<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 September 30, 1999
|_| 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 1,190,737 shares of Common
Stock outstanding as of November 9, 1999.
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 September 30, 1999
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
Number Number
- ------ ------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
1. Consolidated Balance Sheets at September 30, 1999 (unaudited)
and December 31, 1998 (audited)........................................ 1
2. Consolidated Statements of Earnings for the three months
ended September 30, 1999 and September 30, 1998, and the nine months
ended September 30, 1999 and September 30, 1998 (unaudited)............ 2
3. Consolidated Statements of Comprehensive Income for the three months
ended September 30, 1999 and September 30, 1998, and the nine months
ended September 30, 1999 and September 30, 1998 (unaudited)............ 3
4. Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and September 30, 1998 (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.................................................. 16
Item 1. Legal Proceedings.................................................... 16
Item 2. Changes in Securities and Use of Proceeds............................ 16
Item 3. Defaults upon Senior Securities...................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................. 16
Item 5. Other Information.................................................... 16
Item 6. Exhibits and Reports on Form 8-K..................................... 16
Signatures........................................................... 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
Assets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks 4,368,562 4,578,071
Federal funds sold and securities purchased under resell agreements 1,440,000 2,990,000
------------- --------------
Cash and cash equivalents 5,808,562 7,568,071
U. S. Treasury and other U. S. Government agency securities 13,977,763 14,245,888
available for sale
State, county, and municipal securities available for sale 7,709,948 7,202,748
Other investments 1,114,671 919,400
Loans 91,381,870 74,440,161
Less: Allowance for loan losses (1,305,771) (935,234)
------------- --------------
Loans, net 90,076,099 73,504,927
Premises and equipment 2,946,900 2,237,830
Accrued interest receivable 1,127,364 1,090,088
Other real estate and repossessions 150,097 57,415
Other assets 1,597,231 701,905
------------- --------------
124,508,635 107,528,272
============= ==============
Liabilities and Stockholders' Equity
Deposits:
Demand 13,412,597 11,433,411
Interest-bearing demand 20,083,951 21,197,354
Savings 12,713,088 15,324,527
Time 33,456,283 23,238,422
Time, in excess of $100,000 19,274,752 15,712,815
------------- --------------
Total deposits 98,940,671 86,906,529
Securities sold under repurchase agreements 4,104,132 0
Accrued interest payable 877,363 953,411
Accrued expenses and other liabilities 269,971 197,129
Federal Home Loan Bank advances and notes payable 5,755,000 5,500,000
------------- --------------
Total liabilities 109,947,137 93,557,069
Stockholders' equity:
Common stock, $2.50 par value; 5,000,000 shares 2,973,020 2,870,195
authorized; 1,189,808 and 1,148,078 issued and outstanding
Additional paid-in capital 6,830,930 6,232,554
Retained earnings 4,927,812 4,561,383
Accumulated other comprehensive income (170,264) 307,071
------------- --------------
Total stockholders' equity 14,561,498 13,971,203
------------- --------------
124,508,635 107,528,272
============= ==============
</TABLE>
The consolidated balance sheet at December 31, 1998 has been taken from the
audited financial statements.
See accompanying notes to consolidated financial statements.
Page 1 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,445,023 $1,866,018 $6,557,734 $5,257,377
Interest on federal funds sold 24,335 78,289 112,208 196,924
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 227,551 260,603 626,991 709,432
Other 97,890 83,873 322,129 256,573
---------- ---------- ---------- ----------
Total interest income 2,794,799 2,288,783 7,619,062 6,420,306
Interest expense:
Interest on deposits
Demand 101,090 106,433 295,440 309,513
Savings 82,600 89,067 255,984 281,229
Time 365,675 335,262 1,004,115 982,224
Time, in excess of $100,000 278,119 245,311 755,353 697,919
Interest expense - other 122,711 93,729 283,967 187,288
---------- ---------- ---------- ----------
Total interest expense 950,195 869,802 2,594,859 2,458,173
---------- ---------- ---------- ----------
Net interest income 1,844,604 1,418,981 5,024,203 3,962,133
Provision for loan losses 252,852 93,307 553,911 263,481
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,591,752 1,325,674 4,470,292 3,698,652
---------- ---------- ---------- ----------
Other income:
Service charges and fees 258,614 232,836 747,747 704,463
Insurance commissions 100,225 72,866 261,006 214,184
Gain on sales of investment securities 0 0 0 30,265
Appraisal fees 41,800 39,245 142,372 115,595
Mortgage banking income 48,495 22,598 107,260 47,539
Equity in earnings of CashTrans (16,178) (11,640) (7,068) (56,891)
Miscellaneous 37,625 29,123 115,375 88,885
---------- ---------- ---------- ----------
Total other income 470,581 385,028 1,366,692 1,144,040
Other expenses:
Salaries and employee benefits 1,017,754 680,642 2,664,934 1,966,171
