UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
/ / Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 33-81890
Community Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1415887
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(State or other jurisdiction (I. R. S. Employer
of incorporation or organization) Identification No.)
448 North Main Street, Cornelia, Georgia 30531
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 778-2265
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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 _____.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Not applicable. Registrant is not required to be registered under
the Securities Exchange Act of 1934.
Aggregate market value of the voting stock held by non-affiliates
(which for purposes hereof are all holders other than executive
officers and directors) of the Registrant as of March 20, 1998:
$32,880,195 (based upon approximate market value of $27/share, the
latest sales price known to the Registrant for the Common Stock, for
which there is no established trading market.
As of March 20, 1998, 2,169,830 shares of Common Stock, par value
$1.00 per share, were issued and outstanding.<PAGE>
PART 1
ITEM 1. BUSINESS.
Community Bankshares, Inc. (the "Company") was organized under
the laws of Georgia in 1980 and commenced operations in 1981. The
Company is a registered bank holding company. All of the Company's
activities are currently conducted by or through its subsidiaries,
Community Bank & Trust-Habersham ("Community-Habersham"), Community
Bank & Trust-Alabama ("Community-Alabama"), Community Bank & Trust-
Jackson ("Community-Jackson") and Community Bank & Trust-Troup ("Community
- -Troup") (collectively, the "Community Banking Subsidiaries") and the
non-bank subsidiary of Community-Habersham, Financial Supermarkets, Inc.
("Financial Supermarkets").
All references herein to the Company include Community
Bankshares, Inc., the Community Banking Subsidiaries and Financial
Supermarkets unless the context indicates a different meaning. Unless
otherwise indicated, all information in this filing has been adjusted
for the stock split effected on December 20, 1995, as a Common Stock
dividend and the associated reduction in par value of the Common
Stock.
Forward Looking Statements
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The following appears in accordance with the Securities Litigation
Reform Act. These financial statements and financial review include
forward looking statements that involve inherent risks and uncertainties.
A number of important factors could cause actual results to differ
materially from those in the forward looking statements. Those factors
include fluctuations in interest rates, inflation, government regulations,
economic conditions, and competition in the geographic business areas in
which the Company conducts its operations.
Business Description of Community Banking Subsidiaries
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GENERAL. Each of the Community Banking Subsidiaries is
community-oriented and offers such customary banking services as
consumer and commercial checking accounts, NOW accounts, savings
accounts, certificates of deposit, lines of credit and money
transfers. Each Community Banking Subsidiary finances commercial and
consumer transactions, makes secured and unsecured loans, and provides
a variety of other banking services.
DEPOSITS. Each Community Banking Subsidiary offers a full
range of depository accounts and services to both consumers and
businesses. At December 31, 1997, the Company's aggregate deposit
base, totaling approximately $335.6 million, consisted of
approximately $50.8 million in noninterest-bearing demand deposits
(15.14%) of total deposits), approximately $72.9 million in
interest-bearing demand deposits (including money market accounts)
(21.72% of total deposits), approximately $16.3 million in savings
deposits (4.86%) of total deposits, approximately $139.8 million in
time deposits in amounts less than $100,000 (41.66% of total
deposits), and approximately $55.8 million in time deposits of
$100,000 or more (16.62% of total deposits).
LOANS. Each Community Banking Subsidiary makes both secured
and unsecured loans to individuals, firms and corporations, and both
consumer and commercial lending operations include various types of
credit for customers. In addition, the Company operates a loan
production office in Gainesville, Georgia through Community-Habersham.
The Gainesville loan production office (the "LPO") funds and sells
on the open market loans guaranteed by the Small Business
Administration (the "SBA"). Secured loans include first and second
real estate mortgage loans. Each Community Banking Subsidiary also
makes direct installment loans to consumers on both a secured and
unsecured basis. At December 31, 1997, consumer, real estate
(including mortgage and construction loans) and commercial loans
represented approximately 13.74%, 37.36% and 47.66%, respectively, of
the Company's total loan portfolio. The real estate loans made by
each Community Banking Subsidiary include residential real estate
construction, acquisition and development loans, as well as loans for
other purposes which are secured by real estate.
Commercial lending is directed principally toward businesses
within the defined market area of the Community Banking Subsidiaries
or which are existing or potential deposit customers of the Community
Banking Subsidiaries. The Gainesville loan production office,
however, makes a large portion of loans to individuals and businesses
that are not located in its market area. A portion of loans
categorized as commercial loans are not secured by real estate.
Collateral includes marketable securities, certificates of deposit,
accounts receivable, inventory and equipment. Commercial lending
decisions are based upon a determination of the borrower's ability
and willingness to repay the loan, which in turn are impacted by such
factors as the borrower's cash flow, sales trends and inventory
levels, as well as relevant economic conditions. This category
includes loans made to individuals, partnership or corporate borrowers
and obtained for a variety of purposes. Risks associated with these
loans can be significant. Risks include, but are not limited to,
fraud, bankruptcy, economic downturn, deteriorated or non-existing
collateral, and changes in interest rates.
Loans secured by real estate which are made to businesses are
categorized as real estate loans. Often, real estate collateral is
deemed to be superior to other collateral available to small- to
medium- sized businesses. The underwriting standards of and risks to
the Community Banking Subsidiaries are described below with respect
to real estate loans.
The Community Banking Subsidiaries offer traditional first
mortgage loans to individuals for single-family structures. These
loans are sold in the secondary market. Since the Community Banking
Subsidiaries are originators of mortgages rather than investors, they
sell them servicing-released. They offer loan-to-value amounts from
70% to 95%. Various types of fixed-rate and variable-rate products
are available. Risks involved with residential mortgage lending
include, but are not limited to, title defects, fraud, general real
estate market deterioration, inaccurate appraisals, interest rate
fluctuations and financial deterioration of the borrower.
The Community Banking Subsidiaries also make residential
construction loans, generally for one-to-four unit structures. The
Community Banking Subsidiaries require a first line position on the
loans associated with construction projects and offer these loans only
to bona fide professional building contractors. Loan disbursements
require independent, on-site inspections to assure the project is on
budget and that the loan proceeds are being used in accordance with
the plans, specifications and survey for the construction project and
not being diverted to other uses. The loan-to-value ratio for such
loans is usually 75% to 85% of the as-built appraised value. Loans
for construction can present a high degree of risk to the Community
Banking Subsidiaries, depending on, among other things, whether the
builder can sell the home to a buyer, whether the buyer can obtain
permanent financing, whether the transaction produces income in the
interim, and the nature of changing economic conditions.
Additionally, the Community Banking Subsidiaries make acquisition
and development loans to approved developers for the purpose of
developing acreage into single-family lots on which houses will be
built. The loan-to-value ratio for such loans does not exceed 75% of
the value as defined by an independent appraisal, or 100% of the cost,
whichever is less. Loans for acquisition and development can present
a high degree of risk to the Community Banking Subsidiaries, depending
upon, among other things, whether the developer can find builders to
buy the lots, whether the builders can obtain financing, whether the
transaction produces income in the interim, and the nature of changing
economic conditions.
In addition, the Community Banking Subsidiaries make consumer
loans, consisting primarily of installment loans to individuals for
personal, family and household purposes, including loans for
automobiles, home improvements and investments. Consumer lending
decisions are based on a determination of the borrower's ability and
willingness to repay the loan, which in turn are impacted by such
factors as the borrower's income, job stability, previous credit
history and collateral for the loan. Risks associated with these
loans include, but are not limited to, fraud, deteriorated or
non-existing collateral, a general economic downturn, and consumer
financial problems.
LENDING POLICY. The current lending strategy of each Community
Banking Subsidiary is to offer consumer, real estate and commercial
credit services to individuals and entities that meet the Company's
credit standards. Each Community Banking Subsidiary provides its
lending officers with written guidelines for lending activities.
Lending authority is delegated by the Board of Directors of the
particular Community Banking Subsidiary to loan officers, each of whom
is limited in the amount of secured and unsecured loans which he or
she can make to a single borrower or related group of borrowers.
LOAN REVIEW AND NONPERFORMING ASSETS. Each Community Banking
Subsidiary reviews its loan portfolio to determine deficiencies and
corrective action to be taken, and the Company reviews the loan
portfolio of each Community Banking Subsidiary. Senior lending
officers conduct periodic reviews of borrowers with total direct and
indirect indebtedness of $75,000 or more and ongoing review of all
past due loans. Past due loans are reviewed at least weekly by
lending officers and a summary report is reviewed monthly by the
particular Community Banking Subsidiary's Board of Directors. Each
Board of Directors reviews all loans over $100,000, whether current or
past due, at least once annually. In addition, each Community Banking
Subsidiary maintains internal classifications of problem and potential
problem loans.
ASSET/LIABILITY MANAGEMENT. Each Community Banking Subsidiary's
Board of Directors is charged with establishing policies to manage
the assets and liabilities of the bank. Each Board's task is to
manage asset growth, net interest margin and liquidity and capital.
The Board directs the bank's overall acquisition and allocation of
funds. At its monthly meetings, the Board receives a report from the
President of the bank with regard to the monthly asset and liability
funds budget and income and expense budget in relation to the actual
composition and flow of funds, the ratio of the amount of rate-
sensitive assets to the amount of rate-sensitive liabilities, the
amount of interest rate risk and equity market value exposure under
varying rate environments, the ratio of loan loss reserve to
outstanding loans and other variables, such as expected loan demand,
investment opportunities, core deposit growth within specified
categories, regulatory changes, monetary policy adjustments and the
overall condition of the local and state economy.
INVESTMENT POLICY. The Company's investment portfolio policy
is to maximize income consistent with liquidity, asset quality and
regulatory constraints. The policy is reviewed from time to time by
the Company's Board of Directors. Individual transactions, portfolio
composition and performance are reviewed and approved monthly by the
Board of Directors or a committee thereof. The President of each
Community Banking Subsidiary implements the policy and reports to the
bank's full Board of Directors on a monthly basis information
concerning sales, purchases, resultant gains or losses, average
maturity, federal taxable equivalent yields and appreciation or
depreciation by investment categories.
Business Description of Non-Banking Subsidiary
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Financial Supermarkets, formed as a Georgia corporation in 1984,
is a wholly-owned subsidiary of Community-Habersham and has three
divisions. Financial Supermarkets' primary division, The Supermarket
Bank, provides various consulting and licensing services to financial
institutions in connection with the establishment of bank branches in
supermarkets. These services are marketed to interstate, regional and
community financial institutions. Financial Supermarkets enters into
agreements with major supermarket chains for the right to establish
bank branches on particular sites. Financial Supermarkets then
licenses such rights, along with the right to operate the "Supermarket
Bank", to individual financial institutions, in addition to providing
consulting services to such institutions ranging from providing alternative
construction designs to coordinating employee training.
Since 1984, Financial Supermarkets has assisted clients with the
development of Supermarket Bank facilities in grocery stores
throughout the United States. Financial Supermarkets primarily
competes in the in-store bank branch consulting business with
International Banking Technologies of Atlanta and Memphis-based
National Commerce Bank Services, Inc., a wholly-owned subsidiary of
National Commerce Bancorporation.
Over its 13-year history, Financial Supermarkets has expanded the
scope of its business beyond the supermarket bank industry. In 1988,
it formed a consulting division for the financial services industry.
The division is based in Atlanta and works with financial institutions
across the United States with regard to state and federal regulatory
compliance issues and other day-to-day operational matters.
In 1992, Financial Supermarkets formed a full-service marketing
consulting firm to consult with financial institutions primarily in
the Southeastern United States, in addition to working closely with
Supermarket Bank clients to develop related advertising and marketing
programs. In 1994, Financial Supermarkets formed a travel agency to
provide customers with a full range of travel services.
Competition
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The banking business is highly competitive. Community-Habersham
competes with three institutions in Habersham County, Georgia,
three institutions in White County, Georgia, and eleven institutions
in Hall County, Georgia; Community-Jackson competes with five other
depository institutions in Jackson County, Georgia; Community-Alabama
competes with one other depository institution in Bullock County,
Alabama, and six other depository institutions in Montgomery, Alabama,
and Community-Troup competes with six other depository institutions in
Troup County, Georgia. Each Community Banking Subsidiary also
competes with other financial service organizations, including savings
and loan associations, finance companies, credit unions and certain
governmental agencies. To the extent that banks must maintain
noninterest-earning reserves against deposits, they may be at a
competitive disadvantage when compared with other financial service
organizations that are not required to maintain reserves against
substantially equivalent sources of funds. Further, the increased
competition from investment bankers and brokers and other financial
service organizations may have a significant impact on the competitive
environment in which each Community Banking Subsidiary operates.
Employees
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At December 31, 1997, the Company had 231 full-time employees and
36 part-time employees. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement, and
management of the Company believes that its employee relations are
good.
Supervision and Regulation
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GENERAL. The Company is a registered bank holding company
subject to regulation by the Board of Governors of the Federal Reserve
(the "Federal Reserve") under the Bank Holding Company Act of 1956,
as amended (the "Bank Holding Act"). The Company is required to
file financial information with the Federal Reserve periodically and
is subject to periodic examination by the Federal Reserve.
The Bank Holding Act requires every bank holding company to
obtain the prior approval of the Federal Reserve before (i) it may
acquire direct or indirect ownership or control of more than 5% of the
voting shares of any bank that it does not already control; (ii) it
or any of its subsidiaries, other than a bank, may acquire all or
substantially all of the assets of a bank; and (iii) it may merge or
consolidate with any other bank holding company. In addition, a bank
holding company is generally prohibited from engaging in, or
acquiring, direct or indirect control of the voting shares of any
company engaged in non-banking activities. This prohibition does not
apply to activities found by the Federal Reserve, by order or
regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve has determined by regulation or
order to be so closely related to banking are: making or servicing
loans and certain types of leases; performing certain data processing
services; acting as fiduciary or investment or financial advisor;
providing discount brokerage services; underwriting bank eligible
securities; underwriting debt and equity securities on a limited basis
through separately capitalized subsidiaries; and making investments in
corporations or projects designed primarily to promote community
welfare.
The Company must also register with the Department of Banking and
Finance of the State of Georgia (the "DBF") and file periodic
information with the DBF. As part of such registration, the DBF
requires information with respect to the financial condition,
operations, management and intercompany relationships of the Company
and Community-Habersham, Community-Jackson and Community-Troup and
related matters. The DBF may also require such other information as
is necessary to keep itself informed as to whether the provisions of
Georgia law and the regulations and orders issued thereunder by the
DBF have been complied with, and the DBF may examine the Company and
each of the Georgia Community Banking Subsidiaries.
The Company is an "affiliate" of the Community Banking
Subsidiaries under the Federal Reserve Act, which imposes certain
restrictions on (i) loans by the Community Banking Subsidiaries to
the Company, (ii) investments in the stock or securities of the
Company by the Community Banking Subsidiaries, (iii) the Community
Banking Subsidiaries' taking the stock or securities of an "affiliate"
as collateral for loans by the Community Banking Subsidiaries to a
borrower and (iv) the purchase of assets from the Company by the
Community Banking Subsidiaries. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale
of property or furnishing of services.
Community-Habersham, Community-Jackson and Community-Troup, as
Georgia banking associations, are subject to the supervision of, and
are regularly examined by, the Federal Deposit Insurance Corporation
(the "FDIC") and the DBF. Community-Alabama is subject to the
supervision and examination of the Alabama State Banking Department
(the "ABD") in addition to the FDIC. Both the FDIC and the DBF must
grant prior approval of any merger, consolidation or other corporate
reorganization involving Community-Habersham, Community-Jackson or
Community-Troup. The ABD must grant prior approval of any merger,
consolidation or other corporate reorganization involving
Community-Alabama. A bank can be held liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. The Company is a legal entity separate
and distinct from the Community Banking Subsidiaries. Most of the
revenues of the Company result from dividends paid to it by the
Community Banking Subsidiaries. There are statutory and regulatory
requirements applicable to the payment of dividends by the Community
Banking Subsidiaries, as well as by the Company to its shareholders.
The Community Banking Subsidiaries are each state-chartered banks
regulated by the DBF or ABD, as applicable, and the FDIC. Under the
regulations of the DBF, dividends may not be declared out of the
retained earnings of a Georgia bank without first obtaining the
written permission of the DBF unless such bank meets all of the
following requirements:
(a) Total classified assets as of the most recent examination of
the bank do not exceed 80% of equity capital (as defined by
regulation);
(b) The aggregate amount of dividends declared or anticipated to
be declared in the calendar year does not exceed 50% of the
net profits after taxes but before dividends for the
previous
calendar year; and
(c) The ratio of equity capital to adjusted assets is not less
than 6%.
Under the regulations of the ABD, dividends may be declared by a
state bank without obtaining the prior written approval of the ABD
only if (i) the bank's surplus (as defined by regulation) is equal
to at least 20% of its capital (as defined by regulation) and (ii)
the aggregate of all dividends declared or anticipated to be declared
in the calendar year does not exceed the total of its net earnings (as
defined by regulation) of that year combined with its retained net
earnings of the preceding two year, less any required transfers to
surplus. No dividends may be paid from an Alabama bank's surplus
without the prior written approval of the ABD.
The payment of dividends by the Company and the Community Banking
Subsidiaries may also be affected or limited by other factors, such as
the requirement to maintain adequate capital above regulatory
guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or
is about to engage in an unsafe or unsound practice (which, depending
upon the financial condition of the Community Banking Subsidiaries,
could include the payment of dividends) such authority may require,
after notice and hearing, that such bank cease and desist from such
practice. The FDIC has issued a policy statement providing that
insured banks should generally only pay dividends out of current
operating earnings. In addition to the formal statutes and
regulations, regulatory authorities consider the adequacy of each of
the Community Banking Subsidiary's total capital in relation to its
assets, deposits and other such items. Capital adequacy
considerations could further limit the availability of dividends to
the Community Banking Subsidiaries. At December 31, 1997, retained
earnings available from the Community Banking Subsidiaries to pay
dividends totaled approximately $3 million. For 1997, the Company's
cash dividend payout to shareholders was 5.38% of net income.
MONETARY POLICY. The results of operations of the Community
Banking Subsidiaries are affected by credit policies of monetary
authorities, particularly the Federal Reserve. The instruments of
monetary policy employed by the Federal Reserve include open market
operations in U.S. government securities, changes in the discount rate
on bank borrowings and changes in reserve requirements against bank
deposits. In view of changing conditions in the national economy and
in the money markets, as well as the effect of actions by monetary and
fiscal authorities, including the Federal Reserve, no prediction can
be made as to possible future changes in interest rates, deposit
levels, loan demand or the business and earnings of the Community
Banking Subsidiaries.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have
implemented substantially identical risk-based rules for assessing
bank and bank holding company capital adequacy. These regulations
establish minimum capital standards in relation to assets and
off-balance sheet exposures as adjusted for credit risk. Banks and
bank holding companies are required to have (1) a minimum level of
total capital (as defined) to risk-weighted assets of eight percent
(8%); (2) a minimum Tier One Capital (as defined) to risk-weighted
assets of four percent (4%); and (3) a minimum stockholders' equity
to risk-weighted assets of four percent (4%). In addition, the
Federal Reserve and the FDIC have established a minimum three percent
(3%) leverage ratio of Tier One Capital to total assets for the most
highly-rated banks and bank holding companies. " Tier One Capital"
generally consists of common equity not including unrecognized gains
and losses on securities, minority interests in equity accounts of
consolidated subsidiaries and certain perpetual preferred stock less
certain intangibles. The Federal Reserve and the FDIC will require a
bank holding company and a bank, respectively, to maintain a leverage
ratio greater than three percent (3%) if either is experiencing or
anticipating significant growth or is operating with less than
well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve and the FDIC use the leverage ratio in tandem with the
risk-based ratio to assess the capital adequacy of banks and bank
holding companies. The FDIC, the Office of the Comptroller of the
Currency (the "OCC") and the Federal Reserve amended, effective
January 1, 1997, the capital adequacy standards to provide for the
consideration of interest rate risk in the overall determination of a
bank's capital ratio, requiring banks with greater interest rate risk
to maintain adequate capital for the risk.
In addition, effective December 19, 1992, a new Section 38 to the
Federal Deposit Insurance Act implemented the prompt corrective action
provisions that Congress enacted as a part of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the " 1991 Act" ). The
" prompt corrective action" provisions set forth five regulatory
zones in which all banks are placed largely based on their capital
positions. Regulators are permitted to take increasingly harsh action
as a bank's financial condition declines. Regulators are also
empowered to place in receivership or require the sale of a bank to
another depository institution when a bank's capital leverage ratio
reaches two percent (2%). Better capitalized institutions are
generally subject to less onerous regulation and supervision than
banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt
corrective action provisions of the 1991 Act, which place financial
institutions in the following five categories based upon
capitalization ratios: (1) A " well capitalized" institution has
a total risk-based capital ratio of at least 10%, a Tier One
risk-based ratio of at least 6% and a leverage ratio of at least 5%;
(2) an " adequately capitalized" institution has a total risk-based
capital ratio of at least 8%, a Tier One risk-based ratio of at least
4% and a leverage ratio of at least 4%; (3) an " undercapitalized"
institution has a total risk-based capital ratio of under 8%, a Tier
One risk-based ratio of under 4% or a leverage ratio of under 4%; (4)
a " significantly undercapitalized" institution has a total
risk-based capital ratio of under 6%, a Tier One risk-based ratio of
under 3% or a leverage ratio of under 3%; and (5) a " critically
undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories would be
prohibited from declaring dividends or making capital distributions.
The FDIC regulations also establish procedures for " downgrading" an
institution to a lower capital category based on supervisory factors
other than capital. Under the FDIC's regulations, all of the
Community Banking Subsidiaries were " well capitalized" institutions
at December 31, 1997.
Set forth below are pertinent capital ratios for the Company and
the Community Banking Subsidiaries as of December 31, 1997.
<TABLE>
<CAPTION>
Minimum Capital Community- Community- Community- Community- The
Requirement Habersham Jackson Alabama Troup Company
----------- ---------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Tier One Capital 11.96% 9.86% 10.77% 15.13% 11.28%
to Risk-based
Assets: 4.00% <F1>
Total Capital to 13.21% 11.11% 12.02% 16.39% 12.43%
Risk-based
Assets 8.00% <F2>
Leverage Ratio 8.34% 7.24% 7.00% 10.58% 8.26%
(Tier One Capital
to Total Assets)
4.00% <F3>
<FN>
<F1> Minimum required ratio for " well capitalized" banks is 6%
<F2> Minimum required ratio for " well capitalized" banks is 10%
<F3> Minimum required ratio for " well capitalized" banks is 5%
</FN>
</TABLE>
RECENT LEGISLATIVE AND REGULATORY ACTION. On April 19, 1995,
the four federal bank regulatory agencies adopted revisions to the
regulations promulgated pursuant to the Community Reinvestment Act
(the "CRA"), which are intended to set distinct assessment standards
for financial institutions. The revised regulation contains three
evaluation tests: (i) a lending test which compares the institution'
s market share of loans in low- and moderate-income areas to its
market share of loans in its entire service area and the percentage of
a bank's outstanding loans to low- and moderate-income areas or
individuals, (ii) a services test which evaluates the provisions of
services that promote the availability of credit to low- and
moderate-income areas, and (iii) an investment test, which evaluates
an institution's record of investments in organizations designed to
foster community development, small- and minority-owned businesses
and affordable housing lending, including state and local government
housing or revenue bonds. The regulation is designed to reduce some
paperwork requirements of the current regulations and provide
regulators, institutions and community groups with a more objective
and predictable manner with which to evaluate the CRA performance of
financial institutions. The rule became effective on January 1, 1996,
at which time evaluation under streamlined procedures began for
institutions with assets of less than $250 million that are owned by a
holding company with total assets of less than $1 billion. These
regulations had no appreciable impact on the Company and the Community
Banking Subsidiaries.
Congress and various federal agencies (including, in addition to
the Community Banking Subsidiaries' regulatory agencies, the
Department of Housing and Urban Development, the Federal Trade
Commission and the Department of Justice) (collectively the "Federal
Agencies") responsible for implementing the nations fair lending laws
have been increasingly concerned that prospective home buyers and
other borrowers are experiencing discrimination in their efforts to
obtain loans. In recent years, the Department of Justice has filed
suit against financial institutions, which it determined had
discriminated, seeking fines and restitution for borrowers who
allegedly suffered from discriminatory practices. Most, if not all,
of these suits have been settled (some for substantial sums) without a
full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify
what constitutes lending discrimination and specify the factors the
agencies will consider in determining if lending discrimination
exists, announced a joint policy statement detailing specific
discriminatory practices prohibited under the Equal Opportunity Act
and the Fair Housing Act. In the policy statement, three methods of
proving lending discrimination were identified: (1) overt evidence
of discrimination, when a lender blatantly discriminates on a
prohibited basis, (2) evidence of disparate treatment, when a lender
treats applicants differently based on a prohibited factor even where
there is no showing that the treatment was motivated by prejudice or a
conscious intention to discriminate against a person, and (3)
evidence of disparate impact, when a lender applies a practice
uniformly to all applicants, but the practice has a discriminatory
effect, even where such practices are neutral on their face and are
applied equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the
"Regulatory Improvement Act"). The Regulatory Improvement Act
contained funding for community development projects through banks and
community development financial institutions and also numerous
regulatory relief provisions designed to eliminate certain duplicative
regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the
"Federal Interstate Bill") which amended federal law to permit bank
holding companies to acquire existing banks in any state effective
September 29, 1995, and any interstate bank holding company is
permitted to merge its various bank subsidiaries into a single bank
with interstate branches after May 31, 1997. States had the authority
to authorize interstate branching prior to June 1, 1997, or
alternatively, to opt out of interstate branching prior to that date.
The Georgia Financial Institutions Code was amended in 1994 to permit
the acquisition of a Georgia bank or bank holding company by
out-of-state bank holding companies beginning July 1, 1995. On
September 29, 1995, the interstate banking provisions of the Georgia
Financial Institutions Code were superseded by the Federal Interstate
Bill.
On January 26, 1996, the Georgia legislature adopted a bill (the
"Georgia Intrastate Bill") to permit, effective July 1, 1996, any
Georgia bank or group of affiliated banks under one holding company to
establish up to an aggregate of three new or additional branch banks
anywhere within the State of Georgia, excluding any branches
established by a bank in a county in which the bank is already
located. After July 1, 1998, all restrictions on state-wide branching
will be removed. Prior to adoption of the Georgia Intrastate Bill,
Georgia only permitted branching within a county, via merger or
consolidation with an existing bank or in certain other limited
circumstances.
<PAGE>
FDIC INSURANCE ASSESSMENTS FOR THE COMMUNITY BANKING
SUBSIDIARIES. The Community Banking Subsidiaries are subject to FDIC
deposit insurance assessments for the Bank Insurance Fund (the "BIF").
In the first six months of 1995, the Community Banking Subsidiaries
were assessed $.23 per $100 of deposits, except for Community-Troup
which was assessed $.26 per $100 of deposits, based upon a risk-based
system whereby banks were assessed on a sliding scale depending upon
their placement in nine separate supervisory categories, from $.23 per
$100 of deposits for the healthiest banks (those with the highest
capital, best management and best overall condition) to as much as
$.31 per $100 of deposits for the less-healthy institutions, for an
average $.259 per $100 of deposits.
On August 8, 1995, the FDIC lowered the BIF premium for healthy
banks 83% from $.23 per $100 in deposits to $.04 per $100 in deposits,
while retaining the $.31 level for the riskiest banks. The average
assessment rate therefore ranges from $.232 to $.044 per $100 of
deposits. The new rate took effect on September 29, 1995. On
September 15, 1995, the FDIC refunded $142,498 to the Community
Banking Subsidiaries for premium overpayments in the second and third
quarter of 1995. On November 14, 1995, the FDIC again lowered the BIF
premium for healthy banks from $.04 per $100 of deposits to zero for
the highest rated institutions (92% of the industry). As a result,
each of the Community Banking Subsidiaries has paid only the legally
required annual minimum payment of $2,000 per year for insurance for
the 1996 year. Had the current rates been in effect for all of 1995,
the annual FDIC insurance premiums paid by the Community Banking
Subsidiaries collectively would have been reduced by $185,000.
On September 29, 1996, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 was enacted (the "1996 Act"). The
1996 Act's chief accomplishment was to provide for the
recapitalization of the Savings Association Insurance Fund ("SAIF")
by levying a one-time special assessment of SAIF deposits to bring the
fund to a reserve ratio equal to $.25 per $100 of insured deposits and
to provide that beginning in 1997, BIF assessments would be used to
help pay off the $780 million in annual interest payments on the $8
billion Financing Corporation ("FICO") bonds issued in the late
1980s as part of the government rescue of the thrift industry. The
law provides that BIF assessments for FICO bond payments must be set
at a rate equal to 20% of the SAIF rates for such assessments in for
1997, 1998 and 1999. After 1999, all FDIC insured institutions will
pay the same assessment rates. For the first six months of 1997, the
assessment for the FICO bond payments were $.0132 per $100 of deposits
for BIF deposits and $.0648 per $100 of deposits for SAIF deposits.
The FDIC announced on November 26, 1996, that the premium for the
first six months for deposit insurance assessments would range from
zero to $.27 per $100 of deposits with 94% of banks paying nothing for
deposit insurance. One of the provisions of the 1996 Act was to
eliminate the minimum $2,000 per year charge for deposit insurance.
As a result, the Community Banking Subsidiaries will pay no premium
for deposit insurance in the first six months of 1998 and will pay a
first quarter FICO bond assessment of $6,640 in the aggregate. The
Bill also provided for certain limited regulatory relief and
modifications to certain out-of-state regulations.
ITEM 2. PROPERTIES.
Community-Habersham's main office is located at 448 North Main
Street, Cornelia, Georgia. Community-Jackson's main office is located
at 117 North Elm Street, Commerce, Georgia. Community-Alabama's main
office is located at 202 N. Powell Street, Union Springs, Alabama.
Community-Troup's main office is located at 201 Broad Street,
LaGrange, Georgia. Community-Habersham has eleven branch offices (two
owned and nine leased, seven of which are operated in supermarkets)
located in Cornelia, Clarkesville, Cleveland, Demorest, and
Gainesville, Georgia. Community-Jackson has four branch offices (all
leased, three of which are operated in supermarkets) located in
Commerce and Jefferson, Georgia. Community-Alabama has one branch
(leased and operated in a supermarket) in Montgomery, Alabama.
Financial Supermarkets leases its main office located in Cornelia,
Georgia, as well as a division office in Atlanta, Georgia.
Community-Habersham leases the property occupied by the loan
production office in Gainesville and two offices located in
supermarkets in Gainesville. Management of the Company believes that
all of its properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the
Company during the fourth quarter of its fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
There is no established public trading market for the Common
Stock. As of January 1, 1998, there were 459 holders of record of the
Common Stock. Management is aware of 9 and 16 trades of Company
stock during 1997 and 1996, respectively. During 1997, trades were made
in blocks of 100 shares to 2,850 shares at prices ranging from $20.00
to $26.50 per share. During 1996 trades were made in blocks of 25 shares
to 7,500 shares at prices ranging from $18.50 to $20.00 per share.
In 1997, the Company paid cash dividends of $.14 per share. In
addition, the Company had a thirty-for-one stock split effected as a
stock dividend on December 28, 1995. The Company paid cash dividends
of $.14 in 1996. The Company intends to continue to pay cash
dividends. However, the amount and frequency of dividends will be
determined by the Company's Board of Directors in light of the
earnings, capital requirements and the financial condition of the
Company, and no assurances can be given that dividends will be paid in
the future. The Company's ability to pay dividends will also be
dependent on cash dividends paid to it by the Community Banking
Subsidiaries. The ability of the Community Banking Subsidiaries to
pay dividends to the Company is restricted by applicable regulatory
requirements. See " ITEM 1 -- BUSINESS -- Supervision and Regulation."
