<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
-
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
| | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
-
EXCHANGE ACT
COMMISSION FILE NUMBER 0-19030
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
(Exact name of small business issuer as specified 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)
(770) 445-1014
(Issuer's telephone number including area code)
--------------------------
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
-- --
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were 1,140,078 shares of
Common Stock outstanding as of August 11, 1998.
Transitional Small Business Disclosure Format (check one): Yes ; No X
---- ----
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
-----------------
ITEM PAGE
NUMBER NUMBER
------ ------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
1. Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997 (audited)............................. 1
2. Consolidated Statements of Earnings for the three months
ended June 30, 1998 and June 30, 1997, and the six months
ended June 30, 1998 and June 30, 1997 (unaudited)........... 2
3. Consolidated Statements of Comprehensive Income for the
three months ended June 30, 1998 and June 30, 1997, and
the six months ended June 30, 1998 and
June 30, 1997 (unaudited)................................... 3
4. Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and June 30, 1997 (unaudited)........... 4
5. Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation.. 8
PART II - OTHER INFORMATION........................................ 12
Item 1. Legal Proceedings.......................................... 12
Item 2. Changes in Securities and Use of Proceeds.................. 12
Item 3. Defaults upon Senior Securities............................ 12
Item 4. Submission of Matters to a Vote of Security Holders........ 12
Item 5. Other Information.......................................... 12
Item 6. Exhibits and Reports on Form 8-K........................... 12
Signatures................................................. 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Assets
June 30, December 31,
1998 1997
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks $ 2,807,382 $ 4,022,304
Federal funds sold and securities purchased under resell agreements 4,540,000 4,510,000
----------- -----------
Cash and cash equivalents 7,347,382 8,532,304
U. S. Treasury and other U. S. Government agency securities 16,973,454 17,826,801
available for sale
State, county, and municipal securities available for sale 6,938,488 5,194,210
Other investments 919,400 301,100
Loans 62,063,327 57,188,857
Less: Allowance for loan losses (919,717) (829,232)
----------- -----------
Loans, net 61,143,610 56,359,625
Premises and equipment 2,196,646 2,141,654
Accrued interest receivable 972,107 901,296
Other real estate and repossessions 5,501 1,500
Other assets 647,243 646,291
----------- -----------
97,143,831 91,904,781
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
Demand 11,940,462 12,105,179
Interest-bearing demand 17,510,123 18,644,247
Savings 12,892,465 14,808,283
Time 22,710,601 21,589,280
Time, in excess of $100,000 15,723,455 14,834,114
----------- -----------
Total deposits 80,777,106 81,981,103
Accrued interest payable 823,001 870,090
Accrued expenses and other liabilities 250,476 383,756
Federal Home Loan Bank advances and notes payable 7,100,000 800,000
----------- -----------
Total liabilities 88,950,583 84,034,949
Stockholders' equity:
Common stock, $2.50 par value; 5,000,000 shares 2,114,900 2,103,310
authorized; 845,960 and 841,324 issued and outstanding
Additional paid-in capital 2,112,348 2,109,602
Retained earnings 3,809,480 3,511,989
Accumulated other comprehensive income 156,520 144,931
----------- -----------
Total stockholders' equity 8,193,248 7,869,832
----------- -----------
$97,143,831 $91,904,781
=========== ===========
</TABLE>
The consolidated balance sheet at December 31, 1997 has been taken from the
audited financial statements.
See accompanying notes to consolidated financial statements.
