727 $5,462,059 11.86%
Investment securities
Taxable............... 18,771,145 1,114,266 5.94% 18,508,042 1,051,039 5.68%
Tax-exempt(3)......... 4,051,859 197,710 4.88% 2,404,861 114,474 4.76%
Federal funds sold....... 4,395,506 243,198 5.53% 4,163,525 221,396 5.32%
----------- ---------- ----- ----------- ---------- -----
Total interest-earning
assets.................... $79,613,629 $7,630,414 9.58% $71,120,155 $6,848,968 9.63%
Cash and other assets...... 7,360,685 6,533,382
----------- -----------
Total assets.......... $86,974,314 $77,653,537
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits
NOW accounts............ $ 9,058,370 $ 165,008 1.82% $ 8,728,202 $ 194,491 2.23%
Money market accounts... 8,170,372 232,547 2.85% 7,747,518 216,441 2.79%
Savings deposits........ 13,017,166 391,036 3.00% 12,200,662 375,845 3.08%
Time deposits, $100,000
and over............... 13,584,221 817,029 6.01% 11,321,593 663,640 5.86%
Time deposits, other.... 21,879,936 1,276,223 5.83% 19,834,342 1,173,908 5.92%
----------- ---------- ----- ----------- ---------- -----
Total
interest-bearing
deposits............. $65,710,065 $2,881,843 4.39% $59,832,317 $2,624,325 4.39%
Other interest-bearing
liabilities............... 340,317 25,281 7.43% 489,934 37,291 7.61%
Long-term debt............. 46,164 3,589 8.00% 0 0 0.00%
----------- ---------- ----- ----------- ---------- -----
Total
interest-bearing
liabilities.......... $66,096,546 $2,910,713 4.40% $60,322,251 $2,661,616 4.41%
Other liabilities:
Demand deposits.......... $11,626,615 $ 9,991,772
Accrued interest payable
and other liabilities.......2,058,989 985,766
----------- -----------
Total other
liabilities.......... 13,685,604 10,977,538
Total liabilities.. $79,782,150 $71,299,789
Stockholders' equity....... 7,192,164 6,353,748
Total liabilities
and stockholders'
equity................ $86,974,314 $77,653,537
=========== ===========
FINANCIAL RATIOS
Excess of interest-earning
assets over interest-
bearing liabilities........ $13,517,083 $10,797,904
=========== ===========
Ratio of interest-earning
assets to interest-bearing
liabilities.............. 120.45% 117.90%
Net interest income........ $4,719,701 $ 4,187,352
========== ===========
Interest rate spread
(differencebetween rate earned on
interest-earning assets and rate
paid on interest-bearing liabilities)............. 5.18% 5.22%
Net interest margin (net
interest
income divided by average
interest-earning assets).. 5.93% 5.89%
<CAPTION>
Years Ended December 31,
-----------------------------------
1995
-----------------------------------
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate
----------- ------------- -------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1)(2).............. $36,660,129 $4,307,281 11.69%
Investment securities
Taxable............... 17,834,704 984,611 5.52%
Tax-exempt(3)......... 1,784,584 79,363 4.45%
Federal funds sold....... 3,291,110 192,222 5.84%
----------- ---------- -----
Total interest-earning
assets.................... $59,570,527 $5,563,477 9.30%
Cash and other assets...... 4,983,549
-----------
Total assets.......... $64,554,076
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits
NOW accounts............ $ 6,949,988 $ 179,261 2.58%
Money market accounts... 7,014,853 216,839 3.09%
Savings deposits........ 12,064,705 436,236 3.62%
Time deposits, $100,000
and over............... 7,698,395 409,190 5.32%
Time deposits, other.... 16,442,425 926,137 5.63%
----------- ---------- -----
Total
interest-bearing
deposits............. $50,170,366 $2,167,663 4.32%
Other interest-bearing
liabilities............... 11,507 790 6.87%
Long-term debt............. 0 0 0.00%
----------- ---------- -----
Total
interest-bearing
liabilities.......... $50,181,873 $2,168,453 4.32%
Other liabilities:
Demand deposits.......... $ 8,593,281
Accrued interest payable
and
other liabilities....... 574,520
-----------
Total other
liabilities.......... 9,167,801
Total liabilities.. $59,349,674
Stockholders' equity....... 5,204,402
Total liabilities
and stockholders'
equity................ $64,554,076
===========
FINANCIAL RATIOS
Excess of interest-earning
assets over interest-
bearing liabilities........ $ 9,388,654
===========
Ratio of interest-earning
assets
to interest-bearing
liabilities.............. 118.71%
Net interest income........ $ 3,395,024
==========
Interest rate spread
(difference
between rate earned on
interest-
earning assets and rate
paid on
interest-bearing
liabilities)............. 4.98%
Net interest margin (net
interest
income divided by average
interest-earning assets).. 5.66%
</TABLE>
(1) Interest income on loans includes amortization of deferred loan fees and
other discounts of $811,805, $763,558, and $549,535, for the fiscal years ended
December 31, 1997, 1996, and 1995, 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.
-5-
<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, 1997. 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.
Average
Amount Yield/Rate
------ ----------
Interest-earning assets:
Loans......................................... $ 57,188,857 11.74%
Investment securities
Taxable securities.......................... 17,826,801 5.67%
Tax-exempt securities....................... 5,194,210 4.73%
Federal funds sold............................ 4,510,000 5.45%
--------- -----
Total interest-earning assets............. $ 84,719,868 9.62%
Interest-bearing liabilities:
Demand deposits............................... $ 12,105,179 0.00%
NOW accounts.................................. 9,710,739 1.72%
Money market accounts......................... 8,933,508 2.89%
Savings deposits.............................. 14,808,283 3.06%
Time deposits................................. 22,230,949 4-6%
14,192,445 6-8%
Total certificates of deposit................. 36,423,394 5.94%
---------- -----
Total deposits.............................. $ 81,981,103 4.33%
Long term debt................................ 800,000 8.00%
Other interest-bearing liabilities............ 50,000 6.00%
Total interest-bearing liabilities.......... $ 82,781,103 4.35%
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.
-6-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 Compared to 1996 1996 Compared to 1995
------------------------- -------------------------
Rate/ Net Rate/ Net
Volume Yield Change Volume Yield Change
------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans (1)(2)........................ $738,838 ($125,657) $613,181 $1,112,767 $ 42,011 $1,154,778
Investment securities (3)........... 108,945 37,518 146,463 71,522 30,017 101,539
Federal funds sold.................. 12,625 9,177 21,802 47,543 (18,369) 29,174
------ ----- ------ ------ ------- ------
Total interest income.............. $860,408 ($78,962) $781,446 $1,231,832 $ 53,659 $1,285,491
Interest expense:
NOW accounts........................ 7,127 (36,610) (29,483) 41,791 (26,561) 15,230
Money market accounts............... 11,978 4,128 16,106 21,513 (21,911) (398)
Savings deposits.................... 24,697 (9,506) 15,191 4,864 (65,255) (60,391)
Time deposits, $100,000 and over.... 135,688 17,701 153,389 208,832 45,618 254,450
Time deposits, other................ 119,531 (17,217) 102,314 198,837 48,934 247,771
------- ------- ------- ------- ------ -------
Total deposits..................... $299,021 ($41,504) $257,517 $ 475,837 ($19,175) $ 456,662
Other interest-bearing liabilities.. (7,739) (681) (8,420) 36,406 95 36,501
------ ---- ------ ------ -- ------
Total interest expense............ 291,282 (42,185) 249,097 512,243 (19,080) 493,163
------- ------- ------- ------- ------- -------
Net interest income (expense)........ $569,126 ($36,777) $532,349 $719,589 $72,739 $792,328
</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, 1997. The
time periods in the table represent the period, following December 31, 1997,
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 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.
-7-
<PAGE>
<TABLE>
<CAPTION>
0 to 3 4 to 6 7 to 12 1 to 5 Over 5
Months Months Months Years Years Total
------ ------ ------- ------ ------ -----
Interest Sensitive Assets
- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Fed Funds Sold........................ $ 4,510,000 -0- -0- -0- -0- $ 4,510,000
Investment Securities
Taxable (1)........................ 2,372,207 664,681 1,525,754 12,451,565 812,594 17,826,801
Tax-exempt (1)..................... -0- -0- 250,974 1,461,193 3,482,043 5,194,210
Loans (2)
Fixed rate......................... 3,631,835 1,520,843 756,226 211,766 -0- 6,120,670
Adjustable rate.................... 25,551,791 1,477,700 707,077 209,052 -0- 27,945,620
Scheduled payments................. 4,343,221 2,276,492 4,170,152 11,801,957 138,410 22,730,232
----------- ----------- ----------- ----------- ----------- -----------
Total Interest-Sensitive Assets....... $40,409,054 $ 5,939,716 $ 7,410,183 $26,135,533 $ 4,433,047 $84,327,533
=========== =========== =========== =========== =========== ===========
Interest Sensitive Liabilities
- ------------------------------
NOW................................... $ 9,710,739 -0- -0- -0- -0- $ 9,710,739
Money Market.......................... 8,933,508 -0- -0- -0- -0- 8,933,508
Savings............................... 14,808,283 -0- -0- -0- -0- 14,808,283
Time Deposits......................... 5,063,813 4,630,932 5,662,517 6,232,018 -0- 21,589,280
Time, in excess of $100,000........... 4,901,321 1,327,957 2,992,309 5,612,527 -0- 14,834,114
Other interest-bearing liabilities.... -0- 50,000 -0- -0- -0- 50,000
Long-term debt........................ 800,000 -0- -0- -0- -0- 800,000
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Sensitive Liabilities.. $44,217,664 $ 6,008,889 $ 8,654,826 $11,844,545 $ -0- $70,725,924
=========== =========== =========== =========== =========== ===========
Interest Sensitivity Gap.............. (3,808,610) (69,173) (1,244,643) 14,290,988 4,433,047 13,601,609
Cumulative Gap........................ (3,808,610) (3,877,783) (5,122,426) 9,168,562 13,601,609
Ratio of cumulative gap to total
interest sensitive assets.......... (4.52)% (4.60)% (6.07)% 10.87% 16.13%
</TABLE>
- -----------------
(1) All investment securities are shown at the carrying value.
(2) Non-performing loans are not included as interest-earning assets.
LENDING ACTIVITIES
- ------------------
GENERAL
At December 31, 1997, the Company's loan portfolio constituted
approximately 61.32% of the Company's total assets. The following table sets
forth the composition of the Company's loan portfolio at the indicated dates.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------
1997 1996
------------------ ------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural........... $ 7,765,358 13.58% $ 5,840,546 11.82%
Real estate - construction.. 8,308,349 14.53% 7,274,577 14.72%
Real estate - mortgage...... 30,833,493 53.91% 26,936,164 54.50%
Consumer loans.............. 10,281,657 17.98% 9,374,426 18.96%
---------- ----- --------- ------
Total loans................. $57,188,857 100.00% $49,425,713 100.00%
=========== ====== =========== =======
</TABLE>
-8-
<PAGE>
The following table sets forth certain information as of December 31, 1997
regarding 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>
Commercial, financial
and agricultural............ $ 5,640,835 9.86% $ 2,124,523 3.71%
Real estate - construction.. 1,141,951 2.00% 7,166,398 12.53%
Real estate - mortgage...... 12,631,798 22.09% 18,201,695 31.83%
Consumer.................... 10,243,218 17.91% 38,439 .07%
---------- ------ ------ ----
Total................... $29,657,802 51.86% $27,531,055 48.14%
=========== ===== =========== =====
</TABLE>
At December 31, 1997, the total amount of loans due after one year which
had fixed rates of interest was $15,885,673, while the total amount of loans due
after one year with floating or adjustable rates of interest was $16,394,920.
The following table sets forth the scheduled maturities of the loans in the
Company's loan portfolio as of December 31, 1997 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>
Commercial, financial
and agricultural............. $ 3,522,267 $ 2,492,826 $ 1,750,265 $ 7,765,358
Real estate - construction.. 8,308,349 0 0 8,308,349
Real estate - mortgage....... 8,920,808 8,922,252 12,990,433 30,833,493
Consumer loans............... 4,156,840 6,075,702 49,115 10,281,657
--------- --------- ------ ----------
Total.................... $24,908,264 $17,490,780 $14,789,813 $57,188,857
=========== =========== =========== ===========
</TABLE>
-9-
<PAGE>
TYPES OF LOANS
Commercial, Financial, and Agricultural Loans
Commercial, financial, and agricultural loans, hereinafter referred to as
commercial loans (including non-real estate loans for agricultural purposes but
excluding commercial construction loans), totaled approximately $7,765,358 or
13.58% of the Company's loan portfolio at December 31, 1997. All commercial
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 commercial 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 commercial loans are secured
and guaranteed by the principals of the business.
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 lines of credit 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,
municipal bonds and mutual funds may not exceed 75% of their market value.
Unsecured short-term loans and lines of credit must meet criteria set by the
Bank's Loan Committee. All loans in excess of $10,000 must be supported by
current financial statements, and such financial statements must be updated
annually. Commercial 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.
Real Estate - Construction Loans
Approximately $8,308,349 or 14.53% of the Company's loans outstanding at
December 31, 1997 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 85% 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.
-10-
<PAGE>
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. 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, market conditions, 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.
Real Estate - Mortgage Loans
At December 31, 1997, real estate - mortgage loans totaled approximately
$30,833,493 or 53.91% of the Company's loan portfolio. Real estate - mortgage
loans include all loans secured by real estate for purposes other than
construction or aquisition and development and are hereinafter referred to as
real estate loans. All real estate loans are held in the Bank's loan
portfolio. Of this amount, approximately $12,067,065 or 21.10% 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 5 years with 1.5% of the average daily balance 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 85% of the value of the property securing the loan, based
upon an 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 80% of the value, based upon an
appraisal IF
-11-
<PAGE>
the loan amount is over $25,000. The Bank also requires title 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, 1997, the remainder of the real estate loan portfolio,
approximately $18,766,428 or 32.81% 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).
Consumer Loans
At December 31, 1997, consumer loans totaled approximately $10,281,657 or
17.98% of the Company's loan portfolio. Approximately $8,863,432 or 86.21% 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 generally
made for terms of up to five 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 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, 1997, consumer loans held in CLC's loan portfolio totaled
approximately $1,418,225 or 2.48% 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
-12-
<PAGE>
for any consumer loan customer. As of December 31, 1997, credit card loans
totaled approximately $1,127,266, or 1.97% 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.
ORIGINATION, PURCHASE AND SALE OF LOANS
The Bank originates loans primarily in Paulding County, Georgia. The Bank
also originates loans in Cobb, Douglas, and Bartow Counties, each of which is
adjacent to Paulding. 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. Management of the Bank currently
anticipates that the Bank will open a loan production office in Cobb County,
Georgia in the second quarter of 1998. Management expects to have one lender
who will originate loans from the Cobb location.
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. For significant extensions of credit, a certified appraisal
of the 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 credit worthiness of the borrower and the value of 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 secured loans of up to $35,000. There is
a Loan Committee comprised of the senior officers of the Bank which must approve
any loan that increases the borrower's aggregate indebtedness 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
-13-
<PAGE>
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 1997 and
1996, the Bank sold loan participations of approximately $4,317,244 and
$1,230,200 respectively, and purchased loan participations of approximately
$2,104,279 and $400,000, respectively.
CLC originates loans primarily in Cherokee, Polk, and Walker Counties,
which are all located in northwest Georgia. Loans are originated by nine
lenders who operate from CLC's offices in Rockmart, Georgia, Rossville, Georgia,
and Woodstock, Georgia. These lenders actively solicit loan applications from
existing customers. CLC also originates loans through a conditional sales
contract program with two retailers at this time. 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. CLC has entered into a definitive agreement to acquire a consumer
finance office located in Gainesville, Georgia. Upon consummation of this
transaction, management of CLC expects to have two lenders operating from this
office.
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, 1997, the Bank recognized
origination, commitment and other loan fees totaling $575,498, which equaled
12.19% of the Company's net interest income for such year. For the years ended
December 31, 1997 and 1996, the Bank recognized origination, commitment and
other loan fees totaling $651,219 and $537,630, respectively, which equaled
15.55% and 15.84%, 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, 1997, CLC recognized loan fees totaling $236,307,
which equaled 5.01% of the Company's net interest
-14-
<PAGE>
income for such year. 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.
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
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, a re-
assessment of the borrower's financial condition, the value of any collateral
and the estimated potential 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
-15-
<PAGE>
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. The Bank has no restructured loans as of December 31, 1997.
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 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 $37,045 of its real estate owned due to loan foreclosures
during the year ended December 31, 1997. The book value of real estate owned
that was sold by the Bank during the year ended December 31, 1997 totaled
approximately $37,365. As of December 31, 1997, 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 daily by each CLC Office Manager 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 with no payment collected in
that time frame, notice will be mailed to the customer stating that CLC is
taking legal action against them unless the account is brought to
-16-
<PAGE>
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. Generally, CLC's policy is to charge off any loan on
which CLC has not received a payment in 6 months. Management may determine that
a loan is in the process of collection and, therefore, the past due loan does
not have to be charged off. CLC's loans which are past due 90 days or more total
approximately $97,196 as of December 31, 1997, as compared to $92,202 as of
December 31, 1996.
The following table sets forth information regarding the Company's
delinquent and nonperforming assets as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Accruing loans which are contractually
past due 90 days or more:
Commercial, financial, and agricultural.. -0- -0-
Real estate - construction............... -0- -0-
Real estate - mortgage................... $ 80,381 $ 37,365
Consumer................................. 97,406 99,283
-------- --------
Total.................................. $177,787 $136,648
======== ========
Ratio of delinquent but accruing loans to:
Total loans............................ .31% .28%
Total assets........................... .19% .16%
Nonaccruing loans:
Commercial, financial, and agricultural.... $ 37,650 $ 23,850
Real estate - construction................. -0- -0-
Real estate - mortgage..................... 154,313 432
Consumer loans............................. 200,372 5,955
-------- --------
Total.................................. $392,335 $ 30,237
======== ========
Real estate acquired through foreclosure..... $ -0- $ -0-
Property acquired through repossession....... $ 1,500 $ 3,000
Ratio of nonperforming assets to:
Total loans and real estate acquired
through foreclosure and repossessions........ .69% .07%
Total assets................................. .43% .04%
</TABLE>
-17-
<PAGE>
The Bank recorded interest income on the nonaccruing loans listed above for
the fiscal year ended December 31, 1997 of approximately $10,818. The gross
interest income that would have been recorded during the fiscal year ended
December 31, 1997 if the nonaccruing loans listed above had been current in
accordance with their original terms would have been approximately $23,677.
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, 1997 management was not aware of any specific loan problems which
necessitated a specific loan loss allowance. 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, 1997 is adequate to absorb possible losses from loans currently in
the portfolio.
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. CLC's Board of Directors reviews 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.
-18-
<PAGE>
The following table summarizes the Company's loan loss experience for the
periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Average loans................................ $52,395,119 $46,043,727
Allowance for possible loan losses,
beginning of the period..................... 713,518 583,306
Charge-offs for the period:
Commercial, financial, and agricultural.. 7,459 $ 1,092
Real estate - construction............... -0- -0-
Real estate - mortgage................... 752 -0-
Consumer................................. 137,614 89,171
----------- -----------
Total charge-offs....................... $ 145,825 $ 90,263
----------- -----------
Recoveries for the period:
Commercial, financial, and agricultural.. $ 8,734 $ 1,318
Real estate - construction............... -0- -0-
Real estate - mortgage................... 787 1,613
Consumer................................. 47,748 19,703
----------- -----------
Total recoveries........................ $ 57,269 $ 22,634
----------- -----------
Net charge-offs for the period........... $ 88,556 $ 67,629
=========== ===========
Provision for loan losses.................... $ 204,270 $ 197,841
Allowance for possible loan losses,
end of the period.......................... $ 829,232 $ 713,518
Ratio of allowance for loan losses to
total average loans outstanding............ 1.58% 1.55%
Ratio of net charge-offs during
the period to average loans
outstanding during the period.............. .17% .15%
</TABLE>
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 10, 30, 60, or 90
-19-
<PAGE>
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, the Bank's management establishes an
allowance for loan losses that is reviewed by its Board of Directors each month.
The following table sets forth the Company's allocation of the allowance
for loan losses as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
------------------------------ ----------------------------------
Percent of loans Percent of loans
in each category in each category
Balance at end of period applicable to Amount to total loans Amount to total loans
- -------------------------------------- ------ -------------- ------ ---------------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural..... $ 76,141 13.58% $ 72,811 11.82%
Real estate - construction.................. 40,045 14.53% 66,193 14.72%
Real estate - mortgage...................... 221,962 53.91% 237,943 54.50%
Consumer.................................... 124,424 17.98% 105,956 18.96%
Unallocated................................. 366,660 N/A 230,615 N/A
-------- ------ -------- ------
Total.................................. $829,232 100.00% $713,518 100.00%
======== ====== ======== ======
</TABLE>
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 $1,555,174 or
17.60% of total interest and other income for the year ended December 31, 1997.
The Company's investment portfolio totaled approximately $23,322,111 or 25.38%
of total assets at December 31, 1997. 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 are available for sale and are
carried at fair market value.