Occupancy 281,625 184,209 733,020 541,153
Other operating 576,801 375,942 1,506,947 1,156,165
---------- ---------- ---------- ----------
Total other expenses 1,876,180 1,240,793 4,904,901 3,663,489
---------- ---------- ---------- ----------
Earnings before income taxes 186,153 469,909 932,083 1,179,203
Income taxes 78,733 135,882 278,586 336,843
Minority interest in earnings of
consolidated subsidiary 0 5,136 0 5,476
---------- ---------- ---------- ----------
Net earnings $ 107,420 $ 328,891 $ 653,497 $ 836,884
========== ========== ========== ==========
Net earnings per common share $ 0.09 $ 0.32 $ 0.56 $ 0.93
========== ========== ========== ==========
Net earnings per common share - assuming
dilution $ 0.09 $ 0.31 $ 0.54 $ 0.89
========== ========== ========== ==========
Dividends per common share $ 0.00 $ 0.00 $ 0.25 $ 0.25
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements. Page 2 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Earnings $107,420 $328,891 $ 653,497 $836,884
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 $45,331, $67,721, $292,063, and $86,301, respectively (74,088) 110,680 (477,335) 141,045
Less: Reclassification adjustment for gains included in net
earnings, net of tax of $11,489 0 0 0 (18,776)
-------- -------- --------- --------
Other comprehensive income (74,088) 110,680 (477,335) 122,269
-------- -------- --------- --------
Comprehensive income $ 33,332 $439,571 $ 176,162 $959,153
======== ======== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 3 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION> Nine months ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 653,497 $ 836,884
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization, and accretion 406,785 311,144
Provision for loan losses 553,911 263,481
Provision for deferred income taxes 0 0
Equity in loss of unconsolidated subsidiary 7,068 56,891
Net gain on sale of investment securities 0 (30,265)
Net gain on sale of other real estate (2,750) 0
Net loss on sale of fixed asset 6,202 0
Net change in:
Interest receivable (37,276) (158,054)
Interest payable (76,048) (74,911)
Other assets (698,306) (127,441)
Accrued expenses and other liabilities 72,842 (100,041)
----------- -----------
Net cash provided by operating activities 885,925 977,688
----------- -----------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 2,873,261 1,640,000
Proceeds from sales, calls, and paydowns
of securities available for sale 1,736,634 5,935,033
Purchase of securities available for sale (5,632,117) (8,663,606)
Purchase of other investments (500,171) (618,300)
Proceeds from sales of other investments 304,900 0
Net increase in loans (17,270,180) (13,363,702)
Purchase of premises and equipment (1,019,667) (214,988)
Proceeds from sale of other real estate 45,500 90,670
Improvements to other real estate 0 (807)
Proceeds from sale of fixed asset 9,000 0
----------- -----------
Net cash used in investing activities (19,452,840) (15,195,700)
----------- -----------
Cash flows from financing activities:
Net change in demand and savings deposits (1,745,656) (806,550)
Net change in time deposits 13,779,798 2,287,303
Net change in securities sold under repurchase 4,104,132 0
agreements
Net proceeds from Federal Home Loan Bank advances 0 5,500,000
Net proceeds from notes payable 255,000 (800,000)
Cash dividends paid (287,070) (210,502)
Net proceeds from issuance of common stock 694,110 4,821,963
Proceeds from exercise of stock options 7,092 68,175
----------- -----------
Net cash provided by financing activities 16,807,406 10,860,389
----------- -----------
Net change in cash and cash equivalents (1,759,509) (3,357,623)
Cash and cash equivalents at beginning of period 7,568,071 8,532,304
----------- -----------
Cash and cash equivalents at end of period $ 5,808,562 $ 5,174,681
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 17
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statement of Cash Flows, continued
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 2,670,907 2,533,084
Income taxes 325,000 332,000
Noncash investing activities:
Transfers of loans to other real estate 155,097 227,733
Change in other comprehensive income,net of tax (477,335) 122,269
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 17
<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) and its wholly-owned subsidiaries,
Community Trust Bank (the Bank), Metroplex Appraisals, Inc. (Metroplex), and
Community Loan Company (CLC). All significant intercompany accounts and
transactions have been eliminated in consolidation. 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) which 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. 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 September 30, 1999 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
--------------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for hedging derivatives and
derivative instruments embedded in other contracts. It requires the fair value
recognition of derivatives as assets or liabilities in the financial statements.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999, and initial application of the statement must be made as of
the beginning of the quarter. Management believes the adoption of SFAS No. 133
will not have a material impact on the Company's financial position, results of
operation or liquidity.