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
-----------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total interest income $ 28,704 $ 24,465 $ 21,871 $ 17,911 $ 16,948
Total interest 13,191 11,236 9,875 7,553 7,386
Net Interest income 15,512 13,229 11,996 10,358 9,562
Provision for loan losses 936 757 849 750 926
Nonbank subsidiary income 8,820 5,559 3,780 3,007 2,160
Other operating income 3,599 2,833 2,433 2,325 2,131
Other operating expenses 18,724 14,950 12,970 11,606 10,143
Net income 5,647 4,044 3,125 2,419 2,194
Net income per share of common stock 2.60 1.93 1.54 1.21 1.10
Cash dividends per share 0.14 0.14 0.13 0.12 0.12
SELECTED BALANCE SHEET DATA:
Total assets $ 377,080 $ 315,579 $ 270,007 $ 250,468 $ 228,599
Total deposits 335,545 278,709 242,442 224,761 205,514
Other borrowings 462 616 787 2,233 2,144
Redeemable common stock
by ESOP 10,622 6,177 - - -
Shareholders' equity 23,119 21,083 22,469 19,004 17,220
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The following is a discussion and analysis of the Company's financial
condition at December 31, 1997 and the results of operations for the three
year period ended December 31, 1997. The purpose of the discussion is to
focus on information about the Company's financial condition and results of
operations which are not otherwise apparent from the audited consolidated
financial statements included in this annual report. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and related notes and the selected financial information and
statistical data presented elsewhere in this Annual Report.
BALANCE SHEET REVIEW. The Company experienced significant growth
during 1997. For the year ended December 31, 1997, consolidated assets grew
$61.5 million, or 19.49%, up from 1996 growth of $45.6 million or 16.88%.
During 1997, the Company's average assets were $342.1 million, compared
with $289.3 million during 1996. This represents an 18.24% increase in
average assets during 1997 compared with a 12.75% increase during 1996.
Total earning assets, which include investment securities, loans,
Federal Funds sold, and interest-bearing deposits in banks increased $53.5
million or 19.09% during 1997. During 1996, earning assets increased $34.0
million, or 13.78%. Average earning assets for 1997 were $309.5 million,
an increase of 17.58% over average earning assets in 1996 which were $263.3
million or an increase of 12.18% over 1995.
Total investments increased by $15.9 million or 24.11% over 1996.
Average investments were $76.2 million for 1997, a 27.30% increase over
average investments for 1996. This increase occurred mainly in the held to
maturity portfolio and it was represented by increased investments in bank
qualified municipals in an attempt to increase the yield and lower tax
liabilities of the Company.
Total loans grew by $39.4 million during 1997 for an increase of 19.36%
over 1996. During 1997 average loans were $223.2 million or an increase of
16.73% over 1996 compared to an increase during 1996 of 12.11% to 191.2
million. The increase in loans is primarily the result of loan growth in
the new markets into which the Company entered in Hall and White Counties,
along with the continued growth of the Loan Production Office (LPO).
As a result of increased investing and lending activities Federal
Funds sold decreased by $2.4 million or 28.5% from year end 1996 to 1997.
Average Federal Funds for 1997 were $9.7 million or an 18.2% decrease.
During 1996, average Federal Funds sold had shown an increase of $2.7
million or 29.7% over 1995.
The growth in assets for the year ended December 31, 1997 was funded
mainly by growth in deposits. Consolidated deposits grew $56.8 million or
20.4% as compared to $36.3 million or 14.96% in 1996. This growth was
aided by the purchase and assumption of a branch of SunTrust Bank in
Clarkesville, Georgia, which added approximately $12.4 in deposits to the
Company's consolidated deposits. Deposit growth was fairly evenly spread
over every deposit product offered by the Company as stable interest rates
did little to influence deposit movement during 1997.
As shown in Table 2 of the Selected Statistical Data, the average
yields on interest earning assets and interest bearing liabilities showed
very little change from 1996 to 1997 due to a fairly stable interest rate
environment. The net interest spread was down 4 basis points from
1996 to 1997, and the net interest margin was down 1 basis point from
1996 to 1997.
At December 31, 1997, the Company reported net unrealized gains of
approximately $217,000 in the securities available for sale portfolio as
compared to net unrealized losses of approximately $124,000 at December 31,
1996. Net unrealized losses represent the difference in the amortized cost
of those securities compared to the fair value at those dates and are
included in shareholders' equity, net of the deferred tax effect.
Management sells securities to meet liquidity needs and may sell securities
in rising interest-rate environments to take advantage of higher returns in
the long run. In 1997 the Company sold $10.7 million of securities
classified as available for sale, realizing net losses of $3,992 on a
consolidated basis. The held to maturity securities portfolio included net
unrealized gains of approximately $839,000 at December 31, 1997. Table 4
of the Selected Statistical Data summarizes the combined investment
portfolios by types of securities. U.S. Treasury and other U.S. Government
agencies and corporations represent 35.5% of the total portfolio, which
typically provide reasonable returns with limited risk. The remaining
portfolio is comprised of municipal securities, mortgage-backed securities,
and other investments which provide, in general, higher returns on a tax
equivalent basis, with greater risk elements. Management regularly
monitors the Company's investment portfolios and utilizes forecasting
models to project the Company's net interest margin in various rising,
flat, and falling interest-rate scenarios. In a changing interest rate
environment, management would act to change the Company's asset or
liability composition and interest sensitivity in response to a definitive
change in the direction of interest rates. The Company actively manages the
mix of asset and liability maturities to control the effects of changes in
the general level of interest rates on net interest income. Except for the
effect of inflation on interest rates, inflation does not have a material
impact on the Company due to variability and short-term maturities of its
earning assets repriced or matured within one year.
LIQUIDITY AND CAPITAL RESOURCES. The liquidity and capital resources
of the Company and the Community Banking Subsidiaries are monitored by
management and on a periodic basis by state and federal regulatory
authorities. The individual Community Banking Subsidiaries' liquidity
ratios at December 31, 1997 were considered satisfactory under their own
guidelines as well as regulatory guidelines. At that date, the Community
Banking Subsidiaries' short-term investments were adequate to cover any
reasonably anticipated immediate need for funds.
The purpose of liquidity management is to ensure that cash flow is
sufficient to satisfy demands for credit, withdrawals, and other needs of
the Company. Traditional sources of liquidity include asset maturities and
growth in core deposits. A company may achieve its desired liquidity
objectives from the management of assets and liabilities, and through funds
provided by operations. Funds invested in short-term marketable
instruments and the continuous maturing of other earning assets are sources
of liquidity from the asset perspective. The liability base provides
sources of liquidity through deposit growth and accessibility to market
sources of funds.
Scheduled loan payments are a relatively stable source of funds, but
loan payoffs and deposit flows are influenced by interest rates, general
economic conditions and competition and may fluctuate significantly. The
Company attempts to price its deposits to meet its asset/liability
objectives consistent with local market conditions.
Cash flows for the Company are of three major types. Cash flows from
operating activities consist primarily of interest and fees received on
loans, interest received on investment securities, federal funds sold, and
interest bearing deposits less cash paid for interest and operating
expenses. Investing activities use cash for the purchase of interest-
bearing deposits, investment securities, fixed assets and to fund loans.
Investing activities also generate cash from the proceeds of matured
interest-bearing deposits, matured investment securities, sales of
investment securities, loan repayments and principal prepayments of
securities. Cash flows from financing activities generate cash from a net
increase in deposit accounts, the increases in other borrowed funds and the
issuance of common stock. Financing activities use cash for the payment of
cash dividends and the repayment of other borrowed funds.
For the year ended December 31, 1997, $28.7 million in cash flows
from operating activities were provided by interest and fees received
from loans, securities and federal funds. Approximately $12.4 million
in cash flows were provided by service charges, nonbank subsidiary
income, sale of loans and other income. Cash flows used in operating
activities consisted of $12.9 million of interest paid on deposits and
borrowings, $10.5 million paid for salaries and other personnel benefits
and $11.8 million paid for occupancy and equipment expenses, income taxes
and other operating payments. Cash flows of $21.1 million were provided
by the proceeds of sales and maturities of investment securities. Cash
flows provided by financing activities consisted of $56.8 million in net
increases in deposits and were primarily used to fund the $40.2 million in
et increase in loans. The net increase in cash and due from banks for
the year ended December 31, 1997 was $4.5 million.
For the year ended December 31, 1996, $23.9 million in cash flows
from operating activities were provided by interest and fees received
from loans, securities and federal funds. Approximately $8.3 million in
cash flows were provided by service charges, nonbank subsidiary income,
sale of loans and other income. Cash flows used in operating activities
consisted of $10.8 million of interest paid on deposits and borrowings,
$8.3 million paid for salaries and other personnel benefits and $8.5
million paid for occupancy and equipment expenses, income taxes and other
operating payments. Cash flows of $17.2 million were provided by the
proceeds of sales and maturities of investment securities. Cash flows
provided by financing activities consisted $36.3 million in net increases
in deposits and were primarily used to fund the $27.0 million net
increase in loans. The net increase in cash and due from banks for the
year ended December 31, 1996 was $5.8 million.
At December 31, 1997, the Company's and Community Banking
Subsidiaries' capital ratios were considered adequate based on minimum
capital requirements of the FDIC and applicable state regulatory
agencies. During 1997, the Company increased capital, by retaining net
earnings of $5.3 million ;and issuing $.9 million of common stock,
compared to an increase in 1996 of $3.8 million in retained net earnings
and $1.0 million in common stock. Management believes that the
liquidity and capital ratios of the Company and the Community Banking
Subsidiaries are adequate based on regulatory requirements.
The Company is capable of meeting its debt service requirements
related to existing long-term and other borrowings through dividends
available from its subsidiaries and current operations. At December 31,
1997, approximately $3 million was available to be paid as dividends to
the Company from the Community Banking Subsidiaries. Although the
Company considers that it has adequate capital to meet it short-term
needs, the Company, at times, may seek additional capital to support its
long-term business goals, including expansion of its fixed asset base,
and for general corporate purposes.
For a tabular presentation of the Community Banking Subsidiaries'
capital ratios at December 31, 1997 see "SUPERVISION AND REGULATION".
The Company is not aware of any other trends, events or
uncertainties that will have or that are reasonably likely to have a
material effect on the Company's liquidity, capital resources or
operations. The Company is not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have
such an effect.
EFFECTS OF INFLATION. Inflation impacts banks differently than non-
financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and which tend to fluctuate with
inflation. A bank can reduce the impact of inflation by managing its
rate sensitivity gap, which represents the difference between rate-
sensitive assets and rate-sensitive liabilities. The Company, through
its asset-liability committee, attempts to structure the assets and
liabilities and manage the rate-sensitivity gap, thereby seeking to
minimize the potential effects of inflation. See "ASSET/LIABILITY
MANAGEMENT".
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET INTEREST INCOME. The Company's results of operations are
influenced by management's ability to effectively manage interest income
and expense, to minimize loan and investment losses, to generate non-
interest income and to control operating expenses. Because interest rates
are determined by market forces and economic conditions beyond the control
of the Company, the Company's ability to generate net interest income is
dependent upon its ability to obtain an adequate net interest spread between
the rate paid on interest-bearing liabilities and the rate earned on
interest-earning assets. The Company's net interest income increased by
$2.3 million for the year ended December 31, 1997 as compared to an increase
of $1.2 million for the same period in 1996. The increase in net interest
income is attributable to increases in earning assets, particularly loans.
The yield on interest-earning assets declined 2 basis points in 1997 from
1996. This decrease combined with the increase in average interest earning
assets of $46.3 million, net of the increase in average interest-bearing
liabilities of $38.4 million, accounts for the 17.3% increase in net
interest income. Net interest income increased for all Community Banking
Subsidiaries as shown below:
<TABLE>
<CAPTION>
Net interest income Increase/
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Community - Habersham $ 9,546 8,274 1,272
Community - Jackson 3,290 2,713 577
Community - Alabama 1,332 1,050 282
Community - Troup 1,379 1,251 128
-------- ------ ------
$ 15,547 13,288 2,259
======== ======= ======
</TABLE>
The 4 basis point decrease in the net interest spread in Table 2 is
indicative of the changes in the interest rate environment. The increase in
rates on time deposits slightly outpaced the increase in rates on loans
which was the main cause for the decrease in net interest spread. The
Company will continue to actively monitor and maintain the net interest
spread to counter act the current market trends. Net interest income for
1996 increased $1.2 million over 1995. The increase is mainly attributable
to growth in earning assets outpacing the growth in interest bearing
liabilities as shown in Table 1.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended December 31, 1997 increased by $178,954 from $757,262 at December<PAGE>
31, 1996. This increase is associated with loan growth, as management
maintains an allowance for loan losses based on the evaluation of
potential problem loans as well as minimal reserves for all loans based
on past net charge-off experience. The provision for loan losses
decreased $91,538 in 1996 compared to 1995 mainly due to improved loan
quality. The guaranteed portion of loans generated by the LPO are
subsequently sold. Because most loans generated by the LPO are out-of
market, the loans generated by the LPO require additional allowances due
to the greater risk of loss in the event of a default. These loans,
however, are subjected to the same underwriting standards and periodic
loan review procedures as other loans made by the Community Banking
Subsidiaries.
As shown in Table 8 of the Selected Statistical Data, nonperforming
loans, which includes nonaccrual and restructured loans, decreased
$508,000 from December 31, 1996 compared to a $346,000 decrease over
1995. Management has reviewed these loans and determined that the
likelihood of any loss in principal is minimal because the loans are
adequately collateralized. The ratio of the allowance for loan losses to
nonperforming loans increased from 207% at December 31, 1996 to 327% at
December 31, 1997. In 1995, the Company adopted FASB 114 and 118, which
requires that impaired loans be measured based on the present value of
expected future cash flows, the loan's observable market price or at the
fair value of the collateral if collateral dependent. At December 31,
1997, impaired loans included all restructured loans, as were all
nonaccrual loans. However, the Company determined that no reserves were
required because of the Company's collateral positions.
The allowances for loan losses as a percentage of total loans
outstanding at December 31, 1997 and 1996 was 1.64% and 1.75%,
respectively. Net charge-offs in 1997 increased by $280,000 from
$225,000 in 1996, and the net charge-off ratio increased from .12 in 1996
to .23 in 1997. Based on management's evaluation of the loan portfolio,
including a review of past loan losses, current conditions which may
affect borrowers' ability to repay and the underlying collateral value
of the loans, management considers the allowance for loan losses to be
adequate.
The Company continues to have a concentration in real estate loans,
representing 37.4% and 32.9%, respectively, of total loans at December
31, 1997 and 1996. Management has implemented policies to limit
extensions of credit to one borrower and its affiliates. By this method,
along with proper underwriting standards, a fully implemented loan review
system and geographic diversification, management attempts to minimize
the risk associated with the concentrations of credit.
OTHER INCOME. Other operating income consists of income from
operations of the Community Banking Subsidiaries and Financial
Supermarkets (not including Holding Company other income). Traditional
non-interest income of the Community Banking Subsidiaries accounts for
only 29.0%, or $3.6 million of total other income for 1997, 33.8% in
1996, and 39.2% in 1995.
<PAGE>
<TABLE>
<CAPTION>
Other operating income Increase/
1997 1996 (Decrease)
---- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Community Banking Subsidiaries
Community - Habersham $ 1,918 $ 1,722 $ 196
Community - Jackson 1,160 732 428
Community - Alabama 249 164 85
Community - Troup 189 176 13
-----------------------------------
$ 3,516 $ 2,794 $ 722
===================================
Financial Supermarkets $ 8,820 $ 5,559 $ 3,261
===================================
</TABLE>
The majority of the increase in other operating income of the
Community Banking Subsidiaries is related to the growth in deposits.
Service charges on deposit accounts increased by $ 473,000 and $205,000,
respectively, for the years ended December 31, 1997 and 1996. These
increases normally have a direct relationship with the change in demand
deposit and savings accounts. Average noninterest-bearing demand deposit
and savings accounts increased $10.7 million in 1997 compared to $6.0
million increase in 1996 over 1995. Included in other operating income
of the Community Banking Subsidiaries are gains on sale of loans
recognized by Community-Habersham and Jackson of $273,000 and $341,000,
respectively. This represents an increase from 1996 of $233,000.
The allocation of services as a percentage of total income for
Financial Supermarkets is shown below:
FINANCIAL SUPERMARKETS
Consulting Services provided for Supermarket
bank installation and opening 74%
Supermarket consulting and ancillary services 22
Other Miscellaneous Consulting Services 4
---
100%
The primary business of Financial Supermarkets(R) "FSI" is
services offered in connection with the establishment and operation of a
Supermarket Bank(R) service center. In 1997, Financial Supermarkets had
net consulting revenue of $6.6 million compared to $4.2 million in 1996,
an increase of $2.4 million or 56%. The increase in net consulting
revenues in 1996 over 1995 was $1.8 million, or 73%.
In 1997, FSI entered into a contract with NationsBanc Services, Inc.
("NationsBank") to provide services with respect to construction and
installation of Supermarket Bank units in the State of Florida. This
contract significantly increased net income as well as other expenses in 1997.
During 1997 FSI provided agency and consulting services with respect to a
total of 46 banking center units, of which 15 were part of the NationsBank
contract. Income related to the NationsBank contract began to be recognized
in the fourth quarter of 1996 with the commencement of the first phase of the
project to open 40 banking units. In 1997 NationsBank restructured the
contract to provide that FSI would not be providing services with respect to
the opening of any additional banking center units after the first 40 units.
The contract provides, however, that FSI will receive monthly ongoing
consulting fees in connection with any supermarket bank units opened by
NationsBank in Winn-Dixie Stores located in the state of Florida. These
consulting fees will continue for 15 years after the date the supermarket
branch is opened, decreasing gradually after each five year period. Currently
the FSI is collecting consulting fees on 80 supermarket branches in operation
under this agreement.
While the NationsBank contract accounted for a significant
extraordinary increase in consulting revenue in 1996 and 1997, which will
not be repeated in 1998, FSI continues to increase its number of units
completed for each of the last three years and this trend is expected to
continue.
NON-INTEREST EXPENSE. Other expenses increased for the year ended
December 31, 1997 by $3.8 million compared to the $2.0 million increase
in 1996. This represented a 25.2% increase in expenses for 1997 and
15.27% increase in 1996. Most significant in both years was the increase
in salaries and benefits which is directly related to the growth in the
banking subsidiaries. For the years ended 1997, 1996, and 1995 the
Company had total employees (F.T.E.) of 249, 216, and 172, respectively.
Other expenses increased by 1.1 million in 1997 and 1.3 million in 1996
primarily due to growth and increased activity of FSI.
Equipment and occupancy expenses increased by approximately $383,000
in 1997 over 1996 and approximately $211,000 in 1996 over 1995 due to the
increased number of facilities operated by the Community banking
subsidiaries. The Company operated 23, 18, and 16 locations at year ends
1997, 1996, and 1995, respectively. As 1997 closed, preparations were
being made to open three additional facilities in the first quarter of
1998. Management expects those locations to add to the continued growth
and profitability of the Company.
<TABLE>
<CAPTION>
Other Expenses Increase/
1997 1996 (Decrease)
----------------------------------
(Dollars in Thousands)
<S> <S> <C> <C> <C>
The Company
Salaries and benefits $ 10,474 $ 8,266 $ 2,208
Equipment expenses 1,488 1,374 114
Occupancy expenses 1,076 807 269
Deposit Insurance premiums 33 12 21
Data processing expenses 386 422 (36)
Travel expenses 583 531 52
Office supply expenses 437 373 64
Professional fees 198 253 (55)
Other real estate expenses 142 135 7
Other operating expenses 3,907 2,777 1,130
-------- -------- --------
$ 18,724 $ 14,950 $ 3,774
======== ======== ========
</TABLE>
INCOME TAXES. The Company incurred income tax expenses of $ 2.6
million in 1997 which represented an effective tax rate of 32%, compared
to tax expense of $1.9 million in 1996, or an effective tax rate of 32%.
Income tax expense increased $ 1.3 million from 1995 to $1.9 million in
1996. The effective tax rate at December 31, 1995 was 29%. The increase
in the effective tax rate is related to the increased income of Financial
Supermarkets, which does not have a portion of its income tax-free as do
the Community Banking Subsidiaries.
NET INCOME. The Company's net income for 1997 was $5.6 million,
as compared to $4.0 million in 1996, an increase of 39%. The increase
in net income between 1997 and 1996 is primarily attributable to the
additional interest and fees on loans related to growth and the
performance of Financial Supermarkets. Net income for 1996 increased to
$4.0 million or 29% over 1995's net income of $3.1 million.
ASSET/LIABILITY MANAGEMENT. The Company's objective is to manage
assets and liabilities to maintain satisfactory and consistent
profitability. Officers of each Community Banking Subsidiary are charged
with monitoring policies and procedures designed to ensure an acceptable
asset/liability mix. Management's philosophy is to support asset growth
primarily through growth of core deposits within the Community Banking
Subsidiaries' market areas.
The Company's asset/liability mix is monitored regularly with a
report reflecting the interest rate sensitive assets and interest rate
sensitive liabilities is prepared and presented to the Board of Directors
of each Community Banking Subsidiary monthly. Management's objective is
to monitor interest rate sensitive assets and liabilities so as to
minimize the impact on earnings of substantial fluctuations in interest
rates. An asset or liability is considered to be interest rate-sensitive
if it will reprice or mature within the time period analyzed, usually one
year or less. The interest rate-sensitivity gap is the difference
between the interest-earning assets and interest-bearing liabilities
scheduled to mature or reprice within the relevant period. A gap is
considered positive when the amount of interest rate-sensitive assets
exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period
of rising interest rates, a negative gap would tend to adversely affect
net interest income, while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of falling
interest rates, a negative gap would tend to result in an increase in
net interest income, while a positive gap would tend to adversely affect
net interest income. If the Company's assets and liabilities were
equally flexible and moved concurrently, the impact of any increase or
decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an
accurate indicator of how net interest income will be affected by changes
in interest rates. Accordingly, the Company also evaluates how changes
in interest rates impacts the repayment of particular assets and
liabilities. Income associated with interest-earning assets and costs
associated with interest-bearing liabilities may not be affected
uniformly by changes in interest rates. In addition, the magnitude and
duration of changes in interest rates may significantly effect net
interest income. For example, although certain assets and liabilities
may have similar maturities or periods of repricing, they may react in
different degrees to changes in market interest rates. Interest rates on<PAGE>
certain types of assets and liabilities fluctuate in advance of changes
in general market rates, while interest rates on other types may lag
behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred
to as "interest rate caps and floors") which limit changes in interest
rates. Also, prepayments and early withdrawal levels could deviate
significantly from those assumed in calculating the interest rage gap.
The ability of many borrowers to service their debts may decrease in the
event of an interest rate increase. Changes in interest rates also
effect the Company's liquidity position, if deposits are not priced in
response to market rates, a loss of deposits could occur which would
negatively effect the Company's liquidity position. The Company
prepares a report monthly that measures the potential impact on net
interest margin by rising or falling rates. This report is reviewed
monthly by the Asset/Liability Committee and quarterly by each Board of
Directors. (See "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK")
At December 31, 1997, the Company's cumulative one year interest
rate sensitivity gap ratio was 95%. The Company was cumulatively
within its targeted range of 80% to 120% for all time horizons.
The following table sets forth the distribution of the repricing of
the Company's earning assets and interest-bearing liabilities as of
December 31, 1997, the interest rate sensitivity gap, the cumulative
interest rate-sensitivity gap, the interest rate-sensitivity gap ratio
and the cumulative interest rate-sensitivity gap ratio. The table also
sets forth the time periods in which earning assets and liabilities will
mature or may reprice in accordance with their contractual terms.
However, the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive
pressures and the needs of the Company's customers. In addition,
various assets and liabilities indicated as repricing within the same
period may in fact, reprice at different times within such period and at
different rates. <PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc.
Consolidated Gap Report
After After
Three One
Months Year but
Within but Within After
Three Within Five Five
Months One Year Years Years Total
-------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits $ 769 $ - $ - $ - $ 769
Federal funds sold 5,960 - - - 5,960
Investment securities 43,213 5,154 24,543 9,091 82,001
Loans $ 70,588 $ 52,040 $ 91,761 30,832 $ 245,221
--------- --------- --------- --------- ---------
$ 120,530 $ 57,194 $ 116,304 $ 39,923 $ 333,951
========= ========= ========= ========= =========
Interest-bearing liabilities:
Interest-bearing demand $ 72,854 $ - $ - $ - $ 72,854
Savings 16,276 - - - 16,276
Time deposits, $100,000
and over 20,867 21,784 12,654 544 55,849
Time deposits, less than
$100,000 18,359 36,054 85,385 - 139,799
Other borrowings 39 115 308 - 462
----------------------------------------------------- ---------
$ 128,395 $ 57,953 $ 98,347 $ 544 $ 285,239
----------------------------------------------------- ---------
Interest rate sensitivity
gap (7,865) (759) 17,957 39,379 48,712
===================================================== =========
Cumulative interest rate
sensitivity gap (7,865) (8,624) 9,333 48,712
=====================================================
Interest rate sensitivity
gap 0.94 0.99 1.18 73.39
=====================================================
Cumulative interest rate
sensitivity gap 0.94 0.95 1.03 1.17
=====================================================
</TABLE>
<PAGE>
YEAR 2000 COMPLIANCE
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900
rather than 2000. In addition, some equipment, being controlled by
microprocessor chips, may not deal appropriately with the year "00".
The Bank is evaluating its computer systems to determine which
modifications and expenditures will be necessary to make its systems
compatible with year 2000 requirements. The Company believes that their
systems will be year 2000-compliant upon implementation of such
modifications.
Prior to the emergence of the year 2000 issue, management had made a
decision to install a new data processing system along with a wide area
network. Currently the installation is under way with an estimated
conversion date of November 1999. This new data processing system along
with a wide area network are both certified year 2000 compliant. In
addition to the $1,500,000 estimated cost of this installation, the
Company anticipates expenses of approximately $500,000 will be necessary
to modify other data systems prior to the Year 2000. However, there can
be no assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not arise. In
addition, there can be no assurance that the systems of other companies
on which the Company depends will be modified on a timely basis, or that
the failure by another company to properly modify its systems will not
negatively impact the systems or operations of the Bank.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and
accordingly, the Company manages exposure by considering the possible
changes in the net interest margin. The Company does not have any
trading instruments nor does it classify any portion of the investment
portfolio as held for trading. The Company does not engage in any
hedging activities or enter into any derivative instruments with a higher
degree of risk than mortgage backed securities which are commonly pass
through securities. Finally, the Company has no exposure to foreign
currency exchange rate risk, commodity price risk, and other market
risks.
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known as
"interest rate risk." The repricing of interest earning assets and
interest-bearing liabilities can influence the changes in net interest
income. As part of the Company's asset/liability management program,
the timing of repriced assets and liabilities is referred to as Gap
management. It is the policy of the Company to maintain Gap ratio in the
one-year time horizon of .80 to 1.20. See " ASSET/LIABILITY MANAGEMENT" .
GAP management alone is not enough to properly manage interest rate
sensitivity, because interest rates do not respond at the same speed or
at the same level to market rate changes. For example, savings and money
market rates are more stable than loans tied to a "Prime" rate and thus
respond with less volatility to a market rate change.
The Company uses a simulation model to monitor changes in net
interest income due to changes in market rates. The model of rising,
falling and stable interest rate scenarios allows management to monitor
and adjust interest rate sensitivity to minimize the impact of market
rate swings. The analysis of impact on net interest margins as well as
market value of equity over a twelve month period is subjected to a 200
basis point increase and decrease in rate. The February model reflects
an increase of 5% in net interest income and a 6% decrease in market<PAGE>
value equity for a 200 basis point increase in rates. The same model
shows a 5% decrease in net interest income and a 5% increase in market
value equity for a 200 basis point decrease in rates. The Company's
policy is to allow no more than +- 8% change in net interest income and
no more than +- 25% change in market value equity for these scenarios.
Therefore, the Company is within its policy guidelines and is protected
from any significant impact due to market rate changes.
SELECTED STATISTICAL INFORMATION
The tables and schedules on the following pages set forth certain
significant financial information and statistical data with respect to
the distribution of assets, liabilities and shareholders' equity of the
Company; the interest rates and interest differentials experienced by the
Company; the investment portfolio of the Company; the loan portfolio of
the Company, including types of loans, maturities and sensitivity to
changes in interest rates and information on nonperforming loans; summary
of the loan loss experience and reserves for loan losses of the Company;
types of deposits of the Company and the return on equity and assets for
the Company.<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
TABLE 1 AVERAGE BALANCES
The condensed average balance sheets for the periods indicated are presented
below.
1997 1996 1995
--------------------------------
ASSETS
Cash and due from banks $ 16,260 $ 13,539 $ 10,844
Interest-bearing deposits in banks 488 364 293
Taxable securities 50,957 43,337 43,506
Nontaxable securities 25,223 16,520 11,206
Unrealized losses on securities
available for sale (93) (130) (256)
Federal Funds Sold 9,704 11,864 9,146
Loans 223,170 191,180 170,525
Allowance for loan losses (3,873) (3,368) (2,944)
Other assets 20,243 16,013 14,271
--------------------------------
342,079 289,319 256,591
===============================+
Total interest-earning assets $ 309,542 $ 263,265 $ 234,676
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 41,472 $ 33,052 $ 28,031
Interest-bearing demand 61,638 57,240 53,498
Savings 15,387 13,145 12,141
Time 185,936 153,814 135,493
--------------------------------
Total deposits 304,433 257,251 229,163
Other borrowings 545 885 2,205
Other liabilities 6,894 6,489 4,389
--------------------------------
Total liabilities 311,872 264,625 235,757
--------------------------------
Shareholders' equity 30,207 24,694 20,834
--------------------------------
$ 342,079 $ 289,319 $ 256,591
================================
Total interest-bearing liabilities $ 263,506 $ 225,084 $ 203,337
================================
<PAGE>
TABLE 2 INTEREST INCOME AND INTEREST EXPENSE
The following tables set forth the amount of the Company's interest
income and interest expense for each category of interest-earning asset
and interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net
interest spread and net yield on average interest-earning assets.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-------------------------------------------------------------
Average Average Average
Interest Rate Interest Rate Interest Rate
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans 23,562 10.56% 20,440 10.69% 18,146 10.64%
Interest on taxable securities 3,108 6.10% 2,483 5.73% 2,550 5.86%
Interest on nontaxable securities 1,327 5.26% 908 5.50% 641 5.72%
Interest on Federal Funds sold 673 6.94% 625 5.27% 518 5.66%
Interest on deposits in banks 33 6.76% 9 2.47% 16 5.46%
Total interest income 28,703 9.27% 24,465 9.29% 21,871 9.32%
------ ------ ------
INTEREST EXPENSE:
Interest expense on interest-
bearing demand deposits 2,009 3.26% 1,797 3.14% 1,749 3.27%
Interest on savings deposits 436 2.83% 372 2.83% 343 2.83%
Interest on time deposits 10,704 5.76% 9,002 5.85% 7,647 5.64%
Interest on other borrowings 42 7.71% 65 7.34% 136 6.17%
Total interest expense 13,191 5.01% 11,236 4.99% 9,875 4.86%
------ ------ ------
NET INTEREST INCOME 15,512 13,229 11,996
====== ====== ======
Net interest spread 4.26% 4.30% 4.46%
Net yield on average
interest-earning assets 5.01% 5.02% 5.11%
</TABLE>
TABLE 3 RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income
and expense during the year indicated. For each category of interest-
earning assets and interest-bearing liabilities, information is provided
on changes attributable to (1) change in volume (change in volume
multiplied by old rate); (2) change in rate (change in rate multiplied by
old volume); and (3) a combination of change in rate and change in
volume. The changes in interest income and interest expense attributable
to both volume and rate have been allocated proportionately to the change
due to volume and the change due to rate.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 vs. 1996
Changes Due to:
Increase/
Rate Volume (decrease)
-----------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ (258) $ 3,380 $ 3,122
Interest on taxable securities 168 457 625
Interest on nontaxable (40) 459 419
Interest on Federal Funds sold 175 (127) 48
Interest on deposits in banks 20 4 24
--------------------------------------
Total interest income 141 2,142 4,238
--------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits $ 70 $ 142 $ 212
Interest on savings deposits 0 64 64
Interest on time deposits (149) 1,851 1,702
Interest on other borrowings 3 (26) (23)
--------------------------------------
Total interest expense (76) $ 2,031 $ 1,955
--------------------------------------
Net interest income $ 139 $ 2,144 $ 2,283
======================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1996 vs. 1995
Changes Due to:
Increase/
Rate Volume (decrease)
---------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ 85 $ 2,209 $ 2,294
Interest on taxable securities (57) (10) (67)
Interest on nontaxable securities (26) 293 267
Interest on Federal Funds sold (38) 145 107
Interest on deposits in banks (10) 3 (7)
--------------------------------------
Total interest income $ (46) $ 2,640 $ 2,594
--------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits $ (71) $ 119 $ 48
Interest on savings deposits 1 28 29
Interest on time deposits 291 1,064 1,355
Interest on other borrowings 22 (93) (71)
--------------------------------------
Total interest expense $ 243 $ 1,118 $ 1,361
--------------------------------------
Net interest income $ (289) $ 1,522 $ 1,233
======================================
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO
TABLE 4 TYPES OF INVESTMENTS
The carrying amounts of securities at the dates indicated are summarized
as follows <F1>:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
U. S. Treasury and other U. S. Government
agencies and corporations $29,094 $27,561 $27,965
Municipal securities 29,497 19,788 14,203
Mortgage-backed securities 21,962 17,806 12,140
Equity securities 1,448 917 658
------------------------------
$82,001 $66,072 $54,966
==============================
<FN>
<F1> Securities include "held to maturity" securities carried at
amortized cost and "available-for-sale" securities carried at fair
value in accordance with FASB 115.
