<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
-
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 2,391,076 shares of Common
Stock outstanding as of August 3, 2000.
Transitional Small Business Disclosure Format (check one): Yes ; No X
____ ---
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
Number Number
------ ------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
1. Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999 (audited)................................................... 1
2. Consolidated Statements of Earnings for the three months
ended June 30, 2000 and June 30, 1999, and the six months
ended June 30, 2000 and June 30, 1999 (unaudited)................................. 2
3. Consolidated Statements of Comprehensive Income for the three months
ended June 30, 2000 and June 30, 1999, and the six months
ended June 30, 2000 and June 30, 1999 (unaudited)................................. 3
4. Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and June 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................................................... 15
Signatures........................................................................ 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
Assets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks 5,673,557 4,206,134
Federal funds sold and securities purchased under resell agreements 1,290,000 4,590,000
--------------- --------------
Cash and cash equivalents 6,963,557 8,796,134
U. S. Treasury and other U. S. Government agency securities 18,912,697 18,486,660
available for sale
State, county, and municipal securities available for sale 7,770,802 7,625,091
Other investments 1,884,494 1,114,671
Loans 102,597,873 89,613,648
Less: Allowance for loan losses (1,561,931) (1,356,649)
--------------- --------------
Loans, net 101,035,942 88,256,999
Premises and equipment 4,573,241 3,994,220
Accrued interest receivable 1,366,542 1,088,490
Other real estate and repossessions 0 191,986
Other assets 3,971,444 2,188,543
--------------- --------------
146,478,719 131,742,794
=============== ==============
Liabilities and Stockholders' Equity
Deposits:
Demand 15,199,959 13,604,854
Interest-bearing demand 21,266,708 18,832,836
Savings 13,332,082 14,906,486
Time 41,645,450 36,983,824
Time, in excess of $100,000 21,611,909 20,084,264
--------------- --------------
Total deposits 113,056,108 104,412,264
Securities sold under repurchase agreements 5,266,843 4,880,864
Accrued interest payable 1,038,243 1,056,261
Accrued expenses and other liabilities 390,308 340,001
Federal Home Loan Bank advances and notes payable 11,890,000 6,290,000
--------------- --------------
Total liabilities 131,641,502 116,979,390
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 5,310,426 5,136,852
Accumulated other comprehensive income (285,656) (184,800)
--------------- --------------
Total stockholders' equity 14,837,217 14,763,404
--------------- --------------
146,478,719 131,742,794
=============== ==============
</TABLE>
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 16
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,744,847 $2,120,926 $5,300,129 $4,112,711
Interest on federal funds sold 37,143 60,665 49,600 87,873
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 324,374 190,579 619,133 399,440
Other 116,712 122,188 226,040 224,239
---------- ---------- ---------- ----------
Total interest income 3,223,076 2,494,358 6,194,902 4,824,263
Interest expense:
Interest on deposits
Demand 111,978 97,852 207,274 194,350
Savings 82,560 85,820 170,697 173,384
Time 604,526 325,111 1,143,268 638,440
Time, in excess of $100,000 332,289 243,396 632,002 477,234
Interest expense - other 221,099 85,216 423,194 161,256
---------- ---------- ---------- ----------
Total interest expense 1,352,452 837,395 2,576,435 1,644,664
---------- ---------- ---------- ----------
Net interest income 1,870,624 1,656,963 3,618,467 3,179,599
Provision for loan losses 159,101 131,550 333,566 301,059
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,711,523 1,525,413 3,284,901 2,878,540
---------- ---------- ---------- ----------
Other income:
Service charges and fees 228,861 246,154 454,826 489,133
Insurance commissions 142,207 79,195 272,105 160,781
Gain on sales of investment securities 154,814 0 154,814 0
Appraisal fees 35,240 45,025 71,253 100,572
Mortgage banking income 58,820 31,005 106,867 58,765
Equity in earnings of CashTrans (28,194) 12,364 (42,802) 9,110
Miscellaneous 64,577 44,700 144,923 77,750
---------- ---------- ---------- ----------
Total other income 656,325 458,443 1,161,986 896,111
Other expenses:
Salaries and employee benefits 1,148,763 865,157 2,335,701 1,647,180
Occupancy 286,519 250,546 611,087 451,395
Other operating 505,073 476,154 1,036,068 930,146
---------- ---------- ---------- ----------
Total other expenses 1,940,355 1,591,857 3,982,856 3,028,721
---------- ---------- ---------- ----------
Earnings before income taxes 427,493 391,999 464,031 745,930
Income taxes 112,615 107,434 99,170 199,853
---------- ---------- ---------- ----------
Net earnings $ 314,878 $ 284,565 $ 364,861 $ 546,077
========== ========== ========== ==========
Net earnings per common share $0.13 $0.12 $0.15 $0.24
========== ========== ========== ==========
Net earnings per common share - assuming dilution $0.13 $0.12 $0.15 $0.23
========== ========== ========== ==========
Dividends per common share $0.04 $0.00 $0.04 $0.12
========== ========== ========== ==========
See accompanying notes to consolidated financial statements. Page 2 of 16
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
-----------------------------------------------------
Net Earnings $314,878 $ 284,565 $ 364,861 $ 546,077
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities available for sale 21,051 (415,822) (162,567) (649,979)
Income tax effect on gain (loss) 7,991 (157,846) (61,710) (246,732)
-----------------------------------------------------
Unrealized gain (loss) arising during the year, net of tax 13,060 (257,976) (100,857) (403,247)
Other comprehensive income 13,060 (257,976) (100,857) (403,247)
-----------------------------------------------------
Comprehensive income $327,938 $ 26,589 $ 264,004 $ 142,830
=====================================================
See Notes to Consolidated Financial Statements.