Page 6 of 17
<PAGE>
3. Earnings Per Share
------------------
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. The
average market price during the year is used to compute equivalent shares. The
reconciliation of the amounts used in the computation of both "net earnings per
share" and "net earnings per share - assuming dilution" for the three months
ended September 30, 1999 and September 30, 1998, and for the nine months ended
September 30, 1999 and September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended September 30, 1999 (Numerator) (Denominator) Amount
- --------------------------------------------- ------------ ------------- ------
<S> <C> <C> <C>
Net earnings per share $ 107,420 1,189,390 $ .09
======
Effect of dilutive securities:
Stock options - 50,388
----------- ---------
Net earnings per share - assuming dilution $ 107,420 1,239,777 $ .09
=========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended September 30, 1998 (Numerator) (Denominator) Amount
- --------------------------------------------- ----------- ------------ ------
<S> <C> <C> <C>
Net earnings per share $ 328,891 1,016,375 $ .32
======
Effect of dilutive securities:
Stock options - 43,070
---------- ---------
Net earnings per share - assuming dilution $ 328,891 1059,445 $ .31
========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the nine months ended September 30, 1999 (Numerator) (Denominator) Amount
- -------------------------------------------- ------------ ------------ ------
<S> <C> <C> <C>
Net earnings per share $ 653,497 1,166,439 $ .56
======
Effect of dilutive securities:
Stock options - 47,263
---------- ---------
Net earnings per share - assuming dilution $ 653,497 1,213,702 $ .54
========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the nine months ended September 30, 1998 (Numerator) (Denominator) Amount
- -------------------------------------------- ------------ ------------ -------
<S> <C> <C> <C>
Net earnings per share $ 836,884 901,095 $ .93
======
Effect of dilutive securities:
Stock options - 43,475
---------- ---------
Net earnings per share - assuming dilution $ 836,884 944,570 $ .89
========== ========= ======
</TABLE>
Page 7 of 17
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the Nine Month Period Ended September 30, 1999
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 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 nine months of 1999 increased $16,941,709 or 22.76%
over the total gross loans at December 31, 1998, as compared to an increase of
$13,035,391, or 22.79%, for the same nine month period ended September 30, 1998.
Management believes that the high percentages of loan growth for both time
periods as compared to previous years' loan growth for a similar time period was
due primarily to an increase in the Bank's lending personnel, and to the Bank's
expansion of its lending market into Cobb County, Georgia. In 1998, the Bank
established a loan production office in Cobb County for the purpose of
generating commercial and real estate loans. The Bank has since increased its
marketing efforts in Cobb County by opening one full-service branch in early
1999, with another branch due to be opened later this year. The Bank has now
experienced success in penetrating the Cobb market, attracting new borrowers who
often bring full-service relationships with their business. Additionally, the
Bank has been able to grant larger loan requests due to an increase in statutory
capital. Management anticipates continued loan growth at the Bank for the
remainder of 1999 primarily due to its increased marketing efforts in adjacent
counties such as Cobb and Douglas. Management continues to strive for increased
loan volume while meeting the criteria set by its loan policy.
During the first nine months of 1999, the Company purchased assets related to
five consumer finance offices in north Georgia which were owned by Drummond
Association, Inc. These assets primarily consisted of $1,130,152 in loans, which
were then contributed to CLC's portfolio. CLC presently operates from eleven
relatively small offices. Consequently, its gross loans, totaling approximately
$3,315,499 at September 30, 1999, or 3.63% 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.
Page 8 of 17
<PAGE>
The Bank's increase in gross loans for the first nine months of 1999 was funded
primarily through an increase in deposits. Total deposits during the first nine
months of 1999 increased approximately $12,034,142 or 13.85%, to $98,940,671 at
September 30, 1999 as compared to $86,906,529 at December 31,1998. This increase
in total deposits was due primarily to the Bank's penetration into the Cobb
County market area through its facilities in that county. Additionally, the Bank
has begun an Internet branch where new customers may open a deposit account with
little concern about geographic location. The Bank has implemented stringent
security measures in order to provide the ease of Internet banking while
maintaining safety measures deemed necessary by management. The Bank also
subscribes to a service called QwickRate, which allows the Bank to publish its
rates on certificates of deposits over an electronic billboard that may attract
interested depositors throughout the U. S. The Bank may choose to seek deposits
through this alternative source of funds if management determines that the
choice meets the Company's asset and liability strategies. Management of the
Bank sets the rates to be offered, which have been slightly higher than the
rates paid on core deposits. The Bank utilized this service for the first time
during this quarter, selling $6,055,045 in these time deposits during the
quarter ended September 30, 1999. Additionally, a new product offered by the
Bank allows certain commercial customers the flexibility of employing funds that
might otherwise remain in deposit balances to invest in repurchase agreements so
that the customer may earn interest overnight. Securities sold under repurchase
agreements totaled $4,104,132 at September 30, 1999, of which $3,104,132 has
been sold to certain Bank commercial customers. The Bank also sold $1,000,000 in
securities to The Bankers Bank under an agreement to repurchase the securities
within sixty days. Management is monitoring core deposits and customer
relationships in an effort to maintain overall deposit growth.