<TABLE>
<CAPTION>
At December 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
U.S. Government and agency
obligations............................... $17,826,801 $19,701,854
Other bonds, notes, debentures
and securities............................ 301,100 255,000
States & political subdivisions tax-exempt.. 5,194,210 2,716,836
----------- -----------
Total.................................... $23,322,111 $22,673,690
=========== ===========
</TABLE>
-20-
<PAGE>
The following table sets forth the amortized cost value of the Bank's
investments at December 31, 1997, the weighted average yields on the Bank's
investments at December 31, 1997 and the periods to maturity of the Bank's
investments from December 31, 1997.
<TABLE>
<CAPTION>
Periods to Maturity from December 31, 1997
-----------------------------------------------------------------------
1 year or less 1 - 5 years 5 - 10 years Over 10 years
---------------------- ----------------------- ------------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield/(1)/ Amount Yield/(1)/ Amount Yield/(1)/ Amount Yield/(1)/
------ ---------- ------ ---------- ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government
agencies .................. $2,886,171 6.06% $ 5,141,983 6.05% $-0- -0- $ 911,989 3.98%
U. S. Treasuries ............ -0- -0- 6,815,948 6.10% -0- -0- -0- -0-
U. S. Government agencies -
mortgage-backed ............. -0- -0- 623,314 4.58% 241,195 5.43% 1,206,201 5.96%
Tax-exempt
municipal bonds ........... 250,000 6.45% 1,577,812 7.29% 481,130 7.22% 2,885,268 8.35%
Other bonds, notes, de-
bentures, and securities... 301,100 7.92% -0- -0- -0- -0- -0- -0-
------- ---- ----------- ------ -------- ------- ---------- ------
Total..................... $3,437,271 6.26% $14,159,057 6.14% $722,325 6.62% $5,003,458 7.06%
========== =========== ======== ==========
</TABLE>
- --------------------
(1)The weighted average yields on tax-exempt securities have been computed on
a tax-equivalent basis.
The following table sets forth, as of December 31, 1997, the aggregate
estimated fair market value, which is the carrying value, of the securities of
issuers in which the aggregate estimated fair market value of the Company's
investment exceeds 10% of the Company's stockholders' equity.
Estimated Aggregate
Fair Market Value
At December 31, 1997
--------------------
Federal Home Loan Bank....................... $3,000,058
Federal National Mortgage Association........ 4,724,458
Federal Home Loan Mortgage Corporation....... 1,662,657
Paulding County Municipal Bonds (1).......... 2,403,600
- ----------------
(1) Generally, municipal bonds held by the Company are insured by a private,
third-party insurer for the full amount of principal and interest due.
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
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<PAGE>
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, 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. 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. Additionally, in 1997, the Company established a $2,500,000
revolving credit facility with The Bankers Bank, Atlanta, Georgia. The Company
received $800,000 in proceeds from this note payable during 1997. As of March 2,
1998, the Company had $900,000 in borrowings outstanding under this facility.
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 weighted average
interest rate for the years ended December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ----------------------------------
Interest Interest
Type of Account Rate Amount Percent Rate Amount Percent
- --------------- ----- ----------- -------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits........... -0- $12,105,179 14.77% -0- $ 9,648,648 12.55%
NOW accounts.............. 1.72% 9,710,739 11.85% 1.89% 8,757,099 11.39%
Money market deposits..... 2.89% 8,933,508 10.90% 2.88% 8,454,539 10.99%
Savings deposits.......... 3.06% 14,808,283 18.06% 3.17% 15,546,932 20.22%
Time deposits............. 5.94% 36,423,394 44.42% 5.91% 34,490,543 44.85%
---- ----------- ------ ---- ----------- ------
Total deposits.. 4.33% $81,981,103 100.00% 4.35% $76,897,761 100.00%
==== =========== ====== ==== =========== ======
</TABLE>
-22-
<PAGE>
The following table sets forth the amount of time deposits maturing in the
periods indicated at December 31, 1997.
Amount Maturing
---------------------------------------------
Within Within Within After
1 Year 2 Years 3 Years 3 Years Total
------ ------- ------- ------- -----
4% - 6%.... $18,609,085 $3,333,216 $ 288,648 $ -0- $22,230,949
6% - 8%.... 5,969,765 2,466,180 2,713,111 3,043,389 14,192,445
The following table sets forth the maturity distribution of time deposits
of $100,000 or more at December 31, 1997.
Time Deposits
$100,000 or more
----------------
3 months or less...................... $ 4,901,321
Over 3 months through 6 months........ 1,327,596
Over 6 months through 12 months....... 2,992,309
Over 12 months........................ 5,612,528
-----------
Total outstanding.................. $14,834,114
===========
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 $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. The Bank is a member of the Federal Home Loan Bank of
Atlanta and borrowings are also available through that relationship. The amount
of credit available from the Federal Home Loan Bank of Atlanta fluctuates based
on criteria set by that institution. Additionally, the Company's $2,500,000 line
of credit with The Bankers Bank is intended to enhance the Company's liquidity.
At December 31, 1997, a total of $800,000 had been drawn and was outstanding
under the Company's line of credit with The Bankers Bank.
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 automated tellers
and point of sale terminals, which provide Bank customers with access to
HONOR(R) and CIRRUS(R) services throughout the world. The Bank maintains three
full-service ATMs and 21 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
-23-
<PAGE>
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 And Insurance 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 standard brokerage commissions. Beginning in January, 1998, the
Bank began affording its customers access to a broad range of insurance and
investment-related services, including insurance needs analysis, retirement and
estate planning alternatives, money management strategies and college tuition
and other savings options. These services are being provided through Robert B.
Maxwell, III, an independent, state-licensed insurance agent. Mr. Maxwell is an
independent contractor affiliated with Massachusetts Mutual Life Insurance
Company.
Competition
- -----------
Based on total assets of approximately $89,607,990 at December 31, 1997,
the Bank is presently one of the smaller financial institutions with offices in
Paulding County. 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 also has opened a
branch in Paulding County. 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 metropolitan
Atlanta, 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 many of its competitors.
The competitive pressures among commercial banks, thrift institutions and
other financial services 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.
-24-
<PAGE>
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 "Supervision and
Regulation--Other 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
enacted legislation which, effective July 1, 1996, allowed Georgia-based banks
to branch into up to three counties in addition to the county in which their
main office is located. 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, 1997, the Bank had 52 full-time and 20 part-time
employees, Metroplex had two full-time employees and one part-time employee, CLC
had nine full-time and one part-time employees, and CashTrans had four full-time
employees and three 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;
-26-
<PAGE>
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 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.
-27-
<PAGE>
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 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
-28-
<PAGE>
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 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.
-29-
<PAGE>
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 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.
-30-
<PAGE>
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. However, effective July 1, 1998, all branching restrictions will be
eliminated, thereby permitting unrestricted state-wide banking. See "Other
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 Department to have engaged in, or has been investigated by the Georgia
Department with respect to, any of such activities.
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
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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 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, 1998. 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 1998. The annual FICO assessment rate for banks is presently
.01256% of deposits. The Bank paid approximately $8,995 in assessments, which
was the minimum set by the FDIC for that period, during the year ended
December 31, 1997.
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.
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At December 31, 1997, the Bank had Tier 1 capital of $6,273,194, or 7.03%
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 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 $47.8 million, plus 10% of
the total in excess of $47.8 million.
Enactment of FDICIA
On December 19, 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. 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.
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<PAGE>
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 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.
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<PAGE>
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.
Other 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, banks
were permitted to consolidate interstate subsidiaries into branches and merge
with a bank across state lines to the extent that the applicable states had not
"opted out of interstate branching" prior to the effectiveness of the branching
provisions. The Act also permits 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.
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.
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<PAGE>
The Georgia legislature enacted legislation which, effective July 1, 1996,
allowed Georgia-based banks to branch into up to three counties in addition to
the county in which their main office is located. This same legislation will
eliminate all branching restrictions, thereby permitting unrestricted state-wide
branching, effective July 1, 1998.
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.
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
3844 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 and CashTrans lease office space in Dallas, Georgia. 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 2000. In December 1991, the
Bank also opened a full service office located in the Kroger grocery store of
the Paulding Commons Shopping Center, 4215 Jimmy Lee Smith Parkway 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 105 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.
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At December 31, 1997, the cost of office properties and equipment (less
allowances for depreciation and amortization) owned by the Company was
$2,141,654. 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.
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, 1997.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY AND BANK
- ------------------------------------------------------
Set forth below is information as of January 31, 1998 regarding the
executive officers of the Company and the Bank:
Principal Occupation
Name Age During The Past Five Years
---- --- --------------------------
Ronnie L. Austin 48 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.
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<PAGE>
Angel J. Byrd 42 Ms. Byrd has served as Comptroller of the
Company since April 1996 and was elected as
Secretary of the Company in December 1997.
Ms. Byrd also has served as Senior Vice
President and Chief Financial Officer of the
Bank since April 1996. Prior to 1996, Ms.
Byrd served as Vice President and Chief
Financial Officer of the Bank since December
1991. Prior to December 1997, Ms. Byrd served
as Assistant Secretary of the Company. She
also 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 42 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 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.
Edward J. Cooney 30 Mr. Cooney has served as Senior Vice
President and Chief Credit Officer since
January 1998. Prior to his employment with
the Bank, he served as Senior Credit Analyst
from August 1995 to January 1998, and
Internal Auditor from July 1994 to August
1995, at The Bankers Bank in Atlanta,
Georgia. From August 1991 to July 1994, he
served as Supervising Senior Accountant at
Evans, Porter, Bryan and Co. in Atlanta,
Georgia.
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<PAGE>
Michael Low 40 Mr. Low has served as Senior Vice President
of the Bank since April 1996, having served
as Chief Credit Officer from April 1996 to
December 1997. Prior to 1996, Mr. Low 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 caption "Selected Annual
Consolidated Financial Data in the Company's 1997 Annual Report to Stockholders.
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."
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, 1997, 1996, 1995, 1994 and 1993 are set forth
under the caption "Selected Annual Consolidated Financial Data" in the Company's
1997 Annual Report to Stockholders. 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 is set forth in the Company's 1997 Annual
Report to Stockholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Such discussion is
incorporated herein by reference.
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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 in the Company's 1997 Annual Report to Stockholders, are incorporated
herein by reference:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Earnings for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
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 1 - Election of Directors" on pages 3 through 7 of the Proxy
Statement for the Company's 1998 Annual Meeting of Shareholders (1998 Proxy
Statement). Such information is incorporated herein by reference. Such
information is incorporated herein by reference. Information relating to the
executive officers of the Company is set forth in Item 4(A) of this report under
the caption "Executive Officers of the Company and the Bank." Certain Directors
of the Company and the Bank failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934 during the most recent
fiscal year. Mr. Austin failed to file in a timely manner one report relating
to one transaction. Mr. Berry failed to file in a timely manner three reports
relating to three transactions. Mr. Foster failed to file one report in a timely
manner relating to one transaction. Mr. Helms failed to file one report in a
timely manner relating to one transaction. Mr. Russ Parker, a Director of the
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Bank, failed to file one report in a timely manner relating to one transaction.
Other than as described above, to the knowledge of the Company, each person who,
at any time during the year ended December 31, 1997, 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 1 -Election of Directors - Compensation of Directors" on
page 8 of the 1998 Proxy Statement and under the caption "Proposal 1 - Election
of Directors - Executive Compensation" on pages 9 and 10 of the 1998 Proxy
Statement and under the caption "Proposal 1 - Election of Directors -
Transactions with Management" on page 10 of the 1998 Proxy Statement. Such
information is incorporated herein by reference.
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" on page 2 of the 1998 Proxy Statement and "Proposal 1 - Election
of Directors - Nominees" on pages 4 through 7 of the 1998 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 1 -Election of Directors - Transactions
with Management" on page 10 of the 1998 Proxy Statement. Such information is
incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) 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
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3.3* Articles of Incorporation of the Bank
3.4+ Bylaws of the Bank
4.+ Specimen Stock Certificate representing shares of the Company's
$2.50 par value common stock
10.1*@ 1988 Stock Option Plan and related specimen copy of option
10.2@ 1993 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@ 1993 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)
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
(Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1996)
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<PAGE>
10.9 Loan and Stock Pledge Agreement dated November 14, 1997, between
the Company and The Bankers Bank
(Filed as Exhibit 2 to the Company's Current Report on Form 8-K
dated November 14, 1997)
10.10+@ Employment Agreement dated January 1, 1998, between the Company
and Ronnie Austin
13.+ 1997 Annual Report**
20.+ Proxy Statement for 1998 Annual Meeting of Stockholders
21.+ Subsidiaries
27.+ Financial Data Schedule (electronic filing only)
__________
*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 1997 Annual Report, as indicated in this
report, are incorporated herein by reference. Other than as noted herein, the
Company's 1997 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
One Current Report on Form 8-K was filed by the Company with the
Commission during the quarter ended December 31, 1997. This Form 8-K was
dated November 14, 1997, and reported events occurring under Items 2 and 5
of Form 8-K.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
(Registrant)
Date: March 20, 1998 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)
In accordance with 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 20, 1998.
Signature Title
--------- -----
/s/ 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)
-44-
<PAGE>
/s/ George Berry Director
- ----------------
George Berry
/s/ R. Alan Bullock Director
- -------------------
R. Alan Bullock
/s/ Bobbie P. Cooper Director
- --------------------
Bobbie P. Cooper
/s/ J. Calvin Earwood Director
- ---------------------
J. Calvin Earwood
/s/ Tommie R. Graham Director
- --------------------
Tommie R. Graham
/s/ John C. Helms Director
- -----------------
John C. Helms
/s/ C. D. Rampley Director
- -----------------
C. D. Rampley
-45-
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit No. Description Page No.
- ----------- ----------- --------
3.1* Articles of Incorporation of the Company
3.2+ Bylaws of the Company
3.3* Articles of Incorporation of the Bank
3.4+ Bylaws of the Bank
4.+ Specimen Stock Certificate representing shares of the Company's
$2.50 par value common stock
10.1*@ 1988 Stock Option Plan and related specimen copy of option
10.2@ 1993 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@ 1993 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)
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)
-47-
<PAGE>
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
(Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1996)
10.9 Loan and Stock Pledge Agreement dated November 14, 1997, between
the Company and The Bankers Bank
(Filed as Exhibit 2 to the Company's Current Report on Form 8-K
dated November 14, 1997)
10.10+@ Employment Agreement dated January 1, 1998, between the Company
and Ronnie Austin
13.+ 1997 Annual Report**
20.+ Proxy Statement for 1998 Annual Meeting of Stockholders
21.+ Subsidiaries
27.+ Financial Data Schedule (electronic filing only)
__________
*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 1997 Annual Report, as indicated in this
report, are incorporated herein by reference. Other than as noted herein, the
Company's 1997 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.
-48-
<PAGE>
AMENDED AND RESTATED 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 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.
<PAGE>
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 may from time to time determine.
2.2 Special meetings of the shareholders may be called at any time 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 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.
-2-
<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 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.
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.
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 a 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 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-
<PAGE>
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.
3.7 When a director of the corporation attains the age of seventy-five
(75) or otherwise retires under the retirement policies of the corporation as
established from time to time by the Board of Directors, such director
automatically shall become a Director Emeritus of the corporation following his
retirement. Any individual automatically becoming a Director Emeritus as
provided by this Section 3.7 may be compensated for such individual=s services
as a Director Emeritus in such manner, if any, as may from time to time be
determined by vote of the Board of Directors, but such individual may not vote
at any meeting of the Board of Directors or be counted in determining a quorum
as provided in Section 3.2 and shall not have any responsibility or be subject
to any liability imposed upon a director, or otherwise be deemed a director.
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 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-
<PAGE>
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 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.
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.
-5-
<PAGE>
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 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 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.
-6-
<PAGE>
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.
-7-
<PAGE>
AMENDED AND RESTATED BYLAWS OF COMMUNITY TRUST BANK
ARTICLE ONE
Offices
1.1 Registered Office. The bank shall maintain a registered office in the
-----------------
county in the State of Georgia where the bank is authorized to conduct its
general business. Unless the Board of Directors designates otherwise, the
bank's main office shall be the registered office.
1.2 Other Offices. In addition to its registered office, the bank also may
-------------
have offices at such other place or places as the Board of Directors may from
time to time select, or as the business of the bank may require or make
desirable, subject to the banking laws of this State.
ARTICLE TWO
Shareholders' Meetings
2.1 Place of Meetings. Meetings of the shareholders of the bank may be held
-----------------
at any place within the State of Georgia, as set forth in the notice thereof,
or, in the event of a meeting held pursuant to waiver of notice, as set forth in
the waiver, or, if no place is so specified, at the registered office of the
bank.
2.2 Annual Meetings. The annual meeting of shareholders of the bank shall be
---------------
held within the initial 120 days of each calendar year for the purpose of
electing directors and transacting any and all business that may properly come
before the meeting. The Board of Directors may postpone any annual meeting, for
not more than seven (7) days, for cause upon not less than ten (10) days written
notice to all shareholders.
2.3 Substitute Annual Meeting. If the annual meeting is not held on the day
-------------------------
designated in Section 2.2, any business, including the election of directors,
which might properly have been acted upon at that meeting, may be transacted at
any subsequent shareholders' meeting held pursuant to these bylaws or held
pursuant to a court order requiring a substitute annual meeting.
2.4 Special Meetings. Special meetings of shareholders or a special meeting
----------------
in lieu of the annual meeting of shareholders shall be called by the bank upon
the written request of the holders of twenty-five percent (25%) or more of all
the outstanding shares of capital stock of the bank entitled to vote in an
election of directors. Special meetings of the shareholders or a special
meeting in lieu of the annual meeting of shareholders may be called at any time
by the President, Chairman of the Board, or the Board of Directors.
2.5 Notice of Meetings. Unless waived as contemplated in Section 5.2, or by
------------------
attendance at the meeting, either in person or by proxy, for any purpose other
than to object to the transaction of business, a written or printed notice of
<PAGE>
each shareholders' meeting stating the place, day and hour of the meeting shall
be delivered not less than ten (10) days, nor more than fifty (50) days before
the date thereof, either personally, by mail, or by telegram, charges prepaid by
or at the direction of the President, the Secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. In the case of an annual or substitute annual meeting, the notice of
the meeting need not state the purpose or purposes of the meeting unless the
purpose or purposes constitute a matter which the Financial Institutions Code of
Georgia requires to be stated in the notice of the meeting. In the case of a
special meeting, the notice of the meeting shall state the specific topics of
the business to be transacted.
2.6 Quorum. At all meetings of the shareholders, the presence in person or by
------
proxy of the holders of more than one-half of the shares outstanding and
entitled to vote shall constitute a quorum. If a quorum is present, a majority
of the shares represented at the meeting and entitled to vote on the subject
matter shall determine any matter coming before the meeting unless a different
vote is required by the Financial Institutions Code of Georgia, by the Articles
of Incorporation of the bank or by these bylaws. The shareholders at a meeting
at which a quorum is once present may continue to transact business at the
meeting or at any adjournment thereof, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. If a meeting cannot be organized for
lack of a quorum, those shareholders present may adjourn the meeting to such
time and place as they may determine. It shall not be necessary to give any
notice of the adjourned meeting if the time and place to which the meeting is
adjourned are announced at the meeting at which the adjournment is taken. If,
however, after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to vote at such
meeting. In the case of a meeting for the election of directors which is twice
adjourned for lack of a quorum, those present at the second of such adjourned
meetings, of which notice has been given in writing to shareholders, shall
constitute a quorum for the election of directors without regard to the other
quorum requirements of the Financial Institutions Code of Georgia, the Articles
of Incorporation of the bank, or these bylaws.
2.7 Voting of Shares. Each outstanding share having voting rights shall be
----------------
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. Voting on all matters shall be by voice vote or by show of hands
unless any qualified voter, prior to the voting on any matter, demands a vote by
ballot, in which case each ballot shall state the name of the shareholder voting
and the number of shares voted by him, and if such ballot is cast by proxy, it
shall also state the name of such proxy.
2.8 Proxies. A shareholder entitled to vote pursuant to Section 2.7 may vote
-------
in person or by proxy executed in writing by the shareholder or by his attorney
in fact. A proxy shall not be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly stated therein. If the
validity of any proxy is questioned, it must be submitted to the secretary of
the shareholders' meeting for examination or to a proxy officer or committee
appointed by the person presiding at the meeting. The secretary of the meeting
or, if appointed, the proxy officer or committee, shall determine the validity
or invalidity of any proxy submitted and referenced by the secretary in the
minutes of the meeting as to the regularity of a proxy which shall be received
as prima facie evidence of the facts stated for the purpose of establishing the
presence of a quorum at such meeting and for all other purposes.
-2-
<PAGE>
2.9 Presiding Officer. The Chairman of the Board of Directors or, in his
-----------------
absence the Vice-Chairman of Board of Directors, or in his absence, the
President, shall serve as chairman of every shareholders' meeting. The chairman
shall appoint such persons as he deems required to assist with the meeting.
2.10 Adjournments. Any meeting of the shareholders, whether or not a quorum
------------
is present, may be adjourned by the holders of a majority of the voting shares
represented at the meeting to reconvene at a specific time and place. Except as
otherwise provided by Section 2.6, it shall not be necessary to give any notice
of the reconvened meeting or of the business to be transacted, if the time and
place of the reconvened meeting are announced at the meeting which was
adjourned. At any such reconvened meeting, any business may be transacted which
could have been transacted at the meeting which was adjourned.
