<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 MARCH 31, 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 1,148,278 shares of Common
Stock outstanding as of March 5, 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 MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
1. Consolidated Balance Sheets at March 31, 1999 (unaudited)
and December 31, 1998 (audited)......................................... 1
2. Consolidated Statements of Earnings for the three months
ended March 31, 1999 and March 31, 1998 (unaudited)..................... 2
3. Consolidated Statements of Comprehensive Income for the three months
ended March 31, 1999 and March 31, 1998 (unaudited)..................... 3
4. Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and March 31, 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...................................................... 14
Item 1. Legal Proceedings........................................................ 14
Item 2. Changes in Securities and Use of Proceeds................................ 14
Item 3. Defaults upon Senior Securities.......................................... 14
Item 4. Submission of Matters to a Vote of Security Holders...................... 14
Item 5. Other Information........................................................ 14
Item 6. Exhibits and Reports on Form 8-K......................................... 14
Signatures.............................................................. 15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
Assets
March 31, December 31,
1999 1998
--------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks 3,704,550 4,578,071
Federal funds sold and securities purchased under resell agreements 1,270,000 2,990,000
--------------- --------------
Cash and cash equivalents 4,974,550 7,568,071
U. S. Treasury and other U. S. Government agency securities 13,182,387 14,245,888
available for sale
State, county, and municipal securities available for sale 7,848,705 7,202,748
Other investments 919,400 919,400
Loans 75,660,446 74,440,161
Less: Allowance for loan losses (1,028,252) (935,234)
--------------- --------------
Loans, net 74,632,194 73,504,927
Premises and equipment 2,547,498 2,237,830
Accrued interest receivable 1,024,567 1,090,088
Other real estate and repossessions 11,671 57,415
Other assets 963,763 701,905
--------------- --------------
106,104,735 107,528,272
=============== ==============
Liabilities and Stockholders' Equity
Deposits:
Demand 13,845,820 11,433,411
Interest-bearing demand 19,081,077 21,197,354
Savings 12,878,222 15,324,527
Time 23,378,845 23,238,422
Time, in excess of $100,000 16,587,426 15,712,815
--------------- --------------
Total deposits 85,771,390 86,906,529
Accrued interest payable 830,104 953,411
Accrued expenses and other liabilities 201,290 197,129
Federal Home Loan Bank advances and notes payable 5,500,000 5,500,000
--------------- --------------
Total liabilities 92,302,784 93,557,069
Stockholders' equity:
Common stock, $2.50 par value; 5,000,000 shares 2,870,695 2,870,195
authorized; 1,148,278 and 1,148,078 issued and outstanding
Additional paid-in capital 6,233,630 6,232,554
Retained earnings 4,535,826 4,561,383
Accumulated other comprehensive income 161,800 307,071
--------------- --------------
Total stockholders' equity 13,801,951 13,971,203
--------------- --------------
106,104,735 107,528,272
=============== ==============
</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 15
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Interest income:
Interest and fees on loans $1,991,785 $1,643,904
Interest on federal funds sold 27,208 45,471
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 208,861 210,248
Other 102,051 84,144
--------------- ---------------
Total interest income 2,329,905 1,983,767
Interest expense:
Interest on deposits
Demand 96,498 102,649
Savings 87,564 97,237
Time 313,329 316,415
Time, in excess of $100,000 233,838 220,752
Interest expense - other 76,040 22,034
--------------- ---------------
Total interest expense 807,269 759,087
--------------- ---------------
Net interest income 1,522,636 1,224,680
Provision for loan losses 169,509 89,854
--------------- ---------------
Net interest income after
provision for loan losses 1,353,127 1,134,826
--------------- ---------------
Non-interest income:
Service charges and fees 242,979 230,235
Insurance commissions 81,586 63,823
Gain (loss) on sales of investment securities 0 23,812
Appraisal fees 55,547 36,050
Mortgage banking income 27,760 9,347
Equity in loss of CashTrans (3,254) (32,242)
Miscellaneous 33,050 31,285
--------------- ---------------
Total non-interest income 437,668 362,310
Non-interest expenses:
Salaries and employee benefits 782,023 644,701
Occupancy 200,849 174,425
Other operating 453,992 392,162
--------------- ---------------
Total non-interest expenses 1,436,864 1,211,288
--------------- ---------------
Earnings before income taxes 353,931 285,848
Income taxes 92,419 91,671
--------------- ---------------
Net earnings $261,512 $194,177