The Company holds $21,687,711, or 17.42% of its total assets, in securities
consisting of bonds issued by the U. S. Treasury, U. S. Government agencies, or
state and county municipalities. Typically, the securities are held as available
for sale so that they may be a source of liquidity while producing income for
the Company. In accordance with Statement of Financial Accounting Standard No.
115, securities that will be held for indefinite periods of time are accounted
for at market value, thereby creating a component of stockholders' equity for
the unrealized gains or losses on securities, net of deferred taxes. The
aggregate unrealized gain or loss, net of tax, appears as accumulated other
comprehensive income on the Company's balance sheet. Unrealized loss on
securities, net of tax, was $170,264 as of September 30, 1999, as compared to an
unrealized gain, net of tax, of $307,071 as of December 31, 1998, which created
a net loss of $477,335 in other comprehensive income for the nine months ended
September 30, 1999. Changes in these unrealized gains or losses are due to
market value fluctuations, which may be caused by changes in market rates,
changes in the slope of the yield curve, or other changes in the bond market.
Management reviews market risk in the securities portfolio on a monthly basis to
ensure that risk is maintained at acceptable levels.
Page 9 of 17
<PAGE>
Results of Operations
- ---------------------
Net Interest Income
The Company's net interest income increased approximately 26.81% to $5,024,203
for the period ended September 30, 1999, as compared to $3,962,133 for the
period ended September 30, 1998. Interest income for the first nine months of
1999 was $7,619,062, representing an increase of $1,198,756, or 18.67%, over the
same period in 1998. This increase in interest income occurred primarily due to
a $16,611,964, or 18.60%, increase in average earning assets for the nine months
ended September 30, 1999 as compared to the same period in 1998. Interest
expense for the first nine months of 1999 increased $136,686, or 5.56% as
compared to the same period in 1998. This increase in interest expense occurred
primarily due to a $10,892,155, or 14.84%, increase in average interest-bearing
deposits and other interest-bearing liabilities for the nine months ended
September 30, 1999 as compared to the same period in 1998.
The Company continues to seek opportunities to maintain its net interest margin
(net interest income divided by average interest-earning assets). Average
earning assets for the period ended September 30, 1999 were $105,920,604, having
a weighted average yield of 9.62%, resulting in a net interest margin of 6.34%.
This compares to average earning assets for the period ended September 30, 1998
of $89,308,640, having a weighted average yield of 9.61%, resulting in a net
interest margin of 5.93%. The increase in net interest margin is attributable
primarily to a drop in the Company's cost of funds from 4.48% in 1998 to 4.12%
in 1999.
Provision for Loan Losses
The Company does lose some interest income due to non-performing assets, defined
as loans placed on non-accrual status, accruing loans which are contractually
past due ninety days or more, real estate acquired through foreclosure, and
property acquired through repossession. Prior to 1999, accruing loans which are
contractually past due ninety days or more were not included by management as a
component of non-performing assets. Therefore, totals of non-performing assets
for periods prior to 1999 have been restated to include accruing loans which are
contractually past due over ninety days. Management considers the Company's
level of non-performing assets to be at an acceptable level. The Company's non-
performing assets totaled approximately $1,246,471, or 1.00% of the Company's
total assets as of September 30, 1999, as compared to $851,781, or 0.82% of the
Company's total assets as of September 30, 1998. The increase in non-performing
assets from 1998 to 1999 was attributable primarily to an increase in CLC's non-
performing assets from $334,757 at September 30, 1998 to $673,303 at September
30, 1999. This 101.13% increase in CLC's non-performing assets is due primarily
to the 56.18% increase in CLC's loan portfolio from September 1998 to September
1999. The Bank had two restructured loans totaling $103,701 as of September 30,
1999, as compared to loans totaling $87,787 as of September 30, 1998. Management
considers the totals of delinquent and non-performing assets 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 such assets to rise.
page 10 of 17
<PAGE>
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. The Company's provision for loan losses was
$553,911 for the period ended September 30, 1999, as compared to $263,481 for
the period ended September 30, 1998. This increase in provision for loan losses
from 1998 to 1999 was attributable primarily to CLC's increased provisions due
to the 56.18% increase in that subsidiary's loan portfolio from September 1998
to September 1999. The Company's loan loss allowance was $1,305,771, or 1.43% of
outstanding loans, as of September 30, 1999. No material loss is anticipated on
non-accrual or restructured loans, therefore no specific reserves or writedowns
were considered necessary by management as of September 30, 1999.
Non-interest Income
Non-interest income, consisting of service charges on deposits, appraisal fees,
credit life insurance commissions, securities gains, loss in CashTrans and other
miscellaneous income, increased $222,652, or 19.46%, during the first nine
months of 1999 as compared to the same period in 1998. The increase in non-
interest income resulted primarily from (i) an increase of $59,721 in mortgage
origination fees related to the Bank's mortgage division which was formed in
1998, (ii) a $49,823 change in the Company's equity in the earnings of its
unconsolidated subsidiary, CashTrans, (iii) an increase of $46,822 in insurance
commissions collected which is primarily due to the growth of CLC's customer
base, and (iv) an increase of $43,284 in service charges and fees primarily due
to the Bank's growing customer base.