Page 1 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income: - - - -
Interest and fees on loans $1,747,455 $1,503,695 $3,391,359 $2,909,509
Interest on federal funds sold 73,164 51,454 118,635 108,215
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 238,581 278,409 448,829 559,582
Other 88,556 47,985 172,700 99,832
---------- ---------- ---------- ----------
Total interest income 2,147,756 1,881,543 4,131,523 3,677,138
Interest expense:
Interest on deposits
Demand 100,431 93,811 203,080 188,440
Savings 94,925 99,999 192,162 204,556
Time 330,547 318,927 646,962 631,114
Time, in excess of $100,000 231,856 196,988 452,608 391,941
Interest expense - other 71,525 5,951 93,559 12,577
---------- ---------- ---------- ----------
Total interest expense 829,284 715,676 1,588,371 1,428,628
---------- ---------- ---------- ----------
Net interest income 1,318,472 1,165,867 2,543,152 2,248,510
Provision for loan losses 80,320 64,958 170,174 127,438
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,238,152 1,100,909 2,372,978 2,121,072
---------- ---------- ---------- ----------
Other income:
Service charges and fees 241,392 237,519 471,627 466,000
Insurance commissions 77,495 70,300 141,318 120,818
Gain on sales of investment securities 6,453 0 30,265 0
Appraisal fees 40,300 22,251 76,350 42,851
Equity in loss of CashTrans (13,009) (29,323) (45,251) (29,323)
Miscellaneous 44,071 13,228 84,703 22,060
---------- ---------- ---------- ----------
Total other income 396,702 313,975 759,012 622,406
Other expenses:
Salaries and employee benefits 640,828 556,963 1,285,529 1,085,270
Occupancy 182,519 162,699 356,944 330,882
Other operating 385,700 327,003 780,223 638,625
---------- ---------- ---------- ----------
Total other expenses 1,209,047 1,046,665 2,422,696 2,054,777
---------- ---------- ---------- ----------
Earnings before income taxes 425,807 368,219 709,294 688,701
Income taxes 109,290 131,810 200,961 239,524
Minority interest in earnings of consolidated subsidiary 2,701 2,761 340 1,627
---------- ---------- ---------- ----------
Net earnings $ 313,816 $ 233,648 $ 507,993 $ 447,550
========== ========== ========== ==========
Net earnings per common share $0.37 $0.28 $0.60 $0.53
========== ========== ========== ==========
Net earnings per common share - assuming dilution $0.35 $0.27 $0.57 $0.51
========== ========== ========== ==========
Dividends per common share $0.00 $0.00 $0.25 $0.25
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements. Page 2 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Earnings $313,816 $233,648 $507,993 $447,550
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period, net
of tax of $27,648, $56,375, $18,580, and $270, respectively 45,185 92,137 30,365 (361)
Less: Reclassification adjustment for gains included in net
earnings, net of tax of $2,450, and $11,489, respectively (4,003) 0 (18,776) 0
-------- -------- -------- --------
Other comprehensive income 41,182 92,137 11,589 (361)
-------- -------- -------- --------
Comprehensive income $354,998 $325,785 $519,582 $447,189
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 507,993 $ 447,550
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization, and accretion 205,288 165,260
Provision for loan losses 170,174 127,438
Net gain on sale of investment securities (30,265) 0
Net gain on sale of fixed asset 0 (1,000)
Net change in:
Interest receivable (70,811) (43,768)
Interest payable (47,089) (57,922)
Other assets (73,315) (105,515)
Accrued expenses and other liabilities (133,280) (114,561)
----------- -----------
Net cash provided by operating activities 528,695 417,482
----------- -----------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 1,500,000 2,545,000
Proceeds from sales, calls, and paydowns
of securities available for sale 5,615,574 762,678
Purchase of securities available for sale (7,960,876) (4,348,037)
Purchase of other investments (618,300) (46,100)
Net increase in loans (5,044,829) (3,012,579)
Purchase of premises and equipment (195,693) (93,310)
Proceeds from sale of other real estate 90,670 0
Proceeds from sale of fixed asset 0 1,000
----------- -----------
Net cash used in investing activities (6,613,454) (4,191,348)
----------- -----------
Cash flows from financing activities:
Net change in demand and savings deposits (3,214,659) (1,443,472)
Net change in time deposits 2,010,662 1,258,295
Net proceeds from Federal Home Loan Bank advances 5,500,000 0
Net proceeds from notes payable 800,000 0
Cash dividends paid (210,502) (209,816)
Proceeds from exercise of stock options 14,336 788
----------- -----------
Net cash provided by financing activities 4,899,837 (394,205)
----------- -----------
Net change in cash and cash equivalents (1,184,922) (4,168,071)
Cash and cash equivalents at beginning of period 8,532,304 10,031,164
----------- -----------
Cash and cash equivalents at end of period $ 7,347,382 $ 5,863,093
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statement of Cash Flows, continued
(Unaudited)
Six Months Ended
June 30, June 30,
1998 1997
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 1,635,460 1,486,550
Income taxes 205,000 110,000
Noncash investing activities:
Transfers of loans to other real estate 90,670 37,365
Change in other comprehensive income, net of tax 11,589 (361)
See accompanying notes to consolidated financial statements.