=============== ===============
Net earnings per common share $0.23 $0.23
=============== ===============
Net earnings per common share - assuming dilution $0.22 $0.22
=============== ===============
Dividends per common share $0.25 $0.25
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 15
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
<S> <C> <C>
Net Earnings $261,512 $194,177
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 $88,886, and $7,149, respectively (145,271) (13,877)
Less: Reclassification adjustment for gains included in net
earnings, net of tax of $8,096 0 (15,716)
--------------- ---------------
Other comprehensive income (145,271) (29,593)
--------------- ---------------
Comprehensive income $116,241 $164,584
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3 of 15
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $261,512 $194,177
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization, and accretion 109,415 98,623
Provision for loan losses 169,509 89,854
Equity in loss of unconsolidated subsidiary 3,254 32,242
Net loss (gain) on sale of investment securities 0 (23,812)
Net loss (gain) on sale of other real estate (2,750) 0
Net change in:
Interest receivable 65,521 35,636
Interest payable (123,307) (87,980)
Other assets (202,121) 52,115
Accrued expenses and other liabilities 4,161 (327,085)
-------------- --------------
Net cash provided by operating activities 285,194 63,770
-------------- --------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 228,261 1,000,000
Proceeds from sales, calls, and paydowns
of securities available for sale 1,001,614 4,916,699
Purchase of securities available for sale (1,050,906) (1,720,000)
Purchase of other investments 0 (30,500)
Net increase in loans (1,291,776) (3,689,067)
Purchase of premises and equipment (390,775) (84,290)
Proceeds from sale of other real estate 45,500 90,670
-------------- --------------
Net cash used in investing activities (1,458,082) 483,512
-------------- --------------
Cash flows from financing activities:
Net change in demand and savings deposits (2,150,173) (2,841,819)
Net change in time deposits 1,015,034 662,448
Net proceeds from Federal Home Loan Bank advances 0 2,500,000
Net proceeds from notes payable 0 400,000
Cash dividends paid (287,070) (210,502)
Proceeds from exercise of stock options 1,576 4,284
-------------- --------------
Net cash provided by financing activities (1,420,633) 514,411
-------------- --------------
Net change in cash and cash equivalents (2,593,521) 1,061,693
Cash and cash equivalents at beginning of period 7,568,071 8,532,304
-------------- --------------
Cash and cash equivalents at end of period $4,974,550 $9,593,997
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 15
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statement of Cash Flows, continued
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 930,576 847,067
Income taxes 0 120,000
Noncash investing activities:
Transfers of loans to other real estate 0 90,670
Change in other comprehensive income,net of tax (145,271) (29,593)
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 15
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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 Company has
helped finance the operations of CashTrans through a revolving line of credit
which, at March 31, 1999, had a maximum availability of $750,000, of which
CashTrans had borrowed $738,800. 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 March 31, 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 15
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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 March 31, 1999 and March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended March 31, 1999 (Numerator) (Denominator) Amount
- -------------------------------------------- -------------- ------------- ---------
<S> <C> <C> <C>
Net earnings per share $261,512 1,148,185 $.23
=========
Effect of dilutive securities:
Stock options - 44,303
------------- ---------
Net earnings per share - assuming dilution $261,512 1,192,487 $.22
============= ========= =========
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended March 31, 1998 (Numerator) (Denominator) Amount
- -------------------------------------------- ------------- ------------ ---------
Net earnings per share $194,177 841,671 $.23
=========
Effect of dilutive securities:
Stock options - 45,614
------------- ---------
Net earnings per share - assuming dilution $194,177 887,285 $.22
============= ========= =========
</TABLE>
Page 7 of 15
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the Three Month Period Ended March 31, 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
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 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 three months of 1999 increased $1,220,285 or 1.64%
over the total gross loans at December 31, 1998, as compared to an increase of
$3,542,007, or 6.19%, for the same three month period ended March 31, 1998.