Non-interest Expenses
Non-interest expenses, consisting of salaries and employee benefits, occupancy
and other miscellaneous expenses, increased $1,241,412, or 33.89%, during the
first nine months of 1999 as compared to the same period in 1998. The increase
in non-interest expense is attributable primarily to an increase in salaries and
employee benefits caused by the Company's need for additional human resources
due to the growing number of locations to be staffed for the Bank and CLC, as
well as routine salary increases. Salaries and employee benefits increased
$698,763, or 35.54%, for the period ended September 30, 1999, as compared to the
same period in 1998. Occupancy expense increased by approximately $191,867, or
35.46%, for the period ended September 30, 1999, as compared to the same period
in 1998, primarily due to increases in expenses associated with the Bank's
addition of a loan production office and two full service branches in Cobb
County, and to CLC's addition of seven offices. Other operating expense
increased by approximately $350,782, or 30.34%, for the period ended September
30, 1999, as compared to the same period in 1998, primarily due to general cost
increases and the asset growth experienced by the Company.
Page 11 of 17
<PAGE>
Capital
The Company is subject to regulatory capital requirements imposed by the
Department and by the Board of Governors of the Federal Reserve System. 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 September 30, 1999, was 12.14%, and its ratio of Tier 1 capital to
risk weighted assets was 10.90%. Under applicable federal regulations and
interpretations thereof, the Company's ratio of total capital to risk weighted
assets at September 30, 1999, was 15.70%, and its ratio of Tier 1 capital to
risk weighted assets was 14.45%. 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 8.69% as of September 30, 1999. The Company also
substantially exceeds its Tier 1 leverage ratio requirement with a Tier 1
leverage ratio of 11.37% as of September 30, 1999. 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. Liquidity is monitored monthly by management in order to
ensure compliance with the Bank's policy of maintaining adequate liquidity. The
Bank relies primarily on deposit gathering in order to fund its lending and
investing activities. In addition, the Company obtains funds from loan
principal repayments, proceeds from sales of loan participations and investment
securities, and other borrowings. 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.
The Bank maintains two lines of credit to borrow fed funds that total $5,300,000
in order to enhance liquidity. At September 30, 1999, the Bank had no funds
borrowed 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 credit available from the Federal Home Loan Bank
fluctuates based on criteria set by that institution. As of September 30, 1999,
the Bank had $5,500,000 in borrowings outstanding under this facility, and
approximately $1,476,800 remained available to be borrowed.
Page 12 of 17
<PAGE>
The Company has a $3,500,000 revolving credit facility with The Bankers Bank,
Atlanta, Georgia, which is intended to enhance the Company's liquidity. As of
September 30, 1999, the Company had no funds borrowed under this facility.
Additionally, CLC established a $1,500,000 revolving credit facility with The
Bankers Bank in July 1999, which is intended to provide a source of funds for
the lending activities of that subsidiary. As of September 30, 1999, CLC had
$255,000 in borrowed funds outstanding under this facility. As of July 1999,
the operations of CashTrans are funded principally through a $1,000,000 credit
facility with The Bankers Bank. As of September 30, 1999, CashTrans had
$775,000 in borrowed funds outstanding under this facility. Under these
revolving credit facilities with The Bankers Bank, interest only is due and
payable on the first business day of each calendar quarter. The Company's
credit facility (i) accrues interest at a floating rate equal to the "prime"
rate of interest as published from time to time in The Wall Street Journal minus
-----------------------
1%, and (ii) the principal shall be paid in eight annual installments beginning
July 2001. CLC's and CashTrans' credit facilities (i) accrue interest at a
floating rate equal to the prime rate minus 0.75%, and (ii) are due in full on
July 1, 2000. Amounts outstanding under the three credit facilities are
guaranteed by the Company and collateralized by the stock in the Bank. CLC's
loan is also collateralized by its loan receivables. CashTrans' loan is
personally guaranteed by James R. Henderson, the principal of JRH Diversified,
Inc.
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. This plan is in
accordance with applicable guidelines and regulations of the Federal Financial
Institutions Examination Council as adopted by the Department and the Federal
Deposit Insurance Corporation. Year 2000 issues relating to the Company's
businesses, its operations, and its relationships with customers, suppliers, and
other constituents have been reviewed by a committee consisting of management
and operations and technical staff. A committee of the Board of Directors has
reviewed management's progress in execution of its plan. All levels of the
Company's management and its Board of Directors are aware of the issues
presented by the Year 2000 century change and the serious effects it could have
on the Company and its customers. Goals of the Company's plan included
evaluation of systems, prioritization of necessary updates or replacements,
responsibility assignments, and establishment of a timeline for review,
implementation, and testing. The plan included steps to be taken by the Company
to (i) identify, assess, evaluate, test, and validate its own date sensitive
systems, (ii) amend its loan underwriting policies to include assessments, as
appropriate, regarding Year 2000 readiness by commercial loan applicants, (iii)
offer education to business customers regarding Year 2000 issues in their own
businesses, and (iv) inform the Company's customers as to the Company's Year
2000 compliance process.