</FN>
</TABLE>
The Community Banking Subsidiaries' mortgage-backed portfolio
consists of fifty-two U.S. Government corporation collateralized mortgage
obligations. The actual maturity of these securities will differ from the
contractual maturity because borrowers on the underlying loans may have the
right to prepay obligations with or without prepayment penalties. Decreases
in interest rates will generally cause prepayments to increase while
increases in the interest rates will have the opposite effect on prepayments.
Prepayments of the underlying loans may shorten the life of the security,
thereby adversely affecting the yield to maturity. In an increasing interest
rate, the Community Banking Subsidiaries may have an obligation yielding a
return less than the current yields on securities. However, because the
majority of these in mortgage-backed securities have adjustable rates, negative
effects of changes in interest rates on earnings and carrying values of these
securities are somewhat
mitigated.
<PAGE>
The amounts of securities in each category as of December 31, 1997
are shown in the following table according to maturity classifications of
one year or less, after one year through five years, after five years
through ten years, and after ten years.
<TABLE>
<CAPTION>
U.S. Treasury and Other
U.S. Government agencies
and corporations <F3> Municipal Securities <F2> Other Securities <F4>
Amount Yield <F1> Amount Yield <F1> Amount Yield<F1>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One year or less 4,504 5.46% 650 5.95% 1,448 5.00%
After one year
through five years 27,305 6.15 4,793 5.38 - -
After five years
through ten years 7,387 6.36 6,647 5.15 - -
After ten years 11,860 6.17 17,407 5.28 - -
------- ------- ------
51,056 6.12% 29,497 5.28% 1,448 5.00%
======= ======= ======
<FN>
<F1> Yields were computed using book value, coupon interest, adding
discount accretion or subtracting premium amortization, as
appropriate, on a ratable basis over the life of each security. The
weighted average yield for each maturity range was computed using
the carrying value of each security in that range.
<F2> Yields on municipal securities have not been computed on a tax
equivalent basis.
<F3> The above schedule includes mortgage-backed securities based on
their contractual maturity date. In practice, cash flow in these
securities is significantly faster than their stated maturity
schedules.
<F4> Other securities consists of equity securities and are included
in the under one year maturity range because the securities have no
contractual maturity date.
</FN>
</TABLE>
<PAGE>
LOAN PORTFOLIO
TABLE 6 Types of Loans
The amount of loans outstanding at the indicated dates are in the
following table according to the type of loan.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
--------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural <F1> $118,376 $102,231 $77,871 $77,439 $60,032
Real estate-construction 21,234 9,506 8,036 8,703 7,430
Real estate-mortgage 69,541 57,566 63,312 50,856 56,639
Consumer and other <F2> 36,070 36,483 30,072 25,269 20,848
--------------------------------------------------------
$245,221 $205,786 $179,291 $162,267 $144,949
Less allowance for loan losses (4,024) (3,592) (3,060) (2,686) (2,457)
--------------------------------------------------------
Net loans $241,197 $202,194 $176,231 $159,581 $142,492
<FN>
<F1> Commercial, financial and agricultural loans include loans held for
sale which are disclosed separately in the consolidated balance
sheets.
<F2> Amounts are disclosed net of unearned loan income.
</FN>
</TABLE>
See "Business Description of the Community Banking-Loans" for a
description of the composition of each loan, the underwriting criteria
and risks that are unique to each.
<PAGE>
TABLE 7 MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
Total loans as of December 31, 1997 are shown in the following table
according to maturity classifications one year or less, after one year
through five years and after five years.
December 31, 1997
(Dollars in Thousands)
Maturity:
One year or less:
Commercial, financial and agricultural $ 80,511
Real estate-construction 21,234
All other loans 35,171
---------
$ 136,916
---------
After one year through five years:
Commercial, financial $ 16,929
Real estate-construction -
All other loans 46,246
---------
$ 63,175
---------
After five years:
Commercial, financial and agricultural $ 20,936
Real estate-construction -
All other loans 24,194
---------
$ 45,130
---------
$ 245,221
=========
The following table summarizes loans at December 31, 1997 with due
dates after one year which have predetermined and floating or adjustable
interest rates.
December 31, 1997
(Dollars in Thousands)
Predetermined interest $ 60,145
Floating or adjustable 48,160
---------
$ 108,305
---------
Records were not available to present the above information in each
loan category listed in the first paragraph above and could not be
reconstructed without undue burden and cost to the Company.<PAGE>
TABLE 8 Nonaccrual, Past Due and Restructured Loans
Information with respect to nonaccrual past due and restructured
loans at the indicated dates is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
--------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $714 $1,119 $1,456 $640 $1,649
Loans contractually past due ninety
days or more as to interest or
principal payments still accruing 533 445 345 310 62
Loans, the terms of which have been
renegotiated to provide a reduction
or deferral of interest or principal
because of deterioration in the
financial position of the borrower 704 620 629 64 73
Loans, now current about which there are
serious doubts as to the ability of
the borrower to comply with present
loan repayment terms - - - - -
</TABLE>
The reduction in interest income associated with nonaccrual and
renegotiated loans as of December 31, 1997 is as follows:
December 31, 1997
-----------------
Interest income that would have been recorded on
nonaccrual and restructured loans under original terms $83,000
=======
Interest income that was recorded on nonaccrual and
restructured loans $36,000
=======
The Community Banking Subsidiaries' policy is to discontinue the
accrual of interest income when, in the opinion of management, collection
of such interest becomes doubtful. This status is accorded such interest
when (1) there is a significant deterioration in the financial condition
of the borrower and full repayment of principal and interest is not
expected and (2) the principal or interest is more than ninety days past
due, unless the loan is both well-secured and in the process of
collection. Accrual of interest on such loans is resumed, in
management's judgment, the collection of interest and principal become
probable. Loans classified for regulatory purposes as loss, substandard,
or special mention that have not been included in the table above do not
represent or result from trends or uncertainties which management
reasonably expects will materially effect future operating results,
liquidity or capital resources. These classified loans do not represent
material credits about which management is aware and which causes
management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms.
<PAGE>
COMMITMENTS AND LINES OF CREDIT
The Community Banking Subsidiaries will, in the normal course of
business, commit to extend credit in the form of letters of credit or
lines of credit. The amount of outstanding loan commitments and letters
of credit at December 31, 1997 and 1996 were $23,665,522 and $17,131,200,
respectively. Commitments to extend credit generally have fixed
expiration dates or other termination clauses and may require payment of
a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
SUMMARY OF LOAN LOSS EXPERIENCE
TABLE 9
The following table summarizes average loan balances for each year
determined using the daily average balances during the year; changes in
the reserve for possible loan losses arising from loans charged off and
recoveries on loans previously charged off; additions to the reserve
which have been charged to operating expense; and the ratio of net
charge-offs during the year to average loans.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 223,170 $ 191,180 $ 170,525 $ 150,426 $ 143,531
==========================================================
Balance of allowance for loan losses
at beginning of year $3,592 $3,060 $2,686 $2,457 $2,242
----------------------------------------------------------
Loans charged off
Commercial ($136) ($118) ($221) ($344) ($441)
Real estate mortgage (35) - - - (237)
Consumer (424) (211) (331) (244) (157)
----------------------------------------------------------
($595) ($329) ($552) ($588) ($835)
----------------------------------------------------------
Loans recovered
Commercial $11 $5 $12 $11 $7
Real estate mortgage 28 35 12 5 5
Consumer 52 64 53 51 112
-----------------------------------------------------------
$91 $104 $77 $67 $124
----------------------------------------------------------
Net charge-offs ($504) ($225) ($475) ($521) ($711)
----------------------------------------------------------
Additions to allowance charged
to operating expense during year $936 $757 $849 $750 $926
----------------------------------------------------------
Balance of allowance for loan losses
at end of year $4,024 $3,592 $3,060 $2,686 $2,457
----------------------------------------------------------
Ratio of net loans charged off during
the year to average loans outstanding 0.23% 0.12% 0.28% 0.35% 0.50%
==========================================================
/TABLE
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The provision for possible loan losses is created by direct charges
to income. Losses on loans are charged against the allowance in the year
in which such loans, in management's opinion, become uncollectible.
Recoveries during the year are credited to this allowance. The factors
that influence management's judgment in determining the amount charged
to income are past loan loss experience, composition of the loan
portfolio, evaluation of possible future losses, current economic
conditions and other relevant factors. The Company's allowance for loan
losses was approximately $4,024,000 at December 31, 1997, representing
1.64% of total loans, compared with approximately $3,592,000 at December
31, 1996, which represented 1.75% of total loans. The allowance for loan
losses is reviewed regularly based on management's evaluation of current
risk characteristics of the loan portfolio, as well as the impact of
prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan
losses at December 31, 1997.
Historically, management has not allocated the Company's allowance
for loan losses to specific categories of loans. However, based on
management's best estimate and historical experience, the allocation of
the allowance for loan losses for December 31, 1997, 1996, 1995, 1994 and
1993 is summarized below:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
----------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $1,850 $1,830 $1,347 $1,508 $1,219
Real estate 230 105 467 599 492
Consumer 1,944 1,657 1,246 579 746
-------------------------------------------------------
$4,024 $3,592 $3,060 $2,686 $2,457
=======================================================
Percent of loans in Each Category of Total Loans
December 31,
1997 1996 1995 1994 1993
---------------------------------------------------------
(Dollars in Thousands)
Commercial 49% 50% 43% 48% 41%
Real estate 35% 33% 40% 37% 44%
Consumer 16% 17% 17% 15% 15%
------------------------------------------------------
100% 100% 100% 100% 100%
======================================================
</TABLE>
<PAGE>
DEPOSITS
TABLE 10
<TABLE>
<CAPTION>
Average amount of deposits and average rates paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing
demand and savings deposits and time deposits, for the years indicated
are presented below. <F1>
Year Ended December 31,
1997 1996 1995
Average Average Average
Interest Rate Interest Rate Interest Rate
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 41,472 - $ 33,052 - $ 28,031 -
Interest-bearing demand deposits 61,638 3.26% 57,240 3.14% 53,498 3.27%
Savings deposits 15,387 2.83% 13,145 2.83% 12,141 2.83%
Time deposits 185,936 5.76% 153,814 5.85% 135,493 5.64%
--------- --------- ---------
Total deposits $ 304,433 $ 257,251 $ 229,163
========= ========= =========
<FN>
<F1> Average balances were determined using the daily average balances
during the year for each category.
</FN>
</TABLE>
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1997 are shown below by category,
which is based on time remaining until maturity of (1) three months or
less, (2) over three through six months, (3) over six through twelve
months and (4) over twelve months.
December 31, 1997
(Dollars in Thousands)
------------------------
Three months or less $20,867
Over three through six months 9,718
Over six through twelve months 12,066
Over twelve months 13,198
-------
$55,849
=======
<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS'' EQUITY
TABLE 11
The following rate of return information for the years is presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-------------------------
<S> <C> <C> <C>
Return on assets <F1> 1.65% 1.40% 1.22%
Return on equity <F2> 18.69% 16.38% 15.00%
Dividend payout ratio 5.38% 7.25% 8.44%
Equity to assets ratio 8.83% 8.54% 8.12%
<FN>
<F1> Net income divided by average total assets.
<F2> Net income divided by average equity.
<F3> Dividends declared per share divided by net income per share.
<F4> Average equity divided by average total assets.
<F5> Dividends declared per share after restatement for the stock
split as disclosed in the consolidated financial statements are
$0.14, $0.14, and $0.13 per share for 1997, 1996 and 1995,
respectively.
</FN>
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent public
accountants are included in this report beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the Company's two most recent fiscal years, the Company did
not change accountants and had no disagreement with its accountants
on any matters of accounting principles or practices or financial
statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a brief description, as of December 31, 1997, of
the business experience of each of the directors and executive
officers of the Company who, except as otherwise indicated, has been
or was engaged in his or her present of last principal employment,
in the same or a similar position, for more than five years:
Steven C. Adams Mr. Adams has been an attorney with the firm
(49) of Adams, Ellard P.C. since 1973 and president
of Chatham Transport Company, a trucking
company, since 1994. He has been a director
of the Company, Community - Habersham, and
Financial Supermarkets since 1990.
Edwin B. Burr Mr. Burr has served as a director of the Company
(64) since April of 1995 and Financial Supermarkets
since 1992. Mr. Burr has been president of
Financial Solutions, a bank consulting firm, since
1988.
Elton S. Collins Mr. Collins has been the President and Chief
(54) Executive Officer of Community - Jackson since
1982.
Annette R. Fricks Mrs. Fricks has been an Executive Vice President
(53) and Corporate Secretary of the Company and
Community - Habersham since 1992 and 1967,
respectively, and has also served as Corporate
Secretary of Financial Supermarkets since 1984.
Charles M. Miller Mr. Miller has served as an Executive Vice
(56) President of Company, the President and Chief
Operating Officer and director of Community -
Habersham and the Executive Vice President and
director of Financial Supermarkets since 1990.
Mr. Miller has served as a director of Community -
Troup since November 1994. Mr. Miller previously
was president and a director of the LaGrange,
Georgia branch of Citizens and Southern National
Bank (now known as NationsBank, N.A.) from 1980 -
1990.<PAGE>
Harry H. Purvis Mr. Purvis is a retired executive of Johnson &
(91) Johnson, Inc., a textile manufacturer, and has been
a director of the Company since 1981 and Community
- Habersham since 1956. Mr. Purvis has also served
as a director of Financial Supermarkets since 1984.
Harry L. Stephens Mr. Stephens has been an Executive Vice President
(51) and the Chief Financial Officer of the Company and
Community - Habersham since 1992 and has served as
Treasurer of Financial Supermarkets since 1986. He
was Senior Vice President of Community - Habersham
from 1986 to 1992.
H. Calvin Stovall, Mr. Stovall, who is retired, was the president and
Jr. (82) treasurer of Stovall Tractor Company, a retail farm
equipment dealer, from 1948 until November 1995.
He has served as the Chairman of the Company's
Board of Directors since 1981. Mr. Stovall has
also served as a director of Community - Habersham,
Community - Jackson, Financial Supermarkets and
Community - Troup since 1963, 1982, 1984 and
November 1994, respectively.
Dean C. Swanson Mr. Swanson is president of the Standard Group, a
(66) telecommunications company, and is a director of
Independent Telecommunications Network. Mr.
Swanson has served as a director of the Company,
Community - Habersham and Financial Supermarkets
since 1981, 1972, and 1984, respectively.
George D. Telford Mr. Telford is a retired bank executive and has
(77) served as a director of the Company and Community
- Habersham since 1981 and 1965, respectively, as
well as of Financial Supermarkets since 1993.
J. Alton Wingate Mr. Wingate has served as a director and the
(58) President and Chief Executive Officer of the
Company, Community - Habersham and Financial
Supermarkets since 1981, 1977 and 1984,
respectively. Mr. Wingate has also been the
chairman of the Board of Directors and a director
of Community - Jackson, Community - Alabama, and
Community - Troup since 1982, 1990, and November
1994, respectively. Mr. Wingate is a director of
Ingles Markets, Inc.
Directors are elected at each annual meeting of shareholders and
hold office until the next annual meeting and until their successors are
elected and qualified. The executive officers are elected by the Board
of Directors and serve at the will of the Board. There are no family
relationships between executive officers and directors of the Company.
The company is not subject to Section 16(a) of the Securities
Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual and long-term compensation
paid by the Company to the Chief Executive Officer of the Company and
the three other most highly compensated officers of the Company whose
salary and bonus exceeded $100,000 during the last fiscal (the "Named
Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Name and Principal Salary Securities Underlying All Other
Position Year ($)<F1> Bonus($)<F2> Options/SARS (#) Compensation ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. Alton Wingate 1997 $ 244,950 $ 728,981 <F7> - - $ 30,687 <F3>
President and Chief 1996 243,200 367,271 <F7> - - 19,203
Executive Officer 1995 237,600 256,364 <F7> - - 18,194
Charles M. Miller 1997 145,600 20,000 - - 23,974 <F4>
Executive Vice 1996 141,000 20,000 - - 17,846
President 1995 141,000 12,500 - - 14,929
Harry L. Stephens 1997 93,000 52,500 - - 19,811 <F5>
Executive Vice 1996 88,000 43,000 - - 14,011
President and 1995 83,000 27,500 - - 10,904
Chief Financial
Officer
Annette R. Fricks 1997 83,000 52,500 - - 17,088 <F6>
Executive Vice 1996 78,000 43,000 - - 12,959
President and 1995 73,000 30,000 - - 10,084
Corporate
Secretary
====================================================================================================================
<FN>
<F1> Includes directors' fees.
<F2> Bonuses are included in this report in the year paid.
<F3> Included premiums of $4,144.84 paid for Mr. Wingate's life
insurance policies and estimated employee stock ownership plan
("ESOP") contributions of $16,656. Final ESOP contributions have not
yet been determined for the 1997 fiscal year.
<F4> Includes premiums of $3,252.16 paid for Mr. Miller's life
insurance policies and estimated ESOP contributions of $16,234.00.
Final ESOP contributions have not yet been determined for the 1997
fiscal year.
<F5> Includes premiums of $912.00 paid for Mr. Stephen's life insurance
policies and estimated ESOP contributions of $14,408. ESOP
contributions have not yet been determined for the 1997 fiscal year.
<F6> Includes premiums of $660.00 paid for Mrs. Fricks' life insurance
policies and estimated ESOP contributions of $13,529. Final ESOP
contributions have not yet been determined for the 1997 fiscal year.
<F7> Mr. Wingate's bonus is contractually based on the performance of
Financial Supermarkets, with caps and guaranteed rates of return
before the bonus can be calculated and paid.
</FN>
</TABLE>
<PAGE>
DIRECTOR'S COMPENSATION. The Chairman of the Board of the Company
currently receives a fee of $2,250 per month for service as the Chairman
of the Board and other directors of the Board of the Company receive
$2,000 a year for service on the Company's Board of Directors. The
directors of Community - Habersham, Community - Jackson, Community -
Alabama, Community - Troup and Financial Supermarkets currently receive
fees of $10,000, $3,600, $3,000, $3,600, and $4,000 per year,
respectively.
AGREEMENTS WITH OFFICERS. In 1990, Community - Habersham entered into
an employment agreement with Mr. Miller pursuant to which the parties
agreed that Mr. Miller would serve as the President, Chief Operating
Officer and General Manager of Community - Habersham. The initial term
of the agreement was one year, subject to successive automatic renewals
of one year each unless (i) either party gives written notice at least 60
days prior to the annual renewal date of the desire to terminate, or (ii)
Community - Habersham terminates for cause (as defined in the agreement).
The agreement provides for Mr. Miller to receive an annual salary of
$125,000 plus certain benefits and perquisites. The agreement also
entitles Mr. Miller to certain severance payments following a change of
control (as defined in the agreement) of Community - Habersham. Further,
Mr. Miller agrees that he will not compete with or solicit certain
customers from Community - Habersham within Habersham or Jackson County
(or any contiguous county) for a period of three years after termination
of Mr. Miller's employment with Community - Habersham.
In 1987, Community - Habersham and Mr. Wingate entered into a
change-in-control agreement for a three year term, renewable for an
additional one year period annually thereafter in the sole discretion of
the compensation committee of the Board of Directors of Community -
Habersham. In the event of a change in control (as defined in the
agreement) of Community - Habersham and Mr. Wingate's employment
is involuntarily terminated other than for cause, disability or
retirement or is voluntarily terminated as a result of a material
reduction of duties, compensation or benefits or a forced relocation, the
agreement provides for the payment of certain severance benefits to Mr.
Wingate. Such benefits include the continuation of salary payments to
Mr. Wingate for a period of 36 months from the date of termination, the
payment of certain bonuses for the year in which his employment is
terminated and the following two calendar years, the continuation of
health and life insurance coverage and the continued participation by Mr.
Wingate in all employee retirement plans.
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year and FY-End Option Values
Number of
Securities Value of
Underlying Unexercised In-
Unexercised The-Money
Options at Fiscal Options at Fiscal
Year-End Year-End ($)
Shares Acquired (Exercisable/ (Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable) Unexercisable)
---- --------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
J. Alton Wingate 150,000 2,508,000 <F1> 0/0 0/0
Charles M. Miller -0- -0- 3,000/0 63,240/0
Harry L. Stephens -0- -0- 6,000/0 126,480/0
Annette R. Fricks -0- -0- 15,000/0 316,200/0
<FN> Based upon Appraised Value of Company Stock at December 31, 1996.
</FN>
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the percent and number of shares of
the Common Stock beneficially owned as of January 1, 1998 by (i) each of
the Named Executive Officers, (ii) each of the directors of the Company,
(iii) each shareholder who owns greater than five percent (5%) of the
Company's securities and (iv) all executive officers and directors of
the Company as a group, without naming such individuals. There were
2,169,830 shares outstanding as of that date.
<TABLE>
<CAPTION>
Name of Amount of Shares Percent
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Joye H. Adams 141,720 <F1> 6.53%
Steven C. Adams 459,371 <F2><F3><F4><F5><F6> 21.13%
Edwin B. Burr 1,080 <F7> *
Elton S. Collins 369,791 <F3><F8><F11> 17.04%
Community Bankshares, Inc. 344,531 <F9> 15.87%
Employee Stock Ownership
Plan and Trust
Annette R. Fricks 21,550 <F23><F24> 1.00%
Emmett D. Hart 151,440 <F10> 6.98%
Charles M. Miller 9,560 <F11><F22> *
Harry H. Purvis 43,400 <F13> 2.00%
Harry L. Stephens 7,600 <F12> *
H. Calvin Stovall 166,660 <F14><F15> 7.68%
Dean C. Swanson 30,000 1.38%
George D. Telford 74,840 <F16> 3.45%
J. Alton Wingate 700,920 <F2><F3><F4><F17><F18> 32.30%
<F19><F20>
All executive officers 1,103,330 <F21> 50.85%
and directors as a
group (11 Persons)
__________________
* less than one percent
<FN>
<F1> Mrs. Adams' address is 664 Chenocetah Drive, Cornelia, Georgia 30531.
<F2> Includes an aggregate of 48,000 shares held by the Taft Chatham Trusts
I and II with respect to which Messrs. Wingate and Adams are co-
trustees and share voting and investment power.
<F3> Includes 344,531 shares held by Community Bankshares, Inc. ESOP with
respect to which Messrs. Wingate, Adams and Collins are co-trustees
and share voting and investment power.
<F4> Includes 19,500 shares held by Chatham Transport company with respect
to which Messrs. Wingate and Adams share voting power.
<F5> Includes 44,340 shares held by Mr. Adams as trustee for the F. Jack
Adams Testamentary Trust, as to which Mr. Adams has voting and
investment control.
<F6> Mr. Adams' address is 20 North Main Street, Cornelia Georgia 30531.
<F7> Does not include 750 shares of Common Stock owned by Mr. Burr's
wife, as to which he disclaims beneficial ownership.
<F8> Mr. Collins' address is 1851 North Elm Street, Commerce, Georgia 30329.
<F9> The address of the ESOP is 448 North Main Street, Cornelia, Georgia
30531.
<F10> Mr. Hart's address is 1729 Davis (By-Pass) Road, LaGrange, Georgia 30241.
<F11> Includes presently-exercisable options to acquire 3,000 shares of Common
Stock.
<F12> Includes presently-exercisable options to acquire 6,000 shares of Common
Stock.
<F13> Does not include 1,050 shares of Common Stock owned by Mr. Purvis' wife,
as to which he disclaims beneficial ownership.
<F14> Mr. Stovall's address is 215 Grandview Circle, Cornelia, Georgia 30531.
<F15> Does not include 250 shares of Common Stock owned by Mr. Stovall's wife,
as to which he disclaims beneficial ownership.
<F16> Does not include 9,900 shares of Common Stock owned by Mr. Telford's
wife, as to which he disclaims beneficial ownership.
<F17> Includes 16,500 shares held by the Estate of H. Milton Stewart, Sr., of
which Mr. Wingate is a co-trustee and has voting and investment control.
<F18> Includes 5,010 shares held by Mr. Wingate as Attorney-in-Fact for
Virginia Hodgkinson as to which Mr. Wingate has voting and investment
control.
<F19> Mr. Wingate's address is 186 Hillcrest Heights, Cornelia, Georgia 30531.
<F20> Does not include 300 shares of Common Stock owned by Mr. Wingate's wife,
as to which he disclaims beneficial ownership.
<F21> Includes presently-exercisable options to acquire 24,000 shares of Common
Stock.
<F22> Does not include 420 shares of Common Stock owned by Mr. Miller's wife,
as to which he disclaims beneficial ownership.
<F23> Does not include 2,640 shares of Common Stock owned by Mrs. Fricks'
husband, as to which she disclaims beneficial ownership.
<F24> Includes presently-exercisable options to acquire 15,000 shares of
Common Stock.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Each of the Community Banking Subsidiaries has had, and expects to
have in the future, banking transactions in the ordinary course of
business with directors and officers of the particular bank and the
Company and their associates, including corporations in which such
officers or directors are shareholders, directors and/or officers, on the
same terms (including interest rates and collateral) as those prevailing
at the time for comparable transactions with other persons. Such
transactions have not involved more than the normal risk of
collectibility or presented other unfavorable features.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
The following financial statements and notes thereto of the
Registrant are included in the Report:
Independent Auditor's Report on the Financial Statement
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholder's Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(b) Exhibits.
The following exhibits are required to be filed with this Report by Item
601 of Regulation S-K:
Exhibits
- --------
3.1 Articles of Incorporation of the Registrant, as amended (included as
Exhibit 3.1 to the Registrant's Form 10-K for the year ended
December 31, 1995, previously filed with the Commission and
incorporated herein by reference).
3.2 By-Laws of the Registrant (included as Exhibit 3.3 to the
Registrant's Form S-4 Registration Statement, Commission File No.
33-81890, previously filed with the Commission and incorporated
herein by reference).
4.1 See exhibits 3.1 and 3.2 for provisions of Articles of Incorporation
and Bylaws as amended, which define the rights of the holders of
Common Stock of the Registrant (included as Exhibit 4.1 to the
Registrant's Form S-4 Registration Statement, Commission File No.
33-81890, previously filed with the Commission and incorporated
herein by reference).
10.1 Incentive Stock Option Plan, as adopted August 17, 1987 (included as
Exhibit 10.1 to the Registrant's Form S-4 Registration Statement,
Commission File No. 33-81890, previously filed with the Commission
and incorporated herein by reference).
10.2 Employment Agreement between Charles M. Miller and Community -
Habersham, dated March 31, 1990 (included as Exhibit 10.2 to the
Registrant's Form S-4 Registration Statement, Commission File No.
33-81890, previously filed with the Commission and incorporated
herein by reference).
10.3 Agreement Regarding Change in Control between J. Alton Wingate and
Community - Habersham, dated August 17, 1987 (included as Exhibit
10.3 to the Registrant's Form S-4 Registration Statement,
Commission File No. 33-81890, previously filed with the Commission
and incorporated herein by reference).
10.4 Profit Sharing Plan, dated September 30, 1993 (included as Exhibit
10.4 to the Registrant's Form S-4 Registration Statement,
Commission File No.33-81890, previously filed with the Commission
and incorporated herein by reference).
10.5 Amended and Restated Revolving Credit/Term Loan Agreement between
the Registrant and SunTrust Bank dated July 21, 1997
10.6 Master Consulting Agreement between Financial Supermarkets, Inc. and
NationsBanc Services, Inc. (included as Exhibit 10.1 to the
Registrant's Form 10-QSB for the period ended March 31, 1996 and
incorporated herein by reference).
10.7 Amendment No. 2 to Master Consulting Agreement between Financial
Supermarkets, Inc. and NationsBanc Services, Inc. dated July 3, 1997.
21 List of Subsidiaries of Registrant (included as Exhibit 21 to the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1994, previously filed with the Commission and
incorporated herein by this reference).
27.1 Financial Data Schedule (for SEC use only)
27.2 Restated Financial Data Schedule (year ended Dec. 31, 1996)
27.3 Restated Financial Data Schedule (quarters ended June 30, 1996 and
September 30, 1996)
27.4 Restated Financial Data Schedule (quarters ended March 31, 1997, June
30, 1997 and September 30, 1997)
99 Proxy materials
(c) No reports on Form 8-K were filed during the last quarter of 1997.