2.11 Action of Shareholders Without a Meeting. Any action required by the
----------------------------------------
Financial Institution Code of Georgia to be taken at a meeting of the
shareholders, or any action which may be taken at a meeting of the shareholders,
may be taken without a meeting if a written consent, setting forth the action so
taken, shall be signed by each of the shareholders entitled to vote with respect
to the subject matter thereof. Upon filing with the officer of the bank having
custody of its books and records, such consent shall have the same force and
effect as a unanimous vote of the shareholders at a special meeting called for
the purpose of considering the action authorized.
ARTICLE THREE
The Board of Directors
3.1 General Powers. The business and affairs of the bank shall be managed by
--------------
the Board of Directors. In addition to the powers and authority expressly
conferred upon it by these bylaws, the Board of Directors may exercise all such
powers of the bank and do all such lawful acts and things as are not by law, any
legal agreement among shareholders, the Articles of Incorporation, or these
bylaws directed or required to be exercised or done by the shareholders.
3.2 Requirements. Each director of the bank shall be a United States citizen,
------------
and at least eighty percent (80%) of the directors shall reside in the State of
Georgia and in the county in which the registered office of the bank is located,
or within forty (40) miles of any office of the bank authorized to offer a
complete banking service. Each director shall maintain on file with the Chief
Executive Officer of the bank a financial statement on forms prescribed by the
Department of Banking and Finance. Such financial statements shall be revised
annually, but in no event shall the statement on file be more than eighteen
months old. At the discretion of the Board of Directors, such financial
statements may be maintained in sealed envelopes available for inspection only
by State or Federal examiners.
-3-
<PAGE>
3.3 Number, Election and Term of Office. The Board of Directors of the bank
-----------------------------------
shall consist of not less than five (5), nor more than twelve (12) persons, with
the exact number within such minimum and maximum to be fixed and determined from
time to time by resolution of the Board of Directors, or by resolution of the
shareholders at any annual or special meeting of shareholders. The Board of
Directors may increase or decrease the number of directors by not more than two
(2) in any one year, so long as such increase or decrease does not place the
number of directors at less than five (5), nor more than twelve (12). Except as
provided in Section 3.6, the directors shall be elected by the affirmative vote
of a majority of the shares represented at the annual meeting of shareholders.
Each director, except in the case of his earlier death, resignation, retirement,
disqualification, or removal, shall serve until the next succeeding annual
meeting and thereafter until his successor shall have been elected and
qualified. The Board of Directors shall consist of a maximum of two (2) bank
officers.
3.4 Oath of Directors. Before assuming office, each director shall take an
-----------------
oath or affirmation that he shall diligently and honestly perform his duties in
the administration of the bank, that he will not permit a willful violation of
laws by the bank and that he meets the eligibility requirements of the Financial
Institutions Code of Georgia, the bank's Articles of Incorporation and these
bylaws. Such oath or affirmation shall be signed by the director and shall be
placed into the minutes of the meetings of the Board of Directors.
3.5 Removal. The entire Board of Directors or any individual director may be
-------
removed from office with or without cause by the affirmative vote of the holders
of a majority of the shares entitled to vote at an election of directors. In
addition, the Board of Directors may remove a director from office if such
director is adjudicated an incompetent by a court, if he is convicted of a
felony, if he files for protection from creditors under bankruptcy laws, if he
does not, within sixty (60) days of his election, accept the office in writing
or by attendance at a meeting of the Board of Directors and fulfill any other
requirements for holding the office of director, or if he fails to attend
regular meetings of the Board of Directors for two (2) consecutive meetings
without having been excused by the Board of Directors.
3.6 Vacancies. A vacancy occurring in the Board of Directors, whether caused
---------
by removal or otherwise and including vacancies resulting from an increase in
number of directors, may be filled for the unexpired term, and until the
shareholders shall have elected a successor, by the affirmative vote of a
majority of the directors remaining in office though less than a quorum of the
Board of Directors.
3.7 Compensation. Directors and Directors Emeritus may receive such
------------
compensation for their services as directors as may from time to time be fixed
by vote of the Board of Directors. A director may also serve the bank in a
capacity other than that of director and receive compensation, as determined by
the Board of Directors, for services rendered in such other capacity. Provided,
however, no director shall be compensated from commissions derived from the sale
of credit related insurance (credit life, disability, accident and health
insurance, etc.) where premiums paid by a bank customer for such insurance are
financed by the bank as a part of the credit extended, or where purchase of the
insurance is a condition precedent to the granting of credit.
-4-
<PAGE>
3.8 Committees of the Board of Directors. The Board of Directors, by
------------------------------------
resolution adopted by a majority of the full Board of Directors, may designate
from among its members one or more committees, each consisting of three or more
directors. Each committee shall have the authority of the Board of Directors in
regard to the business of the bank to the extent set forth in the resolution
establishing such committee, subject to the limitations set forth in State and
Federal laws and regulations.
3.9 Honorary and Advisory Directors. When a Director of the bank attains the
-------------------------------
age of seventy-five (75) or otherwise retires under the retirement policies of
the bank as established from time to time by the Board of Directors, such
director automatically shall become a Director Emeritus of the bank following
his retirement. Any individual automatically becoming a Director Emeritus as
provided by this Section 3.9 may be compensated as provided in Section 3.7, but
such individual may not vote at any meeting of the Board of Directors or be
counted in determining a quorum as provided in Section 4.5 and shall not have
any responsibility or be subject to any liability imposed upon a director, or
otherwise be deemed a director.
ARTICLE FOUR
Meetings of the Board of Directors
4.1 Regular Meetings. An annual organizational meeting of the Board of
----------------
Directors shall be held on the day of and after the annual meeting of the
shareholders of the bank. In the event the annual shareholders' meeting is not
held as provided by Sections 2.4 or 2.11, such organizational meeting shall be
held as herein provided for regular meetings. In addition, regular meetings of
the Board of Directors shall be held on the third Monday of every month during
the calendar year except during the month in which the organizational meeting of
the Board of Directors is held. The Board of Directors and the President are
authorized to cancel not more than two of such regular meetings, excluding the
organizational meeting, during each calendar year.
4.2 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the President, Chairman of the Board, Vice-
Chairman of the board, or by any two directors in office at that time.
4.3 Place of Meetings. Directors may hold their meetings at any place within
-----------------
(or without) the State of Georgia as the Board of Directors may from time to
time establish for regular meetings, or as set forth in the notice of special
meetings, or in the event of a meeting held pursuant to waiver of notice, as set
forth in the waiver.
4.4 Notice of Meetings. No notice shall be required for any regularly
------------------
scheduled meeting of the directors of the bank. Unless waived as contemplated in
Section 5.2, the President or Secretary of the bank, or any director thereof
shall give notice to each director of each special meeting stating the time,
place, and purposes of the meeting. Such notice shall be given by mailing notice
of the meeting at least five (5) days before the date of the meeting, or by
telephone, telegram, or personal delivery at least three (3) days before the
date of the meeting. Notice shall be deemed to have been given by telegram or
cablegram at the time notice is filed with the transmitting agency. Attendance
-5-
<PAGE>
by a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of business because the meeting is not lawfully called.
4.5 Quorum. At meetings of the Board of Directors, more than one-half of the
------
directors then in office shall be necessary to constitute a quorum for the
transaction of business.
4.6 Vote Required for Action. Except as otherwise provided in these bylaws,
------------------------
by the bank's Articles of Incorporation, or by law, the act of a majority of the
directors present at a meeting at which a quorum is present at the time shall be
the act of the Board of Directors.
4.7 Action by Directors Without a Meeting. Any action which may be taken at
-------------------------------------
any meeting of the Board of Directors, or at any meeting of a committee of
directors may be taken without a meeting if a written consent thereto shall be
signed by all directors, or all the members of the committee, as the case may
be, and if such written consent is filed with the minutes of the proceedings of
the Board or the committee. Such consent shall have the same force and effect
as a unanimous vote of the Board of Directors or the committee.
ARTICLE FIVE
Notice and Waiver
5.1 Procedure. Whenever these bylaws require notice to be given to any
---------
shareholder or director, the notice shall be given as prescribed in Sections 2.5
or 4.4, whichever is applicable. Whenever notice is given to a shareholder or
director by mail, the notice shall be sent by first class mail by depositing the
same in a post office or letter box in a postage prepaid, sealed envelope,
addressed to the shareholder or director at his known address, and such notice
shall be deemed to have been given at the time the same is deposited in the
United States mail.
5.2 Waiver. Except as limited by the Financial Institutions Code of Georgia,
------
whenever any notice is required to be given to any shareholder or director by
law, by the Articles of Incorporation, or these bylaws, a waiver thereof in
writing, signed by the director or shareholder entitled to such notice, or by
the proxy of such shareholder, whether before or after the meeting to which the
waiver pertains, shall be deemed equivalent thereto; provided, however, that no
such waiver shall apply by its terms to more than one required notice.
ARTICLE SIX
Officers
6.1 Number. The officers of the bank shall consist of a President and a
------
Secretary. In addition, the Board of Directors may from time to time elect or
provide for the appointment of such other officers or assistant officers as it
deems necessary for the efficient management of the bank, or as shall otherwise
be required by law or regulation. Any two or more offices may be held by the
same person, except the offices of President and Secretary. The Board of
Directors shall have the power to establish and specify the duties for all
officers of the bank.
-6-
<PAGE>
6.2 Election and Term. All officers shall be elected by the Board of
-----------------
Directors and shall serve at the will of the Board of Directors and until their
successors have been elected and have qualified, or until their earlier death,
resignation, removal, retirement or disqualification. The bank shall immediately
inform the Georgia Department of Banking and Finance in writing of the election
of any new chief executive officer.
6.3 Compensation. The compensation of all officers of the bank shall be fixed
------------
by the Board of Directors, considering the recommendation of the Compensation
Committee of the Board of Directors, if such Committee is designated as provided
in section 3.8. Provided, however, no salaried officer may be compensated as a
director even though serving on the Board of Directors.
6.4 Removal. Any officer or agent elected by the Board of Directors may be
-------
removed by the Board of Directors with or without any cause whenever in its
judgment the best interests of the bank will be served thereby without prejudice
to any contract right to such officer. The bank shall immediately inform the
Georgia Department of Banking and Finance in writing of the names of any
officers removed and the reasons for such removal.
6.5 Chairman of the Board. The Board of Directors, in its discretion, may
---------------------
elect a Chairman of the Board of Directors who shall preside at all meetings of
the Board of Directors and act as chairman at all meetings of the shareholders
and perform such other duties as the Board of Directors may from time to time
direct.
6.6 Vice-Chairman of the Board. The Board of Directors, in its discretion may
--------------------------
also elect a vice-chairman of the Board of Directors, who shall act in the
absence of the chairman in the capacity of chairman.
6.7 President. The President shall be the chief executive officer of the bank
---------
and shall have general control and supervision over the business and affairs of
the bank. He shall see that all orders and resolutions of the Board of Directors
are carried into effect. In the absence of the chairman and vice-chairman of the
Board of Directors, the President shall preside and act as chairman of all
meetings of the shareholders and the Board of Directors. He also shall perform
such other duties as may be delegated to him from time to time by the Board of
Directors.
6.8 Officer in Place of President. The Board of Directors may designate an
-----------------------------
officer who shall, in the absence of a chairman and vice-chairman or disability
of the President, or at the direction of the President, perform the duties and
exercise the powers of the President.
6.9 Secretary. The Secretary shall keep accurate records of the acts and
---------
proceedings of all meetings of shareholders, directors and committees of
directors. He shall have authority to give all notices required by law or these
bylaws. He shall be custodian of the corporate books, records, contracts and
other documents. The Secretary may affix the bank's seal to any lawfully
executed documents requiring it and shall sign such instruments as may require
his signature.
-7-
<PAGE>
6.10 Bonds. Any director who is authorized to handle money or negotiable
-----
assets on behalf of the bank and all officers and employees of the bank shall be
bonded by a regularly incorporated surety company authorized to do business in
the State of Georgia, and the bank may pay the cost of such bonds. The form,
amount and surety of such bonds shall be approved by the Board of Directors and
shall be subject to any additional requirements of the Georgia Department of
Banking and Finance.
6.11 Reimbursement of Officers. Any payments made to an officer of the bank
-------------------------
such as salary, commission, bonus, interest or rent, or reimbursement of
entertainment expenses incurred by him, which shall be disallowed in whole or in
part as a deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer to the bank to the full extent of such disallowance.
It shall be the duty of the Board of Directors to enforce payment of each such
amount disallowed. In lieu of payment by the officer, subject to the
determination of the Board of Directors, proportionate amounts may be withheld
from his future compensation payments until the amount owed to the bank has been
recovered.
ARTICLE SEVEN
Dividends
7.1 Time and Conditions of Declaration. Dividends upon the outstanding shares
----------------------------------
of the bank may be declared by the Board of Directors at any regular or special
meeting and paid in cash or property only out of the retained earnings of the
bank. Dividends can be paid without the approval of the Department of Banking
and Finance when the bank meets the paid-in capital and/or appropriated net
earnings requirements of the Financial Institutions Code of Georgia, and only in
compliance with the regulations of the Georgia Department of Banking and Finance
regarding payment of dividends.
7.2 Share Dividends- Treasury Shares. Dividends may be declared by the Board
--------------------------------
of Directors and paid out of any lawfully held treasury shares.
7.3 Share Dividends- Unissued Shares. Dividends may be declared by the Board
--------------------------------
of Directors and paid in the authorized but unissued shares of the bank out of
any retained earnings of the bank; provided that such shares shall be issued at
not less than the par value thereof, there shall be transferred to capital stock
at the time such dividend is paid an amount of retained earnings at least equal
to the aggregate par value of the shares to be issued as a dividend, and after
payment of the dividend the bank shall continue to maintain the paid-in capital
and/or appropriated retained earnings requirements of the Financial Institutions
Code of Georgia.
7.4 Share Splits. A split or division of the issued shares of any class into
------------
a greater number of shares of the same class without increasing the capital
stock of the bank shall not be construed to be a share dividend within the
meaning of this Article.
-8-
<PAGE>
ARTICLE EIGHT
Shares
8.1 Authorization and Issuance of Shares. The par value and the maximum
------------------------------------
number of shares of any class of the bank which may be issued and outstanding
shall be set forth from time to time in the Articles of Incorporation of the
bank. The Board of Directors may increase or decrease the number of issued and
outstanding shares of the bank within the maximum number of shares authorized by
the Articles of Incorporation and the minimum capitalization requirements of the
Articles of Incorporation or Georgia law.
8.2 Share Certificates. The interest of each shareholder in the bank shall be
------------------
evidenced by a certificate or certificates representing shares of the bank which
shall be in such form as the Board of Directors may from time to time adopt in
accordance with Georgia law. Share certificates shall be consecutively
numbered, shall be in registered form, and shall indicate the date of issue and
all such information shall be entered on the bank's books. Each certificate
shall be signed by the President or a Vice President and the Secretary or an
Assistant Secretary and shall be sealed with the seal of the bank or a facsimile
thereof; provided, however, that where such certificate is signed by a transfer
agent, or registered by a registrar, other than the bank itself, or any employee
of the bank, the signature of such officers may be facsimiles. In case any
officer or officers who shall have signed or whose facsimile signature shall
have been placed upon a share certificate shall have ceased for any reason to be
such officer or officers of the bank before such certificate is issued, such
certificate may be issued by the bank with the same effect as if the person or
persons who signed such certificate or whose facsimile signatures shall have
been used thereon had not ceased to be such officer or officers.
8.3 Rights of Bank with Respect to Registered Owners. Prior to due
------------------------------------------------
presentation for transfer of registration of its shares, the bank may treat the
registered owner of the shares as the person exclusively entitled to vote such
shares, to receive any dividend or other distribution with respect to such
shares, and for all other purposes; and the bank shall not be bound to recognize
any equitable or other claim to or interest in such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
8.4 Transfer of Shares. Transfers of shares shall be made upon the stock
------------------
transfer books of the bank only upon direction of the person named in the share
certificate representing the shares to be transferred, or by an attorney of such
person lawfully constituted in writing; and before a new certificate is issued,
the old certificate shall be surrendered for cancellation or, in the case of a
certificate alleged to have been lost, stolen, or destroyed, the provisions of
Section 8.6 of these bylaws shall have been satisfied.
8.5 Duty of Bank to Register Transfer. Notwithstanding any of the provisions
---------------------------------
of Section 8.4 of these bylaws, the bank is under a duty to register the
transfers of its shares only if:
(a) the share certificate is endorsed by the appropriate person or
persons; and
(b) reasonable assurance is given that these endorsements are genuine and
effective;
-9-
<PAGE>
and
(c) the bank has no duty to inquire into adverse claims or has discharged
any such duty; and
(d) any applicable law relating to the collection of taxes has been
complied with; and
(e) the transfer is in fact rightful or is to a bona fide purchaser.
8.6 Lost, Stolen, or Destroyed Certificates. Any person claiming a share
---------------------------------------
certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board of Directors so requires,
give the bank a bond of indemnity in form and amount, and with one or more
sureties satisfactory to the Board of Directors, as the Board of Directors may
require, whereupon an appropriate new certificate may be issued in lieu of the
one alleged to have been lost, stolen, or destroyed.
8.7 Fixing of Record Date. For the purpose of determining shareholders
---------------------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date, such date to be not
more than 50 days (and, in the case of a shareholders' meeting, not less than 10
days) prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
8.8 Record Date if None Fixed. If no record date is fixed as provided in
-------------------------
Section 8.7 of these bylaws, the record date for any determination of
shareholders which may be proper or required by law shall be the date on which
notice is mailed in the case of a shareholders' meeting, or the date on which
the Board of Directors adopts a resolution declaring a dividend in the case of a
payment of a dividend.
ARTICLE NINE
Indemnification
9.1 Indemnification. Any person, his heirs, executors, or administrators, may
---------------
be indemnified or reimbursed by the bank for reasonable expenses actually
incurred in connection with any action, suit, or proceeding, civil or criminal,
to which he shall be made a party by reason of the fact that he is or was a
director, trustee, officer, employee, or agent of the bank, or that he is or was
serving, at the request of the bank, as a director, trustee, officer, employee,
or agent of another firm, corporation, trust, or other organization or
enterprise; provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceedings as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the bank, or to such other firm, corporation, trust, organization, or
enterprise; and provided further, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding which
has been the subject of a compromise settlement, except with the approval of (i)
a court of competent jurisdiction, (ii) the holders of record of a majority of
the outstanding shares of capital stock of the bank, or (iii) a majority of the
-10-
<PAGE>
members of the Board of Directors then holding office, excluding the votes of
any directors who are parties to the same or substantially the same action,
suit, or proceeding.
9.2 Payment of Expenses in Advance. Expenses incurred in defending any
------------------------------
action, suit, or proceeding referred to above may be paid by the bank in advance
of the final disposition of such action, suit, or proceeding as authorized by
the Board of Directors in the specific case upon receipt of an undertaking by or
on behalf of the director, trustee, officer, employee, or agent to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified by the bank as provided above.
9.3 Insurance. The bank, upon the affirmative vote of a majority of its Board
---------
of Directors, may purchase and maintain insurance on behalf of any person who is
or was a director, trustee, officer, employee, or agent of the bank, or is or
was serving, at the request of the bank, as a director, trustee, officer,
employee, or agent of another firm, corporation, trust, or other organization or
enterprise against liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the bank
would have the power to indemnify him against such liability under the foregoing
provisions of these bylaws.
9.4 Rights Not Exclusive. The foregoing rights of indemnification or
--------------------
reimbursement shall not be exclusive of other rights to which the persons
referred to above, or their heirs, executors, or administrators, may be entitled
as a matter of law, and the bank may indemnify such persons to the extent
permitted by the Financial Institutions Code of Georgia and the Georgia Business
Corporation Code, as such laws may be amended from time to time.
ARTICLE TEN
Emergency Operations
10.1 General. In the event of an emergency declared by the President of the
-------
United States or the person performing his functions, or an emergency declared
by the Governor of the State of Georgia or the person performing his functions,
the officers and employees of this bank shall continue to conduct the affairs of
the bank under such guidance from the directors as may be available except as
the matters which by statute or regulation require specific approval of the
Board of Directors and subject to conformance with any governmental directives
during the emergency. In the absence of a plan of operation formulated by the
Board of Directors providing for conducting the business of the bank during the
time emergencies exist, the following provisions shall govern the operations of
the bank notwithstanding any other provisions of these bylaws to the contrary.
Provided, further, that all operations shall be consistent with all State and
Federal laws governing emergency operations.
10.2 Meeting of Board of Directors. The Board of Directors shall meet as soon
-----------------------------
as practicable at the time and place within the State of Georgia, or, if no
place within the State of Georgia can be utilized promptly, without the State of
Georgia, as designated by the Chairman of the Board of Directors, the President,
the officer designated pursuant to Section 6.7, or any two directors. Any
director may waive notice of such meeting in writing before, at, or after such
meeting.
-11-
<PAGE>
If it shall be determined at such meeting that there are less than five (5)
directors then capable of serving, the directors present at such meeting, shall,
by majority vote, appoint a sufficient number of persons to fill the vacancies
existing in the Board of Directors to bring the total number of directors to not
less than five (5).