Management believes that the decrease in loan growth was due primarily to
seasonal fluctuations in loan demand and increased competition in the Bank's
market area. Typically, the Bank and CLC experience relatively low loan demand
during the first quarter of each year. Additionally, management believes that
the larger increase in loan growth during the first three months of 1998 was due
primarily to an increase in lending personnel, and to the Bank's establishment
of a loan production office in Cobb County, Georgia. During the quarter ended
March 31, 1999, CLC operated from six relatively small offices. Consequently,
its gross loans, totaling approximately $1,871,202 at March 31, 1999, or 2.47%
of the Company's gross loans, do not significantly affect the financial data
analyzed. CLC is expected to gain five more loan offices located throughout
CLC's market area during the second quarter of 1999. 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 an increase in the Bank's loan growth for the remainder of 1999
primarily due to its increased marketing efforts which are designed to attract
new borrowers in its primary lending area and to its planned establishment of a
second full service branch in Cobb County later in 1999. 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 three months of 1999 was funded
primarily through a decrease in federal funds sold. Federal funds are sold by
the Bank on an overnight basis to other financial institutions in order to
maximize interest income on all investable funds. Federal funds sold decreased
by $1,720,000, or 57.53%, from $2,990,000 at December 31, 1998, to $1,270,000 at
March 31, 1999. Total deposits during the first three months of 1999 decreased
approximately $1,135,139 or 1.31%, from $86,906,529 at December 31, 1998 to
$85,771,390 at
Page 8 of 15
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March 31, 1999. This decrease in total deposits was due primarily to changes in
deposit balances maintained by some of the Bank's largest depositors. Management
is monitoring core deposits and customer relationships in an effort to maintain
overall deposit growth.
Results of Operations
- ---------------------
Net Interest Income
The Company's net interest income increased approximately 24.33% to $1,522,636
for the period ended March 31, 1999, as compared to $1,224,680 for the period
ended March 31, 1998. Interest income for the first three months of 1999 was
$2,329,905, representing an increase of $346,138, or 17.45%, over the same
period in 1998. This increase in interest income occurred primarily due to a
$17,294,848, or 20.81%, increase in average earning assets for the three months
ended March 31, 1999 as compared to the same period in 1998. Interest expense
for the first three months of 1999 increased $48,192, or 6.35% as compared to
the same period in 1998. This increase in interest expense occurred primarily
due to a $10,040,167, or 14.47%, increase in average interest-bearing deposits
and other interest-bearing liabilities for the three months ended March 31, 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 March 31, 1999 were $100,399,608, having a
weighted average yield of 9.41%, resulting in a net interest margin of 6.15%.
This compares to average earning assets for the period ended March 31, 1998 of
$83,104,760, having a weighted average yield of 9.68%, resulting in a net
interest margin of 5.98%. The increase in net interest margin is attributable
primarily to the 20.81% increase in the Company's average earning assets, as
compared to the 14.47% increase in the Company's average interest-bearing
liabilities. The larger increase in the amount of the Company's interest-
earning assets as compared to its interest-bearing liabilities caused a positive
effect on the Company's net interest margin in 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 over ninety days, real estate acquired through foreclosure, and
property acquired through repossession. Prior to 1999, accruing loans which are
contractually past due over ninety days 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, even though loans
to one borrower have caused the non-performing assets to be unusually high as of
March 31, 1999. The Company's non-performing assets totaled approximately
$1,694,766, or 1.60% of the Company's total assets as of March 31, 1999, as
compared to $519,804, or 0.56% of the Company's total assets as of March 31,
1998. The increase in non-performing assets from 1998 to 1999 was attributable
primarily to an increase in the Bank's loans placed on non-accrual status. The
Bank's loans
Page 9 of 15
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placed on non-accrual status included four loans to one borrower totaling
$905,743, which are secured by real estate. Management has been closely
monitoring progress of the project funded by these four extensions of credit,
and anticipates full recovery of principal and interest. The Bank had one
restructured loan totaling $81,897 as of March 31, 1999, as compared to one loan
totaling $7,890 as of March 31, 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.