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
________________________________________________________________________
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS
Consolidated balance sheets. . . . . . . . . . . . . . . . F-2
Consolidated statements of income. . . . . . . . . . . . . F-3
Consolidated statements of shareholders' equity. . F-4 and F-5
Consolidated statements of cash flows. . . . . . . F-6 and F-7
Notes to consolidated financial statements . . . . F-8 to F-33
-i-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
________________________________________________________________________
To the Board of Directors
Community Bankshares, Inc.
and Subsidiaries
Cornelia, Georgia
We have audited the accompanying consolidated
balance sheets of Community Bankshares, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as well
as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all
material respects, the financial position of Community
Bankshares, Inc. and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Mauldin & Jenkins, LLC
- -----------------------------
MAULDIN & JENKINS, LLC
Atlanta, Georgia
January 9, 1998
F-1
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
===============================================================================
<TABLE>
<CAPTION>
1997 1996
------------- -------------
ASSETS
------
<S> <C> <C>
Cash and due from banks $ 23,957,030 $ 19,479,573
Interest-bearing deposits in banks 768,914 208,224
Federal funds sold 5,960,000 8,345,000
Securities available-for-sale 53,282,114 47,417,952
Securities held-to-maturity (fair value $29,557,804 and $18,826,126) 28,718,651 18,653,842
Loans held for sale 2,560,915 2,484,117
Loans 242,660,582 203,301,540
Less allowance for loan losses 4,024,171 3,591,958
------------- -------------
Loans, net 238,636,411 199,709,582
Premises and equipment 12,115,026 8,115,002
Other assets 11,080,455 11,165,622
------------- -------------
TOTAL ASSETS $377,079,516 $ 315,578,914
============= =============
LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------
Deposits
Noninterest-bearing demand $ 50,768,168 $ 36,877,267
Interest-bearing demand 72,854,181 61,676,438
Savings 16,275,911 13,949,338
Time, $100,000 and over 55,848,885 48,327,634
Other time 139,797,680 117,878,692
------------- -------------
TOTAL DEPOSITS 335,544,825 278,709,369
Other borrowings 462,299 616,399
Other liabilities 7,331,322 8,992,947
------------- -------------
TOTAL LIABILITIES 343,338,446 288,318,715
------------- -------------
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 344,531 and 308,870 shares
outstanding at December 31, 1997 and 1996, respectively
at fair value 10,621,891 6,177,400
------------- -------------
Shareholders' equity
Common stock, par value $1; 5,000,000 shares authorized;
2,169,830 and 2,004,830 issued and outstanding
at December 31, 1997 and 1996, respectively. 2,169,830 2,004,830
Capital surplus 6,036,220 5,276,520
Retained earnings 14,782,733 13,875,615
Unrealized gains (losses) on securities available-for-sale,
net of tax 130,396 (74,166)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 23,119,179 21,082,799
------------- -------------
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND
SHAREHOLDERS' EQUITY $ 377,079,516 $ 315,578,914
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
===========================================================================================================
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 23,562,784 $20,439,949 $ 18,146,625
Taxable securities 3,107,805 2,482,767 2,550,283
Nontaxable securities 1,326,884 907,794 640,702
Deposits in banks 33,523 8,855 15,538
Federal funds sold 672,915 625,274 517,688
------------ ------------ ------------
TOTAL INTEREST INCOME 28,703,911 24,464,639 21,870,836
------------ ------------ ------------
INTEREST EXPENSE
Deposits 13,149,225 11,170,833 9,738,965
Other borrowings 42,224 64,940 136,094
------------ ------------ ------------
TOTAL INTEREST EXPENSE 13,191,449 11,235,773 9,875,059
------------ ------------ ------------
NET INTEREST INCOME 15,512,462 13,228,866 11,995,777
PROVISION FOR LOAN LOSSES 936,216 757,262 848,800
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 14,576,246 12,471,604 11,146,977
------------ ------------ ------------
OTHER INCOME
Service charges on deposits 2,016,911 1,543,707 1,338,805
Other service charges, commissions and fees 431,729 498,401 372,609
Trust department fees 93,450 103,085 117,309
Nonbank subsidiary income 8,819,919 5,558,705 3,780,324
Gains on sale of loans 614,060 381,636 461,145
Net realized losses on sale of securities (3,992) (13,749) (65,247)
Other 447,053 320,342 207,600
------------ ------------ ------------
TOTAL OTHER INCOME 12,419,130 8,392,127 6,212,545
------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 10,474,465 8,265,776 6,785,323
Equipment expenses 1,487,528 1,373,968 1,271,574
Occupancy expenses 1,075,710 807,364 699,173
Data processing expenses 385,795 422,188 328,823
Travel expenses 583,208 531,488 525,805
Office supply expenses 437,375 373,163 302,237
Professional fees 197,536 252,747 399,794
Other operating expenses 4,082,196 2,923,613 2,657,112
------------ ------------ ------------
TOTAL OTHER EXPENSES 18,723,813 14,950,307 12,969,841
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 8,271,563 5,913,424 4,389,681
INCOME TAX EXPENSE 2,624,797 1,869,229 1,264,611
------------ ------------ ------------
NET INCOME $ 5,646,766 $ 4,044,195 $ 3,125,070
============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ 2.73 $ 2.06 $ 1.61
============ ============ ============
DILUTED EARNINGS PER COMMON SHARE $ 2.60 $ 1.93 $ 1.54
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
==============================================================================================================================
COMMON STOCK
----------------------------- CAPITAL RETAINED
SHARES PAR VALUE SURPLUS EARNINGS
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 64,342 $ 643,420 $ 5,380,843 $ 13,399,890
Net income - - - 3,125,070
Cash dividends declared, $.13 per share - - - (250,062)
Issuance of common stock 808 8,080 245,212 -
Recapitalization of common stock - (586,350) 586,350 -
30 for 1 stock split 1,889,350 1,889,350 (1,889,350) -
Net change in unrealized gains (losses)
on securities available-for-sale,
net of tax - - - -
----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1995 1,954,500 1,954,500 4,323,055 16,274,898
Net income - - - 4,044,195
Cash dividends declared, $.14 per share - - - (266,078)
Issuance of common stock 50,330 50,330 953,465 -
Adjustment for shares owned by ESOP - - - (6,177,400)
Net change in unrealized gains (losses)
on securities available-for-sale,
net of tax - - - -
----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1996 2,004,830 2,004,830 5,276,520 13,875,615
Net income - - - 5,646,766
Cash dividends declared, $.14 per share - - - (295,157)
Exercise of stock options 165,000 165,000 759,700 -
Sale of treasury stock to ESOP - - - -
Adjustment for shares owned by ESOP - - - (4,444,491)
Net change in unrealized gains (losses)
on securities available-for-sale,
net of tax - - - -
----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1997 2,169,830 $2,169,830 $ 6,036,220 $ 14,782,733
=========== =========== ============ =============
</TABLE>
F-4
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
==============================================================================================================================
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
AVAILABLE- TOTAL
TREASURY STOCK FOR-SALE SHAREHOLDERS'
SHARES AMOUNT NET OF TAX EQUITY
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 - $ - $ (419,906) $ 19,004,247
Net Income - - - 3,125,070
Cash dividends declared, $.13 per share - - - (250,062)
Issuance of common stock - - - 253,292
Recapitalization of common stock - - - -
30 for 1 stock split - - - -
Net change in unrealized gains (losses)
on securities available-for-sale,
net of tax - - 336,478 336,478
---------- --------- ----------- ------------
BALANCE, DECEMBER 31, 1995 - - (83,428) 22,469,025
Net income - - - 4,044,195
Cash dividends declared, $.14 per share - - - (266,078)
Issuance of common stock - - - 1,003,795
Adjustment for shares owned by ESOP - - - (6,177,400)
Net change in unrealized gains (losses)
on securities available-for-sale
net of tax - - 9,262 9,262
---------- --------- ----------- ------------
BALANCE, DECEMBER 31, 1996 - - (74,166) 21,082,799
Net income - - - 5,646,766
Cash dividends declared, $.14 per share - - - (295,157)
Exercise of stock options 35,661 (782,050) - 142,650
Sale of treasury stock to ESOP (35,661) 782,050 - 782,050
Adjustment for shares owned by ESOP - - - (4,444,491)
Net change in unrealized gains (losses)
on securities available-for-sale
net of tax - - 204,562 204,562
---------- --------- ----------- ------------
BALANCE, DECEMBER 31, 1997 - $ - $ 130,396 $ 23,119,179
========== ========= =========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
==============================================================================================================
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,646,766 $4,044,195 $ 3,125,070
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,154,306 926,807 788,974
Amortization of intangibles 244,911 8,911 11,311
Provision for loan losses 936,216 757,262 848,800
Provision for other real estate losses 65,000 110,000 167,000
Deferred income tax benefits (200,318) (197,515) (33,852)
(Increase) decrease in loans held for sale (76,798) (2,034,117) 1,692,625
Net realized losses on sale of securities 3,992 13,749 65,247
Net losses on sale of other real estate 39,182 2,722 12,468
Increase in interest receivable (690,955) (576,126) (405,008)
Increase in interest payable 277,325 395,738 865,574
Increase (decrease) in taxes payable (661,580) 274,814 (221,057)
(Increase) decrease in accounts receivable of
nonbank subsidiary 1,314,629 (1,127,313) 850,185
(Increase) decrease in work in process of nonbank 1,342,849 (1,383,105) (37,553)
subsidiary
Increase (decrease) in accruals and payables of
nonbank subsidiary (3,773,361) 3,773,361 (432,685)
Other operating activities 263,081 (437,924) (605,672)
----------- ----------- -----------
Net cash provided by operating activities 5,885,245 4,551,459 6,691,427
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (25,373,331) (21,318,882) (13,726,854)
Proceeds from sales of securities available-for-sale 10,687,389 3,465,702 9,242,423
Proceeds from maturities of securities available-for-sale 9,158,723 13,119,694 5,307,709
Purchases of securities held-to-maturity (11,403,699) (7,042,587) (6,018,408)
Proceeds from maturities of securities held-to-maturity 1,338,890 668,954 5,407,364
Net (increase) decrease in Federal funds sold 2,385,000 3,850,000 (5,985,000)
Net (increase) decrease in interest-bearing deposits in banks (560,690) (208,224) 797,000
Net increase in loans (40,109,318 (24,980,798) (19,733,873)
Purchase of premises and equipment (5,334,330) (3,495,693) (1,014,579)
Disposal of premises and equipment - 194,650 26,300
Net cash acquired in branch acquisition 99,612 - -
Proceeds from sale of other real estate 383,638 189,463 1,416,756
----------- ----------- -----------
Net cash used in investing activities (58,728,116) (35,557,721) (24,281,162)
----------- ----------- -----------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
===============================================================================================================
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 56,835,456 $ 36,267,717 $ 17,680,181
Net increase in other borrowings - 1,616,399 428,415
Repayment of other borrowings (154,100) (1,786,939 (1,874,376)
Proceeds from the issuance of common stock 924,700 1,003,795 253,292
Dividends paid (285,728) (261,023) (246,035)
------------ ------------ ------------
Net cash provided by financing activities 57,320,328 36,839,949 16,241,477
------------ ------------ ------------
Net increase (decrease) in cash and due from banks 4,477,457 5,833,687 (1,348,258)
Cash and due from banks at beginning of year 19,479,573 13,645,886 14,994,144
------------ ------------ ------------
Cash and cash due from banks at end of year $ 23,957,030 $ 19,479,573 $ 13,645,886
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 12,914,124 $ 10,840,035 $ 9,009,485
Income taxes $ 3,526,919 $ 1,791,930 $ 1,563,738
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available-for-sale $ 340,935 $ (12,031) $ (396,287)
Principal balances of loans transferred to other
real estate $ 426,273 $ 294,787 $ 542,327
Transfer of securities held-to-maturity to securities
available-for-sale $ - $ - $ 29,644,758
BRANCH ACQUISITION
Net cash acquired $ 99,612 - -
============
Loans 4,357,901 - -
Premises and equipment 608,071 - -
Other assets 1,828 - -
Core deposit intangible 2,190,765 - -
Deposits (12,387,583) - -
Other liabilities (62,790) - -
------------
Net liabilities assumed, net of cash and due from
banks of $99,612 $ (5,291,808)
============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Community Bankshares, Inc. (the Company) is a multi-bank holding
company whose business is presently conducted by its wholly-
owned subsidiaries: Community Bank & Trust - Habersham located
in Cornelia, Georgia; Community Bank & Trust - Jackson located
in Commerce, Georgia; Community Bank & Trust - Alabama located
in Union Springs, Alabama; and Community Bank & Trust - Troup
located in LaGrange, Georgia. Financial Supermarkets, Inc. is a
wholly-owned subsidiary of Community Bank & Trust - Habersham
which provides a variety of bank related products and services
to the financial institution industry.
The banking subsidiaries are commercial banks operating
independently of one another in their respective market areas.
The banking subsidiaries in Georgia have identified their
primary market areas to be the county in which they are located
and all surrounding counties. The Georgia banking subsidiaries
are all located approximately 85 miles from the metropolitan
Atlanta area. Community Bank & Trust - Alabama is located
approximately 50 miles from Montgomery, Alabama. Financial
Supermarkets, Inc. currently provides products and services
primarily in the southeastern United States; however, their
products and services are marketed internationally. The Banks
provide a full range of banking services to individual and
corporate customers in their primary market areas and
surrounding counties.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Significant intercompany
transactions and accounts are eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices
within the financial services industry. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the year. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection, and amounts
due from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times,
may exceed Federally insured limits. The Company has not
experienced any losses in such accounts.
F-8
<PAGE>
SECURITIES
Securities are classified based on management's
intention on the date of purchase. Securities
which management has the intent and ability to
maturity and reported at amortized cost. All
other securities are classified as available-
for-sale and carried at fair value with net
unrealized gains and losses included in
shareholders' equity, net of tax. Equity
securities without a readily determinable fair
value are carried at cost.
Interest and dividends on securities, including
amortization of premiums and accretion of
discounts, are included in interest income.
Realized gains and losses from the sales of
securities are determined using the specific
identification method.
LOANS HELD FOR SALE
Loans held for sale include mortgage and other
loans and are carried at the lower of aggregate
cost or fair value.
LOANS
Loans are carried at their principal amounts
outstanding less unearned income and the
allowance for loan losses. Interest income on
loans is credited to income based on the
principal amount outstanding.
Loan origination fees and certain direct costs
of most loans are recognized at the time the
loan is recorded. Loan origination fees and
costs incurred for other loans are deferred and
recognized as income over the life of the loan.
Because net origination loan fees and costs are
not material, the results of operations are not
materially different than the results which
would be obtained by accounting for all loan
fees and costs in accordance with generally
accepted accounting principles.
The allowance for loan losses is maintained at
a level that management believes to be adequate
to absorb potential losses in the loan
portfolio. Management's determination of the
adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss
experience, current economic conditions,
volume, growth, composition of the loan
portfolio, and other risks inherent in the
portfolio. In addition, regulatory agencies,
F-9<PAGE>
as an integral part of their examination
process, periodically review the Company's
allowance for loan losses, and may require the
Company to record additions to the allowance
based on their judgment about information
available to them at the time of their
examinations.
The accrual of interest on impaired loans is
discontinued when, in management's opinion, the
borrower may be unable to meet payments as they
become due. Interest income is subsequently
recognized only to the extent cash payments are
received.
A loan is impaired when it is probable the
Company will be unable to collect all principal
and interest payments due in accordance with
the terms of the loan agreement. Individually
identified impaired loans are measured based on
the present value of payments expected to be
received, using the contractual loan rate as
the discount rate. Alternatively, measurement
may be based on observable market prices or,
for loans that are solely dependent on the
collateral for repayment, measurement may be
based on the fair value of the collateral. If
the recorded investment in the impaired loan
exceeds the measure of fair value, a valuation
allowance is established as a component of the
allowance for loan losses. Changes to the
valuation allowance are recorded as a component
of the provision for loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is
computed principally by the straight-line
method over the estimated useful lives of the
assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties
acquired through foreclosure. Other real
estate owned is held for sale and is carried at
the lower of the recorded amount of the loan or
fair value of the properties less estimated
selling costs. Any write-down to fair value at
the time of transfer to other real estate owned
is charged to the allowance for loan losses.
Subsequent gains or losses on sale and any
subsequent adjustment to the value are recorded
as other expenses.
F-10
<PAGE>
INCOME TAXES
Income tax expense consists of current and
deferred taxes. Current income tax provisions
approximate taxes to be paid or refunded for
the applicable year. Deferred tax assets and
liabilities are recognized on the temporary
differences between the bases of assets and
liabilities as measured by tax laws and their
bases as reported in the financial statements.
Deferred tax expense or benefit is then
recognized for the change in deferred tax
assets or liabilities between periods.
Recognition of deferred tax balance sheet
amounts is based on management's belief that it
is more likely than not that the tax benefit
associated with certain temporary differences,
tax operating loss carryforwards and tax
credits will be realized. A valuation
allowance is recorded for those deferred tax
items for which it is more likely than not that
realization will not occur.
The Company and subsidiaries file a consolidated
income tax return. Each entity provides for income
taxes based on its contribution to income taxes
(benefits) of the consolidated group.
SALE OF LOANS
The Banks originate and sell participations in
certain loans. Gains are recognized at the
time the sale is consummated. The amount of
gain recognized on the sale of a specific loan
is equal to the percentage resulting from
determining the fair value of the portion of
the loan sold relative to the fair value of the
entire loan including servicing rights. Any
material unrecognized gain is deferred and
amortized into income over the term of the
portion of the loan not sold. Losses are
recognized at the time the loan is identified
as held for sale and the loan's carrying value
exceeds its market value.
TRUST DEPARTMENT
Trust income is recognized on the cash basis in
accordance with established industry practices.
Reporting of such fees on the accrual basis
would have no material effect on reported income.
F-11
<PAGE>
NONBANK SUBSIDIARY REVENUE RECOGNITION
Financial Supermarkets, Inc., a wholly-owned
subsidiary of Community Bank & Trust - Habersham,
recognizes revenue and costs on its installation
contracts on the completed-contract method of
accounting. Under this method, billings and costs
are accumulated during the period of installation,
but no profits are recorded before the completion
of the work. Provisions for estimated losses on
uncompleted contracts are made at the time such
losses are identified. The results of operations
are not materially different than the results which
would be obtained by accounting for these contracts
in accordance with generally accepted accounting
principles. Operating expenses, including indirect
costs and administrative expenses, are charged as
incurred to periodic income and not allocated to
contract costs. Income from other consulting services
is recognized as services are provided and costs and
expenses are incurred for each individual contract.
EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by
dividing net income by the weighted-average
number of shares of common stock outstanding.
Diluted earnings per share would be computed by
dividing net income minus the income effect of
potential common shares that are dilutive by
the sum of the weighted-average number of
shares of common stock outstanding and
potential common shares. Potential common
shares consist of stock options.
RECENT DEVELOPMENTS
The Financial Accounting Standards Board (FASB)
has issued, and the Bank has adopted, Statement
of Financial Accounting Standards (SFAS) No.
125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of
Liabilities". SFAS No. 125 was amended by SFAS
No. 127, which defers the effective date of
certain provisions of SFAS No. 125 until
January 1, 1998. This statement provides
accounting and reporting standards for
transfers and servicing of financial assets and
extinguishments of liabilities based on consistent
application of a financial-components approach that
focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that
are secured borrowings. The adoption of this
statement did not have a material effect on the
Company's financial statements.
The FASB has issued, and the Bank has adopted,
SFAS No. 128, "Earnings Per Share". SFAS No.
128 supersedes Accounting Principles Board
Opinion No. 15 "Earnings Per Share" and
F-12<PAGE>
specifies the computation, presentation, and
disclosure requirements for earnings per share
(EPS) for entities with publicly held common
stock or potential issuable common stock. SFAS
No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS and fully
diluted EPS with diluted EPS. It also requires
dual presentation of basic and diluted EPS on
the face of the statement of income for all
entities with complex capital structures and
requires a reconciliation of the numerator and
denominator for the basic EPS computation to
the numerator and denominator of the diluted
EPS computation. SFAS No. 128 is effective for
financial statements for both interim and
annual periods ending after December 15, 1997.
The adoption of this statement did not have a
material effect on the Company's financial
statements.
The FASB has issued SFAS No. 130, "Reporting
Comprehensive Income". This statement
establishes standards for reporting and display
of comprehensive income and its components in
the financial statements. SFAS No. 130
requires all items that are required to be
recognized under accounting standards as
components of comprehensive income to be
reported in a financial statement that is
displayed in equal prominence with the other
financial statements. The term "comprehensive
income" is used in the SFAS to describe the
total of all components of comprehensive income
including net income. "Other comprehensive
income" refers to revenues, expenses, gains and
losses that are included in comprehensive
income but excluded from earnings under current
accounting standards. Currently, "other
comprehensive income" for the Company consists
of items previously recorded directly in equity
under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".
SFAS No. 130 is effective for financial
statements beginning after December 15, 1997.
F-13
<PAGE>
NOTE 2. SECURITIES
The amortized cost and fair value of securities
are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
DECEMBER 31, 1997:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 28,936,320 $ 189,522 $ (31,253) $ 29,094,589
STATE AND MUNICIPAL SECURITIES 746,476 31,399 - 777,875
MORTGAGE-BACKED SECURITIES 21,934,402 156,624 (128,968) 21,962,058
EQUITY SECURITIES 1,447,592 - - 1,447,592
------------ --------- ---------- ------------
$ 53,064,790 $ 377,545 $ (160,221) $ 53,282,114
============ ========= ========== ============
December 31, 1996:
U. S. Government and agency
securities $ 27,727,826 $ 42,030 $ (209,345) $ 27,560,511
State and municipal securities 1,091,315 42,845 - 1,134,160
Mortgage-backed securities 17,805,102 147,327 (146,468) 17,805,961
Equity securities 917,320 - - 917,320
------------ --------- ---------- ------------
$ 47,541,563 $ 232,202 $ (355,813) $ 47,417,952
============ ========= ========== ============
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1997:
STATE AND MUNICIPAL SECURITIES $ 28,718,651 $ 859,383 $ (20,230) $ 29,557,804
============ ========== ========== ============
December 31, 1996:
State and municipal securities $ 18,653,842 $ 234,164 $ (61,880) $ 18,826,126
============ ========== ========== ============
</TABLE>
The amortized cost and fair value of securities
as of December 31, 1997 by contractual maturity
are shown below. Maturities may differ from
contractual maturities in mortgage-backed
securities because the mortgages underlying the
securities may be called or prepaid with or
without penalty. Therefore, these securities
and equity securities are not included in the
categories in the following maturity summary.
F-14
<PAGE>
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY
----------------------------- -----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 4,443,703 $ 4,447,872 $ 658,098 $ 656,196
Due from one year to five years 24,545,242 24,724,007 5,789,959 5,928,806
Due from five to ten years 500,000 499,785 6,619,337 6,836,682
Due after ten years 193,851 200,800 15,651,257 16,136,120
Mortgage-backed securities 21,934,402 21,962,058 - -
Equity securities 1,447,592 1,447,592 - -
------------ ------------ ------------ ------------
$ 53,064,790 $ 53,282,114 $ 28,718,651 $ 29,557,804
============ ============ ============ ============
</TABLE>
Securities with a carrying value of $36,160,837
and $28,814,848 at December 31, 1997 and 1996,
respectively, were pledged to secure public
deposits and for other purposes.
Gains and losses on sales of securities available-for-sale consist
of the following:
DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- ----------
Gross gains $ 47,843 $ 21,143 $ 28,109
Gross losses (51,835) (34,892) (93,356)
--------- --------- ---------
Net realized losses $ (3,992) $ (13,749) $ (65,247)
========= ========= =========
Under special provisions adopted by the
Financial Accounting Standards Board in October
1995, the Banks transferred $29,644,758 from
securities held-to-maturity to securities
available-for-sale on December 31, 1995,
resulting in a net unrealized loss of $189,519
which was included in shareholders' equity at
$113,711 net of related taxes of $75,808.
F-15
<PAGE>
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
DECEMBER 31,
------------------------------
1997 1996
------------- ------------
Commercial, financial, and
agricultural $ 115,815,084 $ 99,746,883
Real estate - construction 21,234,000 9,506,000
Real estate - mortgage 69,541,000 57,566,000
Consumer 33,378,000 28,659,000
Other 3,011,992 8,139,791
------------- ------------
242,980,076 203,617,674
Unearned income (319,494) (316,134)
Allowance for loan losses (4,024,171) (3,591,958)
------------- ------------
Loans, net $ 238,636,411 $199,709,582
============= ============
Changes in the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,591,958 $ 3,060,479 $ 2,685,800
Provision charged to operations 936,216 757,262 848,800
Loans charged off (595,258) (329,592) (551,644)
Recoveries of loans previously
charged off 91,255 103,809 77,523
----------- ----------- -----------
BALANCE, END OF YEAR $ 4,024,171 $ 3,591,958 $ 3,060,479
=========== =========== ===========
</TABLE>
The total recorded investment in impaired loans
was $1,418,094 and $1,739,091 at December 31,
1997 and 1996, respectively. None of these loans
had a specific allowance for loan losses at
December 31, 1997 and 1996 determined in accordance
with generally accepted accounting principles. The
average recorded investment in impaired loans for
1997 and 1996 was $1,577,977 and $1,966,092,
respectively. There was no significant reduction or
recognition of interest income on impaired loans.
F-16
<PAGE>
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Banks have granted loans to certain related
parties, including directors, executive officers
and their related entities. The interest rates
on these loans were substantially the same as
rates prevailing at the time of the transaction
and repayment terms are customary for the type
of loan involved. Changes in related party
loans for the year ended December 31, 1997 are
as follows:
BALANCE, BEGINNING OF YEAR $ 3,204,173
Advances 6,218,328
Repayments (2,017,368)
Changes in directors (5,535)
------------
BALANCE, END OF YEAR $ 7,399,598
============
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
DECEMBER 31,
---------------------------
1997 1996
------------ -----------
Land $ 1,966,267 $ 1,488,621
Buildings 7,080,247 5,040,830
Equipment 9,362,724 6,754,619
Construction in process ($758,000
estimated cost to complete) 1,392,330 1,652,390
------------ -----------
19,801,568 14,936,460
Accumulated depreciation (7,686,542) (6,821,458)
------------ -----------
$ 12,115,026 $ 8,115,002
============ ===========
NOTE 5. OTHER BORROWINGS
Other borrowings consist of the following:
DECEMBER 31,
---------------------------
1997 1996
------------ -----------
Note payable to bank, due in quarterly
installments of $38,526 with interest
of 7.50% at December 31, 1997,
collateralized by 50,000 shares of
common stock of Community Bank & Trust
-Habersham. Matures December 31, 2000. $ 462,299 $ 616,399
============ ===========
F-17<PAGE>
NOTE 5. OTHER BORROWINGS (CONTINUED)
Aggregate maturities required on other
borrowings at December 31, 1997 are as follows:
1998 $ 154,100
1999 154,100
2000 154,099
---------
$ 462,299
=========
NOTE 6. EMPLOYEE BENEFIT PLANS
Incentive Stock Option Plan
The Company has an Incentive Stock Option Plan
in which the Company can grant to key personnel
options for an aggregate of 225,000 shares of
the Company's common stock at not less than the
fair market value of such shares on the date
the option is granted. If the optionee owns
shares of the Company representing more than
10% of the total combined voting power, then
the price shall not be less than 110% of the
fair market value of such shares on the date
the option is granted. Also, the option period
will not exceed ten years from date of grant.
Other pertinent information related to the
options is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Under option, beginning of year 204,000 $ 6.42 204,000 $ 6.42 204,000 $ 6.42
Granted - - 330 11.50 330 9.85
Exercised (165,000) 5.60 (330) 11.50 - -
Terminated - - - - (330) 9.85
-------- ------- -------
Under option, end of year 39,000 9.85 204,000 6.42 204,000 6.42
======== ======= =======
</TABLE>
F-18
<PAGE>
NOTE 6. EMPLOYEE BENEFIT PLANS (CONTINUED)
INCENTIVE STOCK OPTION PLAN (CONTINUED)
UNDER OPTION AND EXERCISABLE, END OF YEAR
------------------------------------------------
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING
EXERCISE CONTRACTUAL
NUMBER PRICE PRICE LIFE
-------- -------- ---------- ------------
39,000 $ 9.85 $ 9.85 7
As permitted by Statement of Financial Accounting Standard No.
123 "Accounting for Stock-Based Compensation" (SFAS No. 123),
the Company recognizes compensation cost for stock-based employee
compensation awards in accordance with APB Opinion No. 25,
("Accounting for Stock Issued to Employees"). The Company
recognized no compensation cost for stock-based employee
compensation awards for the years ended December 31, 1997, 1996,
and 1995. The expense related to the grant of options for the
years ended December 31, 1997, 1996, and 1995 was immaterial.
401(K) PLAN
The Company has a contributory 401(K) retirement plan covering
substantially all employees. Contributions to the plan charged
to expense for the years ended December 31, 1997 and 1996 amounted
to $77,799 and $26,237, respectively. There were no contributions
for the year ended December 31, 1995.
PROFIT-SHARING PLAN
The Company had a noncontributory profit-sharing plan covering all
employees, subject to certain minimum age and service requirements.
The amount of the annual contribution to the plan is at the
discretion of the Company's Board of Directors. The amount charged
to expense was $386,482 for the year ended December 31, 1995. The
plan was terminated effective January 1, 1996.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1996 the Company established an Employee Stock Ownership Plan
(ESOP) for the benefit of employees who meet certain eligibility
requirements. The Plan was established on January 1, 1996 in
connection with the termination of the Company's Profit Sharing
Plan. Contributions to the Plan are determined by the Board of
Directors of the Company taking into consideration the financial
condition and fiscal requirements of the Company and such other
factors as the Board of Directors may deem pertinent and applicable
under the circumstances. For the years ended December 31, 1997 and
1996, the Company made cash contributions of $644,133 and $488,500,
respectively, to the Plan.
F-19
<PAGE>
NOTE 6. EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
In accordance with the Plan, the Company is expected to honor the
rights of certain participants to diversify their account balances
or to liquidate their ownership of the common stock in the event of
distribution. The purchase price of the common stock would be
based on the fair market value of the Company's common stock as of
the annual valuation date which precedes the date the put option is
exercised. No participant has exercised these rights since the
inception of the Plan, and no significant cash outlay is expected
during 1998. However, since the redemption of common stock is
outside the control of the Company, the Company's maximum cash
obligation based on the approximate market prices of common stock
as of the reporting date has been presented outside of shareholders'
equity. The amount presented as redeemable common stock held by
the ESOP in the consolidated balance sheet represents the Company's
maximum cash obligation and has been reflected as a reduction of
retained earnings.
At December 31, 1997, the ESOP held 308,870 allocated shares and
35,661 of committed-to-be-released shares. Shares held by the ESOP
are considered outstanding for purposes of calculating the Company's
earnings per share.
NOTE 7. INCOME TAXES
The income tax expense consists of the following:
December 31,
--------------------------------------
1997 1996 1995
----------- ----------- ------------
Current $ 2,865,339 $ 2,112,253 $ 1,327,665
Deferred (195,033) (197,515) (33,852)
Current tax effect of net operating (45,509) (45,509) (29,202)
loss carryforward ----------- ----------- -----------
Income tax expense $ 2,624,797 $ 1,869,229 $ 1,264,611
=========== =========== ===========
F-20
<PAGE>
NOTE 7. INCOME TAXES (CONTINUED)
The Company's income tax expense differs from the amounts computed
by applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
----------- --------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 2,812,331 34 % $ 2,010,564 34 % $ 1,492,492 34 %
Tax-exempt interest (477,425) (6) (351,027) (6) (262,391) (6)
Disallowed interest 70,054 1 47,859 1 32,469 1
Current tax effect of net
operating loss carryforward (45,509) - (45,509) (1) (29,202) (1)
Nondeductible expenses 38,012 - 59,692 1 32,469 1
State income taxes 264,672 3 154,777 3 - -
Other items (37,338) - (7,057) - (1,226) -
----------- --- ----------- --- ----------- ---
Income tax expense $ 2,624,797 32 % $ 1,869,299 32 % $ 1,264,611 29 %
=========== === =========== === =========== ===
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
--------------- ------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 1,181,092 $ 1,069,063
Unrealized loss on securities - 50,017
Net operating loss carryforward 185,131 230,641
Valuation allowance (185,131) (230,641)
------------ -----------
1,181,092 1,119,080
------------ -----------
Deferred tax liabilities:
Depreciation 90,688 207,900
Accretion 145,792 111,385
Unrealized gain on securities 86,930 -
Other 224 423
------------ -----------
323,634 319,708
------------ -----------
Net deferred tax assets $ 857,458 $ 799,372
============ ===========
</TABLE>
At December 31, 1997, the Company has available net
operating loss carryforwards of approximately $544,000
for Federal income tax purposes. If unused, the
carryforwards will expire in 2009.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. EARNINGS PER COMMON SHARE
Earnings per common share and common equivalent share were computed by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding. The number of common
shares was increased by the number of shares issuable upon the
exercise of the stock options described in Note 6. This theoretical
increase in the number of common shares was reduced by the number of
common shares which are assumed to have been repurchased for the
treasury with the proceeds from the exercise of the options; these
purchases were assumed to have been made at the price per share that
approximates market value. The treasury stock method for determining
the amount of dilution of stock options is based on the concept that
common shares which could have been purchased with the proceeds of
the exercise of common stock options at market value are not actually
outstanding common shares. The weighted average number of shares of
common stock and common stock equivalents outstanding at December 31,
1997, 1996 and 1995 was 2,160,133, 2,091,419 and 2,034,494,
respectively.
Effective December 20, 1995, the Company recapitalized by reducing the
par value of its common stock from $10 to $1 and declaring a 30 for 1
stock split. This transaction increased the number of shares
outstanding at December 31, 1995 to 1,954,500. In accordance with
generally accepted accounting principles, the weighted average number
of shares for 1995 was adjusted to reflect the stock split.
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in
determining basic and diluted earnings per common share (EPS):
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
WEIGHTED-
NET AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------
Basic EPS $ 5,646,766 2,065,908 $ 2.73
======
Effect of Dilutive Securities
Stock options - 107,203
----------- ---------
Diluted EPS $ 5,646,766 2,173,111 $ 2.60
=========== ========= ======
F-22
<PAGE>
NOTE 8. EARNINGS PER COMMON SHARE (CONTINUED)
Year Ended December 31, 1996
---------------------------------------------
Weighted-
Net Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS $ 4,044,195 1,961,597 $ 2.06
Effect of Dilutive Securities ======
Stock options - 129,822
----------- ---------
Diluted EPS $ 4,044,195 2,091,419 $ 1.93
=========== ========= ======
Year Ended December 31, 1995
--------------------------------------------
Weighted-
Net Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS $ 3,125,070 1,944,373 $ 1.61
Effect of Dilutive Securities ======
Stock options - 90,121
----------- ---------
Diluted EPS $ 3,125,070 2,034,494 $ 1.54
=========== ========= ======
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the consolidated balance sheet.