As soon as a majority of such Board of Directors, consisting of not less
than five (5) members, can be assembled at the meeting required by this Section
10.2, or any adjournment thereof, which adjournment can be effected at any time
by a majority vote of those in attendance, the Board of Directors as then
constituted shall (i) appoint such officers as may be required to transact the
business of the bank to succeed the then appointed or acting officers who have
been incapacitated as a result of the emergency, and (ii) designate and
authorize temporary relocation and establishment of the main banking office and
any branch, branch bank or bank office of the bank which may have become wholly
or partially unusable as a result of the emergency conditions at any other
office, branch, branch bank or bank office of the bank, or other location in the
State of Georgia, and (iii) at its discretion, authorize the entry of the bank
into an agreement with any Federal Reserve Bank, Federal Home Loan Bank, banking
institution or branch (the "other bank") whereby the bank shall act as agent for
the other bank or the other bank shall act as agent for the bank and perform
temporarily any and all operations and functions thereof.
10.3 Interim Administration. Until such time as the meeting of the Board of
----------------------
Directors required by Section 10.2 can be held and action taken by it, and in
the event either the President or the officer of the bank designated pursuant to
Section 6.7 cannot be located or is unable to continue normal executive duties,
all perfunctory matters ordinarily performed by the President may be performed
by any Vice President if such officer or officers have been designated, and if
not, by the Secretary of the bank.
10.4 Interim Office. Until such time as the meeting required by Section 10.2
--------------
can be held and action taken by the Board of Directors as then constituted, and
in the event that because of damage or disaster the main office or any branch,
branch bank or bank office of the bank office shall be relocated at any other
branch or location designated by the Acting President.
The Acting President shall notify the State and Federal Regulatory
Authorities of any such relocation of its main office, branches, branch banks,
or bank offices as promptly as possible.
ARTICLE ELEVEN
Miscellaneous
11.1 Inspection of Books and Records. The Board of Directors shall have power
-------------------------------
to determine which accounts, books and records of the bank shall be open to the
inspection of shareholders, except such accounts, books, and records that are
specifically open to inspection by law, and the Board of Directors shall have
power to fix reasonable rules and regulations not in conflict with the
applicable law for the inspection of accounts, books and records which by law or
by determination of the Board of Directors shall be open to inspection.
-12-
<PAGE>
11.2 Fiscal Year. The fiscal year of the bank shall be the calendar year.
-----------
11.3 Seal. The corporate seal shall be in such form as the Board of Directors
----
may from time to time determine.
11.4 Annual Statements. The bank shall prepare such financial statements
-----------------
showing the results of its operations during its fiscal year as shall be
required by Regulations of the Department of Banking and Finance. Upon receipt
of written request, the bank promptly shall mail to any shareholder of record a
copy of the most recent such financial statement.
11.5 Contracts, Checks, Drafts, Reports, etc. Such of the officers or
---------------------------------------
employees of the bank as may from time to time be designated by the Board of
Directors or by the Executive Committee shall have power and authority to sign
contracts, checks, drafts and like instruments and to endorse checks, bills of
exchange, orders, drafts and vouchers made payable or endorsed to the bank,
whether in its own right or in any fiduciary capacity. No officer or employee,
however, may on behalf of the bank, execute or deliver any check, draft or other
like instrument in favor of himself. Provided, further, any officer elected by
the Board of Directors may sign reports to the Department of Banking and Finance
and such other State and Federal agencies as may be filed, unless otherwise
required by law or regulation.
11.6 Legal Restrictions. All matters covered in these bylaws shall be subject
------------------
to such restrictions as shall be imposed on this bank by State and Federal laws
and regulations.
ARTICLE TWELVE
Amendments
12.1 Power to Amend Bylaws. The Board of Directors shall have power to alter,
---------------------
amend or repeal these bylaws or adopt new bylaws, but any bylaws adopted by the
Board of Directors may be altered, amended or repealed, and new bylaws adopted,
by the shareholders. The shareholders may prescribe that any bylaw or bylaws
adopted by them shall not be altered, amended or repealed, by the Board of
Directors.
12.2 Conditions. Action taken by the shareholders with respect to bylaws
----------
shall be taken by an affirmative vote of a majority of all shares entitled to
elect directors, and action by the Board of Directors with respect to bylaws
shall be taken by an affirmative vote of a majority of all directors then
holding office.
-13-
<PAGE>
EXHIBIT 4
- --------------------------------------------------------------------------------
--------------------
------------ Community ------------
TRUST
NUMBER FINANCIAL SERVICES SHARES
CORPORATION
CT-
--------------------
------------ ------------
INCORPORATED UNDER THE LAWS OF
COMMON STOCK THE STATE OF GEORGIA CUSIP 204154 10 8
$2.50 PAR VALUE SEE REVERSE FOR
CERTAIN DEFINITIONS
-----------------------------------------------------------------------------
This Certifies that
is the registered holder of
-----------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by Attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers and the facsimile
Corporate Seal to be hereunto affixed.
Dated:
[CORPORATE SEAL
APPEARS HERE]
/s/ Angel Byrd /s/ Ronnie L. Austin
SECRETARY PRESIDENT AND CEO
COUNTERSIGNED AND REGISTERED:
RELIANCE TRUST COMPANY
(ATLANTA, GA)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...................Custodian...................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act............................................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
----------------------------------
----------------------------------
-----------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF
ASSIGNEE)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
---------------------------------------------------------------- shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
--------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
---------------------------
---------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
---------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into as
of January 1, 1998, by and between RONNIE AUSTIN, a resident of the State of
Georgia ("Employee"), and COMMUNITY TRUST FINANCIAL SERVICES CORPORATION, a
Georgia bank holding company ("CTFS").
W I T N E S S E T H:
-------------------
WHEREAS, CTFS wishes to obtain assurances from Employee that CTFS will have
the benefit of Employee's services on the terms and subject to the conditions
set forth herein; and
WHEREAS, Employee wishes to obtain assurances from CTFS on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, CTFS and Employee agree as follows:
1. EMPLOYMENT. CTFS hereby employs Employee, and Employee hereby accepts
----------
such employment and agrees to perform services for CTFS , for the period and
upon the other terms and conditions set forth in this Agreement.
2. TERM. The term (the "Term") of Employee's employment hereunder shall
----
be for a period of five (5) years, commencing as of the date of this Agreement
and ending on December 31, 2002, subject to earlier termination as hereinafter
specified.
3. POSITION AND DUTIES.
-------------------
3.01 Service with CTFS . During the term of this Agreement, Employee
------------------
shall serve as, and his title shall be, President and Chief Executive Officer of
CTFS. In such position, Employee agrees to perform such employment duties
consistent with such position as the Board of Directors of CTFS shall assign to
him from time to time. Employee also agrees to serve, during the Term hereof,
as requested by the Board of Directors of CTFS, and without any additional
compensation, as a Director of CTFS and as an executive officer and/or director
of any corporations or other entities affiliated with CTFS.
3.02 Performance of Duties. Employee agrees to serve CTFS
---------------------
faithfully and to the best of his ability and to devote all of his time, energy
and skill during regular and assigned business hours to such employment. During
the Term hereof, Employee shall not serve as an officer, director or employee of
any other entity not affiliated with CTFS without the prior written consent of
CTFS' Board of Directors. Notwithstanding the foregoing, (i) Employee may pursue
such personal investment and financial matters as do not conflict with his
obligations and commitments to CTFS, (ii) Employee may participate in
charitable, religious or civic activities such as serving on a school board,
church board or community fund committee and (iii) Employee may participate in
<PAGE>
such other activities as the Board of Directors of CTFS may from time to time
approve in writing. Employee hereby confirms that he is under no contractual
commitments inconsistent with his obligations set forth in this Agreement.
4. COMPENSATION.
------------
4.01 Base Salary. As compensation for all services to be rendered by
-----------
Employee under this Agreement, CTFS shall pay to Employee an initial annual
base salary for the period from January 1, 1998 through and including December
31, 1998, of $119,025.00. The base salary shall be subject to annual increase
by an amount equal to the product of (i) the "CPI Adjustment" (hereinafter
defined) multiplied by (ii) the base salary in effect immediately prior to such
increase. The effective date of all such increases shall be retroactive to
January 1 of the year in which the adjustment takes effect notwithstanding the
fact that the CPI Adjustment generally will not be capable of being calculated
until some time in February or March of such year. The base salary described in
this Section 4.01, as it may be increased from time to time, is referred to
herein as the "Base Salary." The Base Salary shall be paid in semi-monthly
installments in accordance with CTFS' normal payroll procedures and policies.
For purposes of this Section 4.01, "CPI Adjustment" shall mean the lesser
of (i) 7.5% or (ii) the percentage increase, if any, in the "CPI-U Index"
(hereinafter defined) between (a) the average CPI-U Index for the year
immediately preceding the year in which the Base Salary adjustment in question
is to take effect and (b) the average CPI-U Index for the immediately preceding
year. "CPI-U Index" shall mean the "Consumer Price Index For All Urban
Consumers, Atlanta, Georgia (1982-84=100)" as published by the Bureau of Labor
Statistics of the United States Department of Labor. If the CPI Adjustment is
zero or a negative number, the amount of the CPI Adjustment shall, for purposes
of this Section 4.01, be deemed to be zero.
By way of example, if: (i) Employee's Base Salary in effect on December 31,
1998 is $119,025; (ii) the average CPI-U Index for 1998 (as published by the
Bureau of Labor Statistics in February, 1999) is 158.4; and (iii) the average
CPI-U Index for 1997 (as published by the Bureau of Labor Statistics in
February, 1998) is 156.0, then, effective January 1, 1999, the Base Salary
increase would be calculated as follows:
CPI Adjustment = 1.54% (158.4 - 156.0 = 2.4; 2.4 )156.0 = 1.54%)
Base Salary Increase = $1,833 ( $119,025 x 1.54%)
New Base Salary = $120,858 ( $119,025 + 1,833)
4.02 Incentive Compensation; Stock Option Programs.
----------------------------------------------
(a) For each full fiscal year of CTFS that this Agreement remains in
effect, Employee shall receive, in addition to the Base Salary described in
Section 4.01, annual incentive compensation in an amount equal to (i) the
-2-
<PAGE>
"Applicable Percentage" (hereinafter defined) multiplied by (ii) the Base Salary
in effect on the last day of the fiscal year for which CTFS' Return on Equity is
being determined in accordance with footnote 1 to the table below. For purposes
of this Section 4.02, the "Applicable Percentage" shall be determined in
accordance with the following table:
CTFS' Return on Average Equity/1/ Applicable Percentage
- -------------------------------- ---------------------
less than 15% 0%
15% or greater but less than 16% 15%
16% or greater but less than 17% 16%
17% or greater but less than 18% 18%
18% or greater but less than 19% 19%
19% or greater but less than 20% 22.5%
20% or greater but less than 21% 25%
21% or greater but less than 22% 27.5%
22% or greater but less than 23% 30%
23% or greater 30% + (2.5 multiplied by the difference
between the actual Return on Equity
percentage and 22%)
The incentive compensation to which Employee is entitled pursuant to this
Section 4.02(a) shall be calculated as soon as reasonably practicable following
the preparation of CTFS' audited financial statements for the fiscal year for
which CTFS' Return on Equity is being calculated. The incentive compensation
shall be paid by CTFS to Employee within thirty (30) days following its
calculation.
______________________
/1/Return on Average Equity shall mean the Return on Average Equity of CTFS
for each fiscal year of CTFS during the Term of this Agreement, beginning with
the year ending December 31, 1997. In calculating average equity for a given
fiscal year, the equity of CTFS that is included in the calculation shall be
either (i) the equity as of the end of the immediately preceding fiscal year and
as of the end of each quarter during the fiscal year in question (in which case,
average equity would equal the sum of such numbers divided by 5) or (ii) the
equity as of the end of the immediately preceding fiscal year and as of the end
of each month during the fiscal year in question (in which case, average equity
would equal the sum of such numbers divided by 13). Equity of CTFS as of the
end of the relevant period shall be determined in accordance with generally
accepted accounting principles consistently applied.
-3-
<PAGE>
In the event this Agreement is terminated pursuant to Section 10.01(d) or
10.01(e) hereof and such termination occurs during, as opposed to at the end of,
a fiscal year of CTFS, Employee shall be entitled to a pro rata portion of the
incentive compensation that Employee would have received had this Agreement
remained in effect through the end of such fiscal year. The pro rata portion to
which Employee is entitled shall be determined by multiplying such incentive
compensation by a fraction, the numerator of which is the number of days during
the fiscal year in question that this Agreement was in effect and the
denominator of which is the total number of days in such fiscal year.
(b) On each January 1 during the term of this Agreement, CTFS shall cause
to be granted to Employee an option to acquire 1,000 shares of CTFS common
stock, provided that there are a sufficient number of shares available to
support such a grant under CTFS' 1993 Stock Option Plan (or a successor plan).
Each such option shall be granted pursuant to, and shall be subject to all of
the terms and conditions of, CTFS' 1993 Stock Option Plan (or a successor plan).
4.03 Automobile. CTFS shall provide Employee with use of a late
-----------
model automobile which shall be used by Employee for business purposes and which
also may be used by Employee for personal use. CTFS shall also reimburse
Employee for all fuel and maintenance expenses associated with such automobile.
Employee shall be solely responsible for payment of any and all federal, state
and local taxes (including, but not limited to, income taxes) associated with or
attributable to personal use of such automobile.
4.04 Participation in Benefit Plans. Employee shall also be entitled
------------------------------
to participate, on a comparable basis with other senior executives of CTFS, in
all employee benefit plans or programs of CTFS in effect from time to time
including, but not limited to, medical, dental, life and disability insurance
programs. Employee's participation in any such plan or program shall be subject
to all provisions, rules and regulations applicable thereto. Notwithstanding
anything in this Section 4.04 to the contrary, Employee's participation in bonus
or incentive compensation programs and stock option programs shall be governed
by the specific provisions of Section 4.02 hereof and not by this Section 4.04.
4.05 Expenses. In accordance with CTFS' policies established from
--------
time to time, CTFS shall pay or reimburse Employee for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the presentment of appropriate vouchers
and receipts.
5. CONFIDENTIALITY.
---------------
5.01 General. In Employee's position as an employee of CTFS ,
--------
Employee has had and will have access to confidential information, trade secrets
and other proprietary information of vital importance to CTFS, to Community
Trust Bank, CTFS' wholly-owned subsidiary (the "Bank") and to subsidiaries and
affiliates of CTFS and the Bank, and Employee has and will also develop
-4-
<PAGE>
relationships with customers, employees and others who deal with CTFS and the
Bank (and their subsidiaries and affiliates) which are of value to CTFS and the
Bank. CTFS requires as a condition to Employee's employment with CTFS that
Employee agree to certain restrictions on Employee's use of the proprietary
information and valuable relationships developed during Employee's employment
with CTFS . In consideration of the terms and conditions contained herein, the
parties hereby agree as follows:
5.02 Fiduciary Responsibility. CTFS and Employee mutually agree and
-------------------------
acknowledge that CTFS and the Bank (and their subsidiaries and affiliates) may
entrust Employee with highly sensitive confidential, restricted and proprietary
information concerning various "Business Opportunities" (hereinafter defined),
customer lists, and personnel matters. Employee acknowledges that, as an
essential incident of Employee's employment with CTFS, Employee shall bear a
fiduciary responsibility to CTFS to protect such information from use or
disclosure that is not necessary for the performance of Employee's duties
hereunder.
5.03 Definitions. For the purposes of this Agreement, the following
------------
definitions shall apply:
(a) "Trade Secret" means information, without regard to form, including,
but not limited to, technical or nontechnical data, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product plans, or lists of actual or potential
customers or suppliers, which (i) are not commonly known by or available to the
public, (ii) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use and (iii)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Trade Secret also shall include any other information
defined as a "trade secret" under the Georgia Trade Secrets Act of 1990,
O.C.G.A. (S)10-1-760 through (S)10-1-767.
(b) "Confidential Information" shall mean any data or information, other
than Trade Secrets, which is material to CTFS or to the Bank or to Community
Loan Company, an industrial loan company subsidiary of CTFS ("CLC"), and which
is not generally known by the public. Confidential Information shall include,
but not be limited to, data or information related to (i) the taking of
deposits, making loans and extensions of credit, cashing checks, and other
operations incident to the business of banking ("Business of Bank"), (ii) the
loaning of money in amounts of $3,000 or less pursuant to the Georgia Industrial
Loan Act (O.C.G.A. (S) 7-3-1 et seq.) ("Business of CLC"), (iii) any information
pertaining to the identity of the customers, depositors or borrowers served by,
or Business Opportunities (hereinafter defined) of, the Bank or CLC, (iv) the
details of this Agreement, CTFS', the Bank's and CLC's respective business,
marketing and acquisition plans and (v) financial statements and projections,
and the costs of the services the Bank or CLC may offer or provide to the
customers, depositors or borrowers they serve, to the extent such information is
material to CTFS, the Bank or CLC and not generally known by the public.
-5-
<PAGE>
(c) "Business Opportunities" shall mean any specialized information or
plans of CTFS, the Bank or CLC concerning the business of CTFS, the Bank or CLC,
including, but not limited to, the financing of or investment in, by CTFS, the
Bank or CLC, any target person, business or project, together with all related
information concerning the specifics of any contemplated financing, investment,
acquisition or purchase (including pricing, terms, and the identity of such
person, business or project) regardless of whether CTFS, the Bank or CLC has
entered any agreement, made any commitment, or issued any bid or offer to such
person, business or project.
(d) Notwithstanding the definitions of Trade Secrets, Confidential
Information and Business Opportunities set forth above, Trade Secrets,
Confidential Information and Business Opportunities shall not include any
information:
(i) that is or becomes generally known to the public (other than as a
result of a breach of this Agreement by Employee);
(ii) that is developed by Employee after termination of employment
through entirely independent efforts;
(iii) that Employee obtains from an independent source having a bona
fide right to use and disclose such information;
(iv) that is required to be disclosed by law, except to the extent
eligible for special treatment under an appropriate protective
order; or
(v) that the respective Boards of Directors of CTFS, the Bank or CLC
approve for unrestricted release by express written
authorization.
5.04 Trade Secrets. Employee shall not, without the prior written
--------------
consent of the Board of Directors of CTFS, during his employment with CTFS and
for so long thereafter as the information or data remain Trade Secrets, use or
disclose, or negligently permit any unauthorized person who is not an employee
of CTFS, the Bank or CLC to use, disclose, or gain access to, any Trade Secrets
of CTFS or the Bank or CLC, or of any of their subsidiaries or affiliates, or of
any other person or entity making Trade Secrets available for CTFS' or the
Bank's or CLC's (or any of their subsidiaries' or affiliates') use.
5.05 Confidential Information. Employee shall not, without the prior
-------------------------
written consent of the Board of Directors of CTFS , during his employment with
CTFS and for a period of two (2) years after termination of his employment for
any reason, as long as the information or data remain competitively sensitive,
use or disclose, or negligently permit any unauthorized person who is not
employed by CTFS, the Bank or CLC to use, disclose, or gain access to, any
Confidential Information to which the employee obtained access by virtue of his
employment with CTFS.
5.06 Observance of Security Measures. During Employee's employment
--------------------------------
with CTFS , Employee is required to observe all security measures adopted to
-6-
<PAGE>
protect Trade Secrets, Confidential Information and Business Opportunities of
CTFS or the Bank or CLC.
6. SOLICITATION OF CUSTOMERS, BORROWERS OR DEPOSITORS
--------------------------------------------------
6.01 After Termination of Employment. Upon termination of this
--------------------------------
Agreement for any reason, Employee shall not, directly or indirectly, as
principal, agent, trustee or consultant or through the agency of any
corporation, partnership, association, trust or other entity or person, on
Employee's own behalf or for others, within two (2) years after such termination
actively solicit, divert, or take away, or attempt to actively solicit, divert,
or take away any customers, depositors or borrowers of CTFS, the Bank or CLC
whom Employee had served during his term of employment for the purpose of
providing services which constitute the Business of Bank or Business of CLC (in
each case as defined above).
6.02 During Employment. During Employee's employment with CTFS,
------------------
Employee shall not, except on behalf of CTFS, the Bank or CLC, solicit, divert,
take away or accept the business of, or attempt to solicit, divert or take away
the business of, any of the customers, depositors or borrowers of CTFS, the Bank
or CLC for the purpose of performing the Business of Bank or Business of CLC for
such customers, depositors or borrowers.
7. NON-INTERFERENCE WITH PERSONNEL RELATIONS.
------------------------------------------
Employee shall not, during his employment with CTFS and for a period of
two (2) years after the termination of his employment with CTFS for any reason,
knowingly solicit, entice or persuade any other employees or agents of CTFS, the
Bank or CLC (or of any of their subsidiaries or affiliates) to leave the
services of CTFS, the Bank or CLC (or such subsidiary or affiliate).
8. NOTIFICATION OF SUBSEQUENT EMPLOYMENT.
--------------------------------------
During a period of two (2) years after the termination of Employee's
employment with CTFS, Employee shall notify CTFS in writing, within thirty (30)
days after accepting employment with any other corporation, partnership,
association, person, organization or other entity, of the name and address of
Employee's new employer and Employee's functions with his new employer.
9. COVENANT NOT TO COMPETE.
------------------------
9.01 General. For purposes of this Section 9, CTFS, the Bank, CLC
--------
and Employee conduct the following business in the following territories:
(a) CTFS is engaged in the business of transacting business as a holding
company with (i) the Bank as its subsidiary bank which accepts deposits, makes
loans, cashes checks and otherwise engages in the business of banking and (ii)
CLC as its subsidiary industrial loan company which loans money in amounts of
$3,000 or less pursuant to the Georgia Industrial Loan Act (O.C.G.A. (S)7-3-1-et
--
seq. (collectively, the "Business of CTFS").