Page 13 of 17
<PAGE>
Management believes that, to date, the goals of the plan have been met, and the
testing phase is completed. The Company has tested the systems it has
identified as "critical" to conducting its businesses, and has found those
systems to be ready for the Year 2000. The Bank, its third-party data
processor, and its correspondent bank, participated in testing of the Bank's
core processing system, and the correspondent's system, with the Federal Reserve
Bank of Atlanta, to ensure that communications between those entities concerning
transaction processing will not be affected by any dates that have been
determined to be Year 2000 sensitive. The Bank has conducted its testing with
close regulatory supervision by state and federal agencies. Additionally, the
Bank engaged the services of a firm to provide independent review concerning its
preparation for Year 2000, and such review was completed in the first quarter of
1999. The Bank received satisfactory results from this review, and management
learned even more about certain factors in preparation of Y2K. Customer
awareness training has been provided to the Bank's employees, which has equipped
them to respond to customer inquiries about the Bank's Year 2000 readiness.
Officers of the Company participated, along with others from local businesses,
county services, and utilities, in a seminar sponsored by the local Chamber of
Commerce to answer any concerns in the community. The Company estimates that
its total costs of Year 2000 compliance will be $70,000 to $105,000. Costs
incurred in 1998 were approximately $36,800, of which $9,000 was capitalized,
and $27,800 was charged to expense. In 1999, an additional $13,000 has been
capitalized, and approximately $34,000 has been charged to operations expense.
Management does not anticipate that the implementation of the Company's Year
2000 plan will materially impact future operating results.
Contingency plans have been developed to mitigate the potential effects of a
disruption in normal business operations. Contingency planning includes
developing alternative solutions should a vendor not become compliant, as well
as plans for the resumption of business if, despite the Company's best efforts,
a business operation disruption occurs. Management has tested contingency
planning during the third quarter of 1999 with satisfactory results.
Additionally, Company personnel will be working over the New Year holidays to
further ensure smooth and uninterrupted operations. The Year 2000 risks arising
from relationships with borrowers and depositors are under review by management.
Appropriate risk controls have been put in place to manage and mitigate Year
2000 customer risks, and contingency plans have been developed to address these
risks.
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 plans
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.
Page 14 o 17
<PAGE>
Forward-Looking Statement
Some of the foregoing statements are forward-looking statements which reflect
significant assumptions and subjective judgements believed by management to be
reasonable as of the date of this report. They do not constitute a forecast or
prediction of actual results, and actual performance and financial results may
differ materially from those anticipated due to a variety of factors, including
but not limited to (i) increased competition with other financial institutions,
(ii) lack of sustained growth in the local economy, (iii) rapid fluctuations in
interest rates, and (iv) changes in the legislative and regulatory environment.
The foregoing statements should not be construed as exhaustive and the Company
disclaims any obligation to subsequently update or revise any forward-looking
statements after the date of this report.
Page 15 of 17
<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
-------------------------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
---------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
Not applicable
Item 5. Other Information
-------------------------
The Board of Directors of the CLC agreed on July 1, 1999 to enter into an
Employment Agreement with Danny Drummond, president of that subsidiary.
Item 6.a Exhibits
-----------------
Exhibit
Number Description
------ -----------
10.11 Employment Agreement dated July 1, 1999, between CLC and Danny
Drummond
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
----------------------------
No reports on Form 8-K were filed during the period ended September 30,
1999.
Page 16 of 17
<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: November 9, 1999 /s/ Ronnie L. Austin
----------------------------------------
Ronnie L. Austin, President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 9, 1999 /s/ Angel J. Byrd
----------------------------------------
Angel J. Byrd
(Principal Accounting Officer)
Page 17 of 17
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
as of July 1, 1999, by and between Danny H. Drummond, a resident of the State of
Georgia ("Employee"), and Community Loan Company ("CLC"), an industrial loan
subsidiary of Community Trust Financial Services ("CTFS"), a Georgia bank
holding company.
W I T N E S S E T H:
-------------------
WHEREAS, CLC wishes to obtain assurances from Employee that CLC 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 CLC on the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, CLC and Employee agree as follows:
1. Employment. CLC hereby employs Employee, and Employee hereby
----------
accepts such employment and agrees to perform services for CLC, 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 June 30, 2004, subject to earlier termination as
hereinafter specified. Unless notified in writing by the other party thirty
(30) days in advance of the next scheduled termination date, this contract shall
renew automatically for a one year term until the employee's seventieth (70)
birthday, January 23, 2007, at which time the contract will expire.
