<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, 2000
[ ] 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.)
342 Marietta Highway, Suite 110, Hiram, Georgia 30141
(Address of principal executive offices)
(678) 363-3828
(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 2,394,706 shares of
Common Stock outstanding as of November 3, 2000.
Transitional Small Business Disclosure Format (check one): Yes ; No X
---- -----
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
Number Number
------ ------
<S> <C> <C>
Part I - Financial Information
Item 1. Financial Statements
1. Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999 (audited)..................................... 1
2. Consolidated Statements of Earnings for the three months
ended September 30, 2000 and September 30, 1999, and the nine months
ended September 30, 2000 and September 30, 1999 (unaudited)......... 2
3. Consolidated Statements of Comprehensive Income for the three months
ended September 30, 2000 and September 30, 1999, and the nine months
ended September 30, 2000 and September 30, 1999 (unaudited)......... 3
4. Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and September 30, 1999 (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>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
Assets
September 30, December 31,
2000 1999
--------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks 4,719,107 4,206,134
Federal funds sold and securities purchased under resell agreements 3,140,000 4,590,000
----------- -----------
Cash and cash equivalents 7,859,107 8,796,134
U.S. Treasury and other U. S. Government agency securities 19,237,886 18,486,660
available for sale
State, county, and municipal securities available for sale 8,238,855 7,625,091
Other investments 1,884,494 1,114,671
Loans 102,159,791 89,613,648
Less: Allowance for loan losses (1,572,777) (1,356,649)
----------- -----------
Loans, net 100,587,014 88,256,999
Premises and equipment 5,018,661 3,994,220
Accrued interest receivable 1,449,363 1,088,490
Other real estate and repossessions 11,519 191,986
Other assets 3,706,328 2,188,543
----------- -----------
147,993,227 131,742,794
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
Demand 14,991,224 13,604,854
Interest-bearing demand 21,796,333 18,832,836
Savings 12,598,255 14,906,486
Time 41,781,332 36,983,824
Time, in excess of $100,000 22,662,051 20,084,264
----------- -----------
Total deposits 113,829,195 104,412,264
Securities sold under repurchase agreements 5,189,700 4,880,864
Accrued interest payable 1,213,177 1,056,261
Accrued expenses and other liabilities 331,071 340,001
Federal Home Loan Bank advances and notes payable 12,080,922 6,290,000
----------- -----------
Total liabilities 132,644,065 116,979,390
Stockholders' equity:
Common stock, $2.50 par value; 10,000,000 shares 5,977,690 5,958,875
authorized; 2,391,076 and 2,383,550 issued and outstanding
Additional paid-in capital 3,834,757 3,852,477
Retained earnings 5,662,368 5,136,852
Accumulated other comprehensive income (125,653) (184,800)
----------- -----------
Total stockholders' equity 15,349,162 14,763,404
----------- -----------
147,993,227 131,742,794
=========== ===========
The consolidated balance sheet at December 31, 1999 has been taken from the audited financial statements.
See accompanying notes to consolidated financial statements.