Page 5 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The consolidated financial statements 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 its majority-owned subsidiary Community Loan Company (CLC).
All significant intercompany accounts and transactions have been eliminated in
consolidation. Effective September 1, 1995, the Company established CLC as a
non-bank subsidiary engaged in the consumer finance business. The Company owns
75% of CLC's outstanding capital stock. The remaining 25% of CLC's outstanding
capital stock is owned by an individual who is employed as President of CLC.
The Company has helped finance the operations of CLC through a revolving line of
credit which, at June 30, 1998, had a maximum availability of $2,750,000, of
which CLC had borrowed $2,040,050. Effective May 16, 1997, the Company entered
into a joint venture with JRH Diversified, Inc. to establish a non-bank
subsidiary that engages in the business of providing retail establishments with
automated teller machines that dispense cash or cash equivalents. The Company
owns 49% of the equity in Cash Transactions, LLC (CashTrans), therefore, the
Company's ownership in CashTrans is considered an investment in an
unconsolidated subsidiary. The Company has helped finance the operations of
CashTrans through a revolving line of credit which, at June 30, 1998, had a
maximum availability of $750,000, of which CashTrans had borrowed $586,300. The
financial data of the Company is not significantly affected by the operations of
CashTrans.
The consolidated financial information furnished herein reflects all
adjustments which are, in the opinion of management, necessary to present a fair
statement of the Company's financial position as of June 30, 1998 and the
results of its operations and cash flows for the periods covered herein. All
such adjustments are of a normal recurring nature.
2. Recent Accounting Pronouncements
--------------------------------
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, "Reporting Comprehensive Income". This statement
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. For the Company,
comprehensive income includes net income reported in the statements of earnings
and changes in the fair value of securities available for sale reported as a
component of stockholders' equity.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits". The new statement revises employers' disclosures about pension and
other postretirement benefit plans but does not change the measurement or
recognition provisions of those plans. Statement No. 132 provides additional
information to facilitate financial analysis and eliminates certain disclosures
which are no longer useful. The statement is effective for fiscal years
beginning after December 15, 1997. The statement is not expected to have a
material impact on the consolidated financial statements of the Company.
Page 6 of 14
<PAGE>
3. Earnings Per Share
------------------
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 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. Net earnings per share
amounts for the three months ended June 30, 1998 and June 30, 1997, and for the
six months ended June 30, 1998 and June 30, 1997 are as follows:
Net Earnings Common Shares Per Share
For the three months ended June 30, 1998 (Numerator) (Denominator) Amount
- ---------------------------------------- ------------ ------------- ---------
Net earnings per share $313,816 843,318 $.37
=====
Effect of dilutive securities:
Stock options - 45,609
-------- -------
Net earnings per share - assuming dilution $313,816 888,927 $.35
======== ======= =====
Net Earnings Common Shares Per Share
For the three months ended June 30, 1997 (Numerator) (Denominator) Amount
- ---------------------------------------- ------------ ------------- ---------
Net earnings per share $233,648 839,264 $.28
Effect of dilutive securities: =====
Stock options - 33,510
-------- -------
Net earnings per share - assuming dilution $233,648 872,774 $.27
======== ======= ====
Net Earnings Common Shares Per Share
For the six months ended June 30, 1998 (Numerator) (Denominator) Amount
- -------------------------------------- ------------ ------------- ---------
Net earnings per share $507,993 842,499 $.60
====
Effect of dilutive securities:
Stock options - 45,870
-------- -------
Net earnings per share - assuming dilution $507,993 888,369 $.57
======== ======= ====
Net Earnings Common Shares Per Share
For the six months ended June 30, 1997 (Numerator) (Denominator) Amount
- -------------------------------------- ------------ ------------- ---------
Net earnings per share $447,550 839,244 $.53
====
Effect of dilutive securities:
Stock options - 32,731
-------- -------
Net earnings per share - assuming dilution $447,550 871,975 $.51
======== ======= ====
Page 7 of 14
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the Six Month Period Ended June 30, 1998
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
include 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.