- ---
-7-
<PAGE>
(b) CTFS (through the Bank and CLC) actively conducts the Business of CTFS
in the geographic areas of Georgia at the business locations of the Bank's and
CLC's offices set forth on Exhibit "A" to this Agreement, which Exhibit "A" is
----------- -----------
incorporated herein by this reference.
(c) Employee has established business relationships and performs the duties
required of Employee under this Agreement in the geographic area covered by a
circle having a radius of twenty (20) miles from the main office location of the
Bank and a circle having a radius of fifteen (15) miles from the location of
each branch office of the Bank and each office of CLC, all as set forth on
Exhibit "A" to this Agreement, and will work exclusively in such areas while in
- -----------
the employ of CTFS.
9.02 Non-Competition. Employee covenants and agrees that for a
----------------
period of one (1) year after the termination of his employment with CTFS for
any reason, Employee shall not directly or indirectly, as principal, agent,
trustee, consultant or through the agency of any corporation, partnership,
association, trust or other entity or person, on Employee's own behalf or for
others, provide services that are the same as or similar to the services
provided by Employee under this Agreement to or for the benefit of any entity or
person conducting the Business of CTFS or the Business of Bank or the Business
of CLC within the geographic area covered by a circle having a radius of twenty
(20) miles from the location of the main office of the Bank and a circle having
a radius of fifteen (15) miles from the location of each branch office of the
Bank and each office of CLC, all as set forth on Exhibit "A" to this Agreement.
-----------
9.03 Amendment of Exhibit "A". Employee and CTFS shall periodically
-------------------------
amend this Agreement by updating and initialing Exhibit "A" attached hereto so
-----------
that it at all times lists the then current location of (i) the Bank's main
office, (ii) each branch office of the Bank and (iii) each office of CLC.
10. TERMINATION.
-----------
10.01 Grounds for Termination. This Agreement shall terminate prior
-----------------------
to the expiration of the initial Term set forth in Section 2 or any extension
thereof in the event that at any time during such initial Term or any extension
thereof:
(a) CTFS shall give notice to Employee that CTFS is terminating this
Agreement without cause, which notice shall specify the effective date of
Employee's termination;
(b) Employee shall die or the Board of Directors of CTFS shall
determine that Employee has become disabled (as defined in Section 10.02); or
(c) The Board of Directors of CTFS shall determine that Cause exists.
"Cause" means (i) having been convicted under the laws of any governmental
jurisdiction of (A) a felony or (B) a criminal offense which is not a felony but
-8-
<PAGE>
which has a material adverse effect on CTFS (or any of its subsidiaries or
affiliates) or on the ability of Employee to carry out his duties hereunder
(provided, however, that in no event shall minor traffic violations constitute
"Cause"), (ii) having committed any action constituting theft or fraud against
CTFS (or any of its subsidiaries or affiliates), (iii) the breach of any of the
Employee's covenants or obligations hereunder, (iv) the knowing failure of the
Employee to follow specific directives of the Board of Directors of CTFS
consistent with Employee's duties or (v) the termination by Employee of his
employment hereunder prior to the expiration of the term of this Agreement,
unless such termination is pursuant to Section 10.01(d) or 10.01(e) hereof.
(d) Employee shall determine that CTFS has breached this Agreement in
any material respect (including, but not limited to, CTFS' failure to make any
payment required under this Agreement), which breach is not cured by CTFS within
thirty (30) days after written notice of such breach is delivered to CTFS by
the Employee.
(e) Employee, within thirty (30) days following the occurrence of a
"Change in Control" (as defined in Section 10.03), notifies CTFS , in writing,
that he is electing to terminate this Agreement pursuant to this Section
10.01(e).
Notwithstanding any termination of this Agreement, in consideration of his
employment hereunder to the date of such termination, to the extent specifically
provided for herein, the Employee shall remain bound by the provisions of this
Agreement which specifically relate to periods subsequent to the termination of
Employee's employment hereunder.
10.02 "Disability" Defined. The Board of Directors of CTFS may, in
--------------------
its discretion reasonably exercised, determine that Employee has become
disabled, for the purpose of Section 10.01(b) of this Agreement, in the event
that Employee shall fail, in one or more material respects, because of illness
or other physical or mental incapacity, to render services of the character
contemplated by this Agreement for an aggregate of more than ninety (90)
calendar days during any period of twelve (12) consecutive months.
10.03 "Change in Control" Defined. For purposes of this Agreement, a
----------------------------
"Change in Control" shall be deemed to have occurred if more than fifty percent
(50%) of CTFS' outstanding common stock or equivalent in voting power of any
class or classes of outstanding securities of CTFS entitled to vote in elections
of its Directors, shall be acquired by any person or group of persons acting in
concert. Additionally, a "Change in Control" shall be deemed to have occurred
if (i) more than fifty percent (50%) of the Bank's outstanding common stock or
equivalent in voting power of any class or classes of outstanding securities of
the Bank entitled to vote in elections of its Directors, shall be acquired by
any person or group of persons acting in concert or (ii) substantially all of
--
the assets of the Bank shall be sold to another person and (iii) at the time of
---
the occurrence of (i) or (ii), Employee is serving as President and Chief
Executive Officer of the Bank.
-9-
<PAGE>
10.04 Surrender of Records and Property. Upon the request of CTFS
---------------------------------
and, in any event, upon termination of his employment with CTFS, Employee shall
deliver promptly to CTFS all records, manuals, books, blank forms, documents,
letters, memoranda, notes, notebooks, reports, data, tables, calculations or
copies thereof, which are the property of CTFS, the Bank or CLC (or any of their
subsidiaries of affiliates) and which relate in any way to the business,
products, practices or techniques of CTFS, the Bank or CLC (or any of their
subsidiaries or affiliates), and all other property, Trade Secrets and
Confidential Information of CTFS, the Bank or CLC (or any of their subsidiaries
or affiliates), including, but not limited to, all documents which in whole or
in part contain any Trade Secrets or Confidential Information of CTFS, the Bank
or CLC (or any of their subsidiaries or affiliates), which in any of these cases
are in his possession or under his control.
11. COMPENSATION UPON TERMINATION.
-----------------------------
(a) In the event this Agreement is terminated pursuant to Section
10.01(a), 10.01(d) or 10.01(e) hereof, Employee will receive a lump sum payment
equal to the "Severance Amount" (hereinafter defined), in addition to (i)
payment to Employee of semi-monthly installments of his then current Base Salary
through the effective date of termination and (ii) reimbursement of expenses
incurred by Employee in accordance with Section 4.05 hereof. Additionally, in
the event this Agreement is terminated pursuant to Section 10.01(d) or 10.01(e)
hereof, Employee shall be entitled to receive any bonus, or pro rata portion
thereof, to which Employee may be entitled pursuant to Section 4.02 hereof,
provided that any such bonus shall be paid in accordance with Section 4.02, and
not upon Employee's termination, and provided, further, that Employee
acknowledges and agrees that Employee is not entitled to any such bonus, or pro
rata portion thereof, for the fiscal year in which this Agreement is terminated
if this Agreement is terminated pursuant to Section 10.01(a). For purposes of
this Section 11(a) "Severance Amount" shall mean an amount equal to the annual
Base Salary in effect on the date of termination.
(b) In the event this Agreement is terminated pursuant to any provision
hereof other than Sections 10.01(a), 10.01(d) or 10.01(e), Employee shall not be
entitled to any compensation other than (i) semi-monthly installments of his
then current Base Salary accrued through the effective date of termination and
(ii) reimbursement of expenses incurred by Employee in accordance with Section
4.05 hereof, and all rights of Employee to further compensation shall thereupon
cease and be terminated.
12. ASSIGNMENT AND INUREMENT. This Agreement shall enure to the benefit
------------------------
of and be binding upon the parties hereto and their respective heirs,
successors, administrators, and permitted assigns. This is a personal service
contract and, except to the extent specifically contemplated hereby, may not be
assigned by Employee without the prior written consent of CTFS.
-10-
<PAGE>
13. INJUNCTIVE RELIEF. Employee agrees that it would be difficult to
-----------------
compensate CTFS fully for damages for any violation of the provisions of this
Agreement, including without limitation the provisions of Sections 5, 6, 7, 8, 9
and 10.04. Accordingly, Employee specifically agrees that CTFS shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement. This provision with respect to injunctive relief shall not,
however, diminish the right of CTFS to claim and recover damages in addition to
injunctive relief.
Notwithstanding anything in Section 15 hereof to the contrary, any party to
this Agreement may petition the Superior Court of Paulding County, Georgia for
temporary injunctive relief. All disputes, controversies or claims arising out
of or related to this Agreement, other than a request for temporary injunctive
relief, shall be resolved in accordance with the provisions of Section 15
hereof. The parties hereby agree that jurisdiction and venue for any action
seeking temporary injunctive relief pursuant to this Section 13 shall lie in the
Superior Court of Paulding County, Georgia. The parties hereby agree, further,
that any temporary restraining order entered pursuant to this Section 13 shall
remain in effect until the dispute giving rise thereto is resolved pursuant to
the provisions of Section 15 and the parties agree to enter into any and all
consent orders required to maintain such temporary restraining order in effect
until such time.
14. MISCELLANEOUS.
-------------
14.01 Governing Law. This Agreement is made under and shall be
-------------
governed by and construed in accordance with the laws of Georgia.
14.02 Prior Agreements. This Agreement contains the entire agreement
----------------
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have made no agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein.
14.03 Withholding Taxes. CTFS may withhold from any benefits
-----------------
payable under this Agreement all federal, state, city and other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
14.04 Amendments. No amendment, modification or waiver of this
----------
Agreement or any provision hereof shall be deemed effective unless made in
writing signed by the party against whom enforcement of the amendment,
modification or waiver is sought. Any written waiver shall not be deemed a
continuing waiver unless specifically stated and shall operate only as to the
specific term or condition waived.
-11-
<PAGE>
14.05 Notices. Any notice, request, demand or other document to be
-------
given hereunder shall be in writing, and shall be delivered personally or sent
by registered, certified or express mail or facsimile followed by mail as
follows:
If to CTFS:
1784 Atlanta Highway
Hiram, Georgia 30141
Attention: Chairman
If to Employee:
8008 Ponderosa Drive
Dallas, Georgia 30132
or to such other address as either party hereto may hereafter duly give to the
other.
14.06 Severability. To the extent any provision of this Agreement
------------
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation
of the foregoing, should the duration or geographical extent of, or business
activities covered by any provision of this Agreement be in excess of that which
is valid or enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may validly
and enforceably be covered. Employee acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.
15. ARBITRATION. Any and all disputes, controversies or claims arising
------------
out of or related to this Agreement (other than a request for a temporary
restraining order pursuant to Section 13 hereof), shall be resolved by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). Judgement upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In the
event of any inconsistency between the provisions of this Section 15 and AAA's
Commercial Arbitration Rules, the provisions of this Section 15 shall govern.
Any party may initiate arbitration by serving written notice of its intention to
arbitrate on the other parties. The venue of any such arbitration shall be
Atlanta, Georgia. The arbitration panel shall consist of three arbitrators
selected as follows. Within thirty (30) days following the date on which the
arbitration provision of this Section 15 is invoked by a party, Employee, on the
one hand, and CTFS , on the other, shall each select an arbitrator from a list
of arbitrators provided by AAA. The lists from which Employee and CTFS select
-12-
<PAGE>
their respective arbitrators shall be identical. If either Employee or CTFS
fails to select its arbitrator within the time required, the other shall be
entitled to select its arbitrator for it. Within fifteen (15) days following
the selection of the last to be selected of the two (2) arbitrators, the two (2)
arbitrators so selected shall select a third arbitrator. A preliminary
arbitration hearing shall be held within thirty (30) days following the
selection of the third arbitrator for the purpose of scheduling discovery and
the evidentiary hearing(s). The first evidentiary hearing shall be held within
thirty (30) days following the preliminary hearing. The arbitration panel shall
deliver its award in writing, including findings of facts, to the parties within
thirty (30) days following the final arbitration hearing. Evidence and
testimony shall be admitted in accordance with the Federal Rules of Evidence.
The arbitration panel shall have authority to grant temporary or permanent
injunctive relief or other equitable remedies. Each party shall bear its own
costs and expenses of the arbitration proceeding.
/s/ WAF /s/ RA
- ---------- -------------
CTFS Employee
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
RONNIE AUSTIN
/s/ Ronnie Austin
-------------------------------------------
COMMUNITY TRUST FINANCIAL
SERVICES CORPORATION
By /s/ W.A. Foster III
----------------------------------------
Title: Chairman
-13-
<PAGE>
EXHIBIT "A"
Main Office Location of Bank
3844 Atlanta Highway
Hiram, Georgia 30141
Location of Bank Branch Offices
Dallas Office
100 Hardee Street
Dallas, Georgia 30132
Kroger Office
4215 Jimmy Lee Smith Parkway, Suite 4
Hiram, Georgia 30141
Brownsville Office
105 Brownsville Road, Suite 1
Powder Springs, Georgia 30073
Location of CLC Offices
Woodstock Office
702 South Main Street
Woodstock, Georgia 30188
Rockmart Office
1101A North Piedmont Avenue
Rockmart, Georgia 30153
Rossville Office
203 Chickamauga Avenue
Rossville, Georgia 30741
-14-
<PAGE>
EXHIBIT 13
[PHOTO APPEARS HERE]
Ronnie L. Austin
President and CEO
[PHOTO APPEARS HERE]
William A. Foster, III
Chairman of the Board
"We aim to improve, increase, and enhance our family of financial-related
affiliates. "
<PAGE>
To Our Shareholders:
We are happy to report that Community Trust Financial Services Corporation has
completed another successful year. We closed 1997 with consolidated total
assets of $91,904,781. Assets increased 7.86% from year-end 1996. Consolidated
net earnings for the year totaled $1,038,807, while basic earnings per common
share were $1.24. Reflecting on 1997, it has been a truly exciting experience
watching the accomplishments of the hard-working people of this organization.
Community Trust Financial Services will continue to strive to be a leader in
the financial industry. We aim to improve, increase, and enhance our family of
financial-related affiliates. However, at the same time, we will not lose focus
on our flagship, Community Trust Bank.
Community Trust Bank grew from $83,630,785 in assets at December 31, 1996 to
$89,607,990 at December 31,1997. Return on average assets was 1.41% while
return on average equity was 20.85%.
During 1997, Metroplex Appraisals, Inc. increased its staff from one to
three. Also, Metroplex has expanded its residential appraisal business to not
only provide appraisals with respect to properties located in Paulding County,
but, now, also to provide appraisals with respect to properties located in Polk,
Bartow, Harralson, Floyd and Cobb Counties.
Community Loan Company with offices in Woodstock, Rockmart, and Rossville grew
from $244,575 at December 31, 1995 to $1,761,022 in assets at December 31, 1997.
Community Loan Company plans to acquire an existing consumer finance office in
Gainesville, Georgia in the second quarter of 1998 and plans to open a new
office in Dallas, Georgia in the third quarter, 1998.
CashTransactions LLC began business in early 1997. CashTransactions provides
retail establishments (primarily convenience stores) with automated teller
machines that dispense cash or scrip. CashTransactions engages this business in
Georgia, Florida, South Carolina , and Alabama.
As you can see, 1997 was a busy and productive year. The structure is in
place for 1998 to be another profitable year for this organization. As always,
we will strive to be a leader in financial products and services while
continuing to enhance the value of your investment.
Sincerely, Sincerely,
/s/ William A. Foster, III /s/ Ronnie L. Austin
William A. Foster, III Ronnie L. Austin
Chairman of the Board President and Chief Executive Officer
<PAGE>
Community Trust Financial Services
Corporation Board of Directors
C.D. Rampley Tommie R. Graham, Jr. R. Alan Bullock
Consultant Member/Manager Senior Partner
Jeriel Supply, LC Bullock, Terrell & Mannelly
Ronnie L. Austin Bobbie P. Cooper W.A. Foster, III
President & CEO Co-Owner Judge, Superior Court
Community Trust Bank Cooper Rentals Tallapoosa Judicial Circuit
Calvin Earwood George Berry John C. Helms
President Senior Vice President Retired
Sunbelt Fasteners Cousins Properties
<PAGE>
CORPORATE INFORMATION
LEGAL COUNSEL COMMUNITY TRUST FINANCIAL
Rowe, Foltz & Martin, P.C. SERVICES CORPORATION OFFICERS
Suite 750 Ronnie L. Austin
Five Piedmont Center Angel Byrd
Atlanta, Georgia 30305 Genevieve Cole
ACCOUNTANTS CORPORATE HEADQUARTERS
Porter, Keadle, Moore, LLP Community Trust Bank
1800 Gas Light Tower 3844 Atlanta Highway
235 Peachtree Street, N.E. P.O. Box 1700
Atlanta, Georgia 30303 Hiram, Georgia 30141
TRANSFER AGENT FORM 10-K:
Reliance Trust Company A copy of Community Trust Financial
3295 Northcrest Road NE Services Corporation's 1997 Annual Report
Atlanta, Georgia 30340 on Form 10-K to the Securities Exchange
Commission (including information
on Community Trust Bank) can
be obtained by writing to:
Corporate Secretary, Community Trust Bank
P.O. Box 1700 Hiram, Georgia 30141
Member FDIC
<PAGE>
Community Trust Bank
After nine years of continued growth, Community Trust Bank again demonstrated
"We have our roots where others only have branches." It is our pleasure to be
the only community bank headquartered in Paulding. In 1997, your Bank offered
new products and services along with improving our technology.
Nearing the millennium, technology issues have, and continue to be, a
priority. We are pleased to report that we are Year 2000 compliant. In 1998,
free seminars will be provided to our business customers to prepare their
businesses for the year 2000.
Technology enhanced services which were offered in 1997 included the "DD Too
Account", "Tax Payment Account", and "AutoPay Service". The "DD Too Account" was
developed to offer a limited-service deposit account to meet the needs of
residents who need a deposit account in order to receive direct deposits of
government checks. The "Tax Payment Account" allows our customers to
electronically transmit their tax payments. The "AutoPay Service" allows
business customers to pay their taxes, make monthly payments and direct deposit
payroll all over the Automated Clearing House network.
Again, Community Trust Bank embarked into a new facet of technology - The
Internet. We invite you to visit our web site at : www.communitytrustbank.com.
Your Bank has now entered the worldwide-marketplace.
New credit services introduced in 1997 included a low-fixed-rate automobile
loan promotion. Additionally, a loan payment extension opportunity was
offered at Christmas. This promotion gave our customers the option to skip a
loan payment during the holidays. We also redesigned our staff to better serve
our customers.
Your Bank added two directors in 1997 - Wyman Pilcher and Russ Parker. Mr.
Pilcher previously served as President of Barnett Bank f/k/a First National Bank
of Cobb and Mr. Parker previously served as Vice-President of Sun Trust Bank in
Douglasville. Now, both gentlemen are self-employed. We are pleased with their
contribution to our board.
Management believes that 1998 will be an exciting year for Community Trust
Bank as we commemorate our 10th anniversary. Numerous new programs have been
adopted as part of this celebration. We have installed a much requested ATM at
our main office. A new mortgage department has been implemented. A new feature
of our 24 Hour Automated Banker has enabled our customers to place a loan
application over the phone. A new home equity program has also been instituted.
Expanded services will continue to be offered on our web page. Customers of
Community Trust Bank also may now utilize the services of an independent
insurance agent in order to assist them with their financial planning needs.
Your Bank has experienced another wonderful year. As we begin this
celebration of our 10th year, a new slogan will be launched: "You know us -
We're Community Trust Bank." We near the millennium offering state-of-the art
financial products and services while knowing our customers by name and you
knowing us.
Wyman Pilcher and Russ Parker
<PAGE>
Metroplex Appraisals Incorporated
Metroplex Appraisals, Inc. commenced operation in 1992. Metroplex's mission
is to provide quality appraisals of residential properties to a variety of
clients. Management believes that since Metroplex commenced operations, it has
developed a reputation for consistently providing fair and competent appraisals
to its clients.
During 1997, Metroplex expanded its residential appraisal business from
providing appraisals with respect to properties located only in Paulding to
providing appraisals with respect to properties located in Paulding, Polk,
Bartow, Harralson, Floyd, and Cobb counties. With this expansion, the Company's
mission to provide quality appraisals remains unchanged. Management expects
Metroplex to begin offering commercial real estate appraisals during 1998. This
expansion of services will entail some increase in staffing to ensure quality
commercial real estate appraisals for Metroplex's clients.
Community Loan Company
Community Loan Company began its operations with the acquisition of a single
consumer finance office located in Woodstock, Georgia in September, 1995. April
1996, Community Loan Company purchased additional offices in Rossville and
Rockmart, Georgia. Management expects Community Loan Company to acquire an
existing consumer finance office in Gainesville, Georgia in the second quarter
of 1998 and expects Community Loan Company to open a new office in Dallas,
Georgia in the third quarter of 1998.
Community Loan Company's assets have grown from $244,575 at December 31, 1995,
to $1,761,022 at December 31, 1997. The directors, officers and employees of
Community Loan Company are extremely proud of this substantial growth in the
early years of Community Loan Company.