Page 1 of 15
</TABLE>
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COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,825,868 $2,445,023 $8,125,997 $6,557,734
Interest on federal funds sold 99,118 24,335 148,718 112,208
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 321,280 227,551 940,413 626,991
Other 142,077 97,890 368,117 322,129
---------- ---------- ---------- ----------
Total interest income 3,388,343 2,794,799 9,583,245 7,619,062
Interest expense:
Interest on deposits
Demand 119,960 101,090 327,234 295,440
Savings 82,721 82,600 253,418 255,984
Time 637,068 365,675 1,780,336 1,004,115
Time, in excess of $100,000 367,700 278,119 999,702 755,353
Interest expense - other 254,452 122,711 677,646 283,967
---------- ---------- ---------- ----------
Total interest expense 1,461,901 950,195 4,038,336 2,594,859
---------- ---------- ---------- ----------
Net interest income 1,926,442 1,844,604 5,544,909 5,024,203
Provision for loan losses 112,258 252,852 445,824 553,911
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,814,184 1,591,752 5,099,085 4,470,292
---------- ---------- ---------- ----------
Other income:
Service charges and fees 257,076 258,614 711,902 747,747
Insurance commissions 138,694 100,225 410,799 261,006
Gain (loss) on sales of investment securities 0 0 154,814 0
Appraisal fees 34,495 41,800 105,748 142,372
Mortgage banking income 75,128 48,495 181,995 107,260
Equity in earnings of CashTrans (47,260) (16,178) (90,062) (7,068)
Miscellaneous 133,077 37,625 278,000 115,375
---------- ---------- ---------- ----------
Total other income 591,210 470,581 1,753,196 1,366,692
Other expenses:
Salaries and employee benefits 1,098,187 1,017,754 3,433,888 2,664,934
Occupancy 351,172 281,625 962,259 733,020
Other operating 467,759 576,801 1,503,827 1,506,947
---------- ---------- ---------- ----------
Total other expenses 1,917,118 1,876,180 5,899,974 4,904,901
---------- ---------- ---------- ----------
Earnings before income taxes 488,276 186,153 952,307 932,083
Income taxes 136,335 78,733 235,505 278,586
---------- ---------- ---------- ----------
Net earnings $ 351,941 $ 107,420 $ 716,802 $ 653,497
========== ========== ========== ==========
Net earnings per common share $0.15 $0.04 $0.30 $0.28
========== ========== ========== ==========
Net earnings per common share - assuming dilution $0.14 $0.04 $0.29 $0.27
========== ========== ========== ==========
Dividends per common share $0.04 $0.00 $0.08 $0.12
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
Page 2 of 15
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Earnings $351,941 $ 107,420 $716,802 $ 653,497
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities available for sale 257,904 (119,419) 95,337 (769,398)
Income tax effect on gain (loss) 97,900 (45,331) 36,190 (292,063)
--------- --------- -------- ---------
Unrealized gain (loss) arising during the year, net of tax 160,004 (74,088) 59,147 (477,335)
Less: Reclassification adjustment for gain (loss)
included in net earnings 0 0 0 0
Income tax effect on reclassification adjustments 0 0 0 0
--------- ---------- --------- ----------
Reclassification adjustment for gain (loss)
included in net earnings, net of tax 0 0 0 0
Other comprehensive income 160,004 (74,088) 59,147 (477,335)
--------- ----------- --------- ----------
Comprehensive income $511,945 $ 33,332 $775,949 $ 176,162
========= ========== ========= ==========
See Notes to Consolidated Financial Statements.
Page 3 of 15
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
Net loss (gain) on sale of other September 30, September 30,
investments 2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 716,802 $ 653,497
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization, and accretion 495,774 406,785
Provision for loan losses 445,824 553,911
Equity in loss (gain) of unconsolidated subsidiary 90,063 7,068
Net loss (gain) on sale of other investments (154,814) 0
Net loss (gain) on sale of other real estate 7,633 (2,750)
Net loss (gain) on sale of fixed asset (18,705) 6,202
Net loss (gain) on sale of loan receivables (63,365) 0
Net change in:
Interest receivable (360,873) (37,276)
Interest payable 156,916 (76,048)
Other assets (217,792) (698,306)
Cash surrender value of life insurance (75,557) 0
Accrued expenses and other liabilities (8,930) 72,842
------------ ------------
Net cash provided (used) by operating activities 1,012,976 885,925
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 5,905,000 2,873,261
Proceeds from sales, calls, and paydowns
of securities available for sale 560,087 1,736,634
Purchase of securities available for sale (7,704,758) (5,632,117)
Purchase of other investments (1,010,500) (500,171)
Proceeds from sales of other investments 395,490 304,900
Purchase of cash value life insurance (1,650,000) 0
Proceeds from sale of assets 551,444 0
Net increase in loans (13,112,139) (17,270,180)
Purchase of premises and equipment (1,462,733) (1,019,667)