3. Position and Duties.
-------------------
3.01 Service with CLC. During the term of this Agreement,
----------------
Employee shall serve as, and his title shall be, President of Community Loan
Company. In such position, Employee agrees to perform such employment duties
consistent with such position as the CEO 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 as a Director of CTFS and/or a Director of CLC.
3.02 Performance of Duties. Employee agrees to serve CLC
---------------------
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 CLC without the prior written consent of
the CEO of CTFS. Notwithstanding the foregoing, (i) Employee may pursue such
personal investment and financial matters as do not conflict with his
obligations and commitments to CLC, (ii) Employee
-1-
<PAGE>
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 such other activities as the CEO 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, CLC shall pay to Employee an initial
annual base salary for the period from July 1, 1999 through and including June
30, 2000, of $85,000.00. 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 July 1 of the year in which
the adjustment takes effect. 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 bi-weekly installments in accordance
with CLC' 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 $85,000; (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 = $1,309 ( $85,000 x 1.54%)
New Base Salary = $86,309 ( $85,000 + 1,309)
4.02 Incentive Compensation. Employee shall be eligible for
----------------------
incentive pay equal to fifteen percent of salary if performance goals set by the
CEO of CTFS are met.
4.03 Section Not Used
----------------
4.04 Participation in Benefit Plans. Employee shall also be
------------------------------
entitled to participate, on a comparable basis with other senior executives of
CLC, in all employee benefit plans or
-2-
<PAGE>
programs of CLC 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 CLC' policies established from time
--------
to time, CLC 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 CLC, Employee
--------
has had and will have access to confidential information, trade secrets and
other proprietary information of vital importance to CLC. CLC requires as a
condition to Employee's employment with CLC that Employee agrees to certain
restrictions on Employee's use of the proprietary information and valuable
relationships developed during Employee's employment with CLC. In consideration
of the terms and conditions contained herein, the parties hereby agree as
follows:
5.02 Fiduciary Responsibility. CLC and Employee mutually agree and
-------------------------
acknowledge that CLC 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 element of Employee's employment
with CLC, Employee shall bear a fiduciary responsibility to CLC 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 non-technical 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. Section 10-1-760 through Section 10-1-767.
-3-
<PAGE>
(b) "Confidential Information" shall mean any data or information, other
than Trade Secrets, which is material to 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 loaning of money in amounts of $3,000 or less
pursuant to the Georgia Industrial Loan Act (O.C.G.A. Section 7-3-1 et seq.)
-- ---
("Business of CLC"), (ii) any information pertaining to the identity of the
customers, depositors or borrowers served by, or Business Opportunities
(hereinafter defined) of CLC, (iii) the details of this Agreement, CLC's
respective business, marketing and acquisition plans and (iv) financial
statements and projections, and the costs of the services the CLC may offer or
provide to the customers they serve, to the extent such information is material
to CLC and not generally known by the public.
(c) "Business Opportunities" shall mean any specialized information or
plans of CLC concerning the business of CLC, including, but not limited to, the
financing of or investment in 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 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 or CLC approve
for unrestricted release by express written authorization.
5.04 Trade Secrets. Employee shall not, without the prior written
--------------
consent of the CEO of CTFS , during his employment with CLC 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 CLC to use,
disclose, or gain access to, any Trade Secrets of CLC, or of any of their
subsidiaries or affiliates, or of any other person or entity making Trade
Secrets available for CLC's (or any of their subsidiaries' or affiliates') use.
5.05 Confidential Information. Employee shall not, without the prior
-------------------------
written consent of the CEO of CTFS , during his employment with CLC and for a
period of two (2) years after termination of his employment for any reason, as
long as the information or data remain
-4-
<PAGE>
competitively sensitive, use or disclose, or negligently permit any unauthorized
person who is not employed by CTFS or CLC to use, disclose, or gain access to,
any Confidential Information to which the employee obtained access by virtue of
his employment with CLC.
5.06 Observance of Security Measures. During Employee's employment
--------------------------------
with CLC, Employee is required to observe all security measures adopted to
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 of CTFS or CLC whom Employee had served during his
term of employment for the purpose of providing services which constitute the
Business of CLC (in each case as defined above).
6.02 During Employment. During Employee's employment with CLC,
------------------
Employee shall not, except on behalf of 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 or CLC for the purpose
of performing the or Business of CLC for such customers.
7. Non-Interference with Personnel Relations.
------------------------------------------
Employee shall not, during his employment with CLC and for a period of two
(2) years after the termination of his employment with CLC for any reason,
knowingly solicit, entice or persuade any other employees or agents of CTFS or
CLC (or of any of their subsidiaries or affiliates) to leave the services of
CTFS 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 CLC 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.
-5-
<PAGE>
9. Covenant Not to Compete.
------------------------
9.01 Non-Competition. Employee covenants and agrees that for a period
----------------
of one (1) year after the termination of his employment with CLC 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 person or entity conducting
the business of CLC within a geographic area covered by a circle having a radius
of twenty (20) miles from the location of each office of CLC as set forth on
Exhibit "A" to this agreement.