Financial Condition
- -------------------
Gross loans during the first six months of 1998 increased $4,874,470 or
8.52% over the total gross loans at December 31, 1997, as compared to an
increase of $2,917,737, or 5.90%, for the same six month period ended June 30,
1997. Management believes that the increase in loan growth was due primarily to
an increase in lending personnel. Additionally, management believes that the
relatively small increase in loan growth during the first six months of 1997 was
due primarily to an increase in competition from other financial institutions
which had moved into the Bank's market area. During the quarter ended June 30,
1998, CLC operated from four relatively small offices. Consequently, its gross
loans, totaling approximately $1,762,751 at June 30, 1998, or 2.84% of the
Company's gross loans, do not significantly affect the financial data analyzed.
Although management anticipates growth in CLC's total loans, management
anticipates that CLC will have only a minimal impact on the Company's balance
sheet. Management anticipates some continued increase in the Bank's loan growth
for the remainder of 1998 primarily due to its increased marketing efforts which
are designed to attract new borrowers in its primary lending area and to its
establishment of a loan production office in Cobb County, Georgia in April 1998
and its planned establishment of a full service branch in Cobb County in the
fourth quarter of 1998. Management continues to strive for increased loan
volume while meeting the criteria set by its loan policy.
The Bank's increase in gross loans for the first six months of 1998 was
funded primarily through an increase in the Bank's borrowings on its line of
credit with the Federal Home Loan Bank. As of June 30, 1998, funds borrowed on
this line totaled $5,500,000 at interest rates ranging from 5.51% to 5.55%. At
December 31, 1997 the Company had no borrowings on its line of credit with the
Federal Home Loan Bank. Total deposits during the first six months of 1998
decreased approximately $1,203,997 or 1.47%, from $81,981,103 at December 31,
1997 to $80,777,106 at June 30, 1998. This decrease in total deposits was due
primarily to changes in deposit balances maintained by some of the Bank's large
depositors. Management is monitoring core deposits and customer relationships
in an effort to maintain overall deposit growth. Stockholders' equity increased
approximately 4.11% to $8,193,248, or $9.69 per share at June 30, 1998, as
compared to stockholders' equity of $7,869,832 or $9.35 per share at December
31, 1997. Stockholders' equity increased primarily as a result of increased net
earnings of the Company for the period ended June 30, 1998.
Results of Operations
- ---------------------
Interest Income
- ---------------
Interest income for the first six months of 1998 was $4,131,523,
representing an increase of $454,385, or 12.36% over the same period in 1997.
Page 8 of 14
<PAGE>
This increase was primarily attributable to an increase in the Company's yield
on interest-earning assets to 9.67% for the period ended June 30, 1998, as
compared to 9.02% for the same period in 1997. This increase in yield was due
primarily to an increase in loans as a percentage of average interest-earning
assets for the period ended June 30, 1998 to 69.62% as compared to 65.27% for
the same period in 1997. Typically, loans are the Company's highest yielding
asset, so a shift in the mix of earning assets may increase yield on earning
assets despite little change in market rates.