F-23
<PAGE>
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. A summary of the Company's
commitments is as follows:
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
Commitments to extend credit $ 20,312,022 $ 13,890,000
Standby letters of credit 3,353,500 3,241,200
------------ ------------
$ 23,665,522 $ 17,131,200
============ ============
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, inventory, equipment, and personal
property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
The Company has leased thirteen various properties and telephone
equipment under various noncancelable agreements which expire between
January 1, 1998 to January 8, 2011 and require various minimum annual
rentals. The leases related to properties also require the payment
of property taxes, normal maintenance and insurance.
F-24
<PAGE>
The total minimum rental commitment at December 31, 1997 is due as
follows:
During the year ending December 31:
1998 $ 415,539
1999 386,025
2000 325,209
2001 250,421
2002 140,266
Due thereafter 100,159
-----------
$ 1,617,616
===========
The total rental expense for the years ended December 31, 1997, 1996
and 1995 was $512,293, $360,978 and $235,783, respectively.
NOTE 10. CONCENTRATIONS OF CREDIT
The banking subsidiaries originate primarily commercial, residential,
and consumer loans to customers in their local communities and
surrounding counties. The ability of the majority of the Banks'
customers to honor their contractual loan obligations is dependent on
their local economy as well as the economy in the metropolitan Atlanta
and Montgomery areas.
Thirty-seven percent of the Company's loan portfolio is concentrated
in loans secured by real estate. A substantial portion of these loans
is in the Banks' primary market areas. In addition, a substantial
portion of the real estate owned is located in those same markets.
Accordingly, the ultimate collectibility of the Company's loan
portfolio and the recovery of the carrying amount of other real estate
owned is susceptible to changes in market conditions in the Banks'
primary market areas.
The Company's loan portfolio also includes a concentration, 48% of the
total portfolio, of commercial, financial, and agricultural loans.
These loans represent loans made primarily to local businesses in the
Banks' market areas. A portion of these loans are small business
loans and residential loans originated by the loan production office,
a division of Community Bank & Trust - Habersham, which are outside
the Banks' primary market areas. The Company's lending policies
require loans of all types to be adequately collateralized and
supported by adequate cash flows.
Other significant concentrations of credit by type of loan are set
forth in Note 3. The Banks, as a matter of policy, do not generally
extend credit to any single borrower or group of related borrowers in
excess of 25% of each individual Bank's statutory capital, or
approximately $2,750,000, $762,500, $500,000, and $987,500 for
Community Bank & Trust - Habersham; Jackson; Alabama; and Troup;
respectively.
NOTE 11. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval.
At December 31, 1997, approximately $3,320,000 of retained earnings
were available for dividend declaration without regulatory approval.
F-25
<PAGE>
The Company and Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory
- and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Banks must
meet specific capital guidelines that involve quantitative measures
of the assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company and
Banks capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets and
Tier I capital to average assets. Management believes, as of December
31, 1997, the Company and the Banks meet all capital adequacy
requirements to which they are subject.
NOTE 11. REGULATORY MATTERS (CONTINUED)
As of December 31, 1997, the most recent notification from the FDIC
categorized the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification
that management believes have changed the Banks' category.
F-24
The Company and Banks' actual capital amounts and ratios are presented
in the following tables.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------- ---------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ----------- ------- ---------- -------
(Dollars in Thousands)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital
(to Risk Weighted Assets):
Consolidated $ 34,644 12.43% $ 22,297 8.00% $ 27,871 10.00%
Community Bank & Trust - Habersham $ 20,147 13.21% $ 12,201 8.00% $ 15,251 10.00%
Community Bank & Trust - Jackson $ 6,456 11.11% $ 4,649 8.00% $ 5,811 10.00%
Community Bank & Trust - Alabama $ 2,827 12.02% $ 1,882 8.00% $ 2,352 10.00%
Community Bank & Trust - Troup $ 4,117 16.39% $ 2,010 8.00% $ 2,512 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 31,441 11.28% $ 11,149 4.00% $ 16,724 6.00%
Community Bank & Trust - Habersham $ 18,237 11.96% $ 6,099 4.00% $ 9,149 6.00%
Community Bank & Trust - Jackson $ 5,726 9.86% $ 2,323 4.00% $ 3,484 6.00%
Community Bank & Trust - Alabama $ 2,532 10.77% $ 940 4.00% $ 1,411 6.00%
Community Bank & Trust - Troup $ 3,801 15.13% $ 1,005 4.00% $ 1,507 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 31,441 8.26% $ 15,226 4:00% $ 19,032 5.00%
Community Bank & Trust - Habersham $ 18,237 8.34% $ 8,747 4.00% $ 10,933 5.00%
Community Bank & Trust - Jackson $ 5,726 7.24% $ 3,164 4.00% $ 3,954 5.00%
Community Bank & Trust - Alabama $ 2,532 7.00% $ 1,447 4.00% $ 1,809 5.00%
Community Bank & Trust - Troup $ 3,801 10.58% $ 1,437 4.00% $ 1,796 5.00%
</TABLE>
F-26
<PAGE>
NOTE 11. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------- ---------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ----------- ------- ---------- -------
(Dollars in Thousands)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital
(to Risk Weighted Assets):
Consolidated $ 29,751 13.48% $ 17,656 8.00% $ 22,070 10.00%
Community Bank & Trust - Habersham $ 18,362 14.17% $ 10,368 8.00% $ 12,960 10.00%
Community Bank & Trust - Jackson $ 5,212 11.87% $ 3,512 8.00% $ 4,390 10.00%
Community Bank & Trust - Alabama $ 2,548 13.85% $ 1,471 8.00% $ 1,839 10.00%
Community Bank & Trust - Troup $ 3,902 17.27% $ 1,807 8.00% $ 2,259 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 27,109 12.28% $ 8,828 4.00% $ 13,242 6.00%
Community Bank & Trust - Habersham $ 16,736 12.91% $ 5,184 4.00% $ 7,776 6.00%
Community Bank & Trust - Jackson $ 4,660 10.62% $ 1,756 4.00% $ 2,634 6.00%
Community Bank & Trust - Alabama $ 2,318 12.60% $ 735 4.00% $ 1,103 6.00%
Community Bank & Trust - Troup $ 3,618 16.02% $ 903 4.00% $ 1,355 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 27,109 8.51% $ 12,757 4.00% $ 15,947 5.00%
Community Bank & Trust - Habersham $ 16,736 8.91% $ 7,516 4.00% $ 9,395 5.00%
Community Bank & Trust - Jackson $ 4,660 7.47% $ 2,495 4.00% $ 3,118 5.00%
Community Bank & Trust - Alabama $ 2,318 7.75% $ 1,196 4.00% $ 1,496 5.00%
Community Bank & Trust - Troup $ 3,618 11.90% $ 1,216 4.00% $ 1,520 5.00%
</TABLE>
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow methods. Those methods
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1997
and 1996. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
F-27
<PAGE>
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS, AND FEDERAL
FUNDS SOLD:
The carrying amounts of cash, due from banks, interest-bearing
deposits in banks, and Federal funds sold approximate their fair
value.
SECURITIES:
Fair values for securities are based on quoted market prices. The
carrying values of equity securities with no readily determinable
fair value approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow methods, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow methods or underlying collateral values.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair
values. Fair values for fixed-rate certificates of deposit are
estimated using discounted cash flow methods, using interest
rates currently being offered on certificates.
OTHER BORROWINGS:
The fair values of the Company's other borrowings are estimated
using discounted cash flow methods based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair
values.
REDEEMABLE COMMON STOCK:
The fair values of the Company's redeemable common stock
approximates the recorded amounts.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial
instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit and standby
letters of credit do not represent a significant value to the
F-28
<PAGE>
Company until such commitments are funded. The Company has
determined that these instruments do not have a distinguishable
fair value and no fair value has been assigned.
The estimated fair values of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 December 31, 1996
------------------------------- -----------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks, interest-bearing
deposits in banks, and Federal funds sold $ 30,685,944 $ 30,685,944 $ 28,032,797 $ 28,032,797
Securities available-for-sale 53,282,114 53,282,114 47,417,952 47,417,952
Securities held-to-maturity 28,718,651 29,557,804 18,653,842 18,826,126
Loans held for sale 2,560,915 2,560,915 2,484,117 2,484,117
Loans, net 238,636,411 244,449,085 199,709,582 202,664,883
Accrued interest receivable 4,789,175 4,789,175 4,098,221 4,098,221
Financial liabilities:
Deposits 335,544,825 335,320,418 278,709,369 278,391,043
Other borrowings 462,299 462,299 616,399 616,399
Accrued interest payable 3,133,011 3,133,011 2,855,753 2,855,753
Redeemable common stock 10,621,891 10,621,891 6,177,400 6,177,400
</TABLE>
NOTE 13. SEGMENT INFORMATION
The Company's operations have been classified into two business
segments, banking and bank consulting services. The banking segment
involves traditional banking services offered Through its four wholly-
owned bank subsidiaries. Financial Supermarkets, Inc. provides
various consulting and licensing services to financial institutions
in connection with the establishment of bank branches in supermarkets.
In connection with the establishment of a Supermarket Bank, Financial
Supermarkets provides consulting services ranging from providing
alternative construction designs to coordinating employee training.
Financial Solutions, a division of Financial Supermarkets, Inc. was
formed to provide various consulting services to the financial
institution industry including compliance, operational, advertising,
marketing and travel related services.
Total revenue by industry segment includes revenues from unaffiliated
customers and affiliates. Revenues from affiliates are eliminated in
consolidation. Interest income, interest expenses, data processing
fees, management fees and other various revenues and expenses between
affiliates are recorded on the accrual basis of accounting consistent
with similar transactions with customers outside the consolidated
group. In 1996, Financial Supermarkets, Inc. sold Supermarket Banks
to affiliates recognizing gross profits of $128,113 which were
eliminated in consolidation. The current depreciation expense related
to the gross profit for each purchase was eliminated in consolidation
and the remaining amount will be eliminated over their estimated
useful lives.
F-29
<PAGE>
Selected segment information by industry segment for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
-------------------------------------------------------------------------------------
Bank Financial
For the Year Ended Holding Banking Supermarkets,
December 31, 1997 Company Subsidiaries Inc. Eliminations Consolidated
- ------------------------------------ ------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 82,081 $ 32,243,224 $ 8,797,736 $ - $ 41,123,041
Revenues from affiliates 7,409,988 2,560,857 444,752 (10,415,597) -
------------ ------------- ----------- ------------- -------------
Total revenue $ 7,492,069 $ 34,804,081 $ 9,242,488 $ (10,415,597) $ 41,123,041
============ ============= =========== ============= =============
Income from continuing
operations before
income taxes $ 5,542,770 $ 7,179,655 $ 4,121,640 (8,572,502) $ 8,271,563
============ ============= =========== ============= =============
Identifiable assets at
December 31, 1997 $ 34,435,153 $ 386,908,049 $ 9,933,018 (54,196,704) $ 377,079,516
============ ============= =========== ============= =============
Depreciation and amortization
expense $ 65,836 $ 1,203,921 $ 129,460 $ 1,399,217
============ ============= =========== =============
Premises and equipment
acquisitions $ 1,096,207 $ 4,074,703 163,420 $ 5,334,330
============ ============= =========== =============
INDUSTRY SEGMENTS
-------------------------------------------------------------------------------------
Bank Financial
For the Year Ended Holding Banking Supermarkets,
December 31, 1996 Company Subsidiaries Inc. Eliminations Consolidated
- ------------------------------------ ------------ -------------- ------------- -------------- -------------
Revenues from unaffiliated customers $ 39,363 $ 27,231,893 $ 5,585,510 $ - $ 32,856,766
Revenues from affiliates 5,728,347 1,362,730 347,752 (7,438,829) -
------------ ------------- ------------ ------------- -------------
Total revenue $ 5,767,710 $ 28,594,623 $ 5,933,262 $ (7,438,829 $ 32,856,766
============ ============= ============ ============= =============
Income from continuing
operations before
income taxes $ 4,013,352 $ 5,732,308 $ 2,186,900 $ (6,019,136) $ 5,913,424
============ ============= ============ ============= =============
Identifiable assets at
December 31, 1996 $ 28,541,867 $ 315,922,943 $ 9,299,430 $ (38,185,326) $ 315,578,914
============ ============= ============ ============= =============
Depreciation and amortization
expense $ 61,172 $ 762,328 $ 112,218 $ 935,718
============ ============= ============ =============
Premises and equipment
acquisitions $ 61,207 $ 3,266,025 $ 168,461 $ 3,495,693
============ ============= ============ =============
F-30<PAGE>
INDUSTRY SEGMENTS
--------------------------------------------------------------------------------------
Bank Financial
For the Year Ended Holding Banking Supermarkets,
December 31, 1995 Company Subsidiaries Inc. Eliminations Consolidated
- ------------------------------------ ------------ -------------- ------------- -------------- -------------
Revenues from unaffiliated customers $ 5,923 $ 24,297,134 $ 3,780,324 $ - $ 28,083,381
Revenues from affiliates 4,534,541 734,774 151,408 (5,420,723) -
------------ ------------- ------------ ------------- -------------
Total revenue $ 4,540,464 $ 25,031,908 $ 3,931,732 $ (5,420,723) $ 28,083,381
============ ============= ============ ============= =============
Income from continuing
operations before
income taxes $ 3,005,070 $ 4,538,218 $ 1,071,084 $ (4,224,691) $ 4,389,681
============ ============= ============ ============= =============
Identifiable assets at
December 31, 1995 $ 23,438,211 $ 271,849,097 $ 3,977,696 $ (29,257,758) $ 270,007,246
============ ============= ============ ============= =============
Depreciation and amortization
expense $ 50,662 $ 658,894 $ 90,729 $ 800,285
============ ============= ============ =============
Premises and equipment
acquisitions $ 264,036 $ 650,866 $ 99,677 $ 1,014,579
============ ============= ============ =============
</TABLE>
NOTE 14. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following information presents the condensed balance sheets as of
December 31, 1997 and 1996 and the statements of income and cash
flows as of and for the years ended December 31, 1997, 1996 and 1995:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
Assets
Cash $ 104,201 $ 442,471
Investment in subsidiaries 32,379,558 27,341,295
Equipment 1,162,677 123,395
Other assets 788,717 634,706
------------ ------------
Total assets $ 34,435,153 $ 28,541,867
============ ============
Liabilities
Other borrowings $ 462,299 $ 616,399
Other liabilities 197,515 543,432
------------ ------------
Total liabilities 659,814 1,159,831
------------ ------------
Redeemable common stock 10,621,891 6,177,400
------------ ------------
Shareholders' equity 23,153,448 21,204,636
------------ ------------
Total liabilities, redeemable
common stock, and shareholders'
equity $ 34,435,153 $ 28,541,867
============ ============
F-31
<PAGE>
NOTE 14. PARENT COMPANY ONLY FINANCIAL INFORMATION
(CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
Income
Dividends from subsidiaries $ 1,120,000 $ 800,000 $ 1,000,000
Interest 7,515 4,641 5,779
Other income 1,447,282 1,208,703 1,031,682
----------- ----------- -----------
2,574,797 2,013,344 2,037,461
----------- ----------- -----------
Expense
Interest 42,086 63,365 61,218
Salaries and employee benefits 1,174,798 1,109,826 933,871
Equipment expense 306,851 213,985 278,547
Other expense 425,565 367,183 261,758
----------- ----------- -----------
1,949,300 1,754,359 1,535,394
----------- ----------- -----------
Income before income tax benefits
and equity in undistributed 625,497 258,985 502,067
earnings of subsidiaries
Income tax benefits (100,000) (152,680) (120,000)
----------- ----------- ----------
Income before equity in
undistributed income of
subsidiaries 725,497 411,665 622,067
Equity in undistributed income
of subsidiaries 4,917,273 3,754,367 2,503,003
----------- ----------- -----------
Net income $ 5,642,770 $ 4,166,032 $ 3,125,070
=========== =========== ===========
F-32
<PAGE>
NOTE 14. PARENT COMPANY ONLY FINANCIAL INFORMATION
(CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 5,642,770 $ 4,166,032 $ 3,125,070
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 65,836 61,172 50,662
Undistributed earnings of subsidiaries (4,917,273) (3,754,367) (2,503,003)
Other operating activities (518,268) 60,433 (30,183
----------- ----------- -----------
Net cash provided by operating
activities 273,065 533,270 642,546
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of premises and equipment (1,115,771) (61,207) (264,036)
Investment in subsidiary - (1,000,000) (500,000)
Disposal of premises and equipment 19,564 167,979 -
----------- ----------- -----------
Net cash used in investing
activities (1,096,207) (893,228) (764,036)
----------- ----------- -----------
FINANCING ACTIVITIES
Advances on other borrowings - 1,616,399 428,415
Repayment of other borrowings (154,100) (1,786,939) (336,280)
Dividends paid (285,728) (261,023) (246,035)
Proceeds from the issuance of
common stock 924,700 1,003, 795 253,292
----------- ------------ ----------
Net cash provided by financing
activities 484,872 572,232 99,392
----------- ------------ ----------
Net increase (decrease) in cash (338,270) 212,274 (22,098)
Cash at beginning of year 442,471 230,197 252,295
----------- ------------ ----------
Cash at end of year $ 104,201 $ 442,471 $ 230,197
=========== ============ ==========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 42,086 $ 63,365 $ 61,218
NONCASH TRANSACTIONS
Unrealized gains on securities
available-for-sale $ (204,562) $ (9,262) $ (336,478)
F-33<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report on Form 10-K to be signed on its behalf by the, thereunto duly
authorized, in the City of Cornelia, State of Georgia, on the 25th of
March, 1998.
COMMUNITY BANKSHARES, INC.
By: /s/ J. Alton Wingate
J. Alton Wingate
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints J. Alton Wingate or Harry L.
Stephens and either of them (with full power in each to act alone), as
true and lawful attorneys-in-fact, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign
any amendments to this Report on Form 10-K and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 25th day of March, 1998.
Signature Title
/s/ J. Alton Wingate President and Chief Executive
- -------------------------- Officer (Principal Executive
J. Alton Wingate Officer) and Director
/s/ Steven C. Adams Director
- --------------------------
Steven C. Adams
Director
- --------------------------
Edwin B. Burr
/s/ Harry H. Purvis Director
- --------------------------
Harry H. Purvis
/s/ H. Calvin Stovall, Jr. Director
- --------------------------
H. Calvin Stovall, Jr.
Director
- --------------------------
Dean C. Swanson
Director
- --------------------------
George D. Telford
/s/ Harry L. Stephens Executive Vice President and
- -------------------------- Chief Financial Officer
Harry L. Stephens (Principal Financial and
Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Registrant has furnished annual reports and proxy material to
security holders, and copies of such documents have been furnished to the
Commission for its information.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.5 Amended and Restated Revolving Credit/Term Loan
Agreement between the Registrant and SunTrust
Bank dated July 21, 1997
10.7 Amendment No. 2 to Master Consulting Agreement
between Financial Supermarkets and NationsBank
dated July 3, 1997
27.1 Financial Data Schedule (for SEC use only)
27.2 Restated Financial Data Schedule (year ended
Dec. 31, 1996)
27.3 Restated Financial Data Schedule (quarters ended
June 30, 1996 and September 30, 1996)
27.4 Restated Financial Data Schedule (quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997)
99 Proxy Materials
_________________________________________________________________
_________________________________________________________________
AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
By and Between
COMMUNITY BANKSHARES, INC.
and
SUNTRUST BANK, ATLANTA
Dated: July 21, 1997
_________________________________________________________________
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . 1
Section 1.01. Defined Terms. . . . . . . . . . . . . . . 1
Section 1.02. Accounting Terms . . . . . . . . . . . . . 5
ARTICLE II
AMOUNT AND TERMS OF THE LOAN . . . . . . . . . . . . . . . . 5
Section 2.01. Revolving Credit. . . . . . . . . . . . . . 5
Section 2.01.01 Note. . . . . . . . . . . . . . . . . . . . 5
Section 2.02. Interest on the Revolving Credit . . . . . 5
Section 2.03. Term Loan . . . . . . . . . . . . . . . . . 6
Section 2.04. Interest on the Term Loan . . . . . . . . . 6
Section 2.05. Revolving Credit/Term Note. . . . . . . . . 6
Section 2.06. Method of Payment. . . . . . . . . . . . . 6
Section 2.07. Use of Proceeds. . . . . . . . . . . . . . 6
ARTICLE III
ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.01. Advances. . . . . . . . . . . . . . . . . . 7
Section 3.02. Conditions Precedent to Initial Advance . . 7
Section 3.03. Conditions Precedent to Subsequent
Advances and the Term Loan. . . . . . . . . 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 9
Section 4.01. Incorporation, Good Standing, and Due
Qualification . . . . . . . . . . . . . . . 9
Section 4.02. Corporate Power and Authority . . . . . . . 9
Section 4.03. Legally Enforceable Agreement. . . . . . . 10
Section 4.04. Financial Statements. . . . . . . . . . . 10
Section 4.05. Labor Disputes and Acts of God. . . . . . 10
Section 4.06. Other Agreements. . . . . . . . . . . . . 10
Section 4.07. Litigation. . . . . . . . . . . . . . . . 11
Section 4.08. No Defaults on Outstanding Judgments
or Orders. . . . . . . . . . . . . . . . . 11
Section 4.09. Ownership and Liens. . . . . . . . . . . . 11
Section 4.10. Subsidiaries and Ownership of Stock. . . . 11
Section 4.11. ERISA. . . . . . . . . . . . . . . . . . . 11
Section 4.12. Operation of Business. . . . . . . . . . . 12
Section 4.13. Taxes. . . . . . . . . . . . . . . . . . . 12
Section 4.14. Absence of Undisclosed Liabilities . . . . 12
Section 4.15. Environment. . . . . . . . . . . . . . . . 12
Section 4.16. Governmental Approval. . . . . . . . . . . 13
Section 4.17. Regulatory Compliance and Notice of
Regulatory Action. . . . . . . . . . . . . 13
Section 4.18. Securities Activities. . . . . . . . . . . 13
Section 4.19. Deposit Insurance. . . . . . . . . . . . . 14
ARTICLE V
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 14
Section 5.01. Use of Proceeds. . . . . . . . . . . . . . 14
Section 5.02. Maintenance of Existence . . . . . . . . . 14
Section 5.03. Maintenance of Records . . . . . . . . . . 14
Section 5.04. Maintenance of Properties. . . . . . . . . 14
Section 5.05. Conduct of Business. . . . . . . . . . . . 14
Section 5.06. Maintenance of Insurance . . . . . . . . . 14
Section 5.07. Compliance with Laws . . . . . . . . . . . 15
Section 5.08. Right of Inspection. . . . . . . . . . . . 15
Section 5.09. Deposit Insurance. . . . . . . . . . . . . 15
Section 5.10. Reporting Requirements . . . . . . . . . . 15
Section 5.11. Environment. . . . . . . . . . . . . . . . 18
Section 5.12. Capital Adequacy . . . . . . . . . . . . . 18
ARTICLE VI
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 18
Section 6.01. Liens. . . . . . . . . . . . . . . . . . . 18
Section 6.02. Debt . . . . . . . . . . . . . . . . . . . 20
Section 6.03. Mergers, Acquisitions, Etc. . . . . . . . 20
Section 6.04. Leases . . . . . . . . . . . . . . . . . . 20
Section 6.05. Sale and Leaseback . . . . . . . . . . . . 21
Section 6.06. Dividends. . . . . . . . . . . . . . . . . 21
Section 6.07. Sale of Assets . . . . . . . . . . . . . . 21
Section 6.08. Guaranties, Etc. . . . . . . . . . . . . . 21
Section 6.09. Transactions with Affiliates . . . . . . . 22
ARTICLE VII
FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . 22
Section 7.01. Capital Expenditures . . . . . . . . . . . 22
Section 7.02. Capital Ratios . . . . . . . . . . . . . . 22
Section 7.03. Return on Assets . . . . . . . . . . . . . 22
Section 7.04. Return on Equity . . . . . . . . . . . . . 23
Section 7.05. Net Interest Margin. . . . . . . . . . . . 23
Section 7.06. Efficiency Ratio . . . . . . . . . . . . . 23
Section 7.07. Loan Delinquencies . . . . . . . . . . . . 23
Section 7.08. Reserves . . . . . . . . . . . . . . . . . 23
Section 7.09. Asset Quality. . . . . . . . . . . . . . . 23
3<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 23
Section 8.01. Events of Default. . . . . . . . . . . . . 23
Section 8.02. Remedies upon Event of Default . . . . . . 26
ARTICLE IX
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.01. Amendments, Etc. . . . . . . . . . . . . . 27
Section 9.02. Notices, Etc. . . . . . . . . . . . . . . 28
Section 9.03. No Waiver. . . . . . . . . . . . . . . . . 28
Section 9.04. Successors and Assigns . . . . . . . . . . 28
Section 9.05. Costs, Expenses, and Taxes . . . . . . . . 29
Section 9.06. Integration. . . . . . . . . . . . . . . . 29
Section 9.07. Indemnity. . . . . . . . . . . . . . . . . 29
Section 9.08. Governing Law. . . . . . . . . . . . . . . 29
Section 9.09. Severability of Provisions . . . . . . . . 29
Section 9.10. Headings . . . . . . . . . . . . . . . . . 30
Section 9.11. Jury Trial Waiver. . . . . . . . . . . . . 30
<PAGE>
EXHIBITS
EXHIBIT TITLE REFERENCED UNDER
A Banks Section 1.01
B Collateral Section 1.01
C Amended and Restated Stock Pledge and
Security Agreement Section 1.01
D Note Section 2.03
D-1 Revolving Credit/Term Note Section 1.01
E Opinion of Counsel for the Borrower Section 3.02
F Officer's Certificate Section 3.02
G Litigation Section 4.07
H Real Estate Owned Section 4.15
J Permitted Liens Section 6.01
K Permitted Debt Section 6.02
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT is
dated July 21, 1997 between COMMUNITY BANKSHARES, INC., a Georgia
corporation, whose principal place of business is at 400 North Main
Street, Cornelia, Georgia 30531 (the "Borrower") and SUNTRUST BANK,
ATLANTA, a Georgia banking corporation whose principal place of
business is at 25 Park Place, Atlanta, Georgia 30303 (the "Lender").
This Amended and Restated Revolving Credit/Term Loan Agreement
supersedes the Revolving Credit /Term Loan Agreement between the
parties dated January 10, 1996. The parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to
have same meaning when used in the plural and vice versa):
"Affiliate" means any Person (1) which directly or indirectly
controls, or is controlled by, or is under common control with the
Borrower or a Subsidiary; (2) which directly or indirectly
beneficially owns or holds five percent (5.0%) or more of any class of
voting stock of the Borrower or any Subsidiary; or (3) five percent
(5.0%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Borrower or a Subsidiary. The term
"control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person whether through the ownership of voting securities, by
contract, or otherwise.
"Agreement" means this Amended and Restated Revolving Credit/Term Loan
Agreement, as amended, supplemented, or modified from time to time.
"Bank" means each Subsidiary of Borrower that is listed on Exhibit A,
attached hereto and incorporated herein, and any Subsidiary acquired
by Borrower from time to time after the date hereof, which is a
banking association or banking corporation organized under either the
laws of the United States or of a state in the United States.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which commercial banks in Georgia are authorized or required to
close under the laws of the State of Georgia.
6<PAGE>
"Call Reports" means, with respect to any Bank, such Bank's
Consolidated Reports of Condition and Income filed with such Bank's
applicable federal Regulatory Authority.
"Capital Lease" means all leases which have been or should be
capitalized on the books of the lessee in accordance with generally
accepted accounting principles.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the regulations and published interpretations thereof.
"Collateral" means all property which is subject to the Lien granted
by any Loan Document, including, without limitation, the personal
property identified and described on Exhibit B attached hereto and
incorporated herein.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 414(b) or 414(c) of the Code.
"Debt" means without duplication (1) indebtedness or liability of
Borrower or any Subsidiaries for borrowed money; (2) obligations of
Borrower or any Subsidiaries evidenced by bonds, debentures, notes, or
other similar instruments; (3) obligations of Borrower or any
Subsidiaries for the deferred purchase price of property or services
(including trade obligations); (4) obligations of Borrower or any
Subsidiaries as lessee under Capital Leases; (5) liabilities of
Borrower or any Subsidiaries in respect of unfunded vested benefits
under Plans covered by ERISA; (6) all guarantees, endorsements (other
than for collection or deposit in the ordinary course of business),
interest rate swaps, and other contingent obligations of Borrower or
any Subsidiaries to purchase, to provide funds for payment, to supply
funds to invest in any Person or entity, or otherwise to assure a
creditor against loss (except loans or letters of credit made or
issued in the ordinary course of business); and (7) obligations of
Borrower or any Subsidiaries, other than obligations as a lender,
secured by any Liens, whether or not the obligations have been
assumed. The term "Debt" does not include any deposit liabilities of
any Bank.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published
interpretations thereof.
"Event of Default" means any of the events specified in Section 8.01,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"GAAP" means generally accepted accounting principles in the United
States.
<PAGE>
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Lien" means the charge, encumbrance, security interest, or right of
the Lender in property created by any Loan Document or any other
mortgage, deed of trust, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having
substantially the same economic effect as of the foregoing, or the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence any of the foregoing).
"Loan" means collectively, the Revolving Credit and the Term Loan, as
such terms are defined, respectively, in Sections 2.01 and 2.03 of
this Agreement.
"Loan Document" means this Agreement, the Note, the Revolving
Credit/Term Note, the Security Agreement, or any deed to secure debt,
mortgage, deed of trust, pledge agreement, security agreement, or
other agreement evidencing or securing the Loan (two or more of the
foregoing being also referred to collectively herein as the "Loan
Documents").
"Multiemployer Plan" means a Plan described in Section 4001(a)(3) of
ERISA.
"1996 Agreement" means the Revolving Credit/Term Loan Agreement by and
between Borrower and Lender dated January 10, 1996, as amended,
supplemented, or modified from time to time.
"Note" has the meaning assigned to such term in Section 2.01.01
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
"Plan" means any pension plan which is covered by Title IV of ERISA
and in respect of which the Borrower or a Commonly Controlled Entity
is an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest announced by the Lender from
time to time as its prime commercial lending rate, which rate is not
necessarily the lowest rate of interest charged by the Lender to its
borrowers.
<PAGE>
"Principal Office" means the Lender's office at 25 Park Place,
Atlanta, Georgia 30303.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
"Real Estate Owned" has the meaning assigned to such term in Section
4.15.
"Regulatory Authority" or "Regulatory Authorities" means the Federal
Reserve Board and, as applicable, the Department of Banking of a state
of the United States, the Federal Deposit Insurance Corporation, the
Office of the Comptroller of the Currency and any other agency with
regulatory control over Borrower, any Bank or any other Subsidiary.
"Reportable Event" means any of the events set forth in Section 4043
of ERISA.
"Revolving Credit" has the meaning assigned to such term in Section
2.01.
"Revolving Credit/Term Note" shall have the meaning assigned to such
term in Section 2.05.
"Revolving Maturity Date" means July 21, 1998.
"Security Agreement" means the Amended and Restated Stock Pledge and
Security Agreement in substantially the form of Exhibit C, to be
delivered by the Borrower under the terms of this Agreement.
"Subsidiary" means, as to the Borrower, a corporation of which shares
of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such
corporation are, at the time, owned, or the management of which
corporation is otherwise controlled, directly or indirectly, through
one or more intermediaries, or both, by the Borrower. The term
"Subsidiary" shall specifically include the Banks.
"Term Loan" means that portion of the credit established pursuant to
the 1996 Agreement which remains outstanding pursuant thereto and
under the Revolving/Credit Term Note.