Management intends to continue to expand Community Loan Company's share of the
consumer finance market by offering exceptional service in the markets served by
Community Loan Company and by seeking out opportunities to acquire existing
offices, or open new offices, in desirable markets.
Community Loan Company offers a variety of small loans including automobile
loans and loans for the purchase of consumer goods. In addition, Community Loan
Company offers tax preparation services.
CASH TRANSACTIONS, LLC - CASH$TRANS
CashTransactions, LLC was organized in May 1997, as a joint venture between
Community Trust Financial Services Corporation and JRH Diversified, Inc.
CashTransactions' business consists of providing retail establishments
(primarily convenience stores) with automated teller machines that dispense cash
or scrip. CashTransactions engages in this business in Georgia, Florida, South
Carolina, and Alabama. As of December 31, 1997, CashTransactions had
successfully installed 334 of these cash delivery machines throughout these
states.
<PAGE>
Community Trust Financial Services Corporation
1997 Employees
<TABLE>
<S> <C> <C> <C>
. Tonya Adams . Betty Crowe . Devon Lee . John Sinkhorn
. Marcy Anderson . Jack Daniel . Mary Lind . Lynn Smith
. Cathy Andrews . Joyce Daniel . Georgia Lindsey . Marcia K. Smith
. Ronnie Austin . Danny Drummond . Mike Low . Lisa Smoot
. Andrew Bates . Martha East . James Martin, Sr. . Linda Sosebee
. Patricia Baxter . Pete Ewing . Cherie Maxwell . Allison Strickland
. Linda Berry-Brown . Darlene Golden . Sammy McClure, Jr. . Amanda Sweatman
. Carolyn Bone . Dawn Graham . Gail McPherson . Lisa Swords
. Kurt Brand . Allison Gray . Buddy Medlock . Tracy Teems
. Dorothy Brown . Casandra Grogan . Jon Minecci . Anna Tibbitts
. Jo Beth Bush . Pat Hamm . Tonya Morris . Gus Tuck
. Rosemary Butler . Rhonda Hampton . Deanna Morrison . Stefanie Venable
. Angel Byrd . Joye Harp . Carole Moss . Brenda Voyles
. Claude Byrd . Michelle Harris . Mike Nelson . Donna Wallace
. Rebecca Calder . James Hembree . Carrie Osburn . Heidi Watkins
. Doris Campbell . Gwen Hicks . Valerie Pace . Gail Weaver
. Amanda Carter . Pat Higham . Anna Parson . Kim Welsh
. Chris Carter . Jerry Holland . Julie Plunkett . Kim Wheeler
. Julie Clark . Wendy Hornbuckle . April Priest . Ed Whitehouse
. Tammy Clayton . Teresa Jenkins . Bill Pritchard . Cathleen Wilson
. Christi Cole . Betty Johnston . Marilyn Rackley . Cathy Wills
. Genevieve Cole . Mary Jones . Sherry Rickels . Mariece Wills
. Melissa Cole . Roxie Jones . Tabatha Sargent . John Winchester
. Mary Collins . Patricia Jordan . Angie Sexton . John Wright
. Jean Cone . Nobie Kelley . Sherry Shelby . Tarah Yearwood
. Royce Cooper
</TABLE>
<PAGE>
MISSION STATEMENT
Our mission is to sell
high-quality financial products and
services to our community in a
friendly, business-like manner
while maintaining the highest
ethical standards and providing an
ample return to our shareholders.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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). The consolidated financial information herein
includes the financial condition and results of operations, for all periods
presented, of the Company and its wholly-owned subsidiaries, Community Trust
Bank (the Bank), and Metroplex Appraisals, Inc. (Metroplex), and the Company's
75%-owned subsidiary, Community Loan Company (CLC). In May 1997, the Company
entered into a joint venture with JRH Diversified, Inc. to establish Cash
Transactions, LLC (CashTrans) as another non-bank subsidiary. The Company's 49%
interest in CashTrans is treated as an unconsolidated subsidiary for financial
reporting purposes, and, accordingly, the Company's interest is reflected in the
consolidated financial statements at its proportionate share.
At December 31, 1997, the Company had consolidated total assets of $91,904,781
as compared to $85,203,618 at December 31, 1996. Stockholders' equity increased
approximately 14.42% to $7,869,832 or $9.35 per share at December 31, 1997, as
compared to stockholders' equity of $6,877,876 or $8.20 per share at December
31, 1996. Stockholders' equity increased primarily as a result of increased net
earnings of the Company for the year ended December 31, 1997. Additionally, the
Company recorded a change in unrealized gain on securities available for sale,
net of tax, of $149,365 for the year ended December 31, 1997, resulting in an
unrealized gain on securities available for sale, net of tax, of $144,931 as of
December 31, 1997. Although the Company's net interest income for the year
ended December 31, 1997, increased approximately 12.71% or $532,349 from its net
interest income for the year ended December 31, 1996, the Company's net earnings
decreased 1.80% from $1,057,884 for the year ended December 31, 1996 to
$1,038,807 for the year ended December 31, 1997, while its basic earnings per
share (based on the weighted average number of shares outstanding during the
year) decreased from $1.26 to $1.24. This decrease in earnings growth compared
to growth in net interest income was attributable primarily to a 19.09% increase
in other expenses that resulted largely from an increase in salary and employee
benefits caused by (i) the Bank's need for additional human resources due to its
growing customer base, (ii) salary and benefit costs of CLC, and (iii) routine
salary increases. The Company's other expenses also increased as a result of
increases in advertising costs incurred by the Bank since new competitors
entered its market, and due to payment of directors' fees being initiated at the
Company and CLC levels. Prior to September 1996, directors of the Company and
CLC had served without compensation.
For the year ended December 31, 1997, the Bank recorded net earnings of
$1,180,518, an increase of 14.34% or $148,081 from the year ended December 31,
1996. For the year ended December 31, 1997, CLC experienced a loss of
approximately $38,964 due primarily to increased overhead costs associated with
two offices acquired in April 1996. Of this loss,
<PAGE>
$31,215 is reflected in the Company's consolidated net earnings for the year
ended December 31, 1997. For the year ended December 31, 1997, CashTrans
experienced a loss of approximately $226,827 due primarily to costs associated
with the acquisition and installation of 334 automated teller machines in
Georgia, Florida, South Carolina, and Alabama. Under the equity method of
accounting, 49% of this loss, or $111,145, is reflected in the Company's Other
Income for the year ended December 31, 1997.
Management generally is pleased with the Company's results for 1997. While it
is true that the Company's results of operations for 1997 were adversely
affected by CashTrans' and CLC's losses, these losses were consistent with
management's expectations. Meanwhile, the Bank has continued to experience
consistent earnings growth.
The Company's results of operations are primarily dependent upon the Bank's
results of operations. The Bank represents 97.50% and 92.45%, respectively, of
the Company's total assets and total revenues at December 31, 1997. The Bank's
business consists primarily of attracting deposits from the general public and,
with these and other funds, originating real estate loans, consumer loans,
business loans, and residential and commercial construction loans. Funds not
invested in the loan portfolio are invested by the Company primarily in U.S.
Government and agency obligations and obligations of various states and their
political subdivisions. The Company's earnings are dependent primarily upon the
Bank's net interest income, which is the difference between the interest income
received from its assets (primarily loans and investment securities) and the
interest expense (or "cost of funds") which it pays on its liabilities
(primarily deposits). The Bank's profitability also is affected by such factors
as other income and expenses, the provision for loan losses and income tax
expense. Other income consists primarily of service charges on deposits and
gains or losses on the sale of investment securities. Other expenses consist of
salaries and employee benefits, occupancy expenses, FDIC deposit insurance
premiums and other operating expenses such as data processing costs, printing,
postage and supplies, and professional fees.
CLC began operations in September 1995, for the purpose of acquiring and
operating consumer finance offices under the direction of the Company. CLC is
owned 75% by the Company and 25% by an individual who is employed as the
President of CLC. CLC conducts its operations from three offices located in
Rockmart, Rossville and Woodstock, Georgia, respectively. CLC represents 1.42%
and 5.72%, respectively, of the Company's total assets and total revenues at
December 31, 1997. Although CLC experienced a loss of $38,964 for 1997, CLC
increased its loans approximately 23.29% or $1,150,306. The fact that CLC has
expanded operations quickly since its establishment in September 1995, through
the acquisition of three existing consumer finance businesses has adversely
affected its profitability. Each of the three acquisitions caused CLC to incur
a cost of intangible assets (i.e, goodwill). The amortization of this cost
----
reduces CLC's net earnings and, therefore, has an adverse impact on CLC's
profitability in the short term. The operations of CLC are funded principally
through a revolving line of credit arrangement with the Company. At December
31, 1997, $1,571,348 was outstanding under this credit facility. In February,
1998, the Company and CLC agreed to increase the maximum amount of credit
available under this facility from $1.9 million to $2.75 million. This credit
facility is evidenced by a demand promissory note that is payable by
<PAGE>
CLC at any time without penalty. Principal amounts repaid by CLC may be
reborrowed. Outstanding advances under this note bear interest at a floating
rate equal to the "prime" rate of interest as published from
time to time in The Wall Street Journal. Interest is due and payable annually
-----------------------
on the first business day of January of each year. Amounts outstanding under
this credit facility are secured by essentially all of CLC's assets, including
its notes receivable. Because CLC was initially capitalized with only $500, $375
of which represented the Company's investment, the $38,964 loss experienced by
CLC in 1997 made it insolvent at the end of 1997. The relatively small initial
capitalization of CLC reflects the Company's desire to fund CLC's operations
with debt financing rather than equity contributions. Management believes that
CLC's cash flow is more than adequate to service the loans that have been made,
and that may be made in the future, by the Company to CLC. While CLC does not
currently, and in 1998, is not expected to, have a significant impact on the
consolidated results of operations of the Company, management believes that CLC
represents a prudent and, ultimately, profitable means of diversifying the
Company's business lines and that CLC represents a significant long-term growth
opportunity for the Company.
CashTrans was formed in May, 1997, as a joint venture between the Company and
JRH Diversified, Inc. to engage in the business of providing retail
establishments (primarily convenience stores) with automated teller machines
that are owned by CashTrans and that dispense cash or cash equivalents.
CashTrans represents 0.46% and 1.31%, respectively, of the Company's total
assets and total revenues at December 31, 1997. CashTrans' loss for 1997 was
attributable primarily to the placement by CashTrans of 334 automated teller
machines in service from its formation in May 1997 through the remainder of the
year. This represented approximately 67% more machines placed in service during
this period than management had anticipated. Management expects that CashTrans
will require anywhere from twelve to eighteen months to recover its investment
in an individual machine from service charges generated as a result of
transactions processed through that machine. The average recovery period is
expected to be approximately fifteen months. Management believes that the costs
incurred by CashTrans in 1997 are not unusual for start-up ventures like
CashTrans and that such costs were influenced by a larger demand for CashTrans'
products than had been anticipated by management. Management believes that the
losses generated by CashTrans' initial investment in automated teller machines
are short-term in nature and that, in the longer term, this investment will
contribute to CashTrans' profitability. The operations of CashTrans are funded
principally through a credit facility with the Company. At December 31, 1997,
$500,000 was outstanding under this facility. In February, 1998, the Company
and CashTrans agreed to increase the maximum amount of credit available under
this facility from $500,000 to $750,000. Under this credit facility, CashTrans
may borrow up to $750,000. Until the earlier of (i) the date on which total
borrowings equal $750,000 or (ii) December 31, 2000 (the Conversion Date),
interest only is due and payable on the last business day of each year.
Interest accrues at a floating rate equal to the "prime" rate of interest as
published from time to time in The Wall Street Journal plus 1%. On the
-----------------------
Conversion Date, the outstanding principal balance becomes due and payable,
monthly, over a period of 36 consecutive months. Amounts outstanding under this
credit facility are personally guaranteed by James R. Henderson, the principal
of JRH Diversified, Inc. Because CashTrans was initially capitalized with only
$100,000, $49,000 of which represented the Company's investment, the $226,827
loss
<PAGE>
experienced by CashTrans in 1997 made it insolvent at the end of 1997. The
relatively small initial capitalization of CashTrans reflects the desire of the
Company and JRH Diversified, Inc. to fund CashTrans' operations with debt
financing rather than equity contributions. Management believes that CashTrans'
cash flow is more than adequate to service the loans that have been made, and
that may be made in the future, by the Company to CashTrans. Management believes
that CashTrans represents a prudent and, ultimately, profitable investment for
the Company as well as a significant long-term growth opportunity for the
Company.
Metroplex, a wholly-owned subsidiary of the Company, was formed in 1992 as an
appraisal service company. Metroplex performs appraisals of residential
properties located in Paulding, Bartow, Polk, Harralson, Floyd, and Cobb
counties, Georgia. Metroplex represents 0.02% and 1.13%, respectively, of the
Company's total assets and total revenues at December 31, 1997. Net earnings of
Metroplex for the year ended December 31, 1997, were approximately $6,574.
Metroplex does not have a significant impact on the consolidated results of
operations of the Company and management does not anticipate that its impact
will be significant in future periods. Management believes that Metroplex
represents a desirable activity for the Company to be engaged in because, among
other things, Metroplex requires the commitment by the Company of relatively
modest resources and enables the Bank to receive reliable appraisals in
connection with residential real estate loans originated by the Bank.
RESULTS OF OPERATION
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET INTEREST INCOME
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-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
The Company's net interest income increased approximately 12.71% to $4,719,701
for the year ended December 31, 1997, as compared to $4,187,352 for the year
ended December 31, 1996. Interest income increased approximately 11.41% to
$7,630,414 for 1997, as compared to $6,848,968 for 1996, due primarily to an
approximate 13.79% increase in the average loan portfolio for 1997 as compared
to 1996. Interest expense increased approximately 9.36% to $2,910,713 for 1997,
as compared to $2,661,616 for 1996, due primarily to an approximate 9.57%
increase in the average amount of interest-bearing deposits and liabilities of
the Company.
At December 31, 1997, the Company held $2,070,710, or 8.99%, 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
<PAGE>
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, 1997 were
$79,613,629, having a weighted average yield of 9.58%, resulting in a net
interest margin of 5.93% for 1997. This compares to average earning assets for
the year ended December 31, 1996 of $71,120,155, having a weighted average yield
of 9.63%, resulting in a net interest margin of 5.89% for 1996. The slight
increase in net interest margin is attributable primarily to the 11.94% increase
in the Company's average earning assets, as compared to the 9.57% increase in
the Company's average interest-bearing liabilities. The larger increase in the
amount of the Company's interest-earning assets as compared to its interest-
bearing liabilities caused a positive effect on the Company's net interest
margin in 1997.
PROVISION FOR LOAN LOSSES
Although the Company loses some interest income due to non-performing assets,
defined as loans placed on non-accrual status, real estate acquired through
foreclosure, and property acquired through repossession, management considers
the Company's level of non-performing assets to be at an acceptable level. The
Company's non-performing assets totaled $393,835, or 0.43% of total assets as of
December 31, 1997, as compared to $33,237, or 0.04% of total assets as of
December 31, 1996. The increase in non-performing assets from 1996 to 1997 was
attributable primarily to an increase in the Company's loans placed on non-
accrual status. At December 31, 1997, the Company had classified loans of
$847,988 or approximately 0.92% of total assets, as compared to $765,529 or
approximately 0.90% of total assets at December 31, 1996.
The Georgia Department of Banking and Finance (the Department), 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 1997, the Company sustained $88,556
in net loan losses as compared to $67,629 in net losses in 1996. The increase
in net loan losses from 1996 to 1997 was attributable primarily to an increase
in the Bank's net loan losses to $79,601 as of December 31, 1997, as compared to
$42,440 as of December 31, 1996. As of December 31, 1997, the Company's loan
loss allowance was $829,232, or 1.45% of outstanding loans.
OTHER INCOME
Total other income, consisting of service charges on deposits, appraisal fees,
credit life insurance commissions, securities gains, loss in CashTrans, an
unconsolidated subsidiary, and other miscellaneous income, increased
approximately 4.58% to $1,203,961 for the year ended
<PAGE>
December 31, 1997, as compared to total other income of $1,151,183 for the year
ended December 31, 1996, primarily due to increased insurance commissions and
service charges and fees. Insurance commissions increased approximately $62,210,
or 33.59%, during the year ended December 31, 1997, as compared to the same
period in 1996 primarily due to income derived from one of its subsidiaries,
CLC. Consumer finance companies typically sell credit life and automobile
liability insurance to many of their customers. Service charges and fee income
increased approximately $102,892, or 12.40%, during the year ended December 31,
1997, as compared to the same period in 1996, primarily due to an increase in
the number of returned check charges assessed by the Bank on deposit accounts.
OTHER EXPENSES
Other expenses, consisting of salaries and employee benefits, occupancy and
other miscellaneous expenses, increased approximately 19.09% to $4,244,061 for
1997, as compared to $3,563,813 for 1996. This increase is attributable
primarily to an increase in salaries and employee benefits caused by (i) the
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 $105,484, or 19.33%,
for the year ended December 31, 1997, as compared to the same period in 1996,
primarily due to increased depreciation associated with increased furniture and
equipment purchases at the Bank. Other operating expense increased by
approximately $228,044, or 20.44%, for the year ended December 31, 1997, as
compared to the same period in 1996, primarily due to increased advertising
costs incurred by the Bank since new competitors entered its market.
PROVISION FOR INCOME TAXES
Total income tax expense for the year ended December 31, 1997 was $444,272 as
compared to $507,639 for the year ended December 31, 1996. The effective tax
rate also decreased from 32% to 30% at December 31, 1997 as compared to December
31, 1996. This decrease was due primarily to an increase in tax-exempt interest
income earned by the Bank and to lower state income tax.
RESULTS OF OPERATION
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET EARNINGS
The Company's net earnings for 1996 were $1,057,884, an approximate 19.48%
increase from net earnings of $885,407 for 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 the Company's net earnings for 1996.
NET INTEREST INCOME
<PAGE>
The Company's 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.
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 compared 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 was 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 have a higher yield than
those carried in the Bank's loan portfolio.
PROVISION FOR LOAN LOSSES
The Company's non-performing assets totaled $33,237, or 0.04% of total assets as
of December 31, 1996, as compared to $273,695, or 0.40% of total assets as of
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 held in other real estate.
At December 31, 1996, the Company had classified loans of $765,529 or
approximately 0.90% of total assets, as compared to $702,750 or approximately
1.03% of total assets at December 31, 1995.
The Department, 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.
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
<PAGE>
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 28.75% to $3,563,813 for
1996, as compared to $2,768,056 for 1995. This increase was 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.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the principal sources of funds for the Company have been increases
in deposits, repayments of loans, other borrowings and cash received at
maturity, and from sales, of securities. In 1997, the Company received
$5,083,342 in net increases of demand, savings, and time deposits and $6,187,038
from maturities and sales of securities. Additionally, in 1997, the Company
established a $2,500,000 revolving credit facility with The Bankers Bank,
Atlanta, Georgia. The Company received $800,000 in proceeds from this note
payable during 1997. As of March 2, 1998, the Company had $900,000 in
borrowings outstanding under this facility.
Uses of funds in 1997 included: $209,817 paid in dividends to Company
shareholders of record as of March 10, 1997, and $107,987 in additions to
premises and equipment. The net change in the Company's loans was an increase
of $7,851,700 for 1997 as compared to 1996, and $6,538,282 in securities were
purchased in 1997.
Increases in the Bank's core deposits are expected to be the major source of
funds provided during 1998. 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 that allows customers to request
<PAGE>
loans by phone, fixed-rate mortgage loans, debit cards, credit cards, and access
to the Bank's website on the Internet).
The Company is subject to regulatory capital requirements imposed by the
Department and by the Board of Governors of the Federal Reserve System. The
Department requires bank holding companies to maintain a minimum ratio of
capital to total average assets of 5%, with certain adjustments, on a
consolidated basis for bank holding companies. At December 31, 1997, the
Company's ratio of capital to total average assets was 9.55%, using the
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 1 capital. Under
applicable federal regulations and interpretations thereof, the Bank's ratio of
total capital to risk weighted assets at December 31, 1997, was 12.14%, and its
ratio of Tier 1 capital to risk weighted assets was 10.89%. Under applicable
federal regulations and interpretations thereof, the Company's ratio of total
capital to risk weighted assets at December 31, 1997, was 13.75%, and its ratio
of Tier 1 capital to risk weighted assets was 12.49%. Additionally, under
federal law, all but the most highly rated banks and bank holding companies are
required to maintain a minimum ratio of Tier 1 capital to total average assets
(Tier 1 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 1 leverage ratio required for the most
highly rated banks and bank holding companies with no plans to expand. The Bank
substantially exceeds its Tier 1 leverage ratio requirement with a Tier 1
leverage ratio of 7.03% as of December 31, 1997. The Company also substantially
exceeds its Tier 1 leverage ratio requirement with a Tier 1 leverage ratio of
8.60% as of December 31, 1997. 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. Liquidity is monitored monthly by management in order to
ensure compliance with the Bank's policy of maintaining adequate liquidity. As
of December 31, 1997, the Bank's liquidity ratio (defined as net cash, short-
term assets, and marketable assets divided by net deposits and short-term
liabilities) was 29.65%, as compared to 33.58% at December 31, 1997. The Bank
maintains two lines of credit to borrow fed funds that total $3,000,000 in order
to enhance liquidity. The Bank is a member of the Federal Home Loan Bank of
Atlanta and borrowings are also available through that relationship. The amount
of credit available from the Federal Home Loan Bank of Atlanta fluctuates based
on criteria set by that institution. Additionally, the Company's $2,500,000
credit facility with The Bankers Bank is intended to enhance the Company's
liquidity.