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 $169,509 for the period ended March 31, 1999, as compared to $89,854 for the
period ended March 31, 1998. The Company's loan loss allowance was $1,028,252,
or 1.36% of outstanding loans, as of March 31, 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 March 31, 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 $75,358, or 20.80%, during the first three
months of 1999 as compared to the same period in 1998. The increase in non-
interest income resulted primarily from (i) a $28,988 decrease in the Company's
equity in the loss of its unconsolidated subsidiary, CashTrans, (ii) an increase
of $19,497 in appraisal fees collected by Metroplex, (iii) the Bank's collection
of $18,413 in mortgage origination fees related to its mortgage division which
was formed in 1998, and (iv) an increase of $17,763 in insurance commissions
collected.
Non-interest Expenses
Non-interest expenses, consisting of salaries and employee benefits, occupancy
and other miscellaneous expenses, increased $225,576, or 18.62%, during the
first three 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. Occupancy expense increased by approximately
$26,424, or 15.15%, for the period ended March 31, 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 a full service branch in Cobb
County, and to CLC's addition of offices in Gainesville, Dalton, and Flowery
Branch. Other operating expense increased by approximately $61,830, or 15.77%,
for the period ended March 31, 1999, as compared to the same period in 1998,
primarily due to increased operating costs of the Company caused by general cost
increases.
Page 10 of 15
<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 March 31, 1999, was 14.07%, and its ratio of Tier 1 capital to risk
weighted assets was 12.82%. Under applicable federal regulations and
interpretations thereof, the Company's ratio of total capital to risk weighted
assets at March 31, 1999, was 18.59%, and its ratio of Tier 1 capital to risk
weighted assets was 17.34%. 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 9.10% as of
March 31, 1999. The Company also substantially exceeds its Tier 1 leverage
ratio requirement with a Tier 1 leverage ratio of 12.43% as of March 31, 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. As
of March 31, 1999, the Bank's liquidity ratio (defined as net cash, short-term
assets, and marketable assets divided by net deposits and short-term
liabilities) was 22.67%, as compared to 28.48% at March 31, 1998. The Bank
maintains two lines of credit to borrow fed funds that total $4,300,000 in order
to enhance liquidity. At March 31, 1999, 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 credit available from the Federal Home Loan Bank fluctuates based
on criteria set by that institution. As of March 31, 1999, the Bank had
$5,500,000 in borrowings outstanding under this facility, and approximately
$200,000 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 March 31, 1999, the
Company had no borrowed funds 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
Page 11 of 15
<PAGE>
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 are reviewed by a committee consisting of management and
operations and technical staff. A committee of the Board of Directors reviews
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 include evaluation of systems,
prioritization of necessary updates or replacements, responsibility assignments,
and establishment of a timeline for review, implementation, and testing. The
plan includes 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.
Management believes that, to date, the goals of the plan have been met, and the
testing phase is in process. 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 will equip
them to respond to customer inquiries about the Bank's Year 2000 readiness. 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. Management estimates that,
in 1999, an additional $13,000 will be capitalized, and $35,500 will be 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 are being 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 intends to test contingency
planning during the second quarter of 1999. The Year 2000 risks arising from
relationships with borrowers and depositors are under review by management.
Appropriate risk
Page 12 of 15
<PAGE>
controls are being put in place to manage and mitigate Year 2000 customer risks,
and contingency plans are being 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.
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 13 of 15
<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
-------------------------
Not applicable
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
----------------------------
No reports on Form 8-K were filed during the period ended March 31, 1999.
Page 14 of 15
<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: May 5, 1999 /s/ Ronnie L. Austin
--------------------
Ronnie L. Austin, President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: May 5, 1999 /s/ Angel J. Byrd
-----------------
Angel J. Byrd
(Principal Accounting Officer)
Page 15 of 15
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