Proceeds from sale of other real estate 184,353 45,500
Proceeds from sale of fixed asset 67,255 9,000
------------ ------------
Net cash used in investing activities (17,276,501) (19,452,840)
------------ ------------
Cash flows from financing activities:
Net change in demand and savings deposits 2,041,636 (1,745,656)
Net change in time deposits 7,375,295 13,779,798
Net change in securities sold under repurchase agreements 308,836 4,104,132
Net proceeds from Federal Home Loan Bank advances 5,000,000 0
Net proceeds from notes payable 790,922 255,000
Cash dividends paid (191,286) (287,070)
Net proceeds from issuance of common stock 0 694,110
Proceeds from exercise of stock options 1,095 7,092
------------ ------------
Net cash provided (used) by financing activities 15,326,498 16,807,406
------------ ------------
Net change in cash and cash equivalents (937,027) (1,759,509)
Cash and cash equivalents at beginning of period 8,796,134 7,568,071
------------ ------------
Cash and cash equivalents at end of period $ 7,859,107 $ 5,808,562
============ ============
See accompanying notes to consolidated financial statements.
Page 4 of 15
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statement of Cash Flows, continued
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 3,881,420 2,670,907
Income taxes 197,500 325,000
Noncash investing and financing activities:
Transfers of loans to other real estate 0 155,097
Change in other comprehensive income, net of tax 59,147 (477,335)
See accompanying notes to consolidated financial statements.
Page 5 of 15
</TABLE>
<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, Cash Transactions, LLC (CashTrans) 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
Trans 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, 2000 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, 2000, 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
<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, 2000 and September 30, 1999, and the nine months ended
September 30, 2000 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended September 30, 2000 (Numerator) (Denominator) Amount
----------------------------------------------- -------------- ------------- ------
<S> <C> <C> <C>
Net earnings per share $351,941 2,391,076 $.15
====
Effect of dilutive securities:
Stock options - 86,867
-------- ---------
Net earnings per share - assuming dilution $351,941 2,477,943 $.14
======== ========= ====
Net Earnings Common Shares Per Share
For the three months ended September 30, 1999 (Numerator) (Denominator) Amount
----------------------------------------------- ------------- ------------- ---------
Net earnings per share $107,420 2,378,780 $.04
====
Effect of dilutive securities:
Stock options - 100,776
-------- ---------
Net earnings per share - assuming dilution $107,420 2,479,556 $.04
======== ========= ====
Net Earnings Common Shares Per Share
For the nine months ended September 30, 2000 (Numerator) (Denominator) Amount
----------------------------------------------- ------------- ------------- ----------
Net earnings per share $716,802 2,390,834 $.30
====
Effect of dilutive securities:
Stock options - 89,145
--------- ---------
Net earnings per share - assuming dilution $716,802 2,479,979 $.29
========= ========= ====
Net Earnings Common Shares Per Share
For the nine months ended September 30, 1999 (Numerator) (Denominator) Amount
----------------------------------------------- ------------- ------------ ---------
Net earnings per share $653,497 2,332,878 $.28
====
Effect of dilutive securities:
Stock options - 94,526
--------- ---------
Net earnings per share - assuming dilution $653,497 2,427,404 $.27
========= ========= ====
</TABLE>
Page 7 of 15
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the Nine Month Period Ended September 30, 2000
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
-------------------
At September 30, 2000, the Company had consolidated total assets of $147,993,227
as compared to $131,742,794 at December 31, 1999. Stockholders' equity
increased approximately 3.97% to $15,349,162 or $6.42 per share at September 30,
2000, as compared to stockholders' equity of $14,763,404 or $6.19 per share at
December 31, 1999. Stockholders' equity increased in 2000 primarily as a result
of the Company's comprehensive income of $775,949. For the nine months ended
September 30, 2000, the Company's comprehensive income consisted of $716,802 in
net earnings and $59,147 in other comprehensive income, which is composed of
changes in the unrealized gain or loss on securities available for sale, net of
tax. Also affecting stockholders' equity were dividends of $191,286 which were
paid during the nine months ended September 30, 2000. The Company's net
interest income increased 10.36% to $5,544,909 for the period ended September
30, 2000, as compared to $5,024,203 for the period ended September 30, 1999.