YEAR 2000
The Company has a Year 2000 plan in place. This plan is necessary since many
existing computer programs use only two digits to identify a year. Such
programs were designed and developed without considering the impact of the
upcoming change in the century. Since many
<PAGE>
computer applications could fail or create erroneous results by or at the Year
2000 if these problems are not corrected, management has implemented a plan to
ensure that the Company and each of its subsidiaries is prepared to continue
operations without interruption through the upcoming change in the century. Year
2000 issues relating to the Company's businesses, its operations, and its
relationships with customers, suppliers, and other constituents are reviewed by
a committee consisting of management and operations and technical staff. Goals
of the Company's plan include evaluation of systems, prioritization of necessary
updates or replacements, responsibility assignments, and establishment of a
timeline for review, implementation, and testing. Management believes that, to
date, the goals of the plan have been met, and the testing phase has begun.
Management does not believe that Year 2000 will have a significant impact on the
Company. Management does not anticipate that the implementation of the Company's
Year 2000 plan will entail any material capital expenditures.
<PAGE>
SELECTED ANNUAL CONSOLIDATED FINANCIAL DATA
The selected annual consolidated financial data set forth below under the
headings "Balance Sheet Data" and "Statement of Earnings 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 Financial Condition and Results of Operations" set forth elsewhere
herein.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets 91,904,781 85,203,618 68,230,620 62,835,550 63,825,313
Loans (1) 56,359,625 48,712,195 38,314,857 34,477,171 29,647,200
Deposits 81,981,103 76,897,761 61,235,289 57,289,105 58,560,335
Stockholders equity (2) 7,869,832 6,877,876 6,031,906 4,943,152 4,824,210
STATEMENT OF EARNINGS DATA
Net interest income 4,719,701 4,187,352 3,395,024 2,873,926 2,487,816
Provision for loan losses 204,270 197,841 186,645 243,000 218,061
Other income 1,203,961 1,151,183 838,882 816,385 811,034
Other expense 4,244,061 3,563,813 2,768,056 2,477,119 2,322,022
Net earnings 1,038,807 1,057,884 885,407 677,367 532,333
Basic earnings per share (3) 1.24 1.26 1.06 .81 .64
ASSET QUALITY RATIOS
Nonperforming assets
to total assets 0.43% 0.04% 0.40% 0.37% 0.53%
Net chargeoffs to average loans 0.17% 0.15% 0.13% 0.53% 0.63%
Allowance for loan losses
to total loans 1.45% 1.44% 1.50% 1.27% 1.25%
Allowance for loan losses
to nonperforming assets 210.55% 2146.76% 213.12% 189.18% 110.57%
KEY PERFORMANCE RATIOS
Return on average assets 1.19% 1.39% 1.37% 1.14% 0.96%
Return on average equity 14.44% 16.65% 17.01% 13.86% 11.91%
Net interest margin 5.93% 5.89% 5.66% 5.29% 4.90%
Net interest spread 5.17% 5.23% 4.98% 4.86% 4.49%
Average equity to
average assets 8.27% 8.32% 8.06% 8.25% 8.04%
Other expense to
average assets 4.88% 4.67% 4.29% 4.18% 4.18%
Efficiency ratio (4) 71.65% 66.76% 65.38% 67.12% 70.39%
Dividends per share .25 .25 .25 .20 .10
</TABLE>
(1) Net of unearned interest and the allowance for loan losses.
(2) Information from 1994 forward includes net unrealized gain (loss) on
securities available for sale, net of tax
(3) All years presented are adjusted for the implementation of SFAS 128.
(4) The efficiency ratio is calculated by dividing other expense by the sum of
net interest income and other income.
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, 1997, the Company
believes that the trading prices of the Company's Common Stock have ranged
between $12.50 and $20.00 per share.
The Company paid cash dividends on its Common Stock of $.25 per share to
stockholders of record as of March 10, 1997, and the Company has declared a
dividend of $.25 per share payable to stockholders of record as of March 9,
1998. 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 737 shareholders of record as of March 2, 1998.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Community Trust Financial Services Corporation, Inc.
We have audited the accompanying consolidated balance sheets of Community Trust
Financial Services Corporation and subsidiaries as of December 31, 1997 and
1996, 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, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Porter-Keadle Moore LLP
Atlanta, Georgia
January 31, 1998
-2-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
- ------
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $578,000 and $534,000 $ 4,022,304 3,011,164
Federal funds sold 4,510,000 7,020,000
---------- ----------
Cash and cash equivalents 8,532,304 10,031,164
Securities available for sale 23,021,011 22,418,690
Other investments 301,100 255,000
Loans, net 56,359,625 48,712,195
Premises and equipment 2,141,654 2,296,111
Accrued interest receivable and other assets 1,549,087 1,490,458
---------- ----------
$ 91,904,781 85,203,618
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits:
Demand $ 12,105,179 9,648,648
Interest-bearing demand 18,644,247 17,211,638
Savings 14,808,283 15,546,932
Time 21,589,280 21,280,978
Time, in excess of $100,000 14,834,114 13,209,565
---------- ----------
Total deposits 81,981,103 76,897,761
========== ==========
Accrued interest payable and other liabilities 1,253,846 1,420,233
Notes payable 800,000 -
---------- ----------
Total liabilities 84,034,949 78,317,994
---------- ----------
Commitments
Minority interest - 7,748
---------- ----------
Stockholders' equity:
Common stock, par value $2.50, authorized 5,000,000
shares, issued and outstanding 841,324 and 839,164 shares 2,103,310 2,097,910
Additional paid-in capital 2,109,602 2,101,401
Retained earnings 3,511,989 2,682,999
Unrealized gain (loss) on securities available for sale, net of tax 144,931 (4,434)
---------- ----------
Total stockholders' equity 7,869,832 6,877,876
---------- ----------
$ 91,904,781 85,203,618
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------- --------------
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $ 6,075,240 5,462,059 4,307,281
Interest on federal funds sold 243,198 221,396 192,222
Interest and dividends on investment securities:
U.S. Treasuries 448,588 164,666 142,771
U.S. Government agencies and mortgage backed 642,578 873,567 837,399
State, county and municipal 197,710 114,474 79,363
Other 23,100 12,806 4,441
--------- --------- ---------
Total interest income 7,630,414 6,848,968 5,563,477
--------- --------- ---------
Interest expense:
Interest on deposits:
Demand 397,555 410,932 396,100
Savings 391,036 375,845 436,236
Time 1,276,222 1,173,908 926,137
Time in excess of $100,000 817,029 663,640 409,190
Other interest 28,871 37,291 790
--------- --------- ---------
Total interest expense 2,910,713 2,661,616 2,168,453
--------- --------- ---------
Net interest income 4,719,701 4,187,352 3,395,024
Provision for loan losses 204,270 197,841 186,645
--------- --------- ---------
Net interest income after provision for loan losses 4,515,431 3,989,511 3,208,379
--------- --------- ---------
Other income:
Service charges on deposit accounts 932,593 829,701 733,226
Appraisal fees 96,952 88,565 77,435
Insurance commissions 247,395 185,185 26,710
Losses on sales of securities available for sale (3,219) (9,851) (19,247)
Equity in loss of CashTrans (111,145) - -
Miscellaneous 41,385 57,583 20,758
--------- --------- ---------
Total other income 1,203,961 1,151,183 838,882
--------- --------- ---------
Other expenses:
Salaries and employee benefits 2,249,382 1,902,662 1,355,069
Occupancy 651,088 545,604 447,497
Other operating 1,343,591 1,115,547 965,490
--------- --------- ---------
Total other expenses 4,244,061 3,563,813 2,768,056
--------- --------- ---------
Earnings before income taxes and minority interest 1,475,331 1,576,881 1,279,205
Income taxes 444,272 507,639 397,533
Minority interest in loss (earnings) of consolidated subsidiary 7,748 (11,358) 3,735
-------------- --------- -------------
Net earnings $ 1,038,807 1,057,884 885,407
========= ========= =========
Net earnings per share $ 1.24 1.26 1.06
========= ========= =========
Net earnings per share - assuming dilution $ 1.18 1.23 1.04
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 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 ($7.00 per share) (1,000) (2,500) (2,500) (2,000) - (7,000)
Change in unrealized gain
(loss) on securities available
for sale, net of tax - - - - (17,560) (17,560)
------- ----------- ---------- --------- ------------- ---------
Balance, December 31, 1996 839,164 2,097,910 2,101,401 2,682,999 (4,434) 6,877,876
Net earnings - - - 1,038,807 - 1,038,807
Cash dividends declared
($.25 per share) - - - (209,817) - (209,817)
Exercise of stock options 2,160 5,400 8,201 - - 13,601
Change in unrealized gain
(loss) on securities available
for sale, net of tax - - - - 149,365 149,365
------- ----------- ---------- --------- ------------- ---------
Balance, December 31, 1997 841,324 $2,103,310 2,109,602 3,511,989 144,931 7,869,832
======= =========== ========== ========= ============= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 1,038,807 1,057,884 885,407
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, amortization and accretion 359,789 258,390 173,268
Provision for loan losses 204,270 197,841 186,645
Provision for deferred income taxes (67,537) (34,885) (64,935)
Equity in loss of CashTrans 111,145 - -
Loss on sales of securities available for sale 3,219 9,851 19,247
Minority interest in earnings (loss) of consolidated subsidiary (7,748) 11,358 (3,735)
Change in:
Interest receivable (144,020) (39,440) (337,010)
Other assets (111,493) (496,642) (96,804)
Interest payable 64,397 216,603 278,620
Other liabilities (230,784) 236,595 81,510
---------- ----------- ----------
Net cash provided by operating activities 1,220,045 1,417,555 1,122,213
---------- ----------- ----------
Cash flows from investing activities:
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Proceeds from maturities of securities held to maturity - - 50,000
Proceeds from sales of securities available for sale 1,990,000 3,111,819 3,458,909
Proceeds from calls and maturities of securities
available for sale 4,197,038 7,927,426 3,613,539
Purchase of securities available for sale (6,538,282) (12,851,633) (9,600,664)
Purchases of other investments (46,100) - -
Net increase in loans (7,851,700) (10,595,179) (4,024,331)
Purchases of premises and equipment (107,987) (354,465) (316,275)
Investment in CashTrans (49,000) - -
---------- ----------- ----------
Net cash used by investing activities (8,406,031) (12,762,032) (6,818,822)
----------
Cash flows from financing activities:
Net change in deposits 5,083,342 15,662,472 3,946,184
Proceeds from notes payable 800,000 - -
Retirement of common stock - (7,000) -
Proceeds from exercise of stock options 13,601 21,771 7,545
Cash dividends paid (209,817) (209,125) (208,749)
---------- ----------- ----------
Net cash provided by financing activities 5,687,126 15,468,118 3,744,980
---------- ----------- ----------
Net change in cash and cash equivalents (1,498,860) 4,123,641 (1,951,629)
Cash and cash equivalents at beginning of year 10,031,164 5,907,523 7,859,152
---------- ----------- ----------
Cash and cash equivalents at end of year $ 8,532,304 10,031,164 5,907,523
========== =========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,846,316 2,445,013 1,889,833
Income taxes $ 500,000 690,000 460,000
Noncash investing and financing activities:
Transfers of investment securities, at amortized cost,
to securities available for sale $ - - 1,758,676
Change in unrealized loss on securities available
for sale, net of tax $ 149,365 (17,560) 404,551
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification
------------------------------------------
The consolidated financial statements for the years ended December 31, 1997
and 1996 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"). All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain 1996 and 1995 amounts have been reclassified to
conform to the 1997 presentation.
The Company's business is primarily conducted by its subsidiaries. The
Company is subject to regulation under the Bank Holding Company Act of
1956.
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 the Georgia cities of Rockmart, Rossville and
Woodstock, are funded principally through a line of credit arrangement with
the Company.
In May 1997, the Company entered into a joint venture to establish a
nonbank subsidiary, Cash Transactions, LLC ("CashTrans"), that sells,
leases, and services automated teller machines. The Company owns 49% of the
equity of CashTrans through an initial capital contribution of $49,000.
Additionally the Company and the Bank have loans to CashTrans totalling
approximately $853,000. The joint venture is accounted for using the equity
method of accounting.
The accounting principles followed by the Company and its subsidiaries, and
the methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the
banking industry. In preparing financial statements, in accordance with
GAAP, management is required to make estimates and assumptions that affect
the reported amounts in the financial statements. 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 Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. At December 31, 1997 and 1996, the
Company has classified all securities as available for sale.
Securities available for sale consist of all investment securities not
classified as trading securities or securities held to maturity and are
recorded at fair value. Securities held to maturity 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.
-8-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investment Securities, continued
---------------------
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.
Other Investments
-----------------
Other investments include equity securities with no readily determinable
fair value. These investment securities are carried at cost.
Loans, Loan Fees and Allowance for Loan Losses
----------------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at principal amount
outstanding, net of unearned interest and the allowance for loan losses.
Interest on primarily all loans is calculated principally by using the
simple interest method on the daily balance of the principal amount
outstanding. Loan fees, net of certain origination costs, are deferred and
are being amortized over the lives of the respective loans.
A loan is considered 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. Interest income from impaired loans is
recognized using the cash basis method of accounting.
As a result of management's ongoing review of the loan portfolio, loans are
placed on nonaccrual status generally when they are greater than 90 days
past due. Exceptions are allowed for loans greater than 90 days past due
when such loans are well collateralized and in process of collection.
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.
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
-9-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 bases. 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
----------------------
Statement of Financial Accounting Standard SFAS No. 128 "Earnings Per
Share" became effective for the Company for the year ended December 31,
1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to simplify
previous earnings per share standards and to make domestic and
international practices more compatible. Net earnings per share is based on
the weighted average number of common shares outstanding during the period
while the effects of potential common shares outstanding during the period
are included in diluted earnings per share. All net earnings per share
amounts have been restated to conform to the provisions of SFAS No. 128.
SFAS No. 128 requires the presentation on the face of the earnings
statement of net earnings per share with and without the dilutive effects
of potential common stock issuances from instruments such as options,
convertible securities and warrants. Additionally, the new statement
requires the reconciliation of the amounts used in the computation of both
"net earnings per share" and "net earnings per share - assuming dilution."
Net earnings per share amounts for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
FOR THE YEAR ENDED DECEMBER 31, 1997 (Numerator) (Denominator) Amount
------------- -------------- ---------
<S> <C> <C> <C>
Net earnings per share $ 1,038,807 839,633 $1.24
Effect of dilutive securities: =====
Stock options - 40,181
--------- -------
Net earnings per share - assuming dilution $ 1,038,807 879,814 $1.18
========= ======= =====
</TABLE>
-10-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Net Earnings Per Share, continued
----------------------
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
FOR THE YEAR ENDED DECEMBER 31, 1996 (Numerator) (Denominator) Amount
------------- -------------- ---------
<S> <C> <C> <C>
Net earnings per share $1,057,884 836,541 $1.26
=====
Effect of dilutive securities:
Stock options - 26,172
---------- -------
Net earnings per share - assuming dilution $1,057,884 862,713 $1.23
========== ======= =====
<CAPTION>
Net Earnings Common Shares Per Share
FOR THE YEAR ENDED DECEMBER 31, 1995 (Numerator) (Denominator) Amount
------------- -------------- ---------
<S> <C> <C> <C>
Net earnings per share $ 885,407 835,513 $1.06
=====
Effect of dilutive securities:
Stock options - 17,406
---------- -------
Net earnings per share - assuming dilution $ 885,407 852,919 $1.04
========== ======= =====
</TABLE>
Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board issued State of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 131 specifies the presentation and disclosure of
operating segment information reported in the annual report and interim
reports issued to stockholders. The provisions of both statements are
effective for fiscal years beginning after December 15, 1997. The
management of the Company believes that the adoption of these statements
will not have a material impact on the Company's financial position,
results of operations, or liquidity.
(2) INVESTMENT SECURITIES
Securities available for sale at December 31, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C>
U S. Treasuries $ 6,759,210 57,933 1,195 6,815,948
U S. Government agencies 8,890,080 66,729 16,666 8,940,143
Mortgage-backed securities 2,080,988 9,245 19,523 2,070,710
State, county and municipal 5,057,225 136,985 - 5,194,210
----------- ------- ------ ----------
Total $22,787,503 270,892 37,384 23,021,011
=========== ======= ====== ==========
</TABLE>
-11-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
<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
========== ======= ======= ==========
The amortized cost and estimated fair value of securities available for
sale at December 31, 1997, 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.
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Due within one year $ 3,135,478 3,136,171
Due from one to five years 13,437,019 13,535,743
Due from five to ten years 479,000 481,130
Due after ten years 3,655,018 3,797,257
Mortgage-backed securities 2,080,988 2,070,710
---------- ----------
$22,787,503 23,021,011
========== ==========
Proceeds from sales of securities available for sale during 1997, 1996 and
1995 were $1,990,000, $3,111,819, and $3,458,909. Gross losses of $3,219,
$9,851 and $19,247 were realized on 1997, 1996 and 1995 sales,
respectively.
Investment securities with a carrying value of approximately $15,712,000
and $12,333,000 as of December 31, 1997 and 1996, respectively, were
pledged to secure public deposits as required by law or for other purposes.
(3) LOANS
Major classifications of loans at December 31, 1997 and 1996 are summarized
as follows:
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Commercial, financial and agricultural $ 7,765,358 5,840,546
Real estate - construction 8,308,349 7,274,577
Real estate - mortgage 30,833,493 26,936,164
Consumer 10,281,657 9,374,426
---------- ----------
Total loans 57,188,857 49,425,713
Less: Allowance for loan losses 829,232 713,518
---------- ----------
Total net loans $56,359,625 48,712,195
========== ==========
</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.
-12-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS, CONTINUED
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $713,518 583,306 444,368
Amounts charged off (145,825) (90,263) (60,875)
Recoveries on amounts previously charged off 57,269 22,634 13,168
Provision charged to operating expenses 204,270 197,841 186,645
-------- ------- -------
Balance at end of year $829,232 713,518 583,306
======== ======= =======
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Land $ 375,403 375,403
Land improvements 67,254 67,254
Buildings and improvements 1,700,061 1,693,638
Furniture and equipment 1,718,463 1,621,186
--------- ---------
3,861,181 3,757,481
Less: Accumulated depreciation 1,719,527 1,461,370
--------- ---------
$2,141,654 2,296,111
========= =========
</TABLE>
Depreciation expense was approximately $257,000, $222,000 and $176,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
(5) TIME DEPOSITS
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1998 $24,578,850
1999 5,799,396
2000 3,001,759
2001 1,687,322
2002 and thereafter 1,356,067
----------
$36,423,394
==========
</TABLE>
(6) NOTES PAYABLE
In November 1997, the Company obtained a $2,500,000 line of credit with
another financial institution. The debt is collateralized 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 beginning in December 1999 and maturing in November 2008. 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, 1997 and 1996.
-13-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 78,355
1999 73,700
2000 55,775
2001 35,000
2002 40,000
Thereafter 160,000
--------
$442,830
========
</TABLE>
Rental expense for each of the three years in the period ended December 31,
1997 totalled approximately $83,000, $77,000 and $58,000, 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.
In most cases, the Bank requires collateral or other security to support
financial instruments with credit risk.
<TABLE>
<CAPTION>
Approximate
Contract Amount
----------------------
1997 1996
---------- ---------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $9,258,000 7,875,000
Standby letters of credit and
financial guarantees written $ 666,000 608,000
</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.
-14-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 $590,000 during 1998 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 of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets and of Tier 1 capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1997, that the Company and the Bank
meet all capital adequacy requirements to which they are subject.
-15-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) REGULATORY MATTERS, CONTINUED
As of December 31, 1997, 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. The Company and
the Bank's actual capital amounts and ratios are also presented below.
<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, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated $8,214,000 13.8% $4,777,000 8.0% N/A N/A
Bank $6,993,000 12.1% $4,610,000 8.0% $5,762,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $7,460,000 12.5% $2,389,000 4.0% N/A N/A
Bank $6,273,000 10.9% $2,305,000 4.0% $3,457,000 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $7,460,000 8.6% $3,479,000 4.0% N/A N/A
Bank $6,273,000 7.0% $3,569,000 4.0% $4,461,000 5.0%
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%
</TABLE>
-16-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 discretion
of the Board of Directors at the fair value at the date of grant. 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.
The following is a summary of transactions for the incentive stock option
plan:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ -------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Option Option Option
Option Price Per Option Price Per Option Price Per
Shares Share Shares Share Shares Share
------ --------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year 696 $5.00 696 $5.00 2,196 $5.02
Exercised during the year - - - (1,500) $5.03
--- --- ------
Outstanding, end of year 696 $5.00 696 $5.00 696 $5.00
=== === ======
</TABLE>
All options are exercisable as of December 31, 1997, 1996 and 1995. All
options expire on April 18, 1998.