"Tier I Capital" means those components of the equity capital of the
Borrower or of any Bank which, in the aggregate, constitute the core
or primary capital of the Borrower or Bank, as those components are
determined and defined from time to time by the Federal Regulatory
Authority having primary jurisdiction over the Borrower or any Bank.
"Tier II Capital" means those components of the equity capital of the
Borrower or of any Bank which, in the aggregate, constitute the
supplementary capital of the Borrower or Bank, as those components are
determined and defined from time to time by the Federal Regulatory
Authority having primary jurisdiction over the Borrower or any Bank.
"Total Capital" means the total of the amounts of Tier I Capital and
Tier II Capital that qualify, under the applicable regulations of the
Federal Regulatory Authority having primary jurisdiction over the
Borrower or any Bank, for inclusion in the computation of leverage
capital requirements and risk-weighted capital requirements.
SECTION 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.04,
and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. REVOLVING CREDIT. Subject to and upon the terms and
conditions set forth in this Agreement, the Lender hereby establishes
until the Revolving Maturity Date a revolving credit facility in favor
of the Borrower not to exceed THREE MILLION AND NO/100 DOLLARS
($3,000,000.00) in aggregate principal at any one time outstanding
(the "Revolving Credit"). Within the limits of the Revolving Credit,
the Borrower may borrow, repay and reborrow under the terms of this
Agreement; provided, however, the Borrower may neither borrow nor
reborrow should there exist an Event of Default.
SECTION 2.01.01. NOTE. The Borrower's obligation to pay interest and
repay principal under the Revolving Credit shall be evidenced by its
Promissory Note (the "Note") a copy of which is attached hereto and
incorporated herein as Exhibit D.
SECTION 2.02. INTEREST ON THE REVOLVING CREDIT. Interest shall accrue
on all advances under the Revolving Credit, shall be calculated on the
basis of actual days elapsed and a year of 360 days, and shall be
computed at an annual rate of interest equal to one percent (1%) below
the Prime Rate. The interest rate shall change as of the opening of
business on each day the Lender changes the Prime Rate. Accrued
interest on the Revolving Credit shall be paid on the last day of each
calendar quarter, commencing September 30, 1997 and on the Revolving
Maturity Date.
SECTION 2.03. TERM LOAN. The Term Loan shall remain outstanding and
subject to the terms of the Revolving Credit/Term Note and the terms
of this Agreement.
SECTION 2.04. INTEREST ON THE TERM LOAN. The Borrower shall pay
interest to the Lender on the outstanding and unpaid principal amount
of the Term Loan made at a rate per annum equal to the Prime Rate,
minus one percent (1%).
Any change in the interest rate resulting from a change in the Prime
Rateshall become effective as of the opening of business on the day on
which such change in the Prime Rate shall become effective. Interest
shall be calculated on the basis of a year of three hundred sixty
(360) days for the actual number of days elapsed. Interest shall be
paid in immediately available funds on the last day of each calendar
quarter, commencing on March 31, 1997, and at maturity at the
Principal Office. Any principal amount not paid when due (at
maturity, by acceleration, or otherwise) shall bear interest
thereafter until paid in full, payable on demand, at a rate which
shall be two percent (2.0%) above the rate which would otherwise be
applicable.
SECTION 2.05. REVOLVING CREDIT/TERM NOTE. The Borrower's obligation
to repay the Term Loan shall continue to be evidenced by its
promissory note (the "Revolving Credit/Term Note")a copy of which is
attached hereto and incorporated herein as EXHIBIT D-1.
SECTION 2.06. METHOD OF PAYMENT. The Borrower shall make each
payment under this Agreement, the Note, and Revolving Credit/Term Note
on the date when due in lawful money of the United States to the
Lender at its Principal Office in immediately available funds. The
Borrower hereby authorizes the Lender, if and to the extent payment is
not made when due under this Agreement, the Note, or the Revolving
Credit/Term Note to charge from time to time against any account of
the Borrower with the Lender any amount so due. Whenever any payment
to be made under this Agreement, the Note, or the Revolving
Credit/Term Note shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
SECTION 2.07. USE OF PROCEEDS. Advances under the Revolving Credit
shall be used by the Borrower for general corporate purposes. The
Borrower will not, directly or indirectly, use any part of such
advances for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or to extend credit to any Person for the
purpose of purchasing or carrying any such margin stock, or for any
purpose which violates, or is inconsistent with, Regulation X of such
Board of Governors.
ARTICLE III
ADVANCES
SECTION 3.01. ADVANCES. The Borrower shall give the Lender at least
one (1) Business Day's telephone notice of a requested disbursement
under this Agreement, specifying the date the disbursement is
requested and the amount thereof. The Lender may rely upon such
telephone request for disbursements received from the individual(s)
identifying themselves as and purporting to be Mr. Harry Stephens,
Chief Financial Officer of the Borrower. The telephone request for
disbursement should be promptly confirmed in writing by Borrower by
mailing or transmitting by facsimile transmission a confirmation to
the Lender at the address designated hereinafter, as may be amended.
Upon fulfillment of the applicable conditions set forth below, and
provided that the request for disbursement does not cause the Borrower
to exceed the aggregate principal amount of the Revolving Credit, the
Lender will make such disbursements available to the Borrower in
immediately available funds by crediting the amount thereof to the
Borrower's account, or other designated account, with the Lender.
Section 3.02.Conditions Precedent to Initial Advance. The obligation
of the Lender to make the initial advance under the Revolving Credit
is subject to the condition precedent that the Lender shall have
received on or before the day of such advance each of the following,
in form and substance satisfactory to the Lender and its counsel:
(1) NOTE. The Note duly executed by the Borrower;
(2) SECURITY AGREEMENT. The Security Agreement duly executed by
Borrower.
(3) EVIDENCE OF ALL CORPORATE ACTION BY THE BORROWER. Certified (as
of the date of this Agreement) copies of all corporate action taken by
the Borrower, including resolutions of its Board of Directors,
authorizing the execution, delivery, and performance of the Loan
Documents to which it is a party and each other document to be
delivered pursuant to this Agreement;
(4) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE BORROWER. A
certificate (dated as of the date of this Agreement) of the Secretary
of Borrower certifying the names and true signatures of officers of
the Borrower authorized to sign the Loan Documents to which it is a
party and each other documents to be delivered by the Borrower under
this Agreement;
(5) OPINION OF COUNSEL FOR THE BORROWER. A favorable opinion of
Kilpatrick & Cody, counsel for the Borrower, in substantially the form
of Exhibit E, and as to such other matters as the Lender may
reasonably request;
(6) OFFICER'S CERTIFICATE. A certificate signed by a duly authorized
officer of Borrower dated the date of this Agreement, in substantially
the form of Exhibit F;
(7) ADDITIONAL DOCUMENTATION. Such other approvals, opinions, or
documents as the Lender may reasonably request;
(8) REQUEST FOR ADVANCE. A request for advance pursuant to Section
3.01 hereof;
(9) REGULATORY APPROVAL. Copies of any and all necessary
Governmental Authority or Regulatory Authority approvals;
(10) NO MATERIAL ADVERSE CHANGE. A certificate signed by a duly
authorized officer of the Borrower stating that there has been no
material adverse change in the condition (financial or otherwise),
business, or operations of the Borrower or any Subsidiary since
December 31, 1994.
SECTION 3.03. CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES. The
obligation of the Lender to make subsequent advances under the
Revolving Credit is subject to the conditions precedent that the
Lender shall have received, in form and substance satisfactory to it,
each of the following documents, and that each of the conditions
described below is fulfilled to the satisfaction of the Lender: (i) if
applicable, a request for advance pursuant to Section 3.01 hereof; and
(ii) the representations and warranties contained in Article IV hereof
and each of the other Loan Documents shall be correct in all material
respects on and as of the date of the request for the advance and the
date of the advance (if applicable), with the same effect as though
made on and as of those dates, except to the extent that such
representations and warranties relate solely to an earlier date, and
on each of such dates, no event, act, or condition shall have occurred
or be continuing, or would result from the advance requested which
constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse,
or both. The submission by the Borrower of an oral or written request
for advance shall constitute a representation and warranty as to the
correctness of the above facts, and if requested by the Lender with
respect to the advance requested, the Borrower shall furnish to the
Lender a written certificate of an officer of the Borrower,
satisfactory in form and substance to the Lender, as to the
correctness of the above facts as a condition precedent to such
advance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into the Agreement and to make
advances under the Revolving Credit, the Borrower represents and
warrants to the Lender that:
SECTION 4.01. INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION.
The Borrower and each of its non-bank Subsidiaries is a corporation
duly incorporated, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. Each of the Banks set
forth on Exhibit A is a banking corporation and is duly organized,
validly existing, and in good standing under the laws of the state of
incorporation listed on such Exhibit A. The Borrower and each of its
Subsidiaries has the corporate power and authority to own its assets
and to transact the business in which it is now engaged or proposed to
be engaged; and is duly qualified as a foreign corporation and in good
standing under the laws of each other jurisdiction in which such
qualification is required.
SECTION 4.02. CORPORATE POWER AND AUTHORITY. The execution,
delivery, and performance by the Borrower of the Loan Documents and
the creation of the security interest provided for under the Security
Agreement are within the Borrower's corporate powers and have been
duly authorized by all necessary corporate action and do not and will
not (1) require any consent or approval of the stockholders of the
Borrower; (2) contravene the Borrower's charter or bylaws; (3) violate
any provision of any law, rule, regulation (including, without
limitation, Regulations U and X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination, or award presently in effect having applicability to
the Borrower; (4) result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement,
lease, or instrument to which Borrower is a party or by which it or
its properties may be bound or affected; (5) result in, or require,
the creation or imposition of any Lien, except as contemplated by the
Security Agreement, upon or with respect to any of the properties now
owned or hereafter acquired by the Borrower; and (6) cause the
Borrower to be in default under any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination, or award of any
such indenture, agreement, lease, or instrument.
<PAGE>
SECTION 4.03. LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and
each of the other Loan Documents are legal, valid, and binding
obligations of the Borrower, and enforceable against the Borrower in
accordance with their respective terms, except to the extent that such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and (ii) general principles of
equity (whether applied in a proceeding at law or in equity).
SECTION 4.04. FINANCIAL STATEMENTS. The consolidated balance sheet
of the Borrower and its Subsidiaries as of December 31, 1996 and the
related consolidated statements of income, shareholder's equity, and
cash flows of the Borrower and its Subsidiaries for the fiscal year
then ended, and the accompanying footnotes, together with the opinion
thereon, dated December 31, 1996 of Mauldin & Jenkins, independent
certified public accountants, copies of which have been furnished to
the Lender, are complete and correct and fairly present the financial
condition of the Borrower and its Subsidiaries as at such dates and
the results of the operations of the Borrower and its Subsidiaries for
the periods covered by such statements, all in accordance with GAAP;
and since December 31, 1996, there has been no material adverse change
in the condition (financial or otherwise), business, or operations of
the Borrower or any Subsidiary. There are no liabilities of the
Borrower or any Subsidiary, fixed or contingent, which are material
but are not reflected in the financial statements or in the notes
thereto, other than liabilities arising in the ordinary course of
business since December 31, 1996. No information, exhibit, or report
furnished by the Borrower to the Lender in connection with the
approval of the Loan or negotiation of this Agreement contains any
material misstatement of fact or omitted to state a material fact or
any fact necessary to make the statement contained therein not
materially misleading.
SECTION 4.05. LABOR DISPUTES AND ACTS OF GOD. Neither the business
nor the properties of the Borrower or any Subsidiary are affected by
any fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or of the public
enemy, or other casualty (whether or not covered by insurance)
materially and adversely affecting such business or properties or the
operation of the Borrower or such Subsidiary.
SECTION 4.06. OTHER AGREEMENTS. Neither the Borrower nor any
Subsidiary is a party to any indenture, loan, credit agreement,
regulatory agreement or imposition, or to any lease or other agreement
or instrument, or subject to any charter or corporate restriction
which could have a material adverse effect on the business,
properties, assets, operations, or conditions, financial or otherwise,
of the Borrower or any Subsidiary or the ability of the Borrower to
carry out its obligations under the Loan Documents to which it is a
party. Neither the Borrower nor any Subsidiary is in material <PAGE>
default in any
respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or
instrument to which it is a party.
SECTION 4.07. LITIGATION. Except as is set forth expressly on
Exhibit G attached hereto, no action or proceeding is pending or,
threatened against, or affecting, the Borrower or any of its
Subsidiaries before any court, board, commission, governmental agency,
or arbitrator, which may, in any one case or in the aggregate,
materially adversely affect the financial condition, operations,
properties, or business of the Borrower or any Subsidiary or the
ability of the Borrower to perform its obligation under the Loan
Documents to which it is a party.
SECTION 4.08. NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. The
Borrower and its Subsidiaries have satisfied all material judgments,
and neither the Borrower nor any Subsidiary is in default with respect
to any judgment, writ, injunction, decree, rule, or regulation of any
court, arbitrator, federal, state, municipal, or other governmental
authority, commission, board, bureau, agency, or instrumentality,
domestic or foreign, which default shall materially and adversely
affect the business or properties of Borrower and its Subsidiaries.
SECTION 4.09. OWNERSHIP AND LIENS. The Borrower and each Subsidiary
have title to, or valid leasehold interests in, all of their
properties and assets, real and personal, including the properties and
assets and leasehold interests reflected in the financial statements
referred to in Section 4.04 (other than any properties or assets
disposed of in the ordinary course of business), and none of the
properties and assets owned by the Borrower or any Subsidiary and none
of their leasehold interests is subject to any Lien, except such as
may be permitted pursuant to Section 6.01 of this Agreement.
SECTION 4.10. SUBSIDIARIES AND OWNERSHIP OF STOCK. The Borrower's
audited and consolidated financial statement for the fiscal year
ending December 31, 1996, as provided to the Lender, includes a
complete and accurate list of the Subsidiaries of the Borrower. All of
the outstanding capital stock of each Subsidiary has been validly
issued, is fully paid and nonassessable, and is owned by the Borrower
free and clear of all Liens.
SECTION 4.11. ERISA. With respect to each Plan maintained by Borrower and
each Subsidiary, the Borrower and each Subsidiary are in compliance in all
material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan; no notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated; no circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate,
or appoint a trustee to administer, a Plan, nor has the PBGC instituted any <PAGE>
such proceedings; neither the Borrower nor any Commonly Controlled Entity
has completely or partially withdrawn from a Multiemployer Plan; the
Borrower and each Commonly Controlled Entity have met their minimum funding
requirements under ERISA with respect to all of their Plans, and the present
value of all vested benefits under each Plan exceeds the fair market value
of all Plan assets allocable to such benefits, as determined on the most
recent valuation date of the Plan and in accordance with the provisions of
ERISA; and neither the Borrower nor any Commonly Controlled Entity has
incurred any liability to the PBGC under ERISA.
SECTION 4.12. OPERATION OF BUSINESS. The Borrower and its Subsidiaries
possess all licenses, permits, franchises, patents, copyrights, trademarks,
and trade names, or rights thereto, necessary in all material respects to
conduct their respective businesses substantially as now conducted and as
presently proposed to be conducted, and the Borrower and its Subsidiaries
are not to Borrower's knowledge, in violation of any valid rights of others
with respect to any of the foregoing.
SECTION 4.13. TAXES. The Borrower and each of its Subsidiaries have filed
all tax returns (federal, state, and local) required to be filed and have
paid all taxes, assessments, and governmental charges and levies shown
thereon to be due, including interest and penalties. The federal income tax
liabilities of the Borrower and its Subsidiaries have been audited by the
Internal Revenue Service and have been finally determined and satisfied for
all taxable years up to and including the taxable year ended December 31,
1994.
SECTION 4.14. ABSENCE OF UNDISCLOSED LIABILITIES. Except as reflected in
the audited consolidated balance sheet of Borrower at December 31, 1994
(including the notes thereto), as of December 31, 1994, neither Borrower nor
any Subsidiary had any material liability or obligation whatsoever, whether
accrued, absolute, contingent, or otherwise that should, in accordance with
GAAP, have been disclosed in such financial statements and notes thereto.
Since December 31, 1994, neither Borrower nor any Subsidiary has incurred
any material liability or obligation, except for liabilities and obligations
incurred in the ordinary course of business or that will not have a material
adverse effect on Borrower.
SECTION 4.15. ENVIRONMENT. The Borrower and each Subsidiary have duly
complied in all material respects with, and their businesses, operations,
assets, equipment, property, leaseholds, other real estate owned, or other
facilities are in compliance in all material respects with, the provisions
of all federal and state, environmental, health, and safety laws, codes, and
ordinances, and all rules and regulations promulgated thereunder. Neither
the Borrower nor any Subsidiary has received notice of, nor knows of or
suspects, facts which might constitute any violations of any federal or
<PAGE>
state environmental, health, or safety laws, codes, or ordinances, and any
rules or regulations promulgated thereunder with respect to its businesses,
operations, assets (including but not limited to real property loan
collateral), equipment, property, leaseholds, or other facilities. Set
forth in Exhibit H is a list of all real property owned by Borrower and/or
the Subsidiaries other than real property acquired pursuant to foreclosure
of a lien in favor of Borrower or any Subsidiary (or by deed in lieu
thereof) ("Real Estate Owned") or leased by the Borrower and its
Subsidiaries at any time since December 31, 1994, wherever located, and a
brief description of the business conducted at such location.
SECTION 4.16. GOVERNMENTAL APPROVAL. All permits, consents,
authorizations, approvals, declarations, notifications, filings or
registrations with any Governmental Authority or Regulatory Authority or any
third party which are necessary in all material respects in connection with
the consummation of this transaction have been obtained on or before the
date hereof.
SECTION 4.17. REGULATORY COMPLIANCE AND NOTICE OF REGULATORY ACTION. The
Borrower and each Subsidiary are in compliance in all material respects with
all laws, statutes, ordinances, and governmental rules, regulations, or
requirements relating to or affecting their business or operations. There
are no outstanding notices of charges, cease-and-desist orders (temporary or
otherwise), or orders to take affirmative action issued by any Governmental
Authority or Regulatory Authority against the Borrower, any Bank or any
other Subsidiary, or any director, officer, employee or agent of the
Borrower, any Bank or any other Subsidiary. No agreement or memorandum of
understanding has been entered into between any Governmental Authority or
Regulatory Authority and the Borrower, any Bank or any other Subsidiary or
any director, officer, employee or agent of the Borrower, any Bank or any
other Subsidiary. No notice of intention to remove from office or notice of
intention to suspend from office has been served upon any officer or
director of the Borrower, any Bank or any other Subsidiary by any
Governmental Authority or Regulatory Authority.
SECTION 4.18. SECURITIES ACTIVITIES. The Borrower has not issued any
securities except as were (a) duly registered under the Securities Act of
1933, as amended, and applicable blue sky laws, or (b) validly exempt from
registration.
SECTION 4.19. DEPOSIT INSURANCE. Each Bank is an "insured depository
institution" within the meaning of Section 3 (c)(2) of the Federal Deposit
Insurance Act, as amended.
<PAGE>
ARTICLE V
AFFIRMATIVE COVENANTS
So long as the Note or Revolving Credit/Term Note shall remain unpaid, the
Borrower will:
SECTION 5.01. USE OF PROCEEDS. Use the proceeds of the Loan only for the
purposes set forth herein, and will furnish the Lender such evidence as it
may reasonably require with respect to such use.
SECTION 5.02. MAINTENANCE OF EXISTENCE. Preserve and maintain, and cause
each Subsidiary to preserve and maintain, its corporate existence and good
standing in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which the ownership of property
or the nature of its business makes such qualification necessary or
required, except where such failure to qualify shall not materially or
adversely affect the Borrower and its Subsidiaries taken as a whole.
SECTION 5.03. MAINTENANCE OF RECORDS. Keep, and cause each Subsidiary to
keep, adequate records and books of account, in which complete entries will
be made in accordance with GAAP consistently applied, reflecting all
financial transactions of the Borrower and its Subsidiaries.
SECTION 5.04. MAINTENANCE OF PROPERTIES. Maintain, keep, and preserve, and
cause each Subsidiary to maintain, keep, and preserve, all of its properties
(tangible and intangible) necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear
excepted.
SECTION 5.05. CONDUCT OF BUSINESS. Continue, and cause each Subsidiary to
continue, to engage in a business of the same general type as now conducted
by it on the date of this Agreement.
SECTION 5.06. MAINTENANCE OF INSURANCE. Maintain and see that its
Subsidiaries maintain, or cause to be maintained, insurance coverages
including, but not limited to, bankers' blanket bonds, public liability
insurance, and fire and extended coverage insurance on all assets owned by
them, all in such form and amounts, and with such insurers, as are
reasonably satisfactory to the Lender.
SECTION 5.07. COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules,
regulations, orders, and material agreements to which they are subject, such
compliance to include, without limitation, maintaining adequate cash
reserves for the payment of, and paying before the same become delinquent, <PAGE>
all taxes, assessments, and governmental charges imposed upon it or upon its
property except as contested in good faith.
SECTION 5.08. RIGHT OF INSPECTION. At any reasonable time and from time to
time with prior notice, permit the Lender or any agent or representatives
thereof to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any
Subsidiary, and to discuss the affairs, finances, and accounts of the
Borrower and any Subsidiary with any of their respective officers and
directors and the Borrower's independent accountants.
SECTION 5.09. DEPOSIT INSURANCE. The Borrower will cause each Bank to
maintain federal deposit insurance and to be a member of the Federal Deposit
Insurance Corporation (or any successor thereto).
SECTION 5.10. REPORTING REQUIREMENTS. Furnish to the Lender:
(1) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event
within forty-five (45) days after the end of each of the first three (3)
quarters of each fiscal year of the Borrower, interim unaudited consolidated
and unconsolidated balance sheets of Borrower, and related statements of
income, shareholders equity and cash flows of the Borrower for the prior
quarter prepared in accordance with GAAP.
(2) CALL REPORTS. As soon as available, and in any event within thirty
(30) days after the end of each fiscal quarter of the Borrower, copies of
all Call Reports of the Borrower and each Bank as filed with the Federal
Deposit Insurance Corporation (or any successor thereto) and/or the
Comptroller of the Currency (or any successor), signed by the chief
financial officer of the Borrower and each Bank.
(3) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within one hundred twenty (120) days after the end of each fiscal year of
the Borrower, consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income, shareholder's equity, and cash flows of
the Borrower and its Subsidiaries for such fiscal year, all in reasonable
detail and stating in comparative form the respective figures for the
corresponding date and period in the prior fiscal year and all prepared in
accordance with GAAP and accompanied by an opinion thereon acceptable to the
Lender by Mauldin & Jenkins or other accountants selected by the Borrower
and acceptable to the Lender;
(4) F.R.Y.-6 ANNUAL REPORT. As soon as available, and in any event within
ten (10) days after the filing thereof, a copy of the Borrower's F.R.Y.-6
Annual Report to the Federal Reserve System.
<PAGE>
(5) MANAGEMENT LETTERS. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower or any Subsidiary by independent certified
public accountants in connection with examination of the financial
statements of the Borrower or any Subsidiary made by such accountants;
(6) CERTIFICATE OF NO DEFAULT. Within forty-five (45) days after the end
of each of the quarters of each fiscal year of the Borrower, a certificate
of the chief financial officer of the Borrower, substantially in the form of
Exhibit I attached hereto and made a part hereof (a) certifying, inter alia,
that (i) the representations and warranties contained in Article IV hereof
and in each of the Loan Documents remain true and correct (except to the
extent that such representations and warranties relate solely to an earlier
date), (ii) the Borrower and Subsidiaries are in compliance with the
covenants set forth herein, and (iii) no Event of Default has occurred and
is continuing or, if an Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action which is proposed to be
taken with respect thereto; and (b) with computations demonstrating
compliance with the covenants contained in Article VII;
(7) ACCOUNTANT'S REPORT. Simultaneously with the delivery of the annual
financial statements referred to in Section 5.10(3), a statement of the
independent public accountants to the effect that, in making the examination
necessary for the audit of such statements, they have obtained no knowledge
of any condition or event which constitutes an Event of Default, or if such
accountants shall have obtained knowledge of any such condition or event,
specifying in such certificate each such condition or event, of which they
have knowledge and the nature and status thereof;
(8) NOTICE OF LITIGATION. Promptly after the commencement thereof, notice
of all actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic
or foreign, affecting the Borrower or any Subsidiary which, if determined
adversely to the Borrower or such Subsidiary, could have a material adverse
effect on the financial condition, properties, or operations of the Borrower
or such Subsidiary;
(9) NOTICE OF EVENTS OF DEFAULT. The Borrower will notify the Lender
immediately if it becomes aware of the occurrence of any Event of Default or
of any fact, condition, or event that only with the giving of notice or
passage of time, or both, could become an Event of Default, or of the
failure of the Borrower to observe any of its undertakings hereunder;
(10) ERISA REPORTS. As soon as possible, and in any event within thirty
(30) days after the Borrower knows or has reason to know that any <PAGE>
circumstances exist that constitute grounds entitling the PBGC to institute
proceedings to terminate a Plan with respect to the Borrower or any Commonly
Controlled Entity, and promptly, but in any event within five (5) Business
Days of receipt by the Borrower or any Commonly Controlled Entity of notice
that the PBGC intends to terminate a Plan or appoint a trustee to administer
the same, and promptly, but in any event within five (5) Business Days of
the receipt of notice concerning the imposition of withdrawal liability in
excess of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) with respect
to the Borrower or any Commonly Controlled Entity, the Borrower will deliver
to the Lender a certificate of the chief financial officer of the Borrower
setting forth all relevant details and the action which the Borrower
proposes to take with respect thereto;
(11) PROXY STATEMENTS, ETC. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements, and reports which the
Borrower or any Subsidiary sends to its stockholders, and copies of all
regular, periodic, and special reports, and all registration statements
which the Borrower or any Subsidiary files with the Securities and Exchange
Commission or any Governmental Authority which may be substituted therefor,
or with any national securities exchange;
(12) REPORTS TO REGULATORY AGENCIES. Promptly after the sending or filing
of the same, copies of all call reports and other reports, including without
limitation responses to administrative enforcement actions, and
modifications or amendments thereto, that the Borrower or its Subsidiaries
sends or files with any Regulatory Authority; and
(13) NOTICE OF REGULATORY ACTION. Promptly, written notice of (i) the
issuance of any notice of charges, cease-and-desist order (temporary or
otherwise), or order to take affirmative action by any Governmental
Authority or Regulatory Authority against the Borrower, any Bank or any
other Subsidiary, or any director, officer, employee or agent of the
Borrower, any Bank or any other Subsidiary, (ii) the service of any notice
of intention to remove from office or notice of intention to suspend from
office by any Governmental Authority or Regulatory Authority upon any
director or officer of the Borrower, any Bank or any other Subsidiary, (iii)
the issuance of a notice of termination of the status of any Bank as an
insured bank under the Federal Deposit Insurance Corporation Act, as
amended, or (iv) the entering into of any agreement or memorandum of
understanding between any Governmental Authority or Regulatory Authority and
the Borrower, any Bank or any other Subsidiary, or any director, officer,
employee or agent of the Borrower, any Bank or any other Subsidiary.
(14) ADVERSE CHANGES. Promptly after the occurrence thereof and in no
event later than ten (10) days thereafter, full disclosures of any material<PAGE>
adverse changes in the finances or business of Borrower or any of its
Subsidiaries.
(15) GENERAL INFORMATION. Such other information respecting the condition
or operations, financial or otherwise, of the Borrower or any Subsidiary as
the Lender may from time to time reasonably request.
SECTION 5.11. ENVIRONMENT. Be and remain, and cause each Subsidiary to be
and remain, in all material respects, in compliance with the provisions of
all federal and state environmental, health, and safety laws, codes and
ordinances, and all rules and regulations issued thereunder; and notify the
Lender immediately of any notice of an environmental complaint received from
any governmental agency or any other party.
SECTION 5.12. CAPITAL ADEQUACY. Maintain, and cause each Bank to maintain,
at all times, the minimum levels of regulatory capital necessary to maintain
the regulatory capital classification of "Adequately Capitalized," as such
term is defined by the applicable Regulatory Authority.
ARTICLE VI
NEGATIVE COVENANTS
So long as the Note or Revolving Credit/Term Note shall remain unpaid, the
Borrower will not:
SECTION 6.01. LIENS. Create, incur and assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any Lien
upon or with respect to any of its properties (including, without
limitation, any Lien upon all or any part of the common or capital stock of
any of the Banks), now owned or hereafter acquired, except:
(1) Liens in favor of the Lender;
(2) Liens for taxes or assessments or other governmental charges or levies
if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(3) Liens imposed by law, such as mechanics', materialmen's, landlords',
warehousemen's, and carriers' Liens, securing obligations incurred in the
ordinary course of business which are not yet due and payable or which are <PAGE>
being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established;
(4) Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;
(5) Liens, deposits, or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases (permitted
under the terms of this Agreement), public or statutory obligations, surety,
stay, appeal, indemnity, performance, or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(6) Judgment and other similar Liens arising in connection with court
proceedings, provided the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(7) Easements, rights-of-way, restrictions, and other similar encumbrances
which, in the aggregate, do not materially interfere with the occupation,
use, and enjoyment by the Borrower or any Subsidiary of the property or
assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
(8) Liens incidental to the conduct of banking business, not incurred in
connection with the borrowing of money, arising out of transactions in
federal funds, repurchase agreements, interbank credit facilities, bank
deposits, or other obligations to customers or depositors of the Borrower's
Subsidiaries.
(9) Liens incurred in connection with the borrowing by a Subsidiary from
the Federal Reserve Bank, or the Federal Home Loan Bank, in the ordinary
course of business;
(10) Those Liens specified in EXHIBIT J attached hereto and made a part
hereof; and
(11) Liens for purchase money security interests or Liens incurred in
connection with any conditional sale or other title retention agreement or
Capital Lease.
SECTION 6.02. DEBT. Create, incur, assume, or suffer to exist, or permit
any Subsidiary to create, incur, assume, or suffer to exist, any Debt,
except:
(1) Debt of the Borrower under this Agreement, the Note, or the Revolving
Credit/Term Note;
<PAGE>
(2) Debt described in EXHIBIT K, and any renewals, extensions, or
refinancings of existing Debt on commercially reasonable terms(but there
shall be no voluntary prepayments of such Debt);
(3) Debt of a Subsidiary to the Federal Reserve Bank, or the Federal Home
Loan Bank, in the ordinary course of business;
(4) Accounts payable to trade creditors for goods or services which are not
aged more than sixty (60) days from the billing date and current operating
liabilities (other than for borrowed money) which are not more than sixty
(60) days past due, in each case incurred in the ordinary course of
business, as presently conducted, and paid within the specified time, unless
contested in good faith and by appropriate proceedings; and
(5) Debt of the Borrower or any Subsidiary secured by purchase money liens
and security interests permitted by Section 6.01 (11), which Debt shall not
exceed FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00) in the
aggregate at any one time outstanding.
SECTION 6.03. MERGERS, ACQUISITIONS, ETC. Wind up, liquidate, or dissolve
itself, reorganize, merge, or consolidate with or into, or convey, sell,
assign, transfer, lease, or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to any Person, acquire all or
substantially all of the assets or the business of any Person, or commence
or acquire any new business not conducted by it on the date of this
Agreement, or permit any Subsidiary to do so, except that the Borrower or
any Subsidiary may merge into, consolidate with or acquire any other Person
provided in each case that immediately after giving effect thereto, no event
shall occur and be continuing which constitutes a Default or an Event of
Default and, in the case of any such merger with any other Person to which
the Borrower or any Subsidiary is a party, the Borrower or its Subsidiary is
the surviving corporation. The Lender, in its sole discretion, may consent
in writing to additional exceptions.
SECTION 6.04. LEASES. Create, incur, assume, or suffer to exist, or permit
any Subsidiary to create, incur, assume, or suffer to exist, any obligation
as lessee for the rental or hire of any real or personal property, except:
(1) leases existing on the date of this Agreement and any extensions or
renewals thereof; (2) leases (other than Capital Leases) which do not in the
aggregate require the Borrower and its Subsidiaries on a consolidated basis
to make payments (including taxes, insurance, maintenance, and similar
expense which the Borrower or any Subsidiary is required to pay under the
terms of any lease) in any fiscal year of the Borrower in excess of FOUR
HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00); (3) leases between the
Borrower and any Subsidiary or between any Subsidiaries. The Lender, in its
sole discretion, may consent in writing to additional exceptions.