Additionally, the Company holds approximately $3,805,673 or 15.33% of its
investment portfolio in mortgage-backed securities. These mortgage-backed
securities are subject to being prepaid in part or in whole. Because a premium
was paid for the purchase of some of these mortgage-backed securities, an
accelerated payback can decrease earnings through faster amortization of the
premium. Mortgage-backed securities also may be subject to a slowdown in
repayments, especially in a rising rate environment. This type of risk is
called extension risk. Management monitors the pre-payment risk and extension
risk associated with the Company's investments in mortgage-backed securities in
an effort to maintain an overall acceptable level of risk.
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 approximately $393,768, or
0.41% of the Company's total assets as of June 30, 1998, as compared to
$393,835, or 0.47% of the Company's total assets as of December 31, 1997. The
Company's non-performing assets as of June 30, 1998 are comprised of $388,268 in
loans placed on non-accrual status and $5,500 in property acquired through
repossession, as compared to its non-performing assets as of December 31, 1997,
which were comprised of $392,335 in loans placed on non-accrual status and
$1,500 in property acquired through repossession. No material loss is
anticipated on non-accrual or restructured loans, therefore no specific reserves
or writedowns were considered necessary by management as of June 30, 1998.
While there are no specific reserves for the loans designated as non-accrual and
restructured by the Bank, those loans were rated as either substandard or
doubtful by the Bank's internal rating system. A reserve is carried in the
Bank's general allowance for loan loss in an amount equal to 15% of the balance
of any loans classified as substandard and 50% of the balance of any loans
classified as doubtful.
The Bank had no accruing loans which were contractually past due ninety
days or more as of June 30, 1998, as compared to $24,364 in such delinquent
loans as of December 31, 1997. The Bank had one restructured loan with a
balance of $5,890 as of June 30, 1998, as compared to its balance of $9,890 as
of December 31, 1997. At June 30, 1998, CLC had delinquent loans which were
contractually past due ninety days or more totaling $123,057, as compared to
$97,196 as of December 31, 1997. Management considers the totals of delinquent
loans at the Bank and CLC to be at acceptable levels at this time; however,
factors such as a downturn in the local economy could cause levels of delinquent
and non-performing assets to rise.
Interest Expense
- ----------------
Interest expense for the first six months of 1998 increased $159,743, or
11.18% as compared to the same period in 1997. This increase in interest
expense occurred primarily due to a $5,260,720, or 7.44%, increase in interest-
bearing deposits and other interest-bearing liabilities for the six months ended
June 30, 1998 as compared to the same period in 1997. The Company continues to
seek opportunities to maintain its net interest margin (net interest income
divided by average interest-earning assets). The Company's net interest margin
as of June 30, 1998 was 5.96%, as compared to 5.33% as of June 30, 1997,
primarily due to an increase in the Company's yield on earning assets.
Page 9 of 14
<PAGE>
Other Income
- ------------
Other income increased approximately $136,606, or 21.95%, during the first
six months of 1998 as compared to the same period in 1997 primarily due to gains
collected on sales of investment securities and increased miscellaneous income
earned by the Bank. The Company's miscellaneous income increased approximately
$62,643, or 283.97%, during the first six months of 1998 as compared to the same
period in 1997, primarily due to income derived from mortgage loans originated
by the Bank and from gains collected on the sale of other real estate and
property acquired through repossession. The Bank began originating residential
mortgage loans through a single mortgage originator in January 1998.
Other Expenses
- --------------
Other expenses for the first six months of 1998 increased $367,919, or
17.91%, as compared to the first six months of 1997. This increase is
attributable primarily to an increase in salaries and employee benefits caused
by the (i) Bank's need for additional human resources due to the growing
customer base of the Bank, (ii) salary and benefit costs of the Company, and
(iii) routine salary increases. Occupancy expense increased by approximately
$26,062, or 7.88% for the first six months of 1998 as compared to the same
period for 1997, primarily due to increased furniture and equipment expenses at
the Bank. Other operating expenses for the first six months of 1998 increased
$141,598, or 22.17% as compared to the first six months of 1997, primarily due
to increased operating costs of the Bank caused by general cost increases.