Page 3 of 16
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ended
June 30, June 30,
2000 1999
------------ ------------
Cash flows from operating activities:
Net earnings $ 364,861 $ 546,077
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization, and accretion 309,363 246,360
Provision for loan losses 333,566 301,059
Equity in loss (gain) of unconsolidated subsidiary 42,802 (9,110)
Net 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 (18,505) 6,039
Net change in:
Interest receivable (278,052) 66,093
Interest payable (18,018) (100,349)
Other assets (208,770) (697,701)
Cash surrender value of life insurance (48,050) 0
Accrued expenses and other liabilities (45,336) 6,967
------------ ------------
Net cash provided (used) by operating activities 286,680 362,685
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 5,750,000 1,728,261
Proceeds from sales, calls, and paydowns
of securities available for sale 274,537 1,481,461
Purchase of securities available for sale (6,734,668) (4,632,117)
Purchase of other investments (1,010,500) 0
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 167,843 0
Net increase in loans (13,225,872) (10,443,307)
Purchase of premises and equipment (869,971) (854,120)
Proceeds from sale of other real estate 184,353 45,500
Proceeds from sale of fixed asset 64,256 8,800
------------ ------------
Net cash used in investing activities (16,654,532) (12,360,622)
------------ ------------
Cash flows from financing activities:
Net change in demand and savings deposits 2,454,573 4,829,108
Net change in time deposits 6,189,271 3,836,118
Net change in securities sold under repurchase agreements 385,979 1,920,850
Net change in federal funds purchased 0 470,000
Net proceeds from Federal Home Loan Bank advances 5,000,000 0
Net proceeds from notes payable 600,000 245,000
Cash dividends paid (95,643) (287,070)
Net proceeds from issuance of common stock 0 694,110
Proceeds from exercise of stock options 1,095 1,576
------------ ------------
Net cash provided (used) by financing activities 14,535,275 11,709,692
------------ ------------
Net change in cash and cash equivalents (1,832,577) (288,245)
Cash and cash equivalents at beginning of period 8,796,134 7,568,071
------------ ------------
Cash and cash equivalents at end of period $ 6,963,557 $ 7,279,826
============ ============
See accompanying notes to consolidated financial statements.
Page 4 of 16
</TABLE>
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Consolidated Statement of Cash Flows, continued
(Unaudited)
Six months ended
June 30, June 30,
2000 1999
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 2,594,453 1,745,013
Income taxes 27,500 190,000
Noncash investing and financing activities:
Change in dividends payable (95,643) 0
Change in other comprehensive income, net of tax (100,856) (403,247)
See accompanying notes to consolidated financial statements.