<PAGE>
SECTION 6.05. SALE AND LEASEBACK. Sell, transfer, or otherwise dispose of,
or permit any Subsidiary to sell, transfer, or otherwise dispose of, any
real or personal property to any Person and thereafter directly or
indirectly lease back the same or similar property.
SECTION 6.06. DIVIDENDS. After the date hereof, make any distribution in
respect of its capital stock or purchase, or redeem or otherwise acquire any
shares of its outstanding capital stock unless such action has been approved
by the necessary Regulatory Authorities, and provided such distribution,
redemption or acquisition shall not impair Borrower's ability to service
Debt nor cause Borrower to be in violation of any Financial Covenants
contained in Article VII of this Agreement.
SECTION 6.07. SALE OF ASSETS. Sell, lease, assign, transfer, pledge,
mortgage, encumber, or otherwise dispose of, or permit any Subsidiary to
sell, lease, assign, transfer, pledge, mortgage, encumber, or otherwise
dispose of, any of its now owned or hereafter acquired assets (including,
without limitation, shares of stock and indebtedness of Subsidiaries,
receivables, and leasehold interest), except: (1) inventory disposed of in
the ordinary course of business; (2) the sale or other disposition of assets
no longer used or useful in the conduct of its business; (3) that any
Subsidiary may sell, lease, assign, or otherwise transfer its assets to the
Borrower or to any other subsidiary in the ordinary course of business
consistent with past practices; and (4) sales of loans in the ordinary
course of business and sales of Real Estate Owned and all other foreclosed
assets. The Lender, in its sole discretion, may consent in writing to
additional exceptions.
SECTION 6.08. GUARANTIES, ETC. Assume, guarantee, endorse, or otherwise be
or become directly or contingently responsible or liable, or permit any
Subsidiary to assume, guarantee, endorse, or otherwise be or become directly
or contingently responsible or liable (including, but not limited to, an
agreement to purchase any obligation, stock, assets, goods, or services, or
to supply or advance any funds, assets, goods, or services, or an agreement
to maintain or cause such Person to maintain a minimum working capital or
net worth, or otherwise to assure the creditors of any person against loss)
for obligations of any Person, except guaranties by endorsement of
negotiable instruments for deposits or collection or similar transactions in
the ordinary course of business and except pursuant to letters of credit or
other similar items (banker's acceptances, etc.) issued by the Banks in the
ordinary course of business.
<PAGE>
SECTION 6.09. TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property
or the rendering of any services, with any Affiliate, or permit any
Subsidiary to enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service,
with any Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or such Subsidiary's business,
upon fair and reasonable terms no less favorable to the Borrower or such
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person not an Affiliate, and in compliance with all applicable regulatory
and statutory requirements.
ARTICLE VII
FINANCIAL COVENANTS
So long as the Note or Revolving Credit/Term Note shall remain unpaid:
SECTION 7.01. CAPITAL EXPENDITURES. Neither the Borrower nor the
Borrower's bank Subsidiaries will make any expenditures for fixed or capital
assets if, after giving effect thereto, the aggregate of all such
expenditures made by the Borrower or any bank Subsidiary would exceed FOUR
MILLION AND NO/100 DOLLARS ($4,000,000.00) during any fiscal year. Bank may,
in its sole discretion, approve in writing exceptions to this restriction.
SECTION 7.02. CAPITAL RATIOS. Borrower, on a consolidated basis, and each
Bank shall maintain a (i) minimum Tier 1 Capital to Total Assets ratio of
seven percent (7%), (ii) minimum Tier I Capital to Risk- Weighted Assets
ratio of ten percent (10%), and (iii) minimum Total Capital to Risk-Weighted
Assets ratio of ten percent (10%). Unless otherwise defined in this
Agreement or under GAAP, the capitalized terms used in this Section 7.02
shall have the meanings assigned to them pursuant to 12 C.F.R. Section 3.1
ET SEQ.
SECTION 7.03. RETURN ON ASSETS. Income from operations after taxes,
divided by average assets, on a consolidated basis shall not be less than
nine-tenths of one percent (0.9%).
SECTION 7.04. RETURN ON EQUITY. Income from operations after taxes,
divided by average equity, on a consolidated basis shall not be less than
ten percent (10%).
Section 7.05. Net Interest Margin. Yields on earning assets minus the cost
of liabilities, divided by average earning assets, on a consolidated basis
shall be not less than four percent (4%).
<PAGE>
SECTION 7.06. EFFICIENCY RATIO. The non-interest expense divided by the
net interest income plus non-interest income on a consolidated basis shall
not be greater than eighty percent (80%).
SECTION 7.07. LOAN DELINQUENCIES. Loan delinquencies (loans ninety (90)
days or more in arrears) divided by total loans for each Bank shall not
exceed three percent (3%).
SECTION 7.08. RESERVES. Each Bank shall maintain at all times reserves
equal to the greater of (i) one and one-half, percent (1.5%) of total loans,
(ii) one hundred percent (100%) of total non-performing assets, or (iii) the
minimum amount required by its primary regulator.
SECTION 7.09. ASSET QUALITY. The ratio of loans 90 days past due + non
accrual loans plus other real estate owned divided by net loans plus other
real estate owned for each Bank shall not exceed four percent (4%).
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT. An Event of Default shall be deemed to
exist if any of the following events shall occur:
(1) The Borrower shall fail to pay the principal of, or interest on, the
Note or the Revolving Credit/Term Note, or any fee, within five (5) days of
its due date;
(2) Any representation, warranty or certification made or deemed made by
the Borrower in this Agreement, the Security Agreement, or any of the other
Loan Documents, or which is contained in any certificate, document, opinion,
or financial or other statement furnished at any time under or in connection
with any Loan Document, shall prove to have been incorrect, incomplete, or
misleading in any material respect on or as of the date made or deemed made;
(3) The Borrower shall fail to perform or observe any term, covenant,
condition or agreement contained herein or in any other of the Loan
Documents and such failure remains unremedied for thirty (30) days after the
earlier of its discovery by the Borrower or written notice thereof to the
Borrower by the Lender;
(4) Any Event of Default as defined (and after giving effect to any
applicable notice and/or cure periods) in any other of the Loan Documents
shall occur;
<PAGE>
(5) The Borrower or any of its Subsidiaries shall (a) fail to pay any
indebtedness for borrowed money (other than the Note or the Revolving
Credit/Term Note) in excess of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000.00) of the Borrower or such Subsidiary, as the case may be, when
due (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise); or (b) fail to perform or observe any term, covenant,
or condition on its part to be performed or observed under any agreement or
instrument relating to any such indebtedness, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, after the giving of notice or
passage of time, or both, the maturity of such indebtedness, whether or not
such failure to perform or observe shall be waived by the holder of such
indebtedness; or any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof and Borrower or
its Subsidiaries fails to pay such indebtedness in full;
(6) The Borrower or any of its Subsidiaries (a) shall generally not pay, or
shall be unable to pay, or shall admit in writing its inability to pay its
debts as such debts become due; or (b) shall make an assignment for the
benefit of creditors, or petition or apply to any tribunal for the
appointment of a custodian, receiver, or trustee for it or a substantial
part of its assets; or (c) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution,
or liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or (d) shall have had any such petition or application filed or
any such proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made, and which remains
undismissed for a period of sixty(60) days or more; or (e) shall take any
corporate action indicating its consent to, approval of, or acquiescence in
any such petition, application, proceeding, or order for relief or the
appointment of a custodian, receiver, or trustee for all or any substantial
part of its properties; or (f) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a period of sixty
(60) days or more;
(7) One or more judgments, decrees, or orders for the payment of money in
excess of ONE MILLION AND NO/100 DOLLARS($1,000,000.00) in the aggregate
shall be rendered against the Borrower or any of its Subsidiaries, and the
amount of said judgment(s) not covered by Borrower's or Subsidiaries'
insurance is in excess of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($500,000.00), and such judgments, decrees, or orders shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days
without being vacated, discharged, satisfied, or stayed or bonded pending
appeal;
(8) The Security Agreement shall at any time after its execution and
delivery and for any reason cease (a) to create a valid and perfected first
priority security interest in and to the property purported to be subject to
such Security Agreement; or (b) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by the Borrower, or the Borrower shall deny it has any further
liability or obligation under the Security Agreement, or the Borrower shall
fail to perform any of its obligations under the Security Agreement;
<PAGE>
(9) Any of the following events shall occur or exist with respect to the
Borrower and any Commonly Controlled Entity under ERISA: any Reportable
Event shall occur; complete or partial withdrawal from any Multiemployer
Plan shall take place; any Prohibited Transaction shall occur; a notice of
intent to terminate a Plan shall be filed, or a Plan shall be terminated;
or circumstances shall exist which constitute grounds entitling the PBGC to
institute proceedings to terminate a Plan, or the PBGC shall institute such
proceedings; and in each case above, such event or condition, together with
all other events or conditions, if any, could subject the Borrower to any
tax, penalty, or other liability which in the aggregate may exceed FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00); or
(10) If any Governmental Authority asserts or creates a Lien upon any or
all of the assets, equipment, property, leaseholds, or other facilities of
the Borrower by reason of the occurrence of a hazardous discharge or any
environmental complaint; or if any Governmental Authority asserts a claim
against the Borrower and/or its assets, equipment, property, leaseholds, or
other facilities for damages or cleanup costs relating to a hazardous
discharge or an environmental complaint; provided, however, that such claim
shall not constitute a default if, within ten (10) Business Days of the
occurrence giving rise to the claim, (a) the Borrower can prove to the
Lender's satisfaction that the Borrower has commenced and is diligently
pursuing either: (i) a cure or correction of the event which constitutes
the basis for the claim, and continues diligently to pursue such cure or
correction to completion or (ii) proceedings for any injunction, a
restraining order, or other appropriate emergency relief preventing such
Governmental Authority from asserting such claim, which relief is granted
within ten (10) Business Days of the occurrence giving rise to the claim and
the injunction, order, or emergency relief is not thereafter resolved or
reversed on appeal; and (b) in either of the foregoing events, the Borrower
has posted a bond, letter of credit, or other security satisfactory in form,
substance, and amount to both the Lender and the Governmental Authority
asserting the claim to secure the proper and complete cure or correction of
the event which constitutes the basis for the claim;
(11) If the Borrower or any Bank, or the directors, officers, or employees
thereof, becomes subject to any regulatory enforcement action, which
includes without limitation, a memorandum of understanding, written
agreement, supervisory directive, capital directive, removal action, or
cease and desist order, which regulatory enforcement action limits or
restricts the ability of Borrower or any Bank to engage in its normal
business;
(12) Borrower shall fail to maintain senior management having sufficient
skill and experience in Borrower's industry to manage Borrower and each
Subsidiary competently and efficiently.
<PAGE>
(13) If the ownership of Borrower as presently constituted shall change
such that more than twenty-five percent (25%) of the outstanding voting
stock shall be transferred to any Person other than (i) an existing
shareholder who prior to the transfer owned not less than twenty-five (25%)
of the outstanding voting stock of Borrower or (ii) an immediate family
member of the transferring shareholder.
(14) Any Bank shall be unable or shall be deemed to be unable to declare
and distribute dividends as a result of restrictions imposed by applicable
regulation or by any Regulatory Authority.
SECTION 8.02. REMEDIES UPON EVENT OF DEFAULT.
Upon the occurrence of an Event of Default, the Lender may:
(1) By notice to the Borrower, declare the Note and/or the Revolving
Credit/Term Note all interest thereon, and all other amounts payable under
this Agreement to be forthwith due and payable, whereupon the Note and/or
the Revolving Credit/Term Note, all such interest, and all such amounts
shall become and be forthwith due and payable, without presentment, demand,
protest, or further notice of any kind, all of which are hereby expressly
waived by the Borrower;
(2) At any time and from time to time, without notice to the Borrower (any
such notice being expressly waived by the Borrower), set off and apply (i)
any and all deposits (general or special, time or demand, provisional or
final) at any time held by the Lender, and (ii) other indebtedness at any
time owing by the Lender to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower, now or hereafter
existing under this Agreement, the Note, or the Revolving Credit/Term Note
any other Loan Document, irrespective of whether or not the Lender shall
have made any demand under this Agreement, the Note, the Revolving
Credit/Term Note, or under any other of the Loan Documents and although such
obligations may be unmatured;
(3) Exercise from time to time any and all rights and remedies available to
a secured party when a debtor is in default under a security agreement as
provided in the Uniform Commercial Code of Georgia, or available to Lender
under any other applicable law or in equity, including without limitation
the right to any deficiency remaining after disposition of the Collateral;
(4) At its option, and without notice or demand of any kind, exercise from
time to time any and all other rights and remedies available to it under
this Agreement or any of the other Loan Documents;
<PAGE>
(5) Borrower shall pay all of the reasonable costs and expenses incurred by
Lender in enforcing its rights under this Agreement and the other Loan
Documents. In the event any claim under this Agreement or under any of the
other Loan Documents is referred to an attorney for collection, or collected
by or through an attorney at law, Borrower will be liable to Lender for all
expenses incurred by it in seeking to enforce its rights hereunder, under
any other of the Loan Documents or in the Collateral, including without
limitation reasonable attorneys' fees; and
(6) Any proceeds from disposition of any of the Collateral may be applied
by Lender first to the payment of all expenses and costs incurred by Lender
in enforcing the rights of Lender under each of the Loan Documents and in
collecting, retaking, holding, preparing the Collateral for and advertising
the sale or other disposition of and realizing upon the Collateral,
including without limitation reasonable attorneys' fees actually incurred,
as well as all other legal expenses and court costs. Any balance of such
proceeds may be applied by Lender toward the payment of the Loan and in such
order of application as the Lender may from time to time elect. Lender shall
pay the surplus, if any, to Borrower. Borrower shall pay the deficiency, if
any, to Lender.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of any Loan Document to which the Borrower is a
party, nor consent to any departure by the Borrower from any Loan Document
to which it is a party, shall in any event be effective unless the same
shall be in writing and signed by the Lender , and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 9.02. NOTICES, ETC. All notices and other communications provided
for under this Agreement and under the other Loan Documents shall be in
writing (including telex and facsimile transmissions) and mailed or
transmitted or delivered as follows:
If to the Borrower:
400 North Main Street
Cornelia, Georgia 30531
Attention: Mr. Harry Stephens
Executive Vice President & Chief Financial Officer
Facsimile: (706) 776-1423
If to the Lender:
25 Park Place
Mail Code: 121
Atlanta, Georgia 30303
Attention: Southeastern Financial Institutions
Facsimile: (404) 581-1775
<PAGE>
or, as to each party, at such other address as shall be designated by such
party in a written notice to the other party complying as to delivery with
the terms of this Section 9.02. Except as otherwise provided in this
Agreement, all such notices and communications shall be effective when
deposited in mails or sent, answer back received via telecopier, with the
original deposited in the mail, respectively, addressed as aforesaid, except
that notices to the Lender pursuant to the provisions of Section 3.01 shall
not be effective until received by the Lender.
SECTION 9.03. NO WAIVER. No failure or delay on the part of the Lender in
exercising any right, power, or remedy granted hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power, or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, or remedy hereunder.
SECTION 9.04. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower may not assign or transfer
any of its rights under any Loan Document to which the Borrower is a party
without the prior written consent of the Lender.
SECTION 9.05. COSTS, EXPENSES, AND TAXES. The Borrower agrees to pay on
demand all costs and expenses incurred by the Lender in connection with the
preparation, execution, delivery, filing, and administration of the Loan
Documents, and of any amendment, modification, or supplement to the Loan
Documents, including, without limitation, the fees and out-of-pocket
expenses of counsel for the Lender incurred in connection with advising the
Lender as to its rights and responsibilities hereunder. The Borrower also
agrees to pay all such costs and expenses, including court costs, incurred
in connection with enforcement of the Loan Documents, or any amendments,
modification, or supplement thereto, whether by negotiation, legal
proceedings, or otherwise. In addition, the Borrower shall pay any and all
stamp and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing, and recording of any of the
Loan Documents and the other documents to be delivered under any such Loan
Documents, and agrees to hold the Lender harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees. This provision shall survive
termination of this Agreement.
SECTION 9.06. INTEGRATION. This Agreement and the Loan Documents contain
the entire agreement between the parties relating to the subject matter
hereof and supersede all oral statements and prior writing with respect
thereto.
<PAGE>
SECTION 9.07. INDEMNITY. The Borrower hereby agrees to defend, indemnify,
and hold the Lender harmless from and against any and all claims, damages,
judgments, penalties, costs, and expenses (including reasonable attorney's
fees and court costs actually incurred now or hereafter arising from the
aforesaid enforcement of this clause) arising directly or indirectly from
the activities of the Borrower and its Subsidiaries, and its predecessors in
interest, or arising directly or indirectly from the Borrower's or any
Subsidiaries', or any predecessors in interest's, violation of any
environmental protection, health, or safety law, whether such claims are
asserted by any governmental agency or any other person. This indemnity
shall survive termination of this Agreement.
SECTION 9.08. GOVERNING LAW. This Agreement, the Note, and the Revolving
Credit/Term Note shall be governed by, and construed in accordance with, the
laws of the State of Georgia and the applicable laws of the United States of
America.
SECTION 9.09. SEVERABILITY OF PROVISIONS. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in
any other jurisdiction.
SECTION 9.10. HEADINGS. Article and Section headings in the Loan Documents
are included in such Loan Documents for the convenience of reference only
and shall not constitute a part of the applicable Loan Documents for any
other purpose.
SECTION 9.11. JURY TRIAL WAIVER. THE LENDER AND THE BORROWER HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED
TO THIS AGREEMENT OR THE LOAN DOCUMENTS. NO OFFICER OF THE LENDER HAS
AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first
above written.
COMMUNITY BANKSHARES, INC.
By:________________________________
Title: _________________________
And:____________________________
Title: _________________________
SUNTRUST BANK, ATLANTA
By:________________________________
Title: _________________________
And:_______________________________
Title: _________________________
36
<PAGE>
EXHIBIT A
---------
BANKS
-----
NAME OF INSTITUTION - STATE OF INCORPORATION
- -----------------------------------------
1. Community Bank & Trust - Habersham, Georgia
2. Community Bank & Trust - Jackson, Georgia
3. Community Bank & Trust - Alabama Alabama
4. Community Bank & Trust - Troup,Georgia
37
<PAGE>
EXHIBIT B
---------
COLLATERAL
----------
50,000 shares of the capital stock of Community Bank & Trust -
Habersham more particularly described in the Amended and Restated
Stock Pledge and Security Agreement executed in connection herewith.
38
<PAGE>
EXHIBIT C
---------
AMENDED AND RESTATED STOCK PLEDGE AND SECURITY AGREEMENT
--------------------------------------------------------
THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT made and entered
into July _____, 1997 between COMMUNITY BANKSHARES, INC., a Georgia
corporation, having its principal place of business at 400 North Main
Street, Cornelia, Georgia 30531 ("Pledgor"), and SUNTRUST BANK,
ATLANTA, a Georgia banking corporation, having its principal place of
business in Atlanta, Georgia ("Bank"). This Amended and Restated
Stock Pledge and Security Agreement supersedes the Stock Pledge
Agreement between the parties dated January 10, 1996.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Bank and Pledgor are parties to a Revolving Credit/Term
Loan Agreement dated January 10, 1996; and
WHEREAS, all obligations under the January 10, 1996 Revolving
Credit/Term Loan Agreement are secured by a Stock Pledge and Security
Agreement also dated January 10, 1996.
WHEREAS, pursuant to an Amended and Restated Revolving
Credit/Term Loan Agreement, dated of even date herewith (the "Loan
Agreement"), between Pledgor and the Bank, the Bank has agreed to
establish a Revolving Credit Loan ("Revolving Credit") to Pledgor, as
evidenced by the Promissory Note of the Pledgor evidencing the
obligation of the Pledgor under the Loan Agreement (the "Note") and
the parties have restated their Agreements with respect to a term loan
originally established under the January 10, 1996 Revolving
Credit/Term Loan Agreement ("Term Loan") as evidenced by that certain
Revolving Credit/Term Note dated January 10, 1996 ("Revolving
Credit/Term Note");
WHEREAS, Pledgor desires to secure the due and punctual payment
of the Loan, and to secure the due and punctual performance under the
Loan Agreement;
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. SECURED OBLIGATIONS. This Stock Pledge and Security Agreement
(the "Stock Pledge Agreement") is given to secure (i) the due and
punctual payment and performance of the Pledgor's obligations under
the Revolving Credit, as evidenced by the Note, and Term Loan, as
evidenced by the Revolving Credit/Term Note, including all
indebtedness arising upon any extensions and renewals thereof; (ii)
the due and punctual payment and performance of Pledgor's obligations
under the Loan Agreement; and (iii) all other further indebtedness of
any amount which is now or may be hereafter owed by Pledgor to Bank,
whether individually or jointly with others not parties hereto and
whether direct or indirect, as maker, endorser, guarantor, surety, or
otherwise (collectively, or any portion thereof, the "Secured
Obligations").
2. PLEDGE AND SECURITY INTEREST.
a. Pledgor hereby pledges and grants to Bank a security interest
in 50,000 shares of the common stock of Community Bank & Trust -
Habersham (which shares shall be evidenced by the stock certificates
which Pledgor has contemporaneously herewith delivered to Bank), and
any additional shares hereafter at any time and from time to time
acquired by Pledgor together with all dividends, stock dividends,
stock splits, warrants, options, stock purchase rights, and all other
property at any time and from time to time distributed in respect of,
or in exchange for, or in substitution of, any and all of said shares,
and all proceeds thereof, whether now existing or at any time
hereafter acquired or issued (all of which shall be referred to herein
collectively as the "Stock Collateral"); provided, however, prior to
the occurrence of any Event of Default hereunder, Pledgor shall be
entitled to receive and retain all dividends of cash and noncash
property (other than stock dividends, stock splits, warrants, options,
and stock purchase rights), and such dividends shall not constitute
part of the Stock Collateral. Upon delivery to the Bank, any security
now or thereafter included in the Stock Collateral shall be
accompanied by executed stock powers in blank and by such other
documents or instruments as Bank may reasonably request. Each
delivery of certificates for such Stock Collateral shall be
accompanied by a schedule showing the number of shares and the numbers
of certificates theretofore and then being pledged hereunder, which
schedule shall be attached hereto and made a part hereof.
b. Upon the request of Bank, Pledgor will execute such financing
statements and other documents, pay the cost of filing or recording
the same in all public offices deemed necessary or appropriate by
Bank, and do such other acts and things as Bank may from time to time
reasonably request, including delivery of the Stock Collateral to the
Bank, to establish and maintain a valid security interest in all the
Stock Collateral, free of all other liens and claims except those
expressly permitted or granted herein.
3. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to Bank as follows:
a. The stock certificate(s) identified in Section 2 hereof and
delivered to the Bank contemporaneously herewith are genuine and in
all respects what they purport to be;
b. Pledgor is the legal, registered owner of the Stock
Collateral and holds full and absolute beneficial title to the Stock
Collateral, free and clear of all liens, charges, encumbrances,
security interest, and voting trust restrictions of every kind and
nature;
c. That no consent or approval of any person, entity, or
government or regulatory authority is necessary to the validity of the
pledge contained in this Agreement, except such as have been obtained;
d. That Pledgor has full corporate power and authority to pledge
the Stock Collateral to Bank as security for the Secured Obligations,
and will defend its title thereto against the claims of all persons
whomsoever;
e. That Pledgor has granted to Bank a security interest in the
Stock Collateral which is at the time hereof valid and of first
priority under applicable law, and no financing statement, security
interest, or other lien or encumbrance covering the Stock Collateral
or its proceeds is outstanding or on file in any public office, except
any that may have been filed in favor of the Bank;
f. That Pledgor has revoked all proxies heretofore given and
covenants not to extend further proxies or powers of attorney with
respect to the Stock Collateral so long as this Stock Pledge Agreement
remains in full force and effect; and
g. That Pledgor has the full corporate power and authority to
enter into this Stock Pledge Agreement and to perform its obligations
hereunder, and this Stock Pledge Agreement constitutes the valid,
binding, and enforceable agreement of Pledgor, enforceable against it
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, moratorium, or
other similar laws affecting the rights of creditors generally, and
except with respect to the applicability of general equitable
principles which may limit the availability of specific performance
or other equitable remedies.
4. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. Bank shall have the
right (in its sole and absolute discretion) to have the stock
certificate(s) representing the Stock Collateral assigned in blank in
favor of Bank. Upon an Event of Default under this Stock Pledge
Agreement, Bank may have such Stock Collateral registered in the name
of Bank or any nominee or nominees of Bank. Bank shall at all times
have the right to exchange the stock certificate(s) representing the
Stock Collateral for stock certificate(s) of smaller or larger
denominations for any purpose consistent with its performance of this
Stock Pledge Agreement.
5. COVENANTS. So long as any of the Secured Obligations remain
unpaid or unperformed, Pledgor covenants and agrees with Bank as
follows:
a. Pledgor shall keep the Stock Collateral free from all
security interests, liens, levies, attachments, voting restrictions,
and all other encumbrances, except for the interest of Bank herein
granted;
b. Pledgor shall not assign, sell, transfer, deliver, or
otherwise dispose of any of the Stock Collateral or any interest
therein; and
c. Pledgor shall pay all taxes, assessments, and all other
charges of any nature which may be levied or assessed with respect to
the Stock Collateral; provided that Pledgor shall have the right to
contest in good faith any tax assessments or other charges.
d. Pledgor shall deliver to Bank, immediately upon Pledgor's
receipt of same, any and all stock certificates representing the Stock
Collateral which Pledgor shall hereinafter acquire. The delivery of
such after acquired Stock Collateral to Bank shall be accompanied by a
Power of Attorney To Transfer Stock executed in blank in a form
promulgated by Bank and shall be deemed to be a reaffirmation by
Pledgor of all of the terms and provisions of this Stock Pledge
Agreement.
6. VOTING RIGHTS: DIVIDENDS, ETC.
a. Unless and until an Event of Default hereunder shall have
occurred:
(i) Pledgor shall be entitled to exercise any and all voting
and consensual rights and powers accruing to an owner of the Stock
Collateral or any part thereof for any purpose not inconsistent with
the terms of this Stock Pledge Agreement;
(ii) Pledgor shall be entitled to receive and retain any and
all cash dividends payable on the Stock Collateral. Any and all stock
or liquidating dividends, stock warrants, stock options, stock
purchase rights, other distribution in property, return of capital, or
distribution made on or in respect of the Stock Collateral, whether
resulting from a subdivision, combination, or reclassification of
capital stock or received in exchange for the Stock Collateral, or any
part thereof, or as a result of any merger,consolidation, acquisition,
or other exchange or assets shall be and become part of the Stock
Collateral pledged hereunder and, if received by Pledgor,shall
forthwith and immediately be delivered to Bank to be held subject to
the terms of this Stock Pledge Agreement, except to the extent
permitted to be retained by Pledgor pursuant to Section 2 hereof; and
(iii) Bank shall execute and deliver to Pledgor, or cause to
be executed and delivered to Pledgor, as appropriate, all such
proxies, powers of attorney, and other instruments as Pledgor may
reasonably request for the purpose of enabling Pledgor to
exercise the voting and consensual rights and powers which it is
entitled to exercise pursuant to clause (i).
b. Upon the occurrence and during the continuance of any Event of
Default, and provided Bank has given Pledgor written notice of said
Event of
Default:
(i) Pledgor agrees to deliver immediately to Bank any and all
cash, checks, drafts, items, or other instruments for the payment
of money which may be received after such default by Pledgor as
dividends or otherwise with respect to the Stock Collateral, duly
endorsed and assigned to Bank;
(ii) Pledgor agrees to deliver to Bank immediately upon
Pledgor's receipt thereof, any and all stock, stock dividends,
stock splits, warrants, and stock purchase rights received with
respect to any of the Stock Collateral, together with stock
powers duly executed in blank with respect to all stock and other
certificates evidencing same; and
(iii) All rights of Pledgor to exercise the voting and
consensual rights and powers which it is entitled to exercise
pursuant to Section 6(a)(i) hereof shall cease, and all such
rights shall thereupon become vested in Bank, which shall have
the sole and exclusive right and authority to exercise such
voting and consensual rights and powers.
7. PERFORMANCE OF PLEDGOR'S OBLIGATIONS. At its option, Bank may
(but shall not be obligated to) from time to time perform any
agreement of Pledgor hereunder which Pledgor shall fail to perform,
and may take any other reasonable action which Bank deems necessary
for the maintenance or preservation of the value of the Collateral or
its interest therein.
8. ATTORNEY-IN-FACT. Pledgor hereby irrevocably constitutes and
appoints Bank as Pledgor's agent and attorney-in-fact, upon the
occurrence and continuance of an Event of Default, for the purposes of
carrying out the provisions of this Stock Pledge Agreement and taking
any action and executing any interest which Bank or Pledgor may deem
necessary or advisable to accomplish the purposes hereof. Without
limiting the generality of the foregoing, upon the occurrence and
continuance of an Event of Default, Bank shall have the right and
power upon notice to Pledgor to receive, endorse, and collect all
checks and other orders for the payment of money made payable to
Pledgor, representing any interest or dividend or other distribution
payable in respect of the Stock Collateral or any part thereof, and
give full discharge for the same. The foregoing power of attorney is
coupled with an interest and shall be terminated only upon payment in
full of the Secured Obligations.
9. EVENTS OF DEFAULT. An Event of Default shall occur under this
Stock Pledge Agreement upon the occurrence of any one or more of the
following events: (i) any Event of Default shall occur under, and as
defined in, the Loan Agreement; or (ii) upon the breach by Pledgor of
any of the covenants set forth herein and such breach remains uncured
for thirty (30) days after the earlier of its discovery by Pledgor or
written notice thereof to Pledgor by Bank; or (iii) upon default by
Pledgor in the performance or observance of any other of the
agreements, terms, or conditions herein contained, which default shall
not be fully cured within thirty (30) days after Pledgor receives
written notice thereof; or (iv) any of the representations or
warranties herein made by Pledgor shall prove to be false or
misleading in any material respect.
10. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event
of Default under this Stock Pledge Agreement, Bank may, in its sole
discretion and without further notice or demand, (i) declare all the
Secured Obligations to be immediately due and payable; (ii) proceed
immediately to exercise any and all of Bank's rights, powers, and
privileges with respect to the Stock Collateral, including, without
limitation, the right to sell or otherwise dispose of the Stock
Collateral or any part thereof at private or public sale, in such
manner as Bank shall deem reasonable; and (iii) exercise any other
right or remedy available to Bank under the applicable Uniform
Commercial Code or otherwise available by agreement or under federal
or state law. All rights and remedies herein specified are cumulative
and are in addition to such other rights and remedies as may be
available to Bank.
Bank shall act as the authorized agent and attorney-in-fact of
Pledgor in disposing of the Stock Collateral, and in that capacity is
authorized to take such action on behalf of Pledgor as will further
such a disposition, including, without limitation, any necessary
endorsement or signature in its own name. Pledgor expressly
acknowledges that compliance with federal or state securities and
other laws may limit the disposition of the Stock Collateral by Bank.
No disposition of the Stock Collateral by Bank upon an Event of
Default shall be deemed to be a breach of any duty to Pledgor or to be
commercially unreasonable because a better sales price might have been
attained through an alternative disposition, if Bank in good faith has
determined that the alternative disposition might constitute a
violation of state or federal laws. Without limiting the generality
of the foregoing, Bank may at any sale of the Stock Collateral
restrict the prospective bidders or purchasers of the Stock Collateral
to persons who will represent and agree that they are purchasing the
Stock Collateral for their own account for investment, and not with a
view to distribution or sale. Any purchaser at a sale conducted
pursuant to the terms of this Stock Pledge Agreement shall hold the
property sold absolutely, free from any claim or right on the part of
Pledgor, and Pledgor hereby waives any right of redemption, stay, or
appraisal under present or future law. Each and every purchaser of
any of the Stock Collateral shall be vested with all shareholder's
rights provided by the stock purchased, including, without limitation,
all voting and dividend rights. Pledgor agrees that Bank may purchase
the Stock Collateral or any part thereof at any sale. Any requirement
imposed by law regarding the giving to Pledgor of prior notice of any
sale or other disposition of the Stock Collateral shall be deemed
reasonable if given by Bank in writing at least ten (10) days prior to
such sale or other disposition specifying the time and place thereof.