The Company's net earnings increased 9.69% from $653,497 for the nine months
ended September 30, 1999 to $716,802 for the nine months ended September 30,
2000, while its basic earnings per share (based on the weighted average number
of shares outstanding during the year) increased from $0.28 to $0.30.
Gross loans during the first nine months of 2000 increased $12,546,143 or 14.00%
over the total gross loans at December 31, 1999, as compared to an increase of
$16,941,709, or 22.76%, for the same nine month period ended September 30, 1999.
While management believes that the Bank has experienced satisfactory loan growth
this year, the significant loan growth in 1999 was attributable to the expansion
of the Bank and CLC into new markets. 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 and another branch in
January 2000. Management anticipates continued loan growth at the Bank for the
remainder of 2000, and continues to strive
Page 8 of 15
<PAGE>
for increased loan volume while meeting the criteria set by its loan policy.
During the first nine months of 2000, CLC sold assets related to three consumer
finance offices due to geographic considerations. The first office sold was in
Griffin, Georgia, which is located outside CLC's target geographic market area.
During the third quarter, two offices were sold in the cities of Cartersville
and Oakwood, Georgia, as both offices were located in close proximity to other
offices of CLC. The assets sold with these offices primarily consisted of
$351,292 in loans. CLC presently operates from eight relatively small offices.
Consequently, its gross loans, totaling approximately $4,025,298 at September
30, 2000, or 3.94% 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.
The Bank's increase in gross loans for the first nine months of 2000 was funded
primarily through an increase in deposits. Total deposits during the first nine
months of 2000 increased approximately $9,416,931 or 9.02%, to $113,829,195 at
September 30, 2000 as compared to $104,412,264 at December 31, 1999. 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, selling $695,000
in these time deposits during the quarter ended September 30, 2000. Management
is monitoring core deposits and customer relationships in an effort to maintain
overall deposit growth. The Bank also borrowed $5,000,000 from the Federal Home
Loan Bank during the first nine months of 2000, which is collateralized by
securities held in the Bank's investment portfolio. Management has chosen to
employ this investment growth strategy in order to maximize the Bank's earnings
opportunities over the next five years, while maintaining a conservative risk
position.
The Company holds $27,476,741, or 18.57% of its total assets, in securities
consisting of bonds issued by the U. S. Treasury, U. S. Government agencies,
corporations, 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
Page 9 of 15
<PAGE>
sheet. Unrealized loss on securities, net of tax, was $125,653 as of September
30, 2000, as compared to an unrealized loss, net of tax, of $184,800 as of
December 31, 1999, which created a net gain of $59,147 in other comprehensive
income for the nine months ended September 30, 2000. 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.
Results of Operations
---------------------
Net Interest Income
The Company's net interest income increased approximately 10.36% to $5,544,909
for the period ended September 30, 2000, as compared to $5,024,203 for the
period ended September 30, 1999. Interest income for the first nine months of
2000 was $9,583,245, representing an increase of $1,964,183, or 25.78%, over the
same period in 1999. This increase in interest income occurred primarily due
to a $23,859,040, or 22.53%, increase in average earning assets for the nine
months ended September 30, 2000 as compared to the same period in 1999.
Interest expense for the first nine months of 2000 increased $1,443,477, or
55.63% as compared to the same period in 1999. This increase in interest
expense occurred primarily due to a $27,425,544, or 32.54%, increase in average
interest-bearing deposits and other interest-bearing liabilities for the nine
months ended September 30, 2000 as compared to the same period in 1999.