Page 5 of 16
<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 June 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 16
<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 June 30, 2000 and June 30, 1999, and the six months ended June 30, 2000
and June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended June 30, 2000 (Numerator) (Denominator) Amount
-------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings per share $ 314,878 2,391,076 $ .13
=======
Effect of dilutive securities:
Stock options - 86,867
------------ ----------
Net earnings per share - assuming dilution $ 314,878 2,477,943 $ .13
=========== ========= =======
<CAPTION>
Net Earnings Common Shares Per Share
For the three months ended June 30, 1999 (Numerator) (Denominator) Amount
-------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings per share $ 284,565 2,322,580 $ .12
=======
Effect of dilutive securities:
Stock options - 94,064
----------- ---------
Net earnings per share - assuming dilution $ 284,565 2,416,644 $ .12
=========== ========= =======
<CAPTION>
Net Earnings Common Shares Per Share
For the six months ended June 30, 2000 (Numerator) (Denominator) Amount
-------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings per share $ 364,861 2,390,712 $ .15
=======
Effect of dilutive securities:
Stock options - 90,296
----------- ---------
Net earnings per share - assuming dilution $ 364,861 2,481,008 $ .15
=========== ========= =======
<CAPTION>
Net Earnings Common Shares Per Share
For the six months ended June 30, 1999 (Numerator) (Denominator) Amount
-------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings per share $ 546,077 2,309,546 $ .24
=======
Effect of dilutive securities:
Stock options - 91,350
----------- ---------
Net earnings per share - assuming dilution $ 546,077 2,400,896 $ .23
=========== ========= =======
</TABLE>
Page 7 of 16
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the Six Month Period Ended June 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 June 30, 2000, the Company had consolidated total assets of $146,478,719 as
compared to $131,742,794 at December 31, 1999. Stockholders' equity increased
approximately .50% to $14,837,217 or $6.21 per share at June 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 $264,004. For the six months ended June 30,
2000, the Company's comprehensive income consisted of $364,861 in net earnings
and a $100,857 loss 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 $95,643 which were paid on
April 7, 2000, and a dividend payment of $95,643 which was declared by the
Company on June 20, 2000 to be paid on July 14, 2000. The Company's net interest
income increased 13.80% to $3,618,467 for the period ended June 30, 2000, as
compared to $3,179,599 for the period ended June 30, 1999. The Company's net
earnings decreased 33.19% from $546,077 for the six months ended June 30, 1999
to $364,861 for the six months ended June 30, 2000, while its basic earnings per
share (based on the weighted average number of shares outstanding during the
year) decreased from $0.24 to $0.15. This decrease in earnings as compared to
the growth in net interest income was attributable primarily to a 31.50%
increase in noninterest expense that resulted largely from an increase of
$571,000 in the Bank's non-interest expenses which is primarily related to
salary expenses incurred due to the growth in locations and assets of the Bank.
Additionally, an increase of $379,050 in noninterest expenses of CLC was due to
the addition of seven offices in 1999. Management is actively seeking
opportunities to decrease these overhead expenses while increasing sources of
noninterest income in order to increase net earnings of the Company.
Gross loans during the first six months of 2000 increased $12,984,225 or 14.49%
over the total gross loans at December 31, 1999, as compared to an increase of
$10,357,478, or 13.91%, for the
Page 8 of 16
<PAGE>
same six month period ended June 30, 1999. Management believes that the increase
in loan growth for 2000 as compared to the same period in 1999 was due primarily
to an increase in the Bank's lending personnel, and to the Bank's continued
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 and another branch in January 2000. The Bank has experienced success in
penetrating the Cobb market, attracting new borrowers who often bring full-
service relationships with their business. Management anticipates continued loan
growth at the Bank for the remainder of 2000 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 six months of 2000, CLC sold assets related to its consumer
finance office in Griffin, Georgia, because Griffin is located outside CLC's
target geographic market area. These assets primarily consisted of $113,363 in
loans. CLC presently operates from ten relatively small offices. Consequently,
its gross loans, totaling approximately $4,170,910 at June 30, 2000, or 4.07% 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 six months of 2000 was funded
primarily through an increase in deposits. Total deposits during the first six
months of 2000 increased approximately $8,643,844 or 8.28%, to $113,056,108 at
June 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 $297,000 in
these time deposits during the quarter ended June 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 six 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.
Page 9 of 16
<PAGE>
The Company holds $26,683,499, or 18.22% 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 $285,656 as of June 30, 2000, as compared to an
unrealized loss, net of tax, of $184,800 as of December 31, 1999, which created
a net loss of $100,857 in other comprehensive income for the six months ended
June 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 13.80% to $3,618,467
for the period ended June 30, 2000, as compared to $3,179,599 for the period
ended June 30, 1999. Interest income for the first six months of 2000 was
$6,194,902, representing an increase of $1,370,639, or 28.41%, over the same
period in 1999. This increase in interest income occurred primarily due to a
$24,120,896, or 23.47%, increase in average earning assets for the six months
ended June 30, 2000 as compared to the same period in 1999. Interest expense for
the first six months of 2000 increased $931,771, or 56.65% as compared to the
same period in 1999. This increase in interest expense occurred primarily due to
a $28,268,279, or 34.86%, increase in average interest-bearing deposits and
other interest-bearing liabilities for the six months ended June 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 June 30, 2000 were $126,911,571, having a
weighted average yield of 9.79%, resulting in a net interest margin of 5.72%.