11. APPLICATION OF PROCEEDS. The proceeds derived from a disposition
of the Stock Collateral shall be applied toward payment of the Secured
Obligations, in such order of application as Bank may from time to
time elect, and any remaining balance shall be paid to Pledgor.
12. TERM OF AGREEMENT. This Stock Pledge Agreement shall terminate
upon payment in full of the Secured Obligations, at which time Bank
shall reassign and deliver to Pledgor, or to such person or persons as
Pledgor may in writing designate, against receipt, any Stock
Collateral still held by Bank, together with appropriate instruments
of reassignment and release. Such reassignment shall be without
recourse upon or warranty by Bank.
13. SECURITIES. In view of the position of Pledgor in relation to
the Stock Collateral, or because of other present or future
circumstances, a question may arise under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, as now
or hereafter in effect, or any similar statute hereafter enacted
analogous in purpose or effect (such Act and any such similar statute
as from time to time in effect being hereinafter called the "Federal
Securities Laws") with respect to any disposition of the Stock
Collateral permitted hereunder. Pledgor understands that compliance
with the Federal Securities Laws may very strictly limit the course of
conduct of Bank if Bank were to attempt to dispose of all or any part
of the Stock Collateral and may also limit the extent to which or the
manner in which any subsequent transferee of any Stock Collateral may
dispose of the same. Similarly, there may be other legal restrictions
or limitations affecting Bank in any attempt to dispose of all or any
part of the Stock Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or effect. Under
applicable law, in the absence of an agreement to the contrary, Bank
may perhaps be held to have certain general duties and obligations to
Pledgor to make some effort towards obtaining a fair price even though
the Secured Obligations and other obligations may be discharged or
reduced by the proceeds of a sale at a lesser price. Pledgor clearly
understands that Bank is not to have any such general duty and
obligation to Pledgor, and Pledgor will not attempt to hold Bank
responsible for selling all or any part of the Stock Collateral at an
inadequate price even if Bank shall accept the first offer received or
does not approach more than one possible purchaser, provided Bank acts
in a commercially reasonable manner. Without limiting the generality
of the foregoing, the provisions of this paragraph would apply if, for
example, Bank were to place all or any part of the Stock Collateral
for sale by an investment banking firm, or if such investment banking
firm purchased all or any part of the Stock Collateral for its own
account or if Bank placed all or any part of the Stock Collateral with
a purchaser or purchasers. The provisions of this paragraph will
apply notwithstanding the existence of a public or private market upon
which the quotations or sale prices may exceed substantially the price
at which Bank sells.
14. MISCELLANEOUS.
a. NOTICES. All notices and other communications to Pledgor
under this Stock Pledge Agreement shall be deemed to have been
effectively given when delivered in person to Pledgor or five (5) days
after sending thereof, by first class U.S. Mail, postage prepaid, to
the following address:
If to Pledgor:
Community Bankshares, Inc.
400 North Main Street
Cornelia, Georgia 30531
Attention: Mr. Harry Stephens
Executive Vice President and
Chief Financial Officer
If to Bank:
SunTrust Bank, Atlanta
25 Park Place
Mail Code: 121
Atlanta, Georgia 30303
Attention: Jim Rountree
or to such other address as Pledgor has notified Bank in writing to be
the appropriate address for the sending of notices under this Stock
Pledge Agreement.
b. SURVIVAL. All representations, warranties, covenants, and
agreements herein contained shall survive the execution and delivery
of this Stock Pledge Agreement.
c. NO WAIVER. No failure on the part of Bank to exercise, and
no delay in exercising, any right, power, or remedy granted hereunder,
or available at law, in equity, or otherwise, shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power, or remedy by Bank preclude any other or further
exercise thereof, or the exercise of any other right, power, or
remedy.
d. ENTIRE AGREEMENT. This Stock Pledge Agreement, the Loan
Agreement, and the Loan Documents (as defined in the Loan Agreement)
contain the entire agreement between the parties with respect to the
pledge of and security interest in the Stock Collateral and supersede
any prior agreements or understandings.
e. AMENDMENTS. This Stock Pledge Agreement may be amended only
by written agreement between the parties hereto.
f. TIME OF ESSENCE. Time is of the essence under this Stock
Pledge Agreement.
g. GOVERNING LAW. This Stock Pledge Agreement and the
construction and enforcement hereof shall be governed in all respects
by the laws of the State of Georgia and the applicable laws of the
United States of America.
h. SUCCESSORS AND ASSIGNS. This Stock Pledge Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto
and their respective heirs, administrators, legal representatives,
successors, and assigns, except that Pledgor shall not be permitted
to assign its obligations under this Agreement or any interest herein
or otherwise pledge, encumber, or grant any options with respect to
all or any of the cash, securities, certificates, instruments, or
other property held as Stock Collateral under this Stock Pledge
Agreement.
i. SEVERABILITY. If any provision of this Stock Pledge
Agreement or any portion thereof shall be invalid or unenforceable
under applicable law, such part shall be ineffective to the extent of
such invalidity or unenforceability only, without in any way affecting
the remaining parts of such provision or other remaining provisions.
j. FURTHER ASSURANCES. Pledgor agrees to do such further acts,
and to execute and deliver such additional conveyances, assignments,
agreements, and instruments as Bank may at any time request in
connection with the administration and enforcement of this Stock
Pledge Agreement or relative to the Stock Collateral or any part
thereof, or in order better to assure and confirm to Bank its rights,
powers, and remedies hereunder.
k. EXECUTION IN COUNTERPARTS. This Stock Pledge Agreement may
be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which, taken together, shall
constitute one and the same instrument.
l. HEADINGS AND CAPITALIZED TERMS. The descriptive headings of
the several paragraphs are for convenience only and are not to affect
the construction of or to be taken into consideration in interpreting
this Stock Pledge Agreement. Capitalized terms used herein and not
otherwise defined shall have the meanings described to them in the
Loan Agreement.
<PAGE>
IN WITNESS WHEREOF, Pledgor and Bank have caused this Stock Pledge
Agreement to be duly executed and delivered under hand and seal, as of
the day and year first above written.
COMMUNITY BANKSHARES, INC.
By:__________________________________
Title: __________________________
And:_________________________________
Title: __________________________
SUNTRUST BANK, ATLANTA
By:__________________________________
Title: __________________________
And:_________________________________
Title: __________________________
<PAGE>
EXHIBIT D
---------
REVOLVING CREDIT/TERM NOTE
---------------------------
$3,000,000 January 10, 1996
Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, Community Bankshares, Inc.,
a Georgia corporation (the "Borrower"), hereby promises to pay to the
order of SUNTRUST BANK, ATLANTA (the "Bank"), at its Principal Office
located at 25 Park Place, Atlanta, Georgia the principal amount of
THREE MILLION DOLLARS ($3,000,000) or so much thereof as may from time
to time be disbursed hereunder and be outstanding, as set forth in the
records of the Bank, plus all accrued and unpaid interest herein in
lawful money of the United States and in immediately available funds.
Interest shall accrue on advances under the Revolving Credit and shall
be payable in accordance with the terms of the Loan Agreement (as
defined below). Effective as of the Revolving Maturity Date, the
original principal balance of the Term Loan shall be repaid in sixteen
(16) quarterly installments beginning March 31, 1997, and continuing
on the last day of each calendar quarter thereafter; provided,
however, that the last such installment on December 31, 2000, shall be
in the amount necessary to repay in full the unpaid amount of this
Note, and to pay accrued but unpaid interest on the unpaid principal
amount of this Note from the date of this Note until such principal
amount becomes due (computed on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed) at a rate per
annum selected by the Borrower in accordance with the Loan Agreement,
payable on the last day of each calendar quarter commencing March 31,
1997, and at maturity. Any amount of principal hereof which is not
paid when due (giving effect to any applicable grace period), whether
at stated maturity, by acceleration, or otherwise, shall bear interest
from the date when due until said principal amount is paid in full,
payable on demand, at a rate per annum which shall be two percent
(2%) above the rate which would otherwise be applicable. Any change
in the interest rate resulting from a change in the Prime Rate shall
be effective at the beginning of the day on which such change in the
Prime Rate shall become effective.
If any installment of this Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day, and interest shall be payable
thereon at the rate herein specified during such extension.
This Note is the Note referred to in, and is entitled to the
benefits of, the Revolving Credit/Term Loan Agreement, dated as of
January 10, 1996, between the Borrower and the Bank (the "Loan
Agreement"). Terms used herein which are defined in the Loan
Agreement shall have their defined meanings when used herein. The
Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of
certain stated events and also for prepayments on account of principal
hereof prior to the maturity of this Note upon the terms and
conditions specified in the Loan Agreement. This Note is secured by a
Security Agreement referred to in the Loan Agreement, reference to
which is hereby made for a description of the collateral provided for
under the Security Agreement and the rights of the Borrower and the
Bank with respect to such collateral.
In addition to and not in limitation of the foregoing and the
provisions of the Loan Agreement, the Borrower further agrees to pay
all expenses of collection, including reasonable attorneys' fees, if
this Note shall be collected by law or through an attorney at law, or
in bankruptcy, receivership, or other court proceedings.
TIME IS OF THE ESSENCE UNDER THIS NOTE. This Note has been
delivered in Atlanta, Georgia, and shall be governed by and construed
under the laws of Georgia.
PRESENTMENT, PROTEST, AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY
THE BORROWER.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its duly authorized officer as of the date
first above written.
COMMUNITY BANKSHARES, INC.
By:________________________________
Title:_____________________________
And:_______________________________
Title:_____________________________
(CORPORATE SEAL)<PAGE>
OFFICER'S CERTIFICATE
---------------------
The undersigned certifies that he is of Community Bankshares,
Inc. (the "Company") and that as such he is familiar with the business
and affairs of the Company and is authorized to execute this
Certificate on behalf of the Company, and, with reference to the
Amended and Restated Revolving Credit/Term Loan Agreement (the "Loan
Agreement") dated June 21, 1997, between the Company and SunTrust
Bank, Atlanta, that he duly has made such investigations as were
necessary for the provision of this Certificate and the
certifications, representations, and warranties contained herein and
that he hereby further certifies, represents, and warrants as follows:
1. That the representations and warranties of the Company
contained in Article IV of the Loan Agreement and otherwise made in
writing by or on behalf of the Company in connection with the
transactions contemplated by the Loan Agreement, and the schedules and
exhibits attached to the Loan Agreement, are true and correct on and
as of the date hereof; and
2. That the Company has performed and complied with all
agreements and conditions contained in the Loan Agreement required to
be performed or complied with by it, and that on and as of the date
hereof no condition or lapse of time, or both, will constitute an
Event of Default as defined in Article VIII of the Loan Agreement.
3. That neither the execution, delivery, and performance of
the Loan Agreement or of the Note nor fulfillment of or compliance
with the terms and provisions thereof will conflict with, or result in
a breach of, the terms, conditions, or provisions of or constitute a
default under, or result in any violation of, any other agreement to
which the Company or any of its Subsidiaries is subject. Neither the
Company nor any Subsidiary is a party to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness of the
Company or such Subsidiary, any agreement relating thereto, or any
other contract or agreement which limits the amount of, or otherwise
imposes restrictions on the incurring of the type of debt to be
evidenced by the Note.
4. That there has been no material adverse change in the
assets, liabilities, financial positions, operations or business
prospects of Borrower since December 31, 1996.
Capitalized terms not otherwise defined herein are defined
as set forth in the Loan Agreement.
<PAGE>
WITNESS the seal of the Company and the signature of the
undersigned, as of this 21 day of JULY, 1997.
By:_________________________________
Title: __________________________
<PAGE>
EXHIBIT G
---------
SCHEDULE OF LITIGATION
----------------------
None.
<PAGE>
EXHIBIT H
---------
SCHEDULE OF REAL ESTATE OWNED
-----------------------------
COMMUNITY BANKSHARES
FIXED ASSET SCHEDULE
CURRENT BOOK VALUE
BUILDINGS LAND TOTAL
HABERSHAM
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2 Irvin St., Cornelia (branch office) 58,246 0 58,246
400 North Main St., Cornelia (main office) 274,974 145,307 420,281
534 N. Main St., Cornelia (operations center) 349,390 0 349,390
111 N. Washington St., Clarkesville (branch office) 138,439 50,652 189,091
536 N. Main St., Cornelia (future expansion) 130,500 0 130 ,500
Hwy. 441 By-Pass, Cornelia (ATM property) 0 75,424 75,424
Hwy. 441 N., Cornelia (unimproved property) 0 242,372 242,372
Habersham Total Buildings and Land 1,465,304
JACKSON
17 N. Elm Street, Commerce (main office) 585,145 2,500 587,645
TROUP
201 Broad St., LaGrange (main office) 408,407 405,650 814,057
ALABAMA
202 N. Powell St., Union Springs (main office) 512,175 65,196 577,371
</TABLE>
<PAGE>
EXHIBIT J
---------
PERMITTED LIENS
---------------
None
<PAGE>
EXHIBIT K
---------
PERMITTED DEBT
--------------
NONE
AMENDMENT NO. 2
TO
MASTER CONSULTING AGREEMENT
THIS AMENDMENT is made and entered into this 3rd day of July,
1997, by and between NATIONSBANC SERVICES, INC., a North Carolina
corporation ("NBSI"), and FINANCIAL SUPERMARKETS, INC., a Georgia
corporation ("Company").
WHEREAS, NBSI and Company are parties to a Master Consulting
Agreement dated as of April 3, 1996, pursuant to which Company agreed to
perform certain consulting services with respect to the establishment,
design, construction, operation and marketing of the Banking Centers
opened by NationsBank in Stores in the Geographic Area (the "Master
Consulting Agreement"); and
WHEREAS, the Master Consulting Agreement was subsequently modified
by that certain Amendment No. 1 to Master Consulting Agreement dated
August 15, 1996; and
WHEREAS, NBSI, the Company and Winn-Dixie Stores, Inc. subsequently
entered into that certain letter agreement dated March 4, 1997, in which
the parties agreed to amend certain provisions contained in the Master
Agreement between Winn-Dixie and NationsBank and the Master Consulting
Agreement; and
WHEREAS, the parties now desire to amend certain provisions of the
Master Consulting Agreement as reflected in the letter agreement and as
set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above and
the mutual covenants set forth below, and other good and valuable
consideration, the receipt and sufficiency of all such consideration
being hereby acknowledged, NBSI and Company agree as follows:
1. SECTION 1.01. Section 1.01 of the Master Consulting Agreement
is hereby amended in its entirety to read as follows:
CONSULTING SERVICES PROVIDED. NBSI retains Company to provide
such consulting services as may be requested by NBSI or any
NBSI Affiliate from time to time during the term of this
Agreement with respect to the establishment, opening, design,
construction, operation, marketing and training related to the
Banking Centers to be opened by NationsBank in the Geographic
Area, and Company agrees to render such services if so
requested. The general scope of Company's duties hereunder is
to advise and consult with the officers and employees of NBSI
Affiliates, as requested, in connection with the design,
establishment, opening, construction, operation, marketing and
training related to the Banking Centers.
<PAGE>
2. SECTION 1.03. A new Section 1.03 is hereby added to the Master
Consulting Agreement as follows:
OTHER CONTRACTORS. The Company acknowledges that NBSI and
NationsBank have the continuing right and option to select
contractors other than the Company to provide site preparation,
construction, manufacturing and/or installation services for
all Banking Centers after the first 40 (subject to the
reasonable approval of Winn-Dixie) and that NBSI and its
Affiliates may choose not to request any consulting services
from the Company under this Agreement.
3. SECTION 4.01. Section 4.01 of the Master Consulting Agreement
is hereby amended in part by adding the following to the end of said
Section:
If NBSI or any NBSI Affiliate requests any specific consulting
services from the Company after the effective date of this
Amendment, NBSI shall pay the Company a fee for such services
in accordance with a schedule to be agreed upon in advance by
the Company and NBSI. Such fees shall be in addition to the
monthly retainer fee specified above which shall be payable
whether or not the Company provides such services. The Company
further acknowledges and agrees that there shall be no
additional fees due in connection with the Company's handling
and processing of any notices required to be given or otherwise
sent to the Company under the Master Agreement between
NationsBank and Winn-Dixie or the handling and processing of
Lease Agreements. NBSI agrees to forward to FSI within ten
days of execution copies of all Commencement Date Agreements
entered into between Winn-Dixie and NBSI or any NBSI Affiliate.
4. SECTION 4.02. Section 4.02 of the Master Consulting Agreement,
as well as Exhibit B and Attachment A thereto, are hereby deleted in
their entirety, and the Company hereby releases NBSI and NationsBank,
N.A. from any and all liability for the fees referenced therein as they
relate to Banking Centers 41 and beyond that are opened by NationsBank
under the Master Agreement except with respect to expenses incurred by
the Company in the amount of $24,648 with respect to such Banking Centers
which have been paid concurrently with the execution of this Amendment.
5. SECTION 12.01. Section 12.01 of the Master Consulting
Agreement is amended by deleting it in its entirety and inserting the
following in lieu thereof:
"12.01 The Company shall indemnify, defend, and hold
harmless NBSI and the NBSI Affiliates and their respective
officers, directors, employees, agents, successors and
permitted assigns from and against any and all claims made, or
asserted, or threatened by any third party and all related
losses, expenses, damages, costs and liabilities, including
reasonable attorneys' fees and expenses incurred in
investigation or defense, arising out of or related to the
-2-
<PAGE>
following: (a) any act or omission by the Company or its
employees and agents engaged by the Company in the performance
of the Company's obligations under this Agreement; (b) any
material breach in a representation, covenant or obligation of
the Company contained in this Agreement; (c) the Company's
relationship with its employees or agents or in its capacity as
an employer; or (d) the Company's failure to comply with any
federal, state, or local laws, statutes, regulations, rules,
and ordinances, including but not limited to, non-compliance
with regard to tax matters, hour and wage matters, employee
benefit matters and employee law matters. If the Company
provides any services as requested under Section 1.01 of this
Agreement, the Company agrees to indemnify and hold NBSI and
the NBSI affiliates harmless from and against any and all
liability, damages, claims, losses, debts, demands, costs and
expenses, including reasonable attorney's fees, should the
Company fail to perform any of its obligations under this
Agreement, and such failure to perform causes NationsBank to
default under the obligations under the Master Agreement or any
Lease Agreement.
6. SECTION 13.00. Section 13.01 of the Master Consulting
Agreement is hereby amended in part by revising the first sentence
thereof to read as follows:
"If the Company provides any services as requested under
Section 1.01 of this Agreement, the Company shall secure and
maintain, at its own expense, throughout the entire term of
this Agreement, the following insurance with the companies
satisfactory and acceptable to NBSI and shall furnish to NBSI
certificates evidencing such insurance prior to commencing
work."
7. SECTION 14.01. Section 14.01 of the Master Consulting
Agreement is hereby amended in part by revising the address for notices
to NBSI to read as follows:
If to NBSI:
NationsBanc Services, Inc.
c/o NationsBank, N.A.
400 North Ashley Drive, 13th Floor
Tampa, Florida 33602
Attn: Jan Russell
Facsimile: (813) 224-3613
-3-
<PAGE>
and to:
NationsBanc Services, Inc.
Corporate Contracts and Procurement
127 N. Tryon Street
NC1-018-02-01
Charlotte, NC 28255
8. SECTION 18.01. Section 18.01 of the Master Consulting
Agreement is hereby deleted in its entirety.
9. EFFECTIVE DATE. The modifications contained in this Amendment
shall be deemed to be effective as of March 4, 1997, and shall apply to
the 41st and all subsequent Banking Centers opened by NationsBank under
its Master Agreement with Winn-Dixie.
10. MISCELLANEOUS. Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the Master Consulting
Agreement. Except to the extent expressly amended hereby, the provisions
of the Master Consulting Agreement remain in full force and effect. This
Amendment may be executed in one or more counterparts, each of which
shall be deemed an original, and all of such together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Amendment and affix their respective
seals hereto, all as of the date first set forth above.
(CORPORATE SEAL) FINANCIAL SUPERMARKETS, INC.
ATTEST:_____________________ BY: /s/ J. Alton Wingate
------------------------------------
TITLE:______________________ TITLE: President and CEO
(CORPORATE SEAL) NATIONSBANC SERVICES, INC.
ATTEST:_____________________ BY: /s/ Jan Russell
-----------------------------------
TITLE:______________________ TITLE: Senior Vice President
-4-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000927478
<NAME> COMMUNITY BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,957
<INT-BEARING-DEPOSITS> 769
<FED-FUNDS-SOLD> 5,960
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,282
<INVESTMENTS-CARRYING> 28,719
<INVESTMENTS-MARKET> 29,558
<LOANS> 245,221
<ALLOWANCE> 4,024
<TOTAL-ASSETS> 377,080
<DEPOSITS> 335,545
<SHORT-TERM> 462
<LIABILITIES-OTHER> 7,331
<LONG-TERM> 0
10,622
0
<COMMON> 2,170
<OTHER-SE> 20,950
<TOTAL-LIABILITIES-AND-EQUITY> 377,080
<INTEREST-LOAN> 23,563
<INTEREST-INVEST> 4,435
<INTEREST-OTHER> 706
<INTEREST-TOTAL> 28,704
<INTEREST-DEPOSIT> 13,149
<INTEREST-EXPENSE> 13,191
<INTEREST-INCOME-NET> 15,512
<LOAN-LOSSES> 936
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 18,724
<INCOME-PRETAX> 8,272
<INCOME-PRE-EXTRAORDINARY> 8,272
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,647
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.60
<YIELD-ACTUAL> 5.01
<LOANS-NON> 714
<LOANS-PAST> 533
<LOANS-TROUBLED> 704
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,592
<CHARGE-OFFS> 595
<RECOVERIES> 91
<ALLOWANCE-CLOSE> 4,024
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,024
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from financial
statements incorporated by reference into the Company's annual report on Form
10-K for the year ended December 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000927478
<NAME> COMMUNITY BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,480
<INT-BEARING-DEPOSITS> 208
<FED-FUNDS-SOLD> 8,345
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,418
<INVESTMENTS-CARRYING> 18,654
<INVESTMENTS-MARKET> 18,826
<LOANS> 205,786
<ALLOWANCE> 3,592
<TOTAL-ASSETS> 315,579
<DEPOSITS> 278,709
<SHORT-TERM> 616
<LIABILITIES-OTHER> 8,993
<LONG-TERM> 0
6,177
0
<COMMON> 2,005
<OTHER-SE> 19,078
<TOTAL-LIABILITIES-AND-EQUITY> 315,579
<INTEREST-LOAN> 20,440
<INTEREST-INVEST> 3,391
<INTEREST-OTHER> 634
<INTEREST-TOTAL> 24,465
<INTEREST-DEPOSIT> 11,171
<INTEREST-EXPENSE> 11,236
<INTEREST-INCOME-NET> 13,229
<LOAN-LOSSES> 757
<SECURITIES-GAINS> (14)
<EXPENSE-OTHER> 14,950
<INCOME-PRETAX> 5,913
<INCOME-PRE-EXTRAORDINARY> 5,913
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,044
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 5.02
<LOANS-NON> 1,119
<LOANS-PAST> 445
<LOANS-TROUBLED> 620
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,060
<CHARGE-OFFS> 329
<RECOVERIES> 104
<ALLOWANCE-CLOSE> 3,592
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,592
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This restated financial data schedule contains summary financial information
extracted from financial statements incorporated by reference into the
Company's quarterly reports on Form 10-Q for the quarters ended June 30, 1996,
and September 30, 1996, as subsequently restated, and is qualified in its
entirety by reference to such restated financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000927478
<NAME> COMMUNITY BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 15,570 14,628
<INT-BEARING-DEPOSITS> 23 279
<FED-FUNDS-SOLD> 5,150 11,175
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 43,718 46,717
<INVESTMENTS-CARRYING> 16,067 16,788
<INVESTMENTS-MARKET> 15,918 16,757
<LOANS> 192,509 197,848
<ALLOWANCE> 3,417 3,488
<TOTAL-ASSETS> 284,764 301,414
<DEPOSITS> 256,155 267,344
<SHORT-TERM> 616 1,616
<LIABILITIES-OTHER> 4,330 7,737
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 1,955 1,955
<OTHER-SE> 21,708 22,762
<TOTAL-LIABILITIES-AND-EQUITY> 284,764 301,414
<INTEREST-LOAN> 9,711 15,160
<INTEREST-INVEST> 1,862 2,892
<INTEREST-OTHER> 2 7
<INTEREST-TOTAL> 11,575 18,059
<INTEREST-DEPOSIT> 5,341 8,209
<INTEREST-EXPENSE> 5,369 8,255
<INTEREST-INCOME-NET> 6,206 9,804
<LOAN-LOSSES> 428 624
<SECURITIES-GAINS> 8 (12)
<EXPENSE-OTHER> 6,922 10,588
<INCOME-PRETAX> 2,464 3,869
<INCOME-PRE-EXTRAORDINARY> 2,464 3,869
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,718 2,709
<EPS-PRIMARY> .88 1.38
<EPS-DILUTED> .83 1.31
<YIELD-ACTUAL> 2.41 3.59
<LOANS-NON> 978 998
<LOANS-PAST> 1,014 731
<LOANS-TROUBLED> 629 624
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 3,061 3,061
<CHARGE-OFFS> 107 253
<RECOVERIES> 35 56
<ALLOWANCE-CLOSE> 3,417 3,488
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 3,417 3,488
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This restated financial data schedule contains summary financial information
extracted from financial statements incorporated by reference into the Company's
quarterly reports on Form 10-Q for the quarters ended March 30, 1997, June 30,
1997 and September 30, 1997, as subsequently restated, and is qualified in its
entirety by reference to such restated financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000927478
<NAME> COMMUNITY BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 18,830 21,549 16,335
<INT-BEARING-DEPOSITS> 27 300 717
<FED-FUNDS-SOLD> 9,130 7,185 9,805
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 51,845 52,549 50,518
<INVESTMENTS-CARRYING> 22,867 23,919 25,286
<INVESTMENTS-MARKET> 22,926 24,349 25,670
<LOANS> 208,531 220,600 228,836
<ALLOWANCE> 3,721 3,879 4,056
<TOTAL-ASSETS> 327,411 344,457 347,534
<DEPOSITS> 290,002 305,329 307,142
<SHORT-TERM> 578 539 501
<LIABILITIES-OTHER> 8,346 8,804 7,841
<LONG-TERM> 0 0 0
6,773 6,773 6,773
0 0 0
<COMMON> 2,005 2,020 2,170
<OTHER-SE> 19,707 21,712 23,107
<TOTAL-LIABILITIES-AND-EQUITY> 327,411 344,457 347,534
<INTEREST-LOAN> 5,371 11,062 17,537
<INTEREST-INVEST> 1,242 2,538 3,747
<INTEREST-OTHER> 8 17 78
<INTEREST-TOTAL> 6,621 13,617 21,362
<INTEREST-DEPOSIT> 3,091 6,344 9,652
<INTEREST-EXPENSE> 3,102 6,366 9,684
<INTEREST-INCOME-NET> 3,519 7,251 11,678
<LOAN-LOSSES> 190 389 636
<SECURITIES-GAINS> 0 6 9
<EXPENSE-OTHER> 4,411 8,988 13,161
<INCOME-PRETAX> 2,242 4,690 6,858
<INCOME-PRE-EXTRAORDINARY> 2,242 4,690 6,858
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,512 3,169 4,648
<EPS-PRIMARY> .75 1.58 2.29
<EPS-DILUTED> .70 1.48 2.26
<YIELD-ACTUAL> 1.21 2.36 3.71
<LOANS-NON> 1,003 775 567
<LOANS-PAST> 538 405 679
<LOANS-TROUBLED> 752 606 139
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 3,592 3,592 3,592
<CHARGE-OFFS> 78 152 224
<RECOVERIES> 17 50 72
<ALLOWANCE-CLOSE> 3,721 3,879 4,056
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 3,721 3,879 4,056
</TABLE>
March 23, 1998
TO THE SHAREHOLDERS OF COMMUNITY BANKSHARES, INC.
Dear Friends:
You are cordially invited to attend the Annual Meeting of Shareholders of
Community Bankshares, Inc., which will be held in the Wingate Room in our
Operations Center Annex at 474 North Main Street, Cornelia, Georgia, on
April 8, 1998 at 10:00 a.m.
I hope you are planning to attend the meeting so that you can vote your
shares in person, and become better acquainted with members of our Board
of Directors and our management team. This will also be a good
opportunity for you to hear more about our progress in 1997, as well as
our plans for 1998 and beyond.
Those items of business which will be considered and voted upon this year
are explained in the accompanying Notice of Annual Meeting. Even if you
are planning to attend, please complete the enclosed proxy card and
return it to us as soon as possible. This will assure that your vote
will be counted in the event you are unable to attend, and you will still
be able to vote your shares in person should you attend.
Your support during the past year, as always, was sincerely appreciated.
And, as you can see from our 1997 Annual Report, Community Bankshares had
another record-breaking year. With your continued support, we believe
1998 will be yet another outstanding year for our organization. If you
have any questions about the items to be considered or the 1997 Annual
Report, please let us hear from you.
We look forward to seeing you on Wednesday, April 8th.
Sincerely,
J. Alton Wingate
President & Chief Executive Officer
JAW:wsl
<PAGE>
COMMUNITY BANKSHARES, INC.
448 North Main Street
Cornelia, Georgia 30531
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 8, 1998
Notice is hereby given that the Annual Meeting of Shareholders of
Community Bankshares, Inc. (the "Company") will be held April 8, 1998, at
10:00 a.m. in the Wingate Room of the Operations Center Annex of
Community Bankshares, Inc., at 474 North Main Street, Cornelia, Georgia,
for the purpose of considering and voting upon:
1. The election of 7 persons to constitute the Board of Directors to
serve until the next annual meeting and until their successors are
elected and qualified.
2. Such other matters as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on March 25, 1998
will be entitled to notice of and to vote at the meeting or any
adjournment thereof.
By Order of the Board of Directors
J. Alton Wingate
President & Chief Executive Officer
Cornelia, Georgia
March 23, 1998
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY TO COMMUNITY BANKSHARES, INC., IN THE ENVELOPE PROVIDED, WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY.
<PAGE>
COMMUNITY BANKSHARES, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1998 ANNUAL
MEETING OF SHAREHOLDERS
The undersigned hereby appoints J. Alton Wingate, Dean C. Swanson and
Annette R. Fricks, or any one or more of them with power of substitution
to each, the proxies of the undersigned to vote the stock of the
undersigned at the Annual Meeting of Shareholders of COMMUNITY
BANKSHARES, INC. (the "Company") to be held on April 8, 1998 and any
adjournment thereof:
1. ___ FOR all nominees for directors listed below (except as
marked to the contrary below)
___ WITHHOLD AUTHORITY to vote all nominees listed below
The bylaws provide for seven directors, and the aforesaid proxies are
authorized to vote for the election of the following directors: Steven
C. Adams, Edwin B. Burr, Harry H. Purvis, H. Calvin Stovall, Dean C.
Swanson, George D. Telford, and J. Alton Wingate.
(INSTRUCTION: To withhold authority to vote for any individual
nominee write that nominee's name on the space provided below.)
_________________________________________________________________________
(Over Please)
2. In accordance with their best judgement with respect to any other
matters that may properly come before the meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ELECTION OF THE PERSONS
NAMED IN THE PROXY STATEMENT, AND UNLESS INSTRUCTIONS TO THE CONTRARY ARE
INDICATED IN THE SPACE PROVIDED, THIS PROXY WILL BE SO VOTED.
Please sign and date this Proxy exactly as name appears.
Signature:_________________________________________________________
Date:_________________________________
Signature:_________________________________________________________
Date:_________________________________
NOTE: When signing as attorney, trustee, administrator or guardian,
please give your title as such. In the case of joint tenants, each joint
owner must sign.