Capital
- -------
The Company is subject to regulatory capital requirements imposed by the
Georgia Department of Banking and Finance (the Department). The Department has
established a minimum level of capital to total assets of 5%, with certain
adjustments, on a consolidated basis for bank holding companies. At June 30,
1998, the Company's ratio of capital to total average assets was 9.46%, 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 June 30, 1998 was 11.69%, and its ratio
of Tier 1 capital to risk weighted assets was 10.44%. Under applicable federal
regulations and interpretations thereof, the Company's ratio of total capital to
risk weighted assets at June 30, 1998 was 13.04%, and its ratio of Tier 1
capital to risk weighted assets was 11.79%. 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 7.10% as of June 30, 1998. The Company also substantially
exceeds its Tier 1 leverage ratio requirement with a Tier 1 leverage ratio of
8.20% as of June 30, 1998. 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
- ---------
Liquidity represents the Company's ability to meet both loan commitments
and deposit withdrawals. As of June 30, 1998, the Bank's liquidity ratio
(defined as net cash, short term assets, and marketable assets divided by net
deposits and short term liabilities) was 33.02%, as compared to 30.93% at June
30, 1997. The Bank maintains two lines of credit to borrow fed funds that total
$3,000,000 in order to enhance liquidity. At June 30, 1998, the Bank had no
borrowed funds on either of these lines of credit. The Bank is a member of the
Federal Home Loan Bank of Atlanta and borrowings are also available through that
relationship. The amount of
Page 10 of 14
<PAGE>
that credit opportunity fluctuates based on criteria set by the Federal Home
Loan Bank. As of June 30, 1998, $5,500,000 was outstanding under this credit
facility, and approximately $1,500,000 remained available to be borrowed.
Additionally, the Company has a $2,500,000 revolving credit facility with The
Bankers Bank, Atlanta, Georgia, which is intended to enhance the Company's
liquidity. As of June 30, 1998, the Company had $1,600,000 in borrowings
outstanding under this facility.
Year 2000
- ---------
The Company has a Year 2000 plan in place. This plan is necessary because
many existing computer programs use only two digits, rather than four digits,
to identify a year. Such programs were designed and developed without
considering the impact of the upcoming change in the century. Since many
computer applications could fail or create erroneous results by or at 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 is in process.
Management does not believe that Year 2000 will have a significant impact on the
Company. However, there can be no assurances that the Company's Year 2000 plan
will be able to successfully address each of the ways in which the Year 2000
problem may impact the Company, since the Company has limited ability to monitor
or influence the Year 2000 preparedness of its customers, borrowers, vendors,
and others upon whom it relies in transacting business. Management does not
anticipate that the implementation of the Company's Year 2000 plan will entail
any material capital expenditures.
Page 11 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
-------------------------------------------------
On March 4, 1998, Angel J. Byrd, Comptroller of the Company, exercised an
option that had been granted to her under the Company's 1988 Stock Option
Plan by purchasing 384 shares of the Company's $2.50 par value common stock
at a price of $5.00 per share.
On April 1, 1998, Rosemary Butler, an employee of the Bank, exercised an
option that had been granted to her under the Company's 1988 Stock Option
Plan by purchasing 312 shares of the Company's $2.50 par value common stock
at a price of $5.00 per share.
Each of the above-described sales of unregistered securities was effected
by the Company in reliance upon one or more exemptions from registration
under the Securities Act of 1933, as amended, including, but not
necessarily limited to, Section 4(2) thereof. Each of the purchasers
represented to the Company in connection with her purchase that, among
other things: she was acquiring the shares with investment intent and not
with an intent to distribute; she, either alone or with her purchaser
representative, had sufficient knowledge and experience to make an informed
investment decision and to protect her interests in connection with her
purchase of shares; she and/or her purchaser representative had received
and reviewed such information, including financial information, as she, or
her purchaser representative, deemed necessary in connection with her
purchase of shares; and that she understood that the shares had not been
registered under federal or state securities laws.