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, 2000 were $129,779,644, having
a weighted average yield of 9.84%, resulting in a net interest margin of 5.69%.
This compares to average earning assets for the period ended September 30, 1999
of $105,920,604, having a weighted average yield of 9.62%, resulting in a net
interest margin of 6.34%. The decrease in net interest margin is attributable
primarily to an increase in the Company's cost of funds from 4.12% in 1999 to
4.82% in 2000.
Provision for Loan Losses
The Company loses 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. Management considers the Company's level of non-
performing assets to be at an acceptable level. The Company's non-performing
assets totaled approximately $994,902, or 0.67% of the Company's total assets as
of September 30, 2000, as compared to $1,246,471, or 1.00% of the Company's
total assets as of September 30, 1999. The Bank had two restructured loans
totaling $101,630 as of September 30, 2000, as compared to two loans totaling
$103,701 as of September 30, 1999. 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
Page 10 of 15
<PAGE>
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 $445,824 for the period ended September 30, 2000, as compared to $553,911
for the period ended September 30, 1999. The Company's loan loss allowance was
$1,572,777, or 1.54% of outstanding loans, as of September 30, 2000. 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, 2000.
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 $386,504, or 28.28%, during the first nine
months of 2000 as compared to the same period in 1999. The increase in non-
interest income resulted primarily from (i) a gain on the sale of stock held in
Bankers' Bank of $154,814, and (ii) an increase of $149,793 in insurance
commissions collected which is primarily due to the growth of CLC's customer
base, and (iii) an increase of $162,625 in miscellaneous income primarily due to
gains on the sales of three CLC offices, a gain recognized on the Bank's sale of
certain fixed assets, and net increases in the cash surrender value of life
insurance.
Non-interest Expense
Non-interest expenses, consisting of salaries and employee benefits, occupancy
and other miscellaneous expenses, increased $995,073, or 20.29%, during the
first nine months of 2000 as compared to the same period in 1999. 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
$768,954, or 28.85%, for the period ended September 30, 2000, as compared to the
same period in 1999. Occupancy expense increased by approximately $229,239, or
31.27%, for the period ended September 30, 2000, as compared to the same period
in 1999, primarily due to increases in expenses associated with the Bank's
addition of a full service branch in Cobb County, and to CLC's addition of five
offices in June 1999.
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,
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<PAGE>
2000, was 10.87%, and its ratio of Tier 1 capital to risk weighted assets was
9.73%. Under applicable federal regulations and interpretations thereof, the
Company's ratio of total capital to risk weighted assets at September 30, 2000,
was 13.99%, and its ratio of Tier 1 capital to risk weighted assets was 12.74%.
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 exceeds its Tier 1 leverage ratio requirement with
a Tier 1 leverage ratio of 7.64% as of September 30, 2000. The Company also
exceeds its Tier 1 leverage ratio requirement with a Tier 1 leverage ratio of
10.07% as of September 30, 2000. 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, 2000, 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 concerning the Bank's
portfolio of loans secured by housing for one to four families. As of September
30, 2000, the Bank had $5,500,000 in borrowings outstanding under this facility,
and no additional borrowings are available based on the Bank's loan portfolio.
At September 30, 2000, the Bank had also borrowed $5,000,000 from the Federal
Home Loan Bank, which is collateralized by securities held in the Bank's
investment portfolio. Management has chosen to employ this investment growth
strategy in order to maximize the Bank's earnings opportunities over the next
five years, while maintaining a conservative risk position.
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, 2000, the
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<PAGE>
Company had $875,000 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, 2000, CLC had $705,922 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, 2000, CashTrans had $955,000 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 ten annual installments beginning July 2003. 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, 2002. 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.
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.
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<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
----------------------------
Not applicable
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<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 13, 2000 /s/ Ronnie L. Austin
---------------------------
Ronnie L. Austin, President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 13, 2000 /s/ Angel J. Byrd
------------------------------
Angel J. Byrd, Controller
(Principal Accounting Officer)
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