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. The Company has chosen not to adopt the
cost recognition principles of this statement. No compensation expense has
been recognized in 1997, 1996 or 1995 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>
1997 1996 1995
---------- ----------- ------------
<S> <C> <C> <C> <C>
Net earnings As reported $1,038,807 1,057,884 885,407
Proforma $ 997,794 1,035,856 867,266
Net earnings per share As reported $ 1.24 1.26 1.06
Proforma $ 1.19 1.23 1.04
Net earnings per share - assuming
dilution As reported $ 1.18 1.23 1.04
Proforma $ 1.13 1.20 1.02
</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 1997, 1996 and 1995 respectively: dividend
yields of 2%, 2% and 3%, respectively; risk free interest rate of 6%; and
an expected life of 10 years.
-17-
<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>
1997 1996 1995
---------------------- ----------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Option Price Option Price Option Price
Shares Per Share Shares Per Share Shares Per Share
--------- ---------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year 90,604 $ 7.68 84,900 $ 7.14 75,000 $ 6.64
Granted during the year 15,000 $15.53 10,269 $11.57 14,000 $10.01
Cancelled during the year - (900) $ 7.88 (4,100) $ 7.88
Exercised during the year (2,160) $ 6.30 (3,665) $ 5.94 -
------- ------ ------
Outstanding, end of year 103,444 $ 8.85 90,604 $ 7.68 84,900 $ 7.14
======= ====== ======
Number of shares exercisable 77,363 63,827 45,053
======= ====== ======
</TABLE>
The weighted average grant-date fair value of options granted in 1997,
1996 and 1995 was $4.41, $3.46 and $2.09, respectively. For these
employee and director stock options, options outstanding at December 31,
1997 are exercisable at option prices ranging from $5.78 to $15.79 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 1997, 1996 and 1995 was approximately $26,600, $20,300 and
$21,500, respectively.
(11) INCOME TAXES
The components of income tax expense for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Current $ 511,809 542,524 462,468
Deferred (67,537) (34,885) (38,204)
Change in valuation allowance - - (26,731)
------- ------- -------
$ 444,272 507,639 397,533
======= ======= =======
</TABLE>
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>
1997 1996 1995
------------------ ----------- ----------
<S> <C> <C> <C>
Pretax income at statutory rates $ 501,613 536,140 434,930
Add (deduct):
Tax-exempt interest income (76,374) (49,700) (41,038)
Non-deductible interest expense 9,760 5,646 5,090
State taxes, net of federal effect 12,737 22,973 -
Other (3,464) (7,420) (1,449)
------- ------- -------
$ 444,272 507,639 397,533
======= ======= =======
</TABLE>
-18-
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) INCOME TAXES, CONTINUED
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>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net unrealized loss on securities available for sale $ - 2,714
Allowance for loan losses 246,150 188,790
Other 4,881 -
--------- -------
Gross deferred tax assets 251,031 191,504
--------- -------
Deferred tax liabilities:
Premises and equipment (56,552) (61,848)
Net unrealized gain on securities available for sale (88,628) -
--------- -------
Gross deferred tax liabilities (145,180) (61,848)
--------- -------
Net deferred tax asset $ 105,851 129,656
========= =======
</TABLE>
(12) RELATED PARTY TRANSACTIONS
The Company conducts transactions with directors, executive officers
(including companies in which they have beneficial interest) as well as
its unconsolidated subsidiaries in the normal course of business. It is
the policy of the Company that loan transactions with directors, executive
officers and subsidiaries 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 1997:
Beginning balance $ 265,000
Loans advanced 1,310,000
Repayments (435,000)
----------
Ending balance $1,140,000
==========
The aggregate amount of deposits of directors and executive officers and
their affiliates amounted to approximately $2,461,000 and $2,089,000 at
December 31, 1997 and 1996.
(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, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Printing and supplies $ 108,040 94,354 71,332
Data processing $ 126,087 128,702 123,293
FDIC assessment $ 8,995 2,000 64,146
Directors fees $ 98,250 81,950 73,300
Advertising $ 125,702 63,191 62,738
</TABLE>
-19-
<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
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------------ -----------
<S> <C> <C>
Cash $ 26,017 285,402
Investment in subsidiaries 6,379,530 5,384,441
Loans to subsidiaries 2,071,348 1,089,764
Other assets 192,937 126,451
---------- ---------
$8,669,832 6,886,058
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ - 8,182
Note payable 800,000 -
Stockholders' equity 7,869,832 6,877,876
---------- ---------
$8,669,832 6,886,058
========== =========
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
Interest income $ 104,672 51,239 -
Dividends from Bank 250,000 1,311,354 499,804
Dividends from Metroplex - 25,000 -
Other operating expenses (202,099) (81,774) (52,079)
---------- --------- -------
Earnings before income tax benefit and equity
in undistributed earnings of subsidiaries 152,573 1,305,819 447,725
Income tax benefit 89,510 9,282 12,567
---------- --------- -------
Earnings before equity in undistributed
earnings of subsidiaries 242,083 1,315,101 460,292
Dividends paid in excess of earnings of subsidiaries - (257,217) -
Equity in undistributed earnings of subsidiaries 796,724 - 425,115
---------- --------- -------
Net earnings $1,038,807 1,057,884 885,407
========== ========= =======
</TABLE>
-20-
<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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,038,807 1,057,884 885,407
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries (796,724) 257,217 (425,115)
Amortization - 4,743 18,974
Other (74,668) (170,093) (16,668)
----------- --------- --------
Net cash provided by operating activities 167,415 1,149,751 462,598
----------- --------- --------
Cash flows from investing activities:
Investment in CLC - - (375)
Investment in CashTrans (49,000) - -
Loans to subsidiaries (981,584) (839,764) (250,000)
----------- --------- ---------
Net cash used by investing activities (1,030,584) (839,764) (250,375)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable 800,000 - -
Cash dividends paid (209,817) (209,125) (208,749)
Proceeds from exercise of stock options 13,601 21,771 7,545
Retirement of common stock - (7,000) -
----------- --------- --------
Net cash provided (used) by financing activities 603,784 (194,354) (201,204)
----------- --------- ---------
Net change in cash (259,385) 115,633 11,019
Cash at beginning of the year 285,402 169,769 158,750
----------- --------- --------
Cash at end of the year $ 26,017 285,402 169,769
=========== ========= ========
Supplemental disclosure of cash flow information:
Noncash investing and financing activities:
Change in unrealized loss on securities
available for sale, net of tax, of Bank $ 149,365 (17,560) 404,551
</TABLE>
-21-
<PAGE>
EXHIBIT 20
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 15, 1998
NOTICE HEREBY IS GIVEN that the 1998 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"), 3844 Atlanta Highway,
Hiram, Georgia, on Wednesday, April 15, 1998 at 4:00 p.m., local time, for the
purpose of considering and voting upon:
1. A proposal to elect three Directors of the Company for terms ending in
2001.
2. A proposal to ratify the appointment of Porter Keadle Moore, LLP as
independent accountants of the Company for the fiscal year ending December
31, 1998.
3. 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 9, 1998 are
entitled to receive notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
/s/ Angel J. Byrd
Angel J. Byrd
Secretary
Hiram, Georgia
March 18, 1998
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
3844 ATLANTA HIGHWAY
P. O. BOX 1700
HIRAM, GEORGIA 30141
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 15, 1998
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 1998 Annual Meeting of Stockholders and at any adjournments thereof. The
Annual Meeting will be held on Wednesday, April 15, 1998 in the Community Room
of Community Trust Bank (the "Bank"), 3844 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 18, 1998.
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 9, 1998. On the record date, 842,008 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 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 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
<PAGE>
TO THE MATTERS TO BE VOTED UPON, THE SHARES REPRESENTED BY A SIGNED PROXY CARD
WILL BE VOTED "FOR" THE ELECTION OF THE THREE NOMINEES NAMED IN PROPOSAL 1 AND
"FOR" PROPOSAL 2, AS SET FORTH ON THE PROXY CARD. 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 March 6, 1998 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
of the Directors and Executive Officers of the Company as a group.
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------ ----------------- -----------------
John N. Bleakley (2)
8485 Hay-Renside Circle
Dallas, Georgia 30132 45,558 5.41%
Jacquelyn Rogers Chandler
3175 Winding Lake Drive
Gainesville, Georgia 30504 50,572 6.01%
All Directors and Executive
Officers as a group
(15 persons)(3)(4)(5) 154,830 17.02%
- ----------------
(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 Notes (2) and (3) 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 18,779 shares which are owned by the stockholder's
spouse and 8,000 shares which are held by the stockholder as custodian for his
grandchildren.
(3) The shares shown include 14,405 shares which are held by two Directors
jointly with their spouses, 910 shares which are owned by the spouses of two
Directors, and 300 shares which are held by Directors as trustees for their
children.
(4) The shares shown include 9,544 shares which are subject to options held by
three Executive Officers, and 58,345 shares which are subject to options held by
eight Directors, which such Executive Officers and Directors have the right to
acquire within 60 days
2
<PAGE>
from March 6, 1998.
(5) The shares shown include 6,000 shares held by two individuals who are
Directors of the Bank and not of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING AND COMPLIANCE
Certain Directors of the Company and the Bank failed to file on a timely basis
reports required by Section 16(a) of the Securities Exchange Act of 1934 during
the most recent fiscal year. Mr. Austin failed to file in a timely manner one
report relating to one transaction. Mr. Berry failed to file in a timely manner
three reports relating to three transactions. Mr. Foster failed to file one
report in a timely manner relating to one transaction. Mr. Helms failed to file
one report in a timely manner relating to one transaction. Mr. Russ Parker, a
Director of the Bank, failed to file one report in a timely manner relating to
one transaction. Other than as described above, to the knowledge of the
Company, each person who, at any time during the year ended December 31, 1997,
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 - ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company provide that the Board of Directors shall consist of
at least three, but not more than ten members, with the precise number of
Directors to be fixed by resolution of the Board of Directors. The Bylaws of
the Company also provide that the Board of Directors shall be divided into three
classes as nearly equal in number as possible. The members of each class are
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.
Additionally, the Bylaws of the Company provide that 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. A Director selected to fill a
vacancy serves for the unexpired term of such Director's predecessor; provided,
however, that a vacancy resulting from an increase in the size of the Board of
Directors may be filled by a person whose term of office must expire at the next
election of Directors by the shareholders.
In accordance with the Bylaws, the Board of Directors has set the number of
Directors at nine and has nominated the three persons named below to serve as
Directors until the 2001 Annual Meeting of Stockholders and until their
respective successors are elected. Of the three nominees, Messrs. Helms and
Rampley have served continuously as members of the Board of Directors of the
Company since the organization of the Company in October 1988. Mr. Berry has
served as a member of the Board of Directors of the Company since his
appointment on May 21, 1997. In May 1997, the Board of Directors elected to
increase the size of the Board from eight to nine members. Mr, Berry was
selected by the Board to fill the vacancy resulting from this increase in the
size of the Board.
Each of the nominees 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
3
<PAGE>
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), may allow the vacancy or vacancies to remain open until a suitable
candidate or candidates are located or may, by resolution, reduce the authorized
number of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO ELECT THE THREE NOMINEES LISTED BELOW AS DIRECTORS OF THE COMPANY TO
HOLD OFFICE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL THEIR
SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
The following table sets forth certain information as of March 6, 1998 about
each of the Directors of the Company, including the three nominees for Director.
AMOUNT AND NATURE OF
INFORMATION BENEFICIAL OWNERSHIP(1)
NAME AND AGE ABOUT NOMINEES (% OF CLASS)
- ------------ -------------- -----------------------
NOMINEES FOR DIRECTOR (TERM EXPIRING 2001)
George Berry Mr. Berry has served as a Director 1,000
(60) of the Company since he was appointed (*)
by the Board of Directors in May 1997.
Mr. Berry has served as Senior
Vice-President of Cousins Properties Inc.,
a real estate development firm, since
April 1990. Prior to April 1990, Mr. Berry
served as Commissioner of the Dept. of
Industry, Trade, and Tourism for the State
of Georgia. He also served as Chairman of
the Metropolitan Atlanta Olympic Games
Authority from 1993 to 1996.
John Helms Mr. Helms is a Director of the 17,099(2)
(68) Company and the Bank and previously (2.02%)
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 from1958 until February
1990. He retired in January 1993 as Chairman
of the Paulding County Commission in which
capacity he had served since January 1989.
- ----------------------
* Less than one percent
(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 (9) below, the named persons have sole
voting and investment power with regard to the shares shown as owned by them.
(2) Shares shown include 6,405 shares held by the named person jointly with his
spouse, 100 shares held by him as trustee for his child, and 5,405 shares
beneficially owned through a right to acquire additional shares upon the
exercise of outstanding stock options.
4
<PAGE>
C. D. Rampley Mr. Rampley is a Director of the Company 14,999(3)
(70) and the Bank and served as Chairman of the (1.76%)
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.
CONTINUING DIRECTORS (TERM EXPIRING 2000)
Ronnie L. Austin Mr. Austin is a Director and the President and 8,660(4)
(48) Chief Executive Officer of the Company and the (1.02%)
Bank. He has served as the President and
Chief Executive Officer of the 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 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 a Director of the 18,000(5)
(44) Company since its organization in October 1988. (2.12%)
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
- ---------------
(3) Shares shown include 8,000 shares held by the named person jointly with his
spouse, and 8,000 shares beneficially owned through a right to acquire
additional shares upon the exercise of outstanding stock options.
(4) Shares shown include 670 shares owned by the named person's spouse in an
Individual Retirement Account, and 4,940 shares beneficially owned through a
right to acquire additional shares upon the exercise of outstanding stock
options.
(5) Shares shown include 8,000 shares beneficially owned by the named person
through a right to acquire additional shares upon the exercise of outstanding
stock options.
5
<PAGE>
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 19,348(6)
(59) the Company and the Bank and (2.28%)
previously served as Chairman of the
Board of the Company and the Bank
from April 1992 to April 1993. She served
as Secretary-Treasurer of the Company from
April 1997 until December 1997. 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.
CONTINUING DIRECTORS (TERM EXPIRING 1999)
J. Calvin Earwood Mr. Earwood is a Director of the 20,919(7)
(56) Company and the Bank and served as (2.46%)
Chairman of the Board of the Bank
from April 1989 to April 1990.
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.
- ---------------
(6) Shares shown include 8,000 shares beneficially owned by the named person
through a right to acquire additional shares upon the exercise of outstanding
stock options.
(7) Shares shown include 240 shares owned by the named person's spouse, as to
which he disclaims beneficial ownership, and 8,000 shares beneficially owned
through a right to acquire additional shares upon the exercise of outstanding
stock options.
6
<PAGE>
W. A. Foster III Mr. Foster is a Director of the 28,935(8)
(53) Company and the Bank and has served .40%)
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
from 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 a Director 8,300(9)
(40) of the Company since its organization (*)
in October 1988. He served as a Director
of the Bank from 1987 until September 1996.
He served as Secretary-Treasurer of the
Company from October 1988 until April 1997.
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.
(8) Shares shown include 8,000 shares beneficially owned by the named person
through a right to acquire additional shares upon the exercise of outstanding
stock options.
(9) Shares shown include 200 shares held jointly with the named person's spouse
as custodian for their minor children, and 8,000 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
7
<PAGE>
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, a Nominating Committee, and a Long Range Planning and
Capital Committee. During the fiscal year ended December 31, 1997, the Board of
Directors held nine meetings, the Audit Committee held one meeting, the
Compensation Committee held three meetings, and the Long Range Planning
Committee held five meetings. Since the Nominating Committee was formed in
November 1997, there were no meetings held in that fiscal year. 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. Berry, Bullock, 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 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. Berry, Earwood, and Graham. This
committee reviews the performance of the President and other executive officers
of the Bank and determines the appropriate salaries and bonuses for 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 Long Range Planning and Capital Committee, composed of Messrs. Austin,
Berry, Bullock, Foster, Graham, and Rampley, 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. From time to time, this committee
also analyzes other issues that are referred to it for its consideration by the
full Board of Directors.
The Nominating Committee, composed of Messrs., Austin, Earwood, Foster, Graham,
and Helms serves to select 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 18, 1998 with regard to the nominees for election at the
1998 Annual Meeting).
COMPENSATION OF DIRECTORS
As compensation for serving as a Director of the Company, each non-employee
Director received $500 for each full Board meeting held in 1997. 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.
8
<PAGE>
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.
EXECUTIVE COMPENSATION
CASH COMPENSATION. The following table sets forth, for the fiscal years ended
December 31, 1997, 1996, and 1995, the compensation paid to, or accrued by the
Company or the 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
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- -------------
NUMBER OF
NAME AND SECURITIES
PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- -------- ------ -------- ------- --------- ---------------
Ronnie L. Austin 1997 $107,405 $15,680 1,000 $1,860
(Chief Executive 1996 $ 98,416 $12,344 1,000 $1,860
Officer) 1995 $ 95,447 -0- 1,000 $1,860
- ------------------
(1) Compensation in this column consists of the dollar value of insurance
premiums paid by the Company during the year with respect to a life insurance
policy payable to Mr. Austin or his beneficiaries.
OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/SH) DATE
- ------------------ ------- --------- ------ ----------
Ronnie L. Austin 1,000 (1) 30.59% $11.57 1/1/2007
- ----------------
(1) Mr. Austin was awarded an option to acquire 1,000 shares of Company Common
Stock under the Company's 1993 Stock Option Plan. This option expires ten years
from the date the option was granted and is exercisable in increments of 33% per
year (cumulative), beginning after one full year from the date the option was
granted.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDER- UNEXERCISED
LYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END ($)
SHARES ----------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------ ----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Ronnie L .Austin 2,060 $15,702 4,940/1,000 $41,026/$4,739(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, 1997.
TRANSACTIONS WITH MANAGEMENT
On January 1, 1998, the Company entered into a five (5) year Employment
Agreement with Ronnie Austin, the Company's President and Chief Executive
Officer (the "Agreement"). Under the Agreement, Mr. Austin is employed as
President and Chief Executive Officer of the Company at an initial base salary
of $119,025, plus certain benefits, including all benefits that are made
available to other senior executives of the Company. The Agreement provides
that the base salary shall increase each year by an amount equal to the increase
in the Consumer Price Index for Atlanta, Georgia. Under the Agreement, Mr.
Austin also is entitled to annual incentive compensation based upon the
Company's return on average equity for the year. The Agreement also provides
for the
10
<PAGE>
grant to Mr. Austin, on January 1 of each year during the term of the Agreement,
of an incentive stock option to acquire 1,000 shares of the Company's common
stock. The Agreement contains provisions that purport to restrict Mr. Austin's
ability to compete with the Company or solicit its employees for a specified
period following the termination of his employment. The Agreement provides that
if (i) the Company terminates Mr. Austin's employment without "cause," or (ii)
Mr. Austin terminates his employment (a) within 30 days following a "change in
control" of the Company or the Bank or (b) following a breach by the Company of
the Agreement in any material respect, then Mr. Austin is entitled to a lump sum
severance payment in an amount equal to one year's base salary as in effect on
the date of Mr. Austin's termination.
The Bank has a policy of offering loans to Directors, Executive Officers,
principal stockholders and their affiliates with terms and rates which are
commensurate with those offered to unaffiliated borrowers of similar financial
standing with similar type loans. 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, 1997 were made in accordance with the policy
set forth above.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Porter Keadle Moore, LLP to
continue as independent accountants of the Company for the fiscal year ending
December 31, 1998 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.
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,
1998.
11
<PAGE>
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 18, 1998 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, 3844 Atlanta Highway, P. O. Box 1700, Hiram, Georgia 30141.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
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. However, 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
/s/ W. A. Foster III
W. A. Foster III
Chairman of the Board
Hiram, Georgia
March 18, 1998
--------------------------------
The Company's 1997 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>
EXHIBIT 21- SUBSIDIARIES
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Name* Jurisdiction of Incorporation
- ----- -----------------------------
Community Trust Bank Georgia
Meteoplex Appraisals, Inc. Georgia
Community Loan Company Georgia
Cash Transactions, LLC Georgia
- ----------------------
* The legal name of the subsidiary is the name under which the subsidiary does
business.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,022,304
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,510,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,021,011
<INVESTMENTS-CARRYING> 23,021,011
<INVESTMENTS-MARKET> 23,021,011
<LOANS> 57,188,857
<ALLOWANCE> 829,232
<TOTAL-ASSETS> 91,904,781
<DEPOSITS> 81,981,103
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,253,846
<LONG-TERM> 800,000
0
0
<COMMON> 2,103,310
<OTHER-SE> 5,766,522
<TOTAL-LIABILITIES-AND-EQUITY> 91,904,781
<INTEREST-LOAN> 6,075,240
<INTEREST-INVEST> 1,311,976
<INTEREST-OTHER> 243,198
<INTEREST-TOTAL> 7,630,414
<INTEREST-DEPOSIT> 2,881,842
<INTEREST-EXPENSE> 2,910,713
<INTEREST-INCOME-NET> 4,719,701
<LOAN-LOSSES> 204,270
<SECURITIES-GAINS> (3,219)
<EXPENSE-OTHER> 4,244,061
<INCOME-PRETAX> 1,475,331
<INCOME-PRE-EXTRAORDINARY> 1,038,807
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,038,807
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 5.93
<LOANS-NON> 392,335
<LOANS-PAST> 177,787
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 847,988
<ALLOWANCE-OPEN> 713,518
<CHARGE-OFFS> 145,825
<RECOVERIES> 57,269
<ALLOWANCE-CLOSE> 829,232
<ALLOWANCE-DOMESTIC> 829,232
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 366,660
</TABLE>
<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> 1.26
<EPS-DILUTED> 1.23
<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>