Item 3. Defaults upon Senior Securities
---------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
The Company held its Annual Meeting of stockholders on April 15, 1998.
Shares voted totaled 538,764, or 63.98% of the outstanding shares. Set
forth below is a brief description of the matters voted upon at the Annual
Meeting:
Proposal 1: Proposal to elect three Directors for terms ending in
2001.
Proposal 2: Proposal to ratify the appointment of Porter, Keadle,
Moore, LLP as independent accountants of the Company for the fiscal
year ending December 31, 1998.
Page 12 of 14
<PAGE>
<TABLE>
<CAPTION>
Votes Cast Votes
Votes Cast For Against Withheld Abstentions
- ----------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Proposal 1:
--------------
Directors
--------------
George Berry 530,321 0 8,443 0
John Helms 531,364 0 7,400 0
C.D. Rampley 531,364 0 7,400 0
Proposal 2: 529,144 3,430 0 6,190
-----------
</TABLE>
Item 5. Other Information
-------------------------
On May 12, 1998, the Company commenced a public offering of up to 294,118
shares of its $2.50 par value common stock at a price of $17.00 per share.
On August 10, 1998, the offering was completed, with all 294,118 shares
having been sold. Net proceeds to the Company from the offering, after
payment of placement agent commissions but before deducting the expenses of
the offering, were $4,951,076.
Item 6.a Exhibits
-----------------
Exhibit
Number Description
------- -----------
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
Item 6.b Reports on Form 8-K
----------------------------
A Form 8-K was filed with the SEC on April 7, 1998. The Form 8-K reported
information under Item 5 concerning the Company's announcement that it had
a filed a Registration Statement with the SEC in connection with a proposed
offering by the Company of a minimum of $3 million and a maximum of $5
million worth of its common stock.
Page 13 of 14
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Trust Financial Services Corporation
----------------------------------------------
(Registrant)
DATE: August 11, 1998 /s/ Ronnie L. Austin
-------------------------------------------------------
Ronnie L. Austin, President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 11, 1998 /s/ Angel J. Byrd
-------------------------------------------------------
Angel J. Byrd
(Principal Accounting Officer)
Page 14 of 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 2,807,382 4,423,093
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 4,540,000 1,440,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 24,831,342 23,481,971
<INVESTMENTS-CARRYING> 24,831,342 23,481,971
<INVESTMENTS-MARKET> 24,831,342 23,481,971
<LOANS> 62,063,327 52,343,450
<ALLOWANCE> 919,717 783,479
<TOTAL-ASSETS> 97,143,831 85,084,119
<DEPOSITS> 80,777,106 76,712,584
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,073,477 1,246,124
<LONG-TERM> 7,100,000 0
0 0
0 0
<COMMON> 2,114,900 2,098,160
<OTHER-SE> 6,078,348 5,017,877
<TOTAL-LIABILITIES-AND-EQUITY> 97,143,831 85,084,119
<INTEREST-LOAN> 3,391,359 2,909,509
<INTEREST-INVEST> 621,529 659,414
<INTEREST-OTHER> 118,635 108,215
<INTEREST-TOTAL> 4,131,523 3,677,138
<INTEREST-DEPOSIT> 1,494,812 1,416,051
<INTEREST-EXPENSE> 1,588,371 1,428,628
<INTEREST-INCOME-NET> 2,543,152 2,248,510
<LOAN-LOSSES> 170,174 127,438
<SECURITIES-GAINS> 30,265 0
<EXPENSE-OTHER> 2,422,696 2,084,100
<INCOME-PRETAX> 709,294 688,701
<INCOME-PRE-EXTRAORDINARY> 507,993 447,550
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 507,993 447,550
<EPS-PRIMARY> .60 .53
<EPS-DILUTED> .57 .51
<YIELD-ACTUAL> 0 0
<LOANS-NON> 0 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 0 0
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 0 0
<ALLOWANCE-DOMESTIC> 0 0
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<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