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) CLC shall give notice to Employee that CLC 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 CLC shall
determine that Employee has become disabled (as defined in Section 10.02); or
(c) The Board of Directors of CLC 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
which has a material adverse effect on CLC (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
CLC (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 CEO 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 CLC has breached this Agreement in
any material respect (including, but not limited to, CLC' failure to make any
payment required under this Agreement), which breach is not cured by CLC within
thirty (30) days after written notice of such breach is delivered to CLC by the
Employee.
-6-
<PAGE>
(e) Employee, within thirty (30) days following the occurrence of a
"Change in Control" (as defined in Section 10.03), notifies CLC, in writing,
that he is electing to terminate this Agreement pursuant to this Section
10.01(e).
(f) Employee purchases all or part of the assets of Community Loan
Company.
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 CLC 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 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 or (ii) substantially all of the
--
assets of CTFS shall be sold to another person or (iii) substantially all of
--
the assets of Community Loan Company shall be sold to someone other than the
Employee and (iv) at the time of the occurrence of (i), (ii) or (iii) Employee
---
is serving as President of Community Loan Company.
10.04 Surrender of Records and Property. Upon the request of CLC
---------------------------------
and, in any event, upon termination of his employment with CLC, Employee shall
deliver promptly to CLC all records, manuals, books, blank forms, documents,
letters, memoranda, notes, notebooks, reports, data, tables, calculations or
copies thereof, which are the property of CTFS or CLC (or any of their
subsidiaries of affiliates) and which relate in any way to the business,
products, practices or techniques of CTFS or CLC (or any of their subsidiaries
or affiliates), and all other property, Trade Secrets and Confidential
Information of CTFS 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 or CLC (or any of their
subsidiaries or affiliates), which in any of these cases are in his possession
or under his control.
-7-
<PAGE>
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 bi-weekly 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) bi-weekly 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 inure 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 CLC.
13. Injunctive Relief. Employee agrees that it would be difficult to
-----------------
compensate CLC 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 CLC 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 CLC 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
-8-
<PAGE>
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. CLC 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.
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 CLC:
Community Loan Company
3844 Atlanta Highway
Hiram, Georgia 30141
Attention: Chairman
If to Employee:
Danny H. Drummond
186 Reynolds Bend Road, S.E.
Rome, GA 30161
or to such other address as either party hereto may hereafter duly give to the
other.
-9-
<PAGE>
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 CLC, on the other, shall each select an arbitrator from a list of
arbitrators provided by AAA. The lists from which Employee and CLC select their
respective arbitrators shall be identical. If either Employee or CLC 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.
16. Right of First Refusal. In the event that CLC receives an offer to
-----------------------
sell all or substantially all of its assets (the "Assets") to an independent
third party not affiliated with CLC or CTFS (the "Third Party"), CLC shall
deliver to Employee written notification of the offer and the terms of the offer
(the "Third Party Offer"). Employee shall have 30 days from the date of receipt
of such notification to provide CLC with a written offer to purchase such Assets
(the "Employee's Offer"). If the terms of the Employee's Offer are at least
equivalent to the Third Party Offer in the opinion of the CTFS Board of
Directors, then CLC shall accept Employee's Offer. If the Employee's Offer is
less than the equivalence of the Third Party Offer in the opinion of the CTFS'
-10-
<PAGE>
Board of Directors, then CLC may sell the Assets to the Third Party in
accordance with the terms of the Third Party Offer.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
Danny H. Drummond
/s/ Danny H. Drummond
-----------------------------------------
COMMUNITY LOAN COMPANY
By /s/ Bobbie P. Cooper
--------------------------------------
Title: Chairman
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,368,562
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,440,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,687,711
<INVESTMENTS-CARRYING> 21,687,711
<INVESTMENTS-MARKET> 21,687,711
<LOANS> 91,381,870
<ALLOWANCE> 1,305,771
<TOTAL-ASSETS> 124,508,635
<DEPOSITS> 98,940,671
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,251,466
<LONG-TERM> 5,755,000
0
0
<COMMON> 2,973,020
<OTHER-SE> 11,588,478
<TOTAL-LIABILITIES-AND-EQUITY> 124,508,635
<INTEREST-LOAN> 6,557,734
<INTEREST-INVEST> 949,120
<INTEREST-OTHER> 112,208
<INTEREST-TOTAL> 7,619,062
<INTEREST-DEPOSIT> 2,310,892
<INTEREST-EXPENSE> 2,594,859
<INTEREST-INCOME-NET> 5,024,203
<LOAN-LOSSES> 553,911
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,904,901
<INCOME-PRETAX> 932,083
<INCOME-PRE-EXTRAORDINARY> 653,497
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 653,497
<EPS-BASIC> .56
<EPS-DILUTED> .54
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