This compares to average earning assets for the period ended June 30, 1999 of
$102,790,675, having a weighted average yield of 9.46%, resulting in a net
interest margin of 6.24%. The decrease in net interest margin is attributable
primarily to an increase in the Company's cost of funds from 4.09% in 1999 to
4.72% 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
Page 10 of 16
<PAGE>
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
$915,701, or 0.63% of the Company's total assets as of June 30, 2000, as
compared to $2,112,893, or 1.77% of the Company's total assets as of June 30,
1999. The decrease in non-performing assets from 1999 to 2000 was attributable
primarily to a decrease in the Bank's non-performing assets. At June 30, 1999,
the Bank had six loans to one borrower totaling $985,147 on non-accrual status,
which were subsequently collected with no loss to the Bank other than collection
costs. The Bank had two restructured loans totaling $102,054 as of June 30,
2000, as compared to two loans totaling $105,119 as of June 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 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
$333,566 for the period ended June 30, 2000, as compared to $301,059 for the
period ended June 30, 1999. The Company's loan loss allowance was $1,561,931, or
1.52% of outstanding loans, as of June 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 June 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 $265,875, or 29.67%, during the first six 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 $111,324 in insurance commissions
collected which is primarily due to the growth of CLC's customer base, and (iii)
an increase of $67,173 in miscellaneous income primarily due to 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 $954,135, or 31.50%, during the
first six 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
$688,521, or 41.80%, for the period ended June 30, 2000, as compared to the same
period in 1999. Occupancy expense increased by approximately $159,692, or
35.38%, for the period ended June 30, 2000, as compared to the same period in
1999, primarily due to increases in
Page 11 of 16
<PAGE>
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. Other operating
expense increased by approximately $105,922, or 11.39%, for the period ended
June 30, 2000, as compared to the same period in 1999, primarily due to general
cost increases and the asset growth experienced by the Company. Management
continues to seek opportunities to reduce expenses related to salaries and
benefits and occupancy in order to improve net earnings of the Company
throughout the remainder of fiscal year 2000.
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 June 30, 2000, was 10.69%, and its ratio of Tier 1 capital to risk
weighted assets was 9.55%. Under applicable federal regulations and
interpretations thereof, the Company's ratio of total capital to risk weighted
assets at June 30, 2000, was 13.86%, and its ratio of Tier 1 capital to risk
weighted assets was 12.60%. 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 7.52% as of June 30, 2000. The
Company also exceeds its Tier 1 leverage ratio requirement with a Tier 1
leverage ratio of 9.98% as of June 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.
Page 12 of 16
<PAGE>
The Bank maintains two lines of credit to borrow fed funds that total $5,300,000
in order to enhance liquidity. At June 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 June 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
June 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
June 30, 2000, the Company had $400,000 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 June 30, 2000, CLC had $990,000
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 June 30, 2000, 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 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.
Page 13 of 16
<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
-----------------------------------------------------------
The Company held its Annual Meeting of stockholders on April 18, 2000.
Shares voted totaled 1,195,670, or 50.01% of the outstanding shares.
Set forth below is a brief description of the matters voted upon at the
Annual Meeting:
Proposal 1: Proposal to elect three Directors for terms ending
in 2003.
Proposal 2: Proposal to ratify the appointment of Porter,
Keadle, Moore, LLP as independent accountants of the Company
for the fiscal year ending December 31, 2000.
Votes Cast Votes Cast Votes
For Against Withheld Abstentions
---------- ---------- -------- -----------
Proposal 1:
-----------
Directors
---------
Ronnie L. Austin 1,195,370 0 300 0
R. Alan Bullock 1,195,570 0 100 0
Bobbie P. Cooper 1,195,370 0 300 0
Proposal 2: 1,195,470 0 0 200
-----------
Item 5. Other Information
-------------------------
Not applicable
Page 14 of 16
<PAGE>
Item 6.a Exhibits
-----------------
Exhibit
Number Description
------- -----------
10.23 Operating Agreement dated May 16, 1997 between the Company and JRH
Diversified, Inc.
10.24 Employment Agreement dated January 3, 2000 between the Bank and
Angel J. Byrd
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
----------------------------
The Company filed one report on Form 8-K with the Commission during the quarter
ended June 30, 2000 concerning the board's declaration on June 20, 2000 of a
cash dividend of four cents per share. The dividend was paid on July 14, 2000 to
shareholders of record on July 3, 2000.
Page 15 of 16
<PAGE>
COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Trust Financial Services Corporation
(Registrant)
DATE: August 10, 2000 /s/Ronnie L. Austin
--------------------------------
Ronnie L. Austin, President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 10, 2000 /s/Angel J. Byrd
--------------------------------
Angel J. Byrd
(Principal Accounting Officer)
Page 16 of 16
